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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, 2002
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 March 28, 2002: $542,605,256
Number of shares outstanding of each of the Registrant's classes of common
stock as of March 28, 2002: 25,958,200 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 (Part of Form 10-K into which
within 120 days after the end of Registrant's Document is incorporated.)
fiscal year covered by this Form 10-K
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.......................................... 28
Item 8 Financial Statements and Supplementary Data.................... 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 29
Part III
Item 10 Directors and Executive Officers of the Registrant............. 30
Item 11 Executive Compensation......................................... 30
Item 12 Security Ownership of Certain Beneficial
Owners and Management...................................... 30
Item 13 Certain Relationships and Related Transactions................. 30
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................ 31
Signatures.................................................................. 35
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 technology company that produces and markets systems for
the conversion and storage of electrical power, including reserve power systems
and 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 comprised of the following:
o DC to DC converters;
o AC to DC power supplies;
o magnetics (transformers and inductors); and
o custom architectures.
Common applications for our power supplies product portfolio include:
o telecommunications equipment, including optical switches, remote
switches, Voice Over Internet Protocol (VOIP), central office
backup;
o data centers and networked (LAN and WAN) computing architecture;
o high availability industrial computing;
o industrial temperature control systems;
o industrial imaging equipment;
o displays (signs, scanning equipment);
o broadband/CATV powering;
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.
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.
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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 networked computing architecture,
digital printing equipment, industrial copy machines, remote switching equipment
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% 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% 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").
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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 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 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 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) both in the United States and other
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 results of operations could be significantly impacted by adverse
conditions in the domestic and global economies or the markets in
which we conduct business, such as telecommunications, UPS, CATV,
switchgear and control and material handling.
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
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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.
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: 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 could also be affected by
new competitive products and technologies.
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 business, results of operations and financial condition could be
affected by significant pending and future litigation adverse to
C&D, such as, without limitation, product liability, contract and
employment-related claims and claims arising from any injury or
damage to persons or the environment from hazardous substances used,
generated or disposed of in the conduct of C&D's business (or that
of a predecessor to the extent that C&D is not indemnified for those
liabilities). (See Item 3. Legal Proceedings.)
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 and retain qualified personnel.
The foregoing list of important factors is not all-inclusive, or
necessarily stated in order of importance.
4
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, 2002, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.
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, custom, standard
and modified standard embedded high frequency AC to DC switching
power supplies and magnetics (transformers and inductors); and
o Motive Power Division - motive power systems for the material
handling equipment market.
We market our products through independent manufacturer's representatives,
distributors, specialty resellers and our own sales personnel to end users and
original equipment manufacturers ("OEMs").
We sell some products to the U.S. Government. These sales accounted for
less than 5% of our total company sales during each of our last three fiscal
years.
Products and Customers by Business Segment
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.
5
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 branch exchange ("PBX")
systems and wireless telephone systems. Our major telecommunications customers
include national long distance companies, competitive local exchange carriers,
former 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.
6
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 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 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, Power Supplies and
Magnetics
Through our Power Electronics Division we design, manufacture and market
custom, standard and modified-standard electronic power supply systems. These
power supply systems are primarily used by large OEMs in telecommunications
equipment, office products, computers and industrial applications. 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 available
AC or DC voltage to the required level and quality of DC voltage.
Our power supplies incorporate advanced technology and are designed for
reliable operation of the host equipment. These products include DC to DC
converters, AC to DC power supplies and magnetics (transformers and inductors)
for use in a wide variety of applications, with outputs ranging from sub one
watt to several kilowatts. DC to DC products are circuit board mounted devices
used to convert available system
7
power to required component voltages. DC to DC converters are widely used in
distributed power architecture where system voltages require conversion to a
higher or lower voltage to power components such as microprocessors and arrays.
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 that is required by sensitive electronic application
architecture.
In the telecommunications industry, our power supplies are broadly used in
voice and data telecommunications. We also produce power supplies for office
copiers, voice and data networks, instrumentation, robotics, networked
computing, and other industrial applications.
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 and automated
guided vehicles. 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, the V-Line(R)
battery for general material handling applications and the Revolution(R)
maintenance free industrial battery. 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 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
directly with 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 stages through the
engineering, production and sales processes. These departments are also
responsible for applications engineering, technical training of sales
representatives and the marketing communications function.
8
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% or more of our net sales for the
year ended January 31, 2002. We typically sell our products with terms requiring
payment in full within 30 to 60 days. We warrant our battery products to perform
as rated for specified periods of time, ranging from one to 25 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.
Occasionally orders may be canceled by the customer prior to shipment.
Our order backlog at February 28, 2002 was $53,628,000 and at February 28,
2001 was $178,073,000. The decrease in backlog was due to softening in demand
for our products. We expect to fill virtually all of the February 28, 2002
backlog during fiscal 2003.
Manufacturing and Raw Materials
We manufacture our products at seven domestic plants, two plants in China,
and one each in the United Kingdom, 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.
Consolidation. In fiscal 2002 we closed our Workington, United Kingdom
facility and transferred production to our other Power Electronics Division
facilities. We also closed the manufacturing operations at our Conshohocken,
Pennsylvania facility in March 2002 and now purchase products previously
manufactured at this location from a third party. We expect to close the
manufacturing operations at our Shannon, Ireland facility by the end of the
first quarter of fiscal 2003, shifting its manufacturing to other Power
Electronics Division facilities. We expect to continue to utilize the Shannon,
Ireland location as a research and development center. No facilities were closed
during fiscal 2001. 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.
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. ISO certification assures customers that our
internal processes and systems meet internationally recognized standards. We are
ISO 9001 certified at the following domestic locations: Blue Bell, Pennsylvania
Headquarters; Conshohocken, Pennsylvania R&D Battery Laboratories; Conyers,
Georgia; Dunlap, Tennessee; Huguenot, New York; Leola, Pennsylvania; Milwaukee,
Wisconsin and Tucson, Arizona.
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Internationally, our operations in Milton Keynes, United Kingdom; Nogales,
Mexico; Shanghai, China and Shannon, Ireland are also ISO 9001 certified. Our
Guangzhou, China and Romsey, United Kingdom locations are ISO 9002 certified.
Competition
Our products compete on the basis of:
o product quality and reliability;
o reputation;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and we value our relationships with our
customers. In addition, we believe that we have certain competitive advantages
in specific product lines.
We 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., 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 third tier
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;
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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 2002, our Power
Electronics Division introduced the cPCI500DC power supply for Compact PCI
Systems. The cPCI500DC utilizes a patented topology to achieve higher efficiency
and higher power density than currently available competitive offerings. In
addition, the Power Electronics Division also introduced its VSX75 and VSX50
products during fiscal 2002, extending its dual output VSX product family into
higher power levels. With two precisely controlled outputs, these products
deliver the exact power requirements for demanding high speed microprocessors.
The Powercom division has recently introduced the Hyperon(R) 48Vdc 10,800 Amp
Power Plant. The Hyperon(R) offers superior performance for a host of telecom
applications and provides cutting-edge technology that meets cost-effective
design in a power plant that features true modularity, hot swappable components
and compact distribution with superior cable management.
International Operations
In addition to our domestic manufacturing facilities, we have
international manufacturing facilities in Mexico, China and the United Kingdom.
Products produced by our domestic and Mexican facilities are shipped primarily
to the United States, and, to a lesser extent, to Canada and Europe. Our 67%
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 China manufacture electronics that are sold
primarily in Europe, North America, and to a lesser extent, the Far East.
International sales accounted for 20.4%, 20.9% and 16.4% of net sales for the
years ended January 31, 2002, 2001 and 2000, 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), C-LINE PLUS(R),
COMPUCHARGE(R), FERRO FIVE(R), FERRO 1500(R), GUARDIAN(R), HYPERON(R),
RANGER(R), REVOLUTION(R), SCOUT(R), SMARTBATTERY(R), V-LINE(R) and 6-PAK(R).
11
Employees
On February 28, 2002 we employed approximately 2,700 people. Of these
employees, approximately 2,200 were employed in manufacturing and almost 500
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. Employees at a fifth domestic facility are
represented by a union and a collective bargaining agreement is being
negotiated.
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 in place 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
12
requirements. When we become aware of a non-compliance or change in regulatory
requirements, we take immediate steps to correct and resolve the issues. The
associated costs have not had a material adverse 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
therefore), 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.
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. This obligation has since been assumed by Allied's successor
in interest, Honeywell ("Honeywell"). With the exception of four sites disclosed
by Allied at the time of the acquisition, Allied and/or Honeywell 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.
With respect to the sites not covered by the Allied indemnity, 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 quarterly
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 one 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 is
expected to ultimately bear some, as yet undetermined, share of the costs
associated with this matter.
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 was 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
submitted a compliance plan to the EPA. We are in active negotiations with the
agency regarding the potential resolution of this matter.
13
With respect to each of the properties described in the preceding three
paragraphs, we have accrued a reserve in our consolidated financial statements
for our estimate of the potential costs and liabilities based upon currently
available information. 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 of our corporate
environmental management systems at our Blue Bell, Pennsylvania headquarters.
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 1, 2002, with respect
to our principal properties.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties:
Milwaukee, Wisconsin (1)............. 370,000 Small standby power batteries,
headquarters of Dynasty Division
Attica, Indiana (1).................. 295,000 Large standby power batteries
Leola, Pennsylvania (1).............. 240,000 Large standby power batteries and Round
Cell
Conyers, Georgia (1)................. 161,000 Small standby power batteries
Huguenot, New York (1)............... 148,000 Motive power batteries and large standby
power batteries
Dunlap, Tennessee (2)................ 72,000 Standby power and motive power
electronics products
Blue Bell, Pennsylvania (3).......... 63,000 Corporate headquarters, Powercom and
Motive Power divisional headquarters
Tucson, Arizona (3).................. 57,000 DC to DC converters, power supplies,
headquarters of Power Electronics
Division and electronics R&D
laboratories
Conshohocken, Pennsylvania (1) (4)... 27,000 Battery R&D laboratories and
distribution center
International Properties:
Shanghai, China (5)................. 314,000 Small standby power batteries
Nogales, Mexico (3).................. 97,000 DC to DC converters and AC to DC
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)(4).............. 19,000 DC to DC converters and electronics
R&D laboratory
(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) We closed the manufacturing operations at our Conshohocken, Pennsylvania
facility in March 2002 and now purchase products previously manufactured
at this location from a third party. We expect to close the manufacturing
operations at our Shannon, Ireland facility by the end of the first
quarter of fiscal 2003, shifting its manufacturing to other Power
Electronics Division facilities. We expect to continue to utilize the
Shannon, Ireland location as a research and development center.
(5) Building is owned by the joint venture; however, the land is leased under
a 50-year agreement, of which 43 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 March 28, 2002 was 7,100.
16
The following table sets forth, for the periods indicated, the high and
low sales prices for our Common Stock as reported by the New York Stock
Exchange. These prices represent actual transactions, but do not reflect
adjustment for retail markups, markdowns or commissions.
Year Ended
---------------------------------------
January 31, 2002 January 31, 2001
----------------- -----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter ...................... $55.65 $23.40 $33.00 $20.38
Second Quarter ..................... 38.60 23.90 61.38 29.75
Third Quarter ...................... 32.15 16.35 61.88 31.38
Fourth Quarter ..................... 24.65 19.60 58.25 36.88
Dividends. We began paying quarterly cash dividends on our Common Stock in
April 1987. For the years ended January 31, 2002 and 2001 we declared quarterly
dividends per share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2002 ................... $0.01375 $0.01375 $0.01375 $0.01375
2001 ................... $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 Mellon Investor Services, LLC (formerly 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.
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)
2002 2001 (1) 2000 (2) 1999 1998
-------- --------- --------- -------- --------
Statement of Income Data:
Net sales ....................... $471,641 $ 615,678 $ 482,182 $321,937 $315,313
Cost of sales ................... 343,370 439,135 357,802 235,767 234,139
-------- --------- --------- -------- --------
Gross profit .................... 128,271 176,543 124,380 86,170 81,174
Selling, general and
administrative expenses ........ 50,406 66,243 59,315 40,344 39,333
Research and development
expenses ....................... 10,291 10,281 8,941 8,255 8,610
-------- --------- --------- -------- --------
Operating income ................ 67,574 100,019 56,124 37,571 33,231
Interest expense, net ........... 6,700 6,315 7,946 126 1,129
Other expense (income), net ..... 1,239 (725) (20) 211 1,058
-------- --------- --------- -------- --------
Income before income taxes and
minority interest .............. 59,635 94,429 48,198 37,234 31,044
Provision for income taxes ...... 22,244 35,883 17,737 13,154 11,359
-------- --------- --------- -------- --------
Net income before minority
interest ....................... 37,391 58,546 30,461 24,080 19,685
Minority interest ............... 1,317 2,651 619 -- --
-------- --------- --------- -------- --------
Net income ...................... $ 36,074 $ 55,895 $ 29,842 $ 24,080 $ 19,685
======== ========= ========= ======== ========
Net income per common
share - basic (3) .............. $ 1.38 $ 2.13 $ 1.17 $ .97 $ .81
======== ========= ========= ======== ========
Net income per common
share - diluted (4) ............ $ 1.35 $ 2.05 $ 1.14 $ .94 $ .78
======== ========= ========= ======== ========
Dividends per common share ...... $ .05500 $ .05500 $ .05500 $ .04125 $ .02750
======== ========= ========= ======== ========
Balance Sheet Data:
Working capital ................. $ 55,014 $ 75,895 $ 65,079 $ 63,688 $ 47,342
Total assets .................... 395,558 455,519 354,115 185,642 166,498
Short-term debt ................. 27,255 18,172 20,393 532 321
Long-term debt .................. 46,892 98,849 76,459 1,750 10,267
Stockholders' equity ............ 241,858 218,054 162,066 123,538 97,305
(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% 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% 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% ownership interest of the joint venture
battery business in Shanghai, China the Dynasty Division. See notes to
consolidated financial statements.
(3) Based on 26,153,715, 26,223,684, 25,529,778, 24,730,366 and 24,442,740
weighted average shares outstanding - basic.
(4) Based on 26,688,011, 27,264,528, 26,088,402, 25,671,724 and 25,263,648
weighted average shares outstanding - diluted.
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 2002, primarily due to negative economic conditions,
particularly in the telecommunications market, there was a softening in demand
for our products.
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 2002, 2001 and 2000, the average North American producer
price of lead was $.44, $.45 and $.45 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 selective 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
-------------------------------
2002 2001 2000
------ ------ ------
Net sales ............................................ 100.0% 100.0% 100.0%
Cost of sales ........................................ 72.8 71.3 74.2
------ ------ ------
Gross profit ....................................... 27.2 28.7 25.8
Selling, general and administrative expenses ......... 10.7 10.8 12.3
Research and development expenses .................... 2.2 1.7 1.9
------ ------ ------
Operating income ................................... 14.3 16.2 11.6
Interest expense, net ................................ 1.4 1.0 1.6
Other expense (income), net .......................... 0.3 (0.1) --
------ ------ ------
Income before income taxes and minority interest ... 12.6 15.3 10.0
Provision for income taxes ........................... 4.7 5.8 3.7
------ ------ ------
Net income before minority interest ................ 7.9 9.5 6.3
Minority interest .................................... 0.3 0.4 0.1
------ ------ ------
Net income ......................................... 7.6% 9.1% 6.2%
====== ====== ======
Critical Accounting Policies
We have identified the critical accounting policies that are most
important to the portrayal of our financial condition and results of operations.
The policies set forth below require management's most subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Litigation and Environmental Reserves
C&D is involved in litigation in the ordinary course of business,
including personal injury, property damage and environmental litigation. We also
expend funds for environmental remediation of both company-owned and third-party
locations. In accordance with Generally Accepted Accounting Principles ("GAAP"),
specifically Statement of Financial Accounting Standards ("SFAS") No. 5,
"Accounting for Contingencies" and Statement of Position 96-1, "Environmental
Remediation Liabilities," we record a loss and establish a reserve for
litigation or remediation when it is probable that an asset has been impaired or
a liability exists and the amount of the liability can be reasonably estimated.
Reasonable estimates involve judgments made by
21
management after considering a broad range of information including:
notifications, demands or settlements that have been received from a regulatory
authority or private party, estimates performed by independent engineering
companies and outside counsel, available facts, existing and proposed
technology, the identification of other PRPs and their ability to contribute and
prior experience. These judgments are reviewed quarterly as more information is
received and the amounts reserved are updated as necessary. However, the
reserves may materially differ from ultimate actual liabilities if the loss
contingency is difficult to estimate or if management's judgments turn out to be
inaccurate. If management believes no best estimate exists, the minimum loss is
accrued in accordance with GAAP.
Valuation of Long-lived Assets
C&D follows 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, we estimate the future cash flows
expected to result from 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.
Pension and Other Employee Benefits
Certain assumptions are used in the calculation of the actuarial valuation
of our defined benefit pension plans and postretirement benefits. These
assumptions include the weighted average discount rate, rates of increase in
compensation levels, expected long-term rates of return on assets and increases
or trends in health care costs. If actual results are less favorable than those
projected by management, lower levels of pension credit or other additional
expense may be required.
Inventory Reserves
C&D adjusts the value of its obsolete and unmarketable inventory to the
estimated market value based upon assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Allowance for Doubtful Accounts
C&D maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Warranty Reserves
C&D provides for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
suppliers' products and processes, C&D's warranty obligation is affected by
product failure rates, warranty replacement costs and service delivery costs
incurred in correcting a product failure. Should actual product failure rates,
warranty replacement costs or service delivery costs differ from our estimates,
revisions to the estimated warranty liability would be made.
22
Deferred Tax Valuation Allowance
C&D records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event C&D were to
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise,
should C&D determine that it would not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
Revenue Recognition
C&D 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 our experience. While returns have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same return rates that
we have in the past. Any significant increase in product failure rates and the
resulting credit returns could have a material adverse impact on our operating
results for the period or periods in which such returns materialize.
Fiscal 2002 Compared to Fiscal 2001
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 the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion (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"). We continue to use the assets acquired in such business. As result of
the timing of the above acquisition, fiscal 2001, which ended January 31, 2001,
does not include revenue or expense for ten months of the twelve-month period
with respect to our acquisition of NCL.
Net sales for fiscal 2002 decreased $144,037 or 23% to $471,641 from
$615,678 in fiscal 2001. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Dynasty Division declined $50,278, or
31%, due to lower sales to the UPS, CATV and telecommunications markets. Power
Electronics divisional sales decreased $46,962, or 43%, primarily due to a
decline in DC to DC converter sales, partially offset by the recording of a full
year of sales by NCL versus two months in fiscal 2001. Sales of the Powercom
Division fell $29,862, or 11% mainly due to lower telecommunication sales,
partially offset by higher sales to the UPS and control markets. Motive Power
divisional sales dropped $16,935, or 22% due to lower sales of batteries and
chargers.
Gross profit for fiscal 2002 decreased $48,272 or 27% to $128,271 from
$176,543 in the prior year, resulting in a decrease in gross margin from 28.7%
to 27.2%. Gross profit declined in all divisions, primarily as a result of lower
sales.
23
Selling, general and administrative expenses for fiscal 2002 decreased
$15,837 or 24%. This decrease was primarily due to: (i) lower variable selling
costs associated with the decreased sales volumes; (ii) the reduction of general
and administrative expenses associated with the full recovery of litigation
settlement costs from our insurance carriers in the first quarter of fiscal
2002, which was reserved for in fiscal 2001; (iii) lower bonus accruals; (iv)
lower warranty expenses; (v) lower travel expenses; and (vi) lower advertising
expenses. Partially offsetting this decrease was: (i) the recording of a full
year of selling, general and administrative expenses during fiscal 2002 by NCL
(including amortization of goodwill and other intangible assets), compared to
only two months in the prior year; (ii) costs related to a potential acquisition
that did not close; and (iii) costs associated with the closure of the
Conshohocken, Pennsylvania plant.
Research and development expenses were up by a nominal amount on lower
sales.
Operating income decreased $32,445 or 32% to $67,574 from $100,019 in the
prior year. This decrease was the result of lower operating income generated by
the Dynasty Division, coupled with an operating loss generated by the Power
Electronics Division versus operating income in the prior fiscal year. This
decrease was partially offset by higher Powercom divisional operating income,
coupled with a lower operating loss generated by the Motive Power Division. (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, increased $385 in fiscal 2002 compared to the prior
year, primarily due to higher weighted average debt balances outstanding during
the year, coupled with lower capitalized interest resulting from our reduced
level of capital spending, partially offset by a lower effective interest rate.
Income tax expense for fiscal 2002 decreased $13,639 from fiscal 2001,
primarily as a result of lower income before income taxes and a decrease in the
effective tax rate. The effective tax rate consists of statutory rates adjusted
for the tax impacts of our foreign sales corporation, research and development
credits and foreign operations. The effective tax rate for fiscal 2002 decreased
to 37.3% from 38.0% in the prior year.
Minority interest of $1,317 in fiscal 2002 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.
As a result of the above, for fiscal 2002, net income decreased $19,821 or
35% to $36,074 or $1.38 per share - basic and $1.35 per share - diluted.
Fiscal 2001 Compared to Fiscal 2000
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
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 indirect wholly owned subsidiary of JCI. In addition, on
August 2, 1999 we completed the acquisition of JCI's 67% 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%
ownership interest in the joint venture battery business in Shanghai, China the
Dynasty Division.
24
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% ownership
interest in a joint venture battery business in Shanghai, China.
Net sales for fiscal 2001 increased $133,496 or 28% 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 2% decrease in
sales. Sales by the Power Electronics Division increased $47,710 or 76% 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 acquisition of NCL. Sales
by the Dynasty Division increased $47,382, or 41%, 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% 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%, as a result of higher sales to the
telecommunications and UPS markets.
Gross profit for fiscal 2001 increased $52,163 or 42% to $176,543 from
$124,380 in the prior year, resulting in an increase in gross margin from 25.8%
to 28.7%. 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%. 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% 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 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 2%
of sales.
Operating income for fiscal 2001 increased $43,895 or 78% 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 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.
25
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% from 36.8% in the prior year.
Minority interest of $2,651 in fiscal 2001 reflects the 33% 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% to $55,895 or $2.13 per share - basic and $2.05 per share - diluted.
Liquidity and Capital Resources
Net cash provided by operating activities increased $2,630 or 3% to
$81,770 in fiscal 2002, compared to $79,140 in fiscal 2001. This increase in net
cash provided by operating activities was primarily due to decreases in accounts
receivable and inventory during fiscal 2002 (mainly due to lower sales volume)
compared to increases in the prior year, coupled with an increase in
depreciation and amortization. These changes, resulting in higher net cash
provided by operating activities, were partially offset by: (i) decreases in
accounts payable, accrued liabilities and other current liabilities versus
increases in the prior fiscal year; (ii) lower net income; (iii) a decrease in
income taxes payable compared to an increase in the prior year; and (iv) a
larger decrease in other liabilities in fiscal 2002 versus fiscal 2001.
Net cash used by investing activities decreased $65,218 or 71% to $26,787
from $92,005 in fiscal 2001, which included our purchase of NCL and higher
capital spending for property, plant and equipment.
Net cash used by financing activities was $53,824 in fiscal 2002 versus
cash provided by financing activities of $13,624 in fiscal 2001. The proceeds
from new borrowings in fiscal 2001 were primarily used to fund the NCL
acquisition. Fiscal 2002 net cash flows used by financing activities include
higher debt reductions and treasury stock purchases than the prior year,
partially offset by proceeds from new borrowings related to a line of credit
denominated in British Pounds.
The availability under our current loan agreements is expected to be
sufficient to meet our ongoing cash needs for working capital requirements, debt
service, capital expenditures and possible strategic acquisitions. These
agreements contain restrictive 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, 2002. Capital expenditures during fiscal 2002 were incurred to
fund capacity expansion, a continuing series of cost reduction programs, normal
maintenance capital and regulatory compliance. Fiscal 2003 capital expenditures
are expected to be approximately $10,000 for similar purposes.
26
Contractual Obligations and Commercial Commitments
The following tables summarize our contractual obligations and commercial
commitments as of January 31, 2002 (dollars in thousands):
Payments Due by Period
-----------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
------- ------- ------- ------ ------
Term loan ........................... $44,142 $18,750 $25,392 -- --
Operating leases .................... 19,958 3,036 4,445 $2,999 $9,478
------- ------- ------- ------ ------
Total contractual cash obligations .. $64,100 $21,786 $29,837 $2,999 $9,478
======= ======= ======= ====== ======
Amount of Commitment Expiration Per Period
-------------------------------------------------------
Total
Amounts Less than 1 - 3 4 - 5 After 5
Other Commercial Commitments Committed 1 year years years years
--------- ------- ------- ------- -------
Lines of credit ................. $30,001 $ 8,501 $21,500 -- --
Standby letters of credit ....... 2,621 2,621 -- -- --
------- ------- ------- ------- -------
Total commercial commitments .... $32,622 $11,122 $21,500 -- --
======= ======= ======= ======= =======
New Accounting Pronouncements
On February 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." The adoption of
the new standard resulted in a net-of-tax cumulative effect of $103 recorded in
accumulated other comprehensive loss.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets. Effective February 1, 2002,
goodwill and indefinite lived intangible assets will no longer be amortized, but
will be reviewed annually (or more frequently if impairment indicators arise)
for impairment. Other intangible assets will continue to be amortized over their
useful lives. We are currently evaluating the potential impact, if any, of the
application of goodwill impairment provisions of the new rules on our financial
position and results of operations. Based on acquisitions completed as of
January 31, 2002, application of the goodwill non-amortization provisions of
these rules, without considering the impact of any potential impairment, is
expected to result in an increase in income before taxes of approximately $6,100
for fiscal 2003.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting requirements for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. We are currently in
the process of evaluating the impact SFAS No. 143 will have on our financial
position and results of operations, if any.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets
27
and for Long-Lived Assets to be Disposed Of." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions
of Accounting Principles Board Opinion No. 30. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. We are currently in the process
of evaluating the impact SFAS No. 144 will have on our financial position and
results of operations, if any.
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 $74,143 and $117,002 at
January 31, 2002 and 2001, 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 $(1,835) and $(165) at
January 31, 2002 and 2001, respectively. A 100-basis point increase in rates at
January 31, 2002 and 2001 would result in a $924 and a $349 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2002 and 2001 would result in an $883 and a $357 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their year-end 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 and
Canadian Dollar. These financial instruments represent a net market value of
$(34) and $(179) at January 31, 2002 and 2001, respectively.
To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10% change in exchange rates.
The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables being
held constant. At January 31, 2002 and 2001, a 10%
28
strengthening of the US Dollar versus these currencies would result in an
increase of the net market value of the forwards and swaps of $1,579 and $3,106,
respectively. At January 31, 2002 and 2001, a 10% weakening of the US Dollar
versus these currencies would result in a decrease in the net market value of
the forwards and swaps of $1,737 and $3,167, 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, 2002 and
2001, 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
None.
29
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 "Election of Directors," "Current Executive
Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" included in C&D's proxy statement for our 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange 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 2002 Annual Meeting of Stockholders to be filed with the
Securities and Exchange 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 "Beneficial
Ownership of Management" included in C&D's proxy statement for our 2002 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
None.
30
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, 2002 and 2001
Consolidated Statements of Income for the years ended January 31,
2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended January
31, 2002, 2001 and 2000
Consolidated Statements of Comprehensive Income for the years ended
January 31, 2002, 2001 and 2000
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, 2002, 2001 and 2000
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
Mellon Investor Services, LLC (formerly 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).
31
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 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form 10-K
for the fiscal year ended January 31, 2001).
10.6 Uncommitted loan facility dated June 5, 2001 between C&D
Holdings Limited and ABN Amro Bank N.V. (incorporated by
reference to Exhibit 10.2 to C&D's Quarterly Report on Form
10-Q for the period ended April 30, 2001).
Management Contracts or Plans
10.7 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).
32
10.8 C&D Technologies, Inc. Amended and Restated 1998 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to C&D's
Annual Report on Form 10-K for fiscal year ended January 31,
2001).
10.9 C&D Technologies, Inc. Savings Plan as restated and amended
(filed herewith).
10.10 C&D Technologies, Inc. Pension Plan for Salaried Employees as
restated and amended (filed herewith).
10.11 Supplemental Executive Retirement Plan, amended and restated
as of February 27, 2001 (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2001).
10.12 C&D Technologies, Inc. Management Incentive Bonus Plan Policy
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2001).
10.13 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).
10.14 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).
10.15 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).
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 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).
10.18 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).
10.19 Employment Agreement dated March 1, 2001 between David Fix 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, 2001).
10.20 Employment Agreement dated August 6, 2001 between James D.
Johnson and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 2001).
33
10.21 Employment Agreement dated January 4, 2002 between Mark D.
Amatrudo and C&D (filed herewith).
10.22 Agreement and Release dated August 16, 2001 between John Rich
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, 2001).
10.23 Agreement and Release dated March 1, 2002 between Mark Z.
Sappir and C&D (filed herewith).
10.24 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).
10.25 C&D Technologies, Inc. Approved Share Option Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-69266).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by C&D during the last quarter of
the period covered by this report.
34
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 19, 2002 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 19, 2002
- --------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 19, 2002
- --------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 19, 2002
- ---------------------------
William Harral, III
/s/ Stephen J. Andriole Director April 19, 2002
- ---------------------------
Stephen J. Andriole
/s/ Adrian A. Basora Director April 19, 2002
- ---------------------------
Adrian A. Basora
/s/ Peter R. Dachowski Director April 19, 2002
- ---------------------------
Peter R. Dachowski
/s/ Kevin P. Dowd Director April 19, 2002
- ---------------------------
Kevin P. Dowd
/s/ Pamela S. Lewis Director April 19, 2002
- ---------------------------
Pamela S. Lewis
/s/ George MacKenzie Director April 19, 2002
- ---------------------------
George MacKenzie
/s/ John A. H. Shober Director April 19, 2002
- ---------------------------
John A. H. Shober
35
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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, 2002 and 2001 ................................. F-3
Consolidated Statements of Income
for the years ended January 31, 2002, 2001
and 2000 .................................................. F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2002, 2001 and 2000 ..................... F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 2002, 2001
and 2000 .................................................. F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 2002,
2001 and 2000 ............................................. F-8
Notes to Consolidated Financial Statements .................. F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 2002, 2001 and 2000
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 31 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2002 and January 31, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002 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 31
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 our opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 5, 2002
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 8,781 $ 7,709
Accounts receivable, less allowance for doubtful
accounts of $2,278 in 2002 and $4,121 in 2001 ..... 44,968 88,596
Inventories ............................................. 61,674 77,493
Deferred income taxes ................................... 10,156 10,990
Other current assets .................................... 6,754 1,459
--------- ---------
Total current assets .............................. 132,333 186,247
Property, plant and equipment, net ........................... 131,207 130,387
Intangible and other assets, net ............................. 24,659 23,309
Goodwill, net ................................................ 107,359 115,576
--------- ---------
Total assets ...................................... $ 395,558 $ 455,519
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ......................................... $ 27,255 $ 18,172
Accounts payable ........................................ 19,640 45,935
Accrued liabilities ..................................... 22,210 34,918
Income taxes ............................................ -- 2,533
Other current liabilities ............................... 8,214 8,794
--------- ---------
Total current liabilities ......................... 77,319 110,352
Deferred income taxes ........................................ 2,602 1,135
Long-term debt ............................................... 46,892 98,849
Other liabilities ............................................ 18,574 20,133
--------- ---------
Total liabilities ................................. 145,387 230,469
Commitments and contingencies
Minority interest ............................................ 8,313 6,996
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,431,728 and 28,276,917
shares issued in 2002 and 2001, respectively ...... 284 283
Additional paid-in capital .............................. 65,893 62,908
Treasury stock, at cost, 2,414,161 and
1,986,038 shares in 2002 and 2001, respectively ... (29,743) (17,750)
Accumulated other comprehensive loss .................... (3,057) (1,231)
Retained earnings ....................................... 208,481 173,844
--------- ---------
Total stockholders' equity ........................ 241,858 218,054
--------- ---------
Total liabilities and stockholders' equity ........ $ 395,558 $ 455,519
========= =========
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)
2002 2001 2000
--------- --------- ---------
Net sales .............................. $ 471,641 $ 615,678 $ 482,182
Cost of sales .......................... 343,370 439,135 357,802
--------- --------- ---------
Gross profit ................ 128,271 176,543 124,380
Selling, general and administrative
expenses ............................. 50,406 66,243 59,315
Research and development expenses ...... 10,291 10,281 8,941
--------- --------- ---------
Operating income ............ 67,574 100,019 56,124
Interest expense, net .................. 6,700 6,315 7,946
Other expense (income), net ............ 1,239 (725) (20)
--------- --------- ---------
Income before income taxes
and minority interest ..... 59,635 94,429 48,198
Provision for income taxes ............. 22,244 35,883 17,737
--------- --------- ---------
Net income before minority
interest .................. 37,391 58,546 30,461
Minority interest ...................... 1,317 2,651 619
--------- --------- ---------
Net income .................. $ 36,074 $ 55,895 $ 29,842
========= ========= =========
Net income per common share - basic .... $ 1.38 $ 2.13 $ 1.17
Net income per common share - diluted .. $ 1.35 $ 2.05 $ 1.14
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, 2002, 2001 and 2000
(Dollars in thousands, except per share data)
Accumulated
Common Stock Additional Treasury Stock Other
------------------ Paid-In --------------------- Comprehensive Retained
Shares Amount Capital Shares Amount Loss Earnings
------ ------ ------- ------ ------ ---- --------
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
Foreign currency translation
adjustments ................ (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
Foreign currency translation
adjustments ................ (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
Net income ................... 36,074
Dividends to stockholders,
$.055 per share ............ (1,437)
Tax effect relating to stock
options exercised .......... 755
Cumulative effect
of accounting change ....... (103)
Foreign currency translation
adjustments ................ (676)
Unrealized loss on
derivative instruments ..... (1,047)
Purchase of common stock ..... (414,563) (11,634)
Deferred compensation plan ... (13,560) (359)
Issuance of common stock ..... 6,911 185
Stock options exercised ...... 147,900 1 2,045
---------- ---- ------- ---------- -------- ------- --------
Balance as of
January 31, 2002 ........... 28,431,728 $284 $65,893 (2,414,161) $(29,743) $(3,057) $208,481
========== ==== ======= ========== ======== ======= ========
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)
2002 2001 2000
-------- -------- ---------
Cash flows provided (used) by operating activities:
Net income .......................................... $ 36,074 $ 55,895 $ 29,842
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest ................................... 1,317 2,651 619
Depreciation and amortization ....................... 30,049 26,054 21,671
Deferred income taxes ............................... 2,301 1,106 (3,047)
Loss on disposal of assets .......................... 346 783 988
Changes in:
Accounts receivable ...................... 43,065 (8,935) (12,100)
Inventories .............................. 15,375 (13,888) 1,466
Other current assets ..................... 305 (213) 486
Accounts payable ......................... (22,665) 936 5,224
Accrued liabilities ...................... (12,097) 6,960 4,648
Income taxes payable ..................... (7,392) 4,177 6,059
Other current liabilities ................ (579) 4,299 913
Other liabilities ........................ (4,870) (528) 3,990
Other, net .......................................... 541 (157) 791
-------- -------- ---------
Net cash provided by operating activities ............ 81,770 79,140 61,550
-------- -------- ---------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net ...................... -- (51,095) (134,878)
Acquisition of property, plant and equipment ........ (26,826) (41,075) (14,710)
Proceeds from disposal of property,
plant and equipment ............................... 39 165 97
-------- -------- ---------
Net cash used by investing activities ................ (26,787) (92,005) (149,491)
-------- -------- ---------
Cash flows provided (used) by financing activities:
Repayment of debt ................................... (52,131) (27,928) (17,374)
Proceeds from new borrowings ........................ 8,662 45,700 104,898
Financing cost of long-term debt .................... -- (258) (2,727)
Proceeds from issuance of common stock, net ......... 1,927 4,484 6,648
Purchase of treasury stock .......................... (10,841) (6,931) --
Payment of common stock dividends ................... (1,441) (1,443) (1,395)
-------- -------- ---------
Net cash (used) provided by financing activities ..... (53,824) 13,624 90,050
-------- -------- ---------
Effect of exchange rate changes on cash .............. (87) (171) 9
-------- -------- ---------
Increase in cash and cash equivalents ................ 1,072 588 2,118
-------- -------- ---------
Cash and cash equivalents at beginning of year ....... 7,709 7,121 5,003
-------- -------- ---------
Cash and cash equivalents at end of year ............. $ 8,781 $ 7,709 $ 7,121
======== ======== =========
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)
2002 2001 2000
-------- -------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net ................................. $ 7,277 $ 6,267 $ 7,417
Income taxes paid, net ............................. $ 26,650 $ 30,594 $ 14,733
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired ............ $ -- $ 9,852 $ 80,909
Goodwill ........................................... -- 44,835 67,637
Identifiable intangible assets ..................... -- 2,356 17,840
Cash paid, net of cash required .................... -- (51,095) (134,878)
-------- -------- ---------
Liabilities assumed ................................ $ -- $ 5,948 $ 31,508
======== ======== =========
Dividends declared but not paid ....................... $ 358 $ 362 $ 358
Annual retainer to Board of Directors paid
by the issuance of common stock ..................... $ 185 $ 179 $ 161
(Decrease) increase in property, plant and equipment
acquisitions in accounts payable .................... $ (4,539) $ 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)
2002 2001 2000
-------- -------- --------
Net income ..................................... $ 36,074 $ 55,895 $ 29,842
Other comprehensive expense, net of tax:
Cumulative effect of accounting change ...... (103) -- --
Net unrealized loss on derivative instruments (1,047) -- --
Foreign currency translation adjustments .... (676) (614) (448)
-------- -------- --------
Total comprehensive income ..................... $ 34,248 $ 55,281 $ 29,394
======== ======== ========
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:
The consolidated financial statements include the accounts of C&D
Technologies, Inc., its wholly owned subsidiaries and a 67% joint venture
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated.
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
Company's reportable business segments consist of the Powercom Division, the
Dynasty Division, the Power Electronics Division and the Motive Power Division.
(See Note 15.)
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 other expenses
(income), net.
Derivative Financial Instruments:
On February 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments.
Specifically, SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure those instruments at fair value. Additionally, the fair value
adjustments will affect either stockholders' equity or net income depending on
whether the derivative instrument qualifies as a hedge for accounting purposes
and, if so, the nature of the hedging activity. As of February 1, 2001, the
adoption of the new standard resulted in a net-of-tax cumulative effect increase
of $103 recorded in accumulated other comprehensive loss.
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)
In the normal course of business, the Company uses a variety of derivative
financial instruments primarily to manage currency exchange rate and interest
rate risk. All derivatives are recognized on the balance sheet at fair value and
are generally reported in accrued liabilities. To qualify for hedge accounting,
the Company requires that the instruments are effective in reducing the risk
exposure that they are designed to hedge. For instruments that are associated
with the hedge of an anticipated transaction, hedge effectiveness criteria also
require that it be probable that the underlying transaction will occur.
Instruments that meet established accounting criteria are formally designated as
hedges at the inception of the contract. These criteria demonstrate that the
derivative is expected to be highly effective at offsetting changes in fair
value of the underlying exposure both at inception of the hedging relationship
and on an ongoing basis. The assessment for effectiveness is formally documented
at hedge inception and reviewed at least quarterly throughout the designated
hedge period.
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
$3,959 and $11,462 at January 31, 2002 and 2001, 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 ("LIFO") 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
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)
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.
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, 2002 and 2001 was $8,559 and $7,118,
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, 2002. Accumulated amortization as
of January 31, 2002 and 2001 was $16,248 and $10,145, respectively. Effective
February 1, 2002, the Company will be accounting for goodwill under SFAS No.
142, "Goodwill and Other Intangible Assets." Under SFAS No. 142 the Company will
no longer amortize its goodwill, but will review it annually (or more frequently
if impairment indicators arise) for impairment.
Impairment of Assets:
The Company follows 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 from 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.
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)
Other Liabilities:
Accrued worker's compensation insurance of $3,558 and $3,882 is included
in other current liabilities as of January 31, 2002 and 2001, respectively.
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $3,526 and $4,196 are included in other current
liabilities and $8,823 and $9,790 are included in other liabilities as of
January 31, 2002 and 2001, respectively.
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, 2002, 2001 and
2000 is based on the weighted average number of shares of Common Stock
outstanding. Net 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:
January 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Weighted average
shares of common stock
outstanding ................... 26,153,715 26,223,684 25,529,778
Assumed conversion of
stock options, net of shares
assumed reacquired ............ 534,296 1,040,844 558,624
---------- ---------- ----------
Weighted average common
shares - diluted .............. 26,688,011 27,264,528 26,088,402
========== ========== ==========
F-12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements Not Yet Adopted:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets." This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. Effective February 1, 2002, goodwill and indefinite lived intangible
assets will no longer be amortized but will be reviewed annually (or more
frequently if impairment indicators arise) for impairment. Other intangible
assets will continue to be amortized over their useful lives. The Company is
currently evaluating the potential impact, if any, of the application of
goodwill impairment provisions of the new rules on its financial position and
results of operations. Based on acquisitions completed as of January 31, 2002,
application of the goodwill non-amortization provisions of these rules, without
considering any of the potential impairment, is expected to result in an
increase in income before taxes of approximately $6,100 for fiscal 2003.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting
requirements for obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002. The Company is currently in the
process of evaluating the impact SFAS No. 143 will have on its financial
position and results of operations, if any.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121 and the
accounting and reporting provisions of Accounting Principles Board ("APB")
Opinion No. 30. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. The Company is currently in the process of evaluating the
impact SFAS No. 144 will have on its financial position and results of
operations, if any.
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.
The accompanying financial statements and related footnotes, including all
share and per share amounts, have been adjusted to reflect this transaction.
F-13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
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 operates production facilities in
the United Kingdom as well as China. In addition, NCL conducts research and
development in the United Kingdom.
The NCL acquisition was accounted for using the purchase method of
accounting. The final allocation of the purchase price, resulted in goodwill of
$44,835 and identifiable intangible assets of $2,356, which are being amortized
on a straight-line basis over five to 20 years. The Company discontinued
amortization of goodwill on February 1, 2002 in accordance with SFAS No. 142.
Effective March 1, 1999, the Company acquired substantially all of the
assets of the Specialty Battery Division of Johnson Controls, Inc. ("JCI"),
including, without limitation, certain assets of Johnson Controls Technology
Company, a wholly owned subsidiary of JCI, and 100% of the ordinary shares of
Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of
JCI. In consideration of the assets acquired, the Company paid approximately
$120,000 plus additional acquisition related costs, subject to certain
adjustments as set forth in the purchase agreement. In addition, the Company
assumed certain liabilities of the seller. The Specialty Battery Division was
engaged in the business of designing, manufacturing, marketing and distributing
industrial batteries.
The Company continues to use the assets acquired in such business. The
source of the funds for the acquisition was advances under a credit agreement
consisting of a term loan in the amount of $100,000 and a revolving loan not to
exceed $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%
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.
F-14
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
3. ACQUISITIONS (continued)
For reporting purposes, the acquisition of the Specialty Battery Division
and JCI's 67% 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 Company discontinued
amortization of goodwill on February 1, 2002 in accordance with SFAS No. 142.
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 period presented. Pro forma adjustments include only the effects of
events directly attributed to a transaction that are factually supportable and
expected to have a continuing impact. 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
----
Net sales ..................................................... $ 497,278
Net income .................................................... $ 29,685
Net income per common share - basic ........................... $ 1.16
Net income per common share - diluted ......................... $ 1.14
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisitions been consummated
as of the above dates, nor is such information indicative of future operating
results. In addition, the pro forma financial results contain estimates since
the acquired businesses did not maintain information on a period comparable with
the Company's fiscal year end.
F-15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
4. INVENTORIES
Inventories consisted of the following:
January 31,
---------------------------
2002 2001
------- -------
Raw materials .......................... $26,202 $38,349
Work-in-process ........................ 12,830 18,703
Finished goods ......................... 22,642 20,441
------- -------
$61,674 $77,493
======= =======
If the first-in, first-out method of inventory accounting had been used
(which approximates current cost), inventories would have been $61,576 and
$77,262 as of January 31, 2002 and 2001, respectively. During the year ended
January 31, 2002, inventory quantities were reduced resulting in the liquidation
of certain LIFO inventory layers carried at cost, which were lower than the cost
of current purchases. The effect of these reductions was to decrease the cost of
sales by approximately $35, and to increase net income by $22. The effect of the
liquidation is less than $0.01 per share.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
-------------------------
2002 2001
-------- --------
Land ......................................... $ 2,003 $ 1,298
Buildings and improvements ................... 44,734 36,198
Furniture, fixtures and equipment ............ 193,763 176,425
Construction in progress ..................... 15,182 20,002
-------- --------
255,682 233,923
Less:
Accumulated depreciation ................. 124,475 103,536
-------- --------
$131,207 $130,387
======== ========
For the years ended January 31, 2002, 2001 and 2000, depreciation charged
to operations amounted to $20,962, $19,286 and $15,996; maintenance and repair
costs expensed totaled $13,256, $14,456 and $12,892; and capitalized interest
amounted to $404, $983 and $265, 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,
---------------------
2002 2001
-------- --------
Term loan, $100,000 facility; bearing interest at Prime or
LIBOR plus .75% on January 31, 2002 and January 31, 2001
(effective rate on a weighted average basis, 2.62% as of January
31, 2002 and 7.25% as of January 31, 2001) net of unamortized
debt acquisition costs of $858 and $1,651, respectively ............................ $ 44,142 $ 63,349
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, 2002 and January 31, 2001 (effective rate
on a weighted average basis, 2.74% as of January 31, 2002 and
6.65% as of January 31, 2001) ...................................................... 21,500 50,500
Borrowings by a U.K. subsidiary under an unsecured multi- currency
demand loan facility bearing interest at British Pound LIBOR plus .95%
(effective rate on a weighted average basis,
5.08% as of January 31, 2002) ...................................................... 8,501 --
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 ..................................... -- 1,205
Borrowings by a U.K. subsidiary in British Pounds under an uncommitted
multi-currency overdraft facility bearing interest at the bank's base rate plus
1.5% (effective rate on a weighted average basis, 7.5% as of
January 31, 2001) .................................................................. -- 1,948
Other ...................................................................... 4 19
-------- --------
74,147 117,021
Less current portion ....................................................... 27,255 18,172
-------- --------
$ 46,892 $ 98,849
======== ========
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 March 1, 1999, in connection with the Dynasty acquisition, the Company
obtained a fully syndicated senior unsecured agreement comprised of a $100,000
term loan and a $120,000 revolving credit facility. 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 $27,379 and $27,879 were available as of January 31,
2002 and 2001, and swingline loans not to exceed $10,000. The term loan is due
in quarterly installments that currently equal $6,250 per quarter increasing to
$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. These restrictive covenants
permit the Company to pay quarterly dividends so long as there are no defaults
under these credit agreements. The purpose of the facility was to fund the
Dynasty acquisition, provide for normal working capital and fund possible
strategic acquisitions. The Company was in compliance with its loan agreement
covenants at January 31, 2002 and 2001, respectively.
The maximum aggregate amounts of loans outstanding under the term loan and
revolving credit facility, were $141,100, $128,550 and $125,100 during the years
ended January 31, 2002, 2001 and 2000, respectively. For those years the
outstanding loans under these credit agreements computed on a monthly basis
averaged $95,980, $84,813 and $94,870 at a weighted average interest rate of
4.97%, 7.42% and 6.93%, respectively.
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% of the debt to the Company.
These loans were paid in full and all supporting letters of credit were
terminated during the first quarter of fiscal year 2002.
The uncommitted multi-currency overdraft facility was entered into as a
result of the NCL acquisition. The total availability under this facility was
2.5 million British Pounds. The facility was secured by all of the assets of
NCL. In June 2001, this facility was replaced by an unsecured multi-currency
demand loan facility for a total amount of 22 million British Pounds
(approximately $31,000). The maximum loan amount outstanding under this facility
was 19.5 million British Pounds. The outstanding loans under this agreement
computed on a monthly average basis averaged 13.6 million British Pounds at a
weighted average interest rate of 5.81%.
F-18
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
6. DEBT (continued)
As of January 31, 2002, 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:
2003 ................................................. $27,255
2004 ................................................. 25,392
2005 ................................................. 21,500
2006 ................................................. --
2007 ................................................. --
Thereafter ........................................... --
-------
$74,147
=======
7. STOCKHOLDERS' EQUITY
(A) Stock Option Plan:
SFAS No. 123, "Accounting for Stock-Based Compensation," permits the
continued use of accounting methods prescribed by 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.
The Company has three stock option plans: the 1996 Stock Option Plan
reserved 2,000,000 shares of Common Stock; the 1998 Stock Option Plan reserved
3,900,000 shares of Common Stock; and the U.K. Stock Option Plan reserved
500,000 shares of Common Stock; for option grants. 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.
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)
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, 2002
Number of shares ......... 1,712,815 689,680 147,900 99,307 2,155,288 1,005,149
Weighted average option
price per share ......... $ 19.62 $ 33.42 $ 13.84 $ 32.55 $ 23.84 $ 17.81
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
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 2,764,879 and 1,962,172 shares available for future grants of
options under the Company's stock option plans as of January 31, 2002 and 2001,
respectively. The following table summarizes information about the stock options
outstanding at January 31, 2002:
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 97,168 4.7 years $ 5.92 97,168 $ 5.92
$8.63 - $12.38 323,902 6.3 years $11.62 323,902 $11.62
$13.03 - $19.63 475,404 7.6 years $17.86 322,131 $17.78
$22.31 - $26.76 627,756 8.3 years $23.21 199,926 $23.05
$35.00 - $44.38 531,058 9.1 years $35.08 9,091 $38.22
$48.44 - $55.94 100,000 8.6 years $53.42 52,931 $54.33
--------- ---------
$3.00 - $55.94 2,155,288 7.9 years $23.84 1,005,149 $17.81
========= =========
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 2002, 2001 and 2000:
2002 2001 2000
-------- -------- --------
Risk-free interest rate ............... 4.84% 6.53% 5.60%
Expected dividend yield ............... 0.17% 0.22% 0.52%
Expected volatility factor ............ 0.448 0.414 0.428
Weighted average expected life ........ 5.00 years 4.95 years 4.85 years
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)
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.
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:
2002 2001 2000
------- ------- -------
Net income - as reported ............................ $36,074 $55,895 $29,842
Net income - pro forma .............................. 31,585 52,674 28,558
Net income per common share - basic - as reported ... 1.38 2.13 1.17
Net income per common share - basic - pro forma ..... 1.21 2.01 1.12
Net income per common share - diluted -
as reported ....................................... 1.35 2.05 1.14
Net income per common share - diluted -
pro forma ......................................... 1.18 1.93 1.09
Weighted average fair value of options
granted during the year ............................ 15.06 12.51 7.85
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 Mellon Investor Services LLC (formerly 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.
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,
----------------------------------
2002 2001 2000
------- -------- --------
Currently payable:
Federal ....................... $15,974 $ 31,068 $ 18,102
Foreign ....................... 1,137 -- 34
State ......................... 1,492 3,578 2,510
Foreign sales corporation ..... 137 301 137
------- -------- --------
$18,740 $ 34,947 $ 20,783
======= ======== ========
Deferred:
Federal ....................... 3,160 727 (2,748)
State ......................... 344 209 (298)
------- -------- --------
3,504 936 (3,046)
------- -------- --------
$22,244 $ 35,883 $ 17,737
======= ======== ========
The components of the deferred tax asset and liability as of January 31,
2002 and 2001 were as follows:
2002 2001
-------- --------
Deferred tax asset:
Vacation and compensation accruals .......... $ 4,858 $ 4,959
Postretirement benefits ..................... 1,034 970
Warranty reserves ........................... 4,750 5,356
Bad debt, inventory and return allowances ... 3,047 3,193
Environmental reserves ...................... 879 928
Derivatives ................................. 684 --
Pension obligation .......................... 51 1,398
Other accruals .............................. 1,899 1,391
-------- --------
Total deferred tax asset .................... 17,202 18,195
-------- --------
Deferred liability:
Unrepatriated Earnings ...................... (990) --
Depreciation and amortization ............... (8,658) (8,340)
-------- --------
Total deferred tax liability ................ (9,648) (8,340)
-------- --------
Net deferred tax asset ...................... $ 7,554 $ 9,855
======== ========
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, 2002, 2001 and
2000, respectively, are as follows:
January 31,
------------------------------------
2002 2001 2000
-------- -------- --------
U.S. statutory income tax ............ $ 20,872 $ 33,050 $ 16,869
Tax effect of foreign operations ..... 26 -- (86)
State tax, net of federal
income tax benefit .................. 1,314 2,534 1,334
Research and development
tax credit benefit .................. (61) (100) (234)
Foreign sales corporation ............ (257) (565) (257)
Other ................................ 350 964 111
-------- -------- --------
$ 22,244 $ 35,883 $ 17,737
======== ======== ========
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, 2002, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
Fiscal Year
- -----------
2003 ............................................... $ 3,036
2004 ............................................... 2,484
2005 ............................................... 1,961
2006 ............................................... 1,529
2007 ............................................... 1,470
Thereafter ......................................... 9,478
-------
$19,958
=======
Total rent expense for all operating leases for the years ended January
31, 2002, 2001 and 2000 was $4,496, $3,733 and $4,024, 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 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 therefore), 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 Corporation ("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. 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 two 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.
The Company and four other potentially responsible parties ("PRPs") have
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
in Pedricktown, New Jersey. A reliable range of the potential cost to the
Company for the ultimate remediation of the site cannot currently be determined,
nor have all the PRPs been identified. Accordingly, the Company has not
established a reserve for this potential exposure.
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)
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.
Allied and/or Honeywell 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
its Huguenot, New York facility which may require expenditures for further
investigation and remediation. 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 is
expected to ultimately 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.
The Company, together with Johnson Controls, Inc. ("JCI"), is conducting
an assessment and remediation of contamination at its Dynasty Division facility
in Milwaukee, Wisconsin. The majority 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 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. We are in
active negotiations with the agency regarding a potential resolution of this
matter. A penalty assessment could be made; however there is insufficient
information currently available to permit the Company to estimate the potential
liability, 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.
F-26
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
9. COMMITMENTS AND CONTINGENCIES (continued)
(C) PURCHASE COMMITMENTS:
The Company has purchase commitments pertaining to the purchase of certain
raw materials with various suppliers. These purchase commitments are not
expected to exceed usage requirements.
10. MAJOR CUSTOMER
No single customer of the Company amounted to 10% or more of the Company's
consolidated net sales for the years ended January 31, 2002 and 2001. A single
customer of the Company's Powercom and Power Electronics Divisions accounted for
10.5% of consolidated net sales for the year ended January 31, 2000.
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.
F-27
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
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, 2002 and 2001 were as follows:
2002 2001
------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents ...... $ 8,781 $ 8,781 $ 7,709 $ 7,709
Debt (excluding capital
lease obligations) ........... $74,143 $74,143 $117,002 $117,002
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.
The Company applies hedge accounting in accordance with SFAS No. 133,
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, which are recognized currently
in earnings, act as an economic offset to changes in the fair value of the
underlying hedged item(s). The Company did not apply hedge accounting to
currency forward contracts with a combined fair value of $ (34) and $ (179) as
of January 31, 2002 and 2001. Changes in the fair value of these currency
forward contracts are recorded in earnings.
Changes in the value of a derivative that is designated as a fair value
hedge, along with offsetting changes in fair value of the underlying hedged
exposure, are recorded in earnings each period. Changes in the fair value of a
derivative that is designated as a cash flow hedge is recorded in accumulated
other comprehensive income (loss). When earnings are affected by the variability
of the underlying cash flow, the applicable amount of the gain or loss from the
derivative that is deferred in stockholders' equity is released to earnings.
When the terms of an underlying transaction are modified, or when the underlying
hedged item ceases to exist, all changes in the fair value of the instrument are
included in earnings each period until the instrument matures. When the
underlying transaction ceases to exist, a hedged asset or liability is no longer
adjusted for changes in its fair value. Derivatives that are not designated as
hedges, as well as the portion of a derivative excluded from the effectiveness
assessment and changes in the value of the derivatives which do not offset the
underlying hedged item throughout the designated hedge period, are recorded in
earnings each period.
In the normal course of business, the Company is exposed to the impact of
interest rate changes and foreign currency fluctuations. The Company limits
these risks by following established risk management policies and procedures
including the use of derivatives and, where cost-effective, financing debt in
the currencies in which the assets are denominated. For interest rate exposures,
derivatives are used to manage the Company's exposure to fluctuations in
interest rates on the Company's underlying variable rate debt instruments. The
Company employs separate swap transactions rather than fixed rate obligations to
take advantage of lower borrowing costs associated with floating rate debt while
also eliminating possible risk related to refinancing in the fixed rate market.
For currency exposures, derivatives are used to limit the effects of foreign
exchange rate fluctuations on financial results.
The Company does not use derivatives for trading or speculative purposes,
nor is it a party to leveraged derivatives. Further, the Company has a policy of
only entering into contracts with major financial institutions. When viewed in
conjunction with the underlying and offsetting exposure that the derivatives are
designed to hedge, the Company has not sustained a material loss from these
instruments nor does it anticipate any material adverse effect on its net income
or financial position in the future from the use of derivatives.
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 following table includes all interest rate swaps as of January 31,
2002 and 2001. These interest rate swaps are designated as cash flow hedges and,
therefore, changes in the fair value, net of tax, are recorded in accumulated
other comprehensive loss.
Fixed Variable Fair Fair
Interest Interest Value Value
Notional Origination Maturity Rate Rate at at
Amount Date Date Paid Received 01/31/02 01/31/01
- -------- ----------- -------- -------- -------- -------- --------
$ 6,500 12/20/95 12/20/02 6.01% LIBOR $ (240) $ (95)
30,000 03/01/99 03/01/01 5.48% LIBOR -- (1)
20,000 03/11/99 03/11/02 5.58% LIBOR (77) (69)
20,000 02/05/01 03/01/03 5.24% LIBOR (783) --
20,000 04/11/01 04/11/06 5.56% LIBOR (735) --
------- -----
$(1,835) $(165)
======= =====
Based on the fair value of the interest rate swaps as of January 31, 2002
and the maturity dates of these swaps, the Company expects to reclassify a net
of tax loss of approximately $1,000 of the amount in accumulated other
comprehensive loss in the next 12 months.
The Company had foreign exchange contracts on hand for delivery of
Canadian Dollars in the amount of $3,149 and $1,325 as of January 31, 2002 and
January 31, 2001, 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.
The Company had foreign exchange contracts for delivery of Euro currencies
in the amount of $829 as of January 31, 2001.
The Company had a foreign exchange contract on hand for the delivery of
British Pounds in the amount of $14,224 and $29,067 as of January 31, 2002 and
January 31, 2001, respectively.
13. EMPLOYEE BENEFIT PLANS
(A) The Company has various noncontributory defined benefit pension plans,
which cover certain employees. The C&D Technologies, Inc. Pension Plan for
Salaried Employees was amended during the fiscal year ended January 31, 2002 to
provide that benefits under the plan became frozen as of December 31, 2001 for
all participants whose age plus years of service is less than 60 as of December
31, 2001. Participants whose benefit under the plan became frozen as of December
31, 2001 became eligible for an enhanced Company contribution under the
Company's defined contribution retirement plan based on the performance of the
Company. As such, the Company recorded a curtailment gain of $2,631 during the
fiscal year ended January 31, 2002.
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 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 two plans. One of the plans was amended during the fiscal
year ended January 31, 2002 to change the Company contribution. This amendment
resulted in a $1,000 increase in the liability.
F-31
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
----------
13. EMPLOYEE BENEFIT PLANS (continued)
The 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, 2002 and 2001 and a statement of the funded status as of January 31, 2002
and 2001. The measurement dates are December 31, 2001 and 2000.
Pension Postretirement
Benefits Benefits
2002 2001 2002 2001
-------- -------- ------- -------
Change in benefit obligation:
Benefit obligation at beginning of year ................................ $ 45,749 $ 39,269 $ 2,463 $ 2,118
Service cost ......................................................... 2,404 2,128 149 101
Interest cost ........................................................ 3,565 3,204 255 172
Plan amendments ...................................................... -- -- 1,000 --
Curtailment gain ..................................................... (2,631) -- -- --
Actuarial loss/(gain) ................................................ 2,792 3,223 (30) 420
Benefits paid ........................................................ (2,347) (2,075) (351) (348)
-------- -------- ------- -------
Benefit obligation at end of year ....................................... $ 49,532 $ 45,749 $ 3,486 $ 2,463
======== ======== ======= =======
Change in plan assets:
Fair value of plan assets at beginning of year .......................... $ 39,297 $ 36,175 -- --
Actual return on plan assets ......................................... (3,383) 2,462 -- --
Employer contributions ............................................... 7,733 2,735 $ 351 $ 348
Benefits paid ........................................................ (2,347) (2,075) (351) (348)
-------- -------- ------- -------
Fair value of plan assets at end of year ................................ $ 41,300 $ 39,297 $ -- $ --
======== ======== ======= =======
Reconciliation of funded status:
Funded status ........................................................... $ (8,232) $ (6,452) $(3,486) $(2,463)
Unrecognized actuarial loss/(gain) ...................................... 7,972 882 (34) (4)
Unrecognized prior service cost ......................................... 131 147 885 --
-------- -------- ------- -------
Accrued benefit cost at
measurement date ..................................................... (129) (5,423) (2,635) (2,467)
Contributions made after measurement date
but before the end of the fiscal year ................................ -- 368 -- --
-------- -------- ------- -------
Net amount recognized at end of fiscal year ............................. $ (129) $ (5,055) $(2,635) $(2,467)
======== ======== ======= =======
Amounts recognized in the statement of financial position consist of:
Prepaid pension cost .................................................... $ 3,311 $ 2,202 -- --
Accrued pension liability ............................................... (3,440) (7,257) $(2,635) $(2,467)
-------- -------- ------- -------
Net amount recognized at end of fiscal year ............................. $ (129) $ (5,055) $(2,635) $(2,467)
======== ======== ======= =======
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)
Pension Benefits Postretirement
Benefits
--------------------------------- -------------------------
2002 2001 2000 2002 2001 2000
------- ------- ------- ---- ----- -----
Components of net periodic
benefit cost:
Service cost .............................................. $ 2,404 $ 2,128 $ 2,408 $149 $ 101 $ 108
Interest cost ............................................. 3,565 3,204 2,895 255 172 160
Expected return on plan assets ............................ (3,624) (3,270) (3,102) -- -- --
Amortization of prior service costs ....................... 15 15 15 115 -- --
Recognized actuarial loss/(gain) .......................... 79 (4) 68 -- (11) (1)
------- ------- ------- ---- ----- -----
Net periodic benefit cost ............................. $ 2,439 $ 2,073 $ 2,284 $519 $ 262 $ 267
======= ======= ======= ==== ===== =====
Weighted-average assumptions
as of January 31:
Discount rate ............................................. 7.50% 7.75% 8.25% 7.50% 7.75% 8.25%
Expected long-term rate of
return on plant assets ................................. 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase* ............................ 4.00 4.00 4.00
-5.03% -5.03% -5.07% N/A N/A N/A
* Rate relates to certain employees. Some covered employees have benefits
unrelated to rate of pay.
The Company sponsors two postretirement benefit plans, one of which the
Company's contributions are fixed so there is no material trend rate assumption.
The following information applies to the second plan:
For measurement purposes, a 7.00% 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 2005 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement benefit plan. A
one-percentage-point change in assumed health care cost trend rates would
have the following effects:
1% increase 1% decrease
----------- -----------
Effect on total service and interest cost
components for fiscal 2002 ................ $1 $ (1)
Effect on year-end 2002 postretirement
benefit obligation ........................ $8 $(11)
F-33
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 $42,072, $34,366 and $33,719, respectively, for
fiscal 2002.
(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 contribution was $2,096,
$1,631 and $1,118 for the years ended January 31, 2002, 2001 and 2000,
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 $480, $518 and $518 for the years ended January 31, 2002, 2001
and 2000, respectively. The liability for these plans was $2,079 and $1,734 as
of January 31, 2002 and 2001, 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, 2002 and 2001
the liability for the Company's Deferred Compensation Plan was $552 and $136.
F-34
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, 2002 and 2001
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 2002:
Net Sales .......................................... $155,383 $125,493 $102,505 $ 88,260
Gross profit ....................................... 46,033 37,509 22,110 22,619
Operating income ................................... 29,617 23,066 5,684 9,207
Net income ......................................... 16,847 13,100 1,848 4,279
Net income per common share - basic ................ 0.64 0.50 0.07 0.16
Net income per common share - diluted .............. 0.62 0.49 0.07 0.16
In the third quarter of fiscal year 2002, the Company incurred a pre-tax
charge of $4,000, primarily due to costs related to a potential acquisition that
did not close.
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 - basic ................ 0.42 0.51 0.56 0.64
Net income per common share - diluted .............. 0.41 0.49 0.54 0.61
In the fourth quarter of fiscal year 2001, the Company completed the
acquisition of NCL.
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
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 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 products, computers and industrial
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, 2002, 2001 and 2000 is shown below:
Power Motive
Powercom Dynasty Electronics Power
Division Division Division Division Consolidated
-------- -------- -------- -------- ------------
Year ended January 31, 2002:
- ----------------------------
Net sales ................. $234,802 $112,794 $ 63,155 $ 60,890 $471,641
Operating income (loss) .... $ 57,303 $ 17,401 $ (5,963) $ (1,167) $ 67,574
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
F-36
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, 2002, 2001 and 2000 and for each of the
years then ended is shown below:
2002 2001 2000
-------- -------- --------
Net sales
United States ................. $375,283 $487,064 $403,081
Canada ........................ 34,514 67,202 33,544
Other countries ............... 61,844 61,412 45,557
-------- -------- --------
Consolidated totals ........... $471,641 $615,678 $482,182
======== ======== ========
Long-lived assets
United States ................. $191,578 $191,994 $171,689
United Kingdom ................ 44,794 50,155 102
Other countries ............... 26,853 27,123 26,663
-------- -------- --------
Consolidated totals ........... $263,225 $269,272 $198,454
======== ======== ========
F-37
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2002, 2001 and 2000
(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, 2002 ....... $4,121 $420 -- $2,263 $2,278
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
- ----------
(a) Additions related to business acquisitions.
(b) Amounts written-off, net of recoveries.
S-1