C&D (CHP) 10-Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2009

Commission file no: 1-9389

C&D TECHNOLOGIES, INC.

Delaware	13-3314599
(State of incorporation)	(IRS employer identification no.)

1400 Union Meeting Road

Blue Bell, PA 19422

(Address of principal executive offices)

Telephone Number: (215) 619-2700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨	Accelerated Filer  x	Non-Accelerated Filer  ¨	Smaller Reporting Company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨    No  x

At July 31, 2009, 26,302,775 shares of common stock, $0.01 par value, of the registrant were outstanding.

C&D TECHNOLOGIES, INC.

AND SUBSIDIARIES

FORM 10-Q

INDEX

Part I	FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Consolidated Balance Sheets – July 31, 2009 and January 31, 2009	3
	Consolidated Statements of Operations – Three and Six Months Ended July 31, 2009 and 2008	5
	Consolidated Statements of Cash Flows – Six Months Ended July 31, 2009 and 2008	6
	Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended July 31, 2009 and 2008	7
	Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4	Controls and Procedures	32
Part II	OTHER INFORMATION
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 4	Submission of Matters to a Vote of Security Holders	34
Item 6	Exhibits	35
SIGNATURES		36
EXHIBIT INDEX		37

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

(UNAUDITED)

	July 31, 2009		January 31, 2009¹
ASSETS
Current assets:
Cash and cash equivalents	$	2,883	$	3,121
Restricted cash		58		906
Accounts receivable, less allowance for doubtful accounts of $912 and $775		53,230		55,852
Inventories		61,384		61,128
Prepaid taxes		979		927
Other current assets		1,361		1,110
Assets held for sale		500		500
Total current assets		120,395		123,544
Property, plant and equipment, net		86,774		85,055
Deferred income taxes		626		626
Intangible and other assets, net		14,134		14,729
Goodwill		59,963		59,961
TOTAL ASSETS	$	281,892	$	283,915
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	8,859	$	5,881
Accounts payable		37,254		32,396
Accrued liabilities		12,741		13,018
Deferred income taxes		1,493		1,492
Other current liabilities		4,042		8,267
Total current liabilities		64,389		61,054
Deferred income taxes		12,506		10,972
Long-term debt		111,910		107,637
Other liabilities		39,400		39,349
Total liabilities		228,205		219,012

The accompanying notes are an integral part of these statements.

¹ Certain items have been adjusted on these statements to reflect changes as required to present retroactive adoption of accounting standards as discussed in Note 1.

3

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(Dollars in thousands, except par value)

(UNAUDITED)

	July 31, 2009			January 31, 2009¹
Commitments and contingencies (see Note 9)
Stockholders’ equity:
Common stock, $.01 par value, 75,000,000 shares authorized; 29,228,213 and 29,162,101 shares issued and 26,302,775 and 29,266,755 outstanding at July 31, 2009 and January 31, 2009, respectively		292			292
Additional paid-in capital		96,366			95,724
Treasury stock, at cost, 2,925,438 and 2,895,346 shares, respectively		(40,091	)		(40,035	)
Accumulated other comprehensive loss		(41,884	)		(45,733	)
Retained earnings		27,830			43,204
Total stockholders’ equity attributable to C&D Technologies, Inc.		42,513			53,452
Noncontrolling interest		11,174			11,451
Total stockholders’ equity		53,687			64,903
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	281,892		$	283,915

The accompanying notes are an integral part of these statements.

¹ Certain items have been adjusted on these statements to reflect changes as required to present retroactive adoption of accounting standards as discussed in Note 1.

4

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(UNAUDITED)

	Three months ended July 31,						Six months ended July 31,
	2009			2008¹			2009			2008¹
NET SALES	$	82,434		$	92,485		$	156,099		$	186,261
COST OF SALES		72,431			79,038			140,751			159,122
GROSS PROFIT		10,003			13,447			15,348			27,139
OPERATING EXPENSES:
Selling, general and administrative expenses		10,111			10,365			19,353			20,020
Research and development expenses		1,799			1,703			3,677			3,394
OPERATING (LOSS) INCOME		(1,907	)		1,379			(7,682	)		3,725
Interest expense, net		2,916			3,007			5,840			5,974
Other (income) expense, net		(208	)		75			(34	)		(298	)
LOSS BEFORE INCOME TAXES		(4,615	)		(1,703	)		(13,488	)		(1,951	)
Income tax provision (benefit)		1,076			(122	)		2,172			12
NET LOSS		(5,691	)		(1,581	)		(15,660	)		(1,963	)
Net loss attributable to noncontrolling interests		(75	)		(147	)		(286	)		(405	)
NET LOSS ATTRIBUTABLE TO C&D TECHNOLOGIES, INC.	$	(5,616	)	$	(1,434	)	$	(15,374	)	$	(1,558	)
Loss per share:
Basic and Diluted:	$	(0.21	)	$	(0.06	)	$	(0.58	)	$	(0.06	)

The accompanying notes are an integral part of these statements.

¹ Certain items have been adjusted on these statements to reflect changes as required to present retroactive adoption of accounting standards and restatement of prior quarterly information as discussed in Note 1.

5

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(UNAUDITED)

	Six months ended July 31,
	2009			2008¹
Cash flows from operating activities:
Net loss	$	(15,660	)	$	(1,963	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-based compensation		618			378
Depreciation and amortization		6,309			6,009
Amortization of debt acquisition and discount costs		2,373			2,271
Annual retainer to Board of Directors paid by the issuance of common stock		24			190
Deferred income taxes		1,536			327
Changes in assets and liabilities:
Accounts receivable		3,520			3,333
Inventories		162			14,894
Other current assets		(469	)		(452	)
Accounts payable		4,974			(16,116	)
Accrued liabilities		(447	)		(1,486	)
Income taxes payable		166			(1,244	)
Other current liabilities		(2,298	)		(221	)
Other liabilities		1,711			501
Other long-term assets		(86	)		(60	)
Other, net		821			(92	)
Net cash provided by continuing operating activities		3,254			6,269
Net cash used in discontinued operating activities		(1,534	)		(3,063	)
Net cash provided by operating activities		1,720			3,206
Cash flows from investing activities:
Acquisition of property, plant and equipment		(7,763	)		(8,548	)
Proceeds from disposal of property, plant and equipment		15			483
Decrease in restricted cash		848			2,638
Net cash used in investing activities		(6,900	)		(5,427	)
Cash flows from financing activities:
Borrowings on line of credit facility		55,851			52,186
Repayments on line of credit facility		(53,981	)		(52,186	)
Repayment of debt		(14	)		—
Proceeds from new borrowings		3,021			—
Increase in overdrafts		17			18
Proceeds from the exercise of stock options		—			238
Purchase of treasury stock		(56	)		(115	)
Net cash provided by financing activities		4,838			141
Effect of exchange rate changes on cash and cash equivalents		104			111
Decrease in cash and cash equivalents		(238	)		(1,969	)
Cash and cash equivalents, beginning of period		3,121			6,536
Cash and cash equivalents, end of period	$	2,883		$	4,567

The accompanying notes are an integral part of these statements.

¹ Certain items have been adjusted on these statements to reflect changes as required to present retroactive adoption of accounting standards and restatement of prior quarterly information as discussed in Note 1.

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C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share data)

(UNAUDITED)

	Three months ended July 31,						Six months ended July 31,
	2009			2008¹			2009			2008¹
NET LOSS	$	(5,691	)	$	(1,581	)	$	(15,660	)	$	(1,963	)
Other comprehensive income, net of tax:
Net unrealized gain (loss) on derivative instruments		189			(470	)		3,094			1,797
Adjustment to recognize pension liability and net periodic pension cost		4			88			539			166
Foreign currency translation adjustments		79			864			216			1,898
Total comprehensive (loss) income		(5,419	)		(1,099	)		(11,811	)		1,898
Comprehensive loss (income) attributable to noncontrolling interests		98			(127	)		277			(201	)
Total comprehensive (loss) income attributable to C&D Technologies, Inc.	$	(5,321	)	$	(1,226	)	$	(11,534	)	$	1,697

The accompanying notes are an integral part of these statements.

¹ Certain items have been adjusted on these statements to reflect changes as required to present retroactive adoption of accounting standards and restatement of prior quarterly information as discussed in Note 1.

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C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements of C&D Technologies, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all the information and notes required for complete financial statements. In the opinion of management, the interim unaudited consolidated financial statements include all adjustments considered necessary for the fair statements of the financial position, results of operations and cash flows for the interim periods presented. Subsequent events have been evaluated through September 8, 2009, the date of issuance of the Company’s Condensed Consolidated Financial Statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K dated April 16, 2009.

Certain prior year amounts have been adjusted on the interim consolidated financial statements to reflect the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51,”(“SFAS 160”) at the beginning of its 2010 fiscal year. SFAS 160 requires that noncontrolling interests in partially owned consolidated subsidiaries be classified in the consolidated balance sheet as a separate component of consolidated shareholders’ equity. SFAS 160 also requires that the net earnings attributable to the controlling and noncontrolling interests be included on the face of the consolidated statements of operations. See Note 6 for additional information about SFAS 160. Certain amounts previously reported for the second quarter of fiscal 2009 have been restated. The restatement corrected an accounting error related to unreconciled differences in certain inventory clearing accounts which were identified by management during the Company’s year-end closing process. See Note 16 for additional information on the accounts affected by this restatement. Additionally, the Company adopted FASB Staff Position No. APB 14-1,“Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement),(“FSP 14-1”). See Note 5 and 16 for additional information about FSP 14-1.

2. STOCK-BASED COMPENSATION

The Company granted 55,000 and 351,076 stock option awards during the three and six months ended July 31, 2009, and 368,529 and 373,529 during the three and six months ended July 31, 2008, respectively. Under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, the Company recorded $188 and $374, of stock compensation expense related to stock option awards in its unaudited consolidated statement of operations for the three and six months ended July 31, 2009, and $163 and $239 during the three and six months ended July 31, 2008, respectively. The impact on loss per share for the six months ended July 31, 2009 and 2008 was less than $0.01.

The Company granted 144,832 and 349,590 restricted stock awards and 0 and 164,758 performance shares to selected executives and other key employees under the Company’s 2007 Stock Incentive Plan during the three and six months ended July 31, 2009. The Company also granted 103,008 restricted stock awards and 90,750 performance shares to selected executives and other key employees during the three and six months ended July 31, 2008. The restricted stock awards vest ratably over a period of one to four years and the expense is recognized over the related vesting period. The Company recorded $107 and $244, of compensation related to restricted stock awards in its unaudited consolidated statement of operations for the three and six months ended July 31, 2009, and $101 and $139 during the three and six months ended July 31, 2008, respectively. The performance shares vest at the end of the performance period upon the achievement of pre-established financial objectives. No compensation expense has been recorded for the performance related awards since the Company does not believe that the performance criteria established will be met.

8

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

The following table summarizes information about the stock options outstanding at July 31, 2009:

	OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Contractual Life	Weighted- Average Exercise Price
$   1.30 - $ 1.53	301,076	7.6 Years	$	1.30	0	7.6 Years	$	1.30
$   2.10 - $ 2.10	55,000	7.8 Years	$	2.10	0	7.8 Years	$	2.10
$   4.25 - $ 6.30	634,000	6.4 Years	$	5.55	68,668	7.3 Years	$	6.02
$   6.81 - $ 9.12	479,968	6.4 Years	$	7.65	401,719	6.3 Years	$	7.57
$   9.80 - $ 14.28	111,556	5.4 Years	$	11.00	111,556	5.4 Years	$	11.00
$ 14.94 - $ 22.31	361,894	2.8 years	$	19.06	361,894	2.8 Years	$	19.06
$ 26.76 - $ 35.00	95,030	1.7 Years	$	31.69	95,030	1.7 Years	$	31.69
$ 49.44 - $ 55.94	30,800	0.9 Years	$	55.11	30,800	0.9 Years	$	55.11
	2,069,324	5.6 Years	$	9.92	1,069,667	4.5 Years	$	15.23

The estimated fair value of the options granted was calculated using the Black Scholes Merton option pricing model (“Black Scholes”). The Black Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the estimated life of the option is based on U.S. Government Securities Treasury Constant Maturities. Expected volatility is based on the historical volatility of the Company’s stock. The Company uses the shortcut method described in Staff Accounting Bulletin No. 110 to determine the expected life assumption.

The fair value of stock options granted during the three and six months ended July 31, 2009 and 2008 was estimated on the grant date using the Black-Scholes option pricing model with the following average assumptions.

	Three months ended July 31,		Six months ended July 31,
	2009	2008	2009	2008
Risk-free interest rate	2.10%-2.19%	3.11%-3.32%	2.02%-2.19%	2.58%-3.32%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Volatility factor	73.56%-74.88%	51.21%-52.92%	70.09%-74.88%	50.91%-52.92%
Expected lives	5.25 - 5.5 Years	4.5 - 5.5 Years	5.25 - 5.5 Years	4.5 - 5.5 Years

3. NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No.141(R)”), which improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. To achieve this goal, the new standard requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. We have adopted SFAS No. 141(R) and determined it has no impact on our consolidated financial statements as no business combinations have occurred during the periods presented, however, in the event the Company were to enter into a future business combination the impact in future periods could be material.

9

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No.160”), which improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling interests in subsidiaries in the same way as equity in the consolidated financial statements. In addition, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS No. 160 at the beginning of fiscal year 2010 as discussed in Note 1. The provisions of SFAS No. 160 are applied prospectively except for the presentation and disclosure requirements that have been applied retrospectively. The adoption of SFAS No. 160 principally impacted presentation of the Company’s financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No.161”), which improves financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS No. 161 at the beginning of fiscal year 2010 with the additional disclosures provided in Note 11. The adoption did not have a significant effect on the Company’s financial statements.

In April 2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the United States of America. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company adopted SFAS No. 142 at the beginning of fiscal year 2010. The adoption did not have a significant effect on the Company’s financial statements.

In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlements)” (previously FSP APB 14-a) (“FSP 14-1”), which changes the accounting treatment for convertible securities which the issuer may settle fully or partially in cash. Under the FSP, cash settled convertible securities are separated into their debt and equity components. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as a debt liability is recorded as additional paid-in capital. As a result, the debt is recorded at a discount reflecting its below market coupon interest rate. The debt is subsequently accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance reflected on the income statement. This change in methodology affects the calculations of net income and earnings per share for many issuers of cash settled convertible securities. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted FSP 14-1 at the beginning of fiscal year 2010 with the additional disclosures provided in Note 5. Adoption affected the carrying value and future interest expense on the Company’s $75,000 Convertible Senior Notes 2005, due in 2025, only, as the Company’s Convertible Senior Notes 2006, due in 2026 do not contain a cash conversion feature at the election of the Company.

In June 2008, the FASB issued FSP EITF 03-6-1 “Determining whether Instruments granted in Share-based Payment Transactions are Participating Securities” (“FSP 03-6-1”). This FSP addresses whether instruments granted in share-based transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocations in calculating earnings per share under the two-class method described in FASB Statement No. 128 “Earnings per Share”. The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted FSP 03-6-1 at the beginning of fiscal year 2010. The adoption did not have a significant effect on the Company’s financial statements.

10

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

In June 2008, the FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument (or embedded feature) is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This determination is necessary for evaluating whether the instrument (or feature) is considered a derivative financial instrument under SFAS No. 133. The guidance is effective for fiscal years beginning on or after December 15, 2008. The Company adopted EITF Issue No. 07-5 at the beginning of fiscal year 2010. The adoption did not have any effect on the Company’s financial statements.

In December 2008, SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” was amended by FSP SFAS 132 (R)-1, “Employer’s Disclosures about Postretirement Benefit Plan Assets.” This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan and is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of the adoption of this FSP on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1 (“FSP FAS No. 107-1 and APB No. 28-1”), “Interim Disclosures about Fair Value of Financial Instruments”, which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, and requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS No. 107-1 and APB No. 28-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 and APB No. 28-1 is effective for interim reporting periods ending after June 15, 2009. FSP FAS No. 107-1 and APB No. 28-1 does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted FSP FAS No. 107-1 and APB No. 28-1 during the second quarter of Fiscal 2010. The adoption impacted disclosures in the Company’s financial statements. See Note 10 for the additional disclosures.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS No. 115-2 and FAS No. 124-2”), which amends the other-than-temporary impairment guidance in U.S. generally accepted accounting pronouncements (“GAAP”) for debt securities to make the guidance more operational and improve the presentation and disclosure of other-than-temporary impairment on debt and equity securities in the financial statements. FSP FAS No. 115-2 and FAS No. 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairment of equity securities. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim reporting periods ending after June 15, 2009. FSP FAS No. 115-2 and FAS No. 124-2 does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption, comparative disclosures are only required for periods ending after initial adoption. The Company adopted FSP FAS No. 115-2 and FAS No. 124-2 during the second quarter of Fiscal 2010. The adoption did not have a significant effect on the Company’s financial statements.

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS No. 157-4”), which provides additional guidance for estimating fair value in accordance with SFAS No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS No. 157-4 includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim reporting periods ending after June 15, 2009. FSP FAS No. 157-4 does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and, in periods after initial adoption. The Company adopted FSP FAS No. 157-4 during the second quarter of Fiscal 2010. The adoption did not have a significant effect on the Company’s financial statements.

11

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, (“SFAS No. 165”). SFAS No. 165 seeks to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 introduces the concept of financial statements beingavailable to be issued, and requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted SFAS No. 165 during the second quarter of Fiscal 2020. See Note 1, Basis of Presentation, for the disclosure required under SFAS No. 165.

In June 2009, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 111,Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities (“SAB No. 111”). SAB No. 111 clarifies the SEC’s position related to other-than-temporary impairments of debt and equity securities and was issued in order to make the relevant interpretive SEC guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The Company adopted SAB No. 111 on June 4, 2009, the date of its issuance. The adoption of SAB No. 111 did not have any impact on the Company’s Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 166,Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (“SFAS No. 166”). SFAS No. 166 seeks to improve financial reporting by providing a short-term solution to address inconsistencies in practice relating to the existing concepts in SFAS No. 140, such as eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance. SFAS No. 166 is effective for annual financial periods beginning after November 15, 2009, and interim periods within that annual period, and thereafter, and shall be applied prospectively. Early adoption is prohibited. The Company is in the process of evaluating SFAS No. 166 and does not expect it will have a significant impact on its Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”(“SFAS No. 167”). SFAS No. 167 seeks to improve financial reporting by requiring that entities perform an analysis to determine whether any variable interest or interests that they have give them a controlling financial interest in a variable interest entity. SFAS No. 167 is effective for annual financial periods beginning after November 15, 2009, and interim periods within that annual period, and thereafter, and shall be applied prospectively. Early adoption is prohibited. The Company is in the process of evaluating SFAS No. 167 and does not expect it will have a significant impact on its Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162”(“SFAS No. 168”). Upon adoption, the FASB Accounting Standards Codification (“ASC”) established by SFAS No. 168 will become the source of authoritative generally accepted accounting principles in the United States, and will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the ASC will become non-authoritative. SFAS No. 168 is effective for interim and annual financial periods beginning after September 15, 2009. The Company is in the process of evaluating SFAS No. 168 and it will not have a significant impact on its Consolidated Financial Statements.

4. INVENTORIES

Inventories consisted of the following:

	July 31, 2009		January 31, 2009
Raw materials	$	18,590	$	17,545
Work-in-process		17,784		17,721
Finished goods		25,010		25,862
Total	$	61,384	$	61,128

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C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

5. DEBT

Debt consisted of the following:

	July 31, 2009		January 31, 2009
Line of Credit Facility, maximum commitment of $75,000 at July 31, 2009 and January 31, 2009; bearing interest at 2.28% at July 31, 2009: availability is determined by a borrowing base calculation	$	1,870	$	—
Convertible Senior Notes 2005; due 2025, bears interest at 5.25% net of unamortized discounts of $14,410 and $16,121, respectively		60,590		58,879
Convertible Senior Notes 2006; due 2026, bears interest at 5.50%		52,000		52,000
China Line of Credit; Maximum commitment of 60 million RMB (with an effective interest rate of 5.74% and 6.37% as of July 31, 2009 and January 31, 2009)		8,638		5,852
Capital leases		347		125
Total debt		123,445		116,856
Less unamortized debt costs		2,676		3,338
Net debt		120,769		113,518
Less current portion		8,859		5,881
Total long-term portion	$	111,910	$	107,637

Convertible Senior Notes 2005

On November 21, 2005, the Company completed the private placement of $75,000 aggregate principal amount of 5.25% Convertible Senior Notes Due 2025 (“2005 Notes”) which raised proceeds of approximately $72,300, net of $2,700 in issuance costs. These costs are being amortized to interest expense over seven years.

The 2005 Notes mature on November 1, 2025 and require semi-annual interest payments at 5.25% per annum on the principal amount outstanding. Prior to maturity the holders may convert their 2005 Notes into shares of the Company’s common stock under certain circumstances. The initial conversion rate is 118.0638 shares per $1,000 principal amount of 2005 Notes, which is equivalent to an initial conversion price of approximately $8.47 per share. At any time between November 1, 2010 and November 1, 2012, the Company may at its option redeem the 2005 Notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of 2005 Notes to be redeemed, plus any accrued and unpaid interest, including additional interest, if any, if in the previous 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice the closing sale price of the Common Stock exceeds 130% of the then effective conversion price of the 2005 Notes for at least 20 trading days. In addition, at any time after November 1, 2012, the Company may redeem the 2005 Notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of the 2005 Notes to be redeemed plus any accrued and unpaid interest, including additional interest, if any.

A holder of 2005 Notes may require the Company to repurchase some or all of the holder’s 2005 Notes for cash upon the occurrence of a fundamental change as defined in the indenture and on each of November 1, 2012, 2015 and 2020 at a price equal to 100% of the principal amount of the 2005 Notes being repurchased, plus accrued interest, if any, in each case. If applicable, the Company will pay a make-whole premium on 2005 Notes converted in connection with any fundamental change that occurs prior to November 1, 2012. The amount of the make-whole premium, if any, will be based on the Company’s stock price and the effective date of the fundamental change. The indenture contains a detailed description of how the make-whole premium will be determined and a table showing the make-whole premium that would apply at various stock prices and fundamental change effective dates based on assumed interest and conversion rates. No make-whole premium will be paid if the price of the Common Stock on the effective date of the fundamental change is less than $7.00. Any make-whole premium will be payable in shares of Common Stock (or the consideration into which the Company’s Common Stock has been exchanged in the fundamental change) on the conversion date for the 2005 Notes converted in connection with the fundamental change.

13

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

On February 1, 2009, we began accounting for the 2005 Notes in accordance with the guidance provided in FSP 14-1. FSP 14-1 requires an issuer to separately account for the liability and equity components in a manner that reflects the issuer’s nonconvertible borrowing rate resulting in higher non-cash expense which is amortized over the expected life of the instrument due the discount. We determined that the effective rate of the liability component was 12.5%. FSP 14-1 requires retrospective application for all periods presented.

Convertible Senior Notes 2006

On November 22, 2006, the Company completed the private placement of $54,500 aggregate principal amount of 5.50% Convertible Senior Notes Due 2026 (“2006 Notes”) which raised proceeds of approximately $51,900, net of $2,600 in issuance costs. These costs are being amortized to interest expense over five years.

The 2006 Notes mature on November 1, 2026 and require semi-annual payments at 5.50% per annum on the principal outstanding. Prior to maturity the holders may convert their 2006 Notes into shares of the Company’s common stock under certain circumstances. The initial conversion rate is 206.7183 shares per $1,000 principal amount of 2006 Notes, which is equivalent to an initial conversion price of approximately $4.84 per share. At any time on and after November 15, 2011, the Company may at its option redeem the 2006 Notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of 2006 Notes to be redeemed, plus any accrued and unpaid interest, including additional interest.

A holder of 2006 Notes may require the Company to repurchase some or all of the holder’s 2006 Notes for cash upon the occurrence of a fundamental change as defined in the indenture and on each of November 1, 2011, 2016 and 2021 at a price equal to 100% of the principal amount of the 2006 Notes being repurchased, plus accrued interest, if any, in each case. If applicable, the Company will pay a make-whole premium on 2006 Notes converted in connection with any fundamental change that occurs prior to November 15, 2011. The amount of the make-whole premium, if any, will be based on the Company’s stock price and the effective date of the fundamental change. The indenture contains a detailed description of how the make-whole premium will be determined and a table showing the make-whole premium that would apply at various stock prices and fundamental change effective dates based on assumed interest and conversion rates. No make-whole premium will be paid if the price of the Common Stock on the effective date of the fundamental change is less than $4.30. Any make-whole premium will be payable in shares of Common Stock (or the consideration into which the Company’s Common Stock has been exchanged in the fundamental change) on the conversion date for the 2006 Notes converted in connection with the fundamental change.

FSP 14-1 does not apply to the 2006 Notes since this note does not provide the Company with the option of settlement upon conversion in cash for all or part of the notes. As a result, this note is carried at face value and interest is recorded based on the stated rate of 5.50%.

China Line of Credit

On January 18, 2007 the Company entered into a renewable six month non-revolving line of credit facility in China. Under the terms of the China Line of Credit, as amended, the Company may borrow up to 60 million RMB (approximately $8,800 US Dollars) with an interest rate of 5.73% and 40 million RMB (approximately $5,900 US Dollars) with an interest rate of 6.90% as of July 31, 2009 and January 31, 2009, respectively. This credit line was established to provide our plant in China the flexibility needed to finalize the construction of its new manufacturing facility, which was completed in March 2007 and to fund working capital requirements. As of July 31, 2009 and January 31, 2009, $8,638 and $5,852, respectively, was funded under this facility.

6. STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

On February 1, 2009, we adopted SFAS 160. The statement recharacterizes the accounting for minority interest as noncontrolling interest and classifies them as a component of stockholders’ equity. Although the adoption of SFAS 160 did not impact our results of operations and financial position, SFAS 160 required us to reclassify noncontrolling interest as stockholders’ equity, include the net loss attributable to the noncontrolling interest as part of our consolidated net loss and provide additional disclosures as part of our financial statements. As required by

14

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

SFAS 160, we implemented the presentation and disclosure requirements of this new standard retrospectively for all periods presented. Note that the January 31, 2009 balances below reflect changes required by adoption of FSP 14-1. See Note 5 for additional information on the effects of adoption on these balances.

The following table presents the statement of changes in stockholders’ equity in conformity with the requirements of SFAS 160 for the six months ended July 31, 2009.

			Additional Paid-In Capital					Other Comprehensive Income /(Loss)		Retained Earnings		Noncontrolling Interest		Total Stockholders’ Equity
	Common Stock			Treasury Stock
	Shares	Amount		Shares		Amount
BALANCE AT JANUARY 31, 2009	29,162,101	292	95,724	(2,895,346	)	(40,035	)	(45,733	)	43,204		11,451		64,903
Total comprehensive income (loss):
Net loss										(15,374	)	(286	)	(15,660	)
Foreign currency translation adjustment								216				9		225
Unrealized loss on derivative instruments								3,094						3,094
Pension liability adjustment								539						539
Total comprehensive income (loss):								3,849		(15,374	)	(277	)	(11,802	)
Other changes in equity:
Deferred Compensation Plan				(30,092	)	(56	)							(56	)
Share based compensation expense			618											618
Stock awards issued/exercised	66,112		24											24
BALANCE AT JULY 31, 2009	29,228,213	292	96,366	(2,925,438	)	(40,091	)	(41,884	)	27,830		11,174		53,687

7. INCOME TAXES

	Six months ended July 31,
	2009			2008
Provision for income taxes	$	2,172		$	12
Effective income tax rate		(16.1	%)		(0.6	%)

Effective tax rates were (16.1%) and (0.6%) for the six months ended July 31, 2009 and 2008, respectively. Tax expense for the six months ended July 31, 2009 is due to tax expense in certain profitable foreign subsidiaries and no tax benefit recognized in certain jurisdictions where the Company incurred a loss in addition to deferred tax expense related to the increase in the deferred tax liability related to certain indefinite life assets. In addition, tax expense includes $300 of additional expense related to an accrual for uncertain tax positions in the current period. This accrual relates to a tax exposure item with respect to the Company’s foreign operations.

8. EARNINGS PER SHARE

Basic earnings per common share was computed using net loss attributable to C&D and the weighted average number of common shares outstanding during the period. Diluted earnings per common share was computed using net loss attributable to C&D and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of stock options and assumed vesting of restricted stock awards using the treasury stock method, as well as the assumed conversion of debt using the if-converted method.

15

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

The following table sets forth the computation of basic and diluted losses per common share:

	Three months ended July 31,						Six months ended July 31,
	2009			2008			2009			2008
Numerator:
Numerator for basic losses per common share	$	(5,616	)	$	(1,434	)	$	(15,374	)	$	(1,558	)
Numerator for diluted losses per common share	$	(5,616	)	$	(1,434	)	$	(15,374	)	$	(1,558	)
Denominator:
Denominator for basic earnings per common share- weighted average common shares		26,308,731			25,694,097			26,295,583			25,680,439
Denominator for diluted earnings per common share- adjusted weighted average common shares and assumed conversions		26,308,731			25,694,097			26,295,583			25,680,439
Basic losses per common share	$	(0.21	)	$	(0.06	)	$	(0.58	)	$	(0.06	)
Diluted losses from common share	$	(0.21	)	$	(0.06	)	$	(0.58	)	$	(0.06	)

The Company excluded dilutive securities of 19,604,137 and 20,120,932 issuable in connection with convertible bonds from the diluted income per share calculation for the three and six months ended July 31, 2009 and 2008, respectively, because their effect would be anti-dilutive. The above computation also excludes all anti-dilutive options, restricted stock awards and shares issuable under deferred compensation arrangements, which amounted to, 2,016,996 and 2,071,010 shares for the three and six months ended July 31, 2009, respectively, and 1,542,463 and 1,379,775 for the three and six months ended July 31, 2008, respectively.

9. CONTINGENT LIABILITIES

Legal

There is no material litigation pending to which the Company is a party or of which any of its property is the subject.

Environmental

The Company is subject to extensive and evolving environmental laws and regulations regarding the clean-up and protection of the environment, worker health and safety and the protection of third parties. These laws and regulations include, but are not limited to (i) requirements relating to the handling, storage, use and disposal of lead and other hazardous materials in manufacturing processes and solid wastes; (ii) record keeping and periodic reporting to governmental entities regarding the use and disposal of hazardous materials; (iii) monitoring and permitting of air emissions and water discharge; and (iv) monitoring worker exposure to hazardous substances in the workplace and protecting workers from impermissible exposure to hazardous substances, including lead, used in our manufacturing process.

Notwithstanding the Company’s efforts to maintain compliance with applicable environmental requirements, if injury or damage to persons or the environment arises from hazardous substances used, generated or disposed of in the conduct of the Company’s business (or that of a predecessor to the extent the Company is not indemnified there for), the Company may be held liable for certain damages, the costs of investigation and remediation, and fines and penalties, which could have a material adverse effect on the Company’s business, financial condition, or results of operations. However, under the terms of the purchase agreement with Allied Corporation (“Allied”) for the

16

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

acquisition (the “Acquisition”) of the Company (the “Acquisition Agreement”), Allied was obligated to indemnify the Company for any liabilities of this type resulting from conditions existing at January 28, 1986, that were not disclosed by Allied to the Company in the schedules to the Acquisition Agreement. These obligations have since been assumed by Allied’s successor in interest, Honeywell (“Honeywell”).

C&D is participating in the investigation of contamination at several lead smelting facilities (“Third Party Facilities”) to which C&D allegedly made scrap lead shipments for reclamation prior to the date of the acquisition.

Pursuant to a 1996 Site Participation Agreement, as later amended in 2000, the Company and several other potentially responsible parties (“PRP”s) agreed upon a cost sharing allocation for performance of remedial activities required by the United States EPA Administrative Order Consent Decree entered for the design and remediation phases at the former NL Industries, Inc. (“NL”) site in Pedricktown, New Jersey, Third Party Facility. In April 2002, one of the original PRPs, Exide Technologies (Exide), filed for relief under Chapter 11 of Title 11 of the United States Code. In August 2002, Exide notified the PRPs that it would no longer be taking an active role in any further action at the site and discontinued its financial participation, resulting in a pro rata increase in the cost participation of the other PRPs, including the Company, for which the Company’s allocated share rose from 5.25% to 7.79%.

In August 2002, the Company was notified of its involvement as a PRP at the NL Atlanta, Northside Drive Superfund site. NL and Norfolk Southern Railway Company have been conducting a removal action on the site, preliminary to remediation. The Company, along with other PRPs, continues to negotiate with NL at this site regarding the Company’s share of the allocated liability.

The Company has terminated operations at its Huguenot, New York, facility, and has completed facility decontamination and disposal of chemicals and hazardous wastes remaining at the facility following termination of operations in accordance with applicable regulatory requirements. The Company is also aware of the existence of soil and groundwater contamination at the Huguenot, New York, facility, which is expected to require expenditures for further investigation and remediation. The site is listed by the New York State Department of Environmental Conservation (“NYSDEC”) on its registry of inactive hazardous waste disposal sites due to the presence of fluoride and other contaminants in and underlying a lagoon used by the former owner of this site, Avnet, Inc., for disposal of wastewater. Contamination is present at concentrations that exceed state groundwater standards. In 2002, the NYSDEC issued a Record of Decision (“ROD”) for the soil remediation portion of the site. A ROD for the ground water portion has not yet been issued by the NYSDEC. In 2005, the NYSDEC also requested that the parties engage in a Feasibility Study, which the parties have conducted in accordance with a NYSDEC approved work plan. In February 2000, the Company filed suit against Avnet, Inc., and in December 2006, the parties executed a settlement agreement which provides for a cost sharing arrangement with Avnet bearing a majority of the future costs associated with the investigation and remediation of the lagoon-related contamination.

C&D, together with Johnson Controls, Inc. (“JCI”), is conducting an assessment and remediation of contamination at and near its facility in Milwaukee, Wisconsin. The majority of the on-site soil remediation portion of this project was completed as of October 2001. Under the purchase agreement with JCI, C&D is responsible for (i) one-half of the cost of the on-site assessment and remediation, with a maximum liability of $1,750 (ii) any environmental liabilities at the facility that are not remediated as part of the ongoing cleanup project and (iii) environmental liabilities for any new claims made after the fifth anniversary of the closing, i.e. March 2004, that arise from migration from a pre-closing condition at the Milwaukee facility to locations other than the Milwaukee facility, but specifically excluding liabilities relating to pre-closing offsite disposal. JCI retained the environmental liability for the off-site assessment and remediation of lead. In March 2004, the Company entered into an agreement with JCI to continue to share responsibility as set forth in the original purchase agreement. The Company continues to share with JCI the allocation of costs for assessment and remediation of certain off-site chlorinated volatile organic compounds in groundwater.

In February 2005, the Company received a request from the EPA to conduct exploratory testing to determine if the historical municipal landfill located on the Company’s Attica, Indiana, property is the source of elevated levels of trichloroethylene detected in two city wells downgradient of the Company’s property. The EPA advised that it believes the former landfill is subject to remediation under the Resource Conservation and Recovery Act (“RCRA”) corrective action program. The Company conducted testing in accordance with an investigation work plan and submitted the test results to the EPA. The EPA thereafter notified the Company that they also wanted the Company

17

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

to embark upon a more comprehensive RCRA investigation to determine whether there have been any releases of other hazardous waste constituents from its Attica facility and, if so, to determine what corrective measure may be appropriate. In January 2007, the Company agreed to an Administrative Order on Consent with EPA to investigate, and remediate if necessary, site conditions at the facility. A RCRA Facility Investigation (RFI) Phase I Report has been submitted to EPA, and the Company is currently preparing a Final RFI Phase II Report and a Corrective Measures Plan to be submitted to EPA.

The Company has conducted site investigations at its Conyers, Georgia facility, and has detected chlorinated solvents in groundwater and lead in soil both onsite and offsite. The Company has recently completed further assessment of groundwater conditions, temporarily suspending remediation of the chlorinated solvents which had been initiated in accordance with a Corrective Action Plan approved by the Georgia Department of Natural Resources in January 2007. A modified Corrective Action Plan will be submitted based upon the assessment. Additionally, the Company has completed remediation of lead impacted soils identified in the site investigations. In September 2005, an adjoining landowner filed suit against the Company alleging, among other things, that it was allowing lead contaminated stormwater runoff to leave its property and contaminate the adjoining property. In November 2008, the parties entered into a final settlement agreement, pursuant to which the Company agreed to assess and remediate any contamination on the adjoining property due to the Company’s operations as required by Georgia Department of Natural Resources and with the concurrence of the adjoining landowner.

The Company accrues for environmental liabilities in its consolidated financial statements and periodically reevaluates the reserved amounts for these liabilities in view of the most current information available in accordance with SFAS No. 5, “Accounting for Contingencies.” As of July 31, 2009, accrued environmental reserves totaled $1,252 consisting of $622 in other current liabilities and $630 in other liabilities. Based on currently available information, the Company believes that appropriate reserves have been established with respect to the foregoing contingent liabilities and that they are not expected to have a material adverse effect on its business, financial condition or results of operations.

Purchase Commitments

Periodically the Company enters into purchase commitments pertaining to the purchase of certain raw materials with various suppliers. The Company has entered into various lead commitments contracts expiring within the next year. The estimated commitment for the next twelve months is approximately $29,000. The Company has purchased new machinery with remaining payments of approximately $1,270.

10. FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s financial instruments at July 31, 2009 were as follows:

	Carrying Amount		Fair Value
Investments held for deferred compensation plan	$	353	$	353
Debt		123,098		90,790
Commodity hedges		190		190

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Investments held for deferred compensation plan – this asset is carried at quoted market values and, as a result, the fair value is equivalent to the carrying amount.

Long-term debt – the fair value of the Notes was determined using available market prices at the balance sheet date. The carrying value of the Company’s remaining long-term debt, including the current portion, approximates fair value based on the incremental borrowing rates currently available to the Company for loans with similar terms and maturity.

18

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

11. DERIVATIVE INSTRUMENTS

The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders’ equity as accumulated other comprehensive (loss) income or net (loss) income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

To qualify for hedge accounting, the instruments must be effective in reducing the risk exposure that they are designed to hedge. For instruments that are associated with the hedge of an anticipated transaction, hedge effectiveness criteria also require that it be probable that the underlying transaction will occur. Instruments that meet established accounting criteria are formally designated as hedges at the inception of the contract. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in fair value of the underlying exposure both at inception of the hedging relationship and on an ongoing basis. The assessment for effectiveness is documented at hedge inception and reviewed throughout the designated hedge period.

Changes in the value of a derivative that is designated as a fair value hedge, along with offsetting changes in fair value of the underlying hedged exposure, are recorded in operations each period. Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in accumulated other comprehensive loss. When operations are affected by the variability of the underlying cash flow, the applicable amount of the gain or loss from the derivative that is deferred in stockholders’ equity is released to operations. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are included in operations each period until the instrument matures. Derivatives that are not designated as hedges, as well as the portion of a derivative excluded from the effectiveness assessment and changes in the value of the derivatives which do not offset the underlying hedged item throughout the designated hedge period, are recorded in other expense, net each period.

The Company does not use derivatives for speculative purposes, nor is it a party to leveraged derivatives. The Company is exposed to credit risk related to its financial instruments in the event of non-performance by the counterparties. As such, the Company has a policy of only entering into contracts with major financial institutions. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from these instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives.

Commodity risk – The Company has entered into lead hedge contracts, which is the primary raw material component of the Company, to manage risk of the cost of lead. The agreements are with major financial institutions with maturities generally less than one The Company employs cash flow hedge accounting in the treatment of these contracts. Changes in the value of the contracts are marked to market each month and the gains and losses are recorded in other comprehensive income (loss) until they are released to the income statement through cost of goods sold in the same period as is the hedged item (lead).

These market instruments are designated as cash flow hedges. The mark-to-market gain or loss on qualifying commodity hedges is included in other comprehensive income to the extent effective, and reclassified into cost of goods sold in the period during which the hedge transaction affects earnings.

Hedge accounting is discontinued when it is determined that a derivative instrument is not highly effective as a hedge. Hedge accounting is also discontinued when: (1) the derivative instrument expires, is sold, terminated or exercised; or is no longer designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; (2) a hedged firm commitment no longer meets the definition of a firm commitment; or (3) management determines that designation of the derivative as a hedging instrument is no longer appropriate.

19

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

When hedge accounting is discontinued, the derivative instrument will be either terminated, continue to be carried on the balance sheet at fair value, or redesignated as the hedging instrument, if the relationship meets all applicable hedging criteria. Any asset or liability that was previously recorded as a result of recognizing the value of a firm commitment will be removed from the balance sheet and recognized as a gain or loss in current period earnings. Any gains or losses that were accumulated in other comprehensive loss from hedging a forecasted transaction will be recognized immediately in current period earnings, if it is probable that the forecasted transaction will not occur.

The Company had raw material commodity arrangements for 3,220 metric tons of base metals at July 31, 2009 and 5,056 metric tons at January 31, 2009.

The following table provides the fair value of the Company’s derivative contracts which include raw material commodity contracts.

	July 31, 2009		January 31, 2009			Balance Sheet Location
Derivatives designated as hedging instruments:
Commodity Hedges	$	190	$	0		Other current assets
Commodity Hedges		—		(992	)	Other current liabilities
Total fair value	$	190		($992	)

The Company estimates that $89 of net derivative gains in AOCI as of July 31, 2009 will be reclassified into earnings within the next twelve months.

	Amount of Gain (Loss) Recognized in OCI					Amount of Gain (Loss) Reclassified from AOCI into Income						Location of Gain (Loss) Reclassified from AOCI into Income
	2009		2008			2009			2008
Derivatives in Cash Flow Hedging Relationships:
Three months ended July 31,
Commodity Hedges	$	274	$	(3,744	)	$	227		$	(1,801	)	Cost of Sales
Six months ended July 31,
Commodity Hedges	$	168	$	(5,142	)	$	(1,744	)	$	(5,265	)	Cost of Sales

12. WARRANTY

The Company provides for estimated product warranty expenses when the related products are sold. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows:

	Six months ended July 31,
	2009			2008
Balance at beginning of period	$	8,069		$	11,276
Current year provisions		2,188			2,074
Settlements		(4,347	)		(4,911	)
Effect of foreign currency translation		—			7
Balance at end of period	$	5,910		$	8,446

20

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

As of July 31, 2009, accrued warranty obligations of $5,910 include $2,239 in current liabilities and $3,671 in other liabilities. As of January 31, 2009 accrued warranty obligations of $8,069 include $3,528 in current liabilities and $4,541 in other liabilities.

Certain warranty costs associated with the discontinued operations were not assumed by the buyer and are included in the table above. Settlements include $1,534 and $3,063 related to discontinued operations in the first six months of fiscal 2010 and 2009, respectively.

13. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

The components of net periodic benefit cost consisted of the following for the interim periods:

	Pension Benefits						Postretirement Benefits
	Three months ended July 31,						Three months ended July 31,
	2009			2008			2009			2008
Components of net periodic benefit cost:
Service cost	$	233		$	284		$	11		$	13
Interest cost		1,103			1,154			32			30
Expected return on plan assets		(941	)		(1,241	)		—			—
Amortization of prior service costs		—			—			(201	)		(201	)
Recognized actuarial loss/(gain)		640			300			—			(1	)
Net periodic benefit cost	$	1,035		$	497		$	(158	)	$	(159	)
	Pension Benefits						Postretirement Benefits
	Six months ended July 31,						Six months ended July 31,
	2009			2008			2009			2008
Components of net periodic benefit cost:
Service cost	$	517		$	545		$	29		$	31
Interest cost		2,262			2,237			63			59
Expected return on plan assets		(1,807	)		(2,501	)		—			—
Amortization of prior service costs		—			—			(402	)		(402	)
Recognized actuarial loss/(gain)		1,385			589			—			(2	)
Net periodic benefit cost	$	2,357		$	870		$	(310	)	$	(314	)

The Company made $766 of contributions to the pension plans in the six months ended July, 31, 2009. The Company expects to make additional contributions of approximately $2,195 to its pension plans during fiscal year 2010. The Company also expects to make contributions totaling approximately $160 to the Company sponsored postretirement benefit plan during fiscal year 2010.

14 RESTRUCTURING

On February 4, 2009, the Company announced plans to reduce labor costs by reducing its workforce by approximately 90 employees. The Company recorded severance accruals in the fourth quarter of fiscal year 2009 of $1,334 in its consolidated statement of operations as Selling, general and administrative expenses as a result of these reductions. The Company expects to pay most of these costs in fiscal year 2010 with a small portion carrying over to fiscal year 2011.

21

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

A reconciliation of the beginning and ending liability and related activity is shown below.

	Balance at January 31, 2009		Provision Additions		Expenditures		Balance at July 31, 2009
Severance	$	1,253	$	—	$	797	$	456
Total	$	1,253	$	—	$	797	$	456

15 FAIR VALUE MEASUREMENT

Our adoption of SFAS 157 primarily relates to our derivative contracts and investments related to the deferred compensation plan. We utilize the market approach to measure fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. SFAS 157 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table represents our assets and liabilities measured at fair value on a recurring basis as of July 31, 2009 and the basis for those measurements:

	Total Fair Value Measurement July 31, 2009		Quoted Priced in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investments held for deferred compensation plan	$	353	$	353	$	—	$	—
Commodity hedge asset		190		—		190		—

16. ADOPTION OF FSP 14-1 AND RESTATED PRIOR YEAR BALANCES

Amounts previously reported for the three and six months ended July 31, 2008 have been restated. The restatement adjustments affected the previously reported balances for accounts payable and cost of sales, which components affect reported gross profit, income tax provision/(benefit), operating income, net income (loss) and basic and diluted earnings per share. The impact of the adjustments was to increase costs of sales and reduce income before income taxes and noncontrolling interest by $2,197 for the three and six months ended July 31, 2008. As a

22

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

result of these changes income tax calculations were also impacted resulting in a reduction of income tax expense by $283 in the second quarter of fiscal 2009. Basic and diluted earnings per share (“EPS”) were reduced by 8 cents per share in the second quarter of fiscal 2009.

In addition, prior year amounts have been restated to reflect adoption of FSP 14-1 as required. See note 5 for additional information.

The following table summarizes the changes to our financial statements as a result of the restatements and adoption of FSP 14-1 described above:

January 31, 2009 Balance Sheet	Previously Reported			Effect of Change due to FSP 14-1 - Increase (Decrease)			Effect of Change due to Correction - Increase (Decrease)			As Adjusted
Debt issuance costs (included in long-term debt)	$	(3,672	)	$	334					$	(3,338	)
Convertible Senior Notes 2005		75,000			(16,121	)					58,879
Additional paid-in capital		71,749			23,975						95,724
Retained earnings		51,392			(8,188	)					43,204
Three Months ended July 31, 2008 Statement of Operations
Cost of sales		76,841						2,197			79,038
Gross profit		15,644						(2,197	)		13,447
Interest expense, net		2,285			722						3,007
Income tax provision		161						(283	)		(122	)
Net income attributable to C&D Technologies, Inc.		1,202			(722	)		(1,914	)		(1,434	)
Income (Loss) per share basic and diluted	$	0.05		$	(0.03	)	$	(0.08	)		($0.06	)
Six Months ended July 31, 2008 Statement of Operations
Cost of sales		156,925						2,197			159,122
Gross profit		29,336						(2,197	)		27,139
Interest expense, net		4,551			1,423						5,974
Income tax provision		295						(283	)		12
Net income attributable to C&D Technologies, Inc.		1,779			(1,423	)		(1,914	)		(1,558	)
Income (Loss) per share basic and diluted	$	0.07		$	(0.05	)	$	(0.08	)		($0.06	)
July 31, 2008 Statement of Cash Flows
Net income¹		1,374			(1,423	)		(1,914	)		(1,963	)
Amortization of debt acquisition and discount costs		848			1,423						2,271
Accounts payable		(18,313	)					2,197			(16,116	)
Income taxes payable		(961	)					(283	)		(1,244	)

¹ Previously reported net income has been adjusted to reflect noncontrolling interest as required by SFAS 160.

23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

Item 2.

Three Months Ended July 31, 2009, compared to Three Months Ended July 31, 2008.

Within the following discussion, unless otherwise stated, “quarter” and “three-month” period” refer to the second quarter of fiscal year 2010. All comparisons are with the corresponding period in the prior fiscal year, unless otherwise stated.

Net sales in the second quarter of fiscal year 2010 decreased $10,051 or 11% to $82,434 from $92,485 in the second quarter of fiscal year 2009. This decrease was principally due to contractual price decreases resulting from the significant decline in the price of lead. Average London Metal Exchange (“LME”) lead prices decreased from an average of $0.91 per pound in the second quarter of fiscal year 2009 to $0.73 per pound in the second quarter of fiscal year 2010. The decrease in price was partially offset by increased volume principally in the Company’s North American telecommunications and international markets.

Gross profit in the second quarter of fiscal year 2010 decreased $3,444 or 25.6% to $10,003 from $13,447 in the second quarter of fiscal year 2009. Margins as a percent of sales decreased from 14.5% in the second quarter of fiscal year 2009 to 12.1% in the second quarter of fiscal year 2010. Margins increased sequentially to 12.1% in the second quarter of fiscal 2010 compared to 7.3% in the first quarter of fiscal 2010. The decrease from the prior year was principally impacted by loss of benefits from tolling / LME pricing spread and overall market pricing competitiveness offset by a reduction in commodity hedge losses. The margin improvement versus the first quarter of fiscal 2010 was driven by increased sales volume, product mix and a reduction in commodity hedge losses versus the first quarter. Lead prices traded on the LME have continued to be volatile, having traded as high as $0.84 per pound on July 31, 2009 and as low as $0.61 per pound on May 1, 2009. Higher pension and other fringe benefit costs also impacted margin performance. These negative impacts on gross margin were partially offset by the impact of cost reduction actions announced in February 2009.

Selling, general and administrative expenses in the second quarter of fiscal year 2010 decreased $254 or 2.5% to $10,111 from $10,365. The decrease is primarily due to lower compensation and fringe benefits of approximately $310 in fiscal year 2010 offset by higher selling costs of approximately $100 associated primarily with new product introductions. As a percentage of sales, selling, general and administrative expenses increased to 12.3% in fiscal 2010 compared to 11.2% in the second quarter of fiscal 2009.

Research and development expenses in the second quarter of fiscal year 2010 increased $96 or 5.6% to $1,799 from $1,703. As a percentage of sales, research and development expenses increased from 1.8% in the second quarter of fiscal year 2009 to 2.2% in the second quarter of fiscal year 2010 due to higher costs supporting investment in new technologies and China growth initiatives.

The Company had an operating loss in the second quarter of fiscal year 2010 of $1,907 compared to operating income of $1,379 in the second quarter of fiscal year 2009. The change is mainly due to the decrease in gross profit compared to the second quarter of fiscal 2009.

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Analysis of Change in Operating Income from continuing operations for the 2^nd quarter of fiscal year 2010 vs. fiscal year 2009.

Fiscal Year 2010 vs. 2009
Operating Income Three months ended July 31, 2008	$	1,379
Lead, net		7,587
Price / Volume / Mix		(10,704	)
Pension		(538	)
Other		369
Operating Loss Three months ended July 31, 2009	$	(1,907	)

Interest expense, net in the second quarter of fiscal year 2010 decreased $91 or 3.0% to $2,916 from $3,007 in the second quarter of fiscal year 2009, primarily due to lower interest rates in the second quarter of fiscal 2010 compared to the second quarter for fiscal 2009. Interest expense includes $824 and $722 in fiscal years 2010 and 2009, respectively, for non-cash amortization of debt discount on the 2005 Notes (see Note 5).

Other income was $208 in the second quarter of fiscal year 2010 compared to other expense of $75 in the second quarter of fiscal year 2009 primarily due to an increase in foreign currency income of $300.

Income tax expense of $1,076 was recorded in the second quarter of fiscal year 2010, compared to a tax benefit of $122 in the second quarter of fiscal year 2009. Tax expense in the second quarter of fiscal year 2010 is primarily due to non-cash SFAS No. 109 expense related to the amortization of intangible assets and foreign taxes on profits which were not offset by losses for which no tax benefit is recognized under SFAS No. 109 and a $300 tax accrual for an uncertain tax position related to foreign operations.

Noncontrolling interest reflects the 33% ownership interest in the joint venture battery business located in Shanghai, China, that is not owned by the Company. Net loss attributable to Noncontrolling interest was $75 in fiscal year 2010 compared to $147 in fiscal year 2009.

As a result of the above, net loss attributable to C&D Technologies, Inc of $5,616 was recorded in the second quarter of fiscal year 2010 compared to $1,434 in the prior year. Basic and diluted losses per share were $0.21 and $0.06 in the second quarter of fiscal year 2010 and 2009, respectively.

Other Comprehensive Income (Loss)

Other comprehensive loss attributable to C&D Technologies, Inc. increased by $4,095 in the second quarter of fiscal year 2010 to $5,321 from $1,226 in the second quarter of fiscal year 2009. This increase was due primarily to the increase in net loss attributable to C&D from $1,434 in the second quarter of fiscal 2009 to $5,616 in the second quarter of fiscal year 2010 coupled with an unrealized gain on derivative instruments of $189 in the second quarter of fiscal year 2010 compared to a loss of $470 in second quarter of fiscal year 2009 partially offset by foreign currency translation adjustments decreasing to $79 in fiscal year 2010 from $864 in fiscal year 2009.

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Six Months Ended July 31, 2009, compared to Six months Ended July 31, 2008

Net sales for the six months ended July 31, 2009 decreased $30,162 or 16.2% to $156,099 from $186,261 in the six months ended July 31, 2008. This decrease was principally due to contractual price decreases resulting from the significant decline in the price of lead. Average London Metal Exchange (“LME”) prices decreased from an average of $1.13 per pound in the six months ended July 31, 2008 to $0.65 per pound in the six months ended July 31, 2009. Additionally, sales were negatively impacted by lower volumes as a result of the general economic environment, principally in the Company’s North American telecommunications and UPS markets, as well as international markets although as previously noted sales in the Company’s North American and international markets strengthened slightly in the second quarter of fiscal 2010.

Gross profit for the six months ended July 31, 2009 decreased $11,791 or 43.5% to $15,348 from $27,139 in the six months ended July 31, 2008. Margins decreased to 9.8% from 14.6% in prior year. The decrease from the prior year was principally impacted by loss of benefits from tolling / LME pricing spread and overall market pricing competitiveness offset by a reduction in commodity hedge losses. Lead prices traded on the LME have continued to be volatile, having traded as high as $0.84 per pound on July 31, 2009 and as low as $0.45 per pound on February 24, 2009. Higher pension and other fringe benefit costs also impacted margin performance. These negative impacts on gross margin were partially offset by the impact of cost reduction actions announced in February 2009.

Selling, general and administrative expenses for the six months ended July 31, 2009, decreased $667 or 3.3% to $19,353 from $20,020. The decrease is primarily due to lower compensation and fringe benefits of approximately $900 in fiscal year 2010 offset by higher selling costs of approximately $200 associated primarily with new product introductions. As a percentage of sales, selling, general and administrative expenses were 12.4% and 10.7% in the six months ended July 31, 2009 and 2008, respectively.

Research and development expenses for the six months ended July 31, 2009 increased $283 or 8.3% to $3,677 from $3,394 in the six months ended July 31, 2008. As a percentage of sales, research and development expenses increased from 1.8% in the six months ended July 31, 2008 to 2.4% in the six months ended July 31, 2009 due to higher costs supporting investment in new technologies and China growth initiatives.

Operating loss for the six months ended July 31, 2009 was $7,682 compared to operating income of $3,725 in the six months ended July 31, 2008. The reduction is due to the decreased gross profit that resulted from changes in lead prices partially offset by lower selling, general and administrative costs.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Analysis of Change in Operating Income

Six months ended July 31, 2009 vs. Six months ended July 31, 2008

Fiscal Year 2010 vs. 2009
Operating Income Six months ended July 31, 2008	$	3,725
Lead, net		20,871
Price / Volume / Mix		(29,817	)
Pension		(1,488	)
Other		(973	)
Operating Loss Six months ended July 31, 2009	$	(7,682	)

Interest expense, net for the six months ended July 31, 2009, decreased $134 or 2.2% to $5,840 from $5,974 in the six months ended July 31, 2008, primarily due to lower interest rates on debt.

Other income was $34 for the six months ended July 31, 2009, compared to $298 in the six months ended July 31, 2008. The decrease was primarily due to a reduction in royalty income related to our divested Motive Power Division received in fiscal year 2009 of approximately $250.

Income tax expense of $2,172 was recorded in the six months ended July 31, 2009, compared to $12 in the six months ended July 31, 2008. Tax expense in the six months ended July 31, 2009 is primarily due to foreign taxes on profits which were not offset by losses for which no tax benefit is recognized under SFAS No. 109 and a $300 tax accrual for an uncertain tax position related to foreign operations.

Noncontrolling interest reflects the 33% ownership interest in the joint venture battery business located in Shanghai, China, that is not owned by the Company. In the six months ended July 31, 2009, the joint venture had a net loss attributable to noncontrolling interest of $286 compared to $405 in the six months ended July 31, 2008. The variance is reflected by improved performance of the Company’s China operations.

As a result of the above, net loss attributable to C&D of $15,374 was recorded compared to $1,558 in the prior year.

Other Comprehensive Income

The Company recorded other comprehensive loss of $11,534 for the six months ended July 31, 2009 as compared to income of $1,697 in the six months ended July 31, 2008. This decrease was primarily due to the net loss attributable to C&D Technologies of $15,374 in the six months ended July 31, 2009 as compared to $1,558 in the comparable period at the previous fiscal year and a decrease in foreign currency adjustments of $216 compared to $1,898 in the prior year. This decrease in income was partially offset by an increase in the unrealized gain on derivative instruments of $3,094 compared to $1,797 in the six months ended July 31, 2008.

27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Liquidity and Capital Resources

Net cash provided by operating activities was $1,720 for six months ended July 31, 2009, compared to $3,206 in the comparable period of the prior fiscal year. This change is a result from the increased loss in fiscal 2010 combined with a decrease in cash generated from inventory. Inventory levels at July 31, 2010 are relatively consistent with those at January 31, 2009. These changes were offset by a reduction in the use of cash for accounts payable compared to the prior year as a result of lower lead prices and accounts payable management.

Net cash used in investing activities was $6,900 in the first six months of fiscal year 2010 as compared to $5,427 in the first six months of fiscal year 2009. In fiscal year 2010, we had purchases of property, plant and equipment of $7,763 compared with $8,548 in the prior year. Capital expenditures are principally in support of our cost reduction activities and new product development. This was offset by a reduction of restricted cash of $848 related to commodity hedging activities in the first six months of fiscal 2010 compared to $2,638 in the prior fiscal year.

Net cash provided by financing activities increased $4,697 to $4,838 for the six months ended July 31, 2009, compared to $141 in the comparable period of the prior fiscal year. Proceeds from borrowings under the Company’s revolving credit facility and expansion of the Company’s China line of credit were the primary source of cash provided by financing activities in fiscal year 2010. The primary purpose of the new borrowings in the current fiscal year was to fund capital purchases.

The Credit Facility includes a material adverse change clause which defines an event of default as a material adverse change in our business, assets or prospects. Our lenders could claim a breach under the material adverse change covenant or the cross-default provisions under our Credit Facility under certain circumstances, including, for example, if holders of our 2005 Notes and 2006 Notes were to obtain the right to put their notes to us in the event that our common stock was no longer listed on any national securities exchange. An interpretation of events as a material adverse change or any breach of the covenants in our Credit Facility or the indentures governing our 2005 Notes and 2006 Notes could cause a default under our Credit Facility and other debt (including the 2005 and 2006 Notes), which would restrict our ability to borrow under our Credit Facility, thereby significantly impacting our liquidity.

We have also assessed the impact of the severe liquidity crises at major financial institutions on our ability to access capital markets on reasonable terms. Although our credit facility syndicate bank is currently meeting all of their lending obligations, there can be no assurance that these banks will be able to meet their obligations in the future if the liquidity crisis intensifies or is protracted. Our current credit facility does not expire until December 7, 2010. As of July 31, 2009, the maximum availability calculated under the borrowing base was approximately $42,372, of which $1,871 was funded, and $5,575 was utilized for letters of credit. As provided under the Credit Facility, excess borrowing capacity will be available for future working capital needs and general corporate purposes.

Additionally, our $52,000 and $75,000 convertible notes do not have initial maturities (put provisions) until November 2011 and November 2012 respectively. Only upon the occurrence of a fundamental change as defined in the indenture agreements, holders of the notes may require the Company to repurchase some or all of the notes prior to these dates.

If at some future time we are notified by the NYSE that we have fallen below the NYSE’s continued listing standard relating to minimum average global market capitalization, we could face suspension and delisting proceedings. In that case, we may have 45 days to submit a plan to NYSE that demonstrates our ability to regain compliance within 18 months. If we are permitted to submit a plan, upon receipt of this plan, the NYSE would have 45 calendar days to review and determine whether we have made a reasonable demonstration of our ability to come into conformity with the relevant standards within the 18-month period. The NYSE would either accept the plan, at which time we would be subject to ongoing monitoring for compliance with this plan, or the NYSE would not accept the plan and we would be subject to suspension and delisting proceedings.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

A delisting of our common stock and our inability to list the stock on another national securities exchange could negatively impact us by: (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; (iv) impairing our ability to provide equity incentives to our employees and (v) causing holders of our 2005 Notes and our 2006 Notes to have the right to require us to repurchase their notes for an amount equal to the principal amount outstanding plus accrued but unpaid interest and the make-whole premium set forth in the respective indentures as applicable. While a delisting of our common stock would not constitute a specific event of default under the documents governing our senior credit facilities, our lenders could claim that a delisting would trigger a default under the material adverse change covenant or the cross-default provisions under such documents.

At this time, we do not believe recent market disruptions will impact our long-term ability to obtain financing. We expect to have access to liquidity in the capital markets on favorable terms before the maturity dates of our current credit facilities and we do not expect a significant number of our lenders to default on their commitments thereunder. In addition, we can delay major capital investments or pursue financing from other sources to preserve liquidity, if necessary. Cash from operations and availability under the amended Credit Facility is expected to be sufficient to meet our ongoing cash needs for working capital requirements, restructuring, capital expenditures and debt service for at least the next twelve months. We estimate capital spending for fiscal year 2010 to be in the range of $15,000 to $17,000, including funding for new product modifications and cost reduction opportunities.

Contractual Obligations and Commercial Commitments

The following tables summarize our contractual obligations and commercial commitments as of July 31, 2009:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Debt	$	137,508	$	8,638	$	1,870	$	—	$	127,000
Interest payable on notes		115,019		6,798		13,595		13,595		81,031
Operating leases		5,988		1,853		1,783		738		1,614
Projected – lead purchases*		29,000		29,000		—		—		—
Equipment and other		1,271		1,271		—		—		—
Capital Leases		347		222		118		7		—
Total contractual cash obligations	$	289,133	$	47,782	$	17,366	$	14,340	$	209,645

* Amounts are based on the cash price of lead at July 31, 2009 which was $0.84.

	Amount of Commitment Expiration per Period
Other Commercial Commitments	Total Amount Committed		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Standby letters of credit	$	5,575	$	5,575	$	—	$	—	$	—
Total commercial commitments	$	5,575	$	5,575	$	—	$	—	$	—

29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make. We may, from time to time, make written or verbal forward-looking statements. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “guidance,” “forecast,” “plan,” “outlook” and similar expressions in filings with the Securities and Exchange Commission (“SEC”), in our press releases and in oral statements made by our representatives, identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and are intended to come within the safe harbor protection provided by those sections. The forward-looking statements are based upon management’s current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, forward-looking statements involve risk and uncertainties that could cause our actual results to differ materially from anticipated results. Examples of forward-looking statements include, but are not limited to:

• projections of revenues, cost of raw materials, income or loss, earnings or loss per share, capital expenditures, growth prospects, dividends, the effect of currency translations, capital structure and other financial items;

• statements of plans, strategies and objectives made by our management or board of directors, including the introduction of new products, cost savings initiatives or estimates or predictions of actions by customers, suppliers, competitors or regulating authorities;

• statements of future economic performance; and

• statements regarding the ability to obtain amendments under our debt agreements.

We caution you not to place undue reliance on these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, those factors discussed under Item 1A - Risk Factors, Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations and Item 8 – Financial Statements and Supplementing Data, and the following general factors:

• our ability to implement and fund based on current liquidity, business strategies and restructuring plans;

• our substantial debt and debt service requirements, which may restrict our operational and financial flexibility, as well as impose significant interest and financing costs;

• restrictive loan covenants may impact our ability to operate our business and pursue business strategies;

• the litigation and regulatory proceedings to which we are subject, the results of which could have a material adverse effect on us and our business;

• our exposure to fluctuations in interest rates on our variable debt;

• the realization of the tax benefits of our net operating loss carry forwards, which is dependent upon future taxable income;

• the fact that lead, a major constituent in most of our products, experiences significant fluctuations in market price and is a hazardous material that may give rise to costly environmental and safety claims;

• our ability to successfully pass along increased material costs to our customers;

• unanticipated warranty and quality problems associated with our products;

• failure of our customers to renew supply agreements;

• competitiveness of the battery markets in North America and Europe;

• the substantial management time and financial and other resources needed for our consolidation and rationalization of acquired entities;

• political, economic and social changes, or acts of terrorism or war;

• successful collective bargaining with our unionized workforce;

• risks involved in our foreign operations such as disruption of markets, changes in import and export laws, currency restrictions, currency exchange rate fluctuations and possible terrorist attacks against the United States interests;

• our ability to maintain and generate liquidity to meet our operating needs;

30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

• economic conditions or market changes in certain market sectors in which we conduct business;

• uncertainty in financial markets;

• our ability to stay listed on a national securities exchange;

• our success or timing of new product development;

• impact of any changes in our management;

• we may have additional impairment charges;

• our ability to acquire goods and services and/or fulfill labor needs at budgeted costs;

• economic conditions or market changes in certain market sectors in which we conduct business;

• our success or timing of new product development;

• changes in our product mix;

• success of productivity initiatives, including rationalizations, relocations or consolidations;

• costs of our compliance with environmental laws and regulations and resulting liabilities; and

• our ability to protect our proprietary intellectual property and technology;

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” included in the Company’s Form 10-K annual report for the year ended January 31, 2009.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to various market risks. The primary financial risks include fluctuations in interest rates, certain raw material commodity prices, and changes in currency exchange rates. The Company manages these risks through normal operating and financing activities and when appropriate through the use of derivative instruments. It does not invest in derivative instruments for speculative purposes, but enters into hedging arrangements in order to reduce its exposure to fluctuations in interest rates, the price of lead, as well as to fluctuations in exchange rates.

On occasion, the Company has entered into non-deliverable forward contracts with certain financial counterparties to hedge our exposure to the fluctuations in the price of lead, the primary raw material component used by the Company. The Company employs hedge accounting in the treatment of these contracts. Changes in the value of the contracts are marked to market each month and the gains and losses are recorded in other comprehensive loss until they are released to the income statement through cost of goods sold in the same period as is the hedged item (lead).

Additional disclosure regarding various market risks were set forth in the Company’s fiscal year 2009 Annual Report on Form 10-K filed with the SEC.

Item 4. Controls and Procedures:

Evaluation of Disclosure Controls and Procedures

Management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. The Company maintains controls and procedures to prevent and detect material misstatements in financial statements on a timely basis, information required to be disclosed by it in the reports that it files or submits under the Exchange Act and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding timely disclosures.

As of July 31, 2009, our previously identified material weakness in our internal control over financial reporting relating to effective controls over the period end reconciliation of inventory liability clearing accounts remains. Specifically, our account reconciliations, analyses and review procedures were ineffective as it related to the following: (1) timely completion of the account reconciliation (2) independent and timely review of the reconciliation and (3) review and approval of journal entries related to these accounts.

Such deficiency could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented and detected. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of this material weakness, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of July 31, 2009. Nevertheless, management has concluded that the consolidated financial statements in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with generally accepted accounting principles in the United States of America.

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Plan for Remediation of Material Weakness

We believe that we have taken the appropriate actions to remediate the material weakness described above by (1) conducting training on controls over maintenance of inventory liability clearing accounts and preparation of reconciliations of related balances (2) made certain personnel changes and reallocated duties as deemed appropriate, and (3) designing and implementing new policies, procedures and controls for monthly account reconciliations. We believe this material weakness will remain until we have had sufficient experience with the sustainability of the controls.

Changes in Internal Control over Financial Reporting:

Other than the above, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities:

NONE

On September 30, 2004, the Board of Directors authorized a new stock repurchase program. Under the program, the Company is permitted to repurchase up to 1 million shares of C&D Technologies common stock having a total purchase price of no greater than $25 million. This program entirely replaces and supersedes all previously authorized stock repurchase programs. No shares were purchased during the first six months of fiscal year 2010 under this program.

Restrictions on Dividends and Treasury Stock Purchases:

Our Credit Facility limits restricted payments including dividends and Treasury Stock purchases to no more than $250,000 for Treasury Stock in any one calendar year and $1,750,000 for dividends for any one calendar year subject to adjustments of up to $400,000 per year in the case of the conversion of debt to stock per the terms of our convertible offerings. These restricted payments can only occur with prior notice to the lenders and provided that there is a minimum of $30,000,000 in excess availability for a period of thirty days prior to the dividend. The Company may declare and pay a dividend provided these conditions are met and there does not exist an event of default. No dividends have been declared during the first six months of fiscal year 2010.

Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of stockholders of C&D on June 11, 2009, the stockholders voted on three proposals: The election of eight directors for one-year terms, a proposal to elect eight directors for the ensuing year and a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for C&D for the fiscal year ended January 31, 2010.

Proposal 1 - Election of Directors

Nominee	Votes for	Votes withheld
William Harral, III	24,320,359	706,986
Pamela Lewis Davies	24,201,138	826,207
Kevin P. Dowd	24,320,729	706,616
Jeffrey A. Graves	24,270,078	757,267
Robert I. Harries	24,710,228	317,117
George MacKenzie	24,048,611	978,734
Stanley W. Silverman	24,044,938	982,407
Ellen C. Wolf	24,059,106	968,239

Proposal 2 - Proposal to elect eight directors of C&D for the ensuing year.

For	Against	Abstain
24,860,050	167,295	—

Proposal 3 - Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the fiscal year ending January 31, 2010.

For	Against	Abstain
24,892,975	43,890	90,480

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Item 6. Exhibits.

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Exhibit Number	Filed Herewith
31.1	Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
31.2	Certification of the Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				X
32.1	Certification of the President and Chief Executive Officer and Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				X

35

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 8, 2009		By:	/s/ Jeffrey A. Graves
			Jeffrey A. Graves
			President, Chief Executive
			Officer and Director
			(Principal Executive Officer)

September 8, 2009	By:	/s/ Ian J. Harvie
		Ian J. Harvie
		Vice President Finance
		and Chief Financial Officer
		(Principal Financial Officer)

September 8, 2009	By:	/s/ Neil E. Daniels
		Neil E. Daniels
		Vice President & Corporate
		Controller
		(Principal Accounting Officer)

36

EXHIBIT INDEX

31.1	Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the President and Chief Executive Officer and Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

37