19. Business Segment Information

UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of the organization which were relied upon in making the determination of reportable segments include the nature of the products sold, the organization’s internal structure, the trade policies in the geographic regions in which UNIFI operates and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

UNIFI’s operating segments are aggregated into three reportable segments based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution, and regulatory environment.

•

The operations within the Polyester Segment exhibit similar long-term economic characteristics and sell into an economic trading zone covered by the North American Free Trade Agreement (“NAFTA”) and the Dominican Republic—Central America Free Trade Agreement (“CAFTA-DR”) to similar customers utilizing similar methods of distribution. These operations derive revenues from polyester-based products with sales primarily to other yarn manufacturers and knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the United States and El Salvador.

•

The operations within the Nylon Segment exhibit similar long-term economic characteristics and sell into an economic trading zone covered by NAFTA and CAFTA-DR to similar customers utilizing similar methods of distribution. The Nylon Segment includes an immaterial operating segment in Colombia that sells similar nylon-based textile products to similar customers in Colombia and Mexico utilizing similar methods of distribution. These operations derive revenues from nylon-based products with sales to knitters and weavers that produce fabric primarily for the apparel and hosiery markets. The Nylon Segment consists of sales and manufacturing operations in the United States and Colombia.

•

The operations within the International Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution in geographic regions that are outside of the economic trading zone covered by NAFTA and CAFTA-DR. The International Segment primarily sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets primarily in the South American and Asian regions. The International Segment includes a manufacturing location in Brazil and sales offices in Brazil, China and Sri Lanka.

In addition to UNIFI’s reportable segments, the selected financial information presented below includes an All Other category. All Other consists primarily of for-hire transportation services and Repreve Renewables, LLC (“Renewables”) (up through December 23, 2016, the date of the sale by UNIFI of its 60% equity ownership interest in Renewables). For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment. Revenue for Renewables was primarily derived from (i) facilitating the use of miscanthus grass as bio-fuel through service agreements and (ii) delivering harvested miscanthus grass to poultry producers for animal bedding.

The operations within All Other (i) are not subject to review by the CODM at a level consistent with UNIFI’s other operations, (ii) are not regularly evaluated using the same metrics applied to UNIFI’s other operations and (iii) do not qualify for aggregation with an existing reportable segment. Therefore, such operations are excluded from reportable segments.

UNIFI evaluates the operating performance of its segments based upon Segment Profit (Loss), which represents segment gross profit (loss) plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.

The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from the below financial information, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.

Selected financial information is presented below.

	For the Three Months Ended September 24, 2017
	Polyester		Nylon		International		All Other		Total
Net sales	$	87,738	$	26,827	$	48,659	$	1,018	$	164,242
Cost of sales		78,825		23,513		37,661		951		140,950
Gross profit		8,913		3,314		10,998		67		23,292
Segment depreciation expense		3,867		537		416		65		4,885
Segment Profit	$	12,780	$	3,851	$	11,414	$	132	$	28,177

	For the Three Months Ended September 25, 2016
	Polyester		Nylon		International		All Other			Total
Net sales	$	84,685	$	28,495	$	45,344	$	1,445		$	159,969
Cost of sales		76,235		25,358		33,074		1,755			136,422
Gross profit (loss)		8,450		3,137		12,270		(310	)		23,547
Segment depreciation expense		3,108		510		246		252			4,116
Segment Profit (Loss)	$	11,558	$	3,647	$	12,516	$	(58	)	$	27,663

The reconciliations of segment gross profit to consolidated income before income taxes are as follows:

	For the Three Months Ended
	September 24, 2017			September 25, 2016
Polyester	$	8,913		$	8,450
Nylon		3,314			3,137
International		10,998			12,270
All Other		67			(310	)
Segment gross profit		23,292			23,547
Selling, general and administrative expenses		12,863			11,410
Benefit for bad debts		(59	)		(367	)
Other operating expense (income), net		315			(70	)
Operating income		10,173			12,574
Interest income		(81	)		(146	)
Interest expense		1,185			692
Equity in earnings of unconsolidated affiliates		(3,087	)		(840	)
Income before income taxes	$	12,156		$	12,868

The reconciliations of segment total assets to consolidated total assets are as follows:

	September 24, 2017		June 25, 2017
Polyester	$	266,795	$	270,819
Nylon		59,875		57,789
International		91,267		80,824
Segment total assets		417,937		409,432
Other current assets		32,503		27,375
Other PP&E		15,067		14,904
Other non-current assets		170		279
Investments in unconsolidated affiliates		115,427		119,513
Total assets	$	581,104	$	571,503