Unifi Inc (UFI) 2012 Q4 法說會逐字稿

Good morning. My name is Terese, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unifi fourth-quarter and year-end earnings conference call. 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). Thank you. I will now turn the call over to Ron Smith, CFO. Go ahead, Ron.

Thanks, Terese, and good morning, everyone. Joining me for the call today is Bill Jasper, our Chairman and Chief Executive Officer, and Roger Berrier, our President and Chief Operating Officer.

During this call, we'll be referencing a webcast presentation that can be found at Unifi.com. The presentation can be accessed by clicking the fourth-quarter conference call link found on our home page.

Before we begin, I need to first advise that certain statements included herein may be forward-looking statements within the meaning of federal securities laws. Management cautions that these statements are based on current expectations, estimates and our projections about the markets in which the Company operates. Therefore, these statements are not guarantees of future performance and involve certain risks that are difficult to predict.

Actual outcomes and results may differ materially from what is expressed, forecasted or implied by these statements, and I direct you to the disclosures filed with the SEC and our Form 10-Ks and 10-Qs regarding various risk factors that may impact these results.

Also please be advised that certain non-GAAP financial measures such as adjusted EBITDA will be discussed on this call, and a non-GAAP reconciliation can be found in the schedules to the webcast presentation.

Before we begin to get the financial details for the quarter, I'd like to turn the call over to Roger, who will provide you with an overview of the markets and raw material trends. Roger?

Thanks, Ron, and good morning, everyone. The positive recovery signs that we saw throughout the economy during the March quarter generally continued in the June quarter, with some slight retail softness in May and June. Fortunately, the declines have been relatively modest, and the supply chain is in good shape, thanks to the inventory destocking that took place earlier in our fiscal year.

Retail sales of apparel in the U.S. increased 4% in the June quarter compared to the prior-year quarter. However, retail sales of apparel decreased by 0.5% in the June quarter compared to the March quarter, which is a reflection of the overall retail softness mentioned earlier.

Inventory levels at retail and within the supply chain have continued to stay relatively flat, with retail inventory days holding at 72 days in the June quarter and the overall inventory level in the supply chain holding at 66 days.

One trend that we are watching is the inventory days at apparel producers, which has risen from 51 days in the prior-year June quarter to 55 days in the current June quarter. This is potentially an early indicator that inventory velocity in the supply chain is slowing down, and we are prepared to adjust our production plans in order to maintain our inventory and working capital levels and align our production levels with demand. Today, our future order bookings and current sales rate is consistent with the June quarter, so we will be monitoring this closely and will react quickly, if necessary.

During the June quarter, we also realized the benefits of the Company's decision to adjust inventory in the December quarter by curtailing production to levels below our sales rate. As a result, we were able to maintain inventory levels from the March quarter with a 5% increase in sales. This stability had a positive impact on our gross margin in the June quarter, as our facilities were able to operate at higher utilization rates, which helped lower our unit costs of production.

Subsequent to the close of the June quarter, the Company entered into a first amendment to the yarn purchase agreement with Hanesbrands, Incorporated, that extends the terms of the agreement through calendar year 2013. The amendment also includes a provision that allows both companies to agree to extend the term of the agreement for two one-year periods. This is a great partnership for both companies, and we look forward to fulfilling a substantial portion of HBI's product requirements in the Western hemisphere throughout the next 18 months and beyond.

The year-over-year trends in building permits and housing starts remain encouraging and were helping to drive gains in the furnishings segment. Retail sales for home furnishings increased 7.9% in the current June quarter compared to a year ago, and retail inventory days is at 105, which is lower than the year-ago level of 113 days.

Retail sales of home furnishings in the June quarter were flat compared to the March quarter. While we have seen some improvement in the furnishing segment for office and home, overall retail sales remain below prerecession levels and remain challenged by the overall economic condition.

The automotive market in the US remains a bright spot, with sales increasing 16.2% in the June quarter compared to the prior-year quarter and increasing 9.7% compared to the March quarter. Auto industry executives say they remain optimistic about the long-term view in the automotive segment, despite the challenges in the broader economy, in part due to low interest rates and inherent demand from consumers that are driving cars that on average are more than 10 years old. We continue to monitor updates on the sales activity and inventory velocity within the automotive segment.

Turning to our global business, the currency rate for the Brazilian real was nearly 2.0 to the US dollar in the June quarter, which reflects a change from the 1.59 average real level in the year-ago quarter. The ongoing weakening of the currency in Brazil has continued to make domestically produced goods more competitive with imported fibers, fabrics and finished goods and has led to year-over-year volume gains for the Company in the June quarter from our operations in Brazil.

We continue to see improvement in our sales activity and domestic production in Brazil and expect quarter-over-quarter improvements to continue into fiscal year 2013. We believe that with an exchange rate of 1.80 real to the US dollar, or higher, domestic Brazilian production can compete with imports, and we should continue to see improving results for our Brazilian operation.

In terms of US synthetic apparel supply share, the North American region is projected to hold share at approximately 18% for the fourth consecutive year and grew approximately 6% on a unit basis. This is further evidence of the stability of the North American synthetic apparel supply chain.

In regards to our business in China, though we saw a considerable increase in our volume in China in the June quarter compared to the March quarter, our year-over-year volume decreased, as orders from one of our largest European customers continues to be weaker than anticipated.

The supply chain in China is experiencing fragile confidence, high inventories and overcapacity, all of which have contributed to a much lower than expected level of business across the polyester industry as a whole in Asia.

Compounding the inventory problems has been the reluctance of POI manufacturers to lower production rates and new investments continuing to come on stream. The ongoing uncertainty in Europe, which is one of China's largest export partners, has also contributed to the overall level of difficulty in the Asian market. Absent this one large customer of our Chinese business, our volume in China for the June quarter was more heavily weighted towards basic goods, which put downward pressure on our margins.

Looking forward, we believe that we will see a rebound in our performance in China, as this customer returns to the market and the fact that we are well into new development programs with REPREVE and other premier value-added products with key brands and retailers to grow our overall business in China.

Domestically, we are on track to reach our goal of doubling PVA sales in three years, but we remain behind that goal in China and Brazil due to the economic conditions in each of those markets mentioned earlier.

Since raising the visibility of REPREVE as a consumer brand, we have an increased presence in product placements at retail, and this is helping to drive additional development work with brands and retailers in the US, Europe and in China. Some recent and notable REPREVE programs include a new line of sustainable and reusable lifestyle products introduced by fashion designer Lauren Conrad. The new collection is called XO(eco) by Lauren Conrad and is featured on a special Lauren Conrad storefront on Amazon.com.

Also recently, more than 240,000 graduates from 140 colleges and universities wore renewed graduation caps and gowns made with REPREVE. In addition, Haggar is using REPREVE in its new Life Khaki program, and REPREVE was the recycle fiber of choice for the new Eco Swim line of bathing suits by Aqua Green.

One benefit of these types of programs is the consumer exposure that we are getting for REPREVE in both traditional and social media outlets, including REPREVE mentions on People StyleWatch and the LA Fashion Magazine.

We remain very committed to our value-added strategy and continue to feel confident that our development work opens up new opportunities in the US, China and Brazil, and we believe this will allow us to double the Company's overall PVA volume in approximately three and a half to four years from our original goal set two years ago.

Lastly, we continued to see some stabilization of polyester raw material pricing in the June quarter, as anticipated. This enabled the Company to recover lost margins we experienced for several past quarters. However, the supply of paraxylene, the main ingredient to make polyester, still remains tight globally and will likely result in upward pressure for raw materials in August and September versus the declines in the past quarter.

With that as a backdrop, I will now turn the call back over to Ron. Ron?

Thanks, Roger. We'll begin our review of the preliminary financial results for the June 2012 fiscal year-end quarter, which began on page 3 of the presentation, with the net sales and gross profit highlights.

During the June quarter, volume continued to recover from the slowdown in the first half of the year related to the inventory destocking at retail in the US and the strong real in Brazil earlier in the year.

In our polyester segment, volume increased on a sequential basis in the June quarter versus the March quarter; however, we have not quite returned to the volume levels of the June 2011 quarter. The year-over-year gross profit improvement in the polyester segment in the June quarter is a result of margin improvement, as prices for the raw materials moderated in the second half of the fiscal year and we began to recover lost margins through adjusted pricing. Growth in the higher margin premier value-added products, higher capacity utilization rates and cost reduction initiatives also contributed to the increased gross profits.

Although year-over-year nylon volumes for the June quarter declined by 3.5%, we saw a 10% gain in nylon volume compared to the March 2012 quarter. Mixed enrichments in the nylon segment led to a 7.8% increase in pricing versus a year ago and improvements to our per-unit conversion margin; however, these gains were offset by the volume reductions and higher per-unit manufacturing costs.

Year-over-year volume for the June quarter improved by 5.3% in our international business, and it was up by more than 12% on a sequential basis. Average selling price declined 19.5%, primarily as a result of the significant weakening of the Brazilian real Roger noted earlier.

Unlike our US businesses, which began to see improvements at the beginning of the March quarter, the recovery in our international segment didn't begin until early in the June quarter. In Brazil, the weakening currency helped make goods produced there more competitive with imported goods, which resulted in improved sequential volumes. However, we experienced margin pressure during the quarter due to the timing of changes in the global polyester prices.

Since March 2011 -- sorry, since March 2012, global polyester raw material prices have declined just over 10%, and as a result, we expect to see improving margins in Brazil going forward once we have completely worked through the higher-priced inventory. In China, pricing and margin declined as a result of the mixed deterioration in the June quarter Roger spoke of earlier.

On a fiscal-year basis, year-over-year declines in volume were driven by the inventory destocking in the North American apparel supply chain that took place in the first half of the year and the currency fluctuations in Brazil. Pricing improvements in both polyester and nylon (technical difficulty) of the price increases implemented to cover the losses due to significant increase in raw material prices, while the decline in our international segment, similar to the quarter, is primarily mix related.

Gross margin for the 2012 fiscal year declined in the first half of the year as a result of the lag time -- lag in timing of the price increases relative to the increases in raw materials and the negative effects of the curtailed production on the Company's per-unit manufacturing costs.

Turning to the income statement highlights on page 4, the Company generated the same gross profit in the current June quarter compared to the prior year, despite an $8 million decline in net sales. SG&A expense was flat versus a year ago, and interest expense declined $561,000 as a result of the Company's deleveraging strategy.

The $5.6 million earnings from equity affiliates are in line with traditional run rates, whereas the $12 million for the June 2011 quarter was abnormally high, and I'll provide more detail on this when we get to the equity affiliates slide.

The Company is reporting net income of $11.3 million, or $0.56 per share, for the June quarter, compared to net income of $13.5 million, or $0.67 per share, for the prior-year quarter. That income for the quarter includes a $2.7 million charge related to the early extinguishment of debt and a one-time, non-cash benefit with an income tax expense of $6 million related to the release of previously recorded valuation allowances against certain of the Company's domestic deferred tax assets. This valuation was released in the Company's fiscal fourth quarter due to its recent earnings trend, favorable changes and interest expense relate to the recently completed refinancing and the future forecasted taxable income.

Turning to the income statement highlights for the 2012 fiscal year on page 5, net sales declined $8 million, or 1%, compared to 2011 due to the volume declines noted earlier. As mentioned, net sales and gross margin improved sequentially in both March and June -- in both the March and June quarters as we moved away from the impacts of the inventory destocking and historically high raw material prices in the first half of the year in the US and the exchange rate in Brazil returned to the more normalized levels.

Interest expense declined by $3.1 million as a result of the Company's success in its deleveraging strategy. The Company is reporting net income of $11.5 million, or $0.57 per share, for the 2012 fiscal year compared to $25.1 million, or $1.22 per share, for the 2011 fiscal year. Adjusted EBITDA for fical 2012 is $39.8 million and in line with the Company's updated expectations for the fiscal year.

Turning to the adjusted EBITDA reconciliation on page 6, the Company is reporting adjusted EBITDA of $14.1 million for the June 2012 quarter, which is in line with the June 2011 quarter, despite lower domestic volumes, and slightly above the guidance provided on our third-quarter earnings call. For the 2012 fiscal year, the Company is reporting adjusted EBITDA of $39.8 million, which is lower than the fiscal 2011, but has improved as we move throughout the fiscal year.

Turning to our equity affiliates highlights on page 7, the Company reported net earnings of $5.6 million for the quarter and $19.7 million for the 2012 fiscal year. Net earnings in the June quarter are more indicative of the normalized run rate for Parkdale, whereas the $12 million in the prior year was benefited by the timing of recognition of certain cotton hedging gains.

Parkdale America continues to maintain its strong balance sheet, as cash generated from working capital declines related to the recent reduction of cotton pricing and operating profits leave the joint venture with no outstanding debt and $34 million of cash on hand at the end of June 2012.

The Company received cash distributions from Parkdale America of $6 million in the June quarter and $10 million for the 2012 fiscal year. We also saw improvements in our two nylon joint ventures, which went from a slight negative for the first nine months of the fiscal year to a slight positive for the year as the correction of inventory levels led to increased production volumes.

Turning to the working capital highlights slide on page 8, we are very pleased with the success of our working capital management programs. As of June 24, 2012, adjusted working capital decreased $11 million from the March quarter and $27 million from June 2011. We are particularly pleased with our improved inventory turns, as inventory remained unchanged from the March quarter, while volume improved by 6.7%.

Total working capital, including cash, as of June 24, 2012, decreased $33.7 million from the March quarter, as the Company used $21.7 million in cash on hand to help facilitate the refinance of its long-term debt structure.

Turning to the cash and liquidity highlights on page 9, as a part of the Company's deleveraging strategy, we redeemed the remaining principal amount of our outstanding 11.5% senior secured notes that were due in 2014 and entered into a new revolving credit facility and secured term loans that extended the maturity profile of our long-term indebtedness to May 2017 and is expected to reduce interest expense by approximately $9 million in the fiscal 2013 year.

The Company refinanced the redemption using cash on hand and the proceeds from $60 million of borrowings under the new revolver and $80 million of term debt. Since the completion of the debt refinance, the Company has been able to reduce its borrowings under the revolver by $9 million and prepay an additional $9.5 million of the borrowings under the Term B Loan, thanks to the strength of our results for the quarter and the success of our working capital management programs. Also, subsequent to year end, we prepaid an additional $4.5 million on the Term B Loan, reducing its outstanding balance from $30 million to $16 million.

In addition to the expected interest savings and the extension of the maturity profile of our indebtedness, the new debt facilities also provide us with the availability and flexibility we need to execute on our strategic plans. So as long as we maintain adequate liquidity, as defined in our credit agreements, we have the ability to make restricted payments and restricted investments, and there are no ongoing financial maintenance covenants.

Should our excess availability under the revolving credit facility drop below $15 million, the Company would be required to maintain a monthly fixed-charge coverage ratio of at least 1.05 to 1, and as of June 24, 2012, the Company's excess availability was $37.1 million and its fixed-charge coverage ratio was 1.43.

Now, before I turn the call back over to Bill, I'd like to provide an update on some key dates that are upcoming. We expect to file our Form 10-K for the 2012 fiscal year on Friday, August 24th, and our quiet period for the September quarter will begin on Friday, September 21st, and extend through our earnings release conference call for the first quarter, which is currently scheduled for Thursday, October 25th. With that, I'll turn the call over to Bill.

Thanks, Ron, and good morning, everyone. I'll briefly recap the past year and then talk a little bit about what we see going forward.

In the first half of the 2012 fiscal year, we were faced with challenging combination of historically high raw-material prices and an excess of inventory throughout the supply chain. As a company, we stayed focused on our cost reduction initiatives and strategically curtailed production in order to reduce inventory to levels that were in line with consumer demand.

It was a difficult start, and we ended our first half of our fiscal year with $15.5 million of adjusted EBITDA, which was well below our original forecast. However, the US economy continued its slow recovery in the second half of the fiscal year, and supply chain inventories did come back in line, and we saw continued improvement of our net sales, gross margin and adjusted EBITDA in both the March and June quarters, and we delivered significantly improved results in the second half of the fiscal year.

Compared to the December quarter, which bore the brunt of both the increases in raw materials and the inventory destocking in a supply chain, gross margin was 110 basis points higher in March quarter and 310 basis points in the June 2012 quarter.

The margin improvement of polyester came as prices for raw materials moderated and we began to recover lost margin from previous quarters. Growth in the sales of the Company's premier value-added products, especially REPREVE, in the US and Central America has also helped drive these improvements.

As we continue to realize converting cost benefits during the March and June quarters as -- I'm sorry. We also continued to realize converting cost benefits during the March and June quarters, as higher utilization rates in our plants and our ongoing focus on cost improvement initiatives resulted in lower per-unit manufacturing costs.

As Ron mentioned earlier, while a recovery in the domestic market began in the March quarter, it did not start in Brazil until the current June 2012 quarter. The continued weakening of the real is shifting demand to the domestic Brazilian textile supply chain, and we expect our results there to continue to improve, particularly as we work our way through the higher priced inventory, which remains due to the long supply chain for our POI from Asia. We believe the level of demand and the positive trend in the currency in Brazil point toward a strong recovery in both volume and margin there over the next few quarters, as mentioned earlier by Roger.

Unit growth in synthetic apparel in North and Central America is currently projected to be 6% to 7% for the 2012 calendar year, and regional share is expected to remain steady, at about 18%. We are committed to providing the capability to capture this growth and remain the leading supplier in the region, as evidenced by our recently completed installation of four additional texturing machines at our El Salvador operation. This region remains extremely important to brands in retailers, particularly as they try to manage finished-goods inventories in a still-volatile economy.

We remained focused on inventory and cash velocity, as we further reduced inventories over the second half of our fiscal year, despite the sales volume recovery, and we ended the 2012 fiscal year with our lowest level of inventory in over two years. Lean planning and manufacturing procedures have been put in place to assure we maintain this improvement, and the Company will continue to drive improvement in our inventory throughout the 2013 fiscal year.

We also made progress on all other aspects of our working capital management. Reduction in adjusted working capital resulted in $10.9 million of cash generation in the June quarter. And we have improved our overall adjusted working capital, as Ron mentioned, by $27 million since the end of the 2011 fiscal year.

The ability to successfully manage our working capital has provided us with the flexibility needed to drive our deleveraging strategy and allowed us to restructure our long-term debt at considerably more favorable terms. This new structure will not only result in significant annual interest savings to the Company, but it also provides us with the availability and the flexibility we need to continue execution of our strategic objectives.

Looking forward, we are optimistic that the improvement we have seen over the second half of the 2012 fiscal year will continue into our new fiscal year. There are, as always, factors that have the potential to substantially impact our results in the 2013 fiscal year, both positive and negative. Those include raw-material pricing volatility and changes in consumer demand.

However, we are continuously improving our ability to deal with those factors as we improve manufacturing efficiency and flexibility while driving the development and growth in high-value products. We will continue to invest in the equipment and capabilities required to grow less cyclic portions of our business and develop revenue streams in defensible growing businesses.

Considering an economy and consumer demand that is slowly recovering and raw material costs that will likely increase slowly over the next few months, the Company expects adjusted EBITDA for the first quarter of fiscal 2013 to be in the $13 million to $14 million range, and we anticipate adjusted EBITDA to be in the low $50 millions for the 2013 fiscal year, an improvement of about $10 million compared to the 2012 fiscal year.

And with that, I will turn the call back over to the operator for any questions you might have.

Thank you. (Operator instructions). Our first question comes from Chris McGinnis, with Sidoti & Company.

Good morning.

Hey, Chris.

Hey. Congrats on a really strong finish to a tough year.

Thanks.

Just a couple questions in terms of -- Roger mentioned you're starting to see a little bit of inventory build with the manufacturers. How quickly can you adapt to that? You know, obviously, there were some issues this year earlier on. I guess just can you -- how quickly could you react to maybe slowing demand and the impact on the margins compared to what happened this past year?

Yes, I think our ability to see that issue coming at us certainly is a little better than it's been in the past. And as Bill mentioned, we've got a lot more efficient in our operations and our ability to adjust and the flexibility that we have in manufacturing, so, I mean, we would anticipate reacting very quickly to that.

Certainly our working capital management is extremely important to us, based on our deleveraging strategy. So we feel like if it does happen and if we need to react -- and by no means are we saying that we're seeing that today, but we are monitoring the supply chain and the inventory in the supply chain, so if it does become an issue, we will be able to react very quickly.

Just on the Brazil -- obviously, the improvement there -- can you maybe just talk a little bit about how much the margin profile changes, whether -- you know, I know there's obviously, I guess, seemingly some more improvement as you pass some higher raw-material costs, but just the profitability compared to the rest of the -- I guess the rest of the assets of the Company?

Yes, I think Brazil rolls in that international segment, and from a margin standpoint, that international segment does have a strong -- it's a profitable -- it's one of the more profitable segments that we have. I think what we tried to lay out for you was we started to see volume recovery in Brazil, but because of the timing of the global [per-raw-material] prices -- I mean, if you go back and look at it, they reached high levels in September, they dropped off in December, they went back to high levels in March, and they dropped off between March and July.

Well, for us, our supply chain, we're much closer to our supply chain and to react much -- and we were able to react much quicker. And as we moved through the quarter, you were able -- we were able to start recovering some of that lost margin from that last price increase -- or, sorry, cost increase.

With Brazil, their supply chain is about two months longer than ours, because the POI and the fibers that they buy come from Asia, and so what we saw in Brazil was a return of volume, but still it's difficult margins where it -- you know, because we know what we're buying at, we know sort of what the market price is in Brazil. That was the comment that we made, of as we sort of move into the next quarter, we're expecting to see margins in Brazil return back to more normalized levels as that lag effect of that raw material prices works.

Great. That's it for now. I'll jump back in the queue.

Okay.

Thank you. (Operator instructions). Your next question comes from Jonathan Sacks, with Stonehill Capital.

Hi. Congratulations on finishing the year with a nice quarter.

Thanks. Hey, Jonathan.

Thanks. As usual, if I can just ask again for your outlook on capital expenditure and also cash taxes, just generally for the coming year.

Yes, what we said on CapEx, you know, traditionally in our --- even in our public filings, our Q's and K's, we've said sort of maintenance CapEx level for the consolidated company is in that $6-million-to-$7-million range.

If you look at us over the last four years, we've spent anywhere from $6 million this past year to $20 million or $21 million two years ago. So that maintenance CapEx level will be the same. We expect to spend more than just maintenance CapEx next year. It will be in that sort of $10-million-to-$12-million range, is what our expectations is for CapEx.

From cash taxes standpoint, we had the big unlock of the valuation allowance here in the quarter due to the trend in earnings and the realized savings from the interest rate refinancing and our future forecasted earnings, so our -- from an income-statement standpoint, our income tax rate that shows up on the income tax line going forward will be a much more normalized number and much more closer to what a normalized number would be as far as cash taxes go.

We do still have NOLs. Those -- most of those deferred tax valuation allowances that got unlocked was relative to those NOLs, so our expectation is sort of over the next six to 18 months we'll move from being a non-cash taxpayer to actually to a cash payer. So cash taxes -- our expectation for cash taxes from fiscal '13 would be sort of in that $6-million-to-$7-million range, and then as we move forward in outer years, it would go up more to a normalized level of sort of 35% to 40% would be -- of taxable income would be our cash taxes at that point.

Great. And then a few other random questions, if I might.

Sure.

What -- roughly speaking, what portion of the business is in Brazil?

Yes, that -- Brazil, we break it out in the last investor presentation we did, roughly about 72% of our business is here in the North American region, between our US operations and our operations in El Salvador. Brazil is about 20% of our business, of our revenue, so somewhere around $130 million to $140 million in sales. And then the rest of -- whether it's China or ULA make up the remainder. But Brazil and obviously the domestic, or this North American region are the biggest parts of the business.

Okay, great. And then on Parkdale, if I recall, when they had done the deal with Hanesbrands, Parkdale had taken on a significant amount of debt. And if I heard you right, the company -- Parkdale is now debt free and has a substantial cash balance. So they've paid off all of their debt at this point?

Yes. Three things on that. Parkdale did the Hanesbrands acquisition. I think the public disclosure on that, the actual transaction cost was in the sort of mid-$20-million range, $25 million to $28 million. But they didn't buy working capital, so they -- or they didn't buy finished-goods inventory, so they built quite a bit of inventory, whether it was finished inventory or accounts receivable, so there was a significant sort of draw or debt balance as a part of that.

The second part of that was they also bought a -- they did a transaction where they bought a cotton spinning mill, shut it down and completely refurbed it, and that was about a $50 million CapEx, or $54 million CapEx, I believe, in this same time window.

And then the third issue was raw-material prices. Obviously, cotton went from $60 to average price of probably $1.35 to $1.50, so the working capital requirement, their working capital requirement doubled as a part of that process. So those three things was really what drove the debt.

Had it just been the HBI acquisition, they would have already paid that off a while ago. But those three things combined took the debt up to somewhere in the $150-million-to-$170-million range, where it peaked out. But today, because cotton has came back down and due to the strength of the operating results over the last three years, they have paid that debt completely off and had $34 million of cash at the end of the quarter.

That's remarkable and great.

Yes, that's been a strong business with strong -- certainly strong operating results and strong cash flow. They're a very good partner.

And does that imply better earnings or dividend potential to Unifi from Parkdale, since they're not paying interest expense, for example, and operating results have improved?

I think historically that would be the trend. You know, they don't run their balance sheet levered up on an ongoing basis, so when they get -- when they need debt to do something strategic or because of raw materials, they pay it off as quickly as possible. So while it's more probable there will be a dividend flow, there's no -- we're not promising -- or there's no sort of commitments to that dividend flow going forward.

All right. Okay. And then if I may, one last very random question. Just in general, natural gas prices in the US have been very low, recovered a little bit recently but still very low and very low relative to oil prices and very low relative to natural gas prices in the rest of the world, and I was just wondering if that conferred any benefits on Unifi, either in having lower energy prices or lower electricity prices or possibly cheaper raw materials. I suspect the answer is no and the raw materials are oil derived and it's a global market, but nonetheless, it's kind of an interesting disparity, which is helping some US companies, and I was wondering if that's a factor at all for Unifi.

Yes, I guess there's really two positives to it. One is part of the nylon raw material supply chain is natural-gas based, so that certainly on a longer term basis bodes well for that. Also our dye plant has a lot of natural gas use, so that certainly helps our dye plant costs a little bit.

From a utility standpoint, the majority of our utilities here are either coal based or nuclear based, so there's very little benefit there.

Okay. And when you said the dye plant uses natural gas, is that as a raw material input or just as an actual energy -- to generate heat in the process?

As an actual energy feed.

Okay. Okay. Great. Thank you very much. I appreciate it.

You're welcome.

Thank you. And at this time I'm not showing any further questions.

Okay. Thank you, operator. Just a quick closing comment. This is Bill again. I think, in general, we're optimistic about the next quarter, and we expect both our domestic and our Central American business to continue to perform well and are looking for our China and Brazil businesses to continue their recovery.

I think looking longer term, we've got confidence in the competitiveness of the regional supply chain, and we expect to see continued incremental growth in CAFTA. And as the leading supplier in this region, we are committed to capturing that growth.

So overall we've -- I think the next quarter is going to look good, and I think longer term we think this region is going to hold up very well. And with that, I'll thank everybody for being on the call.

Thank you.

Ladies and gentlemen, thank you for joining today's conference. Thank you for your participation. You may now disconnect.