<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 28, 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
incorporation or organization) Identification 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
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- --------------------------------------------------------------------------------
(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 JULY 17, 1998
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Common Stock, par value $.01 6,024,694 shares
<PAGE>
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 28,1998 and September 28,1997
Consolidated Statements of Income 4
- Three months ended June 28,1998 and June 29,1997
- Nine months ended June 28,1998 and June 29,1997
Consolidated Statements of Cash Flows 5
- Nine months ended June 28,1998 and June 29,1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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<PAGE>
WPI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, June 28,
1997 1998
------------------- -------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 678,799 $ 1,424,231
Accounts receivable - net of allowance for doubtful
accounts of $1,237,000 and $1,270,000, respectively 12,173,012 17,575,469
Accounts receivable - other 249,393 304,610
Inventories 9,895,852 9,557,995
Prepaid expenses and other current assets 1,134,125 1,260,969
Prepaid income taxes 1,193,160 1,193,160
Refundable income taxes 1,816,897 1,363,048
----------- -----------
Total current assets 27,141,238 32,679,482
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation 15,750,851 13,506,883
OTHER ASSETS 34,803,886 34,316,696
----------- -----------
$77,695,975 $80,503,061
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ -- $ 3,000,000
Accounts payable 6,336,756 6,068,436
Accrued expenses 4,038,977 3,980,092
Accrued income taxes 249,473 1,475,263
----------- ------------
Total current liabilities 10,625,206 14,523,791
----------- ------------
NOTES PAYABLE TO BANK 42,000,000 37,000,000
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DEFERRED INCOME TAXES 3,257,914 3,279,679
----------- ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued 5,996,737
and 6,023,994, respectively. 59,967 60,240
Additional paid-in capital 13,992,540 14,144,614
Retained earnings 7,931,562 11,264,113
Cumulative foreign currency translation adjustments (171,214) 230,624
----------- ------------
Total stockholders' equity 21,812,855 25,699,591
----------- ------------
$77,695,975 $ 80,503,061
=========== ============
</TABLE>
See notes to financial statements
-3-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 29, June 28, June 29, June 28,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $15,562,326 $24,397,485 $43,893,178 $69,494,757
COST OF GOODS SOLD 9,394,476 13,874,966 26,442,415 40,511,951
----------- ----------- ----------- -----------
GROSS PROFIT 6,167,850 10,522,519 17,450,763 28,982,806
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and new product
development 1,030,341 1,323,517 2,995,491 3,983,448
Selling, general and
administration 3,547,753 6,426,139 9,915,704 17,670,970
----------- ----------- ----------- -----------
Total operating expense 4,578,094 7,749,656 12,911,195 21,654,418
----------- ----------- ----------- -----------
OPERATING INCOME 1,589,756 2,772,863 4,539,568 7,328,388
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (487,588) (771,792) (1,235,427) (2,445,588)
Other, net 343,924 30,246 585,825 17,751
----------- ----------- ----------- -----------
(143,664) (741,546) (649,602) (2,427,837)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,446,092 2,031,317 3,889,966 4,900,551
PROVISION FOR INCOME TAXES 439,000 663,000 1,245,000 1,568,000
----------- ----------- ----------- -----------
NET INCOME $ 1,007,092 $ 1,368,317 $ 2,644,966 $ 3,332,551
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE: $ 0.17 $ 0.23 $ 0.44 $ 0.55
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE: $ 0.16 $ 0.22 $ 0.43 $ 0.54
=========== =========== =========== ===========
Weighted Average Common Shares 5,980,989 6,018,419 5,968,019 6,011,864
Effect of dilutive options 164,213 172,258 174,456 200,164
----------- ----------- ----------- -----------
Adjusted Weighted Average
Common Shares 6,145,202 6,190,677 6,142,475 6,212,028
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
-4-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 29, June 28,
1997 1998
--------------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,644,966 $ 3,332,551
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,184,398 4,073,770
Deferred income taxes (2,525) 21,135
Changes in current assets and liabilities net of effects
of acquisition:
Accounts receivable 1,084,300 (5,252,176)
Accounts receivable - other 1,328,126 (54,793)
Inventories (499,565) 515,345
Prepaid expenses and other current assets (702,606) 353,425
Accounts payable (1,588,068) (395,206)
Accrued expenses (1,155,931) 1,070
Accrued income taxes (1,274,457) 1,211,818
------------ -----------
Total adjustments (626,328) 474,388
------------ -----------
Net cash provided by operating activities 2,018,638 3,806,939
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 25,234,700 (2,000,000)
Decrease in long-term liabilities (20,000) --
Proceeds from issuance of common stock 47,160 50,878
Proceeds from exercise of stock options 77,425 79,469
Tax benefit on exercise of non-statutory options 51,000 22,000
------------ -----------
Net cash provided by (used in) financial activities 25,390,285 (1,847,653)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,624,410) (950,889)
Proceeds from sales of property, plant and equipment -- 1,492,738
Payment of accrued acquisition costs (495,935) (133,328)
Acquisition, net of cash acquired (21,737,130) --
Increase in other assets (1,795,893) (1,646,877)
------------ -----------
Net cash (used in) investing activities (27,653,368) (1,238,356)
------------ -----------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 155,162 24,502
------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (89,283) 745,432
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 206,829 678,799
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 117,546 $ 1,424,231
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid (refunded) $ 1,392,000 $ (337,684)
Interest paid 1,093,999 2,423,138
</TABLE>
See notes to financial statements
-5-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
<TABLE>
<CAPTION>
Nine Months Ended
June 29, June 28,
1997 1998
---------------- ---------------
<S> <C> <C>
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 $ --
=========== ============
</TABLE>
See notes to financial statements
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months and nine months ended June
28,1998 and June 29, 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, June 28,
1997 1998
------------------- -------------------
<S> <C> <C>
Raw Materials $7,337,866 $6,948,494
Work in Process 1,083,327 1,372,587
Finished Goods 1,474,659 1,236,914
---------- ----------
Total $9,895,852 $9,557,995
</TABLE>
3. SUBSEQUENT EVENT
On August 3, 1998, WPI Group, Inc. completed the acquisition of the ANG
Instrument division from Allard Nazarian Group, Inc. The Company acquired
all of the assets of the ANG Instruments division for approximately $22.75
million. ANG Instruments is a leading producer of avionics components and
subsystems, inertial sensors and panel meters.
On August 4, 1998, the Company announced the acquisition of the Lucas
Schaevitz inertial sensor product line form the Lucas Control Systems
Division of Lucas Varity, Plc for approximately $3 million. The transaction
is expected to close by August 10, 1998.
In conjunction with the acquisitions, the Company secured a new $75 million
credit facility with Fleet Bank - NH. The new facility replaces the
Company's current $45 million credit facility, also with Fleet Bank - NH.
-7-
<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 June
28,1998 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 $24.4 million for the third quarter of fiscal 1998 increased 57%
from sales of $15.6 million for the third quarter of fiscal 1997. For the
first nine months of fiscal 1998, the Company reported sales of $69.5 million,
58% higher than the sales of $43.9 million for the first nine months of fiscal
1997. The increase was primarily due to the acquisition of Husky Computers
Limited and improved sales in our targeted markets.
Cost of sales of $13.9 million for the third quarter of fiscal 1998 resulted
in a gross profit of 43%, compared to a gross profit of 40% for the same
period of fiscal 1997. Cost of sales of $40.5 million for the first nine
months of fiscal 1998 resulted in a gross profit of 42%, 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 the mix of products sold and higher sales volume discussed above.
Research and new product development expenses were 5% of sales for the quarter
and 6% of sales for the nine months ended June 28,1998, compared to 7% for
the same three and nine 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 26% and 23% for the quarters and 25% and 23% of the nine month periods
ended June 28, 1998 and June 29, 1997, respectively. The increase in selling,
general and administrative expenses as a percentage of sales in fiscal 1998
was primarily attributable to higher Company wide selling costs to achieve
future revenue objectives.
Income before provision for income taxes of $4.9 million for the nine months
ended June 28, 1998 increased 26% compared to $3.9 million for the nine
months ended June 29, 1997. The increase was primarily due to higher sales
and higher gross margins.
The year-to-date effective income tax rate for fiscals 1998 and 1997 was
estimated at 32% .
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $18.2 million at June 28,1998 compared to
$16.5 million at September 28,1997. During the second quarter cash flows
provided from financing activities included approximately one and a half
million dollars from sales of property, plant and equipment.
The Company's management believes it has sufficient working capital to meet
its liquidity needs.
As of June 28, 1998, the Company had no material commitments for capital
expenditures.
-8-
<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
systems.
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 nine months ended June 28, 1998 and
June 29, 1997 in thousands.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 29, June 28, June 29, June 28,
1997 1998 1997 1998
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
Information Solutions $ 7,900 $18,588 $22,497 $52,653
Power Solutions 7,662 5,810 21,396 16,842
------- ------- ------- -------
$15,562 $24,398 $43,893 $69,495
======= ======= ======= =======
Operating Income
Information Solutions $ 1,053 $ 3,499 $ 3,081 $ 9,070
Power Solutions 1,203 585 3,379 2,147
Corporate (a) (666) (1,311) (1,920) (3,889)
------- ------- ------- -------
$ 1,590 $ 2,773 $ 4,540 $ 7,328
======= ======= ======= =======
</TABLE>
(a) Includes corporate expenses and amortization of goodwill
-9-
<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
On August 7, 1998 the Registrant filed a report on Form 8-K
reporting the completion of the acquisition of the ANG Instruments
division of Allard Nazarian Group, Inc. The Registrant also
reported under Item 5 the acquisition of the Lucas Schaevitz
product line and a new $75 million credit facility with Fleet
Bank.
-10-
<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: August 10,1998 By: /s/Dennis M. Deegan
-------------------
Dennis M. Deegan
President and
Chief Operating Officer
Date: August 10,1998 By: /s/John W. Powers
-----------------
John W. Powers
Vice President and
Chief Financial Officer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WPI GROUP, INC. FOR THE NINE MONTHS ENDED JUNE 28, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 1,424,231
<SECURITIES> 0
<RECEIVABLES> 18,845,469
<ALLOWANCES> 1,270,000
<INVENTORY> 9,557,995
<CURRENT-ASSETS> 32,679,482
<PP&E> 17,902,830
<DEPRECIATION> 4,395,947
<TOTAL-ASSETS> 80,503,061
<CURRENT-LIABILITIES> 14,523,791
<BONDS> 0
0
0
<COMMON> 60,240
<OTHER-SE> 25,639,351
<TOTAL-LIABILITY-AND-EQUITY> 80,503,061
<SALES> 69,494,757
<TOTAL-REVENUES> 69,494,757
<CGS> 40,511,951
<TOTAL-COSTS> 62,166,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,445,588
<INCOME-PRETAX> 4,900,551
<INCOME-TAX> 1,568,000
<INCOME-CONTINUING> 3,332,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,332,551
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
