UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2005
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)
Delaware 13-3314599
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
(Address of principal executive office)
(Zip Code)
(215) 619-2700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES |X| NO |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES |X| NO |_|
Number of shares of the Registrant's Common Stock outstanding on April 30,
2005: 25,345,422.
C&D TECHNOLOGIES, INC.
AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets - April 30, 2005 and January 31, 2005 3
Consolidated Statements of Operations - Three Months Ended
April 30, 2005 and 2004 5
Consolidated Statements of Cash Flows - Three Months Ended
April 30, 2005 and 2004 6
Consolidated Statements of Comprehensive (Loss) Income -
Three Months Ended April 30, 2005 and 2004 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Item 3 Quantitative and Qualitative Disclosures About Market Risk 28
Item 4 Controls and Procedures 29
Part II OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 6 Exhibits 31
SIGNATURES 32
EXHIBIT INDEX 33
2
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(UNAUDITED)
April 30, January 31,
2005 2005*
===========================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 21,720 $ 26,855
Accounts receivable, less allowance for doubtful accounts
of $2,257 and $2,018 78,107 73,621
Inventories, net 78,283 77,272
Deferred income taxes 14,064 14,481
Other current assets 7,335 3,652
- -------------------------------------------------------------------------------------------
Total current assets 199,509 195,881
Property, plant and equipment, net 100,482 104,130
Deferred income taxes 287 287
Intangible and other assets, net 82,116 83,863
Goodwill 97,513 97,247
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 479,907 $ 481,408
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,799 $ 1,874
Accounts payable 38,989 34,808
Book overdrafts 4,645 8,674
Accrued liabilities 24,460 24,254
Other current liabilities 12,132 10,374
- -------------------------------------------------------------------------------------------
Total current liabilities 82,025 79,984
Deferred income taxes 12,356 12,216
Long-term debt 133,040 135,004
Other liabilities 36,940 36,705
- -------------------------------------------------------------------------------------------
Total liabilities 264,361 263,909
- -------------------------------------------------------------------------------------------
3
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands, except par value)
(UNAUDITED)
April 30, January 31,
2005 2005*
===========================================================================================
Commitments and contingencies (see Note 7)
Minority interest 8,072 8,171
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,714,973 and 28,714,973
shares issued, respectively 287 287
Additional paid-in capital 71,954 71,956
Treasury stock, at cost 3,369,551 and
3,368,676 shares, respectively (47,158) (47,151)
Accumulated other comprehensive income 5,488 5,275
Retained earnings 176,903 178,961
- -------------------------------------------------------------------------------------------
Total stockholders' equity 207,474 209,328
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 479,907 $ 481,408
===========================================================================================
* Reclassified for comparative purposes.
The accompanying notes are an integral part of these statements.
4
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(UNAUDITED)
Three months ended
April 30,
2005 2004
========================================================================================
NET SALES $ 122,821 $ 85,805
- ----------------------------------------------------------------------------------------
COST OF SALES 101,070 69,264
- ----------------------------------------------------------------------------------------
GROSS PROFIT 21,751 16,541
OPERATING EXPENSES:
Selling, general and administrative expenses 16,679 10,034
Research and development expenses 6,213 2,669
- ----------------------------------------------------------------------------------------
OPERATING (LOSS) INCOME (1,141) 3,838
- ----------------------------------------------------------------------------------------
Interest expense, net 2,004 287
Other expense, net 314 560
- ----------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST (3,459) 2,991
- ----------------------------------------------------------------------------------------
(Benefit) provision for income taxes (1,651) 1,107
- ----------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE MINORITY INTEREST (1,808) 1,884
- ----------------------------------------------------------------------------------------
Minority interest (99) (120)
- ----------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (1,709) $ 2,004
========================================================================================
Net (loss) income per common share - basic $ (0.07) $ 0.08
========================================================================================
Net (loss) income per common share - diluted $ (0.07) $ 0.08
========================================================================================
Dividends per share $ 0.01375 $ 0.01375
========================================================================================
The accompanying notes are an integral part of these statements.
5
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
Three months ended
April 30,
2005 2004
======================================================================================================
Cash flows from operating activities:
Net (loss) income $ (1,709) $ 2,004
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Minority interest (99) (120)
Depreciation and amortization 6,098 5,517
Deferred income taxes 556 225
Loss (gain) on disposal of assets 128 (15)
Changes in assets and liabilities:
Accounts receivable (4,504) (2,623)
Inventories (936) (1,990)
Other current assets (432) (331)
Accounts payable 4,279 470
Accrued liabilities 188 371
Income taxes payable (3,253) (612)
Other current liabilities 1,732 (1,718)
Other liabilities 235 219
Other long-term assets 463 252
Other, net (73) 979
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,673 2,628
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (1,337) (2,579)
Proceeds from disposal of property, plant and equipment 8 54
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,329) (2,525)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of debt (1,364) --
Decrease in book overdrafts (4,029) (486)
Financing cost of long-term debt (735) --
Proceeds from issuance of common stock, net -- 302
Purchase of treasury stock (10) (1,233)
Payment of common stock dividends (349) (350)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (6,487) (1,767)
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 8 (45)
- ------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,135) (1,709)
Cash and cash equivalents, beginning of period 26,855 12,306
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 21,720 $ 10,597
======================================================================================================
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Decrease) increase in property, plant and equipment acquisitions
in accounts payable $ (134) $ 415
Tax effect of options exercised $ -- $ 51
The accompanying notes are an integral part of these statements
6
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
(UNAUDITED)
Three months ended
April 30,
2005 2004
=====================================================================================================
NET (LOSS) INCOME $ (1,709) $ 2,004
Other comprehensive income, net of tax:
Net unrealized gain (loss) on derivative instruments 263 183
Foreign currency translation adjustments (50) (973)
- -----------------------------------------------------------------------------------------------------
Total comprehensive (loss) income $ (1,496) $ 1,214
=====================================================================================================
The accompanying notes are an integral part of these statements.
7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
1. INTERIM STATEMENTS
The accompanying interim consolidated financial statements of C&D
Technologies, Inc. (together with its operating subsidiaries, the "Company")
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report to Stockholders for the
fiscal year ended January 31, 2005. The January 31, 2005, amounts were derived
from the Company's audited financial statements. The consolidated financial
statements presented herein are unaudited but, in the opinion of management,
include all necessary adjustments (which comprise only normal recurring items)
required for a fair statement of the consolidated financial position as of April
30, 2005, and the related consolidated statements of operations and
comprehensive (loss) income for the three months ended April 30, 2005 and 2004,
and the related consolidated statements of cash flows for the three months ended
April 30, 2005 and 2004. However, interim results of operations may not be
indicative of results for the full fiscal year. The accompanying interim
consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of
America.
2. STOCK-BASED COMPENSATION PLANS
Under APB No. 25, if the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
As the exercise price of all options granted under the Company's stock
option plans was equal to the market price of the underlying common stock on the
grant date, no stock-based employee compensation cost is recognized in net
(loss) income. The following table illustrates the effect on net (loss) income
and net (loss) income per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" as amended, to options granted under the stock option plans. For
purposes of this pro forma disclosure, the estimated value of the options is
amortized to expense over the options' vesting periods. The pro forma disclosure
reflects an acceleration of most of the Company's outstanding options on March
1, 2005. Because the estimated value is determined as of the date of grant, the
actual value ultimately realized by the employee may be significantly different.
Three months ended
April 30,
2005 2004
========================================================================================================
Net (loss) income - as reported $ (1,709) $ 2,004
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effect 2,309 915
- --------------------------------------------------------------------------------------------------------
Net (loss) income - pro forma $ (4,018) $ 1,089
========================================================================================================
Net (loss) income per common share - basic - as reported $ (0.07) $ 0.08
Net (loss) income per common share - basic - pro forma $ (0.16) $ 0.04
Net (loss) income per common share - diluted - as reported $ (0.07) $ 0.08
Net (loss) income per common share - diluted - pro forma $ (0.16) $ 0.04
Weighted-average fair value of options granted during the year * $ 8.46
* There were no options granted during the three months ended April 30, 2005.
8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
SFAS No. 123 requires the use of option pricing models that were not
developed for use in valuing employee stock options. The Black-Scholes
option-pricing model was developed for use in estimating the fair value of
short-lived exchange traded options that have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including the option's expected life and the
price volatility of the underlying stock. Because changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
models may not provide a reliable single measure of the fair value of employee
stock options.
On March 1, 2005, the Company's Compensation Committee authorized the
vesting of all outstanding non-vested options then held by employees of the
Company and any of its subsidiaries, which were granted by the Corporation under
the 1996 and 1998 Stock Option Plans. In accordance with SFAS No. 123R, which is
effective for the first annual period after December 15, 2005, the Company will
be required to apply the expense recognition provisions under SFAS No. 123R
beginning February 1, 2006. The reason that the Company accelerated the vesting
of the identified stock options was to reduce the Company's compensation charge
in periods subsequent to adoption of SFAS No. 123R. Of the 3,130,228 stock
options outstanding on March 1, 2005, 2,501,985 were vested and 628,243 were
non-vested. Of the 628,243 options which were non-vested, 604,445 were
accelerated and 23,798, which were granted under the U.K. Stock Options Plan,
were not accelerated.
3. NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 151, "Inventory Costs,
an amendment of ARB No. 43, Chapter 4," which adopts wording from the
International Accounting Standards Board's ("IASB") International Accounting
Standard ("IAS") No. 2 "Inventories" in an effort to improve the comparability
of cross-border financial reporting. The FASB and IASB both believe the
standards have the same intent; however, an amendment was adopted to avoid
inconsistent application. The new standard indicates that abnormal freight,
handling costs and wasted materials (spoilage) are required to be treated as
current period charges rather than as a portion of inventory cost. Additionally,
the standard clarifies that fixed production overhead should be allocated based
on the normal capacity of a production facility. The statement is effective for
the Company beginning in fiscal year 2007. Adoption is not expected to have a
material impact on the Company's consolidated operations, financial position or
cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123R), which replaces SFAS No. 123 and
supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first annual
period beginning after December 15, 2005. The pro forma disclosures previously
permitted under SFAS No. 123 no longer will be an alternative to financial
statement recognition. The Company is required to adopt SFAS No. 123R in the
first quarter of fiscal year 2007. SFAS No. 123R permits public companies to
adopt these requirements using one of two methods:
o A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS No. 123R for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS
No. 123 for all awards granted to employees prior to the effective
date of SFAS No. 123R that remain unvested on the effective date.
o A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures.
9
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
The Company is evaluating the impact of adoption of the provisions of SFAS
No. 123R as well as the impact of the Security and Exchange Commission's ("SEC")
Staff Accounting Bulletin ("SAB") No. 107 "Shared-Based Payment." SAB 107 was
issued by the SEC in March 2005 and provides supplemental SFAS No. 123R
application guidance based on the views of the SEC. The Company currently
expects to apply the provisions of SFAS No. 123R utilizing the modified
prospective method. In anticipation of the implementation of SFAS No. 123R, the
Company has accelerated the vesting of all stock options granted under the 1996
and 1998 Stock Option Plans as of March 1, 2005.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." SFAS No. 153 eliminates the exception from fair value measurement
for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS No. 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for periods beginning after June 15, 2005.
Adoption is not expected to have a material impact on the Company's consolidated
operations, financial position or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No. 154 replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
changes the requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. SFAS No. 154 will be
effective for the Company in fiscal year 2007. The Company is currently in the
process of evaluating the impact SFAS No. 154 will have on its consolidated
operations, financial position or cash flows.
4. INVENTORIES
Inventories consisted of the following:
April 30, January 31,
2005 2005
================================================================================
Raw materials $ 31,255 $ 31,558
Work-in-process 14,502 13,084
Finished goods 32,526 32,630
- --------------------------------------------------------------------------------
Total $ 78,283 $ 77,272
================================================================================
10
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
5. INCOME TAXES
Three months ended
April 30,
2005 2004
================================================================================
(Benefit) provision for income taxes $ (1,651) $ 1,107
Effective income tax rate 47.7% 37.0%
The effective income tax rate is the (benefit) provision for income taxes
as a percentage of (loss) income before income taxes and minority interest. The
Company's effective income tax rate in the first quarter of fiscal year 2006 was
impacted by: (i) a net loss before income taxes in the first quarter of fiscal
year 2006 compared to income before taxes in the same period of the prior year
along with a shift in the (loss) income components between United States and
foreign operations; (ii) an increase in the relative size of the valuation
allowance in the current year related to the United States foreign tax credits
for unremitted earnings of a controlled foreign subsidiary compared to the prior
year; and (iii) the tax effect of the resolution of state tax matters in the
first quarter of fiscal years 2006 and 2005.
The Company's effective tax rate for the fiscal year ended January 31,
2005, was 26.4%. In addition to the aforementioned factors that impacted the
first quarter of fiscal year 2006, the primary factor impacting the effective
tax rate for the fiscal year ended January 31, 2005, was the tax effect of the
goodwill impairment recorded in the fourth quarter of fiscal year 2005.
6. NET (LOSS) INCOME PER COMMON SHARE
Net (loss) income per common share is based on the weighted-average number
of shares of Common Stock outstanding. Net (loss) income per common share -
diluted reflects the potential dilution that could occur if stock options were
exercised. Weighted-average common shares and common shares - diluted were as
follows:
Three months ended
April 30,
2005 2004
======================================================================================================
Weighted-average shares of common stock 25,345,947 25,398,868
Assumed conversion of stock options, net of shares assumed reacquired -- 186,257
- ------------------------------------------------------------------------------------------------------
Weighted-average common shares - diluted 25,345,947 25,585,125
======================================================================================================
During the three months ended April 30, 2004, there were 1,498,541
outstanding employee stock options that were excluded from the calculation of
the diluted earnings per share because their inclusion would have been
anti-dilutive. These stock options could be dilutive in the future. Due to a net
loss in the three months ended April 30, 2005, 19,368 of dilutive securities
issuable in connection with stock option plans have been excluded from the
diluted loss per share calculation because their effect would reduce the loss
per share.
11
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
7. CONTINGENT LIABILITIES
Legal:
In March 2003, the Company was sued in an action captioned United States
of America v. C&D Technologies, Inc., in the United States District Court for
the Southern District of Indiana, for alleged violations of the Clean Water Act
by virtue of alleged violations of permit effluent and pretreatment discharge
limits at our plant in Attica, Indiana. The complaint requests injunctive relief
and civil penalties of up to the amounts provided by statute. The parties are in
the process of negotiating a resolution of the matter, failing which we intend
to aggressively defend the matter.
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 in
manufacturing processes and solid wastes; (ii) record keeping and periodic
reporting to governmental entities regarding the use and disposal of hazardous
materials; (iii) monitoring and permitting of air emissions and water discharge;
(iv) the reduction of hazardous chemical substances in certain products; and (v)
monitoring worker exposure to hazardous substances in the workplace and
protecting workers from impermissible exposure to hazardous substances,
including lead, used in our manufacturing process.
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, costs of investigation and remediation and fines and penalties,
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 Corporation ("Allied") for the acquisition of the Company
(the "Acquisition Agreement"), Allied was 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. These obligations have since been assumed by Allied's
successor in interest, Honeywell ("Honeywell").
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 three 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 Agreement.
The Company and four other potentially responsible parties ("PRPs") agreed
upon a cost sharing arrangement for the design and remediation phases of a
project related to one of the Third Party Facilities, the former NL Industries
site in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002, one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. In August 2002, Exide notified the
PRPs that it would no longer be taking an active role in any further action at
the site and discontinued its financial participation. This resulted in a
prorata increase in the liabilities of the other PRPs, including the Company,
for which the Company's allocated share rose from 5.25% to 7.79%.
The Company also 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.
12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
In August 2002, the Company was notified of its involvement as a PRP at
the NL Atlanta, Northside Drive Superfund site. NL Industries, Inc. ("NL") and
Norfolk Southern Railway Company have been conducting a removal action on the
site, preliminary to remediation. The Company, along with other PRPs, has
entered into a tolling agreement and is currently in negotiations with NL with
respect to this site regarding its share of the allocated liability, which the
Company expects will not have a material adverse effect on business, financial
condition or results of operations.
The Company is also aware of the existence of contamination at its
Huguenot, New York facility, which is expected to require expenditures for
further investigation and remediation. The site is listed by the New York State
Department of Environmental Conservation ("NYSDEC") on its registry of inactive
hazardous waste disposal sites due to the presence of fluoride and other
contaminants in amounts that exceed state groundwater standards, and the agency
has issued a Record of Decision for the soil remediation portion of the site. A
final remediation plan for the ground water portion has not yet been finalized
with or approved by the State of New York. In February 2000, C&D filed suit
against the prior owner of the site, Avnet, Inc. ("Avnet"), which is ultimately
expected to bear some, as yet undetermined, share of the costs associated with
remediation of contamination in place at the time the Company acquired the
property. The parties' attempts to resolve the matter through mediation were not
successful; therefore, the Company is aggressively pursuing available legal
remedies. Should the parties fail to reach a negotiated settlement, and unless
an alternative resolution can be achieved, NYSDEC may conduct the remediation
and seek recovery from the parties.
The Company, together with Johnson Controls, Inc. ("JCI"), is conducting
an assessment and remediation of contamination at and near its facility in
Milwaukee, Wisconsin. The on-site soil remediation portion of this project was
completed as of October 2001. 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 ongoing
cleanup project and (iii) environmental liabilities for any new claims made
after the fifth anniversary of the closing, i.e. March 2004, 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 retained the environmental
liability for the off-site assessment and remediation of lead. In March 2004,
the Company entered into an agreement with JCI to continue to share
responsibility as set forth in the original purchase agreement. The Company is
currently in negotiation with JCI regarding the allocation of costs for
assessment and remediation of certain off-site chlorinated volatile organic
compounds ("CVOCs") in groundwater.
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 in April
2002. The Company engaged in negotiations with both the EPA and Department of
Justice through March 2003 regarding a potential resolution of this matter. The
government filed suit against the Company in March 2003 for alleged violations
of the Clean Water Act. The complaint requests injunctive relief and civil
penalties of up to the amounts provided by statute. The Company anticipates that
the matter will result in a penalty assessment and compliance obligations. The
Company will continue to seek a negotiated or mediated resolution, failing which
it intends to vigorously defend the action.
In October 2004, the Company accrued estimated environmental clean-up and
impaired equipment decontamination charges of $3,881 associated with the
impairment charges related to the Leola, Pennsylvania, and Huguenot, New York,
facilities, the timing for which has not been ascertained.
13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
In February 2005, the Company received a verbal request from the EPA to
conduct exploratory testing to determine if the historical municipal landfill
located on the Company's Attica, Indiana, property is the source of elevated
levels of trichloroethylene detected in two city wells downgradient of the
Company's property. No formal claim has been made against the Company. The scope
of this potential exposure is not defined at this time. The Company has retained
environmental counsel and consultants to fully assess the matter. At this time,
the Company does not believe that this matter will have a material adverse
effect on the Company's business, financial condition or results of operations.
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 in accordance with
SFAS No. 5, "Accounting for Contingencies." As of April 30, 2005, and January
31, 2005, accrued environmental reserves totaled $6,610 and $6,570,
respectively, consisting of $2,402 and $2,362 in other current liabilities and
$4,208 and $4,208 in other liabilities, respectively. Based on currently
available information, management of the Company believes that appropriate
reserves have been established with respect to the foregoing contingent
liabilities and that potential settlements are not expected to have a material
adverse effect on the Company's business, financial condition or results of
operations.
8. OPERATIONS BY REPORTABLE SEGMENT
The Company has the following three reportable business segments:
The Standby Power Division manufactures and markets integrated reserve
power systems and components for the standby power market, which includes
telecommunications, uninterruptible power supplies ("UPS"), cable 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
Standby Power Division also produces the individual components of these systems,
including reserve batteries, power rectifiers, system monitors, power boards and
chargers. Major applications of these products include wireless and wireline
telephone infrastructure, cable television ("CATV") signal powering, corporate
data center powering and computer network backup for use during power 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 and networking equipment, as well as office and industrial
equipment. In addition, as a result of recent acquisitions, the division also
manufactures power conversion products sold into military and CATV applications
as well as digital panel meters and data acquisition components.
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.
14
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
Summarized financial information related to the Company's business
segments for the three months ended April 30, 2005 and 2004, is shown below:
Standby Power Motive
Three months ended April 30, 2005 Power Electronics Power Consolidated
=====================================================================================================
Net sales $ 60,537 $ 48,361 $ 13,923 $ 122,821
Operating income (loss) $ 2,192 $ (918) $ (2,415) $ (1,141)
Three months ended April 30, 2004
=====================================================================================================
Net sales $ 60,890 $ 11,173 $ 13,742 $ 85,805
Operating income (loss) $ 5,392 $ 291 $ (1,845) $ 3,838
Many of the Company's facilities manufacture products for more than one
segment. Therefore, it is not practical to disclose asset information (assets,
expenditures for long-lived assets) on a segment basis.
9. DERIVATIVE INSTRUMENTS
The Company is exposed to various market risks. The primary financial
risks include fluctuations in interest rates, certain commodity prices and
changes in currency exchange rates. The Company manages these risks through
normal operating and financing activities and when appropriate through the use
of derivative instruments.
The Company does not invest in derivative securities for speculative
purposes, but does enter into hedging arrangements in order to reduce its
exposure to fluctuations in interest rates, the price of lead as well as to
fluctuations in exchange rates. The Company applies hedge accounting in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," whereby the Company designates each derivative as a hedge of (i)
the fair value of a recognized asset or liability or of an unrecognized firm
commitment ("fair value" hedge); or (ii) the variability of anticipated cash
flows of a forecasted transaction or the cash flows to be received or paid
related to a recognized asset or liability ("cash flow" hedge). From time to
time, however, the Company may enter into derivatives that economically hedge
certain of its risks, even though hedge accounting is not allowed by SFAS No.
133 or is not applied by the Company. In these cases, there generally exists a
natural hedging relationship in which changes in fair value of the derivative,
that are recognized currently in earnings, act as an economic offset to changes
in the fair value of the underlying hedged item(s).
The following table provides the fair value of the Company's derivative
contracts which include interest rate swaps, foreign exchange contracts and
forward commodity contracts. The interest rate swaps and commodity forwards are
designated as cash flow hedges and; therefore, changes in their fair value, net
of tax, are recorded in accumulated other comprehensive (loss) income. At April
30, 2005, and January 31, 2005, the Company has effectively changed $30,000 in
floating rate debt to fixed rate debt at an average rate of 4.94%. The Company
has chosen not to apply hedge accounting to its currency contracts. Changes in
the fair value of the currency contracts are recorded in other expense, net.
Fair Value Fair Value
at April 30, at January 31,
2005 2005
================================================================================
Interest rate swaps $(317) $(644)
Foreign currency contracts $ 167 $ 78
Commodity forward contracts $ 111 $ --
During the first quarter of fiscal year 2006, the Company began to enter
into financial derivatives to hedge the fluctuation in the price of lead, which
is the primary raw material component in our batteries. The Company expects to
continue to use financial instruments as appropriate to mitigate this risk.
15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
10. WARRANTY
The Company provides for estimated product warranty expenses when the related
products are sold. Because warranty estimates are forecasts that are based on
the best available information, primarily historical claims experience, claims
costs may differ from amounts provided. An analysis of changes in the liability
for product warranties follows:
Three months ended
April 30,
2005 2004
================================================================================
Balance at beginning of period $ 8,303 $ 9,759
Current year provisions 1,791 1,479
Expenditures (1,358) (1,585)
Effect of foreign currency translation 2 --
- --------------------------------------------------------------------------------
Balance at end of period $ 8,738 $ 9,653
================================================================================
As of April 30, 2005, accrued warranty obligations of $8,738 include
$5,242 in current liabilities and $3,496 in other liabilities. As of January 31,
2005, accrued warranty obligations of $8,303 include $4,958 in current
liabilities and $3,345 in other liabilities.
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company follows SFAS No. 132 (revised 2003), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard requires the
disclosure of the components of net periodic benefit cost recognized during
interim periods.
Pension Benefits Postretirement Benefits
------------------ -----------------------
Three months ended Three months ended
April 30, April 30,
2005 2004 2005 2004
============================================================================================
Components of net periodic benefit cost:
Service cost $ 500 $ 475 $ 61 $ 53
Interest cost 1,031 970 65 63
Expected return on plan assets (1,286) (1,213) -- --
Amortization of prior service costs 5 5 29 30
Recognized actuarial loss 435 371 -- 3
- --------------------------------------------------------------------------------------------
Net periodic benefit cost $ 685 $ 608 $ 155 $ 149
============================================================================================
Assuming that the actual return on plan assets is consistent with the
expected rate of 8.25% for the domestic plans for fiscal year 2006, and that
interest rates remain constant for calendar year (plan year) 2005, the Company
would not be required to make any contributions to its domestic pension plans
for fiscal year 2006. The Company expects to make discretionary contributions
totaling approximately $1,550 to three of its domestic pension plans and to make
contributions of approximately $42 to its Japanese plan for fiscal year 2006. In
the three-month period ended April 30, 2005, the Company made contributions of
$10 to its Japanese pension plan.
The Company also expects to make contributions totaling approximately $246
to the two Company sponsored postretirement benefit plans for fiscal year 2006.
16
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
12. ACQUISITIONS
On May 27, 2004, the Company acquired Celab Limited ("Celab") for
approximately $10,500 net of approximately $4,700 in cash acquired, plus
additional acquisition related costs of approximately $400, primarily related to
legal fees and due diligence. Celab, based in Hampshire, United Kingdom, is a
provider of power conversion products, predominantly sold into military, CATV
and telecommunications applications in Europe. This acquisition was funded with
the Company's working capital and its existing credit agreement.
On June 30, 2004, the Company acquired Datel Holding Corporation and its
subsidiaries ("Datel") for an aggregate purchase price of approximately $74,800
plus additional acquisition related costs of approximately $800, primarily
related to legal fees, audit fees, due diligence and appraisals. The purchase
price consisted of an approximately $66,400 cash payment as well as the
assumption of approximately $8,400 in debt. Cash acquired in the Datel
acquisition was approximately $3,100. Datel is a Mansfield, Massachusetts-based
manufacturer of primarily DC to DC converters, with additional product offerings
in data acquisition components and digital panel meters. The appraisal of the
acquired Datel tangible and intangible assets included technology of $11,200
with an 11 year expected useful life, customer relationships of $8,900 with a 20
year expected useful life, trade names of $2,400 with a 25 year expected useful
life, and acquired in-process research and development of $440, which lastly,
resulted in a charge to research and development expense of this amount in the
year ended January 31, 2005. The acquisition was funded with the Company's
expanded revolving credit facility.
On September 30, 2004, the Company acquired the Power Systems division of
Celestica, Inc., which the Company now operates as "CPS," a Toronto,
Ontario-based manufacturer, for approximately $52,400 plus additional
acquisition related costs of approximately $1,050, primarily related to legal
fees, consulting fees, audit fees, due diligence and appraisals. CPS develops DC
to DC converters and AC to DC power supplies which are sold on a direct basis to
large computing and communications OEMs. The appraisal of the acquired CPS
tangible and intangible assets included technology of $3,760 with a weighted
average 5 year expected useful life, customer relationships of $18,500 with a 20
year expected useful life, and acquired in-process research and development of
$340, which lastly, resulted in a charge to research and development expense of
this amount in the year ended January 31, 2005. This acquisition was funded with
the Company's expanded revolving credit facility.
The results of operations of these businesses are included in the
Company's consolidated financial statements from their respective dates of
acquisition.
The following unaudited pro forma financial information combines the
consolidated results of operations as if the Celab, Datel and CPS acquisitions
had occurred as of the beginning of the periods presented. Pro forma adjustments
include only the effects of events directly attributed to a transaction that are
factually supportable. The pro forma adjustments contained in the table below
include amortization of intangibles, depreciation adjustments due to the
write-up of property, plant and equipment to estimated fair market value,
interest expense on the acquisition debt and related income tax effects.
Three months ended April 30, 2004
====================================================================
Net sales $132,056
Net income $ 912
Net income per common share - basic $ 0.04
Net income per common share - diluted $ 0.04
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisitions been consummated
as of the beginning of the periods presented, nor is such information indicative
of future operating results.
17
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
13. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on historical
write-off experience by industry and regional economic data. The Company reviews
its allowance for doubtful accounts quarterly. Past due balances over 90 days
and over a specified amount are reviewed individually for collectibility. All
other balances are reviewed on a pooled basis by age and type of receivable.
Account balances are charged off against the allowance when the Company believes
it is probable the receivable will not be recovered. The Company does not have
any off-balance-sheet credit exposure related to its customers.
Receivables consist of the following at April 30, 2005, and January 31,
2005.
April 30, January 31,
2005 2005
==============================================================================
Trade receivables $ 76,636 $ 72,680
Notes receivables 505 500
Other 3,223 2,459
Allowance for doubtful accounts (2,257) (2,018)
- ------------------------------------------------------------------------------
Total receivables $ 78,107 $ 73,621
==============================================================================
Following are the changes in the allowance for doubtful accounts during
the periods ended:
Three months ended
April 30,
2005 2004
==============================================================================
Balance at beginning of period $ 2,018 $ 1,476
Accrual additions (reductions) 231 (47)
(Write-offs) net of recoveries 9 (32)
Translation adjustment (1) (11)
- ------------------------------------------------------------------------------
Balance at end of period $ 2,257 $ 1,386
==============================================================================
14. DEBT
On June 30, 2004, the Company entered into an amended and restated
revolving credit agreement ("Credit Agreement" or "Facility"), with a maturity
date of June 30, 2009. The financing was arranged by Banc of America Securities
LLC. Under the Credit Agreement, the amount of the Facility was increased to
$175,000 from $100,000 with the option, under certain conditions to increase the
Facility to $200,000. The Facility was increased to $200,000 on August 3, 2004,
at the Company's request.
The Credit Agreement includes a $50,000 sub limit for loans in certain
foreign currencies. The interest rates are determined by the Company's leverage
ratio and, subject to the second amendment discussed below, are available at
LIBOR plus 1% to LIBOR plus 2.75% or Prime, to Prime plus 1.25%. The rates may
be adjusted based on the leverage ratio calculated after the conclusion of each
quarter. The Credit Agreement requires the Company to pay a fee of .25% to .50%
per annum of any unused portion of the Facility, based on the leverage ratio.
The Credit Agreement includes a letter of credit facility, not to exceed
$25,000. The Credit Agreement contains certain 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. These covenants
permit the Company to pay dividends so long as there are no defaults under the
Credit Agreement. The Company was not in compliance with its leverage ratio
covenant at January 31, 2005. The Company obtained a waiver of this violation on
February 28, 2005. The Company entered into the second amendment to the
18
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
Credit Agreement to modify this ratio through the remaining term of the
agreement. The second amendment requires that the Company pledge certain assets
as collateral on a going forward basis. The interest rates determined by the
Company's leverage ratio were changed as a result of this second amendment. The
second amendment also modifies other provisions of the Credit Agreement such
that it permits the Company to exclude: (i) the write down of up to $85,000 of
goodwill from the minimum net worth covenant calculation, (ii) up to $2,500 in
severance costs in fiscal year 2006 as well as, (iii) all future non cash stock
option or restricted stock expense from certain covenant calculations.
Additionally, the second amendment requires the Company to maintain minimum
levels of trailing earnings before interest, taxes, depreciation and
amortization as calculated quarterly through fiscal year 2006. On April 29,
2005, the Company entered into the third amendment to the Credit Agreement to
correct and revise the definitional term "Consolidated EBITDA." The Company was
in compliance with its Credit Agreement covenants at April 30, 2005
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Item 2.
Executive Overview
Within the following discussion, unless otherwise stated, "quarter" and
"three-month period," refer to the first quarter of fiscal year 2006. All
comparisons are with the corresponding period in the prior year, unless
otherwise stated.
Three acquisitions occurred during fiscal year 2005. On May 27, 2004, we
acquired Celab, based in Hampshire, United Kingdom, a provider of power
conversion products, predominately sold into military, CATV and
telecommunications applications in Europe. On June 30, 2004, we acquired Datel,
a Mansfield, Massachusetts-based manufacturer of DC to DC converters, data
acquisition components and digital meters. On September 30, 2004, we acquired
the Power Systems division of Celestica, Inc., which we now operate as "CPS," a
Toronto, Ontario-based company. CPS develops DC to DC converters and AC to DC
power supplies which are sold on a direct basis to large computing and
communications OEMs. For reporting purposes, these three acquisitions are part
of the Power Electronics Division.
Three Months Ended April 30, 2005, Compared to April 30, 2004
Net sales for the first quarter of fiscal year 2006 increased $37,016 or
43% to $122,821 from $85,805 in the first quarter of fiscal year 2005. This
increase resulted primarily from the aforementioned acquisitions, while sales
remained relatively flat in our Standby Power and Motive Power battery
divisions. Sales of the Power Electronics Division increased $37,188 or 333%,
primarily due to net sales of $37,509 recorded by the entities acquired during
the second and third quarters of fiscal year 2005. The legacy portion of the
Power Electronics Division had a slight decline in sales of $321 or 3%. Sales by
the Motive Power Division increased $181 or 1%, while sales by the Standby Power
Division decreased $353 or 1%.
Gross profit for the first quarter of fiscal year 2006 increased $5,210 or
31% to $21,751 from $16,541. Gross margins decreased from 19.3% to 17.7%. Gross
profit in the Power Electronics Division increased $7,642 or 243% to $10,782
from $3,140, primarily due to the results of the acquisitions, partially offset
by lower gross profit within the legacy portion of the Power Electronics
Division. Gross profit in the Standby Power Division declined $2,283 or 18% to
$10,272 from $12,555. Gross profit in the Motive Power Division decreased $149
or 18% to $697 from $846. The gross profit decline in both of our battery
divisions was primarily the result of higher raw material costs, principally
lead.
Selling, general and administrative expenses for the first quarter of
fiscal year 2006 increased $6,645 or 66% to $16,679 from $10,034. This increase
was primarily due to selling, general and administrative expenses of $4,318
incurred by the fiscal year 2005 acquisitions. Excluding the acquired companies,
selling, general and administrative expenses increased $2,327. This increase was
primarily due to severance accruals in the amount of $2,078 for former executive
officers, higher costs related to Sarbanes-Oxley Act Section 404 internal
control compliance in the amount of $944 and higher warranty costs in the amount
of $208, partially offset by lower bonus accruals in the amount of $596.
Research and development expenses for the first quarter of fiscal year
2006 increased $3,544 or 133% to $6,213 from $2,669. As a percentage of sales,
research and development expenses increased from 3.1% during the first quarter
of fiscal year 2005 to 5.1% during the first quarter of fiscal year 2006. The
increase was primarily the result of $3,551 of research and development expenses
incurred by the companies we acquired in fiscal year 2005.
Operating (loss) income for the first quarter of fiscal year 2006
decreased $4,979 or 130% to an operating loss of $1,141 from operating income of
$3,838 in the comparable quarter of the prior fiscal year 2005. This decrease
was primarily the result of higher raw material costs and executive severance.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
Below is a summary of key items affecting operating (loss) income for the
first quarter of fiscal year 2006:
Analysis of Change in Operating (Loss) Income
First Quarter of Fiscal Year 2006 vs. First Quarter of Fiscal Year 2005
Operating income - first quarter fiscal year 2005 $ 3,838
Motive Power Division:
Operations 407
Lead - increased cost (506)
Executive severance - CEO-allocated (229)
Executive severance - General Manager (242)
Standby Power Division:
Operations (43)
Lead - increased cost (2,259)
Executive severance - CEO-allocated (898)
Power Electronics Division:
Operations - Legacy (1,059)
Operations - Acquisitions 559
Executive severance - CEO-allocated (709)
- -----------------------------------------------------------------------------
Operating (loss) income - first quarter of fiscal year 2006 $(1,141)
=============================================================================
Interest expense, net, for the first quarter of fiscal year 2006 increased
$1,717 or 598% to $2,004 from $287 in the first quarter of fiscal year 2005,
primarily due to higher average debt balances outstanding during the period as a
result of funds borrowed to finance the Celab, Datel and CPS acquisitions.
An income tax benefit of $1,651 was recorded in the first quarter of
fiscal year 2006 compared to income tax expense of $1,107 in the first quarter
of fiscal year 2005. The effective tax rate is the (benefit) provision for
income taxes as a percentage of the (loss) income before income taxes and
minority interest. The effective tax rate for the first quarter of fiscal year
2006 reflects a benefit of 47.7% compared to a provision of 37.0% in the
comparable period of the prior year. The primary factors impacting the effective
tax rate in the first quarter of fiscal 2006 were a loss before income taxes in
the first quarter of fiscal 2006 compared to income before taxes in the
comparable period of the prior year along with a shift in the income (loss)
components between United States and foreign operations, an increase in the
relative size of the valuation allowance in the current year relating to the
United States foreign tax credits for the unremitted earnings of a controlled
foreign subsidiary compared to the prior year, and the tax effects of the
resolution of state tax matters in the first quarter of fiscal years 2006 and
2005.
Minority interest reflects the 33% ownership interest in the joint venture
battery business located in Shanghai, China, that is not owned by us. The joint
venture had a smaller net loss during the first quarter of fiscal year 2006
compared to the first quarter of fiscal year 2005.
As a result of all of the above, a net loss in the amount of $(1,709) was
recorded in the first quarter of fiscal year 2006 as compared to net income of
$2,004 in the comparable period of the prior fiscal year. On a per share basis,
there was a net loss of $(0.07) compared to net income of $0.08 - basic and
fully diluted for the first quarters of fiscal years 2006 and 2005,
respectively.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
Future Outlook
Our results of operations continue to be negatively affected by higher raw
material pricing. Higher lead prices negatively affected operating results in
the first quarter of fiscal 2006 by approximately $2,765 compared to the same
quarter of the prior year. We are dealing with increased lead costs through both
selective price increases and prudent hedging of a portion of our future lead
requirements. Additionally, we are both ensuring we have necessary staffing in
place at key locations and evaluating the effectiveness of certain internal
processes. The second quarter of fiscal 2006 is anticipated to reflect a slight
improvement in sales, along with better operational results. As a result, we
believe that second quarter results will be in the range of $0.01 to $0.03
earnings per share, assuming lead pricing remains stable during the quarter.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
Liquidity and Capital Resources
Net cash provided by operating activities increased $45 or 2% to $2,673
for the first quarter of fiscal year 2006 compared to $2,628 in the first
quarter of fiscal year 2005. The increase in net cash provided by operating
activity was primarily due to: (i) a larger increase in accounts payable during
the first quarter of fiscal 2006 versus the first quarter of fiscal 2005; and
(ii) an increase in other current liabilities in the three months ended April
30, 2005, as compared to a decrease in the three months ended April 30, 2004.
These changes, resulting in higher net cash provided by operating activities,
were partially offset by: (i) a net loss in the three months ended April 30,
2005, compared to net income in the three months ended April 30, 2004; (ii) a
larger decrease in income taxes payable in the first quarter of fiscal 2006
compared to the first quarter of fiscal 2005; and (iii) a larger increase in
accounts receivable in the three months ended April 30, 2005, as compared to the
comparable period of the prior fiscal year.
Net cash used by investing activities decreased $1,196 or 47% to $1,329 in
the first quarter of fiscal year 2006 as compared to $2,525 in the comparable
quarter of the prior fiscal year. Acquisition of property plant and equipment
was $1,337 in the three months ended April 30, 2005, as compared to $2,579 in
the three months ended April 30, 2004.
Net cash used in financing activities increased $4,720 or 267% to $6,487
in the first quarter of fiscal year 2006 as compared to $1,767 in the first
quarter of the prior fiscal year, primarily due to a larger decrease in book
overdrafts, coupled with repayment of debt. These changes, resulting in higher
net cash used in financing activities, were partially offset by lower purchases
of treasury stock in the three months ended April 30, 2005, as compared to the
three months ended April 30, 2004.
Our Credit Agreement contains restrictive covenants that require us to
maintain minimum ratios such as fixed charge coverage and leverage ratios as
well as minimum consolidated net worth. We were not in compliance with our
leverage ratio covenant at January 31, 2005. We obtained a waiver of this
violation on February 28, 2005. We entered into the second amendment to the
Credit Agreement to modify this ratio through the remaining term of the
agreement. The second amendment requires us to pledge certain assets as
collateral on a going forward basis. The second amendment also modifies other
provisions of the Credit Agreement such that it permits us to exclude the write
down of up to $85,000 of goodwill from the minimum net worth covenant
calculation, to exclude up to $2,500 in severance costs in fiscal year 2006 as
well as to exclude all future non-cash stock option or restricted stock expense
from certain covenant calculations. Further, the second amendment requires us to
maintain minimum levels of trailing earnings before interest, taxes,
depreciation and amortization ("EBITDA") as calculated quarterly through fiscal
year 2006. On April 29, 2005, we entered into the third amendment to the Credit
Agreement to correct and revise the definitional term "Consolidated EBITDA." We
were in compliance with our Credit Agreement covenants at April 30, 2005.
The availability under the Credit Agreement is expected to be sufficient
to meet our ongoing cash needs for working capital requirements, debt service
and capital expenditures. Capital expenditures during fiscal year 2005 were
incurred to fund cost reduction programs, normal maintenance and regulatory
compliance. Fiscal year 2006 capital expenditures are expected to be
approximately $30,000 primarily for the construction of and relocation to our
new Shanghai joint-venture facility (of which approximately $15,547 has already
been received from the Chinese government to fund construction), upgrades to our
Reynosa, Mexico, facility and other items expended for similar purposes as
fiscal year 2005.
Our Credit Agreement contains certain restrictive covenants that require
us to maintain minimum ratios such as fixed charge coverage and leverage ratios
as well as minimum consolidated net worth. These covenants permit us to pay
dividends so long as there is no default under the Credit Agreement.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4," which adopts wording from the IASB's IAS
No. 2 "Inventories" in an effort to improve the comparability of cross-border
financial reporting. The FASB and IASB both believe the standards have the same
intent; however, an amendment was adopted to avoid inconsistent application. The
new standard indicates that abnormal freight, handling costs and wasted
materials (spoilage) are required to be treated as current period charges rather
than as a portion of inventory cost. Additionally, the standard clarifies that
fixed production overhead should be allocated based on the normal capacity of a
production facility. The statement is effective for us beginning in fiscal year
2007. Adoption is not expected to have a material impact on our consolidated
operations, financial position or cash flows.
In December 2004, FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment" (SFAS No. 123R), which replaces SFAS No. 123 and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." This SFAS No. 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
beginning with the first annual period beginning after December 15, 2005. The
pro forma disclosures previously permitted under SFAS No. 123 no longer will be
an alternative to financial statement recognition. We are required to adopt SFAS
No. 123R in the first quarter of fiscal year 2007. SFAS No. 123R permits public
companies to adopt these requirements using one of two methods:
o A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS No. 123R for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS
No. 123 for all awards granted employees prior to the effective date
of SFAS No. 123R that remain unvested on the effective date.
o A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures.
We are evaluating the impact of adoption of the provisions of SFAS No.
123R as well as the impact of the SEC's SAB No. 107 "Shared-Based Payment." SAB
107 was issued by the SEC in March 2005 and provides supplemental SFAS No. 123R
application guidance based on the views of the SEC. We currently expect to apply
the provisions of SFAS No. 123R utilizing the modified prospective method. In
anticipation of the implementation of SFAS No. 123R, we accelerated the vesting
of all stock options granted under the 1996 and 1998 Stock Option Plans as of
March 1, 2005; therefore, these options will not be expensed in future periods.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." SFAS No. 153 eliminates the exception from fair value measurement
for nonmonetary exchanges of similar productive assets in paragraph 21(b) of
APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it
with an exception for exchanges that do not have commercial substance. SFAS No.
153 specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for periods beginning after June 15, 2005.
Adoption is not expected to have a material impact on our consolidated
operations, financial position or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No. 154 replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
changes the requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. SFAS No. 154 will be
effective for C&D in fiscal year 2007. We are currently in the process of
evaluating the impact SFAS No. 154 will have on our consolidated operations,
financial position or cash flows.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
FORWARD-LOOKING STATEMENTS
Statements and information contained in this Quarterly Report on Form 10-Q
that are not historical facts are "forward-looking" statements made pursuant to
the safe-harbor provisions of the Private Securities Litigation Act of 1995.
Forward-looking statements may be identified by their use of words like "plans,"
"expects," "will," "anticipates," "intends," "may," "projects," "estimates,"
"believes" or other words of similar meaning. All statements that address
expectations or projections about the future, including, but not limited to,
statements about our strategy for growth, goals, trends, product development,
market position, market conditions, expenditures, sales and financial results,
are forward-looking statements. Forward-looking statements are based on certain
assumptions and expectations of future events and involve a number of risks and
uncertainties. We cannot guarantee that these assumptions and expectations are
accurate or will occur. We caution readers not to place undue reliance on these
forward-looking statements. These statements speak only as of the date of this
Quarterly Report on Form 10-Q, and we undertake no obligation to update or
revise these statements to reflect events or circumstances occurring after the
date of this Quarterly Report on Form 10-Q.
o We operate worldwide and derive a portion of our revenue 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 (including
the United States) could affect our business 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 and business
combinations or reorganizations of competitors) or a decline in
industry sales or cancelled or delayed orders due to economic
weakness or changes in economic conditions, either in the United
States or other countries in which we conduct business, could affect
our results of operations.
o Terrorist acts or acts of war, whether in the United States or
abroad, could cause damage or disruption to our operations, our
suppliers, channels to market or customers, or could cause costs to
increase, or create political or economic instability, any of which
could have a material adverse effect on our results of operations.
o Our results of operations could be adversely affected by conditions
in the domestic and global economies or the markets in which we
conduct business, such as telecommunications, UPS, CATV, switchgear
and control, material handling and military.
o Our operating results could be adversely affected by increases in
the cost of raw materials, particularly lead, the primary component
cost of our battery products, or other product parts or components.
We may not be able to fully offset the effects of higher costs of
raw materials through price increases to customers or productivity
improvements. A significant increase in the price of one or more raw
materials, parts or components could have a material adverse effect
on results of operations.
o Our ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate supply and delivery of raw materials,
including lead, which is the primary component cost of our battery
products, or other product parts or components from our suppliers
and internal manufacturing capacity. Although we work closely with
both our internal and external suppliers (and, as to the continuing
availability of lead, our industry associations) to avoid
encountering unavailability or shortages, there can be no assurance
that we will not encounter them in the future. The cessation,
reduction or interruption of supply of raw materials (including
lead), product parts or components, could have a material adverse
effect on our operations. The loss of a key supplier or the
inability to obtain certain key products or components could cause
delays or reductions in shipments of our products or increase our
costs.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
o Our growth objectives are largely dependent on our ability to renew our
pipeline of new products and to bring these products to market. This
ability may be adversely affected by difficulties or delays in product
development, such as the inability to: introduce viable new products;
successfully complete research and development projects or integrate or
otherwise capitalize upon purchased or licensed technology; obtain
adequate intellectual property protection; maintain or improve product
quality; or gain market acceptance of the new products. Our growth could
also be affected by competitive products and technologies.
o Our ability to implement our business strategies may be hindered or
delayed. 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. Acquisitions present significant challenges
and risks relating to the integration of the business into our Company,
including substantial management time and financial and other resources,
and there can be no assurance that we will manage acquisitions
successfully.
o We have undertaken and may continue to undertake productivity initiatives,
including, among others, re-organizations, including the shut down or sale
of portions of our business, and facility rationalizations to improve
performance or generate cost savings. In addition, we may from time to
time relocate or consolidate one or more of our operations. There can be
no assurance that any planned performance improvements or cost savings
from such activities will be realized or that delays or other
interruptions in production or delivery of products will not occur as the
result of any rationalization, relocation or consolidation. A
rationalization, relocation or consolidation could also cause asset
impairments and/or trigger environmental remediation obligations. Further,
there can be no assurance that any of these initiatives 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 participation in voluntary programs, are
significant and will continue to be so for the foreseeable future. We are
also subject to potentially significant fines and penalties for
non-compliance with applicable laws and regulations. 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, but not
limited to, the nature of the problem, the complexity of the issues, the
nature of the remedy, the outcome of discussions with regulatory agencies
and/or the government or third parties and, as applicable, other PRPs at
multi-party sites, the number and financial viability of other PRPs, and
risks associated with litigation and the availability, or lack thereof, of
insurance coverage.
o We are exposed to the credit risk of our customers, including risk of
insolvency and bankruptcy. Although we have programs in place to monitor
and mitigate the associated risk, there can be no assurance that such
programs will be effective in reducing our credit risks or risks
associated with potential bankruptcy of our customers.
o Our business, results of operations and financial condition could be
affected by significant pending and future litigation or claims adverse to
us. These could potentially include, but are not limited to, the
following: product liability, contract, employment-related, labor
relations, personal injury or property damage, intellectual property,
stockholder claims and claims arising from any injury or damage to
persons, property or the environment from hazardous substances used,
generated or disposed of in the conduct of our business (or that of a
predecessor to the extent we are not indemnified for those liabilities).
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
o Our performance depends on our ability to attract and retain qualified
personnel. We cannot assure that we will be able to continue to attract or
retain qualified personnel. A portion of our workforce is unionized. From
time to time, we engage in collective bargaining negotiations with the
unions that represent them. If we are unable to reach agreement with any
of our unionized work groups on future negotiations regarding the terms of
their collective bargaining agreements, or if additional segments of our
workforce become unionized, we may be subject to work interruptions or
stoppages. Strikes or labor disputes with our employees may adversely
affect our ability to conduct our business.
o Our credit facility and covenants under our credit facility restrict our
operational and financial flexibility and impose significant interest and
financing costs. Also, our credit facility permits dividends to be paid on
our Common Stock as long as there is no default under that agreement.
Subject to that restriction and the provisions of Delaware law, future
dividends will depend on our earnings, financial condition and other
factors.
o Our overall profitability may not meet expectations if our products,
customers or geographic mix are substantially different than anticipated.
Our profit margins vary among products, customers and geographic markets.
Consequently, if our mix of any of these is substantially different from
what is anticipated in any particular period, our earnings could be lower
than anticipated.
o In spite of having a disaster recovery plan in place, infrastructure
failures could have a material adverse effect on our business. We are
highly dependent on our systems infrastructure in order to achieve our
business objectives. If we experience a problem that impairs our
infrastructure, such as a power outage, computer virus, intentional
disruption of information technology systems by a third party, equipment
failure or computer or telephone system failure, the resulting disruptions
could impede our ability to book or process orders, manufacture and ship
products in a timely manner or otherwise carry on our business in the
ordinary course. Any such events could cause us to lose significant
customers or revenue and could require us to incur significant expense to
eliminate these problems and address related security concerns.
o In response to the European Union's "Restriction on Use of Hazardous
Substances in Electrical and Electronic Equipment," or ("RoHS,") we
established a schedule for compliance. We will continue to strive for
elimination, and seek to have our component part suppliers eliminate
prohibited hazardous substances consistent with legislative requirements.
We will continue to actively monitor decisions around environmental
legislation and align our compliance with those decisions and the needs of
our customers. There is no assurance that these efforts will be successful
or timely completed, the failure of either of which could have an adverse
effect on our results of operations.
o We are a party to time-limited supply agreements with certain of our
customers. There is no assurance that these contracts will be renewed or,
if renewed, that they will be renewed on as favorable terms to us as
existing agreements.
The foregoing list of important factors is not all-inclusive, or necessarily in
order of importance.
27
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to various market risks. The primary financial risks
include fluctuations in interest rates, certain commodity prices, and changes in
currency exchange rates. We manage these risks through normal operating and
financing activities and when appropriate through the use of derivative
instruments. We do not invest in derivative securities for speculative purposes,
but do enter into hedging arrangements in order to reduce our exposure to
fluctuations in interest rates, the price of lead, as well as to fluctuations in
exchange rates.
Our financial instruments that are subject to interest rate risk consist
of debt instruments and interest rate swap contracts. 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 enter into forward contracts to hedge our exposure to certain foreign
currencies and effective in the first quarter of this fiscal year we have
adopted a lead hedging policy and have entered into non-deliverable forward
contracts to manage the risk associated with changes in the price of lead.
Additional disclosure regarding our various market risks are set forth in
our fiscal 2005 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
28
Item 4. Controls and Procedures:
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our controls and procedures are
effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in the reports that we file or
submit under the Exchange Act.
Internal Control over Financial Reporting:
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting other than in connection with the prior year's
acquisitions.
29
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities:
Total Number of
Shares Purchased Maximum Number
as Part of (or Approximate
Publicly Dollar Value) of
Total Number Announced Shares that May Yet
of Shares Average Price Plans Be Purchased Under the
Period Purchased Paid per Share or Programs Plans or Programs
=======================================================================================================================
February 1 - February 28, 2005 285 $ 13.93 -- 1,000,000
March 1 - March 31, 2005 357 $ 11.15 -- 1,000,000
April 1 - April 30, 2005 332 $ 7.87 -- 1,000,000
- -------------------------------------------------- --------
Total 974 --
================================================== ========
On September 30, 2004, our Board of Directors authorized a new stock
repurchase program. Under the program, the Company is permitted to repurchase up
to 1,000,000 shares of C&D Technologies common stock having a total purchase
price of no greater than $25,000,000. This program entirely replaces and
supersedes all previously authorized stock repurchase programs.
Restrictions on Dividends:
The Company's Credit Agreement contains certain 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. These covenants
permit the Company to pay dividends so long as there is no default under the
Credit Agreement.
30
Item 6. Exhibits.
10.1 Amendment dated May 6, 2005, to the Employment Agreement
between C&D Technologies, Inc. and Linda R. Hansen (filed
herewith).
10.2 Amendment dated May 6, 2005, to the C&D Technologies, Inc.
Amended and Restated Supplemental Executive Retirement Plan
(filed herewith).
10.3 Second Amendment dated as of April 21, 2005, to Amended and
Restated Credit Agreement (incorporated by reference to
Exhibit 10.5 to C&D's Annual Report on Form 10-K for the year
ended January 31, 2005); Third Amendment thereto dated as of
April 29, 2005 (incorporated by reference to Exhibit 10.5 to
C&D's Annual Report on Form 10-K for the year ended January
31, 2005).
10.4 Security Agreement dated April 21, 2005, among C&D
Technologies, Inc. and Certain of its Subsidiaries identified
therein as the Grantors and the Bank of America, N.A., as
administrative agent for the holders of the Secured
Obligations (incorporated by reference to Exhibit 10.6 to
C&D's Annual Report on Form 10-K for the year ended January
31, 2005).
10.5 Release Agreement dated March 24, 2005, between C&D
Technologies, Inc. and Wade H. Roberts, Jr. (incorporated by
reference to Exhibit 10.27 to C&D's Annual Report on Form 10-K
for the year ended January 31, 2005).
10.6 Release Agreement dated April 19, 2005, between C&D
Technologies, Inc. and David A. Fix (incorporated by reference
to Exhibit 10.33 to C&D's Annual Report on Form 10-K for the
year ended January 31, 2005).
31.1 Rule 13a-14(a)/15d-14(a) Certification of the President and
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Vice President
and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Section 1350 Certification of the President and Chief
Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Section 1350 Certification of the Vice President and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C&D TECHNOLOGIES, INC.
June 7, 2005 By: /s/ George MacKenzie
-----------------------------------
George MacKenzie
President, Chief Executive
Officer and Director
(Principal Executive Officer)
June 7, 2005 By: /s/ Stephen E. Markert, Jr.
-----------------------------------
Stephen E. Markert, Jr.
Vice President Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
32
EXHIBIT INDEX
10.1 Amendment dated May 6, 2005, to the Employment Agreement between C&D
Technologies, Inc. and Linda R. Hansen.
10.2 Amendment dated May 6, 2005, to the C&D Technologies, Inc. Amended and
Restated Supplemental Executive Retirement Plan.
31.1 Rule 13a-14(a)/15d-14(a) Certification of the President and Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Vice President and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Section 1350 Certification of the President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Section 1350 Certification of the Vice President and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
33