Unifi Inc (UFI) 2006 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Unifi, Inc. first-quarter earnings conference call. At this time all participants have been placed on a listen-only mode and the floor will be open for your questions following today's presentation. It is now my pleasure to introduce Mr. Ron Smith, Treasurer. Sir, you may begin.

Good morning everyone. This is Ron Smith, Treasurer and Investor Relations speaking. Joining me for the conference call today is Brian Parke, our Chairman and CEO and Bill Lowe, our Chief Operating Officer and CFO.

Before we begin, I need to first advise you that certain statements included herein may be forward-looking statements within the meaning of Federal Securities Law. Management cautions that these statements are based on management's current expectation, estimates in our 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 to you to the disclosure in 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, www.unifi.com. The presentation can be accessed by clicking the first quarter conference call link from the home page. I hope that you have a presentation available as it will make it easier for you to track through the information discussed in this call.

I will now turn the Bill Lowe to review our quarter. Bill?

Thanks, Ron, and good morning everyone. If you are following along on the website presentation, we will begin our comments on slide three. Net sales for the current September quarter were 185.4 million which is an increase of 5.8 million or 3.2% compared to the prior year's September quarter. Net sales for the current September quarter were somewhat lower than expected as key customers adjusted their inventory from the quarter primarily causing some volume softness in our dyed yarn operations.

In addition, net sales generally soften across all polyester product lines in the month of September in response to a surcharge on our prices that was imposed to offset increases in raw materials and energy costs from the affect of Hurricane Katrina. It is important to note at this point that we do not know the long-term effect of the hurricanes related to the supply and the cost of raw materials and energy. A domestic supply of MEG, a critical ingredient for polyester, is in a state of flux. And many producers are starting to look at MEG supply from around the world to satisfy domestic demand.

We have no way of knowing at this time how long the situation will remain or its impact on our customers. We are monitoring the situation closely and doing all that we can do to manage the cost of our raw materials and energy. For example on the energy side, we have changed our dyeing operations from a 5-2 shift to a 6-3 which actually provides more continuous coverage and at the same time allowed us to reduce our headcount. Additionally, we are dyeing more in off peak hours to establish lower utility rates at the facilities.

Net income including discontinued operations was a net loss of 3.1 million or $0.06 per share which is an improvement over the net loss of 22.6 million or $0.43 per share for the prior fiscal year. Included in these results for the current September quarter is a gain of 2.8 million stemming from the sale of the Company's property in Ireland.

Results for the prior year's September quarter included a 21.4 million loss associated with the closure and shutdown of our European manufacturing operations. We are reporting a pretax loss from continued operations of 6.3 million or 5.7 million after tax and $0.11 per share for the current September quarter compared to a loss of 1.2 million or $0.02 per share for the prior year's September quarter.

Results from continuing operations for the current fiscal quarter include a non-cash impairment charge of 1.5 million associated with company property located at Mayodan, North Carolina in which our carrying amount exceeded fair value. This impairment charge includes 200,000 of an estimated selling cost that will be paid from the proceeds of the sale of the impaired property.

Results for the current quarter also include 2.1 million in pretax income generated from the share of the Company's income from Parkdale America which is a significant improvement over the 800,000 in pretax income generated from Parkdale in the prior year.

There are three key areas that are a negative impact on pretax income and EBITDA versus our expectations this quarter. I've already mentioned our volumes in the dyeing operation. Vinyls were off about 36% from our expectations there primarily from one customer contributing to a miss of approximately 1.4 million in pretax income.

The Brazilian market continued to soften and pretax income was approximately 4.5 million less than the prior year and about 1.4 million less than our current expectations this quarter. However, we anticipate that our volume in Brazil will improve to forecasted levels over the next few months and the operations will meet our expectations for the full fiscal year.

Pretax income for the current quarter was also negatively impacted by a $1.4 million loss from our sourcing operations which is basically budgeted at breakeven. But if you will recall, we announced that we were exiting this business in July of this year. Combined, these three businesses accounted for an additional pretax loss of approximately 4.2 million versus our internal expectations in the current September quarter.

SG&A expenses for the current September quarter were 11 million of 5.9% of sales compared to 9.5 million or 5.3% of sales for prior year's September quarter. SG&A this quarter versus last year included an additional $600,000 in legal and accounting fees primarily attributable to a legal case that we had this quarter that we resolved and additional accounting fees relating -- continuing for implementations of the SOX requirements that all the companies are facing today. And an additional 300,000 from exiting our sourcing business and approximately 300,000 in Brazil which is primarily adjusted for currency fluctuations between this year and last.

We continue to set a target of approximately 5% for our SG&A for fiscal 2006 overall.

Details for our balance sheet can be found on the next slide. Cash on hand at the end of September was 90.7 million, which is a decrease of 14.9 million compared to 105 million cash on hand reported at the end of the June quarter. This cash balance includes approximately 25 million of gross proceeds from the sale of the Company's land and buildings located in Ireland which closed at the end of the June quarter. Offsetting this increase was 24.4 million of cash used to pay off the seller financing for the manufacturing assets located in Kinston; our bond interest payment of 8.1 million; and a scheduled $15 million contribution to our joint venture in China. Subsequent to quarter end, our second payment of 15 million was made to our joint venture in China.

There is a detailed schedule on slide five that gives you the breakdown of cash from June to September.

We ended the September quarter with 114.2 million in inventory which is up 3% from the 110.8 reported at the end of the June quarter. The increase in inventory is primarily attributable to the raw material surcharge caused by the hurricanes which I will discuss further as I go through the presentation. As a result of the surcharge, inventory is valued on our books at a higher carrying cost and many customers delayed purchases in late September due to potential reductions in the surcharge for October shipments.

With regard to working capital, the September balance has increased 2.4 million over the June quarter. The increase is a result of a 3.4 million increase in inventories as I discussed previously and the decrease in accounts payable caused with timing of month-end vendor payments. Such effects were offset by approximately 5 million decrease in accounts receivable.

Turning to slide six, we are reporting 11.7 million in EBITDA for the quarter which is about 2.5 million behind the pace that we established for ourselves this fiscal year. Before I speak to our remaining forecast for the year, I would first like to update you on the impact from the two recent hurricanes as I have already previously began.

Hurricane Katrina hit the Louisiana coast in late August. The impact to both refineries in the area and the pipelines on the East Coast created shortages of the supply of gasoline. This impacted our business by creating a shortage of paraxylene because to damage of both producing facilities and also producers the varying (ph) production of xylene to increase the supply of gasoline. As a result, while supplies are tight, paraxylene continues to be available but at a much higher price.

On September 2, we received a notice from our raw material supplier declaring force majeure under contract and that our price was increasing effective September 1. This increase along with other energy costs translated to an increased cost in our POY, or partially oriented yarn, of approximately $0.14 per pound. Effective September 7, Unifi instituted an across the board increase of $0.14 per pound on polyester products to all customers. We believe this increase covered our increase in raw material for the month of September.

Volume did decline however in the month of September as a result and we cannot ascertain at this time how much is temporary and how much is permanent as some customers may look to other sources if the price is not declined in the next couple of months.

Coming on the heels of Katrina was Hurricane Rita around the third week of September. Hurricane Rita shut down five of the six refineries in Texas that produce MEG, or ethylene glycol. The supplier to our Kinston operation was one of these facilities. Power was not restored to this facility until October 6, 2005, and they still have some damage to their cooling tower and gauges. In addition until just recently, they have not been able to send their workers into the plant area.

With five of the six facilities closed, the supply of MEG in the marketplace not only became tight but at historical prices, almost not available. At the time of their hurricane, we had approximately 22 days of inventory at MEG. Currently we have been purchasing MEG on the spot market and trucking the MEG to Kinston versus our normal method which is by railroad. Each truck can only carry 25% of what is normally on one railcar. So we have approximately 20 trucks in a contiguous rotation to Texas and back to fulfill our needs.

We expect our supply to be back up and producing MEG in the next couple of weeks and resume delivery by rail shortly thereafter. As it becomes necessary, we may temporarily shut down one line at Kinston sometime in early November. In this intervening period, we plan to build inventory to meet customer needs to avoid shortages.

On Friday October 7, the only MEG plant running, which is where our supplier have shipped (indiscernible) source their MEG, had an explosion while workers were attempting to begin maintenance on a part of the plant. We have been informed that although the supplier will need to buy ethylene on the spot market, they do not expect our supply of chip (ph) to Yadkinville to be interrupted.

Last but not least, natural gas prices have also spiked recently. As a result, we announced a price increase through our dye house customers because of this dramatic increase in the cost of natural gas.

In summary, we believe we have a plan of action to avoid missing customer demand and have increased prices to offset as much as possible on our raw material increase.

Finally let me provide you a brief update on the progress we are making in China with our joint venture, Unifi Fiber Industrial Company Limited. We have three critical success factors and are seeing significant progress in each area. Our first goal is to improve the product quality and operating efficiencies of the plant.

We have provided significant technical resources to that JV and are expecting initial upgrading of the DTY business, or texturing business, to be completed by the end of December. Once we are able to improve the operations of the plant, our second success factor will be the introduction of four premiere value-added products for production and distribution in China. That is expected to begin over the next two quarters.

Finally, the development of a direct sales channel for our high-quality value added products is essential. We have had a presence in Asia for the last four years and continue to establish multiple relationships with fabric and apparel customers whom are eager to get access to high-quality and specialty yarns produced with the Unifi technology at globally competitive prices.

During this quarter we included an operating loss for the JV of approximately $125,000. These results represent our 50% share of JV's loss for the month of August. We anticipate further losses over the next quarter but continue to feel confident that the joint venture will improve significantly over the second half of fiscal 2006 resulting in a breakeven result for the full fiscal year.

Given the results of the first quarter and the uncertainty that still surrounds energy, raw materials and the affect on volumes because of price; we are today reviving our forecasted EBITDA to be in the range of approximately 55 million for the full year. This is our current view today but I must add that the issues surrounding raw material prices and the affect on volumes remains cloudy. By January we should have a better view of how these issues settle out and we will update you again at that time.

I will now turn the call over to Brian Parke to update you on some other issues. Brian?

Thanks, Bill, and good morning everyone. As previously noted by Bill, the economic conditions of which the Company operates remain challenging to say the least. And the future forecasts are ambiguous. As a result of the supply chain, there are many uncertainties that we've experienced. And due to the increase in import of fabrics and finished products, our current home markets are contracting while utilization rates within the industry are generally in the 70 to 80% range.

Now while the Company continues to believe in the viability of the textile market in the Americas, a broadening of our corporate strategy is required to realize acceptable returns to our investors. Both the Board and management are frustrated with the recent financial results of the Company; we believe there are more profitable alternatives available.

To that end, yesterday the Unifi Board of Directors approved a resolution to explore all possible strategic alternatives for increasing shareholder value. The Board instructed management to study a broad array of alternatives such as growing the business by expanding within the textile industry including into lower cost locations around the world; expanding in nontextile related businesses; the potential for merger or sale of the Company; and the restructuring of the Company's outstanding indebtedness. All in an effort to take advantage of the further consolidation and integration of the textile industry.

It is important to note that there can be no assurance that the Company will enter into or consummate any transaction or as to the timing or the terms of the timing thereof. In addition, we don't expect to update our progress or disclose developments with respect to the expiration of the strategic alternatives unless the Board has approved a definitive transaction.

That concludes our formal remarks on the quarter. I will now turn it back to Ron Smith.

Operator, at this time, we would like to open the floor to question.

(OPERATOR INSTRUCTIONS) Dennis Rosenberg (ph), DSR Consulting.

Good morning. A couple of questions. You say customers are looking offshore for alternative supplies. Could you give us an indication as to how much of a savings they are able to get relative to what you are selling the product for now? And once things normalize, would you expect that business to be coming back to you?

Right now the delta is pretty close to what the surcharge amount is. Our surcharge, as I said, is about $0.14 a pound. Asian prices have increased somewhat over the same time frame but the delta is pretty close to that $0.14 surcharge amount. So if it comes back to zero, if things settle out in a few months, I doubt that they will come back and match to be the same. They might still be a few pennies lower but the spread will be nowhere near what it is today.

Okay. And if there is any savings at all, what is the advantage of them coming back to you as opposed to just saving even $0.03 or $0.04 by buying overseas?

Well, I think normally when there is only a small number of differences between pennies between ourselves and imports, one of the barriers or I guess the reasons that you don't see the significant movement is the logistics issues, the timing, the shipping times, the just-in-time delivery issues, make it difficult for that small change to do a significant amount of importation.

The concern and reason we say it is cloudy and not knowing how much is permanent and how much is temporary is if some of our customers do begin during this period, it is unknown whether they would come back once they have set in place the structure -- the infrastructure to import goods once they have it set up. So that remains cloudy. We don't know how much to hold off and wait to see if prices decline over the next 30 to 60 days.

On the possible restructuring alternatives, a couple questions relating to that. When you talk about possibly expanding into nontextile business, could you give us some insights as to the types of nontextile business you might consider? And how it would relate to what you are doing now and what your expectations might be?

Well I think it is a little premature to indicate what areas. We are actually will be looking for some outside assistance with doing that review. And today we cannot say and in what sectors that will fall in. But that is a path that we will have on the review as the Board has requested and if we move down that line and we have to a transaction that we take to the Board and the Board approves, that is the time we would indicate what that would be.

Would it be something that uses your current polyester and nylon expertise or would it be something completely different?

It may or may not. The Board -- this is a charge to look at anything and everything that will add value and long-term value to the Company and the shareholders. And so there isn't anything that is off the table at this time.

Okay, but you still have a domestic business that is declining pretty dramatically and expected to continue to decline. So it would seem that restructuring should more likely -- at least part of it would relate to downsizing that a lot more. You can't keep that business the way it is and get into some different business, could you?

Dennis, all I can say, all I can repeat is that anything and everything and when we put a very broad definition in the press release it would include as we said consolidations further in the industry both from related Company upstream as I would call it or looking in the supply chain ahead of us. It includes all of that. Continued downsizing to get facilities at the levels we need to be in the existing business along with looking at other textile related areas. But it is not limited just to just manufacturing or texturing polyester.

Okay, thanks.

Chad McCarty (ph) with Institution Equities (ph).

Good morning, guys. Thank you for setting up that tour for me yesterday afternoon. That was very informative.

You are welcome.

One of my questions that I've got and actually I've got several. So what I will do is I will run through a couple of these and then I'll move on and jump back in the queue and let some other people ask some questions. Regarding the press release that came out this morning I guess in kind of follow-up to what Dennis was just asking you. Do you have anything in mind right now as far as what you're looking at as far as strategic alternatives?

I guess I can repeat what I said to Dennis. With the press release we put out, it is an all-encompassing. And we are going to begin immediately looking at all alternatives as described in the press release.

Okay. And I think maybe what we are just looking for is maybe a little bit more guidance about maybe what direction you are headed as far as are you considering maybe looking at forward or backward integration of your operation?

Yes, that is as I said that is on the table. We are looking in the supply -- in the chain as you referred to it, forward looking in the chain. That certainly is a possibility. Other consolidations of companies that do similar to what we do. All of that is on the table.

My next question is, what capacity are your U.S. operations running at now?

We are running if I break it just a little bit -- in polyester when I look at total polyester both texturing and spinning, it would probably come in at about 80%; and nylon would come in somewhere around between 70 and 75%.

Are you separating out I guess you are not separating out the manufacturing from your value added operations with just the texturing?

No, I am giving you, we report -- I'm speaking to our segments because that is how we report. Polyester includes both spinning and texturing and dyeing. And I gave you a blended number on our segments.

Okay. Now the plant I was at yesterday did both the manufacturing of the yarn as well as the value-added process of the texturing. And I understand that the Kingston plant also does the same thing, is that correct?

Kinston does spinning. You've walked through that facility in Yadkinville, it is both spinning and texturing. Kinston is only spinning.

Okay. How many plants do you have that do spinning -- is it just the two?

Kinston and that portion of Yadkinville plant are the only ones doing that POY spinning.

And then how many plants do you have that are just doing the texturing?

There are approximately in the U.S., there is probably three plants in Yadkinville area that are doing texturing of some type.

And do you have a lot more -- it seems like you had a lot more capacity in the texturing than you did in the actual manufacturing.

No, I think not. I think that is not the case.

Okay. All right, well I will go ahead and finish writing my notes and I will go ahead and let somebody else ask you some questions.

Thanks, Chad.

Jason Kremer with Caris & Co.

Hi, good morning. I was just hoping maybe you could give me the volume and pricing on the polyester and nylon for the quarter.

If you give me just one second. Total polyester was volume was up about 9%; pricing was up slightly below 1% overall. And nylon was down approximately 21% in volume and up in pricing approximately 8%.

Okay. So with your nylon operations, are you still selling a lot to Sara Lee?

Yes, we do.

And how long, do you guys have a specific term for that contract or I mean it was just a long-term contract, correct.

Yes.

So you will just continue on until --?

Yes. That is correct. Of course it is subject to, it fluctuates with their volumes as to how their business is going. That dictates somewhat the volumes that we produce for them.

Okay. On another note, do you guys have -- how much assets for sale do you still have?

We have a variety of number primarily machinery that is available for sale. I believe it is in the range of 20 to $25 million.

Okay. And then there is no plants or land?

There is some land. There is some -- the facilities that we announced as we closed our distribution center, our CEC, two other buildings in the Madison area on nylon that we announced. There is still three buildings there, one of course which we took the impairment charge on this quarter. And the value of those -- the value of those three buildings alone are 10 to $15 million.

Okay, great. The last time I'd asked you, I think I had hear that CAFTA wasn't going to be actually instituted until January. Are you guys hearing the same thing?

It's -- you know -- I hadn't heard that it was being delayed. We are starting to see the effect I think now of the CAFTA agreement as it was passed, both on the positives and the negatives that came with CAFTA. Some of the narrow fabrics issues that are in the agreement. We are seeing some impact on that today. So I think people are -- it is affecting how people are operating and making orders and where they are doing business today.

It has to go through the different government bodies -- the countries concerned to pass the legislation. That's going to probably take another two months.

We are seeing movement today CAFTA related.

Would you say it's more positive than negative?

Yes.

So far.

Yes.

All right. That is all I have. Thanks.

Allen (indiscernible) with First Manhattan.

Thank you, good morning, gents. I have two very different questions. One is, the customers that you currently have in the United States, what would be their appetite, for lack of a better word, to say doing business with you in China? Meaning if you were to move this Company around a little bit and change some of the ways of doing business in the U.S. and say to them, well, we are not going to do this anymore in the U.S., we are going to do it in China. What do you think their sense of reality would be to that?

Allen, I think that is happening as we speak. I think a lot of the customers we have are already forcing in one form or another from overseas. Either sock business or apparel business, home furnishing or even upholstery. And some of our customers have even set up operations in China. And we are talking to them.

I've just come back from a trip there and I talked with several of our customers who have operations and are already sampling and supplying from there. So their operations in China, we would obviously -- we're going after that business in China. But in terms of their existing business here in the U.S., we will still continue to supply that from the U.S. as long as it is economically viable.

In the event that it is not, I think we will discuss and continue to discuss with those customers how we can keep them competitive because it is in our interest, all of our interests, to ensure that the customer base here in the U.S. is profitable. And that their mix of products doesn't move completely overseas into the hands of some other manufacturers.

So what the U.S. customer has -- the most important thing they have is a market. And the connections of the network, the knowledge of the marketplace. So that is what they are typically -- the strategy that they are adopting is trying to balance their sourcing to remain competitive.

What I'm trying to get at is if you have customer A who is doing business with you in the U.S., is he or she also doing business with you in China?

Yes, yes.

And so, there is nothing to preclude, do you see what I'm trying to say? Whether you are becoming your own competitor -- and so as your business goes down in the U.S., it goes up in China but you are only getting half of it in China. Do you follow where I am going with that? I mean I'm just trying to ascertain what is the message here on a long-term basis.

Yes, I think the message is that the industry build earlier on is running at very low utilization. And talking about the yarn, the whole textile supply chain. And some sort of consolidation has to take place in order for that industry to be successful in the long-term. We are part of that consolidation and restructuring. And if we have to cannibalize business from the U.S. to overseas, then so be it. The ultimate objective is for our customers to be successful and for us to be successful and profitable.

And do you have in the U.S. now, the customer base that you have, are there any major customers -- by major I mean over 10 or 15% of sales to a customer?

We don't have any customer who exceeds 10% today.

On either side?

On either side.

Okay. And then separately if you were to look in the U.S. or for that matter anywhere in the world, is there anybody -- and pardon me for not for not knowing this -- but is there anybody of your size doing what you do? Just to understand when you talk about strategic alternatives? Is there anybody anywhere that would be a look alike to you?

Do you mean in the U.S. --?

Whether it be the U.S. or anywhere else? Just to understand when you think of strategic options, is there somebody out there in the world we live in that would be doing something similar to you that we could maybe look upon as a possible company that you compete with and might want to do something with?

Well there many -- when you consider this, we probably represent 4 or 5% of capacity, global capacity. There are many people with Taiwanese, Chinese, Indonesian companies out there, even Mexican companies out there who do the same thing as we do. Not completely the same thing as we do because we are more integrated in terms of nylon polyester dyed yarns and added-value products. But essentially we are in the same business of supplying synthetic fibers.

And in the U.S., is there any one of size?

Not of our size.

Not of your size. And just lastly. In terms of your debt, is the debt that you have outstanding, is there any prepayment penalties? Meaning could you -- when you talked about restructuring it, is there any clause that precludes you from paying that off at an earlier time?

No. We had mentioned in our last conference call that one of our strategies and it continues to be a part of this overall overreaching strategy -- when we talk about the restructuring the debt, it includes possible using some of the cash for buying back debt if that's what we believe at the time is the best use of our cash versus another strategic initiative that we might be engaged in. So we long-term do not wish to refinance at the same level that we are carrying debt today. And so as a part of our overall strategic review and efforts it includes looking at how to restructure that debt in a way that at the time that we need to refinance, we can refinance a number that is substantially less than 250 million that we have outstanding today.

Okay. I just want to slip in one other. Do you have any further obligations to China beyond the 30 million in the short or intermediate term?

No.

Thank you.

Bryan Hunt with Wachovia Securities.

Thank you. Good morning. I was wondering if you could talk about first of all your tempo of the orders in October? And then perhaps in what market segments did you see the substantial order fall off in the month of September?

Well, both in the latter half of September and continuing into October, as I said in my formal remarks, we've seen it more or less across the board in polyester. There is no specific area from a hurricane related pricing increase standpoint that stands out more than the others. I highlighted the dye operations for other reasons besides the hurricanes that affected September.

Home furnishings was primarily the area that was off in September, actually July and August primarily in the dye operations but that was not hurricane related. But as I said on a hurricane related volumes -- it is pretty much across the board as I mentioned in my formal remarks.

Okay. And did you institute the price increases in the dye house at the very beginning of that quarter or was that later in the quarter?

Those are going into effect November 1, actually. We've recently just in the past week provided notice to our customers of that increase. That's driven by natural gas increases, we've just recently received.

What type of natural gas cost increases are you seeing?

Substantial. It is like two times, two times the prior rate.

Wow. All right. I guess I've thrown this topic and others have against the wall several times. Your cotton business or at least your joint venture with Parkdale just doesn't seem to be a strategic fit and hasn't since the Company decided to put it into the LLC. Have you all spoken to them recently?

I speak with Parkdale quite frequently. But I will say, I know what you are asking is is it a strategic part of Unifi and is that an investment that Unifi would look to monetize as we move through the strategic initiative? And the answer is yes. It is not a core business for Unifi. And we would look to monetize that investment as a part of our overall strategy of restructuring the business as we go forward.

And remind me of what that is carried on the books at?

It is currently carried on the books for about $138 million.

When was the last time you examined the book value there for potential write-down?

We examine it at the end of every fiscal year. Its on a cash-flow basis. And the last time we examined it on that basis as required under the rules, under GAAP, there was no impairment. And so unless there's an event that would cause an impairment to take place under those rules, we have not had an impairment charge.

Okay. Is it possible if your raw material markets, paraxylene and MEG, continue to be difficult that you could source and texture flat yarns or POY from offshore? I mean does that economically make sense?

That is something that can be done and we already purchase raw material like that from Asia. But in terms of the quantities and the logistics and the different types of yarn we would need, it would be a major problem to get all of that from overseas. We could between our own POY spinning and we could complement or supplement it with imports. We are obviously looking at all of those options, through this hurricane season in particular.

We're just beginning to hear from a manufacturing perspective or read that Asian markets are starting to perk up from a manufacturing perspective. I don't know if it is because of the tightness in our markets as well from a raw material position. Are prices for textured and flat yarns starting to creep higher in Asia and not within the last month?

Yes, they are moving slightly. I was in China last week and I think there was a general air of despondency there because they were not -- the whole safeguard (ph) issue has created a lot uncertainty with the buyers and the producers in China. They are pretty unhappy about the situation. So prices have been static even with the increase in raw materials, they are absorbing price increases.

In the last few days since Monday, they are starting to move up and we expect them to move a little bit further. But it is very hard to read it right now because there is so much uncertainty. We know for example there is substantial quantities of MEG on the high seas as we speak which is to fill up the need in that U.S., not just for polyester production but for other raw material, for other intermediates. And that is going to leave we believe a shortage of glycol in China which will result in some impact on the pricing.

How much it goes up from here remains to be seen. That is a very volatile situation China is heading in toward the end of the year it is a busy time before the Chinese New Year. Things kind of quiet down again, so it is not a predictable, it's not a very predictable scenario right now.

Lastly, have you seen or can you tell a difference in orders that have been canceled due to one the potential for seeing retail weakness for the holiday period? And/or two, the difference in the surcharge price of raw materials today versus two months ago? And can you talk about whether you are seeing any softness today just because of retail?

Well, I think it is you know unfortunately the hurricane issue with the pricing and the price increases have made that very difficult to see through. It is difficult for us to see through that and be able to separate out why a customer might be ordering slightly less. We do believe that some are ordering less in hopes that every week that goes by that raw material prices will decline. And they are trying to use what inventory they have and order smaller lots thinking next week the price will be two pennies cheaper or whatever. So they are trying to wait through this and hoping that prices don't just wait until December 1 to drop -- and that they will drop next week or the week after. So that is very difficult for us to see, Brian.

Okay, thank you.

Shea Josephine (ph) RBC Dain Rauscher.

Good morning. Just some quick questions. What is the available liquidity at the moment under your facilities?

On our facilities when you include, since we have paid off our Kinston note, we are able to now include the receivables and inventory of Kinston and we're just getting through the final paperwork with the banks to include that. And the available liquidity under our revolver with that included is approximately $69 million.

And I couldn't really catch your EBITDA revision. What was that exactly and was that for the entire 2005? And have you anything to say on 2006, perhaps? And also on the sales outlook?

Well fiscal, again, our fiscal year ends June of 2006. So my forecast for the full fiscal year ended June 2006 was revised at 55 million.

Okay. And the sales number overall?

We have not provided the total sales number to date.

Okay. Do I understand correctly that there is still a $15 million payment you have to pay for the Chinese investment?

At the balance sheet date, that is correct and I think by believe I mentioned in my formal remarks that subsequent to the balance sheet date, we did fund the final $15 million.

Okay. It went to the (indiscernible). When did you put your $0.14 surcharge on?

September 7.

Okay, so there is no overlap really?

No, it was just a couple of days. As soon as we could pretty much get it out and get it in the system, we put the surcharge on as immediately as we got our notice from our suppliers.

Have you seen any shift in your automotive supplier customers? Does Collins & Aikman still --?

Collins & Aikman is still a customer. I believe you read what we read regarding their agreements with their key customers. And recently I believe I've seen agreements that they've made where those customers won't shop or move some of those current programs until after a certain date. So to date we are continuing to produce for Collins & Aikman.

Are there any other automotive supplier customers that have become higher risk than in the previous couple of quarters?

No.

Okay, thank you.

John Helms (ph) with Orix Capital Markets.

Just one question. You had sold some assets in Ireland the rest of your equipment and land and I kind of expected to see that on the cash-flow statement this quarter. But I didn't see it. I was think it was like 40 million. Is that buried somewhere I didn't see it or what is going on there?

If you at the 20.8 million, discontinued operations and net changes and assets held for sale, that is where that number comes through there in the cash flow.

Okay. So you did get the full about 40 million or whatever from the sale of assets over there?

That is right. A little more than that -- but when you put it altogether.

Okay, thanks.

Jennifer Wallace (ph) with (indiscernible) Street Capital.

Hi there. Okay, I have two questions which are totally separate. The first is on the cash-flow statement investment and equity affiliates, the $15 million, is that one of the tranches of investments that you were making in China?

Yes.

Okay. And does that complete your investment or do you have further investments?

We made the second investment, post balance sheet date of another 15 million. So that 15 million would fall in the cash-flow statement for the quarter ended in December.

Okay. And in that completes --

Correct.

Okay, terrific. New topic which I know a couple of people have taken a run at and I'm just going to try to get at it a little differently. On the strategic alternatives, was there an event or catalyst that led the Board -- or is this to sort of make this decision -- or is this something that the Board has been considering for some time? And have you hired a banker in response to something specific or is this a more general process that is just beginning with this announcement?

No, I think what precipitated this actually was the fact that with how our business was performing this current quarter or this past quarter and this current quarter due to first of all the hurricanes and the affect that has on our customer base together with the trade legislation that is coming through that may not be positive for the industry.

(multiple speakers) industry?

Yes, the textile industry. And when we look out over the next two or three quarters, even the next eight or ten quarters, the best we can see is a flat result. And no opportunity to really grow this Company. And we believe that we need to do something dramatic to change this. And I think what's happened with the hurricanes and in particular is -- we believe it may have accelerated the decline of the consumption within this market.

So looking at the other side, we've got in the industry itself, we've got a lot of excess capacity, overcapacity and something needs to be done to consolidate or restructure. And we need to be part of that and have the ability to drive that . So what we are saying is something has got to be done for us to grow our shareholder value here. We can't do it -- we've been digging deep for the last number of years and we've been ducking began diving, consolidating, restructuring, taking out cost, doing the best job we possibly can. And what we see in the future is more of the same without really moving the needle. And the Board feels that we need to move the needle and --.

We've been at this for a while, we've kind of downsized, we've consolidated, we're sort of shrinking to right size to a sort of continually shrinking market. But as a Board, we always are evaluating where we stand from a shareholder value standpoint. And here we are -- we've done as much as we can. It might have been accelerated by the hurricanes but who knows. Now is the time for action?

Yes.

So it is a Board initiated -- now is the time for action. Or was it an external initiation of any other kind of suggestion?

No -- (multiple speakers) the Board came up to our conversations at our (indiscernible) committee on putting it before the Board and then the Board itself. And something that we being as management have been looking at ourselves --

Of course.

(multiple speakers) We have this under review all the time looking at all those alternatives. I think the Board feels -- let's do something dramatic here. We've got to change the game slightly. And what we are saying everything is on the table. We've got to do something dramatic to move the needle.

Specifically it was internal not external and we may look to get some as I mentioned and I think my formal comments that to look for some assistance, investment banking, whatever it is to help us evaluate some areas that we might not be familiar with when we talk about nontextile related businesses.

Right. So it is fair to say then that you have not currently retained a banker for any specific --?

Not as of today when we are on this phone call.

Okay, great. Thank you very much.

Chris DeCario (ph) with IFI Capital (ph).

Good morning. I just have a couple of questions that are still left here. I just want to get back to your gross margin percentage versus a year ago. By my calculation it was down from about 6% to a little over 4%. Is that mostly because of -- I mean it seems like you've at least attempted to with the surcharges passed along -- your increased raw material costs. Is that basically just lower volumes of those less fixed cost absorption or can you just go into more detail on sort of the differences between last first fiscal quarter and this one and why the gross profit margin is down so much?

I think it is a combination of several things. It is both certainly, volume is driving it. There is a mix issue as well as volumes drop. I'm talking about the dye operations where the volumes were off the most; about 36%. And in addition, we do have some expenses in the (technical difficulty) cost of goods sold line related to the management of the joint venture. Very close to about $0.5 million this quarter. You know, as you know, we have positions over there.

Now I will say that we have a mechanism for reimbursement of those expenses but those -- that reimbursement as it comes in will come into a different line on the income statement as that starts to take place during this next quarter. But that is an additional expense of cost of goods sold that would not have been there last year.

And what type of expense is that?

We have several expatriates over there that are working for the joint venture of which we bear a certain amount of cost outside the JV. And that is -- runs -- ran very close to about $0.5 million for the current quarter. And again we have a mechanism for reimbursement through other -- other agreement but that income when it comes in will come in through other income and expense.

Okay.

It's just going to get offset but in this current quarter, it is sitting -- that number gross is sitting in cost of goods sold.

Right, right. Okay. And then leading to Parkdale, I think you have alluded to the fact and I haven't taken a look at it but I guess the accounting income from Parkdale was much better in the quarter. I mean just how is Parkdale doing overall in the same -- in the post-Katrina environment as well? And are you expecting any more or less in terms of dividends from them in this fiscal year than you were expecting prior to all this?

I think in prior calls we had said we thought for the full fiscal year a number somewhere in the $5 million number. We received to date distributions in this fiscal year of a little over $1 million from Parkdale. Of course Parkdale, Parkdale is not in man-made fiber. They are in cotton. So the impact of the hurricanes hasn't affected them from a raw material standpoint as it has affected the man-made fiber industry.

Have they been helped at all by sort of competitive -- competition versus the man-made fibers?

Yes, they compete with it certainly and a lot of it has to do with of course the crop of cotton and how much it is and therefore what the price of cotton is versus man-made fiber. Cotton today is somewhere around I believe $0.60, $0.62 a pound. It has been as low as $0.45 in the last eight to nine months and that has made bigger delta between man-made fiber which is actually had one of the biggest impacts in our Brazilian operation that I discussed because many producers in Brazil switched over to cotton rather than man-made fiber when the spread between cotton price and polyester has gotten wider. The gap is closing but it is still a gap.

Okay. And just if I could get a sense for the order of magnitude here. What were you paying for, say on average, in the year ago quarter for MEG and PTA versus what you've had to pay post Katrina?

Well, when you look at the raw material cost for PTA, and let's combine -- there's two -- raw materials are really going into the process for making polyester, your PTA and MEG. We typically look at a blended price because different percentage of one raw material versus the other is what goes into make it. If you go back into August, that blended price, contract price was somewhere around 48, a little over $0.48, almost $0.49 a pound. It is in October slightly over $0.60 a pound blended rate between PTA and MEG.

And any sense for just ballpark of what it was a year ago?

A year ago -- a year ago August it was approximately $0.46.

So the same range as this past August then, okay.

Yes, yes. Prices had actually gone up at the end of one year, came down beginning -- came back down and settled back down somewhat after the first of the calendar year as China was producing less and backing off a little bit. They typically tend to drive the production levels of China and their needs for the same raw material tend to drive the prices in this.

Okay. And then the cash, the 90.7 million in cash. Is that all in the U.S. or how does not break out?

No, it is distributed in different locations. Domestically there is approximately 33 million and we have about 14 million in Brazil. There is still 11 million sitting in our Irish location to wrap up final liabilities associated with the closure of the Irish facility. And at the time of this call, or at the end of September, we still had 30 million in our Dutch subsidiary. However, we did bring back post balance sheet date, $15 million from our Dutch holding company into the U.S. So the U.S. balance today if you used that same September number, we moved 15 million from Holland into the U.S. causing the domestic balance then would have gone from 33 to 48.

We also -- we do have plans to bring back some cash from Brazil maybe over the next six months in the range of 6 million. And there is some -- we believe there is 1 to $2 million excess in Ireland that will not be needed when we finally wrap up all the liabilities associated with what's remaining there.

And the remaining piece of that Dutch, we brought back 15 million, we left 15 million there. That's where we funded that extra 15 million for China that I talked about post balance sheet date.

Right, you mentioned that was directly from Holland to China.

Yes, yes.

And in Ireland there are liabilities against those, against most of that cash?

Most of that, maybe 9 million plus liability against a little over 11 million that is there. That is primary pension related. We have to -- while it is funded pension plan, we have to -- there is a shortfall that we fund and purchase annuities for the employees. That number is still being worked out with the actuaries. We have a pretty good feel for what it is but it has not been funded yet.

Right. That is a balance sheet item?

It is a balance sheet. There is no P&L associated with that.

Right, okay. And last thing. I can't remember if you had given guidance for this or not, but if you had any updated guidance in terms of 2006 sales and CapEx and any guidance for just the second quarter? The second fiscal quarter?

Will first of all we've not -- we've not provided guidance quarter by quarter. We've been giving guidance on a full fiscal year which I mentioned for EBITDA, revised at 55. We typically don't give top-line guidance today but I will give you guidance on capital expenditures. We said in the previous call beginning the fiscal year about 15 million for the full fiscal year. Capital expenditures for this quarter was approximately $4 million.

Right. Still expect 50 million for the full year?

I think that number is still good.

Okay, thanks very much.

Operator, we have time for maybe one more call. It is after it 11:00.

Rob Ford (ph) with Merrill Lynch.

Good morning. Thanks guys. Most of my questions have been answered so I will be brief. If you could provide a little bit more clarity on the Parkdale in terms of what their cash balance is and potentially what their debt balance is at this point in time? And presumably does your consideration for strategic alternatives include Parkdale as well?

Let me direct you first to a couple of things. One, we do file there. We have filed their December '04 financial statements in our 10-K-A that was filed in the spring in March or April. We made reference to them in our last filing in the 10-K which you can actually find the statements in that filing from a December '04 standpoint. Their current situation is they have very old debt. They have paid down their debt as they did some restructuring of their own. They made an acquisition of some assets which helped them redirect their product mix a different direction which was good for them.

So they used some cash but they also used some cash to pay down debt. So they have very little debt, primarily working capital debt only. And their cash balance is somewhere in the 3 to $5 million range but we expect them to build cash over the next three to six months as they have gotten debt reduction behind them along with the payment of these assets that they made post their balance sheet date in December.

And to your point on Parkdale, I mean I said earlier that yes, we would in our review of what we would do strategically, what we might spin off, what we might use to exit the Parkdale investment is one of those as well.

Great. Thanks.

Operator, that will conclude our conference call for today. And we would like to thank everyone for joining us. And we will talk to you again at the end of next quarter. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.