Unifi Inc (UFI) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Natasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unifi fourth quarter earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Ron Smith, Treasurer and head of Investor Relations. Sir, you may begin.

Thanks, Natasha, and good morning everyone. Joining me for the conference call today is Bill Lowe, our Chief Operating Officer and Chief Financial Officer. During this call, we will be referencing presentation materials that can be found on our website at www.unifi.com. That's u-n-i-f-i-dot-com. The presentation can be accessed by clicking on the Fourth Quarter Conference Call link found on the homepage. I hope that you have the presentation available, as it will make it much easier to track through the information discussed in this call.

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 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 in our 10-Qs and 10-Ks regarding various factors that may impact these results.

I will now turn the call over to Bill Lowe to review the results for the June quarter and the fiscal year. Bill?

Thanks, Ron, and good morning everyone. I'll begin my formal remarks with some comments on the quarter. This morning we announced that we'll be closing our Kinston, North Carolina facility. This facility produces our commodity POY. Our plan is to transition out of the facility over the next four to five months. We believe that this is a major move to put us on track to compete against imported yarn and get our texturing facilities back on track by adding flexibility that we have lacked over the past nine months or so.

We discussed in our last earnings call that while volumes had improved, the mix of product was diminishing our financial returns. This change will allow us to address this issue, along with being flexible during short-term dips in the market. Annual savings, once we fully implement this closure, will be in the range of $12 million, with a working capital savings of approximately $11 to $13 million. Because of certain exit costs, our benefits this year will be at minimal in the range of 2 to 3 million, since we won't see the benefit until the second half of our fiscal year. We expect severance costs to be in the range of 1.2 to 1.5 million.

In addition, there are other exit costs that are not yet quantified associated with certain service level agreements with a lessee in the facility. Once these negotiations are complete, we will disclose these additional costs. Our range of savings for this fiscal year has an estimate including for such costs. We do believe that this will be a positive gain changer for the company.

Our Brazilian operations continued strong this quarter. However, they've been impacted somewhat from the exchange rate with the dollar. This exchange rate will benefit us, however, as we anticipate bringing back approximately 10 million from Brazil into the U.S. over the next 60 days.

During the quarter, Quaker Fabrics, one of our major customers at our dye house, indicated that they would liquidate their business. As a result, the company did take a bad debt charge of 3.2 million. As time has passed since the announcement, we are finding that a large part of this business is going to existing customers, and we therefore expect to retain a significant portion of this business.

And, last, before we go to the financial results, yesterday the Board of Directors announced a management change at the company with the termination of Brian Parke as Chairman and CEO. Steve Wener has been appointed as Chairman and Acting CEO while a search is conducted for a replacement. In addition, the following Board members resigned from the Board of Directors: Wiley Bourne, Sue Cole, Don Orr, Charles Carter, and J.B. Davis, and of course, Brian Parke which held the title of Chairman. Currently, the Board members are Ken Langone, Bill Sams, Steve Wener, William Armfield, and Anthony Loo.

The Board and the management of the company remain committed to our domestic and our China strategy. While we have yet to turn a positive result in China, we believe that the JV is headed in the right direction, and we will continue to put strong emphasis on its success this fiscal year and into the future.

With that as a backdrop, I'm going to turn the call back over to Ron to cover the financial statements. Ron?

Thanks, Bill. If you're following along from the website presentation, we'll begin our comments on slide three. Net sales for the current June quarter were $185.3 million, which is an increase of 2.1 or 1.1% compared to prior-year June quarter. Over the same period, total volume declined 4.8% on a consolidated basis, which was offset by improvement in pricing of 5.9%. Total volume increased by approximately 1% on a consolidated basis compared to the March quarter and pricing improved by approximately 3%, indicating that improvements were made to our overall mix during the fiscal quarter.

The company is reporting a pre-tax loss from continuing operations of $94.8 million for the current quarter, which compares to a pre-tax loss of $5.3 million for the prior-year June quarter. Included in the pre-tax income are impairment charges of $84.7 million to adjust the carrying value of the company's ownership interest in Parkdale America, as well as a non-cash charge of $3.5 million associated with the Quaker filing.

On an after-tax basis, we're reporting a loss from continuing operations of $73.3 million or $1.21 per share for the June quarter, which compares to an after-tax loss of $5.2 million or $0.10 per share for the prior-year June quarter.

Net income for the June quarter including discontinued operations was a net loss of $72.3 million or $1.19 per share, which compares to a net loss of $5.4 million or $0.10 per share loss for the prior June quarter.

SG&A expenses for the current quarter were $12.0 million or 6.5% of sales, which is an increase from the 5.7% of sales for the prior-year June quarter. Included in the current quarter's SG&A expense, however, is $1.8 million in expenses related to the Dillon amortization expense and Dillon-related sales and service fees.

Turning to slide four, net sales for the 2007 fiscal year were $690.3 million, which is a decrease of $48.4 million or 6.6% from the prior fiscal year. On a consolidated basis, total volume was down 10.3% for the year, which was an offset of 3.7% improvement in pricing. Overall, the domestic market shrank by approximately 10% year-over-year.

Import volume remained relatively flat year-over-year resulting in an increase market share for -- a slight increase in market share for imports, as well.

We're reporting a pre-tax loss from continuing operations of $139.9 million, compared to a pre-tax loss of $15.9 million. Net income for the fiscal 2007 is a net loss of $113.1 million or $2.01 per share, compared to a net loss of $14.4 million or $0.28 per share for the prior fiscal year.

In addition to the $84.7 million of impairment charges related to Parkdale, the company also recorded $16.7 million in impairment charges in fiscal 2007 pursuant to the company's strategy to consolidate volume into our most modern and efficient facilities.

Now we'll turn to the balance sheet, which you can find on slide five. Cash on hand at the end of the June quarter was $40.0 million, which reflects an increase of $4.7 million, compared to the $35.3 million cash on hand at the end of prior-year June.

Subsequent to the end of the June quarter, the company entered into an agreement to sell the Plant Five nylon facility located in Madison, North Carolina for $2 million. The company also expects that two to three other real estate sales will likely occur in the first quarter of fiscal 2008, resulting in a total of approximately $8.0 million in asset sales for the quarter. As per our loan covenants, cash proceeds from these sales would be additive to the $4.0 million in restricted cash the company reported as of the end of the June quarter.

In addition to the cash on hand, the company has approximately $58.1 million of availability under its revolver.

The company is reporting $234.6 million in long-term debt, which includes $36 million in borrowings under the revolver, down $4 million from the March quarter.

Net working capital balances decreased $14.8 million from the end of the March quarter, which includes $5.4 million decrease in accounts receivable and a $5 million decrease in inventory.

Turning to slide six, the company reported $18 million in EBITDA for the June quarter. The EBITDA results are exclusive of adjustments to the company's carrying value for its interest in Parkdale America and $3.5 million in customer-related bad debt charges, but inclusive of $2.4 million of negative inventory adjustments primarily attributed to LIFO, all of which were previously reported in our 8-K on July 10.

The LIFO adjustments resulted from the earlier-than-expected rise in raw material prices throughout the June quarter. However, the Company believes that a more accurate method of accounting for all the inventories is on a FIFO basis. We believe that the FIFO method of accounting would yield a more current value of our ending inventories and better reflect our operating results. The company is reviewing whether or not it can change to the FIFO method of accounting in fiscal 2008, and we anticipate having a determination sometime during the first half of the fiscal year.

Also included in the current June quarter EBITDA is a $6.1 million dividend payment from our equity affiliate partner Parkdale America. Excluding equity affiliate dividends, EBITDA for the June quarter was $11.8 million, which is in line with the estimates provided in the earlier 8-K.

Finally, in our Chinese joint venture, we continue to lag behind original plans, but we are encouraged by the improvement of the JVs underlying business for the second straight quarter, with May and June being the strongest months in the recent past. Quarter-over-quarter sales improved primarily as a result of mix enrichment caused by increased sales of high-quality yarns in the critical end uses, and additional improvement came from several cost reduction initiatives.

For the June quarter, our financial impact of the JV was a charge of approximately $1.4 million to the equity and earnings of unconsolidated affiliates line of our consolidated statement of operations.

This concludes my remarks on the financial statements, and I would now like to turn the call back over to Bill for some final comments.

Thanks, Ron. There is no doubt that this fiscal year has been a tough one, yielding disappointing financial results. The management team here at Unifi remains committed to making the company both profitable and successful. Our priorities for fiscal 2008 include continued consolidation in the evaluation of our businesses, which can be evidenced by the recent decisions to exit our facilities in Dillon, South Carolina, and as of this morning, Kinston, North Carolina. Both of these closures will provide significant savings for the company without sacrificing volume. We're in a good position to monetize our assets held for sale, and we anticipate generating approximately $8 million in sales in this first quarter of the fiscal year. We also continue to leverage our success in Brazil and to focus on improving our mix, as we build on the success of our premium-value-added yarns.

With this said, the company is forecasting EBITDA for the fiscal 2008 year to be in the range of $60 million, excluding dividends from equity affiliates. First quarter EBITDA is forecasted to be in the range of $12 to $13 million.

This concludes our update for the June quarter and our fiscal year. And so, operator, we'd now like to open the floor to questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from Bryan Hunt of Wachovia.

Thanks a lot.

Hi Bryan.

Good morning, how are you?

Good.

I was wondering if you can talk to us about the gap between commodity imported POY and what Kinston production costs were.

You know, Bryan, I'd like to do that, but from a competitive standpoint we would like to keep that in-house. We certainly know just in general that -- I think we've talked about this in the past -- that there is an advantage -- there is an advantage Asian producers have in the cost of PTA. Our biggest advantage, one of our bigger advantages here, is the flexibility I talked about. And, of course, Kinston also has very high fixed overhead, and there's evidence from the situation in the second fiscal quarter of this year where, as we had to close down a line because of the dip in volume, it was about a $300,000-a-week amount that we had to absorb as we took that line down.

So it's a high-cost facility. There are advantages from a make-versus-buy decision. It also gives us flexibility to choose who our supplier is. So if the pricing is not competitive, it allows us to source from other sources, as well. So it gives us a lot of flexibility without picking a particular price or a price point that might be better than what it costs us to manufacture it at.

Are you all moving into any guaranteed volume contract with any suppliers of POY, or are you --?

No.

-- purely buying on a market basis?

That wouldn't cause flat market. We were making -- we were having -- we have arrangements established, but, no, we're not entering into contracts that would require us to take certain volumes, no.

And can you tell us who those arrangements are with?

What I'll say in regards to that is that we have requirements to -- some of our customers, of course, have requirements for NAFTA and CAFTA requirements. And so we will be sourcing about 65% domestically here in the United States and sourcing the remaining portion offshore and importing that yarn in. And at the same time, we'll be moving about 40 million pounds of production that is at Kinston today into Yadkinville. So we will run Yadkinville flat out, which will also help our efficiencies at Yadkinville.

Great. And I just want to switch gears. Looking at your asset sales, it sounds like you got a lot of real estate offers in Q1. Is it possible, one, to sell Kinston, and two, what other major assets do you still have for sale?

Well, I wouldn't -- I think Kinston is a difficult situation. We have -- we do have a lessee in part of that facility there that is going to remain, and part of our exit is working with them to provide them -- we have certain service agreements with them that we're working through. Some of them last for six months; some of them last for 12 months. And, of course, it's going to take us four to five months to exit. So the six-month contracts are not problematic.

But there are some exit costs associated with working through those service agreements with them. So they'll stay on their section of the site. It's possible, depending on what they want to do with their business, that they might want to purchase one of the lines or both of the lines that we're exiting there that we're currently using. I believe they have an option currently on one of the other lines we already exited.

So I don't see us in the situation of selling Kinston. We certainly wouldn't want to sell it to someone who would put more POY capacity back in the marketplace, from that standpoint. So I don't think you'll see that. Of course, we have no -- very little asset value there. As you recall, we purchased that facility for inventory at about a $15 million discount, total purchase price of $24 million. So what our asset value there is simply the capital costs we've put in to improve equipment, which is only about $2 to $2.5 million.

The plants that we have sold recently, we just sold Plant Five in Madison. We have Plant Seven under contract. We have Stanton, we're doing a sale leaseback in Stanton. And we're working on a contract in the Dillon facility. So all those should come to fruition this quarter and go into that restricted cash basket and under our bonds. We'll pull that out as we spend CapEx this year, and our CapEx forecast for this year is very similar to last year, around $12 million, which will happen to match about what that account will build to.

And then last question. With the major change in the Board, is there any significant change in strategy of the company? It sounds like its pretty much status quo?

No. The Board is still committed to our domestic strategy. They're also committed to our China strategy. I mentioned that in my formal remarks, and I think that's an important question you ask. We are committed to that. We believe that China will be successful. It's going to take as much or more dedication than we've had in the past, and we're dedicated to doing that, both in the next fiscal year and then into the future expanding it, as we had planned originally, that we had originally talked about with everyone here on the call quite a number of calls ago what our original plan was to go forward.

All right. Thanks, Bill.

Thanks, Bryan.

Thank you. Your next question comes from Claire Gallacher of Caris & Company.

Good morning.

Hi, Claire.

Hi. Could you talk a little bit about your current capacity levels? You're talking about closing different facilities, so I'm just trying to get a sense of where you're at with your operating capacities?

Well, let's take a look at a couple of different ones. If you -- let's just start with nylon because we don't want to forget about nylon, which is a very large piece of our business. We consolidated three plants into one a little over a year ago now, probably 15 months ago. And that plant is running probably around 92-93% capacity. It's doing very well. Our nylon business actually in fiscal '07 did very well, came in slightly below target but very close to target.

Moving to the polyester side of the business, as I mentioned, we're going to move about 40 million pounds of POY from Kinston to Yadkinville. And so that would move the Yadkinville from up around 100 million pounds a day to about 150 million pounds. So we're running -- you could say we're running 70 to 75% kind of at capacity, 70% capacity approximately in the spinning side.

On the texturing side we have -- today we're running at very high percentage, in the high nineties, I believe, of our texturing machines today. The issue, and I mentioned this either the last call or the last two calls, and I mentioned in my formal remarks is, while we're running a lot of machines and the volume, in fact, is up, when you even look at last quarter, March versus March, the polyester division is up slightly. But, again, we're running quite a bit more commodity, 70-denier commodity on the texturing side, which takes twice as much machine time. So the machine times fools you a little bit. So we're expecting it to go close to 100%. As we move the POY production in Yadkinville, we'll have Yadkinville running at capacity on the spinning side.

And depending on, of course, the flexibility I'm talking about is we may not -- running 90 machines is not always the answer if part of the product you're running there is returning very small value. We're better off looking to find -- changing the mix slightly, as we've been talking about, that we've lacked that flexibility to move into some other products, maybe even exit some products where it doesn't make sense to be in. Which we did two, two-and-a-half years ago, if you recall, but we had the flexibility to do that at the time. And with Kinston, at the moment, we've lacked that flexibility the last nine months.

Okay. And then touching back on your comments on the nylon business, do you have in front of you what the volumes were for nylon?

Yes, I do. Give me just one second to go to the nylon page. If I look at nylon, year-over-year June '07 versus June '06, nylon volume was up 5 point -- for the quarter to date was up 5.28% and pricing was up 2.08%.

And do you have the same for polyester?

Yes, I do. Polyester was down about 5.7%. Pricing was up 5.1. So the net is a slight decrease of about 0.5.

And then my last question. Do you expect the China joint venture to be positive in fiscal '08 for you guys?

I think we're still going to run on a slightly negative rate, at a lower rate than we have run. As we look at our projections for fiscal '08, running negative the first -- certainly the first half of the year with improvements, but still running negative. The numbers keep coming down, but of course, they're still negative. As we move into the second half of the year, we expect to see improvement not only in the EBITDA number but, of course, in the net income number, which is what you see as we pick up that number in our affiliate line offsetting some of those earlier losses in the first half. But I think the net for the fiscal year we'll still see a small negative.

We are -- the amount of our premium-value-added yarns that we're selling out of there is increasing. It's a very -- it's a small percent today of total production. Now, their total production there is actually very large, and they're probably running a small percent of the top-line yarns at about maybe only 1% or 2%. But it's increasing. We're expecting to increase throughout the fiscal year. We're also seeing improved sales in what we call our KDY product, which is really the existing product they had but at a higher quality, so that it can go into a critical end-use, which it's not going into today for dyeability, et cetera.

So we're seeing improvement there, but to answer you, it's a long-winded explanation. I apologize for that. But the bottom line is we still expect to see a negative, I think, for the entire fiscal year.

Great. Thanks so much.

You're welcome.

Thank you. Your next question comes from Marianna Kushnir of Nomura Asset Management.

Hi. Regarding your comment on year-over-year volumes, I was wondering, if you excluded Dillon, what would be the volume comparison? Because I imagine it would be worse because you didn't have Dillon in the year before.

We didn't, and we haven't separated because, as you know, throughout as we went through the last quarter, we were in the process of combining it with Unifi and with the texturing operations. And we're not able to separate that out for you. I can tell you, let's talk about the market. The market itself for the fiscal year dropped somewhere around 10% for the fiscal year. And our share probably mirrored that market drop.

But you've stated that imports were flat, so basically just market was down because customers continued to pull out.

Right. The imported yarns stayed flat on a volume basis. But, of course, if they stay flat on a volume basis and the market consumption shrunk 10%, their share would go up slightly, about maybe 2 to 2.5% maybe.

And what is your expectation for the market attrition for the next year?

Well, of course, there's always a lot of industry forecast on this. I think that the numbers forecasted will be slightly at the -- still at the double-digit level of around 10%.

Is that a little bit worse than the recent expectation?

No, that's been -- we had said -- I think the last time we talked about a longer-term projection of the market. The industry information would say that -- and I believe we said this the last time -- that next fiscal year would be around ten. As we move into the next couple years, into '09 and '10, if you take the CAGR rate with those three years combined, it's probably a 6.5 to 7.0%. So the expectation is that in '09 and '10 there will be a lesser deterioration for NAFTA POY market. And from a DTY standpoint it's maybe slightly -- that rate, that three-year rate is probably around 5.0 to 5.5%.

But how about the Caribbean initiative? On your -- during your investor meeting you suggested that some of those benefits are picking up, and how are they factoring in in this 10%?

Well, now that the agreement has kicked in and most of the countries have signed on, what we're seeing is about a 4% increase in the imports from the CBI region, and there's also an increase for compliant yarn going into the region of about 3 to 4% year-over-year from '06 to '07. Projections are that they'll be about that way in '08, about the same kind of increase.

Now, you remember the CAFTA region while it's growing at the rate of 4%, the base that you're determining that 4% on, of course, is not as large as the U.S. market. So, yes, it does have somewhat of an offset, but you should not offset the 4% increase there against the 5 to 6% here because the markets are not the same size.

Okay. And then on -- regarding Kinston, I would like if you could just guide me through how much you paid for that and how much cash you returned for this enterprise. I just want to understand actually how much value that was contributed?

Right. Let me give you -- just walk you through it a little bit. We paid a little over $24 million, and it was all for inventory. As you recall, we took a seller note back for that $24 million from the seller. And we paid that note off in nine months. In fact, since we bought the inventory at a discount, there was probably about $15 million that was earned over top of the $24 million very quickly, probably in the first 90 days to 120 days at the most. And it has also returned -- we don't break out our plans on a segment basis for EBITDA, but as you can tell from that, in the first 90 days -- in nine months we paid off the seller note, which generated quite a bit of cash from Kinston.

We believe it was an excellent acquisition to make. As the world changes, we have to adapt, and we believe that the timing is appropriate now to make the change that we've announced this morning to even create more value here and give us the flexibility, as I said earlier, in our texturing operation. So we're going to capture that benefit that Kinston created for us and allowed us to be in this position to capture that $12 million in savings in our POY strategy going forward.

Okay. And then regarding your updated EBITDA guidance, a few quarters ago you gave us pro forma numbers for Dillon and Unifi, and at that point you were suggesting that with all the cost restructuring, the pro forma EBITDA would be about 75 million. And now it's down to 60. Could you kind of discuss that difference?

Sure. If you remember on the schedule, we pointed this out at the time that we provided this that the numbers we had they were audited numbers. We wanted to make sure that the numbers we provided were audited financial numbers. So the base starting point for that number was the fiscal '06 audited statements, which the EBITDA on that statement, if you recall, is about 56.9 million.

Now, you know that this fiscal year we're really starting with a base much lower than that. And most of that difference can be accounted for between where we're at today and where that fiscal '06 year ended.

Okay. And then regarding first quarter '08 guidance, I mean, it's pretty much flat from the current quarter. And then if you were to adjust for the LIFO impact, which I imagine you can work through that, so why -- why is it just flat?

Yes, that's a good question and that's a good reminder for everyone that the first quarter and second quarter are typically our lower quarters for a couple of reasons. One is, some products are seasonal and the second issue is we have the holiday period in July that our customers shut down anywhere from a week to ten days. So we're also not shipping during that period of time. So we have anywhere from seven to ten days of sales that are not in that quarter that would be in the prior quarter for a full basis. That happens in the second quarter, as well, typically, if Christmas falls in that quarter. So whichever quarter it falls in. Last year September, to give you a comparison, last year September we had EBITDA of around 10.3 million in the first fiscal quarter.

But that was without Dillon?

That was without Dillon, that's correct.

Okay. All right. Thank you.

Let me make -- just a follow up. There has been a market decline, as I previously mentioned, and it has affected both Unifi's volumes and it has also affected Dillon volumes, as well.

Okay.

Thank you.

Thank you. Your next question comes from Chris Dechiario of ISI Capital.

Good morning.

Hi Chris.

Hi. A couple more Kinston questions to start off. How much -- I guess the 12 million in annual savings that will be ongoing after this year that you expect from the closure of Kinston, is that offset at all by anything like -- I mean, from not having third-party POY sales and margins that you would have had with Kinston open? Is that like a total savings for the company including, obviously, the purchases you're going to have to make in the future --?

Yes, that's a net -- that's a net number. We are still going to have POY sales. Yadkinville is going to still have third party sales that will all be internals. So there will still be third party sales of POY from our Yadkinville facility. But that number is net of all those things that come together to do that. I think also -- so we're still running our specialty there. We're going to move some commodity to Yadkinville. So it's a net number. We've taken all those things into account.

Okay. And you've alluded to this before, but I was going to make sure. How many, I guess, major POY suppliers are there that you potentially could purchase POY from? Is there a good number so that you wouldn't be stuck being beholden to any one or two?

Well, there's really in the domestic market for our NAFTA/CAFTA supply, there's essentially one supplier. From an offshore standpoint, there are many, many, many that we could go to. And we're focusing on one because of the supply chain logistics of trying to have multiple foreign imports. But there are alternatives to the 35 to 40% of that if we need to.

So if you had a problem -- theoretically, if you had a problem, let's say, on price or whatever with your one U.S. supplier, what would your alternatives be? Because obviously you can't make your own --

Well --

-- chip with Kinston closed as well?

Yes, you would think that, but we said that we were not -- we are not -- we are not entering into take-or-pay contracts on volume but we are making arrangements on pricing. I did -- I mentioned there's only one, there's really two. I mean, you could go -- there's one in the continental U.S. and there's also one south of the border in Mexico. So technically there's two suppliers. I misspoke when I said one. So there is alternatives there. But while we're not doing take-or-pays, be assured that we will make sure that we have our best pricing that we can get. And we have -- we still have some leverage on that with a potential second supplier if need be.

Okay. And then in terms of the change in the Board, can you just, I guess, describe it a little more? What was the catalyst for it? I mean, there's a lot of Board members that are leaving. And then the changes with Brian Parke, as well. Who drove that or what drove that? Obviously, you said there will be no difference in strategy going forward, but if not, then what was the reasons for the change?

Well, let me respond to that question this way. We will be filing in the next couple of days an 8-K, because as a result of the change in the Board there is a disclosure requirement. So in that disclosure, there will be additional explanation. And so we will make that disclosure at that time. I'm not able to do that today until we actually file that Form 8-K with the required disclosures on that form.

All right. Okay. And, then, relating to Quaker Fabrics, you expect, I believe as you've said, to retain a good portion of that business going forward.

60 to 70% probably.

60 to 70%, okay. And how -- just to, I guess, to put that into perspective. What has happened -- can you give us sort of an update on what has happened with Malden Mills and Joan Fabrics bankruptcies and how those have played out in terms of business that has been retained or not, or where that business has gone?

Sure. Let's take Joan Mastercraft first. The Joan business, of course, that was purchased -- portions of that business was purchased by one of our customers, a very good customer, a very stable customer, by the way, and were doing quite a bit of dying for them for that product. And so that portion of the business we're retaining through that customer because they did a purchase, as you recall, they did an auction for the business divisions they had, both the contract and the other.

Malden, we do not -- through their process recently they did -- I forget the date now, it goes back a number of months. But we did not lose any money on their filing. We were whole on that filing. And Malden is a very good customer. We do a lot of our Repreve product with Malden in the Polartec line. So it's going very well with Malden. They've been stable. They've been making their payments well and have grown to be a pretty good customer, especially with, as I said, the Repreve product which is the green story recycled yarns -- is going very well there.

Regarding Quaker, just to touch on Quaker, they're right now going through the liquidation process. They have not technically filed in the courts. At some point they'll have to to make it official. When you look at their financials, and I'm just going off the public information, basically, they don't have that much debt, about 19 million of debt on their term debt and maybe 10 to 12 million, I think, on their revolver backed up by inventory and receivables. And their real estate is probably worth more than certainly the term debt. So there's a possibility that there could be some recovery because it's not the same situation as Joan Mastercraft where Joan had a significant amount of debt far in excess of the value of their assets.

Right, okay. And so -- okay. The assets that you can tell between Joan and Quaker, those that won't be just completely liquidated, but the businesses that will be remaining and that will be auctioned off seem to be staying -- obviously, that production is staying in the U.S. somewhere where you still have the possibility of retaining it?

Yes, for the most part. In some cases, when we say we're retaining 60 to 70, the reason we wouldn't -- 100 doesn't say here is in some cases what's happening is the fabric is moving to be imported versus any of that being produced here. So there is on the Quaker side, I believe we're going to see some of that fabric, the lower-end fabric be coming from imports and that's why 100% of the business isn't going to stay here.

Okay. And then my last question is just on the LIFO adjustments. Did you say it was $2.4 million?

2.2 million, I think, for LIFO. There was some other inventory adjustments, but the LIFO portion was 2.2.

And then if we just put aside for a second, you're trying to switch to FIFO for 2008 because it sounds like it's going to take a few months to make that determination. Should that -- should we expect that to reverse then in future quarters? I mean, I guess --

You know, I always hope it does, but there's no way to know how that works because it's -- and that's what makes part of the forecasting that difficult is it's both predicated on an index that's determined -- which we reset at the beginning of each fiscal year what inventory levels you ended the quarter with and, of course, then what did pricing do. If, in fact, we get a determination in the timeline that we believe and hopefully it will be the right determination, which we believe is to move to FIFO, the way it would work is it would be -- I believe it would be retroactive to the first of this quarter, and then the resultant LIFO balance, if you will, would I believe get restated in prior quarters. So you wouldn't -- if we get the determination to actually move to FIFO, I would not expect to see an impact in this quarter for LIFO one way or the other.

Right. Okay. And then just getting away from the accounting for a second, when those raw material prices shot up, were you able to put surcharges on that were able to maintain your margins?

We did not do surcharges. We did do price increases.

You did.

Trying to avoid the surcharge situation. So we did raise prices, yeah.

So that -- which is very typical --

And you see that in the -- for instance, when I read -- I think it was Claire that asked the question on the volumes and pricing and if you noticed, in poly alone the pricing was up 5% year-over-year on the quarter basis. Oh, sorry, that was on a quarter basis. So on a quarterly basis, this June versus last June up five, and versus the prior year, prior year it was up -- just over the March quarter it was up around 3%.

Right. So it sounds like, then, if we just get away from LIFO and FIFO on the accounting, you've been doing what you typically do, which is when your raw material prices go up, you've been able to raise prices to maintain your margins?

Right. And then, of course, LIFO tends to take that back and put it in a layer. You know, that's what happens. You raise your prices but you don't see the effect of it sometimes because LIFO comes along and scarves it up and sticks it in an inventory layer.

Right, right. Okay. Thank you.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS). Your next question comes from Jeffrey Stewart of Piper Jaffray.

Hi, Jeff.

Good morning, Bill. Who draws the short straw for the China residence now? Not you, I guess.

Good question.

Just a question about, I probably should know this, but I'm too lazy to look it up. I saw that the Farm Bill, they were still working on the Farm Bill. Is step two completely gone or are they going to re-load that in the Farm Bill?

Well, it's been -- we actually discussed that this week. There's attempts to, of course, reload step two into the bill, but I believe there is so much other things that have been loaded in there, pork belly kind of stuff, everything from food stamps to whatever, that I think as of the way it stands, it needs a little bit going through here -- as it exists is probably pretty small, pretty small.

Okay.

Now, you're referring, of course, to those other people on the line that really affects not Unifi directly but this is a Parkdale question about how it might affect Parkdale who is a cotton spinner. So while I'm on Parkdale I'll just mention that they have actually done very well this first six months of the fiscal year and returning better returns than what they did last year, which, of course, has driven us to sit down and review where we were with the evaluation. That is what did drive the re-evaluation and the write-down of our value.

I do want to come back just a moment. I mean, I answered your first question a little flippantly about China. If you did notice, we are asking Brian to be available to us and represent us for a period of time in our joint venture there. There's a lot of relationships there, and we'll work to do that over the course of anywhere from the next 6 to 12 months to make sure we have a smooth transition. We're still dedicated to that joint venture, and so that might somewhat answer your question. But I would say there will be some executives who we'll need to rotate over there on and off during the next fiscal year.

Okay, thank you. And last question, some of the earlier calls of this quarter, the conference calls, we're hearing from not only the apparel manufacturers, but also a few of the retailers that have had some calls already. It's hard to say a storm cloud is brewing, but you can say there's certainly some negative -- sort of a negative nuance that that market is extremely choppy. Are you hearing any of that other than -- I mean, I'm sure we're all reading the same headlines, but are you hearing anything specific about maybe the fabric channel slowing down in North America or anything like that?

I haven't seen that and a lot of our -- a lot of the things that's running into apparel for us is the higher-performance yarns and, of course, Repreve falls into that category because a lot of our Repreve product is into apparel, especially (inaudible). Knits seemed to be good. You know, we're not hearing that big, choppy thing that I guess you're referring to. At least not from our customers. We had a big development show in Salt Lake City which is coming up next week, the outdoor retailer show. We'll probably get a better feel from there as we talk to customers who come to our booth. But at the moment we're not hearing that from our customers.

Okay. I don't remember, do you guys do any of that -- I'm trying to think of the technical name for it, the wicking yarn?

Our brand name for that is Sorbtek. That's one of our larger-selling premium-value-added yarns. Repreve, actually, in the short period of time we introduced Repreve, which was last fall, it's kind of caught up to it and did about the same volumes. But Sorbtek is still a very good selling yarn. We have a lot of programs going with the likes of anywhere from Wal-Mart to Reebok. So, yeah, I think it's a great -- if any of you have had a chance to get a shirt that has Unifi yarn in it, I think you'll see that -- we believe that it wicks moisture better than anything else out there.

And maybe just remind us, who are the competitors there on the yarn side? Is it domestic or international and what are the names?

Well, there's a couple different ones. You've got CoolMax. There's also some that add a topical finish to the garment, which doesn't last as long. Where with our product being inherently in the yarn, 20 washes it's performing just as well as it did the day you bought it. If it has a topical finish it's going to wear out, wear off and not wick moisture as well, or if at all, after a certain amount of washes.

There are some foreign competitors. The Nike golf shirts are under the brand of Dri-Fit.

Okay. All right. Thanks a lot.

You're welcome.

Thank you. Your next question comes from Michael Schneider of MacKay Shields.

Hi guys. How you doing?

Hi, Michael.

Most of mine have been answered, but could you talk a little bit about what's built into your projections in terms of mix premium versus more commodity and kind of how you see that progressing through the year?

Well, we left, from a budgeting standpoint, we more or less did not move anything around mix. We left the mix kind of the way we saw it today, even though in the second half of the fiscal year, we would expect to be able to take some actions that we can't take today because Kinston will be closed by the end of November, December. We'll have to work through some bridging inventory before we actually start to see the financial benefits of it, because we will build inventory slightly as we're working to shut it down. We actually won't -- we won't shut it down slowly is because of the type of facility it is, and so actually there will be a day we still take the whole line, both lines down.

So from your point, we have not tried to go in at this point and make assumptions that in X quarter or X month in the first half of the year, that we can move the mix around. So we more or less assume similar volumes and similar mix in the budget.

As it relates to, I guess, your potential change to FIFO, is that kind of an assessment that you're going to be dealing with higher raw material prices for the foreseeable future? Can you talk a little bit about your view on raw materials?

Well, for the short term, in the short term I'm referring to, let's say, the months of August and September, there could be slight declines or flat -- flat to slight declines. So there is some dynamics going on in the raw materials market that is not really related to oil price. I know everyone has seen oil price go up to $75 a barrel. Gasoline prices have actually fallen, which is surprising in the summer, and I think that's the same -- some of the same factors that are driving our raw materials to stay relatively stable in the months of August and September. Now, I really don't want to project further out than that, because that's about as far as we can see.

And from a FIFO standpoint, most of the companies in our industry are on FIFO, so it makes us comparable. So when you do try to compare us to someone, we'll be comparable better when you do your analysis.

And then just finally on Kinston one more time. In terms of recognition for some of the savings and working capital, what would you anticipate in fiscal '08 as far as working capital? And then you made some commentary. Obviously, you're going to incur the costs and you gave some parameters for what they would be. But of the 12 million in savings, how much of that is sort of built into the 60 million forecast, if any?

There's very little built in from the standpoint that as we were developing the budget first of all, we hadn't made a final decision really on what direction we were going to take Kinston. There is a little bit in the back half. As I mentioned, there's a couple million dollars probably that's in the back half of the fiscal year that's built into the budget. The balance of it is not. So as we work through what these actual exit costs are and, hopefully, we'll be able to create a win-win situation for both ourselves and our lessee and come out with less exit costs than we have anticipated and built into our numbers, so we might see a slight pick up. But at this point, I'm not going to forecast that, because we're in the process of it.

We will, since we file an 8-K on the Kinston closure and only mention the severance in it, as we actually get a final number, Michael, we will be updating that and providing that actual number once we know what it is.

And the very last question. In terms of asset sales, just because there's a lot of stuff going on there, could you just really quickly summarize what you anticipate to be sold in fiscal '08? We talked a little bit about what you expected in the first quarter with some of the plants. You have Unifi-Sans that's supposed to --

I didn't include -- I actually didn't include Unifi-Sans in that. We're talking about asset sales on this call so far and I'll address Sans in just a second. When we're talking about the asset sales, we are talking about the Dillon facility which will be somewhere around a $4 million number. The Plant Five in Madison, which has sold approximately $2 million. Plant Seven probably in the $1.4 to $1.5 million range. The Staunton facility are in the $3 million range.

And that kind of takes care of all the what I would say asset sales, which really leaves -- only leaves us a couple on the books which probably won't move as quickly. One of them is our plant, what we call Plant 15, which was the dye house that we recently exited. And then we have a small building that we refer to as Technical Services in Reidsville, North Carolina, as well, that has low ceilings. It doesn't fit the warehousing customer very well.

So, and then we have a little bit of Plant 15 PP&E on the books, as well. But for the most part I believe you can assume that when we get through this quarter, we will have completed substantially all of the asset sales you're going to see. But it's substantial. It's $8 million.

Regarding Sans, we did exercise that put -- if everyone recalls, we are still in process of having discussions with our partners. The contract would say that we would conclude that sometime, as we told you, in fiscal -- first quarter -- calendar quarter of '08. We expect to be somewhere in the range between $12 and $13 million. And, of course, from a cash standpoint, I mentioned we're bringing back $10 million from Brazil, which will allow us, of course, to pay down revolver here prior to our interest payment in the early winter.

Great.

Does that take care of you, Michael?

Yes, I appreciate it Bill.

You're welcome.

Thank you. Your next question is a follow-up from Bryan Hunt of Wachovia.

And here's a great question. What are you going to do with all this cash, Bill? I mean, I'm looking at EBITDA of 60, interest of 24, CapEx at 12, which will be offset by asset sales. You're picking up some working capital. So free cash flow looks like $40 million-plus and then you're picking up another 12 from Sans. So you can be sitting on, call it $50 to $60 million more in cash than you are today.

Right. Well, certainly what we've said we're going to do is, first, we want to get our revolver paid down. We have 36 million on the revolver. So certainly as we have excess cash, we will pay our revolver down and do that with the cash. There is certainly a minimum amount of cash we'd like to keep once we get out of the revolver. There's a certain level of cash that we'd like to keep to avoid going in and borrowing money on a daily basis on our revolver, which is expensive.

So we're going to keep a base of 10-plus million dollars just to stay out of our revolver, because our cash balance swings. As you know, you see our cash balance at a snapshot basis at the end of a quarter. And as you know, as you operate a business, cash changes every day. So it goes up and down. We have significant raw material suppliers we pay. Our electric bills, we spend $25, $30 million a year for energy. So at certain times of the months we have significant bills that come due.

So that's basically -- that would absorb most of that, getting the revolver paid down, keeping a certain balance, and then that might leave some excess balance. It's not huge. We'll address that. I'd like to have a certain amount that we will then look and see whether there's a strategy where we should deploy that that makes the most sense.

Is there anything out there left to buy or, I mean, if you running with $10 to $15 million of excess cash over and above your cushion, would bond repurchases be something you would contemplate?

Well, as I said, I think what we would do, once we get -- if we get into that position, we will evaluate all the alternatives that is available to us. Certainly that would include any debt reduction. It includes strategic alternatives where we believe it will add the most value to the company and our shareholders.

All right. Thank you.

You're welcome. Operator, we have time for one more question.

Thank you. Your final question is coming from Steven Golden of River Ridge.

Hi, guys. A couple of quick ones. What is the encore to Repreve and when do you expect to have that out in the market and what are you guys working on right now?

Well, kind of like Coca-Cola and formulas, we don't want to disclose what's in the hopper. But I will tell you that we do have a couple of things that are in the hopper that we think have potential for the future that we're working on that are not at the point of sample production. But our product development group is constantly working on that.

So when do you think the next big product intro is, not knowing what it is? But is it a quarter away or is it a year away or is it two years away?

I think it's certainly not the next quarter. You know, these things sometimes move quickly and then they slow down because there's a glitch on how it might work as we move it into one of our mill partners, how it actually performs. And so it takes a while to work them out from a performance standpoint. But possibly sometime during the fiscal year, but the process of start to finish on these things, it does take a while.

We just introduced Repreve last fall, and I wouldn't -- I don't -- we're not a -- we're not interested in just bringing new products out for the sake of -- we want to have products in our hopper that we can commercialize. When we actually turn to production, that we believe we'll create enough volume to make sense to do the development work and create value after we sell it, rather than selling just a few pounds. So we watch carefully not finding or spending all our development time for a niche product that will create such small volume that we don't get a return on it.

And on your China JV, can you give some topline information of what roughly topline at the JV was in fiscal '07 and what you roughly expect the topline to grow in '08?

Well, give me just one second to pull out a piece of paper here. As we entered the joint venture, I think we told you that the sales at the time were somewhere around about $120 million. The fourth quarter was about 35 million. So we expect it to grow as we -- it's running pretty much full, all right. So the growth in the topline comes two ways at the moment, until we expand it with additional facilities. It comes by selling more of the KDY product, which is again moving the existing product they had to a better quality so they can go into critical end uses. And then additional sales in PVA.

So I think the topline will grow slightly which is directly, of course, related to the fact that we expect the bottom line to improve throughout the year. But probably still for the full fiscal year remain slightly negative.

Okay. I guess the last question related to a previous question. Some pretty dramatic and unprecedented changes at the Board level. I know you say there's an 8-K coming out at some juncture down the line, but this is a public forum, so there shouldn't be any restrictions on saying anything here, in terms of giving some guidance as to what was the genesis of this and what it means to investors. As opposed to leaving people in a sort of lurch here for whatever the time is before that 8-K comes out. Can you please comment?

I can't -- you know, based on the -- of course, I did discuss this with counsel who's preparing the 8-K. The timing on the 8-K is as quick as we can get it out. The requirement is it gets done within four days. So it's no longer than four. We are working to get that out. We actually have to -- the process for that, of course, is you have to have individual explanations from the Board members. So that has to be put together and for me to say anything before that's actually done properly would be possibly out of context, possibly incorrect. And so I really --

Even if it was qualified as your own opinion and not a, you know--

No, I don't think I'm willing to provide my own opinion. I think that individuals speak for themselves and the company will file the Form 8-K as appropriate. So, I'm sorry, but I appreciate the question.

Okay. All right.

All right. Well, thank you. And I want to thank everyone on the call today. Again, the management team here and the Board is still focused on the strategies that we've outlined to you in the past, both domestically and in China. And we're going back to accelerating our plans at Kinston. And we're looking forward to providing that, bringing that value to the company and to all of our stakeholders. So, again, thank you, and I appreciate your time and your interest in the company.

Thank you. This concludes today's conference call. You may now disconnect.