Unifi Inc (UFI) 2003 Q1 法說會逐字稿

Welcome to Unifi Corporation first quarter of fiscal 2003 conference call. All lines are currently in a listen-only mode and the floor will be open for questions and comments on presentation. It is now my pleasure to turn the floor over to your host Willis Moore. Willis you may begin.

Thank you [Richard]. Good afternoon thank you for joining us for Unifi's fiscal 2003 first quarter conference call. As you know, certain statements included herein are forward-looking statements within the meaning of the Federal Security Laws. The management cautions that forward-looking statements are not guarantees and that actual results may differ materially from those expressed or implied in the forward-looking statements.

For the first fiscal quarter of 2003, ended September 29, 2002, the company announced a net income of $4.3 million or $8 cents per share, which is an improvement over the net income of $2.7 million or $5 cents per share for the prior year's September quarter. Reported earnings exceeded expectations provided at the end of the previous quarter when the company advised that it anticipated finishing the quarter at or slightly better than breakeven. Net sales for our September quarter were $221.5 million, which approximates our net sales of $223 million for the prior year quarter.

The strong first quarter was due in part to positive results from our Brazilian operations and from our earnings of equity affiliates. Net income in the current quarter was positively impacted by pretax income of $3.6 million or $4.6 cents per share on an aftertax basis stemming from the strong performance of the company's alliances and joint ventures with Parkdale America, LLC, SANS, and Elite. The company also recognized fee income of $1 million or $1.1 cents per share associated with the execution of its technology license agreement with Tuntex, a public company in Thailand. The technology license fee income is reported in the segment of operations as other income.

In regard to DuPont while the arbitration is proceeding and is not expected to be concluded until the end of the current fiscal quarter, both companies continue to work together to maximize the positive benefits of the alliance. As an indication of the successes achieved by the alliance, the September quarter results include a pretax benefit of $9.9 million generated by the company's manufacturing alliance with DuPont. It is too early in the arbitration process to predict the outcome. However, it should be noted that Unifi continues to vigorously defend the DuPont claims and we continue to pursue our own claims. On the advise of legal counsel, we are precluded from any further comment regarding the arbitration at this time.

Continuing its ongoing strategic focus on improving free cash flow and strengthening its balance sheet, the company ended the September quarter with no borrowings under our bank credit facility, which represents a decrease in funded bank debt of $240 million since September 2000. This produced level of funded bank debt coupled with a continuing downward movement in interest rates contribute to a $1.1 million reduction in interest expense in the current quarter compared to the prior year quarter. The company's ability to significantly reduce debt has come has a result of maximizing the improved cash flow from operations, reductions in working capital, the sale of certain non-core assets, and the better utilization of the company's state of the art manufacturing and information technology to minimize capital expenditures.

Two years ago, Unifi was a different company operating under a much different business model. The results of this past quarter and the prior year demonstrate benefits of many changes that we have made in spite of the challenges of a turbulent economy and weaker consumer spending. Through improved inventory controls and better asset management, we have reduced inventories about $53.1 million since September 2000 and have improved our cash and cash equivalents by approximately $14.6 million leaving us to date with $25.1 million in cash and cash equivalents on hand with no bank debt further enhancing the company's long-term flexibility to grow its product and global customer base. As we enter the second fiscal quarter of 2003, the strengths from our balance sheet will continue to provide the company with financial flexibility allowing us to pursue growth opportunities throughout the world. Changes in tariffs, quotas, and trade laws will continue to cause shifts in global production and sourcing dynamics and we will continue to evaluate global markets and pursue cost-effective platforms for growth in order to achieve our objectives of being the supplier of choice in every major textile and apparel region of the world.

The strength of our global operations in the September quarter demonstrates that we are already realizing success in this area. Our operations in Brazil outperformed expectations for the quarter. We had strong volume gains based on increased market penetration and the successes of our new product offerings. Despite the customary shutdowns our European operations continue to show promise while Unifi Asia based in Hong Kong continues to make progress and strengthen our position in the region paving the way for our future growth. In addition to regional efforts, we continue to create competitive advantages for our customers and increase customer loyalty through service and speed efficiency. We have improved the speed to market of information, inventory, and new products through out industry-leading information technology and E-business packages. FyberServ usage has nearly doubled since the June quarter and today we have more than 200 customers using our proprietary online business tool. We continue to drive sales by new higher margin products and working directly with our downstream customers. And our marketing initiatives have shortened the development to market timeline for new products and accelerated their successes. These efforts allow us to reduce our dependence on commodity products and increase our percentage of earnings through our unique value-added products and services.

At this time, we feel it is prudent to provide guidance for the upcoming quarter only while considering factors such as the usual and customary shutdown of our US plants in December quarter along with the current economic conditions, unpredictable consumer demand, and the continued volatile to the industry. The weaknesses that began late in the September quarter surrounding our sales in the home upholstery and automotive end markets, is expected to continue through the December quarter. And we see continued softening in the apparel sector. As a result, we expect per share performance in the December 2002 quarter absent of determination of the outcome of the DuPont arbitration and any other non-recurring charges to be in the range of $4-7 cents per share loss. Thank you for your time and Richard I will now like to open up the floor for questions.

Thank you sir. Ladies and gentlemen, the floor is now open for questions. If you do have a question or comment, please press the #1 followed by 4 on your touchtone telephone. We do ask that while you pose your question, you please state your affiliation. Our first question comes from [Dennis Rosenberg].

Yeah, Credit Suisse First Boston. The second quarter versus first quarter, are the trends in home furnishings or in apparel weakening relative to first quarter or are they just as weak as the first quarter?

The first quarter [Dennis] we started out the quarter relatively well in those businesses and as we got into the September month, those businesses started to weaken significantly. What we have seen so far in the December quarter is that it has continued to weaken and we expect it to stay weak throughout the rest of the December quarter. Based on conversations our sales men and our business people have had with customers that is their expectation as well. They do expect it to rebound in the January month.

What is the basis on that expectation?

Same thing, conversations with customers.

Okay and if you look at the equity lines and the minority interest lines ... what should we be looking for there for the December quarter?

My expectation, my guess is that number probably is going to be adjusted to around $1.5 million.

Which one of those numbers ... there are a few numbers ...

The entire $3.6 million that has been recognized as earnings from equity affiliates. My expectation is that number will be close to $1.5 million in the December quarter.

Okay and then what about minority interest?

Minority interest again is Burlington Industries piece of the cash flow is driven off of the natural texture polyester business of our company. The first quarter of that business generated $2.8 million. My expectation is that number will not be as large in the December quarter just like for the rest of our businesses we expect a downturn in that segment of the business. My guess is that number probably could be half of that ... Say one million and four.

Okay, but last year it was 0 for all of year so ...

It was. I mean [Dennis] if you go back in the September quarter of last year there was a minority interest and then it basically was 0 the rest of the year. That business has performed a little bit better. It had a good first quarter and volumes were excellent, but we have seen deterioration in that business as we gotten into this quarter.

So, if you going back to the loss it sounds like it is based on the US business, so why would not that go back to 0?

It could. I mean my expectation is it will still make a little bit of money in the quarter.

So, if that is profitable what is the losing money in the quarter?

If you just look at the equity and earnings of unconsolidated affiliates that is a swing of 2.5 million right there. Brazil will not make as much money in the December quarter as it made in the September quarter. It had excellent September quarter.

It still doesn't add up though, because it sounds like the US market is a market that is weakening and everything else is profitable, so if US market is still going to profitable and everything else is profitable where do you get a loss?

You also have a shutdown in the December quarter ... holiday season that you did not have in the first quarter. Our best estimate [Dennis] is it will be a loss in this quarter of between 4 to 7 cents a share.

Okay.

Thank you. Our next question is coming from [Tom Willis].

Good afternoon Willis.

Good afternoon [Tom].

I know a lot of this got covered, so please bear with me a second, did SANS generate a loss as expected?

SANS did generate a loss. Parkdale and Elite were both positive.

Okay and when do you expect that to change?

Our expectation is right now, we do not have that facility operating where it needs to operate even from a sales standpoint, it is extremely weak market for industrial nylon and the plant is not operating at the technology level that it needs to breakeven. My expectation is that it is several quarters out before we can get that business to a breakeven level, although if you would have asked me this question a year ago I would have told you it would have been at breakeven today.

So, it sounds like it is partly about the state of the economy, but also about some work to do with plants.

That is exactly correct.

Yeah, should we understand the million plus that you got from Tuntex ... is this a one-time deal or is it ...

It is a one time transaction with Tuntex. In Tuntex, Thailand we would anticipate there is further opportunities for us to utilize our technology base to leverage market share in certain regions of the world.

Which is what your office in Hong Kong is about I presume.

Exactly.

Okay, would it be a correct understanding of your alliance with DuPont as I recall you are going to split the savings, I mean, were the $9.9 million that you indicate would be an indication of the benefit that DuPont derived during the quarter from its relationship?

That is a good question [Tom]. The $9.9 million that we recognized as a benefit is 50% of the benefit that was realized by the alliance. The total would have been $19.8 million, which if you go back about a year and a half ago when we issued a press release announcing what we expected the benefits to be from the alliance ... we targeted an $80 million number, which half of that would be $40 million to Unifi and $40 million for DuPont and we are pretty close to that run rate today.

Okay. Last question, the details of your agreement or affiliation with [Burlington] but they had a first call ?

That is correct. The way the agreement was structured was for the first five years of the agreement [Burlington] was entitled to the first $12 million of cash generated by the business annually and we are still under that arrangement. That arrangement ends this fiscal year. This is the last fiscal year and after that it works to 85% of the cash that belongs to Unifi and 15% belongs to [Burlington].

So, [INAUDIBLE] in the first quarter a year from now the 85% of this 2.8 million would go to you?

That is correct. That would be additional earnings that Unifi would have recognized in its P&L.

Okay and cash goes to them as it is recognized quarter at a time, it doesn't build up or anything?

It is actually an annual calculation and so what we would do is at the end of the year, we will evaluate where this is. To give you an example, if we made $2.8 million of cash the first quarter and lose this $2.8 million the second quarter, you are back to zero on a net basis and so there would be effectively no cash distributed to [Burlington]. So, in effect the $2.8 million of P&L charge that we took in this quarter will reverse the next quarter.

Okay, so this 2.8 is something that ... the cash is still in your pocket ... ?

Correct. We have not distributed the cash under that scenario.

But you know if things go the right way it [INAUDIBLE] when you get to the end of the year?

That is right. Last year, the [INAUDIBLE] business, our business with [Burlington] was a cash loser. So, there was no minority interest charge.

Okay, well I will let somebody else jump in. Thanks.

Thanks [Tom].

Thank you. Our next question comes from [Brian Hunt].

Wachovia Securities. Hi, Willis how are you?

Fine.

Forgive me if I ask you to repeat this since I had some trouble logging onto this call. With regards to the benefit on the alliance, what was that amount in the quarter a year ago?

[Brian] I don't have that number on the top of my head. It would not have been that large a number. I just don't have that number available. I apologize.

No problem.

I think last year just to give you an average, we ran approximately $34 million of benefit for the entire fiscal year and this quarter was $9.9 million.

Okay all right and then with regards to nylon and polyester. Can you give us sales dollars and volume changes on a year over year basis?

I can give you with totals. I cannot give it you year over year. I don't have that available either in front of me.

All right.

The net sales for the quarter in polyester were ... and this is on segment basis ... were 130.6 million pounds and nylon was 19.5 million pounds.

On a dollar basis?

On a dollar basis, polyester was $157.4 million and nylon was $64.6 million.

Okay and then with regards to the [INAUDIBLE] million dollar payment ... where did that flow through? Did it come in as a sales item and flow through to the gross profits or ...

No. We actually recorded that down as other income. First of all, we don't consider it as sales. It is not revenue. It is really other income item. It is a license fee for the usage of technology.

All right and then [INAUDIBLE]. Lets say this whole DuPont alliance issue is a wash ... will at that time the company make a decision what to do with free cash flow that it is generated?

Yes it would.

Okay. So is that the trigger point, I guess.

Obviously, we had our shareholders meeting and then board meeting today. The board would like to revisit what to do with the free cash flow and quite frankly we also need to make sure we understand the status of the DuPont arbitration before we commit to anything as far as committing the money to any source because quite frankly we would like to keep it in use as opposed to sending that with DuPont. We don't want to make any decisions without no one, you know, all the factors around the arbitration proceeding. So, we have decided to put that issue on hold until after the arbitration is concluded, which we are hoping would be somewhere in late December quarter and then we will revisit the cash flow issues.

Okay and then let me go back up and revisit our first [INAUDIBLE]. I mean you had a nice increase sequentially and even a little pickup year over year ... what is the function of ?... your volumes don't look to be that much greater sequentially over or an year over year basis ...

Yeah one of the things that has helped us is that I have always said that Unifi has some of the best manufacturing people in the world. The benefits that you saw in the gross profit margin line are primarily due to manufacturing cost initiatives to take cost out of our operations and they have got plans to continue to drive this cost out. So, I think you can expect to continue to see some benefit from that, although if volumes fall off like we are expecting them to do in the December quarter, it is hard to make up in gross margin from cost productions.

And then year over year on the operating cost line, you are up about $2 million ... all of that can't be from from Hong Kong I imagine ?... your sales there ...

You are talking about the equity income of unconsolidated affiliates?

[INAUDIBLE]I'm just looking at your operating cost, your SG&A expense. Your OC&A expense went from 11.58 to 13.56.

I would say that the majority of that without sitting and doing analysis is related to arbitration to arbitration defense fees.

Got you. That makes sense. Well, thanks very much. Good quarter and I will see you on Friday night.

I will look forward to it. Thank you [Brian].

Thank you. Our next question comes from [Michael Novak].

Hi Willis.

Good afternoon [Michael].

Good afternoon. I am trying to get to the loss of $4-7 cents a share given everything else you have said and using gross margins down slightly year to year ... does it imply revenue?

It could be. A lot of it would be topline deterioration. We expect volumes to fall off. When I answered [Dennis's] question, he asked me specifically about some of the businesses ... the business that is falling off the most ... what we have seen to fall off the most so far this quarter is our dye business, which is going into the automotive and furniture upholstery businesses. That business has significantly weakened since the start of the September quarter. June and August were decent months. September really fell off and it looks like the rest of the quarter is going to be a lot like September and those products are a lot of our higher margin value added products are going that are extremely critical in use.

So, it looks like revenues need to be down sort of the 11-12% sequentially to below $200 million?

I would say you can be right around $200 million. It would be my guess.

Okay and...

And you also have a week where you are not going to be operating due to plant shutdowns around the holidays.

Okay. And then I am trying to understand sequentially how you would you expect the business to flow from there if you add back in the week, sort of, the 1-Q, what does that represent in terms of volumes or revenues?

It is about $18 million per week of revenue.

Okay. So if we hold that flat, sort of, 200 a fair number would sort of be 218 for the third quarter as far as you have said right now?

Yeah, we also expect some of the dye business to come back by then. It is based into the automotive sector. The furniture is a little iffy right now. Quite frankly, I don't have my hands around that. But we would expect the automotive to come back a little bit better and a little faster than the furniture upholstery side. There just has not been a lot of spending at the consumer level for home furnishings.

Surprising seeing that that is one of the areas where the public retail stocks are actually doing pretty well.

Yeah, one of our board members in that business and based on conversations with him today that is an extremely slow business.

Okay and then SG&A if this is going to get resolved by December, we should expect SG&A in the third and fourth quarters to be about one million less?

Yeah I would expect it to be around 12.4.

12.4, okay. And why with sort of the 220 million in revenues would not be sort of the 11.5 we saw in the first half of last year on similar volume level?

SG&A?

Yes.

I am not sure what the difference is between SG&A in that quarter. I mean our budget for SG&A absent the arbitration is around $12.5 million per quarter.

Okay.

I cannot give you a specific line item to where that might be falling. I will be glad to do that off line with you.

Okay. All right thank you.

Certainly. Thank you [Michael].

The next question comes from [Steven Corn].

Hi Willis.

Hi [Steven].

Most of my questions have been answered. I am sorry if I missed this piece but what are the plans for the cash in the balance sheet now and cash flow from operations ... or do you just wait until ... ?

One of the things, we discussed in our board meeting today and discussed it at some lengths. We don't want to commit doing anything with our free cash flow until we get this new DuPont arbitration behind us and know exactly where we stand in that relationship. That is such a significant exposure and such a significant relationship for Unify that we just don't want to make any long-term commitments until we understand where that comes out. Our board is very eager find a better use for the cash that we are generating [INAUDIBLE] sitting in and having zero debt on the balance sheet and not earning but 2.5-3% overnight on it.

And then if you could just walk me through what type of visibility you have into your customers ordering patterns and how quickly do you know that there is a term down or a pick up in demand? How quickly do you see it and what kind of indications do you have in advance?

We have a very low visibility. I will give you an example. Our natural texture polyester business, we have a young man named Frazier Orr who runs that business. I have been working with him over the last, I guess 12-18 months on inventory management. The biggest issue we have with inventory management is we will have a customer call on Monday and order our product and we will run that product to that customer and by Friday, he does not need that product and [that's] the biggest issue we have is being able to project what our customers really want because last thing we want to run a product that has no sitting on our shelves, we want to move that product. Our customers really don't have a whole lot of visibility to the downstream market either. I am not putting blame on our customers but they have no visibility either.

So when you are giving a negative 4 to a negative cent quarter number, its your best guess as to your customer's visibility as to they where they see today?

That's exactly right and that's one of the reasons, we only try to go out a quarter. Quite frankly, some of our board members have asked that do not give any guidance, just because there is no visibility and that I have historically felt that we are at least try to put an investor in management's chosen and so you at least know, what I know and I have been trying to give the best guidance based on what our sales people are telling and what our manufacturing people are telling.

And if you did not have a holiday week, [can] you have an extra incremental $18 million of revenues, what are the incremental margins on that? And what would earnings power be assuming there was not a one week shutdown?

You probably have close to 20-23% incremental margin [on to/under] the sales.

Another $4 million pre tax.

Yes.

Okay. Thank you.

Thanks David.

Our next question is coming from [Thomas Spiral]. Please state your affiliation.

[Spiral Capital]. Good afternoon. Just a couple of cash items. What is the capital expenditure budget for this year?

$25 million for the entire fiscal year and this quarter was $10.3 million.

I see the depreciation was 18 something. So, it looks like it will run 70 something for the year.

That's correct.

Okay. Are there any other unusual sources or uses of cash, which can take about perhaps the joint ventures that need or throw out cash that kind of thing?

The only one that we have that we would like to think there is an availability of some distributions from your Parkdale America joint venture. Or, our Parkdale America equity interest, we own 34% of that. Again, we don't control the cash. That business has performed well and we would hope that at some point in the future, we will see some cash distribution from that business.

You think that it still has borrowing capacity?

It does...

And working capital, do you expect working capital through the balance of the year to throw out cash or consume cash?

I would expect working capital to be a generator of cash for the remainder of the year.

And then, one last sort of a big picture kind of question. The impact of the West Coast dock workers' strike, I guess sort of a seat of the pants sense for what if anything that might mean for your businesses that over time not tomorrow morning, but over the next couple of years?

One of the things that it's only a positive, I think I have sent a message that the retailers they should not rely on one region of the world to be their source of garments or apparel. We think that there is a lot of merit in looking at other regions of the country and the CBI was the region that we have spent a lot of time investing in and we continue to pursue opportunities in CBI and we have seen some retailer looking for alternative sources of goods rather than Asia now, so we think it is positive for us. We think that anytime that would disrupt that movement of goods from Asia to the U.S. will be positive for Unify and our U.S. customers.

Thank you so much.

Thanks Tom.

Ladies and gentlemen, the floor is still open for questions. If you do have a question or a comment, please press 1 followed by 4 on your touchtone telephone at this time. The next question is coming from [Mike Cabarada].

Yeah. The issue on visibility in fact that you really don't have any view on a few days. Is just a reflection of the current economic environment or is just nature of the business such that it is pretty much always the case?

A lot of it is just a result of the economy and historically if you go back to 1997, 1998, and 1999 if a customer ordered goods we are almost assured that he is going to take those goods. It might not be that week but it would be within a week or two. Now, there is no insurance so that customers don't take those goods and in some cases there is assurance that customer is going to be there, long enough to take those goods. What we try to do from at least an inventory management standpoint is we try to identify those customers and those products that are more [fungable] and we don't mind making a product that lets say if [INAUDIBLE] industry [INAUDIBLE] decides they don't need it. We could then sell it to [Gilfred] mills or [cone] mills or somebody else. We will make those products to the customers that are making very specific products that have extremely limited use. We try to get a good feel for those customers that they really need those goods and that they need to be delivered. Absent that customer has taking it, there is no further market for those goods.

Okay. Let me ask a question on the arbitration, you mentioned that you expect to have this resolved by late in December quarter. It was my understanding that arbitration was to begin November 1st, is that still the case?

Still the case. It is scheduled to start in November 1st and it will run anywhere from around two weeks is our expectation, after that then they get into the legal briefs, and the expert's testimonies on any claim damages one way or the other, and our expectation is that we will not have a result until late in the December quarter.

Okay. Great. Thank you.

Thank you.

Our next question is coming from Ren Guessing.

I just have a couple of things. Do you expect this quarter that will have similar arbitration expenses or sort of a loaded in the last quarter?

No. I would expect this quarter to be pretty similar to what it was in the September quarter unfortunately.

Okay. And do you have that amount?

The number that we have in the September quarter for our arbitration precedings is $1.2 million.

On the Tuntex royalty is that sort of going to continue at that level with a million dollars in the quarter or?

That was a license fee, so that is a onetime free from that company. There is opportunity for ongoing royalties and other fees down the road that we can earn through the dissemination of technology and the sale of products, but that is the only fee of that nature that we will get from that customer.

Okay. We don't expect the royalties to be anywhere near that significant or do we over time [under built] that?

To built up that 1.1?

No I was trying to understand....

Yeah, I would not expect that number to appear in the financials in the next couple of quarters.

You would not.

I would not.

Yeah. And then...

But again, we are also trying to look at other opportunities on a global scale where we could utilize our technology to leverage relationships like that.

Right. And how would you characterize that pipeline was that robust or sort of [spars]?

Yeah, I would say there is a lot of interest from a lot of people, again what we are trying to do is take the right players to Unify partner with long term. We are very comfortable with Tuntex relationship in Thialand. We are also looking obviously the one that we are very focused on is channel right now and to make sure that we have the right partner and channel.

And then, on the as related to [INAUDIBLE] repayment, should we expect that you to be able to continue it, can you chip away some of the notes or unlikely over the next?

You might have come on after we talked about this.

I did I came late.

Its no problem. One of the things that we talked about at the board meeting today is what to do with the free cash?

Yeah, I heard that...

And the board has made the decision to hold off or make any decision as to whether we repurchase stock, repurchase bonds, look at growth opportunities, or what we actually do with the funds until after the DuPont arbitration has resolved.

Okay. Thank you.

Thanks [INAUDIBLE].

Our next question is coming from [Michael Novak].

Billy it looks like DSOs came down about five days sequentially. Can you comment on the quality of your receivables and how well you are reserved for those?

Our allowance for bad debts at the end of the September quarter was $11.7 million on that $139 million if you gross it up, you have about $150 million in gross receivables and net reserve of $117. Of that, $150 million of receivables it is probably 35% of that is factored without [INAUDIBLE] to Unify. There is probably additional $20-30 million that is backed by insurance and so what we have done is try to pay a fee for either insurance or factory to mitigate in the list of bad debts. The short answer [out feels] that the reserve for bad debts that we have is adequate to cover the exposure we have for those non-factor, the non-insurance backed receivables.

And with debt-to-total capital in about just under 35%, is that you and the board would consider can be optimal capital structure or would you look to de-leverage the company further?

A lot of that what your cash flow expectations are off of your business and I am not sure the board has defined what their optimal leverage ratios are. We have an offsite meeting scheduled at the end of January 1st [fit] with the board to talk about the usage of free cash flow and leverage just to make sure that we are thinking alike and strategic nature where we are ahead it. I would like to defer that question until that meeting and after DuPont arbitration to keep you better more articulate answer.

Okay and then my last question is on capital expenditure. How long do you think you can keep it I guess you pumped it $7 million this year because of the building purchase. How long is it maintainable sort of the $20 million level before your [INAUDIBLE] manufacturing competitive advantage?

Yeah, if you go back 1996, 1997, 1998, and 1999 [Unify spent] an enormous amount of money [build state] of our facilities. If you look around the world on a just a global scale those facilities are still first class state of our facilities. The level of capital expenditure that we are spending. We are not, looking at our technology and risks in anyway, we are still ahead of the curb because a lot of the technology we have is processed technology it is not machine technology. So I would tell you that over the next four to five years of minimum there is no reason for Unify to go spend [80 more/anymore] capital dollars on the type of machinery and equipment we have than we are today and the only thing that would make my mind [chase that] mind is that there was a breakthrough in technology that allowed for significant improvements and [speed] with the ability to make a new product. After that I won't spend any more money on that [INAUDIBLE].

So over the next four to five years, the company won't generate $50 in cash assuming no net income and no change in working capital?

That will be a fair statement. I am assuming the business stays where, the capital expenditure stays where it is, that will be a fair assumption.

And once you can do that for five years, you can buyback your whole company. Thanks.

Our next question is coming from [Bryan Lunt].

Thank you. Billy can you comment on what raw material prices overseas as well as to yarn prices?

Raw material overseas have historically and continued to trade at a slightly lower level than we can buy [few] in the United States and most of that's driven by the fact that there is more producers and there is more negotiated prices and the raw materials here in the United States are driven primarily by [ameco] that controls a lot of polyester stream and DuPont which controls a lot of the nylon stream. So that the raw material pricing in Asia is actually slightly lower than the United States.

And then what about yarn prices?

You mean our end use sales prices?

Yeah end use sales prices that you are seeing for relative to what you are seeing comparable product overseas?

That is one of the issue you have, [as there is] not comparable product. Our products sale at a higher price than Asian products and our market versus their market. Our products are able to perform better and critical use end applications and they are so we command a premium price for that.

Okay and then lastly you mentioned your marketing initiatives, marketing beyond the mills [within/to the] end use customer [INAUDIBLE]?

There are a lot different examples that we are working on today.

I was wondering could you give us one [INAUDIBLE] another example where you got a recent success?

We developed a program for Levis to make you bottom-line [INAUDIBLE] and it's a program that historically had been in Korea and we have [down] to Levis with a [fiber] and a finished garment that we work with a company in the Caribbean basin to manufacture and that we have convinced Levis that this is the program that they have in their in line and is kind of those [startles] what we are trying to take our fibers to the end use customer and try to develop a relationship that way. That's have been relatively successful.

Convinced them to move with the whole program or [just part of it]?

Excuse me...

And you convinced to convinced them to move with the whole program?

That program will be ours.

Congratulations.

I mean its small volumes now but we think its something we need to do to get our fiber as noticed in the downstream markets.

Is this is a proprietary fiber as well as [generating]?

It is.

All right. Thank you Billy.

Thank you.

Our next question is coming from Thomas Biro.

One question about the arbitration proceeding Billy. Is the arbitrator's decision appealable to a court or would you actually expect to have a definitive and final conclusion in late December?

Actually, there are three arbitrators. One selected by Unify, one selected DuPontt, and those two arbitrators select a third party arbitrator. The ruling of those arbitrators is [binding].

So whatever the outcome is we will know by the end of the year basically?

That's [INAUDIBLE] expectations today.

Thanks a lot.

Thanks Tom.

Ladies and gentlemen, the floor is still open for questions. If you do have a question or a comment, please press the numbers 1 followed by 4 on your touchtone telephone at this time. There appear to be no further questions. Mr. Moore [INAUDIBLE] any closing statements.

Thank you very much again. I just want to reiterate the fact that we are trying to give the best guidance we have available today. The $0.47 of share loss again is an estimate. We will not be happy with the $0.47 of share loss as you all probably won't either but we wanted to put in the shoes where I am sitting and so we made our best estimate at this time. Again I would like to thank you for your attention and look forward to speak again with you soon. Thank you.

Thank you ladies and gentlemen. This concludes today's teleconference. Please disconnect your lines at this time and have a wonderful day.