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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
State or other jurisdiction of incorporation or organization: Delaware
I.R.S. Employer Identification Number: 13-3314599
Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
Registrant's telephone number, including area code: (215) 619-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange
-------------- on which registered
Common Stock -----------------------
par value, $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes ( x ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing price on April 15, 1999: $289,126,672
Number of shares outstanding of each of the Registrant's classes of common
stock as of April 15, 1999: 12,546,283 shares of Common Stock, par value $.01
per share.
Documents incorporated by reference:
Registrant's Proxy Statement to be Part III
filed pursuant to Regulation 14A -------------------
within 120 days after the end of (Part of Form 10-K into which
Registrant's fiscal year covered by Document is incorporated.)
this Form 10-K
- -----------------------------------
TABLE OF CONTENTS
Page
----
Part I
Item 1 Business............................................... 1
Item 2 Properties............................................. 13
Item 3 Legal Proceedings...................................... 14
Item 4 Submission of Matters to a Vote of
Security Holders..................................... 14
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters...................... 14
Item 6 Selected Financial Data................................ 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 18
Item 7A Quantitative and Qualitative Disclosure
About Market Risk.................................... 25
Item 8 Financial Statements and Supplementary Data............ 26
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 26
Part III
Item 10 Directors and Executive Officers of the Registrant..... 26
Item 11 Executive Compensation................................. 26
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................ 26
Item 13 Certain Relationships and Related Transactions......... 26
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................. 27
Signatures.......................................................... 31
Index to Financial Statements and Financial Statement Schedule...... F-1
I
C&D TECHNOLOGIES, INC.
PART I
Item 1. Business
- -----------------
About Our Company
- -----------------
C&D TECHNOLOGIES, INC. (together with its operating subsidiaries, "we",
"our" or "C&D") is a leading North American producer of integrated reserve power
systems for telecommunications, electronic information and industrial
applications. We are also a leading producer of embedded high frequency
switching power supplies. Our power supplies are used in:
o telecommunications equipment;
o advanced office electronics;
o sophisticated computer systems; and
o motive power systems for electric industrial vehicles.
Our integrated reserve power systems are comprised of the following:
o industrial lead acid batteries;
o power rectifiers;
o power control equipment;
o distribution equipment; and
o related accessories.
We sell both individual components and integrated power systems.
In June 1997, we changed our name from Charter Power Systems, Inc. to C&D
TECHNOLOGIES, INC.
We were organized in November 1985 to acquire all the assets of the
eighty-year old C&D Power Systems division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.
In October 1992, we purchased substantially all of the assets and assumed
certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"),
a Seattle, Washington based manufacturer and distributor of power electronics
equipment used primarily in the regulated telecommunications power market.
Ratelco also marketed a nonregulated range of alarm and monitoring equipment for
use with telecommunications power systems.
In March 1994, we purchased substantially all of the assets and assumed
certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona based
company which designs and manufactures custom power supplies. The power supplies
are used in the telecommunications power market and the office equipment market
in such applications as telecommunication systems, copiers, computers and work
stations.
In January 1995, we purchased certain assets and assumed certain
liabilities of the switching power supply division of Basler Electric Company, a
Highland, Illinois based manufacturer of electrical components. These power
supplies are used for office electronics and communications applications.
In November 1995 we sold shares of Common Stock in a public offering.
In February 1996, we purchased certain equipment and inventory of LH
Research, Inc. ("LH"), a Costa Mesa, California based manufacturer of standard
power supply systems for the electronics industry. The power supplies are used
in telecommunications, computer, medical, process control and other industrial
applications.
In March 1996, we acquired from Burr-Brown Corporation its entire interest
in Power Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC
common stock and all outstanding preferred stock. In addition, we acquired or
repaid the indebtedness of PCC. In April 1996, we acquired 190,000 shares of PCC
common stock from the former chief executive officer of PCC which together with
the shares previously acquired represented in excess of 99.6% of the outstanding
PCC common stock. In May 1996, we purchased all remaining shares of PCC common
stock and shares of PCC common stock issuable upon exercise of stock options.
Tucson, Arizona based PCC produced DC-to-DC converters used in communications,
computer, medical and industrial and instrumentation markets and also produces
battery chargers for cellular phones.
In January 1998, the acquired businesses of the PowerSystems Division of
ITT, the switching power supply division of Basler Electric Company, LH and PCC
were combined into the Power Electronics Division of C&D TECHNOLOGIES, INC.
In July 1998 we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.
Recent Acquisitions
- -------------------
In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a designer,
manufacturer, marketer and distributor of industrial batteries based in
Milwaukee, Wisconsin. These assets included all of the ordinary shares of
Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of
Johnson Controls (U.K.) Limited.
In addition, we expect to consummate the acquisition of an interest of the
Specialty Battery Division in a joint venture in Shanghai, China in the near
future, subject to certain third party consents. The joint venture manufactures,
markets and distributes industrial and starting, lighting and ignition
batteries.
Fiscal Year
- -----------
Our fiscal year ends in January. Any references to a fiscal year mean the
12-month period ending January 31 of the year mentioned.
2
Forward Looking Statements
- --------------------------
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and Item 7A, "Quantitative and Qualitative Disclosure About
Market Risk," are forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Factors that appear with the forward-looking statements, or in our other
Securities and Exchange Commission filings, could affect our actual results and
could cause our actual results to differ materially from those expressed in any
forward-looking statements we have made in this Annual Report on Form 10-K.
Reportable Segments
- -------------------
In fiscal 1999, we adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for the disclosure of segment
results. It requires that segments be determined using the "management
approach," which means the way management organizes the segments within the
enterprise for making operating decisions and assessing performance. In
compliance with SFAS 131, we have identified the following three reportable
segments:
o Powercom Division
o Motive Power Division
o Power Electronics Division
The financial information regarding our three business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 1999 is provided in Note 16 to the Consolidated
Financial Statements. See Part II, Item 8.
The Market for Our Products
- ---------------------------
We manufacture and market products in the following general categories by
business segment:
o Powercom Division - integrated reserve power systems and
components for the standby power market which includes
telecommunications, uninterruptible power supplies ("UPS") and
utilities and control;
o Motive Power Division - motive power systems for the material
handling equipment market; and
o Power Electronics Division - custom, standard and modified
standard embedded high frequency AC-to-DC and DC-to-DC
switching power supplies and battery chargers for cellular
phones.
We market our products via independent manufacturer's representatives,
distributors and our own sales personnel.
3
We sell products directly to the U.S. Government. Those sales have
accounted for less than 5% of our total company sales during each of our last
three fiscal years.
Products and Customers By Business Segment
- ------------------------------------------
Powercom Division - Reserve Power Systems
-----------------------------------------
We are a leading producer of fully integrated reserve power systems, which
monitor and regulate electric power flow and provide backup power in the event
of a primary power loss or interruption. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.
We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:
o flooded batteries and
o valve-regulated (sealed) batteries.
Flooded batteries require periodic watering and maintenance. Valve-
regulated batteries require less maintenance and are often smaller.
Our reserve power systems include a wide range of power electronics
products to meet the needs of our customers, consisting principally of power
rectifiers and distribution and monitoring equipment. Our power rectifiers
convert or "rectify" external AC power into DC power at the required level and
quality of voltage and apply the DC power to constantly charge the reserve
battery and operate the user's equipment. For installations with end
applications that require varied power levels, our power control and
distribution equipment distributes the rectified power at the appropriate power
level for each of the applications.
TELECOMMUNICATIONS CUSTOMERS. Our customers use the majority of our standby
power products in telecommunications applications such as central telephone
exchanges, microwave relay stations, private branch exchange ("PBX") systems and
cellular mobile telephone systems. Our major telecommunications customers
include national long distance companies, Regional Bell Operating Companies,
cellular system operators, personal communications services providers, paging
systems and PBX telephone locations using fiber optic cable, microwave
transmission or traditional copper-wired systems.
MODULAR POWER PLANTS. We offer several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty AGM Series Power Plant and the Liberty ACM Series Power Plant,
integrate advanced rectifiers with virtually maintenance free valve-regulated
batteries.
ROUND CELL BATTERY. One of our historically important telecommunications
products has been the Round Cell reserve power battery, a flooded product which
was originally designed and patented by the Bell Laboratories of AT&T for
use in AT&T's own facilities and customer installations. Our company or its
predecessor has manufactured Round Cells for AT&T or Lucent Technologies, Inc.
4
since 1972 and has been the exclusive manufacturer since 1982. AT&T spun off its
equipment manufacturing operations into an independent company named "Lucent
Technologies, Inc.," which began operations on October 1, 1996. Both our
Powercom and Power Electronics Divisions sell products to Lucent Technologies,
Inc., which accounted for 13.1% of our consolidated net sales for the year ended
January 31, 1999. No other customer accounted for more than 5% of our
consolidated net sales during fiscal 1999.
UNINTERRUPTIBLE POWER SUPPLIES. We produce batteries for UPS systems, which
provide instant battery backup in the event of primary power loss or
interruption on sensitive equipment, thereby permitting an orderly shutdown of
the equipment or continued operation for a limited period of time until the
primary source comes back on line. Large UPSs are used principally for mainframe
computers, minicomputers, networks, workstations and computer-controlled
equipment.
EQUIPMENT FOR ELECTRIC UTILITIES AND INDUSTRIAL CONTROL APPLICATIONS. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures.
Motive Power Division - Motive Power Systems
--------------------------------------------
Our customers use the majority of our motive power products to provide the
primary power source for fork-lift trucks and other material handling vehicles.
A significant portion of our motive power sales include products and systems to
recharge motive power batteries.
We produce complete systems and individual components (including power
electronics and batteries) to power, monitor, charge and test the batteries used
in electric industrial vehicles, including fork-lift trucks, automated guided
vehicles and airline ground support equipment. Our customers include end users
in a broad array of industries, dealers of fork-lift trucks and other material
handling vehicles and, to a lesser extent, original equipment manufacturers
("OEMs").
We offer a broad line of motive power equipment including the C-Line, which
we believe is the industry standard for long life; the V-Line for general
material handling applications; the low maintenance Liberty Eclipse battery and
charger which reduces the customer's cost of operation; and the high density
Suprema line, designed for narrow aisle warehousing applications requiring high
energy.
Power Electronics Division -
Power Supplies and Cellular Phone Battery Chargers
--------------------------------------------------
Through our Power Electronics Division we design, manufacture and
distribute custom, standard and modified standard electronic power supply
systems built for large OEMs of telecommunications equipment, office products,
computers and workstations. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division. The Power Electronics Division also manufactures cellular
phone battery chargers.
5
We sell the majority of our power supply products to OEMs of electronic
products on either a custom, standard or modified standard basis. Power supplies
are embedded in almost all electronic products and are used to convert incoming
AC or DC voltage to the required level and quality of DC voltage.
Our power supplies incorporate advanced technology and are designed for
dependable operation of the host equipment. Our power supply products include
AC-to-DC power supplies, DC-to-DC converters and high voltage power supplies for
use in a large number of industrial applications, with outputs ranging from
several watts to several kilowatts. AC-to-DC power supplies convert alternating
current, the form in which virtually all power is delivered by electric
utilities to end users, into precisely controlled direct current of the constant
voltage required by sensitive electronic applications. DC-to-DC converters
convert one constant voltage into another constant voltage. DC-to-DC converters
are widely used in distributed power systems where power is delivered within the
equipment at a high voltage and is converted to a lower voltage to permit the
operation of microelectronics components such as microprocessors.
In the telecommunications industry, our power supplies are broadly used in
voice and data telecommunications. We also produce power supplies for office
copiers, workstations and other sophisticated computers.
Sales, Installation and Servicing
- ---------------------------------
The sales, installation and servicing of our power systems products are
performed through several networks of independent manufacturer's representatives
located throughout the United States and Canada. Each independent manufacturer's
representative operates under a contract with us providing for compensation on a
commission basis or as a distributor with product purchases for independent
resale.
In addition to these networks of independent manufacturer's
representatives, we maintain an internal sales management force consisting of
regional sales managers and product/market specialists. The regional managers
are each responsible for managing a number of independent manufacturer's
representatives and for developing longer-term supplier relationships with large
end users, OEMs and national accounts. We also maintain a separate sales force
that works with the independent manufacturer's representative network and
certain large customers.
We have several internal divisional marketing departments in our Powercom,
Motive Power and Power Electronics Divisions. These departments manage the
development of new products from the initial concept definition and management
approval stage through the engineering, production and sales processes. These
departments are also responsible for applications engineering and technical
training of sales representatives.
We maintain branch sales and service facilities in the United States,
Canada and Europe, with the support of our headquarters and service personnel,
and have relationships with sales representatives or distributors in the Far
East, the Middle East, Europe, Mexico, and Central and South America.
6
We typically sell our products upon terms requiring payment in full within
30 to 60 days. We warrant our products to perform as rated for specified periods
of time, ranging from one to twenty years depending on the type of product and
its application, in an amount that decreases over the life of the product. The
lengthiest warranties generally are applicable to standby power batteries sold
by our Powercom Division.
Backlog
- -------
The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders and, taking into
account considerations of manufacturing capacity and flexibility, the speed with
which we fill those orders. Accordingly, our backlog at any particular date only
indicates expected shipments in the near future. Period-to-period comparisons
may not be meaningful. Orders for many of our products may be canceled by the
customer prior to shipment.
Our Powercom Division normally ships standby power products within two
weeks to two months after order and our Motive Power Division normally ships
products within two days to four weeks after order. Our Power Electronics
Division normally ships power supplies one week to three months after order. Our
order backlog at March 31, 1999 was $68,708,000, excluding backlog associated
with the recently acquired Specialty Battery Division of JCI, and at March 31,
1998 was $58,522,000. We expect to fill the majority of the March 31, 1999
backlog during fiscal 2000.
Manufacturing and Raw Materials
- -------------------------------
We manufacture our products at eight domestic plants, two plants in Mexico
and one plant in Europe, excluding facilities associated with the recently
acquired Specialty Battery Division of JCI. We manufacture most key product
lines at a single focused plant in order to optimize manufacturing efficiency,
asset management and quality control.
EXPANSION AND CONSOLIDATION. We are continuing the process of capacity
expansion at several of our plants. During fiscal 1997, we completed the process
of moving product lines from the Seattle, Washington facility to the Dunlap,
Tennessee and Nogales, Mexico facilities that was started in fiscal 1995. As a
result, we closed our Seattle, Washington manufacturing facility during fiscal
1997.
When we acquired the PowerSystems Division of ITT in fiscal 1995, we
entered into an agreement pursuant to which a third party "shelter company"
provided to us the Nogales, Mexico facility and employed Mexican staff and labor
to assemble our products. This agreement was terminated during fiscal 1998.
The principal raw materials used in the manufacture of our products include
lead, steel, copper, plastics and electronic components, all of which are
generally available from multiple suppliers. Other than the required use of two
suppliers of lead for the production of Round Cell batteries for Lucent
Technologies, Inc., we use a number of suppliers to satisfy our raw materials
needs.
ISO 9001 RECOGNITION. During fiscal 1999 we have continued our program of
ISO recognition, which assures customers that our internal processes and systems
meet internationally recognized
7
standards, and have received ISO 9001 certification at our Conyers, Georgia and
Costa Mesa, California facilities. We are also ISO 9001 certified at our Blue
Bell, Pennsylvania Headquarters, Conshohocken, Pennsylvania R&D Battery
Laboratories, Leola, Pennsylvania and Dunlap, Tennessee plants, as well at our
Tucson, Arizona, Mexican and Irish facilities.
Competition
- -----------
Our products compete on the basis of:
o our reputation;
o product quality and reliability;
o customer service;
o delivery capability; and
o technology.
We also offer competitive pricing, and value our relationships with our
large customers. In addition, we believe that we have certain competitive
advantages in specific product lines.
We are a North American producer of integrated reserve power systems and
power electronics equipment. We believe that we are one of the four largest
producers of reserve power systems in North America. In motive power, we believe
that one competitor, Yuasa, Inc., has a significantly larger market share than
we have. Our company, along with two other manufacturers, occupies a second tier
of the motive power market in which we have a significantly larger market share
than our smaller competitors.
For both reserve and motive power systems, we believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.
In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both. In motive power, all our major
competitors supply integrated power systems, but only our company and one
competitor manufacture both electronics and batteries.
With respect to power supplies, we believe that we are among a small group
of large competitors in this fragmented industry.
When lead prices rise, certain of our competitors that own smelting
operations may have lower lead costs than we have. However, when lead prices
decline, the high fixed costs associated with these operations may provide us
with a cost advantage.
8
Research and Development
- ------------------------
We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:
o the design and development of new, standard and custom products;
o the ongoing development and improvement of existing products;
o sustaining engineering;
o production engineering (including quality testing and managing
the expansion of production capacity); and
o the evaluation of competitive products.
Our research and development facilities in North America and Europe feature
advanced computer-aided design and testing equipment. Technology and engineering
personnel coordinate all activities closely with operations, sales and marketing
areas in order to better meet the needs of customers.
We continue to develop new products in all areas of our business. During
fiscal 1999, our Powercom Division introduced the Orion battery, a competitively
priced valve-regulated battery designed primarily for the telecommunications
market. During fiscal 1998, our Motive Power Division introduced the low
maintenance Liberty Eclipse battery and charger which dramatically reduces the
customer's cost of operation. During fiscal 1997, we extended our range of
telecom products with the introduction of a family of medium powered high
frequency rectifiers. We also introduced several families of high density
DC-to-DC converters during fiscal 1997.
International Operations
- ------------------------
We sell a broad range of motive and standby power products in Canada
through our network of independent Canadian representatives and one branch
office. In addition, we manufacture a large portion of our power supplies in
Nogales, Sonora, Mexico and in Agua Prieta, Sonora, Mexico for ultimate sale in
the United States, Canada and Europe. Sales in Canada accounted for less than 7%
of our sales for the last three fiscal years. We have no significant sales in
Mexico. We also manufacture power supplies in Shannon, Ireland. Operations in
Ireland accounted for less than 5% of our sales in the last three fiscal years.
Patents and Trademarks
- ----------------------
Our policy is to apply for patents on new inventions and designs and
actively pursue pending and future patent applications. We believe that the
growth of our business will depend primarily upon the quality of our products
and our relationships with our customers, rather than the extent of our patent
protection. While we believe that patents are important to our business
operations, the loss of any single or several patents would not have a material
adverse effect on our company.
We regard our trademarks C&D, C&D TECHNOLOGIES, INC., C&D POWERCOM,
LIBERTY, LIBERTY SERIES and POWER CONVERTIBLES as being of substantial value in
the
9
marketing of our products and have registered these trademarks in the United
States Patent and Trademark Office. We also have applications pending for
registrations of other trademarks in the United States. Our trademarks also
include COMPUCHARGE, FERRO FIVE, GUARDIAN, GUARDSMAN, RANGER, RANGERNET and
SCOUT.
Employees
- ---------
On March 31, 1999 we had approximately 2,446 employees, excluding employees
associated with the recently acquired Specialty Battery Division of JCI. Of
these employees, 2,019 were employed in manufacturing and 427 were employed in
field sales, technical, manufacturing support, sales support, marketing and
administrative activities.
Our management considers our employee relations to be satisfactory.
Employees in five domestic plants are not represented by a union. Employees at
the other three domestic plants are represented by three different unions under
collective bargaining agreements.
Environmental Regulation
- ------------------------
Our operations are subject to extensive and evolving environmental laws and
regulations regarding the clean-up and protection of the environment and worker
health and safety. These laws and regulations include requirements relating to
the handling, storage, use and disposal of hazardous materials and solid wastes,
record keeping and periodic reporting to governmental entities regarding the use
of hazardous substances and disposal of hazardous wastes, monitoring and
permitting of air and water emissions and monitoring and protecting workers from
exposure to hazardous substances, including lead used in our manufacturing
processes.
We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental director and staffed
with trained environmental professionals. As part of our program, we:
o prepare written environmental and health and safety practice
manuals;
o conduct regular employee training seminars;
o undertake annual internal and external audits of our operations
and environmental and health and safety programs; and
o practice and engage in routine sampling and monitoring of
employee chemical and physical exposure levels and potential
points of environmental emissions.
In addition, we also have installed certain pollution abatement equipment
to minimize emissions of regulated pollutants into the environment. Our program
monitors and seeks to resolve potential environmental liabilities that result
from or may arise from current and historic hazardous materials handling and
waste disposal practices. We have instituted a hazardous materials and spent
product recapture and recycling program at each of our facilities and for our
customers.
While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are required to pay a penalty
10
or fine, to install control technology or to make equipment or process changes
(or a combination thereof) as a result of the non-compliance or changing
regulatory requirements. When we receive a notice of a non-compliance, we
regularly undertake to achieve compliance and work with the authorities to
resolve satisfactorily the issues raised. The associated costs have not had a
material effect on our business, financial condition or results of operations.
Notwithstanding our efforts to maintain compliance with applicable
environmental requirements, if damage to persons or the environment arises from
hazardous substances used, generated or disposed of in the conduct of our
business (or that of our predecessors to the extent we are not indemnified
therefor), we may be held liable for the damage and for the costs of the
environmental investigation and remediation, which could have a material adverse
effect on our business, financial condition or results of operations.
In view of the potential financial effect such environmental liabilities
could have, when we acquired the assets of our predecessor from Allied in
January 1986, we secured an obligation from Allied to indemnify us from
undisclosed environmental liabilities resulting from conditions existing as of
the closing date. With the exception of four sites disclosed by Allied at the
time of the acquisition, Allied has accepted indemnification responsibility for
our potential liabilities at those third party owned or operated sites with
respect to which we have been named as a potentially responsible party by the
United States Environmental Protection Agency or state environmental agencies
under the federal Superfund law or comparable state environmental laws.
On March 22, 1999 we received notification of our potential involvement at
an additional site which occurred after the acquisition from Allied. Detailed
information necessary to estimate our share of liability has not yet been
generated for this site.
With respect to the four sites not being covered by the Allied indemnity
and the site which occurred after the acquisition, based upon the most currently
available information, we believe that our share of liability at these sites
will not have a material adverse effect on our business, financial condition or
results of operations. Moreover, we accrue reserves for environmental
liabilities in our consolidated financial statements and periodically reevaluate
the reserved amounts for these liabilities in view of the most current
information available.
We are also aware of the existence of potential contamination at two of our
properties which may require expenditures for further investigation and
remediation. At our Huguenot, New York facility, fluoride contamination in an
inactive lagoon exceeding the state's groundwater standards, which existed prior
to our acquisition of the site, has resulted in the site being listed on the
registry of inactive hazardous waste disposal sites maintained by the New York
State Department of Environmental Conservation. The prior owner of the site,
Avnet, Inc., ultimately may bear some, as yet undetermined, share of the costs
associated therewith.
Our Conyers, Georgia facility is listed on the Georgia State Hazardous
Sites Inventory. Soil at the site, which was likely contaminated from a leaking
underground acid neutralization tank and possibly storm water runoff, has been
excavated and disposed. A hydrogeologic study was undertaken to assess the
impact to groundwater. That study did not reveal any groundwater impact, and
assessment and remediation of off-site contamination has been completed and the
full remediation report was submitted to the state on February 22, 1999. The
state environmental agency
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may request further information and additional investigation or remediation may
be necessary before the site may be removed from its Hazardous Sites Inventory.
With respect to each of the properties described in the preceding two
paragraphs, we have accrued a reserve in our consolidated financial statements
for our estimate of the potential costs and liabilities associated with the
potential contamination. The costs and potential liabilities for these matters,
in our opinion, are not likely to affect materially our business, financial
condition or results of operations.
12
Item 2. Properties
- -------------------
Set forth below is certain information, as of March 31, 1999, with respect
to our principal properties. This information does not include property acquired
on March 1, 1999 related to the acquisition of the Specialty Battery Division of
JCI.
Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------
United States Properties
------------------------
Manufacturing:
- --------------
Attica, Indiana................ 235,000 Large standby power batteries and
motive power batteries
Conshohocken, Pennsylvania..... 136,000 Metal trays, metal racks and
cabinets, battery R&D
laboratories, distribution center
Conyers, Georgia............... 161,000 Small standby power batteries
Dunlap, Tennessee.............. 72,000 Motive power and standby power
electronics products, cabinets
and metal racks
Huguenot, New York............. 148,000 Motive power batteries and large
standby power batteries
Leola, Pennsylvania............ 187,000 Large standby power batteries
Tucson, Arizona................ 17,000 Power converters, cellular phone
battery chargers
Costa Mesa, California......... 33,000 Power supplies
Other:
- ------
Blue Bell, Pennsylvania........ 46,000 World headquarters
Tucson, Arizona................ 40,000 Headquarters of Power Electronics
Division and electronics R&D
laboratories
International Properties
------------------------
Manufacturing:
- --------------
Agua Prieta, Sonora, Mexico.... 24,000 Power converters
Nogales, Sonora, Mexico........ 83,000 Power supplies, power converters
and cellular phone battery
chargers
Shannon, Ireland............... 19,000 Power converters
Other:
- ------
Mississauga, Ontario, Canada ... 20,000 Canadian branch headquarters,
sales office and distribution
center
13
We own our Attica, Conyers, Leola and Conshohocken properties. The Huguenot
property is leased under an industrial revenue bond financing arrangement. We
are entitled to purchase the property for a nominal amount and expect to take
title during the second quarter of fiscal 2000. When we acquired the assets of
our predecessor from Allied, Allied agreed to pay the principal and interest due
under this financing arrangement. We lease our Blue Bell, Dunlap, Mississauga,
Tucson, Costa Mesa, Shannon, Agua Prieta and Nogales facilities and our branch
sales offices. The lease of the Dunlap property terminates in January 2004. We
have an option to purchase the Dunlap property during the lease term for
$1,160,000.
Item 3. Legal Proceedings
- --------------------------
We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material to our financial condition or results of operations in any year. See
"Business - Environmental Regulation" for a description of certain
administrative proceedings in which we are involved.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
Our Common Stock began trading on The New York Stock Exchange on December
20, 1996 under the symbol CHP. From October 27, 1995 through December 19, 1996,
the Common Stock was traded on the Nasdaq National Market under the symbol CHTR.
Prior to October 27, 1995 the Common Stock was listed and principally traded on
the American Stock Exchange under the symbol CHP. The approximate number of
beneficial and registered record holders of our Common Stock on April 15, 1999
was 2,516.
The following table sets forth, for the periods indicated, the high and low
sales prices for our Common Stock as reported by the New York Stock Exchange.
These prices represent actual transactions, but do not reflect adjustment for
retail markups, markdowns or commissions.
Year Ended
--------------------------
January 31, 1999 January 31, 1998*
---------------- ----------------
Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---
First Quarter..... $28 7/16 $23 15/32 $17 3/8 $12 15/16
Second Quarter.... 29 7/16 25 3/8 19 7/16 14 3/16
Third Quarter..... 27 1/8 19 7/8 24 9/16 18 3/4
Fourth Quarter.... 32 3/8 21 3/4 24 13/16 21
* Adjusted to reflect C&D's two-for-one stock split, effected in the form of a
100% stock dividend.
14
DIVIDENDS. We began paying quarterly cash dividends on our Common Stock in
April 1987. We declared quarterly dividends of $.01375 per share (as adjusted
for C&D's two-for-one stock split, effected in the form of a 100% stock
dividend) until June 1998. In September 1998 and January 1999, we declared
quarterly dividends of $.0275 per share.
Our bank loan agreement permits quarterly dividends to be paid on our
Common Stock so long as there is no default under that agreement. Subject to
that restriction and the provisions of Delaware law, our Board of Directors
currently intends to continue paying quarterly dividends in the future at the
rate currently paid. We cannot assure you that we will continue to do so since
future dividends will depend on our earnings and financial condition and other
factors.
15
Item 6. Selected Financial Data
- --------------------------------
The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements for fiscal 1999, 1998 and 1997, which appear elsewhere
herein.
Fiscal Year
-------------------------------------------------------------
1999 1998 1997(4) 1996 1995(3)
------ ------ -------- ------- -------
(In thousands, except per share data)
Statement of Income Data:
- -------------------------
Net sales............................... $313,966 $308,054 $286,907 $242,422 $200,009
Cost of sales........................... 227,796 226,880 219,819 185,808 154,464
------- ------- ------- ------- -------
Gross profit.......................... 86,170 81,174 67,088 56,614 45,545
Selling, general and
administrative expenses............... 40,344 39,333 34,499 27,781 24,796
Research and development
expenses.............................. 8,255 8,610 8,143 6,196 5,284
------- ------- ------- ------- -------
Operating income...................... 37,571 33,231 24,446 22,637 15,465
Interest expense, net................... 126 1,129 1,396 1,063 1,222
Other expense (income), net............. 211 1,058 (8) 423 310
------- ------- ------- ------- -------
Income before income taxes .......... 37,234 31,044 23,058 21,151 13,933
Provision for income taxes.............. 13,154 11,359 8,121 7,107 4,556
------- ------- ------- ------- -------
Net income ............................. $ 24,080 $ 19,685 $ 14,937 $ 14,044 $ 9,377
======= ======= ======= ======= =======
Net income per common share (1)*........ $ 1.95 $ 1.61 $ 1.19 $ 1.16 $ .79
======= ======= ======= ======= =======
Net income per common share -
assuming dilution (2)*................ $ 1.88 $ 1.56 $ 1.16 $ 1.09 $ .75
======= ======= ======= ======= =======
Dividends per common share*............. $ .08 $ .06 $ .06 $ .06 $ .06
======= ======= ======= ======= =======
Balance Sheet Data:
- -------------------
Working capital......................... $ 63,688 $ 47,342 $ 45,436 $ 50,302 $ 27,746
Total assets............................ 185,642 166,498 159,973 130,827 112,137
Short-term debt (exclusively current
portion of long-term debt)........... 532 321 476 200 3,670
Long-term debt.......................... 1,750 10,267 29,351 15,417 14,183
Stockholders' equity.................... 123,538 97,305 74,906 68,926 51,722
- ----------
* Per share amounts have been adjusted to reflect C&D's two-for-one stock
split, effected in the form of a 100% stock dividend, where appropriate.
(footnotes begin on the following page)
16
(1) Based on 12,365,183, 12,221,370, 12,517,108, 12,078,904 and 11,812,622
weighted average shares outstanding for fiscal 1999, 1998, 1997, 1996 and 1995,
respectively.
(2) Based on 12,835,862, 12,631,824, 12,878,330, 12,902,578 and 12,421,586
weighted average shares outstanding and the effect of shares issuable under
stock options based on the treasury stock method for fiscal 1999, 1998, 1997,
1996 and 1995, respectively.
(3) In March 1994, we acquired for cash, certain assets and assumed
specific liabilities of the custom power supply business of ITT PowerSystems
Corporation. In January 1995, we purchased certain assets and assumed certain
liabilities from the switching power supply business of Basler Electric Company,
a Highland, Illinois based manufacturer of electrical components.
(4) In February 1996, we acquired substantially all the assets of LH, a
producer and marketer of standard power supply systems for the electronics
industry. Effective March 12, 1996, we acquired from Burr-Brown Corporation its
entire interest in PCC, consisting of 1,044,418 shares of PCC common stock and
all outstanding preferred stock. In addition, we acquired or repaid the
indebtedness of PCC. In April 1996, we acquired 190,000 shares of PCC common
stock from the former chief executive officer of PCC which together with the
shares previously acquired represented in excess of 99.6% of the outstanding PCC
common stock. In May 1996, we purchased all remaining shares of PCC common stock
and shares of PCC common stock issuable upon exercise of stock options. PCC
produces battery chargers for cellular phones and DC-to-DC converters used on
communications, computer, medical, industrial and instrumentation markets. See
notes to consolidated financial statements.
17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Impact of Economy and Shift in Customer Demand
- ----------------------------------------------
During fiscal 1999, primarily due to continued improved domestic economic
conditions, there was a higher demand for our standby power products sold by the
Powercom Division. In the telecommunications market, continued growth in demand
was reflected by the growth in sales of our flooded batteries. International
economic conditions have had a negative impact on our international sales during
fiscal 1999.
Raw Material Pricing and Productivity
- -------------------------------------
Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 1999, 1998 and 1997, the average North American producer
price of lead has been $.47, $.48 and $.50 /lb., respectively.
We have a long-term cost containment program to maximize manufacturing
efficiency. The program continues to allocate a significant amount of our normal
annual capital expenditures to cost containment and productivity improvement
projects.
Inflation
- ---------
The costs to us of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our ability to pass
along inflationary cost increases through higher prices may be limited during
periods of stable or declining lead prices because of industry pricing practices
that tend to link product prices and lead prices. We believe that, over recent
years, we have been able to offset inflationary cost increases by:
o effective raw materials purchasing programs;
o price increases of our products;
o increases in labor productivity; and
o improvements in overall manufacturing efficiency.
18
Results of Operations
- ---------------------
The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.
Fiscal Year
-----------------------
1999 1998 1997
---- ---- ----
Net sales..................................... 100.0% 100.0% 100.0%
Cost of sales................................. 72.6 73.6 76.6
----- ----- -----
Gross profit................................ 27.4 26.4 23.4
Selling, general and administrative expenses.. 12.8 12.8 12.0
Research and development expenses............. 2.6 2.8 2.9
----- ----- -----
Operating income............................ 12.0 10.8 8.5
Interest expense, net ........................ - 0.4 0.5
Other expense, net............................ 0.1 0.3 0.0
----- ----- -----
Income before income taxes.................. 11.9 10.1 8.0
Provision for income taxes.................... 4.2 3.7 2.8
----- ----- -----
Net income.................................. 7.7% 6.4% 5.2%
===== ===== =====
Fiscal 1999 Compared to Fiscal 1998
- -----------------------------------
Net sales for fiscal 1999 increased $5,912,000 or two percent to
$313,966,000 from $308,054,000 in fiscal 1998. This was a result of an increase
in sales by the Powercom and Motive Power Divisions, up nine percent and four
percent, respectively, partially offset by a 13 percent decrease in sales by the
Power Electronics Division. The increase in Powercom Divisional sales was
primarily due to higher sales to the telecommunications and control markets in
fiscal 1999 versus the prior year. Power Electronics Divisional sales were lower
in fiscal 1999 compared to fiscal 1998 due to lower power conversion sales to
both the telecommunications and non-telecommunications markets. Power
Electronics telecommunications sales were lower in fiscal 1999 due to lower
sales of cellular phone battery chargers. We expect these lower sales volumes of
cellular phone battery chargers to continue into the first half of fiscal 2000.
On a company-wide basis, telecommunications-related sales were approximately 50
percent of total C&D sales during fiscal 1999 versus 49 percent in fiscal 1998.
Gross profit for fiscal 1999 increased $4,996,000 or six percent to
$86,170,000 from $81,174,000 in the prior year, resulting in a gross margin of
27.4 percent versus 26.4 percent in the prior fiscal year. Gross margin
increased as a result of improved gross margin in the Powercom
19
Division due to lower material costs and improved operating efficiencies, as
well as improved Motive Power Divisional gross margin related to lower material
costs. Power Electronics Divisional gross margin decreased in fiscal 1999 versus
the prior year primarily as a result of lower sales volumes.
Selling, general and administrative expenses for fiscal 1999 increased
$1,011,000 or three percent over the prior year due to higher selling expenses,
partially offset by lower general and administrative expenses. Selling expenses
increased in fiscal 1999 over fiscal 1998 due to higher commission expenses and
higher payroll and new Motive Power Divisional sales branch location related
costs. General and administrative expenses were lower in fiscal 1999 compared to
the prior year due to the absence in fiscal 1999 of costs related to the
accelerated write-off of goodwill and intangible assets associated with LH (due
to impairment) that occurred in fiscal 1998, lower costs associated with the
resolution of legal disputes and lower consulting costs.
Research and development expenses remained proportional to sales as a
relative percentage for both fiscal 1999 and 1998 at approximately 3 percent of
sales.
Operating income increased $4,340,000 to $37,571,000 in fiscal 1999
compared to $33,231,000 in fiscal 1998 as a result of higher Powercom Divisional
operating income, flat Motive Power Divisional operating income and lower Power
Electronics Divisional operating income. During the fourth quarter of fiscal
1999, our Power Electronics Division incurred an operating loss. This situation
is expected to continue at least through the first quarter of fiscal 2000.
Interest expense, net, decreased to $126,000 in fiscal 1999 from $1,129,000
in fiscal 1998 primarily due to lower outstanding debt balances during fiscal
1999.
Other expense, net, decreased $847,000 from fiscal 1998 to fiscal 1999
primarily due to the absence in the current year of amortization expense
associated with the write-off of capitalized debt acquisition costs related to
our credit facility and the Development Authority of Rockdale County Industrial
Revenue Bonds. Also contributing to this decrease was higher purchase price
discounts in fiscal 1999 versus the prior year and a lower foreign exchange loss
in fiscal 1999 compared to fiscal 1998.
Income tax expense increased $1,795,000 from fiscal 1998 to fiscal 1999,
primarily due to higher levels of income before income taxes.
As a result of the above, for fiscal 1999, net income rose 22 percent from
fiscal 1998 to $24,080,000 or $1.95 per common share - basic and $1.88 per
common share - assuming dilution.
Fiscal 1998 Compared to Fiscal 1997
- -----------------------------------
Net sales for fiscal 1998 increased $21,147,000 or seven percent to
$308,054,000 from $286,907,000 in fiscal 1997. This was primarily the result of
an increase in sales by the Powercom and Power Electronics Divisions, up nine
percent and 11 percent, respectively. Sales by the Motive Power Division
remained flat in fiscal 1998 compared to the prior year. A portion of the fiscal
1998 sales increase of the Power Electronics Division resulted from the
recording of a full year's sales
20
versus a partial year in fiscal 1997 due to the acquisition of a power
conversion company during the first quarter of fiscal 1997. The increase in the
Powercom Divisional sales was primarily due to higher sales to the
telecommunications and UPS markets in fiscal 1998 versus fiscal 1997, partially
offset by lower government and control sales. Sales by the Power Electronics
Division increased due to higher power conversion sales to both the
telecommunications (primarily cellular phone battery chargers) and
non-telecommunications markets. On a company-wide basis,
telecommunications-related-sales were approximately 49 percent of total company
sales during fiscal 1998 versus 46 percent in fiscal 1997.
Gross profit for fiscal 1998 increased $14,086,000 or 21 percent to
$81,174,000 from $67,088,000 in the prior fiscal year, resulting in a gross
margin of 26.4 percent versus 23.4 percent in the prior year. Gross margin
increased as a result of improved gross margin in the Powercom Division due to
lower material costs and operating efficiencies associated with higher sales
volumes. Gross margins of the Motive Power and Power Electronics Divisions were
up slightly in fiscal 1998 versus 1997.
Selling, general and administrative expenses for fiscal 1998 increased
$4,834,000 or 14 percent over the prior year primarily as a result of the
accelerated write-off of goodwill and intangible assets associated with LH (due
to impairment), higher payroll related costs, warranty, due diligence costs, and
the resolution of legal disputes, partially offset by lower variable selling
expense.
Research and development expense remained proportional to sales as a
relative percentage for both fiscal 1998 and fiscal 1997 at approximately three
percent of sales.
Operating income increased $8,785,000 to $33,231,000 in fiscal 1998
compared to $24,446,000 in fiscal 1997 as a result of higher Powercom and Motive
Power Divisional operating income, partially offset by lower Power Electronics
Divisional operating income. The Power Electronics Divisional operating income
was negatively impacted by the accelerated write-off of goodwill and intangible
assets noted above.
Interest expense, net, decreased 19 percent from fiscal 1997 to fiscal 1998
primarily due to lower debt balances outstanding, partially offset by lower
capitalized interest related to plant expansions and lower interest income.
Other expense, net, increased $1,066,000 from fiscal 1997 to fiscal 1998 as
a result of higher amortization expense associated with the write-off of
capitalized debt acquisition costs related to our credit facility and the
Development Authority of Rockdale County Industrial Revenue Bonds. This increase
was also due to lower nonoperating income during fiscal 1998 coupled with a
foreign exchange loss in fiscal 1998 versus a slight foreign exchange gain in
fiscal 1997.
Income tax expense increased $3,238,000 from fiscal 1997 to fiscal 1998,
primarily due to higher levels of income before income taxes coupled with a
smaller favorable tax effect from foreign operations.
As a result of the above, for fiscal 1998, net income rose 32 percent from
fiscal 1997 to $19,685,000 or $1.61 per common share - basic and $1.56 per
common share - assuming dilution, adjusted to reflect C&D's two-for-one stock
split, effected in the form of a 100% stock dividend.
21
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities decreased $5,550,000 or 17
percent to $26,422,000 in fiscal 1999 compared to $31,972,000 in fiscal 1998.
The decrease in net cash provided by operating activities was primarily due to a
larger increase in inventories in fiscal 1999 compared to fiscal 1998, coupled
with decrease in income taxes payable in fiscal 1999 versus an increase in the
prior year. These changes resulting in lower net cash provided by operations,
were partially offset by higher net income in fiscal 1999 compared to fiscal
1998, changes in timing differences affecting deferred taxes, and an increase in
accounts payable in fiscal 1999 versus a decrease in the prior year. The
increase in inventory during fiscal 1999 was primarily related to our Power
Electronics Division.
Net cash used by investing activities totaled $15,692,000 for fiscal 1999,
resulting in an increase of $2,094,000 or 15 percent over the prior year. This
increase was primarily due to higher capital spending in fiscal 1999 versus
fiscal 1998.
Net cash used by financing activities decreased $11,243,000 to $6,896,000
in fiscal 1999 compared to $18,139,000 in fiscal 1998. The decrease in net cash
used by financing activities was primarily the result of lower net cash flows
provided by operations and higher capital spending in fiscal 1999 compared to
fiscal 1998, coupled with a greater increase in cash balances in fiscal 1999
versus the prior year.
On March 1, 1999 we entered into a credit agreement in which the lenders
named therein, and Nationsbank, N.A. as administrative agent, provided a
$220,000,000 credit facility consisting of a term loan in the amount of
$100,000,000 and a revolving loan not to exceed $120,000,000. The funds borrowed
under this credit agreement were used to finance the acquisition of the
Specialty Battery Division of JCI, to refinance existing debt and to finance
working capital and certain other expenditures. Our availability under the
current loan agreement is expected to be sufficient to meet our ongoing cash
needs for working capital requirements, debt service, capital expenditures and
possible strategic acquisitions. Capital expenditures during fiscal 1999 were
incurred primarily to fund capacity expansion, new product development, a
continuing series of cost reduction programs, normal maintenance capital, and
regulatory compliance. Fiscal 2000 capital expenditures are expected to be
approximately $24,000,000 for similar purposes, including capital requirements
of the recently acquired Special Battery Division from JCI.
We have been notified that we are a potentially responsible party relating
to various Third Party Facilities (see note 8(B) of the notes to consolidated
financial statements).
Readiness for Year 2000
- -----------------------
We are taking action to ensure that our operations will not be adversely
affected by potential Year 2000 computer failures and have developed a Year 2000
Readiness Plan. Our Chief Financial Officer is responsible for overseeing the
execution of the plan and reports quarterly to our Board of Directors on the
status of the Year 2000 Readiness Plan. The plan addresses the following four
areas:
22
o information technology systems (consisting of computer hardware and
software related to the our business systems as well as our
engineering and test equipment);
o non-information technology systems (including embedded technology such
as microcontrollers, which are typically found in such things as
telephone systems, security systems, fax machines, etc.);
o products sold to customers; and
o third party issues (including significant suppliers and customers).
Our Year 2000 Readiness Plan generally includes the following phases for
each of the four areas noted above:
o identification and risk assessment;
o development and implementation of a remediation plan;
o acceptance testing; and
o contingency planning for high risk critical areas.
We have identified certain deficiencies related to our information
technology systems and are in the process of addressing them through upgrades or
other remediation. We have two main computer systems that are utilized to run
our business systems. Year 2000 remediation work on our business systems that
run on our computer located in Tucson, Arizona has been completed and these
business systems are now Year 2000 compliant. Acceptance testing has been
completed on our business systems that run on our computer located at our Blue
Bell, Pennsylvania headquarters. These Blue Bell, Pennsylvania business systems
are expected to be Year 2000 compliant in May 1999.
In terms of non-information technology systems, we have identified those
items which may require remediation or replacement. We are in the process of
addressing those items and expect to complete remediation or replacement and
testing by the middle of fiscal 2000.
We have completed our assessment of Year 2000 compliance with respect to
our battery and electronics products that are currently being sold to customers
and have concluded that all significant products are compliant.
With respect to third parties, we have identified and have been contacting
our significant suppliers and will shortly begin to contact our major customers
to determine the extent to which we may be vulnerable to such third parties'
failure to address their own Year 2000 issues. This process includes the
solicitation of written responses to questionnaires and/or meetings with certain
of such third parties. As a result, our assessment will be substantially
dependent on information provided by third parties. We have completed this
initial notification and solicitation process with our significant suppliers and
have now begun the next phase of re-contacting those companies who have not
responded. We believe this process will continue through the second and third
quarters of fiscal 2000.
Based upon our current estimates, total costs associated with our Year 2000
compliance are expected to be immaterial. The majority of these costs were
incurred in fiscal 1999 and include third party consultants and programmers;
remediation of existing software; and replacement or
23
remediation of embedded chips. Such costs do not include internal management
time, which is not expected to be material to our results of operations or
financial condition.
We believe that our most significant risk with respect to Year 2000 issues
relates to the performance and readiness status of third parties. As with all
manufacturing companies, a reasonable worst case Year 2000 scenario would be the
result of failures of third parties (including without limitation, governmental
entities, utilities and entities with which we have no direct involvement) that
negatively impact our raw material supply chain or ability to provide products
to customers or the ability of customers to purchase products, or events
affecting regional, national or global economies generally. The impact of these
failures cannot be estimated at this time; however, we are considering
contingency plans to limit, to the extent possible, the financial impact of
these failures on our results of operations. Any such plans would necessarily be
limited to matters over which we can reasonably control.
Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. While we anticipate continuity of our business activities,
that continuity will be dependent upon our ability, and the ability of third
parties with whom we rely on directly, or indirectly, to be Year 2000 compliant.
Conversion to the Euro Currency
- -------------------------------
On January 1, 1999, the Euro was adopted as the common legal currency, in
coexistence with the national currencies for European Union member nations until
January 1, 2002. We have made all necessary adjustments to our processes to
ensure compliance of all business transactional Euro requirements during the
three year transitional period that ends January 1, 2002. After this
transitional period, the Euro becomes the sole legal currency for the European
Union member nations and all of our records of the national currencies will be
converted to the Euro equivalent at that time. We do not expect the Euro
adoption to have a material adverse impact on our financial condition or results
of operations.
New Accounting Pronouncements Not Yet Adopted
- ---------------------------------------------
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires costs of start-up activities and organization
costs to be charged to expense as incurred. SOP 98-5 is effective for financial
statements for years beginning after December 15, 1998. We believe that the
adoption of SOP 98-5 will not have a material effect on our financial position
or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes new procedures for accounting for derivatives and hedging activities
and supersedes and amends a number of existing standards. This statement is
effective for fiscal years beginning after June 15, 1999. We currently use
derivatives such as interest rate swap agreements, currency swaps and currency
forwards to
24
effectively fix the interest rate on a portion of our floating rate debt and the
exchange rate on Canadian and Mexican assets, liabilities and cash flows. Under
current accounting standards, no gain or loss is recognized on changes in the
fair value of these derivatives. Under this statement, gains or losses will be
recognized based on changes in the fair value of the derivatives which generally
occur as a result of changes in interest rates and foreign currency exchange
rates. We are currently evaluating the financial impact of adoption of this
statement. We believe that the adoption of SFAS No. 133 will not have a material
effect on our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------------------------------------------------------------------
Market Risk Factors
- -------------------
We do not invest in derivative securities for trading purposes, but do
enter into hedging arrangements in order to reduce our exposure to fluctuations
in the interest rates applicable to our long term debt and to fluctuations in
the Canadian Dollar and Mexican Peso to the US Dollar exchange rate.
Our financial instruments subject to interest rate risk consist of debt
instruments and interest rate derivatives. The net market value of our debt
instruments was $2,282 and $10,588 at January 31, 1999 and January 31, 1998,
respectively. These instruments are subject to variable rate interest and
therefore the market value is not sensitive to interest rate movements.
The net market value of our interest rate derivatives was $(114) and $25 at
January 31, 1999 and 1998, respectively. A 100-basis point increase in rates at
January 31, 1999 and 1998 would result in a $231 and a $292 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
1999 and 1998 would result in a $231 and a $292 decrease in the market value,
respectively.
The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their levels, with all other variables held
constant.
Our financial instruments subject to foreign currency exchange risk consist
of foreign currency forwards and swaps and represent a net asset position of
$101 and $152 at January 31, 1999 and January 31, 1998, respectively. The
sensitivity analysis assumes an instantaneous 10% change in foreign currency
exchange rates from year-end levels, with all other variables being held
constant. At January 31, 1999 and 1998, a 10% strengthening of the US Dollar
versus the Canadian Dollar and the Mexican Peso would result in a change of the
net asset position of the forward and swaps of a $201 increase and a $27
decrease, respectively. At January 31, 1999 and 1998, a 10% weakening of the US
Dollar versus the Canadian Dollar and the Mexican Peso would result in a
decrease in the net asset position of the forward and swap of $307 and an
increase of $33, respectively.
Foreign exchange forwards and swap contracts are used to hedge our firm and
anticipated foreign currency cash flows. There is either an asset or cash flow
exposure related to all of the financial instruments in the above sensitivity
analysis for which the impact of a movement in
25
exchange rates would be in the opposite direction and substantially equal to the
impact on the instruments in the analysis.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements and supplementary data listed in Item 14(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.
Item 9. Changes in and Disagreements with Accountants
Accounting and Financial Disclosure
- ------------------------------------------------------
Not applicable.
PART III
The information required by Part III (Items 10 through 13) is incorporated
herein by reference to the captions "Principal Stockholders," "Election of
Directors," "Management" and "Certain Relationships and Related Transactions" in
our definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the end of our fiscal year covered by this report.
26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) The following financial statements are included in this report on Form
10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of January 31, 1999 and 1998
Consolidated Statements of Income for the years ended January 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
January 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the years ended
January 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this report
on Form 10-K:
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January
31, 1999, 1998 and 1997
Report of Independent Accountants on Schedule
II. Valuation and Qualifying Accounts
(3) Exhibits:
3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).
3.2 By-laws of C&D, as amended (incorporated by reference to
Exhibit 3.2 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
27
4.1 Credit Agreement, dated as of March 1, 1999, among C&D, as
borrower, certain subsidiaries and affiliates of C&D, as
guarantors, the lenders named therein, and NationsBank,
N.A. as administrative agent (incorporated by reference to
Exhibit 2.2 to C&D's Current Report on Form 8-K dated March
1, 1999).
10.1 Purchase Agreement dated November 27, 1985, among Allied,
Allied Canada Inc. and C&D; Amendments thereto dated
January 28 and October 8, 1986 (incorporated by reference
to Exhibit 10.1 to C&D's Registration Statement on Form
S-1, No. 33-10889).
10.2 Agreement dated December 15, 1986, between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D's
Registration Statement on Form S-1, No.
33-10889).
10.3 Lease Agreement dated February 15, 1994 by and between
Sequatchie Associates, Incorporated and C&D Charter Power
Systems, Inc. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1994).
10.4 C&D TECHNOLOGIES, INC. Savings Plan (October 1, 1997
Restatement) (incorporated by reference to Exhibit 10.4 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998).
10.5 C&D TECHNOLOGIES, INC. Pension Plan for Salaried Employees
as restated and amended (incorporated by reference to
Exhibit 10.10 to C&D's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995); First and Second
Amendments thereto dated December 20, 1995 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1996); Third
Amendment thereto dated February 18, 1997 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fourth
Amendment thereto dated January 27, 1998 (incorporated by
reference to Exhibit 10.5 to C&D's Annual Report on Form
10-K for the fiscal year ended January 31, 1998); Fifth
Amendment thereto dated January 28, 1999 (filed herewith).
10.6 C&D TECHNOLOGIES, INC. Incentive Compensation Plan
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1998).
10.7 Registration Rights Agreement dated May 30, 1989, between
Alfred Weber and C&D (incorporated by reference to Exhibit
10.2 to C&D's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1995); Employment Agreement, dated as of
April 1, 1996, and Pledge and Security Agreement and
Reimbursement Agreement, each dated April 30, 1996, between
Alfred Weber and C&D; Secured Promissory Note and Option
Secured Promissory Note, each dated April 30, 1996, by
Alfred Weber in favor of C&D (incorporated by reference to
28
Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1996).
10.8 Employment Agreement dated January 26, 1990, between Leslie
Holden and C&D (incorporated by reference to Exhibit 10.3
to C&D's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1995); Amendment thereto dated April 3, 1995
(incorporated by reference to Exhibit 10.3 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1995).
10.9 Employment Agreement dated March 1, 1994 between A. Gordon
Goodyear and C&D (incorporated by reference to Exhibit 10.2
to C&D's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1994); Amendment thereto dated April 3,
1995 (incorporated by reference to Exhibit 10.4 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April
30, 1995).
10.10 Employment Agreement dated April 3, 1995 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1995).
10.11 Employment Agreement dated April 3, 1995 between A. T.
(Paul) Kambouroglou and C&D (incorporated by reference to
Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995).
10.12 Employment Agreement dated August 15, 1995 between Stephen
Weglarz, Esq. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995).
10.13 Employment Agreement dated August 1, 1997 between Larry M.
Moore and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1997).
10.14 Employment Agreement dated September 30, 1997 between John
J. Murray, Jr. and C&D (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1997).
10.15 Employment Agreement dated October 22, 1998, between Wade
H. Roberts, Jr. and C&D (incorporated by reference to
Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1998); Letter Agreement relating
thereto dated September 28, 1998 (filed herewith).
10.16 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended July
31, 1996).
10.17 C&D TECHNOLOGIES, INC. 1998 Stock Option Plan (incorporated
by reference to Exhibit 10.1 to C&D's Registration
Statement on Form S-8 No. 333- 59177 filed July 15, 1998.)
29
10.18 Supplemental Executive Retirement Plan Amended and Restated
as of October 22, 1998 (filed herewith).
10.19 Supplemental Executive Retirement Plan for Alfred Weber
dated December 11, 1997 (incorporated by reference to
Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1997).
10.20 Purchase and Sale Agreement, dated as of November 23, 1998,
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D TECHNOLOGIES, INC. and C&D Acquisition Corp. as
Purchaser (incorporated by reference to Exhibit 2.1 to
C&D's Current Report on Form 8-K dated March 1, 1999).
21 Subsidiaries of C&D (filed herewith).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (filed herewith).
The registrant undertakes to furnish the Commission with a copy of certain
agreements which are not being filed in accordance with Item 601(b)(4)(iii) of
Regulation S-K.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by C&D during the last quarter of
the period covered by this report.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
C&D TECHNOLOGIES, INC.
April 30, 1999 By: /s/ Wade H. Roberts, Jr.
------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wade H. Roberts, Jr President, Chief Executive April 30, 1999
- ---------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive
Officer)
/s/ Stephen E. Markert, Jr. Vice President Finance April 30, 1999
- ---------------------------- (Principal Financial and
Stephen E. Markert, Jr. Accounting Officer)
/s/ William Harral, III Director, Chairman April 30, 1999
- ----------------------------
William Harral, III
/s/ Kevin P. Dowd Director April 30, 1999
- ----------------------------
Kevin P. Dowd
/s/ Glenn M. Feit Director April 30, 1999
- ----------------------------
Glenn M. Feit
/s/ Pamela S. Lewis Director April 30, 1999
- ----------------------------
Pamela S. Lewis
/s/ Alan G. Lutz Director April 30, 1999
- ----------------------------
Alan G. Lutz
/s/ John A. H. Shober Director April 30, 1999
- ----------------------------
John A. H. Shober
31
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
Page
----
Report of Independent Accountants...................... F-2
Consolidated Balance Sheets as of
January 31, 1999 and 1998............................ F-3
Consolidated Statements of Income
for the years ended January 31, 1999, 1998
and 1997............................................. F-4
Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 1999, 1998 and 1997................ F-5
Consolidated Statements of Cash Flows
for the years ended January 31, 1999, 1998
and 1997............................................. F-6
Consolidated Statements of Comprehensive
Income for the years ended January 31, 1999,
1998 and 1997........................................ F-8
Notes to Consolidated Financial Statements............. F-9
FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
For the years ended January 31, 1999, 1998 and 1997
Report of Independent Accountants on Schedule.......... S-1
Schedule II. Valuation and Qualifying Accounts........ S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of C&D TECHNOLOGIES, INC.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of C&D TECHNOLOGIES, INC. and subsidiaries (the "Company") at
January 31, 1999 and January 31, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 31,
1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 8, 1999
F-2
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands)
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 5,003 $ 1,167
Accounts receivable, less allowance for doubtful
accounts of $1,635 in 1999 and $1,701 in 1998.... 44,232 42,742
Inventories.......................................... 49,855 40,735
Deferred income taxes................................ 7,305 7,871
Other current assets................................. 2,318 885
------- -------
Total current assets............................. 108,713 93,400
Property, plant and equipment, net....................... 62,388 57,058
Intangible and other assets, net......................... 4,393 5,339
Goodwill, net............................................ 10,148 10,701
------- -------
Total assets..................................... $185,642 $166,498
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 532 $ 321
Accounts payable..................................... 23,997 22,791
Accrued liabilities.................................. 17,714 16,012
Income taxes......................................... - 3,689
Other current liabilities............................ 2,782 3,245
------- -------
Total current liabilities........................ 45,025 46,058
Deferred income taxes.................................... 2,887 2,376
Long-term debt........................................... 1,750 10,267
Other liabilities........................................ 12,442 10,492
------- -------
Total liabilities................................ 62,104 69,193
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 75,000,000
and 10,000,000 shares authorized;
13,368,719 and 13,228,898 shares
issued in 1999 and 1998, respectively*........... 134 132
Additional paid-in capital*.......................... 43,429 41,364
Treasury stock, at cost, 905,102 shares*............. (10,819) (10,819)
Notes receivable from stockholder, net of
discount of $28 in 1998.......................... - (1,029)
Cumulative translation adjustment.................... (169) (248)
Retained earnings ................................... 90,963 67,905
------- -------
Total stockholders' equity....................... 123,538 97,305
------- -------
Total liabilities and stockholders' equity....... $185,642 $166,498
======= =======
* Adjusted to reflect the Company's two-for-one stock split, effected in the
form of a 100% stock dividend.
See notes to consolidated financial statements.
F-3
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended January 31,
(Dollars in thousands, except per share data)
1999 1998 1997
---- ---- ----
Net sales................................. $313,966 $308,054 $286,907
Cost of sales............................. 227,796 226,880 219,819
------- ------- -------
Gross profit........................ 86,170 81,174 67,088
Selling, general and administrative
expenses............................ 40,344 39,333 34,499
Research and development expenses......... 8,255 8,610 8,143
------- ------- -------
Operating income.................... 37,571 33,231 24,446
Interest expense, net..................... 126 1,129 1,396
Other expense (income), net............... 211 1,058 (8)
------- ------- -------
Income before income taxes.......... 37,234 31,044 23,058
Provision for income taxes................ 13,154 11,359 8,121
------- ------- -------
Net income ......................... $ 24,080 $ 19,685 $ 14,937
======= ======= =======
Net income per common share*.............. $ 1.95 $ 1.61 $ 1.19
Net income per common share -
assuming dilution*.................. $ 1.88 $ 1.56 $ 1.16
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend, where
appropriate.
See notes to consolidated financial statements.
F-4
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended January 31, 1999, 1998 and 1997
(Dollars in thousands, except per share data)
Minimum Notes
Common Stock Additional Pension Treasury Stock Receivable Cumulative
--------------- Paid-In Liability ---------------- From Translation Retained
Shares* Amount* Capital* Adjustment Shares* Amount Stockholders Adjustment Earnings
------- ------- ---------- ---------- ------- ------ ------------ ----------- --------
Balance as of
January 31, 1996........... 12,652,352 $126 $36,220 $(760) (114,800) $(1,304) $34,644
Net income................... 14,937
Dividends to stockholders,
$.055 per share*........... (688)
Notes receivable
from stockholder........... $(1,721)
Discount on notes receivable
from stockholder........... 137
Amortization of discount on
stockholder notes.......... (52)
Tax effect relating to stock
options exercised.......... 1,151
Minimum pension liability
adjustment................. 624
Cumulative translation
adjustment................. $(374)
Purchase of common stock..... (929,138) (11,092)
Issuance of common stock..... 44 102,836 1,164
Stock options exercised...... 442,600 4 1,846
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1997........... 13,094,952 130 39,261 (136) (941,102) (11,232) (1,636) (374) 48,893
Net income................... 19,685
Dividends to stockholders,
$.055 per share*........... (673)
Principal payments on
stockholder notes.......... 664
Amortization of discount on
stockholder notes.......... (57)
Tax effect relating to stock
options exercised.......... 564
Minimum pension liability
adjustment................. 136
Cumulative translation
adjustment................. 126
Issuance of common stock..... 434 36,000 413
Stock options exercised...... 133,946 2 1,105
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1998........... 13,228,898 132 41,364 - (905,102) (10,819) (1,029) (248) 67,905
Net income................... 24,080
Dividends to stockholders,
$.0825 per share*.......... (1,022)
Principal payments on
stockholder notes.......... 1,057
Amortization of discount on
stockholder notes.......... (28)
Tax effect relating to stock
options exercised.......... 792
Cumulative translation
adjustment................. 79
Issuance of common stock..... 2,484 72
Stock options exercised...... 137,337 2 1,201
---------- --- ------ ----- -------- ------- ------ ---- ------
Balance as of
January 31, 1999........... 13,368,719 $134 $43,429 $ - (905,102) $(10,819) $ - $(169) $90,963
========== === ====== ===== ======== ======= ====== ==== ======
*Adjusted to reflect the Company's two-for-one stock split, effected in the form
of a 100% stock dividend.
See notes to consolidated financial statements.
F-5
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 31,
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Cash flows provided (used) by operating activities:
Net income.................................................. $24,080 $ 19,685 $ 14,937
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................... 11,289 11,824 8,494
Deferred income taxes ...................................... 1 (2,338) (302)
Loss on disposal of assets.................................. 224 175 80
Changes in:
Accounts receivable................................... (1,498) (1,182) (7,188)
Inventories........................................... (9,075) (1,856) 2,898
Other current assets.................................. (471) (450) 163
Accounts payable...................................... 1,191 (933) 2,943
Accrued liabilities................................... 1,617 1,566 (802)
Income taxes payable.................................. (2,777) 3,447 3,004
Other current liabilities............................. (464) (1,036) 1,257
Other liabilities..................................... 1,944 2,593 667
Other, net.................................................. 361 477 (414)
------- ------- -------
Net cash provided by operating activities..................... 26,422 31,972 25,737
------- ------- -------
Cash flows provided (used) by investing activities:
Acquisition of businesses, net.............................. - - (19,739)
Acquisition of property, plant and equipment................ (15,761) (13,640) (16,322)
Proceeds from disposal of property,
plant and equipment....................................... 69 41 9
Change in restricted cash................................... - 1 5,401
------- ------- -------
Net cash used by investing activities......................... (15,692) (13,598) (30,651)
------- ------- -------
Cash flows provided (used) by financing activities:
Repayment of long-term debt................................. (8,308) (19,239) (8,291)
Proceeds from new borrowings................................ - - 20,333
Issuance of note receivable to stockholder.................. - - (1,057)
Repayment of notes receivable from stockholders............. 1,057 664 -
Proceeds from issuance of common stock, net................. 1,203 1,107 1,186
Purchase of treasury stock.................................. - - (11,092)
Payment of common stock dividends........................... (848) (671) (694)
------ ------- -------
Net cash (used) provided by financing activities.............. (6,896) (18,139) 385
------ ------- -------
Effect of exchange rate changes on cash....................... 2 (20) 9
------ ------- -------
Increase (decrease) in cash and cash equivalents.............. 3,836 215 (4,520)
Cash and cash equivalents at beginning of year................ 1,167 952 5,472
------ ------- -------
Cash and cash equivalents at end of year...................... $ 5,003 $ 1,167 $ 952
====== ======= =======
See notes to consolidated financial statements.
F-6
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended January 31,
(Dollars in thousands)
1999 1998 1997
---- ---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest paid, net........................................ $ 415 $ 1,599 $ 1,593
Income taxes paid......................................... $15,927 $ 10,251 $ 5,378
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquired businesses:
Estimated fair value of assets acquired................... $ - $ - $ 13,544
Goodwill and identifiable intangible assets............... - - 12,655
Purchase price obligations................................ - - (1,358)
Cash paid, net of cash acquired........................... - - (19,739)
------ ------- -------
Liabilities assumed....................................... $ - $ - $ 5,102
====== ======= =======
Dividends declared but not paid................................ $ 343 $ 169 $ 167
Note receivable from stockholder in connection
with issuance of common stock................................ $ - $ - $ 664
Fair market value of treasury stock issued to
pension plans................................................ $ - $ 847 $ 1,208
Annual retainer to Board of Directors paid
by the issuance of common stock.............................. $ 72 $ - $ -
See notes to consolidated financial statements.
F-7
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended January 31,
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Net Income ................................................ $24,080 $19,685 $14,937
Other comprehensive income (expense), net of tax:
Cumulative translation adjustments..................... 79 126 (374)
Minimum pension liability adjustments.................. - 136 624
------ ------ ------
Total comprehensive income..................................... $24,159 $19,947 $15,187
====== ====== ======
See notes to consolidated financial statements.
F-8
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS