Unifi, Inc. (UFI) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Therese, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unifi Second Quarter Earnings Call. [Operator Instructions] I would now turn the call over to Ron Smith. Go ahead, Ron.

Thanks, Therese, 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 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 homepage. 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 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. I direct you to the disclosures filed with the SEC and our Form-10 -- 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'd like to turn the call over to Roger, who will provide you with an overview of the market and the raw materials trends. Roger?

Thanks, Ron and good morning, everyone. After year-over-year total retail sales in the U.S. dropped by 0.3% in October, U.S. 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. So I'll start my comments today with the automotive and housings segments, which have been leading the way in terms of the overall economy recovery. These 2 segments represent approximately 20% of the company's volume. The U.S. automotive market has been a bright spot as Americans continue to replace older vehicles and ones damaged by super storm Sandy. A strong December helped push 2012 U.S. light vehicle sales to their highest volume levels in 5 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 1-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 status 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 homes starts in 2012 compared to 2011. The resurgence in the housing market has helped drive a 7.5% increase in retail furnishing 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 furnishings segment. Retail sales of apparel in the U.S. 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 2 years. What we're seeing in our domestic business for the first 6 months of fiscal 2013 is steady volume with some incremental growth that is paralleling the improvement in 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 costs 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 December 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 gap in polyester polymer pricing between the U.S. and Asia has averaged approximately $0.12 per pound for the first 6 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 that 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 3 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 improved in Brazil, our adjusted EBITDA there only increased slightly due to the negative impact from imports and inflation. For the first 6 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 imports and inflation have had on the company's business. The exchange rate for the Brazilian real continued to remain slightly above BRL 2.0 to the U.S. 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 continues to be on implementing process improvement and manufacturing efficiency gains to lower our per unit cost, 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 online 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 forecasted expectations during the second half of the fiscal year. We continue to be confident that we're 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 but 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-proofed base-layer apparel, casual pants from Eddie Bauer and Dockers, a graphic T-shirt program from Qualcomm [ph] 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-based programs from Lee, Savan [ph], Dickies, Haggar, 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 27. To help drive awareness for REPREVE, we have teamed up with Elena Hight, who is a decorated X Games women's snowboard SuperPipe 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'd like to encourage you to see what we're 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're 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, which 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 furnishings segments have remained at or below year-ago levels for the past 4 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 a 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 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'll make further gains in our mix enrichment strategy there. Turning to the Income Statement Highlights for the December '12 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 for the December 2011 quarter. Year-over-year interest expense declined $2.9 million from 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 costs. Adjusted EBITDA for the December 2012 quarter was $12.2 million, which represent the $4.8 million improvement compared to the December 2011 quarter. Turning to the Income Statement Highlights for the first 6 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 6 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 by $3.8 million on a fiscal year-to-date basis. U.S. cotton apparel imports in calendar 2012 from all countries were estimated to be -- to decline by 6% and imports from the North American regions, specifically, were estimated to declined 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 year 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 August. Although Parkdale America's operating results have been depressed on a fiscal year-to-date basis, 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 POY joint ventures, which were primarily driven by higher utilization rates. Turning to Slide 7. Adjusted EBITDA for the December 2012 quarter was $12.2 million, which is 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 6 months of the fiscal 2013 year were primarily driven by the previously mentioned volume and risk [ph] 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 23 of the receivables and accounts payable are primarily timing related and a 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 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 3% 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 Bill, I'd 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'll turn the call back over to Bill. Bill?

Thanks, Ron, and good morning, everyone. In light of increasing domestic raw material costs, business issues that we've noted earlier in Brazil and a less than robust retail environment, I'm 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 and 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'd like to highlight just a few examples of how our core strategies can be seen in the results for the December quarter and the first half of 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 costs resulting from our cost-reduction efforts, strong regional sales in 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 costs 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 3 years ago, even though we have 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 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 5 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 and 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 2 days. Well, actually it begins tomorrow. We believe this is an important step 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 U.S. 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 of fiscal 2013 to be in the $10 million to $11 million range, which reflects the impact of a shortened 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'd 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'll turn the call back over to the operator for any questions that you may have.

[Operator Instructions] And our first question comes from Chris McGinnis with Sidoti & Company.

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

I think, generally, it's going to be pretty neutral, the timing of the holiday shutdown period, AR, it obviously goes down when you have less sales leading into that and accounts payable we buy less as we're 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.

All right. And then just to dig into the international a little bit more, I guess a couple of questions. One is what is the percent of sales of PVA products currently?

Yes. Our current percentage on a -- you're talking about consolidated or on international?

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

I don't have that break out in front of me but generally speaking, we consolidated -- we're 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 just some of the comments you made obviously with Brazil. What gives you more confidence that you'll see an improvement in the June period compared to the March? Is that more about, I guess maybe, you being proactive in costs, in controlling costs 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 the 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 sort of looking at the March quarter being down slightly from where we're running at today. And then the June quarter, which is typically a strong quarter for Brazil, certainly be an improvement even from where we're at today. So that March quarter, you've got the cut in volumes. You also got some of the Brazilian holidays going through there and you also have some of the incentives that are in the Brazilian operation are transitioning out for the -- that will not be in place for the March quarter and there'll be some incentives there that sort of come back in the June quarter. So some of the trade environment, we're talking about trade environment, that trade environment will change between those 2 quarters which gives us some of the confidence. Then, generally speaking, the underlying business improvement, I'll let Roger talk about that.

Yes. I think -- I mean, over the next 6 months to 12 months we do see opportunities to enrich the product mix. So as we mentioned earlier, we'll 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've done here domestically, around cost control and process improvement initiatives. We've kicked off a rigorous effort in Brazil looking at the same thing. We've been doing that over the last few years but really taking that a step further.

Yes, and I guess the only -- this is Bill, the only thing I would add to that is about 1 year, 1.5 years ago, the Brazilian currency did strengthen significantly. And during that time, imports, especially from Asia, really increased, especially in finished -- finished goods. The currency certainly has weakened over the last 12 months and I think it's 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 1 year ago.

And then just on the China business, if I remember right, I believe a lot of that product was supposed to go to Europe, if I'm 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's the trigger? What's the driver behind that? Is it an improvement in Europe or is it more about them getting their inventory kind of in line?

I think when you specifically look at Europe and the customers that we have, that we're servicing, that feed into Europe, for the most part, some of those customers are back-end 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 and the momentum there continues to really keep us very excited. So as Europe continues to struggle to come back from a volume standpoint, we're 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 back online, we think we have China, from a PVA servicing brands and retailers position, very well to capture that market.

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

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

Right. But our mix of products that come out of China, they go into Europe, I mean, UTSC is primarily focused on that European business.

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

Great. Just a couple of quick other ones.

Chris, hold on, one more on that. I mean, we're selling yarn to converters in China but the ultimate disposition of that product is either to the Europe or to the U.S. We're not -- we're doing very little exports of yarn out of China. It's the beginning part -- it's that pull-through strategy where we market to the guys in Europe, we market to the guys here in the U.S. They expect our yarn in. It's that pull-through strategy of -- the ultimate finished product is going back to those markets.

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

I think it's a little bit too early to sort of get through the whole process and understand what the different implications are. We've certainly taken a look at it. I guess, January '14 will be another sort of milestone date under that, so we'll be giving you guys updates as we move forward. But I think it's too early to look at where it's been. I think from historical perspective, certainly, health care costs continue to be a large part of our social costs, 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 of weeks ago and talks about sourcing or bringing more product back to the U.S. 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?

Well, I think, when we look at Walmart, we do business with Walmart today. We do some PVA business with Walmart today, with REPREVE. And so we sort of interpret that, it could be the U.S. or could be the Americas. We're well positioned in this region to take advantage of that. And that's a trend, a lot of people in the industry are talking about programs moving back from Asia into the Americas. So we've seen some of that taking place, so certainly, we're excited, we're well-positioned. A lot of the things that we've 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.

I think when we look at that trait, we put up that chart every time about sort of the region's share of apparel consumed in the U.S. We certainly believe sort of the pendulum swung too far and we're hearing more and more talk of programs coming back into the region. We started telling you guys sort of 9, 12 months ago, "Hey, there's investment going down into the region down here." There's more capacity being added. That 18% is holding steady but it's on a growing base that's taking share from cotton as well. So there is -- we're excited about the growth opportunities here in CAFTA. I mean, you're not going to talk 10%, 12% of growth. But that mid single-digit growth, I mean, we're excited about the potential for future growth opportunities here in CAFTA.

And just because you said it, Ron, but maybe just a little bit more on Parkdale? Maybe what they're 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 6 months? Is that kind of 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've said that cotton, even though the apparel consumed in the U.S. has been growing, cotton apparel consumed in the U.S. 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've talked all along about how long it takes for some of the inventory to work its way all of the way through the apparel supply chain. So I think part of that was a 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 that shift there that you 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 to sort of mitigate that a little bit. You've also got the potential for the actual growth of apparel consumed to start back growing. So I think Parkdale, they've done a good job. Those guys run a good business. They've done a good job to adjust their volumes and their costs to the level of business they have and as we move forward to the back half of the year through really calendar '13, we certainly expect improved results from what they did over the last 6 months.

[Operator Instructions] Your next question comes from Jonathan Sacks with Stonehill Capital.

Can you please comment on what cash and debt look like now pro forma for the Parkdale distribution and pay down?

Subsequent to the Parkdale distribution and pay down?

Yes.

Hang on 1 second, I'll start on that. I'll refer back to that debt page in the presentation.

Right. Page 9.

Yes, page 9 there. December 23, basically the $44 million we had on the revolver and the $46.4 million we have under the term loan, you 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 from 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 our working capital, being neutral as we move through the quarter, we'll 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 that $13.8 million, it came out of that $7.8 million distribution plus out of that revolver.

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

Yes, exactly. I mean, 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 or checks that we've already written that are outstanding. So we don't have, on a day-to-day-to-day basis, we're basically sweeping whatever excess cash we have and we're paying down that revolver balance.

Okay, and remind me, what's the undrawn availability on the revolver? And I apologize if you already have it 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.

Okay. And then last question. Can you just give us any guidance on your current thinking on capital expenditure outlook?

Yes. I think I'll hit you with sort of the traditional answer of, we spent $6 to $8 million a year on maintenance CapEx. If you look back overtime, we talked about sort of $4 million to $5 million of annual spending on what we call strategic CapEx, whether it's 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 forecast. If you look out over the long-term that's what we've included in our long-term models. Now, the exception of that is, 2 years ago, I guess, we expanded into Central America. That had about a $5 million capital investment in that and the we have -- we did our REPREVE recycling center that 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 sort $6 million to $8 million of maintenance, that $5 million -- or $4 million to $5 million of another amount of strategic CapEx is what we're going to spend unless we have a special project like a REPREVE expansion going and we have not announced anything on that at this point.

And I'm sorry, if I could just squeeze one more question on the stock buybacks, that's 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 you hope to do over the next 6 months or 12 months or some other period?

Yes, I think, you remember when we came out in our sort of investor meeting back in November, we said, we'll 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'll evaluate those strategic opportunities, but we'll 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 will be sort of returning it to investors through a share repurchase program. So 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 up to, I think, it's $50 million worth of shares. It's a natural progression of what we told you guys we would start doing in November. We also told you in November, sort of our target debt level was $75 million when we would start that. I think this -- there's no limitation currently, of getting all the way to $75 million of debt before we start that. So I think for us, we, as the management team, will be looking at sort of what are the -- 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's not something that -- there's no specific date or specific timeline that we have that we're making public or have developed.

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

Okay. Thank you, very much.

Okay, operator. Thank you very much. I 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.