-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EN2WigxkWN9ANlqTE7wPFSieaCmV/tWyVq3kQ+kjvyh9GrDf+1Dg1HRJS3L25kvL bxCae+9MbC+ckukQSWjEog== 0000808064-03-000070.txt : 20030418 0000808064-03-000070.hdr.sgml : 20030418 20030418160828 ACCESSION NUMBER: 0000808064-03-000070 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C&D TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808064 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 133314599 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09389 FILM NUMBER: 03655864 BUSINESS ADDRESS: STREET 1: 1400 UNION MEETING ROAD STREET 2: PO BOX 3053 CITY: BLUE BELL STATE: PA ZIP: 19422 BUSINESS PHONE: 2156192700 MAIL ADDRESS: STREET 1: 1400 UNION MEETING ROAD STREET 2: PO BOX 3053 CITY: BLUE BELL STATE: PA ZIP: 19422 10-K 1 fy0310k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2003 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-9389 C&D TECHNOLOGIES, INC. (Exact name of Registrant as specified in its Charter) State or other jurisdiction of incorporation or organization: Delaware I.R.S. Employer Identification Number: 13-3314599 Address of principal executive offices: 1400 Union Meeting Road Blue Bell, Pennsylvania 19422 Registrant's telephone number, including area code: (215) 619-2700 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of each exchange -------------- on which registered Common Stock, --------------------- par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K |_| Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes |X| No |_| Aggregate market value of the voting stock held by nonaffiliates of the Registrant, based on the closing price on July 31, 2002: $393,365,732 Number of shares outstanding of each of the Registrant's classes of common stock as of April 4, 2003: 25,594,301 shares of Common Stock, par value $.01 per share. Documents incorporated by reference: Portions of Registrant's Proxy Statement Part III to be filed pursuant to Regulation 14A (Part of Form 10-K into which within 120 days after the end of Registrant's Document is incorporated.) fiscal year covered by this Form 10-K (This page intentionally left blank) TABLE OF CONTENTS Page ---- Part I Item 1 Business ................................................... 1 Item 2 Properties ................................................. 15 Item 3 Legal Proceedings .......................................... 16 Item 4 Submission of Matters to a Vote of Security Holders ...................................... 16 Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ....................... 17 Item 6 Selected Financial Data .................................... 18 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 19 Item 7A Quantitative and Qualitative Disclosure About Market Risk ..................................... 28 Item 8 Financial Statements and Supplementary Data ................ 29 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 29 Part III Item 10 Directors and Executive Officers of the Registrant ......... 30 Item 11 Executive Compensation ..................................... 30 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................................... 30 Item 13 Certain Relationships and Related Transactions ............. 30 Item 14 Controls and Procedures .................................... 30 Part IV Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................... 32 Signatures .............................................................. 37 Index to Financial Statements and Financial Statement Schedule .......... F-1 I C&D TECHNOLOGIES, INC. PART I Item 1. Business About Our Company C&D Technologies, Inc. (together with its operating subsidiaries, "we", "our" or "C&D") is a technology company that produces and markets systems for the conversion and storage of electrical power, including reserve power systems and embedded, high frequency switching power supplies. Our integrated reserve power systems are comprised of the following: o industrial lead acid batteries; o power rectifiers; o power control equipment; o power distribution equipment; and o related accessories. Our power supplies are comprised of the following: o DC to DC converters; o AC to DC and DC to DC power supplies; o magnetics (transformers and inductors); and o custom architectures. Common applications for our power supplies product portfolio include: o telecommunications equipment, including optical switches, remote switches, Voice Over Internet Protocol (VOIP), central office backup; o data centers and networked (LAN and WAN) computing architecture; o high availability industrial computing; o industrial temperature control systems; o industrial imaging equipment; o displays (signs, scanning equipment); o broadband/CATV powering; o advanced office electronic machines, such as copiers; and o motive power systems for electric industrial vehicles. We sell both individual components and integrated power systems. We were organized in November 1985 to acquire all the assets of the eighty-year old C&D Power Systems Division (the "Division") of Allied Corporation ("Allied"). The Division's business essentially was unchanged by the acquisition, which was completed on January 28, 1986. Shares of our Common Stock, par value $.01 per share ("Common Stock"), were first issued to the public in February 1987. In October 1992, we purchased substantially all of the assets and assumed certain liabilities of the manufacturing division of Ratelco, Inc. ("Ratelco"), a Seattle, Washington-based manufacturer and distributor of power electronics equipment used primarily in the regulated telecommunications power market. 1 In March 1994, we purchased substantially all of the assets and assumed certain liabilities of the PowerSystems Division of ITT, a Tucson, Arizona-based company which designed and manufactured custom power supplies. These power supplies are used in the telecommunications power market and the office equipment market in such applications as networked computing architecture, digital printing equipment, industrial copy machines, remote switching equipment and other applications. In January 1995, we purchased certain assets and assumed certain liabilities of the switching power supply division of Basler Electric Company, a Highland, Illinois-based manufacturer of electrical components. These power supplies are used for office electronics and communications applications. In November 1995 we sold shares of Common Stock in a public offering. In February 1996, we purchased certain equipment and inventory of LH Research, Inc. ("LH"), a Costa Mesa, California-based manufacturer of standard power supply systems for the electronics industry. The power supplies are used in telecommunications, computer, medical, process control and other industrial applications. In March 1996, we acquired from Burr-Brown Corporation its entire interest in Tucson, Arizona-based Power Convertibles Corporation ("PCC"), which produced DC to DC converters used in communications, computer, medical, industrial and instrumentation markets as well as battery chargers for cellular phones. In January 1998, the acquired businesses of the PowerSystems Division of ITT, the switching power supply division of Basler Electric Company, LH and PCC were combined into the Power Electronics Division of C&D. In July 1998, we completed a two-for-one stock split, effected in the form of a 100% stock dividend. In March 1999, we purchased substantially all of the assets of the Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a Milwaukee, Wisconsin-based designer, manufacturer, marketer and distributor of industrial batteries. These assets included all of the ordinary shares of Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition, in August 1999, we acquired JCI's 67% ownership interest in a joint venture battery business in Shanghai, China. The joint venture manufactures and markets industrial batteries. For reporting purposes, we have re-named the Specialty Battery Division and JCI's 67% ownership interest in the joint venture battery business in Shanghai, China the Dynasty Division. In June 2000, we completed a two-for-one stock split, effected in the form of a 100% stock dividend. In December 2000 (effective as of November 26, 2000), we acquired the Newport Components Division of Newport Technology Group Limited, a producer of electronic power conversion products (primarily DC to DC converters) based in the United Kingdom. For reporting purposes, this acquisition is included as part of the Power Electronics Division and is referred to as C&D Technologies (NCL) Limited ("NCL"). Fiscal Year Our fiscal year ends on the last day of January. Any references to a fiscal year means the 12-month period ending January 31 of the year mentioned. 2 Forward-Looking Statements Certain of the statements and information contained in this Form 10-K, are "forward-looking statements" (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and, accordingly, are subject to risks and uncertainties. For such statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Act of 1995. The factors that could cause actual results to differ materially from anticipated results expressed or implied in any forward-looking statement include those referenced in the forward-looking statement, following the forward-looking statement, described in the notes to the Consolidated Financial Statements and other factors discussed in this Form 10-K and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Form 10-K. Forward-looking statements may be identified by their use of words like "plans," "expects," "will," "anticipates," "intends," "projects," "estimates," "believes" or other words of similar meaning. All statements that address expectations or projections about the future, including, but not limited to, statements about our strategy for growth, product development, market position, market conditions, expenditures and financial results, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. We cannot guarantee that these assumptions and expectations are accurate or will be realized. Following are some of the important factors that could cause our actual results to differ materially from those projected in any such forward-looking statements: o We operate worldwide and derive a portion of our revenue from sales outside the United States. Changes in the laws or policies of governmental and quasi-governmental agencies, as well as social and economic conditions, in the countries in which we operate could affect our business in these countries and our results of operations. In addition, economic factors (including inflation and fluctuations in interest rates and foreign currency exchange rates) and competitive factors (such as price competition, business combinations of competitors or a decline in industry sales from continued economic weakness) both in the United States and other countries in which we conduct business could affect our results of operations. (See Item 1. Business - International Operations, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of the Economy and Shift in Customer Demand, and Item 7A. Quantitative and Qualitative Disclosure About Market Risk - Market Risk Factors.) o Terrorist acts or acts of war, whether in the United States or abroad, could cause damage or disruption to our operations, our suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability, any of which could have a material adverse effect on our business. o Our results of operations could be significantly impacted by adverse conditions in the domestic and global economies or the markets in which we conduct business, such as telecommunications, UPS, CATV, switchgear and control and material handling. o Our ability to grow earnings could be affected by increases in the cost of raw materials, particularly lead. We may not be able to fully offset the effects of higher raw material costs through price increases or productivity improvements. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Raw Material Pricing and Productivity; and Inflation.) 3 o Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of parts and components from our suppliers and internal manufacturing capacity. Although we work closely with our suppliers to avoid shortages, there can be no assurance that we will not encounter shortages in the future. A reduction or interruption in component supply or a significant increase in the price of one or more components could have a material adverse effect on our operations. o Our growth objectives are largely dependent on our ability to renew our pipeline of new products and to bring these products to market. This ability may be adversely affected by difficulties or delays in product development, such as the inability to: identify viable new products; successfully complete research and development projects; obtain adequate intellectual property protection; or gain market acceptance of the new products. Our growth could also be affected by new competitive products and technologies. o As part of our strategy for growth, we have made and may continue to make acquisitions, and in the future, may make divestitures and form strategic alliances. There can be no assurance that these will be completed or beneficial to us. o We have undertaken and may continue to undertake productivity initiatives, including re-organizations to improve performance and generate cost savings. There can be no assurance that these will be completed or beneficial to C&D. Also, there can be no assurance that any estimated cost savings from such activities will be realized. o Our facilities are subject to a broad array of environmental laws and regulations. The costs of complying with complex environmental laws and regulations, as well as participation in voluntary programs, are significant and will continue to be so for the foreseeable future. We are also subject to potentially significant fines and penalties for non-compliance with applicable laws and regulations. Our accruals for such costs and liabilities may not be adequate since the estimates on which the accruals are based depend on a number of factors including, but not limited to, the nature of the problem, the complexity of the issues, the nature of the remedy, the outcome of discussions with regulatory agencies and/or the government and, as applicable, other PRPs at multiparty sites, the number and financial viability of other PRPs and risks associated with litigation. (See Business - Environmental Regulations.) o We are exposed to the credit risk of our customers including risk of insolvency and bankruptcy. Although we have programs in place to monitor and mitigate the associated risk, there can be no assurance that such programs will be effective in reducing our credit risks or that preference actions or other claims relating to bankruptcy proceeding will not result. (See Item 7A. Quantitative and Qualitative Disclosure About Market Risk.) o Our business, results of operations and financial condition could be affected by significant pending and future litigation adverse to us, such as, without limitation, product liability, contract and employment-related claims and claims arising from any injury or damage to persons or the environment from hazardous substances used, generated or disposed of in the conduct of our business (or that of a predecessor to the extent we are not indemnified for those liabilities). (See Item 3. Legal Proceedings.) o Our performance depends on our ability to attract and retain qualified personnel. We cannot assure that we will be able to continue to attract or retain qualified personnel. 4 o The recent outbreak of severe acute respiratory syndrome ("SARS") could cause direct disruption to our manufacturing operations located in China and our Asian suppliers, as well as indirect disruption to our other manufacturing facilities located throughout the rest of the world due to possible negative impacts on our supply chain. o Our current loan agreement expires on March 1, 2004. We expect to enter into a new loan agreement prior to this date. We cannot assure, however, that we will be successful in securing a new loan agreement. o Our bank loan agreement permits dividends to be paid on our Common Stock so long as there is no default under that agreement. Subject to that restriction and the provisions of Delaware law, our Board of Directors currently intends to continue paying dividends. We cannot assure you that we will continue to do so since future dividends will depend on our earnings, financial condition and other factors. The foregoing list of important factors is not all-inclusive, or necessarily in order of importance. Reportable Segments Our operations are classified into the following reportable business segments: o Powercom Division o Dynasty Division o Power Electronics Division o Motive Power Division Segments are determined using the "management approach," which means the way management organizes the segments within the enterprise for making operating decisions and assessing performance. The financial information regarding our four business segments, which includes net sales and operating income for each of the three years in the period ended January 31, 2003, is provided in Note 15 to the Consolidated Financial Statements. See Part II, Item 8. The Market for Our Products We manufacture and market products in the following general categories by business segment: o Powercom Division - fully integrated reserve power systems and components for the standby power market, which includes telecommunications, uninterruptible power supplies ("UPS"), utilities and solar; o Dynasty Division - industrial batteries used in UPS applications for computer systems and corporate data networks, telecommunications reserve power systems and broadband cable television ("CATV") signal powering; o Power Electronics Division - DC to DC converters, custom, standard and modified standard embedded high frequency AC to DC and DC to DC switching power supplies and magnetics (transformers and inductors); and o Motive Power Division - motive power systems for the material handling equipment market. 5 We market our products through independent manufacturer's representatives, national and global distributors, specialty resellers and our own sales personnel to end users and original equipment manufacturers ("OEMs"). We sell some products to the U.S. Government. These sales accounted for less than 5% of our total company sales during each of our last three fiscal years. Products and Customers by Business Segment Powercom Division - Reserve Power Systems We are a leading producer of fully integrated reserve power systems that monitor and regulate electric power flow and provide backup power in the event of a primary power loss or interruption. We also produce the individual components of these systems, including power rectifiers, system monitors, power boards, chargers and reserve batteries. We manufacture lead acid batteries for use in reserve power systems. We sell these batteries in a wide range of sizes and configurations in two broad categories: o flooded batteries; and o valve-regulated (sealed) batteries. Flooded batteries require periodic watering and maintenance. Valve-regulated batteries require less maintenance and are often smaller. To meet the needs of our customers, our reserve power systems include a wide range of power electronics products, consisting principally of power rectifiers and distribution and monitoring equipment. Our power rectifiers convert or "rectify" external AC power into DC power at the required level and quality of voltage and apply the DC power to constantly charge the reserve battery and operate the user's equipment. For installations with end applications that require varied power levels, our power control and distribution equipment distributes the rectified power for each of the applications. Telecommunications Customers. Our customers use the majority of our standby power products in telecommunications applications, such as central telephone exchanges, microwave relay stations, private branch exchange ("PBX") systems and wireless telephone systems. Our major telecommunications customers include national long distance companies, competitive local exchange carriers, former Bell operating companies, wireless system operators, paging systems and PBX telephone locations using fiber optic, microwave transmission or traditional copper-wired systems. Modular Power Plants. We offer several modular power plants, which are a type of integrated reserve power system. These products, which are referred to as the Liberty(R) AGM Series Power Plant and the Liberty(R) ACM Series Power Plant, integrate advanced rectifiers with virtually maintenance-free valve-regulated batteries. Round Cell Battery. One of our historically important telecommunications products has been the Round Cell reserve power battery, a flooded product originally designed and patented by the Bell Laboratories of AT&T for use in AT&T's own facilities and customer installations. In 1996, AT&T spun off its equipment manufacturing operations into Lucent Technologies, Inc. In January 2001, we began selling Round Cell reserve power batteries to Tyco International, Ltd. ("Tyco") as a result of Lucent Technologies, Inc.'s sale of its Power Systems business to Tyco. C&D or its predecessor has manufactured Round Cells for AT&T, Lucent Technologies, Inc. or Tyco since 1972 and has been the exclusive manufacturer since 1982. 6 Uninterruptible Power Supplies. We produce batteries for UPS systems, which provide instant battery backup in the event of primary power loss or interruption, thereby permitting an orderly shutdown of equipment or continued operation for a limited period of time until a power source comes back on-line. Large UPS systems are used principally for mainframe computers, minicomputers, networks and computer-controlled equipment. Equipment for Electric Utilities and Industrial Control Applications. We produce rectifiers and batteries used in reserve power systems for switchgear and instrumentation control systems used in electric utilities and industrial control applications. These power systems provide auxiliary power that enables fossil fuel, hydro and nuclear power generating stations, switching substations and industrial control facilities to be shut down in an orderly fashion during emergencies or power failures until a power source comes back on-line. Dynasty Division - Reserve Power Batteries Through our Dynasty Division, we design, manufacture and distribute valve-regulated (sealed) batteries for use in reserve power systems for a wide variety of end use markets. Our product range focuses on batteries that provide less than 200-ampere hours. These products are sold primarily to customers in the UPS, telecommunications and cable markets. Major applications of these products include corporate data center backup, computer network backup for use during power outages, CATV signal powering and wireless and wireline telephone infrastructure. Our customers include industry-leading OEMs serving the UPS, broadband and telecommunications markets. Uninterruptible Power Supplies. Similar to our Powercom Division, the Dynasty Division produces batteries for UPS systems, which provide instant battery backup in the event of primary power loss or interruption, thereby permitting an orderly shutdown of equipment or continued operation for a limited period of time until a power source comes back on-line. Our Dynasty(R) High Rate Series batteries have been engineered specifically for UPS applications and deliver extended life while complying with rigorous industry standards. As a critical component to overall power backup solutions, our Dynasty Division has worked closely with major global UPS OEMs to design a cost-effective, reliable product to meet customer expectations. Telecommunications. Our Dynasty(R) Tel Series Long Duration batteries are designed to Telcordia Standards to meet the demanding requirements of telecommunications applications. These batteries operate in a wide variety of environmental conditions, meet prolonged run time needs so as to maintain operations during power loss and protect sophisticated electronics equipment. CATV Signal Powering and Broadband. Dynasty(R) Broadband Series batteries are designed for demanding standby float applications in abusive environments. These batteries have been designed to offer the best combination of run time and service life for CATV signal powering and broadband applications. Our gelled electrolyte technology provides excellent heat transfer properties, which enable these batteries to perform in high temperature environments. Unlike other competitive gel technologies, the Dynasty(R) Broadband Series does not require cycling subsequent to delivery to meet 100% of rated capacity. Our Dynasty(R) Broadband Series of batteries is considered the market leader for CATV powering in North America. Power Electronics Division - DC to DC Converters, Power Supplies and Magnetics Through our Power Electronics Division we design, manufacture and market custom, standard and modified-standard electronic power supply systems. Our Power Electronics Division services several major market segments including telecommunications, networking equipment, office equipment, industrial automation and test instrumentation. In addition, our Power Electronics Division manufactures rectifiers for reserve power applications that are sold by our Powercom Division. 7 We sell the majority of our power supply products to OEMs of electronic products on either a custom, standard or modified-standard basis. Power supplies are embedded in almost all electronic products and are used to convert available AC or DC voltage to the required level and quality of DC voltage to power the associated equipment. Our power supplies incorporate advanced technology and are designed for reliable operation of the host equipment. These products include DC to DC converters, AC to DC and DC to DC power supplies and magnetics (transformers and inductors) for use in a wide variety of applications, with outputs ranging from sub one watt to several kilowatts. DC to DC products are circuit board mounted devices used to convert available system power to required component voltages. DC to DC converters are widely used in distributed power architecture where system voltages require conversion to a higher or lower voltage to power components such as microprocessors and arrays. AC to DC power supplies convert alternating current, the form in which virtually all power is delivered by electric utilities to end users, into precisely controlled direct current that is required by sensitive electronic application architecture. In the telecommunications industry, our power supplies are broadly used in central office and transmission equipment. We also produce power supplies for networking equipment (switches, routers, hubs, etc), office equipment (mass storage, digital printing, etc.), and industrial equipment (computing, automation and test instrumentation). Motive Power Division - Motive Power Systems Our customers use the majority of our motive power products to provide power for material handling vehicles. A significant portion of our motive power sales includes products and systems to recharge motive power batteries. We produce complete systems and individual components (including power electronics and batteries) to monitor, charge and test the batteries used in powering electric industrial vehicles, including fork-lift trucks and automated guided vehicles. Our customers include end users in a broad array of industries, dealers of material handling equipment and, to a lesser extent, OEMs. We offer a broad line of motive power equipment including the C-Line(TM) battery, which we believe is the industry standard for long life, the V-Line(R) battery for general material handling applications. We also offer a broad line of battery charging and associated specialty equipment. Sales, Installation and Servicing The sales, installation and servicing of our Powercom and Motive Power products are performed through several networks of independent manufacturer's representatives located throughout the United States and Canada. Most of our independent manufacturer's representatives (or contractors in the case of installation or service) operate under contracts providing for compensation on a commission basis or as a distributor with product purchases for resale. Dynasty and Power Electronics products are sold via a network of independent manufacturer's representatives as well as independent distributors located throughout the United States and Canada. In addition to these networks of independent manufacturer's representatives and distributors, we employ internal sales management consisting of regional sales managers and product/market specialists. The regional sales managers are each responsible for managing a number of independent manufacturer's representatives and for developing long-term relationships with large end users, OEMs and national accounts. We also employ a separate sales force that works with the independent manufacturer's representative network and directly with certain large customers. 8 We have internal marketing personnel in each of our divisions to manage the development of new products from the initial concept definition and management approval stages through the engineering, production and sales processes. They are also responsible for applications engineering, technical training of sales representatives and the marketing communications function. We maintain branch sales and service facilities in the United States, Canada, Europe and Asia, with the support of our headquarters and service personnel, and have business relationships with sales representatives and distributors throughout the world. No single customer of C&D accounted for 10% or more of our net sales for the year ended January 31, 2003. We typically sell our products with terms requiring payment in full within 30 days. We warrant our battery products on a full and/or pro-rata basis, to perform as rated for specified periods of time, ranging from 1 to 25 years, depending on the type of product and its application. The longest warranties generally are applicable to flooded standby power batteries sold by our Powercom Division. Backlog The level of unfilled orders at any given date during the year may be materially affected by the timing and product mix of orders, customer requirements and, taking into account considerations of manufacturing capacity and flexibility, the speed with which we fill those orders. Period-to-period comparisons may not be meaningful. Occasionally orders may be canceled by the customer prior to shipment. Our order backlog at February 28, 2003 was $47,085,000 and at February 28, 2002 was $53,628,000. We expect to fill virtually all of the February 28, 2003 backlog during fiscal 2004. Manufacturing and Raw Materials We manufacture our products at seven domestic plants, two plants in China, and one each in the United Kingdom and Mexico. We manufacture most key product lines at a single focused plant in order to optimize manufacturing efficiency, asset management and quality control. Consolidation. In fiscal 2003, we closed the metal fabrication operations at our Conshohocken, Pennsylvania facility and now purchase products previously manufactured at this location from third parties. We also closed our Shannon, Ireland facility in fiscal 2003, shifting its manufacturing and design capabilities to other Power Electronics Division facilities. In fiscal 2002 we closed our Workington, United Kingdom facility and transferred production to our other Power Electronics Division facilities. No facilities were closed during fiscal 2001. The principal raw materials used in the manufacture of our products include lead, steel, copper, plastics and electronic components, all of which are generally available from multiple suppliers. Other than the required use of one supplier of lead and one supplier of lead oxide for the production of Round Cell batteries for Tyco, we use a number of suppliers to satisfy our raw materials needs. ISO 9000 Recognition. ISO certification assures customers that our internal processes and systems meet internationally recognized standards. We are ISO 9001 certified at the following domestic locations: Blue Bell, Pennsylvania headquarters and R&D facility; Conyers, Georgia; Dunlap, Tennessee; Huguenot, New York; Leola, Pennsylvania; Milwaukee, Wisconsin and Tucson, Arizona. Internationally, our operations in Guangzhou, China; Milton Keynes, United Kingdom; Nogales, Mexico and Shanghai, China are also ISO 9001 certified. Our Romsey, United Kingdom location is ISO 9002 certified. 9 Competition Our products compete on the basis of: o product quality and reliability; o reputation; o customer service; o delivery capability; and o technology. We also offer competitive pricing, and we value our relationships with our customers. In addition, we believe that we have certain competitive advantages in specific product lines. We believe that we are one of the four largest producers of both reserve and motive power systems in North America. We believe that the ability to provide a single source for design, engineering, manufacturing and service is an important element in our competitive position. In reserve power systems, we believe we are the only major North American company that manufactures complete, integrated reserve power systems consisting of both electronics and batteries. Our other major competitors manufacture either electronics or batteries, but not both. The Power Electronics Division competes globally in a large fragmented market. We believe that we are among the top 10 manufacturers of embedded OEM power supply products in the world. When lead prices rise, certain of our competitors that own smelting operations may have lower lead costs than we have. However, when lead prices decline, the high fixed costs associated with these operations may provide us with a cost advantage. Research and Development We maintain extensive technology departments concentrating on electrochemical and electronics technologies. We focus on: o the design and development of new products; o the ongoing development and improvement of existing products; o sustaining engineering; o production engineering (including quality testing and managing the expansion of production capacity); and o the evaluation of competitive products. Our research and development facilities in the United States and Europe feature advanced computer-aided design and testing equipment. Technology and engineering personnel coordinate all activities closely with operations, sales and marketing in order to better meet the needs of customers. We continue to develop new products in our businesses. During fiscal 2003, the Powercom division introduced the Super Max modular racking system for its Liberty(R) 2000 HD battery product which increases energy density in addition to expanding the line with a 2,000 ampere hour offering. Our Power Electronics Division introduced the NGA and NGB series of non-isolated point of load converters in fiscal 2003, to address the needs of electronic OEM's deploying distributed power architecture. In addition, to meet the ever growing need for power density, the WPA50 one-eighth brick converter was introduced. The cPCI200 watt AC to DC power supply also was introduced packing a significant amount of power and capability into a small state of the art form factor. 10 International Operations In addition to our domestic manufacturing facilities, we have international manufacturing facilities in Mexico, China and the United Kingdom. Our 67% joint venture facility in Shanghai, China manufactures industrial batteries that are sold primarily in China and Europe. Our Power Electronics Division facilities in the United Kingdom and China manufacture electronics that are sold primarily in Europe, North America, and to a lesser extent, the Far East. International sales accounted for 18.0%, 20.4% and 20.9% of net sales for the years ended January 31, 2003, 2002 and 2001, respectively. Additional financial information regarding our international sales is provided in Note 15 to the Consolidated Financial Statements. See Part II, Item 8. Patents and Trademarks Our practice is to apply for patents on new inventions, designs and processes, which have strategic value or which are associated with existing or prospective product lines, service offerings or operations. We believe that the growth of our business will depend primarily upon the quality and reliability of our products and our relationships with our customers, rather than the extent of our patent protection. While we believe that patents are important to our business operations, the loss of any single or several patents would not have a material adverse effect on our company. We regard our trademarks C&D(R), C&D TECHNOLOGIES(R), C&D TECHNOLOGIES POWER SOLUTIONS(R), C&D POWERCOM(R), DYNASTY(R), LIBERTY(R), LIBERTY SERIES(R), LIBERTY 2000 MAX(R) and MAXIMIZER(R) as being of substantial value in the marketing of our products and have registered these trademarks in the United States Patent and Trademark Office. Our trademarks also include C-LINE(TM), COMPUCHARGE(R), FERRO FIVE(R), FERRO 1500(R), GUARDIAN(R), HYPERON(R), RANGER(R), SCOUT(R), SMARTBATTERY(R), and V-LINE(R). Employees On February 28, 2003 we employed approximately 2,400 people. Of these employees, approximately 1,900 were employed in manufacturing and almost 500 were employed in field sales, technology, manufacturing support, sales support, marketing and administrative activities. Our management considers our employee relations to be satisfactory. Employees at four domestic plants are represented by four different unions under collective bargaining agreements. 11 Environmental Regulations Our operations are subject to extensive and evolving environmental laws and regulations regarding the clean-up and protection of the environment, worker health and safety and the protection of third parties. These laws and regulations include, but are not limited to, the following: o requirements relating to the handling, storage, use and disposal of lead and other hazardous materials used in manufacturing processes and solid wastes; o record keeping and periodic reporting to governmental entities regarding the use and disposal of hazardous materials; o monitoring and permitting of air emissions and water discharge; and o monitoring worker exposure to hazardous substances in the workplace and protecting workers from impermissible exposure to hazardous substances, including lead, used in our manufacturing process. We operate under a comprehensive environmental, health and safety compliance program, which is headed by an environmental vice-president and staffed with trained environmental professionals. As part of our program, we: o prepare environmental and health and safety practice manuals and policies; o conduct employee training; o undertake periodic internal and external audits of our operations and environmental and health and safety programs; o practice and engage in routine sampling and monitoring of employee chemical and physical exposure levels; o engage in sampling and monitoring of potential points of environmental emissions; and o prepare and/or review internal reports to regulatory bodies and interface with them regarding pollution and other issues. In addition, we also have installed certain pollution abatement equipment to reduce emissions and discharges of regulated pollutants into the environment. Our program monitors and seeks to resolve potential environmental liabilities that result from, or may arise from, current and historic hazardous materials handling and waste disposal practices. We have in place a spent product recapture and recycling program for our facilities and our customers. While we believe that we are in material compliance with the applicable environmental requirements, we have received, and in the future may receive, citations and notices from governmental regulatory authorities that certain of our operations are not in compliance with our permits or applicable environmental requirements. Occasionally we are required to pay a penalty or fine, to install control technology or to make equipment or process changes (or a combination thereof) as a result of the non-compliance or changing regulatory requirements. When we become aware of a non-compliance or change in regulatory requirements, we take immediate steps to correct and resolve the issues. The associated costs have not had a material adverse effect on our business, financial condition or results of operations. Notwithstanding our efforts to maintain compliance with applicable environmental requirements, if injury or damage to persons or the environment arises from hazardous substances used, generated or disposed of in the conduct of our business (or that of our predecessors to the extent we are not indemnified therefor), we may be held liable for certain damages and for the costs of the investigation and remediation, which could have a material adverse effect on our business, financial condition or results of operations. However, under the terms of the purchase agreement with Allied Corporation for the acquisition of C&D (the "Acquisition Agreement"), Allied was obligated to indemnify us for any liabilities of this type resulting from conditions existing at January 28, 1986 that were not disclosed by Allied to us in the schedules to the Acquisition Agreement. These obligations have since been assumed by Allied's successor in interest, Honeywell ("Honeywell"). 12 C&D, along with numerous other parties, has been requested to provide information to the United States Environmental Protection Agency (the "EPA") in connection with investigations of the source and extent of contamination at three lead smelting facilities (the "Third Party Facilities") to which C&D had made scrap lead shipments for reclamation prior to the date of the acquisition. C&D and four other potentially responsible parties ("PRPs") agreed upon a cost sharing arrangement for the design and remediation phases of a project related to one of the Third Party Facilities, the former NL Industries site in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs identified and sued additional PRPs for contribution. In April 2002 one of the original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter 11 of Title 11 of the United States Code. In August 2002, Exide notified the PRPs that it will no longer be taking an active role in any further action at the site and discontinued its financial participation. This resulted in a pro rata increase in the liabilities of the other PRPs, including C&D. We also responded to requests for information from the EPA and the state environmental agency with regard to another Third Party Facility, the "Chicago Site," in October 1991. In August 2002, we were notified of our involvement as a PRP at the NL Atlanta, Northside Drive Superfund site. We are currently in negotiations with the other potentially responsible parties at this site regarding our share of the allocated liability. We are also aware of the existence of contamination at our Huguenot, New York facility, which is expected to require expenditures for further investigation and remediation. The site is listed by the New York State Department of Environmental Conservation ("NYSDEC") on its registry of inactive hazardous waste disposal sites due to the presence of fluoride and other contamination in amounts that exceed state groundwater standards. The prior owner of the site is expected to ultimately bear some, as yet undetermined, share of the costs associated with this matter for contamination in place at the time we acquired the property. The NYSDEC has issued a Record of Decision for the soil remediation portion of this site. However, a final remediation plan for the ground water portion has not yet been finalized with or approved by the State of New York. Together with JCI, we are conducting an assessment and remediation of contamination at our Dynasty Division facility in Milwaukee, Wisconsin. The majority of this project was completed as of October 2001. Under the purchase agreement with JCI, we are responsible for (i) one-half of the cost of the on-site assessment and remediation, with a maximum liability of $1,750,000, (ii) any environmental liabilities at the facility that are not remediated as part of the current project and (iii) environmental liabilities for claims made after the fifth anniversary of the closing, i.e. March 2004, that arise from migration from a pre-closing condition at the Milwaukee facility to locations other than the Milwaukee facility, but specifically excluding liabilities relating to pre-closing offsite disposal. JCI has retained all other environmental liabilities, including off-site assessment and remediation. In January 1999, we received notification from the EPA of alleged violations of permit effluent and pretreatment discharge limits at our plant in Attica, Indiana. We submitted a compliance plan to the EPA in April 2002. We engaged in negotiations with both the EPA and Department of Justice through March 2003 regarding a potential resolution of this matter. The government filed suit against C&D in March 2003 for alleged violations of the Clean Water Act. The complaint requests injunctive relief and civil penalties of up to the amounts provided by statute. We anticipate that the matter will result in a penalty assessment and compliance obligations. We will continue to seek a negotiated or mediated resolution, failing which we intend to vigorously defend the action. We accrue reserves for liabilities in our consolidated financial statements and periodically reevaluate the reserved amounts for these liabilities in view of the most current information available in accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies." Based on 13 currently available information, we believe that appropriate reserves have been established with respect to the foregoing contingent liabilities and that they are not expected to have a material adverse effect on our business, financial condition or results of operations. We are continuing to work towards ISO 14001 certification of our corporate environmental management systems at our Blue Bell, Pennsylvania headquarters. ISO 14001 is a voluntary, international standard that is intended to provide organizations with the elements of an effective environmental management system that can be integrated with other management requirements to assist with the achievement of environmental and economic goals. Available Information C&D maintains an Internet web site at http://www.cdtechno.com and makes available free of charge on or through the web site its Annual Report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. 14 Item 2. Properties Set forth below is certain information, as of April 1, 2003, with respect to our principal properties.
Square Products Manufactured Location Footage at or Use of Facility -------- ------- --------------------- United States Properties: - ------------------------- Milwaukee, Wisconsin (1) ............ 370,000 Small standby power batteries and headquarters of Dynasty Division Attica, Indiana (1) ................. 295,000 Large standby power batteries Leola, Pennsylvania (1) ............. 240,000 Large standby power batteries, Round Cell, distribution center and battery R&D laboratories Conyers, Georgia (1) ................ 161,000 Small standby power batteries Huguenot, New York (1) .............. 148,000 Motive power batteries Dunlap, Tennessee (2) ............... 72,000 Standby power and motive power electronics products Blue Bell, Pennsylvania (3) ......... 63,000 Corporate headquarters, Powercom and Motive Power divisional headquarters and electronics R&D laboratories Tucson, Arizona (3) ................. 55,000 DC to DC converters, power supplies, headquarters of Power Electronics Division and electronics R&D laboratories International Properties: - ------------------------- Shanghai, China (4) ................ 315,000 Small standby power batteries Nogales, Mexico (3) ................. 97,000 DC to DC converters and AC to DC power supplies Guangzhou, China (3) ................ 35,000 DC to DC converters and wound magnetics Milton Keynes, United Kingdom (3) ... 33,000 DC to DC converters, wound magnetics and electronics R&D laboratories Romsey, United Kingdom (3) .......... 21,000 Distribution center Mississauga, Canada (3) ............. 20,000 Canadian branch headquarters, sales office and distribution center
(1) Property is owned by C&D. (2) The lease of the Dunlap property terminates in January 2004. We have an option to purchase the Dunlap property for $1,160,000 during the lease term. (3) Property is leased by C&D. (4) Building is owned by the joint venture; however, the land is leased under a 50-year agreement, of which 42 years remain. The Chinese government has notified our joint venture that it will be required to relocate the Shanghai plant during fiscal 2005. Negotiations are in process between the joint venture and the Chinese government regarding the details surrounding the specific location, timing and cost responsibilities related to the relocation of the Shanghai plant. 15 Item 3. Legal Proceedings We are involved in ordinary, routine litigation incidental to the conduct of our business. None of this litigation, individually or in the aggregate, is material or is expected to be material to our financial condition or results of operations in any year. See Business - Environmental Regulations for a description of certain administrative proceedings in which we are involved. On March 24, 2003, C&D was sued in an action captioned United States of America v. C&D Technologies, Inc., in the United States District Court for the Southern District of Indiana, for alleged violations of the Clean Water Act. Item 4. Submission of Matters to a Vote of Security Holders None. 16 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Our Common Stock is traded on The New York Stock Exchange under the symbol CHP. The approximate number of beneficial and registered record holders of our Common Stock on April 4, 2003 was 5,600. The following table sets forth, for the periods indicated, the high and low sales prices for our Common Stock as reported by the New York Stock Exchange. These prices represent actual transactions, but do not reflect adjustment for retail markups, markdowns or commissions. Year Ended --------------------------------------- January 31, 2003 January 31, 2002 ----------------- ----------------- Fiscal Quarter High Low High Low -------------- ------ ------ ------ ------ First Quarter .......... $23.04 $19.00 $55.65 $23.40 Second Quarter ......... 24.27 13.25 38.60 23.90 Third Quarter .......... 17.50 12.50 32.15 16.35 Fourth Quarter ......... 21.25 15.40 24.65 19.60 Dividends. We began paying cash dividends on our Common Stock in April 1987. For the years ended January 31, 2003 and 2002 we declared dividends per share as follows: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 2003 ........... $0.01375 $0.02750 -- $0.01375 2002 ........... $0.01375 $0.01375 $0.01375 $0.01375 Our bank loan agreement permits dividends to be paid on our Common Stock so long as there is no default under that agreement. Subject to that restriction and the provisions of Delaware law, our Board of Directors currently intends to continue paying dividends. We cannot assure you that we will continue to do so since future dividends will depend on our earnings, financial condition and other factors. On February 22, 2000, the Board of Directors of C&D declared a dividend of one common stock purchase right (a "Right") for each share of Common Stock outstanding on March 3, 2000 to the stockholders of record on that date. The description and terms of the Rights are set forth in a Rights Agreement between C&D and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder Services, L.L.C.), as rights agent. Upon the occurrence of certain events, each Right will entitle the registered holder to purchase from C&D one one-hundredth of a share of Common Stock at a purchase price of $150 per one one-hundredth of a share, subject to adjustment, as stated in the Rights Agreement. Upon the occurrence of certain events involving a hostile takeover of C&D, unless our Board of Directors acts otherwise, each holder of a Right, other than Rights beneficially owned by the acquiring company, will thereafter have the right to receive upon exercise: (i) that number of shares of our common stock having a market value equal to two times the purchase price of the Right or (ii) that number of shares of common stock of the acquiring company that at the time of the transaction has a market value of two times the exercise price of the Right. 17 Item 6. Selected Financial Data The following selected historical financial data for the periods indicated have been derived from C&D's consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The information below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and C&D's consolidated financial statements, which appear in Items 7 and 15 of this Form 10-K.
Fiscal Year ------------------------------------------------------------ (In thousands, except share and per share data) 2003 2002 2001(1) 2000(2) 1999 -------- -------- --------- --------- -------- Statement of Income Data: Net sales ........................ $335,745 $471,641 $615,678 $482,182 $321,937 Cost of sales .................... 257,046 343,370 439,135 357,802 235,767 -------- -------- -------- -------- -------- Gross profit ..................... 78,699 128,271 176,543 124,380 86,170 Selling, general and administrative expenses ......... 35,136 50,406 66,243 59,315 40,344 Research and development expenses ........................ 9,509 10,291 10,281 8,941 8,255 -------- -------- -------- -------- -------- Operating income ................. 34,054 67,574 100,019 56,124 37,571 Interest expense, net ............ 3,800 6,700 6,315 7,946 126 Other expense (income), net ...... 1,457 1,239 (725) (20) 211 -------- -------- -------- -------- -------- Income before income taxes and minority interest ............... 28,797 59,635 94,429 48,198 37,234 Provision for income taxes ....... 9,414 22,244 35,883 17,737 13,154 -------- -------- -------- -------- -------- Net income before minority interest ........................ 19,383 37,391 58,546 30,461 24,080 Minority interest ................ 91 1,317 2,651 619 -- -------- -------- -------- -------- -------- Net income ....................... $ 19,292 $ 36,074 $ 55,895 $ 29,842 $ 24,080 ======== ======== ======== ======== ======== Net income per common share - basic (3) ............... $ .75 $ 1.38 $ 2.13 $ 1.17 $ .97 ======== ======== ======== ======== ======== Net income per common share - diluted (4) ............. $ .74 $ 1.35 $ 2.05 $ 1.14 $ .94 ======== ======== ======== ======== ======== Dividends per common share ....... $ .05500 $ .05500 $ .05500 $ .05500 $ .04125 ======== ======== ======== ======== ======== Balance Sheet Data: Working capital .................. $ 53,776 $ 55,014 $ 75,895 $ 65,079 $ 63,688 Total assets ..................... 382,156 395,558 455,519 354,115 185,642 Short-term debt .................. 14,062 27,255 18,172 20,393 532 Long-term debt ................... 25,857 46,892 98,849 76,459 1,750 Stockholders' equity ............. 258,274 241,858 218,054 162,066 123,528
(footnotes begin on the following page) 18 (1) In December 2000 (effective as of November 26, 2000), we acquired NCL, a producer of electronic power conversion products (primarily DC to DC converters) based in the United Kingdom. For reporting purposes, the acquisition of NCL is included in the Power Electronics Division. We continue to use the assets acquired in such business. See notes to consolidated financial statements. (2) Effective March 1, 1999, we acquired substantially all of the assets of the Specialty Battery Division of JCI including, without limitation, certain assets of Johnson Controls Technology Company, a wholly owned subsidiary of JCI, and 100% of the ordinary shares of Johnson Controls Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition, C&D assumed certain liabilities of the seller. The Specialty Battery Division was engaged in the business of designing, manufacturing, marketing and distributing industrial batteries. We continue to use the assets acquired in such business. On August 2, 1999 we completed the acquisition of JCI's 67% ownership interest in a joint venture battery business in Shanghai, China. The joint venture manufactures, markets and distributes industrial batteries. We continue the joint venture operations in such business. For reporting purposes, we have re-named the Specialty Battery Division and JCI's 67% ownership interest of the joint venture battery business in Shanghai, China the Dynasty Division. See notes to consolidated financial statements. (3) Based on 25,818,024, 26,153,715, 26,223,684, 25,529,778 and 24,730,366 weighted average shares outstanding - basic. (4) Based on 26,025,179, 26,688,011, 27,264,528, 26,088,402 and 25,671,724 weighted average shares outstanding - diluted. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations All dollar amounts in this Item 7 are in thousands, except per share amounts and per pound lead amounts. Impact of Economy and Shift in Customer Demand During fiscal 2003, primarily due to continuing weak economic conditions, particularly in the telecommunications market, there was a softening in demand for our products. Raw Material Pricing and Productivity Lead, steel, copper, plastics and electronic components are the major raw materials used in the manufacture of our industrial batteries and electronics products and, accordingly, represent a significant portion of our materials costs. During fiscal 2003, 2002 and 2001, the average North American producer price of lead was $.44, $.44 and $.45 per pound, respectively. We have a long-term cost containment program to minimize manufacturing costs. Under the program, we continue to allocate a significant amount of our normal annual capital expenditures to cost containment and productivity improvement projects. 19 Inflation The cost to us of manufacturing materials and labor and most other operating costs are affected by inflationary pressures. Our ability to pass along inflationary cost increases through higher prices may be limited during periods of stable or declining lead prices because of industry pricing practices that tend to link product prices and lead prices. We believe that, over recent years, we have been able to offset inflationary cost increases by: o effective raw materials purchasing programs; o increases in labor productivity; o improvements in overall manufacturing efficiencies; and o selective price increases of our products. Results of Operations The following table sets forth selected items in C&D's consolidated statements of income as a percentage of sales for the periods indicated.
Fiscal Year -------------------------- 2003 2002 2001 ------ ------ ------ Net sales ........................................... 100.0% 100.0% 100.0% Cost of sales ....................................... 76.6 72.8 71.3 ------ ------ ------ Gross profit ...................................... 23.4 27.2 28.7 Selling, general and administrative expenses ........ 10.5 10.7 10.8 Research and development expenses ................... 2.8 2.2 1.7 ------ ------ ------ Operating income .................................. 10.1 14.3 16.2 Interest expense, net ............................... 1.1 1.4 1.0 Other expense (income), net ......................... 0.4 0.3 (0.1) ------ ------ ------ Income before income taxes and minority interest .. 8.6 12.6 15.3 Provision for income taxes .......................... 2.8 4.7 5.8 ------ ------ ------ Net income before minority interest ............... 5.8 7.9 9.5 Minority interest ................................... 0.1 0.3 0.4 ------ ------ ------ Net income ........................................ 5.7% 7.6% 9.1% ====== ====== ======
20 Critical Accounting Policies We have identified the critical accounting policies that are most important to the portrayal of our financial condition and results of operations. The policies set forth below require management's most subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Litigation and Environmental Reserves C&D is involved in litigation in the ordinary course of business, including personal injury, property damage and environmental litigation. We also expend funds for environmental remediation of both company- owned and third-party locations. In accordance with Generally Accepted Accounting Principles ("GAAP"), specifically SFAS No. 5, "Accounting for Contingencies" and Statement of Position 96-1, "Environmental Remediation Liabilities," we record a loss and establish a reserve for litigation or remediation when it is probable that an asset has been impaired or a liability exists and the amount of the liability can be reasonably estimated. Reasonable estimates involve judgments made by management after considering a broad range of information including: notifications, demands or settlements that have been received from a regulatory authority or private party, estimates performed by independent engineering companies and outside counsel, available facts, existing and proposed technology, the identification of other PRPs and their ability to contribute and prior experience. These judgments are reviewed quarterly as more information is received and the amounts reserved are updated as necessary. However, the reserves may materially differ from ultimate actual liabilities if the loss contingency is difficult to estimate or if management's judgments turn out to be inaccurate. If management believes no best estimate exists, the minimum loss is accrued. Valuation of Long-lived Assets We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Factors we consider in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. Recoverability of assets that will continue to be used in our operations is measured by comparing the carrying amount of the asset grouping to the related total future net cash flows. If an asset grouping's carrying value is not recoverable through those cash flows, the asset grouping is considered to be impaired. The impairment is measured by the difference between the assets' carrying amount and their fair value, based on the best information available, including market prices or discounted cash flow analyses. Pension and Other Employee Benefits Certain assumptions are used in the calculation of the actuarial valuation of our defined benefit pension plans and postretirement benefits. These assumptions include the weighted average discount rate, rates of increase in compensation levels, expected long-term rates of return on assets and increases or trends in health care costs. If actual results are less favorable than those projected by management, additional expense may be required. Inventory Reserves C&D adjusts the value of its obsolete and unmarketable inventory to the estimated market value based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 21 Allowance for Doubtful Accounts C&D maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Warranty Reserves C&D provides for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our suppliers' products and processes, C&D's warranty obligation is affected by product failure rates, warranty replacement costs and service delivery costs incurred in correcting a product failure. Should actual product failure rates, warranty replacement costs or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be made. Deferred Tax Valuation Allowance C&D records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event C&D were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should C&D determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Revenue Recognition C&D recognizes revenue when the earnings process is complete. This occurs when products are shipped to the customer in accordance with terms of the agreement, title and risk of loss have been transferred, collectibility is reasonably assured and pricing is fixed and determinable. Accruals are made for sales returns and other allowances based on our experience. While returns have historically been minimal and within the provisions established, we cannot guarantee that we will continue to experience the same return rates that we have in the past. Impairment of Goodwill Goodwill represents the excess of the cost over the fair value of net assets acquired in business combinations. Goodwill and other "indefinite-lived" assets are not amortized and are subject to the impairment rules of SFAS No. 142, "Goodwill and Other Intangible Assets," which C&D adopted on February 1, 2002. Goodwill is tested for impairment on an annual basis or upon the occurrence of certain circumstances or events. C&D determines the fair market value of its reporting units using quoted market rates and cash flow techniques. The fair market value of the reporting units is compared to the carrying value of the reporting units to determine if an impairment loss should be calculated. If the book value of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is indicated. The loss is calculated by comparing the fair value of the goodwill to the book value of the goodwill. If the book value of the goodwill exceeds the fair value of the goodwill, an impairment loss is recorded. Fair value of goodwill is determined by subtracting the fair value of the identifiable assets of a reporting unit from the fair value of the reporting unit. In the fiscal year ended January 31, 2003, we recorded an impairment of goodwill in our Motive Power Division, resulting in the complete write-off of all goodwill related to the Motive Power Division. No impairment to goodwill existed in any of our other divisions as of January 31, 2003. 22 Research and Development Research and development costs are expensed as incurred. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities, which conduct certain research activities on behalf of C&D. The cost of materials (whether from our normal inventory or acquired specially for research and development activities) and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) are capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are recorded as research and development costs. Fiscal 2003 Compared to Fiscal 2002 All comparisons are with the corresponding periods in the previous year, unless otherwise stated. Net sales for fiscal 2003 decreased $135,896 or 29% to $335,745 from $471,641 in fiscal 2002. This decrease resulted from lower customer demand for products of all divisions. Sales by the Powercom Division declined $90,324, or 38%, primarily due to lower sales to the telecommunications and UPS markets. This business continues to be affected by the lower spending levels in the telecommunications sector. However, the division did have more than $17,000 in sales from products introduced within the last twelve months. Dynasty Division sales decreased $22,911, or 20%, also due to a decline in sales to the telecommunications and UPS markets, partially offset by an increase in sales to the mobility market. The lower market demand for sealed product continues to affect this division. New products contributed approximated $4,000 of sales to this division. Sales of the Power Electronics Division fell $16,315, or 26%, mainly due to lower DC to DC converter sales, standard power supply sales and custom power supply sales. The division continues to be negatively impacted by a substantial reduction in the requirements of a single customer. Although the overall pace of the Power Electronics Division remains sluggish due to the continuing state of the telecommunications market, we are encouraged by the number of new products we brought to market. Over 15% of fiscal 2003 sales by the Power Electronics Division came from products introduced in the last 15 months. Additionally, we overhauled the distribution channels of this division. Distributors have been replaced and upgraded, while the manufacturing representative network has been strengthened. Our web-based initiatives came on line in the latter part of the year and we are now beginning to see positive results. Motive Power divisional sales dropped $6,346, or 10% due to lower sales of batteries and chargers. Motive Power sales increased modestly in the fourth quarter of fiscal 2003, based upon recent changes in sales channels. Additionally, we launched a private branding program for batteries and chargers to customers with whom we had not previously done business. Gross profit for fiscal 2003 decreased $49,572 or 39% to $78,699 from $128,271 in the prior year, resulting in a decrease in gross margin from 27.2% to 23.4%. Gross profit declined in the Powercom, Dynasty and Motive Power divisions, primarily as a result of lower sales volumes, coupled with plant operational difficulties in the Motive Power Division. Gross profit in the Power Electronics Division increased on lower sales due to inventory-related charges in the prior fiscal year, partially offset by re-organization charges of $1,263 recorded in the fourth quarter of fiscal 2003 related to the closure of our Shannon, Ireland facility and the relocation of certain Mexican manufacturing activities to our Guangzhou, China facility, which has lower manufacturing costs. Selling, general and administrative expenses for fiscal 2003 decreased $15,270 or 30%. This decrease was primarily due to: (i) lower variable selling costs associated with the decreased sales volumes; (ii) the implementation of SFAS No. 142 in fiscal 2002 which discontinued the amortization of goodwill; (iii) costs recorded in fiscal 2002 related to a potential acquisition that did not close; (iv) lower payroll-related expenses; (v) the gain recognized on the sale of our Conshohocken, Pennsylvania facility; and (vi) lower advertising expenses. Partially offsetting this decrease were: (i) higher warranty expenses; and (ii) the positive effect of the 23 full recovery of certain litigation and settlement costs from one of our insurance carriers during the first quarter of fiscal 2002. Research and development expenses decreased $782 or 8%, primarily due to lower spending in the Power Electronics and Powercom divisions. As a percentage of sales, research and development expenses increased from 2.2% of sales in fiscal 2002 to 2.8% of sales in fiscal 2003 as a result of lower sales volumes. Operating income decreased $33,520 or 50% to $34,054 from $67,574 in the prior year. This decrease was the result of lower operating income generated by the Powercom and Dynasty divisions, coupled with a higher operating loss generated by the Motive Power Division. This decrease was partially offset by a lower operating loss in the Power Electronics Division. Interest expense, net, decreased $2,900 in fiscal 2003 compared to the prior year, primarily due to lower average debt balances outstanding during the year, coupled with lower effective interest rates. Income tax expense for fiscal 2003 decreased $12,830 from fiscal 2002, primarily as the result of lower income before income taxes and a decrease in our effective tax rate. The effective tax rate consists of statutory rates adjusted for the tax impacts of research and development credits and foreign operations. The effective tax rate for fiscal 2003 decreased to 32.7% from 37.3% in the prior year, primarily as a result of the resolution of state tax audits in the fourth quarter of fiscal 2003. We expect our tax rate will return to approximately 37% in fiscal 2004. Minority interest of $91 in fiscal 2003 reflects the 33% ownership interest in the joint venture battery business located in Shanghai, China that is not owned by C&D. The decrease in minority interest was due to lower profitability of the Shanghai joint venture. As a result of the above, for fiscal 2003, net income decreased $16,782 or 47% to $19,292 or $0.75 per share - basic and $0.74 per share - diluted. Fiscal 2002 Compared to Fiscal 2001 All comparisons are with the corresponding periods in the previous year, unless otherwise stated. In December 2000 (effective as of November 26, 2000), we acquired the Newport Components Division of Newport Technology Group Limited, a producer of electronic power conversion (primarily DC to DC converters) based in the United Kingdom. For reporting purposes, this acquisition is included as part of the Power Electronics Division and is referred to as C&D Technologies (NCL) Limited ("NCL"). We continue to use the assets acquired in such business. As result of the timing of the above acquisition, fiscal 2001, which ended January 31, 2001, does not include revenue or expense for ten months of the twelve-month period with respect to our acquisition of NCL. Net sales for fiscal 2002 decreased $144,037 or 23% to $471,641 from $615,678 in fiscal 2001. This decrease resulted from lower customer demand for products of all divisions. Sales by the Dynasty Division declined $50,278, or 31%, due to lower sales to the UPS, CATV and telecommunications markets. Power Electronics divisional sales decreased $46,962, or 43%, primarily due to a decline in DC to DC converter sales, partially offset by the recording of a full year of sales by NCL versus two months in fiscal 2001. Sales of the Powercom Division fell $29,862, or 11% mainly due to lower telecommunication sales, partially offset by higher sales to the UPS and control markets. Motive Power divisional sales dropped $16,935, or 22% due to lower sales of batteries and chargers. Gross profit for fiscal 2002 decreased $48,272 or 27% to $128,271 from $176,543 in the prior year, 24 resulting in a decrease in gross margin from 28.7% to 27.2%. Gross profit declined in all divisions, primarily as a result of lower sales. Selling, general and administrative expenses for fiscal 2002 decreased $15,837 or 24%. This decrease was primarily due to: (i) lower variable selling costs associated with the decreased sales volumes; (ii) the reduction of general and administrative expenses associated with the full recovery of litigation settlement costs from our insurance carriers in the first quarter of fiscal 2002, which was reserved for in fiscal 2001; (iii) lower bonus accruals; (iv) lower warranty expenses; (v) lower travel expenses; and (vi) lower advertising expenses. Partially offsetting this decrease was: (i) the recording of a full year of selling, general and administrative expenses during fiscal 2002 by NCL (including amortization of goodwill and other intangible assets), compared to only two months in the prior year; (ii) costs related to a potential acquisition that did not close; and (iii) costs associated with the closure of the Conshohocken, Pennsylvania plant. Research and development expenses were up by a nominal amount on lower sales. Operating income decreased $32,445 or 32% to $67,574 from $100,019 in the prior year. This decrease was the result of lower operating income generated by the Dynasty Division, coupled with an operating loss generated by the Power Electronics Division versus operating income in the prior fiscal year. This decrease was partially offset by higher Powercom divisional operating income, coupled with a lower operating loss generated by the Motive Power Division. (See the segment reporting information in Note 15, Operations by Industry Segment and Geographic Area in the Notes to the Consolidated Financial Statements.) Interest expense, net, increased $385 in fiscal 2002 compared to the prior year, primarily due to higher weighted average debt balances outstanding during the year, coupled with lower capitalized interest resulting from our reduced level of capital spending, partially offset by a lower effective interest rate. Income tax expense for fiscal 2002 decreased $13,639 from fiscal 2001, primarily as a result of lower income before income taxes and a decrease in the effective tax rate. The effective tax rate consists of statutory rates adjusted for the tax impacts of our foreign sales corporation, research and development credits and foreign operations. The effective tax rate for fiscal 2002 decreased to 37.3% from 38.0% in the prior year. Minority interest of $1,317 in fiscal 2002 reflects the 33% ownership interest in the joint venture battery business located in Shanghai, China that is not owned by C&D. The decrease in minority interest was due to lower profitability of the Shanghai joint venture. As a result of the above, for fiscal 2002, net income decreased $19,821 or 35% to $36,074 or $1.38 per share - basic and $1.35 per share - diluted. Liquidity and Capital Resources Net cash provided by operating activities decreased $26,620 or 33% to $55,150 for the fiscal year ended January 31, 2003 compared to $81,770 in the prior fiscal year. This decrease in net cash provided by operating activities was primarily due to: (i) a smaller decrease in accounts receivable in fiscal 2003 versus fiscal 2002; (ii) a decrease in net income; (iii) a larger increase in other long-term assets, primarily due to pension plan funding; and (iv) a decrease in depreciation and amortization (primarily due to the implementation of SFAS No. 142 in the current year). These changes, resulting in lower net cash provided by operating activities, were partially offset by: (i) increases in accounts payable and current taxes payable versus decreases in the prior year; (ii) a smaller increase in accrued liabilities; (iii) and a larger decrease in the deferred tax balance. Net cash used by investing activities decreased $23,276 or 87% to $3,511 in fiscal 2003 compared to $26,787 in fiscal 2002, due to lower capital spending and higher proceeds from the disposal of property, plant 25 and equipment. Fiscal 2003 proceeds included $3,000 from the sale of our Conshohocken, Pennsylvania facility. The property was sold for $5,000 including a $2,000 note receivable. Net cash used by financing activities decreased $6,176 or 11% to $47,648 in fiscal 2003 compared to $53,824 in the prior year. This decrease was primarily due to a lower repayment of long-term debt, partially offset by having no proceeds from new borrowings in the current year as compared to $8,662 in the prior year, and lower proceeds from the issuance of common stock in fiscal 2003. New borrowings in fiscal 2002 related to a 22 million British Pound Sterling line of credit, the proceeds of which were used to pay down debt denominated in U.S. Dollars. The availability under our current loan agreement is expected to be sufficient to meet our ongoing cash needs for working capital requirements, debt service, capital expenditures and possible strategic acquisitions. This loan agreement contains restrictive covenants that require us to maintain minimum ratios such as fixed charge coverage and leverage ratios, as well as minimum consolidated net worth. We were in compliance with our loan agreement covenants at January 31, 2003. Our current loan agreement expires on March 1, 2004. Therefore, during the first quarter of fiscal 2004, all of our debt will be classified as current. We expect to enter into a new loan agreement prior to March 1, 2004. Capital expenditures during fiscal 2003 were incurred to fund a continuing series of cost reduction programs, normal maintenance and regulatory compliance. Fiscal 2004 capital expenditures are expected to be less than $10,000 for similar purposes. We intend to continue making prudent purchases of our Company stock, paying down debt and selectively pursuing complementary acquisitions. Strategic acquisition opportunities will be expected to enhance C&D's long-term competitive position and growth prospects and may require external financing. We cannot assure, however, that we will close on any such acquisitions. Our bank loan agreement permits dividends to be paid on our Common Stock as long as there is no default under that agreement. Subject to that restriction and the provisions of Delaware law, our Board of Directors currently intends to continue paying dividends. We cannot assure you that we will continue to do so since future dividends will depend on our earnings, financial condition and other factors. 26 Contractual Obligations and Commercial Commitments The following tables summarize our contractual obligations and commercial commitments as of January 31, 2003 (dollars in thousands):
Payments Due by Period ---------------------------------------------------------- Less than 1 - 3 4 - 5 After 5 Contractual Obligations Total 1 year years years years ------- --------- ------- ------ ------- Term loan ............................ $18,669 $14,062 $ 4,607 -- -- Operating leases ..................... 19,204 2,979 4,468 $3,897 $7,860 ------- ------- ------- ------ ------ Total contractual cash obligations ... $37,873 $17,041 $ 9,075 $3,897 $7,860 ======= ======= ======= ====== ====== Amount of Commitment Expiration Per Period ----------------------------------------------------------- Total Other Commercial Commitments Amounts Less than 1 - 3 4 - 5 After 5 Committed 1 year years years years --------- --------- ------- ------ ------- Lines of credit ...................... $21,250 -- $21,250 -- -- Standby letters of credit ............ 3,521 $ 3,521 -- -- -- ------- ------- ------- ------ ------ Total commercial commitments ......... $24,771 $ 3,521 $21,250 -- -- ======= ======= ======= ====== ======
New Accounting Pronouncements In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting requirements for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We are currently in the process of evaluating the impact SFAS No. 143 will have on our financial position and results of operations, if any. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing and amount of costs recognized as a result of restructuring and similar activities. We will apply SFAS No. 146 prospectively to activities initiated after December 31, 2002. SFAS No. 146 had no significant impact at the point of adoption on our consolidated statements of income or financial position. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. FIN 45 also requires guarantors to disclose certain information for guarantees, including product warranties. (See Part II Item 8. Note 16.) In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Accounting and Disclosure." SFAS No. 148, which is an amendment of SFAS No. 123, provides alternative recognition transition methods for a voluntary change from the intrinsic method, permitted under Accounting Principles Board Opinion No. 25, to the fair value based method of accounting for stock based employee compensation. SFAS No. 148 also requires more prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock based employee compensation and 27 requires disclosure about those effects in interim financial information. Prior to SFAS No. 148, disclosures about the effects of stock based employee compensation were only required in annual financial information. Disclosure prominence is to be achieved by placing certain disclosures related to stock based employee compensation in the summary of significant accounting policies. The transition and disclosure in accounting policies provisions are effective for fiscal years ending after December 15, 2002. We have adopted the disclosure provisions of SFAS No. 148 effective as of January 31, 2003. The adoption of the new standard did not have any impact on our financial position or results of operations. Item 7A. Quantitative and Qualitative Disclosure About Market Risk All dollar amounts in this Item 7A are in thousands. Market Risk Factors We are exposed to various market risks. The primary financial risks include fluctuations in interest rates and changes in currency exchange rates. We manage these risks by using derivative instruments. We do not invest in derivative securities for trading purposes, but do enter into hedging arrangements in order to reduce our exposure to fluctuations in interest rates as well as to fluctuations in exchange rates. (See Part II Item 8. Note 1 and Note 12.) Our financial instruments that are subject to interest rate risk consist of debt instruments and interest rate swap contracts. The net market value of our debt instruments (excluding capital lease obligations) was $39,919 and $74,143 at January 31, 2003 and 2002, respectively. The debt instruments are subject to variable rate interest, and therefore the market value is not sensitive to interest rate movements. Interest rate swap contracts are used to manage our exposure to fluctuations in interest rates on our underlying variable rate debt instruments. We employ separate swap transactions rather than fixed rate obligations to take advantage of the lower borrowing costs associated with floating rate debt while also eliminating possible risk related to refinancing in the fixed rate market. The net market value of our interest rate swaps was $(1,898) and $(1,835) at January 31, 2003 and 2002, respectively. A 100-basis point increase in rates at January 31, 2003 and 2002 would result in a $525 and a $924 increase in the market value, respectively. A 100-basis point decrease in rates at January 31, 2003 and 2002 would result in an $693 and a $883 decrease in the market value, respectively. The above sensitivity analysis assumes an instantaneous 100-basis point move in interest rates from their year-end levels, with all other variables held constant. We calculate the market value of the interest rate swaps by utilizing a standard net present value model based on the market conditions as of the valuation date. We use currency forwards and swaps to hedge anticipated cash flows in foreign currencies. The exposures currently hedged are the British Pound, the Euro, and Canadian Dollar. These financial instruments represent a net market value of $(258) and $(34) at January 31, 2003 and 2002, respectively. To monitor our currency exchange rate risk, we use sensitivity analysis to measure the impact on earnings in the case of a 10% change in exchange rates. 28 The sensitivity analysis assumes an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables being held constant. At January 31, 2003 and 2002, a 10% strengthening of the US Dollar versus these currencies would result in an increase of the net market value of the forwards of $2,695 and $1,579, respectively. At January 31, 2003 and 2002, a 10% weakening of the US Dollar versus these currencies would result in a decrease in the net market value of the forwards of $2,739 and $1,737, respectively. The market value of the instruments was determined by taking into consideration the contracted interest rates and foreign exchange rates versus those available for similar maturities in the market at January 31, 2003 and 2002, respectively. Foreign exchange forwards are used to hedge our firm and anticipated foreign currency cash flows. There is either a balance sheet or cash flow exposure related to all of the financial instruments in the above sensitivity analysis for which the impact of a movement in exchange rates would be in the opposite direction and substantially equal to the impact on the instruments in the analysis. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data listed in Item 15(a)(1) hereof are incorporated herein by reference and are filed as part of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 29 PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item 10 is incorporated by reference to the information under the captions "Election of Directors," "Current Executive Officers" and "Compliance with Section 16(a)" of the Securities Exchange Act of 1934" included in C&D's proxy statement for our 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission. Item 11. Executive Compensation The information required by this Item 11 is incorporated by reference to the information under the caption "Executive Compensation" included in C&D's proxy statement for our 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 is incorporated in reference to the information under the captions "Principal Stockholders," "Beneficial Ownership of Management" and "Equity Compensation Plan Information" included in C&D's Proxy Statement for our 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission. Item 13. Certain Relationships and Related Transactions None. Item 14. Controls and Procedures Within the 90 days prior to the date of this Annual Report on Form 10-K, C&D carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was performed under the supervision and with the participation of management, including C&D's Chief Executive Officer and Chief Financial Officer. Under the rules of the Securities and Exchange Commission, the term "disclosure controls and procedures" means controls and other procedures of C&D that are designed to ensure that information required to be disclosed by C&D in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by C&D in such report is accumulated and communicated to C&D's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 30 Based on this evaluation, C&D's Chief Executive Officer and Chief Financial Officer concluded that C&D's disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that C&D is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no significant changes in C&D's internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation. A control system, no matter how well-designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. 31 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this report: (1) The following financial statements are included in this report on Form 10-K: C&D TECHNOLOGIES, INC. AND SUBSIDIARIES Report of Independent Accountants Consolidated Balance Sheets as of January 31, 2003 and 2002 Consolidated Statements of Income for the years ended January 31, 2003, 2002 and 2001 Consolidated Statements of Stockholders' Equity for the years ended January 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended January 31, 2003, 2002 and 2001 Consolidated Statements of Comprehensive Income for the years ended January 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements (2) The following financial statement schedule is included in this report on Form 10-K: C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January 31, 2003, 2002 and 2001 II. Valuation and Qualifying Accounts (3) Exhibits: 3.1 Restated Certificate of Incorporation of C&D, as amended (incorporated by reference to Exhibits 3.1 and 3.2 to C&D's Current Report on Form 8-K dated June 30, 1998). 3.2 Amended and Restated By-laws of C&D (incorporated by reference to Exhibit 3.1 to C&D's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2002). 4.1 Rights Agreement dated as of February 22, 2000 between C&D and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder Services, L.L.C.), as rights agent, which includes as Exhibit B thereto the form of rights certificate (incorporated by reference to Exhibit 1 to C&D's Form 8-A Registration Statement filed on February 28, 2000). 10.1 Purchase Agreement dated November 27, 1985, between Allied, Allied Canada Inc. and C&D; Amendments thereto dated January 28 and October 8, 1986 (incorporated by reference to Exhibit 10.1 to C&D's Registration Statement on Form S-1, No. 33-10889). 32 10.2 Agreement dated December 15, 1986 between C&D and Allied (incorporated by reference to Exhibit 10.2 to C&D's Registration Statement on Form S-1, No. 33-10889). 10.3 Lease Agreement dated February 15, 1994 by and between Sequatchie Associates, Incorporated and C&D Charter Power Systems, Inc. (which has since been merged into C&D) (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended April 30, 1999). 10.4 Purchase and Sale Agreement, dated as of November 23, 1998 among Johnson Controls, Inc. and its subsidiaries as Seller and C&D and C&D Acquisition Corp. as Purchaser (incorporated by reference to Exhibit 2.1 to C&D's Current Report on Form 8-K dated March 1, 1999). 10.5 Credit Agreement, dated as of March 1, 1999 among C&D, as borrower, certain subsidiaries and affiliates of C&D, as guarantors, the lenders named therein, and Bank of America (formerly NationsBank, N.A.), as administrative agent (incorporated by reference to Exhibit 2.2 to C&D's Current Report on Form 8-K dated March 1, 1999); First Amendment thereto dated February 18, 2000 (incorporated by reference to Exhibit 10.5 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2000), Second Amendment thereto dated July 20, 2000 (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 2000), Third Amendment thereto dated July 24, 2000 (incorporated by reference to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 2000), Fourth Amendment thereto dated October 13, 2000 (incorporated by reference to Exhibit 10.1 to C&D's Current Report on Form 8-K dated December 15, 2000), Fifth Amendment thereto dated October 13, 2000 (incorporated by reference to Exhibit 10.2 to C&D's Current Report on Form 8-K dated December 15, 2000), Sixth Amendment thereto dated April 4, 2001 (incorporated by reference to Exhibit 10.5 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2001), Seventh Amendment thereto dated June 21, 2002 (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 2002). 10.6 Uncommitted loan facility dated June 5, 2001 between C&D Holdings Limited and ABN Amro Bank N.V. (incorporated by reference to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the period ended April 30, 2001). Management Contracts or Plans 10.7 Charter Power Systems, Inc. 1996 Stock Option Plan (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996), First Amendment to C&D Technologies, Inc. 1996 Stock Option Plan (formerly known as the Charter Power Systems, Inc. 1996 Stock Option Plan) dated April 27, 1999 (incorporated by reference to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 1999). 10.8 C&D Technologies, Inc. Amended and Restated 1998 Stock Option Plan (incorporated by reference to Exhibit 10.7 to C&D's Annual Report on Form 10-K for fiscal year ended January 31, 2001). 33 10.9 C&D Technologies, Inc. Savings Plan as restated and amended (incorporated by reference to Exhibit 10.9 to C&D's Annual Report on Form 10-K for fiscal year ended January 31, 2002), First Amendment thereto dated June 12, 2002 (incorporated by reference to Exhibit 10.10 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002), Second Amendment thereto dated November 20, 2002 (incorporated by reference to Exhibit 10.11 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.10 C&D Technologies, Inc. Pension Plan for Salaried Employees as restated and amended (incorporated by reference to Exhibit 10.10 to C&D's Annual Report on Form 10-K for fiscal year ended January 31, 2002). 10.11 Supplemental Executive Retirement Plan, amended and restated as of February 27, 2001 (incorporated by reference to Exhibit 10.10 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2001). 10.12 C&D Technologies, Inc. Management Incentive Bonus Plan Policy (incorporated by reference to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for the quarter ended April 30, 2002). 10.13 Employment Agreement dated November 28, 2000 between Wade H. Roberts, Jr. and C&D (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2000). 10.14 Employment Agreement dated March 31, 2000 between Stephen E. Markert, Jr. and C&D (incorporated by reference to Exhibit 10.14 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2000). 10.15 Employment Agreement dated March 31, 2000 between Linda R. Hansen and C&D (incorporated by reference to Exhibit 10.15 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2000). 10.16 Employment Agreement dated March 31, 2000 between Charles R. Giesige, Sr. and C&D (incorporated by reference to Exhibit 10.18 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2000). 10.17 Employment Agreement dated March 31, 2000 between Apostolos T. Kambouroglou and C&D (incorporated by reference to Exhibit 10.21 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2000). 10.18 Employment Agreement dated February 27, 2001 between John A. Velker and C&D (filed herewith). 10.19 Employment Agreement dated March 1, 2001 between David A. Fix and C&D (incorporated by reference to Exhibit 10.21 to C&D's Annual Report on Form 10-K for the fiscal year ended January 31, 2001). 10.20 Employment Agreement dated August 6, 2001 between James D. Johnson and C&D (incorporated by reference to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2001). 34 10.21 Employment Agreement dated July 24, 2002 between Robert M. Scott and C&D (incorporated by reference to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for quarter ended July 31, 2002). 10.22 Agreement and Release dated March 1, 2002 between Mark Z. Sappir and C&D (incorporated by reference to Exhibit 10.21 to C&D's Annual Report on Form 10-K for fiscal year ended January 31, 2002). 10.23 Employee Separation Agreement dated June 21, 2002 between Mark D. Amatrudo and C&D (incorporated by reference to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the quarter ended July 31, 2002). 10.24 Employee Separation Agreement dated September 24, 2002 between Kathryn R. Bullock and C&D (incorporated by reference to Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.25 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and William Harral, III (incorporated by reference to Exhibit 10.2 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.26 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Wade H. Roberts, Jr. (incorporated by reference to Exhibit 10.3 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.27 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Peter R. Dachowski (incorporated by reference to Exhibit 10.4 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.28 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Kevin P. Dowd (incorporated by reference to Exhibit 10.5 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.29 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Robert I. Harries (incorporated by reference to Exhibit 10.6 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.30 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and Pamela S. Lewis (incorporated by reference to Exhibit 10.7 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.31 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and George MacKenzie (incorporated by reference to Exhibit 10.8 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.32 Indemnification Agreement dated as of November 19, 2002 by and between C&D Technologies, Inc. and John A. H. Shober (incorporated by reference to Exhibit 10.9 to C&D's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002). 10.33 Indemnification Agreement dated as of February 24, 2003 by and between C&D Technologies, Inc. and Stanley W. Silverman (filed herewith). 35 10.34 C&D Technologies, Inc. Nonqualified Deferred Compensation Plan (incorporated by reference to Exhibit 4 to C&D's Registration Statement on Form S-8, No. 333-42054). 10.35 C&D Technologies, Inc. Approved Share Option Plan (incorporated by reference to Exhibit 4 to C&D's Registration Statement on Form S-8, No. 333-69266). 21 Subsidiaries of C&D (filed herewith). 23 Consent of Independent Accountants (filed herewith). 99.1 Additional Exhibit - Statement of Chief Executive Officer pursuant to Section 1350 of the United States Code (filed herewith). 99.2 Additional Exhibit - Statement of Chief Financial Officer pursuant to Section 1350 of the United States Code (filed herewith). (b) Reports on Form 8-K No Reports on Form 8-K were filed by C&D during the last quarter of the period covered by this report. 36 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 17, 2003 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 17, 2003 - ----------------------------- Officer and Director Wade H. Roberts, Jr. (Principal Executive Officer) /s/ Stephen E. Markert, Jr. Vice President Finance April 17, 2003 - ----------------------------- (Principal Financial and Stephen E. Markert, Jr. Accounting Officer) /s/ William Harral, III Director, Chairman April 17, 2003 - ----------------------------- William Harral, III /s/ Peter R. Dachowski Director April 17, 2003 - ----------------------------- Peter R. Dachowski /s/ Kevin P. Dowd Director April 17, 2003 - ----------------------------- Kevin P. Dowd /s/ Robert I. Harries Director April 17, 2003 - ----------------------------- Robert I. Harries /s/ Pamela S. Lewis Director April 17, 2003 - ----------------------------- Pamela S. Lewis /s/ George MacKenzie Director April 17, 2003 - ----------------------------- George MacKenzie /s/ John A. H. Shober Director April 17, 2003 - ----------------------------- John A. H. Shober /s/ Stanley W. Silverman Director April 17, 2003 - ----------------------------- Stanley W. Silverman
37 CERTIFICATION I, Wade H. Roberts, Jr., President and Chief Executive Officer of C&D Technologies, Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended January 31, 2003 of C&D Technologies, Inc.; 2. Based on my knowledge, this Annual 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 Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 Annual 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 date of this Annual Report (the "Evaluation Date"); and (c) presented in this Annual 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 weaknesses 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 38 6. The registrant's other certifying officer and I have indicated in this Annual Report whether or not there were significant changes in 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 weaknesses. Date: April 17, 2003 /s/ Wade H. Roberts, Jr. ---------------------------------------- Wade H. Roberts, Jr., President and Chief Executive Officer (Principal Executive Officer) 39 CERTIFICATION I, Stephen E. Markert, Jr., Vice President - Finance and Chief Financial Officer of C&D Technologies, Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended January 31, 2003 of C&D Technologies, Inc.; 2. Based on my knowledge, this Annual 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 Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 Annual 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 date of this Annual Report (the "Evaluation Date"); and (c) presented in this Annual 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 weaknesses 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 40 6. The registrant's other certifying officer and I have indicated in this Annual Report whether or not there were significant changes in 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 weaknesses. Date: April 17, 2003 /s/ Stephen E. Markert, Jr. ---------------------------------------- Stephen E. Markert, Jr., Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 41 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, 2003 and 2002 .................................. F-3 Consolidated Statements of Income for the years ended January 31, 2003, 2002 and 2001 ................................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended January 31, 2003, 2002 and 2001 ...................... F-5 Consolidated Statements of Cash Flows for the years ended January 31, 2003, 2002 and 2001 ................................................... F-6 Consolidated Statements of Comprehensive Income for the years ended January 31, 2003, 2002 and 2001 .............................................. F-8 Notes to Consolidated Financial Statements ................... F-9 FINANCIAL STATEMENT SCHEDULE C&D TECHNOLOGIES, INC. AND SUBSIDIARIES For the years ended January 31, 2003, 2002 and 2001 Schedule II. Valuation and Qualifying Accounts .............. S-1 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of C&D Technologies, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 32 present fairly, in all material respects, the financial position of C&D Technologies, Inc. and subsidiaries (the "Company") at January 31, 2003 and January 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) on page 32 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the 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 our opinion. As discussed in Note 1, the Company adopted Statements of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" on February 1, 2002. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 14, 2003 F-2 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, (Dollars in thousands)
2003 2002 --------- --------- ASSETS Current assets: Cash and cash equivalents ............................... $ 12,966 $ 8,781 Accounts receivable, less allowance for doubtful accounts of $1,906 in 2003 and $2,278 in 2002 ..... 44,890 44,968 Inventories ............................................. 47,905 61,674 Deferred income taxes ................................... 8,234 10,156 Other current assets .................................... 2,304 6,754 --------- --------- Total current assets .............................. 116,299 132,333 Property, plant and equipment, net ........................... 112,158 131,207 Intangible and other assets, net ............................. 38,724 24,659 Goodwill ..................................................... 114,975 107,359 --------- --------- Total assets ...................................... $ 382,156 $ 395,558 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt ......................................... $ 14,062 $ 27,255 Accounts payable ........................................ 21,841 19,640 Accrued liabilities ..................................... 18,961 22,210 Other current liabilities ............................... 7,659 8,214 --------- --------- Total current liabilities ......................... 62,523 77,319 Deferred income taxes ........................................ 10,579 2,602 Long-term debt ............................................... 25,857 46,892 Other liabilities ............................................ 16,613 18,574 --------- --------- Total liabilities ................................. 115,572 145,387 Commitments and contingencies Minority interest ............................................ 8,310 8,313 Stockholders' equity: Common stock, $.01 par value, 75,000,000 shares authorized; 28,509,803 and 28,431,728 shares issued in 2003 and 2002, respectively ...... 285 284 Additional paid-in capital .............................. 69,152 65,893 Treasury stock, at cost, 2,810,280 and 2,414,161 shares in 2003 and 2002, respectively ... (38,409) (29,743) Accumulated other comprehensive income (loss) ........... 881 (3,057) Retained earnings ....................................... 226,365 208,481 --------- --------- Total stockholders' equity ........................ 258,274 241,858 --------- --------- Total liabilities and stockholders' equity ........ $ 382,156 $ 395,558 ========= =========
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) 2003 2002 2001 -------- -------- -------- Net sales .............................. $335,745 $471,641 $615,678 Cost of sales .......................... 257,046 343,370 439,135 -------- -------- -------- Gross profit ................ 78,699 128,271 176,543 Selling, general and administrative expenses ............................. 35,136 50,406 66,243 Research and development expenses ...... 9,509 10,291 10,281 -------- -------- -------- Operating income ............ 34,054 67,574 100,019 Interest expense, net .................. 3,800 6,700 6,315 Other expense (income), net ............ 1,457 1,239 (725) -------- -------- -------- Income before income taxes and minority interest ..... 28,797 59,635 94,429 Provision for income taxes ............. 9,414 22,244 35,883 -------- -------- -------- Net income before minority interest .................. 19,383 37,391 58,546 Minority interest ...................... 91 1,317 2,651 -------- -------- -------- Net income .................. $ 19,292 $ 36,074 $ 55,895 ======== ======== ======== Net income per common share - basic .... $ 0.75 $ 1.38 $ 2.13 Net income per common share - diluted .. $ 0.74 $ 1.35 $ 2.05 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, 2003, 2002 and 2001 (Dollars in thousands, except per share data)
Accumulated Common Stock Additional Treasury Stock Other ------------------------ Paid-In ------------------------- Comprehensive Retained Shares Amount Capital Shares Amount Income (Loss) Earnings ---------- ---------- ---------- ---------- ---------- ------------- ---------- Balance as of January 31, 2000 ............. 27,867,480 $ 279 $ 53,829 (1,810,204) $ (10,819) $ (617) $ 119,394 Net income ..................... 55,895 Dividends to stockholders, $.055 per share .............. (1,445) Tax effect relating to stock options exercised ............ 4,420 Foreign currency translation adjustment ................... (614) Purchase of common stock ....... (174,400) (6,856) Deferred Compensation Plan ..... (1,434) (75) Issuance of common stock ....... 3,418 179 Stock options exercised ........ 406,019 4 4,480 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance as of January 31, 2001 ............. 28,276,917 283 62,908 (1,986,038) (17,750) (1,231) 173,844 Net income ..................... 36,074 Dividends to stockholders, $.055 per share .............. (1,437) Tax effect relating to stock options exercised ............ 755 Cumulative effect of accounting change ............ (103) Foreign currency translation adjustment ................... (676) Unrealized loss on derivative instruments ....... (1,047) Purchase of common stock ....... (414,563) (11,634) Deferred compensation plan ..... (13,560) (359) Issuance of common stock ....... 6,911 185 Stock options exercised ........ 147,900 1 2,045 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance as of January 31, 2002 ............. 28,431,728 284 65,893 (2,414,161) (29,743) (3,057) 208,481 Net income ..................... 19,292 Dividends to stockholders, $.055 per share .............. (1,408) Tax effect relating to stock options exercised ............ 179 Foreign currency translation adjustment ................... 3,926 Unrealized gain on derivative instruments ....... 12 Purchase of common stock ....... (585,800) (9,792) Deferred compensation plan ..... (50) (3,319) (16) Issuance of common stock ....... 7,741 2,247 193,000 1,142 Stock options exercised ........ 70,334 1 883 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance as of January 31, 2003 ............. 28,509,803 $ 285 $ 69,152 (2,810,280) $ (38,409) $ 881 $ 226,365 ========== ========== ========== ========== ========== ========== ==========
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)
2003 2002* 2001* -------- -------- -------- Cash flows provided (used) by operating activities: Net income ............................................... $ 19,292 $ 36,074 $ 55,895 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest ........................................ 91 1,317 2,651 Depreciation and amortization ............................ 23,740 30,049 26,054 Impairment of goodwill ................................... 489 -- -- Deferred income taxes .................................... 9,900 2,301 1,106 (Gain)/loss on disposal of assets ........................ (955) 346 783 Changes in assets and liabilities, net of effects from businesses acquired: Accounts receivable ........................... 780 43,065 (8,935) Inventories ................................... 14,713 15,375 (13,888) Other current assets .......................... 185 305 (213) Accounts payable .............................. 3,760 (22,665) 936 Accrued liabilities ........................... (2,915) (12,097) 6,960 Income taxes payable .......................... 4,414 (7,392) 4,177 Other current liabilities ..................... (560) (579) 4,299 Other liabilities ............................. (1,673) (4,870) (528) Other long-term assets .................................... (11,649) (239) (127) Other, net .................................... (4,462) 780 (30) -------- -------- -------- Net cash provided by operating activities ................. 55,150 81,770 79,140 -------- -------- -------- Cash flows provided (used) by investing activities: Acquisition of businesses, net ........................... -- -- (51,095) Acquisition of property, plant and equipment ............. (7,163) (26,826) (41,075) Proceeds from disposal of property, Plant and equipment .................................... 3,652 39 165 -------- -------- -------- Net cash used by investing activities ..................... (3,511) (26,787) (92,005) -------- -------- -------- Cash flows provided (used) by financing activities: Repayment of debt ........................................ (35,655) (52,131) (27,928) Proceeds from new borrowings ............................. -- 8,662 45,700 Financing cost of long term debt ......................... (118) -- (258) Proceeds from issuance of common stock, net .............. 884 1,927 4,484 Purchase of treasury stock ............................... (10,899) (10,841) (6,931) Payment of common stock dividends ........................ (1,766) (1,441) (1,443) Payment of minority interest dividends ................... (94) -- -- -------- -------- -------- Net cash (used) provided by financing activities .......... (47,648) (53,824) 13,624 -------- -------- -------- Effect of exchange rate changes on cash ................... 194 (87) (171) -------- -------- -------- Increase in cash and cash equivalents ..................... 4,185 1,072 588 -------- -------- -------- Cash and cash equivalents at beginning of year ............ 8,781 7,709 7,121 -------- -------- -------- Cash and cash equivalents at end of year .................. $ 12,966 $ 8,781 $ 7,709 ======== ======== ========
* Reclassified for comparative purposes. 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)
2003 2002 2001 ------- -------- -------- SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid (received) during the year for: Interest paid, net ................................. $ 4,478 $ 7,277 $ 6,267 Income taxes (refunded) paid, net .................. $(3,737) $ 26,650 $ 30,594 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquired businesses: Estimated fair value of assets acquired ............ $ -- $ -- $ 9,852 Goodwill ........................................... -- -- 44,835 Identifiable intangible assets ..................... -- -- 2,356 Cash paid, net of cash required .................... -- -- (51,095) ------- -------- -------- Liabilities assumed ................................ $ -- $ -- $ 5,948 ======= ======== ======== Dividends declared but not paid ....................... $ -- $ 358 $ 362 Annual retainer to Board of Directors paid by the issuance of common stock ..................... $ 171 $ 185 $ 179 (Decrease) increase in property, plant and equipment acquisitions in accounts payable .................... $ (789) $ (4,539) $ 5,887 Note received as part of fixed asset sale ............. $ 2,000 $ -- $ -- Fair market value of treasury stock issued to pension plans .................................... $ 3,218 $ -- $ --
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)
2003 2002 2001 ------- ------- ------- Net income ............................................... $19,292 $36,074 $55,895 Other comprehensive income (loss), net of tax: Cumulative effect of accounting change ................ -- (103) -- Net unrealized gain (loss) on derivative instruments .. 12 (1,047) -- Foreign currency translation adjustments .............. 3,926 (676) (614) ------- ------- ------- Total comprehensive income ............................... $23,230 $34,248 $55,281 ======= ======= =======
See notes to consolidated financial statements. F-8 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of C&D Technologies, Inc., its wholly owned subsidiaries and a 67% owned joint venture (collectively the "Company"). All significant intercompany accounts and transactions have been eliminated. The Company produces and markets systems for the conversion and storage of electrical power, including industrial batteries and electronics. On January 28, 1986, the Company purchased substantially all of the assets of the C&D Power Systems division of Allied Corporation ("Allied") (the "Acquisition"). The Company's reportable business segments consist of the Powercom Division, the Dynasty Division, the Power Electronics Division and the Motive Power Division. (See Note 15.) Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation: Assets and liabilities in foreign currencies are translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Revenue and expenses are translated at the average rate of exchange for the period. Gains and losses on foreign currency transactions are included in other expenses (income), net. Derivative Financial Instruments: On February 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity as accumulated other comprehensive income (loss) or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of February 1, 2001, the adoption of the standard resulted in a net-of-tax cumulative effect increase of $103 recorded in accumulated other comprehensive loss. F-9 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In the normal course of business, the Company uses a variety of derivative financial instruments primarily to manage currency exchange rate and interest rate risk. All derivatives are recognized on the balance sheet at fair value and are generally reported in accrued liabilities. To qualify for hedge accounting, the instruments must be effective in reducing the risk exposure that they are designed to hedge. For instruments that are associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction will occur. Instruments that meet established accounting criteria are formally designated as hedges at the inception of the contract. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in fair value of the underlying exposure both at inception of the hedging relationship and on an ongoing basis. The assessment for effectiveness is formally documented at hedge inception and reviewed at least quarterly throughout the designated hedge period. The Company uses interest rate swap agreements to reduce the impact of interest rate changes on its debt. The interest rate swap agreements involve the exchange of variable for fixed rate interest payments without the exchange of the underlying notional amount. Cash and Cash Equivalents: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company's cash management program utilizes zero balance accounts. Accordingly, all book overdraft balances have been reclassified to accounts payable and amounted to $4,501 and $3,959 at January 31, 2003 and 2002, respectively. Revenue Recognition: The Company recognizes revenue when the earnings process is complete. This occurs when products are shipped to the customer in accordance with terms of the agreement, title and risk of loss have been transferred, collectibility is reasonably assured and pricing is fixed and determinable. Accruals are made for sales returns and other allowances based on the Company's experience. Amounts charged to customers for shipping and handling are classified as revenue. The Company accounts for sales rebates as a reduction in revenue at the time revenue is recorded. Inventories: Inventories are stated at the lower of cost or net realizable value. Cost is generally determined by the last-in, first-out ("LIFO") method for financial statement and federal income tax purposes. Property, Plant and Equipment: Property, plant and equipment acquired as of the Acquisition were recorded at the then fair market value. Property, plant and equipment acquired subsequent to the Acquisition are recorded at cost or fair market value if part of an acquisition. Property, plant and equipment, including capital leases, are F-10 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) depreciated on the straight-line method for financial reporting purposes over estimated useful lives which generally range from 3 to 10 years for machinery and equipment, and 10 to 40 years for buildings and improvements. The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. The cost of maintenance and repairs is charged to expense as incurred. Renewals and betterments are capitalized. Upon retirement or other disposition of items of property, plant and equipment, the cost of the item and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. The Company capitalizes purchased software, including certain costs associated with its installation. The cost of software capitalized is amortized over its estimated useful life, generally 3 to 5 years, using the straight-line method. Identified Intangible Assets, Net: Acquisition-related intangibles are amortized on a straight-line basis over periods ranging from 5 to 20 years. Intellectual property assets are amortized over the periods of benefit, ranging from 5 to 20 years, on a straight-line basis. All identified intangible assets are classified within intangible and other assets, net on the balance sheet. In the quarter following the period in which identified intangible assets become fully amortized, the fully amortized balances are removed from the gross asset and accumulated amortization amounts. Long-Lived Assets: The Company follows SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", which requires periodic evaluation of the recoverability of the carrying amount of long-lived assets (including property, plant and equipment, and intangible assets with determinable lives) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Events or changes in circumstances are evaluated based on a number of factors including operating results, business plans and forecasts, general and industry trends and, economic projections and anticipated cash flows. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in earnings. The Company also continually evaluates the estimated useful lives of all long-lived assets and periodically revises such estimates based on current events. Goodwill: On February 1, 2002, the Company completed the adoption of SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." As required by SFAS No. 142, the Company discontinued amortizing the remaining balances of goodwill as of the beginning of fiscal 2002. Through January 31, 2002, goodwill had been amortized over an estimated 20 to 40 years. All remaining and future acquired goodwill will be subject to an impairment test in the fourth quarter of each year, or earlier if indicators of potential impairment exist, using a fair-value-based approach. The Company completed the initial goodwill impairment review as of the beginning of fiscal 2003 and F-11 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) concluded that no impairment of goodwill existed at that time. The Company completed the annual impairment review during the fourth quarter of 2003 and recorded an impairment of $496 in selling, general and administrative expenses, which represented all of the goodwill in the Motive Power Division. No impairment to goodwill existed in any of the other divisions as of January 31, 2003. Upon adoption of the new business combinations rules, workforce-in-place no longer meets the definition of an identifiable intangible asset. As a result, as of the beginning of fiscal 2003, the net book value of $879 has been reclassified to goodwill. (See Note 3.) A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill and workforce-in-place amortization, net of the related income tax effect, is as follows: Year ended January 31, -------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Reported net income .................. $ 19,292 $ 36,074 $ 55,895 Goodwill amortization, net of tax .... -- 3,995 2,599 ---------- ---------- ---------- Adjusted net income .................. $ 19,292 $ 40,069 $ 58,494 ========== ========== ========== Reported net income per common share - basic ............... $ 0.75 $ 1.38 $ 2.13 Goodwill amortization, net of tax .... -- 0.15 0.10 Adjusted net income per ---------- ---------- ---------- common share - basic ............... $ 0.75 $ 1.53 $ 2.23 ========== ========== ========== Reported net income per common share - diluted ............. $ 0.74 $ 1.35 $ 2.05 Goodwill amortization, net of tax .... -- 0.15 0.10 Adjusted net income per ---------- ---------- ---------- common share - diluted ............. $ 0.74 $ 1.50 $ 2.15 ========== ========== ========== F-12 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Environmental Matters: Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are also expensed. The Company records liabilities for environmental costs when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. Income Taxes: The Company follows SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns using tax rates in effect for the year in which the differences are expected to reverse. Net Income Per Share: Net income per common share for the years ended January 31, 2003, 2002 and 2001 is based on the weighted average number of shares of Common Stock outstanding. Net income per common 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: January 31, -------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Weighted average shares of common stock outstanding ......................... 25,818,024 26,153,715 26,223,684 Assumed conversion of stock options, net of shares assumed reacquired .................. 207,155 534,296 1,040,844 ---------- ---------- ---------- Weighted average common shares - diluted .................... 26,025,179 26,688,011 27,264,528 ========== ========== ========== During the years ended January 31, 2003, 2002 and 2001, the Company had 1,176,034, 112,308 and 98,450, respectively, outstanding stock options that were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive. These stock options could be dilutive in the future. F-13 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Stock-Based Compensation Plans: In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation - Accounting and Disclosure." SFAS No. 148, which is an amendment of SFAS No. 123, provides alternative recognition transition methods for a voluntary change from the intrinsic method, permitted under APB Opinion No. 25, to the fair value based method of accounting for stock based employee compensation. SFAS No. 148 also requires more prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock based employee compensation and requires disclosure about those effects in interim financial information. Prior to SFAS No. 148, disclosures about the effects of stock based employee compensation were only required in annual financial information. Disclosure prominence is to be achieved by placing certain disclosures related to stock based employee compensation in the summary of significant accounting policies. The transition and disclosure in accounting policies provisions are effective for fiscal years ending after December 15, 2002. The Company has adopted the disclosure provisions of SFAS No. 148 effective as of January 31, 2003. The adoption of the new standard did not have any impact on the Company's financial position or results of operations. The Company accounts for its fixed stock option plans under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost is recognized for its fixed stock option plans. SFAS No. 123, "Accounting for Stock-Based Compensation" allows, but does not require, companies to record compensation cost for fixed stock option plans using a fair value based method. As permitted by SFAS No. 123, the Company elected to continue to account for compensation cost for its fixed stock option plans using the intrinsic value based method under APB No. 25. If the Company had elected, beginning in fiscal 1997, to recognize compensation cost based on fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and net income per common share would have approximated the pro forma amounts shown below:
2003 2002 2001 ------- ------- ------- Net income - as reported ..................................... $19,292 $36,074 $55,895 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ................................. 4,259 4,489 3,221 ------- ------- ------- Net income - pro forma ....................................... $15,033 $31,585 $52,674 ======= ======= ======= Net income per common share - basic - as reported ............ 0.75 1.38 2.13 Net income per common share - basic - pro forma .............. 0.58 1.21 2.01 Net income per common share - diluted - as reported .......... 0.74 1.35 2.05 Net income per common share - diluted - pro forma ............ 0.58 1.18 1.93 Weighted average fair value of options granted during the year .................................... 9.30 15.06 12.51
F-14 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2003, 2002 and 2001: 2003 2002 2001 ---- ---- ---- Risk-free interest rate .......... 4.42% 4.84% 6.53% Expected dividend yield .......... 0.27% 0.17% 0.22% Expected volatility factor ....... 0.477 0.448 0.414 Weighted average expected life ... 5.00 years 5.00 years 4.95 years The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Reclassifications: Certain amounts reported in previous years have been reclassified to conform to the fiscal 2003 presentation. New Accounting Pronouncements: 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. 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 June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing and amount of costs recognized as a result of restructuring and similar activities. The Company will apply SFAS No. 146 prospectively to activities initiated after December 31, 2002. SFAS No. 146 had no significant impact at the point of adoption on the Company's consolidated statements of income or financial position. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees." FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee. FIN 45 also requires guarantors to disclose certain information for guarantees, including product warranties. (See Note 16.) F-15 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 2. STOCK SPLIT On June 16, 2000 the Company completed a two-for-one stock split, effected in the form of a 100% stock dividend paid to stockholders of record on June 2, 2000. This transaction resulted in a transfer on the Company's balance sheet of $140 to common stock from additional paid-in capital. The accompanying financial statements and related footnotes, including all share and per share amounts, have been adjusted to reflect this transaction. 3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS Goodwill: During the year ended January 31, 2003, no goodwill was acquired. 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 ........................ 7 192 7,031 3 7,233 Impairment of goodwill ............... -- -- -- (496) (496) ------ ------- ------- ----- -------- Goodwill, January 31, 2003 ........... $1,383 $58,131 $55,461 $ -- $114,975 ====== ======= ======= ===== ========
Identified Intangible Assets: During the year ended January 31, 2003, no acquisition-related intangibles were acquired, impaired or written-off. Identified intangible assets as of January 31, 2003 consisted of the following: Gross Accumulated Assets Amortization Net ------- ------------ ------- Trade names ...................... $17,840 $(3,494) $14,346 Intellectual property ............ 7,805 (5,516) 2,289 Other ............................ 2,405 (989) 1,416 ------- ------- ------- Total intangible assets .......... $28,050 $(9,999) $18,051 ======= ======= ======= F-16 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (continued) Identified intangible assets as of January 31, 2002 consisted of the following: Gross Accumulated 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 January 31, 2003, the annual amortization expense is expected to be as follows (assuming current exchange rates): 2004 2005 2006 2007 2008 ------ ------ ------ ------ ------ Trade names .................. $ 892 $ 892 $ 892 $ 892 $ 892 Intellectual property ........ 787 424 370 195 134 Other ........................ 128 79 76 35 29 ------ ------ ------ ------ ------ Total intangible assets ...... $1,807 $1,395 $1,338 $1,122 $1,055 ====== ====== ====== ====== ====== Amortization of identified intangibles was $1,795, $1,922 and $1,867 for the years ended January 31, 2003, 2002 and 2001. F-17 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 4. INVENTORIES Inventories consisted of the following: January 31, ---------------------- 2003 2002 ------- ------- Raw materials .................................... $17,833 $26,202 Work-in-process .................................. 10,379 12,830 Finished goods ................................... 19,693 22,642 ------- ------- $47,905 $61,674 ======= ======= If the first-in, first-out method of inventory accounting had been used (which approximates current cost), inventories would have been $49,957 and $61,576 as of January 31, 2003 and 2002, respectively. During the years ended January 31, 2003 and 2002, inventory quantities were reduced resulting in the liquidation of certain LIFO inventory layers carried at cost, which were lower than the cost of current purchases. The effect of these reductions in 2003 and 2002 was to decrease the cost of sales by approximately $564 and $35, and to increase net income by $355 and $22 or $0.01 and less than $0.01 per share, respectively. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net, consisted of the following: January 31, --------------------- 2003 2002 -------- -------- Land ................................................. $ 1,970 $ 2,003 Buildings and improvements ........................... 41,988 44,734 Furniture, fixtures and equipment .................... 192,440 193,763 Construction in progress ............................. 7,404 15,182 -------- -------- 243,802 255,682 Less: Accumulated depreciation ......................... 131,644 124,475 -------- -------- $112,158 $131,207 ======== ======== For the years ended January 31, 2003, 2002 and 2001, depreciation charged to operations amounted to $21,050, $20,962 and $19,286; maintenance and repair costs expensed totaled $10,075, $13,256 and $14,456; and capitalized interest amounted to $135, $404 and $983, respectively. F-18 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 6. DEBT Debt consisted of the following:
January 31, ------------------ 2003 2002 ------- ------- Term loan, $100,000 facility; bearing interest at Prime or LIBOR plus .75% on January 31, 2003 and January 31, 2002 (effective rate on a weighted average basis, 2.10% as of January 31, 2003 and 2.62% as of January 31, 2002) net of unamortized debt acquisition costs of $81 and $858, respectively ......................... $18,669 $44,142 Revolving credit facility; maximum commitment of $120,000 at January 31, 2003 and 2002 bearing interest of Prime or LIBOR plus .75% (effective rate on a weighted average basis, 2.12% as of January 31, 2003 and 2.74% as of January 31, 2002) ........................... 21,250 21,500 Borrowings by a U.K. subsidiary under an unsecured multi- currency demand loan facility bearing interest at British Pound LIBOR plus .95% (effective rate on a weighted average basis, 5.08% as of January 31, 2002) ................................................ -- 8,501 Other ................................................................ -- 4 ------- ------- 39,919 74,147 Less current portion ................................................. 14,062 27,255 ------- ------- $25,857 $46,892 ======= =======
On March 1, 1999, the Company obtained a fully syndicated senior unsecured agreement comprised of a $100,000 term loan and a $120,000 revolving credit facility. The term loan is payable over five years. The revolver has a termination date of March 1, 2004. The available interest rates on the agreement were between 1.00% to 1.75% over LIBOR or Prime to Prime plus .25%. On October 13, 2000 the loan agreement was amended to effectively lower the available LIBOR interest rate to between .75% and 1.50% over LIBOR or Prime to Prime plus .25%. The agreement requires the Company to pay a fee of .20% to .30% per annum on any unused portion of the revolver. During the years ended January 31, 2003 and January 31, 2002, the average fee paid was .20%. The revolving credit facility includes a letter of credit facility not to exceed $30,000, of which $26,479 and $27,379 were available as of January 31, 2003 and 2002, and swingline loans not to exceed $10,000. The term loan is due in quarterly installments that currently equal $6,250 per quarter increasing to $7,500 per quarter on May 1, 2003. At the Company's election, additional payments not required under the term loan were paid in advance. These amounts were applied to future term loan payments on a pro-rata basis. F-19 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 6. DEBT (continued) These credit agreements contain restrictive covenants that require the Company to maintain minimum ratios such as fixed charge coverage and leverage ratios, as well as minimum consolidated net worth. These restrictive covenants permit the Company to pay dividends so long as there are no defaults under these credit agreements. The purpose of the facility was to fund an acquisition, provide for normal working capital and fund possible strategic acquisitions. The Company was in compliance with its loan agreement covenants at January 31, 2003 and 2002, respectively. The maximum aggregate amounts of loans outstanding under the term loan and revolving credit facility, were $72,650, $141,100 and $128,550 during the years ended January 31, 2003, 2002 and 2001, respectively. For those years the outstanding loans under these credit agreements computed on a monthly basis averaged $53,425, $95,980 and $84,813 at a weighted average interest rate of 2.60%, 4.97% and 7.42%, respectively. The uncommitted multi-currency overdraft facility is a senior unsecured demand loan facility, which was originally in the amount of 22.0 million British Pounds. This senior facility was reduced to 750 thousand British Pounds at the request of the Company in September 2002. The maximum amount outstanding under this facility was 6.1 million and 19.5 million British Pounds during the years ended 2003 and 2002, respectively. For those years, the outstanding loans under this agreement computed on a monthly average basis averaged 3.4 million British Pounds and 13.6 million British Pounds at a weighted average interest rate of 5.05% and 5.81%, respectively. As of January 31, 2003, the required minimum annual principal reduction of long-term debt for each of the next five fiscal years is as follows: 2004 ................................... $14,062 2005 ................................... 25,857 2006 ................................... -- 2007 ................................... -- 2008 ................................... -- Thereafter ............................. -- ------- $39,919 ======= F-20 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 7. STOCKHOLDERS' EQUITY Stock Option Plans: The Company has three stock option plans: the 1996 Stock Option Plan reserved 2,000,000 shares of Common Stock; the 1998 Stock Option Plan reserved 3,900,000 shares of Common Stock; and the U.K. Stock Option Plan reserved 500,000 shares of Common Stock; for option grants. In addition, stock can be granted to the Company's non-employee directors in lieu of their annual retainer or a portion thereof. Incentive stock options are to be granted at no less than 100% of the fair market value on the date of grant, with a term of no more than ten years after the date of grant. Nonqualified stock options are to be granted at such price as the Compensation Committee of the Board of Directors deems appropriate, with a term of no more than ten years after the date of grant. The options are exercisable upon vesting as determined by the Compensation Committee at the time the options are granted. The majority of the stock options outstanding vest in equal annual installments over a three-year period commencing one year from the date of the grant. A summary of stock option activity related to the Company's plans is as follows:
Beginning Granted Exercised Canceled Ending Balance During During During Balance Outstanding Year Year Year Outstanding Exercisable ----------- ---- ---- ---- ----------- ----------- Year ended January 31, 2003 Number of shares ........ 2,155,288 597,725 70,334 181,305 2,501,374 1,461,838 Weighted average option price per share ......... $ 23.84 $ 20.20 $ 12.56 $ 27.49 $ 23.02 $ 21.24 Year ended January 31, 2002 Number of shares ........ 1,712,815 689,680 147,900 99,307 2,155,288 1,005,149 Weighted average option price per share ........ $ 19.62 $ 33.42 $ 13.84 $ 32.55 $ 23.84 $ 17.81 Year ended January 31, 2001 Number of shares ........ 1,517,894 715,074 406,019 114,134 1,712,815 645,077 Weighted average option price per share ........ $ 13.36 $ 27.87 $ 11.04 $ 18.68 $ 19.62 $ 14.53
F-21 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 7. STOCKHOLDERS' EQUITY (continued) There were 2,340,718 and 2,764,879 shares available for future grants of options under the Company's stock option plans as of January 31, 2003 and 2002, respectively. The following table summarizes information about the stock options outstanding at January 31, 2003:
Options Outstanding Options Exercisable --------------------------------------- ------------------------ Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - --------------- ----------- ---- ----- ----------- ----- $3.00 - $6.00 97,168 3.7 years $ 5.92 97,168 $ 5.92 $8.63 - $12.38 262,368 5.3 years $11.62 262,368 $11.62 $13.03 - $19.56 441,104 6.6 years $17.79 440,004 $17.79 $22.08 - $26.76 1,134,626 8.2 years $21.70 408,445 $22.91 $35.00 - $44.38 479,508 8.1 years $35.09 184,572 $38.20 $48.44 - $55.94 86,600 7.5 years $53.78 69,281 $53.96 --------- --------- $3.00 - $55.94 2,501,374 7.4 years $23.02 1,461,838 $21.24 ========= =========
Rights Plan: In February 2000, the Company's Board of Directors declared a dividend of one common stock purchase right (a "Right") for each share of Common Stock outstanding on March 3, 2000 to the stockholders of record on that date. The description and terms of the Rights are set forth in a Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent. Upon the occurrence of certain events, each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of Common Stock at a purchase price of $150 per one one-hundredth of a share, subject to adjustment, as stated in the Rights Agreement. Upon the occurrence of certain events involving a hostile takeover of the Company, unless the Company's Board of Directors acts otherwise, each holder of a Right, other than Rights beneficially owned by the acquiring company, will thereafter have the right to receive upon exercise: (i) that number of shares of the Company's common stock having a market value equal to two times the purchase price of the Right or (ii) that number of shares of common stock of the acquiring company that at the time of the transaction has a market value of two times the exercise price of the Right. F-22 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 8. INCOME TAXES The provisions for income taxes as shown in the accompanying consolidated statements of income consisted of the following: January 31, ------------------------------- 2003 2002 2001 ------ ------- ------- Current: Federal ............................ $ 330 $15,974 $31,068 State .............................. (982) 1,492 3,578 Foreign ............................ 1,901 1,137 -- Foreign sales corporation .......... -- 137 301 ------ ------- ------- $1,249 $18,740 $34,947 ====== ======= ======= Deferred: Federal ............................ 7,983 3,160 727 State .............................. 182 344 209 ------ ------- ------- 8,165 3,504 936 ------ ------- ------- $9,414 $22,244 $35,883 ====== ======= ======= F-23 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 8. INCOME TAXES (continued) The components of the deferred tax asset and liability as of January 31, 2003 and 2002 were as follows: 2003 2002* -------- -------- Deferred tax asset: Vacation and compensation accruals ......... $ 4,080 $ 4,858 Bad debt, inventory and return allowances .. 4,039 3,047 Warranty reserves .......................... 3,995 4,750 Postretirement benefits .................... 1,151 1,034 State net operating losses ................. 778 -- Derivatives ................................ 759 684 Foreign tax credits ........................ 716 -- Environmental reserves ..................... 714 879 Pension obligation ......................... -- 51 Other accruals ............................. 1,410 1,928 -------- -------- Total deferred tax asset ................... 17,642 17,231 -------- -------- Deferred tax liability: Depreciation and amortization .............. (12,735) (8,658) Pension obligation ......................... (5,754) -- Cumulative translation adjustment .......... (1,275) (29) Unrepatriated earnings ..................... (223) (990) -------- -------- Total deferred tax liability ............... (19,987) (9,677) -------- -------- Net deferred tax (liability) asset ......... $ (2,345) $ 7,554 ======== ======== Realization of the Company's deferred tax assets is dependent on future taxable income. The Company believes that it is more likely than not such assets will be realized. *Reclassified for comparative purposes. F-24 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 8. INCOME TAXES (continued) Reconciliations of the provisions for income taxes at the U.S. statutory rate to the effective tax rates for the years ended January 31, 2003, 2002 and 2001, respectively, are as follows: January 31, ---------------------------------- 2003 2002 2001 -------- -------- -------- U.S. statutory income tax ............... $ 10,079 $ 20,872 $ 33,050 State tax, net of federal income tax benefit ..................... 258 1,314 2,534 Resolution of state tax audits .......... (1,100) -- -- Tax effect of foreign operations ........ 256 26 -- Research and development tax credit benefit ..................... -- (61) (100) Foreign sales corporation ............... -- (257) (565) Other ................................... (79) 350 964 -------- -------- -------- $ 9,414 $ 22,244 $ 35,883 ======== ======== ======== 9. COMMITMENTS AND CONTINGENCIES (A) Operating Leases: The Company leases certain manufacturing and office facilities and certain equipment under operating lease agreements. Certain leases contain renewal options and some have purchase options, and generally provide that the Company shall pay for insurance, taxes and maintenance. As of January 31, 2003, the Company had future minimum annual lease obligations under leases with noncancellable lease terms in excess of one year as follows: 2004.......................... $ 2,979 2005.......................... 2,443 2006.......................... 2,025 2007.......................... 2,004 2008.......................... 1,893 Thereafter.................... 7,860 ------- $19,204 ======= Total rent expense for all operating leases for the years ended January 31, 2003, 2002 and 2001 was $3,903, $4,496 and $3,733, respectively. F-25 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 9. COMMITMENTS AND CONTINGENCIES (continued) (B) Contingent Liabilities: Legal In January 2000, the Company was sued in an action captioned Puerto Rico Electric Power Authority v. C&D Technologies, Inc., in the United States District Court for the District of Puerto Rico for an alleged breach of contract in connection with the sale of certain batteries dating back to the mid-1990s. In August 2000 the Company entered into a settlement agreement with respect to this claim, the cost of which was recovered from the Company's insurance carrier in the first quarter of fiscal 2002. 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 and disposal of hazardous materials; (iii) monitoring and permitting of air emissions and water discharge; and (iv) monitoring worker exposure to hazardous substances in the workplace, and protecting workers from impermissible exposure to hazardous substances, including lead, used in our manufacturing process. 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 in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs identified and sued additional PRPs for contribution. In April 2002, one of the original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter 11 of Title 11 of the United States Code. In August 2002, Exide notified the PRPs that it will no longer be taking an active role in any further action at the site F-26 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 9. COMMITMENTS AND CONTINGENCIES (continued) 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 in negotiations with the other potentially responsible parties at this site regarding its share of the allocated liability. 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 its 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 engaged in negotiations with both the EPA and Department of Justice through March 2003 regarding a potential resolution of this matter. The government filed suit against the Company in March 2003 for alleged violations of the Clean Water Act. The complaint requests injunctive relief and civil penalties of up to the amounts provided by statute. The Company anticipates that the matter will result in a penalty assessment and compliance obligations. The Company will continue to seek a negotiated or mediated resolution, failing which it intends to vigorously defend the action. F-27 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 9. COMMITMENTS AND CONTINGENCIES (continued) 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, "Accounting for Contingencies." 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. (C) Purchase Commitments: The Company has purchase commitments pertaining to the purchase of certain raw materials with various suppliers. These purchase commitments are not expected to exceed usage requirements. 10. MAJOR CUSTOMER No single customer of the Company amounted to 10% or more of the Company's consolidated net sales for the years ended January 31, 2003, 2002 and 2001. 11. CONCENTRATION OF CREDIT RISK Financial instruments that subject the Company to potential concentration of credit risk consist principally of trade receivables and temporary cash investments. The Company places its temporary cash investments with various financial institutions and, generally, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited by a large customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial condition and requires collateral, such as letters of credit, in certain circumstances. 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents - the carrying amount approximates fair value because of the short maturity of these instruments. Debt (excluding capital lease obligations) - the carrying value of the Company's long-term debt, including the current portion, approximates fair value based on the incremental borrowing rates currently available to the Company for loans with similar terms and maturity. Hedging instruments - the estimated fair value of the interest rate swaps and foreign exchange contracts are based on market prices or current rates offered for interest rate swaps and foreign exchange contracts with similar terms and maturities. The ultimate amounts paid or received under these interest rate swaps and foreign currency contracts, however, depend on future interest rates and exchange rates. F-28 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The estimated fair values of the Company's financial instruments at January 31, 2003 and 2002 were as follows: 2003 2002 --------------------- -------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Cash and cash equivalents .. $12,966 $12,966 $ 8,781 $ 8,781 Debt (excluding capital lease obligations) ....... $39,919 $39,919 $74,143 $74,143 The fair value of accounts receivable, accounts payable and accrued liabilities consistently approximate the carrying value due to the relatively short maturity of these instruments and are excluded from the above table. 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 $(258) and $(34) as of January 31, 2003 and 2002. Changes in the fair value of these currency forward contracts are recorded in other expense (income), net. Changes in the value of a derivative that is designated as a fair value hedge, along with offsetting changes in fair value of the underlying hedged exposure, are recorded in earnings each period. Changes in the fair value of a derivative that is designated as a cash flow hedge is recorded in accumulated other comprehensive income (loss). When earnings are affected by the variability of the underlying cash flow, the applicable amount of the gain or loss from the derivative that is deferred in stockholders' equity is released to earnings. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are included in earnings each period until the instrument matures. Derivatives that are not designated as hedges, as well as the portion of a derivative excluded from the effectiveness assessment and changes in the value of the derivatives which do not offset the underlying hedged item throughout the designated hedge period, are recorded in other expense (income), net each period. F-29 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) In the normal course of business, the Company is exposed to the impact of interest rate changes and foreign currency fluctuations. The Company limits these risks by following established risk management policies and procedures including the use of derivatives and, where cost-effective, financing debt in the currencies in which the assets are denominated. For interest rate exposures, derivatives are used to manage the Company's exposure to fluctuations in interest rates on the Company's underlying variable rate debt instruments. The Company utilizes separate swap transactions rather than fixed rate obligations to take advantage of lower borrowing costs associated with floating rate debt while also eliminating possible risk related to refinancing in the fixed rate market. For currency exposures, derivatives are used to limit the effects of foreign exchange rate fluctuations on financial results. The Company does not use derivatives for trading or speculative purposes, nor is it a party to leveraged derivatives. Further, the Company has a policy of only entering into contracts with major financial institutions. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from these instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives. The following table includes all interest rate swaps as of January 31, 2003 and 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 01/31/03 01/31/02 - -------- ----------- -------- -------- -------- -------- -------- $ 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 (66) (783) 20,000 04/11/01 04/11/06 5.56% LIBOR (1,832) (735) ------- ------- $(1,898) $(1,835) ======= =======
Based on the fair value of the interest rate swaps as of January 31, 2003 and the maturity dates of these swaps, the Company expects to reclassify a net of tax loss of approximately $549 of the amount in accumulated other comprehensive loss in the next 12 months. The Company had foreign exchange contracts on hand for delivery of Canadian Dollars in the amount of $2,629 and $3,149 as of January 31, 2003 and January 31, 2002, respectively. The Company had foreign exchange contracts for delivery of Euros in the amount of $646 as of January 31, 2003. The Company had a foreign exchange contract on hand for the delivery of British Pounds in the amount of $23,884 and $14,224 as of January 31, 2003 and January 31, 2002, respectively. F-30 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 13. EMPLOYEE BENEFIT PLANS (A) The Company has various noncontributory defined benefit pension plans, which cover certain employees. The C&D Technologies, Inc. Pension Plan for Salaried Employees was amended during the fiscal year ended January 31, 2002 to provide that benefits under the plan became frozen as of December 31, 2001 for all participants (i) who had not attained the age of 65, and (ii) who either (a) had less than 5 years of Eligibility Service, or whose years of Eligibility Service and age totaled less than 60 or (b) had less than 10 years of Eligibility Service, or whose years of Eligibility Service and age totaled less than 57 as of December 31, 2001. Participants whose benefits under the Pension Plan became frozen as of December 31, 2001 became eligible for an enhanced Company contribution under the Savings Plan based on the performance of the Company. As such, the Company recorded a curtailment gain of $2,631 during the fiscal year ended January 31, 2002. The Company's funding policy is to contribute annually an amount that can be deducted for federal income tax purposes using a different actuarial cost method and different assumptions than those used for financial reporting purposes. Pension benefits for the Company's defined benefit plans are generally based on employees' years of service and qualifying compensation during the years of employment. Plan assets are invested in commingled trust funds consisting primarily of equity and U.S. Government securities. The Company also provides certain health care and life insurance benefits for retired employees who meet certain service requirements ("postretirement benefits") through two plans. One of the plans was amended during the fiscal year ended January 31, 2002 to change the Company contribution. This amendment resulted in a $1,000 increase in the liability. F-31 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 13. EMPLOYEE BENEFIT PLANS (continued) The tables that follow provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets for the years ended January 31, 2003 and 2002 and a statement of the funded status as of January 31, 2003 and 2002. The measurement dates are December 31, 2002 and 2001.
Pension Postretirement Benefits Benefits --------------------- ------------------- 2003 2002 2003 2002 -------- -------- ------- ------- Change in benefit obligation: Benefit obligation at beginning of year ............................... $ 49,532 $ 45,749 $ 3,486 $ 2,463 Service cost ........................................................ 1,573 2,404 151 149 Interest cost ....................................................... 3,750 3,565 269 255 Plan amendments ..................................................... 50 -- -- 1,000 Curtailment gain .................................................... -- (2,631) -- -- Settlement loss ..................................................... 115 -- -- -- Actuarial loss/(gain) ............................................... 5,328 2,792 406 (30) Benefits paid ....................................................... (2,888) (2,347) (245) (351) -------- -------- ------- ------- Benefit obligation at end of year ...................................... $ 57,460 $ 49,532 $ 4,067 $ 3,486 ======== ======== ======= ======= Change in plan assets: Fair value of plan assets at beginning of year .......................... $ 41,300 $ 39,297 -- -- Actual return on plan assets ........................................ (5,889) (3,383) -- -- Employer contributions .............................................. 17,171 7,733 $ 245 $ 351 Benefits paid ....................................................... (2,888) (2,347) (245) (351) -------- -------- ------- ------- Fair value of plan assets at end of year ............................... $ 49,694 $ 41,300 $ -- $ -- ======== ======== ======= ======= Reconciliation of funded status: Funded status .......................................................... $ (7,766) $ (8,232) $(4,067) $(3,486) Unrecognized actuarial loss/(gain) ..................................... 22,237 7,972 371 (34) Unrecognized prior service cost ........................................ 162 131 770 885 -------- -------- ------- ------- Net amount recognized at measurement date and end of fiscal year .......................... $ 14,633 $ (129) $(2,926) $(2,635) ======== ======== ======= ======= Amounts recognized in the statement of financial position consist of: Prepaid pension cost .................................................... $ 18,051 $ 3,311 -- -- Accrued benefit liability ............................................... (3,418) (3,440) $(2,926) $(2,635) -------- -------- ------- ------- Net amount recognized at end of fiscal year* ............................ $ 14,633 $ (129) $(2,926) $(2,635) ======== ======== ======= =======
* Prepaid pension cost is included in intangible and other assets, net and the accrued benefit liability is included in other liabilities. F-32 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 13. EMPLOYEE BENEFIT PLANS (continued)
Postretirement Pension Benefits Benefits ----------------------------------------- ---------------------------------- 2003 2002 2001 2003 2002 2001 ------- ------- ------- ----- ----- ----- Components of net periodic benefit cost: Service cost .......................... $ 1,573 $ 2,404 $ 2,128 $ 152 $ 149 $ 101 Interest cost ......................... 3,750 3,565 3,204 269 255 172 Expected return on plan assets ........ (3,618) (3,624) (3,270) -- -- -- Amortization of prior service costs ... 20 15 15 115 115 -- Recognized actuarial loss/(gain) ...... 443 79 (4) -- -- (11) Settlement loss ....................... 241 -- -- -- -- -- ------- ------- ------- ----- ----- ----- Net periodic benefit cost ......... $ 2,409 $ 2,439 $ 2,073 $ 536 $ 519 $ 262 ======= ======= ======= ===== ===== ===== Weighted-average assumptions as of January 31: Discount rate ......................... 7.00% 7.50% 7.75% 7.00% 7.50% 7.75% Expected long-term rate of return on plant assets ............. 9.00% 9.00% 9.00% N/A N/A N/A Rate of compensation increase* ........ 4.00-4.95% 4.00-5.03% 4.00-5.03% N/A N/A N/A
* Rate relates to certain employees. Some covered employees have benefits unrelated to rate of pay. The Company sponsors two postretirement benefit plans, one of which the Company contributions are fixed so there is no material trend rate assumption. The following information applies to the second plan: For measurement purposes, a 10.00% annual rate of increase in the pre-65 per capita cost of covered health care benefits was assumed for 2002. The rate is assumed to decrease to 4.50% in 2007 and remain at that level thereafter. Assumed health care cost trend rates can have a significant effect on the amounts reported for the postretirement plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1% increase 1% decrease ----------- ----------- Effect on total service and interest cost components for fiscal 2003 .............. $ -- $ -- Effect on year-end 2003 postretirement benefit obligation ...................... $ -- $ -- F-33 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 13. EMPLOYEE BENEFIT PLANS (continued) The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $4,660, $3,515 and $2,178, respectively, for fiscal 2003. (B) Certain employees are eligible to participate in various defined contribution retirement plans. The Company's contributions under the plans are based on either specified percentages of employee contributions or specified percentages of the employees' earnings. The Company's contribution was $1,610, $2,096 and $1,631 for the years ended January 31, 2003, 2002 and 2001, respectively. (C) The Company has Supplemental Executive Retirement Plans ("SERPs") that cover certain executives. The SERPs are non-qualified, unfunded deferred benefit compensation plans. Expenses related to these SERPs, which were actuarially determined, were $605, $480 and $518 for the years ended January 31, 2003, 2002 and 2001, respectively. The liability for these plans was $2,525 and $2,079 as of January 31, 2003 and 2002, respectively, and was included in other liabilities. (D) The Company has a Deferred Compensation Plan that covers certain senior management employees and non-employee members of the Company's Board of Directors. With the exception of administration costs, which are paid by the Company, this non-qualified plan is funded entirely by participants through voluntary deferrals of compensation. Income deferrals made by participants under this plan are deposited in individual trust (known under current tax law as a rabbi trust) accounts. The Company follows the provisions of EITF 97-14, "Accounting for Deferred Compensation Arrangement Where Amounts Earned Are Held in a Rabbi Trust and Invested." The EITF requires (i) the accounts of the rabbi trust be consolidated with the accounts of the Company; (ii) the Company stock be classified and accounted for in equity, in a manner similar to the way in which treasury stock is accounted for; (iii) the diversified assets be accounted for in accordance with generally accepted accounting principles for the particular asset; and (iv) the deferred compensation obligation be classified as a liability and adjusted with a corresponding charge (or credit) to compensation cost, to reflect changes in the fair value of the amount owed to the participant. At January 31, 2003 and 2002 the liability for the Company's Deferred Compensation Plan was $526 and $552, respectively, and was included in other liabilities. F-34 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 14. QUARTERLY FINANCIAL DATA (unaudited) Quarterly financial data for the years ended January 31, 2003 and 2002 follow: First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- For the year ended January 31, 2003: Net sales .............................. $84,062 $84,292 $87,637 $79,754 Gross profit ........................... 18,646 20,202 20,808 19,043 Operating income ....................... 7,475 8,626 9,392 8,561 Net income ............................. 4,124 4,704 5,128 5,336 Net income per common share - basic .... 0.16 0.18 0.20 0.21 Net income per common share - diluted .. 0.16 0.18 0.20 0.21 The results for the fourth quarter of fiscal 2003 reflect pre-tax charges of $1,813 for the re-organization of certain manufacturing locations in the Power Electronics Division, the write-off of $496 of goodwill in the Motive Power Division, the recognition of a $1,610 gain on the sale of the Company's metal fabrication facility and the reduction of the effective tax rate to 19.3% for the quarter, reflecting resolution of state tax audits. For the year ended January 31, 2002: Net sales .............................. $155,383 $125,493 $102,505 $88,260 Gross profit ........................... 46,033 37,509 22,110 22,619 Operating income ....................... 29,617 23,066 5,684 9,207 Net income ............................. 16,847 13,100 1,848 4,279 Net income per common share - basic .... 0.64 0.50 0.07 0.16 Net income per common share - diluted .. 0.62 0.49 0.07 0.16 In the third quarter of fiscal year 2002, the Company incurred a pre-tax charge of $4,000, primarily due to costs related to a potential acquisition that did not close. F-35 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA 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 and networking equipment, as well as office and industrial equipment. 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 years ended January 31, 2003, 2002 and 2001 is shown below:
Power Motive Powercom Dynasty Electronics Power Division Division Division Division Consolidated -------- -------- -------- -------- ------------ Year ended January 31, 2003: Net sales ...................... $144,478 $ 89,883 $ 46,840 $ 54,544 $335,745 Operating income (loss) ........ $ 25,495 $ 13,499 $ (52) $ (4,888) $ 34,054 Year ended January 31, 2002: Net sales ...................... $234,802 $112,794 $ 63,155 $ 60,890 $471,641 Operating income (loss) ........ $ 57,303 $ 17,401 $ (5,963) $ (1,167) $ 67,574 Year ended January 31, 2001: Net sales ...................... $264,664 $163,072 $110,117 $ 77,825 $615,678 Operating income (loss) ........ $ 51,139 $ 37,987 $ 12,186 $ (1,293) $100,019
F-36 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) -------- 15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (continued) Many of the Company's facilities manufacture products for more than one segment. Therefore, it is not practicable to disclose asset information (assets, expenditures for long-lived assets) on a segment basis. Summarized financial information related to the geographic areas in which the Company operated at January 31, 2003, 2002 and 2001 and for each of the years then ended is shown below: 2003 2002 2001 -------- -------- -------- Net sales United States .............. $275,268 $375,283 $487,064 Canada ..................... 27,535 34,514 67,202 Other countries ............ 32,942 61,844 61,412 -------- -------- -------- Consolidated totals ........ $335,745 $471,641 $615,678 ======== ======== ======== Long-lived assets United States .............. $194,857 $191,578 $191,994 United Kingdom ............. 51,555 44,794 50,155 Other countries ............ 19,445 26,853 27,123 -------- -------- -------- Consolidated totals ........ $265,857 $263,225 $269,272 ======== ======== ======== 16. WARRANTY The Company provides for estimated product warranty expenses when the related products are sold. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows: Balance at February 1, 2002 .................... $12,349 Current year provisions ........................ 3,770 Expenditures ................................... (5,520) ------- Balance at January 31, 2003 .................... $10,599 ======= As of January 31, 2003, accrued warranty obligations of $10,599 include $3,804 in current liabilities and $6,795 in other liabilities. As of January 31, 2002, accrued warranty obligations of $12,349 include $3,526 in other current liabilities and $8,823 in other liabilities. F-37 C&D TECHNOLOGIES, INC. AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the years ended January 31, 2003, 2002 and 2001 (Dollars in thousands)
Additions Additions Balance Balance at Charged Charged at Beginning to Costs & to Other End of of Period Expenses Accounts (a) Deductions (b) Period --------- -------- ------------ -------------- ------ Deducted From Assets Allowance for doubtful accounts: Year ended January 31, 2003 ......... $2,278 -- -- $ 372 $1,906 Year ended January 31, 2002 ......... 4,121 $420 -- 2,263 2,278 Year ended January 31, 2001 ......... 3,080 955 $193 107 4,121
- --------- (a) Additions related to business acquisitions. (b) Amounts written-off, net of recoveries and reserve reversals. S-1 EX-10 3 exb_10-18.txt Exhibit 10.18 February 27, 2001 Mr. John A. Velker [Home address inserted] Dear John: You are presently employed by C&D Technologies, Inc., a Delaware corporation (the "Company"), in an executive capacity and the Company desires to encourage such continued employment by providing certain protections for you by entering into this Agreement with you, in return for which you agree to continue to be employed by the Company on the terms set forth herein, to refrain from certain competitive activity and to provide the Company with certain assurances upon your departure. In consideration of same, the Company agrees to employ you, and you agree to accept such employment, under the following terms and conditions: 1. TERM OF EMPLOYMENT. (a) Except for earlier termination as is provided in Section 9 or 10 below, your employment under this Agreement shall be automatically renewed for successive terms of one month each, unless either party shall have given to the other party at least 30 days' prior written notice of the termination of this Agreement (a "Termination Notice"). If such 30 days' prior written notice is given by either party, (i) the Company shall, without any liability to you, have the right, exercisable at any time after such notice is sent, to elect any other person to the office or offices in which you are then serving and to remove you from such office or offices, but (ii) all other obligations each of you and the Company have to the other, including the Company's obligation to pay your compensation and make available the medical and dental insurance to which you are entitled hereunder, shall continue until the date your employment terminates as specified in such notice. 2. COMPENSATION. (a) You shall be compensated for all services rendered by you under this Agreement at the rate of $132,000 per annum (such salary, as it is from time to time adjusted, is herein referred to as the ("Base Salary"). Such Base Salary shall be payable in periodic installments twice monthly in accordance with the Company's payroll practices for salaried employees. The Compensation Committee of the Board of Directors shall review such Base Salary prior to April 1, 2001 and each year thereafter during the term of this Agreement, including any renewal term, and shall make such adjustments, if any, as the Compensation Committee shall determine; provided, however, that no adjustment shall reduce the Base Salary below $132,000. (b) If your employment hereunder shall be terminated (i) by the Company without notice of Cause (as defined in Section 9(c)) therefor having been given to you (other than pursuant to Section 9(a) or 9(b), or (ii) as a result of the non-renewal of this Agreement pursuant to a Termination Notice given by the Company under Section 1(a), then, in addition to paying you the Accrued Obligations (as hereinafter defined), for a 180 day period after the effective date of such termination, the Company shall pay you at the rate of your Base Salary in effect at the time of such termination in periodic payments in accordance with the Company's payroll practices for salaried employees; provided, however, that your right to receive such payments, other than the Accrued Obligations, shall be conditioned upon your execution of a Release (the "Release"). Such Release shall be substantially in the form of Exhibit A hereto but may be modified by the Company in its sole discretion as it deems appropriate to reflect changes in law or circumstances arising after the date of this Agreement; provided, however, that no such modification shall increase any of your obligations to the Company over those contemplated by this Agreement, including Exhibit A hereto. The term "Accrued Obligations" shall mean (i) your Base Salary through the date of termination and (ii) all benefits that have accrued to you under the terms of all employee benefits plans of the Company in which you are entitled to participate. 3. DUTIES. (a) During the term of your employment hereunder, including any renewal thereof, you agree to serve as the Vice President, Corporate Development of C&D Technologies, Inc. or in such other capacity with duties and responsibilities of a similar nature as those initially undertaken by you hereunder as the President of the Company may from time to time determine. Your duties may be changed at any time and from time to time hereafter, upon mutual agreement, consistent with office or offices in which you serve as deemed necessary by the President of the Company. You also agree to perform such other services and duties consistent with the office or offices in which you are serving and its responsibilities as may from time to time be prescribed by the Board of Directors, and you also agree to serve, if elected, as an officer and/or director of the Company and/or any of the Company's other direct or indirect subsidiaries without additional compensation, in all cases in conformity to the by-laws of each such corporation. Unless you otherwise agree, you shall not be required to relocate your place of business to a location that would increase your commuting distance by greater than 25 miles. (b) You shall devote your full employment energies, interest, abilities, time and attention during normal business hours (excluding the vacation periods provided in Section 4(b) below) exclusively to the business and affairs of the Company, its parent corporation and subsidiaries, if any, and shall not engage in any activity that conflicts or interferes with the performance of duties hereunder. -2- (c) You agree to cooperate with the Company, including taking such reasonable medical examinations as may be necessary, in the event the Company shall desire or be required (such as pursuant to the terms of any bank loan or any other agreement) to obtain life insurance insuring your life. (d) You shall, except as otherwise provided herein, be subject to the Company's rules, practices and policies applicable to the Company's senior executive employees. Without limiting the generality of the foregoing, you shall, with respect to the Company and its parents, subsidiaries, assets and stockholders, act in a manner consistent with your fiduciary responsibilities as an executive of the Company. 4. BENEFITS. (a) You shall have the benefit of such life and medical insurance, bonus, stock option and other similar plans as the Company may have or may establish from time to time, and in which you would be entitled to participate by reason of your position with the Company, pursuant to the terms thereof. Also, to the extent you have met the qualifications required, you may participate in the Company's savings and retirement plans. The foregoing, however, shall not be construed to require the Company to establish any such plans or to prevent the Company from modifying or terminating any such plans, and no such action or failure thereof shall affect this Agreement. (b) You shall be entitled to a vacation of four weeks each year. (c) The Company will provide you with an annual physical examination. 5. EXPENSES. The Company will reimburse you for reasonable expenses (consistent with Company policy), including traveling expenses, incurred by you in connection with the business of the Company, upon the presentation by you of appropriate substantiation for such expenses. 6. RESTRICTIVE COVENANTS. (a) During such time as you shall be employed by the Company, and for the applicable Restricted Period (as defined below) thereafter, you shall not, without the written consent of the Board of Directors, directly or indirectly, become associated with, render services to, invest in, represent, advise or otherwise participate as an officer, employee, director, stockholder, partner, agent of or consultant for, any business that, at the time your employment with the Company ceases, is competitive with the business in which the Company is engaged or in which the Company has taken affirmative steps to engage (a "Competitive Business"); provided, however, that nothing herein (i) shall prevent you from investing without limit in the securities of any company listed on a national securities exchange, provided that your involvement with any such company is solely that of a stockholder, and (ii) is intended to prevent you from being employed during the applicable Restricted Period by any business other than a Competitive Business. With respect to any termination of your employment other than upon a Change of Control pursuant to Section 10, the applicable Restricted Period shall be the period following the date your employment terminates -3- during which you are receiving the payments described in Section 2(b) hereof, and with respect to a termination of your employment upon a Change of Control pursuant to Section 10, the applicable Restricted Period shall be the two-year period following the date your employment terminates. (b) The parties hereto intend that the covenant contained in this Section 6 shall be deemed a series of separate covenants for each state, county and city. If, in any judicial proceeding, a court shall refuse to enforce all the separate covenants deemed included in this Section 6, because, taken together, they cover too extensive a geographic area, the parties intend that those of such covenants (taken in order of the states, counties and cities therein which are least populous), which, if eliminated, would permit the remaining separate covenants to be enforced in such proceeding, shall, for the purpose of such proceeding, be deemed eliminated from the provisions of this Section 6. 7. Confidentiality, Non-Interference, Inventions and Proprietary Information. (a) In the course of (i) your employment with the Company hereunder, and (ii) any prior employment with the Company, you will have and have had access to Confidential or Proprietary Data or Information of the Company. You shall not at any time divulge or communicate to any person nor shall you direct any Company employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder) or use to the detriment of the Company any of such Confidential or Proprietary Data or Information, except to the extent the same (i) becomes publicly known other than through a breach of this Agreement by you, (ii) was known to you prior to the disclosure thereof by the Company to you from a source that was entitled to disclose it or (iii) is subsequently disclosed to you by a third party who shall not have received it under any obligation of confidentiality to the Company. The term "Confidential or Proprietary Data or Information" as used in this Agreement, shall mean data or information not generally available to the public, including personnel information, financial information, customer lists, supplier lists, product and tooling specifications, trade secrets, information concerning product composition and formulas, tools and dies, drawings and schematics, manufacturing processes, information regarding operations, systems and services, knowhow, computer and any other electronic, processed or collated data, computer programs, and pricing, marketing, sales and advertising data. -4- (b) You shall not, during the term of this Agreement and for the applicable Restricted Period after the termination of your employment by the Company, for your own account or for the account of any other person, (i) solicit or divert to any Competitive Business any individual or entity who is a customer of the Company or any subsidiary or affiliate of the Company or who was a customer of the Company or any subsidiary or affiliate during the preceding twelve-month period, (ii) employ, retain as a consultant, attempt to employ or retain as a consultant, solicit or assist any Competitive Business in employing or retaining as a consultant any current employee of the Company or any subsidiary or affiliate or any person who was employed by the Company or any subsidiary or affiliate during the preceding twelve-month period or (iii) otherwise interfere with the Company's relationship with any of its suppliers, customers, employees or consultants; provided, however, that you shall not be prohibited from contacting suppliers or customers after termination of your employment with regard to matters that do not violate your noncompetition or confidentiality obligations contained in Sections 6(a) and 7(a) or interfere with the Company's relationship with such parties. (c) It is understood that you may, during your employment, conceive or develop certain inventions, innovations or discoveries related to any business in which the Company may be engaged, either solely or jointly with others. In connection with the conception or development thereof, you agree to disclose promptly to the Company all such inventions, innovations and discoveries, to assign, and hereby do assign, to the Company all of your right, title and interest in and to said inventions, innovations and discoveries, and to do all things and sign all documents deemed by the Company to be necessary or appropriate to vest in the Company, its successors and assigns, all of your right, title and interest in and to such inventions, innovations or discoveries, and to procure for the Company, at the Company's expense, patents, copyrights and/or trademarks covering such inventions, innovations or discoveries in the United States and its possessions and in foreign countries, at the discretion and under the direction of the Company. In the event the Company is unable for any reason to assure your signature on such documents, you irrevocably appoint the Company and its duly authorized officers and agents as your agents and attorneys-in-fact to execute such documents and to do such things with the same legal force and effect as if executed or done by you. (d) All written, electronic and other tangible materials, records and documents made by you or coming into your possession during your employment concerning any products, processes or equipment, manufactured, used, developed, investigated or considered by the Company, or otherwise concerning the business or affairs of the Company, shall be the sole property of the Company, and upon termination of your employment, or upon request of the Company during your employment, you shall promptly deliver the same to the Company. In addition, upon termination of your employment, or upon request of the Company during your employment, you will deliver to the Company all other Company property in your possession or under your control, including, but not limited to, financial statements, marketing and sales data, patent applications, drawings and other documents, and all Company keys, credit cards, computer and telephone equipment and automobiles. -5- 8. EQUITABLE RELIEF. With respect to the covenants contained in Sections 6 and 7 of this Agreement, you agree that any remedy at law for any breach of said covenants may be inadequate and that the Company shall be entitled to specific performance or any other mode of injunctive and/or other equitable relief to enforce its rights hereunder or any other relief a court might award. 9. EARLIER TERMINATION. Your employment hereunder shall terminate prior to the Initial Term (or any renewal term, in the event of renewal) on the following terms and conditions: (a) This Agreement shall terminate automatically on the date of your death. Notwithstanding the foregoing, if you die during the term of this Agreement, the Company shall (i) continue to make payments to your estate of your Base Salary as then in effect pursuant to this Agreement for 180 days after the date of your death, and (ii) pay your estate any reimbursable expenses which otherwise would have been paid to you to the date of your death. (b) This Agreement shall be terminated if you are unable to perform your duties hereunder for a period of any 180 days in any 365 consecutive day period by reason of physical or mental disability. Notwithstanding the foregoing, if this Agreement is terminated pursuant to this Section 9(b), the Company shall pay any accrued but unpaid Base Salary through the date of termination and any reimbursable expenses due to you hereunder. For purposes of this Agreement "physical or mental disability" shall mean your inability, due to health reasons, to discharge properly your duties of employment, supported by the opinion of a physician satisfactory to both you and the Company. If the parties do not agree on a physician mutually satisfactory to both of you and the Company within ten days of written demand by one or the other, a physician shall be selected by the president of the Pennsylvania Medical Association, and the physician shall, within 30 days thereafter, make a determination as to whether disability exists and certify the same in writing. Services of the physician shall be paid for by the Company. You shall fully cooperate with the examining physician including submitting yourself to such examinations as may be requested by the physician for the purpose of determining whether you are disabled. (c) This Agreement shall terminate immediately upon the Company's sending you written notice terminating your employment hereunder for Cause. The Company may terminate this Agreement for Cause, but only after written notice specifying the Cause of such action shall have been rendered to you by the President of the Company. "Cause" shall mean any of the following: (i) Breach of this Agreement. (ii) Refusal or inability (other than pursuant to Section 9(a) or 9(b)) to perform duties assigned to you in accordance with the terms of this Agreement or overt and willful disobedience of orders or directives issued to you by the Company and within the scope of your duties to the Company. (iii) Willful misconduct in the performance of your duties, functions and responsibilities. -6- (iv) Commission of acts that are illegal in connection with the performance of your duties, functions and responsibilities under this Agreement. (v) Commission of acts that would constitute a felony offense during the term of this Agreement. (vi) Violation of Company rules and regulations concerning conflict of interest. (vii) Gross mismanagement of the assets of the Company. (viii) Gross incompetence, gross insubordination or gross neglect in the performance of your duties hereunder or being under the habitual influence of alcohol while on duty or possession, use, manufacture, distribution, dispensation or sale of illegal drugs while on or off duty. (ix) Any act or omission, whether or not included in the foregoing, that a court of competent jurisdiction would determine to constitute cause for termination. Existence of Cause shall be conclusively determined for all purposes hereunder by the President of the Company. Such advice and consultation shall be utilized as such officer regards as appropriate, and no obligation or duty with respect to any procedure or formality is created by this Agreement. If the Company terminates this Agreement for Cause under this Section 9(c), the Company shall not be obligated to make any further payments under this Agreement except for the Accrued Obligations. (d) Except as set forth in Section 10, your coverage under the benefits program provided by the Company will cease effective on your termination date. You will be entitled to elect continuation of your medical and dental benefits at the same cost the Company pays, pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Details with regard to COBRA continuation coverage will be provided to you shortly after your termination date. (e) Except as set forth in Section 10, life insurance coverage will cease upon your termination date. You may, however, apply to General American Life Insurance Company (or such other insurance company as may provide group life insurance to the Company's employees at the time) for an individual converted life policy, with such application and payment of the first premium required to be accomplished within 31 days after your termination date. Details regarding this conversion option will be provided to you shortly after your termination date. (f) Accidental death and dismemberment and long term disability coverages cease with your termination date and may not be extended or converted. 10. TERMINATION UPON A CHANGE OF CONTROL. (a) In the event a Change of Control (as defined below) occurs, and within 24 months after such Change of Control: (i) your employment with the Company is terminated by you pursuant to a Termination for Good Reason (as defined below); or (ii) your employment with the Company is -7- terminated by the Company for any reason other than death, disability or for Cause pursuant to Sections 9(a), (b) or (c); or (iii) this Agreement is not renewed due to a Termination Notice given by the Company, as provided in Section 1(a), (the events under clauses (i), (ii) and (iii) herein collectively called a "Change of Control Termination"), you shall be entitled to receive the payments and benefits set forth in Section 10(e) and (f) below, which payments and benefits shall be in substitution for, and not in addition to, the payments and benefits otherwise payable under Section 2(a) or 2(b) of this Agreement in the event of termination. Your right to receive such payments and benefits, other than the Accrued Obligations, shall be in consideration of your agreements under this Agreement, including but not limited to your agreement not to compete with the Company for two years after a Change of Control pursuant to Section 6, and shall be conditioned upon your execution of a Release. Such Release shall be substantially in the form of Exhibit A but may be modified by the Company as it deems appropriate to reflect changes in law or circumstances arising after the date of this Agreement; provided that no such modification shall increase any of your obligations to the Company over those contemplated by this Agreement, including Exhibit A hereto. (b) For purposes of the Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof)), excluding the Company, any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of any such plan acting in his capacity as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of shares of the Company having at least 30% of the total number of votes that may be cast for the election of directors of the Company; (ii) the shareholders of the Company shall approve any merger or other business combination of the Company, sale of all or substantially all of the Company's assets or combination of the foregoing transactions (a "Transaction"), other than a Transaction involving only the Company and one or more of its subsidiaries, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity (excluding for this purpose any shareholder of the Company owning directly or indirectly more than 10% of the shares of the other company involved in the Transaction) and no person is the beneficial owner of at least 30% of the shares of the resulting entity as contemplated by Section 10(b)(i) above; or (iii) within any 24-month period beginning on or after the date hereof, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board of Directors of the Company or the board of directors of any successor to the Company, provided that any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this Section 10(b)(iii), unless such election, recommendation or approval was the result of an actual or threatened election contest of the type contemplated by Regulation 14a-11 under the Exchange Act or any successor provision. Notwithstanding the foregoing, no Change of Control of the Company shall be deemed to have occurred for purposes of this Agreement by reason of any actions or events in which you participate in a capacity other than in your capacity as an executive or director of the Company. -8- (c) For purposes of the Agreement, a "Termination for Good Reason" means a termination by you by written notice given within 90 days after the occurrence of the Good Reason event. A notice of Termination for Good Reason shall indicate the specific termination provision in Section 10(d) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination for Good Reason. Your failure to set forth in such notice any facts or circumstances that contribute to the showing of Good Reason shall not waive any of your rights hereunder or preclude you from asserting such fact or circumstance in enforcing your rights hereunder. The notice of Termination for Good Reason shall provide for a date of termination not less than 10 nor more than 60 days after the date such Notice of Termination for Good Reason is given. (d) For purposes of the Agreement, "Good Reason" shall mean the occurrence, without your express written consent, of any of the following circumstances, unless such circumstances are fully corrected prior to the date of termination specified in the notice of Termination for Good Reason as contemplated in Section 10(c) above: (i) any material diminution of your positions, duties or responsibilities hereunder (except in each case in connection with the termination of your employment for Cause pursuant to Section 9(c) or due to disability or death pursuant to Section 9(a) or 9(b) or temporarily as a result of your illness or other absence), or the assignment to you of duties or responsibilities that are inconsistent with your position under the Agreement at the time of a Change of Control; (ii) your removal from, or your nonreelection to, the officer positions with the Company specified in this Agreement; (iii) relocation of the Company's principal executive offices to a location more than 25 miles from its location at the time of the Change of Control; (iv) failure by the Company, after a Change of Control, (A) to continue any bonus plan, program or arrangement in which you are entitled to participate immediately prior to the Change of Control (the "Bonus Plans"), provided that any such Bonus Plans may be modified at the Company's discretion from time to time but shall be deemed terminated if (x) any such plan does not remain substantially in the form in effect prior to such modification and (y) if plans providing you with substantially similar benefits are not substituted therefor ("Substitute Plans"), or (B) to continue you as a participant in the Bonus Plans and Substitute Plans on at least the same basis as to potential amount of the bonus and substantially the same level of criteria for achievability thereof as you participated in immediately prior to any change in such plans or awards, in accordance with the Bonus Plans and the Substitute Plans; (v) any material breach by the Company of any provisions of this Agreement; or (vi) failure of any successor to the Company to promptly acknowledge in writing the obligations of the Company hereunder. (e) Upon a Change of Control Termination, as provided in Section 10(a), the Company shall pay or provide you the following payments and benefits: (i) The Company shall pay to you the Accrued Obligations in a lump sum within five business days after the date of termination. -9- (ii) The Company shall pay to you as severance pay, not later than the tenth day following the date of your execution and delivery of the Release required pursuant to Section 10(a) of this Agreement: (A) a lump sum payment in an amount equal to two years of your Base Salary; and (B) a lump sum payment in an amount equal to two of your annual incentive bonuses, such payment to be equal to the greater of (i) the amount of all incentive bonuses paid to you with respect to each of the two most recently completed fiscal years of the Company for which a bonus has been paid or (ii) the incentive bonus paid to you with respect to the most recently completed fiscal year of the Company for which a bonus has been paid plus an amount equal to your Target Bonus (as hereinafter defined); provided, however, that if you have been employed by the Company for less than two years, such payment shall be equal to the greater of (x) the amount of the incentive bonus paid to you with respect to the most recently completed fiscal year of the Company for which a bonus has been paid plus your Target Bonus or (y) the amount of your Target Bonus multiplied by two. The term "Target Bonus" shall mean the incentive bonus that would have been payable for the fiscal year that includes the date on which your employment terminates under the incentive bonus program in effect as of the date of the Change of Control, assuming that you had been entitled to receive an amount in respect of such bonus based solely upon the target percentage applicable to employees in the same employment grade as you and your Base Salary as of the date of termination (or if greater, your Base Salary as of the date on which occurred an event giving rise to a Change of Control Termination), and without regard to actual performance. (iii) The Company shall continue the participation of you and your dependents for a period of two years after the date of termination in all health, medical and accident, life and other welfare plans (as defined in Section 3(l) of ERISA), in which you were participating immediately prior to the date of termination, except for any disability plans; provided, however, that to the extent the Company's plans do not permit such continued participation or such participation would have an adverse tax impact on such plans or on the other participants in such plans, the Company may instead provide materially equivalent benefits to you outside of such plans; provided, further, that under such circumstances, (i) medical insurance benefits may be provided by the Company paying any COBRA premiums (COBRA coverage, in any event, to be measured from the date of termination of employment) and (ii) if the Company is unable to continue your life insurance coverage, the Company shall pay you an amount equal to twice the premium paid during the year prior to termination or if you convert the insurance to an individual policy, the Company shall pay the premium for such insurance for two years. You shall complete such forms and take such physical examinations as reasonably requested by the Company. To the extent you incur any tax obligation as a result of the provisions of this Section 10(e) that you would not have incurred if you remained an employee of the Company and had continued to participate in the benefit plans as an employee, the Company shall pay to you, at the time the tax is due, an amount to cover such taxes and the taxes on the amount paid to cover such taxes. (iv) All outstanding stock options and restricted stock awards that have been granted to you by the Company at any time but have not yet vested and upon which vesting depends -10- solely upon the passage of time, shall immediately vest or become nonforfeitable, as the case may be. In the event the foregoing sentence becomes applicable, the Company agrees to cause the Board of Directors to take all steps necessary to implement the foregoing sentence. (v) All amounts payable to you upon a Change of Control under the Company's Supplemental Executive Retirement Plan and Deferred Compensation Plan shall be paid to you in accordance with the respective terms of those plans. (vi) The Company, at its expense, shall provide you with outplacement services at a level appropriate for the most senior executive employees through an outplacement firm of your choice for a period of up to one year after the date of the Change of Control Termination. (f) (i) In the event that any payment, coverage or benefit (collectively, the "Covered Benefits") provided to you by the Company or an Affiliate (as defined below) is or becomes subject to the excise tax imposed under Section 4999 or any successor provision of the Internal Revenue Code of 1986, as amended (the "Code"), or you incur interest or penalties with respect to that excise tax (that excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay you an additional amount (a "Gross-Up Bonus") at the time or times specified in Section 10(f)(iii)(z) below. The amount of the Gross-Up Bonus shall equal the quotient determined by dividing (x) the Excise Tax attributable to the Covered Benefits by (y) one minus the highest marginal income tax rate, where the term "highest marginal income tax rate" means the sum of the highest combined local, state and federal personal income tax rates (including any state unemployment compensation tax rate, any surtax rate as well as the Medicare hospital insurance tax rate imposed on employees under the Federal Insurance Contributions Act) as in effect for the calendar year to which the Excise Tax attributable to the Covered Benefits relates, provided that in determining the highest tax rate for federal purposes both the deductibility of state and local income tax payments and the reduction in the deductibility of itemized deductions shall be taken into account; it being the intention of the parties hereto that your net after tax position (after taking into account any interest or penalties imposed with respect to such taxes) upon receipt of the Covered Benefits is no less advantageous to you than the net after tax position you would have had if Section 4999 of the Code had not been applicable to any portion of the Covered Benefits. (ii) All determinations to be made under this Section 10(f), including the determination of whether an Excise Tax is payable and the amount thereof, shall be made by a law firm practicing in the Philadelphia, Pennsylvania metropolitan area that is knowledgeable in tax law matters, which firm shall be selected and paid for by the Company and acceptable to you. If tax counsel's determinations are not finally accepted by the Internal Revenue Service upon audit, then appropriate adjustments shall be computed (with a Gross-Up Bonus, if applicable) by that tax counsel based upon the final amount of the Excise Tax so determined. (iii) For purposes of this Section 10(f): (x) An "Affiliate" shall mean any successor to the Company, any member of an affiliated group including the Company (determining using the definition in Section 1504 of -11- the Code) or any entity that becomes a member of such an affiliated group as a result of the transaction causing the Change of Control. (y) When determining the amount of the Gross-Up Bonus, you will be deemed to have otherwise allowable deductions for federal, state and local tax purposes at least equal to those disallowed because of the inclusion of the Gross-Up Bonus in your adjusted gross income. (z) The portion of the Gross-Up Bonus attributable to a Covered Benefit shall be paid to you within 10 business days following the provision to you of the Covered Benefit. In the event that the amount of Excise Tax due exceeds the amount of Excise Tax determined by tax counsel, the Company shall pay you an additional Gross-Up Bonus in respect of that excess at the time that the amount of the excess is determined under Section 10(f)(ii). In the event the amount of Excise Tax due is less than the amount of Excise Tax determined by tax counsel, you shall repay the Company the portion of the Gross-Up Bonus attributable thereto at the time that the amount of the reduction in Excise Tax is determined under Section 10(f)(ii); provided, however, that if any portion of the amount you must repay to the Company has been paid to any federal, state or local tax authority, your repayment of that portion shall be postponed until the tax authority has actually refunded or credited that amount to you. (g) Upon the occurrence of a Change of Control, if the Company fails to perform any of its obligations under this Agreement or the Company or any other person asserts the invalidity of any provision of this Agreement and you incur any costs in successfully enforcing or defending any of the provisions of this Agreement, including legal fees and expenses and court costs, the Company shall reimburse you for all such costs incurred by you. 11. ENTIRE AGREEMENT; MODIFICATION. This Agreement, together with Exhibit A hereto and all rights to which you are entitled under all employee benefit plans in which you participate, constitutes the full and complete understanding of the parties, and will, on the Effective Date, supersede all prior agreements and understandings, oral or written, between the parties, except for the Agreement Relating to Intellectual Property and Confidential Information dated November 5, 1999 between you and the Company ("Confidentiality Agreement"); provided, however, that if the terms of any of such employee benefit plan or Confidentiality Agreement shall be inconsistent with the provisions of the Agreement, the provisions of this Agreement shall prevail. This Agreement may not be modified or amended except by an instrument in writing signed by the party against which enforcement thereof may be sought. Each party to this Agreement, acknowledges that no representations, inducements, promises or agreements, oral or written, have been made by either party or anyone acting on behalf of either party, which are not embodied herein and that no other agreement, statement or promise not set forth or referred to in this Agreement shall be valid or binding. 12. SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and -12- provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 13. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach. 14. NO MITIGATION REQUIRED. Upon a termination of your employment by the Company without Cause pursuant to Section 2(b) or upon a Change of Control pursuant to Section 10, you shall have no obligation to seek other employment but shall not be prohibited from doing so, and no compensation paid to you as the result of any other employment shall reduce any payment required to be made by the Company hereunder. 15. NOTICES. All notices hereunder shall be in writing and shall be sent by express mail or by certified or registered mail, postage prepaid, return receipt requested: if to you, to your residence as listed in the Company's records; and if to the Company, to the address set forth above with copies to the President. 16. ASSIGNABILITY; BINDING EFFECT. This Agreement shall not be assigned by either party, except that it may be assigned by the Company to an acquirer of all or substantially all of the assets of the Company or other successor to the Company, subject to your rights arising from a change of control as provided in Section 10. This Agreement shall be binding upon and inure to the benefit of you, your legal representatives, heirs and distributees, and shall be binding upon and inure to the benefit of the Company, its successors and assigns. 17. NONDISPARAGEMENT. You agree not to publicly or privately disparage the Company, its personnel, products or services either during or upon termination of your employment with the Company. 18. SURVIVAL. All of the provisions of this Agreement that by their terms are to be performed or that otherwise are to endure after the termination of your employment by the Company shall survive the termination of your employment and shall continue in effect for the respective periods therein provided or contemplated. 19. GOVERNING LAW. All questions pertaining to the validity, construction, execution and performance of this Agreement shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflicts or choice of law provisions thereof. 20. HEADINGS. The headings of this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 21. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. -13- If this Agreement correctly sets forth our understanding, please sign the duplicate original in the space provided below and return it to the Company, whereupon this shall constitute the employment agreement between you and the Company effective and for the term as stated herein. C&D TECHNOLOGIES, INC. By: /s/ Wade H. Roberts, Jr. ------------------------ Title: President --------------------- Agreed as of the date first above written: /s/ John A. Velker - ------------------------------------------ John A. Velker -14- EXHIBIT A RELEASE This Release is made this _____ day of _______________, ____ by and between C&D Technologies, Inc. ("Employer") and _________________ ("Employee"). Recitals: WHEREAS, the parties are parties to an Employment Agreement (the "Employment Agreement") dated __________, pursuant to which Employee was employed by Employer; and WHEREAS, the Employment Agreement has terminated; and WHEREAS, your execution and delivery of this Release is a condition to the Employer's obligations to pay certain compensation and benefits to you under the Employment Agreement; NOW THEREFORE, the parties hereto, intending to be legally bound, in consideration of the mutual promises and undertakings set forth herein, do hereby agree as follows: 1 As of _____________________, ____, Employee's employment with Employer shall terminate, and Employee shall have no further job responsibilities to perform for Employer; provided, however, that Employee shall cooperate with Employer in transitioning Employee's job responsibilities as Employer shall reasonably request, provided that Employee shall be entitled to receive reasonable compensation for any services rendered after such date and shall not be obligated to take any action that would interfere with any subsequent employment of Employee or otherwise result in economic hardship to Employee. 2 Employer shall pay to the Employee the amounts contemplated pursuant to Section __ of the Employment Agreement, less applicable deductions; provided however, the first payment shall not be due and payable until ten days after the execution by Employee and delivery to Employer of this Release. 3 For and in consideration of the monies and benefits paid to Employee by Employer, as more fully described in Section 2 above, and for other good and valuable consideration, Employee hereby waives, releases and forever discharges Employer, its assigns, predecessors, successors, and affiliated entities, and its current or former stockholders, officers, directors, administrators, agents, servants and employees, individually and as representatives of the corporate entity (hereinafter collectively referred to as "Releasees"), from any and all claims, suits, debts, dues, accounts, reckonings, bonds, bills, specialties, covenants, contracts, bonuses, controversies, agreements, promises, charges, complaints, damages, sums of money, interest, attorney's fees and costs, or causes of action of any kind or nature whatsoever whether in law or equity, including, but not limited to, all claims arising out of his/her employment or termination of employment with Employer, such as A-1 all claims for wrongful discharge, breach of contract, either express or implied, interference with contract, emotional distress, fraud, misrepresentation, defamation, claims arising under the Civil Rights Acts of 1964 and 1991 as amended, the Americans With Disabilities Act, the Age Discrimination in Employment Act (ADEA), the National Labor Relations Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974 (ERISA), the Family and Medical Leave Act, the Pennsylvania Human Relations Act, the Pennsylvania Wage Payment & Collection Law, the Pennsylvania Minimum Wage Act of 1968, the Pennsylvania Equal Pay Law, and any and all other claims arising under federal, state or local law, rule, regulation, constitution, ordinance or public policy whether known or unknown, arising up to and including the date of execution of this Release; provided, however that the parties do not release each other from any claim of breach of the terms of this Release. This release of rights does not extend to claims that may arise after the date of this Release. Employee agrees that Employee will not initiate any charge or complaint or institute any claim or lawsuit against Releasees or any of them based on any fact or circumstance occurring up to and including the date of the execution by Employee of this Release. 4 Employee agrees that the payments made and other consideration received pursuant to this Release are not to be construed as an admission of legal liability by Releasees or any of them and that no person or entity shall utilize this Release or the consideration received pursuant to this Release as evidence of any admission of liability since Releasees expressly deny liability. 5 Employee affirms that the only consideration for the signing of this Release are the terms stated herein and in the Employment Agreement and that no other promise or agreement of any kind has been made to Employee by any person or entity whatsoever to cause Employee to sign this Release. 6 Employee and Employer affirm that the Employment Agreement and this Release set forth the entire agreement between the parties with respect to the subject matter contained herein and supersede all prior or contemporaneous agreements or understandings between the parties with respect to the subject matter contained herein. Further, there are no representations, arrangements or understandings, either oral or written, between the parties, which are not fully expressed herein. Finally, no alteration or other modification of this Release shall be effective unless made in writing and signed by both parties. 7 Employee acknowledges that Employee has been given a period of at least 21 days within which to consider this Release. 8 Following the execution of this Release, the Employee has a period of 7 days from the date of execution to revoke this Release, and this Release shall not become effective or enforceable until the revocation period has expired. 9 Employee certifies that Employee has returned to Employer all keys, identification cards, credit cards, computer and telephone equipment and other property or information of Employer in Employee's possession, custody, or control including, but not limited to, any information contained in any computer files maintained by Employee during Employee's A-2 employment with Employer. Employee certifies that Employee has not kept the originals or copies of any documents, files, or other property of Employer which Employee obtained or received during Employee's employment with Employer. 10 Employee acknowledges that Employer advised Employee to consult with an attorney prior to executing this Release. 11 Employee affirms that Employee has carefully read this Release, that Employee fully understands the meaning and intent of this document, that Employee has signed this Release voluntarily and knowingly, and that Employee intends to be bound by the promises contained in this Release for the consideration described in Section 2 above. IN WITNESS WHEREOF, Employee and the authorized representative of Employer have executed this Release on the dates indicated below: C&D TECHNOLOGIES, INC. Dated:__________________________ By:________________________ Title:_____________________ Dated:__________________________ ___________________________ John A. Velker A-3 ENDORSEMENT I, ___________________________________, hereby acknowledge that I was given 21 days to consider the foregoing Release and voluntarily chose to sign the Release prior to the expiration of the 21-day period. I declare under penalty of perjury under the laws of the Commonwealth of Pennsylvania that the foregoing is true and correct. EXECUTED this ________ day of ______________, ____, at _______________________________________, Pennsylvania. _______________________________ John A. Velker A-4 EX-10 4 exb_10-33.txt Exhibit 10.33 INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT dated as of February 24, 2003 by and between C&D Technologies, Inc. (the "Corporation"), a Delaware corporation, and Stanley W. Silverman ("Indemnitee"): RECITALS: WHEREAS, highly competent persons are becoming more reluctant to serve publicly held corporations as directors unless they are provided with adequate protection through insurance and indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and WHEREAS, the current difficulties in the marketplace generally of obtaining adequate insurance and uncertainties relating to indemnification have increased the difficulty of attracting and retaining such persons; and WHEREAS, the Board of Directors has determined that the inability to attract and retain such persons would be detrimental to the best interests of the Corporation and its stockholders and that the Corporation should act to assure its directors that such protection will be available in the future; and WHEREAS, it is reasonable, prudent and necessary for the Corporation contractually to obligate itself to indemnify its directors to the fullest extent permitted by applicable law, subject only to the limited exceptions contained in this Agreement, so that they will serve or continue to serve the Corporation free from undue concern that they will not be so indemnified. NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Corporation and Indemnitee, intending to be legally bound, hereby covenant and agree as follows: SECTION 1. INDEMNIFICATION. In consideration of Indemnitee's continued service as a director of the Corporation, the Corporation shall indemnify Indemnitee to the fullest extent permitted by applicable law in effect on the date hereof or as such laws may from time to time be amended, subject only to the limited exceptions set forth in this Agreement. Without diminishing the scope of the indemnification provided by this Section 1, the rights of indemnification of Indemnitee provided hereunder shall include but shall not be limited to those rights specified in this Agreement, except to the extent expressly prohibited by applicable law. SECTION 2. PROCEEDINGS OTHER THAN AN ACTION BY OR IN THE RIGHT OF THE CORPORATION. Indemnitee shall be entitled to the indemnification rights provided in this Section 2 if Indemnitee is a party to or is threatened to be made a party to any Proceeding (as defined in Section 7), other than an action by or in the right of the Corporation, by reason of the fact that Indemnitee is or was a director, officer, employee, agent, or fiduciary of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of any other corporation, partnership, limited liability company, joint venture, trust or other enterprise or entity or by reason of anything done or not done by Indemnitee in any such capacity. Pursuant to this Section 2, Indemnitee shall be indemnified against reasonable costs and expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such Proceeding (including, but not limited to, the investigation, defense or appeal thereof), if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Indemnitee shall be entitled to the indemnification rights provided in this Section 3 if Indemnitee is a person who was or is made a party or is threatened to be made a party to any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent, or fiduciary of any other corporation, partnership, limited liability company, joint venture, trust or other enterprise or entity by reason of anything done or not done by Indemnitee in any such capacity. Pursuant to this Section 3, Indemnitee shall be indemnified against reasonable costs and expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection with such Proceeding (including, but not limited to, the investigation, defense, settlement or appeal thereof) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation. SECTION 4. INDEMNIFICATION FOR COSTS AND EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Agreement, to the extent that Indemnitee has served as a witness on behalf of the Corporation or has been successful on the merits or otherwise, including, without limitation, the dismissal of a Proceeding without prejudice, in defense of any Proceeding referred to in Sections 2 and 3 hereof, or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against reasonable costs and expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection therewith. SECTION 5. PARTIAL INDEMNIFICATION. If Indemnitee is only partially successful in the defense, investigation, settlement or appeal of any Proceeding described in Section 2 or 3 hereof, and as a result is not entitled under Section 6 hereof to indemnification by the Corporation for the reasonable costs and expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee, the Corporation shall nevertheless indemnify Indemnitee pursuant to Section 6 hereof to the extent Indemnitee has been partially successful. SECTION 6. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. When seeking indemnification under Section 3 or 4 hereof, Indemnitee shall submit a written request for indemnification to the Corporation. Such request shall include documentation or information that is reasonably available to Indemnitee and reasonably necessary for the Corporation to make a determination of Indemnitee's entitlement to indemnification. Determination of Indemnitee's entitlement to indemnification pursuant to this Agreement shall be determined by the following person or persons, who shall be empowered to make such determination: (a) the Board of Directors of the Corporation by a majority vote of a quorum consisting of Disinterested Directors (as defined in Section 7); or (b) if such a quorum is not obtainable or, even if obtainable, if the Board of Directors by the majority vote of Disinterested Directors so directs, by Independent Counsel (as defined in Section 7) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (c) by the stockholders. Such Independent Counsel shall be selected by the Board of Directors and reasonably acceptable to Indemnitee. Upon failure of the 2 Board to so select such Independent Counsel or upon failure of Indemnitee to so accept, such Independent Counsel shall be selected by the Chancellor of the State of Delaware or such other person as the Chancellor shall designate to make such selection. Such determination of entitlement to indemnification shall be made not later than 60 days after receipt by the Corporation of a written request for indemnification. Any reasonable costs or expenses (including attorneys' fees) incurred by Indemnitee in connection with a request for indemnification under this Agreement shall be borne by the Corporation provided that it is ultimately determined that the Indemnitee is entitled to indemnification. If the person making such determination shall determine that Indemnitee is entitled to indemnification as to part (but not all) of the application for indemnification, such person shall reasonably prorate such partial indemnification among such claims, issues or matters. SECTION 7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. The Secretary of the Corporation (or other officer designated by the Board of Directors) shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors, or such other person or persons empowered to make the determination as provided in Section 6, that Indemnitee has made such request for indemnification. Upon making such request for indemnification, Indemnitee shall be presumed to be entitled to indemnification hereunder and the Corporation shall have the burden of proof in the making of any determination contrary to such presumption. If the person or persons so empowered to make such determination shall fail to make the requested indemnification within 60 days after receipt by the Corporation of such request, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any Proceeding described in Sections 2 or 3 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee did not act in good faith and in a manner that Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. SECTION 8. ADVANCEMENT OF EXPENSES AND COSTS. Subject to the exceptions set forth in Section 10 hereof, all reasonable costs and expenses incurred by Indemnitee (including attorneys' fees, retainers and advances of disbursements required of Indemnitee) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding at the request of Indemnitee within 20 days after the receipt by the Corporation of a statement or statements from Indemnitee requesting such advance or advances from time to time. Indemnitee's entitlement to such costs and expenses shall include those incurred in connection with any proceeding by Indemnitee seeking an adjudication pursuant to this Agreement. Such statement or statements shall reasonably evidence the costs and expenses incurred by Indemnitee in connection therewith and shall include or be accompanied by a written undertaking by or on behalf of Indemnitee to repay such amount if it is ultimately determined that Indemnitee is not entitled to be indemnified against such costs and expenses by the Corporation as provided by this Agreement or otherwise. SECTION 9. REMEDIES OF INDEMNITIES IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE EXPENSES. In the event that a determination is made that Indemnitee is not entitled to indemnification hereunder or if payment has not been timely made following a determination of entitlement to indemnification pursuant to Sections 6 and 7, or if expenses are not advanced pursuant to Section 8, Indemnitee shall be entitled to a final adjudication in an appropriate court 3 of the State of Delaware or any other court of competent jurisdiction of Indemnitee's entitlement to such indemnification or advance. Such judicial proceeding shall be made de novo, and Indemnitee shall not be prejudiced in seeking further relief by reason of a determination (if so made) that Indemnitee is not entitled to indemnification. If a determination is made or deemed to have been made pursuant to the terms of Section 6 or Section 7 hereof that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination and is precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable. The Corporation further agrees to stipulate in any such proceeding that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. If the court shall determine that Indemnitee is entitled to any indemnification hereunder, the Corporation shall pay all reasonable costs and expenses (including attorneys' fees) actually incurred by Indemnitee in connection with such adjudication (including, but not limited to, any appellate proceedings). SECTION 10. EXCEPTIONS AND MODIFICATIONS TO INDEMNIFICATION. (a) Notwithstanding any other provision to the contrary set forth in this Agreement, unless otherwise determined by the Board of Directors by a majority vote of the Disinterested Directors, Indemnitee shall not be entitled to indemnification or advancement of expenses from the Corporation under this Agreement in any of the following circumstances: (i) any Proceeding initiated by or on behalf of Indemnitee against the Corporation (other than a Proceeding brought solely to seek the remedies set forth in Section 9 of this Agreement for a Proceeding not initiated by Indemnitee), or any counterclaim, cross-claim, affirmative defense or similar claim of the Corporation in connection with such Proceeding; or (ii) any Proceeding initiated by the Corporation against Indemnitee. (b) Notwithstanding any other provision to the contrary set forth in this Agreement, in the event that any insurance policy obtained by the Corporation would provide coverage for any liability, cost or expense for which indemnification or advancement of expenses is sought by Indemnitee under this Agreement, the provisions of this Agreement shall be modified to the extent necessary to conform this Agreement to the requirements of such insurance policy so as to provide coverage to the fullest extent possible, including but not limited to any requirement relating to incurring defense costs and retaining legal counsel. SECTION 11. OTHER RIGHTS TO INDEMNIFICATION. The indemnification and advancement of costs and expenses (including attorneys' fees) provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under any provision of the Corporation's Certificate of Incorporation or By-Laws or any agreement, vote of stockholders or disinterested directors, provision of law or otherwise. SECTION 12. ATTORNEYS' FEES AND OTHER EXPENSES TO ENFORCE AGREEMENT. In the event that Indemnitee is subject to or intervenes in any Proceeding in which the validity or enforceability of this Agreement is at issue or seeks an adjudication to enforce Indemnitee's rights under, or to recover damages for breach of, this Agreement, if Indemnitee prevails in whole or in part in such Proceeding, Indemnitee shall be entitled to recover from the Corporation and shall be indemnified by the Corporation against, any actual expenses for attorneys' fees and disbursements reasonably incurred by Indemnitee. 4 SECTION 13. DURATION OF AGREEMENT. This Agreement shall continue until and terminate upon the later of: (a) ten years after Indemnitee has ceased to hold any of the positions or have any of the relationships described in Sections 2 and 3 of this Agreement; or (b) the final termination of all pending or threatened Proceedings with respect to Indemnitee. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit Indemnitee and Indemnitee's spouse, assigns, heirs, devisees, executors, administrators or other legal representatives. SECTION 14. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. SECTION 16. HEADINGS. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. SECTION 17. DEFINITIONS AND INTERPRETATIONS. For purposes of this Agreement: (a) The term "Corporation" shall include any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. (b) The term "Disinterested Director" shall mean a director of the Corporation who is not or was not a party to a Proceeding in respect of which indemnification is being sought by Indemnitee. (c) The term "fines" shall include any penalties and any excise or similar taxes assessed on a person with respect to an employee benefit plan. (d) The term "Independent Counsel" shall mean a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent: (i) the 5 Corporation or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an Proceeding to determine Indemnitee's right to indemnification under this Agreement. (e) The term "other enterprise" shall include employee benefit plans, including but not limited to any employee benefit plans of the Corporation. (f) The term "Proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, including any counterclaim. (g) Service by Indemnitee "at the request of the Corporation" shall include, but is not limited to, any service that imposes duties on, or involves services by, Indemnitee with respect to an employee benefit plan, its participants or beneficiaries, including acting as a fiduciary thereof. (h) A person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in Sections 2 and 3 hereof. (i) Service by Indemnitee as a partner, trustee, manager or member of management or similar committee of a partnership, joint venture, trust or limited liability company, or as a director, officer, manager, partner, trustee or manager of an entity that is a partner, trustee, member or joint venturer, shall be considered service as a director or officer of the partnership, joint venture, trust, limited liability company or other enterprise. SECTION 18. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. SECTION 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter that may be subject to indemnification covered hereunder, either civil, criminal or investigative. SECTION 20. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or if (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: 6 If to Indemnitee, to the address set forth on the signature page to this Agreement. If to the Corporation to: C&D Technologies, Inc. 1400 Union Meeting Road P.O. Box 3053 Blue Bell, PA 19422-0858 Attention: Corporate Secretary or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. SECTION 21. GOVERNING LAW. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. C&D TECHNOLOGIES, INC. By: /s/ Linda R. Hansen ------------------------------- Title: Vice President ---------------------------- Name: Stanley W. Silverman ---------------------------------- /s/ Stanley W. Silverman ---------------------------------- Signature Address: [Home address inserted] ---------------------------------- ---------------------------------- 7 EX-21 5 exb_21.txt EXHIBIT 21 SUBSIDIARIES OF C&D TECHNOLOGIES, INC. C&D Charter Holdings, Inc., incorporated under the laws of the State of Delaware C&D International Investment Holdings, Inc., incorporated under the laws of the State of Delaware C&D Holdings, Ltd., organized under the laws of the United Kingdom NCL Holdings, Ltd., organized under the laws of the United Kingdom C&D Technologies (NCL), Ltd., organized under the laws of the United Kingdom C&D Technologies (NCL), Inc., incorporated under the laws of the State of North Carolina C&D Electronics (Guangzhou) Ltd., organized under the laws of China C&D Instruments, Ltd., organized under the laws of the United KIngdom C&D Components Hong Kong, Ltd., organized under the laws of Hong Kong, China C&D Technology, Ltd., organized under the laws of the United Kingdom C&D Microtek, Ltd., organized under the laws of the United Kingdom Charter Power F.S. Ltd., incorporated in the Islands of Bermuda C&D Technologies (Power Electronics), Ltd., organized under the laws of Ireland C&D Technologies de Mexico, S.A., de C.V., organized under the laws of Sonora, Mexico C&D Technologies (U.K.) Ltd., organized under the laws of the United KIngdom C&D Technologies (HK) Ltd., organized under the laws of Hong Kong, China C&D Technologies (Italia), S.r.l., organized under the laws of Italy Shanghai C&D Battery Company, Ltd., joint venture organized under the laws of China EX-23 6 exb_23.txt Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Registration Nos. 33-31978, 33-71390, 33-86672, 333-17979, 333-38891, 333-59177, 333-42054, 333-56736, 333-69264, 333-69266 and 333-101835) and Form S-3 (Registration No. 333-38893) of our report dated March 14, 2003 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. We also consent to the reference to us under the heading "Selected Financial Data" in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------- PricewaterhouseCoopers LLP Philadelphia, Pennsylvania April 17, 2003 EX-99 7 exb_99-1.txt Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of C&D Technologies, Inc. ("C&D"), that, to his knowledge, the Annual Report of C&D on Form 10-K for the period ended January 31, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of C&D. Date: April 18, 2003 /S/ Wade H. Roberts, Jr. -------------- ----------------------------------- Wade H. Roberts, Jr. President and Chief Executive Officer (Principle Executive Officer) A signed original of this certification required by Section 906 has been provided to C&D Technologies, Inc. and will be retained by C&D Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 8 exb_99-2.txt Exhibit 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of C&D Technologies, Inc. ("C&D"), that, to his knowledge, the Annual Report of C&D on Form 10-K for the period ended January 31, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of C&D. Date: April 18, 2003 /s/ Stephen E. Markert, Jr. -------------- ----------------------------------- Stephen E. Markert, Jr. Vice President Finance (Principal Financial and Accounting Officer) A signed original of this certification required by Section 906 has been provided to C&D Technologies, Inc. and will be retained by C&D Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----