Business Segment Information | 19. 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 based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and regulatory environment. • The operations within the Polyester Segment exhibit similar long-term economic characteristics and 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 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. • The operations within the Nylon Segment exhibit similar long-term economic characteristics and 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 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. • 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 economic trading zone covered by NAFTA and CAFTA-DR. 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 and Repreve Renewables, LLC (“Renewables”) (up through December 23, 2016, the date of the sale by UNIFI of its 60% equity ownership interest in Renewables). For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment. Revenue for Renewables was primarily derived from (i) facilitating the use of miscanthus grass as bio-fuel through service agreements and (ii) delivering harvested miscanthus grass to poultry producers for animal bedding. 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 (Loss), which represents segment gross profit (loss) plus segment depreciation expense. This measurement of segment profit or loss 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 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 Three Months Ended December 25, 2016 Polyester Nylon International All Other Total Net sales $ 86,671 $ 28,302 $ 38,868 $ 1,314 $ 155,155 Cost of sales 76,200 25,679 29,419 1,727 133,025 Gross profit (loss) 10,471 2,623 9,449 (413 ) 22,130 Segment depreciation expense 3,384 530 228 244 4,386 Segment Profit (Loss) $ 13,855 $ 3,153 $ 9,677 $ (169 ) $ 26,516 The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows: For the Three Months Ended December 24, 2017 December 25, 2016 Polyester $ 8,576 $ 10,471 Nylon 3,076 2,623 International 10,974 9,449 All Other 50 (413 ) Segment gross profit 22,676 22,130 Selling, general and administrative expenses 14,626 12,868 Benefit for bad debts (72 ) (95 ) Other operating expense, net 348 319 Operating income 7,774 9,038 Interest income (181 ) (183 ) Interest expense 1,190 914 Loss on sale of business — 1,662 Equity in (earnings) loss of unconsolidated affiliates (211 ) 367 Income before income taxes $ 6,976 $ 6,278 Selected financial information is presented below: 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 For the Six Months Ended December 25, 2016 Polyester Nylon International All Other Total Net sales $ 171,356 $ 56,797 $ 84,212 $ 2,759 $ 315,124 Cost of sales 152,435 51,037 62,493 3,482 269,447 Gross profit (loss) 18,921 5,760 21,719 (723 ) 45,677 Segment depreciation expense 6,492 1,040 474 496 8,502 Segment Profit (Loss) $ 25,413 $ 6,800 $ 22,193 $ (227 ) $ 54,179 The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows: For the Six Months Ended December 24, 2017 December 25, 2016 Polyester $ 17,489 $ 18,921 Nylon 6,390 5,760 International 21,972 21,719 All Other 117 (723 ) Segment gross profit 45,968 45,677 Selling, general and administrative expenses 27,489 24,278 Benefit for bad debts (131 ) (462 ) Other operating expense, net 663 249 Operating income 17,947 21,612 Interest income (262 ) (329 ) Interest expense 2,375 1,606 Loss on sale of business — 1,662 Equity in earnings of unconsolidated affiliates (3,298 ) (473 ) Income before income taxes $ 19,132 $ 19,146 The reconciliations of segment total assets to consolidated total assets are as follows: December 24, 2017 June 25, 2017 Polyester $ 266,522 $ 270,819 Nylon 60,210 57,789 International 95,198 80,824 Segment total assets 421,930 409,432 Other current assets 33,033 27,375 Other PP&E 15,988 14,904 Other non-current assets 2,891 279 Investments in unconsolidated affiliates 113,623 119,513 Total assets $ 587,465 $ 571,503 |