Unifi Inc (UFI) 2005 Q2 法說會逐字稿

Good morning and welcome to the Unifi second quarter earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to introduce your host, Chief Operating Officer and CFO, Mr. Bill Lowe. Sir, you may begin.

Good morning everyone. Joining me on the conference call today is Brian Parke, our Chairman and CEO for Unifi. 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 that 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 on our 10-Qs and 10-Ks regarding various factors that may impact these results.

During this call we will be referencing presentation materials that can be found on our website at www.unifi.com. The presentation can be accessed by clicking the second quarter conference call link from the homepage. I hope that you'll have the presentation available as it will make it much easier to track through the information as we discuss the financial information during this call.

Now I will first turn call over to Brian for a business update before reviewing the financials.

Good morning everybody. Although we stated in our last conference call that we would not provide specific updates on the progress of our negotiations with Sinopec, that is the chemical fiber company, this would be counterproductive to the negotiating process. I would like to tell you that we are keeping to the expected timeline.

We're accomplishing specific tasks as per the timetable agreed with our partner. And believe that we will be able to get final government approval early in the third calendar quarter. In any case we will advise you when we reach the definitive agreement stage, and again when we have received all necessary regulatory approvals. Of course there can be no assurances that the transaction will be completed, but we remain confident of a successful conclusion based on the progress to date.

I would also like to take a moment to discuss the resent elimination of trade quotas. Our volumes at Unifi have held through the first half of fiscal 2005, as I believe we probably received some benefit from the elimination of quota carryover. We don't expect a major explosion of imports happening in the next few months. But believe that it will be the latter half of the calendar year before we can really measure the impact of these quota removals on our business and on our customers' business.

We have been preparing for quota removals for more than 2 years now, so we believe that we have the most effective business model and strategies in place to deal with the impact, if it comes.

In regards to Ireland, we have ceased production and wound up our business there as planned. The manufacturing equipment located in Letterkenny is now under contract, and the price is within the range that we had expected. We're working on the sale of the land and buildings with multiple parties and expect, again, to enter a contract sometime in the current quarter.

As you know, we are looking at the monetization of these operations to fund the joint venture in China. And it appears that we will successfully complete the liquidation of the land, buildings and equipment in line with this timetable.

Regarding our Kinston acquisition, the first two phases of the integration of this facility have been completed. And we're now -- and we are extremely pleased with the progress and results of our first 90 days of ownership. We have initiated a 20 percent wage rate reduction and instituted Unifi fringe benefits to conform to the textile industry base, which have resulted in reduced overhead and SG&A expenses relating to the business.

We have also completed the shutdown of Y5 (ph) in Kinston, which is one of the nines (ph), a move that resulted from our exiting of unprofitable products, as well as our ability to freely transfer products between our Kinston and Yadkinville facilities.

We remain on target for phase 3 of the integration, which will shutdown an additional line in Kinston early in March, ahead of our original schedule of March 31. We will then continue to rationalize the product mix between this facility and our Yadkinville facility. Meanwhile we continue to review and revise the list of unprofitable products that we have and exit any products that do not make money.

We expect to reach a steady stage that enhances our overall domestic potential in the second quarter of next year. We will continue then executing our plan of integrating and rationalizing the product mix between both facilities as we move through the year.

Regarding our business, our general business conditions, one of the largest issues we have faced in the last 12 months has been the increase in the price of raw materials. We have been increasing our prices to match these increases. And although there is generally a time lag of 30 to 45 days before are able to pass along these increases, our price increases which were effective January 1 we believe we will have effectively covered prior increases in raw materials.

We're cautiously optimistic regarding overall volumes as we enter a new calendar year which brings with it new challenges. We're continuing to review our product mix and are continuing concentrating on increasing the sales of our higher added value products, and bringing new innovation to the marketplace.

Now I will turn back to Bill to review the financial results for the quarter.

I will begin my comments on slide 3 if you are following along on the presentation on the website. Net sales from continuing operations for the current December quarter were 208.5 million, which is an increase of 42.2 million or 25.4 percent compared to net sales of 166.3 for the prior year December quarter. Net sales volume for the current quarter includes sales from the INVISTA polyester manufacturing assets in Kinston, North Carolina which were acquired in September of 2004.

POY sales from both Kinston and our Yadkinville facility accounted for approximately $40 million of this increase. The price component of sales was up approximately 16 percent and volume declined approximately 12.5 percent. This volume decline is directly related to our efforts to exit nonprofitable products and was in line with our expectations.

The pre-tax loss of 7.4 million that is reported for the current quarter includes 3.8 million for bad debts, which is reported in our other income and expense line. Generally we reserve approximately 500,000 per quarter, so there was an additional $3 million added this quarter.

As we implement our strategies which we have discussed with you in the past, we unfortunately put some of our customers in difficult situations. While we regret this outcome, Unifi cannot continue to absorb losses on negative margin products or provide payment terms that exceed the industry norm.

We were close to breakeven for the quarter in terms of operating profit from continuing operations. We reported an operating loss of 327,000 in the current quarter, which is a significant improvement over the 6.7 million operating loss incurred in the prior year December quarter. The continued positive trend in operating profits and continued operations remains as an indication that our underlying business is improving as a result of the strategies and actions taken over the course of the last 12 months.

SG&A expenses for the current quarter were $10 million, or 4.8 percent of sales. This compares favorably to SG&A expenses of 11.8 million or 7.1 percent of sales for the prior comparable quarter, and marks further improvement from the 5.3 percent of sales reported for the September quarter. We expect this percentage in SG&A to continue throughout the fiscal year as we continue to realize the benefits of our restructuring, consolidation and product rationalization efforts.

Interest expense is up approximately $500,000, which relates solely to the Kinston financing. We are reporting a net after-tax loss from continuing operations of 4.5 million or 9 cents per share for the current December quarter. And results from continuing operations for the current quarter are an improvement over the net loss of 7 million or 14 cents per share reported in the prior year December quarter. Including discontinued operations and net after-tax loss of 7.7 million or 15 cents per share compares to a net loss of 9.2 million or 18 cents per share for the prior year December quarter.

On slide 4 you will see results for the first half of fiscal 2005. Net sales from continuing operations for the first 6 months of fiscal 2005 were 388.6 million, an increase of 58.6 or 17.3 percent compared to net sales of 330 million for the prior year comparable period. SG&A for the first 6 months of the fiscal year were 19.5 or 5 percent of sales compared to 24.2 or 7.3 percent of sales for the first half of 2004.

As reported in the press release, the Company reported a net loss from continuing operations of $6 million or 11 cents per share for the first half of fiscal 2005, which compares favorably to a net loss of 9.6 million or 18 cents per share for the prior year first half. Net income, including discontinued operations for the first half of fiscal 2005 which includes approximately 20 million on associated charges related to our facility in Ireland, was a net loss of 30.3 million or 58 cents per share. This compares to a net loss of 13.8 or 26 cents per share for the prior year first-half.

A review of key components in our balance sheet can be found on slide 5. We ended the December quarter with 53 million cash on hand, which is an increase of 7.3 million over the September quarter. Our long-term debt has increased as expected given the Kinston acquisition which was seller financed at $24.4 million.

The Company ended the December quarter with net working capital of 202.2 million, up 42.4 from September. And for this purpose, to simplify matters we have defined net working capital as Accounts Receivable, inventory and Accounts Payable. Inventories for the current quarter were 153.3 million, or an increase of 35.4 million over the levels at the end of September. Inventories increased approximately 33 million as a result of the Kinston acquisition. And there was an increase of approximately 10 million in our Brazilian operation.

Brazil's increase was partially impacted by our decision to move POY inventory from our Ireland enclosure to simply avoid putting that POY on the marketplace at reduced prices. This accounted for approximately 30 percent of the increase in Brazil. The balance relates to finish goods inventory related to the resale program which we discussed with you last quarter. We expect this balance in Brazil to decline between now and the end of our fiscal year.

Receivables also increased as a result of Kinston. Our existing business actually had an improvement or a reduction in Accounts Receivable as reflected in our DSO. Our DSO for receivables declined from 59 days in September to 51 days in December.

Turning to side 6, EBITDA for the quarter was approximately 9.7 million, which is an increase of approximately 1 million compared to the prior year December quarter. If you recall last year included in our results was an Alliance benefit of $7 million. So the improvement year-over-year is close to $9 million.

We benefited this quarter from a onetime tick up from the opening balance sheet at Kinston and some rationalization savings coming into the quarter that we did not expect or forecast until sometime now during our third fiscal quarter. The quarter was also positively impacted because our two-week holiday shutdown actually straddles two quarters, with the second week falling into our January results. This will have some negative impact to our the third quarter versus the prior year.

Our forecast of 2005 EBITDA of approximately 45 -- 47 million remains on target. And this forecast includes the impact of transitioning the Kinston facility over the course of the fiscal year.

Slide 7 provides a reconciliation of our EBITDA calculation which I will not review at this time. But we continue to make it available to you so that you can determine a basis upon which you might calculate EBITDA differently than the Company.

Slide 8 details major components of cash flows. Because discontinued operations fees blurs the cash flow somewhat, we have broken the schedule into three columns to provide clarity for you. A couple of items to note on this schedule. The net change in domestic working capital was fully due to the receivables at our Kinston facility. The change in the foreign working capital relates to Brazil, as I have already covered with you. And the return of capital from an equity affiliate was the dividend which you talked about in our last phone call related to our Parkdale investment that was received in the first part of this quarter into December.

My final remark is to reiterate some of what Brian said about Kinston. The team has executed very well to date. We're ahead of schedule on some items, and the performance from the first 90 days exceeded our expectations. With that final remark that concludes our update for the December quarter. We will now open the floor to questions.

(OPERATOR INSTRUCTIONS). Dennis Rosenburg, VSR (ph) Investments.

Would you expect sales in future quarters to be pretty much in line with the second quarter level?

I think pretty much in line. I mean again because it is with Kinston having their sales in there and our Yadkinville spending now having third-party sales of POY, it is pretty much in line. Typically there's a bit of -- traditionally the second quarter is a little bit weaker than the others. However, because of the shutdown period straddling January I think we might see a more flatter picture.

Dennis Rosenburg Given the improvement, the benefits of Kinston what kind of trend do you see in the gross margin going forward for the rest of the year?

As we move through the process of transitioning Kinston we won't see a steady-state margin number really until we get into next fiscal year as we have already talked about. There are some expenses that come along with making the transitions and the shutdowns, which will have I guess a suppression on margins for the next quarter or so. I don't see -- I'm not expecting any major increase in the span of margins in the next quarter.

So we're looking at pretty much maintenance of the 7 percent gross margin?

Initially. I mean with the improvements, as we have said it will take us through this fiscal year to complete the full transition of Kinston and fully realize the benefits. So we'll see some increase. We would expect to see an increase in the fourth fiscal quarter and then fully ramped up into next fiscal year.

Next fiscal year? What type of gross margin ex China do think you could achieve?

Well, let me go back to what we have told you in the forecast to give you a specific number which we still hold to. We said that we expect that from an EBITDA standpoint, and this is what we publicly said previously, to still be around that 73 million EBITDA mark. I think you can work up from there.

Where do you stand as far as getting out of unprofitable businesses? How much more is left to go and could that result in any additional unusual bad debt expense?

I think we have probably seen the worst of it from that standpoint. As I mentioned in my formal remarks there was a volume decline representing about 12 percent. That was in line with our expectations. There could be a little more of that but I don't think it is significant enough that it is going to put the kind of pressure that may have occurred this particular quarter on some of our customers. So I think we're through the worst of that. We continue to monitor it, but we're through -- I think we're through the bulk of it.

Finally, could you just comment on Parkdale's results and outlook?

Parkdale's results included our numbers this quarter was a positive of approximately $400,000 of income for the quarter. They are for the full fiscal year, for the 6 months ended December I believe they are about 1.1, 1.2 million positive for the first half.

What are you expecting the back half?

I'm expecting a similar trend.

John Beale (ph) of Standard Pacific.

Did you say there were was no Alliance payment this quarter, right, or nonaccrued or anything like that?

We don't have Alliance payments in this quarter.

Okay. So that's done. And, I'm sorry, did you just tell Dennis that it was -- that for fiscal 2006 you expected 73 million of EBITDA?

That's right. And that's what we -- we're just reiterating the same number we said in the past. Yes.

Josephine Shea of Morgan Joseph.

I was hoping whether you could give some more granularity on the prices and volumes. Can you say what the average price of polyester and nylon was during the quarter, and especially compared to previous quarters? And what you think it will be in the coming quarter?

Well let me do it a little differently because from a competitive standpoint I would prefer not to put specific price for pounds on this phone call. But what I can tell you it is that from a pound standpoint our pounds -- pounds exclusive now -- I'm going to give numbers that we exclude -- excluding POY sales which are Kinston and Yadkinville spending, which previously Yadkinville before the Kinston Kinston acquisition did not have any third-party sales.

Pounds were down in the business. Let me just give you -- in the overall business -- this would be both nylon and polyester -- pounds were down about 14 million pounds. So volume declined about 12 percent. Prices on the other hand were up about 16 percent. And that is about from the impact that runs through our cost of goods sold on a raw material basis. That is just about what raw materials have done for us as a percentage of our cost -- if you take the percentage of our cost of goods sold.

As Brian said, there is a time lag, so where we saw price increases in the month of October and November, we may not have been able to pass those along in the same month. In fact we have price increases, as Brian said, going into effect in January which gets us back whole. So we do have some time lag where we might have been hurt on the timing, but we're keeping up with it effective January 1.

Excuse me. So the 16 percent price increase that you just mentioned, is that realized?

Yes, that is what occurred during -- through the December quarter. That's correct, with the effect of the lag.

And some of these effects -- and in January there are other price increases, correct?

Yes, there are increased prices in January to take into account prices we have already -- been consumed from a raw material standpoint in the month of November and December.

Can you divulge what number that is?

What our price increases are?

Yes.

It is about an additional 10 percent.

Including the time lag we can only -- we probably will see a result in let's say March. Is that fair to say?

An increase in margin?

No.

Again, it is going to be I think -- there will be a slight impact in that. But again we have, as I was saying to Dennis, when you take into account as we're moving products from Kinston and Yadkinville back and forth there is a suppression on margins that occurs as we're transitioning Kinston. But I think we will hold down any pick up we'll see from just the time lag.

Right. So -- but if you increase the prices in January you said there is always a time lag, so probably we won't see a full 10 percent price increase for the whole quarter? So on average it will be lower, but it will be back end where you get the higher impact? Is that correct?

I think you'll see it phase -- it is phased in pretty much. It is hard to say what the actual number will be. It is phased in for the quarter. Not everything is effective January 1. So it will be phased into the quarter. I don't know, Brian, if you wanted to comment?

I think the prices have been going up since this time last year. And they have been going up at different months and different -- nylon went up in a different way than polyester for example. We have been passing on those prices obviously at rates -- it was a very difficult process, because as you can imagine the industry that we serve is under pressure and they have difficulty passing on prices. So we have been pushing those prices through as well as we could over the year.

And we have lost business as a result. Some of our customers have either got out of business or gone elsewhere. But over the course of the year by the time we got to December we still had an overhang in being able to pass on all of the price increases that we experienced through the year. And with the price increases -- price increase that are going into some of the products are additional price increases to adjust the difference between what we -- what we picked up in terms of added cost -- will have come into effect -- come into effect January 1.

So through this quarter we're going to see some small pick up in margin. Quite frankly, it is impossible to give you a number on that because it is such a complex matrix of products and price increases. But the bottom line is that there will be a very small pick up in margin.

And lastly, on your international operations, Brazil seems to be doing quite well last time. Can you say anything there on volume and pricing?

I think Brazil continues to perform extremely well. The November, December, January period is summer time down there and business tends to slow down. And right now in the last couple of months it has been fairly competitive, and we have seen a slowdown in sales in comparison to last year. But the forecast is for that to pick back up again. But we expect it to perform to budget, and we have invested more capital there this past year. We have more capacity coming onstream as we speak. So we are very happy with the investment and we are optimistic about their continued contribution.

Marianne Mansiolio (ph) with Stanfield Capital.

If I understand it correctly on a pro forma basis your revenues for the quarter were up by 2 million, because 40 million of the increase you're saying came from the new POY business?

We were up -- revenue, when you take out the 40 million of revenues from POY sales, is that is what you are referring to, you would have only an increase of about say 2.5 million sales volume. And what I am saying is that what makes up that 2.1 million there is a price increase of 16 percent that would be positive, and there is a decline in volume of about 12.5 that nets out to that $2.5 million delta.

And then, Bill, if you look at the -- and as you're saying the volume declines are because of the unprofitable business that you were getting out of. If you look at your core volumes, the business you want to keep, what is going on there, and what is driving -- what is driving that business?

I think Brian touched on it. The business we want to keep, the volumes have been steady. They've been recently good and we're cautiously optimistic, as you said going forward. And there is somewhat of -- we have shifted our focus on higher value products and our mixed has moved more toward specialty apparel, the automotive area, upholstery.

So I think that is what is driving -- that is what is keeping us where we're at. And I think -- we said this on the last call, many of the products that we have exited through this process in the last 6 months were probably the ones under the most pressure -- that will come under the most pressure as we go forward because of quota relief. So we have forced that exit I guess early and actually improving the bottom line while doing that as we go forward. But I think changing the mix has been a big focus for us, and making sure that we're anticipating and right segments, and also focusing on the higher value products.

Are the volumes on those products up as well, or the volumes there are steady?

I think they have been steady over the last number of months. Our sale of -- PVA (ph) sales are probably up. We have talked about this a couple of quarters ago where I think we said our top value, our premium value products were somewhere around 3 percent I think the first time we mentioned to you a few quarters ago. There probably running around 5 percent today.

Of revenue? You mean 5 percent of revenues?

Some of that is because of the decline in the overall other commodities as well. But we have seen a very good success in the -- and our premium value added products. Recently regard our Sorbtek, Satura and Reflexx trade marked yarns. And we expect to continue that curve of increasing the percentage of those yarns.

Are you seeing any more raw material price increases this quarter?

We're waiting -- from a forecast standpoint I think we're optimistic that they might remain flat. Go up slightly and then remain flat for the next -- at least from our visibility -- the next 45, 60 days kind of thing. And then we will see what it looks like there.

The 73 million of EBITDA you are looking for fiscal '06, would that assume basically steady volumes, and then the Kinston facility running better? What are you basing that number on? What are some of the assumptions implicit in that?

Yes, to reiterate what we said on our previous call, what we said was on a steady-state. In other words, we didn't go out predicting any major boom or any major busts. We said in a steady-state. If you took where we had started our starting point was what we had expected to do in '05 without Kinston, because we baked in remain effective of Kinston to get where we are at today. We expect to recover all that plus another $4 or $5 million. So we're basically saying steady-state, current volumes. We expect it to be around in that 73 million once we fully integrate Kinston.

And then regarding Kinston, and I'm looking back at my notes and I thought I saw something about maybe 20 million of onetime cost with the facility. And I guess I'm a little confused. How much of these costs run through the P&L? How much of these costs are just like balance sheet-based where you are an investment in working capital? Can you talk about that a little more?

I will break it into two components. First, because of reducing the workforce, we did mention that there would be severance. Now that severance amount, which we estimated was going to be somewhere around $10.5 million, is an opening balance sheet item. So therefore it will show up on the cash-flow statement but it will not go through the P&L. Because it is -- under purchase accounting it is on the opening balance sheet, which actually ended up in our inventory value.

We had estimated initially that we would spend capital dollars, possibly spend up to an additional 10 million in capital dollars at Kinston to make the changes. We would say at this point that the likelihood of spending an additional 10 at the moment is on hold. We may be forecasting now that we won't spend that $10 million to accomplish what we need to accomplish over the next 6 months.

And would that be investments in like equipment or something (multiple speakers) capital?

That's correct. That would have been equipment investment that we probably will hold on. Hopefully we will accomplish our task without doing that. And then the third piece to your point was working capital. And I think you see the impact of that in this quarter when you look at the working capital effect that effectively $15 million of additional receivables in our numbers today that were not in our numbers a year ago because of not having Kinston. So those are three components of cash, both P&L and balance sheet, that we had covered previously.

But everything you've mentioned right now was not going to run through the P&L?

That's right. The major -- the only -- the key major expenses of P&L regarding reorganization will be some dollars related to some maintenance issues on equipment that are required to be done biannually or triannually. We'll see some of those.

So it is basically, you're right, most of the dollars associated with the reorganization will not go through the P&L. And so the change from where they are -- were before we purchased them, which is an operating loss, is simply taking -- as we said on our phone calls -- it is more rationalization savings than it is synergies. The SG&A is synergies but the rationalization costs of taking down lines 4 and 5, reducing the cost of the production labor, all those things that add up, those are reducing cost versus spending dollars to get the income.

Okay. So for instance, like I mean the 64 of EBITDA your see were looking for this year and the 46 you are really looking for post-Kinston, basically 18 million of cost. It is not money you're spending, it is kind of as cost you are incurring that you're kind of phasing out as the year goes on.

It is two things. Let's not forget that we had the Alliance payments previously baked into our forecast. In other words, before -- as we entered the fiscal year ended July when this transaction was not a reality, the Alliance was still in existence. And therefore in fiscal '05 we would have had each quarter Alliance payments of between 7 and $9 million a quarter. But those would have been in our EBITDA previously. Those is no longer exist. And then in addition, we pick up Kinston who was at the time losing a bit at the operating line.

So you're not getting 36 million ol Alliance costs, you are saying 28 to 36 million of Alliance payments?

Income. That's right. We had income previously in the past of around a 8 to 9 million a quarter. 35 to 36 million in a year was in our numbers that we're no longer receiving. So we actually are going to be -- if you just subtracted that -- and we said previously I think the net effect of the Alliance on our numbers was somewhere around 24 to 25 million a year. So you have to extract that from our previous forecast and then take into account what Kinston's operating results were. And that is how we end up going from the 68 we were forecasting to the 47 that we're currently forecasting today. So it isn't spending additional money, it is the exit of the Alliance and the taking over of Kinston.

And I'm sorry for all these questions, the revolver balance?

Zero.

And are the terms of the seller financed piece of paper available?

I believe they were filed -- I will doublecheck, but I don't know if they were files -- were required in any of the papers there were filed regarding transaction on an 8-K. I would have to doublecheck that. But let me just give you the key components. I mean we have said this on the last call. It is at 10 percent rate. It is a five-year note. It is 2 year -- the first 2 years is interest only, and the back 3 years are interest and principal.

John Discher (ph) of Pinnacle Value Fund (ph).

Nice progress you're making. A couple of quick questions. First, on the income statement for the quarter, Bill, what is the other income number, 3.3 million?

The other expense?

Sorry, the other expense, yes.

Yes, that's -- you can basically look at that as net effect of the bad debt expense of about 3.8 million and an other income item of 500,000.

What is the status of the sale of the Irish assets, the acreage then the two buildings?

As I said earlier on, we have two components -- three components in fact. One was the winding up of the business itself, which finished -- actually production finished in October. And the last of the goods were being now shipped through January. So that -- everything there has gone according to plan.

The second part was to sell the machinery and equipment. And the third piece was to sell the land and buildings. The machinery and equipment we have sold under contract to two different companies. And they are currently in the process of removing the equipment from the facility. The buildings and land have been -- have been advertised over the last number of months. We had a bid situation last December. We had a lot of interested parties. And right now the negotiations are taking place, and we hope to have that under contract sometime in the next couple of months, depending on how things go. But we are fairly satisfied that we conclude that within this quarter. At least that is our target.

Do you still anticipate proceeds of approximately 30 million or so?

Yes, we're still on target for that. The numbers that we're looking at certainly would put us in that ballpark amount. We'll probably -- if anything -- I think we said last time 25, 30 million or thereabouts. We still will -- we should be around the 30 mark. So again that is important from the point of view of our investment in China. And the timing of the cash will fit our timetable.

Once you're down, it sounds like you're going to be done rationalizing Kinston by the end of this year or thereabouts. Given that and kind of a steady-state flow of the current business, how much would you expect debt to come down between now and the end of the year, or will it go up?

I don't expect -- I'm not expecting debt to go up, but at this point I'm not going to forecast what excess cash that we may generate through a lot of the things we're doing and what that might mean to our debt, our debt balance. I would just say just generally though we're focused on creating through both working capital, sales of idle equipment both in Ireland and elsewhere within the Company, to generate cash overall to create an availability to pay down debt. That is a key focus for us this particular calendar year as well.

Bill, do you think there is much working capital that can be reduced at Kinston?

No, I think Kinston actually working capital-wise is in pretty good shape. The inventory turns are fairly quick. The receivables are reasonable. The work -- probably the place to get some or make some of that hay is as we have made some progress in the rest of the business. There's probably some still some inventory levels and receivable levels within the rest of the business that can provide some cash.

I guess finally do you have a CapEx number for the second half of the year at this point?

Yes, is probably -- we had estimated it for the year to be somewhere in the range of last year, somewhere around the 10 to 12. It is probably more on the 9 to 10 side at this point. I don't see any major items coming to date. We're a little -- from an annualization basis we have only spent about 3.5 million to date. Although we have a couple of other items coming here in this quarter. So I'm guessing still in that -- maybe in that 9 to 10 range for the year.

Rob Fork (ph) of Merrill Lynch.

You guys touched on Parkdale and suggesting a dividend and in expectations going forward. Could you provide us the amount of the dividend? What are the dividend expectations going forward? And then I guess lastly kind of the strategic nature of Parkdale and what are your thoughts?

The dividend -- the total amount of dividend received was $8.5 million. And that from a standpoint of what we expect going forward it typically fluctuates. There is not a general agreement that every 6 months or 12 months a set amount will be dividended. So it is predicated on their cash flows, what their business conditions are. What their expansion plans are and their needs -- therefore their needs of their own cash.

It has typically averaged somewhat less than 8 million. There was a couple -- a few years ago there was a fairly large dividend that would be considered unusual. So on a steady-state basis, I mean somewhere in a 5 to $8 million range is probably not out of the spectrum. But again it is predicated on what is going on with their business. So it is not guaranteed stream of cash from that standpoint.

We are -- to your point on strategic investment -- we are past investors in Parkdale. So it is not a strategic piece of our business. It has been an investment we do have for a number of years now. And we are within Unifi continuing to also dialogue amongst ourselves as to what that should look like in the future. And if we decide to make a change, we will certainly let our investors know what we're doing.

Chris Vachario of ISI Capital.

Just a couple of questions left here. You had in talking about possibly doing a second investor acquisition, and I didn't know where that stood. If you had started discussions about that, or if that is sort of something that is not going to happen?

I think that from our perspective we are making that final, final decision probably this quarter. But I would tell you that it looks -- it doesn't look like we will be continuing those discussions. And we will update you on the next call.

Also, you may have gone over this relating to Ireland, initially you were going to have to spend some money upfront. I think the 30 million was going to be a net number, a net cash number that you had after spending the initial money to shut things down, and then getting the cash from the sales. Have you already spent the initial money, so that from here forward it was just the cash proceeds from the sales of the land?

We still have some inventory to liquidate, so there is still revenue to be gained from the sale of the inventory. We have some receivables to collect. Redundancies, I believe that the majority of redundancies have been already paid out. We have to fund the pension balance. So that will be a cash cost there. And we of course -- we also have to pay off the remainder of our payables which we are in the process of doing. We're not planning to leave anyone hanging from that side.

So there is still some ins -- some cash coming in, some cash going out. The major pieces have been already accomplished. And we have not -- we have had cash available in Ireland to accomplish these tasks. There has not been a need for any of the rest of the organization to provide cash to Ireland to do that.

And then -- I just wanted to make sure I knew -- when you are talking about 5 to 8 million range for normalized periods or Parkdale dividends that is -- for what period of time were you talking about?

I just set them out. Let's talk about just on a -- let's just use a fiscal year as a basis, a 12-month period.

John Beale, Standard Pacific.

Just drilling into this working capital number a little bit. So it looks like networking capital on page 5 here went from 159 to 202. So that is roughly 40 some million. Is that mostly inventory or AR or what is that?

It is a combination of -- if you look -- if you go back a little bit, even maybe the best place to look you go back to page 8. And I mentioned this on our cash flow stuff. The two areas of our biggest increases are Kinston, Kinston accounts receivable which accounts for in excess of the 15 million of net change domestically.

I'm sorry, it is -- Kinston AR is (indiscernible)?

Kinston AR, you are right it is somewhere about the 15 million mark. Additionally we had a change in working capital in Brazil. That is inventory. Those are the two major components of changes in working capital.

So inventory -- ?

Those two account of 35 of the 40 that we're talking about.

What was the thing about Brazil, I'm sorry?

Brazil's inventory increased September to December -- in fact June to December. And there was two major reasons for that which I covered in the call. Thirty percent of that increase is due -- we had some POY inventory in Ireland, so as we were closing Ireland rather than simply put it on the market at a depressed price, it was good POY we could use in another part of our organization. Brazil was a logical choice for what they were running. So we sent POY raw material inventory down to Brazil, which they didn't need all that once, but we needed to get it out of Ireland. So 30 percent of that increase relates to increase at Brazil. And of course discontinued operations aren't in that number.

And the balance of it relates to a resale program that we talked about last quarter that they're involved with where their finished goods inventory is up -- the balance of that. And it is probably going to take them -- we expect them to work that back down, but it will take probably until June to work that back down, and also to run the POY inventory through them.

And then this calculation of days in receivable and days in payable, it says it is based on annualized Kinston and SL branded apparel acquisitions. Is that the way to look at it? I mean have you had both of those since the beginning of the quarter?

No, just trying -- I think -- we did that because if you didn't we felt it was skewing -- in other words we -- take Sara Lee branded apparel, we have ramped up the count of the inventory levels that we need for Sara Lee. And of course they have been in our numbers now for approximately half of the fiscal year since July.

And so if you only have half the sales in the number, but you've got all the inventory you're going to carry for that level of business then it makes it looks like your DSO is a lot worse than it is. So by annualizing it -- at the end of the year it is going to be at these same numbers, so rather than not annualizing it what happened is as you went through the fiscal year you would look better and better and better. But the fact of the manner is you're not really improving your DSO on a real time basis. You just look like you are getting better just because your sales number is higher in your calculation.

Okay but is that also -- so is that annualization thing also done in the previous quarter, so the 59 to 51 are --?

Yes, yet is. It is consistent. It is consistent.

Marianne Mansiolio with Stanfield Capital.

Another question with the working capital, with the investment in Brazil. So it sounds as if it is about 20 million or so or just 19 million invested in working capital in Brazil. So it sounds as if that will be cash generated in the second half of the year?

I think it depends -- you have two components there. You have the POY which they have not yet processed to turn into a finished good and you have the excess finished goods. It is going to take at least through June and maybe until the first quarter off next fiscal year to really work that down.

Or part of it maybe will be gone by the end of the fiscal year?

I expect to be more than part of it gone by the end of the fiscal year.

Bill, (indiscernible) could you put a price tag on Parkdale, what you can get for that if you wanted to sell it?

I don't know that this is the I guess the appropriate place to do that.

And of course a China question. You're saying if you get final government approval by early in the third calendar quarter, how long would it then take for you to begin operations there for you to ship over equipment or start producing product over there?

First of all, let me just remind you that this proposed venture is an existing operation which is an ongoing business. So the day that we step in there we're actually in a full-blown business position. So that is why it is important for us to get it on the ground as quickly as we can to take advantage of what they're doing already.

The approvals that we hope to get through early summer. We're looking at worst to best, and given that China is China and that the bureaucracy can either move quickly or slowly depending on who you know and who are partners now. We're giving it a wise wide range sort of between July and September. But we hope to come in -- to on the ground sometime in that time frame. But so far things are going pretty well with the process of agreements, agreeing to the definitive agreements, doing the appraisals and all the processes that we have got to go through. Does that answer your question?

I guess so. And then this will be a 50-50 type of joint venture or --?

It's 50-50, exactly.

And so then you're saying so you don't have this ongoing operation and then at that point there is room there for you to perhaps move some of your equipment there and start producing more of your value-added product?

Yes, I mean the beauty of this operation is that it has already got the ability to produce added value products. So it is already actually doing that. So we can improve that situation by bringing more products on the road. And we are the working on the marketing for that in China.

But I think in terms of moving machines, we have intentions to move a number of textile machines that we have here in the U.S., but it is a small number, and again we have said somewhere between 3 to $5 million of value. That allows us to fill out the existing facilities that they have and add those added value products. But even the existing equipment that they do have there we can make added value products or specialties on those machines. And we are already working ahead of time to try and get some ground work laid.

These are added value products that they themselves don't have the expertise to make currently?

Exactly. Either the expertise or the network or the marketing contacts that can do that.

So you're starting to advertise the fact that these products will be available for market?

Yes, we're very active in the markets. And we have got three people on the ground there the last two years. And they have been ramping up their activities over the last 6 months as we have come closer to finalizing this deal. So the markets we have had several trade shows in Shanghai and Beijing and other places in China. I spend at least a week every month in China meeting with customers, potential customers. So we are laying the groundwork for the day we are on the ground. In fact, we're trying to source products from that facility as we speak.

Tom Keedle (ph) of American Financial Group.

As I recall a couple of calls ago, if my memory -- if it serves me right -- that there are 25 to 30 million from the Ireland asset sales would be used to fund that China JV purchase. Is that still in the game plan?

Yes, the number that we are committed to in China is 30 million. And coincidentally the net proceeds from that liquidation are in that ballpark.

And then a second unrelated question on Parkdale. I take it accounting-wise there is no need for an impairment or anything in terms of your typical impairment tests?

At this time we have reviewed that in the past and not at this time.

Thank you guys. Good quarter.

Chris Vachario of ISI Capital.

Just a quick one on Ireland again. Of the net 30 million that you're expecting to generate from the sale of the assets in Ireland, how much of that is already included in the 53 million in cash at December 26?

There is about -- we have moved -- we have probably bought -- how do I want to say this -- put a box around about 7.5 million that is not being used for purposes of the ebbs and flows of liquidating the facility, and kind of set it aside. So there is about 7.5 sitting aside doing that.

And then when you look at the cash flows slide on page 8, of the 9.5 there is probably somewhere around 7 or so sitting there in Ireland at the end of the quarter. But again, that is an ebb and flow. That is the piece that is used for ebb and flow of liquidating the facility. So I wouldn't consider that to be available, if I could use that word.

Right. So it is money that would be let's say available to use in China that is already included in the cash would be the 7.5 million for now?

That's right.

And then how does that 53 million in cash number split up at that date between what is in the U.S. and Brazil and what is in Ireland?

I believe Brazil has about 2.5 million of cash at the end of the quarter. The balance of it would be primarily -- although we have a couple of other smaller subsidiaries -- the bulk of the remainder is going to be in Ireland, which is about -- I think it is about 7, about 7 million. So you've got -- if you look at the cash-flow statement we showed cash of discontinued operations at 9.5. That is mostly Ireland.

And of the 53 million in cash and equivalents you have on a --?

43 of it about -- so of the 43 we showed in the cash-flow statement of continuing operations. There is approximately 41 million that is domestic, and that includes the 7.5 million that we have both set aside out of the Ireland operations.

Dennis Rosenburg of VSR Investments

The investments in unconsolidated affiliates of 157 million, is that virtually all Parkdale?

Could you repeat the question?

The 157 million of investments in unconsolidated affiliates is that virtually all Parkdale?

Substantially all, yes.

So we're talking about over $3.00 a share of investments in Parkdale?

Let me just double check the number. About -- sorry, about 132 that is carried in that balance is Parkdale.

Okay. 132 million. Very good. Thanks.

132 -- that's using a round number.

Mr. Lowe, there appear to be no further phone questions.

If that is all the questions then Brian and I both wish to thank all of you for being on the call today and participating with Unifi. And we look forward to continue to update you as we go forward and execute on our plans.

Thank you.

Thank you.

Thank you. This does conclude this morning's teleconference. You may disconnect your lines, and enjoy your day.