-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qpouavn3iabkm2AGV9jKnCWj+sr9gHdJH8SqujtcC/VvsZ5EJSNlWJdwr4BquKtS DSY7kN48nvYCsSMQ4OOnMA== 0000936392-98-000793.txt : 19980514 0000936392-98-000793.hdr.sgml : 19980514 ACCESSION NUMBER: 0000936392-98-000793 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTI CORP CENTRAL INDEX KEY: 0000044319 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 050278990 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-04289 FILM NUMBER: 98618326 BUSINESS ADDRESS: STREET 1: 9715 BUSINESS PARK AVENUE CITY: SAN DIEGO STATE: CA ZIP: 92131-1642 BUSINESS PHONE: 8003182567 MAIL ADDRESS: STREET 1: 9715 BUSINESS PARK AVENUE CITY: SAN DIEGO STATE: CA ZIP: 92131-1642 FORMER COMPANY: FORMER CONFORMED NAME: GLASS TITE INDUSTRIES INC DATE OF NAME CHANGE: 19710506 10-K/A 1 FORM 10-K/A DATED 12-31-97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 No. 1-4289 GTI CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 05-0278990 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 9715 BUSINESS PARK AVENUE SAN DIEGO, CALIFORNIA 92131 (Address of principal executive office) (Zip Code) (619) 537-2500 (Registrant's telephone number, including area code) Securities registered pursuant to Session 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.04 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definite proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this form 10-K. The aggregate market value of the registrants voting Common Stock, held by non-affiliates, based upon the closing price for the Registrant's Common Stock as reported in the Wall Street Journal on March 16, 1998 was $23,937,209. This was calculated by excluding shares of Common Stock and $35.00 Cumulative Convertible Preferred Stock beneficially owned by Telemetrix PLC and by directors and officers as a group from total outstanding shares solely for the purposes of this response. As of March 16, 1998, the number of shares of Common Stock of the Registrant issued and outstanding was 8,973,475. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in the following parts of this report: The Registrant's 1997 Annual Report to Stockholders is incorporated by reference to Parts I and II of this report. 2 PART I ITEM 1. BUSINESS This Form 10-K/A contains certain statements of a forward-looking nature relating to future events or the future performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this Form 10-K/A which could cause actual results to differ materially from those indicated by such forward-looking statements. GENERAL GTI Corporation was originally incorporated under the laws of Rhode Island in 1956 as Glass-Tite Industries, Inc. ("GTI-RI"). In March 1987, pursuant to an Agreement and Plan of Merger, GTI-RI merged with and into GTI Delaware, Inc., a Delaware corporation. At the effective time of the merger, the name of the surviving corporation was changed to GTI Corporation. As a result of a series of subsequent acquisitions and divestitures, GTI's only current continuing operation is Valor Electronics, Inc., a wholly-owned subsidiary of the Company ("Valor"). As used herein, the term "Company" or "GTI" refers to GTI Corporation and, unless specifically identified otherwise, all of its subsidiaries. Reference is made to the information required by Item 1 (Products, Customers, Sales and Marketing, Competition, Manufacturing and Suppliers, Product Development, Foreign Operations, International Sales, and Backlog) which are under their corresponding headings on pages 1 through 5 of the Company's 1997 Annual Report to Stockholders (the "Annual Report"), which information is hereby incorporated by reference. DISCONTINUED OPERATIONS Reference is made to the information in Note 2 on pages 17 to 18 of the Annual Report, which information is hereby incorporated by reference. BUSINESS SEGMENT INFORMATION Reference is made to the information in Note 12 on pages 24 to 25 of the Annual Report, which information is hereby incorporated by reference. PROPRIETARY RIGHTS Because its products are subject to rapidly changing design, the Company believes that patent and copyright protection are less significant to the Company's competitive position than factors such as the knowledge, ability, and experience of the Company's personnel, new product development, product quality, market recognition, and on-going customer support. To protect its proprietary rights in these products, the Company primarily relies on trade secrets and nondisclosure agreements. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. The laws of some foreign countries do not protect the Company's proprietary rights in the Company's products to the same extent as do the laws of the United States. EMPLOYEES As of March 10, 1998, the Company employed approximately 6,700 employees. Of these employees, approximately 5,700 were employed by the Company's PRC operations; approximately 870 were employed by the Company's Philippines operations, approximately 120 were employed by the Company's domestic operations, with the balance of employees employed in the Company's sales offices in Asia and Europe. In addition, approximately 1 3 510 persons are employed by the Company's PRC subcontractors to manufacture certain of the Company's networking products. The Company considers its relationships with its employees and subcontractors to be good. ENVIRONMENTAL COMPLIANCE The Company is subject to various federal, state, and local environmental protection laws and regulations and, from time to time, has incurred costs for environmental compliance, none of which to date has been material. The Company has been studying and undertaking certain remedial actions with respect to groundwater pollution and soil contamination conditions at its closed facility in Leesburg, Indiana. The Company anticipates that additional environmental expenses will be incurred in future years as the Company continues its environmental studies and analysis and, upon mutual agreement with a certain state agency, as the Company implements a remediation plan. Based on current knowledge, the Company does not believe that any future expenses associated with environmental remediation will have a material impact on the financial position of the Company. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names, ages, and offices held by the Company's current Executive Officers:
Name Age Office ---- --- ------ Albert J. Hugo-Martinez 52 President, Chief Executive Officer and Director GTI Corporation Bruce C. Myers 42 Vice President Finance, Chief Financial Officer and Secretary GTI Corporation Michael D. Hollabaugh 48 Vice President of Sales Valor Electronics, Inc. William H. Kopenhaver 51 Vice President of Operations Valor Electronics, Inc. William W. Staunton 50 Executive Vice President Valor Electronics, Inc.
There are no family relationships among the Executive Officers and Directors of the Company. Albert J. Hugo-Martinez became president and chief executive officer of the Company in March 1996. From 1988 to 1995, Mr. Hugo-Martinez was president and chief executive officer of Applied Micro Circuits Corporation in San Diego, California. Prior thereto, he held various management positions with TRW, Burr Brown Corporation, and Motorola Semiconductor. Mr. Hugo-Martinez is a director of Microchip Corp. and the UCSD Cancer Center. Mr. Hollabaugh joined the Company in 1996 as vice president of sales. Prior thereto, Mr. Hollabaugh was employed for one year as vice president of sales and marketing by Trident Microsystems, and he was employed for two years as vice president of business and product development and for six years as vice president of marketing by Applied Micro Circuits Corporation. Bruce C. Myers became vice president of finance and chief financial officer of the Company on January 21, 1997. From June 1989 to December 1996, Mr. Myers was chief operating officer and chief financial officer of Photomatrix, Inc. (formerly Xscribe Corporation) in San Diego, California. Prior thereto, Mr. Myers held various positions with Arthur Andersen LLP for eleven years. Mr. Kopenhaver joined the Company in 1997 as vice president of operations. Prior thereto, Mr. Kopenhaver was employed for two years as vice president of operations by TV/COM, and nine years as director of operations by Eastman Kodak Company. Mr. Staunton joined the Company in 1996 as vice president of quality and was promoted in 1997 to executive vice president. Prior to joining the Company, Mr. Staunton was employed for nine years as vice president of quality and reliability by Applied Micro Circuits Corporation and for six years as quality assurance manager by Burr Brown Corporation. 2 4 ITEM 2. PROPERTIES The Company's world-wide headquarters as well as the principal executive, marketing, sales, product development, manufacturing process design, materials procurement, managerial and manufacturing support are located in two leased buildings in San Diego, California. The manufacturing operations for Valor are located in two leased facilities in the PRC and one leased facility in the Philippines. The following table sets forth the Company's principal leased facilities by location, square footage, segment and use, lease expiration, and renewal options:
Approximate Renewal Square Segment Year of Lease Options Location Footage Products / Uses Expiration # / Period - -------- ---------- --------------- ------------- -------------- U.S.A. San Diego, CA 40,000 Corporate Office 2002 2/2 years each Valor administration, product development San Diego, CA 7,500 Valor warehouse, stockroom 2002 2/2 years each HONG KONG Kowloon 2,000 Valor regional sales office 1999 none PEOPLE'S REPUBLIC OF CHINA (1) Factory 1 50,000 Valor signal processing, power 1999 None transfer Factory 2 95,000 Valor signal processing, power 2000 None transfer PHILIPPINES Cabuyao 39,000 Valor signal processing, power 1998(2) 1/5 years transfer
(1) The PRC facilities are operated directly by the Company under negotiated contracts between the Company and the provincial government of China. In addition to the manufacturing space indicated, each facility includes space for staff quarters and dormitories. Such living quarters in the aggregate represent 278,500 square feet of space. (2) The Company intends to extend the existing lease arrangement for this facility during 1998. There can be no assurance that the terms of the extended lease arrangement will be acceptable to the Company. If the lease were not extended, the Company's operations, results of operations, and financial position could be materially and adversely affected. In addition to its manufacturing and distribution facilities, the Company leases small sales offices elsewhere in the United States and the United Kingdom. The Company believes that its facilities are well maintained, in good operating condition and adequate to support anticipated operating needs over the next twelve months. ITEM 3. LEGAL PROCEEDINGS Reference is made to the information in Note 7 under the heading "Litigation" on page 21 of the Annual Report, which information is hereby incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1997. 3 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Reference is made to the information under the heading "Market of the Registrant's Common Stock and Related Security Holder Matters" on page 5 of the Annual Report, which information is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the information under the heading "Selected Financial Data" on pages 5 to 6 the Annual Report, which information is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 6 through 10 of the Annual Report, which information is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements as of December 31, 1997 and 1996 and for the three years in the period ended December 31, 1997 and the related Report of Independent Public Accountants are contained in the Annual Report for the year ended December 31, 1997. An index to such materials appears on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 4 6 PART III Item 10. Directors and Executive Officers of the Registrant INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS See Part 1 Item 1 "Executive Officers of the Company" for a discussion of the executive officers of the Company. The following sets forth the name, age, principal occupation for the periods indicated, and other directorships of each of the Registrant's Directors. TIMOTHY M. CURTIS, age 55, has been a Director since 1994. Since February 1992, Mr. Curtis has been the Chief Executive and a director of Telemetrix PLC, a United Kingdom corporation, which is listed on the London Stock Exchange and is engaged in the manufacture and sale of advanced electronics products. From 1991 through 1993, he was a Non-Employee Director of TVS Entertainment, a United Kingdom-based commercial television station, from 1994 to 1996 a Non-Employee Director of Bournemouth and West Hamphsire Water PLC, and from 1994 to 1995 a Non-Employee Director of Dobson Park Industries PLC. He is currently a Non-Executive Director of Pace Micro Technology PLC. EDMUND B. FITZGERALD, age 72, has been a Director since 1993. Mr. Fitzgerald is currently Managing Director of Woodmont Associates of Nashville, Tennessee, a business advisory services firm which he founded in 1990. He is also an Adjunct Professor of Management at the Owen Graduate School of Management of Vanderbilt University in Nashville, Tennessee. From 1985 to 1989, Mr. Fitzgerald was Chairman and Chief Executive Officer of Northern Telecom Limited and from 1989 to 1990, he was Chairman of the Board. ALBERT J. HUGO-MARTINEZ, age 52, has served as President, Chief Executive Officer and a Director of the Company since March 1996. From 1988 to 1995, Mr. Hugo-Martinez was President and Chief Executive Officer of Applied Micro Circuits Corp. in San Diego, California. Prior thereto, he held various management positions with TRW, Burr Brown Corporation and Motorola Semiconductor. Mr. Hugo-Martinez is a director of Microchip Corp. and the UCSD Cancer Center. KENNETH E. MAUD, age 53, has been a Director since 1995. Mr. Maud served as interim President and Chief Executive Officer of the Company from January 1996 to March 1996. Mr. Maud also served as the Chairman of Peek PLC ("Peek"), a multinational group of companies specializing in advanced electronic traffic management systems and field data systems, from April 1991 through May 1997. From September 1986 to April 1991, Mr. Maud served as the Chief Executive of Peek. For the past 21 years, Mr. Maud has been directly involved in the development of publicly-owned electronics groups in different parts of the world. Mr. Maud is a director and Chairman of Atlantis International Corporation. ROBERT E. VENTER, age 37, has been a Director since 1993. Mr. Venter has been a senior executive with Allied Electronics Corporation Limited, a South African corporation ("Allied") since September 1990, most recently serving as Chief Executive of and a director of Power Technologies Limited, a Johannesburg Stock Exchange listed electrical engineering company, and an affiliate of Allied (see Note 1 to "Principal Stockholders"). Previously, he was a Vice President of Corporate Finance of Bear Stearns Co., Inc. from 1988 to 1990. Mr. Venter is also a director of Ventron Corporation and Allied, which are both listed on the Johannesburg Stock Exchange, as well as a director of Telemetrix PLC. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Commission and the Nasdaq National Market System. Officers, directors, and holders of more than 10% of the Common Stock are required by regulations promulgated by the Commission under the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file. The Secretary of the Company will assist beneficial owners of more than 10% of the Common Stock in complying with the reporting requirements of Section 16(a) of the Exchange Act. 5 7 Based solely on its review of the copies of such forms received by it, the Company believes that, since January 1, 1997, its directors, officers and greater than 10% beneficial owners complied with all applicable Section 16(a) reporting requirements. Item 11. Executive Compensation SUMMARY COMPENSATION TABLE The following table sets forth information concerning compensation received by the Executive Officers in 1997, 1996 and 1995.
Long-Term Annual Compensation ($) Compensation Awards --------------------------------------- ------------------- Options/ Name and SARs Other Principal Position Year Salary Bonus(1) (# of shares) ($)(2) - ----------------------------------------------------------------------------------- ------------- ------ Albert J. Hugo-Martinez 1997 310,096 72,500 60,000 4,700 President and CEO, 1996 234,231 26,064 200,000 7,200 GTI Corporation(3) 1995 -0- -0- -0- -0- Michael D. Hollabaugh 1997 173,269 10,200 20,000 2,900 Vice President of Sales 1996 -NA- -NA- -NA- -NA- Valor Electronics, Inc.(4) 1995 _-0- _-0- -0- -0- Bruce C. Myers 1997 142,481 9,300 60,000 1,000 Vice President of Finance and CFO 1996 -0- -0- -0- -0- GTI Corporation(5) 1995 _-0- _-0- -0- -0- William H. Kopenhaver 1997 136,012 25,260 60,000 1,000 Vice President of Operations 1996 -0- -0- -0- -0- Valor Electronics, Inc.(6) 1995 _-0- _-0- -0- -0- William W. Staunton 1997 165,531 32,500 55,000 3,600 Executive Vice President 1996 79,327 84,000 40,000 -0- Valor Electronics, Inc.(7) 1995 -0- -0- -0- -0-
- --------------------- (1) Represents amounts paid pursuant to the 1997 bonus plan. (2) Represents primarily the amount contributed by the Company to the Amended and Restated Cash or Deferred Profit Sharing Plan for Employees of GTI Corporation and its affiliates. (3) Mr. Hugo-Martinez became President and CEO of GTI in March, 1996. (4) Mr. Hollabaugh became Vice President of Sales of Valor in May, 1996. (5) Mr. Myers became Vice President of Finance and Chief Financial Officer of GTI in January 1997. (6) Mr. Kopenhaver became Vice President of Operations of Valor in April, 1997. (7) Mr. Staunton became Vice President of Quality of Valor in May 1996 and was promoted to Executive Vice President in November 1997. EMPLOYMENT AGREEMENTS AND SEVERANCE AND RETIREMENT ARRANGEMENTS In March 1996, the Company and Mr. Hugo-Martinez entered into an at-will employment agreement pursuant to which Mr. Hugo-Martinez became the President and Chief Executive Officer of the Company. Such employment agreement, as amended, provides that Mr. Hugo-Martinez will receive an annual base salary of $300,000 (subject to annual increases at the discretion of the Compensation Committee). In addition, Mr. Hugo-Martinez is entitled to receive quarterly and annual bonuses based upon the Company's financial performance. In the event that his employment is terminated for reasons other than gross misconduct, death or disability, Mr. Hugo-Martinez is eligible to receive severance payments in an aggregate amount equal to 12 months of his annual base salary which will be paid over a 12-month period. 6 8 CHANGE OF CONTROL AGREEMENTS In January 1998, in order to provide an incentive for Mr. Hugo-Martinez and the other Executive Officers to remain employed with the Company until a strategic alternative (including a possible sale of the Company) is consummated, and in order to provide an incentive to these employees to maximize the value to the shareholders of such strategic transaction, the Company executed Change of Control agreements with Mr. Hugo-Martinez and with each of the other Executive Officers. If there occurs a change in control of the Company, as defined in the agreements, on or before January, 1999, then Mr. Hugo-Martinez will receive a lump sum payment equal to eighteen months of his base salary and the other Executive Officers will receive a lump sum cash payment equal to nine months of their respective base salaries at the closing of the change of control transaction and assuming that they are still employed by the Company at that time. These payments supersede and replace any other severance payment to which these employees might otherwise be entitled. In addition, each of the Executive Officers will receive an additional lump sum cash payment at closing equal to one months salary for each 33 cents per share that the Company's shareholders receive in excess of $6 per share in the change of control transaction. STOCK OPTIONS The Company has one stock option plan for its officers and other management employees: the GTI Corporation Stock Incentive Plan (1989), as amended (the "Stock Incentive Plan"). The Company also has three stock option plans for non-employee directors (see Directors Compensation). Stock Incentive Plan. The Stock Incentive Plan currently provides that a maximum of 1,200,000 shares of Common Stock from the Company's authorized but unissued shares of Common Stock or from shares acquired by the Company, including shares purchased in the open market, are available for issuance by the Company in connection with awards of stock options, reload options, stock appreciation rights, performance shares and shares of restricted stock, subject to adjustment. Whenever an award under the Stock Incentive Plan is terminated or forfeited for any reason, the shares of Common Stock covered by such award will again become available for award under the Stock Incentive Plan. Also, whenever the exercise price of a stock option is paid for, in whole or in part, with shares of Common Stock, the number of shares available for award will only be decreased by the excess of the number of shares issued to the participant over the number of shares the participant surrendered. Shares may be awarded to any key employee of the Company or any subsidiary of the Company who, in the opinion of the committee administering the Stock Incentive Plan (currently the Compensation Committee), has the capacity to contribute in a substantial measure to the successful performance of the Company. The Stock Incentive Plan became effective on December 13, 1989, and no awards may be granted under the Stock Incentive Plan after December 13, 1999. Approximately 112 persons are currently eligible to participate in the Stock Incentive Plan. As of March 1, 1997, awards covering 726,250 and 248,050 shares were outstanding and available, respectively, for grant under the Stock Incentive Plan. All outstanding options become fully exercisable upon a change of control of GTI. 7 9 OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning stock options granted during the fiscal year ended December 31, 1997, to each of the Executive Officers and all employees as a group:
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term --------------------------------- Options % of Total Granted Options Exercise (# of Granted to Price Expiration Name Shares) Employees ($/Share) Date 5% ($) 10%($) - ------------------------------------------------------------------------------------------------------------------------------ Albert J. Hugo-Martinez 60,000 13.0% 5.63 11/19/07 213,000 537,000 Michael D. Hollabaugh 20,000 4.3% 5.63 11/19/07 71,000 179,000 William H. Kopenhaver 40,000 8.7% 5.50 3/20/97 139,000 350,000 20,000 4.3% 5.63 11/19/07 71,000 179,000 Bruce C. Myers 40,000 8.7% 6.06 1/21/07 153,000 385,000 20,000 4.3% 5.63 11/19/07 71,000 179,000 William W. Staunton 55,000 11.9% 5.63 11/19/07 195,000 492,000 All employees as a group 461,750 100.0% 5.50 - Various 6.38
The following table sets forth information concerning stock options exercised in 1997 by each of the Executive Officers, the aggregate number of options held by each Executive Officer and the value realized from exercised options and inherent in exercised and unexercised options at December 31, 1997: AGGREGATED OPTION EXERCISES IN 1997 AND YEAR END OPTION VALUE
Number of Securities # of Shares Underlying Unexercised ($) Value of Unexercised Acquired on ($) Value Options (# of shares) In-the-Money Options Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------------------------------------------------------------------------------------------------------------ Albert J. Hugo-Martinez -0- -0- 65,000/195,000 -0-/-0- Michael D. Hollabaugh -0- -0- 12,500/57,500 -0-/-0- William H. Kopenhaver -0- -0- -0-/60,000 -0-/-0- Bruce C. Myers -0- -0- -0-/60,000 -0-/-0- William W. Staunton -0- -0- 10,000/85,000 -0-/-0-
DIRECTORS' COMPENSATION Director Remuneration. Each director of the Company, except Mr. Maud and Mr. Hugo-Martinez, is paid an annual retainer of $18,000, plus $600 for each time that he attends a meeting of the Board of Directors. Each member of the Audit Committee and the Compensation Committee is paid $500 for each time that he attends a meeting of each such committee. Mr. Maud is paid an annual stipend of $50,000, payable quarterly, for his service as Chairman of the Board of Directors. Non-Employee Director Stock Options. The GTI Corporation 1985 Stock Option Plan for Non-Employee Directors, as amended (the "1985 Directors Plan"), provides for the automatic grant of nonstatutory stock options covering an aggregate of 100,000 shares of Common Stock to members of the Board of Directors who have been elected by the Company's stockholders and who are not full-time employees of the Company or any of its subsidiaries, subject to the limitation that no eligible director may be granted nonstatutory stock options for more than 10,000 shares. The 1985 Directors Plan provides that the exercise price of each nonstatutory stock option must not be less than the fair-market value of the Common Stock 8 10 on the date of grant. No additional stock options can be granted under the 1985 Directors Plan as of December 13, 1995. The GTI Corporation 1989 Stock Option Plan for Non-Employee Directors, as amended (the "1989 Directors Plan"), provides for the automatic grant of nonstatutory stock options with respect to 10,000 shares of Common Stock to directors of the Company who first become directors after the effective date of the 1989 Directors Plan (December 13, 1989), who are not otherwise full-time employees of the Company or any subsidiary of the Company for any part of the preceding fiscal year and who never received stock options under the 1985 Directors Plan. A maximum of 100,000 shares of Common Stock of the Company's authorized but unissued shares of Common Stock or treasury stock are available for issuance under the 1989 Directors Plan, subject to adjustment. As of March 1, 1997, stock options covering 10,000 shares have been exercised, 60,000 shares were available for future grant, and stock options covering 30,000 shares were outstanding under the 1989 Directors Plan. No stock options under the 1989 Directors Plan may be granted on or after December 13, 1999. The GTI Corporation 1996 Stock Option Plan for a Non-Employee Director (the "1996 Plan") provides for the grant of nonstatutory stock options covering a member of the Board of Directors who has been elected by the Company's stockholders and who is not a full-time employee of the Company or any of its subsidiaries, subject to the limitation that no eligible director may be granted nonstatutory stock options for more than 25,000 shares. The 1996 Plan provides that the exercise price of each nonstatutory stock option must not be less than the fair-market value of the Common Stock on the date of grant. Further, the options are exercisable immediately and have a 10 year term. Mr. Maud received a grant of 25,000 shares under the 1996 Plan in May 1996. As of March 1, 1997, there were stock options for 25,000 shares outstanding under the 1996 Plan and there were no additional shares under the 1996 Plan available for future grant. The GTI Corporation 1996 Stock Option Plan II for a Non-Employee Director (the "1996 Plan II") provides for the grant of nonstatutory stock options covering a member of the Board of Directors who has been elected by the Company's stockholders and who is not a full-time employee of the Company or any of its subsidiaries, subject to the limitation that no eligible director may be granted nonstatutory stock options for more than 25,000 shares. The 1996 Plan provides that the exercise price of each nonstatutory stock option must not be less than the fair-market value of the Common Stock on the date of grant. Further, the options are exercisable immediately and have a 10 year term. Mr. Maud received a grant of 25,000 shares under the 1996 Plan II in December 1996. As of March 1, 1997, there were stock options outstanding under the 1996 Plan II for 25,000 shares and there were no additional shares under the 1996 Plan II available for future grant. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee was at any time during the 1997 fiscal year or at any other time an officer or employee of the Company. Messrs. Venter and Curtis serve as directors of Telemetrix PLC. No other director of the Company served on a compensation committee of a Board of Directors of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or the Compensation Committee. Item 12. Security Ownership of Certain Beneficial Owners and Management AGGREGATE STOCK OWNERSHIP OF DIRECTORS AND OFFICERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of March 1, 1998, by (i) each Director of the Company and each of the Executive Officers of the Company and its subsidiaries, and (ii) all Directors and Executive Officers of the Company as a group. The table is based upon information supplied by the Directors and Executive Officers. Unless otherwise indicated, each of the listed persons has sole voting and sole investment power with respect to the shares beneficially owned, subject to community property laws where applicable. 9 11
Name of Beneficial Owner or Amount and Nature of Percent of Class as of Percent of Total Identity of Group Beneficial Ownership(1) March 1, 1998 Voting Power - ---------------------------------------------------------------------------------------------------------- Timothy M. Curtis(2) 10,000 <1% <1% Edmund B. Fitzgerald 15,000 <1% <1% Albert J. Hugo-Martinez(3) 88,500 <1% <1% Michael Hollabaugh 12,500 <1% <1% William Kopenhaver 10,000 <1% <1% Kenneth E. Maud 60,000 <1% <1% Bruce C. Myers(4) 15,000 <1% <1% William Staunton 10,000 <1% <1% Robert E. Venter(2) 12,000 <1% <1% All directors and Executive Officers as a group (9 persons) 233,000 2.6% 2.2%
(1) Includes only common shares that such person has the right to acquire under Option Plans which are exercisable within 60 days of March 1, 1998 unless otherwise indicated by footnote. (2) Messrs. Curtis and Venter are members of the six member Board of Directors of Telemetrix PLC. Telemetrix PLC beneficially owns 4,294,300 shares of Common Stock and 8,110 shares of Preferred Stock. See also Note 1 to Principal Stockholders. (3) Includes 3,500 common shares owned by Martinez Family Trust. (4) Includes 5,000 common shares owned. PRINCIPAL STOCKHOLDERS To the knowledge of the Company's management, only the following persons owned of record or beneficially more than five percent of the outstanding shares of Common Stock and Preferred Stock as of March 1, 1998:
Name and Address of Beneficial Owner or Amount and Nature of Percent of Class Percent of Identity of Group Title of Class Beneficial Ownership as of March 1, 1998 Total Vote - ---------------------------------------------------------------------------------------------------------------- ---------------- Telemetrix PLC(1)(2) Common Stock 4,444,300 48.7% 40.3% Knaves Beech Estate Loudwater, High Wycombe, Bucks, HP10 9QZ, Preferred Stock 8,110 100.0% 17.3% United Kingdom Total ---- 57.6% ==== Dimensional Fund Common Stock 562,400 6.3% 5.2% Advisors Inc. (3) 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401
(1) The Company has been advised that 47.1% of the capital stock of Telemetrix PLC is owned by Dr. William P. Venter (a citizen of South Africa), related family trusts and corporations and Allied Electronics Corporation Limited ("Allied"), a publicly held South African corporation of which Dr. Venter owns more than a majority of the outstanding shares of capital stock. Dr. Venter is also a director of Telemetrix PLC as are Messrs. Curtis and Robert E. Venter. Dr. Venter is the father of Robert E. Venter. (2)Of the common shares owned by Telemetrix, 3,844,300 shares of Common Stock are held by Telemetrix Investments Limited, a wholly owned subsidiary of Telemetrix PLC, and 450,000 shares of Common Stock are held by Telemetrix Overseas Investments BV, another wholly owned subsidiary of Telemetrix PLC. 10 12 The common shares reflected herein also includes a warrant exercisable for 150,000 shares of the Company's Common Stock (See "Certain Relationships and Related Party Transactions"). All of the preferred stock owned by Telemetrix are held by Telemetrix Investments Limited, a wholly owned subsidiary of Telemetrix PLC. (3) Dimensional Fund Advisors Inc. (Dimensional), a registered investment advisor, is deemed to have beneficial ownership of these shares, all of which shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open end investment company, or in a series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. Item 13. Certain Relationships and Related Transactions In February 1997, the Company and Valor Electronics, Inc. a wholly-owned subsidiary of the Company ("Valor") entered into a certain Note Purchase Agreement (the "Note") and related Common Stock Purchase Warrant Agreement with Telemetrix PLC. According to the terms of the Note, Telemetrix PLC loaned to Valor $2.5 million to be repaid in four equal semi-annual installments commencing in August 1997 plus interest at the prime rate of interest plus 4% (11.5% at March 1, 1998). Additionally, the Company granted to Telemetrix PLC a warrant (the "Warrant") for 150,000 shares of Common Stock at an exercise price of $6.00 per share. The Warrant is exercisable at any time and expires 30 days after the Note is paid in full. The Company believes that the terms and conditions of such financing transaction were as favorable to the Company as those it would have received from an unrelated third party. GTI Board members Messrs. Curtis and Venter are members of the six member Board of Directors of Telemetrix PLC. Telemetrix PLC beneficially owns 4,294,300 shares of Common Stock and 8,110 shares of Preferred Stock. 11 13 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Consolidated Financial Statement Schedules The Report of Independent Public Accountants and the related financial statement schedule appear on pages F-2 and F-3, respectively, hereon. (b) Exhibits The documents listed on the Exhibit Index appearing at pages 8 through 15 of this Report are filed herewith. The 1998 Proxy Statement shall be deemed to have been "filed" only to the extent portions thereof are expressly incorporated herein by reference. Copies of the exhibits listed in the Exhibit Index will be furnished, upon request, to holders or beneficial owners of the Company's Common Stock as of March 20, 1998, subject to payment in advance of a fee of $.15 per page to reimburse the Company for reproduction costs. Each management contract or compensatory plan or arrangement listed in the Exhibit Index has been marked with the letter "C" to identify it as such. (c) Reports on Form 8-K The Company filed no reports on Form 8-K during the fourth quarter of 1997. 12 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /s/ Albert J. Hugo-Martinez May 11, 1998 ---------------------------- Albert J. Hugo-Martinez President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Timothy M. Curtis Director May 11, 1998 - ---------------------------- Timothy M. Curtis /s/ Edmund B. Fitzgerald Director May 11, 1998 - ---------------------------- Edmund B. Fitzgerald /s/ Albert J. Hugo-Martinez President May 11, 1998 - ---------------------------- Chief Executive Officer & Director Albert J. Hugo-Martinez (Principal Executive Officer) /s/ Kenneth E. Maud Chairman of the Board & Director May 11, 1998 - ---------------------------- Kenneth E. Maud /s/ Bruce C. Myers Vice President - Finance and Chief May 11, 1998 - ---------------------------- Financial Officer Bruce C. Myers (Principal Financial and Accounting Officer) /s/ Robert E. Venter Director May 11, 1998 - ---------------------------- Robert E. Venter
13 15 EXHIBIT INDEX The following Exhibits to this report are filed herewith, or if marked with an asterisk (*), are incorporated herein by reference. Each management contract or compensatory plan or arrangement has been marked with the letter "C" to identify it as such.
MANAGEMENT CONTRACT OR PRIOR FILING OR EXHIBIT COMPENSATORY SEQUENTIAL PAGE NUMBER DESCRIPTION PLAN OR ARRANGEMENT NUMBER HEREIN - ------- -------------------- ------------------- -------------------- Exhibit 3.01 to 3.1 *Certificate of Form 8-B filed with Incorporation of the Commission on GTI Corporation July 11, 1987** 3.2 *Certificate of Exhibit 3.02 to Merger of GTI Form 8-B filed with Corporation into the Commission on GTI Delaware, Inc. as July 11, 1987** filed with Delaware Secretary of State 3.3 *Articles of Merger Exhibit 4.01 to of GTI Corporation Report on Form 8-K into GTI Delaware, Inc. as dated November 2, filed with Rhode 1988** Island Secretary of State 3.4 *Certificate of Exhibit 4.01 to Designation of the Report on Form 8-K $35.00 Cumulative dated November 2, Convertible 1988** Preferred Stock By-Laws of GTI Corporation, as amended 3.5 *By-Laws of GTI Exhibit 3.5 to Corporation, as Annual Report on amended as of Form 10-K for year February 26, 1992 ended December 31, 1991** 4.1 *Credit Agreement Exhibit 4.1 to and Note dated as Annual Report on of December 1, Form 10-K for year 1992, between GTI ended December 31, Corporation and 1991** Union Bank 4.2 *First Amendment to Exhibit 99.02 to Credit Agreement Amendment No. 1 to and Note between Registration GTI Corporation and Statement on Form Union Bank dated S-3 (No. 33-65086) May 7, 1993 filed on July 16, 1993 4.3 *Second Amendment Exhibit 99.03 to to Credit Agreement Amendment No. 1 to and Note between Registration the Company and Statement on Form Union Bank dated S-3 (No. 33-65086) July 15, 1993 filed on July 16, 1993 4.4 *Third Amendment to Exhibit 4.4 to Credit Agreement Annual Report on and Note dated as Form 10-K for year of March 24, 1994 ended December 31, 1993** 10.1 *GTI Corporation C Exhibit 4.4 to 1980 Employee Stock Annual Report on Option Plan Form 10-K for year ended December 31, 1993**
** Commission File No. 1-4289. 14 16
MANAGEMENT CONTRACT OR COMPENSATORY PRIOR FILING OR EXHIBIT PLAN OR SEQUENTIAL PAGE NUMBER DESCRIPTION ARRANGEMENT NUMBER HEREIN - ------ ----------- ------------ --------------- 10.2 *Amendments to 1980 Employees C Exhibit 10.1 to Stock Option Plan adopted May 8, 1981 Post-Effective Amendment No. 1 to Form S-8 Registration Statement (No. 2-68202) filed on May 12, 1981 10.3 *Amendments to 1980 Employees C Exhibit 4.03 to Post-Effective Stock Option Plan dated June 4, 1987 Amendment No. 2 to Form S-8 Registration Statement (No. 2-68202) filed on July 1, 1987 10.4 *Amendment to 1980 Employees C Exhibit 4.03 to Stock Option Plan dated December 13, 1989 Post-Effective Amendment No. 3 to Form S-8 Registration Statement (No. 2-68202) filed on May 7, 1990 10.5 *Amendment to 1980 Employees Stock Option C Exhibit 10.5 to Annual Report Plan dated February 9, 1994 on Form 10-K for the year ended December 31, 1993** 10.6 *GTI Corporation 1982 Employees Stock C Exhibit 10.5 to Annual Report Option Plan on Form 10-K for the year ended December 31, 1992** 10.7 *Amendments to 1982 Employees Stock Option C Exhibit 5.01 to Plan adopted June 4, 1987 Post-Effective Amendment No. 1 to Form S-8 Registration Statement (No. 2-86797) filed on July 1, 1987 10.8 *Amendment to 1982 Employees Stock Option C Exhibit 4.03 to Plan adopted May 3, 1990 Post-Effective Amendment No. 2 to Form S-8 Registration Statement (No. 2-86797) filed on May 7, 1990 10.9 *Amendment to 1982 Employees Stock Option C Exhibit 10.9 to Annual Report Plan dated February 9, 1994 on Form 10-K for the year ended December 31, 1993** 10.10 *GTI Corporation 1985 Stock Option Plan for C Exhibit A to definitive Proxy Non-Employee Directors Statement dated March 28, 1986 10.11 *Amendment to GTI Corporation 1985 Stock C Exhibit 10.11 to Annual Option Plan for Non-Employee Directors Report on Form 10-K for year ended December 31, 1993** 10.12 *GTI Corporation Stock Incentive Plan (1989) C Exhibit 4.01 to Form S-8 Registration Statement (No. 33-34667) filed May 7, 1990
** Commission File No. 1-4289. 15 17
MANAGEMENT CONTRACT OR COMPENSATORY PRIOR FILING OR EXHIBIT PLAN OR SEQUENTIAL PAGE NUMBER DESCRIPTION ARRANGEMENT NUMBER HEREIN - ------ ----------- ------------ --------------- 10.13 *Amendment to GTI C Exhibit 10.10 to Corporation Stock Annual Report on Incentive Plan (1989) Form 10-K for year ended December 31, 1991** 10.14 *Amendments to GTI C Exhibit 10.14 to Corporation Stock Annual Report on Incentive Plan (1989) Form 10-K for year ended December 31, 1993** 10.15 *GTI Corporation C Exhibit 4.01 to 1989 Stock Option Form S-8 Plan for Registration Non-Employee Directors Statement (No.33-34668) filed May 7, 1990** 10.16 *Amended and C Exhibit 10.13 to Restated Cash of Annual Report on Deferred Profit Form 10-K for year Sharing plan for ended December 31, Employees of GTI 1991** Corporation and it Affiliates 10.17 *Guarantee of GTI Exhibit 10.13 to Corporation dated Annual Report on September 24, 1982, Form 10-K for year for the obligations ended December 31, of GTI-Ireland, Ltd. 1992** 10.18 *Guarantee of GTI Exhibit 10.14 to Corporation dated Annual Report on July 10, 1982, to Form 10-K for year Allied Irish Banks ended December 31, Ltd. in relation to 1992** leasing machinery and equipment by GTI-Ireland Ltd. 10.19 *Allied Irish Banks Exhibit 10.15 to Ltd. and Annual Report on GTI-Ireland Ltd. Form 10-K for year Master agreement ended December 31, dated July 10, 1982, 1992** in relation to leasing future equipment and machinery 10.20 *Agreement dated Exhibit 10.16 to October 12, 1982, Annual Report on among GTI-Ireland Form 10-K for year Ltd., GTI ended December 31, Corporation, and 1992** the industrial Development Authority (of Ireland) 10.21 *Employment C Exhibit 10.15 to Agreement dated Annual Report on April 13, 1989, Form 10-K for year between GTI ended December 31, Corporation and 1989** Gary L. Luick 10.22 *Letter Agreement C Exhibit 10.18 to dated May 12, 1990, Annual Report on between GTI Form 10-K for year Corporation and ended December 31, Jack VanderKnyff 1992** 10.23 *Employment C Exhibit 10.19 to Agreement dated Annual Report on March 9, 1992, Form 10-K for year between GTI ended December 31, Corporation and R. 1992** Bert McClung 10.24 *Indemnification Exhibit 10.20 to Agreement dated Form 8-B filed with June 23, 1987, the Commission on between GTI July 11, 1987** Corporation and John C. Brittain 10.25 *Indemnification Exhibit 10.24 to Agreement dated May 5, 1989, Annual Report on between GTI Corporation Form 10-K for year and Gary L. Luick ended December 31, 1989**
** Commission File No. 1-4289. 16 18
MANAGEMENT CONTRACT OR COMPENSATORY PRIOR FILING OR EXHIBIT PLAN OR SEQUENTIAL PAGE NUMBER DESCRIPTION ARRANGEMENT NUMBER HEREIN - ------ ----------- ------------ --------------- 10.26 *Indemnification Exhibit 19.5 to Agreement dated Report on Form 10-Q August 27, 1990, for quarter ended between GTI September 30, 1990** Corporation and Douglas J. Downs 10.27 *Indemnification Exhibit 10.24 to Agreement dated Annual Report on August 27, 1991, Form 10-K for year between GTI ended December 31, 1992** Corporation and Andre R. Horn 10.28 *Indemnification Exhibit 10.26 to Agreement dated Annual Report on February 26, 1992, Form 10-K for year between GTI ended December 31, 1992** Corporation and Arthur S. Walsh 10.29 *Indemnification Exhibit 10.27 to Agreement dated May Annual Report on 26, 1992, between Form 10-K for year GTI Corporation and ended December 31, 1992** Henry N. Huta 10.30 *Indemnification Exhibit 10.30 to Agreement dated May Annual Report on 12, 1993, between Form 10-K for year GTI Corporation and ended December 31, 1993** Jesse Rifkind 10.31 *Indemnification Exhibit 10.31 to Agreement dated May Annual Report on 12, 1993, between Form 10-K for year GTI Corporation and ended December 31, 1993** Edmund B. Fitzgerald 10.32 *Indemnification Exhibit 10.32 to Agreement dated May Annual Report on 12, 1993, between Form 10-K for year GTI Corporation and ended December 31, 1993** Robert E. Venter 10.33 *Indemnification Exhibit 10.33 to Agreement dated Annual Report on February 9, 1994, Form 10-K for year between GTI ended December 31, 1993** Corporation and Timothy M. Curtis 10.34 *Indemnification Exhibit 10.34 to Agreement dated May Annual Report on 3, 1991, between Form 10-K for year GTI Corporation and ended December 31, 1993** Jack VanderKnyff 10.35 *Indemnification Exhibit 10.35 to Agreement dated May Annual Report on 15, 1992, between Form 10-K for year GTI Corporation and ended December 31, 1993** R. Bert McClung 10.36 *Indemnification Exhibit 10.36 to Agreement dated Annual Report on August 1993 between Form 10-K for year GTI Corporation and ended December 31, 1993** Donald J. Moore 10.37 *GTI Corporation C Exhibit 10.25 to Stock Option Annual Report on Agreement Form 10-K for year (Non-statutory ended December 31, 1989** Stock Options) dated as of May 5, 1989, between GTI Corporation and Gary L. Luick (1980 Plan)
** Commission File No. 1-4289. 17 19
MANAGEMENT CONTRACT OR PRIOR FILING OR EXHIBIT COMPENSATORY SEQUENTIAL PAGE NUMBER DESCRIPTION PLAN OR ARRANGEMENT NUMBER HEREIN - ------- -------------------- ------------------- -------------------- 10.38 *GTI Corporation C Exhibit 10.25 to Stock Option Annual Report on Agreement Form 10-K for year (Non-statutory ended December 31, Stock Options) 1989** dated as of May 5, 1989, between GTI Corporation and Gary L. Luick (1982 Plan) 10.39 *Management Shares C Exhibit 2.02 to Agreement dated as Report on Form 8-K of June 29, 1990, dated September 12, among GTI 1990 Corporation, Valor Electronics, Inc., and the Shareholders named therein 10.40 *Letter Agreement Exhibit 99.01 to dated June 22, Registration 1993, relating to Statement on Form purchase of Valor S-3 (No. 33-65086) minority shares filed on June 25, 1993 10.41 *Letter Agreement C Exhibit 10.41 to dated September 2, Annual Report on 1993, between GTI Form 10-K for year Corporation and ended December 31, John C. Brittain 1993** 10.42 *GTI Corporation C Exhibit 10.42 to Key Executive Annual Report on Long-Term Incentive Form 10-K for year Plan and Trust ended December 31, Agreement 1993** 10.43 *Amendment to GTI C Exhibit 10.14 to Corporation 1989 Annual Report on Stock Incentive Form 10-K for year Plan ended December 31, 1993** 10.44 *Placement Agency Exhibit 1.1 Report Agreement dated on Form 8-K dated January 5, 1995, January 6, 1995 between the Company and Needham & company, Inc., as Agent, including Subscription Form and Escrow Agreement 10.45 *Consent and Fifth Exhibit 99.1 to Amendment to Credit Report on Form 8-K Agreement and Note dated January 6, between the Company 1995 and Union Bank dated as of November 30, 1994 10.46 *Merger Agreement Exhibit 2.1 to dated as of October Report on Form 8-K 15, 1994, among the dated January 6, Company, GTI 1995 Acquisition Corp., Promptus, and certain shareholders of Promptus 10.47 *Amendment dated as Exhibit 2.2 to of January 6, 1995 Report on Form 8-K to Merger Agreement dated January 6, dated as of October 1995 15, 1994, among the Company, GTI Acquisition Corp., Promptus, and certain shareholders of Promptus
** Commission File No. 1-4289. 18 20
MANAGEMENT CONTRACT OR PRIOR FILING OR EXHIBIT COMPENSATORY SEQUENTIAL PAGE NUMBER DESCRIPTION PLAN OR ARRANGEMENT NUMBER HEREIN - ------- -------------------- ------------------- -------------------- 10.48 *Management Shares C Exhibit 10.48 to Agreement dated Annual Report on January 5, 1995, Form 10-K for year between the ended December 31, Company, Promptus 1994 Communications, Inc., and the Shareholders named therein 10.49 *Indemnification Exhibit 10.49 to Agreement dated Annual Report on October 12, 1994, Form 10-K for year between GTI ended December 31, Corporation and 1994** Richard C. Barron 10.50 *Indemnification Exhibit 10.50 to Agreement dated Annual Report on February 15, 1995, Form 10-K for year between GTI ended December 31, Corporation and 1994** Kirk D'Orazio 10.51 *Indemnification Exhibit 10.51 to Agreement dated Annual Report on February 15, 1995, Form 10-K for year between GTI ended December 31, Corporation and 1994** Aurelio Lucci 10.52 *Amendment to C Exhibit 10.52 to Employment Annual Report on Agreement dated Form 10-K for year March 29, 1995, ended December 31, between GTI 1994 Corporation and Gary L. Luick 10.53 *Stock Purchase Exhibit 99.1 to Agreement dated Current Report on February 15, 1996, Form 8-K, as by and among GTI amended, dated Corporation and December 21, 1995 Insulectro 10.54 *Asset Purchase Exhibit 99.1 to Agreement dated Current Report on December 16, 1995, Form 8-K, as by and among GTI amended, dated Corporation and December 21, 1995 Component InterTechnologies, Inc. 10.55 *Consent and Sixth Exhibit 10.55 to Amendment to Credit the Annual Report Agreement and Note on Form 10-K for between the Company the year ended and Union Bank December 31, 1995 dated June 29, 1995 10.56 *Consent and Exhibit 10.56 to Seventh Amendment the Annual Report to Credit Agreement on Form 10-K for and Note between the year ended the Company and December 31, 1995 Union Bank dated December 19, 1995 10.57 *Consent and Eight Exhibit 10.57 to Amendment to Credit the Annual Report Agreement and Note on Form 10-K for between the company the year ended and Union Bank December 31, 1995 dated February 15, 1996 10.58 *Indemnification Exhibit 10.58 to Agreement dated May the Annual Report 10, 1995, between on Form 10-K for GTI Corporation and the year ended Kenneth E. Maud December 31, 1995 10.59 Employment C Exhibit 10.59 to Agreement effective the Annual Report March 13, 1996, on Form 10-K for between GTI the year ended Corporation and December 31, 1996 Albert J. Hugo-Martinez
** Commission File No. 1-4289. 19 21
MANAGEMENT CONTRACT OR PRIOR FILING OR EXHIBIT COMPENSATORY SEQUENTIAL PAGE NUMBER DESCRIPTION PLAN OR ARRANGEMENT NUMBER HEREIN - ------- ----------- ------------------- -------------------- 10.60 Waiver And Ninth Amendment to Credit Exhibit 10.60 to Agreement and Note Between Union Bank the Annual Report and the Company on Form 10-K for the year ended December 31, 1996 10.61 *Note Purchase Agreement dated February Exhibit 10.1 to 11, 1997 between Valor Electronics, Inc. Current Report on and Telemetrix PLC Form 8-K dated February 11, 1997 10.62 *Secured Promissory Note dated February Exhibit 10.2 to 11, 1997 between Valor Electronics, Inc. Current Report on and Telemetrix PLC Form 8-K dated February 11, 1997 10.63 *Subordination Agreement dated February Exhibit 10.3 to 11, 1997 between Valor Electronics, Inc. Current Report on and Telemetrix PLC Form 8-K dated February 11, 1997 10.64 Indemnification Agreement dated March Exhibit 10.64 to 13, 1996, between GTI Corporation and the Annual Report Albert Hugo-Martinez on Form 10-K for the year ended December 31, 1996 10.65 Stock Purchase Agreement dated March 24, Exhibit 10.65 to 1997 between GTI Corporation and the Annual Report Promptus Communications, Inc. on Form 10-K for the year ended December 31, 1996 10.66 Asset Purchase Agreement dated March 25, Exhibit 10.1 to 1997 between GTI Corporation and Current Report on VideoServer, Inc. Form 8-K dated April 28, 1997 10.67 Note Purchase Agreement dated February Exhibit 10.1 to 10, 1997 between GTI Corporation, Valor Current Report on Electronics, Inc. and Telemetrix PLC Form 8-K dated February 11, 1997 10.68 Secured Promissory Note dated February Exhibit 10.2 to 10, 1998 between Valor Electronics, Inc. Current Report on and Telemetrix PLC Form 8-K dated February 11, 1997 10.69 Subordination Agreement dated February Exhibit 10.3 to 10, 1998 between Valor Electronics, Current Report on Inc., Telemetrix PLC and Union Bank of Form 8-K dated California, N.A. February 11, 1997 13 The Company's Annual Report to Shareholder's for the year ended December 31, 1997 expressly incorporated by reference herein 21.1 List of Subsidiaries of the Registrant 23.1 Consent of Independent Public Accountants
** Commission File No. 1-4289. 20 22
MANAGEMENT CONTRACT OR PRIOR FILING OR EXHIBIT COMPENSATORY SEQUENTIAL PAGE NUMBER DESCRIPTION PLAN OR ARRANGEMENT NUMBER HEREIN - ------- -------------------- ------------------- -------------------- 99.1 *Letter Agreement Exhibit 28.01 to dated August 25, Registration 1992, between GTI Statement on Form Corporation and S-3 (No. 33-52386) Telemetrix PLC, re: filed September 24, California tax 1992 matter
** Commission File No. 1-4289. 21 EX-13 2 EXHIBIT 13 1 Exhibit 13 GTI CORPORATION 1997 ANNUAL REPORT 2 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reference Page -------------------------- 1997 Annual Report to Stockholders Form 10-K --------------- --------- Report of Independent Public Accountants 11 Consolidated Financial Statements: Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 12 Consolidated Balance Sheets as of December 31, 1997 and 1996 13 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 14 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 15 Notes to Consolidated Financial Statements 16 Report of Independent Public Accountants on Schedule F-2 Schedule II: Valuation and Qualifying Accounts F-3
F-1 3 GTI CORPORATION GTI Corporation, primarily through its wholly owned subsidiary Valor Electronics, Inc. (collectively "the Company"), is an international supplier of magnetics-based, signal management components to original equipment manufacturers ("OEMs") of local area networks ("LAN") ,wide area networks ("WANs"), telecommunications and broadband systems (collectively "networks") for data and voice communications. In general, the Company's products isolate and filter the communication signal at the point where two or more network components are connected to assure that the signal is clean and that the network and its components are protected. THIS ANNUAL REPORT CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY. INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, INVESTORS SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING RISK FACTORS AND UNCERTAINTIES, IDENTIFIED IN THIS ANNUAL REPORT WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. RISK FACTORS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, RECENT DECLINES IN SALES LEVELS, RECENT OPERATING LOSSES, 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. SEE ALSO THE SECTION TRENDS, UNCERTAINTIES AND PROSPECTIVE INFORMATION INCLUDED ELSEWHERE HEREIN. PRODUCTS The Company designs, manufactures, markets, and supports a broad family of standards-based magnetic components with application-specific interface solutions for signal management in networking products. These signal management products provide signal processing and power transfer functions such as circuit isolation and impedance matching, signal shaping and conditioning, noise reduction and filtering, and voltage conversion. These electrical functions help enable the OEM's hardware and software product architecture to transmit data over the transmission media. Magnetics-based components are marketed under the Valor name and consist of two categories, signal processing and power transfer, as more fully described below. The Company's products comply with the industry standards adopted by the Institute of Electrical and Electronic Engineers ("IEEE") for the conversion and transmission of data over copper wire and support the major networking architectures which have evolved based on these standards. The Company's magnetic-based components include a broad family of standards-compliant, miniature, wire-wound transformers; integrated modules; and subsystem products. The Company works closely with networking customers and integrated circuit companies to design products that complement the manufacturers' integrated circuit or chip set configuration with magnetics applications required to enable the integrated circuit to perform its desired function. The Company's products are located at most interface points of the system where signal conversion is required. For example, on the desktop in a LAN application, these products are found inside the computer on the network interface adapter card. At the file server, these products are found near the connection port of hubs or concentrators, routers, and switches, as well as inside multiple-access units. Magnetics-based components are an integral part of electronic circuitry. In LAN applications, circuits need to be isolated from each other, impedances matched (signal levels stepped up or down), unwanted signals suppressed or noise emissions filtered, and voltage converted. The LAN topologies that these networking products support differ in their requirements for transmission speed, wiring specifications, and signaling-access methods of the LAN; and, as a result, the component mix, quantity, placement, and degree of component integration for these products will vary depending upon the LAN topology used. 1 4 Signal Processing Products - The majority of the Company's revenues are derived from signal-processing products which consist of pulse transformers, chokes, filters, and integrated filter modules. Pulse transformers provide electrical isolation of circuits and match impedances between different parts of circuits, thus allowing for different circuits placed within close proximity on the same board to handle voltage signals without causing data distortion or circuit damage. In a LAN using copper wire as the transmission medium, isolation transformers are used on network adapter cards, generally located inside the computer, close to the connector, to isolate the network wiring from the adapter card itself. This isolation prevents the network wire from transferring voltage spikes into the system which would severely damage the circuits. Chokes are used for filtering and smoothing electrical signals, and are often used in connection with transformers. In a LAN, the required magnetics application for chokes is signal conditioning and shaping at the network interface point to suppress common mode noise (noise present equally on pairs of wires where the signals are supposed to exist at opposite levels to each other) emission on the transmit and receive line. The Company's transformers and chokes support Ethernet over coaxial cable; 10Base-T and Token Ring LAN topologies; 100Base-TX Fast Ethernet, 155 Mbps Asynchronous Transfer Mode ("ATM"), and fibre-channel applications. Transformers and chokes are also used in telecommunication products with ISDN, T1/E1/CEPT and xDSL interface applications. Filter products reduce or eliminate conducted noise frequencies outside of the normal network frequencies from traveling along transmission media as well as minimize large current or voltage spikes that would be deemed excessive on the transmission cable. Filter products are designed to work with the most commonly used integrated circuits and generally support both transmit or receive functions. Filters are located at the transmit and receive connection ports in such hardware as adapter cards, intelligent hubs, routers, and switches and may be placed discretely on printed-circuit boards or into an integrated filter module. Integrated filter modules consist of a filter and a transformer and often a choke in one single module and may also include resistors, compactors and opto-isolators. Integrated filter modules perform the combined functions of signal isolation, impedance matching, signal conditioning, filtering, noise suppression and overvoltage protection. The Company's filter products support applications for Ethernet over coaxial cable, 10Base-T, Token Ring, PCMCIA credit card-sized standard, FDDI over copper, 100Base-VG, 100Base-T4, 155 Mbps ATM, ADSL and Cable Modem. Beginning in 1998, the Company offers a line of single, one-by-four and two-by-six integrated connectors which integrate the Company's signal processing products with RJ45 connectors in a strategic arrangement with AMP (a connector manufacturer). These integrated connectors offer size and performance benefits as compared to the current approach of a separate signal processing component and a separate RJ45 connector. Power-Transfer Products - The Company's principal power-transfer products are DC/DC converters. DC/DC converters take the bus or supply voltage, which generally operates at a different voltage level than the integrated circuit, and converts the voltage to a level to enable the integrated circuit to function optimally. DC/DC converters are also suitable for flash memory and distributed power applications. In a LAN, DC/DC two watt converters are located in combination adapter cards and hubs and support Ethernet (10Base2/5) over coaxial cable applications. 10Base-T topologies do not require a DC/DC converter. CUSTOMERS The Company's products are sold directly or indirectly to more than 1,000 customers, including primarily OEM's and distributors. Two of these customers accounted for 18% and 13% of the Company's total sales in 1997. Two customers accounted for 20% and 10% of the Company's total sales in 1996, and two customers accounted for 16% and 14% of the Company's total sales in 1995. No other customer accounted for 10% or more of total sales in these years, but several other customers contributed more than 5% of the Company's total sales in these years. The sales percentage from the Company's OEM and distribution customers has historically fluctuated and may continue to vary in future periods. Management believes that future sales concentration to these OEM and distribution customers is likely to continue. 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 affect the Company's results of operations and financial condition. The loss of one of these customers would have a material adverse effect on the Company's results of operations and financial condition. 2 5 SALES AND MARKETING The Company's products are sold in North America through 16 manufacturers' representative organizations employing over 150 sales engineers trained to sell the Company's products. These products are also offered for sale through two national and one regional electronics distributors with branches throughout the United States and Canada. The efforts of the representative organizations are directed by three regional manager employees, and the efforts of the distribution organizations are directed by a national distribution manager employee, all of whom report to a vice president of sales. The international sales structure comprises representative and distributor networks in Europe and the Pacific Rim. There are directors of sales and marketing in London, England, and Hong Kong who oversee sales in Europe and Asia, respectively. The Company employs customer service representatives to process purchase orders and respond to customer inquiries. COMPETITION The market for magnetics-based components for network applications is highly competitive. The Company's LAN products have two principal competitors, Pulse Engineering, Inc., (a subsidiary of Technitrol) and Bel Fuse, Inc. Each of these competitors offers a broad product line, and each competes with levels of manufacturing and engineering capabilities at least similar to the Company's. In addition, numerous foreign-based firms with strong, low cost manufacturing capabilities offer specific products with capabilities similar to the Company's product lines. There is no dominant competitor in the telecommunications market for magnetic components, and competition varies according to location and type of interface. Among at least 30 competitors in the telecommunications market, the Company competes most often with Pulse Engineering, Midcom, Vacuumschmelze and UMEC. The number of competitors and the characteristics of competition for the Company's products varies based on the degree of engineering and design related to each product. Currently, competition is primarily based on engineering design, quality, availability, and price. Products with very little engineering requirements or changes in design have more competitors and typically compete on price. Products with a high degree of engineering design and component integration have fewer competitors and typically compete on the ability to provide solutions. The market for 10Base-T Ethernet and 10Base-2/5 products is becoming increasingly mature and, as a result, manufacturing companies are entering the marketplace with standard products and have sought to compete on the basis of price. The Company has competed in this environment by focusing on higher degrees of engineering and functionality, product quality, and availability, as well as the ability to cost re-engineer mature products. See "Product Development" for a discussion of new product development and emerging communications markets. MANUFACTURING AND SUPPLIERS The manufacturing operations for the Company's products are labor intensive, and primarily involve the winding of magnetic cores; the assembly and placement of discrete and integrated circuit components onto printed circuit boards; product encapsulation; testing; quality assurance; and marking of the final component. The Company conducts its manufacturing in two operations in the People's Republic of China ("PRC") and one operation in the Philippines. The activities of these manufacturing operations are coordinated and supported by the Company's San Diego-based headquarters and, in times of peak production, may be supplemented by third-party subcontractors in the PRC and in the Philippines. All of the Company's manufacturing operations in the PRC and the Philippines are certified pursuant to ISO 9002. The Company has direct product supervision over the subcontractor operations. The related subcontractor arrangements are negotiated on a price-per-piece basis, renewable annually, and generally provide to the Company flexibility to adapt its production schedule in response to fluctuations in market demand. The principal materials and fabricated components used in the Company's products include ferrite cores, coilforms, leadframes, printed circuit boards, epoxies, discrete and integrated circuit electronic components. The Company generally uses standard parts and components for its products and, historically, has been able to obtain adequate supplies from several existing sources. Currently, pin coilforms, which are used in approximately 30% of filter 3 6 products, are manufactured by a sole-sourced supplier. An interruption in the supply of pin coilforms or the inability of the Company to procure this component from alternative sources at acceptable prices within a reasonable time would materially and adversely affect the Company's business, manufacturing operations, operating results, and financial condition. PRODUCT DEVELOPMENT The market for the Company's products is characterized by rapidly changing technology, frequent new product introduction, and the requirement to conform to evolving standards for networking data communications architectures. The Company's ability to develop and introduce new products to the market in a timely manner or enhancements to existing products is crucial to its future success. The Company is developing its magnetics-based products for use in emerging communications markets, such as Fast Ethernet, GigaBit, FDDI/CDDI, ATM, xDSL, ISDN and T1/E1 standards. The Company works closely with networking customers and integrated circuits manufacturers with which the Company's products must interface and participates as a member in the IEEE and ANSI Standards Committees and the ADSL Forum. These efforts give the Company early access to new technologies and new product plans, which the Company believes provide it with timely information regarding the development of its products. Concurrent engineering projects with key customers are also becoming an important factor in developing new products and product enhancements. In 1997, 1996, and 1995, the Company incurred design engineering and product development costs of $3,166,000, $3,245,000 and $4,705,000, respectively. FOREIGN OPERATIONS Substantially all of the Company's manufacturing operations and approximately 52% of its identifiable assets (excluding goodwill) are located in the PRC and the Philippines. See also "Manufacturing and Suppliers" and "Properties." There are risks inherent to these foreign operations, many of which are beyond the control of the Company. These risks include exposure to the effects of political and economic instability and significant changes to existing international treaties, fluctuating currency exchange rates, changes in tariffs, taxes, duties and imposts, market forces, and changes in foreign laws as well as difficulties in staffing and managing foreign subsidiaries and oversight of subcontracting arrangements. Such risks could result in interruptions of manufacturing operations, capability, or substantial increases in operating costs which, if prolonged, would have a material, adverse effect on the Company's profitability and financial condition. For example, if the United States Government were to eliminate current favorable trade legislation with China or increase customs duties, it could have a material adverse effect on a significant portion of the Company's foreign operations. INTERNATIONAL SALES Sales to customers outside of the United States comprised approximately 46% of the Company's total sales in 1997, of which approximately 21%, 22%, and 1% were made to customers in Asia, Europe, and North America (outside the United States), respectively. Sales to customers outside the United States as a percentage of total sales were approximately 48% in 1996, and 42% in 1995. Additional geographic segment financial information is set forth in the Notes to the Consolidated Financial Statements included elsewhere herein. The Company has established sales offices in Hong Kong and London, England to administer its international sales activities. The Company believes that LAN, telecommunication and broadband systems, which require magnetics-based components such as those manufactured by the Company, will make further penetration into international markets, as has been the case in the United States. Accordingly, the Company expects that international sales will continue to represent a significant percentage of total future sales. International sales are, however, subject to inherent risks, including changes in regulatory requirements, fluctuating currency exchange rates, increases in tariff and other barriers, difficulties in obtaining export licenses, and potentially adverse tax consequences. 4 7 BACKLOG As of December 31, 1997, the Company's backlog was approximately $8.6 million compared to approximately $15.7 million as of December 31, 1996. While the Company believes that the orders included in the backlog are firm, typical customer terms generally include the ability to cancel or reschedule orders without significant penalty. In addition, the Company commits its manufacturing and expense levels according to monthly and quarterly sales and production forecasts. If anticipated sales do not meet these forecasts, the Company's operating results would be adversely affected. As more fully discussed in the Trends, Uncertainties and Prospective Information section of this Annual Report, 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. 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. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS The Company's Common Stock is traded on the NASDAQ/NMS--Symbol: GGTI. The prices quoted below have been furnished by the NASDAQ/NMS. As of December 31, 1997, there were approximately 1,660 holders of record of the Company's Common Stock. The Company has not paid dividends on its Common Stock since 1982.
1997 1996 ------------ ------------- QUARTER HIGH LOW HIGH LOW - ------- ----- ----- ------ ----- 1st 6 7/8 4 1/4 18 1/4 8 1/4 2nd 6 3/4 4 3/4 9 1/2 7 1/4 3rd 7 3/4 5 1/4 7 3/4 5 1/4 4th 6 5/8 4 1/2 7 1/4 4 3/8
SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data of the Company have been derived from the audited Consolidated Financial Statements of the Company. This data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report. 5 8 SELECTED CONSOLIDATED FINANCIAL DATA (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 1994 1993 ------------------------------------------------------------------------------- INCOME STATEMENT DATA Sales $82,591 $ 92,533 $114,836 $103,239 $88,575 =============================================================================== Income (loss) from: Continuing operations $(3,133) $ (7,651) $ 6,124 $ 3,299 $10,890 Discontinued operations, net of income taxes -- (2,998) (2,178) 1,962 2,310 Disposal of discontinued operations, net of income taxes -- (10,822) (2,000) -- -- ------------------------------------------------------------------------------- Net income (loss) $(3,133) $(21,471) $ 1,946 $ 5,261 $13,200 =============================================================================== Diluted earnings (loss) per share: Continuing operations $ (0.38) $ (0.88) $ 0.56 $ 0.32 $ 1.09 Discontinued operations, net of income taxes -- (0.33) (0.20) 0.19 0.23 Disposal of discontinued operations, net of income taxes -- (1.21) (0.18) -- -- ------------------------------------------------------------------------------- Net income (loss) per share $ (0.38) $ (2.42) $ 0.18 $ 0.51 $ 1.32 =============================================================================== Weighted average number of common shares and common stock equivalents 8,973 8,973 10,904 10,187 10,023 =============================================================================== BALANCE SHEET DATA Total Assets $82,954 $ 91,524 $117,699 $ 99,948 $89,648 =============================================================================== Working Capital $33,813 $ 29,513 $ 53,690 $ 42,108 $38,055 =============================================================================== Long-term debt, less current portion $ 625 $ -- $ -- $ -- $ -- =============================================================================== Stockholders' equity $63,765 $ 67,150 $ 88,995 $ 77,563 $71,772 ===============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements included elsewhere in this Annual Report. Amounts are expressed in thousands (except per share data). RESULTS OF OPERATIONS 1997 COMPARED TO 1996 Revenues declined by 10.7% from $92,533 in 1996 to $82,591 in 1997. This decrease resulted from an approximate 17.0% decrease in average selling prices (including the effects of changes in mix), offset somewhat by an approximate 4.7% increase 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 year mix of lower-priced components for telecommunications markets. The 4.7% increase in unit volume resulted primarily from initial successes in the telecommunications markets as a result of the Company's strategy to build on its LAN magnetics expertise and to penetrate new telecommunications and broadband markets. Two of the Company's OEM customers collectively accounted for 31% and 30% of the Company's sales in the current and prior year, respectively. The sales percentage from the Company's OEM customers has historically fluctuated and may continue to vary in future periods. Management believes that future sales concentration to these customers is likely to continue. 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. 6 9 Cost of sales decreased $12,186 or 16.2% from $75,350 (81.4% of revenue) in 1996 to $63,164 (76.5% of revenue) in 1997. Gross profit increased $2,244 or 13.1% from $17,183 in 1996 to $19,427 in 1997. Gross profit as a percent of sales increased from 18.6% to 23.5% in 1996 and 1997, respectively. These improved margins resulted primarily from decreased labor and overhead costs resulting from the 1996 replacement of China subcontract labor with direct employees and facilities which more than offset the decreased sales prices. Nevertheless, based on the Company's current overhead structure, if future volumes decline, the actual cost per unit and gross profit could be materially and adversely affected. Operating expenses for 1997 decreased by $3,980 or 15.5% from $25,722 (27.8% of sales) in 1996 to $21,742 (26.3% of sales) in 1997. The prior year included a $1,900 charge related to the restructuring of the Company's Asia operations, a $650 charge related to the settlement and legal costs of a class action lawsuit, and an $871 charge related to employee severance. Absent these prior-year costs, operating expenses decreased $559 or 2.5% primarily as a result of decreased professional fees and decreased administrative personnel, offset somewhat by increased sales and marketing expenditures. Other expenses increased $656 from $162 in 1996 to $818 in 1997 primarily because of a $499 net loss on the liquidation of the VideoServer shares received in connection with the Promptus divestiture. The Company's tax provision (benefit) related to continuing operations was $0 in 1997 compared to a $1,050 benefit in 1996. These tax amounts are disproportionate to the related loss from continuing operations because the Company's net operating loss carryforwards have been used to decrease the amount of the permanently reinvested off-shore earnings that had not been taxed in prior years. The increase in gross profit and the decreases in operating expenses, offset somewhat by the increase in other expenses and the decrease in tax benefits, resulted in a loss from continuing operations in 1997 of $3,133 or $0.38 per share. This compares to a loss from continuing operations of $7,651 or $0.88 per share in 1996. Including the effects of discontinued operations in 1996, the net loss decreased $18,338 from $21,471 or $2.42 per share in the prior year to $3,133 or $0.38 per share in 1997. 1996 COMPARED TO 1995 Revenues declined by 19.4%, from $114,836 in 1995 to $92,533 in 1996. This decrease consisted of an approximate 5.3% decrease in average selling prices and an approximate 14.9% decrease in unit volume. Management attributes the decrease in average selling prices to the competitive pressures caused by downward pressures on prices in the market for networking products for which the Company provides components. The decrease in unit volume is attributed to certain product quality issues that management believes have since been addressed. Cost of sales decreased by 8.9%, from $82,729 in 1995 to $75,350 in 1996. This decrease was due primarily to the decline in unit sales volume and the factors discussed below related to gross margin. Gross margin decreased by 46.5%, from $32,107 in 1995 to $17,183 in 1996. Gross margin as a percent of revenue decreased by 33.6%, from 28% in 1995 to 18.6% in 1996. The decline in gross margin resulted primarily from the decline in unit volume and from increased excess and obsolete inventory provisions in 1996. The decrease in gross margin as a percent of revenues resulted primarily from the effects of fixed costs spread over lesser volume and from the price decline described above. This decrease was off set slightly by decreased labor and overhead costs resulting from the May 1996 formation of the Company's wholly-owned manufacturing operation in China, from the resultant termination of subcontract processing arrangements in China, and from the resultant restructuring of the Company's Hong Kong management team. Operating expenses increased by 1.3%, from $25,382 in 1995 to $25,722 in 1996. The 1996 operating expenses included a $1,900 charge related to the restructuring of the Company's off-shore operations, particularly in Hong Kong, a $650 charge related to the settlement and legal costs of a class action lawsuit, and a $871 charge related to employee severance. The 1995 operating expenses included a $1,376 charge related to severance. Absent these 7 10 charges in 1996 and 1995, operating expenses decreased by 5.6% resulting primarily from reductions in commissions expense and personnel. Other expenses increased from $29 in 1995 to $162 in 1996 primarily as a result of gains on the sale of certain fixed assets in 1995. The Company's tax provision (benefit) related to continuing operations changed from an expense of $506 in 1995 to a net benefit of $1,050 in 1996. The net tax benefit in 1996 resulted primarily from the carryback of the U.S. portion of the 1996 consolidated loss. The 1995 expense is significantly less than a provision based on the U.S. Federal tax rate due to off-shore tax holidays and due to the Company's intentions (at that time) to not repatriate off-shore earnings. The decreased revenue levels, decreased gross margin and increased operating expenses, off-set somewhat by income tax consequences, resulted in a loss from continuing operations after taxes of $7,651 ($0.88 per share) in 1996. This compares to income from continuing operations after taxes of $6,124 ($0.56 per share on a diluted basis) in 1995. The Company discontinued three operations during the years 1995 and 1996. Losses from discontinued operations were $2,998 ($.33 per share) in 1996 compared to $2,178 ($.20 per share on a diluted basis) in 1995. Estimated loss on disposal of discontinued operations was $10,822 ($1.21 per share) in 1996 and $2,000 ($.18 per share on a diluted basis) in 1995. Including the effect of discontinued operations, the net loss was $21,471 ($2.42 per share) in 1996 compared to net income of $1,946 ($.18 per share on a diluted basis) in 1995. TRENDS, UNCERTAINTIES AND PROSPECTIVE INFORMATION The Company expects that revenues in its first quarter of 1998 will be substantially less than the $18 million level achieved in the fourth quarter of 1997. Management believes that this continuing revenue decline results 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. Many of the Company's key customers have indicated a softening of demand for computer and networking products in the first quarter of 1998, and this trend may continue. As a result of the continuing revenue decline, the 1998 first quarter loss will substantially exceed the $1.6 million loss recorded in the fourth quarter of 1997. In response to this adverse trend and for other reasons, the Company has initiated 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. Management believes that its future operating results will be influenced by a number of factors including, but not limited to: general economic conditions; the growth of the LAN and internetworking markets; the growth of broadband, global services and high-speed, digital, network and telecommunications applications; timely new product introductions; dependence on key OEM customers; market acceptance of new networking, telecommunications and broadband technologies; market acceptance of the Company's products; and numerous competitive forces. It is anticipated that the Company's operating results in the foreseeable future will remain dependent on the success of the Company to identify, develop, manufacture, and market new products or to enhance existing product offerings. The majority of the Company's sales continue to be derived from products that support Ethernet applications. The Company's operating results could be affected if there is an unexpected change in such technologies or if the Company does not respond appropriately to expected changes. The Company supplies OEM's with product compliant with all relevant IEEE, ANSI, and ATM forum standards for 100Base-TX Fast Ethernet, TP/PMD (FDDI over copper), xDSL, and 155 Mbps ATM applications. The success of these advanced products is dependent on many factors, such as the Company's ability to manufacture these products in sufficient quantities to meet anticipated demand and the overall market acceptance of these new technologies. The inability of these advanced networking products to gain market acceptance or potential delays of the widespread installation of such products 8 11 could subject The Company's existing products to increased competition and pricing pressures, which would adversely affect the Company's operating results. The Company's future performance will also be affected by the volume, mix, and timing of orders received during a particular period. There can be no assurance that orders from existing customers will continue at the levels of previous years or that the Company will be able to obtain orders from new customers. If anticipated orders do not develop, or changes in delivery schedules or cancellation of orders occur, the Company's per-unit manufacturing costs, expenditures, and inventory levels could be disproportionately high in relation to sales. This could have an adverse effect on the Company's operating results and liquidity for that quarterly period. The Company's results and stock price have been, and may continue to be, subject to significant volatility, particularly on a quarterly basis. A further reduction in sales or increase in operating losses could have an immediate and significant adverse affect on the trading price of the Company's Common Stock in any given quarterly period. Throughout the world, many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. During 1997, the Company completed a migration of its information systems (for all functions of the Company) to new Enterprise Resource Planning software (database and applications software) which fully addresses the Year 2000 issue. Also, the Company's management has reviewed and evaluated the potential impact of the Year 2000 issue on other application software, firmware and hardware utilized by the Company and have concluded that the Company has no additional or significant exposure (from an operational or a financial perspective) related to this matter. LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 1997, the Company satisfied its working capital and capital expenditure requirements through net borrowings from a related party, the proceeds from the disposal of Promptus, income tax refunds and internally generated cash from operations (net income before depreciation and amortization). The Company's primary uses of these available funds was to add equipment, to increase inventories and to reduce current liabilities. These sources and uses of cash are detailed in the Consolidated Statements of Cash Flows included elsewhere in this Annual Report. In February 1997, the Company obtained a $2,500 two-year term note from its majority shareholder as more fully described in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. The first payment on this note of $625 plus interest was paid in August 1997, and the second payment of $625 plus interest was paid in February 1998. In April 1997, the Company completed the divestiture of its interest in Promptus Communications, Inc. The Company received approximately $8.2 million in cash, net of transaction costs, and 157,795 shares of VideoServer (NASDAQ: VSVR) common stock. As of December 31, 1997 the Company had sold all of these shares of VideoServer for total proceeds of approximately $1.8 million. In September 1997, the Company received a $3.5 million Federal tax refund resulting from the carryback of the 1996 U.S. operating loss and 1995 U.S capital loss to prior profitable periods. The Company is now in a Federal tax loss carryforward position, and no further Federal tax refunds are available. As of December 31, 1997, the Company does have foreign and state tax refunds receivable totaling about $3 million which the Company expects to collect in 1998. The Company's 1994 Federal tax return is currently under audit, and the 1997 and prior years' Federal, state and foreign tax returns are subject to audit. Such audits could result in adjustments to the Company's tax position. 9 12 In 1997, the Company purchased capital equipment approximating $3.7 million. These expenditures were primarily for production equipment and information systems. 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. Management believes that funds on hand and funds generated by operations will be sufficient to finance working capital needs, projected capital-expenditure requirements and debt maturities at least through the next twelve months assuming that revenues achieve anticipated levels. However, if revenue levels continue to decline (see also Trends, Uncertainties and Prospective Information included elsewhere herein), 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. In January 1998, the Company retained investment bankers to assist the Company regarding the identification and investigation of strategic alternatives that might be available to the Company, including a possible sale of the Company. No such strategic transaction has been negotiated to date, and there can be no assurance that any such strategic transaction will be consummated. If a sale of the Company occurs, there can be no assurance regarding the price per share to be received by the Company's shareholders. 10 13 Report of Independent Public Accountants To the Stockholders and Board of Directors, GTI Corporation: We have audited the accompanying consolidated balance sheets of GTI Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GTI Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Diego, California February 25, 1998 11 14 GTI CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1997 1996 1995 ------- -------- -------- Sales $82,591 $ 92,533 $114,836 Cost of sales 63,164 75,350 82,729 ------- -------- -------- Gross profit 19,427 17,183 32,107 Operating expenses 21,742 25,722 25,382 ------- -------- -------- Operating profit (loss) (2,315) (8,539) 6,725 Other (income) expense, net Loss on sale of securities 499 -- -- Interest (income) (308) (91) (93) Interest expense 537 319 342 Other (income) expenses 90 (66) (220) ------- -------- -------- Income (loss) from continuing operations before income taxes and minority interest (3,133) (8,701) 6,696 Provision (benefit) for income taxes -- (1,050) 506 Minority interest in earnings of subsidiaries -- -- 66 ------- -------- -------- Income (loss) from continuing operations (3,133) (7,651) 6,124 Loss from discontinued operations, net of income taxes of $0 and $515 for 1996 and 1995, respectively -- 2,998 2,178 Loss on disposal of discontinued operations, net of income taxes -- 10,822 2,000 ------- -------- -------- Net income (loss) $(3,133) $(21,471) $ 1,946 ======= ======== ======== NET INCOME (LOSS) PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS: Basic EPS - ------------------------------------------ Income (loss) from continuing operations $ (0.38) $ (0.88) $ 0.65 Loss from discontinued operations -- (0.33) (0.24) Loss on disposal of discontinued operations -- (1.21) (0.22) ------- -------- -------- Net loss $ (0.38) $ (2.42) $ 0.19 ======= ======== ======== Weighted average number of common shares 8,973 8,973 8,973 ======= ======== ======== Diluted EPS - ------------------------------------------ Income (loss) from continuing operations $ (0.38) $ (0.88) $ 0.56 Loss from discontinued operations -- (0.33) (0.20) Loss on disposal of discontinued operations -- (1.21) (0.18) ------- -------- -------- Net loss $ (0.38) $ (2.42) $ 0.18 ======= ======== ======== Weighted average number of common shares and common stock equivalents 8,973 8,973 10,904 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 12 15 GTI CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, ------------------------------ 1997 1996 --------- -------- Current assets: Cash and cash equivalents $ 6,967 $ 3,219 Accounts receivable, net of allowances of $339 and $201, respectively 12,061 11,502 Inventories 21,794 18,551 Income tax receivable 2,926 3,435 Prepaid expenses and other 2,786 3,367 Net assets of discontinued operations 290 11,637 ------- ------- Total current assets 46,824 51,711 Property, plant and equipment, net 14,800 15,974 Goodwill, less accumulated amortization of $4,907 and $4,211, respectively, and other assets 21,330 23,839 ------- ------- TOTAL ASSETS $82,954 $91,524 ======= ======= Current liabilities: Accounts payable, accrued and other liabilities $11,761 $17,298 Short-term borrowings - 4,900 Current portion of long-term debt due to affiliate 1,250 - ------- ------- Total current liabilities 13,011 22,198 Long-term debt due to affiliate, net of current portion 625 - Deferred income taxes and other liabilities 5,553 2,176 Stockholders' equity: Preferred stock, 1,000,000 shares authorized, first series, $35.00 cumulative convertible, 8,110 shares issued and outstanding 8,110 8,110 Common stock, par value $.04 per share, 12,000,000 shares authorized, 8,973,475 shares issued and outstanding 359 359 Additional paid in capital 44,082 44,082 Retained earnings 11,227 14,644 Cumulative translation adjustment (13) (45) ------- ------- Total stockholders' equity 63,765 67,150 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $82,954 $91,524 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 13 16 GTI CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
First Series Additional Cumulative Total Preferred Common Paid-in Retained Treasury Translation Stockholders' Stock Stock Capital Earnings Stock Adjustment Equity --------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $8,110 $339 $34,567 $34,737 $(1,040) $850 $77,563 Net income 1,946 1,946 Sale of 650,000 shares of Common Stock, of which 250,000 shares were issued from Treasury Stock, in connection with the 72% acquisition of Promptus Communications, Inc. 16 8,655 1,040 9,711 Issuance of 114,125 shares of Common Stock under stock option plans 4 860 864 Preferred Stock dividend (284) (284) Cumulative translation gain on sale of assets of the E-Group (835) (835) Translation adjustment 30 30 --------------------------------------------------------------------------------------------------- Balance, December 31, 1995 8,110 359 44,082 36,399 - 45 88,995 Net loss (21,471) (21,471) Preferred Stock dividend (284) (284) Translation adjustment (90) (90) --------------------------------------------------------------------------------------------------- Balance, December 31, 1996 8,110 359 44,082 14,644 - (45) 67,150 Net loss (3,133) (3,133) Preferred Stock dividend (284) (284) Translation adjustment 32 32 --------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $8,110 $359 $44,082 $11,227 $ - $ (13) $63,765 ===================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 14 17 GTI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31, -------------------------------------------------------- 1997 1996 1995 --------- -------- -------- Cash flows from operating activities: Net income (loss) $(3,133) $(21,471) $1,946 Adjustments to reconcile net income (loss) to net cash provided (used) by continuing operations: Loss from discontinued operations - 2,998 2,178 Loss on disposal of discontinued operations - 10,822 2,000 Depreciation and amortization 5,608 5,319 4,757 Loss on sale of securities 499 - - Minority interest in earnings of subsidiary - - 66 Loss on disposal of equipment 202 - 201 Deferred income taxes 719 1,289 (1,945) Change in assets and liabilities: Accounts receivable (559) 7,954 (680) Inventories (3,243) 10,694 (8,958) Income taxes receivable 509 (3,435) - Prepaid expenses and other 2,115 (1,231) (326) Accounts payable, accrued and other liabilities (5,537) (5,335) 3,246 Other non-current liabilities 2,658 223 384 ------ ------ ------- Net cash provided (used) by (162) 7,827 2,869 continuing operations Net operating cash used by discontinued operations (701) (2,898) (3,697) ------ ------ ------- Net cash provided (used) by operating activities (863) 4,929 (828) ------ ------ ------- Cash flows from investing activities: Purchases of property, plant and equipment (3,661) (6,060) (4,509) Capital expenditures of discontinued operations -- (978) (1,897) Purchase of Promptus, net of cash acquired -- -- (19,089) Proceeds from disposal of discontinued operations 11,549 2,412 11,750 ------ ------ ------ Net cash provided (used) by investing activities 7,888 (4,626) (13,745) ------ ------ ------- Cash flows from financing activities: Proceeds from (repayment of) credit facility, net (4,900) 666 2,579 Proceeds from long-term debt due to affiliate, net of repayments 1,875 -- -- Isssuance of common stock -- -- 10,575 Preferred stock cash dividend paid (284) (213) (284) ------ ------ ------- Net cash provided (used) by financing activities (3,309) 453 12,870 ------ ------ ------- Net change in cumulative translation adjustment 32 (90) 30 ------ ------ ------- Net increase (decrease) in cash and cash equivalents 3,748 666 (1,673) Cash and cash equivalents - beginning of period 3,219 2,553 4,226 ------ ------ ------- Cash and cash equivalents - end of period $6,967 $3,219 $2,553 ====== ====== =======
The accompanying notes are an integral part of these consolidated financial statements. 15 18 GTI CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of GTI Corporation and its majority-owned subsidiaries (collectively the Company). All significant intercompany transactions and balances have been eliminated. Financial Statement Preparation - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results could differ from management's estimates. Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments purchased with a maturity date of three months or less. Cash equivalents are stated at cost, which approximates market value. Concentration of Credit Risk and Geographic Operations - The Company invests a portion of its excess cash in debt instruments of financial institutions with strong credit ratings and has established guidelines relative to diversification and maturities that maintain safety and liquidity. The Company has not experienced any significant losses on its cash equivalents. The Company sells its products to customers in diversified industries worldwide. The Company performs ongoing credit evaluations of its customers' financial condition and maintains allowances for potential credit losses. Actual losses have been within management's expectations. As of December 31, 1997, two large customers represented approximately 46% of the Company's net accounts receivable balance. A significant portion of the Company's manufacturing operations and its inventories are concentrated in the People's Republic of China (the "PRC") and, to a lesser extent, the Philippines. Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market and include direct labor, materials, and manufacturing overhead. Property, Plant, and Equipment - Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 7 to 25 years for buildings and improvements and 3 to 7 years for machinery, equipment, furniture, and fixtures. Expenditures for property additions together with major renewals and improvements are capitalized. Maintenance, repairs, and minor renewals and betterments are charged to expense. Excess of Cost over Net Assets of Acquired Companies - The excess of acquisition cost over the fair value of net assets (goodwill) of Valor Electronics, Inc. ("Valor," the Company's primary operating subsidiary) is being amortized using the straight-line method over 35 years. The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated life of this asset. Management believes that there has been no impairment of the goodwill as reflected in the Company's consolidated financial statements as of December 31, 1997. The Company is subject to technological changes, which could cause management to reassess its estimate of the realizability of goodwill and/or its amortization period. The determinants used for this evaluation include management's estimate of the asset's continuing ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the intangible asset to the Company's business objectives. Cost in excess of net assets of Valor, net of amortization, was $19,149 and $19,845 as of December 31, 1997 and 1996, respectively. Income Taxes - The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach to account for income taxes. The Company provides deferred income taxes for temporary differences that will result in taxable or 16 19 deductible amounts in future years based on the reporting of certain costs in different periods for financial statement and income tax purposes. Foreign Currency Translation - Assets and liabilities of the Company's foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenue and expenses are translated at the average exchange rate for the period. Translation gains or losses of the Company's foreign subsidiaries are not included in net income but are reported as a separate component of stockholders' equity. The functional currency of those subsidiaries is the primary currency in which the subsidiary operates. Gains and losses on transactions in denominations other than the functional currency of the Company's foreign operations, while not material in amount, are included in the results of operations. Most of the Company's worldwide sales and inventory and equipment purchases are denominated in U.S. dollars, and most of the Company's cash is invested in U.S. dollars. As a result, the Company typically does not enter into foreign exchange transactions to hedge balance sheet and intercompany balances against movements in foreign exchange rates. Net Income (Loss) Per Share of Common Stock - In 1997 the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," which sets forth the basis for the computation of "basic" earnings per share and "dilutive" earnings per share. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. Diluted EPS is computed on the basis of the weighted average shares of Common Stock outstanding plus common equivalent shares arising from the effect of cumulative convertible Preferred Stock, using the if-converted method, and dilutive stock options, using the treasury-stock method. All EPS amounts for prior years and quarters have been restated to conform to these new standards, and the effect of the restatement was not significant. Recent Accounting Pronouncements - In 1997, the Financial Accounting Standards Board issued Statements No. 130 ("SFAS 130"), "Reporting Comprehensive Income" and No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial statements. Both SFAS 130 and 131 are effective for fiscal years beginning after December 15, 1997. NOTE 2: BUSINESS COMBINATION AND DISCONTINUED OPERATIONS Promptus - In January 1995, the Company completed the acquisition of approximately 72% of the issued and outstanding capital stock of Promptus for approximately $19.1 million in cash, net of cash acquired. The acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair-market value. This allocation resulted in approximately $17.2 million of costs in excess of the net assets acquired, which was being amortized over 20 years. In March 1997, Promptus entered into an agreement (the "NAC Transaction") to sell the net assets of its Network Access Card business ("NAC") for approximately $20,000, consisting of $14,500 in cash and 223,881 shares of VideoServer, Inc. Immediately after the closing of the NAC transaction, Promptus purchased 100% of the Promptus shares held by the Company and repaid certain indebtedness to the Company for an aggregate of approximately $11,600, net of certain transaction costs. The net proceeds to the Company at closing were $8,200 in cash and approximately 158,000 shares of common stock of VideoServer, Inc. resulting in a loss on disposal of approximately $10,800. As a result of this divestiture, the operations prior to closing and the loss on disposal of 17 20 Promptus are included within discontinued operations. In 1997, the Company incurred an additional $499 loss resulting from the decline in value of VideoServer from the date of closing to the date the Company was able to liquidate the VideoServer shares. This $499 loss was recorded in 1997 in continuing operations. E-Group - In December 1995, the Company completed the divestiture of certain assets and liabilities of the E-Group for approximately $12,500, resulting in a gain of approximately $3,000, net of income taxes of $2,500. The Company received $11,750 in cash paid at the closing, $250 in escrow funds, and a $500 promissory note due in three years. The escrow funds will remain in escrow until June 1997, at which time, if no purchase price adjustment occurs, all escrow funds will be remitted to the Company. Esco - In February 1996, the Company sold 100% of Esco's common stock in exchange for approximately $4,100, consisting of $2,200 in cash and a $1,900 promissory note due in equal installments over six years, resulting in a loss on disposal of approximately $5,000, net of income tax benefits of approximately $1,300. This loss was accrued in 1995. The sales of the E-Group, Esco and Promptus were made pursuant to formal divestiture plans adopted by the Company's Board of Directors which required the plans to be carried out within one year. Accordingly, these businesses have been accounted as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. The operating results of the discontinued operations during the period of the Company's ownership are summarized as follows:
1996 1995 ---------------------------- Sales $ 17,735 $ 54,771 ---------------------------- Loss before tax provision and minority interest income (3,530) (2,209) Income tax provision - 515 Minority interest income 532 546 ---------------------------- Net loss $ (2,998) $ (2,178) ============================ Basic earnings (loss) per share $ (0.33) $ (0.24) ============================
Interest expense has been allocated to loss on discontinued operations for the year ended December 31, 1995 based upon specifically identified debt incurred in connection with the acquisition of Promptus. The amount of interest expense allocated was approximately $865. 18 21 NOTE 3: SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURE Supplemental cash flow information are summarized as follows:
1997 1996 1995 ------ ------ ------- Interest paid including interest related to discontinued operations $ 440 $ 376 $ 1,207 ====== ====== ======= Income taxes paid $1,085 $2,636 $ 1,559 ====== ====== ======= Business acquisition, net of cash acquired: Working capital, other than cash acquired $ - $ - $ 644 Plant and capital 1,314 Purchase price in excess of the net assets acquired 17,230 Other assets 1,183 Non-current liabilities (1,282) ------ ------ ------- Net cash used to acquire Promptus $ - $ - $19,089 ====== ====== =======
In connection with the disposal of the E-Group in December 1995, the Company used the cash proceeds of approximately $11,750 to repay the outstanding principal and interest on a bank term loan of $4,100 and repaid the remaining $7,650 against the outstanding principal amount on a bank credit facility. The term loan and credit facility were both used in connection with the acquisition of Promptus. NOTE 4: SUPPLEMENTARY FINANCIAL INFORMATION Inventory consisted of the following:
1997 1996 ------- ------- Raw materials $ 9,881 $ 7,441 Work in process 2,871 3,748 Finished goods 9,042 7,362 ------- ------- Total inventories $21,794 $18,551 ======= =======
19 22 Property, plant and equipment consisted of the following:
1997 1996 -------- -------- Land $ 12 $ 12 Buildings and improvements 5,647 4,683 Machinery and equipment 22,177 20,549 Furniture and fixtures 4,055 3,429 -------- -------- Property, plant and equipment, gross 31,891 28,673 Less: accumulated depreciation (17,091) (12,699) -------- -------- Property, plant and equipment, net $ 14,800 $ 15,974 ======== ========
Accounts payable and accrued liabilities consisted of the following:
1997 1996 ------- -------- Accounts Payable $ 5,032 $ 6,700 Employee compensation 3,045 3,810 Federal, local, foreign and other taxes - 2,759 Other accrued liabilities 3,684 3,782 Accrued severance costs - 247 ------- -------- $11,761 $ 17,298 ======= ========
NOTE 5: CREDIT AGREEMENTS AND RELATED-PARTY NOTE Through December 1997 the Company had a line of credit agreement with a bank. Interest on outstanding borrowings accrued at prime plus one and one quarter percent, and the line was secured by substantially all the Company's domestic assets. The line of credit agreement expired in December 1997, and as of December 31, 1997 and 1996, there were zero and $4.9 million, respectively, outstanding under this arrangement. In February 1998, the Company negotiated a new line of credit, subject to activation. However, based on recent financial performance (see Note 13), it is unlikely that this line will be activated. In February 1997, the Company entered into a Note Purchase Agreement (the "Note") with Telemetrix PLC ("Telemetrix," the Company's majority shareholder). By the terms of the Note, Telemetrix loaned $2,500 to the Company with principal to be repaid in four equal semi-annual installments of $625,000 (plus applicable interest) beginning August 1997 and ending February 1999. Interest accrues at Prime plus 4% (12.5% as of December 31, 1997). The loan is secured by a subordinated security interest in all of the Company's assets. As of December 31, 1997, the outstanding balance on this Note was $1,875. Also, by the terms of the Note and related agreements, the Company granted Telemetrix a warrant to acquire 150,000 shares of GTI common stock at an exercise price of $6 per share. The warrant expires 30 days after the Note is repaid in full. 20 23 NOTE 6: INCOME TAXES The components of the provision (benefit) for income taxes for the years ended December 31 are as follows:
1997 1996 1995 ------- -------- ------ Federal - current $ - $ (2,988) $ (358) - deferred 1,998 1,264 (762) Foreign - current (1,998) 2,031 1,714 - deferred - (1,156) 71 State and local - (201) (159) ------- -------- ------ $ - $ (1,050) $ 506 ======= ======== ======
The components of the income tax provision (benefit) were based on the following sources of pre-tax income (loss):
1997 1996 1995 -------- -------- -------- Total United States $ (9,129) $(13,341) $ (2,289) Total Foreign 5,996 4,640 8,985 -------- -------- -------- $ (3,133) $ (8,701) $ 6,696 ======== ======== ========
The components of the net deferred income tax asset were as follows:
1997 1996 ------- -------- Accelerated depreciation $ 30 $ 51 Compensation 99 532 Reserves 745 674 NOL, capital loss, AMT credit carryovers 5,261 866 Miscellaneous accrued expenses 121 - Other 423 90 Valuation reserve - capital loss (643) (651) ------- -------- $ 6,036 $ 1,562 ======= ========
The components of the net deferred income tax liabilities were as follows:
1997 1996 ------- ------ Accelerated depreciation of foreign assets $ - $ - Earnings not permanently reinvested 6,472 - ------- ------ $ 6,472 $ - ======= ======
21 24 A reconciliation from the Federal income tax provision at the statutory rate to the effective rate is as follows:
1997 1996 1995 ------- ------- -------- Statutory Federal tax on income before income taxes $(1,065) $(2,958) $ 1,719 Effect of foreign losses with no tax benefit - - - State income taxes, net of federal benefit - (201) (191) Differences between US and foreign tax rates - 986 (1,050) Foreign tax refund (1,998) - - Earnings not permanently reinvested 4,675 - - Non-deductible expenses 258 748 28 Benefit of NOL carryforward (1,870) - - Other - 375 - ------- ------- -------- $ - $(1,050) $ 506 ======= ======= ========
Income tax provision is not recorded for US Federal income taxes on a portion of the undistributed earnings of foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. Accumulated undistributed earnings of foreign subsidiaries on which US taxes have not been provided are approximately $37,300, which would result in a related tax liability of $9,300, net of estimated foreign tax credits of $6,700, if such earnings were repatriated. NOTE 7: COMMITMENTS AND CONTINGENCIES Lease Commitments: The Company leases machinery and equipment, computer equipment, office furniture and leased facilities under various operating leases. These leases expire on various dates through 2002. Under the terms of most of the leases, the Company is required to pay all taxes, insurance and maintenance. The total future minimum annual lease payments under these operating lease agreements are as follows:
Year Ended December 31, ------------ 1998 $2,366 1999 2,191 2000 1,290 2001 824 2002 640 Thereafter - ------ $7,311 ======
Rental expense amounted to $3,468, $2,879 and $3,280 in the years ended December 31, 1997, 1996 and 1995, respectively. Litigation: In December 1995, a class-action lawsuit was filed in the United States District Court, Southern District of California, against the Company and certain of its officers and directors alleging violations of the Securities Exchange Act of 1934. In November 1996, the court approved a Stipulation of Settlement with prejudice resulting in a release of all claims. The settlement amount, paid by the Company in 1996, was $400. The Company is involved in various legal proceedings and claims arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material effect on the Company's consolidated financial position or results of operations. Change of Control Contingencies: In February 1998, the Company retained investment bankers to assist the Company regarding the identification and investigation of strategic alternatives that might be available to the Company, including a possible sale of the Company. No such strategic transaction has been negotiated to date, and there can be no assurance that any such strategic transactions will be consummated. If a sale of the Company occurs, there can be no assurance regarding the price per share to be received by the Company's shareholders. Also, if a change of control of GTI occurs, the Company will owe stay-on bonuses to certain employees aggregating approximately $1,200 and a success fee to the investment bankers, depending on the price of the strategic transaction, if any. 22 25 NOTE 8: PREFERRED STOCK The preferred stock is convertible at the discretion of the holder, at a rate of 234.314 shares of common stock per share of preferred stock, into 1,900,287 shares of the Company's common stock. Dividends accrue on this preferred stock at a rate of $35.00 per share per year and are payable quarterly. The preferred shares have a liquidation preference of $1,000 per share and have a par value of $1.00 per share. NOTE 9: EARNINGS PER SHARE The following represents a reconciliation of the numerator and the denominator of the Basic EPS computation to the numerator and denominator of the Diluted EPS computation:
For the year ended For the year ended For the year ended December 31, 1997 December 31, 1996 December 31, 1995 --------------------------- ---------------------------- --------------------------- Income Per share Income Per share Income Per share (loss) Shares amount (loss) Shares amount (loss) Shares amount --------------------------- ---------------------------- --------------------------- BASIC EARNINGS (LOSS) PER SHARE: Net loss $(3,133) $(21,471) $1,946 Less: preferred stock dividend (284) (284) (284) ------- -------- ------ Loss available for common stockholders (3,417) 8,973 (21,755) 8,973 1,662 8,973 Basic income (loss) per share $(0.38) $(2.42) $0.19 ====== ====== ===== DILUTIVE EARNINGS (LOSS) PER SHARE: Assumed exercise of stock options - antidilutive - antidilutive 31 Convertible preferred stock - antidilutive - antidilutive 284 1,900 --------------- ---------------- --------------- Loss available for common stockholders $(3,417) 8,973 $(21,755) 8,973 $1,946 10,904 =============== ================ =============== Dilutive income (loss) per share $(0.38) $(2.42) $0.18 ====== ====== =====
Implementation of SFAS 128 had no significant impact to the Company's computation of Dilutive EPS relative to its historical calculation of EPS under APB Opinion No. 15. NOTE 10: STOCK-BASED COMPENSATION PLANS Stock Option Plans: The Company has five stock option plans that provide for the granting of either incentive stock options or non-qualified stock options to key employees and non-employee members of the Company's Board of Directors. All current outstanding options are non-qualified stock options. The options granted under these plans are to purchase common stock at not less than fair-market value at the date of grant. Employee options are generally exercisable one year from date of grant in cumulative annual installments of 25%, and they generally fully vest upon a change of control of GTI. Non-employee director options are exercisable in full at the date of grant. The options have terms of five to ten years. 23 26 The following summarizes stock options activity for 1997:
Exercise Shares Price Range --------- -------------- Outstanding as of December 31, 1996 826,250 $5.25 - $35.00 Granted 461,750 $5.50 - $6.38 Exercised - - Forfeited (261,625) $5.25 - $35.00 --------- -------------- Outstanding as of December 31, 1997 1,026,375 $5.25 - $28.75 ========= ============== Number of shares exercisable as of December 31, 1997 246,561 $5.25 - $28.75 ========= ============== Weighted average fair value of options granted $5.69 =========
The outstanding options expire at various dates through December 2007. As of December 31, 1997, 147,925 shares were available for future grant under all plans. Additionally, as of December 31, 1997, a warrant was outstanding for 150,000 shares of common stock at an exercise price of $6 per share. This warrant, issued to an affiliated party, expires 30 days after the note payable to said affiliated party is paid in full. The anticipated retirement of said note is February 1999. As permissible under Statement of Financial Accounting Standards No. 123, the Company accounts for stock options granted as per the methodology prescribed under Accounting Principles Board Opinion No. 25, which recognizes compensation cost based upon the intrinsic value of the equity award. Accordingly, no compensation expense was recognized in the consolidated statement of operations for any equity awards granted during 1997, 1996 and 1995. The following table represents pro forma net income (loss) and pro forma earnings (loss) per share had the Company elected to account for equity awards using the fair-value-based method beginning with all equity award grants commencing on January 1, 1995. In estimating the pro forma compensation expense for each equity award granted during the years ended December 31, 1997, 1996 and 1995, the Company used the Black Scholes option pricing model, a risk-free interest rate of 6.5%, expected dividend yield of zero, expected option lives of 6.5 years, and expected volatility of 83.2%. The estimated pro forma compensation cost resulting in the pro forma net income (loss) and earnings (loss) per share may not be representative of actual results had the Company accounted for equity awards using the fair-value-based method.
1997 1996 1995 ------- -------- ------ Net income (loss) as reported $(3,133) $(21,471) $1,946 ======= ======== ====== Pro forma net income (loss) $(3,470) $(21,777) $1,838 ======= ======== ====== Basic EPS as reported $(0.38) $(2.42) $ 0.19 ======= ======== ====== Pro forma Basic EPS $(0.42) $(2.46) $ 0.17 ======= ======== ====== Diluted EPS as reported $(0.38) $(2.42) $ 0.18 ======= ======== ====== Proforma Diluted EPS $(0.42) $(2.46) $ 0.17 ======= ======== ======
24 27 NOTE 11: EMPLOYEE BENEFIT PLANS The Company has a defined contribution plan that qualifies as a cash or deferred profit sharing plan under Sections 401(a) and 401(k) of the Internal Revenue Code. The plan is available to substantially all domestic employees. Under the plan, participating employees may defer between 1% and 15% of their pre-tax compensation. The Company contributes 50% for each dollar contributed per employee up to a maximum of 3% of the employee's defined compensation. In addition, the plan provides for an employer profit sharing contribution in such amounts as the Board of Directors may annually determine. The Company also has similar plans for foreign employees which are governed by the laws in the country in which they are established. Company contributions under all plans were $81, $120 and $145 in 1997, 1996 and 1995, respectively. There were no amounts paid relating to the discretionary employer profit sharing contribution in any of these years. The Company had no other programs that required payment of post-retirement benefits to current or retired employees. NOTE 12: SEGMENT INFORMATION AND MAJOR CUSTOMERS In the year ended December 31, 1997, two customers represented 18% and 13%, respectively, of the Company's consolidated sales. In the year ended December 31, 1996, two customers represented 20% and 10%, respectively, of the Company's consolidated sales. In the year ended December 31, 1995, two customers represented 16% and 14%, respectively, of the Company's consolidated sales. Through its Valor subsidiary, the Company operates in one industry segment. Valor is a manufacturer and distributor of magnetic-based components, integrated modules, and subsystems for signal processing and power-management functions in networking and internetworking products. Valor products are used principally in the data communications industry by OEMs for local area networks and wide area networks. The Company operates predominately in the Unites States, the Peoples' Republic of China, the Philippines, Hong Kong and the United Kingdom. Transfers between geographic areas primarily represent intercompany export sales between the related companies. In computing income from continuing operations before income taxes and minority interest, no allocations of general corporate expenses have been made. Identifiable assets include those assets directly identified to those operations in each geographical area. The assets in North America consist of operating assets and goodwill (net of amortization). 25 28 GEOGRAPHIC SEGMENTS
Adjustments North and America Asia Europe Eliminations Consolidated -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 Sales to unaffiliated customers $ 46,044 $ 18,584 $17,963 $ - $ 82,591 Transfers between geographic segments - 57,611 - (57,611) - ------------------------------------------------------------------ Total Sales $ 46,044 $ 76,195 $17,963 $(57,611) $ 82,591 ================================================================== Income (loss) before income taxes and minority interest $(12,180) $ 8,638 $ 409 $ - $ (3,133) ================================================================== Identifiable Assets $ 32,705 $ 42,854 $ 7,395 $ - $ 82,954 ================================================================== YEAR ENDED DECEMBER 31, 1996 Sales to unaffiliated customers $ 48,316 $ 36,454 $ 7,763 $ - $ 92,533 Transfers between geographic segments - 54,192 459 (54,651) - ------------------------------------------------------------------ Total Sales $ 48,316 $ 90,646 $ 8,222 $(54,651) $ 92,533 ================================================================== Income (loss) before income taxes and minority interest $(10,310) $ 727 $ 882 $ - $ (8,701) ================================================================== Identifiable Assets $ 49,775 $ 37,215 $ 4,534 $ - $ 91,524 ================================================================== YEAR ENDED DECEMBER 31, 1995 Sales to unaffiliated customers $ 66,671 $ 33,373 $14,792 $ - $114,836 Transfers between geographic segments (2) 67,846 - (67,844) - ------------------------------------------------------------------ Total Sales $ 66,669 $101,219 $14,792 $(67,844) $114,836 ================================================================== Income (loss) before income taxes and minority interest $ (2,289) $ 7,951 $ 1,034 $ - $ 6,696 ================================================================== Identifiable Assets $ 66,364 $ 48,522 $ 2,813 $ - $117,699 ==================================================================
Export sales, principally to customers in Canada and Latin America, were $1,109, $908 and $3,048 in the years ended December 31, 1997, 1996 and 1995, respectively. These export sales are included in the North America amounts above. NOTE 13: SUBSEQUENT EVENTS The Company's revenues in the first quarter of 1998 were $14,002 (unaudited) compared to $22,393 (unaudited) in the comparable quarter of 1997, and the first quarter 1998 loss was about $5,700 (unaudited, including a restructuring charge of about $1,500, subject to finalization, and the cumulative effect of an accounting change of $899). In response to this adverse trend and for other reasons, the Company has initiated 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. While management believes the Company has sufficient financial resources, if revenue levels continue to decline, 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. In January 1998, the Company retained investment bankers to assist the Company regarding the identification and investigation of strategic alternatives that might be available to the Company, including a possible sale of the Company. No such strategic transaction has been negotiated to date, and there can be no assurance that any such strategic transaction will be consummated. If a sale of the Company occurs in the short term, it is likely that the sales price to be received by the Company's shareholders will be less than the historical book value reflected in the accompanying December 31, 1997 balance sheet. 26 29 NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The Company's condensed quarterly results of operations for the years ended December 31, 1997 and 1996 were as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ----------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 Sales $22,393 $23,011 $19,130 $18,057 $82,591 ----------------------------------------------------- Gross Profit 5,884 6,503 3,845 3,195 19,427 ----------------------------------------------------- Income (loss) from continuing operations before taxes 288 (112) (1,772) (1,537) (3,133) Provision (benefit) from income taxes 100 177 (277) - - ----------------------------------------------------- Income (loss) from continuing operations 188 (289) (1,495) (1,537) (3,133) Income (loss) from discontinued operations, net of income taxes - - - - - Loss on disposal of discontinued operations, net of income taxes - - - - - ----------------------------------------------------- Net income (loss) $188 $(289) $(1,495) $(1,537) $(3,133) ===================================================== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations $0.01 $(0.04) $(0.17) $(0.18) $(0.38) Income (loss) from discontinued operations - - - - - Loss on disposal of discontinued operations - - - - - ----------------------------------------------------- Net income (loss) per share $0.01 $(0.04) $(0.17) $(0.18) $(0.38) ===================================================== YEAR ENDED DECEMBER 31, 1996 Sales $26,618 $23,017 $20,560 $22,338 $92,533 ----------------------------------------------------- Gross Profit 5,929 3,689 2,628 4,937 17,183 ----------------------------------------------------- Income (loss) from continuing operations before taxes (855) (2,935) (4,291) (620) (8,701) Provision (benefit) from income taxes (300) (650) (100) - (1,050) ----------------------------------------------------- Income (loss) from continuing operations (555) (2,285) (4,191) (620) (7,651) Income (loss) from discontinued operations, net of income taxes (1,083) (480) (936) (499) (2,998) Loss on disposal of discontinued operations, net of income taxes - - - (10,822) (10,822) ----------------------------------------------------- Net income (loss) $(1,638) $(2,765) $(5,127) $(11,941) $(21,471) ===================================================== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations $(0.07) (0.26) (0.47) (0.08) $(0.88) Income (loss) from discontinued operations (0.12) (0.05) (0.10) (0.06) (0.33) Loss on disposal of discontinued operations - - - (1.21) (1.21) ----------------------------------------------------- Net income (loss) per share $(0.19) $(0.31) $(0.57) $(1.35) $(2.42) =====================================================
27 30 CORPORATE INFORMATION OFFICERS CORPORATE OFFICES PRODUCT DEVELOPMENT & Albert J. Hugo-Martinez 9715 Business Park Avenue MANUFACTURING President San Diego, California 92131-1642 LOCATIONS Chief Executive Officer 619-537-2500 San Diego, California Director Shenzhen, Peoples Repub. of China Cabuyao, Laguna, Philippines Bruce C. Myers INDEPENDENT PUBLIC Vice President - Finance ACCOUNTANTS Chief Financial Officer Arthur Andersen LLP PRIMARY SALES AND Secretary DISTRIBUTION LOCATIONS San Diego, California NON-EMPLOYEE DIRECTORS TRANSFER AGENT Kowloon, Hong Kong Ken E. Maud Chemical Mellon Shareholder London, England Chairman of the Board Service, LLC Timothy M. Curtis Chief Executive - Telemetrix PLC Edmund B. Fitzgerald Professor Managing Director - Woodmont Associates Robert E. Venter Chief Executive - Power Technologies Ltd. Director, Telemetrix PLC
28 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To GTI Corporation: We have audited in accordance with generally accepted auditing standards the consolidated financial statements included in this Form 10K, and have issued our report thereon dated February 25, 1998. Our audits of the consolidated financial statements were made for the purpose of forming an opinion on those statements taken as a whole. The supplemental Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Diego, California February 25, 1998 F-2 32 GTI CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
Balance at Charged to Beginning of Costs and Accounts Balance at Description Period Expenses Written Off end of Year - ---------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended December 31, 1997 $201 $168 $(30) $339 Year ended December 31, 1996 $225 $ 60 $(84) $201 Year ended December 31, 1995 $143 $ 90 $ (8) $225
F-3 EX-21.1 3 EXHIBIT 21.1 1 Exhibit 21.1 GTI CORPORATION SUBSIDIARIES OF THE REGISTRANT Valor Electronics, Inc., a California corporation Valor East Electronics, Ltd., a Hong Kong corporation and wholly-owned subsidiary of Valor Electronics, Inc. Barnfinch, Ltd., a Hong Kong corporation and wholly-owned subsidiary of Valor Electronics, Inc. Valor Electronics GmbH, a German corporation and wholly-owned subsidiary of Valor Electronics, Inc. Valor Europe, Ltd., United Kingdom corporation and wholly-owned subsidiary of Valor Electronics, Inc. Valor Electronics Philippines, Inc., a Philippines corporation and wholly-owned subsidiary of Valor Electronics, Inc. Val Pan Am, S.A., a Mexican corporation and wholly-owned subsidiary of Valor Electronics, Inc. Sierracin, S.A., a Mexican corporation and wholly-owned subsidiary of Valor Electronics, Inc. Valor Electronics Investments BV, a Netherlands corporation and wholly-owned subsidiary of Valor Electronics, Inc. Valor Electronics Cayman, Inc., a Cayman Islands corporation and wholly-owned subsidiary of Valor Electronics, Inc. EX-23.1 4 EXHIBIT 23.1 1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K/A into GTI Corporation's previously filed Registration Statements File No. 2-68202, No. 2-86797, No. 33-13711, No. 33-34667, No. 33-78930 and No. 33-48101. ARTHUR ANDERSEN LLP San Diego, California May 11, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 6,967 0 12,400 339 21,794 46,824 14,800 0 82,954 13,011 625 0 8,110 359 55,296 82,954 82,591 82,591 63,164 21,742 281 0 537 (3,133) 0 (3,133) 0 0 0 (3,133) (0.38) (0.38)
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