Q4 2007 Unifi Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

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

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

Before we begin, I need to first advise you that certain statements included herein may be forward-looking statements within the meaning of federal securities law. Management cautions that these statements are based on management's current expectations, estimates and/or projections about the markets in which the company operates. Therefore, these statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied by these statements. I direct you to the disclosure in our 10-Qs and 10-Ks regarding various factors that may impact these results.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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