Culp Inc (CULP) 2007 Q3 法說會逐字稿

Good day, and welcome to the Culp Incorporated third quarter 2007 results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Drew Anderson. Please go ahead.

Thank you. Good afternoon, and welcome to the Culp conference call to review the company's results for the third quarter of fiscal 2007.

As we start, let me express that some statements made in this call will be forward-looking statements. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Actual performance of the company may differ from that projected in such statements.

Investors should refer to statements filed by the company with the Securities and Exchange Commission for a discussion of those factors that could affect Culp's operations and the forward-looking statement made in this call. The information being provided today is of this date only and Culp expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations. In addition, during this call the company will be discussing nonGAAP financial measurements that exclude restructuring and restructuring-related charges.

A reconciliation of these nonGAAP financial measurements to the most directly comparable GAAP financial measurements is included in the schedule to the company's press release and 8K filed yesterday. This information is also available on the Investor Relations section of the company's website at www.culpinc.com.

I'll now turn the call over to Rob Culp, Chief Executive Officer. Please go ahead, sir.

Good afternoon, and thank you for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today is Frank Saxon, President of Culp.

The purpose of this call is to review financial results and operating trends reflected in the third quarter of fiscal '07. I will begin with some brief comments about Culp today and then will turn the call over to Frank to review the financial results for the quarter. Then we will spend some time updating you on the strategic actions in each of our operating segments and our fourth quarter 2007, business outlook.

Our third quarter performance reflects continued progress for Culp in fiscal 2007. We are pleased with our execution as we continue to work through a number of important operational changes in each of our operating segments. We believe we are creating a sustainable upholstery fabrics business model that will meet current customer demand.

With the substantial investments we have made in our mattress fabric segment and the recent acquisition of the mattress fabric -- fabrics product line of International Textile Group's Burlington House division, we are firmly committed to the future of the mattress fabrics business. We have a strong competitive position and are excited about the significant opportunities ahead for Culp in mattress fabrics. We continue to move Culp forward and believe we are taking the right steps to extend the leadership position we enjoy in both of our operating segments.

As we announced in February, Frank Saxon will become Chief Executive Officer of Culp at the end of this fiscal year. Frank is well prepared and exceptionally qualified for this new role. I'm highly confident in Frank's ability to serve in this position. He has been instrumental in bringing about the -- in bringing about the significant strategic and operational changes which have allowed our company to survive and progress -- and progress through a rapidly changing industry environment. As a result Culp is now well positioned to succeed in today's global marketplace under his capable leadership.

Having said that, I will continue to serve as Chairman of the Board and -- and will continue to be actively involved with the company in key customer and [inaudible] relationships. I look forward to continuing my strong working relationship with Frank as we move into our new roles with Culp.

With that, I will now turn the call over to Frank.

Thank you, Rob, and good afternoon, everyone, and thanks for joining us.

Total sales for the quarter were $55.7 million, down 9% from the third quarter of last year. These results reflect the continued industry-wide slow down in retail furniture and declining demand for U.S.-produced upholstery fabrics. However, we had a better than expected sales in the quarter for mattress ticking.

Our gross profit margin for the quarter was 13.4% compared with 9% in third quarter of last year, excluding restructuring charges in both periods. SG&A expenses were up 5% for the quarter.

Operating income was $1.1 million compared with a loss -- an operating loss of $586,000 last year, again excluding restructuring charges in both periods. We reported a net loss of $2.2 million, or $0.19 per share, for the third quarter. The financial results for the quarter included $2.1 million, or $0.18 per share, in restructuring charges on an after tax basis. Excluding these charges net loss for the quarter was $99,000, or $0.01 per share.

Also included in these results was a noncash income tax charge of $452,000, or $0.04 per share related to the exercise of nonqualified stock options. These results compare with a net loss of $2.2 million, or $0.19 per share, for the third quarter of last year. Results for last year include $1 million, or $0.09 per share, in restructuring charges after taxes. Excluding those charges net loss for the third quarter of last year was $1.1 million or $0.10 per share.

I'd like to now review our financial results by operating segment. With respect to mattress fabrics we reported $24.4 million in sales for the quarter, a 7.6% increase compared with $22.7 million for the same period of last year. These results include $1 million in incremental sales related to the company's acquisition of ITG's mattress fabrics product line. This transaction closed on January 22, 2007.

Mattress fabric sales accounted for approximately 44% of sales during the quarter compared with 37% in the same period a year ago. Total yards sold were 10.5 [million], up 9%, compared with 9.6 million yards a year ago. We reported gains in sales in the knitted, ticking and jacquard woven ticking product lines while sales of our printed ticking product lines continued to decline. The average selling price of $2.32 per yard for mattress ticking for the quarter was slightly lower than the average selling price of $2.35 from last year's third quarter.

Operating income was $2.5 million, or 10.3% of sales. For the prior year, operating income was $1.8 million, or 7.9% of sales. We showed significant improvement in our operating performance in this segment over the same period a year ago with operating income up nearly 40% and operating margins over 10% for the second consecutive quarter. These results reflect the higher sales level and solid productivity gain as we are now realizing the full benefits of our $10 million capital project implemented over the last two years.

Now, turning to the results of our upholstery fabric segment. Sales were $31.3 million, representing an 18% decline from $38.4 million in third quarter of last year. Total yards sold was 7.6 million, down 17%, compared with 9 million a year ago. The average selling price was $4.10, compared with $4.16 per yard a year ago.

Sales of upholstery fabrics reflect higher sales of nonU.S. produced fabrics and continued weak demand industry wide for U.S. produced fabrics, driven by consumer preference for leather and suede fabrics and other imported fabrics including increasing amounts of cut-and-sew kits. While we continue to see growth in sales of nonU.S. produced upholstery fabrics the pace of growth has slowed down.

Sales of nonU.S. produced fabrics were $17.4 million in the third quarter, up 18% over the prior year period. Sales of our nonU.S. produced fabrics represented 55% of total upholstery fabric sales for the quarter compared with 38% a year ago. Sales of U.S. produced fabrics were $14 million, down 41% from third quarter of last year.

Overall the upholstery fabric segment reported an operating loss of $496,000, a significant improvement compared with an operating loss of $1.6 million for the same period last year. These results reflect higher gross profit of nonU.S. produced fabrics, but continued low gross profit levels related to the sales of our U.S. produced fabrics.

Let me now turn to our balance sheet. We continue to strengthen our balance sheet during the quarter with the prepayment of debt and issuance of equity.

During December, 2006, and February, 2007, we prepaid a total of $7.5 million in long-term debt scheduled for payment in March, 2007. In January, 2007, we issued common stock valued at $5.1 million related to the ITG acquisition. At the end of the third quarter our balance sheet reflected $10.7 million in cash and cash equivalents and a debt to capital ratio of 37%. Our capital spending plans for next fiscal year are expected to be in the $4 million range of which approximately $2.5 million is for mattress fabrics and $1.5 million for upholstery fabrics. Depreciation is expected to be in the $6 million range.

With that update, I will now turn it back over to Rob.

Thank you, Frank.

Let me now talk about the progress we are making in both of our operating segments. We will start with mattress fabrics. Mattress fabrics has become increasingly important part of our business. We believe we have a strong competitive position in the marketplace and are the leader in our industry. Our recently announced acquisition of ITG's mattress fabric business extends our leadership position in the mattress fabrics industry.

We believe this transaction provides the opportunity to increase our annual sales in mattress fabrics by approximately $30 million to $40 million with only a modest investment in fixed assets.

We are transitioning the ITG production to Culp facilities and suppliers over the next several months, and let me say we are very pleased with the excellent cooperation from ITG, which is helping to ensure an orderly transition for our customers. We have shown steady improvement in our operating margins with the completion of our $10 million capital project over the past two years. This project was designed to improve our globally competitive cost structure in this segment.

We believe this investment confirmed our commitment to leadership in this business and has further enhanced our globally competitive position in an industry facing pricing pressures. We have continued to see sequential gains each quarter as we achieved our targeted productivity levels. As noted earlier, we are pleased with our strong operating performance in the third quarter with operating income up nearly 40% over the same period last year -- last year and operating margins over 10% for the second consecutive quarter.

Now, for an update on the upholstery fabrics segment. I will start with the U.S. operations. Since the beginning of fiscal 2007 we have made considerable progress in changing our product strategy, reducing our manufacturing complexities and improving our cost structure.

However, the decline in sales involves have continued to effect the profitability of our overall upholstery fabrics business. During the third quarter we made a decision to further consolidate our U.S. upholstery fabrics manufacturing facilities and outsource our specialty yarn production. As a result we are closing the company's weaving plant located in Graham, North Carolina, and closing our yarn plant located in Lincolnton, North Carolina.

We are transferring certain productions from the Graham plant to our Anderson, South Carolina and Shanghai, China, facilities, as well as a small portion to contract weavers. We will continue to operate one you will upholstered fabric plant in Anderson which will produce primarily velvets and a limited amount of decorative fabrics. This facility has a book value of fixed -- fixed assets of $2.2 million.

By further consolidated our U.S. manufacturing operation and realizing lower cost manufacturing alternatives we are reducing our operating costs and improving our domestic capacity utilization.

We expect to -- we expect to substantially complete -- complete these moves by the end of fiscal 2007. We are optimistic about the future of our Anderson facility because of our leadership positions in velvet fabrics business and our very efficient cost structure.

Now let me turn to our nonU.S. operation, the upholstery fabrics segment. We are pleased with the trends we are seeing in this business.

Sales of nonU.S. produced fabrics represented 55% of total upholstery fabric sales for the third quarter compared with 38% a year ago. We have built a highly-successful China platform and we are excited about the growth opportunities. As our customers have continued to aggressively source fabrics produced outside the U.S. we believe Culp is well positioned to meet this demand with a strong focus on product innovation, quality and global logistics.

Additionally, we have aggressively expanded our capabilities and improved our performance to customers in our China operation. During this fiscal year so far, we have significantly increased the output of our cut-and-sew operation, started up our own velvet manufacturing, implemented our AS400 -- AS400 computer system and built 130,000 square foot fabric distribution center. Overall our offshore produced business represents a significant growth opportunity in today's global marketplace and we have established a strong competitive position for Culp.

I'll now turn back to Frank to review the outlook for the fourth quarter of fiscal 2007. Frank.

For the current trends in our mattress fabric segment are strong. While business conditions remain very soft in our upholstery fabric segment due to weak retail furniture demand and sharply lower demand for U.S.-produced fabrics. Overall we expect our fourth quarter sales to be down slightly from the fourth quarter of last year.

And for the first time ever we believe mattress fabric sales will be greater than 50% of total company sales. We expect sales in our mattress fabric business to be up 45% to 55% for the fourth quarter, reflecting the incremental sales from the ITG acquisition and some organic growth.

Operating income in this segment is also expected to improve substantially due to much higher sales volumes, strong needed ticking business and the benefits from our recent capital project. We also expect to exceed the third quarter operating income margin for mattress fabrics even though we are experiencing some one-time transition costs related to the integration of the ITG business.

In our upholstery fabrics segment we expect sales to be down approximately 25% for the fourth quarter with modest growth in nonU.S.-produced fabrics and lower sales of U.S.-produced fabrics. We believe the upholstery fabric segments operating results will reflect a strong operating loss due to the significantly lower sales and gross profit in U.S.-produced fabrics and transition issues associated with previously announced closing of the two U.S. plants.

However, we are expecting higher gross profit in our nonU.S.-produced business and lower SG&A expenses on a sequential basis for this segment. Considering these factors we expect to report net income in the fourth quarter in the range of $0.07 to $0.11 per share, excluding restructuring charges. This is management's best estimate at present recognizing that future financial results are difficult to predict because the upholstery fabric industry is undergoing a dramatic transition and many internal changes are still underway within the company.

The actual results will depend primarily upon the level of demand throughout the quarter, the company's progress with respect to restructuring activities and the integration of the ITG acquisition. We estimate that restructuring charges for the fourth quarter will be approximately $1.8 million, or $1.1 million after taxes, or $0.09 per share. Including these restructuring charges we expect to report results for the fourth quarter in the range of a net loss of $0.02 to net income of $0.02 per share positive.

We continue to execute our strategy to move the company forward and believe that fiscal 2007 will represent a period of significant progress for Culp. We are working through a number of operational changes that we believe will further enhance our competitive position in both business segments. We have built a solid competitive position in mattress fabrics and are very excited about the incremental value of the ITG acquisition will bring to this business. We believe mattress fabrics will continue tb a key driver of the company's growth going forward.

Our upholstery fabrics business is transitioning into a vibrant, global platform, and we continue to pursue opportunities for building our capabilities in our China operations. Together, these facts are designed to position the company for profitable growth over the long term in today's global marketplace.

Before we take your questions, I would like to say what an honor and privilege it is for me to take on the role of Chief Executive Officer of Culp, and continue the tradition of excellence set by Rob and his family. Rob has played a vital role in the growth and success of Culp since he started the business with his father, Robert G. Culp Jr. and Howard Dunn in 1972, as a small but ambitious company to sell upholstery fabrics. Under Rob's leadership the company has grown into of the world's largest marketers of fabrics, for bedding and furniture, and became a New York Stock Exchange listed company.

Our ability to address changing market conditions, deliver innovative fabrics and provide excellent service reflects Rob's vision and dedication to customers. We will continue to benefit from his experience, customer and industry relationships and commitment to our strategic objectives. I look forward to continuing my strong working relationship with Rob as we move into our new roles with Culp.

With that, we will now take your questions.

[OPERATOR INSTRUCTIONS] We'll have our first question from Budd Bugatch, Raymond James.

Good morning, Frank, congratulations. Good morning, Rob.

Hi, Budd.

A couple of questions, more than a couple. I guess the first one and the largest one is, can you talk about what you think the operating margin potential for even of the segments, and maybe overall corporate are as you look out into the future and into the next year, and maybe next two or three years?

Hi, Budd, I will take a stab at that. First mattress ticking.

As we've said on a number of occasions our -- we felt like the mattress ticking business could be a 10 -- at least a 10% operating income margin business. We have now achieved that margin for the last two quarters, as we've said. We believe that is sustainable and the -- we've provided guidance for fourth quarter to continue that trend.

How far we go above that depends on our execution and how well we integrate the ITG acquisition. Obviously with this acquisition, we are incurring minimal capital expenditures, minimal staffing additions and we are basically bringing it into our existing platform, which we believe should be a positive on our operating margins. With respect to upholstery fabrics, we've been challenged, obviously as you all know for the last several years. That's a much more difficult number to shoot for, but long term we certainly hope to be at least 5% operating margin and hopefully closer to 10%. But that's not a near-term look.

We've got still more work to do and closing the U.S. facilities that are underway today and building the China business.

So we've got upholstery right now that's delivered at least in this quarter I think if my numbers are right on an operating basis, a gross margin just equivalent to the operating margin of mattress, right?

That is correct. And, of course, you have to keep in mind in our numbers for upholstery, they've been heavily weighted by low growth profit levels and low sales levels in the U.S.-produced fabrics area. And, of course, we've been trying to address that situation aggressively for the last several years.

So my question is kind of -- if you get to that 5% what's the composition of that in terms of gross minus Opex? Are we looking -- can we get a 12% gross or a --

I think so, certainly. Our challenge and target has always been to be under 10% for SG&A in the upholstery fabrics segment and to be high teens on the gross profit level. But it is a very competitive marketplace these days and we -- I'm not sure we can hit 20% but we certainly should be able to hit high teens over time.

That -- that was my next question. What's the time frame?

Over time. I wouldn't say next fiscal year.

So in fiscal 2009 and beyond?

Yes.

A couple of other questions. The unallocated number -- unallocated expense number, what's the future of that as you've reduced your U.S. domestic footprint? Do you -- are you able to shrink that expense line?

The -- probably some, but unallocated corporate expenses is basically our public company cost and our senior executive group. So that probably has some downward movement, but probably not as much as other areas. It costs a fair amount of money to be public.

Okay. You want to give us a number on that?

Probably not. More than we would like with Sarbanes-Oxley and the like.

Okay. A couple other quick questions. The Capex, how much is in China this next year?

$1.5 million. All of the upholstery fabric portion would be in China.

Okay. That makes sense. Okay. And the tax rate going forward -- with a $452,000 charge, I mean I think your operating tax rate at least on pretax income that we are able to see is like 52%?

Yes. The tax rate has been a real challenge. It's many, many factors.

FIN 48 really complicates that, doesn't it?

It does. And because we have U.S.-taxable loss and we have small income, income taxes in China and Canada. So it gives you these unusual rates. But I believe looking forward, Budd, I probably would be 33%, 35%, something like that for next year, better visibility.

Next year, what about fourth quarter?

Too difficult to predict. I think the best we would tell you for fourth quarter is the same rate that we've got on a year to date basis, which is 26%. That's -- 26% is on X restructuring basis.

Do you have any visible, maybe Ken knows, any visible tax items out there in the next quarter or two that we can know about at least, now?

Well, the implementation of the new accounting principal called FIN 48 is, but it is impossible right now to determine the impact of that, but it's going to affect a lot of companies, but it will affect us to some degree this quarter and maybe more so in the first quarter.

Interesting times we live in. The Chinese were right. Last question, can you give us the actual yardage in the two segments for the quarter?

The actual yardage sales?

Yes. The yardage that made up the differentials and how did we --

We gave that earlier in the comments.

I thought -- the actual -- okay, my bad, I will go back and get it. Thank you.

Okay, thank you, Budd.

[OPERATOR INSTRUCTIONS] We'll go next to Danna Getske, Morgan Keegan.

Hi, Frank. This is actual Laura Champine calling in from the road. Can were you hear me?

Yes. Hi, Laura. We can hear you great.

Congratulations on the quarter, and, Frank, especially on your promotion. As we look at your inventory balance. I mean, you guided for sales to be down a little bit, but inventories are up a little bit year over year. Can you talk about what comprises that inventory increase?

Yes. You mean third quarter inventory level?

That's right.

Okay. Well, almost $5 million of that relates to the ITG inventory that we acquired.

And what's the -- I'm sorry, how would you characterize the quality of inventory and is it on the books for pretty much where it should be?

Yes, the accounting rules require to us value the inventory at lower cost to market. So we don't -- so it's valued as we see lower cost to market and just over $5 million -- around $5 million of the finished goods. So you take that out, Laura, and it's pretty good shape year over year.

Have you been able to manage upholstery inventories domestic made SKUs to match up with the sales declines with what you say that are pretty challenging there?

That's a weekly task and we've done I think pretty well on that. It's something we battle every week and reducing our SKUs and keeping our inventories in line with shrinking sales, but like -- we've done reasonably well. And of course most of that will be completed by the fourth quarter with the closure of the two plants.

And the Capex is a little bit higher than what I thought it would be for next year. In the mattress segment in particular, can you talk a little bit more about what you plan on doing there, where those investments might be?

Yes, we can. We will give you a little color on that. The -- in the mattress area we are looking at $2.5 million next year. And as we said, the ITG acquisition would require only modest Capex and the area we need some -- some additional capacity is our finishing area. So this does include $2 million of that is a -- some finishing equipment that we need. It will be put in mid year -- mid fiscal year.

And will that live in the [inaudible] facility, Frank.

That will actual will be in our Stokesdale, North Carolina, facility.

Got it. Great. Thank you very much.

Thank you, Laura.

We will have our next question from Kevin Oram, Praesidium.

Hi, guys.

Hello, Kevin.

Hi. Just a couple of things. The ITG -- the revenue -- the additional revenue you expect from ITG seems to have gone up a bit, it was $25 million to $30 million originally, now it's like $30 million to $40million?

Yes, we've raised that estimate to $30 million to $40 million based on what we are seeing to date. We are now six, seven weeks into the acquisition and the sale -- our business has picked up, number one, in the industry. And, number two, we were keeping the business so far and so we're -- we felt like we needed to update the range of business that is possible from this acquisition.

Okay.

We are encouraged -- it's fair to say that we are certainly encouraged by what we are seeing year to date.

Right. It's a phenomenal acquisition. Is the additional Capex partly related to the fact that the revenues are coming in higher? In other words, are you kind of bumping up against full capacity now?

No, we -- we're in good shape. We don't have a lot of room, but we are in reasonable shape. But the finishing area is the one where we are bumping up against capacity and we need to address that quickly, which we are doing.

Right, right.

But one thing, Kevin, I will mention that what's helped a lot initially is that the ITG folks have been just very good to work with and their cooperation has been a real help to our customer transitions here.

Okay. Great. And I don't know that you are going to go up to -- through more detail here, but I think Budd was asking about kind of what the operating margins could be for that business, and you kind of left it at better than this -- potentially better than this 10%, but it, I mean is it, I'm putting in these new numbers and I'm thinking it could be as much as another almost 3% points improvement. Can you give me an idea of whether or not that's -- just kind of giving I was fixed variable there whether or not that is in the range?

Well, I think I will leave my comments, what I left with Budd. And obviously the opportunity exists to improve on that, but it boils down to our execution.

Right.

And we are certainly working on it every day, every week.

But it's -- you are starting at this 10% operating margin and you are basically just taking this additional business and putting it on your own, running your capacity at a higher utilization rate, and so directionally your margins to the extent that you execute right your margins go up from here.

I think it's a fair analysis and I think it's also fair to say that there's more upside potential to that margin than down side.

Right. Okay. When you --

But we need to remember this is a highly-competitive, price-sensitive industry.

Yes.

So.

You said that there is -- that the operating will be up even though there will be one time transition costs. Two things, can you give us a rough idea of how big the transition costs are and what they are?

The transition costs are really, really two -- of the varied transition costs the two biggest items are ITG is helping us for this transition period which is four months from the date of acquisition. So we are utilizing their customer service, their operations, their warehousing and, of course, they are making products for us. So the transition costs are there, if you call it their SG&A expenses to -- before we incorporate the products in our plants.

So that's the bulk of the one-time cost. The secondly, to handle all of the business in our North Carolina distribution center, we are having to make some modifications and relocations of our fabric warehousing and inspection facilities, which we have underway now and will complete by the closer to the end of the fourth quarter. Those are two big areas. I think you can put that in the $700,000 to $800,000 range.

And is that $700,000 to $800,000 part of your restructuring charges.

No, that would not be. No, that's not.

So your $0.07 to $0.11 guidance includes the expenses, includes that $800,000 in expenses?

Yes, that's correct.

So if you didn't have those your earnings would actual will be higher than that on an ongoing basis?

Those are -- we believe those are one time expenses.

Right. Okay. Good. Alright. Thanks, guys. Congratulations.

Thank you, Kevin.

We will have a follow-up question from Budd Bugatch, Raymond James.

Yes. Two more areas of just exploring if I could. Rob, you and I have been in this industry a long time, particularly the residential furniture industry. It's been since the mid 70s when I've seen a situation like this in terms of demand. Could you -- is your crystal ball polished enough to kind of figure out where you think the industry might wind up this year, or what we could see in upholstery?

Boy, I wish I knew. As I think your guess is as good as mine, I guess -- I guess certainly this tax season hasn't been what we thought it was going to be and then we move into the slow part of the year, so hopefully the fall -- hopefully by fall it will be a little bit better, but a lot of what I'm hearing is people are maybe talking '08 before they see any meaningful pick up. So --

Last year started off strong and ended up weak, I'm just curious if you've seen any kind of improvement. The other side of that is what happens if we do get an improvement, are you able to serve your manufacturers?

Certainly we've seen business pick up a little bit recently on the upholstery side, particularly in China. And as we, as we transit out of the U.S. business and we are basically a China company with exception of velvets, we are in good shape to take care of any increased demands, so I am not concerned about that.

However, I do think as a whole if the industry really does all of a sudden have a spark in sales there is going to be a rude awakening of supply, no question.

Okay. And are you putting any inventory on the west coast to serve demand out instead of having to bring it all the way back to North Carolina?

We do have some inventory on the west coast, but our main distribution facility is still in North Carolina, plus we ship a lot of fabrics within China. I mean really the best part of our business is what stays in China. As Rob mentioned in his remarks this year we've built 130,000-square-foot fabric distribution center in China. We will -- you will see us over time distribute more product from there directly to customers in the U.S., whether that's west coast or wherever, and whether it's kits or whether it's rolled goods.

They can't certainly take full containers of fabrics, right, so you have partial containers will have to meet that out?

No, our customers can take full containers with the -- that's the beauty of our bond over there with the fabric distribution center, we can ship customer containers. You are talking 12,000 to 15,000 yards for a 20-foot container. With -- that's not so toughen up with a variety of SKUs. The challenge is you need a distribution center in China to store and stage the goods for shipment, which we now have.

Most of your customers in the States here are taking full containers?

Not today because we haven't had that ability. We just -- we just finished that warehouse in China this third quarter.

I got you.

So we have had to bring all of it back to the east coast and then ship it back -- back towards the west. But a lot of the customers on the west coast, some of them have manufacturing facilities in Mexico as you may know and we do ship containers from Shanghai to Mexico.

And my last area is the restructuring. Will there be any spill over into Q1?

That is going to be some spill over, Budd. Our goal has been, we've said this from the beginning, get as much done this fiscal year as we can. Believe me we are as tired of it as our investors are. This is our seventh year of restructuring, and it's about over, I mean we're -- and so we are trying to get all of it done as much as possible by the end of Q4. But I think we will get close to that goal, but there will be some spill over small amounts next year.

Can you put a number on that?

I just -- I don't think more, Budd, $1million, by next year, $1.5 million.

You think that's all Q1.

Q1, yes. I just don't think we are going to have a lot. We don't have any more to restructure. We have one plant that we are very optimistic about in Anderson with our velvet operation.

We have the leading position -- the only position in velvets these days. We are bringing in yarn from China and we are offering great products at good values. So we are optimistic about our remaining U.S. plant in Anderson, South Carolina.

And finally I did have one other area. You had you an issue with the New York Stock Exchange. Is that now done?

Well, obviously the numbers in the third quarter put us pretty well behind that issue. The New York Stock Exchange has to go through its process of evaluating our results every quarter. But certainly, you're right, it seems to us that it's -- this issue is behind us. It's not formally officially behind us, but we are above the thresholds required in both shareholders equity and market cap.

Got you. Okay. Good, and congratulations again.

Thanks, Budd.

And at this time we have no further questions in the queue. I'll turn the conference back over to management for any additional or closing results.

Just thanks to each of you for joining our conference call, and we look forward to our next update in June. Have a great day.

That does conclude today's conference. You may disconnect at this time. We do appreciate your participation.