SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 1996
CHARTER POWER SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-9389 13-3314599
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1400 Union Meeting Road, Blue Bell, Pennsylvania 19422
(Address of principal executive office) Zip Code
(215) 619-2700
(Registrant's telephone number, including area code)
This report amends the current report on Form 8-K dated
March 12, 1996 (the "Form 8-K") of Charter Power Systems, Inc.
(the "Company"). This report contains a description of further
developments under Item 2 of the Form 8-K and the financial
statements and pro forma financial information required to be
provided under Item 7 of the Form 8-K. Other than as set forth
herein, there has been no change in the information set forth in
the Form 8-K.
Item 2.
Pursuant to a Purchase Agreement dated as of February 23,
1996 (the "Purchase Agreement"), on March 12, 1996, International
Power Systems, Inc., an Arizona corporation and an indirect
wholly owned subsidiary of the registrant ("Purchaser"), acquired
from Burr-Brown Corporation, a Delaware corporation, and its
subsidiaries (collectively, "Seller"), (i) 1,044,418 shares of
the common stock (the "Common Stock") of Power Convertibles
Corporation, an Arizona corporation ("PCC"), which the Seller has
represented to be at least 79% of the Common Stock on a fully
diluted basis (although, based on the schedules to the Purchase
Agreement, such shares represent 84.6% of the outstanding Common
Stock) and (ii) 100% of the outstanding Series A Preferred Stock
and Series C Preferred Stock of PCC (collectively, the "Preferred
Stock"). In addition, Purchaser acquired or repaid approximately
$5.2 million of indebtedness of PCC. The aggregate consideration
paid by Purchaser was approximately $15.4 million, subject to
certain adjustments, of which $1.0 million was retained in escrow
to fund indemnification claims under the Purchase Agreement. The
purchase price was determined by (i) the liquidation value and
accrued dividends on the Preferred Stock, (ii) the face value of
the indebtedness that was acquired or repaid and (iii) negotia-
tion with Seller as to the common stock.
The source of funds for the acquisition was advances under the
registrant's existing credit facility with NationsBank, N.A.,
National Westminster Bank, NJ and CoreStates Bank, N.A. PCC is
engaged in the business of designing and manufacturing DC to DC
converters and the Purchaser intends to cause PCC to continue
using its assets in such business.
On April 26, 1996, subsequent to the original filing of the
Form 8-K, the Company acquired 190,000 shares of PCC common stock
from the former chief executive officer of PCC for $1,141,900,
which together with shares previously acquired by the Company
represents in excess of 99.6% of the outstanding PCC common
stock. On April 29, 1996 the Company made offers to purchase the
remaining shares of PCC common stock and shares of PCC common
stock covered by stock options for $6.01 per share or option,
which if all offers are accepted will result in payments of an
aggregate of approximately $465,000.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
The following financial statements and pro forma financial
information are filed as part of this report:
a) Financial Statements of Business Acquired:
Consolidated balance sheets of Power Convertibles
Corporation as of December 31, 1995 and 1994 and
related consolidated statements of operations, changes
in stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994.
b) Pro Forma Financial Information:
Pro forma consolidated balance sheet as of January 31,
1996 and explanatory notes.
Pro forma consolidated statement of income for the year
ended January 31, 1996 and explanatory notes.
c) Exhibits:
23 Consent of Independent Public Accountants (filed
herewith).
POWER CONVERTIBLES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Power Convertibles Corporation:
We have audited the accompanying consolidated balance sheets of
Power Convertibles Corporation (an Arizona corporation and a
majority owned subsidiary of Burr-Brown Corporation) and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. 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 financial position of Power
Convertibles Corporation and subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Tucson, Arizona,
January 17, 1996 (except with respect
to the matter discussed in Note 14, as to
which the date is March 12, 1996).
POWER CONVERTIBLES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
CURRENT ASSETS:
Cash $ 242,538 $ 621,178
Accounts receivable, less
allowance for doubtful accounts
of $10,000 in 1995 (Note 5) 2,662,132 2,125,241
Other receivables 42,059 93,221
Inventories, net (Notes 2, 3, and 5) 3,327,039 3,034,693
Prepaid expenses and lease deposits 267,808 327,376
Deferred tax asset, current (Notes
2 and 10) 33,744 119, 543
---------- ----------
Total current assets 6,575,320 6,321,252
---------- ----------
PROPERTY AND EQUIPMENT (Notes 2, 5,
and 6):
Shop equipment 3,655,272 2,380,760
Office equipment 556,378 473,353
Electronic equipment 636,727 533,424
Automobiles 38,888 35,329
Computer equipment 983,025 750,554
Library 8,981 8,981
Leasehold improvements 563,337 466,928
---------- ----------
6,442,608 4,649,329
Less-accumulated depreciation
and amortization (2,376,527) (1,392,106)
---------- ----------
4,066,081 3,257,223
---------- ----------
NOTES RECEIVABLE (Note 9) 5,500 46,500
---------- ----------
INTANGIBLE ASSET, net of amortization
of $94,000 in 1995 and $17,000
in 1994 (Note 4) 431,250 233,333
---------- ----------
Total assets $11,078,151 $ 9,858,308
========== ==========
The accompanying notes are an integral part
of these consolidated balance sheets.
POWER CONVERTIBLES CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 1995 AND 1994
1995 1994
----------- ----------
CURRENT LIABILITIES:
Trade accounts payable $ 1,398,344 $3,260,937
Accrued expenses 990,186 468,652
Line of credit (Note 5) 1,834,494 1,895,210
Related party note payable (Note 9) 750,000 -
Current portion of long-term debt
(Note 6) 525,674 206,890
Dividends and interest payable (Note 7) 1,003,546 815,747
Income taxes payable (Note 10) 824,426 508,043
---------- ---------
Total current liabilities 7,326,670 7,155,479
DEFERRED TAX LIABILITY (Note 10) 204,633 167,407
OTHER LIABILITY (Note 11) 141,616 80,119
LONG-TERM DEBT, net of current
portion (Note 6) 754,349 385,418
---------- ---------
Total liabilities 8,427,268 7,788,423
---------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY (NOTE 7):
Preferred stock, redeemable -
Series A, 10% noncumulative, voting,
nonconvertible, $1 par value, 100,000
shares authorized, 47,855 shares
issued and outstanding 47,855 47,855
Series B, noncumulative, nonvoting,
convertible, $1 par value, 100,000
shares authorized, no shares issued
and outstanding - -
Series C, 10% cumulative, nonvoting,
nonconvertible, $10 par value,
100,000 shares authorized, 65,215
shares issued and outstanding
(liquidation value of $1,488,211
and $1,420,042, respectively) 652,150 652,150
Common stock, $.01 par value,
10,000,000 shares authorized,
1,234,463 and 1,286,498 shares
issued and outstanding, respectively 12,345 12,865
Paid-in capital 542,262 779,149
Retained earnings 1,426,681 615,366
Foreign currency translation loss (30,410) -
Stock receivable (Note 9) - (37,500)
---------- ---------
Total stockholders' equity 2,650,883 2,069,885
---------- ---------
Total liabilities and stockholders' equity $11,078,151 $9,958,308
========== =========
The accompanying notes are an integral part
of these consolidated balance sheets.
POWER CONVERTIBLES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
NET SALES (Notes 9 and 13) $25,259,474 $20,734,939
COST OF SALES 16,347,642 12,330,026
---------- ----------
Gross profit 8,911,832 8,404,913
---------- ----------
EXPENSES:
Selling (Notes 9 and 13) 2,563,306 1,823,740
Research and development 2,211,346 2,722,039
General and administrative 2,275,387 2,096,218
---------- ----------
7,050,039 6,641,997
---------- ----------
Income from operations 1,861,793 1,762,916
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (509,511) (363,534)
Other income 18,444 7,826
---------- ----------
(491,067) (355,708)
---------- ----------
Net income before income taxes 1,370,726 1,407,208
PROVISION FOR INCOME TAXES (Note 10) 443,306 646,536
---------- ----------
Net income 927,420 760,672
PREFERRED STOCK DIVIDENDS 116,105 565,895
---------- ----------
Net income available for common
stock $ 811,315 $ 194,777
========== ==========
PRIMARY EARNINGS PER SHARE (Note 8):
Net income $ .67 $ .55
Preferred stock dividends (.08) (.41)
---------- ----------
Net income per share of common
stock $ .59 $ .14
========== ==========
EARNINGS PER SHARE ASSUMING FULL
DILUTION (Note 8):
Net income per share of common
stock $ .57 $ .14
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
POWER CONVERTIBLES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Preferred Stock
------------------------------------------ Foreign
Series A Series B Series C Common Stock Trans- Currency
-------------- ------------- ------------- ----------------- Paid-in Retained lation Stock
Shares Amount Shares Amount Shares Amount Shares Amount Capital Earnings Loss Receivable Total
------ ------ ------ ------ ------ ------ ------ ------ ------- -------- ------ ---------- ---------
BALANCE, at
December 31,
1993 47,855 $47,855 - $ - 65,215 $652,150 1,321,498 $13,215 $795,049 $ 420,589 $ - $(53,750) $1,875,108
Net income - - - - - - - - - 760,672 - - 760,672
Dividends
declared
and payable - - - - - - - - - (565,895) - - (565,895)
Stock retired - - - - - - (35,000) (350) (15,900) - - 16,250 -
------ ------ ---- ---- ------ ------- --------- ------ ------- --------- ------ ------ ---------
BALANCE, at
December 31,
1994 47,855 47,855 - - 65,215 652,150 1,286,498 12,865 779,149 615,366 - (37,500) 2,069,885
Net income - - - - - - - - - 927,420 - - 927,420
Dividends
declared
and payable - - - - - - - - - (116,105) - - (116,105)
Stock retired - - - - - - (52,035) (520) (236,887) - - 37,500 (199,907)
Foreign
currency
translation
adjustment - - - - - - - - - - (30,410) - (30,410)
------ ------ ---- ---- ------ ------- --------- ------ ------- --------- ------ ------ ---------
BALANCE, at
December 31,
1995 47,855 $47,855 - $ - 65,215 $652,150 1,234,463 $12,345 $542,262 $1,426,681 $(30,410) $ - $2,650,883
====== ====== ==== ==== ====== ======= ========= ====== ======= ========= ====== ====== =========
The accompanying notes are an integral part of these consolidated statements.
POWER CONVERTIBLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 927,420 $ 760,672
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 1,061,504 530,170
Changes in operating assets and liabilities-
Accounts receivable (536,891) (1,024,180)
Related party receivable, net - 38,998
Other receivables 51,162 (74,205)
Inventories, net (292,346) (1,857,131)
Prepaid expenses and lease deposits 59,568 50,304
Notes receivable 41,000 (46,500)
Intangible asset (275,000) (250,000)
Trade accounts payable and accrued
expenses (1,341,059) 2,681,091
Interest payable on preferred stock
and related party debt 71,694 249,852
Deferred tax asset 85,799 68,165
Current and deferred tax liability 353,609 332,019
Other liability 61,496 80,119
--------- ---------
Net cash provided by operating activities 267,956 1,539,374
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (850,452) (1,999,777)
--------- ---------
Net cash used in investing activities (850,452) (1,999,777)
--------- ---------
POWER CONVERTIBLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing of related party long-term debt 750,000 -
Net borrowing on line of credit (60,716) 1,172,000
Borrowings of long-term debt 141,879 -
Repayments of long-term debt (396,990) (150,000)
Repayment of stock options and retirement
of shares (199,907) -
Net cash provided by financing activities 234,266 1,022,000
--------- ---------
Effect of exchange rate changes on cash (30,410) -
--------- ---------
Net change in cash (378,640) 561,597
CASH, beginning of year 621,178 59,581
--------- ---------
CASH, end of year $ 242,538 $ 621,178
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 262,735 $ 113,682
========= =========
Cash paid for income taxes $ 126,923 $ 200,000
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Purchases of fixed assets through the issuance of capital lease
obligations and bank notes totaled $942,827 and $500,000 during 1995
and 1994, respectively.
Dividends accrued but unpaid totaled $113,070 and $565,895 on dividends
declared in 1995 and 1994, respectively.
The accompanying notes are an integral part of these
consolidated statements.
POWER CONVERTIBLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION:
Power Convertibles Corporation and its subsidiaries (the Company), a
majority owned subsidiary of Burr-Brown Corporation, manufactures
electronic components and related systems for use in electronic
products.
During 1992, the Company established a European and Mexican
subsidiary, Power Convertibles Corporation Ireland, Ltd. (PCC Ireland)
and Power Convertibles Corporation Mexico (PCC Mexico).
(2) SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Preparation of Financial
Statements
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated.
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.
Revenue Recognition
The Company recognizes revenues upon shipment.
Foreign Currency Translation
Financial information relating to the Company's foreign subsidiaries
is recorded in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation. The loss resulting
from the translation of the subsidiaries' financial statements has
been included as a separate component of stockholders' equity.
Reclassifications
Certain amounts for 1994 have been reclassified to conform with 1995
presentation.
-2-
Inventories
Inventories are valued at the lower of cost or market, utilizing the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided using the
straight-line method based on the estimated useful life of the
respective asset. Amortization of leasehold improvements is provided
using the straight-line method over the shorter of the useful life of
the property or the term of the lease. The estimated useful lives of
the property and equipment are as follows:
Shop equipment 7 years
Office equipment 7 years
Electronic equipment 7 years
Computer equipment 3 years
Automotive 5 years
Library 5 years
Income Taxes
SFAS 109, Accounting for Income Taxes, requires the adoption of the
"liability" method for providing deferred taxes. Deferred income
taxes result from temporary differences in the recognition of
accounting transactions for tax and financial reporting purposes.
(3) INVENTORIES:
Inventories consist of the following at December 31:
1995 1994
---- ----
Raw materials $2,163,080 $1,908,516
Work-in-process 833,504 927,405
Finished goods 543,179 379,964
--------- ---------
3,539,763 3,215,885
Less - allowance for
obsolescence (212,724) (181,192)
--------- ---------
$3,327,039 $3,034,693
========= =========
(4) INTANGIBLE ASSET:
The intangible asset is a license fee paid to an unrelated party
relating to a new product technology. The total fee to be paid is
$750,000 contingent upon specific performance measures, of which
$525,000 has been paid as of December 31, 1995. The balance is being
amortized over the anticipated product life of eight years.
-3-
(5) LINE OF CREDIT:
The Company has a variable line of credit with a maximum borrowing
base of the lesser of $4,000,000 or the sum of 80% of accounts
receivable plus 40% of raw materials and finished goods inventory.
Inventory cannot exceed $700,000 of raw materials and $800,000 in
aggregate. The line bears interest at the institution's base rate
plus 2% and matures on May 31, 1998.
(6) LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
1995 1994
---- ----
Equipment notes payable to a bank,
bearing interest at the institu-
tion's base rate plus 2%.
Paid in 1995 $ - $92,308
Equipment note payable to a bank,
bearing interest at the institu-
tion's base rate plus 2% and secured
by the underlying equipment, due in
monthly installments of $10,417
beginning January 15, 1995 through
December 15, 1998 410,986 500,000
Related party notes payable, bearing
interest equal to the rate of 12-month
US Treasury bills, which was 7.5% at
December 31, 1995, due in monthly install-
ments of $1,814 beginning January 1, 1996
through June 30, 2001, unsecured 119,705 -
Capital lease obligation, bearing
interest at 10.5%, due in monthly install-
ments of $4,283 beginning April 17, 1995
through May 17, 1998, secured by under-
lying equipment 103,253 -
Capital lease obligation, bearing
interest at 10.5%, due in monthly install-
ments of $15,041 beginning April 3, 1995
through March 3, 1997, secured by under-
lying equipment 209,441 -
-4-
1995 1994
---- ----
Capital lease obligation, bearing
interest at 10.5%, due in monthly
installments of $15,648 beginning
July 6, 1995 through June 6, 1998,
secured by underlying equipment 414,476 -
Various capital leases, bearing
interest at rates ranging from 11.1%
to 13.2%, maturing through October 2000 22,162 -
--------- -------
Total long-term debt 1,280,023 592,308
Less - current portion 525,674 206,890
--------- -------
$ 754,349 $385,418
========= =======
Based on the outstanding balance at December 31, 1995, future
maturities of long-term debt are as follows for the following fiscal
years:
Year Ending
December 31,
1996 $525,674
1997 412,025
1998 287,914
1999 21,765
2000 21,765
Thereafter 10,880
---------
$1,280,023
=========
(7) STOCKHOLDERS' EQUITY:
Preferred Stock
The Series A preferred stock is 10%, noncumulative, voting, and
nonconvertible. The Company may redeem the Series A preferred stock
for a redemption price equal to the price per share ($10) at which
such shares were issued plus unpaid dividends, if any. On December 6,
1995, the Board of Directors declared a dividend on the Series A
preferred stock in the amount of $1 per share.
-5-
The Series B preferred stock is noncumulative and nonvoting. The
Company may redeem the Series B preferred stock for a redemption price
equal to the price per share at which such shares were originally
issued. Each share of Series B preferred stock is convertible at any
time into ten shares of the Company's common stock at the stock-
holder's option. In accordance with the terms of the issue, the
conversion rate is subject to adjustment based upon changes in the
number of outstanding common shares of the Company. All shares of
Series B preferred stock issued have been converted to common stock.
The Series C preferred stock is 10% cumulative, nonvoting and non-
convertible. Dividends not declared on this preferred stock accumu-
late, along with interest on unpaid dividends, at 12% per annum
compounded quarterly, until such time that the dividends and interest
are paid. The Company may redeem at any time the Series C preferred
stock for its liquidation price equal to the price per share at which
such shares were issued plus unpaid dividends and interest thereon to
the date of redemption. On December 6, 1995, the Board of Directors
of the Company declared the cumulative dividends and interest on the
Series C stock.
Cumulative dividends accrued totaled $113,070 and $565,895 for
dividends declared in 1995 and 1994, respectively. In addition,
accrued interest on dividends declared in 1994 totaled $249,852 and is
reflected as interest expense on the accompanying consolidated
statements of operations. Accrued interest on dividends declared in
1995 was not significant. No dividend payments were made in 1995 or
1994.
Stock and Plans
On October 3, 1984, the Company entered into a stock option agreement
with Burr-Brown which was amended in 1987. The amended agreement
allowed Burr-Brown to purchase additional shares of Series B preferred
stock, over a five-year period, at a price to be determined by a five-
factor formula at the time the option is exercised. Series B preferred
stock is convertible to common stock in a ratio of 1 for 10. During
1989, Burr-Brown exercised their final option under the agreement and
increased their common stock ownership to 76%. The Series B preferred
stock was issued for no cash consideration as a result of the formula
determination. In 1990, Burr-Brown acquired additional shares of common
stock to bring their ownership percentage to 79%. Presently, Burr-Brown
holds approximately 85% of the shares outstanding.
The Company has a restricted stock purchase plan for officers of the
Company. The board of directors determines the number of shares of
common stock to be offered pursuant to this plan. Each officer who
purchases stock under this plan is required to enter into a restricted
stock purchase agreement which, among other restrictions, gives the
Company the right to purchase its stock at a predetermined formula
price in the event employment with the Company is terminated.
-6-
In addition, the agreement restricts the transferability of the stock
in that the stock cannot be disposed of without first offering it to
the Company. The purchase price of the stock by the Company will be no
less than the cost of the stock to the officer plus 9% per annum.
However, the price payable for any stock which is "vested" shall be
equal to a formula price based upon the value of the Company deter-
mined by reference to its net worth, sales, profitability, total net
assets, and the trend of sales, if such value is greater than the
officer's cost plus the 9% annual return. The officer's stock will
vest 20% each year of employment commencing with the second anniver-
sary date following the date of purchase. As of December 31, 1995 and
1994, a total of 190,000 and 240,000 shares of common stock, respec-
tively, had been purchased by officers of the Company pursuant to this
plan.
In addition, the Company has commitments to certain employees, mainly
officers, of the Company allowing for the purchase of 139,100 shares
of the Company's common stock. At December 31, 1995, none had been
exercised.
The Company has an incentive stock option plan that provides for the
granting of options to purchase shares of the Company's common stock
to employees other than officers and directors. The option price is
set at the fair value of the stock on the date of the grant of the
option (110% of fair value for an option granted to any person owning
more than 10% of the voting stock of the Company). All options granted
are exercisable at any time within ten years from the date of the
grant (five years for an option granted to a person owning more than
10% of the Company's voting stock). In case of termination of
employment, options not yet exercised are subject to the risk of
forfeiture. All employees who are granted options to purchase stock
are required to enter into the aforementioned restricted stock
purchase agreement, covering all such stock to be acquired, which
allows the Company to repurchase the stock at a price specified by the
agreement. As of December 31, 1995 and 1994, there were 128,150 and
137,900 stock options granted and 68,400 and 135,820 options
outstanding ranging from $.75 to $2.50 per share.
(8) EARNINGS PER SHARE:
Earnings per common and common equivalent share for the years ended
December 31, 1995 and 1994 are based on the weighted average number of
shares of common stock outstanding and the effect of shares issuable
under stock options based on the treasury stock method. Fully diluted
earnings per share reflects dilution related to stock options due to
the use of the market price at the end of the period, when higher than
the average price for the period, and the convertible debt further
discussed in Note 9 and is not significantly different than primary
earnings per share.
-7-
As the Company's common stock is not publicly traded, share prices are
calculated on an annual basis and are based on a specified formula
contained in agreement between and amount stockholders which derives
the total value of the Company as of the end of the most recent
calendar year, taking into consideration sales for the previous two
calendar years and total assets and net income for the previous
calendar year.
Weighted average common and common equivalent shares were as follows:
1995 1994
---- ----
Primary 1,375,554 1,386,099
Fully diluted 1,509,350 1,389,048
Share price - average $5.43 $5.16
Share price - year end $6.01 $5.43
(9) RELATED PARTY TRANSACTIONS:
Burr-Brown
Beginning in November 1994, the Company began to sell its products to
outside customers other than Burr-Brown. Sales to Burr Brown in 1995
and 1994 totaled $166,343 and $16,965,222, respectively.
During 1995, the Company received $750,000 in exchange for a note
payable due March 15, 1996. This debt is convertible to 138,122
shares of common stock if not paid by the maturity date.
Other
The Company has notes receivable from the employees which are secured
by common stock of the Company held by these individuals. These notes
carry interest at 8.25%, except for two notes which carry no interest,
and have no stated maturity. These notes totaled $5,500 and $46,500
as of December 31, 1995 and 1994, respectively.
-8-
(10) INCOME TAXES:
The Company is a member of the Burr-Brown affiliated group.
Accordingly, the Company is included as a member of the consolidated
income tax return of Burr-Brown. The Company is party to a formal
tax-sharing agreement which allocates the consolidated federal and
combined Arizona tax liabilities. The Company has calculated its tax
provision as if it were filing separate federal and Arizona returns.
The components of the income tax provision consist of the following:
1995 1994
---- ----
Current payable:
Federal $204,823 $384,796
State 62,297 81,473
Foreign 40,506 9,175
------- -------
307,626 475,444
Deferred: ------- -------
Federal 114,406 159,196
State 21,274 11,896
Foreign - -
------- -------
135,680 171,092
------- -------
Total $443,306 $646,536
======= =======
The provision for income taxes differs from the amounts computed by
applying the federal statutory rate as follows:
1995 1994
----------------------------------------
Tax Rate Tax Rate
-------- ----- -------- -----
Income tax provision at
federal statutory rate $466,047 34.0% $478,450 34.0%
Power Convertibles, Ireland,
net operating loss (105,155) (7.7) 105,155 7.5
Foreign tax rate greater
than statutory rate 3,868 0.3 5,334 0.4
Interest portion of dividend 3,035 0.2 84,746 6.0
Research and development - - (76,323) (5.4)
Meals and entertainment and
other 19,800 1.4 (9,306) (.7)
State taxes, net 55,711 4.1 58,480 4.1
------- ---- ------- ----
$443,306 32.3% $646,536 45.9%
======= ==== ======= ====
-9-
The components of the net deferred tax liability are as follows:
1995 1994
---- ----
Deferred tax liabilities:
Tax depreciation in excess
of book depreciation $147,633 $110,407
Other 57,000 57,000
------- -------
Deferred tax liabilities, net 204,633 167,407
------- -------
Deferred tax assets:
Reserves 19,725 71,781
Accrued vacation and other 14,019 12,361
Minimum tax credits - 22,517
General business credit - 12,884
------- -------
Deferred tax assets, net 33,744 119,543
------- -------
Net deferred tax liability $170,889 $ 47,864
======= =======
(11) OTHER LIABILITY:
PCC Ireland is a party to a grant agreement with Shannon Free Airport
Development Company Limited. The grant provides money for machinery
and equipment, building modifications, a rent reduction and employee
training. A contingent liability exists to repay in whole or in part
capital grants received if certain conditions set out in the grant
agreement are not adhered to.
Capital grants receivable are accounted for in the year in which the
related capital expenditure is made and are credited to profit and
loss on the same basis as the related fixed assets are depreciated.
Revenue grants receivable are credited to profit and loss in the year
in which the related expenditure is incurred.
(12) COMMITMENTS AND CONTINGENCIES:
Lease Commitments
-10-
The Company is currently obligated under six noncancelable operating
leases for office and manufacturing space, and manufacturing
equipment. Future minimum rental payments required under these
operating leases as of December 31, 1995 are as follows:
Year Ending
December 31,
------------
1996 $281,430
1997 217,368
1998 196,014
1999 196,014
2000 17,280
-------
$908,106
=======
Lease expense for operating leases, excluding related expenses for
certain occupancy costs, real property taxes and liability insurance,
was approximately $252,584 and $186,000 for the years ended December
31, 1995 and 1994, respectively.
Legal Matters
The Company is involved in legal proceedings of a character normally
incidental to its business. The Company does not believe that adverse
decisions in any pending or threatened proceedings, or any amounts
which it may be required to pay by reason thereof, would have a
material adverse effect on the financial condition or results of
operations of the Company.
(13) MAJOR CUSTOMERS:
Two customers in the electronics industry accounted for 46% and 16%,
respectively, of sales for the year ended December 31, 1995. A single
customer accounted for 46% of sales for the year ended December 31,
1994, the majority of which were distributed through Burr-Brown as
further discussed in Note 9.
(14) SUBSEQUENT EVENT:
On March 12, 1996, Burr-Brown Corporation's interests in the Company
were acquired by International Power Systems, Inc., a subsidiary of
Charter Power Systems, Inc. International Power Systems, Inc. plans
to tender for the remaining outstanding shares and stock options of
the Corporation.
As part of the transaction, the Company's line of credit was repaid
with an intercompany loan from Charter Power Systems, Inc.
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Pro Forma Financial Information:
The following pro forma financial data of the Company is adjusted
to give effect to its acquisition of Power Convertibles Corporation
from Burr-Brown Corporation ("Burr-Brown"). On March 12, 1996, the
Company acquired 1,044,418 shares of the common stock and all of the
outstanding shares of the preferred stock of PCC and acquired or
repaid the indebtedness of PCC. On April 26, 1996, the Company
acquired 190,000 shares of PCC common stock from the former chief
executive officer of PCC. The pro forma statement of income gives
effect to the acquisition as if it had occurred on February 1, 1995,
while the pro forma balance sheet gives effect to the acquisition as
if it had occurred on January 31, 1996. See the notes to the pro
forma financial information for a description of the pro forma
adjustments.
Pro forma operating results presented herein are not necessarily
indicative of the results of operations in the period following the
acquisition.
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 1996
(Dollars in thousands)
(Unaudited)
ADJUST-
CHARTER POWER MENTS REFER- PRO-
ASSETS SYSTEMS, INC. PCC (A) ENCE FORMA
Current assets:
Cash and cash
equivalents $ 5,472 $ 252 - $ 5,724
Restricted cash &
cash equivalents 5,402 - - 5,402
Accounts receivable, net 31,855 2,675 - 34,530
Inventories 35,227 3,876 $ 362 (C) 39,465
Deferred income taxes 6,235 34 255 (E) 6,524
Other current assets 1,367 264 - 1,631
------- ------ ------ -------
Total current assets 85,558 7,101 617 93,276
Property, plant and
equipment, net 39,375 3,885 - 43,260
Intangible and other
assets, net 3,287 638 1,429 (C,D) 5,354
Goodwill, net 2,607 - 7,285 (B,C,E) 9,892
------- ------ ------ -------
Total assets $130,827 $11,624 $ 9,331 $151,782
======= ====== ====== =======
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ 200 $ 5,401 $(4,894) (B) $ 707
Accounts payable 19,008 1,781 - 20,789
Accrued liabilities 13,513 944 332 (D) 14,789
Other current
liabilities 2,535 - 240 (D) 2,775
------- ------ ------ -------
Total current
liabilities 35,256 8,126 (4,322) 39,060
Deferred income taxes 2,750 205 84 (E) 3,039
Long-term debt 15,417 549 16,166 (B) 32,132
Other liabilities 8,478 127 90 (D) 8,695
------- ------ ------ -------
Total liabilities 61,901 9,007 12,018 82,926
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET (continued)
AS OF JANUARY 31, 1996
(Dollars in thousands)
(Unaudited)
ADJUST-
CHARTER POWER MENTS REFER- PRO-
SYSTEMS, INC. PCC (A) ENCE FORMA
Commitments and
contingencies
Stockholders' equity:
Preferred stock - 700 (700) (B) -
Common stock 63 12 (12) (B) 63
Additional paid-in
Capital 36,283 542 (542) (B) 36,283
Minimum pension
liability adjustment (760) - - (760)
Treasury stock (1,304) - - (1,304)
Foreign currency
translation loss - (70) - (70)
Retained earnings 34,644 1,433 (1,433) (B) 34,644
------- ------ ------ ------
Total stockholders'
equity 68,926 2,617 (2,687) 68,856
------ ------ ------ ------
Total liabilities &
stockholders'
equity $130,827 $11,624 $ 9,331 $151,782
======= ====== ====== =======
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Notes to Pro Forma Balance Sheet:
A) The Company is undertaking studies, including appraisals as
appropriate, to establish the fair market value of the
assets acquired of PCC. Final results of these studies, not
available at the time of this filing on Form 8-K, will be
used to establish the opening balance sheet carrying values
for PCC's net assets.
B) Record the Company's purchase of 1,234,418 shares of the
common stock and all of the outstanding shares of the
preferred stock of PCC. In addition, the Company acquired
or repaid the indebtedness of PCC of approximately $5,162
($4,894 current and $268 non current). The purchase and
repayment was financed using the Company's available long-
term credit facility of approximately $16,434 subject to
certain adjustments.
C) Record the fair market value of certain assets acquired from
PCC and added as a result of the terms of the acquisition,
based upon preliminary appraisal values and management
estimates. These amounts are subject to reclassification
and adjustments.
Inventory $ 362
Intangible Assets 767
D) Record liability for fees and expenses related to the
acquisition of $662.
E) Record the change in deferred taxes based on preliminary tax
values of the assets acquired and liabilities assumed.
F) As noted in Item 2 of this report on Form 8-K, the Company
made offers to purchase the remaining shares of PCC common
stock and shares of PCC common stock covered by stock
options which if accepted would result in additional
goodwill of approximately $465 which is not reflected in
this pro forma financial information.
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF INCOME
For the twelve months ended January 31, 1996
(Dollars in thousands, except share and per share data)
(Unaudited)
CHARTER POWER ADJUST- REFER- PRO
SYSTEMS, INC. PCC MENTS ENCE FORMA
(D)
Net sales $242,422 $25,260 - $267,682
Cost of sales 185,808 16,348 - 202,156
------- ----- ----- -------
Gross profit 56,614 8,912 - 65,526
Selling, general and
administrative expenses 27,781 4,839 $ 596 (A) 33,216
Research and development
expenses 6,196 2,211 - 8,407
------- ----- ----- -------
Operating income 22,637 1,862 (596) 23,903
Interest expense, net 1,063 510 960 (B) 2,533
Other expense (income), net 423 (18) - 405
------- ----- ----- -------
Income before
income taxes 21,151 1,370 (1,556) 20,965
Provision for income taxes 7,107 443 (613) (C) 6,937
------- ----- ----- -------
Net income $ 14,044 $ 927 $ (943) $ 14,028
======= ===== ===== =======
Net income per common and
common equivalent share:
Primary $ 2.18 $ 2.17
Assuming full dilution $ 2.18 $ 2.17
Average Shares Outstanding:
Primary 6,451 6,451
Assuming full dilution 6,455 6,455
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Notes to Pro Forma Statement of Income:
A) Record annual amortization of goodwill assuming a 20 year
amortization period plus amortization resulting from fair
value adjustments to intangible assets based on estimated
lives ranging from 3 to 10 years. The estimated lives are
based on the periods of economic benefit.
B) Record interest expense of $1,402 related to acquisition
debt computed at a weighted average annual effective rate of
8.53%, based on the Prime Rate or London Interbank Offered
Rate (LIBOR) plus 1.25%. Eliminate interest expense related
to repayment of debt in conjunction with the acquisition of
$442.
C) Record income taxes at an average statutory tax rate of
39.4% on all deductible expenses.
D) Cost savings benefits from synergies derived from the
acquisition are expected but are not reflected in the Pro
Forma Statement of Income.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CHARTER POWER SYSTEMS, INC.
May 15, 1996 BY: /s/ Alfred Weber
Alfred Weber
Chairman, President and
Chief Executive Officer
May 15, 1996 BY: /s/ Stephen E. Markert, Jr.
Stephen E. Markert, Jr.
Vice President Finance and
Treasurer
Principal Financial and
Accounting Officer