Back to GetFilings.com
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, 1999
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 15, 1999: $289,126,672
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 15, 1999: 12,546,283 shares of Common Stock, par value $.01
per share.
Documents incorporated by reference:
Registrant's Proxy Statement to be Part III
filed pursuant to Regulation 14A -------------------
within 120 days after the end of (Part of Form 10-K into which
Registrant's fiscal year covered by Document is incorporated.)
this Form 10-K
- -----------------------------------
TABLE OF CONTENTS
Page
----
Part I
Item 1 Business............................................... 1
Item 2 Properties............................................. 13
Item 3 Legal Proceedings...................................... 14
Item 4 Submission of Matters to a Vote of
Security Holders..................................... 14
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters...................... 14
Item 6 Selected Financial Data................................ 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 18
Item 7A Quantitative and Qualitative Disclosure
About Market Risk.................................... 25
Item 8 Financial Statements and Supplementary Data............ 26
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 26
Part III
Item 10 Directors and Executive Officers of the Registrant..... 26
Item 11 Executive Compensation................................. 26
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................ 26
Item 13 Certain Relationships and Related Transactions......... 26
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................. 27
Signatures.......................................................... 31
Index to Financial Statements and Financial Statement Schedule...... F-1
I
C&D TECHNOLOGIES, INC.
PART I
Item 1. Business
- -----------------
About Our Company
- -----------------
C&D TECHNOLOGIES, INC. (together with its operating subsidiaries, "we",
"our" or "C&D") is a leading North American producer of integrated reserve power
systems for telecommunications, electronic information and industrial
applications. We are also a leading producer of embedded high frequency
switching power supplies. Our power supplies are used in:
o telecommunications equipment;
o advanced office electronics;
o sophisticated computer systems; and
o motive power systems for electric industrial vehicles.
Our integrated reserve power systems are comprised of the following:
o industrial lead acid batteries;
o power rectifiers;
o power control equipment;
o distribution equipment; and
o related accessories.
We sell both individual components and integrated power systems.
In June 1997, we changed our name from Charter Power Systems, Inc. to C&D
TECHNOLOGIES, INC.
We were organized in November 1985 to acquire all the assets of the
eighty-year old C&D Power Systems division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.
In October 1992, we purchased substantially all of the assets and assumed
certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"),
a Seattle, Washington based manufacturer and distributor of power electronics
equipment used primarily in the regulated telecommunications power market.
Ratelco also marketed a nonregulated range of alarm and monitoring equipment for
use with telecommunications power systems.
In March 1994, we purchased substantially all of the assets and assumed
certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona based
company which designs and manufactures custom power supplies. 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, we purchased certain assets and assumed certain
liabilities of the switching power supply division of Basler Electric Company, a
Highland, Illinois based manufacturer of electrical components. These power
supplies are used for office electronics and communications applications.
In November 1995 we sold shares of Common Stock in a public offering.
In February 1996, we purchased certain equipment and inventory of LH
Research, Inc. ("LH"), a Costa Mesa, California based manufacturer of standard
power supply systems for the electronics industry. The power supplies are used
in telecommunications, computer, medical, process control and other industrial
applications.
In March 1996, we acquired from Burr-Brown Corporation its entire interest
in Power Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC
common stock and all outstanding preferred stock. In addition, we acquired or
repaid the indebtedness of PCC. In April 1996, we 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, we purchased all remaining shares of PCC common
stock and shares of PCC common stock issuable upon exercise of stock options.
Tucson, Arizona based PCC produced 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.
In July 1998 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
Recent Acquisitions
- -------------------
In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a designer,
manufacturer, marketer and distributor of industrial batteries based in
Milwaukee, Wisconsin. These assets included all of the ordinary shares of
Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of
Johnson Controls (U.K.) Limited.
In addition, we expect to consummate the acquisition of an interest of the
Specialty Battery Division in a joint venture in Shanghai, China in the near
future, subject to certain third party consents. The joint venture manufactures,
markets and distributes industrial and starting, lighting and ignition
batteries.
Fiscal Year
- -----------
Our fiscal year ends in January. Any references to a fiscal year mean the
12-month period ending January 31 of the year mentioned.
2
Forward Looking Statements
- --------------------------
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Item 7A, "Quantitative and Qualitative Disclosure About
Market Risk," 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 our other
Securities and Exchange Commission filings, could affect our actual results and
could cause our actual results to differ materially from those expressed in any
forward-looking statements we have made in this Annual Report on Form 10-K.
Reportable Segments
- -------------------
In fiscal 1999, we adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." 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. In
compliance with SFAS 131, we have identified the following three reportable
segments:
o Powercom Division
o Motive Power Division
o Power Electronics Division
The financial information regarding our three business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 1999 is provided in Note 16 to the Consolidated
Financial Statements. See Part II, Item 8.
The Market for Our Products
- ---------------------------
We manufacture and market products in the following general categories by
business segment:
o Powercom Division - integrated reserve power systems and
components for the standby power market which includes
telecommunications, uninterruptible power supplies ("UPS") and
utilities and control;
o Motive Power Division - motive power systems for the material
handling equipment market; and
o Power Electronics Division - custom, standard and modified
standard embedded high frequency AC-to-DC and DC-to-DC
switching power supplies and battery chargers for cellular
phones.
We market our products via independent manufacturer's representatives,
distributors and our own sales personnel.
3
We sell products directly to the U.S. Government. Those sales have
accounted for less than 5% of our total company sales during each of our last
three fiscal years.
Products and Customers By Business Segment
- ------------------------------------------
Powercom Division - Reserve Power Systems
-----------------------------------------
We are a leading producer of fully integrated reserve power systems, which
monitor and regulate electric power flow and provide backup power in the event
of a primary power loss or interruption. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.
We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:
o flooded batteries and
o valve-regulated (sealed) batteries.
Flooded batteries require periodic watering and maintenance. Valve-
regulated batteries require less maintenance and are often smaller.
Our reserve power systems include a wide range of power electronics
products to meet the needs of our customers, consisting principally of power
rectifiers and distribution and monitoring equipment. Our power rectifiers
convert or "rectify" external AC power into DC power at the required level and
quality of voltage and apply the DC power to constantly charge the reserve
battery and operate the user's equipment. For installations with end
applications that require varied power levels, our power control and
distribution equipment distributes the rectified power at the appropriate power
level for each of the applications.
TELECOMMUNICATIONS CUSTOMERS. Our customers use the majority of our standby
power products in telecommunications applications such as central telephone
exchanges, microwave relay stations, private branch exchange ("PBX") systems and
cellular mobile telephone systems. Our major telecommunications customers
include national long distance companies, Regional Bell Operating Companies,
cellular system operators, personal communications services providers, paging
systems and PBX telephone locations using fiber optic cable, microwave
transmission or traditional copper-wired systems.
MODULAR POWER PLANTS. We offer several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty AGM Series Power Plant and the Liberty ACM Series Power Plant,
integrate advanced rectifiers with virtually maintenance free valve-regulated
batteries.
ROUND CELL BATTERY. One of our historically important telecommunications
products has been the Round Cell reserve power battery, a flooded product which
was originally designed and patented by the Bell Laboratories of AT&T for
use in AT&T's own facilities and customer installations. Our company or its
predecessor has manufactured Round Cells for AT&T or Lucent Technologies, Inc.
4
since 1972 and has been the exclusive manufacturer since 1982. AT&T spun off its
equipment manufacturing operations into an independent company named "Lucent
Technologies, Inc.," which began operations on October 1, 1996. Both our
Powercom and Power Electronics Divisions sell products to Lucent Technologies,
Inc., which accounted for 13.1% of our consolidated net sales for the year ended
January 31, 1999. No other customer accounted for more than 5% of our
consolidated net sales during fiscal 1999.
UNINTERRUPTIBLE POWER SUPPLIES. We produce 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 for a limited period of time 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. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures.
Motive Power Division - Motive Power Systems
--------------------------------------------
Our customers use the majority of our motive power products to provide the
primary power source for fork-lift trucks and other material handling vehicles.
A significant portion of our motive power sales include products and systems to
recharge motive power batteries.
We produce complete systems and individual components (including power
electronics and batteries) to power, monitor, charge and test the batteries used
in electric industrial vehicles, including fork-lift trucks, automated guided
vehicles and airline ground support equipment. Our 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, original equipment manufacturers
("OEMs").
We offer a broad line of motive power equipment including the C-Line, which
we believe is the industry standard for long life; the V-Line for general
material handling applications; the low maintenance Liberty Eclipse battery and
charger which reduces the customer's cost of operation; and the high density
Suprema line, designed for narrow aisle warehousing applications requiring high
energy.
Power Electronics Division -
Power Supplies and Cellular Phone Battery Chargers
--------------------------------------------------
Through our Power Electronics Division we design, manufacture and
distribute custom, standard and modified standard electronic power supply
systems built for large OEMs of telecommunications equipment, office products,
computers and workstations. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division. The Power Electronics Division also manufactures cellular
phone battery chargers.
5
We sell the majority of our power supply products to OEMs of electronic
products on either a custom, standard or modified standard basis. Power supplies
are embedded in almost all electronic products and are used to convert incoming
AC or DC voltage to the required level and quality of DC voltage.
Our power supplies incorporate advanced technology and are designed for
dependable operation of the host equipment. Our power supply products include
AC-to-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, our power supplies are broadly used in
voice and data telecommunications. We also produce power supplies for office
copiers, workstations and other sophisticated computers.
Sales, Installation and Servicing
- ---------------------------------
The sales, installation and servicing of our 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 us providing for compensation on a
commission basis or as a distributor with product purchases for independent
resale.
In addition to these networks of independent manufacturer's
representatives, we maintain 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
end users, OEMs and national accounts. We also maintain a separate sales force
that works with the independent manufacturer's representative network and
certain large customers.
We have several internal divisional marketing departments in our Powercom,
Motive Power and Power Electronics Divisions. These departments manage the
development of new products from the initial concept definition and management
approval stage through the engineering, production and sales processes. These
departments are also responsible for applications engineering and technical
training of sales representatives.
We maintain branch sales and service facilities in the United States,
Canada and Europe, with the support of our headquarters and service personnel,
and have relationships with sales representatives or distributors in the Far
East, the Middle East, Europe, Mexico, and Central and South America.
6
We typically sell our products upon terms requiring payment in full within
30 to 60 days. We warrant our 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 sold
by our Powercom Division.
Backlog
- -------
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders and, taking into
account considerations of manufacturing capacity and flexibility, the speed with
which we fill those orders. Accordingly, our backlog at any particular date only
indicates expected shipments in the near future. Period-to-period comparisons
may not be meaningful. Orders for many of our products may be canceled by the
customer prior to shipment.
Our Powercom Division normally ships standby power products within two
weeks to two months after order and our Motive Power Division normally ships
products within two days to four weeks after order. Our Power Electronics
Division normally ships power supplies one week to three months after order. Our
order backlog at March 31, 1999 was $68,708,000, excluding backlog associated
with the recently acquired Specialty Battery Division of JCI, and at March 31,
1998 was $58,522,000. We expect to fill the majority of the March 31, 1999
backlog during fiscal 2000.
Manufacturing and Raw Materials
- -------------------------------
We manufacture our products at eight domestic plants, two plants in Mexico
and one plant in Europe, excluding facilities associated with the recently
acquired Specialty Battery Division of JCI. We manufacture most key product
lines at a single focused plant in order to optimize manufacturing efficiency,
asset management and quality control.
EXPANSION AND CONSOLIDATION. We are continuing the process of capacity
expansion at several of our plants. During fiscal 1997, we 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, we closed our Seattle, Washington manufacturing facility during fiscal
1997.
When we acquired the PowerSystems Division of ITT in fiscal 1995, we
entered into an agreement pursuant to which a third party "shelter company"
provided to us the Nogales, Mexico facility and employed Mexican staff and labor
to assemble our products. This agreement was terminated during fiscal 1998.
The principal raw materials used in the manufacture of our products include
lead, steel, copper, plastics and electronic components, all of which are
generally available from multiple suppliers. Other than the required use of two
suppliers of lead for the production of Round Cell batteries for Lucent
Technologies, Inc., we use a number of suppliers to satisfy our raw materials
needs.
ISO 9001 RECOGNITION. During fiscal 1999 we have continued our program of
ISO recognition, which assures customers that our internal processes and systems
meet internationally recognized
7
standards, and have received ISO 9001 certification at our Conyers, Georgia and
Costa Mesa, California facilities. We are also ISO 9001 certified at our Blue
Bell, Pennsylvania Headquarters, Conshohocken, Pennsylvania R&D Battery
Laboratories, Leola, Pennsylvania and Dunlap, Tennessee plants, as well at our
Tucson, Arizona, Mexican and Irish facilities.
Competition
- -----------
Our products compete on the basis of:
o our reputation;
o product quality and reliability;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and value our relationships with our
large customers. In addition, we believe that we have certain competitive
advantages in specific product lines.
We are a North American producer of integrated reserve power systems and
power electronics equipment. We believe that we are one of the four largest
producers of reserve power systems in North America. In motive power, we believe
that one competitor, Yuasa, Inc., has a significantly larger market share than
we have. Our company, along with two other manufacturers, occupies a second tier
of the motive power market in which we have a significantly larger market share
than our smaller competitors.
For both reserve and motive power systems, we believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.
In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both. In motive power, all our major
competitors supply integrated power systems, but only our company and one
competitor manufacture both electronics and batteries.
With respect to power supplies, we believe that we are among a small group
of large competitors in this fragmented industry.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
8
Research and Development
- ------------------------
We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new, standard and custom products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
o production engineering (including quality testing and managing
the expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in 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.
We continue to develop new products in all areas of our business. During
fiscal 1999, our Powercom Division introduced the Orion battery, a competitively
priced valve-regulated battery designed primarily for the telecommunications
market. During fiscal 1998, our Motive Power Division introduced the low
maintenance Liberty Eclipse battery and charger which dramatically reduces the
customer's cost of operation. During fiscal 1997, we extended our range of
telecom products with the introduction of a family of medium powered high
frequency rectifiers. We also introduced several families of high density
DC-to-DC converters during fiscal 1997.
International Operations
- ------------------------
We sell a broad range of motive and standby power products in Canada
through our network of independent Canadian representatives and one branch
office. In addition, we manufacture a large portion of our power supplies in
Nogales, Sonora, Mexico and in Agua Prieta, Sonora, Mexico for ultimate sale in
the United States, Canada and Europe. Sales in Canada accounted for less than 7%
of our sales for the last three fiscal years. We have no significant sales in
Mexico. We also manufacture power supplies in Shannon, Ireland. Operations in
Ireland accounted for less than 5% of our sales in the last three fiscal years.
Patents and Trademarks
- ----------------------
Our policy is to apply for patents on new inventions and designs and
actively pursue pending and future patent applications. We believe that the
growth of our business will depend primarily upon the quality of our products
and our relationships with our customers, rather than the extent of our patent
protection. While we believe that patents are important to our business
operations, the loss of any single or several patents would not have a material
adverse effect on our company.
We regard our trademarks C&D, C&D TECHNOLOGIES, INC., C&D POWERCOM,
LIBERTY, LIBERTY SERIES and POWER CONVERTIBLES as being of substantial value in
the
9
marketing of our products and have registered these trademarks in the United
States Patent and Trademark Office. We also have applications pending for
registrations of other trademarks in the United States. Our trademarks also
include COMPUCHARGE, FERRO FIVE, GUARDIAN, GUARDSMAN, RANGER, RANGERNET and
SCOUT.
Employees
- ---------
On March 31, 1999 we had approximately 2,446 employees, excluding employees
associated with the recently acquired Specialty Battery Division of JCI. Of
these employees, 2,019 were employed in manufacturing and 427 were employed in
field sales, technical, manufacturing support, sales support, marketing and
administrative activities.
Our management considers our employee relations to be satisfactory.
Employees in five domestic plants are not represented by a union. Employees at
the other three domestic plants are represented by three different unions under
collective bargaining agreements.
Environmental Regulation
- ------------------------
Our 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,
record keeping 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 our manufacturing
processes.
We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental director and staffed
with trained environmental professionals. As part of our program, we:
o prepare written environmental and health and safety practice
manuals;
o conduct regular employee training seminars;
o undertake annual internal and external audits of our operations
and environmental and health and safety programs; and
o practice and engage in routine sampling and monitoring of
employee chemical and physical exposure levels and potential
points of environmental emissions.
In addition, we also have installed certain pollution abatement equipment
to minimize emissions of regulated pollutants into the environment. Our program
monitors and seeks to resolve potential environmental liabilities that result
from or may arise from current and historic hazardous materials handling and
waste disposal practices. We have instituted a hazardous materials and spent
product recapture and recycling program at each of our facilities and for our
customers.
While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are required to pay a penalty
10
or fine, to install control technology or to make equipment or process changes
(or a combination thereof) as a result of the non-compliance or changing
regulatory requirements. When we receive a notice of a non-compliance, we
regularly undertake to achieve compliance and work with the authorities to
resolve satisfactorily the issues raised. The associated costs have not had a
material effect on our business, financial condition or results of operations.
Notwithstanding our efforts to maintain compliance with applicable
environmental requirements, if damage to persons or the environment arises from
hazardous substances used, generated or disposed of in the conduct of our
business (or that of our predecessors to the extent we are not indemnified
therefor), we 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 our business, financial condition or results of operations.
In view of the potential financial effect such environmental liabilities
could have, when we acquired the assets of our predecessor from Allied in
January 1986, we secured an obligation from Allied to indemnify us from
undisclosed environmental liabilities resulting from conditions existing as of
the closing date. With the exception of four sites disclosed by Allied at the
time of the acquisition, Allied has accepted indemnification responsibility for
our potential liabilities at those third party owned or operated sites with
respect to which we have been named as a potentially responsible party by the
United States Environmental Protection Agency or state environmental agencies
under the federal Superfund law or comparable state environmental laws.
On March 22, 1999 we received notification of our potential involvement at
an additional site which occurred after the acquisition from Allied. Detailed
information necessary to estimate our share of liability has not yet been
generated for this site.
With respect to the four sites not being covered by the Allied indemnity
and the site which occurred after the acquisition, based upon the most currently
available information, we believe that our share of liability at these sites
will not have a material adverse effect on our business, financial condition or
results of operations. Moreover, we accrue reserves for environmental
liabilities in our consolidated financial statements and periodically reevaluate
the reserved amounts for these liabilities in view of the most current
information available.
We are also aware of the existence of potential contamination at two of our
properties which may require expenditures for further investigation and
remediation. At our Huguenot, New York facility, fluoride contamination in an
inactive lagoon exceeding the state's groundwater standards, which existed prior
to our acquisition of the site, has resulted in the site being listed on the
registry of inactive hazardous waste disposal sites maintained by the New York
State Department of Environmental Conservation. The prior owner of the site,
Avnet, Inc., ultimately may bear some, as yet undetermined, share of the costs
associated therewith.
Our Conyers, Georgia facility is 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 storm water runoff, has been
excavated and disposed. 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
full remediation report was submitted to the state on February 22, 1999. The
state environmental agency
11
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, we have accrued a reserve in our consolidated financial statements
for our estimate of the potential costs and liabilities associated with the
potential contamination. The costs and potential liabilities for these matters,
in our opinion, are not likely to affect materially our business, financial
condition or results of operations.
12
Item 2. Properties
- -------------------
Set forth below is certain information, as of March 31, 1999, with respect
to our principal properties. This information does not include property acquired
on March 1, 1999 related to the acquisition of the Specialty Battery Division of
JCI.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties
------------------------
Manufacturing:
- --------------
Attica, Indiana................ 235,000 Large standby power batteries and
motive power batteries
Conshohocken, Pennsylvania..... 136,000 Metal trays, metal racks and
cabinets, battery R&D
laboratories, distribution center
Conyers, Georgia............... 161,000 Small standby power batteries
Dunlap, Tennessee.............. 72,000 Motive power and standby power
electronics products, cabinets
and metal racks
Huguenot, New York............. 148,000 Motive power batteries and large
standby power batteries
Leola, Pennsylvania............ 187,000 Large standby power batteries
Tucson, Arizona................ 17,000 Power converters, cellular phone
battery chargers
Costa Mesa, California......... 33,000 Power supplies
Other:
- ------
Blue Bell, Pennsylvania........ 46,000 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, power converters
and cellular phone battery
chargers
Shannon, Ireland............... 19,000 Power converters
Other:
- ------
Mississauga, Ontario, Canada ... 20,000 Canadian branch headquarters,
sales office and distribution
center
13
We own our Attica, Conyers, Leola and Conshohocken properties. The Huguenot
property is leased under an industrial revenue bond financing arrangement. We
are entitled to purchase the property for a nominal amount and expect to take
title during the second quarter of fiscal 2000. When we acquired the assets of
our predecessor from Allied, Allied agreed to pay the principal and interest due
under this financing arrangement. We lease our Blue Bell, Dunlap, Mississauga,
Tucson, Costa Mesa, Shannon, Agua Prieta and Nogales facilities and our branch
sales offices. The lease of the Dunlap property terminates in January 2004. We
have an option to purchase the Dunlap property during the lease term for
$1,160,000.
Item 3. Legal Proceedings
- --------------------------
We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material to our financial condition or results of operations in any year. See
"Business - Environmental Regulation" for a description of certain
administrative proceedings in which we are involved.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Our Common Stock 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 our Common Stock on April 15, 1999
was 2,516.
The following table sets forth, for the periods indicated, the high and low
sales prices for our Common Stock as reported by the New York Stock Exchange.
These prices represent actual transactions, but do not reflect adjustment for
retail markups, markdowns or commissions.
Year Ended
--------------------------
January 31, 1999 January 31, 1998*
---------------- ----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter..... $28 7/16 $23 15/32 $17 3/8 $12 15/16
Second Quarter.... 29 7/16 25 3/8 19 7/16 14 3/16
Third Quarter..... 27 1/8 19 7/8 24 9/16 18 3/4
Fourth Quarter.... 32 3/8 21 3/4 24 13/16 21
* Adjusted to reflect C&D's two-for-one stock split, effected in the form of a
100% stock dividend.
14
DIVIDENDS. We began paying quarterly cash dividends on our Common Stock in
April 1987. We declared quarterly dividends of $.01375 per share (as adjusted
for C&D's two-for-one stock split, effected in the form of a 100% stock
dividend) until June 1998. In September 1998 and January 1999, we declared
quarterly dividends of $.0275 per share.
Our bank loan agreement permits quarterly dividends to be paid on our
Common Stock so long as there is no default under that agreement. Subject to
that restriction and the provisions of Delaware law, our Board of Directors
currently intends to continue paying quarterly dividends in the future at the
rate currently paid. We cannot assure you that we will continue to do so since
future dividends will depend on our earnings and financial condition and other
factors.
15
Item 6. Selected Financial Data
- --------------------------------
The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements for fiscal 1999, 1998 and 1997, which appear elsewhere
herein.
Fiscal Year
-------------------------------------------------------------
1999 1998 1997(4) 1996 1995(3)
------ ------ -------- ------- -------
(In thousands, except per share data)
Statement of Income Data:
- -------------------------
Net sales............................... $313,966 $308,054 $286,907 $242,422 $200,009
Cost of sales........................... 227,796 226,880 219,819 185,808 154,464
------- ------- ------- ------- -------
Gross profit.......................... 86,170 81,174 67,088 56,614 45,545
Selling, general and
administrative expenses............... 40,344 39,333 34,499 27,781 24,796
Research and development
expenses.............................. 8,255 8,610 8,143 6,196 5,284
------- ------- ------- ------- -------
Operating income...................... 37,571 33,231 24,446 22,637 15,465
Interest expense, net................... 126 1,129 1,396 1,063 1,222
Other expense (income), net............. 211 1,058 (8) 423 310
------- ------- ------- ------- -------
Income before income taxes .......... 37,234 31,044 23,058 21,151 13,933
Provision for income taxes.............. 13,154 11,359 8,121 7,107 4,556
------- ------- ------- ------- -------
Net income ............................. $ 24,080 $ 19,685 $ 14,937 $ 14,044 $ 9,377
======= ======= ======= ======= =======
Net income per common share (1)*........ $ 1.95 $ 1.61 $ 1.19 $ 1.16 $ .79
======= ======= ======= ======= =======
Net income per common share -
assuming dilution (2)*................ $ 1.88 $ 1.56 $ 1.16 $ 1.09 $ .75
======= ======= ======= ======= =======
Dividends per common share*............. $ .08 $ .06 $ .06 $ .06 $ .06
======= ======= ======= ======= =======
Balance Sheet Data:
- -------------------
Working capital......................... $ 63,688 $ 47,342 $ 45,436 $ 50,302 $ 27,746
Total assets............................ 185,642 166,498 159,973 130,827 112,137
Short-term debt (exclusively current
portion of long-term debt)........... 532 321 476 200 3,670
Long-term debt.......................... 1,750 10,267 29,351 15,417 14,183
Stockholders' equity.................... 123,538 97,305 74,906 68,926 51,722
- ----------
* Per share amounts have been adjusted to reflect C&D's two-for-one stock
split, effected in the form of a 100% stock dividend, where appropriate.
(footnotes begin on the following page)
16
(1) Based on 12,365,183, 12,221,370, 12,517,108, 12,078,904 and 11,812,622
weighted average shares outstanding for fiscal 1999, 1998, 1997, 1996 and 1995,
respectively.
(2) Based on 12,835,862, 12,631,824, 12,878,330, 12,902,578 and 12,421,586
weighted average shares outstanding and the effect of shares issuable under
stock options based on the treasury stock method for fiscal 1999, 1998, 1997,
1996 and 1995, respectively.
(3) In March 1994, we acquired for cash, certain assets and assumed
specific liabilities of the custom power supply business of ITT PowerSystems
Corporation. In January 1995, we 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, we acquired substantially all the assets of LH, a
producer and marketer of standard power supply systems for the electronics
industry. Effective March 12, 1996, we 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, we acquired or repaid the
indebtedness of PCC. In April 1996, we 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, we 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.
17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Impact of Economy and Shift in Customer Demand
- ----------------------------------------------
During fiscal 1999, primarily due to continued improved domestic economic
conditions, there was a higher demand for our standby power products sold by the
Powercom Division. In the telecommunications market, continued growth in demand
was reflected by the growth in sales of our flooded batteries. International
economic conditions have had a negative impact on our international sales during
fiscal 1999.
Raw Material Pricing and Productivity
- -------------------------------------
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 1999, 1998 and 1997, the average North American producer
price of lead has been $.47, $.48 and $.50 /lb., respectively.
We have a long-term cost containment program to maximize manufacturing
efficiency. The program continues to allocate a significant amount of our normal
annual capital expenditures to cost containment and productivity improvement
projects.
Inflation
- ---------
The costs to us of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our ability to pass
along inflationary cost increases through higher prices may be limited during
periods of stable or declining lead prices because of industry pricing practices
that tend to link product prices and lead prices. We believe that, over recent
years, we have been able to offset inflationary cost increases by:
o effective raw materials purchasing programs;
o price increases of our products;
o increases in labor productivity; and
o improvements in overall manufacturing efficiency.
18
Results of Operations
- ---------------------
The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
-----------------------
1999 1998 1997
---- ---- ----
Net sales..................................... 100.0% 100.0% 100.0%
Cost of sales................................. 72.6 73.6 76.6
----- ----- -----
Gross profit................................ 27.4 26.4 23.4
Selling, general and administrative expenses.. 12.8 12.8 12.0
Research and development expenses............. 2.6 2.8 2.9
----- ----- -----
Operating income............................ 12.0 10.8 8.5
Interest expense, net ........................ - 0.4 0.5
Other expense, net............................ 0.1 0.3 0.0
----- ----- -----
Income before income taxes.................. 11.9 10.1 8.0
Provision for income taxes.................... 4.2 3.7 2.8
----- ----- -----
Net income.................................. 7.7% 6.4% 5.2%
===== ===== =====
Fiscal 1999 Compared to Fiscal 1998
- -----------------------------------
Net sales for fiscal 1999 increased $5,912,000 or two percent to
$313,966,000 from $308,054,000 in fiscal 1998. This was a result of an increase
in sales by the Powercom and Motive Power Divisions, up nine percent and four
percent, respectively, partially offset by a 13 percent decrease in sales by the
Power Electronics Division. The increase in Powercom Divisional sales was
primarily due to higher sales to the telecommunications and control markets in
fiscal 1999 versus the prior year. Power Electronics Divisional sales were lower
in fiscal 1999 compared to fiscal 1998 due to lower power conversion sales to
both the telecommunications and non-telecommunications markets. Power
Electronics telecommunications sales were lower in fiscal 1999 due to lower
sales of cellular phone battery chargers. We expect these lower sales volumes of
cellular phone battery chargers to continue into the first half of fiscal 2000.
On a company-wide basis, telecommunications-related sales were approximately 50
percent of total C&D sales during fiscal 1999 versus 49 percent in fiscal 1998.
Gross profit for fiscal 1999 increased $4,996,000 or six percent to
$86,170,000 from $81,174,000 in the prior year, resulting in a gross margin of
27.4 percent versus 26.4 percent in the prior fiscal year. Gross margin
increased as a result of improved gross margin in the Powercom
19
Division due to lower material costs and improved operating efficiencies, as
well as improved Motive Power Divisional gross margin related to lower material
costs. Power Electronics Divisional gross margin decreased in fiscal 1999 versus
the prior year primarily as a result of lower sales volumes.
Selling, general and administrative expenses for fiscal 1999 increased
$1,011,000 or three percent over the prior year due to higher selling expenses,
partially offset by lower general and administrative expenses. Selling expenses
increased in fiscal 1999 over fiscal 1998 due to higher commission expenses and
higher payroll and new Motive Power Divisional sales branch location related
costs. General and administrative expenses were lower in fiscal 1999 compared to
the prior year due to the absence in fiscal 1999 of costs related to the
accelerated write-off of goodwill and intangible assets associated with LH (due
to impairment) that occurred in fiscal 1998, lower costs associated with the
resolution of legal disputes and lower consulting costs.
Research and development expenses remained proportional to sales as a
relative percentage for both fiscal 1999 and 1998 at approximately 3 percent of
sales.
Operating income increased $4,340,000 to $37,571,000 in fiscal 1999
compared to $33,231,000 in fiscal 1998 as a result of higher Powercom Divisional
operating income, flat Motive Power Divisional operating income and lower Power
Electronics Divisional operating income. During the fourth quarter of fiscal
1999, our Power Electronics Division incurred an operating loss. This situation
is expected to continue at least through the first quarter of fiscal 2000.
Interest expense, net, decreased to $126,000 in fiscal 1999 from $1,129,000
in fiscal 1998 primarily due to lower outstanding debt balances during fiscal
1999.
Other expense, net, decreased $847,000 from fiscal 1998 to fiscal 1999
primarily due to the absence in the current year of amortization expense
associated with the write-off of capitalized debt acquisition costs related to
our credit facility and the Development Authority of Rockdale County Industrial
Revenue Bonds. Also contributing to this decrease was higher purchase price
discounts in fiscal 1999 versus the prior year and a lower foreign exchange loss
in fiscal 1999 compared to fiscal 1998.
Income tax expense increased $1,795,000 from fiscal 1998 to fiscal 1999,
primarily due to higher levels of income before income taxes.
As a result of the above, for fiscal 1999, net income rose 22 percent from
fiscal 1998 to $24,080,000 or $1.95 per common share - basic and $1.88 per
common share - assuming dilution.
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 was primarily the result of
an increase in sales by the Powercom and Power Electronics Divisions, up nine
percent and 11 percent, respectively. Sales by the Motive Power Division
remained flat in fiscal 1998 compared to the prior year. A portion of the fiscal
1998 sales increase of the Power Electronics Division resulted from the
recording of a full year's sales
20
versus a partial year in fiscal 1997 due to the acquisition of a power
conversion company during the first quarter of fiscal 1997. The increase in the
Powercom Divisional sales was primarily due to higher sales to the
telecommunications and UPS markets in fiscal 1998 versus fiscal 1997, partially
offset by lower government and control sales. Sales by the Power Electronics
Division increased due to higher power conversion sales to both the
telecommunications (primarily cellular phone battery chargers) and
non-telecommunications markets. 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 margin
increased as a result of improved gross margin in the Powercom Division due to
lower material costs and operating efficiencies associated with higher sales
volumes. Gross margins of the Motive Power and Power Electronics Divisions were
up slightly in fiscal 1998 versus 1997.
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 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.
Operating income increased $8,785,000 to $33,231,000 in fiscal 1998
compared to $24,446,000 in fiscal 1997 as a result of higher Powercom and Motive
Power Divisional operating income, partially offset by lower Power Electronics
Divisional operating income. The Power Electronics Divisional operating income
was negatively impacted by the accelerated write-off of goodwill and intangible
assets noted above.
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 our credit facility and the
Development Authority of Rockdale County Industrial Revenue 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 $1.61 per common share - basic and $1.56 per
common share - assuming dilution, adjusted to reflect C&D's two-for-one stock
split, effected in the form of a 100% stock dividend.
21
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities decreased $5,550,000 or 17
percent to $26,422,000 in fiscal 1999 compared to $31,972,000 in fiscal 1998.
The decrease in net cash provided by operating activities was primarily due to a
larger increase in inventories in fiscal 1999 compared to fiscal 1998, coupled
with decrease in income taxes payable in fiscal 1999 versus an increase in the
prior year. These changes resulting in lower net cash provided by operations,
were partially offset by higher net income in fiscal 1999 compared to fiscal
1998, changes in timing differences affecting deferred taxes, and an increase in
accounts payable in fiscal 1999 versus a decrease in the prior year. The
increase in inventory during fiscal 1999 was primarily related to our Power
Electronics Division.
Net cash used by investing activities totaled $15,692,000 for fiscal 1999,
resulting in an increase of $2,094,000 or 15 percent over the prior year. This
increase was primarily due to higher capital spending in fiscal 1999 versus
fiscal 1998.
Net cash used by financing activities decreased $11,243,000 to $6,896,000
in fiscal 1999 compared to $18,139,000 in fiscal 1998. The decrease in net cash
used by financing activities was primarily the result of lower net cash flows
provided by operations and higher capital spending in fiscal 1999 compared to
fiscal 1998, coupled with a greater increase in cash balances in fiscal 1999
versus the prior year.
On March 1, 1999 we entered into a credit agreement in which the lenders
named therein, and Nationsbank, N.A. as administrative agent, provided a
$220,000,000 credit facility consisting of a term loan in the amount of
$100,000,000 and a revolving loan not to exceed $120,000,000. The funds borrowed
under this credit agreement were used to finance the acquisition of the
Specialty Battery Division of JCI, to refinance existing debt and to finance
working capital and certain other expenditures. Our availability under the
current loan agreement is expected to be sufficient to meet our ongoing cash
needs for working capital requirements, debt service, capital expenditures and
possible strategic acquisitions. Capital expenditures during fiscal 1999 were
incurred primarily to fund capacity expansion, new product development, a
continuing series of cost reduction programs, normal maintenance capital, and
regulatory compliance. Fiscal 2000 capital expenditures are expected to be
approximately $24,000,000 for similar purposes, including capital requirements
of the recently acquired Special Battery Division from JCI.
We have been notified that we are a potentially responsible party relating
to various Third Party Facilities (see note 8(B) of the notes to consolidated
financial statements).
Readiness for Year 2000
- -----------------------
We are taking action to ensure that our operations will not be adversely
affected by potential Year 2000 computer failures and have developed a Year 2000
Readiness Plan. Our Chief Financial Officer is responsible for overseeing the
execution of the plan and reports quarterly to our Board of Directors on the
status of the Year 2000 Readiness Plan. The plan addresses the following four
areas:
22
o information technology systems (consisting of computer hardware and
software related to the our business systems as well as our
engineering and test equipment);
o non-information technology systems (including embedded technology such
as microcontrollers, which are typically found in such things as
telephone systems, security systems, fax machines, etc.);
o products sold to customers; and
o third party issues (including significant suppliers and customers).
Our Year 2000 Readiness Plan generally includes the following phases for
each of the four areas noted above:
o identification and risk assessment;
o development and implementation of a remediation plan;
o acceptance testing; and
o contingency planning for high risk critical areas.
We have identified certain deficiencies related to our information
technology systems and are in the process of addressing them through upgrades or
other remediation. We have two main computer systems that are utilized to run
our business systems. Year 2000 remediation work on our business systems that
run on our computer located in Tucson, Arizona has been completed and these
business systems are now Year 2000 compliant. Acceptance testing has been
completed on our business systems that run on our computer located at our Blue
Bell, Pennsylvania headquarters. These Blue Bell, Pennsylvania business systems
are expected to be Year 2000 compliant in May 1999.
In terms of non-information technology systems, we have identified those
items which may require remediation or replacement. We are in the process of
addressing those items and expect to complete remediation or replacement and
testing by the middle of fiscal 2000.
We have completed our assessment of Year 2000 compliance with respect to
our battery and electronics products that are currently being sold to customers
and have concluded that all significant products are compliant.
With respect to third parties, we have identified and have been contacting
our significant suppliers and will shortly begin to contact our major customers
to determine the extent to which we may be vulnerable to such third parties'
failure to address their own Year 2000 issues. This process includes the
solicitation of written responses to questionnaires and/or meetings with certain
of such third parties. As a result, our assessment will be substantially
dependent on information provided by third parties. We have completed this
initial notification and solicitation process with our significant suppliers and
have now begun the next phase of re-contacting those companies who have not
responded. We believe this process will continue through the second and third
quarters of fiscal 2000.
Based upon our current estimates, total costs associated with our Year 2000
compliance are expected to be immaterial. The majority of these costs were
incurred in fiscal 1999 and include third party consultants and programmers;
remediation of existing software; and replacement or
23
remediation of embedded chips. Such costs do not include internal management
time, which is not expected to be material to our results of operations or
financial condition.
We believe that our most significant risk with respect to Year 2000 issues
relates to the performance and readiness status of third parties. As with all
manufacturing companies, a reasonable worst case Year 2000 scenario would be the
result of failures of third parties (including without limitation, governmental
entities, utilities and entities with which we have no direct involvement) that
negatively impact our raw material supply chain or ability to provide products
to customers or the ability of customers to purchase products, or events
affecting regional, national or global economies generally. The impact of these
failures cannot be estimated at this time; however, we are considering
contingency plans to limit, to the extent possible, the financial impact of
these failures on our results of operations. Any such plans would necessarily be
limited to matters over which we can reasonably control.
Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. While we anticipate continuity of our business activities,
that continuity will be dependent upon our ability, and the ability of third
parties with whom we rely on directly, or indirectly, to be Year 2000 compliant.
Conversion to the Euro Currency
- -------------------------------
On January 1, 1999, the Euro was adopted as the common legal currency, in
coexistence with the national currencies for European Union member nations until
January 1, 2002. We have made all necessary adjustments to our processes to
ensure compliance of all business transactional Euro requirements during the
three year transitional period that ends January 1, 2002. After this
transitional period, the Euro becomes the sole legal currency for the European
Union member nations and all of our records of the national currencies will be
converted to the Euro equivalent at that time. We do not expect the Euro
adoption to have a material adverse impact on our financial condition or results
of operations.
New Accounting Pronouncements Not Yet Adopted
- ---------------------------------------------
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. We believe that the
adoption of SOP 98-5 will not have a material effect on our financial position
or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes new procedures for accounting for derivatives and hedging activities
and supersedes and amends a number of existing standards. This statement is
effective for fiscal years beginning after June 15, 1999. We currently use
derivatives such as interest rate swap agreements, currency swaps and currency
forwards to
24
effectively fix the interest rate on a portion of our floating rate debt and the
exchange rate on Canadian and Mexican assets, liabilities and cash flows. Under
current accounting standards, no gain or loss is recognized on changes in the
fair value of these derivatives. Under this statement, gains or losses will be
recognized based on changes in the fair value of the derivatives which generally
occur as a result of changes in interest rates and foreign currency exchange
rates. We are currently evaluating the financial impact of adoption of this
statement. We believe that the adoption of SFAS No. 133 will not have a material
effect on our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
Market Risk Factors
- -------------------
We do not invest in derivative securities for trading purposes, but do
enter into hedging arrangements in order to reduce our exposure to fluctuations
in the interest rates applicable to our long term debt and to fluctuations in
the Canadian Dollar and Mexican Peso to the US Dollar exchange rate.
Our financial instruments subject to interest rate risk consist of debt
instruments and interest rate derivatives. The net market value of our debt
instruments was $2,282 and $10,588 at January 31, 1999 and January 31, 1998,
respectively. These instruments are subject to variable rate interest and
therefore the market value is not sensitive to interest rate movements.
The net market value of our interest rate derivatives was $(114) and $25 at
January 31, 1999 and 1998, respectively. A 100-basis point increase in rates at
January 31, 1999 and 1998 would result in a $231 and a $292 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
1999 and 1998 would result in a $231 and a $292 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their levels, with all other variables held
constant.
Our financial instruments subject to foreign currency exchange risk consist
of foreign currency forwards and swaps and represent a net asset position of
$101 and $152 at January 31, 1999 and January 31, 1998, respectively. The
sensitivity analysis assumes an instantaneous 10% change in foreign currency
exchange rates from year-end levels, with all other variables being held
constant. At January 31, 1999 and 1998, a 10% strengthening of the US Dollar
versus the Canadian Dollar and the Mexican Peso would result in a change of the
net asset position of the forward and swaps of a $201 increase and a $27
decrease, respectively. At January 31, 1999 and 1998, a 10% weakening of the US
Dollar versus the Canadian Dollar and the Mexican Peso would result in a
decrease in the net asset position of the forward and swap of $307 and an
increase of $33, respectively.
Foreign exchange forwards and swap contracts are used to hedge our firm and
anticipated foreign currency cash flows. There is either an asset or cash flow
exposure related to all of the financial instruments in the above sensitivity
analysis for which the impact of a movement in
25
exchange rates would be in the opposite direction and substantially equal to the
impact on the instruments in the analysis.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
Item 9. Changes in and Disagreements with Accountants
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
our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the end of our fiscal year covered by this report.
26
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, 1999 and 1998
Consolidated Statements of Income for the years ended January 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
January 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the years ended
January 31, 1999, 1998 and 1997
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, 1999, 1998 and 1997
Report of Independent Accountants on Schedule
II. Valuation and Qualifying Accounts
(3) Exhibits:
3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).
3.2 By-laws of C&D, as amended (incorporated by reference to
Exhibit 3.2 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
27
4.1 Credit Agreement, dated as of March 1, 1999, among C&D, as
borrower, certain subsidiaries and affiliates of C&D, as
guarantors, the lenders named therein, and NationsBank,
N.A. as administrative agent (incorporated by reference to
Exhibit 2.2 to C&D's Current Report on Form 8-K dated March
1, 1999).
10.1 Purchase Agreement dated November 27, 1985, among Allied,
Allied Canada Inc. and C&D; Amendments thereto dated
January 28 and October 8, 1986 (incorporated by reference
to Exhibit 10.1 to C&D's Registration Statement on Form
S-1, No. 33-10889).
10.2 Agreement dated December 15, 1986, between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D's
Registration Statement on Form S-1, No.
33-10889).
10.3 Lease Agreement dated February 15, 1994 by and between
Sequatchie Associates, Incorporated and C&D Charter Power
Systems, Inc. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1994).
10.4 C&D TECHNOLOGIES, INC. Savings Plan (October 1, 1997
Restatement) (incorporated by reference to Exhibit 10.4 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998).
10.5 C&D TECHNOLOGIES, INC. Pension Plan for Salaried Employees
as restated and amended (incorporated by reference to
Exhibit 10.10 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995); First and Second
Amendments thereto dated December 20, 1995 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1996); Third
Amendment thereto dated February 18, 1997 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fourth
Amendment thereto dated January 27, 1998 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fifth
Amendment thereto dated January 28, 1999 (filed herewith).
10.6 C&D TECHNOLOGIES, INC. Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1998).
10.7 Registration Rights Agreement dated May 30, 1989, between
Alfred Weber and C&D (incorporated by reference to Exhibit
10.2 to C&D's Quarterly Report on Form 10-Q for the quarter
ended July 31, 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 C&D; Secured Promissory Note and Option
Secured Promissory Note, each dated April 30, 1996, by
Alfred Weber in favor of C&D (incorporated by reference to
28
Exhibit 10.2 to C&D'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 C&D (incorporated by reference to Exhibit 10.3
to C&D'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 C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1995).
10.9 Employment Agreement dated March 1, 1994 between A. Gordon
Goodyear and C&D (incorporated by reference to Exhibit 10.2
to C&D'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 C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1995).
10.10 Employment Agreement dated April 3, 1995 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1995).
10.11 Employment Agreement dated April 3, 1995 between A. T.
(Paul) Kambouroglou and C&D (incorporated by reference to
Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995).
10.12 Employment Agreement dated August 15, 1995 between Stephen
Weglarz, Esq. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995).
10.13 Employment Agreement dated August 1, 1997 between Larry M.
Moore and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1997).
10.14 Employment Agreement dated September 30, 1997 between John
J. Murray, Jr. and C&D (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1997).
10.15 Employment Agreement dated October 22, 1998, between Wade
H. Roberts, Jr. and C&D (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1998); Letter Agreement relating
thereto dated September 28, 1998 (filed herewith).
10.16 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended July
31, 1996).
10.17 C&D TECHNOLOGIES, INC. 1998 Stock Option Plan (incorporated
by reference to Exhibit 10.1 to C&D's Registration
Statement on Form S-8 No. 333- 59177 filed July 15, 1998.)
29
10.18 Supplemental Executive Retirement Plan Amended and Restated
as of October 22, 1998 (filed herewith).
10.19 Supplemental Executive Retirement Plan for Alfred Weber
dated December 11, 1997 (incorporated by reference to
Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1997).
10.20 Purchase and Sale Agreement, dated as of November 23, 1998,
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D TECHNOLOGIES, INC. and C&D Acquisition Corp. as
Purchaser (incorporated by reference to Exhibit 2.1 to
C&D's Current Report on Form 8-K dated March 1, 1999).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
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 C&D during the last quarter of
the period covered by this report.
30
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 30, 1999 By: /s/ Wade H. Roberts, Jr.
------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wade H. Roberts, Jr President, Chief Executive April 30, 1999
- ---------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive
Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 30, 1999
- ---------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 30, 1999
- ----------------------------
William Harral, III
/s/ Kevin P. Dowd Director April 30, 1999
- ----------------------------
Kevin P. Dowd
/s/ Glenn M. Feit Director April 30, 1999
- ----------------------------
Glenn M. Feit
/s/ Pamela S. Lewis Director April 30, 1999
- ----------------------------
Pamela S. Lewis
/s/ Alan G. Lutz Director April 30, 1999
- ----------------------------
Alan G. Lutz
/s/ John A. H. Shober Director April 30, 1999
- ----------------------------
John A. H. Shober
31
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, 1999 and 1998............................ F-3
Consolidated Statements of Income
for the years ended January 31, 1999, 1998
and 1997............................................. F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 1999, 1998 and 1997................ F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 1999, 1998
and 1997............................................. F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 1999,
1998 and 1997........................................ F-8
Notes to Consolidated Financial Statements............. F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 1999, 1998 and 1997
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.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of C&D TECHNOLOGIES, INC. and subsidiaries (the "Company") at
January 31, 1999 and January 31, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 31,
1999, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 8, 1999
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 5,003 $ 1,167
Accounts receivable, less allowance for doubtful
accounts of $1,635 in 1999 and $1,701 in 1998.... 44,232 42,742
Inventories.......................................... 49,855 40,735
Deferred income taxes................................ 7,305 7,871
Other current assets................................. 2,318 885
------- -------
Total current assets............................. 108,713 93,400
Property, plant and equipment, net....................... 62,388 57,058
Intangible and other assets, net......................... 4,393 5,339
Goodwill, net............................................ 10,148 10,701
------- -------
Total assets..................................... $185,642 $166,498
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 532 $ 321
Accounts payable..................................... 23,997 22,791
Accrued liabilities.................................. 17,714 16,012
Income taxes......................................... - 3,689
Other current liabilities............................ 2,782 3,245
------- -------
Total current liabilities........................ 45,025 46,058
Deferred income taxes.................................... 2,887 2,376
Long-term debt........................................... 1,750 10,267
Other liabilities........................................ 12,442 10,492
------- -------
Total liabilities................................ 62,104 69,193
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
and 10,000,000 shares authorized;
13,368,719 and 13,228,898 shares
issued in 1999 and 1998, respectively*........... 134 132
Additional paid-in capital*.......................... 43,429 41,364
Treasury stock, at cost, 905,102 shares*............. (10,819) (10,819)
Notes receivable from stockholder, net of
discount of $28 in 1998.......................... - (1,029)
Cumulative translation adjustment.................... (169) (248)
Retained earnings ................................... 90,963 67,905
------- -------
Total stockholders' equity....................... 123,538 97,305
------- -------
Total liabilities and stockholders' equity....... $185,642 $166,498
======= =======
* Adjusted to reflect the Company's two-for-one stock split, effected in the
form of a 100% stock dividend.
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)
1999 1998 1997
---- ---- ----
Net sales................................. $313,966 $308,054 $286,907
Cost of sales............................. 227,796 226,880 219,819
------- ------- -------
Gross profit........................ 86,170 81,174 67,088
Selling, general and administrative
expenses............................ 40,344 39,333 34,499
Research and development expenses......... 8,255 8,610 8,143
------- ------- -------
Operating income.................... 37,571 33,231 24,446
Interest expense, net..................... 126 1,129 1,396
Other expense (income), net............... 211 1,058 (8)
------- ------- -------
Income before income taxes.......... 37,234 31,044 23,058
Provision for income taxes................ 13,154 11,359 8,121
------- ------- -------
Net income ......................... $ 24,080 $ 19,685 $ 14,937
======= ======= =======
Net income per common share*.............. $ 1.95 $ 1.61 $ 1.19
Net income per common share -
assuming dilution*.................. $ 1.88 $ 1.56 $ 1.16
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend, where
appropriate.
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, 1999, 1998 and 1997
(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, 1996........... 12,652,352 $126 $36,220 $(760) (114,800) $(1,304) $34,644
Net income................... 14,937
Dividends to stockholders,
$.055 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..... (929,138) (11,092)
Issuance of common stock..... 44 102,836 1,164
Stock options exercised...... 442,600 4 1,846
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1997........... 13,094,952 130 39,261 (136) (941,102) (11,232) (1,636) (374) 48,893
Net income................... 19,685
Dividends to stockholders,
$.055 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 36,000 413
Stock options exercised...... 133,946 2 1,105
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1998........... 13,228,898 132 41,364 - (905,102) (10,819) (1,029) (248) 67,905
Net income................... 24,080
Dividends to stockholders,
$.0825 per share*.......... (1,022)
Principal payments on
stockholder notes.......... 1,057
Amortization of discount on
stockholder notes.......... (28)
Tax effect relating to stock
options exercised.......... 792
Cumulative translation
adjustment................. 79
Issuance of common stock..... 2,484 72
Stock options exercised...... 137,337 2 1,201
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1999........... 13,368,719 $134 $43,429 $ - (905,102) $(10,819) $ - $(169) $90,963
========== === ====== ===== ======== ======= ====== ==== ======
*Adjusted to reflect the Company's two-for-one stock split, effected in the form
of a 100% stock dividend.
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)
1999 1998 1997
---- ---- ----
Cash flows provided (used) by operating activities:
Net income.................................................. $24,080 $ 19,685 $ 14,937
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................... 11,289 11,824 8,494
Deferred income taxes ...................................... 1 (2,338) (302)
Loss on disposal of assets.................................. 224 175 80
Changes in:
Accounts receivable................................... (1,498) (1,182) (7,188)
Inventories........................................... (9,075) (1,856) 2,898
Other current assets.................................. (471) (450) 163
Accounts payable...................................... 1,191 (933) 2,943
Accrued liabilities................................... 1,617 1,566 (802)
Income taxes payable.................................. (2,777) 3,447 3,004
Other current liabilities............................. (464) (1,036) 1,257
Other liabilities..................................... 1,944 2,593 667
Other, net.................................................. 361 477 (414)
------- ------- -------
Net cash provided by operating activities..................... 26,422 31,972 25,737
------- ------- -------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net.............................. - - (19,739)
Acquisition of property, plant and equipment................ (15,761) (13,640) (16,322)
Proceeds from disposal of property,
plant and equipment....................................... 69 41 9
Change in restricted cash................................... - 1 5,401
------- ------- -------
Net cash used by investing activities......................... (15,692) (13,598) (30,651)
------- ------- -------
Cash flows provided (used) by financing activities:
Repayment of long-term debt................................. (8,308) (19,239) (8,291)
Proceeds from new borrowings................................ - - 20,333
Issuance of note receivable to stockholder.................. - - (1,057)
Repayment of notes receivable from stockholders............. 1,057 664 -
Proceeds from issuance of common stock, net................. 1,203 1,107 1,186
Purchase of treasury stock.................................. - - (11,092)
Payment of common stock dividends........................... (848) (671) (694)
------ ------- -------
Net cash (used) provided by financing activities.............. (6,896) (18,139) 385
------ ------- -------
Effect of exchange rate changes on cash....................... 2 (20) 9
------ ------- -------
Increase (decrease) in cash and cash equivalents.............. 3,836 215 (4,520)
Cash and cash equivalents at beginning of year................ 1,167 952 5,472
------ ------- -------
Cash and cash equivalents at end of year...................... $ 5,003 $ 1,167 $ 952
====== ======= =======
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)
1999 1998 1997
---- ---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net........................................ $ 415 $ 1,599 $ 1,593
Income taxes paid......................................... $15,927 $ 10,251 $ 5,378
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................................ $ 343 $ 169 $ 167
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
Annual retainer to Board of Directors paid
by the issuance of common stock.............................. $ 72 $ - $ -
See notes to consolidated financial statements.
F-7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended January 31,
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Net Income ................................................ $24,080 $19,685 $14,937
Other comprehensive income (expense), net of tax:
Cumulative translation adjustments..................... 79 126 (374)
Minimum pension liability adjustments.................. - 136 624
------ ------ ------
Total comprehensive income..................................... $24,159 $19,947 $15,187
====== ====== ======
See notes to consolidated financial statements.
F-8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
----------------------------
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. (See Note 11.)
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)
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.
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
$8,789 and $6,204 at January 31, 1999 and 1998, 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 market value. Property, plant and equipment acquired subsequent
to the Acquisition is recorded at cost or fair market value if part of an
acquisition. Plant and equipment, including capital leases, are depreciated on
the straight-line method for financial reporting purposes over estimated useful
lives which generally range 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-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)
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, 1999 and 1998 was $2,537 and $1,936,
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, 1999. Accumulated amortization as
of January 31, 1999 and 1998 was $2,388 and $1,851, 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, 1999 and 1998 are $2,940
and $2,722 of accrued vacation and $1,678 and $2,345 of accrued bonus,
respectively.
Other Liabilities:
------------------
The Company provides for estimated warranty costs at the time of sale.
Accrued warranty obligations of $2,228 and $2,443 are included in other current
liabilities and $6,730 and $5,793 are included in other liabilities as of
January 31, 1999 and 1998, 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-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)
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:
---------------------
Net income per common share for the years ended January 31, 1999, 1998 and
1997 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. Weighted
average common shares and common shares - assuming dilution were as follows:
January 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net income (A).................... $24,080 $19,685 $14,937
Weighted average
shares of common stock
outstanding (B)*................ 12,365,183 12,221,370 12,517,108
Assumed conversion of
stock options, net of shares
assumed reacquired*............. 470,679 410,454 361,222
---------- ---------- ----------
Weighted average common
shares - assuming
dilution (C)*................... 12,835,862 12,631,824 12,878,330
Net income per common
share (A/B)*.................... $1.95 $1.61 $1.19
Net income per common
share - assuming
dilution (A/C)*................. $1.88 $1.56 $1.16
* Share and per share amounts have been adjusted to reflect the Company's
two-for-one stock split, effected in the form of a 100% stock dividend,
where appropriate.
F-12
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements Not Yet Adopted:
----------------------------------------------
In 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 SOP 98-5 will not have a material effect on its financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. This
statement is effective for fiscal years beginning after June 15, 1999. The
Company currently uses derivatives such as interest rate swap agreements,
currency swaps and currency forwards to effectively fix the interest rate on a
portion of the Company's floating rate debt and the exchange rate on Canadian
and Mexican assets, liabilities and cash flows. Under current accounting
standards, no gain or loss is recognized on changes in the fair value of these
derivatives. Under this statement, gains or losses will be recognized based on
changes in the fair value of the derivatives which generally occur as a result
of changes in interest rates and foreign currency exchange rates. The Company is
currently evaluating the financial impact of adoption of this statement. The
Company believes that the adoption of SFAS No. 133 will not have a material
effect on its financial position or results of operations.
2. STOCK SPLIT
On July 24, 1998 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend to stockholders of record on July 10, 1998.
This transaction resulted in a transfer on the Company's balance sheet of $66 to
common stock from additional paid-in-capital. The accompanying financial
statements and related footnotes, including all share and per share amounts,
have been adjusted to reflect this transaction.
F-13
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
3. INVENTORIES
Inventories consisted of the following:
January 31,
-----------------------
1999 1998
---- ----
Raw materials....................... $20,013 $17,099
Work-in-progress ................... 10,785 9,990
Finished goods...................... 19,057 13,646
------ ------
$49,855 $40,735
====== ======
If the first-in, first-out method of inventory accounting had been used
(which approximates current cost), inventories would have been $1,154 and $1,902
higher than reported as of January 31, 1999 and 1998, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
January 31,
------------------------
1999 1998
---- ----
Land................................ $ 487 $ 487
Buildings and improvements.......... 22,507 19,214
Furniture, fixtures and equipment... 102,099 92,146
Construction in progress............ 4,579 4,017
------- -------
129,672 115,864
Less:
Accumulated depreciation...... 67,284 58,806
------- -------
$ 62,388 $ 57,058
======= =======
For the years ended January 31, 1999, 1998 and 1997, depreciation charged
to operations amounted to $10,137, $8,831 and $7,281; maintenance and repair
costs expensed totaled $8,290, $7,399 and $6,268; and interest capitalized
amounted to $211, $166 and $304, respectively.
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
Long-term debt consisted of the following:
January 31,
----------------
1999 1998
---- ----
Revolving credit facility ("Revolving Credit");
maximum commitment of $65,000 at January 31, 1999
and 1998 bearing interest at Prime minus .50% or
LIBOR plus .52% (effective rate on a weighted
average basis, 6.54% as of January 31, 1999 and
6.20% as of January 31, 1998)........................ $ - $ 8,000
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, 5.47%
as of January 31, 1999 and 5.60% as of January 31,
1998), principal payable in monthly installments
of $8 from December 1993 through November 1999 and
of $108 from December 1999 through November 2000..... 1,384 1,484
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, 3.86% as of January 31,
1999 and 3.70% as of January 31, 1998), principal
payable in monthly installments of $8 from
December 1993 through November 1999 and of $67
from December 1999 through November 2000............. 883 983
Capital lease obligations, bearing interest at
10.5%............................................ 15 121
----- ------
2,282 10,588
Less current portion 532 321
----- ------
$1,750 $10,267
===== ======
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)
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 consisted of four institutions: NationsBank, First Union
National 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 had 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 $2,267 PEDFA loans (the "PEDFA L/C"), for the
account of the Company. The aggregate value of the letters of credit outstanding
was $4,711 and $4,922 at January 31, 1999 and 1998 respectively. The
availability under the Revolving Credit was $60,289 and $52,078 at January 31,
1999 and 1998 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 was
payable quarterly. A commitment fee of .125% per annum on the amount of
remaining availability was payable quarterly.
The interest rates were based on a financial coverage ratio. The available
interest rates from January 30, 1998 through January 31, 1999 were 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 $15,000, $26,765 and $28,915 during the years ended January 31,
1999, 1998 and 1997, respectively. For those years the outstanding loans
(excluding the PEDFA L/C guarantees) under the Revolving Credit computed on a
monthly basis averaged $6,941, $19,024 and $21,494 at a weighted average
interest rate of 6.54%, 6.47% and 6.79%, respectively.
The Revolving Credit was unsecured. The agreement contained certain
restrictive covenants, including certain cash flow and financial ratio
requirements and a restriction on capital expenditures. The agreement permitted
payment of dividends on the Company's Common Stock so long as there was no
default under the agreement.
On March 1, 1999 the Revolving Credit was replaced by a new credit
agreement consisting of a term loan in the amount of $100,000 and a revolving
loan not to exceed $120,000 which includes a letter of credit facility not to
exceed $30,000 and swingline loans not to exceed $10,000.
The PEDFA Bonds are subject to mandatory redemption upon the occurrence of
certain events, including the termination of the corresponding PEDFA L/C. The
tax exempt bonds are subject to mandatory redemption if they lose their tax
exempt status.
F-16
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, 1999 and 1998, respectively.
As of January 31, 1999, 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:
2000 ........................ $ 532
2001......................... 1,750
2002......................... -
2003......................... -
2004......................... -
Thereafter................... -
-----
$2,282
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, 1999, 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 replaced the previous plan which expired on January 28, 1996.
The 1998 Stock Option Plan was approved by the stockholders on June 30, 1998.
New options can be granted under the 1996 Plan, which reserved 1,000,000 shares
of Common Stock for such use (as adjusted for the Company's two-for-one stock
split, effected in the form of a 100% stock dividend), or the 1998 Plan, which
reserved 600,000 shares of Common Stock for such use (as adjusted for the
Company's two-for-one stock split, effected in the form of a 100% stock
dividend). 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
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)
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. The majority of the stock options
outstanding vest in equal annual installments over a three year period.
A summary of stock option activity related to the Company's plans is as
follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Year Year Year Outstanding Exercisable
----------- ------- --------- -------- ----------- -----------
Year ended
January 31, 1999
Number of shares.............. 967,402 293,900 137,337 28,537 1,095,428 511,475
Weighted average option
price per share............. $12.79 $23.67 $8.76 $20.19 $16.02 $10.90
Year ended
January 31, 1998*
Number of shares.............. 863,000 283,050 133,946 44,702 967,402 396,342
Weighted average option
price per share............. $8.89 $22.52 $8.26 $12.66 $12.79 $6.50
Year ended
January 31, 1997*
Number of shares.............. 603,600 506,000 222,600 24,000 863,000 381,000
Weighted average option
price per share............. $5.10 $12.00 $5.33 $12.00 $8.89 $4.96
* Adjusted to reflect the Company's two-for-one stock split, effected in the
form of a 100% stock dividend.
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)
There were 611,805 and 279,652 (as adjusted for the Company's two-for-one
stock split effected in the form of a 100% stock dividend) shares available for
future grants of options as of January 31, 1999 and 1998, respectively. The
following table summarizes information about the stock options outstanding at
January 31, 1999:
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
--------------- ----------- ----------- --------- ----------- ---------
$4.13 - $6.00 236,500 4.5 years $ 5.27 236,500 $ 5.27
$12.00 - $17.25 337,628 7.8 years $12.24 188,275 $12.05
$22.94 - $29.00 521,300 9.2 years $23.35 86,700 $23.78
--------- -------
$4.13 - $29.00 1,095,428 7.8 years $16.02 511,475 $10.90
========= =======
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 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Risk-free interest rate............ 4.50% 6.44% 6.58%
Expected dividend yield............ .58% .44% .46%
Expected volatility factor......... 0.434 0.409 0.400
Weighted average expected life..... 5.00 years 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-19
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:
1999 1998* 1997*
---- ----- -----
Net income - as reported..................... $24,080 $19,685 $14,937
Net income - pro forma....................... 22,537 18,953 14,795
Net income per common share - as reported.... 1.95 1.61 1.19
Net income per common share - pro forma...... 1.82 1.55 1.18
Net income per common share -
assuming dilution - as reported............ 1.88 1.56 1.16
Net income per common share -
assuming dilution - pro forma.............. 1.76 1.50 1.15
Weighted average fair value of options
granted during the year.................... 9.99 8.98 5.62
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend.
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.
(B) Grant of Options*
---------------------
In May 1989, the Company granted options to purchase 220,000 shares of
Common Stock to a certain executive for a term expiring April 30, 1994 at $3.02
per share. In June 1991, the agreement regarding these options was amended
whereby certain vesting criteria were eliminated and the expiration date
changed, so that these options vested on April 30, 1994 and would expire on
April 30, 1996. During the year ended January 31, 1997 these options were
exercised. The Company has recorded no compensation expense related to these
options in the three years ended January 31, 1999.
* Share and per share amounts have been adjusted to reflect the Company's
two-for-one stock split, effected in the form of a 100% stock dividend.
F-20
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,
------------------------------
1999 1998 1997
---- ---- ----
Currently payable:
Federal....................... $10,963 $11,579 $7,196
Foreign....................... 97 59 94
State......................... 1,932 1,853 960
Foreign Sales Corporation..... 162 206 173
------ ------ -----
13,154 13,697 8,423
------ ------ -----
Deferred:
Federal....................... 103 (2,039) (285)
State......................... (103) (299) (17)
------ ------ -----
- (2,338) (302)
------ ------ -----
$13,154 $11,359 $8,121
====== ====== =====
The components of the deferred tax asset and liability as of January 31,
1999 and 1998 were as follows:
1999 1998*
---- -----
Deferred tax asset:
Vacation and compensation accruals............... $ 2,964 $ 3,746
Postretirement benefits.......................... 740 741
Warranty reserves................................ 3,600 3,261
Bad debt, inventory and return allowances........ 2,497 2,306
Environmental reserves........................... 541 570
Pension obligation............................... 477 -
Other accruals................................... 1,223 1,197
------ ------
Total deferred tax asset......................... 12,042 11,821
------ ------
Deferred tax liability:
Depreciation and amortization.................... (7,624) (5,901)
Pension obligation............................... - (306)
Other............................................ - (119)
------ ------
Total deferred tax liability..................... (7,624) (6,326)
------ ------
Net deferred tax asset........................... $ 4,418 $ 5,495
====== ======
* Reclassified for comparative purposes.
F-21
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. statutory
rate to the effective tax rates for the years ended January 31, 1999, 1998 and
1997, respectively, are as follows:
January 31,
-----------------------------
1999 1998 1997
---- ---- ----
U.S. statutory income tax............ $13,032 $10,865 $8,070
Tax effect of foreign operations..... (250) (35) (234)
State tax, net of federal
income tax benefit................. 1,153 1,010 613
Research and development
tax credit benefit................. (373) - -
Foreign sales corporation............ (304) (388) (325)
Other................................ (104) (93) (3)
------ ------ -----
$13,154 $11,359 $8,121
====== ====== =====
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, 1999, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:
Fiscal Year
-----------
2000........................ 2,384
2001........................ 1,888
2002........................ 1,704
2003........................ 1,501
2004........................ 1,074
Thereafter.................. 5,383
------
$13,934
======
Total rent expense for all operating leases for the years ended January 31,
1999, 1998 and 1997 was $3,503, $3,319 and $3,289, respectively.
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)
(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 provided 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-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)
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 Company and the PRPs
initiated remedial action at the site in 1998 and expect to complete the
majority of the action by the end of 1999. 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 during 1999. 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 or state
environmental agencies with regard to four other Third Party Facilities, one in
September 1991, one (the "Chicago Site") in October 1991, one (the "ILCO Site")
in October 1993, and the fourth (the "M&J Site") in March 1999. Of the four
sites, the Company has been identified as a PRP at the ILCO, Chicago, and M&J
Sites only.
On October 31, 1995 the Company received confirmation from the EPA that it
is a de minimis PRP at the ILCO Site. In May 1998, the ILCO site was resolved
with a payment of an immaterial amount which was less than the amount previously
reserved.
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.
Sufficient information is not yet available for the M&J site to estimate
the Company's allocable share of liability. However, based on the information
currently available, the Company's liability exposure at this site appears to be
limited and is not expected to have a material adverse effect on the Company.
F-24
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.
The Company is also 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 our acquisition of the site, has resulted in the site
being listed on the registry of inactive hazardous waste disposal sites
maintained by the New York State Department of Environmental Conservation. The
prior owner of the site ultimately may bear some, as yet undetermined, share of
the costs associated therewith.
The Company's Conyers, Georgia facility is 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 storm water runoff,
has been excavated and disposed. 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
full remediation report was submitted to the state on February 22, 1999. 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.
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 purchase commitments pertaining to the purchase of certain
raw materials with various suppliers. These purchase commitments are not
expected to exceed usage requirements.
9. MAJOR CUSTOMER
Lucent Technologies accounted for 13.1%, 13.5% and 4.0% of net sales for
the years ended January 31, 1999, 1998 and 1997. AT&T accounted for 11.1% of net
sales for the year ended January 31, 1997. 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.
F-25
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
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.
The estimated fair values of the Company's financial instruments at January
31, 1999 and 1998 were as follows:
1999 1998
--------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents ... $5,003 $5,003 $ 1,167 $ 1,167
Debt (excluding capital
lease obligations) ....... 2,267 2,267 10,467 10,467
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% at January 31, 1999 and 1998. The swap expires on December 20, 2002.
F-26
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)
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%. This instrument
matured on 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. This contract expired
on December 22, 1998.
The Company had a foreign exchange contract on hand at January 31, 1999
hedging Canadian Dollar exposure in the amount of $1,297. This contract expires
on April 29, 1999.
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.
12. RELATED PARTY TRANSACTIONS*
In May 1989, the Company entered into an agreement with an executive
providing for (i) the purchase of 120,000 shares of Common Stock at $2.75 a
share, payable in cash in the amount of $.005 per 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 was collateralized by 180,000 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 Tax Note was repaid on April 29,
1998.
F-27
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
12. RELATED PARTY TRANSACTIONS* (continued)
The consolidated statements of income for the years ended January 31, 1999,
1998 and 1997 include executive contract expenses of $0, $1 and $238,
respectively.
* Share and per share amounts have been adjusted to reflect the Company's
two-for-one stock split, effected in the form of a 100% stock dividend.
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 employees' years of service and qualifying compensation during the
years of employment. Plan assets are invested in commingled trust funds
consisting primarily of equity and U.S. Government securities.
The Company 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.
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 tables that follow provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended January
31, 1999 and 1998 and a statement of the funded status as of January 31, 1999
and 1998.
Pension Benefits Other Benefits*
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year......... $34,815 $29,688 $ 1,634 $ 1,475
Service cost................................ 1,575 1,176 65 59
Interest cost............................... 2,392 2,246 105 109
Actuarial loss/(gain)....................... 198 3,221 (83) 81
Benefits paid............................... (1,660) (1,516) (164) (90)
------ ------ ------ ------
Benefit obligation at end of year............... $37,320 $34,815 $ 1,557 $ 1,634
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of year.. $33,901 $29,014 $ - $ -
Actual return on plan assets................ 3,126 5,438 - -
Employer contributions...................... 15 965 164 90
Benefits paid............................... (1,660) (1,516) (164) (90)
------ ------ ------ ------
Fair value of plan assets at end of year........ $35,382 $33,901 $ - $ -
====== ====== ====== ======
Reconciliation of funded status:
Funded status .................................. $(1,938) $ (914) $(1,557) $(1,634)
Unrecognized actuarial loss/(gain).............. 1,820 1,832 (284) (217)
Unrecognized prior service cost................. (2) (2) - -
------ ------ ------ ------
(Accrued)/prepaid benefit cost at
measurement date............................ $ (120) $ 916 $(1,841) $(1,851)
Contributions made after measurement date
but before the end of the fiscal year....... 12 - - -
------ ------ ------ ------
(Accrued)/prepaid benefit cost at end of
fiscal year................................. $ (108) $ 916 $(1,841) $(1,851)
====== ====== ====== ======
F-29
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
13. EMPLOYEE BENEFIT PLANS (continued)
Pension Benefits Other Benefits*
---------------- ---------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Components of net periodic benefit cost:
Service cost............................. $ 1,575 $ 1,176 $ 1,257 $ 65 $ 59 $ 58
Interest cost............................ 2,392 2,246 2,100 105 109 106
Expected return on plan assets........... (2,975) (2,545) (2,279) - - -
Recognized actuarial loss/(gain)......... 59 53 144 (17) (24) (16)
----- ------ ----- --- --- ---
Net periodic benefit cost............ $ 1,051 $ 930 $ 1,222 $153 $144 $148
===== ====== ===== === === ===
Weighted-average assumptions
as of December 31:
Discount rate............................ 7.00% 7.00% 7.80% 7.00% 7.00% 7.80%
Expected long-term rate of
return on plan assets................ 9.00% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase**.......... 5.11% 5.11% 5.11% N/A N/A N/A
* The Company contribution to the retiree medical plan is fixed so there is
no medical trend rate assumption.
** Only applies to the Pension Plan for Salaried Employees.
(B) 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 $859, $725 and $684 for the years ended January 31, 1999,
1998 and 1997, respectively.
(C) The Company has Supplemental Executive Retirement Plans ("SERPs") that
cover a former executive and certain current executives. The SERPs are
non-qualified, unfunded deferred benefit compensation plans. Expenses related to
these SERPs, which were actuarially determined, were $471 and $427 for the years
ended January 31, 1999 and 1998, respectively.
F-30
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
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).
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-31
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 period presented. Pro forma adjustments include only the
effects of events directly attributed to a transaction that are factually
supportable and expected to have a continuing impact. The pro forma adjustments
contained in the table below include amortization of intangibles, 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
----
Net sales................................... $288,830
Net income.................................. $ 14,683
Net income per common share*................ $ 1.17
Net income per common share -
assuming dilution*......................... $ 1.14
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend.
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 date, 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-32
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, 1999 and 1998
follow:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 1999:
Net sales............................. $78,909 $80,073 $81,598 $73,386
Gross profit.......................... 20,688 21,739 23,855 19,888
Operating income...................... 9,141 9,590 10,498 8,342
Net income............................ 5,756 6,000 6,772 5,552
Net income per common share*.......... .47 .49 .55 .45
Net income per common share -
assuming dilution*................. .45 .47 .53 .43
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*.......... .34 .39 .44 .45
Net income per common share -
assuming dilution*................. .33 .37 .42 .43
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of 100% stock dividend, where
appropriate.
16. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." 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. In compliance with SFAS No. 131, the Company has
identified the following three reportable segments and has restated prior years
to conform with the fiscal 1999 presentation.
F-33
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
16. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (continued)
The Powercom Division manufactures and markets integrated reserve power
systems and components for the standby power market which includes
telecommunications, uninterruptible power supplies and utilities and controls.
Integrated reserve power systems monitor and regulate electric power flow and
provide backup power in the event of a primary power loss or interruption. The
Powercom Division also produces the individual components of these systems,
including power rectifiers, system monitors, power boards, chargers and reserve
batteries.
The Motive Power Division 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. These
products are marketed to end users in a broad array of industries, dealers of
fork- lift trucks and other material handling vehicles, and, to a lesser extent,
original equipment manufacturers ("OEMs").
The Power Electronics Division manufactures and markets custom, standard
and modified standard electronic power supply systems for large OEMs of
telecommunications equipment, office products, computers and workstations. The
Power Electronics Division also manufactures cellular phone battery chargers.
Summarized financial information related to the Company's business segments
for the years ended January 31, 1999, 1998 and 1997 is shown below:
Motive Power
Powercom Power Electronics
Division Division Division Consolidated
-------- -------- ----------- ------------
Year ended January 31, 1999:
Net sales.................................. $174,938 $71,600 $67,428 $313,966
Operating income........................... $29,989 $4,203 $3,379 $37,571
Year ended January 31, 1998:
Net sales.................................. $161,122 $69,004 $77,928 $308,054
Operating income........................... $24,146 $4,210 $4,875 $33,231
Year ended January 31, 1997:
Net sales.................................. $147,933 $68,914 $70,060 $286,907
Operating income........................... $15,075 $3,979 $5,392 $24,446
F-34
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
--------
16. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (continued)
Summarized financial information related to the geographic areas in which
the Company operated at January 31, 1999, 1998 and 1997 and for each of the
years then ended is shown below:
United
States International Consolidated
------ ------------- ------------
Year ended January 31, 1999:
Net sales........................... $277,125 $36,841 $313,966
Long-lived assets................... $73,604 $3,325 $76,929
Year ended January 31, 1998:
Net sales........................... $272,232 $35,822 $308,054
Long-lived assets................... $70,017 $3,081 $73,098
Year ended January 31, 1997:
Net sales........................... $257,381 $29,526 $286,907
Long-lived assets................... $67,745 $2,898 $70,643
17. SUBSEQUENT EVENTS
Effective March 1, 1999, the Company acquired substantially all of the
assets of the Specialty Battery Division of Johnson Controls, Inc. ("JCI"),
including, without limitation, certain assets of Johnson Technology, a wholly
owned subsidiary of JCI, and 100% of the ordinary shares of Johnson Controls
Battery (U.K.) Limited, a U.K. company and a wholly owned subsidiary of JCI. In
consideration of the assets acquired, the Company paid approximately $120,000,
subject to certain adjustments as set forth in the purchase agreement. In
addition, the Company assumed certain liabilities of the seller. The acquisition
of an interest of the Specialty Battery Division in a joint venture in Shanghai,
China, for approximately $15,000, plus the assumption of certain liabilities, is
expected to be consummated in the near future, subject to certain third party
consents. The joint venture manufactures, markets and distributes industrial and
starting, lighting and ignition batteries.
The Specialty Battery Division was engaged in the business of designing,
manufacturing, marketing and distributing industrial batteries. The Company
intends to continue using the assets acquired in such business. The source of
the funds for the acquisition was advances under a new credit agreement
consisting of a term loan in the amount of $100,000 and a revolving loan not to
exceed $120,000 which includes a letter of credit facility not to exceed $30,000
and swingline loans not to exceed $10,000.
F-35
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
C&D TECHNOLOGIES, INC.
Our audits of the consolidated financial statements of C&D TECHNOLOGIES, INC.
and subsidiaries referred to in our report dated March 8, 1999 appearing in Item
14(a)(1) of this Form 10-K also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 8, 1999
S-1
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 1999, 1998 and 1997
(Dollars in thousands)
Additions Additions Balance
Balance at Charged Charged at
Beginning to Costs & to Other End of
of Period Expenses Accounts(a) Deductions(b) Period
---------- ----------- ----------- ------------- -------
Deducted From Assets
Allowance for Doubtful Accounts:
Year ended January 31, 1999...........$1,701 $232 $ - $298 $1,635
Year ended January 31, 1998........... 1,414 401 - 114 1,701
Year ended January 31, 1997........... 1,421 128 109 244 1,414
- ---------
(a) Additions related to business acquisitions.
(b) Amounts written-off, net of recoveries.
S-2