<PAGE>
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 MARCH 29, 1998
/ / 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.
---------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW HAMPSHIRE 02-0218767
- ------------------------------- -------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
1155 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03101
------------------------------------------ -----------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 627-3500
------------------------
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK 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 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY
THE COURT.
YES NO
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE 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 APRIL 20, 1998
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COMMON STOCK, PAR VALUE $.01 6,011,614 SHARES
<PAGE>
WPI GROUP, INC.
INDEX
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PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- March 29,1998 and September 28,1997
Consolidated Statements of Income 4
- Three months ended March 29,1998 and March 30,1997
- Six months ended March 29,1998 and March 30, 1997
Consolidated Statements of Cash Flows 5
- Six months ended March 29,1998 and March 30,1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
-2-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, March 29,
1997 1998
------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 678,799 $ 58,920
Accounts receivable - net of allowance for doubtful accounts of
$1,237,000 and $1,228,000, respectively 12,173,012 17,180,559
Accounts receivable - other 249,393 324,892
Inventories 9,895,852 9,971,918
Prepaid expenses and other current assets 1,134,125 1,430,250
Prepaid income taxes 1,193,160 1,193,160
Refundable income taxes 1,816,897 1,251,182
----------- ------------
Total current assets 27,141,238 31,410,881
PROPERTY, PLANT AND EQUIPMENT
at cost less accumulated depreciation 15,750,851 13,852,664
OTHER ASSETS 34,803,886 34,483,383
----------- ------------
$77,695,975 $ 79,746,928
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,336,756 $ 6,230,320
Accrued expenses 4,038,977 4,288,342
Accrued income taxes 249,473 1,060,177
----------- ------------
Total current liabilities 10,625,206 11,578,839
NOTE PAYABLE TO BANK 42,000,000 40,533,000
DEFERRED INCOME TAXES 3,257,914 3,258,535
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued 5,996,737
and 6,011,614, respectively. 59,967 60,116
Additional paid-in capital 13,992,540 14,102,763
Retained earnings 7,931,562 9,895,796
Cumulative foreign currency translation adjustments (171,214) 317,879
----------- ------------
Total stockholders' equity 21,812,855 24,376,554
----------- ------------
$77,695,975 $ 79,746,928
=========== ============
</TABLE>
See notes to financial statements
-3-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 30, March 29, March 30, March 29,
1997 1998 1997 1998
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
NET SALES $14,222,033 $23,253,658 $28,330,852 $45,097,272
COST OF GOODS SOLD 8,518,690 13,592,314 17,047,939 26,636,985
------------ ------------ ------------ ------------
GROSS PROFIT 5,703,343 9,661,344 11,282,913 18,460,287
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and new product 1,035,392 1,477,464 1,965,150 2,659,931
development
Selling, general and 3,255,627 5,826,221 6,367,951 11,244,831
administration
------------ ------------ ------------ ------------
Total operating expense 4,291,019 7,303,685 8,333,101 13,904,762
------------ ------------ ------------ ------------
OPERATING INCOME 1,412,324 2,357,659 2,949,812 4,555,525
OTHER INCOME (EXPENSE):
Interest expense (377,260) (825,122) (747,839) (1,673,796)
Other, net 250,559 (3,949) 241,901 (12,495)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,285,623 1,528,588 2,443,874 2,869,234
PROVISION FOR INCOME TAXES 424,000 476,000 806,000 905,000
------------ ------------ ------------ ------------
NET INCOME $ 861,623 $ 1,052,588 $ 1,637,874 $ 1,964,234
============ ============ ============ ============
BASIC EARNINGS PER SHARE: $0.14 $0.18 $0.27 $0.33
============ ============ ============ ============
DILUTED EARNINGS PER SHARE: $0.14 $0.17 $0.27 $0.32
============ ============ ============ ============
Weighted Average Common Shares 5,971,452 6,010,938 5,961,569 6,008,606
Effect of dilutive options 202,641 180,386 179,578 214,117
------------ ------------ ------------ ------------
Adjusted Weighted Average 6,174,093 6,191,324 6,141,147 6,222,723
Common Shares
============ ============ ============ ============
</TABLE>
See notes to financial statements
-4-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 30, March 29,
1997 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,637,874 $ 1,964,234
------------------- -------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,438,022 2,615,592
Changes in current assets and liabilities net of effects
of acquisition:
Accounts receivable 1,609,136 (4,819,531)
Accounts receivable - other 1,349,708 (74,547)
Inventories (789,559) 134,885
Prepaid expenses and other current assets (616,215) 300,482
Accounts payable (1,210,142) (260,679)
Accrued expenses (889,998) 204,295
Accrued income taxes (1,442,571) 793,762
------------------- -------------------
Total adjustments (551,619) (1,105,741)
------------------- -------------------
Net cash provided by operating activities 1,086,255 858,493
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 892,000 (1,467,000)
Decrease in long-term liabilities (22,754) --
Proceeds from issuance of common stock 41,174 40,528
Proceeds from exercise of stock options 70,238 47,844
Tax benefit on exercise of non-statutory options 48,000 22,000
------------------- -------------------
Net cash provided by (used in) financial activities 1,028,658 (1,356,628)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (953,940) (570,862)
Proceeds from sales of property, plant and equipment -- 1,492,738
Payment of accrued acquisition costs (514,050) (57,282)
Increase in other assets (965,815) (1,034,825)
------------------- -------------------
Net cash used for investing activities (2,433,805) (170,231)
------------------- -------------------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 196,782 48,487
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (122,110) (619,879)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 206,829 678,799
------------------- -------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 84,719 $ 58,920
=================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid (refunded) $ 1,210,000 $ (412,279)
Interest paid 682,967 1,612,054
</TABLE>
See notes to financial statements
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months and six months ended March
29,1998 and March 30,1997 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-K filed with the Securities and Exchange Commission (File
No. 0-19717), which included financial statements for the years ended
September 28,1997 and September 29,1996.
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
<TABLE>
<CAPTION>
Inventory consists of: September 28, March 29,
1997 1998
------------------- -------------------
<S> <C> <C>
Raw Materials $ 7,337,866 $ 7,296,624
Work in Process 1,083,327 1,401,189
Finished Goods 1,474,659 1,274,105
------------------- -------------------
Total $ 9,895,852 $ 9,971,918
=================== ===================
</TABLE>
-6-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the financial statements and
footnotes contained in the Company's Form 10-Q for the period ending March 29,
1998 and the Form 10-K for the year ended September 28, 1997, filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net sales of $23.3 million for the second quarter of fiscal 1998 increased 64%
from sales of $14.2 million for the second quarter of fiscal 1997. For the
first six months of fiscal 1998 the Company reported sales of $45.1 million,
59% higher than sales of $28.3 million for the first six months of fiscal
1997. The increase was primarily due to the acquisition of Husky Computers
Limited and higher sales in our targeted markets.
Cost of sales of $13.6 million for the second quarter of fiscal 1998 resulted
in a gross profit of 41 %, compared to a gross profit of 40% for the same
period of fiscal 1997. Cost of sales of $26.6 million for the first six
months of fiscal 1998 resulted in a gross profit of 41%, compared to a gross
profit of 40% for the same period of fiscal 1997. The improvement in the
Company's gross profit percentage in fiscal 1998 was primarily attributable to
a change in mix of products sold and higher sales volume discussed above.
Research and new product development expenses were 6% of sales for the quarter
and for the six months ended March 29,1998, compared to 7% of sales for the
same three and six month periods in fiscal 1997. The decrease in research and
new product development expenses as a percentage of sales was due primarily to
the higher sales volume discussed above.
As a percentage of sales, selling, general and administrative expenditures
were 25% and 23% for the quarters and 25% and 23% of the six month periods
ended March 29, 1998 and March 30, 1997, respectively. The increase in
selling, general and administrative expenses as a percentage of sales in
fiscal 1998 is primarily attributable to higher Company wide selling costs to
achieve future revenue objectives.
Income before provision for income taxes of $2.9 million for the six months
ended March 29, 1998 increased 17% compared to $2.4 million for the six months
ended March 30, 1997. The increase was primarily due to higher sales and
higher gross margins.
The effective income tax rate for fiscal 1998 is estimated at 32 % year-to-
date compared to 33% for fiscal 1997 due to higher foreign income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19.8 million at March 29,1998 compared to
$16.5 million at September 28,1997. During the second quarter cash flows
provided from financing activities included approximately $1.5 million from
the sale of the Company's Merrimack, New Hampshire manufacturing facility.
The Company's management believes it has sufficient working capital to meet
its liquidity needs.
As of March 29, 1998, the Company had no material commitments for capital
expenditures.
-7-
<PAGE>
SEGMENT INFORMATION
The Company's business segments are:
Information Solutions: rugged, handheld passive and programmable terminals
and computers, vehicle diagnostic information systems and decision support
software.
Power Solutions: power systems, electronic lamp ballasts and solenoids.
Summarized below are the Company's segment sales and operating income by
business segment for the three months and six months ended March 29, 1998 and
March 30, 1997 in thousands.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 30, March 29, March 30, March 29,
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales
Information Solutions $ 6,995 $ 17,817 $ 14,597 $ 34,065
Power Solutions 7,227 5,437 13,734 11,032
-------- --------- --------- ---------
$ 14,222 $ 23,254 $ 28,331 $ 45,097
======== ========= ========= =========
Operating Income
Information Solutions $ 1,102 $ 2,900 $ 2,028 $ 5,551
Power Solutions 949 771 2,176 1,583
Corporate (a) (639) (1,313) (1,255) (2,578)
-------- --------- --------- ---------
$ 1,412 $ 2,358 $ 2,949 $ 4,556
======== ========= ========= =========
</TABLE>
(a) Includes corporate expenses and amortization of goodwill
-8-
<PAGE>
WPI GROUP, INC.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K
None
-9-
<PAGE>
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: May 5, 1998 By: /s/ Dennis M. Deegan
---------------------
Dennis M. Deegan
President and
Chief Operating Officer
Date: May 5, 1998
By: /s/ John W. Powers
---------------------
John W. Powers
Vice President and
Chief Financial Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WPI GROUP, INC. FOR THE SIX MONTHS ENDED MARCH 29, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 58,920
<SECURITIES> 0
<RECEIVABLES> 18,408,559
<ALLOWANCES> 1,228,000
<INVENTORY> 9,971,918
<CURRENT-ASSETS> 31,410,881
<PP&E> 17,675,706
<DEPRECIATION> 3,823,042
<TOTAL-ASSETS> 79,746,928
<CURRENT-LIABILITIES> 11,578,839
<BONDS> 0
0
0
<COMMON> 60,116
<OTHER-SE> 24,316,438
<TOTAL-LIABILITY-AND-EQUITY> 79,746,928
<SALES> 45,097,272
<TOTAL-REVENUES> 45,097,272
<CGS> 26,636,985
<TOTAL-COSTS> 26,636,985
<OTHER-EXPENSES> 13,904,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,686,291
<INCOME-PRETAX> 2,869,234
<INCOME-TAX> 905,000
<INCOME-CONTINUING> 1,964,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,964,234
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
