Unifi Inc (UFI) 2008 Q4 法說會逐字稿

Good morning. My name is Donald 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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Thank you.

It is now my pleasure to turn the floor over to your host, Ron Smith, Chief Financial Officer. Sir, you may begin your conference.

Good morning, everyone. Joining me for the conference call today is Bill Jasper, our President and CEO. 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 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 on this call.

Before we begin, I need to also advise you that certain statements included herein may be forward-looking 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.

Before we review the financials for the quarter and our fiscal year, I'd like to turn the call over to Bill Jasper, who will provide a brief overview of the market conditions that impacted our results for the quarter, as well as an update on our strategies in China. Bill?

Thanks, Ron, and good morning, everyone. The economic news certainly hasn't gotten any better since our last call. Consumer Price Index for June was 5% higher than one year ago with the adjusted index for transportation increasing 12% and energy increasing nearly 25%. With household incomes stretched even thinner, June's Consumer Confidence Index was the fifth lowest reading ever, and the Expectations Index reached an all time low. As you can imagine, the ongoing troubles and uncertainty in the economy are taking their toll on many of our key business segments.

Existing home sales resumed its fall in June, declining 2.6% from May, and the June figure for existing home sales was the lowest pace recorded since the first quarter of 1998. With home sales down, sales of furniture declined 7.2% compared to the prior year, and sales of furnishings are off nearly 11% from last year.

US sales of cars and light trucks slid 18% in June, a selling pace that annualizes to 13.5 to 14 million bills, the weakest level in 15 years. Major auto consulting firms now expect full-year 2008 auto sales to fall 12% compared to last year.

Retail sales of apparel have been mixed with discounters seeing some relief as consumers were drawn by heavy discounts and their economic rebate checks. However, same-store sales for apparel-only stores declined approximately 1% in June, and same-store sales of apparel in department stores dropped nearly 4% year-over-year.

In synthetic apparel, year-to-date imports of synthetic apparel are down 2.5%. But on a positive note, imports from the CAFTA region continue to gain share. Imports from the region are up 12% as US brands and retailers continue to take advantage of the shorter lead times and competitiveness of the CAFTA region. That is especially positive for us, as the vast majority of garments made in this region use US fiber, and we see that trend continuing.

In addition to the challenges caused by softness in consumer demand across many of our segments, our business continues to be negatively impacted by rising raw materials and other petrochemical-driven costs. Polyester raw material prices increased by 11% from the beginning to the end of the quarter, and the average for the quarter was 17% higher than the prior-year June quarter. And in the nylon business, polymer prices have increased by nearly 12% since the beginning of the calendar year.

This rapid rise in the price of crude oil and the seasonal demand from summertime consumption in the US drove the increases throughout the quarter and suppliers of the key ingredients for our polyester are forecasting substantially higher prices in July and August, before costs may begin to turn down.

In summary, the company has faced an extremely difficult operating environment, driven by a faltering economy and unprecedented increases in the cost of raw materials, energy and freight. However, we have reacted decisively in dealing with these conditions. A combination of sales, price increases, cost containment, operational effectiveness, customer service, and an aggressive raw material sourcing strategy has enabled the company to mitigate much of this impact, as you will see when Ron reviews our results.

Before turning the floor back to Ron, I would like to quickly address China. As mentioned in our last conference call, we have been in the process of exploring strategic options with our joint-venture partner, with the ultimate goal of determining if there was a viable path to profitability for the JV. We have concluded that although we have successfully grown our position in high-value and premier value-added products, commodity sales will continue to be a large and unprofitable portion of the JV's business.

In addition, we found we have been focusing too much attention and energy on non-value-adding issues, detracting us from our primary PVA objectives. Based on these conclusions, we have decided to exit the JV and have tentatively agreed to sell our 50% interest back to our partner.

We expect to close the transaction in the second quarter of fiscal 2009, pending negotiation and execution of definitive agreements and Chinese regulatory approvals. However, there can be no assurances that this transaction will occur on this timetable or upon these terms.

While we appreciate the hard work and efforts of our partner and everyone involved with the JV, we believe that a fundamental change in our approach is required to maximize our earnings and growth opportunities in the Chinese market. Accordingly, the company plans to form Unifi Textiles Suzhou Company Limited, or UTSC. The focus of the new company will be to develop, source, sell and service PVA products in the Asia region, and to do so profitably.

UTSC will benefit the company by removing the challenges facing the joint venture in its commodity production, while providing greater flexibility, faster product innovation and enhanced service to customers in the growing high-value segments.

Under the new business model in China, Unifi will continue to market innovative, high-value and PVA products, and work with customers to grow in applications designed to meet ever-changing consumer demands, while ensuring high-quality production of these products.

Initially, our partner, Yizheng Chemical Fibers Company, will likely serve as the primary toll manufacturer for our PVA yarns, and we expect a seamless transition for our customers in the region. The new company may add other toll manufacturers as appropriate and we expect to quickly grow the portfolio of PVA yarns available in the region.

Ed Wickes, who is currently President of the JV, will serve as President of UTSC and report to Roger Berrier, our Executive Vice President of Sales, Marketing and Asian Operations. We expect the new company to be operational during the second quarter of fiscal 2009.

As a result of these changes, the company will take impairment charges of $6.9 million in the June quarter to adjust the carrying value of long-lived assets in our ownership interest in the JV, based on estimated proceeds of $10 million.

During fiscal 2009, we expect to invest $3 million to $5 million for the initial start-up and working capital requirements of UTSC.

With this as a backdrop, I'd like to turn the call back over to Ron, who will take you through our results for the June quarter and the 2008 fiscal year. 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 quarter were $189.6 million, which is an increase of $4.3 million or 2.3% over the prior-year June quarter. Net income, including discontinued operations for the quarter, was $771,000 or $0.01 per share, an improvement over the net loss of 74.2 million or $1.23 per share for the prior-year June quarter.

Included in the prior year's June quarter was a pre-tax impairment charge of $84.7 million to adjust the then carrying value of the company's ownership interest in Parkdale America, which was the primary driver in the $92.7 million pre-tax loss from continuing operations last year.

In the current quarter's net income of $771,000 are the following items which had a cumulative negative impact of $2.9 million that are not expected to have significant future impacts. First, in China, the operating activity of the JV and the impairment charges related to the JV's long-lived assets negatively impacted losses of unconsolidated affiliates by $7 million. There was also an additional impairment charge of $1.8 million to adjust the then carrying value of the company's equity investment in the China JV. Second, there were restructuring recoveries of $600,000 from lower-than-anticipated cost to wind down the Kinston site. Third, there were $2.1 million of gains related to the sale of certain non-productive assets. And finally, there was a $3.2 million discontinued operations recovery related to positive indications from the pending liquidation of our former package-dying operations in the United Kingdom.

SG&A expenses for the quarter were $11 million or 5.8% of sales. As the company continues to emphasize PVA products, we anticipate continued investment in the product development, sales, and technical support personnel required to support the PVA growth.

Turing to page four, total volume declined 10.7% on a consolidated basis year-over-year, despite one additional operating week in the June 2008 quarter while overall pricing improved by 13%. On a quarter-over-quarter basis, however, consolidated volume increased 6.6% and pricing increased 5%.

Within our segments, polyester volumes decreased by 14% compared to the prior-year June quarter and pricing improved by 12%. However, improvements in pricing did not keep pace with the 17% increase in raw materials as we made the strategic decisions to temporarily absorb a portion of the cost impact.

In comparison to the March quarter, polyester volumes increased 5.9% on a consolidated basis, while overall pricing improved 4.9%, which was in line with the 5% increase in average raw material price quarter-over-quarter.

Nylon volumes for the quarter increased 20.4% compared to the prior year and 12.3% compared to the March quarter, which continues to be driven by consumer and fashion preferences, particularly in the shapewear. Nylon pricing for the current quarter improved by 2% compared to the March quarter.

Turning to slide five, net sales for the 2008 fiscal year were $713 million, an increase of $23 million or 3.3% compared to the prior fiscal year, which included only six months of activity from the January 2007 Dillon acquisition. The company is reporting a pre-tax loss of $30 million for the fiscal 2008, compared to a pre-tax loss of $139 million for the prior fiscal year.

The company improved its operating margins during fiscal 2008, reflecting supply chain management and operational improvements made throughout the fiscal year as well as the continued growth of our PVA portfolio.

Net income for the 2008 fiscal year was a net loss of $16 million or $0.27 per share, an improvement over the net loss of $116 million or $2.06 per share for the prior fiscal year.

Now we'll turn to the balance sheet, which you can find on slide six. Cash on hand at the end of the June quarter was $20.2 million, which reflects a decrease of $6 million compared to the end of the March quarter, primarily as a result of paying down the revolver and a $10.9 million semi-annual interest payment on our senior secured notes.

Total cash and cash equivalents, including restricted cash, at the end of the June quarter were $38.5 million, a slight decrease from the $44 million reported at the close of fiscal 2007. In addition to the cash on hand, the company has approximately $89 million of availability under its $100 million revolving credit facility.

Total long-term debt as of June 2008 was $202 million, a decrease of $33 million from June 2007. The revolver balance ended at $3 million compared to $20 million in March and $36 million in June 2007. Net working capital balances decreased $2 million from the end of the March quarter, which is less than the $8 million to $10 million improvement projected at the end of the March quarter.

As then noted, the company expected to work off built up inventories during the June quarter in anticipation of the traditional midsummer decline in oil prices. However, given the now projected July price increases, the company continued to buy forward in June instead. The supply chain management, coupled with price increases passed along to our customers during the month of June, negatively impacted the projected working capital improvement.

Turning to slide seven, a new slide for us, a 34% interest in Parkdale America generated income of $3.7 million and $8.3 million for the June quarter and fiscal 2008 respectively. Additionally, Parkdale America paid dividends in the quarter and fiscal year, our share of which were $3.3 million and $4.5 million respectively.

Our 50% interest in YUFI, the China JV, resulted in losses of $7.0 million and $10.7 million for the June quarter and fiscal 2008 respectively. Such losses included a $5 million impairment charge to adjust the carrying value of the long lived assets of the JV, but did not include the $1.8 million of impairment charge to write down the carrying value of the equity investment in the JV.

Turning to slide eight. Despite the previously noted headwinds, the company reported adjusted EBITDA of $17.5 million for the quarter, which is just above the $16 million to $17 million of guidance previously provided. And for fiscal 2008, adjusted EBITDA of $55.2 million, within the annual guidance originally provided by the new leadership team last October.

Going forward, the company is forecasting adjusted EBITDA for the September quarter to be in the range of $12 million to $14 million, as significantly higher raw material prices exert even more pressure on margins. We are also forecasting adjusted EBITDA for fiscal 2009 to be in a range of $55 million to $60 million.

From a free cash flow perspective, the company expects CapEx to be in the $14 million to $16 million range, slightly higher than normal, as we invest in developing technology and flexibility to support our PVA growth initiatives. In addition, the company currently has assets held for sale with a carrying value of $4.1 million. Those assets held for sale include the remaining assets in Kinston, North Carolina, for which we entered into a contract with Reliance Industries.

The terms of the agreement include a sales price of $12.2 million, from which we expect to net approximately $8.5 million of proceeds and recognize a gain on sale of approximately $6.9 million in the first half of fiscal 2009.

The agreement contains various closing conditions and there can be no assurances that the transaction will be closed on this timetable or upon these terms. The agreement also contains customary non-compete provisions as Reliance is converting the assets to produce specialty polyester polymer for use primarily in plastic bottles.

Assets held for sale also include an idle plant in Yadkinville, North Carolina. During the June quarter, the company decided to finalize its polyester DTY consolidation and exit the plant. The property is currently listed for $7.6 million, and we believe it is probable the property will sell in fiscal 2009.

Before I turn the call back over to Bill for a few comments, I would like to refer you to slide 11 of the webcast. Bill and I have scheduled investor days in San Francisco and New York on August 11th and 14th respectively to provide further explanation on our market segment trends and our PVA strategy. Also joining us will be Steve Wener, our Chairman of the Board. If you have interest in attending these, please contact Rebecca Landas at the number or the email address provided to coordinate specific times and locations.

Finally, I'd like to remind everyone of a couple of key dates. Our quiet period will begin on Friday before the end of the fiscal quarter, which is September 26th, and extend through the earnings conference call which is currently scheduled for October 30th.

With that being said, I would now like to turn the floor back over to Bill. Bill?

Thanks, Ron. During the October 2007 earnings call, I had laid out three initial objectives for the new leadership team here at Unifi. Those three objectives were, achieve profitability, get China profitable and positioned at the long-term success; and establish a plan for growth and the long-term health of the company. I am pleased with the progress we have made against each of these objectives.

First, our underlying business has improved significantly and achieved operational profitability. We believe we have turned the corner. We have right-sized our manufacturing footprint. We are seeing positive trends as production moves back into the region from Asia, and we are relentlessly driving supply chain and operational improvements, all of which will have a positive impact in the next several quarters.

Second, our new subsidiary in China is expected to break a three-year string of quarterly losses, and is projected to be profitable in the near term. It will also provide a platform for future growth, while assuring we focus our efforts on profitably growing our PVA products there.

Third, in developing our long-term plans, the company identified and evaluated several acquisition and partnership opportunities. We continue to evaluate such opportunities as they arise, but to this point no material opportunities have been deemed either strategically or financially attractive enough to warrant further consideration.

However, during fiscal 2008, the company once again grew its PVA product portfolio from $47 million in fiscal 2007 to $61 million in fiscal 2008. Much of this growth has been driven by the initial launch of Repreve, our 100% recycled yarn, and we believe there are opportunities for significant growth in 2009.

Accordingly, we are shifting our focus from strategic acquisition to strategic growth. We will drive such growth by investing in the development and commercialization of new PVA products and vigorously promoting our current PVA brands.

Additionally, we will continue to focus on our core businesses in the Americas, protecting and growing our share while driving improvement in operational discipline, customer service and targeted profitable growth. Finally, we will continue to develop and grow profitable opportunities in both our Brazil operation and our new company in China.

In conclusion, I'm very pleased with the company's results over the last nine months, especially considering the economic and industry environment with which we have had to contend. We will stay focused on the critical tasks aimed at improving earnings, cash and shareholder value.

The next six months will be challenging, as we make our way through a difficult operating cycle. But we are encouraged by our prospects, once the economic environment improves.

Today our regional supply chain is significantly more competitive than in recent history. The impact of currency, inflation and capital restrictions in China, capital investment moving into the Americas region, and recent market trends are all very positive for our domestic business. We believe our position on the supply chain uniquely qualifies us to capitalize on this opportunity, once the operating environment returns to more normalized levels with economic growth and more rational raw material prices.

With that, I'd like to open the floor for questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS). Our first question is coming from Laurence Jollon with Lehman Brothers. Please go ahead.

Good morning. Would you mind walking us through the debt balances, in particular the outstanding revolver balance at June 29 as well as the other debt components?

Sure. The -- we obviously had the $190 million of senior secured notes. We had around $3 million on the revolver at the end of June, and we had another about $2.5 million of liability under a sale and leaseback for one of our plants and the remainder of $201 million -- sorry $202 million of long-term debt is ICMS loans in Brazil.

Okay. And then as you look forward to fiscal '09, do you anticipate using the revolver a bit possibly in the second quarter of fiscal '09 given the coupon payments?

Typically what -- I mean our expectations would be we would generate cash flow in order to make these payments without going back into the revolver. Our expectations are we most likely won't be in the revolver going through this year, assuming raw material prices don't spike again or assuming there's not significant changes in the business. But based on the guidance we're providing, we wouldn't expect to be hitting those -- or to have to hit the revolver in order to make the senior secured note payment.

Could we make the argument that if the sale of the plant goes through successfully that you'd use those proceeds to fully repay the revolver?

No, the -- we're actually out of the revolver today as far as those we're paying. But the sale of the plant, the proceeds from the sale of the plant will be restricted cash, which can only be used for the acquisition of collateral. So most of that -- typically for us, that's CapEx, it could be used for other sources like acquisition, but typically for us that's been CapEx and that's what we would expect here going through the year. So that would be -- that would not be available to use to pay interest payments.

Okay. Thanks for your time.

No problem.

Thank you. Our next question is coming from Allen Zwickler with First Manhattan. Please go ahead.

Good day. I want to...

How are you?

Great. I want to first congratulate you for saying that you're not looking to make acquisitions, because I think that the prior management over the years kind of thought that they were going to catch a falling knife, and this one I think we're moving through a falling knife period. So it's refreshing to hear that you have your eyes totally set on making the current structure as profitable as it can be. So I want to congratulate you for that upfront, because I think that's the right decision.

Secondly, is there anything with the cash flow you are going through do you, seeing in the current fiscal year, is there anything to preclude you from repurchasing the public debt in the open market?

Couple things. One, the point earlier, to the extent we have proceeds from asset sales for the most part they're going to be limited in what we can do with that and buying back bonds is not one of the things we can do with that, it's not one of the uses for that restricted cash.

Secondly, from a revolver perspective, on a pro forma basis we couldn't be in the revolver more than probably about $10 million of borrowings and still buy back bonds. There is a window in there where we can buy back up to $10 million if we were pro forma in the revolver. So those are two limitations that would prevent us from buying back bonds.

Other than that, as far as cash flow from the operations and cash flow in the business as well as cash that's sitting in Brazil, we would be able to use those proceeds in order to buy back bonds as we move through the year.

So, just so that I understand, you're going to generate a fair amount of cash in '09, is that correct, I mean all things being equal?

Yes.

So I ask my question again, if you were to generate, I'm going to make-up a number, on an EBITDA basis perhaps $15 million a quarter, there's plenty of cash to be able to do the -- to be able to repurchase or am I missing something?

No, you're correct. I mean obviously our $60 million of -- our $55 to $60 and using your 15 per quarter, that 60, from that we're going to make our interest payments and we're going to make CapEx. We talked about CapEx being a little bit higher next year as we invest in a couple PVA initiatives. But yes, there will be significant cash flow left over. And we've talked about the repurchasing of bonds in the open market before. We weren't able to do any of that in the prior quarter as we were having our issues around raw material prices and the price of oil and we were being a little bit conservative there. As well we had our semiannual interest payment in May, but going forward that's definitely one of the uses we'll be looking at.

Okay. And just if I could switch gears for a moment to China, so just so that we are all clear, you invested -- I think it was about $30 million roughly into China?

Correct.

All in originally, and so you're taking some write off as you noted in the current quarter. Is there an expectation that you would be receiving some proceeds from this, I'm going to call it, sale or is it then it's just going to unwind and you're going to have the other business running?

What we did -- we are in negotiations with our partner. We've -- there's a proposed agreement that both of us have submitted through our executive groups, or to our Boards and we're going through internal and external approval processes. The estimated value on that -- there's a little bit of a range in that, but the estimated value in that has been $10 million for our half. And so, we -- based on the (inaudible) team, we're marked our carrying value of our investment. Once we got through all of the impairments in China, we netted our carrying value, our investment down to that $10 million number. So, our expectation would be as we move forward between now and the potential closing of that, we wouldn't be recording gains or losses on the joint venture until we get to -- assuming we get to that closing or else assuming we stay on track with that. So, we would not have a future impact and we would have -- we would be receiving $10 million in cash at closing if we -- based on our assumption today.

Okay. Because wasn't there some debt that you had to guarantee over there as well or is that all-in?

No, that's an all-in number, but no we also haven't guaranteed any debt over there.

I'm sorry. You do not have any debt guarantees?

Yeah. We have not guaranteed any debt of the JV and that $10 million is an all-in number.

Okay. And in terms of going forward in China, as we see it today, what would your sales -- what were your sales in the JV for the year that ended June, and I'm sorry I didn't see that the lease if that was in there? And what is your expectation of what your sales might be in the New Year? Again I know you're guesstimating going forward, but you certainly would have a number for what the JV generated in the prior year.

Yeah. We typically don't give individual guidance on revenue numbers, but I'll back up and give you something you can get close to it on. The JV itself is about a $130 million business and our expectation of the specialty and PVA market in China would be that market is kind of 10% to 20% -- or probably 10% of the total market now. We're taking the PVA production out of the joint venture through our licensing, because all that PVA production is our licensed product. We'll be taking that out and distributing that working with YCFC to produce it. So, we would expect it would be -- our mix would be much higher than the 10% of the market, and we're taking the PVA out. So I think we would be something 15% to 20% of what the JV's total sales would be our new company and we would work to grow that from PVA.

And then those sales, would those -- would you expect those sales to be profitable on day one?

Yes, the fundamentals of the JV that Bill talked about before was the JV, it's got a profitable segment and it's a growing segment. I mean Repreve has got a large opportunity in China that has -- that we've been seeing the market from here through the JV that we'll expect to continue to grow. So, it will be -- those businesses are profitable today. It's just the commodity side of the business that's dragging it down. So as we take our technology and our products back out of the JV through our brands and PVA products, we would expect that to be profitable. I mean there will be some start-up costs. It won't be profitable the first day, the first week, the first month. There will be some start-up costs involved. But we do expect it to break that string of quarterly losses.

And the last quickie, just it looks like your -- versus the rest of the world, your holdbacks for losses in terms of customer losses is way down from last year, I congratulate you for that. But, are there any -- today are there any big customers that you still have that are teetering or do you think you're really pretty cleaned up based on historic look of the business?

Yeah, two things. One is, for several years we had a couple of large customers that were teetering. Over the last 36 months, those -- we've taken significant hits on those guys. What we are left with is a much improved accounts receivable aging and it's improved in two ways. One is, the payment -- the terms are improved. We've been able to keep people more current. And two, we don't have those one or two large customers out there that have significant balances with us. The two we have, one is HBI and one is another private company that both of those are in good shape from a credit risk standpoint at this point.

So, our mix has been a lot more diversified and the aging has improved, so -- and we didn't have this year that one-time event like last year I guess in June quarter we had Quaker that took a big hit in the June quarter. So we haven't had that one-time event.

Okay. Thank you for allowing me to monopolize the conversation.

No problem, thanks.

Thank you. Our next question is coming from Chris Dechiario with ISI Capital. Please go ahead.

Yes, good morning.

Hey, Chris.

Good morning.

Hi. I guess I'll just follow up a little bit on the UTSC while we're on that topic, just so I'm clear, you're not going to have manufacturing assets there. You're going to be purchasing products from toll manufacturers. You are mainly going to be designing and marketing?

That is correct.

Okay. So to that extent I guess less risky than the original JV was, and probably more predictable in terms of profitability?

It'll certainly be more predictable in terms of profitability.

Right, okay. And the $3 million to $5 million that you have to invest there is basically just so that your entity has inventory in order to sell?

That is exactly right, it's primarily working capital.

Right, okay. Just wanted to make sure I was clear on all that. Then I guess in terms of the raw material price increases, I'm thinking that was mainly PPA. The price increases that you've put through so far, I think you're going to put some through I think in June 15th if I'm not mistaken, how much of the raw material price increases to that point would that price increase have caught you up for and how do you expect to put through more price increases I guess in the next couple of months to make up for the increasing raw material prices you expect in July and August?

Yeah. I think if you look roughly at what's happened, our raw materials in polyester over the last year have gone up roughly $0.17 per pound and we've recovered about $0.12 of that. We will recover a little more at the end of June with the price increase that we just put in. A lot is going to depend on what happens with raw materials in August, September, October timeframe. Typically, historically, that's when raw materials have begun to drop off, very volatile situation right now as I'm sure you are aware and we will see what happens. I mean certainly additional price increases are possible if raw materials continue to escalate. Certainly if they start to come down, we -- that wouldn't be bad for us.

Right, right. So generally, you -- as things stand now, you might just try to ride through July and this August increase and hope that prices come down seasonally the way they normally would and that would sort of get you more in balance in terms of your prices and your raw material prices?

Yeah. I think we -- that is part of it. I mean we did have a price increase in July and it wasn't significant. I mean raw material prices went up significantly in July and we're expecting kind of August to still be at high levels and September to still be at high levels. I mean it'll probably abate some in there. But we were behind -- we haven't gotten all the price increases as Bill said. We're attempting here in July, I guess we're at the end of July now, but we're attempting here in July to start catching some of that back up. But to the -- the places where we have not been able to pass it along fully, we're definitely going to hold on to it as prices come back down. I mean the -- we can't subsidize the industry at that point.

Right, right. And the ones you have put through have been seeming to stick, I mean you've been able to -- and what kind of -- I mean obviously you're always going to get push back on price increases, but how has it been I guess easier to pass the raw material price increases in the current inflationary environment than it was prior to this current inflationary environment we're in?

Well, first of all it's never easy to push through any price increases in this industry, that's for sure.

Right.

And frankly this is the highest raw materials in polyester have been in history, so it's been very very difficult. But again, we've gotten about 60% to 65% of the increases through.

I think the other point is, I mean it varies. I mean certainly end uses, critical end uses where there has been different end uses, different applications, different competitive levels with who we're competing with on prices, it's hard to say how we've done with each individual product. It's hard to roll that up into a number or one combined number. But I think at certain places we've done a good job and in other places we're going to have to hold that as we move forward.

Okay. And then on the nylon side, your volumes last couple quarters have been very good in terms of increases. I mean can you just go through again, you may have been through this in the last quarter, what's driving the improvement on the nylon side and are the margins sustainable there? And then if you could also while we're on that topic, talk a little bit about the Repreve Nylon Launch, and is that something that you see as material in terms of sort of market size for that versus the existing Repreve that you have now?

Okay. Well, first on the nylon volumes, much of it is fashion driven. Certainly the growth of control top, pantyhose, like Spanx and even a shift in fashion back to wearing nylons and pantyhose has helped us tremendously. And that's really been the primary driver to be quite honest. I mean that plus really reduced erosion of other nylon markets as we see some business starting to come back to the US from Asia.

From a nylon Repreve standpoint, in terms of its size versus polyester Repreve, first we're going to be launching it at the Outdoor Retail Show in Salt Lake City starting late next week. It's not going to be as large as polyester, let me put it that way. But until we get into the launch and until we start to see how much interest we have, it's going to be hard to say how big that's going to get. But we're certainly very, very excited about it. We're very excited about growing our recycled offering and it's -- we believe it's going to be a very good product for us.

Okay. And then my last question just relates to the Parkdale dividend, can you just talk about -- I guess it was somewhat lower this year than it was last year. I know you have discussions every year in terms of how much they're going to pay out versus how much they're going to spend in CapEx there. Can you just whatever you can tell me just a little bit about, sort of how those discussions went and if they're spending more on CapEx and what opportunities they see there?

Yeah, a couple things. One, they are spending more on CapEx. I think they've announced they were upgrading machinery and equipment, a little bit of flexibility, but also some cost efficiencies from putting in the new machinery. So, they are -- the JV is spending a significant amount of CapEx here over 2007 -- end of 2007 and beginning of 2008. So that's -- that was the reason for the dividend being a little smaller.

Two other things to point out on Parkdale, the results for the quarter were a little bit higher due to a settlement of a -- a positive settlement for those guys of a lawsuit on some -- the cotton price -- or antitrust issue around some of their raw materials. So, there was a couple million dollar benefit throughout the year with that for the -- for Parkdale here in the quarter.

The other thing is effective August 1st the cotton rebate or cotton subs -- cotton rebate program, another current rebate program is going back into place, which is going to be about $0.04 per pound. So, we don't have a lot of view into the future of Parkdale. We work with those guys as closely as we can, but that definitely will be a positive thing for the JV as we move through the next year. And that rebate is also -- I think it's a four or five year rebate of $0.04, and then it goes another few more years at $0.03 per pound.

Okay. Thank you.

Thank you. Our next question is coming from Claire Gallacher with Caris & Company. Please go ahead.

Hey, thank you, good morning.

Good morning.

Most of my questions have been answered, but I did want to touch a little bit on if you could talk about your Brazil operations, just kind of the trends you're seeing there and also what you're seeing out of CAFTA region. You mentioned shorter lead times and business strengthening in the CAFTA region. And can you talk about that if you think that trend is sustainable going forward, that would be great.

Okay, let me start with Brazil. Certainly our Brazil business has been very very good. We're seeing growth in both revenues and earnings in Brazil. Market in Brazil is very strong. We've got a very good position in our industry there. And frankly we're very bullish about our Brazilian operation, expect to see improvements continuing there.

CAFTA, we do believe CAFTA is going to continue to grow. It grew about 12% last year. We think that growth is going to continue. We believe that supply chain is competitive both from a standpoint of supply chain cost as well as its ability to more quickly react to needs here at retail. That's about it I think.

Okay.

Do you have further questions?

The other I guess a follow-up really just to the PVA initiative that you've been talking about, is it specifically the initiative coming out of China and your new joint venture or is there something else going on here in the domestic market that you're investing in?

Certainly our PVA products are positioned as global products. They're being sold as global products. And we're seeing significant growth not only in China, but also here in the US and into Europe. So, we believe our PVA initiative is a global initiative. We've seen growth in all regions and we do expect that to continue, especially with additional investment in marketing.

Yeah, Claire, this is Ron. I think the other part of it is we feel like -- when we look at the value that the PVA products bring to us compared to what we're spending on that, we feel like we're under-spending on that. So we're going to have to -- we believe we need to invest a little bit more in that. There is some issues. There are negative issues with that and they're going to be -- we're going to spend dollars today and the sales cycle on that is 12 to 18 months. So it's not going to be an immediate payback, but the paybacks have definitely been strong. So we're going to invest in not only the downstream piece of it, the selling to brand and retailers, but also in the development of the next Repreve and the next products as we move forward. And I think that that's the overall strategy and then hanging under that you've got the China strategy which is a very important piece of the global puzzle and it's also the domestic piece and the flexibility around PVA production here.

Yeah, I think that one other comment I'd add to that Ron is most retailers are going to source globally in essence primarily in the Americas and China. And we feel very good about our positioning in being able to supply the same products to all places and we think that's kind of unique in the industry. So again, we're very bullish on the PVA growth. We think it's going to be an important part of our growth going forward.

Great, thanks. Good luck.

Thanks.

Thank you. Our next question is coming from Bryan Hunt with Wachovia. Please go ahead.

Hey guys, how is it going? I apologize. This is [Chris Palmera], Bryan had to step off. He left me a bunch of questions and most of which are actually -- have been answered so far. One thing left I just wanted to ask about, have you achieved your targeted working capital reductions from the closure in Kinston yet or do you see more coming on the horizon?

I think there is a little bit of room in there in working capital. That targeted working capital number has been negatively impacted. One of the things we worked with on our supply as we shifted product from Kinston, a big part of that was being imported and we've even increased even more what was going to be imported and that import supply chain is quite a bit long. So, we have taken a hit to the working capital goals that we projected for that in order to shift the mix to the most cost-effective supply chain for us. So, I don't think we'll get the original, I think it was $10 million to $12 million that we said. I don't think we -- we certainly still don't have that out there, but we do have some benefit of working capital we're expecting coming forward over the next quarter. At this point though, some of that's going to be driven by raw material pricing coming down significantly and some of that's going to be driven by starting some of the supply chain work.

Thanks, guys.

No problem.

Thank you. Our next question is coming from Chris Wilson with Stonehill Capital. Please go ahead.

Thank you. When you were talking about your guidance for next year and you were talking about asset sales, I didn't completely follow you. You talked about two different assets. Can you just go over that again?

Sure. First of all, the one I did not talk about in that section was the China -- the sale of the China joint venture and we said earlier in the call in the Q&A that the number we impaired the value down to was our expectation of $10 million.

Yes.

Two I did talk about. One was the sale of the remaining assets in Kinston. Back in March we announced the sale of the site in Kinston to DuPont and it was basically a no-net-proceeds deal, because they took over the site and removed us from future obligations and liabilities. And the cash they paid us, we ultimately had to net pay them back for some remediation work that was going to be done in the future down there. So that was a net-zero transaction. What it did was it kept the site running and enabled us to sell the rest of the assets to Reliance whose goal was not to run the entire site, but only to run a certain section of the site. That transaction, we've signed contracts, I guess we announced that sometime in late June, early July, but the purchase price on that or the sales price on that was $12.2 million. Out of that $12.2 million, there will be an additional payment back to DuPont for the remainder of the remediation costs. We're going to netback about $8.5 million in proceeds and we have about $1.6 million on the books for those assets. So we'll have a gain in -- whenever it sells either the first or second quarter of about $6.9 million. And the terms on the contract, I think it was 120 days from closing, so that's what puts our expectations here in the first or second quarter. So that's $8.5 million of proceeds.

The next piece of proceeds, as we moved out of -- we finalized consolidation out of one of our operations, we've cleaned or we are in the process of cleaning that operations out, it's on the market. It's listed for $7.5 million. We have gotten a couple different offers on that, so we are expecting that it will close as we move through the quarter.

I'm sorry, I'm sorry. We're expecting it will close sometime in the fiscal year, but I mean it is a 600,000 square foot piece of property or building in Yadkinville, North Carolina. So, we're working with people -- with different people and we don't have any ability to accelerate that, but we do expect it to close in the fiscal 2009.

And by implication the book value there is about $2.5 million?

Yes, exactly.

Okay. Thank you.

Thank you. (OPERATOR INSTRUCTIONS). There appear to be no further questions in queue, sir.

Okay, let me just finish up with a few final comments. We feel very, very good about the progress we've made and where we are right now and we believe that the competitiveness of our supply chain is actually improving. Now, certainly with the economy being weak and historically high polyester raw materials, we're going to be going through some rough waters over the next few months. But overall we feel very good about where we are and we are excited about our prospects. Our base business is stabilized. It's beginning to get stronger. And we've got we believe tremendous opportunities with our PVA and branded products going forward. So overall we're all feeling very good about where we are and where we're going.

With that, I'll just see everybody, I guess I'll see many of you at the investor meetings about two weeks from now and thank you.

Thank you. This does conclude today's Unifi conference call. You may now disconnect.