Unifi, Inc. (UFI) Q3 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 Third Quarter Earnings Conference Call. [Operator Instructions] I would now turn the call over to Ron Smith, CFO of Unifi.

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 Third Quarter Conference Call link found on our homepage. Before we begin, I need to first advice 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-Qs and 10-Ks 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 our schedules to the webcast presentation. Before we begin the financial details for the quarter, I'd like to turn the call over to Roger, who'll provide an overview of the markets and the raw materials trends. Roger?

Thanks, Ron, and good morning, everyone. Looking at all retail sales after a positive start to the 2013 calendar year, retail sales dropped temporarily in the month of March, as shoppers held back on spending because of cold weather, combined with the impact of January's payroll tax increase. March 2013 was the coldest March in 7 years, which delayed sales of spring apparel. However, this did help move some of the remaining winter apparel inventory, which should be positive going into next winter season. Many analysts expect April retail sales to be stronger, as the weather improves and the shoppers benefit from tax refunds and falling gas prices. Looking at the individual market segments related to our product offering. The automotive segment continues to be a bright spot in the economy. March turned out to be the best month in auto sales in at least 6 years, with some automakers reporting their best monthly total sales since the start of the recession in December 2007. Low interest rates and the desire to replace older vehicles with more fuel-efficient ones are helping to drive demand for new cars and trucks. The current production forecast for 2013 is expected to be at the highest level we've seen since 2006. The Ford Focus was recently named the #1 selling vehicle in the world. And as mentioned on previous calls, consumers can now find REPREVE in the cloth seating fabrics of the Ford Focus Electric. We continue to expand our relationship with Ford as REPREVE has been selected for some 2015 models, and we will provide an update on these new vehicle adoptions in the coming quarters. Retail sales of apparel in the U.S. increased 2.9% for the March 2013 quarter compared to the March 2012 quarter, and improved by 0.8% compared to the December 2010 quarter mainly due to retail sales price inflation. There are some preliminary indications that apparel consumption on a square meter fabric basis will grow slightly in the calendar 2013 compared to 2012, which would be a positive sign for the company from a volume standpoint. Retail inventory days of apparel have held steady at approximately 73, however, inventory days at apparel producers increased for the second consecutive quarter, and are now at 59 days. We have been aggressively managing our inventory, including extending the length of our Christmas holiday shutdown during the March quarter, to ensure that we stay in line with demand in the supply chain. While this had a negative effect on our volume at the beginning of the quarter, we are now running our domestic operations at very high utilization rates going into our fiscal fourth quarter, while maintaining healthy inventory and high customer service levels. In the housing market, privately owned housing starts in March were 7% above February's estimates and 47% above the March 2012 rate. Retail sales in dollars for home furnishings for the March 2013 quarter were up 3% compared to the same quarter last year, and inventory days remained at year-ago levels. While this segment continues to remain below expectations and near previous recession level lows, it is showing signs of improvement. To summarize, the volume in the March quarter started out very slowly in January, but picked up significantly as we move through the quarter. Our sales volume rates have returned to targeted levels in the month of March, and we feel optimistic that the momentum that we're seeing will continue into the June quarter and into our next fiscal year. In terms of raw materials, the company expected pricing to increase only slightly during the March quarter. However, raw material prices for polyester increased by approximately 5%, which was a much sharper increase than anticipated, and was driven by the tight global supply of the primary ingredients for polyester. We have seen raw material prices moderate in the June quarter, as the tight raw material market conditions began to ease. And we also expect to recover lost margin in our fiscal fourth quarter, as adjustments to our sales prices take effect. The gap in polymer pricing between the U.S. and Asia increased in the March 2013 quarter to approximately $0.14 per pound. We are now at 6 consecutive quarters where the gap between the U.S. and Asia is above $0.10 per pound, and we expect the gap in the June 2013 quarter to be at or above the current quarter. This raw material gap, along with cheap import pricing in polyester DTY, continues to put pressure on the low end of our product offering. However, the success that we have had with our mix enrichment strategy has helped lessen the impact of such pressures over the past few years. Turning to our Brazil business. The results in the March 2013 quarter also started slowly from the Christmas holiday and then into the Brazilian Carnival period in February. The inflation rate in Brazil, which stands at 6.5% on a rolling 12-month basis, the recent changes in the Brazilian value-added tax credits and the continuous pressure of cheap imported textured yarn have made conditions in Brazil very challenging for the first 9 months of the fiscal year. However, we've been working on several initiatives designed to recover gross profit, volume and to overcome the loss of the VAT benefits. We started realizing some of this improvement in March, and expect an improving financial trend as these initiatives are now in place for the fourth quarter and going into the 2014 fiscal year. Our gross profit performance in China greatly improved in the March 2013 quarter despite the generally soft market conditions there and relatively low capacity utilization rates throughout the Chinese textile industry. Data from Europe indicate that its major economies are beginning to show signs of emerging from the recession, which bodes well for our operations in China as European and U.S. brands are the primary users of garments from China that utilize our products. Interest and demand for our premier value-added products remain robust, and we continue to be encouraged and excited by the opportunities that are either in development or under consideration with key brands. Although we will fall just short of our growth expectations for the 2013 fiscal year in China, we expect our results to be much better than the prior year, and the positive momentum should carry into our next fiscal year. We continue to be on track to double our global sales of premier value-added yarn by 2014. REPREVE continues to be the flagship in our PVA portfolio, and we are very pleased with the opportunities of new and upcoming REPREVE product adoptions. We are expanding into new end-uses and market segments, and continue to grow the brand with current customers. In addition to the work that we are doing with Ford, we are also excited to work with Freudenberg, a large non-wovens producer, where we have expanded our REPREVE product offering by providing them with REPREVE recycled polyester polymer as the starting ingredient for their non-woven process. This provides us with the unique opportunity to grow into new market segments ranging from carpeting to injection molding. We also have a number of product adoptions in the men's bottom weight business, and we are breaking into the women's wear market segment with our Brazilian high-end denim manufacturer based on Florida. As we narrow in on our target demographic, the eco-conscious consumer and brand, we are starting to further penetrate markets, including the swim market, with leading brands, Quiksilver, Vitamin A and Eco Swim. We also have expanding business with Volcom and the cap and gown graduation community, just to name a few. We are very pleased with the results achieved from our association with the X Games Aspen, which took place in late January. As you may recall, REPREVE was the official recycling partner at the games, and we partnered with Elena Hight, who was a decorated X Games Women's Snowboard SuperPipe medalist, to service as our brand ambassador. Through our national advertising campaign, we reached over 42 million consumers with our REPREVE message with ESPN. Additionally, with an aggressive media and social media campaign and on-site activations, we directly engaged tens of thousands of consumers with the brand. Taking a more active role in marketing REPREVE directly to consumer not only creates awareness for REPREVE among target consumers, it also raises the visibility and credibility among brands and retailers. We will continue to evaluate additional marketing programs for REPREVE to build upon the momentum created by the X Games, and to establish REPREVE as a leading ingredient in sustainable products. We will be updating more on these strategic marketing initiatives during the upcoming quarters. With that as a backdrop, I will turn the call back over to Ron.

Thanks, Roger. And I'll begin the review of our preliminary financial results for the March 2013 quarter on Page 3 of the presentation, with net sales and gross profit highlights by segment. In the polyester segment, volume declined compared to the March 2012 quarter due to a mix shift to lighter denier yarns, which go in the lighter-weight fabrics, which consumer preference is moving towards, and the retail softness Roger noted earlier. Gross profit in the polyester segment declined on a quarter-over-quarter basis, primarily as a result of the cost impact of an extended holiday shutdown to adjust inventory levels and margin pressure during the quarter from the higher than as forecasted polyester raw material prices. During the quarter, we worked with customers to implement price changes, and the combination of these price increases, and the recent moderation of raw materials should allow us to recover the lost margins in the June quarter. Our nylon segment continues to achieve comparable year-over-year results as seamless and shapewear volume improvement continue to offset declines in the hosiery markets. In the international segment, year-over-year volume declined 9.4% in the March quarter, as the 12% decline in Brazil was partially offset by growth in China. As Roger noted earlier, we did see volume rebound in Brazil as we exited the March quarter, and we expect to be at targeted levels in the June quarter and into the new fiscal year. Gross profit from our international operations declined $0.4 million, as the volume growth in China partially mitigated the decline in operating results in Brazil. In Brazil, import competition on our commodity yarn business had a significant impact on volumes, but a limited impact on gross profit dollars. The primary negative impact on gross profit was changes to the VAT incentive program for local manufacturers in December 2012. On a year-to-date basis, the gross profit for the international segment increased 14%, and we expect further improvement in the fourth quarter, as planned improvements in Brazil develop and its operating rates return to more normalized levels. Turning to the income statement highlights for the March 2013 quarter on Page 4. The company is reporting net income of $1.4 million or $0.07 per share on net sales of $168 million for the March 2013 quarter. On a consolidated basis, gross profit declined $900,000 for the March 2012 quarter and SG&A expenses are flat year-over-year despite the investment that we made in the March 2013 quarter for our REPREVE branding initiatives associated with the X Games. Net income for the current quarter was negatively impacted by a $5 million decrease in earnings from the company's equity affiliates, a one-time charge of $700,000 related to the $13.8 million prepayment of the company's Term B Loan at the beginning of the quarter, and a $1.6 million increase in income taxes, resulting from a higher net effective tax rate. Year-over-year interest declined $3 million in the current quarter, as a result of the successful completion of the company's deleveraging strategy, which has dramatically lowered debt levels and significantly reduced our interest carrying cost. Turning to the income statement highlights for the first 9 months of fiscal '13 on Page 5. The company is reporting net income of $6.1 million or $0.30 per share on net sales of $513 million for the first 9 months of the 2013 fiscal year, an improvement of our net income of $200,000 or $0.01 per share on net sales of $517 million for the prior year period. Our gross profit increase of $11 million for the first 9 months was reduced slightly by a $1.4 million increase in SG&A expense related to increased professional fees and the REPREVE branding initiatives mentioned earlier. Turning to our equity affiliate highlights on Page 6. The company's earnings from Parkdale America had been lower in both the March 2013 quarter and the year-to-date period. For the year, Parkdale America results have been negatively impacted by lower average volumes and sales at a $0.01 price per pound reduction in the EAP cotton rebate, effective August 2012. Nevertheless, we're encouraged by the recent volume and margin trends at Parkdale, as higher capacity utilization recently has reduced per unit cost, thereby improving margins. Distributions from Parkdale America totaled $7.8 million during the quarter and $10 million for the 9-month year-to-date period. Consistent demand in our nylon segment has resulted in higher utilization rates for our nylon POY joint venture, which resulted in $0.3 million and $1.6 million improvements for the March 2013 quarter and the fiscal year-to-date period, respectively. Turning to Page 7. Adjusted EBITDA for the March 2013 quarter was $8.4 million, below our $10 million to $11 million estimate providing -- provided on our earnings call in January. Versus our forecast, adjusted EBITDA was negatively impacted primarily by the higher-than-anticipated raw material prices and the negative impact on manufacturing costs caused by the extended holiday shutdown. This extended shutdown allowed us to effectively manage inventory levels, and was one of the key drivers behind our $4.3 million decrease in adjusted working capital during the quarter, which can be found on Page 8. Despite the slow start in sales at the start of the quarter and the higher-than-anticipated increase in raw material prices, we were able to successfully manage inventory levels and meet our working capital goals for the quarter. As of March 2013, our receivable aging remains healthy, with approximately 95% of our receivables current within 15 days. During the quarter, receivables increased $8.6 million based on higher sales volume as we move through the quarter. This working capital investment in receivables was more than offset by a $15 million increase in accounts payable related to the timing differences and the benefit of extending our payment terms with certain vendors earlier in the year. Turning to the capital structure highlights on Page 9. Cash increased slightly during the quarter with most of the cash being held in Brazil and China, and the revolving credit facility availability at the end of the quarter was $34.2 million. The cash generated from operations, the $7.8 million distribution from Parkdale America and $7.3 million of borrowings under our revolving credit facility were utilized to prepay $13.8 million remaining balance on the Term B Loan, pay $1.8 million of scheduled principal statements under the ABL term loan, and repurchased $9.7 million of our common stock under the company's $15 million stock repurchase program. During the quarter, we repurchased 571,000 shares at an average price of $16.93 under the stock repurchase program announced in January 2013. As of the end of March 2013 quarter, we now have approximately 19.5 million shares outstanding. 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 March quarter in our Form 10-Q on or before Friday, May 3, and our quiet period for the June quarter will begin on Friday, June 18 -- sorry, Friday, June 28 and extend through our earnings release conference call, which is currently scheduled for Thursday, July 25. With that, I'd like to turn the call back -- or turn the call over to Bill.

Thanks, Ron, and good morning, everyone. I'd like to take just a few minutes to review our current situation, the strength of our underlying business and the momentum that we see for the company as we enter the June quarter and prepare for our 2014 fiscal year. Our underlying business in Brazil improved during the quarter, and we're encouraged by the sales volume and margin trends as we enter this current quarter. Our results from Brazil have been challenged by many factors over the past year or so, including rising raw material prices, currency rates that have favored imports over domestically produced goods, and as Ron mentioned, the change in VAT program. Our reaction to these issues, initiatives Roger referenced earlier, include process improvement, mix enrichment and sales price management efforts that are now providing measurable results. These initiatives have helped us remain competitive in Brazil. And although it is not yet performing at historical financial run rates, it has greatly improved, and we expect a significant recovery in our operating results from Brazil in the June quarter and into our 2014 fiscal year. I recently spent a week in China, and I'm excited about our opportunities there. Interest in our premier value-added products is strong and the amount and type of development work that we are involved in is very encouraging. We also believe that improving demand for our PVA products in Europe will also present many new avenues for growth from our operations in China, so much so that we have recently opened a sales office in Europe to more effectively market to brands and retailers there. Despite generally slow commodity textile activity in China, I feel confident that our business, which is focused on PVA sales, will continue to grow at a 20% to 25% annual rate, and that the contribution that UTSC makes to the company's overall financial performance will expand significantly in the next fiscal year and beyond. Here in North America, we are seeing growth in apparel produced in the region, as regional share of U.S. retail apparel has stabilized at about 18% over the last 4 years, and consumption has grown, especially of apparel made with synthetic yarns. In fact, 22 new textile plants have been opened in the U.S. over the last 3 years, including 10 here in North Carolina. In our North American market, we expect continued mid-single-digit growth as retailers and brands maintain regional sourcing as part of their overall sourcing plans, retail sales grow modestly and consumer preferences shift away from cotton to synthetic apparel. Domestically and in Central America, our capacity utilization rates remain very high, as we manage a more complex business that requires substantially higher number of product changes as we enrich our mix and reduce our focus on commodity products. Despite that significant shift in product complexity and inflation in services and labor costs, our cost per pound remained in control and near previous, more commodity mix levels. This is driven by a disciplined and rigorous continuous improvement effort, coupled with an embedded lean manufacturing culture. Our consistently aggressive inventory management efforts have helped maintain strong cash generation. Our disciplined product and pricing management process has helped improve gross margins throughout the quarter even in light of higher-than-anticipated increases in raw material prices. We do expect raw material prices to remain flat or rise slightly over the next few months, but this will enable us to recover lost margin in the June quarter, as our price increases in response to the January and February raw material increases take effect. Our growth rate in domestic production of REPREVE products puts us on a path to exceed the capacity of our Yadkinville recycling facility within the next year, and we will likely expand that capacity in the next 12 months. This expansion will help assure we maintain momentum in REPREVE as our flagship brand continues to gain global traction. Enriching our product mix through a focus on PVA products helps insulate the company from the pressures of cheap imports of commodity yarns and has helped establish Unifi as the innovation leader in our core markets. We remain on track to sustain a 20-plus percent annual growth rate of PVA products and to double our 2010 PVA sales by 2014. In addition to expanding the REPREVE recycling center capacity, we expect to invest in additional capital expenditures, increasing the flexibility of our current asset base and improving our small production run capabilities, all of which is designed to support our mix enrichment strategies, while improving our ability to better service our customers and handle an increasingly complex product mix. The additional capital expenditures is expected to be roughly $7 million per year for the next 2 fiscal years over and above our normal maintenance capital expenditures. Lastly, I'm pleased with the initial stock repurchase of nearly 600,000 shares that the company made in the March quarter, as it demonstrates the strength and liquidity of our business. We will continue to look for the right opportunities to use excess cash from operations to repurchase additional stock in the June quarter and beyond, while maintaining the necessary liquidity to support our operational needs and fund future growth opportunities. Our year-to-date performance also reflects our continued focus on our core strategies, which include driving continuous improvement across all operational and business processes, enriching our product mix by expanding our trade compliant yarn sales and growing our higher margin PVA product portfolio and focusing on global profitable growth. Given the volume and cost improvement momentum in our business as we exited the March quarter and the ongoing execution of our core strategies, the company expects adjusted EBITDA in the fourth quarter of fiscal year 2013 to be in the $15 million to $17 million range, which will give us adjusted EBITDA in the low-50s for the 2013 fiscal year, which is in line with our previous guidance provided during the course of this year. And with that, I'll turn the call back to the operator for any questions that you might have.

[Operator Instructions] Our first question comes from Chris McGinnis with Sidoti & Company. Christopher McGinnis - Sidoti & Company, LLC: I just want to -- I guess, just on the change in the VAT in Brazil, longer term, does that affect or impact, I guess, the profitability in Brazil as it used to be one of the strongest regions?

Yes, I think the Brazilian market has been a good market for us. I think if you go back to the original peaks that we were seeing 4 or 5 years ago, that business has came down over the last 3 or 4 years, down from sort of $20 million -- low $20 million EBITDA to sort of a mid-$15 million level -- or $15 million to $16 million level EBITDA. I think if you look at that sort of $15 million to $16 million level EBITDA, the plans that we have in place right now, as that VAT goes away, as that VAT benefit goes away, the plans we have in place right now, we feel confident we'll be able to get back into the recent run rate. But I think if you go back to the longer term, where we were running in the low-20s, I think that was 2010. I don't see us getting back to there. We've got plans to work back to there over the next several years, but that's not something we're going to get back to in the shorter term. But the improvement from where it's been running -- well, it's 2 things really. The improvement from where it's been running up into that sort of $15 million to $16 million level, we expect that this quarter was the first quarter we felt the negative impact of that, and so the plans -- some of the plans and some of the other programs we have in order to offset that won't be coming into effect until that fully works through our inventories. So this quarter was the quarter we will transition out of the old into sort of the new for those programs. Christopher McGinnis - Sidoti & Company, LLC: Is there any chance of that program could come back in and be beneficial or is that just going forever, the VAT?

Yes, this as Bill. Let me just give you a little maybe longer-term view. The VAT changes affect not only us, but all of our competitors in Brazil. And we remain very, very competitive, especially in the higher end of the market. And my view would be, irregardless of what happens to the VAT, we will continue to improve in Brazil over the next several years as the market there gets better. And again, I think the VAT changes, whether they're positive or negative, are going to affect everybody in that market, and we still remain the premier supplier down there, especially in the higher end of the market. So I'm encouraged that we're getting that close to where we were before, and I think we'll see continuous improvement over the next couple of years. Christopher McGinnis - Sidoti & Company, LLC: Just on the polymer gap, it was referenced earlier, has the change in -- seemingly the ease in raw material costs, how quickly is that benefit and how quickly will that kind of flow through, I guess, over the next couple of quarters? But I guess it seems like with the pricing coming down of raw materials, the polymer gap is going to stay high, can you just maybe talk about that a little bit more, what drives that?

Yes. I'll take the first part of that question, and Roger can do the second part. But the first part around how quickly it works through, we roughly have -- we turn our inventory 6 to 7 times a year. So when we get a price change, that price is going to take us sort of 2 months to work through our inventory and show up the prices. Our expectation of a slight increase during the quarter, not only did the increase go up significantly higher, we were -- it went up probably twice of what our forecasts were. It went up faster so it went up early in the quarter. We've actually seen it come down in March, and we've also seen it come down in April. So the dropping back down, we're confident in them because we've seen the numbers come back down, but it's going to take a month or so for that -- the March decrease, it will take a couple of months for that to work through, and then the April, a couple of months for it to work through. But that's part of the reason why we're so bullish because we -- as we recover those margins that we lost in the quarter, that drives a big part of the guidance that we gave around the $15 million to $17 million. As far as the gap and where it's at long term, we've talked about it being -- or the higher prices are being driven by tightness in the market and we do expect the capacity or capacity is coming online in the third quarter of the year. So the longer term moderation, we would expect to continue. As far as the gap, you want to talk about that?

Chris, this is Roger. When we look at the gap and sort of study the impact of the gap and how it impacts our business, it really impacts the lower end of our business, where we do compete with imports, that noncompliant segment of our business, and which is roughly 30% of our business in that mattress ticking and sheeting business. So as we've offset some of that with our mix enrichment strategies, and based on our plant utilization rates, we decide how much we want to participate in that market segment or not. So as that gap widens, it makes it more difficult for us to participate in that market. And as Ron said, we do expect, longer term, that gap to narrow, which gives us an opportunity to be more successful in those market segments. Christopher McGinnis - Sidoti & Company, LLC: Just on the strength in China, it's been a few quarters since we've heard anything positive or probably a lot longer than that. But is it just the weak comps, you think, that are coming through on the European side? Are you finally lapping those? And it still seems like there's obviously some real issues structurally in Europe and can you maybe just speak about where you're seeing the strength or is it really just you're moderating on maybe declines?

No. I mean, we really see improvement in China. And again, our China model is not targeted towards any commodity business. When you think of China, there's just a large amount of commodity business being done in China. Our strategy there is all our value-added strategy. And as these brands, both European brands and U.S. brands look for differentiation, they're turning to us as one of the innovation leaders in our field, and they're looking to items like REPREVE and REPREVE continues to grow across all market segments. And it's opening up opportunities for us to sell REPREVE in China. So as we look for China, we see the opportunity more in that value-added segment, and we're seeing more and more brands look for differentiated products, which opens up our opportunities for us in China. In terms of the overall business, I mean, we see utilization rates in China still in that 60% to 65% utilization rate. So we know the market is soft, and we know there's less apparel being imported or exported out of China into the U.S. and Europe. However, our business model is working for us and the products that we're offering.

Yes, I think the other thing I would say is if you go back 3 years from a China -- or 2 years from a China perspective last year, China didn't fall off as much as it stayed flat. I mean, it had been growing year-over-year ever since we exited the joint venture. So it didn't fall off as much as it stayed flat for a year. Now we're back to that sort of growth model that we're seeing. That staying flat and not growing like it had been growing was related, I think we mentioned this on a couple different calls before around -- we had a large concentration of our sales with a couple of different European retailers that as the market's soft in Brazil, they made a dramatic change in their purchasing in order to adjust inventory levels. And so because of the link to that supply chain, we can see those orders coming back now. And so that's part of where the confidence is and the underlying part of the business. Then the other part is like Roger said, there's more adoptions of REPREVE, which has driven more volume into that business, and so the year-over-year comp is -- wasn't growing at the level it had been growing, but it was -- it has been staying. It was pretty stable to what it was a year before. So we just had a sort of a year delay there as the market fell off. Christopher McGinnis - Sidoti & Company, LLC: I guess just 2 other things. One, just on the CapEx, going forward, should be in that maybe 14 to 15 range, is that kind of...

Yes. We've said that -- sort of our -- we call it maintenance CapEx, but I know that's not sort of a word that a lot of people use. But for us, it's maintenance, it's not -- it's maintaining our ability and extending the life of our assets, and it's increasing the flexibility of our assets. So that type of maintenance CapEx is what -- is that $6 million to $8 million a year that we spend. If you look back, we're always in that sort of $6 million to $8 million. It's sort of that minimum CapEx we spend in order to maintain our technology and extend the life of our individual asset. So the midpoint of that's obviously $7 million. And what Bill was saying is the discussions we had with the board yesterday was our PVA strategy, our mix enrichment strategy, the growth that we're seeing in that. We can support that business where we're at today, but our expectation is for continued growth in that business based on the program adoptions and some of the stuff we're seeing in the future. So in order to support that, our expectation is over the next couple of years, we're going to spend an extra $14 million for growth initiatives around capital expenditures. And that's roughly going to be split over the 2 years. So if you take the $6 million to $8 million of maintenance, then $7 million per year of additional strategic CapEx or CapEx related to growing our PVA business, that gets you to $14 million of CapEx over the next 2 years. Christopher McGinnis - Sidoti & Company, LLC: Sure, perfect. And then, I guess, just lastly on Parkdale, obviously, I know it's volatile quarter-to-quarter, but just I guess for year-end distribution and you feel confident maybe about the pickup in the business in the fourth quarter -- or in your fourth quarter, sorry.

I think the -- and Bill participates on the Parkdale board so he can add the color as well. But from a distribution standpoint, they have very limited debt. I think the debt's somewhere around $5 million. They still have, from a net debt perspective, they have more cash, significantly more cash than they have debt. So their balance sheet is completely strong. There's no issues around their balance sheet. They certainly have the financial capability in order to pay distributions. From a volume standpoint, I think we've talked before on these calls. So actually, I think Bill mentioned it earlier in his script around there's been a regional shift towards some synthetic apparel that caused some softness in their business. I think those cotton manufacturers, not just Parkdale, but the entire sort of U.S. cotton spinning industry, has reacted because they have a raw material advantage on a global basis. They're exporting quite a bit of cotton. So Parkdale has sort of changed some of its strategy around its exporting more cotton, and that's driven higher capacity utilization rates, and that sort of higher volume lower-cost model is what gives us the confidence for going forward.

Yes, I guess the only thing I'd add to that, Ron, is when you look at Parkdale's operations here versus almost anybody else in the world that they're certainly the most efficient, probably the lowest cost, especially because of utility rates here. And they do have a cotton advantage, which is just the opposite of polyester price difference between here and Asia. So I'm very confident they're going to continues to run a very high rate of capacity and continue to provide good results to us.

And the other point, Chris, I know you know this, but around the Farm Bill with the EAP rebate dropping back in August from $0.04 to $0.03, a new Farm Bill is expected to reset that to $0.04, but the impact on Parkdale of that $0.03 to $0.04, you see it in the earnings, but the lower the earnings -- the lower the rebate, the lower CapEx they're required to spend on that as well. So from a cash flow standpoint, we think that, that $0.01 per pound drop is going to have a minimal impact on cash flow because there'll be a corresponding drop in the CapEx that they're spending.

[Operator Instructions] And at this time, I'm not showing any further question.

Okay. Thank you, operator. I'm just going to have a couple of closing comments. To summarize it, our domestic markets are stabilized over the last 4 years after nearly 10 years of erosion, and are actually growing now as brands and retailers have recognized the value of in-region supply. We've aggressively reacted to the Brazilian market and tax law changes, and are back on a positive financial track. And I am encouraged by the positive momentum we have and expect positive results over the next several quarters. And with that, I'll thank everybody for being on the call and thank the operator.

Thank you. Ladies and gentlemen, thank you for your participation today. This does conclude the conference. You may now disconnect.