Business Segment Information

9 Months Ended

Mar. 31, 2019

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 Principal 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”) (collectively, the regions comprising these economic trading zones are referred to as “NACA”) 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 NACA 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 NACA. 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 March 31, 2019
	Polyester		Nylon		International		All Other		Total
Net sales	$	95,745	$	25,563	$	57,681	$	1,000	$	179,989
Cost of sales		92,221		23,251		49,784		942		166,198
Gross profit		3,524		2,312		7,897		58		13,791
Segment depreciation expense		3,858		516		420		47		4,841
Segment Profit	$	7,382	$	2,828	$	8,317	$	105	$	18,632

	For the Three Months Ended March 25, 2018
	Polyester		Nylon		International		All Other		Total
Net sales	$	88,763	$	24,036	$	51,989	$	1,079	$	165,867
Cost of sales		83,948		23,023		41,317		1,023		149,311
Gross profit		4,815		1,013		10,672		56		16,556
Segment depreciation expense		4,022		560		436		66		5,084
Segment Profit	$	8,837	$	1,573	$	11,108	$	122	$	21,640

	For the Nine Months Ended March 31, 2019
	Polyester		Nylon		International		All Other		Total
Net sales	$	281,665	$	76,159	$	168,271	$	3,216	$	529,311
Cost of sales		269,444		69,671		139,275		2,955		481,345
Gross profit		12,221		6,488		28,996		261		47,966
Segment depreciation expense		12,047		1,576		1,146		190		14,959
Segment Profit	$	24,268	$	8,064	$	30,142	$	451	$	62,925

	For the Nine Months Ended March 25, 2018
	Polyester		Nylon		International		All Other		Total
Net sales	$	266,817	$	75,966	$	151,694	$	3,110	$	497,587
Cost of sales		244,513		68,563		119,050		2,937		435,063
Gross profit		22,304		7,403		32,644		173		62,524
Segment depreciation expense		11,862		1,649		1,249		195		14,955
Segment Profit	$	34,166	$	9,052	$	33,893	$	368	$	77,479

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

	For the Three Months Ended						For the Nine Months Ended
	March 31, 2019			March 25, 2018			March 31, 2019			March 25, 2018
Polyester	$	3,524		$	4,815		$	12,221		$	22,304
Nylon		2,312			1,013			6,488			7,403
International		7,897			10,672			28,996			32,644
All Other		58			56			261			173
Segment gross profit		13,791			16,556			47,966			62,524
Selling, general and administrative expenses		11,439			13,846			40,672			41,335
Provision (benefit) for bad debts		218			27			381			(104	)
Other operating expense, net		1,359			1,100			1,218			1,763
Operating income		775			1,583			5,695			19,530
Interest income		(149	)		(182	)		(448	)		(444	)
Interest expense		1,256			1,187			4,078			3,562
Loss on extinguishment of debt		—			—			131			—
Equity in earnings of unconsolidated affiliates		(1,873	)		(544	)		(3,126	)		(3,842	)
Income before income taxes	$	1,541		$	1,122		$	5,060		$	20,254

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

	March 31, 2019		June 24, 2018
Polyester	$	291,625	$	284,261
Nylon		60,904		57,378
International		100,411		95,006
Segment total assets		452,940		436,645
Other current assets		19,496		30,945
Other PP&E		19,091		17,373
Other non-current assets		2,516		4,205
Investments in unconsolidated affiliates		114,748		112,639
Total assets	$	608,791	$	601,807