<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 September 26, 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 November 2, 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 14 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 nine months
ended September 26, 1998 and September 27, 1997 3
Condensed consolidated balance sheets as of September 26, 1998 and December 4
31, 1997
Condensed consolidated statements of cash flows for the nine months ended
September 26, 1998 and September 27, 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 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</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 nine months ended
------------------------------ ------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 10,235 $ 19,130 $ 34,466 $ 64,534
Cost of sales 10,039 15,285 37,707 48,302
-------- -------- -------- --------
Gross profit (loss) 196 3,845 (3,241) 16,232
Operating expenses 3,590 5,450 13,142 16,817
-------- -------- -------- --------
Operating profit (loss) (3,394) (1,605) (16,383) (585)
Merger costs 707 -- 1,116 --
Loss on sale of securities -- -- -- 672
Other expenses (income) (53) 167 (13) 339
-------- -------- -------- --------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (4,048) (1,772) (17,486) (1,596)
Provision (benefit) for income taxes -- (277) 78 --
-------- -------- -------- --------
Loss before cumulative effect of
change in accounting principle (4,048) (1,495) (17,564) (1,596)
Cumulative effect of change in accounting
principle, net of income taxes -- -- (899) --
-------- -------- -------- --------
Net loss $ (4,048) $ (1,495) $(18,463) $ (1,596)
======== ======== ======== ========
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 $ (0.46) $ (0.17) $ (1.98) $ (0.20)
Cumulative effect of change in accounting principle -- -- (0.10) --
-------- -------- -------- --------
Basic and diluted loss per share $ (0.46) $ (0.17) $ (2.08) $ (0.20)
======== ======== ======== ========
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>
September 26,
1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,259 $ 6,967
Accounts receivable, net 6,001 12,061
Inventories, net 10,868 21,794
Prepaid expenses and other 5,023 6,002
-------- --------
Total current assets 29,151 46,824
Property, plant and equipment, net 10,609 14,800
Goodwill and other assets 19,490 21,330
-------- --------
$ 59,250 $ 82,954
======== ========
Current liabilities:
Accounts payable, accrued and other liabilities $ 7,755 $ 11,761
Current portion of long-term debt due to affiliate 625 1,250
-------- --------
Total current liabilities 8,380 13,011
Long-term debt due to affiliate, net of current portion -- 625
Deferred income taxes and other liabilities 5,781 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 (deficit) (7,449) 11,227
Cumulative translation adjustment (13) (13)
-------- --------
Total stockholders' equity 45,089 63,765
-------- --------
$ 59,250 $ 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 nine months ended
------------------------------
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(18,463) $ (1,596)
Adjustments:
Depreciation and amortization 3,907 4,021
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 6,060 (517)
Inventories 10,926 (7,364)
Prepaid expenses and other 904 4,184
Accounts payable, accrued and other liabilities (4,006) (1,738)
Other 553 880
-------- --------
Net cash flow provided (used) by continuing operations 2,280 (1,458)
Net operating cash flow provided by discontinued operations 75 (701)
-------- --------
Net cash provided (used) by operating activities 2,355 (2,159)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (600) (3,172)
Proceeds from sale of discontinued operations -- 11,466
-------- --------
Net cash provided (used) by investing activities (600) 8,294
-------- --------
Cash flows from financing activities:
Repayment of line of credit, net -- (2,400)
Net proceeds (repayment) from long-term debt due to affiliate (1,250) 1,875
Preferred stock cash dividend (213) (213)
-------- --------
Net cash provided (used) by financing activities (1,463) (738)
-------- --------
Net change in cumulative translation adjustment -- 34
-------- --------
Net increase (decrease) in cash and cash equivalents 292 5,431
Cash and cash equivalents - beginning of period 6,967 3,219
-------- --------
Cash and cash equivalents - end of period $ 7,259 $ 8,650
======== ========
</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 nine months ended
September 26, 1998 and September 27, 1997 are summarized as follows:
<TABLE>
<CAPTION>
For the nine months ended
------------------------------------------
September 26, 1998 September 27, 1997
------------------ ------------------
<S> <C> <C>
Interest paid $ 205 $ 208
====== ======
Income taxes paid $ 78 $1,085
====== ======
</TABLE>
NOTE 3: INVENTORIES
Inventories, stated at the lower of cost (first in, first out) or market, are
summarized as follows:
<TABLE>
<CAPTION>
September 26, 1998
(Unaudited) December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials $ 5,367 $ 9,881
Work in process 1,029 2,871
Finished goods 4,472 9,042
------- -------
Total inventories $10,868 $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 nine months ended September 26, 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
of 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 nine months ended
-------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (4,048) $ (1,495) $(18,463) $ (1,596)
Translation adjustment -- -- -- 34
-------- -------- -------- --------
Comprehensive income (loss) $ (4,048) $ (1,495) $(18,463) $ (1,562)
======== ======== ======== ========
</TABLE>
NOTE 7: MERGER AGREEMENT
On May 26, 1998, the Company executed an Agreement and Plan of Merger (the
"Agreement") 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, all of which the Company
believes it has met. However, until recently, Technitrol had refused to close
the merger transaction, citing certain alleged material breaches of
representations and warranties made by the Company in the Agreement, which the
Company has denied. On September 10, 1998, the Company filed suit in the
Delaware Chancery Court seeking a court order, among other things, requiring
Technitrol to close the merger transaction.
On November 3, 1998, Technitrol and the Company announced publicly that the
disagreements discussed above had been resolved and that the closing of the
merger is expected to occur on or about November 16, 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 SEPTEMBER 26, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 27, 1997
Revenues declined by $8,895 or 46.5% to $10,235 in the third quarter ended
September 26, 1998 from $19,130 in the comparable quarter of 1997. This decrease
resulted from an approximate 10.2% decrease in average selling prices (including
the effects of changes in mix), coupled with an approximate 40.6% decrease in
unit volume. Management attributes the decrease in average selling prices to the
competitive pressures in the market for networking products for which the
Company provides components. The decrease in average selling prices also
resulted from a greater current-period mix of lower-priced components for
telecommunications markets. The 40.6% decrease in unit volume generally resulted
from customer uncertainty which arose when the Company announced it would put
itself up for sale. This customer uncertainty intensified when the completion of
the announced merger with Technitrol became unclear (see also Trends,
Uncertainties and Prospective Information included elsewhere herein).
In the quarter ended September 26, 1998, two of Valor's customers individually
accounted for more than 10% of Valor's sales, and collectively these two
customers accounted for 37.0% of total 1998 third quarter sales. In the
comparable quarter of 1997, three of Valor's customers, each individually
accounting for more than 10% of Valor's sales, collectively accounted for 43.9%
of total sales. The sales percentage from Valor's OEM customers has historically
fluctuated and will likely continue to fluctuate in future periods. A change in
the sales terms with these customers could affect 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 September 26, 1998, Valor's backlog was approximately $7,900 compared to
approximately $8,300 as of September 27, 1997. As noted by other companies
selling to the same customers as the Company, backlog is not an accurate
indication of future sales. 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
8
<PAGE> 9
expects this trend to continue. 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 $5,246 or 34.3% from $15,285 (79.9% of revenue) in the
third quarter of 1997 to $10,039 (98.1% of revenue) in the third quarter of
1998. The decrease in cost of sales of $5,246 results from decreased variable
costs related to decreased sales, and from a 32.0% reduction in fixed overhead
spending. This decrease in fixed overhead spending resulted primarily from the
consolidation of the Company's two PRC factories into one, and from reductions
in San Diego based manufacturing support employees. The increase in cost of
sales as a percent of revenue results from sales price erosion, from the effects
of fixed costs spread over the lower volume, and from the current quarter
reductions in inventory levels, offset somewhat by the decreased fixed overhead
spending.
Gross profit decreased $3,649 or 94.9% from $3,845 in the third quarter of 1997
to $196 in the third quarter in 1998. Gross profit as a percent of sales
decreased from 20.1% to 1.9%. The decrease in gross profit as a percent of sales
results from sales price erosion and from the effects of fixed costs spread over
the lower volume, offset somewhat by decreased fixed overhead spending.
Operating expenses for the third quarter of 1998 decreased by $1,860 or by 34.1%
from $5,450 (28.5% of sales) in the third quarter of 1997 to $3,590 (35.1% of
sales) in the third quarter of 1998. The decrease in operating expenses of
$1,860 relates primarily to decreased commissions resulting from the decreased
sales and to an overall reduction in employee levels throughout the Company
compared to the comparable quarter of the prior year. 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.
In the third quarter of 1998, the Company incurred $707 of legal, consulting and
related expenses associated with the proposed merger with Technitrol. No such
costs were incurred in the comparable quarter of the prior year.
Other expenses (income) for the third quarter of 1998 decreased $220 from $167
in the comparable quarter of the prior year to $(53) in the current quarter.
This decrease is primarily due to decreased interest expense associated with
decreased borrowings.
The Company's tax provision (benefit) was $0 and $(277) for the third quarter in
1998 and 1997, respectively. These tax provision / (benefit) amounts 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 and the current-quarter merger costs,
offset somewhat by the decreases in operating expenses and other expenses,
resulted in a net loss for the third quarter of 1998 of $4,048 or $0.46 per
share. This compares to a net loss of $1,495 or $0.17 per share in the
comparable quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 27, 1997
Revenues declined by $30,068 or 46.6% to $34,466 in the nine months ended
September 26, 1998 from $64,534 in the comparable period of 1997. This decrease
resulted from an approximate 20.5% decrease in average selling prices (including
the effects of changes in mix), coupled with an approximate 33.0% 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-period mix of
lower-priced components for telecommunications markets. The 33.0% decrease in
unit volume generally resulted from softness in the overall market for local
area networking products
9
<PAGE> 10
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).
Cost of sales decreased $10,595 or 21.9% from $48,302 (74.9% of revenue) in the
nine months ended September 27, 1997 to $37,707 (109.4% of revenue) in the nine
months ended September 26, 1998. Cost of sales in the nine months ended
September 26, 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
$10,595 results from decreased variable costs related to decreased sales, and
from a 27.0% reduction in fixed overhead spending, offset by the factory
consolidation costs and increased excess and obsolete inventory charges. This
decrease in fixed overhead spending resulted primarily from the consolidation of
the Company's two PRC factories into one and from reductions in San Diego-based
manufacturing support employees. The increase in cost of sales as a percent of
revenue results from factory consolidation costs, from increased excess and
obsolete inventory charges, from sales price erosion, from the effects of fixed
costs spread over the lower volume, and from the current period reduction in
inventory levels, all offset somewhat by the decreased fixed overhead spending.
Gross profit (loss) decreased $19,473 or 120.0% from $16,232 in the nine months
ended September 27, 1997 to $(3,241) in the nine months ended September 26,
1998. Gross profit (loss) as a percent of sales decreased from 25.2% in the nine
months ended September 27, 1997 to (9.4)% in the comparable period in 1998. The
decrease in gross profit (loss) as a percent of sales results from factory
consolidation costs, from increased excess and obsolete inventory charges, from
sales price erosion, and from the effects of fixed costs spread over the lower
volume, offset somewhat by the decreased fixed overhead spending.
Operating expenses for the nine months ended September 26, 1998 decreased by
$3,675 or by 21.9% to $13,142 (38.1% of sales) from $16,817 (26.1% of sales) in
the nine months ended September 27, 1997. The decrease in operating expenses of
$3,675 relates primarily to decreased commissions resulting from the decreased
sales and to an overall reduction in general, administrative, sales, marketing,
and design engineering employee levels compared to the comparable period of the
prior year. 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.
In the nine months ended September 26, 1998, the Company incurred $1,116 of
legal, consulting and related expenses associated with the proposed merger with
Technitrol. No such costs were incurred in the comparable period of the prior
year.
Other expenses (income) for the nine months ended September 26, 1998 decreased
$352 to $(13) from $339 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 nine months ended September 26, 1998
compared to $0 for the comparable period of 1997. The tax provisions for the
nine months ended September 26, 1998 and September 27, 1997, respectively, 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 and the current-period merger costs,
offset somewhat by the decreases in operating expenses and other expenses,
resulted in a loss before cumulative effect of change in accounting principle
for the nine months ended September 26, 1998 of $17,564 or $1.98 per share. This
compares to a loss before cumulative effect of change in accounting principle of
$1,596 or $0.20 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 nine months ended September 26, 1998 was $18,463 or $2.08 per share. This
compares to a net loss of $1,596 or $0.20 per share in the comparable period of
1997.
10
<PAGE> 11
TRENDS, UNCERTAINTIES AND PROSPECTIVE INFORMATION
The Company expects that revenues in its fourth quarter of 1998 will again
decline significantly on a comparable-quarter basis. However, recent booking
levels have increased. As a result of these increased recent booking levels,
management expects fourth-quarter revenues to increase somewhat compared to the
level achieved in the third quarter of 1998.
Management believes that the Company's previously announced merger activities
(particularly in light of its dispute which has now been resolved with its
merger partner, Technitrol, Inc.) continue to cause some reluctance on the part
of certain customers to engage in new product design activities with the
Company, at least until such time as the merger is finalized. This customer
reluctance coupled with recent decreases in the Company's available engineering
resources, could have an adverse effect on future revenue levels if the merger
with Technitrol does not occur.
On November 3, 1998, Technitrol and the Company announced publicly the
resolution of the disagreements between them concerning the merger agreement.
The closing of the merger is expected to occur on or about November
16, 1998.
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 nine months ended September 26, 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 capital 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 September 26, 1998, the Company has foreign tax refunds receivable
totaling $2,195, most of which the Company collected in October 1998.
For the nine months ended September 26, 1998, the Company purchased capital
equipment totaling $600. These expenditures were primarily for production
equipment. The Company anticipates that capital expenditures will total about $3
million 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 and to 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 greater than its current revenue levels which has resulted in
significant recent losses. To alleviate this imbalance, the Company intends to
continue to 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
11
<PAGE> 12
and Prospective Information included elsewhere herein), and/or 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.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On September 3, 1998, an adjourned Special Meeting of Shareholders was
held to approve and adopt an Agreement and Plan of Merger dated May 26,
1998 (the "Agreement") by and between 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 GTI (the
"Merger").
The following is the vote tabulation for this matter:
<TABLE>
<CAPTION>
Against / Abstained /
Matter For Withheld Not Voted
- ----------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
To approve and adopt an Agreement and 7,738,735 62,675 3,072,352
Plan of Merger, dated as of May 26, 1998
(the "Merger"), by and between GTI,
Technitrol International, Inc. ("Parent," a
wholly-owned subsidiary of Technitrol, Inc.,
NYSE:TNL) and Technitrol Acquisition, Inc.
("Acquisition," a wholly owned subsidiary of
Parent), and the merger of Acquisition into
GTI as provided therein.
</TABLE>
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 August 17, 1998, the Company filed a Current Report on Form
8-K attaching a copy of the Company's press release dated
August 14, 1998.
On September 11, 1998, the Company filed a Current Report on
Form 8-K attaching a copy of the Company's press release dated
September 10, 1998.
On November 9, 1998, the Company filed a Current Report on
Form 8-K attaching a copy of the joint press release of the
Company and Technitrol, Inc. dated November 3, 1998.
13
<PAGE> 14
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 6, 1998 By: /s/ Albert J. Hugo-Martinez
--------------------------------------
Albert J. Hugo-Martinez
President and Chief Executive Officer
Date: November 6, 1998 By: /s/ Bruce C. Myers
--------------------------------------
Bruce C. Myers
Vice President Finance and Treasurer
(Principal Financial and
Accounting Officer)
Date: November 6, 1998 By: /s/ Peter B. Harker
--------------------------------------
Peter B. Harker
Corporate Controller
14
<PAGE> 15
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule (electronic filing only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-26-1998
<CASH> 7,259
<SECURITIES> 0
<RECEIVABLES> 6,001
<ALLOWANCES> 0
<INVENTORY> 10,868
<CURRENT-ASSETS> 29,151
<PP&E> 10,609
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,250
<CURRENT-LIABILITIES> 8,380
<BONDS> 0
0
8,110
<COMMON> 359
<OTHER-SE> 36,620
<TOTAL-LIABILITY-AND-EQUITY> 59,250
<SALES> 34,466
<TOTAL-REVENUES> 34,466
<CGS> 37,707
<TOTAL-COSTS> 13,142
<OTHER-EXPENSES> 1,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,486)
<INCOME-TAX> 78
<INCOME-CONTINUING> (17,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (899)
<NET-INCOME> (18,463)
<EPS-PRIMARY> (2.08)<F1>
<EPS-DILUTED> (2.08)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
