<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996 Commission File Number 1-4289
GTI CORPORATION
Delaware IRS ID# 05-0278990
9715 Business Park Avenue
San Diego, California 92131-1642
Telephone (619)537-2500
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, 1996, the registrant had only one class of Common Stock, par value
$.04 per share, of which there were 8,973,475 shares outstanding.
This report on Form 10Q contains 12 pages.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GTI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
-------------------------------------
March 30, March 31,
1996 1995
------------ ------------
<S> <C> <C>
Sales $ 30,136 $ 27,015
Cost of sales 22,592 18,986
Selling, general & administrative expense 9,880 8,122
------------ ------------
Operating loss (2,336) (93)
Other expense (income), net (34) 257
------------ ------------
Loss from continuing operations
before income taxes and minority interest (2,302) (350)
Income tax benefit (300) (81)
Minority interest income (364) (47)
------------ ------------
Loss from continuing operations (1,638) (222)
Income from discontinued operations,
net of income taxes -- 413
------------ ------------
Net (loss) income (1,638) 191
Dividend requirement on preferred stock (71) --
============ ============
Net income (loss) applicable to common stockholders $ (1,709) $ 191
============ ============
Earnings (losses) per common share:
Continuing operations $ (0.19) $ (0.02)
Discontinued operations -- 0.04
============ ============
$ (0.19) $ 0.02
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
GTI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 30, December 31,
1996 1995
--------- ---------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,904 $ 2,553
Accounts receivable, net of allowance of $518
and $297, respectively 13,463 22,257
Inventories 29,377 31,318
Prepaid expenses and other assets 5,250 4,036
Net assets of discontinued operations -- 3,623
--------- ---------
Total current assets 49,994 63,787
Property, plant and equipment, net 17,445 17,109
Goodwill, less amortization of $4,745 and $4,360,
respectively, and other assets 41,112 39,912
--------- ---------
$ 108,551 $ 120,808
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 2,996 $ 4,234
Accounts payable, accrued and other liabilities 15,846 24,776
--------- ---------
Total current liabilities 18,842 29,010
Deferred income taxes and other liabilities 2,433 2,367
Minority interest in subsidiary 72 436
Stockholders' equity:
Preferred stock, $35.00 cumulative convertible,
issued and outstanding 8,110 shares 8,110 8,110
Common stock, issued 8,973,475 and
8,973,475 shares, respectively 359 359
Additional paid in capital 44,082 44,082
Retained earnings 34,690 36,399
Cumulative translation adjustments (37) 45
--------- ---------
87,204 88,995
--------- ---------
$ 108,551 $ 120,808
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
GTI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the three-months ended
------------------------------
March 30, March 31,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 1,638) ($ 222)
Adjustments to reconcile net loss to net cash
provided (used) by continuing operations:
Depreciation and amortization 1,663 1,601
Minority interest in subsidiary (364) (47)
Income from discontinued operations -- 413
Changes in assets and liabilities:
Accounts receivable 8,794 3,392
Inventories 1,941 (1,103)
Prepaid expenses and other assets (705) (858)
Accounts payable, accrued liabilities and other liabilities (9,206) (6,882)
-------- --------
Net cash provided (used) by continuing operations 485 (3,706)
Net cash used by discontinued operations (347) (160)
-------- --------
Net cash provided (used) by operating activities 138 (3,866)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,614) (1,375)
Capital expenditures of discontinued operations -- (28)
Proceeds from sale of discontinued business 2,218 --
Business acquisition, net of cash acquired -- (19,031)
-------- --------
Net cash provided (used) by investing activities 604 (20,434)
Cash flows from financing activities:
Borrowings on lines of credit, net (1,238) 7,055
Borrowings on note payable -- 5,000
Repayments on note payable -- (250)
Issuance of common stock -- 9,885
Preferred cash dividend (71) (71)
-------- --------
Net cash provided (used) by financing activities (1,309) 21,619
-------- --------
Effect of exchange rate on cash (82) 225
-------- --------
Net decrease in cash and cash equivalents (649) (2,456)
Cash and cash equivalents at beginning of period 2,553 4,226
-------- --------
Cash and cash equivalents at end of period $ 1,904 $ 1,770
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 1 - Basis Of Presentation
The unaudited interim condensed 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. The Company believes that the disclosures
contained herein are adequate to make the consolidated financial information not
misleading. In the opinion of management, these condensed 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. These interim condensed 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, 1995. The condensed consolidated
statements of income for the three months ended March 30, 1996 may not be
indicative of the expected results for the year ended December 31, 1996.
The condensed consolidated financial statements include the accounts of GTI
Corporation (the "Company"), its wholly-owned subsidiary Valor Electronics, Inc.
("Valor") and its majority-owned subsidiary Promptus Communications, Inc.
("Promptus"). All significant intercompany transactions and account balances are
eliminated in consolidation.
Effective January 1, 1996, the Company has changed its quarterly period end
dates. The future quarterly period end dates will be the close of business on
the thirteenth Saturday of every quarter. The Company's year end will continue
to be December 31. Prior period amounts have not been restated due to the
immaterial amounts involved.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, which
provides companies the option to account for employee stock compensation awards
based on their estimated fair value at the date of grant resulting in a charge
to income in the period the awards are granted or to present pro forma footnote
disclosure describing the effect to the Company's net income and net income per
share data. The Company has adopted the pro forma footnote disclosure option.
Note 2 - Supplemental Statements of Cash Flows Disclosure
Supplemental cash flow information (unaudited) for the three-months ended March
30, 1996 and March 31, 1995 are summarized as follows:
March 30, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
Interest paid $ 64 $ 265
====== ======
Income taxes paid $2,387 $1,245
====== ======
5
<PAGE> 6
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 2 - Supplemental Statements of Cash Flows Disclosure (Continued)
<TABLE>
<CAPTION>
March 30, 1996 March 31, 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
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>
Note 3 - Business Disposal
In February 1996, the Company completed the divestiture of Esco, Sales, Inc. and
Electronic Supply Corporation (collectively "Esco") for approximately $4.3
million. The Company received approximately $2.2 million in cash at the closing,
a $200 receivable due upon the buyer's and seller's mutual agreement of Esco's
closing balance sheet, and a $1.9 million promissory note due in equal
installments plus interest over six years commencing in August 1996.
Note 4 - Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
March 30, 1996 December 31, 1995
-------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Raw materials and supplies $10,713 $10,604
Work in process 6,796 10,574
Finished goods 11,868 10,140
------- -------
Total inventories $29,377 $31,318
======= =======
</TABLE>
6
<PAGE> 7
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 5 - Contingencies
Concurrent with the Promptus acquisition, the Company and the minority
shareholders of Promptus entered into an agreement to govern the contingent
purchase of the remaining 29% 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 based 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.
In December 1995, a class-action lawsuit was filed in the United States District
Court, Southern District of California, against the Company and certain of its
officers and directors alleging violations of the Securities Exchange Act of
1934. Specifically, the complaint asserts, among other claims, that the Company
artificially inflated the value of its stock by making false and misleading
statements about expected financial results. The plaintiffs seek an unspecified
amount of damages based upon the decrease in market value of the Company's
stock. The Company has filed its initial response to the complaint and intends
to defend this action vigorously. Based upon its present understanding of the
facts, the Company believes it has meritorious defenses to the claims alleged.
Because of the outcome of the claims are uncertain at this time, no provision
for any liability that may result upon adjudication has been made in the
consolidated financial statements.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Dollar amounts are expressed in thousands, except per share amounts.
Quarter Ended March 30, 1996:
Results of Operations
For the first quarter ended March 30, 1996, the Company reported sales of
$30,136, an increase of 11.6% from $27,015 for the same period ended March 31,
1995, and a decrease of $3,670 or 10.9% compared to the fourth quarter of 1995.
The year-over-year increase in sales is attributable to improved average selling
prices for Valor LAN magnetics-based components ("Valor Products"). Unit growth
for Valor Products was essentially unchanged from the first quarter in the prior
year. The decrease in sales from the first quarter in 1996 compared to the
fourth quarter in 1995 is a result of a reduction in unit shipments of Valor
Products. Valor Products sales for the first quarter of 1996 were $26,618, an
increase of 10.5% over the same quarter in 1995. Valor Products sales for the
first quarter of 1996 decreased approximately 11.3% from the fourth quarter of
1995. Promptus Products sales for the first quarter of 1996 were $3,518, an
increase of 20.4% over the same quarter in 1995. The growth in Promptus Products
sales is due to increased unit volume across all product lines offset by lower
average selling prices principally for Network Systems. Promptus Products sales
for the first quarter of 1996 decreased approximately 7.2% from the fourth
quarter of 1995. This decrease is a result of decreased unit shipments of
Network Access Cards over the sequential quarter. Sales to foreign customers
remained strong for the first quarter of 1996, representing 50.3% of total
Company sales, compared to 39.3% for the first quarter of 1995. This increase is
primarily attributed to a significant increase in sales to Valor Product's
European customers as well as a year-to-year decrease in Valor Product's
domestic United States sales.
Two Valor Product's OEM customers collectively accounted for 32.2% and 37.6% of
consolidated and Valor Product's sales, respectively. Although no single
Promptus Product customer accounts for 10% of consolidated revenues, two OEM
customers collectively accounted for approximately 45.2% of Promptus Product's
revenues for the three-months ended March 30, 1996. The sales percentage from
Valor Product's and Promptus Product's OEM customers has historically fluctuated
and may continue to vary in future periods. Management believes that future
sales concentration to these customers is likely to continue; consequently, such
concentration may adversely affect both average selling prices and future sales
growth.
Consolidated gross margins as a percent of sales decreased 4.7% basis points for
the first quarter ended March 30, 1996 to 25.0%, compared to 29.7% for the same
quarterly period in 1995. Gross margins as a percent of sales for Valor Products
were 22.3% and 26.9%, respectively. This decrease in consolidated and Valor
Products gross margins as a percentage of sales is attributable to a $760
provision for costs associated to planned process and design engineering changes
to existing products and the related impact on affected product inventories
(initiated in March 1996), and, to a lessor extent, inefficient recovery of
manufacturing costs due to lower than expected production volumes in the period.
In addition, Promptus Product's gross margin as a percentage of sales decreased
8
<PAGE> 9
approximately 7.2% due to reduced average selling prices of Network System
products to one significant OEM customer. Based on Valor Product's current
fixed-cost structure, if future volumes manufactured are significantly less than
anticipated, the actual cost per unit and gross margins could be materially and
adversely affected.
Selling, general and administrative expenses for the first quarter of 1996 were
$9,880 or 32.8% of sales, compared to $8,122 or 30.1% of sales for the first
quarter of 1995. These expenses increased in percentage and dollar terms
principally due to Promptus Product's increased selling, marketing, and
engineering infrastructure costs as well as higher Valor Product's selling
costs. The Company believes that Promptus Product's selling, general and
administrative expense may continue to vary as a percentage of future sales
until Promptus Product's generates and sustains a base of sales sufficient to
support the current and future level of spending.
Additionally, in April 1996 management initiated actions to reduce worldwide
headcount by approximately 140 employees. Due to the employee reduction, the
Company anticipates recording a charge to income during the three-months ended
June 29, 1996 of approximately $650 or $0.07 per common share.
Other income, net, for the first quarter of 1996 increased $291 from $257 other
expense, net, for the same quarter in 1995. The increase in other income during
the first quarter of 1996 from the same quarter in 1995 is primarily due to the
reduction in interest expense associated with the repayment of a note payable in
December 1995 and a significant paydown of bank credit facilities in December
1995 and February 1996. The interest income for the first quarter of 1996 is due
to interest income from the Company's average cash balance and interest earned
on the notes receivable obtained from the sale of the divested businesses offset
by interest expense associated with the Company's average outstanding balance on
certain bank credit facilities.
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 and that the
Company does not currently benefit from Promptus Product's operating losses. The
decrease in the effective rate is due to increased United States statutory based
losses in the current quarterly period over the same quarter in the prior year
offset by profitability in foreign jurisdictions with lower tax rates than the
United States.
The increase in the loss from continuing operations and loss per common share
for the first quarter of 1996 of approximately $1,416 and $0.17, respectively,
to $1,638 and $0.19, respectively, from the comparable period one year ago, is
primarily due to the Valor Products inventory provision of approximately $760
(pre-tax) and an increase in Promptus Products dilution, net of minority
interest income and goodwill amortization of approximately $700 to approximately
$1,200. Additionally, the loss per share of common stock for the first quarter
of 1996 excludes the anti dilutive impact of the assumed converion of the
Company's cumulative convertible preferred stock, which is convertible into
1,900,287 shares of common stock and includes the associated preferred dividend
to arrive to net loss applicable to common shareholders.
The decrease in income from discontinued operations of $413 is a result of the
sale of the electronic components and equipment segment and the electronic
supply segment in December 1995 and February 1996, respectively. The electronic
supply segment's operations for the first quarter of 1996 were essentially
break-even, net of income taxes.
9
<PAGE> 10
The net income (loss) and income (loss) per common share for the first quarter
of 1996 was $(1,638) and $(0.19), respectively from $191 and $0.02,
respectively, for the comparable period one year ago.
Backlog at March 30, 1996, was $26.1 million, compared to $29.0 million at March
31, 1995, and $29.0 million at December 31, 1995. Backlog for Valor Products was
$25.4 million at March 30, 1996, compared to $23.3 million at March 31, 1995,
and $25.8 million at December 31, 1995. Valor Products backlog for the first
quarter reflects, in part, longer lead times from certain customers as compared
to the backlog at the same period in the prior year. The Company's backlog at
the beginning of each quarterly period is not sufficient to achieve anticipated
revenues for the quarter. As a result, the Company's sales for any future
quarterly period are dependent upon obtaining orders in a quarter for shipment
within the same quarter. If these orders do not materialize, this could have an
adverse affect on the Company's operating results for that quarterly period.
Additionally, 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 2.7 to 1.0 on
March 30, 1996, compared to 2.2 to 1.0 on December 31, 1995. Net cash provided
by continuing operations for the first three months of 1996 was $485 compared to
cash used by continuing operations of $3,706 for the comparable three months in
1995. This increase in cash provided by continuing operations is attributable to
the decrease in inventories and accounts receivable offset by an increase in the
net loss and a decrease in accounts payable and accrued liabilities. Net cash
used by discontinued operations increased $187 to $347 as a result of a decrease
in the discontinued businesses net income and an increase in the electronic
supply segment's accounts receivable and a decrease in its accrued liabilities.
In the first three-months of 1996, the Company purchased capital equipment
approximating $1,614. These expenditures were primarily for Valor Product's
production equipment. The Company anticipates that additional capital
expenditures of approximately $7.1 million will be made during the balance of
1996, primarily for manufacturing and process engineering equipment for Valor
Products.
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, to provide cash overdraft coverage, for
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 30, 1996, outstanding borrowings from a domestic bank
totaled approximately $2,975 based on an eligible base of approximately $5,186
and approximately $21 from a foreign bank based on an eligible base of $2.2
million. As of April 27, 1996, outstanding borrowings from a domestic bank were
approximately $4,575 based on an eligible base of $5,850 and $1,186 and $2.2
million were outstanding and eligible, respectively, from a foreign bank.
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 30, 1996, cash
dividends approximating $71,000 were paid.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited, to those discussed in the "Business",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Prospective Information" in the Company's Form 10K dated
December 31, 1995, including, without limitation, the Company's Products,
Competition, Manufacturing and Suppliers, Foreign Operations and Backlog.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the first
quarter of 1996:
Report dated January 5, 1996, reporting item 2 a disposal of
assets.
Report dated January 16, 1996, amending the Form 8-K filed on
January 5, 1996 for Exhibit 99
Report dated March 5, 1996, amending the Form 8-K filed on
January 5, 1996 and January 16, 1996 for item 2 a disposal of
assets and item 7 proforma financial statements.
11
<PAGE> 12
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: November 14, 1996
By: /s/ Douglas J. Downs
------------------------------------
Douglas J. Downs
Vice President Finance and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 1,904
<SECURITIES> 0
<RECEIVABLES> 13,981
<ALLOWANCES> (518)
<INVENTORY> 29,377
<CURRENT-ASSETS> 49,994
<PP&E> 29,229
<DEPRECIATION> (11,784)
<TOTAL-ASSETS> 108,551
<CURRENT-LIABILITIES> 18,842
<BONDS> 0
0
8,110
<COMMON> 359
<OTHER-SE> 78,735
<TOTAL-LIABILITY-AND-EQUITY> 108,551
<SALES> 30,136
<TOTAL-REVENUES> 30,136
<CGS> 22,592
<TOTAL-COSTS> 22,592
<OTHER-EXPENSES> 9,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34)
<INCOME-PRETAX> (2,302)
<INCOME-TAX> (300)
<INCOME-CONTINUING> (1,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,638)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0
</TABLE>
