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, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
State or other jurisdiction of incorporation or organization: Delaware
I.R.S. Employer Identification Number: 13-3314599
Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
Registrant's telephone number, including area code: (215) 619-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange
-------------- on which registered
Common Stock, ---------------------
par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes |X| No |_|
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on July 31, 2002: $393,365,732
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 4, 2003: 25,594,301 shares of Common Stock, par value $.01 per
share.
Documents incorporated by reference:
Portions of Registrant's Proxy Statement Part III
to be filed pursuant to Regulation 14A (Part of Form 10-K into which
within 120 days after the end of Registrant's Document is incorporated.)
fiscal year covered by this Form 10-K
(This page intentionally left blank)
TABLE OF CONTENTS
Page
----
Part I
Item 1 Business ................................................... 1
Item 2 Properties ................................................. 15
Item 3 Legal Proceedings .......................................... 16
Item 4 Submission of Matters to a Vote of
Security Holders ...................................... 16
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters ....................... 17
Item 6 Selected Financial Data .................................... 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 19
Item 7A Quantitative and Qualitative Disclosure
About Market Risk ..................................... 28
Item 8 Financial Statements and Supplementary Data ................ 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................ 29
Part III
Item 10 Directors and Executive Officers of the Registrant ......... 30
Item 11 Executive Compensation ..................................... 30
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters ................................... 30
Item 13 Certain Relationships and Related Transactions ............. 30
Item 14 Controls and Procedures .................................... 30
Part IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................... 32
Signatures .............................................................. 37
Index to Financial Statements and Financial Statement Schedule .......... F-1
I
C&D TECHNOLOGIES, INC.
PART I
Item 1. Business
About Our Company
C&D Technologies, Inc. (together with its operating subsidiaries, "we",
"our" or "C&D") is a technology company that produces and markets systems for
the conversion and storage of electrical power, including reserve power systems
and embedded, high frequency switching power supplies. Our integrated reserve
power systems are comprised of the following:
o industrial lead acid batteries;
o power rectifiers;
o power control equipment;
o power distribution equipment; and
o related accessories.
Our power supplies are comprised of the following:
o DC to DC converters;
o AC to DC and DC to DC power supplies;
o magnetics (transformers and inductors); and
o custom architectures.
Common applications for our power supplies product portfolio include:
o telecommunications equipment, including optical switches, remote
switches, Voice Over Internet Protocol (VOIP), central office
backup;
o data centers and networked (LAN and WAN) computing architecture;
o high availability industrial computing;
o industrial temperature control systems;
o industrial imaging equipment;
o displays (signs, scanning equipment);
o broadband/CATV powering;
o advanced office electronic machines, such as copiers; and
o motive power systems for electric industrial vehicles.
We sell both individual components and integrated power systems.
We were organized in November 1985 to acquire all the assets of the
eighty-year old C&D Power Systems Division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.
In October 1992, we purchased substantially all of the assets and assumed
certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"),
a Seattle, Washington-based manufacturer and distributor of power electronics
equipment used primarily in the regulated telecommunications power market.
1
In March 1994, we purchased substantially all of the assets and assumed
certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona-based
company which designed and manufactured custom power supplies. These power
supplies are used in the telecommunications power market and the office
equipment market in such applications as networked computing architecture,
digital printing equipment, industrial copy machines, remote switching equipment
and other applications.
In January 1995, we purchased certain assets and assumed certain
liabilities of the switching power supply division of Basler Electric Company, a
Highland, Illinois-based manufacturer of electrical components. These power
supplies are used for office electronics and communications applications.
In November 1995 we sold shares of Common Stock in a public offering.
In February 1996, we purchased certain equipment and inventory of LH
Research, Inc. ("LH"), a Costa Mesa, California-based manufacturer of standard
power supply systems for the electronics industry. The power supplies are used
in telecommunications, computer, medical, process control and other industrial
applications.
In March 1996, we acquired from Burr-Brown Corporation its entire interest
in Tucson, Arizona-based Power Convertibles Corporation ("PCC"), which produced
DC to DC converters used in communications, computer, medical, industrial and
instrumentation markets as well as battery chargers for cellular phones.
In January 1998, the acquired businesses of the PowerSystems Division of
ITT, the switching power supply division of Basler Electric Company, LH and PCC
were combined into the Power Electronics Division of C&D.
In July 1998, we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a Milwaukee,
Wisconsin-based designer, manufacturer, marketer and distributor of industrial
batteries. These assets included all of the ordinary shares of Johnson Controls
Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition,
in August 1999, we acquired JCI's 67% ownership interest in a joint venture
battery business in Shanghai, China. The joint venture manufactures and markets
industrial batteries. For reporting purposes, we have re-named the Specialty
Battery Division and JCI's 67% ownership interest in the joint venture battery
business in Shanghai, China the Dynasty Division.
In June 2000, we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion products (primarily DC to DC converters) based in
the United Kingdom. For reporting purposes, this acquisition is included as part
of the Power Electronics Division and is referred to as C&D Technologies (NCL)
Limited ("NCL").
Fiscal Year
Our fiscal year ends on the last day of January. Any references to a
fiscal year means the 12-month period ending January 31 of the year mentioned.
2
Forward-Looking Statements
Certain of the statements and information contained in this Form 10-K, are
"forward-looking statements" (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
and, accordingly, are subject to risks and uncertainties. For such statements,
we claim the protection of the safe-harbor for forward-looking statements
contained in the Private Securities Litigation Act of 1995. The factors that
could cause actual results to differ materially from anticipated results
expressed or implied in any forward-looking statement include those referenced
in the forward-looking statement, following the forward-looking statement,
described in the notes to the Consolidated Financial Statements and other
factors discussed in this Form 10-K and our other filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Form
10-K. We undertake no obligation to update or revise these statements to reflect
events or circumstances occurring after the date of this Form 10-K.
Forward-looking statements may be identified by their use of words like
"plans," "expects," "will," "anticipates," "intends," "projects," "estimates,"
"believes" or other words of similar meaning. All statements that address
expectations or projections about the future, including, but not limited to,
statements about our strategy for growth, product development, market position,
market conditions, expenditures and financial results, are forward-looking
statements. Forward-looking statements are based on certain assumptions and
expectations of future events. We cannot guarantee that these assumptions and
expectations are accurate or will be realized. Following are some of the
important factors that could cause our actual results to differ materially from
those projected in any such forward-looking statements:
o We operate worldwide and derive a portion of our revenue from sales
outside the United States. Changes in the laws or policies of
governmental and quasi-governmental agencies, as well as social and
economic conditions, in the countries in which we operate could
affect our business in these countries and our results of
operations. In addition, economic factors (including inflation and
fluctuations in interest rates and foreign currency exchange rates)
and competitive factors (such as price competition, business
combinations of competitors or a decline in industry sales from
continued economic weakness) both in the United States and other
countries in which we conduct business could affect our results of
operations. (See Item 1. Business - International Operations, Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of the Economy and Shift in Customer
Demand, and Item 7A. Quantitative and Qualitative Disclosure About
Market Risk - Market Risk Factors.)
o Terrorist acts or acts of war, whether in the United States or
abroad, could cause damage or disruption to our operations, our
suppliers, channels to market or customers, or could cause costs to
increase, or create political or economic instability, any of which
could have a material adverse effect on our business.
o Our results of operations could be significantly impacted by adverse
conditions in the domestic and global economies or the markets in
which we conduct business, such as telecommunications, UPS, CATV,
switchgear and control and material handling.
o Our ability to grow earnings could be affected by increases in the
cost of raw materials, particularly lead. We may not be able to
fully offset the effects of higher raw material costs through price
increases or productivity improvements. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Raw Material Pricing and Productivity; and Inflation.)
3
o Our ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate delivery of parts and components from
our suppliers and internal manufacturing capacity. Although we work
closely with our suppliers to avoid shortages, there can be no
assurance that we will not encounter shortages in the future. A
reduction or interruption in component supply or a significant
increase in the price of one or more components could have a
material adverse effect on our operations.
o Our growth objectives are largely dependent on our ability to renew
our pipeline of new products and to bring these products to market.
This ability may be adversely affected by difficulties or delays in
product development, such as the inability to: identify viable new
products; successfully complete research and development projects;
obtain adequate intellectual property protection; or gain market
acceptance of the new products. Our growth could also be affected by
new competitive products and technologies.
o As part of our strategy for growth, we have made and may continue to
make acquisitions, and in the future, may make divestitures and form
strategic alliances. There can be no assurance that these will be
completed or beneficial to us.
o We have undertaken and may continue to undertake productivity
initiatives, including re-organizations to improve performance and
generate cost savings. There can be no assurance that these will be
completed or beneficial to C&D. Also, there can be no assurance that
any estimated cost savings from such activities will be realized.
o Our facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental
laws and regulations, as well as participation in voluntary
programs, are significant and will continue to be so for the
foreseeable future. We are also subject to potentially significant
fines and penalties for non-compliance with applicable laws and
regulations. Our accruals for such costs and liabilities may not be
adequate since the estimates on which the accruals are based depend
on a number of factors including, but not limited to, the nature of
the problem, the complexity of the issues, the nature of the remedy,
the outcome of discussions with regulatory agencies and/or the
government and, as applicable, other PRPs at multiparty sites, the
number and financial viability of other PRPs and risks associated
with litigation. (See Business - Environmental Regulations.)
o We are exposed to the credit risk of our customers including risk of
insolvency and bankruptcy. Although we have programs in place to
monitor and mitigate the associated risk, there can be no assurance
that such programs will be effective in reducing our credit risks or
that preference actions or other claims relating to bankruptcy
proceeding will not result. (See Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.)
o Our business, results of operations and financial condition could be
affected by significant pending and future litigation adverse to us,
such as, without limitation, product liability, contract and
employment-related claims and claims arising from any injury or
damage to persons or the environment from hazardous substances used,
generated or disposed of in the conduct of our business (or that of
a predecessor to the extent we are not indemnified for those
liabilities). (See Item 3. Legal Proceedings.)
o Our performance depends on our ability to attract and retain
qualified personnel. We cannot assure that we will be able to
continue to attract or retain qualified personnel.
4
o The recent outbreak of severe acute respiratory syndrome ("SARS")
could cause direct disruption to our manufacturing operations
located in China and our Asian suppliers, as well as indirect
disruption to our other manufacturing facilities located throughout
the rest of the world due to possible negative impacts on our supply
chain.
o Our current loan agreement expires on March 1, 2004. We expect to
enter into a new loan agreement prior to this date. We cannot
assure, however, that we will be successful in securing a new loan
agreement.
o Our bank loan agreement permits dividends to be paid on our Common
Stock so long as there is no default under that agreement. Subject
to that restriction and the provisions of Delaware law, our Board of
Directors currently intends to continue paying dividends. We cannot
assure you that we will continue to do so since future dividends
will depend on our earnings, financial condition and other factors.
The foregoing list of important factors is not all-inclusive, or necessarily in
order of importance.
Reportable Segments
Our operations are classified into the following reportable business
segments:
o Powercom Division
o Dynasty Division
o Power Electronics Division
o Motive Power Division
Segments are determined using the "management approach," which means the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance.
The financial information regarding our four business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 2003, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.
The Market for Our Products
We manufacture and market products in the following general categories by
business segment:
o Powercom Division - fully integrated reserve power systems and
components for the standby power market, which includes
telecommunications, uninterruptible power supplies ("UPS"),
utilities and solar;
o Dynasty Division - industrial batteries used in UPS applications for
computer systems and corporate data networks, telecommunications
reserve power systems and broadband cable television ("CATV") signal
powering;
o Power Electronics Division - DC to DC converters, custom, standard
and modified standard embedded high frequency AC to DC and DC to DC
switching power supplies and magnetics (transformers and inductors);
and
o Motive Power Division - motive power systems for the material
handling equipment market.
5
We market our products through independent manufacturer's representatives,
national and global distributors, specialty resellers and our own sales
personnel to end users and original equipment manufacturers ("OEMs").
We sell some products to the U.S. Government. These sales accounted for
less than 5% of our total company sales during each of our last three fiscal
years.
Products and Customers by Business Segment
Powercom Division - Reserve Power Systems
We are a leading producer of fully integrated reserve power systems that
monitor and regulate electric power flow and provide backup power in the event
of a primary power loss or interruption. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.
We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:
o flooded batteries; and
o valve-regulated (sealed) batteries.
Flooded batteries require periodic watering and maintenance.
Valve-regulated batteries require less maintenance and are often smaller.
To meet the needs of our customers, our reserve power systems include a
wide range of power electronics products, consisting principally of power
rectifiers and distribution and monitoring equipment. Our power rectifiers
convert or "rectify" external AC power into DC power at the required level and
quality of voltage and apply the DC power to constantly charge the reserve
battery and operate the user's equipment. For installations with end
applications that require varied power levels, our power control and
distribution equipment distributes the rectified power for each of the
applications.
Telecommunications Customers. Our customers use the majority of our
standby power products in telecommunications applications, such as central
telephone exchanges, microwave relay stations, private branch exchange ("PBX")
systems and wireless telephone systems. Our major telecommunications customers
include national long distance companies, competitive local exchange carriers,
former Bell operating companies, wireless system operators, paging systems and
PBX telephone locations using fiber optic, microwave transmission or traditional
copper-wired systems.
Modular Power Plants. We offer several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty(R) AGM Series Power Plant and the Liberty(R) ACM Series Power
Plant, integrate advanced rectifiers with virtually maintenance-free
valve-regulated batteries.
Round Cell Battery. One of our historically important telecommunications
products has been the Round Cell reserve power battery, a flooded product
originally designed and patented by the Bell Laboratories of AT&T for use in
AT&T's own facilities and customer installations. In 1996, AT&T spun off its
equipment manufacturing operations into Lucent Technologies, Inc. In January
2001, we began selling Round Cell reserve power batteries to Tyco International,
Ltd. ("Tyco") as a result of Lucent Technologies, Inc.'s sale of its Power
Systems business to Tyco. C&D or its predecessor has manufactured Round Cells
for AT&T, Lucent Technologies, Inc. or Tyco since 1972 and has been the
exclusive manufacturer since 1982.
6
Uninterruptible Power Supplies. We produce batteries for UPS systems,
which provide instant battery backup in the event of primary power loss or
interruption, thereby permitting an orderly shutdown of equipment or continued
operation for a limited period of time until a power source comes back on-line.
Large UPS systems are used principally for mainframe computers, minicomputers,
networks and computer-controlled equipment.
Equipment for Electric Utilities and Industrial Control Applications. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures until a power source comes back on-line.
Dynasty Division - Reserve Power Batteries
Through our Dynasty Division, we design, manufacture and distribute
valve-regulated (sealed) batteries for use in reserve power systems for a wide
variety of end use markets. Our product range focuses on batteries that provide
less than 200-ampere hours. These products are sold primarily to customers in
the UPS, telecommunications and cable markets. Major applications of these
products include corporate data center backup, computer network backup for use
during power outages, CATV signal powering and wireless and wireline telephone
infrastructure. Our customers include industry-leading OEMs serving the UPS,
broadband and telecommunications markets.
Uninterruptible Power Supplies. Similar to our Powercom Division, the
Dynasty Division produces batteries for UPS systems, which provide instant
battery backup in the event of primary power loss or interruption, thereby
permitting an orderly shutdown of equipment or continued operation for a limited
period of time until a power source comes back on-line. Our Dynasty(R) High Rate
Series batteries have been engineered specifically for UPS applications and
deliver extended life while complying with rigorous industry standards. As a
critical component to overall power backup solutions, our Dynasty Division has
worked closely with major global UPS OEMs to design a cost-effective, reliable
product to meet customer expectations.
Telecommunications. Our Dynasty(R) Tel Series Long Duration batteries are
designed to Telcordia Standards to meet the demanding requirements of
telecommunications applications. These batteries operate in a wide variety of
environmental conditions, meet prolonged run time needs so as to maintain
operations during power loss and protect sophisticated electronics equipment.
CATV Signal Powering and Broadband. Dynasty(R) Broadband Series batteries
are designed for demanding standby float applications in abusive environments.
These batteries have been designed to offer the best combination of run time and
service life for CATV signal powering and broadband applications. Our gelled
electrolyte technology provides excellent heat transfer properties, which enable
these batteries to perform in high temperature environments. Unlike other
competitive gel technologies, the Dynasty(R) Broadband Series does not require
cycling subsequent to delivery to meet 100% of rated capacity. Our Dynasty(R)
Broadband Series of batteries is considered the market leader for CATV powering
in North America.
Power Electronics Division - DC to DC Converters, Power Supplies and
Magnetics
Through our Power Electronics Division we design, manufacture and market
custom, standard and modified-standard electronic power supply systems. Our
Power Electronics Division services several major market segments including
telecommunications, networking equipment, office equipment, industrial
automation and test instrumentation. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division.
7
We sell the majority of our power supply products to OEMs of electronic
products on either a custom, standard or modified-standard basis. Power supplies
are embedded in almost all electronic products and are used to convert available
AC or DC voltage to the required level and quality of DC voltage to power the
associated equipment.
Our power supplies incorporate advanced technology and are designed for
reliable operation of the host equipment. These products include DC to DC
converters, AC to DC and DC to DC power supplies and magnetics (transformers and
inductors) for use in a wide variety of applications, with outputs ranging from
sub one watt to several kilowatts. DC to DC products are circuit board mounted
devices used to convert available system power to required component voltages.
DC to DC converters are widely used in distributed power architecture where
system voltages require conversion to a higher or lower voltage to power
components such as microprocessors and arrays. AC to DC power supplies convert
alternating current, the form in which virtually all power is delivered by
electric utilities to end users, into precisely controlled direct current that
is required by sensitive electronic application architecture.
In the telecommunications industry, our power supplies are broadly used in
central office and transmission equipment. We also produce power supplies for
networking equipment (switches, routers, hubs, etc), office equipment (mass
storage, digital printing, etc.), and industrial equipment (computing,
automation and test instrumentation).
Motive Power Division - Motive Power Systems
Our customers use the majority of our motive power products to provide
power for material handling vehicles. A significant portion of our motive power
sales includes products and systems to recharge motive power batteries.
We produce complete systems and individual components (including power
electronics and batteries) to monitor, charge and test the batteries used in
powering electric industrial vehicles, including fork-lift trucks and automated
guided vehicles. Our customers include end users in a broad array of industries,
dealers of material handling equipment and, to a lesser extent, OEMs.
We offer a broad line of motive power equipment including the C-Line(TM)
battery, which we believe is the industry standard for long life, the V-Line(R)
battery for general material handling applications. We also offer a broad line
of battery charging and associated specialty equipment.
Sales, Installation and Servicing
The sales, installation and servicing of our Powercom and Motive Power
products are performed through several networks of independent manufacturer's
representatives located throughout the United States and Canada. Most of our
independent manufacturer's representatives (or contractors in the case of
installation or service) operate under contracts providing for compensation on a
commission basis or as a distributor with product purchases for resale. Dynasty
and Power Electronics products are sold via a network of independent
manufacturer's representatives as well as independent distributors located
throughout the United States and Canada.
In addition to these networks of independent manufacturer's
representatives and distributors, we employ internal sales management consisting
of regional sales managers and product/market specialists. The regional sales
managers are each responsible for managing a number of independent
manufacturer's representatives and for developing long-term relationships with
large end users, OEMs and national accounts. We also employ a separate sales
force that works with the independent manufacturer's representative network and
directly with certain large customers.
8
We have internal marketing personnel in each of our divisions to manage
the development of new products from the initial concept definition and
management approval stages through the engineering, production and sales
processes. They are also responsible for applications engineering, technical
training of sales representatives and the marketing communications function.
We maintain branch sales and service facilities in the United States,
Canada, Europe and Asia, with the support of our headquarters and service
personnel, and have business relationships with sales representatives and
distributors throughout the world.
No single customer of C&D accounted for 10% or more of our net sales for
the year ended January 31, 2003. We typically sell our products with terms
requiring payment in full within 30 days. We warrant our battery products on a
full and/or pro-rata basis, to perform as rated for specified periods of time,
ranging from 1 to 25 years, depending on the type of product and its
application. The longest warranties generally are applicable to flooded standby
power batteries sold by our Powercom Division.
Backlog
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders, customer
requirements and, taking into account considerations of manufacturing capacity
and flexibility, the speed with which we fill those orders. Period-to-period
comparisons may not be meaningful. Occasionally orders may be canceled by the
customer prior to shipment.
Our order backlog at February 28, 2003 was $47,085,000 and at February 28,
2002 was $53,628,000. We expect to fill virtually all of the February 28, 2003
backlog during fiscal 2004.
Manufacturing and Raw Materials
We manufacture our products at seven domestic plants, two plants in China,
and one each in the United Kingdom and Mexico. We manufacture most key product
lines at a single focused plant in order to optimize manufacturing efficiency,
asset management and quality control.
Consolidation. In fiscal 2003, we closed the metal fabrication operations
at our Conshohocken, Pennsylvania facility and now purchase products previously
manufactured at this location from third parties. We also closed our Shannon,
Ireland facility in fiscal 2003, shifting its manufacturing and design
capabilities to other Power Electronics Division facilities. In fiscal 2002 we
closed our Workington, United Kingdom facility and transferred production to our
other Power Electronics Division facilities. No facilities were closed during
fiscal 2001.
The principal raw materials used in the manufacture of our products
include lead, steel, copper, plastics and electronic components, all of which
are generally available from multiple suppliers. Other than the required use of
one supplier of lead and one supplier of lead oxide for the production of Round
Cell batteries for Tyco, we use a number of suppliers to satisfy our raw
materials needs.
ISO 9000 Recognition. ISO certification assures customers that our
internal processes and systems meet internationally recognized standards. We are
ISO 9001 certified at the following domestic locations: Blue Bell, Pennsylvania
headquarters and R&D facility; Conyers, Georgia; Dunlap, Tennessee; Huguenot,
New York; Leola, Pennsylvania; Milwaukee, Wisconsin and Tucson, Arizona.
Internationally, our operations in Guangzhou, China; Milton Keynes, United
Kingdom; Nogales, Mexico and Shanghai, China are also ISO 9001 certified. Our
Romsey, United Kingdom location is ISO 9002 certified.
9
Competition
Our products compete on the basis of:
o product quality and reliability;
o reputation;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and we value our relationships with our
customers. In addition, we believe that we have certain competitive advantages
in specific product lines.
We believe that we are one of the four largest producers of both reserve
and motive power systems in North America. We believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.
In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both.
The Power Electronics Division competes globally in a large fragmented
market. We believe that we are among the top 10 manufacturers of embedded OEM
power supply products in the world.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
Research and Development
We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
o production engineering (including quality testing and managing the
expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in the United States and Europe
feature advanced computer-aided design and testing equipment. Technology and
engineering personnel coordinate all activities closely with operations, sales
and marketing in order to better meet the needs of customers. We continue to
develop new products in our businesses. During fiscal 2003, the Powercom
division introduced the Super Max modular racking system for its Liberty(R) 2000
HD battery product which increases energy density in addition to expanding the
line with a 2,000 ampere hour offering. Our Power Electronics Division
introduced the NGA and NGB series of non-isolated point of load converters in
fiscal 2003, to address the needs of electronic OEM's deploying distributed
power architecture. In addition, to meet the ever growing need for power
density, the WPA50 one-eighth brick converter was introduced. The cPCI200 watt
AC to DC power supply also was introduced packing a significant amount of power
and capability into a small state of the art form factor.
10
International Operations
In addition to our domestic manufacturing facilities, we have
international manufacturing facilities in Mexico, China and the United Kingdom.
Our 67% joint venture facility in Shanghai, China manufactures industrial
batteries that are sold primarily in China and Europe. Our Power Electronics
Division facilities in the United Kingdom and China manufacture electronics that
are sold primarily in Europe, North America, and to a lesser extent, the Far
East. International sales accounted for 18.0%, 20.4% and 20.9% of net sales for
the years ended January 31, 2003, 2002 and 2001, respectively. Additional
financial information regarding our international sales is provided in Note 15
to the Consolidated Financial Statements. See Part II, Item 8.
Patents and Trademarks
Our practice is to apply for patents on new inventions, designs and
processes, which have strategic value or which are associated with existing or
prospective product lines, service offerings or operations. We believe that the
growth of our business will depend primarily upon the quality and reliability of
our products and our relationships with our customers, rather than the extent of
our patent protection. While we believe that patents are important to our
business operations, the loss of any single or several patents would not have a
material adverse effect on our company.
We regard our trademarks C&D(R), C&D TECHNOLOGIES(R), C&D TECHNOLOGIES
POWER SOLUTIONS(R), C&D POWERCOM(R), DYNASTY(R), LIBERTY(R), LIBERTY SERIES(R),
LIBERTY 2000 MAX(R) and MAXIMIZER(R) as being of substantial value in the
marketing of our products and have registered these trademarks in the United
States Patent and Trademark Office. Our trademarks also include C-LINE(TM),
COMPUCHARGE(R), FERRO FIVE(R), FERRO 1500(R), GUARDIAN(R), HYPERON(R),
RANGER(R), SCOUT(R), SMARTBATTERY(R), and V-LINE(R).
Employees
On February 28, 2003 we employed approximately 2,400 people. Of these
employees, approximately 1,900 were employed in manufacturing and almost 500
were employed in field sales, technology, manufacturing support, sales support,
marketing and administrative activities. Our management considers our employee
relations to be satisfactory. Employees at four domestic plants are represented
by four different unions under collective bargaining agreements.
11
Environmental Regulations
Our operations are subject to extensive and evolving environmental laws
and regulations regarding the clean-up and protection of the environment, worker
health and safety and the protection of third parties. These laws and
regulations include, but are not limited to, the following:
o requirements relating to the handling, storage, use and disposal of
lead and other hazardous materials used in manufacturing processes
and solid wastes;
o record keeping and periodic reporting to governmental entities
regarding the use and disposal of hazardous materials;
o monitoring and permitting of air emissions and water discharge; and
o monitoring worker exposure to hazardous substances in the workplace
and protecting workers from impermissible exposure to hazardous
substances, including lead, used in our manufacturing process.
We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental vice-president and
staffed with trained environmental professionals. As part of our program, we:
o prepare environmental and health and safety practice manuals and
policies;
o conduct employee training;
o undertake periodic internal and external audits of our operations
and environmental and health and safety programs;
o practice and engage in routine sampling and monitoring of employee
chemical and physical exposure levels;
o engage in sampling and monitoring of potential points of
environmental emissions; and
o prepare and/or review internal reports to regulatory bodies and
interface with them regarding pollution and other issues.
In addition, we also have installed certain pollution abatement equipment
to reduce emissions and discharges of regulated pollutants into the environment.
Our program monitors and seeks to resolve potential environmental liabilities
that result from, or may arise from, current and historic hazardous materials
handling and waste disposal practices. We have in place a spent product
recapture and recycling program for our facilities and our customers.
While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are required to pay a penalty or
fine, to install control technology or to make equipment or process changes (or
a combination thereof) as a result of the non-compliance or changing regulatory
requirements. When we become aware of a non-compliance or change in regulatory
requirements, we take immediate steps to correct and resolve the issues. The
associated costs have not had a material adverse effect on our business,
financial condition or results of operations.
Notwithstanding our efforts to maintain compliance with applicable
environmental requirements, if injury or damage to persons or the environment
arises from hazardous substances used, generated or disposed of in the conduct
of our business (or that of our predecessors to the extent we are not
indemnified therefor), we may be held liable for certain damages and for the
costs of the investigation and remediation, which could have a material adverse
effect on our business, financial condition or results of operations. However,
under the terms of the purchase agreement with Allied Corporation for the
acquisition of C&D (the "Acquisition Agreement"), Allied was obligated to
indemnify us for any liabilities of this type resulting from conditions existing
at January 28, 1986 that were not disclosed by Allied to us in the schedules to
the Acquisition Agreement. These obligations have since been assumed by Allied's
successor in interest, Honeywell ("Honeywell").
12
C&D, along with numerous other parties, has been requested to provide
information to the United States Environmental Protection Agency (the "EPA") in
connection with investigations of the source and extent of contamination at
three lead smelting facilities (the "Third Party Facilities") to which C&D had
made scrap lead shipments for reclamation prior to the date of the acquisition.
C&D and four other potentially responsible parties ("PRPs") agreed upon a
cost sharing arrangement for the design and remediation phases of a project
related to one of the Third Party Facilities, the former NL Industries site in
Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002 one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. In August 2002, Exide notified the
PRPs that it will no longer be taking an active role in any further action at
the site and discontinued its financial participation. This resulted in a pro
rata increase in the liabilities of the other PRPs, including C&D.
We also responded to requests for information from the EPA and the state
environmental agency with regard to another Third Party Facility, the "Chicago
Site," in October 1991.
In August 2002, we were notified of our involvement as a PRP at the NL
Atlanta, Northside Drive Superfund site. We are currently in negotiations with
the other potentially responsible parties at this site regarding our share of
the allocated liability.
We are also aware of the existence of contamination at our Huguenot, New
York facility, which is expected to require expenditures for further
investigation and remediation. The site is listed by the New York State
Department of Environmental Conservation ("NYSDEC") on its registry of inactive
hazardous waste disposal sites due to the presence of fluoride and other
contamination in amounts that exceed state groundwater standards. The prior
owner of the site is expected to ultimately bear some, as yet undetermined,
share of the costs associated with this matter for contamination in place at the
time we acquired the property. The NYSDEC has issued a Record of Decision for
the soil remediation portion of this site. However, a final remediation plan for
the ground water portion has not yet been finalized with or approved by the
State of New York.
Together with JCI, we are conducting an assessment and remediation of
contamination at our Dynasty Division facility in Milwaukee, Wisconsin. The
majority of this project was completed as of October 2001. Under the purchase
agreement with JCI, we are responsible for (i) one-half of the cost of the
on-site assessment and remediation, with a maximum liability of $1,750,000, (ii)
any environmental liabilities at the facility that are not remediated as part of
the current project and (iii) environmental liabilities for claims made after
the fifth anniversary of the closing, i.e. March 2004, that arise from migration
from a pre-closing condition at the Milwaukee facility to locations other than
the Milwaukee facility, but specifically excluding liabilities relating to
pre-closing offsite disposal. JCI has retained all other environmental
liabilities, including off-site assessment and remediation.
In January 1999, we received notification from the EPA of alleged
violations of permit effluent and pretreatment discharge limits at our plant in
Attica, Indiana. We submitted a compliance plan to the EPA in April 2002. We
engaged in negotiations with both the EPA and Department of Justice through
March 2003 regarding a potential resolution of this matter. The government filed
suit against C&D in March 2003 for alleged violations of the Clean Water Act.
The complaint requests injunctive relief and civil penalties of up to the
amounts provided by statute. We anticipate that the matter will result in a
penalty assessment and compliance obligations. We will continue to seek a
negotiated or mediated resolution, failing which we intend to vigorously defend
the action.
We accrue reserves for liabilities in our consolidated financial
statements and periodically reevaluate the reserved amounts for these
liabilities in view of the most current information available in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies." Based on
13
currently available information, we believe that appropriate reserves have been
established with respect to the foregoing contingent liabilities and that they
are not expected to have a material adverse effect on our business, financial
condition or results of operations.
We are continuing to work towards ISO 14001 certification of our corporate
environmental management systems at our Blue Bell, Pennsylvania headquarters.
ISO 14001 is a voluntary, international standard that is intended to provide
organizations with the elements of an effective environmental management system
that can be integrated with other management requirements to assist with the
achievement of environmental and economic goals.
Available Information
C&D maintains an Internet web site at http://www.cdtechno.com and makes
available free of charge on or through the web site its Annual Report on Form
10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K as
soon as reasonably practicable after it electronically files such material with,
or furnishes it to, the SEC.
14
Item 2. Properties
Set forth below is certain information, as of April 1, 2003, with respect
to our principal properties.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties:
- -------------------------
Milwaukee, Wisconsin (1) ............ 370,000 Small standby power batteries and
headquarters of Dynasty Division
Attica, Indiana (1) ................. 295,000 Large standby power batteries
Leola, Pennsylvania (1) ............. 240,000 Large standby power batteries, Round
Cell, distribution center and battery R&D
laboratories
Conyers, Georgia (1) ................ 161,000 Small standby power batteries
Huguenot, New York (1) .............. 148,000 Motive power batteries
Dunlap, Tennessee (2) ............... 72,000 Standby power and motive power
electronics products
Blue Bell, Pennsylvania (3) ......... 63,000 Corporate headquarters, Powercom and
Motive Power divisional headquarters
and electronics R&D laboratories
Tucson, Arizona (3) ................. 55,000 DC to DC converters, power supplies,
headquarters of Power Electronics
Division and electronics R&D
laboratories
International Properties:
- -------------------------
Shanghai, China (4) ................ 315,000 Small standby power batteries
Nogales, Mexico (3) ................. 97,000 DC to DC converters and AC to DC
power supplies
Guangzhou, China (3) ................ 35,000 DC to DC converters and wound
magnetics
Milton Keynes, United Kingdom (3) ... 33,000 DC to DC converters, wound magnetics
and electronics R&D laboratories
Romsey, United Kingdom (3) .......... 21,000 Distribution center
Mississauga, Canada (3) ............. 20,000 Canadian branch headquarters, sales
office and distribution center
(1) Property is owned by C&D.
(2) The lease of the Dunlap property terminates in January 2004. We have an
option to purchase the Dunlap property for $1,160,000 during the lease
term.
(3) Property is leased by C&D.
(4) Building is owned by the joint venture; however, the land is leased under
a 50-year agreement, of which 42 years remain. The Chinese government has
notified our joint venture that it will be required to relocate the
Shanghai plant during fiscal 2005. Negotiations are in process between the
joint venture and the Chinese government regarding the details surrounding
the specific location, timing and cost responsibilities related to the
relocation of the Shanghai plant.
15
Item 3. Legal Proceedings
We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material or is expected to be material to our financial condition or results of
operations in any year. See Business - Environmental Regulations for a
description of certain administrative proceedings in which we are involved.
On March 24, 2003, C&D was sued in an action captioned United States of
America v. C&D Technologies, Inc., in the United States District Court for the
Southern District of Indiana, for alleged violations of the Clean Water Act.
Item 4. Submission of Matters to a Vote of Security Holders
None.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock is traded on The New York Stock Exchange under the symbol
CHP. The approximate number of beneficial and registered record holders of our
Common Stock on April 4, 2003 was 5,600.
The following table sets forth, for the periods indicated, the high and
low sales prices for our Common Stock as reported by the New York Stock
Exchange. These prices represent actual transactions, but do not reflect
adjustment for retail markups, markdowns or commissions.
Year Ended
---------------------------------------
January 31, 2003 January 31, 2002
----------------- -----------------
Fiscal Quarter High Low High Low
-------------- ------ ------ ------ ------
First Quarter .......... $23.04 $19.00 $55.65 $23.40
Second Quarter ......... 24.27 13.25 38.60 23.90
Third Quarter .......... 17.50 12.50 32.15 16.35
Fourth Quarter ......... 21.25 15.40 24.65 19.60
Dividends. We began paying cash dividends on our Common Stock in April
1987. For the years ended January 31, 2003 and 2002 we declared dividends per
share as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2003 ........... $0.01375 $0.02750 -- $0.01375
2002 ........... $0.01375 $0.01375 $0.01375 $0.01375
Our bank loan agreement permits dividends to be paid on our Common Stock
so long as there is no default under that agreement. Subject to that restriction
and the provisions of Delaware law, our Board of Directors currently intends to
continue paying dividends. We cannot assure you that we will continue to do so
since future dividends will depend on our earnings, financial condition and
other factors.
On February 22, 2000, the Board of Directors of C&D declared a dividend of
one common stock purchase right (a "Right") for each share of Common Stock
outstanding on March 3, 2000 to the stockholders of record on that date. The
description and terms of the Rights are set forth in a Rights Agreement between
C&D and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder
Services, L.L.C.), as rights agent. Upon the occurrence of certain events, each
Right will entitle the registered holder to purchase from C&D one one-hundredth
of a share of Common Stock at a purchase price of $150 per one one-hundredth of
a share, subject to adjustment, as stated in the Rights Agreement. Upon the
occurrence of certain events involving a hostile takeover of C&D, unless our
Board of Directors acts otherwise, each holder of a Right, other than Rights
beneficially owned by the acquiring company, will thereafter have the right to
receive upon exercise: (i) that number of shares of our common stock having a
market value equal to two times the purchase price of the Right or (ii) that
number of shares of common stock of the acquiring company that at the time of
the transaction has a market value of two times the exercise price of the Right.
17
Item 6. Selected Financial Data
The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements, which appear in Items 7 and 15 of this Form 10-K.
Fiscal Year
------------------------------------------------------------
(In thousands, except share and
per share data)
2003 2002 2001(1) 2000(2) 1999
-------- -------- --------- --------- --------
Statement of Income Data:
Net sales ........................ $335,745 $471,641 $615,678 $482,182 $321,937
Cost of sales .................... 257,046 343,370 439,135 357,802 235,767
-------- -------- -------- -------- --------
Gross profit ..................... 78,699 128,271 176,543 124,380 86,170
Selling, general and
administrative expenses ......... 35,136 50,406 66,243 59,315 40,344
Research and development
expenses ........................ 9,509 10,291 10,281 8,941 8,255
-------- -------- -------- -------- --------
Operating income ................. 34,054 67,574 100,019 56,124 37,571
Interest expense, net ............ 3,800 6,700 6,315 7,946 126
Other expense (income), net ...... 1,457 1,239 (725) (20) 211
-------- -------- -------- -------- --------
Income before income taxes and
minority interest ............... 28,797 59,635 94,429 48,198 37,234
Provision for income taxes ....... 9,414 22,244 35,883 17,737 13,154
-------- -------- -------- -------- --------
Net income before minority
interest ........................ 19,383 37,391 58,546 30,461 24,080
Minority interest ................ 91 1,317 2,651 619 --
-------- -------- -------- -------- --------
Net income ....................... $ 19,292 $ 36,074 $ 55,895 $ 29,842 $ 24,080
======== ======== ======== ======== ========
Net income per common
share - basic (3) ............... $ .75 $ 1.38 $ 2.13 $ 1.17 $ .97
======== ======== ======== ======== ========
Net income per common
share - diluted (4) ............. $ .74 $ 1.35 $ 2.05 $ 1.14 $ .94
======== ======== ======== ======== ========
Dividends per common share ....... $ .05500 $ .05500 $ .05500 $ .05500 $ .04125
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital .................. $ 53,776 $ 55,014 $ 75,895 $ 65,079 $ 63,688
Total assets ..................... 382,156 395,558 455,519 354,115 185,642
Short-term debt .................. 14,062 27,255 18,172 20,393 532
Long-term debt ................... 25,857 46,892 98,849 76,459 1,750
Stockholders' equity ............. 258,274 241,858 218,054 162,066 123,528
(footnotes begin on the following page)
18
(1) In December 2000 (effective as of November 26, 2000), we acquired NCL,
a producer of electronic power conversion products (primarily DC to DC
converters) based in the United Kingdom. For reporting purposes, the acquisition
of NCL is included in the Power Electronics Division. We continue to use the
assets acquired in such business. See notes to consolidated financial
statements.
(2) Effective March 1, 1999, we acquired substantially all of the assets
of the Specialty Battery Division of JCI including, without limitation, certain
assets of Johnson Controls Technology Company, a wholly owned subsidiary of JCI,
and 100% of the ordinary shares of Johnson Controls Battery (U.K.) Limited, an
indirect wholly owned subsidiary of JCI. In addition, C&D assumed certain
liabilities of the seller. The Specialty Battery Division was engaged in the
business of designing, manufacturing, marketing and distributing industrial
batteries. We continue to use the assets acquired in such business. On August 2,
1999 we completed the acquisition of JCI's 67% ownership interest in a joint
venture battery business in Shanghai, China. The joint venture manufactures,
markets and distributes industrial batteries. We continue the joint venture
operations in such business. For reporting purposes, we have re-named the
Specialty Battery Division and JCI's 67% ownership interest of the joint venture
battery business in Shanghai, China the Dynasty Division. See notes to
consolidated financial statements.
(3) Based on 25,818,024, 26,153,715, 26,223,684, 25,529,778 and 24,730,366
weighted average shares outstanding - basic.
(4) Based on 26,025,179, 26,688,011, 27,264,528, 26,088,402 and 25,671,724
weighted average shares outstanding - diluted.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All dollar amounts in this Item 7 are in thousands, except per share
amounts and per pound lead amounts.
Impact of Economy and Shift in Customer Demand
During fiscal 2003, primarily due to continuing weak economic conditions,
particularly in the telecommunications market, there was a softening in demand
for our products.
Raw Material Pricing and Productivity
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 2003, 2002 and 2001, the average North American producer
price of lead was $.44, $.44 and $.45 per pound, respectively.
We have a long-term cost containment program to minimize manufacturing
costs. Under the program, we continue to allocate a significant amount of our
normal annual capital expenditures to cost containment and productivity
improvement projects.
19
Inflation
The cost to us of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our ability to pass
along inflationary cost increases through higher prices may be limited during
periods of stable or declining lead prices because of industry pricing practices
that tend to link product prices and lead prices. We believe that, over recent
years, we have been able to offset inflationary cost increases by:
o effective raw materials purchasing programs;
o increases in labor productivity;
o improvements in overall manufacturing efficiencies; and
o selective price increases of our products.
Results of Operations
The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
--------------------------
2003 2002 2001
------ ------ ------
Net sales ........................................... 100.0% 100.0% 100.0%
Cost of sales ....................................... 76.6 72.8 71.3
------ ------ ------
Gross profit ...................................... 23.4 27.2 28.7
Selling, general and administrative expenses ........ 10.5 10.7 10.8
Research and development expenses ................... 2.8 2.2 1.7
------ ------ ------
Operating income .................................. 10.1 14.3 16.2
Interest expense, net ............................... 1.1 1.4 1.0
Other expense (income), net ......................... 0.4 0.3 (0.1)
------ ------ ------
Income before income taxes and minority interest .. 8.6 12.6 15.3
Provision for income taxes .......................... 2.8 4.7 5.8
------ ------ ------
Net income before minority interest ............... 5.8 7.9 9.5
Minority interest ................................... 0.1 0.3 0.4
------ ------ ------
Net income ........................................ 5.7% 7.6% 9.1%
====== ====== ======
20
Critical Accounting Policies
We have identified the critical accounting policies that are most
important to the portrayal of our financial condition and results of operations.
The policies set forth below require management's most subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Litigation and Environmental Reserves
C&D is involved in litigation in the ordinary course of business,
including personal injury, property damage and environmental litigation. We also
expend funds for environmental remediation of both company- owned and
third-party locations. In accordance with Generally Accepted Accounting
Principles ("GAAP"), specifically SFAS No. 5, "Accounting for Contingencies" and
Statement of Position 96-1, "Environmental Remediation Liabilities," we record a
loss and establish a reserve for litigation or remediation when it is probable
that an asset has been impaired or a liability exists and the amount of the
liability can be reasonably estimated. Reasonable estimates involve judgments
made by management after considering a broad range of information including:
notifications, demands or settlements that have been received from a regulatory
authority or private party, estimates performed by independent engineering
companies and outside counsel, available facts, existing and proposed
technology, the identification of other PRPs and their ability to contribute and
prior experience. These judgments are reviewed quarterly as more information is
received and the amounts reserved are updated as necessary. However, the
reserves may materially differ from ultimate actual liabilities if the loss
contingency is difficult to estimate or if management's judgments turn out to be
inaccurate. If management believes no best estimate exists, the minimum loss is
accrued.
Valuation of Long-lived Assets
We assess the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of the assets or the asset
grouping may not be recoverable. Factors we consider in deciding when to perform
an impairment review include significant under-performance of a business or
product line in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in our use of the
assets. Recoverability of assets that will continue to be used in our operations
is measured by comparing the carrying amount of the asset grouping to the
related total future net cash flows. If an asset grouping's carrying value is
not recoverable through those cash flows, the asset grouping is considered to be
impaired. The impairment is measured by the difference between the assets'
carrying amount and their fair value, based on the best information available,
including market prices or discounted cash flow analyses.
Pension and Other Employee Benefits
Certain assumptions are used in the calculation of the actuarial valuation
of our defined benefit pension plans and postretirement benefits. These
assumptions include the weighted average discount rate, rates of increase in
compensation levels, expected long-term rates of return on assets and increases
or trends in health care costs. If actual results are less favorable than those
projected by management, additional expense may be required.
Inventory Reserves
C&D adjusts the value of its obsolete and unmarketable inventory to the
estimated market value based upon assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
21
Allowance for Doubtful Accounts
C&D maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Warranty Reserves
C&D provides for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
suppliers' products and processes, C&D's warranty obligation is affected by
product failure rates, warranty replacement costs and service delivery costs
incurred in correcting a product failure. Should actual product failure rates,
warranty replacement costs or service delivery costs differ from our estimates,
revisions to the estimated warranty liability would be made.
Deferred Tax Valuation Allowance
C&D records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event C&D were to
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise,
should C&D determine that it would not be able to realize all or part of its net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
Revenue Recognition
C&D recognizes revenue when the earnings process is complete. This occurs
when products are shipped to the customer in accordance with terms of the
agreement, title and risk of loss have been transferred, collectibility is
reasonably assured and pricing is fixed and determinable. Accruals are made for
sales returns and other allowances based on our experience. While returns have
historically been minimal and within the provisions established, we cannot
guarantee that we will continue to experience the same return rates that we have
in the past.
Impairment of Goodwill
Goodwill represents the excess of the cost over the fair value of net
assets acquired in business combinations. Goodwill and other "indefinite-lived"
assets are not amortized and are subject to the impairment rules of SFAS No.
142, "Goodwill and Other Intangible Assets," which C&D adopted on February 1,
2002. Goodwill is tested for impairment on an annual basis or upon the
occurrence of certain circumstances or events. C&D determines the fair market
value of its reporting units using quoted market rates and cash flow techniques.
The fair market value of the reporting units is compared to the carrying value
of the reporting units to determine if an impairment loss should be calculated.
If the book value of a reporting unit exceeds the fair value of the reporting
unit, an impairment loss is indicated. The loss is calculated by comparing the
fair value of the goodwill to the book value of the goodwill. If the book value
of the goodwill exceeds the fair value of the goodwill, an impairment loss is
recorded. Fair value of goodwill is determined by subtracting the fair value of
the identifiable assets of a reporting unit from the fair value of the reporting
unit. In the fiscal year ended January 31, 2003, we recorded an impairment of
goodwill in our Motive Power Division, resulting in the complete write-off of
all goodwill related to the Motive Power Division. No impairment to goodwill
existed in any of our other divisions as of January 31, 2003.
22
Research and Development
Research and development costs are expensed as incurred. Research and
development costs consist of direct and indirect internal costs related to
specific projects as well as fees paid to other entities, which conduct certain
research activities on behalf of C&D. The cost of materials (whether from our
normal inventory or acquired specially for research and development activities)
and equipment or facilities that are acquired or constructed for research and
development activities and that have alternative future uses (in research and
development projects or otherwise) are capitalized as tangible assets when
acquired or constructed. The cost of such materials consumed in research and
development activities and the depreciation of such equipment or facilities used
in those activities are recorded as research and development costs.
Fiscal 2003 Compared to Fiscal 2002
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
Net sales for fiscal 2003 decreased $135,896 or 29% to $335,745 from
$471,641 in fiscal 2002. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Powercom Division declined $90,324, or
38%, primarily due to lower sales to the telecommunications and UPS markets.
This business continues to be affected by the lower spending levels in the
telecommunications sector. However, the division did have more than $17,000 in
sales from products introduced within the last twelve months. Dynasty Division
sales decreased $22,911, or 20%, also due to a decline in sales to the
telecommunications and UPS markets, partially offset by an increase in sales to
the mobility market. The lower market demand for sealed product continues to
affect this division. New products contributed approximated $4,000 of sales to
this division. Sales of the Power Electronics Division fell $16,315, or 26%,
mainly due to lower DC to DC converter sales, standard power supply sales and
custom power supply sales. The division continues to be negatively impacted by a
substantial reduction in the requirements of a single customer. Although the
overall pace of the Power Electronics Division remains sluggish due to the
continuing state of the telecommunications market, we are encouraged by the
number of new products we brought to market. Over 15% of fiscal 2003 sales by
the Power Electronics Division came from products introduced in the last 15
months. Additionally, we overhauled the distribution channels of this division.
Distributors have been replaced and upgraded, while the manufacturing
representative network has been strengthened. Our web-based initiatives came on
line in the latter part of the year and we are now beginning to see positive
results. Motive Power divisional sales dropped $6,346, or 10% due to lower sales
of batteries and chargers. Motive Power sales increased modestly in the fourth
quarter of fiscal 2003, based upon recent changes in sales channels.
Additionally, we launched a private branding program for batteries and chargers
to customers with whom we had not previously done business.
Gross profit for fiscal 2003 decreased $49,572 or 39% to $78,699 from
$128,271 in the prior year, resulting in a decrease in gross margin from 27.2%
to 23.4%. Gross profit declined in the Powercom, Dynasty and Motive Power
divisions, primarily as a result of lower sales volumes, coupled with plant
operational difficulties in the Motive Power Division. Gross profit in the Power
Electronics Division increased on lower sales due to inventory-related charges
in the prior fiscal year, partially offset by re-organization charges of $1,263
recorded in the fourth quarter of fiscal 2003 related to the closure of our
Shannon, Ireland facility and the relocation of certain Mexican manufacturing
activities to our Guangzhou, China facility, which has lower manufacturing
costs.
Selling, general and administrative expenses for fiscal 2003 decreased
$15,270 or 30%. This decrease was primarily due to: (i) lower variable selling
costs associated with the decreased sales volumes; (ii) the implementation of
SFAS No. 142 in fiscal 2002 which discontinued the amortization of goodwill;
(iii) costs recorded in fiscal 2002 related to a potential acquisition that did
not close; (iv) lower payroll-related expenses; (v) the gain recognized on the
sale of our Conshohocken, Pennsylvania facility; and (vi) lower advertising
expenses. Partially offsetting this decrease were: (i) higher warranty expenses;
and (ii) the positive effect of the
23
full recovery of certain litigation and settlement costs from one of our
insurance carriers during the first quarter of fiscal 2002.
Research and development expenses decreased $782 or 8%, primarily due to
lower spending in the Power Electronics and Powercom divisions. As a percentage
of sales, research and development expenses increased from 2.2% of sales in
fiscal 2002 to 2.8% of sales in fiscal 2003 as a result of lower sales volumes.
Operating income decreased $33,520 or 50% to $34,054 from $67,574 in the
prior year. This decrease was the result of lower operating income generated by
the Powercom and Dynasty divisions, coupled with a higher operating loss
generated by the Motive Power Division. This decrease was partially offset by a
lower operating loss in the Power Electronics Division.
Interest expense, net, decreased $2,900 in fiscal 2003 compared to the
prior year, primarily due to lower average debt balances outstanding during the
year, coupled with lower effective interest rates.
Income tax expense for fiscal 2003 decreased $12,830 from fiscal 2002,
primarily as the result of lower income before income taxes and a decrease in
our effective tax rate. The effective tax rate consists of statutory rates
adjusted for the tax impacts of research and development credits and foreign
operations. The effective tax rate for fiscal 2003 decreased to 32.7% from 37.3%
in the prior year, primarily as a result of the resolution of state tax audits
in the fourth quarter of fiscal 2003. We expect our tax rate will return to
approximately 37% in fiscal 2004.
Minority interest of $91 in fiscal 2003 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.
As a result of the above, for fiscal 2003, net income decreased $16,782 or
47% to $19,292 or $0.75 per share - basic and $0.74 per share - diluted.
Fiscal 2002 Compared to Fiscal 2001
All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.
In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion (primarily DC to DC converters) based in the United
Kingdom. For reporting purposes, this acquisition is included as part of the
Power Electronics Division and is referred to as C&D Technologies (NCL) Limited
("NCL"). We continue to use the assets acquired in such business. As result of
the timing of the above acquisition, fiscal 2001, which ended January 31, 2001,
does not include revenue or expense for ten months of the twelve-month period
with respect to our acquisition of NCL.
Net sales for fiscal 2002 decreased $144,037 or 23% to $471,641 from
$615,678 in fiscal 2001. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Dynasty Division declined $50,278, or
31%, due to lower sales to the UPS, CATV and telecommunications markets. Power
Electronics divisional sales decreased $46,962, or 43%, primarily due to a
decline in DC to DC converter sales, partially offset by the recording of a full
year of sales by NCL versus two months in fiscal 2001. Sales of the Powercom
Division fell $29,862, or 11% mainly due to lower telecommunication sales,
partially offset by higher sales to the UPS and control markets. Motive Power
divisional sales dropped $16,935, or 22% due to lower sales of batteries and
chargers.
Gross profit for fiscal 2002 decreased $48,272 or 27% to $128,271 from
$176,543 in the prior year,
24
resulting in a decrease in gross margin from 28.7% to 27.2%. Gross profit
declined in all divisions, primarily as a result of lower sales.
Selling, general and administrative expenses for fiscal 2002 decreased
$15,837 or 24%. This decrease was primarily due to: (i) lower variable selling
costs associated with the decreased sales volumes; (ii) the reduction of general
and administrative expenses associated with the full recovery of litigation
settlement costs from our insurance carriers in the first quarter of fiscal
2002, which was reserved for in fiscal 2001; (iii) lower bonus accruals; (iv)
lower warranty expenses; (v) lower travel expenses; and (vi) lower advertising
expenses. Partially offsetting this decrease was: (i) the recording of a full
year of selling, general and administrative expenses during fiscal 2002 by NCL
(including amortization of goodwill and other intangible assets), compared to
only two months in the prior year; (ii) costs related to a potential acquisition
that did not close; and (iii) costs associated with the closure of the
Conshohocken, Pennsylvania plant.
Research and development expenses were up by a nominal amount on lower
sales.
Operating income decreased $32,445 or 32% to $67,574 from $100,019 in the
prior year. This decrease was the result of lower operating income generated by
the Dynasty Division, coupled with an operating loss generated by the Power
Electronics Division versus operating income in the prior fiscal year. This
decrease was partially offset by higher Powercom divisional operating income,
coupled with a lower operating loss generated by the Motive Power Division. (See
the segment reporting information in Note 15, Operations by Industry Segment and
Geographic Area in the Notes to the Consolidated Financial Statements.)
Interest expense, net, increased $385 in fiscal 2002 compared to the prior
year, primarily due to higher weighted average debt balances outstanding during
the year, coupled with lower capitalized interest resulting from our reduced
level of capital spending, partially offset by a lower effective interest rate.
Income tax expense for fiscal 2002 decreased $13,639 from fiscal 2001,
primarily as a result of lower income before income taxes and a decrease in the
effective tax rate. The effective tax rate consists of statutory rates adjusted
for the tax impacts of our foreign sales corporation, research and development
credits and foreign operations. The effective tax rate for fiscal 2002 decreased
to 37.3% from 38.0% in the prior year.
Minority interest of $1,317 in fiscal 2002 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.
As a result of the above, for fiscal 2002, net income decreased $19,821 or
35% to $36,074 or $1.38 per share - basic and $1.35 per share - diluted.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $26,620 or 33% to
$55,150 for the fiscal year ended January 31, 2003 compared to $81,770 in the
prior fiscal year. This decrease in net cash provided by operating activities
was primarily due to: (i) a smaller decrease in accounts receivable in fiscal
2003 versus fiscal 2002; (ii) a decrease in net income; (iii) a larger increase
in other long-term assets, primarily due to pension plan funding; and (iv) a
decrease in depreciation and amortization (primarily due to the implementation
of SFAS No. 142 in the current year). These changes, resulting in lower net cash
provided by operating activities, were partially offset by: (i) increases in
accounts payable and current taxes payable versus decreases in the prior year;
(ii) a smaller increase in accrued liabilities; (iii) and a larger decrease in
the deferred tax balance.
Net cash used by investing activities decreased $23,276 or 87% to $3,511
in fiscal 2003 compared to $26,787 in fiscal 2002, due to lower capital spending
and higher proceeds from the disposal of property, plant
25
and equipment. Fiscal 2003 proceeds included $3,000 from the sale of our
Conshohocken, Pennsylvania facility. The property was sold for $5,000 including
a $2,000 note receivable.
Net cash used by financing activities decreased $6,176 or 11% to $47,648
in fiscal 2003 compared to $53,824 in the prior year. This decrease was
primarily due to a lower repayment of long-term debt, partially offset by having
no proceeds from new borrowings in the current year as compared to $8,662 in the
prior year, and lower proceeds from the issuance of common stock in fiscal 2003.
New borrowings in fiscal 2002 related to a 22 million British Pound Sterling
line of credit, the proceeds of which were used to pay down debt denominated in
U.S. Dollars.
The availability under our current loan agreement is expected to be
sufficient to meet our ongoing cash needs for working capital requirements, debt
service, capital expenditures and possible strategic acquisitions. This loan
agreement contains restrictive covenants that require us to maintain minimum
ratios such as fixed charge coverage and leverage ratios, as well as minimum
consolidated net worth. We were in compliance with our loan agreement covenants
at January 31, 2003. Our current loan agreement expires on March 1, 2004.
Therefore, during the first quarter of fiscal 2004, all of our debt will be
classified as current. We expect to enter into a new loan agreement prior to
March 1, 2004. Capital expenditures during fiscal 2003 were incurred to fund
a continuing series of cost reduction programs, normal maintenance and
regulatory compliance. Fiscal 2004 capital expenditures are expected to be less
than $10,000 for similar purposes.
We intend to continue making prudent purchases of our Company stock,
paying down debt and selectively pursuing complementary acquisitions. Strategic
acquisition opportunities will be expected to enhance C&D's long-term
competitive position and growth prospects and may require external financing. We
cannot assure, however, that we will close on any such acquisitions.
Our bank loan agreement permits dividends to be paid on our Common Stock
as long as there is no default under that agreement. Subject to that restriction
and the provisions of Delaware law, our Board of Directors currently intends to
continue paying dividends. We cannot assure you that we will continue to do so
since future dividends will depend on our earnings, financial condition and
other factors.
26
Contractual Obligations and Commercial Commitments
The following tables summarize our contractual obligations and commercial
commitments as of January 31, 2003 (dollars in thousands):
Payments Due by Period
----------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
------- --------- ------- ------ -------
Term loan ............................ $18,669 $14,062 $ 4,607 -- --
Operating leases ..................... 19,204 2,979 4,468 $3,897 $7,860
------- ------- ------- ------ ------
Total contractual cash obligations ... $37,873 $17,041 $ 9,075 $3,897 $7,860
======= ======= ======= ====== ======
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Commitments Amounts Less than 1 - 3 4 - 5 After 5
Committed 1 year years years years
--------- --------- ------- ------ -------
Lines of credit ...................... $21,250 -- $21,250 -- --
Standby letters of credit ............ 3,521 $ 3,521 -- -- --
------- ------- ------- ------ ------
Total commercial commitments ......... $24,771 $ 3,521 $21,250 -- --
======= ======= ======= ====== ======
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement
addresses financial accounting and reporting requirements for obligations
associated with the retirement of tangible long-lived assets and the associated
retirement costs. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. We are currently in the process of evaluating the impact SFAS No.
143 will have on our financial position and results of operations, if any.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing
and amount of costs recognized as a result of restructuring and similar
activities. We will apply SFAS No. 146 prospectively to activities initiated
after December 31, 2002. SFAS No. 146 had no significant impact at the point of
adoption on our consolidated statements of income or financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the guarantee.
FIN 45 also requires guarantors to disclose certain information for guarantees,
including product warranties. (See Part II Item 8. Note 16.)
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Accounting and Disclosure." SFAS No. 148, which is an
amendment of SFAS No. 123, provides alternative recognition transition methods
for a voluntary change from the intrinsic method, permitted under Accounting
Principles Board Opinion No. 25, to the fair value based method of accounting
for stock based employee compensation. SFAS No. 148 also requires more prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock based employee compensation and
27
requires disclosure about those effects in interim financial information. Prior
to SFAS No. 148, disclosures about the effects of stock based employee
compensation were only required in annual financial information. Disclosure
prominence is to be achieved by placing certain disclosures related to stock
based employee compensation in the summary of significant accounting policies.
The transition and disclosure in accounting policies provisions are effective
for fiscal years ending after December 15, 2002. We have adopted the disclosure
provisions of SFAS No. 148 effective as of January 31, 2003. The adoption of the
new standard did not have any impact on our financial position or results of
operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
All dollar amounts in this Item 7A are in thousands.
Market Risk Factors
We are exposed to various market risks. The primary financial risks
include fluctuations in interest rates and changes in currency exchange rates.
We manage these risks by using derivative instruments. We do not invest in
derivative securities for trading purposes, but do enter into hedging
arrangements in order to reduce our exposure to fluctuations in interest rates
as well as to fluctuations in exchange rates. (See Part II Item 8. Note 1 and
Note 12.)
Our financial instruments that are subject to interest rate risk consist
of debt instruments and interest rate swap contracts. The net market value of
our debt instruments (excluding capital lease obligations) was $39,919 and
$74,143 at January 31, 2003 and 2002, respectively. The debt instruments are
subject to variable rate interest, and therefore the market value is not
sensitive to interest rate movements.
Interest rate swap contracts are used to manage our exposure to
fluctuations in interest rates on our underlying variable rate debt instruments.
We employ separate swap transactions rather than fixed rate obligations to take
advantage of the lower borrowing costs associated with floating rate debt while
also eliminating possible risk related to refinancing in the fixed rate market.
The net market value of our interest rate swaps was $(1,898) and $(1,835)
at January 31, 2003 and 2002, respectively. A 100-basis point increase in rates
at January 31, 2003 and 2002 would result in a $525 and a $924 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2003 and 2002 would result in an $693 and a $883 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their year-end levels, with all other variables held
constant. We calculate the market value of the interest rate swaps by utilizing
a standard net present value model based on the market conditions as of the
valuation date.
We use currency forwards and swaps to hedge anticipated cash flows in
foreign currencies. The exposures currently hedged are the British Pound, the
Euro, and Canadian Dollar. These financial instruments represent a net market
value of $(258) and $(34) at January 31, 2003 and 2002, respectively.
To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10% change in exchange rates.
28
The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables being
held constant. At January 31, 2003 and 2002, a 10% strengthening of the US
Dollar versus these currencies would result in an increase of the net market
value of the forwards of $2,695 and $1,579, respectively. At January 31, 2003
and 2002, a 10% weakening of the US Dollar versus these currencies would result
in a decrease in the net market value of the forwards of $2,739 and $1,737,
respectively.
The market value of the instruments was determined by taking into
consideration the contracted interest rates and foreign exchange rates versus
those available for similar maturities in the market at January 31, 2003 and
2002, respectively.
Foreign exchange forwards are used to hedge our firm and anticipated
foreign currency cash flows. There is either a balance sheet or cash flow
exposure related to all of the financial instruments in the above sensitivity
analysis for which the impact of a movement in exchange rates would be in the
opposite direction and substantially equal to the impact on the instruments in
the analysis.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in Item 15(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated by reference to
the information under the captions "Election of Directors," "Current Executive
Officers" and "Compliance with Section 16(a)" of the Securities Exchange Act of
1934" included in C&D's proxy statement for our 2003 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to
the information under the caption "Executive Compensation" included in C&D's
proxy statement for our 2003 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this Item 12 is incorporated in reference to
the information under the captions "Principal Stockholders," "Beneficial
Ownership of Management" and "Equity Compensation Plan Information" included in
C&D's Proxy Statement for our 2003 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission.
Item 13. Certain Relationships and Related Transactions
None.
Item 14. Controls and Procedures
Within the 90 days prior to the date of this Annual Report on Form 10-K,
C&D carried out an evaluation of the effectiveness of the design and operation
of its disclosure controls and procedures. This evaluation was performed under
the supervision and with the participation of management, including C&D's Chief
Executive Officer and Chief Financial Officer.
Under the rules of the Securities and Exchange Commission, the term
"disclosure controls and procedures" means controls and other procedures of C&D
that are designed to ensure that information required to be disclosed by C&D in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by C&D in such report is accumulated and communicated to C&D's
management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
30
Based on this evaluation, C&D's Chief Executive Officer and Chief
Financial Officer concluded that C&D's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information that C&D is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the rules and forms of the
Securities and Exchange Commission. There have been no significant changes in
C&D's internal controls or in other factors that could significantly affect
internal controls subsequent to the date of this evaluation.
A control system, no matter how well-designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
31
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) The following financial statements are included in this report on
Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 2003 and 2002
Consolidated Statements of Income for the years ended January 31,
2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended January
31, 2003, 2002 and 2001
Consolidated Statements of Comprehensive Income for the years ended
January 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this
report on Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January
31, 2003, 2002 and 2001
II. Valuation and Qualifying Accounts
(3) Exhibits:
3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).
3.2 Amended and Restated By-laws of C&D (incorporated by reference
to Exhibit 3.1 to C&D's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 2002).
4.1 Rights Agreement dated as of February 22, 2000 between C&D and
Mellon Investor Services, LLC (formerly ChaseMellon
Shareholder Services, L.L.C.), as rights agent, which includes
as Exhibit B thereto the form of rights certificate
(incorporated by reference to Exhibit 1 to C&D's Form 8-A
Registration Statement filed on February 28, 2000).
10.1 Purchase Agreement dated November 27, 1985, between Allied,
Allied Canada Inc. and C&D; Amendments thereto dated January
28 and October 8, 1986 (incorporated by reference to Exhibit
10.1 to C&D's Registration Statement on Form S-1, No.
33-10889).
32
10.2 Agreement dated December 15, 1986 between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D's
Registration Statement on Form S-1, No. 33-10889).
10.3 Lease Agreement dated February 15, 1994 by and between
Sequatchie Associates, Incorporated and C&D Charter Power
Systems, Inc. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1999).
10.4 Purchase and Sale Agreement, dated as of November 23, 1998
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D and C&D Acquisition Corp. as Purchaser (incorporated
by reference to Exhibit 2.1 to C&D's Current Report on Form
8-K dated March 1, 1999).
10.5 Credit Agreement, dated as of March 1, 1999 among C&D, as
borrower, certain subsidiaries and affiliates of C&D, as
guarantors, the lenders named therein, and Bank of America
(formerly NationsBank, N.A.), as administrative agent
(incorporated by reference to Exhibit 2.2 to C&D's Current
Report on Form 8-K dated March 1, 1999); First Amendment
thereto dated February 18, 2000 (incorporated by reference to
Exhibit 10.5 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 2000), Second Amendment thereto
dated July 20, 2000 (incorporated by reference to Exhibit 10.1
to C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 2000), Third Amendment thereto dated July 24, 2000
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 2000),
Fourth Amendment thereto dated October 13, 2000 (incorporated
by reference to Exhibit 10.1 to C&D's Current Report on Form
8-K dated December 15, 2000), Fifth Amendment thereto dated
October 13, 2000 (incorporated by reference to Exhibit 10.2 to
C&D's Current Report on Form 8-K dated December 15, 2000),
Sixth Amendment thereto dated April 4, 2001 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form 10-K
for the fiscal year ended January 31, 2001), Seventh Amendment
thereto dated June 21, 2002 (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended July 31, 2002).
10.6 Uncommitted loan facility dated June 5, 2001 between C&D
Holdings Limited and ABN Amro Bank N.V. (incorporated by
reference to Exhibit 10.2 to C&D's Quarterly Report on Form
10-Q for the period ended April 30, 2001).
Management Contracts or Plans
10.7 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1996),
First Amendment to C&D Technologies, Inc. 1996 Stock Option
Plan (formerly known as the Charter Power Systems, Inc. 1996
Stock Option Plan) dated April 27, 1999 (incorporated by
reference to Exhibit 10.3 to C&D's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).
10.8 C&D Technologies, Inc. Amended and Restated 1998 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to C&D's
Annual Report on Form 10-K for fiscal year ended January 31,
2001).
33
10.9 C&D Technologies, Inc. Savings Plan as restated and amended
(incorporated by reference to Exhibit 10.9 to C&D's Annual
Report on Form 10-K for fiscal year ended January 31, 2002),
First Amendment thereto dated June 12, 2002 (incorporated by
reference to Exhibit 10.10 to C&D's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002), Second Amendment
thereto dated November 20, 2002 (incorporated by reference to
Exhibit 10.11 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 2002).
10.10 C&D Technologies, Inc. Pension Plan for Salaried Employees as
restated and amended (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for fiscal year
ended January 31, 2002).
10.11 Supplemental Executive Retirement Plan, amended and restated
as of February 27, 2001 (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2001).
10.12 C&D Technologies, Inc. Management Incentive Bonus Plan Policy
(incorporated by reference to Exhibit 10.3 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2002).
10.13 Employment Agreement dated November 28, 2000 between Wade H.
Roberts, Jr. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended October 31, 2000).
10.14 Employment Agreement dated March 31, 2000 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit
10.14 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.15 Employment Agreement dated March 31, 2000 between Linda R.
Hansen and C&D (incorporated by reference to Exhibit 10.15 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).
10.16 Employment Agreement dated March 31, 2000 between Charles R.
Giesige, Sr. and C&D (incorporated by reference to Exhibit
10.18 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.17 Employment Agreement dated March 31, 2000 between Apostolos T.
Kambouroglou and C&D (incorporated by reference to Exhibit
10.21 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).
10.18 Employment Agreement dated February 27, 2001 between John A.
Velker and C&D (filed herewith).
10.19 Employment Agreement dated March 1, 2001 between David A. Fix
and C&D (incorporated by reference to Exhibit 10.21 to C&D's
Annual Report on Form 10-K for the fiscal year ended January
31, 2001).
10.20 Employment Agreement dated August 6, 2001 between James D.
Johnson and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 2001).
34
10.21 Employment Agreement dated July 24, 2002 between Robert M.
Scott and C&D (incorporated by reference to Exhibit 10.3 to
C&D's Quarterly Report on Form 10-Q for quarter ended July 31,
2002).
10.22 Agreement and Release dated March 1, 2002 between Mark Z.
Sappir and C&D (incorporated by reference to Exhibit 10.21 to
C&D's Annual Report on Form 10-K for fiscal year ended January
31, 2002).
10.23 Employee Separation Agreement dated June 21, 2002 between Mark
D. Amatrudo and C&D (incorporated by reference to Exhibit 10.2
to C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 2002).
10.24 Employee Separation Agreement dated September 24, 2002 between
Kathryn R. Bullock and C&D (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 2002).
10.25 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and William Harral, III
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).
10.26 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Wade H. Roberts, Jr.
(incorporated by