UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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 No. 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3314599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
(Address of principal executive office)
(Zip Code)
(215) 619-2700
(Registrant's telephone number, including area code)
_________________N/A_________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO_____
Number of shares of the Registrant's Common Stock outstanding on November 29,
2002: 25,699,853
C&D TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
October 31, 2002 and January 31, 2002................ 3
Consolidated Statements of Income - Three and Nine
Months Ended October 31, 2002 and 2001............... 5
Consolidated Statements of Cash Flows -
Nine Months Ended October 31, 2002 and 2001.......... 6
Consolidated Statements of Comprehensive Income -
Three and Nine Months Ended October 31, 2002 and 2001 8
Notes to Consolidated Financial Statements............ 9
Report of Independent Accountants..................... 17
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations... 18
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk............................... 24
Item 4 - Controls and Procedures.......................... 24
PART II. OTHER INFORMATION................................... 25
SIGNATURES and CERTIFICATIONS................................ 26
2
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
October 31, January 31,
2002 2002
---- ----
ASSETS
Current assets:
Cash and cash equivalents................... $ 8,378 $ 8,781
Accounts receivable, less allowance for
doubtful accounts of $2,183 and $2,278,
respectively........................... 48,227 44,968
Inventories................................. 50,671 61,674
Deferred income taxes....................... 10,574 10,156
Other current assets........................ 1,388 6,754
------- -------
Total current assets............. 119,238 132,333
Property, plant and equipment, net................ 118,423 131,207
Intangible and other assets, net.................. 27,774 24,659
Goodwill.......................................... 112,935 107,359
------- -------
Total assets..................... $378,370 $395,558
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................. $ 14,655 $ 27,255
Accounts payable............................ 22,828 19,640
Accrued liabilities......................... 20,994 22,210
Income taxes................................ 4,421 -
Other current liabilities................... 7,790 8,214
------- -------
Total current liabilities........ 70,688 77,319
Deferred income taxes ............................ 3,500 2,602
Long-term debt.................................... 25,922 46,892
Other liabilities................................. 17,365 18,574
------- -------
Total liabilities................ 117,475 145,387
------- -------
The accompanying notes are an integral part of these statements.
3
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands, except per share data)
(Unaudited)
October 31, January 31,
2002 2002
---- ----
Commitments and contingencies
Minority interest................................. 8,281 8,313
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,480,669 and
28,431,728 shares issued, respectively.. 285 284
Additional paid-in capital.................. 67,680 65,893
Treasury stock, at cost, 2,776,632 and
2,414,161 shares, respectively.......... (36,463) (29,743)
Accumulated other comprehensive loss........ (257) (3,057)
Retained earnings........................... 221,369 208,481
------- -------
Total stockholders' equity....... 252,614 241,858
------- -------
Total liabilities and
stockholders' equity........... $378,370 $395,558
======= =======
The accompanying notes are an integral part of these statements.
4
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
Net sales............................ $ 87,637 $102,505 $255,991 $383,381
Cost of sales........................ 66,829 80,395 196,335 277,729
------- ------- ------- -------
Gross profit..................... 20,808 22,110 59,656 105,652
Selling, general and
administrative expenses.......... 8,955 13,965 26,808 39,390
Research and development
expenses......................... 2,461 2,461 7,355 7,895
------- ------- ------- -------
Operating income................. 9,392 5,684 25,493 58,367
Interest expense, net................ 974 1,593 2,980 5,351
Other expense, net................... 258 706 368 832
------- ------- ------- -------
Income before income taxes and
minority interest............. 8,160 3,385 22,145 52,184
Provision for income taxes........... 2,953 1,252 8,127 19,308
------- ------- ------- -------
Net income before minority
interest...................... 5,207 2,133 14,018 32,876
Minority interest.................... 79 285 62 1,081
------- ------- ------- -------
Net income....................... $ 5,128 $ 1,848 $ 13,956 $ 31,795
======= ======= ======= =======
Net income per share - basic......... $ .20 $ .07 $ .54 $ 1.22
======= ======= ======= =======
Net income per share - diluted....... $ .20 $ .07 $ .54 $ 1.19
======= ======= ======= =======
Dividends per share.................. $ - $ .01375 $ .04125 $ .04125
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
5
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine months ended
October 31,
2002 2001*
---- ----
Cash flows provided (used) by operating activities:
Net income........................................... $ 13,956 $ 31,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest.............................. 62 1,081
Depreciation and amortization.................. 18,322 23,192
Deferred income taxes.......................... 480 (413)
Loss on disposal of assets..................... 386 219
Changes in:
Accounts receivable...................... (2,761) 27,153
Inventories.............................. 11,613 10,159
Other current assets..................... (225) (471)
Accounts payable......................... 4,948 (20,355)
Accrued liabilities...................... (808) (4,739)
Income taxes payable..................... 10,069 (4,125)
Other current liabilities................ (427) (1,098)
Other liabilities........................ (919) (2,415)
Other assets............................. (3,892) (201)
Other, net..................................... (2,629) (263)
------- -------
Net cash provided by operating activities................ 48,175 59,519
------- -------
Cash flows provided (used) by investing activities:
Acquisition of property, plant and equipment......... (5,267) (22,473)
Proceeds from disposal of property, plant
and equipment..................................... 648 38
------- -------
Net cash used by investing activities.................... (4,619) (22,435)
------- -------
Cash flows provided (used) by financing activities:
Repayment of debt.................................... (34,611) (43,632)
Proceeds from new borrowings......................... - 11,786
Financing cost of long-term debt..................... (118) -
Proceeds from issuance of common stock, net.......... 524 1,439
Purchase of treasury stock........................... (8,393) (7,427)
Payment of common stock dividends.................... (1,426) (1,441)
Payment of minority interest dividends............... (94) -
------- -------
* Reclassified for comparative purposes.
The accompanying notes are an integral part of these statements.
6
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
Nine months ended
October 31,
2002 2001*
---- ----
Net cash used by financing activities............. (44,118) (39,275)
------- -------
Effect of exchange rate changes on cash........... 159 (17)
------- -------
Decrease in cash and cash equivalents............. (403) (2,208)
Cash and cash equivalents at beginning
of period...................................... 8,781 7,709
------- -------
Cash and cash equivalents at end of period........ $ 8,378 $ 5,501
======= =======
SCHEDULE OF NON CASH INVESTING
AND FINANCIAL ACTIVITIES
Decrease in property, plant, and
equipment acquisitions in
accounts payable............................... $ (917) $ (4,435)
======= =======
Fair market value of treasury stock
issued to pension plans........................ $ 1,625 $ -
======= =======
* Reclassified for comparative purposes.
The accompanying notes are an integral part of these statements.
7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three months ended Nine months ended
October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
Net income............................................... $ 5,128 $ 1,848 $13,956 $31,795
Other comprehensive (expense) income, net of tax:
Cumulative effect of accounting change................. - - - (103)
Net unrealized loss on derivative instruments.......... (121) (1,016) (188) (1,491)
Foreign currency translation adjustments............... 92 947 2,988 174
------ ------ ------ ------
Total comprehensive income............................... $ 5,099 $ 1,779 $16,756 $30,375
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
1. INTERIM STATEMENTS
The accompanying interim consolidated financial statements of C&D
Technologies, Inc. (together with its operating subsidiaries, the "Company")
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report to Stockholders for the
fiscal year ended January 31, 2002. The January 31, 2002 amounts were derived
from the Company's audited financial statements. The consolidated financial
statements presented herein are unaudited but, in the opinion of management,
include all necessary adjustments (which comprise only normal recurring items)
required for a fair presentation of the consolidated financial position as of
October 31, 2002 and the related consolidated statements of income and
comprehensive income for the three and nine month periods ended October 31, 2002
and 2001 and the related consolidated statements of cash flow for the nine
months ended October 31, 2002 and 2001. However, interim results of operations
may not be indicative of results for the full fiscal year.
2. NEW ACCOUNTING PRONOUNCEMENTS
On February 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." This
statement addresses financial accounting and reporting for acquired goodwill and
other intangible assets. As required by SFAS No. 142, the Company discontinued
amortizing the remaining balance of goodwill. All remaining and future acquired
goodwill will be subject to an annual impairment test (or more frequently if
impairment indicators arise), using a fair value-based approach. Other
intangible assets will continue to be amortized over their estimated useful
lives and assessed for impairment under SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 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.
In August 2001, the Financial Accounting Standards Board ("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 July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses the recognition,
measurement and reporting of costs associated with exit or disposal activities,
and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements
for recognition of a liability for a disposal activity, (including those related
to employee termination benefits and obligations under operating leases and
other contracts), be recognized when the liability is incurred, and not
necessarily the date of an entity's commitment to an exit plan, as under EITF
No. 94-3. SFAS No. 146 also establishes that the initial measurement of a
liability recognized under SFAS No. 146 be based on fair value. The provisions
of SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged.
9
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
Goodwill:
In conjunction with the implementation of SFAS No. 142, the Company has
completed the transitional goodwill impairment test as of February 1, 2002 and
has determined that no impairment to goodwill existed. Net income and net income
per common share adjusted to exclude goodwill amortization is as follows:
Three months ended Nine months ended
October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income...................... $5,128 $1,848 $13,956 $31,795
Goodwill amortization, net of tax........ - 1,106 - 3,062
----- ----- ------ ------
Adjusted net income...................... $5,128 $2,954 $13,956 $34,857
===== ===== ====== ======
Reported net income per
common share - basic.................... $ .20 $ .07 $ .54 $ 1.22
Goodwill amortization, net of tax........ - .04 - .11
----- ----- ------ ------
Adjusted net income per
common share - basic.................... $ .20 $ .11 $ .54 $ 1.33
===== ===== ====== ======
Reported net income per
common share - diluted.......... $ .20 $ .07 $ .54 $ 1.19
Goodwill amortization, net of tax........ - .04 - .11
----- ----- ------ ------
Adjusted net income per
common share - diluted.................. $ .20 $ .11 $ .54 $ 1.30
===== ===== ====== ======
10
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (continued)
During the nine months ended October 31, 2002, no goodwill was acquired,
impaired or written off. Goodwill by operating segment was adjusted as follows:
Power Motive
Powercom Dynasty Electronics Power Total
-------- ------- ----------- ----- -----
Goodwill, January 31, 2002........................... $1,376 $57,939 $47,551 $493 $107,359
Assembled workforce reclassified..................... - - 879 - 879
Effect of exchange rate changes on goodwill.......... 3 117 4,576 1 4,697
----- ------ ------ --- -------
Goodwill, October 31, 2002........................... $1,379 $58,056 $53,006 $494 $112,935
===== ====== ====== === =======
Identified Intangible Assets:
During the nine months ended October 31, 2002, no acquisition-related
intangibles were acquired, impaired or written off.
Identified intangible assets as of October 31, 2002 consisted of the
following:
Accumulated
Gross Assets Amortization Net
------------ ------------ ---
Trade names................. $17,840 $(3,271) $14,569
Intellectual property....... 7,738 (5,306) 2,432
Other....................... 2,407 (959) 1,448
------ ------ ------
Total intangible assets..... $27,985 $(9,536) $18,449
====== ====== ======
Identified intangible assets as of January 31, 2002 consisted of the
following:
Accumulated
Gross Assets Amortization Net
------------ ------------ ---
Trade names................. $17,840 $(2,602) $15,238
Intellectual property....... 7,601 (4,706) 2,895
Other....................... 3,675 (1,251) 2,424
------ ------ ------
Total intangible assets..... $29,116 $(8,559) $20,557
====== ====== ======
Based on intangibles recorded at October 31, 2002, the annual amortization
expense is expected to be as follows (assuming current exchange rates):
2003 2004 2005 2006 2007
---- ---- ---- ---- ----
Trade names................. $ 892 $ 892 $ 892 $ 892 $ 892
Intellectual property....... 775 775 411 358 183
Other....................... 128 128 79 76 35
----- ----- ----- ----- -----
Total intangible assets..... $1,795 $1,795 $1,382 $1,326 $1,110
===== ===== ===== ===== =====
Amortization of identified intangibles was $1,346 for the nine months ended
October 31, 2002.
11
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
4. INVENTORIES
Inventories consisted of the following:
October 31, January 31,
2002 2002
---- ----
Raw materials............................ $19,682 $26,202
Work-in-progress......................... 11,035 12,830
Finished goods........................... 19,954 22,642
------ ------
$50,671 $61,674
====== ======
5. INCOME TAXES
A reconciliation of the provision for income taxes from the statutory rate
to the effective rate is as follows:
Nine months ended
October 31,
2002 2001
---- ----
U.S. statutory income tax....................... 35.0% 35.0%
State tax, net of federal income tax benefit.... 1.7 2.4
Foreign sales corporation....................... - (0.3)
Tax effect of foreign operations................ (0.3) 0.4
Research and development credit................. - (0.1)
Other........................................... 0.3 (0.4)
---- ----
36.7% 37.0%
==== ====
6. NET INCOME PER COMMON SHARE
Net income per share - basic for the three and nine month periods ended
October 31, 2002 and 2001 is based on the weighted average number of shares of
Common Stock outstanding. Net income per share - diluted reflects the potential
dilution that could occur if stock options were exercised. Weighted average
common shares and common shares - diluted were as follows:
Three months ended Nine months ended
October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
Weighted average shares
of common stock
outstanding................................... 25,670,645 26,178,156 25,851,493 26,166,802
Assumed exercise of stock
options, net of shares
assumed reacquired............................ 128,409 323,749 218,644 604,906
---------- ---------- ---------- ----------
Weighted average common
shares - diluted.............................. 25,799,054 26,501,905 26,070,137 26,771,708
========== ========== ========== ==========
12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
7. CONTINGENT LIABILITIES
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 the Company's manufacturing process.
Notwithstanding the Company's efforts to maintain compliance with
applicable environmental requirements, if injury or damage to persons or the
environment arises from hazardous substances used, generated or disposed of in
the conduct of the Company's business (or that of a predecessor to the extent
the Company is not indemnified therefor), the Company may be held liable for
certain damages 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 was obligated to indemnify the Company for any
liabilities of this type resulting from conditions existing at January 28, 1986
that were not disclosed by Allied to the Company in the schedules to the
Acquisition Agreement. These obligations have since been assumed by Allied's
successor in interest, Honeywell ("Honeywell").
The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
"EPA") in connection with investigations of the source and extent of
contamination at three lead smelting facilities (the "Third Party Facilities")
to which the Company had made scrap lead shipments for reclamation prior to the
date of the acquisition.
The Company and four other potentially responsible parties ("PRPs") agreed
upon a cost sharing arrangement for the design and remediation phases of a
project related to one of the Third Party Facilities, the former NL Industries
site in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002 one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. On August 6, 2002, Exide notified the
PRPs that it will no longer be taking an active role in any further action at
the site and discontinued its financial participation. This resulted in a pro
rata increase in the liabilities of the other PRPs, including the Company.
The Company also responded to requests for information from the EPA and the
state environmental agency with regard to another Third Party Facility, the
"Chicago Site," in October 1991.
In August 2002, the Company was notified of its involvement as a PRP at the
NL Atlanta, Northside Drive Superfund site. The Company is currently reviewing
information regarding its involvement at this site.
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.
13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
7. CONTINGENT LIABILITIES (continued)
The Company is also aware of the existence of contamination at its
Huguenot, New York facility, which is expected to require expenditures for
further investigation and remediation. The site is listed by the New York State
Department of Environmental Conservation ("NYSDEC") on its registry of inactive
hazardous waste disposal sites due to the presence of fluoride and other
contamination in amounts that exceed state groundwater standards. The prior
owner of the site is expected to ultimately bear some, as yet undetermined,
share of the costs associated with this matter for contamination in place at the
time the Company acquired the property. The NYSDEC has issued a Record of
Decision for the soil remediation portion of this site. However, a final
remediation plan for the ground water portion 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 the Company's 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, i.e. March 2004, that arise from migration from a
pre-closing condition at the Milwaukee facility to locations other than the
Milwaukee facility, but specifically excluding liabilities relating to
pre-closing offsite disposal. JCI 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 in April
2002. The Company is in active negotiations with both the EPA and Department of
Justice regarding a potential resolution of this matter, which is likely to
result in a penalty assessment.
The Company accrues reserves for liabilities in the Company's consolidated
financial statements and periodically reevaluates the reserved amounts for these
liabilities in view of the most current information available in accordance with
SFAS No. 5. Based on currently available information, management of the Company
believes that appropriate reserves have been established with respect to the
foregoing contingent liabilities and that they are not expected to have a
material adverse effect on the Company's business, financial condition or
results of operations.
14
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
8. OPERATIONS BY INDUSTRY SEGMENT
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 three and nine months ended October 31, 2002 and 2001 is shown below:
Power Motive
Powercom Dynasty Electronics Power
Division Division Division Division Consolidated
-------- -------- ----------- -------- ------------
Three months ended October 31, 2002:
Net sales................................ $ 38,009 $23,460 $12,265 $13,903 $ 87,637
Operating income (loss).................. $ 6,340 $ 3,929 $ 181 $(1,058) $ 9,392
Three months ended October 31, 2001:
Net sales................................ $ 51,009 $27,431 $10,785 $13,280 $102,505
Operating income (loss).................. $ 9,622 $ 2,564 $(5,105) $(1,397) $ 5,684
Nine months ended October 31, 2002:
Net sales................................ $110,165 $67,570 $37,601 $40,655 $255,991
Operating income (loss).................. $ 17,650 $10,339 $ 757 $(3,253) $ 25,493
Nine months ended October 31, 2001:
Net sales................................ $194,607 $89,574 $51,068 $48,132 $383,381
Operating income (loss).................. $ 49,667 $13,499 $(4,733) $ (66) $ 58,367
15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
9. DERIVATIVE INSTRUMENTS
The following table includes all interest rate swaps as of October 31, 2002
and January 31, 2002. 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 10/31/02 1/31/02
- -------- ----------- -------- -------- -------- -------- -------
$ 6,500 12/20/95 12/20/02 6.01% LIBOR $ - $ (240)
20,000 03/11/99 03/11/02 5.58% LIBOR - (77)
20,000 02/05/01 03/01/03 5.24% LIBOR (237) (783)
20,000 04/11/01 04/11/06 5.56% LIBOR (1,888) (735)
------- -------
$(2,125) $(1,835)
======= =======
The Company does not invest in derivative securities for speculative
purposes, but does enter into hedging arrangements in order to reduce its
exposure to fluctuations in interest rates as well as to fluctuations in
exchange rates. 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 $(434)and
$(34) as of October 31, 2002 and January 31, 2002. Changes in the fair value of
these currency forward contracts are recorded in earnings.
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of C&D Technologies, Inc.:
We have reviewed the accompanying consolidated balance sheet of C&D
Technologies, Inc. and its subsidiaries (the "Company") as of October 31, 2002,
and the related consolidated statements of income and comprehensive income for
each of the three-month and nine-month periods ended October 31, 2002 and 2001,
and the consolidated statement of cash flows for the nine-month periods ended
October 31, 2002 and 2001. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of January
31, 2002, and the related consolidated statements of income, stockholders'
equity, cash flows, and comprehensive income for the year then ended (not
presented herein), and in our report dated March 5, 2002 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet
information as of January 31, 2002, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, PA
November 20, 2002
17
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Within the following discussion, unless otherwise stated, "quarter" and
"nine-month period", refer to the third quarter of fiscal 2003 and the nine
months ended October 31, 2002. All comparisons are with the corresponding
periods in the prior year, unless otherwise stated.
Net sales decreased $14,868 or 15% for the quarter and $127,390 or 33% for
the nine-month period. Sales of the Powercom Division decreased $13,000 or 25%
during the quarter, mainly due to lower demand from the telecommunications and
UPS markets. Reduced levels of capital spending in these sectors have continued
to affect sales. Sales by the Dynasty Division declined $3,971 or 14% during the
quarter, due to lower sales to the UPS and telecommunications markets, partially
offset by increased sales to the cable market. Reduced demand for our sealed
products has continued to affect this division. Over 60% of the Dynasty
Division's quarterly sales were to the UPS market, which continues to be
affected by a general business slowdown. Sales to the cable industry were up
substantially over last year, and there appears to be an increase in demand
within both the cable and broadband markets. These other divisional decreases
were offset by increased sales in the Power Electronics and Motive Power
divisions. The sales increase in the Power Electronics Division was primarily
due to increased DC to DC converter sales. In the Motive Power Division, the
sales increase resulted from higher battery sales, partially offset by lower
charger sales. The decrease in net sales for the nine-month period resulted from
lower customer demand for products of all divisions. Sales of the Powercom
Division decreased $84,442 or 43% during the nine-month period, mainly due to
lower demand from the telecommunications and UPS markets. Sales by the Dynasty
Division declined $22,004 or 25% during the nine-month period, due to lower
sales to the telecommunications and UPS markets, partially offset by increased
sales to the mobility and cable markets. Motive Power divisional sales decreased
$7,477 or 16% during the nine-month period, primarily consisting of lower
battery and charger sales. Power Electronics divisional sales decreased $13,467
or 26% during the nine-month period, primarily due to a decline in DC to DC
converter sales to key telecommunications customers. We have been actively
quoting business in the DC to DC and AC to DC markets but design wins have not
yet resulted in significant sales.
Gross profit for the quarter decreased $1,302 or 6% to $20,808 from $22,110
in the same quarter of the prior year while gross margins increased from 21.6%
to 23.7% in the third quarter of fiscal 2003. Gross profit during the quarter
was lower in the Powercom and Dynasty divisions, primarily as a result of lower
sales. Gross profit in the Motive Power and Power Electronics divisions
increased in the quarter, primarily as a result of higher sales, coupled with an
inventory-related charge in our Power Electronics Division in the comparable
period of the prior year. Gross profit for the nine-month period decreased
$45,996 or 44% to $59,656 from $105,652 in the prior year while gross margins
decreased from 27.6% to 23.3%. Gross profit was lower in the nine-month period
in the Powercom, Dynasty and Motive Power divisions primarily as a result of
lower sales volumes, coupled with plant operational difficulties in the Motive
Power Division. Gross profit in the Power Electronics Division increased on
lower sales due to the aforementioned inventory-related charge in the comparable
period of the prior year.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
Selling, general and administrative ("SG&A") expenses for the third quarter
of fiscal 2003 decreased $5,010 or 36%. This decrease was primarily due to: (i)
costs recorded in the third quarter of fiscal 2002 related to a potential
acquisition that did not close; (ii) the implementation of SFAS No. 142 in the
current year, which discontinued the amortization of goodwill; and (iii) lower
variable selling costs associated with decreased sales volumes. The decrease in
SG&A expenses for the three-month period was partially offset by higher Motive
Power warranty expenses. SG&A expenses for the nine-month period decreased
$12,582 or 32% due to: (i) lower variable selling costs associated with the
decreased sales volumes; (ii) the implementation of SFAS No. 142 in the current
year; (iii) costs recorded in the prior year related to the aforementioned
potential acquisition that did not close; and (iv) lower payroll-related
expenses. This decrease was partially offset by the positive effect of the full
recovery of certain litigation and settlement costs from one of our insurance
carriers during the first quarter of fiscal 2002.
Research and development expenses were $2,461 in both the third quarter of
fiscal 2003 and the third quarter of fiscal 2002. As a percentage of sales,
research and development expenses increased from 2% in the third quarter of
fiscal 2002 to 3% in the third quarter of fiscal 2003 as a result of lower sales
volumes. For the nine-month period, research and development expenses decreased
$540 or 7%, primarily as a result of lower spending by the Power Electronics and
Powercom divisions. As a percentage of sales, research and development expenses
increased from 2% in the first nine months of fiscal 2002 to 3% in the first
nine months of fiscal 2003 as a result of lower sales volumes.
Operating income for the quarter increased $3,708 or 65% to $9,392 from
$5,684 in the third quarter of the prior year. This increase resulted from
higher operating income generated by the Dynasty Division, operating income in
the Power Electronics Division (compared to an operating loss in the third
quarter of fiscal 2002) and a lower operating loss in the Motive Power Division.
The Powercom Division recorded lower operating income in the third quarter of
fiscal 2003. For the nine-month period, operating income decreased $32,874 or
56% to $25,493 from $58,367 in the nine months ended October 31, 2001. This
decrease was the result of lower operating income generated by the Powercom and
Dynasty divisions coupled with a larger operating loss generated by the Motive
Power Division, partially offset by operating income generated by the Power
Electronics Division (compared to an operating loss in the comparable period of
the prior year). We continue to see no significant near-term improvement in the
financial performance of the Power Electronics Division. Although the Motive
Power Division operated at a loss in the quarter, we are increasingly optimistic
that the operational issues have been corrected and we expect the Motive Power
business to generate improved results in the fourth quarter.
Interest expense, net, decreased $619 in the quarter and $2,371 in the
nine-month period, primarily due to lower average debt balances outstanding,
coupled with lower effective interest rates.
Income tax expense for the quarter increased $1,701 as a result of higher
income before income taxes, partially offset by a lower effective tax rate. For
the nine-month period, income tax expense decreased $11,181 due to lower income
before income taxes, coupled with a lower effective tax rate. The effective tax
rate consists of statutory rates adjusted for the tax impact of our foreign
sales corporation, research and development credits and foreign operations. The
effective tax rate for the third quarter of fiscal 2003 was 36.2% compared to
37.0% in the third quarter of the prior fiscal year. For the nine-month period,
the effective tax rate was 36.7% compared to 37.0% in the comparable period of
the prior year.
Minority interest decreased $206 in the quarter and $1,019 in the
nine-month period, primarily due to lower income recorded by the Shanghai, China
joint venture. Minority interest reflects the 33% ownership of the joint venture
that is not owned by C&D.
As a result of the above, net income increased $3,280 or 177% in the third
quarter of fiscal 2003 to $5,128 or 20 cents per share - basic and diluted. For
the nine-month period, net income decreased $17,839 or 56% to $13,956 or 54
cents per share - basic and diluted. Based on our cost containment initiatives
and a business environment that appears to have bottomed, we anticipate our
fourth quarter earnings to be comparable to those of the third quarter.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
Liquidity and Capital Resources
Net cash provided by operating activities decreased $11,344 or 19% to
$48,175 for the nine-month period ended October 31, 2002, compared to $59,519
for the same period of the prior year. This decrease in net cash provided by
operating activities was primarily due to: (i) an increase in accounts
receivable during the nine months ended October 31, 2002 versus a decrease in
the comparable period of the prior year (due to the slowdown in business that
occurred in the prior year); (ii) a decrease in net income; (iii) a decrease in
deprecation and amortization (primarily due to the implementation of SFAS No.
142 in the current year); and (iv) a larger increase in other assets (primarily
due to additional pension plan funding of approximately $5,000 in cash ). These
changes, resulting in lower net cash provided by operating activities, were
partially offset by: (i) an increase in accounts payable during the nine months
ended October 31, 2002 versus a decrease in the comparable period of the prior
year (due to the slowdown in business that occurred in the prior year); and (ii)
an increase in current taxes payable versus a decrease in the prior year.
Net cash used by investing activities decreased $17,816 or 79% to $4,619 in
the nine months ended October 31, 2002 compared to $22,435 in the same period of
the prior year, primarily due to lower capital spending.
Net cash used by financing activities increased $4,843 or 12% to $44,118 in
the first nine months of fiscal 2003 compared to $39,275 in the prior year. This
increase was due to having no proceeds from new borrowings in the current year
as compared to $11,786 in the prior year, partially offset a decrease in the
reduction of long-term debt. New borrowings in fiscal 2002 related to a 22
million British Pound Sterling line of credit, the proceeds of which were used
to pay down debt denominated in U.S. Dollars.
The availability under our current loan agreement is expected to be
sufficient to meet our ongoing cash needs for working capital requirements, debt
service, capital expenditures and possible strategic acquisitions. This loan
agreement contains restrictive covenants that require us to maintain minimum
ratios such as fixed charge coverage and leverage ratios, as well as minimum
consolidated net worth. We were in compliance with our loan agreement covenants
at October 31, 2002. Capital expenditures during the first nine months of fiscal
2003 were incurred to fund a continuing series of cost reduction programs,
normal maintenance and regulatory compliance. Total fiscal 2003 capital
expenditures are expected to be approximately $7,000 for similar purposes.
We intend to continue making prudent purchases of our Company stock, paying
down debt and selectively pursuing complementary acquisitions. Strategic
acquisition opportunities will be expected to enhance C&D's long-term
competitive position and growth prospects and may require external financing. We
cannot assure, however, that we will close on any such acquisitions.
During the third quarter, we contributed 100,000 shares of C&D stock into
our defined benefit pension plan and contributed an additional $5,000 in cash.
We expect to contribute a comparable amount of additional cash and/or stock by
the end of the current calendar year.
Our bank loan agreement permits quarterly dividends to be paid on our
Common Stock as long as there is no default under that agreement. Subject to
that restriction and the provisions of Delaware law, 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. During the second quarter of
fiscal 2002, quarterly dividends were declared twice: once in May for payment in
July and once in July for payment in October. There was not a quarterly dividend
declaration during the third quarter of fiscal 2003. A regular quarterly
dividend was declared on November 19, 2002.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
NEW ACCOUNTING PRONOUNCEMENTS
On February 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets. As required by SFAS No. 142,
we discontinued amortizing the remaining balance of goodwill. All remaining and
future acquired goodwill will be subject to an annual impairment test (or more
frequently if impairment indicators arise), using a fair value-based approach.
Other intangible assets will continue to be amortized over their estimated
useful lives and assessed for impairment under SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 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.
In conjunction with the implementation of SFAS No. 142, we have completed
the transitional goodwill impairment test as of February 1, 2002 and have
determined that no impairment to goodwill existed. Net income and net income per
common share adjusted to exclude goodwill amortization is as follows:
Three months ended Nine months ended
October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income...................... $5,128 $1,848 $13,956 $31,795
Goodwill amortization, net of tax........ - 1,106 - 3,062
----- ----- ------ ------
Adjusted net income...................... $5,128 $2,954 $13,956 $34,857
===== ===== ====== ======
Reported net income per
common share - basic.................... $ .20 $ .07 $ .54 $ 1.22
Goodwill amortization, net of tax........ - .04 - .11
----- ----- ------ ------
Adjusted net income per
common share - basic.................... $ .20 $ .11 $ .54 $ 1.33
===== ===== ====== ======
Reported net income per
common share - diluted.......... $ .20 $ .07 $ .54 $ 1.19
Goodwill amortization, net of tax........ - .04 - .11
----- ----- ------ ------
Adjusted net income per
common share - diluted.................. $ .20 $ .11 $ .54 $ 1.30
===== ===== ====== ======
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.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses the recognition,
measurement, and reporting of costs associated with exit or disposal activities,
and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The principal
difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements
for recognition of a liability for a disposal activity, (including those related
to employee termination benefits and obligations under operating leases and
other contracts), be recognized when the liability is incurred, and not
necessarily the date of an entity's commitment to an exit plan, as under EITF
No. 94-3. SFAS No. 146 also establishes that the initial measurement of a
liability recognized under SFAS No. 146 be based on fair value. The provisions
of SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged.
FORWARD-LOOKING STATEMENTS
Certain of the statements and information contained in this Quarterly
Report on Form 10-Q, 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, we claim 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q. We undertake no
obligation to update or revise these statements to reflect events or
circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Forward-looking statements may be identified by their use of words like
"plans," "expects," "will," "anticipates," "intends," "projects," "estimates,"
"believes" or other words of similar meaning. All statements that address
expectations or projections about the future, including, but not limited to,
statements about our strategy for growth, product development, market position,
market conditions, 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.
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.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands, except per share data)
FORWARD-LOOKING STATEMENTS (continued)
o Our ability to grow earnings could be affected by increases in the cost of
raw materials, particularly lead. We may not be able to fully offset the
effects of higher raw material costs through price increases or
productivity improvements.
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, but not limited
to, the nature of the problem, the complexity of the site, the nature of
the remedy, the outcome of discussions with regulatory agencies and other
PRPs at multiparty sites, the number and financial viability of other PRPs
and risks associated with litigation.
o We are exposed to the credit risk of some of our customers including risk
of insolvency and bankruptcy. Although we have programs in place to monitor
and mitigate the associated risk, there can be no assurance that such
programs will be effective in reducing our credit risks.
o Our business, results of operations and financial condition could be
affected by significant pending and future litigation adverse to us, 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 our business (or that of a predecessor to the extent we are not
indemnified for those liabilities).
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 in order of importance.
23
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to various market risks. The primary financial risks include
fluctuations in interest rates and changes in currency exchange rates. We manage
these risks by using derivative instruments. We do not invest in derivative
securities for speculative purposes, but do enter into hedging arrangements in
order to reduce our exposure to fluctuations in interest rates as well as to
fluctuations in exchange rates. Our financial instruments subject to interest
rate risk consist of debt instruments and interest rate swap contracts. The debt
instruments are subject to variable rate interest, and therefore the market
value is not sensitive to interest rate movements. Interest rate swap contracts
are used to manage our exposure to fluctuations in interest rates on our
underlying variable rate debt instruments. Additional disclosure regarding our
various market risks are set forth in our fiscal 2002 Form 10-K filed with the
Securities and Exchange Commission.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures pursuant to Exchange Act Rule
13a-14(c) within 90 days of the filing date of this quarterly report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation, nor were there any significant deficiencies or material
weaknesses in these controls requiring corrective actions.
24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amended and Restated By-laws of C&D Technologies, Inc. (filed
herewith).
10.1 Employee Separation Agreement dated September 24, 2002 between
Kathryn Bullock and C&D (filed herewith).
10.2 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and William Harral, III (filed
herewith).
10.3 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Wade H. Roberts, Jr. (filed
herewith).
10.4 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Peter R. Dachowski (filed
herewith).
10.5 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Kevin P. Dowd (filed
herewith).
10.6 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Robert I. Harries (filed
herewith).
10.7 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Pamela S. Lewis (filed
herewith).
10.8 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and George MacKenzie (filed
herewith).
10.9 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and John A.H. Shober (filed
herewith).
10.10 First Amendment dated June 12, 2002 to the C&D Technologies
Savings Plan, as restated and amended (filed herewith).
10.11 Second Amendment dated November 20, 2002 to the C&D Technologies
Savings Plan, as restated and amended (filed herewith).
15. Letter from PricewaterhouseCoopers LLP, independent accountants
for C&D, regarding unaudited interim financial information (filed
herewith).
99.1 Certification of the President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
99.2 Certification of the Vice President, Finance pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
25
SIGNATURES
- -------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C&D TECHNOLOGIES, INC.
December 13, 2002 BY: /s/ Wade H. Roberts, Jr.
---------------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director
(Principal Executive Officer)
December 13, 2002 BY: /s/ Stephen E. Markert, Jr.
----------------------------------
Stephen E. Markert, Jr.
Vice President Finance
(Principal Financial and
Accounting Officer)
CERTIFICATION
-------------
I, Wade H. Roberts, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of C&D
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
the internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: December 13, 2002 /s/ Wade H. Roberts, Jr.
------------------ -----------------------------
Wade H. Roberts, Jr.
President and Chief
Executive Officer
(Principal Executive Officer)
26
CERTIFICATION
-------------
I, Stephen E. Markert, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of C&D
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
the internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: December 13, 2002 /s/ Stephen E. Markert, Jr.
------------------ -----------------------------
Stephen E. Markert, Jr.
Vice President Finance
(Principal Financial and
Accounting Officer)
27
EXHIBIT INDEX
3.1 Amended and Restated By-laws of C&D Technologies, Inc.
10.1 Employee Separation Agreement dated September 24, 2002 between
Kathryn Bullock and C&D.
10.2 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and William Harral, III.
10.3 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Wade H. Roberts, Jr.
10.4 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Peter R. Dachowski.
10.5 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Kevin P. Dowd.
10.6 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Robert I. Harries.
10.7 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Pamela S. Lewis.
10.8 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and George MacKenzie.
10.9 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and John A.H. Shober.
10.10 First Amendment dated June 12, 2002 to the C&D Technologies
Savings Plan, as restated and amended.
10.11 Second Amendment dated November 20, 2002 to the C&D Technologies
Savings Plan, as restated and amended.
15. Letter from PricewaterhouseCoopers LLP, independent accountants
for C&D, regarding unaudited interim financial information.
99.1 Certification of the President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Vice President, Finance pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
28