UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2001
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 16, 2001: $771,380,458
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 16, 2001: 26,115,437 shares of Common Stock, par value $.01
per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Proxy Statement Part III
to be filed pursuant to Regulation 14A ---------------------------
within 120 days after the end of Registrant's (Part of Form 10-K into which
fiscal year covered by this Form 10-K Document is incorporated.)
- -------------------------------------
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business............................................. 1
Item 2 Properties........................................... 15
Item 3 Legal Proceedings.................................... 16
Item 4 Submission of Matters to a Vote of
Security Holders.............................. 16
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.................. 16
Item 6 Selected Financial Data.............................. 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 20
Item 7A Quantitative and Qualitative Disclosure
About Market Risk................................ 27
Item 8 Financial Statements and Supplementary Data.......... 28
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 28
PART III
Item 10 Directors and Executive Officers of the Registrant... 29
Item 11 Executive Compensation............................... 29
Item 12 Security Ownership of Certain Beneficial
Owners and Management............................ 29
Item 13 Certain Relationships and Related Transactions....... 29
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................. 30
SIGNATURES.......................................................... 34
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE..... F-1
I
C&D TECHNOLOGIES, INC.
PART I
ITEM 1. BUSINESS
--------
About Our Company
- -----------------
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 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.
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.
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.
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. These power
supplies are used in the telecommunications power market and the office
equipment market in such applications as 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 Tucson, Arizona-based Power Convertibles Corporation ("PCC") which produced
DC to DC converters used in communications, computer, medical, industrial and
instrumentation markets as well as 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 and
markets industrial batteries. For reporting purposes, we have re-named the
Specialty Battery Division and JCI's 67 percent ownership interest in the joint
venture battery business in Shanghai, China the Dynasty Division.
In June 2000 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion products (primarily DC to DC converters) based in
the United Kingdom. For reporting purposes, this acquisition is included as part
of the Power Electronics Division and is referred to as C&D Technologies (NCL)
Limited ("NCL").
Fiscal Year
- -----------
Our fiscal year ends on the last day of January. Any references to a fiscal
year means the 12-month period ending January 31 of the year mentioned.
Forward-Looking Statements
- --------------------------
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
2
the Securities Exchange Act of 1934) and, accordingly, are subject to risks and
uncertainties. For such statements, C&D 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 our 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. We undertake no obligation to update or revise these
statements to reflect events or circumstances occurring after the date of this
Form 10-K.
Forward-looking statements may be identified by their use of words like
"plans," "expects," "will," "anticipates," "intends," "projects," "estimates" or
other words of similar meaning. All statements that address expectations or
projections about the future, including statements about our strategy for
growth, product development, market position, expenditures and financial
results, are forward-looking statements.
Forward-looking statements are based on certain assumptions and
expectations of future events. We cannot guarantee that these assumptions and
expectations are accurate or will be realized. Following are some of the
important factors that could cause our actual results to differ materially from
those projected in any such forward-looking statements:
o C&D operates worldwide and derives approximately 21 percent of its
revenues from sales outside the United States. Changes in the laws or
policies of governmental and quasi-governmental agencies, as well as
social and economic conditions, in the countries in which we operate
could affect our business in these countries and our results of
operations. In addition, economic factors (including inflation and
fluctuations in interest rates and foreign currency exchange rates)
and competitive factors (such as price competition, business
combinations of competitors or a decline in industry sales from
slowing economic growth) in the countries in which we conduct business
could affect our results of operations. (SEE ITEM 1. BUSINESS -
INTERNATIONAL OPERATIONS, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - IMPACT OF THE
ECONOMY AND SHIFT IN CUSTOMER DEMAND, AND ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK - MARKET RISK FACTORS.)
o Our ability to grow earnings could be affected by increases in the
cost of raw materials, particularly lead. We may not be able to fully
offset the effects of higher raw material costs through price
increases or productivity improvements. (SEE ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - RAW MATERIAL PRICING AND PRODUCTIVITY; AND INFLATION.)
o Our ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate delivery of parts and components from
our suppliers and internal manufacturing capacity. Although we work
closely with our suppliers to avoid shortages, there can be no
assurance that we will not encounter shortages in the future. A
reduction or interruption in component supply or a significant
increase in the price of one or more components could have a material
adverse effect on our operations.
3
o Our growth objectives are largely dependent on our ability to renew
our pipeline of new products and to bring those products to market.
This ability may be adversely affected by difficulties or delays in
product development, such as the inability to: identify viable new
products; successfully complete research and development projects;
obtain adequate intellectual property protection; or gain market
acceptance of the new products. Our growth objectives are also largely
dependent upon our ability to successfully expand our production
capacity.
o As part of our strategy for growth, we have made and may continue to
make acquisitions, and in the future, may make divestitures and form
strategic alliances. There can be no assurance that these will be
completed or beneficial to us.
o Our facilities are subject to a broad array of environmental laws and
regulations. The costs of complying with complex environmental laws
and regulations, as well as internal voluntary programs, are
significant and will continue to be so for the foreseeable future. Our
accruals for such costs and liabilities may not be adequate since the
estimates on which the accruals are based depend on a number of
factors including the nature of the problem, the complexity of the
site, the nature of the remedy, the outcome of discussions with
regulatory agencies and other potentially responsible parties ("PRPs")
at multiparty sites, and the number and financial viability of other
PRPs. (SEE ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - ENVIRONMENTAL REGULATIONS.)
o Our results of operations could be affected by significant pending and
future litigation adverse to C&D, such as, without limitation, product
liability, contract and employment-related claims. (SEE ITEM 3. LEGAL
PROCEEDINGS.)
o Our performance depends on our ability to attract and retain qualified
personnel. The level of competition among employers for skilled
personnel is high. We cannot assure that we will be able to continue
to attract and retain qualified personnel.
The foregoing list of important factors is not all inclusive, or
necessarily in order of importance.
Reportable Segments
- -------------------
Our operations are classified into the following reportable business
segments:
o Powercom Division
o Dynasty Division
o Power Electronics Division
o Motive Power Division
Segments are determined using the "management approach," which means the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance.
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, 2001, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.
4
The Market for Our Products
- ---------------------------
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"), utilities
and solar;
o DYNASTY DIVISION - industrial batteries used in UPS applications for
computer systems and corporate data networks, telecommunications
reserve power systems and broadband cable television ("CATV") signal
powering;
o POWER ELECTRONICS DIVISION - DC to DC converters and custom, standard
and modified standard embedded high frequency AC to DC switching power
supplies; and
o MOTIVE POWER DIVISION - motive power systems for the material handling
equipment market.
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 five percent of our total company sales during each of our last three
fiscal years.
Products and Customers by Business Segment
- ------------------------------------------
POWERCOM DIVISION - RESERVE POWER SYSTEMS
We are a leading producer of fully integrated reserve power systems that
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 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
5
branch exchange ("PBX") systems and wireless telephone systems. Our major
telecommunications customers include national long distance companies,
competitive local exchange carriers, Bell operating companies, wireless system
operators, paging systems and PBX telephone locations using fiber optic,
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(R) AGM Series Power Plant and the Liberty(R) ACM Series Power
Plant, 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
originally designed and patented by the Bell Laboratories of AT&T for use in
AT&T's own facilities and customer installations. In 1996, AT&T spun off its
equipment manufacturing operations into Lucent Technologies, Inc. In January
2001, we began selling Round Cell reserve power batteries to Tyco International,
Ltd. ("Tyco") as a result of Lucent Technologies, Inc.'s sale of its Power
Systems business to Tyco. Our company or its predecessor has manufactured Round
Cells for AT&T, Lucent Technologies, Inc. or Tyco since 1972 and has been the
exclusive manufacturer since 1982.
UNINTERRUPTIBLE POWER SUPPLIES. We produce batteries for UPS systems, which
provide instant battery backup in the event of primary power loss or
interruption, thereby permitting an orderly shutdown of equipment or continued
operation for a limited period of time until a power 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 until a power source comes back on-line.
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, corporate data
center backup, computer network backup for use during power outages and CATV
signal powering. 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, thereby
permitting an orderly shutdown of equipment or continued operation for a limited
period of time until a power 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
6
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.
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.
CATV SIGNAL POWERING AND BROADBAND. Dynasty(R) Broadband Series batteries
are designed for demanding standby float applications in abusive environments.
These 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 Dynasty(R) 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.
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. These 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.
7
Motive Power Division - Motive Power Systems
Our customers use the majority of our motive power products to provide
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)
battery, which we believe is the industry standard for long life and the
V-Line(R) battery for general material handling applications. We also offer a
broad line of battery charging equipment.
Sales, Installation and Servicing
- ---------------------------------
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 throughout the United States and Canada.
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 sales 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 business relationships with sales representatives and
distributors throughout the world.
No single customer of C&D amounted to 10 percent or more of our net sales
for the year ended January 31, 2001. We typically sell our products with 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 25
8
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 flooded standby power batteries sold by our Powercom Division.
Backlog
- -------
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. Period-to-period comparisons may not be meaningful.
Certain orders may be canceled by the customer prior to shipment.
Our order backlog at March 31, 2001 was $165,416,000 and at March 31, 2000
was $145,998,000. We expect to fill virtually all of the March 31, 2001 backlog
during fiscal 2002.
Manufacturing and Raw Materials
- -------------------------------
We manufacture our products at eight domestic plants, two plants in China,
two in the United Kingdom and one each in Mexico and Ireland. 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. In 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.
No facilities were closed during fiscal 2001.
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 Tyco, we use a number of suppliers to satisfy our raw materials
needs.
ISO 9000 RECOGNITION. During fiscal 2001 we continued our program of ISO
recognition and received ISO 9001 certification at our Huguenot, New York
facility. ISO certification assures customers that our internal processes and
systems meet internationally recognized standards. We are ISO 9001 certified at
the following other domestic locations: Blue Bell, Pennsylvania Headquarters;
Conshohocken, Pennsylvania R&D Battery Laboratories; Conyers, Georgia; Dunlap,
Tennessee; Leola, Pennsylvania; Milwaukee, Wisconsin and Tucson, Arizona.
Internationally, we are ISO 9001 certified at our operations in Nogales, Mexico;
Shanghai, China and Shannon, Ireland. All of NCL's operations are either ISO
9001 or 9002 certified.
Competition
- -----------
Our products compete on the basis of:
o product quality and reliability;
o reputation;
o customer service;
9
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 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,
EnerSys Inc. (formerly 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 larger market share than our
smaller competitors.
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
- ------------------------
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 the United States 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 our businesses. During fiscal 2001, our Powercom
Division introduced the LCT 1700 and the FAM 150 batteries. The LCT 1700 is a
flooded battery designed with improved post seals and high rate performance and
is sold exclusively to Tyco. The FAM 150 is a valve-regulated battery designed
with front access to the battery terminals, resulting in easier installation and
maintenance. Also during fiscal 2001, the Powercom Division successfully
marketed a new variation of its ACM1200 modular
10
power plant, the ACM1200I, which consists of a space saving design resulting in
a 30 percent smaller footprint than the original ACM1200.
International Operations
- ------------------------
In addition to our domestic manufacturing facilities, we have international
manufacturing facilities in Mexico, Ireland, China and the United Kingdom.
Products produced by our domestic, Mexican and Irish facilities are shipped
primarily 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. Our Power Electronics Division
facilities in the United Kingdom and Guangzhou, China manufacture electronics
that are sold primarily in Europe, North America, and to a lesser extent, the
Far East. International sales accounted for 20.9%, 16.4% and 11.8% of net sales
for the years ended January 31, 2001, 2000 and 1999, respectively. Additional
financial information regarding our international sales is provided in Note 15
to the Consolidated Financial Statements. See Part II, Item 8.
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 TECHNOLOGIES
POWER SOLUTIONS(R), C&D POWERCOM(R), DYNASTY(R), LIBERTY(R), LIBERTY SERIES(R),
MAXIMIZER(R) and ORION(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 trademarks also include C-LINE(TM), COMPUCHARGE(R), FERRO
FIVE(R), RANGER(R), RANGERNET(R), SCOUT(R) and V-LINE(R).
Employees
- ---------
On March 31, 2001 we had approximately 4,000 employees. Of these employees,
approximately 3,100 were employed in manufacturing and almost 900 were employed
in field sales, technology, manufacturing support, sales support, marketing and
administrative activities.
Our management considers our employee relations to be satisfactory.
Employees in four domestic plants are represented by four different unions under
collective bargaining agreements.
11
Environmental Regulation
- ------------------------
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;
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 non-compliance, we take action to
achieve compliance and work with authorities to satisfactorily resolve the
issues. 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 certain damages and for the costs of the
investigation and remediation, which could have a material adverse effect on our
business, financial condition or results of operations.
12
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 PRP 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 referred to in the preceding paragraph, 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.
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 with this matter.
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.
Assessment and remediation of off-site contamination was completed and the full
remediation report was submitted to the state in February 1999. We have received
verbal confirmation from the state environmental agency that no further action
will be required and that the site will 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 Specialty Battery Division from JCI. The majority of
this project is expected to be completed by the end of fiscal 2002. 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 maximum liability of $1,750,000,
(ii) any environmental liabilities at the facility that 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 Milwaukee facility to locations other than the
Milwaukee 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 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
13
penalty assessment could be made, however there is insufficient information
currently available to permit us to estimate our potential liability, if any.
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. The costs and potential
liabilities associated with these matters are not, in our opinion, likely to
materially affect our business, financial condition or results of operations.
We are working towards 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 that is intended to provide
organizations with the elements of an effective environmental management system
that can be integrated with other management requirements to assist with the
achievement of environmental and economic goals.
14
ITEM 2. PROPERTIES
----------
Set forth below is certain information, as of April 16, 2001, 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)....................... 272,000 Large standby power batteries
Leola, Pennsylvania (1)................... 235,000 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, battery R&D
laboratories, distribution center
Dunlap, Tennessee (2)..................... 72,000 Standby power and motive power electronics
products
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, Mexico (3)....................... 97,000 DC to DC converters and power supplies
Guangzhou, China (3)...................... 35,000 DC to DC converters and wound magnetics
Milton Keynes, United Kingdom (3)......... 33,000 DC to DC converters, wound magnetics and
electronics R&D laboratories
Romsey, United Kingdom (3)................ 21,000 Distribution center
Mississauga, 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
Workington, United Kingdom (3)............ 12,000 DC to DC converters and AC to DC power
supplies
(footnotes begin on following page)
15
(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 44 years remain.
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 January 2000, C&D was
sued in an action captioned PUERTO RICO ELECTRIC POWER AUTHORITY V. C&D
TECHNOLOGIES, INC., Case No. 00-1104 in the United States District Court for the
District of Puerto Rico, for an alleged breach of contract in connection with
the sale of certain batteries dating back to the mid-1990s. In August 2000, we
entered into a settlement agreement with respect to this claim, the cost of
which was recovered from our insurance carriers during the first quarter of
fiscal 2002.
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 16, 2001 was 14,800.
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.
16
Year Ended
-----------------------------------------------
January 31, 2001 January 31, 2000
----------------- -----------------
Fiscal Quarter* High Low High Low
-------------- ---- --- ---- ---
First Quarter............... $33.00 $20.38 $13.31 $10.09
Second Quarter.............. 61.38 29.75 15.50 12.88
Third Quarter............... 61.88 31.38 19.38 15.06
Fourth Quarter.............. 58.25 36.88 21.38 15.69
DIVIDENDS. We began paying quarterly cash dividends on our Common Stock in
April 1987. For the years ended January 31, 2001 and 2000 we declared quarterly
dividends per share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2001*..... $0.01375 $0.01375 $0.01375 $0.01375
2000*..... $0.01375 $0.01375 $0.01375 $0.01375
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. 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. 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 purchase
price of $150* per one one-hundredth of a share, subject to adjustment, as
stated in the Rights Agreement. Upon the occurrence of certain events involving
a hostile takeover of C&D, unless our Board of Directors acts otherwise, each
holder of a Right, other than Rights beneficially owned by the acquiring
company, will thereafter have the right to receive upon exercise: (i) that
number of shares of our common stock having a market value equal to two times
the purchase price of the Right or (ii) that number of shares of common stock of
the acquiring company that at the time of the transaction has a market value of
two times the exercise price of the Right. A summary of the Rights Agreement is
included in C&D's Form 8-K Current Report filed with the Securities and Exchange
Commission dated February 22, 2000.
* Adjusted to reflect C&D's June 16, 2000 two-for-one stock split, effected
in the form of a 100% stock dividend, where appropriate.
17
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)
- -------------------------------
2001(1) 2000(2) 1999 1998 1997(3)
------- ------- ---- ---- -------
Statement of Income Data:
- -------------------------
Net sales*............................. $615,678 $482,182 $321,937 $315,313 $294,299
Cost of sales*......................... 439,135 357,802 235,767 234,139 227,211
------- ------- ------- ------- -------
Gross profit......................... 176,543 124,380 86,170 81,174 67,088
Selling, general and
administrative expenses.............. 66,243 59,315 40,344 39,333 34,499
Research and development
Expenses............................. 10,281 8,941 8,255 8,610 8,143
------- ------- ------- ------- -------
Operating income....................... 100,019 56,124 37,571 33,231 24,446
Interest expense, net.................. 6,315 7,946 126 1,129 1,396
Other (income) expense, net............ (725) (20) 211 1,058 (8)
------- ------- ------- ------- -------
Income before income taxes and
Minority interest.................... 94,429 48,198 37,234 31,044 23,058
Provision for income taxes............. 35,883 17,737 13,154 11,359 8,121
------- ------- ------- ------- -------
Net income before minority
Interest............................. 58,546 30,461 24,080 19,685 14,937
Minority interest...................... 2,651 619 - - -
------- ------- ------- ------- -------
Net income............................. $ 55,895 $ 29,842 $ 24,080 $ 19,685 $ 14,937
======= ======= ======= ======= =======
Net income per common
share (4)**.......................... $ 2.13 $ 1.17 $ .97 $ .81 $ .60
======= ======= ======= ======= =======
Net income per common share -
assuming dilution (5)**.............. $ 2.05 $ 1.14 $ .94 $ .78 $ .58
======= ======= ======= ======= =======
Dividends per common share**........... $ .06 $ .06 $ .04 $ .03 $ .03
======= ======== ======= ======= =======
Balance Sheet Data:
- ------------------
Working capital........................ $ 75,895 $ 65,079 $ 63,688 $ 47,342 $ 45,436
Total assets........................... 455,519 354,115 185,642 166,498 159,973
Short-term debt........................ 18,172 20,393 532 321 476
Long-term debt......................... 98,849 76,459 1,750 10,267 29,351
Stockholders' equity................... 218,054 162,066 123,538 97,305 74,906
- ----------
* Reclassified for comparative purposes.
** Adjusted to reflect stock splits.
(footnotes begin on the following page)
18
(1) In December 2000 (effective as of November 26, 2000), we acquired NCL,
a producer of electronic power conversion products (primarily DC to DC
converters) based in the United Kingdom. For reporting purposes, the acquisition
of NCL is included in the Power Electronics Division. We continue to use the
assets acquired in such business. See notes to consolidated financial
statements.
(2) Effective March 1, 1999, we 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 percent of the ordinary shares of Johnson Controls Battery (U.K.)
Limited, an indirect wholly owned subsidiary of JCI. In addition, C&D assumed
certain liabilities of the seller. The Specialty Battery Division was engaged in
the business of designing, manufacturing, marketing and distributing industrial
batteries. We continue to use the assets acquired in such business. On August 2,
1999 we 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 industrial batteries. We continue the
joint venture operations in such business. For reporting purposes, we have
re-named the Specialty Battery Division and JCI's 67 percent ownership interest
of the joint venture battery business in Shanghai, China the Dynasty Division.
See notes to consolidated financial statements.
(3) In February 1996, we acquired substantially all the assets of LH, a
producer and marketer of standard power supply systems for the electronics
industry. In March 1996, we acquired PCC, a producer of DC to DC converters used
in communications, computer, medical, industrial and instrumentation markets.
(4) Based on 26,223,684, 25,529,778, 24,730,366, 24,442,740 and 25,034,216
weighted average shares outstanding (adjusted to reflect stock splits).
(5) Based on 27,264,528, 26,088,402, 25,671,724, 25,263,648 and 25,756,660
weighted average shares outstanding (adjusted to reflect stock splits).
19
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 2001, primarily due to continued positive economic
conditions, there was a higher demand for our standby power products sold by the
Powercom and Dynasty Divisions and higher demand for DC to DC converters sold by
our Power Electronics Division. Due to deteriorating economic conditions, demand
for products sold by the Power Electronics Division has softened during the
first quarter of fiscal 2002, particularly with respect to the division's
largest customer.
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 2001, 2000 and 1999, the average North American producer
price of lead was $.45, $.45 and $.47 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 increases in labor productivity;
o improvements in overall manufacturing efficiencies; and
o price increases of our products.
20
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
-------------------------------
2001 2000* 1999*
---- ---- ----
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 71.3 74.2 73.2
----- ----- -----
Gross profit...................................... 28.7 25.8 26.8
Selling, general and administrative expenses........ 10.8 12.3 12.5
Research and development expenses................... 1.7 1.9 2.6
----- ----- -----
Operating income.................................. 16.2 11.6 11.7
Interest expense, net............................... 1.0 1.6 -
Other expense, net.................................. (0.1) - 0.1
----- ----- -----
Income before income taxes and minority interest.. 15.3 10.0 11.6
Provision for income taxes.......................... 5.8 3.7 4.1
----- ----- -----
Net income before minority interest............... 9.5 6.3 7.5
Minority interest................................... 0.4 0.1 -
----- ----- -----
Net income........................................ 9.1% 6.2% 7.5%
===== ===== =====
* Reclassified for comparative purposes.
Fiscal 2001 Compared to Fiscal 2000
- -----------------------------------
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
In December 2000 (effective as of November 26, 2000), we acquired NCL, a
producer of electronic power conversion products (primarily DC to DC converters)
based in the United Kingdom. For reporting purposes, the acquisition of NCL is
included in the Power Electronics Division. We continue to use the assets
acquired in such business.
Effective March 1, 1999, we 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
21
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 industrial batteries. For reporting purposes, we have
re-named the Specialty Battery Division and JCI's 67 percent ownership interest
in the joint venture battery business in Shanghai, China the Dynasty Division.
As a result of the timing of the above acquisitions, fiscal 2000, which ended
January 31, 2000, does not include revenue or expenses for one month of the
twelve-month period with respect to our acquisition of the Specialty Battery
Division of JCI and does not include revenue or expenses for six months of the
twelve-month period with respect to our acquisition of JCI's 67 percent
ownership interest in a joint venture battery business in Shanghai, China.
Net sales for fiscal 2001 increased $133,496 or 28 percent to $615,678 from
$482,182 in fiscal 2000. This increase resulted from higher sales by all
divisions except for the Motive Power Division, which had a two percent decrease
in sales. Sales by the Power Electronics Division increased $47,710 or 76
percent versus the prior year due to higher DC to DC converter sales, partially
offset by lower sales of custom power supplies. A portion of this increase was
due to the recording of two months of sales associated with the recent
acquisition of NCL. Sales by the Dynasty Division increased $47,382, or 41
percent, due to higher sales to the UPS and telecommunications markets. A
portion of this increase was due to the recording of a full year of sales of the
Dynasty Division during fiscal 2001 compared to only eleven months in fiscal
2000. Also contributing to the increase in Dynasty Division sales during fiscal
2001 was the recording of a full year of sales related to our 67 percent
ownership interest in the joint venture battery business, compared to only six
months in the prior year. Powercom divisional sales increased $39,751 or 18
percent, as a result of higher sales to the telecommunications and UPS markets.
Gross profit for fiscal 2001 increased $52,163 or 42 percent to $176,543
from $124,380 in the prior year, resulting in an increase in gross margin from
25.8 percent to 28.7 percent. The Dynasty, Power Electronics and Powercom
divisions had higher gross profits in fiscal 2001 primarily due to increased
sales volumes. Gross profit of the Motive Power Division decreased primarily as
a result of manufacturing inefficiencies.
Selling, general and administrative expenses for fiscal 2001 increased
$6,928 or 12 percent. This increase was primarily due to: (i) higher variable
selling costs associated with the increased sales volumes; (ii) higher
litigation settlement costs (the cost of which was recovered from our insurance
carriers in the first quarter of fiscal 2002); (iii) higher bonus accruals; (iv)
the recording of a full year of selling, general and administrative expenses
during fiscal 2001 by the Dynasty Division, compared to only eleven months in
the prior year; (v) the recording of a full year of selling, general and
administrative expenses during fiscal 2001 by our 67 percent ownership interest
in the Shanghai joint venture compared to only a half year in fiscal 2000; (vi)
the recording of two months of selling, general and administrative expenses
during fiscal 2001 associated with the recent acquisition of NCL; partially
offset by the absence in fiscal 2001 of restructuring charges, primarily related
to the Power Electronics Division, which were recorded in fiscal 2000.
Research and development expenses remained proportional to sales as a
relative percentage of sales for both fiscal 2001 and 2000 at approximately two
percent of sales.
Operating income increased $43,895 or 78 percent to $100,019 from $56,124
in the prior year. This increase was the result of higher operating income
generated by the Dynasty, Power Electronics and Powercom divisions, partially
offset by an operating loss for the Motive Power Division. The Power Electronics
Division generated operating income during fiscal 2001, compared to an operating
loss in
22
the prior year. (See the segment reporting information in Note 15, Operations by
Industry Segment and Geographic Area in the Notes to the Consolidated Financial
Statements.)
Interest expense, net, decreased $1,631 in fiscal 2001 compared to the
prior year primarily due to lower weighted average debt balances outstanding
during the year, coupled with higher capitalized interest resulting from our
increased level of capital spending.
Income tax expense for fiscal 2001 increased $18,146 from fiscal 2000,
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
2001 increased to 38.0 percent from 36.8 percent in the prior year.
Minority interest of $2,651 in fiscal 2001 reflects the 33 percent
ownership interest in the joint venture battery business located in Shanghai,
China that is not owned by C&D. The increase in minority interest was due to
improved profitability coupled with recording a full year of results in the
current year compared to only six months in the prior year.
As a result of the above, for fiscal 2001, net income increased $26,053 or
87 percent to $55,895 or $2.13 per share - basic and $2.05 per share - assuming
dilution. The above per share amounts reflect our June 16, 2000 two-for-one
stock split, effected in the form of a 100 percent stock dividend.
Fiscal 2000 Compared to Fiscal 1999
- -----------------------------------
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
Net sales for fiscal 2000 increased $160,245 or 50 percent to $482,182 from
$321,937 in fiscal 1999. This increase was primarily due to sales of $115,690
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 $46,312 or 26 percent over the prior year, primarily
due to higher sales to the telecommunications market. Motive Power divisional
sales increased $3,676 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 $5,433 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 $.04 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
23
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.
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
losses 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
interest in 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 $1.17 per common share - basic and $1.14 per common
share - assuming dilution. The above per share amounts reflect our June 16, 2000
two-for-one stock split, effected in the form of a 100% stock dividend.
24
Restructuring Charge
- --------------------
During the first quarter of fiscal 2000, we recorded a pre-tax charge of
$1,627, or $.04 per share after tax (as adjusted for our June 16, 2000
two-for-one stock split, effected in the form of a 100% stock dividend),
primarily relating to the restructuring of the Power Electronics Division. Of
this pre-tax charge, $1,251 was 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 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 Division's Costa Mesa, California workforce. Restructuring
activity for the years ended January 31, 2001 and 2000 was as follows:
Balance at Balance at
January 31, Provision January 31,
2000 Cash Reductions Reduction 2001
---- --------------- --------- ----
Employee severance.................. $ 256 $(195) $ (61) -
----- ---- ---- ---
Total............................... $ 256 $(195) $ (61) -
===== ==== ==== ===
April Balance at
1999 Non-Cash January 31,
Provision Cash 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 Division's Costa Mesa,
California facility, and two former officers of C&D. 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.
25
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased $17,590 or 29 percent
to $79,140 in fiscal 2001, compared to $61,550 in fiscal 2000. This increase in
net cash provided by operating activities was primarily due to increases in net
income, depreciation and amortization. Also contributing was the change in
deferred taxes and a smaller increase in accounts receivable during the current
year. These changes, resulting in higher net cash provided by operating
activities, were partially offset by an overall increase in working capital.
Net cash used by investing activities totaling $92,005 for fiscal 2001
includes our acquisition of NCL. Net cash used by investing activities of
$149,491 in fiscal 2000 included the acquisition of the Specialty Battery
Division of JCI and the acquisition of JCI's 67 percent ownership interest in a
joint venture battery business located in Shanghai, China. In fiscal 2001,
acquisition of property, plant and equipment increased $26,365 or 179 percent
over the prior year, primarily for capacity expansions.
Net cash provided by financing activities was $13,624 in fiscal 2001
compared to $90,050 in the prior year. The proceeds from new borrowings in
fiscal 2000 and 2001 were primarily used to fund the aforementioned
acquisitions. Net cash used for financing activities during fiscal 2001 also
includes the purchase of $6,931 of treasury stock.
The availability under our 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. This
agreement contains restricted covenants that require us to maintain minimum
ratios such as fixed charges coverage and leverage ratios, as well as minimum
consolidated net worth. We were in compliance with our loan agreement covenants
at January 31, 2001. Capital expenditures during fiscal 2001 were incurred
primarily to fund capacity expansion, new product development, a continuing
series of cost reduction programs, normal maintenance capital and regulatory
compliance. Fiscal 2002 capital expenditures are expected to be approximately
$75,000 for similar purposes.
Conversion to the Euro Currency
- -------------------------------
On January 1, 1999, the Euro was adopted as the common legal currency for
European Union member nations, in coexistence with the national currencies of
these 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 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
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, SFAS No. 138 was
issued which includes several amendments to SFAS No. 133. The new standard is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We adopted SFAS No. 133, including the amendments in SFAS No. 138, on
February 1, 2001. The new standard
26
requires that all derivative instruments be reported on the balance sheet at
their fair values. For derivative instruments designated as fair value hedges,
changes in the fair value of the derivative instrument will generally be offset
on the income statement by changes in the fair value of the hedged item. For
derivative instruments designated as cash flow hedges, the effective portion of
any hedge is reported in other comprehensive income until it is cleared to
earnings during the same period in which the hedged item affects earnings. The
ineffective portion of all hedges will be recognized in current earnings each
period. Changes in the fair value of derivative instruments that are not
designated as a hedge will be recorded each period in current earnings.
Using market valuations for derivatives held as of January 31, 2001, as a
guide, we determined that on February 1, 2001, the cumulative-effect adjustment
to net income and accumulated other comprehensive loss was not material.
At this time, we plan no significant change in our risk management
strategies due to the adoption of SFAS No. 133.
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 to the Consolidating Financial Statements.)
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 (excluding capital lease obligations) was $117,002 and $96,797 at
January 31, 2001 and 2000, respectively. The debt instruments are subject to
variable rate interest and therefore the market value is not sensitive to
interest rate movements.
Interest rate swap contracts are used 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.
The net market value of our interest rate swaps was $(165) and $1,165 at
January 31, 2001 and 2000, respectively. A 100-basis point increase in rates at
January 31, 2001 and 2000 would result in a $349 and an $861 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2001 and 2000 would result in a $357 and an $878 decrease in the market value,
respectively.
27
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 British Pound,
Canadian Dollar, Euro and Mexican Peso. These financial instruments represent a
net market value of $(179) and $49 at January 31, 2001 and 2000, respectively.
To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10 percent devaluation of the
British Pound, Canadian Dollar, Euro and Mexican Peso to the US Dollar.
The sensitivity analysis assumes an instantaneous 10 percent change in
foreign currency exchange rates from year-end levels, with all other variables
being held constant. At January 31, 2001 and 2000, a 10 percent strengthening of
the US Dollar versus these currencies would result in an increase of the net
market value of the forwards and swaps of $3,106 and $178, respectively. At
January 31, 2001 and 2000, a 10 percent weakening of the US Dollar versus these
currencies would result in a decrease in the net market value of the forwards
and swaps of $3,167 and $35, 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, 2001 and
2000, 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.
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item 10 is incorporated by reference to
the information under the captions "Management" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" included in C&D's proxy statement
for our 2001 Annual Meeting of Stockholders to be filed with the commission.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item 11 is incorporated by reference to
the information under the caption "Executive Compensation" included in C&D's
proxy statement for our 2001 Annual Meeting of Stockholders to be filed with the
commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item 12 is incorporated by reference to
the information under the captions "Principal Stockholders" and "Management"
included in C&D's proxy statement for our 2001 Annual Meeting of Stockholders to
be filed with the commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
29
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, 2001 and 2000
Consolidated Statements of Income for the years ended January 31,
2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended January 31,
2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the years ended
January 31, 2001, 2000 and 1999
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, 2001, 2000 and 1999
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 (incorporated by reference to
Exhibit 3.2 to C&D's Annual Report on Form 10-K for the fiscal
year ended January 31, 2000).
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).
30
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 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 thereto dated
February 18, 2000 (incorporated by reference to Exhibit 10.5 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000), Second Amendment thereto dated July 20, 2000
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 2000), Third
Amendment thereto dated July 24, 2000 (incorporated by reference
to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the
quarter ended July 31, 2000), Fourth Amendment thereto dated
October 13, 2000 (incorporated by reference to Exhibit 10.1 to
C&D's Current Report on Form 8-K dated December 15, 2000), Fifth
Amendment thereto dated October 13, 2000 (incorporated by
reference to Exhibit 10.2 to C&D's Current Report on Form 8-K
dated December 15, 2000), Sixth Amendment thereto dated April 4,
2001 (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).
31
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 thereto (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 thereto (incorporated by reference to
Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1999), Third Amendment thereto dated
November 28, 2000 (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the period ended October
31, 2000).
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), Seventh
Amendment thereto dated November 29, 2000 (incorporated by
reference to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q
for the period ended October 31, 2000).
10.10 Supplemental Executive Retirement Plan, amended and restated as
of February 27, 2001 (filed herewith).
10.11 C&D Technologies, Inc. Incentive Compensation Plan for the year
ended January 31, 2001 (incorporated by reference to Exhibit 10.1
to C&D's Quarterly Report on Form 10-Q for the quarter ended
April 30, 2000).
10.12 Employment Agreement dated November 28, 2000 between Wade H.
Roberts, Jr. and C&D (incorporated by reference to Exhibit 10.1
to C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 2000).
10.13 Employment Agreement dated March 31, 2000 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit 10.14
to C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.14 Employment Agreement dated March 31, 2000 between Linda R.
Hansen and C&D (incorporated by reference to Exhibit 10.15 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
32
10.15 Employment Agreement dated March 31, 2000 between Mark Z. Sappir
and C&D (incorporated by reference to Exhibit 10.16 to C&D's
Annual Report on Form 10-K for the fiscal year ended January 31,
2000).
10.16 Employment Agreement dated March 31, 2000 between Charles
Giesige, Sr. and C&D (incorporated by reference to Exhibit 10.18
to C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.17 Employment Agreement dated March 31, 2000 between John Rich and
C&D (incorporated by reference to Exhibit 10.20 to C&D's Annual
Report on Form 10-K for the fiscal year ended January 31, 2000).
10.18 Employment Agreement dated March 31, 2000 between Apostolos T.
Kambouroglou and C&D (incorporated by reference to Exhibit 10.21
to C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.19 Employment Agreement dated March 31, 2000 between Kathryn
Bullock and C&D (incorporated by reference to Exhibit 10.22 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.20 C&D Technologies, Inc. Nonqualified Deferred Compensation Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-42054).
10.21 Employment Agreement dated March 1, 2001 between David Fix and
C&D (filed herewith).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
(b) REPORTS ON FORM 8-K
On December 28, 2000, C&D filed a Form 8-K Current Report dated
December 15, 2000 under Item 2 to report the acquisition of NCL, a
producer of electronic conversion products (primarily DC to DC
converters) based in the United Kingdom.
33
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 26, 2001 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 26, 2001
- ---------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 26, 2001
- ---------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer
/s/ William Harral, III Director, Chairman April 26, 2001
- ----------------------------
William Harral, III
/s/ Stephen J. Andriole Director April 26, 2001
- ----------------------------
Stephen J. Andriole
/s/ Adrian A. Basora Director April 26, 2001
- ----------------------------
Adrian A. Basora
/s/ Peter R. Dachowski Director April 26, 2001
- ----------------------------
Peter R. Dachowski
/s/ Kevin P. Dowd Director April 26, 2001
- ----------------------------
Kevin P. Dowd
/s/ Pamela S. Lewis Director April 26, 2001
- ----------------------------
Pamela S. Lewis
/s/ George MacKenzie Director April 26, 2001
- ----------------------------
George MacKenzie
/s/ John A. H. Shober Director April 26, 2001
- ----------------------------
John A. H. Shober
34
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, 2001 and 2000.............................. F-3
Consolidated Statements of Income
for the years ended January 31, 2001, 2000
and 1999............................................... F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2001, 2000 and 1999.................. F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 2001, 2000
and 1999............................................... F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 2001,
2000 and 1999.......................................... F-8
Notes to Consolidated Financial Statements............... F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 2001, 2000 and 1999
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 30 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2001 and January 31, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)(2) on page 30
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 of America, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 6, 2001
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 7,709 $ 7,121
Accounts receivable, less allowance for doubtful
accounts of $4,121 in 2001 and $3,080 in 2000............. 88,596 76,161
Inventories................................................... 77,493 60,965
Deferred income taxes......................................... 10,990 10,158
Other current assets.......................................... 1,459 1,256
------- -------
Total current assets...................................... 186,247 155,661
Property, plant and equipment, net................................. 130,387 100,813
Deferred income taxes.............................................. - 803
Intangible and other assets, net................................... 23,309 22,692
Goodwill, net...................................................... 115,576 74,146
------- -------
Total assets.............................................. $455,519 $354,115
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................... $ 18,172 $ 20,393
Accounts payable.............................................. 45,935 36,680
Accrued liabilities........................................... 34,918 26,996
Income taxes.................................................. 2,533 2,018
Other current liabilities..................................... 8,794 4,495
------- -------
Total current liabilities................................. 110,352 90,582
Deferred income taxes.............................................. 1,135 -
Long-term debt..................................................... 98,849 76,459
Other liabilities.................................................. 20,133 20,663
------- -------
Total liabilities......................................... 230,469 187,704
Commitments and contingencies
Minority interest.................................................. 6,996 4,345
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,276,917 and 27,867,480
shares issued in 2001 and 2000, respectively*............. 283 279
Additional paid-in capital*................................... 62,908 53,829
Treasury stock, at cost, 1,986,038 and
1,810,204 shares in 2001 and 2000, respectively*..... (17,750) (10,819)
Accumulated other comprehensive loss.......................... (1,231) (617)
Retained earnings............................................. 173,844 119,394
------- -------
Total stockholders' equity................................ 218,054 162,066
------- -------
Total liabilities and stockholders' equity................ $455,519 $354,115
======= =======
* Adjusted to reflect the Company's June 16, 2000 two-for-one stock split,
effected in the form of a 100% stock dividend.
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)
2001 2000 1999
---- ---- ----
Net sales*........................................... $615,678 $482,182 $321,937
Cost of sales*....................................... 439,135 357,802 235,767
------- ------- -------
Gross profit................................ 176,543 124,380 86,170
Selling, general and administrative
expenses.................................... 66,243 59,315 40,344
Research and development expenses.................... 10,281 8,941 8,255
------- ------- -------
Operating income............................ 100,019 56,124 37,571
Interest expense, net................................ 6,315 7,946 126
Other (income) expense, net.......................... (725) (20) 211
------- ------- -------
Income before income taxes
and minority interest..................... 94,429 48,198 37,234
Provision for income taxes........................... 35,883 17,737 13,154
------- ------- -------
Net income before minority
interest.................................. 58,546 30,461 24,080
Minority interest.................................... 2,651 619 -
------- ------- -------
Net income.................................. $ 55,895 $ 29,842 $ 24,080
======= ======= =======
Net income per common share**........................ $ 2.13 $ 1.17 $ .97
Net income per common share -
assuming dilution**......................... $ 2.05 $ 1.14 $ .94
* Reclassified for comparative purposes.
** Per share amounts have been adjusted to reflect the Company's June 16, 2000
two-for-one stock split, effected in the form of a 100% stock dividend.
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, 2001, 2000 and 1999
(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, 1998........ 26,457,796 $265 $41,231 (1,810,204) $(10,819) $(1,029) $(248) $67,905
Net income................ 24,080
Dividends to stockholders,
$.04125 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.. 4,968 72
Stock options exercised... 274,674 3 1,200
---------- --- ------ --------- ------- ------- ---- ------
Balance as of
January 31, 1999........ 26,737,438 268 43,295 (1,810,204) (10,819) - (169) 90,963
Net income................ 29,842
Dividends to stockholders,
$.055 per share*........ (1,411)
Tax effect relating to
stock options exercised. 3,736
Cumulative translation
adjustment.............. (448)
Issuance of common stock.. 10,586 161
Stock options exercised... 1,119,456 11 6,637
---------- --- ------ --------- ------- ------- ---- ------
Balance as of
January 31, 2000........ 27,867,480 279 53,829 (1,810,204) (10,819) - (617) 119,394
Net income................ 55,895
Dividends to stockholders,
$.055 per share*........ (1,445)
Tax effect relating to
stock options exercised. 4,420
Cumulative translation
adjustment.............. (614)
Purchase of common stock.. (174,400) (6,856)
Deferred compensation plan (1,434) (75)
Issuance of common stock.. 3,418 179
Stock options exercised... 406,019 4 4,480
---------- --- ------ --------- ------- ------- ---- ------
Balance as of
January 31, 2001........ 28,276,917 $283 $62,908 (1,986,038) $(17,750) $ - $(1,231) $173,844
========== === ====== ========== ======= ======= ====== =======
* Adjusted to reflect the Company's June 16, 2000 and June 24, 1998
two-for-one stock splits, effected in the form of 100% stock dividends,
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)
2001 2000 1999
---- ---- ----
Cash flows provided (used) by operating activities:
Net income............................................. $ 55,895 $ 29,842 $ 24,080
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest...................................... 2,651 619 -
Depreciation and amortization.......................... 26,054 21,671 11,289
Deferred income taxes.................................. 1,106 (3,047) 1
Loss on disposal of assets............................. 783 988 224
Changes in:
Accounts receivable............................. (8,935) (12,100) (1,498)
Inventories..................................... (13,888) 1,466 (9,075)
Other current assets............................ (213) 486 (471)
Accounts payable................................ 936 5,224 1,191
Accrued liabilities............................. 6,960 4,648 1,617
Income taxes payable............................ 4,177 6,059 (2,777)
Other current liabilities....................... 4,299 913 (464)
Other liabilities............................... (528) 3,990 1,944
Other, net............................................. (157) 791 361
------- ------- -------
Net cash provided by operating activities................ 79,140 61,550 26,422
------- ------- -------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net......................... (51,095) (134,878) -
Acquisition of property, plant and equipment........... (41,075) (14,710) (15,761)
Proceeds from disposal of property,
plant and equipment.................................. 165 97 69
------- ------- -------
Net cash used by investing activities.................... (92,005) (149,491) (15,692)
------- ------- -------
Cash flows provided (used) by financing activities:
Repayment of debt...................................... (27,928) (17,374) (8,308)
Proceeds from new borrowings........................... 45,700 104,898 -
Financing cost of long-term debt....................... (258) (2,727) -
Repayment of notes receivable from stockholders........ - - 1,057
Proceeds from issuance of common stock, net............ 4,484 6,648 1,203
Purchase of treasury stock............................. (6,931) - -
Payment of common stock dividends...................... (1,443) (1,395) (848)
------- ------- -------
Net cash provided (used) by financing activities......... 13,624 90,050 (6,896)
------- ------- -------
Effect of exchange rate changes on cash.................. (171) 9 2
------- ------- -------
Increase in cash and cash equivalents.................... 588 2,118 3,836
Cash and cash equivalents at beginning of year........... 7,121 5,003 1,167
------- ------- -------
Cash and cash equivalents at end of year................. $ 7,709 $ 7,121 $ 5,003
======= ======= =======
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)
2001 2000 1999
---- ---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net............................... $ 6,267 $ 7,417 $ 415
Income taxes paid, net........................... $ 30,594 $ 14,733 $15,927
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired.......... $ 9,852 $ 80,909 $ -
Goodwill......................................... 45,185 67,637 -
Identifiable intangible assets................... 2,356 17,840 -
Cash paid, net of cash acquired.................. (51,095) (134,878) -
------- -------- ------
Liabilities assumed.............................. $ 6,298 $ 31,508 $ -
======= ======== ======
Dividends declared but not paid...................... $ 362 $ 358 $ 343
Annual retainer to Board of Directors paid
by the issuance of common stock.................... $ 179 $ 161 $ 72
Increase in property, plant and equipment
acquisitions in accounts payable................... $ 5,887 $ - $ -
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)
2001 2000 1999
---- ---- ----
Net income................................................... $55,895 $29,842 $24,080
Other comprehensive (expense) income, net of tax:
Cumulative translation adjustments...................... (614) (448) 79
------ ------ ------
Total comprehensive income................................... $55,281 $29,394 $24,159
====== ====== ======
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. 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 British Pound, Canadian Dollar, 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
$11,462 and $11,410 at January 31, 2001 and 2000, respectively.
Revenue Recognition:
--------------------
The Company recognizes revenue when the earnings process is complete. This
occurs when products are shipped to the customer in accordance with terms of the
agreement, title and risk of loss have been transferred, collectibility is
reasonably assured and pricing is fixed and determinable. Accruals are made for
sales returns and other allowances based on the Company's experience. Amounts
charged to customers for shipping and handling are classified as revenue. The
Company accounts for sales rebates as a reduction in revenue at the time revenue
is recorded.
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 capitalizes
interest on borrowings during the active construction period of major capital
projects. Capitalized interest is added to the cost of the underlying assets and
is amortized over the useful lives of the assets.
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.
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)
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.
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, 2001 and 2000 was $7,118 and $3,640,
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, 2001. Accumulated amortization as
of January 31, 2001 and 2000 was $10,145 and $5,984, 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.
Other Liabilities:
------------------
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $4,196 and $3,128 are included in other current
liabilities and $9,790 and $9,554 are included in other liabilities as of
January 31, 2001 and 2000, 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 that 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, 2001, 2000 and
1999 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,
-------------------------------------
2001 2000 1999
---- ---- ----
Weighted average
shares of common stock
outstanding*........................ 26,223,684 25,529,778 24,730,366
Assumed conversion of
stock options, net of shares
assumed reacquired*................. 1,040,844 558,624 941,358
---------- ---------- ----------
Weighted average common
shares - assuming
dilution*........................... 27,264,528 26,088,402 25,671,724
========== ========== ==========
* Share amounts have been adjusted to reflect the Company's June 16, 2000 and
July 24, 1998 two-for-one stock splits, effected in the form of 100% stock
dividends, 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)
Reclassifications:
------------------
The Company adopted Emerging Issues Task Force ("EITF") Issue 00-10,
"Accounting for Shipping and Handling Revenue and Costs," which requires amounts
charged to customers for shipping and handling be classified as revenue. The
associated shipping costs, previously classified as revenue, are now classified
as cost of goods sold. Fiscal 2000 and 1999 consolidated financial statements
have been adjusted to conform to the fiscal 2001 presentation.
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." In June
2000, SFAS No. 138 was issued which includes several amendments to SFAS No. 133.
The new standard is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company adopted SFAS No. 133, including the
amendments in SFAS No. 138, on February 1, 2001. The new standard requires that
all derivative instruments be reported on the balance sheet at their fair
values. For derivative instruments designated as fair value hedges, changes in
the fair value of the derivative instrument will generally be offset on the
income statement by changes in the fair value of the hedged item. For derivative
instruments designated as cash flow hedges, the effective portion of any hedge
is reported in other comprehensive income until it is cleared to earnings during
the same period in which the hedged item affects earnings. The ineffective
portion of all hedges will be recognized in current earnings each period.
Changes in the fair value of derivative instruments that are not designated as a
hedge will be recorded each period in current earnings.
Using market valuations for derivatives held as of January 31, 2001, as a
guide, the Company determined that on February 1, 2001, the cumulative-effect
adjustment to net income and accumulated other comprehensive loss was not
material.
At this time, the Company plans no significant change in risk management
strategies due to the adoption of SFAS No. 133.
F-13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
2. STOCK SPLIT
On June 16, 2000 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend paid to stockholders of record on June 2,
2000. This transaction resulted in a transfer on the Company's balance sheet of
$140 to common stock from additional paid-in capital.
On July 24, 1998 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend paid 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 these transactions.
3. ACQUISITIONS
On December 15, 2000 (effective as of November 26, 2000) the Company
acquired the Newport Components Division of Newport Technology Group Limited, a
producer of electronic power conversion products (primarily DC to DC converters)
based in the United Kingdom. For reporting purposes, this acquisition is
included in the Power Electronics Division and is referred to as C&D
Technologies (NCL) Limited ("NCL").
The Company purchased all of the capital stock of NCL for approximately
$50,000, plus additional acquisition related costs. The Company primarily paid
for the acquisition with proceeds from a loan under the Company's revolving line
of credit facility with Bank of America. NCL, with annual revenues of more than
$20,000, operates production facilities in the United Kingdom as well as China.
In addition, NCL conducts research and development in the United Kingdom and
maintains a sales operation in the United States.
The NCL acquisition was accounted for using the purchase method of
accounting. The preliminary allocation of the purchase price, pending completion
of the valuation, resulted in goodwill of $45,185 and identifiable intangible
assets of $2,356, which are being amortized on a straight-line basis over five
to 20 years.
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.
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 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
$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 industrial batteries. The Company has continued the joint venture
operations in such business. The cash portion of the acquisition was financed by
the Company's 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
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 (trade names) of $17,840, which are being
amortized on a straight-line basis over 20 years. The results of the joint
venture have been consolidated in the financial statements and related notes.
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*............................. $497,278 $423,561
Net income............................. $29,685 $18,913
Net income per common share**.......... $ 1.16 $ 0.76
Net income per common share -
assuming dilution**............... $ 1.14 $ 0.74
* Reclassified for comparative purposes.
** Per share amounts have been adjusted to reflect the Company's June 16, 2000
two-for-one stock split, effected in the form of a 100% stock dividend.
F-15
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,
----------------------
2001 2000
---- ----
Raw materials........................ $38,349 $28,522
Work-in-process...................... 18,703 14,602
Finished goods....................... 20,441 17,841
------ ------
$77,493 $60,965
====== ======
If the first-in, first-out (FIFO) method of inventory accounting had been
used (which approximates current cost), inventories would have been $77,262 and
$60,906 as of January 31, 2001 and 2000, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
-----------------------
2001 2000
---- ----
Land................................. $ 1,298 $ 902
Buildings and improvements........... 36,198 34,280
Furniture, fixtures and equipment.... 176,425 147,029
Construction in progress............. 20,002 7,064
------- -------
233,923 189,275
Less:
Accumulated depreciation........ 103,536 88,462
------- -------
$130,387 $100,813
======= =======
For the years ended January 31, 2001, 2000 and 1999, depreciation charged
to operations amounted to $19,286, $15,996 and $10,137; maintenance and repair
costs expensed totaled $14,456, $12,892 and $8,290; and interest capitalized
amounted to $983, $265 and $211, respectively.
F-16
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,
-----------------------
2001 2000
---- ----
Term loan, $100,000 facility; bearing interest at Prime or LIBOR plus
.75% on January 31, 2001 and Prime or LIBOR plus 1.25% on January 31, 2000
(effective rate on a weighted average basis, 7.25% as of January 31, 2001 and
6.94% as of January 31, 2000) net of unamortized debt acquisition costs of
$1,651 and $2,102, respectively................................................. $ 63,349 $82,898
Revolving credit facility; maximum commitment of $120,000 at January 31,
2001 and 2000 bearing interest of Prime or LIBOR plus .75% on January 31, 2001
and Prime or LIBOR plus 1.25% on January 31, 2000 (effective rate on a weighted
average basis, 6.65% as of January 31, 2001 and 6.82% as of January 31, 2000)... 50,500 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. The bonds were paid in full prior to maturity, on July
21, 2000 (effective rate on a weighted average basis, 6.30% as of July 21, 2000
and 5.54% as of January 31, 2000)............................................... - 1,083
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, the
bonds were paid in full, prior to maturity, on July 21, 2000 (effective rate on
a weighted average basis, 4.35% as of July 21, 2000 and 3.81% as of January 31,
2000)........................................................................... - 667
Borrowings by the Chinese joint venture in local currencies under
uncommitted facilities from various local banks with interest rates ranging from
6.14% to 7.56% for year ended January 31, 2001 and 6.14% to 7.68% for year ended
January 31, 2000................................................................ 1,205 7,349
Borrowings by NCL in British Pounds under an uncommitted multi-currency
overdraft facility from HSBC Bank plc. bearing interest at the HSBC Base Rate
plus 1.5% (effective rate on a weighted average basis, 7.5% as of January 31,
2001)........................................................................... 1,948 -
Other...................................................................... 19 55
------- ------
117,021 96,852
Less current portion..................................................... 18,172 20,393
------- ------
$ 98,849 $76,459
======= ======
F-17
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 .50% to Prime plus .50%.
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 1.00%
to 1.75% over LIBOR or Prime to Prime plus .25%. On October 13, 2000 the loan
agreement was amended to effectively lower the available LIBOR interest rate to
between .75% and 1.50% 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 $27,879 and $15,138 were available as of January 31,
2001 and 2000, and swingline loans not to exceed $10,000. The term loan is due
in quarterly installments that currently equal $5,000 per quarter increasing to
$6,250 per quarter on May 1, 2002, and $7,500 per quarter on May 1, 2003. At the
Company's election on June 7 and January 31, 2000, $5,000 each was paid in
advance on the term loan. The proceeds were applied to the final payments of the
loan schedule.
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 $128,550,
$125,100 and $15,000 during the years ended January 31, 2001, 2000 and 1999,
respectively. For those years the outstanding loans under these credit
agreements computed on a monthly basis averaged $84,813, $94,870 and $6,941 at a
weighted average interest rate of 7.42%, 6.93% and 6.54%, respectively.
F-18
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
6. DEBT (continued)
The loans outstanding with various institutions denominated in Chinese
Renminbi were short-term loans due on various dates, including one loan due upon
demand. In support of these loans the Company issued three letters of credit
under its revolving credit facility. In consideration of these letters of credit
the joint venture partner issued a guaranty for 33 percent of the debt to the
Company. These loans were paid in full during the first quarter of fiscal 2002.
The overdraft facility with HSBC Bank plc. was entered into as a result of
the NCL acquisition. The total availability under this facility is 2.5 million
British Pounds. The availability will be reduced to 2 million British Pounds
effective September 30, 2001. The facility is secured by all of the assets of
NCL.
The Company was in compliance with its loan agreement covenants at January
31, 2001 and 2000, respectively.
As of January 31, 2001, 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:
2002......................... $ 18,172
2003......................... 22,165
2004......................... 26,184
2005......................... 50,500
2006......................... -
Thereafter................... -
-------
$117,021
=======
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.
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)
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 2,000,000 shares of Common
Stock for such use (adjusted for stock splits), or the 1998 Plan, which reserved
3,000,000 shares of Common Stock for such use (adjusted for stock splits). 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, 2001
Number of shares........... 1,517,894 715,074 406,019 114,134 1,712,815 645,077
Weighted average option
price per share......... $13.36 $27.87 $11.04 $18.68 $19.62 $14.53
Year ended
January 31, 2000*
Number of shares........... 2,190,856 634,836 1,119,456 188,342 1,517,894 564,210
Weighted average option
price per share.......... $8.01 $17.96 $5.94 $10.76 $13.36 $9.84
Year ended
January 31, 1999*
Number of shares........... 1,934,804 587,800 274,674 57,074 2,190,856 1,022,950
Weighted average option
price per share.......... $6.40 $11.83 $4.38 $10.09 $8.01 $5.45
* Adjusted to reflect stock splits.
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)
There were 1,962,172 and 766,530 (adjusted for stock splits) shares
available for future grants of options under the 1996 and 1998 Stock Option
Plans as of January 31, 2001 and 2000, respectively. The following table
summarizes information about the stock options outstanding at January 31, 2001:
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -----
$3.00 - $6.00 104,368 5.6 years $5.83 104,368 $5.83
$8.63 - $13.03 425,737 7.3 years $11.65 309,921 $11.56
$14.50 - $22.81 1,052,152 8.8 years $20.19 200,480 $17.53
$37.28 - $57.69 130,558 9.5 years $51.96 30,308 $55.06
--------- -------
$3.00 - $57.69 1,712,815 8.3 years $19.62 645,077 $14.53
========= =======
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 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Risk-free interest rate......... 6.53% 5.60% 4.50%
Expected dividend yield......... .22% .52% .58%
Expected volatility factor...... 0.414 0.428 0.434
Weighted average expected life.. 4.95 years 4.85 years 5.00 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that 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.
F-21
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:
2001 2000* 1999*
---- ----- -----
Net income - as reported.................... $55,895 $29,842 $24,080
Net income - pro forma...................... 52,674 28,558 22,537
Net income per common share - as reported... 2.13 1.17 0.97
Net income per common share - pro forma..... 2.01 1.12 0.91
Net income per common share -
assuming dilution - as reported........... 2.05 1.14 0.94
Net income per common share -
assuming dilution - pro forma............. 1.93 1.09 0.88
Weighted average fair value of options
granted during the year................... 12.51 7.85 5.00
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 Company's Board of Directors 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. 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. 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
purchase price of $150* per one one-hundredth of a share, subject to adjustment,
as stated in the Rights Agreement. Upon the occurrence of certain events
involving a hostile takeover of the Company, unless the Company's Board of
Directors acts otherwise, each holder of a Right, other than Rights beneficially
owned by the acquiring company, will thereafter have the right to receive upon
exercise: (i) that number of shares of the Company's common stock having a
market value equal to two times the purchase price of the Right or (ii) that
number of shares of common stock of the acquiring company that at the time of
the transaction has a market value of two times the exercise price of the Right.
A summary of the Rights Agreement is included in the Company's Form 8-K Current
Report filed with the Securities and Exchange Commission dated February 22,
2000.
* Adjusted for stock splits.
F-22
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,
----------------------------
2001 2000 1999
---- ---- ----
Currently payable:
Federal....................... $31,068 $18,102 $10,963
Foreign....................... - 34 97
State......................... 3,578 2,510 1,932
Foreign Sales Corporation..... 301 137 162
------ ------ ------
34,947 20,783 13,154
------ ------ ------
Deferred:
Federal....................... 727 (2,748) 103
State......................... 209 (298) (103)
------ ------ ------
936 (3,046) -
------ ------ ------
$35,883 $17,737 $13,154
====== ====== ======
The components of the deferred tax asset and liability as of January 31,
2001 and 2000 were as follows:
2001 2000
---- ----
Deferred tax asset:
Vacation and compensation accruals........... $ 4,959 $ 4,080
Postretirement benefits...................... 970 1,014
Warranty reserves............................ 5,356 5,039
Bad debt, inventory and return allowances.... 3,193 3,632
Environmental reserves....................... 928 738
Pension obligation........................... 1,398 2,338
Other accruals............................... 1,391 957
------ ------
Total deferred tax asset..................... 18,195 17,798
------ ------
Deferred tax liability:
Depreciation and amortization................ (8,340) (6,837)
------ ------
Total deferred tax liability................. (8,340) (6,837)
------ ------
Net deferred tax asset....................... $ 9,855 $10,961
====== ======
Realization of the Company's net deferred tax asset is dependent on future
taxable income. The Company believes that it is more likely than not such assets
will be realized.
F-23
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, 2001, 2000 and
1999, respectively, are as follows:
January 31,
------------------------------
2001 2000 1999
---- ---- ----
U.S. statutory income tax......... $33,050 $16,869 $13,032
Tax effect of foreign operations.. - (86) (250)
State tax, net of federal
income tax benefit.............. 2,534 1,334 1,153
Research and development
tax credit benefit.............. (100) (234) (373)
Foreign sales corporation......... (565) (257) (304)
Other............................. 964 111 (104)
------ ------ ------
$35,883 $17,737 $13,154
====== ====== ======
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, 2001, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
Fiscal Year
2002........................ $ 2,780
2003........................ 2,568
2004........................ 2,023
2005........................ 1,541
2006........................ 1,152
Thereafter.................. 8,369
------
$18,433
======
Total rent expense for all operating leases for the years ended January 31,
2001, 2000 and 1999 was $3,733, $4,024 and $3,503, respectively.
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)
(B) Contingent Liabilities:
Legal
- -----
In January 2000, the Company was sued in an action captioned Puerto Rico
Electric Power Authority v. C&D Technologies, Inc., Case No. 00-1104 in the
United States District Court for the District of Puerto Rico for an alleged
breach of contract in connection with the sale of certain batteries dating back
to the mid-1990s. In August 2000 the Company entered into a settlement agreement
with respect to this claim, the cost of which was recovered in the first quarter
of fiscal 2002.
Environmental
- -------------
The Company is 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: (i) requirements relating to the
handling, storage, use and disposal of lead and other hazardous materials used
in manufacturing processes and solid wastes; (ii) record keeping and periodic
reporting to governmental entities regarding the use of hazardous substances and
disposal of hazardous wastes; (iii) monitoring and permitting of air and water
emissions; and (iv) monitoring and protecting workers from unpermitted exposure
to hazardous substances, including lead used in our manufacturing processes.
Notwithstanding the Company's efforts to maintain compliance with
applicable environmental requirements, if injury or damage to persons or the
environment arises from hazardous substances used, generated or disposed of in
the conduct of the Company's business (or that of a predecessor to the extent
the Company is not indemnified therefor), the Company may be held liable for
certain damages and for the costs of investigation and remediation, which could
have a material adverse effect on the Company's business, financial condition,
or results of operations. However, under the terms of the purchase agreement
with Allied for the acquisition of the Company (the "Acquisition Agreement"),
Allied is obligated to indemnify the Company for any liabilities of this type
resulting from conditions existing at January 28, 1986 that were not disclosed
by Allied to the Company in the schedules to the Acquisition Agreement.
The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
"EPA") in connection with investigations of the source and extent of
contamination at several lead smelting facilities (the "Third Party Facilities")
to which the Company had made scrap lead shipments for reclamation prior to the
date of the acquisition.
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)
In fiscal 1993 in accordance with an EPA order, a group comprised of the Company
and 30 other parties commenced work on the clean-up of a portion of one of the
Third Party Facilities, the former NL Industries facility in Pedricktown, New
Jersey (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.
With regard to the remainder of the NL Site, the Company and four other
potentially responsible parties ("PRPs") have agreed upon a cost sharing
arrangement for the design and remediation phases of the project. A reliable
range of the potential cost to the Company for the ultimate remediation of the
site cannot currently be determined, nor have all PRPs been identified.
Accordingly, the Company has not established a 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 other PRPs initiated and completed remedial action at the site in fiscal
1999. The Company believes its only remaining liability relates to long-term
monitoring at the site, the cost of which is estimated to be an immaterial
amount for which the Company has established an adequate reserve.
The Company responded to requests for information from the EPA and the
state environmental agency with regard to another Third Party Facility, the
"Chicago Site", in October 1991. 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 cost of the remediation approach negotiated with the EPA). Sufficient
information is not available to determine the Company's allocable share of this
cost. Based on currently available information, however, the Company believes
that its most likely exposure with respect to the Chicago Site will be the
approximately $283 previously reserved, the majority of which is expected to be
paid over the next two to five years.
Allied has accepted responsibility under the Acquisition Agreement for
potential liabilities relating to all Third Party Facilities other than the
aforementioned Sites.
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 with this matter. The Company has established what it
believes to be an adequate reserve for all but the remediation costs, the extent
of which are not known, as a remediation plan has not yet been finalized with or
approved by the State of New York.
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)
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.
Assessment and remediation of off-site contamination was completed and the full
remediation report was submitted to the state in February 1999. The Company has
received verbal confirmation from the state environmental agency that no further
action will be required and that the site will be removed from its Hazardous
Sites Inventory.
The Company, together with JCI, is conducting an assessment and remediation
of contamination at its Dynasty Division facility site in Milwaukee, Wisconsin.
The majority of this project is expected to be completed by the end of fiscal
2002. Under the purchase agreement with JCI, the Company is responsible for (i)
one-half of the cost of the on-site assessment and remediation, with a maximum
liability of $1,750, (ii) any environmental liabilities at the facility that 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 Milwaukee facility to
locations other than the Milwaukee facility, but specifically excluding
liabilities relating to pre-closing offsite disposal. JCI has retained all other
environmental liabilities, including off-site assessment and remediation.
In January 1999, the Company received notification from the EPA of alleged
violations of permit effluent and pretreatment discharge limits at its plant in
Attica, Indiana. The Company submitted a compliance plan to the EPA. A penalty
assessment could be made, however there is insufficient information currently
available to permit the Company to estimate its potential, if any.
The Company accrues reserves for liabilities in the Company's consolidated
financial statements and periodically reevaluates the reserved amounts for these
liabilities in view of the most current information available. Based on
currently available information, management of the Company believes that the
foregoing contingent liabilities will not have a material adverse effect on the
Company's business, financial condition or results of operations.
(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% and 13.1% of consolidated net sales for the years ended
January 31, 2000 and 1999. No single customer of the Company amounted to 10% or
more of the Company's consolidated net sales for the year ended January 31,
2001.
F-27
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
11. CONCENTRATION OF CREDIT RISK
Financial instruments that 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.
The estimated fair values of the Company's financial instruments at January
31, 2001 and 2000 were as follows:
2001 2000
----------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents...... $ 7,709 $ 7,709 $ 7,121 $ 7,121
Debt (excluding capital
lease obligations).......... $117,002 $117,002 $96,797 $96,797
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)
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.
2001 2000
---- ----
Fair Value Fair Value
---------- ----------
Hedging Instruments:
Interest rate swaps......... $(165) $1,165
Forward contracts........... $(179) $ 49
On December 20, 1995 the Company entered into an interest rate swap
agreement with a notional amount of $6,500. This swap agreement effectively
fixed the interest rate on a like amount of the Company's floating rate debt at
6.01% plus the Company's LIBOR spread in effect at any time. The effective rate
was 6.76% at January 31, 2001 and 7.26% at January 31, 2000. The swap expires on
December 20, 2002.
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 6.23%
at January 31, 2001 and 6.73% at January 31, 2000. The swap expired on March 1,
2001.
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 6.33%
at January 31, 2001 and 6.83% at January 31, 2000. The swap expires on March 11,
2002.
The Company had foreign exchange contracts on hand for delivery of Canadian
Dollars in the amount of $1,325 and $1,359 as of January 31, 2001 and January
31, 2000, respectively.
The Company had a foreign exchange contract on hand for delivery of Mexican
Pesos in the amount of $98 as of January 31, 2001.
F-29
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 Company had foreign exchange contracts for delivery of Euro currencies
in the amount of $829 and $469 as of January 31, 2001 and January 31, 2000,
respectively.
The Company had a foreign exchange contract on hand for the delivery of
British Sterling in the amount of $29,067 as of January 31, 2001.
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-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)
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, 2001 and 2000 and a statement of the funded status as of January 31, 2001
and 2000.
Pension Postretirement
Benefits Benefits
------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year............. $39,269 $37,320 $ 2,118 $ 1,557
Service cost...................................... 2,128 2,408 101 108
Interest cost..................................... 3,204 2,895 172 160
Plan amendments................................... - 179 - -
Actuarial loss/(gain)............................. 3,223 (5,454) 420 (152)
Acquisition....................................... - 3,732 - 746
Benefits paid..................................... (2,075) (1,811) (348) (301)
------ ------ ------ -----
Benefit obligation at end of year................... $45,749 $39,269 $ 2,463 $ 2,118
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of year...... $36,175 $35,382 - -
Actual return on plan assets...................... 2,462 2,552 - -
Employer contributions............................ 2,735 52 $ 348 $ 301
Benefits paid..................................... (2,075) (1,811) (348) (301)
------ ------ ------ ------
Fair value of plan assets at end of year........... $39,297 $36,175 $ - $ -
====== ====== ====== ======
Reconciliation of funded status:
Funded status....................................... $(6,452) $(3,094) $(2,463) $(2,118)
Unrecognized actuarial loss/(gain).................. 882 (3,152) (4) (434)
Unrecognized prior service cost..................... 147 162 - -
------ ------ ------ -----
Accrued benefit cost at
measurement date.................................. (5,423) (6,084) (2,467) (2,552)
Contributions made after measurement date
but before the end of the fiscal year............. 368 - - -
------ ------ ------ -----
Accrued benefit cost at end of fiscal year......... $(5,055) $(6,084) $(2,467) $(2,552)
====== ====== ====== ======
Amounts recognized in the statement of financial
position consist of:
Prepaid pension cost................................ $ 2,202 $ 1,195 - -
Accrued pension liability........................... (7,257) (7,279) $(2,467) $(2,552)
------ ------ ------ ------
Accrued pension cost at end of year................ $(5,055) $(6,084) $(2,467) $(2,552)
====== ====== ====== ======
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)
Pension Benefits Postretirement Benefits*
--------------------------- ---------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Components of net periodic benefit cost:
Service cost............................. $2,128 $2,408 $1,575 $101 $108 $ 65
Interest cost............................ 3,204 2,895 2,392 172 160 105
Expected return on plan assets........... (3,270) (3,102) (2,975) - - -
Amortization of prior service costs...... 15 15 - - - -
Recognized actuarial (gain)/loss......... (4) 68 59 (11) (1) (17)
----- ----- ----- --- --- ---
Net periodic benefit cost......... $2,073 $2,284 $1,051 $262 $267 $153
===== ===== ===== === === ===
Weighted-average assumptions
as of January 31:
Discount rate............................ 7.75% 8.25% 7.00% 7.75% 8.25% 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 - 4.00 -
5.03% 5.07% 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 2001.
The rate will gradually decrease to 5.00% for 2006 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 2001............ $1 $ (1)
Effect on year-end 2001 postretirement
benefit obligation......................... $6 $(10)
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
rate does not include hourly Dynasty employees.
F-32
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 $4,765, $1,325 and $963, respectively, for fiscal
2001. This plan, which covers hourly Dynasty employees, was established March 1,
1999.
(B) Certain employees are eligible to participate in various defined
contribution retirement plans. The Company's contributions under the plans are
based on either specified percentages of employee contributions or specified
percentages of the employees' earnings. The Company's cost was $1,692, $1,191
and $859 for the years ended January 31, 2001, 2000 and 1999, respectively.
(C) 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, $518 and $471 for the years ended January 31, 2001, 2000
and 1999, respectively. The liability for the Company's SERP was $1,734 and
$1,344 as of January 31, 2001 and 2000, respectively, and was included in other
liabilities.
(D) During fiscal 2001, the Company established a Deferred Compensation
Plan that covers certain senior management employees and non-employee members of
the Company's Board of Directors. With the exception of administration costs,
which are borne by the Company, this non-qualified plan is funded entirely by
participants through voluntary deferrals of compensation. Income deferrals made
by participants under this plan are deposited in individual trust (known under
current tax law as a rabbi trust) accounts. The Company follows the provisions
of EITF 97-14, "Accounting for Deferred Compensation Arrangement Where Amounts
Earned Are Held in a Rabbi Trust and Invested." The EITF requires (i) the
accounts of the rabbi trust be consolidated with the accounts of the Company;
(ii) the Company stock be classified and accounted for in equity, in a manner
similar to the way in which treasury stock is accounted for; (iii) the
diversified assets be accounted for in accordance with generally accepted
accounting principles for the particular asset; and (iv) the deferred
compensation obligation be classified as a liability and adjusted with a
corresponding charge (or credit) to compensation cost, to reflect changes in the
fair value of the amount owed to the participant. At January 31, 2001 the
liability for the Company's Deferred Compensation Plan was $136.
F-33
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, 2001 and 2000
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 2001:
Net sales*............................. $138,011 $152,156 $161,922 $163,589
Gross profit........................... 39,115 43,135 45,411 48,882
Operating income....................... 20,255 23,735 26,544 29,485
Net income............................. 11,053 13,391 14,745 16,706
Net income per common share**.......... .42 .51 .56 .64
Net income per common share-
assuming dilution**................ .41 .49 .54 .61
For the year ended January 31, 2000:
Net sales*............................ $102,805 $115,883 $131,058 $132,436
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**......... .21 .28 .32 .36
Net income per common share-
assuming dilution**................. .21 .27 .31 .35
* Reclassified for comparative purposes
** Per share amounts have been adjusted to reflect the Company's June 16,
2000 two-for-one stock splits, effected in the form of 100% stock
dividend, where appropriate.
In the fourth quarter of fiscal 2001, the Company completed the
acquisition of NCL.
In fiscal 2000, the Company completed the acquisition of the Specialty
Battery Division of JCI and a 67% ownership interest in a joint venture battery
business in Shanghai, China. 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.
F-34
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 Power Electronics Division manufactures and markets custom, standard
and modified standard electronic power supply systems, including DC to DC
converters, for large original equipment manufacturers ("OEMs") of
telecommunications equipment, office copiers, workstations and other
applications.
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,
OEMs.
Summarized financial information related to the Company's business segments
for the years ended January 31, 2001, 2000 and 1999 is shown below:
Power Motive
Powercom Dynasty Electronics Power
Division Division Division Division Consolidated
-------- -------- -------- -------- ------------
Year ended January 31, 2001:
Net sales........................... $264,664 $163,072 $110,117 $77,825 $615,678
Operating income (loss)............. $ 51,139 $ 37,987 $ 12,186 $(1,293) $100,019
Year ended January 31, 2000:
Net sales*.......................... $224,913 $115,690 $62,407 $79,172 $482,182
Operating income (loss)............. $ 39,854 $ 19,222 $(4,880) $ 1,928 $ 56,124
Year ended January 31, 1999:
Net sales*.......................... $178,601 - $67,840 $75,496 $321,937
Operating income.................... $ 29,989 - $ 3,379 $ 4,203 $ 37,571
* Reclassified for comparative purposes.
F-35
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 the Company's 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, 2001, 2000 and 1999 and for each of the
years then ended is shown below:
2001 2000 1999
---- ---- ----
Net sales
United States.................. $487,064 $403,081 $284,030
Canada......................... 67,202 33,544 21,019
Other countries................ 61,412 45,557 16,888
------- ------- -------
Consolidated totals............ $615,678 $482,182 $321,937
======= ======= =======
Long-lived assets
United States.................. $191,994 $171,689 $ 73,604
United Kingdom................. 50,155 102 -
Other countries................ 27,123 26,663 3,325
------- ------- -------
Consolidated totals............ $269,272 $198,454 $ 76,929
======= ======= =======
16. RESTRUCTURING CHARGE
During the first quarter of fiscal 2000, the Company recorded a pre-tax
charge of $1,627, or $.04 per share after tax (as adjusted for the Company's
June 16, 2000 two-for-one stock split, effected in the form of a 100% stock
dividend), primarily relating to the restructuring of the Power Electronics
Division. Of this pre-tax charge, $1,251 was 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 Division's Costa
Mesa, California workforce. Restructuring activity for the years ended January
31, 2001 and 2000 was as follows:
F-36
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
16. RESTRUCTURING CHARGE (continued)
Balance at Balance at
January 31, Cash Provision January 31,
2000 Reductions Reduction 2001
---- ---------- --------- ----
Employee severance.................. $ 256 $(195) $ (61) -
----- ---- ---- ----
Total............................... $ 256 $(195) $ (61) -
===== ==== ==== ====
April Balance at
1999 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. 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 Division's 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-37
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2001, 2000 and 1999
(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, 2001............ $3,080 $955 $ 193 $ 107 $4,121
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
- ---------
(a) Additions related to business acquisitions.
(b) Amounts written-off, net of recoveries.
S-1