EnerSys (ENS) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter fiscal 2012 EnerSys conference call. (Operator Instructions).

I will now turn the call over to your host for today's conference, Mr. John Craig, President, Chairman and CEO. Please proceed, Mr. Craig.

Thank you, Kim. Good morning and thank you for joining us for our call. During this call we will be discussing our third quarter results and will comment on our general state of our business. Joining me on the call this morning is Mike Schmidtlein, our Chief Financial Officer, and before we get started I will ask Mike to cover information regarding forward-looking statements. Mike?

Thank you, John and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes and circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance and are applicable only as of the dates of such statements.

For a list of factors which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2, Management's Discussion and an Analysis of Financial Condition and Results of Operations, set forth in our quarterly report on form 10-Q for the quarter ended January 1, 2012, which was filed with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our Company's Form 8-K, which includes our press release dated February 8, 2012, which is located on our website at www. EnerSys.com. Now let me turn it back to you, John.

Thanks, Mike. I would like to start off by saying that this has been one of the most exciting and rewarding quarters in our Company's history. In the past we talked about increasing our earnings, expanding our geographic footprint and increasing our lithium and alternative technology product offerings.

These are lofty goals given especially with the current economic environment, but I am pleased to report that we are able to make significant headway in all of these areas. Let me start with earnings. As reported last night, for the third quarter we reported record earnings of $0.80 on an adjusted diluted earnings per share basis. This is well in excess of our $0.69 mid-point of our guidance. But more importantly, we are forecasting the entire earnings for the next quarter of $0.86 to $0.90. This is well supported with our current backlog situation, which is near record highs.

Next, I would like to focus on the acquisition expansion plans and high growth emerging markets. As I have said in past meetings, our focus is on expanding our presence in South America, Africa, China and India. In South America, we acquired EnerSystems. A market leader in the region, which has manufacturing facilities in both Brazil and Argentina. We are now executing our integration plan in anticipation of significant growth in that market. On the Africa continent, we entered into a joint venture in South Africa, with plans to grow our market presence.

This investment will complement our existing joint venture in Tunisia and our expanding sales offices on the continent. This will help place us in a market leadership position in Africa. In China, we started production of our new 400 thousand square foot world class manufacturing facility in Chongqing. I was recently there to participate in the grand opening ceremonies, tour our facility and meet our employees, and I was very impressed with what I saw. This significant increase in manufacturing capacity in China will allow us to expand our product offerings in Reserve and Motive Power, as well as in back up power batteries for nuclear power plants.

Now I would like to focus on our growing lithium business. During the third quarter we also made progress in expanding our lithium product offerings. The addition of the GAIA large format lithium, will complement our ABSL and mod-energy products and make EnerSys a market leader supplier of lithium batteries for our broad array of industrial applications. Including telecom, satellites, spacesuits, submarines, aircraft and portable communications for the foot soldiers. I also recently visited India to review our expansion plans, which we hope to conclude on in the not too distant future.

An investment in India would allow EnerSys to participate in this rapidly growing industrial battery market, which we estimate to be around $600 million. We are actively evaluating additional opportunities in the non-lead asset technologies. Our focus, as always, will be expanding in additional energy solutions that will make solid returns for our shareholders. Much of our past growth has come from new products introductions, including our thin plate pure-lead technology. Our engineering department is working on several projects that will help keep the new product pipeline full for some time to come.

All of these acquisition and expansion plans require capital, and our strong balance sheet affords us the ability to take advantage of these growth opportunities. We will ensure that we maintain a strong capital structure so that we can take advantage of future opportunities. Our global EnerSys team has done a fantastic job of managing our existing business and integration of our new businesses. I want to personally thank our more than 9,000 employees worldwide, for their contribution to our success, and with their continuing support, our future looks very bright. It is truly a very exciting time for EnerSys. With that, I would like to turn it over to Mike Schmidtlein, to cover our results and our guidance. Mike.

Thank you again, John. Our third quarter net sales increased 13% over the prior year to $574 million . Primarily from acquisitions adding 6%, along with solid organic growth of 4%, and higher selling prices of 3%. On a regional basis, Europe's third quarter net sales increased 5% to $248 million compared to the prior year. Our sales in the Americas increased 25% to $281 million. While our Asian business decreased 5% in the third quarter to $45 million. On a product line basis , net sales for Reserve Power increased 10% to $277 million, while Motive Power continued in its solid recovery phase with an increase of 16% to $297 million.

On a sequential quarterly basis, third quarter net sales increased 5% over the second quarter, with 4% from acquisitions, 2% from higher volume, 1% from pricing, offset by 2% from weaker foreign currencies. The Americas experienced a strong sequential increase in revenue of 12%, while Europe was flat and Asia was down 8%. On a product line basis, our Motive Power business was up sequentially 6%, as the normal summer slow-down is behind us. Sales in our Reserve Power product line increased 4% sequentially.

Net sales for our first nine months of fiscal 2012, increased 19% over the prior year to $1.69 billion. On a regional basis, our European operations net sales increased 18% to $746 million. The Americas increased 22% to $793 million, and Asia, 15% to $152 million. The 19% increase for 2012, includes an increase of 9% at base volume, 3% from acquisitions, 3% due to pricing and 4% from stronger foreign currency translation. On a product line basis, net sales in Reserve Power increased 15% to $811 million, while Motive Power increased 24% to $880 million. Now a few comments about our adjusted consolidated earnings performance.

As you know, we utilize certain non-GAAP measures in analyzing our Company's operating performance, specifically excluding highlighted items. Accordingly, my following comments concerning operating earnings and my later comments concerning diluted earnings per share, exclude all highlighted items. Please refer to our Company's Form 8-K, which includes our press release dated February 8, 2012, for details concerning these highlighted items.

Our third quarter adjusted consolidated operating earnings were $56 million, for an increase of 11% in comparison to the prior year, with the operating margin down 20 basis points to 9.8%. Higher volume, cost-savings and incremental pricing offset the higher commodity cost we experienced in the third quarter compared to the prior year. Although the margin did decline 20 basis points, in the face of $25 million in additional commodity costs.

Excluded from our adjusted operating earnings for the third quarter, was approximately $2.5 million of highlighted items. On a sequential quarterly basis, adjusted consolidated operating earnings increased $13 million with the operating margin up 190 basis points from the sequential volume increases and price increases. Our Americas business segment achieved an operating earnings performance of 13%, versus 13.8% in the third quarter of last year, and 11.1% in the previous quarter. Primarily from the impact of rising sequential, organic volume. Europe's operating earnings percentage of 6.6%, was below last year's third quarter of 6.9%, but higher than the previous quarter's 6.0%.

While Europe's revenue was up 5% over the prior year on an 8% growth from acquisitions , its organic volume was down 5%. This decline in organic volume, coupled with the expected slow starts in Europe's recent joint ventures, has muted the other improvements in Europe's core business. Asia's operating earnings were only $3.2 million for the third quarter, reflecting the start up costs in Chongqing and the temporary closure costs in our Jiangsu Province facility. However, the reported operating earnings percentage in our Asia business segment increased in the third quarter of this year to 7%, from 6.7% in the third quarter of last year, and 1% in the prior quarter.

Sales in the quarter were $45 million. Down from the prior year and prior quarter as we refrain from pursuing low margin business and from the impact of the Jiangsu Province facility shutdown. If you exclude the business development costs for our new Chongqing facility and the India expansion opportunities , the operating earnings percentage in the Asia region would have been approximately 10%.

Our new central China facility in Chongqing started production in October. Our Jiangsu Province facility reopened in November. Despite this $0.5 million negative impact in the third quarter. In the long-term, this disruption in Jiangsu should be a favorable event, which reduces Chinese competition and pricing pressure buy eliminating sub-standard environmental operators. Our first nine months of fiscal 2012 adjusted consolidated operating earnings were $149 million, or an increase of 9% in comparison to the prior year. While the operating margin decreased 90 basis points to 8.8%.

The increase in the first nine months earnings was due to similar factors, as was discussed for the third quarter. Our adjusted effective income tax rate of 23% for the third quarter, decreased 300 basis points from the second quarter due to discreet items benefiting the third quarter. We believe our tax rate for the final quarter of fiscal 2012 will be between 24% and 26%.

As a result of our higher operating earnings and our second quarter share repurchase program, our adjusted diluted net earnings per share were $0.80 in the third quarter, which is a quarterly record. For the first nine months of fiscal 2012, adjusted diluted net earnings were $2.06, 16% above the prior year's $1.77. Key influences on our net earnings for the nine months of 2012, were the increases of net sales partially offset by higher commodity costs, net of cost savings and pricing.

Now some brief comments about our financial position and cash flow results. Our balance sheet remains very strong with substantial liquidity, secure and favorable debt facilities and a strong capital position. We now have $120 million on hand, in cash and short-term investments as of January 1, 2012, with over $300 million undrawn from our credit lines around the world.

We generated over $90 million in cash from operations in our third quarter. Our leverage ratio, which must be maintained below 3.25 times as calculated in our U.S. Credit Agreement, was 1.1 times, which includes our stock buy-back impact. Our net debt to total capitalization ratio was 20% as of January 1, 2012. Capital expenditures were $35 million in the first nine months of fiscal 2012, comparable to the $41 million in the first nine months of fiscal 2011. Our capital spending focused on our new facility in Chongqing, China.

Our plans for acquisitions , investments and added capacity and premium products, can all be met with existing cash and credit facilities. As we execute these plans we will continue to assess our capital structure for strength and efficiency. Our repurchase of over 5% of our shares outstanding, or 2.6 million shares for $58 million for the first half of the fiscal year, is an example of those plans. Our backlog, even when excluding recent acquisitions, remains at record levels. Our Motive Power organic sales in the quarter were up 8% year-over-year.

The worldwide industrial fork truck orders for December, were also up 8% over December of last year. In the Americas, fork truck orders were at their highest level for 2011 calendar year. This should bode well for Motive Power orders during the next several months. Reserve Power organic sales for the quarter were up 1% year-over-year, with positive growth in the Americas mostly offset by Europe's negative growth. We continue to anticipate a modest year-over-year increase in year Reserve Power sales, despite our decision to pass on some lower margin opportunities.

As we previously announced, the three transactions that closed in October, two joint ventures and an acquisition, strengthened our position in two geographic regions and in one advanced technology. Those transactions will have an aggregate investment of approximately $40 million. We expect to generate adjusted diluted net earnings per share between $0.86 and $0.90, in our fourth quarter of fiscal 2012, which excludes expected charges of $0.07 per share from our restructuring programs and acquisitions activities. We look forward to the opportunities we will have with these additional acquisitions, and we will continue to use the strength of our balance sheet to capitalize on opportunities in our markets. Now let me turn the

Thanks, Mike. With that I would like to open the line up for questions.

(Operator Instructions). Your first question comes from the line of Michael Gallo with CL King. Please proceed.

Hi, John.

Hi, Michael, how are you?

Good. Question on the margins. Obviously you lost a little volume in Europe . Do you still think you can get that operating margin to the 10% level, and conversely -- I mean obviously terrific performance in the Americas, 13% operating margin. You used to say 10% was the target in all regions . America's has been well above that now for several quarters. Do you think that target of what you can sustain is higher, or do you think that business is just doing about as well as it can do

No, it can do much better than it is right now. If you look at the headwind that what we have in China, with what's happened with the Austerity programs, and cutbacks, and everything else. I am fairly pleased that we are doing 6% year to date. It is not good enough. We need to get it to 10%. But if you look at the improvement from last year, the operating earnings are up 26% through nine months compared to last year. That's a volume increase of about 8% total -- a revenue increase, I should say, of 8%. Were making progress over there, but the headwinds that we're seeing from the economy is, specifically in the Reserve Power segment, is much stronger than we anticipated seeing. Given that bad condition, doing 6% to 7% operating earnings is better than some of the other people are doing in the industry. So I hope that we will see improvement in earnings in Europe going forward.

Then on the Americas, obviously been doing extremely well. Can you sustain those kind of 13% margins? It's obviously been doing well for several quarters.

Yes, as we said about a year ago, that when we were north of 14% operating earnings, that it was going to be very tough for us to hold that mark. In fact, it has come down some, and I think we can hold where we are right now and possibly do even a little better in the future.

Great. Congratulations on the results.

Thank you.

Your next question comes from the line of Steve Sanders with Stephens Incorporated. Please proceed.

Good morning, guys. Good quarter.

Hi, Steve.

First maybe for you, John. Like a lot of industrials you've left the easy comps. As we think about the incremental growth opportunities over the next couple years, you have given us some color on the size of the market in India and China, maybe $500 million or $600 million each. As you roll Latin America, Africa, India and China all together, what does that represent in terms of an opportunity? Where is your share, and what is realistic in terms of taking share in those markets over the next few years?

Well, I think we talked to the acquisitions this morning. You look at our presence. We now have a foot hold in the regions, as an example in South Africa. Our goal is to be a market leader there. I am not happy with just being a me too type player, a number three or number four. We have got to look at what it takes to be number one in those markets. We will be bringing in new technologies, new product offerings into the regions, and we will continue to look for acquisitions there. Generally speaking, we are about 50% market share of Motive Power in the Americas right now. Globally, we are in the mid 30% range in total. I would like to see each region in the world approach the norm that we have, the 30%, 35%. You can do the math on the markets that we've talked about and see the type of goals we have. Long-term, what does it take to double the size of our business? What do we have to do in a five to seven year period? I think it's keep doing what we're doing right now, taking care of customers, having new product out there, looking for accretive acquisitions and just growing the business the way we have.

We obviously saw some nice acceleration this quarter in the Americas. Things are obviously going well there. Was that primarily North America, or are you seeing significant pick up in your Latin American presence?

It primarily is in North America right now, but I expect that we are going to see big pick up in South America, with the acquisition that we have made. The market activities are taking place, specifically in Brazil.

Okay. Then on your outlook for the March quarter, I think your commentary suggested that volumes were kind of flattish. So pricing and catch up on commodities , are those the primary drivers of the sequential improvement versus

Well, those are a number of things, as you know going into a forecast like that, there are thousands of variables. We've looked at the volume. We've looked at everything we possibly can to come up with our best estimate, and all of the factors you mention are reflected in that estimate.

Okay and then, Mike, I may have misunderstood this last quarter. It looks like sequentially lead was a bit of a headwind, December versus September. That obviously turns around pretty significantly in March versus December. Is that correct?

I would say lead and overall commodities were -- actually for us just slightly beneficial, but to your point Steve, we will see lower commodity costs in the next quarter just based on what the LME has done. Your premise is correct though. Largely, let's call Q2 to Q3 was relatively flat, Q3 to Q4 you will see a benefit, and that's why you see our guidance going up 10% over this current quarter.

Okay. Great. Thanks a lot, guys.

Your next question comes from the line of William Bremer with Maxim Group . Please

Good morning, John ,

Good morning, Bill.

Fantastic quarter and even better guidance.

Thank you.

My first question is on the Americas segment. Fantastic top line. You called out in the queue, you pretty much had a little bit of a mix. My question is, with the 110 basis point decline there, how is capacity running right now in the industry? Secondly, how is pricing there?

I can't speak in total for the industry, because to be honest with you, I don't know what the capacity is of all of our competitors globally. I can only talk about ours, and from a capacity standpoint, I think we are right at the sweet spot, high 70s, low 80s depending on the product type. I want to be sure that we have upside capacity in place. We do anticipate that all of the bad news that we read about in the global economy, will some day turn around and we will be able to pick up additional business just through growth and markets. We also anticipate that we're going to be picking up some market share, because of better service and product performance to our customers. I think we are positioned fairly well right now. We have got some minor capital expansions, as planned. Looking out two to three years in most places , I think we are covered. There will be some areas -- in thin plate pure-lead, we obviously have to keep a very close eye on that one. For right now, we are in pretty good shape on

On the thin plate pure-lead, are you still operating close to full capacity?

After the $60 million investment that we made globally, right now we have capacity to take on additional business. Some of the things that we are looking at doing, I would guess 18 to 24 months out, that we may be looking at additional investments. That only depends on if we pick up those additional contracts. It is one that we keep a close eye on, and every time that we are talking to a new customer, we assess it. Right now, as I said, we are in good shape.

Can you give us an update on Europe right now? What are you seeing up there and how is the pricing there?

The pricing in Europe is about the same as it has been. It is a little tougher than it is in the U.S., but it is steady. The environment in Europe right now, Motive Power tends to be relatively strong. The Reserve Power business stays about the same, as it has been. Which as I covered in the last call, the telecommunication companies over there are not investing in 4G, like they did in the Americas. For a host of reasons. They have cut back on CapEx spending, so we are not seeing the growth take place in telecom or the UPS market in Europe, like we are in the Americas.

Finally, you know, adjusted operating margins in Asia hit 10%?

Close to 10, yes.

Close to 10. I know that has been your target with hopefully top line starting to ramp here. Where can we see operating margins going in the next few years?

Well, again if we can keep it above 10%, it is a good mark. That's what we are targeting for. I think that what we've got to really assess that we build a building, a world class manufacturing facility, that would be capable or will be capable of producing roughly $150 million in revenue. I want to emphasize, it can't produce $150 million today, because we built a building and put in part of the equipment. As the business grows, we will continue to put the equipment in to support that. We were in a situation a few years ago, where our block product, that's the 12 Volt batteries, we are not competitive. Part of the reason, was in a high cost region, that was part of the reason for building this new factory. We now have products coming out, we are shipping to customers that are more competitive, are very competitive. Margins are better on them. The bottom line to your question, we are going to grow on that market as fast as the market is growing, or maybe a little bit ahead of it, because of the cost structure we have in place. I am hoping that we can hit the 10% and stay north of there. That's our goal.

John, thank you very much. I appreciate it.

Our next question comes from the line of Elaine Kwei with Jefferies. Please proceed.

Hi, John and Mike. Congratulations on the quarter.

Thank you, Elaine.

How would you characterize the drivers behind the improved organic volume in pricing that you saw in the quarter? What, if anything, was surprising for you guys in the sources of strength, and where would you say you are at now in the cycle for both Motive and Reserve?

Well, Elaine, I think we saw the drivers for the quarter being mostly Americas, was the strongest . As we commented, Europe was a little weaker, actually was negative 5% on our organic volume. Asia was down, but we knew that for a couple of reasons, such as our facility in Jiangsu that was shutdown. So overall, we were pleased with it. I think you will continue to see a strong Americas segment. Right now we see Asia resurging with our added capacity, with our facility in Jiangsu back online. Europe, we see it neutral at best. A lot left to be decided as to what is going to happen in Europe, but we think we are well positioned there. Overall, as our guidance reflects, we are fairly bullish right

Could you just drill down, perhaps a little bit more, in terms of the strength in the Americas, and if that is from just increased economic or industrial activity overall, or more so from perhaps telco buildouts, perhaps maybe a little more color there?

I would say it is relatively balanced. We are seeing good strength in both Motive and Reserve markets, in the Americas. For largely the reasons you explained, on the continued buildouts, on telecommunications and data centers, and the Motive Power, as we talked about with the industrial truck orders being strong up 8% year-over-year . That continues to do well on all fronts for

Where does it feel like we're at, in terms of the industrial cycle for you guys, and on the truck orders, on the Motive side and then, as well, on the Reserve Power?

Are you speaking specifically of the Americas or are you talking global in that question?

Both if you could address that.

Well, when you look at -- if you look at our past run rate and how we have been running, I think there is upside to it. The reason I say that is, I am going to look at the industrial truck orders for the month of December and compare them with the prior three months. If you look at the Americas, the new truck orders for the electric fork trucks is up 19% in the month of December, compared to the prior three months. We would see the battery orders come in between 15 to 20 weeks after the truck order is placed. So if just for simplicity, if the new truck orders are up 19% and we are 50% of that market, you can do the math to see that we should see an up tick, theoretically, in our battery sales in the Motive Power segment going forward.

When you look at the same metric, globally, and that's December compared to the prior three months , it is up 9% on new truck orders. Now on the Reserve Power side, it is a mixed bag. In the Americas, year to date our Reserve Power business is -- and this is looking at nine months. It is up 13%. In Asia it is up 18%, and in Europe and Eastern Africa it is up 15%. That has volume, and acquisitions, and everything in it. We are seeing, on a nine-month basis, things are looking pretty good in both Reserve and in Motive. When you get behind some of the areas we have talked, in Europe it is right now, it is down, and it is staying down. But the good news is, it will come

Great. Are you concerned about -- it sounds like your view on Europe is it is just going to be a function of that natural evolution? It sounds like there could be potentially a harsher competitive environment in Asia there. What is your view on that? Is it more of a matter of sticking to your guns while competitors beat each other up on price and sort of staying out of that? Do you see that being challenging potentially for another couple quarters?

There are a lot of variables that go into that question. Let me try to answer it this way. If the Euro, as an example, goes back to $1.26, where it was at the low point, that makes buying products into Europe, coming out of China much cheaper. We will use that plant to support Europe, the Chongqing plant to support Europe, if the Euro drops way down. The thing of getting into price wars, is we're not going to play in that game. We'll walk from business of low margin. We have done it in the past. We are holding our earnings quite well.

Now, the other side of the coin, is that because of the crackdown in lead acid battery companies in China, a lot of companies have been forced to close their doors. They have not reopened yet. As you are aware, we had a plant that was down two months . Our plant is reopen. It is running. We have taken a financial hit with the factory being down two months. It is part of the reasons our numbers are down. Our numbers are down because of the Motive Power business. The Reserve Power business, they are okay. I think there is a lot of variables there , and if some of these competitors don't come back on-line, it is going to be less supply there, less capacity to support it.

Now the other side to it, the telecommunications in China has slowed up, compared to what it was running. They are not buying the same levels they were buying before, and I'm sure you read about the total Chinese economy slowing up. We are seeing some of the impact of that in our

Great. Thanks so much for color. One little housekeeping, operating expenses picked up a bit this quarter. Is that more of a one-time thing or is this a new level going forward?

I think it reflects the addition of some of the acquisitions that started in early October, for one. I would give that -- and part of it being the way those businesses are structured or their operating expenses, how they are recorded on their P&L versus the rest of the business. To your point on that up tick, I would attribute it more to the M&A activity.

Great, thanks so much. Congratulations again.

Thank you.

Your next question comes from the line of Michael Corelli with Barry Vogel and Associates. Please proceed.

Hi, good morning.

Good morning, Michael.

Just a question, first of all, about the recent joint ventures and the acquisitions you completed. I think you said about a $40 million total price for those, and I think you had said you expected somewhere around $100 million in revenues. Looks like there was about $30 million in the quarter. Was that all related to those recent JVs and acquisitions?

Well, you are right. We said $40 million was our total investment, and not all of that has been made at this time. If you look at our cash flow, you see a number about half that range. So there is some additional future investment that needs to be made. The sales from those three investments that occurred in our third quarter, contributed a little under $30 million, call it closer to $25 million on the quarter.

So is that $100 million run rate, a reasonable number to use?

I think so.

I would agree with that. If you take a company like an ABSL, where you are building batteries for satellites and spacesuits, that is a very cyclic business. You can get big orders in one quarter and then relatively small orders in the next quarter. When you look at the backlog we have in place, I think $100 million is a good number to use.

Was it accretive in the quarter? I know you just completed some of these.

In this quarter, I would say no it was not. That was a little bit of a drag, particularly on Europe's operating earnings, when you compare their quarter, to say where it was a year ago. A year ago, Europe did 6.9% of sales was op-earnings. This year was 6.6%. So a lot of that drag came from two things, the acquisitions and a 5% decline in organic volume. But that is not unusual. One of our joint ventures was essentially starting from scratch, so we expected that to be negative in the first quarter.

So we look ahead to next fiscal year and look at these acquisitions and joint ventures. Any thoughts on how we should be looking at fiscal 2013 revenues and accretions from these deals?

I think by the time you get to this quarter, a year from now, they will all be accretive . Revenue wise, may be a little stronger. It is not that we expect that they are going to cap out at $100 million in revenue. We would expect them to go stronger. By this time next year we would expect to be talking about two or three other investments and how they are

You have to look at a longer term strategy in what we're doing here. If you go back and look at EnerSys -- when I started with the Company. We were about $200 million in revenue and now we are more into $2.2 billion in revenue. We had a direction that we were a roll up vehicle. We have acquired 33 different companies, most in the lead-acid battery space. We decided a few years ago that there are other technologies out there , other storage solutions -- stored energy solutions that will make good returns or make money. What we are looking at doing in the lithium business, is duplicating what we did in the lead-acid battery business. That is buying companies that we can put together, and the sum of the pieces will be worth more than any of the individuals added up. In other words, we can consolidate these operations.

A lot of what we have done thus far, is on track to get to the ultimate plan of having a much larger lithium business that will make good returns. So we are consolidating companies together. Now that's the upside to it. In the long-term it makes sense. In the short-term, it is going to be very similar to what we did with the other companies that we bought in lead-acid. Many of them, in fact most of them, were not accretive right out of the chute. They were dilutive. It took us a year to two years, to get them turned around and get them so they were making money. I remember on FIAMM, when we bought that company it was $90 million in revenue and the first year we projected we would lose about $0.04. We lost $0.02, I believe it was that year. The next year we made about $0.10. That's the overall direction. We are looking longer term, not short-term on these

Just a question about China. I know that you have walked away from some lower margin business there, while at the same time starting up a new facility. Is there any issues with possibly having too much capacity there in the short term, or is there enough demand within China for those two facilities, or are you going to have to start sending some of that product overseas and if so where would you be shipping it to?

Keep in mind on the investment that we have made over there, that the building itself, as I mentioned before, is capable of producing $150 million. That's the building. That's the brick and mortar. The actual equipment will be put in there as it is needed. We couldn't possibly do $150 million out of that building day one. We are starting up right now. We are shipping product to customers in China. We are working plans to ship product out of that plant and other parts of the world, specifically more of it into Europe. When we get into a situation in Europe that the currency drops off and the Chinese product becomes more come competitive -- or because of the currency, we want to keep in mind that we have got facilities in China that are also capable of producing products. We are going to build the product wherever it is most cost effective.

The other point to make in this, is that when we built this new factory in part, we closed down a plant that was in the [Shanzen] area, because it was high cost. The other thing that we did was we designed some products that were more competitive in that market. In other words, we had European products being built in China that were not cost effective. It is a product redesign, a new factory going on -- being built to support not only China, but the rest of Asia and even areas outside of Asia, specifically in Europe.

Great, thank you very much.

Thanks, Michael.

Your next question comes from the line of Walter Nasdeo with Ardour Capital. Please proceed.

Good morning, guys.

Good morning, Walter.

Most of my questions have already been touched upon. If I could just go a little back into when you guys are out bidding business and running around the world looking for new opportunities, I know you said that you won't get into bidding wars and things like that and will walk away from low cost business or low margin business. My question is, how much of a premium does your name bring to the table when you are going up against some of these other companies, that either aren't as established as you guys are over a history or through reputational advantage?

You know, I don't know the exact percent on that. I would be guessing on it. I think the way we present it is this, when we go out to sell our product, we are not just selling a battery. There are those that sell just a battery to an end user. The way we view it is this, that we are going to provide the best value to the customers. In many cases this is because of a superior product. In other cases this is because of superior service. If there is something wrong with our products , we will stand behind them 100%. If they need to be replaced, we will replace them. We look at it that we are best value. When you look at the premium that we are charging , it is going to be higher than some of the other people. If you look at the value you are getting, we think it is significantly greater

Thanks. If I could just touch on your restructuring costs, how are we doing as far as winding those down?

Well, we still have next quarter, we said in our guidance that we expected to spend about $0.07 in restructuring and acquisition activities. The bulk of that would be in acquisition activities primarily coming from the plan that we announced in fiscal 2012, which was really related to reducing some sales, general and administrative personnel in Europe. So I would expect that we are going to spend a few million dollars yet, in this fourth quarter . We continue to look at our business to see where and how we can make it more cost efficient. That should wind down, for the most part, the programs that we have

Let me pick up a little further on that. When you've bought 33 different companies over the years, it presents a lot of opportunities for integration. We were talking about lithium and buying the individual companies. We need to put these together. We need to find out how we eliminate duplicate operations and reduce overall costs. We have also talked earlier about, when do we get to 10% operating earnings in Europe? I think it's going to take additional consolidation to take place in Europe. We are not going to rely just on volume coming back. We're going to rely on doing things more effective than we have in the past, more cost effective. I think you are going to see, as we continue to buy companies, we are going to continue to integrate those companies there will be some additional costs associated with that.

Good, thanks. That takes care me. I appreciate it.

Your next question comes from the line of Bill Dezellem with Tieton Capital Management. Please proceed.

Thank you. A couple of questions. First of all, would you please discuss how you are viewing the acquisition opportunities today versus three months ago and six months ago?

I would say there is no major changes. We constantly have no less than five to ten different things that we are looking at. I think that right now when you look at M&A activity total in this country it's down compared to what it was prior year. In fact, January was one of the worst months in a longtime. We continue to be very disciplined. We are not going to overpay for things . I would say there is no major change. Mike you want to add to that at

Bill, I would say nearly 50% of my time is spent evaluating , negotiating and working on these transactions. We do see a lot of opportunities , and that's because people know that we are inquisitive in nature, that we have the balance sheet to go out and finance these transactions. We are always seeing offerings being put in front of us. I don't think that we have seen a dramatic change in the multiples that sellers are looking for, necessarily. You do see a little more in lithium ion opportunities as the electric vehicle markets are drying up, perhaps, or not coming on as quickly as some people had expected. Overall I would say the level hasn't

Yes, I think That's a good point you brought up, Mike. Some of the companies -- there are companies out there that you could buy today for a lot less than you could have in the past, but frankly we are not interested in them, because we didn't think they had a future back then, and it is proving out to be that way, and their prices have come way down. We just don't have an interest in those particular companies. Many of them are in the lithium ion space.

That's helpful, thank you. Relative to China, you in the past had mentioned the pricing has been competitive there and that you have walked from business. But on this call you have also pointed out that the Chongqing facility is a lower cost facility, and I think if I heard you correctly, you said you will walk from business that doesn't have the correct margin. Given now that you have a lower cost facility, my question is does this begin to imply that you have an opportunity to be more competitive on price and yet still have the margin that you desire?

I think that is well stated. I think you stated it well, yes. One other thing, bill, this allows us, a broader offering of SKUs to bid on. Before we were somewhat limited on which -- if there were 30 different products or SKUs that were being put up for bid, we may have only had four to six that we were actually bidding on. So it expands our offering as well.

That's helpful. I want to take this a step further. Given the lower cost of the Chongqing facility, when we are talking at the pricing level, and you are in a bid situation, how much lower do you believe you can bid now and still maintain your margin?

For competitive reasons, I don't want to get into that at all. I think that is just -- we are opening ourselves up for some issues there that I prefer not to get into.

Understood. Thank you for your help.

Thanks, Bill.

Your next question comes from the line of Elaine Kwei with Jefferies. Please proceed.

Hi, John, just had a follow-up on your earlier lithium comments. Right now the industry seems [buy for cade] between the very large multi national producers like, LG Cam and Panasonic, and a number of much smaller companies. Most of which are struggling for scale and profitability. Do you see room for a mid-sized consolidated producer versus these large Asian manufacturers, and what would you see as some of the low hanging fruit for rationalizing the lithium industry?

You have to take a look at the large internationals and what they are going after and the markets are going after. I going to equate that to the lead-acid battery. You have those in lead-acid battery that build batteries for cars. We do very little in that. We have some contracts that we build a very high end battery. What we do is we pick up niche markets. When you are building lithium ion batteries for computers, we are not going to be competing in that particular space in the commercial area. I don't see us being in that because I don't think we can be competitive.

When you are looking at building them for hybrid vehicles, we can build a battery today for hybrid vehicles and I don't see us doing that. If you look at building a battery to put into a diesel submarine, or into a spacesuit, or into a satellite, which is not only the battery itself, it is all the testing, the electronics. The cost of the battery is actually a small part of the total cost. It is all of the other things that you have to go through. In other words, what we are focused on is the niche markets. We are focused on the military, the aircraft, the space , those niche markets where we can make good returns. To get in and try to compete with a company that is building millions and millions of cells, that's not what we are looking for. To answer your question, yes, I do see a real good opportunity for us in these niche

Great, thanks, John.

(Operator Instructions). Your next question comes from the line of Howard Rosencrans with VA. Please proceed.

Hi, guys. Thank you. A lot of my questions have been addressed. I did get on the call a little late. When you are addressing -- I believe it was a Jefferies question regarding the Americas and I didn't hear prior to that, but how much do you think this is really share gains coming from your beleaguered competitors, and where are we in terms of your pick up -- because at different times you have given up share to your competitors when you were unwilling on price. How much more in the way of share gain -- where do you feel we are in that juncture, particularly in the Americas which was just so phenomenal?

Well, let me just address the Americas. I don't think right now we are picking up major, major market share. We have in the past. I think if you look at sequentially, it is modest at best. A lot of it is the market has come back. I haven't seen the recent BCI data, but I don't really believe that we picked up -- we have picked up some market share, but it hasn't been as much as it was, let's say, a year, year and a half ago. Mike do you want to add to it at all?

No, That's a pretty accurate description. The strength of the American economy is, I think, fueling most of it. There may be a little bit of market share gain, but we don't view that as the driver of the America's growth right now.

Okay, that was a good call. Thank you very much and congrats again.

Thank you.

It appears to be no more questions at this time. I would now like to turn the call back over to John Craig for closing remarks.

Thank you very much for joining us today and everyone have a good day. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.