10-Q 1 q3-10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission File No. 1-9389 C&D TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware 13-3314599 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 Union Meeting Road Blue Bell, Pennsylvania 19422 (Address of principal executive office) (Zip Code) (215) 619-2700 (Registrant's telephone number, including area code) _________________N/A_________________ (Former name, former address and former fiscal year, if changed since last report) 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_____ Number of shares of the Registrant's Common Stock outstanding on November 29, 2002: 25,699,853 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1 - Financial Statements Consolidated Balance Sheets - October 31, 2002 and January 31, 2002................ 3 Consolidated Statements of Income - Three and Nine Months Ended October 31, 2002 and 2001............... 5 Consolidated Statements of Cash Flows - Nine Months Ended October 31, 2002 and 2001.......... 6 Consolidated Statements of Comprehensive Income - Three and Nine Months Ended October 31, 2002 and 2001 8 Notes to Consolidated Financial Statements............ 9 Report of Independent Accountants..................... 17 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations... 18 Item 3 - Quantitative and Qualitative Disclosures About Market Risk............................... 24 Item 4 - Controls and Procedures.......................... 24 PART II. OTHER INFORMATION................................... 25 SIGNATURES and CERTIFICATIONS................................ 26 2 PART I. FINANCIAL INFORMATION Item 1 - Financial Statements C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited) October 31, January 31, 2002 2002 ---- ---- ASSETS Current assets: Cash and cash equivalents................... $ 8,378 $ 8,781 Accounts receivable, less allowance for doubtful accounts of $2,183 and $2,278, respectively........................... 48,227 44,968 Inventories................................. 50,671 61,674 Deferred income taxes....................... 10,574 10,156 Other current assets........................ 1,388 6,754 ------- ------- Total current assets............. 119,238 132,333 Property, plant and equipment, net................ 118,423 131,207 Intangible and other assets, net.................. 27,774 24,659 Goodwill.......................................... 112,935 107,359 ------- ------- Total assets..................... $378,370 $395,558 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt............................. $ 14,655 $ 27,255 Accounts payable............................ 22,828 19,640 Accrued liabilities......................... 20,994 22,210 Income taxes................................ 4,421 - Other current liabilities................... 7,790 8,214 ------- ------- Total current liabilities........ 70,688 77,319 Deferred income taxes ............................ 3,500 2,602 Long-term debt.................................... 25,922 46,892 Other liabilities................................. 17,365 18,574 ------- ------- Total liabilities................ 117,475 145,387 ------- ------- The accompanying notes are an integral part of these statements. 3 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (Dollars in thousands, except per share data) (Unaudited) October 31, January 31, 2002 2002 ---- ---- Commitments and contingencies Minority interest................................. 8,281 8,313 Stockholders' equity: Common stock, $.01 par value, 75,000,000 shares authorized; 28,480,669 and 28,431,728 shares issued, respectively.. 285 284 Additional paid-in capital.................. 67,680 65,893 Treasury stock, at cost, 2,776,632 and 2,414,161 shares, respectively.......... (36,463) (29,743) Accumulated other comprehensive loss........ (257) (3,057) Retained earnings........................... 221,369 208,481 ------- ------- Total stockholders' equity....... 252,614 241,858 ------- ------- Total liabilities and stockholders' equity........... $378,370 $395,558 ======= ======= The accompanying notes are an integral part of these statements. 4 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (Unaudited)
Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales............................ $ 87,637 $102,505 $255,991 $383,381 Cost of sales........................ 66,829 80,395 196,335 277,729 ------- ------- ------- ------- Gross profit..................... 20,808 22,110 59,656 105,652 Selling, general and administrative expenses.......... 8,955 13,965 26,808 39,390 Research and development expenses......................... 2,461 2,461 7,355 7,895 ------- ------- ------- ------- Operating income................. 9,392 5,684 25,493 58,367 Interest expense, net................ 974 1,593 2,980 5,351 Other expense, net................... 258 706 368 832 ------- ------- ------- ------- Income before income taxes and minority interest............. 8,160 3,385 22,145 52,184 Provision for income taxes........... 2,953 1,252 8,127 19,308 ------- ------- ------- ------- Net income before minority interest...................... 5,207 2,133 14,018 32,876 Minority interest.................... 79 285 62 1,081 ------- ------- ------- ------- Net income....................... $ 5,128 $ 1,848 $ 13,956 $ 31,795 ======= ======= ======= ======= Net income per share - basic......... $ .20 $ .07 $ .54 $ 1.22 ======= ======= ======= ======= Net income per share - diluted....... $ .20 $ .07 $ .54 $ 1.19 ======= ======= ======= ======= Dividends per share.................. $ - $ .01375 $ .04125 $ .04125 ======= ======= ======= =======
The accompanying notes are an integral part of these statements. 5 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine months ended October 31, 2002 2001* ---- ---- Cash flows provided (used) by operating activities: Net income........................................... $ 13,956 $ 31,795 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest.............................. 62 1,081 Depreciation and amortization.................. 18,322 23,192 Deferred income taxes.......................... 480 (413) Loss on disposal of assets..................... 386 219 Changes in: Accounts receivable...................... (2,761) 27,153 Inventories.............................. 11,613 10,159 Other current assets..................... (225) (471) Accounts payable......................... 4,948 (20,355) Accrued liabilities...................... (808) (4,739) Income taxes payable..................... 10,069 (4,125) Other current liabilities................ (427) (1,098) Other liabilities........................ (919) (2,415) Other assets............................. (3,892) (201) Other, net..................................... (2,629) (263) ------- ------- Net cash provided by operating activities................ 48,175 59,519 ------- ------- Cash flows provided (used) by investing activities: Acquisition of property, plant and equipment......... (5,267) (22,473) Proceeds from disposal of property, plant and equipment..................................... 648 38 ------- ------- Net cash used by investing activities.................... (4,619) (22,435) ------- ------- Cash flows provided (used) by financing activities: Repayment of debt.................................... (34,611) (43,632) Proceeds from new borrowings......................... - 11,786 Financing cost of long-term debt..................... (118) - Proceeds from issuance of common stock, net.......... 524 1,439 Purchase of treasury stock........................... (8,393) (7,427) Payment of common stock dividends.................... (1,426) (1,441) Payment of minority interest dividends............... (94) - ------- ------- * Reclassified for comparative purposes. The accompanying notes are an integral part of these statements. 6 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Dollars in thousands) (Unaudited) Nine months ended October 31, 2002 2001* ---- ---- Net cash used by financing activities............. (44,118) (39,275) ------- ------- Effect of exchange rate changes on cash........... 159 (17) ------- ------- Decrease in cash and cash equivalents............. (403) (2,208) Cash and cash equivalents at beginning of period...................................... 8,781 7,709 ------- ------- Cash and cash equivalents at end of period........ $ 8,378 $ 5,501 ======= ======= SCHEDULE OF NON CASH INVESTING AND FINANCIAL ACTIVITIES Decrease in property, plant, and equipment acquisitions in accounts payable............................... $ (917) $ (4,435) ======= ======= Fair market value of treasury stock issued to pension plans........................ $ 1,625 $ - ======= ======= * Reclassified for comparative purposes. The accompanying notes are an integral part of these statements. 7 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited)
Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Net income............................................... $ 5,128 $ 1,848 $13,956 $31,795 Other comprehensive (expense) income, net of tax: Cumulative effect of accounting change................. - - - (103) Net unrealized loss on derivative instruments.......... (121) (1,016) (188) (1,491) Foreign currency translation adjustments............... 92 947 2,988 174 ------ ------ ------ ------ Total comprehensive income............................... $ 5,099 $ 1,779 $16,756 $30,375 ====== ====== ====== ======
The accompanying notes are an integral part of these statements. 8 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (UNAUDITED) 1. INTERIM STATEMENTS The accompanying interim consolidated financial statements of C&D Technologies, Inc. (together with its operating subsidiaries, the "Company") should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report to Stockholders for the fiscal year ended January 31, 2002. The January 31, 2002 amounts were derived from the Company's audited financial statements. The consolidated financial statements presented herein are unaudited but, in the opinion of management, include all necessary adjustments (which comprise only normal recurring items) required for a fair presentation of the consolidated financial position as of October 31, 2002 and the related consolidated statements of income and comprehensive income for the three and nine month periods ended October 31, 2002 and 2001 and the related consolidated statements of cash flow for the nine months ended October 31, 2002 and 2001. However, interim results of operations may not be indicative of results for the full fiscal year. 2. NEW ACCOUNTING PRONOUNCEMENTS On February 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets. As required by SFAS No. 142, the Company discontinued amortizing the remaining balance of goodwill. All remaining and future acquired goodwill will be subject to an annual impairment test (or more frequently if impairment indicators arise), using a fair value-based approach. Other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30. In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting requirements for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently in the process of evaluating the impact SFAS No. 143 will have on its financial position and results of operations, if any. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses the recognition, measurement and reporting of costs associated with exit or disposal activities, and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements for recognition of a liability for a disposal activity, (including those related to employee termination benefits and obligations under operating leases and other contracts), be recognized when the liability is incurred, and not necessarily the date of an entity's commitment to an exit plan, as under EITF No. 94-3. SFAS No. 146 also establishes that the initial measurement of a liability recognized under SFAS No. 146 be based on fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. 9 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (UNAUDITED) 3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS Goodwill: In conjunction with the implementation of SFAS No. 142, the Company has completed the transitional goodwill impairment test as of February 1, 2002 and has determined that no impairment to goodwill existed. Net income and net income per common share adjusted to exclude goodwill amortization is as follows:
Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Reported net income...................... $5,128 $1,848 $13,956 $31,795 Goodwill amortization, net of tax........ - 1,106 - 3,062 ----- ----- ------ ------ Adjusted net income...................... $5,128 $2,954 $13,956 $34,857 ===== ===== ====== ====== Reported net income per common share - basic.................... $ .20 $ .07 $ .54 $ 1.22 Goodwill amortization, net of tax........ - .04 - .11 ----- ----- ------ ------ Adjusted net income per common share - basic.................... $ .20 $ .11 $ .54 $ 1.33 ===== ===== ====== ====== Reported net income per common share - diluted.......... $ .20 $ .07 $ .54 $ 1.19 Goodwill amortization, net of tax........ - .04 - .11 ----- ----- ------ ------ Adjusted net income per common share - diluted.................. $ .20 $ .11 $ .54 $ 1.30 ===== ===== ====== ======
10 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (UNAUDITED) 3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (continued) During the nine months ended October 31, 2002, no goodwill was acquired, impaired or written off. Goodwill by operating segment was adjusted as follows:
Power Motive Powercom Dynasty Electronics Power Total -------- ------- ----------- ----- ----- Goodwill, January 31, 2002........................... $1,376 $57,939 $47,551 $493 $107,359 Assembled workforce reclassified..................... - - 879 - 879 Effect of exchange rate changes on goodwill.......... 3 117 4,576 1 4,697 ----- ------ ------ --- ------- Goodwill, October 31, 2002........................... $1,379 $58,056 $53,006 $494 $112,935 ===== ====== ====== === =======
Identified Intangible Assets: During the nine months ended October 31, 2002, no acquisition-related intangibles were acquired, impaired or written off. Identified intangible assets as of October 31, 2002 consisted of the following: Accumulated Gross Assets Amortization Net ------------ ------------ --- Trade names................. $17,840 $(3,271) $14,569 Intellectual property....... 7,738 (5,306) 2,432 Other....................... 2,407 (959) 1,448 ------ ------ ------ Total intangible assets..... $27,985 $(9,536) $18,449 ====== ====== ====== Identified intangible assets as of January 31, 2002 consisted of the following: Accumulated Gross Assets Amortization Net ------------ ------------ --- Trade names................. $17,840 $(2,602) $15,238 Intellectual property....... 7,601 (4,706) 2,895 Other....................... 3,675 (1,251) 2,424 ------ ------ ------ Total intangible assets..... $29,116 $(8,559) $20,557 ====== ====== ====== Based on intangibles recorded at October 31, 2002, the annual amortization expense is expected to be as follows (assuming current exchange rates): 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- Trade names................. $ 892 $ 892 $ 892 $ 892 $ 892 Intellectual property....... 775 775 411 358 183 Other....................... 128 128 79 76 35 ----- ----- ----- ----- ----- Total intangible assets..... $1,795 $1,795 $1,382 $1,326 $1,110 ===== ===== ===== ===== ===== Amortization of identified intangibles was $1,346 for the nine months ended October 31, 2002. 11 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (UNAUDITED) 4. INVENTORIES Inventories consisted of the following: October 31, January 31, 2002 2002 ---- ---- Raw materials............................ $19,682 $26,202 Work-in-progress......................... 11,035 12,830 Finished goods........................... 19,954 22,642 ------ ------ $50,671 $61,674 ====== ====== 5. INCOME TAXES A reconciliation of the provision for income taxes from the statutory rate to the effective rate is as follows: Nine months ended October 31, 2002 2001 ---- ---- U.S. statutory income tax....................... 35.0% 35.0% State tax, net of federal income tax benefit.... 1.7 2.4 Foreign sales corporation....................... - (0.3) Tax effect of foreign operations................ (0.3) 0.4 Research and development credit................. - (0.1) Other........................................... 0.3 (0.4) ---- ---- 36.7% 37.0% ==== ==== 6. NET INCOME PER COMMON SHARE Net income per share - basic for the three and nine month periods ended October 31, 2002 and 2001 is based on the weighted average number of shares of Common Stock outstanding. Net income per share - diluted reflects the potential dilution that could occur if stock options were exercised. Weighted average common shares and common shares - diluted were as follows:
Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Weighted average shares of common stock outstanding................................... 25,670,645 26,178,156 25,851,493 26,166,802 Assumed exercise of stock options, net of shares assumed reacquired............................ 128,409 323,749 218,644 604,906 ---------- ---------- ---------- ---------- Weighted average common shares - diluted.............................. 25,799,054 26,501,905 26,070,137 26,771,708 ========== ========== ========== ==========
12 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) (UNAUDITED) 7. CONTINGENT LIABILITIES Environmental: The Company is subject to extensive and evolving environmental laws and regulations regarding the clean up and protection of the environment, worker health and safety and the protection of third parties. These laws and regulations include, but are not limited to: (i) requirements relating to the handling, storage, use and disposal of lead and other hazardous materials used in manufacturing processes and solid wastes; (ii) record keeping and periodic reporting to governmental entities regarding the use of hazardous substances and disposal of hazardous wastes; (iii) monitoring and permitting of air and water emissions; and (iv) monitoring worker exposure to hazardous substances in the workplace, and protecting workers from impermissible exposure to hazardous substances, including lead, used in the Company's manufacturing process. Notwithstanding the Company's efforts to maintain compliance with applicable environmental requirements, if injury or damage to persons or the environment arises from hazardous substances used, generated or disposed of in the conduct of the Company's business (or that of a predecessor to the extent the Company is not indemnified therefor), the Company may be held liable for certain damages and for the costs of investigation and remediation, which could have a material adverse effect on the Company's business, financial condition or results of operations. However, under the terms of the purchase agreement with Allied Corporation ("Allied") for the acquisition of the Company (the "Acquisition Agreement"), Allied was obligated to indemnify the Company for any liabilities of this type resulting from conditions existing at January 28, 1986 that were not disclosed by Allied to the Company in the schedules to the Acquisition Agreement. These obligations have since been assumed by Allied's successor in interest, Honeywell ("Honeywell"). The Company, along with numerous other parties, has been requested to provide information to the United States Environmental Protection Agency (the "EPA") in connection with investigations of the source and extent of contamination at three lead smelting facilities (the "Third Party Facilities") to which the Company had made scrap lead shipments for reclamation prior to the date of the acquisition. The Company and four other potentially responsible parties ("PRPs") agreed upon a cost sharing arrangement for the design and remediation phases of a project related to one of the Third Party Facilities, the former NL Industries site in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs identified and sued additional PRPs for contribution. In April 2002 one of the original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter 11 of Title 11 of the United States Code. On August 6, 2002, Exide notified the PRPs that it will no longer be taking an active role in any further action at the site and discontinued its financial participation. This resulted in a pro rata increase in the liabilities of the other PRPs, including the Company. The Company also responded to requests for information from the EPA and the state environmental agency with regard to another Third Party Facility, the "Chicago Site," in October 1991. In August 2002, the Company was notified of its involvement as a PRP at the NL Atlanta, Northside Drive Superfund site. The Company is currently reviewing information regarding its involvement at this site. Allied and/or Honeywell has accepted responsibility under the Acquisition Agreement for potential liabilities relating to all third party facilities other than the aforementioned sites. 13 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) (UNAUDITED) 7. CONTINGENT LIABILITIES (continued) The Company is also aware of the existence of contamination at its Huguenot, New York facility, which is expected to require expenditures for further investigation and remediation. The site is listed by the New York State Department of Environmental Conservation ("NYSDEC") on its registry of inactive hazardous waste disposal sites due to the presence of fluoride and other contamination in amounts that exceed state groundwater standards. The prior owner of the site is expected to ultimately bear some, as yet undetermined, share of the costs associated with this matter for contamination in place at the time the Company acquired the property. The NYSDEC has issued a Record of Decision for the soil remediation portion of this site. However, a final remediation plan for the ground water portion has not yet been finalized with or approved by the State of New York. The Company, together with Johnson Controls, Inc. ("JCI"), is conducting an assessment and remediation of contamination at the Company's Dynasty Division facility in Milwaukee, Wisconsin. The majority of this project was completed as of October 2001. Under the purchase agreement with JCI, the Company is responsible for (i) one-half of the cost of the on-site assessment and remediation, with a maximum liability of $1,750, (ii) any environmental liabilities at the facility that are not remediated as part of the current project and (iii) environmental liabilities for claims made after the fifth anniversary of the closing, i.e. March 2004, that arise from migration from a pre-closing condition at the Milwaukee facility to locations other than the Milwaukee facility, but specifically excluding liabilities relating to pre-closing offsite disposal. JCI has retained all other environmental liabilities, including off-site assessment and remediation. In January 1999, the Company received notification from the EPA of alleged violations of permit effluent and pretreatment discharge limits at its plant in Attica, Indiana. The Company submitted a compliance plan to the EPA in April 2002. The Company is in active negotiations with both the EPA and Department of Justice regarding a potential resolution of this matter, which is likely to result in a penalty assessment. The Company accrues reserves for liabilities in the Company's consolidated financial statements and periodically reevaluates the reserved amounts for these liabilities in view of the most current information available in accordance with SFAS No. 5. Based on currently available information, management of the Company believes that appropriate reserves have been established with respect to the foregoing contingent liabilities and that they are not expected to have a material adverse effect on the Company's business, financial condition or results of operations. 14 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) (UNAUDITED) 8. OPERATIONS BY INDUSTRY SEGMENT The Company has the following four reportable business segments: The Powercom Division manufactures and markets integrated reserve power systems and components for the standby power market, which includes telecommunications, uninterruptible power supplies and utilities. Integrated reserve power systems monitor and regulate electric power flow and provide backup power in the event of a primary power loss or interruption. The Powercom Division also produces the individual components of these systems, including reserve batteries, power rectifiers, system monitors, power boards and chargers. The Dynasty Division manufactures and markets industrial batteries primarily for the uninterruptible power supply, telecommunications and cable markets. Major applications of these products include wireless and wireline telephone infrastructure, CATV signal powering, corporate data center powering and computer network back-up for use during power utility outages. The Power Electronics Division manufactures and markets custom, standard and modified-standard electronic power supply systems, including DC to DC converters, for large original equipment manufacturers ("OEMs") of telecommunications equipment, office products, computers and industrial applications. The Motive Power Division manufactures complete systems and individual components (including power electronics and batteries) to power, monitor, charge and test the batteries used in electric industrial vehicles, including fork-lift trucks, automated guided vehicles and airline ground support equipment. These products are marketed to end users in a broad array of industries, dealers of fork-lift trucks and other material handling vehicles, and, to a lesser extent, OEMs. Summarized financial information related to the Company's business segments for the three and nine months ended October 31, 2002 and 2001 is shown below:
Power Motive Powercom Dynasty Electronics Power Division Division Division Division Consolidated -------- -------- ----------- -------- ------------ Three months ended October 31, 2002: Net sales................................ $ 38,009 $23,460 $12,265 $13,903 $ 87,637 Operating income (loss).................. $ 6,340 $ 3,929 $ 181 $(1,058) $ 9,392 Three months ended October 31, 2001: Net sales................................ $ 51,009 $27,431 $10,785 $13,280 $102,505 Operating income (loss).................. $ 9,622 $ 2,564 $(5,105) $(1,397) $ 5,684 Nine months ended October 31, 2002: Net sales................................ $110,165 $67,570 $37,601 $40,655 $255,991 Operating income (loss).................. $ 17,650 $10,339 $ 757 $(3,253) $ 25,493 Nine months ended October 31, 2001: Net sales................................ $194,607 $89,574 $51,068 $48,132 $383,381 Operating income (loss).................. $ 49,667 $13,499 $(4,733) $ (66) $ 58,367
15 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) (UNAUDITED) 9. DERIVATIVE INSTRUMENTS The following table includes all interest rate swaps as of October 31, 2002 and January 31, 2002. These interest rate swaps are designated as cash flow hedges and, therefore, changes in the fair value, net of tax, are recorded in accumulated other comprehensive loss. Fixed Variable Fair Fair Interest Interest Value Value Notional Origination Maturity Rate Rate At At Amount Date Date Paid Received 10/31/02 1/31/02 -------- ----------- -------- -------- -------- -------- ------- $ 6,500 12/20/95 12/20/02 6.01% LIBOR $ - $ (240) 20,000 03/11/99 03/11/02 5.58% LIBOR - (77) 20,000 02/05/01 03/01/03 5.24% LIBOR (237) (783) 20,000 04/11/01 04/11/06 5.56% LIBOR (1,888) (735) ------- ------- $(2,125) $(1,835) ======= ======= The Company does not invest in derivative securities for speculative purposes, but does enter into hedging arrangements in order to reduce its exposure to fluctuations in interest rates as well as to fluctuations in exchange rates. The Company applies hedge accounting in accordance with SFAS No. 133, whereby the Company designates each derivative as a hedge of (i) the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge); or (ii) the variability of anticipated cash flows of a forecasted transaction or the cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge). From time to time, however, the Company may enter into derivatives that economically hedge certain of its risks, even though hedge accounting is not allowed by SFAS No. 133 or is not applied by the Company. In these cases, there generally exists a natural hedging relationship in which changes in fair value of the derivative, which are recognized currently in earnings, act as an economic offset to changes in the fair value of the underlying hedged item(s). The Company did not apply hedge accounting to currency forward contracts with a combined fair value of $(434)and $(34) as of October 31, 2002 and January 31, 2002. Changes in the fair value of these currency forward contracts are recorded in earnings. 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of C&D Technologies, Inc.: We have reviewed the accompanying consolidated balance sheet of C&D Technologies, Inc. and its subsidiaries (the "Company") as of October 31, 2002, and the related consolidated statements of income and comprehensive income for each of the three-month and nine-month periods ended October 31, 2002 and 2001, and the consolidated statement of cash flows for the nine-month periods ended October 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of January 31, 2002, and the related consolidated statements of income, stockholders' equity, cash flows, and comprehensive income for the year then ended (not presented herein), and in our report dated March 5, 2002 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of January 31, 2002, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP Philadelphia, PA November 20, 2002 17 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Within the following discussion, unless otherwise stated, "quarter" and "nine-month period", refer to the third quarter of fiscal 2003 and the nine months ended October 31, 2002. All comparisons are with the corresponding periods in the prior year, unless otherwise stated. Net sales decreased $14,868 or 15% for the quarter and $127,390 or 33% for the nine-month period. Sales of the Powercom Division decreased $13,000 or 25% during the quarter, mainly due to lower demand from the telecommunications and UPS markets. Reduced levels of capital spending in these sectors have continued to affect sales. Sales by the Dynasty Division declined $3,971 or 14% during the quarter, due to lower sales to the UPS and telecommunications markets, partially offset by increased sales to the cable market. Reduced demand for our sealed products has continued to affect this division. Over 60% of the Dynasty Division's quarterly sales were to the UPS market, which continues to be affected by a general business slowdown. Sales to the cable industry were up substantially over last year, and there appears to be an increase in demand within both the cable and broadband markets. These other divisional decreases were offset by increased sales in the Power Electronics and Motive Power divisions. The sales increase in the Power Electronics Division was primarily due to increased DC to DC converter sales. In the Motive Power Division, the sales increase resulted from higher battery sales, partially offset by lower charger sales. The decrease in net sales for the nine-month period resulted from lower customer demand for products of all divisions. Sales of the Powercom Division decreased $84,442 or 43% during the nine-month period, mainly due to lower demand from the telecommunications and UPS markets. Sales by the Dynasty Division declined $22,004 or 25% during the nine-month period, due to lower sales to the telecommunications and UPS markets, partially offset by increased sales to the mobility and cable markets. Motive Power divisional sales decreased $7,477 or 16% during the nine-month period, primarily consisting of lower battery and charger sales. Power Electronics divisional sales decreased $13,467 or 26% during the nine-month period, primarily due to a decline in DC to DC converter sales to key telecommunications customers. We have been actively quoting business in the DC to DC and AC to DC markets but design wins have not yet resulted in significant sales. Gross profit for the quarter decreased $1,302 or 6% to $20,808 from $22,110 in the same quarter of the prior year while gross margins increased from 21.6% to 23.7% in the third quarter of fiscal 2003. Gross profit during the quarter was lower in the Powercom and Dynasty divisions, primarily as a result of lower sales. Gross profit in the Motive Power and Power Electronics divisions increased in the quarter, primarily as a result of higher sales, coupled with an inventory-related charge in our Power Electronics Division in the comparable period of the prior year. Gross profit for the nine-month period decreased $45,996 or 44% to $59,656 from $105,652 in the prior year while gross margins decreased from 27.6% to 23.3%. Gross profit was lower in the nine-month period in the Powercom, Dynasty and Motive Power divisions primarily as a result of lower sales volumes, coupled with plant operational difficulties in the Motive Power Division. Gross profit in the Power Electronics Division increased on lower sales due to the aforementioned inventory-related charge in the comparable period of the prior year. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Dollars in thousands, except per share data) Selling, general and administrative ("SG&A") expenses for the third quarter of fiscal 2003 decreased $5,010 or 36%. This decrease was primarily due to: (i) costs recorded in the third quarter of fiscal 2002 related to a potential acquisition that did not close; (ii) the implementation of SFAS No. 142 in the current year, which discontinued the amortization of goodwill; and (iii) lower variable selling costs associated with decreased sales volumes. The decrease in SG&A expenses for the three-month period was partially offset by higher Motive Power warranty expenses. SG&A expenses for the nine-month period decreased $12,582 or 32% due to: (i) lower variable selling costs associated with the decreased sales volumes; (ii) the implementation of SFAS No. 142 in the current year; (iii) costs recorded in the prior year related to the aforementioned potential acquisition that did not close; and (iv) lower payroll-related expenses. This decrease was partially offset by the positive effect of the full recovery of certain litigation and settlement costs from one of our insurance carriers during the first quarter of fiscal 2002. Research and development expenses were $2,461 in both the third quarter of fiscal 2003 and the third quarter of fiscal 2002. As a percentage of sales, research and development expenses increased from 2% in the third quarter of fiscal 2002 to 3% in the third quarter of fiscal 2003 as a result of lower sales volumes. For the nine-month period, research and development expenses decreased $540 or 7%, primarily as a result of lower spending by the Power Electronics and Powercom divisions. As a percentage of sales, research and development expenses increased from 2% in the first nine months of fiscal 2002 to 3% in the first nine months of fiscal 2003 as a result of lower sales volumes. Operating income for the quarter increased $3,708 or 65% to $9,392 from $5,684 in the third quarter of the prior year. This increase resulted from higher operating income generated by the Dynasty Division, operating income in the Power Electronics Division (compared to an operating loss in the third quarter of fiscal 2002) and a lower operating loss in the Motive Power Division. The Powercom Division recorded lower operating income in the third quarter of fiscal 2003. For the nine-month period, operating income decreased $32,874 or 56% to $25,493 from $58,367 in the nine months ended October 31, 2001. This decrease was the result of lower operating income generated by the Powercom and Dynasty divisions coupled with a larger operating loss generated by the Motive Power Division, partially offset by operating income generated by the Power Electronics Division (compared to an operating loss in the comparable period of the prior year). We continue to see no significant near-term improvement in the financial performance of the Power Electronics Division. Although the Motive Power Division operated at a loss in the quarter, we are increasingly optimistic that the operational issues have been corrected and we expect the Motive Power business to generate improved results in the fourth quarter. Interest expense, net, decreased $619 in the quarter and $2,371 in the nine-month period, primarily due to lower average debt balances outstanding, coupled with lower effective interest rates. Income tax expense for the quarter increased $1,701 as a result of higher income before income taxes, partially offset by a lower effective tax rate. For the nine-month period, income tax expense decreased $11,181 due to lower income before income taxes, coupled with a lower effective tax rate. The effective tax rate consists of statutory rates adjusted for the tax impact of our foreign sales corporation, research and development credits and foreign operations. The effective tax rate for the third quarter of fiscal 2003 was 36.2% compared to 37.0% in the third quarter of the prior fiscal year. For the nine-month period, the effective tax rate was 36.7% compared to 37.0% in the comparable period of the prior year. Minority interest decreased $206 in the quarter and $1,019 in the nine-month period, primarily due to lower income recorded by the Shanghai, China joint venture. Minority interest reflects the 33% ownership of the joint venture that is not owned by C&D. As a result of the above, net income increased $3,280 or 177% in the third quarter of fiscal 2003 to $5,128 or 20 cents per share - basic and diluted. For the nine-month period, net income decreased $17,839 or 56% to $13,956 or 54 cents per share - basic and diluted. Based on our cost containment initiatives and a business environment that appears to have bottomed, we anticipate our fourth quarter earnings to be comparable to those of the third quarter. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Dollars in thousands, except per share data) Liquidity and Capital Resources Net cash provided by operating activities decreased $11,344 or 19% to $48,175 for the nine-month period ended October 31, 2002, compared to $59,519 for the same period of the prior year. This decrease in net cash provided by operating activities was primarily due to: (i) an increase in accounts receivable during the nine months ended October 31, 2002 versus a decrease in the comparable period of the prior year (due to the slowdown in business that occurred in the prior year); (ii) a decrease in net income; (iii) a decrease in deprecation and amortization (primarily due to the implementation of SFAS No. 142 in the current year); and (iv) a larger increase in other assets (primarily due to additional pension plan funding of approximately $5,000 in cash ). These changes, resulting in lower net cash provided by operating activities, were partially offset by: (i) an increase in accounts payable during the nine months ended October 31, 2002 versus a decrease in the comparable period of the prior year (due to the slowdown in business that occurred in the prior year); and (ii) an increase in current taxes payable versus a decrease in the prior year. Net cash used by investing activities decreased $17,816 or 79% to $4,619 in the nine months ended October 31, 2002 compared to $22,435 in the same period of the prior year, primarily due to lower capital spending. Net cash used by financing activities increased $4,843 or 12% to $44,118 in the first nine months of fiscal 2003 compared to $39,275 in the prior year. This increase was due to having no proceeds from new borrowings in the current year as compared to $11,786 in the prior year, partially offset a decrease in the reduction of long-term debt. New borrowings in fiscal 2002 related to a 22 million British Pound Sterling line of credit, the proceeds of which were used to pay down debt denominated in U.S. Dollars. The availability under our current loan agreement is expected to be sufficient to meet our ongoing cash needs for working capital requirements, debt service, capital expenditures and possible strategic acquisitions. This loan agreement contains restrictive covenants that require us to maintain minimum ratios such as fixed charge coverage and leverage ratios, as well as minimum consolidated net worth. We were in compliance with our loan agreement covenants at October 31, 2002. Capital expenditures during the first nine months of fiscal 2003 were incurred to fund a continuing series of cost reduction programs, normal maintenance and regulatory compliance. Total fiscal 2003 capital expenditures are expected to be approximately $7,000 for similar purposes. We intend to continue making prudent purchases of our Company stock, paying down debt and selectively pursuing complementary acquisitions. Strategic acquisition opportunities will be expected to enhance C&D's long-term competitive position and growth prospects and may require external financing. We cannot assure, however, that we will close on any such acquisitions. During the third quarter, we contributed 100,000 shares of C&D stock into our defined benefit pension plan and contributed an additional $5,000 in cash. We expect to contribute a comparable amount of additional cash and/or stock by the end of the current calendar year. Our bank loan agreement permits quarterly dividends to be paid on our Common Stock as long as there is no default under that agreement. Subject to that restriction and the provisions of Delaware law, our Board of Directors currently intends to continue paying quarterly dividends. We cannot assure you that we will continue to do so since future dividends will depend on our earnings, financial condition and other factors. During the second quarter of fiscal 2002, quarterly dividends were declared twice: once in May for payment in July and once in July for payment in October. There was not a quarterly dividend declaration during the third quarter of fiscal 2003. A regular quarterly dividend was declared on November 19, 2002. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Dollars in thousands, except per share data) NEW ACCOUNTING PRONOUNCEMENTS On February 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets. As required by SFAS No. 142, we discontinued amortizing the remaining balance of goodwill. All remaining and future acquired goodwill will be subject to an annual impairment test (or more frequently if impairment indicators arise), using a fair value-based approach. Other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30. In conjunction with the implementation of SFAS No. 142, we have completed the transitional goodwill impairment test as of February 1, 2002 and have determined that no impairment to goodwill existed. Net income and net income per common share adjusted to exclude goodwill amortization is as follows:
Three months ended Nine months ended October 31, October 31, 2002 2001 2002 2001 ---- ---- ---- ---- Reported net income...................... $5,128 $1,848 $13,956 $31,795 Goodwill amortization, net of tax........ - 1,106 - 3,062 ----- ----- ------ ------ Adjusted net income...................... $5,128 $2,954 $13,956 $34,857 ===== ===== ====== ====== Reported net income per common share - basic.................... $ .20 $ .07 $ .54 $ 1.22 Goodwill amortization, net of tax........ - .04 - .11 ----- ----- ------ ------ Adjusted net income per common share - basic.................... $ .20 $ .11 $ .54 $ 1.33 ===== ===== ====== ====== Reported net income per common share - diluted.......... $ .20 $ .07 $ .54 $ 1.19 Goodwill amortization, net of tax........ - .04 - .11 ----- ----- ------ ------ Adjusted net income per common share - diluted.................. $ .20 $ .11 $ .54 $ 1.30 ===== ===== ====== ======
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting requirements for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We are currently in the process of evaluating the impact SFAS No. 143 will have on our financial position and results of operations, if any. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Dollars in thousands, except per share data) In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses the recognition, measurement, and reporting of costs associated with exit or disposal activities, and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS No. 146 and EITF No. 94-3 relates to the requirements for recognition of a liability for a disposal activity, (including those related to employee termination benefits and obligations under operating leases and other contracts), be recognized when the liability is incurred, and not necessarily the date of an entity's commitment to an exit plan, as under EITF No. 94-3. SFAS No. 146 also establishes that the initial measurement of a liability recognized under SFAS No. 146 be based on fair value. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. FORWARD-LOOKING STATEMENTS Certain of the statements and information contained in this Quarterly Report on Form 10-Q, are "forward-looking statements" (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and, accordingly, are subject to risks and uncertainties. For such statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Act of 1995. The factors that could cause actual results to differ materially from anticipated results expressed or implied in any forward-looking statement include those referenced in the forward-looking statement, following the forward-looking statement, described in the notes to the Consolidated Financial Statements and other factors discussed in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. Forward-looking statements may be identified by their use of words like "plans," "expects," "will," "anticipates," "intends," "projects," "estimates," "believes" or other words of similar meaning. All statements that address expectations or projections about the future, including, but not limited to, statements about our strategy for growth, product development, market position, market conditions, expenditures and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. We cannot guarantee that these assumptions and expectations are accurate or will be realized. Following are some of the important factors that could cause our actual results to differ materially from those projected in any such forward-looking statements: o We operate worldwide and derive a portion of our revenue from sales outside the United States. Changes in the laws or policies of governmental and quasi-governmental agencies, as well as social and economic conditions, in the countries in which we operate could affect our business in these countries and our results of operations. In addition, economic factors (including inflation and fluctuations in interest rates and foreign currency exchange rates) and competitive factors (such as price competition, business combinations of competitors or a decline in industry sales from slowing economic growth) both in the United States and other countries in which we conduct business could affect our results of operations. o Our results of operations could be significantly impacted by adverse conditions in the domestic and global economies or the markets in which we conduct business, such as telecommunications, UPS, CATV, switchgear and control and material handling. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (Dollars in thousands, except per share data) FORWARD-LOOKING STATEMENTS (continued) o Our ability to grow earnings could be affected by increases in the cost of raw materials, particularly lead. We may not be able to fully offset the effects of higher raw material costs through price increases or productivity improvements. o Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of parts and components from our suppliers and internal manufacturing capacity. Although we work closely with our suppliers to avoid shortages, there can be no assurance that we will not encounter shortages in the future. A reduction or interruption in component supply or a significant increase in the price of one or more components could have a material adverse effect on our operations. o Our growth objectives are largely dependent on our ability to renew our pipeline of new products and to bring these products to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to: identify viable new products; successfully complete research and development projects; obtain adequate intellectual property protection; or gain market acceptance of the new products. Our growth could also be affected by new competitive products and technologies. o As part of our strategy for growth, we have made and may continue to make acquisitions, and in the future, may make divestitures and form strategic alliances. There can be no assurance that these will be completed or beneficial to us. o Our facilities are subject to a broad array of environmental laws and regulations. The costs of complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. Our accruals for such costs and liabilities may not be adequate since the estimates on which the accruals are based depend on a number of factors including, but not limited to, the nature of the problem, the complexity of the site, the nature of the remedy, the outcome of discussions with regulatory agencies and other PRPs at multiparty sites, the number and financial viability of other PRPs and risks associated with litigation. o We are exposed to the credit risk of some of our customers including risk of insolvency and bankruptcy. Although we have programs in place to monitor and mitigate the associated risk, there can be no assurance that such programs will be effective in reducing our credit risks. o Our business, results of operations and financial condition could be affected by significant pending and future litigation adverse to us, such as, without limitation, product liability, contract and employment-related claims and claims arising from any injury or damage to persons or the environment from hazardous substances used, generated or disposed of in the conduct of our business (or that of a predecessor to the extent we are not indemnified for those liabilities). o Our performance depends on our ability to attract and retain qualified personnel. We cannot assure that we will be able to continue to attract and retain qualified personnel. The foregoing list of important factors is not all-inclusive, or necessarily in order of importance. 23 Item 3. Quantitative and Qualitative Disclosure About Market Risk We are exposed to various market risks. The primary financial risks include fluctuations in interest rates and changes in currency exchange rates. We manage these risks by using derivative instruments. We do not invest in derivative securities for speculative purposes, but do enter into hedging arrangements in order to reduce our exposure to fluctuations in interest rates as well as to fluctuations in exchange rates. Our financial instruments subject to interest rate risk consist of debt instruments and interest rate swap contracts. The debt instruments are subject to variable rate interest, and therefore the market value is not sensitive to interest rate movements. Interest rate swap contracts are used to manage our exposure to fluctuations in interest rates on our underlying variable rate debt instruments. Additional disclosure regarding our various market risks are set forth in our fiscal 2002 Form 10-K filed with the Securities and Exchange Commission. Item 4. Controls and Procedures Under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) within 90 days of the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in these controls requiring corrective actions. 24 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Amended and Restated By-laws of C&D Technologies, Inc. (filed herewith). 10.1 Employee Separation Agreement dated September 24, 2002 between Kathryn Bullock and C&D (filed herewith). 10.2 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and William Harral, III (filed herewith). 10.3 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Wade H. Roberts, Jr. (filed herewith). 10.4 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Peter R. Dachowski (filed herewith). 10.5 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Kevin P. Dowd (filed herewith). 10.6 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Robert I. Harries (filed herewith). 10.7 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Pamela S. Lewis (filed herewith). 10.8 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and George MacKenzie (filed herewith). 10.9 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and John A.H. Shober (filed herewith). 10.10 First Amendment dated June 12, 2002 to the C&D Technologies Savings Plan, as restated and amended (filed herewith). 10.11 Second Amendment dated November 20, 2002 to the C&D Technologies Savings Plan, as restated and amended (filed herewith). 15. Letter from PricewaterhouseCoopers LLP, independent accountants for C&D, regarding unaudited interim financial information (filed herewith). 99.1 Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.2 Certification of the Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 25 SIGNATURES ------------------- Pursuant to the requirements 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. December 13, 2002 BY: /s/ Wade H. Roberts, Jr. --------------------------------- Wade H. Roberts, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) December 13, 2002 BY: /s/ Stephen E. Markert, Jr. ---------------------------------- Stephen E. Markert, Jr. Vice President Finance (Principal Financial and Accounting Officer) CERTIFICATION ------------- I, Wade H. Roberts, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of C&D Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in the internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: December 13, 2002 /s/ Wade H. Roberts, Jr. ------------------ ----------------------------- Wade H. Roberts, Jr. President and Chief Executive Officer (Principal Executive Officer) 26 CERTIFICATION ------------- I, Stephen E. Markert, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of C&D Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in the internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. Date: December 13, 2002 /s/ Stephen E. Markert, Jr. ------------------ ----------------------------- Stephen E. Markert, Jr. Vice President Finance (Principal Financial and Accounting Officer) 27 EXHIBIT INDEX 3.1 Amended and Restated By-laws of C&D Technologies, Inc. 10.1 Employee Separation Agreement dated September 24, 2002 between Kathryn Bullock and C&D. 10.2 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and William Harral, III. 10.3 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Wade H. Roberts, Jr. 10.4 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Peter R. Dachowski. 10.5 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Kevin P. Dowd. 10.6 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Robert I. Harries. 10.7 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Pamela S. Lewis. 10.8 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and George MacKenzie. 10.9 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and John A.H. Shober. 10.10 First Amendment dated June 12, 2002 to the C&D Technologies Savings Plan, as restated and amended. 10.11 Second Amendment dated November 20, 2002 to the C&D Technologies Savings Plan, as restated and amended. 15. Letter from PricewaterhouseCoopers LLP, independent accountants for C&D, regarding unaudited interim financial information. 99.1 Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of the Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 28