FILE NO. 0-19717
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
WPI GROUP, INC.
---------------
(Exact name of registrant as specified in charter)
AMENDMENT NO.1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report Dated August 3,
1998 on Form 8 as set forth in the pages attached hereto:
Item 7: Financial Statements, Pro Forma Information and Exhibits
--------------------------------------------------------
(a) Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
WPI Group, Inc.
BY: /s/John W. Powers
-------------------
John W. Powers
Vice President and
Chief Financial Officer
Date: October 16, 1998
The Current Report on Form 8-K dated August 3, 1998 of WPI Group, Inc.
(Commission File No. 0-19717) is hereby amended as follows:
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements
ANG Instruments a division of Allard Nazarian Group, Inc.
Financial Statements as of July 31, 1998.
Pro Forma Combined Financial Statements for WPI Group, Inc and
ANG Instruments as of June 28, 1998.
2
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN, INC.
FINANCIAL STATEMENTS
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ALLARD NAZARIAN GROUP, INC.:
We have audited the accompanying balance sheet of ANG Instruments, a division of
Allard Nazarian Group, Inc. as of July 31, 1998 and the related statements of
operations, stockholders' equity and cash flows for the nine month period ended
July 31,1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of ANG Instruments as of
July 31, 1998, and the results of their operations and their cash flows for the
nine month period ended July 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
September 25, 1998
4
ANG INSTRUMENTS COMPANY
A DIVISION OF ALLARD NAZARIAN GROUP, INC.
BALANCE SHEET
AS OF JULY 31, 1998
ASSETS
Current Assets:
Cash $ 17,338
Trade accounts receivable, net of allowance
for doubtful accounts of $41,300 2,562,491
Other accounts receivable 46,849
Inventories 3,806,275
Prepaid expenses and other current assets 176,820
-----------
Total current assets 6,609,773
-----------
Property, Plant and Equipment,
at cost, less accumulated depreciation 1,362,197
-----------
Other Assets 2,133,726
-----------
Total Assets $10,105,696
-----------
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities $ 508,932
Current maturities 1,139,979
Account payable 695,565
-----------
Accrued expenses 2,344,476
-----------
Total current liabilities 5,666,600
-----------
Notes Payable Bank 1,792,456
-----------
Notes Payable Shareholders
STOCKHOLDERS' EQUITY
Common Stock 42
Additional paid-in-capital 987,460
Retained deficit (685,338)
-----------
Total stockholders' equity 302,164
-----------
Total liabilities & stockholders' equity $10,105,696
-----------
The accompanying notes are an integral part of these financial statements.
5
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP, INC.
STATEMENT OF OPERATIONS
NINE MONTH PERIOD NOVEMBER 1, 1997 TO JULY 31, 1998
Net sales $13,803,536
Cost of goods sold 10,425,981
-----------
Gross profit 3,377,555
-----------
Operating expenses
Research and new product development 351,951
Selling and marketing expenses 1,036,184
General and administrative expenses, including
management fees of $645,799 1,857,403
-----------
Total operating expenses 3,245,538
-----------
Operating income 132,017
-----------
Non-operating income (expense):
Interest expense (617,100)
Other (8,331)
-----------
Total non-operating income (expense) (625,431)
-----------
Loss before provision for taxes (493,414)
Provision for income taxes --
-----------
Net loss $ (493,414)
===========
The accompanying notes are an integral part of these financial statements.
6
ANG INSTRUMENTS
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTH PERIOD NOVEMBER 1, 1997 TO JULY 31, 1998
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ---------- -------------
Balance, beginning $ 42 $987,460 $ (191,924) $ 795,578
Net loss -- -- (493,414) (493,414)
---- -------- ---------- ---------
Balance, ending $ 42 $987,460 $ (685,338) $ 302,164
==== ======== ========== =========
The accompanying notes are an integral part of these financial statements.
7
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS PERIOD NOVEMBER 1, 1997 TO JULY 31, 1998
Cash flows from operating activities:
Net loss $ (493,414)
----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 315,678
Changes in current assets and liabilities:
Accounts receivable 580,890
Accounts receivable - other (16,043)
Inventories 141,075
Prepaid expenses and other current assets (31,477)
Accounts payable (165,880)
Accrued expenses (556,127)
Accrued income taxes (1,377)
----------
Total adjustments 266,739
----------
Net cash used in operating activities (226,675)
----------
Cash flows from financing activities:
Borrowings of notes payable bank, net 988,405
Payments of notes payable shareholders (189,153)
Payments of notes payable other (228,459)
----------
Net cash provided by financing activities 570,793
----------
Cash flows used in investing activities:
Purchase of property, plant and equipment (326,780)
----------
Net increase (decrease) in cash 17,338
Cash, beginning of period --
----------
Cash, end of period $ 17,338
==========
The accompanying notes are an integral part of these financial statements.
8
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP,INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
Business - ANG Instruments, a division of Allard Nazarian Group, Inc., (the
- --------
"Company"), consists of Jewell Instruments, Modutec, Inc. and A&M Instruments,
Inc. The Company manufactures and markets four primary product lines: avionics
components and subsystems, inertial sensors, analog panel meters, and digital
panel meters.
Revenue Recognition - Sales are recorded when products are shipped or when
- -------------------
services are performed.
Management Estimates - The preparation of financial statements in conformity
- --------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management is not aware of any specific concentrations that could cause a severe
impact to its operations.
Cash and Cash Equivalents - For the purposes of the consolidated statements of
- -------------------------
cash flows, the Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments - The carrying amounts reported on the
- -----------------------------------
balance sheet for cash, receivables, payables, accrued expenses and debt
approximate fair value.
Concentration of Credit Risk - The Company's exposure to concentrations of
- ----------------------------
credit risk relates primarily to trade accounts receivable. Such exposure is
limited due to the large number of customers and their industry and geographic
dispersion. The Company controls credit risk by performing ongoing credit
evaluations of its customers' financial condition.
Inventories - Inventories are stated at the lower of cost (First-in, First-out
- -----------
method and Last-in, First-out method) or market and include materials, labor and
manufacturing overhead.
Inventories consist of:
Raw materials $2,495,129
Work in process 1,618,431
Finished goods 285,574
-----------
4,399,134
LIFO reserve (592,859)
-----------
$3,806,275
===========
Property, Plant and Equipment - Property, plant and equipment are recorded at
- -----------------------------
cost. Expenditures for maintenance, repairs and renewals are charged to expense
as incurred whereas major betterments are capitalized as additions to property,
plant and equipment. The provision for depreciation and amortization has been
calculated using the straight-line method over the assets estimated useful
lives.
9
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
The components of property, plant and equipment and their estimated useful lives
are as follows:
Useful Life
-----------------
Leasehold improvements 5 - 15 $ 456,066
Machinery and equipment 5 - 13 2,183,773
Tooling and dies 3 - 7 635,229
Office equipment 5 - 10 819,505
Furniture and fixtures 5 - 10 151,971
Vehicles 5 42,500
Construction in progress -- 3,444
-----------
4,292,488
Less: accumulated depreciation (2,930,291)
-----------
$ 1,362,197
===========
Other Assets - Other assets consist of:
- ------------
Goodwill $2,167,853
Patents and trademarks 20,000
Security deposits and advances 76,500
----------
2,264,353
Less: accumulated amortization 130,627
----------
$2,133,726
==========
Goodwill - The excess of the purchase price over the fair value of net assets
- --------
acquired in an acquisition (goodwill) is included in other assets in the
accompanying consolidated balance sheets and is being amortized over 15 years on
a straight-line basis. The Company periodically evaluates the existence of
goodwill impairment on the basis of whether the goodwill is fully recoverable
from projected undiscounted net cash flows of the related business unit. As of
July 31, 1998, goodwill (net of accumulated amortization) was $2,038,626.
Amortization of goodwill amounted to $85,671 for the nine months ended July 31,
1998.
Long-Lived Assets - The Company has adopted SFAS No. 121, "Accounting for the
- -----------------
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable intagibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The adoption of SFAS No. 121 did not
have a material impact on the Company's financial statements.
10
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP,INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
Income Taxes - The stockholders of the Allard Nazarian Group, Inc. have elected
- ------------
to have the Allard Nazarian Group, Inc. treated as an S corporation for federal
income tax purposes. Accordingly, no provision for federal income taxes is
reflected in the Company's financial statements as the stockholders of Allard
Nazarian Group, Inc., not the Company, are liable for federal income taxes.
2. NOTES PAYABLE
-------------
Under terms of a credit agreement between Allard Nazarian Group and a bank,
The Company is obligated for certain revolving line or credit and term loan
borrowings. As of July 31, 1998, the terms of the Company's portion of
revolving line of credit and term loan are as follows:
As of July 31, 1998, the Company's revolving line of credit borrowings
totaling $5,214,820, bear interest at prime (8.5% at July 31, 1998) plus
.25% and are secured by substantially all of the Company assets. The
revolving line of credit expires on November 1, 2002.
As of July 31, 1998, the Company's term loan borrowings totaling $451,780 ,
bear interest at prime (8.5% at July 31, 1998) plus .5% and are secured by
substantially all of the Company assets. The term loan is payable in
monthly installments until final maturity in November, 2002.
The agreement contains certain restrictive covenants, including financial
covenants related to minimum levels of net income, net worth, debt service,
debit to equity and current ratios applicable to Allard Nazarian Group,
Inc. taken as all.
As of July 31, 1998 the Company has notes payable to shareholders
totaling $2,060,847. The notes are unsecured, bear interest at 20%, are
payable in monthly installments of $52,988, final payment due November,
2002. The notes are subordinated to the Company's bank debt. Approximately,
$268,400 of the notes has been included in the current maturities of notes
payable in the accompanying balance sheet.
As of July 31, 1998 the Company has a note payable in connection with the
acquisition of Modutec, Inc. totaling $240,541. The note is unsecured, bear
interest at prime plus 2 %, and is due November, 1998.
3. ACCRUED EXPENSES
----------------
Accrued expenses consist of:
1997
----------
Payroll and related amounts $174,332
Vacation and holiday 151,864
Professional fees 98,294
Facilities 95,274
Warranty 25,400
Interest 36,531
Commissions 33,368
Other 80,502
----------
$695,565
==========
11
ANG INSTRUMENTS
A DIVISION OF ALLARD NAZARIAN GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
4. EMPLOYEE BENEFITS
-----------------
Through Allard Nazarian Group, Inc. the Company has a Profit-Sharing 401(k) Plan
for the benefit of eligibles employees whereby the Company matches a portion of
the employees' contributions to the plan. The Company currently matches 50% of
the first 4% of employees= contributions. The Company's expense relating to
this plan amounted to $213,000 for the nine months ended July 31, 1998.
5. COMMITMENTS
-----------
The Company leases certain buildings and equipment under various lease
agreements which expire at various dates over the next five years. The Company
leases a manufacturing facility in Manchester, New Hampshire from affiliates
through common ownership.
As of July 31, 1998, the aggregate future minimum lease commitments under
operating leases are as follows:
Operating
Fiscal Year Leases
----------- -----------
1999 $ 533,259
2000 481,508
2001 491,734
2002 414,943
2003 264,200
----------
Total minimum lease payments $2,185,644
==========
Total rent expense charged to operations for the nine month period ended July
31, 1998 totaled $504,323.
12
WPI GROUP, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following unaudited pro forma combined statements of operations give
effect to the acquisition of ANG Instruments, a division of Allard Nazarian
Group, Inc. ("ANG Instruments"), by WPI Group, Inc., assuming that the
acquisition was effective on October 31, 1997 and that the transaction was
accounted for as a purchase. The pro forma data reflect the acquisition of the
assets and assumption of liabilities of ANG Instruments by WPI Group, Inc. The
unaudited pro forma combined statements of operations for the period ended June
28, 1998 combine the historical statements of operations of WPI Group, Inc. for
the nine months ended June 28, 1998 and of ANG Instruments for the nine month
period ended July 31, 1998. Moreover, the pro forma combined statement of
operations reflects preliminary pro forma adjustments utilizing the purchase
method of accounting. The actual adjustments may differ from those reflected in
the pro forma combined statements of operations. The following pro forma
information is presented for illustration purposes only and is not necessarily
indicative of the actual results of operations that would have been reported if
the acquisition had been effected at that date or which may be reported in the
future. This statement should be read in conjunction with the accompanying
explanatory notes; the pro forma combined balance sheet and the respective
historical financial statements and related notes of WPI Group, Inc. and
ANG Instruments.
13
WPI GROUP, INC
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
PERIOD ENDED JUNE 28,1998
WPI GROUP, INC ANG PRO FORMA
JUNE 28, 1998 INSTRUMENTS ADJUSTMENTS COMBINED
(UNAUDITED) JULY 31, 1998 (UNAUDITED) (UNAUDITED)
---------------- --------------- -------------- -------------
Net sales $ 69,494,757 $ 13,803,536 $ -- $ 83,298,293
Cost of sales 40,511,951 10,425,981 (48,468) (1) 50,889,464
---------------- --------------- -------------- -------------
Gross profit 28,982,806 3,377,555 48,468 32,408,829
---------------- --------------- -------------- -------------
Operating expenses:
Research and new product development 3,983,448 351,951 -- 4,335,399
Selling, general and administration 17,670,970 2,893,587 398,183 (2) 20,962,740
---------------- --------------- -------------- -------------
Total operating expenses 21,654,418 3,245,538 398,183 25,298,139
---------------- --------------- -------------- -------------
Operating income 7,328,388 132,017 (349,715) 7,110,690
Other income (expense):
Interest expense (2,445,588) (617,100) (1,343,875) (4) (3,789,463)
617,100 (5)
Other, net 17,751 (8,331) -- 9,420
---------------- --------------- -------------- -------------
Income before provision for income taxes 4,900,551 (493,414) (1,076,490) 3,330,647
Provision for income taxes 1,568,000 -- (502,193) (6) 1,065,807
---------------- --------------- -------------- -------------
Net income $ 3,332,551 $ (493,414) $ (574,297) $ 2,264,840
================ =============== ============== =============
Basic Earnings Per Share $ 0.55 $ 0.38
================ =============
Diluted Earnings Per Share $ 0.54 $ 0.36
================ =============
Weighted average common shares 6,011,864 6,011,864
Effect of dilutive options 200,164 200,164
================ -------------
Adjusted Weighted Average Common Shares 6,212,028 6,212,028
================ =============
See accompanying notes to pro forma combined financial statements, page 17.
14
WPI GROUP, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 28, 198
(UNAUDITED)
The following unaudited pro forma combined balance sheet gives effect to
the acquisition of ANG Instruments, a division of Allard Nazarian Group, Inc.
("ANG Instruments"), by WPI Group, Inc., assuming that the acquisition was
consummated as of June 28, 1998 and assumes that the acquisition was accounted
for as a purchase. The pro forma data reflect the acquisition of the assets and
assumption of liabilities of ANG Instruments by WPI Group, Inc. The unaudited
pro forma combined balance sheets combine the historical balance sheets of WPI
Group, Inc. as of June 28, 1998 and of ANG Instruments as of July 31, 1998.
Moreover, the pro forma combined balance sheet reflects preliminary pro forma
adjustments utilizing the purchase method of accounting. The actual adjustments
may differ from those reflected in the pro forma combined balance sheet. The
following pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the financial position that would have been
reported had the acquisition been consummated as of June 28, 1998 or which may
be reported in the future. This statement should be read in conjunction with the
accompanying explanatory notes; the pro forma combined statement of operations
and the respective historical financial statements and related notes of WPI
Group, Inc. and ANG Instruments.
15
WPI GROUP, INC
COMBINED BALANCE SHEETS
JUNE 28, 1998
WPI GROUP, INC ANG PRO FORMA
JUNE 28, 1998 INSTRUMENTS ADJUSTMENTS COMBINED
(UNAUDITED) JULY 31, 1998 (UNAUDITED) (UNAUDITED)
---------------- ------------- ------------ ---------------
ASSETS
Current assets:
Cash $ 1,424,231 $ 17,338 $ -- $ 1,441,569
Trade accounts receivable, net 17,575,469 2,562,491 -- 20,137,960
Accounts receivable - other 304,610 46,849 -- 351,459
Inventories 9,557,995 3,806,275 592,859 (1) 13,957,129
Prepaid expenses and other 1,260,969 176,820 -- 1,437,789
Prepaid income taxes 1,193,160 -- -- 1,193,160
Refundable income taxes 1,363,048 -- -- 1,363,048
---------------- ------------ ----------- ---------------
Total current assets 32,679,482 6,609,773 592,859 39,882,114
Property, plant and equipment
at cost less accumulated depreciation 13,506,883 1,362,197 -- 14,869,080
Other assets, net 4,456,177 95,100 -- 4,551,277
Goodwill 29,860,519 2,038,626 14,089,833 (2) 45,988,978
---------------- ------------- ------------ --------------
TOTAL ASSETS $80,503,061 $10,105,696 $14,682,692 $105,291,449
================ ============= ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,000,000 $ 508,932 $ (508,932) (2) $ 3,000,000
Accounts payable 6,068,436 1,139,979 -- 7,208,415
Accrued expenses 3,980,092 695,565 850,000 (2) 5,525,657
Accrued income taxes 1,475,263 -- -- 1,475,263
---------------- ------------- ------------ --------------
Total current liabilities 14,523,791 2,344,476 341,068 17,209,335
Long term notes payable
Long term debt, bank 37,000,000 5,666,600 (5,666,600) (2)
20,000,000 (3) 57,000,000
Long term debt, other 1,792,456 (1,792,456) (2)
2,102,844 (3) 2,102,844
Deferred income taxes 3,279,679 -- -- 3,279,679
---------------- ------------- ------------ --------------
Total Liabilities 54,803,470 9,803,532 14,984,856 79,591,858
---------------- ------------- ------------ --------------
STOCKHOLDERS EQUITY
Common stock - WPI Group 60,240 60,240
Common stock - ANG Instruments -- 42 (42) (2) --
Additional paid-in capital 14,144,614 987,460 (987,460) (2) 14,144,614
Retained earnings 11,264,113 (685,338) 685,338 (2) 11,264,113
Foreign currency translation 230,624 -- -- 230,624
---------------- ------------- ------------ --------------
Total stockholders' equity 25,699,591 302,164 (302,164) 25,699,591
---------------- ------------- ------------ --------------
$80,503,061 $10,105,696 $14,682,692 $105,291,449
================ ============= ============ ==============
See accompanying notes to pro forma combined financial statements, page 17.
16
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Adjustment to reflect change in certain ANG Instrument Company inventory
from last-in, first-out to first-in, first-out method of pricing
inventories.
(2) Adjustment to reflect goodwill arising on acquisition, elimination of
amounts owed to former bank, shareholders and others, estimated accrued
acquisition expenses, primarily legal and accounting expenses and estimated
related costs, and elimination of share capital and pre acquisition
retained earnings and amortization of goodwill over 25 years.
(3) Adjustment to reflect the net debt drawn down to finance the acquisition of
ANG Instruments.
(4) Adjustment to reflect interest expense on debt drawn down to finance the
acquisition at a rate of 8.25%, the current borrowing rate under terms of
the credit facilities agreement (variable interest rate).
(5) Adjustment to eliminate historical interest expense related to loans from
former bank, parent and stockholders.
(6) Adjustment to reflect tax effect of pro forma adjustments at federal
statutory rate of 34%.
17