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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning. My name is Elsa and I'll be your conference coordinator today. At this time, I would like to welcome everyone to the Unifi first quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Mr. Ronald Smith. Sir, you may begin your conference.
RON SMITH, CFO, UNIFI, INC.: Thanks, Elsa, and good morning, everyone. Joining me for the conference call today is Bill Jasper, our President and CEO. During this call, we'll be referencing presentation material 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 the first quarter conference call link found on the home page. I hope that you have the presentation available as it will make it much easier to track through the information discussed on the 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 the various factors that may impact these results.
And before we begin our financial results for the quarter, I'd like to turn the call over to Bill Jasper, who'll provide a brief overview of the company's priorities and focus for fiscal 2008. Bill?
BILL JASPER, PRESIDENT, CEO, UNIFI, INC.: Thanks Ron, and good morning, everyone. As you are all aware, there have been quite a few changes at the company recently and we're excited by the opportunities that they present to us. We have a new leadership team, several new board members that bring more than 150 years of valuable textile industry experience and over 20% stock ownership in the company.
Our talented and experienced management team now includes Roger Berrier as our Executive Vice President of Sales, Marketing, and Asian Operations; and Ron Smith as our newly appointed Chief Financial Officer. These gentlemen bring 16 years each of experience to their positions and I look forward to their leadership and the support of our board of directors as we work to become, and remain, profitable in the U.S. and Asia.
Let me begin my remarks by first saying that I believe our financial performance of the company over the last several years has been unacceptable; and we intend to change that. Despite being in a difficult and declining market, Unifi has the people, products, technology, supply chain power, and global reach to be successful once again. Our balance sheet is strong and our cash position is improving.
In the past several months, we've taken decisive action to improve our ability to compete. For instance, domestically we maintained our margins over raw materials in the last year despite a period of volatile ingredient prices and market contraction.
We also increased profits from our premiere valued products, or PVA, which generate better margins than our commodity products. Sales of our PVA products have grown by more than 600% since they were first introduced in 2001, and we expect that trend to continue. In fact, in the January through September period of 2007, revenues from our PVA products grew by 50% over the similar period of 2006.
Much of this improvement was driven by the tremendous growth of our 100% recycled product, Repreve. Repreve's being specified into many new apparel applications at well-known brands and our recycled polyester story will be featured on both CNN and the Discovery Channel in the coming months.
The development of Repreve, as well as a strong corporate history and culture of environmental consciousness positions Unifi as an industry leader in a field of growing global importance.
In January 2007, we purchased the texturing operations of the Dillon Yarn Corporation, and in April 2007 consolidated that volume into our Yadkinville and Madison facilities. That transition is complete and we've maintained more than 90% of the Dillon share in that transition.
In August, we announced the closure of our Kinston facility, which was a very difficult decision but a necessary one. By closing Kinston it allows us to run our Yadkinville spinning facility full and at maximum efficiency. It greatly improves our flexibility during times of softer demand. And just as importantly, it allows us a source of POY at globally competitive prices which are well below our Kinston costs. This provides opportunities to compete with and take share from imported polyester filament, which accounts for nearly 25% of domestic consumption.
The final line at Kinston was shut down October 4th and we expect the Kinston production to be fully transitioned to both Yadkinville and source POY by early 2008.
And finally, we've restructured the company to align our overhead with market conditions and our new business model. We've taken out nearly $9 million annually of non-value-added costs in the past few months. These actions have put the company in a position to compete successfully and we have the leadership and board support to drive improvement and grow both revenues and earnings.
In the coming months, the leadership team will concentrate on three key areas, and those are -- first, achieve corporate profitability as soon as possible; maximize cash generation. Secondly, get our China JV profitable and position it for long-term success and growth. And finally, develop our vision and strategy to achieve sustainable growth and create significant shareholder value.
Before I turn the call back over to Ron, let me briefly touch on each of those areas. The first area is achieving corporate profitability as soon as possible and maximizing cash generation. To accomplish this we have, over the past three weeks, developed an aggressive plan and set clear targets at all functional areas of our business in the Americas.
We have identified the critical operating tasks necessary to achieve the targets we've set and these tasks are focused primarily on running high sales to capacity levels; improving our margins over raw materials, including enriching our mix, with a focus on PVA yarns; and growing sales of these products globally. Using our purchase power to assure the lowest possible raw material costs. Rigorous management of our working capital. And a continued focus on eliminating all non-value-added overhead, support, and manufacturing costs. And by that, I mean if an overhead cost is not adding value to either the product or the supply chain, we're going to either minimize it or eliminate it.
The plan is in place and now is the time to execute. These critical operating tasks will be measured weekly to assure we stay on track and achieve quick and lasting results.
The second area of focus is to get our China JV profitable and position it for long-term success. With China's domestic demand for polyester yarns increasing at an annual rate of 8% and the specialty yarn market growing at an annual rate of 10%, the JV is a growth platform in a rapidly growing region. The JV continues to show steady but slow improvement in volume, costs, and PVA growth.
We will be reviewing all China strategy and tactics over the next few weeks to ensure we have disciplined and aggressive plans in place for improvements similar to our domestic initiatives. Our priorities in China will be on improving costs and quality as well as developing a sustainable route to market for our high-value and PVA products.
The final area of focus is develop a vision to capture growth and create sustainable shareholder value. The company is conducting an exhaustive strategic planning process to better understand how we can use our influence as a major player in the domestic market and our sustainable competitive advantages to grow sales and profit in both the short and long term. We are encouraged by the opportunities and will be communicating more on this vision in the coming quarters.
Now, we're in a very challenging business and I recognize our financial performance has been disappointing over the last several years. However, I am confident that we have a leadership team and a board of directors in place that can build a strong, successful, and profitable company for many years to come. One thing is certain. We will have a well-thought-out, realistic but aggressive plan for success; we will focus on efficient execution of these plans; and we will have a bias for action.
With that as a backdrop, I'd like to turn the call back over to Ron to review the results for the quarter. Ron?
RON SMITH: Thanks, Bill. If you're following along on the website presentation, begin our comments on Slide 3.
Net sales for the current September quarter were $170.5 million, inclusive of net sales acquired through the Dillon acquisition in January 2007 versus net sales of $169.9 million for the prior-year September quarter. In comparison to the prior-year September quarter, total …