All amounts and share amounts, except per share amounts, are presented in thousands, except as otherwise noted.

Forward-Looking Statements
The following discussion contains certain forward-looking statements about the Company's financial condition and results of operations.

Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as "believe," "anticipate," "expect," "estimate," "intend," "project," "plan," "will," or words or phrases of similar meaning. They may relate to, among other things, the risks described below:
ˇ the competitive nature of the textile industry and the impact of worldwide competition;

ˇ changes in the trade regulatory environment and governmental policies and legislation;

ˇ the availability, sourcing and pricing of raw materials;

ˇ general domestic and international economic and industry conditions in markets where the Company competes, such as recession and other economic and political factors over which the Company has no control;

ˇ changes in consumer spending, customer preferences, fashion trends and end-uses;

ˇ the ability to reduce production costs;

ˇ changes in currency exchange rates, interest and inflation rates;

ˇ the financial condition of the Company's customers;

ˇ the ability to sell excess assets;

ˇ technological advancements and the continued availability of financial resources to fund capital expenditures;

ˇ the operating performance of joint ventures and other equity investments;

ˇ the accurate financial reporting of information from equity method investees;

ˇ the impact of environmental, health and safety regulations;

ˇ the loss of a material customer(s);

ˇ the ability to protect intellectual property;

ˇ employee relations;

ˇ volatility of financial and credit markets;

ˇ the ability to service indebtedness and fund capital expenditures and strategic initiatives;

ˇ the continuity of the Company's leadership;

ˇ availability of and access to credit on reasonable terms; and

ˇ the success of the Company's strategic business initiatives.

These forward-looking statements reflect the Company's current views with respect to future events and are based on assumptions and subject to risks and uncertainties that may cause actual results to differ materially from trends, plans or expectations set forth in the forward-looking statements. These risks and uncertainties may include those discussed above. New risks can emerge from time to time. It is not possible for the Company to predict all of these risks, nor can it assess the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in forward-looking statements.

Business Overview
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, the "Company" or "Unifi") is a publicly-traded, multi-national manufacturing company. The Company processes and sells high-volume commodity products, specialized yarns designed to meet certain customer specifications, and premier value-added ("PVA") yarns with enhanced performance characteristics. The Company sells fibers made from polyester and nylon filament to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, hosiery, sock, home furnishing, automotive upholstery, industrial and other end-use markets. The Company's polyester products include polyester polymer beads ("Chip"), partially oriented yarn ("POY"), textured, solution and package dyed, twisted and beamed yarns; each available in virgin or recycled varieties (made from both pre-consumer yarn waste and post-consumer waste, including plastic bottles). The Company's nylon products include textured, solution dyed and covered spandex products. The Company maintains one of the industry's most comprehensive product offerings and has ten manufacturing operations in four countries and participates in joint ventures in Israel and the United States ("U.S."). The Company's principal markets are located in the U.S., Canada, Mexico, Central America, and South America. In addition, the Company has a wholly-owned subsidiary in the People's Republic of China ("China") focused on the sale and promotion of the Company's specialty and PVA products in the Asian textile market, primarily in China, as well as into Europe.

The Company has three operating segments which are also its reportable segments. Each reportable segment derives its revenues as follows:
ˇ The Polyester segment manufactures Chip, POY, textured, dyed, twisted and beamed yarns, virgin and recycled, with sales primarily to other yarn manufacturers, knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive upholstery, home furnishing, industrial and other end-use markets. The Polyester segment consists of manufacturing operations in the U.S. and El Salvador.

ˇ The Nylon segment manufactures textured nylon and covered spandex yarns with sales to knitters and weavers that produce fabric for the apparel, hosiery, sock and other end-use markets. The Nylon segment consists of manufacturing operations in the U.S. and Colombia.

ˇ The International segment's products primarily include textured polyester and various types of resale yarns and staple fiber. The International segment sells its yarns to knitters and weavers that produce fabric for the apparel, automotive upholstery, home furnishing, industrial and other end-use markets primarily in the South American and Asian regions. This segment includes manufacturing and sales offices in Brazil and a sales office in China.

Other information for the Company's reportable segments, including revenues, a measurement of profit or loss, and total assets by segment, is provided in "Footnote 27. Business Segment Information" to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Recent Developments and Strategy
While the Company continues to face a challenging operating environment caused by global competition across the supply chain, inflation for its input costs and raw materials, and potential decreased demand caused by continuing weakness of the U.S. and global economies, the Company believes it has the appropriate strategies in place to succeed. The Company continues to focus on its key strategies: striving for continuous improvement across all operational and business processes; enriching its product mix by growing its higher margin PVA product portfolio and increasing sales of yarns with regional rules of origin requirements; and continuing its strategic penetration in global growth markets, such as China, Central America and Brazil. Going forward, the Company expects to continue its support of these strategies through investments in selected product and geographic growth opportunities related to its core business. The Company also anticipates utilizing its excess liquidity and operating cash flows to continue to supplement its deleveraging strategy and maximize shareholder value.

Deleveraging Strategy: On January 8, 2013, the Company paid in full the remaining amount outstanding on its then existing Term B Loan which had an interest rate of 8.75%. The prepayment was funded by a combination of distributions from Parkdale America, LLC ("PAL") and domestic liquidity and reduced the Company's weighted average interest rate to approximately 3.3% for its debt obligations currently outstanding.

Stock Repurchase Program: On January 22, 2013, the Company's Board approved a new stock repurchase program to acquire up to $50,000 of the Company's common stock. The new repurchase program replaced the prior stock repurchase program. Under the new repurchase program, the Company is authorized to repurchase shares at prevailing market prices, through open market purchases or privately negotiated transactions at such times, manner and prices as are determined by management, subject to market conditions, applicable legal requirements, contractual obligations and other factors. Repurchases are expected to be financed through cash from operations and borrowings under the Company's ABL Revolver, and are subject to applicable limitations and requirements set forth in the ABL Facility. The repurchase program has no stated expiration or termination date. The Company may discontinue repurchases at any time that management determines additional purchases are not warranted. Under the repurchase program, there is no time limit for repurchase, nor is there a minimum number of shares intended to be repurchased or specific time frame in which the Company intends to repurchase.

PVA: The Company remains committed to growing the business for its value-added products and believes its research and development work with brands and retailers continues to create new, world-wide sales opportunities as the Company raises the visibility of REPREVEŽ, the Company's umbrella brand for its recycled products (made from both pre-consumer yarn waste and post-consumer waste, including plastic bottles), as a consumer brand. For the current quarter, the Company's PVA products represented approximately 19% of its consolidated net sales and REPREVEŽ continues to grow at a faster pace than other PVA products. The Company believes that it can continue to increase its PVA sales as a percentage of its overall sales volume and grow its global PVA sales to create overall mix enrichment and margin gains.

X Games Aspen 2013: As part of its efforts to market REPREVEŽ to consumers, the Company recently announced that it will be the official recycling partner of ESPN at the X Games Aspen 2013. The Company believes that this will create awareness for REPREVEŽ among consumers and will also raise its visibility and credibility among brands and retailers. As REPREVEŽ fibers are in many well-known and respected winter sports-related brands, including Patagonia, The North Face and Polartec, the Company believes that the X Games in Aspen will be an ideal venue to help consumers understand the range of products made with REPREVEŽ recycled fibers, raise positive awareness for recycled polyester and establish REPREVEŽ as a leading ingredient in sustainable products.

Brazil: The strengthening of the Brazilian Real during the latter half of calendar year 2011 began to negatively impact the competitiveness of the local apparel supply chain by making imports of competing fibers, garments and apparel more competitively priced. Although the Real has subsequently returned to more normalized levels, the trade environment, the imports of fiber, fabric and finished goods continue to place pressure on the domestic supply chain in Brazil and have made it difficult for the Company's Brazilian operation to remain competitive for the lower end of its textured yarn product offerings. The average inflation rate of 5% to 7% in Brazil has also negatively impacted the Company's converting costs at a time when it is difficult to raise selling prices while competing against the influx of cheaper imported goods. The Company expects that the combination of implementing process improvements and manufacturing efficiency gains to help lower per unit costs, and aggressively pursuing a mix enrichment strategy leading to a more defensible product mix, as well as the benefits of the Real remaining at more normalized levels and the initiatives taken by the Brazilian government to support domestic yarn manufacturers, will allow the Company to recapture lost volumes and margins.

China: Sales volumes for both the December 2012 quarter and year-to-date periods were lower than expected as demand from a significant customer was negatively impacted by high inventory levels throughout that customer's supply chain. This decline in volume was partially offset by several new development programs realized during the periods, however, these programs were at lower than average margins. The Company remains optimistic about its business in China as the high levels of supply chain inventory for the significant customer become depleted and the projected growth in the region for the Company's PVA products is expected to continue.

Investment in Central America: The Central American Free Trade Agreement ("CAFTA") region, which continues to be a competitive alternative to Asian supply chains, has in recent years maintained its share of synthetic apparel supply to U.S. retailers and continues to see ongoing investments being made. The share of synthetic apparel versus cotton continues to increase and has provided growth for the consumption of synthetic yarns within the CAFTA region. The recently completed installation of additional texturing capacity at the Company's plant in El Salvador is running at or near capacity and will enable the Company to take advantage of the long-term volume opportunities in this region. In addition, legislation was passed in the U.S. Congress on August 3, 2012 that provides a technical correction to the sewing thread provision in the CAFTA. The amended CAFTA, which took effect on October 13, 2012, closed a loophole that allowed for the use of non-originating sewing thread in the assembly of textiles and apparel under the trade agreement. The technical modification clarifies that certain single ply synthetic sewing thread is required to be produced in the United States or CAFTA region in order for goods to qualify for preferential tariff treatment. All other sewing threads already enjoyed the benefits of yarn forward rules of origin under the free trade agreement. The passage of this amendment is important to the Company and its operations in Central America, and is expected to result in improvements for the Company's twisted yarn and sewing thread business.

Raw Materials: Polyester raw material prices have been steadily increasing since the start of fiscal year 2013 and, although they are still lower than the December 2011 quarter, they were, on average, approximately 10% higher in the December 2012 quarter when compared to the September 2012 quarter. These costs are also expected to increase slightly in the March 2013 quarter and may negatively impact the Company's future margins as the timing of these raw material cost increases could limit the recovery of margin during this rising raw material environment. In addition, the polymer pricing gap between the U.S. and Asia has averaged $0.12 per pound throughout fiscal year 2013 and will continue to place additional pressures on the Company's polyester sales volume and margins within the lower end of the Company's product mix that typically competes with imported yarns.

Company Outlook: Based on a shortened shipping quarter due to the timing of the holiday season, anticipated increases in raw material prices, the challenging conditions in Brazil and the marketing expenses related to the X Games Aspen 2013 sponsorship, the Company believes that its gross profit and Adjusted EBITDA for the March 2013 fiscal quarter will be slightly less than the amounts reported for the December 2012 quarter. During the June 2013 fiscal quarter, the Company expects operating profit improvements primarily due to anticipated higher sales volumes and gross margin improvements.

Key Performance Indicators and Non-GAAP Financial Measures The Company continuously reviews performance indicators to measure its success. The following are the indicators management uses to assess performance of the Company's business:
ˇ sales volume for the Company and for each of its reportable segments;

ˇ gross profits and gross margin for the Company and for each of its reportable segments;

ˇ Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") represents net income or loss attributable to Unifi, Inc. before income tax expense, net interest expense, and depreciation and amortization expense (excluding interest portion of amortization);

ˇ Adjusted EBITDA Including Equity Affiliates represents EBITDA adjusted to exclude non-cash compensation expense net of distributions, gains or losses on extinguishment of debt, loss on previously held equity interest, refund of Brazilian non-income related tax, operating expenses for Repreve Renewables and certain other adjustments. Other adjustments may include items such as gains or losses on sales or disposals of property, plant, or equipment, currency and derivative gains or losses, restructuring and employee severance expenses, and certain other operating or non-operating income or expense items;

ˇ Adjusted EBITDA represents Adjusted EBITDA Including Equity Affiliates excluding the earnings of unconsolidated affiliates. The Company may, from time to time, change the items included within Adjusted EBITDA;

ˇ Segment Adjusted Profit equals segment gross profit plus segment depreciation and amortization less segment selling, general, and administrative expenses ("SG&A"), net of segment other adjustments;

ˇ Adjusted Working Capital (receivables plus inventory less accounts payable and certain accrued expenses) is an indicator of the Company's production efficiency and ability to manage its inventory and receivables; and

ˇ Working Capital represents current assets less current liabilities.

EBITDA, Adjusted EBITDA Including Equity Affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital are financial measurements that management uses to facilitate its analysis and understanding of the Company's business operations. Management believes they are useful to investors because they provide a supplemental way to understand the underlying operating performance and debt service capacity of the Company. The calculation of EBITDA, Adjusted EBITDA Including Equity Affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital are subjective measures based on management's belief as to which items should be included or excluded, in order to provide the most reasonable view of the underlying operating performance of the business. EBITDA, Adjusted EBITDA Including Equity Affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital are not considered to be in accordance with generally accepted accounting principles ("non-GAAP measurements") and should not be considered a substitute for performance measures calculated in accordance with GAAP.

Results of Operations
Review of Second Quarter of Fiscal Year 2013 Compared to Second Quarter of
Fiscal Year 2012
The reconciliations of Net income (loss) attributable to Unifi, Inc. to EBITDA,
Adjusted EBITDA Including Equity Affiliates and Adjusted EBITDA are as follows:
                                                              For the Three Months Ended
                                                           December 23,        December 25,
                                                               2012                2011
Net income (loss) attributable to Unifi, Inc.              $       2,426       $      (7,608 )
Provision for income taxes                                         2,216               1,806
Interest expense, net                                              1,217               3,727
Depreciation and amortization expense                              6,298               6,454
EBITDA                                                            12,157               4,379

Non-cash compensation expense, net                                   705               1,152
Loss on extinguishment of debt                                       114                   -
Loss on previously held equity interest                                -               3,656
Refund of Brazilian non-income related tax                             -              (1,479 )
Operating expenses for Repreve Renewables                            284                 287
Other                                                                154                 181
Adjusted EBITDA Including Equity Affiliates                       13,414               8,176

Equity in earnings of unconsolidated affiliates                   (1,258 )              (844 )
Adjusted EBITDA                                            $      12,156       $       7,332

The reconciliations of Adjusted EBITDA to Segment Adjusted Profit are as follows:

                                                              For the Three Months Ended
                                                           December 23,        December 25,
                                                               2012                2011
Adjusted EBITDA                                            $      12,156       $       7,332
Non-cash compensation expense, net                                  (705 )            (1,152 )
Provision for bad debts                                               73                 357
Other, net                                                           (37 )               (98 )
Less: depreciation included in Other, net                              -                  (8 )
Segment Adjusted Profit                                    $      11,487       $       6,431

Segment Adjusted Profit for each of the reportable segments is presented below:

                                   For the Three Months Ended
                           December 23, 2012         December 25, 2011
Polyester                 $             5,957       $               419
Nylon                                   2,305                     3,082
International                           3,225                     2,930
Segment Adjusted Profit   $            11,487       $             6,431

Selected financial information for the Polyester, Nylon and International segments is presented below:

                                                         For the Three Months Ended December 23, 2012
                                                Polyester           Nylon          International        Total
Net sales                                      $    97,322       $    39,541      $        35,208     $ 172,071
Cost of sales                                       88,885            35,525               30,970       155,380
Gross profit                                         8,437             4,016                4,238        16,691
Selling, general and administrative expenses         7,177             2,466                1,889        11,532
Segment operating profit                       $     1,260       $     1,550      $         2,349     $   5,159



                                                         For the Three Months Ended December 25, 2011
                                                Polyester           Nylon          International        Total
Net sales                                      $    95,105       $    38,816      $        33,189     $ 167,110
Cost of sales                                       92,844            34,289               29,095       156,228
Gross profit                                         2,261             4,527                4,094        10,882
Selling, general and administrative expenses         6,577             2,215                2,194        10,986
Segment operating (loss) profit                $    (4,316 )     $     2,312      $         1,900     $    (104 )

The reconciliations of Segment operating profit (loss) to consolidated Income
(loss) before income taxes are as follows:

                                                              For the Three Months Ended
                                                           December 23,        December 25,
                                                               2012                2011
Polyester                                                  $       1,260       $      (4,316 )
Nylon                                                              1,550               2,312
International                                                      2,349               1,900
Segment operating profit                                           5,159                (104 )
Provision for bad debts                                               73                 357
Other operating expense, net                                         580                 490
Operating income (loss)                                            4,506                (951 )
Interest expense, net                                              1,217               3,727
Loss on extinguishment of debt                                       114                   -
Loss on previously held equity interest                                -               3,656
Other non-operating income                                             -              (1,479 )
Equity in earnings of unconsolidated affiliates                   (1,258 )              (844 )
Income (loss) before income taxes                          $       4,433       $      (6,011 )

The reconciliations of Segment depreciation and amortization expense to consolidated Depreciation and amortization expense are as follows:

                                                              For the Three Months Ended
                                                           December 23,        December 25,
                                                               2012                2011
Polyester                                                  $       4,697       $       4,735
Nylon                                                                755                 770
International                                                        820                 926
Segment depreciation and amortization expense                      6,272               6,431
Depreciation and amortization included in other
operating expense, net                                                45                  31
Amortization included in interest expense                            163                 224
Depreciation and amortization expense                      $       6,480       $       6,686

Depreciation and amortization included in other operating expense, net includes $19 and $8 allocated to net loss attributable to non-controlling interest for the quarter ended December 23, 2012 and December 25, 2011, respectively.

Consolidated Overview
The components of Net income (loss) attributable to Unifi, Inc., each component
as a percentage of net sales and the percentage increase or decrease over the
prior year period amounts are as follows:
                                                      For the Three Months Ended
                                         December 23, 2012                   December 25, 2011
                                                  % to Net Sales                      % to Net Sales       % Change
Net sales                         $  172,071                100.0     $  167,110                100.0            3.0
Cost of sales                        155,380                 90.3        156,228                 93.5           (0.5 )
. . .