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 28, 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)
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)
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 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
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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
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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 22, 1998
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Common Stock, par value $.01 6,010,822 shares
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
- December 28, 1997 and September 28, 1997
Consolidated Statements of Income 4
- Three months ended December 28, 1997 and December 29, 1996
Consolidated Statements of Cash Flows 5
- Three months ended December 28, 1997 and December 29, 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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WPI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 28, December 28,
1997 1997
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(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 678,799 $ 53,032
Accounts receivable - net of allowance for doubtful accounts of
$1,237,000 and $1,215,000, respectively 12,173,012 16,308,375
Accounts receivable - other 249,393 348,995
Inventories 9,895,852 9,915,653
Prepaid expenses and other current assets 1,134,125 1,178,377
Prepaid income taxes 1,193,160 1,193,160
Refundable income taxes 1,816,897 1,228,854
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Total current assets 27,141,238 30,226,446
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation 15,750,851 15,647,575
OTHER ASSETS 34,803,886 34,790,485
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$77,695,975 $80,664,506
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,336,756 $ 6,230,302
Accrued expenses 4,038,977 3,978,451
Accrued income taxes 249,473 610,249
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Total current liabilities 10,625,206 10,819,002
NOTE PAYABLE TO BANK 42,000,000 43,335,000
DEFERRED INCOME TAXES 3,257,914 3,258,481
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued and outstanding 5,996,737
and 6,010,822, respectively. 59,967 60,108
Additional paid-in capital 13,992,540 14,074,097
Retained earnings 7,931,562 8,843,208
Cumulative foreign currency translation adjustments (171,214) 274,610
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Total stockholders' equity 21,812,855 23,252,023
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$77,695,975 $80,664,506
=========== ===========
See notes to financial statements
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WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
December 29, December 28,
1996 1997
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NET SALES $14,108,819 $21,843,614
COST OF GOODS SOLD 8,529,249 13,044,671
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GROSS PROFIT 5,579,570 8,798,943
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OPERATING EXPENSES:
Research and new product development 929,758 1,182,467
Selling, general and administration 3,112,324 5,418,610
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Total operating expenses 4,042,082 6,601,077
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OPERATING INCOME 1,537,488 2,197,866
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OTHER INCOME (EXPENSE):
Interest expense (394,691) (848,674)
Other, net 15,454 (8,546)
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INCOME BEFORE PROVISION FOR
INCOME TAXES 1,158,251 1,340,646
PROVISION FOR INCOME TAXES 382,000 429,000
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NET INCOME $ 776,251 $ 911,646
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BASIC EARNINGS PER SHARE: $ 0.13 $ 0.15
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DILUTED EARNINGS PER SHARE: $ 0.13 $ 0.15
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Weighted Average Common Shares 5,951,793 6,006,298
Plus: Incremental Shares From Assumed Conversions
Dilutive Potential Stock Options 162,856 247,848
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Adjusted Weighted Average Common Shares 6,114,649 6,254,146
=========== ===========
See notes to financial statements
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WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
December 29, December 28,
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 776,251 $ 911,646
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 664,158 1,238,627
Changes in current assets and liabilities net of assets
acquired:
Accounts receivable 2,212,601 (3,941,883)
Accounts receivable - other 882,803 (97,366)
Inventories (137,014) 169,875
Prepaid expenses, other current assets, and refundable income (290,293) 566,568
taxes
Accounts payable (909,347) (240,864)
Accrued expenses (1,429,487) (168,886)
Accrued income taxes (417,984) 348,445
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Total adjustments 575,437 (2,125,484)
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Net cash provided by (used in) operating activities 1,351,688 (1,213,838)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (740,000) 1,335,000
Increase (Decrease) in long-term liabilities (2,275) --
Proceeds from issuance of common stock 21,673 33,855
Proceeds from exercise of stock options 11,500 47,844
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Net cash provided by (used in) financial activities (709,102) 1,416,699
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (396,870) (243,651)
Payments of accrued acquisition costs (314,890) --
(Increase) in other assets (239,204) (619,239)
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Net cash used for investing activities (950,964) (862,890)
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EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 196,639 34,262
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NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (111,739) (625,767)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 206,829 678,799
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 95,090 53,032
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid 362,000 --
Interest paid 340,690 804,558
See notes to financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months ended December 28, 1997 and
December 29,1996 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-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
September 28, December 28,
Inventory consists of: 1997 1997
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Raw Materials $7,337,866 $6,970,518
Work in Process 1,083,327 1,639,603
Finished Goods 1,474,659 1,305,532
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Total $9,895,852 $9,915,653
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3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." This statement modifies disclosure requirements for
companies required to report earnings per shares (EPS) to include
presentations of Basic EPS (which includes no dilution of common stock
equivalents) and, if applicable, Diluted EPS (which reflects the potential
dilution of common stock equivalents).
The Company's EPS for the three months ended December 29, 1996 have been
restated to conform with current year presentation.
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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 $21.8 million for the first quarter of fiscal 1998 increased 54.8%
from sales of $14.1 million for the first quarter of fiscal 1997. The increase
was primarily due to improved sales in our targeted markets as a result of the
acquisition of Husky Computers Limited.
Cost of sales of $13.0 million for the first quarter of fiscal 1998 resulted in
a gross profit of 40.3% compared to costs of $8.5 million and gross profit of
39.5% for the same period of fiscal 1997. The increase in gross profit
percentage was due to the change in product mix. Total gross profit for the
three months increased due to the higher revenues discussed above.
Research and new product development expenses increased to $1.2 million,
compared to $.9 million for the same three month period in fiscal 1997. The
increase was attributed to the acquisition discussed above. Research and new
product development expenses were 5.4% and 6.6% of net sales for the quarters
ended December 28, 1997 and December 29, 1996, respectively.
As a percentage of net sales, selling, general and administration expenditures
were 24.8% and 22.1% for the quarters ended December 28, 1997 and December 29,
1996, respectively. Actual expenditures increased to $5.4 million from $3.1
million for the first quarter of fiscal 1997. The increase was due to increased
selling expenses due to higher revenues.
Income before provision for income taxes of $1.3 million for the three months
ended December 28, 1997 increased 15.8% compared to $1.2 million for the three
months ended December 29, 1996. This increase is primarily due to improved
sales.
The Company's combined federal and state income tax rates, as a percentage of
pre-tax income, were 32% and 33 % for the three months ended December 28, 1997
and December 29,1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19.4 million at December 28, 1997 compared
to $16.5 million at September 28, 1997.
The Company's management believes it has sufficient working capital to meet its
liquidity needs.
As of December 28, 1997, the Company had no material commitments for capital
expenditures.
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WPI GROUP, INC.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Amended and Restated Commercial Loan Agreement dated
December 26, 1997.
10.2 Revolving Line of Credit Promissory Note dated December
26, 1997.
10.3 Term Note dated December 26, 1997.
10.4 Security Agreement dated December 26, 1997.
10.5 Negative Pledge Agreement dated December 26, 1997.
27 Financial Data Schedule.
B. Reports on Form 8-K
None
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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 6, 1998 By: /s/ Dennis M. Deegan
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Dennis M. Deegan
President and
Chief Operating Officer
Date: February 6, 1998 By: /s/ John W. Powers
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John W. Powers
Vice President and
Chief Financial Officer
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