Good morning. My name is Therese, and I will be your conference operator today. At this time, I would like to welcome everyone to the Unifi Second Quarter Earnings Call. [Operator Instructions] I would now turn the call over to Ron Smith. Go ahead, Ron.

Thanks, Therese, and good morning, everyone. Joining me for the call today is Bill Jasper, our Chairman and Chief Executive Officer; and Roger Berrier, our President and Chief Operating Officer. During this call, we will be referencing a webcast presentation that can be found at unifi.com. The presentation can be accessed by clicking the Second Quarter Conference Call link found on our homepage. Before we begin, I first need to 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 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 disclosures filed with the SEC and our Form-10 -- on our Form 10-Qs and 10-Ks regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, will be discussed on this call and a non-GAAP reconciliation can be found in the schedule to the webcast presentation. Before we get into the financial details for the quarter, I'd like to turn the call over to Roger, who will provide you with an overview of the market and the raw materials trends. Roger?

Thanks, Ron and good morning, everyone. After year-over-year total retail sales in the U.S. dropped by 0.3% in October, U.S. retail sales rose 0.4% in November and 0.5% in December. And although these are weaker sales gains compared to previous holiday periods, they were encouraging results nonetheless. The economy appears to have some underlying momentum to it and many experts believe the momentum will continue into 2013. So I'll start my comments today with the automotive and housings segments, which have been leading the way in terms of the overall economy recovery. These 2 segments represent approximately 20% of the company's volume. The U.S. automotive market has been a bright spot as Americans continue to replace older vehicles and ones damaged by super storm Sandy. A strong December helped push 2012 U.S. light vehicle sales to their highest volume levels in 5 years. After bottoming out at 10.4 million units in 2009, sales rose 11% in 2010, 10% in 2011 and 13% in 2012, which was the biggest 1-year jump in decades. The seasonally adjusted annual sales rate in December was 15.4 million units, marking the second straight month that the annualized sales rate was above 15 million and a performance status created considerable momentum for 2013. In the housing market, 2012 finished as the best year for residential construction since the housing crisis began, with an increase of 28% more new homes starts in 2012 compared to 2011. The resurgence in the housing market has helped drive a 7.5% increase in retail furnishing sales in 2012 compared to 2011. Although volumes in our furnishings segment have only increased slightly, we remain encouraged by these trends in the housing market and retail furnishings segment. Retail sales of apparel in the U.S. increased 5.5% for the 2012 calendar year but the…

Thanks, Roger. We will now begin our review of the preliminary financial results, which begin on Page 3 of the presentation with Net Sales and Gross Profit Highlights for the strong December '12 quarter. Polyester and nylon segment volumes increased in the December '12 quarter versus the prior year quarter based on the generally improving year-over-year conditions in our core domestic markets that Roger just highlighted. Supply chain inventory days in our core apparel and home furnishings segments have remained at or below year-ago levels for the past 4 quarters, so our operating rates are tracking along with retail conditions at this point. Internationally, year-over-year volume improved 15.5% in the quarter as a result of solid gains in China and Brazil. The decline in pricing reflects the impact of currency and the pressure from imports and inflation in Brazil that Roger mentioned, as well as a temporary mix shift in China to high-volume products and REPREVE staple, which sells at a lower overall average price. Consolidated gross profit improved $5.8 million in the December '12 quarter, compared to the December '11 quarter, primarily as a result of higher polyester volume and capacity utilization rates, stable and slightly lower raw material costs compared to the year-ago period and the growth of higher margin PVA products in our domestic operations. Gross profit results from our international operation in the December 2012 quarter reflect the challenging conditions in Brazil and the short term shift in product mix in China that was mentioned earlier. For the second half of the fiscal year in Brazil, we expect to see continued pressure on both volume and gross profit during the March quarter due to the evolving trade conditions and a reduction in production volumes necessary to align inventory levels and sell-through volumes. As we move through…

Thanks, Ron, and good morning, everyone. In light of increasing domestic raw material costs, business issues that we've noted earlier in Brazil and a less than robust retail environment, I'm pleased with the results for the December 2012 quarter and believe they reflect the efficient and effective execution of our core strategies, which include driving continuous improvement across all operational and business processes, utilizing excess liquidity and operating cash flows to continue our de-leveraging strategy and enriching our product mix by expanding our trade compliant yarn sales and growing our higher margin PVA product portfolio. I'd like to highlight just a few examples of how our core strategies can be seen in the results for the December quarter and the first half of fiscal year. Gross profit increased by $12 million in the first half of fiscal 2013 compared to the prior-year period on a net sales increase of just $6.8 million. This improvement in gross profit reflects the benefits derived from our lower per unit costs resulting from our cost-reduction efforts, strong regional sales in our polyester segment driven by growth of NAFTA and CAFTA sourcing and increased PVA sales as a percentage of our total mix. We have been able to reduce the manufacturing costs of our textured polyester yarn even though the complexity of our business has increased significantly in recent years to support the growth of our PVA portfolio. As we enrich our mix and reduce our focus on commodity products, the number of lot changes that we make has grown substantially. Manufacturing costs in our Yadkinville plant are essentially the same today as they were 3 years ago, even though we have increased the number of production changes by 40% while utility, packaging, chemicals and labor costs have all risen. We estimate that our focus…

[Operator Instructions] And our first question comes from Chris McGinnis with Sidoti & Company.

Just a couple of quick questions. Some easy ones off quick, just on the working capital for the rest of the year, do you think that's still going to be positive or will that -- it will be an outflow for cash use?

I think, generally, it's going to be pretty neutral, the timing of the holiday shutdown period, AR, it obviously goes down when you have less sales leading into that and accounts payable we buy less as we're coming into a shutdown period. So this period, typically, we build back working capital in the third quarter, but this period, in particular, because we did cut back on purchases, the AR and the AP really almost wash out with their changes. So we would expect sort of neutral going forward for the back half of the year.

All right. And then just to dig into the international a little bit more, I guess a couple of questions. One is what is the percent of sales of PVA products currently?

Yes. Our current percentage on a -- you're talking about consolidated or on international?

On the international itself. I know it's more Brazil, it sounds like but maybe...

I don't have that break out in front of me but generally speaking, we consolidated -- we're somewhere in that 17%, 18% range and those businesses typically have a higher percentage of PVA because remember, the China business is really focused almost entirely around PVA. So it would be in that sort of low 20s and then our domestic business, the weighted average of that is what gets to that 17% to 18% range.

And then thinking just some of the comments you made obviously with Brazil. What gives you more confidence that you'll see an improvement in the June period compared to the March? Is that more about, I guess maybe, you being proactive in costs, in controlling costs or is it a change in the market?

I think there's a couple of things there. One from a production standpoint, we do have -- we are going to adjust the inventory levels in Brazil and we are an asset-intensive company. So when we adjust -- when we pull volumes down, that impacts our converting cost. So the way I would explain it would be sort of looking at the March quarter being down slightly from where we're running at today. And then the June quarter, which is typically a strong quarter for Brazil, certainly be an improvement even from where we're at today. So that March quarter, you've got the cut in volumes. You also got some of the Brazilian holidays going through there and you also have some of the incentives that are in the Brazilian operation are transitioning out for the -- that will not be in place for the March quarter and there'll be some incentives there that sort of come back in the June quarter. So some of the trade environment, we're talking about trade environment, that trade environment will change between those 2 quarters which gives us some of the confidence. Then, generally speaking, the underlying business improvement, I'll let Roger talk about that.

Yes. I think -- I mean, over the next 6 months to 12 months we do see opportunities to enrich the product mix. So as we mentioned earlier, we'll be focused a lot on looking at that commodity side of the business, where we do have a lot of import pressure, and converting some of that over to a richer product mix. And then, we have stepped up a lot of our initiatives, as we've done here domestically, around cost control and process improvement initiatives. We've kicked off a rigorous effort in Brazil looking at the same thing. We've been doing that over the last few years but really taking that a step further.

Yes, and I guess the only -- this is Bill, the only thing I would add to that is about 1 year, 1.5 years ago, the Brazilian currency did strengthen significantly. And during that time, imports, especially from Asia, really increased, especially in finished -- finished goods. The currency certainly has weakened over the last 12 months and I think it's fair to anticipate that, because of the price competitiveness of local goods, we may see a shift back to more local production from this great increase in imports we saw about 1 year ago.

And then just on the China business, if I remember right, I believe a lot of that product was supposed to go to Europe, if I'm correct, or that customer goes to Europe. It seems like Europe has been in a tough position for a long time now, especially, I know that the retail environment is not great over there. But at what point do you think that maybe that business starts to come back and what's the trigger? What's the driver behind that? Is it an improvement in Europe or is it more about them getting their inventory kind of in line?

I think when you specifically look at Europe and the customers that we have, that we're servicing, that feed into Europe, for the most part, some of those customers are back-end ordering product but they are not ordering product from us at their historical levels. We still have one major customer there that I would say is considerably off of what, historically, we would anticipate them being. The positive side of China is, when you look at our PVA strategy, we continue to build new programs year-over-year and the momentum there continues to really keep us very excited. So as Europe continues to struggle to come back from a volume standpoint, we're picking up new programs, and some of them we mentioned during the call, to really replace that volume from Europe. So if you fast-forward 12 months, 24 months and you start looking at what our expectations could be from China, certainly, as Europe comes back online, we think we have China, from a PVA servicing brands and retailers position, very well to capture that market.

Is that right to think that the China operation does -- is run through -- I guess the European businesses run through China, is that correct?

For the most part, I mean, you have the major brands and retailers in Europe and they do typically source most of their goods out of Asia.

Right. But our mix of products that come out of China, they go into Europe, I mean, UTSC is primarily focused on that European business.

Yes. It's a balance, I would say. It's close to a 50-50 balance between Europe and goods coming back into the U.S.

Great. Just a couple of quick other ones.

Chris, hold on, one more on that. I mean, we're selling yarn to converters in China but the ultimate disposition of that product is either to the Europe or to the U.S. We're not -- we're doing very little exports of yarn out of China. It's the beginning part -- it's that pull-through strategy where we market to the guys in Europe, we market to the guys here in the U.S. They expect our yarn in. It's that pull-through strategy of -- the ultimate finished product is going back to those markets.

Understood, understood. Just maybe initial thoughts on if the Healthcare Act will have any -- what kind of impact that could have? I don't know if you guys -- it might too early for you but I just kind of wondering about that.

I think it's a little bit too early to sort of get through the whole process and understand what the different implications are. We've certainly taken a look at it. I guess, January '14 will be another sort of milestone date under that, so we'll be giving you guys updates as we move forward. But I think it's too early to look at where it's been. I think from historical perspective, certainly, health care costs continue to be a large part of our social costs, our employee benefits and it continues to go up, maybe not quite at the percentage rate it was going up but it continues to go up.

And then lastly, just -- Walmart came out a couple of weeks ago and talks about sourcing or bringing more product back to the U.S. I think a percentage of that was on the apparel side and maybe just your initial thoughts on that and how positive that could be for you?

Well, I think, when we look at Walmart, we do business with Walmart today. We do some PVA business with Walmart today, with REPREVE. And so we sort of interpret that, it could be the U.S. or could be the Americas. We're well positioned in this region to take advantage of that. And that's a trend, a lot of people in the industry are talking about programs moving back from Asia into the Americas. So we've seen some of that taking place, so certainly, we're excited, we're well-positioned. A lot of the things that we've commented on, as far as CAFTA and the stabilization of CAFTA and some growth opportunities in CAFTA, are companies like Walmart making the commitment to move goods back to the Americas.

I think when we look at that trait, we put up that chart every time about sort of the region's share of apparel consumed in the U.S. We certainly believe sort of the pendulum swung too far and we're hearing more and more talk of programs coming back into the region. We started telling you guys sort of 9, 12 months ago, "Hey, there's investment going down into the region down here." There's more capacity being added. That 18% is holding steady but it's on a growing base that's taking share from cotton as well. So there is -- we're excited about the growth opportunities here in CAFTA. I mean, you're not going to talk 10%, 12% of growth. But that mid single-digit growth, I mean, we're excited about the potential for future growth opportunities here in CAFTA.

And just because you said it, Ron, but maybe just a little bit more on Parkdale? Maybe what they're thinking for the rest of the year. I know that December was supposed to be tough for them, maybe a little bit more positive in the next 6 months? Is that kind of still the outlook for the Parkdale asset or can you just talk about that a little bit more?

Yes. I think Parkdale, their volumes have fallen off. We've said that cotton, even though the apparel consumed in the U.S. has been growing, cotton apparel consumed in the U.S. has been contracting, and that contraction, a big part of it for the last year or 18 months, has been blamed on the higher price of cotton. And we've talked all along about how long it takes for some of the inventory to work its way all of the way through the apparel supply chain. So I think part of that was a temporary shift in mix from cotton over to synthetic apparel, mostly to staple, not all the way to filament just yet. So I think, there was that shift there that you got the potential for that to sort of move back towards cotton. I don't think it will go back to where it was but to sort of mitigate that a little bit. You've also got the potential for the actual growth of apparel consumed to start back growing. So I think Parkdale, they've done a good job. Those guys run a good business. They've done a good job to adjust their volumes and their costs to the level of business they have and as we move forward to the back half of the year through really calendar '13, we certainly expect improved results from what they did over the last 6 months.

[Operator Instructions] Your next question comes from Jonathan Sacks with Stonehill Capital.

Can you please comment on what cash and debt look like now pro forma for the Parkdale distribution and pay down?

Subsequent to the Parkdale distribution and pay down?

Yes.

Hang on 1 second, I'll start on that. I'll refer back to that debt page in the presentation.

Right. Page 9.

Yes, page 9 there. December 23, basically the $44 million we had on the revolver and the $46.4 million we have under the term loan, you got a $13.8 million, the Term B Loan. Obviously, that Term B loan is a loan we paid off. We said subsequent to year end, we got about a $7.8 million distribution from Parkdale and we used part of our liquidity in order to pay that off. So the difference of that would have came out of our -- mostly out of our revolver, because we typically, any domestic cash we have is basically paying down that revolver. So it would have came -- the rest of that would have came out of the revolver, which would have taken the revolver slightly over $50 million. For us, that revolver number, as we go through shutdown, is a difficult sort of one to forecast or to understand the different changes in that. But from our working capital, being neutral as we move through the quarter, we'll expect for the revolver balance to be paid down fairly quickly as we build back that AR, sort of get back our borrowing base, back to where our borrowing base traditionally runs at, we expect that number to be pretty neutral impact. But when we paid down that $13.8 million, it came out of that $7.8 million distribution plus out of that revolver.

And would you have used the revolver instead of cash because the cash is in a foreign jurisdiction?

Yes, exactly. I mean, I should have said that differently. Most of the cash we have accumulated in that $15.2 million is in either Brazil or China or out in our Dutch holding companies. The only cash we have domestically is basically cash or checks that we've already written that are outstanding. So we don't have, on a day-to-day-to-day basis, we're basically sweeping whatever excess cash we have and we're paying down that revolver balance.

Okay, and remind me, what's the undrawn availability on the revolver? And I apologize if you already have it elsewhere in the slide deck.

I didn't have it in there. The undrawn availability as of the end of December would have been, I think it's about $35 million, $36 million.

Okay. And then last question. Can you just give us any guidance on your current thinking on capital expenditure outlook?

Yes. I think I'll hit you with sort of the traditional answer of, we spent $6 to $8 million a year on maintenance CapEx. If you look back overtime, we talked about sort of $4 million to $5 million of annual spending on what we call strategic CapEx, whether it's expanding our ability to make PVA products or going after a cost reduction program. So that level will be the general level that we would forecast. If you look out over the long-term that's what we've included in our long-term models. Now, the exception of that is, 2 years ago, I guess, we expanded into Central America. That had about a $5 million capital investment in that and the we have -- we did our REPREVE recycling center that had another $5 million or $6 million investment in that. So you will see peaks where things go up like that. But generally speaking, that sort $6 million to $8 million of maintenance, that $5 million -- or $4 million to $5 million of another amount of strategic CapEx is what we're going to spend unless we have a special project like a REPREVE expansion going and we have not announced anything on that at this point.

And I'm sorry, if I could just squeeze one more question on the stock buybacks, that's obviously very interesting news. Any thoughts on the timing of those repurchases? I know the press release said it was indefinite, but is that something you hope to do over the next 6 months or 12 months or some other period?

Yes, I think, you remember when we came out in our sort of investor meeting back in November, we said, we'll go through the process of, first and foremost, supporting the operational and growth needs of our business. Then as other strategic opportunities come up, we'll evaluate those strategic opportunities, but we'll evaluate those strategic opportunities sort of through the lens of what the alternative use of that cash would be. And one of those uses of that cash will be sort of returning it to investors through a share repurchase program. So what the board has done is basically given management the discretion in order to be able to do that, to buy that back or to start buying back shares up to, I think, it's $50 million worth of shares. It's a natural progression of what we told you guys we would start doing in November. We also told you in November, sort of our target debt level was $75 million when we would start that. I think this -- there's no limitation currently, of getting all the way to $75 million of debt before we start that. So I think for us, we, as the management team, will be looking at sort of what are the -- and working -- obviously, still working with the board. But what are the opportunities to start buying back shares and what does the timing look like on that? But that's not something that -- there's no specific date or specific timeline that we have that we're making public or have developed.

And at this time, I'm not showing any further questions.

Okay. Thank you, very much.

Okay, operator. Thank you very much. I appreciate everybody's interest and thank you.

Ladies and gentlemen, thank you for joining today's conference. Thank you for your participation. You may now disconnect.