HBI-2015.07.04-10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-32891
 
 
 
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
 
20-3552316
(State of incorporation)
 
(I.R.S. employer
identification no.)
 
 
1000 East Hanes Mill Road
Winston-Salem, North Carolina
 
27105
(Address of principal executive office)
 
(Zip code)
(336) 519-8080
(Registrant’s telephone number including area code)
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of July 24, 2015, there were 402,476,788 shares of the registrant’s common stock outstanding.
 

Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Table of Contents

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, statements under the heading “Outlook” and other information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 3, 2015, under the caption “Risk Factors,” as well as on the “Investors” section of our corporate website, www.Hanes.com/investors.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended January 3, 2015, particularly under the caption “Risk Factors.” We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.

WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s web site at prescribed rates, you may complete an online form at www.sec.gov, send a fax to (202) 772-9337 or submit a written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information.
We make available free of charge at www.Hanes.com/investors (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.Hanes.com/corporate, or any of our other websites, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.


1
Table of Contents

PART I

Item 1.
Financial Statements

HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)

 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Net sales
$
1,522,033

 
$
1,342,052

 
$
2,730,954

 
$
2,401,422

Cost of sales
953,808

 
837,698

 
1,716,498

 
1,540,291

Gross profit
568,225

 
504,354

 
1,014,456

 
861,131

Selling, general and administrative expenses
429,292

 
297,230

 
785,592

 
582,219

Operating profit
138,933

 
207,124

 
228,864

 
278,912

Other expenses
830

 
660

 
1,212

 
1,095

Interest expense, net
29,020

 
21,119

 
55,907

 
42,937

Income before income tax expense
109,083

 
185,345

 
171,745

 
234,880

Income tax expense
14,181

 
30,767

 
24,207

 
38,742

Net income
$
94,902

 
$
154,578

 
$
147,538

 
$
196,138

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.38

 
$
0.37

 
$
0.49

Diluted
$
0.23

 
$
0.38

 
$
0.36

 
$
0.48



See accompanying notes to Condensed Consolidated Financial Statements.
2
Table of Contents

HANESBRANDS INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)

 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Net income
$
94,902

 
$
154,578

 
$
147,538

 
$
196,138

Other comprehensive income (loss), net of tax of $106, ($481), ($3,734) and ($1,288), respectively
(506
)
 
3,968

 
4,337

 
3,187

Comprehensive income
$
94,396

 
$
158,546

 
$
151,875

 
$
199,325



See accompanying notes to Condensed Consolidated Financial Statements.
3
Table of Contents

HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

 
July 4,
2015
 
January 3,
2015
Assets
 
 
 
Cash and cash equivalents
$
315,354

 
$
239,855

Trade accounts receivable, net
835,299

 
672,048

Inventories
1,766,761

 
1,537,200

Deferred tax assets
214,468

 
215,065

Other current assets
164,440

 
101,064

Total current assets
3,296,322

 
2,765,232

 
 
 
 
Property, net
658,789

 
674,379

Trademarks and other identifiable intangibles, net
713,783

 
691,201

Goodwill
835,027

 
723,120

Deferred tax assets
291,073

 
294,347

Other noncurrent assets
77,387

 
73,502

Total assets
$
5,872,381

 
$
5,221,781

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
661,369

 
$
621,220

Accrued liabilities
472,938

 
495,627

Notes payable
112,818

 
144,438

Accounts Receivable Securitization Facility
232,134

 
210,963

Current portion of long-term debt
34,431

 
14,354

Total current liabilities
1,513,690

 
1,486,602

Long-term debt
2,217,760

 
1,613,997

Pension and postretirement benefits
364,433

 
472,003

Other noncurrent liabilities
324,726

 
262,407

Total liabilities
4,420,609

 
3,835,009

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock (50,000,000 authorized shares; $.01 par value)
 
 
 
Issued and outstanding — None
—

 
—

Common stock (2,000,000,000 authorized shares; $.01 par value)
 
 
 
Issued and outstanding — 402,476,510 and 400,789,120, respectively
4,025

 
4,008

Additional paid-in capital
285,504

 
290,926

Retained earnings
1,530,495

 
1,464,427

Accumulated other comprehensive loss
(368,252
)
 
(372,589
)
Total stockholders’ equity
1,451,772

 
1,386,772

Total liabilities and stockholders’ equity
$
5,872,381

 
$
5,221,781



See accompanying notes to Condensed Consolidated Financial Statements.
4
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HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
Operating activities:
 
 
 
Net income
$
147,538

 
$
196,138

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization of long-lived assets
50,807

 
46,040

Amortization of debt issuance costs
3,412

 
2,853

Stock compensation expense
6,460

 
8,554

Deferred taxes and other
(6,021
)
 
(4,611
)
Changes in assets and liabilities, net of acquisition of business:
 
 
 
Accounts receivable
(164,334
)
 
(200,973
)
Inventories
(228,738
)
 
(117,576
)
Other assets
(26,925
)
 
6,560

Accounts payable
56,241

 
93,954

Accrued liabilities and other
(71,508
)
 
(26,001
)
Net cash from operating activities
(233,068
)
 
4,938

 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(56,238
)
 
(24,585
)
Proceeds from sales of assets
5,145

 
4,918

Acquisition of business, net of cash acquired
(193,461
)
 
—

Net cash from investing activities
(244,554
)
 
(19,667
)
 
 
 
 
Financing activities:
 
 
 
Borrowings on notes payable
177,730

 
66,737

Repayments on notes payable
(200,706
)
 
(61,957
)
Borrowings on Accounts Receivable Securitization Facility
134,339

 
115,609

Repayments on Accounts Receivable Securitization Facility
(113,168
)
 
(72,399
)
Borrowings on Revolving Loan Facility
2,794,000

 
1,782,500

Repayments on Revolving Loan Facility
(2,970,500
)
 
(1,726,500
)
Repayments on Euro Term Loan Facility
(2,004
)
 
—

Borrowings on Term Loan A Facility
425,000

 
—

Repayments on Term Loan A Facility
(5,313
)
 
—

Borrowings on Term Loan B Facility
425,000

 
—

Repayments on Term Loan B Facility
(1,063
)
 
—

Cash dividends paid
(81,470
)
 
(59,731
)
Taxes paid related to net shares settlement of equity awards
(47,432
)
 
(10,342
)
Excess tax benefit from stock-based compensation
34,127

 
7,895

Debt issuance costs and other
(11,839
)
 
806

Net cash from financing activities
556,701

 
42,618

Effect of changes in foreign exchange rates on cash
(3,580
)
 
(135
)
Change in cash and cash equivalents
75,499

 
27,754

Cash and cash equivalents at beginning of year
239,855

 
115,863

Cash and cash equivalents at end of period
$
315,354

 
$
143,617



See accompanying notes to Condensed Consolidated Financial Statements.
5
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)



(1)
Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc., a Maryland corporation, and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. A subsidiary of the Company closes one week earlier than the Company’s consolidated quarter end. The difference in reporting one week of financial information for this subsidiary did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Certain prior year amounts in the notes to condensed consolidated financial statements, none of which are material, have been reclassified to conform with the current year presentation. These reclassifications had no impact on the Company’s results of operations.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
(2)
Recent Accounting Pronouncements
Revenue from Contracts with Customers
In July 2015, the FASB decided to delay effective dates for the new accounting rules related to revenue recognition for contracts with customers by one year. The new standard will be effective for the Company in the first quarter of 2018 with retrospective application required. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows.
Debt Issuance Costs
In April 2015, the FASB issued new accounting rules, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The new rules will be effective for the Company in the first quarter of 2016. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations or cash flows.


6
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(3)
Acquisitions
Knights Apparel
On April 6, 2015, the Company completed the acquisition of Knights Holdco, Inc. (“Knights Apparel”), a leading seller of licensed collegiate logo apparel in the mass retail channel, from Merit Capital Partners in an all cash transaction valued at approximately $193,520 on an enterprise value basis. The Company funded the acquisition with cash on hand and short-term borrowings under its Revolving Loan Facility.
The Knights Apparel and Pro Edge trademarks and brand names, which management believes to have indefinite lives, have been valued at $12,000. Amortizable intangible assets have been assigned values of $31,200 for license agreements, $14,500 for distribution networks, and $2,250 for non-compete agreements. License agreements are being amortized over 14 years. Distributor relationships are being amortized over 12 years. Non-compete agreements are being amortized over one year.
Knights Apparel contributed net revenues of $37,100 and $5,031 of pretax earnings since the date of acquisition. The results of Knights Apparel have been included in the Company’s consolidated financial statements since the date of acquisition and are reported as part of the Activewear segment.
Factors that contribute to the amount of goodwill recognized for the acquisition include the value of the existing work force and cost savings by utilizing the Company’s low-cost supply chain and expected synergies with existing Company functions. Goodwill associated with the acquisition is not tax deductible.
The allocation of purchase price is preliminary and subject to change. The primary areas of the purchase price that are not yet finalized are related to certain income taxes and residual goodwill. Accordingly, adjustments will be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances, which existed at the valuation date. The acquired assets and assumed liabilities at the date of acquisition (April 6, 2015) include the following:
Cash and cash equivalents
 
$
59

Trade accounts receivable
 
14,879

Inventories
 
22,820

Deferred tax assets and other
 
2,190

Trademarks and other identifiable intangibles
 
59,950

Total assets acquired
 
99,898

Accounts payable
 
3,742

Accrued liabilities and other
 
3,065

Deferred tax liabilities and other noncurrent liabilities
 
19,964

Total liabilities assumed
 
26,771

Net assets acquired
 
73,127

Goodwill
 
120,393

Purchase price
 
$
193,520

Unaudited pro forma results of operations for the Company are presented below for quarter-to-date and year-to-date assuming that the 2015 acquisition of Knights Apparel had occurred on December 29, 2013.
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Net sales
$
1,522,033

 
$
1,371,070

 
$
2,753,111

 
$
2,449,092

Net income
100,206

 
154,789

 
150,607

 
188,126

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.25

 
$
0.39

 
$
0.37

 
$
0.47

Diluted
0.25

 
0.38

 
0.37

 
0.46


7
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

DBApparel Acquisition
In August 2014, MFB International Holdings S.à r.l. (“MF Lux”), a wholly owned subsidiary of the Company, acquired DBA Lux Holding S.A. (“Innerwear Europe”) from SLB Brands Holdings, Ltd and certain individual Innerwear Europe shareholders in an all-cash transaction equal to €400,000 enterprise value less net debt and working capital adjustments as defined in the purchase agreement. Total purchase price was €297,031 (approximately $391,861 based on acquisition date exchange rates). The acquisition was financed through a combination of cash on hand and third-party borrowings.
Innerwear Europe is a leading marketer of intimate apparel, hosiery and underwear in Europe with a portfolio of strong brands including DIM, Nur Die/Nur Der and Lovable. The Company believes the acquisition will create growth and cost savings opportunities and increased scale to serve retailers. Innerwear Europe utilizes a mix of self-owned manufacturing and third-party manufacturers. Factors that contribute to the amount of goodwill recognized for the acquisition include the value of the existing work force and cost savings by utilizing the Company’s low-cost supply chain and expected synergies with existing Company functions. Goodwill associated with the acquisition is not tax deductible.
The allocation of purchase price is preliminary and subject to change. For the quarter ended July 4, 2015, the Company has not recorded any purchase price adjustments. The primary areas of the purchase price that are not yet finalized are related to certain income taxes and residual goodwill. Accordingly, adjustments will be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.
(4)
Earnings Per Share and Dividends
Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted average shares of common stock outstanding. Diluted EPS was calculated to give effect to all potentially dilutive shares of common stock using the treasury stock method. On March 3, 2015, the Company implemented a four-for-one stock split on the Company’s common stock in the form of a 300% stock dividend. All references to the number of shares outstanding, per share amounts and share options data of the Company’s common shares have been restated to reflect the effect of the split for all periods presented.
The reconciliation of basic to diluted weighted average shares outstanding is as follows:
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Basic weighted average shares outstanding
403,949

 
401,920

 
403,819

 
401,728

Effect of potentially dilutive securities:
 
 
 
 
 
 
 
Stock options
2,091

 
4,652

 
2,150

 
4,844

Restricted stock units
1,468

 
1,656

 
1,399

 
1,572

Employee stock purchase plan and other
2

 
—

 
16

 
—

Diluted weighted average shares outstanding
407,510

 
408,228

 
407,384

 
408,144

For the quarters and six months ended July 4, 2015 and June 28, 2014, there were no options or restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
For the quarters ended July 4, 2015 and June 28, 2014, the company declared and paid cash dividends of $0.10 per share. For the six months ended July 4, 2015 and June 28, 2014, the company declared and paid cash dividends of $0.20 per share.
(5)
Inventories
Inventories consisted of the following: 
 
July 4,
2015
 
January 3,
2015
Raw materials
$
179,215

 
$
155,073

Work in process
188,594

 
164,686

Finished goods
1,398,952

 
1,217,441

 
$
1,766,761

 
$
1,537,200


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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(6)
Debt
Debt consisted of the following: 
 
Interest
Rate as of
July 4,
2015
 
Principal Amount
 
Maturity Date
 
July 4,
2015
 
January 3,
2015
 
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Revolving Loan Facility
—%
 
$
—

 
$
176,500

 
April 2020
Euro Term Loan
3.50%
 
397,225

 
436,953

 
August 2021
Term Loan A
1.65%
 
419,688

 
—

 
April 2020
Term Loan B
3.25%
 
423,938

 
—

 
April 2022
6.375% Senior Notes
6.38%
 
1,000,000

 
1,000,000

 
December 2020
Accounts Receivable Securitization Facility
1.08%
 
232,134

 
210,963

 
March 2016
Other International Debt
Various
 
11,340

 
14,898

 
Various
 
 
 
2,484,325

 
1,839,314

 
 
Less current maturities
 
 
266,565

 
225,317

 
 
 
 
 
$
2,217,760

 
$
1,613,997

 
 
On April 29, 2015, the Company refinanced its senior secured credit facility (the “Senior Secured Credit Facility”) to extend the maturity date of the revolving loan facility (the “Revolving Loan Facility”) to April 2020 and reduce the maximum borrowing capacity from $1,100,000 to $1,000,000, re-price the Revolving Loan Facility at favorable rates, and add an additional $850,000 in term loan borrowings ($425,000 for a new term loan a facility, the “Term Loan A Facility”, and $425,000 for a new term loan b facility, the “Term Loan B Facility”). The Company incurred $10,900 in fees related to this refinancing.
The Revolving Loan Facility, the Term Loan A Facility and the Term Loan B Facility are guaranteed by substantially all of the Company’s existing and future direct and indirect U.S. subsidiaries, with certain customary or agreed-upon exceptions for certain subsidiaries. The Company and each of the guarantors under the Revolving Loan Facility, the Term Loan A Facility and the Term Loan B Facility have granted the lenders under the Senior Secured Credit Facility a valid and perfected first priority (subject to certain customary exceptions) lien and security interest in (i) the equity interests of substantially all of the Company’s direct and indirect U.S. subsidiaries and 65% of the voting securities of certain first tier foreign subsidiaries; and (ii) substantially all present and future property and assets, real and personal, tangible and intangible, of the Company and each guarantor, except for certain enumerated interests, and all proceeds and products of such property and assets.
All borrowings under the Revolving Loan Facility must be repaid in full upon maturity. Outstanding borrowings under the Revolving Loan Facility may be reborrowed and repaid without penalty.
Outstanding borrowings under the Term Loan A Facility are repayable in equal quarterly installments in the following annual percentages, with the remainder of the outstanding principal to be repaid at maturity: year 1, 5.0%, year 2, 7.5%, years 3 and 4, 10.0% and year 5, 15.0%.
Outstanding borrowings under the Term Loan B Facility are repayable in 0.25% quarterly installments, with the remainder of the outstanding principal to be repaid at maturity. If the Term Loan B Facility is repriced or refinanced on or prior to the twelve month anniversary of its funding and as a result of such repricing or refinancing the effective interest rate of the Term Loan B Facility decreases, the Company shall be required to pay a prepayment fee equal to 1.0% of the aggregate principal amount of the Term Loan B Facility subject to such repricing or refinancing.
The Term Loan A Facility, the Term Loan B Facility and the Company’s euro term loan facility (the “Euro Term Loan” and together with the Term Loan A Facility and the Term Loan B Facility, the “Term Loan Facility”) require the Company and its subsidiary Maidenform Luxembourg (“MF Lux”), as applicable, to prepay any outstanding Term Loans in connection with (i) the incurrence of certain indebtedness and (ii) non-ordinary course asset sales or other dispositions (including as a result of casualty or condemnation) that exceed certain thresholds in any period of twelve-consecutive months, with customary reinvestment provisions. The New Term Loan B Facility and the Euro Term Loan Facility also require the Company and MFB Lux, as applicable, to prepay any outstanding Term Loans under the New Term Loan B Facility and the Euro Term Loan Facility in connection with excess cash flow, which percentage will be based upon the Company’s leverage ratio during the

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HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

relevant fiscal period. All such prepayments will be made on a pro rata basis under each of the applicable Term Loan Facilities that are subject to such prepayments.
At the Company’s option, borrowings under the Revolving Loan Facility, the Term Loan A Facility and the Term Loan B Facility may be maintained from time to time as (i) “Base Rate” loans, which bear interest at the highest of (a) 1/2 of 1% in excess of the federal funds rate, (b) the rate publicly announced by JPMorgan Chase Bank as its “prime rate” at its principal office in New York City, in effect from time to time and (c) the “LIBO Rate” (as defined in the Senior Secured Credit Facility and adjusted for maximum reserves) for LIBOR-based loans with a one-month interest period plus 1.0%, in effect from time to time, in each case plus the applicable margin, or (ii) LIBOR-based loans, which bear interest at the LIBO Rate, as determined by reference to the rate for deposits in dollars appearing on the Reuters Screen LIBOR01 or LIBOR02 Page for the respective interest period or other commercially available source designated by the Administrative Agent, in each case plus the applicable margin. The applicable margin for the Revolving Loan Facility and the Term Loan A Facility is based on the Company’s leverage ratio. When the leverage ratio is greater than or equal to 4.00 to 1.00, the applicable margin for LIBO Rate loans is 2.00% and the applicable margin for Base Rate loans is 1.00%. When the leverage ratio is less than 4.00 to 1.00 but greater than or equal to 3.25 to 1.00, the applicable margin for LIBO Rate loans is 1.75% and the applicable margin for Base Rate loans is 0.75%. When the leverage ratio is less than 3.25 to 1.00 but greater than or equal to 2.50 to 1.00, the applicable margin for LIBO Rate loans is 1.50% and the applicable margin for Base Rate loans is 0.50%. When the leverage ratio is less than 2.50 to 1.00, the applicable margin for LIBO Rate loans is 1.25% and the applicable margin for Base Rate loans is 0.25%. The applicable margin under the Term Loan B Facility is 2.50% for LIBO Rate loans and 1.50% for Base Rate loans. Borrowings under the Euro Term Loan Facility bear interest at the “EURIBOR Rate” (as defined in the Senior Secured Credit Facility) plus 2.75%.
The Senior Secured Credit Facility requires that the Company maintain a minimum interest coverage ratio and a maximum total debt to EBITDA (earnings before income taxes, depreciation expense and amortization), or leverage ratio. The interest coverage ratio covenant requires that the ratio of the Company’s EBITDA for the preceding four fiscal quarters to its consolidated total interest expense for such period shall not be less than 3.00 to 1.00 for any fiscal quarter. The leverage ratio covenant requires that the ratio of the Company’s total debt to its EBITDA for the preceding four fiscal quarters will not be more than 4.00 to 1.00; provided that, following a permitted acquisition in which the consideration is at least $200 million, such maximum leverage ratio covenant shall be increased to 4.50:1.00 for each fiscal quarter ending in the succeeding 12-month period following such permitted acquisition. The method of calculating all of the components used in the covenants is included in the Senior Secured Credit Facility.
The Senior Secured Credit Facility contains customary events of default, including nonpayment of principal when due; nonpayment of interest after stated grace period, fees or other amounts after stated grace period; material inaccuracy of representations and warranties; violations of covenants; certain bankruptcies and liquidations; any cross-default to material indebtedness; certain material judgments; certain events related to the Employee Retirement Income Security Act of 1974, as amended, or “ERISA,” actual or asserted invalidity of any guarantee, security document or subordination provision or non-perfection of security interest, and a change in control (as defined in the Senior Secured Credit Facility).
As of July 4, 2015, the Company had $981,943 of borrowing availability under the $1,000,000 revolving credit facility under its senior secured credit facility after taking into account outstanding borrowings and $18,057 of standby and trade letters of credit issued and outstanding under this facility.
The Other International Debt outstanding as of July 4, 2015 consists of mortgage loans and term loans collateralized by fixed assets. These loans have maturity dates ranging from December 2015 to May 2018, and bear interest primarily based on EURIBOR rates ranging from 1.485% to 6.25% as of July 4, 2015.
In March 2015, the Company amended the accounts receivable securitization facility that it entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the termination date to March 2016.
As of July 4, 2015, the Company was in compliance with all financial covenants under its credit facilities.

10
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(7)
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss (“AOCI”) are as follows:
 
Cumulative Translation Adjustment
 
Foreign Exchange Contracts
 
Defined Benefit Plans
 
Income Taxes
 
Accumulated Other Comprehensive Loss
 
 
 
 
Balance at January 3, 2015
$
(34,099
)
 
$
4,834

 
$
(564,831
)
 
$
221,507

 
$
(372,589
)
Amounts reclassified from accumulated other comprehensive loss
—

 
(4,658
)
 
4,886

 
(1,143
)
 
(915
)
Current-period other comprehensive income (loss) activity
(628
)
 
11,653

 
(3,182
)
 
(2,591
)
 
5,252

 
 
 
 
 
 
 
 
 
 
Balance at July 4, 2015
$
(34,727
)
 
$
11,829

 
$
(563,127
)
 
$
217,773

 
$
(368,252
)
The Company had the following reclassifications out of AOCI:
Component of AOCI
 
Location of Reclassification into Income
 
Amount of Reclassification
from AOCI
 
Amount of Reclassification
from AOCI
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Gain on foreign exchange contracts
 
Cost of sales
 
$
3,823

 
$
355

 
$
4,658

 
$
1,030


 
Income tax
 
(1,147
)
 
(142
)
 
(1,654
)
 
(411
)

 
Net of tax
 
2,676

 
213

 
3,004

 
619

Amortization of deferred actuarial loss and prior service cost
 
Selling, general and administrative expenses
 
(2,116
)
 
(2,602
)
 
(4,886
)
 
(5,203
)

 
Income tax
 
1,597

 
1,020

 
2,797

 
2,040


 
Net of tax
 
(519
)
 
(1,582
)
 
(2,089
)
 
(3,163
)
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications
 
 
 
$
2,157

 
$
(1,369
)
 
$
915

 
$
(2,544
)
(8)
Financial Instruments and Risk Management
The Company uses forward foreign exchange contracts to manage its exposures to movements in foreign exchange rates. As of July 4, 2015, the notional U.S. dollar equivalent of commitments to sell and purchase foreign currencies within the Company’s derivative portfolio was $279,606 and $423, respectively, primarily consisting of contracts hedging exposures to the Euro, Canadian dollar, Mexican peso and Australian dollar.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
 
Balance Sheet Location
 
Fair Value
 
July 4,
2015
 
January 3,
2015
Hedges
Other current assets
 
$
5,065

 
$
3,447

Non-hedges
Other current assets
 
2,959

 
2,960

Total derivative assets
 
 
8,024

 
6,407

 
 
 
 
 
 
Hedges
Accrued liabilities
 
(510
)
 
—

Non-hedges
Accrued liabilities
 
(65
)
 
(109
)
Total derivative liabilities
 
 
(575
)
 
(109
)
 
 
 
 
 
 
Net derivative asset
 
 
$
7,449

 
$
6,298


11
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

Cash Flow Hedges
The Company uses forward foreign exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates.
The Company expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $9,433.
The changes in fair value of derivatives excluded from the Company’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Income.
The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:
 
Amount of Gain
Recognized in AOCI
(Effective Portion)
 
Amount of Gain
Recognized in AOCI
(Effective Portion)
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Foreign exchange contracts
$
468

 
$
(997
)
 
$
11,653

 
$
(855
)
 
 
Location of
Gain (Loss)
Reclassified from AOCI into Income
(Effective Portion)
Amount of Gain
Reclassified from AOCI
into Income
(Effective Portion)
 
Amount of Gain
Reclassified from AOCI
into Income
(Effective Portion)
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Foreign exchange contracts
Cost of sales
$
3,823

 
$
355

 
$
4,658

 
$
1,030

Derivative Contracts Not Designated As Hedges
The Company uses foreign exchange derivative contracts as economic hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheet. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.
The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:
 
Location of Gain (Loss)
Recognized in Income on
Derivative
 
Amount of Gain (Loss)
Recognized in Income
 
Amount of Gain (Loss)
Recognized in Income
 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Foreign exchange contracts
Selling, general and administrative expenses
 
$
(5,046
)
 
$
(322
)
 
$
(1,576
)
 
$
(372
)
(9)
Fair Value of Assets and Liabilities
As of July 4, 2015, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments related to foreign exchange rates and deferred

12
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

compensation plan liabilities. The fair values of foreign currency derivatives are determined using the cash flows of the foreign exchange contract, discount rates to account for the passage of time and current foreign exchange market data and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a recurring basis.
There were no changes during the quarter ended July 4, 2015 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers between the three level categories and there were no Level 3 assets or liabilities measured on a quarterly basis during the quarter ended July 4, 2015. As of and during the quarter ended July 4, 2015, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.
The following tables set forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities accounted for at fair value on a recurring basis.
 
Assets (Liabilities) at Fair Value as of
July 4, 2015
 
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts
$
—

 
$
8,024

 
$
—

Foreign exchange derivative contracts
—

 
(575
)
 
—

 
—

 
7,449

 
—

Deferred compensation plan liability
—

 
(32,780
)
 
—

Total
$
—

 
$
(25,331
)
 
$
—

 
 
Assets (Liabilities) at Fair Value as of
January 3, 2015
 
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts
$
—

 
$
6,407

 
$
—

Foreign exchange derivative contracts
—

 
(109
)
 
—

 
—

 
6,298

 
—

Deferred compensation plan liability
—

 
(28,289
)
 
—

Total
$
—

 
$
(21,991
)
 
$
—

Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of July 4, 2015 and January 3, 2015. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $29,243 and $16,856 as of July 4, 2015 and January 3, 2015, respectively. The fair value of debt, which is classified as a Level 2 liability, was $2,573,466 and $1,893,514 as of July 4, 2015 and January 3, 2015, respectively. Debt had a carrying value of $2,484,325 and $1,839,314 as of July 4, 2015 and January 3, 2015, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amounts of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value as of July 4, 2015 and January 3, 2015, primarily due to the short-term nature of these instruments.
(10)
Income Taxes


13
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

The Company’s effective income tax rate was 13% and 17% for the quarters ended July 4, 2015 and June 28, 2014, respectively. The Company’s effective income tax rate was 14% and 16% for the six months ended July 4, 2015 and June 28, 2014, respectively. The lower effective income tax rate for the quarter ended July 4, 2015 compared to the quarter ended June 28, 2014 was primarily due to a lower proportion of earnings attributed to domestic subsidiaries, which are taxed at rates higher than foreign subsidiaries as well as an income tax benefit recognized in the second quarter of 2015 related to the realization of an unrecognized tax benefit resulting from the effective settlement of a position in a foreign jurisdiction. The lower effective income tax rate for the six months ended July 4, 2015 compared to the six months ended June 28, 2014 was primarily due to a lower proportion of earnings attributed to domestic subsidiaries, which are taxed at rates higher than foreign subsidiaries.
(11)
Business Segment Information
The Company’s operations are managed and reported in four operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms.
The types of products and services from which each reportable segment derives its revenues are as follows:
•
Innerwear sells basic branded products that are replenishment in nature under the product categories of men’s underwear, children’s underwear, socks, panties, hosiery and intimates, which includes bras and shapewear.
•
Activewear sells basic branded products that are primarily seasonal in nature under the product categories of branded printwear and retail activewear, as well as licensed logo apparel in collegiate bookstores, mass merchant and other channels.
•
Direct to Consumer includes the Company’s value-based (“outlet”) stores and Internet operations that sell products from the Company’s portfolio of leading brands. The Company’s Internet operations are supported by its catalogs.
•
International primarily relates to the Europe, Asia, Latin America, Canada and Australia geographic locations that sell products that span across the Innerwear and Activewear reportable segments. 
The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses and amortization of intangibles. The accounting policies of the segments are consistent with those described in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 3, 2015. The Company decided in the first quarter of 2015 to revise the manner which the Company allocates certain selling, general and administrative expenses. Certain prior-year segment operating profit disclosures have been revised to conform to the current-year presentation.
 
Quarters Ended
 
Six Months Ended
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Net sales:
 
 
 
 
 
 
 
Innerwear
$
777,614

 
$
788,330

 
$
1,323,787

 
$
1,359,484

Activewear
378,157

 
317,814

 
676,253

 
612,318

Direct to Consumer
101,531

 
104,352

 
183,032

 
188,066

International
264,731

 
131,556

 
547,882

 
241,554

Total net sales
$
1,522,033

 
$
1,342,052

 
$
2,730,954

 
$
2,401,422


14
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Quarters Ended
 
Six Months Ended
 
July 4,
2015
 
June 28,
2014
 
July 4,
2015
 
June 28,
2014
Segment operating profit:
 
 
 
 
 
 
 
Innerwear
$
196,035

 
$
183,917

 
$
306,812

 
$
281,922

Activewear
61,485

 
47,459

 
94,236

 
81,204

Direct to Consumer
11,954

 
11,223

 
9,676

 
9,897

International
21,004

 
15,935

 
43,120

 
24,121

Total segment operating profit
290,478

 
258,534

 
453,844

 
397,144

Items not included in segment operating profit:
 
 
 
 
 
 
 
General corporate expenses
(20,181
)
 
(23,142
)
 
(45,593
)
 
(43,431
)
Acquisition, integration and other action related charges
(125,966
)
 
(24,045
)
 
(169,194
)
 
(66,682
)
Amortization of intangibles
(5,398
)
 
(4,223
)
 
(10,193
)
 
(8,119
)
Total operating profit
138,933

 
207,124

 
228,864

 
278,912

Other expenses
(830
)
 
(660
)
 
(1,212
)
 
(1,095
)
Interest expense, net
(29,020
)
 
(21,119
)
 
(55,907
)
 
(42,937
)
Income before income tax expense
$
109,083

 
$
185,345

 
$
171,745

 
$
234,880

For the quarter ended July 4, 2015, the Company incurred acquisition, integration and other action related charges of $125,966, of which $26,151 is reported in the “Cost of sales” line and $99,815 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended June 28, 2014, the Company incurred acquisition, integration and other action related charges of $24,045, of which $3,835 is reported in the “Cost of sales” line and $20,210 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
For the six months ended July 4, 2015, the Company incurred acquisition, integration and other action related charges of $169,194, of which $40,219 is reported in the “Cost of sales” line and $128,975 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the six months ended June 28, 2014, the Company incurred acquisition, integration and other action related charges of $66,682, of which $18,662 is reported in the “Cost of sales” line and $48,020 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
As part of the Innerwear Europe acquisition strategy, the Company has identified management and administrative positions that are considered non-essential and/or duplicative that will be eliminated. As of July 4, 2015, the Company has accrued $56,000 for employee termination and other benefits recognized in accordance with expected benefit payments for affected employees. The charges are reflected in the “Cost of sales” and “Selling, general and administrative expenses” lines of the Consolidated Statements of Income. As of July 4, 2015, no benefit payments had been made. $17,000 and $39,000, respectively, is included in the “Accrued liabilities” and “Other noncurrent liabilities” line of the Consolidated Balance Sheet.

(12)    Consolidating Financial Information
In accordance with the indenture governing the Company’s $1,000,000 6.375% Senior Notes issued on November 9, 2010, as supplemented from time to time, certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the 6.375% Senior Notes. The following presents the condensed consolidating financial information separately for:
(i) Parent Company, the issuer of the guaranteed obligations. Parent Company includes Hanesbrands Inc. and its 100% owned operating divisions, which are not legal entities, and excludes its subsidiaries, which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate

15
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

intercompany profit in inventory, (c) eliminate the investments in the Company’s subsidiaries and (d) record consolidating entries; and
(v) The Company, on a consolidated basis.
The 6.375% Senior Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary, each of which is 100% owned, directly or indirectly, by Hanesbrands Inc. A guarantor subsidiary’s guarantee can be released in certain customary circumstances. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation.
 
Condensed Consolidating Statement of Comprehensive Income
Quarter Ended July 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
1,205,550

 
$
242,526

 
$
756,240

 
$
(682,283
)
 
$
1,522,033

Cost of sales
932,461

 
129,200

 
550,424

 
(658,277
)
 
953,808

Gross profit
273,089

 
113,326

 
205,816

 
(24,006
)
 
568,225

Selling, general and administrative expenses
243,596

 
52,772

 
133,428

 
(504
)
 
429,292

Operating profit
29,493

 
60,554

 
72,388

 
(23,502
)
 
138,933

Equity in earnings of subsidiaries
90,055

 
66,942

 
—

 
(156,997
)
 
—

Other expenses
830

 
—

 
—

 
—

 
830

Interest expense, net
21,578

 
—

 
7,634

 
(192
)
 
29,020

Income before income tax expense
97,140

 
127,496

 
64,754

 
(180,307
)
 
109,083

Income tax expense
2,238

 
11,297

 
646

 


 
14,181

Net income
$
94,902

 
$
116,199

 
$
64,108

 
$
(180,307
)
 
$
94,902

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
94,396

 
$
116,199

 
$
70,011

 
$
(186,210
)
 
$
94,396

 
 
Condensed Consolidating Statement of Comprehensive Income
Quarter Ended June 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
1,186,489

 
$
190,946

 
$
607,973

 
$
(643,356
)
 
$
1,342,052

Cost of sales
897,376

 
90,178

 
458,668

 
(608,524
)
 
837,698

Gross profit
289,113

 
100,768

 
149,305

 
(34,832
)
 
504,354

Selling, general and administrative expenses
215,474

 
53,922

 
29,619

 
(1,785
)
 
297,230

Operating profit
73,639

 
46,846

 
119,686

 
(33,047
)
 
207,124

Equity in earnings of subsidiaries
120,322

 
93,613

 
—

 
(213,935
)
 
—

Other expenses
660

 
—

 
—

 
—

 
660

Interest expense, net
19,058

 
(88
)
 
1,979

 
170

 
21,119

Income before income tax expense
174,243

 
140,547

 
117,707

 
(247,152
)
 
185,345

Income tax expense
19,665

 
8,070

 
3,032

 
—

 
30,767

Net income
$
154,578

 
$
132,477

 
$
114,675

 
$
(247,152
)
 
$
154,578

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
158,546

 
$
132,477

 
$
117,159

 
$
(249,636
)
 
$
158,546

 

16
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidating Statement of Comprehensive Income
Six Months Ended July 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
2,156,640

 
$
395,700

 
$
1,548,252

 
$
(1,369,638
)
 
$
2,730,954

Cost of sales
1,705,350

 
203,510

 
1,150,834

 
(1,343,196
)
 
1,716,498

Gross profit
451,290

 
192,190

 
397,418

 
(26,442
)
 
1,014,456

Selling, general and administrative expenses
468,278

 
105,636

 
213,882

 
(2,204
)
 
785,592

Operating profit
(16,988
)
 
86,554

 
183,536

 
(24,238
)
 
228,864

Equity in earnings of subsidiaries
221,221

 
175,112

 
—

 
(396,333
)
 
—

Other expenses
1,212

 
—

 
—

 
—

 
1,212

Interest expense, net
40,701

 
(4
)
 
15,416

 
(206
)
 
55,907

Income before income tax expense
162,320

 
261,670

 
168,120

 
(420,365
)
 
171,745

Income tax expense
14,782

 
207

 
9,218

 
—

 
24,207

Net income
$
147,538

 
$
261,463

 
$
158,902

 
$
(420,365
)
 
$
147,538

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
151,875

 
$
261,463

 
$
160,415

 
$
(421,878
)
 
$
151,875

 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidating Statement of Comprehensive Income
Six Months Ended June 28, 2014
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
2,078,819

 
$
410,896

 
$
1,168,159

 
$
(1,256,452
)
 
$
2,401,422

Cost of sales
1,618,522

 
223,659

 
889,218

 
(1,191,108
)
 
1,540,291

Gross profit
460,297

 
187,237

 
278,941

 
(65,344
)
 
861,131

Selling, general and administrative expenses
406,179

 
123,945

 
56,098

 
(4,003
)
 
582,219

Operating profit
54,118

 
63,292

 
222,843

 
(61,341
)
 
278,912

Equity in earnings of subsidiaries
205,387

 
168,473

 
—

 
(373,860
)
 
—

Other expenses
1,095

 
—

 
—

 
—

 
1,095

Interest expense, net
36,942

 
1,898

 
4,035

 
62

 
42,937

Income before income tax expense
221,468

 
229,867

 
218,808

 
(435,263
)
 
234,880

Income tax expense
25,330

 
5,756

 
7,656

 
—

 
38,742

Net income
$
196,138

 
$
224,111

 
$
211,152

 
$
(435,263
)
 
$
196,138

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
199,325

 
$
224,111

 
$
211,371

 
$
(435,482
)
 
$
199,325


17
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Balance Sheet
July 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
37,210

 
$
12,541

 
$
265,603

 
$
—

 
$
315,354

Trade accounts receivable, net
109,247

 
104,605

 
622,557

 
(1,110
)
 
835,299

Inventories
1,105,921

 
179,184

 
651,750

 
(170,094
)
 
1,766,761

Deferred tax assets
198,997

 
4,194

 
11,277

 
—

 
214,468

Other current assets
84,115

 
10,146

 
70,179

 
—

 
164,440

Total current assets
1,535,490

 
310,670

 
1,621,366

 
(171,204
)
 
3,296,322

Property, net
94,661

 
39,827

 
524,301

 
—

 
658,789

Trademarks and other identifiable intangibles, net
3,817

 
135,849

 
574,117

 
—

 
713,783

Goodwill
232,882

 
244,640

 
357,505

 
—

 
835,027

Investments in subsidiaries
4,157,147

 
2,016,195

 
—

 
(6,173,342
)
 
—

Deferred tax assets
200,363

 
74,734

 
15,976

 
—

 
291,073

Receivables from related entities
4,905,444

 
4,711,239

 
2,203,829

 
(11,820,512
)
 
—

Other noncurrent assets
61,515

 
426

 
15,446

 
—

 
77,387

Total assets
$
11,191,319

 
$
7,533,580

 
$
5,312,540

 
$
(18,165,058
)
 
$
5,872,381

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ 
Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
371,318

 
$
30,282

 
$
259,769

 
$
—

 
$
661,369

Accrued liabilities
184,331

 
50,106

 
239,456

 
(955
)
 
472,938

Notes payable
—

 
—

 
112,818

 
—

 
112,818

Accounts Receivable Securitization Facility
—

 
—

 
232,134

 
—

 
232,134

Current portion of long-term debt
25,500

 
—

 
8,931

 
—

 
34,431

Total current liabilities
581,149

 
80,388

 
853,108

 
(955
)
 
1,513,690

Long-term debt
1,818,125

 
—

 
399,635

 
—

 
2,217,760

Pension and postretirement benefits
299,136

 
—

 
65,297

 
—

 
364,433

Payables to related entities
6,902,814

 
3,488,083

 
1,421,260

 
(11,812,157
)
 
—

Other noncurrent liabilities
138,323

 
31,423

 
154,980

 
—

 
324,726

Total liabilities
9,739,547

 
3,599,894

 
2,894,280

 
(11,813,112
)
 
4,420,609

Stockholders’ equity
1,451,772

 
3,933,686

 
2,418,260

 
(6,351,946
)
 
1,451,772

Total liabilities and stockholders’ equity
$
11,191,319

 
$
7,533,580

 
$
5,312,540

 
$
(18,165,058
)
 
$
5,872,381



18
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Balance Sheet
January 3, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,910

 
$
10,796

 
$
218,149

 
$
—

 
$
239,855

Trade accounts receivable, net
73,794

 
37,511

 
561,514

 
(771
)
 
672,048

Inventories
958,376

 
120,341

 
607,356

 
(148,873
)
 
1,537,200

Deferred tax assets
200,050

 
3,515

 
11,500

 
—

 
215,065

Other current assets
38,446

 
11,224

 
51,394

 
—

 
101,064

Total current assets
1,281,576

 
183,387

 
1,449,913

 
(149,644
)
 
2,765,232

Property, net
88,599

 
46,221

 
539,559

 
—

 
674,379

Trademarks and other identifiable intangibles, net
4,102

 
79,393

 
607,706

 
—

 
691,201

Goodwill
232,881

 
124,247

 
365,992

 
—

 
723,120

Investments in subsidiaries
3,732,783

 
1,792,790

 
—

 
(5,525,573
)
 
—

Deferred tax assets
202,910

 
74,735

 
16,702

 
—

 
294,347

Receivables from related entities
4,585,755

 
4,471,644

 
2,087,280

 
(11,144,679
)
 
—

Other noncurrent assets
55,540

 
428

 
17,534

 
—

 
73,502

Total assets
$
10,184,146

 
$
6,772,845

 
$
5,084,686

 
$
(16,819,896
)
 
$
5,221,781

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ 
Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
353,799

 
$
11,925

 
$
255,496

 
$
—

 
$
621,220

Accrued liabilities
190,739

 
61,339

 
242,437

 
1,112

 
495,627

Notes payable
—

 
—

 
144,438

 
—

 
144,438

Accounts Receivable Securitization Facility
—

 
—

 
210,963

 
—

 
210,963

Current portion of long-term debt
—

 
—

 
14,354

 
—

 
14,354

Total current liabilities
544,538

 
73,264

 
867,688

 
1,112

 
1,486,602

Long-term debt
1,176,500

 
—

 
437,497

 
—

 
1,613,997

Pension and postretirement benefits
399,931

 
—

 
72,072

 
—

 
472,003

Payables to related entities
6,544,095

 
3,270,513

 
1,330,071

 
(11,144,679
)
 
—

Other noncurrent liabilities
132,310

 
12,609

 
118,287

 
(799
)
 
262,407

Total liabilities
8,797,374

 
3,356,386

 
2,825,615

 
(11,144,366
)
 
3,835,009

Stockholders’ equity
1,386,772

 
3,416,459

 
2,259,071

 
(5,675,530
)
 
1,386,772

Total liabilities and stockholders’ equity
$
10,184,146

 
$
6,772,845

 
$
5,084,686

 
$
(16,819,896
)
 
$
5,221,781


19
Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Statement of Cash Flows
Six Months Ended July 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net cash from operating activities
$
(62,363
)
 
$
168,523

 
$
67,285

 
$
(406,513
)
 
$
(233,068
)
Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(10,280
)
 
(7,301
)
 
(38,657
)
 
—

 
(56,238
)
Proceeds from sales of assets
18

 
4,330

 
797

 
—

 
5,145

Acquisition of business, net of cash acquired
—

 
(193,461
)
 
—

 
—

 
(193,461
)
Net cash from investing activities
(10,262
)
 
(196,432
)
 
(37,860
)
 
—

 
(244,554
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings on notes payable
—

 
—

 
177,730