Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
July 4,
2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32891
Hanesbrands Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-3552316
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(State of
incorporation)
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(I.R.S. employer identification
no.)
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1000 East Hanes Mill Road
Winston-Salem, North Carolina
(Address of principal
executive office)
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27105
(Zip
code)
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(336)
519-8080
(Registrants
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 þ No o
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 o No o
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.
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of August 3, 2009, there were 94,739,884 shares of
the registrants common stock outstanding.
TABLE OF
CONTENTS
Trademarks,
Trade Names and Service Marks
We own or have rights to use the trademarks, service marks and
trade names that we use in conjunction with the operation of our
business. Some of the more important trademarks that we own or
have rights to use that appear in this Quarterly Report on
Form 10-Q
include the Hanes, Champion, C9 by Champion, Playtex, Bali,
Leggs, Just My Size, barely there, Wonderbra,
Stedman, Outer Banks, Zorba, Rinbros and Duofold
marks, which may be registered in the United States and
other jurisdictions. We do not own any trademark, trade name or
service mark of any other company appearing in this Quarterly
Report on
Form 10-Q.
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, information appearing
under Managements Discussion and Analysis of
Financial Condition and Results of Operations includes
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 and expressed in good faith and
believed to have a reasonable basis, but there can be no
assurance that the expectation or belief will result or 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 our Annual Report on
Form 10-K
for the year ended January 3, 2009, particularly under the
caption Risk Factors.
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, 2009, particularly under the
caption Risk Factors. We undertake no obligation to
update or revise forward-looking statements 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 special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You can obtain information
regarding the operation of the SECs Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a Web site at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically.
We make available free of charge at www.hanesbrands.com (in the
Investors section) copies of materials we file with,
or furnish to, the SEC. By referring to our Web site,
www.hanesbrands.com, we do not incorporate our Web site or its
contents into this Quarterly Report on
Form 10-Q.
1
PART I
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Item 1.
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Financial
Statements
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HANESBRANDS
INC.
Condensed
Consolidated Statements of Income
(in thousands, except per share
amounts)
(unaudited)
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Quarter Ended
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Six Months Ended
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July 4,
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June 28,
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July 4,
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June 28,
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2009
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2008
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2009
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2008
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Net sales
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$
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986,022
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$
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1,072,171
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$
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1,843,863
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$
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2,060,018
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Cost of sales
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658,631
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691,215
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1,258,596
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1,334,098
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Gross profit
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327,391
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380,956
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585,267
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725,920
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Selling, general and administrative expenses
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230,699
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266,427
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453,937
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521,039
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Restructuring
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12,544
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1,442
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31,215
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4,000
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Operating profit
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84,148
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113,087
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100,115
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200,881
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Other expenses
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168
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4,114
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Interest expense, net
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44,807
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37,635
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81,607
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78,029
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Income before income tax expense
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39,173
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75,452
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14,394
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122,852
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Income tax expense
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8,618
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18,108
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3,167
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29,484
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Net income
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$
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30,555
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$
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57,344
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$
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11,227
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$
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93,368
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Earnings per share:
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Basic
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$
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0.32
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$
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0.61
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$
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0.12
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$
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0.99
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Diluted
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$
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0.32
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$
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0.60
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$
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0.12
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$
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0.97
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Weighted average shares outstanding:
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Basic
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95,023
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94,355
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94,724
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94,395
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Diluted
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96,167
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96,059
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95,607
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95,839
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
HANESBRANDS
INC.
Condensed
Consolidated Balance Sheets
(in thousands, except share and per share
amounts)
(unaudited)
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July 4,
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January 3,
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2009
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2009
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Assets
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Cash and cash equivalents
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$
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47,561
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$
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67,342
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Trade accounts receivable less allowances of $23,649 at
July 4, 2009 and $21,897 at January 3, 2009
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505,302
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404,930
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Inventories
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1,234,543
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1,290,530
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Deferred tax assets and other current assets
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325,111
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347,523
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Total current assets
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2,112,517
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2,110,325
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Property, net
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617,072
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588,189
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Trademarks and other identifiable intangibles, net
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141,668
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147,443
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Goodwill
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322,002
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322,002
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Deferred tax assets and other noncurrent assets
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382,832
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366,090
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Total assets
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$
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3,576,091
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$
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3,534,049
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Liabilities and Stockholders Equity
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Accounts payable
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$
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288,840
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$
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325,518
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Accrued liabilities
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295,861
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315,392
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Notes payable
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64,013
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61,734
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Accounts Receivable Securitization Facility
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226,000
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45,640
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Total current liabilities
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874,714
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748,284
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Long-term debt
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1,993,930
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2,130,907
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Other noncurrent liabilities
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468,302
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469,703
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Total liabilities
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3,336,946
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3,348,894
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Stockholders equity:
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Preferred stock (50,000,000 authorized shares; $.01 par
value)
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Issued and outstanding None
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Common stock (500,000,000 authorized shares; $.01 par value)
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Issued and outstanding 94,739,884 at July 4, 2009
and 93,520,132 at January 3, 2009
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947
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935
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Additional paid-in capital
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272,722
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248,167
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Retained earnings
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228,750
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217,522
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Accumulated other comprehensive loss
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(263,274
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)
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(281,469
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Total stockholders equity
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239,145
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185,155
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Total liabilities and stockholders equity
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$
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3,576,091
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$
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3,534,049
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See accompanying notes to Condensed Consolidated Financial
Statements.
3
HANESBRANDS
INC.
Condensed
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Six Months Ended
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July 4,
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June 28,
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2009
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2008
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Operating activities:
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Net income
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$
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11,227
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$
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93,368
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Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
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Depreciation
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39,448
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49,322
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Amortization of intangibles
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6,181
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5,638
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Restructuring
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(1,554
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)
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(2,631
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Charges incurred for amendments of credit facilities
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4,114
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Amortization of debt issuance costs
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4,915
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3,015
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Stock compensation expense
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18,382
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15,101
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Deferred taxes and other
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(7,281
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(7,959
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)
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Changes in assets and liabilities:
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Accounts receivable
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(98,093
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)
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31,183
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Inventories
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59,144
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(221,340
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)
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Other assets
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18,915
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(8,909
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Accounts payable
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(36,215
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)
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29,821
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Accrued liabilities and other
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7,334
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(36,571
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)
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Net cash provided by (used in) operating activities
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26,517
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(49,962
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)
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Investing activities:
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Purchases of property, plant and equipment
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(77,816
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)
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(73,550
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Acquisition of business
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(9,994
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)
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Proceeds from sales of assets
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8,779
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9,524
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Net cash used in investing activities
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(69,037
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)
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(74,020
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)
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Financing activities:
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Borrowings on notes payable
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818,880
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210,016
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Repayments on notes payable
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(816,676
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)
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(171,346
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)
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Payments to amend credit facilities
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(22,165
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)
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(69
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)
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Borrowings on revolving loan facility
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949,525
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155,000
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Repayments on revolving loan facility
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(889,525
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)
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(155,000
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)
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Borrowings on Accounts Receivable Securitization Facility
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128,009
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20,389
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Repayments on Accounts Receivable Securitization Facility
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(144,626
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)
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(20,389
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)
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Proceeds from stock options exercised
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382
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Stock repurchases
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(10,860
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)
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Transaction with Sara Lee Corporation
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18,000
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Other
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(594
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)
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(590
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)
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Net cash provided by financing activities
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22,828
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45,533
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Effect of changes in foreign exchange rates on cash
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(89
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)
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1,131
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Decrease in cash and cash equivalents
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(19,781
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)
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(77,318
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)
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Cash and cash equivalents at beginning of year
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67,342
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174,236
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Cash and cash equivalents at end of period
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$
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47,561
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$
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96,918
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See accompanying notes to Condensed Consolidated Financial
Statements.
4
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(1)
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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, consisting only of normal recurring adjustments,
necessary to present 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. The Company has also evaluated subsequent events and
transactions for potential recognition or disclosure in the
financial statements through August 6, 2009, the day the
financial statements were issued.
These condensed consolidated interim financial statements should
be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys 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
|
Fair
Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 became effective
for the Companys financial assets and liabilities on
December 30, 2007. The FASB approved a one-year deferral of
the adoption of SFAS 157 as it relates to non-financial
assets and liabilities with the issuance in February 2008 of
FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157, as a result of
which implementation by the Company was required on
January 4, 2009. The partial adoption of SFAS 157 in
the first quarter ended March 29, 2008 for financial assets
and liabilities and the first quarter ended April 4, 2009
for non-financial assets and liabilities had no material impact
on the financial condition, results of operations or cash flows
of the Company, but resulted in certain additional disclosures
reflected in Note 9.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of SFAS 160 is
to improve the relevance, comparability and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires that
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
that changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated,
that any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. The Company adopted
SFAS 160 in the first quarter ended April 4, 2009. The
adoption of
5
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
SFAS 160 did not have a material impact on the
Companys financial condition, results of operations or
cash flows.
Disclosures
About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands
the disclosure requirements of FASB Statement No. 133 about
an entitys derivative instruments and hedging activities.
The Company adopted SFAS 161 in the first quarter ended
April 4, 2009. The adoption of SFAS 161 did not have a
material impact on the Companys financial condition,
results of operations or cash flows but resulted in certain
additional disclosures reflected in Note 8.
Interim
Disclosures about Fair Value of Financial
Instruments
In April 2009, the FASB issued Staff Position
No. 107-1
and Accounting Principal Board Opinion
No. 28-1,
Interim Disclosures about Fair Value of Financial Instruments
(FSP 107-1).
FSP 107-1
amends FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments, to require disclosures about fair
value of financial instruments in interim financial statements
as well as in annual financial statements. This statement also
amends Accounting Principal Board Opinion No. 28, Interim
Financial Reporting, to require those disclosures in all interim
financial statements.
FSP 107-1
is effective for interim and annual periods ending after
June 15, 2009. Since
FSP 107-1
only requires additional disclosures, the adoption of the
statement had no material impact on the Companys financial
condition, results of operations or cash flows but resulted in
certain additional disclosures reflected in Note 9.
Subsequent
Events
In May 2009, the FASB issued Statement No. 165, Subsequent
Events (SFAS 165). SFAS 165 provides
guidance on the Companys assessment and disclosure of
subsequent events, and clarifies that the Company must evaluate,
as of each reporting period, events or transactions that occur
after the balance sheet date through the date that the financial
statements are issued or are available to be issued for both
interim and annual financial reporting periods. SFAS 165 is
effective prospectively for the Companys interim and
annual periods ending after June 15, 2009. The adoption of
the SFAS 165 did not have an impact on the Companys
financial condition, results of operations or cash flows but
resulted in certain additional disclosures reflected in
Note 1.
Employers
Disclosures about Postretirement Benefit Plan
Assets
In December 2008, the FASB issued Staff Position
No. FAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets
(FSP 132(R)-1). FSP 132(R)-1 expands the
disclosure requirements of FASB Statement No. 132(R) to
include more detailed disclosures about an employers plan
assets, including employers investment strategies, major
categories of plan assets, concentrations of risk within plan
assets, and valuation techniques used to measure the fair value
of plan assets, similar to the disclosure requirements of
SFAS 157. FSP 132(R)-1 is effective for fiscal years
ending after December 15, 2009. Since FSP 132(R)-1
only requires additional disclosures, adoption of the statement
is not expected to have a material impact on the Companys
financial condition, results of operations or cash flows.
Accounting
for Transfers of Financial Assets
In June 2009, the FASB issued Statement No. 166, Accounting
for Transfers of Financial Assets (SFAS 166).
SFAS 166 amends the derecognition guidance and the
accounting and disclosures required by
6
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
FASB Statement No. 140. SFAS 166 is effective for
financial asset transfers occurring after the beginning of the
Companys first fiscal year that begins after
November 15, 2009. The Company is evaluating the impact of
adoption of this statement on the financial condition, results
of operations and cash flows of the Company.
Amendments
to FASB Interpretation No. 46(R)
In June 2009, the FASB issued Statement No. 167, Amendments
to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 amends the
consolidation guidance that applies to variable interest
entities. SFAS 167 is effective for the Companys
first fiscal year that begins after November 15, 2009. The
Company is evaluating the impact of adoption of this statement
on the financial condition, results of operations and cash flows
of the Company.
The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162
In June 2009, the FASB issued Statement No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement
No. 162 (SFAS 168). SFAS 168
identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation
of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS 168 is effective
for financial statements issued for interim and annual periods
ending after September 15, 2009.
Basic earnings per share (EPS) was computed by
dividing net income by the number of weighted average shares of
common stock outstanding during the quarters and six months
ended July 4, 2009 and June 28, 2008. Diluted EPS was
calculated to give effect to all potentially dilutive shares of
common stock using the treasury stock method. The reconciliation
of basic to diluted weighted average shares for the quarters and
six months ended July 4, 2009 and June 28, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Basic weighted average shares
|
|
|
95,023
|
|
|
|
94,355
|
|
|
|
94,724
|
|
|
|
94,395
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
777
|
|
|
|
|
|
|
|
510
|
|
Restricted stock units
|
|
|
1,049
|
|
|
|
923
|
|
|
|
730
|
|
|
|
932
|
|
Employee stock purchase plan and other
|
|
|
95
|
|
|
|
4
|
|
|
|
153
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
96,167
|
|
|
|
96,059
|
|
|
|
95,607
|
|
|
|
95,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 5,943 and 140 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the quarters
ended July 4, 2009 and June 28, 2008, respectively.
Options to purchase 5,943 and 1,480 shares of common stock
and 48 and 0 restricted stock units were excluded from the
diluted earnings per share calculation because their effect
would be anti-dilutive for the six months ended July 4,
2009 and June 28, 2008, respectively.
7
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Since becoming an independent company, the Company has
undertaken a variety of restructuring efforts in connection with
its consolidation and globalization strategy designed to improve
operating efficiencies and lower costs. As a result of this
strategy, the Company expects to incur approximately $250,000 in
restructuring and related charges over the three year period
following the spin off from Sara Lee Corporation (Sara
Lee) on September 5, 2006, of which approximately
half is expected to be noncash. As of July 4, 2009, the
Company has recognized approximately $247,000 and announced
approximately $241,000 in restructuring and related charges
related to this strategy since September 5, 2006. Of the
amounts recognized, approximately $94,000 relates to employee
termination and other benefits, approximately $87,000 relates to
accelerated depreciation of buildings and equipment for
facilities that have been or will be closed, approximately
$24,000 relates to noncancelable lease and other contractual
obligations, approximately $22,000 relates to write-offs of
stranded raw materials and work in process inventory determined
not to be salvageable or cost-effective to relocate,
approximately $11,000 relates to impairments of fixed assets and
approximately $9,000 relates to other exit costs such as
equipment moving costs. Accelerated depreciation related to the
Companys manufacturing facilities and distribution centers
that have been or will be closed is reflected in the Cost
of sales and Selling, general and administrative
expenses lines of the Condensed Consolidated Statements of
Income. The write-offs of stranded raw materials and work in
process inventory are reflected in the Cost of sales
line of the Condensed Consolidated Statements of Income.
The reported results for the quarters and six months ended
July 4, 2009 and June 28, 2008 reflect amounts
recognized for restructuring actions, including the impact of
certain actions that were completed for amounts more favorable
than previously estimated. The impact of restructuring efforts
on income before income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 2, 2010 restructuring actions
|
|
$
|
10,589
|
|
|
$
|
|
|
|
$
|
19,244
|
|
|
$
|
|
|
Year ended January 3, 2009 restructuring actions
|
|
|
820
|
|
|
|
2,494
|
|
|
|
13,875
|
|
|
|
5,436
|
|
Year ended December 29, 2007 restructuring actions
|
|
|
1,096
|
|
|
|
4,172
|
|
|
|
3,641
|
|
|
|
7,028
|
|
Six months ended December 30, 2006 and prior restructuring
actions
|
|
|
159
|
|
|
|
(13
|
)
|
|
|
331
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,664
|
|
|
$
|
6,653
|
|
|
$
|
37,091
|
|
|
$
|
12,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates where the costs associated with
these actions are recognized in the Condensed Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Cost of sales
|
|
$
|
(65
|
)
|
|
$
|
4,633
|
|
|
$
|
5,521
|
|
|
$
|
7,191
|
|
Selling, general and administrative expenses
|
|
|
185
|
|
|
|
578
|
|
|
|
355
|
|
|
|
1,221
|
|
Restructuring
|
|
|
12,544
|
|
|
|
1,442
|
|
|
|
31,215
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,664
|
|
|
$
|
6,653
|
|
|
$
|
37,091
|
|
|
$
|
12,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Accelerated depreciation
|
|
$
|
(39
|
)
|
|
$
|
5,211
|
|
|
$
|
2,629
|
|
|
$
|
8,412
|
|
Inventory write-offs
|
|
|
159
|
|
|
|
|
|
|
|
3,247
|
|
|
|
|
|
Employee termination and other benefits
|
|
|
9,569
|
|
|
|
1,362
|
|
|
|
15,210
|
|
|
|
3,920
|
|
Noncancelable lease and other contractual obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
2,975
|
|
|
|
80
|
|
|
|
16,005
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,664
|
|
|
$
|
6,653
|
|
|
$
|
37,091
|
|
|
$
|
12,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
|
2009
|
|
|
Beginning accrual
|
|
$
|
21,793
|
|
Restructuring expenses
|
|
|
32,774
|
|
Cash payments
|
|
|
(28,312
|
)
|
Adjustments to restructuring expenses
|
|
|
(2,489
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
23,766
|
|
|
|
|
|
|
The accrual balance as of July 4, 2009 is comprised of
$19,293 in current accrued liabilities and $4,473 in other
noncurrent liabilities. The $19,293 in current accrued
liabilities consists of $13,707 for employee termination and
other benefits and $5,586 for noncancelable lease and other
contractual obligations. The $4,473 in other noncurrent
liabilities primarily consists of noncancelable lease and other
contractual obligations.
Adjustments to previous estimates resulted from actual costs to
settle obligations being lower than expected. The adjustments
were reflected in the Restructuring line of the
Condensed Consolidated Statements of Income.
Year
Ended January 2, 2010 Actions
During the six months ended July 4, 2009, the Company
approved actions to close three manufacturing facilities and two
distribution centers in the Dominican Republic, the United
States, Honduras and Canada, and eliminate an aggregate of
approximately 2,800 positions in those countries and El
Salvador. The production capacity represented by the
manufacturing facilities has been relocated to lower cost
locations in Asia, Central America and the Caribbean Basin. The
distribution capacity has been relocated to the Companys
West Coast distribution center in California in order to expand
capacity for goods the Company sources from Asia. In addition,
approximately 300 management and administrative positions were
eliminated, with the majority of these positions based in the
United States. The Company recorded charges of $10,589 and
$19,244 in the quarter and six months ended July 4, 2009,
respectively, related to these actions. In the quarter and six
months ended July 4, 2009, the Company recognized $9,978
and $16,242, respectively, for employee termination and other
benefits recognized in accordance with benefit plans previously
communicated to the affected employee group, $6 and $1,368,
respectively, for noncancelable lease and other contractual
obligations related to the closure of certain manufacturing
facilities, $15 and $858, respectively, for write-offs of
stranded
9
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
raw materials and work in process inventory determined not to be
salvageable or cost-effective to relocate related to the closure
of certain manufacturing facilities, $448 and $577,
respectively, for other exit costs and $142 and $199,
respectively, for accelerated depreciation of buildings and
equipment. These charges are reflected in the
Restructuring, Cost of sales and
Selling, general and administrative expenses lines
of the Condensed Consolidated Statement of Income. All actions
are expected to be completed within a
12-month
period.
Year
Ended January 3, 2009 Actions
During the six months ended July 4, 2009, the Company
recognized additional charges, as well as credits for certain
actions which were completed for amounts more favorable than
previously estimated, associated with facility closures
announced in the year ended January 3, 2009, resulting in a
decrease of $820 and $13,875 to income before income tax expense
for the quarter and six months ended July 4, 2009,
respectively. In the quarter and six months ended July 4,
2009, the Company recognized credits of $686 and charges of
$7,257, respectively, for noncancelable lease and other
contractual obligations associated with plant closures announced
in the year ended January 3, 2009, charges of $1,362 and
$4,229, respectively, for other exit costs and charges of $144
and $2,389, respectively, for write-offs of stranded raw
materials and work in process inventory determined not to be
salvageable or cost-effective to relocate related to the closure
of certain manufacturing facilities. These charges are reflected
in the Restructuring and Cost of sales
lines of the Condensed Consolidated Statements of Income.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
January 3,
|
|
|
|
2009
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
161,784
|
|
|
$
|
172,494
|
|
Work in process
|
|
|
96,815
|
|
|
|
116,800
|
|
Finished goods
|
|
|
975,944
|
|
|
|
1,001,236
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,234,543
|
|
|
$
|
1,290,530
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Allowances
for Trade Accounts Receivable
|
The changes in the Companys allowance for doubtful
accounts and allowance for chargebacks and other deductions for
the quarter and six months ended July 4, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
|
|
|
|
Allowance for
|
|
|
Chargebacks
|
|
|
|
|
|
|
Doubtful
|
|
|
and Other
|
|
|
|
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Total
|
|
|
Balance at January 3, 2009
|
|
$
|
12,555
|
|
|
$
|
9,342
|
|
|
$
|
21,897
|
|
Charged to expenses
|
|
|
1,301
|
|
|
|
(481
|
)
|
|
|
820
|
|
Deductions and write-offs
|
|
|
(634
|
)
|
|
|
(822
|
)
|
|
|
(1,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 4, 2009
|
|
|
13,222
|
|
|
|
8,039
|
|
|
|
21,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to expenses
|
|
|
594
|
|
|
|
2,669
|
|
|
|
3,263
|
|
Deductions and write-offs
|
|
|
33
|
|
|
|
(908
|
)
|
|
|
(875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 4, 2009
|
|
$
|
13,849
|
|
|
$
|
9,800
|
|
|
$
|
23,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Charges to the allowance for doubtful accounts are reflected in
the Selling, general and administrative expenses
line and charges to the allowance for customer chargebacks and
other customer deductions are primarily reflected as a reduction
in the Net sales line of the Condensed Consolidated
Statements of Income. Deductions and write-offs, which do not
increase or decrease income, represent write-offs of previously
reserved accounts receivables and allowed customer chargebacks
and deductions against gross accounts receivable.
The Company had the following debt at July 4, 2009 and
January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
|
|
July 4,
|
|
|
July 4,
|
|
|
January 3,
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Maturity Date
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term A
|
|
|
5.59
|
%
|
|
$
|
139,000
|
|
|
$
|
139,000
|
|
|
September 2012
|
Term B
|
|
|
5.80
|
%
|
|
|
851,250
|
|
|
|
851,250
|
|
|
September 2013
|
Revolving Loan Facility
|
|
|
4.79
|
%
|
|
|
60,000
|
|
|
|
|
|
|
September 2011
|
Second Lien Credit Facility
|
|
|
4.84
|
%
|
|
|
450,000
|
|
|
|
450,000
|
|
|
March 2014
|
Floating Rate Senior Notes
|
|
|
4.59
|
%
|
|
|
493,680
|
|
|
|
493,680
|
|
|
December 2014
|
Accounts Receivable Securitization Facility
|
|
|
4.70
|
%
|
|
|
226,000
|
|
|
|
242,617
|
|
|
April 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,219,930
|
|
|
|
2,176,547
|
|
|
|
Less current maturities
|
|
|
|
|
|
|
226,000
|
|
|
|
45,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,993,930
|
|
|
$
|
2,130,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 4, 2009, the Company had $60,000 outstanding
under the Senior Secured Credit Facilitys $500,000
Revolving Loan Facility and $25,351 of standby and trade letters
of credit issued and outstanding under this facility.
Availability of funding under the Accounts Receivable
Securitization Facility depends primarily upon the eligible
outstanding receivables balance. The total amount of receivables
used as collateral for the Accounts Receivable Securitization
Facility was $424,252 and $331,470 at July 4, 2009 and
January 3, 2009, respectively, and is reported on the
Companys Condensed Consolidated Balance Sheets in
Trade accounts receivable less allowances.
On March 10, 2009, the Company entered into a Third
Amendment (the Third Amendment) to the Senior
Secured Credit Facility dated as of September 5, 2006.
Pursuant to the Third Amendment, the ratio of debt to EBITDA
(earnings before income taxes, depreciation expense and
amortization) for the preceding four quarters, or leverage
ratio, was increased from 3.75 to 1 in the first quarter of 2009
to 4.25 to 1, from 3.5 to 1 in the second quarter of 2009 to 4.2
to 1, from 3.25 to 1 in the third quarter of 2009 to 3.95 to 1,
and from 3.0 to 1 in the fourth quarter of 2009 to 3.6 to 1.
After 2009, the leverage ratio will decrease from 3.6 to 1 until
it reaches 3.0 to 1 in the third quarter of 2011. In addition,
pursuant to the Third Amendment, the ratio of EBITDA for the
preceding four quarters to consolidated interest expense for
such period, or interest coverage ratio, was decreased from 3.0
to 1 in the second and third quarters of 2009 to 2.5 to 1 and
from 3.25 to 1 in the fourth quarter of 2009 to 2.5 to 1. After
2009, the interest coverage ratio will increase from 2.5 to 1
until it reaches 3.25 to 1 in the third quarter of 2011.
11
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
At the Companys option, borrowings under the Senior
Secured Credit Facility may be maintained from time to time as
(a) Base Rate loans, which bear interest at the
higher of (i) 1/2 of 1% in excess of the federal funds rate
and (ii) the rate published in the Wall Street Journal as
the prime rate (or equivalent), in each case in
effect from time to time, plus the applicable margin in effect
from time to time, or (b) LIBOR-based loans, which bear
interest at the LIBO Rate (as defined in the Senior
Secured Credit Facility and adjusted for maximum reserves), for
the respective interest period plus the applicable margin in
effect from time to time. Pursuant to the Third Amendment, the
applicable margins for the Senior Secured Credit Facility were
increased by 300 basis points.
The Third Amendment also provides for certain other amendments
to the Senior Secured Credit Facility, including increasing the
percentage of Excess Cash Flow as calculated
pursuant to the Senior Secured Credit Facility, which is used to
determine whether, and the extent to which, the Company is
required in certain circumstances to make certain mandatory
prepayments. The Company paid $20,570 in debt amendment fees in
connection with entering into the Third Amendment of which
$16,792 will be amortized over the term of the Senior Secured
Credit Facility.
On March 16, 2009, the Company and HBI Receivables LLC
(HBI Receivables), a wholly-owned bankruptcy-remote
subsidiary of Hanesbrands, entered into Amendment No. 1
(the First Amendment) to the Accounts Receivable
Securitization Facility dated as of November 27, 2007. The
Accounts Receivable Securitization Facility contains the same
leverage ratio and interest coverage ratio provisions as the
Senior Secured Credit Facility. The First Amendment effects the
same changes to the leverage ratio and the interest coverage
ratio that are effected by the Third Amendment described above.
Pursuant to the First Amendment, the rate that would be payable
to the conduit purchasers or the committed purchasers party to
the Accounts Receivable Securitization Facility in the event of
certain defaults is increased from 1% over the prime rate to 3%
over the greatest of (i) the one-month LIBO rate plus 1%,
(ii) the weighted average rates on federal funds
transactions plus 0.5%, or (iii) the prime rate. Also
pursuant to the First Amendment, several of the factors that
contribute to the overall availability of funding have been
amended in a manner that would be expected to generally reduce
the amount of funding that will be available under the Accounts
Receivable Securitization Facility. The First Amendment also
provides for certain other amendments to the Accounts Receivable
Securitization Facility, including changing the termination date
for the Accounts Receivable Securitization Facility from
November 27, 2010 to March 15, 2010, and requiring
that HBI Receivables make certain payments to a conduit
purchaser, a committed purchaser, or certain entities that
provide funding to or are affiliated with them, in the event
that assets and liabilities of a conduit purchaser are
consolidated for financial
and/or
regulatory accounting purposes with certain other entities. The
Company paid $145 in debt amendment fees in connection with
entering into the First Amendment, which will be amortized over
the term of the Accounts Receivable Securitization Facility, and
wrote off $168 of unamortized debt issuance costs.
On April 13, 2009, the Company and HBI Receivables entered
into Amendment No. 2 (the Second Amendment) to
the Accounts Receivable Securitization Facility. Pursuant to the
Second Amendment, several of the factors that contribute to the
overall availability of funding have been amended in a manner
that is expected to generally increase over time the amount of
funding that will be available under the Accounts Receivable
Securitization Facility as compared to the amount that would be
available pursuant to the First Amendment. The Second Amendment
also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the
termination date for the Accounts Receivable Securitization
Facility from March 15, 2010 to April 12, 2010. In
addition, HSBC Securities (USA) Inc. replaced JPMorgan Chase
Bank, N.A. as agent under the Accounts Receivable Securitization
Facility, PNC Bank, N.A. replaced JPMorgan Chase Bank, N.A. as a
managing agent, and PNC Bank, N.A. and an affiliate of PNC Bank,
N.A. replaced affiliates of JPMorgan Chase Bank, N.A. as a
committed purchaser and a conduit purchaser, respectively. The
Company paid $1,450 in debt amendment fees in connection with
entering into the Second
12
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Amendment, which will be amortized over the term of the Accounts
Receivable Securitization Facility, and wrote off $168 of
unamortized debt issuance costs.
As of July 4, 2009, the Company was in compliance with all
covenants under its credit facilities.
During the quarter and six months ended July 4, 2009, the
Company recognized charges of $168 and $4,114, respectively, in
the Other expenses line of the Condensed
Consolidated Statements of Income, which represent certain costs
related to the amendments of the Senior Secured Credit Facility
and the Accounts Receivable Securitization Facility.
|
|
(8)
|
Financial
Instruments and Risk Management
|
The Company uses financial instruments to manage its exposures
to movements in interest rates, foreign exchange rates and
commodity prices. The use of these financial instruments
modifies the Companys exposure to these risks with the
goal of reducing the risk or cost to the Company. The Company
does not use derivatives for trading purposes and is not a party
to leveraged derivative contracts.
The Company recognizes all derivative instruments as either
assets or liabilities at fair value in the Condensed
Consolidated Balance Sheets. The fair value is based upon either
market quotes for actively traded instruments or independent
bids for nonexchange traded instruments. The Company formally
documents its hedge relationships, including identifying the
hedging instruments and the hedged items, as well as its risk
management objectives and strategies for undertaking the hedge
transaction. This process includes linking derivatives that are
designated as hedges of specific assets, liabilities, firm
commitments or forecasted transactions to the hedged risk. On
the date the derivative is entered into, the Company designates
the derivative as a fair value hedge, cash flow hedge, net
investment hedge or a mark to market hedge, and accounts for the
derivative in accordance with its designation. The Company also
formally assesses, both at inception and at least quarterly
thereafter, whether the derivatives are highly effective in
offsetting changes in either the fair value or cash flows of the
hedged item. If it is determined that a derivative ceases to be
a highly effective hedge, or if the anticipated transaction is
no longer likely to occur, the Company discontinues hedge
accounting, and any deferred gains or losses are recorded in the
respective measurement period. The Company currently does not
have any fair value or net investment hedge instruments.
Each of the Companys derivative contracts is governed by
the International Swaps and Derivatives Association master
agreement. If the Company were to default on or be unable to
perform its responsibilities with respect to a counterparty
under this agreement, the counterparty could request immediate
payment on any derivative instruments in net liability
positions. As of July 4, 2009, all of the counterparties to
the Companys derivative instruments in net liability
positions are lenders under the Senior Secured Credit Facility.
Consistent with the terms of the Senior Secured Credit Facility,
derivative instruments with a counterparty that is also a lender
under the Senior Secured Credit Facility are secured by the same
collateral that secures the Companys obligations under the
Senior Secured Credit Facility.
The Company may be exposed to credit losses in the event of
nonperformance by individual counterparties or the entire group
of counterparties to the Companys derivative contracts.
Risk of nonperformance by counterparties is mitigated by dealing
with highly rated counterparties and by diversifying across
counterparties.
Mark
to Market Hedges
A derivative used as a hedging instrument whose change in fair
value is recognized to act as an economic hedge against changes
in the values of the hedged item is designated a mark to market
hedge.
13
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Market to
Market Hedges Intercompany Foreign Exchange
Transactions
The Company uses foreign exchange derivative contracts to reduce
the impact of foreign exchange fluctuations on anticipated
intercompany purchase and lending transactions denominated in
foreign currencies. Foreign exchange derivative contracts are
recorded as mark to market hedges when the hedged item is a
recorded asset or liability that is revalued in each accounting
period. Mark to market hedge derivatives relating to
intercompany foreign exchange contracts are reported in the
Condensed Consolidated Statements of Cash Flows as cash flow
from operating activities. As of July 4, 2009, the
U.S. dollar equivalent of commitments to purchase and sell
foreign currencies in our foreign currency mark to market hedge
derivative portfolio is $58,808 and $39,758, respectively, using
the exchange rate at the reporting date.
Cash
Flow Hedges
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is
designated as a cash flow hedge is recorded in the
Accumulated other comprehensive loss line of the
Condensed Consolidated Balance Sheets. When the impact of the
hedged item is recognized in the income statement, the gain or
loss included in accumulated other comprehensive income (loss)
is reported on the same line in the Condensed Consolidated
Statements of Income as the hedged item.
Cash Flow
Hedges Interest Rate Derivatives
The Company is required under the Senior Secured Credit Facility
and the Second Lien Credit Facility to hedge a portion of its
floating rate debt to reduce interest rate risk caused by
floating rate debt issuance. The Company has executed certain
interest rate cash flow hedges in the form of swaps and caps in
order to mitigate the Companys exposure to variability in
cash flows for the future interest payments on a designated
portion of borrowings. Given the recent turmoil in the financial
and credit markets, the Company expanded its interest rate
hedging portfolio at what the Company believes to be
advantageous rates that are expected to minimize the
Companys overall interest rate risk. The effective portion
of interest rate hedge gains and losses deferred in
Accumulated other comprehensive loss is reclassified
into earnings as the underlying debt interest payments are
recognized. Interest rate cash flow hedge derivatives are
reported as a component of interest expense and therefore are
reported as cash flow from operating activities similar to the
manner in which cash interest payments are reported in the
Condensed Consolidated Statements of Cash Flows.
At July 4, 2009 and January 3, 2009, the Company had
outstanding interest rate hedging arrangements whereby it has
capped the interest rate on $400,000 of its floating rate debt
at 3.50% and has fixed the interest rate on $1,393,680 of its
floating rate debt at a weighted average rate of 4.16%.
Approximately 81% and 82% of the Companys total debt
outstanding at July 4, 2009 and January 3, 2009,
respectively, was at a fixed or capped LIBOR rate. There have
been no changes in the Companys interest rate derivative
portfolio during the quarter and six months ended July 4,
2009.
Cash Flow
Hedges Foreign Currency Derivatives
The Company uses forward exchange and option 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 effective
portion of foreign exchange hedge gains and losses deferred in
Accumulated other comprehensive loss is reclassified
into earnings as the underlying inventory is sold, using
historical inventory turnover rates. The settlement of foreign
exchange hedge derivative contracts related to the purchase of
inventory or other hedged items are reported in the Condensed
Consolidated Statements of Cash Flows as cash flow from
operating activities.
14
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Historically, the principal currencies hedged by the Company
include the Euro, Mexican peso, Canadian dollar and Japanese
yen. Forward exchange contracts mature on the anticipated cash
requirement date of the hedged transaction, generally within one
year. As of July 4, 2009, the U.S. dollar equivalent
of commitments to sell foreign currencies in the Companys
foreign currency cash flow hedge derivative portfolio was
$28,113, using the exchange rate at the reporting date.
Cash Flow
Hedges Commodity Derivatives
Cotton is the primary raw material the Company uses to
manufacture many of its products and is purchased at market
prices. From time to time, the Company uses commodity financial
instruments to hedge the price of cotton, for which there is a
high correlation between the hedged item and the hedge
instrument. Gains and losses on these contracts are intended to
offset losses and gains on the hedged transactions in an effort
to reduce the earnings volatility resulting from fluctuating
commodity prices. The effective portion of commodity hedge gains
and losses deferred in Accumulated other comprehensive
loss is reclassified into earnings as the underlying
inventory is sold, using historical inventory turnover rates.
The settlement of commodity hedge derivative contracts related
to the purchase of inventory is reported in the Condensed
Consolidated Statements of Cash Flows as cash flow from
operating activities. There were no amounts outstanding under
cotton futures or cotton option contracts at July 4, 2009
and January 3, 2009.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
July 4,
|
|
|
January 3,
|
|
|
|
Balance Sheet Location
|
|
2009
|
|
|
2009
|
|
|
Derivative assets hedges
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Other current assets
|
|
$
|
|
|
|
$
|
46
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
35
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets hedges
|
|
|
|
|
35
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives assets non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
844
|
|
|
|
3,286
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
|
$
|
879
|
|
|
$
|
4,541
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives liabilities hedges
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Accrued liabilities
|
|
$
|
(2,834
|
)
|
|
$
|
(6,084
|
)
|
Interest rate contracts
|
|
Other noncurrent liabilities
|
|
|
(61,967
|
)
|
|
|
(76,927
|
)
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(409
|
)
|
|
|
(1,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives liabilities hedges
|
|
|
|
|
(65,210
|
)
|
|
|
(84,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives liabilities non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(1,715
|
)
|
|
|
(533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
$
|
(66,925
|
)
|
|
$
|
(84,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative liability
|
|
|
|
$
|
(66,046
|
)
|
|
$
|
(80,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
15
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Net
Derivative Gain or Loss
The effect of cash flow hedge derivative instruments on the
Condensed Consolidated Statements of Income and Accumulated
Other Comprehensive Loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
Amount of
|
|
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
|
|
Reclassified from
|
|
|
|
Recognized in
|
|
|
Location of
|
|
Accumulated
|
|
|
|
Accumulated Other
|
|
|
Gain (Loss)
|
|
Other Comprehensive
|
|
|
|
Comprehensive Loss
|
|
|
Reclassified from
|
|
Loss into Income
|
|
|
|
(Effective Portion)
|
|
|
Accumulated Other
|
|
(Effective Portion)
|
|
|
|
Quarter Ended
|
|
|
Comprehensive
|
|
Quarter Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Loss into Income
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
(Effective Portion)
|
|
2009
|
|
|
2008
|
|
|
Interest rate contracts
|
|
$
|
6,996
|
|
|
$
|
14,383
|
|
|
Interest expense, net
|
|
$
|
101
|
|
|
$
|
198
|
|
Foreign exchange contracts
|
|
|
(1,739
|
)
|
|
|
643
|
|
|
Cost of sales
|
|
|
219
|
|
|
|
920
|
|
Commodity contracts
|
|
|
|
|
|
|
126
|
|
|
Cost of sales
|
|
|
|
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,257
|
|
|
$
|
15,152
|
|
|
|
|
$
|
320
|
|
|
$
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
Amount of
|
|
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
|
|
Reclassified from
|
|
|
|
Recognized in
|
|
|
Location of
|
|
Accumulated
|
|
|
|
Accumulated Other
|
|
|
Gain (Loss)
|
|
Other Comprehensive
|
|
|
|
Comprehensive Loss
|
|
|
Reclassified from
|
|
Loss into Income
|
|
|
|
(Effective Portion)
|
|
|
Accumulated Other
|
|
(Effective Portion)
|
|
|
|
Six Months Ended
|
|
|
Comprehensive
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Loss into Income
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
(Effective Portion)
|
|
2009
|
|
|
2008
|
|
|
Interest rate contracts
|
|
$
|
18,012
|
|
|
$
|
(448
|
)
|
|
Interest expense, net
|
|
$
|
129
|
|
|
$
|
371
|
|
Foreign exchange contracts
|
|
|
(869
|
)
|
|
|
(1,199
|
)
|
|
Cost of sales
|
|
|
(1,113
|
)
|
|
|
1,573
|
|
Commodity contracts
|
|
|
|
|
|
|
(208
|
)
|
|
Cost of sales
|
|
|
96
|
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,143
|
|
|
$
|
(1,855
|
)
|
|
|
|
$
|
(888
|
)
|
|
$
|
1,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to reclassify into earnings during the next
12 months a net loss from Accumulated Other Comprehensive
Loss of approximately $3,172.
The changes in fair value of derivatives excluded from the
Companys 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 Company recognized losses related to
ineffectiveness of hedging relationships for the quarter ended
July 4, 2009 of $(150), consisting of $(143) for interest
rate contracts and $(7) for foreign exchange contracts. The
Company recognized gains (losses) related to ineffectiveness of
hedging relationships for the quarter ended June 28, 2008
of $4, consisting of $(12) for interest rate contracts and $16
for foreign exchange contracts. The Company recognized gains
(losses) related to ineffectiveness of hedging relationships for
the six months ended July 4, 2009 of $144, consisting of
$152 for interest rate contracts and $(8) for foreign exchange
contracts. The Company recognized losses related to
ineffectiveness of hedging relationships for the six months
ended June 28, 2008 of $(187), consisting of $(12) for
interest rate contracts and $(175) for foreign exchange
contracts.
16
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The effect of mark to market hedge derivative instruments on the
Condensed Consolidated Statements of Income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
Location of Gain (Loss)
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
Recognized in Income on Derivative
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expenses
|
|
$
|
1,132
|
|
|
$
|
284
|
|
|
$
|
1,176
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1,132
|
|
|
$
|
284
|
|
|
$
|
1,176
|
|
|
$
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
Fair
Value of Assets and Liabilities
|
Fair value is an exit price, representing the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the
measurement date. The Company utilizes market data or
assumptions that market participants would use in pricing the
asset or liability. A three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value, is utilized
for disclosing the fair value of the Companys assets and
liabilities. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets;
Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs
about which little or no market data exists, therefore requiring
an entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of the following three valuation techniques:
|
|
|
|
|
Market approach prices and other relevant
information generated by market transactions involving identical
or comparable assets or liabilities.
|
|
|
|
Cost approach amount that would be required to
replace the service capacity of an asset or replacement cost.
|
|
|
|
Income approach techniques to convert future amounts
to a single present amount based on market expectations,
including present value techniques, option-pricing and other
models.
|
The Company primarily applies the market approach for commodity
derivatives and the income approach for interest rate and
foreign currency derivatives for recurring fair value
measurements and attempts to utilize valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. Assets and liabilities are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement. The determination of
fair values incorporates various factors that include not only
the credit standing of the counterparties involved and the
impact of credit enhancements, but also the impact of the
Companys nonperformance risk on its liabilities. The
Companys assessment of the significance of a particular
input to the fair value measurement requires judgment, and may
affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.
Assets
and Liabilities Measured on a Recurring Basis
As of July 4, 2009, 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
Companys derivative instruments related to interest rates
and foreign exchange rates. The fair values of cotton
derivatives are determined based on quoted prices in public
markets and are categorized as Level 1. The fair values of
interest rate and foreign exchange
17
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
rate derivatives are determined based on inputs that are readily
available in public markets or can be derived from information
available in publicly quoted markets and are categorized as
Level 2. The Company does not have any financial assets or
liabilities measured at fair value on a recurring basis
categorized as Level 3, and there were no transfers in or
out of Level 3 during the quarter and six months ended
July 4, 2009. There were no changes during the quarter and
six months ended July 4, 2009 to the Companys
valuation techniques used to measure asset and liability fair
values on a recurring basis. As of July 4, 2009, the
Company did not have any non-financial assets or liabilities
that are required to be measured at fair value on a recurring
basis.
The following tables set forth by level within the fair value
hierarchy the Companys financial assets and liabilities
accounted for at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of
|
|
|
|
July 4, 2009
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative contracts, net
|
|
$
|
|
|
|
$
|
(66,046
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(66,046
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of
|
|
|
|
|
|
|
January 3, 2009
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative contracts, net
|
|
|
|
|
|
$
|
|
|
|
$
|
(80,350
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
(80,350
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009 and
January 3, 2009. The fair value of debt was $2,090,444 and
$1,753,885 as of July 4, 2009 and January 3, 2009 and
had a carrying value of $2,219,930 and $2,176,547, respectively.
The fair values were estimated using quoted market prices as
provided in secondary markets which consider the Companys
credit risk and market related conditions. The carrying amounts
of the Companys notes payable approximated fair value as
of July 4, 2009 and January 3, 2009, primarily due to
the short-term nature of these instruments.
18
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
(10)
|
Comprehensive
Income
|
The Companys comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
30,555
|
|
|
$
|
57,344
|
|
|
$
|
11,227
|
|
|
$
|
93,368
|
|
Translation adjustments
|
|
|
10,791
|
|
|
|
4,220
|
|
|
|
8,256
|
|
|
|
2,690
|
|
Net unrealized gain (loss) on qualifying cash flow hedges, net
of tax expense (benefit) of $2,170, $6,161, $6,324 and ($146),
respectively
|
|
|
3,407
|
|
|
|
9,677
|
|
|
|
9,931
|
|
|
|
(229
|
)
|
Amounts amortized into net periodic income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost, net of tax $3, $4, $6 and $8, respectively
|
|
|
4
|
|
|
|
6
|
|
|
|
8
|
|
|
|
12
|
|
Actuarial loss, net of tax of $810, $15, $1,620 and $30,
respectively
|
|
|
1,271
|
|
|
|
24
|
|
|
|
2,542
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
46,028
|
|
|
$
|
71,271
|
|
|
$
|
31,964
|
|
|
$
|
95,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference in the estimated annual effective income tax
rates of 22% for the quarter and six months ended July 4,
2009 and 24% for the quarter and six months ended June 28,
2008 and the U.S. statutory rate of 35% is primarily
attributable to unremitted earnings of foreign subsidiaries
taxed at rates lower than the U.S. statutory rate. The
Companys estimated annual effective tax rate reflects its
strategic initiative to make substantial capital investments
outside the United States in its global supply chain in 2009.
The Company and Sara Lee entered into a tax sharing agreement in
connection with the spin off of the Company from Sara Lee on
September 5, 2006. Under the tax sharing agreement, within
180 days after Sara Lee filed its final consolidated tax
return for the period that included September 5, 2006, Sara
Lee was required to deliver to the Company a computation of the
amount of deferred taxes attributable to the Companys
United States and Canadian operations that would be included on
the Companys opening balance sheet as of September 6,
2006 (as finally determined) which has been done.
The Company has the right to participate in the computation of
the amount of deferred taxes. Under the tax sharing agreement,
if substituting the amount of deferred taxes as finally
determined for the amount of estimated deferred taxes that were
included on that balance sheet at the time of the spin off
causes a decrease in the net book value reflected on that
balance sheet, then Sara Lee will be required to pay the Company
the amount of such decrease. If such substitution causes an
increase in the net book value reflected on that balance sheet,
then the Company will be required to pay Sara Lee the amount of
such increase. For purposes of this computation, the
Companys deferred taxes are the amount of deferred tax
benefits (including deferred tax consequences attributable to
deductible temporary differences and carryforwards) that would
be recognized as assets on the Companys balance sheet
computed in accordance with GAAP, but without regard to
valuation allowances, less the amount of deferred tax
liabilities (including deferred tax consequences attributable to
taxable temporary differences) that would be recognized as
liabilities on the Companys opening balance sheet computed
in accordance with GAAP, but without regard to valuation
allowances. Neither the Company nor Sara Lee will be required to
make any other payments to the other with respect to deferred
taxes.
19
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Companys computation of the final amount of deferred
taxes for the Companys opening balance sheet as of
September 6, 2006 is as follows:
|
|
|
|
|
Estimated deferred taxes subject to the tax sharing agreement
included in opening balance sheet on September 6, 2006
|
|
$
|
450,683
|
|
Final calculation of deferred taxes subject to the tax sharing
agreement
|
|
|
360,460
|
|
|
|
|
|
|
Decrease in deferred taxes as of opening balance sheet on
September 6, 2006
|
|
|
90,223
|
|
Preliminary cash installment received from Sara Lee
|
|
|
18,000
|
|
|
|
|
|
|
Amount due from Sara Lee
|
|
$
|
72,223
|
|
|
|
|
|
|
The amount that is expected to be collected from Sara Lee based
on the Companys computation of $72,223 is included as a
receivable in Deferred tax assets and other current assets in
the Condensed Consolidated Balance Sheet as of July 4,
2009. The Company and Sara Lee have exchanged information in
connection with this matter, but Sara Lee has disagreed with the
Companys computation. In accordance with the dispute
resolution provisions of the tax sharing agreement, on
August 3, 2009, the Company submitted the dispute to
binding arbitration. The Company does not believe that the
resolution of this dispute will have a material impact on the
Companys financial position, results of operations or cash
flows.
|
|
(12)
|
Business
Segment Information
|
The Companys operations are managed and reported in five
operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear,
International, Hosiery and Other. These segments are organized
principally by product category and geographic location.
Management of each segment is responsible for the operations of
these segments businesses but shares 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 womens intimate
apparel, mens underwear, kids underwear, socks and
thermals. The Companys
direct-to-consumer
retail operations are included within the Innerwear segment.
|
|
|
|
Outerwear sells basic branded products that are seasonal in
nature under the product categories of casualwear and activewear.
|
|
|
|
International relates to the Latin America, Asia, Canada and
Europe geographic locations which sell products that span across
the Innerwear, Outerwear and Hosiery reportable segments.
|
|
|
|
Hosiery sells products in categories such as pantyhose and knee
highs.
|
|
|
|
Other is comprised of sales of nonfinished products such as yarn
and certain other materials in the United States and Latin
America in order to maintain asset utilization at certain
manufacturing facilities and are intended to generate break even
margins.
|
The Company evaluates the operating performance of its segments
based upon segment operating profit, which is defined as
operating profit before general corporate expenses, amortization
of trademarks and other identifiable intangibles and
restructuring and related accelerated depreciation charges and
inventory write-offs. The accounting policies of the segments
are consistent with those described in Note 2 to the
Companys consolidated financial statements included in its
Annual Report on
Form 10-K
for the year ended January 3, 2009.
20
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
611,779
|
|
|
$
|
636,335
|
|
|
$
|
1,125,593
|
|
|
$
|
1,180,065
|
|
Outerwear
|
|
|
231,654
|
|
|
|
260,137
|
|
|
|
446,561
|
|
|
|
532,342
|
|
International
|
|
|
104,073
|
|
|
|
130,903
|
|
|
|
187,275
|
|
|
|
235,539
|
|
Hosiery
|
|
|
42,584
|
|
|
|
49,734
|
|
|
|
95,356
|
|
|
|
116,475
|
|
Other
|
|
|
5,634
|
|
|
|
4,174
|
|
|
|
8,277
|
|
|
|
15,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales(1)
|
|
|
995,724
|
|
|
|
1,081,283
|
|
|
|
1,863,062
|
|
|
|
2,079,716
|
|
Intersegment(2)
|
|
|
(9,702
|
)
|
|
|
(9,112
|
)
|
|
|
(19,199
|
)
|
|
|
(19,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
986,022
|
|
|
$
|
1,072,171
|
|
|
$
|
1,843,863
|
|
|
$
|
2,060,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
92,563
|
|
|
$
|
79,942
|
|
|
$
|
141,118
|
|
|
$
|
133,617
|
|
Outerwear
|
|
|
3,666
|
|
|
|
19,927
|
|
|
|
(12,100
|
)
|
|
|
36,344
|
|
International
|
|
|
8,804
|
|
|
|
18,848
|
|
|
|
18,872
|
|
|
|
33,652
|
|
Hosiery
|
|
|
12,280
|
|
|
|
15,742
|
|
|
|
28,844
|
|
|
|
39,863
|
|
Other
|
|
|
(2,233
|
)
|
|
|
830
|
|
|
|
(2,683
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
115,080
|
|
|
|
135,289
|
|
|
|
174,051
|
|
|
|
243,466
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(15,176
|
)
|
|
|
(12,584
|
)
|
|
|
(30,664
|
)
|
|
|
(24,535
|
)
|
Amortization of trademarks and other identifiable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangibles
|
|
|
(3,092
|
)
|
|
|
(2,965
|
)
|
|
|
(6,181
|
)
|
|
|
(5,638
|
)
|
Restructuring
|
|
|
(12,544
|
)
|
|
|
(1,442
|
)
|
|
|
(31,215
|
)
|
|
|
(4,000
|
)
|
Inventory write-offs included in cost of sales
|
|
|
(159
|
)
|
|
|
|
|
|
|
(3,247
|
)
|
|
|
|
|
Accelerated depreciation included in cost of sales
|
|
|
224
|
|
|
|
(4,633
|
)
|
|
|
(2,274
|
)
|
|
|
(7,191
|
)
|
Accelerated depreciation included in selling,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
general and administrative expenses
|
|
|
(185
|
)
|
|
|
(578
|
)
|
|
|
(355
|
)
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
84,148
|
|
|
|
113,087
|
|
|
|
100,115
|
|
|
|
200,881
|
|
Other expenses
|
|
|
(168
|
)
|
|
|
|
|
|
|
(4,114
|
)
|
|
|
|
|
Interest expense, net
|
|
|
(44,807
|
)
|
|
|
(37,635
|
)
|
|
|
(81,607
|
)
|
|
|
(78,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
39,173
|
|
|
$
|
75,452
|
|
|
$
|
14,394
|
|
|
$
|
122,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
10,811
|
|
|
$
|
11,481
|
|
|
$
|
21,222
|
|
|
$
|
22,032
|
|
Outerwear
|
|
|
5,490
|
|
|
|
5,679
|
|
|
|
11,053
|
|
|
|
12,809
|
|
International
|
|
|
486
|
|
|
|
749
|
|
|
|
986
|
|
|
|
1,172
|
|
Hosiery
|
|
|
1,055
|
|
|
|
1,554
|
|
|
|
2,211
|
|
|
|
3,185
|
|
Other
|
|
|
86
|
|
|
|
258
|
|
|
|
131
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,928
|
|
|
|
19,721
|
|
|
|
35,603
|
|
|
|
39,793
|
|
Corporate
|
|
|
3,651
|
|
|
|
8,975
|
|
|
|
10,026
|
|
|
|
15,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
21,579
|
|
|
$
|
28,696
|
|
|
$
|
45,629
|
|
|
$
|
54,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
10,949
|
|
|
$
|
19,101
|
|
|
$
|
33,616
|
|
|
$
|
26,503
|
|
Outerwear
|
|
|
8,965
|
|
|
|
19,138
|
|
|
|
39,777
|
|
|
|
32,140
|
|
International
|
|
|
322
|
|
|
|
668
|
|
|
|
525
|
|
|
|
1,142
|
|
Hosiery
|
|
|
102
|
|
|
|
239
|
|
|
|
402
|
|
|
|
318
|
|
Other
|
|
|
16
|
|
|
|
11
|
|
|
|
28
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,354
|
|
|
|
39,157
|
|
|
|
74,348
|
|
|
|
60,117
|
|
Corporate
|
|
|
1,729
|
|
|
|
6,813
|
|
|
|
3,468
|
|
|
|
13,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
22,083
|
|
|
$
|
45,970
|
|
|
$
|
77,816
|
|
|
$
|
73,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes sales between segments. Such sales are at transfer
prices that are at cost plus markup or at prices equivalent to
market value. |
|
(2) |
|
Intersegment sales included in the segments net sales are
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
July 4,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Innerwear
|
|
$
|
1,034
|
|
|
$
|
1,006
|
|
|
$
|
1,866
|
|
|
$
|
2,362
|
|
Outerwear
|
|
|
5,548
|
|
|
|
5,227
|
|
|
|
10,795
|
|
|
|
10,657
|
|
International
|
|
|
220
|
|
|
|
370
|
|
|
|
451
|
|
|
|
1,039
|
|
Hosiery
|
|
|
2,900
|
|
|
|
2,509
|
|
|
|
6,087
|
|
|
|
5,640
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,702
|
|
|
$
|
9,112
|
|
|
$
|
19,199
|
|
|
$
|
19,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
(13)
|
Consolidating
Financial Information
|
In accordance with the indenture governing the Companys
$500,000 Floating Rate Senior Notes issued on December 14,
2006, certain of the Companys subsidiaries have guaranteed
the Companys obligations under the Floating Rate 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 indenture governing the Floating Rate Senior
Notes;
(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 our
subsidiaries and (d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each guarantor
subsidiary, each of which is wholly owned, directly or
indirectly, by Hanesbrands Inc. Each entity in the consolidating
financial information follows the same accounting policies as
described in the Companys Consolidated Financial
Statements included in its Annual Report on
Form 10-K
for the year ended January 3, 2009, except for the use by
the Parent Company and guarantor subsidiaries of the equity
method of accounting to reflect ownership interests in
subsidiaries which are eliminated upon consolidation.
23
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended July 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,013,607
|
|
|
$
|
109,757
|
|
|
$
|
732,070
|
|
|
$
|
(869,412
|
)
|
|
$
|
986,022
|
|
Cost of sales
|
|
|
794,669
|
|
|
|
38,355
|
|
|
|
660,423
|
|
|
|
(834,816
|
)
|
|
|
658,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
218,938
|
|
|
|
71,402
|
|
|
|
71,647
|
|
|
|
(34,596
|
)
|
|
|
327,391
|
|
Selling, general and administrative expenses
|
|
|
186,533
|
|
|
|
21,051
|
|
|
|
22,804
|
|
|
|
311
|
|
|
|
230,699
|
|
Restructuring
|
|
|
11,888
|
|
|
|
|
|
|
|
656
|
|
|
|
|
|
|
|
12,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
20,517
|
|
|
|
50,351
|
|
|
|
48,187
|
|
|
|
(34,907
|
)
|
|
|
84,148
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
49,916
|
|
|
|
30,024
|
|
|
|
|
|
|
|
(79,940
|
)
|
|
|
|
|
Other expenses
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
Interest expense, net
|
|
|
34,044
|
|
|
|
5,766
|
|
|
|
4,984
|
|
|
|
13
|
|
|
|
44,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
36,221
|
|
|
|
74,609
|
|
|
|
43,203
|
|
|
|
(114,860
|
)
|
|
|
39,173
|
|
Income tax expense
|
|
|
5,666
|
|
|
|
199
|
|
|
|
2,753
|
|
|
|
|
|
|
|
8,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
30,555
|
|
|
$
|
74,410
|
|
|
$
|
40,450
|
|
|
$
|
(114,860
|
)
|
|
$
|
30,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,086,432
|
|
|
$
|
111,692
|
|
|
$
|
761,732
|
|
|
$
|
(887,685
|
)
|
|
$
|
1,072,171
|
|
Cost of sales
|
|
|
871,358
|
|
|
|
44,142
|
|
|
|
666,379
|
|
|
|
(890,664
|
)
|
|
|
691,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
215,074
|
|
|
|
67,550
|
|
|
|
95,353
|
|
|
|
2,979
|
|
|
|
380,956
|
|
Selling, general and administrative expenses
|
|
|
226,412
|
|
|
|
17,409
|
|
|
|
22,491
|
|
|
|
115
|
|
|
|
266,427
|
|
Restructuring
|
|
|
421
|
|
|
|
127
|
|
|
|
894
|
|
|
|
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(11,759
|
)
|
|
|
50,014
|
|
|
|
71,968
|
|
|
|
2,864
|
|
|
|
113,087
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
101,498
|
|
|
|
43,374
|
|
|
|
|
|
|
|
(144,872
|
)
|
|
|
|
|
Interest expense, net
|
|
|
25,443
|
|
|
|
7,971
|
|
|
|
4,228
|
|
|
|
(7
|
)
|
|
|
37,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
64,296
|
|
|
|
85,417
|
|
|
|
67,740
|
|
|
|
(142,001
|
)
|
|
|
75,452
|
|
Income tax expense
|
|
|
6,952
|
|
|
|
3,397
|
|
|
|
7,759
|
|
|
|
|
|
|
|
18,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
57,344
|
|
|
$
|
82,020
|
|
|
$
|
59,981
|
|
|
$
|
(142,001
|
)
|
|
$
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Six Months Ended July 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,932,137
|
|
|
$
|
201,989
|
|
|
$
|
1,386,066
|
|
|
$
|
(1,676,329
|
)
|
|
$
|
1,843,863
|
|
Cost of sales
|
|
|
1,612,074
|
|
|
|
72,835
|
|
|
|
1,234,922
|
|
|
|
(1,661,235
|
)
|
|
|
1,258,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
320,063
|
|
|
|
129,154
|
|
|
|
151,144
|
|
|
|
(15,094
|
)
|
|
|
585,267
|
|
Selling, general and administrative expenses
|
|
|
364,094
|
|
|
|
44,060
|
|
|
|
45,029
|
|
|
|
754
|
|
|
|
453,937
|
|
Restructuring
|
|
|
28,024
|
|
|
|
|
|
|
|
3,191
|
|
|
|
|
|
|
|
31,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(72,055
|
)
|
|
|
85,094
|
|
|
|
102,924
|
|
|
|
(15,848
|
)
|
|
|
100,115
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
143,345
|
|
|
|
74,178
|
|
|
|
|
|
|
|
(217,523
|
)
|
|
|
|
|
Other expenses
|
|
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,114
|
|
Interest expense, net
|
|
|
61,679
|
|
|
|
12,238
|
|
|
|
7,679
|
|
|
|
11
|
|
|
|
81,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
5,497
|
|
|
|
147,034
|
|
|
|
95,245
|
|
|
|
(233,382
|
)
|
|
|
14,394
|
|
Income tax expense (benefit)
|
|
|
(5,730
|
)
|
|
|
2,859
|
|
|
|
6,038
|
|
|
|
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
11,227
|
|
|
$
|
144,175
|
|
|
$
|
89,207
|
|
|
$
|
(233,382
|
)
|
|
$
|
11,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Six Months Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
2,109,891
|
|
|
$
|
209,138
|
|
|
$
|
1,406,691
|
|
|
$
|
(1,665,702
|
)
|
|
$
|
2,060,018
|
|
Cost of sales
|
|
|
1,672,527
|
|
|
|
83,355
|
|
|
|
1,227,217
|
|
|
|
(1,649,001
|
)
|
|
|
1,334,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
437,364
|
|
|
|
125,783
|
|
|
|
179,474
|
|
|
|
(16,701
|
)
|
|
|
725,920
|
|
Selling, general and administrative expenses
|
|
|
445,712
|
|
|
|
39,000
|
|
|
|
35,765
|
|
|
|
562
|
|
|
|
521,039
|
|
Restructuring
|
|
|
(94
|
)
|
|
|
127
|
|
|
|
3,967
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(8,254
|
)
|
|
|
86,656
|
|
|
|
139,742
|
|
|
|
(17,263
|
)
|
|
|
200,881
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
165,204
|
|
|
|
80,151
|
|
|
|
|
|
|
|
(245,355
|
)
|
|
|
|
|
Interest expense, net
|
|
|
51,786
|
|
|
|
16,862
|
|
|
|
9,388
|
|
|
|
(7
|
)
|
|
|
78,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
105,164
|
|
|
|
149,945
|
|
|
|
130,354
|
|
|
|
(262,611
|
)
|
|
|
122,852
|
|
Income tax expense
|
|
|
11,796
|
|
|
|
5,515
|
|
|
|
12,173
|
|
|
|
|
|
|
|
29,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
93,368
|
|
|
$
|
144,430
|
|
|
$
|
118,181
|
|
|
$
|
(262,611
|
)
|
|
$
|
93,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,516
|
|
|
$
|
1,813
|
|
|
$
|
31,232
|
|
|
$
|
|
|
|
$
|
47,561
|
|
Trade accounts receivable less allowances
|
|
|
(2,444
|
)
|
|
|
5,699
|
|
|
|
504,783
|
|
|
|
(2,736
|
)
|
|
|
505,302
|
|
Inventories
|
|
|
977,795
|
|
|
|
56,439
|
|
|
|
333,588
|
|
|
|
(133,279
|
)
|
|
|
1,234,543
|
|
Deferred tax assets and other current assets
|
|
|
269,262
|
|
|
|
10,885
|
|
|
|
47,241
|
|
|
|
(2,277
|
)
|
|
|
325,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,259,129
|
|
|
|
74,836
|
|
|
|
916,844
|
|
|
|
(138,292
|
)
|
|
|
2,112,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
187,540
|
|
|
|
18,125
|
|
|
|
411,407
|
|
|
|
|
|
|
|
617,072
|
|
Trademarks and other identifiable intangibles, net
|
|
|
23,730
|
|
|
|
112,299
|
|
|
|
5,639
|
|
|
|
|
|
|
|
141,668
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,935
|
|
|
|
72,185
|
|
|
|
|
|
|
|
322,002
|
|
Investments in subsidiaries
|
|
|
697,913
|
|
|
|
738,281
|
|
|
|
|
|
|
|
(1,436,194
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
154,577
|
|
|
|
444,117
|
|
|
|
(119,773
|
)
|
|
|
(96,089
|
)
|
|
|
382,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,555,771
|
|
|
$
|
1,404,593
|
|
|
$
|
1,286,302
|
|
|
$
|
(1,670,575
|
)
|
|
$
|
3,576,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
114,975
|
|
|
$
|
2,095
|
|
|
$
|
86,122
|
|
|
$
|
85,648
|
|
|
$
|
288,840
|
|
Accrued liabilities
|
|
|
214,397
|
|
|
|
25,500
|
|
|
|
55,964
|
|
|
|
|
|
|
|
295,861
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
64,013
|
|
|
|
|
|
|
|
64,013
|
|
Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
226,000
|
|
|
|
|
|
|
|
226,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
329,372
|
|
|
|
27,595
|
|
|
|
432,099
|
|
|
|
85,648
|
|
|
|
874,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,543,930
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
1,993,930
|
|
Other noncurrent liabilities
|
|
|
443,324
|
|
|
|
2,549
|
|
|
|
18,215
|
|
|
|
4,214
|
|
|
|
468,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,316,626
|
|
|
|
480,144
|
|
|
|
450,314
|
|
|
|
89,862
|
|
|
|
3,336,946
|
|
Stockholders equity
|
|
|
239,145
|
|
|
|
924,449
|
|
|
|
835,988
|
|
|
|
(1,760,437
|
)
|
|
|
239,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,555,771
|
|
|
$
|
1,404,593
|
|
|
$
|
1,286,302
|
|
|
$
|
(1,670,575
|
)
|
|
$
|
3,576,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,210
|
|
|
$
|
2,355
|
|
|
$
|
48,777
|
|
|
$
|
|
|
|
$
|
67,342
|
|
Trade accounts receivable less allowances
|
|
|
(4,956
|
)
|
|
|
6,096
|
|
|
|
406,305
|
|
|
|
(2,515
|
)
|
|
|
404,930
|
|
Inventories
|
|
|
1,078,048
|
|
|
|
49,581
|
|
|
|
295,946
|
|
|
|
(133,045
|
)
|
|
|
1,290,530
|
|
Deferred tax assets and other current assets
|
|
|
288,208
|
|
|
|
10,158
|
|
|
|
49,734
|
|
|
|
(577
|
)
|
|
|
347,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,377,510
|
|
|
|
68,190
|
|
|
|
800,762
|
|
|
|
(136,137
|
)
|
|
|
2,110,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
208,844
|
|
|
|
13,914
|
|
|
|
365,431
|
|
|
|
|
|
|
|
588,189
|
|
Trademarks and other identifiable intangibles, net
|
|
|
27,199
|
|
|
|
114,630
|
|
|
|
5,614
|
|
|
|
|
|
|
|
147,443
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
72,186
|
|
|
|
|
|
|
|
322,002
|
|
Investments in subsidiaries
|
|
|
545,866
|
|
|
|
649,513
|
|
|
|
|
|
|
|
(1,195,379
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
91,401
|
|
|
|
397,802
|
|
|
|
(37,980
|
)
|
|
|
(85,133
|
)
|
|
|
366,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,483,702
|
|
|
$
|
1,260,983
|
|
|
$
|
1,206,013
|
|
|
$
|
(1,416,649
|
)
|
|
$
|
3,534,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
161,734
|
|
|
$
|
3,980
|
|
|
$
|
74,157
|
|
|
$
|
85,647
|
|
|
$
|
325,518
|
|
Accrued liabilities
|
|
|
229,631
|
|
|
|
30,875
|
|
|
|
57,555
|
|
|
|
(2,669
|
)
|
|
|
315,392
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
61,734
|
|
|
|
|
|
|
|
61,734
|
|
Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
45,640
|
|
|
|
|
|
|
|
45,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
391,365
|
|
|
|
34,855
|
|
|
|
239,086
|
|
|
|
82,978
|
|
|
|
748,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,483,930
|
|
|
|
450,000
|
|
|
|
196,977
|
|
|
|
|
|
|
|
2,130,907
|
|
Other noncurrent liabilities
|
|
|
423,252
|
|
|
|
7,344
|
|
|
|
34,968
|
|
|
|
4,139
|
|
|
|
469,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,298,547
|
|
|
|
492,199
|
|
|
|
471,031
|
|
|
|
87,117
|
|
|
|
3,348,894
|
|
Stockholders equity
|
|
|
185,155
|
|
|
|
768,784
|
|
|
|
734,982
|
|
|
|
(1,503,766
|
)
|
|
|
185,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,483,702
|
|
|
$
|
1,260,983
|
|
|
$
|
1,206,013
|
|
|
$
|
(1,416,649
|
)
|
|
$
|
3,534,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
219,500
|
|
|
$
|
79,876
|
|
|
$
|
(55,260
|
)
|
|
$
|
(217,599
|
)
|
|
$
|
26,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(9,807
|
)
|
|
|
(6,074
|
)
|
|
|
(61,935
|
)
|
|
|
|
|
|
|
(77,816
|
)
|
Proceeds from sales of assets
|
|
|
5,589
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
8,779
|
|
Other
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(4,291
|
)
|
|
|
(6,074
|
)
|
|
|
(58,745
|
)
|
|
|
73
|
|
|
|
(69,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
818,880
|
|
|
|
|
|
|
|
818,880
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(816,676
|
)
|
|
|
|
|
|
|
(816,676
|
)
|
Payments to amend credit facilities
|
|
|
(20,570
|
)
|
|
|
|
|
|
|
(1,595
|
)
|
|
|
|
|
|
|
(22,165
|
)
|
Borrowings on revolving loan facility
|
|
|
949,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
949,525
|
|
Repayments on revolving loan facility
|
|
|
(889,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(889,525
|
)
|
Borrowing on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
128,009
|
|
|
|
|
|
|
|
128,009
|
|
Repayments on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
(144,626
|
)
|
|
|
|
|
|
|
(144,626
|
)
|
Other
|
|
|
(579
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(594
|
)
|
Net transactions with related entities
|
|
|
(255,754
|
)
|
|
|
(74,344
|
)
|
|
|
112,572
|
|
|
|
217,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(216,903
|
)
|
|
|
(74,344
|
)
|
|
|
96,549
|
|
|
|
217,526
|
|
|
|
22,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(1,694
|
)
|
|
|
(542
|
)
|
|
|
(17,545
|
)
|
|
|
|
|
|
|
(19,781
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
16,210
|
|
|
|
2,355
|
|
|
|
48,777
|
|
|
|
|
|
|
|
67,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,516
|
|
|
$
|
1,813
|
|
|
$
|
31,232
|
|
|
$
|
|
|
|
$
|
47,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
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 June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(15,285
|
)
|
|
$
|
83,519
|
|
|
$
|
128,725
|
|
|
$
|
(246,921
|
)
|
|
$
|
(49,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(18,178
|
)
|
|
|
(5,364
|
)
|
|
|
(50,008
|
)
|
|
|
|
|
|
|
(73,550
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(9,994
|
)
|
|
|
|
|
|
|
(9,994
|
)
|
Proceeds from sales of assets
|
|
|
7,242
|
|
|
|
3
|
|
|
|
2,279
|
|
|
|
|
|
|
|
9,524
|
|
Other
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,501
|
)
|
|
|
(5,361
|
)
|
|
|
(57,723
|
)
|
|
|
(435
|
)
|
|
|
(74,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
210,016
|
|
|
|
|
|
|
|
210,016
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(171,346
|
)
|
|
|
|
|
|
|
(171,346
|
)
|
Payments to amend credit facilities
|
|
|
(48
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(69
|
)
|
Borrowings on revolving loan facility
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,000
|
|
Repayments on revolving loan facility
|
|
|
(155,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,000
|
)
|
Borrowings on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
20,389
|
|
|
|
|
|
|
|
20,389
|
|
Repayments on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
(20,389
|
)
|
|
|
|
|
|
|
(20,389
|
)
|
Proceeds from stock options exercised
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Stock repurchases
|
|
|
(10,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,860
|
)
|
Transaction with Sara Lee Corporation
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
Other
|
|
|
(590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(590
|
)
|
Net transactions with related entities
|
|
|
(37,013
|
)
|
|
|
(82,372
|
)
|
|
|
(127,971
|
)
|
|
|
247,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(30,129
|
)
|
|
|
(82,382
|
)
|
|
|
(89,312
|
)
|
|
|
247,356
|
|
|
|
45,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
1,131
|
|
|
|
|
|
|
|
1,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(55,915
|
)
|
|
|
(4,224
|
)
|
|
|
(17,179
|
)
|
|
|
|
|
|
|
(77,318
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
84,476
|
|
|
|
6,329
|
|
|
|
83,431
|
|
|
|
|
|
|
|
174,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
28,561
|
|
|
$
|
2,105
|
|
|
$
|
66,252
|
|
|
$
|
|
|
|
$
|
96,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements that involve risks and uncertainties.
Please see Forward-Looking Statements for a
discussion of the uncertainties, risks and assumptions
associated with these statements. This discussion should be read
in conjunction with our historical financial statements and
related notes thereto and the other disclosures contained
elsewhere in this Quarterly Report on
Form 10-Q.
The unaudited condensed consolidated financial statements and
notes included herein should be read in conjunction with our
audited consolidated financial statements and notes for the year
ended January 3, 2009, which were included in our Annual
Report on
Form 10-K
filed with the Securities and Exchange Commission. The results
of operations for the periods reflected herein are not
necessarily indicative of results that may be expected for
future periods, and our actual results may differ materially
from those discussed in the forward-looking statements as a
result of various factors, including but not limited to those
included elsewhere in this Quarterly Report on
Form 10-Q
and those included in the Risk Factors section and
elsewhere in our Annual Report on
Form 10-K.
Overview
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, C9 by Champion,
Playtex, Bali, Leggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks, Zorba, Rinbros and
Duofold. We design, manufacture, source and sell a broad
range of apparel essentials such as t-shirts, bras, panties,
mens underwear, kids underwear, casualwear,
activewear, socks and hosiery.
Our operations are managed in five operating segments, each of
which is a reportable segment for financial reporting purposes:
Innerwear, Outerwear, International, Hosiery and Other. These
segments are organized principally by product category and
geographic location. Management of each segment is responsible
for the operations of these segments businesses but shares
a common supply chain and media and marketing platforms.
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Innerwear. The Innerwear segment focuses on
core apparel essentials, and consists of products such as
womens intimate apparel, mens underwear, kids
underwear, socks and thermals, marketed under well-known brands
that are trusted by consumers. We are an intimate apparel
category leader in the United States with our Hanes,
Playtex, Bali, barely there, Just My
Size and Wonderbra brands. We are also a leading
manufacturer and marketer of mens underwear and kids
underwear under the Hanes, Champion, C9 by Champion
and Polo Ralph Lauren brand names. Our
direct-to-consumer
retail operations are included within the Innerwear segment. The
retail operations include our value-based (outlet)
stores, internet operations and catalogs which sell products
from our portfolio of leading brands. As of July 4, 2009
and January 3, 2009, we had 227 and 213 outlet stores,
respectively. Net sales for the six months ended July 4,
2009 from our Innerwear segment were $1.13 billion,
representing approximately 60% of total segment net sales.
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Outerwear. We are a leader in the casualwear
and activewear markets through our Hanes, Champion
and Just My Size brands, where we offer products such
as t-shirts and fleece. Our casualwear lines offer a range of
quality, comfortable clothing for men, women and children
marketed under the Hanes and Just My Size brands.
The Just My Size brand offers casual apparel designed
exclusively to meet the needs of plus-size women. In addition to
activewear for men and women, Champion provides uniforms
for athletic programs and includes an apparel program, C9 by
Champion, at Target stores. We also license our Champion
name for collegiate apparel and footwear. We also supply our
t-shirts, sportshirts and fleece products primarily to
wholesalers, who then resell to screen printers and
embellishers, through brands such as Hanes,
Champion, Outer Banks and Hanes Beefy-T.
Net sales for the six months ended July 4, 2009 from our
Outerwear segment were $447 million, representing
approximately 24% of total segment net sales.
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International. International includes products
that span across the Innerwear, Outerwear and Hosiery reportable
segments and are primarily marketed under the Hanes,
Wonderbra, Champion, Stedman, Playtex, Zorba, Rinbros, Kendall,
Sol y Oro, Ritmo and Bali brands. Net sales for the
six months ended
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30
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July 4, 2009 from our International segment were
$187 million, representing approximately 10% of total
segment net sales and included sales in Latin America, Asia,
Canada and Europe. Canada, Europe, Japan and Mexico are our
largest international markets, and we also have sales offices in
India and China.
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Hosiery. We are the leading marketer of
womens sheer hosiery in the United States. We compete in
the hosiery market by striving to offer superior values and
executing integrated marketing activities, as well as focusing
on the style of our hosiery products. We market hosiery products
under our Leggs, Hanes and Just My Size
brands. Net sales for the six months ended July 4, 2009
from our Hosiery segment were $95 million, representing
approximately 5% of total segment net sales. We expect the trend
of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences.
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Other. Our Other segment consists of sales of
nonfinished products such as yarn and certain other materials in
the United States and Latin America that maintain asset
utilization at certain manufacturing facilities and are intended
to generate break even margins. Net sales for the six months
ended July 4, 2009 in our Other segment were
$8 million, representing approximately 1% of total segment
net sales. Net sales from our Other segment are expected to
continue to be insignificant to us as we complete the
implementation of our consolidation and globalization efforts.
|
Consolidation
and Globalization Strategy
We expect to continue our restructuring efforts through 2009 as
we continue to execute our consolidation and globalization
strategy. We have closed plant locations, reduced our workforce
and relocated some of our manufacturing capacity to lower cost
locations in Asia, Central America and the Caribbean Basin.
During the six months ended July 4, 2009, in furtherance of
our consolidation and globalization strategy, we approved
actions to close three manufacturing facilities and two
distribution centers in the Dominican Republic, the United
States, Honduras and Canada, and eliminate an aggregate of
approximately 2,800 positions in those countries and El
Salvador. In addition, approximately 300 management and
administrative positions were eliminated, with the majority of
these positions based in the United States. We also have
recognized accelerated depreciation with respect to owned or
leased assets associated with manufacturing facilities and
distribution centers which closed during 2009 or we anticipate
closing in the next year as part of our consolidation and
globalization strategy. While we believe that this strategy has
had and will continue to have a beneficial impact on our
operational efficiency and cost structure, we have incurred
significant costs to implement these initiatives. In particular,
we have recorded charges for severance and other
employment-related obligations relating to workforce reductions,
as well as payments in connection with lease and other contract
terminations. In addition, we incurred charges for one-time
write-offs of stranded raw materials and work in process
inventory determined not to be salvageable or cost-effective to
relocate related to the closure of manufacturing facilities.
These amounts are included in the Cost of sales,
Restructuring and Selling, general and
administrative expenses lines of our statements of income.
We have made significant progress in our multiyear goal of
generating gross savings that could approach or exceed
$200 million. As a result of the restructuring actions
taken since our spin off from Sara Lee Corporation (Sara
Lee) on September 5, 2006, our cost structure has
been reduced and efficiencies improved, generating savings of
$39 million during the six months ended July 4, 2009.
In addition to the savings generated from restructuring actions,
we benefited from $19 million in savings related to other
cost reduction initiatives during the six months ended
July 4, 2009.
Seasonality
and Other Factors
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather,
back-to-school
shopping and holidays. Sales levels in any period are also
impacted by customers decisions to increase or decrease
their inventory levels in
31
response to anticipated consumer demand. Our customers may
cancel orders, change delivery schedules or change the mix of
products ordered with minimal notice to us. For example, we have
experienced a shift in timing by our largest retail customers of
back-to-school
programs between June and July the last two years. Our results
of operations are also impacted by fluctuations and volatility
in the price of cotton and oil-related materials and the timing
of actual spending for our media, advertising and promotion
expenses. Media, advertising and promotion expenses may vary
from period to period during a fiscal year depending on the
timing of our advertising campaigns for retail selling seasons
and product introductions.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by our customers. Discretionary spending
is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt
levels, the availability of consumer credit, currency exchange
rates, taxation, electricity power rates, gasoline prices,
unemployment trends and other matters that influence consumer
confidence and spending. Many of these factors are outside of
our control. Our customers purchases of discretionary
items, including our products, could decline during periods when
disposable income is lower, when prices increase in response to
rising costs, or in periods of actual or perceived unfavorable
economic conditions. These consumers may choose to purchase
fewer of our products or to purchase lower-priced products of
our competitors in response to higher prices for our products,
or may choose not to purchase our products at prices that
reflect our price increases that become effective from time to
time.
Inflation
and Changing Prices
Inflation can have a long-term impact on us because increasing
costs of materials and labor may impact our ability to maintain
satisfactory margins. For example, a significant portion of our
products are manufactured in other countries and declines in the
value of the U.S. dollar may result in higher manufacturing
costs. Similarly, the cost of the materials that are used in our
manufacturing process, such as oil-related commodity prices,
rose during the summer of 2008 as a result of inflation and
other factors. In addition, inflation often is accompanied by
higher interest rates, which could have a negative impact on
spending, in which case our margins could decrease. Moreover,
increases in inflation may not be matched by rises in income,
which also could have a negative impact on spending. If we incur
increased costs that we are unable to recoup, or if consumer
spending continues to decrease generally, our business, results
of operations, financial condition and cash flows may be
adversely affected. In an effort to mitigate the impact of these
incremental costs on our operating results, we raised domestic
prices effective February 2009. We implemented an average gross
price increase of four percent in our domestic product
categories. The range of price increases varies by individual
product category.
Our costs for cotton yarn and cotton-based textiles vary based
upon the fluctuating cost of cotton, which is affected by
weather, consumer demand, speculation on the commodities market,
the relative valuations and fluctuations of the currencies of
producer versus consumer countries and other factors that are
generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges from time to
time in an attempt to protect our business from the volatility
of the market price of cotton, our business can be affected by
dramatic movements in cotton prices, although cotton
historically represents only 8% of our cost of sales. The cotton
prices reflected in our results were 62 cents per pound for the
six months ended July 4, 2009 and 58 cents per pound for
the six months ended June 28, 2008. After taking into
consideration the cotton costs currently included in inventory
and short-term supply agreements, we expect our cost of cotton
to average 55 cents per pound for the full year of 2009 compared
to 65 cents per pound for 2008. In addition, during the summer
of 2008 we experienced a spike in oil-related commodity prices
and other raw materials used in our products, such as dyes and
chemicals, and increases in other costs, such as fuel, energy
and utility costs. Costs incurred for materials and labor are
capitalized into inventory and impact our results as the
inventory is sold.
32
Highlights
from the Second Quarter and Six Months Ended July 4,
2009
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Total net sales in the second quarter of 2009 were
$986 million, compared with $1.07 billion in the same
quarter of 2008. Total net sales in the six-month period in 2009
were $1.84 billion, compared with $2.06 billion in the
same six-month period of 2008.
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|
Operating profit was $84 million in the second quarter of
2009, compared with $113 million in the same quarter of
2008. Operating profit was $100 million in the six-month
period in 2009, compared with $201 million in the same
six-month period of 2008.
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|
Diluted earnings per share were $0.32 in the second quarter of
2009, compared with $0.60 in the same quarter of 2008. Diluted
earnings per share were $0.12 in the six-month period in 2009,
compared with $0.97 in the same six-month period of 2008.
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|
During the first six months of 2009, we approved actions to
close three manufacturing facilities and two distribution
centers in the Dominican Republic, the United States, Honduras
and Canada, and eliminate an aggregate of approximately 2,800
positions in those countries and El Salvador. In addition,
approximately 300 management and administrative positions were
eliminated, with the majority of these positions based in the
United States. In addition, we completed several such actions in
2009 that were approved in 2008.
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Gross capital expenditures were $78 million during the
first six months of 2009 as we continued to build out our
textile and sewing network in Asia, Central America and the
Caribbean Basin.
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We amended our Senior Secured Credit Facility and Accounts
Receivable Securitization Facility to provide for additional
cushion for the leverage ratio and interest coverage ratio
covenant requirements.
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We ended the second quarter of 2009 with $415 million of
borrowing availability under our $500 million revolving
loan facility (the Revolving Loan Facility),
$48 million in cash and cash equivalents and
$67 million of borrowing availability under our
international loan facilities.
|
Consolidated
Results of Operations Second Quarter Ended
July 4, 2009 Compared with Second Quarter Ended
June 28, 2008
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|
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|
Quarter Ended
|
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|
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|
July 4,
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June 28,
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Higher
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Percent
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|
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|
2009
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2008
|
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(Lower)
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|
|
Change
|
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|
(dollars in thousands)
|
|
|
Net sales
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|
$
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986,022
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|
$
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1,072,171
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|
$
|
(86,149
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)
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|
(8.0
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)%
|
Cost of sales
|
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|
658,631
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|
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|
691,215
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|
(32,584
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)
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|
(4.7
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)
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|
|
|
|
|
|
|
|
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|
Gross profit
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|
327,391
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|
380,956
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|
(53,565
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)
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|
(14.1
|
)
|
Selling, general and administrative expenses
|
|
|
230,699
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|
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|
266,427
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|
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|
(35,728
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)
|
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|
(13.4
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)
|
Restructuring
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|
|
12,544
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|
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|
1,442
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|
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|
11,102
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|
769.9
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Operating profit
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|
84,148
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|
113,087
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|
(28,939
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)
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|
(25.6
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)
|
Other expenses
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|
|
168
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|
|
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|
168
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|
|
|
NM
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|
Interest expense, net
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44,807
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|
37,635
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7,172
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|
19.1
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|
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|
|
|
|
|
|
|
|
|
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Income before income tax expense
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|
39,173
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75,452
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|
(36,279
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)
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|
(48.1
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)
|
Income tax expense
|
|
|
8,618
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|
|
|
18,108
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|
(9,490
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)
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|
(52.4
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)
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Net income
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$
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30,555
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|
$
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57,344
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|
$
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(26,789
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)
|
|
|
(46.7
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)%
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|
|
|
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33
Net
Sales
|
|
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|
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|
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|
|
|
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|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
986,022
|
|
|
$
|
1,072,171
|
|
|
$
|
(86,149
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)
|
|
|
(8.0
|
)%
|
Consolidated net sales were lower by $86 million or 8% in
the second quarter of 2009 compared to the second quarter of
2008 which reflects an improvement in the double-digit sales
decline rate over the past two quarters. The net sales decline
in the second quarter of 2009 is primarily attributed to the
recessionary environment that continued into this quarter.
Retail sales for apparel continued to decline quarter over
quarter at most of our largest customers as the continuing
recession, growing job losses and tight access to credit
constrained consumer spending. Retailer inventory levels during
the second quarter of 2009 mostly remained flat compared to the
first quarter of 2009 and in line with current retail sales
trends. Net sales were also impacted by a shift of approximately
$5 million in our
back-to-school
shipments from July to June in 2009 as compared to 2008.
Innerwear, Outerwear, International and Hosiery segment net
sales were lower by $25 million (4%), $28 million
(11%), $27 million (20%) and $7 million (14%),
respectively, in the second quarter of 2009 compared to the
second quarter of 2008.
Innerwear segment net sales were lower (4%) in the second
quarter of 2009 compared to the second quarter of 2008,
primarily due to lower net sales of intimate apparel (6%) and
socks (9%) primarily due to weak sales at retail in this
difficult economic environment. Male underwear net sales were
flat in the second quarter of 2009 compared to the second
quarter of 2008.
Outerwear segment net sales were lower (11%) in the second
quarter of 2009 compared to the second quarter of 2008,
primarily due to the lower casualwear net sales in both the
retail and wholesale channels, partially offset by higher net
sales (10%) of our Champion brand activewear. Results for
the second quarter of 2009 were negatively impacted by losses of
seasonal programs in the retail casualwear channel that also
impacted results for the first quarter of 2009 but will not
continue to impact our results after the second quarter.
International segment net sales were lower (20%) in the second
quarter of 2009 compared to the second quarter of 2008,
primarily attributable to an unfavorable impact of
$13 million related to foreign currency exchange rates and
weak demand globally primarily in Europe, Canada and Japan which
are experiencing recessionary environments similar to the United
States. Excluding the impact of foreign exchange rates on
currency, International segment net sales declined by 11% in the
second quarter of 2009 compared to the second quarter of 2008.
Hosiery segment net sales were lower (14%) in the second quarter
of 2009 compared to the second quarter of 2008, which was
substantially more than the long-term industry trend. Hosiery
products in all channels continue to be more adversely impacted
by reduced consumer discretionary spending than other apparel
categories.
Gross
Profit
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gross profit
|
|
$
|
327,391
|
|
|
$
|
380,956
|
|
|
$
|
(53,565
|
)
|
|
|
(14.1
|
)%
|
Our gross profit was lower by $54 million in the second
quarter of 2009 compared to the second quarter of 2008. Gross
profit was lower due to lower sales volume of $50 million,
unfavorable product sales mix of $17 million and higher
sales incentives of $5 million. Other factors contributing
to lower gross profit were higher other manufacturing costs of
$19 million, primarily related to lower volume and
operating efficiencies at our manufacturing facilities, higher
production costs of $11 million related to higher energy
and oil-related
34
costs, including freight costs, other vendor price increases of
$9 million, higher cost of finished goods sourced from
third party manufacturers of $7 million primarily resulting from
foreign exchange transaction losses and a $4 million
unfavorable impact related to foreign currency exchange rates.
Energy and oil-related costs were higher due to a spike in
oil-related commodity prices during the summer of 2008. Our
results in the second quarter of 2009 continued to reflect
higher costs for oil-related materials, but in the second half
of 2009 our results will begin to benefit from the lower
oil-related material costs and improved other manufacturing
costs. The unfavorable impact of foreign currency exchange rates
in our International segment was primarily due to the
strengthening of the U.S. dollar compared to the Mexican
peso, Canadian dollar, Euro and Brazilian real.
Our higher expenses were partially offset by higher product
pricing of $37 million before increased sales incentives,
savings from our cost reduction initiatives and prior
restructuring actions of $13 million, lower cotton costs of
$9 million, lower on-going excess and obsolete inventory
costs of $6 million and lower accelerated depreciation of
$5 million. The higher product pricing is due to the
implementation of an average gross price increase of four
percent in our domestic product categories in February 2009. The
range of price increases varies by individual product category.
The lower excess and obsolete inventory costs in the second
quarter of 2009 are attributable to both our continuous
evaluation of inventory levels and simplification of our product
category offerings. We realized these benefits by driving down
obsolete inventory levels through aggressive management and
promotions.
The cotton prices reflected in our results were 49 cents per
pound in the second quarter of 2009 as compared to 63 cents per
pound in the second quarter of 2008. After taking into
consideration the cotton costs currently included in inventory
and short-term supply agreements, we expect our cost of cotton
to average 55 cents per pound for the full year of 2009 compared
to 65 cents per pound for 2008.
As a percent of net sales, our gross profit was 33.2% in the
second quarter of 2009 compared to 35.5% in the second quarter
of 2008, declining as a result of the items described above.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative expenses
|
|
$
|
230,699
|
|
|
$
|
266,427
|
|
|
$
|
(35,728
|
)
|
|
|
(13.4
|
)%
|
Our selling, general and administrative expenses were
$36 million lower in the second quarter of 2009 compared to
the second quarter of 2008. Our focus on cost reductions
resulted in lower expenses in the second quarter of 2009
compared to the second quarter of 2008 related to savings of
$8 million from our prior restructuring actions for
compensation and related benefits, lower technology expenses of
$6 million, lower selling and other marketing related
expenses of $4 million and lower consulting related
expenses of $2 million. In addition, our distribution
expenses were lower by $5 million in the second quarter of
2009 compared to 2008 which is primarily attributable to lower
sales volume that reduced our labor, postage and freight
expenses and lower rework expenses in our distribution centers.
Our media related media, advertising and promotion
(MAP) expenses were $19 million lower in the
second quarter of 2009 compared to the second quarter of 2008 as
we chose to reduce our spending. MAP expenses may vary from
period to period during a fiscal year depending on the timing of
our advertising campaigns for retail selling seasons and product
introductions.
Our pension expense, which is noncash, was higher by
$8 million in the second quarter of 2009 compared to the
second quarter of 2008. The higher pension expense is primarily
due to the lower funded status of our pension plans at the end
of 2008, which resulted from a decline in the fair value of plan
assets due to the stock markets performance during 2008
and a higher discount rate at the end of 2008. We also incurred
higher expenses of $2 million in the second quarter of 2009
compared to the second quarter of 2008 as a result of opening
retail stores. We opened 11 retail stores during the second
quarter of 2009. Changes due to foreign currency exchange rates,
which are included in the impact of the changes above, resulted
in lower
35
selling, general and administrative expenses of $3 million
in the second quarter of 2009 compared to the second quarter of
2008.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Restructuring
|
|
$
|
12,544
|
|
|
$
|
1,442
|
|
|
$
|
11,102
|
|
|
|
769.9
|
%
|
During the second quarter of 2009, we approved an action to
close one distribution center in the United States and eliminate
approximately 200 positions. The distribution capacity will be
relocated to our West Coast distribution facility in California
in order to expand capacity for goods we source from Asia. In
addition, approximately 250 management and administrative
positions were eliminated, with the majority of these positions
based in the United States. We recorded charges related to
employee termination and other benefits of $10 million
recognized in accordance with benefit plans previously
communicated to the affected employee group and other exit costs
of $3 million primarily related to moving equipment and
inventory from closed facilities.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During the second quarter of 2008, we incurred $1 million
in restructuring charges which primarily related to employee
termination and other benefits associated with plant closures
approved during that period.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Operating profit
|
|
$
|
84,148
|
|
|
$
|
113,087
|
|
|
$
|
(28,939
|
)
|
|
|
(25.6
|
)%
|
Operating profit was lower in the second quarter of 2009
compared to the second quarter of 2008 as a result of lower
gross profit of $54 million and higher restructuring and
related charges of $11 million, partially offset by lower
selling, general and administrative expenses of
$36 million. Changes in foreign currency exchange rates had
an unfavorable impact on operating profit of $1 million in
the second quarter of 2009 compared to the second quarter of
2008.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Other expenses
|
|
$
|
168
|
|
|
$
|
|
|
|
$
|
168
|
|
|
|
NM
|
|
During the second quarter of 2009, we incurred costs to amend
the Accounts Receivable Securitization Facility. This second
amendment to that facility is expected to generally increase
over time the amount of funding that will be available under the
facility as compared to the amount that would be available
pursuant to the amendment to that facility that we entered into
in March 2009 to provide for additional cushion in our financial
covenant requirements.
36
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
44,807
|
|
|
$
|
37,635
|
|
|
$
|
7,172
|
|
|
|
19.1
|
%
|
Interest expense, net was higher by $7 million in the
second quarter of 2009 compared to the second quarter of 2008.
The amendments of our Senior Secured Credit Facility and
Accounts Receivable Securitization Facility, which increased our
interest-rate margin by 300 basis points and 325 basis
points, respectively, increased interest expense in the second
quarter of 2009 by $11 million, which was partially offset
by a lower London Interbank Offered Rate, or LIBOR,
that reduced interest expense by $4 million. Our weighted
average interest rate on our outstanding debt was 7.02% during
the second quarter of 2009 compared to 6.02% in the second
quarter of 2008.
At July 4, 2009, we had outstanding interest rate hedging
arrangements whereby we have capped the interest rate on
$400 million of our floating rate debt at 3.50% and have
fixed the interest rate on $1.4 billion of our floating
rate debt at approximately 4.16%. Approximately 81% of our total
debt outstanding at July 4, 2009 was at a fixed or capped
LIBOR rate.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Income tax expense
|
|
$
|
8,618
|
|
|
$
|
18,108
|
|
|
$
|
(9,490
|
)
|
|
|
(52.4
|
)%
|
Our estimated annual effective income tax rate was 22% in the
second quarter of 2009 compared to 24% in the second quarter of
2008. The lower effective income tax rate is attributable
primarily to higher unremitted earnings from foreign
subsidiaries in the second quarter of 2009 taxed at rates lower
than the U.S. statutory rate. Our estimated annual
effective tax rate reflects our strategic initiative to make
substantial capital investments outside the United States in our
global supply chain in 2009.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net income
|
|
$
|
30,555
|
|
|
$
|
57,344
|
|
|
$
|
(26,789
|
)
|
|
|
(46.7
|
)%
|
Net income for the second quarter of 2009 was lower than the
second quarter of 2008 primarily due to lower operating profit
of $29 million and higher interest expense of
$7 million, partially offset by lower income tax expense of
$9 million.
37
Operating
Results by Business Segment Second Quarter Ended
July 4, 2009 Compared with Second Quarter Ended
June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
611,779
|
|
|
$
|
636,335
|
|
|
$
|
(24,556
|
)
|
|
|
(3.9
|
)%
|
Outerwear
|
|
|
231,654
|
|
|
|
260,137
|
|
|
|
(28,483
|
)
|
|
|
(10.9
|
)
|
International
|
|
|
104,073
|
|
|
|
130,903
|
|
|
|
(26,830
|
)
|
|
|
(20.5
|
)
|
Hosiery
|
|
|
42,584
|
|
|
|
49,734
|
|
|
|
(7,150
|
)
|
|
|
(14.4
|
)
|
Other
|
|
|
5,634
|
|
|
|
4,174
|
|
|
|
1,460
|
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
995,724
|
|
|
|
1,081,283
|
|
|
|
(85,559
|
)
|
|
|
(7.9
|
)
|
Intersegment
|
|
|
(9,702
|
)
|
|
|
(9,112
|
)
|
|
|
590
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
986,022
|
|
|
$
|
1,072,171
|
|
|
$
|
(86,149
|
)
|
|
|
(8.0
|
)%
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
92,563
|
|
|
$
|
79,942
|
|
|
$
|
12,621
|
|
|
|
15.8
|
%
|
Outerwear
|
|
|
3,666
|
|
|
|
19,927
|
|
|
|
(16,261
|
)
|
|
|
(81.6
|
)
|
International
|
|
|
8,804
|
|
|
|
18,848
|
|
|
|
(10,044
|
)
|
|
|
(53.3
|
)
|
Hosiery
|
|
|
12,280
|
|
|
|
15,742
|
|
|
|
(3,462
|
)
|
|
|
(22.0
|
)
|
Other
|
|
|
(2,233
|
)
|
|
|
830
|
|
|
|
(3,063
|
)
|
|
|
(369.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit:
|
|
|
115,080
|
|
|
|
135,289
|
|
|
|
(20,209
|
)
|
|
|
(14.9
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(15,176
|
)
|
|
|
(12,584
|
)
|
|
|
2,592
|
|
|
|
20.6
|
|
Amortization of trademarks and other intangibles
|
|
|
(3,092
|
)
|
|
|
(2,965
|
)
|
|
|
127
|
|
|
|
4.3
|
|
Restructuring
|
|
|
(12,544
|
)
|
|
|
(1,442
|
)
|
|
|
11,102
|
|
|
|
769.9
|
|
Inventory write-off included in cost of sales
|
|
|
(159
|
)
|
|
|
|
|
|
|
159
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
224
|
|
|
|
(4,633
|
)
|
|
|
(4,857
|
)
|
|
|
(104.8
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(185
|
)
|
|
|
(578
|
)
|
|
|
(393
|
)
|
|
|
(68.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
84,148
|
|
|
|
113,087
|
|
|
|
(28,939
|
)
|
|
|
(25.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
(168
|
)
|
|
|
|
|
|
|
168
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(44,807
|
)
|
|
|
(37,635
|
)
|
|
|
7,172
|
|
|
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
39,173
|
|
|
$
|
75,452
|
|
|
$
|
(36,279
|
)
|
|
|
(48.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
611,779
|
|
|
$
|
636,335
|
|
|
$
|
(24,556
|
)
|
|
|
(3.9
|
)%
|
Segment operating profit
|
|
|
92,563
|
|
|
|
79,942
|
|
|
|
12,621
|
|
|
|
15.8
|
|
Overall net sales in the Innerwear segment were lower by
$25 million or 4% in the second quarter of 2009 compared to
the second quarter of 2008 as we continued to be negatively
impacted by weak consumer demand related to the recessionary
environment. The rate of sales decline for our Innerwear segment
continued to improve as compared to the previous two quarters.
Total intimate apparel net sales were $14 million lower
38
in the second quarter of 2009 compared to the second quarter of
2008. Our intimate apparel net sales, which we believe were
primarily attributable to weaker sales at retail, were lower in
our Playtex brand of $8 million, our smaller brands
(barely there, Just My Size and Wonderbra)
of $4 million and our Hanes brand of
$3 million. Our Bali brand intimate apparel net
sales were $3 million higher compared to the second quarter
of 2008.
Net sales in our male underwear product category were flat in
the second quarter of 2009 compared to the second quarter of
2008. Lower net sales in our socks product category reflect a
decline in mens and kids Hanes brand net
sales of $6 million in the second quarter of 2009 compared
to the second quarter of 2008. Net sales in our
direct-to-consumer
retail business were slightly lower due to lower internet sales,
partially offset by higher sales at our outlet stores resulting
from the addition of recently opened retail stores. Net sales
were also impacted by a shift of approximately $5 million
in our
back-to-school
shipments from July to June in 2009 as compared to 2008.
The Innerwear segment gross profit was lower by $10 million
in the second quarter of 2009 compared to the second quarter of
2008. The lower gross profit is due to lower sales volume of
$23 million, higher production costs of $7 million
related to higher energy and oil-related costs, including
freight costs, higher sales incentives of $6 million, other
vendor price increases of $6 million, unfavorable product
sales mix of $5 million and higher other manufacturing
costs of $5 million. These higher costs were partially
offset by higher product pricing of $24 million before increased
sales incentives, savings from our cost reduction initiatives
and prior restructuring actions of $8 million, lower
on-going excess and obsolete inventory costs of $7 million
and lower cotton costs of $3 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 38.7% in the second quarter of 2009 compared to
38.8% in the second quarter of 2008, slightly declining as a
result of the items described above.
The higher Innerwear segment operating profit in the second
quarter of 2009 compared to the second quarter of 2008 is
primarily attributable to lower media related MAP expenses of
$17 million, savings of $5 million from prior
restructuring actions primarily for compensation and related
benefits, lower technology expenses of $3 million and lower
distribution expenses of $3 million, partially offset by
lower gross profit, higher pension expense of $4 million
and higher expenses of $2 million as a result of opening
retail stores. A significant portion of the selling, general and
administrative expenses in each segment is an allocation of our
consolidated selling, general and administrative expenses,
however certain expenses that are specifically identifiable to a
segment are charged directly to such segment. The allocation
methodology for the consolidated selling, general and
administrative expenses for the second quarter of 2009 is
consistent with the second quarter of 2008. Our consolidated
selling, general and administrative expenses before segment
allocations was $36 million lower in the second quarter of
2009 compared to the second quarter of 2008.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
231,654
|
|
|
$
|
260,137
|
|
|
$
|
(28,483
|
)
|
|
|
(10.9
|
)%
|
Segment operating profit
|
|
|
3,666
|
|
|
|
19,927
|
|
|
|
(16,261
|
)
|
|
|
(81.6
|
)
|
Net sales in the Outerwear segment were lower by
$28 million or 11% in the second quarter of 2009 compared
to the second quarter of 2008, primarily as a result of lower
casualwear net sales in both our retail and wholesale channels
of $25 million and $15 million, respectively. The
lower retail casualwear net sales reflect a $37 million
impact due to the losses of seasonal programs not renewed for
2009, partially offset by additional sales in the second quarter
of 2009 resulting from an exclusive long-term agreement entered
into with Wal-Mart in April 2009 that significantly expands the
presence of our Just My Size brand in all Wal-Mart
stores. The losses of seasonal programs also impacted results
for the first quarter of 2009 but will not continue to impact
our results after this quarter. These decreases were partially
offset by higher net sales of our
39
Champion brand activewear of $10 million. Our
Champion brand sales continue to benefit from our
marketing investment in the brand.
The Outerwear segment gross profit was lower by $22 million
in the second quarter of 2009 compared to the second quarter of
2008. The lower gross profit is due to lower sales volume of
$11 million, higher other manufacturing costs of
$11 million primarily related to lower volume and operating
efficiencies at our manufacturing facilities, unfavorable
product sales mix of $6 million, higher sales incentives of
$4 million, higher production costs of $4 million
related to higher energy and oil-related costs, including
freight costs, and other vendor price increases of
$2 million. These higher costs were partially offset by
higher product pricing of $7 million before increased sales
incentives, lower cotton costs of $6 million and savings of
$5 million from our cost reduction initiatives and prior
restructuring actions.
As a percent of segment net sales, gross profit in the Outerwear
segment was 18.7% in the second quarter of 2009 compared to
25.0% in the second quarter of 2008, declining as a result of
the items described above.
The lower Outerwear segment operating profit in the second
quarter of 2009 compared to the second quarter of 2008 is
primarily attributable to lower gross profit and higher pension
expense of $2 million, partially offset by savings of
$3 million from our cost reduction initiatives and prior
restructuring actions, lower media related MAP expenses of
$2 million and lower technology expenses of
$2 million. A significant portion of the selling, general
and administrative expenses in each segment is an allocation of
our consolidated selling, general and administrative expenses,
however certain expenses that are specifically identifiable to a
segment are charged directly to such segment. The allocation
methodology for the consolidated selling, general and
administrative expenses for the second quarter of 2009 is
consistent with the second quarter of 2008. Our consolidated
selling, general and administrative expenses before segment
allocations was $36 million lower in the second quarter of
2009 compared to the second quarter of 2008.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
104,073
|
|
|
$
|
130,903
|
|
|
$
|
(26,830
|
)
|
|
|
(20.5
|
)%
|
Segment operating profit
|
|
|
8,804
|
|
|
|
18,848
|
|
|
|
(10,044
|
)
|
|
|
(53.3
|
)
|
Overall net sales in the International segment were lower by
$27 million or 20% in the second quarter of 2009 compared
to the second quarter of 2008 primarily attributable to an
unfavorable impact of $13 million related to foreign
currency exchange rates and weak demand globally primarily in
Europe, Canada, and Japan which are experiencing recessionary
environments similar to that in the United States. Excluding the
impact of foreign exchange rates on currency, International
segment net sales declined by 11% in the second quarter of 2009
compared to the second quarter of 2008. The unfavorable impact
of foreign currency exchange rates in our International segment
was primarily due to the strengthening of the U.S. dollar
compared to the Mexican peso, Canadian dollar, Euro and
Brazilian real. During the second quarter of 2009, we
experienced lower net sales, in each case excluding the impact
of foreign currency exchange rates, in our casualwear business
in Europe of $9 million, in our casualwear business in
Puerto Rico of $3 million resulting from moving the
distribution capacity to the United States, in our intimate
apparel business in Canada of $2 million and in our male
underwear business in Japan of $1 million, partially offset
by higher sales in Mexico of $2 million in our intimate
apparel and male underwear businesses.
The International segment gross profit was lower by
$15 million in the second quarter of 2009 compared to the
second quarter of 2008. The lower gross profit is a result of
lower sales volume of $8 million, higher cost of finished
goods sourced from third party manufacturers of $7 million
primarily resulting from foreign exchange transaction losses, an
unfavorable impact related to foreign currency exchange rates of
$4 million and an unfavorable product sales mix of
$2 million. These higher costs were partially offset by
higher product pricing of $3 million and lower sales incentives
of $3 million.
40
As a percent of segment net sales, gross profit in the
International segment was 35.8% in the second quarter of 2009
compared to the second quarter of 2008 at 40.2%, declining as a
result of the items described above.
The lower International segment operating profit in the second
quarter of 2009 compared to the second quarter of 2008 is
primarily attributable to the lower gross profit, partially
offset by lower selling and other marketing related expenses of
$4 million. The changes in foreign currency exchange rates,
which are included in the impact on gross profit above, had an
unfavorable impact on segment operating profit of
$1 million in the second quarter of 2009 compared to the
second quarter of 2008.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
42,584
|
|
|
$
|
49,734
|
|
|
$
|
(7,150
|
)
|
|
|
(14.4
|
)%
|
Segment operating profit
|
|
|
12,280
|
|
|
|
15,742
|
|
|
|
(3,462
|
)
|
|
|
(22.0
|
)
|
Net sales in the Hosiery segment declined by $7 million or
14%, which was substantially more than the long-term industry
trend primarily due to lower sales of our Leggs
brand to mass retailers and food and drug stores and our
Hanes brand to national chains and department stores.
Hosiery products continue to be more adversely impacted by
reduced consumer discretionary spending than other apparel
categories, which contributes to weaker retail sales and
lowering of inventory levels by retailers. We expect the trend
of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences. Generally, we manage the Hosiery segment for cash,
placing an emphasis on reducing our cost structure and managing
cash efficiently.
The Hosiery segment gross profit was lower by $5 million in
the second quarter of 2009 compared to the second quarter of
2008. The lower gross profit for the second quarter of 2009
compared to the second quarter of 2008 is the result of lower
sales volume of $7 million and higher other manufacturing
costs of $2 million partially offset by higher product
pricing of $3 million and lower sales incentives of
$2 million.
As a percent of segment net sales, gross profit in the Hosiery
segment was 44.3% in the second quarter of 2009 compared to
48.9% in the second quarter of 2008, declining as a result of
the items described above.
The lower Hosiery segment operating profit in the second quarter
of 2009 compared to the second quarter of 2008 is primarily
attributable to lower gross profit. A significant portion of the
selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
such segment. The allocation methodology for the consolidated
selling, general and administrative expenses for the second
quarter of 2009 is consistent with the second quarter of 2008.
Our consolidated selling, general and administrative expenses
before segment allocations was $36 million lower in the
second quarter of 2009 compared to the second quarter of 2008.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
5,634
|
|
|
$
|
4,174
|
|
|
$
|
1,460
|
|
|
|
35.0
|
%
|
Segment operating profit (loss)
|
|
|
(2,233
|
)
|
|
|
830
|
|
|
|
(3,063
|
)
|
|
|
(369.0
|
)
|
Sales in our Other segment consist of sales of nonfinished
fabric and yarn to third parties which are intended to maintain
asset utilization at certain manufacturing facilities and
generate break even margins. We expect sales of our Other
segment to continue to be insignificant to us as we complete the
implementation of our consolidation and globalization efforts.
41
General
Corporate Expenses
General corporate expenses were higher in the second quarter of
2009 compared to the second quarter of 2008 primarily due to
$4 million of higher foreign exchange transaction losses,
partially offset by $2 million of higher gains on sales of
assets.
Condensed
Consolidated Results of Operations Six Months Ended
July 4, 2009 Compared with Six Months Ended June 28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,843,863
|
|
|
$
|
2,060,018
|
|
|
$
|
(216,155
|
)
|
|
|
(10.5
|
)%
|
Cost of sales
|
|
|
1,258,596
|
|
|
|
1,334,098
|
|
|
|
(75,502
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
585,267
|
|
|
|
725,920
|
|
|
|
(140,653
|
)
|
|
|
(19.4
|
)
|
Selling, general and administrative expenses
|
|
|
453,937
|
|
|
|
521,039
|
|
|
|
(67,102
|
)
|
|
|
(12.9
|
)
|
Restructuring
|
|
|
31,215
|
|
|
|
4,000
|
|
|
|
27,215
|
|
|
|
680.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
100,115
|
|
|
|
200,881
|
|
|
|
(100,766
|
)
|
|
|
(50.2
|
)
|
Other expenses
|
|
|
4,114
|
|
|
|
|
|
|
|
4,114
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
81,607
|
|
|
|
78,029
|
|
|
|
3,578
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
14,394
|
|
|
|
122,852
|
|
|
|
(108,458
|
)
|
|
|
(88.3
|
)
|
Income tax expense
|
|
|
3,167
|
|
|
|
29,484
|
|
|
|
(26,317
|
)
|
|
|
(89.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,227
|
|
|
$
|
93,368
|
|
|
$
|
(82,141
|
)
|
|
|
(88.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
1,843,863
|
|
|
$
|
2,060,018
|
|
|
$
|
(216,155
|
)
|
|
|
(10.5
|
)%
|
Consolidated net sales were lower by $216 million or 10% in
the six months of 2009 compared to 2008. The net sales decline
in the six months of 2009 is primarily attributed to the
recessionary environment that continued into the first half of
2009. Retail sales for apparel continued to decline during 2009
at most of our largest customers as the continuing recession,
growing job losses and tight access to credit constrained
consumer spending. Retailer inventory levels during the first
half of 2009 are in line with current retail sales trends. Net
sales were also impacted by a shift of approximately
$5 million in our
back-to-school
shipments from July to June in 2009 as compared to 2008.
Innerwear, Outerwear, International and Hosiery segment net
sales were lower by $54 million (5%), $86 million
(16%), $48 million (20%) and $21 million (18%),
respectively, in the six months of 2009 compared to 2008. Our
Other segment net sales, as expected, were lower by
$7 million in the six months of 2009 compared to 2008.
Innerwear segment net sales were lower (5%) in the six months of
2009 compared to 2008, primarily due to lower net sales of
intimate apparel (11%) and socks (10%) primarily due to weak
sales at retail in this difficult economic environment,
partially offset by stronger net sales (7%) in our male
underwear product category.
Outerwear segment net sales were lower (16%) in the six months
of 2009 compared to 2008, primarily due to the lower casualwear
net sales in both the retail and wholesale channels, partially
offset by higher net sales (9%) of our Champion brand
activewear. Results for the six months of 2009 were negatively
impacted by
42
losses of seasonal programs in the retail casualwear channel
that will not continue to impact our results in the second half
of 2009.
International segment net sales were lower (20%) in the six
months of 2009 compared to 2008, primarily attributable to an
unfavorable impact of $24 million related to foreign
currency exchange rates and weak demand globally primarily in
Europe, Canada and Japan which are experiencing recessionary
environments similar to the United States. Excluding the impact
of foreign exchange rates on currency, International segment net
sales declined by 10% in the six months of 2009 compared to 2008.
Hosiery segment net sales were lower (18%) in the six months of
2009 compared to 2008, which was substantially more than the
long-term industry trend. Hosiery products in all channels
continue to be more adversely impacted by reduced consumer
discretionary spending than other apparel categories.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Gross profit
|
|
$
|
585,267
|
|
|
$
|
725,920
|
|
|
$
|
(140,653
|
)
|
|
|
(19.4
|
)%
|
Our gross profit was lower by $141 million in the six
months of 2009 compared to 2008. Gross profit was lower due to
lower sales volume of $98 million, unfavorable product
sales mix of $37 million and higher sales incentives of
$8 million. Other factors contributing to lower gross
profit were higher other manufacturing costs of $33 million
primarily related to lower volume and operating efficiencies at
our manufacturing facilities, higher production costs of
$23 million related to higher energy and oil-related costs,
including freight costs, other vendor price increases of
$14 million, a $9 million unfavorable impact related
to foreign currency exchange rates, higher cost of finished
goods sourced from third party manufacturers of $8 million
primarily resulting from foreign exchange transaction losses,
higher cotton costs of $6 million and $4 million of
higher
start-up and
shutdown costs associated with the consolidation and
globalization of our supply chain. The unfavorable impact of
foreign currency exchange rates in our International segment was
primarily due to the strengthening of the U.S. dollar
compared to the Mexican peso, Canadian dollar, Euro and
Brazilian real. In addition, in connection with the
consolidation and globalization of our supply chain, we incurred
one-time restructuring related write-offs of $3 million in
the six months of 2009 for stranded raw materials and work in
process inventory determined not to be salvageable or
cost-effective to relocate, which were offset by lower
accelerated depreciation of $5 million.
These higher expenses were partially offset by higher product
pricing of $63 million before increased sales incentives,
savings from our cost reduction initiatives and prior
restructuring actions of $25 million and lower on-going
excess and obsolete inventory costs of $11 million. The
higher product pricing is due to the implementation of an
average gross price increase of four percent in our domestic
product categories in February 2009. The range of price
increases varies by individual product category. The lower
excess and obsolete inventory costs in the first half of 2009
are attributable to both our continuous evaluation of inventory
levels and simplification of our product category offerings. We
realized these benefits by driving down obsolete inventory
levels through aggressive management and promotions.
The cotton prices reflected in our results were 62 cents per
pound in the six months of 2009 as compared to 58 cents per
pound in 2008. Energy and oil-related costs were higher due to a
spike in oil-related commodity prices during the summer of 2008.
Our results in the six months of 2009 were impacted by higher
costs for cotton and oil-related materials, however we started
to benefit in the second quarter from lower cotton costs and
will begin to benefit in the second half of 2009 from the lower
oil-related material costs and improved other manufacturing
costs. After taking into consideration the cotton costs
currently included in inventory and short-term supply
agreements, we expect our cost of cotton to average 55 cents per
pound for the full year of 2009 compared to 65 cents per pound
for 2008.
As a percent of net sales, our gross profit was 31.7% in the six
months of 2009 compared to 35.2% in 2008, declining as a result
of the items described above.
43
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Selling, general and administrative expenses
|
|
$
|
453,937
|
|
|
$
|
521,039
|
|
|
$
|
(67,102
|
)
|
|
|
(12.9
|
)%
|
Our selling, general and administrative expenses were
$67 million lower in the six months of 2009 compared to
2008. Our focus on cost reductions resulted in lower expenses in
the six months of 2009 compared to 2008 related to lower
technology expenses of $19 million, savings of
$14 million from our prior restructuring actions for
compensation and related benefits, lower selling and other
marketing related expenses of $4 million, lower non-media
related MAP expenses of $3 million, lower consulting
related expenses of $3 million and lower accelerated
depreciation of $1 million. In addition, our distribution
expenses were lower by $8 million in the second quarter of
2009 compared to 2008, which is primarily attributable to lower
sales volume that reduced our labor, postage and freight
expenses and lower rework expenses in our distribution centers.
Our media related MAP expenses were $34 million lower in
the six months of 2009 compared to 2008 as we chose to reduce
our spending. In addition, our media related MAP expenses were
higher in the six months of 2008 to support the launch of
Hanes No Ride Up Panties and marketing initiatives for
Playtex. MAP expenses may vary from period to period
during a fiscal year depending on the timing of our advertising
campaigns for retail selling seasons and product introductions.
Our pension and stock compensation expenses, which are noncash,
were higher by $16 million and $3 million,
respectively, in the six months of 2009 compared to 2008. The
higher pension expense is primarily due to the lower funded
status of our pension plans at the end of 2008, which resulted
from a decline in the fair value of plan assets due to the stock
markets performance during 2008 and a higher discount rate
at the end of 2008. We also incurred higher expenses of
$3 million in the six months of 2009 compared to 2008 as a
result of opening retail stores. We opened 15 retail stores
during the six months of 2009. Changes due to foreign currency
exchange rates, which are included in the impact of the changes
above, resulted in lower selling, general and administrative
expenses of $7 million in the six months of 2009 compared
to 2008.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Restructuring
|
|
$
|
31,215
|
|
|
$
|
4,000
|
|
|
$
|
27,215
|
|
|
|
680.4
|
%
|
During the six months of 2009, we approved actions to close
three manufacturing facilities and two distribution centers in
the Dominican Republic, the United States, Honduras and Canada,
and eliminate an aggregate of approximately 2,800 positions in
those countries and El Salvador. The production capacity
represented by the manufacturing facilities will be relocated to
lower cost locations in Asia, Central America and the Caribbean
Basin. The distribution capacity has been relocated to our West
Coast distribution facility in California in order to expand
capacity for goods we source from Asia. In addition,
approximately 300 management and administrative positions were
eliminated, with the majority of these positions based in the
United States. We recorded charges related to employee
termination and other benefits of $15 million recognized in
accordance with benefit plans previously communicated to the
affected employee group, exiting supply contracts of
$9 million and other exit costs of $7 million related
to moving equipment and inventory from closed facilities and
fixed asset impairment charges.
In the six months of 2009, we recorded one-time write-offs of
$3 million of stranded raw materials and work in process
inventory related to the closure of manufacturing facilities and
recorded in the Cost of sales line. The raw
materials and work in process inventory was determined not to be
salvageable or cost-effective to relocate. In addition, in
connection with our consolidation and globalization strategy, we
recognized non-cash charges of $2 million and
$7 million in six months of 2009 and the six months of
2008, respectively, in
44
the Cost of sales line and a noncash charge of
$1 million in the Selling, general and administrative
expenses line in the six months of 2008 related to
accelerated depreciation of buildings and equipment for
facilities that have been closed or will be closed.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During the six months of 2008, we incurred $4 million in
restructuring charges which primarily related to employee
termination and other benefits associated with plant closures
approved during that period.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Operating profit
|
|
$
|
100,115
|
|
|
$
|
200,881
|
|
|
$
|
(100,766
|
)
|
|
|
(50.2
|
)%
|
Operating profit was lower in the six months of 2009 compared to
2008 as a result of lower gross profit of $141 million and
higher restructuring and related charges of $27 million,
partially offset by lower selling, general and administrative
expenses of $67 million. Changes in foreign currency
exchange rates had an unfavorable impact on operating profit of
$2 million in the six months of 2009 compared to 2008.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Other expenses
|
|
$
|
4,114
|
|
|
$
|
|
|
|
$
|
4,114
|
|
|
|
NM
|
|
During the six months of 2009, we incurred costs of
$4 million to amend the Senior Secured Credit Facility and
the Accounts Receivable Securitization Facility. In March 2009,
we amended these credit facilities to provide for additional
cushion in our financial covenant requirements. These amendments
delay the most restrictive debt-leverage ratio requirements from
the fourth quarter of 2009 to the third quarter of 2011. In
April 2009, we amended the Accounts Receivable Securitization
Facility to generally increase over time the amount of funding
that will be available under the facility as compared to the
amount that would be available pursuant to the amendment to that
facility that we entered into in March 2009.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Interest expense, net
|
|
$
|
81,607
|
|
|
$
|
78,029
|
|
|
$
|
3,578
|
|
|
|
4.6
|
%
|
Interest expense, net was higher by $4 million in the six
months of 2009 compared to 2008. The amendments of our Senior
Secured Credit Facility and Accounts Receivable Securitization
Facility, which increased our interest-rate margin by
300 basis points and 325 basis points, respectively,
increased interest expense in the six months of 2009 by
$14 million, which was partially offset by a lower LIBOR
that reduced interest expense by $11 million. Our weighted
average interest rate on our outstanding debt was 6.79% during
the six months of 2009 compared to 6.35% in 2008.
At July 4, 2009, we had outstanding interest rate hedging
arrangements whereby we have capped the interest rate on
$400 million of our floating rate debt at 3.50% and have
fixed the interest rate on $1.4 billion of our floating
rate debt at approximately 4.16%. Approximately 81% of our total
debt outstanding at July 4, 2009 was at a fixed or capped
LIBOR rate.
45
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Income tax expense
|
|
$
|
3,167
|
|
|
$
|
29,484
|
|
|
$
|
(26,317
|
)
|
|
|
(89.3
|
)%
|
Our estimated annual effective income tax rate was 22% in the
six months of 2009 compared to 24% in 2008. The lower effective
income tax rate is attributable primarily to higher unremitted
earnings from foreign subsidiaries in the six months of 2009
taxed at rates lower than the U.S. statutory rate. Our
estimated annual effective tax rate reflects our strategic
initiative to make substantial capital investments outside the
United States in our global supply chain in 2009.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net income
|
|
$
|
11,227
|
|
|
$
|
93,368
|
|
|
$
|
(82,141
|
)
|
|
|
(88.0
|
)%
|
Net income for the six months of 2009 was lower than 2008
primarily due to lower operating profit of $101 million,
higher other expenses of $4 million and higher interest
expense of $4 million, partially offset by lower income tax
expense of $26 million.
46
Operating
Results by Business Segment Six Months Ended
July 4, 2009 Compared with Six Months Ended June 28,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,125,593
|
|
|
$
|
1,180,065
|
|
|
$
|
(54,472
|
)
|
|
|
(4.6
|
)%
|
Outerwear
|
|
|
446,561
|
|
|
|
532,342
|
|
|
|
(85,781
|
)
|
|
|
(16.1
|
)
|
International
|
|
|
187,275
|
|
|
|
235,539
|
|
|
|
(48,264
|
)
|
|
|
(20.5
|
)
|
Hosiery
|
|
|
95,356
|
|
|
|
116,475
|
|
|
|
(21,119
|
)
|
|
|
(18.1
|
)
|
Other
|
|
|
8,277
|
|
|
|
15,295
|
|
|
|
(7,018
|
)
|
|
|
(45.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
1,863,062
|
|
|
|
2,079,716
|
|
|
|
(216,654
|
)
|
|
|
(10.4
|
)
|
Intersegment
|
|
|
(19,199
|
)
|
|
|
(19,698
|
)
|
|
|
(499
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,843,863
|
|
|
$
|
2,060,018
|
|
|
$
|
(216,155
|
)
|
|
|
(10.5
|
)%
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
141,118
|
|
|
$
|
133,617
|
|
|
$
|
7,501
|
|
|
|
5.6
|
%
|
Outerwear
|
|
|
(12,100
|
)
|
|
|
36,344
|
|
|
|
(48,444
|
)
|
|
|
(133.3
|
)
|
International
|
|
|
18,872
|
|
|
|
33,652
|
|
|
|
(14,780
|
)
|
|
|
(43.9
|
)
|
Hosiery
|
|
|
28,844
|
|
|
|
39,863
|
|
|
|
(11,019
|
)
|
|
|
(27.6
|
)
|
Other
|
|
|
(2,683
|
)
|
|
|
(10
|
)
|
|
|
(2,673
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
174,051
|
|
|
|
243,466
|
|
|
|
(69,415
|
)
|
|
|
(28.5
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(30,664
|
)
|
|
|
(24,535
|
)
|
|
|
6,129
|
|
|
|
25.0
|
|
Amortization of trademarks and other intangibles
|
|
|
(6,181
|
)
|
|
|
(5,638
|
)
|
|
|
543
|
|
|
|
9.6
|
|
Restructuring
|
|
|
(31,215
|
)
|
|
|
(4,000
|
)
|
|
|
27,215
|
|
|
|
680.4
|
|
Inventory write-off included in cost of sales
|
|
|
(3,247
|
)
|
|
|
|
|
|
|
3,247
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
(2,274
|
)
|
|
|
(7,191
|
)
|
|
|
(4,917
|
)
|
|
|
(68.4
|
)
|
Accelerated depreciation included in selling,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
general and administrative expenses
|
|
|
(355
|
)
|
|
|
(1,221
|
)
|
|
|
(866
|
)
|
|
|
(70.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
100,115
|
|
|
|
200,881
|
|
|
|
(100,766
|
)
|
|
|
(50.2
|
)
|
Other expenses
|
|
|
(4,114
|
)
|
|
|
|
|
|
|
4,114
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(81,607
|
)
|
|
|
(78,029
|
)
|
|
|
3,578
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
14,394
|
|
|
$
|
122,852
|
|
|
$
|
(108,458
|
)
|
|
|
(88.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,125,593
|
|
|
$
|
1,180,065
|
|
|
$
|
(54,472
|
)
|
|
|
(4.6
|
)%
|
Segment operating profit
|
|
|
141,118
|
|
|
|
133,617
|
|
|
|
7,501
|
|
|
|
5.6
|
|
Overall net sales in the Innerwear segment were lower by
$54 million or 5% in the six months of 2009 compared to
2008 as we continued to be negatively impacted by weak consumer
demand related to the recessionary environment.
47
Total intimate apparel net sales were $55 million lower in
the six months of 2009 compared to 2008. Our intimate apparel
net sales, which we believe were primarily attributable to
weaker sales at retail, were lower in our Hanes brand of
$21 million, our Playtex brand of $17 million,
our smaller brands (barely there, Just My Size and
Wonderbra) of $16 million. Our Bali brand
intimate apparel net sales were $2 million higher compared
to 2008.
Total male underwear net sales were $18 million higher in
the six months of 2009 compared to 2008 which reflect higher net
sales in our Hanes brand of $25 million, partially
offset by lower net sales of our Champion brand of
$5 million. The higher Hanes brand male underwear
sales reflect growth in key segments of this category such as
crewneck and V-neck T-shirts and boxer briefs and product
innovations like the Comfort Fit waistbands. Lower net
sales in our socks products category reflect a decline in
mens and kids Hanes brand net sales of
$10 million and Champion brand net sales of
$4 million in the six months of 2009 compared to 2008. Net
sales in our
direct-to-consumer
retail business were $2 million lower due to lower internet
sales, partially offset by higher sales at our outlet stores
resulting from the addition of recently opened retail stores.
Net sales were also impacted by a shift of approximately
$5 million in our
back-to-school
shipments from July to June in 2009 as compared to 2008.
The Innerwear segment gross profit was lower by $34 million
in the six months of 2009 compared to 2008. The lower gross
profit is due to lower sales volume of $40 million, higher
production costs of $13 million related to higher energy
and oil-related costs, including freight costs, unfavorable
product sales mix of $12 million, higher other
manufacturing costs of $11 million, higher sales incentives
of $8 million, other vendor price increases of
$8 million and higher cotton costs of $3 million.
These higher costs were partially offset by higher product
pricing of $40 million before increased sales incentives,
savings from our cost reduction initiatives and prior
restructuring actions of $13 million and lower on-going
excess and obsolete inventory costs of $8 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 37.4% in the six months of 2009 compared to 38.5% in
2008, declining as a result of the items described above.
The higher Innerwear segment operating profit in the six months
of 2009 compared to 2008 is primarily attributable to lower
media related MAP expenses of $32 million, lower technology
expenses of $10 million, savings of $9 million from
prior restructuring actions primarily for compensation and
related benefits and lower distribution expenses of
$3 million, partially offset by lower gross profit, higher
pension expense of $9 million and higher expenses of
$3 million as a result of opening retail stores. A
significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology for
the consolidated selling, general and administrative expenses
for the six months of 2009 is consistent with 2008. Our
consolidated selling, general and administrative expenses before
segment allocations was $67 million lower in the six months
of 2009 compared to 2008.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
446,561
|
|
|
$
|
532,342
|
|
|
$
|
(85,781
|
)
|
|
|
(16.1
|
)%
|
Segment operating profit
|
|
|
(12,100
|
)
|
|
|
36,344
|
|
|
|
(48,444
|
)
|
|
|
(133.3
|
)
|
Net sales in the Outerwear segment were lower by
$86 million or 16% in the six months of 2009 compared to
2008, primarily as a result of lower casualwear net sales in
both our retail and wholesale channels of $73 million and
$33 million, respectively. The lower retail casualwear net
sales reflect an $89 million impact due to the losses of
seasonal programs not renewed for 2009, partially offset by
additional sales in the second quarter of 2009 resulting from an
exclusive long-term agreement entered into with Wal-Mart in
April 2009 that significantly expands the presence of our
Just My Size brand in all Wal-Mart stores. The losses of
48
seasonal programs will not continue to impact our results in the
second half of 2009. These decreases were partially offset by
higher net sales of our Champion brand activewear of
$16 million. Our Champion brand sales continue to
benefit from our marketing investment in the brand.
The Outerwear segment gross profit was lower by $60 million
in the six months of 2009 compared to 2008. The lower gross
profit is due to lower sales volume of $24 million,
unfavorable product sales mix of $23 million, higher other
manufacturing costs of $16 million, higher production costs
of $10 million related to higher energy and oil-related
costs, including freight costs, other vendor price increases of
$5 million, higher sales incentives of $5 million and
higher cotton costs of $3 million. These higher costs were
partially offset by higher product pricing of $13 million before
increased sales incentives, savings of $12 million from our
cost reduction initiatives and prior restructuring actions and
lower on-going excess and obsolete inventory costs of
$2 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 15.7% in the six months of 2009 compared to 24.4% in
2008, declining as a result of the items described above.
The Outerwear segment operating loss in the six months of 2009
compared to the segment operating profit in 2008 is primarily
attributable to lower gross profit and higher pension expense of
$4 million, partially offset by lower technology expenses
of $5 million, savings of $4 million from our cost
reduction initiatives and prior restructuring actions, lower
non-media related MAP expenses of $3 million and lower
distribution expenses of $2 million. A significant portion
of the selling, general and administrative expenses in each
segment is an allocation of our consolidated selling, general
and administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
such segment. The allocation methodology for the consolidated
selling, general and administrative expenses for the six months
of 2009 is consistent with 2008. Our consolidated selling,
general and administrative expenses before segment allocations
was $67 million lower in the six months of 2009 compared to
2008.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
187,275
|
|
|
$
|
235,539
|
|
|
$
|
(48,264
|
)
|
|
|
(20.5
|
)%
|
Segment operating profit
|
|
|
18,872
|
|
|
|
33,652
|
|
|
|
(14,780
|
)
|
|
|
(43.9
|
)
|
Overall net sales in the International segment were lower by
$48 million or 20% in the six months of 2009 compared to
2008 primarily attributable to an unfavorable impact of
$24 million related to foreign currency exchange rates and
weak demand globally primarily in Europe, Canada, and Japan
which are experiencing recessionary environments similar to that
in the United States. Excluding the impact of foreign exchange
rates on currency, International segment net sales declined by
10% in the six months of 2009 compared to 2008. The unfavorable
impact of foreign currency exchange rates was primarily due to
the strengthening of the U.S. dollar compared to the Mexican
peso, Canadian dollar, Euro and Brazilian real. During the six
months of 2009, we experienced lower net sales, in each case
excluding the impact of foreign currency exchange rates, in our
casualwear business in Europe of $14 million, in our
casualwear business in Puerto Rico of $6 million resulting
from moving the distribution capacity to the United States, in
our intimate apparel business in Canada of $5 million and
in our male underwear business in Japan of $3 million,
partially offset by higher sales in Mexico of $4 million in
our intimate apparel and male underwear businesses.
The International segment gross profit was lower by
$24 million in the six months of 2009 compared to 2008. The
lower gross profit is a result of lower sales volume of
$12 million, an unfavorable impact related to foreign
currency exchange rates of $9 million, higher cost of
finished goods sourced from third party manufacturers of $8
million primarily resulting from foreign exchange transaction
losses and an unfavorable product sales mix of $4 million.
These higher costs were partially offset by higher product
pricing of $5 million and lower sales incentives of
$3 million.
49
As a percent of segment net sales, gross profit in the
International segment was 39.0% in the six months of 2009
compared to 2008 at 41.3%, declining as a result of the items
described above.
The lower International segment operating profit in the six
months of 2009 compared to 2008 is primarily attributable to the
lower gross profit, partially offset by lower selling and other
marketing related expenses of $4 million, lower
distribution expenses of $2 million and lower media related
MAP expenses of $1 million. The changes in foreign currency
exchange rates, which are included in the impact on gross profit
above, had an unfavorable impact on segment operating profit of
$2 million in the six months of 2009 compared to 2008.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 4,
|
|
|
June 28,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
95,356
|
|
|
$
|
116,475
|
|
|
$
|
(21,119
|
)
|
|
|
(18.1
|
)%
|
Segment operating profit
|
|
|
28,844
|
|
|
|
39,863
|
|
|
|
(11,019
|
)
|
|
|
(27.6
|
)
|
Net sales in the Hosiery segment declined by $21 million or
18%, which was substantially more than the long-term industry
trend primarily due to lower sales of our Leggs
brand to mass retailers and food and drug stores and our
Hanes brand to national chains and department stores.
Hosiery products continue to be more adversely impacted by
reduced consumer discretionary spending than other apparel
categories, which contributes to weaker retail sales and
lowering of inventory levels by retailers. We expect the trend
of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences. Generally, we manage the Hosiery segment for cash,
placing an emphasis on reducing our cost structure and managing
cash efficiently.
The Hosiery segment gross profit was lower by $16 million
in the six months of 2009 compared to 2008. The lower gross
profit for the six months of 2009 compared to 2008 is the result
of lower sales volume of $16 million and higher other
manufacturing costs of $6 million, partially offset by
higher product pricing of $6 million and lower sales incentives
of $2 million.
As a percent of segment net sales, gross profit in the Hosiery
segment was 46.2% in the six months of 2009 compared to 51.3% in
2008, declining as a result of the items described above.
The lower Hosiery segment operating profit in the six months of
2009 compared to 2008 is primarily attributable to lower gross
profit, partially offset by lower distribution expenses of
$2 million and lower technology expenses of
$1 million. A significant portion of the selling, general
and administrative expenses in each segment is an allocation of
our consolidated selling, general and administrative expenses,
however certain expenses that are specifically identifiable to a
segment are charged directly to such segment. The allocation
methodology for the consolidated selling, general and
administrative expenses for the six months of 2009 is consistent
with 2008. Our consolidated selling, general and administrative
expenses before segment allocations was $67 million lower
in the six months of 2009 compared to 2008.
Other