-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IbihdWhTR3a/VovRMqJsOapvqExSE/Z62ywtpqVICSrogoXKlJQHMrnWObVYLyrL 6StRPuP01b7Kn0GxXh5DfQ== 0000718487-99-000013.txt : 19990816 0000718487-99-000013.hdr.sgml : 19990816 ACCESSION NUMBER: 0000718487-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12489 FILM NUMBER: 99689711 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 MAIL ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 10-Q 1 QUARTERLY REPORT OF SPECTRAN CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 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 July 30, 1999, was 7,042,430. 1 Spectran Corporation Consolidated Statements of Operations In thousands except per share amounts (unaudited) Six Months Ended Three Months Ended June 30 June 30, 1999 1998 1999 1998 Net Sales $ 42,966 $ 31,470 $ 22,587 $ 16,358 Cost of Sales 31,547 23,806 16,489 13,805 --------- --------- --------- --------- Gross Profit 11,419 7,664 6,098 2,553 Selling and Administrative Expenses 6,749 6,652 3,666 3,518 Research and Development Costs 1,424 2,581 669 1,406 --------- --------- --------- --------- Income (Loss) from Operations 3,246 (1,569) 1,763 (2,371) --------- --------- --------- -------- Other Income (Expense): Interest Income 126 147 98 33 Interest Expense (1,475) (476) (739) (352) Other, Net (Note 5) 41 1,583 53 741 --------- --------- --------- --------- Other Income (Expense), net (1,308) 1,254 (588) 422 --------- --------- --------- --------- Income (Loss) before Income Taxes and Equity in Joint Venture 1,938 (315) 1,175 (1,949) Income Taxes (Benefit) 756 (136) 458 (775) --------- --------- --------- --------- Net Income (Loss) Before Joint Venture 1,182 (179) 717 (1,174) --------- --------- --------- --------- Joint Venture: Loss from Equity in Joint Venture, (235) (339) (2) (209) less applicable taxes Loss on Sale of Joint Venture, including applicable tax expense of $947 (1336) (1,336) --------- --------- --------- Net Loss on Joint Venture (1,571) (339) (1,338) (209) --------- --------- --------- --------- Net Loss $ (389) $ (518) $ (621) $ (1,383) ========= ========= ========= ========= Net Loss per Common Share (Note 6): Basic and Dilutive $ (0.06) $ (0.07) $ (0.09) $ (0.20) ========= ======== ========== ========== Weighted Average Number of Common Shares Outstanding: Basic and Dilutive 7,004 7,002 7,005 7,002 ========= ========= ========= =========
See accompanying notes to these consolidated financial statements. 2 Spectran Corporation Consolidated Balance Sheets Dollars in thousands June 30, 1999 December 31, 1998 ------------- ----------------- (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $ 7,483 $ 1,690 Trade Accounts Receivable, net 14,861 12,568 Inventories (Note 2) 8,346 8,279 Income Taxes Receivable -- 644 Deferred Income Taxes 1,889 1,889 Prepaid Expenses and Other Current Assets 798 1,036 ---------- ---------- Total Current Assets 33,377 26,106 Investment in Joint Venture (Note 1) -- 3,239 Property, Plant and Equipment, net (Note 3) 67,631 68,495 Other Assets: License Agreements, net 4,035 4,335 Goodwill, net 754 793 Other Long-term Assets 2,413 2,451 ---------- ---------- Total Other Assets 7,202 7,579 ---------- ---------- Total Assets $ 108,210 $ 105,419 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current Maturities of Long-term Debt (Note 4) $ 14,200 $ 3,200 Current Portion of License Fees Payable 1,000 1,250 Accounts Payable 4,755 4,410 Income Taxes Payable 1,652 -- Accrued Defined Benefit Pension Liability 2,322 1,902 Deferred Income Taxes 478 478 Accrued Liabilities 3,827 3,317 ---------- ---------- Total Current Liabilities 28,234 14,557 Long-term Portion of License Fee Payable 2,250 2,750 Long-term Debt (Note 4) 20,800 30,800 Stockholders' Equity: Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 7,004,850 shares and 7,003,850 shares in 1999 and 1998, respectively 700 700 Common Stock, non-voting, $.10 par value; authorized 250,000 shares; no shares outstanding -- -- Paid-in Capital 50,255 50,252 Retained Earnings 5,971 6,360 ---------- ----------- Total Stockholders' Equity 56,927 57,312 ---------- ---------- Total Liabilities & Stockholders' Equity $ 108,210 $ 105,419 ========== ==========
See accompanying notes to these consolidated financial statements. 3 Spectran Corporation Consolidated Statements of Cash Flows Dollars in thousands (unaudited) Six Months Ended 1999 1998 Cash Flows from Operating Activities: Net Loss $ (389) $ (518) Reconciliation of net income to net cash provided by operating activities: Depreciation and Amortization 4,205 2,972 Gain on sale of marketable securities -- -- Loss on disposition of equipment 27 204 Changes in valuation accounts (240) 5,022 Loss in joint venture 235 339 Loss from Sale of Joint Venture 1,336 -- Change in other long-term assets (35) 1 Changes in operating assets and liabilities: Accounts receivable (2,151) (2,927) Inventories 30 (5,283) Prepaid expenses and other current assets 238 (697) Income taxes payable/receivable 1,597 (1,401) Accounts payable and accrued liabilities 525 1,111 --------- --------- Net Cash Provided by (Used in) Operating Activities 5,378 (1,177) --------- --------- Cash Flows from Investing Activities: Acquisition of property, plant and equipment (2,956) (13,024) Proceeds from Sale of Joint Venture 2,367 -- Purchase of marketable securities -- (9,652) Proceeds from sale/maturity of marketable securities -- 16,184 --------- --------- Net Cash Used in Investing Activities (589) (6,492) --------- --------- Cash Flows from Financing Activities: Borrowings of long-term debt 1,000 10,000 Proceeds from exercise of stock options and warrants 4 21 --------- --------- Net Cash Provided by Financing Activities 1,004 10,021 --------- ------ Increase in Cash and Cash Equivalents 5,793 2,352 Cash and Cash Equivalents at Beginning of Period 1,690 445 --------- --------- Cash and Cash Equivalents at End of Period $ 7,483 $ 2,797 ========= =========
See accompanying notes to these consolidated financial statements. 4 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The financial information for the three months and six months ended June 30, 1999 and 1998, is unaudited but reflects all adjustments (consisting solely of normal recurring adjustments) which the Company considers necessary for fair presentation of results for the interim periods. The results of operations for the three months and six months ended June 30, 1999 are not necessarily indicative of the results for the entire year. The consolidated results for the three months and six months ended June 30, 1999 and 1998, include the accounts of SpecTran Corporation (the "Company") and its wholly-owned subsidiaries, SpecTran Communication Fiber Technologies, Inc. ("SpecTran Communication"), SpecTran Specialty Optics Company ("SpecTran Specialty"), and Applied Photonic Devices, Inc. ("APD"), which holds the Company's investment in General Photonics, LLC, a 50-50 joint venture between the Company and General Cable Corporation ("General Cable"). In December 1996, the Company sold certain of the assets of APD to General Cable and then contributed the remaining non-cash assets of APD to General Photonics for a 50% equity interest. The investment in General Photonics was accounted for under the equity method of accounting pursuant to which the Company records its 50% interest in General Photonics' net operating results. Prior to the formation of General Photonics, APD's results of operations, including net sales and expenses, were consolidated with those of the Company. All significant intercompany balances and transactions have been eliminated. On June 30, 1999, APD sold its fifty-percent interest in General Photonics, LLC to BICC General Cable Industries, Inc. (formerly known as General Cable Industries, Inc.). The purchase price paid by BICC General Cable Industries, Inc. for APD's interest in General Photonics was $2.4 million. As part of the transaction, General Photonics repaid a loan to SpecTran for $325,000 and BICC General Cable Industries, Inc. purchased approximately 30,000 kilometers of optical fiber from SpecTran Communication. These financial statements supplement, and should be read in conjunction with, the Company's audited financial statements for the year ended December 31, 1998, as contained in the Company's Form 10-K as filed with the United States Securities and Exchange Commission. 2. INVENTORIES Inventories consisted of (in thousands): June 30, 1999 December 31, 1998 ------------- ----------------- Raw Materials $ 2,471 $ 3,096 Work in Process 2,661 1,277 Finished Goods 3,214 3,906 --------------- --------------- $ 8,346 $ 8,279 ============== =============== 5
3. PROPERTY, PLANT & EQUIPMENT Property, plant and equipment consisted of (in thousands): June 30, 1999 December 31, 1998 ------------- ----------------- Land and Land Improvements $ 978 $ 978 Buildings and Improvements 24,973 24,909 Machinery and Equipment 53,773 48,983 Construction in Progress 14,165 16,220 ------------- ----------- 93,889 91,090 Less Accumulated Depreciation and Amortization 26,258 22,595 ------------- ----------- $ 67,631 $ 68,495 ============= ===========
4. LONG-TERM DEBT Long-term debt consisted of (in thousands): June 30, 1999 December 31, 1998 ------------- ----------------- Revolving Credit Loan Facility at the Lower of Prime or LIBOR plus 1.5% $ 11,000 $ 10,000 Series A Senior Secured Notes at 9.24% Interest 16,000 16,000 Series B Senior Secured Notes at 9.39% Interest 8,000 8,000 ------------ ---------- Total 35,000 34,000 Less current maturities 14,200 3,200 ------------ ---------- $ 20,800 $ 30,800 ============ ==========
In December 1996, the Company sold to a limited number of selected institutional investors an aggregate principal amount of $24.0 million of senior secured notes consisting of $16.0 million of 9.24% interest Series A Senior Secured Notes due December 26, 2003, and $8.0 million of 9.39% interest Series B Senior Secured Notes due December 26, 2004. The Company also has a $20.0 million revolving credit agreement with its principal bank, maturing in April 2000. As of June 30, 1999, the Company had borrowed $11.0 million against the revolving agreement. This was reclassified to current portion of long-term debt as of April 1, 1999. 5. CORNING SETTLEMENT On March 13, 1998, the Company announced the settlement of Corning's obligation to purchase multimode fiber from the Company under a multiyear supply contract the companies entered into on January 1, 1996. Corning has terminated its purchase of multimode fiber from the Company in exchange for a series of cash payments to the Company totaling $4.1 million. For the three months and six months ended June 30, 1998, the Company recognized income on the settlement of approximately $900 thousand and $1.8 million, respectively. 6. COMPUTATION OF LOSS PER COMMON SHARE Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS 128) which has changed the method of computing and presenting earnings per common share. All prior periods presented have been restated in accordance with SFAS 128. This restatement had an immaterial impact on prior periods' earnings per common share amounts calculated under the previous method. 6 Under SFAS 128, primary earnings per common share has been replaced with basic earnings per common share. The basic earnings per share computation is based on the earnings applicable to common stock divided by the weighted average number of shares of common stock outstanding at six and three months ended June 30, 1999 and June 30, 1998. Fully diluted earnings per common share has been replaced with diluted earnings per common share. The diluted earnings per common share computation include the common stock equivalency of options granted to employees under the stock incentive plan. Excluded from the diluted earnings per common share calculation are options granted to employees that are anti-dilutive based on the average stock price for the year. Exercise of options and warrants or conversion of convertible securities is not assumed if the result would be antidilutive, such as when a loss from continuing operations is reported. (dollars and shares in thousands) Six Months Ended Three Months Ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Loss per common share-basic Loss applicable to common stock $ (389) $ (518) $ (621) $(1,383) ========= ======== ====== ======= Weighted average shares outstanding 7,004 7,002 7,005 7,002 ========= ======= ====== ====== Loss per common share-basic $ (0.06) $ (0.07) $(0.09) $ (0.20) ========= ======== ====== ======= Loss per common share-diluted Loss applicable to common share $ (389) $ (518) $ (621) $(1,383) ========= ======== ====== ======= Weighted average shares outstanding 7,004 7,002 7,005 7,002 Plus shares issuable on: Exercise of dilutive options -- -- -- -- --------- --------- ------ -------- Weighted average shares outstanding assuming conversion 7,004 7,002 7,005 7,002 ========= ======= ===== ======= Loss per common share-diluted $ (0.06) $ (0.07) $(0.09) $ (0.20) ========= ======== ====== ========
Options to purchase 716 thousand and 1.1 million shares of common stock were outstanding at the six month period ending June 30, 1999 and 1998 respectively, but were not included in the computation of diluted loss per share because the effect of including such options would be anti-dilutive. 7. BUSINESS SEGMENTS Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information" which has changed the method of reporting information about its businesses. Based upon the criteria described in SFAS 131, the Company now reports three business segments, Optical Fiber, Specialty Products and Cable. All prior periods presented have been restated in accordance with SFAS 131. The Company conducts its operations through two business segments - Optical Fiber and Specialty Products. A third segment, Cable, was sold in December 1996 in conjunction with the formation of General Photonics. SpecTran retained a 50% equity interest in General Photonics through the first half of the year and sold its interest on June 30, 1999. SpecTran's share of General Photonics income(loss) for 1998 and 1999 is reported on the equity method. 7 Optical Fiber develops, manufactures and markets multimode and single-mode fiber for data communications and telecommunications applications. Specialty Products develops, manufactures and markets multimode and single-mode fiber and value-added fiber optic products for industrial, transportation, communication, medical and geophysical applications. Cable develops, manufactures and markets communications-grade fiber optic cable primarily for the customer premises market. Summarized financial information by business segment for the three and six months ended June 30 is as follows (in thousands): REVENUES Six Months ended June 30, Three Months Ended June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Optical Fiber (see A) $ 29,432 $ 22,161 $ 16,154 $ 11,405 Specialty Products 13,534 9,309 6,433 4,953 ----------- -------- ---------- ---------- $ 42,966 $ 31,470 $ 22,587 $ 16,358 =========== ======== ========== ==========
INCOME (LOSS) FROM OPERATIONS 1999 1998 1999 1998 ---- ---- ---- ---- Optical Fiber $ 3,587 $ 1,530 $ 2,493 $ 114 Specialty Products 2,754 (803) 1,317 (1,123) Corporate (3,095) (2,296) (2,047) (1,362) -------- -------- --------- ------ $ 3,246 $(1,569) $ 1,763 $(2,371) ======== ======= ========= ======
ASSETS June 30, December 31, 1999 1998 ---- ---- Optical Fiber $ 73,528 $ 72,447 Specialty Products 19,650 19,953 Cable (Investment in JV) -- 3,458 Corporate 15,032 9,561 ---------- --------- $ 108,210 $ 105,419 ========== =========
A) Due to a change in accounting treatment of certain fiber sales, sales and cost of sales for the second quarter and June year to date 1998 was reduced by $674,000 and $789,000 respectively. This change had no effect on previously reported net income or earnings per share. 8 8. SUBSEQUENT EVENTS On July 15, 1999 SpecTran Corporation ("SpecTran") entered into an Agreement of Merger (the "Agreement of Merger") with Lucent Technologies Inc., a Delaware corporation ("Lucent") and its wholly-owned subsidiary Seattle Acquisition Inc., a Delaware corporation ("Purchaser"). Pursuant to the Agreement of Merger, Purchaser made a tender offer (the "Offer") disclosed in the Tender Offer Statement on Schedule 14D-1 dated July 21, 1999 (as amended or supplemented, the "Schedule 14D-1") filed with the Securities and Exchange Commission (the "Commission") by Lucent and the Purchaser to purchase all outstanding shares of the common stock, par value $.10 per share of SpecTran (the "Shares") at a price of $9.00 per share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase (the "Offer to Purchase") dated July 21, 1999, a copy of which is filed as an Exhibit to the Company's Schedule 14D-9 dated July 21, 1999 and filed with the Commission (as amended or supplemented, the "Schedule 14D-9"). The Agreement of Merger provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Agreement of Merger and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware ("Delaware Law" or the "DGCL"), the Purchaser will be merged with the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will become a wholly owned subsidiary of Lucent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares (i) owned or held in treasury by the Company, (ii) owned by the Purchaser or Parent, (iii) remaining outstanding held by any subsidiary of the Company or Parent or (iv) owned by stockholders who shall have demanded properly and perfected appraisal rights, if any, under Delaware Law) will be canceled and converted automatically into the right to receive the Offer Price (the "Merger Consideration"). The Agreement of Merger is summarized in Section 12 of the Offer to Purchase. A copy of the Agreement of Merger is filed as an Exhibit to the Schedule 14D-9 and is hereby incorporated by reference herein. In addition, attached to the Schedule 14D-9 as Annex A is the Information Statement of the Company (the "Information Statement") which describes, among other things, certain contracts, agreements, arrangements or understandings known to the Company between the Company or its affiliates and (i) certain of the Company's executive officers, directors or affiliates or (ii) certain of Parent's executive officers, directors or affiliates. The Information Statement was furnished to the Company's stockholders in connection with the Purchaser's right (after consummation of the Offer) to designate persons to be appointed to the Board of Directors of the Company other than at a meeting of the stockholders of the Company. The Information Statement is hereby incorporated by reference herein. The Board of Directors of SpecTran has unanimously approved the Offer and the Merger and determined that the terms of the Offer and the Merger are fair to, and in the best interests of the stockholders of SpecTran and unanimously recommends that the stockholders of SpecTran accept the Offer and tender their Shares to the Purchaser pursuant to the terms of the Offer. As of August 4, 1999, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, relating to the purchase of the Shares pursuant to the Offer had expired. 9 9. CONTINGENCIES On November 6, 1998, the Company announced that it would contest a complaint filed in the United States District Court in Boston, MA on October 2, 1998, purportedly as a class action suit. Titled Cruise v. Cannon, et al., the complaint alleges that the Company and three of its current or former officers and directors violated securities laws by misrepresenting the Company's financial condition and financial results during 1998. The suit purports to be a class action on behalf of all individuals who purchased the Company's stock on the open market from February 25, 1998 to July 17, 1998. The suit alleges, among other things, that there were public misrepresentations or failures to disclose material facts during that period which allegedly artificially inflated the price of the Company's common stock in the marketplace. The complaint seeks an undisclosed amount of compensatory damages and costs and expenses, including plaintiff's attorney's fees and such further relief as the Court may deem just and proper. The Company believes the action is totally without merit, believes that it has highly meritorious defenses and it intends to defend itself vigorously. After the announcement of the Agreement of Merger by the Company and Lucent on July 15, 1999, two putative class action suits relating to the Merger were filed in the Court of Chancery for the state of Delaware: Chase v. Harrison et. al., C.A. No. 17312-NC and Airmont Associates et al., v. SpecTran Corporation, et.al., C.A. No. 17314-NC. The lawsuits were filed by plaintiffs claiming to be stockholders of the Company, purportedly on behalf of all the company's stockholders, against the Company, members of the board of directors of the Company and Lucent. The plaintiffs in both lawsuits allege, among other things, that the terms of the proposed Merger were not the result of an auction process or active market check, that $9.00 per share offered by Lucent is inadequate, and that the Company's directors breached their fiduciary duties to the stockholders of the Company in connection with the Agreement of Merger. Both lawsuits seek to have the Merger enjoined, or if the Merger is completed, to have it rescinded and to recover unspecified damages, fees and expenses. The Company and Lucent intend to vigorously oppose these lawsuits. 10 On July 29, 1999, the plaintiff in Chase v. Harrison, et al., Civil Action No. 17312-NC, filed an Amended Class Action Complaint (the "Amended Complaint") in Delaware Chancery Court. In the Amended Complaint, the plaintiff alleges, among other things, that (1) the proposed purchase price is inadequate; (2) the Company's Solicitation/Recommendation Statement on Schedule 14D-9 is misleading and omits material information in that it fails to disclose (a) the Company's financial results for the second fiscal quarter ended June 30, 1999, (b) why the Company's projected financial results, as announced by the Company on May 28, 1999, did not warrant that a substantial premium be paid for the Company relative to the existing market price, (c) information concerning the identity of other bidders for the Company and the terms of any competing bids or expressions of interest, (d) why the Company did not wait until after its third quarter ended September 30, 1999 financial results were available to determine whether Company C would make an offer to acquire the Company, (e) the reasons for Lazard Freres & Co. LLC's determination that the Merger was "fair", (f) the total amount of benefits that each of the Company's executive officers and directors will realize from the Merger, and (g) the value of the Company to Lucent and the benefits Lucent will derive from the Merger, including the equivalent amount that Lucent would have to spend to build the manufacturing capacity that it will be buying from the Company and that Lucent had approved a higher purchase price; and (3) the board of directors of the Company breached its fiduciary duty to the stockholders of the Company to exercise due care, loyalty and candor. The Amended Complaint further alleges that Lucent aided and abetted the breach of fiduciary duty by the individual defendants. The foregoing is qualified in its entirety by reference to the Amended Complaint, a copy of which is filed as an exhibit to the Company's Amendment No. 1 to Schedule 14D-9, dated August 4, 1999 and filed with the Commission on August 5, 1999, and is incorporated by reference herein. Concurrent with the filing of the Amended Complaint, the plaintiff in Chase v. Harrison, et al. petitioned the Delaware Chancery Court for expedited discovery and the scheduling of a hearing on a preliminary injunction. A telephone conference call was held by the Delaware Chancery Court on July 30, 1999, at which time the court declined to permit expedited discovery and declined to schedule a hearing on a preliminary injunction. Instead, the court scheduled a hearing on August 13, 1999 to hear arguments as to whether an order temporarily restraining consummation of the Merger should be issued. This scheduled hearing was subsequently canceled when, by letter dated August 2, 1999, plaintiff's counsel withdrew plaintiff's application for a temporary restraining order. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three and Six Months Ended June 30, 1999 Compared to Three and Six Months Ended June 30, 1998 Second quarter revenues were $22.6 million up 38% from revenues of $16.4 million for the same period last year. Operating income was $1.8 million; up from an operating loss of $2.4 million incurred during the same quarter ended 1998. The 1998 operating loss included one-time charges, including inventory write-downs at the SpecTran Specialty subsidiary. Net income (loss) before joint venture for the second quarter and six months ended June 30, 1999 were $717 thousand and $1.2 million respectively. Both 1999 periods were up from the losses of $1.2 million and $179 thousand for the same periods a year ago. The loss incurred from the Joint Venture for the six month period ended June 30, 1999 was $1.6 million, and was primarily attributable to the loss and associated tax expense incurred from the sale of the Company's joint venture with General Cable, General Photonics. The Company's overall net loss for the quarter was $621 thousand or $.09 per diluted share, compared with a net loss of $1.4 million or $.20 per share for the same period last year. Revenues for the first half of 1999 were $43.0 million, up 36% from $31.5 million recognized during the same period for 1998. Revenue and income from operations increases versus a year ago were offset by the losses incurred as a result of the sale of the Company's interest in General Photonics, a decrease in non-recurring income recorded in 1998 from the settlement of the multi-year Corning supply contract and the increase of interest expense in 1999 associated with servicing the Company's debt. For the six months ended June 30, 1999 SpecTran incurred a net loss of $389 thousand or $.06 per diluted share, compared to a net loss of $518 thousand or $.07 per share for the first half of 1998. Results of Operations The following table sets forth, for the periods indicated, certain financial data as a percentage of net sales:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ---- ---- ---- ---- Net Sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of Sales 73.4 75.6 73.0 84.4 ----------- --------- ----------- ---------- Gross Profit 26.6 24.4 27.0 15.6 Selling and Administrative Expenses 15.7 21.2 16.2 21.5 Research and Development Cost 3.3 8.2 3.0 8.6 ----------- --------- ----------- ---------- Income (Loss) from Operations 7.6 (5.0) 7.8 (14.5) Other Income (Expense), net (3.1) 4.0 (2.6) 2.6 ------------ --------- ------------ ---------- Income (Loss) from Operations before Income Taxes and Joint Venture 4.5 (1.0) 5.2 (11.9) Income Tax Expense 1.8 (0.4) 2.0 (4.7) ----------- ---------- ----------- ----------- Net (Loss) Before Joint Venture 2.7 (0.6) 3.2 (7.2) Net (Loss) from Equity in Joint Venture (0.5) (1.1) -- (1.3) Net (Loss) from sale of Joint Venture (3.1) -- (6.0) -- ------------ --------- ------------ ---------- Net Income (0.9)% (1.7)% (2.8)% (8.5)% ============== ============ ============== ==========
12 Net Sales Net sales of $22.6 million and $43.0 million for the three months ended and six months ended June 30, 1999 were $6.2 million or 38% and $11.5 million or 36% higher than comparable periods of 1998. Sales volume increased at both SpecTran Specialty and SpecTran Communication as compared to last year by 45% and 33% respectively, for the first half ending June 30, 1999. SpecTran Communication's sales in 1999 were favorably affected by the additional capacity added during 1998. Optical fiber price erosion has slowed during the first half of 1999, but some additional deterioration is possible during the second half of the year. SpecTran Specialty continued to benefit from a strong demand during the first half of 1999. Gross Profit Gross profit of $6.1 million and $11.4 million for the three months and six months ended June 30, 1999 was $3.5 million or 139% and $3.8 million or 49% greater than comparable periods in 1998. As a percentage of net sales the gross profit increased to 27% from 16% for the quarter and to 27% from 24% for the year, as compared to 1998 results. Second quarter 1999 margins increased over the same 1998 period primarily due to one-time charges, including inventory write-downs, during the second quarter 1998 coupled with productivity and management improvements implemented in late 1998 at SpecTran Specialty. Margins for the second quarter and year as compared to the same periods last year continue to be affected by pricing pressure for standard communication fiber products. Selling and Administration Selling and administration expenses were essentially flat on a quarter and six-month comparative basis with 1998 at $3.7 million and $6.7 million respectively. As a percentage of sales, selling and administration expenses in 1999 decreased to 16% for both the three months and six months periods compared with 21% for the same periods a year ago. Research and Development Research and development costs for the three months and six months periods ended June 30, 1999 decreased from the same period a year ago by $737 thousand or 52% and $1.2 million or 45% respectively. This decrease is attributable to the realignment of expenses to cost of sales from research and development as a result of 1999 restructuring at SpecTran Specialty coupled with higher levels of research and development resources deployed during 1998 in bringing the HVD production process on line. The Company is continuing its initiative to improve manufacturing productivity and product performance in both multimode and single mode product lines, while developing new performance fiber products and alternative process technologies. Other Income (Expense), net Other income (expense), net was lower, by approximately $1.0 million and $2.6 million for the three months and six months ended June 30, 1999 as compared with the same periods for 1998. This was attributable to the absence of approximately $900 thousand and $1.8 million, respectively, of other income from the Company's 1998 settlement of a multi year supply contract with Corning, which is non-recurring for 1999. The remainder of the differences within other, net for the three month and six month comparison are attributable to a series of miscellaneous adjustments including loss on sale of fixed assets, loan fees and an adjustment for the fair market value of the supplemental retirement programs. Additionally, the Company's interest expense increased $387 thousand or 110% and $999 thousand or 210% for the three months and six months ended 1999 as compared with the same periods for 1998. The Company's interest expense number is net of capitalized interest that is associated with the Company's expansion programs, which offsets interest expense on debt. The Company's interest expense on its long-term debt increased for the quarter and year by $52 thousand and $217 thousand, respectively. Capitalized interest decreased by $335 thousand and $782 thousand respectively. Interest income increased for the quarter by $65 thousand and decreased for the six months period by $21 thousand. 13 Income Taxes A tax provision of 39% was provided for on the Company's operations for both the three months and six months ended June 30, 1999 as compared with a tax benefit associated with the pre-tax loss for the three months and six months ended June 30, 1998. Loss from Equity in Joint Venture The Company realized a loss of $235 thousand and $2 thousand for the three months and six months period ended June 30, 1999 compared with a loss of $339 thousand and $209 thousand for the same periods ended 1998. The Company sold its interest in General Photonics to BICC General Cable Industries, Inc. on June 30, 1999 and recorded a loss and tax expense of $1.3 million. Net Income The net loss for the three months and six months ended June 30, 1999 was $621 thousand and $389 thousand as compared with net loss for the three months and six months ended June 30, 1998 of $1.4 million and $518 thousand. Net loss for 1999 was primarily attributable to the tax loss associated with the Company's sale of its interest in General Photonics, during the second quarter of 1999. Liquidity and Capital Resources As of June 30, 1999, the Company had approximately $7.5 million of cash. Additionally, the Company has a $20.0 million revolving credit agreement with its principal bank maturing in April 2000. As of June 30, 1999 the Company had borrowed $11.0 million against the revolving credit agreement. The Company has a scheduled debt principal repayment of $3.2 million on December 26, 1999. The Company's working capital position at June 30, 1999 was $5.1 million with a current ratio of 1.18 to 1. This is principally due to the reclassification of $11.0 million revolving credit balance from long-term debt to current. 14 During the first six months of 1999 the Company generated $5.4 million in positive cash flow from operating activities and borrowed $1.0 million under its revolving credit agreement. The Company invested $3.0 million in the acquisition of machinery and equipment. The Company is continuing its capacity expansion, which will require approximately $2.0 million in capital expenditures during 1999, resulting in total expenditures for capacity expansion since 1996 of approximately $45.0 million for SpecTran Communication and approximately $12.0 million for SpecTran Specialty, including equipment purchases. When fully operational, the expansion at SpecTran Communication will increase its capacity by more than 100% from 1996 levels. The expansion at SpecTran Specialty increased capacity by more than 50%. The Company intends to continue to finance its capital and operational needs for the remainder of the year through a combination of cash flow from operations and borrowings. The Company has been exploring various financial alternatives, including seeking additional capital or entering into strategic alliances in an attempt to reduce its debt. On July 15, 1999 the Company entered into an Agreement to Merger with Lucent Technologies, Inc. which if consummated will satisfy the Company's long-term cash requirements. The Year 2000 Issue The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's information technology systems (which the Company relies on to monitor and manage its operations, accounting, sales and administrative functions), such as computers, servers, networks, and software ("IT Systems") and other systems that use embedded microchip technology ("Non-IT Systems") that are date sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruption of operations. Similarly, the date-sensitive IT Systems and Non-IT Systems of third party suppliers or customers with whom the Company has material relationships could experience similar malfunctions which could, in turn, have a material adverse impact on the Company. The Company has completed an enterprise-wide assessment of all mission critical IT Systems and Non-IT Systems to evaluate the state of its preparedness for the Year 2000. The Company has established teams by business unit to address the Year 2000 issue. The Company has completed a significant portion of the Non-IT Systems remediation in connection with the recent capacity expansion at both facilities. A significant portion of production equipment was replaced or upgraded as part of this expansion. The Company has revised its estimate for Year 2000 spending down to approximately $0.8 million from $1.0 million. This includes $222 thousand for software, which will be expensed in 1999. The plan calls for remediation to be complete on all systems critical to operate the business by July 1999, with the remediation of the remaining non-critical systems expected to be complete by the end of the third quarter. The Company estimates that it is 93% complete with its remediation efforts for the Year 2000. The costs of the project and the date the Company plans to complete Year 2000 modifications are based on management's best estimates. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not made or are not completely timely, the Year 2000 issue could have a material adverse impact on the operations of the Company. The Company is developing contingency plans in case its remediation efforts are unsuccessful. The Company expects to complete the contingency plans in July 1999 in conjunction with the implementation and testing of the critical business systems. The Company has initiated formal communications with a majority of its significant customers and suppliers to determine their plans to address the Year 2000 issue. While the Company expects a successful resolution of all issues there can be no guarantee that the systems of other companies on which the Company relies will be completed in a timely manner or that these issues would not have a material adverse effect on the Company. 15 Forward Looking Statements This document contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause results to differ materially from expectations, including without limitation, the ability of the Company to market and develop its products, general economic conditions and competitive conditions in markets served by the Company. Forward-looking statements include, but are not limited to, global economic conditions, product demand, competitive products and pricing, manufacturing efficiencies, cost reductions, manufacturing capacity, facility expansions and new plant start up cost, the rate of technology change and other risks. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this filing will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The statement also sets forth the criteria for determining whether a derivative may be specifically designated as a hedge of a particular exposure with the intent of measuring the effectiveness of the hedge in the statement of operations. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities, which amended the effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is currently evaluating SFAS No. 133 and has not determined the impact on the Company's Financial Statements. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 9, "Contingencies," of Notes to Consolidated Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.2 Agreement of Merger, dated as of July 15, 1999, among Lucent, the Purchaser and the Company, incorporated by reference to the Company's Schedule 14D-9, dated July 21, 1999. 99.1 The Company's Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder, incorporated by reference to the Company's Schedule 14D-9, dated July 21, 1999. 99.2 Chase v. Harrison, et al., C.A. No. 17312-NC, Complaint, filed in the Court of Chancery of the State of Delaware in and for New Castle County, incorporated by reference to the Company's Amendment No. 1 to Schedule 14D-9, dated August 4, 1999 and filed with the Commission on August 5, 1999. 99.3 Chase v. Harrison, et al., C.A. No. 17312-NC, Amended Class Action Complaint, filed in the Court of Chancery of the State of Delaware in and for New Castle County, incorporated by reference to the Company's Amendment No. 1 to Schedule 14D-9, dated August 4, 1999 and filed with the Commission on August 5, 1999. 99.4 Airmont Associates et al., v. SpecTran Corporation, et al., C.A. No. 17314-NC, filed in the Court of Chancery of the State of Delaware in and for New Castle County, incorporated by reference to the Company's Amendment No. 1 to Schedule 14D-9, dated August 4, 1999 and filed with the Commission on August 5, 1999. (b) Reports on Form 8-K Current Report on Form 8-K dated July 14, 1999 with Exhibit 2.1 - Agreement among BICC General Cable Industries, Inc., Applied Photonic Devices, General Photonics, LLC, SpecTran Corporation and General Cable Corporation dated June 30, 1999. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPECTRAN CORPORATION (Registrant) Date: August 16, 1999 BY: /s/ Charles B. Harrison Charles B. Harrison President and Chief Executive Officer Date: August 16, 1999 BY: /s/ George J. Roberts George J. Roberts Senior Vice President, Chief Financial Officer and Chief Accounting Officer 18 EX-27 2 FDS --
5 (Replace this text with the legend) 0000718487 SpecTran Corporation 1,000 U.S. Dollars 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 7,483 0 15,241 380 8,346 33,377 93,889 26,257 108,210 28,234 0 0 0 700 0 108,210 42,966 42,966 31,547 8,173 0 0 1,475 1,164 1,552 0 0 0 0 (389) (.06) (.06)
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