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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
State or other jurisdiction of incorporation or organization: DELAWARE
I.R.S. Employer Identification Number: 13-3314599
Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
Registrant's telephone number, including area code: (215) 619-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Class Name of each exchange
-------------- on which registered
COMMON STOCK -----------------------
PAR VALUE, $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes ( x ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on April 16, 1998: $312,583,116
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 16, 1998: 6,168,562 shares of Common Stock, par value $.01 per
share.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's Proxy Statement to be filed PART III
pursuant to Regulation 14A within 120 -----------------------------
days after the end of Registrant's fiscal (Part of Form 10-K into which
year covered by this Form 10-K Document is incorporated.)
- -----------------------------------------
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business.............................................. 1
Item 2 Properties............................................ 11
Item 3 Legal Proceedings..................................... 12
Item 4 Submission of Matters to a Vote of
Security Holders............................... 12
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters................ 12
Item 6 Selected Financial Data............................... 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 16
Item 8 Financial Statements and Supplementary Data........... 21
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 21
PART III
Item 10 Directors and Executive Officers of the Registrant.... 21
Item 11 Executive Compensation................................ 21
Item 12 Security Ownership of Certain Beneficial
Owners and Management.......................... 21
Item 13 Certain Relationships and Related Transactions........ 21
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 22
SIGNATURES............................................................ 26
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE........ F-1
i
C&D TECHNOLOGIES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
C&D TECHNOLOGIES, INC. (together with its operating subsidiaries, the
"Company") is a leading North American producer of integrated reserve power
systems for telecommunications, electronic information and industrial
applications. The Company is also a leading producer of embedded high frequency
switching power supplies for use in telecommunications equipment, advanced
office electronics and sophisticated computer systems and of motive power
systems for electric industrial vehicles. The Company's integrated reserve power
systems are comprised of industrial lead acid batteries, as well as power
rectifiers, power control and distribution equipment and related accessories.
The Company sells these products both as individual components and as integrated
power systems.
In June 1997, the Company changed its name from Charter Power Systems, Inc.
to C&D TECHNOLOGIES, INC.
The Company was 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 Common Stock,
par value $.01 per share ("Common Stock"), of the Company were first issued to
the public in February 1987.
In October 1992, the Company 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. Ratelco also markets a nonregulated range of alarm and monitoring
equipment for use with telecommunications power systems.
In March 1994, the Company purchased substantially all of the assets and
assumed certain liabilities of the PowerSystems Division of ITT, a Tucson,
Arizona based company which designs and manufactures custom power supplies. The
power supplies are used in the telecommunications power market and the office
equipment market in such applications as telecommunication systems, copiers,
computers and work stations.
In January 1995, the Company purchased certain assets and assumed certain
liabilities from 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, the Company sold 50,000 shares of Common Stock in a
public offering.
In February 1996, the Company 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, the Company acquired from Burr-Brown Corporation its entire
interest in Power Convertibles Corporation ("PCC") consisting of 1,044,418
shares of PCC common stock and all outstanding preferred stock. In addition the
Company acquired or repaid the indebtedness of PCC. In April 1996, the Company
acquired 190,000 shares of PCC common stock from the former chief executive
officer of PCC which together with the shares previously acquired represented in
excess of 99.6% of the outstanding PCC common stock. In May 1996, the Company
purchased all remaining shares of PCC common stock and shares of PCC common
stock issuable upon exercise of stock options. Tucson, Arizona based PCC
produces DC-to-DC converters used in communications, computer, medical and
industrial and instrumentation markets and also produces 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 TECHNOLOGIES, INC.
References to a fiscal year mean the Company's fiscal year ended in the
January of the year mentioned.
FORWARD LOOKING STATEMENTS
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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). Factors that appear with the forward-looking statements,
or in the Company's other Securities and Exchange Commission filings, could
affect the Company's actual results and could cause the Company's actual results
to differ materially from those expressed in any forward-looking statements made
by the Company in this Annual Report on Form 10-K.
MARKETS
The Company manufactures and markets products in three general categories:
(i) integrated reserve power systems and components for the standby power
market; (ii) custom, standard and modified standard embedded high frequency
AC-to-DC and DC-to-DC switching power supplies; and (iii) motive power systems.
For fiscal 1998, 1997 and 1996 sales of standby power products accounted
for 52.2%, 51.6% and 52.5% of the Company's sales (see "Business - Products and
Customers"), respectively. For fiscal 1998, 1997 and 1996, sales of power
supplies accounted for 25.3%, 24.4% and 17.9% of the Company's sales,
respectively. For fiscal 1998, 1997 and 1996 sales of motive power products
accounted for 22.5%, 24.0% and 29.6% of the Company's sales, respectively. The
percentage of the Company's sales related to power supplies has increased as a
result of aforementioned acquisitions.
The majority of the Company's standby power products are used in
telecommunications applications such as central telephone exchanges, microwave
relay stations, private branch exchange ("PBX") systems and cellular mobile
telephone systems. Other applications for the Company's standby power batteries
include uninterruptible power supplies ("UPS"), principally for computers
2
and computer-controlled equipment. In addition, the Company supplies batteries
and power electronics equipment for switchgear and instrumentation control
systems for electric utilities.
The majority of the Company's power supply products are sold to original
equipment manufacturers ("OEMs") of electronic products on either a custom,
standard or modified standard basis. Power supplies are embedded in almost all
electronic products and are used to convert incoming AC or DC voltage to the
required level and quality of DC voltage.
The majority of the Company's motive power products are used to provide the
primary power source for forklift trucks and other material handling vehicles.
The balance are used in a variety of other applications, such as automated
guided vehicle systems and airline ground support equipment. A significant
portion of these sales include products and systems to recharge motive power
batteries.
The Company supplies certain of its standard standby power and motive power
products to the U.S. Government. Company sales directly to the government have
accounted for less than 5% of its sales during each of its last three fiscal
years.
PRODUCTS AND CUSTOMERS
RESERVE POWER SYSTEMS
The Company is a leading producer of fully integrated reserve power
systems, which monitor and regulate electric power flow and provide backup power
in the event of a primary power loss or interruption. The Company also produces
the individual components of these systems, including power rectifiers, system
monitors, power boards, chargers and reserve batteries. The Company's standby
battery products are sold under the "C&D Powercom" name.
The Company manufactures lead acid batteries for use in reserve power
systems. These batteries are sold in a wide range of sizes and configurations in
two broad categories: flooded and valve-regulated. Flooded batteries require
periodic watering and maintenance. Valve-regulated batteries require less
maintenance and are often smaller. Customer demand for valve-regulated batteries
has increased over the past several years.
The Company manufactures and markets a wide range of power electronics to
meet the needs of its customers. The Company's power electronics products
consist principally of power rectifiers and distribution and monitoring
equipment. The Company's 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, the
Company's power control and distribution equipment distributes the rectified
power at the appropriate power level for each of the applications.
TELECOMMUNICATIONS. The Company's major telecommunications customers
include national long distance companies, Regional Bell Operating Companies,
cellular system operators, personal communications services ("PCS") equipment
and service providers, paging systems and PBX telephoning locations using fiber
optic cable, microwave transmission or traditional copper-wired systems.
3
The Company's products include several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty AGM Series Power Plant and the Liberty ACM Series Power Plant,
integrate advanced rectifiers with maintenance free valve-regulated batteries.
The Company recently introduced the Maximizer, a major enhancement to its
flagship valve-regulated product, the Liberty 2000. This product provides for
state-of-the-art life enhancing technology through the use of a catalyst which
is available exclusively from the Company through the end of the second quarter
of fiscal 1999, and on a non-exclusive basis thereafter.
The Company also introduced a Front Access FA-125 battery which has been
specifically designed for one of the most popular cabinets in the
telecommunications market.
One of the Company's historically important telecommunications products has
been the Round Cell reserve power battery, a flooded product which was
originally designed and patented by the Bell Laboratories of AT&T for use in
AT&T's own facilities and customer installations. AT&T spun off its equipment
manufacturing operations into an independent company named "Lucent Technologies,
Inc.," which began operations on October 1, 1996. The Company or its predecessor
has manufactured Round Cells for AT&T or Lucent Technologies, Inc. since 1972
and has been the exclusive manufacturer since 1982. Lucent Technologies, Inc.
accounted for 13.5% of sales for the year ended January 31, 1998. No other
customer accounted for more than 6% of the Company's sales during fiscal 1998.
UNINTERRUPTIBLE POWER SUPPLIES. The Company produces batteries for UPS
systems, which provide instant battery backup in the event of primary power loss
or interruption on sensitive equipment, thereby permitting an orderly shutdown
of the equipment or continued operation until the primary source comes back on
line. Large UPSs are used principally for mainframe computers, minicomputers,
networks, workstations and computer-controlled equipment.
EQUIPMENT FOR ELECTRIC UTILITIES AND INDUSTRIAL CONTROL APPLICATIONS. The
Company produces 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 enable 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 by providing auxiliary power.
EMBEDDED HIGH FREQUENCY SWITCHING POWER SUPPLIES
The Company, through its Power Electronics Division, designs, manufactures
and distributes custom, standard and modified standard electronic power supply
systems built for large OEMs of telecommunications equipment, office products,
computers and workstations. In addition, the Company's Power Electronics
Division manufactures rectifiers for reserve power applications that are sold by
the Company's Powercom Division. The Company's Power Electronics Division also
manufactures battery chargers for cellular phones. The Company's power supplies
are sold under the brand names LH Research, Power Convertibles, and
International Power Systems.
The Company's power supply systems incorporate advanced technology and are
designed for dependable operation of the host equipment. The Company's power
supply products include AC-to-
4
DC power supplies, DC-to-DC converters and high voltage power supplies for use
in a large number of industrial applications, with outputs ranging from several
watts to several kilowatts. AC-to-DC power supplies convert alternating current,
the form in which virtually all power is delivered by electric utilities to end
users, into precisely controlled direct current of the constant voltage required
by sensitive electronic applications. DC-to-DC converters convert one constant
voltage into another constant voltage. DC-to-DC converters are widely used in
distributed power systems where power is delivered within the equipment at a
high voltage and is converted to a lower voltage to permit the operation of
microelectronics components such as microprocessors.
In the telecommunications industry, the Company's power supplies are
broadly used in voice and data telecommunications. The Company also produces
power supplies for office copiers, workstations and sophisticated computers.
MOTIVE POWER SYSTEMS
The Company produces 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. The Company's
customers include end users in a broad array of industries, dealers of fork-lift
trucks and other material handling vehicles and, to a lesser extent, OEMs. The
Company's motive power products are sold by the Company's Motive Power Division.
The Company offers a broad line of motive power equipment including the
C-Line, which the Company believes is the industry standard for long life; the
V-Line for general material handling applications; and the high density Suprema
line, designed for narrow aisle warehousing applications requiring high energy.
In addition, in fiscal 1998, the Company introduced the low maintenance Liberty
Eclipse battery and charger which dramatically reduces the customer's cost of
operation.
SALES, INSTALLATION AND SERVICING
The sales, installation and servicing of the Company's power systems
products are performed through several networks of independent manufacturer's
representatives located throughout the United States and Canada. Each
independent manufacturer's representative operates under a contract with the
Company providing for compensation on a commission basis or as a distributor
with product purchases for independent resale. The Company also provides
engineering, furnishing and installation ("EF&I") to certain accounts through
its network of independent manufacturer's representatives.
In addition to these networks of independent manufacturer's
representatives, the Company maintains an internal sales management force
consisting of regional sales managers and product/market specialists. The
regional managers are each responsible for managing a number of independent
manufacturer's representatives and for developing longer-term supplier
relationships with large OEMs and national accounts. The Company also maintains
a separate sales force that works with the network of independent manufacturer's
representatives and certain large customers.
The Company also maintains several internal marketing departments in both
the battery and electronics businesses. These departments manage the development
of new products from the initial concept definition and management approval
stage through the engineering, production and sales
5
processes. These departments are also responsible for applications engineering
and technical training of sales representatives.
The Company maintains branch sales offices in the United States, Canada,
Europe and Asia, with the support of the Company's headquarters and service
personnel, and has relationships with sales representatives or distributors in
the Far East, the Middle East, Europe, Mexico and Central and South America.
The Company's products typically are sold upon terms requiring payment in
full within 30 to 60 days. The Company warrants its products to perform as rated
for specified periods of time, ranging from one to twenty years depending on the
type of product and its application, in an amount that decreases over the life
of the product. The lengthiest warranties generally are applicable to standby
power batteries.
BACKLOG
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of the Company's receipt of
orders and, taking into account considerations of manufacturing capacity and
flexibility, the speed with which those orders are filled. Accordingly, the
Company's backlog at any particular date is only indicative of expected future
shipments, and period-to-period comparisons may not be meaningful. Orders for
the Company's products are subject to cancellation by the customer prior to
shipment.
The Company normally ships standby power products within two weeks to two
months after order and motive power products within two days to four weeks after
order. Power supplies are normally shipped one week to three months after order.
The Company's order backlog at March 31, 1998 was $58,522,000 and at March 31,
1997 was $47,977,000. The majority of the March 31, 1998 backlog is expected to
be filled during fiscal 1999.
MANUFACTURING AND RAW MATERIALS
The Company manufactures its products at eight domestic plants, two plants
in Mexico and one plant in Europe. Most key product lines are manufactured at a
single focused plant in order to optimize manufacturing efficiency, asset
management and quality control.
The Company is continuing the process of capacity expansion at several of
its plants. During fiscal 1997 the Company completed the process of moving
product lines from the Seattle, Washington facility to the Dunlap, Tennessee and
Nogales, Mexico facilities that was started in fiscal 1995. As a result, the
Seattle, Washington manufacturing facility was closed during fiscal 1997.
When the Company acquired the PowerSystems Division of ITT in fiscal 1995,
it entered into an agreement pursuant to which a third party "shelter company"
provides to the Company the Nogales, Mexico facility and employs Mexican staff
and labor to assemble the Company's products. This agreement was terminated
during fiscal 1998.
The principal raw materials used in the manufacture of the Company's
products include lead, steel, copper, plastics and electronic components, all of
which are generally available from multiple suppliers. Other than the required
use of two suppliers of lead for the production of Round Cell
6
batteries for Lucent Technologies, Inc., the Company uses a number of suppliers
to satisfy its raw materials needs.
During fiscal 1998 the Company has continued its program of ISO recognition
and has received ISO 9001 certification at its Dunlap, Tennessee facility. The
Company is also ISO 9001 certified at its Blue Bell, Pennsylvania headquarters,
Leola, Pennsylvania, Tucson, Arizona, Mexican and Irish facilities.
COMPETITION
The Company competes with respect to all of its products on the basis of
reputation, product quality and reliability, service capability and technology.
The Company also competes on the basis of price and its relationships with large
customers.
The Company is a leading North American producer of integrated reserve
power systems and power electronics equipment and believes that it is one of the
four largest producers of reserve power systems in North America. In motive
power, the Company believes that one competitor, Yuasa, Inc., has a
significantly larger market share than the Company, and that the Company, along
with two other manufacturers, occupies a second tier of the market in which they
have a significantly larger market share than their smaller competitors.
In addition, the Company believes that it has certain competitive
advantages in specific product lines. In reserve power systems, the Company
believes that it is one of only two major North American companies that
manufactures complete, integrated reserve power systems consisting of both
electronics and batteries, its other major competitors manufacturing either
electronics or batteries, but not both. In motive power, all the Company's major
competitors supply integrated power systems, but only the Company and one major
competitor manufacture both electronics and batteries. For both reserve and
motive power systems, the Company believes that the ability to provide a single
source for design, engineering, manufacturing and service is an important
element in its competitive position. With respect to power supplies, the Company
believes that it is among a small group of larger competitors in this fragmented
industry.
When lead prices rise, certain of the Company's competitors that own
smelting operations may have lower lead costs than the Company. However, when
lead prices decline, the high fixed costs associated with these operations may
provide the Company with a cost advantage.
RESEARCH AND DEVELOPMENT
The Company maintains extensive technology departments concentrating on
electrochemical and electronics technologies. Their focus is on the development
of new, standard and custom products, the ongoing development and improvement of
existing products, sustaining engineering, production engineering (including
quality testing and managing the expansion of production capacity) and the
evaluation of competitive products. The Company's research and development
facilities in North America and Europe feature advanced computer-aided design
and testing equipment. Technology and engineering personnel coordinate all
activities closely with operations, sales and marketing areas in order to better
meet the needs of customers.
7
The Company continues to develop new products in all areas of its business.
During fiscal 1998, the Company's Motive Power Division introduced the low
maintenance Liberty Eclipse battery and charger which dramatically reduces the
customer's cost of operation. During fiscal 1997, the Company extended its range
of telecom products with the introduction of a family of medium powered high
frequency rectifiers. The Company also introduced several families of high
density DC-to-DC converters during fiscal 1997.
INTERNATIONAL OPERATIONS
The Company sells the full range of its motive and standby power products
in Canada through its network of independent Canadian representatives and one
branch office. Sales through these independent Canadian representatives and
branch office accounted for less than 5% of the Company's sales for the last
three fiscal years.
In addition, the Company manufacturers a large portion of its power
supplies in Nogales, Sonora, Mexico and in Agua Prieta, Sonora, Mexico for
ultimate sale in the United States and Europe. The Company has no significant
sales in Mexico. Power supplies are also manufactured by the Company in Shannon,
Ireland. Operations in Ireland accounted for less than 5% of the Company's sales
for the last three fiscal years.
PATENTS AND TRADEMARKS
The Company follows a policy of applying for patents on new inventions and
designs and actively pursuing pending and future patent applications. The
Company would aggressively assert infringement claims when, in the judgment of
the Company, this is warranted. The Company believes that the growth of its
business will depend primarily upon the quality of its products and its
relationships with its customers, rather than the extent of its patent
protection. While the Company believes that patents are important to its
business operations, the loss of any single or several patents would not have a
material adverse effect on the Company. During fiscal 1998, the Company
continued to prosecute United States and foreign applications which had been
previously filed.
The Company regards its trademarks C&D, C&D POWERCOM, LIBERTY, LIBERTY
SERIES, and POWER CONVERTIBLES as being of substantial value in the marketing of
its products. The Company has registered its C&D, C&D POWERCOM, LIBERTY, LIBERTY
SERIES, and POWER CONVERTIBLES trademarks in the United States Patent and
Trademark Office and the Company also has applications pending for registrations
of other trademarks in the United States. The Company's trademarks include
COMPUCHARGE, FERRO FIVE, GUARDIAN, GUARDSMAN, RANGER, RANGERNET and SCOUT.
EMPLOYEES
At March 31, 1998 the Company had approximately 2,596 employees. Of these
employees, 2,204 were employed in manufacturing and 392 were employed in field
sales, technical, manufacturing support, sales support, marketing and
administrative activities.
The Company's management considers its employee relations to be
satisfactory. Employees in eight plants are not represented by a union.
Employees at the other three plants are represented by three different unions
under collective bargaining agreements.
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ENVIRONMENTAL REGULATION
The Company's operations are subject to extensive and evolving
environmental laws and regulations regarding the clean-up and protection of the
environment and worker health and safety. These laws and regulations include
requirements relating to the handling, storage, use and disposal of hazardous
materials and solid wastes, recordkeeping and periodic reporting to governmental
entities regarding the use of hazardous substances and disposal of hazardous
wastes, monitoring and permitting of air and water emissions and monitoring and
protecting workers from exposure to hazardous substances, including lead used in
the Company's manufacturing processes.
The Company operates under what it believes is a comprehensive
environmental, health and safety compliance program, which is headed by an
environmental director and staffed with trained environmental professionals. As
part of its program, the Company has prepared written environmental and health
and safety practice manuals, conducts regular employee training seminars,
undertakes internal and external audits of its operations and environmental and
health and safety programs and practices and engages in sampling and monitoring
of employee air, blood lead levels and other chemical exposures. The Company
also has installed certain pollution abatement equipment to minimize or reduce
emissions of regulated pollutants into the environment. The Company has
instituted a hazardous materials recapture and recycling program at each of its
facilities and for its customers. In addition, the Company monitors and seeks to
address known or potential environmental conditions resulting from or which may
arise from current and historic hazardous materials handling and waste disposal
practices.
While the Company believes that it is in material compliance with the
applicable environmental requirements, it has received, and in the future may
receive, citations and notices from governmental regulatory authorities that
certain of its operations are not in compliance with its permits or applicable
environmental requirements. Occasionally the Company is 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
legal or regulatory requirements. When the Company receives a notice of a
non-compliance, it undertakes to achieve compliance and to work with the
authorities to resolve satisfactorily the issues raised. The associated costs of
such compliance efforts have not had a material effect on the Company's
business, financial condition or results of operations.
Notwithstanding the Company's efforts to maintain compliance with
applicable environmental requirements, if damage to persons or the environment
arises from hazardous substances used, generated or disposed of in the conduct
of the Company's business (or that of its predecessors to the extent the Company
is not indemnified therefor), the Company may be held liable for the damage and
for the costs of the environmental investigation and remediation, which could
have a material adverse effect on the Company's business, financial condition or
results of operations.
In view of the potential financial effect such environmental liabilities
could have, when the Company acquired the assets of its predecessor from Allied
in January 1986, it secured an obligation from Allied to indemnify the Company
from undisclosed environmental liabilities resulting from conditions existing as
of the closing date. With the exception of four sites disclosed by Allied at the
time of the acquisition, Allied has accepted indemnification responsibility for
the Company's potential liabilities at those third party owned or operated sites
with respect to which the Company has been named as a potentially responsible
party by the United States Environmental Protection Agency or
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state environmental agencies under the federal Superfund law or comparable state
environmental laws.
With respect to the four sites not being covered by the Allied indemnity,
based upon the most currently available information, the Company believes that
its share of liability at these sites will not have a material adverse effect on
the Company's business, financial condition or results of operations. Moreover,
the Company has accrued reserves for these and other immaterial potential
environmental liabilities in its consolidated financial statements and
periodically reevaluates, and changes as it deems appropriate, the reserved
amounts for these liabilities in view of the most current information available
to it.
The Company also is aware of the existence of potential contamination at
two of its properties which may require expenditures for further investigation
and remediation. At the Company's Huguenot, New York facility, fluoride
contamination in an inactive lagoon exceeding the state's groundwater standards,
which existed prior to the Company's acquisition of the site, has resulted in
the site being listed on the registry of inactive hazardous waste disposal sites
maintained by the New York State Department of Environmental Conservation. The
prior owner of the site, Avnet, Inc., ultimately may bear some, as yet
undetermined, share of the costs associated therewith.
The Company's Conyers, Georgia facility was listed on the Georgia State
Hazardous Sites Inventory. Soil at the site, which was likely contaminated from
a leaking underground acid neutralization tank and possibly stormwater runoff,
has been excavated and disposed of by the Company, and a hydrogeologic study was
undertaken to assess the impact to groundwater. That study did not reveal any
groundwater impact, and assessment and remediation of off-site contamination has
been completed and the final remediation report was submitted to the state on
June 1, 1997. The state environmental agency may request further information and
additional investigation or remediation may be necessary before the site may be
removed from its Hazardous Sites Inventory.
With respect to each of the properties described in the preceding two
paragraphs, the Company has accrued a reserve in its consolidated financial
statements for its estimate of the potential costs and liabilities associated
with the potential contamination. The Company believes that the costs and
potential liabilities for these matters are not likely to have a material effect
on the Company's business, financial condition or results of operations.
10
ITEM 2. PROPERTIES
Set forth below is certain information, as of March 31, 1998, with respect
to the Company's principal properties. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties
------------------------
Manufacturing:
- -------------
Attica, Indiana................ 207,000 Large standby power batteries
and motive power batteries
Conshohocken, Pennsylvania..... 130,000 Metal trays, metal racks and
cabinets, battery R&D
laboratories, distribution
center
Conyers, Georgia............... 161,000 Small standby power batteries
Dunlap, Tennessee.............. 73,000 Motive power and standby power
electronics products, cabinets
and metal racks
Huguenot, New York............. 148,000 Motive power batteries
Leola, Pennsylvania............ 187,000 Large standby power batteries
Tucson, Arizona................ 41,000 Power converters, cellular
phone battery chargers
Costa Mesa, California......... 33,000 Power supplies
Other:
- -----
Blue Bell, Pennsylvania........ 33,000 World headquarters
Tucson, Arizona................ 40,000 Headquarters of Power
Electronics
Division and electronics
R&D laboratories
International Properties
------------------------
Manufacturing:
- -------------
Agua Prieta, Sonora, Mexico.... 24,000 Power converters
Nogales, Sonora, Mexico........ 83,000 Power supplies, cellular phone
battery chargers
Shannon, Ireland............... 19,000 Power converters and
electronics R&D laboratories
Other:
- -----
Mississauga, Ontario, Canada.. 20,000 Canadian branch headquarters,
sales office and distribution
center
11
The Company owns its Attica, Conyers, Leola and Conshohocken properties.
The Huguenot property is leased under an industrial revenue bond financing
arrangement entitling the Company to purchase the property for a nominal amount
at the end of the term of the related financing occurring in the fourth quarter
of fiscal 1999. In connection with the Acquisition, Allied agreed to pay the
principal and interest due under this financing arrangement. The Blue Bell,
Dunlap, Mississauga, Tucson, Costa Mesa, Shannon, Agua Prieta and Nogales
facilities and the Company's branch sales offices are leased. The lease of the
Dunlap property terminates in January 2004. The Company has an option to
purchase the Dunlap property during the lease term for $1,160,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in ordinary routine litigation incidental to the
conduct of its business. None of such routine litigation, individually or in the
aggregate, is material to its financial condition or results of operations in
any year. See "Business - Environmental Regulation" for a description of certain
administrative proceedings in which the Company is involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on The New York Stock Exchange on
December 20, 1996 under the symbol CHP. From October 27, 1995 through December
19, 1996, the Common Stock was traded on the Nasdaq National Market under the
symbol CHTR. Prior to October 27, 1995 the Common Stock was listed and
principally traded on the American Stock Exchange under the symbol CHP. The
approximate number of beneficial and registered record holders of the Company's
Common Stock on April 16, 1998 was 2,256.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Company's Common Stock as reported by the Nasdaq National
Market through December 19, 1996, and The New York Stock Exchange thereafter.
These prices represent actual transactions, but do not reflect adjustment for
retail markups, markdowns or commissions.
Year Ended
-------------------
January 31, 1998 January 31, 1997
---------------- ----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter..... $34 3/4 $25 7/8 $29 3/4 $25
Second Quarter.... 38 7/8 28 3/8 36 17 1/4
Third Quarter..... 49 1/8 37 1/2 26 1/4 20
Fourth Quarter.... 49 5/8 42 35 24
12
The Company began paying quarterly cash dividends on its Common Stock in
April 1987. The dividend declared in each quarter since then has been $.0275 a
share.
The Company's bank loan agreement permits quarterly dividends to be paid on
the Company's Common Stock so long as there is no default under that agreement.
Subject to such restriction and the provisions of Delaware law, the Board of
Directors currently intends to continue paying quarterly dividends in the future
at the rate currently paid. There can be no assurance, however, as to the
payment or amount of future dividends, since they will depend on the Company's
earnings and financial condition and other factors.
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data for the periods indicated
have been derived from the Company's consolidated financial statements, which
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements for fiscal 1998, 1997 and 1996, which appear
elsewhere herein.
Fiscal Year
------------------------------------------------------------
1998 1997(4) 1996 1995(3) 1994
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales............................. $308,054 $286,907 $242,422 $200,009 $162,005
Cost of sales......................... 226,880 219,819 185,808 154,464 123,560
------- ------- ------- ------- -------
Gross profit........................ 81,174 67,088 56,614 45,545 38,445
Selling, general and
administrative expenses............. 39,333 34,499 27,781 24,796 23,121
Research and development
expenses............................ 8,610 8,143 6,196 5,284 2,746
------- ------- ------- ------- -------
Operating income.................... 33,231 24,446 22,637 15,465 12,578
Interest expense, net................. 1,129 1,396 1,063 1,222 1,003
Other expense (income), net........... 1,058 (8) 423 310 809
------- ------- ------- ------- -------
Income before income taxes ........ 31,044 23,058 21,151 13,933 10,766
Provision for income taxes............ 11,359 8,121 7,107 4,556 4,359
------- ------- ------- ------- -------
Net income ........................... $ 19,685 $ 14,937 $ 14,044 $ 9,377 $ 6,407
======= ======= ======= ======= =======
Net income per common share (1)....... $ 3.22 $ 2.39 $ 2.33 $ 1.59 $ 1.11
======= ======= ======= ======= =======
Net income per common share -
assuming dilution (2)............... $ 3.12 $ 2.32 $ 2.18 $ 1.51 1.08
======= ======= ======= ======= =======
Dividends per common share............ $ .11 $ .11 $ .11 $ .11 $ .11
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital....................... $ 47,342 $ 45,436 $ 50,302 $ 27,746 $ 18,556
Total assets.......................... 166,498 159,973 130,827 112,137 93,255
Short-term debt (exclusively current
portion of long-term debt)......... 321 476 200 3,670 3,121
Long-term debt........................ 10,267 29,351 15,417 14,183 11,149
Stockholders' equity.................. 97,305 74,906 68,926 51,722 41,031
- ----------
(footnotes begin on the following page)
14
(1) Based on 6,110,685, 6,258,554, 6,039,452, 5,906,311 and 5,784,429
weighted average shares outstanding for fiscal 1998, 1997, 1996, 1995 and 1994,
respectively.
(2) Based on 6,315,912, 6,439,165, 6,451,289, 6,210,793 and 5,922,511
weighted average shares outstanding and the effect of shares issuable under
stock options based on the treasury stock method for fiscal 1998, 1997, 1996,
1995 and 1994, respectively.
(3) In March 1994, the Company acquired for cash, certain assets and
assumed certain liabilities of the custom power supply business of ITT
PowerSystems Corporation. In January 1995, the Company purchased certain assets
and assumed certain liabilities from the switching power supply business of
Basler Electric Company, a Highland, Illinois based manufacturer of electrical
components.
(4) In February 1996, the Company acquired substantially all the assets of
LH, a producer and marketer of standard power supply systems for the electronics
industry. In March 1996, the Company acquired from Burr-Brown Corporation, its
entire interest in PCC consisting of 1,044,418 shares of PCC common stock and
all outstanding preferred stock. In addition the Company acquired or repaid the
indebtedness of PCC. In April 1996, the Company acquired 190,000 shares of PCC
common stock from the former chief executive officer of PCC which together with
the shares previously acquired represented in excess of 99.6% of the outstanding
PCC common stock. In May 1996, the Company purchased all remaining shares of PCC
common stock and shares of PCC common stock issuable upon exercise of stock
options. PCC produces battery chargers for cellular phones and DC-to-DC
converters used on communications, computer, medical, industrial and
instrumentation markets. See notes to consolidated financial statements.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPACT OF ECONOMY AND SHIFT IN CUSTOMER DEMAND
During fiscal 1998 continued improved economic conditions resulted in
higher demand for the Company's standby power products over the prior year. In
the telecommunications market, continued growth in the demand for
valve-regulated batteries was reflected in the growth in sales of Liberty 2000,
a premium valve-regulated battery. During fiscal 1998 demand also increased for
flooded batteries over the prior year.
RAW MATERIAL PRICING AND PRODUCTIVITY
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of the Company's industrial batteries and
electronics products and, accordingly, represent a significant portion of the
Company's materials costs. During fiscal 1998, 1997 and 1996, the average North
American producer price of lead has been $.48, $.50 and $.44 /lb., respectively.
The Company has undertaken a long-term cost containment program to maximize
manufacturing efficiency and continues as a matter of course to allocate a
significant amount of its normal annual capital expenditures to cost containment
and productivity improvement projects.
INFLATION
The Company's costs of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. The Company's 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. The Company believes
that, over recent years, it generally has been able to offset inflationary cost
increases by effective raw materials purchasing programs, price increases of its
products, increases in labor productivity and improvements in overall
manufacturing efficiency.
16
RESULTS OF OPERATIONS
The following table sets forth selected items in the Company's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
------------------------
1998 1997 1996
---- ---- ----
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 73.6 76.6 76.6
----- ----- -----
Gross profit................................. 26.4 23.4 23.4
Selling, general and administrative expenses... 12.8 12.0 11.5
Research and development expenses.............. 2.8 2.9 2.6
----- ----- -----
Operating income............................. 10.8 8.5 9.3
Interest expense, net ......................... 0.4 0.5 0.4
Other expense, net............................. 0.3 0.0 0.2
----- ----- -----
Income before income taxes................... 10.1 8.0 8.7
Provision for income taxes..................... 3.7 2.8 2.9
----- ----- -----
Net income................................... 6.4% 5.2% 5.8%
===== ===== =====
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased $21,147,000 or seven percent to
$308,054,000 from $286,907,000 in fiscal 1997. This increase was a result of a
15 percent increase in telecommunications-related sales and a six percent
increase in both non-telecommunications-related power conversion sales and UPS
sales, partially offset by lower government and control sales. A portion of the
fiscal 1998 sales increase resulted from the recording of a full year's sales
versus a partial year in fiscal 1997 due to the acquisition of a power
conversion company during the first quarter of fiscal 1997. On a company-wide
basis, telecommunications-related sales were approximately 49 percent of total
Company sales during fiscal 1998 versus 46 percent in fiscal 1997.
Gross profit for fiscal 1998 increased $14,086,000 or 21 percent to
$81,174,000 from $67,088,000 in the prior fiscal year, resulting in a gross
margin of 26.4 percent versus 23.4 percent in the prior year. Gross margins
increased primarily as a result of lower material costs, a shift in product mix
and operating efficiencies associated with the higher sales volumes.
Selling, general and administrative expenses for fiscal 1998 increased
$4,834,000 or 14 percent over the prior year primarily as a result of the
accelerated write-off of goodwill and intangible assets
17
associated with LH (due to impairment), higher payroll related costs, warranty,
due diligence costs, and the resolution of legal disputes, partially offset by
lower variable selling expense.
Research and development expense remained proportional to sales as a
relative percentage for both fiscal 1998 and fiscal 1997 at approximately three
percent of sales.
Interest expense, net, decreased 19 percent from fiscal 1997 to fiscal 1998
primarily due to lower debt balances outstanding, partially offset by lower
capitalized interest related to plant expansions and lower interest income.
Other expense, net, increased $1,066,000 from fiscal 1997 to fiscal 1998 as
a result of higher amortization expense associated with the write-off of
capitalized debt acquisition costs related to the Company's credit facility and
the Development Authority of Rockdale County Industrial Revenue Bonds ("Georgia
Bonds"). This increase was also due to lower nonoperating income during fiscal
1998 coupled with a foreign exchange loss in fiscal 1998 versus a slight foreign
exchange gain in fiscal 1997.
Income tax expense increased $3,238,000 from fiscal 1997 to fiscal 1998,
primarily due to higher levels of income before income taxes coupled with a
smaller favorable tax effect from foreign operations.
As a result of the above, for fiscal 1998, net income rose 32 percent from
fiscal 1997 to $19,685,000 or $3.22 per common share and $3.12 per common share
- - assuming dilution.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased $44,485,000 or 18 percent to
$286,907,000 from $242,422,000 in fiscal 1996. Approximately $29,000,000 of this
increase was related to sales recorded by the Company's PCC and LH subsidiaries
which were both acquired during the first quarter of fiscal 1997. The balance of
the increase was primarily due to higher telecommunications and UPS sales,
partially offset by lower motive power sales and lower power supply sales by the
Company's IPS subsidiary. On a company-wide basis, fiscal 1997
telecommunication-related sales were approximately 46 percent of total Company
sales versus 44 percent for fiscal 1996. Motive power sales were down four
percent due to lower volumes partially offset by higher prices.
Gross profit increased $10,474,000 or 19 percent to $67,088,000 from
$56,614,000 in the prior fiscal year, primarily as a result of higher sales
volumes. Gross margins for fiscal 1997 and 1996 were flat at 23.4 percent.
Selling, general and administrative expenses increased $6,718,000 primarily
as a result of the acquisition of PCC and LH, including the amortization of
goodwill and other intangible assets related to the acquisitions. In addition,
non-acquisition selling expenses increased primarily due to higher payroll
costs, warranty, advertising, rental and consulting expenses.
Research and development expenses increased $1,947,000 to $8,143,000 for
fiscal 1997 primarily as a result of the acquisition of PCC and LH, and remained
proportional to sales at approximately three percent of sales for fiscal 1997
and fiscal 1996.
18
Interest expense, net, increased 31 percent from fiscal 1996 to fiscal 1997
due to higher debt balances related to the above acquisitions and a stock
repurchase program, partially offset by lower effective rates and higher
capitalized interest related to the plant expansions at the Company's Conyers,
Georgia and Leola, Pennsylvania locations.
Other expense, net, decreased $431,000 from fiscal 1996 to fiscal 1997
primarily as a result of higher nonoperating income.
Income tax expense increased $1,014,000 due to higher operating income and
the absence in fiscal 1997 of a decrease in the valuation allowance, partially
offset by the favorable tax effect of the Company's foreign operations. The
fiscal 1996 decrease in the valuation allowance related to the revaluation of
the stock option compensation deferred tax asset due to increases in the price
of the Company's common stock.
As a result of the above, net income increased six percent from fiscal 1996
to $14,937,000 or $2.39 per common share and $2.32 per common share - assuming
dilution.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased 24 percent to
$31,972,000 in fiscal 1998 compared to $25,737,000 in fiscal 1997. This increase
was primarily due to a smaller increase in accounts receivable in fiscal 1998
than in fiscal 1997, coupled with higher net income and depreciation in fiscal
1998. These changes resulting in higher cash flows from operations were
partially offset by an increase in inventories and a decrease in accounts
payable in fiscal 1998 versus a decrease in inventory and an increase in
accounts payable in the prior year.
Net cash used by investing activities totaled $13,598,000 for fiscal 1998,
resulting in a decrease of $17,053,000 versus the prior year which included the
purchase by the Company of PCC and certain equipment and inventory of LH, as
well as higher capital spending. In fiscal 1997, the change in restricted cash
resulted from the use of proceeds obtained from the Development Authority of
Rockdale County Industrial Development Revenue Bonds, obtained in fiscal 1996,
to finance the Company's expansion of the Conyers, Georgia plant. The Company
exercised its option to redeem the Georgia Bonds during the second quarter of
fiscal 1998.
Net cash used by financing activities was $18,139,000 for fiscal 1998
compared to net cash provided by financing activities of $385,000 in the prior
year. The additional borrowings in the prior year were used primarily for the
funding of the acquisitions of PCC and LH and the purchase of stock in a stock
repurchase program.
The Company's availability under the current loan agreement is expected to
be sufficient to meet its ongoing cash needs for working capital requirements,
debt service, capital expenditures and possible strategic acquisitions. The
Company's bank loan agreement permits quarterly dividends to be paid on the
Company's Common Stock so long as there is no default under that agreement.
Capital expenditures during fiscal 1998 were incurred primarily to fund capacity
expansion, new product development, a continuing series of cost reduction
programs, normal maintenance capital, and regulatory compliance. Fiscal 1999
capital expenditures are expected to be approximately $22,000,000 for similar
purposes.
19
The Company has been notified that it is a potentially responsible party
and has responded to requests for information relating to various Third Party
Facilities (see note 8[B] of the notes to consolidated financial statements).
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to reduce
foreign exchange and interest rate risks. The Company has established a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue financial instruments for trading
purposes and it prohibits the use of derivatives for speculative purposes.
Derivative financial instruments are accounted for on an accrual basis. Income
and expense are recorded in the same category as that arising from the related
asset or liability being hedged.
The Company selectively uses foreign currency forward and option contracts
to offset the effects of exchange rate changes on cash flows denominated in
foreign currencies, primarily the Canadian dollar and Mexican peso.
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.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of the
work required to make its computer systems Year 2000 compliant. The Company has
completed its assessment of its requirements to become Year 2000 compliant, has
developed an action plan and currently has resources dedicated to carry out the
Company's Year 2000 action plan which the Company expects to complete by
December 31, 1998. The Company continues to evaluate the estimated future costs
associated with its Year 2000 action plan but does not currently anticipate that
such costs will have a material impact on the Company's results of operations or
financial position. The Company has received inquires from its major customers
and has initiated formal communications with its significant suppliers to
determine the extent to which the Company might be impacted by those third
parties' failure to be Year 2000 compliant.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" which is effective for years beginning after December 15,
1997. This statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined to
include all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company will adopt SFAS
No. 130 and begin reporting comprehensive income in the first quarter of fiscal
1999.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the disclosure of segment results. It requires that
20
segments be determined using the "management approach," which means the way
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company has not yet determined the
impact of the implementation of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) provides reduced disclosure requirements for nonpublic
entities; (vi) revises disclosures about defined contribution plans; and (vii)
changes disclosures relating to multi-employer plans. SFAS No. 132 does not
change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or
106. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The Company has not yet determined the impact of the implementation of
SFAS No. 132.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires costs of start-up activities and organization
costs to be charged to expense as incurred. SOP 98-5 is effective for financial
statements for years beginning after December 15, 1998. The Company believes
that the adoption of this SOP will not have a material effect on its financial
position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by Part III (Items 10 through 13) is incorporated
herein by reference to the captions "Principal Stockholders," "Election of
Directors," "Management" and "Certain Relationships and Related Transactions" in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the Company's fiscal year covered by this
report.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN THIS REPORT ON FORM
10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 1998, and 1997
Consolidated Statements of Income for the years ended January 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended January 31,
1998, 1997 and 1996
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, 1998, 1997 and 1996
Report of Independent Accountants on Schedule
II. Valuation and Qualifying Accounts
(3) EXHIBITS:
3.1 Composite Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1997).
3.2 By-laws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1996).
4.1 Amended and Restated Financing and Security Agreement dated
as of January 30, 1998 among NationsBank, N.A., CoreStates
Bank, N.A., The Chase Manhattan Bank, and PNC Bank,
National Association and C&D TECHNOLOGIES, INC.
and its subsidiaries (filed herewith).
22
10.1 Purchase Agreement dated November 27, 1985, among Allied,
Allied Canada Inc. and the Company; Amendments thereto
dated January 28 and October 8, 1986 (incorporated by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, No. 33-10889).
10.2 Agreement dated December 15, 1986, between the Company and
Allied (incorporated by reference to Exhibit 10.2 to the
Company'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. (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1994).
10.4 C&D TECHNOLOGIES, INC. Savings Plan (October 1, 1997
Restatement) (filed herewith).
10.5 C&D Charter Power Systems, Inc. Pension Plan for Salaried
Employees (as of January 27, 1998 the name was changed to
C&D TECHNOLOGIES, INC. Pension Plan for Salaried Employees)
as restated and amended (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995); First and
Second Amendments thereto dated December 20, 1995
(incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1996); Third Amendment thereto dated February
18, 1997 (filed herewith); Fourth Amendment thereto dated
January 27, 1998 (filed herewith).
10.6 Charter Power Systems, Inc. Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July
31, 1997).
10.7 Registration Rights Agreement dated May 30, 1989, between
Alfred Weber and the Company (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1995); Employment Agreement,
dated as of April 1, 1996, and Pledge and Security
Agreement and Reimbursement Agreement, each dated April 30,
1996, between Alfred Weber and the Company; Secured
Promissory Note and Option Secured Promissory Note, each
dated April 30, 1996, by Alfred Weber in favor of the
Company (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1996).
10.8 Employment Agreement dated January 26, 1990, between Leslie
Holden and the Company (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1995); Amendment thereto
dated April 3, 1995 (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995).
23
10.9 Agreement dated March 28, 1994, between C&D Charter Power
Systems, Inc. and AT&T (incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1994).
10.10 Employment Agreement dated March 1, 1994 between A. Gordon
Goodyear and the Company (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1994); Amendment thereto
dated April 3, 1995 (incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995).
10.11 Employment Agreement dated April 3, 1995 between Stephen E.
Markert, Jr. and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1995).
10.12 Employment Agreement dated April 3, 1995 between A. T.
(Paul) Kambouroglou and the Company (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 30, 1995).
10.13 Employment Agreement dated August 15, 1995 between Stephen
Weglarz, Esq. and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1995).
10.14 Employment Agreement dated August 1, 1997 between Larry M.
Moore and the Company (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997).
10.15 Employment Agreement dated September 30, 1997 between John
J. Murray, Jr. and the Company (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1997).
10.16 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July
31, 1996).
10.17 Supplemental Executive Retirement Plan dated December 11,
1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1997).
10.18 Supplemental Executive Retirement Plan for Alfred Weber
dated December 11, 1997 (incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1997).
21 Subsidiaries of the Company (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
24
99.1 Additional undertaking in connection with the Company's
Registration Statement on Form S-8 No. 33-31978 (filed
November 7, 1989), the Company's Registration Statement on
Form S-8, No. 33-71390 (filed October 27, 1993), the
Company's Registration Statement on Form S-8, No. 33-86672
(filed November 23, 1994), the Company's Registration
Statement on Form S-8 No. 333-17979 (filed December 16,
1996), and the Company's Registration Statement on Form S-8
No. 333-38891 (filed October 27, 1997).
The registrant undertakes to furnish the Commission with a copy of certain
agreements which are not being filed in accordance with Item 601(b)(4)(iii) of
Regulation S-K.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this report.
25
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 29, 1998 By: /s/ALFRED WEBER
-----------------------
Alfred Weber
Chairman, President and
Chief Executive Officer
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/ ALFRED WEBER Chairman, President and April 29, 1998
- --------------------------
Alfred Weber Chief Executive Officer
/s/ STEPHEN E. MARKERT, JR Vice President Finance April 29, 1998
- --------------------------
Stephen E. Markert, Jr (Principal Financial and
Accounting Officer)
/s/ KEVIN P. DOWD Director April 29, 1998
- --------------------------
Kevin P. Dowd
/s/ GLENN M. FEIT Director April 29, 1998
- --------------------------
Glenn M. Feit
/s/ WILLIAM HARRAL, III Director April 29, 1998
- --------------------------
William Harral, III
/s/ WARREN A. LAW Director April 29, 1998
- --------------------------
Warren A. Law
/s/ ALAN G. LUTZ Director April 29, 1998
- --------------------------
Alan G. Lutz
/s/ JOHN A. H. SHOBER Director April 29, 1998
- --------------------------
John A. H. Shober
26
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, 1998 and 1997........................ F-3
Consolidated Statements of Income
for the years ended January 31, 1998, 1997
and 1996......................................... F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 1998, 1997 and 1996............ F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 1998, 1997
and 1996......................................... F-6
Notes to Consolidated Financial Statements......... F-8
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 1998, 1997 and 1996
Report of Independent Accountants on Schedule...... S-1
Schedule II. Valuation and Qualifying Accounts.... S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
C&D TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of C&D
TECHNOLOGIES, INC. and Subsidiaries (formerly Charter Power Systems, Inc.) as of
January 31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of C&D
TECHNOLOGIES, INC. and Subsidiaries as of January 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1998, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 10, 1998
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
(DOLLARS IN THOUSANDS)
1998 1997*
---- ----
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 1,167 $ 952
Restricted cash and cash equivalents.................. - 1
Accounts receivable, less allowance for doubtful
accounts of $1,701 in 1998 and $1,414 in 1997..... 42,742 41,682
Inventories........................................... 40,735 38,943
Deferred income taxes................................. 7,871 7,315
Other current assets.................................. 885 437
------- -------
Total current assets.............................. 93,400 89,330
Property, plant and equipment, net...................... 57,058 52,469
Intangible and other assets, net........................ 5,339 6,208
Goodwill, net........................................... 10,701 11,966
------- -------
Total assets...................................... $166,498 $159,973
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 321 $ 476
Accounts payable...................................... 22,791 23,730
Accrued liabilities................................... 16,012 14,468
Income taxes.......................................... 3,689 939
Other current liabilities............................. 3,245 4,281
------- -------
Total current liabilities......................... 46,058 43,894
Deferred income taxes................................... 2,376 3,923
Long-term debt.......................................... 10,267 29,351
Other liabilities....................................... 10,492 7,899
------- -------
Total liabilities................................. 69,193 85,067
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares
authorized; 6,614,449 and 6,547,476 shares
issued in 1998 and 1997, respectively............. 66 65
Additional paid-in capital............................ 41,430 39,326
Minimum pension liability adjustment.................. - (136)
Treasury stock, at cost, 452,551 and 470,551
shares in 1998 and 1997, respectively............. (10,819) (11,232)
Notes receivable from stockholder, net of discount of
$28 and $85 in 1998 and 1997 respectively......... (1,029) (1,636)
Cumulative translation adjustment..................... (248) (374)
Retained earnings .................................... 67,905 48,893
------- -------
Total stockholders' equity........................ 97,305 74,906
------- -------
Total liabilities and stockholders' equity........ $166,498 $159,973
======= =======
* Reclassified for comparative purposes
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)
1998 1997 1996
---- ---- ----
Net sales............................... $308,054 $286,907 $242,422
Cost of sales........................... 226,880 219,819 185,808
------- ------- -------
Gross profit...................... 81,174 67,088 56,614
Selling, general and administrative
expenses.......................... 39,333 34,499 27,781
Research and development expenses....... 8,610 8,143 6,196
------- ------- -------
Operating income.................. 33,231 24,446 22,637
Interest expense, net................... 1,129 1,396 1,063
Other expense (income), net............. 1,058 (8) 423
------- ------- -------
Income before income taxes........ 31,044 23,058 21,151
Provision for income taxes.............. 11,359 8,121 7,107
------- ------- -------
Net income ....................... $ 19,685 $ 14,937 $ 14,044
======= ======= =======
Net income per common share............. $ 3.22 $ 2.39 $ 2.33
Net income per common share -
assuming dilution................. $ 3.12 $ 2.32 $ 2.18
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, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Minimum Notes
Common Stock Additional Pension Treasury Stock Receivable Cumulative
------------ Paid-In Liability ---------------- From Translation Retained
Shares Amount Capital Adjustment Shares Amount Stockholders Adjustment Earnings
------ ------ ------- ---------- ------ ------ ------------ ---------- --------
Balance as of
January 31,1995............ 5,971,041 $60 $32,053 $(1,656) $21,265
Net income................... 14,044
Dividends to stockholders,
$.11 per share............. (665)
Principal payments on stock-
holder notes............... 1,656
Tax effect relating to stock
options exercised.......... 1,426
Minimum pension liability
adjustment................. $(760)
Purchase of common stock..... (57,400) $(1,304)
Issuance of common stock..... 50,000 667
Stock options exercised...... 305,135 3 2,137
--------- -- ------ ---- -------- ------- ------ ---- ------
Balance as of
January 31, 1996........... 6,326,176 63 36,283 (760) (57,400) (1,304) - 34,644
Net income................... 14,937
Dividends to stockholders,
$.11 per share............. (688)
Notes receivable
from stockholder........... (1,721)
Discount on notes receivable
from stockholder........... 137
Amortization of discount on
stockholder notes.......... (52)
Tax effect relating to stock
options exercised.......... 1,151
Minimum pension liability
adjustment................. 624
Cumulative translation
adjustment................. $(374)
Purchase of common stock..... (464,569) (11,092)
Issuance of common stock..... 44 51,418 1,164
Stock options exercised...... 221,300 2 1,848
--------- -- ------ ---- -------- ------- ------ ---- ------
Balance as of
January 31, 1997........... 6,547,476 65 39,326 (136) (470,551) (11,232) (1,636) (374) 48,893
Net Income................... 19,685
Dividends to stockholders,
$.11 per share............. (673)
Principal payments on
stockholder notes.......... 664
Amortization of discount on
stockholder notes.......... (57)
Tax effect relating to stock
options exercised.......... 564
Minimum pension liability
adjustment................. 136
Cumulative translation
adjustment................. 126
Issuance of common stock..... 434 18,000 413
Stock options exercised...... 66,973 1 1,106
--------- -- ------ ---- -------- ------- ------ ---- ------
Balance as of
January 31, 1998.......... 6,614,449 $66 $41,430 $ - (452,551) $(10,819) $(1,029) $(248) $67,905
========= == ====== ==== ======== ======= ====== ==== ======
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)
1998 1997* 1996
---- ---- ----
Cash flows provided (used) by operating activities:
Net income............................................. $ 19,685 $ 14,937 $ 14,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......................... 11,824 8,494 6,109
Deferred income taxes ................................. (2,338) (302) (1,237)
Loss on disposal of assets............................. 175 80 428
Changes in:
Accounts receivable.............................. (1,182) (7,188) (1,570)
Inventories...................................... (1,856) 2,898 (8,341)
Other current assets............................. (450) 163 (56)
Accounts payable................................. (933) 2,943 3,405
Accrued liabilities.............................. 1,566 (802) 1,600
Income taxes payable............................. 3,447 3,004 670
Other current liabilities........................ (1,036) 1,257 (794)
Other liabilities................................ 2,593 667 1,143
Other, net............................................. 477 (414) (426)
------- ------- -------
Net cash provided by operating activities................ 31,972 25,737 14,975
------- ------- -------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net......................... - (19,739) -
Acquisition of property, plant and equipment........... (13,640) (16,322) (7,937)
Proceeds from disposal of property,
plant and equipment.................................. 41 9 2,579
Change in restricted cash.............................. 1 5,401 (5,327)
------- ------- -------
Net cash used by investing activities.................... (13,598) (30,651) (10,685)
------- ------- -------
Cash flows provided (used) by financing activities:
Repayment of long-term debt............................ (19,239) (8,291) (8,669)
Proceeds from new borrowings........................... - 20,333 6,500
Financing costs of long-term debt...................... - - (257)
Issuance of note receivable to stockholder............. - (1,057) -
Repayment of notes receivable from stockholders........ 664 - 1,656
Proceeds from issuance of common stock, net............ 1,107 1,186 2,807
Purchase of treasury stock............................. - (11,092) (1,304)
Payment of common stock dividends...................... (671) (694) (657)
------- ------- -------
Net cash (used) provided by financing activities......... (18,139) 385 76
------- ------- -------
Effect of exchange rate changes on cash.................. (20) 9 9
------- ------- -------
Increase (decrease) in cash and cash equivalents......... 215 (4,520) 4,375
Cash and cash equivalents at beginning of year........... 952 5,472 1,097
------- ------- -------
Cash and cash equivalents at end of year................. $ 1,167 $ 952 $ 5,472
======= ======= =======
* 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)
1998 1997 1996
---- ---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net.............................. $ 1,599 $ 1,593 $1,419
Income taxes paid............................... $10,251 $ 5,378 $7,674
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired......... $ - $ 13,544 $ -
Goodwill and identifiable intangible assets..... - 12,655 -
Purchase price obligations...................... - (1,358) -
Cash paid, net of cash acquired................. - (19,739) -
------ ------- -----
Liabilities assumed............................. $ - $ 5,102 $ -
====== ======= =====
Dividends declared but not paid...................... $ 169 $ 167 $ 172
Note receivable from stockholder in connection
with issuance of common stock...................... $ - $ 664 $ -
Fair market value of treasury stock issued to
pension plans...................................... $ 847 $ 1,208 $ -
See notes to consolidated financial statements.
F-7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
C&D TECHNOLOGIES, INC. was incorporated in November 1985. The Company
manufactures battery power systems and their components for commercial,
industrial and government use in the North American and export standby power and
motive power markets. The Company also manufactures embedded high frequency
switching power supplies for use in telecommunication equipment, advanced office
electronics and sophisticated computer systems. On January 28, 1986, the Company
purchased substantially all of the assets of the C&D Power Systems division of
Allied Corporation ("Allied") (the "Acquisition").
The consolidated financial statements include the accounts of C&D
TECHNOLOGIES, INC. and its wholly owned subsidiaries (collectively the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities in foreign currencies are translated into U.S.
dollars at the rate of exchange prevailing at the balance sheet date. Revenue
and expenses are translated at the average rate of exchange for the period.
Gains and losses on foreign currency transactions are included in non-operating
expenses.
DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Company to reduce
foreign exchange and interest rate risks. The Company has established a control
environment which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue financial instruments for trading
purposes and it prohibits the use of derivatives for speculative purposes.
Derivative financial instruments are accounted for on an accrual basis. Income
and expense are recorded in the same category as that arising from the related
asset or liability being hedged.
F-8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company selectively uses foreign currency forward and option contracts
to offset the effects of exchange rate changes on cash flows denominated in
foreign currencies, primarily the Canadian dollar and Mexican peso.
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 (see Note 11).
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
$6,204 and $7,577 at January 31, 1998 and 1997, respectively.
REVENUE RECOGNITION:
Revenue is recognized when products are shipped and title is passed to the
customer.
INVENTORIES:
Inventories are stated at the lower of cost or net realizable value. Cost
is generally determined by the last-in, first-out method for financial statement
and federal income tax purposes.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment acquired as of the Acquisition was recorded
at the then fair value. Property, plant and equipment acquired subsequent to the
Acquisition is recorded at cost or fair market value if part of an acquisition.
Plant and equipment, including capital leases, are depreciated on the
straight-line method for financial reporting purposes over estimated useful
lives which range from 3 to 10 years for machinery and equipment, and 10 to 40
years for buildings and improvements. The Company's policy is to capitalize
interest during the period of construction.
The cost of maintenance and repairs is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost of the item and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
The Company capitalizes purchased software, including certain costs
associated with its installation. The cost of software capitalized is amortized
over its estimated useful life, generally three to five years, using the
straight-line method.
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)
INTANGIBLE AND OTHER ASSETS, NET:
Intangible and other assets, net, includes assets acquired resulting from
business acquisitions (see Note 14) and are being amortized on the straight-line
method over their estimated periods of benefit, primarily five to ten years.
Accumulated amortization as of January 31, 1998 and 1997 was $1,936 and $1,687,
respectively.
GOODWILL, NET:
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized on the straight-line method over 10 to 40 years.
The recoverability of goodwill is periodically reviewed by the Company. In
assessing recoverability, many factors are considered, including operating
results and future undiscounted cash flows. The Company believes that no
impairment of goodwill existed at January 31, 1998. Accumulated amortization as
of January 31, 1998 and 1997 was $1,851 and $1,356, respectively.
IMPAIRMENT OF ASSETS:
An impairment loss is recognized when expected future cash flows are less
than the asset's carrying value. Accordingly, when indicators of impairment are
present, the Company evaluates the carrying value of property, plant and
equipment and intangibles in relation to the operating performance and future
undiscounted cash flows of the underlying business. The Company's policy is to
record an impairment loss when it is determined that the carrying amount of the
asset may not be recoverable.
ACCRUED LIABILITIES:
Included in accrued liabilities as of January 31, 1998 and 1997 are $2,722
and $2,413 of accrued vacation, $2,345 and $1,405 of accrued bonus and $1,925
and $3,042 of accrued workers compensation insurance, respectively.
OTHER LIABILITIES:
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $2,443 and $3,106 are included in other current
liabilities and $5,793 and $4,215 are included in other liabilities as of
January 31, 1998 and 1997, respectively.
ENVIRONMENTAL MATTERS:
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are also expensed. The Company records
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)
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 Statement of Financial Accounting Standards ("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:
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share". This statement establishes standards for
computing and presenting earnings per share and requires restatement of prior
periods. Net income per common share for the years ended January 31, 1998, 1997
and 1996 is based on the weighted average number of shares of Common Stock
outstanding. Net income per common share - assuming dilution reflects the
potential dilution that could occur if stock options were exercised. The Company
adopted SFAS No. 128 in the fourth quarter of the fiscal year ended January 31,
1998. Weighted average common shares and common shares - assuming dilution were
as follows:
January 31,
--------------------------------
1998 1997 1996
---- ---- ----
Net income (A)................. $19,685 $14,937 $14,044
Weighted average
shares of common stock
outstanding (B).............. 6,110,685 6,258,554 6,039,452
Assumed conversion of
stock options, net of shares
assumed reacquired........... 205,227 180,611 411,837
--------- --------- ---------
Weighted average common
shares - assuming
dilution (C)................. 6,315,912 6,439,165 6,451,289
Net income per common
share (A/B).................. $3.22 $2.39 $2.33
Net income per common
share - assuming
dilution (A/C)............... $3.12 $2.32 $2.18
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)
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for years beginning after December 15, 1997. This
statement establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is defined to include all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. The Company will adopt SFAS No. 130 and
begin reporting comprehensive income in the first quarter of fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the disclosure of segment results. It requires that segments be
determined using the "management approach," which means the way management
organizes the segments within the enterprise for making operating decisions and
assessing performance. The Company has not yet determined the impact of the
implementation of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) provides reduced disclosure requirements for nonpublic
entities; (vi) revises disclosures about defined contribution plans; and (vii)
changes disclosures relating to multi-employer plans. SFAS No. 132 does not
change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or
106. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The Company has not yet determined the impact of the implementation of
SFAS No. 132.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires costs of start-up activities and organization
costs to be charged to expense as incurred. SOP 98-5 is effective for financial
statements for years beginning after December 15, 1998. The Company believes
that the adoption of this SOP will not have a material effect on its financial
position or results of operations.
F-12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
2. RESTRICTED CASH AND CASH EQUIVALENTS
At January 31, 1998 and 1997, the Company had debt proceeds of $0 and $1
which were available solely for the acquisition and installation of equipment at
the Company's existing industrial battery manufacturing facility located in
Conyers, Georgia (see Note 5).
3. INVENTORIES
Inventories consisted of the following:
January 31,
--------------------
1998 1997
---- ----
Raw materials................... $17,099 $17,506
Work-in-progress ............... 9,990 11,599
Finished goods.................. 13,646 9,838
------ ------
$40,735 $38,943
====== ======
If the first-in, first-out method of inventory accounting had been used
(which approximates current cost), inventories would have been $1,902 and $3,027
higher than reported as of January 31, 1998 and 1997, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
----------------------
1998 1997
---- ----
Land................................. $ 487 $ 487
Buildings and improvements........... 19,214 18,099
Furniture, fixtures and equipment.... 92,146 82,825
Construction in progress............. 4,017 2,794
------- -------
115,864 104,205
Less:
Accumulated depreciation....... 58,806 51,736
------- -------
$ 57,058 $ 52,469
======= =======
For the years ended January 31, 1998, 1997 and 1996, depreciation charged
to operations amounted to $8,831, $7,281 and $5,555; maintenance and repair
costs expensed totaled $7,399 $6,268 and $5,939; and interest capitalized
amounted to $166, $304 and $60, respectively.
F-13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT
Long-term debt consisted of the following:
January 31,
-----------
1998 1997
---- ----
Revolving credit facility ("Revolving Credit"); maximum commitment of
$65,000 at January 31, 1998 and 1997 bearing interest at Prime minus .50% or
LIBOR plus .52% and at Prime minus 0.25% or LIBOR plus 0.75%, respectively
(effective rate on a weighted average basis, 6.20% as of January 31, 1998 and
6.41% as of January 31, 1997)....................................................... $ 8,000 $20,333
Pennsylvania Economic Development Financing Authority ("PEDFA") Taxable
Development Revenue Bonds, 1991 Series B2, supported by a letter of credit,
bearing interest at a rate set on a weekly basis which approximates the
commercial paper rate (effective rate on a weighted average basis, 5.60% as of
January 31, 1998 and 5.45% as of January 31, 1997), principal payable in monthly
installments of $8 from December 1993 through November 1999 and of $108
from December 1999 through November 2000............................................ 1,484 1,584
PEDFA Economic Development Revenue Bonds, 1991 Series D6, supported by a
letter of credit, bearing interest at a rate set on a weekly basis which
approximates the commercial paper rate for high-grade tax-exempt borrowers
(effective rate on a weighted average basis, 3.70% as of January 31, 1998 and
3.70% as of January 31, 1997), principal payable in monthly installments of $8
from December 1993 through November 1999 and of $67 from
December 1999 through November 2000................................................ 983 1,083
Development Authority of Rockdale County Industrial Development Revenue
Bonds, Series 1995, ("Georgia Bonds"), supported by a letter of credit ("Georgia
L/C"), bearing interest at a rate set on a weekly basis which approximates tax
exempt A+ rated debt securities (effective rate on weighted average basis, 3.70%
as of January 31, 1997), principal payable at maturity December 1, 2005. The
Georgia Bonds were repaid in full on June 16, 1997................................. - 6,500
Capital lease obligations, bearing interest at 10.5% ......................... 121 327
------ -------
10,588 29,827
Less current portion 321 476
------ -------
$10,267 $29,351
====== ======
F-14
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT (CONTINUED)
On September 26, 1994 the Company entered into a three-bank credit facility
consisting of a $45,000 revolving credit facility and a $15,000 term loan. On
January 26, 1996 the Revolving Credit facility was increased from $45,000 to
$65,000.
On January 30, 1998 the facility was amended and restated. During fiscal
1998 the related unamortized deferred debt acquisition costs were charged to
expense. The bank group now consists of four institutions: NationsBank,
CoreStates Bank, Chase Manhattan Bank and PNC Bank. The facility was changed to
an unsecured credit, the maturity was extended to February 1, 2001, and the
pricing and certain covenants were modified.
The Company has the right to use up to $8,000 of the availability under the
Revolving Credit to provide for the issuance of letters of credit, including the
letters of credit covering the $2,500 PEDFA loans (the "PEDFA L/C"), for the
account of the Company. The Georgia L/C was issued independently of the
Revolving Credit and did not impair the $8,000 availability. At January 31, 1997
$6,575 was outstanding on the Georgia L/C. On June 16, 1997 the Georgia Bonds
were paid in full. During fiscal 1998 the related unamortized deferred debt
acquisition costs were charged to expense. The aggregate value of the letters of
credit outstanding was $4,922 and $11,923 at January 31, 1998 and 1997
respectively. The availability under the Revolving Credit was $52,078 and
$39,319 at January 31, 1998 and 1997 respectively. A letter of credit fee of
between 1% and 1.125% per annum on the aggregate face amount of any outstanding
letters of credit is payable quarterly. A commitment fee of .125% per annum on
the amount of remaining availability is payable quarterly.
The interest rates are based on a financial coverage ratio. The available
rates after January 30, 1998 are in the following ranges: Prime minus .5% to
Prime plus .5% or LIBOR plus .52% to LIBOR plus 1.55%. The available interest
rates prior to January 30, 1998 were in the following ranges: Prime minus .4% to
Prime plus .6% or LIBOR plus .6% to LIBOR plus 1.6%
The maximum aggregate amounts of loans outstanding under the Revolving
Credit were $26,765, $28,915 and $7,237 during the years ended January 31, 1998,
1997 and 1996, respectively. For those years the outstanding loans (excluding
the PEDFA L/C guarantees) under the Revolving Credit computed on a monthly basis
averaged $19,024, $21,494 and $2,204 at a weighted average interest rate of
6.47%, 6.79% and 8.53%, respectively.
The Revolving Credit is unsecured. The agreement contains certain
restrictive covenants, including certain cash flow and financial ratio
requirements and a restriction on capital expenditures. The agreement permits
payment of dividends on the Company's Common Stock so long as there is no
default under the agreement.
The PEDFA Bonds are subject to mandatory redemption upon the occurrence of
certain events, including the termination of the corresponding L/C. The tax
exempt bonds are subject to mandatory redemption if they lose their tax exempt
status.
F-15
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
5. LONG-TERM DEBT (CONTINUED)
The Company was in compliance with its lending agreement covenants at
January 31, 1998 and 1997, respectively.
As of January 31, 1998, the required minimum annual principal reduction of
long-term debt and capital lease obligations for each of the next five fiscal
years is as follows:
1999......................... $ 321
2000 ........................ 516
2001......................... 1,751
2002......................... 8,000
2003......................... -
Thereafter................... -
------
$10,588
======
F-16
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY
(A) STOCK OPTION PLAN:
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard permits the continued use of accounting methods
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," or use of the fair value based method of
accounting for employee stock options. Under APB No. 25, no compensation expense
is recognized when the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant. The
Company has elected to continue using APB No. 25.
At January 31, 1998, the Company had options outstanding under its Stock
Option Plans. The 1996 Stock Option Plan was approved by the stockholders on
July 25, 1996 and replaces the previous plan which expired on January 28, 1996.
New options can be granted only under the 1996 plan, which reserved 500,000
shares of Common Stock for such use. 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 and one day
after the date of grant. The options are exercisable upon vesting as determined
by the Compensation Committee at the time the options are granted.
A summary of stock option activity related to the Company's plan is as
follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Year Year Year Outstanding Exercisable
----------- ---- ---- ---- ----------- -----------
Year ended
January 31, 1998
Number of shares.............. 431,500 141,525 66,973 22,351 483,701 198,171
Weighted average option
price per share............. $17.78 $45.03 $16.52 $25.32 $25.98 $12.99
Year ended
January 31, 1997
Number of shares.............. 301,800 253,000 111,300 12,000 431,500 190,500
Weighted average option
price per share............. $10.19 $24.00 $10.66 $24.00 $17.78 $9.92
Year ended
January 31, 1996
Number of shares.............. 403,600 - 94,125 7,675 301,800 187,300
Weighted average option
price per share............. $9.96 - $9.20 $10.39 $10.19 $9.06
F-17
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY (CONTINUED)
There were 139,826 and 259,000 shares available for future grants of
options as of January 31, 1998 and 1997, respectively. The following table
summarizes information about the stock options outstanding at January 31, 1998:
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
--------------- ----------- ---- ----- ----------- -----
$5.25 - $8.25 73,000 4.6 years $ 7.02 73,000 $ 7.02
$10.13 - $12.00 77,500 6.2 years $11.85 77,500 $11.85
$24.00 193,026 8.8 years $24.00 47,671 $24.00
$34.50 10,500 9.0 years $34.50 - -
$45.88 129,675 9.7 years $45.88 - -
------- -------
$5.25 - $45.88 483,701 8.0 years $25.58 198,171 $12.99
======= =======
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 1998 and 1997.
1998 1997
---- ----
Risk-free interest rate........... 6.44% 6.58%
Expected dividend yield........... .44% .46%
Expected volatility factor........ 0.409 0.400
Weighted average expected life.... 5.28 years 6.00 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which 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. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-18
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
6. STOCKHOLDERS' EQUITY (CONTINUED)
If the Company had elected, beginning in fiscal 1997, to recognize
compensation cost based on fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and net income per common share would
have approximated the pro forma amounts shown below:
1998 1997
---- ----
Net income - as reported..................... $19,685 $14,937
Net income - pro forma....................... 18,953 14,795
Net income per common share - as reported.... 3.22 2.39
Net income per common share - pro forma...... 3.10 2.36
Net income per common share -
assuming dilution - as reported............ 3.12 2.32
Net income per common share -
assuming dilution - pro forma.............. 3.00 2.30
Weighted average fair value of options
granted during the year.................... 17.96 11.24
The pro forma disclosures are not likely to be representative of the
effects on net income and net income per common share in future years, because
they do not take into consideration pro forma compensation expense related to
grants made prior to the Company's fiscal year 1997. No options were granted
during fiscal 1996.
(B) GRANT OF OPTIONS:
In May 1989 and June 1988, the Company granted options to purchase 110,000
and 237,386 shares, respectively, of Common Stock to certain executives for
terms expiring April 30, 1994 and 1993, respectively, at $6.04 per share. In
June 1991: (i) a certain executive vested in his options to purchase 26,376
shares of common stock; and (ii) the agreements regarding the remaining options
were amended whereby certain vesting criteria were eliminated and the expiration
dates changed, so that these options vested on April 30, 1994 and would expire
on April 30, 1996 and October 31, 1995 for options to purchase 110,000 and
211,010 shares, respectively. During the year ended January 31, 1994, the option
to purchase 26,376 shares expired prior to exercise. During the year ended
January 31, 1996 the option to purchase 211,010 shares was exercised. During the
year ended January 31, 1997 the option to purchase 110,000 shares was exercised.
The Company has recorded no compensation expense related to these options in the
three years ended January 31, 1998.
F-19
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
7. INCOME TAXES
The provisions for income taxes as shown in the accompanying consolidated
statements of income consisted of the following:
January 31,
-----------------------------
1998 1997 1996
---- ---- ----
Currently payable:
Federal...................... $11,579 $7,196 $ 7,156
Foreign...................... 59 94 -
State........................ 1,853 960 1,068
Foreign Sales Corporation.... 206 173 120
------ ----- -------
13,697 8,423 8,344
------ ----- -------
Deferred:
Federal...................... (2,039) (285) (1,052)
State........................ (299) (17) (185)
------ ----- -------
(2,338) (302) (1,237)
------ ----- ------
$11,359 $8,121 $ 7,107
====== ===== ======
The components of the deferred tax asset and liability as of January 31,
1998 and 1997 were as follows:
1998 1997
---- ----
Deferred tax asset:
Vacation and compensation accruals............ $ 3,746 $ 3,537
Restructuring reserves........................ 443 307
Postretirement benefits....................... 741 682
Warranty reserves............................. 3,261 2,903
Bad debt, inventory and return allowances..... 2,306 1,471
Environmental reserves........................ 570 593
Other accruals................................ 754 277
------- ------
Total deferred tax asset...................... 11,821 9,770
------ -----
Deferred tax liability:
Depreciation and amortization................. (5,901) (5,773)
Pension obligation............................ (306) (388)
Other......................................... (119) (217)
------- ------
Total deferred tax liability.................. (6,326) (6,378)
------ ------
Net deferred tax asset........................ $ 5,495 $ 3,392
====== ======
F-20
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
7. INCOME TAXES (CONTINUED)
Reconciliations of the provisions for income taxes at the U. S. Federal
statutory rate to the effective tax rates for the years ended January 31, 1998,
1997 and 1996, respectively, are as follows:
January 31,
-----------------------------
1998 1997 1996
---- ---- ----
U.S. statutory income tax........... $10,865 $8,070 $7,403
Tax effect of foreign operations.... (35) (234) -
State tax, net of federal
income tax benefit................ 1,010 613 574
Reduction in valuation allowance.... - - (792)
Foreign sales corporation........... (388) (325) (150)
Other............................... (93) (3) 72
------ ----- -----
$11,359 $8,121 $7,107
====== ===== =====
The decrease in the valuation allowance of $792 during the year ended
January 31, 1996 relates to revaluation of the stock option compensation
deferred tax asset due to increases in the price of the Company's common stock.
8. 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, 1998, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
Fiscal Year
-----------
1999........................ $ 2,286
2000........................ 1,870
2001........................ 1,356
2002........................ 1,152
2003........................ 963
Thereafter.................. 4,766
------
$12,393
======
Total rent expense for all operating leases for the years ended January 31,
1998, 1997 and 1996 was $3,319, $3,289 and $1,800, respectively.
F-21
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(B) CONTINGENT LIABILITIES:
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, Canadian, Mexican,
Irish, state and local laws and regulations that are designed to protect the
environment and employee health and safety.
These laws and regulations include requirements relating to the handling,
storage, use and disposal of hazardous materials and solid wastes, recordkeeping
and periodic reporting to governmental entities regarding the use of hazardous
substances and disposal of hazardous wastes, monitoring and permitting of air
and water emissions and monitoring and protecting workers from exposure to
hazardous substances, including lead used in the Company's manufacturing
processes. In the opinion of the Company, the Company complies in all material
respects with these laws and regulations.
Notwithstanding such compliance, if damage to persons or the environment
has been or is caused by hazardous substances used, generated or disposed of in
the conduct of the Company's business (or that of a predecessor to the extent
the Company is not indemnified therefore), the Company may be held liable for
the damage and be required to pay the cost of investigating and remedying the
same, and the amount of any such liability could be material to the results of
operations or financial condition. However, under the terms of the purchase
agreement with Allied for the Acquisition of the Company (the "Acquisition
Agreement"), Allied is obligated to indemnify the Company for any liabilities of
this type resulting from conditions existing at January 28, 1986 that were not
disclosed by Allied to the Company in the schedules to the Acquisition
Agreement.
The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
"EPA") in connection with investigations of the source and extent of
contamination at several lead smelting facilities (the "Third Party Facilities")
to which the Company had made scrap lead shipments for reclamation prior to the
date of the Acquisition. As of January 16, 1989, the Company entered into an
agreement with other potentially responsible parties ("PRPs") relating to
remediation of a portion of one of the Third Party Facilities, the former NL
Industries ("NL"), facility in Pedricktown, New Jersey (the "NL Site"), which
agreement provides for their joint funding on a proportionate basis of certain
remedial investigation and feasibility study activities with respect to that
site.
In fiscal 1993 in accordance with an EPA order, a group comprised of the
Company and 30 other parties commenced work on the cleanup of a portion of the
NL Site based on a specified remedial approach which is now completed. The
Company did not incur costs in excess of the amount previously reserved.
F-22
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
With regard to the remainder of the NL Site, the EPA is pursuing
negotiations with NL and the other PRPs, including the Company, regarding the
conduct and funding of the remedial work plan. The EPA has proposed a cost
allocation plan, however, the allocation percentages between parties and the
basis for allocation of cost are not defined in the plan or elsewhere.
Therefore, a reliable range of the potential cost to the Company of this phase
of the clean-up cannot currently be determined. Accordingly, the Company has not
established any reserve for this potential exposure.
The remedial investigation and feasibility study at a second Third Party
Facility, the former Tonolli Incorporated facility at Nesquehoning, Pennsylvania
(the "Tonolli Site"), was completed in fiscal 1993. The EPA and the PRPs are
continuing to evaluate the draft remedial design work plan for the site. Based
on the estimated cost of the remedial approach selected by the EPA, the Company
believes that the potential cost of remedial action at the Tonolli Site is
likely to range between $16,000 and $17,000. The Company's allocable share of
this cost has not been finally determined, and will depend on such variables as
the financial capability of various other PRPs to fund their respective
allocable shares of the remedial cost. Based on currently available information,
however, the Company believes that its most likely exposure with respect to the
Tonolli Site will be the approximately $579 previously reserved, the majority of
which is expected to be paid over the next two years. The Company expects to
recover a portion of its monetary obligations for the remediation of the Tonolli
site through litigation against third parties and recalcitrant PRPs.
The Company has responded to requests for information from the EPA with
regard to three other Third Party Facilities, one in September 1991, one (the
"Chicago Site") in October 1991, and the third (the "ILCO Site") in October
1993. Of the three sites, the Company has been identified as a PRP at the ILCO
and Chicago Sites only.
Based on currently available information, the Company believes that the
potential cost of remediation at the ILCO Site is likely to range between
$54,000 and $59,000 (based on the estimated costs of the remedial approach
selected by the EPA). The Company's allocable share of this cost has not been
finally determined and will depend on such variables as the financial capability
of various other PRPs to fund their respective allocable shares of the remedial
cost. However, on October 31, 1995 the Company received confirmation from the
EPA that it is a de minimis PRP at the ILCO Site. Based on currently available
information, however, the Company believes that its most likely exposure with
respect to the ILCO Site is an immaterial amount which has been previously
reserved, the majority of which is expected to be paid over the next year.
Based on currently available information, the Company believes that the
potential cost of the remediation at the Chicago Site is likely to range between
$8,000 and $10,500 (based on the preliminary estimated costs of the remediation
approach negotiated with the EPA). Sufficient information is not available to
determine the Company's allocable share of this cost. Based on currently
available information, however, the Company believes that its most likely
exposure with respect to the Chicago Site will be the approximately $283
previously reserved, the majority of which is expected to be paid over the next
two to five years.
F-23
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Allied has accepted responsibility under the Acquisition Agreement for
potential liabilities relating to all Third Party Facilities other than the
aforementioned Sites. Based on currently available information, management of
the Company believes that the foregoing will not have a material adverse effect
on the Company's business, financial condition or results of operations.
(C) PURCHASE COMMITMENTS:
The Company has long-term relationships pertaining to the purchase of
certain raw materials with various suppliers through December 31, 1998. These
purchase commitments are not expected to exceed usage requirements.
9. MAJOR CUSTOMER
Lucent Technologies accounted for 13.5% and 4.0% of net sales for the years
ended January 31, 1998 and 1997. AT&T accounted for 0.7%, 11.1% and 11.4% of net
sales for the years ended January 31, 1998, 1997 and 1996. Lucent Technologies
was spun off from AT&T and became an operating entity on October 1, 1996. Had
Lucent Technologies been an operating company for the full fiscal year, Lucent
Technologies would have accounted for 12.0% of net sales and AT&T would have
accounted for 3.1% of net sales for the year ended January 31, 1997.
10. CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to potential concentration
of credit risk consist principally of trade receivables and temporary cash
investments. The Company places its temporary cash investments with various
financial institutions and, generally, limits the amount of credit exposure to
any one financial institution. Except as discussed in Note 9, concentrations of
credit risk with respect to trade receivables is limited by a large customer
base and its geographic dispersion. The Company performs ongoing credit
evaluations of its customers' financial condition and requires collateral, such
as letters of credit, in certain circumstances.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents - the carrying amount approximates fair value
because of the short maturity of these instruments.
Debt (excluding capital lease obligations) - the carrying value of the
Company's long term debt, including the current portion, approximates fair
value based on the incremental borrowing rates currently available to the
Company for loans with similar terms, maturity and tax exempt status.
F-24
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at January
31, 1998 and 1997 were as follows:
1998 1997
--------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Cash and cash equivalents ...... $ 1,167 $ 1,167 $ 952 $ 952
Restricted cash and cash
equivalents ................. - - 1 1
Debt (excluding capital
lease obligations) .......... 10,467 10,467 29,500 29,500
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.
On December 20, 1995 the Company entered into an interest rate swap
agreement with a notional amount of $6,500. This swap agreement effectively
fixed the interest rate on a like amount of the Company's floating rate debt at
6.01% plus the Company's LIBOR spread in effect at any time. The effective rate
was 6.53% and 6.76% at January 31, 1998 and 1997, respectively. The swap expires
on December 20, 2002.
On June 24, 1997 the Company entered into a cross currency interest rate
swap agreement with a notional amount of US $1,293. This swap agreement
effectively exchanges US Dollar debt for Canadian Dollar debt and fixes the
interest rate at 4.72%. The maturity date for this instrument is June 24, 1999.
On June 24, 1997 the Company entered into a cross currency interest rate
swap agreement with a notional amount of US $1,221. The swap agreement
effectively exchanges US Dollar debt for Canadian Dollar debt and establishes
floating interest rates equivalent to three months Canadian Bank Acceptances
plus .18%. At January 31, 1998 the effective rate was 5.13%. The maturity date
for this instrument is June 24, 1998.
The Company had a foreign exchange contract on hand at January 31, 1998
hedging Mexican Peso requirements in the amount of $2,739.
The estimated fair value of the aforementioned interest rate swaps and
foreign exchange contract is not material. The estimates of fair value 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 contract,
however, depend on future interest rates and exchange rates.
F-25
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
12. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into a consulting
agreement with an affiliate of certain of the Company's major stockholders.
Effective January 1, 1992, the agreement was amended to eliminate the Company's
obligation to pay regular periodic consulting fees and to substitute therefore
an obligation to pay certain fees in connection with potential acquisitions by
the Company. The agreement was terminated on November 1, 1995. No payments were
made under this agreement for the years ended January 31, 1998, 1997 and 1996.
In May 1988, the Company entered into an agreement with a former executive
providing for (i) the purchase of 316,515 shares of Common Stock at $4.20 a
share, payable in cash in the amount of $.01 a share and the balance of $4.19 a
share in a noninterest bearing note and (ii) the grant of certain options (see
Note 6). The note matured on October 31, 1995 and was repaid. For financial
reporting purposes, the note was discounted to present value as of the date of
issuance.
In May 1989, the Company entered into an agreement with another executive
providing for (i) the purchase of 60,000 shares of Common Stock at $5.50 a
share, payable in cash in the amount of $.01 a share and an interest bearing
note at 12.5% (6.0% per annum effective July 1, 1992) maturing April 30, 1998
(subject to acceleration under certain circumstances), and (ii) the grant of
certain options (see Note 6). The note was repaid during the fiscal year ended
January 31, 1996. The option was exercised on April 30, 1996. Under the terms of
the Option Agreement, this executive paid the exercise price with an
interest-free promissory note in the original principal amount of $664 that was
collateralized by the shares received on exercise. The note matured on October
31, 1997 and was repaid. The Company loaned this executive $1,057 to pay the tax
withholding on the exercise of such option, evidenced by a promissory note (the
"Tax Note"), bearing interest at 5.33% per annum payable annually, and due on
April 29, 1997, subject to extension until April 29, 1999 at the option of this
executive. On April 28, 1997 this executive extended the Tax Note until April
29, 1999. The Tax Note is collateralized by 90,000 of the shares received on
exercise of such option. The Company further agreed to make payments to the
executive in an amount sufficient to reimburse the executive, on an after-tax
basis, for all interest on the Tax Note incurred through the earlier of April
29, 1997 or the prepayment of the Tax Note.
The consolidated statements of income for the years ended January 31, 1998,
1997 and 1996 include executive contract expenses of $1, $238 and $0,
respectively.
F-26
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 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 employee's 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 following table represents the funded status of the Company's plans and
amounts included in the Company's balance sheets:
January 31, 1998 January 31, 1997
---------------- ----------------
Over- Under- Over- Under-
funded funded funded funded
Plans Plans Plans Plans
----- ----- ----- -----
Actuarial present value of benefit obligations:
Vested benefit obligation.................... $4,957 $22,146 $3,679 $20,116
===== ====== ===== ======
Accumulated benefit obligation............... $5,646 $24,146 $4,107 $21,506
===== ====== ===== ======
Projected benefit obligation................. $5,646 $29,169 $4,107 $25,581
Plan assets at fair value.................... 6,336 27,565 4,243 24,771
----- ------ ----- ------
Projected benefit obligation less than
(in excess of) plan assets................ 690 (1,604) 136 (810)
Unrecognized net loss........................ 1,048 784 702 855
Prior service cost not yet recognized
in net periodic pension cost.............. 9 (11) 8 (10)
Adjustment required to recognize
minimum liability......................... - - - (240)
----- ------ ----- ------
Prepaid (accrued) pension cost .............. $1,747 $ (831) $ 846 $ (205)
===== ====== ===== ======
As required by SFAS No. 87, "Employers' Accounting for Pensions," for plans
where the accumulated benefit obligation exceeds the fair value of the plan
assets, the Company has recognized in the accompanying consolidated balance
sheets the minimum liability of the unfunded accumulated benefit obligation as a
long-term liability with an offsetting intangible asset and equity adjustment,
net of tax impact. As of January 31, 1997, this minimum liability amounted to
$240 and the reduction in equity amounted to $136.
F-27
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
For the years ended January 31, 1998, 1997 and 1996, the actuarially
computed net pension expense included the following components:
1998 1997 1996
---- ---- ----
Service cost .................................. $ 1,176 $ 1,257 $ 733
Interest cost.................................. 2,246 2,100 1,906
Actual return on plan assets................... (5,438) (3,314) (6,216)
Net amortization and deferrals................. 2,946 1,179 4,506
------ ------ ------
Net pension expense............................ $ 930 $ 1,222 $ 929
====== ====== ======
Actuarial assumptions used in accounting for the plans for the years ended
January 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996
---- ---- ----
Weighted average discount rate:
Pension expense......................... 7.80% 7.25% 9.25%
Benefits obligations.................... 7.00% 7.80% 7.25%
Weighted average rates of increase in
compensation levels..................... 4.6% to 8.6% 4.6% to 8.6% 4.6% to 8.6%
Weighted average expected long-term
rate of return on assets................ 8.75% 8.75% 8.75%
(B) The Company provides certain health care and life insurance benefits
for retired employees who meet certain service requirements under a frozen plan
(the "Plan"). Under the Plan, the Company contributes a fixed amount and
requires the retiree to fund the remaining cost. As the Company's contribution
is frozen, the change in future health care costs should not materially impact
the accumulated postretirement benefit obligation.
The components of net postretirement benefit expense follow:
1998 1997 1996
---- ---- ----
Service cost of benefits earned................... $ 59 $ 58 $ 49
Interest cost on liability........................ 109 106 111
Net amortization.................................. (24) (16) (37)
--- --- ---
Net postretirement benefit costs.................. $144 $148 $123
=== === ===
F-28
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 following table sets forth the Plan's postretirement benefit liability
as of January 31, 1998 and 1997:
1998 1997
---- ----
Accumulated postretirement benefit obligation:
Current retirees............................. $ 698 $ 600
Fully eligible actives....................... 578 582
Other actives................................ 358 293
----- -----
Total accumulated postretirement
benefit obligation........................... 1,634 1,475
Unrecognized net gain............................ (217) (322)
----- -----
Accrued postretirement benefit liability..... $1,851 $1,797
===== =====
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 7.0% and 7.8% for the years ended January 31,
1998 and 1997, respectively.
(C) Certain salaried employees are eligible to participate in various
defined contribution retirement plans. The Company's contributions under the
plans are based on specified percentages of employee contributions. The
Company's cost was $725, $684 and $633 for the years ended January 31, 1998,
1997 and 1996, respectively.
14. ACQUISITIONS
In February 1996, the Company acquired certain equipment and inventory of
LH Research, Inc. used in its power supply business, along with all rights to
the name "LH Research" for $4,428 of which $892 was recorded as current portion
of long-term debt and paid during the year. The Company used available cash to
finance the acquisition.
The acquisition was recorded using the purchase method of accounting and
the net purchase price has been allocated on the basis of the estimated fair
market values of the assets acquired and liabilities assumed. The excess of the
aggregate purchase price over the estimated fair market values of the net assets
acquired was recognized as goodwill. During the fiscal year ended January 31,
1998 the goodwill and intangible assets were written off in accordance with the
Company's Impairment of Assets policy (see Note 1).
F-29
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
14. ACQUISITIONS (CONTINUED)
In March 1996, the Company acquired from Burr-Brown Corporation its entire
interest in Power Convertibles Corporation ("PCC") consisting of 1,044,418
shares of PCC common stock and all outstanding preferred stock. In addition the
Company acquired or repaid $5,158 of indebtedness of PCC. In April 1996, the
Company acquired 190,000 shares of PCC common stock from the former chief
executive officer of PCC which together with the shares previously acquired
represented in excess of 99.6% of the outstanding PCC common stock. In May 1996,
the Company purchased all remaining shares of PCC common stock and shares of PCC
common stock issuable upon exercise of stock options.
The source of funds for the acquisition was advances under the Company's
existing credit facility. PCC is engaged in the business of designing and
manufacturing DC-to-DC converters used in communications, computer, medical and
industrial and instrumentation markets and also produces battery chargers for
cellular phones.
The acquisition has been recorded using the purchase method of accounting.
The aggregate purchase price was $16,932 of which $466 was recorded as current
portion of long-term debt and paid during the year. The purchase price has been
allocated on the basis of the estimated fair market values of the assets
acquired and liabilities assumed. The excess of the aggregate purchase price
over the estimated fair market values of the net assets acquired was recognized
as goodwill and is being amortized over a period of 20 years. The results of
operations are included in the Company's consolidated financial statements from
the date of acquisition.
F-30
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
14. ACQUISITIONS (CONTINUED)
The following unaudited pro forma financial information combines the
consolidated results of operations as if both acquisitions had occurred as of
the beginning of the periods presented. Pro forma adjustments include only the
effects of events directly attributed to a transaction that are factually
supportable and expected to have a continuing impact. The pro forma adjustments
contained in the table below include amortization of intangibles, interest
expense on the acquisition debt, elimination of interest expense on debt not
acquired, reduction of certain selling, general and administrative expenses and
the related income tax effects.
January 31,
----------------------
1997 1996
---- ----
Net sales............................ $288,830 $278,309
Net income........................... $ 14,683 $ 12,938
Net income per common share.......... $ 2.35 $ 2.14
Net income per common share -
assuming dilution.................. $ 2.28 $ 2.00
The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisitions been consummated
as of the above dates, nor is such information indicative of future operating
results. In addition, the pro forma financial results contain estimates since
the acquired businesses did not maintain information on a period comparable with
the Company's fiscal year-end.
F-31
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended January 31, 1998 and 1997
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 1998:
Net sales............................. $73,346 $75,375 $81,381 $77,952
Gross profit.......................... 18,983 19,474 20,656 22,061
Operating income...................... 7,652 7,738 8,822 9,019
Net income............................ 4,135 4,704 5,319 5,527
Net income per common share........... .68 .77 .87 .90
Net income per common share -
assuming dilution.................. .66 .75 .84 .87
For the year ended January 31, 1997:
Net sales............................. $62,429 $71,748 $76,576 $76,154
Gross profit.......................... 15,121 15,281 18,262 18,424
Operating income...................... 5,804 4,466 6,857 7,319
Net income............................ 3,646 2,650 4,130 4,511
Net income per common share........... .58 .41 .66 .74
Net income per common share -
assuming dilution................... .56 .40 .65 .72
F-32
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
C&D TECHNOLOGIES, INC.
Our report on the consolidated financial statements of C&D TECHNOLOGIES, INC.
and Subsidiaries (formerly Charter Power Systems, Inc.) is included on page F-2
of this Form 10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedule listed in item
14(a) (2) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 10, 1998
S-1
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
Additions
Charged Additions Balance
Balance at (Credited) Charged at
Beginning to Costs & to Other End of
of Period Expenses Accounts(b) Deductions(a) Period
--------- -------- ----------- ------------- ------
Deducted From Assets
- --------------------
Allowance for Doubtful Accounts:
Year ended January 31, 1998............... $1,414 $ 401 - $114 $1,701
Year ended January 31, 1997............... 1,421 128 $109 244 1,414
Year ended January 31, 1996............... 1,404 136 - 119 1,421
- ---------
(a) Amounts written-off, net of recoveries.
(b) Additions related to business acquisitions.
S-2