Business Segment Information

3 Months Ended

Sep. 29, 2019

22. 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 four reportable segments (the Polyester Segment, the Nylon Segment, the Brazil Segment and the Asia 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, automotive, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the U.S. and El Salvador.

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The operations within the Nylon Segment exhibit similar long-term economic characteristics and primarily sell into the NACA region to similar customers 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 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. The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia.

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The Brazil 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 principally in South America. The Brazil Segment includes a manufacturing location and sales offices in Brazil.

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The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe, which are outside of the NACA region. The Asia Segment primarily sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, automotive, industrial and other end-use markets principally in Asia. The Asia Segment includes sales offices in 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 segment disclosures, 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 29, 2019
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	88,695	$	20,202	$	24,172	$	45,957	$	923	$	179,949
Cost of sales		80,900		19,024		20,013		41,675		894		162,506
Gross profit		7,795		1,178		4,159		4,282		29		17,443
Segment depreciation expense		4,041		491		375		—		39		4,946
Segment Profit	$	11,836	$	1,669	$	4,534	$	4,282	$	68	$	22,389

	For the Three Months Ended September 30, 2018
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	100,131	$	27,949	$	26,913	$	25,440	$	1,178	$	181,611
Cost of sales		92,330		25,805		20,495		21,908		1,054		161,592
Gross profit		7,801		2,144		6,418		3,532		124		20,019
Segment depreciation expense		4,252		561		359		—		75		5,247
Segment Profit	$	12,053	$	2,705	$	6,777	$	3,532	$	199	$	25,266

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

	For the Three Months Ended
	September 29, 2019			September 30, 2018
Polyester	$	7,795		$	7,801
Nylon		1,178			2,144
Brazil		4,159			6,418
Asia		4,282			3,532
All Other		29			124
Segment gross profit		17,443			20,019
Selling, general and administrative expenses		10,980			14,411
Provision for bad debts		9			131
Other operating expense (income), net		108			(240	)
Operating income		6,346			5,717
Interest income		(210	)		(147	)
Interest expense		1,257			1,467
Equity in loss (earnings) of unconsolidated affiliates		866			(239	)
Income before income taxes	$	4,433		$	4,636

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

	September 29, 2019		June 30, 2019
Polyester	$	294,163	$	287,608
Nylon		54,947		57,055
Brazil		65,598		67,490
Asia		40,599		35,219
Segment total assets		455,307		447,372
Other current assets		8,857		10,327
Other PP&E		19,278		18,664
Other non-current operating lease assets		3,366		—
Other non-current assets		1,631		1,468
Investments in unconsolidated affiliates		102,601		114,320
Total assets	$	591,040	$	592,151