21. 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 (the Polyester Segment, the Nylon Segment and the International Segment) 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 primarily 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 primarily 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 primarily 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 primarily 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 NAFTA and CAFTA-DR economic trading zone. 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. For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment.

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, which represents segment gross profit plus segment depreciation expense. This measurement of segment profit 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 30, 2018
	Polyester		Nylon		International		All Other		Total
Net sales	$	100,131	$	27,949	$	52,353	$	1,178	$	181,611
Cost of sales		93,403		25,805		41,330		1,054		161,592
Gross profit		6,728		2,144		11,023		124		20,019
Segment depreciation expense		4,252		561		359		75		5,247
Segment Profit	$	10,980	$	2,705	$	11,382	$	199	$	25,266

	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

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

	For the Three Months Ended
	September 30, 2018			September 24, 2017
Polyester	$	6,728		$	8,913
Nylon		2,144			3,314
International		11,023			10,998
All Other		124			67
Segment gross profit		20,019			23,292
Selling, general and administrative expenses		14,411			12,863
Provision (benefit) for bad debts		131			(59	)
Other operating (income) expense, net		(240	)		315
Operating income		5,717			10,173
Interest income		(147	)		(81	)
Interest expense		1,467			1,185
Equity in earnings of unconsolidated affiliates		(239	)		(3,087	)
Income before income taxes	$	4,636		$	12,156

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

	September 30, 2018		June 24, 2018
Polyester	$	288,871	$	284,261
Nylon		59,284		57,378
International		88,746		95,006
Segment total assets		436,901		436,645
Other current assets		36,713		30,945
Other PP&E		17,261		17,373
Other non-current assets		4,517		4,205
Investments in unconsolidated affiliates		112,726		112,639
Total assets	$	608,118	$	601,807