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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, 2003
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 |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes |X| No |_|
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on July 31, 2002: $393,365,732
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 4, 2003: 25,594,301 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
(This page intentionally left blank)
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 ....................... 17
Item 6 Selected Financial Data .................................... 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 19
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 and Related
Stockholder Matters ................................... 30
Item 13 Certain Relationships and Related Transactions ............. 30
Item 14 Controls and Procedures .................................... 30
Part IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................... 32
Signatures .............................................................. 37
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 and DC 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.
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.
1
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 designed and manufactured 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").
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.
2
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,
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 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,"
"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
continued economic weakness) 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 Terrorist acts or acts of war, whether in the United States or
abroad, could cause damage or disruption to our operations, our
suppliers, channels to market or customers, or could cause costs to
increase, or create political or economic instability, any of which
could have a material adverse effect on our business.
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
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.)
3
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 We have undertaken and may continue to undertake productivity
initiatives, including re-organizations to improve performance and
generate cost savings. There can be no assurance that these will be
completed or beneficial to C&D. Also, there can be no assurance that
any estimated cost savings from such activities will be realized.
o Our facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental
laws and regulations, as well as participation in voluntary
programs, are significant and will continue to be so for the
foreseeable future. We are also subject to potentially significant
fines and penalties for non-compliance with applicable laws and
regulations. Our accruals for such costs and liabilities may not be
adequate since the estimates on which the accruals are based depend
on a number of factors including, but not limited to, the nature of
the problem, the complexity of the issues, the nature of the remedy,
the outcome of discussions with regulatory agencies and/or the
government and, as applicable, other PRPs at multiparty sites, the
number and financial viability of other PRPs and risks associated
with litigation. (See Business - Environmental Regulations.)
o We are exposed to the credit risk of our customers including risk of
insolvency and bankruptcy. Although we have programs in place to
monitor and mitigate the associated risk, there can be no assurance
that such programs will be effective in reducing our credit risks or
that preference actions or other claims relating to bankruptcy
proceeding will not result. (See Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.)
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). (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 or retain qualified personnel.
4
o The recent outbreak of severe acute respiratory syndrome ("SARS")
could cause direct disruption to our manufacturing operations
located in China and our Asian suppliers, as well as indirect
disruption to our other manufacturing facilities located throughout
the rest of the world due to possible negative impacts on our supply
chain.
o Our current loan agreement expires on March 1, 2004. We expect to
enter into a new loan agreement prior to this date. We cannot
assure, however, that we will be successful in securing a new loan
agreement.
o Our bank loan agreement permits 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 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.
The foregoing list of important factors is not all-inclusive, or necessarily in
order of importance.
Reportable Segments
Our operations are classified into the following reportable business
segments:
o Powercom Division
o Dynasty Division
o Power Electronics Division
o Motive Power Division
Segments are determined using the "management approach," which means the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance.
The financial information regarding our four business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 2003, 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 and DC to DC
switching power supplies and magnetics (transformers and inductors);
and
o Motive Power Division - motive power systems for the material
handling equipment market.
5
We market our products through independent manufacturer's representatives,
national and global 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.
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. C&D 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.
6
Uninterruptible Power Supplies. We produce batteries for UPS systems,
which provide instant battery backup in the event of primary power loss or
interruption, thereby permitting an orderly shutdown of equipment or continued
operation for a limited period of time until a power source comes back on-line.
Large UPS systems are used principally for mainframe computers, minicomputers,
networks and computer-controlled equipment.
Equipment for Electric Utilities and Industrial Control Applications. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures until a power source comes back on-line.
Dynasty Division - Reserve Power Batteries
Through our Dynasty Division, we design, manufacture and distribute
valve-regulated (sealed) batteries for use in reserve power systems for a wide
variety of end use markets. Our product range focuses on batteries that provide
less than 200-ampere hours. These products are sold primarily to customers in
the UPS, telecommunications and cable markets. Major applications of these
products include corporate data center backup, computer network backup for use
during power outages, CATV signal powering and wireless and wireline telephone
infrastructure. 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 Dynasty(R) Tel Series Long Duration batteries are
designed to Telcordia Standards 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 subsequent to delivery to meet 100% of rated capacity. 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. Our
Power Electronics Division services several major market segments including
telecommunications, networking equipment, office equipment, industrial
automation and test instrumentation. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division.
7
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 to power the
associated equipment.
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 and DC 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 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
central office and transmission equipment. We also produce power supplies for
networking equipment (switches, routers, hubs, etc), office equipment (mass
storage, digital printing, etc.), and industrial equipment (computing,
automation and test instrumentation).
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 includes 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. We also offer a broad line
of battery charging and associated specialty 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 (or contractors in the case of
installation or service) 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.
8
We have internal marketing personnel in each of our divisions to manage
the development of new products from the initial concept definition and
management approval stages through the engineering, production and sales
processes. They are also responsible for applications engineering, technical
training of sales representatives and the marketing communications function.
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 accounted for 10% or more of our net sales for
the year ended January 31, 2003. We typically sell our products with terms
requiring payment in full within 30 days. We warrant our battery products on a
full and/or pro-rata basis, to perform as rated for specified periods of time,
ranging from 1 to 25 years, depending on the type of product and its
application. 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, customer
requirements 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, 2003 was $47,085,000 and at February 28,
2002 was $53,628,000. We expect to fill virtually all of the February 28, 2003
backlog during fiscal 2004.
Manufacturing and Raw Materials
We manufacture our products at seven domestic plants, two plants in China,
and one each in the United Kingdom and Mexico. 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 2003, we closed the metal fabrication operations
at our Conshohocken, Pennsylvania facility and now purchase products previously
manufactured at this location from third parties. We also closed our Shannon,
Ireland facility in fiscal 2003, shifting its manufacturing and design
capabilities to other Power Electronics Division facilities. In fiscal 2002 we
closed our Workington, United Kingdom facility and transferred production to our
other Power Electronics Division facilities. No facilities were closed during
fiscal 2001.
The principal raw materials used in the manufacture of our products
include lead, steel, copper, plastics and electronic components, all of which
are generally available from multiple suppliers. Other than the required use of
one supplier of lead and one supplier of lead oxide for the production of Round
Cell batteries for Tyco, we use a number of suppliers to satisfy our raw
materials needs.
ISO 9000 Recognition. 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 and R&D facility; Conyers, Georgia; Dunlap, Tennessee; Huguenot,
New York; Leola, Pennsylvania; Milwaukee, Wisconsin and Tucson, Arizona.
Internationally, our operations in Guangzhou, China; Milton Keynes, United
Kingdom; Nogales, Mexico and Shanghai, China are also ISO 9001 certified. Our
Romsey, United Kingdom location is ISO 9002 certified.
9
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 both reserve
and motive power systems in North America. 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.
The Power Electronics Division competes globally in a large fragmented
market. We believe that we are among the top 10 manufacturers of embedded OEM
power supply products in the world.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
Research and Development
We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
o production engineering (including quality testing and managing the
expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in the United States and Europe
feature advanced computer-aided design and testing equipment. Technology and
engineering personnel coordinate all activities closely with operations, sales
and marketing in order to better meet the needs of customers. We continue to
develop new products in our businesses. During fiscal 2003, the Powercom
division introduced the Super Max modular racking system for its Liberty(R) 2000
HD battery product which increases energy density in addition to expanding the
line with a 2,000 ampere hour offering. Our Power Electronics Division
introduced the NGA and NGB series of non-isolated point of load converters in
fiscal 2003, to address the needs of electronic OEM's deploying distributed
power architecture. In addition, to meet the ever growing need for power
density, the WPA50 one-eighth brick converter was introduced. The cPCI200 watt
AC to DC power supply also was introduced packing a significant amount of power
and capability into a small state of the art form factor.
10
International Operations
In addition to our domestic manufacturing facilities, we have
international manufacturing facilities in Mexico, China and the United Kingdom.
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 18.0%, 20.4% and 20.9% of net sales for
the years ended January 31, 2003, 2002 and 2001, 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 practice is to apply for patents on new inventions, designs and
processes, which have strategic value or which are associated with existing or
prospective product lines, service offerings or operations. We believe that the
growth of our business will depend primarily upon the quality and reliability 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),
LIBERTY 2000 MAX(R) and MAXIMIZER(R) as being of substantial value in the
marketing of our products and have registered these trademarks in the United
States Patent and Trademark Office. Our trademarks also include C-LINE(TM),
COMPUCHARGE(R), FERRO FIVE(R), FERRO 1500(R), GUARDIAN(R), HYPERON(R),
RANGER(R), SCOUT(R), SMARTBATTERY(R), and V-LINE(R).
Employees
On February 28, 2003 we employed approximately 2,400 people. Of these
employees, approximately 1,900 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 at four domestic plants are represented
by four different unions under collective bargaining agreements.
11
Environmental Regulations
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 and disposal of hazardous materials;
o monitoring and permitting of air emissions and water discharge; and
o 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.
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 environmental and health and safety practice manuals and
policies;
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;
o engage in sampling and monitoring of potential points of
environmental emissions; and
o prepare and/or review internal reports to regulatory bodies and
interface with them regarding pollution and other issues.
In addition, we also have installed certain pollution abatement equipment
to reduce emissions and discharges 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
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 injury or damage to persons or the environment
arises from hazardous substances used, generated or disposed of in the conduct
of our business (or that of our predecessors to the extent we are not
indemnified therefor), we may be held liable for certain damages and for the
costs of the investigation and remediation, which could have a material adverse
effect on our business, financial condition or results of operations. However,
under the terms of the purchase agreement with Allied Corporation for the
acquisition of C&D (the "Acquisition Agreement"), Allied was obligated to
indemnify us for any liabilities of this type resulting from conditions existing
at January 28, 1986 that were not disclosed by Allied to us in the schedules to
the Acquisition Agreement. These obligations have since been assumed by Allied's
successor in interest, Honeywell ("Honeywell").
12
C&D, 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 C&D had
made scrap lead shipments for reclamation prior to the date of the acquisition.
C&D and four other potentially responsible parties ("PRPs") agreed upon a
cost sharing arrangement for the design and remediation phases of a project
related to one of the Third Party Facilities, the former NL Industries site in
Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002 one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. In August 2002, Exide notified the
PRPs that it 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 C&D.
We 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, we were notified of our involvement as a PRP at the NL
Atlanta, Northside Drive Superfund site. We are currently in negotiations with
the other potentially responsible parties at this site regarding our share of
the allocated liability.
We are also aware of the existence of contamination at our 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 we 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.
Together with JCI, we are conducting an assessment and remediation of
contamination at our Dynasty Division facility in Milwaukee, Wisconsin. The
majority of this project was completed as of October 2001. Under the purchase
agreement with JCI, we are responsible for (i) one-half of the cost of the
on-site assessment and remediation, with a 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, 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, 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 in April 2002. We
engaged in negotiations with both the EPA and Department of Justice through
March 2003 regarding a potential resolution of this matter. The government filed
suit against C&D in March 2003 for alleged violations of the Clean Water Act.
The complaint requests injunctive relief and civil penalties of up to the
amounts provided by statute. We anticipate that the matter will result in a
penalty assessment and compliance obligations. We will continue to seek a
negotiated or mediated resolution, failing which we intend to vigorously defend
the action.
We accrue reserves for liabilities in our consolidated financial
statements and periodically reevaluate the reserved amounts for these
liabilities in view of the most current information available in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies." Based on
13
currently available information, we believe 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 our business, financial
condition or results of operations.
We are continuing to work 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.
Available Information
C&D maintains an Internet web site at http://www.cdtechno.com and makes
available free of charge on or through the web site its Annual Report on Form
10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K as
soon as reasonably practicable after it electronically files such material with,
or furnishes it to, the SEC.
14
Item 2. Properties
Set forth below is certain information, as of April 1, 2003, 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 and
headquarters of Dynasty Division
Attica, Indiana (1) ................. 295,000 Large standby power batteries
Leola, Pennsylvania (1) ............. 240,000 Large standby power batteries, Round
Cell, distribution center and battery R&D
laboratories
Conyers, Georgia (1) ................ 161,000 Small standby power batteries
Huguenot, New York (1) .............. 148,000 Motive 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
and electronics R&D laboratories
Tucson, Arizona (3) ................. 55,000 DC to DC converters, power supplies,
headquarters of Power Electronics
Division and electronics R&D
laboratories
International Properties:
- -------------------------
Shanghai, China (4) ................ 315,000 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
(1) Property is owned by C&D.
(2) The lease of the Dunlap property terminates in January 2004. We have an
option to purchase the Dunlap property for $1,160,000 during the lease
term.
(3) Property is leased by C&D.
(4) Building is owned by the joint venture; however, the land is leased under
a 50-year agreement, of which 42 years remain. The Chinese government has
notified our joint venture that it will be required to relocate the
Shanghai plant during fiscal 2005. Negotiations are in process between the
joint venture and the Chinese government regarding the details surrounding
the specific location, timing and cost responsibilities related to the
relocation of the Shanghai plant.
15
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 or is expected to be material to our financial condition or results of
operations in any year. See Business - Environmental Regulations for a
description of certain administrative proceedings in which we are involved.
On March 24, 2003, C&D was sued in an action captioned United States of
America v. C&D Technologies, Inc., in the United States District Court for the
Southern District of Indiana, for alleged violations of the Clean Water Act.
Item 4. Submission of Matters to a Vote of Security Holders
None.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock is traded on The New York Stock Exchange under the symbol
CHP. The approximate number of beneficial and registered record holders of our
Common Stock on April 4, 2003 was 5,600.
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, 2003 January 31, 2002
----------------- -----------------
Fiscal Quarter High Low High Low
-------------- ------ ------ ------ ------
First Quarter .......... $23.04 $19.00 $55.65 $23.40
Second Quarter ......... 24.27 13.25 38.60 23.90
Third Quarter .......... 17.50 12.50 32.15 16.35
Fourth Quarter ......... 21.25 15.40 24.65 19.60
Dividends. We began paying cash dividends on our Common Stock in April
1987. For the years ended January 31, 2003 and 2002 we declared dividends per
share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2003 ........... $0.01375 $0.02750 -- $0.01375
2002 ........... $0.01375 $0.01375 $0.01375 $0.01375
Our bank loan agreement permits 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 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 15 of this Form 10-K.
Fiscal Year
------------------------------------------------------------
(In thousands, except share and
per share data)
2003 2002 2001(1) 2000(2) 1999
-------- -------- --------- --------- --------
Statement of Income Data:
Net sales ........................ $335,745 $471,641 $615,678 $482,182 $321,937
Cost of sales .................... 257,046 343,370 439,135 357,802 235,767
-------- -------- -------- -------- --------
Gross profit ..................... 78,699 128,271 176,543 124,380 86,170
Selling, general and
administrative expenses ......... 35,136 50,406 66,243 59,315 40,344
Research and development
expenses ........................ 9,509 10,291 10,281 8,941 8,255
-------- -------- -------- -------- --------
Operating income ................. 34,054 67,574 100,019 56,124 37,571
Interest expense, net ............ 3,800 6,700 6,315 7,946 126
Other expense (income), net ...... 1,457 1,239 (725) (20) 211
-------- -------- -------- -------- --------
Income before income taxes and
minority interest ............... 28,797 59,635 94,429 48,198 37,234
Provision for income taxes ....... 9,414 22,244 35,883 17,737 13,154
-------- -------- -------- -------- --------
Net income before minority
interest ........................ 19,383 37,391 58,546 30,461 24,080
Minority interest ................ 91 1,317 2,651 619 --
-------- -------- -------- -------- --------
Net income ....................... $ 19,292 $ 36,074 $ 55,895 $ 29,842 $ 24,080
======== ======== ======== ======== ========
Net income per common
share - basic (3) ............... $ .75 $ 1.38 $ 2.13 $ 1.17 $ .97
======== ======== ======== ======== ========
Net income per common
share - diluted (4) ............. $ .74 $ 1.35 $ 2.05 $ 1.14 $ .94
======== ======== ======== ======== ========
Dividends per common share ....... $ .05500 $ .05500 $ .05500 $ .05500 $ .04125
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital .................. $ 53,776 $ 55,014 $ 75,895 $ 65,079 $ 63,688
Total assets ..................... 382,156 395,558 455,519 354,115 185,642
Short-term debt .................. 14,062 27,255 18,172 20,393 532
Long-term debt ................... 25,857 46,892 98,849 76,459 1,750
Stockholders' equity ............. 258,274 241,858 218,054 162,066 123,528
(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 25,818,024, 26,153,715, 26,223,684, 25,529,778 and 24,730,366
weighted average shares outstanding - basic.
(4) Based on 26,025,179, 26,688,011, 27,264,528, 26,088,402 and 25,671,724
weighted average shares outstanding - diluted.
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 2003, primarily due to continuing weak 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 2003, 2002 and 2001, the average North American producer
price of lead was $.44, $.44 and $.45 per pound, respectively.
We have a long-term cost containment program to minimize manufacturing
costs. Under the program, we continue to allocate a significant amount of our
normal annual capital expenditures to cost containment and productivity
improvement projects.
19
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.
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
--------------------------
2003 2002 2001
------ ------ ------
Net sales ........................................... 100.0% 100.0% 100.0%
Cost of sales ....................................... 76.6 72.8 71.3
------ ------ ------
Gross profit ...................................... 23.4 27.2 28.7
Selling, general and administrative expenses ........ 10.5 10.7 10.8
Research and development expenses ................... 2.8 2.2 1.7
------ ------ ------
Operating income .................................. 10.1 14.3 16.2
Interest expense, net ............................... 1.1 1.4 1.0
Other expense (income), net ......................... 0.4 0.3 (0.1)
------ ------ ------
Income before income taxes and minority interest .. 8.6 12.6 15.3
Provision for income taxes .......................... 2.8 4.7 5.8
------ ------ ------
Net income before minority interest ............... 5.8 7.9 9.5
Minority interest ................................... 0.1 0.3 0.4
------ ------ ------
Net income ........................................ 5.7% 7.6% 9.1%
====== ====== ======
20
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 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 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.
Valuation of Long-lived Assets
We assess the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of the assets or the asset
grouping may not be recoverable. Factors we consider in deciding when to perform
an impairment review include significant under-performance of a business or
product line in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in our use of the
assets. Recoverability of assets that will continue to be used in our operations
is measured by comparing the carrying amount of the asset grouping to the
related total future net cash flows. If an asset grouping's carrying value is
not recoverable through those cash flows, the asset grouping is considered to be
impaired. The impairment is measured by the difference between the assets'
carrying amount and their fair value, based on the best information available,
including market prices or discounted cash flow analyses.
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, 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.
21
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.
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 minimal and within the provisions established, we cannot
guarantee that we will continue to experience the same return rates that we have
in the past.
Impairment of Goodwill
Goodwill represents the excess of the cost over the fair value of net
assets acquired in business combinations. Goodwill and other "indefinite-lived"
assets are not amortized and are subject to the impairment rules of SFAS No.
142, "Goodwill and Other Intangible Assets," which C&D adopted on February 1,
2002. Goodwill is tested for impairment on an annual basis or upon the
occurrence of certain circumstances or events. C&D determines the fair market
value of its reporting units using quoted market rates and cash flow techniques.
The fair market value of the reporting units is compared to the carrying value
of the reporting units to determine if an impairment loss should be calculated.
If the book value of a reporting unit exceeds the fair value of the reporting
unit, an impairment loss is indicated. The loss is calculated by comparing the
fair value of the goodwill to the book value of the goodwill. If the book value
of the goodwill exceeds the fair value of the goodwill, an impairment loss is
recorded. Fair value of goodwill is determined by subtracting the fair value of
the identifiable assets of a reporting unit from the fair value of the reporting
unit. In the fiscal year ended January 31, 2003, we recorded an impairment of
goodwill in our Motive Power Division, resulting in the complete write-off of
all goodwill related to the Motive Power Division. No impairment to goodwill
existed in any of our other divisions as of January 31, 2003.
22
Research and Development
Research and development costs are expensed as incurred. Research and
development costs consist of direct and indirect internal costs related to
specific projects as well as fees paid to other entities, which conduct certain
research activities on behalf of C&D. The cost of materials (whether from our
normal inventory or acquired specially for research and development activities)
and equipment or facilities that are acquired or constructed for research and
development activities and that have alternative future uses (in research and
development projects or otherwise) are capitalized as tangible assets when
acquired or constructed. The cost of such materials consumed in research and
development activities and the depreciation of such equipment or facilities used
in those activities are recorded as research and development costs.
Fiscal 2003 Compared to Fiscal 2002
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
Net sales for fiscal 2003 decreased $135,896 or 29% to $335,745 from
$471,641 in fiscal 2002. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Powercom Division declined $90,324, or
38%, primarily due to lower sales to the telecommunications and UPS markets.
This business continues to be affected by the lower spending levels in the
telecommunications sector. However, the division did have more than $17,000 in
sales from products introduced within the last twelve months. Dynasty Division
sales decreased $22,911, or 20%, also due to a decline in sales to the
telecommunications and UPS markets, partially offset by an increase in sales to
the mobility market. The lower market demand for sealed product continues to
affect this division. New products contributed approximated $4,000 of sales to
this division. Sales of the Power Electronics Division fell $16,315, or 26%,
mainly due to lower DC to DC converter sales, standard power supply sales and
custom power supply sales. The division continues to be negatively impacted by a
substantial reduction in the requirements of a single customer. Although the
overall pace of the Power Electronics Division remains sluggish due to the
continuing state of the telecommunications market, we are encouraged by the
number of new products we brought to market. Over 15% of fiscal 2003 sales by
the Power Electronics Division came from products introduced in the last 15
months. Additionally, we overhauled the distribution channels of this division.
Distributors have been replaced and upgraded, while the manufacturing
representative network has been strengthened. Our web-based initiatives came on
line in the latter part of the year and we are now beginning to see positive
results. Motive Power divisional sales dropped $6,346, or 10% due to lower sales
of batteries and chargers. Motive Power sales increased modestly in the fourth
quarter of fiscal 2003, based upon recent changes in sales channels.
Additionally, we launched a private branding program for batteries and chargers
to customers with whom we had not previously done business.
Gross profit for fiscal 2003 decreased $49,572 or 39% to $78,699 from
$128,271 in the prior year, resulting in a decrease in gross margin from 27.2%
to 23.4%. Gross profit declined 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 inventory-related charges
in the prior fiscal year, partially offset by re-organization charges of $1,263
recorded in the fourth quarter of fiscal 2003 related to the closure of our
Shannon, Ireland facility and the relocation of certain Mexican manufacturing
activities to our Guangzhou, China facility, which has lower manufacturing
costs.
Selling, general and administrative expenses for fiscal 2003 decreased
$15,270 or 30%. This decrease was primarily due to: (i) lower variable selling
costs associated with the decreased sales volumes; (ii) the implementation of
SFAS No. 142 in fiscal 2002 which discontinued the amortization of goodwill;
(iii) costs recorded in fiscal 2002 related to a potential acquisition that did
not close; (iv) lower payroll-related expenses; (v) the gain recognized on the
sale of our Conshohocken, Pennsylvania facility; and (vi) lower advertising
expenses. Partially offsetting this decrease were: (i) higher warranty expenses;
and (ii) the positive effect of the
23
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 decreased $782 or 8%, primarily due to
lower spending in the Power Electronics and Powercom divisions. As a percentage
of sales, research and development expenses increased from 2.2% of sales in
fiscal 2002 to 2.8% of sales in fiscal 2003 as a result of lower sales volumes.
Operating income decreased $33,520 or 50% to $34,054 from $67,574 in the
prior year. This decrease was the result of lower operating income generated by
the Powercom and Dynasty divisions, coupled with a higher operating loss
generated by the Motive Power Division. This decrease was partially offset by a
lower operating loss in the Power Electronics Division.
Interest expense, net, decreased $2,900 in fiscal 2003 compared to the
prior year, primarily due to lower average debt balances outstanding during the
year, coupled with lower effective interest rates.
Income tax expense for fiscal 2003 decreased $12,830 from fiscal 2002,
primarily as the result of lower income before income taxes and a decrease in
our effective tax rate. The effective tax rate consists of statutory rates
adjusted for the tax impacts of research and development credits and foreign
operations. The effective tax rate for fiscal 2003 decreased to 32.7% from 37.3%
in the prior year, primarily as a result of the resolution of state tax audits
in the fourth quarter of fiscal 2003. We expect our tax rate will return to
approximately 37% in fiscal 2004.
Minority interest of $91 in fiscal 2003 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 2003, net income decreased $16,782 or
47% to $19,292 or $0.75 per share - basic and $0.74 per share - diluted.
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,
24
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.
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.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $26,620 or 33% to
$55,150 for the fiscal year ended January 31, 2003 compared to $81,770 in the
prior fiscal year. This decrease in net cash provided by operating activities
was primarily due to: (i) a smaller decrease in accounts receivable in fiscal
2003 versus fiscal 2002; (ii) a decrease in net income; (iii) a larger increase
in other long-term assets, primarily due to pension plan funding; and (iv) a
decrease in depreciation and amortization (primarily due to the implementation
of SFAS No. 142 in the current year). These changes, resulting in lower net cash
provided by operating activities, were partially offset by: (i) increases in
accounts payable and current taxes payable versus decreases in the prior year;
(ii) a smaller increase in accrued liabilities; (iii) and a larger decrease in
the deferred tax balance.
Net cash used by investing activities decreased $23,276 or 87% to $3,511
in fiscal 2003 compared to $26,787 in fiscal 2002, due to lower capital spending
and higher proceeds from the disposal of property, plant
25
and equipment. Fiscal 2003 proceeds included $3,000 from the sale of our
Conshohocken, Pennsylvania facility. The property was sold for $5,000 including
a $2,000 note receivable.
Net cash used by financing activities decreased $6,176 or 11% to $47,648
in fiscal 2003 compared to $53,824 in the prior year. This decrease was
primarily due to a lower repayment of long-term debt, partially offset by having
no proceeds from new borrowings in the current year as compared to $8,662 in the
prior year, and lower proceeds from the issuance of common stock in fiscal 2003.
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 January 31, 2003. Our current loan agreement expires on March 1, 2004.
Therefore, during the first quarter of fiscal 2004, all of our debt will be
classified as current. We expect to enter into a new loan agreement prior to
March 1, 2004. Capital expenditures during fiscal 2003 were incurred to fund
a continuing series of cost reduction programs, normal maintenance and
regulatory compliance. Fiscal 2004 capital expenditures are expected to be less
than $10,000 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.
Our bank loan agreement permits dividends to be paid on our Common Stock
as long as there is no default under that agreement. Subject to that restriction
and the provisions of Delaware law, our Board of Directors currently intends to
continue paying 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.
26
Contractual Obligations and Commercial Commitments
The following tables summarize our contractual obligations and commercial
commitments as of January 31, 2003 (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 ............................ $18,669 $14,062 $ 4,607 -- --
Operating leases ..................... 19,204 2,979 4,468 $3,897 $7,860
------- ------- ------- ------ ------
Total contractual cash obligations ... $37,873 $17,041 $ 9,075 $3,897 $7,860
======= ======= ======= ====== ======
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Commitments Amounts Less than 1 - 3 4 - 5 After 5
Committed 1 year years years years
--------- --------- ------- ------ -------
Lines of credit ...................... $21,250 -- $21,250 -- --
Standby letters of credit ............ 3,521 $ 3,521 -- -- --
------- ------- ------- ------ ------
Total commercial commitments ......... $24,771 $ 3,521 $21,250 -- --
======= ======= ======= ====== ======
New Accounting Pronouncements
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. 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 June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing
and amount of costs recognized as a result of restructuring and similar
activities. We will apply SFAS No. 146 prospectively to activities initiated
after December 31, 2002. SFAS No. 146 had no significant impact at the point of
adoption on our consolidated statements of income or financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the guarantee.
FIN 45 also requires guarantors to disclose certain information for guarantees,
including product warranties. (See Part II Item 8. Note 16.)
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Accounting and Disclosure." SFAS No. 148, which is an
amendment of SFAS No. 123, provides alternative recognition transition methods
for a voluntary change from the intrinsic method, permitted under Accounting
Principles Board Opinion No. 25, to the fair value based method of accounting
for stock based employee compensation. SFAS No. 148 also requires more prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock based employee compensation and
27
requires disclosure about those effects in interim financial information. Prior
to SFAS No. 148, disclosures about the effects of stock based employee
compensation were only required in annual financial information. Disclosure
prominence is to be achieved by placing certain disclosures related to stock
based employee compensation in the summary of significant accounting policies.
The transition and disclosure in accounting policies provisions are effective
for fiscal years ending after December 15, 2002. We have adopted the disclosure
provisions of SFAS No. 148 effective as of January 31, 2003. The adoption of the
new standard did not have any impact on our financial position or results of
operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
All dollar amounts in this Item 7A are in thousands.
Market Risk Factors
We are exposed to various market risks. The primary financial risks
include fluctuations in interest rates and changes in currency exchange rates.
We manage these risks by using derivative instruments. We do not invest in
derivative securities for trading purposes, but do enter into hedging
arrangements in order to reduce our exposure to fluctuations in interest rates
as well as to fluctuations in exchange rates. (See Part II Item 8. Note 1 and
Note 12.)
Our financial instruments that are 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 $39,919 and
$74,143 at January 31, 2003 and 2002, 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 $(1,898) and $(1,835)
at January 31, 2003 and 2002, respectively. A 100-basis point increase in rates
at January 31, 2003 and 2002 would result in a $525 and a $924 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2003 and 2002 would result in an $693 and a $883 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, the
Euro, and Canadian Dollar. These financial instruments represent a net market
value of $(258) and $(34) at January 31, 2003 and 2002, 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.
28
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, 2003 and 2002, a 10% strengthening of the US
Dollar versus these currencies would result in an increase of the net market
value of the forwards of $2,695 and $1,579, respectively. At January 31, 2003
and 2002, a 10% weakening of the US Dollar versus these currencies would result
in a decrease in the net market value of the forwards of $2,739 and $1,737,
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, 2003 and
2002, respectively.
Foreign exchange forwards 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 15(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 2003 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 2003 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this Item 12 is incorporated in reference to
the information under the captions "Principal Stockholders," "Beneficial
Ownership of Management" and "Equity Compensation Plan Information" included in
C&D's Proxy Statement for our 2003 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
None.
Item 14. Controls and Procedures
Within the 90 days prior to the date of this Annual Report on Form 10-K,
C&D carried out an evaluation of the effectiveness of the design and operation
of its disclosure controls and procedures. This evaluation was performed under
the supervision and with the participation of management, including C&D's Chief
Executive Officer and Chief Financial Officer.
Under the rules of the Securities and Exchange Commission, the term
"disclosure controls and procedures" means controls and other procedures of C&D
that are designed to ensure that information required to be disclosed by C&D in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by C&D in such report is accumulated and communicated to C&D's
management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
30
Based on this evaluation, C&D's Chief Executive Officer and Chief
Financial Officer concluded that C&D's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information that C&D is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the rules and forms of the
Securities and Exchange Commission. There have been no significant changes in
C&D's internal controls or in other factors that could significantly affect
internal controls subsequent to the date of this evaluation.
A control system, no matter how well-designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
31
PART IV
Item 15. 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, 2003 and 2002
Consolidated Statements of Income for the years ended January 31,
2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended January
31, 2003, 2002 and 2001
Consolidated Statements of Comprehensive Income for the years ended
January 31, 2003, 2002 and 2001
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, 2003, 2002 and 2001
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 3.1 to C&D's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 2002).
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).
10.1 Purchase Agreement dated November 27, 1985, between 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).
32
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), Seventh Amendment
thereto dated June 21, 2002 (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended July 31, 2002).
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).
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).
33
10.9 C&D Technologies, Inc. Savings Plan as restated and amended
(incorporated by reference to Exhibit 10.9 to C&D's Annual
Report on Form 10-K for fiscal year ended January 31, 2002),
First Amendment thereto dated June 12, 2002 (incorporated by
reference to Exhibit 10.10 to C&D's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002), Second Amendment
thereto dated November 20, 2002 (incorporated by reference to
Exhibit 10.11 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 2002).
10.10 C&D Technologies, Inc. Pension Plan for Salaried Employees as
restated and amended (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for fiscal year
ended January 31, 2002).
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 10.3 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2002).
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 R.
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 February 27, 2001 between John A.
Velker and C&D (filed herewith).
10.19 Employment Agreement dated March 1, 2001 between David A. 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).
34
10.21 Employment Agreement dated July 24, 2002 between Robert M.
Scott and C&D (incorporated by reference to Exhibit 10.3 to
C&D's Quarterly Report on Form 10-Q for quarter ended July 31,
2002).
10.22 Agreement and Release dated March 1, 2002 between Mark Z.
Sappir and C&D (incorporated by reference to Exhibit 10.21 to
C&D's Annual Report on Form 10-K for fiscal year ended January
31, 2002).
10.23 Employee Separation Agreement dated June 21, 2002 between Mark
D. Amatrudo and C&D (incorporated by reference to Exhibit 10.2
to C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 2002).
10.24 Employee Separation Agreement dated September 24, 2002 between
Kathryn R. Bullock 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, 2002).
10.25 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and William Harral, III
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.26 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Wade H. Roberts, Jr.
(incorporated by reference to Exhibit 10.3 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.27 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Peter R. Dachowski
(incorporated by reference to Exhibit 10.4 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.28 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Kevin P. Dowd (incorporated
by reference to Exhibit 10.5 to C&D's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002).
10.29 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Robert I. Harries
(incorporated by reference to Exhibit 10.6 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.30 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Pamela S. Lewis
(incorporated by reference to Exhibit 10.7 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.31 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and George MacKenzie
(incorporated by reference to Exhibit 10.8 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.32 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and John A. H. Shober
(incorporated by reference to Exhibit 10.9 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.33 Indemnification Agreement dated as of February 24, 2003 by and
between C&D Technologies, Inc. and Stanley W. Silverman (filed
herewith).
35
10.34 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).
10.35 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).
99.1 Additional Exhibit - Statement of Chief Executive Officer
pursuant to Section 1350 of the United States Code (filed
herewith).
99.2 Additional Exhibit - Statement of Chief Financial Officer
pursuant to Section 1350 of the United States Code (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.
36
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 17, 2003 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 17, 2003
- ----------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 17, 2003
- ----------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 17, 2003
- -----------------------------
William Harral, III
/s/ Peter R. Dachowski Director April 17, 2003
- -----------------------------
Peter R. Dachowski
/s/ Kevin P. Dowd Director April 17, 2003
- -----------------------------
Kevin P. Dowd
/s/ Robert I. Harries Director April 17, 2003
- -----------------------------
Robert I. Harries
/s/ Pamela S. Lewis Director April 17, 2003
- -----------------------------
Pamela S. Lewis
/s/ George MacKenzie Director April 17, 2003
- -----------------------------
George MacKenzie
/s/ John A. H. Shober Director April 17, 2003
- -----------------------------
John A. H. Shober
/s/ Stanley W. Silverman Director April 17, 2003
- -----------------------------
Stanley W. Silverman
37
CERTIFICATION
I, Wade H. Roberts, Jr., President and Chief Executive Officer of C&D
Technologies, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended
January 31, 2003 of C&D Technologies, Inc.;
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual 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 Annual 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 Annual 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 date of this Annual Report (the "Evaluation Date");
and
(c) presented in this Annual 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 weaknesses 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
38
6. The registrant's other certifying officer and I have indicated in
this Annual Report whether or not there were significant changes in
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 weaknesses.
Date: April 17, 2003
/s/ Wade H. Roberts, Jr.
----------------------------------------
Wade H. Roberts, Jr., President
and Chief Executive Officer
(Principal Executive Officer)
39
CERTIFICATION
I, Stephen E. Markert, Jr., Vice President - Finance and Chief Financial
Officer of C&D Technologies, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended
January 31, 2003 of C&D Technologies, Inc.;
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual 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 Annual 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 Annual 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 date of this Annual Report (the "Evaluation Date");
and
(c) presented in this Annual 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 weaknesses 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
40
6. The registrant's other certifying officer and I have indicated in
this Annual Report whether or not there were significant changes in
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 weaknesses.
Date: April 17, 2003
/s/ Stephen E. Markert, Jr.
----------------------------------------
Stephen E. Markert, Jr., Vice
President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
41
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, 2003 and 2002 .................................. F-3
Consolidated Statements of Income
for the years ended January 31, 2003, 2002
and 2001 ................................................... F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2003, 2002 and 2001 ...................... F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 2003, 2002
and 2001 ................................................... F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 2003,
2002 and 2001 .............................................. F-8
Notes to Consolidated Financial Statements ................... F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 2003, 2002 and 2001
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 15(a)(1) on page 32 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2003 and January 31, 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2003 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 accompanying index appearing under Item
15(a)(2) on page 32 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 audit 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.
As discussed in Note 1, the Company adopted Statements of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" on February 1, 2002.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 14, 2003
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
2003 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 12,966 $ 8,781
Accounts receivable, less allowance for doubtful
accounts of $1,906 in 2003 and $2,278 in 2002 ..... 44,890 44,968
Inventories ............................................. 47,905 61,674
Deferred income taxes ................................... 8,234 10,156
Other current assets .................................... 2,304 6,754
--------- ---------
Total current assets .............................. 116,299 132,333
Property, plant and equipment, net ........................... 112,158 131,207
Intangible and other assets, net ............................. 38,724 24,659
Goodwill ..................................................... 114,975 107,359
--------- ---------
Total assets ...................................... $ 382,156 $ 395,558
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ......................................... $ 14,062 $ 27,255
Accounts payable ........................................ 21,841 19,640
Accrued liabilities ..................................... 18,961 22,210
Other current liabilities ............................... 7,659 8,214
--------- ---------
Total current liabilities ......................... 62,523 77,319
Deferred income taxes ........................................ 10,579 2,602
Long-term debt ............................................... 25,857 46,892
Other liabilities ............................................ 16,613 18,574
--------- ---------
Total liabilities ................................. 115,572 145,387
Commitments and contingencies
Minority interest ............................................ 8,310 8,313
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,509,803 and 28,431,728
shares issued in 2003 and 2002, respectively ...... 285 284
Additional paid-in capital .............................. 69,152 65,893
Treasury stock, at cost, 2,810,280 and
2,414,161 shares in 2003 and 2002, respectively ... (38,409) (29,743)
Accumulated other comprehensive income (loss) ........... 881 (3,057)
Retained earnings ....................................... 226,365 208,481
--------- ---------
Total stockholders' equity ........................ 258,274 241,858
--------- ---------
Total liabilities and stockholders' equity ........ $ 382,156 $ 395,558
========= =========
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)
2003 2002 2001
-------- -------- --------
Net sales .............................. $335,745 $471,641 $615,678
Cost of sales .......................... 257,046 343,370 439,135
-------- -------- --------
Gross profit ................ 78,699 128,271 176,543
Selling, general and administrative
expenses ............................. 35,136 50,406 66,243
Research and development expenses ...... 9,509 10,291 10,281
-------- -------- --------
Operating income ............ 34,054 67,574 100,019
Interest expense, net .................. 3,800 6,700 6,315
Other expense (income), net ............ 1,457 1,239 (725)
-------- -------- --------
Income before income taxes
and minority interest ..... 28,797 59,635 94,429
Provision for income taxes ............. 9,414 22,244 35,883
-------- -------- --------
Net income before minority
interest .................. 19,383 37,391 58,546
Minority interest ...................... 91 1,317 2,651
-------- -------- --------
Net income .................. $ 19,292 $ 36,074 $ 55,895
======== ======== ========
Net income per common share - basic .... $ 0.75 $ 1.38 $ 2.13
Net income per common share - diluted .. $ 0.74 $ 1.35 $ 2.05
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, 2003, 2002 and 2001
(Dollars in thousands, except per share data)
Accumulated
Common Stock Additional Treasury Stock Other
------------------------ Paid-In ------------------------- Comprehensive Retained
Shares Amount Capital Shares Amount Income (Loss) Earnings
---------- ---------- ---------- ---------- ---------- ------------- ----------
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
adjustment ................... (614)
Purchase of common stock ....... (174,400) (6,856)
Deferred Compensation Plan ..... (1,434) (75)
Issuance of common stock ....... 3,418 179
Stock options exercised ........ 406,019 4 4,480
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance as of
January 31, 2001 ............. 28,276,917 283 62,908 (1,986,038) (17,750) (1,231) 173,844
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
adjustment ................... (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
Net income ..................... 19,292
Dividends to stockholders,
$.055 per share .............. (1,408)
Tax effect relating to stock
options exercised ............ 179
Foreign currency translation
adjustment ................... 3,926
Unrealized gain on
derivative instruments ....... 12
Purchase of common stock ....... (585,800) (9,792)
Deferred compensation plan ..... (50) (3,319) (16)
Issuance of common stock ....... 7,741 2,247 193,000 1,142
Stock options exercised ........ 70,334 1 883
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance as of
January 31, 2003 ............. 28,509,803 $ 285 $ 69,152 (2,810,280) $ (38,409) $ 881 $ 226,365
========== ========== ========== ========== ========== ========== ==========
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)
2003 2002* 2001*
-------- -------- --------
Cash flows provided (used) by operating activities:
Net income ............................................... $ 19,292 $ 36,074 $ 55,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest ........................................ 91 1,317 2,651
Depreciation and amortization ............................ 23,740 30,049 26,054
Impairment of goodwill ................................... 489 -- --
Deferred income taxes .................................... 9,900 2,301 1,106
(Gain)/loss on disposal of assets ........................ (955) 346 783
Changes in assets and liabilities, net of effects from
businesses acquired:
Accounts receivable ........................... 780 43,065 (8,935)
Inventories ................................... 14,713 15,375 (13,888)
Other current assets .......................... 185 305 (213)
Accounts payable .............................. 3,760 (22,665) 936
Accrued liabilities ........................... (2,915) (12,097) 6,960
Income taxes payable .......................... 4,414 (7,392) 4,177
Other current liabilities ..................... (560) (579) 4,299
Other liabilities ............................. (1,673) (4,870) (528)
Other long-term assets .................................... (11,649) (239) (127)
Other, net .................................... (4,462) 780 (30)
-------- -------- --------
Net cash provided by operating activities ................. 55,150 81,770 79,140
-------- -------- --------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net ........................... -- -- (51,095)
Acquisition of property, plant and equipment ............. (7,163) (26,826) (41,075)
Proceeds from disposal of property,
Plant and equipment .................................... 3,652 39 165
-------- -------- --------
Net cash used by investing activities ..................... (3,511) (26,787) (92,005)
-------- -------- --------
Cash flows provided (used) by financing activities:
Repayment of debt ........................................ (35,655) (52,131) (27,928)
Proceeds from new borrowings ............................. -- 8,662 45,700
Financing cost of long term debt ......................... (118) -- (258)
Proceeds from issuance of common stock, net .............. 884 1,927 4,484
Purchase of treasury stock ............................... (10,899) (10,841) (6,931)
Payment of common stock dividends ........................ (1,766) (1,441) (1,443)
Payment of minority interest dividends ................... (94) -- --
-------- -------- --------
Net cash (used) provided by financing activities .......... (47,648) (53,824) 13,624
-------- -------- --------
Effect of exchange rate changes on cash ................... 194 (87) (171)
-------- -------- --------
Increase in cash and cash equivalents ..................... 4,185 1,072 588
-------- -------- --------
Cash and cash equivalents at beginning of year ............ 8,781 7,709 7,121
-------- -------- --------
Cash and cash equivalents at end of year .................. $ 12,966 $ 8,781 $ 7,709
======== ======== ========
* Reclassified for comparative purposes.
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)
2003 2002 2001
------- -------- --------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid (received) during the year for:
Interest paid, net ................................. $ 4,478 $ 7,277 $ 6,267
Income taxes (refunded) paid, net .................. $(3,737) $ 26,650 $ 30,594
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired ............ $ -- $ -- $ 9,852
Goodwill ........................................... -- -- 44,835
Identifiable intangible assets ..................... -- -- 2,356
Cash paid, net of cash required .................... -- -- (51,095)
------- -------- --------
Liabilities assumed ................................ $ -- $ -- $ 5,948
======= ======== ========
Dividends declared but not paid ....................... $ -- $ 358 $ 362
Annual retainer to Board of Directors paid
by the issuance of common stock ..................... $ 171 $ 185 $ 179
(Decrease) increase in property, plant and equipment
acquisitions in accounts payable .................... $ (789) $ (4,539) $ 5,887
Note received as part of fixed asset sale ............. $ 2,000 $ -- $ --
Fair market value of treasury stock issued
to pension plans .................................... $ 3,218 $ -- $ --
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)
2003 2002 2001
------- ------- -------
Net income ............................................... $19,292 $36,074 $55,895
Other comprehensive income (loss), net of tax:
Cumulative effect of accounting change ................ -- (103) --
Net unrealized gain (loss) on derivative instruments .. 12 (1,047) --
Foreign currency translation adjustments .............. 3,926 (676) (614)
------- ------- -------
Total comprehensive income ............................... $23,230 $34,248 $55,281
======= ======= =======
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% owned 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 as accumulated other
comprehensive income (loss) 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 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 instruments must be 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
$4,501 and $3,959 at January 31, 2003 and 2002, 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 were recorded
at the then fair market value. Property, plant and equipment acquired subsequent
to the Acquisition are recorded at cost or fair market value if part of an
acquisition. Property, plant and equipment, including capital leases, are
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)
depreciated on the straight-line method for financial reporting purposes over
estimated useful lives which generally range from 3 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 property, 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 3 to 5 years, using the straight-line
method.
Identified Intangible Assets, Net:
Acquisition-related intangibles are amortized on a straight-line basis
over periods ranging from 5 to 20 years. Intellectual property assets are
amortized over the periods of benefit, ranging from 5 to 20 years, on a
straight-line basis. All identified intangible assets are classified within
intangible and other assets, net on the balance sheet. In the quarter following
the period in which identified intangible assets become fully amortized, the
fully amortized balances are removed from the gross asset and accumulated
amortization amounts.
Long-Lived Assets:
The Company follows SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived Assets", which requires periodic evaluation of the recoverability
of the carrying amount of long-lived assets (including property, plant and
equipment, and intangible assets with determinable lives) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Events or changes in circumstances are evaluated based on
a number of factors including operating results, business plans and forecasts,
general and industry trends and, economic projections and anticipated cash
flows. An impairment is assessed when the undiscounted expected future cash
flows derived from an asset are less than its carrying amount. Impairment losses
are measured as the amount by which the carrying value of an asset exceeds its
fair value and are recognized in earnings. The Company also continually
evaluates the estimated useful lives of all long-lived assets and periodically
revises such estimates based on current events.
Goodwill:
On February 1, 2002, the Company completed the adoption of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." As required by SFAS No. 142, the Company discontinued amortizing the
remaining balances of goodwill as of the beginning of fiscal 2002. Through
January 31, 2002, goodwill had been amortized over an estimated 20 to 40 years.
All remaining and future acquired goodwill will be subject to an impairment test
in the fourth quarter of each year, or earlier if indicators of potential
impairment exist, using a fair-value-based approach. The Company completed the
initial goodwill impairment review as of the beginning of fiscal 2003 and
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)
concluded that no impairment of goodwill existed at that time. The Company
completed the annual impairment review during the fourth quarter of 2003 and
recorded an impairment of $496 in selling, general and administrative expenses,
which represented all of the goodwill in the Motive Power Division. No
impairment to goodwill existed in any of the other divisions as of January 31,
2003.
Upon adoption of the new business combinations rules, workforce-in-place
no longer meets the definition of an identifiable intangible asset. As a result,
as of the beginning of fiscal 2003, the net book value of $879 has been
reclassified to goodwill. (See Note 3.)
A reconciliation of previously reported net income and earnings per share
to the amounts adjusted for the exclusion of goodwill and workforce-in-place
amortization, net of the related income tax effect, is as follows:
Year ended January 31,
--------------------------------------
2003 2002 2001
---------- ---------- ----------
Reported net income .................. $ 19,292 $ 36,074 $ 55,895
Goodwill amortization, net of tax .... -- 3,995 2,599
---------- ---------- ----------
Adjusted net income .................. $ 19,292 $ 40,069 $ 58,494
========== ========== ==========
Reported net income per
common share - basic ............... $ 0.75 $ 1.38 $ 2.13
Goodwill amortization, net of tax .... -- 0.15 0.10
Adjusted net income per ---------- ---------- ----------
common share - basic ............... $ 0.75 $ 1.53 $ 2.23
========== ========== ==========
Reported net income per
common share - diluted ............. $ 0.74 $ 1.35 $ 2.05
Goodwill amortization, net of tax .... -- 0.15 0.10
Adjusted net income per ---------- ---------- ----------
common share - diluted ............. $ 0.74 $ 1.50 $ 2.15
========== ========== ==========
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)
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, 2003, 2002 and
2001 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,
--------------------------------------
2003 2002 2001
---------- ---------- ----------
Weighted average
shares of common stock
outstanding ......................... 25,818,024 26,153,715 26,223,684
Assumed conversion of
stock options, net of shares
assumed reacquired .................. 207,155 534,296 1,040,844
---------- ---------- ----------
Weighted average common
shares - diluted .................... 26,025,179 26,688,011 27,264,528
========== ========== ==========
During the years ended January 31, 2003, 2002 and 2001, the Company had
1,176,034, 112,308 and 98,450, respectively, outstanding stock options that were
excluded from the calculation of diluted earnings per share because their
inclusion would have been antidilutive. These stock options could be dilutive in
the future.
F-13
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)
Stock-Based Compensation Plans:
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Accounting and
Disclosure." SFAS No. 148, which is an amendment of SFAS No. 123, provides
alternative recognition transition methods for a voluntary change from the
intrinsic method, permitted under APB Opinion No. 25, to the fair value based
method of accounting for stock based employee compensation. SFAS No. 148 also
requires more prominent disclosure about the effects on reported net income of
an entity's accounting policy decisions with respect to stock based employee
compensation and requires disclosure about those effects in interim financial
information. Prior to SFAS No. 148, disclosures about the effects of stock based
employee compensation were only required in annual financial information.
Disclosure prominence is to be achieved by placing certain disclosures related
to stock based employee compensation in the summary of significant accounting
policies. The transition and disclosure in accounting policies provisions are
effective for fiscal years ending after December 15, 2002. The Company has
adopted the disclosure provisions of SFAS No. 148 effective as of January 31,
2003. The adoption of the new standard did not have any impact on the Company's
financial position or results of operations.
The Company accounts for its fixed stock option plans under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost is recognized for its fixed stock
option plans. SFAS No. 123, "Accounting for Stock-Based Compensation" allows,
but does not require, companies to record compensation cost for fixed stock
option plans using a fair value based method. As permitted by SFAS No. 123, the
Company elected to continue to account for compensation cost for its fixed stock
option plans using the intrinsic value based method under APB No. 25.
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:
2003 2002 2001
------- ------- -------
Net income - as reported ..................................... $19,292 $36,074 $55,895
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ................................. 4,259 4,489 3,221
------- ------- -------
Net income - pro forma ....................................... $15,033 $31,585 $52,674
======= ======= =======
Net income per common share - basic - as reported ............ 0.75 1.38 2.13
Net income per common share - basic - pro forma .............. 0.58 1.21 2.01
Net income per common share - diluted - as reported .......... 0.74 1.35 2.05
Net income per common share - diluted - pro forma ............ 0.58 1.18 1.93
Weighted average fair value of options
granted during the year .................................... 9.30 15.06 12.51
F-14
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)
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 2003, 2002 and 2001:
2003 2002 2001
---- ---- ----
Risk-free interest rate .......... 4.42% 4.84% 6.53%
Expected dividend yield .......... 0.27% 0.17% 0.22%
Expected volatility factor ....... 0.477 0.448 0.414
Weighted average expected life ... 5.00 years 5.00 years 4.95 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.
Reclassifications:
Certain amounts reported in previous years have been reclassified to
conform to the fiscal 2003 presentation.
New Accounting Pronouncements:
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. 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 June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing
and amount of costs recognized as a result of restructuring and similar
activities. The Company will apply SFAS No. 146 prospectively to activities
initiated after December 31, 2002. SFAS No. 146 had no significant impact at the
point of adoption on the Company's consolidated statements of income or
financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the guarantee.
FIN 45 also requires guarantors to disclose certain information for guarantees,
including product warranties. (See Note 16.)
F-15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
2. STOCK SPLIT
On June 16, 2000 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend paid to stockholders of record on June 2,
2000. This transaction resulted in a transfer on the Company's balance sheet of
$140 to common stock from additional paid-in capital.
The accompanying financial statements and related footnotes, including all
share and per share amounts, have been adjusted to reflect this transaction.
3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
Goodwill:
During the year ended January 31, 2003, no goodwill was acquired. 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 ........................ 7 192 7,031 3 7,233
Impairment of goodwill ............... -- -- -- (496) (496)
------ ------- ------- ----- --------
Goodwill, January 31, 2003 ........... $1,383 $58,131 $55,461 $ -- $114,975
====== ======= ======= ===== ========
Identified Intangible Assets:
During the year ended January 31, 2003, no acquisition-related intangibles
were acquired, impaired or written-off. Identified intangible assets as of
January 31, 2003 consisted of the following:
Gross Accumulated
Assets Amortization Net
------- ------------ -------
Trade names ...................... $17,840 $(3,494) $14,346
Intellectual property ............ 7,805 (5,516) 2,289
Other ............................ 2,405 (989) 1,416
------- ------- -------
Total intangible assets .......... $28,050 $(9,999) $18,051
======= ======= =======
F-16
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (continued)
Identified intangible assets as of January 31, 2002 consisted of the following:
Gross Accumulated
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 January 31, 2003, the annual amortization
expense is expected to be as follows (assuming current exchange rates):
2004 2005 2006 2007 2008
------ ------ ------ ------ ------
Trade names .................. $ 892 $ 892 $ 892 $ 892 $ 892
Intellectual property ........ 787 424 370 195 134
Other ........................ 128 79 76 35 29
------ ------ ------ ------ ------
Total intangible assets ...... $1,807 $1,395 $1,338 $1,122 $1,055
====== ====== ====== ====== ======
Amortization of identified intangibles was $1,795, $1,922 and $1,867 for
the years ended January 31, 2003, 2002 and 2001.
F-17
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,
----------------------
2003 2002
------- -------
Raw materials .................................... $17,833 $26,202
Work-in-process .................................. 10,379 12,830
Finished goods ................................... 19,693 22,642
------- -------
$47,905 $61,674
======= =======
If the first-in, first-out method of inventory accounting had been used
(which approximates current cost), inventories would have been $49,957 and
$61,576 as of January 31, 2003 and 2002, respectively. During the years ended
January 31, 2003 and 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 in 2003 and
2002 was to decrease the cost of sales by approximately $564 and $35, and to
increase net income by $355 and $22 or $0.01 and less than $0.01 per share,
respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
---------------------
2003 2002
-------- --------
Land ................................................. $ 1,970 $ 2,003
Buildings and improvements ........................... 41,988 44,734
Furniture, fixtures and equipment .................... 192,440 193,763
Construction in progress ............................. 7,404 15,182
-------- --------
243,802 255,682
Less:
Accumulated depreciation ......................... 131,644 124,475
-------- --------
$112,158 $131,207
======== ========
For the years ended January 31, 2003, 2002 and 2001, depreciation charged
to operations amounted to $21,050, $20,962 and $19,286; maintenance and repair
costs expensed totaled $10,075, $13,256 and $14,456; and capitalized interest
amounted to $135, $404 and $983, respectively.
F-18
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,
------------------
2003 2002
------- -------
Term loan, $100,000 facility; bearing interest at Prime or
LIBOR plus .75% on January 31, 2003 and January 31, 2002
(effective rate on a weighted average basis, 2.10% as of January
31, 2003 and 2.62% as of January 31, 2002) net of unamortized
debt acquisition costs of $81 and $858, respectively ......................... $18,669 $44,142
Revolving credit facility; maximum commitment of $120,000
at January 31, 2003 and 2002 bearing interest of Prime or LIBOR
plus .75% (effective rate on a weighted average basis, 2.12% as of
January 31, 2003 and 2.74% as of January 31, 2002) ........................... 21,250 21,500
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
Other ................................................................ -- 4
------- -------
39,919 74,147
Less current portion ................................................. 14,062 27,255
------- -------
$25,857 $46,892
======= =======
On March 1, 1999, 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
were 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 agreement requires the Company to pay a fee of .20% to .30% per annum on any
unused portion of the revolver. During the years ended January 31, 2003 and
January 31, 2002, the average fee paid was .20%.
The revolving credit facility includes a letter of credit facility not to
exceed $30,000, of which $26,479 and $27,379 were available as of January 31,
2003 and 2002, 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, additional
payments not required under the term loan were paid in advance. These amounts
were applied to future term loan payments on a pro-rata basis.
F-19
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
6. DEBT (continued)
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 dividends so long as there are no defaults under these
credit agreements. The purpose of the facility was to fund an acquisition,
provide for normal working capital and fund possible strategic acquisitions. The
Company was in compliance with its loan agreement covenants at January 31, 2003
and 2002, respectively.
The maximum aggregate amounts of loans outstanding under the term loan and
revolving credit facility, were $72,650, $141,100 and $128,550 during the years
ended January 31, 2003, 2002 and 2001, respectively. For those years the
outstanding loans under these credit agreements computed on a monthly basis
averaged $53,425, $95,980 and $84,813 at a weighted average interest rate of
2.60%, 4.97% and 7.42%, respectively.
The uncommitted multi-currency overdraft facility is a senior unsecured
demand loan facility, which was originally in the amount of 22.0 million British
Pounds. This senior facility was reduced to 750 thousand British Pounds at the
request of the Company in September 2002. The maximum amount outstanding under
this facility was 6.1 million and 19.5 million British Pounds during the years
ended 2003 and 2002, respectively. For those years, the outstanding loans under
this agreement computed on a monthly average basis averaged 3.4 million British
Pounds and 13.6 million British Pounds at a weighted average interest rate of
5.05% and 5.81%, respectively.
As of January 31, 2003, the required minimum annual principal reduction of
long-term debt for each of the next five fiscal years is as follows:
2004 ................................... $14,062
2005 ................................... 25,857
2006 ................................... --
2007 ................................... --
2008 ................................... --
Thereafter ............................. --
-------
$39,919
=======
F-20
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
7. STOCKHOLDERS' EQUITY
Stock Option Plans:
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.
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, 2003
Number of shares ........ 2,155,288 597,725 70,334 181,305 2,501,374 1,461,838
Weighted average option
price per share ......... $ 23.84 $ 20.20 $ 12.56 $ 27.49 $ 23.02 $ 21.24
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
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)
There were 2,340,718 and 2,764,879 shares available for future grants of
options under the Company's stock option plans as of January 31, 2003 and 2002,
respectively. The following table summarizes information about the stock options
outstanding at January 31, 2003:
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 3.7 years $ 5.92 97,168 $ 5.92
$8.63 - $12.38 262,368 5.3 years $11.62 262,368 $11.62
$13.03 - $19.56 441,104 6.6 years $17.79 440,004 $17.79
$22.08 - $26.76 1,134,626 8.2 years $21.70 408,445 $22.91
$35.00 - $44.38 479,508 8.1 years $35.09 184,572 $38.20
$48.44 - $55.94 86,600 7.5 years $53.78 69,281 $53.96
--------- ---------
$3.00 - $55.94 2,501,374 7.4 years $23.02 1,461,838 $21.24
========= =========
Rights Plan:
In February 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, 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,
-------------------------------
2003 2002 2001
------ ------- -------
Current:
Federal ............................ $ 330 $15,974 $31,068
State .............................. (982) 1,492 3,578
Foreign ............................ 1,901 1,137 --
Foreign sales corporation .......... -- 137 301
------ ------- -------
$1,249 $18,740 $34,947
====== ======= =======
Deferred:
Federal ............................ 7,983 3,160 727
State .............................. 182 344 209
------ ------- -------
8,165 3,504 936
------ ------- -------
$9,414 $22,244 $35,883
====== ======= =======
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)
The components of the deferred tax asset and liability as of January 31,
2003 and 2002 were as follows:
2003 2002*
-------- --------
Deferred tax asset:
Vacation and compensation accruals ......... $ 4,080 $ 4,858
Bad debt, inventory and return allowances .. 4,039 3,047
Warranty reserves .......................... 3,995 4,750
Postretirement benefits .................... 1,151 1,034
State net operating losses ................. 778 --
Derivatives ................................ 759 684
Foreign tax credits ........................ 716 --
Environmental reserves ..................... 714 879
Pension obligation ......................... -- 51
Other accruals ............................. 1,410 1,928
-------- --------
Total deferred tax asset ................... 17,642 17,231
-------- --------
Deferred tax liability:
Depreciation and amortization .............. (12,735) (8,658)
Pension obligation ......................... (5,754) --
Cumulative translation adjustment .......... (1,275) (29)
Unrepatriated earnings ..................... (223) (990)
-------- --------
Total deferred tax liability ............... (19,987) (9,677)
-------- --------
Net deferred tax (liability) asset ......... $ (2,345) $ 7,554
======== ========
Realization of the Company's deferred tax assets is dependent on future
taxable income. The Company believes that it is more likely than not such assets
will be realized.
*Reclassified for comparative purposes.
F-24
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, 2003, 2002 and
2001, respectively, are as follows:
January 31,
----------------------------------
2003 2002 2001
-------- -------- --------
U.S. statutory income tax ............... $ 10,079 $ 20,872 $ 33,050
State tax, net of federal
income tax benefit ..................... 258 1,314 2,534
Resolution of state tax audits .......... (1,100) -- --
Tax effect of foreign operations ........ 256 26 --
Research and development
tax credit benefit ..................... -- (61) (100)
Foreign sales corporation ............... -- (257) (565)
Other ................................... (79) 350 964
-------- -------- --------
$ 9,414 $ 22,244 $ 35,883
======== ======== ========
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, 2003, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
2004.......................... $ 2,979
2005.......................... 2,443
2006.......................... 2,025
2007.......................... 2,004
2008.......................... 1,893
Thereafter.................... 7,860
-------
$19,204
=======
Total rent expense for all operating leases for the years ended January
31, 2003, 2002 and 2001 was $3,903, $4,496 and $3,733, respectively.
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)
(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., 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 from the Company's insurance carrier
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 and disposal of hazardous
materials; (iii) monitoring and permitting of air emissions and water discharge;
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 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
in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002, one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. In August 2002, Exide notified the
PRPs that it will no longer be taking an active role in any further action at
the site
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)
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 in
negotiations with the other potentially responsible parties at this site
regarding its share of the allocated liability.
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 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, 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 engaged in negotiations with both the EPA and Department of
Justice through March 2003 regarding a potential resolution of this matter. The
government filed suit against the Company in March 2003 for alleged violations
of the Clean Water Act. The complaint requests injunctive relief and civil
penalties of up to the amounts provided by statute. The Company anticipates that
the matter will result in a penalty assessment and compliance obligations. The
Company will continue to seek a negotiated or mediated resolution, failing which
it intends to vigorously defend the action.
F-27
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 accrues reserves for liabilities in the Company's consolidated
financial statements and periodically reevaluates the reserved amounts for these
liabilities in view of the most current information available in accordance with
SFAS No. 5, "Accounting for Contingencies." 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.
(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, 2003, 2002 and 2001.
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. Concentrations of credit risk with respect to
trade receivables are limited by a large customer base and its geographic
dispersion. The Company performs ongoing credit evaluations of its customers'
financial condition and requires collateral, such as letters of credit, in
certain circumstances.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents - the carrying amount approximates fair value
because of the short maturity of these instruments.
Debt (excluding capital lease obligations) - the carrying value of the
Company's long-term debt, including the current portion, approximates fair
value based on the incremental borrowing rates currently available to the
Company for loans with similar terms and maturity.
Hedging instruments - the estimated fair value of the interest rate swaps
and foreign exchange contracts are based on market prices or current rates
offered for interest rate swaps and foreign exchange contracts with
similar terms and maturities. The ultimate amounts paid or received under
these interest rate swaps and foreign currency contracts, however, depend
on future interest rates and exchange rates.
F-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 estimated fair values of the Company's financial instruments at
January 31, 2003 and 2002 were as follows:
2003 2002
--------------------- --------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents .. $12,966 $12,966 $ 8,781 $ 8,781
Debt (excluding capital
lease obligations) ....... $39,919 $39,919 $74,143 $74,143
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 $(258) and $(34) as of
January 31, 2003 and 2002. Changes in the fair value of these currency forward
contracts are recorded in other expense (income), net.
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. 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 other expense (income), net each period.
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)
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 utilizes 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.
The following table includes all interest rate swaps as of January 31,
2003 and 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 01/31/03 01/31/02
- -------- ----------- -------- -------- -------- -------- --------
$ 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 (66) (783)
20,000 04/11/01 04/11/06 5.56% LIBOR (1,832) (735)
------- -------
$(1,898) $(1,835)
======= =======
Based on the fair value of the interest rate swaps as of January 31, 2003
and the maturity dates of these swaps, the Company expects to reclassify a net
of tax loss of approximately $549 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 $2,629 and $3,149 as of January 31, 2003 and
January 31, 2002, respectively.
The Company had foreign exchange contracts for delivery of Euros in the
amount of $646 as of January 31, 2003.
The Company had a foreign exchange contract on hand for the delivery of
British Pounds in the amount of $23,884 and $14,224 as of January 31, 2003 and
January 31, 2002, respectively.
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
(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 (i) who had not attained the age of 65, and (ii) who either (a)
had less than 5 years of Eligibility Service, or whose years of Eligibility
Service and age totaled less than 60 or (b) had less than 10 years of
Eligibility Service, or whose years of Eligibility Service and age totaled less
than 57 as of December 31, 2001. Participants whose benefits under the Pension
Plan became frozen as of December 31, 2001 became eligible for an enhanced
Company contribution under the Savings 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.
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, 2003 and 2002 and a statement of the funded status as of January 31, 2003
and 2002. The measurement dates are December 31, 2002 and 2001.
Pension Postretirement
Benefits Benefits
--------------------- -------------------
2003 2002 2003 2002
-------- -------- ------- -------
Change in benefit obligation:
Benefit obligation at beginning of year ............................... $ 49,532 $ 45,749 $ 3,486 $ 2,463
Service cost ........................................................ 1,573 2,404 151 149
Interest cost ....................................................... 3,750 3,565 269 255
Plan amendments ..................................................... 50 -- -- 1,000
Curtailment gain .................................................... -- (2,631) -- --
Settlement loss ..................................................... 115 -- -- --
Actuarial loss/(gain) ............................................... 5,328 2,792 406 (30)
Benefits paid ....................................................... (2,888) (2,347) (245) (351)
-------- -------- ------- -------
Benefit obligation at end of year ...................................... $ 57,460 $ 49,532 $ 4,067 $ 3,486
======== ======== ======= =======
Change in plan assets:
Fair value of plan assets at beginning of year .......................... $ 41,300 $ 39,297 -- --
Actual return on plan assets ........................................ (5,889) (3,383) -- --
Employer contributions .............................................. 17,171 7,733 $ 245 $ 351
Benefits paid ....................................................... (2,888) (2,347) (245) (351)
-------- -------- ------- -------
Fair value of plan assets at end of year ............................... $ 49,694 $ 41,300 $ -- $ --
======== ======== ======= =======
Reconciliation of funded status:
Funded status .......................................................... $ (7,766) $ (8,232) $(4,067) $(3,486)
Unrecognized actuarial loss/(gain) ..................................... 22,237 7,972 371 (34)
Unrecognized prior service cost ........................................ 162 131 770 885
-------- -------- ------- -------
Net amount recognized
at measurement date and end of fiscal year .......................... $ 14,633 $ (129) $(2,926) $(2,635)
======== ======== ======= =======
Amounts recognized in the statement of financial position consist of:
Prepaid pension cost .................................................... $ 18,051 $ 3,311 -- --
Accrued benefit liability ............................................... (3,418) (3,440) $(2,926) $(2,635)
-------- -------- ------- -------
Net amount recognized at end of fiscal year* ............................ $ 14,633 $ (129) $(2,926) $(2,635)
======== ======== ======= =======
* Prepaid pension cost is included in intangible and other assets, net and the
accrued benefit liability is included in other liabilities.
F-32
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
13. EMPLOYEE BENEFIT PLANS (continued)
Postretirement
Pension Benefits Benefits
----------------------------------------- ----------------------------------
2003 2002 2001 2003 2002 2001
------- ------- ------- ----- ----- -----
Components of net periodic
benefit cost:
Service cost .......................... $ 1,573 $ 2,404 $ 2,128 $ 152 $ 149 $ 101
Interest cost ......................... 3,750 3,565 3,204 269 255 172
Expected return on plan assets ........ (3,618) (3,624) (3,270) -- -- --
Amortization of prior service costs ... 20 15 15 115 115 --
Recognized actuarial loss/(gain) ...... 443 79 (4) -- -- (11)
Settlement loss ....................... 241 -- -- -- -- --
------- ------- ------- ----- ----- -----
Net periodic benefit cost ......... $ 2,409 $ 2,439 $ 2,073 $ 536 $ 519 $ 262
======= ======= ======= ===== ===== =====
Weighted-average assumptions
as of January 31:
Discount rate ......................... 7.00% 7.50% 7.75% 7.00% 7.50% 7.75%
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* ........ 4.00-4.95% 4.00-5.03% 4.00-5.03% 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
contributions are fixed so there is no material trend rate assumption. The
following information applies to the second plan:
For measurement purposes, a 10.00% annual rate of increase in the pre-65
per capita cost of covered health care benefits was assumed for 2002. The
rate is assumed to decrease to 4.50% in 2007 and remain at that level
thereafter.
Assumed health care cost trend rates can have a significant effect on the
amounts reported for the postretirement 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 2003 .............. $ -- $ --
Effect on year-end 2003 postretirement
benefit obligation ...................... $ -- $ --
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 $4,660, $3,515 and $2,178, respectively, for
fiscal 2003.
(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 $1,610,
$2,096 and $1,631 for the years ended January 31, 2003, 2002 and 2001,
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 $605, $480 and $518 for the years ended January 31, 2003, 2002
and 2001, respectively. The liability for these plans was $2,525 and $2,079 as
of January 31, 2003 and 2002, respectively, and was included in other
liabilities.
(D) The Company has 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 paid 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, 2003 and 2002 the liability for the Company's
Deferred Compensation Plan was $526 and $552, respectively, and was included in
other liabilities.
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, 2003 and 2002
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 2003:
Net sales .............................. $84,062 $84,292 $87,637 $79,754
Gross profit ........................... 18,646 20,202 20,808 19,043
Operating income ....................... 7,475 8,626 9,392 8,561
Net income ............................. 4,124 4,704 5,128 5,336
Net income per common share - basic .... 0.16 0.18 0.20 0.21
Net income per common share - diluted .. 0.16 0.18 0.20 0.21
The results for the fourth quarter of fiscal 2003 reflect pre-tax charges
of $1,813 for the re-organization of certain manufacturing locations in the
Power Electronics Division, the write-off of $496 of goodwill in the Motive
Power Division, the recognition of a $1,610 gain on the sale of the Company's
metal fabrication facility and the reduction of the effective tax rate to 19.3%
for the quarter, reflecting resolution of state tax audits.
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.
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 and networking equipment, as well as office and industrial
equipment.
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, 2003, 2002 and 2001 is shown below:
Power Motive
Powercom Dynasty Electronics Power
Division Division Division Division Consolidated
-------- -------- -------- -------- ------------
Year ended January 31, 2003:
Net sales ...................... $144,478 $ 89,883 $ 46,840 $ 54,544 $335,745
Operating income (loss) ........ $ 25,495 $ 13,499 $ (52) $ (4,888) $ 34,054
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
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) on a segment basis.
Summarized financial information related to the geographic areas in which
the Company operated at January 31, 2003, 2002 and 2001 and for each of the
years then ended is shown below:
2003 2002 2001
-------- -------- --------
Net sales
United States .............. $275,268 $375,283 $487,064
Canada ..................... 27,535 34,514 67,202
Other countries ............ 32,942 61,844 61,412
-------- -------- --------
Consolidated totals ........ $335,745 $471,641 $615,678
======== ======== ========
Long-lived assets
United States .............. $194,857 $191,578 $191,994
United Kingdom ............. 51,555 44,794 50,155
Other countries ............ 19,445 26,853 27,123
-------- -------- --------
Consolidated totals ........ $265,857 $263,225 $269,272
======== ======== ========
16. WARRANTY
The Company provides for estimated product warranty expenses when the
related products are sold. Because warranty estimates are forecasts that are
based on the best available information, primarily historical claims experience,
claims costs may differ from amounts provided. An analysis of changes in the
liability for product warranties follows:
Balance at February 1, 2002 .................... $12,349
Current year provisions ........................ 3,770
Expenditures ................................... (5,520)
-------
Balance at January 31, 2003 .................... $10,599
=======
As of January 31, 2003, accrued warranty obligations of $10,599 include
$3,804 in current liabilities and $6,795 in other liabilities. As of January 31,
2002, accrued warranty obligations of $12,349 include $3,526 in other current
liabilities and $8,823 in other liabilities.
F-37
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2003, 2002 and 2001
(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, 2003 ......... $2,278 -- -- $ 372 $1,906
Year ended January 31, 2002 ......... 4,121 $420 -- 2,263 2,278
Year ended January 31, 2001 ......... 3,080 955 $193 107 4,121
- ---------
(a) Additions related to business acquisitions.
(b) Amounts written-off, net of recoveries and reserve reversals.
S-1