C&D (CHP) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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, 2011, 15,196,563 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, 2011 and January 31, 2011	3
	Consolidated Statements of Operations – Three and Six Months Ended July 31, 2011 and 2010	5
	Consolidated Statements of Cash Flows – Six Months Ended July 31, 2011 and 2010	6
	Consolidated Statements of Comprehensive Income (Loss) – Three and Six Months Ended July 31, 2011 and 2010	7
	Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4	Controls and Procedures	32
Part II	OTHER INFORMATION
Item 1A	Risk Factors
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6	Exhibits	33
SIGNATURES		34
EXHIBIT INDEX		35

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, 2011		January 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	7,480	$	3,708
Restricted cash		276		—
Accounts receivable, less allowance for doubtful accounts of $794 and $981		68,905		61,188
Inventories		71,254		80,772
Deferred taxes		256		251
Other current assets		4,177		4,508
Total current assets		152,348		150,427
Property, plant and equipment, net		85,670		86,891
Deferred income taxes		250		249
Intangible and other assets, net		13,024		13,726
TOTAL ASSETS	$	251,292	$	251,293
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	7,687	$	2,596
Accounts payable		34,350		39,477
Accrued liabilities		12,440		13,847
Deferred income taxes		103		97
Deferred revenue		1,362		3,588
Other current liabilities		5,951		5,955
Total current liabilities		61,893		65,560
Deferred income taxes		98		98
Long-term debt		33,798		32,934
Long-term debt - related party		20,000		20,000
Other liabilities		40,449		39,169
Total liabilities		156,238		157,761

The accompanying notes are an integral part of these statements.

3

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(Dollars in thousands, except par value)

(UNAUDITED)

	July 31, 2011			January 31, 2011
Commitments and contingencies (see Note 9)
Equity:
Common stock, $.01 par value, 25,000,000 shares authorized; 15,306,936 and 15,306,915 shares issued and 15,196,563 and 15,196,542 outstanding at July 31, 2011 and January 31, 2011, respectively		153			153
Additional paid-in capital		202,946			202,350
Treasury stock, at cost, 110,373 shares at July 31, 2011 and January 31, 2011		(39,200	)		(39,200	)
Accumulated other comprehensive loss		(41,408	)		(43,489	)
Accumulated deficit		(40,234	)		(38,480	)
Total stockholders’ equity attributable to C&D Technologies, Inc.		82,257			81,334
Noncontrolling interest		12,797			12,198
Total equity		95,054			93,532
TOTAL LIABILITIES AND EQUITY	$	251,292		$	251,293

The accompanying notes are an integral part of these statements.

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,
	2011			2010			2011			2010
NET SALES	$	94,598		$	83,835		$	182,909		$	168,538
COST OF SALES		83,018			72,802			158,525			147,527
GROSS PROFIT		11,580			11,033			24,384			21,011
OPERATING EXPENSES:
Selling, general and administrative expenses		8,813			9,209			19,248			18,431
Research and development expenses		1,570			1,589			3,165			3,377
Goodwill impairment		—			59,978			—			59,978
OPERATING INCOME (LOSS)		1,197			(59,743	)		1,971			(60,775	)
Interest expense, net		1,275			4,199			2,506			7,547
Other expense, net		812			674			692			1,410
LOSS BEFORE INCOME TAXES		(890	)		(64,616	)		(1,227	)		(69,732	)
Income tax provision (benefit)		169			(13,794	)		235			(13,400	)
NET LOSS		(1,059	)		(50,822	)		(1,462	)		(56,332	)
Net income (loss) attributable to noncontrolling interests		70			(142	)		292			(48	)
NET LOSS ATTRIBUTABLE TO C&D TECHNOLOGIES, INC.	$	(1,129	)	$	(50,680	)	$	(1,754	)	$	(56,284	)
Loss per share:
Basic and Diluted:	($	0.07	)	$	(48.91	)	($	0.12	)	$	(54.38	)

The accompanying notes are an integral part of these statements.

5

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(UNAUDITED)

	Six months ended
	July 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(1,462	)	$	(56,332	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation		596			533
Depreciation and amortization		5,275			5,176
Amortization of debt acquisition and discount costs		273			2,685
Impairment of goodwill		—			59,978
Deferred income taxes		3			(13,479	)
Changes in assets and liabilities:
Accounts receivable		(7,019	)		231
Inventories		10,054			4,925
Other current assets		393			(21	)
Accounts payable		(5,300	)		(13,405	)
Deferred revenue		(2,258	)		1,775
Accrued liabilities		819			(1,144	)
Book overdraft		(230	)		(401	)
Income taxes payable		(101	)		30
Other current liabilities		(2,310	)		2,518
Other liabilities		2,886			604
Other long-term assets		(20	)		19
Other, net		(725	)		(717	)
Net cash provided by (used in) continuing operating activities		874			(7,025	)
Net cash used in discontinued operating activities		—			(7	)
Net cash provided by (used in) operating activities		874			(7,032	)
Cash flows from investing activities:
Acquisition of property, plant and equipment		(2,521	)		(5,083	)
(Increase) decrease in restricted cash		(276	)		8
Net cash used in investing activities		(2,797	)		(5,075	)
Cash flows from financing activities:
Borrowings on line of credit facility		34,295			51,232
Repayments on line of credit facility		(32,009	)		(55,831	)
Repayment of debt		(623	)		(97	)
Proceeds from new borrowings		4,041			20,022
Proceeds from the issuance of treasury stock		—			14
Financing cost of long term debt		(124	)		(2,245	)
Purchase of treasury stock		—			(71	)
Net cash provided by financing activities		5,580			13,024
Effect of exchange rate changes on cash and cash equivalents		115			33
Increase in cash and cash equivalents		3,772			950
Cash and cash equivalents, beginning of period		3,708			2,700
Cash and cash equivalents, end of period	$	7,480		$	3,650

The accompanying notes are an integral part of these statements.

6

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share data)

(UNAUDITED)

	Three months ended						Six months ended
	July 31,						July 31,
	2011			2010			2011			2010
Net loss	$	(1,059	)	$	(50,822	)	$	(1,462	)	$	(56,332	)
Other comprehensive income, net of tax:
Net unrealized gain/(loss) on derivative instruments		238			39			(295	)		304
Adjustment to recognize pension liability and net periodic pension cost		808			632			1,611			1,180
Foreign currency translation adjustments		297			279			1,072			235
Total comprehensive income (loss)		284			(49,872	)		926			(54,613	)
Comprehensive (income) loss attributable to noncontrolling interests		(160	)		53			(599	)		(42	)
Total comprehensive income (loss) attributable to C&D Technologies, Inc.	$	124		$	(49,819	)	$	327		$	(54,655	)

The accompanying notes are an integral part of these statements.

7

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Fiscal Year Ended January 31, 2011 Annual Report on Form 10-K, filed on May 2, 2011.

On December 21, 2010, the Company filed a previously approved Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock, par value $.01 per share (“Common Stock”) from 75,000,000 to 600,000,000 and to effect a forward stock split, by which each outstanding share of Common Stock were combined and reclassified into 1.37335 shares of Common Stock, such ratio having been determined by the Board of Directors of the Company. As a result of the forward stock split, the issued and outstanding shares of Common Stock were increased on a basis of 1.37335 shares for every one share outstanding.

On January 31, 2011, the holder of a majority of our outstanding Common Stock approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to (i) effect a reverse stock split of the issued and outstanding and treasury Common Stock of the Company, at a reverse stock split ratio of 1-for-35 and (ii) decrease the number of authorized shares of the Company’s Common Stock from 600,000,000 to 25,000,000. The reverse stock split was effective on March 14, 2011. As a result of the reverse stock split, the issued and outstanding shares of Common Stock were decreased on a basis of one share for every thirty-five shares outstanding. All of the stock related information including issued and outstanding Common Stock, stock options, restricted stock, performance stock and loss per share for all periods presented was initially adjusted retrospectively to reflect the forward stock split and has since been adjusted retrospectively to reflect the reverse stock split.

In the fourth quarter of fiscal year 2010, the Company revised the useful lives of certain machinery and equipment assets to more accurately reflect expected useful lives. These assets which were being depreciated over a term of 3 – 10 years are now being depreciated over a term of 3 – 15 years. As a result, for the three and six months ended July 31, 2011 depreciation expense included as cost of sales was reduced by approximately $300 and $600, respectively. The net impact of this change in estimate for the three and six months ended July 31, 2011 were a reduction of basic and fully diluted loss per shares of approximately $0.02 and $0.04, respectively. As a result, for the three and six months ended July 31, 2010 depreciation expense included as cost of sales was reduced by approximately $450 and $900, respectively. The net impact of this change in estimate for the three and six months ended July 31, 2010 were a reduction of basic and fully diluted loss per shares of approximately $0.43 and $0.87, respectively.

2. STOCK-BASED COMPENSATION

The Company granted 60,560 and 1,196,060 stock option awards during the three and six months ended July 31, 2011, respectively, and 492,055 stock option awards during both the three and six months ended July 31, 2010. The Company recorded $364 and $596 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, 2011, respectively, and $133 and $241 during the three and six months ended July 31, 2010, respectively. The impact on loss per share for the six months ended July 31, 2011 and 2010 was $0.04 and $0.23, respectively.

The Company did not grant any restricted stock awards or performance shares during the three and six months ended July 31, 2011. The Company granted 333,558 restricted stock awards and 333,558 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, 2010. The restricted stock awards were to vest ratably over a period of one to four years and the expense recognized over the related vesting period. The Company recorded $170 and $292 of compensation expense related to restricted stock awards in its unaudited consolidated statement of operations for the three

8

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

and six months ended July 31, 2010, respectively. The performance shares were to vest at the end of the performance period upon the achievement of pre-established financial objectives. No compensation expense was recorded for the performance related awards for the three and six months ended July 31, 2010 since the Company, at that time, did not believe that it was probable the performance criteria established would be met.

The following table summarizes information about the stock options outstanding at July 31, 2011:

	OPTIONS OUTSTANDING						OPTIONS EXERCISABLE
			Weighted-						Weighted-
			Average		Weighted-				Average		Weighted-
			Remaining		Average				Remaining		Average
Range of Exercise Prices	Number Outstanding		Contractual Life		Exercise Price		Number Exercisable		Contractual Life		Exercise Price
$     8.00 - $     9.45		1,196,060		6.7 Years	$	8.26		0		6.7 Years	$	8.26
$   33.13 - $   39.00		24,076		4.5 Years	$	35.94		24,076		4.5 Years	$	35.94
$ 108.31 - $ 160.56		15,697		4.3 Years	$	140.11		15,697		4.3 Years	$	140.11
$ 173.55 - $ 232.42		10,900		4.4 Years	$	197.07		10,900		4.4 Years	$	197.07
$ 249.75 - $ 363.93		2,707		3.8 Years	$	256.37		2,707		3.8 Years	$	256.37
$ 408.27 - $ 565.26		6,003		1.6 years	$	471.20		6,003		1.6 Years	$	471.20
		1,255,443		6.6 Years	$	14.83		59,383		4.1 Years	$	147.10

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 to determine the expected life assumption.

The fair value of stock options granted during the three and six months ended July 31, 2011 and 2010 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,
	2011	2010	2011	2010
Risk-free interest rate	1.58%	2.01%-2.63%	1.58%-2.32%	2.01%-2.63%
Dividend yield	0.00%	0.00%	0.00%	0.00%
Volatility factor	68.4%	77.5%-86.6%	67.7%-75.2%	77.5%-86.6%
Expected lives	5.25 Years	4.0 - 5.5 Years	4.5 - 5.25 Years	4.0 - 5.5 Years

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Guidance

In June 2011, the Financial Accounting Standards Board (FASB) amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (i) a continuous statement of comprehensive income or (ii) two separate but consecutive statements. The provisions of this new guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

9

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

The Company is currently evaluating the impact of adoption of this guidance on the Company’s financial statements.

4. INVENTORIES

Inventories consisted of the following:

	July 31, 2011		January 31, 2011
Raw materials	$	19,545	$	20,630
Work-in-process		23,070		22,488
Finished goods		28,639		37,654
Total	$	71,254	$	80,772

5. DEBT

Debt consisted of the following:

	July 31, 2011		January 31, 2011
Credit Facility:
Line of Credit Facility, maximum commitment of $75,000 at July 31, 2011 and January 31, 2011: availability is determined by a borrowing base calculation (includes $20,000 related party loan)	$	46,781	$	44,495
Convertible Senior Notes 2005; due 2025, bears interest at 5.25% net of unamortized discounts of $78 and $95, respectively*		736		719
Convertible Senior Notes 2006; due 2026, bears interest at 5.50%*		1,240		1,240
China Line of Credit; Maximum commitment of 56,000 RMB and 82,000 RMB (approximately $8,691 and $12,415 with an effective interest rate of 6.35% and 5.18% as of July 31, 2011 and January 31, 2011, respectively)		8,578		8,933
China Short-term Loan of 26,000 RMB (approximately $4,035 with an effective interest rate of 5.85% as of July 31, 2011)		4,035		0
Capital leases		115		143
Total debt		61,485		55,530
Less current portion		7,687		2,596
Total long-term portion	$	53,798	$	52,934

* These notes have been classified as current liabilities since the delisting of the Company’s stock by the New York Stock Exchange constituted a fundamental change under the convertible note agreements.

Credit Facility

At July 31, 2011, the Company has a $75,000 principal amount Credit Facility. The Credit Facility consists of (1) an approximately three-year senior revolving line of credit which does not expire until December 22, 2013 (as adjusted by the third amendment to the Credit Agreement described below) with a maximum borrowing capacity of $55,000, determined by a borrowing base calculation and (2) a $20,000 term loan as discussed further below. The availability under the revolving line of credit portion of the Credit Facility is determined by a borrowing base, is collateralized by a first lien on certain assets and bears interest at LIBOR plus 2.50% to 3.00% (as adjusted by the third amendment to the Credit Agreement described below) or Prime plus 1.00% to 1.50% (as adjusted by the third amendment to the Credit Agreement described below) with the rate premium based on the amount outstanding and quarterly average excess availability. As of July 31, 2011, $46,781 was funded under the revolving line of credit portion of the Credit Facility and term loan and $4,682 was utilized for letters of credit. As provided under the

10

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

Credit Facility, excess borrowing capacity will be available for future working capital needs and general corporate purposes.

In April 2010, the Company completed an Amended and Restated Credit Facility Agreement (the “Credit Agreement”). Also, in April 2010, the Company completed a first amendment (“Amendment 1”) to the Credit Agreement. Amendment 1 provided for the addition of a $20,000 term loan tranche that effectively increased the Credit Facility from $55,000 to $75,000. All obligations under the term loan tranche are secured by a first priority lien on all of the Company’s personal property, as well as that of certain of its subsidiaries, as the guarantor, along with certain of its real estate. Repayment of the indebtedness under the term loan tranche is subordinate to the repayment of indebtedness owed under the revolving credit line portion of the Credit Facility. The term loan tranche is payable on December 22, 2013. The term loan tranche bears interest at the rate of 11.0 percent (as adjusted by the third amendment to the Credit Agreement) plus the greater of (i) LIBOR and (ii) 3 percent. The term loan tranche of the credit facility is subject to the same customary affirmative and negative covenants, as well as financial covenants, as stated in the Credit Agreement. In addition, the Company has a requirement to maintain minimum excess availability under the Credit Agreement of $7,500 for periods prior to August 1, 2011 and $10,000 for periods after August 1, 2011. Proceeds from the term loan tranche were utilized to pay down the revolving credit line facility tranche and for general corporate purposes.

On December 14, 2010, the original term loan lender, Ableco, L.L.C. assigned all of its rights and obligations under the Loan agreement in respect to this $20,000 term loan tranche to Silver Oak Capital, L.L.C. an affiliate of Angelo Gordon & Co., L.P. (“AG”) a related party of C&D Technologies, Inc. (See Note 17 for additional information).

The Credit Agreement, as amended, continues to require the Company to maintain a minimum fixed charge coverage ratio of 1.1:1.0 on a consolidated basis which becomes applicable only if the availability under the revolving credit line tranche falls below $7,500 prior to August 1, 2011 adjusting to $10,000 thereafter. As of July 31, 2011, the Company was in compliance with the minimum fixed charge coverage ratio.

In December 2010, the Company completed a second amendment (“Amendment 2”) to the Credit Agreement. This amendment reduced the availability block from $10,000 to $0. In December 2010, the Company completed a third amendment to the Credit Facility. This amendment adjusted the interest rates on the facility adjusting the rate on the Credit Facility and term loan tranches to the rates described above, removing the EBITDA requirements from Amendment 1, revising the availability block to $7,500 for periods prior to August 1, 2011 and $10,000 for periods after August 1, 2011. In addition, the maturity date of the Credit Facility and related term loan tranche were extended to December 22, 2013.

The agreement restricts payments including dividends and Treasury Stock purchases to no more than $250 for Treasury Stock purchases in any one calendar year and $1,750 for dividends for any one calendar year subject to adjustments of up to $400 per year in the case of the conversion of debt to stock per the terms of the indenture governing the 2005 Notes. These restricted payments can only occur with prior notice to the lenders and provided that there is a minimum of $30,000 in excess availability for a period of thirty days prior to the dividend.

The Credit Agreement includes a material adverse change clause which defines an event of default as a material adverse change in the business, assets or prospects. Company lenders could claim a breach under the material adverse change covenant or the cross-default provisions under the Credit Agreement under certain circumstances. An interpretation of events as a material adverse change or any breach of the covenants in the Credit Agreement or the indentures governing the 2005 Notes and 2006 Notes could cause a default under the Credit Agreement and other debt (including the 2005 Notes and 2006 Notes), which would restrict the Company’s ability to borrow under the Credit Agreement, thereby significantly impacting liquidity. The Credit Agreement was amended to waive any default due to the change in control and as a result of any defaults that have or continue to occur under the Indentures governing the 2005 Notes and 2006 Notes.

11

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

Convertible Senior Notes 2005

In fiscal year 2011, the Company issued approximately 8,398,237 shares of Common Stock in exchange for $74,186 aggregate principal amount of the 2005 Notes plus accrued interest. As a result, $736 of the principal amount remains outstanding as of July 30, 2011, net of $78 of unamortized discounts.

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 based on the date that holders can exercise their first put option.

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 conversion rate is 4.6326 shares per $1 principal amount of 2005 Notes, which is equivalent to a conversion price of approximately $215.86 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 (1) upon the occurrence of a fundamental change as defined in the indenture and (2) also 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 $178.40. 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.

Convertible Senior Notes 2006

In fiscal year 2011, the Company issued approximately 5,743,001 shares of Common Stock in exchange for $50,760 aggregate principal amount of the 2006 Notes plus accrued interest. As a result, $1,240 of the principal amount remains outstanding as of July 31, 2011.

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 $51,700, net of $2,800 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 8.1113 shares per $1 principal amount of 2006 Notes, which is equivalent to an initial conversion price of approximately $123.35 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.

12

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

A holder of 2006 Notes may require the Company to repurchase some or all of the holder’s 2006 Notes for cash (1) upon the occurrence of a fundamental change as defined in the indenture and (2) also 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 $109.59. 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.

China Line of Credit

In May 2010, the Company obtained a new line of credit loan with a borrowing capacity of up to 82,000 RMB (approximately $12,726 US Dollars at July 31, 2011) from a local Chinese bank (the “Chinese LOC”), of which 55,270 RMB (approximately $8,578 US Dollars at July 31, 2011) was funded as of July 31, 2011. The Chinese LOC replaces the previous China line of credit which matured in May 2010. The outstanding borrowings under the Chinese LOC of 55,270 RMB as of July 31, 2011 have scheduled maturities of various amounts over the term of the loan with the final payment due in May 2015. This loan is secured by our Chinese manufacturing facility located in Shanghai, China. In connection with a new receivable financing obtained in June 2011, the borrowing capacity under this credit line was reduced to 56,000 RMB (approximately $8,691 US Dollars at July 31, 2011).

As of July 31, 2011 approximately $8,578 (in US Dollars at July 31, 2011) and on January 31, 2011 approximately $8,933 (in US Dollars at January 31, 2011) was funded under this facility.

China Short-term Loan

In June 2011, the Company obtained a short term loan of 26,000 RMB (approximately $4,035 in US Dollars at July 31, 2011) with 9,310 RMB (approximately $1,445 US Dollars at July 31, 2011) due in November 2011 with the remaining 16,690 RMB (approximately $2,590 US Dollars at July 31, 2011) payable in December 2011. This loan is secured by certain accounts receivable balances recorded by our Shanghai, China facility.

6. STATEMENT OF CHANGES IN EQUITY

					Additional								Other								Total
	Common Stock				Paid-In		Treasury Stock						Comprehensive			Accumulated			Noncontrolling		Stockholders’
	Shares		Amount		Capital		Shares			Amount			Income /(Loss)			Deficit			Interest		Equity
BALANCE AT JANUARY 31, 2011		15,306,915	$	153	$	202,350		(110,373	)	$	(39,200	)	$	(43,489	)	$	(38,480	)	$	12,198	$	93,532
Total comprehensive loss:
Fractional shares issued		21
Net loss																	(1,754	)		292		(1,462	)
Foreign currency translation adjustment														765						307		1,072
Unrealized gain on derivative instruments														(295	)							(295	)
Pension liability adjustment														1,611								1,611
Total comprehensive income (loss):														2,081			(1,754	)		599		926
Other changes in equity:
Share based compensation expense						596																596
BALANCE AT JULY 31, 2011		15,306,936	$	153	$	202,946		(110,373	)	$	(39,200	)	$	(41,408	)	$	(40,234	)	$	12,797	$	95,054

13

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

7. INCOME TAXES

	Six months ended July 31,
	2011			2010
Provision for income taxes	$	235		$	(13,400	)
Effective income tax rate		(19.2	%)		19.2	%

Effective tax rates were (19.2%) and 19.2% for the six months ended July 31, 2011 and 2010, respectively. Tax expense for the six months ended July 31, 2011 and 2010 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, the tax benefit for the six months ended July 31, 2010 resulted when the Company recorded a Goodwill Impairment charge in the second quarter of fiscal year 2011 which reversed the deferred tax liability. There was no significant impact to the tax expense related to uncertain tax positions or the interest on uncertain tax positions.

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when, in certain situations, the actual interim period effective tax rate may be used if it provides a better estimate of income tax expense. Due to the Company’s losses in the US, the full valuation allowance in the US, and the relatively small amount of projected US income, it is the Company’s position that the discrete method provides a more accurate estimate of income tax expense for domestic taxes and therefore domestic income tax expense for the current quarter has been presented using that method. Taxes on international earnings continue to be calculated using an estimate of the effective tax rate for the full year.

8. EARNINGS PER SHARE

Basic earnings per common share was computed using net loss and the weighted average number of common shares outstanding during the period. Diluted earnings per common share was computed using net loss 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.

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

	Three months ended						Six months ended
	July 31,						July 31,
	2011			2010			2011			2010
Numerator:
Numerator for basic loss per common share	($	1,129	)	$	(50,680	)	($	1,754	)	$	(56,284	)
Numerator for diluted loss per common share	($	1,129	)	$	(50,680	)	($	1,754	)	$	(56,284	)
Denominator:
Denominator for basic earnings per common share- weighted average common shares		15,196,563			1,036,132			15,196,563			1,034,968
Effect of dilutive securities:
Denominator for diluted earnings per common share- adjusted weighted average common shares and assumed conversions		15,196,563			1,036,132			15,196,563			1,034,968
Basic loss per common share	($	0.07	)	$	(48.91	)	($	0.12	)	$	(54.38	)
Diluted loss from common share	($	0.07	)	$	(48.91	)	($	0.12	)	$	(54.38	)

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C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

The Company has excluded dilutive securities of 13,829 and 769,238 issuable in connection with convertible bonds from the diluted income per share calculation for the three and six months ended July 31, 2011 and 2010, 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 1,254,444 shares for the three and six months ended July 31, 2011, and 104,541 and 104,533 shares for the three and six months ended July 31, 2010, respectively.

9. COMMITMENTS AND CONTINGENCIES

Legal

The Company is involved in ordinary, routine litigation incidental to the conduct of the Company’s business. Except for the matter referenced in the next paragraph below, none of this litigation, individually or in the aggregate, is material or is expected to be material to our business, financial condition or results of operations in any year. SeeBusiness -Environmental Regulationsin the Form 10-K filed on May 2, 2011 for the fiscal year ended January 31, 2011 for a description of certain legal proceedings in which we are involved.

In April and August 2008, pursuant to a Purchase Agreement (the “Murata Purchase Agreement”) dated June 19, 2007 between Murata Manufacturing Co. Ltd. (“Murata Manufacturing”) and C&D, Murata Electronics, North America, Inc. (“Murata Electronics”) as assignee of Murata Manufacturing Co. Ltd. provided to C&D written notices of a claim for indemnification under the Murata Purchase Agreement seeking indemnity and defense costs relating to patent infringement claims asserted by SynQor Inc. against Murata Electronics, Murata Manufacturing and the former C&D companies now known as Murata Power Solutions, Inc. (“MPS”), and numerous other defendant parties. In January 2011, Murata Electronics provided another notice, stating that a judgment had been entered against MPS in the amount of approximately $18,000 in the patent infringement litigation brought by SynQor, Inc. and that MPS had incurred legal fees of approximately $2,000, all for which MPS and Murata Electronics were seeking indemnification and payment under the Murata Purchase Agreement. On August 3, 2011, Murata Electronics and MPS filed a lawsuit against C&D in Delaware Chancery Court, seeking two remedies: (i) specific performance of their alleged indemnity rights under the Murata Purchase Agreement for the approximately $2,000 in legal fees incurred to date by MPS in the litigation with SynQor, Inc. and (ii) a declaratory judgment that Murata Electronics and MPS are entitled to indemnity from C&D for any final, non-appealable judgment in which MPS is found to have infringed SynQor, Inc.’s patents. In their complaint, Murata Electronics and MPS do not specify the amount of indemnification they are seeking. The damages awarded against MPS in the litigation with SynQor, Inc. are currently approximately $20,500. The Murata Purchase Agreement contains a cap of $8,500 on C&D’s indemnity obligation for losses resulting from a breach of its representations and warranties. At this time, C&D does not have sufficient information concerning the lawsuit between Murata Electronics, MPS and SynQor, Inc. to assess the likelihood of C&D’s liability or to make a reasonable estimate of the amount of any such liability.

Environmental

The Company and certain of its key suppliers are subject to extensive and evolving environmental laws and regulations regarding the clean-up and protection of the environment, worker health and safety and the protection of third parties. These laws and regulations include, but are not limited to (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 processes.

Notwithstanding the Company’s efforts to maintain compliance with applicable environmental requirements, if we fail to comply with such requirements or if injury or damage to persons or the environment arises from hazardous substances used, generated or disposed of in the conduct of the Company’s business (or that of a predecessor to the extent the Company is not indemnified therefor), the Company may be held liable for certain damages, the costs of investigation and remediation, and fines and penalties, and the Company’s ability to operate or expand its manufacturing facilities could be restricted, which could have a material adverse effect on the Company’s business, financial condition, or results of operations.

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

15

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

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 other 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 NL’s 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. Additionally, 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, Inc. 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 formulating a work plan for 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 clean-up 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 off-site 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. In 2009, EPA determined that the impact to the two city wells was from sources unrelated to the Company’s property. The EPA also advised that it believes the former landfill is subject to remediation under the 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 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. The Company’s investigation revealed lead contamination in one area and chlorinated solvent contamination in another area, both in soil and groundwater. The Company has submitted work plans to the EPA for remediation of the lead and chlorinated solvent contamination. The Company has timely complied with all investigative and remedial actions required by EPA.

16

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

The Company has conducted site investigations at its Conyers, Georgia facility, and has detected chlorinated solvents in groundwater and lead in soil both on-site and off-site. The Company has recently initiated 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 upon completion of 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 has timely complied with all orders by the Georgia Department of Natural Resources.

The Company accrues for liabilities in its consolidated financial statements and periodically reevaluates the amounts for these liabilities in view of the most current information available in accordance with accounting guidance for contingencies. As of July 31, 2011, accrued environmental liabilities totaled $2,436 consisting of $1,812 in other current liabilities and $624 in other liabilities. Based on currently available information, the Company believes that appropriate accruals 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 some expiring within a few months while others continue into April 2012. The estimated commitments are approximately $38,000 in the twelve months ended July 31, 2012. The Company has also committed to purchase new machinery at an estimated cost of $507 to be installed within the next year.

10. FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s financial instruments at July 31, 2011 and January 31, 2011 were as follows:

	July 31, 2011				January 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	7,480	$	7,480	$	3,708	$	3,708
Debt		61,370		60,774		55,387		54,808
Commodity hedges		5		5		0		0

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

Cash and cash equivalents – the carrying amount approximates fair value because of the short term maturity of these instruments.

The fair value of accounts receivable, accounts payable and accrued liabilities consistently approximate the carrying value due to the short term maturity of these instruments and are excluded from the table above.

Long-term debt – the fair value of the Notes was determined using available market prices as of January 14, 2011 since there has been minimal market activity since then. The carrying value of the Company’s remaining long-

17

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

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.

Commodity hedges – the fair value was determined using available market prices at the balance sheet date of commodity hedge contracts with similar characteristics and maturity dates.

11. DERIVATIVE INSTRUMENTS

Accounting standards related to derivative instruments require that an entity 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.

In the ordinary course of business, the Company may enter into a variety of contractual agreements, such as derivative financial instruments, primarily to manage and to hedge its exposure to currency exchange rate and interest rate risk. All derivatives are recognized on the balance sheet at fair value and are reported in either other current assets or accrued liabilities. For derivative instruments that are designated and qualify as cash flow hedges, the gain on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified from accumulated other comprehensive income (“AOCI”) into earnings when the hedged transaction affects earnings. If any derivatives are not designated as hedges, the gain or loss on the derivative would be recognized in current earnings.

The Company has entered into lead hedge contracts to manage risk of the cost of lead. The agreements are with major financial institutions with maturities generally less than one year. 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.

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 2,367 metric tons of base metals at July 31, 2011 and 0 metric tons at January 31, 2011.

18

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

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

	July 31, 2011		January 31, 2011		Balance Sheet Location
Derivatives designated as hedging instruments:
Commodity Hedges	$	5	$	—	Other current assets
Total fair value	$	5	$	—

The Company estimates that $5 of net derivative gains in AOCI as of July 31, 2011 will be reclassified into earnings in the next twelve months.

						Amount of Gain (Loss)
Derivatives in Cash Flow	Amount of Gain (Loss)					Reclassified from AOCI					Location of Gain (Loss)
Hedging Relationships:	Recognized in OCI					into Income					Reclassified from
	2011		2010			2011		2010			AOCI into Income
Three months ended July 31,
Commodity Hedges	$	243	$	(590	)	$	5	$	(630	)	Cost of Sales
Six months ended July 31,
Commodity Hedges	$	10	$	105		$	323	$	(200	)	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,
	2011			2010
Balance at beginning of period	$	7,576		$	6,481
Current year provisions		2,203			2,386
Expenditures		(1,880	)		(2,285	)
Effect of foreign currency translation		15			0
Balance at end of period	$	7,914		$	6,582

As of July 31, 2011, accrued warranty obligations of $7,914 include $2,940 in current liabilities and $4,974 in other liabilities. As of January 31, 2011, accrued warranty obligations of $7,576 include $3,168 in current liabilities and $4,408 in other liabilities.

19

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

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						Three months ended
	July 31,						July 31,
	2011			2010			2011			2010
Components of net periodic benefit cost:
Service cost	$	348		$	376		$	18		$	18
Interest cost		1,145			1,193			25			30
Expected return on plan assets		(1,161	)		(1,040	)		—			—
Amortization of prior service costs		—			—			(3	)		(198	)
Recognized actuarial loss/(gain)		815			833			(4	)		2
Net periodic benefit cost	$	1,147		$	1,362		$	36		$	(148	)
	Pension Benefits						Postretirement Benefits
	Six months ended July 31,						Six months ended July 31,
	2011			2010			2011			2010
Components of net periodic benefit cost:
Service cost	$	691		$	693		$	36		$	35
Interest cost		2,289			2,334			50			60
Expected return on plan assets		(2,332	)		(2,057	)		—			—
Amortization of prior service costs		—			—			(6	)		(396	)
Recognized actuarial loss/(gain)		1,625			1,584			(8	)		4
Net periodic benefit cost	$	2,273		$	2,554		$	72		$	(297	)

The Company made $0 of contributions to the plan in the six months ended July, 31, 2011. The Company expects to make additional contributions of approximately $5,000 to its plan during fiscal year 2012. The Company also expects to make contributions totaling approximately $177 to the Company sponsored postretirement benefit plan during fiscal year 2012.

14. RESTRUCTURING

On September 14, 2010, the Company announced plans to close its Leola, Pennsylvania manufacturing facility and transfer production to other existing facilities. When complete, the closure plan will result in the elimination of approximately 85 positions. Closure costs incurred through July 31, 2011 include $524 in severance costs, $1,523 in fixed asset impairment charges and $362 in other costs.

A reconciliation of the liability and related activity during the six months ended July 31, 2011, is shown below.

	Balance at January 31, 2011		Provision Additions		Expenditures		Balance at July  31, 2011
Severance	$	406	$	90	$	149	$	347
Other		232		35		267		—
Total	$	638	$	125	$	416	$	347

20

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

15. FAIR VALUE MEASUREMENT

Assets and liabilities subject to fair value measurements primarily consist of the Company’s derivative contracts and investments related to the deferred compensation plan. The Company utilizes the market approach to measure fair value for the Company’s financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The accounting guidance 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.

There were no assets or liabilities held as of January 31, 2011 measured at fair value on a recurring basis. The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis as of July 31, 2011 and the basis for those measurements:

	Total		Level 1		Level 2		Level 3
2011
Commodity hedge asset	$	5	$	0	$	5	$	0

16. GOODWILL AND ASSET IMPAIRMENTS

Goodwill represents the excess of the cost over the fair value of net assets acquired in business combinations. Goodwill is not amortized and is subject to impairment tests. Goodwill is tested for impairment on an annual basis or upon the occurrence of certain circumstances or events. Indicators of potential impairment might include a decline of quoted market prices of the Company’s stock in active markets and/or continuing operating losses. The Company determines the fair value of its reporting units using a combination of financial projections and discounted cash flow techniques adjusted for risk characteristics, also giving consideration to the Company’s overall market capitalization. The fair value of the reporting units is compared to the carrying value of the reporting units to determine if an impairment loss should be calculated. If the book value of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is indicated. The impairment loss is calculated by comparing the implied fair value of the goodwill to the book value of the goodwill. If the book value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss is recorded.

The Company’s implied fair value of goodwill is dependent upon significant judgments and estimates of future discounted cash flows and other factors. The Company’s estimates of future cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Estimated future cash flows are adjusted by an appropriate discount rate at the date of evaluation. The financial and credit market volatility directly impacts the fair value measurement through the weighted average cost of capital that the Company uses to determine the discount rate and through the stock price that is used to determine market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded. Market capitalization is determined by multiplying the shares outstanding on the assessment date by the average market price of the Company’s common stock over a 30-day period before assessment date. The Company uses this 30-day

21

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

duration to consider inherent market fluctuations that may affect any individual closing price. Market capitalization subsequent to the assessment date is also considered.

The Company performs the annual goodwill test in the fourth quarter of the fiscal year for its one reporting unit. Given the recent decrease in market capitalization and continuing operating losses, the Company tested for impairment on July 31, 2010. As a result, the Company first completed an assessment of its long-lived assets within the various asset groupings and determined there were no impairments.

The Company assessed the carrying value of its goodwill by using the two-step, fair-value based test, at July 31, 2010, in accordance with accounting guidance for goodwill and other intangible assets. The first step compared the fair value of the reporting unit to its carrying amount, including goodwill. As the carrying amount of the reporting unit exceeded its fair value, the second step was performed. The second step was performed and determined that the implied fair value of goodwill was in excess of the book value of goodwill, and in connection with this second step, the Company recorded a non-cash pre-tax impairment charge of $59,978 representing the full value of goodwill as of July 31, 2010. As discussed in Note 8, Income Taxes, as a result of the impairment charge the Company no longer has a deferred tax liability related to an indefinite lived intangible. As such, in the quarter ended July 31, 2010, the Company recorded an income tax benefit in the amount of $14,245 for the reversal of this deferred tax liability. As a result the goodwill impairment recorded, net of tax benefits in the quarter ended July 31, 2010 was $45,733.

17. RELATED PARTY TRANSACTIONS

The Company has a $20,000 term loan with Silver Oak Capital, L.L.C. an affiliate of Angelo Gordon & Co., L.P., a related party of the Company, outstanding as of July 31, 2011 and January 31, 2011. During the three and six months ended July 31, 2011, the Company incurred fees of $51 and $102 and interest of $716 and $1,408, respectively, related to this term loan.

On June 16, 2011, the Company announced that it had received a non-binding proposal for a going private transaction from affiliates of Angelo, Gordon & Co. LP, the holder of approximately 65% of the Company’s common stock, at $9.50 per share in cash. The board of directors has formed a special committee of independent directors to consider the proposal. The committee has retained independent financial advisors and legal counsel to assist in its work. The Company cautions its shareholders and others considering trading in its securities that it has only received a non-binding proposal and it is in the process of being evaluated. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.

18. OTHER EXPENSE, NET

Other expense, net as of July 31, 2011 and 2010 consist of:

	Three months ended				Six months ended
	July 31,				July 31,
	2011		2010		2011		2010
Environmental costs, closed facilities	$	0	$	218	$	110	$	882
Going private transaction costs		341		0		341		0
Loss on foreign exchange		342		165		2		114
Other		129		291		239		414
Total Other Expenses	$	812	$	674	$	692	$	1,410

22

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, 2011 compared to Three Months Ended July 31, 2010

Within the following discussion, unless otherwise stated, “quarter” and “three-month” period” refer to the second quarter of fiscal year 2012. All comparisons are with the corresponding period in the prior fiscal year, unless otherwise stated.

Net sales in the second quarter of fiscal year 2012 increased $10,763 or 12.8% to $94,598 from $83,835 in the second quarter of fiscal year 2011. This increase was primarily due to growth in Asia and contractual price increases resulting from the significant increases in the price of lead. Average London Metal Exchange (“LME”) lead prices increased from an average of $0.82 per pound in the second quarter of fiscal year 2011 to $1.15 per pound in the second quarter of fiscal year 2012. This increase was partially offset by continued pressures on volumes as a result of the general economic environment, principally in our North American Uninterruptable Power Supply (“UPS”) markets.

Gross profit in the second quarter of fiscal year 2012 increased $547 or 5.0% to $11,580 from $11,033 in the second quarter of fiscal year 2011. Total gross margin was positively impacted by higher volumes, primarily in Asia. Margins as a percent of sales decreased from 13.2% in the second quarter of fiscal year 2011 to 12.2% in the second quarter of fiscal year 2012. Gross margin as a percent of sales has decreased over the prior year’s comparable quarter primarily due to increased lead prices during the period which were only partially recovered through increased pricing as well as unfavorable product mix shifts and negative absorption as inventory levels were significantly reduced.

Selling, general and administrative expenses in the second quarter of fiscal year 2012 decreased $396 or 4.3% to $8,813 from $9,209. The decrease is primarily due to lower warranty costs of approximately $551 in fiscal year 2012 partially offset by higher severance and restructuring costs of $211. As a percentage of sales, selling, general and administrative expenses decreased to 9.3% in fiscal 2012 compared to 11.0% in the second quarter of fiscal 2011.

Research and development expenses in the second quarter of fiscal year 2012 decreased $19 or 1.2% to $1,570 from $1,589. As a percentage of sales, research and development expenses decreased from 1.9% in the second quarter of fiscal year 2011 to 1.7% in the second quarter of fiscal year 2012. We receive cost reimbursements under a federal government contract related to lithium battery research and development. We recognized $578 of federal government contract cost reimbursements as a reduction in research and development expenses in our consolidated statement of operations for the second quarter of fiscal year 2012, as compared to $206 in the second quarter of fiscal 2011. Government contract cost reimbursements increased in fiscal year 2012 compared to fiscal year 2011 as we have dedicated more resources to work on the project resulting in higher reimbursable expenses.

The Company fully impaired the carrying value of goodwill in the second quarter of fiscal year 2011 resulting in an impairment charge of $59,978. The Company performs the annual goodwill impairment test in the fourth quarter of the fiscal year for its one reporting unit. Given decrease in market capitalization and continuing operating losses in the prior fiscal year, the Company tested for impairment on July 31, 2010. As a result, the Company first completed an assessment of its long-lived assets within the various asset groupings. The Company assessed the carrying value of its goodwill by using the two-step, fair-value based test, at July 31, 2010, in accordance with accounting guidance for goodwill and other intangible assets. The first step compared the fair value of its reporting unit to its carrying amount, including goodwill. As the carrying amount of the reporting unit exceeded its fair value, the second step was performed. The second step was performed and determined that the implied fair value of goodwill was in excess of the book value of goodwill, and in connection with this second step, the Company recorded a non-cash pre-tax goodwill impairment charge of $59,978 representing the full value of goodwill as of July 31, 2010. Also, as discussed below, as a result of the impairment charge the Company no longer has a deferred tax liability related to an indefinite lived intangible. As such, in the quarter ended July 31, 2010, the Company recorded an income tax benefit in the amount of $14,245 for the reversal of this deferred tax liability.

23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

Operating income in the second quarter of fiscal year 2012 was $1,197 compared to a loss of $59,743 in the second quarter of fiscal year 2011. The change is mainly due to the non-recurring goodwill impairment charge that was recorded in fiscal year 2011, increase in gross margin and the reduction in selling, general and administrative expenses, as discussed above.

Analysis of Change in Operating Income for the second quarter of fiscal year 2012 vs. fiscal year 2011:

Fiscal Year 2012 vs. 2011
Operating Loss Three months ended July 31, 2010	$	(59,743	)
Lead, net		(4,361	)
Price / Volume / Mix		5,144
Goodwill impairment		59,978
Warranty		551
Pension		216
Severance and restructuring		(211	)
Other		(377	)
Operating Income Three months ended July 31, 2011	$	1,197

Interest expense, net, in the second quarter of fiscal year 2012 decreased $2,924 or 69.6% to $1,275 from $4,199 in the second quarter of fiscal year 2011, primarily due to the debt for equity exchange completed in the fourth quarter of fiscal year 2011. This exchange reduced the outstanding balances on the convertible notes by approximately $125,000 which was partially offset by higher average debt balances on the credit facility in the second quarter of fiscal 2012, compared to the second quarter for fiscal 2011.

Other expense was $812 in the second quarter of fiscal year 2012 compared to $674 in the second quarter of fiscal year 2011. The increase was primarily due to costs incurred related to our going private transaction of $341 in fiscal year 2012 and currency remeasurement losses of $342 in the second quarter of fiscal year 2012 compared to $165 in the second quarter of fiscal year 2011 partially offset by higher environmental costs in the second quarter of fiscal year 2011 of $218.

Income tax expense of $169 was recorded in the second quarter of fiscal year 2012, compared to income tax benefit of $13,794 in the second quarter of fiscal year 2011. Tax expense in the second quarter of fiscal year 2012 was primarily due to foreign taxes on profits which were not offset by losses for which no tax benefit is recognized. Tax benefit in the second quarter of fiscal year 2011 is primarily a result of the goodwill impairment charge discussed above, whereby the Company no longer has a deferred tax liability related to an indefinite lived intangible. As such, in the quarter ended July 31, 2010, the Company recorded an income tax benefit in the amount of $14,245 for the reversal of this deferred tax liability, offset by foreign tax expense on profits which were not offset by losses.

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows the use of the discrete method when, in certain situations, the actual interim period effective tax rate may be used if it provides a better estimate of income tax expense. Due to our losses in the US, the full valuation allowance in the US, and the relatively small amount of projected US income, it is our position that the discrete method provides a more accurate estimate of income tax expense for domestic taxes and therefore domestic income tax expense for the current quarter has been presented using that method. Taxes on international earnings continue to be calculated using an estimate of the effective tax rate for the full year.

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 income attributable to Noncontrolling interest was $70 in

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

fiscal year 2012 compared to a net loss attributable to Noncontrolling interest of $142 in fiscal year 2011. The increase was driven by higher profitability in the joint venture driven by increased sales volume.

As a result of the above, net loss attributable to C&D Technologies, Inc. of $1,129 was recorded in the second quarter of fiscal year 2012 as compared to $50,680 in the comparable period in the prior year. Basic and diluted losses per share were $0.07 and $48.91 in the second quarter of fiscal year 2012 and 2011, respectively.

Comprehensive income attributable to C&D Technologies, Inc. increased by $49,943 in the second quarter of fiscal year 2012 to income of $124 compared to a loss of $49,819 in the second quarter of fiscal year 2011. This decrease was due primarily to the decrease in net loss attributable to C&D from $50,680 in the second quarter of fiscal 2011 to $1,129 in the second quarter of fiscal year 2012, an unrealized gain on derivative instruments of $238 in the second quarter of fiscal year 2012 compared to $39 in second quarter of fiscal year 2011, an increase in pension liability adjustments to $808 in fiscal year 2012 compared to $632 in fiscal year 2011 partially offset by an increase in comprehensive income attributable to noncontrolling interests of $160 in fiscal year 2012 compared to a loss of $53 in fiscal year 2011.

Six Months Ended July 31, 2011 compared to Six Months Ended July 31, 2010

Net sales for the six months ended July 31, 2011 increased $14,371 or 8.5% to $182,909 from $168,538 in the six months ended July 31, 2010. This increase was primarily due to strong growth in Asia and contractual price increases resulting from the significant increases in the price of lead compared to the same period in the prior fiscal year. Average London Metal Exchange (“LME”) prices increased from an average of $0.91 per pound in the six months ended July 31, 2010 to $1.18 per pound in the six months ended July 31, 2011. The increase in lead prices and growth of the Company’s Asia business was partially offset by continued pressures on volumes as a result of the general economic environment, principally in our North American UPS sales channel.

Gross profit for the six months ended July 31, 2011 increased $3,373, or 16.0%, to $24,384 from $21,011 in the six months ended July 31, 2010. Gross margins increased to 13.3% from 12.5% in the prior year. Gross margin has improved over the prior year’s comparable quarter primarily due to higher volumes in Asia, favorable product mix shifts and cost reduction actions.

Selling, general and administrative expenses for the six months ended July 31, 2011, increased $817 or 4.4% to $19,248 from $18,431 in the prior year. The increase is primarily due to severance and restructuring charges in the six months ended July 31, 2011 of $890. As a percentage of sales, selling, general and administrative expenses were 10.5% and 10.9% in the six months ended July 31, 2011 and 2010, respectively.

Research and development expenses for the six months ended July 31, 2011 decreased $212 or 6.3% to $3,165 from $3,377 in the six months ended July 31, 2010. As a percentage of sales, research and development expenses decreased from 2.0% in the six months ended July 31, 2010 to 1.7% in the six months ended July 31, 2011. We receive cost reimbursements under a federal government contract related to lithium battery research and development. We recognized $1,241 of federal government contract cost reimbursements as a reduction in research and development expenses in our consolidated statement of operations for the six months ended July 31, 2011, as compared to $386 in the six months ended July 31, 2010. Government contract cost reimbursements increased in fiscal year 2012 compared to fiscal year 2011 as we have dedicated more resources to work on the project resulting in higher reimbursable expenses.

The Company fully impaired the carrying value of goodwill in the six months ended July 31, 2010 resulting in an impairment charge of $59,978. The Company performs the annual goodwill impairment test in the fourth quarter of the fiscal year for its one reporting unit. Given decrease in market capitalization and continuing operating losses in the prior fiscal year, the Company tested for impairment on July 31, 2010. As a result, the Company first completed an assessment of its long-lived assets within the various asset groupings. The Company assessed the carrying value of its goodwill by using the two-step, fair-value based test, at July 31, 2010, in accordance with accounting guidance for goodwill and other intangible assets. The first step compared the fair value of its reporting unit to its carrying amount, including goodwill. As the carrying amount of the reporting unit exceeded its fair value, the second step was performed. The second step was performed and determined that the implied fair value of

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

goodwill was in excess of the book value of goodwill, and in connection with this second step, the Company recorded a non-cash pre-tax goodwill impairment charge of $59,978 representing the full value of goodwill as of July 31, 2010. Also, as discussed below, as a result of the impairment charge the Company no longer has a deferred tax liability related to an indefinite lived intangible. As such, in the six months ended July 31, 2010, the Company recorded an income tax benefit in the amount of $14,245 for the reversal of this deferred tax liability.

Operating income for the six months ended July 31, 2011 was $1,971 compared to a loss of $60,775 in the six months ended July 31, 2010. The change is primarily the non-recurring goodwill impairment taken in the prior year, improved margins and lower research and development expenses partially offset by increased selling, general and administrative costs and, as discussed above.

Analysis of Change in Operating Loss for the six months ended July 31, 2011 vs. the six months ended July 31, 2010:

Fiscal Year 2012 vs. 2011
Operating Loss Six months ended July 31, 2010	$	(60,775	)
Lead, net		(6,482	)
Price / Volume / Mix		9,970
Goodwill impairment		59,978
Warranty		184
Pension		282
Decrease in research and development costs		212
Severance and restructuring		(891	)
Other		(507	)
Operating Income Six months ended July 31, 2011	$	1,971

Interest expense, net, for the six months ended July 31, 2011, decreased $5,041 or 66.8% to $2,506 from $7,547 for the six months ended July 31, 2010, primarily due to the debt for equity exchange completed in the fourth quarter of fiscal year 2011. This exchange reduced the outstanding balances on the convertible notes by approximately $125,000 which was partially offset by higher average debt balances on the credit facility in the first six months of fiscal 2012 compared to fiscal year 2011.

Other expense was $692 for the six months ended July 31, 2011 compared to $1,410 for the six months ended July 31, 2010. The decrease was primarily due to recording $900 to increase our environmental reserves related to previously closed and/or disposed facilities in fiscal year 2011, partially offset by costs related to our going private transaction of $341 in fiscal year 2012.

Income tax expense of $235 was recorded in the six months ended July 31, 2011 compared to an income tax benefit of $13,400 for the six months ended July 31, 2010. Tax expense for the six months ended July 31, 2011 was primarily related to foreign taxes on profits and domestic losses for which no tax benefit was recorded. Tax benefit for the six months ended July 31, 2010 is primarily a result of the goodwill impairment charge discussed above, whereby the Company no longer has a deferred tax liability related to an indefinite lived intangible. As such, for the six months ended July 31, 2010, the Company recorded an income tax benefit in the amount of $14,245 for the reversal of this deferred tax liability, offset by foreign tax expense on profits which were not offset by losses.

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows the use of the discrete method when, in certain situations, the actual interim period effective tax rate may be used if it provides a better estimate of income tax expense. Due to our losses in the US and the full valuation allowance in the US, it is our position that the discrete method provides a more accurate estimate of income tax expense for domestic taxes and therefore domestic income tax expense for the current quarter has been presented using that method. Taxes on international earnings continue to be calculated using an estimate of the effective tax rate for the full year.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

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, 2011, the joint venture had net income attributable to noncontrolling interest of $292 compared to a net loss attributable to noncontrolling interest of $48 in the six months ended July 31, 2010. The increase was driven by higher profitability in the joint venture driven by increased sales volume.

As a result of the above, net loss attributable to C&D of $1,754 was recorded compared to $56,284 in the prior year. Basic and diluted losses per share were $0.12 and $54.38 in the first six months of fiscal year 2012 and 2011, respectively.

Comprehensive income attributable to C&D Technologies, Inc. decreased by $54,982 in the first six months of fiscal year 2012 to $327 for the six months ended July 31, 2011 compared to a loss of $54,655 in the six months ended July 31, 2010. This decrease was primarily due to the net loss attributable to C&D Technologies of 1,754 in the six months ended July 31, 2011 as compared to $56,284 in the comparable period at the previous fiscal year, a increase in the pension liability adjustment to $1,611 in fiscal year 2012 from $1,180 in fiscal year 2011 and an increase in foreign currency translation adjustments to $1,072 for the six months ended July 31, 2011 from $235 in fiscal year 2011 partially offset by an unrealized loss on derivative instruments of $295 in the first six months of fiscal year 2012 compared to income of $304 in first six months of fiscal year 2011 and an increase in comprehensive income attributable to noncontrolling interests of $599 in the six months ended July 31, 2011 compared to $42 in fiscal year 2011.

Liquidity and Capital Resources

Net cash provided by operating activities was $874 for six months ended July 31, 2011, as compared to cash used in operating activities of $7,032 in the comparable period of the prior fiscal year. This is primarily the result of (i) a reduction in the net loss to $1,462 in the current fiscal year compared to $10,599 (after adjusting for the non-cash charges related to the goodwill impairment, net of taxes of $45,733) as a result of improved operating performance and lower interest expense as a result of our financial restructuring in the fourth quarter of fiscal year 2011, (ii) a significant increase in cash provided by inventory of $10,054 in the current fiscal year compared to $4,925 in the prior fiscal year driven by operational improvements and improved management of inventory and (iii) a reduction in accounts payable of $5,300 in the current fiscal year compared to $13,405 in the prior fiscal year due to lower lead costs and trade credit tightening in fiscal year 2011. These changes were partially offset by an increase in accounts receivable of $7,019 in the current fiscal year compared with a decrease of $231 in the prior fiscal year driven by increased sales partially offset by improved inventory management.

Net cash used in investing activities was $2,797 in the first six months of fiscal year 2012 as compared to $5,075 in the first six months of fiscal year 2011. In fiscal year 2012, the Company had purchases of property, plant and equipment of $2,521 compared with $5,083 in the prior year. Capital expenditures have been principally in support of growth in our Asian operations and scheduled maintenance activities. In addition, there was an increase in restricted cash of $276 related to commodity hedging activities in the first six months of fiscal 2012 compared to a decrease of $8 in the prior fiscal year.

Net cash provided by financing activities decreased $7,444 to $5,580 for the six months ended July 31, 2011, as compared to $13,024 in the comparable period of the prior fiscal year. Proceeds from the short-term loan in China obtained during the second quarter of fiscal year 2012 and net borrowings under the Company’s Credit Facility, offset by debt acquisition costs, were the primary sources of cash provided by financing activities in fiscal year 2011 and fiscal year 2012. The decrease in borrowings in the current fiscal year is the result of improved cash flow from operations as well as lower capital expenditures in the current fiscal year.

Our liquidity is primarily determined by our availability under the Credit Facility, our unrestricted cash balances and cash flows from operations. If our cash requirements exceed the cash provided by our operating activities, then we would look to our unrestricted cash balances and the availability under our Credit Facility to satisfy those needs. Important factors and assumptions made by us when considering future liquidity include, but are not limited to, the stabilization of lead prices, future demand from customers, continued sufficient availability of

27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

credit from our trade vendors and the ability to re-finance or obtain debt in the future. To the extent unforeseen events occur or operating results are below forecast, we believe we can take certain actions to conserve cash, such as delay major capital investments, other discretionary spending reductions or pursue financing from other sources to preserve liquidity, if necessary. Despite these potential actions, if we are not able to satisfy our cash requirements in the near term from cash provided by operating activities, or through access to our Credit Facility, we may not have the minimum levels of cash necessary to operate the business on an ongoing basis.

Our liquidity derived from the Credit Facility, as amended, is based on availability determined by a borrowing base. In addition, the Credit Facility requires the Company to meet a minimum fixed charge coverage ratio if the excess availability falls below $7,500 through August 31, 2011, adjusted to $10,000 thereafter. The fixed charge coverage ratio for the last twelve consecutive fiscal month period shall be not less than 1.10:1.00. As of July 31, 2011, the Company was in compliance with the fixed charge coverage ratio. The Credit Facility also previously included minimum EBITDA requirements beginning with our quarter ending April 30, 2011. Pursuant to an amendment to the Credit Facility in December 2010 these minimum EBITDA requirements were eliminated for the duration of the term of the Credit Facility.

As a result of favorable Credit Facility amendments and improving operating performance, we believe that, for the next twelve months, cash generated from operations together with availability under our Existing Credit Facility will be sufficient to allow us to fund its operations and to increase working capital as necessary to support our strategy.

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. Our current credit facility does not expire until December, 2013. As of July 31, 2011, the maximum availability calculated under the borrowing base was approximately $72,493, of which $46,781 was funded (including $20,000 from the term loan tranche), and $4,682 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.

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 2012 to be approximately $9,000 related primarily to growth in Asia and routine maintenance activities. In the third quarter of fiscal year 2012, we expect to make Approximately $5,000 in pension contributions.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

Contractual Obligations and Commercial Commitments

The following tables summarize the Company’s contractual obligations and commercial commitments as of July 31, 2011:

	Payments Due by Period
Contractual Obligations:	Total		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Debt*	$	61,448	$	7,705	$	50,830	$	2,913	$	0
Interest payable on notes*		11,505		4,543		6,508		454		0
Operating leases		6,990		1,414		2,557		1,863		1,156
Projected – lead purchases**		38,000		38,000		0		0		0
Equipment		507		507		0		0		0
Capital Leases		115		60		43		12		0
Total contractual cash obligations	$	118,565	$	52,229	$	59,938	$	5,242	$	1,156

* These amounts assume that the convertible notes are current liabilities, show the Credit Facility as paid in fiscal year 2014 and include interest on the Credit Facility through fiscal year 2014 calculated at the same rate and outstanding balance at July 31, 2011 and assume the China debt up through fiscal year 2015.

** Amounts are based on the cash price of lead at July 31, 2011 which was $1.19.

	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	$	4,682	$	1,163	$	62	$	3,457	$	0
Total commercial commitments	$	4,682	$	1,163	$	62	$	3,457	$	0

29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(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 (the “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 of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (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 or to obtain additional funding in the future.

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 Supplementary Data, included in the Company’s Form 10-K annual report for the year ended January 31, 2011 and the following general factors:

• our ability to maintain and generate liquidity to meet our operating needs, as well as our ability to fund and implement business strategies, acquisitions and restructuring plans;

• 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 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 proceedings to which we are subject or may in the future become subject to, 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 and which are subject to limitation as a result of changes in ownership of the Company;

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

• failure of our customers to renew agreements with us;

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

• loss of a single source or other key supplier;

30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

• 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, changes in VAT regulations or other tax regulations, currency restrictions, currency exchange rate fluctuations and possible terrorist attacks against the United States interests;

• 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;

• uncertainty in financial markets;

• our success or timing of new product development;

• impact of any changes in our management;

• 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 impact on our operations; and

• our ability to protect our proprietary intellectual property and technology and ensure that we are not infringing the intellectual property of others.

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, 2011.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(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 its 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 are set forth in Part I, Item 1A – “Risk Factors” of the Company’s Fiscal Year 2011 Annual Report on Form 10-K, filed with the SEC on May 2, 2011, which should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the Company’s first fiscal quarter and this Quarterly Report on Form 10-Q.

Item 4. 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. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s controls and procedures are effective in recording, processing, summarizing and reporting, 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.

Internal Control over Financial Reporting:

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.

32

PART II. OTHER INFORMATION

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

Issuer Purchases of Equity Securities:

NONE

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 2011.

Item 6. Exhibits.

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Exhibit Number	Filed Herewith
12.1	Computation of Ratio of Earnings to Fixed Charges				X
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 Senior 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 Senior 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
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation
101.DEF*	XBRL Taxonomy Extension Definition

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

33

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 7, 2011	By:	/s/ Jeffrey A. Graves
		Jeffrey A. Graves
		President, Chief Executive Officer and Director (Principal Executive Officer)
September 7, 2011	By:	/s/ Ian J. Harvie
		Ian J. Harvie
		Senior Vice President Finance and Chief Financial Officer (Principal Financial Officer)

34

EXHIBIT INDEX

12.1	Computation of Ratio of Earnings to Fixed Charges
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 Senior 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 Senior 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
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation
101.DEF*	XBRL Taxonomy Extension Definition

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

35