e10vq
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 3, 2010
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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
(State of
incorporation)
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20-3552316
(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 þ 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. (Check one):
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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 July 26, 2010, there were 95,663,822 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 2, 2010, 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 2, 2010, particularly under the
caption Risk Factors. We undertake no obligation to
update or revise forward-looking statements that may be made to
reflect events or circumstances that arise after the date made
or to reflect the occurrence of unanticipated events, other than
as required by law.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can 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 website 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 website,
www.hanesbrands.com, we do not incorporate our website 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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Quarter Ended
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Six Months Ended
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July 3,
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July 4,
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July 3,
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July 4,
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2010
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2009
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2010
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2009
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Net sales
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$
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1,075,852
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$
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986,022
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$
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2,003,692
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$
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1,843,863
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Cost of sales
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701,046
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658,631
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1,301,456
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1,258,596
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Gross profit
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374,806
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327,391
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702,236
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585,267
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Selling, general and administrative expenses
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252,001
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230,699
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493,719
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453,937
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Restructuring
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12,544
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31,215
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Operating profit
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122,805
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84,148
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208,517
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100,115
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Other expenses
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2,628
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168
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4,034
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4,114
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Interest expense, net
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36,573
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44,807
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74,068
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81,607
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Income before income tax expense (benefit)
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83,604
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39,173
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130,415
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14,394
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Income tax expense (benefit)
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(1,808
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)
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8,618
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8,490
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3,167
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Net income
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$
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85,412
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$
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30,555
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$
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121,925
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$
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11,227
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Earnings per share:
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Basic
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$
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0.89
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$
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0.32
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$
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1.27
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$
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0.12
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Diluted
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$
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0.87
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$
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0.32
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$
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1.25
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$
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0.12
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Weighted average shares outstanding:
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Basic
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96,420
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95,023
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96,376
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94,724
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Diluted
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98,027
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96,167
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97,781
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95,607
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
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July 3,
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January 2,
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2010
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2010
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Assets
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Cash and cash equivalents
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$
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36,797
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$
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38,943
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Trade accounts receivable less allowances of $25,414 at
July 3, 2010 and $25,776 at January 2, 2010
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512,801
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450,541
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Inventories
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1,295,621
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1,049,204
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Deferred tax assets and other current assets
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271,945
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283,869
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Total current assets
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2,117,164
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1,822,557
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Property, net
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595,687
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602,826
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Trademarks and other identifiable intangibles, net
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131,432
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136,214
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Goodwill
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322,002
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322,002
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Deferred tax assets and other noncurrent assets
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447,436
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442,965
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Total assets
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$
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3,613,721
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$
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3,326,564
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Liabilities and Stockholders Equity
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Accounts payable
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$
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460,339
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$
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351,971
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Accrued liabilities
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267,266
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295,635
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Notes payable
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32,429
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66,681
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Current portion of debt
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132,515
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164,688
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Total current liabilities
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892,549
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878,975
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Long-term debt
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1,868,672
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1,727,547
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Other noncurrent liabilities
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390,217
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385,323
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Total liabilities
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3,151,438
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2,991,845
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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; $.01 par value)
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Issued and outstanding 95,663,822 at July 3,
2010 and 95,396,967 at January 2, 2010
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957
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954
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Additional paid-in capital
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293,826
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287,955
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Retained earnings
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390,730
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268,805
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Accumulated other comprehensive loss
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(223,230
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(222,995
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Total stockholders equity
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462,283
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334,719
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Total liabilities and stockholders equity
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$
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3,613,721
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$
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3,326,564
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See accompanying notes to Condensed Consolidated Financial
Statements.
3
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Six Months Ended
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July 3,
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July 4,
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2010
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2009
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Operating activities:
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Net income
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$
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121,925
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$
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11,227
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Adjustments to reconcile net income to net cash provided by
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(used in) operating activities:
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Depreciation
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36,601
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39,448
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Amortization of intangibles
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6,128
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6,181
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Restructuring
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(1,554
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Write-off on early extinguishment of debt
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2,340
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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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6,482
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4,915
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Amortization of loss on interest rate hedge
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9,542
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Stock compensation expense
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5,818
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18,382
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Deferred taxes and other
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(7,649
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(7,281
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)
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Changes in assets and liabilities:
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Accounts receivable
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(63,694
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(98,093
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Inventories
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(249,419
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)
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59,144
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Other assets
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14,161
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18,915
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Accounts payable
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108,013
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(36,006
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)
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Accrued liabilities and other
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(54,520
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)
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7,125
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Net cash provided by (used in) operating activities
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(64,272
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26,517
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Investing activities:
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Purchases of property, plant and equipment
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(58,099
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(77,816
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)
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Proceeds from sales of assets
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45,196
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8,779
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Other
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(519
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)
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Net cash used in investing activities
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(13,422
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(69,037
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Financing activities:
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Borrowings on notes payable
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631,745
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818,880
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Repayments on notes payable
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(665,991
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)
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(816,676
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Payments to amend credit facilities
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(22,165
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)
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Borrowings on revolving loan facility
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1,075,000
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949,525
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Repayments on revolving loan facility
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(939,500
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)
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(889,525
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)
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Repayment of debt under 2009 Senior Secured Credit Facility
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(59,063
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)
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Borrowings on Accounts Receivable Securitization Facility
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149,406
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128,009
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Repayments on Accounts Receivable Securitization Facility
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(116,891
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)
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(144,626
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)
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Proceeds from stock options exercised
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1,420
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Other
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121
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(594
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)
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Net cash provided by financing activities
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76,247
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22,828
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Effect of changes in foreign exchange rates on cash
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(699
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)
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(89
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)
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Decrease in cash and cash equivalents
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(2,146
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)
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(19,781
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)
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Cash and cash equivalents at beginning of year
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38,943
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67,342
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Cash and cash equivalents at end of period
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$
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36,797
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$
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47,561
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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
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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.
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.
To reflect a change previously made in the classification of
freight expenses payable, a revision to the six months ended
July 4, 2009 Condensed Consolidated Statement of Cash Flows
was made to reclassify changes in cash related to these payables
from Accrued Liabilities and Other to Accounts Payable. This
reclassification had no impact on the Companys previously
reported total net cash flows from operating, investing or
financing activities.
|
|
(2)
|
Recent
Accounting Pronouncements
|
Accounting
for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board
(FASB) issued new accounting rules for transfers of
financial assets. The new rules require greater transparency and
additional disclosures for transfers of financial assets and the
entitys continuing involvement with them and changes the
requirements for derecognizing financial assets. The new
accounting rules are effective for financial asset transfers
occurring after the beginning of the Companys first fiscal
year that begins after November 15, 2009. The adoption of
these new rules did not have a material impact on the financial
condition, results of operations or cash flows of the Company.
Consolidation
Variable Interest Entities
In June 2009, the FASB issued new accounting rules related to
the accounting and disclosure requirements for the consolidation
of variable interest entities. The new accounting rules are
effective for the Companys first fiscal year that begins
after November 15, 2009. The adoption of these new rules
did not have a material impact on the financial condition,
results of operations or cash flows of the Company.
Fair
Value Disclosures
In January 2010, the FASB issued new accounting rules related to
the disclosure requirements for fair value measurements. The new
accounting rules require new disclosures regarding significant
transfers between Levels 1 and 2 of the fair value
hierarchy and the activity within Level 3 of the fair value
hierarchy. The new accounting rules also clarify existing
disclosures regarding the level of disaggregation of assets or
liabilities
5
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
and the valuation techniques and inputs used to measure fair
value. The new accounting rules are effective for the
Companys first interim fiscal period beginning after
December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the rollforward
of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those
fiscal years. The adoption of the disclosures effective for the
Companys first interim fiscal period beginning after
December 15, 2009 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.
(3) Earnings
Per Share
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 3, 2010 and July 4, 2009. 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 3, 2010 and July 4, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Basic weighted average shares
|
|
|
96,420
|
|
|
|
95,023
|
|
|
|
96,376
|
|
|
|
94,724
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,062
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
Restricted stock units
|
|
|
542
|
|
|
|
1,049
|
|
|
|
561
|
|
|
|
730
|
|
Employee stock purchase plan and other
|
|
|
3
|
|
|
|
95
|
|
|
|
2
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
98,027
|
|
|
|
96,167
|
|
|
|
97,781
|
|
|
|
95,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarters ended July 3, 2010 and July 4, 2009,
options to purchase 606 and 5,943 shares of common stock,
respectively, were excluded from the diluted earnings per share
calculation because their effect would be anti-dilutive. For the
six months ended July 3, 2010 and July 4, 2009, 0 and
48 restricted stock units, respectively, and options to purchase
606 and 5,943 shares of common stock, respectively, were
excluded from the diluted earnings per share calculation because
their effect would be anti-dilutive.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
January 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
Raw materials
|
|
$
|
142,522
|
|
|
$
|
106,138
|
|
Work in process
|
|
|
142,445
|
|
|
|
100,686
|
|
Finished goods
|
|
|
1,010,654
|
|
|
|
842,380
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,295,621
|
|
|
$
|
1,049,204
|
|
|
|
|
|
|
|
|
|
|
6
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
(5)
|
Trade
Accounts Receivable
|
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 3, 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
|
|
|
|
|
Allowance
|
|
|
for
|
|
|
|
|
|
|
for
|
|
|
Chargebacks
|
|
|
|
|
|
|
Doubtful
|
|
|
and Other
|
|
|
|
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Total
|
|
|
Balance at January 2, 2010
|
|
$
|
15,502
|
|
|
$
|
10,274
|
|
|
$
|
25,776
|
|
Charged to expenses
|
|
|
(107
|
)
|
|
|
6,026
|
|
|
|
5,919
|
|
Deductions and write-offs
|
|
|
(53
|
)
|
|
|
(893
|
)
|
|
|
(946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2010
|
|
|
15,342
|
|
|
|
15,407
|
|
|
|
30,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to expenses
|
|
|
(1,617
|
)
|
|
|
(1,852
|
)
|
|
|
(3,469
|
)
|
Deductions and write-offs
|
|
|
(79
|
)
|
|
|
(1,787
|
)
|
|
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2010
|
|
$
|
13,646
|
|
|
$
|
11,768
|
|
|
$
|
25,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 receivable and allowed customer chargebacks
and deductions against gross accounts receivable.
Sales
of Accounts Receivable
In March 2010, the Company entered into an agreement to sell
selected trade accounts receivable to a financial institution.
After the sale, the Company does not retain any interests in the
receivables and the financial institution services and collects
these accounts receivable directly from the customer. Net
proceeds of this accounts receivable sale program are recognized
in the Condensed Consolidated Statement of Cash Flows as part of
operating cash flows. The funding fees charged for this program
are recorded in the Other expenses line in the
Condensed Consolidated Statement of Income.
During the quarter and six months ended July 3, 2010, the
Company recognized funding fees of $974 and $1,463,
respectively, for sales of accounts receivable to financial
institutions in the Other expenses line in the
Condensed Consolidated Statements of Income.
7
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Company had the following debt at July 3, 2010 and
January 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
|
|
July 3,
|
|
|
July 3,
|
|
|
January 2,
|
|
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Maturity Date
|
|
2009 Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan Facility
|
|
|
5.25
|
%
|
|
$
|
690,937
|
|
|
$
|
750,000
|
|
|
December 2015
|
Revolving Loan Facility
|
|
|
4.93
|
%
|
|
|
187,000
|
|
|
|
51,500
|
|
|
December 2013
|
8% Senior Notes
|
|
|
8.00
|
%
|
|
|
500,000
|
|
|
|
500,000
|
|
|
December 2016
|
Floating Rate Senior Notes
|
|
|
4.12
|
%
|
|
|
490,735
|
|
|
|
490,735
|
|
|
December 2014
|
Accounts Receivable Securitization Facility
|
|
|
2.90
|
%
|
|
|
132,515
|
|
|
|
100,000
|
|
|
December 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,001,187
|
|
|
|
1,892,235
|
|
|
|
Less current maturities
|
|
|
|
|
|
|
132,515
|
|
|
|
164,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,868,672
|
|
|
$
|
1,727,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2010, the Company had $187,000 outstanding
under the $400,000 revolving loan facility under the senior
secured credit facility that the Company entered into in 2006
(the 2006 Senior Secured Credit Facility) and
amended and restated in December 2009 (as amended and restated,
the 2009 Senior Secured Credit Facility), $19,246 of
standby and trade letters of credit issued and outstanding under
this facility and $193,754 of borrowing availability.
On January 29, 2010, in recognition of the lower trade
accounts receivable balance resulting from the sale by the
Company of certain trade accounts receivable to a financial
institution outside the accounts receivable securitization
facility that the Company entered into in November 2007 (the
Accounts Receivable Securitization Facility), HBI
Receivables LLC, the Companys wholly-owned
bankruptcy-remote subsidiary that is a party to such facility,
gave notice to the agent and the managing agents under the
Accounts Receivable Securitization Facility that, as permitted
by the terms of such facility, effective February 11, 2010,
the amount of funding available under the Accounts Receivable
Securitization Facility was being reduced from $250,000 to
$150,000. During the quarter and six months ended July 3,
2010, the Company recognized $0 and $686, respectively, of a
write-off on early extinguishment of debt related to unamortized
debt issuance costs on the Accounts Receivable Securitization
Facility as a result of the reduction in borrowing capacity.
During the quarter and six months ended July 3, 2010, the
Company recognized $1,654 of a write-off on early extinguishment
of debt related to unamortized debt issuance costs on the 2009
Senior Secured Credit Facility as a result of the prepayment of
$57,188 of principal in April 2010. The Company also recognized
$0 and $231 in additional charges related to the amendments of
credit facilities in 2009 during the quarter and six months
ended July 3, 2010, respectively. These charges are
reflected in the Other expenses line of the
Condensed Consolidated Statements of Income.
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 amendments of the 2006 Senior Secured Credit Facility
and the Accounts Receivable Securitization Facility.
As of July 3, 2010, the Company was in compliance with all
covenants under its credit facilities.
|
|
(7)
|
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
8
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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.
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.
Mark 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 3, 2010, the
U.S. dollar equivalent of commitments to purchase and sell
foreign currencies in the Companys foreign currency mark
to market hedge derivative portfolio is $11,756 and $41,692,
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
loss is reported on the same line in the Condensed
Consolidated Statements of Income as the hedged item.
9
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Cash Flow
Hedges Interest Rate Derivatives
The Company has executed in the past 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 floating
rate debt. 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.
The Company is required under the 2009 Senior Secured Credit
Facility to hedge a portion of its floating rate debt to reduce
interest rate risk caused by floating rate debt issuance. To
comply with this requirement, in the quarter ended April 3,
2010, the Company entered into hedging arrangements whereby it
capped the LIBOR interest rate component on an aggregate of
$490,735 of the floating rate debt under the Floating Rate
Senior Notes at 4.262%. The interest rate cap arrangements, with
notional amounts of $240,735 and $250,000, expire in December
2011.
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.
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 3, 2010, the U.S. dollar equivalent
of commitments to sell foreign currencies in the Companys
foreign currency cash flow hedge derivative portfolio was
$28,302, using the exchange rate at that date.
Cash Flow
Hedges Commodity Derivatives
Cotton is the primary raw material used to manufacture many of
the Companys 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 3, 2010
and January 2, 2010.
10
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Fair
Values of Derivative Instruments
The fair values of derivative financial instruments recognized
in the Condensed Consolidated Balance Sheets of the Company were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
July 3,
|
|
|
January 2,
|
|
|
|
Balance Sheet Location
|
|
2010
|
|
|
2010
|
|
|
Derivative assets hedges
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Other assets
|
|
$
|
102
|
|
|
$
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
157
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets hedges
|
|
|
|
|
259
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
1,015
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
|
$
|
1,274
|
|
|
$
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(304
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities hedges
|
|
|
|
|
(304
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(312
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
$
|
(616
|
)
|
|
$
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset
|
|
|
|
$
|
658
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3,
|
|
|
July 4,
|
|
|
Loss into Income
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
(Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
$
|
(247
|
)
|
|
$
|
6,996
|
|
|
Interest expense, net
|
|
$
|
(4,765
|
)
|
|
$
|
(101
|
)
|
Foreign exchange contracts
|
|
|
1,222
|
|
|
|
(1,739
|
)
|
|
Cost of sales
|
|
|
153
|
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
975
|
|
|
$
|
5,257
|
|
|
|
|
$
|
(4,612
|
)
|
|
$
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3,
|
|
|
July 4,
|
|
|
Loss into Income
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
(Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
$
|
(417
|
)
|
|
$
|
18,012
|
|
|
Interest expense, net
|
|
$
|
(9,622
|
)
|
|
$
|
(129
|
)
|
Foreign exchange contracts
|
|
|
291
|
|
|
|
(869
|
)
|
|
Cost of sales
|
|
|
(624
|
)
|
|
|
1,113
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(126
|
)
|
|
$
|
17,143
|
|
|
|
|
$
|
(10,246
|
)
|
|
$
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to reclassify into earnings during the next
12 months a net loss from Accumulated Other Comprehensive
Loss of approximately $14,783.
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 gains (losses) for
the quarter and six months ended July 3, 2010 related to
ineffectiveness of hedging relationships for foreign exchange
contracts of $(2) and $7, respectively. 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 six months
ended July 4, 2009 of $144, consisting of $152 for interest
rate contracts and $(8) for foreign exchange contracts.
The effect of mark to market hedge derivative instruments on the
Condensed Consolidated Statements of Income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
|
Recognized in Income
|
|
|
Recognized in Income
|
|
|
|
Location of Gain (Loss)
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
Recognized in Income on
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
Derivative
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Foreign exchange
contracts
|
|
|
Selling, general and
administrative expenses
|
|
|
$
|
2,573
|
|
|
$
|
1,132
|
|
|
$
|
529
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,573
|
|
|
$
|
1,132
|
|
|
$
|
529
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
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.
12
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
As of July 3, 2010, 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 Companys defined benefit
pension plan investments are not required to be measured at fair
value on a recurring basis. The fair values of interest rate
derivatives are determined with pricing models using LIBOR
interest rate curves, spreads, volatilities and other relevant
information developed using market data and are categorized as
Level 2. The fair values of foreign currency derivatives
are determined using the cash flows of the foreign exchange
contract, discount rates to account for the passage of time and
current foreign exchange market data and are categorized as
Level 2.
There were no changes during the quarter ended July 3, 2010
to the Companys valuation techniques used to measure asset
and liability fair values on a recurring basis. There were no
transfers between the three level categories and there were no
Level 3 assets or liabilities measured on a quarterly basis
during the quarter ended July 3, 2010. As of July 3,
2010, the Company did not have any non-financial assets or
liabilities that are required to be measured at fair value on a
recurring or non-recurring basis.
The following tables set forth by level within the fair value
hierarchy the Companys financial assets and liabilities
accounted for at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of
|
|
|
|
July 3, 2010
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Foreign exchange derivative contracts
|
|
$
|
|
|
|
$
|
1,172
|
|
|
$
|
|
|
Foreign exchange derivative contracts
|
|
|
|
|
|
|
(616
|
)
|
|
|
|
|
Interest rate derivative contracts
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
658
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of
|
|
|
|
January 2, 2010
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Foreign exchange derivative contracts
|
|
$
|
|
|
|
$
|
614
|
|
|
$
|
|
|
Foreign exchange derivative contracts
|
|
|
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
75
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3, 2010 and
January 2, 2010. The fair value of debt was $1,974,227 and
$1,881,868 as of July 3, 2010 and January 2, 2010 and
had a carrying value of $2,001,187 and $1,892,235, 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 3, 2010 and January 2, 2010, primarily due to
the short-term nature of these instruments.
13
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Companys comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$
|
85,412
|
|
|
$
|
30,555
|
|
|
$
|
121,925
|
|
|
$
|
11,227
|
|
Translation adjustments
|
|
|
(6,831
|
)
|
|
|
10,791
|
|
|
|
(6,320
|
)
|
|
|
8,256
|
|
Amortization of loss on interest rate hedge, net of tax of
$1,880, $0, $3,804 and $0, respectively
|
|
|
2,837
|
|
|
|
|
|
|
|
5,737
|
|
|
|
|
|
Net derivative activity on qualifying cash flow hedges, net of
tax of $347, $2,170, $231 and $6,324, respectively
|
|
|
523
|
|
|
|
3,407
|
|
|
|
348
|
|
|
|
9,931
|
|
Amounts amortized into net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost, net of tax of $3, $3, $6 and $6, respectively
|
|
|
4
|
|
|
|
4
|
|
|
|
8
|
|
|
|
8
|
|
Actuarial loss, net of tax of $860, $810, $1,720 and $1,620,
respectively
|
|
|
1,297
|
|
|
|
1,271
|
|
|
|
2,594
|
|
|
|
2,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
83,242
|
|
|
$
|
46,028
|
|
|
$
|
124,292
|
|
|
$
|
31,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective income tax rate was (2)% and 7% for
the quarter and six months ended July 3, 2010,
respectively, and 22% for the quarter and six months ended
July 3, 2009.
The effective income tax rate of (2)% and 7% for the quarter and
six months ended July 3, 2010, respectively, was primarily
attributable to a discrete, non-recurring income tax benefit of
approximately $17 million and $20 million for the
quarter and six months ended July 3, 2010, respectively.
The income tax benefit resulted from a change in estimate
associated with the remeasurement of unrecognized tax benefit
accruals and the determination that certain tax positions had
been effectively settled following the finalization of tax
reviews and audits for amounts that were less than originally
anticipated. This non-recurring income tax benefit was partially
offset by a lower proportion of the Companys earnings
attributed to foreign subsidiaries than in the quarter and six
months ended July 4, 2009 which are taxed at rates lower
than the U.S. statutory rate.
The Company and Sara Lee Corporation (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
14
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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.
Based on the Companys computation of the final amount of
deferred taxes for the Companys opening balance sheet as
of September 6, 2006, the amount that is expected to be
collected from Sara Lee based on the Companys computation
of $72,223, which reflects a preliminary cash installment
received from Sara Lee of $18,000, is included as a receivable
in Deferred tax assets and other current assets in
the Condensed Consolidated Balance Sheets as of July 3,
2010 and January 2, 2010. 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 arbitration process is
ongoing, and the Company will continue to prosecute its claim.
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.
|
|
(11)
|
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, Hosiery,
Direct to Consumer and International. These segments are
organized principally by product category, geographic location
and distribution channel. Management of each segment is
responsible for the operations of these segments
businesses but shares a common supply chain and media and
marketing platforms. In October 2009, the Company completed the
sale of its yarn operations and, as a result, the Company no
longer has net sales in the Other segment, which was primarily
comprised of sales of yarn to third parties.
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 and socks.
|
|
|
|
Outerwear sells basic branded products that are primarily
seasonal in nature under the product categories of casualwear
and activewear.
|
|
|
|
Hosiery sells products in categories such as pantyhose, knee
highs and tights.
|
|
|
|
Direct to Consumer includes the Companys value-based
(outlet) stores and Internet operations which sell
products from the Companys portfolio of leading brands.
The Companys Internet operations are supported by its
catalogs.
|
|
|
|
International relates to the Latin America, Asia, Canada, Europe
and South America geographic locations which sell products that
span across the Innerwear, Outerwear and Hosiery reportable
segments.
|
The Company evaluates the operating performance of its segments
based upon segment operating profit, which is defined as
operating profit before general corporate expenses, 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 2, 2010.
15
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 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
559,250
|
|
|
$
|
508,337
|
|
|
$
|
1,010,067
|
|
|
$
|
926,327
|
|
Outerwear
|
|
|
263,331
|
|
|
|
226,835
|
|
|
|
505,179
|
|
|
|
444,346
|
|
Hosiery
|
|
|
31,923
|
|
|
|
39,966
|
|
|
|
79,831
|
|
|
|
90,348
|
|
Direct to Consumer
|
|
|
93,861
|
|
|
|
93,458
|
|
|
|
178,353
|
|
|
|
174,854
|
|
International
|
|
|
127,487
|
|
|
|
111,792
|
|
|
|
230,262
|
|
|
|
199,711
|
|
Other
|
|
|
|
|
|
|
5,634
|
|
|
|
|
|
|
|
8,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,075,852
|
|
|
$
|
986,022
|
|
|
$
|
2,003,692
|
|
|
$
|
1,843,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
88,695
|
|
|
$
|
83,312
|
|
|
$
|
163,671
|
|
|
$
|
130,668
|
|
Outerwear
|
|
|
17,361
|
|
|
|
6,882
|
|
|
|
22,323
|
|
|
|
(6,837
|
)
|
Hosiery
|
|
|
8,833
|
|
|
|
12,104
|
|
|
|
27,339
|
|
|
|
29,577
|
|
Direct to Consumer
|
|
|
7,264
|
|
|
|
10,938
|
|
|
|
8,137
|
|
|
|
15,346
|
|
International
|
|
|
14,733
|
|
|
|
9,969
|
|
|
|
25,638
|
|
|
|
19,137
|
|
Other
|
|
|
|
|
|
|
(1,795
|
)
|
|
|
|
|
|
|
(1,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
136,886
|
|
|
|
121,410
|
|
|
|
247,108
|
|
|
|
186,081
|
|
Items not included in segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,079
|
)
|
|
|
(21,506
|
)
|
|
|
(32,463
|
)
|
|
|
(42,694
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(3,002
|
)
|
|
|
(3,092
|
)
|
|
|
(6,128
|
)
|
|
|
(6,181
|
)
|
Restructuring
|
|
|
|
|
|
|
(12,544
|
)
|
|
|
|
|
|
|
(31,215
|
)
|
Inventory write-offs included in cost of sales
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(3,247
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
(2,274
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
122,805
|
|
|
|
84,148
|
|
|
|
208,517
|
|
|
|
100,115
|
|
Other expenses
|
|
|
(2,628
|
)
|
|
|
(168
|
)
|
|
|
(4,034
|
)
|
|
|
(4,114
|
)
|
Interest expense, net
|
|
|
(36,573
|
)
|
|
|
(44,807
|
)
|
|
|
(74,068
|
)
|
|
|
(81,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
$
|
83,604
|
|
|
$
|
39,173
|
|
|
$
|
130,415
|
|
|
$
|
14,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
8,367
|
|
|
$
|
9,703
|
|
|
$
|
17,216
|
|
|
$
|
18,985
|
|
Outerwear
|
|
|
4,669
|
|
|
|
5,294
|
|
|
|
9,689
|
|
|
|
10,881
|
|
Hosiery
|
|
|
733
|
|
|
|
1,044
|
|
|
|
1,528
|
|
|
|
2,185
|
|
Direct to Consumer
|
|
|
1,445
|
|
|
|
1,265
|
|
|
|
2,770
|
|
|
|
2,362
|
|
International
|
|
|
593
|
|
|
|
508
|
|
|
|
1,155
|
|
|
|
1,028
|
|
Other
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,807
|
|
|
|
17,898
|
|
|
|
32,358
|
|
|
|
35,569
|
|
Corporate
|
|
|
4,086
|
|
|
|
3,681
|
|
|
|
10,371
|
|
|
|
10,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
19,893
|
|
|
$
|
21,579
|
|
|
$
|
42,729
|
|
|
$
|
45,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
July 3,
|
|
|
July 4,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
14,269
|
|
|
$
|
7,638
|
|
|
$
|
27,140
|
|
|
$
|
29,008
|
|
Outerwear
|
|
|
9,368
|
|
|
|
8,899
|
|
|
|
19,650
|
|
|
|
38,149
|
|
Hosiery
|
|
|
196
|
|
|
|
102
|
|
|
|
302
|
|
|
|
403
|
|
Direct to Consumer
|
|
|
3,661
|
|
|
|
3,383
|
|
|
|
7,353
|
|
|
|
6,236
|
|
International
|
|
|
539
|
|
|
|
305
|
|
|
|
1,259
|
|
|
|
489
|
|
Other
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,033
|
|
|
|
20,334
|
|
|
|
55,704
|
|
|
|
74,304
|
|
Corporate
|
|
|
1,842
|
|
|
|
1,749
|
|
|
|
2,395
|
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
29,875
|
|
|
$
|
22,083
|
|
|
$
|
58,099
|
|
|
$
|
77,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Consolidating
Financial Information
|
In accordance with the indenture governing the Companys
$500,000 Floating Rate Senior Notes issued on December 14,
2006 and the indenture governing the Companys $500,000
8% Senior Notes issued on December 10, 2009 (together,
the Indentures), certain of the Companys
subsidiaries have guaranteed the Companys obligations
under the Floating Rate Senior Notes and the 8% Senior
Notes, respectively. The following presents the condensed
consolidating financial information separately for:
(i) Parent Company, the issuer of the guaranteed
obligations. Parent Company includes Hanesbrands Inc. and its
100% owned operating divisions which are not legal entities, and
excludes its subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as
specified in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
17
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
(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 and the 8% 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 2, 2010, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended July 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,031,427
|
|
|
$
|
109,142
|
|
|
$
|
803,854
|
|
|
$
|
(868,571
|
)
|
|
$
|
1,075,852
|
|
Cost of sales
|
|
|
823,410
|
|
|
|
39,051
|
|
|
|
708,818
|
|
|
|
(870,233
|
)
|
|
|
701,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
208,017
|
|
|
|
70,091
|
|
|
|
95,036
|
|
|
|
1,662
|
|
|
|
374,806
|
|
Selling, general and administrative expenses
|
|
|
201,078
|
|
|
|
22,514
|
|
|
|
28,014
|
|
|
|
395
|
|
|
|
252,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
6,939
|
|
|
|
47,577
|
|
|
|
67,022
|
|
|
|
1,267
|
|
|
|
122,805
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
102,586
|
|
|
|
47,219
|
|
|
|
|
|
|
|
(149,805
|
)
|
|
|
|
|
Other expenses
|
|
|
2,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,628
|
|
Interest expense, net
|
|
|
33,642
|
|
|
|
(23
|
)
|
|
|
2,951
|
|
|
|
3
|
|
|
|
36,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
73,255
|
|
|
|
94,819
|
|
|
|
64,071
|
|
|
|
(148,541
|
)
|
|
|
83,604
|
|
Income tax expense (benefit)
|
|
|
(12,157
|
)
|
|
|
7,025
|
|
|
|
3,324
|
|
|
|
|
|
|
|
(1,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
85,412
|
|
|
$
|
87,794
|
|
|
$
|
60,747
|
|
|
$
|
(148,541
|
)
|
|
$
|
85,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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
|
|
|
|
Six Months Ended July 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,930,150
|
|
|
$
|
205,316
|
|
|
$
|
1,487,257
|
|
|
$
|
(1,619,031
|
)
|
|
$
|
2,003,692
|
|
Cost of sales
|
|
|
1,547,725
|
|
|
|
75,424
|
|
|
|
1,305,974
|
|
|
|
(1,627,667
|
)
|
|
|
1,301,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
382,425
|
|
|
|
129,892
|
|
|
|
181,283
|
|
|
|
8,636
|
|
|
|
702,236
|
|
Selling, general and administrative expenses
|
|
|
388,315
|
|
|
|
48,736
|
|
|
|
55,950
|
|
|
|
718
|
|
|
|
493,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(5,890
|
)
|
|
|
81,156
|
|
|
|
125,333
|
|
|
|
7,918
|
|
|
|
208,517
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
188,276
|
|
|
|
84,088
|
|
|
|
|
|
|
|
(272,364
|
)
|
|
|
|
|
Other expenses
|
|
|
4,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,034
|
|
Interest expense, net
|
|
|
67,812
|
|
|
|
(45
|
)
|
|
|
6,298
|
|
|
|
3
|
|
|
|
74,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
110,540
|
|
|
|
165,289
|
|
|
|
119,035
|
|
|
|
(264,449
|
)
|
|
|
130,415
|
|
Income tax expense (benefit)
|
|
|
(11,385
|
)
|
|
|
12,636
|
|
|
|
7,239
|
|
|
|
|
|
|
|
8,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
121,925
|
|
|
$
|
152,653
|
|
|
$
|
111,796
|
|
|
$
|
(264,449
|
)
|
|
$
|
121,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
July 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,933
|
|
|
$
|
1,801
|
|
|
$
|
25,063
|
|
|
$
|
|
|
|
$
|
36,797
|
|
Trade accounts receivable less allowances
|
|
|
93,629
|
|
|
|
6,072
|
|
|
|
416,231
|
|
|
|
(3,131
|
)
|
|
|
512,801
|
|
Inventories
|
|
|
975,443
|
|
|
|
57,368
|
|
|
|
371,966
|
|
|
|
(109,156
|
)
|
|
|
1,295,621
|
|
Deferred tax assets and other current assets
|
|
|
233,792
|
|
|
|
10,220
|
|
|
|
29,622
|
|
|
|
(1,689
|
)
|
|
|
271,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,312,797
|
|
|
|
75,461
|
|
|
|
842,882
|
|
|
|
(113,976
|
)
|
|
|
2,117,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
124,504
|
|
|
|
22,085
|
|
|
|
449,098
|
|
|
|
|
|
|
|
595,687
|
|
Trademarks and other identifiable intangibles, net
|
|
|
18,384
|
|
|
|
107,367
|
|
|
|
5,681
|
|
|
|
|
|
|
|
131,432
|
|
Goodwill
|
|
|
232,883
|
|
|
|
16,071
|
|
|
|
73,048
|
|
|
|
|
|
|
|
322,002
|
|
Investments in subsidiaries
|
|
|
1,070,713
|
|
|
|
822,673
|
|
|
|
|
|
|
|
(1,893,386
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
298,708
|
|
|
|
228,387
|
|
|
|
45,456
|
|
|
|
(125,115
|
)
|
|
|
447,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,057,989
|
|
|
$
|
1,272,044
|
|
|
$
|
1,416,165
|
|
|
$
|
(2,132,477
|
)
|
|
$
|
3,613,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
205,035
|
|
|
$
|
3,847
|
|
|
$
|
165,810
|
|
|
$
|
85,647
|
|
|
$
|
460,339
|
|
Accrued liabilities
|
|
|
174,788
|
|
|
|
31,679
|
|
|
|
60,789
|
|
|
|
10
|
|
|
|
267,266
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
32,429
|
|
|
|
|
|
|
|
32,429
|
|
Current portion of debt
|
|
|
|
|
|
|
|
|
|
|
132,515
|
|
|
|
|
|
|
|
132,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
379,823
|
|
|
|
35,526
|
|
|
|
391,543
|
|
|
|
85,657
|
|
|
|
892,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,868,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,868,672
|
|
Other noncurrent liabilities
|
|
|
347,211
|
|
|
|
3,683
|
|
|
|
34,313
|
|
|
|
5,010
|
|
|
|
390,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,595,706
|
|
|
|
39,209
|
|
|
|
425,856
|
|
|
|
90,667
|
|
|
|
3,151,438
|
|
Stockholders equity
|
|
|
462,283
|
|
|
|
1,232,835
|
|
|
|
990,309
|
|
|
|
(2,223,144
|
)
|
|
|
462,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,057,989
|
|
|
$
|
1,272,044
|
|
|
$
|
1,416,165
|
|
|
$
|
(2,132,477
|
)
|
|
$
|
3,613,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
January 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,805
|
|
|
$
|
1,646
|
|
|
$
|
24,492
|
|
|
$
|
|
|
|
$
|
38,943
|
|
Trade accounts receivable less allowances
|
|
|
47,654
|
|
|
|
5,973
|
|
|
|
398,807
|
|
|
|
(1,893
|
)
|
|
|
450,541
|
|
Inventories
|
|
|
838,685
|
|
|
|
52,165
|
|
|
|
291,062
|
|
|
|
(132,708
|
)
|
|
|
1,049,204
|
|
Deferred tax assets and other current assets
|
|
|
233,073
|
|
|
|
13,605
|
|
|
|
37,643
|
|
|
|
(452
|
)
|
|
|
283,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,132,217
|
|
|
|
73,389
|
|
|
|
752,004
|
|
|
|
(135,053
|
)
|
|
|
1,822,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
154,476
|
|
|
|
17,787
|
|
|
|
430,563
|
|
|
|
|
|
|
|
602,826
|
|
Trademarks and other identifiable intangibles, net
|
|
|
20,677
|
|
|
|
109,833
|
|
|
|
5,704
|
|
|
|
|
|
|
|
136,214
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
72,186
|
|
|
|
|
|
|
|
322,002
|
|
Investments in subsidiaries
|
|
|
927,105
|
|
|
|
730,159
|
|
|
|
|
|
|
|
(1,657,264
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
371,287
|
|
|
|
153,617
|
|
|
|
29,259
|
|
|
|
(111,198
|
)
|
|
|
442,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,838,644
|
|
|
$
|
1,101,719
|
|
|
$
|
1,289,716
|
|
|
$
|
(1,903,515
|
)
|
|
$
|
3,326,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
172,802
|
|
|
$
|
5,237
|
|
|
$
|
88,285
|
|
|
$
|
85,647
|
|
|
$
|
351,971
|
|
Accrued liabilities
|
|
|
207,079
|
|
|
|
22,902
|
|
|
|
65,689
|
|
|
|
(35
|
)
|
|
|
295,635
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
66,681
|
|
|
|
|
|
|
|
66,681
|
|
Current portion of debt
|
|
|
64,688
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
164,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
444,569
|
|
|
|
28,139
|
|
|
|
320,655
|
|
|
|
85,612
|
|
|
|
878,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,727,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,727,547
|
|
Other noncurrent liabilities
|
|
|
331,809
|
|
|
|
3,626
|
|
|
|
45,597
|
|
|
|
4,291
|
|
|
|
385,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,503,925
|
|
|
|
31,765
|
|
|
|
366,252
|
|
|
|
89,903
|
|
|
|
2,991,845
|
|
Stockholders equity
|
|
|
334,719
|
|
|
|
1,069,954
|
|
|
|
923,464
|
|
|
|
(1,993,418
|
)
|
|
|
334,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,838,644
|
|
|
$
|
1,101,719
|
|
|
$
|
1,289,716
|
|
|
$
|
(1,903,515
|
)
|
|
$
|
3,326,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
97,968
|
|
|
$
|
89,164
|
|
|
$
|
19,441
|
|
|
$
|
(270,845
|
)
|
|
$
|
(64,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(15,253
|
)
|
|
|
(6,680
|
)
|
|
|
(36,166
|
)
|
|
|
|
|
|
|
(58,099
|
)
|
Proceeds from sales of assets
|
|
|
44,295
|
|
|
|
|
|
|
|
901
|
|
|
|
|
|
|
|
45,196
|
|
Other
|
|
|
(519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
28,523
|
|
|
|
(6,680
|
)
|
|
|
(35,265
|
)
|
|
|
|
|
|
|
(13,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
631,745
|
|
|
|
|
|
|
|
631,745
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(665,991
|
)
|
|
|
|
|
|
|
(665,991
|
)
|
Borrowings on revolving loan facility
|
|
|
1,075,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,075,000
|
|
Repayments on revolving loan facility
|
|
|
(939,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(939,500
|
)
|
Repayment of debt under 2009 Senior Secured Credit Facility
|
|
|
(59,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,063
|
)
|
Borrowings on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
149,406
|
|
|
|
|
|
|
|
149,406
|
|
Repayments on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
(116,891
|
)
|
|
|
|
|
|
|
(116,891
|
)
|
Proceeds from stock options exercised
|
|
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,420
|
|
Other
|
|
|
143
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
121
|
|
Net transactions with related entities
|
|
|
(207,363
|
)
|
|
|
(82,329
|
)
|
|
|
18,847
|
|
|
|
270,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(129,363
|
)
|
|
|
(82,329
|
)
|
|
|
17,094
|
|
|
|
270,845
|
|
|
|
76,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(2,872
|
)
|
|
|
155
|
|
|
|
571
|
|
|
|
|
|
|
|
(2,146
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
12,805
|
|
|
|
1,646
|
|
|
|
24,492
|
|
|
|
|
|
|
|
38,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
9,933
|
|
|
$
|
1,801
|
|
|
$
|
25,063
|
|
|
$
|
|
|
|
$
|
36,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
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, plant 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
|
)
|
Borrowings 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has restructured its supply chain over the past
three years to create more efficient production clusters that
utilize fewer, larger facilities and to balance production
capability between the Western Hemisphere and Asia. With its
global supply chain infrastructure substantially in place, the
Company is now focused on optimizing its supply chain to further
enhance efficiency, improve working capital and asset turns and
reduce costs. The Company is focused on optimizing the working
capital needs of its supply chain through several initiatives,
such as supplier-managed inventory for raw materials and sourced
goods ownership arrangements. The consolidation of the
Companys distribution network is still in process but is
not expected to result in any substantial charges in future
periods. The distribution network consolidation involves the
24
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
implementation of new warehouse management systems and
technology, and opening of new distribution centers and new
third-party logistics providers to replace parts of the
Companys legacy distribution network.
The reported results for the quarters and six months ended
July 3, 2010 and July 4, 2009 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 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 2, 2010 restructuring actions
|
|
$
|
|
|
|
$
|
10,589
|
|
|
$
|
|
|
|
$
|
19,244
|
|
Year ended January 3, 2009 restructuring actions
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
13,875
|
|
Year ended December 29, 2007 and prior restructuring actions
|
|
|
|
|
|
|
1,255
|
|
|
|
|
|
|
|
3,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
12,664
|
|
|
$
|
|
|
|
$
|
37,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
(65
|
)
|
|
$
|
|
|
|
$
|
5,521
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
355
|
|
Restructuring
|
|
|
|
|
|
|
12,544
|
|
|
|
|
|
|
|
31,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
12,664
|
|
|
$
|
|
|
|
$
|
37,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
July 3, 2010
|
|
|
July 4, 2009
|
|
|
Accelerated depreciation
|
|
$
|
|
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
$
|
2,629
|
|
Inventory write-offs
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
3,247
|
|
Employee termination and other benefits
|
|
|
|
|
|
|
9,569
|
|
|
|
|
|
|
|
15,210
|
|
Noncancelable lease and other contractual obligations and other
|
|
|
|
|
|
|
2,975
|
|
|
|
|
|
|
|
16,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
12,664
|
|
|
$
|
|
|
|
$
|
37,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
HANESBRANDS
INC.
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
July 3, 2010
|
|
|
Beginning accrual
|
|
$
|
22,399
|
|
Cash payments
|
|
|
(8,799
|
)
|
Adjustments
|
|
|
(321
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
13,279
|
|
|
|
|
|
|
The accrual balance as of July 3, 2010 is comprised of
$13,054 in current accrued liabilities and $225 in other
noncurrent liabilities. The $13,054 in current accrued
liabilities consists of $6,150 for employee termination and
other benefits and $6,904 for noncancelable lease and other
contractual obligations. The $225 in other noncurrent
liabilities primarily consists of noncancelable lease and other
contractual obligations.
Adjustments to previous estimates resulted from activity related
to prior year restructuring actions.
26
|
|
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 in this
Quarterly Report on
Form 10-Q
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 2, 2010, 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, 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 and reported in five operating
segments, each of which is a reportable segment for financial
reporting purposes: Innerwear, Outerwear, Hosiery, Direct to
Consumer and International. These segments are organized
principally by product category, geographic location and
distribution channel. Management of each segment is responsible
for the operations of these segments businesses but shares
a common supply chain and media and marketing platforms. In
October 2009, we completed the sale of our yarn operations and,
as a result, we no longer have net sales in the Other segment,
which was primarily comprised of sales of yarn to third parties.
Seasonality
Our operating results are subject to some variability due to
seasonality and other factors. 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 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.
Outlook
We have built a powerful three-plank growth platform designed to
use big brands to increase sales domestically and
internationally, use a low-cost worldwide supply chain to expand
margins, and use strong cash flow to support multiple strategies
to create value.
The first plank of our growth platform is the size and power of
our brands. We have made significant investment in our consumer
insights capability, innovative product development, and
marketing. We have very large U.S. share positions, with
the No. 1 share in all our innerwear categories and
strong positions in outerwear categories, but we have ample
opportunities to further build share. Internationally, our
commercial markets include Mexico, Canada, Japan, India, Brazil
and China where a substantial amount of gross domestic product
growth outside the United States will be concentrated over the
next decade.
The second plank of our growth platform is the unique, low-cost
global supply chain that we have just built. Our low-cost,
high-scale supply chain spans both the Western and Eastern
hemispheres and creates a
27
competitive advantage for us around the globe. Our supply chain
has generated significant cost savings, margin expansion and
contributions to cash flow and will continue to do so as we
further optimize our size, scale and production capability. To
support our growth, we have increased our production capacity.
Our Nanjing textile facility started production in the fourth
quarter of 2009 and we expect to ramp up production over the
next 12 months.
The third plank of our growth platform is our ability to
consistently generate strong cash flow. We have the potential to
increase cash flow, and our flexible long-term capital structure
allows us to use cash in executing multiple strategies for
earnings growth, including debt reduction and selective tactical
acquisitions.
Based on strong performance in the first two quarters, we expect
net sales growth of 8% to 10% in the full year 2010 which
reflects net space and distribution gains, an overall increase
in consumer spending, retailer inventory restocking and
favorable foreign currency exchange rates. As a result of the
increased sales expectations, we may invest an incremental
$5 million to $10 million in advertising and trade
spending over the remainder of the year which should restore our
media spending back to a range of $90 to $100 million in an
effort to further build market share growth.
During 2010, we expect our annual gross capital spending to be
relatively comparable to our annual depreciation and
amortization expense and should represent our last year of high
gross capital spending. We expect net capital expenditures of
approximately $60 to $70 million in the full year 2010 to
support our expectation for increasing sales.
We continue to see higher prices for cotton and oil-related
materials in the market, which will impact our results for the
remainder of 2010. After taking into consideration the cotton
costs currently included in inventory, we expect our cost of
cotton to average 69 cents per pound for the full year of 2010
compared to 55 cents per pound for 2009 which will have a
negative impact of approximately $33 million compared to
the full year of 2009. We have continued to see a sustained
increase in the market price of cotton, which will impact our
operating results in the remainder of 2010.
Because of systemic cost inflation, particularly for cotton,
energy and labor, we are working with our customers to offset
cost increases through joint efficiency initiatives as well as
price increases. The timing and size of price increases will
vary by product category. While some price increases will take
effect in the third and fourth quarters of 2010, the majority of
the pricing impact will begin in 2011.
Highlights
from the Second Quarter and Six Months Ended July 3,
2010
|
|
|
|
|
Total net sales in the second quarter of 2010 were
$1.08 billion, compared with $986 million in the same
quarter of 2009, representing a 9.1% increase. Total net sales
in the first six months of 2010 were $2.0 billion, compared
with $1.84 billion in the same period of 2009, representing
an 8.7% increase.
|
|
|
|
Operating profit was $123 million in the second quarter of
2010, compared with $84 million in the same quarter of
2009. As a percent of sales, operating profit was 11.4% in the
second quarter of 2010 compared to 8.5% in the same quarter of
2009. Operating profit was $209 million in the first six
months of 2010, compared with $100 million in the same
period of 2009. As a percent of sales, operating profit was
10.4% in the first six months of 2010 compared to 5.4% in the
same period of 2009.
|
|
|
|
Diluted earnings per share were $0.87 in the second quarter of
2010, compared with $0.32 in the same quarter of 2009. Diluted
earnings per share were $1.25 in the first six months of 2010,
compared with $0.12 in the same period of 2009.
|
|
|
|
Gross capital expenditures were $58 million during the
first six months of 2010, compared with $78 million in the
same period of 2009. Proceeds from sales of assets were
$45 million in the first six months of 2010 and
$9 million in the same period of 2009.
|
28
Condensed
Consolidated Results of Operations Second Quarter
Ended July 3, 2010 Compared with Second Quarter Ended
July 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,075,852
|
|
|
$
|
986,022
|
|
|
$
|
89,830
|
|
|
|
9.1
|
%
|
Cost of sales
|
|
|
701,046
|
|
|
|
658,631
|
|
|
|
42,415
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
374,806
|
|
|
|
327,391
|
|
|
|
47,415
|
|
|
|
14.5
|
|
Selling, general and administrative expenses
|
|
|
252,001
|
|
|
|
230,699
|
|
|
|
21,302
|
|
|
|
9.2
|
|
Restructuring
|
|
|
|
|
|
|
12,544
|
|
|
|
(12,544
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
122,805
|
|
|
|
84,148
|
|
|
|
38,657
|
|
|
|
45.9
|
|
Other expenses
|
|
|
2,628
|
|
|
|
168
|
|
|
|
2,460
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
36,573
|
|
|
|
44,807
|
|
|
|
(8,234
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
83,604
|
|
|
|
39,173
|
|
|
|
44,431
|
|
|
|
113.4
|
|
Income tax expense (benefit)
|
|
|
(1,808
|
)
|
|
|
8,618
|
|
|
|
(10,426
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
85,412
|
|
|
$
|
30,555
|
|
|
$
|
54,857
|
|
|
|
179.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,075,852
|
|
|
$
|
986,022
|
|
|
$
|
89,830
|
|
|
|
9.1
|
%
|
Consolidated net sales were higher by $90 million or 9% in
the second quarter of 2010 compared to the second quarter of
2009, which reflects significant space and distribution gains at
retailers, positive retail sell-through and some inventory
restocking at retail. Our significant space and distribution
gains at retailers contributed approximately 6% of sales growth,
while approximately 3% of growth was driven by increased retail
sell-through, retailer inventory restocking and foreign currency
exchange rates. All three of our largest segments delivered
double digit sales growth in the second quarter of 2010.
Innerwear, Outerwear and International segment net sales were
higher by $51 million (10%), $36 million (16%) and
$16 million (14%), respectively, in the second quarter of
2010 compared to the second quarter of 2009. Direct to Consumer
segment net sales were slightly higher, while Hosiery and Other
segment net sales were lower by $8 million (20%) and
$6 million, respectively, in the second quarter of 2010
compared to the second quarter of 2009.
International segment net sales were higher by 14% in the second
quarter of 2010 compared to the second quarter of 2009, which
reflected a favorable impact of $5 million related to
foreign currency exchange rates due to the strengthening of the
Canadian dollar, Brazilian real, Japanese yen and Mexican peso
compared to the U.S. dollar, partially offset by the
strengthening of the U.S. dollar compared to the Euro.
International segment net sales were higher by 9% in the second
quarter of 2010 compared to the second quarter of 2009 after
excluding the impact of foreign exchange rates on currency.
There was not a significant shift in
back-to-school
shipments in 2010 compared to 2009 between the months of June
and July.
29
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
374,806
|
|
|
$
|
327,391
|
|
|
$
|
47,415
|
|
|
|
14.5
|
%
|
As a percent of net sales, our gross profit was 34.8% in the
second quarter of 2010 compared to 33.2% in the second quarter
of 2009, increasing as a result of the items described below.
Our results in the second quarter of 2010 primarily benefited
from higher sales volumes and lower manufacturing costs.
Our gross profit was higher by $47 million in the second
quarter of 2010 compared to the second quarter of 2009 due
primarily to higher sales volume of $49 million, savings
from our prior restructuring actions of $11 million, lower
production costs of $10 million related to lower energy and
oil-related costs, including non-customer freight costs, vendor
price reductions of $10 million, lower
start-up and
shut-down
costs of $5 million associated with the consolidation and
globalization of our supply chain and a $3 million
favorable impact related to foreign currency exchange rates. The
favorable impact of foreign currency exchange rates in our
International segment was primarily due to the strengthening of
the Canadian dollar, Brazilian real, Japanese yen and Mexican
peso compared to the U.S. dollar, partially offset by the
strengthening of the U.S. dollar compared to the Euro.
Our gross profit was negatively impacted by higher sales
incentives of $12 million, lower product pricing of
$8 million, primarily within the wholesale casualwear
channel, an unfavorable product sales mix of $7 million,
higher cotton costs of $7 million, higher excess and
obsolete inventory costs of $4 million and higher other
manufacturing costs of $2 million. Our sales incentives
were higher due to higher sales volumes and because we made
significant investments to support retailers and position
ourselves for future sales opportunities. The higher excess and
obsolete inventory costs are primarily timing related and only
attributable to a limited number of specific product styles.
The cotton prices reflected in our results were 61 cents per
pound in the second quarter of 2010 compared to 49 cents per
pound in the second quarter of 2009. After taking into
consideration the cotton costs currently included in inventory,
we expect our cost of cotton to average 69 cents per pound for
the full year of 2010 compared to 55 cents per pound for 2009.
We continue to see higher prices for cotton and oil-related
materials in the market, which will impact our results for the
remainder of 2010.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
252,001
|
|
|
$
|
230,699
|
|
|
$
|
21,302
|
|
|
|
9.2
|
%
|
Our selling, general and administrative expenses were
$21 million higher in the second quarter of 2010 compared
to the second quarter of 2009. Our media related media,
advertising and promotion (MAP) expenses and
non-media related MAP expenses were higher by $9 million
and $3 million, respectively, during the second quarter of
2010 compared to the second quarter of 2009 when we reduced
spending due to the recession. 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. For example, during the second quarter of 2010 we
launched new television advertising featuring new Hanes
mens underwear products Comfort Flex waistband
and Lay Flat Collar T-shirts, we introduced new advertising
supporting Playtex 18 Hour cooling products and we
launched new advertising supporting the new barely there
Smart sizes bra sizing system.
We also incurred higher distribution expenses of $9 million
and higher selling and other marketing expenses of
$2 million. The higher distribution expenses were primarily
due to higher sales volumes and other
30
incremental costs to service higher demand such as overtime and
rework expenses in our distribution centers while the higher
selling and other marketing expenses were primarily due to
higher sales volumes.
We also incurred higher expenses of $2 million in the
second quarter of 2010 compared to the second quarter of 2009 as
a result of new retail stores or expanding existing stores over
the last 12 months. We opened one retail store during the
second quarter of 2010. Changes due to foreign currency exchange
rates, which are included in the impact of the changes discussed
above, resulted in higher selling, general and administrative
expenses of $2 million in the second quarter of 2010
compared to the second quarter of 2009.
These higher expenses were partially offset by lower stock
compensation and certain other benefit expenses of
$3 million.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
|
|
|
$
|
12,544
|
|
|
$
|
(12,544
|
)
|
|
|
(100.0
|
)%
|
During the second quarter of 2009, we incurred $13 million
in restructuring charges, which primarily related to employee
termination and other benefits and other exit costs associated
with facility closures approved during that period that did not
recur in 2010.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
122,805
|
|
|
$
|
84,148
|
|
|
$
|
38,657
|
|
|
|
45.9
|
%
|
Operating profit was higher in the second quarter of 2010
compared to the second quarter of 2009 as a result of higher
gross profit of $47 million and lower restructuring and
related charges of $13 million, partially offset by higher
selling, general and administrative expenses of
$21 million. Changes in foreign currency exchange rates had
a favorable impact on operating profit of $1 million in the
second quarter of 2010 compared to the second quarter of 2009.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
2,628
|
|
|
$
|
168
|
|
|
$
|
2,460
|
|
|
|
NM
|
|
During the second quarter of 2010, we wrote off unamortized debt
issuance costs and incurred charges for funding fees associated
with the sales of certain trade accounts receivable to financial
institutions, which combined totaled $3 million. The
write-off related to unamortized debt issuance costs resulted
from the repayment of $57 million of principal under the
senior secured credit facility that we entered into in 2006 (the
2006 Senior Secured Credit Facility) and amended and
restated in 2009 (as amended and restated, the 2009 Senior
Secured Credit Facility).
During the second quarter of 2009, we incurred costs to amend
the accounts receivable securitization facility that we entered
into in November 2007 (the Accounts Receivable
Securitization Facility).
31
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
36,573
|
|
|
$
|
44,807
|
|
|
$
|
(8,234
|
)
|
|
|
(18.4
|
)%
|
Interest expense, net was lower by $8 million in the second
quarter of 2010 compared to the second quarter of 2009. The
lower interest expense was primarily attributable to lower
outstanding debt balances that reduced interest expense by
$5 million. In addition, the refinancing of our debt
structure in December 2009, which included the amendment and
restatement of the 2006 Senior Secured Credit Facility into the
2009 Senior Secured Credit Facility, the issuance of our
$500 million 8.000% Senior Notes due 2016 (the
8% Senior Notes) and the settlement of certain
outstanding interest rate hedging instruments, combined with a
lower London Interbank Offered Rate, or LIBOR, and
federal funds rate, caused a net decrease in interest expense in
the second quarter of 2010 compared to the second quarter of
2009 of $3 million.
Our weighted average interest rate on our outstanding debt was
5.44% during the second quarter of 2010 compared to 7.02% in the
second quarter of 2009.
Income
Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense (benefit)
|
|
$
|
(1,808
|
)
|
|
$
|
8,618
|
|
|
$
|
(10,426
|
)
|
|
|
NM
|
|
Our effective income tax rate was (2%) in the second quarter of
2010 compared to 22% in the second quarter of 2009. The
effective income tax rate of (2%) for the second quarter of 2010
was primarily attributable to a discrete, non-recurring income
tax benefit of approximately $17 million. The income tax
benefit resulted from a change in estimate associated with the
remeasurement of unrecognized tax benefit accruals and the
determination that certain tax positions had been effectively
settled following the finalization of tax reviews and audits for
amounts that were less than originally anticipated. This
non-recurring income tax benefit was partially offset by a lower
proportion of our earnings attributed to foreign subsidiaries
than in the second quarter of 2009 which are taxed at rates
lower than the U.S. statutory rate.
Our effective tax rate reflects our strategic initiative to make
capital investments outside the United States in our global
supply chain in 2010.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
85,412
|
|
|
$
|
30,555
|
|
|
$
|
54,857
|
|
|
|
179.5
|
%
|
Net income for the second quarter of 2010 was higher than the
second quarter of 2009 primarily due to higher operating profit
of $39 million, lower income tax expense of
$10 million and lower interest expense of $8 million,
partially offset by higher other expenses of $2 million.
32
Operating
Results by Business Segment Second Quarter Ended
July 3, 2010 Compared with Second Quarter Ended
July 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
559,250
|
|
|
$
|
508,337
|
|
|
$
|
50,913
|
|
|
|
10.0
|
%
|
Outerwear
|
|
|
263,331
|
|
|
|
226,835
|
|
|
|
36,496
|
|
|
|
16.1
|
|
Hosiery
|
|
|
31,923
|
|
|
|
39,966
|
|
|
|
(8,043
|
)
|
|
|
(20.1
|
)
|
Direct to Consumer
|
|
|
93,861
|
|
|
|
93,458
|
|
|
|
403
|
|
|
|
0.4
|
|
International
|
|
|
127,487
|
|
|
|
111,792
|
|
|
|
15,695
|
|
|
|
14.0
|
|
Other
|
|
|
|
|
|
|
5,634
|
|
|
|
(5,634
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,075,852
|
|
|
$
|
986,022
|
|
|
$
|
89,830
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
88,695
|
|
|
$
|
83,312
|
|
|
$
|
5,383
|
|
|
|
6.5
|
%
|
Outerwear
|
|
|
17,361
|
|
|
|
6,882
|
|
|
|
10,479
|
|
|
|
152.3
|
|
Hosiery
|
|
|
8,833
|
|
|
|
12,104
|
|
|
|
(3,271
|
)
|
|
|
(27.0
|
)
|
Direct to Consumer
|
|
|
7,264
|
|
|
|
10,938
|
|
|
|
(3,674
|
)
|
|
|
(33.6
|
)
|
International
|
|
|
14,733
|
|
|
|
9,969
|
|
|
|
4,764
|
|
|
|
47.8
|
|
Other
|
|
|
|
|
|
|
(1,795
|
)
|
|
|
1,795
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
136,886
|
|
|
|
121,410
|
|
|
|
15,476
|
|
|
|
12.7
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,079
|
)
|
|
|
(21,506
|
)
|
|
|
(10,427
|
)
|
|
|
(48.5
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(3,002
|
)
|
|
|
(3,092
|
)
|
|
|
(90
|
)
|
|
|
(2.9
|
)
|
Restructuring
|
|
|
|
|
|
|
(12,544
|
)
|
|
|
(12,544
|
)
|
|
|
(100.0
|
)
|
Inventory write-off included in cost of sales
|
|
|
|
|
|
|
(159
|
)
|
|
|
(159
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
224
|
|
|
|
224
|
|
|
|
(100.0
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(185
|
)
|
|
|
(185
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
122,805
|
|
|
|
84,148
|
|
|
|
38,657
|
|
|
|
45.9
|
|
Other expenses
|
|
|
(2,628
|
)
|
|
|
(168
|
)
|
|
|
2,460
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(36,573
|
)
|
|
|
(44,807
|
)
|
|
|
(8,234
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
$
|
83,604
|
|
|
$
|
39,173
|
|
|
$
|
44,431
|
|
|
|
113.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2010 was consistent with the second
quarter of 2009. Our consolidated selling, general and
administrative expenses before segment allocations were
$21 million higher in the second quarter of 2010 compared
to the second quarter of 2009.
33
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
559,250
|
|
|
$
|
508,337
|
|
|
$
|
50,913
|
|
|
|
10.0
|
%
|
Segment operating profit
|
|
|
88,695
|
|
|
|
83,312
|
|
|
|
5,383
|
|
|
|
6.5
|
|
Overall net sales in the Innerwear segment were higher by
$51 million or 10% in the second quarter of 2010 compared
to the second quarter of 2009, primarily due to space and
distribution gains, stronger sales at retail and retailer
inventory restocking. We are driving the growth in our Innerwear
segment by leveraging our scale and consumer insight to gain new
space and distribution. Our strong brands across all
distribution channels and our innovation processes allow us to
take advantage of long-term consumer trends.
Net sales in our Hanes brand male underwear product
category were 23% or $49 million higher in the second
quarter of 2010 compared to the second quarter of 2009,
primarily due to distribution gains related to a new customer in
the discount retail channel, space gains in the mass merchant
and department store channels and increased retail sell through.
The higher Hanes brand male underwear net sales reflect
growth in key segments of this category such as crewneck and
V-neck T-shirts and boxer briefs. Our male underwear product
category continues to benefit from the increased media support
for our Hanes brand and from our identification of key
long-term megatrends such as comfort and dyed and color
products. We have developed innovations to capitalize on these
trends such as the Hanes Lay Flat Collar T-shirts and
Hanes Comfortsoft waist band briefs and boxers.
Higher net sales of $4 million in our socks product
category reflect higher Hanes brand net sales of
$7 million partially offset by lower Champion brand
net sales of $3 million in the second quarter of 2010
compared to the second quarter of 2009. The higher Hanes
brand net sales were primarily due to space gains in the
mass merchant channel and the lower Champion brand net
sales were primarily due to lower net sales in the wholesale
club channel.
Total intimate apparel net sales were $2 million lower in
the second quarter of 2010 compared to the second quarter of
2009. Our bra category net sales were $3 million higher in
the full and average figure sizes driven primarily by space and
distribution gains. Our panties category net sales were lower by
$5 million primarily due to replenishment timing and
certain style exits. From a brand perspective, our net sales
were lower in our Hanes brand by $5 million and our
Playtex brand by $5 million, partially offset by
higher net sales in our smaller brands (barely there,
Just My Size and Wonderbra) of $5 million and
our Bali brand of $4 million.
Innerwear segment gross profit was higher by $19 million in
the second quarter of 2010 compared to the second quarter of
2009. The higher gross profit was primarily due to higher sales
volume of $31 million, savings from our prior restructuring
actions of $7 million, lower production costs of
$6 million related to lower energy and oil-related costs,
including non-customer freight costs and vendor price reductions
of $6 million. These lower costs were partially offset by
higher sales incentives of $15 million due to higher sales
volumes and investments made with retailers, higher excess and
obsolete inventory costs of $5 million, higher other
manufacturing costs of $4 million, higher cotton costs of
$3 million and an unfavorable product sales mix of
$3 million. The higher excess and obsolete inventory costs
are primarily timing related and only attributable to a limited
number of specific product styles.
As a percent of segment net sales, gross profit in the Innerwear
segment was 34.2% in the second quarter of 2010 compared to
33.8% in the second quarter of 2009, increasing as a result of
the items described above.
Innerwear segment operating profit was higher in the second
quarter of 2010 compared to the second quarter of 2009 primarily
as a result of higher gross profit, partially offset by higher
media related MAP expenses of $9 million, higher
distribution expenses of $3 million and higher non-media
related MAP expenses of $2 million.
34
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
263,331
|
|
|
$
|
226,835
|
|
|
$
|
36,496
|
|
|
|
16.1
|
%
|
Segment operating profit
|
|
|
17,361
|
|
|
|
6,882
|
|
|
|
10,479
|
|
|
|
152.3
|
|
Outerwear segment net sales were higher by $36 million or
16% in the second quarter of 2010 compared to the second quarter
of 2009 as a result of space and distribution gains and stronger
sales at retail. Our casualwear category net sales were higher
in both the retail and wholesale channels by $26 million
and $4 million, respectively. The higher net sales in the
retail casualwear channel of 90% reflect space gains primarily
from an exclusive long-term agreement entered into with Wal-Mart
in April 2009 that significantly expanded the presence of our
Just My Size brand. This integrated program with Wal-Mart
develops, sources, and merchandises a line of womens
clothing designed to meet the needs of plus size women.
Our Champion brand activewear net sales, which continue
to be positively impacted by our marketing investment in the
brand, were higher by $5 million or 5%. Our Champion
brand has achieved consistent growth by focusing on the fast
growing active demographic with a unique moderate price
positioning.
Outerwear segment gross profit was higher by $15 million in
the second quarter of 2010 compared to the second quarter of
2009. The higher gross profit was primarily due to higher sales
volume of $14 million, lower sales incentives of
$6 million, savings from our prior restructuring actions of
$4 million, lower production costs of $3 million
related to lower energy and oil-related costs, including
non-customer freight costs, lower other manufacturing costs of
$3 million primarily related to cost reductions at our
manufacturing facilities and vendor price reductions of
$2 million. These lower costs were partially offset by
lower product pricing of $7 million primarily within the
wholesale casualwear channel, an unfavorable product sales mix
of $6 million and higher cotton costs of $4 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 23.4% in the second quarter of 2010 compared to
20.6% in the second quarter of 2009, increasing as a result of
the items described above.
Outerwear segment operating profit was higher in the second
quarter of 2010 compared to the second quarter of 2009 primarily
as a result of higher gross profit, partially offset by higher
distribution expenses of $4 million.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
31,923
|
|
|
$
|
39,966
|
|
|
$
|
(8,043
|
)
|
|
|
(20.1
|
)%
|
Segment operating profit
|
|
|
8,833
|
|
|
|
12,104
|
|
|
|
(3,271
|
)
|
|
|
(27.0
|
)
|
Net sales in the Hosiery segment declined by $8 million or
20%, which was 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. The net sales decline rate in the second
quarter was substantially higher than the long-term trend
partially as a result of a shift of approximately
$2 million in net sales from the second quarter to the
first quarter in 2010 due to early shipment of customer
programs. In addition, hosiery products in all channels continue
to be more adversely impacted than other apparel categories by
reduced consumer discretionary spending. The hosiery category
has been in a state of consistent decline for the past decade,
as the trend toward casual dress reduced demand for sheer
hosiery. Generally, we manage the Hosiery segment for cash,
placing an emphasis on reducing our cost structure and managing
cash efficiently.
Hosiery segment gross profit was lower by $3 million in the
second quarter of 2010 compared to the second quarter of 2009.
The lower gross profit for the second quarter of 2010 compared
to the second quarter
35
of 2009 was primarily the result of lower sales volume of
$3 million and higher sales incentives of $2 million,
partially offset by lower spending of $2 million in
numerous areas. As a percent of segment net sales, gross profit
in the Hosiery segment was 51.1% in the second quarter of 2010
compared to 48.2% in the second quarter of 2009.
Hosiery segment operating profit was lower in the second quarter
of 2010 compared to the second quarter of 2009 primarily as a
result of lower gross profit.
Direct
to Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
93,861
|
|
|
$
|
93,458
|
|
|
$
|
403
|
|
|
|
0.4
|
%
|
Segment operating profit
|
|
|
7,264
|
|
|
|
10,938
|
|
|
|
(3,674
|
)
|
|
|
(33.6
|
)
|
Direct to Consumer segment net sales were slightly higher in the
second quarter of 2010 compared to the second quarter of 2009
primarily due to higher net sales related to our Internet
operations, partially offset by lower net sales in our outlet
stores attributable to lower comparable store sales. The lower
comparable store sales of 4% were driven by lower traffic.
Direct to Consumer segment gross profit was flat in the second
quarter of 2010 compared to the second quarter of 2009. Gross
profit was primarily impacted by favorable product sales mix of
$1 million, partially offset by higher other product costs
of $1 million. As a percent of segment net sales, gross
profit in the Direct to Consumer segment was 62.5% in the second
quarter of 2010 compared to 63.2% in the second quarter of 2009.
Direct to Consumer segment operating profit was lower in the
second quarter of 2010 compared to the second quarter of 2009
primarily as a result of higher expenses of $2 million as a
result of new retail stores or expanding existing stores over
the last 12 months, higher non-media related MAP expenses
of $1 million and higher distribution expenses of
$1 million.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
127,487
|
|
|
$
|
111,792
|
|
|
$
|
15,695
|
|
|
|
14.0
|
%
|
Segment operating profit
|
|
|
14,733
|
|
|
|
9,969
|
|
|
|
4,764
|
|
|
|
47.8
|
|
Overall net sales in the International segment were higher by
$16 million or 14% in the second quarter of 2010 compared
to the second quarter of 2009, primarily as a result of stronger
net sales in Europe, Canada, Brazil and Mexico, which reflects
space and distribution gains and stronger sales at retail, and a
favorable impact of $5 million related to foreign currency
exchange rates, partially offset by lower sales in Japan.
Excluding the impact of foreign exchange rates on currency,
International segment net sales increased by 9% in the second
quarter of 2010 compared to the second quarter of 2009. The
favorable impact of foreign currency exchange rates in our
International segment was primarily due to the strengthening of
the Canadian dollar, Brazilian real, Japanese yen and Mexican
peso compared to the U.S. dollar, partially offset by the
strengthening of the U.S. dollar compared to the Euro.
During the second quarter of 2010, we experienced higher net
sales, in each case excluding the impact of foreign currency
exchange rates, in our casualwear business in Europe of
$6 million, in our intimate apparel, male underwear and
socks businesses in Canada of $3 million, in our male
underwear and hosiery businesses in Brazil of $2 million
and in our intimate apparel business in Mexico of
$1 million and higher net sales of $2 million in all
other regions, partially offset by lower net sales in our
activewear business in Japan of
36
$3 million. Our innerwear businesses in Canada and Mexico
continue to produce strong sales growth as we hold leading
positions with strong market shares in intimate apparel and male
underwear product categories. In certain international markets
we are focusing on adopting global designs for some product
categories to quickly launch new styles to expand our market
position. The higher net sales reflect our successful efforts to
improve our strong positions.
International segment gross profit was higher by $9 million
in the second quarter of 2010 compared to the second quarter of
2009. The higher gross profit was primarily a result of higher
sales volume of $6 million, a favorable impact related to
foreign currency exchange rates of $3 million, lower other
manufacturing costs of $2 million and vendor price
reductions of $2 million, partially offset by higher sales
incentives of $3 million.
As a percent of segment net sales, gross profit in the
International segment was 38.0% in the second quarter of 2010
compared to 35.2% in the second quarter of 2009, increasing as a
result of the items described above.
International segment operating profit was higher in the second
quarter of 2010 compared to the second quarter of 2009 was
primarily attributable to the higher gross profit, partially
offset by higher selling and other marketing expenses of
$3 million and higher distribution expenses of
$1 million. The changes in foreign currency exchange rates,
which are included in the impact on gross profit above, had a
favorable impact on operating profit of $1 million in the
second quarter of 2010 compared to the second quarter of 2009.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
5,634
|
|
|
$
|
(5,634
|
)
|
|
|
(100.0
|
)%
|
Segment operating profit (loss)
|
|
|
|
|
|
|
(1,795
|
)
|
|
|
1,795
|
|
|
|
100.0
|
|
Sales in our Other segment primarily consisted of sales of yarn
to third parties, which were intended to maintain asset
utilization at certain manufacturing facilities and generate
approximate break even margins. In October 2009, we completed
the sale of our yarn operations as a result of which we ceased
making our own yarn and now source all of our yarn requirements
from large-scale yarn suppliers. As a result of the sale of our
yarn operations, we no longer have net sales in our Other
segment.
General
Corporate Expenses
General corporate expenses were $10 million lower in the
second quarter of 2010 compared to the second quarter of 2009
primarily due to lower
start-up and
shut-down costs of $5 million associated with the
consolidation and globalization of our supply chain and lower
stock compensation and certain other benefits of $4 million.
37
Condensed
Consolidated Results of Operations Six Months Ended
July 3, 2010 Compared with Six Months Ended July 4,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,003,692
|
|
|
$
|
1,843,863
|
|
|
$
|
159,829
|
|
|
|
8.7
|
%
|
Cost of sales
|
|
|
1,301,456
|
|
|
|
1,258,596
|
|
|
|
42,860
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
702,236
|
|
|
|
585,267
|
|
|
|
116,969
|
|
|
|
20.0
|
|
Selling, general and administrative expenses
|
|
|
493,719
|
|
|
|
453,937
|
|
|
|
39,782
|
|
|
|
8.8
|
|
Restructuring
|
|
|
|
|
|
|
31,215
|
|
|
|
(31,215
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
208,517
|
|
|
|
100,115
|
|
|
|
108,402
|
|
|
|
108.3
|
|
Other expenses
|
|
|
4,034
|
|
|
|
4,114
|
|
|
|
(80
|
)
|
|
|
(1.9
|
)
|
Interest expense, net
|
|
|
74,068
|
|
|
|
81,607
|
|
|
|
(7,539
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
130,415
|
|
|
|
14,394
|
|
|
|
116,021
|
|
|
|
806.0
|
|
Income tax expense
|
|
|
8,490
|
|
|
|
3,167
|
|
|
|
5,323
|
|
|
|
168.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
121,925
|
|
|
$
|
11,227
|
|
|
$
|
110,698
|
|
|
|
986.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
2,003,692
|
|
|
$
|
1,843,863
|
|
|
$
|
159,829
|
|
|
|
8.7
|
%
|
Consolidated net sales were higher by $160 million or 9% in
the six months of 2010 compared to 2009, which reflects
significant space and distribution gains at retailers, positive
retail sell-through and some inventory restocking at retail. Our
significant shelf-space and distribution gains at retailers
contributed approximately 6% of sales growth, while
approximately 3% of growth was driven by increased retail
sell-through, retailer inventory restocking and foreign currency
exchange rates.
Innerwear, Outerwear, Direct to Consumer and International
segment net sales were higher by $84 million (9%),
$61 million (14%), $3 million (2%) and
$31 million (15%), respectively, in the six months of 2010
compared to 2009. Hosiery and Other segment net sales were lower
by $11 million (12%) and $8 million, respectively, in
the six months of 2010 compared to 2009.
International segment net sales were higher by 15% in the six
months of 2010 compared to 2009, which reflected a favorable
impact of $15 million related to foreign currency exchange
rates due to the strengthening of the Canadian dollar, Brazilian
real, Mexican peso and Japanese yen compared to the
U.S. dollar, partially offset by the strengthening of the
U.S. dollar compared to the Euro. International segment net
sales were higher by 8% in the six months of 2010 compared to
2009 after excluding the impact of foreign exchange rates on
currency.
There was not a significant shift in
back-to-school
shipments in 2010 compared to 2009 between the months of June
and July.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
702,236
|
|
|
$
|
585,267
|
|
|
$
|
116,969
|
|
|
|
20.0
|
%
|
38
As a percent of net sales, our gross profit was 35.0% in the six
months of 2010 compared to 31.7% in the six months of 2009,
increasing as a result of the items described below. Our results
in the six months of 2010 primarily benefited from higher sales
volumes and lower manufacturing costs.
Our gross profit was higher by $117 million in the six
months of 2010 compared to 2009 due primarily to higher sales
volume of $82 million, lower production costs of
$22 million related to lower energy and oil-related costs,
including non-customer freight costs, vendor price reductions of
$17 million, savings from our prior restructuring actions
of $15 million, lower
start-up and
shut-down
costs of $10 million associated with the consolidation and
globalization of our supply chain, a $7 million favorable
impact related to foreign currency exchange rates, lower cotton
costs of $6 million and lower other manufacturing costs of
$4 million primarily related to cost reductions. The
favorable impact of foreign currency exchange rates in our
International segment was primarily due to the strengthening of
the Canadian dollar, Brazilian real, Mexican peso and Japanese
yen compared to the U.S. dollar, partially offset by the
strengthening of the U.S. dollar compared to the Euro.
Our gross profit was negatively impacted by an unfavorable
product sales mix of $18 million, higher sales incentives
of $18 million, lower product pricing of $11 million,
primarily within the wholesale casualwear channel, and higher
excess and obsolete inventory costs of $1 million. Our
sales incentives were higher due to higher sales volumes and
because we made significant investments to support retailers and
position ourselves for future sales opportunities.
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 did not recur
in the six months of 2010.
The cotton prices reflected in our results were 54 cents per
pound in the six months of 2010 compared to 62 cents per pound
in the six months of 2009. After taking into consideration the
cotton costs currently included in inventory, we expect our cost
of cotton to average 69 cents per pound for the full year of
2010 compared to 55 cents per pound for 2009. While cotton and
oil-related costs were lower in the six months of 2010 compared
to the six months of 2009, we continue to see higher prices for
cotton and oil-related materials in the market, which will
impact our results for the remainder of 2010.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
493,719
|
|
|
$
|
453,937
|
|
|
$
|
39,782
|
|
|
|
8.8
|
%
|
Our selling, general and administrative expenses were
$40 million higher in the six months of 2010 compared to
2009. Our media related MAP expenses and non-media related MAP
expenses were higher by $15 million and $9 million,
respectively, during the six months of 2010 compared to 2009
when we reduced spending due to the recession. 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. For example, during the second
quarter of 2010 we launched new television advertising featuring
new Hanes mens underwear products Comfort Flex
waistband and Lay Flat Collar T-shirts, we introduced new
advertising supporting Playtex 18 Hour cooling products
and we launched new advertising supporting the new barely
there Smart sizes bra sizing system.
We also incurred higher distribution expenses of
$11 million, higher selling and other marketing expenses of
$5 million, higher consulting expenses of $4 million,
and higher technology expenses of $2 million. The higher
distribution expenses were primarily due to higher sales volumes
and other incremental costs to service higher demand such as
overtime and rework expenses in our distribution centers while
the higher selling and other marketing expenses were primarily
due to higher sales volumes.
We also incurred higher expenses of $4 million in the six
months of 2010 compared to 2009 as a result of new retail stores
or expanding existing stores over the last 12 months. We
opened two retail stores during
39
the six months of 2010. Changes due to foreign currency exchange
rates, which are included in the impact of the changes discussed
above, resulted in higher selling, general and administrative
expenses of $5 million in the six months of 2010 compared
to 2009.
These higher expenses were partially offset by lower stock
compensation and certain other benefit expenses of
$7 million and savings of $4 million from our prior
restructuring actions.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
|
|
|
$
|
31,215
|
|
|
$
|
(31,215
|
)
|
|
|
(100.0
|
)%
|
During the six months of 2009, we incurred $31 million in
restructuring charges, which primarily related to employee
termination and other benefits, exiting supply contracts and
other exit costs associated with facility closures approved
during that period that did not recur in 2010.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
208,517
|
|
|
$
|
100,115
|
|
|
$
|
108,402
|
|
|
|
108.3
|
%
|
Operating profit was higher in the six months of 2010 compared
to 2009 as a result of higher gross profit of $117 million
and lower restructuring and related charges of $31 million,
partially offset by higher selling, general and administrative
expenses of $40 million. Changes in foreign currency
exchange rates had a favorable impact on operating profit of
$2 million in the six months of 2010 compared to 2009.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
4,034
|
|
|
$
|
4,114
|
|
|
$
|
(80
|
)
|
|
|
(1.9
|
)%
|
During the six months of 2010, we wrote off unamortized debt
issuance costs and incurred charges for funding fees associated
with the sales of certain trade accounts receivable to financial
institutions, which combined totaled $4 million. The
write-off related to unamortized debt issuance costs resulted
from the repayment of $57 million of principal under the
2009 Senior Secured Credit Facility and from the reduction in
borrowing capacity available under the Accounts Receivable
Securitization Facility from $250 million to
$150 million that we effected in recognition of our lower
trade accounts receivable balance resulting from the sales of
certain trade accounts receivable to a financial institution
outside the Accounts Receivable Securitization Facility.
During the six months of 2009, we incurred costs to amend the
2006 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility of $4 million.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
74,068
|
|
|
$
|
81,607
|
|
|
$
|
(7,539
|
)
|
|
|
(9.2
|
)%
|
40
Interest expense, net was lower by $8 million in the six
months of 2010 compared to 2009. The lower interest expense was
primarily attributable to lower outstanding debt balances that
reduced interest expense by $10 million. The refinancing of
our debt structure in December 2009, which included the
amendment and restatement of the 2006 Senior Secured Credit
Facility into the 2009 Senior Secured Credit Facility, the
issuance of the 8% Senior Notes and settlement of certain
outstanding interest rate hedging instruments, combined with a
lower LIBOR and federal funds rate, caused a net increase in
interest expense in the six months of 2010 compared to 2009 of
$2 million.
Our weighted average interest rate on our outstanding debt was
5.46% during the six months of 2010 compared to 6.79% in the six
months of 2009.
We are required under the 2009 Senior Secured Credit Facility to
hedge a portion of our floating rate debt to reduce interest
rate risk caused by floating rate debt issuance. To comply with
this requirement, in the six months of 2010 we entered into
hedging arrangements whereby we capped the LIBOR interest rate
component on an aggregate of $491 million of the floating
rate debt under our $500 million Floating Rate Senior Notes
due 2014 (the Floating Rate Senior Notes) at 4.262%.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
8,490
|
|
|
$
|
3,167
|
|
|
$
|
5,323
|
|
|
|
168.1
|
%
|
Our effective income tax rate was 7% in the six months of 2010
compared to 22% in the six months of 2009. The effective income
tax rate of 7% for the six months of 2010 was primarily
attributable to a discrete, non-recurring income tax benefit of
approximately $20 million. The income tax benefit resulted
from a change in estimate associated with the remeasurement of
unrecognized tax benefit accruals and the determination that
certain tax positions had been effectively settled following the
finalization of tax reviews and audits for amounts that were
less than originally anticipated. This non-recurring income tax
benefit was partially offset by a lower proportion of our
earnings attributed to foreign subsidiaries than in the six
months of 2009 which are taxed at rates lower than the
U.S. statutory rate.
Our effective tax rate reflects our strategic initiative to make
capital investments outside the United States in our global
supply chain in 2010.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
121,925
|
|
|
$
|
11,227
|
|
|
$
|
110,698
|
|
|
|
986.0
|
%
|
Net income for the six months of 2010 was higher than the six
months of 2009 primarily due to higher operating profit of
$108 million and lower interest expense of $8 million,
partially offset by higher income tax expense of $5 million.
41
Operating
Results by Business Segment Six Months Ended
July 3, 2010 Compared with Six Months Ended July 4,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
July 3,
|
|
|
July 4,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,010,067
|
|
|
$
|
926,327
|
|
|
$
|
83,740
|
|
|
|
9.0
|
%
|
Outerwear
|
|
|
505,179
|
|
|
|
444,346
|
|
|
|
60,833
|
|
|
|
13.7
|
|
Hosiery
|
|
|
79,831
|
|
|
|
90,348
|
|
|
|
(10,517
|
)
|
|
|
(11.6
|
)
|
Direct to Consumer
|
|
|
178,353
|
|
|
|
174,854
|
|
|
|
3,499
|
|
|
|
2.0
|
|
International
|
|
|
230,262
|
|
|
|
199,711
|
|
|
|
30,551
|
|
|
|
15.3
|
|
Other
|
|
|
|
|
|
|
8,277
|
|
|
|
(8,277
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,003,692
|
|
|
$
|
1,843,863
|
|
|
$
|
159,829
|
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
163,671
|
|
|
$
|
130,668
|
|
|
$
|
33,003
|
|
|
|
25.3
|
%
|
Outerwear
|
|
|
22,323
|
|
|
|
(6,837
|
)
|
|
|
29,160
|
|
|
|
NM
|
|
Hosiery
|
|
|
27,339
|
|
|
|
29,577
|
|
|
|
(2,238
|
)
|
|
|
(7.6
|
)
|
Direct to Consumer
|
|
|
8,137
|
|
|
|
15,346
|
|
|
|
(7,209
|
)
|
|
|
(47.0
|
)
|
International
|
|
|
25,638
|
|
|
|
19,137
|
|
|
|
6,501
|
|
|
|
34.0
|
|
Other
|
|
|
|
|
|
|
(1,810
|
)
|
|
|
1,810
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
247,108
|
|
|
|
186,081
|
|
|
|
61,027
|
|
|
|
32.8
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(32,463
|
)
|
|
|
(42,694
|
)
|
|
|
(10,231
|
)
|
|
|
(24.0
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(6,128
|
)
|
|
|
(6,181
|
)
|
|
|
(53
|
)
|
|
|
(0.9
|
)
|
Restructuring
|
|
|
|
|
|
|
(31,215
|
)
|
|
|
(31,215
|
)
|
|
|
(100.0
|
)
|
Inventory write-off included in cost of sales
|
|
|
|
|
|
|
(3,247
|
)
|
|
|
(3,247
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
(2,274
|
)
|
|
|
(2,274
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(355
|
)
|
|
|
(355
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
208,517
|
|
|
|
100,115
|
|
|
|
108,402
|
|
|
|
108.3
|
|
Other expenses
|
|
|
(4,034
|
)
|
|
|
(4,114
|
)
|
|
|
(80
|
)
|
|
|
(1.9
|
)
|
Interest expense, net
|
|
|
(74,068
|
)
|
|
|
(81,607
|
)
|
|
|
(7,539
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
130,415
|
|
|
$
|
14,394
|
|
|
$
|
116,021
|
|
|
|
806.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2010 was consistent with the six months of
2009. Our consolidated selling, general and administrative
expenses before segment allocations were $40 million higher
in the six months of 2010 compared to 2009.
42
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,010,067
|
|
|
$
|
926,327
|
|
|
$
|
83,740
|
|
|
|
9.0
|
%
|
Segment operating profit
|
|
|
163,671
|
|
|
|
130,668
|
|
|
|
33,003
|
|
|
|
25.3
|
|
Overall net sales in the Innerwear segment were higher by
$84 million or 9% in the six months of 2010 compared to
2009, primarily due to space and distribution gains, retailer
inventory restocking and stronger sales at retail. We are
driving the growth in our Innerwear segment by leveraging our
scale and consumer insight to gain new space and distribution.
Our strong brands across all distribution channels and our
innovation processes allow us to take advantage of long-term
consumer trends.
Net sales in our male underwear product category were 19% or
$71 million higher in the six months of 2010 compared to
2009, which reflect higher net sales in our Hanes brand
of $68 million primarily due to distribution gains related
to a new customer in the discount retail channel, space gains in
the mass merchant and department store channels, increased
retail sell through and retailer inventory restocking. Our male
underwear product category continues to benefit from the
increased media support for our Hanes brand and from our
identification of key long-term megatrends such as comfort and
dyed and color products. We have developed innovations to
capitalize on these trends such as the Hanes Lay Flat
Collar T-shirts and Hanes Comfortsoft waist band briefs
and boxers.
Total intimate apparel net sales were $8 million higher in
the six months of 2010 compared to 2009. Our bra category net
sales were $12 million higher in the full and average
figure sizes driven primarily by space and distribution gains.
Our panties category net sales were lower by $4 million
primarily due to replenishment timing and certain style exits.
From a brand perspective, our net sales were higher in our
smaller brands (barely there, Just My Size and
Wonderbra) by $10 million and our Bali brand
by $3 million, partially offset by lower net sales in our
Hanes brand of $2 million and our Playtex
brand of $2 million.
Higher net sales of $5 million in our socks product
category reflect higher Hanes brand net sales of
$12 million primarily due to space gains, partially offset
by lower Champion brand net sales of $7 million in
the six months of 2010 compared to 2009. The higher Hanes
brand net sales were primarily due to space gains in the
mass merchant channel and the lower Champion brand net
sales were primarily due to lower net sales in the wholesale
club channel.
Innerwear segment gross profit was higher by $51 million in
the six months of 2010 compared to 2009. The higher gross profit
was primarily due to higher sales volume of $48 million,
lower production costs of $13 million related to lower
energy and oil-related costs, including non-customer freight
costs, savings from our prior restructuring actions of
$10 million, vendor price reductions of $9 million,
lower cotton costs of $3 million and higher product pricing
of $3 million before increased sales incentives. These
lower costs were partially offset by higher sales incentives of
$22 million due to higher sales volumes and investments
made with retailers, unfavorable product sales mix of
$10 million and higher excess and obsolete inventory costs
of $2 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 34.9% in the six months of 2010 compared to 32.6% in
the six months of 2009, increasing as a result of the items
described above.
Innerwear segment operating profit was higher in the six months
of 2010 compared to 2009 primarily as a result of higher gross
profit and savings of $2 million from prior restructuring
actions primarily for compensation and related benefits,
partially offset by higher media related MAP expenses of
$12 million, higher non-media related MAP expenses of
$4 million and higher distribution expenses of
$3 million.
43
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
505,179
|
|
|
$
|
444,346
|
|
|
$
|
60,833
|
|
|
|
13.7
|
%
|
Segment operating profit (loss)
|
|
|
22,323
|
|
|
|
(6,837
|
)
|
|
|
29,160
|
|
|
|
NM
|
|
Outerwear segment net sales, which benefited from space and
distribution gains and stronger sales at retail, were higher by
$61 million or 14% in the six months of 2010 compared to
2009. Our casualwear category net sales were higher in both the
retail and wholesale channels by $42 million and
$9 million, respectively. The higher net sales in the
retail casualwear channel of 69% reflect space gains primarily
from an exclusive long-term agreement entered into with Wal-Mart
in April 2009 that significantly expanded the presence of our
Just My Size brand. This integrated program with Wal-Mart
develops, sources, and merchandises a line of womens
clothing designed to meet the needs of plus size women.
Our Champion brand activewear net sales, which continue
to be positively impacted by our marketing investment in the
brand, were higher by $10 million or 5%. Our Champion
brand has achieved consistent growth by focusing on the fast
growing active demographic with a unique moderate price
positioning.
Outerwear segment gross profit was higher by $37 million in
the six months of 2010 compared to 2009. The higher gross profit
was primarily due to higher sales volume of $24 million,
lower sales incentives of $9 million, lower production
costs of $7 million related to lower energy and oil-related
costs, including non-customer freight costs, lower other
manufacturing costs of $6 million primarily related to cost
reductions at our manufacturing facilities, savings of
$5 million from our cost reduction initiatives and prior
restructuring actions, vendor price reductions of
$4 million, lower cotton costs of $3 million and lower
excess and obsolete inventory costs of $1 million. These
lower costs were partially offset by lower product pricing of
$14 million primarily within the wholesale casualwear
channel and an unfavorable product sales mix of $8 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 22.3% in the six months of 2010 compared to 17.0% in
the six months of 2009, increasing as a result of the items
described above.
Outerwear segment operating profit was higher in the six months
of 2010 compared to 2009 primarily as a result of higher gross
profit, partially offset by higher distribution expenses of
$4 million, higher non-media related MAP expenses of
$3 million and higher media related MAP expenses of
$2 million.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
79,831
|
|
|
$
|
90,348
|
|
|
$
|
(10,517
|
)
|
|
|
(11.6
|
)%
|
Segment operating profit
|
|
|
27,339
|
|
|
|
29,577
|
|
|
|
(2,238
|
)
|
|
|
(7.6
|
)
|
Net sales in the Hosiery segment declined by $11 million or
12%, which was primarily due to lower sales of our
Leggs brand to mass retailers and food and drug
stores. The hosiery category has been in a state of consistent
decline for the past decade, as the trend toward casual dress
reduced demand for sheer hosiery. Generally, we manage the
Hosiery segment for cash, placing an emphasis on reducing our
cost structure and managing cash efficiently.
Hosiery segment gross profit was lower by $1 million in the
six months of 2010 compared to 2009. The lower gross profit for
the six months of 2010 compared to 2009 was primarily the result
of lower sales volume of $5 million and higher sales
incentives of $2 million, offset by lower production costs
of $2 million, lower other manufacturing costs of
$1 million, higher product pricing of $1 million and
vendor price reductions of $1 million.
44
As a percent of segment net sales, gross profit in the Hosiery
segment was 54.9% in the six months of 2010 compared to 49.8% in
the six months of 2009.
Hosiery segment operating profit was lower in the six months of
2010 compared to 2009 primarily as a result of lower gross
profit and higher media related MAP expenses of $2 million.
Direct
to Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
178,353
|
|
|
$
|
174,854
|
|
|
$
|
3,499
|
|
|
|
2.0
|
%
|
Segment operating profit
|
|
|
8,137
|
|
|
|
15,346
|
|
|
|
(7,209
|
)
|
|
|
(47.0
|
)
|
Direct to Consumer segment net sales were $3 million or 2%
higher in the six months of 2010 compared to 2009 primarily due
to higher net sales related to our Internet operations and
higher net sales in our outlet stores attributable to new store
openings since the six months of 2009, partially offset by lower
comparable store sales. The lower comparable store sales of 3%
were driven by lower traffic.
Direct to Consumer segment gross profit was higher by
$1 million in the six months of 2010 compared to 2009. The
higher gross profit was primarily due to higher sales volume of
$3 million, partially offset by higher other product costs
of $2 million. As a percent of segment net sales, gross
profit in the Direct to Consumer segment was 62.2% in the six
months of 2010 compared to 63.0% in the six months of 2009.
Direct to Consumer segment operating profit was lower in the six
months of 2010 compared to 2009 primarily as a result of higher
expenses of $4 million as a result of new retail stores or
expanding existing stores over the last 12 months, higher
non-media related MAP expenses of $2 million and higher
distribution expenses of $2 million, partially offset by
higher gross profit.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
230,262
|
|
|
$
|
199,711
|
|
|
$
|
30,551
|
|
|
|
15.3
|
%
|
Segment operating profit
|
|
|
25,638
|
|
|
|
19,137
|
|
|
|
6,501
|
|
|
|
34.0
|
|
Overall net sales in the International segment were higher by
$31 million or 15% in the six months of 2010 compared to
2009, primarily as a result of stronger net sales in Canada,
Europe, Brazil and Mexico, which reflects space and distribution
gains and stronger sales at retail, and a favorable impact of
$15 million related to foreign currency exchange rates,
partially offset by lower sales in Japan.
Excluding the impact of foreign exchange rates on currency,
International segment net sales increased by 8% in the six
months of 2010 compared to 2009. The favorable impact of foreign
currency exchange rates in our International segment was
primarily due to the strengthening of the Canadian dollar,
Brazilian real, Mexican peso and Japanese yen compared to the
U.S. dollar, partially offset by the strengthening of the
U.S. dollar compared to the Euro.
During the six months of 2010, we experienced higher net sales,
in each case excluding the impact of foreign currency exchange
rates, in our intimate apparel, male underwear and socks
businesses in Canada of $8 million, in our casualwear
business in Europe of $4 million, in our male underwear and
hosiery businesses in Brazil of $2 million and in our
intimate apparel business in Mexico of $2 million and
higher net sales of $5 million in all other regions,
partially offset by lower net sales in our male underwear and
activewear businesses in Japan of $5 million. Our innerwear
businesses in Canada and Mexico continue to produce strong sales
growth as we hold leading positions with strong market shares in
intimate apparel and male underwear product categories. In
certain international markets we are focusing on adopting global
designs for some
45
product categories to quickly launch new styles to expand our
market position. The higher net sales reflect our successful
efforts to improve our strong positions.
International segment gross profit was higher by
$15 million in the six months of 2010 compared to 2009. The
higher gross profit was primarily a result of higher sales
volume of $9 million, a favorable impact related to foreign
currency exchange rates of $7 million and vendor price
reductions of $3 million, partially offset by higher sales
incentives of $4 million.
As a percent of segment net sales, gross profit in the
International segment was 39.4% in the six months of 2010
compared to 2009 at 37.7%, increasing as a result of the items
described above.
International segment operating profit was higher in the six
months of 2010 compared to 2009 primarily attributable to the
higher gross profit, partially offset by higher selling and
other marketing expenses of $4 million and higher
distribution expenses of $3 million. The changes in foreign
currency exchange rates, which are included in the impact on
gross profit above, had a favorable impact on operating profit
of $2 million in the six months of 2010 compared to 2009.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
July 3,
|
|
July 4,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
8,277
|
|
|
$
|
(8,277
|
)
|
|
|
(100.0
|
)%
|
Segment operating profit (loss)
|
|
|
|
|
|
|
(1,810
|
)
|
|
|
1,810
|
|
|
|
100.0
|
|
Sales in our Other segment primarily consisted of sales of yarn
to third parties, which were intended to maintain asset
utilization at certain manufacturing facilities and generate
approximate break even margins. In October 2009, we completed
the sale of our yarn operations as a result of which we ceased
making our own yarn and now source all of our yarn requirements
from large-scale yarn suppliers. As a result of the sale of our
yarn operations, we no longer have net sales in our Other
segment.
General
Corporate Expenses
General corporate expenses were lower in the six months of 2010
compared to 2009 primarily due to lower
start-up and
shut-down costs of $10 million associated with the
consolidation and globalization of our supply chain and lower
stock compensation and certain other benefits of
$3 million, partially offset by higher other expenses of
$3 million.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by
operations and availability under the revolving loan facility
(the Revolving Loan Facility) under the 2009 Senior
Secured Credit Facility, Accounts Receivable Securitization
Facility and our international loan facilities. At July 3,
2010, we had $194 million of borrowing availability under
our $400 million Revolving Loan Facility (after taking into
account outstanding letters of credit), $52 million of
borrowing availability under our international loan facilities
and $37 million in cash and cash equivalents. We currently
believe that our existing cash balances and cash generated by
operations, together with our available credit capacity, will
enable us to comply with the terms of our indebtedness and meet
foreseeable liquidity requirements.
The following have impacted or are expected to impact liquidity:
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we have principal and interest obligations under our debt;
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we expect to continue to invest in efforts to improve operating
efficiencies and lower costs;
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46
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we expect to continue to ramp up our lower-cost manufacturing
capacity in Asia, Central America and the Caribbean Basin and
enhance efficiency;
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we expect to make payments related to actions taken in prior
periods related to our restructuring efforts;
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we may selectively pursue strategic acquisitions;
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we could increase or decrease the portion of the income of our
foreign subsidiaries that is expected to be remitted to the
United States, which could significantly impact our effective
income tax rate; and
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our board of directors has authorized the repurchase of up to
10 million shares of our stock in the open market over the
next few years (2.8 million of which we have repurchased as
of July 3, 2010 at a cost of $75 million), although we
may choose not to repurchase any stock and instead focus on the
repayment of our debt.
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We expect to be able to manage our working capital levels and
capital expenditure amounts to maintain sufficient levels of
liquidity. We have restructured our supply chain over the past
three years to create more efficient production clusters that
utilize fewer, larger facilities and to balance production
capability between the Western Hemisphere and Asia. As a result
of increased sales expectations for 2010 as discussed above in
the Outlook section of this MD&A, we have
secured additional capacity with outside contractors to support
sales growth.
In the near term, we anticipate working capital to increase,
primarily in the form of inventory, to support our higher sales
growth. We may also need to carry additional inventory into 2011
to support continuing sales momentum and secure additional
production capacity with outside contractors as needed. With our
global supply chain infrastructure substantially in place, we
are focused long-term on optimizing our supply chain to further
enhance efficiency, improve working capital and asset turns and
reduce costs. We are focused on optimizing the working capital
needs of our supply chain through several initiatives, such as
supplier-managed inventory for raw materials and sourced goods
ownership arrangements. Factors that could help us in these
efforts include higher sales volume and the realization of
additional cost benefits from previous restructuring and related
actions.
As of July 3, 2010, we were in compliance with all
financial covenants under our credit facilities. We expect to
maintain compliance with our covenants for the foreseeable
future, however economic conditions or the occurrence of events
discussed under Risk Factors in our Annual Report on
Form 10-K
or other SEC filings could cause noncompliance.
Our debt under the 2009 Senior Secured Credit Facility, Floating
Rate Senior Notes and Accounts Receivable Securitization
Facility bears interest at variable rates. As a result, we are
exposed to changes in market interest rates that could impact
the cost of servicing our debt. We are required under the 2009
Senior Secured Credit Facility to hedge a portion of our
floating rate debt to reduce interest rate risk caused by
floating rate debt issuance. To comply with this requirement, in
the first quarter of 2010 we entered into hedging arrangements
whereby we capped the LIBOR interest rate component on an
aggregate of $491 million of the floating rate debt under
the Floating Rate Senior Notes at 4.262%. The interest rate cap
arrangements, with notional amounts of $241 million and
$250 million, expire in December 2011.
Cash
Requirements for Our Business
We rely on our cash flows generated from operations and the
borrowing capacity under our Revolving Loan Facility, Accounts
Receivable Securitization Facility and international loan
facilities to meet the cash requirements of our business. The
primary cash requirements of our business are payments to
vendors in the normal course of business, capital expenditures,
maturities of debt and related interest payments, restructuring
costs, contributions to our pension plans and repurchases of our
stock. We believe we have sufficient cash and available
borrowings for our liquidity needs. The flexibility provided by
the debt refinancing we completed in December 2009 provides
greater opportunity to pay down debt, repurchase our stock,
pursue selected acquisitions or make discretionary contributions
to our pension plans.
47
We anticipate working capital to increase, primarily in the form
of inventory, to support our higher sales growth. Year-end 2010
inventory could be 10% or $100 million higher than year-end
2009, in line with our expected sales growth. We estimate that
one-third of the increase could come from commodity cost
inflation and the remaining increase from unit growth.
Capital spending has varied significantly from year to year as
we executed our supply chain consolidation and globalization
strategy and the integration and consolidation of our technology
systems. As a result of increased sales expectations for 2010,
we expect to invest $60 to $70 million in net capital
expenditures and intend to carry adequate inventory levels to
maximize sales potential. We spent $58 million on gross
capital expenditures during the six months of 2010, which were
offset by cash proceeds of $45 million from sales of exited
supply chain facilities and sale-leaseback transactions.
In June 2010, the U.S. Congress passed legislation that
provides for pension funding relief for companies with defined
benefit pension plans by allowing those companies to choose
between two alternative funding schedules: amortizing funding
shortfalls over 15 years for any two plan years between
2008 and 2011, or paying interest on a funding shortfall for
only two plan years of the employers choosing after which
a seven-year amortization would apply. We expect either funding
relief option could benefit us with improved cash flow over the
next one to two years due to expected lower pension
contributions, however neither option will improve total cash
flow. We are working with our actuaries to quantify the
magnitude of the short-term impact on us.
There have been no other significant changes in the cash
requirements for our business from those described in our Annual
Report on
Form 10-K
for the year ended January 2, 2010.
Sources
and Uses of Our Cash
The information presented below regarding the sources and uses
of our cash flows for the six months ended July 3, 2010 and
July 4, 2009 was derived from our consolidated financial
statements. Our cash flows are typically stronger in the second
half of the year as our sales are normally higher in the last
two quarters of each fiscal year as a result of
back-to-school
and holiday shopping periods.
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Six Months Ended
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July 3,
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July 4,
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2010
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2009
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(dollars in thousands)
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Operating activities
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$
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(64,272
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)
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$
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26,517
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Investing activities
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(13,422
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)
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(69,037
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)
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Financing activities
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76,247
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22,828
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Effect of changes in foreign currency exchange rates on cash
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(699
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(89
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)
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Decrease in cash and cash equivalents
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(2,146
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)
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(19,781
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)
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Cash and cash equivalents at beginning of year
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38,943
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67,342
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Cash and cash equivalents at end of period
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$
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36,797
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$
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47,561
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Operating
Activities
Net cash used in operating activities was $64 million in
the six months of 2010 compared to net cash provided by
operating activities of $27 million in the six months of
2009. The lower cash from operating activities of
$91 million for the six months of 2010 compared to the six
months of 2009 is primarily attributable to higher uses of our
working capital of $202 million partially offset by higher
net income of $111 million.
Net inventory increased $246 million from January 2,
2010 in order to build for the seasonally stronger second half
of the year and
back-to-school
period and to support space and distribution gains. In addition,
our raw materials and work in process inventory was slightly
higher due to the Asia supply chain transition and production
ramp-up.
48
Accounts receivable was $62 million higher compared to
January 2, 2010 primarily due to higher sales volumes and
timing of collections, partially offset by the sale of selected
trade accounts receivable to financial institutions.
With our global supply chain infrastructure substantially in
place, we are now focused on optimizing our supply chain to
further enhance efficiency, improve working capital and asset
turns and reduce costs. We are focused on optimizing the working
capital needs of our supply chain through several initiatives,
such as supplier-managed inventory for raw materials and sourced
goods ownership arrangements.
Investing
Activities
Net cash used in investing activities was $13 million in
the six months of 2010 compared to $69 million in the six
months of 2009. The lower net cash used in investing activities
of $56 million for the six months of 2010 compared to the
six months of 2009 was primarily the result of higher proceeds
from sales of assets of $36 million and lower gross capital
expenditures of $20 million. During the six months of 2010,
proceeds from sales of assets were $45 million, primarily
resulting from sale-leaseback transactions involving four
distribution centers.
Financing
Activities
Net cash provided by financing activities was $76 million
in the six months of 2010 compared to $23 million in the
six months of 2009. The higher net cash from financing
activities of $53 million in the six months of 2010
compared to the six months of 2009 was primarily the result of
higher net borrowings on the Revolving Loan Facility of
$76 million and higher net borrowings of $49 million
on the Accounts Receivable Securitization Facility, partially
offset by $59 million in repayments of debt under the 2009
Senior Secured Credit Facility and higher net repayments on
notes payable of $36 million. In addition, we made payments
of $22 million for debt amendment fees associated with the
amendments of the Accounts Receivable Securitization Facility
and the 2006 Senior Secured Credit Facility during the six
months of 2009 that did not recur in 2010 and received proceeds
of $1 million from stock options exercised in the six
months of 2010.
Cash and
Cash Equivalents
As of July 3, 2010 and January 2, 2010, cash and cash
equivalents were $37 million and $39 million,
respectively. The lower cash and cash equivalents as of
July 3, 2010 was primarily the result of net cash used in
operating activities of $64 million and net cash used in
investing activities of $13 million, partially offset by
net cash provided by financing activities of $76 million.
Critical
Accounting Policies and Estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating
results and financial condition in conformity with accounting
principles generally accepted in the United States. We apply
these accounting policies in a consistent manner. Our
significant accounting policies are discussed in Note 2,
titled Summary of Significant Accounting Policies,
to our financial statements included in our Annual Report on
Form 10-K
for the year ended January 2, 2010.
The application of critical accounting policies requires that we
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosures. These estimates and assumptions are based on
historical and other factors believed to be reasonable under the
circumstances. We evaluate these estimates and assumptions on an
ongoing basis and may retain outside consultants to assist in
our evaluation. If actual results ultimately differ from
previous estimates, the revisions are included in results of
operations in the period in which the actual amounts become
known. The critical accounting policies that involve the most
significant management judgments and estimates used in
preparation of our financial statements, or are the most
sensitive to change from outside factors, are discussed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on
Form 10-K
for the year ended January 2, 2010. There have been no
material changes in these policies during the quarter ended
July 3, 2010.
49
We recognized a change in our estimate of unrecognized tax
benefit accruals of $17 million and $20 million for
the quarter and six months ended July 3, 2010,
respectively. This change in estimate resulted from the
circumstances described above, and was not a result of any
change in the application of our accounting policies.
Recently
Issued Accounting Pronouncements
Fair
Value Disclosures
In January 2010, the Financial Accounting Standards Board issued
new accounting rules related to the disclosure requirements for
fair value measurements. The new accounting rules require new
disclosures regarding significant transfers between
Levels 1 and 2 of the fair value hierarchy and the activity
within Level 3 of the fair value hierarchy. The new
accounting rules also clarify existing disclosures regarding the
level of disaggregation of assets or liabilities and the
valuation techniques and inputs used to measure fair value. The
new accounting rules are effective for our first interim fiscal
period beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements in
the rollforward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods
within those fiscal years. The adoption of the disclosures
effective for the first interim fiscal period beginning after
December 15, 2009 did not have a material impact on our
financial condition, results of operations or cash flows but
resulted in certain additional disclosures reflected in
Note 8 to the consolidated financial statements.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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There have been no significant changes in our market risk
exposures from those described in Item 7A of our Annual
Report on
Form 10-K
for the year ended January 2, 2010.
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Item 4.
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Controls
and Procedures
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As required by Exchange Act
Rule 13a-15(b),
our management, including our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of our disclosure controls and procedures, as defined in
Exchange Act
Rule 13a-15(e),
as of the end of the period covered by this report. Based on
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective.
In connection with the evaluation required by Exchange Act
Rule 13a-15(d),
our management, including our Chief Executive Officer and Chief
Financial Officer, concluded that no changes in our internal
control over financial reporting occurred during the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
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Item 4T.
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Controls
and Procedures
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Not applicable.
PART II
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Item 1.
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Legal
Proceedings
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Although we are subject to various claims and legal actions that
occur from time to time in the ordinary course of our business,
we are not party to any pending legal proceedings that we
believe could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
Item 1A. Risk
Factors
No updates to report.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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None.
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Item 3.
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Defaults
Upon Senior Securities
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None.
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Item 4.
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(Removed
and Reserved)
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Item 5.
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Other
Information
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None.
The exhibits listed in the accompanying Exhibit Index are
filed or furnished as part of this Quarterly Report on
Form 10-Q.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HANESBRANDS INC.