UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
Commission File No. 1-9389
C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3314599
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Union Meeting Road
Blue Bell, Pennsylvania 19422
(Address of principal executive office)
(Zip Code)
(215) 619-2700
(Registrant's telephone number, including area code)
_____________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO_____
Number of shares of the Registrant's Common Stock outstanding on September 4,
1998: 12,353,602
<PAGE>
C&D TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
July 31, 1998 and January 31, 1998.................... 3
Consolidated Statements of Income -
Three and Six Months Ended July 31, 1998
and 1997............................................. 5
Consolidated Statements of Cash Flows -
Six Months Ended July 31, 1998 and 1997............... 6
Consolidated Statements of Comprehensive Income
Three and Six Months Ended July 31, 1998
and 1997 ............................................ 8
Notes to Consolidated Financial Statements............ 9
Report of Independent Accountants..................... 16
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 17
PART II. OTHER INFORMATION 21
SIGNATURES 23
2
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
July 31, January 31,
1998 1998*
---- ----
ASSETS
Current assets:
Cash and cash equivalents................. $ 1,657 $ 1,167
Accounts receivable, less allowance for
doubtful accounts of $1,825 and
$1,701, respectively................. 43,118 42,742
Inventories............................... 45,001 40,735
Deferred income taxes..................... 7,950 7,871
Other current assets...................... 1,228 885
-------- --------
Total current assets........... 98,954 93,400
Property, plant and equipment, net.............. 60,036 57,058
Intangible and other assets, net................ 4,850 5,339
Goodwill, net................................... 10,418 10,701
-------- --------
Total assets................... $174,258 $166,498
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 223 $ 321
Accounts payable.......................... 25,055 22,791
Accrued liabilities....................... 15,876 16,012
Income taxes ............................. 460 3,689
Other current liabilities................. 2,892 3,245
------- -------
Total current liabilities...... 44,506 46,058
Deferred income taxes........................... 2,576 2,376
Long-term debt.................................. 5,303 10,267
Other liabilities............................... 11,544 10,492
------- -------
Total liabilities.............. 63,929 69,193
------- -------
*Reclassified for comparative purposes to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend.
The accompanying notes are an integral part of these statements.
3
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands)
(Unaudited)
July 31, January 31,
1998 1998*
---- ----
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 75,000,000 and
10,000,000 shares authorized; 13,258,704
and 13,228,898 (as adjusted for the two-
for-one stock split, effected in the
form of a 100% stock dividend) shares
issued, respectively.................... 133 132
Additional paid-in capital.................. 41,909 41,364
Treasury stock, at cost, 905,102 (as adjusted
for the two-for-one stock split, effected in
the form of a 100% stock dividend)shares.... (10,819) (10,819)
Notes receivable from stockholder, net of
discount of $28 .... ................... - (1,029)
Cumulative translation adjustment........... (215) (248)
Retained earnings........................... 79,321 67,905
------- -------
Total stockholders' equity....... 110,329 97,305
------- -------
Total liabilities and
stockholders' equity........... $174,258 $166,498
======= =======
*Reclassified for comparative purposes to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend.
The accompanying notes are an integral part of these statements.
4
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Six months ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................ $ 80,073 $ 75,375 $158,982 $148,721
Cost of sales........................ 58,334 55,901 116,555 110,264
------- ------- ------- -------
Gross profit..................... 21,739 19,474 42,427 38,457
Selling, general and
administrative expenses.......... 10,123 9,610 19,635 18,865
Research and development
expenses......................... 2,026 2,126 4,061 4,202
------- ------- ------- -------
Operating income................. 9,590 7,738 18,731 15,390
Interest expense, net................ 46 364 76 740
Other expense (income), net.......... 96 (1) 142 711
------- ------- ------- -------
Income before income taxes....... 9,448 7,375 18,513 13,939
Provision for income taxes........... 3,448 2,671 6,757 5,100
------- ------- ------- -------
Net income....................... $ 6,000 $ 4,704 $ 11,756 $ 8,839
======= ======= ======= =======
Net income per common share*......... $ .49 $ .39 $ .95 $ .73
======= ======= ======= =======
Net income per common share -
assuming dilution*............... $ .47 $ .37 $ .92 $ .70
======= ======= ======= =======
Dividends per share*................. $0.01375 $0.01375 $ 0.0275 $ 0.0275
======= ======= ======= =======
</TABLE>
* Per share amounts have been adjusted to reflect the Company's two-for-one
stock split, effected in the form of a 100% stock dividend, where appropriate.
The accompanying notes are an integral part of these statements.
5
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months ended
July 31,
1998 1997
---- ----
Cash flows provided (used) by operating activities:
Net income ..................................... $11,756 $ 8,839
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 5,946 6,092
Deferred income taxes..................... 121 544
Loss (gain) on disposal of assets......... 184 (1)
Changes in:
Accounts receivable................. (431) (1,655)
Inventories......................... (4,260) (2,001)
Other current assets................ (336) (564)
Accounts payable.................... 2,255 (1,281)
Accrued liabilities................. 130 2,357
Income taxes payable................ (3,095) (401)
Other current liabilities........... (354) (1,400)
Other liabilities................... 1,049 1,928
Other, net................................ 269 (341)
------- -------
Net cash provided by operating activities........... 13,234 12,116
------- -------
Cash flows provided (used) by investing activities:
Acquisition of property, plant and equipment.... (8,578) (4,187)
Proceeds from disposal of property, plant
and equipment................................ 31 -
Change in restricted cash....................... - 1
------- -------
Net cash used by investing activities............... (8,547) (4,186)
------- -------
Cash flows provided (used) by financing activities:
Repayment of long-term debt..................... (5,064) (7,508)
Repayment of note receivable from stockholder... 1,057 -
Proceeds from issuance of common stock.......... 332 326
Payment of common stock dividends............... (509) (502)
------- -------
The accompanying notes are an integral part of these statements.
6
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(Unaudited)
Six months ended
July 31,
1998 1997
---- ----
Net cash used by financing activities............... (4,184) (7,684)
------ ------
Effect of exchange rate changes on cash............. (13) (8)
------ ------
Increase in cash and cash equivalents............... 490 238
Cash and cash equivalents at beginning
of period........................................ 1,167 952
------ ------
Cash and cash equivalents at end of period.......... $ 1,657 $ 1,190
====== ======
The accompanying notes are an integral part of these statements.
7
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited) (Unaudited)
Three months ended Six months ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
Net income ....................... $6,000 $4,704 $11,756 $8,839
Other comprehensive (expense)
income, net of tax:
Foreign currency
translation adjustments ... (8) (93) 33 (404)
----- ----- ------ -----
Total comprehensive income........ $5,992 $4,611 $11,789 $8,435
===== ===== ====== =====
The accompanying notes are an integral part of these statements.
8
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(UNAUDITED)
1. INTERIM STATEMENTS
The accompanying interim consolidated financial statements of C&D
TECHNOLOGIES, INC. (together with its operating subsidiaries, the "Company")
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report to Shareholders for the
fiscal year ended January 31, 1998. The January 31, 1998 amounts were derived
from the Company's Audited Financial Statements. The consolidated financial
statements presented herein are unaudited but, in the opinion of management,
include all necessary adjustments (which comprise only normal recurring items)
required for a fair presentation of the consolidated financial position as of
July 31, 1998 and the consolidated statements of income for the three and six
months ended July 31, 1998 and 1997 and the consolidated statements of cash
flows for the six months ended July 31, 1998 and 1997 and the consolidated
statements of comprehensive income for the three and six months ended July 31,
1998 and 1997. However, interim results of operations necessarily involve more
estimates than annual results and may not be indicative of results for the full
fiscal year.
2. STOCK SPLIT
On July 24, 1998 the Company completed a two-for-one stock split, effected
in the form of a 100% stock dividend to stockholders of record on July 10, 1998.
This transaction resulted in a transfer on the Company's balance sheet of $66 to
common stock from additional paid-in-capital. The accompanying financial
statements and management's discussion and analysis of results of operations and
financial condition, including all share and per share amounts, have been
adjusted to reflect this transaction.
3. INVENTORIES
Inventories consisted of the following:
July 31, January 31,
1998 1998
---- ----
Raw materials ........................... $19,299 $17,099
Work-in-progress ........................ 10,875 9,990
Finished goods .......................... 14,827 13,646
------ ------
$45,001 $40,735
====== ======
4. INCOME TAXES
A reconciliation of the provision for income taxes from the statutory rate
to the effective rate is as follows:
Six months ended
July 31,
1998 1997
---- ----
U.S. statutory income tax ...................... 35.0% 35.0%
State tax, net of federal income tax benefit.... 3.0 3.8
Foreign sales corporation ...................... (1.0) (1.1)
Tax effect of foreign operations ............... (0.6) (1.1)
Other........................................... 0.1 -
---- ----
36.5% 36.6%
==== ====
9
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
5. NET INCOME PER COMMON SHARE
Net income per common share for the three and six months ended July 31,
1998 and 1997 is based on the weighted average number of shares of Common Stock
outstanding. Net income per common share - assuming dilution reflects the
potential dilution that could occur if stock options were exercised.
(Unaudited) (Unaudited)
Three months ended Six months ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
Net income (A)............... $6,000 $4,704 $11,756 $8,839
Weighted average shares
of common stock
outstanding (B)........... 12,346,404 12,197,090 12,338,273 12,181,630
Assumed conversion of stock
options, net of shares
assumed reacquired........ 509,460 386,332 497,571 375,310
------ ------ ------ ------
Weighted average common
shares - assuming
dilution (C).............. 12,855,864 12,583,422 12,835,844 12,556,940
Net income per common
share (A/B)............... $.49 $.39 $.95 $.73
Net income per common
share - assuming
dilution (A/C)............ $.47 $.37 $.92 $.70
10
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
6. CONTINGENT LIABILITIES
With regard to the following contingent liabilities there have been no
material changes since January 31, 1998.
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, Canadian, Mexican,
Irish, state and local laws and regulations that are designed to protect the
environment and employee health and safety.
These laws and regulations include requirements relating to the handling,
storage, use and disposal of hazardous materials and solid wastes, recordkeeping
and periodic reporting to governmental entities regarding the use of hazardous
substances and disposal of hazardous wastes, monitoring and permitting of air
and water emissions and monitoring and protecting workers from exposure to
hazardous substances, including lead used in the Company's manufacturing
processes. In the opinion of the Company, the Company complies in all material
respects with these laws and regulations.
Notwithstanding such compliance, if damage to persons or the environment
has been or is caused by 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 therefore), the Company may be held liable for
the damage and be required to pay the cost of investigating and remedying the
same, and the amount of any such liability could be material to the results of
operations or financial condition. However, under the terms of the purchase
agreement with Allied Corporation ("Allied") for the Acquisition of the Company
(the "Acquisition Agreement"), Allied is 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.
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 several 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. As of January 16, 1989, the Company entered into an
agreement with other potentially responsible parties ("PRPs") relating to
remediation of a portion of one of the Third Party Facilities, the former NL
Industries ("NL"), facility in Pedricktown, New Jersey (the "NL Site"), which
11
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
6. CONTINGENT LIABILITIES (continued)
agreement provides for their joint funding on a proportionate basis of certain
remedial investigation and feasibility study activities with respect to that
site.
In fiscal 1993 in accordance with an EPA order, a group comprised of the
Company and 30 other parties commenced work on the cleanup of a portion of the
NL Site based on a specified remedial approach which is now completed. The
Company did not incur costs in excess of the amount previously reserved.
With regard to the remainder of the NL Site, the EPA is pursuing
negotiations with NL and the other PRPs, including the Company, regarding the
conduct and funding of the remedial work plan. The allocation percentages
between parties and the basis for allocation of cost have been agreed to by the
PRPs and NL. Based upon currently available information, the Company estimates
its share of cost for this phase of the clean-up to range from $210 to $242, the
majority of which is expected to be paid out over the next two years.
Accordingly, the Company has established a reserve for this potential exposure.
The remedial investigation and feasibility study at a second Third Party
Facility, the former Tonolli Incorporated facility at Nesquehoning, Pennsylvania
(the "Tonolli Site"), was completed in fiscal 1993. The EPA and the PRPs have
initiated the remedial action at the site. Based on the estimated cost of the
remedial approach selected by the EPA, the Company believes that the potential
cost of remedial action at the Tonolli Site is likely to range between $16,000
and $17,000. The Company's allocable share of this cost has not been finally
determined, and will depend on such variables as the financial capability of
various other PRPs to fund their respective allocable shares of the remedial
cost. Based on currently available information, however, the Company believes
that its most likely exposure with respect to the Tonolli Site will be the
approximately $579 previously reserved, the majority of which is expected to be
paid over the next two years. The Company expects to recover a portion of its
monetary obligations for the remediation of the Tonolli site through litigation
against third parties and recalcitrant PRPs.
The Company has responded to requests for information from the EPA with
regard to three other Third Party Facilities, one in September 1991, one (the
"Chicago Site") in October 1991, and the third (the "ILCO Site") in October
1993. Of the three sites, the Company has been identified as a PRP at the ILCO
and Chicago Sites only.
12
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
6. CONTINGENT LIABILITIES (continued)
On October 31, 1995 the Company received confirmation from the EPA that it
is a de minimis PRP at the ILCO Site. In May 1998, the ILCO site was resolved
with the payment of an immaterial amount, which was less than the amount
previously reserved.
Based on currently available information, the Company believes that the
potential cost of the remediation at the Chicago Site is likely to range between
$8,000 and $10,500 (based on the preliminary estimated costs of the remediation
approach negotiated with the EPA). Sufficient information is not available to
determine the Company's allocable share of this cost. Based on currently
available information, however, the Company believes that its most likely
exposure with respect to the Chicago Site will be the approximately $283
previously reserved, the majority of which is expected to be paid over the next
two to five years.
Allied has accepted responsibility under the Acquisition Agreement for
potential liabilities relating to all Third Party Facilities other than the
aforementioned Sites. Based on currently available information, management of
the Company believes that the foregoing will not have a material adverse effect
on the Company's business, financial condition or results of operations.
13
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the disclosure of segment results. It requires that segments be
determined using the "management approach," which means the way management
organizes the segments within the enterprise for making operating decisions and
assessing performance. The Company has not yet determined the impact of the
implementation of SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) provides reduced disclosure requirements for nonpublic
entities; (vi) revises disclosures about defined contribution plans; and (vii)
changes disclosures relating to multi-employer plans. SFAS No. 132 does not
change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or
106. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The Company believes that the adoption of SFAS No. 132 will not have a
material effect on its financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires costs of start-up activities and organization
costs to be charged to expense as incurred. SOP 98-5 is effective for financial
statements for years beginning after December 15, 1998. The Company believes
that the adoption of SOP 98-5 will not have a material effect on its financial
position or results of operations.
14
<PAGE>
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new procedures
for accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. This statement is effective for fiscal years
beginning after June 15, 1999. The Company currently uses derivatives such as
interest rate swap agreements, currency swaps and currency forwards to
effectively fix the interest rate on a portion of the Company's floating rate
debt and the exchange rate on Canadian and Mexican assets, liabilities and cash
flows. Under current accounting standards, no gain or loss is recognized on
changes in the fair value of these derivatives. Under this statement, gains or
losses will be recognized based on changes in the fair value of the derivatives
which generally occur as a result of changes in interest rates and foreign
currency exchange rates. The Company is currently evaluating the financial
impact of adoption of this statement. The Company believes that the adoption of
SFAS No. 133 will not have a material effect on its financial position or
results of operations.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
C&D TECHNOLOGIES, INC.
We have reviewed the accompanying consolidated balance sheet of C&D
TECHNOLOGIES, INC. and Subsidiaries as of July 31, 1998, the related
consolidated statements of income for the three and six months ended July 31,
1998 and 1997, the related consolidated statements of cash flows for the six
months ended July 31, 1998 and 1997 and the related consolidated statements of
comprehensive income for the three and six months ended July 31, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated March 10, 1998,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of January 31, 1998, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 27, 1998
16
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales for the fiscal 1999 second quarter and six months ended July 31,
1998 increased $4,698,000 or six percent and $10,261,000 or seven percent,
respectively, compared to the equivalent periods in fiscal 1998. The increase in
fiscal 1999 second quarter sales versus the same quarter of the prior fiscal
year was primarily due to higher sales to the telecommunications and motive
power markets, which were up six percent and ten percent, respectively. On a
company-wide basis, fiscal 1999 second quarter telecommunications-related sales
were approximately 48 percent of total company sales versus 49 percent of sales
for the second quarter of fiscal 1998. The increase in sales for the six months
ended July 31, 1998 compared to the same period in the prior year was primarily
due to higher sales to the telecommunications and motive markets, up 14 percent
and four percent, respectively, partially offset by an eight percent decrease in
non-telecommunications-related power conversion sales. On a company-wide basis,
telecommunications-related sales were 50 percent of total company sales during
the first six months of fiscal 1999 versus 47 percent for the comparable period
of the prior year.
Gross profit increased $2,265,000 or 12 percent for the second quarter of
fiscal 1999 and increased $3,970,000 or 10 percent for the six-month period
ended July 31, 1998. Gross margin increased to 27.1 percent for the second
quarter of fiscal 1999 versus 25.8 percent for the comparable quarter of the
prior year. For the six months ended July 31, 1998, gross margin increased to
26.7 percent, up from 25.9 percent from the same six-month period of fiscal
1998. Gross margins for both the fiscal 1999 second quarter and half year
increased primarily as a result of lower material costs and operating
efficiencies associated with higher sales volumes.
Selling, general and administrative expenses for the three months ended
July 31, 1998 increased $513,000 or five percent over the comparable period of
the prior year. This increase was primarily due to higher commission expense and
payroll related costs in the second quarter of fiscal 1999, partially offset by
the absence in the current quarter of costs associated with the resolution of
legal disputes that occurred in the second quarter of the prior year. For the
six-month period ended July 31, 1998, selling, general and administrative
expenses increased $770,000 or four percent over the same period of the prior
year. This increase was primarily due to higher commission expense, payroll
related costs and travel expense for the first six months of fiscal 1999,
partially offset by the absence in the current six-month period of charges
related to the accelerated write-off of goodwill and intangible assets and the
resolution of legal disputes that occurred in the comparable period of the prior
year.
Research and development expenses remained proportional to sales at three
percent of sales for the second quarter and first six months of both fiscal 1999
and 1998.
Interest expense, net, decreased $318,000 in the second quarter of fiscal
1999 and $664,000 in first six months of fiscal 1999 versus the comparable
periods of the prior year primarily due to lower debt balances outstanding
coupled with higher capitalized interest related to plant expansions.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Other expense, net, for the second quarter of fiscal 1999 increased $97,000
primarily due to a foreign exchange loss in the current quarter versus a foreign
exchange gain in the same quarter of the prior year. For the six months ended
July 31, 1998, other expense, net, decreased $569,000 due to the absence in the
current six-month period of amortization expense associated with the write-off
of capitalized debt acquisition costs related to the Company's credit facility
and the Development Authority of Rockdale County Industrial Revenue Bonds.
As a result of the above, income before income taxes and net income both
increased 28 percent for the second quarter of fiscal 1999 and increased 33
percent for the six-month period ended July 31, 1998 versus the comparable
periods of the prior year. Net income in the second quarter of fiscal 1999
increased to $6,000,000 or 49 cents per common share and 47 cents per common
share - assuming dilution. For the six months ended July 31, 1998, net income
increased to $11,756,000 or 95 cents per common share and 92 cents per common
share - assuming dilution. During the second quarter of fiscal 1999, the Company
implemented a two-for-one stock split effected in the form of a 100% stock
dividend.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased $1,118,000 or nine
percent to $13,234,000 for the six-month period ended July 31, 1998 compared to
$12,116,000 in the comparable period of the prior year. This increase was
primarily due to higher net income during the first six months of fiscal 1999; a
smaller increase in accounts receivable; and an increase in accounts payable
during the first six months of the current year versus a decrease in the
equivalent period of the prior year. These changes resulting in higher cash
flows from operations were partially offset by a larger increase in inventories;
a larger decrease in income taxes payable; and a smaller increase in accrued
liabilities during the first six months of the current year versus the
equivalent period of fiscal 1998.
Net cash used by investing activities during the first six months of fiscal
1999 increased $4,361,000 to $8,547,000 versus the comparable period of the
prior year. This increase was primarily due to higher spending related to the
acquisition of property, plant and equipment.
Net cash used by financing activities for the six-month period ended July
31, 1998 decreased $3,500,000 to $4,184,000 compared to $7,684,000 during the
same period of the prior year primarily as a result of higher capital spending
during the first six months of fiscal 1999, partially offset by higher cash
flows provided by operating activities.
The Company's availability under the current loan agreement is expected to
be sufficient to meet its ongoing cash needs for working capital requirements,
debt service, capital expenditures and possible strategic acquisitions. Capital
expenditures in the first six months of fiscal 1999 were incurred primarily to
fund capacity expansion, new product development, a continuing series of cost
reduction programs, normal maintenance capital, and regulatory compliance.
Aggregate fiscal 1999 capital expenditures are expected to be approximately
$20,000,000 for similar purposes.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
READINESS FOR YEAR 2000
The Company has taken actions to evaluate the nature and extent of the work
required to make its computer systems Year 2000 compliant. The Company has
completed its assessment of its requirements to become Year 2000 compliant, has
developed an action plan and currently has resources dedicated to carry out the
Company's Year 2000 action plan which the Company expects to complete by
December 31, 1998. The Company continues to evaluate the estimated future costs
associated with its Year 2000 action plan but does not currently anticipate that
such costs will have a material impact on the Company's results of operations or
financial position. The Company has received inquires from its major customers
and has initiated formal communications with its significant suppliers to
determine the extent to which the Company might be impacted by those third
parties' failure to be Year 2000 compliant.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
disclosure of segment results. It requires that segments be determined using the
"management approach," which means the way management organizes the segments
within the enterprise for making operating decisions and assessing performance.
The Company has not yet determined the impact of the implementation of SFAS No.
131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) provides reduced disclosure requirements for nonpublic
entities; (vi) revises disclosures about defined contribution plans; and (vii)
changes disclosures relating to multi-employer plans. SFAS No. 132 does not
change the existing measurement or recognition provisions of SFAS Nos. 87, 88 or
106. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The Company believes that the adoption of SFAS No. 132 will not have a
material effect on its financial position or results of operations.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (continued)
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires costs of start-up activities and organization costs to be charged to
expense as incurred. SOP 98-5 is effective for financial statements for years
beginning after December 15, 1998. The Company believes that the adoption of
SOP 98-5 will not have a material effect on its financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes new procedures
for accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. This statement is effective for fiscal years
beginning after June 15, 1999. The Company currently uses derivatives such as
interest rate swap agreements, currency swaps and currency forwards to
effectively fix the interest rate on a portion of the Company's floating rate
debt and the exchange rate on Canadian and Mexican assets, liabilities and cash
flows. Under current accounting standards, no gain or loss is recognized on
changes in the fair value of these derivatives. Under this statement, gains or
losses will be recognized based on changes in the fair value of the derivatives
which generally occur as a result of changes in interest rates and foreign
currency exchange rates. The Company is currently evaluating the financial
impact of adoption of this statement. The Company believes that the adoption of
SFAS No. 133 will not have a material effect on its financial position or
results of operations.
FORWARD LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q,
including, without limitation, information appearing under Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors
that appear with the forward-looking statements, or in the Company's other
Securities and Exchange Commission filings, could affect the Company's actual
results and could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by the Company in this
Quarterly Report on Form 10-Q.
20
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on June 30, 1998.
(b) See Item 4(c) below.
(c) Alfred Weber was elected as a director by a vote of 4,092,650 for and
272,244 withheld. Kevin P. Dowd was elected as a director by a vote of
4,092,655 for and 272,239 withheld. Glenn M. Feit was elected as a
director by a vote of 4,067,533 for and 297,361 withheld. Pamela S.
Lewis was elected as a director by a vote of 4,092,655 for and 272,239
withheld. Alan G. Lutz was elected as a director by a vote of
4,092,655 for and 272,239 withheld. William Harrall, III was elected
as a director by a vote of 4,092,655 for and 272,239 withheld. John A.
H. Shober was elected as a director by a vote of 4,092,655 for and
272,239 withheld.
The amendment to the Company's restated certificate of incorporation
increasing the number of shares of common stock the Company is
authorized to issue to 75,000,000 was approved by a vote of 3,091,296
for and 1,220,623 against with 52,975 abstentions.
The approval of the C&D Technologies, Inc. 1998 stock option plan was
approved by a vote of 3,224,071 for and 1,078,098 against with 62,725
abstentions.
The appointment of PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand L.L.P.) as the Company's independent accountants for the year
ending January 31, 1999 was ratified by a vote of 4,306,270 for and
5,156 against, with 53,468 abstentions.
The shares voted represent shares prior to the July 24, 1998 stock
split.
21
<PAGE>
PART II. OTHER INFORMATION
(continued)
Item 5. Other information
As a result of a change in Securities and Exchange Commission rules,
if, prior to April 9, 1999, the Company is notified of a shareholder
proposal to be made at the 1999 Annual Meeting of Stockholders that is
not to be included in the Company's 1999 Proxy Statement (i.e., a
proposal other than one made under SEC Rule 14a-8), then, with limited
exceptions, persons who are appointed as proxies on behalf of the
Board of Directors will not be able to use their discretionary voting
authority on the proposal at the Annual Meeting without the proposal
being discussed in the Proxy Statement. If the Company is not so
notified, those persons will be able to use their discretionary voting
authority on the proposal regardless of whether it is discussed in the
Proxy Statement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
15. Letter from PricewaterhouseCoopers LLP, independent accountants
for the Company, regarding unaudited interim financial infor-
mation (filed herewith).
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K:
None
22
<PAGE>
SIGNATURES
- -------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C&D TECHNOLOGIES, INC.
September 10, 1998 BY: /s/ Alfred Weber
---------------------------------
Alfred Weber
Chairman, President and Chief
Executive Officer
September 10, 1998 BY: /s/ Stephen E. Markert, Jr.
----------------------------------
Stephen E. Markert, Jr.
Vice President Finance and
Treasurer
(Principal Financial and
Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
15. Letter from PricewaterhouseCoopers LLP, independent accountants
for the Company, regarding unaudited interim financial infor-
mation.
27. Financial Data Schedule.
24
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: C&D TECHNOLOGIES, INC. and Subsidiaries
Registration on Forms S-8 (registration No. 33-31978,
No. 33-71390, No. 33-86672, No. 333-17979, No. 333-38891,
and No. 333-59177) and on Form S-3 (registration No. 333-38893)
We are aware that our report dated August 27, 1998 on our review of interim
financial information of C&D TECHNOLOGIES, INC. and Subsidiaries for the period
ended July 31, 1998 and included in the Company's quarterly report on Form 10-Q
for the quarter then ended is incorporated by reference in the registration
statements of C&D TECHNOLOGIES, INC. and Subsidiaries on Forms S-8 (Registration
No. 33-31978, No. 33-71390, No. 33-86672, No. 333-17979, No. 333-38891, and No.
333-59177) and on Form S-3 (Registration No. 333-38893). Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part of
the registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 10, 1998
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