Unifi, Inc.
Q3 2015 Earnings Call Transcript

Published: 25 Apr 2015

[Operator:]

Welcome to the Unifi, Inc. Third Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to James Otterberg, CFO. You may begin.

[James Otterberg:]

Thank you, Latoya 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 advise you that certain statements included on today's call will 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 of the markets in which the company operates. 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 in our Form 10-Qs and Form 10-K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures such as adjusted EBITDA and adjusted EPS will be discussed on this call and non-GAAP are reconciliations can be found on the schedules to the webcast presentation. Before we get to 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 company's markets, raw material trends and other business updates.

[Roger Berrier:]

Thanks, James and good morning, everyone. I will start this morning with a few brief comments regarding our outlook for our key retail market segment. Retail sales in each of our key segments increased in the March 2015 quarter, compared to the prior year March quarter with approximately gains of 2% in apparel, 4% in furnishings and 6% in automotive. However, retail sales in the March quarter compared to the December quarter were flat to slightly lower in each of our segments with poor weather in January and February having a negative impact, as well as the belief that cautious consumers have been more focused on using the savings from lower fuel prices to improve their household finances instead of spending them at retail. However, many economists are projecting a rebound in consumer spending in the spring and are estimating annualized increases in consumer spending of approximately 2%. Now turning to the company's sales for the March quarter, we continue to see strength in our textured polyester volume based on continued growth in the NAFTA and CAFTA regions, as well as an increase in demand for our premier value-added yarns which includes REPREVE, our recycled yarn. The production of synthetic apparel in the region continues to grow at an average of 5% to 6% annually as more brands and retailers are choosing to source their products in the Western Hemisphere. We anticipate this trend will continue into the foreseeable future. As we announced earlier this month, we're increasing our polyester texturing capacity in the United States and Central America to support the growing demand in the region and we will continue to make the necessary investments to provide additional capacity as may be needed in the future to service the growing number of customers sourcing from this region. In addition to supporting the growing demand for textured polyester in the region, the added capacity will also allow us to produce more of the lighter weight yarns that consumers are looking for in performance apparel offered by brands such as Nike, Under Armor and Adidas. The average yarn that we produce today is about 20% lighter or finer than the average four years ago and the production of lighter yarn requires us to run more spindles to manufacture the same number of pounds. Therefore, the added capacity provides us with the ability to service both the overall growth in textured polyester, along with the increased demands for the lighter fabrics. Prices for our raw materials declined by 15% in the March quarter. However, we anticipate a steady increase in raw material prices throughout our June quarter. The company did not adjust sales prices to match the total declines in the December and March quarter because we anticipated the current increases and our focus remains on offering our customers as much pricing stability as possible, despite the shifts in raw material costs. In any event, it should be noted that the raw material price decline caused our margins in the March 2015 quarter to be slightly higher than our expected normalized run rate. The gap in polymer pricing between the U.S. and Asia remains in the $0.12 per pound range. And Asian yarn producers continue to be very aggressive with their prices for DTY yarn in response to the ongoing low capacity utilization rates in China. Turning to our international businesses, we're pleased with the performance in Brazil and China, both in the current market quarter and on a year-to-date basis. Although the devaluation of the Brazilian real versus the U.S. dollar continued to negatively impact sales revenue, for Brazil and U.S. dollar terms, all other performance metrics improved in the March 2015 quarter compared to the prior year quarter, including sales volume, gross margin, operating income and EBITDA. Operationally, our business in Brazil has improved with the weaker exchange rate, allowing our operations there to be more competitive versus importing yarn. We have made some progress in our mix enrichment efforts in Brazil and this has also led to financial improvement. In local currency, we're encouraged by our progress, although this is dampened somewhat when Brazilian real are translated back to U.S. dollars for our reporting purposes. Sales volume in China improved in the recent quarter compared to the prior year quarter and we saw year-over-year increases in gross profit and operating income. We expect to see continued improvements in our results from China in the June 2015 as some customers begin to shift some PVA programs to China due to their sourcing strategies. Our ability to develop and transition programs within our global operations demonstrates the strategic benefit of being able to service our customers around the world no matter where they choose to source their program. Turning to our PVA products, REPREVE will be used in graduation caps and gowns at more than 1100 colleges and universities this year, including the University of North Carolina at Chapel Hill, Duke, North Carolina State, Yale, Columbia, Notre Dame and the University of Alabama, to name a few. Since launching the REPREVE brand more than 2.2 million students have graduated wearing REPREVE-based accounts. With each gown made from approximately 27 recycled plastic bottles, this program has kept nearly 60 million bottles out of the landfills. REPREVE will also be the official recycling sponsor for the sixth stop North American series of The North Face 2015 Endurance Challenge. The first endurance challenge took place this past weekend in Washington, DC and the final event will take place in December in California. Each running event hosts multiple distances, ranging from a kids 1-K race to a 50-mile ultra-marathon. In addition to REPREVE branded recycling zones, REPREVE is teaming up with The North Face and providing race T-shirts made from recycled bottles. Other new programs -- other new PVA programs include Ford's latest vehicle that includes seating fabric made with REPREVE which is the 2015 Ford F-150 in both the XLT and Sport models. Each truck uses an average of 25 plastic bottles in the cloth interior and collectively through the program, Ford and REPREVE will help divert more than 5 million plastic bottles from landfills this year. But based on the growth projections we have for REPREVE, we expect that we will reach our production capacity in the REPREVE recycling center in early to mid-2016 calendar year. We're planning to expand the existing REPREVE recycle center building to allow additional machinery and we expect to break ground on this edition in May or June of this year. We expect that the construction of the expansion will take six to eight months and that the additional capacity will be operational by mid-2016. In addition to increasing capacity and expanding the existing building at our REPREVE recycling center, we have completed our analysis of investing in the backward integration into plastic bottle processing to feed our REPREVE business. We're finalizing all the contract negotiations and anticipate investing $28 million to build and launch an operation that will be able to produce 75 million pounds per year of clear polyester bottle flake to supply our REPREVE recycling center. We have selected our existing Reidsville, North Carolina manufacturing site which will allow us to utilize many existing site services that currently support our dyed yarn business there. We expect adding approximately 85 jobs to support this operation. At this point, we would expect installation and startup to be mid-2016 calendar year. We will be investing in the latest jointly developed technology for polyester bottle recycling that should help assure we're global leaders in efficiency, cost and quality in this field. We're very excited about this project. All of these investments, along with the continued CapEx to support and maintain our existing PP&E businesses are part of the increased CapEx plan that we discussed in our November annual investor conference and discussed on our January conference call. We continue to explore a couple more strategic projects aimed at profitable growth. We will be updating those in the future as we complete our analysis and finalize the designs and business plans for those projects. With that as a backdrop, I will turn the call back over to James.

[James Otterberg:]

Thank you, Roger. I will begin the review of our preliminary financial results for the March quarter on page 3 of the presentation with net sales and gross profit highlights by segments. Net sales decreased $6.3 million or 3.6% to $171 million for the March 2015 quarter compared to net sales of $177 million for the prior year quarter. The decrease in net sales is primarily attributable to the devaluation of the Brazilian real, partially offset by improved textured polyester and international segment sales volumes. Consolidated sales volume is slightly higher than the prior year quarter, driven by increases in the nylon and international segments, offset by a decrease in the polyester segment. Our polyester segment was unfavorably impacted by lower chip and dye sales, partially offset by higher textured polyesters. International segment sales volume increased from the prior year quarter, due to improvements in Brazil for our manufactured products and higher volumes in China as a result of our success with several new programs and the company's transitioning of certain sales programs from its U.S. operations to China. The quarter-over-quarter price decrease in the nylon segment is mix driven. The quarter-over-quarter price decrease in the international segment is a result of slightly lower local currency prices in Brazil, due to declining raw material prices and unfavorable currency translation in Brazil, due to the devaluation of the real against the dollar. When reviewing our current quarter gross profit results against the prior year quarter, the company is reporting higher consolidated gross profits, as well as higher gross profits for the polyester and international segments. For Q3 of this fiscal year, gross profit improved to $22.3 million from $19.8 million for the prior year quarter and 13.1% of net sales versus 11.2% for the prior year quarter. Gross profit in the polyester segment -- gross profit improvement in the polyester segment is due to improved margins as a result of our mix enrichment initiatives and declines in raw material prices. The decrease in the nylon segment gross profit is driven by the timing of higher converting costs, partially offset by higher volumes and improved margins for the texturing operations. The gross profit increase in the international segment versus the prior year quarter is due to higher volumes for both Brazil and China, higher margins in Brazil on a local currency basis and lower variable manufacturing costs in Brazil as a result of lower energy costs, partially offset by unfavorable currency translation in Brazil. For the nine months ended March 2015, net sales increased $1.7 million or 0.3% to $507.9 million. The sales increase is due to higher volumes in the nylon and international segments, partially offset by pricing declines in both of these segments with the same themes driving these changes as those discussed in the quarterly comparisons. Polyester segment net sales are lower as the volume decline and changes in mix partially offset by a slight pricing increase reflecting continued PDA products success. Year-to-date gross profit improved to $66.5 million and 13.1% of sales from $58.2 million and 11.5% for the prior year period. Gross profit increased for all three reportable segments for the year-to-date period as compared to the prior year, primarily driven by higher textured polyester sales volumes, improved sales margins and higher international sales volumes, partially offset by unfavorable currency translation for Brazil. Turning to slide number 4, I will now review our income statement highlights for the third quarter. For the three months ended March 29, 2015, the company is reporting preliminary pretax income of $12.5 million on $170.5 million of net sales. Pretax income is $3.6 million higher than the $8.9 million of pretax income generated during the prior year third quarter. This increase in our quarterly pretax income is primarily attributable to $2.5 million of improved gross profit, driven by the factors previously discussed, improved earnings from our equity affiliates which we will discuss on slide number 6, partially offset by $1 million write-off of debt financing fees associated with our previous credit facility. For the current quarter, we're reporting preliminary basic EPS of $0.55 against $0.25 for the prior year quarter. Preliminary EPS exhibits a favorable decline in our effective tax rate, primarily due to the timing of book versus taxable income for Parkdale and lower foreign effective tax rates. The decline in average basic shares outstanding to 18.2 million shares from the prior year quarter's 18.8 million shares was due to the company's previously announced stock repurchase program. Turning to slide number 5, I will now review our income statement highlights for the nine months ended March 29, 2015. For the year-to-date period, the company is reporting preliminary pretax income of $35.6 million on $507.9 million of net sales. Pretax income is $2.2 million higher than the $33.4 million of pretax income generated during the prior year period. This increase in pretax income is primarily attributable to $8.3 million of improved gross profit, driven by the factors previously discussed, partially offset by lower earnings from our equity affiliates which we will discuss on the next slide, higher SG&A expenses primarily due to stock-based compensation, marketing expenses and professional fees, a write-off of debt financing fees and a higher net interest expense due to a one-time interest income benefit received by our Brazil subsidiary in the prior year period. For the nine-month period, we're reporting preliminary basic EPS of $1.46 against $1.05 for the prior year period. The increase in EPS, in addition to the factors previously discussed, is attributable to a lower effective tax rate and a decline in average basic shares outstanding from $19.1 million to $18.2 million shares due to the company's previously announced stock repurchase programs. Beginning on slide number 6, we can review our equity affiliates' highlights. As of March 29, 2015, the company has approximately $110 million recorded for investments in unconsolidated affiliates. These investments consist of our 34% ownership in Parkdale America domestic cotton spinner and our 50% interest in two joint ventures that supply raw materials to our domestic nylon operation. For the current fiscal quarter, these equity affiliates accounted for $5.5 million of the company's pretax earnings which is an improvement of $1.9 million versus the prior year's third fiscal quarter. Year to date, equity affiliate earnings of $12.5 million declined $2.4 million from the prior year nine-month period. Higher current quarter earnings for Parkdale relates primarily to strong margins for the quarter impacted by improved cotton pricing. Lower earnings for Parkdale America for the nine-month period can be attributed to lower amounts of income recognized under the EAP rebate program, partially offset by the bargain purchase gain recognized on Parkdale's acquisition of a cotton spinner in Mexico, our share of which was $1.5 million. Due to the timing of the recognition of EAP benefits, the prior year periods included incentives that were previously deferred until the required capital expenditures were made. Through the nine months ended March 2015, we have received distributions of $600,000 from Parkdale America, but none from our two nylon joint ventures. We're however, excited about several value-adding capital projects currently ongoing at Parkdale and are forecasting distributions to be limited to the routine tax distributions from the JV to its members for the remainder of the company's current fiscal year. Turning to slide number 7, the company's adjusted EBITDA results are presented. For the third quarter of the current fiscal year, the company is reporting adjusted EBITDA of $14.9 million with an EBITDA margin of 8.7% in comparison to $12.6 million at a margin of 7.1% for the prior year quarter. Improved gross profits discussed earlier are the primary reasons for the higher adjusted EBITDA versus the year ago quarter. For the first nine months of the current fiscal year, the company is reporting adjusted EBITDA of $45.2 million with an EBITDA margin of 8.9% in comparison to $39.6 million at a margin of 7.8% for the prior year period. Again, improved gross profits are offset by higher SG&A expenses and a $500,000 bad debt provision recorded in Q1 by our Brazilian subsidiary. On slide number 8, we can review the company's reconciliation of GAAP results to adjusted results. Adjustments presented here are intended to exclude certain items which management believes are not indicative of the company's underlying and ongoing operations. Such amounts are excluded from adjusted EPS in order to better reflect the company's underlying basic earnings-per-share. Adjusted EPS excludes certain amounts which management believes do not reflect the ongoing operation and performance of the company. The columns presented here provide the before- and after-tax impacts of certain GAAP transactions or amounts, as well as the impact on basic earnings-per-share. The company is reporting adjusted EPS of $0.49 for the March 2015 quarter, up $0.20 from the prior year quarter. A quarterly decrease in the valuation allowance generated a benefit in the current period, primarily attributable to the lower taxable versus book income recognized for an equity affiliate. For the comparative quarter, the opposite is true. Renewable energy tax credits relate to the one-time tax benefit expected for solar energy project under construction at our Yadkinville facility. The loss on extinguishment of debt reflects debt financing fees expensed in the current period, due to the substantial provision changes to our credit facility. Restructuring charges relate to prior year announce amounts charged for severance and machine relocation costs as described in our 2014 annual report on Form 10-K and property disposals reflect amounts charged to other operating expenses. The company is reporting adjusted EPS of $1.30 for the nine months ended March 2015 which is up $0.16 from the prior year period. The change in the valuation allowance follows the same rationale described for the quarterly comparison. The gain on bargain purchase for an equity affiliate relates to that company's acquisition of a manufacturing facility in Mexico as described in our most recent Form 10-K-A. As the deferred tax impact of such acquisition is covered by the valuation allowance, any tax impact is omitted from the net income column presented here. Interest income related to a judicial claim reflects interest received on a judicial settlement at the company's Brazilian subsidiary. On slide number 9, we can review the company's working capital highlights. The balance of $135 million in adjusted working capital at March 29, 2015, is approximately 20% of annualized net sales. The decrease in the company's adjusted working capital dollars versus the beginning of the fiscal year is primarily due to the devaluation of the Brazilian real and lower polyester raw material costs. These changes were mostly offset by lower amounts of our accounts payable and accrued expenses, due to reductions in amounts due to vendors related to CapEx spending, lower raw material prices and payments made under variable compensation programs. Total working capital at March 29, 2015, was $146 million and the decrease since the beginning of the year is primarily driven by the previously discussed decrease in adjusted working capital, a decrease in cash at our foreign subsidiaries and an increase in other current liabilities due to the timing of debt payments, partially offset by an increase in other current assets, due to the domestic operations ending the period in the income tax receivable position. Turning to slide number 10, details for the company's capital structure are presented. The company ended the quarter with $112.3 million of total debt and net debt of $97.5 million and net debt has increased approximately $13.9 million from the beginning of the fiscal year. In March, the company entered into an amended and restated credit agreement. This agreement extends the facility's maturity date from March 2019 to March 2020. It lowers the interest rate on our borrowings and provides for annual principal increases of the term loan at the company's discretion up to $100 million, beginning in October 2015. As of March 29, 2015, the company's weighted average efforts rate interest for its outstanding indebtedness was approximately 2.4% and our total revolver availability and liquidity were $67.8 million and $82.5 million, respectively. In addition, during the first quarter of the current fiscal year, the company was able to repurchase 149,000 shares of its common stock at a total cost of $4.2 million under a previously announced stock repurchase program. As of quarter end, there were approximately 18.2 million shares outstanding. The various capital spending opportunities outlined earlier by Roger are primarily related to our core regional polyester and recycling business. The company's total commitment for these projects is expected to be between $40 million and $45 million through June 2015 and approximately $150 million for fiscal years 2015 through 2017, with the expectation for growth in our PVA and higher value product line. And a portion of these projects are expected to be funded with the borrowings available under our ABL facility. And to conclude, before I turn the call over to Bill, I would like to provide an update on an approaching deadline. We expect to file our Form 10-Q for the March quarter on or before the filing deadline which is Friday, May 8. With that, I would like to now turn the call over to Bill.

[Bill Jasper:]

Thanks, James and good morning, everyone. I will be focusing my comments today on providing an update on the company's strategies to increase shareholder value that we outlined in our Investor Day presentation last November. These strategies are to increase sales and profitability, enrich our product mix, focus on recycling and sustainability initiatives and drive operational excellence. To begin, I am pleased with our sales and profitability for both the March quarter, as well as the first nine months of the fiscal year. We continue to capitalize on the growth of synthetic apparel produced in that NAFTA and CAFTA regions which has driven volume increases in our textured polyester business. Our decision to increase polyester texturing capacity in our U.S. and Central American operations sends a strong message to the entire supply chain and to brands and retailers looking to increase our move programs to the region. That message is Unifi is committed to the region and that we will make all the necessary investments to service customers who choose to source their products in the Western Hemisphere. We're also pleased with the improvements in the performance metrics in both Brazil and China for the quarter, particularly gross margin in Brazil and operating profit for both. Sales of our premier value-added products are growing at the upper end of our expected range and are showing strong growth on a year-over-year basis. Product mix enrichment is at the core of our strategies and we remain confident that our focus on differentiated products will drive further improvements in our domestic and international businesses over the next several quarters. The company will continue to support and invest in innovation and R&D efforts that helped lead to the development of new products and technologies and that contribute to our mix enrichment strategy. We also continue to support key marketing initiatives to drive PVA growth and help increase the awareness of the importance of recycling and sustainability. I'm also pleased by the results of our recycling and sustainability initiatives which include our REPREVE recycled yarn and REPREVE renewables. As Roger mentioned earlier, we will break ground in the next month or two on an expansion of our REPREVE recycling center that will allow us to increase our production capacity for REPREVE and other PVA products. We continue to make progress with REPREVE renewables which provides plant-based renewable solutions for the bioenergy, animal bedding, composites and bio-based markets. In fact, 50% of the farmers that are currently growing our Giant Miscanthus are expected to expand their acreage for their product over the next year. We continue to make progress in the poultry bedding market with companies like Tyson Foods, Butterball and Purdue, using it to raise their chickens and turkeys. Our entire 2015 harvest was sold out and we're developing plans to increase supply to meet anticipated increases in poultry bedding demand over the next few years. In addition, REPREVE renewables was recently chosen to provide the agricultural and business development services for the University of Iowa biomass fuel project and our Giant Miscanthus will be used as fuel in the University's power plant. While REPREVE renewables is still an embryonic business with some of the challenges typically associated with the startup, progress is being made, especially in the animal bedding markets and we're encouraged by the opportunities to grow this business. The company will also continue to drive operational excellence throughout the organization with our focus on lean manufacturing, statistical process control and a rigorous and disciplined approach, process improvement and price management. Using these techniques has generated measurable annual benefits of over $15 million a year and freed up $20 million in working capital over the last five years. Our current focus is on adjusting the capability and flexibility of our manufacturing processes to match shifts in market requirements, including significantly increasing the flexibility of our assets to effectively react to the requirements of our broader, more specialty product offering. As we discussed in our November annual investor conference, we're planning to invest at least $115 million over the course of our fiscal year's 2015 through 2017 to support our strategies and initiatives with the majority of that targeted for capital projects focused on the regional growth of textured polyester and increased capacity for our premier value-added yarns. We anticipate that the improvement in our annual adjusted EBITDA resulting from these growth capital projects, will be in the range of $18 million to $22 million per year, fully realized in our 2018 fiscal year. Should additional growth-related capital project opportunities present themselves, provisions in our amended credit agreement allow for additional capital availability and flexibility which will help provide us with an even stronger foundation to pursue these opportunities over the next few years. Turning to trade legislation, Senate Finance and House Ways and Means Committees leaders introduced fast track legislation for pending trade agreements into the Senate and House on 16 April. If Congress moves forward in the next few weeks to pass this measure, it will increase momentum to conclude the Trans-Pacific Partnership agreement and likely provide a boost for the stalled negotiations in their proposed transatlantic trade and investment partnership agreement with the European Union. The textile industry has been highly engaged with the office of the U.S. trade representative throughout these negotiations with the primary focus on promoting strong yarn forward provisions, along with reasonable duty phase out periods for regionally sensitive textile and apparel products. Industry executives met with the U.S. trade representative, Ambassador Michael Feldman, in March and he pledged that there would be no surprises in the Asia-Pacific deal. This was especially welcome news as we have seen recent agreements concluded with major exceptions to yarn forward provisions negotiated at the last minute. Based on what we currently know of the negotiations in and barring any unfavorable changes or surprises, we feel that the currently negotiated version of the TPP is a bill that the industry could support should it move forward. However, even if a deal is finalized later this year, it will take considerable time, likely up to two years, before it is fully implemented. Our adjusted EBITDA for the March 2015 quarter was at the high end of our expectations and benefited from our strong gross margin. Based on our current outlook and assumptions, we expect adjusted EBITDA for the coming quarter to be in the high $18 million to low $19 million range which will exceed the $18 million adjusted EBITDA results from the fourth quarter of last year. Our fiscal year 2015 adjusted EBITDA guidance is now in the mid-$60 million or slightly higher than the previous guidance of the low to mid-$60 million and significantly better than previous year results of $57.6 million. And with that, I will turn the call over to the operator for any questions.

[Operator:]

[Operator Instructions]. The first question is from Marco Rodriguez of Stonegate Capital Partners. Your line is open.

[Marco Rodriguez:]

Just a real quick kind of housekeeping item. I was wondering if you might be able to break out the revenues for the segments.

[James Otterberg:]

Yes. I'll do it. If you give me a second, I will read them.

[Roger Berrier:]

Okay. And then, maybe I can just ask my next question here. I believe in your prepared remarks a couple of different times you guys were talking about raw material prices declining and I think you put out an overall decline by 15%. I'm assuming that is year over year. Is that correct?

[James Otterberg:]

No, that was our quarter-over-quarter

[Marco Rodriguez:]

Quarter-over-quarter. Got it. And then, can you kind of give us a sense, maybe kind of quantify, from a gross margin percentage point, what sort of an impact did that have if we were to normalize that raw material cost there?

[James Otterberg:]

It is a contributing factor for the improvement in our gross margin period over period, but it is not the single largest contributor in those periods when you consider the improvements in the sales volume of the textured polyester products and the PVA products growing at the high end of our targeted range, along with the improvements overseas and the international segment that Bill and Roger referenced. But the specific dollar amounts or the percent is not a number that we quantify.

[Marco Rodriguez:]

All right. Then, maybe, can you rank those items that you just discussed here as far as the top one in terms of adding to your gross margin down to the lowest one, if you will?

[James Otterberg:]

I would think that the improvement in our textured -- from a regional perspective, so the domestic business plus El Salvador being regional textured business would be one of the largest, along with the continued growth of PVA at the high end of our range with the declining raw material environment, being in that group.

[Marco Rodriguez:]

Okay. And then, in terms of the overall CapEx spend and the new recycling facility, can you give us a sense as far as how we should be thinking about the spend over the next, let's say four to five quarters in terms of timing?

[James Otterberg:]

Yes. We laid out back in November our plans to spend over the three fiscal years, as Bill mentioned, $115 million. We're just now starting to finalize some of those plans and we wanted to update our investors. So the timelines that I described, we need to expand the rebuilding of the recycling center first. That will take six to eight months. Then we will start expanding the machinery mid-2016. So, as we wind down the fiscal year 2015 and move into our fiscal year 2016. We will see more capital being spent in fiscal year 2016 than we have seen in fiscal year 2015, as we implement the bottle processing plant and the expansion to our recycling center. When we look at our fiscal years, based on the timing, I mentioned that both these projects will be mid-2016 calendar year. So they could straddle our fiscal years when you break it down into CapEx per fiscal year.

[Marco Rodriguez:]

Just trying to get a sense as far as the spend on a quarterly basis, whether it is going to be top-heavy in any particular quarter or first half of a year or second half of a year. Any kind of sense you can provide there?

[James Otterberg:]

Picturing most of those projects as construction projects here in the United States that can go out from six to eight to 12 months, I would say that there is not any one particular quarter where a project will overwhelm that quarter spend as a relation to the project in total. So I would spread it evenly across the timelines that Roger described earlier.

[Marco Rodriguez:]

And then, I wasn't able to write this down, but you did mention that you were going to be with the new recycling facility there in your current location, you're going to be adding, I think you said, about 85 heads. Can you quantify what the additional operating expenses will see there or from a cost of sales perspective?

[James Otterberg:]

Well, that relates to our new bottle processing facility that we're updating today. We have on previous calls talked about our investigation to backward integrate into the bottle processing facility. And, with that new operation being a $28 million investment, that will create 85 jobs that will be absorbed into the new operation, not any existing operation.

[Marco Rodriguez:]

Right. So you're going to have an additional 85 people working at that particular plant. Is that what I understand?

[James Otterberg:]

Yes. With no revenues and backward integration feeding our current recycling.

[Marco Rodriguez:]

Right. Okay. And then, just so -- are all those jobs -- is that going to be an SG&A item or is that going to be in cost of sales?

[James Otterberg:]

That would be in our cost of goods sold. I will read aloud the revenue -- net sales by reportable segments. So polyester for the current quarter was approximately $98 million, nylon approximately $41 million and our international segment $31 million against the comparative numbers of respectively, $104 million, $39 million and $34 million. And for the year-to-date period, the polyester segment net sales of $282 million against the comparative of $286 million with the nylon segment reporting sales of $124 million against a comparative of $119 million and the international segment which includes both Brazil and China, reporting for the year-to-date period $101 million against a comparative of $100 million.

[Operator:]

[Operator Instructions]. The next question is Chris McGinnis of Sidoti Capital. Your line is open.

[Chris McGinnis:]

I guess just to start off, obviously, there is a lot in the preamble. I think you talked about, obviously the lighter tenure. So if I am looking at the poly number for the quarter, it sells down on the volume side. Is that the reflection of the lighter tenure?

[Roger Berrier:]

I think James mentioned that our polyester texturing volumes were up in the quarter. We had some other business units as James mentioned in his preamble around our dyed yarn and chip sales volume that were down for the quarter.

[Chris McGinnis:]

Got you. All right. So the volumes were up, in itself, obviously, all right. Great. And then I guess I know it has been a while since you talked about the REPREVE renewables and I have seen the press talking about adding acres. Just wondering how that would play through for you guys in the following years and the out years as you look at that investment? And how does that translate to earnings and I know it is far away, but maybe just some dynamics about the investment itself.

[Bill Jasper:]

Yes, Chris. This is Bill. We're certainly optimistic about opportunities in the poultry bedding markets. I think there is a question right now as to how we would go about investing in acres going forward, whether that would be the company itself or bringing in potentially other investors for those specific projects. So it is really kind of up in the air right now. I think it is reasonable to say that there is going to be a significant increase in the number of acres we're going to plant next year and probably even more of a significant increase in the coming years. The question as to how we're going to fund that and whether it would be the company or other funding is really up in the air right now and to be determined. I think, realistically, we expect to see -- we had about $400,000 in revenue last year. We expect about $1 million in revenue next year. It is still a very, very small business and not material to the company, but I think if you look at out years, the income and revenue potential could be quite high or it could be very, very small. It is still pretty much an embryonic business.

[Chris McGinnis:]

Sure. And then, just quickly, I remember -- I think it was a couple of years ago -- the $500 million market on the animal bedding side in the U.S., is that the potential market at least?

[Bill Jasper:]

Honestly, I don't recall the exact number, but it is in that range.

[Chris McGinnis:]

Just turning to the core operations, back to it, the new expansion you put in earlier this month, how long does that take to begin to start generating revenue for you and how long does it fully scale?

[James Otterberg:]

Yes. We just announced last month that we need to start installing some additional capacity. We're about 50% of the way through that as we speak and we should be completed by June -- in a couple of months. So that is just incremental capacity, as we mentioned, adding capacity for the growth in CAFTA and also that lighter menu mix that we mentioned.

[Chris McGinnis:]

And is that fully spoken for already? Obviously, I think the volumes there are improving pretty dramatically.

[James Otterberg:]

Yes. I mean, with the growth that we referenced, those machines are running. Typically, you see our third and fourth quarters being a little more strong from a volume standpoint. So we're certainly in the season now where those machines as they come online, they are running.

[Chris McGinnis:]

All right. And then, just thinking about your current capacity utilization now and I think Roger or maybe it was Bill who talked about the ability to still continue to drive margin expansion through the mix enrichment. How much are you switching out today in terms of lower margin work for the higher margin?

[James Otterberg:]

Yes. I think, as Bill referenced and certainly we have talked a lot about one of our core goals is to continue to produce mix enrichment strategies and products. And, as Bill mentioned, we're on the higher end of our growth for PBA product. And so this is both taking commodity products and moving those into a richer mix product, but also working with new programs that were not introduced as Virgin in the beginning but as those new programs come online, they come online with the REPREVE or a PVA product in the beginning.

[Chris McGinnis:]

And then, maybe just lastly, put you on Parkdale. I know there they are in a CapEx expansion plan. Any idea of when that would be over and then, also, maybe on a pretax basis, what that could mean to UFI?

[James Otterberg:]

You are correct. Parkdale is -- America is in the middle of an internal expansion down in Rabun Gap, Georgia, as we have talked about in the past. And it is included within our financials and their 10-K-A. There is acquisition and capital spending for an entity in Mexico. There has also been the conversation about Parkdale America replicating what was done with Hanes brand years ago, now being done with Fruit of the Loom. So those are the three largest projects for Parkdale America. The first is certainly nearing its completion. The second is probably about half way through this acquisition. This happened during the calendar month of March. So I think as we begin to get into speaking from a calendar year perspective, calendar year 2016, Parkdale America will begin to see the benefits of that capital spending and those projects. And those are three examples of their current capital spending that we're very excited about that will begin to increase our share of their pretax income, we believe, above the current run rate beginning in calendar year 2016 and beyond.

[Bill Jasper:]

And, Chris, as far as making any projections to what the results may be, I think that is kind of difficult right now because the cotton spinning business in this country is kind of in flux. I think the Parkdale management are really, really good at what they do. These projects certainly are going to be beneficial, I think. On the other side, you have got yield in backward integrating into cotton spinning. You have got other cotton spinners announcing capacity coming into the region. So I think it is difficult to project how much benefit we're going to see from these projects, but I think it is safe to say Parkdale is making the right moves at least in our opinion.

[Chris McGinnis:]

And then, lastly, just a last question. On the bottle backward integration, can you maybe just explain -- it is obviously a pretty big chunk of money going out the door for it, can you just walk through what the $28 million gets you in terms of physical facilities itself and how confident you are behind integrating this into your operations?

[Roger Berrier:]

The $28 million project it will generate $75 million pounds of clear polyester bottle flake. When we talk about our capacity in the recycling center, we're talking about our current capacity is 70 million, growing to 100 million with this next expansion that we talked about earlier. So this is really feeding our operation. So when you look at the growth of REPREVE, when we were in our very earlier stages, we were a merchant buyer of a lot of this material. We did not have the scale to really backward integrate at that time. So we were paying market prices. And within those market prices, there is margins that other suppliers were making from us. We can't really get the quality and some of the efficiencies on a continuous basis that we need to operate effectively and cost-effectively. And so, as we have grown REPREVE, certainly at some point, it was going to make sense for us to seriously consider backward integration. I think now that we have got the scale of REPREVE, the time is right for us to take that backward integration. The technology that has been developed around recycling has really progressed over the last two to three years. So, as we're investing today, we're going to be investing in the latest technology that we think will create a step change in the world of recycling that will offer some advantages to us now versus the supply chain that we're currently buying from. I would look at it in terms of the volume requirements that we have today. We will become more self-sufficient as we backward in.

[Chris McGinnis:]

Sure. And I guess just to follow-up on that, you are going to, obviously, move past the capacity that you are putting in, right? So if you go to that 100 million pounds on the REPREVE, you have the roughly 75 million of the backward integration. How hard is it to increase the size of that capacity?

[Roger Berrier:]

Well, I think we're comfortable at the 75 million because we have talked about other PVA programs where we recycle other forms of waste, being textile waste, yarn waste. We have talked about take-back programs where we bring back in fabrics and other scraps. So if you look at the 100 million of capacity, a large percentage of that is bottles, but the other percentage of that is waste fabric. So when you add those two components together, you can see that we can feed 100 million pounds with the bottle processing facility and the other forms of waste that we can.

[Operator:]

[Operator Instructions]. There are no further questions in queue at this time. I will turn the call back over for closing remarks.

[Bill Jasper:]

Thanks, operator. This is Bill and appreciate everybody's interest in the company. We're very optimistic about the future going forward and look forward to our next call. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.