Unifi Inc (UFI) 2009 Q4 法說會逐字稿

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Unifi Fourth Quarter and Year-End Earnings Conference Call. (INSTRUCTIONS) Thank you. Mr. Smith, you may begin your conference.

Thanks, Melissa, and good morning, everyone. Joining me today for our conference call is Bill Jasper, our President and CEO.

During this call we will be referencing presentation materials that can be found on our website, unifi.com. The presentation can be accessed by clicking the Fourth Quarter Conference Call link found on the home page. I hope that you have the presentation available as it will be easier to track through the information discussed on 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 laws. Management cautions that these statements are based on management's current expectations, estimates, and/or projections about the markets in which the Company operates. Therefore, these statements are not guarantees of future performance and involve certain risks that can be 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 disclosures in our 10-Qs and 10-Ks regarding various factors that may impact these results.

Before we review the preliminary operating results for the quarter, I'd like to turn the call over to Bill Jasper, who will provide a brief overview of the market conditions. Bill?

Thanks, Ron. Good morning, everyone. Although year-over-year retail sales in our key segments continue to be off as the economy remains in a recession, the Company made dramatic improvements in the June quarter compared to the March quarter. For example, net sales improved by $21 million quarter over quarter, an improvement of 17%, as the retail supply chain worked off inventory and we gained share both in the US and in Brazil.

Gross profit in the June quarter improved by $12 million compared to the March quarter, as production volumes returned to levels more closely aligned with sales volumes.

The Company reduced inventories by $12 million in the quarter, and we've reduced inventories by more than $37 million since December.

And we've substantially improved our liquidity by increasing our cash position $19 million and decreasing our net debt by $21 million during the quarter. In fact, since September 2007, we have reduced our net debt position by $47 million.

Although there is still a great deal of economic uncertainty ahead, we believe we are seeing signs of stabilization throughout the supply chain. We anticipate that sales improvements will continue through the next few quarters as inventories, both within the supply chain and the Company, are being brought into closer alignment with current levels of consumer demand.

I'll provide some additional comments on our business and our future strategies after Ron reviews our results. Ron?

Thanks, Bill. If you're following along from the website presentation, we'll begin our comments on Slide 3.

Net sales for the current quarter were $140 million, a decrease of $50 million, or 26%, over the prior year June quarter. However, as Bill mentioned, the month-over-month sales improvements that we began to see last quarter continued, with net sales for the June quarter finishing $21 million ahead of the March quarter.

The Company is reporting a net loss of $9.5 million, or $0.15 per share, for the quarter compared to the net income of $771,000, or $0.01 per share, for the prior-year June quarter. Our conversion margin for the quarter was negatively impacted by an approximate $0.05 per pound polyester raw material price increase resulting from curtailment of PX and PTA production.

Results for the current quarter were also negatively impacted by a $4.5 million loss associated with the Company's equity affiliates, which we'll discuss in detail later.

SG&A expenses for the quarter were $9.8 million, which are flat compared to the March quarter and represent a $1.3 million improvement over the prior year.

Turning the page to page 4, net sales for the fiscal 2009 year were $554 million, down $160 million from the prior year's net sales of $713 million, which was inclusive of approximately $20 million in sales from the Kinston facility closed in October 2007.

The Company is reporting a net loss of $52 million for fiscal 2009, compared to a net loss of $16 for the prior-year period. The loss for the 2009 fiscal year included $18.6 million in noncash goodwill impairment; $1.9 million of impairment charges related to our former investment in China and certain fixed assets in Kinston, North Carolina; and $3.5 million in charges related to asset consolidation and optimization.

On a fiscal year basis, SG&A expense were 18% lower in fiscal 2009 compared to 2008, which is fairly consistent with the overall reduction in net sales volume.

Total sales expenses were $3.3 million, below our original budget for the fiscal year as we reduced overhead expenses while continuing to fund our premium value-added product strategies.

Turning to page 5, quarter-over-prior-year-quarter volume declined 19% on a consolidated basis, while the overall pricing declined by 7%. This year-over-year decline in consolidated volume in the June quarter is a substantial improvement over the declines we saw for the December and March quarters of 32% and 27%, respectively.

Compared to the March quarter, total volume increased 18% on a consolidated basis while overall pricing was flat. This quarter-over-quarter improvement was across all segments and seems to indicate a fundamental shift in market demand. During the quarter, the year-over-year gap between our sales volumes and the sell-through of our end-use segments at retail began to narrow as inventory levels normalized across the supply chain.

Within our segments, quarter-over-prior-quarter volumes in polyester were down 19% due to the relative softness of retail sales in the apparels, furnishings, and automotive product categories as compared to the prior-year quarter, with declines of 7%, 14%, and 32%, respectively. Pricing declined 9%, primarily as a result of average raw material pricing, versus the elevated levels of June 2008.

Compared to the March quarter, however, polyester volume increased 19%, with pricing relatively flat. This quarter-over-quarter increase was driven by double-digit improvements in both the domestic and Brazilian volumes.

In nylon, finished goods inventory at retail and hosiery mills and the resulting decline in knitting production have continued to drive year-over-year nylon volume declines. Compared to the prior-year June quarter, nylon volumes declined 22% and pricing was flat. However, like in the polyester segment, nylon volume, compared to the March quarter, increased 13% and pricing increased by nearly 4%, driven mostly by mix.

On a fiscal year basis, total volume declined 23% on a consolidated basis and pricing increased by less than 1% as the higher-priced nylon volumes became a larger part of the total mix.

By segment, polyester volumes declined 24% for the fiscal year while nylon volumes declined only 16. Although volumes for our premium value-added products declined in fiscal 2009 compared to fiscal 2008, the rate of decline was much less than the rest of our business, and Bill will talk a bit more about our PVA products in his wrap-up.

Now we'll turn the balance sheet highlights, which you can find on Slide 6. Cash on hand at the end of the June quarter was $42.7 million, representing an increase of $19 million compared to the end of the March quarter. Included in the operating cash balance is $9 million received from the sale of our equity interest in our former Chinese joint venture.

Cash on hand was positively impacted by a $2.5 million benefit from improvements in the exchange rate for the Brazilian real, which has gone from 1.5 [million] real to the US dollar a year ago to 2.32 at the end of March 2009, and now back to 1.95 real to the dollar at the end of the June quarter.

The increase in cash on hand was also driven by a $2.8 million improvement in working capital and a positive adjusted EBITDA for the quarter.

Uses of cash for the quarter include $4 million in capital expenditures, primarily related to our polyester POY production upgrades and a semiannual interest payment of $11 million cash used to purchase $2 million face value of the Company's senior secured notes and private purchases from the open market.

At the end of the June quarter, restricted cash totaled $7 million, which is a decrease from March, primarily due to the Company using $8.8 million of domestic restricted cash to repurchase senior secured notes at par. As economic conditions show signs of further improvement, the Company is going to continue focusing on cash generation and anticipates it will be in the debt market to periodically repurchase additional portions of the 11.5% senior secured notes at market price.

Total long-term debt as of the end of June was $187 million, a decrease of $11 million from the March quarter. Under the revolver, we still have no outstanding borrowings and our current availability is $63 million, a slight decrease from last quarter due to the reduction of inventory levels.

Turning to Slide 7, the Company recorded a loss of $4 million from its 34% membership interest in Parkdale America. Included in such loss is a $4.7 million noncash adjustment related to the accounting treatment of a government grant for the year ended June 28, 2009. During our 2009 fiscal year, Parkdale America received approximately $14 million of cotton rebates under the 2008 farm bill, which became law in August 2008. Such rebates are based on the consumption of upland cotton and are required to be reinvested in domestic capital expenditures.

While the Company believes Parkdale America has been, and will likely continue to be, in compliance with the terms of the program as set forth in the farm bill, there's a disagreement around how such credits should be recognized in the financial statements of our equity affiliate. Parkdale America recognized the rebates as a reduction to the cost of sales as the upland cotton was consumed.

The Company, however, believes the proper accounting treatment may be to recognize the rebates to earnings based upon the required capital expenditures and their respective depreciation. In our preliminary numbers provided today, the Company has removed the effect of the rebates from the earnings of the equity affiliate, and we will provide further disclosure as to the resolution in our 10-K filing this September.

Turning to Slide 8, the Company reported adjusted EBITDA of $9.6 million in the June quarter, which is well above the $6 million to $8 million estimate provided at the end of the March quarter, and above the run rate required to generate positive free cash flow from operations. The improving trend in adjusted EBITDA for the quarter is directly related to the 17% quarter-over-quarter sales increase, the relative stability in raw materials pricing throughout the quarter, and the lack of any unusual charges related to production volumes being significantly below sales volumes, as was the case in the March quarter.

Adjusted EBITDA for the 2009 fiscal year is $23 million, within the low end of the $20 million to $30 million range provided during our January earnings call.

In a few minutes, Bill will provide guidance related to our fiscal year 2010, but I would like to provide some supplemental information related to 2010. We expect consolidated CapEx of $8 million to $9 million and depreciation of approximately $25 million.

We do not expect to pay cash taxes domestically as a result of approximately $46 million in net operating loss carry-forwards but we do expect cash taxes of around $4 million, primarily in Brazil.

We expect cash interest expense of approximately $21 million, based on our current level of indebtedness, and we expect our equity affiliates to generally improve as Parkdale America's underlying business continues to improve. And our nylon POY joint venture in Israel has already improved its raw material position and we have restructured the operation with our partner.

Before I turn the call back over to Bill, I'd also like to provide an update on some key dates for this quarter. We expect the final results for the fiscal year 2009 to be filed in our 10-K on Friday, September 11, and our quiet period for the September quarter will begin on September 25 and extend through our earnings release conference call, which is currently scheduled for Thursday, October 29.

With that, I'd like to turn the call back over to Bill for a few final comments. Bill?

Thanks, Ron. In closing, I'd like to reflect back on the past fiscal year and some of the many fundamental improvements that we've made to our underlying business. First, we have refocused our business in China, exiting an unprofitable joint venture and replacing it with a more flexible and customer-focused business.

Despite the challenges of the global economy, we are confident that our wholly owned new business, Unifi Textiles Suzhou Company Limited, or UTSC, is the right strategy for us to serve as the premium value-added yarn needs of our customers in China. The amount of downstream activity that UTSC is involved in today is very strong, and we are in the early stages of some development programs that should lead to significant volumes over the next few years. UTSC's total contribution in the June quarter was positive, and we expect it to be profitable in fiscal year 2010. And for reference, our previous China joint venture was losing over $800,000 per month in the first half of fiscal year 2008.

Unlike many other companies in these difficult times, we begin our new fiscal year with a very secure financial position. We have $43 million in operating cash. We have no financial maintenance covenants in our debt agreements and we begin the year with $24 million less debt compared to a year ago. We have reacted decisively to the market conditions and our balance sheet reflects the positive effect of such actions despite an unprecedented economic downturn. This financial strength provides us with the wherewithal to stay the course during a slow and protracted economic recovery.

We've made continual improvement to our costs, operational efficiencies, market share, and product mix that have resulted in approximately $27 million in annual improvements to our underlying financial results. The financial performance of our Company is highly dependent on capacity utilization, and we have reduced the volume required to profitably operate our business by more than 10%.

We have made progress on the [HBI] supply agreement. All significant business terms have been defined and agreed to in principle, and we are negotiating the language in a supply contract. We have started transitioning business with HBI based upon these principles, and both companies are excited about extending our business relationship. We expect to have the supply agreement finalized by the end of the current quarter.

We continue to believe the CAFTA region will grow in importance as a regional supply chain and expect to begin executing our previously discussed plans for a Central American operation over the next three to six months.

We have built an extremely strong portfolio of premium value-added products and have commercialized them globally. By continuing to invest in research and development during a down economy, we are staying ahead of the market with new products and programs.

We launched two new Repreve products in the past quarter and have just introduced an innovative verification program called You Trust that uses fiber print technology to ensure that Repreve recycled fibers and fabrics are traceable, transparent, and certifiably sustainable. We will continue our focus on sustainable products as well as partnership-based development activities that provide unique and value-added solutions to our customers.

Looking ahead to fiscal 2010, there are signs of a recovery but the economy and consumer confidence remain very fragile. We expect to continue seeing a gradual improvement in our business based on current economic projections. While our projections are for revenues to remain approximately equal to 2009, still well below 2008 fiscal year levels, our results will be significantly better than 2009.

We've developed two potential scenarios which bookend the range of results we anticipate in the new fiscal year. The first scenario is based on the economy remaining stagnant, with neither improvement nor deterioration in overall consumer spending. Under this scenario, we would expect our revenues to be flat relative to fiscal year 2009 and adjusted EBITDA to be approximately $40 million.

The second scenario is based on slow but continual improvement in the economy, which would result in additional quarter-over-quarter improvements in net sales. Under that scenario, we would expect our adjusted EBITDA to be approximately $50 million, almost back to fiscal 2008 levels but at 16 to 18% lower revenues.

With so much uncertainty still ahead, it is certainly difficult to predict which scenario will take place. Therefore, the Company is forecasting adjusted EBITDA to be in the range of $40 million to $50 million for fiscal 2010, with an improving trend throughout the year.

In either case, we will remain cash positive and anticipate substantial reductions in net debt through this fiscal year as we focus intently on cash generation. We'd expect this quarter to be comparable to the June quarter, with adjusted EBITDA of $9 million to $11 million.

In closing, the difficult economic environment has made casualties of many well-known brands and retailers that operate within our end-use segments, including Mervyn's, S&K Menswear, Eddie Bauer, and Linens 'N Things.

This year has certainly had more than its share of challenges but I am proud of the dedication and commitment that everyone in this Company has demonstrated as we worked our way through the past 12 months and positioned ourselves for solid and improving financial performance during difficult economic conditions.

We are fundamentally a stronger business today than we were a year ago. But the work is far from over and we remain focused on continuing to improve operational excellence, margins, global growth, and the ongoing development of commercialization of our new and innovative products.

With that, I will turn the floor back over for questions. Operator?

(OPERATOR INSTRUCTIONS) [Brian Hunt].

Good morning.

Hey, Brian, how are you doing?

I was wondering if you-all could maybe explore the deal with Haines and maybe give us some language changes that may exist in the new contract relative to the last contract, or do you want to wait to talk about that till it's actually in print?

Yes, I can't comment any further than I already have. We'll certainly give the details once the contract's completed and signed.

Okay, thank you. And then next, what's kind of the potential for a greenfield in the CAFTA region? You've mentioned $10 million -- is that a CapEx number or a revenue number? As well as if you do plan on spending CapEx on CAFTA this fiscal year, is that included in that $8 million to $9 million guidance that you provided?

No, it's not provided in the $8 million to $9 million that we provided. The $10 million is a rough number, and it would be a combination of capital costs to move machinery as well as startup costs.

Okay. And what type of capacity would you expect to put into the CAFTA region?

That's difficult to say at this time. We've really not consolidated our plans yet.

Brian, one thing I think we were doing was just-- the $10 million, it's just kind of an order of magnitude. We're not talking of building another Yadkinville in Central America; we're talking about a targeted investment that makes sense in certain product categories.

And I would add, if we can do it for less, we certainly will do it for less. No question about that.

Okay. And would you expect to be up and running at some point if fiscal '11 on a greenfield?

On a greenfield, honestly, I would expect to be running sometime during fiscal 2010.

Okay; all right. And then, looking at how the environment's changed, and demand for your product, have you experienced accelerating order trends from your Asian customers as it appears economic activity, particularly in China, has improved quarter over quarter?

It's actually been relatively flat. The Chinese market is still quite depressed today, as it has been for the last nine months. And we seem to be bouncing along the bottom there right now, and the market seems to be bouncing along the bottom there right now. Although on the premium value-added side, we've seen less erosion of our business than we've seen on the commodity side. But again, we're not seeing any significant improvement in China right now.

I'd say the other piece of that is we don't really have a-- we just came up with UTSC operating here in March/April, so we don't have a long history. This is a new business model for us as we move forward. But that Chinese market definitely-- it's kind of bouncing along the bottom, like we talked about.

And you've obviously seen an improvement from March to June in North America. Could you talk about where you saw the biggest improvements in demand from a sector standpoint?

As well as, with regards to North America, the down cycle had to weed out some of our competitors. How do you feel about-- did you pick up your fair share, or more than your fair share, of any additional volumes due to bankruptcies of any competitors?

Brian, I'll answer your question in two parts -- we'll start with share. From a share standpoint, we've seen about a 3% pickup in the US, and some of that certainly is related to the weakness of some of our competitors. In Brazil, we've seen about 5 or 6% pickup of share; again, at the expense of weaker competitors.

As far as our segments, the uptick in sales was pretty broad, though we did not see it yet in automotive. And I think what we're seeing here is-- as you're aware, I'm sure, apparel is, at retail, off about 7%. Our business was off about 30% the quarter before last; it was off about 22% last quarter. So we're starting to close the gap, we think, as the inventory's coming out of the system.

Frankly, the uptick's been somewhat in fits and starts, as we've picked up some big orders and then there's a quiet period and then some big orders. But in general, we're seeing an uptick in all segments and we're starting to see some uptick over the last few weeks in the automotive segment. So I think in general, we're seeing a de-stocking across all segments, though it's going to be a slow process and we don't expect to catch up with retail any time in the new future, though we do expect to get closer as the fiscal year plays out.

And then my last question and I'll get back in the queue. Could you talk about how the quarter progressed from April to May to June? I mean, was there a decisive acceleration throughout the quarter, and are you still seeing it? Or was there, like you said, fits and starts throughout the quarter? Thank you; I appreciate the time.

Okay. Yes, actually, the fits and starts were more on a daily and weekly basis. But if you looked at the three months of the quarter, there was a decided increase in volume each of the three months.

Thank you.

Chris Dechiario, ISI Capital.

Good morning.

Morning.

Hey, Chris. I got your note. I'm sorry you guys had trouble getting in.

That's okay; we finally got on. I guess I'd like to start just with your own inventory levels. If we just assume for a second the economy stagnant scenario at the lower end of your guidance, if you have roughly flat revenues, do you expect to still have positive cash from working capital in fiscal 2010? Are you expecting to still be able to reduce inventory levels further?

And also, are you still running those high costs that you had from your raw materials through inventory? Do you expect that to come down to a lower level going into the next fiscal year?

Okay. Again, I'll address that one in two parts. From an inventory standpoint, we're at a position now where our inventory turns are actually a little bit better than they've been historically based on the revenues that we're projecting for at the low end of our guidance. We are expecting some small improvements in inventory as we improve the quality of our inventory. We still have some over-age inventory in place that we will be moving through the system, though I wouldn't expect to see the large improvements we made over the last nine months.

We also expect to have some improvement in our payables. So I think over all, working capital is going to be slightly positive, even at the low end of our expectations.

As far as the raw material, yes, there has been a gradual uptick in raw materials in polyester over the last six months, and we did see $0.01 or $0.02 over the last couple of months. So yes, that will be working its way through the system. Our expectation is for raw materials to drop $0.02 to $0.04 over the next six months.

So it will be working its way through the system, though not nearly with the effect that we had last year when we had run-ups of nickels and dimes as opposed to pennies. So this has been a quieter year so far and our expectation is going to stay relatively flat and maybe a slightly downward trend.

Thanks. And in terms of the sort of POS, the ultimate sale of your products to consumers and the timing with which you expect your sales to meet that, what in the quarter, if you know, what was the rate of decline in the ultimate end sales to consumers of your products? Your volumes were down roughly 19%. How far away are we from what the POS is? If you can give any more detail on what you think, how long it'll take to get those two things in line?

Okay. In general, apparel sales at retail are off 7%. Home furnishings are off about 14% -- again, this is year over year. And automotive's off 32%. Now, if you can recall our last call last quarter, year-over-year automotive was down almost 50%. So it appears to be improving somewhat.

As long as consumer confidence stays about the same, we would expect-- and it's difficult to day. I mean, a lot's going to depend on what happens to back to school, a lot's going to depend on what happens with the Christmas holiday shopping season. But we would expect to see our sales get closer and closer to that 7%, 14%, 32%, assuming that stays flat, probably over-- And it's hard to say. Somewhere over the next six to nine, maybe even 12, months, we will continue to get closer to those numbers.

Now, of course, there's always the possibility those numbers could improve if consumer confidence turns around, in which case we'd expect the higher end of our guidance to take effect.

I think the other piece of that is about two-thirds of our business would fall under that retail apparel, made up of what we call apparel and hosiery, rolls up under the 7% off at retail.

Yes. And I guess one thing I'd add, we certainly talk to retailers and brand houses quite a bit and there's not a general consensus about where it's heading. Some people seem to think that retail sales are bouncing off the bottom and are getting ready to rebound while others are saying that they may still not have hit bottom. So it's a very uncertain future, and certainly an uncertain recovery -- though, again, we do appear, at least from our standpoint, to have hit the bottom and are starting to see the improvements we have been expecting over the last several quarters.

Okay. And then, your EBITDA guidance excludes any dividends from Parkdale; is that correct?

That's correct.

Right. And given what's going on at Parkdale now, it sounds like their business is improving a little, and assuming they are able to continue to meet the standards for getting the cotton rebates, are you expecting in the next fiscal year they'll be back to a more normal $6 million to $8 million range type of dividend?

Chris, one thing-- I'll let Bill kind of answer that, but one thing I just want to make sure is clear -- the cotton rebate program that they're under, they've continued to get the cash flow; they will continue to get the cash flow. The disagreement we have has nothing to do with whether or not they're going to get the cash flow or not. It's how they account for that cash flow -- whether they immediately recognize it into income or whether they recognize it over a longer period of time.

So just to make sure everybody hears that again -- it has nothing to do with the fact of the cash flow. So it could adjust their earnings and how it rolls into our financial statement, but the amount of cash they accumulate, it won't have anything to do with that.

Yes, and as far as their business, they're working under the same circumstances we are. One difference is their business is more driven by apparel and socks, so their target may be a little bit better than ours because apparel's off less than home furnishings and industrial and automotive. But in general, they're in the same market conditions we are and I think they're seeing the same gradual rebound.

Given that, we might expect to be less than the sort of normal range of free cash flow or dividends they might dividend out this coming year than might be expected in a more normal year?

That's generally what we're projecting, yes.

It's sporadic.

Yes, it's hard to say, sometimes.

Right. Okay, and then just a couple of housekeeping items. The cash that you have, other than the foreign restricted cash, how does that cash break down in terms of location, US versus Brazil versus Europe or anywhere else?

You've got about $11 million here domestically, about $18 million in Brazil, and then another $14 million in other foreign locations. And most of that $14 million -- I think that went from $3 million or $4 million last quarter to $14 million this quarter, and that's where the proceeds from that $9 million sale of our investment in China are sitting.

Okay. And then, what was the availability on the revolver at the end of the quarter?

$63 million.

Okay, thank you.

Thanks, Chris.

Maryana Kushnir, Nomura.

Hi; I have a few questions. First of all, do you expect any cash restructuring expenses next year?

No, we don't.

All of the restructuring is complete, right?

Yes. I mean, what we've said before -- I think if you go back to the January call, what we said was we had taken a look at the cost structure of the asset configuration. To the extent volume was to drop off dramatically from where we were at then, there was a more profitable asset configuration that we could run. In the event that happened, there would be significant restructuring and that would entail some cash restructuring costs.

But from the guidance that we've given today, which is basically staying where we're at, bouncing off the bottom, and then slightly improving as we move through the quarters, we don't have any restructurings budgeted and we don't have any cash restructuring costs budgeted in those numbers.

Okay. And can you provide some forward-looking comments in terms of US markets and where it stands in terms of imports and competition? Setting the economy aside, at what rate is it continuing to shrink?

Well certainly, if you're looking for a long-term trend, it's difficult to do that right now because everything's depressed because of the economic conditions. In general, if you look at the US market over the last several quarters, imports have stayed relatively the same in terms of share.

Now, we've seen a tick-up in imports from China, mostly at the expense of the rest of the world. CAFTA in general has stayed flat, at least for garments using US materials. And we expect that that's going to continue to grow in the future going forward. And we also expect China's going to grow, and really both of those growing at the expense of the rest of the world coming into the US.

General trend in the US -- again, apparel's down 7% and apparel certainly dominates the textile market when you look at it as a percent of the total textile market. But again, that 7%'s down based on consumer demand, not necessarily anything else.

From the standpoint of the US share, or US production share, it has stayed relatively flat through this economic downturn and in general, it was shrinking at 2 to 3% coming into the economic downturn. We'll have to wait and see how this plays out.

Certainly one of the things that happened when consumers stopped purchasing back in November December, there was a tremendous amount of inventory either on order or on the water coming in from Asia. That may have an effect on how retailers view their supply chains going forward, and actually could be a positive for this region. It has a much quicker turnaround, it's much less inventory, and much less of an issue when reacting to consumer downturns.

So this may play into favor this region as we go forward and certainly looking in the long term. We still believe in this region, we still believe CAFTA is going to continue to grow as more infrastructure is put in there, which has happened even through this economic downturn. And again, we'll certainly have a better view once we start seeing improvements in consumer confidence.

Sean Monahan, Invest.

Hello -- how's everybody doing today?

I missed the net loss (inaudible) million -- the two comments on the impairments there. Could you just go over those again for me?

Yes, hang on; I'll get exactly where they're at. Sorry about that.

Not a problem.

The paragraph was the net loss was $53 million. The loss during the fiscal year included $18.6 million in noncash goodwill impairment charges -- we took that in the March quarter. Another $1.9 million of impairment charges related to our former investment in China and certain fixed assets in Kinston, North Carolina. Of that-- about $1.5 million of that $1.9 million related to-- we had negotiated a price with our partner to sell our interest in China. And then, as we moved through the negotiation period, we came off that price about $1.5 million so that number came down $1.5 million.

Okay, so $18.6 million was the total goodwill impairment?

Yes, and then $1.9 million for the impairment charges; then another $3.5 million of charges related to asset consolidation and optimization, so that wasn't a line that was broken out separately, but that's where we consolidated the Stanton plant out of Virginia into Yadkinville, and we also consolidated another Yadkinville plant that we were able to sell back in December for, like, $7.5 million, $7.6 million.

Okay. And then, just to make sure that it have the numbers right for the 2010 projection -- I have CapEx is $8 million to $9 million; depreciation, $25 million; and then, interest expense of $21 million?

Yes.

Okay. All right; that's it for me. Thanks a lot.

Thanks.

Jay Garrett, AHAB Capital.

Hey, guys. Just a quick question. I was wondering, now that you're starting to see some stabilization in inventory and customer orders are starting to more closely align with end-market demand, I was wondering how you feel about the costs that you've taken out of your cost structure. You mentioned earlier that you reduced the volume required by 10% to operate profitably. And I'm wondering how you feel now that you're starting to see the market turn -- whether or not you feel like more costs need to be taken out or whether or not you feel happy with the current cost structure and the current output that you guys feel like you can perform at?

I don't know if I'm ever happy with the cost structure that we have, but certainly we were very, very successful in taking costs out as production reduced. As a matter of fact, our variable costs dropped about the same amount, on a percentage basis, as our production dropped, which is unusual since a lot of our variables still to this day is considered to be somewhat fixed.

I think as our volume goes back up, we're going to be very reluctant to add costs back, and we're certainly going to do it very carefully. I think as our volume goes back up, we're going to see our cost per pound drop as-- We've become much more efficient and as we've been through this, we've done some things which not only have reduced costs but have actually made us more efficient. So I think as our volume returns, our cost structure's going to be significantly better than it was a year to a year and a half ago on a cost-per-pound basis.

But do you feel like by any way from you taking this much cost out of the system that it may limit the upside if you are, in fact, gaining significant market share?

No, not at all.

Okay.

And may I pick up-- one point on that is that's what we went back to back in January when we said, "Look, we could crank down other asset configuration, but that would prevent us from going back." We consciously didn't do that because we ultimately felt like a lot of-- the reason we were off 32 and 27 when retail was only off 10 to 12, a lot of that was the restocking issue that was a timing issue. We did everything we could to temporarily take costs out but we certainly didn't do anything that would keep us from going back to those 2008-type levels we were talking about.

So if volume returns to the 2008 levels, you still have plenty of capacity to fulfill that.

Bill Jasper; Yes, we do.

Okay. And then, can you just clarify-- I believe you said you used $2 million of cash to buy back bonds in the open market?

Yes, we used cash to buy back $2 million of face value bonds. So we bought at market price and generally the market price in the quarter -- I don't have those numbers in front of me -- but it was somewhere in the mid-60s to the mid-70s.

Okay. Can you talk about maybe your plans going forward, given the large amount of cash that you have on hand and the discount that your bonds are currently traded in the market?

Yes, in our prepared comments I think we said we would continue to evaluate that. So I definitely think that's something that's on the radar. We'll be looking at opportunities as they represent themselves around bond buy-backs, but we're not ready to announce anything today as far as what our specific plans are.

Great; okay. Well, thanks for the help. Congratulations on the quarter and good luck.

Thanks, Jay.

Thanks.

Jonathan [Sachs] with Stonehill Capital.

Hi. I'm sorry, just two questions that I heard the question but I didn't quite hear the answer. The prior gentleman was asking about the $2 million -- I'm sorry -- was that a cash buy-back of bonds this past quarter?

Yes, we bought $2 million of face value of bonds at market price. And then what I said was the market price -- I don't have the specific numbers in front of me, but the range for the market price during the quarter was somewhere in the mid-60s to mid-70s. So we bought out there at a market price.

And was that during the fiscal quarter or subsequent to quarter end?

It was during the fiscal quarter.

Okay. And the other question -- I heard the question but not the answer, the revolver availability?

Yes, $63 million and mostly due to inventory and AR reduction. And I think if you look at kind of how we feel about going forward next year around the revolver, as volume starts to pick up, we believe we've still got some work to do around inventory, but obviously, AR will go up. So we expect that number, the availability, to be going up.

And then I had two other questions. One was, can you just clarify for-- first, I guess, the fiscal year that just ended, the distributions that came from unconsolidated subsidiaries?

Yes, I think that number-- it's on the equity affiliates slide. I believe it was about $6 million. Yes, $3.7 million was the distribution we received from Parkdale and we did not receive a distribution from UNF, our joint venture in Israel.

And I'm sorry -- what page is that on?

Page 7. And we have received $800,000 in the quarter.

Okay. The thing I'm trying to understand is if I look at page 8 on the fourth line, Equity in Losses of Unconsolidated Affiliates, I guess I was trying to figure out, is this EBITDA number that we're seeing at the bottom, the $23 million -- is that including-- it's taking out the income and adding the distributions, or what is that 37 number?

Yes. I know a lot of people, in their adjusted EBIT number, will take out the income and add back distributions.

That's what I'm trying to ask, yes.

Because we have no control over that distribution, the way it works for us, the guidance we give and everything we provide is around the adjusted EBIT of this business. So if you're looking-- excluding any impact of equity affiliates. So you really need to look at our valuation in two components. One is, is this the value of the EBITDA flow and the cash flow off the business that we control? And then, two, what's the value of the equity affiliates?

Okay. So that $23 million number excludes both the distributions and also excludes the income or loss from those businesses -- that's totally a Unifi only number.

Yes, exactly.

Okay, great; that was my question.

And then, the one last question I had was, when you were discussing the cash and where the different components of cash are located, could the cash abroad be repatriated without penalty or tax, or are there consequences to repatriating?

It depends. Generally speaking, in the big buckets, if we would bring it back-- most of the cash out of the foreign subsidiaries, if we were to bring those back, there would be tax consequences. But if you remember, what we were talking about our budget for next year not having cash taxes expense from a free cash flow standpoint, we've got $46 million of net operating loss carry-forward, so it would just be eating into that carry-forward, it wouldn't be an actual cash expense in that period.

And can the cash abroad be used to pay interest expense or CapEx or other things, or does that incur the same tax consequences or does it depend (inaudible)?

It would have to come back here to pay interest. But as far as doing CapEx or making investments abroad, it could be used for that.

Okay. So maybe we should think of there being some loss or shrinkage of that cash because some will ultimately be repatriated for interest expense or other things and some portion will be used locally and not incur that tax or loss?

I'll answer that two ways. One is, we talked about doing an investment in Central America, a total investment of less than $10 million. To the extent that were to happen, it would come out of foreign cash. So yes, that would not go through that repatriation.

To the extent we were to do other foreign investments, and we haven't talked about anything like that, but to the extent we were, it would come out of that. The only time we would pay taxes on it, if we bring an amount back home. And that's when we would pay taxes on it. You mentioned-- if we brought it back to pay interest or something.

Yes, I think that's one of the key things is our business has gotten to the point where it's running on a positive free cash flow and if you look at our budget for next year, we're basically going to be able to stay positive free cash flow without having to bring foreign dollars back home in order to do that.

So we haven't given any specific guidance around we expect to bring X amount of cash back home in order to do a breakdown, but I would say it's going to be part and parcel. Some of it will stay outside and we have the opportunity to bring some of it back home if we have something we want to do with it, whether it's an asset purchase or whether it's deleveraging or whatever event we want to do.

Great. Thank you very much; appreciate it.

[Joe Philips], [Kilmer DiLeo].

Ron, earlier in your comments you were talking about some of the components of your cash -- not your geographic distribution but some items that were included in the cash balance. And I believe you cited a sum that was the result of some foreign exchange effects in Brazil. Can you give me that again?

Yes, $2.5 million was the impact on cash of the change in currency from 2.32 down to 1.95.

Okay. And the rest of my questions have been answered. Thank you.

Thanks, Joe.

Jay Garrett, AHAB Capital.

Sorry, just a quick follow-up, Ron. The $8 million to $9 million CapEx -- can you break out what is maintenance versus expansion, and whether or not that includes the greenfield project?

That does not include the greenfield project, one. And let me answer this first -- the $6 million to $8 million is mostly maintenance. We don't have any-- like last year, our typical run rate has been kind of $8 million to $10 million, $9 million to $10 million of CapEx that we had been spending over the last several years.

Last year was a unique year. We had a unique opportunity around Repreve and around some specific functionality in our polyester spinning plant that we invested in. And that project alone was almost $5 million, so we had a couple of unique non kind of maintenance CapEx things that we invested in last year.

This year -- you take that out and you're back down to $10 million. What we're saying is basically going forward next year-- and I think I said $8 million to $9 million, not $6 million to $8 million, but--

I meant $8 million to $9 million.

Yes, $8 million to $9 million is what we're expecting. And that is more of a maintenance-type level.

The other question around the greenfield -- what we've talked about is we're exploring opportunities to be in Central America, and there's the potential to be in a partnership or doing a greenfield. But the cake's not baked on that. Till we get to that point, make the announcement, there's really not a whole lot else we can say about that other than that's not include in that $8 million to $9 million. No part of that investment or the CapEx that will be required to do that will be in that number.

And Ron, just one additional comment. The $8 million to $9 million is primarily all maintenance, or mostly maintenance; maybe a little carry-over from our improvement projects last year. Certainly, if improvement projects are bought to us and there's a very quick payback, say in the range of one to two years, we may spend additional capital as we see fit if there's a very quick payback.

Okay, thanks.

(INSTRUCTIONS) There are no further questions.

Okay, Operator, thanks a lot. Thanks, everyone, for joining us and we look forward to talking to you guys again in October. Thanks.

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