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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 Q
(Mark One)
/XX/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 29, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
Commission File Number: 0-19717
WPI GROUP, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
NEW HAMPSHIRE 02-0218767
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1155 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03101
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number including area code: (603) 627-3500
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(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by the court.
Yes No
--- ---
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of July 25, 1997
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Common Stock, par value $.01 5,984,162 shares
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WPI GROUP, INC.
INDEX
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PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- June 29,1997 and September 29,1996
Consolidated Statements of Income 4
- Three months ended June 29,1997 and June 30,1996
- Nine months ended June 29,1997 and June 30,1996
Consolidated Statements of Cash Flows 5
- Nine months ended June 29,1997 and June 30,1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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WPI GROUP, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 29, June 29,
1996 1997
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(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 206,829 $ 117,546
Accounts receivable - net of allowance for
doubtful accounts of $244,300 and $340,000,
respectively 10,881,315 14,001,402
Accounts receivable - other 1,618,873 1,206,862
Inventories 7,068,496 12,800,634
Prepaid expenses and other current assets 230,509 2,091,414
Prepaid income taxes 1,103,840 1,122,578
Refundable income taxes 547,750 284,064
----------- -----------
Total current assets 21,657,612 31,624,500
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation 9,447,758 16,049,179
OTHER ASSETS 19,569,574 33,790,052
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$50,674,944 $81,463,731
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,265,217 $ 5,436,990
Accrued expenses 3,464,164 6,036,334
Accrued income taxes 1,772,630 337,971
----------- -----------
Total current liabilities 9,502,011 11,811,295
NOTES PAYABLE TO BANK 18,650,000 43,884,700
NON-COMPETE AGREEMENT 20,000 --
DEFERRED INCOME TAXES 1,954,287 2,243,376
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued 5,947,922
and 5,981,662, respectively. 59,479 59,817
Additional paid-in capital 13,658,604 13,833,852
Retained earnings 6,815,801 9,460,767
Cumulative foreign currency translation adjustments 14,762 169,924
----------- -----------
Total stockholders' equity 20,548,646 23,524,360
----------- -----------
$50,674,944 $81,463,731
=========== ===========
</TABLE>
See notes to financial statements
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WPI GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
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<S> <C> <C> <C> <C>
NET SALES $12,655,422 $15,562,326 $33,003,591 $43,893,178
COST OF GOODS SOLD 7,892,902 9,394,476 20,086,060 26,442,415
----------- ----------- ----------- -----------
GROSS PROFIT 4,762,520 6,167,850 12,917,531 17,450,763
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and new product
development 1,038,104 1,030,341 2,471,985 2,995,491
Selling, general and administration 2,727,647 3,547,753 7,576,963 9,915,704
----------- ----------- ----------- -----------
Total operating expense 3,765,751 4,578,094 10,048,948 12,911,195
----------- ----------- ----------- -----------
OPERATING INCOME 996,769 1,589,756 2,868,583 4,539,568
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE) (77,693) (143,664) (257,997) (649,602)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 919,076 1,446,092 2,610,586 3,889,966
PROVISION FOR INCOME TAXES 268,000 439,000 835,000 1,245,000
----------- ----------- ----------- -----------
NET INCOME $ 651,076 $ 1,007,092 $ 1,775,586 $ 2,644,966
=========== =========== =========== ===========
NET INCOME PER WEIGHTED
AVERAGE NUMBER OF
COMMON SHARES $ 0.11 $ 0.16 $ 0.30 $ 0.43
=========== =========== =========== ===========
Weighted Average Common Shares
and Equivalents Outstanding 6,066,953 6,203,034 5,973,851 6,168,327
=========== =========== =========== ===========
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See notes to financial statements
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<PAGE> 5
WPI GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
June 30, June 29,
1996 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,775,586 $ 2,644,966
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,326,503 2,184,398
Changes in current assets and liabilities net of effects
of acquisition:
Accounts receivable (2,905,084) 1,084,300
Accounts receivable - other (3,230,032) 1,328,126
Inventories (495,814) (499,565)
Prepaid expenses and other current assets 124,387 (702,606)
Accounts payable 1,307,575 (1,588,068)
Accrued expenses 234,910 (1,155,931)
Accrued income taxes 306,409 (1,274,457)
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Total adjustments (3,331,146) (623,803)
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Net cash provided by (used in) operating activities (1,555,560) 2,021,163
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 5,582,225 25,234,700
Decrease in long-term liabilities (3,180,000) (22,525)
Proceeds from issuance of common stock 42,297 47,160
Proceeds from exercise of stock options 535,331 77,425
Tax benefit on exercise of non-statutory options -- 51,000
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Net cash provided by financial activities 2,979,853 25,387,760
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (643,564) (3,624,410)
Payments of accrued acquisition costs (313,502) (495,935)
Acquisition, net of cash acquired -- (21,737,130)
Increase in other assets (320,321) (1,795,893)
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Net cash (used in) investing activities (1,277,387) (27,653,368)
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EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH -- 155,162
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 146,906 (89,283)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 29,664 206,829
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 176,570 $ 117,546
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid 479,591 1,392,000
Interest paid 368,347 1,093,999
</TABLE>
See notes to financial statements
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<PAGE> 6
WPI GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
<CAPTION>
Nine Months Ended
June 30, June 29,
1996 1997
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<S> <C> <C>
On November 10, 1995 the Company acquired the
common stock of Micro Processor Systems, Inc.
(MPSI) and subsidiary for $1 in cash plus the
assumption of agreed upon liabilities:
Fair value of assets acquired $7,398,285 $ --
Cash paid and expenses incurred of $510,001 (510,001) --
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Liabilities assumed $6,888,284 $ --
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On June 20, 1997 the Company acquired the
capital stock of Husky Computers, Ltd. for
$16,000,000 in cash plus the assumption
of agreed upon liabilities:
Fair value of assets acquired $ -- $28,654,990
Cash paid and expenses incurred of $23,539,700 -- 23,539,700
---------- -----------
Liabilities assumed $ -- $ 5,115,290
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</TABLE>
See notes to financial statements
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months and nine months ended June
29,1997 and June 30, 1996 are unaudited and include all adjustments which,
in the opinion of management, are necessary to present fairly the results
of operations for the periods then ended. All such adjustments are of a
normal recurring nature. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB filed with the Securities and Exchange Commission
(File No. 0-19717), which included financial statements for the years ended
September 29,1996 and September 24,1995.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any
other interim period or for a full fiscal year.
2. INVENTORIES
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<CAPTION>
Inventory consists of: September June
29, 1996 29, 1997
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<S> <C> <C>
Raw Materials $4,360,602 $ 7,308,276
Work in Process 1,986,821 3,773,831
Finished Goods 721,073 1,718,527
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Total $7,068,496 $12,800,634
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3. ACQUISITION
On June 20, 1997, the Company acquired all the outstanding shares of Husky
Computers Limited, located in Coventry, England for $21,539,700 in cash and
the assumption of approximately $5,115,000 in debt.
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<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis by management is provided to identify
certain significant factors that affected the Company's financial position
and operating results during the periods included in the accompanying
financial statements.
RESULTS OF OPERATIONS
Net sales of $15.6 million for the third quarter of fiscal 1997 increased
23.0% from sales of $12.7 million for the third quarter of fiscal 1996. The
increase was primarily due to improved sales in our targeted markets and
the acquisition of Oyster Terminals, Ltd. For the first nine months of
fiscal 1997, the company reported sales of $43.9 million, 33.0% higher than
the sales of $33.0 million for the first nine months of fiscal 1996.
Cost of sales of $9.4 million for the third quarter of fiscal 1997 resulted
in a gross profit of 39.6%, compared to a gross profit of 37.6% for the
same period of fiscal 1996. The increase was primarily due to product mix.
Cost of sales of $26.4 million for the first nine months of fiscal 1997
resulted in a gross profit of 39.8%, compared to a gross profit of 39.1%
for the same period of fiscal 1996. Total gross profit for the three and
nine months increased due to the higher revenues discussed above.
As a percentage of sales, selling, general and administrative expenditures
were 22.8% and 21.6% for the quarters and 22.6% and 23.0% of the nine month
periods ended June 29, 1997 and June 30, 1996, respectively. Actual
expenditures increased due to the acquisition discussed above. Research and
new product development expenses were 6.6% of sales for the quarter and
6.8% of sales for the nine months ended June 29,1997, compared to 8.2% and
7.5% of sales for the same three and nine month periods in fiscal 1996.
Actual expenditures increased slightly due to the acquisition discussed
above.
Income before provision for income taxes of $3.9 million for the nine
months ended June 29, 1997 increased 49.0% compared to $2.6 million for the
nine months ended June 30, 1996. The increase is primarily due to increased
sales.
The effective income tax rate for fiscal 1997 is estimated at 32%
year-to-date compared to 32% for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19.8 million at June 29,1997 compared
to $12.2 million at September 29,1996. Cash flow provided from operations
and financing activities was approximately $27.4 million for the nine
months ended June 29, 1997. This inflow amount was offset by the cash flow
used in investing activities of approximately $27.6 million for the nine
months ended June 29, 1997.
The Company's management believes it has sufficient working capital to meet
its liquidity needs.
As of June 29, 1997, the Company had no material commitments for capital
expenditures.
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<PAGE> 9
WPI GROUP, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule for nine months
ended June 29, 1997. (This exhibit is filed
electronically and is not included with
printed copies of this form.)
B. Reports on Form 8-K
On June 25, 1997, the Company filed a Current Report on
Form 8-K announcing the acquisition of Husky Computers
Limited.
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<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
WPI GROUP, INC.
(Registrant)
Date: August 8, 1997 By: /s/ Dennis M. Deegan
-------------------------
Dennis M. Deegan
President and
Chief Operating Officer
Date: August 8, 1997 By: /s/ John W. Powers
-------------------------
John W. Powers
Vice President and
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WPI GROUP, INC. FOR THE NINE MONTHS ENDED JUNE 29,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> JUN-29-1997
<CASH> 117,546
<SECURITIES> 0
<RECEIVABLES> 14,341,402
<ALLOWANCES> 340,000
<INVENTORY> 12,800,634
<CURRENT-ASSETS> 31,624,500
<PP&E> 18,325,791
<DEPRECIATION> 2,276,612
<TOTAL-ASSETS> 81,463,731
<CURRENT-LIABILITIES> 11,811,295
<BONDS> 0
0
0
<COMMON> 59,817
<OTHER-SE> 23,464,543
<TOTAL-LIABILITY-AND-EQUITY> 81,463,731
<SALES> 43,893,178
<TOTAL-REVENUES> 43,893,178
<CGS> 26,442,415
<TOTAL-COSTS> 26,442,415
<OTHER-EXPENSES> 12,911,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 649,602
<INCOME-PRETAX> 3,889,966
<INCOME-TAX> 1,245,000
<INCOME-CONTINUING> 2,644,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,644,966
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
