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 December 27, 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
-------------
- -------------------------------------------------------------------
(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 Exchange Act 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 Exchange
Act 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 January 26,1999
----- ---------------------------------
Common Stock, par value $.01 6,044,090 shares
<PAGE>
WPI GROUP, INC.
INDEX
-----
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- December 27,1998 and September 27,1998
Consolidated Statements of Income 4
- Three months ended December 27,1998
and December 28,1997
Consolidated Statements of Cash Flows 5
- Three months ended December 27,1998
and December 28,1997
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
-2-
<PAGE>
<TABLE>
WPI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 27, December 27,
1998 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 159,518 $ 47,300
Accounts receivable - net of
allowance for doubtful accounts of
$1,283,000 and $1,302,000,
respectively 21,123,792 20,176,582
Accounts receivable - other 270,611 279,906
Inventories 14,188,286 15,210,104
Prepaid expenses and other current
assets 1,562,048 2,014,097
Prepaid income taxes 2,551,616 2,551,459
Refundable income taxes 620,578 713,750
------------- ------------
Total current assets 40,476,449 40,993,198
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated
depreciation 15,514,291 15,440,814
OTHER ASSETS 54,132,417 53,811,143
------------- ------------
$ 110,123,157 $110,245,155
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 3,715,748 $ 3,715,748
Accounts payable 7,776,470 6,685,453
Accrued expenses 5,985,304 4,980,552
Accrued income taxes 1,672,166 1,601,421
------------- ------------
Total current liabilities 19,149,688 16,983,174
------------- ------------
LONG-TERM DEBT 62,638,964 65,436,249
------------- ------------
DEFERRED INCOME TAXES 3,091,995 3,100,135
------------- ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 6,028,204
and 6,037,024, respectively. 60,282 60,370
Additional paid-in capital 14,169,771 14,201,882
Retained earnings 10,418,044 10,142,566
Cumulative foreign currency
translation adjustments 594,413 320,779
------------- ------------
Total stockholders' equity 25,242,510 24,725,597
------------- ------------
$ 110,123,157 $110,245,155
============= ============
</TABLE>
See notes to financial statements
-3-
<PAGE>
<TABLE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended
December 28, December 27,
1997 1998
------------- -------------
<S> <C> <C>
NET SALES $ 21,970,619 $ 24,198,004
COST OF GOODS SOLD 13,171,676 13,900,846
------------- ------------
GROSS PROFIT 8,798,943 10,297,158
------------- ------------
OPERATING EXPENSES:
Research and new product development 1,182,467 1,423,444
Selling, general and administration 5,418,610 7,267,678
Restructuring costs - 422,697
------------- ------------
Total operating expenses 6,601,077 9,113,819
------------- ------------
OPERATING INCOME 2,197,866 1,183,339
OTHER INCOME (EXPENSE):
Interest expense (849,516) (1,451,367)
Default interest expense - (327,695)
Foreign currency exchange gain (loss) (22,162) 146,796
Other, net 14,458 18,449
------------- ------------
INCOME (LOSS)BEFORE PROVISION FOR
INCOME TAXES 1,340,646 (430,478)
PROVISION (BENEFIT) FOR INCOME TAXES 429,000 (155,000)
------------- ------------
NET INCOME (LOSS) $ 911,646 $ (275,478)
============= ============
BASIC EARNINGS (LOSS) PER SHARE: $ 0.15 $ (0.05)
============= ============
DILUTED EARNINGS (LOSS) PER SHARE: $ 0.15 $ (0.05)
============= ============
Weighted Average Common Shares 6,006,298 6,030,804
Effect of dilutive options 247,848 88,796
------------- ------------
Adjusted Weighted Average Common Shares 6,254,146 6,119,780
============= ============
</TABLE>
See notes to financial statements
- 4 -
<PAGE>
<TABLE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
December 28, December 27,
1997 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 911,646 $ (275,478)
------------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,238,627 1,594,409
Deferred income taxes - 9,815
Changes in current assets and
liabilities net of assets
acquired:
Accounts receivable (3,941,883) 753,362
Accounts receivable - other (97,366) (9,137)
Inventories 169,875 (1,116,733)
Prepaid expenses, other current
assets, and refundable income taxes 566,568 (562,691)
Accounts payable (240,864) (1,013,029)
Accrued expenses (168,886) (728,050)
Accrued income taxes 348,445 (36,743)
------------- ------------
Total adjustments (2,125,484) (1,108,797)
------------- ------------
Net cash used in
operating activities (1,213,838) (1,384,275)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 1,335,000 2,797,285
Proceeds from issuance of common
stock 33,855 25,799
Proceeds from exercise of stock
options 47,844 6,400
------------- ------------
Net cash provided by
financial activities 1,416,699 2,829,484
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (243,651) (712,529)
Additions to other assets (619,239) (620,628)
Payments of accrued acquisition
costs - (211,041)
------------- ------------
Net cash used in investing
activities (862,890) (1,544,198)
------------- ------------
EFFECT OF FOREIGN CURRENCY TRANSLATION
ON CASH 34,262 (13,229)
------------- ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (625,767) (112,218)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 678,799 159,518
------------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 53,032 $ 47,300
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid - 55,000
Interest paid 804,558 1,325,605
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months ended December
27, 1998 and December 28,1997 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 27,1998 and
September 28,1997.
Certain prior year amounts have been reclassified to conform
with current year presentation.
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.
<TABLE>
2. INVENTORIES
<CAPTION>
September 27, December 27,
Inventory consists of: 1998 1998
------------- ------------
<S> <C> <C>
Raw Materials $ 7,684,405 $ 7,571,425
Work in Process 4,758,535 5,502,320
Finished Goods 1,745,346 2,136,359
------------- ------------
Total $ 14,188,286 $ 15,210,104
============= ============
</TABLE>
- 6 -
<PAGE>
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 $24.2 million for the first quarter of fiscal
1999 increased 10% from sales of $22.0 million for the
first quarter of fiscal 1998. The increase was due
to the acquisition of WPI Instruments.
Cost of sales of $13.9 million for the first quarter of
fiscal 1999 resulted in a gross profit of 43%, compared to
a gross profit of 40% for the same period of fiscal 1998.
The increase in the Company's gross profit percentage in
fiscal 1999 was primarily attributable to a change in the mix
of products sold and increased software licenses revenue.
Research and new product development expenses increased to
$1.4 million, compared to $1.2 million for the same three month
period in fiscal 1998. The increase was attributed to the
acquisition discussed above. Research and new product
development expenses were 6% and 5% of net sales for
the quarters ended December 27, 1998 and December 28, 1997,
respectively.
As a percentage of net sales, selling, general and
administrative expenditures were 30% and 25% for the
quarters ended December 27, 1998 and December 28, 1997,
respectively. Actual expenditures increased to $7.4
million from $5.4 million for the first quarter of fiscal
1998. The increase in selling, general and administrative
expenses as a percentage of sales in fiscal 1999 was
primarily attributable to the acquisition discussed above
and higher payroll related expenses.
Operating income for the first quarter of fiscal 1999 decreased
46% to $1.2 million from $2.2 millon for the first quarter of
fiscal 1998. The decrease in operating income was primarily due
to the increase in selling, general and administration expenses
discussed above and the restructuring costs incurred to date in
connection with the Company's reorganization of its Information
Solutions and Information Technology Groups.
The Company recorded a loss before provision for income taxes of
($.4) million for the three months ended December 27, 1998 compared
to income of $1.3 million for the three months ended December 28,
1997. The decrease was primarily due to weaker sales for the Industrial
Technology Group and in Europe and the Company's reorganization
discussed above.
The Company's estimated effective combined federal and state income
tax rates, as a percentage of pre-tax income, were 36% and 32%
for the three months ended December 27, 1998 and December 28,1997,
respectively. The increase in the Company's fiscal 1999 estimated
effective tax rates reflects a reduction in anticipated
foreign tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $24.0 million at December
27, 1998 compared to $21.3 million at September 27, 1998.
The Company's management believes it has sufficient working
capital to meet its liquidity needs.
As of December 27, 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 systems.
Industrial Technology: power systems, electronics, solenoids,
avionic components, inertial sensors and panel meters.
Summarized below are the Company's segment sales and operating
income by business segment for the three months ended December
27, 1998 and December 28, 1997 in thousands.
<TABLE>
<CAPTION>
Three Months Ended
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Net Sales
Information Solutions $ 16,277 $ 15,160
Industrial Technology 5,694 9,038
------------ ------------
$ 21,971 $ 24,198
============ ============
<S> <C> <C>
Operating Income
Information Solutions $ 2,671 $ 2,414
Industrial Technology 793 902
Corporate (a) (1,266) (2,133)
------------ ------------
$ 2,198 $ 1,183
============ ============
(a) Includes corporate expenses, amortization of goodwill, and
restructuring costs.
</TABLE>
- 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: February 10,1999 By:/s/John R. Allard
-------------------
John R. Allard
President and
Chief Operating Officer
Date: February 10,1999 By:/s/John W. Powers
-----------------
John W. Powers
Vice President and
Chief Financial Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS OF WPI GROUP, INC. FOR THE THREE MONTHS
ENDED DECEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-END> DEC-27-1998
<CASH> 47,300
<SECURITIES> 0
<RECEIVABLES> 21,478,582
<ALLOWANCES> 1,302,000
<INVENTORY> 15,210,104
<CURRENT-ASSETS> 40,993,198
<PP&E> 21,667,018
<DEPRECIATION> 6,226,204
<TOTAL-ASSETS> 110,245,155
<CURRENT-LIABILITIES> 16,983,174
<BONDS> 0
0
0
<COMMON> 60,370
<OTHER-SE> 24,665,227
<TOTAL-LIABILITY-AND-EQUITY> 110,245,155
<SALES> 24,198,004
<TOTAL-REVENUES> 24,198,004
<CGS> 13,900,846
<TOTAL-COSTS> 13,900,846
<OTHER-EXPENSES> 8,948,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,779,062
<INCOME-PRETAX> (430,478)
<INCOME-TAX> (155,000)
<INCOME-CONTINUING> (275,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275,478)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
