UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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 No. 1-9389
CHARTER POWER SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3314599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
(Address of principal executive office)
(Zip Code)
(215) 619-2700
(Registrant's telephone number, including area code)
______________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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_____
Number of shares of the Registrant's Common Stock outstanding on December 13,
1996: 6,070,525
<PAGE>
CHARTER POWER SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
October 31, 1996 and January 31, 1996................. 3
Consolidated Statements of Income -
Three and Nine Months Ended October 31, 1996
and 1995............................................. 5
Consolidated Statements of Cash Flows -
Nine Months Ended October 31, 1996 and 1995........... 6
Notes to Consolidated Financial Statements............ 8
Report of Independent Accountants..................... 14
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 15
PART II. OTHER INFORMATION 18
SIGNATURES 19
2
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
October 31, January 31,
1996 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents................. $ 662 $ 5,472
Restricted cash and cash equivalents...... 657 5,402
Accounts receivable, less allowance for
doubtful accounts of $1,462 and
$1,421, respectively................. 42,920 31,855
Inventories............................... 41,363 35,227
Deferred income taxes..................... 6,037 6,235
Other current assets...................... 1,343 1,367
-------- --------
Total current assets........... 92,982 85,558
Property, plant and equipment, net.............. 50,532 39,375
Intangible and other assets, net................ 5,445 3,287
Goodwill, net................................... 11,263 2,607
-------- --------
Total assets................... $160,222 $130,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 506 $ 200
Accounts payable.......................... 25,255 19,008
Accrued liabilities....................... 15,892 13,513
Other current liabilities................. 3,807 2,535
-------- --------
Total current liabilities...... 45,460 35,256
Deferred income taxes........................... 3,488 2,750
Long-term debt.................................. 32,154 15,417
Other liabilities............................... 8,709 8,478
-------- --------
Total liabilities.............. 89,811 61,901
-------- --------
The accompanying notes are an integral part of these statements.
3
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands)
(Unaudited)
October 31, January 31,
1996 1996
---- ----
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value,
10,000,000 shares authorized;
6,540,226 and 6,326,176 shares
issued, respectively.................. 65 63
Additional paid-in capital................. 39,203 36,283
Minimum pension liability adjustment....... (760) (760)
Treasury stock, at cost, 450,951 and
57,400 shares, respectively .......... (10,724) (1,304)
Notes receivable from stockholder,
net of discount of $102............... (1,619) --
Cumulative translation adjustment.......... (303) --
Retained earnings.......................... 44,549 34,644
-------- --------
Total stockholders' equity...... 70,411 68,926
-------- --------
Total liabilities and
stockholders' equity.......... $160,222 $130,827
======== ========
The accompanying notes are an integral part of these statements.
4
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Nine months ended
October 31, October 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................ $76,576 $61,456 $210,753 $183,614
Cost of sales........................ 58,314 46,712 162,089 139,754
------- ------- -------- --------
Gross profit..................... 18,262 14,744 48,664 43,860
Selling, general and
administrative expenses......... 9,326 7,056 25,422 21,503
Research and development
expenses......................... 2,079 1,564 6,115 4,604
------- ------- -------- --------
Operating income................. 6,857 6,124 17,127 17,753
Interest expense, net................ 388 288 941 813
Other expense(income), net........... (14) 17 113 272
------- ------- -------- --------
Income before income taxes....... 6,483 5,819 16,073 16,668
Provision for income taxes........... 2,353 1,923 5,647 5,667
------- ------- -------- --------
Net income....................... $ 4,130 $ 3,896 $ 10,426 $ 11,001
======= ======= ======== ========
Net income per common and
common equivalent share.......... $ 0.65 $ 0.60 $ 1.60 $ 1.71
======= ======= ======== ========
Weighted average common and
common equivalent shares......... 6,359 6,443 6,503 6,424
======= ======= ======== ========
Dividends per share.................. $0.0275 $0.0275 $ 0.0825 $ 0.0825
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine months ended
October 31,
1996 1995*
---- ----
Cash flows provided (used) by operating activities:
Net income ..................................... $10,426 $11,001
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 6,422 4,750
Deferred income taxes..................... 936 (90)
Loss on disposal of assets................ 9 175
Changes in:
Accounts receivable................. (8,414) (4,279)
Inventories......................... 1,020 (9,536)
Other current assets................ (388) (425)
Accounts payable.................... 4,469 5,583
Accrued liabilities................. 642 1,714
Income taxes payable................ 1,672 (271)
Other current liabilities........... 780 (815)
Other liabilities................... 1,222 1,127
Other, net................................ (244) (278)
------- -------
Net cash provided by operating activities........... 18,552 8,656
------- -------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net of cash
acquired..................................... (19,739) --
Acquisition of property, plant and equipment ... (12,329) (5,455)
Change in restricted cash....................... 4,745 75
------- -------
Net cash used by investing activities............... (27,323) (5,380)
------- -------
Cash flows provided (used) by financing activities:
Repayment of long-term debt..................... (7,983) (3,619)
Proceeds from new borrowings.................... 23,012 1,907
Proceeds from issuance of common stock.......... 1,096 544
Payment of common stock dividends............... (527) (657)
Purchase of treasury stock...................... (10,584) (1,304)
Note receivable from stockholder in
connection with issuance of common stock...... (1,057) --
------- -------
The accompanying notes are an integral part of these statements.
6
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
Nine months ended
October 31,
1996 1995*
---- ----
Net cash provided (used) by financing activities.... 3,957 (3,129)
------- ------
Effect of exchange rate changes on cash............. 4 15
------- ------
(Decrease) increase in cash and cash equivalents.... (4,810) 162
Cash and cash equivalents at beginning
of period........................................ 5,472 1,097
------- ------
Cash and cash equivalents at end of period.......... $ 662 $1,259
======= ======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid, net of amount capitalized............ $ 1,115 $1,078
Income taxes paid................................... 3,039 6,029
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired....... $14,560 $ --
Goodwill and identifiable intangible
assets . ................................... 11,745 --
Purchase price obligations.................... (1,203) --
Cash paid, net of cash acquired............... (19,739) --
------- ------
Liabilities assumed........................... $ 5,363 $ --
======= ======
Dividends declared but not paid..................... $ 167 $ --
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.
The accompanying notes are an integral part of these statements.
7
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(UNAUDITED)
1. INTERIM STATEMENTS
The accompanying interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report to Shareholders for the fiscal year
ended January 31, 1996. The January 31, 1996 amounts were derived from the
Company's audited financial statements. The consolidated financial statements
presented herein are unaudited but, in the opinion of management, include all
necessary adjustments (which comprise only normal recurring items) required for
a fair presentation of the consolidated financial position as of October 31,
1996 and the consolidated statements of income for the three and nine months
ended October 31, 1996 and 1995 and the consolidated statements of cash flows
for the nine months ended October 31, 1996 and 1995. However, interim results of
operations necessarily involve more estimates than annual results and are not
indicative of results for the full fiscal year.
2. INVENTORIES
Inventories consisted of the following:
October 31, January 31,
1996 1996
---- ----
Raw materials ........................... $17,905 $14,033
Work-in-progress ........................ 12,044 9,357
Finished goods .......................... 11,414 11,837
------- -------
$41,363 $35,227
======= =======
3. INCOME TAXES
A reconciliation of the provision for income taxes from the statutory
rate to the effective rate is as follows:
Nine months ended
October 31,
1996 1995
---- ----
U.S. statutory income tax ...................... 35.0% 35.0%
State tax, net of federal income tax benefit.... 3.6 3.4
Reduction in valuation allowance................ -- (3.8)
Reduction of taxes provided in prior years...... (1.9) --
Foreign sales corporation ...................... (0.7) (1.0)
Other........................................... (0.9) 0.4
---- ----
35.1% 34.0%
==== ====
8
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
(UNAUDITED)
4. CONTINGENT LIABILITIES
With regard to the following contingent liabilities there have been no
material changes since January 31, 1996.
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, Canadian, Mexican,
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.
9
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
4. CONTINGENT LIABILITIES (continued)
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. Based
on currently available information and well defined contribution levels of the
other parties, including NL Industries, the Company does not expect to incur
costs in excess of the $138 previously reserved.
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 three other Third Party Facilities, one in September 1991, one (the
Chicago Site) in October 1991 and the third (the ILCO Site) in October 1993. Of
the three 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
10
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
4. CONTINGENT LIABILITIES (continued)
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.
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.
5. ACQUISITIONS
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 approximately $4,100, subject to certain
adjustments. The Company used available cash to finance the acquisition.
The acquisition has been recorded using the purchase method of
accounting and the net purchase price approximates the fair value of the assets
acquired. 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 approximately $5,200 of
indebtedness of PCC. On April 26, 1996, the Company acquired 190,000 shares of
11
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
5. ACQUISITIONS (continued)
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 of approximately $17,000 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.
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.
Nine months
ended October 31,
1996 1995
---- ----
Net sales ......................... $212,676 $212,784
Net income ........................ 10,172 9,841
Net income per common and
common equivalent share ...... $ 1.56 $ 1.53
12
<PAGE>
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands)
5. ACQUISITIONS (continued)
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.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Charter Power Systems, Inc.
We have reviewed the accompanying consolidated balance sheet of Charter Power
Systems, Inc. and Subsidiaries as of October 31, 1996, the related consolidated
statements of income for the three and nine months ended October 31, 1996 and
1995 and the related consolidated statements of cash flows for the nine months
ended October 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated March 22, 1996,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of January 31, 1996, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 26, 1996
14
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company completed two acquisitions during the first quarter of
fiscal 1996. 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 approximately $5,200,000 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 shares previously acquired by the
Company 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.
Net sales for the fiscal 1997 third quarter and nine months ended
October 31, 1996 increased $15,120,000 or 25 percent and $27,139,000 or 15
percent, respectively, compared to the equivalent periods in fiscal 1996. Sales
for the third quarter increased as a result of sales recorded by the Company's
PCC and LH subsidiaries, coupled with higher telecommunication battery, UPS,
control and motive power sales, partially offset by lower government and power
supply sales. For the nine months ended October 31, 1996, sales also increased
as a result of sales recorded by the Company's PCC and LH subsidiaries, and
higher telecommunication battery and UPS sales, partially offset by lower motive
power, power supply and control sales. Sales resulting from the acquisitions
completed earlier this year were approximately $7,000,000 and $21,000,000 for
the quarter and nine months ended October 31, 1996, respectively. On a company-
wide basis, telecommunication-related sales were approximately 46 percent and 42
percent of total company sales for the nine-month period ended October 31, 1996
and 1995, respectively. Motive power product sales were up 11 percent for the
current quarter due to higher volumes and prices, and were down 8 percent for
the nine months ended October 31, 1996 due to lower volumes partially offset by
higher prices.
Gross profit increased $3,518,000 or 24 percent for the third quarter
of fiscal 1997 and increased $4,804,000 or 11 percent for the nine-month period
ended October 31, 1996. Gross margins were flat for the quarter and decreased to
23.1 percent from 23.8 percent for the year to date. Gross profit for the nine
months ended October 31, 1996 were unfavorably impacted by two types of
non-recurring charges in the second quarter: costs of relocating an electronics
business from Seattle, Washington to Tucson, Arizona and Dunlap, Tennessee, and
costs related to the failure of plastic casings used in Charter Power batteries.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Selling, general and administrative expenses for the three months ended
October 31, 1996 were 12.2 percent of sales versus 11.5 percent for the
comparable period of the prior year. For the nine-month period ended October 31,
1996 and 1995, selling, general and administrative expenses were 12.1 percent
and 11.7 percent of sales, respectively.
Research and development expenses increased $515,000 for the third
quarter and $1,511,000 for the nine months ended October 31, 1996 primarily as a
result of the acquisitions.
Interest expense, net, increased for the quarter and nine months ended
October 31, 1996 due to higher debt balances, 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.
As a result of the above, income before income taxes increased 11
percent for the third quarter of fiscal 1997 and decreased 4 percent for the
nine-month period ended October 31, 1996 versus the comparable periods of the
prior year. Net income for the quarter increased 6 percent to $4,130,000 or 65
cents per share, while for the nine-month period, net income decreased 5 percent
to $10,426,000 or $1.60 per share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities increased 114 percent
to $18,552,000 for the nine-month period ended October 31, 1996 compared to
$8,656,000 in the comparable period of the prior year. This increase was
primarily due to a decrease in inventory levels during the first nine months of
fiscal 1997, versus an increase in inventory during the comparable prior year
period, 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), changes in deferred taxes due to the timing of the deductibility
of exercised stock options, the timing of tax payments, and an increase in other
current liabilities related to higher sales volumes and the recording of
deferred revenue.
Net cash used by investing activities totaling $27,323,000 for the
nine-month period ended October 31, 1996 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 the first nine months of fiscal 1997
increased by $6,874,000 over the comparable period of the prior year, primarily
due to the plant capacity expansion programs at the Company's Conyers, Georgia
and Leola, Pennsylvania facilities. 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 provided by financing activities was $3,957,000 for the
nine-month period ended October 31, 1996 compared to net cash used by financing
activities of $3,129,000 for the comparable prior year period. The additional
borrowings in the current year's nine-month period were used primarily for the
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS continued)
funding of the aforementioned acquisitions, and the purchase of treasury stock.
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. Capital expenditures in the first nine months of fiscal 1997 were
incurred primarily to fund capacity expansion, new product development, a
continuing series of cost reduction programs, normal maintenance capital, and
regulatory compliance. Fiscal 1997 capital expenditures are expected to be
approximately $17,000,000 for similar purposes.
FORWARD LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Item 2, "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
Quarterly Report on Form 10-Q.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Fourth Amendment to Financing and Security Agreement dated
September 3, 1996 (filed herewith).
4.2 Fifth Amendment to Financing and Security Agreement dated
September 26, 1996 (filed herewith).
11. Computation of per share earnings (filed herewith).
15. Letter from Coopers & Lybrand L.L.P., independent accountants for
the Company, regarding unaudited interim financial information
(filed herewith).
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K:
None
18
<PAGE>
SIGNATURES
- -------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHARTER POWER SYSTEMS, INC.
December 16, 1996 BY: /s/ Alfred Weber
---------------------------------
Alfred Weber
Chairman, President and Chief
Executive Officer
December 16, 1996 BY: /s/ Stephen E. Markert, Jr.
----------------------------------
Stephen E. Markert, Jr.
Vice President Finance and
Treasurer
(Principal Financial and
Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
4.1 Fourth Amendment to Financing and Security Agreement dated
September 3, 1996.
4.2 Fifth Amendment to Financing and Security Agreement dated
September 26, 1996.
11. Computation of per share earnings.
15. Letter from Coopers & Lybrand L.L.P., independent accountants for
the Company, regarding unaudited interim financial information.
27. Financial Data Schedule.
20
<PAGE>
FOURTH AMENDMENT
TO FINANCING AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Amendment") is made as of this 3rd day of September, 1996, by and among CHARTER
POWER SYSTEMS, INC., a corporation organized and existing under the laws of the
State of Delaware ("Charter Power"), C&D CHARTER POWER SYSTEMS, INC., a
corporation organized and existing under the laws of the State of Delaware ("C&D
Charter"), INTERNATIONAL POWER SYSTEMS, INC., a corporation organized and
existing under the laws of the State of Arizona ("International"), RATELCO
ELECTRONICS, INC., a corporation organized and existing under the laws of the
State of Delaware ("Ratelco"), C&D/CHARTER HOLDINGS, INC., a corporation
organized and existing under the laws of the State of Delaware ("Charter
Holdings"), CHARTER POWER OF CALIFORNIA, a corporation organized and existing
under the laws of the State of California ("Charter California"), POWER
CONVERTIBLES CORPORATION, a corporation organized and existing under the laws of
the State of Arizona ("PCC"), PCC DE MEXICO S.A. DE C.V. ("PCC Mexico"), POWER
CONVERTIBLES IRELAND LIMITED ("PCC Ireland") and LH RESEARCH, INCORPORATED, a
corporation organized and existing under the laws of the State of Delaware ("LH
Research") (Charter Power, C&D Charter, International, Ratelco, Charter Holdings
and Charter California, PCC, PCC Mexico, PCC Ireland and LH Research are herein
collectively referred to as the "Borrowers" and individually as a "Borrower");
NATIONSBANK, N.A., a national banking association, in its capacity as a lender
("NationsBank"), FLEET BANK, NATIONAL ASSOCIATION, a national banking
association and successor in interest to NatWest Bank N.A., being formerly known
as National Westminster Bank NJ ("Fleet"), CORESTATES BANK, N.A., a national
banking association ("CoreStates") (NationsBank, CoreStates, and Fleet are
herein collectively referred to as the "Lenders" and individually, as a
"Lender"); and NATIONSBANK, N.A., a national banking association, in its
capacity as agent for the Lenders (the "Agent"); Witnesseth:
RECITALS
A. The Lenders, the Borrowers and the Agent are parties to that certain
Financing and Security Agreement dated September 26, 1994 (as amended, restated,
supplemented or otherwise modified, the "Credit Agreement"). Under and subject
to the provisions of the Credit Agreement, the Lenders agreed to establish
jointly and severally in favor of the Existing Borrowers (i) a revolving credit
facility in a maximum principal amount not to exceed SIXTY-FIVE MILLION DOLLARS
($65,000,000) (the "Total Revolving Credit Committed Amount"), (ii) a term loan
facility (collectively, the "Term Loans") in an original principal amount not to
exceed FIFTEEN MILLION DOLLARS ($15,000,000) (the "Total Term Loan Committed
Amount") and (iii) a letter of credit facility as part of the Revolving Credit
Facility (the "Letter of Credit Facility") in a maximum principal amount not to
exceed EIGHT MILLION DOLLARS ($8,000,000) (the "Letter of Credit Committed
Amount").
<PAGE>
B. The Borrowers have requested that the Lenders and the Agent agree to
amend certain terms and conditions of the Credit Agreement, and subject to the
provisions of this Amendment, the Lenders and the Agent have so agreed;
provided, that the Borrowers execute and deliver this Amendment and the
Borrowers furnish to the Agent such information, items, certifications and other
documents as the Agent and/or any of the Lenders may reasonably request to close
and consummate any of the transactions contemplated by this Amendment or
otherwise by the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Lenders and the Agent hereby agree as follows:
1. The recitals set forth above are true and accurate in each and every
respect and are incorporated herein by reference. All capitalized terms used
herein but not specifically defined herein shall have the respective meanings
given such terms in the Credit Agreement, unless the context indicates or
dictates a contrary meaning.
2. The Credit Agreement is hereby amended as follows:
a. The definition of "Revolving Credit Expiration Date" on page 28 of
the Credit Agreement is hereby amended to mean January 31, 1999, as may be
further extended in accordance with the provisions of Section 2.1.9. of the
Credit Agreement.
b. Section 2.1.7 on page 38 of the Credit Agreement is hereby deleted
in its entirety and the following is substituted in its place:
2.1.7 REVOLVING CREDIT UNUSED LINE FEE. The Borrowers shall
jointly and severally pay to the Agent, in arrears, for the ratable
benefit of the Lenders, a quarterly revolving credit unused line fee
(collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount to be
determined based upon the ratio of Funded Debt to EBITDA for the
rolling four (4) quarter month period covered by the then most recent
financial statements furnished or required to be furnished to the
Agent pursuant to and in the form required by Section 6.1.1(a) and
Section 6.1.1(c). Within three (3) Business Days of the Agent's
receipt of such financial statements in the form required, the Agent
shall calculate the ratio of Funded Debt to EBITDA for the then
rolling four (4) quarter period covered by such financial statements,
and shall notify the Borrowers and the Lenders of its determination.
If such financial statements are not furnished as and when required,
the Borrowers may not be permitted to select or change an Interest
Rate or an
2
<PAGE>
Interest Period. Following, the Agent's determination of the Funded
Debt to EBITDA ratio, the Revolving Credit Unused Line Fee shall be as
follows:
FUNDED DEBT TO EBITDA RATIO FEE AMOUNT
--------------------------- ----------
Less than 1.0 to 1.0 .125%
Greater than or equal to .15%
1.0 to 1.0, but less than
1.75 to 1.0
Greater than or equal to .18%
1.75 to 1.0, but less than
2.25 to 1.0
Greater than or equal to .22%
2.25 to 1.0, but less than
2.75 to 1.0
Greater than or equal to .25%
2.75 to 1.0, but not more
than 3.0 to 1.0
Greater than or equal to
3.0 to 1.0 .50%
c. Section 2.1.11 of the Credit Agreement (as added by the Second
Amendment to Financing and Security Agreement dated January 26, 1996) is hereby
deleted in its entirety and the following is substituted in its place:
2.1.11 CONVERSION OF REVOLVING LOAN ADVANCES FOR STOCK PURCHASES;
MANDATORY REDUCTIONS IN TOTAL REVOLVING CREDIT FACILITY. The Borrowers
jointly and severally covenant and agree that if at any time the
aggregate principal amount of Revolving Loan advances used to purchase
Stock at any time and from time to time equals or exceeds Twelve
Million Dollars ($12,000,000) and such aggregate principal amount
(each a "Stock Purchase Advance") has not yet been converted to a
Converted Stock Loan in accordance with the provisions of this Section
2.1.11, that portion of the Stock Purchase Advance in excess of Seven
Million Dollars ($7,000,000) shall be converted into a term loan
having a maturity date which is three (3) years after the effective
date of the conversion (each referred to herein as a "Converted Stock
Loan"); provided that (i) all Stock purchased with the proceeds of
such Stock Purchase Advance shall have been purchased by Charter Power
in accordance with the provisions of Section 6.2.4 of this Agreement,
(ii) there shall not exist a Default or an Event of Default under
3
<PAGE>
this Agreement as of the effective date of such conversion, and (iii)
the Borrowers shall have executed and delivered to the Agent a series
of promissory notes (as from time to time extended, amended, restated,
supplemented or otherwise modified, the "Converted Stock Notes" and
individually a "Converted Stock Note") substantially in the form of
Exhibit A-3 attached to and made a part of this Agreement, with
appropriate insertions and such other documents as the Agent and/or
any of the Lenders may reasonably require to confirm the validity of
the Obligations, as converted, and any Liens and security interests.
Each Lender's Converted Stock Note shall be dated as of the date the
Stock Purchase Advance, in part evidenced by such Converted Stock
Note, equals or exceeds Twelve Million Dollars ($12,000,000), shall be
payable to the order of such Lender at the times provided in the
Converted Stock Note, and shall be in the principal amount of such
Lender's Proportionate Share of that portion of the respective Stock
Purchase Advance exceeding Seven Million Dollars ($7,000,000)
evidenced, in part, by such Converted Stock Note. If as of the
effective date of any proposed conversion the Borrowers would not be
entitled to convert any Stock Purchase Advance to a Converted Stock
Loan, such Stock Purchase Advance, together with any unpaid and
accrued interest thereon, shall be payable jointly and severally by
the Borrowers ON DEMAND.
The unpaid principal balance of each Converted Stock Loan shall bear
interest at a floating and fluctuating rate of interest equal to the
Interest Rate or Interest Rates then available for the Converted Term
Loan, as selected by the Borrowers in accordance with the provisions
of Section 2.4. The unpaid principal balance of each Converted Stock
Loan, together with unpaid and accrued interest thereon, shall be due
and payable in consecutive quarterly installments on the first day of
each quarterly period commencing with the first such date following
the effective date of the Converted Stock Loan; the principal amount
of each such quarterly installment shall be sufficient to fully
amortize the principal balance of the Converted Stock Loan in
approximately equal quarterly principal installments by the maturity
date of such Converted Stock Loan.
Subject to the terms of Section 2.4.5 of the Credit Agreement, the
Borrowers may, at their option, at any time and from time to time,
prepay, the Converted Stock
4
<PAGE>
Loans, in whole or in part, upon at least five (5) Business Days prior
written notice to the Agent, specifying the date and amount of the
proposed prepayment. Subject to the terms of Section 2.4.5 of the
Credit Agreement, each Converted Stock Note may be prepaid, in whole
or in part, without premium or penalty. The amount to be prepaid,
together with unpaid and accrued interest thereon through the date of
prepayment if the prepayment is intended to prepay the Converted Stock
Loans in whole, shall be paid by the Borrowers to the Agent for the
ratable benefit of the Lenders on the date specified for such
prepayment. Partial prepayments shall be in an amount not less than
Two Hundred Thousand Dollars ($200,000) and shall be applied first to
all unpaid and accrued late charges, second to any unpaid and
outstanding Enforcement Costs, third to any billed and unpaid interest
on the Converted Stock Loans, and then to principal against the
principal installments in the inverse order of their maturities.
The Total Revolving Credit Committed Amount shall be automatically and
permanently reduced by the principal amount of each Converted Stock
Loan as of the effective date of such Converted Stock Loan. If, after
giving effect to any such reduction in the Total Revolving Credit
Committed Amount, the then outstanding principal amount of the
Revolving Loan exceeds the Total Revolving Credit Committed Amount as
so reduced, the Borrowers jointly and severally shall
contemporaneously with such reduction (a) make a mandatory prepayment
of the Revolving Loan in the amount of such excess, and (b) pay to the
Agent for the ratable benefit of the Lenders an amount equal to unpaid
interest on the amount of such excess and the pro rata portion of the
Revolving Credit Unused Line Fee accrued to the date of such mandatory
prepayment. After each such reduction, the Revolving Credit Unused
Line Fee shall be calculated with respect to the Total Revolving
Credit Committed Amount as so reduced.
For purposes of this Agreement, all Stock purchases shall be deemed to
have been financed with the proceeds of the Revolving Loan, regardless
of the actual source of funds for the purchase.
d. Subsections (b) and (c) of Section 2.3.2 on page 43 of the Credit
Agreement are hereby amended to provide that the Letter of Credit Fee for any
Letter of Credit (other than the
5
<PAGE>
Rockdale Letter of Credit and the PEDFA Obligations) shall be in an amount equal
to one and one-eighth percent (1-1/8%) per annum of the face amount of such
Letter of Credit.
e. Section 2.4.1(b)(i) on pages 55 and 56 of the Credit Agreement is
hereby deleted in its entirety and the following is substituted in its place:
(i) with respect to advances under the Revolving Loan, the Applicable
Margin to be added when calculating the available Interest Rates shall
be as follows:
FUNDED DEBT TO EBITDA RATIO APPLICABLE MARGIN
--------------------------- -----------------
Less than 1.0 to 1.0 LIBOR Loans: .60%
Prime Loans: -.40%
Greater than or equal to LIBOR Loans: .75%
1.0 to 1.0, but less than Prime Loans: -.25%
1.75 to 1.0
Greater than or equal to LIBOR Loans: .95%
1.75 to 1.0, but less than Prime Loans: 0%
2.25 to 1.0
Greater than or equal to LIBOR Loans: 1.25%
2.25 to 1.0, but less than Prime Loans: .25%
2.75 to 1.0
Greater than or equal to LIBOR Loans: 1.60%
2.75 to 1.0, but less than Prime Loans: .60%
3.0 to 1.0
The initial Interest Rate adjustment, if any, shall be effective as of
September 1, 1996 if and to the extent the ratio of Funded Debt to
EBITDA as set forth above results in any such Interest Rate
adjustment.
f. Section 2.4.1(b)(iv) on pages 56 of the Credit Agreement is hereby
deleted in its entirety and the following is substituted in its place:
(iv) If the ratio of Funded Debt to EBITDA at any time exceeds 3.0 to
1.0 all Loans (including the Converted Term Loan) shall bear interest
at the Post-Default Rate.
6
<PAGE>
g. Section 2.4.1(d) of the Credit Agreement (as added by the Second
Amendment to Financing and Security Agreement dated January 26, 1996) is hereby
deleted in its entirety. For purposes of calculating Interest Rates available
under the Credit Agreement at any time after the date of this Amendment, the
Stock Margin shall be equal to zero.
h. Section 6.1.15 on page 99 of the Credit Agreement is hereby deleted
in its entirety and the following is substituted in its place:
6.1.15 LIABILITIES TO TANGIBLE NET WORTH. The Borrowers and the
Restricted Subsidiaries, on a Consolidated basis and as of the end of
each fiscal quarter, commencing with the first such fiscal quarter
ending on or after July 31, 1996, shall have a ratio of Liabilities to
Tangible Net Worth of not more than 2.25 to 1.0.
i. Section 6.1.17 on page 99 of the Credit Agreement is hereby deleted
in its entirety and the following is substituted in its place:
6.1.17 FIXED CHARGE COVERAGE RATIO. The Borrowers and the Restricted
Subsidiaries, on a Consolidated basis and as of the end of each fiscal
quarter, commencing with the first such fiscal quarter ending on or
after July 31, 1996, shall have a Fixed Charge Coverage Ratio of not
less than 1.5 to 1.0. The Fixed Charge Coverage Ratio shall be
calculated on a rolling four (4) quarter basis.
3. The terms, conditions and provisions of this Amendment shall not be
effective until each of the following conditions precedent have been satisfied
fully to the extent and in the manner required by the Agent: (i) the Borrowers,
the Agent and the Lenders execute and deliver this Amendment, (ii) the Borrowers
furnish or cause to be furnished to the Agent all of the items to be provided by
the Borrowers as listed in the "List of Closing Documents" prepared by the
Agent's counsel and previously furnished to the Borrowers in connection with the
Third Amendment to Financing and Security Agreement dated March 13, 1996, and as
more particularly indicated in Exhibit A attached hereto and made a part hereof,
and (iii) the Borrowers shall have reimbursed the Agent for all fees and
expenses reasonably incurred by the Agent in connection with the transactions
contemplated by this Amendment (including, without limitation, attorneys' fees
and expenses).
7
<PAGE>
4. The terms "this Agreement" as used in the Credit Agreement and the terms
"Credit Agreement" as used in any of the Financing Documents shall mean the
Credit Agreement as modified herein unless the context clearly indicates or
dictates a contrary meaning.
5. The Borrowers will execute such confirmatory instruments with respect to
the Credit Agreement and/or any of the Financing Documents as the Agent may
reasonably require.
6. The Borrowers ratify and confirm all of their respective liabilities and
obligations under the Credit Agreement and agree that, except as expressly
modified in this Amendment, the Credit Agreement continues in full force and
effect as if set forth specifically herein. The Borrowers, the Agent and the
Lenders agree that this Amendment shall not be construed as an agreement to
extinguish the original obligations under the Credit Agreement and shall not
constitute a novation as to any of the joint and several obligations of the
Borrowers under the Credit Agreement.
7. This Amendment may not be amended, changed, modified, altered or
terminated without in each instance the prior written consent of the Agent, the
Lenders and the Borrowers. This Amendment shall be construed in accordance with,
and governed by, the laws of the State of Maryland.
8. The Borrowers agree that neither the execution and delivery of this
Amendment nor any of the terms, provisions, covenants, or agreements contained
in this Amendment shall in any manner release, impair, lessen, waive, or
otherwise adversely affect the joint and several liability and obligations of
the Borrowers under the terms of the Credit Agreement.
9. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the Borrowers, the Agent and the Lenders have caused
this Amendment to be executed under seal as of the date first above written.
ATTEST: CHARTER POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title:
8
<PAGE>
ATTEST: C&D CHARTER POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres.
ATTEST: INTERNATIONAL POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres.
ATTEST: RATELCO ELECTRONICS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
ATTEST: C&D/CHARTER HOLDINGS, INC.
/s/ STEPHEN E. MARKERT, JR. By: /s/ ROBERT T. MARLEY (Seal)
Name: Name:
Title: Director Title: Vice President
ATTEST: CHARTER POWER OF CALIFORNIA
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
ATTEST: POWER CONVERTIBLES CORPORATION
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title: Treasurer
9
<PAGE>
ATTEST: PCC DE MEXICO S.A. DE C.V.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title:
ATTEST: POWER CONVERTIBLES IRELAND LIMITED
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title:
ATTEST: LH RESEARCH, INCORPORATED
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ STACY L. DENSON By: /s/PATRICK M. MOORE (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
/s/ STACY L. DENSON By: /s/ PATRICK M. MOORE (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: CORESTATES BANK, N.A.
in its capacity as a Lender
/s/ JOHN GERHART By: /s/ KARL F. SCHULTZ (Seal)
Name:Karl F. Schultz
Title:Vice President
10
<PAGE>
WITNESS: FLEET BANK, NATIONAL ASSOCIATION
(formerly known as NatWest Bank
N.A.) in its capacity as a Lender
_________________________ By: /s/ GARY P. KEARNS (Seal)
Name: Gary P. Kearns
Title: SVP
11
<PAGE>
FIFTH AMENDMENT
TO FINANCING AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this "Amendment")
is made as of this 26th day of September, 1996, by and among CHARTER POWER
SYSTEMS, INC., a corporation organized and existing under the laws of the State
of Delaware ("Charter Power"), C&D CHARTER POWER SYSTEMS, INC., a corporation
organized and existing under the laws of the State of Delaware ("C&D Charter"),
INTERNATIONAL POWER SYSTEMS, INC., a corporation organized and existing under
the laws of the State of Arizona ("International"), RATELCO ELECTRONICS, INC., a
corporation organized and existing under the laws of the State of Delaware
("Ratelco"), C&D/CHARTER HOLDINGS, INC., a corporation organized and existing
under the laws of the State of Delaware ("Charter Holdings"), CHARTER POWER OF
CALIFORNIA, a corporation organized and existing under the laws of the State of
California ("Charter California"), POWER CONVERTIBLES CORPORATION, a corporation
organized and existing under the laws of the State of Arizona ("PCC"), PCC DE
MEXICO S.A. DE C.V. ("PCC Mexico"), POWER CONVERTIBLES IRELAND LIMITED ("PCC
Ireland") and LH RESEARCH, INCORPORATED, a corporation organized and existing
under the laws of the State of Delaware ("LH Research") (Charter Power, C&D
Charter, International, Ratelco, Charter Holdings and Charter California, PCC,
PCC Mexico, PCC Ireland and LH Research are herein collectively referred to as
the "Borrowers" and individually as a "Borrower"); NATIONSBANK, N.A., a national
banking association, in its capacity as a lender ("NationsBank"), FLEET BANK,
NATIONAL ASSOCIATION, a national banking association and successor in interest
to NatWest Bank N.A., being formerly known as National Westminster Bank NJ
("Fleet"), CORESTATES BANK, N.A., a national banking association ("CoreStates")
(NationsBank, CoreStates, and Fleet are herein collectively referred to as the
"Lenders" and individually, as a "Lender"); and NATIONSBANK, N.A., a national
banking association, in its capacity as agent for the Lenders (the "Agent");
Witnesseth:
RECITALS
A. The Lenders, the Borrowers and the Agent are parties to that certain
Financing and Security Agreement dated September 26, 1994 (as amended, restated,
supplemented or otherwise modified, the "Credit Agreement"). Under and subject
to the provisions of the Credit Agreement, the Lenders agreed to establish
jointly and severally in favor of the Existing Borrowers (i) a revolving credit
facility in a maximum principal amount not to exceed SIXTY-FIVE MILLION DOLLARS
($65,000,000) (the "Total Revolving Credit Committed Amount"), (ii) a term loan
facility (collectively, the "Term Loans") in an original principal amount not to
exceed FIFTEEN MILLION DOLLARS ($15,000,000) (the "Total Term Loan Committed
Amount") and (iii) a letter of credit facility as part of the Revolving Credit
Facility (the "Letter of Credit Facility") in a maximum principal amount not to
exceed EIGHT MILLION DOLLARS ($8,000,000) (the "Letter of Credit Committed
Amount").
B. Fleet has requested that the Borrowers, the Lenders and the Agent agree
to amend certain terms and conditions of the Credit
<PAGE>
Agreement, and subject to the provisions of this Amendment, the Borrowers, the
Lenders and the Agent have so agreed; provided, that the Lenders, the Borrowers
and the Agent execute and deliver this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers, the Lenders and the Agent hereby agree as follows:
1. The recitals set forth above are true and accurate in each and every
respect and are incorporated herein by reference. All capitalized terms used
herein but not specifically defined herein shall have the respective meanings
given such terms in the Credit Agreement, unless the context indicates or
dictates a contrary meaning.
2. The Credit Agreement is hereby amended as follows:
a. Section 2.1.7 on page 38 of the Credit Agreement is hereby deleted
in its entirety and the following is substituted in its place:
2.1.7 REVOLVING CREDIT UNUSED LINE FEE. The Borrowers shall
jointly and severally pay to the Agent, in arrears, for the ratable
benefit of the Lenders, a quarterly revolving credit unused line fee
(collectively, the "Revolving Credit Unused Line Fees" and
individually, a "Revolving Credit Unused Line Fee") in an amount to be
determined based upon the ratio of Funded Debt to EBITDA for the
rolling four (4) quarter month period covered by the then most recent
financial statements furnished or required to be furnished to the
Agent pursuant to and in the form required by Section 6.1.1(a) and
Section 6.1.1(c). Within three (3) Business Days of the Agent's
receipt of such financial statements in the form required, the Agent
shall calculate the ratio of Funded Debt to EBITDA for the then
rolling four (4) quarter period covered by such financial statements,
and shall notify the Borrowers and the Lenders of the Agent's
determination. If such financial statements are not furnished as and
when required, the Borrowers may not be permitted to select or change
an Interest Rate or an Interest Period. Following, the Agent's
determination of the Funded Debt to EBITDA ratio, the Revolving Credit
Unused Line Fee shall be equal to the per annum "Fee Percentage
Amount" as set forth below multiplied by the difference between (a)
the Total Revolving Credit Committed Amount in effect from time to
time and (b) the sum of (i) the average daily outstanding principal
balance of the Revolving Loan during the then preceding quarterly
period and (ii) the average daily face amount
-2-
<PAGE>
of all Letters of Credit outstanding during such quarterly period:
FUNDED DEBT TO EBITDA RATIO FEE AMOUNT
--------------------------- ----------
Less than 1.0 to 1.0 .125%
Greater than or equal to .15%
1.0 to 1.0, but less than
1.75 to 1.0
Greater than or equal to .18%
1.75 to 1.0, but less than
2.25 to 1.0
Greater than or equal to .22%
2.25 to 1.0, but less than
2.75 to 1.0
Greater than or equal to .25%
2.75 to 1.0, but not more
than 3.0 to 1.0
Greater than or equal to
3.0 to 1.0 .50%
b. Section 8.11 on page 128 of the Credit Agreement is hereby amended
to require that no amendment, modification, change or waiver shall be
effective to increase or decrease the amount of, or extend, any Lender's
Committed Amount, without the prior written consent of all Lenders and the
Agent.
c. The Credit Agreement is hereby amended to require that no
amendment, modification, change or waiver as to Section 6.1.14 (Net Worth),
Section 6.1.15 (Liabilities to Tangible Net Worth Ratio), Section 6.1.16
(Current Ratio), Section 6.1.17 (Fixed Charge Coverage Ratio), Section
6.1.18 (Funded Debt to EBITDA), Section or Section 6.2.7 (Capital
Expenditures) shall be effective without the prior consent of the Required
Lenders and the Agent.
d. The Credit Agreement is hereby amended to require that no waiver of
any Event of Default or Default shall be effective without the prior
consent of the Required Lenders and the Agent.
3. Nothing contained herein shall be interpreted to limit any rights which
the Required Lenders already have under the Credit Agreement.
4. The terms "this Agreement" as used in the Credit Agreement and the terms
"Credit Agreement" as used in any of the Financing Documents shall mean the
Credit Agreement as modified
-3-
<PAGE>
herein unless the context clearly indicates or dictates a contrary meaning.
5. The Borrowers and the Lenders will execute such confirmatory instruments
with respect to the Credit Agreement and/or any of the Financing Documents as
the Agent may reasonably require.
6. This Amendment may not be amended, changed, modified, altered or
terminated without in each instance the prior written consent of the Agent, the
Lenders and the Borrowers. This Amendment shall be construed in accordance with,
and governed by, the laws of the State of Maryland.
7. The Borrowers agree that neither the execution and delivery of this
Amendment nor any of the terms, provisions, covenants, or agreements contained
in this Amendment shall in any manner release, impair, lessen, waive, or
otherwise adversely affect the joint and several liability and obligations of
the Borrowers under the terms of the Credit Agreement.
8. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the Borrowers, the Agent and the Lenders have caused
this Amendment to be executed under seal as of the date first above written.
ATTEST: CHARTER POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title:
ATTEST: C&D CHARTER POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres.
ATTEST: INTERNATIONAL POWER SYSTEMS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres.
-4-
<PAGE>
ATTEST: RATELCO ELECTRONICS, INC.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
ATTEST: C&D/CHARTER HOLDINGS, INC.
/s/ STEPHEN E. MARKERT, JR. By: /s/ ROBERT T. MARLEY (Seal)
Name: Name:
Title: Director Title: Vice President
ATTEST: CHARTER POWER OF CALIFORNIA
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
ATTEST: POWER CONVERTIBLES CORPORATION
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title: Treasurer
ATTEST: PCC DE MEXICO S.A. DE C.V.
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title:
ATTEST: POWER CONVERTIBLES IRELAND LIMITED
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Title:
ATTEST: LH RESEARCH, INCORPORATED
/s/ ROBERT T. MARLEY By:/s/ STEPHEN E. MARKERT, JR.(Seal)
Name: Name:
Title: Treasurer Title: V. Pres
-5-
<PAGE>
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ DEBORAH LLOYD By: /s/PATRICK M. MOORE (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
/s/ DEBORAH LLOYD By: /s/ PATRICK M. MOORE (Seal)
Name: Patrick M. Moore
Title: Vice President
WITNESS: CORESTATES BANK, N.A.
in its capacity as a Lender
/s/ EDMUND GREEN By: /s/ KARL F. SCHULTZ (Seal)
A.V.P. Name:Karl F. Schultz
Title:Vice President
WITNESS: FLEET BANK, NATIONAL ASSOCIATION
(formerly known as NatWest Bank
N.A.) in its capacity as a Lender
_________________________ By: /s/ GARY P. KEARNS (Seal)
Name: Gary P. Kearns
Title: SVP
-6-
<PAGE>
EXHIBIT 11
CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATIONS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Nine months ended
October 31, October 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET INCOME $4,130 $3,896 $10,426 $11,001
====== ====== ======= =======
Weighted average number of common
shares outstanding 6,236 5,955 6,320 5,967
Effect of shares issuable under stock
option plan 123 488 183 457
------ ------ ------ ------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (PRIMARY) 6,359 6,443 6,503 6,424
===== ===== ===== =====
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(PRIMARY) $0.65 $0.60 $1.60 $1.71
===== ===== ===== =====
Weighted average number of common
shares outstanding 6,236 5,955 6,320 5,967
Effect of shares issuable under stock
option plan 127 488 185 461
------ ------ ------ ------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (FULLY
DILUTED) 6,363 6,443 6,505 6,428
===== ===== ===== =====
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(FULLY DILUTED) $0.65 $0.60 $1.60 $1.71
===== ===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
re: Charter Power Systems, Inc. and Subsidiaries
Registration on Forms S-8 (Registration No. 33-31978,
No. 33-71390 and No. 33-86672)
We are aware that our report dated November 26, 1996 on our review of interim
financial information of Charter Power Systems, Inc. and Subsidiaries for the
period ended October 31, 1996 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference in the
registration statements of Charter Power Systems, Inc. and Subsidiaries on Forms
S-8 (Registration No. 33-31978, No. 33-71390 and No. 33-86672). Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be considered a
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 13, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF 10/31/96 AND STATEMENT OF INCOME FOR THE PERIOD
ENDED 10/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 1319
<SECURITIES> 0
<RECEIVABLES> 44382
<ALLOWANCES> 1462
<INVENTORY> 41363
<CURRENT-ASSETS> 92982
<PP&E> 50532
<DEPRECIATION> 0
<TOTAL-ASSETS> 160222
<CURRENT-LIABILITIES> 45460
<BONDS> 32154
0
0
<COMMON> 65
<OTHER-SE> 70346
<TOTAL-LIABILITY-AND-EQUITY> 160222
<SALES> 210753
<TOTAL-REVENUES> 210753
<CGS> 162089
<TOTAL-COSTS> 162089
<OTHER-EXPENSES> 6115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 941
<INCOME-PRETAX> 16073
<INCOME-TAX> 5647
<INCOME-CONTINUING> 10426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10426
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
</TABLE>