UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 1, 1999
-------------
Date of Report (Date of earliest event reported)
C&D TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9389 13-3314599
------------------------------- ---------- -------------------------------
(State or other jurisdiction of Commission (I.R.S. Employer Identification
incorporation or organization) File Number)
Number
1400 Union Meeting Road, Blue Bell, Pennsylvania 19422
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(215) 619-2700
--------------
(Registrant's telephone number, including area code)
<PAGE>
This report amends the current report on Form 8-K dated March 1, 1999 (the
"Form 8-K") of the Registrant related to the acquisition of the assets of the
Specialty Battery Division of Johnson Controls, Inc. This report contains the
financial statements and pro forma financial information required to be provided
under Item 7 of Form 8-K with respect to the portion of the acquisition that has
already closed as well as with respect to an interest in a joint venture in
Shanghai, China that is expected to close in the near future, subject to certain
third party consents. Other than as set forth herein, there has been no change
in the information set forth in the Form 8-K.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired:
Combined balance sheets of Specialty Battery Division as of September
30, 1998 and 1997 and related combined statements of income and cash
flows for the years ended September 30, 1998, 1997 and 1996.
Unaudited combined balance sheets of Specialty Battery Division as of
December 31, 1998 and September 30, 1998 and related unaudited
combined statements of income and cash flows for the interim three
month periods ended December 31, 1998 and 1997.
(b) Pro Forma Financial Information:
Unaudited pro forma condensed combined balance sheet of C&D
Technologies, Inc. as of January 31, 1999 and explanatory notes.
Unaudited pro forma condensed combined statement of income of C&D
Technologies, Inc. for the year ended January 31, 1999 and explanatory
notes.
(c) Exhibits:
23 Consent of Independent Public Accountants (filed herewith).
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<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 hereunto duly authorized.
C&D TECHNOLOGIES, INC.
Date: 5/14/99
-------
By: /s/ Wade H. Roberts, Jr.
-------------------------------
Wade H. Roberts, Jr. President,
Chief Executive Officer and Director
Date: 5/14/99 By: /s/ Stephen E. Markert, Jr.
------- -------------------------------
Stephen E. Markert, Jr.
Vice President, Finance
(Principal Financial and
Accounting Officer)
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<PAGE>
Item 7(a). FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
Specialty Battery Division
Combined Financial Statements as of
September 30, 1998 and 1997 and for the
years ended September 30, 1998, 1997 and 1996
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<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of C&D TECHNOLOGIES, INC.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and of cash flows present fairly, in all material
respects, the financial position of the Specialty Battery Division (the
"Company") at September 30, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 14, 1999
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<PAGE>
Specialty Battery Division
Combined Balance Sheets
(dollars in thousands)
- --------------------------------------------------------------------------------
September 30,
----------------
1998 1997
---- ----
ASSETS
------
Current assets:
Cash and cash equivalents .......................... $ 1,298 $ 916
Accounts receivable, less allowance
for doubtful accounts of $760 in
1998 and $192 in 1997 ......................... 17,467 17,100
Due from related parties ........................... 713 108
Inventories, net.................................... 11,276 14,624
Deferred income taxes .............................. 1,134 874
Other current assets ............................... 314 620
------ ------
Total current assets 32,202 34,242
Property, plant and equipment, net 30,408 30,215
Intangible and other assets, net 2,946 3,199
Goodwill, net 4,612 4,851
------ ------
Total assets $70,168 $72,507
====== ======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
----------------------------------------
Current liabilities:
Short-term loans and current
portion of long-term debt ..................... $ 9,230 $ 4,467
Accounts payable ................................... 6,701 6,609
Due to related parties ............................. 132 205
Employee compensation and benefits ................. 1,876 1,845
Accrued warranties ................................. 774 801
Other current liabilities .......................... 2,957 2,001
------ ------
Total current liabilities .................... 21,670 15,928
Deferred income taxes ................................... 1,177 1,201
Long-term debt .......................................... - 3,382
Other liabilities ....................................... 254 296
Commitments and contingencies (Note 10) ................. 1,000 1,000
Minority interest ....................................... 3,402 4,388
Shareholder's investment ................................ 42,665 46,312
------ ------
Total liabilities and shareholder's investment ... $70,168 $72,507
====== ======
The accompanying notes are an integral part of these financial statements.
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<PAGE>
Specialty Battery Division
Combined Statements of Income
(dollars in thousands)
- --------------------------------------------------------------------------------
Year Ended September 30,
----------------------------
1998 1997 1996
---- ---- ----
Net sales .................................. $98,821 $87,723 $81,772
Cost of sales .............................. 74,263 68,990 64,109
------ ------ ------
Gross profit .......................... 24,558 18,733 17,663
Selling, general and administrative
expenses .............................. 15,186 11,361 9,826
Parent management fees ..................... 2,398 2,181 1,727
------ ------ ------
Operating income ...................... 6,974 5,191 6,110
Interest expense, net ...................... 809 664 458
Other expense (income), net ................ 142 (77) 265
------ ------ ------
Income before income taxes and
minority interest ................ 6,023 4,604 5,387
Provision for income taxes ................. 3,461 3,013 3,431
Minority interest in net loss............... 986 1,075 1,164
------ ------ ------
Net income ............................ $ 3,548 $ 2,666 $ 3,120
====== ====== ======
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
Specialty Battery Division
Combined Statements of Cash Flows
(dollars in thousands)
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------
1998 1997 1996
---- ---- ----
Cash flows provided (used) by operating activities:
Net income .............................. $ 3,548 $ 2,666 $ 3,120
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation ............................ 4,788 4,193 4,031
Amortization ............................ 465 465 239
Minority interest in net loss............ (986) (1,075) (1,164)
Deferred income taxes ................... (284) (176) 140
Loss on disposal of assets .............. 125 428 482
Changes in:
Accounts receivable and due from
related parties ............... (890) (1,645) 3,168
Inventories ....................... 3,348 (2,461) (1,545)
Other current assets .............. 305 (45) 485
Accounts payable and due to
related parties ............... (62) (1,045) 408
Employee compensation and
benefits ...................... 31 269 79
Accrued warranties ................ (27) - 8
Other current liabilities ......... 913 579 (62)
Activity with parent and other
affiliates, net ............... (8,251) (1,562) (4,159)
------ ------ -------
Net cash provided by operating activities .... 3,023 591 5,230
------ ------ ------
Cash flows provided (used) by investing activities:
Acquisition of property, plant and
equipment .......................... (4,744) (4,371) (4,566)
Proceeds from sale of property, plant
and equipment ...................... 59 137 2
Property, plant and equipment
contributed by (to)
parent and affiliates .............. 380 (8) (1,208)
Acquisition of proprietary technology ... - - (2,104)
------ ------ ------
Net cash used by investing activities ........ (4,305) (4,242) (7,876)
------ ------ ------
Cash flows provided (used) by financing activities:
Repayments of short-term bank debt ...... (1,641) - (4,819)
Proceeds from short-term bank debt ...... 3,020 2,290 5,531
Capital contributions ................... 285 - 3,256
------ ------ ------
Net cash provided by financing activities .... 1,664 2,290 3,968
------ ------ ------
Increase (decrease) in cash and cash
equivalents ............................. 382 (1,361) 1,322
Cash and cash equivalents at beginning
of year ................................. 916 2,277 955
------ ------ ------
Cash and cash equivalents at end of year ..... $ 1,298 $ 916 $ 2,277
====== ====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid ........................... $ 820 $ 687 $ 485
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
---------------------------
The Specialty Battery Division (the "Company") designs, manufactures,
markets and sells standby power battery products for use in a variety of
industries and applications.
Basis of Presentation
-----------------------
The combined financial statements of the Company include the Specialty
Battery Division of Johnson Controls, Inc. ("JCI" or the "Parent"), Johnson
Controls Battery (UK) Limited ("JCBUK") and JCI's 67% joint venture
interest in Shanghai Johnson Battery Company, Ltd. ("SJBC"), a foreign
equity joint venture between JCI and Shanghai Electrical Apparatus Co.,
Ltd. (a wholly-owned subsidiary of a government-owned enterprise). All
significant intercompany balances and transactions have been eliminated.
Payables/receivables with the Company's Parent or its affiliates are
recorded as a component of shareholder's investment. The Company's fiscal
year ends on September 30. The fiscal year of SJBC ends on December 31;
financial statements for SJBC's fiscal years 1998, 1997 and 1996 have been
included in the respective September 30 combined financial statements of
the Company.
Use of 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. Ultimate realization of assets and settlement
of liabilities in the future could differ from those estimates.
Inventories
-----------
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out (FIFO) method.
Revenue Recognition
-------------------
Revenue is recognized when products are shipped and title is passed to the
customer.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment is stated at historical cost. Expenditures
for major renewals and improvements are capitalized, while maintenance and
repairs which do not significantly improve the related asset or extend its
useful life are charged to expense as incurred. Plant and equipment are
depreciated on the straight-line method for financial reporting purposes
over estimated useful lives which range from three to 10 years for
machinery and equipment, and 10 to 40 years for buildings and improvements.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investment instruments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Foreign Exchange Contracts
--------------------------
The Company enters into currency swap contracts with an affiliate of its
Parent as hedges of commitments from certain foreign customers. The Company
translates the hedged foreign receivables at the hedged rate with the
affiliate maintaining the foreign currency risk. Foreign exchange contract
activity in 1998, 1997 and 1996 was not significant.
Foreign Currency Translation
----------------------------
The assets and liabilities of the Company's international operations are
translated at year-end exchange rates; income and expenses are translated
at the average exchange rates prevailing during the year. The foreign
currency translation adjustments in 1998, 1997 and 1996 were not
significant.
For operations whose functional currency is the local currency, translation
adjustments are accumulated within shareholder's investment. Transaction
gains and losses are reflected in income. Pre-tax foreign exchange losses
included in operating income were $44, $36 and $6 in 1998, 1997 and 1996,
respectively.
Intangible and Other Assets
---------------------------
Intangible and other assets, net, consist of patents, technology, licenses,
trademarks, and land occupancy rights. Patents, technology, licenses and
trademarks are amortized, using the straight-line method, over periods not
to exceed 10 years. Land occupancy rights, required by the Chinese
government, are amortized, using the straight-line method, over the period
of occupancy of 50 years. Accumulated amortization was $726 and $473 at
September 30, 1998 and 1997, respectively.
Goodwill
--------
Goodwill, net, represents the excess of the purchase price over the fair
value of identifiable net assets of acquired companies and is being
amortized on a straight-line basis over a period of 40 years. The Company
assesses the carrying value of goodwill at each balance sheet date.
Consistent with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", such assessments include a comparison of (a) the
estimated future nondiscounted cash flows to be generated during the
remaining amortization period of the goodwill to (b) the net carrying value
of goodwill. The Company recognizes diminution in value of goodwill, if
any, on a current basis. Accumulated amortization was $4,776 and $4,537 at
September 30, 1998 and 1997, respectively.
Income Taxes
------------
The results of the Company's domestic operations are included in the income
tax returns filed by its Parent. No domestic intercompany tax allocation
arrangement exists. As a result, the Company's domestic income tax
provision included in these financial statements reflects the tax position
of the Company on a stand-alone basis such that the domestic income taxes
payable is recorded as if the Company filed separate income tax returns.
The Company records its domestic income taxes payable as an intercompany
payable within shareholder's investment.
-10-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
The Company's foreign income tax provision includes the results of JCBUK
and reflects the benefit of an intercompany tax allocation arrangement with
Johnson Controls (UK) Ltd. The foreign income taxes payable resulting from
JCBUK is recorded as an intercompany payable within shareholder's
investment. JCBUK does not independently have any net operating loss
carryforwards. The Company's foreign income tax provision also includes the
results of SJBC based upon the Company's joint venture interest in income
tax returns as filed in the respective jurisdictions. For Chinese income
tax purposes, SJBC is treated as a corporation. For U.S. income tax
purposes, JCI elected to treat SJBC as a partnership, effective October 1,
1997. This election terminated all historical net operating loss
carryforwards for U.S. income tax purposes.
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. A valuation allowance is
provided for deferred tax assets where it is considered more likely than
not that the Company will not realize the benefit of such assets.
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 which 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 the management of the Parent.
Research and Development Expenses
---------------------------------
Research and development costs are expensed as incurred. Such costs
incurred in the development of new products or significant improvements to
existing products amounted to $1,113, $970 and $851, in 1998, 1997 and
1996, respectively.
Future Accounting Changes
-------------------------
SFAS No. 130, "Reporting Comprehensive Income," which establishes new
standards for reporting and display of comprehensive income and its
components is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is defined as the sum of the net income and all other
changes in equity, such as foreign currency translation adjustments. This
standard is not expected to have a significant impact on the Company's
financial statements.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" which
is effective for fiscal years beginning after December 15, 1997. The
Company has not yet determined the impact of SFAS No. 131.
The Financial Accounting Standards Board has issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for periods beginning after June 15, 1999. The Company has not
yet determined the impact of SFAS No. 133.
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
2. INVENTORIES
Inventories, net, at September 30 consisted of the following:
1998 1997
---- ----
Raw material ............................ $ 1,952 $ 2,203
Work-in-process ......................... 2,261 3,341
Finished goods .......................... 7,063 9,080
------ ------
$11,276 $14,624
====== ======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following at September
30:
1998 1997
---- ----
Land .................................... $ 171 $ 171
Buildings and improvements .............. 7,855 7,671
Machinery and equipment ................. 47,910 44,401
Construction-in-progress ................ 3,179 5,018
------- -------
59,115 57,261
Less: Accumulated depreciation .......... (28,707) (27,046)
------- -------
$ 30,408 $ 30,215
======= =======
For the years ended September 30, 1998, 1997 and 1996, maintenance and
repair costs expensed totaled $2,202, $2,062 and $1,770, respectively.
4. INCOME TAXES
The components of the income (loss) before income taxes and minority
interest for the Company's domestic and foreign operations for the years
ended September 30 were as follows:
1998 1997 1996
---- ---- ----
Domestic ....................... $ 8,781 $ 7,644 $ 8,789
Foreign ........................ (2,758) (3,040) (3,402)
------ ------ ------
$ 6,023 $ 4,604 $ 5,387
====== ====== ======
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
The provision (benefit) for income taxes included in the Combined
Statements of Income for years ended September 30 consisted of the
following:
1998 1997 1996
---- ---- ----
Current provision
Federal and state .................... $3,654 $3,124 $3,247
Foreign .............................. 91 65 44
----- ----- -----
Total current ........................... 3,745 3,189 3,291
----- ----- -----
Deferred provision (benefit)
Federal and state .................... (284) (176) 140
----- ----- -----
Provision for income taxes $3,461 $3,013 $3,431
===== ===== =====
Reconciliations of the provisions for income taxes at the Federal statutory
rate to the effective tax rates for the years ended September 30 are as
follows:
1998 1997 1996
---- ---- ----
Federal statutory rate .................. $2,048 $1,565 $1,832
Foreign taxes ........................... 91 65 44
State taxes, net of federal benefit ..... 314 240 281
Goodwill amortization ................... 94 94 94
Valuation allowance adjustment .......... 896 978 1,059
Other ................................... 18 71 121
----- ----- -----
$3,461 $3,013 $3,431
===== ===== =====
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Temporary differences and carryforwards which gave rise to the net deferred
tax assets and liabilities at September 30 are as follows:
1998 1997
---- ----
Accrued expenses and reserves ............... $ 1,008 $ 872
Net operating loss carryforward ............. 3,515 2,708
Depreciation ................................ (1,177) (1,202)
Other, net .................................. 126 3
------ ------
3,472 2,381
Valuation allowance ......................... (3,515) (2,708)
------ ------
Net deferred tax liability .................. $ (43) $ (327)
====== ======
SJBC has been generating net operating losses since its formation in 1995.
For Chinese income tax purposes, net operating losses may be carried
forward for a five year period. At September 30, 1998, SJBC has a net
operating loss carryforward approximating $11,716 which expires in 2001
through 2004. A valuation allowance has been recorded against this
carryforward for which utilization is uncertain.
This net deferred tax liability is included in the Combined Balance Sheets
at September 30, 1998 as a current asset of $1,134 and a long-term
liability of $1,177. At September 30, 1997, the net deferred tax liability
is included as a current asset of $874 and a long-term liability of $1,201.
5. SHORT-TERM LOANS
Short-term loans at September 30 consisted of the following:
1998 1997
---- ----
Unsecured bank loans ........................ $ 5,798 $ 4,226
Other unsecured loan ........................ 50 241
------ ------
$ 5,848 $ 4,467
====== ======
Unsecured bank loans bear interest at rates ranging from 7.2% to 12.1% in
1998 and 6.0% to 12.1% in 1997.
Other unsecured loan consists of money borrowed from Shanghai Electric
Apparatus Co., Ltd.
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands unless indicated)
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT
Long-term obligations at September 30 consisted of the following:
1998 1997
---- ----
Bank loans................................... $ 3,382 $ 3,382
Less: amounts payable within one year ....... (3,382) -
------ ------
$ - $ 3,382
====== ======
Bank loans are collateralized by certain assets of SJBC, including
buildings, plant and machinery, and bear interest of 7.8% and 11.1% at
September 30, 1998 and 1997. These loans mature in July and August 1999,
respectively.
7. EMPLOYEE BENEFIT PLANS
Pensions Benefits
-----------------
The Company is a participant in its Parent's domestic defined benefit
pension plans. The benefits provided are based primarily on years of
service and average compensation during the last years of employment or a
monthly retirement benefit amount. Funding for the domestic plans equals or
exceeds the minimum requirements of the Employee Retirement Income Security
Act of 1974 (ERISA). Pension expense is allocated annually by its Parent
based upon the Company's payroll as a percentage of the Parent's total
payroll. The Company's pension expense for these domestic defined benefit
plans was $83, $221 and $327 in 1998, 1997 and 1996, respectively.
The Company is also a participant in its Parent's existing savings and
investment 401(k) plan, which is available to domestic salaried employees.
The Company matches participant contributions at varying percentages based
on the Parent's financial performance with Company contributions limited to
6% of the participant's compensation. The Company's matching contributions
to the 401(k) savings plan charged to operations were $167, $164, and $151
for 1998, 1997 and 1996, respectively.
The Company also participates in its Parent's pension plans for certain
employees of international subsidiaries following the legal requirements in
those countries. The costs incurred related to these plans are not
significant to the Company.
Postretirement Benefits Other than Pensions
-------------------------------------------
The Parent generally provides certain health care and life insurance
benefits for eligible retirees and their dependents. These benefits are not
funded, but are paid as incurred. Eligibility for coverage is based on
meeting certain years of service and retirement age qualifications. These
benefits may be subject to deductibles, co-payment provisions and other
limitations, and the Parent has reserved the right to modify these
benefits. Effective January 31, 1994, the Parent modified certain salaried
plans to place a limit on the Parent's cost of future annual retiree
medical benefits at no more than 150% of 1993 cost. Postretirement benefit
expense is allocated annually by its Parent based upon head count. The
Company's postretirement benefit expense was $444, $210 and $260 in 1998,
1997 and 1996, respectively. No change in the Parent's practice of funding
these benefits on a pay-as-you-go basis is anticipated. Most international
employees are covered by government sponsored programs and the cost to the
Company is not significant.
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
8. RELOCATION OF OPERATIONS
In 1998, the Company incurred a charge of $1,484 related to the
consolidation of domestic manufacturing into the Milwaukee facility. The
expense has been reflected in selling, general and administrative expenses
in the fiscal 1998 Combined Statement of Income.
9. SHAREHOLDER'S INVESTMENT
The changes within shareholder's investment for each of the three years in
the period ended September 30, 1998 are as follows:
Balance at September 30, 1995 ........................... $33,907
Net income ......................................... 3,120
Contributed capital ................................ 7,455
Activity with parent and other affiliates, net ..... (4,159)
------
Balance at September 30, 1996 ........................... 40,323
Net income ......................................... 2,666
Contributed capital ................................ 4,885
Activity with parent and other affiliates, net ..... (1,562)
------
Balance at September 30, 1997 ........................... 46,312
Net income ......................................... 3,548
Contributed capital ................................ 1,056
Activity with parent and other affiliates, net ..... (8,251)
------
Balance at September 30, 1998 ........................... $42,665
======
Aggregate capital contributions of $13,396 for fiscal 1998, 1997 and 1996
include $9,855 of machinery and equipment contributed by the Parent to
SJBC.
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<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, state and
foreign 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 therefor), 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.
At September 30, 1998 and 1997, the Company had an accrued liability of
$1,000 relating to environmental matters. The Company's environmental
liabilities are undiscounted and do not take into consideration any
possible recoveries of future insurance proceeds. Because of the
uncertainties associated with environmental assessment and remediation
activities, the Company's future expense to remediate the currently
identified matters could be considerably higher than the accrued liability.
Although it is difficult to estimate the liability of the Company related
to these environmental matters, the Company believes that these matters
will not have a materially adverse effect on the Company's combined results
of operations, financial position or cash flows.
The Company is also party to various litigation matters which are normal in
the course of its operations. Also, as a normal part of its operations, the
Company undertakes certain contractual obligations and warranties in
connection with the sale of products. Although the outcome of these matters
cannot be predicted with certainty, management believes that the resolution
of such matters will not have a material adverse effect on the Company's
combined results of operations, financial position or cash flows.
11. OPERATING LEASES
The Company leases certain office and warehouse space as well as machinery,
vehicles, data processing and other equipment. Certain of these leases have
renewal options at reduced rates and provisions requiring the Company to
pay maintenance, property taxes and insurance. Generally, all rental
payments are fixed.
Total rental expense under operating leases, excluding maintenance, taxes
and insurance, was $620, $575, and $590 in 1998, 1997 and 1996,
respectively.
-17-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
At September 30, 1998, the future payments for all operating leases with
remaining lease terms in excess of one year, and excluding maintenance,
taxes and insurance, were as follows:
1999 $ 468
2000 361
2001 224
2002 217
2003 217
Thereafter 3,902
-----
$5,389
=====
12. GEOGRAPHICAL INFORMATION
Total Sales to
Net Intercompany Unaffiliated Operating
Sales Sales Customers Income
------- ----------- ------------ ---------
1998
----
United States $82,242 $ (241) $82,001 $ 8,781
Europe 5,834 - 5,834 229
China 11,844 (858) 10,986 (2,036)
Intercompany (1,099) 1,099 - -
------ ----- ------ ------
$98,821 $ - $98,821 $ 6,974
====== ===== ====== ======
1997
----
United States $78,799 $ (539) $78,260 $ 7,644
Europe 2,810 - 2,810 219
China 6,653 - 6,653 (2,672)
Intercompany (539) 539 - -
------ ----- ------ ------
$87,723 $ - $87,723 $ 5,191
====== ===== ====== ======
1996
----
United States $76,074 $ (39) $76,035 $ 8,789
Europe 1,406 - 1,406 126
China 4,331 - 4,331 (2,805)
Intercompany (39) 39 - -
------ ----- ------ ------
$81,772 $ - $81,772 $ 6,110
====== ===== ====== ======
Identifiable assets at September 30, 1998 were $40,554 in the United
States; $5,899 in Europe; and $23,715 in China. Identifiable assets at
September 30, 1997 were $48,175 in the United States; $793 in Europe; and
$23,539 in China.
The Company's domestic operations had export sales to unaffiliated
customers amounting to 18.5%, 17.9% and 18.5% for fiscal 1998, 1997 and
1996, respectively. These sales were made principally to Europe, the Middle
East, Africa and Asia.
-18-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
13. MAJOR CUSTOMER AND SUPPLIER CONCENTRATIONS
The Company sells products primarily to original equipment manufacturers or
through its distribution networks. The Company performs ongoing credit
evaluations of customers, and generally does not require collateral. Sales
to the Company's seven largest customers accounted for 46%, 45% and 44% of
net sales in fiscal 1998, 1997 and 1996, respectively. No single customer
had sales in excess of 10% of total Company net sales. Approximately 38%
and 35% of the Company's gross trade receivable balance was represented by
these same seven customers at September 30, 1998 and 1997, respectively. In
addition, the Company's largest non-affiliated vendor accounted for 13%,
14% and 17% of purchases in fiscal 1998, 1997 and 1996, respectively. This
same vendor represented 20% and 24% of trade accounts payable at September
30, 1998 and 1997, respectively.
14. TRANSACTIONS WITH PARENT AND AFFILIATED COMPANIES
Corporate Services
------------------
The Company and its Parent have entered into a management arrangement
whereby the Company is provided with certain services, including, but not
limited to, matters of organization and administration, cash management,
labor relations, employee benefits, information systems, public relations,
financial policies and practices, taxation, environmental relations, risk
management and legal affairs. The annual fees charged the Company for these
services reflect its pro rata share of corporate administration costs using
various allocation methodologies, such as headcount and consolidated
worldwide sales. Company management and its Parent believe that the fees
charged above are reasonable in light of the level of services provided and
such fees totaled $802, $769, and $511 in 1998, 1997 and 1996,
respectively. The Company was also charged a working capital management fee
of $1,596, $1,412 and $1,216 in fiscal 1998, 1997 and 1996, respectively.
This fee was charged based on a percentage of net assets at each month end.
Purchases from Affiliates
-------------------------
The Company purchases substantially all of its polymer battery components
from a wholly-owned JCI manufacturing facility. Polymer battery component
purchases during fiscal 1998, 1997 and 1996 were $7,168, $5,959, and
$5,390, respectively.
Lead is purchased through two existing JCI supply contracts. Lead purchases
during fiscal 1998, 1997 and 1996 were $9,110, $9,316 and $9,194,
respectively.
Sales to Affiliates
-------------------
Several distributors are owned by JCI, including JCI Controls Group
Singapore and JCI Controls Group Australia. Sales to these distributors
during fiscal 1998, 1997 and 1996 were $1,687, $1,931, and $1,269,
respectively. The Company also had sales to other JCI affiliates of $1,953,
$814 and $1,107 in fiscal 1998, 1997 and 1996, respectively.
Other
-----
JCBUK requires a $2,500 line of credit guarantee by the U.K. government for
Value Added Tax and duty taxes. Currently, such taxes are paid through the
JCI European Coordination Center which maintains bank accounts and lock
boxes for JCBUK. No amounts were drawn on this line of credit at September
30, 1998 and 1997.
-19-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
SJBC is required to pay a royalty fee to the Parent of 2% of gross revenue.
Royalty payments in fiscal 1998, 1997 and 1996 were $242, $129 and $50,
respectively.
SJBC paid a $2,100 technology transfer fee to the Parent in fiscal 1996.
This fee was capitalized and is being amortized over a 10-year period.
15. SUBSEQUENT EVENTS
Pursuant to a Purchase Agreement (the "Purchase Agreement"), dated as of
November 23, 1998, C&D Technologies, Inc. (the "Purchaser") acquired from
JCI substantially all of the assets of the Company on March 1, 1999, except
for SJBC. The aggregate consideration paid by Purchaser approximated
$120,000, subject to certain adjustments set forth in the Purchase
Agreement.
The Purchaser and JCI agreed to allow the Purchaser to replace JCI as the
67% investor in SJBC, subject to certain third party consents which are
expected in the near future, for approximately $15,000.
-20-
<PAGE>
SPECIALTY BATTERY DIVISION
Unaudited Combined Financial Statements as of
December 31, 1998 and September 30, 1998 and
for the three months ended
December 31, 1998 and 1997
-21-
<PAGE>
Specialty Battery Division
Unaudited Combined Balance Sheets
(dollars in thousands)
- --------------------------------------------------------------------------------
ASSETS December 31, September 30,
------ 1998 1998
------------ -------------
Current assets:
Cash and cash equivalents............... $ 1,298 $ 1,298
Accounts receivable less allowance
for doubtful accounts of $760........ 18,501 17,467
Due from related parties ............... 713 713
Inventories, net........................ 11,806 11,276
Deferred income taxes .................. 1,134 1,134
Other current assets ................... 287 314
------ ------
Total current assets ........... 33,739 32,202
Property, plant and equipment, net ....... 30,033 30,408
Intangible and other assets, net ......... 3,036 2,946
Goodwill, net ............................ 4,552 4,612
------ ------
Total assets ................... $71,360 $70,168
====== ======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
----------------------------------------
Current liabilities:
Short-term loans and current
portion of long-term debt ...... $ 9,230 $ 9,230
Accounts payable ....................... 5,089 6,701
Due to related parties ................. 166 132
Employee compensation and benefits ..... 2,162 1,876
Accrued warranties ..................... 775 774
Other current liabilities .............. 3,007 2,957
------ ------
Total current liabilities ...... 20,429 21,670
Deferred income taxes .................... 1,177 1,177
Other liabilities ........................ 254 254
Commitments and contingencies ............ 1,000 1,000
Minority interest ........................ 3,156 3,402
Shareholder's investment ................. 45,344 42,665
------ ------
Total liabilities and share-
holder's investment ....... $71,360 $70,168
====== ======
The accompanying notes are an integral part of these unaudited financial
statements.
-22-
<PAGE>
Specialty Battery Division
Unaudited Combined Statements of Income
(dollars in thousands)
- --------------------------------------------------------------------------------
Three months ended
December 31,
-------------------
1998 1997
---- ----
Net sales ................................ $26,094 $23,291
Cost of sales ............................ 19,385 17,972
------ ------
Gross profit ........................ 6,709 5,319
Selling, general and administrative
expenses ............................ 2,853 3,265
Parent management fees.................... 587 607
------ ------
Operating income .................... 3,269 1,447
Interest expense, net .................... 202 166
Other expense (income), net .............. 35 (19)
------ ------
Income before income taxes
and minority interest .......... 3,032 1,300
Provision for income taxes ............... 1,553 886
Minority interest in net loss............. 246 269
------ ------
Net income .......................... $ 1,725 $ 683
====== ======
The accompanying notes are an integral part of these unaudited financial
statments.
-23-
<PAGE>
Specialty Battery Division
Unaudited Combined Statements of Cash Flows
(dollars in thousands)
- --------------------------------------------------------------------------------
Three months ended
December 31,
-------------------
1998 1997
---- ----
Cash flows provided (used) by operating activities:
Net income ................................. $ 1,725 $ 683
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ............................... 774 758
Amortization ............................... 60 60
Minority interest in net loss............... (246) (269)
Loss on disposal of assets ................. 12 -
Changes in:
Accounts receivable and due
from related parties ................ (1,034) 2,134
Inventories .............................. (530) 1,848
Other assets ............................. (63) (111)
Accounts payable and due to
related parties ..................... (1,578) (1,806)
Employee compensation and benefits ....... 286 (36)
Accrued warranties ....................... 1 (1)
Other liabilities ........................ 50 64
Activity with parent and other
affiliates, net ..................... 954 (2,976)
------ ------
Net cash provided by operating
activities .......................... 411 348
------ ------
Cash flows used by investing activities:
Acquisition of property, plant
and equipment ............................ (411) (348)
------ ------
Net cash used by investing activities .... (411) (348)
------ ------
Increase in cash and cash equivalents ......... - -
Cash and cash equivalents at
beginning of period ...................... 1,298 916
------ ------
Cash and cash equivalents at
end of period ............................ $ 1,298 $ 916
====== ======
The accompanying notes are an integral part of these unaudited financial
statement.
-24-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements (Unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The financial statements should be read in conjunction with the Specialty
Battery Division's (the "Company") historical combined financial statements
for the year ended September 30, 1998. The accompanying interim combined
financial statements of the Company 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 combined financial position as of December 31, 1998 and September 30,
1998 and its results of combined statements of income and of cash flows for
the three months ended December 31, 1998 and 1997.
The combined financial statements of the Company include the assets and
liabilities of the Specialty Battery Division of Johnson Controls, Inc.
("JCI" or the "Parent"), Johnson Controls Battery (UK) Limited ("JCBUK")
and JCI's 67% joint venture interest in Shanghai Johnson Battery Company,
Ltd. ("SJBC"), a foreign equity joint venture between JCI and Shanghai
Electrical Apparatus Co., Ltd. All significant intercompany balances and
transactions have been eliminated. Payables/receivables with the Company's
parent or its affiliates are recorded as a component of shareholder's
investment.
The financial statements have been combined with SJBC as of December 31,
1998 and September 30, 1998 and the three months ended December 31, 1998
and 1997. The Company's combined financial statements have been prepared
utilizing the SJBC balance sheet as of December 31, 1998 and 1997 as the
basis of combining for both the periods ended December 31, 1998 and 1997
and September 30, 1998 and 1997.
The accompanying combined financial statements may not necessarily be
indicative of what the combined financial position, results of combined
statements of income and of cash flows would have been had the Company been
a separate independent company during the periods presented.
The combined balance sheet data as of September 30, 1998 was derived from
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
2. INVENTORIES
Inventories, net, are valued at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) method. Inventories consisted
of the following:
December 31, September 30,
1998 1998
------------ -------------
Raw materials ......................... $ 2,184 $ 1,952
Work-in-process ....................... 2,489 2,261
Finished goods ........................ 7,133 7,063
------ ------
$11,806 $11,276
====== ======
-25-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements (Unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------
3. COMMITMENTS AND CONTINGENCIES
Because the Company uses lead and other hazardous substances in its
manufacturing processes, it is subject to numerous federal, state and
foreign 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 therefor), 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.
At December 31 and September 30, 1998, the Company had an accrued liability
of $1,000 relating to environmental matters. The Company's environmental
liabilities are undiscounted and do not take into consideration any
possible recoveries of future insurance proceeds. Because of the
uncertainties associated with environmental assessment and remediation
activities, the Company's future expense to remediate the currently
identified matters could be considerably higher than the accrued liability.
Although it is difficult to estimate the liability of the Company related
to these environmental matters, the Company believes that these matters
will not have a materially adverse effect on the Company's combined results
of operations, financial position or cash flows.
The Company is also party to various litigation matters which are normal in
the course of its operations. Also, as a normal part of its operations, the
Company undertakes certain contractual obligations and warranties in
connection with the sale of products. Although the outcome of these matters
cannot be predicted with certainty, management believes that the resolution
of such matters will not have a material adverse effect on the Company's
combined results of operations, financial position or cash flows.
4. SUBSEQUENT EVENT
Pursuant to a Purchase Agreement (the "Purchase Agreement"), dated as of
November 23, 1998, C&D Technologies, Inc. (the "Purchaser") acquired from
JCI substantially all of the assets of the Company on March 1, 1999, except
for SJBC. The aggregate consideration to be paid by Purchaser was
approximately $120,000, subject to certain adjustments set forth in the
Purchase Agreement.
The Purchaser and JCI agreed to allow the Purchaser to replace JCI as the
67% investor in SJBC, subject to certain third party consents which are
expected in the near future, for approximately $15,000.
-26-
<PAGE>
Specialty Battery Division
Notes to Combined Financial Statements (Unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes new standards for reporting and
display of comprehensive income and its components is effective for fiscal
years beginning after December 15, 1997. Comprehensive income is defined as
the sum of the net income and all other changes in equity, such as foreign
currency translation adjustment. This standard did not have significant
impact on the Company's financial statements.
6. FUTURE ACCOUNTING CHANGES
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" which
is effective for fiscal years beginning after December 15, 1997. The
Company has not yet determined the impact of SFAS No. 131.
The Financial Accounting Standards Board has issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for periods beginning after June 15, 1999. The Company has not
yet determined the impact of SFAS No. 133.
-27-
<PAGE>
Item 7(b). PRO FORMA FINANCIAL INFORMATION
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
1. UNAUDITED PRO FORMA FINANCIAL INFORMATION - INTRODUCTION
The following unaudited pro forma condensed financial statements combine
the historical financial information of C&D Technologies, Inc. and
subsidiaries (the "Company") and the Specialty Battery Division ("SBD").
The combined financial statements of SBD include the assets and liabilities
of the Specialty Battery Division, formerly a division of Johnson Controls,
Inc. ("JCI"), Johnson Controls Battery (UK) Limited ("JCBUK") and JCI's 67%
joint venture interest in Shanghai Johnson Battery Company, Ltd. ("SJBC"),
a foreign equity joint venture between JCI and Shanghai Electrical
Apparatus Co. Ltd. All significant intercompany balances and transactions
have been eliminated. Payables/receivables with JCI or its affiliates are
recorded as a component of shareholder's investment.
These pro forma statements illustrate the effect of the acquisition of SBD
on the financial position and results of operations of the Company. The
acquisition of SBD was completed on March 1, 1999, except for the
acquisition of SJBC. The Company and JCI agreed to allow the Company to
replace JCI as the 67% investor in SJBC, subject to certain third party
consents which are expected in the near future. The unaudited pro forma
condensed balance sheet as of January 31, 1999 is based upon the audited
historical balance sheets of the Company as of January 31, 1999 and the
unaudited historical balance sheet of SBD as of December 31, 1998 and
assumes the acquisition took place on January 31, 1999. The unaudited pro
forma statement of income for the fiscal year ended January 31, 1999 is
based on the audited historical statement of income of the Company for the
fiscal year ended January 31, 1999 and the unaudited historical statement
of income of SBD for the 12 months ended December 31, 1998. The statement
is presented as though the acquisition occurred on February 1, 1998. The
unaudited pro forma condensed financial statements do not purport to be
indicative of the financial position or results of operations of the
Company that would have actually occurred had the acquisition been
completed on February 1, 1998, or which may occur in the future.
The acquisition will be accounted for by the purchase method of accounting.
Under purchase accounting the tangible and intangible assets and
liabilities of SBD are recorded based upon their respective fair values as
of the effective time of the acquisition based upon valuations and other
studies which are not as yet complete. A preliminary allocation of the
purchase price has been made to major categories of assets and liabilities
in the accompanying pro forma statements based on available information and
is subject to change. The actual allocations of purchase price and the
resulting effect on income from operations may differ from the unaudited
pro forma amounts included herein. The pro forma adjustments are described
in the accompanying notes and represent the Company's preliminary
determination of purchase accounting adjustments based upon available
information and certain assumptions that the Company believes are
reasonable. The accompanying unaudited pro forma statements should be read
in connection with the separate historical financial statements and notes
thereto of the Company and SBD.
-28-
<PAGE>
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
2. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 1999
<TABLE>
<CAPTION>
C&D Specialty Pro Forma
Technologies, Battery Adjustments
Inc. (k) Division (m) Total
------------- ------------ ----------- -----
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents ...................... $ 5,003 $ 1,298 $ (4,214)(c) $ 2,087
Accounts receivable, net ....................... 44,232 18,501 200 (a)(1) 62,933
Due from related parties ....................... - 713 - 713
Inventories, net................................ 49,855 11,806 - 61,661
Deferred income taxes .......................... 7,305 1,134 (1,134)(a)(2) 7,305
Other current assets ........................... 2,318 287 - 2,605
------- ------ ------- -------
Total current assets ....................... 108,713 33,739 (5,148) 137,304
Property, plant and equipment, net .................. 62,388 30,033 14,333 (b) 106,754
Intangible and other assets, net .................... 4,393 3,036 2,749 (b) 10,178
Goodwill, net ....................................... 10,148 4,552 81,497 (b) 91,645
- - (4,552)(a)(3) -
------- ------ ------- -------
Total assets ............................... $185,642 $71,360 $ 88,879 $345,881
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term loans and current portion
of long-term debt ......................... $ 532 $ 9,230 $ 10,000 (c) $ 19,762
Accounts payable ............................... 23,997 5,089 - 29,086
Due to related parties ......................... - 166 - 166
Accrued liabilities ............................ 17,714 2,937 - 20,651
Other current liabilities ...................... 2,782 3,007 - 5,789
------- ------ ------- -------
Total current liabilities .................. 45,025 20,429 10,000 75,454
Deferred income taxes .......................... 2,887 1,177 (1,177)(a)(2) 2,887
Long-term debt ................................. 1,750 - 125,000 (c) 126,750
Other liabilities .............................. 12,442 254 900 (a)(5) 13,596
Commitments and contingencies .................. - 1,000 (500)(a)(4) 500
------- ------ ------- -------
Total liabilities .......................... 62,104 22,860 134,223 219,187
Minority interest .............................. - 3,156 - 3,156
Stockholders' equity:
Common stock ................................... 134 - - 134
Additional paid-in capital ..................... 43,429 - - 43,429
Treasury stock ................................. (10,819) - - (10,819)
Accumulated other comprehensive loss ........... (169) - - (169)
Retained earnings .............................. 90,963 - - 90,963
Shareholder's investment ....................... - 45,344 (45,344)(i) -
------- ------ ------- -------
Total stockholders' equity ................ 123,538 45,344 (45,344) 123,538
------- ------ ------- -------
Total liabilities and stockholders'
equity ............................... $185,642 $71,360 $ 88,879 $345,881
======= ====== ======= =======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
-29-
<PAGE>
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands except per share data)
- --------------------------------------------------------------------------------
3. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
C&D Specialty Pro Forma
Technologies, Battery Adjustments
Inc. (k) Division (m) Total
------------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Net sales ........................................... $313,966 $101,624 $ - $415,590
Cost of sales ....................................... 227,796 75,676 1,538 (d) 305,010
------- ------- ------- -------
Gross profit .................................. 86,170 25,948 (1,538) 110,580
Selling, general and administrative expenses ........ 40,344 14,774 4,075 (e) 59,193
Research and development expense .................... 8,255 - - 8,255
JCI management fees ................................. - 2,378 (1,576)(j) 802
------- ------- ------- -------
Operating income .............................. 37,571 8,796 (4,037) 42,330
Interest expense, net ............................... 126 845 687 (f) 12,021
10,363 (g)
Other expense, net .................................. 211 196 - 407
------- ------- ------- -------
Income before income taxes
and minority interest ..................... 37,234 7,755 (15,087) 29,902
Provision for income taxes .......................... 13,154 4,128 (5,330)(h) 11,952
Minority interest in net loss........................ - 963 - 963
------- ------- ------- -------
Net income..................................... $ 24,080 $ 4,590 $ (9,757) $ 18,913
======= ======= ======= =======
Net income per common share ......................... $ 1.95 $ 1.53
Weighted average shares of common
stock outstanding .............................. 12,365,183 12,365,183
Net income per common share - assuming dilution ..... $ 1.88 $ 1.47
Weighted average common shares - assuming dilution .. 12,835,862 12,835,862
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
-30-
<PAGE>
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
4. NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) The estimated purchase price and preliminary adjustments to historical
book value of SBD as a result of the acquisition are as follows:
Purchase price .................................... $134,650
Acquisition fees and expenses ..................... 1,815
Bank loan initiation fee and expense .............. 2,749
-------
Total purchase price .............................. 139,214
Book value of net assets acquired ................. 40,635*
-------
Purchase price in excess of net assets acquired ... $ 98,579
=======
* Certain assets and liabilities were excluded or retained per the purchase
agreement dated November 23, 1998. The following reconciles SBD's
shareholder's investment to the book value of the net assets acquired:
Shareholder's investment .......................... $45,344
Allowance for doubtful accounts (1) ............... 200
Deferred income taxes (2) ......................... 43
Goodwill (3) ...................................... (4,552)
Commitments and contingencies (4) ................. 500
Postretirement benefits other than pensions(5) .... (900)
-------
Book value of net assets acquired ................. $40,635
======
(1) Under the purchase agreement, if upon 120 days after the closing date any
accounts receivable included in the purchased assets are uncollected and at
least 60 days past due, the Company may assign those receivables to JCI by
written notice. Consequently, the Company has no exposure related to the
accounts receivable as of January 31, 1999 and excluded SBD's allowance for
doubtful accounts on the unaudited pro forma condensed combined balance
sheet as of January 31, 1999.
(2) The purchase agreement excludes all liabilities and obligations for taxes
based on the income of JCI arising out of or relating to the operation of
SBD on or prior to the closing date. As a result, the Company has excluded
deferred income taxes on the unaudited pro forma condensed combined balance
sheet as of January 31, 1999.
(3) The purchase agreement excludes all assets and properties of JCI not used
primarily in, held for use primarily in, or pertaining to SBD. Since the
goodwill recorded on SBD's financial statements relates to a previous
acquisition by JCI, these assets have been excluded on the unaudited pro
forma condensed combined balance sheet as of January 31, 1999.
(4) The SBD combined balance sheet contains a $1,000 reserve for environmental
liabilities. As a result of certain indemnifications provided by JCI, the
Company has reduced this reserve to $500.
(5) The postretirement benefits other than pensions was recorded on the
unaudited pro forma condensed combined balance sheet as of January 31, 1999
because the Company has retained the postretirement benefit obligation
related to active employees who transferred to the Company. This liability
was not recorded on SBD's financial statements as of January 31, 1999.
-31-
<PAGE>
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
(b) Preliminary allocation of purchase price in excess of book value of net
assets acquired:
Increase in property, plant and equipment
to estimated fair value ....................... $14,333
Intangibles, deferrals, and other assets:
Record excess of purchase price over
fair value of net assets acquired ........ 81,497
Recognition of bank loan initiation
fee as a deferred charge ................. 2,749
------
$98,579
======
The amounts recorded relating to the acquisition of SBD by the Company are
currently subject to adjustment as the Company has not yet completed the
final allocation of the purchase price.
The Company is considering, but has not included any amounts related to
acquired identifiable intangible assets in the preliminary allocation.
(c) Reflects the estimated sources and uses of funds for the acquisition as
follow, assuming the acquisition occurred as of February 1, 1998:
Sources of funds:
----------------
Term loan facility ................................. $100,000
Revolving loan ..................................... 20,000
Additional estimated borrowing on
revolving loan ................................ 15,000
Operating cash ..................................... 4,214
-------
$139,214
=======
Use of funds:
------------
Cash consideration for SBD ......................... $134,650
Loan origination fees and expenses ................. 2,749
Acquisition fees and expenses
(capitalized acquisition costs) ............... 1,815
-------
$139,214
=======
As detailed in the loan agreement, $10,000 of the aggregate principal
amount is payable the first year.
(d) SBD historically depreciated the historical cost of its property, plant and
equipment over lives ranging from three to 40 years. That resulted in
depreciation expense of $4,804. Upon the consummation of the acquisition by
the Company, the fair value of property, plant and equipment acquired is
estimated to be approximately $44,366. This amount is being depreciated
over the Company's estimate of the remaining economic life of the assets;
i.e., 20 years for buildings and six years for equipment. Depreciation of
the property, plant and equipment at the estimated fair value will result
in depreciation expense of $6,342. The estimated pro forma depreciation
adjustment is $1,538 ($6,342 less $4,804).
(e) Goodwill is currently being amortized over an estimated weighted average
life of 20 years by the Company. The estimated pro forma goodwill
amortization is $4,075 per year ($81,497 / 20 years).
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<PAGE>
C&D Technologies, Inc.
Unaudited Pro Forma Financial Information
As of and for the year ended January 31, 1999
(dollars in thousands)
- --------------------------------------------------------------------------------
(f) Loan underwriting fees and associated costs are being amortized over a four
year life. The estimated pro forma amortization is $687 per year ($2,749 /
4 years). The loan is to be repaid in full in five years. Historically, the
Company has refinanced before the last year of a term loan. The effective
term for this five year loan should thus be four years.
(g) The transaction was financed by a $100,000 term loan and a revolving line
of credit facility up to a maximum amount of $120,000. The interest rate
for borrowings under the term loan and revolving line of credit is based on
the London Interbank Offer Rate ("LIBOR") (adjusted by the Eurodollar
reserve percentage) plus a rate margin that varies with the Company's
consolidated leverage ratio (funded debt divided by earnings before income
tax, depreciation and amortization). Any remaining unused portion of the
revolving line of credit carries an additional "unused" fee that also
varies with the Company's consolidated leverage ratio.
This pro forma adjustment reflects additional interest expense incurred by
the Company, assuming that the SBD acquisition and associated borrowing
occurred on February 1, 1998. The consolidated leverage ratio then would
have been 2.84. Per the loan agreement, the interest rate margin if the
leverage ratio is greater than 2.5 should be 1.75% and the unused fee
should be 0.375%. Since the effective interest rate for fiscal year 1999
would have been LIBOR plus the Company's interest rate margin, the interest
rate for the term loan should be 7.44% (1.75% + 5.69%), and the bank fee
for the unused portion of the revolving line of credit should be 0.375%.
The interest expense for the acquisition related borrowing under the term
loan is $7,440 per year ($100,000 * 7.44%). Interest expense for the
revolving line of credit is $2,604 ($35,000 * 7.44%) and the accompanying
unused fee is $319 ($85,000 * 0.375%). The total annual expense for the
acquisition related borrowing is $10,363.
A 12.5-basis point increase in the 180-day LIBOR rate at the beginning of
fiscal year 1999 would result in additional interest expense of $169, and
net income would decrease by $109. A 12.5-basis point decrease in the
180-day LIBOR rate at the beginning of fiscal year 1999 would result in an
interest expense reduction of $169, and net income would increase by $109.
(h) The income tax effects of the pro forma adjustments assume an effective
income tax rate of 35.33%.
(i) Elimination of SBD's shareholder's investment.
(j) JCI management fees were comprised of two components. The first relates to
a working capital management fee of $1,576 which will not continue. The
remainder is a fee for certain administrative services. A similar fee is
expected to continue.
(k) Information is from the C&D Technologies, Inc., January 31, 1999 Form 10-K.
(m) Information is from the Specialty Battery Division December 31, 1998
interim financial statements. As of January 31, 1999, the total assets
related to SJBC are $23,715. For the year ended January 31, 1999, the pro
forma results include net sales from SJBC of $13,142 and an operating loss
of $1,877.
The unaudited pro forma condensed financial statements do not reflect any future
benefits associated with integrating SBD with the Company.
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Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
C&D TECHNOLOGIES, INC. and subsidiaries (the "Company") on Forms S-8
(Registration Nos. 33-31978, 33-71390, 33-86672, 333-17979, 333-38891, and
333-59177) and Form S-3 (Registration No. 333-38893) of our report, dated May
14, 1999, on our audits of the combined financial statements of Specialty
Battery Division as of September 30, 1998 and 1997 and for each of the three
years in the period ended September 30, 1998, which report is included in this
Form 8-K/A.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 14, 1999
