C&D TECHNOLOGIES INC - FORM 10-Q

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EX-31.2 - SECTION 302 CFO CERTIFICATION - C&D TECHNOLOGIES INC	dex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - C&D TECHNOLOGIES INC	dex311.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - C&D TECHNOLOGIES INC	dex321.htm
EX-12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - C&D TECHNOLOGIES INC	dex121.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended April 30, 2010

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

Commission file no: 1-9389

C&D TECHNOLOGIES, INC.


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

1400 Union Meeting Road

Blue Bell, PA 19422

(Address of principal executive offices)

Telephone Number: (215) 619-2700

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

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

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

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

At April 30, 2010, 26,362,748 shares of common stock, $0.01 par value, of the registrant were outstanding.

C&D TECHNOLOGIES, INC.

AND SUBSIDIARIES

FORM 10-Q

INDEX


Part I	FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)

	Consolidated Balance Sheets - April 30, 2010 and January 31, 2010	3

	Consolidated Statements of Operations – Three Months Ended April 30, 2010 and 2009	5

	Consolidated Statements of Cash Flows – Three Months Ended April 30, 2010 and 2009	6

	Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended April 30, 2010 and 2009	7

	Notes to Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4	Controls and Procedures	29

Part II	OTHER INFORMATION

Item 1A	Risk Factors	30

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 6	Exhibits	31

SIGNATURES		32

EXHIBIT INDEX		33

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

(UNAUDITED)


	April 30, 2010		January 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	2,929	$	2,700
Restricted cash		9		57
Accounts receivable, less allowance for doubtful accounts of $710 and $1,114		58,991		55,183
Inventories		74,017		76,041
Prepaid taxes		483		425
Deferred taxes		52		50
Other current assets		1,591		1,092
Assets held for sale		500		500

Total current assets		138,572		136,048

Property, plant and equipment, net		91,355		90,001
Deferred income taxes		26		26
Intangible and other assets, net		13,119		13,420
Goodwill		59,964		59,964

TOTAL ASSETS	$	303,036	$	299,459


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	656	$	8,777
Accounts payable		41,922		46,380
Accrued liabilities		13,193		12,309
Deferred income taxes		750		750
Other current liabilities		4,519		4,565

Total current liabilities		61,040		72,781

Deferred income taxes		12,913		12,529
Long-term debt		150,445		131,091
Other liabilities		40,678		40,588

Total liabilities		265,076		256,989

The accompanying notes are an integral part of these statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(Dollars in thousands, except par value)

(UNAUDITED)


	April 30, 2010			January 31, 2010
Commitments and contingencies (see Note 10)

Equity:
Common stock, $.01 par value, 75,000,000 shares authorized; 29,288,186 and 29,228,213 shares issued and 26,362,748 and 26,302,775 outstanding at April 30, 2010 and January 31, 2010, respectively		293			292
Additional paid-in capital		97,263			97,033

Treasury stock, at cost, 2,925,438 shares at April 30, 2010 and January 31, 2010		(40,091	)		(40,091	)
Accumulated other comprehensive loss		(42,888	)		(43,656	)
Retained earnings		12,062			17,666

Total stockholders’ equity attributable to C&D Technologies, Inc.		26,639			31,244
Noncontrolling interest		11,321			11,226

Total equity		37,960			42,470

TOTAL LIABILITIES AND EQUITY	$	303,036		$	299,459

The accompanying notes are an integral part of these statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(UNAUDITED)


	Three months ended April 30,
	2010			2009
NET SALES	$	84,703		$	73,665
COST OF SALES		74,725			68,320

GROSS PROFIT		9,978			5,345

OPERATING EXPENSES:
Selling, general and administrative expenses		9,222			9,242
Research and development expenses		1,788			1,878

OPERATING LOSS		(1,032	)		(5,775	)

Interest expense, net		3,348			2,924
Other expense, net		736			174


LOSS BEFORE INCOME TAXES		(5,116	)		(8,873	)
Income tax provision		394			1,096


NET LOSS		(5,510	)		(9,969	)
Net income (loss) attributable to noncontrolling interests		94			(211	)

NET LOSS ATTRIBUTABLE TO C&D TECHNOLOGIES, INC.	$	(5,604	)	$	(9,758	)


Loss per share:
Basic and Diluted:
Net loss	$	(0.21	)	$	(0.37	)

The accompanying notes are an integral part of these statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(UNAUDITED)


	Three months ended April 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(5,510	)	$	(9,969	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		230			323
Depreciation and amortization		2,614			3,305
Amortization of debt acquisition and discount costs		1,274			1,222
Deferred income taxes		384			893
Loss on disposal of assets		—			6
Changes in assets and liabilities:
Accounts receivable, net		(3,798	)		2,421
Inventories		1,871			1,701
Other current assets		(563	)		(763	)
Accounts payable		(1,199	)		(18	)
Accrued liabilities		776			54
Book overdraft		(3,015	)		6
Income taxes payable		39			93
Other current liabilities		557			(919	)
Other liabilities		638			1,072
Other long-term assets		(38	)		(46	)
Other, net		(189	)		1,662

Net cash (used in) provided by continuing operating activities		(5,929	)		1,043
Net cash used in discontinued operating activities		(7	)		(1,208	)

Net cash used in operating activities		(5,936	)		(165	)

Cash flows from investing activities:
Acquisition of property, plant and equipment		(3,871	)		(4,782	)
Decrease in restricted cash		47			772

Net cash used in investing activities		(3,824	)		(4,010	)

Cash flows from financing activities:
Borrowings on line of credit facility		29,288			22,632
Repayments on line of credit facility		(37,551	)		(19,306	)
Repayment of debt		(66	)		(7	)
Proceeds from new borrowings		20,083			—
Financing cost of long term debt		(1,771	)		—

Net cash provided by financing activities		9,983			3,319

Effect of exchange rate changes on cash and cash equivalents		6			39

Increase (decrease) in cash and cash equivalents		229			(817	)
Cash and cash equivalents, beginning of period		2,700			3,121

Cash and cash equivalents, end of period	$	2,929		$	2,304

The accompanying notes are an integral part of these statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share data)

(UNAUDITED)


	Three months ended April 30,
	2010			2009
NET LOSS	$	(5,510	)	$	(9,969	)
Other comprehensive loss, net of tax:
Net unrealized gain on derivative instruments		265			2,905
Adjustment to recognize pension liability and net periodic pension cost		548			535
Foreign currency translation adjustments		(44	)		137

Total comprehensive loss		(4,741	)		(6,392	)

Comprehensive loss (income) attributable to noncontrolling interests		(95	)		179

Total comprehensive loss attributable to C&D Technologies, Inc.	$	(4,836	)	$	(6,213	)

The accompanying notes are an integral part of these statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(UNAUDITED)

1.	BASIS OF PRESENTATION

The accompanying interim unaudited consolidated financial statements of C&D Technologies, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we do not include all the information and notes required for complete financial statements. In the opinion of management, the interim unaudited consolidated financial statements include all adjustments considered necessary for the fair statements of the financial position, results of operations and cash flows for the interim periods presented. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Fiscal Year Ended January 31, 2010 Annual Report on Form 10-K, filed on April 20, 2010.

In the fourth quarter of fiscal year 2010, the Company revised the useful lives of certain machinery and equipment assets to more accurately reflect expected useful lives. These assets which were being depreciated over a term of 3 – 10 years are now being depreciated over a term of 3 – 15 years. As a result, for the quarter ended April 30, 2010 depreciation expense included as cost of sales was reduced by approximately $450. The net impact of this change in estimate for the quarter ended April 30, 2010 was a reduction of basic and fully diluted loss per share of approximately $0.02.

Certain prior year amounts have been reclassified to conform to current year presentation.

2.	LIQUIDITY

The Company has incurred significant net losses from continuing operations in the recent past, and such losses may continue in the future, which may result in a need for increased access to capital. If cash provided by operating and financing activities is insufficient to fund cash requirements, the Company could face substantial liquidity problems. As of April 30, 2010, the Company has approximately $155,000 of debt related to the Credit Facility, 2005 Notes and 2006 Notes and China line of credit (refer to Note 6 – Debt). In the event the Company requires additional capital in the future, due to continued losses in the future at unanticipated levels, debt maturities, or otherwise, individually or in combination, such capital may not be available on satisfactory terms, or available at all.

The Company’s liquidity is primarily determined by its availability under the Credit Facility, its unrestricted cash balances and cash flows from operations. If the Company’s cash requirements exceed the cash provided by its operating activities, then the Company would look to its unrestricted cash balances and the availability under its Credit Facility to satisfy those needs. While the Company believes its liquidity will be sufficient to meet its ongoing cash needs to fund operations, capital expenditures and debt service for at least the next twelve months, no assurance can be given in this regard. Important factors and assumptions made by the Company when considering future liquidity include, but are not limited to, the stabilization of lead prices, future demand from customers, continued and sufficient availability of credit from its trade vendors and the continued availability of its Credit Facility. To the extent unforeseen events occur or operating results are below forecast, the Company believes it can take certain actions to conserve cash, such as delay major capital investments, other discretionary spending reductions or pursue financing from other sources to preserve liquidity, if necessary. Despite these potential actions, if the Company is not able to satisfy its cash requirements in the near term from cash provided by operating activities, or through access to its Credit Facility, it may not have the minimum levels of cash necessary to operate the business on an ongoing basis.

The Company’s liquidity derived from its Credit Facility is based on availability determined by a borrowing base. The Company may not be able to maintain adequate levels of eligible assets to support its required liquidity in the future. In addition, the Credit Facility requires the Company to meet a minimum fixed charge coverage ratio if the availability falls below $10,000. The fixed charge coverage ratio for the last twelve (12) consecutive fiscal month period shall be not less than 1.10:1.00. During the past year, the Company’s availability was above the threshold for each reporting period. During the past year the company would not have achieved the minimum fixed charge coverage ratio. The Company’s ability to meet these financial provisions may be affected by

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

events beyond its control. Rising prices of lead and other commodities and other circumstances have resulted in the Company obtaining amendments to its financial covenants in the past. Such amendments may not be available in the future, if required.

Current credit and capital market conditions combined with the Company’s recent history of operating losses and negative cash flows are likely to impact and/or restrict its ability to access capital markets in the near term, and any such access would likely be at an increased cost and under more restrictive terms and conditions. Further, such constraints may also affect agreements and payment terms with the Company’s trade vendors. If unforeseen events occur or certain larger vendors require the Company to pay for purchases in advance or upon delivery, or on reduced trade terms, the Company may not be able to continue operating as a going concern.

Any breach of the covenants in the Credit Facility or the indentures governing the 2005 Notes and 2006 Notes could cause a default under the Credit Facility and other debt (including the 2005 and 2006 Notes), which would restrict the Company’s ability to borrow under its Credit Facility, thereby significantly impacting its liquidity. If the Company incurs an event of default under any of these debt instruments that was not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to these debt instruments to be due and payable immediately. The Company’s assets and cash flows may not be sufficient to fully repay borrowings under these debt instruments if accelerated upon an event of default or, in the case of the 2005 Notes and 2006 Notes, following certain fundamental changes. Additionally, the 2005 Notes and 2006 Notes have initial maturities (put provisions) in November 2011 and November 2012, respectively. If, as or when required, the Company is unable to repay, refinance or restructure its indebtedness under, or amend the covenants contained in, the Credit Facility or the indentures governing the 2005 Notes and 2006 Notes, the lenders under the Credit Facility or the holders of the 2005 Notes and 2006 Notes could institute foreclosure proceedings against the assets securing borrowings under those facilities, which would have an material adverse impact on the Company. Refer to Part II, Item 1A. regarding the Company’s noncompliance with NYSE listing requirements and related risks thereto.

3.	STOCK-BASED COMPENSATION

The Company granted stock option awards of 0 shares and 296,076 shares during the three months ended April 30, 2010 and 2009, respectively. The Company recorded $108 and $186 of stock compensation related to stock option awards in its unaudited consolidated statement of operations for the three months ended April 30, 2010 and 2009, respectively. The impact on loss per share for the three months ended April 30, 2010 and 2009 was less than $0.01 in each period.

The Company did not grant any restricted stock awards or performance shares during the three months ended April 30, 2010. The Company granted 204,758 restricted stock awards and 164,758 performance shares to selected executives and other key employees under the Company’s 2007 Stock Incentive Plan during the three months ended April 30, 2009. The restricted stock awards vest ratably over a period of one to four years and the expense is recognized over the related vesting period. Compensation expense associated with restricted stock in the three months ended April 30, 2010 and 2009 was $122 and $137, respectively. The performance shares vest at the end of the performance period upon the achievement of pre-established financial objectives. No compensation expense has been recorded for the performance related awards since the Company does not believe that the performance criteria established will be met.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

The following table summarizes information about the stock options outstanding at April 30, 2010:


				OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
Range of Exercise Prices				Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Contractual Life	Weighted- Average Exercise Price
$	1.30 -	$	1.53	301,076	6.8 Years	$	1.30	0	6.8 Years	$	1.30
$	2.10 -	$	2.10	5,000	7.0 Years	$	2.10	0	7.0 Years	$	2.10
$	4.25 -	$	6.30	634,000	5.6 Years	$	5.55	87,000	6.5 Years	$	6.05
$	6.81 -	$	9.12	469,618	5.7 Years	$	7.66	454,618	5.7 Years	$	7.65
$	9.80 -	$	14.28	111,556	4.7 Years	$	11.00	111,556	4.7 Years	$	11.00
$	16.02 -	$	22.18	250,244	3.0 years	$	18.55	250,244	3.0 Years	$	18.55
$	26.76 -	$	35.00	90,350	1.0 Years	$	31.64	90,350	1.0 Years	$	31.64
$	49.44 -	$	55.94	30,800	0.2 Years	$	55.11	30,800	0.2 Years	$	55.11

				1,892,644	5.1 Years	$	9.48	1,024,568	4.4 Years	$	14.09

The estimated fair value of the options granted was calculated using the Black Scholes Merton option pricing model (“Black Scholes”). The Black Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest for periods within the estimated life of the option is based on U.S. Government Securities Treasury Constant Maturities over the contractual term of the equity instrument. Expected volatility is based on the historical volatility of the Company’s stock. The Company uses the shortcut method to determine the expected life assumption.

The fair value of stock options granted during the three months ended April 30, 2009 was estimated on the grant date using the Black-Scholes option pricing model with the following average assumptions.


Three months ended April 30,		2009
Risk-free interest rate		2.02%
Dividend yield		0%
Volatility factor		70.09%
Expected lives		5.5 Years

4.	NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Guidance

On February 1, 2010, the Company adopted new accounting guidance on the accounting for transfers of financial assets. The new guidance seeks to improve financial reporting by providing a short-term solution to address inconsistencies in practice relating to the existing concepts, such as eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance. The adoption did not have a significant impact on the Company’s financial statements.

On February 1, 2010, the Company adopted new accounting guidance on variable interest entities which seeks to improve financial reporting by requiring that entities perform an analysis to determine whether any variable interest or interests that they have give them a controlling financial interest in a variable interest entity. The adoption did not have a significant impact on the Company’s financial statements.

On February 1, 2010, the Company adopted new accounting guidance on fair value measurement disclosures which requires additional disclosures about recurring and nonrecurring fair value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The adoption did not have a significant impact on the Company’s financial statements.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

5.	INVENTORIES

Inventories consisted of the following:


	April 30, 2010		January 31, 2010
Raw materials	$	20,295	$	22,035
Work-in-process		22,408		19,811
Finished goods		31,314		34,195

Total	$	74,017	$	76,041

DEBT

Debt consisted of the following:


	April 30, 2010		January 31, 2010
Credit Facility:
Revolving line of credit bearing interest at 4.75% at April 30, 2010: availability is determined by a borrowing base calculation	$	10,342	$	18,605
Term loan tranche		20,000		—
Convertible Senior Notes 2005; due 2025, bears interest at 5.25% net of unamortized discounts of $11,639 and $12,591, respectively		63,361		62,409
Convertible Senior Notes 2006; due 2026, bears interest at 5.50%.		52,000		52,000
China Line of Credit; Maximum commitment of 60 million RMB (with an effective interest rate of 5.73% as of April 30, 2010 and January 31, 2010)		8,644		8,644
Capital leases		218		225

Total debt		154,565		141,883
Less unamortized debt costs		3,464		2,015

Net debt		151,101		139,868
Less current portion		656		8,777

Total long-term portion	$	150,445	$	131,091

Credit Facility

At April 30, 2010, the Company has a $75,000 principal amount Credit Facility. The Credit Facility consists of (1) an approximately three-year senior revolving line of credit which does not expire until June 6, 2013; of which the maximum borrowing capacity is $55,000, determined by a borrowing base calculation and (2) a $20,000 term loan as discussed further below. The availability under the revolving line of credit portion of the Credit Facility is determined by a borrowing base, is collateralized by a first lien on certain assets and bears interest at LIBOR plus 2.75% to 3.25% or Prime plus 1.25% to 1.75% with the rate premium based on the amount outstanding. As of April 30, 2010, $10,342 was funded under the revolving line of credit portion of the Credit Facility and $5,147 was utilized for letters of credit. As provided under the Credit Facility, excess borrowing capacity will be available for future working capital needs and general corporate purposes.

In April 2010, the Company completed an Amendment to the Credit Facility agreement. The Amendment provided for the addition of a $20,000 term loan tranche that effectively increased the Credit Facility from $55,000 to $75,000. All obligations under the term loan tranche are secured by a first priority lien on all of the Company’s personal property, as well as that of the Guarantors, along with certain of its real estate. Repayment of the indebtedness under the term loan tranche is subordinate to the repayment of indebtedness owed under the revolving credit line portion of the Credit Facility. The term loan tranche is payable on the earlier to occur of June 6, 2013 and the termination of the Credit Facility. The term loan tranche initially bears interest at the rate of 11.25 percent plus

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

the greater of (i) LIBOR and (ii) 3 percent. The term loan tranche of the credit facility is subject to the same customary affirmative and negative covenants, as well as financial covenants, as stated in the Credit Facility agreement. In addition, for the one-year period following the Amendment, the Company has a requirement to maintain minimum excess availability under the Credit Agreement of $15,000. The Company expects to maintain excess availability above this $15,000 minimum. There are also minimum EBITDA requirements, subject to an event of default, beginning with the Company’s quarter ended April 30, 2011. The Credit Agreement, as amended by the Amendment, still requires the Company to maintain a minimum fixed charge coverage ratio of 1.1:1.0 on a consolidated basis which becomes applicable only if the availability under the revolving credit line tranche falls below $10,000.

As of April 30, 2010 and January 31, 2010, the Company was in compliance with its financial covenants. The Credit Facility includes a minimum fixed charge coverage ratio that is measured only when the excess availability as defined in the agreement is less than $10,000. The agreement restricts payments including dividends and Treasury Stock purchases to no more than $250 for Treasury Stock in any one calendar year and $1,750 for dividends for any one calendar year subject to adjustments of up to $400 per year in the case of the conversion of debt to stock per the terms of the 5.25% convertible offering. These restricted payments can only occur with prior notice to the lenders and provided that there is a minimum of $30,000 in excess availability for a period of thirty days prior to the dividend.

The Credit Facility includes a material adverse change clause which defines an event of default as a material adverse change in the business, assets or prospects. Company lenders could claim a breach under the material adverse change covenant or the cross-default provisions under the Credit Facility under certain circumstances, including, for example, if holders of the 2005 Notes and 2006 Notes were to obtain the right to put their notes to us in the event that the common stock was no longer listed on any national securities exchange. A delisting event does not constitute a material adverse event under the terms of the Credit Facility. An interpretation of events as a material adverse change or any breach of the covenants in the Credit Facility or the indentures governing the 2005 Notes and 2006 Notes could cause a default under the Credit Facility and other debt (including the 2005 and 2006 Notes), which would restrict the Company’s ability to borrow under the Credit Facility, thereby significantly impacting liquidity.

Convertible Senior Notes 2005

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

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

A holder of 2005 Notes may require the Company to repurchase some or all of the holder’s 2005 Notes for cash upon the occurrence of a fundamental change as defined in the indenture and may put the 2005 Notes to the Company on each of November 1, 2012, 2015 and 2020 at a price equal to 100% of the principal amount of the 2005 Notes being repurchased, plus accrued interest, if any, in each case. If applicable, the Company will pay a make-whole premium on 2005 Notes converted in connection with any fundamental change that occurs prior to

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

November 1, 2012. The amount of the make-whole premium, if any, will be based on the Company’s stock price and the effective date of the fundamental change. The indenture contains a detailed description of how the make-whole premium will be determined and a table showing the make-whole premium that would apply at various stock prices and fundamental change effective dates based on assumed interest and conversion rates. No make-whole premium will be paid if the price of the Common Stock on the effective date of the fundamental change is less than $7.00. Any make-whole premium will be payable in shares of Common Stock (or the consideration into which the Company’s Common Stock has been exchanged in the fundamental change) on the conversion date for the 2005 Notes converted in connection with the fundamental change.

The 2005 Notes are accounted for in accordance with the guidance provided in the Financial Accounting Standards Boards Accounting Standards Codification (“ASC”) 470-20. ASC 470-20 requires an issuer to separately account for the liability and equity components in a manner that reflects the issuer’s nonconvertible borrowing rate resulting in higher non-cash expense which is amortized over the expected life of the instrument. We determined that the effective rate of the liability component was 12.5%.

Convertible Senior Notes 2006

On November 22, 2006, the Company completed the private placement of $54,500 aggregate principal amount of 5.50% Convertible Senior Notes Due 2026 (“2006 Notes”) which raised proceeds of approximately $51,700, net of $2,800 in issuance costs. These costs are being amortized to interest expense over five years.

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

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

ASC 470-20 does not apply to the 2006 Notes since this note does not provide the Company with the option of settlement upon conversion in cash for all or part of the notes. As a result, this note is carried at face value and interest is recorded based on the stated rate of 5.50%.

China Line of Credit

On January 18, 2007, as amended in May 2009, the Company entered into a 12 month renewable non-revolving line of credit facility in China. Under the terms of the China Line of Credit, the Company may borrow up to 60 million RMB (approximately $8,790 US Dollars at April 30, 2010 and January 31, 2010) with an interest rate of 5.73%. This credit line was established to provide the plant in China the flexibility needed to finalize the construction of its new manufacturing facility, which was completed in March 2007 and to fund working capital requirements. As of April 30, 2010 and January 31, 2010, $8,644 was funded under this facility. This credit facility matured in May 2010.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

In May 2010, the Company obtained a new line of credit loan with a borrowing capacity of 82 million RMB (approximately $12,013 US dollars at April 30, 2010) from a local Chinese bank (the “Chinese LOC”), of which 59 million RMB (approximately $8,644 US Dollars at April 30, 2010) was funded as of June 1, 2010. The Chinese LOC replaces the previous China line of credit, discussed above, which matured in May 2010. The outstanding borrowings under the Chinese LOC of 59 million RMB as of June 1, 2010 has scheduled maturities of 3,730 RMB (approximately $546 US Dollars at April 30, 2010) due in one year, 11,180 RMB (approximately $1,638 US Dollars at April 30, 2010) due in year two, 18,640 RMB (approximately $2,731 US Dollars at April 30, 2010) due in year three, 10,000 RMB (approximately $1,465 US Dollars at April 30, 2010) due in year four and 15,450 RMB (approximately $2,264 US Dollars at April 30, 2010) due in year five. The Chinese LOC bears interest at a floating rate based on the applicable rate from the People’s Bank of China less a 10% discount, which was 5.18% as of June 1, 2010. This loan is secured by our Chinese manufacturing facility located in Shanghai, China. The incremental borrowings of approximately 23 million RMB (approximately ($3,370 US Dollars at April 30, 2010) as of June 1, 2010, when and if funded in the future, are expected to be used to support capital investments in China. During May 2010, we paid 510 RMB (approximately $75 US Dollars at April 30, 2010) of acquisition fees related to this Chinese LOC. These fees will be capitalized and amortized over the life of the line of credit.

7.	STATEMENT OF CHANGES IN EQUITY


	Common Stock			Additional Paid-In Capital		Treasury Stock					Other Comprehensive Income /(Loss)			Retained Earnings			Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital		Shares		Amount			Other Comprehensive Income /(Loss)			Retained Earnings			Noncontrolling Interest		Total Stockholders’ Equity
BALANCE AT JANUARY 31, 2010	29,228,213	$	292	$	97,033	(2,925,438	)	$	(40,091	)	$	(43,656	)	$	17,666		$	11,226	$	42,470

Total comprehensive loss:
Net (loss) income															(5,604	)		94		(5,510	)
Foreign currency translation adjustment												(45	)					1		(44	)
Unrealized gain on derivative instruments												265								265
Pension liability adjustment												548								548


Total comprehensive income (loss):												768			(5,604	)		95		(4,741	)


Other changes in equity:

Share based compensation expense					230															230

Stock awards issued/exercised	59,973		1																	1


BALANCE AT APRIL 30, 2010	29,288,186	$	293	$	97,263	(2,925,438	)	$	(40,091	)	$	(42,888	)	$	12,062		$	11,321	$	37,960

8.	INCOME TAXES


	Three months ended April 30,
	2010			2009
Income taxes provision	$	394		$	1,096
Effective income tax rate		(7.7	%)		(12.4	%)

Effective tax rates were (7.7%) and (12.4%) for the three months ended April 30, 2010 and 2009, respectively. Tax expense for the three months ended April 30, 2010 is due to tax expense in certain profitable foreign subsidiaries and no tax benefit recognized in certain jurisdictions where the Company incurred a loss in addition to deferred tax expense related to the increase in the deferred tax liability related to certain indefinite lived assets. There was no significant impact to the tax expense related to uncertain tax positions or the interest on uncertain tax positions.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

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

9.	EARNINGS PER SHARE

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

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


	Three months ended April 30,
	2010			2009
Numerator:
Numerator for basic losses per common share	$	(5,604	)	$	(9,758	)

Numerator for diluted losses per common share	$	(5,604	)	$	(9,758	)


Denominator:
Denominator for basic earnings per common share- weighted average common share		26,345,603			26,281,992
Effect of dilutive securities:
Denominator for diluted earnings per common share- adjusted weighted average common shares and assumed conversions		26,345,603			26,281,992

Basic losses per common share	$	(0.21	)	$	(0.37	)

Diluted losses from common share	$	(0.21	)	$	(0.37	)

The Company has excluded dilutive securities of 19,604,137 issuable in connection with convertible bonds from the diluted income per share calculation for the three months ended April 30, 2010 and 2009, because their effect would be anti-dilutive. The above computation also excludes all anti-dilutive options, restricted stock awards and shares issuable under deferred compensation arrangements, which amounted to 2,265,910 and 2,155,48 shares for the three months ended April 30, 2010 and 2009 respectively.

10.

CONTINGENT LIABILITIES

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

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

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

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

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

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

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

C&D, together with Johnson Controls, Inc. (“JCI”), is conducting an assessment and remediation of contamination at and near its facility in Milwaukee, Wisconsin. The majority of the on-site soil remediation portion of this project was completed as of October 2001. Under the purchase agreement with JCI, C&D is responsible for (i) one-half of the cost of the on-site assessment and remediation, with a maximum liability of $1,750 (ii) any environmental liabilities at the facility that are not remediated as part of the ongoing cleanup project and (iii)

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

environmental liabilities for any new claims made after the fifth anniversary of the closing, i.e. March 2004, that arise from migration from a pre-closing condition at the Milwaukee facility to locations other than the Milwaukee facility, but specifically excluding liabilities relating to pre-closing offsite disposal. JCI retained the environmental liability for the off-site assessment and remediation of lead. In March 2004, the Company entered into an agreement with JCI to continue to share responsibility as set forth in the original purchase agreement. The Company continues to share with JCI the allocation of costs for assessment and remediation of certain off-site chlorinated volatile organic compounds in groundwater.

In February 2005, the Company received a request from the EPA to conduct exploratory testing to determine if the historical municipal landfill located on the Company’s Attica, Indiana, property is the source of elevated levels of trichloroethylene detected in two city wells downgradient of the Company’s property. In 2009, EPA determined that the impact to the two city wells was from sources unrelated to the Company’s property. The EPA also advised that it believes the former landfill is subject to remediation under the RCRA corrective action program. The Company conducted testing in accordance with an investigation work plan and submitted the test results to the EPA. The EPA thereafter notified the Company that they also wanted the Company to embark upon a more comprehensive RCRA investigation to determine whether there have been any releases of other hazardous waste constituents from its Attica facility and, if so, to determine what corrective measure may be appropriate. In January 2007, the Company agreed to an Administrative Order on Consent with EPA to investigate, and remediate if necessary, site conditions at the facility. The Company has timely complied with all required investigative and remedial actions required by EPA.

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

The Company accrues for environmental liabilities in its consolidated financial statements and periodically reevaluates the reserved amounts for these liabilities in view of the most current information available in accordance with accounting guidance for contingencies. As of April 30, 2010, accrued environmental reserves totaled $1,889 consisting of $1,259 in other current liabilities and $630 in other liabilities. Based on currently available information, the Company believes that appropriate reserves have been established with respect to the foregoing contingent liabilities and that they are not expected to have a material adverse effect on its business, financial condition or results of operations.

Purchase Commitments

Periodically the Company enters into purchase commitments pertaining to the purchase of certain raw materials with various suppliers. The Company has entered into various lead commitments contracts some expiring within a few months while others continue into December 2011. The estimated commitments are approximately $78,000 in the year ended April 30, 2011, $38,000 during the year ended April 30, 2012. The Company has purchased new machinery with an estimated remaining cost of $674 to be recorded and placed in service during the current fiscal year.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

11.

FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s financial instruments at April 30, 2010 and January 31, 2010 were as follows:


	April 30, 2010						January 31, 2010
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	2,929		$	2,929		$	2,700		$	2,700
Investments held for deferred compensation plan		366			366			321			321
Debt		154,347			138,107			141,658			107,282
Commodity hedges		(84	)		(84	)		(643	)		(643	)

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

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

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

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

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

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

12.

DERIVATIVE INSTRUMENTS

Accounting standards related to derivative instruments require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders’ equity as accumulated other comprehensive (loss) income or net (loss) income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

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

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

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

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

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

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

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

The Company had raw material commodity arrangements for 2,397 metric tons of base metals at April 30, 2010 and 3,103 metric tons at January 31, 2010.

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


	April 30, 2010		January 31, 2010		Balance Sheet Location
Derivatives designated as hedging instruments:

Commodity Hedges	$	84	$	643	Other current liabilities

Total fair value	$	84	$	643

The Company estimates that $220 of net derivative losses in AOCI as of April 30, 2010 will be reclassified into earnings in the next twelve months.


	Amount of Gain (Loss) Recognized in OCI						Amount of Gain (Loss) Reclassified from AOCI into Income					Location of Gain (Loss) Reclassified from
	2010			2009			2010		2009			AOCI into Income
Derivatives in Cash Flow Hedging

Commodity Hedges	$	(165	)	$	(107	)	$	430	$	(1,971	)	Cost of Sales

13.

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:


	Three months ended April 30,
	2010			2009
Balance at beginning of period	$	6,481		$	8,069
Current year provisions		1,173			736
Expenditures		(1,013	)		(2,161	)
Effect of foreign currency translation		—			—

Balance at end of period	$	6,641		$	6,644

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)

As of April 30, 2010, accrued warranty obligations of $6,641 include $2,433 in current liabilities and $4,208 in other liabilities. As of January 31, 2010 accrued warranty obligations of $6,481 include $2,511 in current liabilities and $3,970 in other liabilities.

Certain warranty costs associated with the discontinued operations were not assumed by the buyer and are included in the table above. Expenditures include $7 and $1,208 related to discontinued operations in the first fiscal quarters 2011 and 2010, respectively.

14.

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

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


	Pension Benefits						Postretirement Benefits
	Three months ended April 30,						Three months ended April 30,
	2010			2009			2010			2009
Components of net periodic benefit cost:
Service cost	$	317		$	284		$	18		$	18
Interest cost		1,141			1,159			30			31
Expected return on plan assets		(1,017	)		(866	)		—			—
Amortization of prior service costs		—			—			(198	)		(201	)
Recognized actuarial loss/(gain)		751			745			2			—

Net periodic benefit cost	$	1,192		$	1,322		$	(148	)	$	(152	)

The Company made $625 of contributions to the plan in the first quarter of fiscal year 2011. The Company expects to make contributions of approximately $4,472 to its plan during fiscal year 2011. The Company also expects to make contributions totaling approximately $181 to the Company sponsored postretirement benefit plan during fiscal year 2011.

15.

RESTRUCTURING

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

A reconciliation of the liability and related activity during the three months ended April 30, 2010, is shown below.

C&D TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollars in thousands, except per share data)

(UNAUDITED)


	Balance at January 31, 2010		Provision Additions		Expenditures		Balance at April 30, 2010

Severance	$	76	$	—	$	59	$	17

Total	$	76	$	—	$	59	$	17

16.

FAIR VALUE MEASUREMENT

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


Level 1		Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2		Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3		Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table represents our assets and liabilities measured at fair value on a recurring basis as of April 30, 2010 and 2009 and the basis for those measurements:


	Total		Level 1		Level 2		Level 3
2010
Investments held in large mutual funds	$	366	$	366	$	—	$	—
Commodity hedge liability		84		—		84		—

2009
Investments held in large mutual funds	$	314	$	314	$	—	$	—
Commodity hedge asset		48		—		48		—

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands, except per share data)

Item 2.

Three Months Ended April 30, 2010, compared to Three Months Ended April 30, 2009

Within the following discussion, unless otherwise stated, “quarter” and “three-month” period” refer to the first quarter of fiscal year 2011. All comparisons are with the corresponding period in the prior fiscal year, unless otherwise stated.

Net sales in the first quarter of fiscal year 2011 increased $11,038 or 15% to $84,703 from $73,665 in the first quarter of fiscal year 2010. This increase was primarily due to contractual price increases resulting from the significant increases in the price of lead. Average London Metal Exchange (“LME”) lead prices increased from an average of $0.56 per pound in the first quarter of fiscal year 2010 to $0.99 per pound in the first quarter of fiscal year 2011. The increase in lead prices was partially offset by continued pressures on volumes as a result of the general economic environment, principally in the Company’s North American telecommunications and UPS markets.

Gross profit in the first quarter of fiscal year 2011 increased $4,633 or 87% to $9,978 from $5,345. Gross margins as a percent of sales increased from 7% in the first quarter of fiscal year 2010 to 12% in the first quarter of fiscal year 2011. Margins increased sequentially to 12% in the first quarter of fiscal 2011 compared to 10% in the fourth quarter of fiscal 2010. Gross margin has improved over the prior year’s comparable quarter and over the previous quarter primarily due to increased pricing focus and discipline and less lead price volatility during the period. In the previous quarter, lead prices increased at a rapid rate, impeding our ability to recover such price increases from our customers in a timely manner. Our ability to increase price is often determined contractually. In the current quarter, lead prices were less volatile as compared to the previous quarter, resulting in improved lead price recovery. In addition, we maintained greater discipline with respect to pricing to our customers, thereby favorably impacting margins in the face of decreased volumes in the Americas and negative impacts from product mix shifts.

Selling, general and administrative expenses in the first quarter of fiscal year 2011 decreased $20 or 0.2% to $9,222 from $9,242. As a percentage of sales, selling, general and administrative expenses decreased to 10.9% in fiscal 2011 compared to 12.6% in the first quarter of fiscal 2010.

Research and development expenses in the first quarter of fiscal year 2011 decreased $90 or 5% to $1,788 from $1,878. As a percentage of sales, research and development expenses decreased from 2.6% in the first quarter of fiscal year 2010 to 2.1% in the first quarter of fiscal year 2011. We receive cost reimbursements under a federal government contract related to lithium battery research and development. We recognized $180 of federal government contract cost reimbursements as a reduction in research and development expenses in our consolidated statement of operations for the first quarter of fiscal year 2011, as compared to $118 in the first quarter of fiscal 2010.

The Company had an operating loss in the first quarter of fiscal year 2011 of $1,032 compared to $5,775 in the first quarter of fiscal year 2010. The change is mainly due to the increase in gross profit compared to the first quarter of fiscal 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Analysis of Change in Operating Loss from continuing operations for the 1^st quarter of fiscal year 2011 vs. fiscal year 2010.


Fiscal Year 2011 vs. 2010
Operating Loss 1Q’10	$	(5,775	)
Lead, net		(8,236	)
Price / Volume / Mix		13,942
Warranty		(435	)
Pension		130
Other		(658	)

Operating Loss 1Q’11	$	(1,032	)

Interest expense, net in the first quarter of fiscal year 2011 increased $424 or 14.5% to $3,348 from $2,924 in the first quarter of fiscal year 2010, primarily due to higher average debt balances and higher interest rates in the first quarter of fiscal 2011 compared to the first quarter for fiscal 2010. Also, interest expense includes $952 and $798 in fiscal years 2011 and 2010, respectively, for non-cash amortization of debt discount on the 2005 Notes (see Note 6).

Other expense was $736 in the first quarter of fiscal year 2011 compared to $174 in the first quarter of fiscal year 2010. The increase was primarily due to recording $670 to increase our environmental reserves related to a facility which we disposed of during fiscal year 2007, however, have retained responsibility for certain environmental costs, partially offset by a reduction in other expenses in the current quarter.

Income tax expense of $394 was recorded in the first quarter of fiscal year 2011, compared to $1,096 in the first quarter of fiscal year 2010. Tax expense in the first quarter of both fiscal years 2011 and 2010, is primarily due to non-cash deferred tax expenses related to the amortization of intangible assets and foreign taxes on profits which were not offset by losses for which no tax benefit is recognized.

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

Noncontrolling interest reflects the 33% ownership interest in the joint venture battery business located in Shanghai, China, that is not owned by the Company. Noncontrolling interest was income of $94 in the first quarter of fiscal year 2011 compared to a loss of $211 in the first quarter of fiscal year 2010, primarily due to increasing sales volumes in Asia which have favorably impacted the joint venture’s cost structure.

As a result of the above, net loss attributable to C&D Technologies, Inc was $5,604 in the first quarter of fiscal year 2011 compared to $9,758 in the comparable quarter of the prior year. Basic and diluted losses per share were $0.21 and $0.37 in the first quarter of fiscal year 2011 and 2010, respectively.

Other comprehensive loss attributable to C&D Technologies, Inc. decreased by $1,377 in the first quarter of fiscal year 2011 to $4,836 from $6,213 in the first quarter of fiscal year 2010. This decrease was due primarily to the decrease in net loss attributable to C&D from $9,758 in the first quarter of fiscal 2010 to $5,604 in the first quarter of fiscal year 2011 partially offset by a decrease in the unrealized gain on derivative instruments of $265 in the first quarter of fiscal year 2011 compared to $2,905 in first quarter of fiscal year 2010 and foreign currency translation losses of $44 in fiscal year 2011 compared to income of $137 in fiscal year 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Liquidity and Capital Resources

Net cash used in operating activities was $5,936 for three months ended April 30, 2010, compared to $165 in the comparable period of the prior fiscal year. This is primarily a result of the decrease in the loss from $9,969 in the first quarter of fiscal 2010 to $5,510 in the current year, as discussed above, offset by cash outflows related to accounts receivable of $3,798, as compared to a cash inflow from accounts receivables of $2,421 in the prior year, and an increase in cash outflows related to accounts payable and book overdrafts of $4,202. More specifically, the reduction in accounts payable from January 31, 2010 to April 30, 2010 of $4,458 is primarily due to a constriction of trade credit during the first quarter of fiscal 2011.

Net cash used in investing activities was $3,824 in the first quarter of fiscal year 2011 as compared to $4,010 in the first quarter of fiscal year 2010. During the first three months of fiscal year 2011, we had purchases of property, plant and equipment of $3,871 compared with purchases of $4,782 in the prior year. The decrease in capital expenditures is principally due to the completion of new product development that had been started in the prior year. This was offset by a reduction of restricted cash of $47 related to lead hedging activities in the first quarter of fiscal 2011 compared to $772 in the prior fiscal year.

Net cash provided by financing activities increased $6,664 to $9,983 for the three months ended April 30, 2010, compared to $3,319 in the comparable period of the prior fiscal year. Proceeds from net borrowings under the Company’s Credit Facility, offset by debt acquisition costs, were the primary sources of cash provided by financing activities in the first quarter of fiscal year 2011. The primary purpose of the new borrowings in the current quarter of the fiscal year was to fund the cash used in operations, as discussed above, as well as to fund capital expenditures.

There is an uncertainty regarding our ability to maintain liquidity sufficient to operate our business and our ability to continue as a going concern. We have incurred significant net losses from continuing operations in the recent past, and such losses may continue in the future, which may result in a need for increased access to capital. If cash provided by operating and financing activities is insufficient to fund cash requirements, we could face substantial liquidity problems. As of April 30, 2010, we had approximately $155,000 of debt related to the Credit Facility, 2005 Notes and 2006 Notes and China line of credit (refer to Note 6 – Debt). In the event we require additional capital in the future, due to continued losses in the future at unanticipated levels, debt maturities, or otherwise, individually or in combination, such capital may not be available on satisfactory terms, or available at all.

Our liquidity is primarily determined by our availability under the Credit Facility, our unrestricted cash balances and cash flows from operations. If our cash requirements exceed the cash provided by our operating activities, then we would look to our unrestricted cash balances and the availability under our Credit Facility to satisfy those needs. Important factors and assumptions made by us when considering future liquidity include, but are not limited to, the stabilization of lead prices, future demand from customers, continued sufficient availability of credit from our trade vendors and the ability to re-finance or obtain debt in the future. To the extent unforeseen events occur or operating results are below forecast, we believe we can take certain actions to conserve cash, such as delay major capital investments, other discretionary spending reductions or pursue financing from other sources to preserve liquidity, if necessary. Despite these potential actions, if we are not able to satisfy our cash requirements in the near term from cash provided by operating activities, or through access to our Credit Facility, we may not have the minimum levels of cash necessary to operate the business on an ongoing basis.

Our liquidity derived from the Credit Facility is based on availability determined by a borrowing base. We may not be able to maintain adequate levels of eligible assets to support its required liquidity in the future. In addition, the Credit Facility requires us to meet a minimum fixed charge coverage ratio if the availability falls below $10,000, adjusted to $15,000 for the first year under the agreement as amended. The fixed charge coverage ratio for the last twelve (12) consecutive fiscal month period shall be not less than 1.10:1.00. Our ability to meet these financial provisions may be affected by events beyond our control. Rising prices of lead and other commodities and other circumstances have resulted in our obtaining amendments to the financial covenants in the past. Such amendments may not be available in the future, if required.

Current credit and capital market conditions combined with our recent history of operating losses and negative cash flows are likely to impact and/or restrict our ability to access capital markets in the near term, and any such access would likely be at an increased cost and under more restrictive terms and conditions. Further, such

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

constraints may also affect agreements and payment terms with our trade vendors. If unforeseen events occur or certain larger vendors require us to pay for purchases in advance or upon delivery, or on reduced trade terms, we may not be able to continue operating as a going concern.

Any breach of the covenants in the Credit Facility or the indentures governing the 2005 Notes and 2006 Notes could cause a default under the Credit Facility and other debt (including the 2005 and 2006 Notes), which would restrict our ability to borrow under the Credit Facility, thereby significantly impacting our liquidity. If the Company incurs an event of default under any of these debt instruments that was not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to these debt instruments to be due and payable immediately. Our assets and cash flows may not be sufficient to fully repay borrowings under these debt instruments if accelerated upon an event of default or, in the case of the 2005 Notes and 2006 Notes, following certain fundamental changes. Additionally, the 2005 Notes and 2006 Notes have initial maturities (put provisions) in November 2011 and November 2012, respectively. If, as or when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, the Credit Facility or the indentures governing the 2005 Notes and 2006 Notes, the lenders under the Credit Facility or the holders of the 2005 Notes and 2006 Notes could institute foreclosure proceedings against the assets securing borrowings under those facilities, which would have an material adverse impact on us.

We have also assessed the impact of the severe liquidity crises at major financial institutions on our ability to access capital markets on reasonable terms. Although our credit facility syndicate bank is currently meeting all of their lending obligations, there can be no assurance that these banks will be able to meet their obligations in the future if the liquidity crisis intensifies or is protracted. Our current credit facility does not expire until June 6, 2013. As of April 30, 2010, the maximum availability calculated under the borrowing base was approximately $60,941 (net of the fixed charge ratio discussed above), of which $30,342 was funded (including $20,000 from the term loan tranche), and $5,147 was utilized for letters of credit. As provided under the Credit Facility, excess borrowing capacity will be available for future working capital needs and general corporate purposes.

Our $52,000 and $75,000 convertible notes have initial maturities (put provisions) in November 2011 and November 2012 respectively. Only upon the occurrence of a fundamental change as defined in the indenture agreements, holders of the notes may require the Company to repurchase some or all of the notes prior to these dates.

At this time, we do not believe recent market disruptions will impact our long-term ability to obtain financing. We expect to have access to liquidity in the capital markets on favorable terms before the maturity dates of our current credit facilities and we do not expect a significant number of our lenders to default on their commitments thereunder. In addition, we can delay major capital investments or pursue financing from other sources to preserve liquidity, if necessary. Cash from operations and availability under the amended Credit Facility is expected to be sufficient to meet our ongoing cash needs for working capital requirements, restructuring, capital expenditures and debt service for at least the next twelve months. We estimate capital spending for fiscal year 2011 to be approximately $9,000 including funding for new product modifications and cost reduction opportunities.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Contractual Obligations and Commercial Commitments

The following tables summarize our contractual obligations and commercial commitments as of April 30, 2010:


	Payments Due by Period
	Total		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Contractual Obligations
Debt*	$	165,986	$	546	$	4,369	$	34,071	$	127,000
Interest payable on notes*		122,271		10,587		21,174		14,577		75,933
Operating leases		7,891		1,341		2,428		2,090		2,032
Projected – lead purchases**		116,000		78,000		38,000		—		—
Equipment		674		674		—		—		—
Capital Leases		218		110		83		25		—

Total contractual cash obligations	$	413,040	$	91,258	$	66,054	$	50,763	$	204,965

These amounts assume that the convertible notes will be held to maturities (see Note 6—Debt), show the Credit Facility and term loan tranche as paid in fiscal year 2013 and include interest on the Credit Facility and term loan tranche through maturity in fiscal year 2013 calculated at the same rate and outstanding balance at April 30, 2010 and the China debt up through fiscal year 2015 at the new rate.

**	Amounts are based on the cash price of lead at April 30, 2010 which was $0.99.


	Amount of Commitment Expiration per Period
Other Commercial Commitments	Total Amount Committed		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Standby letters of credit	$	5,147	$	5,085	$	62	$	—	$	—

Total commercial commitments	$	5,147	$	5,085	$	62	$	—	$	—

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

FORWARD-LOOKING STATEMENTS

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

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

•

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

•

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

•

statements of future economic performance; and

•

statements regarding the ability to obtain amendments under our debt agreements or to obtain additional funding in the future.

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

•

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

•

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

•

our ability to stay listed on a national securities exchange;

•

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

•

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

•

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

•

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

•

the realization of the tax benefits of our net operating loss carry forwards, which is dependent upon future taxable income and which may also be subject to limitation as a result of possible changes in ownership of the Company;

•

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

•

failure of our customers to renew supply agreements;

•

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

•

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

•

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

•

successful collective bargaining with our unionized workforce;

•

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

•

we may have additional impairment charges;

•

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

•

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

•

uncertainty in financial markets;

•

our success or timing of new product development;

•

impact of any changes in our management;

•

changes in our product mix;

•

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

•

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

•

our ability to protect our proprietary intellectual property and technology.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” included in the Company’s Form 10-K annual report for the year ended January 31, 2010, which should be read in conjunction with the report of Form 10-Q, and in Part II, Item 1A of this Form 10-Q.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (continued)

(Dollars in thousands, except per share data)

Item 3. Quantitative and Qualitative Disclosure about Market Risk

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

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

Additional disclosure regarding various market risks are set forth in Part I, Item 1A – “Risk Factors” of the Company’s Fiscal Year 2010 Annual Report on Form 10-K, filed with the SEC on April 20, 2010, which should be read in conjunction with this report on Form 10-Q.

Item 4. Controls and Procedures:

Management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by it in the reports that it files or submits under the Exchange Act and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding timely disclosures.

Internal Control over Financial Reporting:

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

PART II. OTHER INFORMATION

Item 1A.

Risk Factors

If we do not meet the New York Stock Exchange (“NYSE”) continued listing requirements, the NYSE may delist our common stock

C&D was notified by letter dated April 27, 2010 from the NYSE that the Company had fallen below the NYSE continued listing criterion that requires 30 day average market capitalization of not less than $50 million and total stockholders’ equity of not less than $50 million. As a result, we could face suspension and delisting proceedings. We notified the NYSE that we intend to submit a plan within 45 days that demonstrates our ability to regain compliance within 18 months. Upon receipt of this plan, the NYSE has 45 calendar days to review and determine whether we have made a reasonable demonstration of our ability to come into conformity with the relevant standards within the 18-month period. The NYSE may either accept the plan, at which time we would be subject to ongoing monitoring for compliance with this plan, or the NYSE may not accept the plan and we would be subject to suspension and delisting proceedings.

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

We consider market capitalization as a potential indicator of impaired goodwill, and subsequent to April 30, 2010, our market capitalization declined significantly. A sustained decline in market capitalization may result in, or be indicative of, a goodwill impairment charge in a future period.

At April 30, 2010, we had goodwill of $59,964 recorded on our consolidated balance sheet. Goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Among other indicators, we consider market capitalization as an indicator of our fair value. At April 30, 2010, our market capitalization was approximately $38,000, as compared to our net equity of $37,960. We also consider control premiums in assessing our fair value.

On June 1, 2010, our market capitalization had decreased to less than $24,000. Sustained levels of market capitalization below our net equity may indicate that our fair value is below our net equity, and therefore may result in a material goodwill impairment charge in a future period.

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

Issuer Purchases of Equity Securities:

NONE

Restrictions on Dividends and Treasury Stock Purchases:

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

Item 6. Exhibits.


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Date	Exhibit Number	Filed Herewith

12.1	Computation of Ratio of Earnings to Fixed Charges				X

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

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

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	C&D TECHNOLOGIES, INC.

June 7, 2010	By:	/s/ Jeffrey A. Graves
		Jeffrey A. Graves
		President, Chief Executive Officer and Director (Principal Executive Officer)

June 7, 2010	By:	/s/ Ian J. Harvie
		Ian J. Harvie
		Vice President Finance and Chief Financial Officer (Principal Financial Officer)

June 7, 2010	By:	/s/ Todd J. Greenspan
		Todd J. Greenspan
		Vice President & Corporate Controller (Principal Accounting Officer)

EXHIBIT INDEX


12.1		Computation of Ratio of Earnings to Fixed Charges

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

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

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

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