Unifi Inc (UFI) 2003 Q4 法說會逐字稿

Good afternoon. And welcome to the Unifi Incorporated fourth quarter conference call. At this time all lines have been placed on listen-only mode. And the floor will be opened for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Willis Moore. Sir, you may begin.

Thank you, Andrew. Good afternoon. Thank you for joining us for Unifi's fiscal 2003 fourth quarter conference call. With me today is the company's Vice President and Chief Financial Officer, Bob Cusorick. Bob and I will both report on the fourth quarter results, and we will both be able to answer your questions following our comments. As you know, certain statements included herein in are forward-looking statements within the meaning of the federal securities laws. Management cautions that forward-looking statements are not guarantees and that actual result could differ materially from those expressed or implied in the forward-looking statements. I would now like to turn the floor over to Bob to discuss the financial results for the current quarter and our fiscal 2003 periods.

Thank you, Billy For the fourth fiscal quarter, ended June 29, 2003, the company announced a net loss of 30.5 million or 57 cents per share, which compares to a net loss of 1.6 million or 3 cents a share for the prior year June quarter. Included in the current June quarter is a pretax charge of 16.9 million for employee severance and related charges, associated with the restructuring of the company's domestic and European operations as well as a previously disclosed pretax charge of 13.9 million dollars, related to the outcome of the company's arbitration with DuPont. For the 2003 fiscal year, the company reported a total net loss of 27.2 million, or 51 cents per share, compared with a net loss of 43.9 million or 82 cents per share for the prior fiscal year.

Net sales for the June quarter which contained 13 weeks were 206.1 million dollars, compared to the 256.6 million in net sales for the prior year June quarter. Which contained 14 weeks. Net sales for fiscal 2003, which contained 52 weeks, were 849.1 million, compared to 914.7 million for the prior fiscal year. Which contained 53 weeks.

The softening in volumes in fiscal 2003 versus fiscal 2002 reflects the significant challenges posed by ongoing economic difficulties at retail and at markets around the world as well as continued volume and price pressures stemming from aggressive levels of imports. 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 June quarter with cash on hand of $76.8 million. Following payment of the DuPont arbitration ruling, resulting in an improvement of 57 million dollars over the prior year cash on hand of 19.1 million. The company also continues to have no amounts outstanding under its bank credit facility.

The company's continuing ability to improve its cash position comes as a result of continued generation of cash flows from operations, distribution of earnings from unconsolidated equity affiliate, reductions in working capital, and the utilization of the company's state of the art manufacturing and information technology to minimize capital expenditures.

Results for the June quarter and the current fiscal year were positively impacted by pretax income of 1.3 million and 10.6 million respectively. Stemming from the equity and earnings of the company's unconsolidated equity affiliates. Also included in the results for the current June quarter and current fiscal year is a pretax benefit which is included in cost of sales of 9.5 million dollars and 34.6 million dollars respectively. Generated by the company's manufacturing alliance with DuPont. This manufacturing alliance remains an important facet of the company's day to day operations in both Unifi's and DuPont's management remain fully committed to maximizing the future benefits of the alliance.

As previously disclosed the arbitration panel has reaffirmed its decision to dismiss 17.6 million dollars of DuPont claims sought in arbitration that this claim was not properly brought before the panel. However DuPont continues to pursue collection of this claim and the company continues to deny these assertions.

Also during the June quarter, the company repurchased approximately 509,000 shares of the 8.6 million shares of Unifi's stock authorized for repurchase under the Unifi share repurchase program.

I would now like to turn the floor back over to Billy to discuss certain of the company's strategic initiatives.

Thanks, Bob. Throughout the past fiscal year, Unifi battled continued market softness by focusing on several key initiatives designed to shore up our core businesses. Including in these initiatives are new product growth, marketing to all levels of the supply chain, regional sales development, and organizational efficiency. In terms of products, the new products launched in the past two years have completed the development cycle with our customers. And are now finding their way into the retail programs with many of the world's most well known and respected brands.

For example, Gold Toe [ph] brands the largest brand and site manufactured in the U.S. is introducing several new performance products under the Gold Toe gear label that have both our Sorbtek moisture management yarn and our cotton like Augusta yarns. The success of the programs at retail will help create awareness and sustain demand for our products as well as create opportunities for expansion into new programs.

The company has also advanced relationships and partnerships to all levels in the supply chain during the year. By working directly with apparel brands and retailers we are seeing increasing in the amount of product that is pulled through the supply chain. Product differentiation is more critical than ever to brands and retailers and they are seeking assistance and solutions from every level of the supply chain.

Our marketing efforts over the past two years have repositioned Unifi as a source for product innovation. And we are confident that these efforts will continue to drive incremental growth opportunities.

We also continue to combine our knowledge of fibers with our knowledge of regional trade legislation, and benefits to facilitate the creation of new supply lines. Our exports to the Caribbean and Indian regions continue to increase and our operations in Brazil have outperformed expectations, as strong demand for our products throughout south America has resulted in greater-than-anticipated volume levels. Our focus on global expansion has allowed us to become a texturiser with a truly global marketing footprint. With production capabilities in the Americas, Europe, and Asia, Unifi can provide customer with a consistent supply of high quality yarn that can support any sourcing scenario, including split sourcing.

By adding value through speed to market advantages, product innovation and delivery reliability, we create value for a proud brands and retailers and create new opportunities to compete for new programs.

To better compete in an environment as challenging as we are in, the company has created a leaner, faster, and more efficient operating structure. The broad and proactive changes to our U.S. and European base organizations make us a more flexible and responsive company that is better equipped to satisfy the needs of our global customer base. As we continue to reduce operating costs and improve operating efficiencies, we expect our gross margins to grow slightly, even in light of reduced net sales volumes.

Looking forward, our industry will continue to face extremely challenging business conditions both here and abroad. However, we are confident that we have the right strategies in place to identify and drive sales growth everywhere in the world and we will continue to take the actions necessary to maximize the company's operating performance.

Thank you for your time and interest. Bob and I would now like to open the floor t questions.

The floor is now open for questions or comments. If you have a question or comment please press the numbers one followed by four on your touch-tone phone at this time.

The first question comes from Brian Hunt, please state your affiliation.

Wachovia Capital Markets. Thank you very much. Billy, could you tell us what the volumes were on -- or at least the volume changes on the nylon and polyester for the quarter? For the year.

Brian, this is Bob. Quarter over quarter or compared to June quarter?

Quarter -- June quarter this year versus June quarter last year and then this year versus last year.

Yeah, the volumes, Brian, I have them in total. I don't have them broken down with me by poly and nylon. The total volumes were down about 17%. Now, keep in mind, that last year had 53 weeks in it.

Okay.

Okay. It is down about 11%, if you compare 52 weeks to 52 weeks, okay? At least 14 weeks for the quarter and 1 for this year.

Gotcha.

For the year it was down about 3% in total and about 1% if you factor in the fact that there was an extra week last year.

Great. Next, could you, in the last quarter, you all broke out the legal costs that was in SG&A expense and I was wondering if you could give us you know, a breakout for that expense in this quarter as well or was there any?

It was very minimal. I don't have the number with me, Brian but it was almost -- it was almost nothing.

Okay.

We were pretty fully accrued at March quarter.

And then with regards to expenses for cost of goods, and SG&A, with the severance and the head count reduction, should we see SG&A come down going forward, or should we see a reduction in cost of goods? Where is the bigger impact?

It is in both places. The larger impact would be in cost of goods sold because some of the head count reductions were heaviest there but you will see it in both places. I would say, I would say a good two thirds was it or three quarters of it would probably show up in cost of sales.

Did we see any of that in this quarter? Because gross margin was up nicely on a sequential basis.

There was some of that in here because some of those -- most of the terminations took place in April.

The European took place right at the end of the quarter. So there is really nothing in there for Europe. We did see some in the U.S..

That's right.

Okay. So Europe was in June. And --

Europe occurred after June.

That's right.

Okay.

It has been identified and notified, but the actions have not been taken at that time.

And two more questions. Next, what was cap ex for the year?

It was 23.5 million.

And could you tell us what dividends you received during the quarter, from which company, and what size?

Are you talking about dividends, are you talking about --

From equities?

Yeah, from your joint venture participants.

Yeah, we received about 9 million dollars from Parkdale during the quarter and about a million dollars from the UNF joint venture.

And I lied. I got one more question, and I've got to ask it. With regards to the chi ping, [ph] is there any -- could you quantify what the potential investment may be there from a cash perspective?

The financial terms have not been finalized. And we prefer to wait until due diligence gets further along. As the financial terms are going to depend on that due diligence.

Okay. I will get back in the queue. Thank you.

Thanks, Brian.

Thank you.

Thank you, our next question comes from Maryann Mansell. Please state your affiliation.

Marian capital. Brian just asked regarding the volume changes and were you saying they were down one percent if you factor in the extra week for the year so the remainder of the decline in the top line then would be pricing?

It would be pricing and mix.

Pricing and mix?

Right.

Okay. Could you elaborate on that?

Yeah, our died business, which was extremely strong in -- or fiscal 2002 was a lot weaker 2003. And it is a product with the most value added costs associated with it. So it carries a much higher sales price.

Okay. Fine. Okay. And can you discuss your outlook, I mean regarding business in Europe, Brazil, and here in the U.S.?

Kind of take the easiest one first, Brazil, that's a market in which our people have done an extraordinary job of convincing the downstream textile manufacturers that we have the best product in the market. It is an extremely consistent product. Just like we have here. But it is more valued there. Because there is less, you know, high quality producers. So we've take an bigger market share there. And I think we will continue to do well in Brazil.

In the U.S., I mean our business volumes are not so much predicated on how good our product is, because it is the best in the market, it is predicated on how good our customers can do in the markets they serve. And a lot of our customers are under pressure today. A lot of that is due to softness at retail. Some of it is due to imports of fabric and apparel coming in and competing against them, so our business domestically is less predictable. It is more dependent on how successful some of our customers can be.

And when you're referring to customer, are you referring to, you know, in the car production area, in upholstery or apparel or all three.

All three, but primarily the apparel side.

The apparel side would show the most weakness. And would volumes there have been down more than about 1%?

Yes, they would have been.

Do you have any kind of, you know, figure you could give? Because I mean I'm listening ta a lot of textile companies and they're all saying volumes are down, 10, 15, 20% and it is more of a matter of volume versus pricing and here it seems to be just the opposite.

Most of our -- a lot of ours is mixed but volumes do have an effect in there. I mean the apparel sector of our business is probably down more than most of the other sectors, just because that's where you're seeing the biggest growth of imports in finished goods.

Uh-huh.

It has displaced some of our customers' business. And what we're trying to do, you know, I think our sales group has done a good job and our marketing group, is trying to come up with new innovative products that can give us a little bit of an edge in that downstream sales. We're trying to displace some of the commodity oriented products with a higher value added product and some of that has been successful. And we're exporting more.

Okay. And as far as you know, on the upholstery job or on the car production side, can you comment on volumes there?

You know, Mary Ann, the upholstery side has remained pretty steady. While the builds haven't changed that much, the car customers business on the automotive side has been a little soft over the last six months but the upholstery side of the business has fared a little better.

Okay. And then Europe?

Europe is -- has some of the same issues we do with respect to imports. And the strength of some of the some of the customer base over there. You know, we are in the middle of restructuring those operations. And you know, some of our customers are restructuring and consolidating themselves. So that continues to be a tough market, along with the domestic U.S., because of the import issue. Goods coming in from Asia.

Uh-huh. Okay. And as far as you're saying that, you know, you attribute your results to new products as well as working directly with the retailers, could you elaborate on that? I mean are you bypassing then some of your customers and going to your customers' customers?

What we're trying to do is, you know, we found that on some of the products that we have, where we've developed a new product, that sometime it's easier for us to have it knit or woven into a finished garment or finished fabric and it take it to some of the downstream markets because they're the ones who actually pull the fiber through, the fabric through, so what we will do is you can take to a Nike and they say, I love that product, okay and they will try to bring that back through the chain. At every opportunity, we have, we try to get that product brought back through our existing customer base.

Okay. And how successful have you been? I mean what kind of an impact has it had on the numbers?

I don't have that quantified in front of me but it is a positive impact. And we're seeing new programs brought through that we would not have sold before. Now, we've seen products -- the Sorbtek product is a wonderful product. That product was going to die on the shelf if we didn't go to that downstream market and I give our marketing group and our CEO a lot of credit for that. They refused to give up on that product and we started taking it downstream to some of the retailers and branded manufacturers and we've actually had that pull through. I mentioned the Gold Toe product. That is just a good example.

And with the cost savings going on here in the U.S. and Europe have you put a dollar amount on what we can expect to see in terms of cost savings.

Clearly, Mary Ann, we have previously disclosed that we -- the reductions we made in April, we expect those -- the cost reductions from that, approximately 20 million dollars.

Okay. Uh-huh.

The cost side, the pure cost reduction side, I think that is a good number. You know, there are other dynamics in the business, with volumes and pricing and mix that affect you know, the bottom line.

Exactly.

But we did take $20 million of costs out.

And what about on the European side?

The latest estimate I saw on the European side was approximately $7 million.

Okay. All right. And then just one more question, regarding the alliance that you have with DuPont, how many of your facilities does that affect and how many of DuPont's facilities does that affect, and I mean, so this -- are these cash savings that are running through your P&L? And then what happens if this alliance, disbands in '04 is it or '06?

First of all, kind of take this question one at a time.

Sure.

There is one DuPont plant and one Unifi plant in the alliance.

Okay. Uh-huh.

The savings we report are true cash savings. From where we started in the alliance to where we are today. And we share those cost savings.

Okay.

The alliance agreement is -- it continues. There is no end date for the alliance agreement. But keep in mind there is that put call provision that exists in June of 2005.

Right. Okay. And any comment as far as what happens, I mean if this alliance, if neither one of you puts or calls --

It would continue.

Okay. Great. All right. Thank you. Okay.

Your next question comes from Karen Lee-Mark, please state your affiliation.

Merrill Lynch Investment Managers, I want to go back to a few things. On the cost savings that you just gave us some numbers on, just so I make sure I understand, do you expect that to flow through to earnings or is that somehow going to be absorbed or just basically have to be invested in the business?

Well, I certainly -- I certainly think, Karen that we have reduced the cost by that much. Now, to the extent that the volumes slow down, or the pricing or the mix, you know, affects the, you know, the total revenues and margins that we have, you know, all that flows into the bottom line. You know, the pure cost numbers have changed.

Yeah, Karen, just take that a little bit further, our CEO was adamant that we were going to take $20 million to the bottom line. I mean that was his goal. And he has challenged each one of us that if volumes fall off, we need to be proactive and continue to take costs out so that $20 million is preserved. But our expectation is we would take that to the bottom line.

Okay. Can you give us any kind of guidance at all on volumes? And price mix? If that's how you want to position this? Any top line guidance to start with.

You know, Karen, the business is terribly difficult to predict. And you know, that's why and in fact, you know, we went away from providing, you know, future guidance. You know, today, you know, we've seen some softness in the market, you know, over the last few months, throughout 2002, the business was very, very stable from a volume standpoint. So you know, in part, you know, the future is going to depend on whether there is a pickup, you know, at retail and whether those goods are sourced, you know, with our fiber. But it is very difficult to predict, you know, one way or the other what is going to happen.

Can you give us any indication on the new products that you talked about, and the downstream work you're doing? Can you quantify what we might -- or what you might be seeing, say, in the next year or so? Any idea there?

Karen, I don't have anything in front of me quantified. That is just sitting in front of me. I didn't bring anything with me. But I will be glad to give you a call back and respond to that question.

That would be terrific. And then one last question. Just going back to the comment I think you made about the dye business and I'm assuming that is primarily the auto.

It is auto and furniture.

Auto and furniture. Okay, can you say whether or not you saw any kind of change in the business, I guess the level of robustness or not, Q3 versus Q4?

You know, the Karen, the business really softened a little bit in mid Q3 and that softness continued through, you know, the fourth quarter. It has been pretty stable now for three or four months. But that run rate is a little bit less than we saw through most of calendar 2002.

Okay. Thank you.

Thanks, Karen.

Your next question comes from Richard Greenberg. Please state your affiliation.

I did not have a question.

Our next question comes from Steven Corn. Please state your affiliation.

Hi, Lowe's corporation. Just a question, I want to clarify the cash flow in the quarter. Can you talk about how much cash was actually paid out to DuPont and how much cash was paid in severance so we can back into -- looks like cash went up 10 million and there is probably about 3 million of cash used for stock repurchase and I just want to understand the other two pieces.

Yeah, Steven, certainly with respect to the arbitration with DuPont, we paid out approximately $16 million for that. In the June quarter. With respect to the severance and other -- and related costs, we paid out very little in Ireland and we paid out approximately $3 million here.

So then total --

So there is about --

32 million?

There is about 3 million dollars paid out here.

Uh-huh.

And very little in Ireland.

Okay. So about 32 million in cash generation in the quarter?

I don't have that number in front of me but that sounds about right.

Okay. And then the board met today, is that correct?

They did. That's correct.

Can you talk about a discussion of how you're thinking about using the cash potentially for further buy-backs or dividends?

Yeah, I mean the first reaction of the board, and both Bob and I sat through the full board meeting today is they were disappointed at the level of shares we repurchased, okay? We repurchased 509,000 shares in the quarter. So Bob and I both had to defend ourselves as to why we didn't buy more shares and we had to remind them that the share repurchase program didn't start until the first of May, right after the April board meeting so you effectively had only two months of purchases in there. We bought 3 million shares and so if you analyze that, it is a little over $20 million in repurchases, okay? They reaffirmed their commitment to at least do that level and challenged us to step that up and so we will evaluate that as a management group.

There was no other decision made as to utilization of cash. That discussion tabled to a further meeting and whether that meet something at the board meeting or whether that meet something coming up soon, by teleconference or something, that wasn't decided but they challenged management to come back with a plan of how we would like to spend the cash and they put it back in our laps which I think is the appropriate place to start. And we will work on that diligently and get back to the board and then we will communicate our plans to the street.

And what is the next event? Is it the terms for the Chinese JV [ph] that would decide what the use of cash would be?

That's probably a big piece of it. We're looking to see how much if any cash we would use in that deal. There is potential not to use any cash. And there is a potential for us to use some cash. So we will evaluate that. There is a couple other opportunities we're actually looking at in China as well as some domestically. Not involving a significant amount of cash. But there could be some use of cash there.

Okay.

I mean our board's interest is to return value to the shareholders, and that's the same as the management group, and so we're going to take a diligent look at that.

Great. Thanks a lot.

Thanks, Steve.

Your ne next question comes from Randy Guessing. Please state your affiliation.

David J. Green & Company.

Hi Randy.

I don't have the release in front of me I was wondering, you may not have disclosed it, but free cash flow for the year, what did that look like?

Free cash flow for the year was approximately $83 million.

Okay. And what was the working capital impact?

When you say the working capital impact?

Yeah, in the free cash flow, you know did you guys use or generate --

As far as how much we used?

Yeah.

We actually generated about $35 million.

From working capital?

In working capital. Out of the working capital.

That is not in your free cash flow, though.

Well, it is part of it.

Oh, it is?

Okay. And so what is the -- can we still take some working capital out of the business, in the next 12 months.

Certainly there is opportunity to do that and it is going to depend on what volumes we see.

Okay.

We like to believe that we can continue to take that working capital down.

I think we built $7 million of inventory between last June and this June so obviously we're not pleased with that.

Right. Okay. And then the payment as it relates to arbitration is complete, right?

The -- yeah -- we paid $16 million in June. A result of the arbitration ruling.

Okay. And then, I got into the call just as you were talking about -- you said DuPont is still looking for some money, right?

Well, there is a -- we have been disclosing the fact that there is a $17.6 million claim that was not addressed by the arbitration panel.

Yeah.

And that claim is still out there. And we continue to work through the process with DuPont regarding that claim.

Right. But as -- since it was dismissed from the arbitration, did they still have recourse, DuPont?

DuPont feels -- DuPont I'm sure feels that they do.

Yeah. Okay. And I'm sorry, what's left on the authorization, the repo?

About 8 million shares.

8 million shares?

Right.

Okay. Okay. Thanks, guys.

Thank you.

Our next question comes from Dennis Rosenburg.

Hi, a couple questions. You talk about expectations of the gross margin would grow slightly and on the other hand you're saying your mandate is to bring the $20 million of cost savings down to the bottom line, so how do you reconcile those two?

You know, Dennis, it is a matter of certainly some of the savings would have flown through to the cost of goods sold line, but we also have, you know, some of the impact of pricing and mix in that equation. And it is going to be -- we don't know exactly how much is going to flow through yet, you know, as we look ahead. The savings are there. But you know, it is going to be dependent on volumes, and pricing. So the goal is to take the 20 million to the bottom line. But you know, we don't ignore some of the dynamics that are going on in the business either.

Yeah, but the way Billy put it was that if the volumes don't support bringing this 20 million to the bottom line, there might be some other cost reductions.

Yeah, I mean, and that's Brian's commitment. I mean Brian has challenged every in the management group, Dennis, to do that. The issue we have with it is if volumes are declining, you are always trying to catch up to it. And in a stable business, you take almost all of the $20 million to the bottom line but right now, the business is extremely volatile and we're hedging our bets a little bit.

Okay, so what are the plans to take part of the costs out?

Well, I think, Dennis, that, you know, that all the business managers, you know, today are coming out of the midst of the budget process, are looking at all opportunities. We're looking at opportunities to consolidate. You know, to gain efficiency from the plants, to look at how much we're spending for overhead. You know, it is really a -- it is really a continuous process for us given the fact that volumes remain soft. So we haven't announced anything. Or planned anything. But there is a lot of time and energy being spent on looking at all the costs. Both in the plants and at corporate.

Okay. So if it remains at the current level for the September quarter, dos that mean you have a loss again in the September quarter?

If volumes remain -- if volumes remain the same, it will be very close. Again, it is hard to -- it is hard to predict what is going to happen with the mix and with price pressures, if any.

Okay. If and when the China venture is completed how quickly can that begin to contribute to the bottom line.

Dennis, our expectation is we will close that transaction by December 31. We have not disclosed any financial terms of that transaction. Until we complete due diligence. And we are going to hold off discussing how accretive that transaction will be until we finish due diligence. I don't want to lead anybody in the wrong direction until I have numbers that I am totally comfortable with.

All right. Parkdale patent was a pretty big disappointment in the fourth quarter. Can you discuss the reasons for that?

I think Parkdale during the quarter experienced some of the same softness because of retail that we experienced. They had a relatively weak May. June was a much better month.

And what kind of payments do you expect from Parkdale in fiscal '04?

That's really dependent, Dennis, you know, on Parkdale. Certainly, you know, we would hope that to the extent that there is net income generated, we certainly like to believe that Parkdale would see through to do that. But that is a decision that Parkdale will make. As a controlling member of that venture.

And 2.7 million of other expense, what was that?

That was primarily bad debts.

Okay. Thanks.

Thanks, Dennis.

Our next question comes from Nelson Obus, [ph] please state your affiliation.

Sorry, my question was answered.

Okay.

Our next question comes from Kim Devine, please state your affiliation. We have a follow-up question from Karen Lee Mark.

Hi, just going back to the question of the 2.7 million, you said it was bad debts.

Primarily, Karen.

Okay. On that specific topic, anything else in the pipeline? Anybody late paying, anybody you're tightening the terms on? Anything you can quantify around that, that might impact your future earnings? Thanks.

Karen, I think we, you know, being in the industry we're in, we closely monitor, you know, all of the customers and I'm not aware of anything that is imminent. We feel we are adequately reserved and I really don't have any commentary on anything outside of that.

Thank you.

Thanks, Karen.

Your next question comes from Ben Naven. Please state your affiliation. We have a follow-up question from Steven Corn.

Hello?

Yes, Steven.

I didn't realize I was in the queue again. Actually, can you just talk about the sequential trends you actually saw in the quarter? It sounds as though June was a little bit stronger than April and may and what you're seeing in July.

Yeah, Ben, you know, April was pretty much following the run rates earlier in the year. Plus some softness in the month of May. You know, with some people making some adjustments. May was very soft. And then June picked up a little bit. You know, and July, it is hard to call, because of the holiday shut downs and things like that, you know, the first half of the month but May was very soft and June picked up a little bit.

Okay. Thank you very much.

Thank you.

We have a follow-up from Brian Hunt.

Thank you, I was wondering if you could quantify what the outlook might be for cap ex as well as a budget for depreciation and amortization for next year.

Yeah, Brian, the expectations on the cap ex side is approximately 12 1/2 million. And depreciation should run in the 65 million dollar range next year.

And amortization?

Very little. Most of it is associated with financing fees. So maybe a million and a half dollars in total but none of it operating.

And what is that 12 1/2 million dollars for? It sounds pretty much a maintenance level.

It is maintenance level, Brian. There is no expansion or capacity issues in that number.

Could you talk about Brazil for a minute? It sounds like you guys have been knocking the cover off the ball, you have some equipment down there this year, or excuse me, last fiscal year, 2003, is there any more plans to sending equipment down there. Are you running full?

The equipment is pretty much running full. We are currently evaluating whether we want to make some expansion in Brazil but we're going through that process right now. We're awful careful about making that commitment until we further analyze what is happening with the economy and the political environment down there which seems to have stabilized somewhat now. But they have been knocking the cover off the ball, Brazil far exceeded our expectations and we are expecting a good year next year.

What percent of sales is Brazil?

Brazil is approximately, let's see, they're approximately maybe 8% of sales.

Okay. And you know, I guess Billy mentioned you guys have been taking market share, and what is your market share down there, in Brazil? And is there a significant exports out of the Brazil market? My understanding is you --

Most of what is made in Brazil is sold in Brazil. Now where the end products go, the apparel or whatever the finished product; I don't know where that stays, but I mean our goods are sold, 99% in Brazil.

Okay. Do you know your share of that market?

I don't know that number. I can get that information for you but I don't know off the top of my head.

All right. Well, thank you very much.

Thank you, Brian.

We have a follow-up question from Richard greenberg.

I still didn't queue up for a question. Next question comes from Jim Devine.

Jim?

Once again the floor is open for questions. If you do have a question or a comment, please press one followed by four on your touch-tone phone at this time. Sir, there appears to be no further questions.

Again, thank you all for participating in this conference call. Bob and I both appreciate your time and attention, and we look forward to speaking with you in the future. Thank you, Andrew.

Thank you.

Thank you, this does conclude today's teleconference.. Please disconnect your lines and have a wonderful day.