ASH
#Thank you, <UNK>, and good morning, everyone.
In the first quarter, the Ashland team took important steps forward to build the momentum needed to deliver our fiscal year 2018 commitments as outlined during our November earnings call.
Each of our 3 segments showed growth in sales and adjusted EBITDA even before including the positive impact of foreign exchange and acquisitions.
As a company, aggregate price exceeded raw material inflation, asset utilization had a positive impact on earnings and adjusted SG&A as a percentage of sales was down 110 basis points versus prior year.
In addition, as expected, the integration of Pharmachem and the Etain composites facility, both made strong positive contributions to Ashland in the quarter.
As a result, in total, Ashland increased its sales by 20%; improved gross margins ---+ gross profit margins by 50 basis points; increased adjusted EBITDA by 25% and adjusted EBITDA margin by 70 basis points; and delivered adjusted EPS of $0.42, which includes a $0.04 per share negative impact from our tax rate.
Within Specialty Ingredients, the team focused on driving volume/mix gains.
As a result, we delivered solid top line growth across a number of our key end markets.
We saw strong growth in the personal care segment with sales up 5%, driven by significant gains in the biofunctional ingredients area.
New capacity has enabled us to begin meeting robust demand in pharma, where sales grew by 4% in the quarter.
And after a slow fourth quarter, we drove 12% sales year-over-year growth in coatings.
This growth was led by key customer wins and favorable order patterns.
From a margin perspective, Specialty Ingredients experienced $8 million of year-over-year raw material inflation in Q1, and that's approximately $5 million more than what's anticipated at the start of the year.
While this had a negative impact on margins in the quarter, we took additional pricing actions.
We made great progress in personal care, pharma and adhesives.
That said, pricing within the cellulosics portion of industrial specialty remains a challenge.
In the first quarter, the team drove favorable volume/mix but did not fully offset raw material inflation.
Moving to asset utilization.
In the fourth quarter of fiscal year 2017, Specialty Ingredients drove an $8 million benefit from our asset utilization programs.
This initiative had minimal impact in the first quarter of this fiscal year as we chose to complete multiple shutdowns during what is typically our slowest demand period.
The good news is that with these shutdowns behind us, we expect ASI's asset utilization to be strongly positive in the second quarter and for the remainder of the year.
The ASI team did a good job in managing cost during the quarter as SG&A increases were driven primarily by acquisition and currency.
Combining the base business and acquisitions, Specialty Ingredients revenue and EBITDA increased 14% and 11%, respectively.
Also note that excluding the dilutive effect of acquisitions and divestitures, EBITDA margins in the base ASI business was up approximately 50 basis points year-over-year.
In addition to gains realized in the base ASI business, the integration of Pharmachem is going well.
We have now identified approximately $15 million of annualized cost synergies to be realized by the end of year 2.
And after owning Pharmachem for just over 7 months, its EBITDA contribution, excluding corporate allocations, is approximately $35 million.
Moving to Composites.
The team turned in another strong performance.
Volume and mix was positive year-over-year.
The team drove strong sales increases in all key end markets and saw strong growth in North America and Europe.
The acquired Etain facility in France also made a positive contribution in the quarter and accounted for 10 percentage points of Composites' sales growth.
More impressively, the Composites team fully priced through to offset approximately $16 million of raw material inflation versus prior year.
Thus, net-net, the team did a great job of generating sales and earnings growth, with sales growing 32% and adjusted EBITDA increasing by 10%.
Moving to I&<UNK>
The team delivered a 30% increase in sales.
Volume and mix improved sales revenue by 7%.
Disciplined pricing drove a 16% increase in sales and contributed approximately $9 million to earnings.
Asset utilization in the business was up substantially, and that was driven by focused network optimization activities and turnaround timing, which resulted in a positive year-over-year benefit in Q1 by $8 million, and this gain will be offset by approximately $5 million of increased year-over-year turnaround expense in our second fiscal year quarter.
Together, I&S's adjusted EBITDA climbed to $16 million, up from near breakeven in the year-ago period.
All in all, Ashland's total sales increased 20%, and adjusted EBITDA rose 25% to $136 million.
Both sales and earnings were up year-over-year in all 3 reportable segments in the first quarter, setting the stage for us to reaffirm our full year outlook for each segment in fiscal year 2018.
I'll now turn the call over to <UNK>, who will share some important financial details from the quarter.
Thank you, Bill, and good morning, everyone.
Adjusted EBITDA in the quarter was $136 million compared to $109 million in the year-ago period.
In the quarter, we reported a GAAP loss from continuing operations of $0.12 per diluted share.
On an adjusted basis, we reported income from continuing operations of $0.42 per diluted share compared to $0.14 in the prior year.
Ashland's capital expenditures were $24 million during the quarter compared to $33 million in the prior year period.
Free cash flow during the first quarter was negative $48 million compared to negative $93 million in the prior year.
These amounts include $23 million in restructuring payments in the first quarter of fiscal '18 and $29 million of restructuring payments in the year-ago period.
There are several areas I would like to focus on this morning: First, the impact of the U.<UNK> Tax Cuts and Jobs Act on Ashland; second, an update on SG&A; and finally, our outlook for the second quarter and the remainder of our fiscal year.
Our effective tax rate for the first quarter after adjusting for key items was 18%, which was 8 percentage points higher than we forecast last November.
As Bill noted, this higher rate reduced EPS by $0.04 in the quarter.
The increase in the tax rate is primarily attributable to U.<UNK> tax reform enacted in late December.
Furthermore, as a result of the new tax legislation, we have reset our expected effective tax rate for fiscal '18 to be in the range of 16% to 20%.
The higher ETR for Ashland may seem counterintuitive to some as there has been so much discussion and focus on companies that would realize a tax benefit.
However, the increase in Ashland's ETR reflects the global nature of our business.
We have provided an overview of the impact of the Tax Act in the slide presentation posted to our website last night.
I won't go through all the details provided on that slide, but I do want to call out a few key provisions: First, we do not anticipate a material change to our cash tax rate, meaning the taxes we actually pay.
That range is expected to remain at 20% to 25%.
Second, Ashland will clearly benefit from the ability to repatriate cash that is held outside the U.<UNK> Just this past week, we repatriated over $300 million and used it to repay debt.
And while we will pay roughly $160 million of one-time repatriation taxes over 8 years beginning next year, these payments will be largely offset by lower deferred tax payments that were accrued prior to the new tax legislation at the old tax rate.
As we have said before, our primary use of cash for the next couple of years will be debt reduction to reach our leverage target of gross debt at 3.5x EBITD<UNK>
Keep in mind that this does not preclude allocating capital to bolt-on acquisitions or share repurchases.
Regarding SG&A, we remain committed to offsetting inflation with productivity improvements.
We have taken comprehensive actions in this area, including headcount reductions, shared service expansions, increased outsourcing and facility consolidation.
For example, we continue to leverage and grow our global business centers in Hyderabad and Warsaw.
In addition, we are consolidating our Columbus, Ohio campus footprint to be done in the June quarter, resulting in an annualized savings of approximately $6 million.
During the first quarter, for the corporation, adjusted SG&A year-over-year was up $20 million, almost entirely due to the impact of acquisitions and currency.
The remainder was more timing issues.
I will mention our full year outlook for each of the businesses in a moment.
However, I think it's important to reiterate that managing SG&A costs is a critical component to meeting our full year commitments.
Based upon our current full year forecast, less the impact of acquisitions, divestitures and currency, we expect full year SG&A for the corporation will be flat.
Turning to the full business.
As you saw in the updated outlook summary we released last night, we have reaffirmed our full year adjusted EBITDA outlooks for each of our operating segments for fiscal 2018.
Based on the change in the effective tax rate to 18% for fiscal '18, we have updated our adjusted EPS outlook for the year to a range of $2.90 to $3.10 per share.
This $0.30 change in the EPS range is due entirely to the new tax rate.
For context, if the new tax legislation were applied to fiscal '17, the full year effective tax rate would have been 18% as opposed to the reported 7%.
For the second quarter, we expect adjusted earnings in the range of $0.80 to $0.90 per diluted share compared to $0.70 per share in the prior year period.
This estimate assumes an effective tax rate of 18% based on the new U.<UNK> tax legislation.
Also note that our effective tax rate in the prior year quarter was 1%, reflecting income mix and certain discrete items.
Based on where we are today, we remain confident that we can generate free cash flow north of $220 million during this fiscal year.
Lastly, we are currently evaluating possible changes to the way that we make operating decisions and assess performance within Specialty Ingredients.
This process may result in additional changes to our management structure and how internal financial information is reported and used in making decisions about the business and certain of its components.
Consequently, we will need to determine if these changes will result in the need for further segmentation of Specialty Ingredients results for external reporting purposes.
We will provide an update on this evaluation once it is completed.
Now I will turn the call back over to Bill.
Thank you, <UNK>.
As outlined at our Investor Day last year, Ashland has a clear strategy to drive strong sales and earnings growth in fiscal year 2018 and beyond.
As a reminder, we established the following financial targets for fiscal year 2018 through fiscal 2021: We intend to grow adjusted EPS by at least 15% per year, improve Specialty Ingredients adjusted EBITDA margins to above 25% and generate more than $1 billion of free cash flow.
Our performance in the first quarter reflects important progress we're making.
While we have more work to do, we are working hard to accelerate our progress and increase our momentum.
The second quarter is an important period for Specialty Ingredients.
To that end, we expect to see sustained volume/mix improvements.
In the second quarter, we also expect to realize the benefit of pricing actions taken, particularly in personal care, pharma and adhesives, and take additional pricing actions in the cellulosics portion of Industrial Specialties.
Ashland margins in Q2 should also be positively impacted by our asset utilization programs as we begin to see the impact of previously announced closure of 4 operating facilities; our detolling efforts, which are gaining greater traction; and we lower turnaround expenses, as many of our plant shutdowns were completed in Q1.
And last, but not least, the ASH team is working aggressively to drive our Pharmachem synergy action plans.
From a composites perspective, we continue to see healthy demand in the second quarter.
Just last Friday, we announced another round of price increases to help offset raw material inflation, which resulted from reduced production from several styrene producers.
I&S has again raised prices.
The benefit of this action will be partially offsetting Q2 by the impact of the planned maintenance shutdown in Marl, Germany.
We view this as just a timing impact as we saw the offsetting benefit with the turnaround in Q2 ---+ excuse me, Q1.
In the aggregate, for the fiscal year, excluding acquisitions and currency, we expect Ashland's SG&A to be flat versus prior year as we continue to drive productivity programs.
Combined, these actions make us confident that we can deliver on our previews EBITDA guidance.
More specifically, we are reaffirming our guidance for Specialty Ingredients EBITDA, Composites EBITDA and I&S EBITD<UNK>
As for our EPS guidance, we are adjusting our fiscal year outlook to reflect the new tax rate.
This impact is estimated to be approximately $0.30 per diluted share.
Thus, our adjusted EPS guidance for the year is $2.90 to $3.10.
Fortunately, as <UNK> described, while tax reform will have an impact on our book tax rate, we expect no material change to our expected cash tax rate of 20% to 25%.
As a result, we believe we remain on track to drive more than $220 million of free cash flow in fiscal year 2018.
So in summary, all 3 of our operating segments remain on track to deliver their key financial targets in fiscal year 2018.
We have more work to do, but momentum is clearly building.
Fiscal year is an important year for Ashland, and we remain committed to delivering on results.
With that, I say thank you for listening and your interest in Ashland.
And I'll turn the call over to the operator to take your questions.
Thank you.
Sure, Chris.
This is <UNK>.
If you look at Pharmachem, I'll first talk about the 7 months.
So as Bill mentioned, approximately $35 million of what I'd call contribution EBITDA, so ex any corporate allocations that the business produced.
Over that period, got $2 million, $3 million, probably, of JV EBITDA that was not there.
The delta between that would be corporate allocations.
With Pharmachem in the mix, we basically apply our methodology for allocating corporate costs to each of the businesses, and Pharmachem participates in that.
So the way to think about it is, on average, $5 million, $6 million a quarter of corporate cost would be ultimately allocated to the Pharmachem number.
If you want to apply that to the first quarter, that would imply, call it, $10 million, $11 million-or-so million of EBITDA ex corporate cost basis.
Clearly, seasonality in the business during the December quarter, as we delved into it.
And so thinking about it on a full year basis, it makes us ---+ on an overall basis, pretty confident that we're going to be able to meet our targets within that business from an economics perspective.
And we very much remain committed to managing those SG&A costs.
And as I indicated in my comments, on an overall basis, we expect the corporation to be flat for the year.
So the movement of corporate costs is really just kind of pushing water around in the balloon if you want to think of it that way.
Sure, Chris.
Thank you, that's good questions.
And in fact, it's ---+ we do see the momentum building from a demand standpoint in these key product areas that you mentioned out of Doel with Benecel and also out of our Hopewell expansions.
And Klucel is one of the products.
And these are some of our most differentiated products.
And with that, really, the gains that you see in Q1 are the result of those activities.
And we see demand building in those areas.
Our customers who we weren't able to supply effectively or consistently now understands and have the confidence to have more of that business with us.
And so I would say that a significant or a great amount of our current and targeted growth are in these more differentiated platforms.
There really, in these areas, are very few competitors, and our products are differentiated even by the nature of how they perform.
So we still have plenty of upside opportunity as it relates to utilizing that capacity.
In fact, we're still in the process of qualifying our additional Klucel capacity with customers.
So while we're able to use it today, we'll be able to use it more and even improve the mix running through those assets as we go forward.
Basically, I think what it does is it has taken the cap off in terms of limitations, at least from a production standpoint, on our growth in the pharma market.
Yes.
We saw really good volume/mix out of that business in the quarter.
Very strong performance.
And we've been bullish on pharma.
We remain bullish on pharma.
And really, it just comes down to the team executing on the new capacity and continuing to drive that value through the system.
Yes.
<UNK>, it's a great question, and its going to take us, I think, a good bit of the fiscal year to work through that.
The new tax provisions really pile a lot of complexity on top of what was already there.
The idea I think within '18 is really, in fact, not true, and so we have to work through that.
Each provision ---+ each new provision of tax reform is going to drive, in some cases, a benefit and in some cases, not.
A couple of small examples.
There's interest deductibility.
That's probably going to be something that we have to deal with because not all of our interest is likely to be deductible in the U.<UNK> However, we have new provisions around CapEx deductibility as the capital is spent in the U.<UNK> and so there's offsets to be had there.
And those are just a couple of examples of really many that our internal team and our third-party advisers are working through as we try to figure this out.
And I think a lot of companies are, frankly, in the same boat if they're as global as we are.
And so what we'll commit to is certainly providing an update as soon as we have one.
I think the way we think about it, based on where we are right now, I wouldn't expect the range to get worse.
And I think it remains to be seen if the ETR range can, in fact, improve from the 16% to 20% that we're currently using.
And again, we see no material impact on the overall cash tax rate absent the one-time repat cost that we'll be paying over 8 years, which is largely offset by a reduction in deferred tax liabilities due to the lower rate.
<UNK>, why don't you speak to the seasonality, and I'll speak to the ramp, if you want.
Yes, yes.
I mean, really, what we should see is, frankly, positive seasonality coming out of Q2 and Q3, which basically gets at the ramp concept as well.
Those are typically the strongest 2 quarters within ASI.
And frankly, Q4 isn't typically far behind.
If you look at it on an overall basis, Q2 to Q3 will be our strongest quarters.
And so it really comes down to the team continuing to execute on an overall basis.
I think manufacturing is stepping up and doing what they need to do.
We've seen good benefits from that.
We should see that accelerate through the course of the year.
The volume/mix equation is very positive.
And really, I think it comes down to executing fully on pricing initiatives and driving that through the system, and that's primarily in the industrial area.
<UNK> stated it very well, so no need to repeat it all.
I think the parts that we feel very good about, of course, is that we're seeing improvement in the volume/mix area with a particular focus on mix: good SG&A control; manufacturing, we see the momentum building there.
And what's really going to be key for us is to make sure that, especially in the cellulosics portion of the Industrial Specialties business, that we drive the pricing needed to fully offset raw material inflation.
By the way, they were the group that saw the biggest impact from the increase year-over-year.
So just in general, within ASI, some of the key raw materials are butane, which can go into BDO, of course; cotton linters, which ---+ of course; and wood pulp, which goes into cellulosics.
You have other key materials.
Polypropylene ultimately works its way through as well.
So those are some of the key raw materials that have been impacted, if you will, in the, we'll say, last 6 months or so.
And just to put it in perspective, we ---+ with the way things are right now, the raw materials that we've realized to date that ---+ versus prior year, raw material cost will be up about $26 million year-over-year.
That's assuming that prices don't go down or they don't go up further.
But that's the amount that we need to overcome with our pricing activities.
Two questions.
Can you flesh out a little bit your thinking about the ASI asset utilization and how much of it ---+ how we should think about the benefit in the back half of this year compared to in next year.
Is it a steady cadence.
Or is it ---+ or a bit of a hockey stick effect.
And secondly, can you give us some sense of the trends you're seeing in your construction and energy markets.
Sure.
I mean, from an asset utilization standpoint, we will see from quarter-to-quarter some variations just because when you do have a shutdown in a quarter, right, it depends on whether you had one in the prior year.
But in general, we really break it out into several key buckets fairly straightforward: one is spend and the other is absorption.
For better utilizing the assets, that lowers the cost across all units.
And of course, if we can reduce the overall spend rate, that's another way to make improvements.
Kind of numerator and denominator math there.
And so we're focused on, for example, in the cost portion, being better, more precise with our shutdowns, making them shorter in duration and focusing on reducing their costs and also consolidating facilities in our footprint where possible.
So we have Lean Six Sigma programs, which are also helping not only to drive productivity but to reduce the cost.
And then you have the absorption effect, which really comes from selling incremental volume to the system.
And in that regard, what you're seeing so far, you saw in Q4 and we expect to see in Q1, you will see really more of the impact of managing the cost side of that equation.
Ultimately, we expect to and need to drive greater volume growth.
While our focus is on mix over volume, we do expect to see our business grow.
And with that, that will help on the absorption equation.
So I would say overall, we anticipate it continuing through this fiscal year.
Again, it may be a little lumpy from one quarter to another, and there's no reason why it shouldn't continue next year at a rate, I'll say, at least at this point, in the similar kind of fashion.
And from a market standpoint, in the energy area, we saw demand increasing in the U.<UNK>, which, of course, is good news.
In Europe, it was a little bit softer.
And overall, we saw construction down versus the prior year.
Sure, sure.
And this is how I would characterize it as.
We have a lot of very differentiated products and a lot of contracts associated with those.
And some of those contracts, we have cycles to them.
So it takes a little time to pass those prices through ---+ or those raw material inflations through with some of our larger key customers with some of our more differentiated products because of that structure.
But in general, I think it's fair to say that in the spaces, say, portions of the construction market, maybe the mid- to lower end of the coatings market, you do see a little bit more global competition, and we're trying to fight the right balance between having the right mix, the right volume but also offsetting the raw material inflation.
And I would like to highlight, not in ---+ as an excuse or anything like that, but this is where we saw really significant increase in the quarter versus what we anticipated coming into the quarter in terms of raw material cost.
The team is out there working the equation hard.
And frankly, as <UNK> alluded to, as we look forward on the business, we run a highly integrated ASI business today.
We're going to increase our focus on the strategic imperatives in this part of the business, where, to the extent there is some greater cost sensitivity, we're going to be more aggressive, working to make sure that we are truly competitive on a global scale regardless of the segments that we're competing in.
Sure.
So ---+ and we really wanted to highlight the turnarounds mainly because given the timing, it could look, based upon Q1, like we should have a number that's much bigger for the year-end.
But again, you do need to factor in now we'll have ---+ versus last year we'll have this turnaround in Q2.
But overall, we have been able to consistently increase prices in the marketplace kind of step-by-step.
Our last increase was in January and taking place ---+ or taking effect in February.
Since then, actually, one of the other suppliers in the market is, out of force majeure, making the supply/demand dynamic even tighter.
And so we want to make sure that we're appropriately and fairly evaluating our product, and we're working hard.
We don't want to presume that there's upside at this point because we need to see how the dynamics play out, but the indications are now that pricing is holding.
We've actually seen it now translate not just in BDO but into the derivatives, which is an important element of, if you will, that equation.
And again, I just bring it up because it's a point to note.
And your information is as good as mine.
You all read about the tightening that's going on in terms of productions and emissions, standards in China and the impact that's having on, whether it be cost or excess energy and operations of facilities.
And we've been studying that and looking at that, and it's going to take some more time.
But that, I'll say, has had an impact up to this point because we haven't seen some capacity that we otherwise might have predicted would come back online at these prices.
And it may mean that there's some further upside to the cycle just by nature of capacity limitations coming out of the region.
I don't want to make too big of a deal out of that because that's uncertain.
It's just something that we're watching very carefully.
Yes.
And we'll ---+ obviously, we'll commit to.
As we get through Q2 and we get more visibility into the rest of the year, clearly, we'll update our outlook for the business based on the most current knowledge that we have.
And so you can expect to hear from us on the next call relative to that.
Yes.
In the quarter, in Q1, the turnaround expenses were about $2 million higher versus prior year.
And we do have turnarounds really throughout the year.
The ---+ you have ---+ I'll put that in 3 buckets: You have the large planned turnarounds; you have kind of shorter maintenance shutdowns; and then, you do have, from time to time, unplanned outages.
What I would say is that the great majority in ASI of our planned major maintenance outages have been completed here in Q1, and so that's why we see some upside associated with that going forward.
Right, and thanks for that question.
There's 2, I'd say, important parts in answering that, and one is, I recall, as I'm sure you did, a lot of concern coming out of our last quarter because coatings was flat.
And we had said that you shouldn't read too much into it because you do have some timing of different order patterns.
And I'm willing to acknowledge that while we're on the positive side of that coin here today, some of the orders that maybe we didn't see in Q4, you see in Q1, and that helped to create a very robust growth rate.
At the same time, this is an area where the team has been focusing extensively on trying to expand our position given our available capacity, frankly.
And there's been a lot of work on the international front, a lot of work in the Middle East and in the rest of Asia to help drive new customer wins to improve our volume/mix equation and better utilize that capacity.
So it's really, to me, a combination of the 2.
So Jeff, it was about an offset.
You're right, the Pharmachem volumes were modestly larger, I would say, than the exited JV volumes.
Keeping in mind, construction volumes tend to be pretty high for the value.
On an overall basis, the base business was pretty flat.
And just to provide a little more color around that ---+ and this is followed very closely and very logically with the mix impact we saw, the higher-value pieces of the business, care, Pharma & Nutrition and coatings, contributed strongly to the mix equation and also from a volume perspective.
And to provide just a little bit more color to the overall equation, we think about the business oftentimes as a consumer business.
And in an industrial business, we talk about it that way.
Consumer volumes tend to be much lower in higher-value.
The industrial volumes tend to be much, much higher and obviously, lower value.
Roughly ---+ it's roughly a 30-70 split between consumer and industrial.
So the point of that is increases on the consumer side really drive a lot of value to the overall equation, and the industrial is going to move around between the lower-value materials and the higher-value materials, coatings being typically the highest-value material we move on the industrial side.
And that's really how the overall equation works.
So Jeff, just to add a little more color.
And I think this, hopefully, will bridge with prior conversations that we've had about the business and some of the changes that we've been making.
We've really expanded the focus by the market-facing commercial units to focus on their commercial contribution.
And that is the combination of the impact of volume; the impact of mix; the impact of pricing versus raw material; and ultimately, the absorption effect versus what's planned in our budget.
And the equation that we hold our team accountable to is the aggregate of that, and we've actually modified our sales incentive programs to mirror that.
So we would rather drive a richer mix and earn more money than simply drive volume.
And on the other hand, if we can drive volume and mix at the same time, all the better.
And if we can do that while getting price, that's the best of all worlds.
But it's a combination that we look at in the aggregate, and that's what we hold our commercial teams accountable for.
And in the individual levers, there's some flexibility for them to determine with specific customers or in specific marketplaces what's the best formula to get there.
So that's just how we're looking at it, and I think it may be reflective in ---+ and of your broader question.
Don't know exactly what the highest tonnage is.
Nameplate capacity on our 2 plants is 160,000 tons on a combined basis.
It's 100,000 for the Marl, Germany facility.
60,000 for the Lima, Ohio facility.
We have, in the past, produced in excess of that.
You can think about it in terms of what's possible.
165,000, 100,000-or-so tons is probably about the number.
But that's a generalization, but that's pretty close.
The difference between what we sell and what we produce is really driven by the internal volume that we use as raw materials to produce the PVP and the VP polymers and changes in inventory, which can move around by 5,000, 10,000 tons depending on what demand is, where demand is and time of year and that sort of thing.
That's ---+ those are really the 3 components.
It's production, internal utilization and changes in inventory.
It certainly would be our objective.
First priority is to serve our need internally; And then, obviously, the second priority is to make as much and sell as much as possible over and above that.
Sure.
I think from a revenue standpoint, it was around 12% in the quarter, just to make sure we're taking about the same numbers here.
I would think that in the 3% to 4% range, on average, would be a reasonable number.
I would say that there are opportunities in the coatings markets in regions that we don't support throughout the globe to help to use or leverage some of our excess capacity.
So we could see some additional growth as a result of that.
But if you look at our base business, the core customers on geographies that we serve, I think that 3% range ---+ maybe 3% to 4% would be the targeted range.
We ---+ I wouldn't say that that's an unreasonable outlook.
That being said, as we've seen, especially over the last few quarters, you do see some volatility that grows quarter-by-quarter.
This is the time of the year where we're going to begin to get a much better read with what our ---+ if you will, many of our core coatings customers, is it going to be a good season for architectural coatings with our primary, if you will, main customers.
Or will it be a slow one.
I think last year, we felt that it was comparatively slower, didn't feel robust.
Obviously, we're cautiously optimistic that, that will be more positive.
But that will certainly help to determine what it will be really up towards the higher end of that range that you're thinking in your mind or more towards what we might consider to be kind of an industry average that I was describing just a minute ago.
So we'll ---+ we should have a good read on that over the next quarter here, I would think.
Well, certainly, the supply/demand dynamic has moved towards a, we\
Yes.
<UNK>, the team has been, I would say, pretty aggressive in the market and appropriately so as we've seen outages in various places and it's caused tightness.
It is a regional business, as you've indicated.
And clearly, those things have helped.
The environmental restrictions around coal-fired plants in China are, we believe, helping that business and going to continue to help that business.
I mean, one of the positive signs, and Bill mentioned this earlier, that we've seen is some pricing power in the derivatives side.
The pricing around BDO has been steadily increasing for the last 4 to 6 months, let's say.
And ---+ but we have not seen that until very recently in derivatives such as NMP and THF.
We're now seeing pricing opportunities in those derivatives, which I think is ---+ it's a positive sign.
So more to come as we work through the next few months of this business.
But rest assured that the team is very attuned to what's going on in the marketplace.
They're very experienced, and they do a great job managing this business and the customer base.
So in terms of the $5 million, I think the thing to keep in mind is that is inclusive of $5 million, $6 million of corporate cost allocation.
So on contribution basis, you should think of it as, call it, $10 million to $12 million for the quarter.
And that's what gets us to the $35 million of contribution ---+ margin of contribution to EBITDA for the year.
We would expect both the March quarter, June quarter to be stronger.
So as we move into the warmer months of the year, we would expect that to improve.
Yes.
I think the key, Jim, is like we said, if you're ---+ if you net out the (inaudible) and the role of the corporate allocations through 7 months, they're about $35 million.
And if you just extrapolate that with ---+ as we mentioned, there was some seasonality in Q4, that puts you right at about the run rate that you're talking about there, more or less.
So that's basically the math associated with it.
And as we look at the results in what will be our Q2, what would be a run rate to get us to the $60 million from the $35 million will have the same dampened effect from the reallocation of the corporate expenses that we put on the business, just like we put on all businesses.
And as I mentioned that, just want to emphasize again what <UNK> has said in ---+ earlier in this call, which is it's important, as we talk about, we have a normal allocation methodology.
But ultimately, our spend across a corporation is expected to be flat year-over-year.
And so that's not incremental and increased.
And I'm excluding FX and the direct cost of acquisitions.
But we're not increasing our spending.
We're ---+ it's just the way it gets allocated across the businesses, and Pharmachem is part of Ashland now.
So we ---+ last week, we did repatriate a little over $300 million, and we reduced debt with that cash.
As you will recall, we talked about, as we did the Pharmachem acquisition, the potential to move a large portion of that term loan A offshore and use non-U.
<UNK>
cash to reduce that debt.
That ---+ part of that was, in fact, included in our full year outlook from an interest expense perspective.
So there are a couple other components.
So we now have largely unfettered access to cash globally, although there are pockets where it's still difficult to get cash out of.
China is an example.
And so what I'll say, there's probably some upside in our overall interest rate range for the full year.
Assuming availability to that cash, absolutely, there's upside in that.
I think the caveat to that would be ---+ we have about, call it, around $700 million of floating rate debt.
And the remainder is fixed rates bond.
So obviously, the coupon doesn't move on that.
But to the extent LIBOR were to put some pressure on rates, then that could obviously be ---+ go the other way for us.
So we will continue to update throughout the rest of the year.
We're pleased to have access to the cash.
We've got another couple hundred million that we feel like we'll be able to repatriate over the course of the year.
You should expect us to reduce debt with that, which not only reduces absolute interest rate expense.
It also reduces interest rate risk, which is also a positive.
So that's just ---+ that's where we are right now.
