Business Segment Information

6 Months Ended

Dec. 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 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 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 December 29, 2019
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	82,750	$	17,084	$	20,862	$	47,918	$	897	$	169,511
Cost of sales		76,090		17,038		17,432		42,401		885		153,846
Gross profit		6,660		46		3,430		5,517		12		15,665
Segment depreciation expense		4,183		503		357		—		124		5,167
Segment Profit	$	10,843	$	549	$	3,787	$	5,517	$	136	$	20,832

	For the Three Months Ended December 30, 2018
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	85,789	$	22,647	$	24,234	$	34,003	$	1,038	$	167,711
Cost of sales		82,477		20,615		19,825		29,679		959		153,555
Gross profit		3,312		2,032		4,409		4,324		79		14,156
Segment depreciation expense		3,937		499		367		—		68		4,871
Segment Profit	$	7,249	$	2,531	$	4,776	$	4,324	$	147	$	19,027

	For the Six Months Ended December 29, 2019
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	171,445	$	37,286	$	45,034	$	93,875	$	1,820	$	349,460
Cost of sales		156,990		36,062		37,445		84,076		1,779		316,352
Gross profit		14,455		1,224		7,589		9,799		41		33,108
Segment depreciation expense		8,224		994		732		—		163		10,113
Segment Profit	$	22,679	$	2,218	$	8,321	$	9,799	$	204	$	43,221

	For the Six Months Ended December 30, 2018
	Polyester		Nylon		Brazil		Asia		All Other		Total
Net sales	$	185,920	$	50,596	$	51,147	$	59,443	$	2,216	$	349,322
Cost of sales		174,807		46,420		40,320		51,587		2,013		315,147
Gross profit		11,113		4,176		10,827		7,856		203		34,175
Segment depreciation expense		8,189		1,060		726		—		143		10,118
Segment Profit	$	19,302	$	5,236	$	11,553	$	7,856	$	346	$	44,293

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

	For the Three Months Ended						For the Six Months Ended
	December 29, 2019			December 30, 2018			December 29, 2019			December 30, 2018
Polyester	$	6,660		$	3,312		$	14,455		$	11,113
Nylon		46			2,032			1,224			4,176
Brazil		3,430			4,409			7,589			10,827
Asia		5,517			4,324			9,799			7,856
All Other		12			79			41			203
Segment gross profit		15,665			14,156			33,108			34,175
Selling, general and administrative expenses		12,508			14,822			23,488			29,233
(Benefit) provision for bad debts		(258	)		32			(249	)		163
Other operating expense (income), net		854			99			962			(141	)
Operating income (loss)		2,561			(797	)		8,907			4,920
Interest income		(212	)		(152	)		(422	)		(299	)
Interest expense		1,101			1,355			2,358			2,822
Loss on extinguishment of debt		—			131			—			131
Equity in loss (earnings) of unconsolidated affiliates		756			(1,014	)		1,622			(1,253	)
Income (loss) before income taxes	$	916		$	(1,117	)	$	5,349		$	3,519

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

	December 29, 2019		June 30, 2019
Polyester	$	289,321	$	287,608
Nylon		51,888		57,055
Brazil		66,020		67,490
Asia		46,088		35,219
Segment total assets		453,317		447,372
Other current assets		12,359		10,327
Other PP&E		23,993		18,664
Other non-current operating lease assets		1,626		—
Other non-current assets		1,651		1,468
Investments in unconsolidated affiliates		102,261		114,320
Total assets	$	595,207	$	592,151