FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
or
[ ] 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 1-9389
CHARTER POWER SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
State or other jurisdiction of incorporation or organization: DELAWARE
I.R.S. Employer Identification Number: 13-3314599
Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
Registrant's telephone number, including area code: (215) 619-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
Common Stock: par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes ( x ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on April 23, 1997: $163,605,778
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 23, 1997: 6,087,425 shares of Common Stock, par value $.01 per
share.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's Proxy Statement to be filed Part III
pursuant to Regulation 14A within 120 -----------------------------
days after the end of Registrant's fiscal (Part of Form 10-K into which
year covered by this Form 10-K Document is incorporated.)
- ----------------------------------------
TABLE OF CONTENTS
PAGE
----
PART I
Item 1 Business.................................................. 1
Item 2 Properties................................................ 11
Item 3 Legal Proceedings......................................... 12
Item 4 Submission of Matters to a Vote of
Security Holders.................................. 12
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters...................... 12
Item 6 Selected Financial Data................................... 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 16
Item 8 Financial Statements and Supplementary Data............... 20
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 20
PART III
Item 10 Directors and Executive Officers of the Registrant........ 20
Item 11 Executive Compensation.................................... 20
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................ 20
Item 13 Certain Relationships and Related Transactions............ 20
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................. 21
SIGNATURES........................................................... 24
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE....... F-1
i
CHARTER POWER SYSTEMS, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Charter Power Systems, Inc. (together with its operating subsidiaries, the
"Company") is a leading North American producer of integrated reserve power
systems for telecommunications, electronic information and industrial
applications. The Company is also a leading producer of embedded high frequency
switching power supplies for use in telecommunications equipment, advanced
office electronics and sophisticated computer systems and of motive power
systems for electric industrial vehicles. The Company's integrated reserve power
systems are comprised of industrial lead-acid batteries, as well as power
rectifiers, power control and distribution equipment and related accessories.
The Company sells these products both as individual components and as integrated
power systems.
The Company was organized in November 1985 to acquire all the assets of
the eighty-year old C&D Power Systems division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of Common Stock,
par value $.01 per share ("Common Stock"), of the Company were first issued to
the public in February 1987.
In October 1992, the Company purchased substantially all of the assets and
assumed certain liabilities of the manufacturing division of Ratelco, Inc.
("Ratelco"), a Seattle, Washington based manufacturer and distributor of power
electronics equipment, used primarily in the regulated telecommunications power
market. Ratelco also markets a nonregulated range of alarm and monitoring
equipment for use with telecommunications power systems.
Effective March 29, 1994, the Company purchased substantially all of the
assets and assumed certain liabilities of the PowerSystems Division of ITT, a
Tucson, Arizona based company which designs and manufactures custom power
supplies. The power supplies are used in the telecommunications power market and
the office equipment market in such applications as telecommunication systems,
copiers, computers and work stations.
Effective January 24, 1995, the Company purchased certain assets and
assumed certain liabilities from the switching power supply division of Basler
Electric Company, a Highland, Illinois based manufacturer of electrical
components. These power supplies are used for office electronics and
communications applications.
On November 21, 1995, the Company sold 50,000 shares of Common Stock in a
public offering.
Effective February 22, 1996, the Company purchased certain equipment and
inventory of LH Research, Inc. ("LH"), a Costa Mesa, California based
manufacturer of standard power supply systems for the electronics industry. The
power supplies are used in telecommunications, computer, medical, process
control and other industrial applications.
Effective March 12, 1996, the Company acquired from Burr-Brown Corporation
its entire interest in Power Convertibles Corporation ("PCC") consisting of
1,044,418 shares of PCC common stock and all outstanding preferred stock. In
addition the Company 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 which together with the shares previously
acquired represented in excess of 99.6% of the outstanding PCC common stock. As
of May 29, 1996, the Company purchased all remaining shares of PCC common stock
and shares of PCC common stock issuable upon exercise of stock options. Tucson,
Arizona based PCC produces DC-to-DC converters used in communications, computer,
medical and industrial and instrumentation markets and also produces battery
chargers for cellular phones.
References to a fiscal year mean the Company's fiscal year ended in the
January of the year mentioned.
FORWARD LOOKING STATEMENTS
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," are forward-looking statements (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Factors that appear with the forward-looking statements,
or in the Company's other Securities and Exchange Commission filings, could
affect the Company's actual results and could cause the Company's actual results
to differ materially from those expressed in any forward-looking statements made
by the Company in this Annual Report on Form 10-K.
MARKETS
The Company manufactures and markets products in three general categories:
(i) integrated reserve power systems and components for the standby power
market; (ii) custom, standard and modified standard embedded high frequency
AC-to-DC and DC-to-DC switching power supplies; and (iii) motive power systems.
For fiscal 1997, 1996 and 1995 sales of standby power products accounted
for 51.6%, 52.5% and 54.0% of the Company's sales (see "Business - Products and
Customers"), respectively. For fiscal 1997, 1996 and 1995 sales of power
supplies accounted for 24.4%, 17.9% and 12.8% of the Company's sales,
respectively. For fiscal 1997, 1996 and 1995 sales of motive power products
accounted for 24.0%, 29.6% and 33.2% of the Company's sales, respectively. The
percentage of the Company's sales related to power supplies has increased as a
result of acquisitions.
The majority of the Company's standby power products are used in
telecommunications applications such as central telephone exchanges, microwave
relay stations, private branch exchange ("PBX") systems and cellular mobile
telephone systems. Other applications for the Company's standby power batteries
include uninterruptible power supply ("UPS"), principally for computers and
computer-controlled equipment, and as backup for support systems for submarines,
missiles and other weapons systems. In addition, the Company supplies batteries
and power electronics equipment for switchgear and instrumentation control
systems for electric utilities.
2
The majority of the Company's power supply products are sold to original
equipment manufacturers ("OEMs"), of electronic products on either a custom,
standard or modified standard basis. Power supplies are embedded in almost all
electronic products and are used to convert incoming AC or DC voltage to the
required level and quality of DC voltage.
The majority of the Company's motive power products are used to provide
the primary power source for forklift trucks and other materials handling
vehicles. The balance are used in a variety of other applications, such as
automated guided vehicle systems and airline ground support equipment. A
significant portion of these sales include products and systems to recharge
motive power batteries.
The Company supplies certain of its standard standby power and motive
power products to the U.S. Government. Company sales directly to the government
have accounted for less than 5% of its sales during each of its last three
fiscal years.
PRODUCTS AND CUSTOMERS
RESERVE POWER SYSTEMS
The Company is a leading producer of fully integrated reserve power
systems, which monitor and regulate electric power flow and provide backup power
in the event of a primary power loss or interruption. The Company also produces
the individual components of these systems, including power rectifiers, system
monitors, power boards, chargers and reserve batteries. The Company's standby
battery products are sold under the "C&D PowerCom" name.
The Company manufactures and markets a wide range of power electronics to
meet the needs of its customers. The Company's power electronics products
consist principally of power rectifiers and distribution and monitoring
equipment. The Company's power rectifiers convert or "rectify" external AC power
into DC power at the required level and quality of voltage and apply the DC
power to constantly charge the reserve battery and operate the user's equipment.
For installations with end applications that require varied power levels, the
Company's power control and distribution equipment distributes the rectified
power at the appropriate power level for each of the applications.
The Company manufactures lead acid batteries for use in reserve power
systems. These batteries are sold in a wide range of sizes and configurations in
two broad categories: flooded and valve-regulated. Flooded batteries require
periodic watering and maintenance. Valve-regulated batteries require less
maintenance and are often smaller. Customer demand for valve-regulated batteries
has increased over the past several years.
Telecommunications. The Company's major telecommunications customers
include national long distance companies, Regional Bell Operating Companies,
cellular system operators, personal communications services ("PCS") providers,
paging systems and PBX telephoning locations using fiber optic cable, microwave
transmission or traditional copper-wired systems.
The Company has recently introduced several new modular power plants,
which are a type of integrated reserve power system. These products, which are
referred to as the Liberty AGM Series Power Plant and the Liberty ACM Series
Power Plant, integrate advanced rectifiers with maintenance free valve-regulated
batteries.
3
One of the Company's historically important telecommunications products
has been the Round Cell reserve power battery, a flooded product which was
originally designed and patented by the Bell Laboratories of AT&T for use in
AT&T's own facilities and customer installations. The Company or its predecessor
has manufactured Round Cells for AT&T or Lucent Technologies, Inc. since 1972
and has been the exclusive manufacturer since 1982. AT&T spun off its equipment
manufacturing operations into an independent company named "Lucent Technologies,
Inc.," which began operations on October 1, 1996. Lucent Technologies, Inc.
accounted for 4.0% of sales for the year ended January 31, 1997. Had Lucent
Technologies, Inc. been an operating company for the full fiscal year, it would
have accounted for 12.0% of net sales and AT&T would have accounted for 3.1% of
net sales for the year ended January 31, 1997. No other customer accounted for
more than 5% of the Company's sales during fiscal 1997 or 1996.
Uninterruptible Power Supplies. The Company produces batteries for UPS
systems, which provide instant battery backup in the event of primary power loss
or interruption on sensitive equipment, thereby permitting an orderly shutdown
of the equipment or continued operation until the primary source comes back on
line. Large UPSs are used principally for mainframe computers, minicomputers,
networks, workstations and computer-controlled equipment. The Company also
produces batteries for submarine and missile support systems.
Equipment for Electric Utilities and Industrial Control Applications. The
Company produces rectifiers and batteries used in reserve power systems for
switchgear and instrumentation control systems used in electric utilities and
industrial control applications. These power systems enable fossil fuel, hydro
and nuclear power generating stations, switching substations and industrial
control facilities to be shut down in an orderly fashion during emergencies or
power failures by providing auxiliary power.
EMBEDDED HIGH FREQUENCY SWITCHING POWER SUPPLIES
The Company, through its International Power Systems ("IPS"), LH and PCC
subsidiaries, collectively called "C&D Power Electronics," designs, manufactures
and distributes custom, standard and modified standard electronic power supply
systems built for large OEMs of telecommunications equipment, office products,
computers and workstations. In addition, the Company manufactures rectifiers for
reserve power applications that are sold under the "Ratelco" brand name.
The Company's power supply systems incorporate advanced technology and are
designed for dependable operation of the host equipment. The Company's power
supply products include AC-to-DC power supplies, DC-to-DC converters and high
voltage power supplies for use in a large number of industrial applications,
with outputs ranging from several watts to several kilowatts. AC-to-DC power
supplies convert alternating current, the form in which virtually all power is
delivered by electric utilities to end users, into precisely controlled direct
current of the constant voltage required by sensitive electronic applications.
DC-to-DC converters convert one constant voltage into another constant voltage.
DC-to-DC converters are widely used in distributed power systems where power is
delivered within the equipment at a high voltage and is converted to a lower
voltage to permit the operation of microelectronics components such as
microprocessors.
In the telecommunications industry, the Company's power supplies are
broadly used in voice and data telecommunications. The Company also produces
power supplies for office copiers, workstations and other sophisticated
computers.
4
MOTIVE POWER SYSTEMS
The Company produces complete systems and individual components (including
power electronics and batteries) to power, monitor, charge and test the
batteries used in electric industrial vehicles, including fork-lift trucks,
automated guided vehicles and airline ground support equipment. The Company's
customers include end users in a broad array of industries, dealers of fork-lift
trucks and other materials handling vehicles and, to a lesser extent, OEMs. The
Company's motive power products are sold under the "C&D Motive Power Systems"
name.
The Company offers two primary lines of motive power systems targeted at
different niches: the C-2000 (formerly known as the C Line) and C-1500, for
general materials handling applications, and the high energy density Suprema
Line, which is designed for narrow aisle, high lift warehousing where battery
size is restricted and energy demands are high. In addition, in 1994, the
Company introduced the SmartBattery, a microprocessor-based module for
monitoring usage, charge levels and discharge cycles that is integrated into a
motive power battery to extend its life cycle.
SALES, INSTALLATION AND SERVICING
The sales, installation and servicing of the Company's power systems
products are performed through several networks of independent manufacturer's
representatives located throughout the United States and Canada. Each
independent manufacturer's representative operates under a contract with the
Company providing for compensation on a commission basis. The Company also
provides engineering, furnishing and installation ("EF&I") directly to certain
accounts.
In addition to these networks of independent manufacturer's
representatives, the Company maintains internal sales forces consisting of
regional sales managers and product/market specialists. The regional managers
are each responsible for managing a number of independent manufacturer's
representatives and for developing longer-term supplier relationships with large
OEMs and national accounts. The Company also maintains a separate sales force
that sells directly to certain large customers.
The Company also maintains several internal marketing departments in both
the battery and electronics businesses. These departments manage the development
of new products from the initial concept definition and management approval
stage through the engineering, production and sales processes. These departments
are also responsible for applications engineering and technical training of
sales representatives. In addition, the marketing departments develop annual
advertising plans that include a broad variety of media such as literature,
magazines, video and audio tapes and computer software.
The Company maintains branch sales offices in the United States, Canada
and Europe, with the support of the Company's headquarters and service
personnel, and has relationships with sales representatives or distributors in
Malaysia, China, the Philippines, the Middle East, Europe, Mexico and most of
Central and South America, including Brazil.
The Company's products typically are sold upon terms requiring payment in
full within 30 to 60 days. The Company warrants its products to perform as rated
for specified periods of time, ranging from one to twenty years depending on the
type of product and its application, in an amount that decreases over the life
of the product. The lengthiest warranties generally are applicable to standby
power batteries.
5
BACKLOG
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of the Company's receipt of
orders and, taking into account considerations of manufacturing capacity and
flexibility, the speed with which those orders are filled. Accordingly, the
Company's backlog at any particular date is only indicative of expected future
shipments, and period-to-period comparisons may not be meaningful. Orders for
the Company's products are subject to cancellation by the customer prior to
shipment.
The Company normally ships standby power products within two weeks to two
months after order and motive power products within two days to four weeks after
order. Power supplies are normally shipped one week to three months after order.
The Company's order backlog at January 31, 1997 was $48,491,000 and at January
31, 1996 was $33,604,000. Approximately 69 percent of the increase over the
prior year is due to the two acquisitions made during fiscal 1997. Virtually all
of the January 31, 1997 backlog will be filled during fiscal 1998.
MANUFACTURING AND RAW MATERIALS
The Company manufactures its products at eight domestic plants, two in
Mexico and one in Europe. Most key product lines are manufactured at a single
focused plant in order to optimize manufacturing efficiency, asset management
and quality control.
In fiscal 1991, the Company began capacity expansion at several of its
plants, which is continuing. In order to reduce costs and improve manufacturing
efficiency, the Company closed its one Canadian plant and transferred those
manufacturing operations to three of the Company's domestic facilities.
Consolidation continued during fiscal 1994 with the Company consolidating the
existing standby power electronics manufacturing at the Conshohocken facility
into the Dunlap facility where the Company's motive power electronics products
are manufactured. In addition, during fiscal 1997 the Company completed the
process of moving product lines from the Seattle, Washington facility to the
Dunlap, Tennessee and Nogales, Mexico facilities that was started in fiscal
1995. As a result, the Seattle, Washington manufacturing facility was closed
during fiscal 1997.
When the Company acquired the PowerSystems Division of ITT in fiscal
1995, it entered into an agreement pursuant to which a third party "shelter
company" provides to IPS the Nogales, Mexico facility and employs Mexican staff
and labor to assemble IPS's products.
The principal raw materials used in the manufacture of the Company's
products include lead, steel, copper, plastics and electronic components, all of
which are generally available from multiple suppliers. Other than the required
use of two suppliers of lead for the production of Round Cell batteries for
Lucent Technologies, Inc., the Company uses a number of suppliers to satisfy its
raw materials needs.
During fiscal 1997 the Company has continued its program of ISO
recognition. The Company is ISO 9001 certified at the Blue Bell, Pennsylvania
Headquarters and Leola, Pennsylvania plant. In addition, the Company's IPS and
PCC subsidiaries are ISO 9001 certified at their Tucson, Arizona and Mexican
facilities, as well as PCC's Irish facility.
6
COMPETITION
The Company competes with respect to all of its products on the basis of
reputation, product quality and reliability, service capability and technology.
The Company also competes on the basis of price and its relationships with large
customers.
The Company is a leading North American producer of integrated reserve
power systems and power electronics equipment and believes that it is one of the
four largest producers of reserve power systems in North America. In motive
power, the Company believes that one competitor, Yuasa Exide, Inc., has a
significantly larger market share than the Company, and that the Company, along
with two other manufacturers, occupies a second tier of the market in which they
have a significantly larger market share than their smaller competitors.
In addition, the Company believes that it has certain competitive
advantages in specific product lines. In reserve power systems, the Company
believes that it is one of only two major North American companies that
manufactures complete, integrated reserve power systems consisting of both
electronics and batteries, its other major competitors manufacturing either
electronics or batteries, but not both. In motive power, all of the Company's
major competitors supply integrated power systems, but only the Company and one
competitor manufacture both electronics and batteries. For both reserve and
motive power systems, the Company believes that the ability to provide a single
source for design, engineering, manufacturing and service is an important
element in its competitive position. With respect to power supplies, the Company
believes that it is among a small group of large competitors in this fragmented
industry.
When lead prices rise, certain of the Company's competitors that own
smelting operations may have lower lead costs than the Company. However, when
lead prices decline, the high fixed costs associated with these operations may
provide the Company with a cost advantage.
RESEARCH AND DEVELOPMENT
The Company maintains extensive technology departments concentrating on
electrochemical and electronics technologies. Their focus is on the development
of new, standard and custom products (including custom power supplies), the
ongoing development and improvement of existing products, sustaining
engineering, production engineering (including quality testing and managing the
expansion of production capacity) and the evaluation of competitive products.
The Company's research and development facilities feature advanced
computer-aided design and testing equipment. Technology and engineering
personnel coordinate all activities closely with operations, sales and marketing
areas in order to better meet the needs of customers.
The Company continues to develop new products in all areas of its
business. During fiscal 1997, the Company extended its range of telecom products
with the introduction of a family of medium powered high frequency rectifiers.
The Company also introduced variants of the "VXP family" of high density
DC-to-DC converters.
INTERNATIONAL OPERATIONS
The Company sells the full range of its motive and standby power products
in Canada through its network of independent Canadian representatives and one
branch office. Canadian operations accounted for less than 5% of the Company's
sales for the last three fiscal years.
7
In addition, the Company manufacturers a large portion of its power
supplies in Nogales, Sonora, Mexico through a shelter company and in Agua
Prieta, Sonora, Mexico for ultimate sale in the United States and Europe. The
Company has no significant sales in Mexico. Power supplies are also manufactured
by the Company in Shannon, Ireland.
PATENTS AND TRADEMARKS
The Company follows a policy of applying for patents on new inventions and
designs and actively pursuing pending and future patent applications. The
Company would aggressively assert infringement claims when, in the judgment of
the Company, this is warranted. The Company believes that the growth of its
business will depend primarily upon the quality of its products and its
relationships with its customers, rather than the extent of its patent
protection. While the Company believes that patents are important to its
business operations, the loss of any single or several patents would not have a
material adverse effect on the Company. During fiscal 1997, the Company
continued to prosecute United States and foreign applications which had been
previously filed.
The Company regards its trademarks C&D, C&D POWERCOM, LIBERTY, LIBERTY
SERIES, RATELCO and POWER CONVERTIBLES as being of substantial value in the
marketing of its products. The Company has registered its C&D, C&D POWERCOM,
LIBERTY, LIBERTY SERIES, RATELCO and POWER CONVERTIBLES trademarks in the United
States Patent and Trademark Office and the Company also has applications pending
for registrations of other trademarks in the United States. The Company's
trademarks include COMPUCHARGE, ELITE, FERRO FIVE, GUARDIAN, GUARDSMAN, RANGER,
RANGERNET and SCOUT.
EMPLOYEES
At January 31, 1997 the Company had 2,020 employees. Of these employees,
1,582 were employed in manufacturing and 438 were employed in field sales,
technical, manufacturing support, sales support, marketing and administrative
activities. In addition, the Company is provided the services of approximately
334 employees in a Mexican shelter company for its Nogales, Sonora, Mexico
manufacturing facility.
The Company's management considers its employee relations to be
satisfactory. Employees in five plants are not represented by a union. Employees
at the other three plants are represented by three different unions under
collective bargaining agreements.
ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive and evolving
environmental laws and regulations regarding the clean-up and protection of the
environment and worker health and safety. These laws and regulations include
requirements relating to the handling, storage, use and disposal of hazardous
materials and solid wastes, recordkeeping and periodic reporting to governmental
entities regarding the use of hazardous substances and disposal of hazardous
wastes, monitoring and permitting of air and water emissions and monitoring and
protecting workers from exposure to hazardous substances, including lead used in
the Company's manufacturing processes.
8
The Company operates under what it believes is a comprehensive
environmental, health and safety compliance program, which is headed by an
environmental director and staffed with trained environmental professionals. As
part of its program, the Company has prepared written environmental and health
and safety practice manuals, conducts regular employee training seminars,
undertakes internal and external audits of its operations and environmental and
health and safety programs and practices and engages in sampling and monitoring
of employee air, blood lead levels and other chemical exposures. In addition,
the Company also has installed certain pollution abatement equipment to minimize
or reduce emissions of regulated pollutants into the environment and monitors
and seeks to resolve potential environmental liabilities that result from or may
arise from current and historic hazardous materials handling and waste disposal
practices. The Company has instituted a hazardous materials recapture and
recycling program at each of its facilities and for its customers.
While the Company believes that it is in material compliance with the
applicable environmental requirements, it has received, and in the future may
receive, citations and notices from governmental regulatory authorities that
certain of its operations are not in compliance with its permits or applicable
environmental requirements. Occasionally the Company is required to pay a
penalty or fine, to install control technology or to make equipment or process
changes (or a combination thereof) as a result of the non-compliance or changing
regulatory requirements. When the Company receives a notice of a non-compliance,
it regularly undertakes to achieve compliance and works with the authorities to
resolve satisfactorily the issues raised. The associated costs have not had a
material effect on the Company's business, financial condition or results of
operations.
Notwithstanding the Company's efforts to maintain compliance with
applicable environmental requirements, if damage to persons or the environment
arises from hazardous substances used, generated or disposed of in the conduct
of the Company's business (or that of its predecessors to the extent the Company
is not indemnified therefor), the Company may be held liable for the damage and
for the costs of the environmental investigation and remediation, which could
have a material adverse effect on the Company's business, financial condition or
results of operations.
In view of the potential financial effect such environmental liabilities
could have, when the Company acquired the assets of its predecessor from Allied
in January 1986, it secured an obligation from Allied to indemnify the Company
from undisclosed environmental liabilities resulting from conditions existing as
of the closing date. With the exception of four sites disclosed by Allied at the
time of the acquisition, Allied has accepted indemnification responsibility for
the Company's potential liabilities at those third party owned or operated sites
with respect to which the Company has been named as a potentially responsible
party by the United States Environmental Protection Agency or state
environmental agencies under the federal Superfund law or comparable state
environmental laws.
With respect to the four sites not being covered by the Allied indemnity,
based upon the most currently available information, the Company believes that
its share of liability at these sites will not have a material adverse effect on
the Company's business, financial condition or results of operations. Moreover,
the Company has accrued reserves for these and other immaterial potential
environmental liabilities in its consolidated financial statements and
periodically reevaluates the reserved amounts for these liabilities in view of
the most current information available to it.
9
The Company also is aware of the existence of potential contamination at
two of its properties which may require expenditures for further investigation
and remediation. At the Company's Huguenot, New York facility, fluoride
contamination in an inactive lagoon exceeding the state's groundwater standards,
which existed prior to the Company's acquisition of the site, has resulted in
the site being listed on the registry of inactive hazardous waste disposal sites
maintained by the New York State Department of Environmental Conservation. The
prior owner of the site, Avnet, Inc., ultimately may bear some, as yet
undetermined, share of the costs associated therewith.
The Company's Conyers, Georgia facility was listed on the Georgia State
Hazardous Sites Inventory. Soil at the site, which was likely contaminated from
a leaking underground acid neutralization tank and possibly stormwater runoff,
has been excavated and disposed of by the Company, and a hydrogeologic study was
undertaken to assess the impact to groundwater. That study did not reveal any
groundwater impact, and assessment and remediation of off-site contamination has
been completed and the final remediation report will be submitted to the state
by June 1, 1997. The state environmental agency may request further information
and additional investigation or remediation may be necessary before the site may
be removed from its Hazardous Sites Inventory.
With respect to each of the properties described in the preceding two
paragraphs, the Company has accrued a reserve in its consolidated financial
statements for its estimate of the potential costs and liabilities associated
with the potential contamination. The costs and potential liabilities for these
matters, in the Company's opinion, are not likely to affect materially the
Company's business, financial condition or results of operations.
10
ITEM 2. PROPERTIES
Set forth below is certain information, as of January 31, 1997, with
respect to the Company's principal properties. The Company's interest in all of
its properties is subject to liens securing its bank debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
SQUARE PRODUCTS MANUFACTURED
LOCATION FOOTAGE AT OR USE OF FACILITY
-------- ------- ---------------------
UNITED STATES PROPERTIES
------------------------
MANUFACTURING:
Attica, Indiana................. 196,000 Large standby power batteries and
motive power batteries
Conshohocken, Pennsylvania...... 130,000 Metal trays, metal racks and
cabinets, battery R&D laboratories,
distribution center
Conyers, Georgia................ 161,000 Small standby power batteries
Dunlap, Tennessee............... 73,000 Motive power and standby power
electronics products, cabinets and
metal racks
Huguenot, New York.............. 148,000 Motive power batteries
Leola, Pennsylvania............. 187,000 Large standby power batteries
Tucson, Arizona................. 25,000 Power converters, cellular phone
battery chargers
Costa Mesa, California.......... 33,000 Power supplies
OTHER:
Blue Bell, Pennsylvania......... 31,000 World headquarters
Tucson, Arizona................. 45,000 Headquarters of International Power
Systems, Inc. and electronics R&D
laboratories
INTERNATIONAL PROPERTIES
------------------------
MANUFACTURING:
Agua Prieta, Sonora, Mexico..... 27,000 Power converters, cellular phone
battery chargers
Nogales, Sonora, Mexico......... 83,000 Power supplies
Shannon, Ireland................ 19,000 Power converters
OTHER:
Mississauga, Ontario, Canada ... 20,000 Canadian branch headquarters, sales
office and distribution center
11
The Company owns its Attica, Conyers, Leola and Conshohocken properties.
The Huguenot property is leased under an industrial revenue bond financing
arrangement entitling the Company to purchase the property for a nominal amount
at the end of the term of the related financing. In connection with the
Acquisition, Allied agreed to pay the principal and interest due under this
financing arrangement. The Nogales property is made available through a shelter
company in Mexico. The Blue Bell, Dunlap, Mississauga, Tucson, Costa Mesa,
Shannon, and Agua Prieta facilities and the Company's branch sales offices are
leased. The lease of the Dunlap property terminates in January 2004. The Company
has an option to purchase the Dunlap property during the lease term for
$1,160,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in ordinary routine litigation incidental to the
conduct of its business. None of such routine litigation, individually or in the
aggregate, is material to its financial condition or results of operations in
any year. See "Business - Environmental Regulation" for a description of certain
administrative proceedings in which the Company is involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on The New York Stock Exchange on
December 20, 1996 under the symbol CHP. From October 27, 1995 through December
19, 1996, the Common Stock was traded on the Nasdaq National Market under the
symbol CHTR. Prior to October 27, 1995 the Common Stock was listed and
principally traded on the American Stock Exchange (the "AMEX"), under the symbol
CHP. The approximate number of beneficial and registered record holders of the
Company's Common Stock on April 23, 1997 was 2,385.
The following table sets forth, for the periods indicated, the high and
low sales prices for the Company's Common Stock as reported by the AMEX through
October 26, 1995, the Nasdaq National Market from October 27, 1995 through
December 19, 1996, and the New York Stock Exchange thereafter. These prices
represent actual transactions, but do not reflect adjustment for retail markups,
markdowns or commissions.
YEAR ENDED
----------------------
JANUARY 31, 1997 JANUARY 31, 1996
---------------- ----------------
FISCAL QUARTER HIGH LOW HIGH LOW
-------------- ---- --- ---- ---
First Quarter........ $29 3/4 $25 $22 $19 1/4
Second Quarter....... 36 17 1/4 25 1/4 19 7/8
Third Quarter........ 26 1/4 20 31 3/4 24 1/8
Fourth Quarter....... 35 24 29 24
12
The Company began paying quarterly cash dividends on its Common Stock in
April 1987. The dividend declared in each quarter since then has been $.0275 a
share.
The Company's bank loan agreement permits quarterly dividends to be paid
on the Company's Common Stock so long as there is no default under that
agreement. Subject to such restriction and the provisions of Delaware law, the
Board of Directors currently intends to continue paying quarterly dividends in
the future at the rate currently paid. There can be no assurance, however, as to
the payment or amount of future dividends, since they will depend on the
Company's earnings and financial condition and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data for the periods indicated
have been derived from the Company's consolidated financial statements, which
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements for fiscal 1997, 1996 and 1995, which appear
elsewhere herein.
13
FISCAL YEAR
---------------------------------------------------------------
1997(7) 1996(6) 1995(5) 1994 1993(4)
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales................................... $286,907 $242,422 $200,009 $162,005 $134,064
Cost of sales............................... 219,819 185,808 154,464 123,560 105,387
------- ------- ------- ------- -------
Gross profit.............................. 67,088 56,614 45,545 38,445 28,677
Selling, general and
administrative expenses................... 34,499 27,781 24,796 23,121 22,184
Research and development
expenses.................................. 8,143 6,196 5,284 2,746 2,161
Restructuring charges (1)................... - - - - 3,106
------- ------- ------- ------- -------
Operating income.......................... 24,446 22,637 15,465 12,578 1,226
Interest expense, net....................... 1,396 1,063 1,222 1,003 1,022
Other (income) expense, net................. (8) 423 310 809 522
------- ------- ------- ------- -------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle................. 23,058 21,151 13,933 10,766 (318)
Provision for income taxes.................. 8,121 7,107 4,556 4,359 319
------- ------- ------- ------- -------
Income (loss) before cumulative
effect of change in
accounting principle.................... 14,937 14,044 9,377 6,407 (637)
Cumulative effect of change
in accounting principle (2)............... - - - - 1,074
------- ------- ------- ------- -------
Net income (loss)......................... $ 14,937 $ 14,044 $ 9,377 $ 6,407 $ (1,711)
======= ======= ======= ======= =======
Income (loss) before cumulative effect
of change in accounting principle
per common and common
equivalent share (3)..................... $ 2.32 $ 2.18 $ 1.51 $ 1.08 $ (.11)
Cumulative effect of change in
accounting principle per common
and common equivalent share (3) .......... - - - - (.18)
------- ------- ------- ------- -------
Net income (loss) per common and
common equivalent share (3)............... $ 2.32 $ 2.18 $ 1.51 $ 1.08 $ (.29)
======= ======= ======= ======= =======
Dividends per common share.................. $ .11 $ .11 $ .11 $ .11 $ .11
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital............................. $ 45,436 $ 50,302 $ 27,746 $ 18,556 $ 15,698
Total assets................................ 159,973 130,827 112,137 93,255 97,633
Short-term debt (exclusively current
portion of long-term debt)............... 476 200 3,670 3,121 4,263
Long-term debt.............................. 29,351 15,417 14,183 11,149 20,643
Stockholders' equity........................ 74,906 68,926 51,722 41,031 33,146
(footnotes begin on following page)
14
(1) In fiscal 1993, the Company recorded a provision of $2,048 for costs
related to the rationalization of the Company's standby power electronics
business resulting from the Ratelco acquisition. The Company also recorded a
provision of $1,058 primarily consisting of severance and other related costs
attributable to a restructuring of management.
(2) The Company provides certain health care and life insurance benefits
for retired employees who meet certain service requirements under an employee
benefit plan (the "Plan"). Under the Plan, the Company contributes a fixed
amount and requires the retiree to fund the remaining cost. In fiscal 1993, the
Company adopted the provisions of SFAS 106. Under SFAS 106, the expected cost of
the benefits provided by existing postretirement plans is actuarially determined
and accrued ratably from the date of hire to the date the employee is fully
eligible to receive the benefits. Previously, postretirement benefits expense
was recognized when the insurance premiums were incurred. In fiscal 1993, the
accumulated postretirement benefit obligation (APBO) at February 1, 1992 was
recognized separately as the cumulative effect of a change in accounting
principle resulting in a charge of $1,074 (after related income tax benefit of
$716), or $.18 per share. As the Company's contribution is frozen, the change in
future health care costs should not materially impact the APBO.
(3) Based on 6,439,165, 6,451,289, 6,210,793, 5,922,511 and 5,840,832
weighted average shares outstanding and the effect of shares issuable under
stock options based on the treasury stock method for fiscal 1997, 1996, 1995,
1994 and 1993, respectively.
(4) Effective October 31, 1992, the Company acquired substantially all of
the assets of the Ratelco Manufacturing Division of Ratelco, Inc., a
manufacturer of power electronics equipment, for cash and the assumption of
certain liabilities. The Company has accounted for the acquisition under the
purchase method. The excess of net assets over the purchase price was
immaterial.
(5) Effective March 29, 1994, the Company, through its subsidiary, IPS,
acquired for cash, certain assets and assumed specific liabilities of the custom
power supply business of ITT PowerSystems Corporation. See notes to consolidated
financial statements.
(6) Effective January 24, 1995, the Company purchased certain assets and
assumed certain liabilities from the switching power supply business of Basler
Electric Company, a Highland, Illinois based manufacturer of electrical
components. See notes to consolidated financial statements.
(7) Effective February 22, 1996, the Company's wholly owned subsidiary,
IPS, acquired substantially all the assets of LH, a producer and marketer of
standard power supply systems for the electronics industry. Effective March 12,
1996, the Company acquired from Burr-Brown Corporation, its entire interest in
PCC consisting of 1,044,418 shares of PCC common stock and all outstanding
preferred stock. In addition the Company 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 which together with the shares
previously acquired represented in excess of 99.6% of the outstanding PCC common
stock. As of May 29, 1996, the Company purchased all remaining shares of PCC
common stock and shares of PCC common stock issuable upon exercise of stock
options. PCC produces battery chargers for cellular phones and DC-to-DC
converters used on communications, computer, medical, industrial and
instrumentation markets. See notes to consolidated financial statements.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPACT OF ECONOMY AND SHIFT IN CUSTOMER DEMAND
During fiscal 1997 continued improved economic conditions resulted in
higher demand for the Company's standby power products. In the
telecommunications market, the continuing shift in customer demand from the
flooded battery products was reflected in the growth in sales of Liberty 2000, a
premium valve-regulated battery.
RAW MATERIAL PRICING AND PRODUCTIVITY
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of the Company's industrial batteries and
electronics products and, accordingly, represent a significant portion of the
Company's materials costs. During fiscal 1997, 1996 and 1995, North American
producer prices of lead have been rising, averaging $.50, $.44 and $.38/lb.,
respectively. The price of lead is currently at its highest level since fiscal
1991.
In the early part of fiscal 1997 there were shortages of semiconductor
components used widely in the Company's electronic products, but these shortages
eased by the end of the second quarter.
The Company has undertaken a long-term cost containment program to
maximize manufacturing efficiency and continues as a matter of course to
allocate a significant amount of its normal annual capital expenditures to cost
containment and productivity improvement projects.
INFLATION
The Company's costs of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. The Company's ability to
pass along inflationary cost increases through higher prices may be limited
during periods of stable or declining lead prices because of industry pricing
practices that tend to link product prices and lead prices. The Company believes
that, over recent years, it generally has been able to offset inflationary cost
increases by effective raw materials purchasing programs, price increases of its
products, increases in labor productivity and improvements in overall
manufacturing efficiency.
16
RESULTS OF OPERATIONS
The following table sets forth selected items in the Company's
consolidated statements of income as a percentage of sales for the periods
indicated.
FISCAL YEAR
-----------
1997 1996 1995
---- ---- ----
Net sales....................................... 100.0% 100.0% 100.0%
Cost of sales................................... 76.6 76.6 77.2
----- ----- -----
Gross profit.................................. 23.4 23.4 22.8
Selling, general and administrative expenses.... 12.0 11.5 12.4
Research and development expenses............... 2.9 2.6 2.7
----- ----- -----
Operating income.............................. 8.5 9.3 7.7
Interest expense, net .......................... 0.5 0.4 0.6
Other expense, net.............................. 0.0 0.2 0.1
----- ----- -----
Income before income taxes.................... 8.0 8.7 7.0
Provision for income taxes...................... 2.8 2.9 2.3
----- ----- -----
Net income.................................... 5.2% 5.8% 4.7%
===== ===== ====
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased $44,485,000 or 18 percent to
$286,907,000 from $242,422,000 in fiscal 1996. Approximately $29,000,000 of this
increase was related to sales recorded by the Company's PCC and LH subsidiaries
which were both acquired during the first quarter of fiscal 1997. The balance of
the increase was primarily due to higher telecommunications and UPS sales,
partially offset by lower motive power sales and lower power supply sales by the
Company's IPS subsidiary. On a company-wide basis, fiscal 1997
telecommunication-related sales were approximately 46 percent of total Company
sales versus 44 percent for fiscal 1996. Motive power sales were down four
percent due to lower volumes partially offset by higher prices.
Gross profit increased $10,474,000 or 19 percent to $67,088,000 from
$56,614,000 in the prior fiscal year, primarily as a result of higher sales
volumes. Gross margins for fiscal 1997 and 1996 were flat at 23.4 percent.
Selling, general and administrative expenses increased $6,718,000
primarily as a result of the acquisition of PCC and LH, including the
amortization of goodwill and other intangible assets related to the
acquisitions. In addition, non-acquisition selling expenses increased primarily
due to higher payroll costs, warranty, advertising, rental and consulting
expenses.
17
Research and development expenses increased $1,947,000 to $8,143,000 for
fiscal 1997 primarily as a result of the acquisition of PCC and LH, and remained
proportional to sales at approximately three percent of sales for fiscal 1997
and fiscal 1996.
Interest expense, net, increased 31 percent from fiscal 1996 to fiscal
1997 due to higher debt balances related to the above acquisitions and a stock
repurchase program, partially offset by lower effective rates and higher
capitalized interest related to the plant expansions at the Company's Conyers,
Georgia and Leola, Pennsylvania locations.
Other expense, net, decreased $431,000 from fiscal 1996 to fiscal 1997
primarily as a result of higher nonoperating income.
Income tax expense increased $1,014,000 due to higher operating income and
the absence in fiscal 1997 of a decrease in the valuation allowance, partially
offset by the favorable tax effect of the Company's foreign operations. The
fiscal 1996 decrease in the valuation allowance related to the revaluation of
the stock option compensation deferred tax asset due to increases in the price
of the Company's common stock.
As a result of the above, net income increased six percent from fiscal
1996 to $14,937,000 or $2.32 per share.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased 21 percent to $242,422,000 from
$200,009,000 in fiscal 1995. Fiscal 1996 sales of standby power products, up in
virtually every category, increased 18 percent over the prior year resulting
from higher unit volumes and slightly higher unit prices. The most significant
increases occurred in sales to the domestic and international telecommunications
industries. Sales of the Company's Liberty 2000 series product increased 45
percent over the prior year. The combined sales of the Company's International
Power Systems, Inc. subsidiary ("IPS") which was formed early in fiscal 1995 to
acquire certain assets of ITT PowerSystems Corporation (the "IPS Acquisition")
and the switching power supply division of Basler Electric Company purchased as
of January 24, 1995 rose 69 percent over fiscal 1995. Approximately 57 percent
of this increase was related to the business acquired from the Basler Electric
Company. On a company wide basis, domestic and international sales of standby
power products and power supplies to the telecommunications market increased 33
percent over fiscal 1995. Sales of motive power products were up 8 percent over
the prior year due to slightly higher volumes and prices.
Gross profit for fiscal 1996 increased $11,069,000 or 24 percent to
$56,614,000 from $45,545,000 in the prior fiscal year, resulting in a gross
margin of 23.4 percent versus 22.8 percent in the prior year. Gross margins
increased primarily as a result of higher sales volumes and continued
improvements in operating efficiencies partially offset by higher material
costs.
Selling, general and administrative expenses decreased to 11.5 percent of
sales in fiscal 1996 from 12.4 percent in the prior year as a result of
operating leverage generated from the higher sales volume.
Research and development expenses remained proportional to sales as a
relative percentage for both fiscal 1996 and fiscal 1995.
18
Interest expense, net, decreased 13 percent from fiscal 1996 to fiscal
1995 due to lower debt balances, offset by slightly higher effective rates.
Other expense, net, increased $113,000 primarily due to a full year's
amortization of capitalized debt cost versus a partial year in fiscal 1995 and
lower nonoperating income in fiscal 1996, partially offset by a lower exchange
loss in the current year.
As a result of the above, for fiscal 1996, income before income taxes
increased $7,218,000 or 52 percent from fiscal 1995 and net income rose 50
percent from fiscal 1995 to $14,044,000 or $2.18 per share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities increased 72 percent to
$25,737,000 in fiscal 1997 compared to $14,975,000 in fiscal 1996. This increase
was primarily due to a decrease in inventory levels during fiscal 1997, versus
an increase in inventory during the prior year, partially offset by a larger
increase in accounts receivables resulting from higher sales during fiscal 1997.
Also contributing to the increase was higher depreciation and amortization
(primarily related to the aforementioned acquisitions and expansions at the
Company's Conyers, Georgia and Leola, Pennsylvania plants), the timing of tax
payments, and an increase in other current liabilities primarily related to
higher sales volumes.
Net cash used by investing activities totaling $30,651,000 for fiscal 1997
includes the purchase by the Company of PCC and certain equipment and inventory
of LH for $19,739,000. Acquisition of property, plant and equipment during
fiscal 1997 increased by $8,385,000 over the prior year, primarily due to the
plant capacity expansion programs at the Company's Conyers, Georgia and Leola,
Pennsylvania facilities. Fiscal 1997 net proceeds from the disposal of property,
plant and equipment was lower than that in fiscal 1996, which included the sale
of the Company's headquarters building located in Plymouth Meeting,
Pennsylvania. The change in restricted cash resulted from the use of proceeds
obtained from the Development Authority of Rockdale County Industrial
Development Revenue Bonds, obtained in fiscal 1996, to finance the Company's
expansion of the Conyers, Georgia plant.
Net cash used by financing activities increased to $385,000 in fiscal
1997, an increase of $309,000 from the prior year. The additional borrowings in
fiscal 1997 were used primarily for the funding of the aforementioned
acquisitions and the purchase of stock in a stock repurchase program. The
reduction of long-term debt occurred primarily as a result of the Company's
election to accelerate the retirement of the remaining term loan portion of its
long-term debt during the first quarter of fiscal 1997.
The Company's availability under the current loan agreement is expected to
be sufficient to meet its ongoing cash needs for working capital requirements,
debt service, capital expenditures and possible strategic acquisitions. Fiscal
1997 capital expenditures were incurred primarily to fund capacity expansion,
new product development, a continuing series of cost reduction programs, normal
maintenance capital, and regulatory compliance. Fiscal 1998 capital expenditures
are expected to be approximately $16,000,000 for similar purposes.
The Company has been notified that it is a potentially responsible party
and has responded to requests for information relating to various Third Party
Facilities (see note 8[B] of the notes to consolidated financial statements).
19
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include: (i) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS, (ii) eliminating the modified treasury stock method and the three
percent materiality provision and (iii) revising the contingent share provisions
and the supplemental EPS data requirements. SFAS No. 128 also makes a number of
changes to existing disclosure requirements. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997. The
Company has not yet determined the impact of the implementation of SFAS No. 128.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
financial statements for periods ending after December 15, 1997. The Company
believes that the adoption of this statement will not have a material effect on
its financial position or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," which provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of environmental
remediation liabilities. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. Accordingly, the Company will adopt SOP 96-1 during the first
quarter of 1997. The Company believes that the adoption of this statement will
not have a material effect on its financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Part III (Items 10 through 13) is incorporated
herein by reference to the captions "Principal Stockholders," "Election of
Directors," "Management" and "Certain Relationships and Related Transactions" in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the Company's fiscal year covered by this
report.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN THIS REPORT ON FORM
10-K:
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income for the years ended January 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended January
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN THIS REPORT
ON FORM 10-K:
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES for the years ended
January 31, 1997, 1996 and 1995
Report of Independent Accountants on Schedule
II. Valuation and Qualifying Accounts
(3) EXHIBITS:
3.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-10889).
3.2 By-laws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
4.1 Financing and Security Agreement dated as of September 26, 1994
among NationsBank, N.A., CoreStates Bank, N.A., National
Westminster Bank, NJ and Charter Power Systems, Inc. and its
subsidiaries (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated September 26, 1994);
First Amendment thereto dated December 13, 1995 and Second
Amendment thereto dated January 26, 1996 (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1996); Third Amendment
thereto dated March 13, 1996 (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on
21
Form 10-Q for the quarter ended April 30, 1996); Fourth Amendment
thereto dated September 3, 1996 (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1996); Fifth Amendment thereto
dated September 26, 1996 (incorporated by reference to Exhibit
4.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1996).
10.1 Purchase Agreement dated November 27, 1985, among Allied, Allied
Canada Inc. and the Company; Amendments thereto dated January 28
and October 8, 1986 (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1, No. 33-10889).
10.2 Agreement dated December 15, 1986, between the Company and Allied
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, No. 33-10889).
10.3 Lease Agreement dated February 15, 1994 by and between Sequatchie
Associates, Incorporated and C&D Charter Power Systems, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1994).
10.4 C&D Charter Power Systems, Inc. Savings Plan (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1995).
10.5 C&D Charter Power Systems, Inc. Pension Plan for Salaried
Employees as restated and amended (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995); First and Second Amendments
thereto dated December 20, 1995 (incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
10.6 Charter Power Systems, Inc. Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1996).
10.7 Registration Rights Agreement dated May 30, 1989, between Weber
and the Company (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1995); Employment Agreement, dated as of April 1, 1996,
and Pledge and Security Agreement and Reimbursement Agreement,
each dated April 30, 1996, between Alfred Weber and the Company;
Secured Promissory Note and Option Secured Promissory Note, each
dated April 30, 1996, by Alfred Weber in favor of the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1996).
10.8 Employment Agreement dated January 26, 1990, between Leslie
Holden and the Company (incorporated by reference to Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1995); Amendment thereto dated April 3, 1995
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1995).
22
10.9 Agreement dated March 28, 1994, between C&D Charter Power
Systems, Inc. and AT&T (incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994).
10.10 Employment Agreement dated March 1, 1994 between A. Gordon
Goodyear and the Company (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1994); Amendment thereto dated April 3,
1995 (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1995).
10.11 Employment Agreement dated April 3, 1995 between Stephen E.
Markert, Jr. and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1995).
10.12 Employment Agreement dated April 3, 1995 between A. T. (Paul)
Kambouroglou and the Company (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended April 30, 1995).
10.13 Employment Agreement dated August 15, 1995 between Stephen
Weglarz, Esq. and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1995).
10.14 Charter Power Systems, Inc. 1996 Stock Option Plan (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1996).
21 Subsidiaries of the Company (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
99.1 Additional undertaking in connection with the Company's
Registration Statement on Form S-8 No. 33-31978 (filed November
7, 1989), the Company's Registration Statement on Form S-8, No.
33-71390 (filed October 27, 1993), the Company's Registration
Statement on Form S-8, No. 33-86672 (filed November 23, 1994) and
the Company's Registration Statement on Form S-8 No. 333- 17979,
(filed December 16, 1996).
The registrant undertakes to furnish the Commission with a copy of certain
agreements which are not being filed in accordance with Item 601(b)(4)(iii) of
Regulation S-K.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHARTER POWER SYSTEMS,
INC.
April 29, 1997 By: /s/ ALFRED WEBER
----------------
Alfred Weber
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ ALFRED WEBER Chairman, President and April 29, 1997
- --------------------------- Chief Executive Officer
Alfred Weber
/s/ STEPHEN E. MARKERT, JR. Vice President Finance April 29, 1997
- --------------------------- and Treasurer (Principal
Stephen E. Markert, Jr. Financial and Accounting
Officer
/s/ KEVIN P. DOWD Director April 29, 1997
- ---------------------------
Kevin P. Dowd
/s/ GLENN M. FEIT Director April 29, 1997
- ---------------------------
Glenn M. Feit
/s/ WILLIAM HARRAL, III Director April 29, 1997
- ---------------------------
William Harral, III
/s/ WARREN A. LAW Director April 29, 1997
- ---------------------------
Warren A. Law
/s/ ALAN G. LUTZ Director April 29, 1997
- ---------------------------
Alan G. Lutz
/s/ JOHN A. H. SHOBER Director April 29, 1997
- ---------------------------
John A. H. Shober
24
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
PAGE
----
Report of Independent Accountants........................ F-2
Consolidated Balance Sheets as of
January 31, 1997 and 1996.............................. F-3
Consolidated Statements of Income
for the years ended January 31, 1997,
1996 and 1995.......................................... F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 1997, 1996 and 1995.................. F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 1997,
1996 and 1995.......................................... F-6
Notes to Consolidated Financial Statements............... F-8
FINANCIAL STATEMENT SCHEDULE
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
For the years ended January 31, 1997, 1996 and 1995
Report of Independent Accountants on Schedule............ S-1
Schedule II. Valuation and Qualifying Accounts.......... S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Charter Power Systems, Inc.
We have audited the accompanying consolidated balance sheets of Charter Power
Systems, Inc. and Subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended January 31, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Charter
Power Systems, Inc. and Subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 14, 1997
F-2
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
(DOLLARS IN THOUSANDS)
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 952 $ 5,472
Restricted cash and cash equivalents................. 1 5,402
Accounts receivable, less allowance for doubtful
accounts of $1,414 in 1997 and $1,421 in 1996.... 41,682 31,855
Inventories.......................................... 38,943 35,227
Deferred income taxes................................ 7,315 6,235
Other current assets................................. 437 1,367
------- -------
Total current assets............................. 89,330 85,558
Property, plant and equipment, net...................... 52,469 39,375
Intangible and other assets, net........................ 6,208 3,287
Goodwill, net........................................... 11,966 2,607
------- -------
Total assets..................................... $159,973 $130,827
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 476 $ 200
Accounts payable..................................... 23,730 19,008
Accrued liabilities.................................. 14,468 13,513
Other current liabilities............................ 5,220 2,535
------- -------
Total current liabilities........................ 43,894 35,256
Deferred income taxes................................... 3,923 2,750
Long-term debt.......................................... 29,351 15,417
Other liabilities....................................... 7,899 8,478
------- -------
Total liabilities................................ 85,067 61,901
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized; 6,547,476 and 6,326,176 shares
issued in 1997 and 1996, respectively............ 65 63
Additional paid-in capital........................... 39,326 36,283
Minimum pension liability adjustment................. (136) (760)
Treasury stock, at cost, 470,551 and 57,400 shares
in 1997 and 1996, respectively................... (11,232) (1,304)
Notes receivable from stockholder, net of
discount of $85.................................. (1,636) -
Cumulative translation adjustment.................... (374) -
Retained earnings ................................... 48,893 34,644
------- -------
Total stockholders' equity....................... 74,906 68,926
------- -------
Total liabilities and stockholders' equity....... $159,973 $130,827
======= =======
See notes to consolidated financial statements.
F-3
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995
---- ---- ----
Net sales............................. $286,907 $242,422 $200,009
Cost of sales......................... 219,819 185,808 154,464
------- ------- -------
Gross profit....................... 67,088 56,614 45,545
Selling, general and administrative
expenses........................... 34,499 27,781 24,796
Research and development expenses..... 8,143 6,196 5,284
------- ------- -------
Operating income................... 24,446 22,637 15,465
Interest expense, net................. 1,396 1,063 1,222
Other (income) expense, net........... (8) 423 310
------- ------- -------
Income before income taxes......... 23,058 21,151 13,933
Provision for income taxes............ 8,121 7,107 4,556
------- ------- -------
Net income ........................ $ 14,937 $ 14,044 $ 9,377
======= ======= =======
Net income per common and common
equivalent share:
Primary............................ $ 2.32 $ 2.18 $ 1.51
Assuming full dilution............. $ 2.32 $ 2.18 $ 1.50
See notes to consolidated financial statements.
F-4
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Minimum Notes
Common Stock Additional Pension Treasury Stock Receivable Cumulative
--------------- Paid-In Liability ---------------- From Translation Retained
Shares Amount Capital Adjustment Shares Amount Stockholders Adjustment Earnings
------ ------ ------- ---------- ------ ------ ------------ ---------- --------
Balance as of January 31,
1994....................... 5,837,416 $58 $30,090 $(1,656) $12,539
Net income................... 9,377
Dividends to stockholders,
$.11 per share............. (651)
Stock option compensation.... 717
Tax effect relating to stock
options exercised.......... 141
Stock options exercised...... 133,625 2 1,105
--------- -- ------ ---- ------- ------- ------ ---- ------
Balance as of January 31,
1995....................... 5,971,041 60 32,053 (1,656) 21,265
Net income................... 14,044
Dividends to stockholders,
$.11 per share............. (665)
Principal payments on stock-
holder notes............... 1,656
Tax effect relating to stock
options exercised.......... 1,426
Minimum pension liability
adjustment................. $(760)
Purchase of common stock..... (57,400)$ (1,304)
Issuance of common stock..... 50,000 667
Stock options exercised...... 305,135 3 2,137
--------- -- ------ ---- ------- ------- ------ ---- ------
Balance as of January 31,
1996....................... 6,326,176 63 36,283 (760) (57,400) (1,304) - 34,644
Net income................... 14,937
Dividends to stockholders,
$.11 per share............. (688)
Notes receivable
from stockholder........... (1,721)
Discount on notes receivable
from stockholder........... 137
Amortization of discount on
stockholder notes.......... (52)
Tax effect relating to stock
options exercised.......... 1,151
Minimum pension liability
adjustment................. 624
Cumulative translation
adjustment................. $(374)
Purchase of common stock..... (464,569) (11,092)
Issuance of common stock..... 44 51,418 1,164
Stock options exercised...... 221,300 2 1,848
--------- -- ------ ---- ------- ------- ------ ---- ------
Balance as of January 31,
1997....................... 6,547,476 $65 $39,326 $(136) (470,551) $(11,232) $(1,636) $(374) $48,893
========= == ====== ==== ======== ======= ====== ==== ======
See notes to consolidated financial statements.
F-5
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31,
(DOLLARS IN THOUSANDS)
1997 1996 1995*
---- ---- -----
Cash flows provided (used) by operating activities:
Net income......................................... $14,937 $14,044 $ 9,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 8,494 6,109 6,892
Deferred income taxes ........................... (47) (1,237) (43)
Loss (gain) on disposal of assets................ 80 428 (175)
Stock option compensation........................ - - 717
Changes in:
Accounts receivable.......................... (7,188) (1,570) (8,548)
Inventories.................................. 2,898 (8,341) 1,560
Other current assets......................... 163 (56) (115)
Accounts payable............................. 2,943 3,405 2,008
Accrued liabilities.......................... (802) 1,600 922
Income taxes payable......................... 3,004 670 (1,282)
Other current liabilities.................... 1,257 (794) (2,372)
Other liabilities............................ 412 1,143 1,313
Other, net....................................... (414) (426) (188)
------ ------ ------
Net cash provided by operating activities............ 25,737 14,975 10,066
------ ------ ------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net..................... (19,739) - (8,038)
Acquisition of property, plant and equipment....... (16,322) (7,937) (7,650)
Proceeds from disposal of property,
plant and equipment ............................. 9 2,579 551
Change in restricted cash.......................... 5,401 (5,327) 385
------ ------ ------
Net cash used by investing activities................ (30,651) (10,685) (14,752)
------ ------ ------
Cash flows provided (used) by financing activities:
Repayment of long-term debt....................... (8,291) (8,669) (18,956)
Proceeds from new borrowings...................... 20,333 6,500 21,414
Financing costs of long-term debt................. - (257) (471)
Issuance of note receivable to stockholder........ (1,057) - -
Repayment of notes receivable from stockholders... - 1,656 -
Proceeds from issuance of common stock, net....... 1,186 2,807 1,107
Purchase of treasury stock........................ (11,092) (1,304) -
Payment of common stock dividends................. (694) (657) (647)
------- ------ ------
Net cash provided by financing activities............ 385 76 2,447
------- ------ ------
Effect of exchange rate changes on cash.............. 9 9 (25)
------- ------ ------
(Decrease) increase in cash and cash equivalents..... (4,520) 4,375 (2,264)
Cash and cash equivalents at beginning of year....... 5,472 1,097 3,361
------- ------ ------
Cash and cash equivalents at end of year............. $ 952 $ 5,472 $ 1,097
====== ====== ======
* Reclassified for comparative purposes
See notes to consolidated financial statements.
F-6
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JANUARY 31,
(DOLLARS IN THOUSANDS)
1997 1996 1995*
---- ---- -----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net............... $ 1,593 $1,419 $ 1,291
Income taxes paid .............. $ 5,378 $7,674 $ 5,880
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of
assets acquired................ $13,544 $ - $10,594
Goodwill and identifiable
intangible assets.............. 12,655 - 2,037
Purchase price obligations....... (1,358) - (1,125)
Cash paid, net of cash acquired.. (19,739) - (8,038)
------ ----- ------
Liabilities assumed.............. $ 5,102 $ - $ 3,468
====== ===== ======
Dividends declared but not paid....... $ 167 $ 172 $ 164
Note receivable from stockholder in
connection with issuance of common
stock............................... $ 664 $ - $ -
Fair market value of treasury stock
issued to pension plans............. $ 1,208 $ - $ -
* Reclassified for comparative purposes
See notes to consolidated financial statements.
F-7
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
Charter Power Systems, Inc. was incorporated in November 1985. The Company
manufactures battery power systems and their components for commercial,
industrial and government use in the North American and export standby power and
motive power markets. The Company also manufactures embedded high frequency
switching power supplies for use in telecommunication equipment, advanced office
electronics and sophisticated computer systems. On January 28, 1986, the Company
purchased substantially all of the assets of the C&D Power Systems division of
Allied Corporation (Allied) (the Acquisition).
The consolidated financial statements include the accounts of Charter
Power Systems, Inc. and its wholly owned subsidiaries (collectively the
Company). All significant intercompany accounts and transactions have been
eliminated.
ACCOUNTING 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.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities in foreign currencies are translated into U.S.
dollars at the rate of exchange prevailing at the balance sheet date. Revenue
and expenses are translated at the average rate of exchange for the period.
Transaction gains (losses) included in income for the years ended January 31,
1997, 1996 and 1995 were not material.
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
foreign exchange and interest rate risks. The Company has established a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue financial instruments for trading
purposes and it prohibits the use of derivatives for speculative purposes.
Derivative financial instruments are accounted for on an accrual basis. Income
and expense are recorded in the same category as that arising from the related
asset or liability being hedged.
F-8
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company selectively uses foreign currency forward and option contracts
to offset the effects of exchange rate changes on cash flows denominated in
foreign currencies, primarily the Canadian dollar. Gains and losses were not
material in any year.
The Company uses an interest rate swap agreement to reduce the impact of
interest rate changes on its debt. The interest rate swap agreement involves the
exchange of variable for fixed rate interest payments without the exchange of
the underlying notional amount (see Note 5).
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company's cash
management program utilizes zero balance accounts. Accordingly, all book
overdraft balances have been reclassified to accounts payable and amounted to
$7,577 and $4,761 at January 31, 1997 and 1996, respectively.
INVENTORIES:
Inventories are stated at the lower of cost or net realizable value. Cost
is generally determined by the last-in, first-out (LIFO) method for financial
statement and federal income tax purposes.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment acquired as of the Acquisition is recorded
at the then fair value. Property, plant and equipment acquired subsequent to the
Acquisition is recorded at cost or fair market value if part of an acquisition.
Plant and equipment, including capital leases, are depreciated on the
straight-line method for financial reporting purposes over estimated useful
lives which range from 3 to 10 years for machinery and equipment, and 10 to 40
years for buildings and improvements. The Company's policy is to capitalize
interest during the period of construction.
The cost of maintenance and repairs is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost of the item and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
The Company capitalizes purchased software, including certain costs
associated with its installation. The cost of software capitalized is amortized
over its estimated useful life, generally five years, using the straight-line
method.
F-9
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE AND OTHER ASSETS, NET:
Intangible and other assets, net, includes assets acquired resulting from
business acquisitions (see Note 14) and are being amortized on the straight-line
method over their estimated periods of benefit, primarily five to ten years.
Accumulated amortization as of January 31, 1997 and 1996 was $1,687 and $946,
respectively.
GOODWILL, NET:
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized on the straight-line method over 10 to 40 years.
The recoverability of goodwill is periodically reviewed by the Company. In
assessing recoverability, many factors are considered, including operating
results and cash flows. The Company believes that no impairment of goodwill
existed at January 31, 1997. Accumulated amortization as of January 31, 1997 and
1996 was $1,356 and $830, respectively.
IMPAIRMENT OF ASSETS:
In the fiscal year ended January 31, 1997 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. There
was no material effect on the financial statements from the adoption because the
Company's prior impairment recognition practice was consistent with the major
provisions of the Statement. Under provisions of the Statement, impairment
losses are recognized when expected future cash flows are less than the assets'
carrying value. Accordingly, when indicators of impairment are present, the
Company evaluates the carrying value of property, plant and equipment and
intangibles in relation to the operating performance and future undiscounted
cash flows of the underlying business. The Company adjusts the net book value of
the underlying assets if the sum of expected future cash flows is less than book
value.
ACCRUED LIABILITIES:
Included in accrued liabilities as of January 31, 1997 and 1996 are $2,413
and $2,216 of accrued vacation, $2,087 and $1,642 of accrued sales commissions
and $3,042 and $2,675 of accrued workers compensation insurance, respectively.
F-10
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER LIABILITIES:
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $3,106 and $2,007 are included in other current
liabilities and $4,215 and $4,234 are included in other liabilities as of
January 31, 1997 and 1996, respectively.
INCOME TAXES:
The Company follows SFAS No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using tax rates in effect for the year in which the
differences are expected to reverse.
NET INCOME PER SHARE:
Net income per common and common equivalent share for the years ended
January 31, 1997, 1996 and 1995 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.
Weighted average common and common equivalent shares were as follows:
JANUARY 31,
----------------------------------------
1997 1996 1995
---- ---- ----
Primary........... 6,439,165 6,451,289 6,210,793
Fully diluted..... 6,451,036 6,455,467 6,256,066
F-11
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED:
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies new standards
designed to improve the earnings per share (EPS) information provided in
financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (i) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents are not considered in computing basic EPS, (ii) eliminating
the modified treasury stock method and the three percent materiality provision
and (iii) revising the contingent share provisions and the supplemental EPS data
requirements. SFAS No. 128 also makes a number of changes to existing disclosure
requirements. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. The Company has not yet determined the
impact of the implementation of SFAS No. 128.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
financial statements for periods ending after December 15, 1997. The Company
believes that the adoption of this statement will not have a material effect on
its financial position or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities," which provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of environmental
remediation liabilities. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. Accordingly, the Company will adopt SOP 96-1 during the first
quarter of 1997. The Company believes that the adoption of this statement will
not have a material effect on its financial position or results of operations.
2. RESTRICTED CASH AND CASH EQUIVALENTS
At January 31, 1997 and 1996, the Company had debt proceeds of $1 and
$5,402 which were available solely for the acquisition and installation of
equipment at the Company's existing industrial battery manufacturing facility
located in Conyers, Georgia (see Note 5).
F-12
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
3. INVENTORIES
Inventories consisted of the following:
JANUARY 31,
--------------------------
1997 1996
---- ----
Raw materials...................... $17,506 $14,033
Work-in-progress .................. 11,599 9,357
Finished goods..................... 9,838 11,837
------ ------
$38,943 $35,227
====== ======
If the first-in, first-out (FIFO) method of inventory accounting had been
used (which approximates current cost), inventories would have been $3,027 and
$3,205 higher than reported as of January 31, 1997 and 1996, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
JANUARY 31,
--------------------------
1997 1996
---- ----
Land............................... $ 487 $ 487
Buildings and improvements......... 18,099 16,281
Furniture, fixtures and equipment.. 82,825 63,617
Construction in progress........... 2,794 3,950
------- ------
104,205 84,335
Less:
Accumulated depreciation....... 51,736 44,960
------- ------
$ 52,469 $39,375
======= ======
For the years ended January 31, 1997, 1996 and 1995, depreciation charged
to operations amounted to $7,281, $5,555 and $6,597; maintenance and repair
costs expensed totaled $6,268, $5,939 and $5,665; and interest capitalized
amounted to $304, $60 and $87, respectively.
F-13
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT
Long-term debt consisted of the following:
JANUARY 31,
-----------
1997 1996
---- ----
Revolving credit facility (Revolving Credit);
maximum commitment of $65,000 at January 31, 1997
and 1996 bearing interest at Prime minus 0.25% or
LIBOR plus 0.75% and Prime or LIBOR plus 1.25%,
respectively....................................... $20,333 -
Term loan (Term Loan); original amount of
$15,000, bearing interest at Prime or LIBOR plus
1.45%, principal payable in equal quarterly payments
of $750 which commenced on December 1, 1994. The
term loan was paid in full on April 1, 1996........ - $ 6,250
Pennsylvania Economic Development Financing
Authority (PEDFA) Taxable Development Revenue Bonds,
1991 Series B2, supported by a letter of credit,
bearing interest at a rate set on a weekly basis
which approximates the commercial paper rate
(effective rate on a weighted average basis, 5.45%
as of January 31, 1997 and 5.60% as of January 31,
1996), principal payable in monthly installments
of $8 from December 1993 through November 1999 and
of $108 from December 1999 through November 2000... 1,584 1,684
PEDFA Economic Development Revenue Bonds,
1991 Series D6, supported by a letter of credit,
bearing interest at a rate set on a weekly basis
which approximates the commercial paper rate for
high-grade tax-exempt borrowers (effective rate on
a weighted average basis, 3.70% as of January 31,
1997 and 3.55% as of January 31, 1996), principal
payable in monthly installments of $8 from December
1993 through November 1999 and of $67 from December
1999 through November 2000......................... 1,083 1,183
Development Authority of Rockdale County
Industrial Development Revenue Bonds, Series 1995,
(Georgia Bonds), supported by a letter of credit
(Georgia L/C), bearing interest at a rate set on
a weekly basis which approximates tax exempt A+
rated debt securities (effective rate on weighted
average basis, 3.70% as of January 31, 1997 and
3.45% as of January 31, 1996), principal payable
at maturity December 1, 2005....................... 6,500 6,500
Capital lease obligations, bearing interest
at 10.5% .......................................... 327 -
------ ------
29,827 15,617
Less current portion......................... 476 200
------ ------
$29,351 $15,417
====== ======
F-14
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT (CONTINUED)
On September 26, 1994 the Company entered into a three-bank credit
facility consisting of a $45,000 revolving credit facility and a $15,000 term
loan. The bank group consists of NationsBank, NA, Fleet Bank NA and CoreStates
Bank N.A. (The Lenders). On January 26, 1996 the Revolving Credit facility was
increased from $45,000 to $65,000.
On January 26, 1996 the Revolving Credit expiration date was amended to
January 31, 1999 with two one-year extension options subject to the Lender's
approval. The facility may be converted to a three-year converted term loan
(Converted Loan) at the Company's discretion at any maturity date. The Company
has the right to use up to $8,000 of the availability under the Revolving Credit
to provide for the issuance of letters of credit, including the letters of
credit covering the $2,700 PEDFA loans (The PEDFA L/C), for the account of the
Company. The Georgia L/C was issued independent of the Revolving Credit and does
not impair the $8,000 availability. At January 31, 1997 and 1996, $6,575 was
outstanding under the Georgia L/C. The aggregate value of the letters of credit
outstanding was $11,923 and $11,477 at January 31, 1997 and 1996, respectively.
The availability under the Revolving Credit was $39,319 and $53,523 at January
31, 1997 and 1996, respectively. A letter of credit fee of between 1.00% and
1.25% per annum on the aggregate face amount of any outstanding letters of
credit is payable quarterly. At January 31, 1996 a commitment fee of 0.25% per
annum on the amount of remaining availability is payable quarterly. As of
September 3, 1996 the commitment fee was reduced to 0.18%.
The interest rates are based on a financial coverage ratio. On September
3, 1996 the Agreement was amended to reduce the available rates on the Revolving
Credit. The available rates after September 3, 1996 are in the following ranges:
Prime minus 0.4% to Prime plus 0.6% or LIBOR plus 0.6% to LIBOR plus 1.60%. The
available interest rates prior to September 3, 1996 were in the following
ranges: Prime to Prime plus 0.75% or LIBOR plus 1.25% to LIBOR plus 1.75% on the
Revolving Credit; Prime to Prime plus 0.75% or LIBOR plus 1.45% to LIBOR plus
2.00% on all Term Loans; and Prime plus 0.25% to Prime plus 1.00% or LIBOR plus
1.70% to LIBOR plus 2.25% on all Converted Loans.
The maximum aggregate amounts of loans outstanding under the Revolving
Credit were $28,915, $7,237 and $14,000 during the years ended January 31, 1997,
1996 and 1995, respectively. For those years, the outstanding loans (excluding
the PEDFA L/C guarantees) under the Revolving Credit computed on a monthly basis
averaged $21,494, $2,204 and $6,808 at a weighted average interest rate of
6.79%, 8.53% and 7.33%, respectively.
At January 31, 1996 short-term debt of $3,000 under the Term Loan was
classified as long-term because of the Company's intent to renew the borrowing
using an available long-term revolving credit facility.
F-15
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT (CONTINUED)
On December 20, 1995 the Company entered into an interest rate swap
agreement with a notional amount of $6,500. This swap agreement effectively
fixed the interest rate on a like amount of our floating rate debt at 6.01% plus
the Company's LIBOR spread in effect at any time. The effective rate was 6.76%
and 7.26% at January 31, 1997 and 1996, respectively. The swap expires on
December 20, 2002. At January 31, 1997 and 1996 the estimated fair value of this
interest rate swap agreement is not material. The ultimate amounts paid or
received under this agreement, however, depend on future interest rates. The
estimates of fair value are based on market prices or current rates offered for
debt and swaps with similar terms and maturities.
The Revolving Credit and Term Loan are collateralized by liens upon
substantially all the Company's assets. The agreement contains certain
restrictive covenants, including certain cash flow and financial ratio
requirements and a restriction on capital expenditures. The agreement permits
payment of dividends on the Company's Common Stock so long as there is no
default under the agreement.
The PEDFA and Georgia Bonds are subject to mandatory redemption upon the
occurrence of certain events, including the termination of the corresponding
L/C. The tax exempt bonds are subject to mandatory redemption if they lose their
tax exempt status.
The Company was in compliance with its lending agreement covenants at
January 31, 1997 and 1996, respectively.
As of January 31, 1997, the required minimum annual principal reduction of
long-term debt and capital lease obligations for each of the next five years is
as follows:
1998......................... $ 476
1999......................... 20,584
2000 ........................ 517
2001......................... 1,750
2002......................... -
Thereafter................... 6,500
------
$29,827
======
F-16
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY
(A) STOCK OPTION PLAN:
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard permits the continued use of accounting methods
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," or use of the fair value based method of accounting
for employee stock options. Under APB No. 25 no compensation expense is
recognized when the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant. The
Company has elected to continue using APB No. 25.
If APB No. 25 is elected, SFAS No. 123 requires disclosure of pro forma
information regarding net income and earnings per share determined as if the
Company accounted for its employee stock options under the fair value method for
options granted in fiscal years beginning after December 15, 1994. There were no
grants awarded by the Company during fiscal year ended January 31, 1996. The
impact of grants awarded during fiscal year ended January 31, 1997 was not
material.
At January 31, 1997, the Company had options outstanding under its Stock
Option Plans. The 1996 Stock Option Plan was approved by the stockholders on
July 25, 1996 and replaces the previous plan which expired on January 28, 1996.
New options can be granted only under the 1996 plan, which reserved 500,000
shares of Common Stock for such use. Incentive stock options are to be granted
at no less than 100% of the fair market value on the date of grant with a term
of no more than ten years after the date of grant. Nonqualified stock options
are to be granted at such price as the Compensation Committee of the Board of
Directors deems appropriate with a term of no more than ten years and one day
after the date of grant. The options are exercisable upon vesting as determined
by the Compensation Committee at the time the options are granted.
F-17
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity related to the Company's plan is as
follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Year Year Year Outstanding Exercisable
----------- ---- ---- ---- ----------- -----------
Year ended
January 31, 1997
Number of shares........... 301,800 253,000 111,300 12,000 431,500 190,500
Weighted average option
price per share.......... $10.19 $24.00 $10.66 $24.00 $17.78 $9.92
Year ended
January 31, 1996
Number of shares........... 403,600 - 94,125 7,675 301,800 187,300
Weighted average option
price per share.......... $9.96 - $9.20 $10.39 $10.19 $9.06
Year ended
January 31, 1995
Number of shares........... 306,625 266,350 133,625 35,750 403,600 155,125
Weighted average option
price per share.......... $7.58 $12.36 $8.28 $13.69 $9.96 $6.69
There were 259,000 and 0 shares available for future grants of options as
of January 31, 1997 and 1996, respectively. The following table summarizes
information about the stock options outstanding at January 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices At 1/31/97 Life Price At 1/31/97 Price
--------------- ---------- ---- ----- ---------- -----
$5.25 - $8.25 75,500 5.6 years $ 6.96 75,500 $ 6.96
$10.13 - $14.63 115,000 7.2 years $11.87 115,000 $11.87
$24.00 241,000 9.8 years $24.00 - -
------- -------
$5.25 - $24.00 431,500 8.3 years $17.78 190,500 $ 9.92
======= =======
F-18
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY (CONTINUED)
(B) GRANT OF OPTIONS:
In May 1989 and June 1988, the Company granted options to purchase 110,000
and 237,386 shares, respectively, of Common Stock to certain executives for
terms expiring April 30, 1994 and 1993, respectively, at $6.04 per share. In
June 1991: (i) a certain executive vested in his options to purchase 26,376
shares of common stock; and (ii) the agreements regarding the remaining options
were amended whereby certain vesting criteria were eliminated and the expiration
dates changed, so that these options vested on April 30, 1994 and would expire
on April 30, 1996 and October 31, 1995 for options to purchase 110,000 and
211,010 shares, respectively. During the year ended January 31, 1994, the option
to purchase 26,376 shares expired prior to exercise. During the year ended
January 31, 1996 the option to purchase 211,010 shares was exercised. During the
year ended January 31, 1997 the option to purchase 110,000 shares was exercised.
The Company has recorded compensation expense related to these options of $66 in
the year ended January 31, 1995.
F-19
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
7. INCOME TAXES
The provisions for income taxes as shown in the accompanying consolidated
statements of income consisted of the following:
JANUARY 31,
-----------
1997 1996 1995
---- ---- ----
Currently payable:
Federal.......................... $7,196 $ 7,156 $3,888
Foreign.......................... 94 - -
State............................ 960 1,068 616
Foreign Sales Corporation........ 173 120 95
----- ------ -----
8,423 8,344 4,599
----- ------ -----
Deferred:
Federal......................... (285) (1,052) 437
State........................... (17) (185) (480)
----- ------ -----
(302) (1,237) (43)
----- ------ -----
$8,121 $ 7,107 $4,556
===== ====== =====
The components of the deferred tax asset and liability as of January 31,
1997 and 1996 were as follows:
1997 1996
---- ----
Deferred tax asset:
Vacation and compensation accruals.......... $ 3,537 $ 3,686
Restructuring reserves...................... 307 297
Postretirement benefits..................... 682 716
Warranty reserves........................... 2,903 2,490
Bad debt, inventory and return allowances... 1,471 961
Environmental reserves...................... 593 502
Other accruals.............................. 277 822
------ ------
Total deferred tax asset.................... 9,770 9,474
------ ------
Deferred tax liability:
Depreciation and amortization............... (5,773) (5,049)
Pension obligation.......................... (388) (740)
Other....................................... (217) (200)
------ ------
Total deferred tax liability................ (6,378) (5,989)
------ ------
Net deferred tax asset...................... $ 3,392 $ 3,485
====== ======
F-20
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
7. INCOME TAXES (CONTINUED)
Reconciliations of the provisions for income taxes at the U. S. Federal
statutory rate to the effective tax rates for the years ended January 31, 1997,
1996 and 1995, respectively, are as follows:
JANUARY 31,
-----------
1997 1996 1995
---- ---- ----
U.S. statutory income tax............ $8,070 $7,403 $4,777
Tax effect of foreign operations..... (234) - -
State tax, net of federal
income tax benefit................. 613 574 401
Reduction in valuation allowance..... - (792) (671)
Stock option compensation............ - - 23
Foreign sales corporation............ (325) (150) (119)
Other................................ (3) 72 145
----- ----- -----
$8,121 $7,107 $4,556
===== ===== =====
The decrease in the valuation allowance of $792 and $671 during the years
ended January 31, 1996 and 1995 relates to the revaluation of the realization of
deferred tax assets related to state income taxes due to changes in state tax
laws of $0 and $443 and to revaluation of the stock option compensation deferred
tax asset due to increases in the price of the Company's common stock of $792
and $228, respectively.
8. COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES:
The Company leases certain manufacturing and office facilities and certain
equipment under operating lease agreements. Certain leases contain renewal
options and some have purchase options, and generally provide that the Company
shall pay for insurance, taxes and maintenance. As of January 31, 1997, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
1998........................ $ 1,785
1999........................ 1,677
2000........................ 1,595
2001........................ 1,167
2002........................ 1,009
Thereafter.................. 5,905
-----
$13,138
======
Total rent expense for all operating leases for the years ended January
31, 1997, 1996 and 1995 was $3,289, $1,800 and $1,512, respectively.
F-21
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(B) CONTINGENT LIABILITIES:
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, Canadian, Mexican,
Irish, state and local laws and regulations that are designed to protect the
environment and employee health and safety.
These laws and regulations include requirements of periodic reporting to
governmental agencies regarding the use and disposal of hazardous substances and
compliance with rigorous criteria regarding exposure to employees and the
disposal of scrap. In the opinion of the Company, the Company complies in all
material respects with these laws and regulations.
Notwithstanding such compliance, if damage to persons or the environment
has been or is caused by hazardous substances used or generated in the conduct
of the Company's business, the Company may be held liable for the damage and be
required to pay the cost of remedying the same, and the amount of any such
liability might be material to the results of operations or financial condition.
However, under the terms of the purchase agreement with Allied for the
Acquisition of the Company (the Acquisition Agreement), Allied is obligated to
indemnify the Company for any liabilities of this type resulting from conditions
existing at January 28, 1986 that were not disclosed by Allied to the Company in
the schedules to the Acquisition Agreement.
The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
EPA) in connection with investigations of the source and extent of contamination
at several lead smelting facilities (the Third Party Facilities) to which the
Company had made scrap lead shipments for reclamation prior to the date of the
Acquisition. As of January 16, 1989, the Company, with the concurrence of
Allied, entered into an agreement with other potentially responsible parties
(PRPs) relating to remediation of a portion of one of the Third Party
Facilities, the former NL Industries (NL), facility in Pedricktown, New Jersey
(the NL Site), which agreement provides for their joint funding on a
proportionate basis of certain remedial investigation and feasibility study
activities with respect to that site.
In fiscal 1993 in accordance with an EPA order, a group comprised of the
Company and 30 other parties commenced work on the cleanup of a portion of the
NL Site based on a specified remedial approach which is now completed. The
Company did not incur costs in excess of the amount previously reserved.
F-22
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
With regard to the remainder of the NL Site, the EPA is pursuing
negotiations with NL and the other PRPs, including the Company, regarding the
conduct and funding of the remedial work plan. The EPA has proposed a cost
allocation plan, however, the allocation percentages between parties and the
basis for allocation of cost are not defined in the plan or elsewhere.
Therefore, a reliable range of the potential cost to the Company of this phase
of the clean-up cannot currently be determined. Accordingly, the Company has not
created any reserve for this potential exposure.
The remedial investigation and feasibility study at a second Third Party
Facility, the former Tonolli Incorporated facility at Nesquehoning, Pennsylvania
(the Tonolli Site), was completed in fiscal 1993. The EPA and the PRPs are
continuing to evaluate the draft remedial design work plan for the site. Based
on the estimated cost of the remedial approach selected by the EPA, the Company
believes that the potential cost of remedial action at the Tonolli Site is
likely to range between $16,000 and $17,000. The Company's allocable share of
this cost has not been finally determined, and will depend on such variables as
the financial capability of various other PRPs to fund their respective
allocable shares of the remedial cost. Based on currently available information,
however, the Company believes that its most likely exposure with respect to the
Tonolli Site will be the approximately $579 previously reserved, the majority of
which is expected to be paid over the next three to five years.
The Company has responded to requests for information from the EPA with
regard to four other Third Party Facilities, one in September 1991, one (the
Chicago Site) in October 1991, one (the ILCO Site) in October 1993 and the
fourth (Bern Metal Super Fund Site) in March 1997. Of the four sites, the
Company has been identified as a PRP at the ILCO and Chicago Sites only.
Based on currently available information, the Company believes that the
potential cost of remediation at the ILCO Site is likely to range between
$54,000 and $59,000 (based on the estimated costs of the remedial approach
selected by the EPA). The Company's allocable share of this cost has not been
finally determined and will depend on such variables as the financial capability
of various other PRPs to fund their respective allocable shares of the remedial
cost. However, on October 31, 1995 the Company received confirmation from the
EPA that it is a de minimis PRP at the ILCO Site. Based on currently available
information, however, the Company believes that its most likely exposure with
respect to the ILCO Site is an immaterial amount which has been previously
reserved, the majority of which is expected to be paid over the next three to
five years.
Based on currently available information, the Company believes that the
potential cost of the remediation at the Chicago Site is likely to range between
$8,000 and $10,500 (based on the preliminary estimated costs of the remediation
approach negotiated with the EPA). Sufficient information is not available to
determine the Company's allocable share of this cost. Based on currently
available information, however, the Company believes that its most likely
exposure with respect to the Chicago Site will be the approximately $283
previously reserved, the majority of which is expected to be paid over the next
two to five years.
F-23
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Allied has accepted responsibility under the Acquisition Agreement for
potential liabilities relating to all Third Party Facilities other than the
aforementioned Sites. Based on currently available information, management of
the Company believes that the foregoing will not have a material adverse effect
on the Company's financial condition or results of operations.
(C) PURCHASE COMMITMENTS:
The Company has long-term relationships pertaining to the purchase of
certain raw materials with various suppliers through December 31, 1998. These
purchase commitments are not expected to exceed usage requirements.
9. MAJOR CUSTOMER
AT&T accounted for 11.1%, 11.4% and 9.9% of net sales for the years ended
January 31, 1997, 1996 and 1995, respectively. AT&T spun off its equipment
manufacturing operations into an independent company named "Lucent Technologies,
Inc.," which began operations on October 1, 1996. Lucent Technologies, Inc.
accounted for 4.0% of sales for the year ended January 31, 1997. Had Lucent
Technologies, Inc. been an operating company for the full fiscal year, it would
have accounted for 12.0% of net sales and AT&T would have accounted for 3.1% of
net sales for the year ended January 31, 1997.
10. CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to potential concentration
of credit risk consist principally of trade receivables and temporary cash
investments. The Company places its temporary cash investments with various
financial institutions and, generally, limits the amount of credit exposure to
any one financial institution. Except as discussed in Note 9, concentrations of
credit risk with respect to trade receivables is limited by a large customer
base and its geographic dispersion. The Company performs ongoing credit
evaluations of its customers' financial condition and requires collateral, such
as letters of credit, in certain circumstances.
F-24
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents - the carrying amount approximates fair value
because of the short maturity of these instruments.
Debt (excluding capital lease obligations) - the carrying value of the
Company's long term debt, including the current portion, approximates fair
value based on the incremental borrowing rates currently available to the
Company for loans with similar terms, maturity and tax exempt status.
The estimated fair values of the Company's financial instruments at
January 31, 1997 and 1996 were as follows:
1997 1996
--------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents ..... $ 952 $ 952 $ 5,472 $ 5,472
Restricted cash and cash
equivalents ................ 1 1 5,402 5,402
Debt (excluding capital
lease obligations) ......... 29,500 29,500 15,617 15,617
The fair value of accounts receivable, accounts payable and accrued
liabilities consistently approximate the carrying value due to the relatively
short maturity of these instruments and are excluded from the above table.
On December 20, 1995 the Company entered into an interest rate swap
agreement with a notional amount of $6,500. This swap agreement effectively
fixed the interest rate on a like amount of the Company's floating rate debt at
6.01% plus the Company's LIBOR spread in effect at any time. The effective rate
was 6.76% and 7.26% at January 31, 1997 and 1996, respectively. The swap expires
on December 20, 2002. At January 31, 1997 and 1996 the estimated fair value of
this interest rate swap agreement is not material. The ultimate amounts paid or
received under this agreement, however, depends on future interest rates. The
estimates of fair value are based on market prices or current rates offered for
debt and swaps with similar terms and maturities.
F-25
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
12. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into a consulting
agreement with an affiliate of certain of the Company's major stockholders.
Effective January 1, 1992, the agreement was amended to eliminate the Company's
obligation to pay regular periodic consulting fees and to substitute therefore
an obligation to pay certain fees in connection with potential acquisitions by
the Company. The agreement was terminated on November 1, 1995. For the years
ended January 31, 1997, 1996 and 1995 the Company paid $0, $0 and $80,
respectively.
In May 1988, the Company entered into an agreement with a former executive
providing for (i) the purchase of 316,515 shares of Common Stock at $4.20 a
share, payable in cash in the amount of $.01 a share and the balance of $4.19 a
share in a noninterest bearing note and (ii) the grant of certain options (see
Note 6). The note matured on October 31, 1995 and was repaid. For financial
reporting purposes, the note was discounted to present value as of the date of
issuance.
In May 1989, the Company entered into an agreement with another executive
providing for (i) the purchase of 60,000 shares of Common Stock at $5.50 a
share, payable in cash in the amount of $.01 a share and an interest bearing
note at 12.5% (6.0% per annum effective July 1, 1992) maturing April 30, 1998
(subject to acceleration under certain circumstances), and (ii) the grant of
certain options (see Note 6). The note was repaid during the fiscal year ended
January 31, 1996. The option was exercised on April 30, 1996. Under the terms of
the Option Agreement, this executive paid the exercise price with an
interest-free promissory note in the original principal amount of $664 that is
collateralized by the shares received on exercise and is due October 31, 1997.
The Company loaned this executive $1,057 to pay the tax withholding on the
exercise of such option, evidenced by a promissory note (the Tax Note), bearing
interest at 5.33% per annum payable annually, and due on April 29, 1997, subject
to extension until April 29, 1999 at the option of this executive. The Tax Note
is also collateralized by the shares received on exercise of such option. The
Company further agreed to make payments to the executive in an amount sufficient
to reimburse the executive, on an after-tax basis, for all interest on the Tax
Note incurred through the earlier of April 29, 1997 or the prepayment of the Tax
Note.
The consolidated statements of income for the years ended January 31,
1997, 1996 and 1995 include executive contract expenses of $238, $0 and $66,
respectively.
The Company had a consulting agreement with a firm of which one of the
former executives is the sole stockholder and chief executive officer, under
which the firm agreed to provide business consulting services to the Company.
The agreement terminated on April 30, 1994 and provided for an annual consulting
fee under which the Company paid $25 for the year ended January 31, 1995.
F-26
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
13. EMPLOYEE BENEFIT PLANS
(A) The Company has various noncontributory defined benefit pension plans,
which cover certain employees.
The Company's funding policy is to contribute annually an amount that can
be deducted for federal income tax purposes using a different actuarial cost
method and different assumptions than those used for financial reporting
purposes. Pension benefits for the Company's defined benefit plans are generally
based on employee's years of service and qualifying compensation during the
years of employment. Plan assets are invested in commingled trust funds
consisting primarily of equity and U.S. Government securities.
The following table represents the funded status of the Company's plans
and amounts included in the Company's balance sheets:
JANUARY 31, 1997 JANUARY 31, 1996
---------------- ----------------
Over- Under- Under-
funded funded funded
Plans Plans Plans
----- ----- -----
Actuarial present value of benefit obligations:
Vested benefit obligation................ $3,679 $20,116 $23,225
===== ====== ======
Accumulated benefit obligation........... $4,107 $21,506 $24,699
===== ====== ======
Projected benefit obligation............. $4,107 $25,581 $28,726
Plan assets at fair value................ 4,243 24,771 25,423
----- ------ ------
Projected benefit obligation (in excess
of) less than plan assets............. 136 (810) (3,303)
Unrecognized net loss.................... 702 855 3,659
Prior service cost not yet recognized
in net periodic pension cost.......... 8 (10) (2)
Adjustment required to recognize
minimum liability..................... - (240) (1,341)
----- ------ ------
Prepaid (accrued) pension cost .......... $ 846 $ (205) $ (987)
===== ====== ======
F-27
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
As required by SFAS No. 87, "Employers' Accounting for Pensions," for plans
where the accumulated benefit obligation exceeds the fair value of the plan
assets, the Company has recognized in the accompanying consolidated balance
sheets the minimum liability of the unfunded accumulated benefit obligation as a
long-term liability with an offsetting intangible asset and equity adjustment,
net of tax impact. As of January 31, 1997 and 1996, this minimum liability
amounted to $240 and $1,341, respectively. The reduction in equity as of January
31, 1997 and 1996 amounted to $136 and $760, respectively.
For the years ended January 31, 1997, 1996 and 1995, the actuarially
computed net pension expense included the following components:
1997 1996 1995
---- ---- ----
Service cost .................... $1,257 $ 733 $ 864
Interest cost.................... 2,100 1,906 1,794
Actual return on plan assets..... (3,314) (6,216) 116
Net amortization and deferrals... 1,179 4,506 (1,858)
----- ----- ------
Net pension expense.............. $1,222 $ 929 $ 916
===== ====== ======
Actuarial assumptions used in accounting for the plans for the years ended
January 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
---- ---- ----
Discount rate:
Pension expense............. 7.25% 9.25% 7.675%
Benefits obligations........ 7.80% 7.25% 9.25%
Rates of increase in
compensation levels......... 4.6% to 8.6% 4.6% to 8.6% 4.6% to 8.6%
Expected long-term rate
of return on assets......... 8.75% 8.75% 8.75%
(B) The Company provides certain health care and life insurance benefits
for retired employees who meet certain service requirements under a frozen plan
(the Plan). Under the Plan, the Company contributes a fixed amount and requires
the retiree to fund the remaining cost. As the Company's contribution is frozen,
the change in future health care costs should not materially impact the
accumulated postretirement benefit obligation.
F-28
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of postretirement benefit expense follow:
1997 1996 1995
---- ---- ----
Service cost of benefits earned...... $ 58 $ 49 $ 63
Interest cost on liability........... 106 111 119
Net amortization..................... (16) (37) -
--- --- ---
Postretirement benefit costs......... $148 $123 $182
=== === ===
The following table sets forth the Plan's postretirement benefit liability
as of January 31, 1997 and 1996:
1997 1996
---- ----
Accumulated postretirement benefit obligation:
Current retirees.............................. $ 600 $ 638
Fully eligible actives........................ 582 602
Other actives................................. 293 270
----- -----
Total accumulated postretirement
benefit obligation............................ 1,475 1,510
Unrecognized net gain............................. (322) (279)
----- -----
Accrued postretirement benefit liability...... $1,797 $1,789
===== =====
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.8% and 7.25% for the years ended January 31, 1997 and 1996,
respectively.
(C) Certain salaried employees are eligible to participate in various
defined contribution retirement plans. The Company's contributions under the
plans are based on specified percentages of employee contributions. The
Company's cost was $684, $633 and $526 for the years ended January 31, 1997,
1996 and 1995, respectively.
F-29
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
14. ACQUISITIONS
(A) Effective March 29, 1994, the Company, through its subsidiary,
International Power Systems, Inc., (IPS) acquired for cash, certain assets and
assumed specific liabilities of the custom power supply business of ITT
PowerSystems Corporation.
The acquisition was recorded using the purchase method of accounting and
the net purchase price of $5,966 approximated the fair value of the net assets
acquired. The results of operations of this acquisition are included in the
Company's consolidated financial statements from the date of acquisition.
The following unaudited pro forma financial information combines the
consolidated results of operations as if the custom power supply business of ITT
PowerSystems Corporation had been acquired as of the beginning of the period
presented. Pro forma adjustments include only the effects of events directly
attributed to a transaction that are factually supportable and expected to have
a continuing impact.
January 31,
1995
----
Net sales ......................... $204,505
Net income........................... $ 9,495
Net income per common share
on a fully diluted basis......... $ 1.52
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisition been consummated
as of the above dates, nor is such information indicative of future operating
results.
(B) Effective January 24, 1995, the Company purchased certain assets and
assumed certain liabilities from the switching power supply business of Basler
Electric Company, a Highland, Illinois based manufacturer of electrical
components. These power supplies are used for office electronics and
communications applications.
The acquisition was recorded using the purchase method of accounting and
the net purchase price of $3,197, of which $1,125 was included in current
portion of long-term debt at January 31, 1995, approximated the fair value of
the net assets acquired. The results of operations of this acquisition are
included in the Company's consolidated financial statements from the date of
acquisition and are not material in relation to the Company's consolidated
financial statements.
F-30
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
14. ACQUISITIONS (CONTINUED)
(C) Effective February 22, 1996 the Company acquired certain equipment and
inventory of LH Research, Inc. used in its power supply business, along with all
rights to the name "LH Research" for $4,428 of which $892 was recorded as
current portion of long-term debt and paid during the year. The Company used
available cash to finance the acquisition.
The acquisition was recorded using the purchase method of accounting and
the net purchase price has been allocated on the basis of the estimated fair
market values of the assets acquired and liabilities assumed. The excess of the
aggregate purchase price over the estimated fair market values of the net assets
acquired was recognized as goodwill and is being amortized over a period of 10
years. The results of operations are included in the Company's consolidated
financial statements from the date of acquisition.
Effective March 12, 1996, the Company acquired from Burr-Brown Corporation
its entire interest in Power Convertibles Corporation (PCC) consisting of
1,044,418 shares of PCC common stock and all outstanding preferred stock. In
addition the Company acquired or repaid $5,158 of 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 which together with the shares previously
acquired represented in excess of 99.6% of the outstanding PCC common stock. As
of May 29, 1996, the Company purchased all remaining shares of PCC common stock
and shares of PCC common stock issuable upon exercise of stock options.
The source of funds for the acquisition was advances under the Company'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 used in communications, computer, medical and
industrial and instrumentation markets and also produces battery chargers for
cellular phones.
The acquisition has been recorded using the purchase method of accounting.
The aggregate purchase price was $16,932 of which $466 was recorded as current
portion of long-term debt and paid during the year. The purchase price has been
allocated on the basis of the estimated fair market values of the assets
acquired and liabilities assumed. The excess of the aggregate purchase price
over the estimated fair market values of the net assets acquired was recognized
as goodwill and is being amortized over a period of 20 years. The results of
operations are included in the Company's consolidated financial statements from
the date of acquisition.
F-31
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
14. ACQUISITIONS (CONTINUED)
The following unaudited pro forma financial information combines the
consolidated results of operations as if both acquisitions had occurred as of
the beginning of the periods presented. Pro forma adjustments include only the
effects of events directly attributed to a transaction that are factually
supportable and expected to have a continuing impact. The pro forma adjustments
contained in the table below include amortization of intangibles, interest
expense on the acquisition debt, elimination of interest expense on debt not
acquired, reduction of certain selling, general and administrative expenses and
the related income tax effects.
JANUARY 31,
-----------
1997 1996
---- ----
Net sales....................... $288,830 $278,309
Net income...................... $ 14,683 $ 12,938
Net income per common share on
a fully diluted basis....... $ 2.28 $ 2.00
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisitions been consummated
as of the above dates, nor is such information indicative of future operating
results. In addition, the pro forma financial results contain estimates since
the acquired businesses did not maintain information on a period comparable with
the Company's fiscal year-end.
F-32
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended January 31, 1997 and 1996
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 1997:
Net sales........................... $62,429 $71,748 $76,576 $76,154
Gross profit........................ 15,121 15,281 18,262 18,424
Operating income.................... 5,804 4,466 6,857 7,319
Net income.......................... 3,646 2,650 4,130 4,511
Net income per share................ .56 .40 .65 .72
For the year ended January 31, 1996:
Net sales........................... $58,777 $63,381 $61,456 $58,808
Gross profit........................ 13,792 15,324 14,744 12,754
Operating income.................... 5,134 6,495 6,124 4,884
Net income.......................... 3,175 3,930 3,896 3,043
Net income per share................ .50 .61 .60 .47
F-33
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
Charter Power Systems, Inc.
Our report on the consolidated financial statements of Charter Power Systems,
Inc. and Subsidiaries is included on page F-2 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in item 14(a) (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 14, 1997
S-1
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Additions
Charged Additions Balance
Balance at (Credited) Charged at
Beginning to Costs & to Other End of
of Period Expenses Accounts(b) Deductions Period
--------- -------- ----------- ---------- ------
Deducted From Assets
- --------------------
Allowance for Doubtful Accounts:
Year ended January 31, 1997......... $1,421 $ 128 $109 $244 (a) $1,414
Year ended January 31, 1996......... 1,404 136 - 119 (a) 1,421
Year ended January 31, 1995......... 1,622 (151) 137 204 (a) 1,404
- ---------
(a) Amounts written-off, net of recoveries.
(b) Additions related to business acquisitions.
S-2