SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934. For the quarterly period ended
September 28, 1997.
Transition report pursuant to Section 13 or 15(d) of
- --- the Securities Exchange Act of 1934. For the transition period from
to . ----
-----
Commission file number: 0-24020
GROUP TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-2948116
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10901 Malcolm McKinley Drive
Tampa, Florida 33612
(Address of principal executive offices, including zip code)
(813) 972-6000
(Registrant's telephone number, including area code)
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 4, 1997 there were 16,233,861 shares of the Registrant's Common
Stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the Three
Months and Nine Months ended September 28, 1997 and
September 29, 1996
Consolidated Balance Sheets at September 28, 1997 and
December 31, 1996
Consolidated Statements of Cash Flows for the Nine
Months ended September 28, 1997 and September 29, 1996
Notes to Interim Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
Part I. Financial Information
Item 1. Financial Statements
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- --------------------
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
------- ------- ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $21,555 $48,190 $84,452 $180,380
Cost of operations 22,098 47,376 85,173 170,549
------- ------- ------- --------
Gross (loss) profit (543) 814 (721) 9,831
Selling, general and
administrative expense 1,737 2,393 4,986 8,597
Research and development 0 2 99 296
------- ------- ------- --------
Operating (loss) income (2,280) (1,581) (5,806) 938
Interest (income) expense, net (106) 756 1,087 2,682
Other (income) expense, net (3,206) 93 (3,461) 166
------- ------- ------- --------
Income (loss) before
income taxes 1,032 (2,430) (3,432) (1,910)
Income tax expense 0 388 152 845
------- ------- ------- --------
Net income (loss) $1,032 $(2,818) $(3,584) $(2,755)
======= ======= ======= ========
Net income (loss) per share:
Primary $0.06 $(0.17) $(0.22) $(0.17)
Fully diluted $0.06 $(0.17) $(0.22) $(0.17)
Shares used in computing
per share amounts:
Primary 16,885 16,221 16,221 16,135
Fully diluted 17,530 16,221 16,221 16,135
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,070 $661
Accounts receivable, net 10,145 22,754
Inventories, net 20,780 20,220
Other current assets 1,374 2,102
------- -------
Total current assets 36,369 45,737
Property and equipment, net 8,477 21,206
Other assets 40 522
------- -------
$44,886 $67,465
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,027 $17,969
Accrued liabilities 17,224 16,416
Current portion of long-term debt 198 3,513
------- -------
Total current liabilities 26,449 37,898
Long-term debt 0 10,119
Other liabilities 0 45
------- -------
Total liabilities 26,449 48,062
Redeemable Preferred Stock, $.01 par value;
1,000,000 shares authorized;
250,000 shares issued and outstanding in 1997 3 0
Additional paid-in capital - Preferred Stock 2,497 0
Shareholders' equity:
Common Stock, $.01 par value, 40,000,000 shares
authorized; 16,220,629 shares issued and
outstanding in 1997 and 1996 162 162
Additional paid-in capital 24,793 24,675
Accumulated deficit (9,018) (5,434)
------- -------
Total shareholders' equity 15,937 19,403
------- -------
$44,886 $67,465
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 28, September 29,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,584) $(2,755)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,017 3,887
Gain on disposal of assets and other items (2,882) 230
Changes in operating assets and
liabilities, net of dispositions:
Accounts receivable 8,189 7,097
Inventories (4,713) 13,264
Other current and non-current assets 109 1,888
Accounts payable (4,832) (19,655)
Accrued and other liabilities (586) (998)
------- -------
Net cash used in operating activities (5,282) (2,958)
Cash flows from investing activities:
Capital expenditures (590) (2,376)
Proceeds from disposal of assets 18,000 11,561
------- -------
Net cash provided by investing activities 17,410 9,185
Cash flows from financing activities:
Net repayments under revolving credit
agreement (6,934) (8,511)
Repayments of notes payable and long-term debt (4,285) (5,551)
Proceeds from issuance of Common Stock 0 1,000
Proceeds from issuance of
Redeemable Preferred Stock 2,500 0
------- -------
Net cash used in financing activities (8,719) (13,062)
------- -------
Net increase (decrease) in cash
and cash equivalents 3,409 (919)
Cash and cash equivalents at beginning of period 661 2,143
------- -------
Cash and cash equivalents at end of period $4,070 $1,224
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
GROUP TECHNOLOGIES CORPORATION
Notes to Interim Consolidated Financial Statements
(1) Organizational Structure
Group Technologies Corporation (the "Company") was incorporated on
December 27, 1988 as a subsidiary of Group Financial Partners, Inc. (the
"Parent"), a private holding company. The Parent owns approximately 80% of the
outstanding Common Stock of the Company.
The Company provides advanced manufacturing, engineering and testing
services to original equipment manufacturers ("OEMs") of electronic products.
The Company custom manufactures complex circuit card assemblies, subsystems
and end-user products for use in a wide variety of markets, including
automotive, commercial avionics, computer, government systems, industrial
electronics, networking, space, and telecommunications.
(2) Basis of Presentation
The unaudited consolidated financial statements and related notes have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and on substantially the same basis as the annual
consolidated financial statements. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
In the opinion of management, the consolidated financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position, operating
results, and cash flows for those periods presented. Operating results for the
three and nine month periods ended September 28, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. These consolidated financial statements should be read in
conjunction with the consolidated financial statements, and notes thereto, for
the year ended December 31, 1996 as presented in the Company's annual report
on Form 10-K.
During the first quarter of 1997, Statement of Financial Accounting
Standard No. 128, "Earnings per Share," was issued which revises the manner in
which earnings per share are calculated. In accordance with the effective date
of Statement No. 128, the Company will implement the new standard during the
fourth quarter of 1997. The Company does not expect that the provisions of
Statement No. 128 will have a material impact upon the Company's reported
earnings per share for the year ending December 31, 1997.
(3) Disposition
On June 30, 1997, the Company sold to SCI Systems, Inc., SCI Systems De
Mexico S.A de C.V. and SCI Holdings, Inc. (collectively, "SCI"), all of the
Company's investment in the capital stock and/or equity interests of three of
its wholly-owned subsidiaries, Group Technologies S.A. de C.V., Group
Technologies Suprimentos de Informatica Industria E Comercio Ltda., and Group
Technologies Integracoes em Electronica Ltda. These three subsidiaries
comprised all of the Company's Latin American operations. The Company also
sold or assigned to SCI certain assets principally used in or useful to the
operations being sold, including accounts receivable, inventory, equipment,
accounts payable and equipment leases.
The initial sales price of the aforementioned assets amounted to
$18,000,000 in cash and the assumption by SCI of certain liabilities. Pursuant
to procedures described in the purchase and sale agreement, the price is
subject to subsequent adjustment, upward or downward, based upon, among other
things, the value of the net assets of the Company's Latin American operations
at June 29, 1997. The Company expects to repay $2,900,000 of the initial sales
price to SCI, subject to a final determination to be made in accordance with
the purchase and sale agreement. The Company recognized a gain of $3,200,000
during the three month period ended September 28, 1997, after giving
consideration to the Company's recorded liability and expected repayment of
$2,900,000, relative to this disposition.
(4) Net (Loss) Income Per Share
Net (loss) income per share is computed using the weighted average number
of issued and issuable common shares and dilutive common equivalent shares
outstanding during the applicable period. Common equivalent shares consist of
stock options and warrants (vested and unvested) and are computed using the
treasury stock method. The computation includes those common shares and common
equivalent shares as prescribed by the Securities and Exchange Commission
Staff Accounting Bulletins.
(5) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Raw materials $8,055 $12,538
Work in process 5,011 4,100
Finished goods 0 107
Costs relating to long-term contracts and
programs, net of amounts attributed to
revenue recognized to date 17,263 11,655
Progress payments related to long-term
contracts and programs (5,397) (3,292)
Reserve for inactive, obsolete and
unsalable inventories (4,152) (4,888)
------- -------
$20,780 $20,220
======= =======
</TABLE>
The Company recognized revenue and income before income taxes during the
second quarter of 1996 of $4,083,000 upon the favorable settlement of a
contractual claim.
(6) Note Payable and Long-Term Debt
On June 30, 1997, the Company utilized the proceeds from the sale of its
Latin American operations (see Note 3) to repay all of its outstanding
borrowings under a financing agreement (the "Credit Agreement") with its bank
and terminated the Credit Agreement which previously provided the Company with
a revolving line of credit facility (the "Revolver") and a term note (the
"Term Note").
In connection with the initial execution of the Credit Agreement during
1996, the Company issued warrants to purchase 1,200,000 shares of Common Stock
at $0.01 per share to the lender. At the time of issuance, the Company
estimated that 1,000,000 warrants would be forfeited by the lender, based on
the warrant vesting schedule and the Company's intent to refinance the debt
outstanding under the Credit Agreement. During the first quarter of 1997, the
Company, based upon the continued utilization of the Credit Agreement, revised
its estimate of warrants to be forfeited by the lender to 500,000, and
therefore recognized additional paid-in capital and original issue discount of
$471,000. As a result of the early repayment and termination of the Credit
Agreement on June 30, 1997, 875,000 unvested warrants were forfeited by the
lender. The Company therefore reduced additional paid-in capital by $353,000,
which was the value of recorded but unvested warrants, and it reduced interest
expense by $118,000 which was the value of warrants that were amortized but
subsequently forfeited by the lender.
In connection with the March 28, 1997 amendment to the Credit Agreement,
the Parent invested $2,500,000 in the Company in exchange for 250,000 shares
of the Company's Preferred Stock (the "Preferred Stock").
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Revolver $0 $6,934
Term Note 0 2,690
Other 198 4,128
------- -------
Total long-term debt 198 13,752
Unamortized original issue discount
related to issuance of warrants
exercisable on date of issuance 0 (120)
Current portion of long-term debt (198) (3,513)
------- -------
$0 $10,119
======= =======
</TABLE>
(7) Preferred Stock
Each share of Preferred Stock outstanding may be exchanged for 8.1 shares
of the Company's Common Stock. The Preferred Stock outstanding is also
redeemable at the option of the holder (the Parent), subject to certain
restrictions, and pays quarterly dividends of 8.5% per annum. The shares of
Preferred Stock outstanding have voting rights equal to the voting rights of
the Company's Common Stock, except that the holder of each share of Preferred
Stock is entitled to the number of votes equal to the number of shares of
Common Stock that would be receivable upon conversion. The rates and
preferences of Preferred Stock authorized but not issued have not been
determined.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This report on Form 10-Q includes forward-looking statements based on
current plans and expectations of the Company, relating to, among other
matters, analyses and estimates of amounts that are not yet determinable. Such
forward-looking statements are contained in the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Such statements involve risks and uncertainties which may cause
actual future activities and results of operations to be materially different
from those suggested in this report on Form 10-Q, including, among others: the
Company's dependence on its current management; the risks and uncertainties
present in the Company's business; business conditions and growth in the
advanced manufacturing and engineering services industry and the general
economy; competitive factors and price pressures; availability of third party
component parts at reasonable prices; inventory risks due to shifts in market
demand and/or price erosion of purchased components; changes in product mix;
cost and yield issues associated with the Company's manufacturing facilities;
as well as other factors listed from time to time in the Company's filings
with the Securities and Exchange Commission.
Results of Operations
The following tables set forth certain data, expressed as a percentage
of revenue, from the Company's Consolidated Statements of Operations for the
three and nine-month periods ended September 28, 1997 and September 29, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- --------------------
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of operations 102.5 98.3 100.9 94.5
------- ------- ------- -------
Gross (loss) profit (2.5) 1.7 (0.9) 5.5
Selling, general and
administrative expense 8.1 5.0 5.9 4.8
Research and development 0.0 0.0 0.1 0.2
------- ------- ------- -------
Operating (loss) income (10.6) (3.3) (6.9) 0.5
Interest (income) expense, net (0.5) 1.5 1.3 1.5
Other (income) expense, net (14.9) 0.2 (4.1) 0.1
------- ------- ------- -------
(Loss) income before
income taxes 4.8 (5.0) (4.1) (1.1)
Income tax expense 0.0 0.9 0.1 0.4
------- ------- ------- -------
Net income (loss) 4.8% (5.9)% (4.2)% (1.5)%
======= ======= ======= =======
</TABLE>
Revenue for the three months ended September 28, 1997 was $21.6 million,
a decrease of $26.6 million or 55.3% from $48.2 million for the three months
ended September 29, 1996. Revenue for the first nine months of 1997 was $84.5
million, a decrease of $95.9 million or 53.2% from $180.4 million for the
first nine months of 1996. During the first nine months of 1997 as compared to
the year earlier period, the Company's domestic manufacturing and engineering
operations decreased by $59.0 million. This decline in revenue is associated
with decreased customer demand and the termination or completion of certain
contracts.
The decreased customer demand and termination or completion of contracts
experienced by the Company principally reflects the change in out-sourcing
strategies of three customers which resulted in a $44.7 million reduction of
revenue during the first nine months of 1997 as compared to the first nine
months of 1996. One such customer utilized the contract manufacturing services
of the Company on a temporary basis while it increased its capacity to provide
its manufacturing services internally. The other two customers with a change
in out-sourcing strategy moved their manufacturing solutions overseas. After
considering the effect of these contract curtailments, the Company believes
its consolidated revenue of $21.6 million in the third quarter of 1997
represents a sustainable level of quarterly revenue for the Company during the
fourth quarter of 1997 and during 1998. Additionally, the Company believes
that its existing customer base and related contracts, together with
additional customers the Company is pursuing, will provide modest growth
opportunities during the next twelve months. However, the Company cannot make
any assurances with regard to its ability to attract or retain new and
existing customers or that any related increase in volume or revenue will
significantly improve the results of operations or financial position of the
Company.
The Company's divestiture of its name brand products business units
during the first quarter of 1996 and the recognition of $4.1 million of
revenue for a favorable claim settlement during the second quarter of 1996
accounted for an additional $5.7 million of the $59.0 million decline in
domestic revenue during 1997. Changes in customer demand on other less
significant contracts collectively accounted for the remaining $8.6 million of
the decreased domestic revenue in 1997 as compared to 1996.
The Company's Latin American operations contributed $16.9 million and
$48.2 million to revenue in the first nine months of 1997 and 1996
respectively. Revenue from the Company's Latin American operations in the
first nine months of 1997 as compared to the year earlier period decreased
$31.3 million, principally associated with the completion or curtailment of
certain contracts during the second half of 1996 and the first quarter of 1997
and the Company's divestiture of all of its Latin American operations
effective June 30, 1997, as more fully described in Note 3 of the accompanying
Interim Consolidated Financial Statements. During the year ended December 31,
1996 and the nine month period ended September 28, 1997, the Latin American
operations accounted for approximately $1.3 million and $2.2 million,
respectively, of the operating loss of the Company. While a portion of those
losses were attributable to costs allocated from the Tampa headquarters, the
Company expects the divestiture of the Latin American operations and the
corresponding reduction in operating costs attributable to the Latin American
operations will have an overall positive impact on operating income. The
Company has redirected its resources in order to successfully improve the
quality and profitability of its domestic operations. However, the Company
cannot make any assurances that its strategy to focus on its core domestic
manufacturing and engineering business will result in improved profitability.
Gross loss for the three months ended September 28, 1997 was $0.5 million
or 2.5% of revenue compared to gross profit of $0.8 million or 1.7% of revenue
during the three months ended September 29, 1996. Gross loss for the first
nine months of 1997 was $0.7 million or 0.9% of revenue compared to a gross
profit of $9.8 million or 5.5% of revenue in the first nine months of 1996.
The net decrease in year-to-date gross profit during the first nine months of
1997 was principally comprised of a $2.0 million decrease in gross profit from
the Company's domestic manufacturing and engineering services (excluding the
name brand products business), a $3.8 million decrease in gross profit from
the Company's Latin American operations and a $4.8 million decrease from the
name brand products business. The primary cause for the decline in gross
profit (excluding the name brand products business decline) was the fact that
decreased revenue levels experienced by the Company, as discussed above,
caused the Company to underutilize its manufacturing capacity. Additionally,
included in the second quarter gross profit in 1996 was a favorable name brand
products business claim settlement of $4.1 million. The reduced gross profit
in 1997 was also caused by low margin contracts and cost overruns on certain
contracts. During the third quarter of 1997, the Company evaluated the status
of certain loss contracts and recognized $0.8 million of additional costs for
these contracts. These costs arose during the third quarter due to shortages
of materials, delays in attaining certain contract milestones and increased
warranty estimates based on returned product. The Company also recorded, in
the third quarter of 1997, a provision for excess and obsolete inventories
totaling $0.6 million. This provision was recorded to reflect the aging of the
residual inventory resulting from contract terminations or curtailments and
the Company's unsuccessful efforts to fully recover certain costs from its
customers. The Company has modified its marketing strategies to focus on
obtaining more profitable contractual agreements to mitigate the effects of
the low margin contracts.
Selling, general and administrative expense for the three months ended
September 28, 1997 decreased to $1.7 million or 8.1% of revenue from $2.4
million or 5.0% of revenue for the three months ended September 29, 1996.
Selling, general and administrative expenses for the nine months ended
September 28, 1997 decreased to $5.0 million or 5.9% of revenue from $8.6
million or 4.8% of revenue for the nine months ended September 29, 1996. The
$3.6 million decrease in selling, general and administrative expenses during
the nine-month period ended September 28, 1997 as compared to the year earlier
period is principally attributable to the aforementioned divestitures and an
overall lower business volume. Additionally, for these same periods, the
Company experienced a lower level of warehouse relocation costs and accounts
receivable provisions during 1997 which accounted for a reduction in selling,
general and administrative expense of $0.3 million and $0.7 million,
respectively. With regard to warehouse relocation costs, in the second quarter
of 1996, the Company implemented a cost saving strategy to integrate the
materials warehousing function into its main Tampa facility. During the second
quarter of 1996, the Company initially estimated that costs associated with
this strategy would amount to $0.4 million, comprised of planning and interior
demolition costs, labor associated with the move of the warehouse function to
the main facility, the impairment of existing leasehold improvements in the
warehouse and estimated lease obligations net of estimated sublease revenue.
The Company later revised this estimate to $0.9 million in the fourth quarter
of 1996 principally to reflect additional costs associated with moving the
warehouse function and the inability to secure a subtenant at favorable lease
rates. During the third quarter of 1997, the Company again assessed the
probability of subleasing the space at favorable rates and increased the
provision for the warehouse relocation by $0.1 million to a total of $1.0
million. The provision for doubtful accounts in the first nine months of 1997
and 1996 of $0.3 million and $1.0 million, respectively, represented a change
in estimate of collectibility following extensive communications with the
respective customers regarding non-payment of invoices and conclusions or
settlements reached during the period regarding ultimate collectibility.
Additional reductions in selling, general and administrative expense are
associated with the decreased business volume, the Company's divestiture of
its Latin American operations and cost saving initiatives implemented in 1996
and 1997, including workforce reductions.
Research and development expense for the nine month period ended
September 28, 1997 was $0.1 million. The Company's manufacturing and
engineering services businesses currently require low levels of research and
development.
Interest expense for the three and nine month periods ended September 28,
1997 decreased $0.9 million and $1.6 million, respectively, from the
comparable prior year periods. The Company's reduced level of operations has
required a lower level of working capital and, therefore, reduced debt
requirements. Additionally, on June 30, 1997 the Company utilized the proceeds
from the sale of its Latin American operations to repay its debt with its
principal lender. In connection with this repayment, the lender forfeited a
portion of its warrants previously expensed by the Company, resulting in an
additional reduction in interest expense amounting to $0.1 million.
Other income during the three month period ended September 28, 1997
includes a gain on the sale of the Company's Latin American operations
totaling $3.2 million, which is more fully described in Note 3 of the Interim
Consolidated Financial Statements of the Company.
Income tax expense for the nine month period ended September 28, 1997 and
the three and nine month periods ended September 29, 1996, consists primarily
of income taxes on earnings in foreign countries.
Liquidity and Capital Resources
Net cash used in operating activities was $5.3 million for the first nine
months of 1997. The Company's accounts receivable decreased by $8.2 million
during the first nine months of 1997 principally because of the lower level of
revenue during 1997 compared to 1996 revenue amounts. While revenue declined
during the first nine months of 1997, the Company's inventory increased by
$4.7 million because of purchases the Company made in order to fulfill certain
future contractual requirements. The Company utilized the proceeds of the
accounts receivable collections and the proceeds from the sale of its Latin
American operations, in part, to reduce its accounts payable and accrued
liabilities by $5.4 million. While the Company has strengthened its working
capital and improved the timeliness of its accounts payable payments, it
continues to maintain extended payment terms with its suppliers. The Company
has long-term relationships with a majority of its suppliers and has been
successful in maintaining reasonable credit terms with its supplier base.
Net cash provided by investing activities was $17.4 million for the first
nine months of 1997. The Company received $18.0 million in connection with the
sale of its Latin American operations. Of this amount, the Company expects to
repay $2.9 million to the buyer based upon the value of net assets of its
Latin American operations at June 29, 1997, subject to final determination in
accordance with the purchase and sale agreement. Capital expenditures for the
first nine months of 1997 amounted to $0.6 million. Current commitments for
capital expenditures for the remainder of 1997 are approximately $0.3 million.
Net cash used in financing activities was $8.7 million for the first nine
months of 1997. The financing activities were comprised of proceeds from the
issuance of the Company's Preferred Stock of $2.5 million off-set by
repayments of debt of $11.2 million. On June 30, 1997, the Company utilized
the proceeds from the sale of its Latin American operations to repay all
amounts outstanding under the Credit Agreement with its primary lender and
terminated the Credit Agreement.
In connection with execution of the Credit Agreement in the first quarter
of 1996, the Parent invested $1.0 million in the Company in exchange for
374,531 shares of the Company's Common Stock. The Company also issued warrants
to the bank for purchase of 1,200,000 shares of the Company's Common Stock for
$.01 per share. Of the 1,200,000 warrants, 200,000 became exercisable at
closing and 125,000 became exercisable on March 31, 1997. As a result of the
Company repaying all amounts payable under the Credit Agreement on June 30,
1997, the bank forfeited the remaining 875,000 warrants.
In connection with a March 28, 1997 amendment to the Credit Agreement,
the Parent invested $2.5 million in the Company in exchange for 250,000 shares
of Preferred Stock. The Preferred Stock pays quarterly dividends of 8.5% per
annum and is redeemable at the option of the holder upon repayment by the
Company of all of its outstanding Credit Agreement indebtedness. The Preferred
Stock is also convertible and each share may be exchanged for 8.1 shares of
the Company's Common Stock.
The Parent is currently negotiating an amendment to an existing credit
agreement between certain of its subsidiaries and a bank. Upon the
satisfaction of certain conditions, the Company will become a party to the
amended credit agreement. Under the proposed amended terms of the agreement,
borrowings may be used for general corporate purposes of the Company. The
transfer of funds between the Company and the Parent will be based upon the
cash requirements of the Company and the availability of borrowings provided
by the amended credit agreement. The Company believes that sufficient
resources, including resources to be provided by this potential financing and
resources expected to be provided by operations (with consideration given to
the estimated modest revenue growth as previously discussed), will be
available to meet its cash requirements through the next twelve months. If
such resources otherwise prove insufficient to provide the Company with
adequate funding for its working capital, management will undertake actions to
mitigate the effect of such deficiencies. Such actions could consist of
financing initiatives, potential asset sales, and other actions relative to
maximizing the liquidity of the Company's financial resources. Cash
requirements for periods beyond the next twelve months depend on the Company's
profitability, its ability to manage working capital requirements and its
growth rate.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index on page 14 of this Form 10-Q
are filed as a part of this report.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K dated July 15, 1997 which
reported the sale of the Company's Latin American operations and which
reported certain pro forma financial information relative to the sale.
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.
GROUP TECHNOLOGIES CORPORATION
(Registrant)
Date: November 12, 1997 By:/s/ Thomas W. Lovelock
(Thomas W. Lovelock)
President & Chief Executive Officer
Date: November 12, 1997 By:/s/ David D. Johnson
(David D. Johnson)
Vice President & Chief Financial Officer
Exhibit Index
Exhibit
Number Description
11 Statement re: computation of per share earnings
27 Financial data schedule (for SEC use only)
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
GROUP TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Primary Earnings Per Share
Three Months Ended Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding 16,220,629 16,220,629 16,220,629 16,135,468
Net effect of dilutive
stock options (based on
treasury method) 664,791 0 0 0
----------- ----------- ----------- -----------
Total 16,885,420 16,220,629 16,220,629 16,135,468
=========== =========== =========== ===========
Net income (loss) $1,032,000 $(2,818,000) $(3,584,000) $(2,755,000)
Net income (loss)
per share $0.06 $(0.17) $(0.22) $(0.17)
</TABLE>
<TABLE>
<CAPTION>
Fully Diluted Earnings Per Share
Three Months Ended Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding 16,220,629 16,220,629 16,220,629 16,135,468
Net effect of dilutive
stock options (based on
treasury method) 1,309,867 0 0 0
----------- ----------- ----------- -----------
Total 17,530,496 16,220,629 16,220,629 16,135,468
=========== =========== =========== ===========
Net income (loss) $1,032,000 $(2,818,000) $(3,584,000) $(2,755,000)
Net income (loss)
per share $0.06 $(0.17) $(0.22) $(0.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 28, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-28-1997
<CASH> 4,070
<SECURITIES> 0
<RECEIVABLES> 11,715
<ALLOWANCES> 1,570
<INVENTORY> 20,780
<CURRENT-ASSETS> 36,369
<PP&E> 28,940
<DEPRECIATION> 20,463
<TOTAL-ASSETS> 44,886
<CURRENT-LIABILITIES> 26,449
<BONDS> 0
2,500
0
<COMMON> 24,955
<OTHER-SE> (9,018)
<TOTAL-LIABILITY-AND-EQUITY> 44,886
<SALES> 84,452
<TOTAL-REVENUES> 84,452
<CGS> 85,173
<TOTAL-COSTS> 85,173
<OTHER-EXPENSES> (3,461)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,087
<INCOME-PRETAX> (3,432)
<INCOME-TAX> 152
<INCOME-CONTINUING> (3,584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,584)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
