<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
Commission File Number 1-4289
GTI CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0278990
------------------------------ ------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
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 August 3, 1998, the Registrant had one class of Common Stock, at a par
value of $.04 per share, with 8,973,475 shares outstanding.
This Report on Form 10-Q contains 13 pages.
<PAGE> 2
INDEX
GTI CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated statements of operations for the three and six months
ended June 27, 1998 and June 28, 1997 3
Condensed consolidated balance sheets as of June 27, 1998 and December 31, 4
1997
Condensed consolidated statements of cash flows for the six months ended
June 27, 1998 and June 28, 1997 5
Notes to condensed consolidated financial statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
GTI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
----------------------------- -----------------------------
June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 10,229 $ 23,011 $ 24,231 $ 45,404
Cost of sales 14,004 16,508 27,668 33,017
-------- -------- -------- --------
Gross profit (loss) (3,775) 6,503 (3,437) 12,387
Operating expenses 5,120 5,891 9,961 11,367
-------- -------- -------- --------
Operating profit (loss) (8,895) 612 (13,398) 1,020
Loss on sale of securities -- 672 672
Other expenses (income) (43) 52 40 172
-------- -------- -------- --------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (8,852) (112) (13,438) 176
Provision (benefit) for income taxes 78 177 78 277
-------- -------- -------- --------
Loss before cumulative effect of
change in accounting principle (8,930) (289) (13,516) (101)
Cumulative effect of change in accounting
principle, net of income taxes -- -- (899) --
-------- -------- -------- --------
Net loss $ (8,930) $ (289) $(14,415) $ (101)
======== ======== ======== ========
Net loss per share of common stock
and common stock equivalents:
Basic and diluted loss per share before
cumulative effect of change in
accounting principle $ (1.00) $ (0.04) $ (1.52) $ (0.03)
Cumulative effect of change in accounting
principle -- -- (0.10) --
-------- -------- -------- --------
Basic and diluted loss per share $ (1.00) $ (0.04) $ (1.62) $ (0.03)
======== ======== ======== ========
Weighted average number of common shares
and common stock equivalents - basic
and diluted EPS 8,973 8,973 8,973 8,973
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
GTI CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 27, 1998
(Unaudited) December 31, 1997
------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,377 $ 6,967
Accounts receivable, net 6,007 12,061
Inventories, net 14,331 21,794
Prepaid expenses and other 6,116 6,002
-------- --------
Total current assets 32,831 46,824
Property, plant and equipment, net 11,850 14,800
Goodwill and other assets 19,919 21,330
-------- --------
$ 64,600 $ 82,954
======== ========
Current liabilities:
Accounts payable, accrued and other liabilities $ 8,359 $ 11,761
Current portion of long-term debt due to affiliate 1,250 1,250
-------- --------
Total current liabilities 9,609 13,011
Long-term debt due to affiliate, net of current portion -- 625
Deferred income taxes and other liabilities 5,783 5,553
Stockholders' equity:
Preferred stock, $35.00 cumulative convertible,
8,110 shares issued and outstanding 8,110 8,110
Common stock, 8,973,475 shares issued and outstanding 359 359
Additional paid in capital 44,082 44,082
Retained earnings (3,330) 11,227
Cumulative translation adjustment (13) (13)
-------- --------
Total stockholders' equity 49,208 63,765
-------- --------
$ 64,600 $ 82,954
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
GTI CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended
------------------------------
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(14,415) $ (101)
Adjustments:
Depreciation and amortization 2,538 2,614
Impairment of fixed assets due to plant closure 1,500 --
Cumulative change in accounting principle - organization costs 899 --
Loss on sale of securities -- 672
Change in assets and liabilities:
Accounts receivable 6,054 (364)
Inventories 7,463 (8,395)
Prepaid expenses and other (114) 226
Accounts payable, accrued and other liabilities (3,402) 1,909
Other 287 (15)
-------- -------
Net cash flow provided (used) by continuing operations 810 (3,454)
Net operating cash flow provided by discontinued operations -- (701)
-------- -------
Net cash provided (used) by operating activities 810 (4,155)
-------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (633) (3,406)
Proceeds from sale of discontinued operations -- 9,936
-------- -------
Net cash provided (used) by investing activities (633) 6,530
-------- -------
Cash flows from financing activities:
Repayment of line of credit, net -- (4,900)
Proceeds (repayment) from long-term debt due to affiliate (625) 2,500
Preferred stock cash dividend (142) (142)
-------- -------
Net cash provided (used) by financing activities (767) (2,542)
-------- -------
Net change in cumulative translation adjustment -- 34
-------- -------
Net increase (decrease) in cash and cash equivalents (590) (133)
Cash and cash equivalents - beginning of period 6,967 3,219
-------- -------
Cash and cash equivalents - end of period $ 6,377 $ 3,086
======== =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE> 6
GTI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect
the accounts of GTI Corporation (the "Company"), together with its
majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
These unaudited condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to prevent the
information from being misleading. These unaudited condensed consolidated
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results of operations and financial position as of the dates and for the
periods presented. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited financial statements and related
notes included in the Company's Form 10-K/A filed with the Securities and
Exchange Commission for the year ended December 31, 1997. The results for the
interim periods presented are not necessarily indicative of results to be
expected for a full year.
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
NOTE 2: SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURE
Supplemental cash flow information (unaudited) for the six months ended June 27,
1998 and June 28, 1997 are summarized as follows:
<TABLE>
<CAPTION>
For the six months ended
------------------------------
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Interest paid $138 $269
==== ====
Income taxes paid $ 78 $512
==== ====
</TABLE>
NOTE 3: INVENTORIES
Inventories, stated at the lower of cost (first in, first out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
June 27, 1998
(Unaudited) December 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials $ 6,908 $ 9,881
Work in process 854 2,871
Finished goods 6,569 9,042
------- -------
Total inventories $14,331 $21,794
======= =======
</TABLE>
6
<PAGE> 7
NOTE 4: PLANT CLOSURE
In the quarter ended March 28, 1998, the Company decided to combine its two
factories in the People's Republic of China ("PRC") into one factory in the PRC.
Costs associated with the plant closure of $1,500 consist primarily of the
impairment of fixed assets which are now surplus to the operations of the
remaining PRC factory. These costs are included in cost of sales in the quarter
ended March 28, 1998 and in the six months ended June 27, 1998.
NOTE 5: CUMULATIVE EFFECT FROM CHANGE IN ACCOUNTING PRINCIPLE
In the quarter ended March 28, 1998, the Company implemented Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
which requires organization costs to be expensed as incurred. Accordingly, in
the first quarter, the Company recorded a charge of $899 as a cumulative effect
from change in accounting principle for costs originally related to the
organization of the Company's operations in the PRC.
NOTE 6: NEW ACCOUNTING STANDARD
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income," which requires companies to
report all changes in equity during a period, except those resulting from
investment by owners and distribution to owners. The components for
comprehensive income are as follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
----------------------------- ----------------------------
June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $(8,930) $ (289) $(14,415) $(101)
Translation adjustment -- (13) -- 34
------- -------- -------- -----
Comprehensive income $(8,930) $ (302) $(14,415) $ (67)
======= ======== ======== =====
</TABLE>
NOTE 7: MERGER AGREEMENT
On May 26, 1998, the company executed an Agreement and Plan of Merger whereby
all of the outstanding GTI common and preferred stock will be transferred to a
subsidiary of Technitrol, Inc. in exchange for $3.10 cash per GTI common share
and $726.37 cash per GTI preferred share. The closing of this transaction is
subject to certain conditions, including GTI stockholder approval, and a Special
Meeting of GTI stockholders will be held on August 27, 1998 for this purpose.
Telemetrix PLC, which directly or indirectly owns 47.9% of the outstanding
shares of GTI common stock and 100% of the outstanding shares of GTI preferred
stock, has agreed to vote in favor of the Merger. If the stockholders approve
the Merger, the closing of the Merger is expected to occur shortly after August
27, 1998.
7
<PAGE> 8
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,
including risks and uncertainties, identified in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1997 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. Risks and
uncertainties include, but are not limited to, possible deficiencies in future
liquidity levels, possible declines in market growth rates, dependence on key
customers, possible failure of product development activities, the development
of alternative technologies by competitors of the Company or its customers,
price pressures and other competitive factors, and volatility in the market for
the Company's products.
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and notes to condensed consolidated financial statements
included elsewhere herein.
Figures are expressed in thousands, except per share amounts.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 28,
1997
Revenues declined by $12,782 or 55.5% to $10,229 in the second quarter ended
June 27, 1998 from $23,011 in the comparable quarter in 1997. This decrease
resulted from an approximate 3.6% decrease in average selling prices (including
the effects of changes in mix), coupled with an approximate 47.1% 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 for which the Company provides components. The 47.1%
decrease in unit volume generally resulted from softness in the overall market
for local area networking products coupled with the negative effects of customer
uncertainty related to the Company's previously announced merger activities (see
also Trends, Uncertainties and Prospective Information included elsewhere
herein).
In the quarter ended June 27, 1998, two of Valor's customers individually
accounted for more than 10% of Valor's sales, and collectively these two
customers accounted for 48.8% of total 1998 second quarter sales. In the
comparable quarter of the 1997, three of Valor's customers, each individually
accounting for more than 10% of Valor's sales, collectively accounted for 38.3%
of total sales. The sales percentage from Valor's OEM customers has historically
fluctuated and will likely continue to fluctuate in future periods. The
importance of these customers to the Company, combined with competitive
pressures, could result in the negotiation of lower sales prices for these
customers which could adversely effect the Company's results of operations and
financial condition. The loss of one of these customers would have a material
adverse affect on the Company's results of operations and financial condition.
As of June 27, 1998, Valor's backlog was approximately $6,900 compared to
approximately $14,400 as of June 28, 1997. 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 quarter are
dependent upon obtaining "turns business" (i.e., orders received in a quarter
for shipment within the same quarter). Further, current trends are towards a
greater dependence on turns business as the Company's customers demand shorter
lead times and provide fewer long-term orders. Management expects this trend to
continue. If turns orders do not materialize, the Company's operating results
will be adversely affected.
8
<PAGE> 9
The Company's future performance on a quarter-to-quarter and year-to-year basis
will be materially affected by the volume, mix and timing of orders received.
Cost of sales decreased $2,504 or 15.2% from $16,508 (71.7% of revenue) in the
second quarter of 1997 to $14,004 (136.9% of revenue) in the second quarter of
1998. The current quarter cost of sales include a $2,300 charge related to
excess and obsolete inventories caused by decreased projected revenue levels
relative to previously forecasted requirements. The decrease in cost of sales of
$2,504 results from decreased variable costs related to decreased sales, and
from a 27.4% reduction in overhead spending, offset somewhat by the charge for
additional excess and obsolete inventory and the negative effects of sales-price
erosion. The increase in cost of sales as a percent of revenue results from the
current-quarter charge for excess and obsolete inventory, sales price erosion,
and the effects of fixed costs spread over the lower volume, offset somewhat by
the decreased overhead spending.
Gross profit (loss) decreased $10,278 or 158.1% from $6,503 in the second
quarter of 1997 to $(3,775) in the second quarter in 1998. Gross profit (loss)
as a percent of sales decreased from 28.3% to (36.9)%. The decrease in gross
profit (loss) as a percent of sales results from the charge for excess and
obsolete inventory, from the sales price erosion, and from the effects of fixed
costs spread over the lower volume, offset somewhat by decreased overhead
spending.
Operating expenses for the second quarter of 1998 decreased by $771 or by 13.1%
from $5,891 (25.6% of sales) in the second quarter of 1997 to $5,120 (50.1% of
sales) in the second quarter of 1998. The decrease in operating expenses of $771
relates primarily to decreased commissions resulting from the decreased sales
and to an overall reduction in general and administrative spending levels
compared to the comparable quarter of the prior year, offset somewhat in the
current quarter by $481 of costs associated with the pending merger of the
Company into Technitrol. The increase in operating expenses as a percent of
revenues is a function of sales, marketing, administration and product
development costs that did not decline in proportion to the decline in sales.
Other expenses (income) for the second quarter of 1998 decreased $95 from $52 in
the comparable quarter of the prior year to $(43) in the current quarter. This
decrease is primarily due to decreased interest expense associated with
decreased borrowings.
The Company's tax provision was $78 and $177 for the second quarter in 1998 and
1997, respectively. These tax provisions for 1998 and 1997 are disproportionate
to the related loss from operations because of potential uncertainties related
to the realization of the Company's net operating loss and capital-loss
carryforwards.
The significant decrease in gross profit offset slightly by the decreases in
operating expenses and other expenses resulted in a net loss for the second
quarter of 1998 of $8,930 or $1.00 per share. This compares to a net loss of
$289 or $0.04 per share in the comparable quarter of 1997.
SIX MONTHS ENDED JUNE 27, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 28, 1997
Revenues declined by $21,173 or 46.6% to $24,231 in the six months ended June
27, 1998 from $45,404 in the comparable period in 1997. This decrease resulted
from an approximate 18.1% decrease in average selling prices (including the
effects of changes in mix), coupled with an approximate 29.1% 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 for which the Company provides components. The decrease in
average selling prices also resulted from a greater current-quarter mix of
lower-priced components for telecommunications markets. The 29.1% decrease in
unit volume generally resulted from softness in the overall market for local
area networking products coupled with the negative effects of customer
uncertainty related to the Company's previously announced merger activities (see
also Trends, Uncertainties and Prospective Information included elsewhere
herein).
9
<PAGE> 10
In the six months ended June 27, 1998, two of Valor's customers individually
accounted for more than 10% of Valor's sales, and collectively these two
customers accounted for 44.3% of total sales. In the comparable period of 1997,
two of Valor's customers, each individually accounting for more than 10% of
Valor's sales, collectively accounted for 28.6% of total sales. The sales
percentage from Valor's OEM customers has historically fluctuated and will
likely continue to fluctuate in future periods. The importance of these
customers to the Company, combined with competitive pressures, could result in
the negotiation of lower sales prices for these customers which could adversely
effect the Company's results of operations and financial condition. The loss of
one of these customers would have a material adverse affect on the Company's
results of operations and financial condition.
Cost of sales decreased $5,349 or 16.2% from $33,017 (72.7% of revenue) in the
six months ended June 28, 1997 to $27,668 (114.2% of revenue) in the six months
ended June 27, 1998. Cost of sales in the six months ended June 27, 1998
includes a $1,500 charge related to the consolidation of the Company's two PRC
factories into one factory and a $2,800 charge related to excess and obsolete
inventories caused by decreased projected revenue levels relative to previously
forecasted requirements. The decrease in cost of sales of $5,349 results from
decreased variable costs related to decreased sales, and from a 29.4% reduction
in overhead spending, offset by the factory consolidation costs, increased
excess and obsolete inventory charges, and by the negative effects of sales
price erosion. The increase in cost of sales as a percent of revenue results
from factory consolidation costs, increased excess and obsolete inventory
charges, sales price erosion, and from the effects of fixed costs spread over
the lower volume, offset somewhat by the decreased overhead spending.
Gross profit (loss) decreased $15,824 or 127.7% from $12,387 in the six months
ended June 28, 1997 to $(3,437) in the six months ended June 27, 1998. Gross
profit (loss) as a percent of sales decreased from 27.3% in the six months ended
June 28, 1997 to (14.2)% in the comparable period in 1998. The decrease in gross
profit (loss) as a percent of sales results from factory consolidation costs,
increased excess and obsolete inventory charges, sales price erosion, and from
the effects of fixed costs spread over the lower volume, offset somewhat by the
decreased overhead spending.
Operating expenses for the six months ended June 27, 1998 decreased by $1,406 or
by 12.4% to $9,961 (41.1% of sales) from $11,367 (25.0% of sales) in the six
months ended June 28, 1997. The decrease in operating expenses of $1,406 relates
primarily to decreased commissions resulting from the decreased sales and to an
overall reduction in general and administrative spending levels compared to the
comparable period of the prior year, offset somewhat in the current period by
$481 of costs associated with the pending merger of the Company into Technitrol.
The increase in operating expenses as a percent of revenues is a function of
sales, marketing, administration and product development costs that did not
decline in proportion to the decline in sales.
Other expenses (income) for the six months ended June 27, 1998 decreased $132 to
$40 from $172 in the comparable period of 1997. This decrease is primarily due
to decreased interest expense associated with decreased borrowings.
The Company's tax provision was $78 for the six months ended June 27, 1998
compared to $277 for the comparable period of 1997. The tax provision for the
six months ended June 27, 1998 is disproportionate to the related loss from
operations because of potential uncertainties related to the realization of the
Company's net operating loss and capital-loss carryforwards.
The significant decrease in gross profit, offset slightly by the decreases in
operating expenses and other expenses, resulted in a loss from operations for
the six months ended June 27, 1998 of $13,516 or $1.52 per share. This compares
to a loss from operations of $101 or $0.03 per share in the comparable period of
the 1997. Including the cumulative effect of change in accounting principle of
$899, the net loss for the six months ended June 27, 1998 was $14,415 or $1.62
per share. This compares to a net loss of $101 or $0.03 per share in the
comparable period of 1997.
10
<PAGE> 11
TRENDS, UNCERTAINTIES AND PROSPECTIVE INFORMATION
The Company expects that revenues in its third quarter of 1998 will again
decline significantly on a comparable-quarter basis and that third quarter
revenues may decline on a sequential-quarter basis. Management believes that
this continuing revenue decline results first from an overall softening in
demand for computer and networking products, from adverse economic conditions in
Asia, and from intensified competition and resultant price declines in the LAN
market. These adverse factors have been further exacerbated by the uncertainty
caused by the Company's previously announced merger activities, which
announcement has caused reluctance on the part of certain customers to place
orders and to engage in new design activities with the Company, at least until
such time as the merger is finalized. In response to these adverse trends and
for other reasons, the Company continues to initiate ongoing revenue enhancement
and cost reduction programs. However, there can be no assurance that revenues
will increase, nor can there be any assurance that the Company will be able to
reduce costs in an amount sufficient to offset the negative effects of the
revenue decline.
See also Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1997 for a further discussion of trends and
uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 27, 1998, the Company satisfied its working
capital and capital expenditure requirements primarily through reductions to
inventory and accounts receivable levels. The Company's primary uses of these
available funds was to fund operating losses, to add equipment, and to reduce
current liabilities. These sources and uses of cash are detailed in the
Consolidated Statements of Cash Flows included elsewhere in this Form 10-Q.
As of June 27, 1998, the Company has foreign tax refunds receivable totaling
$2,878 which the Company expects to collect in 1998.
For the six months ended June 27, 1998, the Company purchased capital equipment
totaling $633. These expenditures were primarily for production equipment. The
Company anticipates that capital expenditures will total about $3 to $5 million
per year for the foreseeable future, depending on revenue growth rates, if any.
These capital expenditures are anticipated to be primarily for automation
equipment to further improve quality, increase capacity and increase
manufacturing labor efficiency. The Company's capital expenditure estimates
assume that future additional capacity needs, if any, are realized through
expansion in subcontractor relationships, requiring a relatively low level of
facility expenditures. The Company anticipates that most of its capital
expenditures for the foreseeable future will be funded through cash on hand or
cash generated from operations.
As more fully discussed in "Results of Operations" above, the Company's current
cost levels are significantly greater than its current revenue levels which has
resulted in significant recent losses. To alleviate this imbalance, the Company
intends to significantly reduce costs and to reorganize its operations. Assuming
these cost reductions are sufficient and timely, management believes that funds
on hand will be sufficient to finance working capital needs, projected
capital-expenditure requirements and debt maturities at least through the next
twelve months. However, if revenue levels are lower than anticipated (see also
Trends, Uncertainties and Prospective Information included elsewhere herein),
and if the Company's cost reduction efforts are not successful, then the Company
may be forced to seek additional financing. There can be no assurance that
additional financing will be available in amounts or at terms acceptable to the
Company.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule (electronic filing only)
b) Reports on Form 8-K
On June 4, 1998, the Company filed a Report on Form 8-K to
disclose that on May 26, 1998, the Company executed an Agreement
and Plan of Merger (the "Agreement") with Technitrol
International, Inc. ("Parent," a wholly owned subsidiary of
Technitrol, Inc. NYSE-TNL) and Acquisition Sub, Inc.
("Acquisition," a wholly owned subsidiary of Parent) whereby
Acquisition will be merged with and into the Company ( the
"Merger").
On August 6, 1998, pursuant to the Agreement referred to above,
the Company filed a Proxy Statement with the Securities and
Exchange Commission ("SEC"). Simultaneous with the SEC filing,
the Company mailed a copy of the Proxy Statement to shareholders
of record as of July 27, 1998. A Special Meeting of GTI
stockholders will be held on August 27, 1998, where the
stockholders of the Company will vote (either in person or by
proxy) whether or not to approve the Merger.
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: August 10, 1998 By: /s/ Albert J. Hugo-Martinez
---------------------------
Albert J. Hugo-Martinez
President and Chief Executive Officer
Date: August 10, 1998 By: /s/ Bruce C. Myers
------------------
Bruce C. Myers
Vice President Finance and Treasurer
(Principal Financial and
Accounting Officer)
Date: August 10, 1998 By: /s/ Peter B. Harker
-------------------
Peter B. Harker
Corporate Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-27-1998
<CASH> 6,377
<SECURITIES> 0
<RECEIVABLES> 6,007
<ALLOWANCES> 0
<INVENTORY> 14,331
<CURRENT-ASSETS> 32,831
<PP&E> 11,850
<DEPRECIATION> 0
<TOTAL-ASSETS> 64,600
<CURRENT-LIABILITIES> 9,609
<BONDS> 0
0
8,110
<COMMON> 359
<OTHER-SE> 40,739
<TOTAL-LIABILITY-AND-EQUITY> 64,600
<SALES> 24,231
<TOTAL-REVENUES> 24,231
<CGS> 27,668
<TOTAL-COSTS> 9,961
<OTHER-EXPENSES> 40
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,438)
<INCOME-TAX> 78
<INCOME-CONTINUING> (13,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (899)
<NET-INCOME> (14,415)
<EPS-PRIMARY> (1.52)<F1>
<EPS-DILUTED> (1.62)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
