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Executives

Kathy Brosco - Director of Corporate Communications

Lynn Amos - Chief Financial Officer

Robert B. Toth - President and Chief Executive Officer

Rob Whitsett - Vice President of Finance

Analysts

Brian Drab - William Blair & Company

Michael Lew - Needham & Company

Richard Eastman - Robert W. Baird & Co. Name - Company

Avinash Kant - DA Davidson & Company

Kevin Maczka - BB&T Capital Markets

Dilip Warrier - Stifel Nicolaus

[Jeff Zikalkis] – JP Morgan

Francisco Seed – Ardour Capital

Randy Gwirtzman – Baron Capital

Eric Valentine – [Apados]

Carter Driscoll – Capstone Investments

Craig Irwin – Wedbush

Michael Levine – BB&T

Polypore International, Inc. (PPO) Q2 2011 Earnings Call August 2, 2011 9:00 AM ET

Operator

Good day everyone and welcome to the Polypore International Incorporated Q2 2011 conference. Today’s program is being recorded. At this time for opening remarks I’d like to turn things over to Mrs. Kathy Brosco. Please go ahead ma’am.

Kathy Brosco

Thank you operator and thanks everyone for joining us today and welcome to our conference call to discuss our Q2 financial results. As always, the results we discuss today can be found in our earnings announcement that was released yesterday afternoon and furnished on form 8-K with the SEC. A copy of the release is also available on our website at www.Polypore.net in the Investor Relations section. In conjunction with the release we also issued supplemental financial information yesterday which we filed as an 8-k and also posted on our investor relations website.

Adjusted EBITDA, adjusted operating income, adjusted net income and adjusted earnings per share are non-GAAP financial measures we discuss in this call. We refer you to the reconciliation of these non-GAAP measures to the most directly comparable US GAAP financial measure included in earning’s release.

Before we begin our presentation I’d like to remind you of some important considerations. As always this conference call and web cast might contain forward looking statements within the meaning of federal securities laws as we intend these forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the private securities litigation reform act of 1995. These forward looking statements are subject to risks, uncertainties and assumptions made by management about Polypore and the industry and environment in which we operate. These forward looking statements are not guaranteed in future performance and may differ materially from actual events or results because they involve estimates of functions and uncertainties. You are cautioned not to place undue reliance on these forward looking statements which speak only as of the date on which they are made which is today, Tuesday, August 02, 2011. Polypore undertakes no obligation to update or revise any forward looking statements whether as the result of new information, future events or other wise.

You are also directed to consider the risks, uncertainties and other factors discussed in documents filed by us with the FCC including those matters summarized under the captions item 1A - Risk Factors in our most recent 10-k filing with the SEC and risk factors in amendment number 2 to the form S-4 filed on May 13th, 2011.

Today I have Bob Toth - President and Chief Executive Officer, Lynn Amos - Chief Financial Officer and Rob Whitsett - Vice President of Finance here with me. Regarding the agenda, once again we’re going to go directly to our financial report for the quarter and the Bob will share a wrap-up before the Q&A. So for now I’ll turn the call over to Lynn.

Lynn Amos

Thanks Kathy. As we reported yesterday, Q2 sales were $196.4 million, a 31% increase from the prior year period. Adjusted EPS for the quarter was up 91%, $.63 per diluted share.

Our cash earnings, that is earnings net of the large non-cash amortization expense, were $.07 higher at $.70 per share. Regarding other key financial measures for the quarter, adjusted operating income was $53.3 million, up 63% compared to the prior year period. Adjusted EBITDA, which is a key financial measure in our credit agreement was up 48% to $66.8 million. The trailing 12 month adjusted EBITDA was $225.1 million.

Interest expense was $2.5 million lower then the prior year period which reflects the refinancing and reduction of debt we achieved in Q4 of 2010. CapEx was $41.2 million in the quarter. And based on capital projects announced to date, the estimated CapEx for the full year 2011 is approximately $200 million.

Now moving on to the segment results for the quarter. Beginning with Energy Storage. In the lead acid separator business the sales increase reflects strong demand in all geographic regions and the favorable effect of foreign exchange. In the lithium business sales reflect strong demand in consumer electronics. Growing demand for our products in (inaudible) vehicles and the benefit of new capacity.

The first phase of our expansion began ramping up in January and approached full production near the end of Q2.

Segment operating income for this quarter was 27% of sales. In separations media sales were up with solid demand in hemodialysis and blood oxygenation and growth across all key application areas in specialty filtration. And the operating income was 29% of sales.

Switching gears now, I’d like to recap the status of our capacity investments in each business. Beginning in the lithium separator business, at our Charlotte facility we have two expansions. The first is up and running and the second is expected to begin ramping up late in Q4. At our new Concord facility we have three announced expansions; the first is associated with the new site itself. We currently have equipment going in and that capacity will begin ramping up over the course of 2012. Additionally we announced an incremental expansion in March of this year, which will begin to come online later in 2012 and into 2013. And just last week we approved an additional $105 million investment which we’ll begin ramping up in 2013 and be fully operational sometime in 2014.

Aside from these EDB targeted expansions, we have an investment underway at our Korean facility aimed at addressing the growing demand for consumer electronics in Asia. This capacity will begin to ramp up late in Q4 of this year.

Moving on to our lead asset separator business, our capacity expansion in china, which is a majority controlled joint venture with a customer, is scheduled to come online in 2012. And the additional equipment we’re adding to our Thailand facility will increase capacity in mid-2012. In separations media in healthcare our new capacity for prema hemodialysis membranes will begin to come online in Q4 of this year. Expansions in this business typically take longer to ramp up then others due to a more stable growth rate and longer qualification times for healthcare applications. The more meaningful impact from this expansion will begin in 2012.

Before we move on to Bob’s comments I’d like to touch briefly on the balance of the year. First by taking a step back and looking at where we finished in Q2. We experienced excellent manufacturing performance in the quarter, favorable customer and product mix across our businesses, additional lithium capacity and the year-over-year benefit from additional lead acid separator capacity. The increase in EPS in Q2 over Q1 of this year was the result of accelerated customer qualifications on our new lithium capacity as well as some benefit from foreign exchange.

In Q3, as we’ve described in the past, we have seasonality associated with the European holidays. Historically business had a relatively minor impact on revenues and has impacted EBITDA margins by approximately 300 to 500 basis points.

In Q4 there are few moving parts worth noting. We’ll have some new capacity in lithium and healthcare beginning late in Q4, however we will experience some escalation of start up costs associated with our new capacity investments. Particularly at our new facility in Concord.

At this point I’ll turn it over to Bob to summarize our outlook and provide some brief closing remarks.

Robert B. Toth

Thanks Lynn. Our business is progressing as planned and we continue to be pleased with our strong operational performance. We expect continued solid performance in the back half of the year, yet during that time we’ll experience the variables Lynn just mentioned, particularly the seasonality and the start up costs. And while we’re pleased at how quickly our new lithium separator capacity is ramping up as well as how quickly it has been qualified by our customers, our ability to exceed recent performance is constrained until the additional capacity comes online.

Specific to the capacity expansions targeted at electric drive vehicles we said in the past that we are at the beginning of the largest positive discontinuity the lithium battery separator industry has ever seen. Our latest announcement last week is the 5th electric drive vehicle targeted expansion we’ve announced since August of 2009. We’re experiencing and accelerating demand curve associated with the growth of electric drive vehicles and the size and scale of our investments are in response to that acceleration. We’ll stay close to our committed customers and development partners to evaluate growth in global EDV and consumer electronics demand and the related impact on our capacity and will continue to evaluate the need for additional investments to capitalize on this demand.

Bottom line, we’re very pleased with our business performance with the application development we see taking place, with the demand trends across our business as well as the substantial investments we have underway and the progress of those investments. We remain committed to delivering long term shareholder value and we’re confident we’re making the right strategic investments to drive growth in 2012 and substantial growth in 2013 and beyond.

At this point I’d like to open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions.) We’ll go first to Brian Drab with William Blair.

Brian Drab - William Blair & Company

Congratulations on another great quarter. So I just want to make sure that I understand the capacity. Thanks for going through all the detail on the capacity expansion plans but are you saying that at this point you’ve reached full capacity in each business line after hitting these types of run rates that you did in Q2?

Robert Toth

Well I think nearly is the answer, Brian. Of course we’re always operating in kind of a range depending on customer mix and product mix and those kinds of things but I think we said it pretty well here that we’re certainly running at the very high end of that range until we get additional new capacity.

Brian Drab - William Blair & Company

Okay. And with this first phase of capacity expansion in Charlotte, I guess you’d give the same answer regarding that phase specifically that that new equipment that came online is being nearly fully utilized?

Robert Toth

Certainly by the end of the quarter absolutely. It began ramping up at the beginning of the year and by the end of Q2 I think Lynn mentioned that it was operating at nearly full capacity. We’re delighted with the fact that our customers qualified things so promptly but obviously we need additional capacity.

Brian Drab - William Blair & Company

Okay great. And then just one more for me for now. The big question of the day I think is going to be around the start up costs and can you do anything to help us quantify and model start up costs? I think everyone is expecting start up costs and you’ve been experiencing start up costs all the way going back to the beginning of 2010 as this capacity’s been coming online and even -- Is this going to be materially more in terms of start up costs in Q4 or how should we model it?

Lynn Amos

I’ve always said there was a few million dollars per quarter but given all that we have starting up right now, it’s going to be a little higher than that for the next few quarters. It’s not perfectly linear when you’re starting up this number of plans. And given the fact that our Concord facility I assume you saw the press release where we opened the building last week and we’re scaling that up. And until we start to get some production we’re going to pick up some incremental costs out of that facility.

Brian Drab - William Blair & Company

Okay. I’ll get back in line. Thanks.

Operator

We’ll hear now from Michael Lew with Needham & Company.

Robert Lew - Needham & Company

Do you anticipate a similar type of prompt qualification ramp for the additional Charlotte Capacity that comes online?

Robert Toth

We don’t really have a way of knowing that. I mean we have to control what we can control and we’re certainly committing our resources to do all we can to get prompt approval and customer qualification in the system anyway that we can. But they control their resources and obviously we can’t really dictate that so we’re not in a position to project how quickly things will get qualified.

Robert Lew - Needham & Company

In addition, with this latest expansion announcement was it (inaudible) driven by a limited number of customers or was it more broad based and is there good component behind it also?

Robert Toth

No I wouldn’t necessarily say -- I mean we’re on the very front end of a grid component and while that, you know, some people speculate that that will be bigger than electric drive vehicles, I think we’re very early into that. So I think what you’ve got is you’ve got very much broad based growth across consumer electronics. That’s a market that’s just continuing to grow in that, we always say, 8% to 20% range. And you’ve got the acceleration of electric drive vehicles being introduced and certainly customer projections associated with that. So very broad based from a consumer electronics perspective and obviously there’s relatively fewer associated with electric drive vehicles.

Lynn Amos

But certainly multiple customers within that EBD space.

Robert Lew - Needham & Company

With all these new expansions, how much do you expect to increase the head count by fir the full year? I mean you are at 22,000 I believe at the end of 2010.

Robert Toth

Yeah we’re tracking that very, very carefully and we track it monthly by function by business and I don’t have a precise number by year end but it’ll continue to go up as we scale up equipment. The good news is our processes as you all know aren’t very labor intensive and we’re not adding substantial amounts in overhead beyond what we have to add for a new facility for instance. And so that’s pretty modest and pretty linear with the capacity expansion so you won’t see any unusual step change there where we get a bunch of people out in front of capacity if that’s what you’re kind of thinking.

Robert Lew - Needham & Company

Yes that’s what I was. And also on lead acid while you continue to run at, you said, a pretty high utilization rates, where do you see more pent up demand? Is it in automotive or UPS and I mean how much backlog do you have in that business?

Lynn Amos

Well I don’t think much of it to be honest with you as a backlog or pent up demand. I think what you’re seeing there is continued growth around the world in both transportation which of course is, the vast majority of that’s replacement so higher recurring revenue. We’re seeing nice growth in industrial, we’re seeing nice growth in Asia. This particular quarter we saw good growth in all the regions. So I don’t think we’re really seeing any pent up demand but we are seeing what we expect in terms of global growth.

Robert Lew - Needham & Company

Okay. And also was there any impact from the disruption in China during Q2?

Robert Toth.

You know I think what I said last quarter and what I would say still is they’re probably was some. It’s kind of hard to measure. I think it impacted everybody for a short period of time in china but just because every lead acid battery producer probably got shut down for a couple of days doesn’t mean people are going to decide to start walking. People still need batteries and those still need to be in the supply chain. And there could be a short term disruption but I don’t think it’s material.

Long term I continue to say that that’s very positive. That’s the kind of trend we expected and you’ll see that drive to the high quality good producers, dry battery production to them over time.

Robert Lew - Needham & Company

Okay. Thank you.

Operator

And now we’ll go to Richard Eastman with Robert W. Baird.

Richard Eastman - Robert W. Baird & Co.

Just a follow up. Just on the lead acid side of the business, just kind of as a follow up to that. Rob you know the 24% kind of local currency growth rate is, you know it’s hard to wait that out by geography given the strength there. Is there anything more going on in that business? Is there any share capture by any large customers or just maybe your share gains, any share gains in China in lead acid?

Rob Whitsett.

It’s hard to basically look at Asia now and say hey that’s a growing 50% and US and Europe are much less.

Lynn Amos

Well first thing I would say is the 24% growth rate that you quoted or whether -- I guess you were including FX or excluding FX but I would also remember that’s comparing to a quarter in the prior year where the results were still escalating, we were still getting some economic recovery from the previous year. So I would say that’s some bit of comparing to a lower last year and we’ve never projected a growth rate for the lead acid business in the 20% plus range long term. We would talk about the growth rates in lead acid being kind of GDPish plus in the Americas and Europe and mid-teens in Asia. So that would push you to a longer term growth rate in the higher single digits range for lead acid over the long term.

Robert Toth

You know I think the other takeaway, I’d give you a couple. Obviously Asia’s continuing to grow rapidly and we’re well positioned in Asia. Keep in mind we also ramped up the facility last year and so we got the added benefit of that production this year. That was at old production towards the end of last year.

Lynn Amos

That was Owensboro (inaudible).

Robert Toth

Yeah, and so we got some added benefit from that. There wasn’t anything particularly anomalous in share or unique applications where they just happened or one time or anything like that but I think Lynn’s point is right, over the long term the growth rate will be ultimately a function of how fast Asia grows and so we’ve continued to say that should still be pretty substantial but I can’t sit here and tell you it’d be in the high 20’s or near 30% every quarter obviously.

Richard Eastman - Robert W. Baird & Co.

Sure. And there was no price in there; no consequence?

Robert Toth

Well we’re certainly experiencing raw material escalation as I mentioned last go round and we’re certainly trying to catch up with that as much as we can. But as I said last quarter we’re probably lagging that to some extent.

Richard Eastman - Robert W. Baird & Co.

Okay. And then on the lithium side can you give us a sense of just roughly what percentage of the lithium revenue, you know, now is maybe EV related. I mean is it 10% to 15% of the $50 million or just approximately?

Robert Toth

Well unfortunately as a practice we’re not going to do that just because there’s so much competitive insight into that. But what you can do, you certainly can look at the growth rates we’re experiencing relative to what the consumer electronics growth rates are and probably reach some conclusions from that. And we’ve said for several quarters it was meaningful and growing. Meaningful initially defined as a few million dollars and obviously we’re continuing to grow very, very nicely in that regard. And you can see what the new capacity brought on Q1. And you can see that we’re targeting all these expansions or a lot of the expansions at EDD, you know, that’s the focus so.

Richard Eastman - Robert W. Baird & Co.

Okay. And then just maybe as a sub component of that we’ll mess around with that math but is the lithium separator price per square meter on the EVP side, is it around $2.00? I mean you had given a wide range in terms of square meter pricing prior to the EV expansions and how does pricing look there relative to consumer electronics applications and sales?

Robert Toth

You know I’ll kind of go back to what I’ve said all along which is I would fully expect and I’ll qualify this after I say it, but I would fully expect the pricing into electric drive vehicles to be lower than consumer electronics. Now I’ve also always said I wouldn’t necessarily correlate that to margin because as you get scale you’ll get operating efficiencies and obviously I don’t know if I’d call where we’re at today at a significant scale. But the whole industry, and now you go back to kind of how the pricing is done in the industry. The whole industry since it’s really since it’s inception has had a pricing design or a pricing model around the bigger your customers get, the lower price tiers they hit right. And that’s a good reason for that because of the operating leverage in the business and you want to grow with your customers and you want to partner with them long term. And so as the electric drive vehicle, you know, volume continues to scale up at certain customers, obviously they’ll hit the lower price tiers but again I wouldn’t necessarily correlate that to margin. But the take away is I’ve always said I would fully expect it on a continuum to be lower than the range in consumer electronics.

Robert Toth

And we’ve said the range was $1.50 to $2.50 depending on grade and type and a lot of other things like that.

Richard Eastman - Robert W. Baird & Co.

Yeah that’s the average price.

Robert Toth

Yeah and I’d still (inaudible) that down.

Richard Eastman - Robert W. Baird & Co.

I understand. Thank you.

Operator

And Avinash Kant with DA Davidson & Company has our next question.

Avinash Kant - DA Davidson & Company

First question on capacity expansion plans, you just announced the $105 million capacity expansion plan. Could you give us an idea about what was that decision based on?

Robert Toth

Well exactly the same thing all of our other decisions have been based on which is really line aside of projects and customer forecast, scrubbed customer forecast. So what we’re seeing is an acceleration of the demand curve here. We’re seeing more and more models be developed, some announced, some not announced. We’re seeing more and more volume associated with those models that’ll be coming to market and we’re trying to scale our capacity investments consistent with our customer needs and obviously doing what we can to accelerate that.

Avinash Kant - DA Davidson & Company

Okay. And I think Lynn in the past we have talked about how much capacity could you get doing revenue terms on the lithium line business and you have kind of given some guideline in terms of maybe $110 million or so almost compared to the $50 million that you are running at. Two questions on that, should we expect kind of a gradual increase until the end of this year and then a big jump next year or how would that capacity go from $50 million to $110 million?

And with the new $105 million plan where do you think the capacity will be on a quarterly basis?

Robert Toth

And just for clarity, you’re referring to numbers per quarter, is that what you’re saying? $50 million then $110?

Avinash Kant - DA Davidson & Company

Yes.

Robert Toth

Well let me first back up and I’ll let Lynn jump in on that but let me first back up and say what we’ve den to date is try to be very helpful because we know we’ve made meaningful expansions. And so we’ve tried to help people understand that you kind of go from this, what we said was from the back half of last year run rate to basically tripling that. And that scales up non-linear but we’ve kind of talked about it scaling up between now and the end of 2012 meaning that at sometime in 2013 you’re at that run rate. But we’ve also talked about the variables of customer qualifications and things like that that we don’t control. So while we’ve tried not to be too precise, we’ve tried to be directionally enough accurate to help people understand that, but what we’ve said here this quarter is we did scale up a little faster then expected because we got prompt customer qualification. I’ll let Lynn jump in on that.

Lynn Amos

I think you hit it. I mean it’s -- we had good qualification by customers in Q2. That first space scaled up pretty quickly approaching capacity by the end of Q2. The next phase of capacity comes on around the end of the year, that’ll be phasing up in 2012 then we’ll start getting phases in at Concord. And this latest phase, the $105 million that we just announced is scheduled to come online at the end of 2013 and reach full production in 2014.

Now just to be frank, there are a lot of variables between now and 2014 so we’re not going to get into predicting run rates three years out at this stage. But I think given the scale of the investments and all the detail we’ve given on the previous announcements, hopefully you can come up to some reasonable assumptions on your own.

Avinash Kant - DA Davidson & Company

So basically is it fair to say you’ve had a capacity bump right now, you have minor improvements to lend of this year and then the big (inaudible) will start to come in next year and the ramp will come maybe basically to the target that you had said in the past three times the capacity?

Robert Toth

Yeah I mean what we’re trying not to do, right -- the punch line here is we’ve got five major investments going in in this business for electric drive vehicles. We don’t control precisely how they scale up. They’re all good news. And we’re not trying to get too granular quarter by quarter because there’s an element of that that we don’t control. So you had the first phase begin to ramp up early in the year and as Lynn mentioned it was approaching full capacity by the end of Q2. We’re delighted with that. We have the next phase in Charlotte beginning to ramp up in the later part of the year and that will continue to ramp up obviously rolling into next year 2012. Next year you have Concord beginning; a completely new facility in the first phase of that and you’ll have additional capacity ramping up in 2012. So you’re starting to stack a couple of these expansions on one another as you get out the 2012 and 2013.

Lynn Amos

Yeah I mean we are certainly staging a number of investments here. There’s a lot of equipment going in, a lot of people coming to join the company, a lot of customers and products being qualified off new equipment. And as Bob said, it’s all great news it’s just there’s a lot of work here.

Avinash Kant - DA Davidson & Company

So one final question on the SG&A side. When you talk about start up costs, it seems to have ramped a lot on the sequential basis in Q2. Now that the capacity expansion plans will be not that extreme for the rest of the year, should we expect that SG&A number to come down from where it was in Q2 or stay at these levels for the rest of the year?

Robert Toth

I think you’re comparing a sequentially low Q1 so I’m not really going to get into projecting SG&A because there’s a number of variables there quarter by quarter but our SG&A will always move a little. And I’d just kind of leave it at that.

Lynn Amos

To answer the question, I don’t think we had any anomalously high SG&A items in Q2.

Robert Toth

No, we thought it was low Q1.

Lynn Amos

Yeah, a little low Q1 and nothing really anomalously high. But we also, we don’t have to add tons of SG&A with these plants. Most of the costs that we’re going to add are going to be fixed costs that go into, eventually into cost to sales.

Avinash Kant - DA Davidson & Company

So on similar revenues there’s no reason to believe that things are gonna change in SG&A at this point, right?

Robert Toth

Well we’re not going to get into providing guidance on SG&A. It can move a little but I think the takeaway is we’re not expecting monumental moves.

Avinash Kant - DA Davidson & Company

Okay. Thank you.

Operator

We’ll go now to Kevin Maczka with BB&T Capital Markets.

Kevin Maczka - BB&T Capital Markets

I appreciate all the color on the capacity and I have one more kind of follow up question just to clarify something. You talked about the initial four expansions tripling the run rate from the second half of 10. Did you ever say how much this additional $105 million will add to capacity?

Robert Toth

Just more. We have to quantify it. And that’s to Lynn’s point; I mean we’re staging obviously three expansions at Concord from opening the doors now and loading it up with equipment in the first phase to the second phase 2012 into 2013 to this being the third phase 2013 to 2014. We’ll do all we can to work with the customers and accelerate that obviously and keep pace with them. But having said that, we’re just not -- there’s a lot of competitive sensitivity here, needless to say and it’s three and a half years out. So we’re not going to try to provide too granular guidance for 2014.

Lynn Amos

I mean certainly as that gets closer to coming online we’ll be giving you more color and hopefully more clarity around how to think about the business as we get closer.

Kevin Maczka - BB&T Capital Markets

That’s fine. I just wanted to make sure we didn’t miss something there. Separately, on the consumer electronic side, a lot of commentary generally about perhaps some slowing going on there, maybe if you’re anybody but Apple. Have you seen any indications of that in your consumer electronics side of the business in lithium?

Robert Toth

From the last quarter I can’t report anything anomalous at all there. I mean we’ve seen nice consumer electronics business.

Kevin Maczka - BB&T Capital Markets

Finally just one related to lead acid. I know you’ve talked a little bit in the past about your views on AGM. It seems like there’s some big investments from some big players going on there now. I’m wondering if you can just refresh us on your view of that product and how you intend, if at all, to play there.

Robert Toth

Yeah well I think first let’s qualify it right. There’s several types of lead acid batteries. The two that people refer to the most are of course the flooded which is what we participate in with the polyethylene and then there’s valve regulated which is what you’re referring to with the absorptive glass mat separator. Now let’s kind of qualify that; the flooded for transportation worldwide is, I’m not going to give a precise numbers here but it’s north of 300 million units per year. And that’s a growth rate like we kind of talked about earlier while in excess of GDP. So that’s kind of the magnitude of that volume. The announcements that people have touted on the AGM and valve regulated are primarily tied to some of the initial launches of the idol stop start. And there’s kind of two components or two numbers that people are saying regularly out there. One is that that ISS can grow to about 35 million units over the next five years. So that gives you an idea of scale. Keep in mind that not all of ISS is expected to be AGM and in fact the biggest AGM producer I think is building capacity to something like 17 million units or 18 million units. So that gives you kind of a relative comparison. So what I’ve said all along is certainly the standard flooded lead acid batteries will continue to grow in excess of GDP worldwide and that’s what we’ve certainly seen in our business. As it relates to ISS the jury vowed as to how much penetration the idle stop start systems will make. But irrespective of that, some portion of it will be valve regulated with AGM and some portion of that will be enhance flooded. So long term it’s kind of really ranging from a neutral to potentially a positive because as you go with enhanced flooded those obviously would need to be bigger and there’s certainly some speculation that the life of those batteries would be less, meaning a higher replacement rate of sales as well. So the take away is we’re certainly all over it and watching it and working closely with our customers around the world on it but it’s not a game changer for the flooded lead acid battery market.

Kevin Maczka - BB&T Capital Markets

Okay great. That’s what I thought. Thank you.

Operator

Moving next to Dilip Warrier with Stifel Nicolaus.

Dilip Warrier - Stifel Nicolaus

Just going back to the enhanced flooded discussion, is there a significant revenue content in terms of separator enhanced flooded versus the standard flooded?

Robert Toth

Well I’d really leave it with you with the very simple paradigm of the bigger the battery the better. But as I mentioned it’s not a game changer right. You’re talking about just transportation batteries being north of 300 million units a year and this being some additive 10 or 20, right, displacing some of that. So I don’t view it as a monumental change. It potentially is just an additive growth driver but fundamentally worldwide GDP and consumption of flooded lead acid batteries will drive our demand.

Dilip Warrier - Stifel Nicolaus

Right. The capacity coming online in Korea for consumer electronics, is it fair to say that the ramp there will be slower then the ramp on the EV side?

Robert Toth

We don’t know precisely but it’s not as big of a capacity expansion first off. That’s a smaller facility and a smaller volume expansion and it’s targeted at consumer electronics so you wouldn’t expect kind of an immediate step change in demand so it’ll scale up over time.

Dilip Warrier - Stifel Nicolaus

Okay. One last question on the operating expenses line. It increased sequentially and I was wondering if there was an element of increased data cost in Q2 that we already saw.

Robert Toth

Well, back to the earlier point before Lynn jumps in, Q1 was anomalously low. We highlighted that we had the benefit of some timing in Q1 so there may have been some but it’s not that delta, right? You’re referring strictly to SG&A I assume in here?

Dilip Warrier - Stifel Nicolaus

Yeah.

Lynn Amos

As Bob mentioned I think there was some IT spending that occurred in Q2 instead of in Q1 and a little bit of R&D, but that’s not big numbers delta between the two. And nothing really anomalous in Q2.

Dilip Warrier - Stifel Nicolaus

Thank you very much. Congratulations.

Operator

We’ll move next to [Jeff Zikalkis] with JP Morgan.

[Jeff Zikalkis] – JP Morgan

Hi, good morning. When you think about your lithium electric vehicle expansions, sort of broadly speaking, how much of the expansions are designed for the offshore markets and how much for the domestic markets if you can speak to that?

Robert Toth

We don’t break it out, but what we said all along is while we’re delighted with the vehicles that are being introduced in the US, this is a market or an application that would have probably passed the US by in terms of scale and development. And it’s not a correct perspective to look at this market through a US set of lenses and reach a lot of big conclusions. So we’re supplying very globally, we’re delighted with the global development we see taking place, and from our perspective frankly the more the merrier here. But keep in mind that even with what’s out there we’re talking about penetration of lithium today probably less than 1% of the automotive market, so it gives you an idea of the magnitude of the impact. And what we’ve said all along is minor penetration into automotive production will have a major impact on consumption of lithium separators, and that’s certainly what we’re starting to see today. We’re just scratching the surface in terms of penetration rate.

Lynn Amos

The only thing I would add is I think it’s fairly well understood that the major players to date and the people who are major, who are making the most significant investments on the battery industry side are Asian. And we’ve said pretty directly that we’ve been actively involved in every major development program so it’d be hard for us to say that if we weren’t talking to the Asians on a regular basis.

[Jeff Zikalkis] – JP Morgan

And then lastly, your lithium battery separators in Q1 grew around 38% or 39% in revenues and this quarter you grew more like 56%, so at about 18 percentage points faster. Why did you grow so much faster in Q2 than in Q1?

Robert Toth

Well, the first reason was we had more to sell.

Lynn Amos

That’s about the only reason.

Robert Toth

Yeah, that’s really the driver. We’re ramping up as quickly as we can and really, as we mentioned, frankly we got rapid customer qualifications in Q2 as well. So really we just had more to sell.

[Jeff Zikalkis] – JP Morgan

And sometimes the growth rate, though rapid, can really vary from quarter to quarter. Do you see any bumps either positive or negative in the second half relative to the first half in lithium?

Robert Toth

Well, I wouldn’t say anything different there, Jeff, than you probably would have heard me say back in ’07, which is customer order patterns can swing based on their production timing. In any given quarter you can have some volatility in this business and a quarter, it’s always dangerous to just take a single quarter and extrapolate it and draw a huge, long-term meaningful conclusion. You need to always look at this business on a four quarter run rate basis and make your projects from there, and so we’re delighted with the demand trend we see in the marketplace. We’re delighted with how quickly customers are working with us and we’re working with them to get product qualified, but there always could be some variability quarter to quarter. We’re not really trying to predict that at all.

The punch line is long-term. We’ve got over $350 million of investments underway. For a company our size that’s certainly pretty meaningful, and it’s targeted at growth largely in this space.

Lynn Amos

And we have said here on this call that the capacity that we had on the ground was approaching full capacity at the end of Q2, and we will be looking forward to the new capacity that will start to come on at the end of the year. So to your point about how much more – well, how much more is going to be a function of how quickly we can get new capacity online.

[Jeff Zikalkis] – JP Morgan

Okay, thank you very much.

Operator

We’ll hear next from [Jingmi Lieu] from Ardour Capital.

Francisco Seed – Ardour Capital

Hello, good morning. This is Francisco Seed; I’m filling in for [Jingmi Lieu]. Congratulations on a strong quarter. The first question I have is a follow-up on the lead acid batteries in China. You talked about short-term disruption and long-term advantages for your business. If you could elaborate a little bit on this? I mean long-term are you planning on expanding in China I mean besides the JV with [Camal]?

Robert Toth

Well, let’s kind of talk about the demand drivers in this business and the customers in the space. So if you look at the demand drivers, obviously this is a high recurring revenue business, high replacement rate of sales, and then we’ve said Asia’s of course always been the fastest growing region and we’ve talked about it for three, four, five years that we were taking a number of strategic actions to position ourselves in Asia because this was a business largely moving to Asia in terms of the growth. You’ve got higher GDP rates in Asia; you’ve got myriad additional applications in Asia that we don’t think much about here in the US, like the E bikes and the mopeds and the small motorcycles; or inverter batteries attached to houses used for power. And of course you’ve got a climate that’s the most destructive to lead acid batteries in terms of making it a higher replacement area in terms of heat and the quality of the roads, and the acid splashing around in the lead which fundamentally degrades the batteries faster.

So we’ve taken a number of actions to grow in Asia. We’re clearly centered on Asia. I mean we’ve been taking actions for five years very aggressively to get position there. We’ll continue to focus on that and assess the opportunities for investment but we’re not necessarily going to project when we might make the next investment. We’ve got two pretty decent investments underway right now: one with a moderate sized line in our facility in Thailand; and then the joint venture in China as we’ve talked about. So we’ll get through those first before we talk about the next wave of investments.

In terms of the disruption, if you look at customer concentration, we’ve talked about this before. In the US you’ve got four or arguably five battery producers that control 95% of the market. If you went to Europe and you did that math, don’t hold me to this precisely but you’re at 30 or 40 or more customers to get to 90% plus of the market, and in Asia you’re into the hundreds we’ve always said. And if we’re wrong there it may be thousands but it’s certainly a big, big number. There’ve been projections in China that there are anywhere between 2500 and 4000 producers in China and that’s expected to go through rapid consolidation to something like 1000. So it gives you some idea of comparison region to region, and as that consolidation occurs you move from the garage stop lower-quality producer to an automated producer which is of course where our type of separator is required; and you move to the longer-life battery which requires our type of separator.

So we’re continuing to take very specific and methodical strategic actions to be positioned with a very major presence in Asia and frankly drive that conversion as fast as we can. So this short-term disruption that may be shutting down a few small players will only accelerate the consolidation to the kind of people that would probably require our type of separator and our type of battery production. So we’re delighted with that.

Lynn Amos

The only thing I would add to that is while China is certainly an attractive market and you can see our commitment to China with our investment in [Camal] and the joint venture at our other facility in [Tanjen] and our operations around China, I would caution everyone not to see Asia as just China. There’s a big market in India, Southeast Asia – all around Asia it’s growing quickly and it’s not just China.

Francisco Seed – Ardour Capital

Thank you. My next question is about the gross margins, which for the energy storage (inaudible) came in really high this quarter. I was wondering if you can tell us what it was driven by? Was it higher pricing or the capacity addition in (inaudible), if it’s more efficient than other facilities?

Robert Toth

Well, you’ve got two components of energy storage – you’ve got lithium and you’ve got lead acid, and we’ve always said that lithium is a higher gross margin business but obviously has higher SG&A associated with selling it. Lead acid is a lower gross margin but there’s not as much SG&A on the income statement if you broke the two businesses down that way. Having said that we’ve had some raw material escalation and so we’ve had some pressure there to keep up in the lead acid area but you’ve got a mix shift that’s kind of taking place within the segment.

Lynn Amos

I would just add too, that both the lead acid business and the lithium business, all the plants operated extremely efficiently so we had better operating performance in the plant; and combine that with the fact that our faster growing, higher margin business took a big jump and that’s driving the bulk of the movement.

Francisco Seed – Ardour Capital

And my last one, the PM index for the US just came in and it’s declining, and it looks the same for China which would indicate a slowdown in the economy. If that is the case do you see any risk in over expanding your capacity for the mid- and long-term?

Robert Toth

I think I’d qualify a couple things there. One is we’re very fortunate to have a high rate of recurring revenue in our business. We’ve talked about over 70% of our portfolio being high recurring revenue in nature, and that was very definitely proven out when the world ended a couple years ago and we saw the slowdown. So the good news is we’re participating in a space that is really undergoing some long-term secular trends in our favor and we’ll continue to focus on that. Any anomaly on the portion of our business associated with the economy is short-term so you know, I can’t say that I see anything unusual coming down that road that way; and the fact of the matter is, worst-case you just slow down or stop, right? But our expansions are targeted pretty specifically at some growth projections in markets and specific projects.

Francisco Seed – Ardour Capital

Thank you very much.

Operator

And Randy Gwirtzman with Baron Capital has our next question.

Randy Gwirtzman – Baron Capital

Hi guys, how are you? Two quick questions: first of all, as I understand it this quarter you had a high cost problem where you actually ramped up capacity faster than you would have expected because qualification was better. And capacity basically was ramping to capacity at the end of the quarter. First, does that imply that you’ve got some additional growth into Q3 even though there’s no additional capacity expansion because you haven’t hit full run rate yet?

Richard Toth

Yeah, in that particular business I mean sure. We’re not going to get too granular month by month but obviously we’re delighted at the pace of which things ramped up and we were pretty much there by the end of the quarter. Having said that I think also we’ve got the typical seasonality and customer shutdowns and maintenance in Q3 which we don’t control, so that’s what we’ve historically seen as what Lynn has referenced.

Randy Gwirtzman – Baron Capital

Okay, and just going back to your comments of a couple months ago, I just wanted to clarify. You’d said that you were going to get to what you think is 200% growth over kind of the backend of 2010 – revenue run rate at your lithium ion operation at the end of 2012 into 2013?

Richard Toth

Yeah, that’s close. There’s variables on that but that’s close.

Randy Gwirtzman – Baron Capital

Okay. So that implies something in the ballpark of $400 million of revenue, right?

Richard Toth

Right, run rate.

Randy Gwirtzman – Baron Capital

Run rate revenue, right – it won’t be $400 million for the year, but basically what it means is, if I read this correctly, is that there’s going to be a pretty substantial expansion in 2012. So you’re going to expand more at the end of 2011, you’ve got existing capacity and there’s going to be a decent-sized expansion through 2012 with lithium ion, because the run rate in revenues is probably going to be somewhere around the $200 million range coming out. It’s more than $200 million coming out of 2011 and it’s going to be a pretty sizable expansion just in 2012 to get to that end run rate. Is that the right way to look at it?

Richard Toth

I’m not going to confirm or deny any of your numbers there with the exception of what we’ve said very specifically is we’re making investments that will drive our run rate to around that number you talked about, to around $400 million. Now, we’ve also said that we don’t control the timing of the customer qualifications and obviously, to exaggerate the point, if that all went to one customer it’d be a lower price and if it went to myriad customers… And so you’ve got variables there, but directionally that’s the run rate of capacity we’ll be at by late 2012, early 2013; and we’ve got more capacity coming online.

Yeah, we’ve got the second phase of Charlotte beginning up the end of this year, so that’ll start to ramp up through certainly early 2012. And then you’ve got Concord beginning next year which will ramp up through more fully 2012. You’ve got Korea which is smaller and we’ve talked about, but that’ll begin kind of at the end of the year and ramp up through the end of 2012; and then you’ve got the second phase of Concord that will begin by the end of 2012 and rolling through 2013, and then the new phase that we’ve just talked about beginning 2013 and being operational fully sometime in 2014. So we’re obviously trying to stage these things but you hit a bigger wave of just the sheer number of things that come online in 2012 – it’s bigger than what has come online.

Randy Gwirtzman – Baron Capital

Okay, I just wanted to clarify that. And the last thing that I had was with regards to gross margins, obviously the mix helped a lot in the quarter and you were running very nicely in terms of yield I guess. As we continue to get growth in lithium ion that’s higher than the other segments thereby blending to a higher gross margin rate, will that substantially offset the increased SG&A? Presumably all this will lead to much higher operating margins going forward. Is that the right way to look at it?

Robert Toth

Well, we don’t really project operating margins. We’ve said that our highest operating margin businesses are growing the fastest so there’s some math there you can do, and also in there we haven’t laid out any premises on SG&A. We’ve talked about the delta in this quarter being, Q1 was probably a little low more so than Q2 being artificially high, right? So in terms of margin, as your higher margin businesses grow faster there would be a bias toward expansion but we don’t project margins going forward.

Lynn Amos

Yeah, I would also say, I think we said it last quarter – if you operate within kind of a range on margin during Q1 we were operating at the high end of the range. I’d certainly say that was true in Q2. If you look at margins beyond just a quarter or two and you blend in your seasonality and you blend in other things that we’re kind of at the higher end of that range. But as Bob mentioned, with your higher margin businesses growing faster there has to be a bias there. That’s just math.

Randy Gwirtzman – Baron Capital

Okay, thanks guys.

Operator

We’ll go now to Eric Valentine with [Apados].

Eric Valentine – [Apados]

Thanks for holding my call and thanks for some pretty good results there. Just two quick questions on acquisitions. I haven’t heard anybody ask that question – is there anything out there that looks attractive? Any area you might be wanting to expand in? Obviously you’ve got a lot of capacity coming online but are there any other areas you might be trying to get into?

Robert Toth

Well, we’re very, very fortunate to not need a growth leg of our company because we happen to have four, so we don’t need to go out and find something new and that’s not our operating style to begin with. So what we’ve said to date is that we would only consider things that would really allow us to either make membranes better or sell them faster, and having said that, those aren’t a dime a dozen. So most of the things we’ve done in the past have literally been kind of doing a make or buy decision in the sense of either we put in capital or buy somebody’s equipment that hadn’t been very successful at trying to do what we do.

So we’re not out on the hunt looking for any acquisitions. We’ve got tremendous growth opportunities inside the company. As we’ve mentioned we’ve got $350 million plus of capacity expansions underway and we’re continuing to assess the need for additional capacity expansions. So we’re pretty fortunate in that regard, a lot of organic opportunities here.

Eric Valentine – [Apados]

Great, and then one other thing on the fixed income side. Given the results have been pretty solid have you approached the rating agencies about an upgrade? I mean it seems like you guys are a little underrated if you will.

Lynn Amos

Well, I don’t disagree with your assessment but we don’t control the ratings process.

Eric Valentine – [Apados]

Have you been in contact with them lately?

Lynn Amos

We talk to them on a regular basis.

Eric Valentine – [Apados]

Okay, great. Thanks guys.

Operator

And Carter Driscoll with Capstone Investments has our next question.

Carter Driscoll – Capstone Investments

Hi, good morning gentlemen. Thanks for taking my question. Could you just elaborate a little on the raw material escalation, whether you see that mitigating in the back half of this year? And then maybe in conjunction with obviously the aggressive expansion plans, what the impact might be on your working capital balances or working capital needs and maybe the timing therein? And I have a couple of follow-ups.

Richard Toth

Well first of all, relative to most industrial companies, raw materials aren’t a bellwether or pure determinant of our success but they can have a few million dollar impact in any given corner. Our most raw material benched product line is the lead acid separator business, and we’re seeing obviously a majority of the escalation in that business. We’ve always said that we’re pretty diligent about trying to pass that on and we’re pretty diligent about when we have contracts we have means of passing that on, and so we’re doing that. Of course as it goes up you tend to lag by a month to a few months at least typically. I can’t say that we have a unique position on raw materials looking forward. I think people do expect still some escalation in raw materials and we’ll keep a pulse on that but it won’t make or break our business – it’ll just be, like I said it’s a few million dollars of expense give or take and we certainly try to catch up on that.

Lynn Amos

On working capital, the biggest items in there would be the receivables. Receivables days are generally going to trend with sales. I think the days are unlikely to change materially so it’s going to be a function of the sales growth, so that’s likely to go up. The inventory, given the fact that we’re opening some new facilities we’ll have some modest movement up but I don’t expect that to be as directly impactful as the receivables would be.

Carter Driscoll – Capstone Investments

Alright, that’s helpful. Thank you. And not to beat a dead horse, I know we’ve focused a lot of the call about the capacity expansion, but one area we didn’t mention is very solid results in especially filtration, and I realize it’s kind of a tuck-in in the Charlotte and Germany facilities. But could you potentially reach a point at which you needed to expand especially for the specialty filtration business as well?

Richard Toth

If you look at separations media we have an expansion underway in healthcare in the [Purima] hemodialysis membranes which will begin late this year, and that’ll ramp up a little more methodically over time because it’s a healthcare application. So that’s underway and we’re always assessing the need for additional capacity in all of our businesses. And so needless to say those are very good businesses as well and if we needed capacity I think it’d be pretty easily justified but at this point in time we don’t have anything to announce.

Carter Driscoll – Capstone Investments

And then just my last question: if you took say the second half of this year and until the majority of your expansions for 2012, on the [EDV] side could you maybe ballpark what you think the business being driven by specific programs already in place versus the new product introductions so we can kind of map out our own forecasts of those introductions? I mean is it 90/10 new versus ramping vehicles; is it 80/20? Maybe just a broad range would be helpful.

Richard Toth

Well, I won’t provide that because we can’t talk about the programs we’re in and but what I will say is people have focused on a couple of key programs and I think we’re starting to miss the forest for the trees by a large extent. We’ve got a number of large vehicles out in Asia and a number of new vehicles being planned in Asia. I’ll give you an example – there was a vehicle out in Japan for a while which was called the [Fuga], a hybrid, and that came to the US as the Infinity M Series, and I’m not sure if people even know it came to the US and it came to the US early.

So there’s a Hyundai out there that was in Korea, there’s a Hyundai out in the US now and the rest of the world as well, and so you’re seeing more and more projects being launched and you’re seeing an acceleration of enhancements in the production numbers of vehicles that are launched. You can look at the Volt – I think they announced that they’re projecting well in excess of 60,000 vehicles if not 100,000. I’m not sure quite where they’re at in their announcements but they continue to ramp up production, the same thing with the Leaf. So what you’re seeing is all really good news, that the products that are being introduced are all being very well received and they’re trying to ramp up production on those; and you’re seeing waves of new vehicles come out and I think that’ll just continue.

As we look forward we’ve talked about the fact that we’re actively involved in over 50 major development programs that are designed to be launched between now and 2015, so that gives you an idea of the magnitude of these things that are starting to happen.

Lynn Amos

And to kind of tack on to what Bob said about the hybrid vehicles, I think over the next year or two you’re likely to start seeing people miss the fact that hybrid vehicles are lithium versus nickel versus anything else – they’re just going to know that they’ve got a hybrid.

Robert Toth

Maybe not even know that they’ve got a hybrid – that’s what I think you’ll also start to see because that doesn’t change any consumer behavior, right? You just go get gas less. And if you look at some of the advertisements that are out there on new projects you’re starting to see that. It’s less about it being a hybrid and more about it having enhanced performance and better fuel economy, and you’ll start to see that dynamic change.

Carter Driscoll – Capstone Investments

Yeah, that’s what I was trying to I guess get some discussion started about, is the focus so much on pure battery ED versus a dramatic uptake on the hybrid side of the business. Do you see any impact potentially on the OEMs looking to increase their fuel mileage for the existing ICEs and that impacting hybrid uptake, or is it really two separate issues?

Robert Toth

I think it’s all of the above. To your first point I’ve always used the statistic just to help people understand the impact or the magnitude of the impact on the lithium separator industry, but if just 5% of worldwide production are hybrids today, meaning 100% of the vehicles are still ICEs, that would more than double the demand for the entire lithium separator market using the law of averages and the numbers there. So that gives you an idea of the impact of that, and what you have… You’ll have with the electrification of vehicles more opportunities for customer segmentation than you’ve ever had. You look at an ICE, which is about 30 % efficient meaning 70% of the energy goes to waste heat which you have to manage around in other components of the car.

With an electric vehicle of any sort or electric power of any sort you’re up in the 90% kind of range so you can get dramatic performance in terms of acceleration and torque and things like that, and you can get dramatic performance in terms of reducing emissions, enhancing mileage standards. So all of these trends of CO2 emission reduction, mileage enhancements and performance all start to play toward the electrification of vehicles and you will continue to see costs come down and you will continue to see very fundamental changes in the design of the vehicle that starts to change the cost structure pretty significantly, and we’ve already seen that on some of the hybrids that are out even in this early stage which still have a big ICE component of it that you have to manage around.

Carter Driscoll – Capstone Investments

Thanks very much, and congratulations on a very strong quarter.

Operator

We’ll go now to Craig Irwin with Wedbush.

Craig Irwin – Wedbush

Thank you, congratulations, gentlemen, on a very strong quarter. First question I wanted to touch on was margins. This is something that’s already been discussed so I’ll just get a little more granular here. Conventionally when you add lines inside an existing facility, the incremental margins are higher because you’re able to benefit from the building already being in place, [shooting] equipment where there might be capacity slayers, testing equipment and things like this. So the incremental margins on those lines tend to be higher than the rest or the weighted average of the rest of the manufacturing base. Can you talk directionally about your next expansion in Charlotte, whether or not this will have a similar impact on margins as far as what we’ve seen, the impressive results out of the first expansion – the one partially funded by DOE? Or is this something where we could potentially see benefits from the fact that this is going inside an existing facility?

Robert Toth

Well, we’re not going to project margins specifically but obviously it’s a high operating leverage business and as you add capacity you’ll benefit from that. Arguably when you add a building you’re adding a little more cost which is what we’re talking about now – we’re seeing that cost in advance of the building starting up. It’s not a make or break item in terms of whether or not that capacity expansion is attractive from an investment perspective but directionally I mean your hypothesis is not inaccurate: if you add a building cost you add a little more cost but it’s not a make or break item for us.

Craig Irwin – Wedbush

Great. The next thing I wanted to touch on is the increased cost for commissioning your new facilities or at least you directionally indicated that we would probably be experiencing higher levels of commissioning costs. On prior calls you’ve mentioned that the costs would be roughly linear, around a norm. Has anything materially changed there or does this mean that in the near term we’ll be at the high end of that range around the norm?

Lynn Amos

I think I’m going to go back to what I said on the first question I was asked, which is we’ve always said it’s a few million dollars a quarter. The startup costs, we’ve been fortunate that we’ve been able to add incremental revenue and you’ve been basically buried within that incremental revenue and people really haven’t seen that impact on the margin. As we’re getting ready to start a new facility, we’re hiring people, we’re cranking up the power, we’re putting in the equipment, we’re testing to run new facilities, we’re going to have a little bit higher cost over the next few quarters until we get the Concord facility producing salable product.

Robert Toth

And just the startups, we’ve got more of them starting up as we roll into 2012.

Craig Irwin – Wedbush

And then as we look at Concord as it ramps into 2012, is there a quarter where you think you’ll be at full capacity in that facility? Is it fair to look at something maybe by Q2?

Robert Toth

What we’ve announced today it’ll be 2014.

Lynn Amos

Yeah, we’ve got three different stages going into Concord and they’ll phase in all of 2012, ’13, and ’14. So that’s going to be long term.

Robert Toth

Yeah, we’ll be ramping up continuously there.

Craig Irwin – Wedbush

I apologize – I was referring to the second phase in Charlotte. There’s a lot to keep track of given your significant expansion, but this second phase in Charlotte really comes in at the very end of this year and has a more material impact on ’12. Is that something we can logically expect to be up at full capacity during Q2 of next year or is that something that might experience a little bit of a slower ramp than this capacity expansion that really drove the significant upside this quarter?

Robert Toth

Well, there’s nothing unique about it. We’ll do the same thing we’re doing, which is trying to get the capacity up and running as quickly as we can and support our customers as fully as we can in them qualifying it, but we don’t control the “them qualifying it” part.

Craig Irwin – Wedbush

Great. Thanks for taking my questions and congratulations again on the quarter.

Operator

And our final question today will be from Michael Levine from BB&T.

Michael Levine – BB&T

Good morning. Just quickly if I can maybe jimmy down a little bit, at the first Concord expansion, it’s roughly about the same dollar amount as the third. But the first one included facility, development, buildings and all that, so that means the third expansion is really going to be a lot more capacity. Am I thinking about that right? It could be twice the capacity of the first?

Robert Toth

Well, I don’t want to talk apples and oranges, but if you’re referring to the first capacity announcement we made, are you referring to part Charlotte and the new Concord facility? I think the first one we made had a bit of both in it.

Lynn Amos

The first one was funded by the DOE.

Robert Toth

Some of that was going into Charlotte and some of that was Concord, and we never broke it out precisely between the two.

Michael Levine – BB&T

Some of it was going to Charlotte. Well then that even makes the argument stronger, that that third is really a big expansion on that Concord compared to that first one going in.

Robert Toth

We’re not going to quantify it but it’s not a building, right? You always have, I think at any point in time at any of these expansions you have to look at and understand there’s different pieces of equipment and then there’s a building. Obviously that doesn’t have anything to do with the building per se, a new building, but there’s some building up fit required for it.

Michael Levine – BB&T

Right, right, okay. Just one more question: at Concord how much more capacity can you add at that site after the third expansion? Can you do a lot more there or at some point do you have to think about another site or just a bigger upgrade?

Robert Toth

We’re always thinking about additional expansions. At Concord, this’ll get us pretty close to full capacity. I don’t want to say yes or no precisely at this point because I would have said just for example, I would have said we were pretty full with what we had at Thailand but we found a way to reconfigure some more modest sized lines in in Thailand which is what we’re doing on the lead acid side right now. So I don’t want to say this absolutely tops it out but it gets Concord pretty full, and obviously we’re continuing to assess the need for an additional site.

Michael Levine – BB&T

Okay, great. Thank you guys.

Robert Toth

Thank you very much.

Operator

At this time I’ll turn things back over to you all for closing remarks.

Robert Toth

Perfect, thank you Kelly. We’ll, we’re very pleased with our progress to date. We’re very pleased with what we see in our key applications in the marketplace and how that relates to our myriad growth investments. We certainly appreciate all of your support and interest and thank you for that, and look forward to reporting progress next quarter. Thank you.

Operator

That concludes today’s conference. Thank you all for joining us.

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