Business Segment Information

9 Months Ended

Mar. 29, 2020

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 manufacturing 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 manufacturing 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 manufactures and 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 sources polyester-based products from third-party suppliers and sells 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 primarily in China.

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 March 29, 2020
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	89,767	$	20,567	$	21,060	$	38,621	$	979	$	170,994
Cost of sales		82,735		20,234		17,644		34,038		960		155,611
Gross profit		7,032		333		3,416		4,583		19		15,383
Segment depreciation expense		4,301		471		421		—		137		5,330
Segment Profit	$	11,333	$	804	$	3,837	$	4,583	$	156	$	20,713

	For the Three Months Ended March 31, 2019
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	95,745	$	25,563	$	25,110	$	32,571	$	1,000	$	179,989
Cost of sales		90,941		23,251		22,334		28,730		942		166,198
Gross profit		4,804		2,312		2,776		3,841		58		13,791
Segment depreciation expense		3,858		516		420		—		47		4,841
Segment Profit	$	8,662	$	2,828	$	3,196	$	3,841	$	105	$	18,632

	For the Nine Months Ended March 29, 2020
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	261,212	$	57,853	$	66,094	$	132,496	$	2,799	$	520,454
Cost of sales		239,725		56,296		55,089		118,114		2,739		471,963
Gross profit		21,487		1,557		11,005		14,382		60		48,491
Segment depreciation expense		12,525		1,465		1,153		—		300		15,443
Segment Profit	$	34,012	$	3,022	$	12,158	$	14,382	$	360	$	63,934

	For the Nine Months Ended March 31, 2019
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	281,665	$	76,159	$	76,257	$	92,014	$	3,216	$	529,311
Cost of sales		265,748		69,671		62,654		80,317		2,955		481,345
Gross profit		15,917		6,488		13,603		11,697		261		47,966
Segment depreciation expense		12,047		1,576		1,146		—		190		14,959
Segment Profit	$	27,964	$	8,064	$	14,749	$	11,697	$	451	$	62,925

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

	For the Three Months Ended						For the Nine Months Ended
	March 29, 2020			March 31, 2019			March 29, 2020			March 31, 2019
Polyester	$	7,032		$	4,804		$	21,487		$	15,917
Nylon		333			2,312			1,557			6,488
Brazil		3,416			2,776			11,005			13,603
Asia		4,583			3,841			14,382			11,697
All Other		19			58			60			261
Segment gross profit		15,383			13,791			48,491			47,966
Selling, general and administrative expenses		11,720			11,439			35,208			40,672
Provision for bad debts		580			218			331			381
Other operating (income) expense, net		(62	)		1,359			900			1,218
Operating income		3,145			775			12,052			5,695
Interest income		(173	)		(149	)		(595	)		(448	)
Interest expense		1,231			1,256			3,589			4,078
Equity in earnings of unconsolidated affiliates		(3,526	)		(1,873	)		(1,904	)		(3,126	)
Impairment of investment in unconsolidated affiliate		45,194			—			45,194			—
Loss on extinguishment of debt		—			—			—			131
(Loss) income before income taxes	$	(39,581	)	$	1,541		$	(34,232	)	$	5,060

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

	March 29, 2020		June 30, 2019
Polyester	$	295,192	$	287,608
Nylon		50,905		57,055
Brazil		54,040		67,490
Asia		45,530		35,219
Segment total assets		445,667		447,372
Other current assets		7,235		10,327
Other PP&E		24,412		18,664
Other non-current operating lease assets		1,599		—
Other non-current assets		5,275		1,468
Investments in unconsolidated affiliates		58,854		114,320
Total assets	$	543,042	$	592,151