ITEM 1. BUSINESS
Reference is made to the information required by Item 1 (General, 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 2 through 6 of the Company's 1996 Annual Report to Stockholders (the "Annual Report"), which information is hereby incorporated by reference.
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.
Since the acquisition of Valor, the Company has evolved into a broad-based supplier of signal management components to original equipment manufacturers ("OEMs") of local area networks ("LAN") and wide area networks ("WANs") for data communications. 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 and internetworking 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 OEMs hardware and software product architecture to transmit data over the LAN transmission media.
DISCONTINUED OPERATIONS
The Company's electronic components and equipment segment was sold in December 1995, and its distribution products segment was sold in February 1996. In March 1997, Promptus Communications, Inc., a majority-owned subsidiary of the Company ("Promptus") entered into an agreement to sell the net assets of its Network Access Card ("NAC") business for approximately $20.0 million of which approximately $14.5 million will be paid in cash and will be paid in 223,881 shares of VideoServer, Inc.'s common stock, subject to regulatory approval. Immediately after the sale of its NAC business, Promptus has agreed to purchase 100% of the Promptus common stock held by the Company and repay indebtedness to the Company for for an aggregate of approximately $11.6 million, net of certain transaction costs. Management expects these transactions to close during the quarter ended June 28, 1997.
BUSINESS SEGMENT INFORMATION
As a result of the discontinued operations and related divestitures described above, the Company now operates only in the networking products industry segment. During the years presented herein, 100% of the revenues from continuing operations were derived from Valor.
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
The number of persons employed by the Company, excluding the employees of Promptus, as of March 1, 1997, was approximately 7,620. Of these employees, approximately 6,500 were employed by the Company's PRC operations; 960 were employed by the Company's Philippines operations, and approximately 140 were employed by the Company's domestic operations. In addition, approximately 1,476 and 410 persons are employed by the Company's PRC and Philippine subcontractors, respectively, 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 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:
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 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.
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 Xscribe Corporation in San Diego, California. Prior thereto, Mr. Myers held various positions with Arthur Andersen LLP for eleven years.
ITEM 2.
ITEM 2. PROPERTIES
The Company's and Valor's world-wide headquarters as well as the principal executive, marketing, sales, product development, manufacturing process design, materials procurement, managerial and manufacturing support, and a warehousing facility are located in a leased building in San Diego, California. The manufacturing operations for Valor are located in three leased facilities in the PRC and the Philippines.
The majority of the Company's operations are conducted in leased facilities. The following table sets forth the Company's principal leased facilities by location, square footage, segment and use, lease expiration, and renewal options:
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(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 177,200 square feet of space.
(2) The Company intends to extend the existing lease arrangement for this facility during 1997. There can be no assurance that the terms of the extended lease arrangement will be acceptable to the Company. In the event that the lease is not extended, this would have a material adverse effect on the Company's operations, results of operations, and financial position.
In addition to its manufacturing and distribution facilities, the Company leases sales offices elsewhere in the United States, United Kingdom, and Germany. 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.
ITEM 3. LEGAL PROCEEDINGS
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 adverse affect on the Company's consolidated financial position.
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. Specifically, the complaint asserted, among other claims, that the Company artificially inflated the value of its Common Stock by making false and misleading statements about expected financial results. In July 1996, the Company entered into a Stipulation of Settlement which was approved by the Court with prejudice and all claims were released. The settlement amount was $1 million of which $400,000 was paid by the Company and $600,000 was paid by the Company's insurance carrier.
ITEM 4.
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 1996.
PART II
ITEM 5.
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 6 of the Annual Report, which information is hereby incorporated by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information under the heading "Selected Financial Data" on pages 6 and 7 of the Annual Report, which information is hereby incorporated by reference.
The selected consolidated financial 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 as part of the Annual Report, which information is hereby incorporated by reference.
ITEM 7.
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 7 through 12 of the Annual Report, which information is hereby incorporated by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of December 31, 1996 and 1995 and for the three years in the period ending December 31, 1996, 1995, and 1994 and the related Report of Independent Public Accountants are contained in the Annual Report for the year ended December 31, 1996, which information is hereby incorporated by reference. An index to such materials appears on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the Company's 1997 Proxy Statement under the headings "Election of Directors -- Nominees for Election as Directors", and "Compensation and Other Transactions with Officers and Directors", and "Compliance with Section 16 of the Exchange Act" and is incorporated herein by reference. See Part I Item 1 "Executive Officers of the Company" for a discussion of the executive officers of the Company.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Company's 1997 Proxy Statement under the heading "Compensation and Other Transactions with Officers and Directors" (excluding the information under the heading subcaption "Compensation Committee Report") and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information related to security ownership of certain beneficial owners and security ownership of management is set forth in the Company's 1997 Proxy Statement under the headings "Principal Stockholders" and "Election of Directors-Aggregate Stock Ownership of Directors and Officers" and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's 1997 Proxy Statement under the headings "Election of Directors- Nominees for Election as Directors" and Note 3 to the table under "Election of Directors-Aggregate Stock Ownership of Directors and Officers" and "Certain Relationships and Related Transactions" and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements and Consolidated Financial Statement Schedules
The Report of Independent Public Accountants and the related financial statement schedule appear on pages and, respectively, hereon.
(b) Exhibits
The documents listed on the Exhibit Index appearing at pages 7 through 12 of this Report are filed herewith. The 1997 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 April 15, 1997, 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 following reports on Form 8-K were filed during the fourth quarter of 1996:
Report dated November 12, 1996, reporting under Item 5 an announcement of the court's approval of a Stipulation of Settlement of a class-action lawsuit filed in December 1995 against the Company and certain of its officers, and directors. Additionally, the Company announced that a certain officer of the Company resigned.
Report dated December 12, 1996, reporting under Item 5 an announcement that Mr. Andre Horn (69) retired from the Board of Directors of the Company.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To GTI Corporation:
We have audited in accordance with generally accepted auditing standards the consolidated financial statements incorporated by reference in this Form 10K, and have issued our report thereon dated March 25, 1997. 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, March 25, 1997
GTI CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (THOUSANDS OF DOLLARS)
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(A) Amount represents accounts written off.
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
April 8, 1997 By: /s/ ALBERT J. HUGO-MARTINEZ ------------------------------------ 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.
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.
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**Commission File No. 1-4289
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**Commission File No. 1-4289
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**Commission File No. 1-4289
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**Commission File No. 1-4289
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**Commission File No. 1-4289
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**Commission File No. 1-4289