Unifi Inc (UFI) 2004 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Unifi announces second-quarter earnings conference call. At this time, all parties had been placed on a listen-only mode and we will open the floor for questions following the presentation. At this time, it is my pleasure to turn the floor over to your host, Mr. Bill Lowe, Chief Financial Officer.

Thank you, Autumn (ph), and good afternoon. This is Bill Lowe speaking, Vice President and Chief Financial Officer for Unifi. Joining me on the conference call today is Brian Parke, Unifi's President and CEO. Before we begin, I need to first advise you that certain statements included herein may be forward-looking statements within the meaning of federal security laws. Management cautions that these statements are based on management's current expectations, estimates and/or projections about the markets in which the Company operates. Therefore, these statements are not guarantees of future performance and involve certain risks which are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied by these statements. I direct you to our disclosure in our 10-Qs and 10-Ks regarding various factors that may impact these results. Now I'd like to turn the call over to Brian Parke, who will update you on some of our market strategies, including a brief update on our joint venture negotiations in China.

Thanks, Bill, and good afternoon, everyone. I know that many of you are anxious to hear about our progress regarding our China initiative and our second quarter results. But first of all, I would like to talk to you about our overall strategies to improve the performance of our business. You are all aware, no doubt, of the difficulties in our industry and I feel it's worth spending a little time giving you some of the background facts.

The domestic textile and apparel business here in the U.S. has been under siege, as you know, for the last number of years. And our immediate customers and their customers that they serve have been very hard hit. And when they lose, of course, so do we. For example, over the last five years, over one-third of all U.S. fabric production has been shut down. Nearly half of all the U.S. apparel production has also been lost, and over a quarter of the U.S. home textiles production is gone. So today, less than 20 percent of all the U.S. apparel purchases are produced domestically.

And all these production losses have been replaced by imports of finished goods or fabric. And the reality is, of course, that Asia, and China in particular, has become the center of gravity for the supply of fabrics and garments. And the result of this is that more than 250 U.S. textile plants have closed, including 50 in the last year alone, and taking with them obviously hundreds of thousands of jobs. In fact, some of the great names in the industry are gone or are a shadow of their former selves.

Now, the consequence of all this is that Unifi had lost close to 30 percent of its domestic volume, and we have also lost close to 40 percent of our revenue due to the reduced price points caused by rise in imports in all categories of our business. With the (indiscernible) shutting down, declaring bankruptcy or curtailing production in the face of imports, we all have to accept the fact that the majority of the domestic business is lost and is not coming back. Our response so far to this has been to consolidate our operations and take out cost. However, although we have been able to retain our percentage of the U.S. market share by being price competitive, the overall domestic market continues to decline. Therefore, we are being proactive on other fronts for some time, and I would like to take a few minutes to explain these to you.

The first one is a strategy that we began implementing approximately two years ago. It was designed to exert greater influence on the yarn-buying decision. Traditionally, we approached only those customers that directly purchased and used our yarns, that is the knitters and weavers that make the fabrics that go into the end-use products. This direct sales approach kept Unifi more or less at arm's length from the people that are most interested in the innovation and product differentiation, that is the brands and retailers responsible for the products purchased by consumers.

So we reorganized our sales and marketing teams to call on the world's major brand retailers and present our innovative, value-added products to the real decision makers. And the objective of this type of strategy is to have the brands and retailers specify Unifi yarn in the products and therefore, we are basically pulling our yarns through the supply chain. We currently have a portfolio of over 20 of these value-added yarns that are marketed by this pull-through strategy. Now developing cycles for new products at retail can be anywhere from 18 to 24 months, but we are now seeing these efforts begin to gain some traction and (indiscernible). And while these specialty value-added products represent only 2 percent of our total domestic (indiscernible) today, they are growing steadily.

Sales, for example, in the first half of this year are up over 50 percent for the same period in fiscal '03. And in addition, marketing efforts for value-added yarns like our Sorbtek moisture-management system or AMB Antimicrobial are generating new customers and sales for our more standard products. And with our strong technical staff and extensive knowledge of fiber producers -- fabric producers, our key brands retailers are increasingly turning to Unifi for new product ideas and assistance.

More than two years ago, we began another initiative to develop the regional opportunities in this hemisphere -- specifically, take advantage of trade laws such as the Caribbean Basin Initiative. These bills allow U.S. yarn or fabric to be transformed into garments in Central America and the Andean Pact region, and come back into the U.S. market duty-free. And under these agreements, certain categories of apparel, especially synthetics, are both competitively priced with Asia and available on a short cycle time. Now, this offers tremendous advantages to apparel buyers, who get not only lower costs, but also an improved ability to forecast and manage the actual store demand.

We have invested in developing expanded sales presence in Central America and the Andean region countries to leverage the inherent opportunities there. And as a result, we are now recognized as both a key supplier and leading information source for U.S. companies wanting to produce closer to the U.S. Our direct customer base in the region has grown from 8 to more than 50, and our sales volume there using U.S. yarn has more than tripled, to 160,000 pounds a week.

And that takes me to another initiative, which is a natural extension of these activities, and that is the formation of Unimatrix Americas, and its alliance with Unimatrix. We launched this in October the first of last year, and this is a global food service supplier of food package (ph) garments to brands and retailers. Unimatrix focuses on performance-based apparel that provide functionalities, such as stretch, moisture management and (indiscernible) control, etc. And by focusing on garment programs that utilize our higher-margin performance yarns, Unimatrix helps to sell Unifi yarn worldwide. We are seeing evidence of this strategy taking hold, as well, and since it's start-up in October of last year, Unimatrix has developed programs in the order of $5.2 million and over $650,000 in yarn orders.

So finally, just turning to our negotiations in China, our project team continues to work on due diligence issues and logistics to enable us to complete a definitive agreement with this transaction. And while the pace of progress is slower than we anticipated, we are still committed to completing as soon as possible. As with any transaction of this nature, we can't give any assurances that there will not be a stumbling block along the way that could prevent us from closing. But we can say at this point we continue to make positive progress with both the Kaiping Polyester Enterprises Group and the regulatory agencies of the Chinese government. As you know, the final approval date by the regulatory agency is somewhat out of our control, but we are driving for a completion date and a definitive agreement between the parties as soon as physically possible. As we have mentioned before, this initiative is imperative and critical for our long-term success, and we believe that this transaction will provide us with a high-quality base of operations that will form a platform for growth of this Company. I will now turn back to Bill to review the financial results for the second quarter.

Thanks, Brian. Looking first at the income statement, the Company reported a net loss of 9.3 million or 18 cents per share for the quarter ending December 28, 2003, which compares to a net loss of 2.2 million, or 4 cents a share, for the prior year comparable quarter. The Company also reported a net loss of 13.9 million, or 27 cents per share, for the first half of fiscal 2004 versus net income of 2.1 million, or 4 cents per share, for the first six months of fiscal 2003.

Net sales for the December quarter of 183.7 million reflect a decrease of 9 percent compared to net sales of 201.9 million for the prior comparable period. Fiscal 2004 year-to-date net sales of 363.9 million reflect a 14.1 percent decrease from net sales of 423.4 million reported for the first six months of fiscal 2003. The net sales decline for the current Quarter and year-to-date have been negatively impacted by changes in product mix, the continued increased in imported fabric and apparel, and the ongoing softness in the domestic textile and apparel industries.

In terms of sales volume, the Company shipped 130.6 million pounds in the quarter and 254 million pounds for the first six months of fiscal 2004, which is 6.2 percent less than the prior-year quarter and 11.8 percent less than the previous first half. Net income for the quarter was negatively impacted by a reduction in earnings from the Company's unconsolidated equity affiliates, Parkdale America, Unifi-Sans Technical Fibers and UNF Industries. The Company reported a pretax loss of .3 million for the quarter and from its share of income from these equity affiliates compared to pretax income of 2.6 million for the prior-year comparable quarter. Results for Parkdale were negatively impacted by their ability to pass along rising cotton prices to its customers within the December quarter. New prices should take effect on new contracts that will ship in the current quarter, this first calendar quarter of 2004.

Included in the December 2003 quarter is a pretax benefit of 7 million, included as a reduction of cost of goods sold generated by the Company's manufacturing alliance with DuPont versus 7.8 million for the prior comparable quarter. The current quarter pretax benefit is below the 9.6 million reported for the September 2003 quarter, which was our first quarter of this fiscal year. The difference is primarily driven by volume decline.

Turning now to the balance sheet, the Company continues its ongoing strategic focus on strengthening its balance sheet and ended the December quarter without any funded bank debt, and our long-term debt balance, which stands at 258.7 million, remains unchanged from the September 2003 quarter. The company ended the December quarter with 59.3 million in cash on hand, which represents a $13 million reduction from the 72.3 million reported for the September quarter. This decline in the cash balance is attributable to a one-time catch-up payment made to a vendor who was having systems issues that precluded them from billing us on a timely basis. A corresponding reduction in the Accounts Payable balance is also reflected with this payment. Cash generated from operations, which would include the Alliance receipt of $7 million, was 14.6 million for the quarter.

Capital expenditures for the December quarter were 2.6 million, bringing the total for the first half of fiscal year 2004 to 4.9 million. Capital expenditures for the current quarter were largely related to the Company's upgrade to its Oracle 11i information technology platform, and the Company expects total capital expenditures for fiscal 2004 to be moderately below the 12 million target for the year. Working capital will continue to be a focus for the Company. Overall working capital as a percent of sales did increase slightly in the quarter versus the prior comparable period ended December 2002. Although inventories did decline 7.6 percent from the end of September, that decline was offset by a declining sales volume in the calculation. That concludes my remarks on the results of the quarter. Before we go to the Q&A portion of the call, I'd like to turn it back to Brian for some final comments.

Thanks, Bill. As you just heard, the first half of this fiscal year has been tough and challenging. We obviously have more work to do to size our business operations to match these sort of volume levels and business conditions. We continue to believe that a sustainable apparel and supply base will remain in the Americas, and will continue to develop opportunities that make Unifi the supplier of choice. We will continue with efforts to defend our domestic business by developing higher- margin products, unique service solutions programs, and more of the pull-through marketing programs I mentioned. And lastly, we remain focused on diversifying our base of operations by growing in China and Asia. No doubt the road to success will not be an easy one, but the management team at Unifi remain committed to these long-term strategies. Bill.

Thanks, Brian. Operator, we are now ready to open the floor for questions.

(OPERATOR INSTRUCTIONS) Dennis Rosenberg of CSFB.

I have a few questions. To start with, the prior guidance for sales for this quarter was about $180 million. You beat that number by a little bit. The shortfall on earnings was the gross margin, where you dropped to 2 percent from almost 4 percent in the first quarter. So what transpired there?

There were several factors actually affecting from the margin standpoint in this quarter, most of it occurring in the month of December, including substantial -- in addition to the volume decline, we saw some of lower pricing pressures on the sales, and actually either sustained raw material price or in some cases slightly increased material price. So kind of a triple witching effect in the month of December that had a dramatic effect on the results for the quarter.

Is that reversing in the third quarter?

We are certainly seeing some better volumes and raw material prices. We are expecting to fall slightly from where we were in the month of December. So we are watching that, but it does appear better than December.

Could you comment on Coke's acquisition of DuPont's options and how that should affect you?

As you know, the Coke acquisition has still not been consummated. We expect, I think, sometime at the end of first quarter -- of the first calendar quarter. Our understanding is that it will be completed at that time. We expect that Coke will step into the shoes of the alliance that we have with DuPont and it should be business as usual. We have met the Coke people so far, and we have -- just to meet them and to get to know them. But we've had no indication from them or them from us as to what may or may not happen with the new relationship. But we look forward to developing a relationship with Coke and believe that overall it's a very positive development in this industry.

Have they expressed any interest to integrate further backward (ph) by acquiring Unifi?

Well, not to us they haven't.

Were you buying back stock in this quarter and are you planning to continue that?

The last stock buyback was on November 6th. We bought back about 180,000.

$180,000? Or 80,000 shares?

That's shares -- about $900,000, about 180,000 shares.

And what's the reason you stopped the buyback?

I think as we looked to some of our strategies going forward, including China, the use of cash could be used for better uses other than buying back stock at this point.

And finally, could you comment at all as to what the financial terms of the China deal might consist of?

I think what we've said in the past is still true. The underlying financial arrangements are still being negotiated between the parties. We have not yet reached a definitive agreement. When we do, we will announce what that is with the other party.

Thank you.

Brent Gesing of David J. Greene and Company.

Hello. It's Rand Gesing. Can you go over this payable issue with a little more detail -- like what was the amount of it?

Sure. The amount was approximately 25 million. (Indiscernible) cash generated from operations, as I said was -- including the alliance amount -- was actually positive cash of almost 15 million. As you can see, the decline in the cash balance was about 14 -- 13, 14 million. This amount accumulated primarily over the course of the middle half of the first quarter, and most of the -- sorry, from April -- it started in April and built up over time from that time frame to when it was paid during this past quarter.

So it was sort of uneconomically building up? It was a payable that was (multiple speakers)?

It was payables. If you look at the payable balance, you will see that it was building up as well beyond maybe what would be the normal carry for Unifi. And then you'll see the substantial decline in the payroll balance on this balance sheet.

Okay. But if we want to look at the year all in, what should we expect to see on the working capital line? Will we have tied up working capital or will we have released working capital?

You mean when we finish the fiscal year 2004?

Right. Well, I mean, will working capital add to the cash flow, or --?

I think working capital will add to the cash flow. We are focused on continuing to keep inventories down to the correct level. I'll be focusing -- as you know, I've only been here for two weeks. I'll be focusing on working capital as a priority, and that includes the faster collection of our receivables and the appropriate payment terms under our payables. So I do expect that we will get some more cash out of working capital.

What is going on with the -- again, another resizing of the business? When do you expect to make an announcement, and I guess I am a little surprised that you haven't -- I guess December was just sort of a little bit of an outlier for you. But when do you expect to make the next announcement there?

We did two -- one major move in cost reduction last April and again in September. We've taken roughly 1500 jobs out of the corporation since this time last year and continue to do that on an ongoing monthly basis. There is no doubt that -- I mean, one can be questioned as to why we can't keep ahead of the curve here. But the curve, unfortunately, develops on its own through a quarter, and even as we saw the volumes going down, we wanted to make some movements, but there were indications at the same time that business was picking up again and would pick up and has in fact picked up to be better in January and going forward. Now, there are obviously less holiday periods in the second half than there are in the first half. For example, we were down Fourth of July, Labor weekend, Halloween, Thanksgiving, Christmas, etc. So we've got that behind us. In the second half of the year, we have more operating or selling weeks.

But in any case, we have -- we obviously have a problem in the sense that with business shrinking from a volume standpoint and prices continuing to remain under pressure, we have no choice but to continue to take out cost. And we have several cost reduction programs in place on a continuing basis, and we expect over the next 30 days to continue to work on these and implement these one at a time. There's nothing huge, but there's just a number of small- or medium-sized projects that we can save -- where we can save money, including consolidation of plants and so on.

To your question specifically, Rand, regarding why we haven't to date, as I mentioned earlier, December was a bit of an outlier and as we evaluate business as we are in January, it will dictate somewhat which of those cost reduction projects we decide as a management team to do.

Right. Okay. As it relates to the Chinese situation, is there any way to -- can you give us any sense for where we are in terms of -- I mean, are we continuing to carry the ball down the field and make progress; it's just that each time we make some progress, there is another hurdle? I'm just trying to get a sense for some of the main things that are still left to do. I guess I'm assuming that the Chinese government has interest in doing it. You still have the same level of interest. Is it financing? Just could you give us any sense as to what things we are trying to crush through in the next quarter?

I think as we go along, as our particular stumbling blocks, most of them have been identified and we are simply working through them one at a time. You have to remember this is a fairly unique transaction with a public company involved in China. So there is a lot of things that are being done for the first time. As we continue to work through those and continue to tweak whether a structure can be a certain way or not. So each party has been dedicated to making it work, and it's working through those things one at a time to put it in a position to do two things. Number one, to get final approval that says yes, it's good to go, from the government. But two, to also make that process go a little faster versus slower.

So we're working some of those things simultaneously in (indiscernible). But it is at a slower place than some transactions you might see, although most transactions do not go very quickly in China when it's a fairly standard transaction. So the complexity of this is most of those issues have been identified and we are just working through them. None that -- just something hasn't popped up each day that says, this is an issue, that's an issue. We have identified a lot of things and we are working through that. As you know, there's a lot of levels of bureaucracy to work through that require approvals there, from the provincial area all the way up to Beijing.

Brian, can you just give us a sense, turning the clock back three months ago to now, are you more confident that this will happen less or just sort of status quo?

I think I've been asked the question several times about our release at the end of the year where it sounded (ph) kind of negative. That was not meant to be case, and I apologize if I gave the wrong impression. I mean, we would not be continuing with this process if we didn't think we could pull it off. It is the right thing for us to do, it's a really good operation, it is the right platform for us to build a good business in China with. As Bill said, it's a very slow process, but for instance, just to give you an idea of what we're doing right now, this is China's New Year right now.

We've got people working there as we speak, even though it's Chinese New Year holiday, and we've got people there next week again. The people at Kaiping (indiscernible) the Chinese vacation are working next week to try and get this thing moved on. So the positive thing is that we want to do the deal, they want to do the deal. It's a question of making sure it gets all of the (indiscernible) bureaucracy that's required. We have a very professional team on the job. We feel very confident that they can -- if they can't pull it off, if can't be done.

Okay, thanks.

Pamela Wilson of W.L. Voss (ph).

You mentioned that pricing was lower in December. Could you tell us what impact you think the Coke and DuPont acquisition will have on pricing going forward? Will that enable people to move prices up at all or --? And also two other polyester producers have announced price increases, and I wonder if you think those will stick?

Obviously, I'd love to be able to say that announcing a price increase is the same as getting one, but in a market like the U.S. or Europe or Asia for that matter, the reality is that there's more supply than demand. When the prices go up, it creates an opportunity for other players to take market share. That's been the history over the last number of years. We, in some cases, fall into that trap, and I think we've got to look at the reality of the price points in the marketplace that allow our customers to survive, and be pragmatic about what can and can't be done.

Raw material prices have gone up substantially in China right now, but it's coming into the Chinese New Year and that's not untypical. We've seen (indiscernible) before and the sad thing is that price increases have not been able to be pushed through because of two reasons. One is, as I said, the supply-demand; and the other is the top-down pressure from the retail, where it's a buyer's market and they can more or less dictate prices. So I'm sorry -- I can't be positive of what the outcome might be in that direction. Does that answer --?

Yes, thank you.

(Indiscernible) of First Boston.

My questions have been answered. Thank you.

(Indiscernible) of Titan Capital Management.

My questions have also been answered. Thank you.

Jeff Kolblars (ph) of Salomon Brothers Asset.

Can you comment about how far out can you see your orders -- what is that window right now?

Depending -- I would say that we have indications of expected volumes going out a month to two months. Typically, people talk about quarters, but those projections are subject to weekly review. Somebody might say -- a customer will tell you that they're going to take a million pounds in the first quarter. After three weeks, they could stop for a week or two weeks. So the visibility -- the expectation is always more optimistic than the reality, and we tend to factor that into our forecasts and extrapolate from history rather than try to hockey stick the future. So it really is becoming -- to be perfectly honest, it's getting more and more difficult to get a view of the future that you can really bank on. That's one of the reasons we've stopped forecasting, in terms of the financial forecasting.

Okay. But is it reasonable to expect that the pressures that occurred in this December quarter, that they continued at roughly the same pace -- high single digits or low double digit rates of decline?

Bill said all the stars lined up in December to give us a poor month. But the indications so far on our bookings are that they are more in line with October, November period, which we are sort of extrapolating from in terms of the next three to six months. So there are areas of our business that -- the top of the bed, for example. I mentioned earlier on that someone like -- we had lost so much of the top of the bed or the home furnishing type products to imports, and I think they are up 40 percent alone in the last 12 months. And we are talking about sheets and pillowcases and duvet covers, that type of thing, where domestic producers are now importing fabric or finished goods to supplement their domestic supply in order to meet the price points demanded by the major retailers.

So we expect to see some decline on the commodity end for that reason. Also, we some growth in some of the end users that we been focusing on, like medical and uniforms and military and other areas that we haven't traditionally been involved in. On balance, we are hoping that the decline is not more than two or three percent. But we expect and are trying to continue overall in the textile business.

Two to three percent, is that volume?

That's for us (ph) in volume, yes.

And what was the volume decline -- I'm sorry, I missed the number -- I'm sorry, in this most recent quarter in pounds?

In pounds -- from the previous year's quarter, 6.2 percent.

And then -- okay, that's it. Thanks very much.

Peter Alonzo (ph) of (indiscernible) Industries.

Mr. Alonzo, your line is live. We will move on. Our next question comes from (indiscernible) of Donald Smith and Company.

I didn't queue up for a question. Thank you.

Larry Petrucci (ph) of Legg Mason.

Can you give me depreciation and amortization for the quarter, by chance?

Sure. Hang on just one second. It's primarily depreciation expense. I'm just sorting through my paper to get it.

Just rough.

Roughly it's about 15 million of depreciation.

Okay. Now, you made your comment before your curtailment, I guess, of the stock purchase program. Do you have an intent to bring that back in or not until the business posture and your operating posture changes?

We have no intent at this time to bring that back in.

Could you give me an idea of what your mix looks like for the year? I mean, you are primarily all polyester. Are you going to get any contribution from -- on a cash-flow basis from the nylon business?

Yes, I think we will get some cash flow from nylon. Are you looking for a specific --?

Do you think it will be approximately same as last year? Is there any meaningful change from last year?

I think the nylon business has been more or less flat in the last 12 months. I think we expect it to be right now, with some of the growth in some of the end users I just mentioned, we see it remaining sort of flat in terms of volumes. Maybe some pressure in prices, but certainly the volume looks fairly solid.

It contributed -- if you just look at the first half of the year for this year, it's somewhere around a 4 million kind of number.

Thanks, gentlemen.

Brian Hunt of Wachovia Securities.

Thank you. I have several questions. First of all, Brian and Bill, you guys are doing a great job on this conference call. I just wanted to tell you that first. Could you talk about what you can do to remedy the gross margin trend or to turn it around and get back up to these high single-digit, maybe low double-digit gross margins we saw last year?

We'll split this question, and I'm sure Brian will have his comments on it. As I get here, we have not -- in some cases, we haven't flexed our variable costs as quickly as we need to, as Brian said, to catch up with the curve. We've been flexing but we haven't been flexing quick enough. So we need to do that. We need to continue to look for ways to have better visibility to know when a new curve is coming or a drop is coming or a change in an order is coming, to be able to react quicker. We need to react quicker.

I think -- and those cases will help just from an efficiency of operating standpoint. That's not just taking costs out, but it's a manner in which -- and the way we operate and have visibility what is happening tomorrow versus what happened yesterday. So that's just from a variable cost (indiscernible) side. Brian has addressed the sales price increase side of it. Do you have some comments, Brian, on the raw material pricing and (indiscernible) putting out there for our margins returning to those kind of prices.

The emphasis has been for some time to try to increase the price, the average price, through the generation of more added-value business. And that's where our downstream marketing and business development has been focused. As I said earlier, the traction has started. It's been a long haul, but we're seeing more and more developing in that direction. Any price increases we see are going to come in those type of end-users and those type of products.

We have to be realistic about the overall pricing and accept the fact that the price pressure that exists today on our customers from their customers -- I'm talking about retail and Detroit in particular -- the pressure is inexorable, and it obviously filters its way down to us. I wish it were different, but that's the reality.

So really what happened last quarter more than anything was the higher raw material cost and just a negative mix issue that clipped (multiple speakers)?

It's a combination of that.

A combination of that and there's a couple that in addition to our equity affiliates suffered kind of the same cause and effect, and that was two or three cents a share there. We had an inventory -- a LIFO adjustment that probably affected EPS two, three cents. It's kind of varying (ph) in all the mix that's going on. So in addition to some of the operating issues, we have probably 6, 7, 8 cents per share of some other things, including equity affiliates, that is driving the number this particular quarter that are little bit of anomalies compared to what we have had in the last couple quarters.

Could you give us the DuPont savings and the pounds for the quarter again. I'm sorry -- I missed that.

The savings amount -- net (ph) was $7.0 million. Pounds --

I've got that down 6.2 percent, but --

The 6.2 was the decline in volume in pounds. That was our sales volumes pounds decline. That's not the alliance piece. I don't have that in front of me. I'd be happy to -- if you or anyone else want to call back later, I'll be happy to get that number and provide that to you.

And if you could go over a review for us, what is the capital structure of your biggest JVs? How does the balance sheet sit? And do you see any opportunities for dividends from any of the JVs in the second half of the year?

I doubt I'll see dividends, but from a structure standpoint, we own -- many of you are aware we have an interest in Parkdale America. That's about a 34 percent interest. They have a fairly -- from what I've seen -- again, I've only been here a short time, so I can't really comment on their overall strength. I believe they had fairly good cash on hand, but I have yet to get into their balance sheet and meet with their board, which I intend to do, but -- just as our normal governance issues that we do here at Unifi. And the others from a size standpoint, I won't say pale in comparison, but they are substantially smaller, have contributed smaller amounts in the past, one of which is Unifi-Sans, which is South Africa. It has been performing better of late and is continuing to come along. But again, size wise and contribution wise, either from an income or a loss perspective, Parkdale America is the largest.

With regards to the A.P. you were talking about earlier, that had normal payment, there is usually a seasonal decline in your payables during the second quarter. What would you expect to -- what type of dollar build would you expect in payables going from where we are today to the end of the third quarter? Or where are payables today? Have they moved back up to the mid 60s level or so?

No, they have not moved back up to the mid 60s. We are probably around slightly less than 55 -- 55 range today. Of course, it does fluctuate month-to-month, but when we talked about working capital earlier, one of my focuses will be on not letting AP go the opposite way. I want to be able to use my AP as put of my working capital. So it may build some, again depending on what I find and what our terms are, whether we are taking discounts where we should not be taking discounts, those types of things. So we will be prudent with it. We have to keep in mind that we have suppliers who we are working with that may be critical supply from a timing standpoint, and so those may continue to get payables quicker, which will keep the balance down a little lower.

My last question, and Brian, you partially addressed this. If you were to look at your other largest end-use customers -- apparel, hosiery, automotive, industrial -- where would you say you are seeing the biggest weaknesses outside of what you are seeing on the home furnishings side?

I think the automotive side is the area we've seen the most decline in terms of volume. Because you know about a year ago, we had the mix in our (indiscernible) business, for example, which supplies both automotive and home furnishing, as well as some apparel, was typically sort of 35/65. Sales for the same mix today is more like 25/75, and obviously, that's been Detroit -- the pressure of Detroit on pricing, number one, but also on the type of product that the automotive producers are using. They are using more natural fabrics that are either dyed or printed. They are not using the more expensive fabrics. So that is the area -- now, whether that has plateaued or not remains to be seen, but with the difficulties that they have financially in Detroit, I think we can expect more of the same going forward.

And how about hosiery? That's such a big part of your business. I heard you say earlier that pounds are holding up on nylon; I assume that's women's hosiery. How about the socks part of the business?

The men's socks are holding up pretty well. We've seen probably a 4 or 5 percent decline over the last six months, and that's due to imports of socks. We've started to see socks coming in now from Central America and China. The lion's share of the business is still being supplied by the U.S. suppliers, but they are under pressure on imports or pricing. So it's still decent.

The hosiery side, women's share of hosiery continues to decline probably 6, 7 percent a year. That has not stopped, but we have been able to put nylon into other areas like into seamless garments and into apparel and some industrial end-uses. So we are trying to find areas to move that product into as the hosiery declines. But generally, fine denier hosiery is still declining due to the fact that women are no longer -- the younger women in particular -- are no longer wearing the hose.

Last question, what is your availability on your revolver. I know you don't have anything outstanding on it, but are there any other constraints you've hit because of financial performance?

Yes, our amount of debt is 75 million.

75 million available?

Yes.

Operator, we have time for about one more question.

Pamela Wilson of W.L. Voss.

I wonder if you could just (indiscernible) the (indiscernible) alliance. What do you see happening there in '05. They don't want to buy you and you don't want to buy them, what happens?

As I said earlier on with the Coke acquisition of Invista, Coke will step into the shoes of DuPont. And the protocol provisions apply in June of 2005, as you say. Quite frankly, I think it would be premature for me to even comment on that, because I honestly don't know, because we need to sit down and review the situation with our new partners when they assume the ownership of the DuPont assets. I wish I could answer that more accurately, but the truth is I really don't know. There are so many factors to be considered.

Just one final question. CAPEX, what was the CAPEX in the quarter and what do you -- ?

CAPEX for the quarter was 2.6 million. That would bring the first half to -- sorry, about 2.6 million and 4.9 for the first half of the fiscal year. Previously, we had set our target for the year, it was somewhere around 12, 12.5 million. We think we will come in moderately below that.

Thank you.

That is our last question if you have any final comments.

No, just to thank everyone for participating on the call today, for the late time of day that it is. We appreciate your participation in Unifi. So thank you.

Thank you. This call has concluded. You may disconnect your lines at this time and have a great night.