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Executives

Jeffrey A. Graves – President, CEO

Ian J. Harvie – VP, CFO

Analysts

Walter Nasdeo -Ardour Capital Investments

Bill Dezellem -Tieton Capital Management

John Franzreb -Sidoti & Co.

JoshRosen - Credit Suisse First Boston

C&DTechnologies Inc. (CHP) F3Q08 EarningsCall December 7, 2007 10:00 AM ET

Operator

Goodmorning...My name is Courtney and I will be your conference operator today. Atthis time, I would like to welcome everyone to the third quarter earnings callfor C&D Technologies. All lines have been placed on mute toprevent any background noise.

Afterthe speaker’s remarks, there will be a question and answer session. Ifyou would like to ask a question during this time, simply press star then thenumber one on your telephone keypad. If you would like to withdraw yourquestion, press the pound key. I would now like to turn the call overto Mr. Ian J. Harvie. Mr. Harvie you may begin your call.

Ian J. Harvie

Thankyou Courtney...Let me start by remind you that this call is the property ofC&D Technologies, Inc. Any redistribution retransmission orrebroadcast of this call in any form without the express written consent ofC&D Technologies, Inc. is strictlyprohibited. Further, as this call is being webcastlive and will be made available for a period of time, on C&D’s Web sitethis call contains time sensitive information that is accurate only as of thedate of this life webcast for this call on December 7th 2007. this conference callmay contain forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Act Exchange Act of1934.

Duringthis call, words and expressions reflecting something other than historicalfact are intended to indentify forward-looking statements but are not theexclusive means of identifying such statements. Factors that appear within anyforward-looking statement or in a company’s Securities and Exchange Commissionfiling including without limitation the company’s annual report on form 10-Kfor the fiscal year ended January 31st 2007.

And,various 10-Q and 8-K filings could cause the company’s actual results to differmaterially from those expressed in any forward-looking statements made herein. BeforeI turn over the call to Jeff let me discuss the presentation of our financialresults. Results for the third quarter and all comparative financialinformation included herein reflect the presentation of the motive powerdivision as a discontinued operation. This presentation is on the heels ofthe reclassification of the power electronics division as a discontinuedoperation last quarter and the subsequent completion of its divestiture. Atthis point, the standby power division represents 100% of our continuingoperation. In addition, I wanted to remind youthe last quarter we changed the company’s method of accounting for inventoryfrom the last in first out method to the first in first out method. Ourdiscussion of financial information today will take into account these changes. Nowlet me turn over the call to our President and Chief Executive Officer Dr. Jeffrey Graves.

Dr. Jeffrey Graves

ThanksIan and thanks everyone for joining us today. The story of this quarter is thecontinued transformation of C&D Technologies and the simplification of ourbusiness model. During this quarter, we made progresson a number of key financial and strategic initiatives. On August 31, wecompleted the divestiture of our power electronics division generating netproceeds of approximately $80 million, which were used to pay down debt andbolster our cash reserves. In late October, we announced anagreement to sell certain assets of the motive power division to Crown Battery,which will result in our exit from this market during the fourth quarter ofthis year. We successfully worked with all of ourcustomers who did not already have lead escalation clauses built into theircontracts to correct this situation moving forward. Our pricing can nowadapt to fluctuations in the commodity lead costs across the entire business. Also,we continued to execute upon our previously communicated cost reductionprograms and estimate that against our fiscal 2008 target of $15 million we’verealized approximately two million in savings through the end of the thirdquarter with a balance to flow in Q4. we remain confident that with theprograms and actions in place our $30 million cumulative goal through fiscal’09 will be achieved despite the loss of cost reduction opportunitiesassociated with the motive power business. Most recently and over the last month,we also took further cost reduction actions to defray allocated SG&A costsor so called stranded costs that resulted from our recent divestitureinitiatives. These actions will ensure that we donot burden our standby power business with undue overhead costs moving forwardand should be substantially in effect by the end of Q1 fiscal ’09. Froma new product standpoint, this quarter saw the introduction of the first waveof new standby power products resulting from the realignment of our R&Dresources to focus on new battery development over a year ago.

Theseinitial products alone should deliver over 40 to $50 million of incrementalrevenue annually within the next three years equating to nearly 15% of ourcurrent revenue base. More new products will be announced inthe quarters ahead. Also in October having completed therequired qualification efforts we were very proud to formally open, our newmanufacturing facility in China. This,300,000 square foot facility one of the most sophisticated battery plants inthe world is equipped with state of the art environmental and productioncontrol systems and is ideally located to service the rapidly growing Asianmarkets. While our standby power business lost money during the quarterprincipally due to a combination of the time lags and the recovery of leadcosts one time restructuring expenses and stranded cost allocations our revenuemomentum remained very strong. And, with the continued flow throughof our pricing and cost reduction efforts, we’re confident that C&D will return to profitability by early fiscal ’09.

NowI’d like to spend a few minutes further detailing the strategic changes in thecompany this year and their implications. The completion of the PowerElectronics Division divestiture, which was closed early in the third quarter,brought a painful chapter in the company’s history to a conclusion. And,considering the turmoil in the electronics marketplace this year we were verypleased with the outcome. The cash generated from the sale ofthis business enabled us to completely pay down our line of credit balance over$40 million at the time and left us with cash on the balance sheet to beinvested in our cost reduction initiatives and future growth opportunities forstandby power. Once that transaction was closed weturned our attention to the motive power business which has been a significant lossmaker for some time and one that quite frankly had its future scrutinized morethan once during my tenure. Having announced last quarter ourintent to explore strategic alternatives for the business we were able tosecure a series of agreements to sell certain assets of this business to CrownBattery Manufacturing Company, which will culminate in our complete exit fromthis market during the upcoming fourth quarter. Seeing this motive power business wasa one-time industry-leading provider of batteries for forklifts and otherindustrial applications and was known for reliability durability innovation andcost effectiveness. However, by the time I joined C&Das CEO in July of 2005 our motive market share had fallen to less than 8% andthe division had not been profitable for many years. Given themanufacturing cost synergies that can exist between motive and standby power products,we worked hard to engineer a turnaround since that time but ultimately wedecided that our customers would be better served if the business were inCrown’s hands yielding for them a combined business that has the scale neededto compete effectively in this marketplace.

Betweenthe purchase price and liquidation of working capital associated with thisbusiness, we expect to generate cash proceeds of about 12 to $15 million fromthis transaction by the end of the first quarter of next fiscal year. Importantlywe’ll also be eliminating a business that was generating losses and burdeningour progress by nearly a million dollars per month. Let’s now take amoment to talk about what’s, been the largest challenge and frankly thelimiting factor to visible progress and the results of our core standbybusiness over the last two years the cost of lead. Lead spot prices onthe London Metal Exchange have softened significantly or some would saycorrected to around $1.20 per pound over the last few weeks down from an alltime high of over $1.80 per pound set in October and an average LME price of$1.52 for the third quarter.

Rationalevaries as to the drivers for this recent softening in prices but there seems tobe no doubt that the speculative interest in this commodity has at least fornow subsided and with the market confidence and the lead supply stabilityimproving as we look to next year upward pressures on the commodity havecertainly moderated. With this backdrop, for the first timein my tenure with C&D, we can hopefully, look forward to a less volatilecommodity market and a potential decrease in lead costs from last quarter’speak as we move forward. While a drop in lead prices will nodoubt be helpful to our outlook and should positively improve our workingcapital needs this does not diminish our continued focus and attention to ourongoing lead management strategy. This program has and will continue toinclude a combination of actions to reduce the volatility impact of lead on ourbusiness. It includes optimizing our tollingefforts with our lead suppliers, establishing more efficient pricing mechanismswith our customers, and on a selective basis putting in place financial hedgeson lead. As noted in our press release we now have 100% of our majorcustomers covered by contracts with lead costs escalators.

So,we have a much greater capability to manage changes in lead costs than in thecompany’s prior history. As we have focused on our corebusiness, we have made significant reallocations in our internal resources. Akey part of this effort was directed toward reinvigorating our new productdevelopment efforts through a strong focus on key battery technologies. Thisfocus was initiated in mid 2006 and we’re now beginning to see the fruits ofthese investments. Late in the quarter, we introduced thenext generation of our msEndur two-volt battery manufactured in our Reynosa Mexico facility, which istargeted toward telecommunication, utility, and UPS end markets. Thisproduct offers outstanding performance and we believe a 30% greater life thanthe next best competitive offering in the market. Through recentinnovations in our battery charger technology, we can now offer complete backuppower systems to our customers providing not only enhanced performance andproduct life but also allowing them to remotely monitor and report on thehealth of their batteries at a level never before attained. Thisis particularly important in emergency service and other criticalinfrastructure end markets where reliability of the power system is of utmostimportance. And finally, extending the systemconcept further for our UPS customers, we now offer full cabinet powersolutions to these customers with custom configuration capabilities allowingthe customer to receive a modular power solution that optimized performance andease of installation.

Throughthese products and those to follow in the near future, we anticipatemaintaining and further growing our market share in our core end markets. Beyondnew lead acid products Q3 saw the move from laboratory testing to customerfield trials of a new advanced technology battery system beyond lead acid whichoffers much higher powered entities and correspondingly significant longer runtimes to our customers. While we cannot comment further atthis time, we’re excited about the prospects for these new technologies as theymature and enter our product portfolio. With that, let’s quickly look at thenumbers for the quarter. For the third quarter, ourconsolidated net loss was 9.3 million or 36 cents per diluted share onconsolidated revenues of $91.3 million. This compared to a net loss of $17.8million or 70 cents per diluted share on a consolidated revenue base of $70.6million in the prior year’s third quarter. Both period results include a numberof one-time items associated with our restructuring efforts. Ianwill provide more detail on these later in the call. Net loss fromcontinuing operations, which at this point is simply our standby powerbusiness, was $7 million or 27 cents per diluted share during the quartercompared to $0.2 million or a penny per diluted share in the third quarter offiscal ’07. Net loss from discontinued operations,which includes activity of both the motive power division and the powerelectronics division, was $2.3 million or nine cents per diluted share,compared to a net loss of $17.6 million or 69 cents per share in the thirdquarter of fiscal 2007. As I mentioned earlier the news wasmixed from our standby power unit in the third quarter. The top line wasvery strong up 29% compared to last year and up 10% sequentially. Thiswas driven by a combination of price and volume increases roughly a 50-50 split. Asnoted in the press release we’ve seen four consecutive quarters of increasingrevenues as well as four consecutive quarters with a book to bill ratio ofgreater than one. We’re seeing strong demand due to Enterprise Data Centerconstruction, which is expected to continue to be a demand driver in the yearsto come as well as fiber to the home initiatives and cable television. Telecomcontinued to be somewhat softer as it has been for most of the year. However,there’s reason to be more bullish for the near term when traditional telecomyear-end buying forecasts and future demand strength expected from recent FCClegislation, which mandates computer, or communication carriers have morebackup time on their networks in the event of a power failure. Aswe look forward while end markets are strong reflected in solid bookings andshipments given our focus on driving pricing and profitability top line growthis not a principle objective. With the impact of higher lead costsfrom the summer months rolling through the P&L lagged in time by ourpricing recoveries standby power lost approximately $4.4 million on anoperating basis. These results include one time itemsprincipally severance and plant closure costs of approximately $1.8 million.

Ona year over year basis, we estimate that higher lead costs net of recoveriesfrom tolling and pricing were a little over $10 million. On a run rate basis,we expect to recoup much of these unrecovered lead costs through pricingrecapture in the fourth quarter and into the first quarter of fiscal 2009. Iwould note however the fourth quarter results will be burdened by higher leadcosts as cost of goods sold is charged with the lead run up experienced in the SeptemberOctober time period.

Inaddition, approximately $900,000 of corporate divisional SG&A costs thatwere allocated to P&D and motive divisions in the past had to bereallocated to standby power during the quarter. Over the last month,we’ve taken further cost reduction actions to defray these reallocated orso-called stranded costs. On a positive note, we’ve been sayingfor some time now that our cost reduction programs will eliminate $30 millionof costs by the end of fiscal ’09. We’re well on our way toward meetingthis goal. In Q3, we eliminated another $4million of costs bringing the year to date savings from our sourcing design andoperational improvement programs to approximately $10 million.

Weanticipate achieving our fiscal ’08 objective of $15 million savings despitethe loss of cost reduction benefits from programs originally targeted towardmotive power. In conclusion, it was an eventfulquarter but now that much of the hefty heavy lifting of strategic change isbehind us, we’ll exit the quarter with the foundation laid for growth and areturn to top line profit or return to top profitability early in fiscal 2009. Wenow have an improved balance sheet simpler business model solid top linemomentum supported by a strong new product pipeline and ongoing yields comingfrom our restructuring and cost reduction programs. Let me now turn thecall over to Ian to discuss the financial results in further detail, Ian.

Ian J. Harvie

Thanks,Jeff I’ll take a few minutes to go through the results in a little more detail. Netsales from continuing operations for the third quarter were 91.3 million anincrease of 29.3% compared to 70.6 million in the same period last year. Forthe quarter, the company recorded a consolidated net loss of 9.3 million or 36cents per diluted share compared to a net loss of 17.8 million or 70 cents perdiluted share in last year’s third quarter. Net loss from consumer operations wasseven million or 27 cents per diluted share for the quarter compared to 0.2million or one cent, diluted share in the third quarter of fiscal 2007. Operatingloss from continuing operations for the third quarter was 4.4 million comparedto operating income of 2.7 million in the comparable prior year three.

Onetime items or special charges included in continuing operations in this year’squarterly results were 425,000 of severance costs related to SG&Areductions and 1.4 million of restructuring costs associated with the closureof Conyers and move to Loyola.

Therewere no one-time items or special charges of significance in last year’s thirdquarter. Net loss from discontinued operations, which this quartercomprises, activity at the motive power division and power electronics for themonth of August was 2.3 million or nine cents per diluted share compared to anet loss of 17.6 million or 69 cents per diluted share in the third quarter offiscal 2007. One time items and special chargesincluded in discontinued operations in the quarter were a gain on the sale ofthe power electronics division of 3.9 million offset by impairment severanceand related charges arising from the motive power divestiture and exit plan ofapproximately 4.2 million.

Prioryear results for discontinued operations included goodwill impairment chargesof some 13.9 million. Gross margins from continuingoperations was, 6.4% in the third quarter versus 16% in last year’s thirdquarter. As we noted on our last call we expected margins to be challengedthis quarter from higher lead costs as higher value inventories ran throughcost of goods sold. as during the recent softening in lead continuesthere are minimum stabilizers we looked at significant margin improvement overthe next several quarters as our pricing mechanisms catch up to the escalationin lead costs we saw in the July October timeframe. That said key poorresults will, continue to be burdened by the run up in lead we experienced inSeptember and October. As Jeff mentioned we estimate thathigher lead costs net of tolling and pricing recoveries negatively impacted, mymargins by a little over 10 million in the quarter. This impact waspartially offset by contribution from higher sales volumes and benefits fromour non-lead sourcing design and operational cost reduction programs.

Asa point of reference average LME prices for lead averaged at a dollar 52 perpound this quarter 61 cents per pound in the third quarter of last year $1.15per pound in our second quarter and 85 cents per pound in Q1.

Takinglead hedges tolling and [inaudible] counting into effect it should be mentionedthat our blended cost of lead in the quarter result in these low LME levels. Interestexpense from continuing operations was 1.9 million for the quarter down from2.6 million in last year’s third quarter and 2.1 million in the second quarter. Thereduction is attributable to last year’s convert refinancing lower levels ofdebt outstanding and a higher year interest earning cash balances, which inturn is the function of the power electronics divestiture proceeds...

Turningto cash flow from the balance sheet consolidated cash flow from operatingactivities for the nine months, ended October 31, 2007 was a use of 33.1 million compared to 13.1 million for thesame period in fiscal 2007. Net cash used in continuing operationswas 31.8 million and 18.1 million for the nine months ended October 31, 2007 and October 31, 2006 respectively. Theuse of cash in the current year’s fiscal year is principally driven by thehigher cost of lead, which contributed, to both operational performance and ahigher inventory investment. Partially offset by higher accountspayable balances. In addition accounts receivables at October 31, 2007 were upsignificantly a result of both pricing, which is principally [inaudible] androbust volume growth. Capital spending for continuingoperations year to date was seven million compared to 15.4 million last yearwith that number heavily influenced by last year’s Chinainvestments. We forecast total cap x for the yearof approximately 11 to 12 million. Debt net around amortized financecosts at the end of the third quarter was 129.6 million down from 149.2 millionat year-end after application of proceeds from the sale of power electronics toresolve our outstanding and funding of the operations. Cash balances at October 31, 2007 were 31.6 million. Inaddition, we have nearly 46 million of under or over availability at this time. Withproceeds from the sale of inventory to Crown and collection of tradereceivables from the motive power, business which were not included in theasset sales still to occur we will benefit from working capital reduction and ageneration of cash proceeds from the exit of the motive power business over thenext two quarters. In addition, the recent softening inthe price of lead compared to the third quarter should also serve to reduce ourworking capital needs however, that will take a quarter or so to fully rollthrough. With that, we’ll now open up the call for the questions. Operator,please compile the Q&A queue.

Question-and-Answer Session

Operator

Atthis time, I would like to remind everyone if you would like to ask anyquestions please press star and the number one on your telephone keypad. And,our first question comes from Walter Nasdeo.

Dr. Jeffrey Graves

Goodmorning Walter...

Walter Nasdeo - ArdourCapital Investments

Heygood morning guys how y’all doing...

Dr. Jeffrey Graves

Good.

Ian J. Harvie

Goodthanks.

Walter Nasdeo - ArdourCapital Investments

Goodhey listen I’m real, happy to see that you’ve been able to streamline thingsback down to the core again. I haven’t, my question kind of circlesaround the reason previous management got involved in power electronics wasthat they felt lead acid battery the lead acid battery business wasn't a realgrowth business into the future and wanted to kind of diversify out a littlebit. And, obviously that didn’t turn out the way it was originallyplanned. However, can you give me some feel for how you plan to grow thebusiness now that you're back to your core fundamentals? and what you see things or how do you seethings developing over the next few years after all of the charges and whatnotand everything gets cleaned up how you see it developing out into the relativenear term.

Dr. Jeffrey Graves

SureWalter I think the demand for reliable backup power is larger and moreimportant than ever. Certainly we see a refreshed build outif you will in North America where we, we’re the largestplayer in the standby power business. Virtually all of our end markets arevery strong. And, you would say over the longperiod it kind of, grows with GDP certainly in the short term meaning this yearnext year and as far as we can see with tangible visibility, the end marketslook very strong in supporting greater than certainly much greater than GDPgrowth. And, I would say that’s true for certainly true for UPS.

Weestimate that will be true for telecommunications and the utility reinvestments. They’re very vigorous and growing rightnow. So we like the look of our endmarkets in North America. When you extend that vision to theinternational markets the vision’s even brighter. I the, with our new plant in Chinawe have great access to the Asian growth. And as you know GDP growth in Asia’sbeen over 11% so even if you pick that number and say that our opportunitiesare going to mirror GDP it’s a huge opportunity for us and we’re growingvigorously in Europe where we have a very small presencetoday. So and in the Middle East...I would say the Middle East is anexcellent area for us right now with the oil and gas revenues from the oil andgas business in that part of the world leading to both oil and gas investmentand the build out of infrastructure in the Middle East. So, from a growthperspective we certainly have more than adequate opportunities for great growth. Interms of the value of diversification, I mean I really can’t go back to theoriginal logic of that. I would tell you when I certainly whenI arrived to C&D the two businesses that C&D were in were much, muchdifferent businesses and we’ve chosen to focus on our core business where wehold a very strong position. So I like that concept building fromyour core strength where you have some key attributes that are very importantto your customers particularly when the markets are robust and growing it’s itallows, you to really get very good at your operational execution which is whatwe’re focused on. Second part of your question Walterremind, me again what else you wanted to chat about.

Walter Nasdeo - ArdourCapital Investments

WellI think you basically, touched on both of it. but is, it possible for you to expanda little bit on some of the other chemistries you’re developing now to go alongwith your lead acid.

Dr. Jeffrey Graves

WellI when we started this reinvestment R&D activities a year and a half ago Ididn’t know what to expect from our growth potential within the lead acidbusiness. But I've been extremelypleasantly surprised with the extensions we can make on our lead acid productlines. We think there’s miles and milesto go there, there’s a lot of improvement and we’ve begun to look at systemsolutions for customers as I mentioned doing things in a cabinet format whereyou can ship modular solutions to your customers is great. we’vegot some fantastic charging systems that we can marry up with our batteries nowour lead acid batteries to wring even more performance out of them and to allowcustomers to have diagnostics to probe the battery health over time. So,the, I would tell you the future around lead acid batteries is excellentthey’re certainly a low cost solution to our customers that will be as far asthe eye can see. Beyond that, there are certainly nichemarkets and growing niche markets where alternative chemistries seem to beattractive.

We’vebeen probing some of those. I'm not going to talk a great dealabout that today but we’re we are taking some trial new technology batteriesout of the laboratory where we’ve been testing them for over a year into the fieldsto put them through the ringer with some selected customers and we’re veryhappy with the initial feedback on those.

Andwe’ll continue monitoring those improving those over time so I'm not going toelaborate on the new technologies today the new chemistries today but they're certainlywe’re pleased with the progress and we’ll factor those into our portfolio goingforward.

Walter Nasdeo - ArdourCapital Investments

Outstandingwell listen I appreciate it and have a great holiday guys.

Dr. Jeffrey Graves

Thankyou Walter you too...

Walter Nasdeo - ArdourCapital Investments

Thankyou.

Ian J. Harvie

Thanks.

Operator

And,our next question comes from Bill Dezellem.

Dr. Jeffrey Graves

Goodmorning, Bill...

Bill Dezellem - TietonCapital Management

Morningwe’ve got a couple of questions first of all relative to the customers thatwere on the fixed price that you have now moved to the lead escalation clausedid you lose any of those customers as you went through that process.

Dr. Jeffrey Graves

Wellno I would tell you the vast majority we were able to maintain...I think we'vehad relationships Bill with these guys, for in some cases well over, 50 yearsas a hundred year old business in our core end markets of standby power andbeing the largest supplier that we’ve got some great relationships. andthose are certainly challenged at times when your costs are going up fast andyou’ve got to change the way you work with customers so clearly stressfulperiod. I’m very pleased to say we lost virtually no customers in thattransition. They’ve been very willing to work withus. It’s obviously painful because they have customers they have toexplain these changes to and figure out how to pass on their pricing to. andthat’s a difficult supply chain to work through so nobody likes it, it’s veryunpleasant but our relationships have carried us through and we’ve got all ofour contracts that we’re selling on now on an adjustable price format...

Bill Dezellem - TietonCapital Management

Greatand then secondarily what was the cost reduction number that you had previouslyassociated with the motive business that is now no longer part of the 30million.

Dr. Jeffrey Graves

BillI would have told you last quarter when we said we were looking at options forthat business that put at risk probably $5 million of our cost reduction plan. And,that was a concern to us. We doubled up again on looking foropportunities in standby power we; we’re going to realize those opportunities. And,within the Q4 time period, here this year so that’s why we’re holding to our$15 million target this year that we’ll deliver. we’ve delivered tenas of the end of Q3 we’ll do 15 as we’ve been saying all year by the end of Q4 andwe’ll do an incremental 15 next year so we had at risk probably five million ofthat and we will fully recover that.

Bill Dezellem - TietonCapital Management

And,was that five million roughly evenly split 2½ million this year 2½ million nextyear...So, you’ve made it up equivalently or was it skewed one year or another...

Dr. Jeffrey Graves

Itwas probably fairly, evenly spread Bill and most of them it may have I don'thave the numbers in front of me but intuitively I would guess it probably wasfairly evenly, spread. And, we've offset it now.

Bill Dezellem - TietonCapital Management

Ithink that’s right sir. great and congratulations by the wayand then lastly for now would you please discuss your lithium batteryinitiative as the Milwaukee I think it’sMilwaukee Sentinel reported and how that may or may not relate to thenew battery technologies that you have briefly referenced but not discussedhere on this call.

Dr. Jeffrey Graves

You’vedone your homework there Bill. that’s a good find yeah we’re verypleased to be getting some support we certainly we’ve had a long and verysuccessful history in the city of Milwaukee the folks have really encouraged usto try to continue growing the operation and invest in batteries that’ll moveinto that plant in the future. We've gone down that path with some ofour development work. we’re receiving some external supportas well it looks like and we’re very pleased to be targeting that city and thatlocation for some of our next generation products so I'm not going to elaboratemuch on it today. That work is targeted toward lithiumlarge format lithium ion batteries, and if everything proceeds as planned,we’ll have a larger presence in Milwaukeelooking forward to manufacturing expanded product line.

Bill Dezellem - TietonCapital Management

Notto put you up against a wall or in a box here but if we understand correctlythat the new battery technologies that you're looking at would include lithiumbut are not exclusive to lithium...

Dr. Jeffrey Graves

Rightwe want to be in a position Bill in our core markets to supply backup powerneeds to our customers. And, those needs are going to evolveover time. We announced a deal last year apartnership arrangement where we were looking at fuel cells for example forproviding backup power primarily in that case for telecommunications. Wecontinue to explore that to partner, with folks out there on some of theemerging technology to bring it to our customer base when we do that we’ll beable to measure the performance and the cost of those solutions. Iwould tell you today lead acid batteries continue to be an outstanding solutionfor most applications in the end markets. But, we want to be there when nichesdevelop we want to be there for as our customer needs evolve and have thoseproducts as well and as they make economic sense for our customers, we want tobe able to provide them. So we’re exploring obviously not onlylithium batteries as you pointed out but fuel cells from last year we continueto push that and we’ll continue any other technologies that our customers wantto move into from an energy storage perspective.

Bill Dezellem - TietonCapital Management

Great...Thankyou...

Dr. Jeffrey Graves

ThanksBill.

Operator

And,at this time, there are no further questions.

Dr. Jeffrey Graves

OkayCourtney let’s give it just a couple of minutes in case folks would like to askand otherwise I’ve got, a wrap-up statement that I’ll make as well okay.

Operator

Okayand we do have a question from John Franzreb.

Dr. Jeffrey Graves

JohnFranzreb. John welcome.

John Franzreb - Sidoti& Co.

Firstquestion you’ve referenced $4 million in cost savings that you achieved in theQ3. Could you kind of, review it with us on what you’ve done to getthat, four million bucks?

Dr. Jeffrey Graves

Wella lot of the early on cost savings and I would say up through Q3 were sourcingrelated activities. And it’s the traditional combinationit’s the traditional kinds of mix John where you're looking at consolidatingyour supply chain obviously negotiating better deals with your suppliers whereyou can and trying to change the way you buy things and the types of materialsyou buy looking for materials that are obviously lower cost and morecompetitive in the marketplace. So I would tell you up through the endof Q3 we certainly according to our plan and that’s the way it played out a lot,of the savings were sourcing related savings. and as you get into Q3 and we moveinto Q4 and beyond we’ve got design related savings and operational savingsfrom our plants that are becoming more and more on stream so you’ll see thathappening over time as well which so the balance may shift we expect ongoingsavings from sourcing. But, certainly, a lot of that waseasier to attain early on the design and operational improvements really cometo play late this year and looking into next year but are substantialobviously.

Ian J. Harvie

Theonly thing I’d add to that John in Q4 you'll begin to see the benefits from theclosure of our Conyers facility, which was completed in the third quarter and amove the production into our Loyola in Pennsylvania...

John Franzreb - Sidoti& Co.

Okayand how much of your product is sourced today versus a year ago for reference.

Dr. Jeffrey Graves

It’sthe in terms of overall percentage. It’sthe in terms of volume percentage John I would tell you it’s the same. Obviously the costs percentage is way upbecause of lead and also plastics and copper and other things that go intobatteries. But in terms of the amount ofmaterial we buy the percentage the volume percentage that we buy that reallyhasn’t changed except there’s a volume element we’ve grown our total volume inthe business the percentage mix hasn’t really changed about materials we’re notoutsourcing more activity we’re driving better deals with our suppliers interms of pricing. And obviously on the lead front, we’removing towards some tolling arrangements where we can if we can purchase tolledlead where it’s available and in our product designs and implement that.

John Franzreb - Sidoti& Co.

Okaynow as lead falls with the surcharge in estimates is it safe to assume that therevenues will come down but you're going to hit certain target gross marginsthat you’ve put out there is that the way we should kind of be thinking of the revenueline going forward in a dropping lead environment.

Dr. Jeffrey Graves

Wellcertainly you’ll have. I mean as for ourcontracts that are pegged to changes in the LME you’ll have a downward pressureon revenues... As LME goes down obviouslythe margin improvement is a very nice thing that accompanies that. So that’s a good thing from a profitabilitystandpoint in terms of the net effect on the top line with the launch of newproducts certainly that helps the top line. We’re continuing to grow into areas where wehaven’t had product before or where we have improved product we’re looking forshare growth through the new product investments in certain but so that’ll be apositive it’ll be netted against the declining prices over a long period oftime. And, if LME were to continue to fall so and where LME goes,nobody really knows so obviously there’s offsets, there.

John Franzreb - Sidoti& Co.

Okay. Couldyou just remind me what’s the turnover of your lead inventory.

Ian J. Harvie

Ourturnover inventory John you could look at which includes finished goods, rawand where you’re looking at days on hand I’ll call it of 70 days. So,it’s a little over two months.

John Franzreb - Sidoti& Co.

Twomonths okay. And one last question you’vereferenced before that telecom’s been kind of weak certainly it’s been spottyfor your competitors as the lead environment improves can you talk a little bitabout the competitive landscape in telecom and what you're seeing now.

Dr. Jeffrey Graves

WellI think that the softness in the in demand John has been in large part Ibelieve due to the M&A activity that was going on in the telecom providers. They had inventories to rationalize. And they were basically spending their moneyon realizing some of the cost synergies between these emerging of thesecompanies in that end market. So I thinkthe softness was driven by that I don't believe the softness was driven as atemporary measure because lead went up so I don’t expect the fact that lead’sfalling off now in the short term I don’t expect to see a giant spike intelecommunications driven because of lead pricing. I do think over timethat the robustness of the telecom network in North America and concerns aboutthat following the hurricane Katrina issue last year and some of the new FCC regulationsthat should add to the in demand for products like ours that provide backuppower to telecom. so in terms of overall in demand Iwould look for things like that to drive a higher demand going forward and the conclusionof this large scale M&A activity in telecom. so those are the thingsI think that’ll drive an improving demand going forward not necessarily leadcoming down because again our I don't think there’s that much sensitivity tothe in demand based on lead prices across all of the battery companies.

John Franzreb - Sidoti& Co.

And,your competitors are being rational about pricing still right.

Dr. Jeffrey Graves

Yeahwe’ve I tell you with the spike up John in the summer time to and in the fallto the dollar 80 level, I think you drove a lot of discipline in the entireindustry to try to look for ways to work with customers to recover those costs. SoI think the industry in total has become much more disciplined and looks muchharder at its pricing mechanisms to try to recover lead costs and I think ourcustomers are doing the same with their customers so it’s a much healthierenvironment going forward I think for everyone.

John Franzreb - Sidoti& Co.

Greatthanks a lot Jeff.

Dr. Jeffrey Graves

ThanksJohn.

Ian J. Harvie

ThanksJohn.

Operator

Yournext question comes from Josh Rosen.

Dr. Jeffrey Graves

Goodmorning, Josh...

Josh Rosen - CreditSuisse First Boston

Heyhow are you guys.

Dr. Jeffrey Graves

Good.

Josh Rosen - CreditSuisse First Boston

Congratulationson getting all these initiatives in place and behind you guys and very niceresults.

Dr. Jeffrey Graves

ThanksJosh.

Josh Rosen - CreditSuisse First Boston

Justa quick more theoretical question...If we now look at the company as justessentially standby power and look back historically at those results and takeaway movements in lead over a long period of time now that you have thepass-through’s, in place and consider the cost reduction opportunity and the unitgrowth. And, demand in new products is there has anything changed that weshould not think about historical margins as some sort of opportunity orlong-term goal.

Dr. Jeffrey Graves

Ithink you're spot on. I think the idea of getting back tohistorical kind of margin performance is exactly our objective.

Josh Rosen - CreditSuisse First Boston

Okay.

Dr. Jeffrey Graves

Toget there obviously we had to have the pricing mechanisms to recover leadcosts.

Josh Rosen - CreditSuisse First Boston

Yeah.

Dr. Jeffrey Graves

But,that was a short-term factor that we needed to have it was painful negotiationswith customers all that to work through but we did that. In terms of overallmargin, performance, then you get, back to our cost reduction programs and that30 million of cost reduction is really meant to get us back to that kind ofperformance level when you take lead out of the equation.

Josh Rosen - CreditSuisse First Boston

yeahso but nothing in those nothing structurally or competitively besides lead orthat hasn’t that you're not able to make up in the cost reduction opportunitiesthere hasn’t been anything that’s changed that can't let you get back to thosenorth of 10% operating margins.

Dr. Jeffrey Graves

That’sthe way we view it Josh that’s right...

Josh Rosen - CreditSuisse First Boston

Okay. And,are you seeing any demand or interest at this point in time, due to the newwireless regulation or are people just sort of sitting on their hands as thingsplay out in the courts.

Dr. Jeffrey Graves

noI think it’s I think it has the potential to be a large effect out there I youlook at the wireless companies particularly that have grown in recent years andthey’re targeting backup times of roughly half of where the FCC would like themto be. those companies particularly are I think going to be underincreasing pressure to expand their backup power times and the way most of themdo that is through larger quantities of batteries industrial batteries so it’sI think it’s certainly a real opportunity for us and others in the industry. And,I think there’ll be a big a large amount of pressure on them to do that overthe next couple of years so I think that’s a very good thing from our businessstandpoint.

Josh Rosen - CreditSuisse First Boston

And,I imagine then the current spectrum options over the long term will also be apositive in that area particularly if there’s absolute new entrants going intothe area.

Dr. Jeffrey Graves

Yesabsolutely and you look at the growth in wireless broadband communication it’sand in all of our personal lives it’s, enormous so the amount of data thesecompanies are having, to carry or have an opportunity to carry. andthe longer backup power times I think bode very well for that industry andthat’s why Josh I'm particularly pleased with our new two volt battery offeringout of Reynosa Mexico we focused on that starting back in mid ’06. wealready had a great product that we had lost about a year prior we took furtheraction in improvements on that and that product just hit the marketplace at thevery end of Q3 really ramping into Q4 here so I think from a wireless telecomposition and that we do sell that product to other markets too. But,wireless telecom particularly I'm extremely happy and we happen to have it inone of our lowest cost manufacturing plants and locations.

Josh Rosen - CreditSuisse First Boston

Wellit actually sounds like the areas that you can see growth over the next severalyears if you think of the factors that are driving down lead prices and thinkabout just an overall global slow down these are areas that seem like they havepretty strong tailwinds despite some sort of global pullback overall.

Dr. Jeffrey Graves

Yes,I would tell you our end markets and I’ve gotten this, question a lot latelyour end markets are relatively less impacted with the slow down in the economytoday than most end markets. and that bodes well so you get kind ofthe scaring away of some I think some of the speculators in the lead marketbecause of the softening economy and you have our in demand staying strong sothat’s why if you hear an upbeat tone in the voice that all adds up nicely forus I think.

Josh Rosen - CreditSuisse First Boston

Yeahit’s unique in some cases we’ve seen no pullback in commodity costs and in thecompany’s core business but it’s a result that’s sort of double edged the endmarket is pulling back as well but that’s not the case for you guys.

Dr. Jeffrey Graves

Rightand largely so Josh I believe.

Josh Rosen - Credit SuisseFirst Boston

Okaygreat thanks guys I’ll talk to you soon.

Dr. Jeffrey Graves

Thanksvery much.

Josh Rosen - CreditSuisse First Boston

Bye-bye...

Operator

Yournext question comes from Bill Dezellem.

Dr. Jeffrey Graves

Hi,Bill.

Bill Dezellem - TietonCapital Management

goodmorning again a couple of follow ups here did we hear you correctly in responseto one of the last questions that the FCC eight hour backup mandate that thatwould really compare to about four hours of what the companies had beentargeting up to this point.

Dr. Jeffrey Graves

Yeahand I would tell you Bill that’s my opinion and there’s not a lot of data outthere on how broadly that’s applicable but I would just tell you verysubjectively that some of the smaller wireless telecom guys. andthe newer entries in the field certainly designed to they were certainlymindful of their capital investment and they were careful about how much timethey put in these regulations will seemingly have an impact on those folks onthe longer backup power times. Some of the larger more establishedcompanies I think are probably better positioned but I believe they’re all offdoing studies now to find out what their exposure or commitment needs to be forthe future.

Bill Dezellem - TietonCapital Management

Greatand then the severance and plant to closure costs you had mentioned I believein the opening remarks where those fell in the P&L and I simply missed themwhat was the answer to that.

Ian J. Harvie

Theclosure costs for Conyers during cost of goods sold Bill and the severancecosts are principally in SG&A.

Bill Dezellem - TietonCapital Management

And,the dollar amount for each again please.

Ian J. Harvie

Theclosure costs were a million four and this is in continuing operations amillion four and 425,000 severance there are also I’ll call it costs associatedwith the motive power exit and divestiture in the discontinued operations linein which there’s roughly a million dollars of severance. And, some relatedimpairment charges associated with the non, I’ll call it non-cash impairmentcharges associated with the divestiture of the fixed assets and inventory.

Bill Dezellem - TietonCapital Management

Okayso to make sure that we understand this I’m feeling like I’ve been doublecounting here. We had the Conyers closure at 1.4million and that was in cost of goods sold we had the SG&A severance costsof 400,000 but in addition to that there was another million of severance thatwas also in SG&A...So a total of 1.4 million there, also...

Ian J. Harvie

NoI’ll just go through that again for you Bill. The severance and the impairmentcharges given that we’d sort of [inaudible] the discontinued operations accountpresentation those charges are actually in the discontinued operations line. TheSG&A line that you see on the face of the financials now just relates andreflects continuing operations for the standby power business.

Bill Dezellem - TietonCapital Management

Okayperfect that’s that makes a lot more sense thank you and then finally the newproducts that you had referenced in your opening remarks not that you haveannounced but that you have that are coming what’s the revenue potential forthose. I think you mentioned the ones that you have launched is 40 to 50million over on an annualized basis say three years from now as your best guesshow do the new products not yet launched compare to that.

Dr. Jeffrey Graves

WellBill I probably shouldn’t toss out numbers I what I will do is as we launchthem we’ll talk about what we believe the market potential is over a period oftime and where we’re going to go if for things in the pipeline. Ijust think it gets to be too much blue sky to start hanging numbers on them andtalking about potential because quite honestly it changes over time I mean andyou may get displacement of a certain product all of that and we’ll try to netit all out. And, as we, launch products, talkabout what we think the potential is but not before.

Bill Dezellem - TietonCapital Management

Wouldit be okay just on a qualitative basis for us to think that whatever theabsolute number turns out to be that it’s noteworthy but as you said thingscome and go?

Dr. Jeffrey Graves

Yeahabsolutely I, and the question, will be it always is when you launch a newproduct does it cannibalize some of the existing market. When you're thelargest in what you do, you need to work out and advertise net numbers where ifit’s going to consume some of the stuff you're already selling that you net itout for people. so they understand what the realimpact is when we talk about a 40 to $50 million increment from the newproducts that we’re just launching that is incremental that is that nets outanything it’s displacing it’s incremental to what we do today.

And,I think in fairness to all of our shareholders we need to do that math and talkabout net effects on the business so yeah I tell you they're substantial but wehave to make sure we net out what it may displace that we could resell todayfor you as we launch them. Okay.

Ian J. Harvie

Ionly have one sort of final comment to add to that Bill and that’s clearly ourfocus here is driving the company back to profitability and clearly driving ourpricing recovery needs around lead and [inaudible] imported but it’s not ourprinciple objective.

Dr. Jeffrey Graves

But,we’re very happy Bill to talk about gaining share by the launch of new productsand new technologies not trying to be the price leader in our markets andgaining share that way.

Bill Dezellem - TietonCapital Management

Okay. Thankyou both.

Dr. Jeffrey Graves

You'rewelcome Bill.

Ian J. Harvie

ThanksBill.

Operator

Ifthere was a question, please press star and the number one.

Dr. Jeffrey Graves

OkayCourtney with that let me just wrap up here then thanks everyone for joining ustoday we know the shareholders are anxious to see C&D Technologies returnto profitability it’s the highest priority for me and for the management teamwe have struggled over the last years through a host of issues. Bothinternal and external...We believe the difficult actions we’ve taken over thelast two years the most important of which were discussed today position thecompany to return to profitability in the near term and bring exciting growthopportunities for the future. The result will be significant valuecreation for our shareholders in the years to come. On behalf of theentire C&D management team, I wish you all a safe and happy holiday season. Lookforward to discussing our progress with you again in the New Year. Thankyou and have a great day.

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Source: C&D Technologies F3Q08 (Qtr End 10/31/07) Earnings Call Transcript
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