<PAGE> 1
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 Commission File Number 1-4289
GTI CORPORATION
Delaware IRS ID# 05-0278990
9171 Towne Centre Drive, Suite 460
San Diego, California 92122
Telephone (619) 546-0531
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
--- ---
As of May 1, 1995, the registrant had only one class of Common Stock, par value
$.04 per share, of which there were 8,919,600 shares outstanding.
Page 1 of 13
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GTI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the three-months ended
--------------------------
March 31, March 31,
1995 1994
------- -------
<S> <C> <C>
Sales $36,192 $30,012
Cost of sales 25,798 20,790
Selling, general & administrative expense 9,962 7,478
------- -------
Operating profit 432 1,744
Other expense (income), net 248 (68)
------- -------
Income before income taxes and
minority interest 184 1,812
Provision for income taxes 40 462
Minority interest (47) 49
------- -------
Net income $ 191 $ 1,301
======= =======
Earnings per share of common stock and
common stock equivalent:
Primary and fully dilutive $ 0.02 $ 0.13
======= =======
Weighted average number of shares 10,753,000 10,205,000
========== ==========
Note: Earnings per share is based upon weighted average number of shares
outstanding and all dilutive common stock equivalents, which include
stock options and cumulative convertible preferred stock.
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE> 3
GTI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1995 1994
----------- ------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,770 $ 4,226
Accounts receivable, less allowances of $475
and $306, respectively 23,066 24,505
Inventories 28,944 25,777
Prepaid expenses and other 2,736 1,885
-------- --------
Total current assets 56,516 56,393
Property, plant and equipment, net 18,928 17,402
Goodwill, less amortization of $4,547 and $4,081,
respectively, and other assets 47,433 29,380
-------- --------
$122,877 $103,175
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 8,660 $ 1,655
Current portion of note payable 1,000 -
Accounts payable, accrued and other liabilities 17,955 21,523
Acquisition liability 500 500
-------- --------
Total current liabilities 28,115 23,678
Notes payable and other non-current liabilities 5,529 1,373
-------- --------
Minority interest in subsidiaries 1,440 561
-------- --------
Stockholders' equity:
Preferred stock, $35.00 cumulative convertible,
issued and outstanding 8,110 shares 8,110 8,110
Common stock, issued and outstanding
8,919,600 and 8,459,350 shares, respectively 355 339
Additional paid in capital 43,396 34,567
Retained earnings 34,857 34,737
Treasury stock, 250,000 shares at cost - (1,040)
Cumulative translation adjustments 1,075 850
-------- --------
87,793 77,563
-------- --------
$122,877 $103,175
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE> 4
GTI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three-months ended
--------------------------
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 191 $ 1,301
Adjustments to reconcile net income to
net cash (used) provided by operating activities:
Depreciation and amortization 1,658 1,173
Minority interest in subsidiaries (47) 49
Changes in assets and liabilities:
Accounts receivable 3,117 (40)
Inventories (1,630) (938)
Prepaid expenses and other assets (949) (193)
Accounts payable, accrued and other liabilities (6,206) 802
-------- -------
Net cash (used) provided by operating activities (3,866) 2,154
-------- -------
Cash flows from investing activities:
Purchases of plant and equipment (1,403) (976)
Business acquisition, net of cash acquired (19,031) -
-------- -------
Net cash used by investing activities (20,434) (976)
-------- -------
Cash flows from financing activities:
Borrowings on lines of credit, net 7,055 999
Borrowings on note payable 5,000 -
Payments on note payable (250) -
Proceeds from issuance of common stock 9,885 214
Preferred stock cash dividend (71) (71)
-------- -------
Net cash provided by financing activities 21,619 1,142
-------- -------
Effect of exchange rate on cash 225 28
-------- -------
Net (decrease) increase in cash and cash equivalents (2,456) 2,348
Cash and cash equivalents at beginning of period 4,226 10,037
-------- -------
Cash and cash equivalents at end of period $ 1,770 $12,385
======== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE> 5
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 - Basis Of Presentation
The unaudited interim consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994. In the opinion of management, such consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position, results of operations and cash flows. The consolidated results of
operations for the three-month period ended March 31, 1995 may not be
indicative of the results that may be expected for the year ended December 31,
1995.
The consolidated financial statements include the accounts of GTI Corporation,
its wholly-owned subsidiary ESCO Sales, Inc., and its majority-owned
subsidiaries Valor Electronics, Inc. and Promptus Communications, Inc.
("Promptus"). All significant intercompany transactions and account balances
are eliminated in consolidation.
Note 2 - Supplemental Statements of Cash Flows Disclosure
Supplemental cash flow information (unaudited) for the three-months ended March
31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
Three-months ended
------------------------------------------
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Interest paid $ 265 $ 10
======== ====
Income taxes paid $ 1,245 $347
======== ====
Business acquisition, net of cash acquired:
Working capital, other than cash acquired $ (644) $ -
Plant and equipment (1,314) -
Purchase price in excess of the net assets
acquired (17,172) -
Other assets (1,183) -
Noncurrent liabilities 1,282 -
-------- ----
Net cash used to acquire a business $ 19,031 $ -
======== ====
</TABLE>
5
<PAGE> 6
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 3 - Business Combination
In January 1995, the Company completed the acquisition of 72% of the issued and
outstanding capital stock of Promptus, for approximately $19,300 in cash,
excluding acquisition costs of approximately $200. Promptus is engaged in the
development, manufacturing, and marketing of high-speed, digital network access
products. The acquisition was financed through a combination of secured bank
borrowings of approximately $9,800 and proceeds (net of issuance costs) from
the issuance of 650,000 shares of common stock (of which 250,000 shares were
from treasury stock) of approximately $9,700. In addition to the purchase
price, the Company provided approximately $1,000 to Promptus employees in the
form of secured promissory notes for use in the exercise of stock options,
which occurred at closing of the transaction.
The acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based
on their estimated fair market value. This resulted in approximately $17,172
of costs in excess of the net assets acquired which are being amortized using
the straight line method over 20 years. Promptus results of operations have
been included in the Company's consolidated results of operations effective
January 1, 1995.
The following summarized unaudited pro forma results of operations for the
three-months ended March 31, 1994 assume the acquisition occurred as of the
beginning of the respective period. The pro forma information includes
adjustments for: (i) the amortization of goodwill; (ii) the interest expense
related to the borrowings associated with the acquisition; and (iii) the
increase in common stock associated with the financing of the acquisition. The
following unaudited pro forma information is based on historical information
and is not necessarily indicative of the actual results that would have
occurred or is it indicative of future results of operations of the combined
companies:
<TABLE>
<CAPTION>
March 31, 1994
--------------
<S> <C>
Net sales $31,787
=======
Net income $ 437
=======
Net income per common share $ 0.04
=======
</TABLE>
6
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GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 4 - Contingencies
Concurrent with the acquisition, the Company and the minority shareholders of
Promptus entered into an agreement to govern the contingent purchase of the
remaining 28% of the outstanding capital stock of Promptus. Under the
agreement, beginning in January 1997 and each year thereafter through January
1999, the minority shareholders of Promptus have the right but not the
obligation to require the Company to acquire the remaining shares in predefined
percentage increments; and the Company has the right but not the obligation to
purchase the remaining shares, with the price to be paid base upon a
predetermined formula using a combination of forecasted and actual results of
Promptus for the period January 1, 1997 through December 31, 1999. The
percentage increment established for the first mutual put/call option in
January 1997 may not exceed 30% of the minority shares. In management's
opinion, there is no assurance that the minority shareholders will exercise
their rights nor is it presently possible to assess the probability of whether
the Company will purchase the minority shares. In addition, due to the
determinants involved in establishing a price for the minority shares, it is
not presently possible to estimate the price at which such shares might be
purchased. Accordingly, no accounting recognition has been provided for this
contingency in the accompanying financial statements.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Quarter Ended March 31, 1995:
Results of Operations
For the first quarter ended March 31, 1995, the Company reported sales of
$36,192,000, an increase of 20.6% from $30,012,000 reported for the first
quarter ended March 31, 1994. Compared with the fourth quarter of 1994, sales
for the first quarter of 1995 decreased $3,469,000 or 8.7%. First quarter 1995
sales increased in all three of the Company's business segments as compared to
the prior years first quarter. This increase is primarily attributable to the
networking products segment which includes continued strong unit sales of Valor
Products as well as the inclusion of sales of Promptus Products effective
January 1, 1995. With the addition of Promptus Products, this segment
accounted for approximately 74% compared to 70% (without Promptus Products) for
the first three months of 1994. Sales for the electronic components segment
and distribution products segment increased moderately over the prior year
first quarter. Sales by the Company's international operations remained strong
for the first quarter of 1995, representing 33.0% of total Company sales,
compared to 23.8% for the first quarter of 1994. Substantially all of the
sales growth from international operations is the result of increased Valor
Product sales in Europe and the Pacific Rim.
Networking products segment sales for the first quarter of 1995 were
$26,796,000, an increase of 26.5% over the same quarter in 1994. Sales of
Valor Products represented $23,875,000 of this segment s sales, an increase of
12.8% over the year ago period, while sales of Promptus Products represented
$2,291,000. The growth in sales of Valor Products reflect continued strong
unit demand for magnetics-based components for LAN applications. While
Promptus sales for the first quarter of 1994 were not included in the Company's
results for the first quarter of 1994, Promptus sales for the first quarter of
1995 increased 65.5% from the same quarter in 1994. The growth in Promptus
Product sales was due to increased unit volume from higher sales across all
OASIS product lines to OEMs and resellers. Compared with the fourth quarter of
1994, first quarter sales of Valor Products decreased 19.7%. This sales
decrease from the fourth quarter was substantially all volume related (as
opposed to pricing related) and resulted from management actions to realign
shipments to higher-margin product orders.
Electronic component segment sales for the first quarter 1995 were $4,417,000,
an increase of $218,000 or 5.2% from the same period last year. The increase
in sales for this segment is principally due to increased sales of component
piece-parts for the worldwide diode market and specialty welded resistor
components.
Distribution product segment sales for the first quarter of 1995 increased 7.4%
to $4,979,000 from $4,638,000 reported for the same period in the prior year.
The increase in sales is primarily attributable to new accounts in Arizona and
Colorado.
8
<PAGE> 9
Cost of sales as a percent of sales was 71.3%, 69.3%, and 79.6%, for the first
quarter of 1995, the first quarter of 1994, and the fourth quarter of 1994,
respectively, and resulted in gross margins of 28.7%, 30.7%, and 20.4%,
respectively. The decrease in gross margins as a percent of sales from the
first quarter of the prior year was primarily the result of lower average
selling prices for Valor Products, principally 10Base-T filters, partially
offset by the inclusion of higher-margin Promptus Products. The improvement in
gross margins from the fourth quarter resulted primarily from the combination
of a favorable mix towards lower-cost-higher-margin Valor Products,
manufacturing efficiencies gained by realignment of production for higher
margin Valor Products, and sales of Promptus Products which carry higher
margins than networking components. Cost of sales and gross profit dollars
increased for the first quarter as compared to the same period in 1994 due
primarily to the increased unit sales associated with Valor Products.
Selling, general and administrative expenses for the first quarter were
$9,962,000, or 27.5% of sales, compared to $7,478,000, or 24.9% of sales, for
the first quarter of 1994. These expenses increased in dollar amount
principally due to the inclusion of Promptus' financial results effective
January 1, 1995, and, to a less extent, expenses associated with increased
sales across all business segments. The first quarter impact from selling,
general, and administrative expenses incurred by Promptus and the amortization
of goodwill associated with the acquisition of Promptus amounted to $1,747,000,
and $215,000, respectively. While Promptus selling, general and administrative
expenses for the first quarter of 1994 were not included in the Company's
results for the first quarter of 1994, these expenses for Promptus during the
first quarter of 1995 increased approximately 30% from the same quarter in
1994. Substantially all of this increase is associated with the addition of
sales and marketing personnel. The increase in selling, general and
administrative expenses as a percentage of sales is primarily the result of the
low base of sales for Promptus Products in the first quarter. The Company
believes that these expenses will continue to increase in dollar amount but may
vary as a percent of future sales.
Other expense (net) for the current quarter was $248,000 compared with income
of $68,000 for the same period one year ago. The net decrease in other income
compared to the first quarter of 1994 resulted from increased borrowings to
finance the Promptus acquisition. During the first quarter of 1994, no amounts
were outstanding on the credit facilities.
The provision for income taxes was incurred at an effective rate of 21.7% in
the first quarter compared to 25.5% for the first quarter of 1994. The
Company's effective tax rate is lower than the statutory United States rate due
to lower tax rates on the earnings of foreign operations.
Due to the above factors, net income for the first quarter of 1995 decreased to
$191,000 or 85.3% from $1,301,000 reported one year ago.
9
<PAGE> 10
Backlog at March 31, 1995, was $38,655,000, compared to $25,313,000 at March
31, 1994, and $24,509,000 at December 31, 1994. Backlog for the Valor Products
portion of the networking products segment was $23,308,000 at March 31, 1995,
compared to $16,249,000 at March 31, 1994, and $17,731,000 at December 31,
1994. The Valor Products backlog for the first quarter continues to reflect a
significant increase in unit orders compared to one year ago as well as the
prior quarter-end. The Company's future performance on a quarter-to-quarter
basis will be affected by the volume, mix and timing of orders received.
Liquidity and Capital Resources
The Company is currently satisfying its working capital and capital expenditure
requirements through internally generated cash from operations and bank
borrowings. The ratio of current assets to current liabilities was 2.0 to 1 on
March 31, 1995, compared to 2.4 to 1 on December 31, 1994. Net cash used by
operations for the first three months of 1995 was $3,866,000 compared to cash
provided by operations of $2,154,000 for the first three months of 1994. This
decline is attributable to the decrease in net income from the comparable
period in 1994, an increase in inventories to support production volume
requirements for the networking products segment and a decrease in accounts
payable, accrued and other liabilities offset by a decrease in accounts
receivable associated with increased collections.
In the first three months of 1995, the Company made capital expenditures
approximating $1,403,000. These expenditures were primarily for equipment to
support production capacity for Valor Products. The Company anticipates that
additional capital expenditures of approximately $7,000,000 will be made during
the balance of 1995, largely for manufacturing and process engineering
equipment for the networking products segment, principally Valor Products.
During the first quarter of 1995, the Company completed its acquisition of
approximately 72% of the outstanding capital stock of Promptus for
approximately $19,300,000, excluding acquisition costs of approximately
$200,000. The Company financed the acquisition of Promptus through a
combination of bank borrowings of approximately $9,800,000 and the issuance of
650,000 shares of common stock of approximately $9,700,000, net of issuance
costs.
Management believes that funds on hand, those generated by operations and
available through its lines of credit with a domestic bank for approximately
$10.0 million and a foreign bank of approximately $2.2 million will be
sufficient to finance working capital and currently projected capital
expenditure requirements at least through the next twelve months. As of
March 31, 1995, outstanding borrowings from a domestic bank totaled
$6.9 million based on an eligible base of $10.0 million and $1.7 million
from a foreign bank based on an eligible base of $2.2 million. As of
May 5, 1995, outstanding borrowings from a domestic bank totaled $7.3 million
based on an eligible base of $10.0 million and $1.95 million from a foreign
bank based on an eligible base of $2.2 million.
10
<PAGE> 11
Dividends on the Company's 8,110 shares of outstanding $35.00 cumulative
convertible preferred stock accrue at an annual rate of $35.00 per share,
payable quarterly. In the first three months ended March 31, 1995, cash
dividends totaling $71,000 were paid.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K
Report on Form 8-K, dated January 6, 1995, relating to the
acquisition of Promptus Communications, Inc.
12
<PAGE> 13
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.
GTI CORPORATION
---------------
(Registrant)
Date: May 9, 1995
------------------------------
By: /s/ Douglas J. Downs
----------------------------------
Douglas J. Downs
Vice President Finance and Treasurer
(Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,770
<SECURITIES> 0
<RECEIVABLES> 23,541
<ALLOWANCES> 475
<INVENTORY> 28,944
<CURRENT-ASSETS> 56,516
<PP&E> 37,561
<DEPRECIATION> 18,633
<TOTAL-ASSETS> 122,877
<CURRENT-LIABILITIES> 28,115
<BONDS> 3,750
<COMMON> 355
0
8,110
<OTHER-SE> 79,328
<TOTAL-LIABILITY-AND-EQUITY> 122,877
<SALES> 36,192
<TOTAL-REVENUES> 36,192
<CGS> 25,798
<TOTAL-COSTS> 9,962
<OTHER-EXPENSES> 248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 184
<INCOME-TAX> 40
<INCOME-CONTINUING> 191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 191
<EPS-PRIMARY> .02
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</TABLE>
