Business Segment Information | 26. 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 UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational 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 has four reportable segments. • 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 and the Dominican Republic—Central America Free Trade Agreement (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. • 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. • 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. • 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 the fourth quarter of fiscal 2019, UNIFI increased from three to four reportable segments based on a change in the economic characteristics of the Asia Segment, which precludes aggregation with the Brazil Segment, based on expectations of differing annual sales growth rates and gross margins. The transition of UNIFI’s reportable segments has been applied retrospectively to fiscal 2018 and 2017. In connection with an intercompany agreement established in fiscal 2019 and consistent with an increased focus on a global, innovative supply chain, UNIFI’s operations within the Polyester Segment granted rights to the use of certain manufacturing know-how, processes and product technical information and design (“technologies”) to UNIFI’s operations in the Asia Segment. The technologies provide benefit to the Asia Segment by supporting its production and sale of differentiated products. Accordingly, the intercompany charge related to the agreement has been included in the calculation of segment profitability for fiscal 2019 and 2018 to align with the assessments and evaluations performed by, and information provided to, the CODM, in consideration of the impacts from intersegment technologies. Retrospective disclosure of the change in segment profitability has been applied beginning in the third quarter of fiscal 2018 such that cost of sales for the Polyester Segment includes an intersegment technologies credit, while cost of sales for the Asia Segment includes a corresponding intersegment technologies expense. Each such technologies credit or expense is recorded to the respective segment by fiscal year and fiscal quarter, following the methodology prescribed by the intercompany agreement in place. Such intersegment technologies amounts are integral to evaluating the underlying performance and trends of each segment, and such amounts eliminate in consolidation. The technologies credit (expense) reflected in the respective segments was $5,209 and $2,103 in fiscal 2019 and 2018, respectively. Per the applicable intercompany agreement, the intersegment technologies amounts were effective beginning January 1, 2018. Therefore, no intersegment technologies amounts are reflected in segment results for either the first half of fiscal 2018 or all of fiscal 2017. In addition to UNIFI’s reportable segments, an All Other category is included in the tables below. All Other consists primarily of for-hire transportation services and 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, 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 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 Fiscal Year Ended June 30, 2019 Polyester Nylon Brazil Asia All Other Total Net sales $ 370,770 $ 98,127 $ 102,877 $ 132,866 $ 4,164 $ 708,804 Cost of sales 346,951 90,231 84,298 117,166 3,850 642,496 Gross profit 23,819 7,896 18,579 15,700 314 66,308 Segment depreciation expense 16,068 2,083 1,537 — 229 19,917 Segment Profit $ 39,887 $ 9,979 $ 20,116 $ 15,700 $ 543 $ 86,225 For the Fiscal Year Ended June 24, 2018 Polyester Nylon Brazil Asia All Other Total Net sales $ 364,169 $ 102,639 $ 110,587 $ 97,297 $ 4,220 $ 678,912 Cost of sales 330,975 92,155 84,726 80,677 3,951 592,484 Gross profit 33,194 10,484 25,861 16,620 269 86,428 Segment depreciation expense 15,893 2,197 1,648 — 256 19,994 Segment Profit $ 49,087 $ 12,681 $ 27,509 $ 16,620 $ 525 $ 106,422 For the Fiscal Year Ended June 25, 2017 Polyester Nylon Brazil Asia All Other Total Net sales $ 355,740 $ 112,704 $ 109,079 $ 64,607 $ 5,140 $ 647,270 Cost of sales 315,655 100,633 82,463 48,624 5,731 553,106 Gross profit (loss) 40,085 12,071 26,616 15,983 (591 ) 94,164 Segment depreciation expense 13,921 2,125 1,119 — 638 17,803 Segment Profit $ 54,006 $ 14,196 $ 27,735 $ 15,983 $ 47 $ 111,967 The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows: For the Fiscal Year Ended June 30, 2019 June 24, 2018 June 25, 2017 Polyester $ 23,819 $ 33,194 $ 40,085 Nylon 7,896 10,484 12,071 Brazil 18,579 25,861 26,616 Asia 15,700 16,620 15,983 All Other 314 269 (591 ) Segment gross profit 66,308 86,428 94,164 SG&A expenses 52,690 56,077 50,829 Provision (benefit) for bad debts 308 (38 ) (123 ) Other operating expense (income), net 2,350 1,590 (310 ) Operating income 10,960 28,799 43,768 Interest income (628 ) (560 ) (517 ) Interest expense 5,414 4,935 3,578 Loss on extinguishment of debt 131 — — Loss on sale of business — — 1,662 Equity in earnings of unconsolidated affiliates (3,968 ) (5,787 ) (4,230 ) Income before income taxes $ 10,011 $ 30,211 $ 43,275 The reconciliations of segment depreciation and amortization expense to consolidated depreciation and amortization expense are as follows: For the Fiscal Year Ended June 30, 2019 June 24, 2018 June 25, 2017 Polyester $ 16,068 $ 15,893 $ 13,921 Nylon 2,083 2,197 2,125 Brazil 1,537 1,648 1,119 Asia — — — All Other 229 256 638 Segment depreciation expense 19,917 19,994 17,803 Other depreciation and amortization expense 3,086 2,591 2,565 Depreciation and amortization expense $ 23,003 $ 22,585 $ 20,368 The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows: For the Fiscal Year Ended June 30, 2019 June 24, 2018 June 25, 2017 Polyester $ 17,291 $ 16,605 $ 25,442 Nylon 624 1,366 1,247 Brazil 2,574 3,063 4,540 Asia 32 36 194 Segment capital expenditures 20,521 21,070 31,423 Other capital expenditures 4,350 3,959 1,767 Capital expenditures $ 24,871 $ 25,029 $ 33,190 The reconciliations of segment total assets to consolidated total assets are as follows: June 30, 2019 June 24, 2018 Polyester $ 287,608 $ 284,261 Nylon 57,055 57,378 Brazil 67,490 59,657 Asia 35,219 35,349 Segment total assets 447,372 436,645 Other current assets 10,327 30,945 Other PP&E 18,664 17,373 Other non-current assets 1,468 4,205 Investments in unconsolidated affiliates 114,320 112,639 Total assets $ 592,151 $ 601,807 Product sales (excluding the All Other category) are as follows. Polyester product sales are calculated by aggregating the sales of the Polyester, Brazil and Asia Segments. Nylon product sales represent sales for the Nylon Segment. For the Fiscal Year Ended June 30, 2019 June 24, 2018 June 25, 2017 Polyester $ 606,513 $ 572,053 $ 529,426 Nylon 98,127 102,639 112,704 Total $ 704,640 $ 674,692 $ 642,130 Geographic Data Geographic information is set forth below, beginning with net sales. For the Fiscal Year Ended June 30, 2019 June 24, 2018 June 25, 2017 U.S. $ 426,725 $ 420,920 $ 424,490 Brazil 102,877 110,587 109,079 China 125,667 90,998 63,075 Remaining Foreign Countries 53,535 56,407 50,626 Total $ 708,804 $ 678,912 $ 647,270 Export sales from UNIFI’s U.S. operations to external customers $ 84,707 $ 94,205 $ 104,229 The net sales amounts are based on the operating locations from where the items were produced or distributed. Geographic information for long-lived assets is as follows: June 30, 2019 June 24, 2018 June 25, 2017 U.S. $ 305,483 $ 305,229 $ 304,696 Brazil 13,218 12,679 12,616 China 78 92 94 Remaining Foreign Countries 5,169 6,225 8,266 Total $ 323,948 $ 324,225 $ 325,672 Long-lived assets are comprised of PP&E, net; intangible assets, net; investments in unconsolidated affiliates; and other non-current assets. Geographic information for total assets is as follows: June 30, 2019 June 24, 2018 June 25, 2017 U.S. $ 457,571 $ 455,963 $ 445,947 Brazil 67,490 59,657 58,598 China 30,982 32,703 20,641 Remaining Foreign Countries 36,108 53,484 46,317 Total $ 592,151 $ 601,807 $ 571,503 |