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, 2000
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
C&D TECHNOLOGIES, 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:
Title of Class Name of each exchange
-------------- on which registered
COMMON STOCK -----------------------
PAR VALUE, $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on April 14, 2000: $695,285,417
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 14, 2000: 13,064,869 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.)
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TABLE OF CONTENTS
Page
----
PART I
Item 1 Business................................................ 1
Item 2 Properties.............................................. 13
Item 3 Legal Proceedings....................................... 14
Item 4 Submission of Matters to a Vote of
Security Holders...................................... 14
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters....................... 14
Item 6 Selected Financial Data................................. 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 18
Item 7A Quantitative and Qualitative Disclosure
About Market Risk..................................... 26
Item 8 Financial Statements and Supplementary Data............. 27
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 27
PART III
Item 10 Directors and Executive Officers of the Registrant...... 28
Item 11 Executive Compensation.................................. 28
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................. 28
Item 13 Certain Relationships and Related Transactions.......... 28
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 29
SIGNATURES........................................................... 33
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE....... F-1
I
C&D TECHNOLOGIES, INC.
PART I
Item 1. Business
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About Our Company
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C&D Technologies, Inc. (together with its operating subsidiaries, "we",
"our" or "C&D") is a leading North American producer of integrated reserve power
systems for telecommunications, electronic information and industrial
applications. We are also a leading producer of embedded high frequency
switching power supplies. Our power supplies are used in:
o telecommunications equipment;
o advanced office electronic machines, such as copiers; and
o motive power systems for electric industrial vehicles.
Our integrated reserve power systems are comprised of the following:
o industrial lead acid batteries;
o power rectifiers;
o power control equipment;
o power distribution equipment; and
o related accessories.
We sell both individual components and integrated power systems.
In June 1997, we changed our name from Charter Power Systems, Inc. to C&D
Technologies, Inc.
We were 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 our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.
In October 1992, we 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 marketed a nonregulated range of alarm and monitoring equipment for
use with telecommunications power systems.
In March 1994, we 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, office copiers, workstations,
and other applications.
In January 1995, we purchased certain assets and assumed certain
liabilities of 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.
In November 1995 we sold shares of Common Stock in a public offering.
In February 1996, we 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.
In March 1996, we 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, we acquired or
repaid the indebtedness of PCC. In April 1996, we 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. In May 1996, we purchased all remaining shares of PCC common
stock and shares of PCC common stock issuable upon exercise of stock options.
Tucson, Arizona based PCC produced DC to DC converters used in communications,
computer, medical, industrial and instrumentation markets and also produced
battery chargers for cellular phones.
In January 1998, the acquired businesses of the PowerSystems Division of
ITT, the switching power supply division of Basler Electric Company, LH and PCC
were combined into the Power Electronics Division of C&D.
In July 1998 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a Milwaukee,
Wisconsin based designer, manufacturer, marketer and distributor of industrial
batteries. These assets included all of the ordinary shares of Johnson Controls
Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition,
in August 1999, we acquired JCI's 67 percent ownership interest in a joint
venture battery business in Shanghai, China. The joint venture manufactures,
markets and distributes both industrial and starting, lighting and ignition
batteries, the latter for the Chinese market only. For reporting purposes, the
acquisition of the Special Battery Division and JCI's 67 percent ownership
interest in the joint venture battery business in Shanghai, China have
collectively been re-named the Dynasty Division by C&D.
Fiscal Year
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Our fiscal year ends in January. Any references to a fiscal year mean the
12-month period ending January 31 of the year mentioned.
Forward-Looking Statements
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Except for the historical information contained herein, certain of the
statements and information contained in this Form 10-K 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), and accordingly, are
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subject to risks and uncertainties. For such statements the Company claims the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Litigation Act of 1995. The factors that could cause actual
results to differ materially from anticipated results expressed or implied in
any forward-looking statement include those referenced in the forward-looking
statement, following the forward-looking statement, described in the notes to
the Consolidated Financial Statements and other factors discussed in this Form
10-K and the Company's other filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Form 10-K.
The Company undertakes no obligation to publicly disclose any update to any of
these forward-looking statements to reflect events or circumstances occurring
after the date of this Form 10-K.
Reportable Segments
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We have adopted Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the disclosure of segment results. It
requires that segments be determined using the "management approach," which
means the way management organizes the segments within the enterprise for making
operating decisions and assessing performance. In compliance with SFAS No. 131,
we have identified the following four reportable segments:
o Powercom Division
o Dynasty Division
o Motive Power Division
o Power Electronics Division
The financial information regarding our four business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 2000, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.
The Market for Our Products
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We manufacture and market products in the following general categories by
business segment:
o POWERCOM DIVISION - fully integrated reserve power systems
and components for the standby power market, which includes
telecommunications, uninterruptible power supplies ("UPS")
and utilities and control;
o DYNASTY DIVISION - industrial batteries used in UPS
applications for computer systems and corporate data net-
works, telecommunications reserve power systems and broadband
cable television ("CATV") signal powering;
o MOTIVE POWER DIVISION - motive power systems for the material
handling equipment market; and
o POWER ELECTRONICS DIVISION - DC to DC converters and custom,
standard and modified standard embedded high frequency AC to
DC switching power supplies.
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We market our products through independent manufacturer's representatives,
distributors and our own sales personnel.
We sell some products to the U.S. Government. These sales accounted for
less than 5% of our total company sales during each of our last three fiscal
years.
Products and Customers By Business Segment
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Powercom Division - Reserve Power Systems
-----------------------------------------
We are 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. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.
We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:
o flooded batteries and
o valve-regulated (sealed) batteries.
Flooded batteries require periodic watering and maintenance.
Valve-regulated batteries require less maintenance and are often smaller.
To meet the needs of our customers, our reserve power systems include a
wide range of power electronics products consisting principally of power
rectifiers and distribution and monitoring equipment. Our 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, our power control and
distribution equipment distributes the rectified power at the appropriate power
level for each of the applications.
TELECOMMUNICATIONS CUSTOMERS. Our customers use the majority of our standby
power products in telecommunications applications such as central telephone
exchanges, microwave relay stations, private branch exchange ("PBX") systems and
cellular mobile telephone systems. Our major telecommunications customers
include national long distance companies, regional Bell operating companies,
cellular system operators, personal communications services providers, paging
systems and PBX telephone locations using fiber optic cable, microwave
transmission or traditional copper-wired systems.
MODULAR POWER PLANTS. We offer several 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(TM) and the Liberty ACM Series Power
Plant(TM), integrate advanced rectifiers with virtually maintenance-free
valve-regulated batteries.
ROUND CELL BATTERY. One of our historically important telecommunications
products has been the Round Cell reserve power battery, a flooded product which
was originally designed and patented by the
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Bell Laboratories of AT&T for use in AT&T's own facilities and customer
installations. AT&T spun off its equipment manufacturing operations into an
independent company named "Lucent Technologies, Inc.," which began operations on
October 1, 1996. Our 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. Both our Powercom and Power Electronics Divisions sell
products to Lucent Technologies, Inc., which accounted for 10.5% of our
consolidated net sales for the year ended January 31, 2000. No other customer
accounted for more than 10% of our consolidated net sales during fiscal 2000.
UNINTERRUPTIBLE POWER SUPPLIES. We produce batteries for UPS systems, which
provide instant battery backup in the event of primary power loss or
interruption of sensitive equipment, thereby permitting an orderly shutdown of
the equipment or continued operation for a limited period of time until the
primary source comes back on line. Large UPS systems are used principally for
mainframe computers, minicomputers, networks and computer-controlled equipment.
EQUIPMENT FOR ELECTRIC UTILITIES AND INDUSTRIAL CONTROL APPLICATIONS. We
produce 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 provide auxiliary power that enables
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.
Dynasty Division - Reserve Power Batteries
------------------------------------------
Through our Dynasty Division we design, manufacture and distribute
valve-regulated (sealed) batteries for use in reserve power systems for a wide
variety of end use markets. Our product range focuses on batteries that provide
less than 200 ampere hours. These products are sold primarily to customers in
the UPS, telecommunications and cable markets. Major applications of these
products include wireless and wireline telephone infrastructure, CATV signal
powering, corporate data center powering and computer network backup for use
during power utility outages. Our customers include industry-leading original
equipment manufacturers ("OEMs") serving the UPS, broadband and
telecommunications markets.
UNINTERRUPTIBLE POWER SUPPLIES. Similar to our Powercom Division, the
Dynasty Division produces batteries for UPS systems, which provide instant
battery backup in the event of primary power loss or interruption of sensitive
equipment, thereby permitting an orderly shutdown of the equipment or continued
operation for a limited period of time until the primary source comes back on
line. Our Dynasty(R) High Rate Series batteries have been engineered
specifically for UPS applications and deliver extended life while complying with
rigorous industry standards. As a critical component to overall power backup
solutions, our Dynasty Division has worked closely with major global UPS OEMs to
design a cost effective, reliable product to meet customer expectations.
CATV SIGNAL POWERING AND BROADBAND. Dynasty(R) Broadband Series batteries
are designed for demanding standby float applications in abusive environments.
The Broadband Series batteries have been designed to offer the best combination
of run time and service life for CATV signal powering and broadband
applications. Our gelled electrolyte technology provides excellent heat transfer
properties which enable these batteries to perform in high temperature
environments. Unlike other competitive gel technologies, the Broadband Series
does not require cycling to meet electrical performance. Our Dynasty(R)
Broadband Series of batteries is considered the market leader for CATV powering
in North America.
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TELECOMMUNICATIONS. Our Long Duration Series batteries are designed to meet
the demanding requirements of telecommunications applications. These batteries
operate in a wide variety of environmental conditions, meet prolonged run time
needs so as to maintain operations during power loss and protect sophisticated
electronics equipment.
Motive Power Division - Motive Power Systems
--------------------------------------------
Our customers use the majority of our motive power products to provide the
primary power for material handling vehicles. A significant portion of our
motive power sales include products and systems to recharge motive power
batteries.
We produce complete systems and individual components (including power
electronics and batteries) to monitor, charge and test the batteries used in
powering electric industrial vehicles, including fork-lift trucks, automated
guided vehicles and airline ground support equipment. Our customers include end
users in a broad array of industries, dealers of material handling equipment
and, to a lesser extent, OEMs.
We offer a broad line of motive power equipment including the C-Line(TM),
which we believe is the industry standard for long life and the V-Line(TM) for
general material handling applications. We also offer a broad line of battery
charging equipment.
Power Electronics Division - DC to DC Converters and Power Supplies
-------------------------------------------------------------------
Through our Power Electronics Division we design, manufacture and
distribute custom, standard and modified standard electronic power supply
systems built for large OEMs of telecommunications equipment, office products,
computers and workstations. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division.
We sell the majority of our power supply products to 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.
Our power supplies incorporate advanced technology and are designed for
dependable operation of the host equipment. Our power supply products include DC
to DC converters, AC to DC power supplies and high voltage power supplies for
use in a large number of industrial applications, with outputs ranging from
several watts to several kilowatts. 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. 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.
In the telecommunications industry, our power supplies are broadly used in
voice and data telecommunications. We also produce power supplies for office
copiers, workstations and other applications.
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Sales, Installation and Servicing
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The sales, installation and servicing of our Powercom and Motive Power
products are performed through several networks of independent manufacturer's
representatives located throughout the United States and Canada. Most of our
independent manufacturer's representatives operate under contracts providing for
compensation on a commission basis or as a distributor with product purchases
for independent resale. Dynasty and Power Electronics products are sold via a
network of independent manufacturer's representatives as well as independent
distributors located thoughout the United States.
In addition to these networks of independent manufacturer's representatives
and distributors, we employ internal sales management 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 long-term relationships with large end users, OEMs and
national accounts. We also employ a separate sales force that works with the
independent manufacturer's representative network and certain large customers.
We have internal divisional marketing departments in each of our divisions.
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.
We maintain branch sales and service facilities in the United States,
Canada, Europe and Asia, with the support of our headquarters and service
personnel, and have relationships with sales representatives or distributors
throughout the world.
We typically sell our products upon terms requiring payment in full within
30 to 60 days. We warrant our products to perform as rated for specified periods
of time, ranging from one to 20 years depending on the type of product and its
application, in an amount that decreases over the life of the product. The
longest warranties generally are applicable to standby power batteries sold by
our Powercom Division.
Backlog
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The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders and, taking into
account considerations of manufacturing capacity and flexibility, the speed with
which we fill those orders. Accordingly, our backlog at any particular date only
indicates expected shipments in the near future. Period-to-period comparisons
may not be meaningful. Orders for certain of our products may be canceled by the
customer prior to shipment.
Our order backlog at March 31, 2000 was $145,998,000 and at March 31, 1999
was $75,508,000. The backlog as of March 31, 1999 does not include backlog
associated with the recently acquired 67 percent ownership interest in the
battery business based in Shanghai, China. We expect to fill virtually all of
the March 31, 2000 backlog during fiscal 2001.
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Manufacturing and Raw Materials
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We manufacture our products at eight domestic plants and also have one
plant each in Mexico, Ireland, and China. We manufacture most key product lines
at a single focused plant in order to optimize manufacturing efficiency, asset
management and quality control.
EXPANSION AND CONSOLIDATION. We are continuing the process of capacity
expansion at several of our plants. During fiscal 2000 we closed our Costa Mesa,
California and Agua Prieta, Mexico facilities. Production previously performed
at these facilities was primarily transferred to our Nogales, Mexico facility.
When we acquired the PowerSystems Division of ITT in fiscal 1995, we
entered into an agreement pursuant to which a third party "shelter company"
provided to us the Nogales, Mexico facility and employed Mexican staff and labor
to assemble our products. This agreement was terminated during fiscal 1998.
The principal raw materials used in the manufacture of our products include
lead, steel, copper, plastics and electronic components, all of which are
generally available from multiple suppliers. Other than the required use of one
supplier of lead and one supplier of lead oxide for the production of Round Cell
batteries for Lucent Technologies, Inc., we use a number of suppliers to satisfy
our raw materials needs.
ISO 9001 RECOGNITION. During fiscal 2000 we continued our program of ISO
recognition, which assures customers that our internal processes and systems
meet internationally recognized standards. We are ISO 9001 certified at our Blue
Bell, Pennsylvania Headquarters; Conshohocken, Pennsylvania R&D Battery
Laboratories; Conyers, Georgia; Leola, Pennsylvania and Dunlap, Tennessee
plants. Our Milwaukee, Wisconsin; Shanghai, China; Tucson, Arizona; Nogales,
Mexico and Shannon, Ireland facilities are also ISO 9001 certified.
Competition
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Our products compete on the basis of:
o our reputation;
o product quality and reliability;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and we value our relationships with our
customers. In addition, we believe that we have certain competitive advantages
in specific product lines.
We are a producer of integrated reserve power systems and power electronics
equipment with manufacturing facilities located in the United States, Mexico,
Ireland and China. We believe that we are one of the four largest producers of
reserve power systems in North America. In motive power, we believe that one
competitor, Yuasa, Inc., has a significantly larger market share than we have.
Our company, along with two other manufacturers, occupies a second tier of the
motive power market in which we have a significantly larger market share than
our smaller competitors.
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For both reserve and motive power systems, we believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.
In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both. In motive power, all our major
competitors supply integrated power systems, but only our company and one
competitor manufacture both electronics and batteries.
With respect to power supplies, we believe that we are among a small group
of large competitors in this fragmented industry.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
Research and Development
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We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
o production engineering (including quality testing and
managing the expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in North America and Europe feature
advanced computer-aided design and testing equipment. Technology and engineering
personnel coordinate all activities closely with operations, sales and marketing
in order to better meet the needs of customers. We continue to develop new
products in all of our businesses. During fiscal 2000, our Power Electronics
Division successfully marketed the VKP Series(TM) and VSX Series(TM) of products
to meet the unique requirements of sophisticated customers.
International Operations
- ------------------------
In addition to our domestic manufacturing facilities, we have international
manufacturing facilities in Mexico, Ireland and China. Products produced by our
domestic, Mexican and Irish facilities are primarily shipped to the United
States, and to a lesser extent, to Canada and Europe. Our joint venture facility
in Shanghai, China manufactures industrial batteries that are sold primarily in
China and Europe. International sales accounted for 16.7%, 11.7% and 11.6% of
net sales for the years ended January 31, 2000, 1999 and 1998, respectively.
Additional financial information regarding our international sales is provided
in Note 15 to the Consolidated Financial Statements. See Part II, Item 8.
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Patents and Trademarks
- ----------------------
Our policy is to apply for patents on new inventions and designs and
actively pursue pending and future patent applications. We believe that the
growth of our business will depend primarily upon the quality of our products
and our relationships with our customers, rather than the extent of our patent
protection. While we believe that patents are important to our business
operations, the loss of any single or several patents would not have a material
adverse effect on our company.
We regard our trademarks C&D(R), C&D TECHNOLOGIES(R), C&D POWERCOM(R),
LIBERTY(R), LIBERTY SERIES(R) and DYNASTY(R) as being of substantial value in
the marketing of our products and have registered these trademarks in the United
States Patent and Trademark Office. Our registered trademarks also include
COMPUCHARGE(R), FERRO FIVE(R), GUARDIAN(R), GUARDSMAN(R), RANGER(R),
RANGERNET(R) and SCOUT(R).
Employees
- ---------
On March 31, 2000 we had approximately 3,400 employees. Of these employees,
approximately 2,800 were employed in manufacturing and almost 600 were employed
in field sales, technical, manufacturing support, sales support, marketing and
administrative activities.
Our management considers our employee relations to be satisfactory.
Employees in three domestic plants are represented by three different unions
under collective bargaining agreements.
Environmental Regulation
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Our operations are subject to extensive and evolving environmental laws and
regulations regarding the clean-up and protection of the environment, worker
health and safety and the protection of third parties. These laws and
regulations include, but are not limited to, the following:
o requirements relating to the handling, storage, use and
disposal of lead and other hazardous materials used in
manufacturing processes and solid wastes;
o record keeping and periodic reporting to governmental
entities regarding the use of hazardous substances and
disposal of hazardous wastes;
o monitoring and permitting of air and water emissions; and
o monitoring and protecting workers from unpermitted exposure
to hazardous substances, including lead used in our
manufacturing processes.
We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental vice-president and
staffed with trained environmental professionals. As part of our program, we:
o prepare written environmental and health and safety practice
manuals;
o conduct employee training seminars;
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o undertake periodic internal and external audits of our
operations and environmental and health and safety programs;
o practice and engage in routine sampling and monitoring of
employee chemical and physical exposure levels; and
o engage in sampling and monitoring of potential points of
environmental emissions.
In addition, we also have installed certain pollution abatement equipment
to reduce emissions of regulated pollutants into the environment. Our program
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. We have instituted a spent product recapture and
recycling program for our facilities and our customers.
While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are 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 we receive a notice of a non-compliance, we immediately take
action to achieve compliance and work with the authorities to resolve
satisfactorily the issues raised. The associated costs have not had a material
effect on our business, financial condition or results of operations.
Notwithstanding our 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 our
business (or that of our predecessors to the extent we are not indemnified
therefor), we 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 our business, financial condition or results of operations.
In view of the potential financial effect such environmental liabilities
could have, when we acquired the assets of our predecessor from Allied in
January 1986, we secured an obligation from Allied to indemnify us 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
our potential liabilities at those third party owned or operated sites with
respect to which we have been named as a potentially responsible party by the
United States Environmental Protection Agency ("EPA") or state environmental
agencies under the federal Superfund law or comparable state environmental laws.
In March 1999 we received notification of our potential involvement at an
additional site which occurred after the acquisition from Allied.
With respect to the four sites not covered by the Allied indemnity and the
site which occurred after the acquisition, based upon the most currently
available information, we believe that our share of liability at these sites
will not have a material adverse effect on our business, financial condition or
results of operations. Moreover, we accrue reserves for environmental
liabilities in our consolidated financial statements and periodically reevaluate
the reserved amounts for these liabilities in view of the most current
information available.
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We are also aware of the existence of potential contamination at two of our
properties which may require expenditures for further investigation and
remediation. At our Huguenot, New York facility, fluoride contamination in an
inactive lagoon exceeding the state's groundwater standards, which existed prior
to our 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.
Our Conyers, Georgia facility is 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 storm water runoff, has been
excavated and disposed of. 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
full remediation report was submitted to the state on February 22, 1999.
Additional information was requested and submitted to the state in March 2000.
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.
Together with JCI, we are conducting an assessment and remediation of
contamination at our Milwaukee, Wisconsin facility, which we purchased as part
of our acquisition of the Speciality Battery Division from JCI. The majority of
this project is expected to be completed by the end of fiscal 2001. Under the
purchase agreement with JCI, we are responsible for (i) one-half of the cost of
the on-site assessment and remediation, with a cap of $1,750,000, (ii) any
environmental liabilities at the facility which are not remediated as part of
the current project and (iii) environmental liabilities for claims made after
the fifth anniversary of the closing that arise from migration from a
pre-closing condition at the facility to locations other than the facility, but
specifically excluding liabilities relating to pre-closing offsite disposal. JCI
has retained all other environmental liabilities, including off-site assessment
and remediation.
We have received notification from the EPA of alleged violations of permit
effluent and pretreatment discharge limits at our plant in Attica, Indiana. We
have submitted a compliance plan to the EPA. A penalty assessment could be made,
however detailed information necessary to estimate any potential liability has
not been determined.
With respect to each of the properties described in the preceding four
paragraphs, we have accrued a reserve in our consolidated financial statements
for our estimate of the potential costs and liabilities associated with the
potential contamination. The costs and potential liabilities for these matters,
in our opinion, are not likely to affect materially our business, financial
condition or results of operations.
We are taking steps to apply for ISO 14001 certification at our Blue Bell,
Pennsylvania headquarters, certain associated departments located in
Conshohocken, Pennsylvania and our Conyers, Georgia manufacturing facility. ISO
14001 is a voluntary, international standard which is intended to provide
organizations with the elements of an effective environmental management system
which can be integrated with other management requirements to assist the
achievement of other environmental and economic goals.
12
Item 2. Properties
- -------------------
Set forth below is certain information, as of April 4, 2000, with respect
to our principal properties.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties:
- -------------------------
Milwaukee, Wisconsin (1).................. 302,000 Small standby power batteries, headquarters
of Dynasty Division
Attica, Indiana (1)....................... 235,000 Large standby power batteries
Leola, Pennsylvania (1)................... 187,000 Large standby power batteries
Conyers, Georgia (1)...................... 161,000 Small standby power batteries
Huguenot, New York (1).................... 148,000 Motive power batteries and large standby
power batteries
Conshohocken, Pennsylvania (1)............ 136,000 Metal trays, metal racks and cabinets,
battery R&D laboratories, distribution center
Dunlap, Tennessee (2)..................... 72,000 Motive power and standby power electronics
products, cabinets and metal racks
Tucson, Arizona (3)....................... 57,000 DC to DC converters, power supplies,
headquarters of Power Electronics Division
and electronics R&D laboratories
Blue Bell, Pennsylvania (3)............... 39,000 World headquarters, Powercom and Motive
Power divisional headquarters
International Properties:
- -------------------------
Shanghai, China (4)...................... 314,000 Small standby power batteries
Nogales, Sonora, Mexico (3)............... 83,000 DC to DC converters and power supplies
Romsey, Hampshire, United Kingdom (3)..... 21,000 Distribution center
Mississauga, Ontario, Canada (3).......... 20,000 Canadian branch headquarters, sales office
and distribution center
Shannon, Ireland (3)..................... 19,000 DC to DC converters and electronics
R&D laboratory
(1) Property is owned by C&D.
(2) The lease of the Dunlap property terminates in January 2004. We have an
option to purchase the Dunlap property for $1,160,000 during the lease
term.
(3) Property is leased by C&D.
(4) Building is owned by the joint venture; however, the land is leased under a
50 year agreement, of which 45 years remain.
13
Item 3. Legal Proceedings
- --------------------------
We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material to our financial condition or results of operations in any year. See
"Business - Environmental Regulation" for a description of certain
administrative proceedings in which we are involved. In addition, a former
customer has filed a lawsuit against C&D alleging that we breached a contract
and is seeking damages, costs, interest and attorney fees. We have not yet filed
our answer or conducted any discovery; accordingly, we are unable to determine
our liability, if any.
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
- ------------------------------------------------------------------------------
Our Common Stock is traded on The New York Stock Exchange under the symbol
CHP. The approximate number of beneficial and registered record holders of our
Common Stock on April 14, 2000 was 3,300.
The following table sets forth, for the periods indicated, the high and low
sales prices for our Common Stock as reported by the New York Stock Exchange.
These prices represent actual transactions, but do not reflect adjustment for
retail markups, markdowns or commissions.
Year Ended
------------------
January 31, 2000 January 31, 1999
---------------- ----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter............ $26 5/8 $20 3/16 $28 7/16 $23 15/32
Second Quarter........... 31 25 3/4 29 7/16 25 3/8
Third Quarter............ 38 3/4 30 1/8 27 1/8 19 7/8
Fourth Quarter........... 42 3/4 31 3/8 32 3/8 21 3/4
14
DIVIDENDS. We began paying quarterly cash dividends on our Common Stock in
April 1987. For the years ended January 31, 2000 and 1999 we declared quarterly
dividends per share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2000 $0.02750 $0.02750 $0.02750 $0.02750
1999* $0.01375 $0.01375 $0.02750 $0.02750
* Adjusted to reflect C&D's July 24, 1998 two-for-one stock split, effected
in the form of a 100% stock dividend, where appropriate.
Our bank loan agreement permits quarterly dividends to be paid on our
Common Stock so long as there is no default under that agreement. Subject to
that restriction and the provisions of Delaware law, our Board of Directors
currently intends to continue paying quarterly dividends. We cannot assure you
that we will continue to do so since future dividends will depend on our
earnings, financial condition and other factors.
On February 22, 2000, the Board of Directors of C&D declared a dividend of
one common stock purchase right (a "Right") for each share of Common Stock,
outstanding on March 3, 2000 to the stockholders of record on that date. Upon
the occurrence of certain events, each Right will entitle the registered holder
to purchase from C&D one one-hundredth of a share of Common Stock at a price of
$300 per one one-hundredth of a share, subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement between C&D and
ChaseMellon Shareholder Services, L.L.C., as rights agent. A summary of the
Rights Agreement is included in C&D's Form 8-K Current Report filed with the
Securities and Exchange Commission on February 28, 2000, which is incorporated
by reference into this Form 10-K.
15
Item 6. Selected Financial Data
- --------------------------------
The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements, which appear in Items 7 and 14 of this Form 10-K.
Fiscal Year
(IN THOUSANDS, EXCEPT SHARE AND --------------------------------------------------------------
PER SHARE DATA)
2000(1) 1999 1998 1997(2) 1996
--------- ------ ------ --------- ------
Statement of Income Data:
- -------------------------
Net sales............................... $465,570 $313,966 $308,054 $286,907 $242,422
Cost of sales........................... 341,190 227,796 226,880 219,819 185,808
------- ------- ------- ------- -------
Gross profit.......................... 124,380 86,170 81,174 67,088 56,614
Selling, general and
administrative expenses............... 59,315 40,344 39,333 34,499 27,781
Research and development
expenses.............................. 8,941 8,255 8,610 8,143 6,196
------- ------- ------- ------- -------
Operating income........................ 56,124 37,571 33,231 24,446 22,637
Interest expense, net................... 7,946 126 1,129 1,396 1,063
Other (income) expense, net............. (20) 211 1,058 (8) 423
------- ------- ------- ------- -------
Income before income taxes and
minority interest..................... 48,198 37,234 31,044 23,058 21,151
Provision for income taxes.............. 17,737 13,154 11,359 8,121 7,107
------- ------- ------- ------- -------
Net income before minority interest..... 30,461 24,080 19,685 14,937 14,044
Minority interest....................... 619 - - - -
------- ------- ------- ------- -------
Net income.............................. $ 29,842 $ 24,080 $ 19,685 $ 14,937 $ 14,044
======= ======= ======= ======= =======
Net income per common share (3)*........ $ 2.34 $ 1.95 $ 1.61 $ 1.19 $ 1.16
======= ======= ======= ======= =======
Net income per common share -
assuming dilution (4)*................ $ 2.29 $ 1.88 $ 1.56 $ 1.16 $ 1.09
======= ======= ======= ======= =======
Dividends per common share*............. $ .11 $ .08 $ .06 $ .06 $ .06
======= ======= ======= ======= =======
Balance Sheet Data:
Working capital......................... $ 65,079 $ 63,688 $ 47,342 $ 45,436 $ 50,302
Total assets............................ 354,115 185,642 166,498 159,973 130,827
Short-term debt......................... 20,393 532 321 476 200
Long-term debt.......................... 76,459 1,750 10,267 29,351 15,417
Stockholders' equity.................... 162,066 123,538 97,305 74,906 68,926
- ----------
* Per share amounts have been adjusted to reflect C&D's July 24, 1998
two-for-one stock split, effected in the form of a 100% stock dividend,
where appropriate.
(footnotes begin on the following page)
16
(1) Effective March 1, 1999, the Company acquired substantially all of the
assets of the Specialty Battery Division of JCI including, without limitation,
certain assets of Johnson Controls Technology Company, a wholly owned subsidiary
of JCI, and 100% of the ordinary shares of Johnson Controls Battery (U.K.)
Limited, an indirect wholly owned subsidiary of JCI. In addition, the Company
assumed certain liabilities of the seller. The Specialty Battery Division was
engaged in the business of designing, manufacturing, marketing and distributing
industrial batteries. The Company has continued using the assets acquired in
such business. On August 2, 1999 the Company completed the acquisition of JCI's
67 percent ownership interest in a joint venture battery business in Shanghai,
China. The joint venture manufactures, markets and distributes both industrial
and starting, lighting and ignition batteries, the latter products for the
Chinese market only. The Company has continued the joint venture operations in
such business. For reporting purposes, the acquisition of the Specialty Battery
Division and JCI's 67 percent ownership interest of the joint venture battery
business in Shanghai, China have collectively been re-named the Dynasty Division
by C&D. See notes to consolidated financial statements.
(2) In February 1996, we acquired substantially all the assets of LH, a
producer and marketer of standard power supply systems for the electronics
industry. Effective March 12, 1996, we 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, we acquired or repaid the
indebtedness of PCC. In April 1996, we 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. In May 1996, we purchased all remaining shares of PCC common stock
and shares of PCC common stock issuable upon exercise of stock options. PCC
produced DC to DC converters used in communications, computer, medical,
industrial and instrumentation markets and also produced battery chargers for
cellular phones.
(3) Based on 12,764,889, 12,365,183, 12,221,370, 12,517,108 and 12,078,904
weighted average shares outstanding (as adjusted for the Company's July 24, 1998
two-for-one stock split effected in the form of a 100% stock dividend, where
appropriate), for fiscal 2000, 1999, 1998, 1997 and 1996, respectively.
(4) Based on 13,044,201, 12,835,862, 12,631,824, 12,878,330 and 12,902,578
weighted average shares outstanding (as adjusted for the Company's July 24, 1998
two-for-one stock split effected in the form of a 100% stock dividend, where
appropriate), and the effect of shares issuable under stock options based on the
treasury stock method for fiscal 2000, 1999, 1998, 1997 and 1996, respectively.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
ALL DOLLAR AMOUNTS IN THIS ITEM 7 ARE IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND PER POUND LEAD AMOUNTS.
Impact of Economy and Shift in Customer Demand
- ----------------------------------------------
During fiscal 2000, primarily due to continued improved domestic economic
conditions, there was a higher demand for our standby power products sold by the
Powercom Division.
Raw Material Pricing and Productivity
- -------------------------------------
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 2000, 1999 and 1998, the average North American producer
price of lead was $.45, $.47 and $.48 per pound, respectively.
We have a long-term cost containment program to maximize manufacturing
efficiency. Under the program, we continue to allocate a significant amount of
our normal annual capital expenditures to cost containment and productivity
improvement projects.
Inflation
- ---------
The cost to us of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our 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. We believe that, over recent
years, we have been able to offset inflationary cost increases by:
o effective raw materials purchasing programs;
o price increases of our products;
o increases in labor productivity; and
o improvements in overall manufacturing efficiencies.
18
Results of Operations
- ---------------------
The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
------------------------------
2000 1999 1998
---- ---- ----
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 73.3 72.6 73.6
----- ----- -----
Gross profit....................................... 26.7 27.4 26.4
Selling, general and administrative expenses......... 12.8 12.8 12.8
Research and development expenses.................... 1.9 2.6 2.8
----- ----- -----
Operating income................................... 12.0 12.0 10.8
Interest expense, net................................ 1.7 - 0.4
Other expense, net................................... - 0.1 0.3
----- ----- -----
Income before income taxes and minority interest... 10.3 11.9 10.1
Provision for income taxes........................... 3.8 4.2 3.7
----- ----- -----
Net income before minority interest................ 6.5 7.7 6.4
Minority interest.................................... 0.1 - -
----- ----- -----
Net income......................................... 6.4% 7.7% 6.4%
===== ===== =====
Fiscal 2000 Compared to Fiscal 1999
- -----------------------------------
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
Effective March 1, 1999, C&D purchased substantially all of the assets of
the Specialty Battery Division of JCI, a designer, manufacturer, marketer and
distributor of industrial batteries based in Milwaukee, Wisconsin. These assets
included certain assets of Johnson Controls Technology Company, a wholly owned
subsidiary of JCI and all of the ordinary shares of Johnson Controls Battery
(U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition, on
August 2, 1999 we completed the acquisition of JCI's 67 percent ownership
interest of a joint venture battery business in Shanghai, China. The joint
venture manufactures, markets and distributes both industrial and starting,
lighting and ignition batteries, the latter for the Chinese market only. For
reporting purposes, the acquisition of the Specialty Battery Division and JCI's
67 percent ownership interest in the joint venture battery business in Shanghai,
China have collectively been re-named the Dynasty Division by C&D.
19
Net sales for fiscal 2000 increased $151,604 or 48 percent to $465,570 from
$313,966 in fiscal 1999. This increase was primarily due to sales of $109,753
recorded by the Dynasty Division (including the sales of the joint venture in
China), coupled with higher sales by the Powercom and Motive Power Divisions,
partially offset by lower Power Electronics divisional sales. Sales by the
Powercom Division increased $43,826 or 25 percent over the prior year primarily
due to higher sales to the telecommunications market. Motive Power divisional
sales increased $3,628 or five percent over fiscal 1999 mainly as a result of
higher sales of motive power chargers. Fiscal 2000 sales by the Power
Electronics Division decreased $5,603 or eight percent versus the prior year
primarily due to lower sales of custom power supplies and cellular phone battery
chargers, partially offset by higher DC to DC converter sales.
Gross profit for fiscal 2000 increased $38,210 or 44 percent to $124,380
from $86,170 in the prior year. The increase in gross profit during fiscal 2000
was primarily due to the gross profit generated by the Dynasty Division
(including gross profits of the joint venture in China), as well as increased
gross profits related to the higher sales volumes provided by the Powercom
Division, partially offset by lower gross profits from the Power Electronics
Division. Motive Power gross profit in fiscal 2000 increased slightly over the
prior year. The decrease in the gross profit of the Power Electronics Division
during fiscal 2000 versus the prior year was mainly due to: (i) lower sales
volumes; (ii) a $2,000 inventory charge for slow moving inventory; and (iii)
$376 related to a restructuring charge. This restructuring charge, which
occurred during the first quarter of fiscal 2000, consisted of a $1,627 pre-tax
charge (or $.08 per share after-tax), primarily related to the restructuring of
the Power Electronics Division (see "Restructuring Charge" below). The
restructuring charge included $376 related to inventory obsolescence that was
charged to cost of sales. The balance of the restructuring charge, or $1,251 was
charged to selling, general and administrative expenses.
Selling, general and administrative expenses for fiscal 2000 increased
$18,971 or 47 percent over the prior year. This increase was primarily due to
higher expenses (including amortization of goodwill and intangible assets)
related to the acquisition of the Dynasty Division and the aforementioned $1,251
restructuring charge. Also contributing to this increase was higher Motive Power
divisional fixed selling expenses due to warranty and sales branch expenses
coupled with higher selling expenses of the Powercom Division related to
increased sales volumes during fiscal 2000. These increases were partially
offset by lower selling expenses of the Power Electronics Division during fiscal
2000 compared to the prior year.
Research and development expenses increased $686 in fiscal 2000 over the
prior year, primarily as a result of costs incurred by the recently acquired
Dynasty Division and higher research and development expenses related to the
Powercom and Motive Power Divisions. These increases were partially offset by
lower research and development expense incurred by the Power Electronics
Division during fiscal 2000 versus the prior year.
Operating income increased $18,553 or 49 percent to $56,124 from $37,571 in
the prior year (after the aforementioned $1,627 restructuring charge and $2,000
inventory charge for slow moving inventory). This increase was primarily the
result of operating income generated by the Dynasty Division (including
operating income of the joint venture in China) of $19,222, coupled with higher
Powercom divisional operating income of $9,865, partially offset by lower Motive
Power operating income of $2,275 and an operating loss in the Power Electronics
Division, compared to operating income in the prior year.
20
Interest expense, net, increased $7,820 in fiscal 2000 compared to the
prior year primarily due to higher debt balances outstanding used to finance the
current year acquisition of the Dynasty Division.
Other income, net, for fiscal 2000 was $20 versus other expense, net, of
$211 in fiscal 1999 mainly as a result of higher prompt payment discounts and
non-operating income in fiscal 2000, partially offset by higher foreign exchange
and financial services expenses.
Income tax expense for fiscal 2000 increased $4,583 from fiscal 1999,
primarily as a result of higher income before income taxes and an increase in
the effective tax rate. The effective tax rate consists of statutory rates
adjusted for the tax impacts of our foreign sales corporation, research and
development credits, and foreign operations. The effective tax rate for fiscal
2000 increased to 36.8 percent from 35.3 percent in the prior year mainly due to
less tax benefits associated with our foreign operations, research and
development tax credit and foreign sales corporation.
Minority interest of $619 in fiscal 2000 reflects the 33 percent ownership
of the joint venture battery business located in Shanghai, China that is not
owned by C&D.
As a result of the above, for fiscal 2000, net income increased $5,762 or
24 percent to $29,842 or $2.34 per common share - basic and $2.29 per common
share - assuming dilution.
21
Restructuring Charge
- --------------------
During the first quarter of fiscal 2000, we recorded a pre-tax charge of
$1,627, or $.08 per share after tax, primarily relating to the restructuring of
the Power Electronics Division. $1,251 of this pre-tax charge is included in
selling, general and administrative expenses with the remaining $376 included in
cost of sales in the accompanying consolidated statement of income for the year
ended January 31, 2000. The primary purpose of the restructuring was to improve
the profitability of our Power Electronics Division by reducing labor costs,
overhead and improving logistics management. As a result, we expect the
restructuring to result in lower operating costs estimated to yield annual
savings of approximately $1,000. We began to realize these operational savings
during the fourth quarter of fiscal 2000. The restructuring charge consisted of
estimated costs to close our Costa Mesa, California power supply production
facility as well as contractual severance liabilities associated with the
non-renewal of the employment contracts of two of our former officers. With
respect to the closing of the Costa Mesa, California production facility, we
implemented a restructuring plan that consisted of transferring production
primarily to our existing facility in Nogales, Mexico. Major actions of the
restructuring plan consisted of: (i) disposition of inventory; (ii) write-off of
impaired property, plant and equipment that was not transferred to other
facilities; and (iii) termination of the Power Electronics' Costa Mesa,
California work force. Details of the restructuring charge are as follows:
Balance at
Cash Non-Cash January 31,
Provision Reductions Activity 2000
--------- ---------- -------- ----
Write-off of inventory... $ 376 - $ (376) -
Write-down of property,
plant and equipment.... 355 - (355) -
Employee severance....... 741 $ (485) - $ 256
Other.................... 155 (155) - -
----- ----- ----- -----
Total.................... $1,627 $ (640) $ (731) $ 256
===== ===== ===== =====
The $376 inventory write-off was determined based upon identification of
inventory associated with discontinued products. This inventory was disposed of
during the second quarter of fiscal 2000. The $355 write-down of impaired
property, plant and equipment was determined based upon the estimated cost to
completely write-down the net book value of assets not transferred to other
facilities. We completed the disposition of the impaired property, plant and
equipment during the third quarter of fiscal 2000. Employee severance of $741
was charged to selling, general and administrative expenses and provided for a
reduction of approximately 50 employees, consisting of production and
administrative employees related to the Power Electronics' Costa Mesa,
California facility, and two former officers of C&D. All employee terminations
were completed by the end of the third quarter of fiscal 2000, with payments
being made in accordance with contractual agreements through fiscal 2001.
22
Fiscal 1999 Compared to Fiscal 1998
- -----------------------------------
Net sales for fiscal 1999 increased $5,912 or two percent to $313,966 from
$308,054 in fiscal 1998. This was a result of an increase in sales by the
Powercom and Motive Power Divisions, up nine percent and four percent,
respectively, partially offset by a 13 percent decrease in sales by the Power
Electronics Division. The increase in Powercom divisional sales was primarily
due to higher sales to the telecommunications and control markets in fiscal 1999
versus the prior year. Power Electronics divisional sales were lower in fiscal
1999 compared to fiscal 1998 due to lower power conversion sales to both the
telecommunications and non-telecommunications markets. Power Electronics
telecommunications sales were lower in fiscal 1999 due to lower sales of
cellular phone battery chargers. On a company-wide basis,
telecommunications-related sales were approximately 50 percent of total C&D
sales during fiscal 1999 versus 49 percent in fiscal 1998.
Gross profit for fiscal 1999 increased $4,996 or six percent to $86,170
from $81,174 in the prior year, resulting in a gross margin of 27.4 percent
versus 26.4 percent in the prior fiscal year. Gross margin increased as a result
of improved gross margin in the Powercom Division due to lower material costs
and improved operating efficiencies, as well as improved Motive Power divisional
gross margin related to lower material costs. Power Electronics divisional gross
margin decreased in fiscal 1999 versus the prior year primarily as a result of
lower sales volumes.
Selling, general and administrative expenses for fiscal 1999 increased
$1,011 or three percent over the prior year due to higher selling expenses,
partially offset by lower general and administrative expenses. Selling expenses
increased in fiscal 1999 over fiscal 1998 due to higher commission expenses and
higher payroll and new Motive Power divisional sales branch location related
costs. General and administrative expenses were lower in fiscal 1999 compared to
the prior year due to the absence in fiscal 1999 of costs related to the
accelerated write-off of goodwill and intangible assets associated with LH (due
to impairment) that occurred in fiscal 1998, lower costs associated with the
resolution of legal disputes and lower consulting costs. During fiscal 1998 we
determined that there was an impairment of certain assets arising from the LH
acquisition based on the undiscounted net cash flows of the underlying assets.
An impairment loss of $1,185 was recorded for the write-off of goodwill in the
amount of $588 and intangible assets in the amount of $567 which were determined
to have a fair value of zero. The write-off did not include any tangible assets.
Research and development expenses remained proportional to sales as a
relative percentage for both fiscal 1999 and 1998 at approximately three percent
of sales.
Operating income increased $4,340 to $37,571 in fiscal 1999 compared to
$33,231 in fiscal 1998 as a result of higher Powercom divisional operating
income, flat Motive Power divisional operating income and lower Power
Electronics divisional operating income. During the fourth quarter of fiscal
1999, our Power Electronics Division incurred an operating loss.
Interest expense, net, decreased to $126 in fiscal 1999 from $1,129 in
fiscal 1998 primarily due to lower outstanding debt balances during fiscal 1999.
Other expense, net, decreased $847 from fiscal 1998 to fiscal 1999
primarily due to the absence in the current year of amortization expense
associated with the write-off of capitalized debt acquisition costs in the
amount of $434 related both to our credit facility and the Development Authority
of Rockdale
23
County Industrial Revenue Bonds which were written-off due to the renegotiation
of our credit facility and the early payment of the Development Authority of
Rockdale County Industrial Revenue Bonds, respectively. Also contributing to
this decrease was higher prompt payment discounts in fiscal 1999 versus the
prior year and a lower foreign exchange loss in fiscal 1999 compared to fiscal
1998.
Income tax expense increased $1,795 from fiscal 1998 to fiscal 1999,
primarily due to higher levels of income before income taxes, which was
partially offset by a decrease in the effective tax rate. The effective tax rate
consists of statutory rates adjusted for the tax impacts of our foreign sales
corporation, research and development credits, and foreign operations. The
effective tax rate for fiscal 1999 decreased to 35.3 percent from 36.6 percent
in the prior year mainly due to increased tax benefits associated with our
foreign operations and research and development tax credit, partially offset by
a reduced tax benefit from the foreign sales corporation.
As a result of the above, for fiscal 1999, net income rose 22 percent from
fiscal 1998 to $24,080 or $1.95 per common share - basic and $1.88 per common
share - assuming dilution.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased $35,128 or 133 percent
to $61,550 in fiscal 2000 compared to $26,422 in fiscal 1999. The increase in
net cash provided by operating activities during fiscal 2000 was primarily due
to: (i) an increase in net income; (ii) an increase in depreciation and
amortization (mainly associated with the acquisition of the Dynasty Division);
(iii) a decrease in inventory during the current year versus an increase in the
prior year; (iv) a larger increase in accounts payable; (v) a larger increase in
accrued liabilities (mainly due to increased accruals related to sales volume
rebates, commissions and accrued interest associated with the higher debt
levels); and (vi) an increase in income taxes payable during fiscal 2000
compared to a decrease in the same period of the prior year. These changes,
resulting in higher net cash provided by operating activities, were partially
offset by a larger increase in accounts receivable during fiscal 2000 compared
to the prior year primarily due to higher sales volumes in fiscal 2000.
Net cash used by investing activities totaling $149,491 for fiscal 2000
includes our purchase of the Specialty Battery Division of JCI and the
acquisition of JCI's 67 percent ownership interest in a joint venture battery
business in Shanghai, China.
Net cash provided by financing activities was $90,050 for fiscal 2000
versus net cash used of $6,896 in the prior year. Proceeds from new borrowings
in fiscal 2000 were used primarily for the funding of the aforementioned
acquisitions.
On March 1, 1999 we entered into a credit agreement in which the lenders
named therein, and Bank of America (formerly NationsBank, N.A.) as
administrative agent, provided a $220,000 credit facility consisting of a term
loan in the amount of $100,000 and a revolving loan not to exceed $120,000. The
funds borrowed under this credit agreement were used to finance the
aforementioned acquisitions, working capital and certain other expenditures and
to refinance existing debt. Our availability under the current loan agreement is
expected to be sufficient to meet our ongoing cash needs for working capital
requirements, debt service, capital expenditures and possible strategic
acquisitions. Capital expenditures during fiscal 2000 were incurred primarily to
fund capacity expansion, new product development, a continuing series
24
of cost reduction programs, normal maintenance capital, and regulatory
compliance. Fiscal 2001 capital expenditures are expected to exceed $50,000 for
similar purposes.
Year 2000
- ---------
We recognized the need to ensure that our operations would not be adversely
affected by Year 2000 computer problems, and thus developed and implemented a
Year 2000 Readiness Plan. Our plan addressed the following four areas:
o information technology systems (consisting of computer hard-
ware and software related to our business systems as well as
our engineering and test equipment);
o non-information technology systems (including embedded
technology such as microcontrollers, which are typically
found in such things as telephone systems, security systems,
fax machines, etc.);
o products sold to customers; and
o third party issues (including significant suppliers and
customers).
Our Year 2000 Readiness Plan generally included the following phases for
each of the four areas noted above:
o identification and risk assessment;
o development and implementation of a remediation plan;
o acceptance testing; and
o contingency planning for high risk critical areas.
We believe that the Year 2000 problem was successfully addressed through
our Year 2000 initiatives. We did not experience any difficulties related to the
Year 2000 problem on January 1, 2000 and have not experienced any Year 2000
difficulties since that date. Our operations have not, to date, been adversely
affected by any difficulties experienced by any of our suppliers or customers in
connection with the Year 2000 problem. We will continue to monitor our systems
for potential Year 2000 difficulties through the remainder of calendar year
2000.
We believe the costs directly related to addressing our Year 2000 problem
were not material. These costs were paid from internal funds and were expensed.
To date, 100 percent of the total Year 2000 project costs have been incurred. We
have not tracked the internal costs incurred in connection with addressing the
Year 2000 problem, however we believe that such costs consist principally of the
related payroll costs for our information systems group and are not material. No
other significant information technology projects were deferred due to our Year
2000 efforts.
Conversion to the Euro Currency
- -------------------------------
On January 1, 1999, the Euro was adopted as the common legal currency, in
coexistence with the national currencies for European Union member nations until
January 1, 2002. We have made necessary adjustments to our processes to ensure
compliance during the three year transitional period that ends January 1, 2002.
After this transitional period, the Euro becomes the sole legal currency for the
European
25
Union member nations and all of our records of the national currencies will be
converted to the Euro equivalent at that time. We do not expect the Euro
adoption to have a material adverse impact on our financial condition or results
of operations.
New Accounting Pronouncements Not Yet Adopted
- ---------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 137 amends SFAS No. 133 by delaying its effective date by one year to
fiscal years beginning after June 15, 2000. We currently use derivatives such as
interest rate swap agreements, currency swaps and currency forwards to
effectively fix the interest rate on a portion of our floating rate debt and the
exchange rate on a portion of our foreign assets, liabilities and cash flows.
Under current accounting standards, no gain or loss is recognized on changes in
the fair value of these derivatives. Under these statements, gains or losses
will be recognized based on changes in the fair value of the derivatives which
generally occur as a result of changes in interest rates and foreign currency
exchange rates. We are currently evaluating the financial impact of adoption of
these statements. We believe that the adoption of these statements will not have
a material effect on our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
ALL DOLLAR AMOUNTS IN THIS ITEM 7A ARE IN THOUSANDS.
Market Risk Factors
- -------------------
We are exposed to various market risks. The primary financial risks include
fluctuations in interest rates and changes in currency exchange rates. We manage
these risks by using derivative instruments. We do not invest in derivative
securities for trading purposes, but do enter into hedging arrangements in order
to reduce our exposure to fluctuations in interest rates as well as to
fluctuations in exchange rates. (See "Derivative Financial Instruments" in the
Summary of Significant Accounting Policies, Note 1, and Fair Value of Financial
Instruments, Note 12.)
Our financial instruments subject to interest rate risk consist of debt
instruments and interest rate swap contracts. The net market value of our debt
instruments was $96,852 and $2,282 at January 31, 2000 and 1999, respectively.
The debt instruments are subject to variable rate interest and therefore the
market value is not sensitive to interest rate movements.
The interest rate swap contracts are entered into in order to manage our
exposure to fluctuations in interest rates on our underlying variable rate debt
instruments. We employ separate swap transactions rather than fixed rate
obligations to take advantage of the lower borrowing costs associated with
floating rate debt while also eliminating possible risk related to refinancing
in the fixed rate market.
26
The net market value of our interest rate swaps was $1,165 and $(114) at
January 31, 2000 and 1999, respectively. A 100-basis point increase in rates at
January 31, 2000 and 1999 would result in an $861 and a $231 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2000 and 1999 would result in an $878 and a $231 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their levels, with all other variables held
constant. We calculate the market value of the interest rate swaps by utilizing
a standard net present value model based on the market conditions as of the
valuation date.
We use currency forwards and swaps to hedge anticipated cash flows in
foreign currencies. The exposures currently hedged are the Canadian Dollar and
the Euro. These financial instruments represent a net market value of $49 and
$101 at January 31, 2000 and 1999, respectively.
To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10% devaluation of the Canadian
Dollar and Euro to the US Dollar.
The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables being
held constant. At January 31, 2000 and 1999, a 10% strengthening of the US
Dollar versus the Canadian Dollar and the Euro would result in an increase of
the net market value of the forwards and swaps of $178 and $201, respectively.
At January 31, 2000 and 1999, a 10% weakening of the US Dollar versus the
Canadian Dollar and the Euro would result in a decrease in the net market value
of the forwards and swaps of $35 and $307, respectively.
The market value of the instruments was determined by taking into
consideration the contracted interest rates and foreign exchange rates versus
those available for similar maturities in the market at January 31, 2000 and
1999, respectively.
Foreign exchange forwards and swap contracts are used to hedge our firm and
anticipated foreign currency cash flows. There is either a balance sheet or cash
flow exposure related to all of the financial instruments in the above
sensitivity analysis for which the impact of a movement in exchange rates would
be in the opposite direction and substantially equal to the impact on the
instruments in the analysis.
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.
27
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 "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in our definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the end of our fiscal year covered by this
report.
28
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:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 2000 and 1999
Consolidated Statements of Income for the years ended January 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended January
31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for the years
ended January 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this
report on Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended
January 31, 2000, 1999 and 1998
II. Valuation and Qualifying Accounts
(3) Exhibits:
3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).
3.2 Amended and Restated By-laws of C&D (filed herewith).
4.1 Rights Agreement dated as of February 22, 2000 between C&D
and ChaseMellon Shareholder Services, L.L.C., as rights
agent, which includes as Exhibit B thereto the form of
rights certificate (incorporated by reference to Exhibit 1
to C&D's Form 8-A Registration Statement filed on February
28, 2000).
10.1 Purchase Agreement dated November 27, 1985, among Allied,
Allied Canada Inc. and C&D; Amendments thereto dated January
28 and October 8, 1986 (incorporated by
29
reference to Exhibit 10.1 to C&D's Registration Statement on
Form S-1, No. 33-10889).
10.2 Agreement dated December 15, 1986 between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D'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. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1999).
10.4 Purchase and Sale Agreement, dated as of November 23, 1998
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D and C&D Acquisition Corp. as Purchaser (incorporated
by reference to Exhibit 2.1 to C&D's Current Report on Form
8-K dated March 1, 1999).
10.5 Credit Agreement, dated as of March 1, 1999 among C&D, as
borrower, certain subsidiaries and affiliates of C&D, as
guarantors, the lenders named therein, and Bank of America
(formerly NationsBank, N.A.), as administrative agent
(incorporated by reference to Exhibit 2.2 to C&D's Current
Report on Form 8-K dated March 1, 1999); First Amendment
dated February 18, 2000 of our Credit Agreement dated as of
March 1, 1999 among C&D, as borrower, certain subsidiaries
and affiliates of C&D, as guarantors, the lenders named
therein, and Bank of America (formerly NationsBank, N.A.),
as administrative agent (filed herewith).
Management Contracts or Plans
- -----------------------------
10.6 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1996), First Amendment to C&D Technologies, Inc. 1996 Stock
Option Plan (formerly known as the Charter Power Systems,
Inc. 1996 Stock Option Plan) dated April 27, 1999
(incorporated by reference to Exhibit 10.3 to C&D's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1999).
10.7 C&D Technologies, Inc. Amended and Restated 1998 Stock
Option Plan (filed herewith). (This plan is being submitted
for stockholder approval at the 2000 annual meeting.)
10.8 C&D Technologies, Inc. Savings Plan (October 1, 1997
Restatement) (incorporated by reference to Exhibit 10.4 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998), First Amendment to C&D Technologies, Inc.
Savings Plan (incorporated by reference to Exhibit 10.1 to
C&D's Quarterly Report on form 10-Q for the quarter ended
October 31, 1999), Second Amendment to C&D Technologies,
Inc. Savings Plan (incorporated by reference to Exhibit 10.2
to C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1999).
30
10.9 C&D Technologies, Inc. Pension Plan for Salaried Employees
as restated and amended (incorporated by reference to
Exhibit 10.10 to C&D'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 C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1996); Third
Amendment thereto dated February 18, 1997 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fourth
Amendment thereto dated January 27, 1998 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fifth
Amendment thereto dated January 28, 1999 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1999), Sixth
Amendment thereto dated April 27, 1999 (incorporated by
reference to Exhibit 10.2 to C&D's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).
10.10 Supplemental Executive Retirement Plan (amended and
restated) as of October 22, 1998 (incorporated by reference
to Exhibit 10.18 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999), Amendment to Appendix A
of the Supplemental Executive Retirement Plan Amended and
Restated as of November 22, 1999 (incorporated by reference
to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1999).
10.11 C&D Technologies, Inc. Incentive Compensation Plan for the
year ended January 31, 2000 (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1999).
10.12 Employment Agreement dated March 1, 1994 between A. Gordon
Goodyear and C&D (incorporated by reference to Exhibit 10.2
to C&D'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 C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1995).
10.13 Employment Agreement dated March 31, 2000 between Wade H.
Roberts, Jr. and C&D (filed herewith).
10.14 Employment Agreement dated March 31, 2000 between Stephen
E. Markert, Jr. and C&D (filed herewith).
10.15 Employment Agreement dated March 31, 2000 between Linda R.
Hansen and C&D (filed herewith).
10.16 Employment Agreement dated March 31, 2000 between Mark Z.
Sappir and C&D (filed herewith).
10.17 Employment Agreement dated March 31, 2000 between Bernie
Radecki and C&D (filed herewith).
31
10.18 Employment Agreement dated March 31, 2000 between Charles
Giesige, Sr. and C&D (filed herewith).
10.19 Employment Agreement dated March 31, 2000 between John J.
Murray, Jr. and C&D (filed herewith).
10.20 Employment Agreement dated March 31, 2000 between John Rich
and C&D (filed herewith).
10.21 Employment Agreement dated March 31, 2000 between Apostoles
T. Kambouroglou and C&D (filed herewith).
10.22 Employment Agreement dated March 31, 2000 between Kathryn
Bullock and C&D (filed herewith).
10.23 Separation Agreement dated March 2000 between Larry W.
Moore and C&D (filed herewith).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by C&D during the last quarter of
the period covered by this report.
On February 28, 2000, C&D filed a Form 8-K current report under Item 5
to report the adoption of the Stockholder Rights Agreement between C&D
and ChaseMellon Shareholder Services, L.L.C., as rights agent.
32
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.
C&D TECHNOLOGIES, INC.
April 27, 2000 By: /s/ Wade H. Roberts, Jr.
------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director
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/ Wade H. Roberts, Jr. President, Chief Executive April 27, 2000
- --------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 27, 2000
- --------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 27, 2000
- ---------------------------
William Harral, III
/s/ Adrian A. Basora Director April 27, 2000
- ---------------------------
Adrian A. Basora
/s/ Peter R. Dachowski Director April 27, 2000
- ---------------------------
Peter R. Dachowski
/s/ Kevin P. Dowd Director April 27, 2000
- ---------------------------
Kevin P. Dowd
/s/ Glenn M. Feit Director April 27, 2000
- ---------------------------
Glenn M. Feit
/s/ Pamela S. Lewis Director April 27, 2000
- ---------------------------
Pamela S. Lewis
/s/ George MacKenzie Director April 27, 2000
- ---------------------------
George MacKenzie
/s/ John A. H. Shober Director April 27, 2000
- ---------------------------
John A. H. Shober
33
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Page
Report of Independent Accountants..................... F-2
Consolidated Balance Sheets as of
January 31, 2000 and 1999........................... F-3
Consolidated Statements of Income
for the years ended January 31, 2000, 1999
and 1998............................................ F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2000, 1999 and 1998............... F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 2000, 1999
and 1998............................................ F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 2000,
1999 and 1998....................................... F-8
Notes to Consolidated Financial Statements............ F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 2000, 1999 and 1998
Schedule II. Valuation and Qualifying Accounts....... S-1
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of C&D Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2000 and January 31, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000 in conformity with accounting principles generally accepted in
the United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 29 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 10, 2000
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents............................ $ 7,121 $ 5,003
Accounts receivable, less allowance for doubtful
accounts of $3,080 in 2000 and $1,635 in 1999.... 76,161 44,232
Inventories.......................................... 60,965 49,855
Deferred income taxes................................ 10,158 7,305
Other current assets................................. 1,256 2,318
------- -------
Total current assets............................. 155,661 108,713
Property, plant and equipment, net....................... 100,813 62,388
Deferred income taxes.................................... 803 -
Intangible and other assets, net......................... 22,692 4,393
Goodwill, net............................................ 74,146 10,148
------- -------
Total assets..................................... $354,115 $185,642
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................................... $ 20,393 $ 532
Accounts payable..................................... 36,680 23,997
Accrued liabilities.................................. 26,996 17,714
Income taxes......................................... 2,018 -
Other current liabilities............................ 4,495 2,782
------- -------
Total current liabilities........................ 90,582 45,025
Deferred income taxes.................................... - 2,887
Long-term debt........................................... 76,459 1,750
Other liabilities........................................ 20,663 12,442
------- -------
Total liabilities................................ 187,704 62,104
------- -------
Commitments and contingencies
Minority interest........................................ 4,345 -
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 13,933,740 and 13,368,719
shares issued in 2000 and 1999, respectively..... 139 134
Additional paid-in capital........................... 53,969 43,429
Treasury stock, at cost, 905,102 shares.............. (10,819) (10,819)
Accumulated other comprehensive loss................. (617) (169)
Retained earnings.................................... 119,394 90,963
------- -------
Total stockholders' equity....................... 162,066 123,538
------- -------
Total liabilities and stockholders' equity....... $354,115 $185,642
======= =======
See notes to consolidated financial statements.
F-3
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended January 31,
(Dollars in thousands, except per share data)
2000 1999 1998
---- ---- ----
Net sales..................................... $465,570 $313,966 $308,054
Cost of sales................................. 341,190 227,796 226,880
------- ------- -------
Gross profit............................ 124,380 86,170 81,174
Selling, general and administrative
expenses................................ 59,315 40,344 39,333
Research and development expenses............. 8,941 8,255 8,610
------- ------- -------
Operating income........................ 56,124 37,571 33,231
Interest expense, net......................... 7,946 126 1,129
Other (income) expense, net................... (20) 211 1,058
------- ------- -------
Income before income taxes
and minority interest................. 48,198 37,234 31,044
Provision for income taxes.................... 17,737 13,154 11,359
------- ------- -------
Net income before minority
interest.............................. 30,461 24,080 19,685
Minority interest............................. 619 - -
------- ------- -------
Net income.............................. $ 29,842 $ 24,080 $ 19,685
======= ======= =======
Net income per common share*.................. $ 2.34 $ 1.95 $ 1.61
Net income per common share -
assuming dilution*...................... $ 2.29 $ 1.88 $ 1.56
* Per share amounts have been adjusted to reflect the Company's July 24, 1998
two-for-one stock split, effected in the form of a 100% stock dividend,
where appropriate.
See notes to consolidated financial statements.
F-4
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended January 31, 2000, 1999 and 1998
(Dollars in thousands, except per share data)
Notes Accumulated
Common Stock Additional Treasury Stock Receivable Other
------------------ Paid-In ----------------- From Comprehensive Retained
Shares* Amount* Capital* Shares* Amount Stockholders Loss Earnings
------- ------- -------- ------- ------ ------------ ---- --------
Balance as of
January 31, 1997.......... 13,094,952 $130 $39,261 (941,102) $(11,232) $(1,636) $(510) $ 48,893
Net income.................. 19,685
Dividends to stockholders,
$.055 per share*.......... (673)
Principal payments on
stockholder notes......... 664
Amortization of discount on
stockholder notes......... (57)
Tax effect relating to stock
options exercised......... 564
Minimum pension liability
adjustment................ 136
Cumulative translation
adjustment................ 126
Issuance of common stock.... 434 36,000 413
Stock options exercised..... 133,946 2 1,105
---------- --- ------ -------- ------- ------ ---- -------
Balance as of
January 31, 1998......... 13,228,898 132 41,364 (905,102) (10,819) (1,029) (248) 67,905
Net income.................. 24,080
Dividends to stockholders,
$.0825 per share*......... (1,022)
Principal payments on
stockholder notes......... 1,057
Amortization of discount on
stockholder notes......... (28)
Tax effect relating to stock
options exercised......... 792
Cumulative translation
adjustment................ 79
Issuance of common stock.... 2,484 72
Stock options exercised..... 137,337 2 1,201
---------- --- ------ -------- ------- ------ ---- -------
Balance as of
January 31, 1999.......... 13,368,719 134 43,429 (905,102) (10,819) - (169) 90,963
Net income.................. 29,842
Dividends to stockholders,
$.11 per share............ (1,411)
Tax effect relating to stock
options exercised......... 3,736
Cumulative translation
adjustment................ (448)
Issuance of common stock.... 5,293 161
Stock options exercised..... 559,728 5 6,643
---------- --- ------ -------- ------- ------ ---- -------
Balance as of
January 31, 2000.......... 13,933,740 $139 $53,969 (905,102) $(10,819) $ - $(617) $119,394
========== === ====== ======== ======= ====== ==== =======
* Adjusted to reflect the Company's July 24, 1998 two-for-one stock split,
effected in the form of a 100% stock dividend, where appropriate.
See notes to consolidated financial statements.
F-5
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 31,
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows provided (used) by operating activities:
Net income ........................................ $ 29,842 $ 24,080 $ 19,685
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest.................................... 619 - -
Depreciation and amortization........................ 21,671 11,289 11,824
Deferred income taxes................................ (3,047) 1 (2,338)
Loss on disposal of assets........................... 988 224 175
Changes in:
Accounts receivable............................ (12,100) (1,498) (1,182)
Inventories.................................... 1,466 (9,075) (1,856)
Other current assets........................... 486 (471) (450)
Accounts payable............................... 5,224 1,191 (933)
Accrued liabilities............................ 4,648 1,617 1,566
Income taxes payable........................... 6,059 (2,777) 3,447
Other current liabilities...................... 913 (464) (1,036)
Other liabilities.............................. 3,990 1,944 2,593
Other, net........................................... 791 361 477
-------- -------- --------
Net cash provided by operating activities.............. 61,550 26,422 31,972
-------- -------- --------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net....................... (134,878) - -
Acquisition of property, plant and equipment......... (14,710) (15,761) (13,640)
Proceeds from disposal of property,
plant and equipment................................ 97 69 41
Change in restricted cash............................ - - 1
-------- -------- --------
Net cash used by investing activities.................. (149,491) (15,692) (13,598)
-------- -------- --------
Cash flows provided (used) by financing activities:
Repayment of debt.................................... (17,374) (8,308) (19,239)
Proceeds from new borrowings......................... 104,898 - -
Financing costs of long-term debt.................... (2,727) - -
Repayment of notes receivable from stockholders...... - 1,057 664
Proceeds from issuance of common stock, net.......... 6,648 1,203 1,107
Payment of common stock dividends.................... (1,395) (848) (671)
-------- -------- --------
Net cash provided (used) by financing activities....... 90,050 (6,896) (18,139)
-------- -------- --------
Effect of exchange rate changes on cash................ 9 2 (20)
-------- -------- --------
Increase in cash and cash equivalents.................. 2,118 3,836 215
Cash and cash equivalents at beginning of year......... 5,003 1,167 952
-------- -------- --------
Cash and cash equivalents at end of year............... $ 7,121 $ 5,003 $ 1,167
======== ======== ========
See notes to consolidated financial statements.
F-6
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended January 31,
(Dollars in thousands)
2000 1999 1998
---- ---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net........................ $ 7,417 $ 415 $ 1,599
Income taxes paid, net.................... $ 14,733 $15,927 $10,251
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired... $ 80,909 $ - $ -
Goodwill ................................ 67,637 - -
Identifiable intangible assets............ 17,840 - -
Cash paid, net of cash acquired........... (134,878) - -
-------- ------ ------
Liabilities assumed....................... $ 31,508 $ - $ -
======== ====== ======
Dividends declared but not paid................ $ 358 $ 343 $ 169
Fair market value of treasury stock
issued to pension plans...................... $ - $ - $ 847
Annual retainer to Board of Directors paid
by the issuance of common stock.............. $ 161 $ 72 $ -
See notes to consolidated financial statements.
F-7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended January 31,
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Net Income........................................ $29,842 $24,080 $19,685
Other comprehensive (expense) income, net of tax:
Cumulative translation adjustments.............. (448) 79 126
Minimum pension liability adjustment............ - - 136
------ ------ ------
Total comprehensive income........................ $29,394 $24,159 $19,947
====== ====== ======
See notes to consolidated financial statements.
F-8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
----------------------------
C&D Technologies, Inc. was incorporated in November 1985. The Company
produces and markets systems for the conversion and storage of electrical power,
including industrial batteries and electronics for use in the North American and
export markets. 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 C&D
Technologies, Inc., its wholly owned subsidiaries and a joint venture
(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.
Gains and losses on foreign currency transactions are included in non-operating
expenses.
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. (See Note 12.)
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, the Euro and Mexican Peso.
F-9
C&D TECHNOLOGIES, 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 uses interest rate swap agreements to reduce the impact of
interest rate changes on its debt. The interest rate swap agreements involve the
exchange of variable for fixed rate interest payments without the exchange of
the underlying notional amount.
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
$11,410 and $8,789 at January 31, 2000 and 1999, respectively.
Revenue Recognition:
--------------------
Revenue is recognized when products are shipped and title is passed to the
customer.
Inventories:
------------
Inventories are stated at the lower of cost or net realizable value. Cost
is generally determined by the last-in, first-out method for financial statement
and federal income tax purposes.
Property, Plant and Equipment:
------------------------------
Property, plant and equipment acquired as of the Acquisition was recorded
at the then fair market 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 generally range from three 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 three to five years, using the
straight-line method.
F-10
C&D TECHNOLOGIES, 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 3) and are being amortized on the straight-line
method over their estimated periods of benefit, primarily five to 20 years.
Accumulated amortization as of January 31, 2000 and 1999 was $3,640 and $2,537,
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 20 to 40 years.
The recoverability of goodwill is periodically reviewed by the Company. In
assessing recoverability, many factors are considered, including operating
results and future undiscounted cash flows. The Company believes that no
impairment of goodwill existed at January 31, 2000. Accumulated amortization as
of January 31, 2000 and 1999 was $5,984 and $2,388, respectively.
Impairment of Assets:
---------------------
The Company follows 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," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
for the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Accrued Liabilities:
--------------------
Included in accrued liabilities as of January 31, 2000 and 1999 are $3,595
and $2,940 of accrued vacation and $2,455 and $1,678 of accrued bonus,
respectively.
Other Liabilities:
------------------
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $3,128 and $2,228 are included in other current
liabilities and $9,554 and $6,730 are included in other liabilities as of
January 31, 2000 and 1999, respectively.
F-11
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Environmental Matters:
----------------------
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are also expensed. The Company records liabilities for
environmental costs when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated. The liability for future
environmental remediation costs is evaluated on a quarterly basis by management.
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 share for the years ended January 31, 2000, 1999 and
1998 is based on the weighted average number of shares of Common Stock
outstanding. Net income per common share - assuming dilution reflects the
potential dilution that could occur if stock options were exercised. Weighted
average common shares and common shares - assuming dilution were as follows:
January 31,
-----------------------------------
2000 1999 1998
---- ---- ----
Weighted average
shares of common stock
outstanding*.................. 12,764,889 12,365,183 12,221,370
Assumed conversion of
stock options, net of shares
assumed reacquired*........... 279,312 470,679 410,454
---------- ---------- ----------
Weighted average common
shares - assuming
dilution*..................... 13,044,201 12,835,862 12,631,824
* Share amounts have been adjusted to reflect the Company's July 24, 1998
two-for-one stock split, effected in the form of a 100% stock dividend,
where appropriate.
F-12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements Not Yet Adopted:
----------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 137 amends SFAS No. 133 by delaying its effective date by one year to
fiscal years beginning after June 15, 2000. The Company currently uses
derivatives such as interest rate swap agreements, currency swaps and currency
forwards to effectively fix the interest rate on a portion of the Company's
floating rate debt and the exchange rate on a portion of the Company's foreign
assets, liabilities and cash flows. Under current accounting standards, no gain
or loss is recognized on changes in the fair value of these derivatives. Under
these statements, gains or losses will be recognized based on changes in the
fair value of the derivatives which generally occur as a result of changes in
interest rates and foreign currency exchange rates. The Company is currently
evaluating the financial impact of adoption of these statements. The Company
believes that the adoption of these statements will not have a material effect
on its financial position or results of operations.
2. STOCK SPLIT
On July 24, 1998 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend to stockholders of record on July 10, 1998.
This transaction resulted in a transfer on the Company's balance sheet of $66 to
common stock from additional paid-in capital. The accompanying financial
statements and related footnotes, including all share and per share amounts,
have been adjusted to reflect this transaction.
3. ACQUISITIONS
Effective March 1, 1999, the Company acquired substantially all of the
assets of the Specialty Battery Division of Johnson Controls, Inc. ("JCI"),
including, without limitation, certain assets of Johnson Controls Technology
Company, a wholly owned subsidiary of JCI, and 100% of the ordinary shares of
Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of
JCI. In consideration of the assets acquired, the Company paid approximately
$120,000 plus additional acquisition related costs, subject to certain
adjustments as set forth in the purchase agreement. In addition, the Company
assumed certain liabilities of the seller. The Specialty Battery Division was
engaged in the business of designing, manufacturing, marketing and distributing
industrial batteries. The Company continues to use the assets acquired in such
business. The source of the funds for the acquisition was advances under a
credit agreement consisting of a term loan in the amount of $100,000 and a
revolving loan not to exceed
F-13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
3. ACQUISITIONS (continued)
$120,000 which includes a letter of credit facility not to exceed $30,000 and
swingline loans not to exceed $10,000.
On August 2, 1999 the Company completed the acquisition of JCI's 67 percent
ownership interest in a joint venture battery business in Shanghai, China for
$15,000 in cash. The joint venture manufactures, markets and distributes both
industrial and starting, lighting and ignition batteries. The Company has
continued the joint venture operations in such business. The cash portion of the
acquisition was financed by the Company's existing revolving credit facility.
For reporting purposes, the acquisition of the Specialty Battery Division and
JCI's 67 percent ownership interest in the joint venture battery business in
Shanghai, China have collectively been re-named the Dynasty Division. The
results of the joint venture have been consolidated in the financial statements
and related notes.
The Dynasty acquisition was accounted for using the purchase method of
accounting. The allocation of the purchase price resulted in goodwill of $67,637
and identifiable intangible assets (tradenames) of $17,840, which are being
amortized on a straight line basis over 20 years.
The following unaudited pro forma financial information combines the
consolidated results of operations as if the acquisition of the Specialty
Battery Division (including the interest in the joint venture in Shanghai, China
which was completed on August 2, 1999) 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 and goodwill, depreciation adjustments
due to the write-up of property, plant and equipment to estimated fair market
value, amortization of deferred debt costs and interest expense on the
acquisition debt and working capital management fees, which will not continue,
and the related income tax effects.
(unaudited)
January 31,
-----------
2000 1999
---- ----
Net sales............................... $480,666 $415,590
Net income.............................. $ 29,685 $ 18,913
Net income per common share............. $ 2.33 $ 1.53
Net income per common share -
assuming dilution.................. $ 2.28 $ 1.47
F-14
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
3. 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.
4. INVENTORIES
Inventories consisted of the following:
January 31,
-------------------
2000 1999
---- ----
Raw materials........................ $28,522 $20,013
Work-in-progress..................... 14,602 10,785
Finished goods....................... 17,841 19,057
------ ------
$60,965 $49,855
====== ======
If the first-in, first-out (FIFO) method of inventory accounting had been
used (which approximates current cost), inventories would have been $60,906 and
$51,009 as of January 31, 2000 and 1999, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
-------------------
2000 1999
---- ----
Land................................. $ 902 $ 487
Buildings and improvements........... 34,280 22,507
Furniture, fixtures and equipment.... 147,029 102,099
Construction in progress............. 7,064 4,579
------- -------
189,275 129,672
Less:
Accumulated depreciation....... 88,462 67,284
------- -------
$100,813 $ 62,388
======= =======
For the years ended January 31, 2000, 1999 and 1998, depreciation charged
to operations amounted to $15,996, $10,137 and $8,831; maintenance and repair
costs expensed totaled $12,892, $8,290 and $7,399; and interest capitalized
amounted to $265, $211 and $166, respectively.
F-15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
6. DEBT
Debt consisted of the following:
January 31,
-------------------------
2000 1999
---- ----
Term loan - 1999 facility, $100,000 facility bearing interest at Prime or
LIBOR plus 1.25% (effective rate on a weighted average basis, 6.94% as of
January 31, 2000) net of unamortized debt acquisition costs of $2,102........... $82,898 -
Revolving credit facility - 1999 facility; maximum commitment of $120,000
at January 31, 2000 bearing interest of Prime or LIBOR plus 1.25% (effective
rate on a weighted average basis, 6.82% as of January 31, 2000)................. 4,800 -
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, 5.54% as of
January 31, 2000 and 5.47% as of January 31, 1999), principal payable in monthly
installments of $8 from December 1993 through November 1999 and of $108 from
December 1999 through November 2000............................................. 1,083 $1,384
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, 3.81% as of January 31, 2000 and
3.86% as of January 31, 1999), principal payable in monthly installments of $8
from December 1993 through November 1999 and of $67 from December 1999 through
November 2000 .................................................................. 667 883
Borrowings by the Chinese joint venture in local currencies under
uncommitted facilities from various local banks with interest rates
ranging from 6.14% to 7.68% .................................................... 7,349 -
Other ..................................................................... 55 15
------ -----
96,852 2,282
Less current portion....................................................... 20,393 532
------ -----
$76,459 $1,750
====== =====
F-16
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
6. DEBT (continued)
On January 30, 1998 the Company amended and restated its existing credit
facility. This was an unsecured revolving loan of $65,000 with a maturity date
of February 1, 2001. The lenders were Bank of America (formerly NationsBank
N.A.), Chase Manhattan Bank, First Union National Bank and PNC Bank. The
available interest rates under this agreement were LIBOR plus .52% to LIBOR plus
1.55% or Prime minus .5% to Prime plus .5%. The effective rate on a weighted
average basis was 6.54% for fiscal 1999.
In connection with the Dynasty acquisition, the above facility was replaced
in its entirety on March 1, 1999 by a fully syndicated unsecured agreement
comprised of a $100,000 term loan and a $120,000 revolving credit facility. The
lead institution was Bank of America and the co-agents were Chase Manhattan
Bank, First Union National Bank and PNC Bank. Seven other lenders participated.
The term loan is payable over five years. The revolver has a termination date of
March 1, 2004. The available interest rates on the agreement are between 1% to
1.75% over LIBOR or Prime to Prime plus .25%.
The revolving credit facility includes a letter of credit facility not to
exceed $30,000, of which $15,138 was available as of January 31, 2000, and
swingline loans not to exceed $10,000. The term loan is due in quarterly
installments that currently equal $3,750 per quarter increasing to $5,000 per
quarter on May 1, 2001, $6,250 per quarter on May 1, 2002, and $7,500 per
quarter on May 1, 2003. On January 31, 2000 an additional $5,000 was paid in
advance on the term loan. This payment was applied to the February 1, 2004
payment.
These credit agreements contain restrictive covenants that require the
Company to maintain minimum ratios such as fixed charge coverage and leverage
ratios, as well as minimum consolidated net worth. The purpose of the facility
was to fund the Dynasty acquisition, provide for normal working capital and fund
possible strategic acquisitions.
The maximum aggregate amounts of loans outstanding under the above 1998 and
1999 bank facilities including both term and revolving credit were $125,100,
$15,000 and $26,765 during the years ended January 31, 2000, 1999 and 1998,
respectively. For those years the outstanding loans under these credit
agreements computed on a monthly basis averaged $94,870, $6,941 and $19,024 at a
weighted average interest rate of 6.93%, 6.54% and 6.47%, respectively.
F-17
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
6. DEBT (continued)
The PEDFA Bonds are subject to mandatory redemption upon the occurrence of
certain events, including the early termination of the corresponding PEDFA
letter of credit issued under the Company's revolving credit facility. The tax
exempt bonds are subject to mandatory redemption if they lose their tax exempt
status.
The loans outstanding with various institutions denominated in Chinese
Renminbi are short term loans due on various dates including one loan due upon
demand. In support of these loans the Company has issued three letters of credit
under its revolving credit facility. In consideration of these letters of credit
the joint venture partner has issued a guaranty for 33% of the debt to the
Company. The Company expects the joint venture to continue financing its debt
requirements in local currency loans.
The Company was in compliance with its lending agreement covenants at
January 31, 2000 and 1999, respectively.
As of January 31, 2000, the required minimum annual principal reduction of
long-term debt and capital lease obligations for each of the next five fiscal
years is as follows:
2001......................... $20,393
2002......................... 17,398
2003......................... 23,068
2004......................... 28,693
2005......................... 7,300
Thereafter................... -
------
$96,852
======
7. STOCKHOLDERS' EQUITY
(A) Stock Option Plan:
-----------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," 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.
At January 31, 2000, 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 replaced the previous plan which expired on January 28, 1996.
The 1998 Stock Option Plan was approved by the stockholders on June 30, 1998.
New options can be granted under the 1996 Plan, which reserved 1,000,000 shares
of Common Stock for such use (as adjusted for the Company's July 24, 1998
two-for-one stock split, effected
F-18
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
7. STOCKHOLDERS' EQUITY (continued)
in the form of a 100% stock dividend), or the 1998 Plan, which reserved 600,000
shares of Common Stock for such use (as adjusted for the Company's July 24, 1998
two-for-one stock split, effected in the form of a 100% stock dividend). In
addition, stock can be granted to the Company's non-employee directors in lieu
of their annual retainer or a portion thereof. 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 after
the date of grant. The options are exercisable upon vesting as determined by the
Compensation Committee at the time the options are granted. The majority of the
stock options outstanding vest in equal annual installments over a three year
period commencing one year from the date of the grant.
A summary of stock option activity related to the Company's plans is as
follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Year Year Year Outstanding Exercisable
----------- ---- ---- ---- ----------- -----------
Year ended
January 31, 2000
Number of shares.............. 1,095,428 317,418 559,728 94,171 758,947 282,105
Weighted average option
price per share............. $16.02 $35.93 $11.87 $21.51 $26.73 $19.67
Year ended
January 31, 1999
Number of shares.............. 967,402 293,900 137,337 28,537 1,095,428 511,475
Weighted average option
price per share............ $12.79 $23.67 $8.76 $20.19 $16.02 $10.90
Year ended
January 31, 1998*
Number of shares.............. 863,000 283,050 133,946 44,702 967,402 396,342
Weighted average option
price per share............. $8.89 $22.52 $8.26 $12.66 $12.79 $6.50
* Adjusted to reflect the Company's July 24, 1998 two-for-one stock split,
effected in the form of a 100% stock dividend.
F-19
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
7. STOCKHOLDERS' EQUITY (continued)
There were 383,265 and 611,805 (as adjusted for the Company's July 24, 1998
two-for-one stock split effected in the form of a 100% stock dividend) shares
available for future grants of options as of January 31, 2000 and 1999,
respectively. The following table summarizes information about the stock options
outstanding at January 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted-Average
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---- -------------- ----------- --------------
$6.00 - $12.00 111,144 6.6 years $11.68 111,144 $11.68
$17.25 - $26.06 337,985 8.3 years $23.17 135,593 $23.05
$29.00 - $39.25 309,818 9.6 years $36.01 35,368 $31.85
------- -------
$6.00 - $39.25 758,947 8.6 years $26.73 282,105 $19.67
======= =======
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999, and 1998:
2000 1999 1998
---- ---- ----
Risk-free interest rate.......... 5.60% 4.50% 6.44%
Expected dividend yield.......... .52% .58% .44%
Expected volatility factor....... 0.428 0.434 0.409
Weighted average expected life... 4.85 years 5.00 years 5.28 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-20
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
7. STOCKHOLDERS' EQUITY (continued)
If the Company had elected, beginning in fiscal 1997, to recognize
compensation cost based on fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and net income per common share would
have approximated the pro forma amounts shown below:
2000 1999 1998*
---- ---- -----
Net income - as reported.................... $29,842 $24,080 $19,685
Net income - pro forma...................... 28,558 22,537 18,953
Net income per common share - as reported... 2.34 1.95 1.61
Net income per common share - pro forma..... 2.24 1.82 1.55
Net income per common share -
assuming dilution - as reported........... 2.29 1.88 1.56
Net income per common share -
assuming dilution - pro forma............. 2.19 1.76 1.50
Weighted average fair value of options
granted during the year................... 15.70 9.99 8.98
* Per share amounts have been adjusted to reflect the Company's July 24, 1998
two-for-one stock split, effected in the form of a 100% stock dividend.
The pro forma disclosures are not likely to be representative of the
effects on net income and net income per common share in future years, because
they do not take into consideration pro forma compensation expense related to
grants made prior to the Company's fiscal year 1997.
On February 22, 2000, the Board of Directors of the Company declared a
dividend of one common stock purchase right (a "Right") for each share of common
stock, outstanding on March 3, 2000 to the stockholders of record on that date.
Upon the occurrence of certain events, each Right will entitle the registered
holder to purchase from the Company one one-hundredth of a share of common stock
at a price of $300 per one one-hundredth of a share, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement between
the Company and ChaseMellon Shareholder Services, L.L.C., as rights agent.
F-21
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
8. INCOME TAXES
The provisions for income taxes as shown in the accompanying consolidated
statements of income consisted of the following:
January 31,
----------------------------
2000 1999 1998
---- ---- ----
Currently payable:
Federal...................... $18,102 $10,963 $11,579
Foreign...................... 34 97 59
State........................ 2,510 1,932 1,853
Foreign Sales Corporation.... 137 162 206
------ ------ ------
20,783 13,154 13,697
------ ------ ------
Deferred:
Federal...................... (2,748) 103 (2,039)
State........................ (298) (103) (299)
------ ------ ------
(3,046) - (2,338)
------ ------ ------
$17,737 $13,154 $11,359
====== ====== ======
The components of the deferred tax asset and liability as of January 31,
2000 and 1999 were as follows:
2000 1999
---- ----
Deferred tax asset:
Vacation and compensation accruals............ $ 4,080 $ 2,964
Postretirement benefits....................... 1,014 740
Warranty reserves............................. 5,039 3,600
Bad debt, inventory and return allowances..... 3,632 2,497
Environmental reserves........................ 738 541
Pension obligation............................ 2,338 477
Other accruals................................ 957 1,223
------ ------
Total deferred tax asset...................... 17,798 12,042
------ ------
Deferred tax liability:
Depreciation and amortization................. (6,837) (7,624)
------ ------
Total deferred tax liability.................. (6,837) (7,624)
------ ------
Net deferred tax asset........................ $10,961 $ 4,418
====== ======
F-22
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
8. INCOME TAXES (continued)
Reconciliations of the provisions for income taxes at the U.S. statutory
rate to the effective tax rates for the years ended January 31, 2000, 1999 and
1998, respectively, are as follows:
January 31,
------------------------------
2000 1999 1998
---- ---- ----
U.S. statutory income tax............ $16,869 $13,032 $10,865
Tax effect of foreign operations..... (86) (250) (35)
State tax, net of federal
income tax benefit................. 1,334 1,153 1,010
Research and development
tax credit benefit................. (234) (373) -
Foreign sales corporation............ (257) (304) (388)
Other................................ 111 (104) (93)
------ ------ ------
$17,737 $13,154 $11,359
====== ====== ======
9. 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, 2000, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
Fiscal Year
-----------
2001........................ $ 2,385
2002........................ 2,013
2003........................ 1,768
2004........................ 1,324
2005........................ 872
Thereafter.................. 8,007
------
$16,369
======
Total rent expense for all operating leases for the years ended January 31,
2000, 1999 and 1998 was $4,024, $3,503 and $3,319, respectively.
F-23
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
-------
9. COMMITMENTS AND CONTINGENCIES (continued)
(B) Contingent Liabilities:
----------------------------
The Company is subject to numerous federal, state, local and international
laws and regulations that are designed to protect its employees, the
environment, and third parties.
These laws and regulations include requirements relating to the handling,
storage, use and disposal of lead and other hazardous materials used in its
processes, 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. 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, generated or disposed of in
the conduct of the Company's business (or that of a predecessor to the extent
the Company is not indemnified therefor), the Company may be held liable for the
damage and be required to pay the cost of investigating and remedying the same,
and the amount of any such liability could be material to the results of
operations or financial condition. However, under the terms of 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 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 provided 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 was completed during fiscal
1999. The Company did not incur costs in excess of the amount previously
reserved.
F-24
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
-------
9. 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
established 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 Company and the PRPs
initiated remedial action at the site in fiscal 1999 and the majority of the
action has been completed. 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 less than the approximately
$579 previously reserved, the majority of which has been paid during fiscal
2000.
The Company has responded to requests for information from the EPA or state
environmental agencies 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 (the "M&J Site") in March 1999. Of the four
sites, the Company has been identified as a PRP at the ILCO, Chicago, and M&J
Sites only.
On October 31, 1995 the Company received confirmation from the EPA that it
was a de minimis PRP at the ILCO Site. In May 1998, the ILCO site was resolved
with a payment of an immaterial amount which was less than the amount previously
reserved.
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.
Sufficient information is not yet available for the M&J site to estimate
the Company's allocable share of liability. However, based on the information
currently available, the Company's liability exposure at this site appears to be
limited and is not expected to have a material adverse effect on the Company.
F-25
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
-------
9. 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.
The Company is also 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 ultimately may bear some, as yet undetermined, share of
the costs associated therewith.
The Company's Conyers, Georgia facility is 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 storm water runoff,
has been excavated and disposed. 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
full remediation report was submitted to the state on February 22, 1999. 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.
The Company, together with JCI, is conducting an assessment and remediation
of contamination at the Dynasty Division facility in Milwaukee, Wisconsin. The
majority of this project is expected to be completed by the end of fiscal 2001.
Under the purchase agreement with JCI, the Company is responsible for (i)
one-half of the cost of the assessment and remediation, with a cap of $1,750,
(ii) any environmental liabilities at the facility which are not remediated as
part of the current project and (iii) environmental liabilities for claims made
after the fifth anniversary of the closing that arise from migration from a
pre-closing condition at the facility to locations other than the facility, but
specifically excluding liabilities relating to pre-closing offsite disposal. JCI
has retained all other environmental liabilities.
The Company has received notification from the EPA of alleged violations of
permit effluent and pretreatment discharge limits at its plant in Attica,
Indiana. The Company has submitted a compliance plan to the EPA. A penalty
assessment could be made, however detailed information necessary to estimate any
potential liability has not been determined.
A former customer has filed a lawsuit against the Company alleging that the
Company breached a contract and is seeking damages, costs, interest and attorney
fees. The Company has not yet filed its answer or conducted any discovery;
accordingly, it is unable to determine its liability, if any.
Based on currently available information, management of the Company
believes that the foregoing will not have a material adverse effect on Company's
business, financial condition or results of operations.
F-26
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
9. COMMITMENTS AND CONTINGENCIES (continued)
(C) Purchase Commitments:
--------------------------
The Company has purchase commitments pertaining to the purchase of certain
raw materials with various suppliers. These purchase commitments are not
expected to exceed usage requirements.
10. MAJOR CUSTOMER
A single customer of the Company's Powercom and Power Electronics Divisions
accounted for 10.5%, 13.1% and 13.5% of consolidated net sales for the years
ended January 31, 2000, 1999 and 1998.
11. 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 10, 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.
12. 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.
Hedging Instruments - The estimated fair value of the interest rate swaps
and foreign exchange contracts are based on market prices or current rates
offered for interest rate swaps and foreign exchange contracts with similar
terms and maturities. The ultimate amounts paid or received under these
interest rate swaps and foreign currency contracts, however, depend on
future interest rates and exchange rates.
F-27
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values of the Company's financial instruments at January
31, 2000 and 1999 were as follows:
2000 1999
-------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents.... $ 7,121 $ 7,121 $5,003 $5,003
Debt (excluding capital
Lease obligations)........ $96,797 $96,797 $2,267 $2,267
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.
2000 1999
---- ----
Fair Value Fair Value
---------- ----------
Hedging Instruments:
Interest rate swaps...... $ 1,165 $(114)
Forward contracts........ $ 49 $ 101
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 7.26% at January 31, 2000 and 6.53% on January 31, 1999. The swap expires on
December 20, 2002.
On June 24, 1997 the Company entered into a cross currency interest rate
swap agreement with a notional amount of US $1,293. This swap agreement
effectively exchanged US Dollar debt for Canadian Dollar debt and fixed the
interest rate at 4.72%. This instrument matured on June 24, 1999.
On June 24, 1997 the Company entered into a cross currency interest rate
swap agreement with a notional amount of US $1,221. The swap agreement
effectively exchanged US Dollar debt for Canadian Dollar debt and established
floating interest rates equivalent to three months Canadian Bankers Acceptances
plus .18%. At January 31, 1998 the effective rate was 5.13%. This instrument
matured on June 24, 1998.
On March 1, 1999 the Company entered into an interest rate swap agreement
with a notional amount of $30,000. This swap agreement effectively fixed the
interest rate on a like amount of the Company's floating rate debt at 5.48% plus
the Company's LIBOR spread in effect at any time. The effective rate was 6.73%
at January 31, 2000. The swap expires on March 1, 2001.
F-28
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
On March 11, 1999 the Company entered into an interest rate swap agreement
with a notional amount of $20,000. This swap agreement effectively fixed the
interest rate on a like amount of the Company's floating rate debt at 5.58% plus
the Company's LIBOR spread in effect at any time. The effective rate was 6.83%
at January 31, 2000. The swap expires on March 11, 2002.
The Company had a foreign exchange contract on hand at January 31, 1998
hedging Mexican Peso requirements in the amount of $2,739. This contract expired
on December 22, 1998.
The Company had a foreign exchange contract on hand at January 31, 1999
hedging Canadian Dollar exposure in the amount of $1,297. This contract expired
on April 29, 1999.
The Company had foreign exchange contracts on hand at January 31, 2000
hedging Canadian Dollar exposure in the amount of $1,359 and the Euro in the
amount of $469. All of these contracts expire before April 30, 2000.
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 employees' 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 Company also provides certain health care and life insurance benefits
for retired employees who meet certain service requirements ("postretirement
benefits") through various plans.
F-29
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
13. EMPLOYEE BENEFIT PLANS (continued)
The tables that follow provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended January
31, 2000 and 1999 and a statement of the funded status as of January 31, 2000
and 1999.
Postretirement
Pension Benefits Benefits
---------------- --------
2000 1999 2000 1999
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year.......... $37,320 $34,815 $ 1,557 $ 1,634
Service cost................................. 2,408 1,575 108 65
Interest cost................................ 2,895 2,392 160 105
Plan amendments.............................. 179 - - -
Actuarial (gain)/loss........................ (5,454) 198 (152) (83)
Acquisition.................................. 3,732 - 746 -
Benefits paid................................ (1,811) (1,660) (301) (164)
------ ------ ------ ------
Benefit obligation at end of year................ $39,269 $37,320 $ 2,118 $ 1,557
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of year... $35,382 $33,901 - -
Actual return on plan assets................. 2,552 3,126 - -
Employer contributions....................... 52 15 $ 301 $ 164
Benefits paid................................ (1,811) (1,660) (301) (164)
------ ------ ------ ------
Fair value of plan assets at end of year......... $36,175 $35,382 $ - $ -
====== ====== ====== ======
Reconciliation of funded status:
Funded status.................................... $(3,094) $(1,938) $(2,118) $(1,557)
Unrecognized actuarial (gain)/loss............... (3,152) 1,820 (434) (284)
Unrecognized prior service cost.................. 162 (2) - -
------ ------ ------ ------
(Accrued)/prepaid benefit cost at
measurement date............................. $(6,084) $ (120) $(2,552) $(1,841)
Contributions made after measurement date
but before the end of the fiscal year........ - 12 - -
------ ------ ------ ------
(Accrued)/prepaid benefit cost at end of
fiscal year.................................. $(6,084) $ (108) $(2,552) $(1,841)
====== ====== ====== ======
Amounts recognized in the statement of financial
position consist of:
Prepaid pension cost............................. $ 1,195 $ 1,467 - -
Accrued pension liability........................ (7,279) (1,575) $(2,552) $(1,841)
------ ------ ------ ------
Accrued pension cost at end of year.............. $(6,084) $ (108) $(2,552) $(1,841)
====== ====== ====== ======
F-30
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
13. EMPLOYEE BENEFIT PLANS (continued)
Postretirement
Pension Benefits Benefits*
---------------- ---------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Components of net periodic benefit cost:
Service cost............................ $ 2,408 $ 1,575 $ 1,176 $108 $ 65 $ 59
Interest cost........................... 2,895 2,392 2,246 160 105 109
Expected return on plan assets.......... (3,102) (2,975) (2,545) - - -
Amortization of prior service costs..... 15 - - - - -
Recognized actuarial loss/(gain)........ 68 59 53 (1) (17) (24)
------ ------ ------ --- --- ---
Net periodic benefit cost........... $ 2,284 $ 1,051 $ 930 $267 $153 $144
====== ====== ====== === === ===
Weighted-average assumptions
as of January 31:
Discount rate........................... 8.25% 7.00% 7.00% 8.25% 7.00% 7.00%
Expected long-term rate of
return on plan assets............... 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase**......... 4.00 - 5.07% 5.11% 5.11% N/A N/A N/A
* The Company sponsors two postretirement benefit plans. One plan covers
hourly Dynasty employees. The following information applies to this plan
only:
For measurement purposes, a 7.50% annual rate of increase in the
pre-65 per capita cost of covered health care benefits was assumed for
2000. The rate will gradually decrease to 5.00% for 2005 and remain at
that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement benefit plan. A
one-percentage-point change in assumed health care cost trend rates
would have the following effects:
1% increase 1% decrease
----------- -----------
Effect on total of service and interest
cost components for fiscal 2000............. $1 -
Effect on year-end 2000 postretirement
benefit obligation.......................... $5 $(8)
The Company's contributions to the other postretirement benefit plan
are fixed so there is no medical trend rate assumption.
** Rate relates to hourly Dynasty employees and certain salaried employees.
All other covered employees have benefits unrelated to rate of pay. Fiscal
1999 and 1998 rates do not include hourly Dynasty employees.
F-31
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
13. EMPLOYEE BENEFIT PLANS (continued)
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $3,511, $460, and $0, respectively, for fiscal
2000. This plan, which covers hourly Dynasty employees, was established March 1,
1999.
(B) 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 $971, $859 and $725 for the years ended January 31, 2000,
1999, and 1998, respectively.
(C) During fiscal 2000, a new defined contribution retirement plan was
established for certain hourly employees. The Company's contributions under this
plan are based on specified percentages of the employees' earnings. The
Company's cost was $220 for the year ended January 31, 2000.
(D) The Company has Supplemental Executive Retirement Plans ("SERPs") that
cover certain executives. The SERPs are non-qualified, unfunded deferred benefit
compensation plans. Expenses related to these SERPs, which were actuarially
determined, were $518, $471 and $427 for the years ended January 31, 2000, 1999
and 1998, respectively. The liability for the Company's SERP was $1,344 and $898
as of January 31, 2000 and 1999, respectively, and was included in other
liabilities.
F-32
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
14. QUARTERLY FINANCIAL DATA (unaudited)
Quarterly financial data for the years ended January 31, 2000 and 1999
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended
January 31, 2000:
Net sales........................ $99,611 $111,819 $126,843 $127,297
Gross profit..................... 26,539 29,693 33,272 34,876
Operating income................. 9,911 13,016 15,884 17,313
Net income....................... 5,335 7,045 8,206 9,256
Net income per common share...... .43 .55 .64 .71
Net income per common share-
assuming dilution.............. .42 .54 .63 .70
For the year ended
January 31, 1999:
Net sales........................ $78,909 $80,073 $81,598 $73,386
Gross profit..................... 20,688 21,739 23,855 19,888
Operating income................. 9,141 9,590 10,498 8,342
Net income....................... 5,756 6,000 6,772 5,552
Net income per common share*..... .47 .49 .55 .45
Net income per common share -
assuming dilution*............ .45 .47 .53 .43
Due to changes in the number of average shares outstanding, quarterly
earnings per share of common stock may not add to the totals for the years.
In fiscal 2000, the Company completed two acquisitions (see Note 3). The
first quarter of fiscal 2000 includes a $1,627 pre-tax charge primarily relating
to the restructuring of the Power Electronics Division. The fourth quarter of
fiscal 2000 includes a $2,000 pre-tax charge relating to slow moving inventory
in the Power Electronics Division.
* Per share amounts have been adjusted to reflect the Company's July 24, 1998
two-for-one stock split, effected in the form of 100% stock dividend, where
appropriate.
F-33
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company has the following four reportable business segments:
The Powercom Division manufactures and markets integrated reserve power
systems and components for the standby power market which includes
telecommunications, uninterruptible power supplies and utilities. Integrated
reserve power systems monitor and regulate electric power flow and provide
backup power in the event of a primary power loss or interruption. The Powercom
Division also produces the individual components of these systems, including
reserve batteries, power rectifiers, system monitors, power boards and chargers.
The Dynasty Division manufactures and markets industrial batteries
primarily for the uninterruptible power supply, telecommunications and broadband
cable markets. Major applications of these products include wireless and
wireline telephone infrastructure, CATV signal powering, corporate data center
powering and computer network back up for use during power utility outages.
The Motive Power Division manufactures 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. These
products are marketed to end users in a broad array of industries, dealers of
fork-lift trucks and other material handling vehicles, and, to a lesser extent,
original equipment manufacturers ("OEMs").
The Power Electronics Division manufactures and markets custom, standard
and modified standard electronic power supply systems, including DC to DC
converters, for large OEMs of telecommunications equipment, office copiers,
workstations and other applications.
Summarized financial information related to the Company's business segments
for the years ended January 31, 2000, 1999 and 1998 is shown below:
Motive Power
Powercom Dynasty Power Electronics
Division Division Division Division Consolidated
-------- -------- -------- -------- ------------
Year ended January 31, 2000:
Net sales.................. $218,764 $109,753 $75,228 $61,825 $465,570
Operating income (loss).... $39,854 $19,222 $1,928 $(4,880) $56,124
Year ended January 31, 1999:
Net sales.................. $174,938 - $71,600 $67,428 $313,966
Operating income........... $29,989 - $4,203 $3,379 $37,571
Year ended January 31, 1998:
Net sales.................. $161,122 - $69,004 $77,928 $308,054
Operating income........... $24,146 - $4,210 $4,875 $33,231
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C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (continued)
Many of our facilities manufacture products for more than one segment.
Therefore, it is not practicable to disclose asset information (assets,
expenditures for long lived assets, depreciation and amortization) on a segment
basis.
Summarized financial information related to the geographic areas in which
the Company operated at January 31, 2000, 1999 and 1998 and for each of the
years then ended is shown below:
United
States International Consolidated
------ ------------- ------------
Year ended January 31, 2000:
Net sales....................... $387,601 $77,969 $465,570
Long-lived assets............... $171,689 $26,765 $198,454
Year ended January 31, 1999:
Net sales....................... $277,125 $36,841 $313,966
Long-lived assets............... $73,604 $3,325 $76,929
Year ended January 31, 1998:
Net sales....................... $272,232 $35,822 $308,054
Long-lived assets............... $70,017 $3,081 $73,098
16. RESTRUCTURING CHARGE
During the first quarter of fiscal 2000, the Company recorded a pre-tax
charge of $1,627, or $.08 per share after tax, primarily relating to the
restructuring of the Power Electronics Division. $1,251 of this pre-tax charge
is included in selling, general and administrative expenses with the remaining
$376 included in cost of sales in the accompanying consolidated statement of
income for the year ended January 31, 2000. The restructuring charge consisted
of estimated costs to close the Company's Costa Mesa, California power supply
production facility as well as contractual severance liabilities associated with
the non-renewal of the employment contracts of two of the Company's former
officers. With respect to the closing of the Costa Mesa, California production
facility, the Company implemented a restructuring plan that consisted of
transferring production primarily to its existing facility in Nogales, Mexico.
Major actions of the restructuring plan consisted of: (i) disposition of
inventory; (ii) write-off of impaired property, plant and equipment that was not
transferred to other facilities; and (iii) termination of the Power Electronics'
Costa Mesa, California work force. Details of the restructuring charge are as
follows:
F-35
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
16. RESTRUCTURING CHARGE (continued)
Cash Non-Cash Balance at
Provision Reductions Activity January 31, 2000
--------- ---------- -------- ----------------
Write-off of inventory...... $ 376 - $(376) -
Write-down of property,
plant and equipment.... 355 - (355) -
Employee severance.......... 741 $(485) - $256
Other....................... 155 (155) - -
----- ---- ---- ---
Total....................... $1,627 $(640) $(731) $256
===== ==== ==== ===
The $376 inventory write-off was determined based upon identification of
inventory associated with discontinued products. This inventory was disposed of
during the second quarter of fiscal 2000. The $355 write-down of impaired
property, plant and equipment was determined based upon the estimated cost to
completely write-down the net book value of assets not transferred to other
facilities. The Company completed the disposition of the impaired property,
plant and equipment during the third quarter of fiscal 2000. Employee severance
of $741 was charged to selling, general and administrative expenses and provided
for a reduction of approximately 50 employees, consisting of production and
administrative employees related to the Power Electronics' Costa Mesa,
California facility, and two former officers of the Company. All Power
Electronics employee terminations were completed by the end of the third quarter
of fiscal 2000, with payments being made in accordance with contractual
agreements through fiscal 2001.
F-36
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2000, 1999 and 1998
(Dollars in thousands)
Additions Additions Balance
Balance at Charged Charged at
Beginning to Costs & to Other End of
of Period Expenses Accounts(a) Deductions(b) Period
--------- -------- ----------- ------------- ------
Deducted From Assets
- --------------------
Allowance for Doubtful Accounts:
Year ended January 31, 2000....... $1,635 $823 $1,633 $1,011 $3,080
Year ended January 31, 1999....... 1,701 232 - 298 1,635
Year ended January 31, 1998....... 1,414 401 - 114 1,701
- ---------
(a) Additions related to business acquisitions.
(b) Amounts written-off, net of recoveries.
S-1