Unifi Inc (UFI) 2013 Q2 法說會逐字稿

Good morning. At this time I would like to welcome everyone to the Unifi second-quarter earnings 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. Go ahead, Ron.

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

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

Before we begin, I first need to advise you 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 or a projections about the markets in which the Company operates. Therefore these statements are not guarantees of our 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. I direct you to the disclosures filed with the SEC and on our Form 10-Qs and 10-Ks regarding various 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 schedule to the webcast presentation.

Before we get into the financial details for the quarter, I would like to turn the call over to Roger who will provide you with an overview of the market and the raw material trends. Roger.

Thanks, Ron, and good morning, everyone. After year-over-year total result sales in the US dropped by 0.3% in October, US retail sales rose 0.4% in November and 0.5% in December. And although these are weaker sales gains compared to previous holiday periods, they were encouraging results nonetheless. The economy appears to have some underlying momentum to it and many experts believe the momentum will continue into 2013.

I will start my comments today with the Automotive and Housing segments which have been leading the way in terms of the overall economy recovery. These two segments represent approximately 20% of the Company's volume.

The US Automotive market has been a bright spot as Americans continue to replace older vehicles and ones damaged by Superstorm Sandy. A strong December helped push 2012 US light vehicle sales to their highest volume levels in five years. After bottoming out at 10.4 million units in 2009, sales rose 11% in 2010, 10% in 2011, and 13% in 2012, which was the biggest one-year jump in decades. The seasonally adjusted annual sales rate in December was 15.4 million units, marking the second straight month that the annualized sales rate was above $15 million and a performance that has created considerable momentum for 2013.

In the housing market, 2012 finished as the best year for residential construction since the housing crisis began with an increase of 28% more new home starts in 2012 compared to 2011. The resurgence in the housing market has helped drive a 7.5% increase in retail furnishings sales in 2012 compared to 2011.

Although volumes in our Furnishings segment have only increased slightly, we remain encouraged by these trends in the housing market and Retail Furnishing segment.

Retail sales of apparel in the US increased 5.5% for the 2012 calendar year, but the consumption on a square meter fabric basis declined by an estimated 1.6%, indicating that the sales dollar gains are primarily due to the impact of raw materials, inflation, and retail pricing strategies rather than actual increases in units purchased.

The rate of decline in the square meter fabric equivalent volumes improved during the second half of the calendar year, which is better for the Company since yarn consumption is closely aligned with the square meter fabric equivalent.

Trends for synthetic apparel in the Americas region have been positive over the past several years which is still projected to hold share at approximately 18% of the synthetic apparel supply to the United States. The share of synthetic apparel versus cotton has been increasing steadily since 2009 and this has provided growth for synthetic yarn consumption during the past two years.

What we are seeing in our domestic business for the first six months of fiscal 2013 is steady volume with some incremental growth that is paralleling the improvement of the overall economy. The improvements in our domestic financial performance are a result of growth in our PVA products, recapturing lost margin from past raw material increases and our relentless efforts in operations to minimize cost with our process improvement and lean manufacturing initiatives.

I will now make a few comments on raw materials before I get to our international operations and an update on our premier value-added products. Polyester raw material prices have been steadily increasing since the start of fiscal year 2013. Polyester raw materials were on average approximately 10% higher in the discovered 2012 quarter compared to the September 2012 quarter. And we expect them to increase slightly in the March 2013 quarter. We have been adjusting our sales prices accordingly and if the current trend continues, we will be adjusting our sales prices in the coming months.

The GAAP and polyester polymer pricing between the US and Asia has averaged approximately $0.12 per pound for the first six months of fiscal 2013. This is approximately equal to the [gap] in the December 2011 quarter. The raw material gap along with cheap import pricing in polyester DTY continues to put pressure on the low end of our product offering although our mix enrichment strategy has dampened the impact of such pressures over the last several years.

Turning to our global business, imports of fiber, fabric, and finished goods continue to put pressure on the domestic supply chain in Brazil and have made it increasingly difficult for us to remain competitive at the lower end of our textured yarn products. The inflation rate in Brazil, which has been running in the 5% to nearly 7% range for the past three years, has negatively impacted our converting costs and has made it extremely difficult to raise prices to recoup lost margin while competing against the influx of low-end imports.

Although our quarter-over-quarter volume improves in Brazil, our adjusted EBITDA there only increased slightly due to the negative impact from imports and inflation.

For the first six months of fiscal 2013, net sales for Brazil are 10% below our forecast while gross profit is 26% below forecast, further indicating the negative impact that import inflation have had on the Company's business.

The exchange rate for the Brazilian real continued to remain slightly above 2.0 to the US dollar in the December quarter. The exchange rate has helped mitigate some of the issues with imports and inflation, but the exchange rate alone is not enough to offset the impact of cheap imports into Brazil.

Our focus in Brazil will continue to be on implementing process improvement and manufacturing efficiency gains to lower our per unit costs, to counter the pressure at the low end of the product mix with an aggressive mix enrichment strategy leading to a more defensible product mix.

Turning to China, our fiscal year-to-date volume in China is below our forecast, along with our expectations for gross profit. Our operation in China is still impacted by one of the larger customers working through significant inventory in their overall supply chain. We do expect this customer to return to the market and remain a key customer of the Company.

We continue to capture new programs in China and have several new developments underway with key brands, some that will be coming on line later in 2013. This positive momentum and contribution continues to reinforce our global PVA strategy and partnership with brands and retailers that we support. We expect our business to be more in line with forecast expectations during the second half of the fiscal year.

We continue to be confident that we are on the path to double our global sales of premier value-added yarn by 2014. We got back on our 20% growth rate domestically after the recession. The conditions in China and Brazil offset much of this growth in the past year. We expect our consolidated PVA portfolio to be back on the 20% global growth rate in 2013 based on current volume trends and recent program adoptions.

Newly announced programs include cold proof base layer of apparel, casual pants from Eddie Bauer and Dockers, a graphic T-shirt program from [Baucom] and band uniforms for DeMoulin, which is the oldest and largest manufacturer of music performance group apparel in the world. These programs join high-profile REPREVE base programs from Lee to Van, Dickie, Hager, Ford, Izod and others.

The Company has taken a more active role in marketing REPREVE which is our umbrella brand for our recycled products directly to consumers. Not only will this create awareness for REPREVE among target consumers, it will also raise the visibility and credibility for REPREVE among brands and retailers. We believe that the best approach to marketing REPREVE is to educate consumers about the importance of recycling and choosing products made with recycled material.

And because REPREVE is in many well known and respected winter sports related brands including Patagonia, The North Face and Polartec, we believe the X Games in Aspen will be an ideal venue for us to help consumers understand the range of products made with REPREVE recycled fibers.

Recently we announced that REPREVE will be the official recycling partner at the X Games Aspen which will air on ESPN from January 24 through the 27th. To help drive awareness of REPREVE, we have teamed up with Elena Hight, who is a decorated X Games women's snowboard super pipe medalist and is best known for her progressive riding style. Hight will be featured in a REPREVE TV commercial that will air 15 times during the broadcast on ESPN.

We also recently launched a new consumer-focused website which is REPREVE.com and will be supporting our X Games sponsorship with radio advertising, on-site promotions, public relations and social media initiatives.

We believe that many consumers think that recycled polyester doesn't wind up in any cool or innovative products. Our presence at the X Games and our partnership with Elena Hight will help raise positive awareness for recycled polyester and establish REPREVE as a leading ingredient in sustainable products.

I would like to encourage you to see what we are doing to promote REPREVE to consumers by visiting the new REPREVE.com website. On the site, you'll find links to our X Games content including our TV commercial, as well as information on many of the great products that we are in.

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

Thanks, Roger. We will now begin our review of the preliminary financial results. Let's begin on page 3 of the presentation with net sales and gross profit highlights for the strong December '12 quarter.

Polyester and Nylon segment volumes increased in the December '12 quarter versus the prior year quarter based on the generally improving year-over-year conditions in our core domestic markets that Roger just highlighted. Supply chain inventory days in our core Apparel and Home Furnishing segments have remained at or below year-ago levels for the past four quarters, so our operating rates are tracking along with retail conditions at this point.

Internationally year-over-year volume improved 15.5% in the quarter as a result of solid gains in China and Brazil. The decline in pricing reflects the impact of currency and the pressure from imports and inflation in Brazil that Roger mentioned, as well as the temporary mix shift in China to high-volume products and REPREVE staple which sells at a lower overall average price.

Consolidated gross profit improved $5.8 million in the December '12 quarter compared to the December '11 quarter, primarily as a result of higher polyester volume and capacity utilization rates, stable and slightly lower raw material costs compared to the year-ago period and the growth of higher -- of our higher margin PVA products in our domestic operations.

Gross profit results from our international operation in the December 2012 quarter reflect the challenging conditions in Brazil and the short-term shift in product mix in China that was mentioned earlier. For the second half of the fiscal year in Brazil, we expect to see continued pressure on both volume and gross profit during the March quarter due to the evolving trade conditions and a reduction in production volumes necessary to align inventory levels and sell-through volumes.

As we move through the June quarter, we expect the gross profit in Brazil will recover as production volumes return to more normalized levels, the trade environment improves and we will make further gains in our mix enrichment strategy there.

Turning to the income statement and highlights for the December 2012 quarter on page 4, the Company is reporting net income of $2.4 million or $0.12 per share on net sales of $172 million for the December 2012 quarter which is an improvement over a net loss of $7.6 million or $0.38 per share on net sales of $167 million as of the December 2011 quarter.

Year-over-year interest expense declined $2.9 million in the current quarter as a result of the Company's recent de-leveraging strategy which has lowered our debt levels and significantly reduced our interest bearing cost. Adjusted EBITDA for the December 2012 quarter was $12.2 million, which represents a $4.8 million improvement compared to the December 2011 quarter.

Turning to the income statement highlights for the first six months of fiscal 2013 on page 5, the Company is reporting net income of $4.7 million or $0.23 per share on net sales of $345 million for the first half of the 2013 fiscal year, an improvement over a net loss of $7.3 million or $0.36 per share on net sales of $338 million for the prior year to date period. Gross profit for the first six months of the fiscal year increased $12 million and interest expense declined by nearly $6 million. Adjusted EBITDA of $26 million represents an $11 million improvement compared to the prior year period.

Turning to our equity affiliate highlights on page 6, the Company's earnings from Parkdale America in the December 2012 quarter were flat compared to the December 2011 quarter but declined about $3.8 million on a fiscal year-to-date basis. US cotton apparel imports in calendar 2012 from all countries were estimated to be -- to decline about 6% and imports from the North American region specifically were estimated to decline by 9.5%. This softness in the cotton apparel market has had a negative impact on Parkdale sales volumes and margins.

In addition, Parkdale's earnings for the quarter were negatively impacted versus the prior quarter by approximately $2.4 million, related to the timing of the revenue recognition under the EAP cotton rebate program and the rebate level dropping from $0.04 to $0.03 per pound in March -- sorry, in August.

Although Parkdale America's operating results have been depressed on a fiscal year to date basis, it continues to remain -- it continues to maintain a strong balance sheet with no outstanding debt and approximately $30 million in cash at the end of December 2012.

The $1.4 million positive swing in other equity affiliates for the first half of the fiscal year reflects the improved operating results in our nylon [POI] joint ventures which were primarily driven by higher utilization rates.

Turning to slide 7, adjusted EBITDA from the December 2012 quarter was $12.2 million which was an improvement over the $10 million to $12 million range we provided on our earnings call in October. Improvements to adjusted EBITDA for the December 2012 quarter and the first six months of the fiscal 2013 year were primarily driven by the previously mentioned volume and gross profit improvements in our domestic polyester business offset slightly by the lower than forecasted results in Brazil.

Turning to the working capital highlights on page 8, the $12 million decrease in the Company's adjusted working capital in the December 2012 quarter compared to the September 2012 quarter were a result of a $9.6 million reduction in inventory caused by improved inventory turns, partially offset by slightly higher raw material costs in this quarter.

The decrease at December 27 -- I'm sorry, December 23 of the receivables and accounts payable are primarily timing-related and the result of the holiday shutdown period which started just prior to the end of the quarter and extended into the new year.

Turning to the cash and cash liquidity highlights on page 9, cash on hand increased $4.4 million from the June 2012 -- sorry, from June 2012 and the total debt decreased $15 million. Subsequent to the end of the fiscal quarter, the Company received a $7.8 million distribution from Parkdale America. We used the distribution along with portions of our domestic liquidity to pay -- to repay in full the remaining $13.8 million outstanding balance under our term B loan, which had an interest rate of 8.75%. The Company's weighted average rate for all debt outstanding now stands at just over 30% and our fixed charge coverage ratio under the ABL facility was 1.51 as of December 23.

Now before I turn the call back over to -- or over to Bill, I would like to provide an update on some key dates for the upcoming quarter. We expect to file the results for the December quarter in our 10-Q on or before Friday, February 1, and our quiet period for the March quarter will begin on Friday, March 22, and extend through our earnings conference call which is currently scheduled for Thursday, April 25.

With that, I will turn the call over to Bill. Bill?

Thanks, Ron, and good morning, everyone. In light of increasing domestic raw material costs, business issues that we have noted earlier in Brazil, and a less than robust retail environment, I am pleased with the results for the December 2012 quarter and believe they reflect the efficient and effective execution of our core strategies, which include driving continuous improvement across all operational business processes, utilizing excess liquidity and operating cash flows to continue our de-leveraging strategy, and enriching our product mix by expanding our trade compliant yarn sales and growing our higher margin PVA product portfolio.

I would like to highlight just a few examples of how our core strategies can be seen in the results for the December quarter in the first half of the fiscal year.

Gross profit increased by $12 million in the first half of fiscal 2013 compared to the prior year period on a net sales increase of just $6.8 million. This improvement in gross profit reflects the benefits derived from our lower per unit cost, resulting from our cost reduction efforts, strong regional sales and our Polyester segment driven by growth of NAFTA and CAFTA sourcing and increased PVA sales as a percentage of our total mix. We have been able to reduce the manufacturing cost of our textured polyester yarn, even though the complexity of our business has increased significantly in recent years to support the growth of our PVA portfolio.

As we enrich our mix and reduce our focus on commodity products, the number of lot changes that we make has grown substantially. Manufacturing costs in our Yadkinville plant are essentially the same today as they were three years ago even though we had increased the number of production changes by 40% while utility, packaging, chemicals and labor costs have all risen. We estimate that our focus on cost management and process improvement in the last year has translated to the equivalent of approximately $6 million to $8 million in annual savings and cost avoidance.

Net sales in the December 2012 and September 2012 quarters were essentially equally equal yet we ended the December quarter with 8% less inventory on hand. We have reduced our weighted average interest rate to just over 3% as Ron mentioned, resulting in a savings of $5.8 million in interest expense in the first half of fiscal year 2013 compared to the prior year period. In fact, our annual interest costs have been reduced dramatically over the past five years from just over $26 million in fiscal 2008 to our current level of approximately $4 million. This savings has greatly improved our liquidity and will provide flexibility, both for investment and growth opportunities in other strategic uses.

Enriching our product mix domestically and throughout our international operations will continue to help insulate the Company from the pressures of cheap imports, particularly at the low end of our product offering. This is especially important in Brazil and I believe our increased focus there on PVA growth will drive financial improvement as we progress through calendar year 2013. It will also help us remain competitive as we have become integral partners with brands and retailers that understand a significant portion of garment value comes from innovation in textile inputs such as our fiber. And Unifi is being viewed more and more as the innovation leader in markets in which we compete.

By sustaining our 20% plus growth rate on PVA products domestically and aggressively implementing our mix enrichment strategies in China and Brazil, we anticipate being on track to double PVA sales resulting in approximately $200 million in PVA sales in the 2014 calendar year.

And as Roger mentioned, we are proud to be the official recycling sponsor for the X Games in Aspen which begins in two days. Well, actually, it begins tomorrow. We believe this is an important step as -- for Unifi as we begin to shift our marketing focus from business to business to consumer marketing in order to build upon the desirability and demand of our products.

This is a multifaceted program including television, radio, public relations and social media. Our association with Elena Hight, who is well known and respected in the world of winter sports, will help create added awareness and credibility for REPREVE among outdoor enthusiasts who will find our brand in Patagonia, North Face, and Polartec, just to name a few.

Now there is still uncertainty when it comes to the economy going forward especially here in the US. We don't know how or if consumers will adjust their spending based on the impact of increased taxes on their take-home pay, and we can't estimate what the impact of prolonged debt ceiling negotiations will be on our economy. However, we are very encouraged by the trends we are seeing in our core markets and by the share gains that synthetic apparel has been making in NAFTA and CAFTA over the last few years.

In light of these factors, the Company expects adjusted EBITDA for the third quarter fiscal 2013 to be in the $10 million to $11 million range, which reflects the impact of a short and shipping quarter due to the timing of the holiday shutdowns this year being all in the third quarter and anticipated slight increase in raw materials, the challenging conditions in Brazil and the fact that marketing expense related to our consumer advertising in the X Games sponsorship, much of that which will be recognized in the March quarter. We continue to anticipate adjusted EBITDA to be in the low 50s for this 2013 fiscal year.

Before we open the call up for questions, I would like to mention we also announced yesterday that the Board of Directors approved a stock repurchase program to acquire up to $50 million of the Company's common stock. Under this new program, management is authorized to repurchase shares at prevailing market prices with the goal of maximizing shareholder value. We believe the repurchase program will help improve shareholder value creation going forward, and expect to repurchase shares under Rule 10b-18 while maintaining ample liquidity to support current operating initiatives and future growth opportunities.

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

(Operator Instructions). Chris McGinnis, Sidoti & Company.

Good morning. Just a couple quick questions. Some easy ones off quick. Just on the working capital for the rest of the year, do you think that is still going to be a positive or will that it will be an outflow for cash use?

I think generally it is going to be pretty neutral. The timing of that holiday shutdown period, AR obviously goes down when you have less sales leading into that, and accounts payable we buy less as we are coming into a shutdown period. So this period, typically we build back working capital in the third quarter. But this period in particular, because we did cut back on purchases. The AR and the AP really almost wash out with their changes. So we would expect sort of neutral going forward for the back half of the year.

And then just to dig into the international a little bit more, I guess a couple of questions. One is what is the percentage [valves] of PVA products currently?

Our current percentage on -- are you talking about consolidated or at international?

On the international itself. I know it's more Brazil it sounds like, but maybe --

Yes. I don't have that break out in front of me, but generally speaking we consolidated. We are somewhere in that 17%, 18% range and those businesses typically have a higher percentage of PVA because remember the China business is really focused almost entirely around PVA. So it would be in that sort of low 20s and then our domestic business, the weighted average of that is what gets to that 17% to 18% range.

And then, thinking of some of the comments that you made, obviously with Brazil, what gives you more confidence that you will see an improvement in the June period compared to March? Is that more about maybe, you know, you being pro-active in costs, in controlling cost or is it a change in the market?

I think there's a couple of things. There -- one from a production standpoint we do have -- we are going to adjust inventory levels in Brazil and we are an asset-intensive company. So when we adjust -- when we pull volumes down, that impacts our converting cost. So the way I would explain it would be looking at the March quarter being down slightly from where we are running at today and then the June quarter, which is typically a strong quarter for Brazil certainly being an improvement even from where we are at today. So that March quarter you have got the cut in volumes. You have also got some of the Brazilian holidays going through there. And you also have some of the incentives that are in the Brazilian operation. Our transition ana -- that won't be -- that will not be in place for the March quarter and there will be some incentives there that sort of come back in the June quarter. So some of the trade environment we are talking about trade environment, that trade environment will change between those two quarters which gives us some of the confidence than generally speaking, the underlying business improvement, I will let Roger talk.

Yes, I think over the next six months to 12 months we do see opportunities to enrich the product mix. So as we mentioned earlier, we will be focused a lot on looking at that commodity side of the business where we do have a lot of import pressure and converting some of that over to a richer product mix. And then we have stepped up a lot of our initiatives as we have done here domestically around cost control and process improvement initiatives. We have kicked off a rigorous effort in Brazil looking at the same thing. We have been doing that over the last few years, but really taking that a step further.

Yes, and I guess the only thing I would add to that is about a year, year and a half ago, the Brazilian currency did strengthen significantly. And during that time, imports especially from Asia really increased especially in finished goods. The currency certainly has weakened over the last 12 months. And I think it is fair to anticipate that because of the price competitiveness of local goods, we may see a shift back to more local production from this great increase in imports we saw about a year ago.

And then, just on the China business, if I remember right, it's -- I believe a lot of that product was supposed to go to Europe if I am correct or that customer goes to Europe. It seems like Europe has been in a tough position for a long time now especially -- I know that the retail environment is not great over there, but at what point do you think that maybe that business starts to come back? And what is the trigger, what is the driver behind that? Is it an improvement in Europe or is it more about them getting their inventory in line?

Yes. I think when you specifically look at Europe and the customers that we have that we are servicing that feed into Europe, for the most part some of those customers are back in ordering product, but they are not ordering product from us at their historical levels. We still have one major customer there that I would say is considerably off of what historically we would anticipate them being.

The positive side of China is when you look at our PVA strategy, we continue to build new programs year over year. The momentum there continues to really keep us very excited.

So, as Europe continues to struggle to come back from a volume standpoint, we are picking up new programs and some of them we mentioned during the call to really replace that volume from Europe. So, if you fast forward 12 months, 24 months and you start looking at what our expectations could be from China, certainly as Europe comes on -- comes back online, we think we have China from a PVA servicing brands and retailers positioned very well to capture that market.

And is that right to think that the China operation does -- is run through -- I guess European businesses run through China. Is that correct? Or --?

For the most part. I mean you have the major brands and retailers in Europe and they do typically sourced most of their goods out of Asia.

Our mix of products that come out of China, they go into Europe. [UTSC] is primarily focused on that European business.

Yes, it's a balance I would say. It is close to a 50-50 balance between Europe and goods coming back into the US.

Just a couple of quick other ones.

Chris, hold on one more on that. We are selling yarn to converters in China, but the ultimate disposition of that product is either to the Europe or to the US. We are not, we are doing very little exports of yarn out of the China [background]. So it is the beginning part -- it's that pullthrough strategy where we market to the guys in Europe. We market to the guys here in the US. They expect our yarn in. It is that pullthrough strategy of the ultimate finished product that is going back to those markets.

Understood. Just maybe initial thoughts on if the Healthcare Act will have -- what kind of impact that could have. I don't know if you guys are -- it might be too early for you, but I was wondering about that.

I think it is a little bit too early to get through the whole process and understand what the different implications are. We have certainly taken a look at it. I guess January 14 will be another milestone day under that. So, we will be giving you guys updates as we move forward. But I think it is too early to look at where it has been.

I think from historical perspective, certainly healthcare costs continue to be a large part of our social costs or our employee benefits and it continues to go up. Maybe not quite at the percentage rate it was going up, but it continues to go up.

And then lastly, just Walmart came out a couple weeks ago talked about sourcing or bringing more product back to the US. I think a percentage of that was on the apparel side and maybe just your initial thoughts on that and how positive that could be for you.

While I think when we look at Walmart, we do business with Walmart today. We do some PVA business with Walmart today with REPREVE. So we sort of interpret that. It could be the US, or it could be the Americas. We are well positioned in this region to take advantage of that. And that is a trend a lot of people in the industry are talking about, programs moving back from Asia into the Americas.

So we have seen some of that taking place. So certainly we are excited. We are well-positioned.

A lot of the things that we have commented on as far as CAFTA and the stabilization of CAFTA and some growth opportunities in CAFTA, are companies like Walmart making the commitment to move goods back to the Americas.

Yes, I think when we look at that trait, we set up that chart every time about the region share of apparel consumed in the US. We certainly believe sort of the pendulum swung too far and we are hearing more and war talk of programs coming back into the region. We started telling you guys nine, 12 months ago there's investment going down into the region down here. There is more capacity being added. That 18% is holding steady, but it is on a growing base that is taking share from cotton as well.

So there is -- we are excited about the growth opportunities here in CAFTA. I mean, you are not going to talk 10% or 12% of growth, but that made single-digit growth we are excited about the potential for future growth opportunities here in CAFTA.

And just because you hit it, Ron, maybe just a little bit more on Parkdale, maybe what they are thinking for the rest of the year. I know that December was supposed to be tough for them. Maybe a little bit more positive in the next six months. Is that still the outlook for the Parkdale asset? Or can you just talk about that a little bit more?

Yes. I think Parkdale, their volumes have fallen off. We said that cotton -- even though the apparel consumer in the US has been growing, cotton apparel consumed in the US has been contracting and that contraction, a big part of it for the last year or 18 months has been blamed on the higher price of cotton. And we have talked all along about how long it takes for inventory to work its way all the way through the apparel supply chain. So, I think part of that was temporary shift in mix from cotton over to synthetic apparel mostly to staple, not all the way to filament just yet.

So, I think there was -- there was that shift there that you have got the potential for that to sort of move back towards cotton. I don't think it will go back to where it was, but sort of mitigate that a little bit. You have also got the potential for the actual growth of apparel consumed to start back growing. So I think Parkdale, they have done a good job. Those guys run a good business. They have done a good job to adjust their volumes and their costs to the level of business they have. And as we moved forward through the back half of the year, through really calendar 2013, we certainly expect improved results from what they did over the last six months.

Great. Thank you for taking my questions today.

(Operator Instructions). Jonathan Sacks, Stonehill Capital.

Can you please comment on what cash and debt look like now, pro forma, for the Parkdale distribution and paydown? Thank you.

Talking about subsequent to the Parkdale distribution and paydown?

Yes.

Hang on one second. I'll start on that. I will refer back to that debt page in the presentation.

Right. Page 9.

Yes, page 9 there. The December 23 basically there are $44 million we had under the revolver and the $46.4 million we have under the term loan you have got a [$13.8 million], the Term B Loan. Obviously that Term B Loan is a loan we paid off. We said subsequent to year end we got about a $7.8 million distribution for Parkdale and we used part of our liquidity in order to pay that off. So the difference of that would have came out of our -- mostly out of our revolver because we typically any domestic cash we have is basically paying down that revolver. So it would have came -- the rest of that would have came out of the revolver which would have taken the revolver slightly over $50 million.

For us, that revolver number as we go through shutdown is a difficult sort of one to forecast or to understand the different changes in that, but from a working capital it being neutral as we move through the quarter, we will expect for the revolver balance to be paid down fairly quickly as we build back that AR. Sort of get back our borrowing base back to where our borrowing base traditionally runs at. We expect that number to be pretty neutral impact.

But when we paid down the $13.8 million, it came out of that $7.8 million distribution plus out of that revolver.

And what you have used the revolver instead of cash because the cash is in a foreign jurisdiction?

Yes, exactly. I should have said that differently. Most of the cash we have accumulated in that $15.2 million is in either Brazil or China or out in our Dutch holding companies. The only cash we have domestically is basically cash for checks that we have already written that are outstanding. So we don't have on a day to day to day basis, we are basically sweeping whatever excess cash we have and we are paying down that revolver balance.

And remind me, what is the undrawn availability on the revolver? And I apologize if you are to have that elsewhere in the slide deck.

I didn't have it in there. The undrawn availability as of the end of December would have been I think it's about $35 million, $36 million.

And last question, can you give us any guidance on your current thinking on capital expenditure outlook?

Yes, I think I will hit you with sort of the traditional answer of we spend $6 million to $8 million a year on maintenance CAPEX. If you look back over time, we talk about $4 million to $5 million of annual spending on what we call strategic CAPEX where, whether it is expanding our ability to make PVA products or going after a cost reduction program, so that level will be the general level that we would fore -- if you looked out over the long-term, that is what we would include in our long-term models.

Now the exception to that is two years ago, I guess, we expanded into Central America that had about a $5 million capital investment in that. And then we had, we did our REPREVE recycling center and had another $5 million or $6 million investment in that. So you will see peaks where things go up like that, but generally speaking that $6 million to $8 million of maintenance that $5 million to -- or $4 million to $5 million of another amount of strategic CAPEX is what we are going to spend unless we have a special project like a REPREVE expansion going on. And we have not announced anything on that at this point.

I'm sorry. If I could just squeeze one more question on the stock buyback, that is obviously very interesting news. Any thoughts on the timing of those repurchases? I know the press release said it was indefinite, but is that something that you hope to do over the next six months or 12 months or some other period?

You remember when we came out and did our investor meeting back in November, we said we will go through the process of, first and foremost, supporting the operational and growth needs of our business. Then as other strategic opportunities come up, we will evaluate those strategic opportunities, but we will evaluate those strategic opportunities sort of through the lens of what the alternative use of that cash would be. And one of those uses of that cash would be returning it to investors through the share repurchase program.

What the Board has done is basically given management the discretion in order to be able to do that to buy that back or to start buying back shares of the -- I think it is $50 million worth of shares. So, it is a natural progression of what we told you guys we would start doing in November. We also told you in November our target debt level was $75 million when we would start that. I think this -- there is no limitation currently of getting all the way to $75 million of debt before we start that. So, I think for us, we as a management team will be looking at what are the oppor -- and working, obviously, still working with the Board.

But what are the opportunities to start buying back shares and what does the timing look like on that? But that is not something that -- there's no specific date or specific timeline that we have that we are making public or have developed.

Thank you very much.

At this time, I am not showing any further questions.

Okay. Thank you very much.

Okay, operator, thank you very much. Appreciate everybody's interest and thank you.

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