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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2004

or

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

For the transition period from ____________ to ____________

Commission file number 1-9389

C&D TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)

State or other jurisdiction of incorporation or organization: Delaware

I.R.S. Employer Identification Number: 13-3314599

Address of principal executive offices: 1400 Union Meeting Road
Blue Bell, Pennsylvania 19422

Registrant's telephone number, including area code: (215) 619-2700

Securities registered pursuant to Section 12(b) of the Act:

Title of Class Name of each exchange
-------------- on which registered
Common Stock, -----------------------
par value $.01 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes |x| No |_|

Aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the Registrant, based on the closing price on July 31, 2003:
$380,896,402

Number of shares outstanding of each of the Registrant's classes of common
stock as of April 7, 2004: 25,403,472 shares of Common Stock, par value $.01 per
share.

Documents incorporated by reference:



Portions of Registrant's Proxy Statement Part III
to be filed pursuant to Regulation 14A (Part of Form 10-K into which
within 120 days after the end of Registrant's Document is incorporated)
fiscal year covered by this Form 10-K





TABLE OF CONTENTS

Page
----
Part I

Item 1 Business ............................................... 1
Item 2 Properties ............................................. 14
Item 3 Legal Proceedings ...................................... 15
Item 4 Submission of Matters to a Vote of
Security Holders ................................... 15

Part II

Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters .................... 16
Item 6 Selected Financial Data ................................ 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 19
Item 7A Quantitative and Qualitative Disclosure
About Market Risk .................................. 28
Item 8 Financial Statements and Supplementary Data ............ 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............. 29
Item 9A Controls and Procedures ................................ 29

Part III

Item 10 Directors and Executive Officers of the Registrant ..... 30
Item 11 Executive Compensation ................................. 30
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters ................................ 30
Item 13 Certain Relationships and Related Transactions ......... 30
Item 14 Principal Auditor Fees and Services .................... 30

Part IV

Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................ 31

Signatures ............................................................. 36

Index to Financial Statements and Financial Statement Schedule.......... F-1


I


C&D TECHNOLOGIES, INC.

PART I

Item 1. Business

About Our Company

C&D Technologies, Inc. (together with its operating subsidiaries, "we,"
"our" or "C&D") is a technology company that produces and markets systems for
the conversion and storage of electrical power, including reserve power systems
and embedded, high frequency switching power supplies. Our integrated reserve
power systems are comprised of the following:

o industrial lead acid batteries;

o power rectifiers;

o power control equipment;

o power distribution equipment; and

o related accessories.

Our power supplies are comprised of the following:

o DC to DC converters;

o AC to DC and DC to DC power supplies;

o Magnetics (transformers and inductors); and

o custom architectures.

Common applications for our power supply product and system portfolio
include:

o telecommunications equipment, including optical switches, remote
switches, Voice Over Internet Protocol (VOIP), central office
backup;

o data centers and networked (LAN and WAN) computing architecture;

o high availability industrial computing;

o industrial temperature control systems;

o industrial imaging equipment;

o displays (signs, scanning equipment);

o broadband cable television ("CATV") powering;

o advanced office electronic machines, such as digital copiers; and

o motive power systems for electric industrial vehicles.

We sell both individual components and integrated power systems.

We were organized in November 1985 to acquire all the assets of the
eighty-year old C&D Power Systems Division (the "Division") of Allied
Corporation ("Allied"). The Division's business essentially was unchanged by the
acquisition, which was completed on January 28, 1986. Shares of our Common
Stock, par value $.01 per share ("Common Stock"), were first issued to the
public in February 1987.

In March 1999, we purchased substantially all of the assets of the
Specialty Battery Division of Johnson Controls, Inc. ("JCI"), a Milwaukee,
Wisconsin-based designer, manufacturer, marketer and distributor of industrial
batteries. These assets included all of the ordinary shares of Johnson Controls
Battery (U.K.) Limited, an indirect wholly owned subsidiary of JCI. In addition,
in August 1999, we acquired JCI's 67%


1


ownership interest in a joint venture battery business in Shanghai, China. The
joint venture manufactures and markets industrial batteries. For reporting
purposes, we have re-named the Specialty Battery Division and JCI's 67%
ownership interest in the joint venture battery business in Shanghai, China, the
Dynasty Division.

In June 2000, we completed a two-for-one stock split, effected in the form
of a 100% stock dividend.

In December 2000 (effective as of November 26, 2000), we acquired the
Newport Components Division of Newport Technology Group Limited, a producer of
electronic power conversion products (primarily DC to DC converters) based in
the United Kingdom. For reporting purposes, this acquisition is included as part
of the Power Electronics Division and is referred to as C&D Technologies (NCL)
Limited ("NCL").

In September 2003, we acquired certain assets from Matsushita Battery
Industrial Corporation of America and Matsushita Battery Industrial de Mexico,
S.A. de C.V. Acquired assets included a 240,000 square foot facility, in
Reynosa, Mexico and the equipment in the facility historically used for the
manufacture of large, valve regulated lead acid batteries for standby power
applications. In addition, we entered into a worldwide technology license
agreement with Matsushita Battery Industrial Co. Ltd. of Japan for selected
patents and know-how relating to the manufacturing technology for the
aforementioned products. For reporting purposes, the acquisition of the Reynosa
facility and associated operating results are included in the Powercom Division.

Fiscal Year

Our fiscal year ends on the last day of January. Any references to a
fiscal year means the 12-month period ending January 31 of the year mentioned.

Forward-Looking Statements

Certain of the statements and information contained in this Form 10-K are
"forward-looking statements" (within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
and, accordingly, are subject to risks and uncertainties. For such statements,
we claim the protection of the safe-harbor for forward-looking statements
contained in the Private Securities Litigation Act of 1995. The factors that
could cause actual results to differ materially from anticipated results
expressed or implied in any forward-looking statement include those referenced
in the forward-looking statement, following the forward-looking statement,
described in the notes to the Consolidated Financial Statements and other
factors discussed in this Form 10-K and our other filings with the Securities
and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Form
10-K. We undertake no obligation to update or revise these statements to reflect
events or circumstances occurring after the date of this Form 10-K.

Forward-looking statements may be identified by their use of words like
"plans," "expects," "will," "anticipates," "intends," "may," "projects,"
"estimates," "believes" or other words of similar meaning. All statements that
address expectations or projections about the future, including, but not limited
to, statements about our strategy for growth, product development, market
position, market conditions, expenditures and financial results, are
forward-looking statements. Forward-looking statements are based on certain
assumptions and expectations of future events. We cannot guarantee that these
assumptions and expectations are accurate or will be realized. Following are
some of the important factors that could cause our actual results to differ
materially from those projected in any such forward-looking statements:

o We operate worldwide and derive a portion of our revenue from sales
outside the United States. Changes in the laws or policies of
governmental and quasi-governmental agencies, as well as social and
economic conditions, in the countries in which we operate (including
the United States) could


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affect our business and our results of operations. In addition,
economic factors (including inflation and fluctuations in interest
rates and foreign currency exchange rates) and competitive factors
(such as price competition and business combinations of competitors)
or a decline in industry sales or cancelled or delayed orders due to
economic weakness or changes in economic conditions, either in the
United States and other countries in which we conduct business could
affect our results of operations. (See Item 1. Business -
International Operations, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Impact
of the Economy and Shift in Customer Demand, and Item 7A.
Quantitative and Qualitative Disclosure About Market Risk - Market
Risk Factors.)

o Terrorist acts or acts of war, whether in the United States or
abroad, could cause damage or disruption to our operations, our
suppliers, channels to market or customers, or could cause costs to
increase, or create political or economic instability, any of which
could have a material adverse effect on our business.

o Our results of operations could be adversely affected by conditions
in the domestic and global economies or the markets in which we
conduct business, such as telecommunications, UPS, CATV, switchgear
and control and material handling.

o Our ability to grow earnings could be affected by increases in the
cost of raw materials, particularly lead, the primary constituent of
our battery products, or other product parts or components. We may
not be able to fully offset the effects of higher costs of raw
materials through price increases or productivity improvements. A
significant increase in the price of one or more raw materials,
parts or components could have a material adverse effect on our
operations. (See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Raw Material Pricing
and Productivity; and Inflation.)

o Our ability to meet customer demand depends, in part, on our ability
to obtain timely and adequate supply and delivery of raw materials,
including lead, which is the primary constituent of our battery
products or other product parts or components from our suppliers and
internal manufacturing capacity. Although we work closely with both
our internal and external suppliers (and, as to the continuing
availability of lead, our industry associations) to avoid
encountering unavailability or shortages, there can be no assurance
that we will not encounter them in the future. The cessation,
reduction or interruption of supply of raw materials (including
lead), product parts or components, could have a material adverse
effect on our operations.

o Our growth objectives are largely dependent on our ability to renew
our pipeline of new products and to bring these products to market.
This ability may be adversely affected by difficulties or delays in
product development, such as the inability to: introduce viable new
products; successfully complete research and development projects or
integrate purchased or licensed technology; obtain adequate
intellectual property protection; or gain market acceptance of the
new products. Our growth could also be affected by new competitive
products and technologies.

o As part of our strategy for growth, we have made and may continue to
make acquisitions, and in the future, may make divestitures and form
strategic alliances. There can be no assurance that these will be
completed or beneficial to us.

o We have undertaken and may continue to undertake productivity
initiatives, including re-organizations to improve performance or
generate cost savings. In addition, we may from time to time
relocate or consolidate one or more of C&D's operations. There can
be no assurance that any planned performance improvements or cost
savings from such activities will be realized or that delays or
other interruptions in production or delivery of products will not
occur as the result of any


3


relocation or consolidation. Further, there can be no assurance that
any of these initiatives will be completed or beneficial to C&D.

o Our facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental
laws and regulations, as well as participation in voluntary
programs, are significant and will continue to be so for the
foreseeable future. We are also subject to potentially significant
fines and penalties for non-compliance with applicable laws and
regulations. Our accruals for such costs and liabilities may not be
adequate since the estimates on which the accruals are based depend
on a number of factors including, but not limited to, the nature of
the problem, the complexity of the issues, the nature of the remedy,
the outcome of discussions with regulatory agencies and/or the
government or third parties and, as applicable, other potentially
responsible parties ("PRPs") at multiparty sites, the number and
financial viability of other PRPs and risks associated with
litigation. (See Business - Environmental Regulations.)

o We are exposed to the credit risk of our customers, including risk
of insolvency and bankruptcy. Although we have programs in place to
monitor and mitigate the associated risk, there can be no assurance
that such programs will be effective in reducing our credit risks or
risks associated with potential bankruptcy of our customers. (See
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.)

o Our business, results of operations and financial condition could be
affected by significant pending and future litigation or claims
adverse to us. These could potentially include, but are not limited
to, the following: product liability, contract, employment-related,
labor relations, personal or property damage or stockholder claims
and claims arising from any injury or damage to persons, property or
the environment from hazardous substances used, generated or
disposed of in the conduct of our business (or that of a predecessor
to the extent we are not indemnified for those liabilities). (See
Item 3. Legal Proceedings.)

o Our performance depends on our ability to attract and retain
qualified personnel. We cannot assure that we will be able to
continue to attract or retain qualified personnel.

o Our bank loan agreement permits dividends to be paid on our Common
Stock as long as there is no default under that agreement. Subject
to that restriction and the provisions of Delaware law, our Board of
Directors currently intends to continue paying dividends. We cannot
assure you that we will continue to do so since future dividends
will depend on our earnings, financial condition and other factors.

o Our overall profitability may not meet expectations if our products,
customers or geographic mix are substantially different than
anticipated. Our profit margins vary among products, customers and
geographic markets. Consequently, if our mix of any of these is
substantially different from what is anticipated in any particular
period, our earnings could be lower than anticipated.

o In spite of having a disaster recovery plan in place, infrastructure
failures could have a material adverse effect on our business. We
are highly dependent on our systems infrastructure in order to
achieve our business objectives. If we experience a problem that
impairs our infrastructure, such as a power outage, computer virus,
intentional disruption of information technology systems by a third
party, equipment failure or telephone system failure, the resulting
disruptions could impede our ability to book or process orders,
manufacture and ship products in a timely manner or otherwise carry
on our business in the ordinary course. Any such events could cause
C&D to lose significant customers or revenue and could require C&D
to incur significant expense to eliminate these problems and address
related security concerns.


4


The foregoing list of important factors is not all inclusive, or necessarily in
order of importance.

Reportable Segments

Our operations are classified into the following reportable business
segments:

o Dynasty Division

o Powercom Division

o Power Electronics Division

o Motive Power Division

Segments are determined using the "management approach," which means the
way management organizes the segments within the enterprise for making operating
decisions and assessing performance. Effective February 1, 2004, we combined the
Dynasty and Powercom divisions into the newly created Standby Power Division.

The financial information regarding our four business segments, which
includes net sales and operating income for each of the three years in the
period ended January 31, 2004, is provided in Note 15 to the Consolidated
Financial Statements. See Part II, Item 8.

The Market for Our Products

We manufacture and market products in the following general categories by
business segment:

o Dynasty Division - industrial batteries used in uninterruptible
power supplies ("UPS") applications for computer systems and
corporate data networks, telecommunications reserve power systems
and CATV signal powering;

o Powercom Division - fully integrated reserve power systems and
components for the standby power market, which includes
telecommunications, UPS, utilities and solar;

o Power Electronics Division - custom, standard and modified standard
DC to DC converters, embedded high frequency AC to DC and DC to DC
switching power supplies and magnetics (transformers and inductors);
and

o Motive Power Division - motive power systems for the material
handling equipment market.

We market our products through independent manufacturer's representatives,
national and global distributors, specialty resellers and our own sales
personnel to end users and original equipment manufacturers ("OEMs").

We sell some products to the U.S. Government. These sales accounted for
less than 5% of our total company sales during each of our last three fiscal
years.

Products and Customers by Business Segment

Dynasty Division - Reserve Power Batteries

Through our Dynasty Division, we design, manufacture and distribute
valve-regulated (sealed) batteries for use in reserve power systems for a wide
variety of end use markets. Our product range focuses on batteries that provide
less than 200-ampere hours. These products are sold primarily to customers in
the UPS, telecommunications and cable markets. Major applications of these
products include corporate data center


5


backup, computer network backup for use during power outages, CATV signal
powering and wireless and wireline telephone infrastructure. Our customers
include industry-leading OEMs serving the UPS, broadband and telecommunications
markets.

Uninterruptible Power Supplies. The Dynasty Division produces batteries
for UPS systems, which provide instant battery backup in the event of primary
power loss or interruption, thereby permitting an orderly shutdown of equipment
or continued operation for a limited period of time until a power source comes
back on-line. Our Dynasty(R) High Rate Series batteries have been engineered
specifically for UPS applications and deliver extended life while complying with
rigorous industry standards. In addition, during fiscal 2004, the Dynasty
Division introduced a new line of premium replacement 10 year life VRLA
batteries for UPS applications called the MAXRATE(TM), which we believe provides
a longer life and improved runtime in the same space as that of original
equipment batteries currently supplied by UPS manufacturers. As a critical
component to overall power backup solutions, our Dynasty Division has worked
closely with major global UPS OEMs to design a cost-effective, reliable product
to meet customer expectations.

Telecommunications. Our Dynasty(R) Tel Series Long Duration batteries are
designed to Telcordia Standards to meet the demanding requirements of
telecommunications applications. These batteries operate in a wide variety of
environmental conditions, meet prolonged run time needs so as to maintain
operations during power loss and protect sophisticated electronics equipment.

CATV Signal Powering and Broadband. Dynasty(R) Broadband Series batteries
are designed for demanding standby float applications in abusive environments.
These batteries have been designed to offer the best combination of run time and
service life for CATV signal powering and broadband applications. Our gelled
electrolyte technology provides excellent heat transfer properties, which enable
these batteries to perform in high temperature environments. Unlike other
competitive gel technologies, the Dynasty(R) Broadband Series does not require
cycling subsequent to delivery to meet 100% of rated capacity. Our Dynasty(R)
Broadband Series of batteries is considered the market leader for CATV powering
in North America.

Powercom Division - Reserve Power Systems

We are a leading producer of fully integrated reserve power systems that
monitor and regulate electric power flow and provide backup power in the event
of a primary power loss or interruption. We also produce the individual
components of these systems, including power rectifiers, system monitors, power
boards, chargers and reserve batteries.

We manufacture lead acid batteries for use in reserve power systems. We
sell these batteries in a wide range of sizes and configurations in two broad
categories:

o flooded batteries; and

o valve-regulated (sealed) batteries.

Flooded batteries require periodic watering and maintenance.
Valve-regulated batteries require less maintenance and are often smaller.

To meet the needs of our customers, our reserve power systems include a
wide range of power electronics products, consisting principally of power
rectifiers and distribution and monitoring equipment. Our power rectifiers
convert or "rectify" external AC power into DC power at the required level and
quality of voltage and apply the DC power to constantly charge the reserve
battery and operate the user's equipment. For installations with end
applications that require varied power levels, our power control and
distribution equipment distributes the rectified power for each of the
applications.


6


Telecommunications Customers. Our customers use the majority of our
standby power products in telecommunications applications, such as central
telephone exchanges, microwave relay stations, private branch exchange ("PBX")
systems and wireless telephone systems. Our major telecommunications customers
include national long distance companies, competitive local exchange carriers,
wireline and wireless system operators, paging systems and PBX telephone
locations using fiber optic, microwave transmission or traditional copper-wired
systems.

Modular Power Plants. We offer several modular power plants, which are a
type of integrated reserve power system. These products, which are referred to
as the Liberty(R) AGM Series Power Plant and the Liberty(R) ACM Series Power
Plant, integrate advanced rectifiers with virtually maintenance-free
valve-regulated batteries. The Powercom Division introduced the Sageon(TM) power
system in fiscal 2004. The Sageon(TM) family of power systems products is
designed to fit virtually any application that demands stable, reliable and
easily expandable DC power.

Uninterruptible Power Supplies. Similar to our Dynasty Division, we
produce batteries for UPS systems, which provide instant battery backup in the
event of primary power loss or interruption, thereby permitting an orderly
shutdown of equipment or continued operation for a limited period of time until
a power source comes back on-line. Large UPS systems are used principally for
mainframe computers, minicomputers, networks and computer-controlled equipment.

Equipment for Electric Utilities and Industrial Control Applications. We
produce rectifiers and batteries used in reserve power systems for switchgear
and instrumentation control systems used in electric utilities and industrial
control applications. These power systems provide auxiliary power that enables
fossil fuel, hydro and nuclear power generating stations, switching substations
and industrial control facilities to be shut down in an orderly fashion during
emergencies or power failures until a power source comes back on-line.

Power Electronics Division - DC to DC Converters, Power Supplies and
Magnetics

Through our Power Electronics Division we design, manufacture and market
custom, standard and modified-standard electronic power supplies. Our Power
Electronics Division services several major market segments including
telecommunications, networking equipment, office equipment, industrial
automation and test instrumentation. In addition, our Power Electronics Division
manufactures rectifiers for reserve power applications that are sold by our
Powercom Division and provides electronic contract manufacturing services for
key clients in the Southwest United States.

We sell the majority of our power supply products to OEMs of electronic
products on either a custom, standard or modified-standard basis. Power supplies
are embedded in almost all electronic products and are used to convert available
AC or DC voltage to the required level and quality of DC voltage to power the
associated equipment.

Our power supplies incorporate advanced technology and are designed for
reliable operation of the host equipment. These products include DC to DC
converters, AC to DC and DC to DC power supplies and magnetics (transformers and
inductors) for use in a wide variety of applications, with outputs ranging from
sub one watt to several kilowatts. DC to DC products are circuit board mounted
devices used to convert available system power to required component voltages.
DC to DC converters are widely used in distributed power and intermediate bus
architecture where system voltages require conversion to a higher or lower
voltage to power components such as microprocessors and arrays. AC to DC power
supplies convert alternating current, the form in which virtually all power is
delivered by electric utilities to end users, into precisely controlled direct
current that is required by sensitive electronic application architecture.

In the telecommunications industry, our power supplies are broadly used in
central office and transmission equipment. We also produce power supplies for
networking equipment (switches, routers, hubs, etc.), office


7


equipment (mass storage, digital printing, etc.), and industrial equipment
(computing, automation and test instrumentation).

Motive Power Division - Motive Power Systems

Our customers use the majority of our motive power products to provide
power for material handling vehicles. A significant portion of our motive power
sales includes products and systems to recharge motive power batteries.

We produce complete systems and individual components (including power
electronics and batteries) to monitor, charge, test and manage the batteries
used in powering electric industrial vehicles, including fork-lift trucks and
automated guided vehicles. Our customers include end users in a broad array of
industries, dealers of material handling equipment and, to a lesser extent,
OEMs.

We offer a broad line of motive power equipment including the C-Line(TM)
battery, which we believe is the industry standard for long life and the
V-Line(R) battery for general material handling applications. We also offer a
broad line of battery charging and associated specialty equipment and parts.

Sales, Installation and Servicing

The sales, installation and servicing of our Powercom and Motive Power
products are performed through several networks of independent manufacturer's
representatives located throughout North America. Most of our independent
manufacturer's representatives (or contractors in the case of installation or
service) operate under contracts providing for compensation on a commission
basis or as a distributor with product purchased for resale. Dynasty and Power
Electronics products are sold via a network of independent manufacturer's
representatives as well as independent distributors located throughout the
world.

In addition to these networks of independent manufacturer's
representatives and distributors, we employ internal sales management consisting
of regional sales managers, account specific sales persons and product/market
specialists. The regional sales managers are each responsible for managing a
number of independent manufacturer's representatives and for developing
long-term relationships with large end users, OEMs and national accounts. We
also employ a separate sales organization that works with the independent
manufacturer's representative network and directly with certain large customers.

We have internal product management and marketing personnel in each of our
divisions to manage the development of new products from the initial concept
definition and management approval stages through the engineering, production
and sales processes. They are also responsible for applications engineering,
technical training of sales representatives and the marketing communications
function.

We maintain branch sales and service facilities in North America, Europe
and Asia, with the support of our headquarters and service personnel, and have
business relationships with sales representatives and distributors throughout
the world.

No single customer of C&D accounted for 10% or more of our net sales for
the year ended January 31, 2004. We typically sell our products with terms
requiring payment in full within 30 days. We warrant our battery products on a
full and/or pro-rata basis, to perform as rated for specified periods of time,
ranging from 1 to 25 years, depending on the type of product and its
application. The longest warranties generally are applicable to flooded standby
power batteries sold by our Powercom Division. Power supply products from our
Power Electronics Division are generally sold with a full one year warranty.


8


Backlog

The level of unfilled orders at any given date during the year may be
materially affected by the timing and product mix of orders, customer
requirements and, taking into account considerations of manufacturing capacity
and flexibility, the speed with which we fill those orders. Period-to-period
comparisons may not be meaningful. Occasionally orders may be canceled by the
customer prior to shipment.

Our order backlog at March 31, 2004 was $50,034,000 and at March 31, 2003
was $43,253,000. We expect to fill virtually all of the March 31, 2004 backlog
during fiscal 2005.

Manufacturing and Raw Materials

We manufacture our products at seven domestic plants, two plants in China,
two plants in Mexico and one plant in the United Kingdom. We manufacture most
key product lines at a single focused plant in order to optimize manufacturing
efficiency, asset management and quality control.

Consolidation. No manufacturing facilities were closed during fiscal 2004.
In fiscal 2003, we closed the metal fabrication operations at our Conshohocken,
Pennsylvania facility and now purchase products previously manufactured at this
location from third parties. We also closed our Shannon, Ireland facility in
fiscal 2003, shifting its manufacturing and design capabilities to other Power
Electronics Division facilities. In fiscal 2002, we closed our Workington,
United Kingdom facility and transferred production to our other Power
Electronics Division facilities.

Raw Materials. The principal raw materials used in the manufacture of our
products include lead, steel, copper, plastics, printed circuit boards and
electronic components, all of which are generally available from multiple
suppliers. Other than the required use of one supplier of lead and one supplier
of lead oxide for the production of Round Cell batteries for one customer, we
use a number of suppliers to satisfy our raw materials needs.

ISO 9000 Recognition. ISO certification assures customers that our
internal processes and systems meet internationally recognized standards. We are
ISO 9001:2000 standard certified at the following domestic locations: Conyers,
Georgia; Dunlap, Tennessee; Milwaukee, Wisconsin and Tucson, Arizona.
Internationally, our operations in Guangzhou, China; Milton Keynes and Romsey,
United Kingdom; Nogales, Mexico and Shanghai, China are also ISO 9001:2000
standard certified.

Competition

Our products compete on the basis of:

o product quality and reliability;

o reputation;

o customer service;

o delivery capability; and

o technology.

We also offer competitive pricing and highly value our relationships with
our customers. In addition, we believe that we have certain competitive
advantages in specific product lines.


9


We believe that we are one of the four largest producers of both reserve
and motive power systems in North America. We believe that the ability to
provide a single source for design, engineering, manufacturing and service is an
important element in our competitive position.

In reserve power systems, we believe we are the only major North American
company that manufactures complete, integrated reserve power systems consisting
of both electronics and batteries. Our other major competitors manufacture
either electronics or batteries, but not both.

When lead prices rise, certain of our battery competitors that own
smelting operations may have lower lead costs than we have. However, when lead
prices decline, the high fixed costs associated with these operations may
provide C&D with a cost advantage.

Research and Development

We maintain extensive technology departments concentrating on
electrochemical and electronics technologies. We focus on:

o the design and development of new products;

o the ongoing development and improvement of existing products;

o sustaining engineering;

o production engineering (including quality testing and managing the
changes in production capacity); and

o the evaluation of competitive products.

Our research and development facilities in the United States and Europe
feature advanced computer-aided design and testing equipment. Technology and
engineering personnel coordinate all activities closely with operations, sales
and marketing in order to better meet the needs of customers. We continue to
develop new products in our businesses. During fiscal 2004, the Dynasty Division
introduced a new line of premium replacement 10 year life VRLA batteries for UPS
applications called the MAXRATE(TM), which we believe provides a longer life and
improved runtime in the same space as that of original equipment batteries
currently supplied by UPS manufacturers. The Powercom Division introduced the
Sageon(TM) power system in fiscal 2004. The Sageon(TM) family of power systems
products is designed to fit virtually in any application that demands stable,
reliable and easily expandable DC power. The Power Electronics Division
introduced a significant number of new products during fiscal 2004 year
including the WPA60, sixty-watt, dual output voltage, DC to DC converter to meet
the ever-increasing power and voltage needs of today's semiconductor
technologies. In addition, the NTH series, isolated, two watt, dual output,
surface mount device was introduced with leadframe technology and transfer
molding techniques to bring all of the benefits of IC style packaging to hybrid
circuitry. In our Motive Power Division, we introduced the IFR charger line
which extends our ability to provide chargers not only for our own line of
Motive batteries, but also those of our competition.

International Operations

Along with our domestic manufacturing facilities, we have international
manufacturing facilities in China, Mexico and the United Kingdom. Our 67% joint
venture facility in Shanghai, China manufactures industrial batteries that are
sold primarily in China and Europe. Our Power Electronics Division facilities in
China and the United Kingdom manufacture electronics that are sold primarily in
Europe, North America, and the Far East. International sales accounted for
17.4%, 18.0% and 20.4% of net sales for the years ended January 31, 2004, 2003
and 2002, respectively.


10


Patents and Trademarks

Our practice is to apply for patents on new inventions, designs and
processes, which have strategic value or which are associated with existing or
prospective product lines, service offerings or operations. We believe that the
growth of our business will depend primarily upon the quality and reliability of
our products and our relationships with our customers, rather than the extent of
our patent protection. While we believe that patents are important to our
business operations, the loss of any single or several patents would not have a
material adverse effect on our company.

We regard our trademarks C&D(R), C&D TECHNOLOGIES(R), C&D TECHNOLOGIES
POWER SOLUTIONS(R), DYNASTY(R), LIBERTY(R), LIBERTY SERIES(R), LIBERTY SERIES
2000 MAX(R) and MAXIMIZER(R) as being of substantial value in the marketing of
our products and have registered these trademarks in the United States Patent
and Trademark Office. Our trademarks also include C-LINE(TM), COMPUCHARGE(R),
FERRO FIVE(R), FERRO 1500(R), HYPERON(R), MAXRATE(TM), POSITION PERFECT(R),
RANGER(R), SAGEON(TM), SMARTBATTERY(R) and V-LINE(R).

Employees

On February 29, 2004 we employed 2,345 people. Of these employees, 1,861
were employed in manufacturing and 484 were employed in field sales, technology,
manufacturing support, sales support, marketing and administrative activities.
Our management considers our employee relations to be satisfactory. Employees at
five North American plants are represented by five different unions under
collective bargaining agreements. Of these agreements, only the collective
bargaining agreement associated with our Attica, Indiana facility is scheduled
to expire in fiscal 2005.

Environmental Regulations

Our operations are subject to extensive and evolving environmental laws
and regulations regarding the clean-up and protection of the environment, worker
health and safety and the protection of third parties. These laws and
regulations include, but are not limited to, the following:

o requirements relating to the handling, storage, use and disposal of
lead and other hazardous materials used in manufacturing processes
and solid wastes;

o record keeping and periodic reporting to governmental entities
regarding the use and disposal of hazardous materials;

o monitoring and permitting of air emissions and water discharge; and

o monitoring worker exposure to hazardous substances in the workplace
and protecting workers from impermissible exposure to hazardous
substances, including lead, used in our manufacturing process.

We operate under a comprehensive environmental, health and safety
compliance program, which is headed by an environmental vice-president and
staffed with trained environmental professionals. As part of our program, we:

o prepare environmental and health and safety practice manuals and
policies;

o conduct employee training;

o develop and implement waste minimization initiatives;

o undertake periodic internal and oversee external audits of our
operations and environmental and health and safety programs;


11


o practice and engage in routine sampling and monitoring of employee
chemical and physical exposure levels;

o engage in sampling and monitoring of potential points of
environmental emissions; and

o prepare and/or review internal reports to regulatory bodies and
interface with them regarding environmental, safety and other
issues.

In addition, we also have installed certain pollution abatement equipment
to reduce emissions and discharges of regulated pollutants into the environment.
Our program monitors and seeks to resolve potential environmental liabilities
that result from, or may arise from, current and historic hazardous materials
handling and waste disposal practices. We have in place a spent product
recapture and recycling program for our facilities and our customers.

While we believe that we are in material compliance with the applicable
environmental requirements, we have received, and in the future may receive,
citations and notices from governmental regulatory authorities that certain of
our operations are not in compliance with our permits or applicable
environmental requirements. Occasionally we are required to pay a penalty or
fine, to install control technology or to make equipment or process changes (or
a combination thereof) as a result of the non-compliance or changing regulatory
requirements. When we become aware of a non-compliance or change in regulatory
requirements, we take immediate steps to correct and resolve the issues. The
associated costs have not had a material adverse effect on our business,
financial condition or results of operations.

Notwithstanding our efforts to maintain compliance with applicable
environmental requirements, if injury or damage to persons or the environment
arises from hazardous substances used, generated or disposed of in the conduct
of our business (or that of our predecessors to the extent we are not
indemnified therefor), we may be held liable for certain damages, the costs of
the investigation and remediation, and potential fines and penalties, which
could have a material adverse effect on our business, financial condition or
results of operations. However, under the terms of the purchase agreement with
Allied for the acquisition of C&D (the "Acquisition Agreement"), Allied was
obligated to indemnify C&D for any liabilities of this type resulting from
conditions existing at January 28, 1986 that were not disclosed by Allied to C&D
in the schedules to the Acquisition Agreement. These obligations have since been
assumed by Allied's successor in interest, Honeywell ("Honeywell").

C&D, along with numerous other parties, has been requested to provide
information to the United States Environmental Protection Agency (the "EPA") in
connection with investigations of the source and extent of contamination at
three lead smelting facilities (the "Third Party Facilities") to which C&D had
made scrap lead shipments for reclamation prior to the date of the acquisition.

C&D and four other PRPs agreed upon a cost sharing arrangement for the
design and remediation phases of a project related to one of the Third Party
Facilities, the former NL Industries site in Pedricktown, New Jersey, acting
pursuant to a Consent Decree. The PRPs identified and sued additional PRPs for
contribution. In April 2002, one of the original four PRPs, Exide Technologies
("Exide"), filed for relief under Chapter 11 of Title 11 of the United States
Code. In August 2002, Exide notified the PRPs that it would no longer be taking
an active role in any further action at the site and discontinued its financial
participation. This resulted in a pro rata increase in the liabilities of the
other PRPs, including C&D.

We also responded to requests for information from the EPA and the state
environmental agency with regard to another Third Party Facility, the "Chicago
Site," in October 1991.

In August 2002, we were notified of our involvement as a PRP at the NL
Atlanta, Northside Drive Superfund site. We are currently in negotiations with
the other PRPs at this site regarding our share of the allocated liability,
which we expect to be de minimis.


12


We are also aware of the existence of contamination at our Huguenot, New
York facility, which is expected to require expenditures for further
investigation and remediation. The site is listed by the New York State
Department of Environmental Conservation ("NYSDEC") on its registry of inactive
hazardous waste disposal sites due to the presence of fluoride and other
contaminants in amounts that exceed state groundwater standards, and the agency
has issued a Record of Decision for the soil remediation portion of the site. A
final remediation plan for the ground water portion has not yet been finalized
with or approved by the State of New York. In February 2000, we filed suit
against the prior owner of the site, Avnet, Inc., which is ultimately expected
to bear some, as yet undetermined, share of the costs associated with
remediation of contamination in place at the time the Company acquired the
property. The parties are attempting to resolve the matter through mediation,
failing which we intend to aggressively pursue all available legal remedies.
Should the parties fail to reach a mediated settlement, and unless an
alternative resolution can be achieved, NYSDEC may conduct the remediation and
seek recovery from the parties.

Together with JCI, we are conducting an assessment and remediation of
contamination at our Dynasty Division facility in Milwaukee, Wisconsin. The
majority of the on-site portion of this project was completed as of October
2001. Under the purchase agreement with JCI, we are responsible for (i) one-half
of the cost of the on-site assessment and remediation, with a maximum liability
of $1,750,000, (ii) any environmental liabilities at the facility that are not
remediated as part of the current project and (iii) environmental liabilities
for any new claims made after the fifth anniversary of the closing, i.e. March
2004, that arise from migration from a pre-closing condition at the Milwaukee
facility to locations other than the Milwaukee facility, but specifically
excluding liabilities relating to pre-closing offsite disposal. In March 2004,
C&D entered into an agreement with JCI to continue to share responsibility as
set forth in the original purchase agreement.

In January 1999, we received notification from the EPA of alleged
violations of permit effluent and pretreatment discharge limits at our plant in
Attica, Indiana. We submitted a compliance plan to the EPA in April 2002. We
engaged in negotiations with both the EPA and Department of Justice through
March 2003 regarding a potential resolution of this matter. The government filed
suit against C&D in March 2003 for alleged violations of the Clean Water Act.
The complaint requests injunctive relief and civil penalties of up to the
amounts provided by statute. We anticipate that the matter will result in a
penalty assessment and compliance obligations. We continue to seek a negotiated
or mediated resolution, failing which we intend to vigorously defend the action.

We accrue reserves for liabilities in our consolidated financial
statements and periodically reevaluate the reserved amounts for these
liabilities in view of the most current information available in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies." As of January 31, 2004 accrued environmental reserves totaled
$2,525,000 consisting of $2,223,000 in other current liabilities and $302,000 in
other liabilities. Based on currently available information, we believe that
appropriate reserves have been established with respect to the foregoing
contingent liabilities and that they are not expected to have a material adverse
effect on our business, financial condition or results of operations.

Available Information

C&D maintains an Internet web site (www.cdtechno.com) and makes available
free of charge on or through the web site its Annual Report on Form 10-K, its
quarterly reports on Form 10-Q and its current reports on Form 8-K as soon as
reasonably practicable after it electronically files such material with, or
furnishes it to, the SEC. C&D also makes available on its website and in printed
form upon request, C&D's Code of Business Conduct, Code of Ethics for C&D's
Chief Executive Officer and Financial Employees and C&D's Corporate Governance
Guidelines.


13


Item 2. Properties

Set forth below is certain information, as of April 1, 2004, with respect
to our principal properties.



Square Products Manufactured
Location Footage at or Use of Facility
-------- ------- ---------------------

United States Properties:

Milwaukee, Wisconsin (1)......................... 370,000 Small standby power batteries
Attica, Indiana (1).............................. 295,000 Large standby power batteries
Leola, Pennsylvania (1).......................... 240,000 Large standby power batteries, Round Cell,
distribution center and battery R&D
laboratory
Conyers, Georgia (1)............................. 161,000 Small standby power batteries
Huguenot, New York (1)........................... 148,000 Motive power batteries
Dunlap, Tennessee (2)............................ 72,000 Standby power and motive power electronics
products
Blue Bell, Pennsylvania (2)...................... 63,000 Corporate headquarters, Standby Power and
Motive Power divisional headquarters and
electronics R&D laboratory
Tucson, Arizona (2).............................. 55,000 DC to DC converters, power supplies,
headquarters of Power Electronics Division
and electronics R&D laboratory

International Properties:

Shanghai, China (3)............................. 315,000 Small standby power batteries
Reynosa, Mexico (1).............................. 240,000 Large standby power batteries
Nogales, Mexico (2).............................. 97,000 DC to DC converters and AC to DC power
supplies
Guangzhou, China (2)............................. 35,000 DC to DC converters and wound magnetics
Milton Keynes, United Kingdom (2)................ 33,000 DC to DC converters, wound magnetics and
electronics R&D laboratory
Romsey, United Kingdom (2)....................... 21,000 Distribution center
Mississauga, Canada (2).......................... 20,000 Canadian headquarters, sales office and
distribution center


(1) Property is owned by C&D.

(2) Property is leased by C&D.

(3) Building is owned by the joint venture; however, the land is leased under
a 50-year agreement, of which 41 years remain. The Chinese government has
notified our joint venture that it will be required to relocate the
Shanghai plant. Negotiations are in process between the joint venture and
the Chinese government regarding the details surrounding the specific
location, timing and cost responsibilities related to the relocation of
the Shanghai plant. Our joint venture has tentatively agreed to an
arrangement with the Chinese government whereby we will relocate our
Shanghai facility to a site elsewhere in the Pudong Development Zone. We
anticipate that the new factory will be complete by the end of fiscal year
2006.


14


Item 3. Legal Proceedings

We are involved in ordinary, routine litigation incidental to the conduct
of our business. None of this litigation, individually or in the aggregate, is
material or is expected to be material to our financial condition or results of
operations in any year. See Business - Environmental Regulations for a
description of certain administrative proceedings in which we are involved.

On March 24, 2003, C&D was sued in an action captioned United States of
America v. C&D Technologies, Inc., in the United States District Court for the
Southern District of Indiana, for alleged violations of the Clean Water Act by
virtue of alleged violations of permit effluent and pretreatment discharge
limits at our plant in Attica, Indiana. The complaint requests injunctive relief
and civil penalties of up to the amounts provided by statute.

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

None.


15


PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Our Common Stock is traded on The New York Stock Exchange under the symbol
CHP. The approximate number of beneficial and registered record holders of our
Common Stock on April 7, 2004 was 4,400.

The following table sets forth, for the periods indicated, the high and
low sales prices for our Common Stock as reported by the New York Stock
Exchange. These prices represent actual transactions, but do not reflect
adjustment for retail markups, markdowns or commissions.

Year Ended
-----------------------------------

January 31, 2004 January 31, 2003
---------------- ----------------

Fiscal Quarter High Low High Low
-------------- ---- --- ---- ---

First Quarter .............. $17.82 $11.30 $23.04 $19.00
Second Quarter ............. 15.55 11.20 24.27 13.25
Third Quarter .............. 21.80 14.43 17.50 12.50
Fourth Quarter ............. 23.43 17.70 21.25 15.40

Dividends. We began paying cash dividends on our Common Stock in April
1987. For the years ended January 31, 2004 and 2003 we declared dividends per
share as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------

2004 ............ $0.01375 $0.01375 $0.01375 $0.01375
2003 ............ $0.01375 $0.02750 -- $0.01375

Our bank loan agreement permits dividends to be paid on our Common Stock
so long as there is no default under that agreement. Subject to that restriction
and the provisions of Delaware law, our Board of Directors currently intends to
continue paying dividends. We cannot assure you that we will continue to do so
since future dividends will depend on our earnings, financial condition and
other factors.

On February 22, 2000, the Board of Directors of C&D declared a dividend of
one common stock purchase right (a "Right") for each share of Common Stock
outstanding on March 3, 2000 to the stockholders of record on that date. The
description and terms of the Rights are set forth in a Rights Agreement between
C&D and Mellon Investor Services, LLC (formerly ChaseMellon Shareholder
Services, L.L.C.), as rights agent. Upon the occurrence of certain events, each
Right will entitle the registered holder to purchase from C&D one one-hundredth
of a share of Common Stock at a purchase price of $150 per one one-hundredth of
a share, subject to adjustment, as stated in the Rights Agreement. Upon the
occurrence of certain events involving a hostile takeover of C&D, unless our
Board of Directors acts otherwise, each holder of a Right, other than Rights
beneficially owned by the acquiring company, will thereafter have the right to
receive upon exercise: (i) that number of shares of our common stock having a
market value equal to two times the purchase price of the Right or (ii) that
number of shares of common stock of the acquiring company that at the time of
the transaction has a market value of two times the exercise price of the Right.


16


Item 6. Selected Financial Data

The following selected historical financial data for the periods indicated
have been derived from C&D's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and C&D's consolidated
financial statements, which appear in Items 7 and 15 of this Form 10-K.



Fiscal Year
------------------------------------------------------------------
(In thousands, except share and
per share data)
2004 (1) 2003 2002 2001 (2) 2000 (3)
-------- ---- ---- -------- --------

Statement of Income Data:

Net sales .................... $ 324,824 $ 335,745 $ 471,641 $ 615,678 $ 482,182
Cost of sales ................ 248,145 257,046 343,370 439,135 357,802
--------- --------- --------- --------- ---------
Gross profit ................. 76,679 78,699 128,271 176,543 124,380
Selling, general and
administrative expenses ..... 40,459 35,136 50,406 66,243 59,315
Research and development
expenses .................... 9,542 9,509 10,291 10,281 8,941
--------- --------- --------- --------- ---------
Operating income ............. 26,678 34,054 67,574 100,019 56,124

Interest expense, net ........ 1,268 3,800 6,700 6,315 7,946
Other expense (income), net .. 1,641 1,457 1,239 (725) (20)
--------- --------- --------- --------- ---------
Income before income taxes and
minority interest ........... 23,769 28,797 59,635 94,429 48,198
Provision for income taxes ... 8,795 9,414 22,244 35,883 17,737
--------- --------- --------- --------- ---------
Net income before minority
interest .................... 14,974 19,383 37,391 58,546 30,461
Minority interest ............ 83 91 1,317 2,651 619
--------- --------- --------- --------- ---------
Net income ................... $ 14,891 $ 19,292 $ 36,074 $ 55,895 $ 29,842
========= ========= ========= ========= =========

Net income per common
share - basic (4) ........... $ 0.58 $ 0.75 $ 1.38 $ 2.13 $ 1.17
========= ========= ========= ========= =========
Net income per common
share - diluted (5) ......... $ 0.58 $ 0.74 $ 1.35 $ 2.05 $ 1.14
========= ========= ========= ========= =========

Dividends per common share ... $ 0.055 $ 0.055 $ 0.055 $ 0.055 $ 0.055
========= ========= ========= ========= =========

Balance Sheet Data:

Working capital .............. $ 64,005 $ 53,776 $ 55,014 $ 75,895 $ 65,079
Total assets ................. 385,950 382,156 395,558 455,519 354,115
Short-term debt .............. -- 14,062 27,255 18,172 20,393
Long-term debt ............... 19,620 25,857 46,892 98,849 76,459
Stockholders' equity ......... 269,533 258,274 241,858 218,054 162,066


(footnotes begin on the following page)


17


(1) On September 25, 2003, C&D and its wholly owned Mexican subsidiary,
C&D Technologies Reynosa, S. de R.L. de C.V., acquired from Matsushita Battery
Industrial Corporation of America, and its Mexican subsidiary, Matsushita
Battery Industrial de Mexico, S.A. de C.V., a 240,000 square foot facility in
Reynosa, Mexico and the equipment in that facility historically used for the
manufacture of large, valve regulated lead acid batteries ("VRLA Batteries") for
standby power applications. In addition, C&D has entered into a worldwide
technology license agreement with Matsushita Battery Industrial Co. Ltd. of
Japan for selected patents and know-how relating to the manufacturing technology
for the aforementioned products. For reporting purposes, the acquisition of the
Reynosa facility and associated operating results are included in the Powercom
Division. We continue to use the assets acquired for the manufacture of large,
VRLA batteries for standby power applications.

(2) In December 2000 (effective as of November 26, 2000), we acquired NCL,
a producer of electronic power conversion products (primarily DC to DC
converters) based in the United Kingdom. For reporting purposes, the acquisition
of NCL is included in the Power Electronics Division. We continue to use the
assets acquired in such business.

(3) Effective March 1, 1999, we acquired substantially all of the assets
of the Specialty Battery Division of JCI including, without limitation, certain
assets of Johnson Controls Technology Company, a wholly owned subsidiary of JCI,
and 100% of the ordinary shares of Johnson Controls Battery (U.K.) Limited, an
indirect wholly owned subsidiary of JCI. In addition, C&D assumed certain
liabilities of the seller. The Specialty Battery Division was engaged in the
business of designing, manufacturing, marketing and distributing industrial
batteries. We continue to use the assets acquired in such business. On August 2,
1999, we completed the acquisition of JCI's 67% ownership interest in a joint
venture battery business in Shanghai, China. The joint venture manufactures,
markets and distributes industrial batteries. We continue the joint venture
operations in such business. For reporting purposes, we have re-named the
Specialty Battery Division and JCI's 67% ownership interest of the joint venture
battery business in Shanghai, China the Dynasty Division.

(4) Based on 25,536,628, 25,818,024, 26,153,715, 26,223,684 and 25,529,778
weighted average shares outstanding - basic.

(5) Based on 25,731,961, 26,025,179, 26,688,011, 27,264,528 and 26,088,402
weighted average shares outstanding - diluted.


18


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

All dollar amounts in this Item 7 are in thousands, except per share
amounts and per pound lead amounts.

Impact of Economy and Shift in Customer Demand

During fiscal 2004, primarily due to continuing weak economic conditions,
particularly in the telecommunications market, there was a softening in demand
for our products, with the exception of products sold to the UPS market.

Raw Material Pricing and Productivity

Lead, steel, copper, plastics and electronic components are the major raw
materials used in the manufacture of our industrial batteries and electronics
products and, accordingly, represent a significant portion of our materials
costs. During fiscal 2004, 2003 and 2002, the average London Metals Exchange
("LME") price per pound of lead was as follows:



Fiscal year
2004 2003 2002
---- ---- ----

Average annual LME price per pound of lead $0.25 $0.20 $0.22
Lowest average monthly LME price per pound of lead $0.20 $0.19 $0.20
Highest average monthly LME price per pound of lead $0.34 $0.22 $0.23


We have a long-term cost containment program to minimize manufacturing
costs. Under the program, we continue to allocate a significant amount of our
normal annual capital expenditures to cost containment and productivity
improvement projects.

Inflation

The cost to C&D of manufacturing materials and labor and most other
operating costs are affected by inflationary pressures. Our ability to pass
along inflationary cost increases to our customers through higher prices may be
limited during periods of stable or declining lead prices because of industry
pricing practices that tend to link product prices and lead prices. During the
recent increase of lead prices in the second half of fiscal 2004, we have not
been able to fully offset the higher lead prices through selective price
increases. We believe that, over recent years, we have been able to offset
inflationary cost increases on items other than lead by:

o effective raw materials purchasing programs;

o increases in labor productivity;

o improvements in overall manufacturing efficiencies; and

o selective price increases of our products.


19


Results of Operations

The following table sets forth selected items in C&D's consolidated
statements of income as a percentage of sales for the periods indicated.



Fiscal Year
-------------------------
2004 2003 2002
---- ---- ----

Net sales ........................................ 100.0% 100.0% 100.0%
Cost of sales .................................... 76.4 76.6 72.8
----- ----- -----

Gross profit ................................... 23.6 23.4 27.2

Selling, general and administrative expenses ..... 12.5 10.5 10.7
Research and development expenses ................ 2.9 2.8 2.2
----- ----- -----

Operating income ............................... 8.2 10.1 14.3

Interest expense, net ............................ 0.4 1.1 1.4
Other expense, net ............................... 0.5 0.4 0.3
----- ----- -----

Income before income taxes and minority interest 7.3 8.6 12.6

Provision for income taxes ....................... 2.7 2.8 4.7
----- ----- -----

Net income before minority interest ............ 4.6 5.8 7.9

Minority interest ................................ 0.0 0.1 0.3
----- ----- -----

Net income ..................................... 4.6% 5.7% 7.6%
===== ===== =====


Critical Accounting Policies

We have identified the critical accounting policies that are most
important to the portrayal of our financial condition and results of operations.
The policies set forth below require management's most subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.

Litigation and Environmental Reserves

C&D is involved in litigation in the ordinary course of business,
including personal injury, property damage and environmental litigation. We also
expend funds for environmental remediation of both company-owned and
third-party locations. In accordance with Generally Accepted Accounting
Principles ("GAAP"), specifically SFAS No. 5, "Accounting for Contingencies" and
Statement of Position 96-1, "Environmental Remediation Liabilities," we record a
loss and establish a reserve for litigation or remediation when it is probable
that an asset has been impaired or a liability exists and the amount of the
liability can be reasonably estimated. Reasonable estimates involve judgments
made by management after considering a broad range of information including:
notifications, demands or settlements that have been received from a regulatory
authority or private party, estimates performed by independent engineering
companies and outside counsel, available facts, existing and proposed
technology, the identification of other PRPs, their ability to contribute


20


and prior experience. These judgments are reviewed quarterly as more information
is received and the amounts reserved are updated as necessary. However, the
reserves may materially differ from ultimate actual liabilities if the loss
contingency is difficult to estimate or if management's judgments turn out to be
inaccurate. If management believes no best estimate exists, the minimum loss is
accrued.

Valuation of Long-lived Assets

We assess the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value of the assets or the asset
grouping may not be recoverable. Factors we consider in deciding when to perform
an impairment review include significant under-performance of a business or
product line in relation to expectations, significant negative industry or
economic trends, and significant changes or planned changes in our use of the
assets. Recoverability of assets that will continue to be used in our operations
is measured by comparing the carrying amount of the asset grouping to the
related total future net cash flows. If an asset grouping's carrying value is
not recoverable through those cash flows, the asset grouping is considered to be
impaired. The impairment is measured by the difference between the assets'
carrying amount and their fair value, based on the best information available,
including market prices or discounted cash flow analyses.

Pension and Other Employee Benefits

Certain assumptions are used in the calculation of the actuarial valuation
of our defined benefit pension plans and postretirement benefits. These
assumptions include the weighted average discount rate, rates of increase in
compensation levels, expected long-term rates of return on assets and increases
or trends in health care costs. If actual results are less favorable than those
projected by management, additional expense may be required.

Inventory Reserves

C&D adjusts the value of its obsolete and unmarketable inventory to the
estimated market value based upon assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.

Allowance for Doubtful Accounts

C&D maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

Warranty Reserves

C&D provides for the estimated cost of product warranties at the time
revenue is recognized. While we engage in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of our
suppliers' products and processes, C&D's warranty obligation is affected by
product failure rates, warranty replacement costs and service delivery costs
incurred in correcting a product failure. Should actual product failure rates,
warranty replacement costs or service delivery costs differ from our estimates,
revisions to the estimated warranty liability would be made.

Deferred Tax Valuation Allowance

C&D records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event C&D were to
determine that it would be able to realize its deferred tax assets in the future
in excess of its net recorded amount, an


21


adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should C&D determine that it would not be able
to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.

Revenue Recognition

C&D recognizes revenue when the earnings process is complete. This occurs
when products are shipped to the customer in accordance with terms of the
agreement, title and risk of loss have been transferred, collectibility is
reasonably assured and pricing is fixed or determinable. Accruals are made for
sales returns and other allowances based on our experience. While returns have
historically been minimal and within the provisions established, we cannot
guarantee that we will continue to experience the same return rates that we have
in the past.

Impairment of Goodwill

Goodwill represents the excess of the cost over the fair value of net
assets acquired in business combinations. Goodwill and other "indefinite-lived"
assets are not amortized and are subject to the impairment rules of SFAS No.
142, "Goodwill and Other Intangible Assets," which C&D adopted on February 1,
2002. Goodwill is tested for impairment on an annual basis or upon the
occurrence of certain circumstances or events. C&D determines the fair market
value of its reporting units using quoted market rates and cash flow techniques.
The fair market value of the reporting units is compared to the carrying value
of the reporting units to determine if an impairment loss should be calculated.
If the book value of a reporting unit exceeds the fair value of the reporting
unit, an impairment loss is indicated. The loss is calculated by comparing the
fair value of the goodwill to the book value of the goodwill. If the book value
of the goodwill exceeds the fair value of the goodwill, an impairment loss is
recorded. Fair value of goodwill is determined by subtracting the fair value of
the identifiable assets of a reporting unit from the fair value of the reporting
unit. In the fiscal year ended January 31, 2003, we recorded an impairment of
goodwill in our Motive Power Division, resulting in the complete write-off of
all goodwill related to the Motive Power Division. No impairment to goodwill
existed in any of our other divisions as of January 31, 2003. No impairment to
goodwill in any division existed as of January 31, 2004.

Research and Development

Research and development costs are expensed as incurred. Research and
development costs consist of direct and indirect internal costs related to
specific projects. The cost of materials (whether from our normal inventory or
acquired specially for research and development activities) and equipment or
facilities that are acquired or constructed for research and development
activities and that have alternative future uses (in research and development
projects or otherwise) are capitalized as tangible assets when acquired or
constructed. The cost of such materials consumed in research and development
activities and the depreciation of such equipment or facilities used in those
activities are recorded as research and development costs.

Fiscal 2004 Compared to Fiscal 2003

All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.

Net sales for fiscal 2004 decreased $10,921 or 3% to $324,824 from
$335,745 in fiscal 2003. This decrease resulted from lower customer demand for
products of the Powercom, Power Electronics and Motive Power divisions,
partially offset by higher customer demand for products of the Dynasty Division.
Sales by the Powercom Division declined $18,750, or 13%, primarily due to lower
sales to the telecommunications market. The Powercom Division derives
approximately 60% of its sales from telecommunications infrastructure


22


spending, and we continue to be adversely affected by the decreased spending in
this industry. However, we understand from our major customers that they plan to
increase capital spending. Sales of the Power Electronics Division fell $7,760,
or 17%, mainly due to lower DC to DC converter sales. Power Electronics had a
solid fourth quarter, with revenue increasing across the division. End markets,
including networking and office automation, appear to be strengthening. This
division introduced over 30 new products in fiscal year 2004, accounting for
approximately 7% of the division's revenue. Motive Power divisional sales
dropped $1,487, or 3% due to lower sales of batteries and chargers. Dynasty
Division sales increased $17,076, or 19%, primarily due to an increase in demand
in the UPS market. The Dynasty Division generates approximately 70% of its sales
from this market.

Gross profit for fiscal 2004 decreased $2,020 or 3% to $76,679 from
$78,699 in the prior year. Gross margin increased slightly from 23.4% in fiscal
year 2003 to 23.6% in fiscal year 2004. Gross profit declined in the Powercom
Division, primarily as a result of lower sales volumes, startup costs of
approximately $1,300 at our new Reynosa, Mexico facility and higher lead costs,
partially offset by a favorable year-end LIFO inventory adjustment of $2,745.
Gross profit in the Motive Power Division increased on lower sales, primarily
due to the improvement in plant operational effectiveness in fiscal 2004,
partially offset by higher lead costs. Gross profit in the Power Electronics
Division increased on lower sales primarily due to the re-organization charges
of $1,263 recorded in the fourth quarter of fiscal 2003 related to the closure
of our Shannon, Ireland facility and the benefits of relocating certain Mexican
manufacturing activities to our Guangzhou, China facility, which has lower
manufacturing costs.

Selling, general and administrative expenses for fiscal 2004 increased
$5,323 or 15%. This increase was primarily due to $2,897 of higher warranty
costs, higher payroll related costs of $1,932 and the prior year gain of $1,610
recognized on the sale of our Conshohocken, Pennsylvania facility, partially
offset by lower variable selling costs of $803 associated with the decreased
sales volumes.

Research and development expenses for fiscal 2004 increased $33 or less
than 1%. As a percentage of sales, research and development expenses increased
from 2.8% of sales in fiscal 2003 to 2.9% of sales in fiscal 2004.

Operating income decreased $7,376 or 22% to $26,678 from $34,054 in the
prior year. This decrease was the result of lower operating income generated by
the Powercom Division, partially offset by a lower operating loss in the Motive
Power Division, operating income in the Power Electronics Division in fiscal
2004 compared to an operating loss in fiscal 2003 and higher operating income in
the Dynasty Division.

Interest expense, net, decreased $2,532 in fiscal 2004 compared to the
prior year, primarily due to lower average debt balances outstanding during the
year, coupled with a lower effective interest rate.

Income tax expense for fiscal 2004 decreased $619 from fiscal 2003,
primarily as the result of lower income before income taxes, partially offset by
an increase in our effective tax rate. The effective tax rate consists of
statutory rates adjusted for the tax impacts of foreign operations. The
effective tax rate for fiscal 2004 increased to 37.0% from 32.7% in the prior
year, primarily as a result of the favorable resolution of state tax audits in
the fourth quarter of fiscal 2003.

Minority interest of $83 in fiscal 2004 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.

As a result of the above, for fiscal 2004, net income decreased $4,401 or
23% to $14,891 or $0.58 per share - basic and $0.58 per share - diluted.


23


Future Outlook

The escalating price of lead negatively affects our business. In the
fourth quarter of fiscal 2004, the negative effect of higher lead prices over
the prior year's fourth quarter was approximately $0.06 cents per share. We
anticipate that high lead pricing will continue to adversely affect our
profitability in the near term. We have launched pricing initiatives to at least
partially offset rising lead prices. In the first quarter of fiscal 2005, we
expect revenues to increase modestly and to generate diluted earnings per share
of between $0.05 to $0.08 per share.

In addition, as we continue to assimilate the Reynosa facility, we expect
to record integration charges, including expenses of approximately $2,000 to
$2,500 for rigging and transporting equipment as well as severance. There may
also be asset impairment charges related to our Huguenot, New York and/or Leola,
Pennsylvania facilities in fiscal 2005, although we cannot with certainty
predict the magnitude or timing of such outcomes.

The Chinese government has notified our joint venture battery business
that it will be required to relocate the Shanghai plant. Negotiations are in
process between the joint venture and the Chinese government regarding the
details surrounding the specific location, timing and cost responsibilities
related to the relocation of the Shanghai plant. Our joint venture has
tentatively agreed to an arrangement with the Chinese government whereby we will
relocate our Shanghai facility to a site elsewhere in the Pudong Development
Zone. The tentative agreement calls for a payout of approximately $20,000 to
C&D, which will be supplemented by approximately $5,000 from the joint venture
to build a new facility. We anticipate that the new factory will be complete by
the end of fiscal year 2006.

Fiscal 2003 Compared to Fiscal 2002

All comparisons are with the corresponding periods in the previous year,
unless otherwise stated.

Net sales for fiscal 2003 decreased $135,896 or 29% to $335,745 from
$471,641 in fiscal 2002. This decrease resulted from lower customer demand for
products of all divisions. Sales by the Powercom Division declined $90,324, or
38%, primarily due to lower sales to the telecommunications and UPS markets.
This business continued to be affected by the lower spending levels in the
telecommunications sector. However, the division had more than $17,000 in sales
from products introduced during fiscal 2003. Dynasty Division sales decreased
$22,911, or 20%, also due to a decline in sales to the telecommunications and
UPS markets, partially offset by an increase in sales to the mobility market.
The lower market demand for sealed product continued to affect this division.
New products contributed approximated $4,000 of sales to this division. Sales of
the Power Electronics Division fell $16,315, or 26%, mainly due to lower DC to
DC converter sales, standard power supply sales and custom power supply sales.
The division was negatively impacted by a substantial reduction in the
requirements of a single customer. Although the overall pace of the Power
Electronics Division remained sluggish due to the continuing state of the
telecommunications market, we were encouraged by the number of new products we
brought to market. Over 15% of fiscal 2003 sales by the Power Electronics
Division came from products introduced since fiscal 2002. Additionally, we
overhauled the distribution channels of this division. Distributors were
replaced and upgraded during fiscal 2003, while the manufacturing representative
network was strengthened. Our web-based initiatives came on line in the latter
part of fiscal 2003 and we began to see positive results. Motive Power
divisional sales dropped $6,346, or 10% due to lower sales of batteries and
chargers. Motive Power sales increased modestly in the fourth quarter of fiscal
2003, based upon recent changes in sales channels. Additionally, we launched a
private branding program for batteries and chargers to customers with whom we
had not previously done business.

Gross profit for fiscal 2003 decreased $49,572 or 39% to $78,699 from
$128,271 in the prior year, resulting in a decrease in gross margin from 27.2%
to 23.4%. Gross profit declined in the Powercom, Dynasty


24


and Motive Power divisions, primarily as a result of lower sales volumes,
coupled with plant operational difficulties in the Motive Power Division. Gross
profit in the Power Electronics Division increased on lower sales due to
inventory-related charges in the prior fiscal year, partially offset by
re-organization charges of $1,263 recorded in the fourth quarter of fiscal 2003
related to the closure of our Shannon, Ireland facility and the relocation of
certain Mexican manufacturing activities to our Guangzhou, China facility, which
has lower manufacturing costs.

Selling, general and administrative expenses for fiscal 2003 decreased
$15,270 or 30%. This decrease was primarily due to: (i) lower variable selling
costs of $5,876 associated with the decreased sales volumes; (ii) the
implementation of SFAS No. 142 in fiscal 2002, which discontinued the
amortization of goodwill of $6,372 (iii) costs recorded in fiscal 2002 of $2,793
related to a potential acquisition that did not close; (iv) lower
payroll-related expenses of $2,023; (v) the gain of $1,610 recognized on the
sale of our Conshohocken, Pennsylvania facility; and (vi) lower advertising
expenses of $512. Partially offsetting this decrease were: (i) higher warranty
expenses of $2,208; and (ii) the positive effect of the full recovery of certain
litigation and settlement costs of $2,036 from one of our insurance carriers
during the first quarter of fiscal 2002.

Research and development expenses decreased $782 or 8%, primarily due to
lower spending in the Power Electronics and Powercom divisions. As a percentage
of sales, research and development expenses increased from 2.2% of sales in
fiscal 2002 to 2.8% of sales in fiscal 2003 as a result of lower sales volumes.

Operating income decreased $33,520 or 50% to $34,054 from $67,574 in the
prior year. This decrease was the result of lower operating income generated by
the Powercom and Dynasty divisions, coupled with a higher operating loss
generated by the Motive Power Division. This decrease was partially offset by a
lower operating loss in the Power Electronics Division.

Interest expense, net, decreased $2,900 in fiscal 2003 compared to the
prior year, primarily due to lower average debt balances outstanding during the
year, coupled with lower effective interest rates.

Income tax expense for fiscal 2003 decreased $12,830 from fiscal 2002,
primarily as the result of lower income before income taxes and a decrease in
our effective tax rate. The effective tax rate consists of statutory rates
adjusted for the tax impacts of research and development credits and foreign
operations. The effective tax rate for fiscal 2003 decreased to 32.7% from 37.3%
in the prior year, primarily as a result of the resolution of state tax audits
in the fourth quarter of fiscal 2003.

Minority interest of $91 in fiscal 2003 reflects the 33% ownership
interest in the joint venture battery business located in Shanghai, China that
is not owned by C&D. The decrease in minority interest was due to lower
profitability of the Shanghai joint venture.

As a result of the above, for fiscal 2003, net income decreased $16,782 or
47% to $19,292 or $0.75 per share - basic and $0.74 per share - diluted.

Liquidity and Capital Resources

Net cash provided by operating activities decreased $13,772 or 25% to
$41,378 for the fiscal year ended January 31, 2004 compared to $55,150 in the
prior fiscal year. This decrease in net cash provided by operating activities
was primarily due to: (i) a smaller decrease in inventory in fiscal 2004 versus
fiscal 2003; (ii) a smaller increase in net deferred tax liabilities; (iii) a
decrease in net income; and (iv) a smaller increase in accounts payable in
fiscal 2004 versus fiscal 2003. These changes, resulting in lower net cash
provided by operating activities, were partially offset by a smaller increase in
other long-term assets in fiscal 2004 versus fiscal 2003, primarily due to
significantly lower pension contributions in fiscal 2004 and an increase in
other current liabilities in the current year (primarily due to warranty
accruals) versus a decrease in the prior year.


25


Net cash used by investing activities increased $12,137 or 346% to $15,648
in fiscal 2004 compared to $3,511 in fiscal 2003, due to the acquisition of the
Reynosa business, coupled with lower proceeds from the disposal of property,
plant and equipment. Fiscal 2003 proceeds included $3,000 from the sale of our
Conshohocken, Pennsylvania facility. The property was sold for $5,000, including
a $2,000 note receivable. Acquisition of property, plant and equipment
(excluding the purchase of the Reynosa business) decreased from $7,163 in fiscal
2003 to $3,697 in fiscal 2004.

Net cash used by financing activities decreased $20,981 or 44% to $26,667
in fiscal 2004 compared to $47,648 in the prior year. This decrease was
primarily due to a lower repayment of long-term debt, coupled with lower
purchases of treasury stock.

On November 20, 2003, we refinanced our existing five-year credit
facility, which was due to expire on March 1, 2004. The refinancing was arranged
by Bank of America and includes nine other lenders. The new agreement is a
$100,000 revolving credit facility, which has a termination date of November 20,
2006. The interest rates are determined by our leverage ratio and are available
at LIBOR plus 1.00% to LIBOR plus 2.00% or Prime to Prime plus .50%. Based on
our current leverage, the loans under the revolving credit facility are priced
at LIBOR plus 1.00%. The agreement requires C&D to pay a fee of .25% to .50% per
annum, depending on our leverage ratio, on any unused portion of the revolver.
The revolving credit facility includes a letter of credit facility not to exceed
$15,000 and swingline loans not to exceed $10,000.

The credit agreement contains restrictive covenants that require C&D to
maintain minimum ratios such as fixed charge coverage and leverage ratios as
well as minimum consolidated net worth. We were in compliance with our loan
agreement covenants at January 31, 2004. The availability under this agreement
is expected to be sufficient to meet our ongoing cash needs for working capital
requirements, debt service, capital expenditures and possible strategic
acquisitions. Capital expenditures during fiscal 2004 were incurred to fund cost
reduction programs, normal maintenance and regulatory compliance. Fiscal 2005
capital expenditures are expected to be in the range of $10,000 to $15,000,
primarily to fund investment in our Reynosa, Mexico and Shanghai, China
facilities, as well as cost reduction programs, normal maintenance and
regulatory compliance.

We intend to continue making prudent purchases of our stock, paying down
debt and selectively pursuing complementary acquisitions. Strategic acquisition
opportunities will be expected to enhance C&D's long-term competitive position
and growth prospects and may require external financing. We cannot assure,
however, that we will close on any such acquisitions.

Our bank loan agreement permits dividends to be paid on our Common Stock
as long as there is no default under that agreement. Subject to that restriction
and the provisions of Delaware law, our Board of Directors currently intends to
continue paying dividends. We cannot assure you that we will continue to do so
since future dividends will depend on our earnings, financial condition and
other factors.


26


Contractual Obligations and Commercial Commitments

The following tables summarize our contractual obligations and commercial
commitments as of January 31, 2004:



Payments Due by Period
-------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual Obligations .......................... Total 1 year years years years
----- ------ ----- ----- -----

Operating leases ................................. $19,799 $ 3,299 $ 5,374 $ 4,458 $ 6,668
------- ------- ------- ------- -------
Total contractual cash obligations ............... $19,799 $ 3,299 $ 5,374 $ 4,458 $ 6,668
======= ======= ======= ======= =======



Amount of Commitment Expiration Per Period
-------------------------------------------------------
Total
Other Commercial Commitments ..................... Amounts Less than 1 - 3 4 - 5 After 5
Committed 1 year years years years
--------- ------ ----- ----- -----

Lines of credit .................................. $19,620 -- $19,620 -- --
Standby letters of credit ........................ 3,659 -- 3,659 -- --
------- ------- ------- ------- -------
Total commercial commitments ..................... $23,279 -- $23,279 -- --
======= ======= ======= ======= =======


New Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, except as stated below, and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of SFAS No. 149 should be applied prospectively.

The provisions of SFAS No. 149 relate to SFAS No. 133 implementation
issues that have been effective for fiscal year quarters that began prior to
June 15, 2003 and should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7 (a) and 23 (a), which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. SFAS No. 149 had no
significant impact at the point of adoption on our consolidated statements of
income or financial position.

In December 2003, the FASB issued SFAS No. 132 (revised 2003),"Employers'
Disclosures about Pensions and Other Postretirement Benefits." The revisions to
SFAS No. 132 are intended to improve financial statement disclosures for defined
benefit plans and were initiated in 2003 in response to concerns raised by
investors and other users of financial statements about the need for greater
transparency of pension information. In particular, the standard requires that
companies provide more detail about their plan assets, benefit obligations, cash
flows, benefit costs and other relevant quantitative and qualitative
information. The guidance is effective for fiscal years ending after December
15, 2003. C&D has complied with these revised disclosure requirements.


27


Item 7A. Quantitative and Qualitative Disclosure About Market Risk

All dollar amounts in this Item 7A are in thousands.

Market Risk Factors

We are exposed to various market risks. The primary financial risks
include fluctuations in interest rates and changes in currency exchange rates.
We manage these risks by using derivative instruments. We do not invest in
derivative securities for speculative purposes, but do enter into hedging
arrangements in order to reduce our exposure to fluctuations in interest rates
as well as to fluctuations in exchange rates.

Our financial instruments that are subject to interest rate risk consist
of debt instruments and interest rate swap contracts. The net market value of
our debt instruments was $19,620 and $39,919 at January 31, 2004 and 2003,
respectively. The debt instruments are subject to variable rate interest, and
therefore the market value is not sensitive to interest rate movements.

Interest rate swap contracts are used to manage our exposure to
fluctuations in interest rates on our underlying variable rate debt instruments.
We employ separate swap transactions rather than fixed rate obligations to take
advantage of the lower borrowing costs associated with floating rate debt while
also eliminating possible risk related to refinancing in the fixed rate market.

The net market value of our interest rate swaps was $(1,486) and $(1,898)
at January 31, 2004 and 2003, respectively. A 100-basis point increase in rates
at January 31, 2004 and 2003 would result in a $405 and a $525 increase in the
market value, respectively. A 100-basis point decrease in rates at January 31,
2004 and 2003 would result in a $404 and a $693 decrease in the market value,
respectively.

The above sensitivity analysis assumes an instantaneous 100-basis point
move in interest rates from their year-end levels, with all other variables held
constant. We calculate the market value of the interest rate swaps by utilizing
a standard net present value model based on the market conditions as of the
valuation date.

We use currency forwards and swaps to hedge anticipated cash flows in
foreign currencies. The exposures currently hedged are the British Pound, the
Euro, the Mexican Peso and Canadian Dollar. These financial instruments
represent a net market value of $(923) and $(258) at January 31, 2004 and 2003,
respectively.

To monitor our currency exchange rate risk, we use sensitivity analysis to
measure the impact on earnings in the case of a 10% change in exchange rates.

The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from year-end levels, with all other variables being
held constant. At January 31, 2004 and 2003, a 10% strengthening of the US
Dollar versus these currencies would result in an increase of the net market
value of the forwards of $2,522 and $2,695, respectively. At January 31, 2004
and 2003, a 10% weakening of the US Dollar versus these currencies would result
in a decrease in the net market value of the forwards of $3,092 and $2,739,
respectively.

The market value of the instruments was determined by taking into
consideration the contracted interest rates and foreign exchange rates versus
those available for similar maturities in the market at January 31, 2004 and
2003, respectively.

Foreign exchange forwards are used to hedge our firm and anticipated
foreign currency cash flows. There is either a balance sheet or cash flow
exposure related to all of the financial instruments in the above sensitivity
analysis for which the impact of a movement in exchange rates would be in the
opposite direction and substantially equal to the impact on the instruments in
the analysis.


28


Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data listed in Item 15(a)(1)
hereof are incorporated herein by reference and are filed as part of this
report.

Item 9. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures:

C&D's management, with the participation of C&D's Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of C&D's disclosure
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, C&D's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, C&D's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by C&D in the reports that it files or submits under the Exchange Act.

Internal Control over Financial Reporting:

There have not been any changes in C&D'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 fourth quarter of fiscal 2004 that have materially
affected, or are reasonably likely to materially affect, C&D's internal control
over financial reporting.


29


PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item 10 is incorporated by reference to
the information under the captions "Election of Directors," "Current Executive
Officers" and "Compliance with Section 16(a)" of the Securities Exchange Act of
1934" included in C&D's proxy statement for our 2004 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission.

Item 11. Executive Compensation

The information required by this Item 11 is incorporated by reference to
the information under the caption "Executive Compensation" included in C&D's
proxy statement for our 2004 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The information required by this Item 12 is incorporated by reference to
the information under the captions "Principal Stockholders," "Beneficial
Ownership of Management" and "Equity Compensation Plan Information" included in
C&D's proxy statement for our 2004 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission.

Item 13. Certain Relationships and Related Transactions

None.

Item 14. Principal Auditor Fees and Services

The information required by this Item 14 is incorporated by reference to
the information under the captions "Report of the Audit Committee -- Fees of
Independent Auditors" included in C&D's proxy statement for our 2004 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission.


30


PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this report:

(1) The following financial statements are included in this report on
Form 10-K:

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

Report of Independent Auditors

Consolidated Balance Sheets as of January 31, 2004 and 2003

Consolidated Statements of Income for the years ended January 31,
2004, 2003 and 2002

Consolidated Statements of Stockholders' Equity for the years ended
January 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the years ended January
31, 2004, 2003 and 2002

Consolidated Statements of Comprehensive Income for the years ended
January 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

(2) The following financial statement schedule is included in this
report on Form 10-K:

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES for the years ended January
31, 2004, 2003 and 2002

II. Valuation and Qualifying Accounts

(3) Exhibits:

3.1 Restated Certificate of Incorporation of C&D, as amended
(incorporated by reference to Exhibits 3.1 and 3.2 to C&D's
Current Report on Form 8-K dated June 30, 1998).

3.2 Amended and Restated By-laws of C&D (incorporated by reference
to Exhibit 3.1 to C&D's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 2002).

4.1 Rights Agreement dated as of February 22, 2000 between C&D and
Mellon Investor Services, LLC (formerly ChaseMellon
Shareholder Services, L.L.C.), as rights agent, which includes
as Exhibit B thereto the form of rights certificate
(incorporated by reference to Exhibit 1 to C&D's Form 8-A
Registration Statement filed on February 28, 2000).

10.1 Purchase Agreement dated November 27, 1985, between Allied,
Allied Canada Inc. and C&D; Amendments thereto dated January
28 and October 8, 1986 (incorporated by reference to Exhibit
10.1 to C&D's Registration Statement on Form S-1, No.
33-10889).


31


10.2 Agreement dated December 15, 1986 between C&D and Allied
(incorporated by reference to Exhibit 10.2 to C&D's
Registration Statement on Form S-1, No. 33-10889).

10.3 Lease Agreement dated February 15, 1994 by and between
Sequatchie Associates, Incorporated and C&D Charter Power
Systems, Inc. (which has since been merged into C&D)
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1999);
Extension and Modification Agreement effective December 19,
2003 (filed herewith).

10.4 Purchase and Sale Agreement, dated as of November 23, 1998
among Johnson Controls, Inc. and its subsidiaries as Seller
and C&D and C&D Acquisition Corp. as Purchaser (incorporated
by reference to Exhibit 2.1 to C&D's Current Report on Form
8-K dated March 1, 1999).

10.5 Amended and Restated Credit Agreement dated as of November 20,
2003 among C&D Technologies, Inc. as the borrower, the
Subsidiaries of the Borrower identified herein as the
Guarantors, Bank of America, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer, JP Morgan Chase Bank as
Co-Agent, and the other Lenders Party Hereto arranged by Banc
of America Securities LLC, as Sole Lead Arranger and Sole Book
Manager (incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended October
31, 2003).

10.6 Uncommitted loan facility dated June 5, 2001 between C&D
Holdings Limited and ABN Amro Bank N.V. (incorporated by
reference to Exhibit 10.2 to C&D's Quarterly Report on Form
10-Q for the period ended April 30, 2001).

10.7 Asset Purchase Agreement among Matsushita Battery Industrial
Corporation of America, Matsushita Battery Industrial de
Mexico, S.A. de C.V., C&D Technologies, Inc. and C&D
Technologies Reynosa, S. de R.L. de C.V., dated as of August
27, 2003 (incorporated by reference to C&D's Current Report on
Form 8-K dated September 25, 2003).

Management Contracts or Plans

10.8 Charter Power Systems, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.1 to C&D's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1996),
First Amendment to C&D Technologies, Inc. 1996 Stock Option
Plan (formerly known as the Charter Power Systems, Inc. 1996
Stock Option Plan) dated April 27, 1999 (incorporated by
reference to Exhibit 10.3 to C&D's Quarterly Report on Form
10-Q for the quarter ended July 31, 1999).

10.9 C&D Technologies, Inc. Amended and Restated 1998 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to C&D's
Annual Report on Form 10-K for fiscal year ended January 31,
2001).

10.10 C&D Technologies, Inc. Savings Plan as restated and amended
(incorporated by reference to Exhibit 10.9 to C&D's Annual
Report on Form 10-K for fiscal year ended January 31, 2002),
First Amendment thereto dated June 12, 2002 (incorporated by
reference to Exhibit 10.10 to C&D's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002), Second Amendment
thereto dated November 20, 2002 (incorporated by reference to
Exhibit 10.11 to C&D's Quarterly Report on Form 10-Q for the
quarter ended October 31, 2002); Third Amendment thereto dated
June 18, 2003 (incorporated by reference to


32

Exhibit 10.1 to C&D's Quarterly Report on Form 10-Q for the
quarter ended July 31, 2003).

10.11 C&D Technologies, Inc. Pension Plan for Salaried Employees as
restated and amended (incorporated by reference to Exhibit
10.10 to C&D's Annual Report on Form 10-K for fiscal year
ended January 31, 2002); First Amendment thereto dated June
12, 2002 (incorporated by reference to Exhibit 10.3 to C&D's
Quarterly Report on Form 10-Q for the quarter ended April 30,
2003); Second Amendment thereto dated September 25, 2002
(incorporated by reference to Exhibit 10.4 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2003);
Third Amendment thereto dated March 19, 2004 (filed herewith).

10.12 Supplemental Executive Retirement Plan compiled as of February
27, 2004 to reflect all amendments (filed herewith).

10.13 C&D Technologies, Inc. Management Incentive Bonus Plan Policy
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended April 30, 2003).

10.14 Employment Agreement dated November 28, 2000 between Wade H.
Roberts, Jr. and C&D (incorporated by reference to Exhibit
10.1 to C&D's Quarterly Report on Form 10-Q for the quarter
ended October 31, 2000).

10.15 Employment Agreement dated March 31, 2000 between Stephen E.
Markert, Jr. and C&D (incorporated by reference to Exhibit
10.14 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000).

10.16 Employment Agreement dated March 31, 2000 between Linda R.
Hansen and C&D (incorporated by reference to Exhibit 10.15 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2000).

10.17 Employment Agreement dated March 31, 2000 between Charles R.
Giesige, Sr. and C&D (incorporated by reference to Exhibit
10.18 to C&D's Annual Report on Form 10-K for the fiscal year
ended January 31, 2000); Letter dated January 27, 2004 to
Charles R. Giesige, Sr. amending Employment Agreement dated
March 31, 2000 (filed herewith).

10.18 Employment Agreement dated February 27, 2001 between John A.
Velker and C&D (incorporated by reference to Exhibit 10.18 to
C&D's Annual Report on Form 10-K for the fiscal year ended
January 31, 2003).

10.19 Employment Agreement dated March 1, 2001 between David A. Fix
and C&D (incorporated by reference to Exhibit 10.21 to C&D's
Annual Report on Form 10-K for the fiscal year ended January
31, 2001); Letter dated January 29, 2004 to David A. Fix
amending Employment Agreement dated March 1, 2001 (filed
herewith).

10.20 Employment Agreement dated August 6, 2001 between James D.
Johnson and C&D (incorporated by reference to Exhibit 10.2 to
C&D's Quarterly Report on Form 10-Q for the quarter ended
October 31, 2001).

10.21 Employment Agreement dated July 24, 2002 between Robert M.
Scott and C&D (incorporated by reference to Exhibit 10.3 to
C&D's Quarterly Report on Form 10-Q for quarter ended July 31,
2002).


33


10.22 Employment Agreement dated July 28, 2003 between Stan Wreford
and C&D (incorporated by reference to Exhibit 10.1 to C&D's
Quarterly Report on Form 10-Q for the quarter ended July 31,
2003).

10.23 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and William Harral, III
(incorporated by reference to Exhibit 10.2 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.24 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Wade H. Roberts, Jr.
(incorporated by reference to Exhibit 10.3 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.25 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Peter R. Dachowski
(incorporated by reference to Exhibit 10.4 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.26 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Kevin P. Dowd (incorporated
by reference to Exhibit 10.5 to C&D's Quarterly Report on Form
10-Q for the quarter ended October 31, 2002).

10.27 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Robert I. Harries
(incorporated by reference to Exhibit 10.6 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.28 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and Pamela S. Lewis
(incorporated by reference to Exhibit 10.7 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.29 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and George MacKenzie
(incorporated by reference to Exhibit 10.8 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.30 Indemnification Agreement dated as of November 19, 2002 by and
between C&D Technologies, Inc. and John A. H. Shober
(incorporated by reference to Exhibit 10.9 to C&D's Quarterly
Report on Form 10-Q for the quarter ended October 31, 2002).

10.31 Indemnification Agreement dated as of February 24, 2003 by and
between C&D Technologies, Inc. and Stanley W. Silverman
(incorporated by reference to Exhibit 10.33 to C&D's Annual
Report on Form 10-K for the fiscal year ended January 31,
2003).

10.32 C&D Technologies, Inc. Nonqualified Deferred Compensation Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-42054).

10.33 C&D Technologies, Inc. Approved Share Option Plan
(incorporated by reference to Exhibit 4 to C&D's Registration
Statement on Form S-8, No. 333-69266).


34


14 Code of Ethics (filed herewith).

21 Subsidiaries of C&D (filed herewith).

23 Consent of Independent Accountants (filed herewith).

31.1 Rule 13a-14(a)/15d-14(a) Certification of the President and
Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

31.2 Rule 13a-14(a)/15d-14(a) Certification of the Vice President
and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

32.1 Section 1350 Certification of the President and Chief
Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).

32.2 Section 1350 Certification of the Vice President and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith).

(b) Reports on Form 8-K

a. On November 20, 2003, C&D furnished a report on Form
8-K, Item 12 relating to its November 20, 2003 Press
Release.

b. On December 9, 2003, C&D furnished a report on Form
8-K/A, Item 7 relating to its acquisition of a 240,000
square foot facility in Reynosa, Mexico.


35


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

C&D TECHNOLOGIES, INC.

April 14, 2004 By: /s/ Wade H. Roberts, Jr.
------------------------------
Wade H. Roberts, Jr.
President, Chief Executive
Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



Signature Title Date
--------- ----- ----

/s/ Wade H. Roberts, Jr. President, Chief Executive April 14, 2004
- ---------------------------- Officer and Director
Wade H. Roberts, Jr. (Principal Executive Officer)


/s/ Stephen E. Markert, Jr. Vice President and Chief April 14, 2004
- ---------------------------- Financial Officer
Stephen E. Markert, Jr. (Principal Financial and
Accounting Officer)


/s/ William Harral, III Director, Chairman April 14, 2004
- ----------------------------
William Harral, III


/s/ Peter R. Dachowski Director April 14, 2004
- ----------------------------
Peter R. Dachowski


/s/ Kevin P. Dowd Director April 14, 2004
- ----------------------------
Kevin P. Dowd


/s/ Robert I. Harries Director April 14, 2004
- ----------------------------
Robert I. Harries


/s/ Pamela S. Lewis Director April 14, 2004
- ----------------------------
Pamela S. Lewis


/s/ George MacKenzie Director April 14, 2004
- ---------------------------
George MacKenzie


/s/ John A. H. Shober Director April 14, 2004
- ----------------------------
John A. H. Shober


/s/ Stanley W. Silverman Director April 14, 2004
- ---------------------------
Stanley W. Silverman



36





INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

FINANCIAL STATEMENTS
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

Page
----

Report of Independent Auditors ................................. F-2

Consolidated Balance Sheets as of
January 31, 2004 and 2003 .................................... F-3

Consolidated Statements of Income
for the years ended January 31, 2004, 2003
and 2002 ..................................................... F-4

Consolidated Statements of
Stockholders' Equity for the years
ended January 31, 2004, 2003 and 2002 ........................ F-5

Consolidated Statements of Cash Flows
for the years ended January 31, 2004, 2003
and 2002 ..................................................... F-6

Consolidated Statements of Comprehensive
Income for the years ended January 31, 2004,
2003 and 2002 ................................................ F-8

Notes to Consolidated Financial Statements ..................... F-9

FINANCIAL STATEMENT SCHEDULE
C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

For the years ended January 31, 2004, 2003 and 2002

Schedule II. Valuation and Qualifying Accounts ........... S-1


F-1


REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of C&D Technologies, Inc.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 31 present fairly, in all material
respects, the financial position of C&D Technologies, Inc. and subsidiaries (the
"Company") at January 31, 2004 and January 31, 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2004 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index appearing under Item
15(a)(2) on page 31 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 1, the Company adopted Statements of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" on February 1, 2002.


PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 12, 2004


F-2


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
(Dollars in thousands, except par value)



2004 2003
---- ----

ASSETS

Current assets:
Cash and cash equivalents ........................... $ 12,306 $ 12,966
Accounts receivable, less allowance for doubtful
accounts of $1,476 in 2004 and $1,906 in 2003 . 49,838 44,890
Inventories ......................................... 47,175 47,905
Deferred income taxes ............................... 10,356 8,234
Other current assets ................................ 1,262 2,304
--------- ---------
Total current assets .......................... 120,937 116,299
Property, plant and equipment, net ....................... 104,799 112,158
Intangible and other assets, net ......................... 39,799 38,724
Goodwill ................................................. 120,415 114,975
--------- ---------
Total assets .................................. $ 385,950 $ 382,156
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Short-term debt ..................................... $ -- $ 14,062
Accounts payable .................................... 22,246 21,841
Accrued liabilities ................................. 19,495 18,961
Income taxes ........................................ 3,791 --
Other current liabilities ........................... 11,400 7,659
--------- ---------
Total current liabilities ..................... 56,932 62,523
Deferred income taxes .................................... 17,369 10,579
Long-term debt ........................................... 19,620 25,857
Other liabilities ........................................ 14,310 16,613
--------- ---------
Total liabilities ............................. 108,231 115,572

Commitments and contingencies

Minority interest ........................................ 8,186 8,310

Stockholders' equity:
Common stock, $.01 par value, 75,000,000
shares authorized; 28,605,747 and 28,509,803
shares issued in 2004 and 2003, respectively .. 286 285
Additional paid-in capital .......................... 70,619 69,152
Treasury stock, at cost, 3,196,508 and
2,810,280 shares in 2004 and 2003, respectively (44,481) (38,409)
Accumulated other comprehensive income .............. 3,259 881
Retained earnings ................................... 239,850 226,365
--------- ---------
Total stockholders' equity .................... 269,533 258,274
--------- ---------
Total liabilities and stockholders' equity .... $ 385,950 $ 382,156
========= =========


See notes to consolidated financial statements.


F-3


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended January 31,
(Dollars in thousands, except per share data)

2004 2003 2002
---- ---- ----

Net sales .................................. $324,824 $335,745 $471,641
Cost of sales .............................. 248,145 257,046 343,370
-------- -------- --------
Gross profit .................... 76,679 78,699 128,271

Selling, general and administrative expenses 40,459 35,136 50,406
Research and development expenses .......... 9,542 9,509 10,291
-------- -------- --------
Operating income ................ 26,678 34,054 67,574

Interest expense, net ...................... 1,268 3,800 6,700
Other expense, net ......................... 1,641 1,457 1,239
-------- -------- --------
Income before income taxes
and minority interest ......... 23,769 28,797 59,635

Provision for income taxes ................. 8,795 9,414 22,244
-------- -------- --------
Net income before minority
interest ...................... 14,974 19,383 37,391

Minority interest .......................... 83 91 1,317
-------- -------- --------
Net income ...................... $ 14,891 $ 19,292 $ 36,074
======== ======== ========

Net income per common share - basic ........ $ 0.58 $ 0.75 $ 1.38

Net income per common share - diluted ...... $ 0.58 $ 0.74 $ 1.35

See notes to consolidated financial statements.



F-4


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended January 31, 2004, 2003 and 2002
(Dollars in thousands, except per share data)


Common Stock Treasury Stock Accumulated
--------------------- Additional ---------------------- Other
Paid-In Comprehensive Retained
Shares Amount Capital Shares Amount Income (Loss) Earnings
------ ------ ------- ------ ------ ------------- --------

Balance as of
January 31, 2001 ......... 28,276,917 $ 283 $ 62,908 (1,986,038) $ (17,750) $ (1,231) $173,844
Net income ................. 36,074
Dividends to stockholders,
$.055 per share .......... (1,437)
Tax effect relating to stock
options exercised ........ 755
Cumulative effect of
accounting change ........ (103)

Foreign currency translation
adjustment ............... (676)
Unrealized loss on
derivative instruments ... (1,047)
Purchase of common stock ... (414,563) (11,634)
Deferred compensation plan . (13,560) (359)
Issuance of common stock ... 6,911 185
Stock options exercised .... 147,900 1 2,045
----------- -------- -------- ----------- ----------- -------- --------
Balance as of
January 31, 2002 ......... 28,431,728 284 65,893 (2,414,161) (29,743) (3,057) 208,481
Net income ................. 19,292
Dividends to stockholders,
$.055 per share .......... (1,408)
Tax effect relating to stock
options exercised ........ 179
Foreign currency translation
adjustment ............... 3,926
Unrealized gain on
derivative instruments ... 12
Purchase of common stock ... (585,800) (9,792)
Deferred compensation plan . (50) (3,319) (16)
Issuance of common stock ... 7,741 2,247 193,000 1,142
Stock options exercised .... 70,334 1 883
----------- -------- -------- ----------- ----------- -------- --------
Balance as of
January 31, 2003 ......... 28,509,803 285 69,152 (2,810,280) (38,409) 881 226,365
Net income ................. 14,891
Dividends to stockholders,
$.055 per share .......... (1,406)
Tax effect relating to stock
options exercised ........ 162
Foreign currency translation
adjustment ............... 2,132
Unrealized gain on
derivative instruments ... 246
Purchase of common stock ... (374,000) (5,887)
Deferred compensation plan . (1) (12,228) (185)
Issuance of common stock ... 12,842 183
Stock options exercised .... 83,102 1 1,123
----------- -------- -------- ----------- ----------- -------- --------
Balance as of
January 31, 2004 ......... 28,605,747 $ 286 $ 70,619 (3,196,508) $ (44,481) $ 3,259 $239,850
=========== ======== ======== =========== =========== ======== ========


See notes to consolidated financial statements.


F-5


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 31,
(Dollars in thousands)



2004 2003 2002
---- ---- ----

Cash flows provided (used) by operating activities:
Net income ........................................... $ 14,891 $ 19,292 $ 36,074
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest .................................... 83 91 1,317
Depreciation and amortization ........................ 22,534 23,740 30,049
Impairment of goodwill ............................... -- 489 --
Deferred income taxes ................................ 4,668 9,900 2,301
Loss/(gain) on disposal of assets .................... 208 (955) 346
Changes in assets and liabilities, net of effects from
business acquired:
Accounts receivable ....................... (1,096) 780 43,065
Inventories ............................... 1,249 14,713 15,375
Other current assets ...................... (251) 185 305
Accounts payable .......................... 325 3,760 (22,665)
Accrued liabilities ....................... (2,321) (2,915) (12,097)
Income taxes payable ...................... 5,237 4,414 (7,392)
Other current liabilities ................. 3,750 (560) (579)
Other liabilities ......................... (2,302) (1,673) (4,870)
Other long-term assets .................... (1,128) (11,649) (239)
Other, net ................................ (4,469) (4,462) 780
-------- -------- --------
Net cash provided by operating activities ............. 41,378 55,150 81,770
-------- -------- --------

Cash flows provided (used) by investing activities:
Acquisition of business, net of cash acquired ........ (12,116) -- --
Acquisition of property, plant and equipment ......... (3,697) (7,163) (26,826)
Proceeds from disposal of property,
plant and equipment ................................ 165 3,652 39
-------- -------- --------
Net cash used by investing activities ................. (15,648) (3,511) (26,787)
-------- -------- --------

Cash flows provided (used) by financing activities:
Repayment of debt .................................... (20,000) (35,655) (52,131)
Proceeds from new borrowings ......................... -- -- 8,662
Financing cost of long term debt ..................... (407) (118) --
Proceeds from issuance of common stock, net .......... 1,123 884 1,927
Purchase of treasury stock ........................... (5,770) (10,899) (10,841)
Payment of common stock dividends .................... (1,406) (1,766) (1,441)
Payment of minority interest dividends ............... (207) (94) --
-------- -------- --------
Net cash used by financing activities ................. (26,667) (47,648) (53,824)
-------- -------- --------

Effect of exchange rate changes on cash ............... 277 194 (87)
-------- -------- --------

(Decrease)/increase in cash and cash equivalents ...... (660) 4,185 1,072
-------- -------- --------

Cash and cash equivalents at beginning of year ........ 12,966 8,781 7,709
-------- -------- --------

Cash and cash equivalents at end of year .............. $ 12,306 $ 12,966 $ 8,781
======== ======== ========


See notes to consolidated financial statements.


F-6


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended January 31,
(Dollars in thousands)

2004 2003 2002
---- ---- ----

SUPPLEMENTAL CASH FLOW DISCLOSURES

Cash paid (received) during the year for:

Interest paid, net .................... $ 1,405 $ 4,478 $ 7,277

Income taxes paid (refunded), net ..... $ 623 $ (3,737) $ 26,650

SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES

Acquired business:
Estimated fair value of assets acquired $ 10,980 $ -- $ --
Identifiable intangible assets ........ 3,936 -- --
Cash paid, net of cash acquired ....... (12,116) -- --
-------- -------- --------
Liabilities ........................... $ 2,800 $ -- $ --
======== ======== ========

Dividends declared but not paid .......... $ -- $ -- $ 358

Annual retainer to Board of Directors paid
by the issuance of common stock ........ $ 183 $ 171 $ 185

Decrease in property, plant and equipment
acquisitions in accounts payable ....... $ (368) $ (789) $ (4,539)

Note received as part of fixed asset sale $ -- $ 2,000 $ --

Fair market value of treasury stock issued
to pension plans ....................... $ -- $ 3,218 $ --


See notes to consolidated financial statements.


F-7


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended January 31,
(Dollars in thousands)



2004 2003 2002
---- ---- ----

Net income ............................................ $14,891 $19,292 $ 36,074

Other comprehensive income (loss), net of tax:

Cumulative effect of accounting change ............. -- -- (103)

Net unrealized gain (loss) on derivative instruments 246 12 (1,047)

Foreign currency translation adjustments ........... 2,132 3,926 (676)
------- ------- --------

Total comprehensive income ............................ $17,269 $23,230 $ 34,248
======= ======= ========


See notes to consolidated financial statements.


F-8


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The consolidated financial statements include the accounts of C&D
Technologies, Inc., its wholly owned subsidiaries and a 67% owned joint venture
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated.

The Company produces and markets systems for the conversion and storage of
electrical power, including industrial batteries and electronics. On January 28,
1986, the Company purchased substantially all of the assets of the C&D Power
Systems division of Allied Corporation ("Allied") (the "Acquisition"). The
Company's reportable business segments consist of the Dynasty Division, the
Powercom Division, the Power Electronics Division and the Motive Power Division.
Effective February 1, 2004, the Company combined the Dynasty and Powercom
divisions into the Standby Power Division. (See Note 15.)

Accounting Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Foreign Currency Translation:

Assets and liabilities in foreign currencies are translated into U.S.
dollars at the rate of exchange prevailing at the balance sheet date. Revenue
and expenses are translated at the average rate of exchange for the period.
Gains and losses on foreign currency transactions are included in other
expenses, net. Gains and losses on foreign currency translation are included in
Other Comprehensive Income.

Derivative Financial Instruments:

On February 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments.
Specifically, SFAS No. 133 requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure those instruments at fair value. Additionally, the fair value
adjustments will affect either stockholders' equity as accumulated other
comprehensive income or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so, the nature
of the hedging activity. As of February 1, 2001, the adoption of the standard
resulted in a net-of-tax cumulative effect decrease of $103 recorded in
accumulated other comprehensive income.


F-9


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In the normal course of business, the Company uses a variety of derivative
financial instruments primarily to manage currency exchange rate and interest
rate risk. All derivatives are recognized on the balance sheet at fair value and
are generally reported in accrued liabilities. To qualify for hedge accounting,
the instruments must be effective in reducing the risk exposure that they are
designed to hedge. For instruments that are associated with the hedge of an
anticipated transaction, hedge effectiveness criteria also require that it be
probable that the underlying transaction will occur. Instruments that meet
established accounting criteria are formally designated as hedges at the
inception of the contract. These criteria demonstrate that the derivative is
expected to be highly effective at offsetting changes in fair value of the
underlying exposure both at inception of the hedging relationship and on an
ongoing basis. The assessment for effectiveness is formally documented at hedge
inception and reviewed at least quarterly throughout the designated hedge
period.

The Company uses interest rate swap agreements to reduce the impact of
interest rate changes on its debt. The interest rate swap agreements involve the
exchange of variable for fixed rate interest payments without the exchange of
the underlying notional amount.

Cash and Cash Equivalents:

The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents. The Company's
cash management program utilizes zero balance accounts. Accordingly, all book
overdraft balances have been reclassified to accounts payable and amounted to
$4,921 and $4,501 at January 31, 2004 and 2003, respectively.

Revenue Recognition:

The Company recognizes revenue when the earnings process is complete. This
occurs when products are shipped to the customer in accordance with terms of the
agreement, title and risk of loss have been transferred, collectibility is
reasonably assured and pricing is fixed or determinable. Accruals are made for
sales returns and other allowances based on the Company's experience. Amounts
charged to customers for shipping and handling are classified as revenue. The
Company accounts for sales rebates as a reduction in revenue at the time revenue
is recorded.

Inventories:

Inventories are stated at the lower of cost or net realizable value. Cost
is generally determined by the last-in, first-out ("LIFO") method for financial
statement and federal income tax purposes.

Property, Plant and Equipment:

Property, plant and equipment acquired as of the Acquisition were recorded
at the then fair market value. Property, plant and equipment acquired subsequent
to the Acquisition are recorded at cost or fair market value if part of an
acquisition. Property, plant and equipment, including capital leases, are


F-10


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

depreciated on the straight-line method for financial reporting purposes over
estimated useful lives which generally range from 3 to 10 years for machinery
and equipment, and 10 to 40 years for buildings and improvements. The Company
capitalizes interest on borrowings during the active construction period of
major capital projects. Capitalized interest is added to the cost of the
underlying assets and is amortized over the useful lives of the assets.

The cost of maintenance and repairs is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or other disposition
of items of property, plant and equipment, the cost of the item and related
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.

The Company capitalizes purchased software, including certain costs
associated with its installation. The cost of software capitalized is amortized
over its estimated useful life, generally 3 to 5 years, using the straight-line
method.

Identified Intangible Assets, Net:

Acquisition-related intangibles are amortized on a straight-line basis
over periods ranging from 5 to 20 years. Intellectual property assets are
amortized over the periods of benefit, ranging from 5 to 20 years, on a
straight-line basis. All identified intangible assets are classified within
intangible and other assets, net on the balance sheet.

Long-Lived Assets:

The Company follows SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived Assets", which requires periodic evaluation of the recoverability
of the carrying amount of long-lived assets (including property, plant and
equipment, and intangible assets with determinable lives) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Events or changes in circumstances are evaluated based on
a number of factors including operating results, business plans and forecasts,
general and industry trends and, economic projections and anticipated cash
flows. An impairment is assessed when the undiscounted expected future cash
flows derived from an asset are less than its carrying amount. Impairment losses
are measured as the amount by which the carrying value of an asset exceeds its
fair value and are recognized in earnings. The Company also continually
evaluates the estimated useful lives of all long-lived assets and periodically
revises such estimates based on current events.

Goodwill:

On February 1, 2002, the Company completed the adoption of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." As required by SFAS No. 142, the Company discontinued amortizing the
remaining balances of goodwill as of the beginning of fiscal 2002. Through
January 31, 2002, goodwill had been amortized over 20 to 40 years. All remaining
and future acquired goodwill will be subject to an impairment test in the fourth
quarter of each year, or earlier if indicators of potential impairment exist,
using a fair-value-based approach. The


F-11


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Company completed the initial goodwill impairment review as of the beginning of
fiscal 2003 and concluded that no impairment of goodwill existed at that time.
The Company completed the annual impairment review during the fourth quarter of
fiscal 2003 and recorded an impairment of $496 included in selling, general and
administrative expenses, which represented all of the goodwill in the Motive
Power Division. No impairment to goodwill existed in any of the other divisions
as of January 31, 2003. The Company completed the annual impairment review
during the fourth quarter of fiscal 2004 and found that no impairment existed as
of January 31, 2004.

Upon adoption of the new business combinations rules, workforce-in-place
no longer meets the definition of an identifiable intangible asset. As a result,
as of the beginning of fiscal 2003, the net book value of $879 has been
reclassified to goodwill. (See Note 3.)

A reconciliation of previously reported net income and earnings per share
to the amounts adjusted for the exclusion of goodwill and workforce-in-place
amortization, net of the related income tax effect, is as follows:

Year ended January 31,
----------------------------
2004 2003 2002
---- ---- ----

Reported net income ................. $14,891 $19,292 $36,074
Goodwill amortization, net of tax ... -- -- 3,995
------- ------- -------
Adjusted net income ................. $14,891 $19,292 $40,069
======= ======= =======

Reported net income per
common share - basic .............. $ 0.58 $ 0.75 $ 1.38
Goodwill amortization, net of tax ... -- -- 0.15
------- ------- -------
Adjusted net income per
common share - basic .............. $ 0.58 $ 0.75 $ 1.53
======= ======= =======

Reported net income per
common share - diluted ............ $ 0.58 $ 0.74 $ 1.35
Goodwill amortization, net of tax ... -- -- 0.15
------- ------- -------
Adjusted net income per
common share - diluted ............ $ 0.58 $ 0.74 $ 1.50
======= ======= =======


F-12


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other Current Liabilities:

Accrued worker's compensation insurance of $3,266 and $3,126 is included
in other current liabilities as of January 31, 2004 and 2003, respectively.

Environmental Matters:

Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation, are also expensed. The Company records liabilities for
environmental costs when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated. The liability for future
environmental remediation costs is evaluated on a quarterly basis by management.

Income Taxes:

The Company follows SFAS No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using tax rates in effect for the year in which the
differences are expected to reverse.

Net Income Per Share:

Net income per common share for the fiscal years ended January 31, 2004,
2003 and 2002 is based on the weighted average number of shares of Common Stock
outstanding. Net income per common share - diluted reflects the potential
dilution that could occur if stock options were exercised. Weighted average
common shares and common shares - diluted were as follows:

January 31,
------------------------------
2004 2003 2002
---- ---- ----
Weighted average
shares of common stock
outstanding ................ 25,536,628 25,818,024 26,153,715
Assumed conversion of
stock options, net of shares
assumed reacquired ......... 195,333 207,155 534,296
---------- ---------- ----------
Weighted average common
shares - diluted ........... 25,731,961 26,025,179 26,688,011
========== ========== ==========

During the years ended January 31, 2004, 2003 and 2002, the Company had
1,001,762, 1,176,034, and 112,308, respectively, outstanding stock options that
were excluded from the calculation of diluted earnings per share because their
inclusion would have been antidilutive. These stock options could be dilutive in
the future.


F-13


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-Based Compensation Plans:

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Accounting and
Disclosure." SFAS No. 148, which is an amendment of SFAS No. 123, provides
alternative recognition transition methods for a voluntary change from the
intrinsic method, permitted under APB Opinion No. 25, to the fair value based
method of accounting for stock based employee compensation. SFAS No. 148 also
requires more prominent disclosure about the effects on reported net income of
an entity's accounting policy decisions with respect to stock based employee
compensation and requires disclosure about those effects in interim financial
information. Prior to SFAS No. 148, disclosures about the effects of stock based
employee compensation were only required in annual financial information.
Disclosure prominence is to be achieved by placing certain disclosures related
to stock based employee compensation in the summary of significant accounting
policies. The Company has adopted the disclosure provisions of SFAS No. 148
effective as of January 31, 2003. The adoption of the new standard did not have
any impact on the Company's financial position or results of operations.

The Company accounts for its fixed stock option plans under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost is recognized for its fixed stock
option plans. SFAS No. 123, "Accounting for Stock-Based Compensation" allows,
but does not require, companies to record compensation cost for fixed stock
option plans using a fair value based method. As permitted by SFAS No. 123, the
Company elected to continue to account for compensation cost for its fixed stock
option plans using the intrinsic value based method under APB No. 25.

If the Company had elected to recognize compensation cost based on fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
income and net income per common share would have approximated the pro forma
amounts shown below:



2004 2003 2002
---- ---- ----

Net income - as reported ................................. $ 14,891 $ 19,292 $ 36,074
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ............................. 3,382 4,259 4,489
-------- -------- --------
Net income - pro forma ................................... $ 11,509 $ 15,033 $ 31,585
======== ======== ========
Net income per common share - basic - as reported ........ $ 0.58 $ 0.75 $ 1.38
Net income per common share - basic - pro forma .......... $ 0.45 $ 0.58 $ 1.21
Net income per common share - diluted - as reported ...... $ 0.58 $ 0.74 $ 1.35
Net income per common share - diluted - pro forma ........ $ 0.45 $ 0.58 $ 1.18
Weighted average fair value of options
granted during the year ................................ $ 7.79 $ 9.30 $ 15.06



F-14


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2004, 2003 and 2002:

2004 2003 2002
---- ---- ----

Risk-free interest rate ......... 2.80% 4.42% 4.84%
Expected dividend yield ......... 0.34% 0.27% 0.17%
Expected volatility factor ...... 0.537 0.477 0.448
Weighted average expected life... 5.00 years 5.00 years 5.00 years

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.

New Accounting Pronouncements:

In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of SFAS No. 149 should be applied prospectively.

The provisions of SFAS No. 149 relate to SFAS No. 133 implementation
issues that have been effective for fiscal year quarters that began prior to
June 15, 2003 and should continue to be applied in accordance with their
respective effective dates. In addition, paragraphs 7 (a) and 23 (a), which
relate to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both existing contracts
and new contracts entered into after June 30, 2003. SFAS No. 149 had no
significant impact at the point of adoption on the Company's consolidated
statements of income or financial position.

In December 2003, the FASB issued SFAS No. 132 (revised 2003),"Employers'
Disclosures about Pensions and Other Postretirement Benefits." The revisions to
SFAS 132 are intended to improve financial statement disclosures for defined
benefit plans and was initiated in 2003 in response to concerns raised by
investors and other users of financial statements about the need for greater
transparency of pension information. In particular the standard requires that
companies provide more details about their plan assets, benefit obligations,
cash flows, benefit costs and other relevant quantitative and


F-15


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

qualitative information. The guidance is effective for fiscal years ending after
December 15, 2003. The Company has complied with these revised disclosure
requirements. (See Note 13)

2. ACQUISITION

On September 25, 2003, the Company and its wholly owned Mexican
subsidiary, C&D Technologies Reynosa, S. de R.L. de C.V., acquired from
Matsushita Battery Industrial Corporation of America, and its Mexican
subsidiary, Matsushita Battery Industrial de Mexico, S.A. de C.V., a 240,000
square foot facility in Reynosa, Mexico and the equipment in that facility
historically used for the manufacture of large, valve regulated lead acid
batteries ("VRLA Batteries") for standby power applications. In addition, the
Company has entered into a worldwide technology license agreement with
Matsushita Battery Industrial Co. Ltd. of Japan for selected patents and
know-how relating to the manufacturing technology for the aforementioned
products. The cost of this acquisition, including the technology agreement, was
approximately $14,000, plus additional acquisition related costs. The Company
intends to use the facility for the manufacture of batteries. The results of
operations of this business are included in the Company's consolidated financial
statements from the date of acquisition.

The Company funded the foregoing transaction with the Company's working
capital funds, and its existing credit agreement. Additionally, $2,800 of the
cost of the technology agreement is due in October 2004 and is recorded in other
current liabilities in the consolidated balance sheet as of January 31, 2004.

The allocation of the purchase price resulted in identifiable intangible
assets of $3,936, which are being amortized on a straight-line basis over ten
years. For reporting purposes, this acquisition is included in the Powercom
Division.

The following unaudited pro forma financial information combines the
consolidated results of operations as if the foregoing transaction had occurred
as of the beginning of the period presented. Pro forma adjustments include only
the effects of events directly attributed to a transaction that are factually
supportable. The pro forma adjustments contained in the table below include
amortization of intangibles, depreciation adjustments due to the write-down of
property, plant and equipment to estimated fair value, interest expense on the
acquisition debt and related income tax effects.

(Unaudited)
January 31,
2003
----
Net Sales ............................................. $ 337,326
Net Income ............................................ $ 8,529
Net Income per common share - basic ................... $ 0.33
Net Income per common share - diluted ................. $ 0.33


F-16


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

2. ACQUISITION (continued)

The pro forma financial information does not necessarily reflect the
operating results that would have occurred had the acquisition been consummated
as of February 1, 2002, nor is such information indicative of future operating
results.

Pro forma amounts are not presented for the year ended January 31, 2004 as
the acquisition did not have any material effect on the Company's results of
operations or financial condition due to the insignificant level of operations
during the approximately eight month period ended September 25, 2003 at the
Reynosa facility.

3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

Goodwill:

During the years ended January 31, 2004 and 2003, no goodwill was
acquired. Goodwill by operating segment was adjusted as follows:



Power Motive
Dynasty Powercom Electronics Power Total
------- -------- ----------- ----- -----

Goodwill, January 31, 2002 ....... $57,939 $ 1,376 $47,551 $ 493 $ 107,359
Assembled workforce reclassified . -- -- 879 -- 879
Effect of exchange rate changes on
goodwill ........................ 192 7 7,031 3 7,233
Impairment of goodwill ........... -- -- -- (496) (496)
------- ------- ------- ------- ---------
Goodwill, January 31, 2003 ....... $58,131 $ 1,383 $55,461 -- $ 114,975
Effect of exchange rate changes on
goodwill ........................ 148 -- 5,292 -- 5,440
------- ------- ------- ------- ---------
Goodwill, January 31, 2004 ....... $58,279 $ 1,383 $60,753 $ -- $ 120,415
======= ======= ======= ======= =========


Identified Intangible Assets:

During the year ended January 31, 2004, no acquisition-related intangibles
were impaired. The Company acquired $3,936 of intellectual property in the
Reynosa acquisition. Identified intangible assets as of January 31, 2004
consisted of the following:

Gross Accumulated
Assets Amortization Net
------ ------------ ---

Trade names .............. $17,840 $(4,386) $13,454
Intellectual property .... 10,269 (4,737) 5,532
Other .................... 2,045 (797) 1,248
------- ------- -------

Total intangible assets .. $30,154 $(9,920) $20,234
======= ======= =======


F-17


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

3. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS (continued)

During the year ended January 31, 2003, no acquisition-related intangible
assets were acquired or impaired. Identified intangible assets as of January 31,
2003 consisted of the following:

Gross Accumulated
Assets Amortization Net
------ ------------ ---

Trade names .............. $17,840 $(3,494) $14,346
Intellectual property .... 7,805 (5,516) 2,289
Other .................... 2,405 (989) 1,416
------- ------- -------

Total intangible assets .. $28,050 $(9,999) $18,051
======= ======= =======

Based on intangibles recorded at January 31, 2004, the annual amortization
expense is expected to be as follows (assuming current exchange rates):

2005 2006 2007 2008 2009
---- ---- ---- ---- ----

Trade names ........... $ 892 $ 892 $ 892 $ 892 $ 892
Intellectual property . 647 595 419 358 306
Other ................. 77 74 33 27 27
------ ------ ------ ------ ------

Total intangible assets $1,616 $1,561 $1,344 $1,277 $1,225
====== ====== ====== ====== ======

Amortization of identified intangibles was $2,031, $1,922 and $1,867 for
the years ended January 31, 2004, 2003 and 2002.


F-18


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

4. INVENTORIES

Inventories consisted of the following:

January 31,
-----------------
2004 2003
---- ----

Raw materials ................ $17,961 $17,833
Work-in-process .............. 10,667 10,379
Finished goods ............... 18,547 19,693
------- -------
$47,175 $47,905
======= =======

If the first-in, first-out method of inventory accounting had been used
(which approximates current cost), inventories would have been $51,214 and
$49,957 as of January 31, 2004 and 2003, respectively. During the years ended
January 31, 2004 and 2003, inventory quantities were reduced resulting in the
liquidation of certain LIFO inventory layers carried at cost, which were lower
than the cost of current purchases. The effect of these reductions in 2004 and
2003 was to decrease the cost of sales by approximately $32 and $564, and to
increase net income by $20 and $355 or less than $0.01 and $0.01 per share,
respectively.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net, consisted of the following:

January 31,
------------------
2004 2003
---- ----

Land .................................. $ 3,637 $ 1,970
Buildings and improvements ............ 49,657 41,988
Furniture, fixtures and equipment ..... 193,313 192,440
Construction in progress .............. 5,892 7,404
-------- --------
252,499 243,802

Less:
Accumulated depreciation .......... 147,700 131,644
-------- --------
$104,799 $112,158
======== ========

For the years ended January 31, 2004, 2003 and 2002, depreciation charged
to operations amounted to $20,395, $21,050 and $20,962; maintenance and repair
costs expensed totaled $10,367, $10,075 and $13,256; and capitalized interest
amounted to $82, $135 and $404, respectively.


F-19


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

6. DEBT

Debt consisted of the following:



January 31,
----------------------
2004 2003
---- ----

Term loan, $100,000 facility; bearing interest at Prime or LIBOR plus .75% on January
31, 2003 (effective rate on a weighted average basis, 2.10% as of January 31, 2003)
net of unamortized debt acquisition costs of $81 ....................................... $ -- $18,669

Revolving credit facility; maximum commitment of $100,000 and $120,000 at
January 31, 2004 and 2003 bearing interest of Prime or LIBOR plus 1% and Prime
or LIBOR plus .75%, respectively (effective rate on a weighted average basis,
2.14% as of January
31, 2004 and 2.12% as of January 31, 2003) ............................................. 19,620 21,250
------- -------
19,620 39,919
Less current portion ........................................................... -- 14,062
------- -------
$19,620 $25,857
======= =======


On March 1, 1999, the Company obtained a fully syndicated senior unsecured
agreement comprised of a $100,000 term loan and a $120,000 revolving credit
facility. The term loan was paid in full on April 29, 2003. The revolving credit
agreement, which had a termination date of March 1, 2004, was replaced and fully
substituted by an amended and restated credit agreement on November 20, 2003. At
the Company's request, the amended credit agreement extended the maturity date
to November 20, 2006 and the total availability under the revolver was reduced
from $120,000 to $100,000. The available interest rates were changed to Prime to
Prime plus .50%, or LIBOR plus 1.00% to LIBOR plus 2.00%, depending on a certain
leverage ratio. The previous agreement provided available interest rates between
Prime to Prime plus .25%, or LIBOR plus .75% to LIBOR plus 1.50%, depending on a
certain leverage ratio. The amended agreement requires the Company to pay a fee
of .25% to .50% per annum on any unused portion of the revolver, depending on
the Company's leverage ratio. Prior to the amendment, this fee was between .20%
and .30%. During the years ended January 31, 2004 and January 31, 2003, the
average fee paid was .21% and .20%, respectively.

The amended and restated revolving credit agreement includes a letter of
credit facility, which was reduced to $15,000 from $30,000 and of which $11,842
and $26,479 were available as of January 31, 2004 and 2003, respectively. The
revolver includes a swingline loan facility not to exceed $10,000.


F-20


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

6. DEBT (continued)

These credit agreements contain restrictive covenants that require the
Company to maintain minimum ratios such as fixed charge coverage and leverage
ratios, as well as minimum consolidated net worth. These restrictive covenants
permit the Company to pay dividends so long as there are no defaults under these
credit agreements. The purpose of the facility is to provide for normal working
capital and fund possible strategic acquisitions. The Company was in compliance
with its loan agreement covenants at January 31, 2004 and 2003, respectively.

The maximum aggregate amounts of loans outstanding under the term loan and
revolving credit facility, were $43,500, $72,650, and $141,100 during the years
ended January 31, 2004, 2003 and 2002, respectively. For those years the
outstanding loans under these credit agreements computed on a monthly basis
averaged $28,737, $53,425, and $95,980 at a weighted average interest rate of
2.00%, 2.60%, and 4.97% respectively.

The Company has a $500 letter of credit facility with another financial
institution that does not reduce the Company's availability under its revolving
credit agreement.

The Company also has an uncommitted multi-currency overdraft facility.
This is a senior unsecured demand loan facility, which was originally in the
amount of 22 million British Pounds. This senior facility was reduced to 750
thousand British Pounds at the request of the Company in September 2002. There
was no balance on this facility during fiscal 2004 and the maximum amount
outstanding under this facility was 6.1 million British Pounds and 19.5 million
British Pounds during the years ended 2003 and 2002, respectively. The
outstanding loans under this agreement computed on a monthly average basis
averaged 3.4 million British Pounds and 13.6 million British Pounds at a
weighted average interest rate of 5.05% and 5.81% for the years ended 2003 and
2002, respectively.

As of January 31, 2004, the required minimum annual principal reduction of
long-term debt for each of the next five fiscal years is as follows:

2005 ................................... $ --
2006 ................................... 19,620
2007 ................................... --
2008 ................................... --
2009 and thereafter..................... --
-------
$19,620
=======


F-21


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

7. STOCKHOLDERS' EQUITY

Stock Option Plans:

The Company has three stock option plans: the 1996 Stock Option Plan
reserved 2,000,000 shares of Common Stock; the 1998 Stock Option Plan reserved
3,900,000 shares of Common Stock; and the U.K. Stock Option Plan reserved
500,000 shares of Common Stock; for option grants. In addition, stock can be
granted to the Company's non-employee directors in lieu of their annual retainer
or a portion thereof. Incentive stock options are to be granted at no less than
100% of the fair market value on the date of grant, with a term of no more than
ten years after the date of grant. Nonqualified stock options are to be granted
at such price as the Compensation Committee of the Board of Directors deems
appropriate, with a term of no more than ten years after the date of grant. The
options are exercisable upon vesting as determined by the Compensation Committee
at the time the options are granted. The majority of the stock options
outstanding vest in equal annual installments over a three-year period
commencing one year from the date of the grant.

A summary of stock option activity related to the Company's plans is as
follows:



Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Year Year Year Outstanding Exercisable
----------- ---- ---- ---- ----------- -----------

Year ended
January 31, 2004
Number of shares .......... 2,501,374 616,297 83,102 293,063 2,741,506 1,703,513
Weighted average option
price per share ........... $23.02 $16.32 $13.52 $26.10 $21.47 $22.29

Year ended
January 31, 2003
Number of shares .......... 2,155,288 597,725 70,334 181,305 2,501,374 1,461,838
Weighted average option
price per share .......... $23.84 $20.20 $12.56 $27.49 $23.02 $21.24

Year ended
January 31, 2002
Number of shares .......... 1,712,815 689,680 147,900 99,307 2,155,288 1,005,149
Weighted average option
price per share .......... $19.62 $33.42 $13.84 $32.55 $23.84 $17.81



F-22


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

7. STOCKHOLDERS' EQUITY (continued)

There were 2,004,642 and 2,340,718 shares available for future grants of
options under the Company's stock option plans as of January 31, 2004 and 2003,
respectively. The following table summarizes information about the stock options
outstanding at January 31, 2004:



Options Outstanding Options Exercisable
----------------------------------------- --------------------------

Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- ----------- ----------- -----------

$6.00 - $8.63 102,000 2.8 years $ 6.26 102,000 $ 6.26

$11.47 - $17.16 865,994 7.7 years $15.13 308,260 $12.77

$18.34 - $26.76 1,297,246 6.9 years $20.90 945,488 $21.02

$35.00 - $37.28 407,650 7.1 years $35.06 279,149 $35.08

$48.44 - $55.94 68,616 6.5 years $54.26 68,616 $54.26
---------- -----------

$6.00 - $55.94 2,741,506 7.0 years $21.47 1,703,513 $22.29
========== ===========


Rights Plan:

In February 2000, the Company's Board of Directors declared a dividend of
one common stock purchase right (a "Right") for each share of Common Stock
outstanding on March 3, 2000 to the stockholders of record on that date. The
description and terms of the Rights are set forth in a Rights Agreement between
the Company and Mellon Investor Services LLC, as rights agent. Upon the
occurrence of certain events, each Right will entitle the registered holder to
purchase from the Company one one-hundredth of a share of Common Stock at a
purchase price of $150 per one one-hundredth of a share, subject to adjustment,
as stated in the Rights Agreement. Upon the occurrence of certain events
involving a hostile takeover of the Company, unless the Company's Board of
Directors acts otherwise, each holder of a Right, other than Rights beneficially
owned by the acquiring company, will thereafter have the right to receive upon
exercise: (i) that number of shares of the Company's common stock having a
market value equal to two times the purchase price of the Right or (ii) that
number of shares of common stock of the acquiring company that at the time of
the transaction has a market value of two times the exercise price of the Right.


F-23


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

8. INCOME TAXES

The provisions for income taxes as shown in the accompanying consolidated
statements of income consisted of the following:

January 31,
-----------------------------
2004 2003 2002
---- ---- ----

Current:
Federal ................... $ 6,261 $ 330 $15,974
State ..................... 308 (982) 1,492
Foreign ................... 574 1,901 1,137
Foreign sales corporation . -- -- 137
-------- -------- -------
$ 7,143 $ 1,249 $18,740
======== ======== =======

Deferred:
Federal ................... $ 1,701 $ 7,983 $ 3,160
State ..................... 79 182 344
Foreign ................... (128) -- --
-------- -------- -------
1,652 8,165 3,504
-------- -------- -------
$ 8,795 $ 9,414 $22,244
======== ======== =======


F-24


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

8. INCOME TAXES (continued)

The components of the deferred tax asset and liability as of January 31,
2004 and 2003 were as follows:

2004 2003
---- ----
Deferred tax asset:
Vacation and compensation accruals ...... $ 4,044 $ 4,080
Bad debt, inventory and return allowances 3,752 4,039
Warranty reserves ....................... 3,668 3,995
Postretirement benefits ................. 1,282 1,151
State net operating losses .............. 754 778
Derivatives ............................. 594 759
Foreign tax credits ..................... 802 716
Environmental reserves .................. 994 714
Other accruals .......................... 873 1,410
-------- --------
Total deferred tax asset ................ 16,763 17,642
-------- --------
Deferred tax liability:
Depreciation and amortization ........... (13,246) (12,735)
Pension obligation ...................... (5,893) (5,754)
Cumulative translation adjustment ....... (2,715) (1,275)
Unrepatriated earnings .................. (825) (223)
-------- --------
Total deferred tax liability ............ (22,679) (19,987)
-------- --------
Valuation allowance* .................... (1,097) --
-------- --------
Net deferred tax liability .............. $ (7,013) $ (2,345)
======== ========

* The balance in the deferred tax liability for unrepatriated earnings is net of
a deferred tax asset of $683 related to U.S. foreign tax credits for unremitted
earnings of a controlled foreign subsidiary, and $414 that represents the
Company's remaining tax basis in a wholly owned foreign subsidiary whose
operations have ceased. The Company believes that these assets will not be
realized and, therefore, a valuation allowance of $1,097 has been recorded
related to those items.

Realization of the Company's other deferred tax assets is dependent on
future taxable income. The Company believes that it is more likely than not such
assets will be realized.


F-25


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

8. INCOME TAXES (continued)

Reconciliations of the provisions for income taxes at the U.S. statutory
rate to the effective tax rates for the years ended January 31, 2004, 2003 and
2002, respectively, are as follows:

January 31,
-----------------------------
2004 2003 2002
---- ---- ----

U.S. statutory income tax .................... $8,319 $10,079 $20,872
State tax, net of federal income tax benefit . 317 258 1,314
Resolution of state tax audits ............... -- (1,100) --
Tax effect of foreign operations ............. 69 256 26
Research and development tax credit benefit .. -- -- (61)
Foreign sales corporation .................... -- -- (257)
Other ........................................ 90 (79) 350
------ ------- -------
$8,795 $ 9,414 $22,244
====== ======= =======

9. COMMITMENTS AND CONTINGENCIES

(A) Operating Leases:

The Company leases certain manufacturing and office facilities and certain
equipment under operating lease agreements. Certain leases contain renewal
options and some have purchase options, and generally provide that the Company
shall pay for insurance, taxes and maintenance. As of January 31, 2004, the
Company had future minimum annual lease obligations under leases with
noncancellable lease terms in excess of one year as follows:

2005.......................... $ 3,299
2006.......................... 2,804
2007.......................... 2,570
2008.......................... 2,420
2009.......................... 2,038
Thereafter................... 6,668
-------
$19,799
=======

Total rent expense for all operating leases for the years ended January
31, 2004, 2003 and 2002 was $3,700, $3,903 and $4,496, respectively.


F-26


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

9. COMMITMENTS AND CONTINGENCIES (continued)

(B) Contingent Liabilities:

Legal

In January 2000, the Company was sued in an action captioned Puerto Rico
Electric Power Authority v. C&D Technologies, Inc., in the United States
District Court for the District of Puerto Rico for an alleged breach of contract
in connection with the sale of certain batteries dating back to the mid-1990s.
In August 2000 the Company entered into a settlement agreement with respect to
this claim, the cost of which was recovered from the Company's insurance carrier
in the first quarter of fiscal 2002.

In March 2003, the Company was sued in an action captioned United States
of America v. C&D Technologies, Inc., in the United States District Court for
the Southern District of Indiana, for alleged violations of the Clean Water Act
by virtue of alleged violations of permit effluent and pretreatment discharge
limits at our plant in Attica, Indiana. The complaint requests injunctive relief
and civil penalties of up to the amounts provided by statute.

Environmental

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

Notwithstanding the Company's efforts to maintain compliance with
applicable environmental requirements, if injury or damage to persons or the
environment arises from hazardous substances used, generated or disposed of in
the conduct of the Company's business (or that of a predecessor to the extent
the Company is not indemnified therefor), the Company may be held liable for
certain damages, the costs of investigation and remediation, and fines and
penalties, which could have a material adverse effect on the Company's business,
financial condition, or results of operations. However, under the terms of the
purchase agreement with Allied Corporation ("Allied") for the acquisition of the
Company (the "Acquisition Agreement"), Allied was obligated to indemnify the
Company for any liabilities of this type resulting from conditions existing at
January 28, 1986 that were not disclosed by Allied to the Company in the
schedules to the Acquisition Agreement. These obligations have since been
assumed by Allied's successor in interest, Honeywell ("Honeywell").

The Company, along with numerous other parties, has been requested to
provide information to the United States Environmental Protection Agency (the
"EPA") in connection with investigations of the source and extent of
contamination at three lead smelting facilities (the "Third Party Facilities")
to which the Company had made scrap lead shipments for reclamation prior to the
date of the acquisition.


F-27


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

9. COMMITMENTS AND CONTINGENCIES (continued)

The Company and four other potentially responsible parties ("PRPs") agreed
upon a cost sharing arrangement for the design and remediation phases of a
project related to one of the Third Party Facilities, the former NL Industries
site in Pedricktown, New Jersey, acting pursuant to a Consent Decree. The PRPs
identified and sued additional PRPs for contribution. In April 2002, one of the
original four PRPs, Exide Technologies ("Exide"), filed for relief under Chapter
11 of Title 11 of the United States Code. In August 2002, Exide notified the
PRPs that it would no longer be taking an active role in any further action at
the site and discontinued its financial participation. This resulted in a pro
rata increase in the liabilities of the other PRPs, including the Company.

The Company also responded to requests for information from the EPA and
the state environmental agency with regard to another Third Party Facility, the
"Chicago Site," in October 1991.

In August 2002, the Company was notified of its involvement as a PRP at
the NL Atlanta, Northside Drive Superfund site. The Company is currently in
negotiations with the other PRPs at this site regarding its share of the
allocated liability, which the Company expects to be de minimis.

The Company is also aware of the existence of contamination at its
Huguenot, New York facility, which is expected to require expenditures for
further investigation and remediation. The site is listed by the New York State
Department of Environmental Conservation ("NYSDEC") on its registry of inactive
hazardous waste disposal sites due to the presence of fluoride and other
contaminants in amounts that exceed state groundwater standards, and the agency
has issued a Record of Decision for the soil remediation portion of the site. A
final remediation plan for the ground water portion has not yet been finalized
with or approved by the State of New York. In February 2000, C&D filed suit
against the prior owner of the site, Avnet, Inc., which is ultimately expected
to bear some, as yet undetermined, share of the costs associated with
remediation of contamination in place at the time the Company acquired the
property. The parties are attempting to resolve the matter through mediation,
failing which C&D intends to aggressively pursue all available legal remedies.
Should the parties fail to reach a mediated settlement, and unless an
alternative resolution can be achieved, NYSDEC may conduct the remediation and
seek recovery from the parties.

The Company, together with Johnson Controls, Inc. ("JCI"), is conducting
an assessment and remediation of contamination at its Dynasty Division facility
in Milwaukee, Wisconsin. The majority of the on-site portion of this project was
completed as of October 2001. Under the purchase agreement with JCI, the Company
is responsible for (i) one-half of the cost of the on-site assessment and
remediation, with a maximum liability of $1,750, (ii) any environmental
liabilities at the facility that are not remediated as part of the current
project and (iii) environmental liabilities for any new claims made after the
fifth anniversary of the closing, i.e. March 2004, that arise from migration
from a pre-closing condition at the Milwaukee facility to locations other than
the Milwaukee facility, but specifically excluding liabilities relating to
pre-closing offsite disposal. JCI has retained all other environmental
liabilities, including off-site assessment and remediation. In March 2004, the
Company entered into an agreement with JCI to continue to share responsibility
as set forth in the original purchase agreement.

In January 1999, the Company received notification from the EPA of alleged
violations of permit effluent and pretreatment discharge limits at its plant in
Attica, Indiana. The Company submitted a compliance plan to the EPA in April
2002. The Company engaged in negotiations with both the EPA and


F-28


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

9. COMMITMENTS AND CONTINGENCIES (continued)

Department of Justice through March 2003 regarding a potential resolution of
this matter. The government filed suit against the Company in March 2003 for
alleged violations of the Clean Water Act. The complaint requests injunctive
relief and civil penalties of up to the amounts provided by statute. The Company
anticipates that the matter will result in a penalty assessment and compliance
obligations. The Company will continue to seek a negotiated or mediated
resolution, failing which it intends to vigorously defend the action.

The Company accrues reserves for liabilities in the Company's consolidated
financial statements and periodically reevaluates the reserved amounts for these
liabilities in view of the most current information available in accordance with
SFAS No. 5, "Accounting for Contingencies." As of January 31, 2004, accrued
environmental reserves totaled $2,525, consisting of $2,223 in other current
liabilities and $302 in other liabilities. Based on currently available
information, management of the Company believes that appropriate reserves have
been established with respect to the foregoing contingent liabilities and that
they are not expected to have a material adverse effect on the Company's
business, financial condition or results of operations.

(C) Purchase Commitments:

Periodically the Company enters into purchase commitments pertaining to
the purchase of certain raw materials with various suppliers. No significant
purchase commitments existed at January 31, 2004 and none are expected to exceed
usage requirements.

10. MAJOR CUSTOMER

No single customer of the Company amounted to 10% or more of the Company's
consolidated net sales for the years ended January 31, 2004, 2003 and 2002.

11. CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to potential concentration
of credit risk consist principally of trade receivables and temporary cash
investments. The Company places its temporary cash investments with various
financial institutions and, generally, limits the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade receivables are limited by a large customer base and its geographic
dispersion. The Company performs ongoing credit evaluations of its customers'
financial condition and requires collateral, such as letters of credit, in
certain circumstances.


F-29


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Debt (excluding capital lease obligations) - the carrying value of the
Company's long-term debt, including the current portion, approximates fair
value based on the incremental borrowing rates currently available to the
Company for loans with similar terms and maturity.

Hedging instruments - the estimated fair value of the interest rate swaps
and foreign exchange contracts are based on market prices or current rates
offered for interest rate swaps and foreign exchange contracts with
similar terms and maturities. The ultimate amounts paid or received under
these interest rate swaps and foreign currency contracts, however, depend
on future interest rates and exchange rates.

The estimated fair values of the Company's financial instruments at
January 31, 2004 and 2003 were as follows:



2004 2003
----------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------

Cash and cash equivalents .. $12,306 $12,306 $12,966 $12,966

Debt (excluding capital
lease obligations) ....... $19,620 $19,620 $39,919 $39,919


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


F-30


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The Company applies hedge accounting in accordance with SFAS No. 133,
whereby the Company designates each derivative as a hedge of (i) the fair value
of a recognized asset or liability or of an unrecognized firm commitment ("fair
value" hedge); or (ii) the variability of anticipated cash flows of a forecasted
transaction or the cash flows to be received or paid related to a recognized
asset or liability ("cash flow" hedge). From time to time, however, the Company
may enter into derivatives that economically hedge certain of its risks, even
though hedge accounting is not allowed by SFAS No. 133 or is not applied by the
Company. In these cases, there generally exists a natural hedging relationship
in which changes in fair value of the derivative, which are recognized currently
in earnings, act as an economic offset to changes in the fair value of the
underlying hedged item(s). The Company did not apply hedge accounting to
currency forward contracts with a combined fair value of $(923) and $(258) as of
January 31, 2004 and 2003. Changes in the fair value of these currency forward
contracts are recorded in other expense, net.

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

In the normal course of business, the Company is exposed to the impact of
interest rate changes and foreign currency fluctuations. The Company limits
these risks by following established risk management policies and procedures
including the use of derivatives and, where cost-effective, financing debt in
the currencies in which the assets are denominated. For interest rate exposures,
derivatives are used to manage the Company's exposure to fluctuations in
interest rates on the Company's underlying variable rate debt instruments. The
Company utilizes separate swap transactions rather than fixed rate obligations
to take advantage of lower borrowing costs associated with floating rate debt
while also eliminating possible risk related to refinancing in the fixed rate
market. For currency exposures, derivatives are used to limit the effects of
foreign exchange rate fluctuations on financial results.

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


F-31


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

The following table includes all interest rate swaps as of January 31,
2004 and 2003. These interest rate swaps are designated as cash flow hedges and,
therefore, changes in the fair value, net of tax, are recorded in accumulated
other comprehensive income.



Fixed Variable Fair Fair
Interest Interest Value Value
Notional Origination Maturity Rate Rate at at
Amount Date Date Paid Received 01/31/04 01/31/03
- -------------- ------------------ ------------- ------------ -------------- ---------------- ---------------

20,000 02/05/01 03/01/03 5.24% LIBOR $ -- $ (66)
20,000 04/11/01 04/11/06 5.56% LIBOR (1,486) (1,832)
------- -------
$(1,486) $(1,898)
======= =======


Based on the fair value of the interest rate swap as of January 31, 2004
and the maturity dates of this swap, the Company expects to reclassify a net of
tax loss of approximately $526 of the amount from accumulated other
comprehensive income to interest expense in the next 12 months.

The Company had foreign exchange contracts on hand for delivery of
Canadian Dollars in the amount of $2,248 and $2,629 as of January 31, 2004 and
January 31, 2003, respectively.

The Company had foreign exchange contracts on hand for delivery of Euros
in the amount of $735 and $646 as of January 31, 2004 and January 31, 2003,
respectively.

The Company had foreign exchange contracts on hand for the delivery of
British Pounds in the amount of $22,751 and $23,884 as of January 31, 2004 and
January 31, 2003, respectively.

The Company had a foreign exchange contract on hand for the delivery of
Mexican Pesos in the amount of $806 as of January 31, 2004.


F-32


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

13. EMPLOYEE BENEFIT PLANS

(A) The Company has various noncontributory defined benefit pension plans,
which cover certain employees. The C&D Technologies, Inc. Pension Plan for
Salaried Employees was amended during the fiscal year ended January 31, 2002 to
provide that benefits under the plan became frozen as of December 31, 2001 for
all participants (i) who had not attained the age of 65, and (ii) who either (a)
had less than 5 years of Eligibility Service, or whose years of Eligibility
Service and age totaled less than 60 or (b) had less than 10 years of
Eligibility Service, or whose years of Eligibility Service and age totaled less
than 57 as of December 31, 2001. Participants whose benefits under the Pension
Plan became frozen as of December 31, 2001 became eligible for an enhanced
Company contribution under the Savings Plan based on the performance of the
Company. As such, the Company recorded a curtailment gain of $2,631 during the
fiscal year ended January 31, 2002.

The Company's funding policy is to contribute annually an amount that can
be deducted for federal income tax purposes using a different actuarial cost
method and different assumptions than those used for financial reporting
purposes. Pension benefits for the Company's defined benefit plans are generally
based on employees' years of service and qualifying compensation during the
years of employment. Plan assets are invested in commingled trust funds
consisting primarily of equity and U.S. Government securities.

The Company also provides certain health care and life insurance benefits
for retired employees who meet certain service requirements ("postretirement
benefits") through two plans. One of the plans was amended during the fiscal
year ended January 31, 2002 to change the Company contribution. This amendment
resulted in a $1,000 increase in the liability.


F-33


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

13. EMPLOYEE BENEFIT PLANS (continued)

The tables that follow provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended January
31, 2004 and 2003 and a statement of the funded status as of January 31, 2004
and 2003. The measurement dates are December 31, 2003 and 2002.



Pension Postretirement
Benefits Benefits
--------------------- ---------------------
2004 2003 2004 2003
---- ---- ---- ----

Change in benefit obligation:
Benefit obligation at beginning of year .... $ 57,460 $ 49,532 $ 4,067 $ 3,486
Service cost ............................. 1,513 1,573 172 152
Interest cost ............................ 3,823 3,750 252 269
Plan amendments .......................... -- 50 -- --
Settlement loss .......................... -- 115 -- --
Actuarial loss ........................... 6,297 5,328 36 405
Benefits paid ............................ (2,719) (2,888) (205) (245)
-------- -------- -------- --------
Benefit obligation at end of year ........... $ 66,374 $ 57,460 $ 4,322 $ 4,067
======== ======== ======== ========

Change in plan assets:
Fair value of plan assets at beginning of year $ 49,694 $ 41,300 -- --
Actual return on plan assets ............. 8,725 (5,889) -- --
Employer contributions ................... 2,976 17,171 205 245
Benefits paid ............................ (2,719) (2,888) (205) (245)
-------- -------- -------- --------
Fair value of plan assets at end of year .... $ 58,676 $ 49,694 $ -- $ --
======== ======== ======== ========

Reconciliation of funded status:
Funded status ............................... $ (7,698) $ (7,766) $ (4,322) $ (4,067)
Unrecognized actuarial loss ................. 22,523 22,237 410 371
Unrecognized prior service cost ............. 143 162 655 770
-------- -------- -------- --------
Net amount recognized
at measurement date and end of fiscal year $ 14,968 $ 14,633 $ (3,257) $ (2,926)
======== ======== ======== ========

Amounts recognized in the statement of
financial position consist of:
Prepaid pension cost ......................... $ 18,583 $ 18,051 -- --
Accrued benefit liability .................... $ (3,615) $ (3,418) $ (3,257) $ (2,926)
-------- -------- -------- --------
Net amount recognized at end of fiscal year* . $ 14,968 $ 14,633 $ (3,257) $ (2,926)
======== ======== ======== ========


* Prepaid pension cost is included in intangible and other assets, net and
the accrued benefit liability is included in other liabilities.


F-34


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

13. EMPLOYEE BENEFIT PLANS (continued)



Postretirement
Pension Benefits Benefits
--------------------------------- --------------------------------
2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ----

Components of net periodic
benefit cost:
Service cost ........................... $ 1,513 $ 1,573 $ 2,404 $ 172 $ 152 $ 149
Interest cost .......................... 3,823 3,750 3,565 252 269 255
Expected return on plan assets ......... (4,122) (3,618) (3,624) -- -- --
Amortization of prior service costs .... 19 20 15 115 115 115
Recognized actuarial loss/(gain) ....... 1,409 443 79 (3) -- --
Settlement loss ........................ -- 241 -- -- -- --
------- ------- ------- ------- ------- -------
Net periodic benefit cost .......... $ 2,642 $ 2,409 $ 2,439 $ 536 $ 536 $ 519
======= ======= ======= ======= ======= =======

Weighted-average assumptions
used to determine benefit obligation
as of January 31*:
Discount rate .......................... 6.00% 7.00% 7.50% 6.00% 7.00% 7.50%
Rate of compensation increase*** ....... 4.00-4.95% 4.00-4.95% 4.00-5.03% N/A N/A N/A

Weighted-average assumptions used
to determine net cost for the
periods ended January 31**:
Discount rate .......................... 7.00% 7.50% 7.75% 7.00% 7.50% 7.75%
Expected long-term rate of
return on plan assets .............. 8.50% 9.00% 9.00% N/A N/A N/A
Rate of compensation increase*** ....... 4.00-4.95% 4.00-5.03% 4.00-5.03% N/A N/A N/A


* Determined as of the end of the year.

** Determined as of the beginning of the year.

*** Rate relates to certain employees. Some covered employees have benefits
unrelated to rate of pay.

To develop the expected long-term rate of return on plan assets
assumption, the Company considered the historical returns and the future
expectations for returns for each asset class, as well as the target asset
allocation of the pension portfolio and the payment of plan expenses from the
pension trust. This resulted in the selection of the 8.5% expected long-term
rate of return on plan assets assumption.

The Company sponsors two postretirement benefit plans for certain
employees; the Company contributions to one of them are fixed so there is no
material trend rate assumption. The other plan has a cap on benefits in place.
The impact of a change in the assumed health care cost trend rate is immaterial
as the per capita claims cost is nearing the cap as of the measurement date of
December 31, 2003.


F-35


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

13. EMPLOYEE BENEFIT PLANS (continued)

The accumulated benefit obligation of the pension plans was $60,056 and
$50,698 for fiscal 2004 and 2003, respectively.

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $6,442, $4,815 and $2,863, respectively, for
fiscal 2004 and $4,660, $3,515 and $2,178, respectively for fiscal 2003.

The pension plans have the following asset allocations, as of their
measurement dates:

Actual Percentage of
Plan Assets at
December 31,
Asset Category 2003 2002
---- ----
Equity Securities - Domestic ......... 61.50% 47.60%
Equity Securities - International .... 11.20% 6.50%
------ ------
Total ........................... 72.70% 54.10%

Debt Securities ...................... 22.20% 16.90%
Other ................................ 5.10% 29.00%
------ ------
Total ............................ 100.00% 100.00%
====== ======

The Pension Plans' investment policy includes the following asset guidelines:

Asset Allocation Policy Guidelines

Asset Class Policy Target
----------- -------------
Fixed Income........................................ 30.00%
Domestic Equity..................................... 60.00%
International Equity................................ 10.00%

The asset allocation policy was developed in consideration of the
long-term investment objective of ensuring that there is an adequate level of
assets to support benefit obligations to plan participants. A secondary
objective is minimizing the impact of market fluctuations on the value of the
plans' assets. Equity securities - Domestic include Company common stock in the
amounts of $5,089 (8.7% of total plan assets) and $4,691 (9.5% of total plan
assets) at December 31, 2003 and 2002, respectively.

Assuming that the actual return on plan assets is consistent with the
expected rate of 8.5% in fiscal 2005, and that interest rates remain constant,
the Company would not be required to make any contributions to its pension plans
for fiscal 2005. The Company expects to make a discretionary contribution of
approximately $1,100 to one of its pension plans. The Company also expects to
make contributions totaling approximately $215 to the two Company sponsored
postretirement benefit plans.


F-36


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

13. EMPLOYEE BENEFIT PLANS (continued)

In addition to the broad asset allocation described above, the following
policies apply to individual asset classes:

Fixed income investments are oriented toward investment grade
securities rated "Baa" or higher. They are diversified among
individual securities and sectors. The average maturity is similar
to that of the broad U.S. bond market.

Equity investments are diversified among individual securities,
industries and economic sectors. International equity investments
are also diversified by country. Most securities held are issued by
companies with large market capitalizations. Investment in the
Company's stock is permissible up to a maximum of 10% at the time of
investment.

(B) Certain employees are eligible to participate in various defined
contribution retirement plans. The Company's contributions under the plans are
based on either specified percentages of employee contributions or specified
percentages of the employees' earnings. The Company's contribution was $2,174,
$1,610 and $2,096 for the years ended January 31, 2004, 2003 and 2002,
respectively.

(C) The Company has Supplemental Executive Retirement Plans ("SERPs") that
cover certain executives. The SERPs are non-qualified, unfunded deferred benefit
compensation plans. Expenses related to these SERPs, which were actuarially
determined, were $581, $605 and $480 for the years ended January 31, 2004, 2003
and 2002, respectively. The liability for these plans was $2,981 and $2,525 as
of January 31, 2004 and 2003, respectively, and was included in other
liabilities.

(D) The Company has a Deferred Compensation Plan that covers certain
senior management employees and non-employee members of the Company's Board of
Directors. With the exception of administration costs, which are paid by the
Company, this non-qualified plan is funded entirely by participants through
voluntary deferrals of compensation. Income deferrals made by participants under
this plan are deposited in individual trust (known under current tax law as a
rabbi trust) accounts. The Company follows the provisions of EITF 97-14,
"Accounting for Deferred Compensation Arrangement Where Amounts Earned Are Held
in a Rabbi Trust and Invested." The EITF requires (i) the accounts of the rabbi
trust be consolidated with the accounts of the Company; (ii) the Company stock
be classified and accounted for in equity, in a manner similar to the way in
which treasury stock is accounted for; (iii) the diversified assets be accounted
for in accordance with generally accepted accounting principles for the
particular asset; and (iv) the deferred compensation obligation be classified as
a liability and adjusted with a corresponding charge (or credit) to compensation
cost, to reflect changes in the fair value of the amount owed to the
participant. At January 31, 2004 and 2003 the liability for the Company's
Deferred Compensation Plan was $935 and $526, respectively, and was included in
other liabilities.


F-37


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

14. QUARTERLY FINANCIAL DATA (unaudited)

Quarterly financial data for the years ended January 31, 2004 and 2003
follow:

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 2004:

Net sales ............................. $77,368 $81,364 $84,870 $81,222
Gross profit .......................... 16,992 19,078 19,656 20,953
Operating income ...................... 5,411 6,219 7,201 7,847
Net income ............................ 2,822 3,580 4,203 4,286
Net income per common share - basic ... 0.11 0.14 0.16 0.17
Net income per common share - diluted . 0.11 0.14 0.16 0.17

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
For the year ended January 31, 2003:

Net sales ............................. $84,062 $84,292 $87,637 $79,754
Gross profit .......................... 18,646 20,202 20,808 19,043
Operating income ...................... 7,475 8,626 9,392 8,561
Net income ............................ 4,124 4,704 5,128 5,336
Net income per common share - basic ... 0.16 0.18 0.20 0.21
Net income per common share - diluted . 0.16 0.18 0.20 0.21

The results for the fourth quarter of fiscal 2003 reflect pre-tax charges
of $1,813 for the re-organization of certain manufacturing locations in the
Power Electronics Division, the write-off of $496 of goodwill in the Motive
Power Division, the recognition of a $1,610 gain on the sale of the Company's
Conshohocken, Pennsylvania metal fabrication facility and the reduction of the
effective tax rate to 19.3% for the quarter, reflecting resolution of state tax
audits.


F-38


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

The Company has the following four reportable business segments:

The Dynasty Division manufactures and markets industrial batteries
primarily for the uninterruptible power supply, telecommunications and cable
markets. Major applications of these products include wireless and wireline
telephone infrastructure, CATV signal powering, corporate data center powering
and computer network backup for use during power outages.

The Powercom Division manufactures and markets integrated reserve power
systems and components for the standby power market, which includes
telecommunications, uninterruptible power supplies and utilities. Integrated
reserve power systems monitor and regulate electric power flow and provide
backup power in the event of a primary power loss or interruption. The Powercom
Division also produces the individual components of these systems, including
reserve batteries, power rectifiers, system monitors, power boards and chargers.

The Power Electronics Division manufactures and markets custom, standard
and modified-standard electronic power supply systems, including DC to DC
converters, for large original equipment manufacturers ("OEMs") of
telecommunications and networking equipment, as well as office and industrial
equipment.

The Motive Power Division manufactures complete systems and individual
components (including power electronics and batteries) to power, monitor, charge
and test the batteries used in electric industrial vehicles, including fork-lift
trucks, automated guided vehicles and airline ground support equipment. These
products are marketed to end users in a broad array of industries, dealers of
fork-lift trucks and other material handling vehicles, and, to a lesser extent,
OEMs.

Summarized financial information related to the Company's business
segments for the years ended January 31, 2004, 2003 and 2002 is shown below:



Power Motive
Dynasty Powercom Electronics Power
Division Division Division Division Consolidated
-------- -------- -------- -------- ------------

Year ended January 31, 2004:

Net sales ..................... $106,959 $125,728 $39,080 $53,057 $324,824
Operating income (loss) ....... $ 16,852 $ 13,428 $ 1,109 $(4,711) $ 26,678

Year ended January 31, 2003:

Net sales ..................... $ 89,883 $144,478 $46,840 $54,544 $335,745
Operating income (loss) ....... $ 13,499 $ 25,495 $ (52) $(4,888) $ 34,054

Year ended January 31, 2002:

Net sales ..................... $112,794 $234,802 $63,155 $60,890 $471,641
Operating income (loss) ....... $ 17,401 $ 57,303 $(5,963) $(1,167) $ 67,574



F-39


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)

--------

15. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (continued)

Many of the Company's facilities manufacture products for more than one
segment. Therefore, it is not practicable to disclose asset information (assets,
expenditures for long-lived assets) on a segment basis.

Summarized financial information related to the geographic areas in which
the Company operated at January 31, 2004, 2003 and 2002 and for each of the
years then ended is shown below:

2004 2003 2002
---- ---- ----

Net sales
United States ......... $268,149 $275,268 $375,283
Other countries ....... 56,675 60,477 96,358
-------- -------- --------
Consolidated totals ... $324,824 $335,745 $471,641
======== ======== ========

Long-lived assets
United States ......... $100,386 $116,447 $116,773
China ................. 11,548 12,961 14,248
Other countries ....... 12,430 3,423 4,288
-------- -------- --------
Consolidated totals ... $124,364 $132,831 $135,309
======== ======== ========

16. WARRANTY

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

2004 2003
---- ----
Balance at beginning of year . $10,599 $12,349
Current year provisions ...... 7,570 4,673
Expenditures ................. (8,410) (6,423)
------- -------

Balance at end of year ....... $ 9,759 $10,599
======= =======

As of January 31, 2004, accrued warranty obligations of $9,759 include
$6,603 in current liabilities and $3,156 in other liabilities. As of January 31,
2003, accrued warranty obligations of $10,599 include $3,804 in other current
liabilities and $6,795 in other liabilities.


F-40


C&D TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II.
VALUATION AND QUALIFYING ACCOUNTS
for the years ended January 31, 2004, 2003 and 2002
(Dollars in thousands)



Additions Additions Balance
Balance at Charged Charged at
Beginning to Costs & to Other End of
of Period Expenses Accounts Deductions (a) Period
--------- -------- -------- -------------- ------

Deducted From Assets

Allowance for doubtful accounts:

Year ended January 31, 2004 ...... $1,906 $ -- $ -- $ 430 $1,476
Year ended January 31, 2003 ...... 2,278 -- -- 372 1,906
Year ended January 31, 2002 ...... 4,121 420 -- 2,263 2,278

Valuation allowance for deferred tax assets:

Year ended January 31, 2004 ...... $ -- $ -- $1,097 $ -- $1,097
Year ended January 31, 2003 ...... -- -- -- -- --
Year ended January 31, 2002 ...... -- -- -- -- --


- ---------

(a) Amounts written-off, net of recoveries and reserve reversals.


S-1