Unifi Inc (UFI) 2004 Q3 法說會逐字稿

Good afternoon and welcome to the Unifi third-quarter earnings conference call. At this time, all lines have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Bill Lowe. Sir, the floor is yours.

Thank you, Jason and good afternoon. This is Bill Lowe, Unifi's CFO and Chief Operating Officer. Joining me on the conference call today is Brian Parke, our Chairman and CEO. As usual before we begin I need to first dvise 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 upon management's current expectations, estimates, and/or projections about the markets in which -- which the company operates.

Therefore, these statements are not guaranties 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 the disclosure in our 10(Q)s and 10(K)s regarding various factors that may impact these results.

During this call we will be referencing a presentation of materials that can be found on our website and you can locate these at www.unifi-IMC.com. The presentation can be accessed by clicking the third-quarter conference call link from the home page. I hope that you will have the presentation available as it will make it much easier to track the information discussed on this call. Having said that, we are going to jump right into the financial results this afternoon.

If you are following along from the website presentation, I will begin on slide four. Looking first at the income statement highlights you will note that although net sales for the current March quarter are down versus the prior year March quarter, we did see an increase in net sales of $7.2 million or 4% from the December quarter, which is due in part to stronger orders throughout the supply chain.

We also noted to you on our last call that we do not believe that last quarter reflected a new trend line. This quarter's operating results and sales line substantiates that belief. I have provided on the schedule a breakout of pre-tax and operating profit with and without all the [inaudible] associated with the restructuring and equity affiliate impact in an attempt to provide you with a look at the basic business.

Noteworthy is our operating loss for the current March quarter excluding special items was $3.6 million, which represents an improvement of R5.5 million compared to the December quarter. This improvement in the conversion of sales to operating profit prior to the benefits of our recent restructuring is an indication that our underlying business is improving. Our SG&A for the current quarter excluding special items was 6.5% of sales which is a reduction from the 7% recorded in December.

As a percent of sales, our SG&A for the current March quarter excluding those special items,is essentially the same level as the prior year. We do anticipate further reductions in SG&A as a percent of sales over the next few quarters, as we begin to realize the benefits of the restructuring that we've announced and will cover later in the presentation. Interest expense was $4.7 million and depreciation expense was $16.3 million for the quarter. The next slide provides a reconciliation of our pre-tax income excluding special items. It should be found on slide 6.

The slide provides charges for the current March quarter associated in restructuring our $59.5 million and include the amounts you see for European restructuring, U.S. severance, and asset impairment. The current quarter was also negatively impacted by pre-tax loss of $6.7 million from the company's share of income from its affiliates, which is close to a $10 million swing from the prior-year third quarter.

Results for Parkdale America in the current quarter were negatively affected by higher cotton prices and a loss on future contracts. We were, however, positively affected by $4 million gain on an asset sale. The next slide which provides additional detail on our planned facility closures and workforce reductions resulting from our restructuring remain on schedule from a timing standpoint.

The total charges for these actions are estimated at $25.9 million, which is in line with the $24 to $28 million estimate that we announced at the time of restructuring in early March. We recorded a $20.8 million of this total charge in the current quarter, which is slightly higher than the $15 to $18 million anticipated at the time of the announcement. We managed to get slightly more accomplished during this quarter than expected allowing us to [inaudible] accounting rules in this quarter versus the next quarter.

The total estimated cash component associated with restructuring is estimated to be at approximately $13 million, however a significant portion associated with the lease cancelation which will occur this next quarter will be paid out in three to five years from now. Our next slide moving to the balance sheet which continues to be a strategic focus for the company.

The company ended the March quarter with no funded bank debt, and our long-term debt balance which stands at $257.8 million remains essentially unchanged from the December of 2003 quarter. The company ended the March quarter with $59.7 million in cash on hand, which represents an improvement of $400,000 from the $59.3 million reported for the December quarter.

Net working capital was negatively impacted this quarter by an increase in receivables, which increased based by an increase in volume to a smaller degree and then we had some issues as well with our systems as we converted our Oracle systems from 10.7 to 11 I along with some historical issues being fixed and resolved today. Our goal is to reduce our days in receivable to -- back to the 53 days that we saw and the end of last quarter by the end of this fiscal year and then continue to move forward to a company target of 45 to 48 days in receivable, uh, into early part of the next fiscal year. The next slide provides highlights for our year-to-date cash flow.

Capital expenditures to date are $7.5 million. Note on this slide that we've also given you a pure working capital change amount for this presentation which would -- which would exclude accruals. Accruals are listed in the other line. Line item.

Our form 10(Q) will differ slightly from this presentation, the amount of net cash provided from -- and used by operation will remain the same as a result of providing this pure look at ARAP and inventory change on this particular slide. The next slide shows substantial improvement in EBITDA in the current March quarter compared to the December quarter. As well as a slight improvement actually over the September 2003 quarter.

Note that these figures do exclude the results of our equity affiliates and that the current March quarter excludes restructuring on asset impairment charges as well as a gain on the sale of assets. Again we believe that this improvement is a reflection of the strength of our underlying business moving forward.

One final note is the reconciliations are provided in an appendix in the back of this presentation, reconciling any non-GAAP measures we may have presented today to GAAP measures. That concludes my remarks on the results for the quarter. Before we go to the q&a portion of the call I'd like to turn over the floor to Brian Parke for an update on China.

Thanks Bill and good afternoon, everyone. As you know, the company announced last week that it had ceased joint venture discussions with the Guandong Kaiping Polyester Enterprise group and that we were exploring the formation of a wholly-owned subsidiary in China. I said on our conference call that I would elaborate further regarding this initiative on this call today.

However, last week even as we were talking, we had a team on the ground in China and we were touring possible plan sites and locations and met with various local development officials as well as a number of synthetic fiber producers and these discussions identified a number of opportunities that were interesting for Unifi and ones that the -- further investigation. And as announced last Wednesday, I will be focusing my attention on the company's China initiative and in fact I'm leaving tomorrow morning for China where I've scheduled a series of meetings with the prospects developed by my team.

Although we have developed a Greenfield business plan, we do not think it is appropriate to share that with you today, given the fact that the situation is evolving and opportunities have emerged that have to be considered carefully. We are fully committed to building a major presence in China and I feel it would be inappropriate to share the who models at this stage as the locations and relationships that we are working on can have a significant effect on the business plan.

Our recent adjustments to our management structure were designed to allow us specifically to -- focus on the profitability of our existing operations, but at the same time giving me the time to -- or as much time as I need to bring the China initiative to closure. With that, I will be happy to answer any questions during the question and answer period. Back to you, Bill.

Thanks, Brian. And before we go to the q&a, let me conclude our formal remarks by reiterating what Brian just said, that we are focused on two critical areas of the business as demonstrated by our most recent executive reorganization. While we have already announced in our executing restructuring actions we are continuing to review our product lines, facilities, pricing, in an effort to return our business to profitability.

We are hoping that the actions we have taken to date and will continue to take going forward will drive us towards the goal that we have spoken with you before about returning to a positive operating profit, of course excluding any impact of our equity subsidiaries that we do not have management control, returning to that positive operating profit in our first fiscal quarter of 2005.

As Brian said, I'll be dedicating my efforts towards this regard as he dedicates his full efforts towards bringing China to closure for a structure that provides economic balance for the company, provides a platform for growth in Asia. With having said that, we'll now open the floor, Jason, to questions.

Thank you. The floor is now open for questions. If you do have a question, please press star one on your touch-tone telephone at this time. Once again, if you do have any questions, please press star one on your touch-tone telephone. Thank you. Our first question comes from Dennis Rosenberg from Credit Suisse First Boston. Dennis, please go ahead.

Hi. Brian, when you talk about the situation evolving in China, are you back to discussions about a possible joint venture or investment in a company in China or are you talking about the situation involving relating to your Greenfield operation?

Good afternoon, Dennis. The -- the -- what I'm talking about here is the fact that when we -- when we announced the -- the cessation of the discussions with Kaiping, we -- a lot of interest was shown by a number of different people and, uh -- from Greenfield opportunities to joint ventures to many different options that -- they have to be validated or -- our belief that Unifi has a value or there is a value to Unifi operation in China that we bring to that market, special skillsets and knowledge and brands and product that the market needs. As Greenfield option is -- is a -- is an option that we -- we want to go forward with.

I think we have to take a look at all of these options and see if they can get us on the ground faster, quicker and more profitably than with the Greenfield. So we're not interested in -- in spending another 18 months talking to people about different possibilities, we're looking -- we're still focused on getting on the ground quickly and getting on the ground quickly in a profitable way.

And to have some -- to have so many opportunities in such a short time meant that we took a hard look at our -- at our situation, we had a board meeting this morning, we discussed our options, and the board again ratified the importance of this strategy, and asked me to continue with their support to look at the best possible opportunity for us in China. In some ways we're best with opportunities, what we've got to do -- what I've got to do is cut through those opportunities quickly and get to the one that -- that makes sense the quickest.

You have a time frame for when you think you're going to reach a conclusion?

Well, I think we've learned a lot in the last 18 months. We -- we know how long the approval -- the approval process takes, we know how long the -- it takes to do the due diligence and all the usual things that need to be done in a situation like this.

And, uh, you know, we -- we are still focused on getting on the ground early next year, we would hope to be in operation January of next year. If not before. I mean, again, you know, we have these opportunities and how quickly we can -- how quickly we can put them to bed depends on what they are and how complex they are, but the -- the wholly-owned subsidiary is the simplest, easiest way to get on the ground, but we need to look at all the other opportunities because it may get us there faster.

Okay. The question really is, you know, at what point in time will investors know what the strategy is going to be? You know, are we talking about a month, two months, six months? When will you be able to talk to us and give us all the details that we thought we were going to be getting today?

Yea, one of the things -- one of the things we considered long and hard today was, you know, whether to go ahead and put some numbers out there. We decided we shouldn't because we don't want to -- to lead our investors astray and we prefer to err on that side than to go out with something that -- that is only a model at this point. So our -- how long will it take depends entirely on how much time I spend personally in China. And I'm committed to spend whatever time it takes.

Right now, I'm very comfortable with Bill at the helm taking care of day-to-day business, making sure that we get this business into profitability as quickly as possible and the signs are very positive in that respect. And meanwhile, it's a question of how quickly I can get the thing done. We are willing -- willing -- people willing to do business, we're willing to do business, that's a great start.

So I have no reason to believe that this is -- this is not going to be a long drawn-out process, we have -- we have land identified in several locations, we have commitments from local governments about -- about selling the land and giving the approvals, et cetera. So this should not delay -- delay -- delay our plans significantly. And I think within the next -- I'm sure within the next two or three weeks I should have some visibility on exactly what the best option is and one that's -- that we can put to our board and then show -- share with our investors.

Is it your plan to have another conference call in two or three weeks?

I think I'll take the fifth on that one because I think -- you know, I don't want to be forced into a precipitive statement of that nature because I think the board today were very positive about -- about how they felt about this initiative. They want us to make sure that we do the best deal possible for our shareholder, and making promises and making commitments that may not necessarily be fulfilled is not the way to go. We would -- we want to do this properly, we want to do it at the right time. And we will share it with you as soon as we can.

Okay. But I still want to pin you down. Maybe not to an exact date, but shareholders have been waiting nine months to try to get some -- some visibility as to what your plans are here and it just keeps on getting delayed for one reason or another whether it's a good reason or a bad reason and I think we -- the shareholders need to get some comfort that we are going to get some understanding of what's going on there and we're not getting that.

I think if you are really pushing for a -- for a guess on this, I'm sure by the next -- by the next quarterly conference call in July, that should be possible. It may be before that. I mean, we could do something quickly or we could do something -- it might take a month or two months. But if that helps the next quarter -- the next quarterly conference call will be the -- what I would suggest.

That would be at the outside, or is that the --

Maybe that's at the outside. I mean, that -- you know, I don't intend to spend three months in China trying to work a deal.

I see. So you're saying as soon as you come back from China, we're going to hear something?

Dennis, you know --

I keep on pushing on this.

Well, nothing changes, does it? But I -- I understand what you're saying exactly and I know the other shareholders and investors have the same -- have the same question. But I've got -- I really have to -- I really have to -- we don't want to be pushed into doing something that's not the right thing.

Particularly when we have a situation right now where we've got many -- several different options and those options need to be looked at carefully. And, you know, I think -- I want you to believe and the rest of the investors to believe that we are going to be in China, that is our -- that is our future, it's very important to us, and we're going to get a -- do a deal if it's the right deal.

And we'll tell you about it as soon as we can. In fact if I -- if I know next week, I'll come back and tell you. But if's the right deal we'll know it and we'll tell you about it.

Okay. And I'll just ask one final open-ended question. You talked about bringing the U.S. business back to profitability. Could you quantify that other than to say that you are going to get back to an operating profit in the first quarter? You know, what further steps are there and -- and what kind of profitability can we be looking at in the -- in the first quarter and through all of next year in the U.S. and what are your assumptions on volumes?

Well, first let me just say regarding all of next year, we are still in the process of developing our fiscal '05 budget, number one. Number two, we typically have not and probably will not project a full-year 12-month projection based upon the movements in the market.

But having said that, looking forward on a short-term basis, and I think you can -- you and others will model this yourselves, we've given you what we believe is the savings which we will -- we will garner from the restructuring actions we've taken to date that I think will provide you based on the current level of sales, and operating profit for this quarter, excludeing the -- the restructuring, that puts us in a -- not a big positive, but a -- a slight positive position in fiscal '05.

Now, again you ask what more we're going to do. One of the things that I'm focused on and was focused on before but even more so now in my new role is -- is getting deeper involved on a -- in the operations on looking all the way down to the product-line level in regards to where we do or do not make profit on specific product lines, continuing to review facilities, and continuing to look at where we're spending our SG&A.

So I think there's more cost-cutting to come. It may come without -- without additional expense, it may come with some additional expense, I don't know at this point from a restructuring standpoint. But I think what we'll do is consider -- consider a lot of options that will improve beyond what we've already projected as we go forward.

Okay. Thank you.

Thank you. Our next question comes from Brian Hunt from Wachovia Securities.

Thank you. Just a housekeeping item. What's the availability first under the revolver?

Availability is about $72 million, without violating any covenant.

Okay. And then I was wondering if you could speak to maybe poly and nylon on the divisional level, you know, what happened to pricing and volume in -- in each of the categories versus, you know, sequential or a year-ago, whatever context you are going to put it in.

I think it might be easier to talk about it in regards to last quarter.

Okay.

Of the changes in volumes from -- from last -- from last year is a bit difficult. Poly was -- poly and volume-wise was up over last quarter. Let me give you a number first. In total -- total tons were up about 5%, if you take everything in -- into account. Polyester was up more than nylon by a substantial degree. Pricing, we have seen pricing stick in a lot of different areas.

I think that the marketplace, not just Unifi but the marketplace in general is tight. Raw materials have increased, as you know, and some of the pricing today that we're getting is -- is the result of that and other players in the market who are -- who are also getting price increases across the board. But that isn't to say that the raw materials aren't going up as well.

So it isn't translating to a price increase of -- of X has dropped below the bottom line because you have continued increases on the raw material price. We're also seeing some efforts that we're putting I guess throughout our product lines and trying to identify specifically where -- where we might be behind on a particular product or a product line where pricing is available for an increase. And we're seeing some success in that as well.

I guess --

Both polyester and nylon.

If you were to put it in the context -- maybe in terms of pounds or volumes or even SKUs, what percent of your product have price increases gone through on, and maybe -- how much more do you believe there's opportunities to move on?

I think there's still opportunity, again, but it's not -- it's not -- price opportunities aren't across the board. It's selective based upon economics of a particular product line and in some cases we have contracts where the price is fixed and you wait for the -- the contract to change.

But there are opportunities within the mix we have selectively on a surgical basis and I think that's what we've said before, that we believe there are still some opportunity for some price increases.

Was the information you gave me just on domestic or did that include international?

I am speaking mostly domestically as a trend. I mean, the price increases -- and to keep in mind that in some cases those price increases have kept us even with the raw material price increases, so it hasn't translated to a -- as I said before, it's not dropping completely to the bottom line.

How about Brazil? It's performed -- I guess very well for several years, did that trend continue in the most-recent quarter.

Yes, Brazil continued to be a contributor and continued to -- to exceed our expectations for the year. They were up slightly over their December quarter.

All right. And then lastly, in -- and I'll get back in the queue. Your manufacturing alliance partners on the road, you know, raising a substantial amount of capital, and there's been I guess conversations about the relationship between Unifi and your alliance partner.

Is there anything you could provide us today, maybe describe how the relationship is with the new alliance -- with Coke or -- and maybe what efforts there may be to enhance cost savings or is there anything else in the contract based on feeling each other out for the last couple months that you envision changing over the near term?

Brian, the -- the Invista Coke deal will not be completed until sometime the end of April or I think early May was the last I heard. And obviously we're not in a position -- they're not in a position or we're not in a position to talk with them until such time as that is done.

We have met them and talked with them and, I think it would -- it would -- it would be -- it would be fair to say that we get a good -- a good sense about these people and feel that they will be a good partner and beyond that I'm afraid I can't go because we haven't really discussed it in any detail and will not until the deal has been completed.

Okay. Thank you. I'll get back in the queue.

Thank you. Our next question comes from David Richards from Raymond James.

Hi, guys. A couple things. You know, with China, one thing -- be curious to know if you guys could even give us sort of an -- a lower and upper bound on the kind of numbers we're talking about on a cash basis and I understand there's a lot of moving parts, but I don't know if you've gone into this at least with an idea of we know we aren't going to be spending more than X or -- you know, that we'll be spending at least Y. Is there anything along those lines you might be able to help us with?

I think as Brian said we have several options in front of us which would give us different answers to that and I think that the best alternative, as Brian described earlier, is when he identifies which one of those is the best strategy providing the best return for us, here in the short term and the board -- the board has seen that, we're going to -- we will come back and share that with you at the same time.

Okay. And just, you know, following up on the earlier questions about price increases for your products, you know, sales were off on a year-over-year basis, up a little bit sequentially. If you strip away the increases on a volume basis, my guess would be that you may be down a little on volume versus the -- the prior quarter? Am I missing something there or -- or are the price increases just not that high?

Price increases overall aren't that high. I think the -- as a -- it's not across the board and it's -- here and there as I said volume was up about, 5% on a tonnage basis if you look at the -- what went out the door.

Okay.

So it's just that -- and some of those -- by the way, some of those -- we didn't start to see some of those until getting those in place until sometime in March and some of those won't be effective until April. So there's just -- there's less impact in this quarter than there will be going forward on some of the changes.

Okay. And then I guess lastly, you know, what is -- as we look at what the cash costs are going to be, you talked about some of them are going to be taken next quarter but spread out over a few years, what -- what are the cash costs that you took this quarter, just finished and what are the cash costs you expect to take next quarter?

Okay. Well, the cash -- the cash components associated with the restructuring that was accrued this particular quarter is primarily severance expense, which totals approximately $8.2 million. That will be paid out over the next several months primarily in Ireland and England. The severance associated with the United States is pretty much been paid out at this date.

What was that number like? Is that part of the $8.2 or is that --

It's part of the $8.2 and it's probably -- it's less than $2 million, $1.5 to $1.7 million was what was paid out in the month of March associated with U.S. piece.

Okay.

The piece I was talking about for the future, this next quarter, April through June, as we announced would be a component that would be accrued this quarter because of the accounting rules were -- the time for exiting Altamahal, which by the way is on schedule, is May 1st, so we will be accruing the impact of this quarter. And most of this impact is lease cancelation accrual. That lease will continue from a cash standpoint, will be paid, and the way it's set up from a timing basis, almost 50%, 40% of that is paid in the last year of the lease which is five years from now.

Okay.

That's good from a cash standpoint of when it goes out the door.

So -- so just -- I'm sorry to belabor the point but just to recap. So really in the results in terms of working capital and everything else when I look from cash flow from operations roughly $2 million of cash costs last quarter, about $6 million this quarter, and then you just have the ongoing lease payments that you already have. But you'll have to accrue for them all upfront.

Well, I don't believe that the -- the cash -- the cash payments for the closures in England and -- and Ireland will be completed by the end of June. It will be probably more like the end of August.

Okay. So kind of spread that out over a couple quarters.

Yes, yes.

Okay. Thanks, I'll get back in the queue.

Thank you. Our next question comes from Ethan Schwartz from CIC Capital.

A couple questions. First on Parkdale. Could you give us what the last quarter and LTM revenue in EBITDA were and also what the most recent cash and debt on the balance sheet were?

Um, their most recent -- recent disclosure on cash, they're about the same from a cash perspective. Their cash at the end of the year I believe we said was somewhere over -- around $53 million. Their cash is very similar to that number, I believe it's just south of $50 million, somewhere between $47 and $50 million from a cash standpoint. The other component of your question was what was their -- what was their -- what was the number last quarter, was that your question?

The -- also the current debt of the company, and then the EBITDA and revenue in the most recent quarter and -- and last 12 months.

Well -- I don't have their -- I actually don't have their financial statements in front of me. As you know we are -- we have 34% of that so we -- we pick up their results as an equity affiliate. I'd have to get back to you on those specific numbers. On -- on Parkdale because they're not -- they're not in front of me.

Okay. But do you know if they were EBITDA positive in the most-recent quarter or --

They -- they had a most-recent quarter they probably were -- and I'm only -- I would be guessing because I know what their depreciation rate is. Our share of the loss was, as you can see, 6., about $6.6 million.

Their total loss was about $18. Their depreciation is somewhere around 22. And that's about all I can tell you. So at this point, without going actually and looking at the figures so I won't guarantee it I don't have another component that I would need to adjust that.

Okay. That actually -- you have answered all my other questions. Thanks.

Thank you. Our next question comes from Tom Lewis from Bratkous [ph] Research.

Yea, first question. Should we understand that $4.8 million item with respect to your minority interest has -- you know, the way we understood it when the deal was formed, 15% of an operating loss, natural text rising, or is there something else there?

That -- that's it. And of course -- now there's a -- there's a -- in the -- in this quarter, some of the -- the asset write-offs, occurred in that -- in that particular business. So 15% of that number that -- the write-off there was a write-down of assets of about $25 million. So 15% of that's what -- that number's being driven by 50% of the write-off.

Okay.

Primarily. That's built in there.

Were your write-offs large -- domestic write-offs largely concentrated in polyester or spread into nylon as well?

That was -- no nylon, that -- the two components of the -- of the $38 million was $13 million of goodwill, which was registered on the books, which by the way was the last remaining component of goodwill. And the second is the asset write-off I just mentioned of $25 million, which is related to those assets at UTP.

Okay. The other question following up, you know, with respect to Parkdale. I mean, we all understand how volatile cotton got late last year. And -- and -- and so it -- it seems plausible that the -- that whatever profits they had was -- with the future may have been significant. Can you speak to how much of that is driven by ongoing business trends that carry over in the current quarter?

Yes. Well, first of all let me say that we -- the current advice we have from them is they hope to expect to return this current quarter to about a breakeven for the business. And in regards to this current quarter, about $7 million of the total results were related to -- at the operating level.

$7 million for the total entity?

$7 million for the -- of the loss that they incurred for the quarter was related to -- specifically on an operating basis, not to futures contracts.

Okay. All right. I guess that's it for me, thanks.

Thanks, Tom.

Thank you. Our next question comes from Marianne Menziolo with [inaudible] Capital.

Yea, hi. I was wondering if you could discuss your domestic business some more. Where do you see the increased volume? Is it on the apparel side? Is it on the automotive, on the home furnishing and then also, you know, what backlogs look like or were you going to -- you know, whether these, you know, higher, you know, volumes continue into the current quarter?

Marianne, I think -- I think we've seen a slight uptick across all our business, socks and -- probably the exception would be automotive is not -- has not picked up like everything else. So I think with the exception of automotive and perhaps a little bit of the upholstery side, apparel, socks and the other sheer hosiery, et cetera, have picked up. It's very difficult to understand what's driving this.

Our -- our visibility on -- on volumes still remains, you know, a week to 10 days out and, you know, there is a confidence in the marketplace that hasn't been there for some time, but, you know, it's difficult to take confidence to the bank. And so we remain -- we remain, you know -- to be convinced that it's a -- if not just a kick-up due to quarter (inaudible) and that quarters running out that type of thing. But it's been generally overall.

When you say it -- you haven't seen this thing on the automotive and the upholstery side. I would have thought those were two areas where you would have seen strength. I mean, you see furniture sales being quite strong and, you know, auto sales also, you know, being quite strong.

Auto sales in fact are down. Just knocking around $16 million level.

Uh-huh.

And, you know, the -- we've seen apparel sales definitely up across the board and as far as your retail, even -- is up -- is up as well. But there is -- there is a -- there is a season in effect here that sometimes, you know, the -- we were selling yarn might be three months ahead of when you see it pick up at retail.

Uh-huh.

Right now for example, furniture market is an indication so far from that have been that -- that it's -- that there's a strong sentiment there from the buyers. So that will translate itself into business in -- in several months from now.

Uh-huh.

And I expect -- I expect the automotive will pick up at around two as inventories are -- are reduced and they start producing again.

And then regarding China, when you say other opportunities have come up, are these opportunities then for joint ventures, for -- or to buy existing companies, or could you elaborate, you know, on what you mean by additional opportunities have arisen?

I think you've mentioned the two -- the two quite accurately.

Okay. But yet you feel the fastest way to get moving in China would be through a Greenfield operation?

Well, if you look at the thing very clinically and you look at the process that one goes through to get approvals for wholly-owned enterprise, we have -- we have determined for sure that -- that the wholly-owned enterprise is the cleanest, neatest way to do things because it's just one party. When you get involved with a second party, it increases the complexity. And that's why -- that's one of the reasons why the -- the so-called woofy is a preferred quicker route. But it's not the only route and I think, you know, our goal as I said last Wednesday our goal is to build us to a $500 million plus business. And, you know, to do that on a Greenfield is going to be, you know -- is going to be a major task without being involved in some form of relationship alliance or JB or acquisition or whatever. To get on the ground there quickly, we just need to look at all these opportunities.

How important is it do you think for you to be there, you know, in '05 with all the different changes going on with the quotas?

You know, the -- the whole quota thing is -- you know, I think during the course of the latter half of this year, things are going to, you know, level out I'm sure. We are seeing some -- some pickup perhaps at the moment because some of those quotas now in recent years quotas could be drawn or pulled forward from the following years. But that cannot happen this year. So, it means that when they are out of quotas, some of the buyers in the west are starting to use local suppliers, that type of thing. But I think China -- China -- if you look at China, look at the -- how -- how big they are, you know, in terms of -- of textile, they've got -- they rank number one in the world as a supplier for industrial fabrics, for furnishing fabrics and apparel fabrics and that's a fact and they're growing -- you know, they're growing at a very high rate. And we've no reason to believe that's going to change.

Uh-huh.

I think -- at the moment I think the experts are saying that the other areas and countries will be impacted by -- by the quotas coming out. As much as -- as any country -- as any area. I think the U.S. and Europe have the most -- most of the damage has already been done.

Uh-huh. Uh-huh. All right. Thank you.

Thank you.

Thank you. Our next question comes from Justin Orlando from Dulce [ph] Partners.

Thank you very much. Going back to China, should we assume that the Greenfield presentation to the board was missing or not compelling enough in terms of the definition of its opportunity or should we assume that the other alternative by their very nature superior to the Greenfield alternative?

Um, well, you see, certainly you have been speculating obviously.

That's why I'm asking you.

Yeah. That's a good question. You know, I think we -- the board -- I mean the board have been well aware of the -- of the Greenfield strategy for some time. It was always an alternative.

I think when we talked today about the -- about China strategy, I shared with them some of the -- or all of the options that we had and we wanted to consider. And, you know, at this point in time, I couldn't tell them one way or another whether these options were -- whether I could take -- take them to the bank or not, because until you go there and they're on the ground and discuss the issues and so on, I cannot determine until we get to that point.

So I think the reason we're not -- we're not going with the woofy today as showing any sort of business model or projection is simply that when these other options are evaluated, we don't want to come back with another story. And I think we've got to look at the reality of -- of the -- of the situation. The situation is evolving as we speak.

We, by -- by ceasing negotiations a couple weeks ago with Kaiping, we precipitated a lot of interest. And -- which is the good news. And I think we're just taking time to look at those opportunities, evaluate them properly, and see what is best for Unifi and for our shareholders. I mean, there's nothing -- there's nothing -- there's no -- there's nothing untoward that happened today that changed our situation.

Well, with your permission, just -- just let me -- just allow me to follow up and respectfully just pursue this. It -- it's clear that the Kaiping alternative was superior to the Greenfield alternative when you entered into it. The Kaiping alternative being eliminated would have suggested that the fastest opportunity was Greenfield.

Since you haven't presented that to us today, it suggests that the other opportunities are on the surface clearly superior to the Greenfield opportunity, otherwise why take the time and effort and not immediately come out with a discussion of your own Greenfield opportunity? So I guess I'm -- I'm really trying to push to understand if we should assume that the Greenfield opportunity is, for many reasons, capital costs, time, et cetera, a less likely event to happen?

I don't think we can say that at the moment, Justin. I think we -- the other options we look -- we have to look at all these options. There are many, many moving parts involved here. You know, there's a huge issue, for example, came out last week like power. There's a serious lack of power in certain areas of China. And, you know, in some cases it's a -- it's up to 20% -- 20% shortage in power for the -- for the -- for certain areas.

So we've got -- what we're looking at is we don't know whether these options are better or not better than Greenfield but we have to take a look at all the factors involved, see what's involved, it may get us on the ground quicker, it may not. It may be better financially, we may get into profit faster through this -- these routes or not. We have got to look at those to see what exactly -- I mean when people -- when you -- when we're presented with an opportunity, it is not a definitively articulated opportunity, it's one that is -- would you like this or could you do this or could you do that?

And it's -- although it's very strong and very compelling, we've got to put some teeth into it. We've got to put some facts around the option. So what we're doing and what I'm doing starting Monday morning is evaluating those options and seeing how realistic they are, what they mean.

And quite frankly, it would be compared against the Greenfield model, which we still believe is the fastest way to get on the ground, but we have to look at these and see and compare them against that. So I don't think you can draw the conclusion that -- that -- the other things we're looking at are better than the Greenfield. That's not the case.

Thank you.

Okay.

Thank you. Our next question comes from Jeff Kobilarz [ph] from Solomon Brothers.

Hi. Can you comment about your capacity utilization in this March quarter versus the December quarter in the U.S.?

It's up probably about the same as what we see the volumes up. We are probably in some areas, you know, we're running -- we're running full another areas we're running 75%. Last quarter, maybe down a little bit less than that.

So we just take a look at volumes, you have to kind of translate it from that standpoint.

We have basically idles the excess capacity that we -- we have had, so we've been managing our business and our assets around the sort of levels of sales that we've been experiencing over the last few quarters. So the capacity that we've allocated to -- to manufacturing, has been running close to capacity this last couple months.

And it's probably -- you know, on a capacity basis it's probably up, you know, 5%, 7% kind of range based upon what we know that the throughput was.

Okay. And Bill, can you comment where you are on your product line review and how -- can you tell us how much in orders you're turning away that you think are unprofitable?

Well, that's an interesting -- it's a good question. It's an interesting issue. We are -- I'm in -- I would say that I'm in the first third of that review and we, as I said, we are going through it, you know, by product line. And at this date, we've had -- we've actually had very few that we've -- that we've had turn away as a result of some of the changes we've made.

In some cases we have not accepted new business. And I can't quantify you that today but we have turned away some new business that was not profitable business as it would have come in the door. So I'm not far enough through that to actually put -- put a number on it that we can translate into going forward.

We will be able to do that when I get that done. I am starting at different facilities and with different business groups next week to continue that and -- further in-depth. So we will it go -- we'll continue to see momentum on that going forward.

Okay. Good. And can you comment in general, Bill and Brian, just how much cash you'd like to keep here in the U.S. for general corporate reasons?

Well, let me address it a different way. I think I've said this on previous calls. I think people are interested in how much cash it would take to run the U.S. business.

We typically see our cash fluctuate any given day, any given quarter from a high to a low of somewhere around $20 million, so it's not a huge amount of fluctuating figure during a particular quarter. So it doesn't necessarily mean then that you have to have $20 million of cash or $10 million of cash. We have a revolver with plenty of liquidity under it with only that little bit of fluctuation throughout the quarter.

So I think it's better for me to communicate to you that because $10 million cash or $5 million cash any one given day in a quarter would only be $15 million into your revolver as your worst case is not -- is not necessarily a bad position to be. We have not pegged an actual cash number at this point but that's the fluctuating -- the amount.

Okay. So then is it -- you could then invest the balance in China then?

If that's where we needed to put some of the cash, I mean that's where -- where we would certainly go. We have -- you know, we have $53 million cash available. We haven't disclosed how much of that we will use. But when we determine how much that is, we will make sure -- we will make sure that the U.S. business as it exists today has sufficient liquidity to continue to run on a long-term basis.

And then lastly, the minority interest income was up quite a bit in this most recent March quarter. Can you explain why it's up so much?

That again has to do with the -- the -- as a part of the restructuring, as I said, 25 -- there was a $25 million writedown of facilities and equipment. That $25 million occurred as a part of the UTP business, which is the Burlington minority interest. So that -- that's why that spikes up so high in this particular quarter. It's really related strictly to that writedown.

All right. Thank you.

Thank you. Our next question comes from Dennis Rosenburg from Credit Suisse First Boston.

Hi again.

Hi Dennis.

Could you update us on Parkdale's antitrust situation, what's going on there?

We really -- Unifi doesn't have any additional information from what we've imparted to our shareholders in the past. We have not been provided any additional information either by Parkdale or the justice department as to any new news. We assume that -- that there will be something public on it through the fact that there are potentially others involved that eventually it will -- when the DOJ investigation concludes, there will be something on that. But we have nothing further at this time.

Okay. What about the worst case -- if you had to write a financial report of part of your investment, (inaudible) debt covenants?

The only -- the only issue that maybe you're referring to is -- is we covered this on one of the last calls, is a covenant regarding, on the bond -- on the bond that -- if -- a certain percentage of our essentially our net assets, minus our -- our current liabilities, it falls below a certain amount if we have secured debt.

There's an issue on the -- with the bonds becoming secured. But other than that, there's no -- there's no bank covenant issues in regards to that. But I don't -- I don't believe that that -- that calculation would even kick in if there was an issue there in a worst case scenario. We have enough other total other assets from that standpoint.

Okay. And on the last call when you announced Kaiping, you alluded to the fact that you might be back in the marketplace either to buy stock or to buy your debt. Have you been back in the market place or do you plan to be?

We have not and if we -- because we actually formally suspended the program after the company would choose to do that, we're advised the company would have to make an announcement that we were going to do so. So that would be public -- a public announcement if in fact we chose to make that decision.

What's the board's leaning on that?

We did not discuss that at the board meeting today so it would be presumtious for me to say anything in regards to what the board thinks about that.. We hold it always as an alternative while we are still evaluating our China initiatives, we'll still probably hold where we are today, but if we would -- we would choose to do otherwise, you would know about it before we did it because we have a public obligation to say we're going to do it.

Thanks.

Thank you. Our next question comes from Brian Hunt from Wachovia Securities.

Thank you, Bill. You touched on this, but could you go over what you believe the -- the cash generation opportunity is in the fourth quarter just from working capital?

Working capital, movements on working capital on kind of a per day basis is worth about a million and a half dollars. And receivables, moved up, as I said, the wrong direction on us this quarter for a couple reasons that we are in the process of -- of making sure it gets fixed. You know, we're working towards getting back to the -- a 53-day kind of level where we were and then working forward. So if you move it seven days, if you -- if you move receivables five and seven days, you can figure about a million and a half a day, so that's -- that's $10 million to $11 million.

Okay. And then on inventories, is this -- is this a higher level that we'll see at this volume level because of higher raw materials or -- I mean you had inventories build roughly $5 million from a year ago, and from a sequential period, or is this due to maybe the confidence in how strong the business is currently?

Um, I think it did build some from the volumes we saw pickup in December, however I think as a general theme, we intend to work on moving our inventory levels lower. I believe that they are higher than they need to be. That's one of the things I have not been directly involved with in the past and in my new role I will be getting involved with very quickly. So our general rule of thumb is that we were -- our focus is to try to reduce the level that you see. You see there. It's -- you know, December -- December also had the effect of December shutdown, so we don't see a build in December. But just in general, though, our focus is -- is to see where we can take the inventories a little lower.

Okay. And, also, I know you had extraordinary payment I guess in the December quarter to catch up on some payables.

Correct.

You did creep back up about $15 million, do you think -- feel like this is a sustainable level or is there some more room to fix in your payable figure?

I think you're going to see us -- we're working on that side as well so I think there's a little more -- there's a little more room there as well. And we're working on that -- that side of the working capital equation.

All right. And then your deferred taxes in -- in the working capital are -- adjustments that were taken on a cash-flow statement. It looks like your long-term deferred taxes drop by a $25 million figure so far this year. Was that an actual cash payment out the door or is that because of the asset --

That's because of the restructuring, the charges that ran through on restructuring related that hit the deferred taxes.

Okay. All right. Thank you very much.

You're welcome.

Thank you. Our next question comes from David Richards from Raymond James.

Hi. I just wanted to touch base on the supplier situation. You know, as you -- you said that you're so far so good with the new owners of the Invista. Who else is providing you with polyester supplies and is it anything material in terms of volume?

By the way the Invista -- the Invista, we -- just to correct what you said there. We have not completed the -- the transaction with Coke as yet so we're still dealing with the Dupont and Invista company. The second supplier we have there is Nannia Plastics, South Carolina. And they're -- they're re -- they reflect about -- maybe 10% of our -- of our polyester usage.

Okay. Great. Thank you.

Thank you.

Thank you. Our next question comes from Justin Stetch from Bank of New York.

Hi. It's actually Michael Roe. Can you provide -- last quarter you provided the volume and price changes for polyester and nylon. Can you provide those four numbers for this quarter?

Volume and price change?

Yeah. For the nylon and polyester.

Thank you. Our next question comes from John Droosier from Pinnacle.

Hi, good afternoon.

Yes, by the way we'll get -- on that other question we were just looking at the data here to provide that but go ahead with your next question.

Could you tell what yous the headcount was at the end of the quarter?

Worldwide head? It's the same with the -- we had reduced headcount as a result of the restructuring, approximately 400. If you can give me just a second. It hasn't -- it hasn't changed dramatically, from what we put out on restructuring in March -- on March 2nd, which I believe probably puts us down around 3,700 worldwide. We were around 40 -- 4,100 I think was the --

The year-end (K) says 4,500.

The year-end K was -- that's based upon June.

Yeah.

And reductions occurred in September, they also occurred, as a result of the restructuring we announced in March. So I believe we were at 4,100 or so in total, so I think it's slightly below 4,000 at this point. We're getting that -- that number for you right now.

Okay.

We'll --

Will there be further reductions in headcount by the end of June?

We're evaluating -- we continue to evaluate where we need -- where we need people and where we don't need people. I can't speak to that -- make an announcement on that at this time.

Got you. The other question is, what is the targeted SG&A level, either in absolute dollars or as a percentage of sales for the current business, excluding China?

Well, initially we're working to get back below -- back below the 5% level. We're -- we believe that the restructuring that we just announced gets us back somewhere around the 6% level, based on current level sales.

Right.

We believe that there's some additional of 1 point that we can work toward. It won't come overnight but we'll work towards that. And back to your question by the way on the employee headcount, we had -- we had about almost 4,200 employees, 4,160, approximately, before the announcement of the 400-plus employees in the first part of March. Which actually includes those who will be exiting as part of the closure this May in [inaudible] North Carolina. So that would put us down to somewhere around 3,800 or so, 3,900.

Very good. Thank you.

Thank you. Our next question comes from Marianne Menziolo from Stansfield Capital.

I wanted to talk about the EBITDA reconciliation you provided. You're not adding back the minority interest or the other income or expense. Of those two items, are they cash or non-cash?

Minority -- minority interest is not -- is not cash. Hang on, let me get to the -- your two items were which, Marianne?

And then the other income or expense I believe that was $2.6 million.

Most of other income and expense probably is -- what we tried to do here was -- not necessarily get you to a cash position, but to get you to a -- an earnings before interest depreciation and amortization, taking out the anomalies for the quarter. There's a difference between getting to a pure cash amount and EBITDA that's been adjusted, so what we've tried to do is to give you an adjusted EBITDA by clearing out the -- the equity and income affiliates that would have been in our earnings number that's not really affected as part of our EBITDA, and then the restructuring charges both the $20.8 million and the $38 million and then we took out the benefit of the gain on the sale of the assets. So look at it as an adjusted EBITDA for just of those items. It's not meant to be a cash flow that -- that drives directly to a cash flow for the quarter.

Uh-huh.

That's all cash items. Because certainly there are items that are in the earnings -- the starting point that are not cash.

Uh-huh. Uh-huh. And the equity and unconsolidated affiliate that,'s Parkdale, right.

That is more than Parkdale but that is 99% Parkdale on that number. The other -- the other smaller equity affiliates are pretty much a loss.

And again the minority interest number, I really didn't understand your explanation before as far as the charge of $20 some million in the -- you know, what it related to.

We had a -- as we said, we had a -- we had a writedown of $25 million of fixed assets in that business.

In what business?

In the UTP business which we have minority partner of which has 15%. So when -- when -- just the same as you would have results for that business, when -- when that loss is recorded, they share 15% in both the income and 15% of the loss, so it's simply adding back to our books and records, the 15% that they share, since we had to consolidate it and it's 100% up on our numbers to start with.

Got you. All right thank you.

Okay.

We do have a follow-up question coming from Dennis Rosenburg from Credit Suisse First Boston.

And Operator, this -- we have time for this one last question and then we'll be have to conclude the call.

You said you expected to get back to a small operating profit in the first quarter. When -- at what point in time do you think your operating profit will reach your interest expense?

Will what?

When do you think you'll be profitable on a net basis?

You said in regards to my interest expense, so net net of interest expense?

Yeah. When -- when are we going to see Unifi report EPS in the black?

We have -- you know, we have the goal. I think if you look again -- if I go back to my statement that if you take the savings associated with restructuring, and extrapolate forward even from this quarter, you -- you get a view that operating profit along with some of the changes for -- in that first fiscal quarter will be positive.

And we're very close -- very close in that fiscal quarter itself of being a positive EPS. Again, I can't control, though, what might come through if the equity affiliates come to a negative, that's going to change that result on the EPS line that I'm not able to control.

So that's -- that's why, Dennis, I was trying to focus on Unifi stand-alone, because if Parkdale -- it provides positive numbers, it helps us. If they provide a negative number, it hurts us. So I'm trying to isolate just as far as giving you some guidance as to how the business is improving, is keeping it strictly focused on Unifi.

Okay. So when you said operating income, you -- was that before or after interest expense? Because I need to find out operating income before interest expense.

Well first of all, the operating profit, for instance, this quarter excluding everything was negative by $3.6 million, excluding the $1.2 million of additional charges. So I guess we'll refer to that number when I talk about operating profit. And then that is of course before interest expense. But -- but the savings that we've given you exceeds $3.6 million for the quarters going forward in '05.

Okay. That answers it. Thank you.

Operator, do we have many more questioners on the line?

No, sir, we actually have no further questions at this time.

Okay. All right.

Just Brian Parke here again. Just before I finish I just wanted to correct a statistic that I cited in last week's conference relative to the size of the -- of the market in China. The corrected number is the -- the total estimated size of China's value-added and premium value-added polyester yarn market is approximately 700,000 metric tons in 2004, of which approximately 600,000 metric tons are produced domestically, and over 100,000 tons are imported.

I just wanted to state that for the record. If there are any further questions about that number, please feel free to call me. Thank you.

All right operator that concludes our -- our presentation today.

Thank you. This concludes today's teleconference. Please disconnect your lines and have a great day.