Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2002
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
State or other jurisdiction of incorporation or organization: Delaware
I.R.S. Employer Identification Number: 13-3314599
Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
Registrant's telephone number, including area code: (215) 619-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange
-------------- on which registered
Common Stock, ---------------------
par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on March 28, 2002: $542,605,256
Number of shares outstanding of each of the Registrant's classes of common
stock as of March 28, 2002: 25,958,200 shares of Common Stock, par value $.01
per share.
Documents incorporated by reference:
Portions of Registrant's Proxy Statement Part III
to be filed pursuant to Regulation 14A (Part of Form 10-K into which
within 120 days after the end of Registrant's Document is incorporated.)
fiscal year covered by this Form 10-K
TABLE OF CONTENTS
Page
----
Part I
Item 1 Business....................................................... 1
Item 2 Properties..................................................... 15
Item 3 Legal Proceedings.............................................. 16
Item 4 Submission of Matters to a Vote of
Security Holders........................................... 16
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters............................ 16
Item 6 Selected Financial Data........................................ 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 20
Item 7A Quantitative and Qualitative Disclosure
About Market Risk.......................................... 28
Item 8 Financial Statements and Supplementary Data.................... 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 29
Part III
Item 10 Directors and Executive Officers of the Registrant............. 30
Item 11 Executive Compensation......................................... 30
Item 12 Security Ownership of Certain Beneficial
Owners and Management...................................... 30
Item 13 Certain Relationships and Related Transactions................. 30
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................ 31
Signatures.................................................................. 35
Index to Financial Statements and Financial Statement Schedule.............. F-1
I
C&D TECHNOLOGIES, INC.
PART I
Item 1. Business
About Our Company
C&D Technologies, Inc. (together with its operating subsidiaries, "we",
"our" or "C&D") is a technology company that produces and markets systems for
the conversion and storage of electrical power, including reserve power systems
and embedded, high frequency switching power supplies. Our integrated reserve
power systems are comprised of the following:
o industrial lead acid batteries;
o power rectifiers;
o power control equipment;
o power distribution equipment; and
o related accessories.
Our power supplies are comprised of the following:
o DC to DC converters;
o AC to DC power supplies;
o magnetics (transformers and inductors); and
o custom architectures.
Common applications for our power supplies product portfolio include:
o telecommunications equipment, including optical switches, remote
switches, Voice Over Internet Protocol (VOIP), central office
backup;
o data centers and networked (LAN and WAN) computing architecture;
o high availability industrial computing;
o industrial temperature control systems;
o industrial imaging equipment;
o displays (signs, scanning equipment);
o broadband/CATV powering;
o advanced office electronic machines, such as copiers; and
o motive power systems for electric industrial vehicles.
We sell both individual components and integrated power systems.
We were organized in November 1985 to acquire all the assets of the
eighty-year old C&D Power Systems Division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.
1
In October 1992, we purchased substantially all of the assets and assumed
certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"),
a Seattle, Washington-based manufacturer and distributor of power electronics
equipment used primarily in the regulated telecommunications power market.
In March 1994, we purchased substantially all of the assets and assumed
certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona-based
company which designs and manufactures custom power supplies. These power
supplies are used in the telecommunications power market and the office
equipment market in such applications as networked computing architecture,
digital printing equipment, industrial copy machines, remote switching equipment
and other applications.
In January 1995, we purchased certain assets and assumed certain
liabilities of the switching power supply division of Basler Electric Company, a
Highland, Illinois-based manufacturer of electrical components. These power
supplies are used for office electronics and communications applications.
In November 1995 we sold shares of Common Stock in a public offering.
In February 1996, we purchased certain equipment and inventory of LH
Research, Inc. ("LH"), a Costa Mesa, California-based manufacturer of standard
power supply systems for the electronics industry. The power supplies are used
in telecommunications, computer, medical, process control and other industrial
applications.
In March 1996, we acquired from Burr-Brown Corporation its entire interest
in Tucson, Arizona-based Power Convertibles Corporation ("PCC"), which produced
DC to DC converters used in communications, computer, medical, industrial and
instrumentation markets as well as battery chargers for cellular phones.
In January 1998, the acquired businesses of the PowerSystems Division of
ITT, the switching power supply division of Basler Electric Company, LH and PCC
were combined into the Power Electronics Division of C&D.
In July 1998 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a Milwaukee,
Wisconsin-based designer, manufacturer, marketer and distributor of industrial
batteries. These assets included all of the ordinary shares of Johnson Controls
Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition,
in August 1999, we acquired JCI's 67% ownership interest in a joint venture
battery business in Shanghai, China. The joint venture manufactures and markets
industrial batteries. For reporting purposes, we have re-named the Specialty
Battery Division and JCI's 67% ownership interest in the joint venture battery
business in Shanghai, China the Dynasty Division.
In June 2000 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion products (primarily DC to DC converters) based in
the United Kingdom. For reporting purposes, this acquisition is included as part
of the Power Electronics Division and is referred to as C&D Technologies (NCL)
Limited ("NCL").
2
Fiscal Year
Our fiscal year ends on the last day of January. Any references to a
fiscal year means the 12-month period ending January 31 of the year mentioned.
Forward-Looking Statements
Certain of the statements and information contained in this Form 10-K are
"forward-looking statements" (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
and, accordingly, are subject to risks and uncertainties. For such statements,
C&D claims the protection of the safe-harbor for forward-looking statements
contained in the Private Securities Litigation Act of 1995. The factors that
could cause actual results to differ materially from anticipated results
expressed or implied in any forward-looking statement include those referenced
in the forward-looking statement, following the forward-looking statement,
described in the notes to the Consolidated Financial Statements and other
factors discussed in this Form 10-K and our other filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Form
10-K. We undertake no obligation to update or revise these statements to reflect
events or circumstances occurring after the date of this Form 10-K.
Forward-looking statements may be identified by their use of words like
"plans," "expects," "will," "anticipates," "intends," "projects," "estimates" or
other words of similar meaning. All statements that address expectations or
projections about the future, including statements about our strategy for
growth, product development, market position, expenditures and financial
results, are forward-looking statements.
Forward-looking statements are based on certain assumptions and
expectations of future events. We cannot guarantee that these assumptions and
expectations are accurate or will be realized. Following are some of the
important factors that could cause our actual results to differ materially from
those projected in any such forward-looking statements:
o We operate worldwide and derive a portion of our revenue from sales
outside the United States. Changes in the laws or policies of
governmental and quasi-governmental agencies, as well as social and
economic conditions, in the countries in which we operate could
affect our business in these countries and our results of
operations. In addition, economic factors (including inflation and
fluctuations in interest rates and foreign currency exchange rates)
and competitive factors (such as price competition, business
combinations of competitors or a decline in industry sales from
slowing economic growth) both in the United States and other
countries in which we conduct business could affect our results of
operations. (See Item 1. Business - International Operations, Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of the Economy and Shift in Customer
Demand, and Item 7A. Quantitative and Qualitative Disclosure About
Market Risk - Market Risk Factors.)
o Our results of operations could be significantly impacted by adverse
conditions in the domestic and global economies or the markets in
which we conduct business, such as telecommunications, UPS, CATV,
switchgear and control and material handling.
o Our ability to grow earnings could be affected by increases in the
cost of raw materials, particularly lead. We may not be able to
fully offset the effects of higher raw material costs through price
3
increases or productivity improvements. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Raw Material Pricing and Productivity; and Inflation.)
o Our ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate delivery of parts and components from
our suppliers and internal manufacturing capacity. Although we work
closely with our suppliers to avoid shortages, there can be no
assurance that we will not encounter shortages in the future. A
reduction or interruption in component supply or a significant
increase in the price of one or more components could have a
material adverse effect on our operations.
o Our growth objectives are largely dependent on our ability to renew
our pipeline of new products and to bring these products to market.
This ability may be adversely affected by difficulties or delays in
product development, such as the inability to: identify viable new
products; successfully complete research and development projects;
obtain adequate intellectual property protection; or gain market
acceptance of the new products. Our growth could also be affected by
new competitive products and technologies.
o As part of our strategy for growth, we have made and may continue to
make acquisitions, and in the future, may make divestitures and form
strategic alliances. There can be no assurance that these will be
completed or beneficial to us.
o Our facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental
laws and regulations, as well as internal voluntary programs, are
significant and will continue to be so for the foreseeable future.
Our accruals for such costs and liabilities may not be adequate
since the estimates on which the accruals are based depend on a
number of factors including the nature of the problem, the
complexity of the site, the nature of the remedy, the outcome of
discussions with regulatory agencies and other potentially
responsible parties ("PRPs") at multiparty sites, and the number and
financial viability of other PRPs. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Environmental Regulations.)
o Our business, results of operations and financial condition could be
affected by significant pending and future litigation adverse to
C&D, such as, without limitation, product liability, contract and
employment-related claims and claims arising from any injury or
damage to persons or the environment from hazardous substances used,
generated or disposed of in the conduct of C&D's business (or that
of a predecessor to the extent that C&D is not indemnified for those
liabilities). (See Item 3. Legal Proceedings.)
o Our performance depends on our ability to attract and retain
qualified personnel. We cannot assure that we will be able to
continue to attract and retain qualified personnel.
The foregoing list of important factors is not all-inclusive, or
necessarily stated in order of importance.
4
Reportable Segments
Our operations are classified into the following reportable business
segments:
o Powercom Division
o Dynasty Division
o Power Electronics Division
o Motive Power Division
Segments are determined using the "management approach," which means the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance.
The financial information regarding our four business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 2002, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.
The Market for Our Products
We manufacture and market products in the following general categories by
business segment:
o Powercom Division - fully integrated reserve power systems and
components for the standby power market, which includes
telecommunications, uninterruptible power supplies ("UPS"),
utilities and solar;
o Dynasty Division - industrial batteries used in UPS applications for
computer systems and corporate data networks, telecommunications
reserve power systems and broadband cable television ("CATV") signal
powering;
o Power Electronics Division - DC to DC converters, custom, standard
and modified standard embedded high frequency AC to DC switching
power supplies and magnetics (transformers and inductors); and
o Motive Power Division - motive power systems for the material
handling equipment market.
We market our products through independent manufacturer's representatives,
distributors, specialty resellers and our own sales personnel to end users and
original equipment manufacturers ("OEMs").
We sell some products to the U.S. Government. These sales accounted for
less than 5% of our total company sales during each of our last three fiscal
years.
Products and Customers by Business Segment
Powercom Division - Reserve Power Systems
We are a leading producer of fully integrated reserve power systems that
monitor and regulate electric power flow and provide backup power in the event
of a primary power loss or interruption. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.
5
We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:
o flooded batteries; and
o valve-regulated (sealed) batteries.
Flooded batteries require periodic watering and maintenance.
Valve-regulated batteries require less maintenance and are often smaller.
To meet the needs of our customers, our reserve power systems include a
wide range of power electronics products, consisting principally of power
rectifiers and distribution and monitoring equipment. Our power rectifiers
convert or "rectify" external AC power into DC power at the required level and
quality of voltage and apply the DC power to constantly charge the reserve
battery and operate the user's equipment. For installations with end
applications that require varied power levels, our power control and
distribution equipment distributes the rectified power for each of the
applications.
Telecommunications Customers. Our customers use the majority of our
standby power products in telecommunications applications, such as central
telephone exchanges, microwave relay stations, private branch exchange ("PBX")
systems and wireless telephone systems. Our major telecommunications customers
include national long distance companies, competitive local exchange carriers,
former Bell operating companies, wireless system operators, paging systems and
PBX telephone locations using fiber optic, microwave transmission or traditional
copper-wired systems.
Modular Power Plants. We offer several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty(R) AGM Series Power Plant and the Liberty(R) ACM Series Power
Plant, integrate advanced rectifiers with virtually maintenance-free
valve-regulated batteries.
Round Cell Battery. One of our historically important telecommunications
products has been the Round Cell reserve power battery, a flooded product
originally designed and patented by the Bell Laboratories of AT&T for use in
AT&T's own facilities and customer installations. In 1996, AT&T spun off its
equipment manufacturing operations into Lucent Technologies, Inc. In January
2001, we began selling Round Cell reserve power batteries to Tyco International,
Ltd. ("Tyco") as a result of Lucent Technologies, Inc.'s sale of its Power
Systems business to Tyco. Our company or its predecessor has manufactured Round
Cells for AT&T, Lucent Technologies, Inc. or Tyco since 1972 and has been the
exclusive manufacturer since 1982.
Uninterruptible Power Supplies. We produce batteries for UPS systems,
which provide instant battery backup in the event of primary power loss or
interruption, thereby permitting an orderly shutdown of equipment or continued
operation for a limited period of time until a power source comes back on-line.
Large UPS systems are used principally for mainframe computers, minicomputers,
networks and computer-controlled equipment.
Equipment for Electric Utilities and Industrial Control Applications. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures until a power source comes back on-line.
6
Dynasty Division - Reserve Power Batteries
Through our Dynasty Division, we design, manufacture and distribute
valve-regulated (sealed) batteries for use in reserve power systems for a wide
variety of end use markets. Our product range focuses on batteries that provide
less than 200 ampere hours. These products are sold primarily to customers in
the UPS, telecommunications and cable markets. Major applications of these
products include wireless and wireline telephone infrastructure, corporate data
center backup, computer network backup for use during power outages and CATV
signal powering. Our customers include industry-leading OEMs serving the UPS,
broadband and telecommunications markets.
Uninterruptible Power Supplies. Similar to our Powercom Division, the
Dynasty Division produces batteries for UPS systems, which provide instant
battery backup in the event of primary power loss or interruption, thereby
permitting an orderly shutdown of equipment or continued operation for a limited
period of time until a power source comes back on-line. Our Dynasty(R) High Rate
Series batteries have been engineered specifically for UPS applications and
deliver extended life while complying with rigorous industry standards. As a
critical component to overall power backup solutions, our Dynasty Division has
worked closely with major global UPS OEMs to design a cost-effective, reliable
product to meet customer expectations.
Telecommunications. Our Long Duration Series batteries are designed to
meet the demanding requirements of telecommunications applications. These
batteries operate in a wide variety of environmental conditions, meet prolonged
run time needs so as to maintain operations during power loss and protect
sophisticated electronics equipment.
CATV Signal Powering and Broadband. Dynasty(R) Broadband Series batteries
are designed for demanding standby float applications in abusive environments.
These batteries have been designed to offer the best combination of run time and
service life for CATV signal powering and broadband applications. Our gelled
electrolyte technology provides excellent heat transfer properties, which enable
these batteries to perform in high temperature environments. Unlike other
competitive gel technologies, the Dynasty(R) Broadband Series does not require
cycling to meet electrical performance. Our Dynasty(R) Broadband Series of
batteries is considered the market leader for CATV powering in North America.
Power Electronics Division - DC to DC Converters, Power Supplies and
Magnetics
Through our Power Electronics Division we design, manufacture and market
custom, standard and modified-standard electronic power supply systems. These
power supply systems are primarily used by large OEMs in telecommunications
equipment, office products, computers and industrial applications. In addition,
our Power Electronics Division manufactures rectifiers for reserve power
applications that are sold by our Powercom Division.
We sell the majority of our power supply products to OEMs of electronic
products on either a custom, standard or modified-standard basis. Power supplies
are embedded in almost all electronic products and are used to convert available
AC or DC voltage to the required level and quality of DC voltage.
Our power supplies incorporate advanced technology and are designed for
reliable operation of the host equipment. These products include DC to DC
converters, AC to DC power supplies and magnetics (transformers and inductors)
for use in a wide variety of applications, with outputs ranging from sub one
watt to several kilowatts. DC to DC products are circuit board mounted devices
used to convert available system
7
power to required component voltages. DC to DC converters are widely used in
distributed power architecture where system voltages require conversion to a
higher or lower voltage to power components such as microprocessors and arrays.
AC to DC power supplies convert alternating current, the form in which virtually
all power is delivered by electric utilities to end users, into precisely
controlled direct current that is required by sensitive electronic application
architecture.
In the telecommunications industry, our power supplies are broadly used in
voice and data telecommunications. We also produce power supplies for office
copiers, voice and data networks, instrumentation, robotics, networked
computing, and other industrial applications.
Motive Power Division - Motive Power Systems
Our customers use the majority of our motive power products to provide
power for material handling vehicles. A significant portion of our motive power
sales include products and systems to recharge motive power batteries.
We produce complete systems and individual components (including power
electronics and batteries) to monitor, charge and test the batteries used in
powering electric industrial vehicles, including fork-lift trucks and automated
guided vehicles. Our customers include end users in a broad array of industries,
dealers of material handling equipment and, to a lesser extent, OEMs.
We offer a broad line of motive power equipment including the C-Line(TM)
battery, which we believe is the industry standard for long life, the V-Line(R)
battery for general material handling applications and the Revolution(R)
maintenance free industrial battery. We also offer a broad line of battery
charging equipment.
Sales, Installation and Servicing
The sales, installation and servicing of our Powercom and Motive Power
products are performed through several networks of independent manufacturer's
representatives located throughout the United States and Canada. Most of our
independent manufacturer's representatives operate under contracts providing for
compensation on a commission basis or as a distributor with product purchases
for resale. Dynasty and Power Electronics products are sold via a network of
independent manufacturer's representatives as well as independent distributors
located throughout the United States and Canada.
In addition to these networks of independent manufacturer's
representatives and distributors, we employ internal sales management consisting
of regional sales managers and product/market specialists. The regional sales
managers are each responsible for managing a number of independent
manufacturer's representatives and for developing long-term relationships with
large end users, OEMs and national accounts. We also employ a separate sales
force that works with the independent manufacturer's representative network and
directly with certain large customers.
We have internal divisional marketing departments in each of our
divisions. These departments manage the development of new products from the
initial concept definition and management approval stages through the
engineering, production and sales processes. These departments are also
responsible for applications engineering, technical training of sales
representatives and the marketing communications function.
8
We maintain branch sales and service facilities in the United States,
Canada, Europe and Asia, with the support of our headquarters and service
personnel, and have business relationships with sales representatives and
distributors throughout the world.
No single customer of C&D amounted to 10% or more of our net sales for the
year ended January 31, 2002. We typically sell our products with terms requiring
payment in full within 30 to 60 days. We warrant our battery products to perform
as rated for specified periods of time, ranging from one to 25 years, depending
on the type of product and its application, in an amount that decreases over the
life of the product. The longest warranties generally are applicable to flooded
standby power batteries sold by our Powercom Division.
Backlog
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders and, taking into
account considerations of manufacturing capacity and flexibility, the speed with
which we fill those orders. Period-to-period comparisons may not be meaningful.
Occasionally orders may be canceled by the customer prior to shipment.
Our order backlog at February 28, 2002 was $53,628,000 and at February 28,
2001 was $178,073,000. The decrease in backlog was due to softening in demand
for our products. We expect to fill virtually all of the February 28, 2002
backlog during fiscal 2003.
Manufacturing and Raw Materials
We manufacture our products at seven domestic plants, two plants in China,
and one each in the United Kingdom, Mexico and Ireland. We manufacture most key
product lines at a single focused plant in order to optimize manufacturing
efficiency, asset management and quality control.
Consolidation. In fiscal 2002 we closed our Workington, United Kingdom
facility and transferred production to our other Power Electronics Division
facilities. We also closed the manufacturing operations at our Conshohocken,
Pennsylvania facility in March 2002 and now purchase products previously
manufactured at this location from a third party. We expect to close the
manufacturing operations at our Shannon, Ireland facility by the end of the
first quarter of fiscal 2003, shifting its manufacturing to other Power
Electronics Division facilities. We expect to continue to utilize the Shannon,
Ireland location as a research and development center. No facilities were closed
during fiscal 2001. In fiscal 2000 we closed our Costa Mesa, California and Agua
Prieta, Mexico facilities. Production previously performed at these facilities
was primarily transferred to our Nogales, Mexico facility.
The principal raw materials used in the manufacture of our products
include lead, steel, copper, plastics and electronic components, all of which
are generally available from multiple suppliers. Other than the required use of
one supplier of lead and one supplier of lead oxide for the production of Round
Cell batteries for Tyco, we use a number of suppliers to satisfy our raw
materials needs.
ISO 9000 Recognition. ISO certification assures customers that our
internal processes and systems meet internationally recognized standards. We are
ISO 9001 certified at the following domestic locations: Blue Bell, Pennsylvania
Headquarters; Conshohocken, Pennsylvania R&D Battery Laboratories; Conyers,
Georgia; Dunlap, Tennessee; Huguenot, New York; Leola, Pennsylvania; Milwaukee,
Wisconsin and Tucson, Arizona.
9
Internationally, our operations in Milton Keynes, United Kingdom; Nogales,
Mexico; Shanghai, China and Shannon, Ireland are also ISO 9001 certified. Our
Guangzhou, China and Romsey, United Kingdom locations are ISO 9002 certified.
Competition
Our products compete on the basis of:
o product quality and reliability;
o reputation;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and we value our relationships with our
customers. In addition, we believe that we have certain competitive advantages
in specific product lines.
We believe that we are one of the four largest producers of reserve power
systems in North America. In motive power, we believe that one competitor,
EnerSys Inc., has a significantly larger market share than we have. Our company,
along with two other manufacturers, occupies a second tier of the motive power
market in which we have a larger market share than our smaller third tier
competitors.
For both reserve and motive power systems, we believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.
In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both. In motive power, all our major
competitors supply integrated power systems, but only our company and one
competitor manufacture both electronics and batteries.
With respect to power supplies, we believe that we are among a small group
of large competitors in this fragmented industry.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
Research and Development
We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
10
o production engineering (including quality testing and managing the
expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in the United States and Europe
feature advanced computer-aided design and testing equipment. Technology and
engineering personnel coordinate all activities closely with operations, sales
and marketing in order to better meet the needs of customers. We continue to
develop new products in our businesses. During fiscal 2002, our Power
Electronics Division introduced the cPCI500DC power supply for Compact PCI
Systems. The cPCI500DC utilizes a patented topology to achieve higher efficiency
and higher power density than currently available competitive offerings. In
addition, the Power Electronics Division also introduced its VSX75 and VSX50
products during fiscal 2002, extending its dual output VSX product family into
higher power levels. With two precisely controlled outputs, these products
deliver the exact power requirements for demanding high speed microprocessors.
The Powercom division has recently introduced the Hyperon(R) 48Vdc 10,800 Amp
Power Plant. The Hyperon(R) offers superior performance for a host of telecom
applications and provides cutting-edge technology that meets cost-effective
design in a power plant that features true modularity, hot swappable components
and compact distribution with superior cable management.
International Operations
In addition to our domestic manufacturing facilities, we have
international manufacturing facilities in Mexico, China and the United Kingdom.
Products produced by our domestic and Mexican facilities are shipped primarily
to the United States, and, to a lesser extent, to Canada and Europe. Our 67%
joint venture facility in Shanghai, China manufactures industrial batteries that
are sold primarily in China and Europe. Our Power Electronics Division
facilities in the United Kingdom and China manufacture electronics that are sold
primarily in Europe, North America, and to a lesser extent, the Far East.
International sales accounted for 20.4%, 20.9% and 16.4% of net sales for the
years ended January 31, 2002, 2001 and 2000, respectively. Additional financial
information regarding our international sales is provided in Note 15 to the
Consolidated Financial Statements. See Part II, Item 8.
Patents and Trademarks
Our policy is to apply for patents on new inventions and designs and
actively pursue pending and future patent applications. We believe that the
growth of our business will depend primarily upon the quality of our products
and our relationships with our customers, rather than the extent of our patent
protection. While we believe that patents are important to our business
operations, the loss of any single or several patents would not have a material
adverse effect on our company.
We regard our trademarks C&D(R), C&D TECHNOLOGIES(R), C&D TECHNOLOGIES
POWER SOLUTIONS(R), C&D POWERCOM(R), DYNASTY(R), LIBERTY(R), LIBERTY SERIES(R),
MAXIMIZER(R) and ORION(R) as being of substantial value in the marketing of our
products and have registered these trademarks in the United States Patent and
Trademark Office. Our trademarks also include C-LINE(TM), C-LINE PLUS(R),
COMPUCHARGE(R), FERRO FIVE(R), FERRO 1500(R), GUARDIAN(R), HYPERON(R),
RANGER(R), REVOLUTION(R), SCOUT(R), SMARTBATTERY(R), V-LINE(R) and 6-PAK(R).
11
Employees
On February 28, 2002 we employed approximately 2,700 people. Of these
employees, approximately 2,200 were employed in manufacturing and almost 500
were employed in field sales, technology, manufacturing support, sales support,
marketing and administrative activities.
Our management considers our employee relations to be satisfactory.
Employees in four domestic plants are represented by four different unions under
collective bargaining agreements. Employees at a fifth domestic facility are
represented by a union and a collective bargaining agreement is being
negotiated.
Environmental Regulation
Our operations are subject to extensive and evolving environmental laws
and regulations regarding the clean-up and protection of the environment, worker
health and safety and the protection of third parties. These laws and
regulations include, but are not limited to, the following:
o requirements relating to the handling, storage, use and disposal of
lead and other hazardous materials used in manufacturing processes
and solid wastes;
o record keeping and periodic reporting to governmental entities
regarding the use of hazardous substances and disposal of hazardous
wastes;
o monitoring and permitting of air and water emissions; and
o monitoring and protecting workers from unpermitted exposure to
hazardous substances, including lead used in our manufacturing
processes.
We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental vice-president and
staffed with trained environmental professionals. As part of our program, we:
o prepare written environmental and health and safety practice
manuals;
o conduct employee training;
o undertake periodic internal and external audits of our operations
and environmental and health and safety programs;
o practice and engage in routine sampling and monitoring of employee
chemical and physical exposure levels; and
o engage in sampling and monitoring of potential points of
environmental emissions.
In addition, we also have installed certain pollution abatement equipment
to reduce emissions of regulated pollutants into the environment. Our program
monitors and seeks to resolve potential environmental liabilities that result
from, or may arise from, current and historic hazardous materials handling and
waste disposal practices. We have in place a spent product recapture and
recycling program for our facilities and our customers.
While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are required to pay a penalty or
fine, to install control technology or to make equipment or process changes (or
a combination thereof) as a result of the non-compliance or changing regulatory
12
requirements. When we become aware of a non-compliance or change in regulatory
requirements, we take immediate steps to correct and resolve the issues. The
associated costs have not had a material adverse effect on our business,
financial condition or results of operations.
Notwithstanding our efforts to maintain compliance with applicable
environmental requirements, if damage to persons or the environment arises from
hazardous substances used, generated or disposed of in the conduct of our
business (or that of our predecessors to the extent we are not indemnified
therefore), we may be held liable for certain damages and for the costs of the
investigation and remediation, which could have a material adverse effect on our
business, financial condition or results of operations.
In view of the potential financial effect such environmental liabilities
could have, when we acquired the assets of our predecessor from Allied in
January 1986, we secured an obligation from Allied to indemnify us from
undisclosed environmental liabilities resulting from conditions existing as of
the closing date. This obligation has since been assumed by Allied's successor
in interest, Honeywell ("Honeywell"). With the exception of four sites disclosed
by Allied at the time of the acquisition, Allied and/or Honeywell has accepted
indemnification responsibility for our potential liabilities at those third
party owned or operated sites with respect to which we have been named as a PRP
by the United States Environmental Protection Agency ("EPA") or state
environmental agencies under the federal Superfund law or comparable state
environmental laws.
With respect to the sites not covered by the Allied indemnity, based upon
the most currently available information, we believe that our share of liability
at these sites will not have a material adverse effect on our business,
financial condition or results of operations. Moreover, we accrue reserves for
environmental liabilities in our consolidated financial statements and quarterly
reevaluate the reserved amounts for these liabilities in view of the most
current information available.
We are also aware of the existence of potential contamination at one of
our properties which may require expenditures for further investigation and
remediation. At our Huguenot, New York facility, fluoride contamination in an
inactive lagoon exceeding the state's groundwater standards, which existed prior
to our acquisition of the site, has resulted in the site being listed on the
registry of inactive hazardous waste disposal sites maintained by the New York
State Department of Environmental Conservation. The prior owner of the site is
expected to ultimately bear some, as yet undetermined, share of the costs
associated with this matter.
Together with JCI, we are conducting an assessment and remediation of
contamination at our Milwaukee, Wisconsin facility, which we purchased as part
of our acquisition of the Specialty Battery Division from JCI. The majority of
this project was completed by the end of fiscal 2002. Under the purchase
agreement with JCI, we are responsible for (i) one-half of the cost of the
on-site assessment and remediation, with a maximum liability of $1,750,000, (ii)
any environmental liabilities at the facility that are not remediated as part of
the current project and (iii) environmental liabilities for claims made after
the fifth anniversary of the closing that arise from migration from a
pre-closing condition at the Milwaukee facility to locations other than the
Milwaukee facility, but specifically excluding liabilities relating to
pre-closing offsite disposal. JCI has retained all other environmental
liabilities, including off-site assessment and remediation.
We received notification from the EPA of alleged violations of permit
effluent and pretreatment discharge limits at our plant in Attica, Indiana. We
submitted a compliance plan to the EPA. We are in active negotiations with the
agency regarding the potential resolution of this matter.
13
With respect to each of the properties described in the preceding three
paragraphs, we have accrued a reserve in our consolidated financial statements
for our estimate of the potential costs and liabilities based upon currently
available information. The costs and potential liabilities associated with these
matters are not, in our opinion, likely to materially affect our business,
financial condition or results of operations.
We are working towards ISO 14001 certification of our corporate
environmental management systems at our Blue Bell, Pennsylvania headquarters.
ISO 14001 is a voluntary, international standard that is intended to provide
organizations with the elements of an effective environmental management system
that can be integrated with other management requirements to assist with the
achievement of environmental and economic goals.
14
Item 2. Properties
Set forth below is certain information, as of April 1, 2002, with respect
to our principal properties.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties:
Milwaukee, Wisconsin (1)............. 370,000 Small standby power batteries,
headquarters of Dynasty Division
Attica, Indiana (1).................. 295,000 Large standby power batteries
Leola, Pennsylvania (1).............. 240,000 Large standby power batteries and Round
Cell
Conyers, Georgia (1)................. 161,000 Small standby power batteries
Huguenot, New York (1)............... 148,000 Motive power batteries and large standby
power batteries
Dunlap, Tennessee (2)................ 72,000 Standby power and motive power
electronics products
Blue Bell, Pennsylvania (3).......... 63,000 Corporate headquarters, Powercom and
Motive Power divisional headquarters
Tucson, Arizona (3).................. 57,000 DC to DC converters, power supplies,
headquarters of Power Electronics
Division and electronics R&D
laboratories
Conshohocken, Pennsylvania (1) (4)... 27,000 Battery R&D laboratories and
distribution center
International Properties:
Shanghai, China (5)................. 314,000 Small standby power batteries
Nogales, Mexico (3).................. 97,000 DC to DC converters and AC to DC
power supplies
Guangzhou, China (3)................. 35,000 DC to DC converters and wound
magnetics
Milton Keynes, United Kingdom (3).... 33,000 DC to DC converters, wound magnetics
and electronics R&D laboratories
Romsey, United Kingdom (3)........... 21,000 Distribution center
Mississauga, Canada (3).............. 20,000 Canadian branch headquarters, sales
office and distribution center
Shannon, Ireland (3)(4).............. 19,000 DC to DC converters and electronics
R&D laboratory
(footnotes begin on following page)
15
(1) Property is owned by C&D.
(2) The lease of the Dunlap property terminates in January 2004. We have an
option to purchase the Dunlap property for $1,160,000 during the lease
term.
(3) Property is leased by C&D.
(4) We closed the manufacturing operations at our Conshohocken, Pennsylvania
facility in March 2002 and now purchase products previously manufactured
at this location from a third party. We expect to close the manufacturing
operations at our Shannon, Ireland facility by the end of the first
quarter of fiscal 2003, shifting its manufacturing to other Power
Electronics Division facilities. We expect to continue to utilize the
Shannon, Ireland location as a research and development center.
(5) Building is owned by the joint venture; however, the land is leased under
a 50-year agreement, of which 43 years remain.
Item 3. Legal Proceedings
We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material to our financial condition or results of operations in any year. See
"Business - Environmental Regulation" for a description of certain
administrative proceedings in which we are involved. In January 2000, C&D was
sued in an action captioned Puerto Rico Electric Power Authority v. C&D
Technologies, Inc., Case No. 00-1104 in the United States District Court for the
District of Puerto Rico, for an alleged breach of contract in connection with
the sale of certain batteries dating back to the mid-1990s. In August 2000, we
entered into a settlement agreement with respect to this claim, the cost of
which was recovered from our insurance carriers during the first quarter of
fiscal 2002.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock is traded on The New York Stock Exchange under the symbol
CHP. The approximate number of beneficial and registered record holders of our
Common Stock on March 28, 2002 was 7,100.
16
The following table sets forth, for the periods indicated, the high and
low sales prices for our Common Stock as reported by the New York Stock
Exchange. These prices represent actual transactions, but do not reflect
adjustment for retail markups, markdowns or commissions.
Year Ended
---------------------------------------
January 31, 2002 January 31, 2001
----------------- -----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter ...................... $55.65 $23.40 $33.00 $20.38
Second Quarter ..................... 38.60 23.90 61.38 29.75
Third Quarter ...................... 32.15 16.35 61.88 31.38
Fourth Quarter ..................... 24.65 19.60 58.25 36.88
Dividends. We began paying quarterly cash dividends on our Common Stock in
April 1987. For the years ended January 31, 2002 and 2001 we declared quarterly
dividends per share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2002 ................... $0.01375 $0.01375 $0.01375 $0.01375
2001 ................... $0.01375 $0.01375 $0.01375 $0.01375
Our bank loan agreement permits quarterly dividends to be paid on our
Common Stock so long as there is no default under that agreement. Subject to
that restriction and the provisions of Delaware law, our Board of Directors
currently intends to continue paying quarterly dividends. We cannot assure you
that we will continue to do so since future dividends will depend on our
earnings, financial condition and other factors.
On February 22, 2000, the Board of Directors of C&D declared a dividend of
one common stock purchase right (a "Right") for each share of Common Stock
outstanding on March 3, 2000 to the stockholders of record on that date. The
description and terms of the Rights are set forth in a Rights Agreement between
C&D and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder
Services, L.L.C.), as rights agent. Upon the occurrence of certain events, each
Right will entitle the registered holder to purchase from C&D one one-hundredth
of a share of Common Stock at a purchase price of $150 per one one-hundredth of
a share, subject to adjustment, as stated in the Rights Agreement. Upon the
occurrence of certain events involving a hostile takeover of C&D, unless our
Board of Directors acts otherwise, each holder of a Right, other than Rights
beneficially owned by the acquiring company, will thereafter have the right to
receive upon exercise: (i) that number of shares of our common stock having a
market value equal to two times the purchase price of the Right or (ii) that
number of shares of common stock of the acquiring company that at the time of
the transaction has a market value of two times the exercise price of the Right.
17
Item 6. Selected Financial Data
The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements, which appear in Items 7 and 14 of this Form 10-K.
Fiscal Year
----------------------------------------------------------------------
(In thousands, except share and
per share data)
2002 2001 (1) 2000 (2) 1999 1998
-------- --------- --------- -------- --------
Statement of Income Data:
Net sales ....................... $471,641 $ 615,678 $ 482,182 $321,937 $315,313
Cost of sales ................... 343,370 439,135 357,802 235,767 234,139
-------- --------- --------- -------- --------
Gross profit .................... 128,271 176,543 124,380 86,170 81,174
Selling, general and
administrative expenses ........ 50,406 66,243 59,315 40,344 39,333
Research and development
expenses ....................... 10,291 10,281 8,941 8,255 8,610
-------- --------- --------- -------- --------
Operating income ................ 67,574 100,019 56,124 37,571 33,231
Interest expense, net ........... 6,700 6,315 7,946 126 1,129
Other expense (income), net ..... 1,239 (725) (20) 211 1,058
-------- --------- --------- -------- --------
Income before income taxes and
minority interest .............. 59,635 94,429 48,198 37,234 31,044
Provision for income taxes ...... 22,244 35,883 17,737 13,154 11,359
-------- --------- --------- -------- --------
Net income before minority
interest ....................... 37,391 58,546 30,461 24,080 19,685
Minority interest ............... 1,317 2,651 619 -- --
-------- --------- --------- -------- --------
Net income ...................... $ 36,074 $ 55,895 $ 29,842 $ 24,080 $ 19,685
======== ========= ========= ======== ========
Net income per common
share - basic (3) .............. $ 1.38 $ 2.13 $ 1.17 $ .97 $ .81
======== ========= ========= ======== ========
Net income per common
share - diluted (4) ............ $ 1.35 $ 2.05 $ 1.14 $ .94 $ .78
======== ========= ========= ======== ========
Dividends per common share ...... $ .05500 $ .05500 $ .05500 $ .04125 $ .02750
======== ========= ========= ======== ========
Balance Sheet Data:
Working capital ................. $ 55,014 $ 75,895 $ 65,079 $ 63,688 $ 47,342
Total assets .................... 395,558 455,519 354,115 185,642 166,498
Short-term debt ................. 27,255 18,172 20,393 532 321
Long-term debt .................. 46,892 98,849 76,459 1,750 10,267
Stockholders' equity ............ 241,858 218,054 162,066 123,538 97,305
(footnotes begin on the following page)
18
(1) In December 2000 (effective as of November 26, 2000), we acquired NCL,
a producer of electronic power conversion products (primarily DC to DC
converters) based in the United Kingdom. For reporting purposes, the acquisition
of NCL is included in the Power Electronics Division. We continue to use the
assets acquired in such business. See notes to consolidated financial
statements.
(2) Effective March 1, 1999, we acquired substantially all of the assets
of the Specialty Battery Division of JCI including, without limitation, certain
assets of Johnson Controls Technology Company, a wholly owned subsidiary of JCI,
and 100% of the ordinary shares of Johnson Controls Battery (U.K.) Limited, an
indirect wholly owned subsidiary of JCI. In addition, C&D assumed certain
liabilities of the seller. The Specialty Battery Division was engaged in the
business of designing, manufacturing, marketing and distributing industrial
batteries. We continue to use the assets acquired in such business. On August 2,
1999 we completed the acquisition of JCI's 67% ownership interest in a joint
venture battery business in Shanghai, China. The joint venture manufactures,
markets and distributes industrial batteries. We continue the joint venture
operations in such business. For reporting purposes, we have re-named the
Specialty Battery Division and JCI's 67% ownership interest of the joint venture
battery business in Shanghai, China the Dynasty Division. See notes to
consolidated financial statements.
(3) Based on 26,153,715, 26,223,684, 25,529,778, 24,730,366 and 24,442,740
weighted average shares outstanding - basic.
(4) Based on 26,688,011, 27,264,528, 26,088,402, 25,671,724 and 25,263,648
weighted average shares outstanding - diluted.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All dollar amounts in this Item 7 are in thousands, except per share
amounts and per pound lead amounts.
Impact of Economy and Shift in Customer Demand
During fiscal 2002, primarily due to negative economic conditions,
particularly in the telecommunications market, there was a softening in demand
for our products.
Raw Material Pricing and Productivity
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 2002, 2001 and 2000, the average North American producer
price of lead was $.44, $.45 and $.45 per pound, respectively.
We have a long-term cost containment program to maximize manufacturing
efficiency. Under the program, we continue to allocate a significant amount of
our normal annual capital expenditures to cost containment and productivity
improvement projects.
Inflation
The cost to us of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our ability to pass
along inflationary cost increases through higher prices may be limited during
periods of stable or declining lead prices because of industry pricing practices
that tend to link product prices and lead prices. We believe that, over recent
years, we have been able to offset inflationary cost increases by:
o effective raw materials purchasing programs;
o increases in labor productivity;
o improvements in overall manufacturing efficiencies; and
o selective price increases of our products.
20
Results of Operations
The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
-------------------------------
2002 2001 2000
------ ------ ------
Net sales ............................................ 100.0% 100.0% 100.0%
Cost of sales ........................................ 72.8 71.3 74.2
------ ------ ------
Gross profit ....................................... 27.2 28.7 25.8
Selling, general and administrative expenses ......... 10.7 10.8 12.3
Research and development expenses .................... 2.2 1.7 1.9
------ ------ ------
Operating income ................................... 14.3 16.2 11.6
Interest expense, net ................................ 1.4 1.0 1.6
Other expense (income), net .......................... 0.3 (0.1) --
------ ------ ------
Income before income taxes and minority interest ... 12.6 15.3 10.0
Provision for income taxes ........................... 4.7 5.8 3.7
------ ------ ------
Net income before minority interest ................ 7.9 9.5 6.3
Minority interest .................................... 0.3 0.4 0.1
------ ------ ------
Net income ......................................... 7.6% 9.1% 6.2%
====== ====== ======
Critical Accounting Policies
We have identified the critical accounting policies that are most
important to the portrayal of our financial condition and results of operations.
The policies set forth below require management's most subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Litigation and Environmental Reserves
C&D is involved in litigation in the ordinary course of business,
including personal injury, property damage and environmental litigation. We also
expend funds for environmental remediation of both company-owned and third-party
locations. In accordance with Generally Accepted Accounting Principles ("GAAP"),
specifically Statement of Financial Accounting Standards ("SFAS") No. 5,
"Accounting for Contingencies" and Statement of Position 96-1, "Environmental
Remediation Liabilities," we record a loss and establish a reserve for
litigation or remediation when it is probable that an asset has been impaired or
a liability exists and the amount of the liability can be reasonably estimated.
Reasonable estimates involve judgments made by
21
management after considering a broad range of information including:
notifications, demands or settlements that have been received from a regulatory
authority or private party, estimates performed by independent engineering
companies and outside counsel, available facts, existing and proposed
technology, the identification of other PRPs and their ability to contribute and
prior experience. These judgments are reviewed quarterly as more information is
received and the amounts reserved are updated as necessary. However, the
reserves may materially differ from ultimate actual liabilities if the loss
contingency is difficult to estimate or if management's judgments turn out to be
inaccurate. If management believes no best estimate exists, the minimum loss is
accrued in accordance with GAAP.
Valuation of Long-lived Assets
C&D follows SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. In
performing the review for recoverability, we estimate the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized.
Pension and Other Employee Benefits
Certain assumptions are used in the calculation of the actuarial valuation
of our defined benefit pension plans and postretirement benefits. These
assumptions include the weighted average discount rate, rates of increase in
compensation levels, expected long-term rates of return on assets and increases
or trends in health care costs. If actual results are less favorable than those
projected by management, lower levels of pension credit or other additional
expense may be required.
Inventory Reserves
C&D adjusts the value of its obsolete and unmarketable inventory to the
estimated market value based upon assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Allowance for Doubtful Accounts
C&D maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Warranty Reserves
C&D provides for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
suppliers' products and processes, C&D's warranty obligation is affected by
product failure rates, warranty replacement costs and service delivery costs
incurred in correcting a product failure. Should actual product failure rates,
warranty replacement costs or service delivery costs differ from our estimates,
revisions to the estimated warranty liability would be made.
22
Deferred Tax Valuation Allowance
C&D records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event C&D were to
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise,
should C&D determine that it would not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
Revenue Recognition
C&D recognizes revenue when the earnings process is complete. This occurs
when products are shipped to the customer in accordance with terms of the
agreement, title and risk of loss have been transferred, collectibility is
reasonably assured and pricing is fixed and determinable. Accruals are made for
sales returns and other allowances based on our experience. While returns have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same return rates that
we have in the past. Any significant increase in product failure rates and the
resulting credit returns could have a material adverse impact on our operating
results for the period or periods in which such returns materialize.
Fiscal 2002 Compared to Fiscal 2001
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion (primarily DC to DC converters) based in the United
Kingdom. For reporting purposes, this acquisition is included as part of the
Power Electronics Division and is referred to as C&D Technologies (NCL) Limited
("NCL"). We continue to use the assets acquired in such business. As result of
the timing of the above acquisition, fiscal 2001, which ended January 31, 2001,
does not include revenue or expense for ten months of the twelve-month period
with respect to our acquisition of NCL.
Net sales for fiscal 2002 decreased $144,037 or 23% to $471,641 from
$615,678 in fiscal 2001. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Dynasty Division declined $50,278, or
31%, due to lower sales to the UPS, CATV and telecommunications markets. Power
Electronics divisional sales decreased $46,962, or 43%, primarily due to a
decline in DC to DC converter sales, partially offset by the recording of a full
year of sales by NCL versus two months in fiscal 2001. Sales of the Powercom
Division fell $29,862, or 11% mainly due to lower telecommunication sales,
partially offset by higher sales to the UPS and control markets. Motive Power
divisional sales dropped $16,935, or 22% due to lower sales of batteries and
chargers.
Gross profit for fiscal 2002 decreased $48,272 or 27% to $128,271 from
$176,543 in the prior year, resulting in a decrease in gross margin from 28.7%
to 27.2%. Gross profit declined in all divisions, primarily as a result of lower
sales.
23
Selling, general and administrative expenses for fiscal 2002 decreased
$15,837 or 24%. This decrease was primarily due to: (i) lower variable selling
costs associated with the decreased sales volumes; (ii) the reduction of general
and administrative expenses associated with the full recovery of litigation
settlement costs from our insurance carriers in the first quarter of fiscal
2002, which was reserved for in fiscal 2001; (iii) lower bonus accruals; (iv)
lower warranty expenses; (v) lower travel expenses; and (vi) lower advertising
expenses. Partially offsetting this decrease was: (i) the recording of a full
year of selling, general and administrative expenses during fiscal 2002 by NCL
(including amortization of goodwill and other intangible assets), compared to
only two months in the prior year; (ii) costs related to a potential acquisition
that did not close; and (iii) costs associated with the closure of the
Conshohocken, Pennsylvania plant.
Research and development expenses were up by a nominal amount on lower
sales.
Operating income decreased $32,445 or 32% to $67,574 from $100,019 in the
prior year. This decrease was the result of lower operating income generated by
the Dynasty Division, coupled with an operating loss generated by the Power
Electronics Division versus operating income in the prior fiscal year. This
decrease was partially offset by higher Powercom divisional operating income,
coupled with a lower operating loss generated by the Motive Power Division. (See
the segment reporting information in Note 15, Operations by Industry Segment and
Geographic Area in the Notes to the Consolidated Financial Statements.)
Interest expense, net, increased $385 in fiscal 2002 compared to the prior
year, primarily due to higher weighted average debt balances outstanding during
the year, coupled with lower capitalized interest resulting from our reduced
level of capital spending, partially offset by a lower effective interest rate.
Income tax expense for fiscal 2002 decreased $13,639 from fiscal 2001,
primarily as a result of lower income before income taxes and a decrease in the
effective tax rate. The effective tax rate consists of statutory rates adjusted
for the tax impacts of our foreign sales corporation, research and development
credits and foreign operations. The effective tax rate for fiscal 2002 decreased
to 37.3% from 38.0% in the prior year.
Minority interest of $1,317 in fiscal 2002 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.
As a result of the above, for fiscal 2002, net income decreased $19,821 or
35% to $36,074 or $1.38 per share - basic and $1.35 per share - diluted.
Fiscal 2001 Compared to Fiscal 2000
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
Effective March 1, 1999, we purchased substantially all of the assets of
the Specialty Battery Division of JCI, a designer, manufacturer, marketer and
distributor of industrial batteries based in Milwaukee, Wisconsin. These assets
included certain assets of Johnson Controls Technology Company, a wholly owned
subsidiary of JCI, and all of the ordinary shares of Johnson Controls Battery
(U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition, on
August 2, 1999 we completed the acquisition of JCI's 67% ownership interest of a
joint venture battery business in Shanghai, China. The joint venture
manufactures, markets and distributes industrial batteries. For reporting
purposes, we have re-named the Specialty Battery Division and JCI's 67%
ownership interest in the joint venture battery business in Shanghai, China the
Dynasty Division.
24
As a result of the timing of the above acquisitions, fiscal 2000, which ended
January 31, 2000, does not include revenue or expenses for one month of the
twelve-month period with respect to our acquisition of the Specialty Battery
Division of JCI and does not include revenue or expenses for six months of the
twelve-month period with respect to our acquisition of JCI's 67% ownership
interest in a joint venture battery business in Shanghai, China.
Net sales for fiscal 2001 increased $133,496 or 28% to $615,678 from
$482,182 in fiscal 2000. This increase resulted from higher sales by all
divisions except for the Motive Power Division, which had a 2% decrease in
sales. Sales by the Power Electronics Division increased $47,710 or 76% versus
the prior year due to higher DC to DC converter sales, partially offset by lower
sales of custom power supplies. A portion of this increase was due to the
recording of two months of sales associated with the acquisition of NCL. Sales
by the Dynasty Division increased $47,382, or 41%, due to higher sales to the
UPS and telecommunications markets. A portion of this increase was due to the
recording of a full year of sales of the Dynasty Division during fiscal 2001
compared to only eleven months in fiscal 2000. Also contributing to the increase
in Dynasty Division sales during fiscal 2001 was the recording of a full year of
sales related to our 67% ownership interest in the joint venture battery
business, compared to only six months in the prior year. Powercom divisional
sales increased $39,751 or 18%, as a result of higher sales to the
telecommunications and UPS markets.
Gross profit for fiscal 2001 increased $52,163 or 42% to $176,543 from
$124,380 in the prior year, resulting in an increase in gross margin from 25.8%
to 28.7%. The Dynasty, Power Electronics and Powercom divisions had higher gross
profits in fiscal 2001 primarily due to increased sales volumes. Gross profit of
the Motive Power Division decreased primarily as a result of manufacturing
inefficiencies.
Selling, general and administrative expenses for fiscal 2001 increased
$6,928 or 12%. This increase was primarily due to: (i) higher variable selling
costs associated with the increased sales volumes; (ii) higher litigation
settlement costs (the cost of which was recovered from our insurance carriers in
the first quarter of fiscal 2002); (iii) higher bonus accruals; (iv) the
recording of a full year of selling, general and administrative expenses during
fiscal 2001 by the Dynasty Division, compared to only eleven months in the prior
year; (v) the recording of a full year of selling, general and administrative
expenses during fiscal 2001 by our 67% ownership interest in the Shanghai joint
venture compared to only a half year in fiscal 2000; (vi) the recording of two
months of selling, general and administrative expenses during fiscal 2001
associated with the acquisition of NCL; partially offset by the absence in
fiscal 2001 of restructuring charges, primarily related to the Power Electronics
Division, which were recorded in fiscal 2000.
Research and development expenses remained proportional to sales as a
relative percentage of sales for both fiscal 2001 and 2000 at approximately 2%
of sales.
Operating income for fiscal 2001 increased $43,895 or 78% to $100,019 from
$56,124 in the prior year. This increase was the result of higher operating
income generated by the Dynasty, Power Electronics and Powercom divisions,
partially offset by an operating loss for the Motive Power Division. The Power
Electronics Division generated operating income during fiscal 2001, compared to
an operating loss in the prior year. (See the segment reporting information in
Note 15, Operations by Industry Segment and Geographic Area in the Notes to the
Consolidated Financial Statements.)
Interest expense, net, decreased $1,631 in fiscal 2001 compared to the
prior year primarily due to lower weighted average debt balances outstanding
during the year, coupled with higher capitalized interest resulting from our
increased level of capital spending.
25
Income tax expense for fiscal 2001 increased $18,146 from fiscal 2000,
primarily as a result of higher income before income taxes and an increase in
the effective tax rate. The effective tax rate consists of statutory rates
adjusted for the tax impacts of our foreign sales corporation, research and
development credits and foreign operations. The effective tax rate for fiscal
2001 increased to 38.0% from 36.8% in the prior year.
Minority interest of $2,651 in fiscal 2001 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The increase in minority interest was due to improved
profitability coupled with recording a full year of results in the current year
compared to only six months in the prior year.
As a result of the above, for fiscal 2001, net income increased $26,053 or
87% to $55,895 or $2.13 per share - basic and $2.05 per share - diluted.
Liquidity and Capital Resources
Net cash provided by operating activities increased $2,630 or 3% to
$81,770 in fiscal 2002, compared to $79,140 in fiscal 2001. This increase in net
cash provided by operating activities was primarily due to decreases in accounts
receivable and inventory during fiscal 2002 (mainly due to lower sales volume)
compared to increases in the prior year, coupled with an increase in
depreciation and amortization. These changes, resulting in higher net cash
provided by operating activities, were partially offset by: (i) decreases in
accounts payable, accrued liabilities and other current liabilities versus
increases in the prior fiscal year; (ii) lower net income; (iii) a decrease in
income taxes payable compared to an increase in the prior year; and (iv) a
larger decrease in other liabilities in fiscal 2002 versus fiscal 2001.
Net cash used by investing activities decreased $65,218 or 71% to $26,787
from $92,005 in fiscal 2001, which included our purchase of NCL and higher
capital spending for property, plant and equipment.
Net cash used by financing activities was $53,824 in fiscal 2002 versus
cash provided by financing activities of $13,624 in fiscal 2001. The proceeds
from new borrowings in fiscal 2001 were primarily used to fund the NCL
acquisition. Fiscal 2002 net cash flows used by financing activities include
higher debt reductions and treasury stock purchases than the prior year,
partially offset by proceeds from new borrowings related to a line of credit
denominated in British Pounds.
The availability under our current loan agreements is expected to be
sufficient to meet our ongoing cash needs for working capital requirements, debt
service, capital expenditures and possible strategic acquisitions. These
agreements contain restrictive covenants that require us to maintain minimum
ratios such as fixed charges coverage and leverage ratios, as well as minimum
consolidated net worth. We were in compliance with our loan agreement covenants
at January 31, 2002. Capital expenditures during fiscal 2002 were incurred to
fund capacity expansion, a continuing series of cost reduction programs, normal
maintenance capital and regulatory compliance. Fiscal 2003 capital expenditures
are expected to be approximately $10,000 for similar purposes.
26
Contractual Obligations and Commercial Commitments
The following tables summarize our contractual obligations and commercial
commitments as of January 31, 2002 (dollars in thousands):
Payments Due by Period
-----------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
------- ------- ------- ------ ------
Term loan ........................... $44,142 $18,750 $25,392 -- --
Operating leases .................... 19,958 3,036 4,445 $2,999 $9,478
------- ------- ------- ------ ------
Total contractual cash obligations .. $64,100 $21,786 $29,837 $2,999 $9,478
======= ======= ======= ====== ======
Amount of Commitment Expiration Per Period
-------------------------------------------------------
Total
Amounts Less than 1 - 3 4 - 5 After 5
Other Commercial Commitments Committed 1 year years years years
--------- ------- ------- ------- -------
Lines of credit ................. $30,001 $ 8,501 $21,500 -- --
Standby letters of credit ....... 2,621 2,621 -- -- --
------- ------- ------- ------- -------
Total commercial commitments .... $32,622 $11,122 $21,500 -- --
======= ======= ======= ======= =======
New Accounting Pronouncements
On February 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." The adoption of
the new standard resulted in a net-of-tax cumulative effect of $103 recorded in
accumulated other comprehensive loss.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets. Effective February 1, 2002,
goodwill and indefinite lived intangible assets will no longer be amortized, but
will be reviewed annually (or more frequently if impairment indicators arise)
for impairment. Other intangible assets will continue to be amortized over their
useful lives. We are currently evaluating the potential impact, if any, of the
application of goodwill impairment provisions of the new rules on our financial
position and results of operations. Based on acquisitions completed as of
January 31, 2002, application of the goodwill non-amortization provisions of
these rules, without considering the impact of any potential impairment, is
expected to result in an increase in income before taxes of approximately $6,100
for fiscal 2003.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting requirements for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. We are currently in
the process of evaluating the impact SFAS No. 143 will have on our financial
position and results of operations, if any.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Long-Lived Assets
27
and for Long-Lived Assets to be Disposed Of." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions
of Accounting Principles Board Opinion No. 30. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. We are currently in the process
of evaluating the impact SFAS No. 144 will have on our financial position and
results of operations, if any.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
All dollar amounts in this Item 7A are in thousands.
Market Risk Factors
We are exposed to various market risks. The primary financial risks
include fluctuations in interest rates and changes in currency exchange rates.
We manage these risks by using derivative instruments. We do not invest in
derivative securities for trading purposes, but do enter into hedging
arrangements in order to reduce our exposure to fluctuations in interest rates
as well as to fluctuations in exchange rates. (See "Derivative Financial
Instruments" in the Summary of Significant Accounting Policies, Note 1, and Fair
Value of Financial Instruments, Note 12 to the Consolidating Financial
Statements.)
Our financial instruments subject to interest rate risk consist of debt
instruments and interest rate swap contracts. The net market value of our debt
instruments (excluding capital lease obligations) was $74,143 and $117,002 at
January 31, 2002 and 2001, respectively. The debt instruments are subject to
variable rate interest, and therefore the market value is not sensitive to
interest rate movements.
Interest rate swap contracts are used to manage our exposure to
fluctuations in interest rates on our underlying variable rate debt instruments.
We employ separate swap transactions rather than fixed rate obligations to take
advantage of the lower borrowing costs associated with floating rate debt while
also eliminating possible risk related to refinancing in the fixed rate market.
The net market value of our interest rate swaps was $(1,835) and $(165) at
January 31, 2002 and 2001, respectively. A 100-basis point increase in rates at
January 31, 2002 and 2001 would result in a $924 and a $349 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2002 and 2001 would result in an $883 and a $357 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their year-end levels, with all other variables held
constant. We calculate the market value of the interest rate swaps by utilizing
a standard net present value model based on the market conditions as of the
valuation date.
We use currency forwards and swaps to hedge anticipated cash flows in
foreign currencies. The exposures currently hedged are the British Pound and
Canadian Dollar. These financial instruments represent a net market value of
$(34) and $(179) at January 31, 2002 and 2001, respectively.
To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10% change in exchange rates.
The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables being
held constant. At January 31, 2002 and 2001, a 10%
28
strengthening of the US Dollar versus these currencies would result in an
increase of the net market value of the forwards and swaps of $1,579 and $3,106,
respectively. At January 31, 2002 and 2001, a 10% weakening of the US Dollar
versus these currencies would result in a decrease in the net market value of
the forwards and swaps of $1,737 and $3,167, respectively.
The market value of the instruments was determined by taking into
consideration the contracted interest rates and foreign exchange rates versus
those available for similar maturities in the market at January 31, 2002 and
2001, respectively.
Foreign exchange forwards and swap contracts are used to hedge our firm
and anticipated foreign currency cash flows. There is either a balance sheet or
cash flow exposure related to all of the financial instruments in the above
sensitivity analysis for which the impact of a movement in exchange rates would
be in the opposite direction and substantially equal to the impact on the
instruments in the analysis.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated by reference to
the information under the captions "Election of Directors," "Current Executive
Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" included in C&D's proxy statement for our 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to
the information under the caption "Executive Compensation" included in C&D's
proxy statement for our 2002 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated by reference to
the information under the captions "Principal Stockholders" and "Beneficial
Ownership of Management" included in C&D's proxy statement for our 2002 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
None.
30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) The following financial statements are included in this report on
Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 2002 and 2001
Consolidated Statements of Income for the years ended January 31,
2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended January
31, 2002, 2001 and 2000
Consolidated Statements of Comprehensive Income for the years ended
January 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this
report on Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January
31, 2002, 2001 and 2000
II. Valuation and Qualifying Accounts
(3) Exhibits:
3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).
3.2 Amended and Restated By-laws of C&D (incorporated by reference
to Exhibit 3.2 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 2000).
4.1 Rights Agreement dated as of February 22, 2000 between C&D and
Mellon Investor Services, LLC (formerly ChaseMellon
Shareholder Services, L.L.C.), as rights agent, which includes
as Exhibit B thereto the form of rights certificate
(incorporated by reference to Exhibit 1 to C&D's Form 8-A
Registration Statement filed on February 28, 2000).
31
10.1 Purchase Agreement dated November 27, 1985, among Allied,
Allied Canada Inc. and C&D; Amendments thereto dated January
28 and October 8, 1986 (incorporated by reference to Exhibit
10.1 to C&D's Registration Statement on Form S-1, No.
33-10889).
10.2 Agreement dated December 15, 1986 between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D's
Registration Statement on Form S-1, No. 33-10889).
10.3 Lease Agreement dated February 15, 1994 by and between
Sequatchie Associates, Incorporated and C&D Charter Power
Systems, Inc. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1999).
10.4 Purchase and Sale Agreement, dated as of November 23, 1998
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D and C&D Acquisition Corp. as Purchaser (incorporated
by reference to Exhibit 2.1 to C&D's Current Report on Form
8-K dated March 1, 1999).
10.5 Credit Agreement, dated as of March 1, 1999 among C&D, as
borrower, certain subsidiaries and affiliates of C&D, as
guarantors, the lenders named therein, and Bank of America
(formerly NationsBank, N.A.), as administrative agent
(incorporated by reference to Exhibit 2.2 to C&D's Current
Report on Form 8-K dated March 1, 1999); First Amendment
thereto dated February 18, 2000 (incorporated by reference to
Exhibit 10.5 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 2000), Second Amendment thereto
dated July 20, 2000 (incorporated by reference to Exhibit 10.1
to C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 2000), Third Amendment thereto dated July 24, 2000
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 2000),
Fourth Amendment thereto dated October 13, 2000 (incorporated
by reference to Exhibit 10.1 to C&D's Current Report on Form
8-K dated December 15, 2000), Fifth Amendment thereto dated
October 13, 2000 (incorporated by reference to Exhibit 10.2 to
C&D's Current Report on Form 8-K dated December 15, 2000),
Sixth Amendment thereto dated April 4, 2001 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form 10-K
for the fiscal year ended January 31, 2001).
10.6 Uncommitted loan facility dated June 5, 2001 between C&D
Holdings Limited and ABN Amro Bank N.V. (incorporated by
reference to Exhibit 10.2 to C&D's Quarterly Report on Form
10-Q for the period ended April 30, 2001).
Management Contracts or Plans
10.7 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1996),
First Amendment to C&D Technologies, Inc. 1996 Stock Option
Plan (formerly known as the Charter Power Systems, Inc. 1996
Stock Option Plan) dated April 27, 1999 (incorporated by
reference to Exhibit 10.3 to C&D's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).
32
10.8 C&D Technologies, Inc. Amended and Restated 1998 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to C&D's
Annual Report on Form 10-K for fiscal year ended January 31,
2001).
10.9 C&D Technologies, Inc. Savings Plan as restated and amended
(filed herewith).
10.10 C&D Technologies, Inc. Pension Plan for Salaried Employees as
restated and amended (filed herewith).
10.11 Supplemental Executive Retirement Plan, amended and restated
as of February 27, 2001 (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2001).
10.12 C&D Technologies, Inc. Management Incentive Bonus Plan Policy
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2001).
10.13 Employment Agreement dated November 28, 2000 between Wade H.
Roberts, Jr. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended October 31, 2000).
10.14 Employment Agreement dated March 31, 2000 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit
10.14 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.15 Employment Agreement dated March 31, 2000 between Linda R.
Hansen and C&D (incorporated by reference to Exhibit 10.15 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.16 Employment Agreement dated March 31, 2000 between Charles
Giesige, Sr. and C&D (incorporated by reference to Exhibit
10.18 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.17 Employment Agreement dated March 31, 2000 between Apostolos T.
Kambouroglou and C&D (incorporated by reference to Exhibit
10.21 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.18 Employment Agreement dated March 31, 2000 between Kathryn
Bullock and C&D (incorporated by reference to Exhibit 10.22 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.19 Employment Agreement dated March 1, 2001 between David Fix and
C&D (incorporated by reference to Exhibit 10.21 to C&D's
Annual Report on Form 10-K for the fiscal year ended January
31, 2001).
10.20 Employment Agreement dated August 6, 2001 between James D.
Johnson and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 2001).
33
10.21 Employment Agreement dated January 4, 2002 between Mark D.
Amatrudo and C&D (filed herewith).
10.22 Agreement and Release dated August 16, 2001 between John Rich
and C&D (incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended October
31, 2001).
10.23 Agreement and Release dated March 1, 2002 between Mark Z.
Sappir and C&D (filed herewith).
10.24 C&D Technologies, Inc. Nonqualified Deferred Compensation Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-42054).
10.25 C&D Technologies, Inc. Approved Share Option Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-69266).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by C&D during the last quarter of
the period covered by this report.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
C&D TECHNOLOGIES, INC.
April 19, 2002 By: /s/ Wade H. Roberts, Jr.
------------------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wade H. Roberts, Jr. President, Chief Executive April 19, 2002
- --------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 19, 2002
- --------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 19, 2002
- ---------------------------
William Harral, III
/s/ Stephen J. Andriole Director April 19, 2002
- ---------------------------
Stephen J. Andriole
/s/ Adrian A. Basora Director April 19, 2002
- ---------------------------
Adrian A. Basora
/s/ Peter R. Dachowski Director April 19, 2002
- ---------------------------
Peter R. Dachowski
/s/ Kevin P. Dowd Director April 19, 2002
- ---------------------------
Kevin P. Dowd
/s/ Pamela S. Lewis Director April 19, 2002
- ---------------------------
Pamela S. Lewis
/s/ George MacKenzie Director April 19, 2002
- ---------------------------
George MacKenzie
/s/ John A. H. Shober Director April 19, 2002
- ---------------------------
John A. H. Shober
35
(This page intentionally left blank)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Page
----
Report of Independent Accountants ........................... F-2
Consolidated Balance Sheets as of
January 31, 2002 and 2001 ................................. F-3
Consolidated Statements of Income
for the years ended January 31, 2002, 2001
and 2000 .................................................. F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2002, 2001 and 2000 ..................... F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 2002, 2001
and 2000 .................................................. F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 2002,
2001 and 2000 ............................................. F-8
Notes to Consolidated Financial Statements .................. F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 2002, 2001 and 2000
Schedule II. Valuation and Qualifying Accounts .............. S-1
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of C&D Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 31 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2002 and January 31, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)(2) on page 31
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 5, 2002
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 8,781 $ 7,709
Accounts receivable, less allowance for doubtful
accounts of $2,278 in 2002 and $4,121 in 2001 ..... 44,968 88,596
Inventories ............................................. 61,674 77,493
Deferred income taxes ................................... 10,156 10,990
Other current assets .................................... 6,754 1,459
--------- ---------
Total current assets .............................. 132,333 186,247
Property, plant and equipment, net ........................... 131,207 130,387
Intangible and other assets, net ............................. 24,659 23,309
Goodwill, net ................................................ 107,359 115,576
--------- ---------
Total assets ...................................... $ 395,558 $ 455,519
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ......................................... $ 27,255 $ 18,172
Accounts payable ........................................ 19,640 45,935
Accrued liabilities ..................................... 22,210 34,918
Income taxes ............................................ -- 2,533
Other current liabilities ............................... 8,214 8,794
--------- ---------
Total current liabilities ......................... 77,319 110,352
Deferred income taxes ........................................ 2,602 1,135
Long-term debt ............................................... 46,892 98,849
Other liabilities ............................................ 18,574 20,133
--------- ---------
Total liabilities ................................. 145,387 230,469
Commitments and contingencies
Minority interest ............................................ 8,313 6,996
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,431,728 and 28,276,917
shares issued in 2002 and 2001, respectively ...... 284 283
Additional paid-in capital .............................. 65,893 62,908
Treasury stock, at cost, 2,414,161 and
1,986,038 shares in 2002 and 2001, respectiv