<PAGE> 1
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 29, 1997 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, 1997, 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 11 pages.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
GTI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
---------------------------------
March 29, March 30,
1997 1996
---------- ---------
<S> <C> <C>
Sales $22,393 $26,618
Cost of sales 16,509 20,689
---------- ---------
Gross profit 5,884 5,929
Operating expenses 5,476 6,818
---------- ---------
Operating profit (loss) 408 (889)
Other expense (income), net 120 (34)
---------- ---------
Income (loss) from continuing operations
before income taxes 288 (855)
Income tax provision (benefit) 100 (300)
---------- ---------
Income (loss) from continuing operations 188 (555)
Loss from discontinued operations,
net of income taxes - (1,083)
---------- ---------
Net income (loss) $188 ($1,638)
========== =========
Earnings (losses) per common share:
Continuing operations $0.02 ($0.07)
Discontinued operations - (0.12)
========== =========
$0.02 ($0.19)
========== =========
Weighted average number of shares outstanding 10,898,600 8,973,475
========== =========
</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)
<TABLE>
<CAPTION>
Assets
March 29, December 31,
1997 1996
------------ -----------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,865 $ 3,219
Accounts receivable, net of allowance of $195
and $201, respectively 11,861 11,502
Inventories 22,036 18,551
Prepaid expenses and other 6,484 6,802
Net assets of discontinued operations 11,622 11,637
------- --------
Total current assets 55,868 51,711
Property, plant and equipment, net 16,409 15,974
Goodwill, less amortization of $4,385 and $4,211,
respectively, and other assets 23,395 23,839
------- --------
$95,672 $91,524
======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ 7,195 $ 4,900
Current portion of long-term debt due to affilitate 1,250 -
Accounts payable, accrued and other liabilities 16,767 17,298
------- --------
Total current liabilities 25,212 22,198
Long-term debt due to affiliate 1,250 -
Deferred income taxes and other liabilities 1,896 2,176
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 14,761 14,644
Cumulative translation adjustments 2 (45)
------- --------
Total stockholders' equity 67,314 67,150
------- --------
$95,672 $91,524
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
GTI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the three-months ended
--------------------------------
March 29, March 30,
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 188 ($1,638)
Adjustments to reconcile net income (loss) to net cash
provided (used) by continuing operations:
Depreciation and amortization 1,311 1,271
Loss from discontinued operations - 1,083
Changes in assets and liabilities:
Accounts receivable (359) 7,981
Inventories (3,485) 2,362
Prepaid expenses and other assets (270) (394)
Accounts payable, accrued liabilities and other liabilities (24) (8,686)
------- -------
Net cash provided (used) by continuing operations (2,639) 1,979
Net cash provided (used) by discontinued operations 91 (1,842)
------- -------
Net cash provided (used) by operating activities (2,548) 137
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,572) (1,324)
Capital expenditures of discontinued operations (76) (289)
Proceeds from sale of discontinued business - 2,218
------- -------
Net cash provided (used) by investing activities (1,648) 605
------- -------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net 2,295 (1,238)
Proceeds from long-term debt due to affiliate 2,500 -
Preferred cash dividend - (71)
------- -------
Net cash provided (used) by financing activities 4,795 (1,309)
------- -------
Net change in cumulative translation adjustments 47 (82)
------- -------
Net increase (decrease) in cash and cash equivalents 646 (649)
Cash and cash equivalents at beginning of period 3,219 2,553
------- -------
Cash and cash equivalents at end of period $ 3,865 $1 ,904
======= =======
</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 condensed 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, 1996. The
condensed consolidated statements of operations for the three months ended March
29, 1997 may not be indicative of the expected results for the year ended
December 31, 1997.
Note 2 - Discontinued Operations
In April 1997, the Company divested its interest in its Promptus subsidiary in
transactions and for consideration substantially the same as disclosed in Note
12 to the consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. The Company received 157,795
shares of VideoServer common stock as part of the consideration. The Company is
unable to liquidate these shares in a public market until they have been
registered with the Securities and Exchange Commission. Management anticipates
these shares to be registered and liquidated during the quarterly period ended
September 27, 1997. The ultimate proceeds to the Company for these shares is
subject to market volatility and fluctuation.
Note 3 - Supplemental Statements of Cash Flows Disclosure
Supplemental cash flow information (unaudited) for the three-months ended March
29, 1997 and March 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
March 29, 1997 March 30, 1996
------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Interest paid $ 92 $ 64
===== ======
Income taxes paid $ 369 $2,387
===== ======
</TABLE>
5
<PAGE> 6
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 4 - Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
March 29, 1997 December 31, 1996
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Raw materials and supplies $ 7,124 $ 5,891
Work in process 6,007 3,748
Finished goods 8,905 8,912
------- -------
Total inventories $22,036 $18,551
======= =======
</TABLE>
Note 5 - Due to Affiliate
In February 1997, the Company entered into a $2.5 million Note Purchase
Agreement with Telemetrix PLC (the Company's majority shareholder) and a related
Common Stock Purchase Warrant Agreement (the "Warrant") as more fully described
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Form 10-Q contains certain statements of a forward-looking nature relating
to future events or the future performance of the Company. Existing and
prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, such investors should specifically consider various factors
identified in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and other filings with the Securities and Exchange Commission
which could cause actual results to differ materially from those indicated by
such forward-looking statements.
Dollar amounts are expressed in thousands, except per share amounts.
Quarter Ended March 29, 1997:
Results of Operations
Revenues decreased by approximately 15.9% from $26,618 for the first quarter
ended March 30, 1996 to $22,393 for the comparable quarter in 1996. This
decrease consisted of an approximate 10.6% decrease in average selling prices
(including the effects of changes in mix) and an approximate 5.9% decrease in
unit volume. Management attributes the decrease in average selling prices to the
competitive pressures caused by downward pressures on prices in the market for
networking products from which the Company provides components. The decrease in
unit volume is also attributed to these market conditions as well as to certain
manufacturing and product issues that resulted from the 1996 restructuring of
the Company's off-shore manufacturing operations. Management believes that these
issues have been and continue to be addressed, and that measurable improvements
have been made. Management further believes that these improvements contributed
directly to the improved current quarter results.
Sales to foreign customers decreased for the first quarter of 1997 by 9.7%,
representing 42.3% of total Valor sales, compared to 51.4% of total Valor sales
for the first quarter of 1996. This decrease in the mix of foreign sales is
primarily attributed to decreased unit volume to Valor's European customers and
to a lessor extent Valor's Asian customers.
Two of Valor's OEM customers collectively accounted for 28.7% and 29.9% of
Valor's sales in the current and prior quarter, respectively. The sales
percentage from Valor'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.
Cost of sales decreased $4,180 or 20.2% from $20,689 during the first quarter of
1996 to $16,509 during the same quarter in 1997. This decrease is primarily due
to decreased unit volumes and the inclusion of a $760 provision for planned
process and design engineering changes in the first quarter of 1996.
Gross profit decreased $45 from $5,929 during the first quarter of 1996 to
$5,884 for the same quarter in 1997. Gross margins as a percent of sales
increased 3.9% for the first quarter ended March 29, 1997 to 26.2%, compared to
22.3% for the same quarterly
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<PAGE> 8
period in 1996. This increase in Valor's gross margins as a percentage of
sales is primarily attributable to the prior quarter $760 provision described
above. Excluding this provision, gross margins as a percentage of sales would
have increased approximately 1.1%. This increase is associated with Valor's
overhead cost reductions during 1996 beginning to turn through inventories and
positively impact costs of sales as a percentage of sales. Based on Valor'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.
Operating expenses for the first quarter of 1997 decreased 19.7% from $6,818
during the first quarter of 1996 to $5,476 during the same quarter of 1997. As a
percentage of sales, these operating expenses decreased approximately 0.9%
during the quarter ended March 29, 1997 as compared to the same quarterly period
in 1996. This decrease in percentage and dollar terms are principally due to
decreases in administration and engineering salaries.
Other expense, net, for the first quarter of 1997 increased $154 from $34 other
income, net, to $120 of other expense, net. This is primarily due to increased
interest expense associated with increased borrowings.
The Company's tax provision (benefit) related to continuing operations was $100
provision for the first quarter of 1997 compared to $300 benefit for the same
quarterly period one year ago. The increase in tax provision of $400 is a result
of the profitable operations.
The increase in income (loss) from continuing operations and income (loss) per
common share for the first quarter of 1997 of approximately $783 and $0.08,
respectively, to $188 and $0.02, respectively, from the comparable period one
year ago, is primarily due to Valor's increase in gross margins as a percentage
of sales and a decrease in operating expenses offset by an increase in interest
expense.
The decrease in the loss from discontinued operations of $1,083 is a result of
the Company accruing at December 31, 1996 for Promptus's estimated operating
losses during the estimated divestiture period.
The net income (loss) and income (loss) per common share for the first quarter
of 1997 increased $1,826 and $0.20, respectively to income of $188 and $0.02
from a loss of $(1,638) and $(0.19), respectively, for the comparable period one
year ago. The increase is due to the factors mentioned above.
Valor's backlog at March 29, 1997, was $17.5 million, compared to $25.8 million
at March 30, 1996. 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.
8
<PAGE> 9
Liquidity and Capital Resources
In 1996, the Company's liquidity was adversely effected by ongoing operating
losses at Promptus, by increased operating losses at Valor, and by the costs of
restructuring Valor, among other things. These liquidity requirements were
funded in 1996 primarily through proceeds from the sale of operations
discontinued in 1995 and by reductions in Valor inventory and receivable levels.
To help compensate for the 1996 net reduction in available liquidity, in
February 1997 the Company obtained a $2.5 million two year term note from its
majority shareholder as more fully described in the Company's 1996 Annual
Report. Also in April 1997, the Company sold its majority interest in Promptus,
as more fully described below. As a result of these transactions, the Company's
liquidity should be adequate for the foreseeable future also as more fully
described below.
In April 1997, the Company completed its disposal of Promptus. The Company
received approximately $8.2 million in cash, net of transaction costs, and
157,795 shares of VideoServer (NASDAQ: VSVR) common stock. The Company is unable
to liquidate the VideoServer shares until the shares have been registered with
the Securities and Exchange Commission. Management anticipates these shares to
be registered during the quarterly period ended September 27, 1997. The ultimate
proceeds to the Company for the VideoServer, Inc. shares is subject to market
volatility and fluctuation.
The Company is currently satisfying its working capital and capital expenditure
requirements through internally generated cash from operations, bank borrowings,
and the proceeds from the disposal of Promptus, as described above. The Company
has a line of credit agreement with a bank that expires on June 30, 1997. The
total amount available under this line is $7.5 million, subject to the balance
of eligible accounts receivable. About $5.7 million was available at May 8,
1997. Interest accrues at prime plus one and one-quarter percent, and
outstanding borrowings are collateralized by substantially all of the Company's
domestic assets. The Company is negotiating an extension of this line to
December 31, 1997, and a related decrease in maximum borrowings to $6 million.
Management anticipates this extension to be finalized in June 1997.
The ratio of current assets to current liabilities was 2.2 to 1.0 on March 29,
1997, compared to 2.3 to 1.0 on December 31, 1996. Net cash used by continuing
operations for the first three months of 1997 was $2,693 compared to cash
provided by continuing operations of $1,979 for the comparable three months in
1996. This increase in cash used by continuing operations is attributable to an
increase in inventories and accounts receivable offset by an increase in net
income and accounts payable and accrued liabilities. Net cash provided by
discontinued operations increased $1,933 to $91 primarily as a result of a
decrease in the loss from discontinued operations offset by an increase in
working capital.
During the first three-months of 1997, the Company purchased capital equipment
approximating $1.6 million. These expenditures were primarily for production
equipment and information systems. The Company anticipates that additional
capital expenditures will be made during the balance of 1997 and will range from
approximately $4.4 million to $6.4 million. These capital expenditures are
anticipated to be primarily for manufacturing and process engineering equipment
and information systems, depending on the need to further increase automation
and capacity at Valor. The Company anticipates that most such capital
expenditures will be funded through cash generated from operations, borrowings
on the line of credit with a bank, and/or proceeds from the disposal of
Promptus.
Management believes that funds on hand, funds generated by operations, funds
available through its line of credit, and the proceeds from the sale of Promptus
will be sufficient to finance working capital needs, projected capital
expenditure requirements and debt maturities at least
9
<PAGE> 10
through the next twelve months.
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. During the three-months ended March 29, 1997, cash dividends
approximating $71,000 were accrued and not paid. Management anticipates paying
the accrued quarterly dividends of approximately $71,000 for both December 1996
and March 1997 during the quarter ended June 28, 1997.
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 report on Form 8-K were filed during the first
quarter of 1997:
Current Report dated February 11, 1997 filed on February 26,
1997, reporting item 5 disclosing and describing the $2.5
million loan from Telemetrix PLC (a majority stockholder of
the Company) and warrant to Telemetrix PLC to purchase
250,000 shares of the Company's Common Stock.
10
<PAGE> 11
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 13, 1997
By: \s\ Bruce C. Myers
------------------------------------
Bruce C. Myers
Vice President Finance and Treasurer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 3,865
<SECURITIES> 0
<RECEIVABLES> 12,056
<ALLOWANCES> (195)
<INVENTORY> 22,036
<CURRENT-ASSETS> 18,106
<PP&E> 30,192
<DEPRECIATION> (13,783)
<TOTAL-ASSETS> 95,672
<CURRENT-LIABILITIES> 25,212
<BONDS> 0
0
8,110
<COMMON> 359
<OTHER-SE> 58,845
<TOTAL-LIABILITY-AND-EQUITY> 95,672
<SALES> 22,393
<TOTAL-REVENUES> 22,393
<CGS> 16,509
<TOTAL-COSTS> 5,476
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 288
<INCOME-TAX> 100
<INCOME-CONTINUING> 188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
