Business Segment Information

6 Months Ended

Dec. 30, 2018

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.

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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.

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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.

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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 December 30, 2018
	Polyester		Nylon		International		All Other		Total
Net sales	$	85,789	$	22,647	$	58,237	$	1,038	$	167,711
Cost of sales		83,820		20,615		48,161		959		153,555
Gross profit		1,969		2,032		10,076		79		14,156
Segment depreciation expense		3,937		499		367		68		4,871
Segment Profit	$	5,906	$	2,531	$	10,443	$	147	$	19,027

	For the Three Months Ended December 24, 2017
	Polyester		Nylon		International		All Other		Total
Net sales	$	90,316	$	25,103	$	51,046	$	1,013	$	167,478
Cost of sales		81,740		22,027		40,072		963		144,802
Gross profit		8,576		3,076		10,974		50		22,676
Segment depreciation expense		3,973		552		397		64		4,986
Segment Profit	$	12,549	$	3,628	$	11,371	$	114	$	27,662

	For the Six Months Ended December 30, 2018
	Polyester		Nylon		International		All Other		Total
Net sales	$	185,920	$	50,596	$	110,590	$	2,216	$	349,322
Cost of sales		177,223		46,420		89,491		2,013		315,147
Gross profit		8,697		4,176		21,099		203		34,175
Segment depreciation expense		8,189		1,060		726		143		10,118
Segment Profit	$	16,886	$	5,236	$	21,825	$	346	$	44,293

	For the Six Months Ended December 24, 2017
	Polyester		Nylon		International		All Other		Total
Net sales	$	178,054	$	51,930	$	99,705	$	2,031	$	331,720
Cost of sales		160,565		45,540		77,733		1,914		285,752
Gross profit		17,489		6,390		21,972		117		45,968
Segment depreciation expense		7,840		1,089		813		129		9,871
Segment Profit	$	25,329	$	7,479	$	22,785	$	246	$	55,839

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

	For the Three Months Ended						For the Six Months Ended
	December 30, 2018			December 24, 2017			December 30, 2018			December 24, 2017
Polyester	$	1,969		$	8,576		$	8,697		$	17,489
Nylon		2,032			3,076			4,176			6,390
International		10,076			10,974			21,099			21,972
All Other		79			50			203			117
Segment gross profit		14,156			22,676			34,175			45,968
Selling, general and administrative expenses		14,822			14,626			29,233			27,489
Provision (benefit) for bad debts		32			(72	)		163			(131	)
Other operating expense (income), net		99			348			(141	)		663
Operating (loss) income		(797	)		7,774			4,920			17,947
Interest income		(152	)		(181	)		(299	)		(262	)
Interest expense		1,355			1,190			2,822			2,375
Loss on extinguishment of debt		131			—			131			—
Equity in earnings of unconsolidated affiliates		(1,014	)		(211	)		(1,253	)		(3,298	)
(Loss) income before income taxes	$	(1,117	)	$	6,976		$	3,519		$	19,132

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

	December 30, 2018		June 24, 2018
Polyester	$	283,249	$	284,261
Nylon		61,517		57,378
International		96,648		95,006
Segment total assets		441,414		436,645
Other current assets		17,222		30,945
Other PP&E		18,740		17,373
Other non-current assets		3,389		4,205
Investments in unconsolidated affiliates		113,618		112,639
Total assets	$	594,383	$	601,807