Unifi Inc (UFI) 2003 Q3 法說會逐字稿

Good afternoon and welcome to Unifi Third Quarter Fiscal 2003 Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. At this time, I would like to turn the floor over to your host, Mr. Billy Moore . Sir, you may begin.

Thank you Steve. Good afternoon. Thank you for joining me for Unifi's fiscal 2003 third quarter conference call. Joining me is Bob Cusorick who I'm proud to announce that as of today he's assuming the office of VP and CFO of Unifi. Going forward, I will be assuming the role of VP of Governmental and Investor Relations, focusing my attention on working closely with Brian Parke on strategic planning initiatives for Unifi, as well as diverting more of my time to legislative and investor communications.

As you're aware, certain statements included herein are forward-looking statements within the meaning of the Federal Securities Law. Management cautions the forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. I would now like to take this opportunity to turn the floor over to Bob Cusorick to discuss the financial results for the current quarter and the year to date periods.

Thanks Billy, and good afternoon. For the third fiscal quarter ended March 30, 2003, the Company announced a net income of $1.1m or 2 cents per share, which is a significant improvement over the net loss of 3.6m or 7 cents per share reported in the prior year March quarter. The results of the March quarter brings year-to-date net income to $3.3m or 6 cents per share versus a loss of $42.3m or 79 cents per share, which included a charge for the cumulative effect and accounting change of $37.9m or 71 cents per share incurred in the first nine months of last year. Once again, we are pleased by the results of our ongoing focus to strengthen the Company's balance sheet and improve free cash flow.

The Company ended the March quarter with cash on hand of $66.5m, which is an improvement of 18.2m for the December 2002 quarter and we continue to have no amounts outstanding under our bank credit facility. Our ability to improve our cash position is a result of the continued generation of cash flows from operations, distributions of earnings from unconsolidated equity affiliates, reductions in our working capital, and the better utilization of the Company's state-of-the-art manufacturing and information technology, and minimizes capital expenditures.

We continue to improve in profitability on comparable levels of sales is a clear indication that our equity investment and strategies involving customer service, manufacturing excellence, and maximization of cash flows are sound and are continuing to generate the positive results we anticipated.

The March quarter was positively impacted by pre-tax income of $3.2m stemming from the equity and earnings of the Company's unconsolidated equity affiliates. Parkdale America, Unifi-Sans technical fibers in US industries. On a year-to-date basis, our equity and earnings of the Company's unconsolidated equity (inaudible) has resulted in pre-tax income of $9.4m.

Also included in the fiscal 2003 and 2002 March quarter results is a pre-tax benefit, which is included in cost of sales of 7.4m and 6m respectively generated by the Company's manufacturing alliance with DuPont. Despite the continuance of the previously disclosed arbitration process between the two companies, Unifi's and DuPont's management continue to work diligently to maximize the benefits of the alliance.

The Company has also reduced its provision originally made in the June 2001 quarter in the amount of $15m with 50% share of cost for severance and dismantlement, originally projected by DuPont to close their Cape Fear plant. Now that this project is substantially complete, the Company's actual share of such cost is currently expected to be $11.5m. Accordingly, the Company has reflected a reduction of previously recorded amounts of $3.5m in its consolidated statements of operations.

Additionally, the Company has recorded a charge for damages at the amount of $2m in the March 2003 quarter representing a minimum amount of potential damages estimated to range in an amount from $2-17m associated with current arbitration. It is expected that the ultimate amount of damages to be awarded will be determined by the arbitration panel by the end of May and that the amount of those damages could have a material effect on Unifi's results of operations.

As previously disclosed, the arbitration panel has reaffirmed this decision to dismiss 17.6m of the aforementioned DuPont claim as this claim was not properly brought before the arbitration panel. However, DuPont continues to pursue collection of this claim and we continue to deny their assertions. I would now like to turn the floor back over to Billy Moore to discuss certain of the Company's strategic condition.

Thank you Bob. During the quarter, an unprecedented set of global circumstances including the effects of oil price uncertainties stemming from global tensions, sharp increases in natural gas prices and world supply demand dynamics within the polyester manufacturing chain combined to drive significant increases in our key components of polyester filament yarn. As a result, prices for polyester polymer rose steadily in all regions of the world causing a substantial increase in our cost for raw materials. Unfortunately, the Company was not able to pass along all of the raw material price increases during the March quarter, but we are hopeful that we can recover substantially all of such increases during the June quarter.

Globally, our operations in Brazil continued to out perform expectations. Brazil has been very successful in leveraging the quality and consistency of our product line, to take advantage of strong market demand and increased market penetration. We have made excellent progress in upgrades to the range and quality of our products produced in Tuntex, Thailand.

We now believe we are in a position to take advantage of the relationships developed by our Unifi Asia office located in Hong Kong and to actively pursue our future growth strategies in this region. In an effort to help improve the long-term profitability of our US and European operations, the company has announced the restructuring of its domestic and European operations and organizations. These combined changes will result in the elimination of 850 hourly and staff positions from our January 1, 2003 employee levels, resulting in reductions of future operating cost of approximately $29m annually.

The Company expects to take a restructuring charge during the June quarter as a result of these changes. The amount of such charge is not yet determinable, but will be material to Unifi's results of operations. For the remainder of the fiscal year, we expect a difficult operating environment resulting from continued general economic weaknesses. We will remain focused on creating a competitive business model that leverages the many inherent strengths of our global organization.

Additionally, we will continue to explore further opportunities to reduce operating costs and improve operating efficiencies throughout the entire organization as we move forward. Finally, at our board meeting today, it was approved that the management of the company will re-institute the Unifi's share repurchase program. They remain under the previously approved program 8.6m shares of Unifi's stock authorized for repurchase. Thank you for your time and interest. Bob and I would now like to open the floor for questions.

Thank you. The floor is now open for questions and comments. If you do have a question, please press the numbers "1" followed by "4" on your touch-tone telephone. Our first question comes from Dennis Rosenburg.

Hi guys.

Good afternoon.

Could you quantify the impact of the high raw material costs on the gross margin in this quarter, and how much do you expect to recover in the next quarter?

Dennis, I think the best way for me to answer that question is to tell you that on a gross margin basis we believe and is difficult to put an exact figure on, but our expectation is we lost about a $1m of profitability by not being able to pass along the entire price increase during the quarter.

Okay. You expect to fully make that up in the next quarter?

We do.

Okay. The $29m of cost savings, how much of that is cost of goods, how much of that is in SG&A and does the $9m in Ireland bring Ireland's actual level of meaningful profitability and what is the tax rate on that $9m savings?

I can answer those questions one at a time. As far as the exact dollar amount of how much is on cost of goods sold versus SG&A, I don't have that data today, but a rough guess Dennis would be probably closer to 25% SG&A, 75% manufacturing related. And we will try to quantify those numbers; the reason I am a little hesitant to give you an exact number is I have not seen all of the numbers for Ireland yet and we haven't finalized all of our numbers here, but I should be able to give everybody a good answer for that within the next week or two. Of the $9m that is to be saved in Ireland, because of the fact that they have a lost -- a tax loss carry forward; the entire $9m will go to the bottomline.

But then you still have -- once Thailand turns profitable, is it still a 10% tax rate or is that how will they overlook at?

No, no it's a 10% tax rate through 2005 and after 2005 it's a 12.5% rate going forward.

Okay. Thank you.

The next question comes from Michael Novak .

Hi Billy.

Hi, good afternoon Michael.

In terms of the gross margins again you said that the raw materials cost you an extra $1m in the quarter?

Yes, approximately.

So, that would take you up to, sort of, a flat gross margin sequentially of 7.4%, but in the first quarter you were as high as 10 and it sounds like your volumes have picked up. What should we think of as, sort of, the steady state gross margins for the business, sort of, pre these restructuring; and what do you think it could be after the restructuring?

That's a tough question. I really don't know how to put quantification on that number today. I would also -- what I would pay is that we are not through with taking cost out of this operation, I mean not here or in Ireland. We are going to continue to try to drive additional cost out. I truly believe there are opportunities for improvements in the gross margin line not only as we take cost out, but as we continue to try to raise prices and improve the mix of our operations. A rate that we think is achievable, you know, after all the restructuring and everything is approximately 9%. This is a number that I think we can get to after the restructuring just a little bit better operating efficiency and little bit better sales price and better mix of products.

Okay. In terms of the SG&A, last quarter it was 14.8m, but it included $1.6m in legal charges. This quarter its $14.2, but the legal charge is separate. So, why is SG&A going off in this company one of its hallmark always used to be a low SG&A?

Yes, one of the things, Mike I will tell you that's in SG&A this period which will actually reclassified next quarter, is $800,000 of cost associated with consultants that we utilize for the restructuring of our US operations. That's probably the biggest piece of the increase that you will notice in this quarter.

Okay. So that would make it, sort of, on par with the $13.6m you reported in the first quarter?

That's correct. And actually in of the drafts of that release, we actually had 800,000 disclosed and we decide to pull it out as opposed to trying to focus on one item that was negatively impacted in our financials. We are try not to cherrypick what we disclosed, but that is an item that I know is in our SG&A this quarter, which is a typical nonrecurring expense for us.

Okay. And then in terms of the share repurchase, the Board has already approved you to [inaudible] so when would you be eligible to start repurchasing shares?

We are eligible immediately.

Okay.

Our next question comes from Brian Hunt

Thank you. Billy, I have got some financial questions mostly here, sort of, strategic questions. First of all, what was CAPEX for the quarter?

I can tell you CAPEX for the year-to-date period is $18.9m and that includes $7.5m for the repurchase of our building from our property sharing plan, -- which is typically when I think of ongoing CAPEX I would back that 7.5m out of what we have spent this year.

Okay.

We look at a good run rate going for this year and going forward. It is kind of one-off transaction.

Next cash interest, I'm sure it's just based upon what it is on the income statement?

It is. What you see is net interest on the income statement would be the interest expense we paid. The only debt we have today is the $250m of bonds, and 6.5% fixed. There is a small piece of debt in Brazil relatively insignificant; there is cash that backs it up, certainly, on the other side of the balance sheet. In addition to it there is about $3m of capital leases.

Gotcha. And then during the period, did you all receive any dividend from any joint venture operations?

Not during the quarter of any substance, but we have received $8.8m in April from our Parkdale equity investment.

That's good. And a question on the fundamentals of, I guess, Parkdale and the other unconsolidated affiliates. Contribution there continues to be exceptionally strong despite the what I would say the fundamental of the domestic textile complex and the contribution of [inaudible] this quarter and it look like you are probably on the run rate close to $12m for the year. Is it fair to believe that what we've seen through the first 9 months of years is going carry in to the June quarter?

We expect the June quarter to be at little better than it was in the March quarter.

Wow, that's fantastic. What dynamic is, you know, can we pointed is driving and I imagine its most of the cotton yarn sales?

It is really -- I mean it is really all three of those businesses continuing to improve.

So you are getting contribution from every -- all three of those?

We've got improved contributions from all three of those, but all three of those businesses continued to do better every quarter. The Sans business which is a startup has continued to improve. and we actually expect our September quarter, that it will be profitable.

Are you knocking on wood?

Yes. We're getting close. I mean it is -- those guys have spent a lot of time, we've gotten the right people in there running the business. We've got the right products being generated. The manufacturing guys have done a wonderful job getting the technology to work and we are on the right path.

Our Nilit joint venture, our partners in Israel, run a first call operation and that has done extremely well towards the entire year and the management group at Parkdale are some, if not the best, operators in the spun cotton business in the world. So, we are extremely pleased with who we have chosen as equity partners globally.

Alright, and my next question is -- you don't know what the restructuring cost is going to be, Do you have an idea what the cash restructuring might be or cash severance?

You know, what we have disclosed, we issued a separate press release a couple of weeks ago regarding the US restructuring. And we announced that was an $11m.

Is that cash?

Is substantially all cash. And it would be paid out over a two-year period. The Irish operations have not been able to quantify their restructuring charge, okay. And I could not give you a good estimate today of what that number is or how much of that will be cash versus -- there will be some non-cash component as they are going to curtail the operations in parts of their facilities. So, we would take a write-off for that, but we've not been able to quantify those numbers because their plan is still moving a little bit. So, we'd like to hold off on that piece.

The restructuring that's being undertaken and the downsize of your employee pool , is that a reflection of the way the business has been through the last year or two; or is that a reflection of where the business, the company believes the business is going?

In the US the headcount changes we made are more of a result of -- we need to run the business differently. And we are not curtailing any operations; we are not shutting any machines; we are not shutting any plants. What we are doing is come with a corporate structure and a manufacturing structure that's more efficient, more responsive to our customers. And it gives us the ability to turn faster and not take so long at all to make decisions.

We have pinned out the layer and we've put the right people in the right places with the right skill sets. It really is not -- in response to less volume because our volume has actually gone up and in Europe their business has been tougher. Some of the customers they served in certain of the product lines they couldn't make a profit no matter how much they, how hard they worked, or anything else they just couldn't get the cost structure and thus the commodity lines to be competitive. Some of the curtailment is in response to that. We will discontinue providing certain products to certain markets; in Ireland, which we all think we will and we can do it with less people and will allow us to be more profitable in Europe. And we believe that next year Europe will be profitable as a result of this movement.

All right and my last question is, can you give us an idea of what volumes increases were like in Brazil, in the U.S., probably in Ireland? And maybe give us an indication of why volumes were so good in the quarter? I mean you know, the last thing I expected based on what I had seen out of the business and where we are at retail, was your business to be up as much as it were or your volume to be up as much as they were?

Brian, I am going to let Bob answer that question because he has the information.

Brian, how are you?

I am fine Bob, I guess meeting you.

Did you see, I don't have a profile by business. I can tell you that volumes were up for the quarter, 8% over last year and 3% year-to-date and the biggest impact on that Brian is Brazil. Brazil continues to outperform expectations and we are shipping much more products, much more pounds than we had thought. The poly business was up slightly and the nylon business was running a little behind on volumes in a quarter-to-quarter. But the biggest piece of it is -- you know the pickup in Brazil, has been strong all year long for us. You know they are product -- they are generating significantly more than we had expected from a Brazil standpoint for the year.

Are you going to end up sending more equipment down there, I know you have some equipment warehouses you've sent several lines down this year are they running full?

They are, we have some sent equipment down there this year already and they are running almost all of those machines today. And we are still evaluating whether we need to -- whether we are confident enough and what's happened down there, you know to send some more equipment down there, but we haven't finalized any of those decisions yet.

Your point is a good one. We do have excess capacity in the U.S. and in Europe and our expectation is to put those machines to work in a different market.

Very good, different market implying may be Asia?

It could be anywhere globally.

Okay.

There are unique opportunities in lot of different places in the world for us today.

Well, thank you very much.

Thanks [inaudible].

The next question comes from Ren Guessing .

Hi guys.

Hi Ren.

Ren how are you?

Good. Lets see, can you give us any sense for what's a reasonable run rate for sort of cash generation? I think the last couple of quarters it has been around 20m or so. Is there anyway to get a sense of what your base line? Or is it just a sort of volatile still?

It's still volatile Ren with respect to you know distributions that we receive from some of our equity affiliates in [part there]. You know, a normal run rates in the $5m month-range, okay you know, barring any special distributions or special outflows . But I would say $5-$5.5m a month is probably a good run rate.

Right and just trying to explore this a little more on the share repurchase, It's nice there is an authorization, but what's the board sentiment as it relates to going out and executing on it? Should we read from this and expect that you guys are going to be somewhat aggressive to use the cash that guys are building up to in this attractive manner?

Yes, the only one thing we wanted did before we kind of announce our -- may be our expectations and how aggressive we are going after it, is that we want to make sure we are in compliance with our bank credit agreement. We don't believe there are any issues associated with getting the approvals we need from our bank facilities because we have no borrowings under those facilities today.

Right.

But we want to go to the banks and explain to them what we are going to do first and then we are going to move forward with it. We fully intend to execute on the Boards recommendation.

Okay and what's going on with the sales of DuPont's assets? Is it impacting at all what's going on with arbitration and then the ultimate resolution here or--

Yeah. Actually DuPont's efforts with their DTI business and their -- whether they take it public or sell it or run it as a separate business, I don't know believe this will have any impact on the arbitration.

Okay.

The arbitration or the time in which this arbitration is gotten processed is really I don't think is a result of either Unifi or DuPont. I think it is more a result of the process itself and I think both parties are moving towards a conclusion as fast as we can get it happen.

Right. Okay. And you sort of alluded to in the press release, it just sort of struck me in the last couple of weeks, the impact of what's going on in Asia with SARS and what not, do you guys feel that you will be little later this year or early next year, that there could be some positive benefits to your business or they are just too sort of crazy there?

Yeah. For me to try to evaluate how SARS was affecting the sourcing of governments and everything around the world, I don't know how to do that.

Right.

I would tell you that I think a lot of retailers are looking at multiple sourcing alternatives.

Right.

And some of the things that are happening in Asia today, I think help leave those guys to the fact that they need to have multiple sources.

Right.

Don't tie yourself to one source, which I think opens a door for Unifi and our trading partners in our hemisphere such as Caribbean countries, the Indian countries to take advantage of these opportunities because we can be competitive.

Right.

There is a unique opportunity for us under these US trading agreements which the Department of Commerce has been kind enough to put in our lap to develop strong solutions for our downstream retailers. I mean to give you an example, the Asian manufactures today [inaudible] synthetic garment. The retailer has to pay a 30 -- approximately 28-30% duty on those garments to get them in the country. If we can manufacture those same goods in our regional trading partnership areas like the CBI or the Indian countries duty free, which is when we can get it dropped to the retailer faster and we think we can get it to them in the same costs and we are starting to see some real promise and benefits coming out of those trading partnerships.

Right. Was there any currency impact in the top line?

Very little during the quarter end, very little.

Okay. All right. Good job.

Thank you.

Thank you.

Talk to you later.

Okay.

The next question comes from Michael Chu .

Hi guys.

Hi Michael.

Hi Michael.

I just had a couple of questions. The first is on just on looking at working capital on accounts payable, I noticed that there was pretty large increase in accounts payable. I was wondering if you could sort of adjust that.

Yeah. Michael, most of that is attributable to the fact that the way that DuPont is billing us for some yarns has changed from a systems perspective on their end.

Sure.

And so we are fleshing some of those changes through. So it is just temporarily built up a little bit, but we expect it to come back down.

Okay and second in terms of the arbitration, you mentioned that the original claim from DuPont was $85m and that the arbitration was panel had affirmed its decision to dismiss about 17.6m of that. Can you talk a little bit about this 2m-17m range and what it's composed of and whether-- that is something that you are estimating or is that something DuPont is agreeing with?

Yeah, Michael the first of all, with respect to the $17m claim, as we disclosed, as a part of this current arbitration that matter was dismissed. So that is not part of the effort. In analyzing the decisions by the arbitrators over the last couple of weeks that we're seeing, we have been estimate a range of $2m-$17m based on making some calculations and based on guidance that they have given us. There is no number within that $2m-$17m range that we feel is the number. So we are obligated to disclose the range in both the panel.

But you think the maximum would be at 17m and nothing above that?

We estimate the maximum to be 17m.

And DuPont as well?

I can't speak for DuPont.

Sure. Okay, thanks a lot guys.

Thank you.

The next question comes from Mr. John Smith.

Good afternoon Billy and Bob how are you?

Very well John.

Fine, John how is you?

In the past and I may just not have it yet, you had some very, very good notes and addendum's to your quarterly financial statements that you've been kind enough to provide to us, are those going to be available or I - do I just not have them yet, because I haven't looked on the right website or email?

John I'm not sure what you're referring to?

It was, it was some ride-ups that just notes basically a lot of the stuff that you've said or that you said at the first part of your presentation was something we got and maybe be [inaudible] it out to us, I'm not sure?

John it must have been, because the only thing we ever send out from Unifi is the press release in the same form we sent it today.

Alright, so if after the call if you would, you know, fax me what you get?

I'll try to help you figure out the source of it and try to find out how you can get it in the future, but I'm not aware of Unifi sending out any information other than the press release itself and which is consistent with what we just sent out.

And I have -- Billy I haven't seen the press release yet because I've been immersed in something else and the press release may actually cover all of the things that I was talking about, so I won't trouble you until after I take a look at that.

Okay.

Thank you.

You're welcome.

The next question comes from Lemark Karian .

Hi. I have questions about the arbitration agreements. I want to make sure, I understand this. Is it true that the arbitration deliberations you disclosed is separate from the POY manufacturing alliance that you have with DuPont to start things off, is that true?

The Unifi and DuPont have a POY manufacturing alliance which is effectively Unifi's Yadkinville operation and DuPont's Kinston POY, polyester spinning operations. The arbitration between Unifi and DuPont is around contractual agreements within the DuPont alliance agreements - Unifi, DuPont alliance agreements.

Okay, is it true that there is a separate or additional issue that you've not yet addressed because that's two years away, can you talk about the $300-600m Put?

Are you talking about the Put that DuPont has and the call that Unifi has in June of 2005 that is a totally separate issue from the arbitration.

Okay, can we talk about that and then I'll go from there.

What specifically would you like to talk about?

Your plans around that and what you might be able to define instead, I understand from the disclosure that you need to be able to get financing on commercially reasonable terms, that seems rather arbitrary, so?

Yes, we really -- at this point we really don't have any plans or comments around the Put. It's a contractual term that DuPont has arrived to put it to Unifi in June of 2005 within the range of 300-600m and Unifi has arrived to call or purchase that plant in June of 2005 within that range of 300-600m. And there is really nothing else that I think I could add at this point.

Is it something you think you might talk about in a year or I mean it seems like a big contingent liability to me. Maybe I'm not thinking about that correctly.

Yes, its, it's a -- I guess that I could look at it as a contingent obligation that Unifi has from a contractual nature to DuPont to purchase that facility assuming DuPont wants to put it to us in June of 2005 and Unifi has the right to purchase that. Today, we don't have access to DuPont's underlying financial information or financial statements regarding how their alliance for their businesses performances is, I don't know how to answer your question today.

Okay, and then if we can go back to the $2-17m range, the one that you disclosed? Did you say that you estimated that or did you estimate it based on sort of the parameters with the arbitrators?

What we -- let me tell you what happened is the arbitration panel issued some decisions and then asked the two parties to come back with their calculations of how they believed those decisions would affect the arbitration's rulings. Okay, DuPont came back with their calculations and Unifi has provided their calculation and based on what we have seen both in Unifi and DuPont's estimates, we believe the range is within $2-17m.

Right. That's helpful, thank you.

Certainly.

The next question comes from Ed Brae

Good afternoon.

Yes, Good afternoon.

Lots of questions today. Let's see, a couple of that lot was answered already, but I wanted to go back just one second to the - if you could breakdown sales by geography, what percentage of your sales are coming out of Ireland, what percentage out of Brazil, what percentage out of the U.S.?

Domestically, here in the US, it is about 80% of our sales, Europe would account for a little over 10% and Brazil close to another 10%.

Okay.

That is just an approximation.

Okay. Another comment you made William, I wasn't sure if I heard it right. Are the gross margins, I think you were asked earlier about the potential for gross margin from the business and a figure of 9% was thrown out? I don't know if I heard that accurately or is the goal is much higher than that?

Yes, that is what we think is realistic and it is higher than -- that number is higher than what we are achieving today, and we believe we can take it up from there as a result of restructuring and everything else we are doing. But on a normal run rate I think we can get back to 9%.

Okay. The next question is, I am trying to get a sense for how much in the way for future -- your assets impairments are made -- I mean if 80% of the business is in the US. Right now there is -- I guess this tariff quota of 25% to 30% coming out of China which has helped competitively but I understand that sun sets in 2005?

That is kind of correct.

Okay, talk about what provisions go away and what stay in place permanently?

That is a great question, and there is a lot of confusion around this area and it is very important for people to understand it. In 2005 what goes away are what is called quotas. Today various countries have limits on how much of certain goods they can bring it to the US annually, okay. In 2005 those quotas effectively go away and countries that are now allowed to bring in whatever they like into the US under effectively free trade agreements. However, the duties that are imposed today in on polyester averaged around -- synthetic garments average around 28% and for cotton it is around 10% to 12%. Those duties will stay in place. There is no rule in place to that makes those duties go away. So the US still has that and the regional trade agreements still contain those benefits from the duty rights.

And those don't have any expiration?

They do not.

Okay.

Not of any substance whatsoever. I think if you look at the rules and if you get some of the calculations I think they may go down by like 0.75 or percent through 2010.

Okay and noting that China is joining the WTO has nothing to do with that. Could you tell us?

Well, joining to WTO does have some effect on that and I think one of the most important rules that is included in the WTO provisions is that once 2005 gets here and the quotas go away and they go away for all countries that are members of WTO. That China is limited to growing its imports into the United States by 7.5% on an annual basis. It is not that they can just send unlimited goods, but there is what they call the Chinese safeguard that is built into -- that there are imports in the US are limited to 7.5% of what their previous year's quota was and that is, I think one of most important parts of the Chinese safeguard is it does not have to be initiated by the US, but could be initiated by any country that is member of the WTO.

Okay. A couple of other technical questions, just you have a joint venture with Burlington and I think they were taking a preferred dividend.

Yes.

That goes away this year.

Yes, it goes away at the end of May.

What does that mean for either potential for cash distributions to you, I guess, relative to the past?

Historically, through that arrangement and that partnership with Burlington was formed back in June of 2000 or May of 2000; that was a 5-year agreement for preferential dividends to Burlington. Burlington has historically gotten the first $12m of cash generated by that business for the first 5 years. In the early stages of the partnership, that business did relatively well and they will get in the full $12m; that business is fallen off substantially and today is probably one of our most difficult businesses.

I think if you look at the financial statements it's thrown up around $2.5m year-to-date. The expectation is; it will generate cash and profit, the cash in the June quarter of which Burlington would be in entitle to effect, we all will get up to a $12m level. Going forward, Burlington would -- after May Burlington will effectively take a charge rate picked up for their 15% equity ownership and a quarterly Unifi would recognize a minority interest expense or income for that other 15%.

Okay. Too complicated for writing a dividend; I think I follow that?

Yes, but I guess what I am saying is after May of 2005 there will be no preferential cash payments to Burlington.

Okay. Is that May, Robert?

Right.

Two, other easy questions. What is your NOL position today?

Yes, excuse me, I misstated, that is May of '03.

Yes, that's I thought it was this year.

I think I will pass. I was still answering the credit questions, I apologize.

The NOL position?

In the U.S. we have no NOLs. Actually last year we generated a loss -- carried all those losses back and freed up around $11.5m of cash. We do have loss carry forwards in Ireland but, Gavin, keep in mind it's only a 10% rise, so there is not a lot of benefit to the NOLs there. Okay.

And I guess the last question. I am sitting here and if I were to sit on the board, I see a balance sheet of $66m in cash, I would see arbitration payment on the horizon, some severance payments on the horizon, some cash being generated from operations and then this term loan that's due, that probably in today's market with today's operations, it's unclear you would be able to borrow that much money. How much, I guess as you project out the cash irrespective before you buyback shares, what sort of cash position are you looking at later this year, I mean or how much can it be drawn down before you have to think about any other capital structure in the maturity of that debt at some point?

Yes, we -- that's one of the things we are going to try to work on in the next week or two. Let's try to take a harder look at -- now how aggressively we want to do the share repurchase program, but we continue to generate approximately $5-5.5m of cash every month and we believe -- when you say that the note primer, are you referring to the DuPont?

No, I am referring to the $250m; I know it's not due for a few years.

That's 2008?

In 2008; but my guess is that, you know, just by the state of business operating at breakeven and I don't know that today a bank would lend you, you know, the ability to refinance the entire amount, makes me think you have to draw down some of that paper and you are not prepared for that, unless the Burlington JV - I am sorry the [inaudible] JV is borrow-a-bull against as well your domestic operations. Just trying to think from a bankruptcy perspective, what's the true borrowing power of the company?

Yes, today, we have really not given our lot of consideration or spend a lot of time trying to focus on refinancing those bonds due at 2008. We have a business we want to run today. We think our repurchasing share in the market is the right thing to do. We continue to generate the significant amount of cash and we are looking at growth opportunities. As we get further down the road, we will focus more attention on those bonds but right now we think we can come up with the financing today to displace that $250m of paper; this is I think in 2008, if we needed to. We may have to pay little bit different rate, but we can come up with the finance.

Right. Super. Thanks so much.

Thanks.

The next question comes from Walter Shrinker .

Two questions actually. First, which should be hopefully very easy and may be its normal board look like. When talking about the arbitration, there is the - like hopefully boilerplate line, which is that, the results of the arbitration -- such drip oil damages could have a material effect on Unifi's results of operations. That only refers to the cash you might be expected to pay or is it something beyond that?

What we're referring to there is that assuming -- we've disposed a range of $2-17m for the arbitration results. Our earnings, our net income for the year-to-date period is $3.3m. If you look at material in light of the SEC's rules, any of those numbers between $2-17m would be material.

Okay.

And so, we just wanted to put in perspective for somebody that the results would have been material to what we've reported as earnings and for the year-to-date period.

Okay not necessarily to your balance sheet?

No, not.

Okay.

Reason is we took out cash flow as well.

All right.

We don't believe this will be material for our cash flows and our ability to generate cash and borrow money.

Good. Second question; as you generate cash and look for growth opportunities, this is a company, which historically has opportunistically looked to acquire assets or create JVs. At what point would you be willing to or interested in possibly making a large financial commitment to something which is not in front of you or given the DuPont JV and the possible payment in two years out? Would you want to sit back and wait to see how that plays out?

We are continuing to look at opportunities to grow our business. And as those opportunities arise, we will evaluate them on a one-on-one basis; and to the extent they make sense for our long-term business, we are willing to make an acquisition to grow this business.

Okay, thank you.

Thank you, Walter

The next question comes from Mr. Tom Lewis.

So many questions for such a small company. Hi Billy, all the good ones have been asked I guess. But looking at this -- watching your raw materials which have gone from a quarterly kind of pricing to a monthly pricing, might some of the catch-up that you alluded to in terms of your -- or a recovery you called it, come from a less owner's raw material situation before the quarter is over; is that in your thinking?

Could you rephrase that, Tom, to make sure I understand the question?

All right. Are you looking -- have you seen any -- we've seen -- there's been some indication of the spiking up -- things like paraxylene are retrenching some, can you tell us a couple of ways of getting it? How quickly would do a change in chemical clause find its way into your cost of goods sold? Have you seen any indication that your raw material -- your chemical cost might not be as bad in the second quarter as they were at the end of the first quarter?

Yeah -- and I'll answer this question in a couple of ways. For some of the raw materials we buy, where we are more vertical, that is where we buy a chip and extrude it to make polyester POY and texture it; the chip cost is a quicker movement in response to market conditions, okay. For some of the other products we buy, what we buy from DuPont, there is typically a quarter lag in the movement of raw materials versus what we pay or the prices they pass along to us. So, I would think in the June quarter, and kind of ignoring those lags and timeframe; the bulk of what we're trying to accomplish is just a pass along the price increases we've seen from our vendors, and not playing with the timing of it. But I do believe that you will see raw materials come back down in the May-June timeframe based on what our projections are, what's happening around the world.

Okay, great.

Thanks, Tom.

The next question comes from Mr. Steven Korn .

Billy, can you hear me?

Hey, Steven. How are you?

Doing well. I hate to harp on the same point, but you said you saw DuPont's estimate of their claim for damages and that falls within the $2-17m, is that correct?

It does.

Okay.

Now, whether that's for [inaudible] or anything else we don't know but that is what we have seen to-date.

So DuPont's estimate was in that range?

That is correct.

Okay. Can you talk about the status of the Tuntex JV if you are starting to put your brand on their product? What type of profits you are looking from that JV? And is there have been -- I have follow on questions in there.

We are extremely pleased with the progress that has been made in the quality of those products entirely. Now we have had eight people on the ground for -- I must guess 4-5 months over there today. Our CEO, Brian Parke, has been over, he is extremely pleased with what he is seeing. We are now in the process of putting those products in Unifi boxes. Where we are today though, is we are negotiating with departments of commerce around the world as to what those boxes need to say.

We want to make sure that people understand that it is a product that Unifi is going to stand behind; it is a product that is manufactured in none of one of our facilities but in Tuntex' facilities, and so we are making sure we abide by all the laws and regulations of every country we intend to use those products in. Once we get past that, then we plan to start shipping those products into Asia and maybe other parts of the world, because we are very confident in the quality and the consistency of those products.

What type of volume or EBIT contribution you are looking for?

Yes, I am not at a point where I could give you an estimate of that today. I have not seen those estimates or the expectation of what we plan to ship. I would tell you that Tuntex has a capacity of around 200m pounds of [inaudible] So, it is an extremely large operation that we are going to try to take as much advantage of this as we can.

Okay. Will there be opportunity to ship some of your manufacturing capacity to Thailand or potentially to Asia?

Yes.

And then how do you quantify that? And what are the costs of doing so? And what are the potential opportunities?

Yes. I think the opportunity -- and we are looking at several opportunities now. But we do have excess capacity here. And we have machinery that has been sitting idle and we are looking for the right places to put it. I am not at a point where I could tell you what those opportunities are or what profits going to be generated by moving them. The cost of moving those, the pieces of equipment, in relation to the cost of the equipment itself is not substantial. We would expect to be -- I am going to give you just a range within the next 6-9 months, I think it [was a middle] point where we would be moving machinery and to a point where we can expand our operations either in Asia or somewhere else in the world, with that existing machinery.

Okay. Can you then talk just finally about the status of the furniture, demand and auto demand which I think you said is falling off due to economic conditions? And where you stand and where you see that now?

Yes, our volumes in the March quarter were significantly hurt by the fall off in both automotive and furniture. And those industries, based on what we have seen so far in April, have not recovered. They are still extremely weak.

Okay. Well thank you very much, and a congratulation on what I believe is a positive outlook -- outcome of the arbitration.

Thanks Steven.

Thank you.

The next question comes from Mr. Dennis Rosenburg.

And let me just make one -- ask one quick question. Hopefully this will be your last one. Could you classify the Burlington deal you said that it was entered into in year 2000 and it was a 5-year deal.

Yes, excuse though, it is actually June of '98.

Okay that answers it. Thank you.

Sorry, Dennis.

Okay.

Is that it? Steve is they any further questions?

Yes, our next question comes Mr. Michael Novak

I just had one more question on Burlington as well, when the preferred cash payments to Burlington goes away what does that mean to you? And then sort of what's your outlook for Burlington, do you see the situation getting better there?

I think the Burlington management group has done an exceptional job with the deck of cards that they were dealt. I have a lot of confidence in their ability to exit bankruptcy and be a viable business. I don't believe Burlington will be as large a customer long term for us as they have been historically just because some of their focus is moving away from fabric formation and moving to more fabric sourcing. Hopefully we can do business with them because they have been a good partner. How they are going to come out of the bankruptcy today, I think everybody knows that Berkshire Hathaway had made an offer for them to come out debt free.

Today, I am not certain where that process is but hopefully they can come out in a debt free or strong financial position because we need them and the industry needs them to be a strong player long term. Going forward, hopefully Unifi will continue to sell them proper, they will continue to be a partner in our partnership and they will have 15% ownership and they will -- basically 15% of the earnings or losses of that partnership will be allocated to them in the minority interest line of our P&L statement and cash will be distributed as deemed appropriate by the two partners.

And what's your outlook for cash flow generation in the partnership?

That business has been extremely difficult. I mean year-to-date for the first nine months, that business is only generated $2.5m of cash. So, today is not a raw material of that one way or the other. I mean obviously, if this - if once we got past of May of 2003, it generates 2.5m of cash or worst case, Unifi will keep 85% of it and Burlington would get 10%. So, our cash position would be improved by 85% of that to $2.5m.

And so that 2.5, could you give us -- what was its peak year?

Its peak year was in 1998 when we did that JV, I mean that partnership and it was generating -- it is hard -- this may be to believe about $75m of cash flow. I mean that's hard to believe that from 1998 that individual business is gone from generating 75m of cash flow to this year's generate first nine months was 2.5m, but that is the most difficult business we have today unfortunately.

And is there anything to suggest that it would get better?

Obviously, a lot of this restructuring, and we just took to take cost out is targeted in that line. The other things that we are trying to do, we are trying to take advantage of these regional trade agreements, because that's a unique opportunity to move some of that fiber to those regions, but again that's an extremely difficult business.

And is it fair to say that you really had no economic incentives due to restructuring prior to May of '03?

Actually, the timing of this had absolutely nothing - timing of our restructuring had absolutely nothing to do with the Burlington partnership, no valid impact in anyway, any cash distributions that would be going to Burlington as part of that preferential cash payment.

No, but if you would have fixed to the year ago, they would had kept-- the first 12m off the top, right?

Yes, but they would have also incurred all of the restructuring charges that have been paid out associated with that individual business. The way we are doing it today because of the fact that is down a cash flow basis. None of the cash associated with the restructuring will be charged against the period and we will say at the preferential cash treatment.

Thank you.

Okay.

The next question comes from Mr. Brian Hunt

Wow, [inaudible] calling five years.

I hope that's a positive.

I think it is. Going back to the DuPont arbitration, could you tell us what the issues are within the $2-17m, you just quantify with the DuPont' calculated and you've calculated it, as well as could you tell us what the end result $17.6m issue is according to DuPont now?

Let me answer your first part. And it is not a good answer but the range of $2-17m is still a legal issue, okay. We disclose the range, but we would prefer not to go into the details of that range because they are still subject to the arbitration's rule and we would prefer not to -- in any way disrupt that the arbitrators and how they rule on that.

Okay.

The other pieces outside of that again has to do with some of the same contractual language that was in the first arbitration. However, because DuPont did not formerly get their claim in, the arbitrators refused to hear it.

And so they have to resubmit the arbitration panel has to be formed to listen to this.

Well this is [inaudible]. I mean they've come to us and they've said that they believe it's a valid claim. And they liked us to consider it.

What precautions, you know, $5-6m in legal expenses?

We haven't got that far.

Okay.

It's not to that point. I'll not say that we'll get a bad point, but it's not a bad point today, and I think both parties are trying to evaluate the contract and what stands and what may be a fair settlement if any.

Okay. And then my next question is -- it's get back to the potential sale or selling off of the fibers business, does that in any way effect your [inaudible] - by DuPont in the call by you guys of Unifi. If that business is sold or is that is the consequent hide up in the after sale?

I have not lifted the contract to see specifically if that's an issue. It just didn't - the problem I had from a commonsense standpoint. I don't think is really relevant to the [inaudible] call. The only other thing I would say is that if anybody had a desire to buy it, it would be a party that had a true interest in Bronin, a polyester nylon business long term. And we would welcome that change to a partner that's in the business for the long term.

A [inaudible] question. You all are not the better on that business, are you?

I would like to say no comment, but I would say no.

Alright [inaudible]. Thank you.

Thank you.

The next question comes from Mr. Richard Greenberg

No, I did not have a question. Thank you.

Okay, the last question comes from Mr. John Daiser

Hi.

Hi john.

Thanks for taking my call. Few questions, one, on the credit availability for you to show the purchase or acquisitions or whatever. How much is currently available on your credit lines?

Yes, John today, we have a limitation of credit lines of $10m per year. We will be speaking, you know, with the lenders to the extent that somebody object to have you in the company, would require to need more or less than that, and we haven't had those conversations yet obviously.

Okay. So tomorrow you could write a check for $10m if you needed to for an acquisition?

Under bank credit agreement the answer would be yes.

Okay, got it, and you're are trying to expand that somewhat?

Well, we have to sit down and evaluate what we think, how much we think we will need. And have a general discussion with the lenders if we think we need to extend that.

Got it. What is the CAPEX budget for next year, at this point?

We're estimating capital expenditures of approximately $15m for next year.

And what would that be versus this year?

This year will be closer to $22m or $23m. But I will say that in that $22m or $23m approximately $7.5m of that was associated [inaudible].

So to be that flat whit this year, adjusted.

It will be that flat.

Yes, okay. The put call arrangement with Dupont to $300-600m; how is that final price determined? Is there a formula there or is it subject to negotiation or Bob briefly how was that determined?

It's basically subject to appraisals.

Okay.

Between the 300-600 I think each party has the right to get an appraisal and -- first of all, if you can negotiate a price, you could negotiate a price. If either party wants to the kind of appraisals done between that range and then if those two -- was in a reasonable percentage then they get a third party.

Okay. So it's somewhat negotiated transaction there?

That would be correct-- yes, in that range.

Okay. The chance that you're going to disclose in the fourth quarter; is that going to be during the fourth quarter or that be in conjunction with your fourth quarter earnings release or when should we hear that?

John it will -- the respecting -- with restructuring charge or what additional rulings of DuPont.

With the restructuring charge.

With restructuring charge, we previously disclosed that you know we would expect approximately $11m.

For the U.S.?

For the U.S.

Right.

And we still calculating the amount for our European operations. We would expect to have those amounts finalized prior to the release of the June quarter. And to the extent that it is going to make a significant difference from what we disclosed. We made another disclosure about those amounts. But they will come out in the June quarter.

Right. Have you given us the range on the European charge?

We have not.

Okay. Could it be as large as the U.S.?

Don't know the answer for that until we finalize some of those changes.

Okay. And what would you guess would be the timetable in terms of executing that restructuring? How will that unfold?

Its here in the U.S., the restructuring is basically completed. In Ireland, it could take anywhere from 30-60 days, which is one of the reasons we haven't disclosed any ranges or any amounts yet.

It could be that fast? Just 1 or 2 months?

Yes. We are going to move quickly.

Okay, good. And I guess finally, the $29m in savings that you anticipate, how much of that would you keep in terms of enhanced earnings and how much will you give away in terms of price to grow the business?

Yes with respect to the $20m savings we expect to keep all of that from pure cost savings. And we've really made a fundamental change in how we manage ourselves and have improved the efficiency and the management structure. And how we run the [inaudible] even run ourselves here at corporate. So we develop real cost savings. And I don't think there is any relationship with respect to those cost savings versus a volume change or a price change.

Okay. So, you are not going lower prices, okay?

No.

Got it.

No plans to do that.

Okay got it. And will any of that restructuring impact SG&A in terms of lowering that at all?

Yes we have -- not specifically quantified, but there is a very significant component of those savings that are directly SG&A related.

A significant part of the $29m?

That's correct.

Because you said previously about the U.S., it was 250 hourly in staff positions?

No. The 250 is owned. In U.S., it was approximately 600 people.

And that was an equal split between hourly and staff?

No that was approximately 152 or 150 hour -- wage - salary-related people and the other 450 would be hours.

And do we guess that mix would be reflected in Europe as well for the 250?

I haven't seen that specific split.

Okay. Great. Thank you very much.

Thank you.

Thanks John.

The next question comes from Mr. Ed Burrings.

Hi this is getting a little comical now.

That's okay.

Last question for those who want to venture actually venture out and create a sort of financial projection. The sales base we are talking about today is roughly $850m give or take?

Good number.

With your Ireland facility, you are taking some lines out. I don't think what the plans are for the U.S. but what -- how much business are we walking away from and how much business is in the 5 year projection? Can you give a kind of any broad statements there?

Yes. Just kind of keep in perspective, Bob had mentioned that the U.S. was 80% of our sales today. We are not walking away from any of that business. Okay, we are trying to grow that business. In Brazil it was approximately 10% of our sales and we are not walking away from either that we want to grow that. Ireland is the other 10% and I don't know how to give you a good number for that but --

No. I guess and that's fine I guess what's the kind of the big leap of faith is, there is $800m in U.S. business -- I am watching China and still operating at a 30% cost advantage over the CBI and other regions, and its made up full with the tariff. But that base is still in your mind sustainable as you ship it south and then convert it to fabric and bring it back North?

Going forward in 2004-2005, we would expect just in general terms not the pressure that some of our customers are under domestically that our volumes may fall off and some of the more commodity type products. While we are trying to make that up and take more to the bottom line is move more to a richer mix of products. So, you could see a slight decline in sales but we are hoping we can make it up through a richer mix of products delivered to our downstream customers.

Okay best of luck.

Thank you.

Gentlemen there appear to be no more further questions.

Thank you all. It's kind of a marathon today. On behalf of myself and Bob, we would like to thank you for your time and your attention. And in my new role as -- my expanded role I guess with Investor Relations, I look forward to getting out and meeting with each and every one of you in the very near future. And once we get the arbitration behind us, or to a point we're comfortable there is at a resolution fully expect to be on the road meeting with as many of you as I can. So again thank you and look forward to speaking with you soon. Thank you.

This does conclude today's teleconference please disconnect your line and have a fabulous day.