KEMET CEO Discusses F4Q2011 Results - Earnings Call Transcript

May.13.11 | About: Kemet Corporation (KEM)

KEMET Corporation (NYSE:KEM)

F4Q 2011 Earnings Conference Call

May 11, 2011 9:00 a.m. ET

Executives

Dean Dimke – Director of Corporate and Investor Communications

Per-Olof Loof – CEO

Bill Lowe – EVP and CFO

Analysts

Wamsi Mohan – Bank of America, Merrill Lynch

Sherin Grydnel – Deutsche Bank

Hamed Khorsand – BWS Financial

Unknown Analyst – UBS

Tony Cure – KeyBanc Securities

Ana Goshko – Bank of America-Merrill Lynch

Operator

Good morning. My name is Andrea and I'll be your conference operator today. At this time, I would like to welcome everyone to the KEMET Earnings Call for the Fourth Quarter ending March 31, 2011. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

I would like to now turn the call over to Mr. Dean Dimke. Mr. Dimke, you may begin your conference.

Dean Dimke

Thank you, Andrea. This is Dean Dinke, Director of Corporate Investor Communication. Good morning and welcome to KEMET’s conference call to discuss our financial results for the fourth quarter ending March 31 fiscal year 2011. On the call with me today is Per Loof, our Chief Executive Officer and Bill Lowe, our Executive Vice President and CFO.

As a reminder to you, our presentation is available on our Web site and should help you to follow along with the financial portion of our presentation this morning. Please go to kemet.com and click on Investor Relations tab in the top right portion of your front page. Once there, please click on the fourth quarter conference call link. That will bring up a few a slides that we will call to your attention when we are covering those topics.

Before we begin, we would like to advise you that all statements that address expectations or projections about the future are forward-looking statements. Some of these statements include words such as expect, anticipate, plan, intend, projects and indicate. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks, uncertainties and assumptions. Please refer to our 10K 10Q and recent registration statement filings for additional information on risks and uncertainties. And now, I’ll turn the call over to Per.

Per-Olof Loof – Chief Executive Officer

Thank you, Dean and good morning, everyone. We're very pleased to report that we had another strong quarter. Revenues coming in at $261 million. Non-GAAP gross margin was 25.1% of sales and non-GAAP diluted EPS was 49 pennies. Our fourth quarter ending March 31 remains strong with demand returning in the few areas that we saw a little drop off as channel inventories leveled out over the past couple of quarters.

For the fiscal year, we're reporting revenues slightly over one billion 18 million dollars and this represents a 38% improvement over last fiscal year. Over the same period, adjusted EBITDA increased by 176% to $196.1 million. These are truly remarkable numbers that represent a tremendous effort and success in the implementation of business strategies over the last several years. Reaching and surpassing $1 billion in total sales for the fiscal year is a significant achievement. For KEMET it's only happened once before and that was during the dot.com bubble more than 10 years ago.

Achieving that mark gives us the size necessary to explore opportunities and leverage our capabilities with suppliers and core customers. Perhaps most encouraging is that we reached the one billion mark while maintaining our cost structure, at reduced levels that we implemented to the restructuring over the last couple of years. This has enabled us to see healthy margins in all four quarters of this past fiscal year.

The consequence of many factors was necessary for us to be where we are today. Certainly, restructuring our debt was critical for strengthening our balance sheet. Also important in turning KEMET around was reducing our cost structure, which was a huge factor in increasing our margins back to healthy levels.

Equally important has been the move towards increased focus on growing our market share in specialty products. Additionally, this increased focus has enabled us to showcase the strength we have with our customer constituency and we think (inaudible) service model. The success we've had with our reverse stocks contributed to a return to the New York Stock Exchange, which of course in of itself is a milestone.

As encouraging as our results have been this past year, we're even more excited about how we have positioned ourselves for the future. Building on the progress we've made and using our current improvements as our foundation, I'm confident that in the near future our Film and Electrolytics business will generate the financial results that we did anticipate when we purchased (inaudible) and Optotromics [ph].

We've made significant gains this past year in regard to the important work and restructuring of our business, as we are moving so many equipment below cost regions around the globe. And progress continues in preparing for our new manufacturing operations in Simpson, South Carolina to come online this summer.

You may recall that this new factory was achieved through a matching government program. We have now over 50 identified projects for these new capabilities. In fact, we're already considering options for expanding these operations to meet the demand.

This past March we all witnessed the earthquake and tsunami that struck Japan. We are continuing to keep those affected in our thoughts. It was a truly devastating disaster and human tragedy. Like many businesses we have reached out to help, financially supporting the efforts being made through the Red Cross as well as helping some competitors source raw materials.

Understandably, there has been much concern by customers and investors on how this disaster may affect our ability to secure materials we need to produce our products. We currently have enough material on hand to meet our customer needs through the end of fiscal one or first fiscal quarter of this fiscal year and further strengthening our security of supply via the implementation of defined and counter measures of open sourcing of shortage risk items originating from Japan.

Additionally, to date we have not experienced a decrease in our customers demand for our products. Conversationally we are seeing what we believe to be the temporary and small increase in demand as customers have begun to hedge potential component shortages via alternate supply outsourcing strategies.

We continue to focus on improving our business capabilities through various initiatives that all fall under the one KEMET campaign. The one KEMET campaign is all about ensuring that we as the company are focused on the same goals and working with the same processes and systems to ensure a consistent quality and service that our customers have always valued and have known they can expect from KEMET.

This effort was launched to ensure that as we continue to grow we not only remain grounded in our core principles but that we use those principles, operating procedures and systems as the foundation from which to expand.

These initiatives include our global oracle software implementation, which is on schedule. Our lien and sig sigma (inaudible) revolution and our global customer accounts management system, which is now in place and growing.

We have now regained our momentum and we intend to build on that as we go forward. We're committed to building value for our shareholders and that is best accomplished through our primary focus, which is continued growth. As we have stated many times before we believe that there is not only room but a need for consolidation in our industry. We're interested not only in continuing to grow our business organically but we will move on non-organic opportunities if they bring value to our business and to our shareholders.

Opportunities to explore can be found up and down the supply chain as well as other entities that have space in areas that could compliment what we are doing and help us build growth and value. Obviously great care goes into fully vetting any such opportunity.

Simply put, we do not see our recent success as the final chapter to the turnaround of our company. We are closer to the starting point of revolution rather than the endpoint.

With that, I'll turn over to Bill to review the details of our financials for the quarter. Bill?

William Lowe, Jr.

Thanks, Per and good morning, everyone. I'll begin our review this morning on slide 3. If you're following along on the deck available on the Web site, which is income statement highlights. Net sales of $261.5 million exceeded our forecast for the quarter and were up 22.8% over last years same quarter of $213 million in sales.

Sales in Europe remained strong throughout the quarter and the America's distribution channel inventory leveling did not affect us as much as we had expected. Non-GAAP gross margin declined slightly to 25.1% compared to 27.4% in the prior quarter. Margins were impacted primarily by the increased costs of raw material in our Tantalum business.

We shared with you on our last call in January that rising Tantalum powder prices would impact our margins, both this quarter and next and you will note on page 3 that GAAP gross margin was 23.9%. The difference between these two percentages can be found on page 6 on the web slide and was primarily the impact of an inventory (inaudible) down of a portion of our (inaudible) inventory.

Our SG&A expenses were $27.9 million, which is up slightly over last quarter and running about 10.7% of revenue. SG&A expenses are up again as a combination of expenses relating to selling commissions and performance incentives. Looking forward to next quarter, our expectation is that SG&A expense should be in the range of $25 million.

Our GAAP adjusted net income was $21.1 million or $0.57 per basic share or $0.40 per diluted share for the quarter. As noted on slide 4, our non-GAAP adjusted net income was $25.6 million or $0.69 per basic share, which is $0.49 per diluted share for the quarter exceeding expectation.

Adjusted EBITDA was $44.4 million for the quarter, down slightly from $53 million in the December quarter and significantly up from a year ago of $25.5 million.

Referring now to Slide 5, our non-GAAP adjusted operating income was $33 million, up $21 million from a year ago in March 2010 but down as forecasted from the previous quarter ended December 2010.

During the quarter, we incurred $2 million on restructuring charges and for the full fiscal year, $7.2 million related to our ongoing realignment and restructuring of our Ethany business group.

Turning now to the balance sheet, on slide 8. We continue to build cash in the quarter. Our unrestricted cash increased to $152.1 million, up $24.3 million from December and up $72.9 million from the end of last fiscal year.

Cash generated from operations on the cash flow statement for the quarter was $38.9 million and $114 million for the full fiscal year.

Capital expenditures for the quarter were $15.4 million and were $35 million for the fiscal year, on the high end of our forecast we provided to you on our last call. CapEx in the next fiscal year will be between $50 million and $60 million.

Inventory was essentially flat versus our December quarter. We continue to maintain a balance of DSO days and receivables and payables, with DSO for receivables now at 52 days and payables at 42. Calculated by annualizing the current quarter’s net sales. Our bank revolver remains undrawn at this time.

Now looking out to the next quarter, which ends this June 30, we see revenue up approximately 5% to 7%, with a substantial contribution from our machinery business over this past quarter. And components up slightly.

Overall, our consolidated gross margin is expected to be comparable to this March quarter we're discussing today.

Now I'm going to turn the call back over to Per. Per?

Per-Olof Loof

Thank you, Bill. Now let's take a look at our business results by the three businesses. Ceramics, Tantalum and Film and Electrolytics as well as our three sales regions, the Americas, Europe and Asia.

I’ll start with the Film and Electrolytic business. Revenue this quarter was $88 million down approximately 1% versus Q3 with the gross margin of 14.8%. Revenue for the component business continued to improve, increasing by 5.8% over Q3.

Favorable impact on Manufacturing margins associated with pricing and cost initiatives were offset by unfavorable effect by material price inflation. New order rate improved by 3% in Q4 over Q3 levels and backlog remained stable through the end of the quarter. All plans remain fully loaded at greater than 97% utilization. Orders have continued to increase early in Q1 driving the book-to-bill ratio to approximately 1.2.

In our Ceramics business, Q4 revenue was down slightly by 1.3% over the previous quarter to $49.4 million, due to continued softness in our Asia consumer business as well as inventory corrections within our distribution channel early in the quarter.

Q4 gross margin and operating income both finished strong at 29% and 30% respectively, a lower revenue as progress continued on product mix optimization and manufacturing cost initiatives.

Distributed orders increased in March, improving the thirty-day book-to-bill ratio to 1.64. Backlog remains stable and capacity utilization for Q4 remained at approximately 75%.

On the Tantalum side of our business, we ended Q4 at $123.8 million, 1% below the previous quarter. The America's slowed during the quarter. Asia and EMEA remained strong balancing revenue for the quarter.

Inventories in our distributive channels in the America's now appear to be coming down to a reasonable level. Automotive, mobile computing and industrial segments continue to show strength. The book-to-bill ratio moved up to 1.23 for the month of March and the backlog remained strong. Nevertheless, we have seen deteriorating margins due to the raw material situation.

In the Asia-Pacific region, revenue for Q4 was $95.9 million. Market conditions remained strong in the areas of green projects, industrial applications and power management, telecom, tablets and smart phones. We saw seasonal softness in the consumer segment in February but the OEM; EMS channels are pulling more quantity after the Japan disaster in March.

We are projecting similar sales revenue for Q1 as business will be stable and we're implementing margins for both polymer and (inaudible).

The European market continued to be strong in Q4 across all channels and business groups. Component revenue grew by almost 13% quarter over quarter with growth across all dielectric types. The growth was fueled by alternate energy, automotive and strong distribution sales.

The European distribution channel continues to show strong performance and channel inventory is still in balance. There are some signs that the total European market is beginning to level off. The book-to-bill ratios for the region has flattened although during this time KEMET's book-to-bill remains positive as demand from the specific market segment mentioned above remains strong.

The America's region delivered another solid quarter driven by strong demand from transportation, telecommunication and industrial segments. During the quarter, we also began to experience the recovery of the aerospace and medical markets. Average selling prices continued to increase through the quarter, as we were able to pass on some of the increases in raw material costs.

Lead times for many products remain extended and our backlog grew throughout the quarter. We ended the quarter with a book-to-bill ratio 0.98 but have recently experienced a surge of orders placed in current book-to-bill ratio at 1.67. We expect demand to remain healthy as we move throughout the quarter.

Looking at the market trends, from a revenue perspective, we continue to show excellent balance across our market segments, geographies, channels and some business groups and we continue to see growth in our focused areas.

For example, we now have approximated of 9% of our revenues in what we define as the green segment. We've been very selective in what we have defined as green and we only count products ending up in wind and solar applications so electric and hybrid electric vehicles and in harvesting such as high-speed trains and power (inaudible) correction as well as smart metering.

And speaking of smart metering while the national debate goes on in regards of how to set up and manage a smart grid, we're involved and represented in the appropriate venues and conversations with the right players to support a road map for this future growth opportunity.

From an overall market segment perspective, we saw a slight quarter on quarter revenue increasing in component sales overall with the anticipated mix in the results. Telecom, industrial and military and automotive all increased. Medical was flat and we saw a slight decrease in data processing in the consumer consistent with normal seasonality. So there were no surprises here.

We continue to see a positive outlook overall. As an aside, transportation has been strong and we expect it to remain strong as long as our customers can get the parts they need that they're sourcing out of Japan.

We cannot be more pleased with the trends we've seen in our financial results and I would have to recognize the efforts of the global and I mean global; KEMET team has made to deliver these results.

This concludes our prepared comments and we’ll be happy to respond to any of your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Wamsi Mohan from Bank of America, Merrill Lynch

Wamsi Mohan – Bank of America, Merrill Lynch

Thank you. Good morning, Per. Good morning, Bill. Can you address the magnitude of the benefit from the alternate sourcing strategy post the disaster in Japan and what segment in particular did you see increased orders?

It's quite small actually. We've seen some impact in our ceramic business and the rest we've basically. We've seen a little bit of impact in our electrolytic business but nothing in the other segments. And it's really not that significant. So it's a few millions, that sort of thing. Quite a little bit.

Are you able to supply any substitutes for the aluminum electrolytic capacitors that have been in short supply post the tragic events in Japan? So, and specifically in the Tantalum business there are some case sizes which could be used as substitutes? I'm wondering if you're seeing any of that activity pick up?

Per-Olof Loof

We're not seeing a lot of that. Clearly, the one thing of course is that we do not; our business in Japan is miniscule if that. So our support into Japan is not there. So we've seen some questions asked whether we can support some of these dialectics you're talking about the, but I'm surprised at how much is actually, how the system is actually moving forward and how little effects it's had so far. But of course we can, we may see something stronger in the next quarter but so far it's been really very, very miniscule and of course for the quarter we're now talking about it has really had no effect.

Wamsi Mohan - Bank of America Merrill Lynch

Okay. Thank you. And then one quick question on the CapEx. It sounds like that's picking up a little bit at $50 to $60 million for next year? Can you address what the increase is, what you would attribute that to?

Per-Olof Loof

There's a number of, I'll let Bill comment on this as well. There's a number of areas but of course we are continuing our restructuring effort and that requires some additional CapEx. And of course, as a result of the situation we were in, as many company's we're actually down in our investment and now we need to start to build them back up again and if you look at KEMET historically, this is sort of historically reasonable levels of CapEx. I wouldn't say we're (inaudible) it out but it's getting back to a sort of normal level and still below our depreciation.

Bill Lowe

I would echo that if you took out the component of the portion that was considered restructuring, it probably nears very closely what kind of number that KEMET was spending previously before we pulled the CapEx back which is somewhere in that $45 million to $50 million range a year. So yes, it is going up but it's coming back to where we were previously. It also, we believe and we will watch this very carefully but we believe that the market conditions are relatively favorable and they will be favorable we think for some time to come and we need to prepare ourselves for those market conditions.

Per-Olof Loof

And we've talked a little bit about where we're adding capacity and where we're not and there's some CapEx for some of that capacity expansion. And you know, we're also as you know, we're expanding in the green space and then that requires additional machinery and tools and that's where the money's going.

Wamsi Mohan - Bank of America Merrill Lynch

Thank you, very much. I'll get back in queue. Thanks.

Operator

Your next question comes from the line of Sherin Grydnel with Deutsche Bank.

Sherin Grydnel – Deutsche Bank

Hi. Thank you. I just wanted to dig into the results this quarter and the implications for guidance. I think on the last call you had mentioned that there'd be about a two-percentage point impact from the machine business this quarter? I'm trying to understand how much did machining impact this quarter and then it sounds like the guidance is for revenue to be up 5% to 7%, helped a lot by machinery but components up slightly so I'm just trying to understand how much the core components business is going to be up?

Per-Olof Loof

Well I'll let Bill weigh in on this too but I mean the component business was up a little bit in the quarter and the machinery business we build in one quarter and ship the next basically so.

Bill Lowe

I think the machinery business Sherin came in really close to where we were estimating that we gave you guidance on for last quarter. As Per said in components was up. More than we expected as I commented in my comments that the leveling in the America's distribution channel did not affect us as much as we expected.

Per-Olof Loof

And Europe didn't happen at all.

Bill Lowe

And Europe didn't happen at all, so components were definitely up over what we expected this quarter. Machining came in this quarter relative probably close to where we were projecting it from that perspective. And then going forward, based on our comment for next quarter, machine will be up over this quarter. The breakdown of that increase is probably three quarters machinery, one-quarter components as far as up over this quarter. The components were up more this quarter than we expected already so the GAAP quarter to quarter will be less but from what we're expecting it will still be the same type of change.

Per-Olof Loof

But you know when we look at the trends that we're seeing right now. All the indications are and more than direction. Whether that's sales, today's backlog, this quarter backlog.

Bill Lowe

Backlog is up but the bill is up. Does that answer your question, Sheri?

Sherin Grydnel – Deutsche Bank

Yes, that's definitely helpful and it actually leads me into my second question, which is looking at the book-to-bill numbers, they look very high. I think ethany is 1.2; ceramics is 1.64, tantalum 1.23. Are you at all worried that there is potentially some extra ordering because of the tightness in the supply chain and how do you manage that?

Per-Olof Loof

The answer is yes. And I think you need to ratchet those numbers down. And I think a more realistic way a book-to-bill is basically I'd say in the 110 or slightly below 110 level. But when you look at, you forget these spikes that happen towards the end of March there. I think what we're seeing now though is a healthy backlog, a healthy order intake and all the indications are going in the right direction.

Sherin Grydnel – Deutsche Bank

Okay. And then just one quick clarification. One of the GAAP items was an inventory write off. What inventory did you write off?

Per-Olof Loof

It was tool crypt. so it wasn't component inventory. It was tool crypt. And that's why we called it out as a separate item because that's a fairly unique event.

Sherin Grydnel – Deutsche Bank

Okay. Great. Thank you.

Per-Olof Loof

You're welcome.

Operator

And your next question comes from the line of Hamed Khorsand with BWS Financial.

Hamed Khorsand - BWS Financial

Hey. Good morning, guys. Is it too early to foresee how fiscal '12 looks, how fiscal '11 turned out to be?

Bill Lowe

I'll let Per answer this but our guidance is one quarter (inaudible). We're not going to, we're aren't going to forecast for the full fiscal year today.

Hamed Khorsand - BWS Financial

Okay. I understand that but what I'm trying to get to is what kind of risks do you foresee coming into fiscal '12 with this ordering trend that came in as far as the quarter being a double bordering is likely.

Per-Olof Loof

I think there is, when you take out Japan. If you look at book-to-bill for a very short period of time it can guide you in the, way too much or way too little so I think you should take that, be a little careful when looking at and reading too much into those numbers but with the obvious caveat, that we don't actually know how the Japan situation will affect overall component, the components side will be. We are not so concerned about our own ability to manufacturer. We're more concerned with how this will affect other components that are necessary for the customers that we're selling to. And it's a little too early to read too much into that. What I can say though is that I would have thought that the effect we would have seen the effect to be greater than we're seeing at the moment.

And generally, my view is that, I think if you look at companies like Caterpillar for instance who reported good results and have good views going forward, that tells me that there is a healthy appetite for investments and all kinds of activities and that should mean good things even for KEMET. The fact that we're calling out $50 million to $60 million investment in CapEx kind of tells a story on its own. We will watch this very carefully and if we need to ratchet back we'll ratchet back.

Bill Lowe

I think we've taken the view that potentially if there's going to be a bigger impact from Japan it could occur in that July to September quarter knowing that many company's have had a certain level of inventory to allow them to produce this quarter. So we're all watching that next quarter as well as the rest of the world.

Per-Olof Loof

We of course have even though we don't sell much to Japan we buy a whole bunch from Japan so we have had of course to institute a lot of the new strategies to ensure that our sourcing strategies work and we've been able to, we think we've been able to be successful in ensuring that our supply is safe or relatively safe. And I think if we've been able to do that I'm sure other company's would have been able to do that as well.

Hamed Khorsand - BWS Financial

And my other last question is, just with CapEx it sounds like you guys are expanding capacity. What's the risk of just being the industry going through over capacity situation?

Per-Olof Loof

The capacity we're adding is in very specific fields and is not generally, not all across the board. It's not in consumer or commodity type products. It's very related to our green initiatives that I spoke about. It's related to automotive which is in itself sort of a green initiative and has to do with the new technologies that we're coming out with. So it's not across the board. And but I do think that there is going to be a need for more capability and we need to make sure that we are there with the capability to support our customers as we go forward.

Hamed Khorsand - BWS Financial

Okay. Thank you.

Operator

And your next question comes from (Unknown Analyst) of UBS.

Unknown Analyst – UBS

Hi. Thank you. Can you hear me?

Per-Olof Loof

Yes.

Bill Lowe

Good morning.

Unknown Analyst - UBS

Hi. I just had a couple of clarification questions. The book-to-bill numbers you gave. 1.2 for etheny, 1.64 for Ceramic and 1.23 for Tantalum. Can you clarify were they for the fourth fiscal quarter?

Bill Lowe

They were coming out of the fourth quarter, yes. They were coming out of the fourth quarter.

Unknown Analyst - UBS

Coming out of the fourth quarter but not for the full quarter?

Bill Lowe

Not for the full quarter but coming out of the fourth quarter.

Unknown Analyst - UBS

Got it. And then any sense on how those book-to-bill ratios are trending?

Bill Lowe

Yes. They're trending. As I said, you would expect them to trend down a little bit as we start working these orders and I think they're now in the as I said more than one to one basis now but still very healthy. Still higher than last quarter. As I said sales are up over last quarter. Backlogs up, bookings are up. Next quarter backlog up, et cetera, et cetera so all the indications taken together are heading in a northerly direction there.

Unknown Analyst - UBS

Got it and then Per, did you give a book-to-bill for your distribution channels?

Per-Olof Loof

I did not.

Unknown Analyst - UBS

Do you have that number?

Per-Olof Loof

I don't think we provide, do we provide that Bill? I don't think we do that right? Let me tell you this we were expecting a leveling off of our distribution business as we had seen the inventories grow and we saw that in the America's in the quarter. We had expected to see that in Europe, didn't see it. And America's is coming back strong in this quarter and Europe is kind of holding it's own so I think the leveling off or the slightly down turn that we could have seen in the distribution channel was less than we had expected.

Unknown Analyst - UBS

Got it and then Per, I think previously you provided a target for Etheny EBITDA to get to plus 24? Can you just remind us?

Per-Olof Loof

Yes we're actually; the guidance we gave a year ago was that the run rate next year at $6 million EBITDA a quarter, which means $24 million but run rate not producing it. We actually came in at $25 million of EBITDA this fiscal so we are year sooner, a year ahead of schedule plus we did that for the full year, not on run rate basis so we are way ahead of where we thought we would be.

Unknown Analyst - UBS

But do you think that's sustainable because I thought you said gross margins came down to 14% versus 19 last quarter.

Bill Lowe

Let me add a little bit to that. Of course the restructuring is not complete. So as we've said in the last couple of calls, a very large portion of that benefit is coming from volume returning to the levels that we're seeing today versus what we were seeing several quarters ago or a year ago. As well as various initiatives on various cost components and across the board. So, there's still restructuring benefit to come. If levels, if revenue levels stay where they're at. If you just make that assumption, forecast, just use it as an assumption. There is more positive impact to come from the restructuring from where we are today as well as expanding the margin. But my last comment would be that it would be and I’ve said this before, it's not linear. Things will come more in step changes now because as we make various changes going forward they'll occur at a certain date, a certain quarter and then we'll see the impact. So most of the impact from the remainder of the structure will occur towards the end of this fiscal year and will impact primarily the following fiscal year.

Per-Olof Loof

I think the, and thank you Bill for making sure that I stay on the straight and narrow here but, I think the point Bill was making and I think it's a very valid point, if you look at how much we've actually done in terms of a total restructuring plan for that business, we may be a third, we may be close, between a third or 40% so the rest is yet to be completed. And as Bill said they will come in steps and so if revenue stays where it is, we will expect to see a continued improvement in that business.

Unknown Analyst - UBS

And just my final question, have you guys ever given a sense of how big your machining business is?

Bill Lowe

Last quarter we actually said that, we actually gave a number. It does fluctuate up and down as we said because it's on a, the way the revenue is reported. We have not given that number. We've avoided giving that number. I'm sorry. We will evaluate how we talk about that next quarter because it does move up and down. And it was, we gave a percentage to you last call that we thought it would decline about a couple, two or three percentage points. Sorry, as a part of the decline we had forecasted they were about two to three percent of that and they came in at about that level. And we're expecting them to be up substantially over, almost double what they did this last quarter, in the June quarter.

Unknown Analyst - UBS

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Tony Cure with KeyBanc.

Tony Cure – KeyBanc Securities

Hi, guys. How are you doing this morning?

Per-Olof Loof

Good.

Bill Lowe

Good.

Tony Cure – KeyBanc Securities

Good. I just wanted to make sure I understand the book-to-bill obviously higher the end of the quarter but then normalizing here in through April and into May. Can you just remind me what the source of the spike at the end of the quarter was again? Just a little more color on that.

Per-Olof Loof

It was, the spikes were across the board actually but most profound in the ceramic business. I think that had to do somewhat with the Japan situation. I think that people have started to understand what's going to happen. It's normalized a bit but it's still very healthy book-to-bill in the ceramic business actually.

Tony Cure – KeyBanc Securities

Okay and then the comment you made earlier in the beginning of the call was that etheny should generate the financial returns that you expected when you bought them. Is that different than the restructuring program that you outlined pretty comprehensively or are those two in synch as far as your goals?

Seasonality in your bus?

Per-Olof Loof

I think you should think about, we have a big business in Europe so I think you should think about Q2 being slightly below our fiscal Q2, the September quarter should be down. But because we're so, the seasonality affects. But I think you'll see some effects of the summer shutdown. We didn't see that last summer so again maybe my data is old but typically we will see some shutdowns In plants and infrastructure in Europe and we will have some ourselves and our customers will have some. So you should basically put that into your model.

Tony Cure – KeyBanc Securities

And then one final question any updated guidance on tax rate for fiscal '12?

Bill Lowe

Don't see a change substantially. I think we've pretty much said, just assume a million dollars in taxes a quarter. That's probably an average. Some quarters are less, some quarters are more. But I think that's not a bad number to use. In some cases because of that, it will range between $2 million and $4 million is probably the kind of range you should use.

Tony Cure – KeyBanc Securities

Okay. Thank you.

Operator

There are no further questions at this time.

Per-Olof Loof

All right. Thank you for joining us this morning and appreciate your interest in the company. And we'll look forward to speaking with you soon again.

Operator

Thank you, ladies and gentlemen for participating in today's earnings call. This call will be available for replay beginning at 12 Noon eastern today through May 26 at midnight. The conference id for the replay is 61048588. Again, the conference id number is 61048588. The number for the replay is 1-800-642-1687. Again, that number is 1-800-642-1687 and 706-645-9291. Again, that's 706-645-9291. Thank you ladies and gentlemen. You may now disconnect.

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