10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q |
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 3, 2015
or
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¨ | 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
(Exact name of registrant as specified in its charter)
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| | |
Maryland | | 20-3552316 |
(State of incorporation) | | (I.R.S. employer identification no.) |
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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):
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Large accelerated filer | | x | | Accelerated filer | | ¨ |
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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 October 23, 2015, there were 391,821,577 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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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,” and available 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.
PART I
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Item 1. | Financial Statements |
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
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| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Net sales | $ | 1,591,038 |
| | $ | 1,400,728 |
| | $ | 4,321,992 |
| | $ | 3,802,150 |
|
Cost of sales | 1,010,288 |
| | 903,013 |
| | 2,726,786 |
| | 2,443,304 |
|
Gross profit | 580,750 |
| | 497,715 |
| | 1,595,206 |
| | 1,358,846 |
|
Selling, general and administrative expenses | 372,422 |
| | 343,823 |
| | 1,158,014 |
| | 926,042 |
|
Operating profit | 208,328 |
| | 153,892 |
| | 437,192 |
| | 432,804 |
|
Other expenses | 718 |
| | 795 |
| | 1,930 |
| | 1,890 |
|
Interest expense, net | 31,356 |
| | 23,528 |
| | 87,263 |
| | 66,465 |
|
Income before income tax expense | 176,254 |
| | 129,569 |
| | 347,999 |
| | 364,449 |
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Income tax expense | 14,100 |
| | 10,625 |
| | 38,307 |
| | 49,367 |
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Net income | $ | 162,154 |
| | $ | 118,944 |
| | $ | 309,692 |
| | $ | 315,082 |
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| | | | | | | |
Earnings per share: | | | | | | | |
Basic | $ | 0.41 |
| | $ | 0.30 |
| | $ | 0.77 |
| | $ | 0.78 |
|
Diluted | $ | 0.40 |
| | $ | 0.29 |
| | $ | 0.76 |
| | $ | 0.77 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
2
HANESBRANDS INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
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| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Net income | $ | 162,154 |
| | $ | 118,944 |
| | $ | 309,692 |
| | $ | 315,082 |
|
Other comprehensive income (loss), net of tax of ($1,589), ($1,382), ($5,323) and ($2,670), respectively | (15,130 | ) | | (1,684 | ) | | (10,793 | ) | | 1,503 |
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Comprehensive income | $ | 147,024 |
| | $ | 117,260 |
| | $ | 298,899 |
| | $ | 316,585 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
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| | | | | | | |
| October 3,
2015 | | January 3,
2015 |
Assets | | | |
Cash and cash equivalents | $ | 284,595 |
| | $ | 239,855 |
|
Trade accounts receivable, net | 850,334 |
| | 672,048 |
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Inventories | 1,813,510 |
| | 1,537,200 |
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Deferred tax assets | 215,413 |
| | 215,065 |
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Other current assets | 101,602 |
| | 101,064 |
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Total current assets | 3,265,454 |
| | 2,765,232 |
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| | | |
Property, net | 652,391 |
| | 674,379 |
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Trademarks and other identifiable intangibles, net | 711,217 |
| | 691,201 |
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Goodwill | 837,975 |
| | 723,120 |
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Deferred tax assets | 278,968 |
| | 294,347 |
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Other noncurrent assets | 73,395 |
| | 73,502 |
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Total assets | $ | 5,819,400 |
| | $ | 5,221,781 |
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| | | |
Liabilities and Stockholders’ Equity | | | |
Accounts payable | $ | 637,788 |
| | $ | 621,220 |
|
Accrued liabilities | 516,595 |
| | 495,627 |
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Notes payable | 120,083 |
| | 144,438 |
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Accounts Receivable Securitization Facility | 258,264 |
| | 210,963 |
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Current portion of long-term debt | 39,407 |
| | 14,354 |
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Total current liabilities | 1,572,137 |
| | 1,486,602 |
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Long-term debt | 2,361,607 |
| | 1,613,997 |
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Pension and postretirement benefits | 362,545 |
| | 472,003 |
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Other noncurrent liabilities | 272,812 |
| | 262,407 |
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Total liabilities | 4,569,101 |
| | 3,835,009 |
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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 — 392,334,805 and 400,789,120, respectively | 3,923 |
| | 4,008 |
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Additional paid-in capital | 280,699 |
| | 290,926 |
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Retained earnings | 1,349,059 |
| | 1,464,427 |
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Accumulated other comprehensive loss | (383,382 | ) | | (372,589 | ) |
Total stockholders’ equity | 1,250,299 |
| | 1,386,772 |
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Total liabilities and stockholders’ equity | $ | 5,819,400 |
| | $ | 5,221,781 |
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See accompanying notes to Condensed Consolidated Financial Statements.
4
HANESBRANDS INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
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| | | | | | | |
| Nine Months Ended |
| October 3,
2015 | | September 27,
2014 |
Operating activities: | | | |
Net income | $ | 309,692 |
| | $ | 315,082 |
|
Adjustments to reconcile net income to net cash from operating activities: | | | |
Depreciation and amortization of long-lived assets | 75,750 |
| | 69,540 |
|
Amortization of debt issuance costs | 5,222 |
| | 4,344 |
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Stock compensation expense | 9,831 |
| | 11,998 |
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Deferred taxes and other | (4,316 | ) | | (2,571 | ) |
Changes in assets and liabilities, net of acquisition of business:
| | | |
Accounts receivable | (185,159 | ) | | (169,053 | ) |
Inventories | (280,970 | ) | | (149,376 | ) |
Other assets | 32,661 |
| | (6,022 | ) |
Accounts payable | 35,716 |
| | 131,280 |
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Accrued liabilities and other | (85,581 | ) | | 10,099 |
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Net cash from operating activities | (87,154 | ) | | 215,321 |
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| | | |
Investing activities: | | | |
Purchases of property, plant and equipment | (73,771 | ) | | (46,562 | ) |
Proceeds from sales of assets | 15,250 |
| | 5,015 |
|
Acquisition of business, net of cash acquired | (192,829 | ) | | (352,986 | ) |
Other | — |
| | (8,779 | ) |
Net cash from investing activities | (251,350 | ) | | (403,312 | ) |
| | | |
Financing activities: | | | |
Borrowings on notes payable | 817,141 |
| | 109,313 |
|
Repayments on notes payable | (833,822 | ) | | (101,994 | ) |
Borrowings on Accounts Receivable Securitization Facility | 209,041 |
| | 115,609 |
|
Repayments on Accounts Receivable Securitization Facility | (161,740 | ) | | (72,399 | ) |
Borrowings on Revolving Loan Facility | 4,056,000 |
| | 2,639,000 |
|
Repayments on Revolving Loan Facility | (4,079,500 | ) | | (2,662,000 | ) |
Incurrence of debt under the Euro Term Loan Facility | — |
| | 476,566 |
|
Repayments on Euro Term Loan Facility | (3,022 | ) | | — |
|
Borrowings on Term Loan A Facility | 425,000 |
| | — |
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Repayments on Term Loan A Facility | (10,625 | ) | | — |
|
Borrowings on Term Loan B Facility | 425,000 |
| | — |
|
Repayments on Term Loan B Facility | (2,125 | ) | | — |
|
Repayments of assumed debt related to acquisition of business | — |
| | (111,193 | ) |
Share repurchases | (306,094 | ) | | — |
|
Cash dividends paid | (121,713 | ) | | (89,638 | ) |
Taxes paid related to net shares settlement of equity awards | (53,108 | ) | | (32,294 | ) |
Excess tax benefit from stock-based compensation | 38,298 |
| | 26,162 |
|
Debt issuance costs and other | (12,327 | ) | | (4,431 | ) |
Net cash from financing activities | 386,404 |
| | 292,701 |
|
Effect of changes in foreign exchange rates on cash | (3,160 | ) | | (4,741 | ) |
Change in cash and cash equivalents | 44,740 |
| | 99,969 |
|
Cash and cash equivalents at beginning of year | 239,855 |
| | 115,863 |
|
Cash and cash equivalents at end of period | $ | 284,595 |
| | $ | 215,832 |
|
See accompanying notes to Condensed Consolidated Financial Statements.
5
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
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.
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(2) | Recent Accounting Pronouncements |
Measurement Period Adjustments
In September 2015, the FASB issued new accounting rules, which simplify the accounting for measurement period adjustments by eliminating the requirements to restate prior period financial statements for these adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard, which should be applied prospectively to measurement period adjustments that occur after the effective date, is 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.
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.
Inventory
In July 2015, the FASB issued new accounting rules, which require inventory to be recorded at the lower of cost or net realizable value. The new standard will be effective for the Company in the first quarter of 2017. 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.
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.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 approximately $121,000 and $21,000 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:
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| | | | |
Cash and cash equivalents | | $ | 59 |
|
Trade accounts receivable | | 14,879 |
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Inventories | | 22,820 |
|
Deferred tax assets and other | | 2,190 |
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Trademarks and other identifiable intangibles | | 59,950 |
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Total assets acquired | | 99,898 |
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Accounts payable | | 3,742 |
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Accrued liabilities and other | | 3,065 |
|
Deferred tax liabilities and other noncurrent liabilities | | 19,964 |
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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.
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| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Net sales | $ | 1,591,038 |
| | $ | 1,473,026 |
| | $ | 4,344,149 |
| | $ | 3,922,118 |
|
Net income | 163,327 |
| | 127,256 |
| | 313,919 |
| | 314,256 |
|
Earnings per share: | | | | | | | |
Basic | $ | 0.41 |
| | $ | 0.32 |
| | $ | 0.78 |
| | $ | 0.78 |
|
Diluted | 0.41 |
| | 0.31 |
| | 0.77 |
| | 0.77 |
|
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. (“Hanes Europe”) from SLB Brands Holdings, Ltd and certain individual Hanes 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.
Hanes 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. Hanes 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.
Since January 3, 2015, goodwill increased by $2,807 as a result of measurement period adjustments to the acquired income tax balances. The purchase price allocation was finalized in the third quarter 2015.
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:
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| | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Basic weighted average shares outstanding | 399,445 |
| | 402,392 |
| | 402,011 |
| | 401,968 |
|
Effect of potentially dilutive securities: | | | | | | | |
Stock options | 1,943 |
| | 4,228 |
| | 3,035 |
| | 4,392 |
|
Restricted stock units | 1,587 |
| | 1,904 |
| | 1,298 |
| | 1,696 |
|
Employee stock purchase plan and other | 4 |
| | — |
| | 19 |
| | — |
|
Diluted weighted average shares outstanding | 402,979 |
| | 408,524 |
| | 406,363 |
| | 408,056 |
|
For the quarters and nine months ended October 3, 2015 and September 27, 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 October 3, 2015 and September 27, 2014, the Company declared and paid cash dividends of $0.10 and $0.075 per share, respectively. For the nine months ended October 3, 2015 and September 27, 2014, the Company declared and paid cash dividends of $0.30 and $0.225 per share, respectively.
The Company resumed repurchasing Company common stock in the open market during the third quarter of 2015 under a program previously announced in 2007. The Company’s Board of Directors authorized up to 40,000 shares to be repurchased in open-market transactions, and such repurchases are subject to market conditions, legal requirements and other factors. During the quarter ended October 3, 2015, the Company entered into transactions to repurchase 10,665 shares at a weighted average repurchase price of $29.15 per share. The shares were repurchased at a total cost of $311,103, of which $5,009 settled in the fourth quarter of 2015. At October 3, 2015, the remaining repurchase authorization totaled 17,986 shares. The program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s discretion.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Inventories consisted of the following:
|
| | | | | | | |
| October 3,
2015 | | January 3,
2015 |
Raw materials | $ | 172,921 |
| | $ | 122,873 |
|
Work in process | 202,026 |
| | 196,886 |
|
Finished goods | 1,438,563 |
| | 1,217,441 |
|
| $ | 1,813,510 |
| | $ | 1,537,200 |
|
Debt consisted of the following:
|
| | | | | | | | | | | |
| Interest
Rate as of
October 3,
2015 | | Principal Amount | | Maturity Date |
| October 3,
2015 | | January 3,
2015 | |
Senior Secured Credit Facility: | | | | | | | |
Revolving Loan Facility | 1.83% | | $ | 153,000 |
| | $ | 176,500 |
| | April 2020 |
Euro Term Loan | 3.50% | | 400,651 |
| | 436,953 |
| | August 2021 |
Term Loan A | 1.66% | | 414,375 |
| | — |
| | April 2020 |
Term Loan B | 3.25% | | 422,875 |
| | — |
| | April 2022 |
6.375% Senior Notes | 6.38% | | 1,000,000 |
| | 1,000,000 |
| | December 2020 |
Accounts Receivable Securitization Facility | 1.10% | | 258,264 |
| | 210,963 |
| | March 2016 |
Other International Debt | Various | | 10,112 |
| | 14,898 |
| | Various |
| | | 2,659,277 |
| | 1,839,314 |
| | |
Less current maturities | | | 297,670 |
| | 225,317 |
| | |
| | | $ | 2,361,607 |
| | $ | 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 one, 5.0%; year two, 7.5%; years three and four, 10.0%; and year five, 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
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 Facility” 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 Term Loan B Facility and the Euro Term Loan Facility also require the Company and MF Lux, as applicable, to prepay any outstanding Term Loans under the 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 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 October 3, 2015, the Company had $830,252 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account outstanding borrowings and $16,748 of standby and trade letters of credit issued and outstanding under this facility.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Other International Debt outstanding as of October 3, 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.
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 October 3, 2015, the Company was in compliance with all financial covenants under its credit facilities.
On October 23, 2015, the Company increased its borrowing capacity on the Term Loan A Facility by $300,000 at similar terms to those previously in place.
| |
(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 | — |
| | (8,614 | ) | | 9,987 |
| | (1,214 | ) | | 159 |
|
Current-period other comprehensive income (loss) activity | (17,115 | ) | | 13,454 |
| | (3,182 | ) | | (4,109 | ) | | (10,952 | ) |
| | | | | | | | | |
Balance at October 3, 2015 | $ | (51,214 | ) | | $ | 9,674 |
| | $ | (558,026 | ) | | $ | 216,184 |
| | $ | (383,382 | ) |
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 | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Gain on foreign exchange contracts | | Cost of sales | | $ | 3,956 |
| | $ | 368 |
| | $ | 8,614 |
| | $ | 1,398 |
|
| | Income tax | | (1,780 | ) | | (146 | ) | | (3,434 | ) | | (557 | ) |
| | Net of tax | | 2,176 |
| | 222 |
| | 5,180 |
| | 841 |
|
Amortization of deferred actuarial loss and prior service cost | | Selling, general and administrative expenses | | (5,101 | ) | | (2,606 | ) | | (9,987 | ) | | (7,809 | ) |
| | Income tax | | 1,852 |
| | 1,024 |
| | 4,648 |
| | 3,064 |
|
| | Net of tax | | (3,249 | ) | | (1,582 | ) | | (5,339 | ) | | (4,745 | ) |
| | | | | | | | | | |
Total reclassifications | | | | $ | (1,073 | ) | | $ | (1,360 | ) | | $ | (159 | ) | | $ | (3,904 | ) |
| |
(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 October 3, 2015, the notional U.S. dollar equivalent of commitments to sell and purchase foreign currencies within the Company’s derivative portfolio was $261,048 and $622, respectively, primarily consisting of contracts hedging exposures to the Euro, Canadian dollar, Mexican peso and Australian dollar.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 |
| October 3,
2015 | | January 3,
2015 |
Hedges | Other current assets | | $ | 3,024 |
| | $ | 3,447 |
|
Non-hedges | Other current assets | | 3,154 |
| | 2,960 |
|
Total derivative assets | | | 6,178 |
| | 6,407 |
|
| | | | | |
Hedges | Accrued liabilities | | (578 | ) | | — |
|
Non-hedges | Accrued liabilities | | (85 | ) | | (109 | ) |
Total derivative liabilities | | | (663 | ) | | (109 | ) |
| | | | | |
Net derivative asset | | | $ | 5,515 |
| | $ | 6,298 |
|
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 $7,119.
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 | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Foreign exchange contracts | $ | 1,801 |
| | $ | 1,908 |
| | $ | 13,454 |
| | $ | 1,053 |
|
|
| | | | | | | | | | | | | | | | |
| 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 | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Foreign exchange contracts | Cost of sales | $ | 3,956 |
| | $ | 368 |
| | $ | 8,614 |
| | $ | 1,398 |
|
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
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Foreign exchange contracts | Selling, general and administrative expenses | | $ | (3,901 | ) | | $ | (198 | ) | | $ | (5,477 | ) | | $ | (570 | ) |
| |
(9) | Fair Value of Assets and Liabilities |
As of October 3, 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 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 October 3, 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 October 3, 2015. As of and during the quarter ended October 3, 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
October 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 | $ | — |
| | $ | 6,178 |
| | $ | — |
|
Foreign exchange derivative contracts | — |
| | (663 | ) | | — |
|
| — |
| | 5,515 |
| | — |
|
Deferred compensation plan liability | — |
| | (29,931 | ) | | — |
|
Total | $ | — |
| | $ | (24,416 | ) | | $ | — |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | |
| 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 October 3, 2015 and January 3, 2015. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $23,394 and $16,856 as of October 3, 2015 and January 3, 2015, respectively. The fair value of debt, which is classified as a Level 2 liability, was $2,757,559 and $1,893,514 as of October 3, 2015 and January 3, 2015, respectively. Debt had a carrying value of $2,659,277 and $1,839,314 as of October 3, 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 October 3, 2015 and January 3, 2015, primarily due to the short-term nature of these instruments.
The Company’s effective income tax rate was 8% for the quarters ended October 3, 2015 and September 27, 2014. The Company’s effective income tax rate was 11% and 14% for the nine months ended October 3, 2015 and September 27, 2014, respectively. The quarter and nine months ended October 3, 2015 included net income tax benefits of approximately $56,000 resulting from the completion of the Internal Revenue Service audit examination of the 2011 and 2012 tax years and the remeasurement of certain unrecognized tax benefits. Offsetting these tax benefits, we have also elected to repatriate approximately $200,000 of current year foreign earnings. The quarter and nine months ended September 27, 2014 included net discrete tax benefits of approximately $9,000 primarily related to the realization of unrecognized tax benefits resulting from the lapsing of domestic and foreign statutes of limitations.
| |
(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. |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
| |
• | 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 in 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 | | Nine Months Ended |
October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Net sales: | | | | | | | |
Innerwear | $ | 667,192 |
| | $ | 648,310 |
| | $ | 1,990,979 |
| | $ | 2,007,794 |
|
Activewear | 516,804 |
| | 424,745 |
| | 1,193,057 |
| | 1,037,063 |
|
Direct to Consumer | 106,642 |
| | 112,663 |
| | 289,674 |
| | 300,729 |
|
International | 300,400 |
| | 215,010 |
| | 848,282 |
| | 456,564 |
|
Total net sales | $ | 1,591,038 |
| | $ | 1,400,728 |
| | $ | 4,321,992 |
| | $ | 3,802,150 |
|
|
| | | | | | | | | | | | | | | |
| Quarters Ended | | Nine Months Ended |
| October 3,
2015 | | September 27,
2014 | | October 3,
2015 | | September 27,
2014 |
Segment operating profit: | | | | | | | |
Innerwear | $ | 136,777 |
| | $ | 130,592 |
| | $ | 443,589 |
| | $ | 412,515 |
|
Activewear | 97,240 |
| | 69,974 |
| | 191,476 |
| | 151,178 |
|
Direct to Consumer | 11,756 |
| | 16,629 |
| | 21,432 |
| | 26,526 |
|
International | 34,821 |
| | 28,826 |
| | 77,941 |
| | 52,946 |
|
Total segment operating profit | 280,594 |
| | 246,021 |
| | 734,438 |
| | 643,165 |
|
Items not included in segment operating profit: | | | | | | | |
General corporate expenses | (24,248 | ) | | (24,274 | ) | | (69,841 | ) | | (67,705 | ) |
Acquisition, integration and other action related charges | (42,787 | ) | | (63,135 | ) | | (211,981 | ) | | (129,817 | ) |
Amortization of intangibles | (5,231 | ) | | (4,720 | ) | | (15,424 | ) | | (12,839 | ) |
Total operating profit | 208,328 |
| | 153,892 |
| | 437,192 |
| | 432,804 |
|
Other expenses | (718 | ) | | (795 | ) | | (1,930 | ) | | (1,890 | ) |
Interest expense, net | (31,356 | ) | | (23,528 | ) | | (87,263 | ) | | (66,465 | ) |
Income before income tax expense | $ | 176,254 |
| | $ | 129,569 |
| | $ | 347,999 |
| | $ | 364,449 |
|
For the quarter ended October 3, 2015, the Company incurred acquisition, integration and other action related charges of $42,787, of which $7,720 is reported in the “Cost of sales” line and $35,067 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended September 27, 2014, the Company incurred acquisition, integration and other action related charges of $63,135, of which $22,565 is reported in the “Cost of sales” line and $40,570 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
For the nine months ended October 3, 2015, the Company incurred acquisition, integration and other action related charges of $211,981, of which $47,939 is reported in the “Cost of sales” line and $164,042 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the nine months ended September 27, 2014, the Company incurred acquisition, integration and other action related charges of $129,817, of which $41,227 is reported in the “Cost of sales” line and $88,590 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
As part of the Hanes 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 October 3, 2015, the Company has accrued
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
approximately $55,000 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 October 3, 2015, no significant benefit payments had been made. $17,200 and $37,800, 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 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 October 3, 2015 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Net sales | $ | 1,133,652 |
| | $ | 316,403 |
| | $ | 916,747 |
| | $ | (775,764 | ) | | $ | 1,591,038 |
|
Cost of sales | 967,456 |
| | 181,680 |
| | 682,314 |
| | (821,162 | ) | | 1,010,288 |
|
Gross profit | 166,196 |
| | 134,723 |
| | 234,433 |
| | 45,398 |
| | 580,750 |
|
Selling, general and administrative expenses | 207,848 |
| | 62,970 |
| | 101,860 |
| | (256 | ) | | 372,422 |
|
Operating profit | (41,652 | ) | | 71,753 |
| | 132,573 |
| | 45,654 |
| | 208,328 |
|
Equity in earnings of subsidiaries | 232,445 |
| | 134,138 |
| | — |
| | (366,583 | ) | | — |
|
Other expenses | 718 |
| | — |
| | — |
| | — |
| | 718 |
|
Interest expense, net | 24,304 |
| | — |
| | 6,770 |
| | 282 |
| | 31,356 |
|
Income before income tax expense | 165,771 |
| | 205,891 |
| | 125,803 |
| | (321,211 | ) | | 176,254 |
|
Income tax expense | 3,617 |
| | — |
| | 10,483 |
| | — |
| | 14,100 |
|
Net income | $ | 162,154 |
| | $ | 205,891 |
| | $ | 115,320 |
| | $ | (321,211 | ) | | $ | 162,154 |
|
| | | | | | | | | |
Comprehensive income | $ | 147,024 |
| | $ | 205,891 |
| | $ | 97,820 |
| | $ | (303,711 | ) | | $ | 147,024 |
|
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
Quarter Ended September 27, 2014 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Net sales | $ | 1,107,886 |
| | $ | 234,995 |
| | $ | 755,136 |
| | $ | (697,289 | ) | | $ | 1,400,728 |
|
Cost of sales | 870,321 |
| | 117,351 |
| | 581,667 |
| | (666,326 | ) | | 903,013 |
|
Gross profit | 237,565 |
| | 117,644 |
| | 173,469 |
| | (30,963 | ) | | 497,715 |
|
Selling, general and administrative expenses | 248,132 |
| | 54,329 |
| | 32,742 |
| | 8,620 |
| | 343,823 |
|
Operating profit | (10,567 | ) | | 63,315 |
| | 140,727 |
| | (39,583 | ) | | 153,892 |
|
Equity in earnings of subsidiaries | 147,709 |
| | 117,451 |
| | — |
| | (265,160 | ) | | — |
|
Other expenses | 795 |
| | — |
| | — |
| | — |
| | 795 |
|
Interest expense, net | 19,042 |
| | 278 |
| | 4,860 |
| | (652 | ) | | 23,528 |
|
Income before income tax expense | 117,305 |
| | 180,488 |
| | 135,867 |
| | (304,091 | ) | | 129,569 |
|
Income tax expense | (1,639 | ) | | 8,267 |
| | 3,997 |
| | — |
| | 10,625 |
|
Net income | $ | 118,944 |
| | $ | 172,221 |
| | $ | 131,870 |
| | $ | (304,091 | ) | | $ | 118,944 |
|
| | | | | | | | | |
Comprehensive income | $ | 117,260 |
| | $ | 172,221 |
| | $ | 128,702 |
| | $ | (300,923 | ) | | $ | 117,260 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Condensed Consolidating Statement of Comprehensive Income
Nine Months Ended October 3, 2015 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Net sales | $ | 3,290,292 |
| | $ | 712,103 |
| | $ | 2,464,999 |
| | $ | (2,145,402 | ) | | $ | 4,321,992 |
|
Cost of sales | 2,672,806 |
| | 385,190 |
| | 1,833,148 |
| | (2,164,358 | ) | | 2,726,786 |
|
Gross profit | 617,486 |
| | 326,913 |
| | 631,851 |
| | 18,956 |
| | 1,595,206 |
|
Selling, general and administrative expenses | 676,126 |
| | 168,606 |
| | 315,742 |
| | (2,460 | ) | | 1,158,014 |
|
Operating profit | (58,640 | ) | | 158,307 |
| | 316,109 |
| | 21,416 |
| | 437,192 |
|
Equity in earnings of subsidiaries | 453,666 |
| | 309,250 |
| | — |
| | (762,916 | ) | | — |
|
Other expenses | 1,930 |
| | — |
| | — |
| | — |
| | 1,930 |
|
Interest expense, net | 65,005 |
| | (4 | ) | | 22,186 |
| | 76 |
| | 87,263 |
|
Income before income tax expense | 328,091 |
| | 467,561 |
| | 293,923 |
| | (741,576 | ) | | 347,999 |
|
Income tax expense | 18,399 |
| | 207 |
| | 19,701 |
| | — |
| | 38,307 |
|
Net income | $ | 309,692 |
| | $ | 467,354 |
| | $ | 274,222 |
| | $ | (741,576 | ) | | $ | 309,692 |
|
| | | | | | | | | |
Comprehensive income | $ | 298,899 |
| | $ | 467,354 |
| | $ | 258,235 |
| | $ | (725,589 | ) | | $ | 298,899 |
|
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
Nine Months Ended September 27, 2014 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Net sales | $ | 3,186,705 |
| | $ | 645,891 |
| | $ | 1,923,295 |
| | $ | (1,953,741 | ) | | $ | 3,802,150 |
|
Cost of sales | 2,488,843 |
| | 341,010 |
| | 1,470,885 |
| | (1,857,434 | ) | | 2,443,304 |
|
Gross profit | 697,862 |
| | 304,881 |
| | 452,410 |
| | (96,307 | ) | | 1,358,846 |
|
Selling, general and administrative expenses | 654,311 |
| | 178,274 |
| | 88,840 |
| | 4,617 |
| | 926,042 |
|
Operating profit | 43,551 |
| | 126,607 |
| | 363,570 |
| | (100,924 | ) | | 432,804 |
|
Equity in earnings of subsidiaries | 353,096 |
| | 285,924 |
| | — |
| | (639,020 | ) | | — |
|
Other expenses | 1,890 |
| | — |
| | — |
| | — |
| | 1,890 |
|
Interest expense, net | 55,984 |
| | 2,176 |
| | 8,895 |
| | (590 | ) | | 66,465 |
|
Income before income tax expense | 338,773 |
| | 410,355 |
| | 354,675 |
| | (739,354 | ) | | 364,449 |
|
Income tax expense | 23,691 |
| | 14,023 |
| | 11,653 |
| | — |
| | 49,367 |
|
Net income | $ | 315,082 |
| | $ | 396,332 |
| | $ | 343,022 |
| | $ | (739,354 | ) | | $ | 315,082 |
|
| | | | | | | | | |
Comprehensive income | $ | 316,585 |
| | $ | 396,332 |
| | $ | 340,073 |
| | $ | (736,405 | ) | | $ | 316,585 |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Condensed Consolidating Balance Sheet
October 3, 2015 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 7,528 |
| | $ | 11,892 |
| | $ | 265,175 |
| | $ | — |
| | $ | 284,595 |
|
Trade accounts receivable, net | 50,360 |
| | 130,109 |
| | 670,868 |
| | (1,003 | ) | | 850,334 |
|
Inventories | 1,117,978 |
| | 175,507 |
| | 645,250 |
| | (125,225 | ) | | 1,813,510 |
|
Deferred tax assets | 199,258 |
| | 4,194 |
| | 11,961 |
| | — |
| | 215,413 |
|
Other current assets | 35,738 |
| | 11,369 |
| | 54,495 |
| | — |
| | 101,602 |
|
Total current assets | 1,410,862 |
| | 333,071 |
| | 1,647,749 |
| | (126,228 | ) | | 3,265,454 |
|
Property, net | 94,560 |
| | 39,372 |
| | 518,459 |
| | — |
| | 652,391 |
|
Trademarks and other identifiable intangibles, net | 3,573 |
| | 132,878 |
| | 574,766 |
| | — |
| | 711,217 |
|
Goodwill | 232,882 |
| | 244,008 |
| | 361,085 |
| | — |
| | 837,975 |
|
Investments in subsidiaries | 4,365,430 |
| | 2,109,640 |
| | — |
| | (6,475,070 | ) | | — |
|
Deferred tax assets | 195,044 |
| | 74,734 |
| | 9,190 |
| | — |
| | 278,968 |
|
Receivables from related entities | 4,992,102 |
| | 4,882,314 |
| | 2,401,294 |
| | (12,275,710 | ) | | — |
|
Other noncurrent assets | 60,139 |
| | 375 |
| | 12,881 |
| | — |
| | 73,395 |
|
Total assets | $ | 11,354,592 |
| | $ | 7,816,392 |
| | $ | 5,525,424 |
| | $ | (18,877,008 | ) | | $ | 5,819,400 |
|
| | | | | | | | | |
Liabilities and Stockholders’
Equity | | | | | | | | | |
Accounts payable | $ | 253,912 |
| | $ | 28,966 |
| | $ | 354,910 |
| | $ | — |
| | $ | 637,788 |
|
Accrued liabilities | 205,555 |
| | 55,007 |
| | 256,752 |
| | (719 | ) | | 516,595 |
|
Notes payable | — |
| | — |
| | 120,083 |
| | — |
| | 120,083 |
|
Accounts Receivable Securitization Facility | — |
| | — |
| | 258,264 |
| | — |
| | 258,264 |
|
Current portion of long-term debt | 30,813 |
| | — |
| | 8,594 |
| | — |
| | 39,407 |
|
Total current liabilities | 490,280 |
| | 83,973 |
| | 998,603 |
| | (719 | ) | | 1,572,137 |
|
Long-term debt | 1,959,438 |
| | — |
| | 402,169 |
| | — |
| | 2,361,607 |
|
Pension and postretirement benefits | 297,205 |
| | — |
| | 65,340 |
| | — |
| | 362,545 |
|
Payables to related entities | 7,268,908 |
| | 3,604,534 |
| | 1,391,740 |
| | (12,265,182 | ) | | — |
|
Other noncurrent liabilities | 88,462 |
| | 31,054 |
| | 153,296 |
| | — |
| | 272,812 |
|
Total liabilities | 10,104,293 |
| | 3,719,561 |
| | 3,011,148 |
| | (12,265,901 | ) | | 4,569,101 |
|
Stockholders’ equity | 1,250,299 |
| | 4,096,831 |
| | 2,514,276 |
| | (6,611,107 | ) | | 1,250,299 |
|
Total liabilities and stockholders’ equity | $ | 11,354,592 |
| | $ | 7,816,392 |
| | $ | 5,525,424 |
| | $ | (18,877,008 | ) | | $ | 5,819,400 |
|
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 |
|
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
Nine Months Ended October 3, 2015 |
| Parent
Company | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Consolidating
Entries and
Eliminations | | Consolidated |
Net cash from operating activities | $ | 199,797 |
| | $ | 303,127 |
| | $ | 174,243 |
| | $ | (764,321 | ) | | $ | (87,154 | ) |
Investing activities: | | | | | | | | | |
Purchases of property, plant and equipment | (18,184 | ) | | (13,719 | ) | | (41,868 | ) | | — |
| | (73,771 | ) |
Proceeds from sales of assets | 822 |
| |