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
October 2,
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 October 25, 2010, there were 95,778,117 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 may 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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Nine Months Ended
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October 2,
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October 3,
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October 2,
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October 3,
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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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1,173,362
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$
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1,058,673
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$
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3,177,054
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$
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2,902,536
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Cost of sales
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809,487
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701,993
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2,110,943
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1,960,589
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Gross profit
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363,875
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356,680
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1,066,111
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941,947
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Selling, general and administrative expenses
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249,815
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248,267
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743,534
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702,204
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Restructuring
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15,104
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46,319
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Operating profit
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114,060
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93,309
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322,577
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193,424
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Other expenses
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1,094
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2,423
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5,128
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6,537
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Interest expense, net
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36,326
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42,941
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110,394
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124,548
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Income before income tax expense
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76,640
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47,945
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207,055
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62,339
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Income tax expense
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15,328
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6,807
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23,818
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9,974
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Net income
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$
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61,312
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$
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41,138
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$
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183,237
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$
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52,365
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Earnings per share:
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Basic
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$
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0.64
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$
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0.43
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$
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1.90
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$
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0.55
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Diluted
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$
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0.63
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$
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0.43
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$
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1.87
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$
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0.55
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Weighted average shares outstanding:
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Basic
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96,496
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95,247
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96,417
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94,880
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Diluted
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97,752
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96,422
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97,790
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95,469
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
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October 2,
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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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75,496
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$
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38,943
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Trade accounts receivable less allowances of $20,316 at
October 2, 2010 and $25,776 at January 2, 2010
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531,360
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450,541
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Inventories
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1,377,286
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1,049,204
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Deferred tax assets and other current assets
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270,870
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283,869
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Total current assets
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2,255,012
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1,822,557
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Property, net
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596,458
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602,826
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Trademarks and other identifiable intangibles, net
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129,079
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136,214
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Goodwill
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322,002
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322,002
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Deferred tax assets and other noncurrent assets
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452,742
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442,965
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Total assets
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$
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3,755,293
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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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461,879
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$
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351,971
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Accrued liabilities
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303,130
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295,635
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Notes payable
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42,651
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66,681
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Current portion of debt
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150,000
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164,688
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Total current liabilities
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957,660
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878,975
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Long-term debt
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1,871,672
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1,727,547
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Other noncurrent liabilities
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387,434
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385,323
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Total liabilities
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3,216,766
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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; $.01 par value)
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Issued and outstanding 95,776,484 at October 2,
2010 and 95,396,967 at January 2, 2010
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958
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954
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Additional paid-in capital
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298,930
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287,955
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Retained earnings
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452,043
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268,805
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Accumulated other comprehensive loss
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(213,404
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(222,995
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Total stockholders equity
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538,527
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334,719
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Total liabilities and stockholders equity
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$
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3,755,293
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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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Nine Months Ended
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October 2,
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October 3,
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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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183,237
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$
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52,365
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Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
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Depreciation
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54,232
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57,476
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Amortization of intangibles
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9,046
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9,293
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Restructuring
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6,978
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Write-off on early extinguishment of debt
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2,340
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2,423
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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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9,724
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7,951
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Amortization of loss on interest rate hedge
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13,732
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Stock compensation expense
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8,320
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27,637
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Deferred taxes and other
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(10,224
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(8,422
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Changes in assets and liabilities:
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Accounts receivable
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(77,782
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(128,636
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Inventories
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(333,132
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)
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159,432
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Other assets
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9,112
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21,380
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Accounts payable
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109,964
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(31,923
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Accrued liabilities and other
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(15,643
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30,739
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Net cash provided by (used in) operating activities
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(37,074
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210,807
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Investing activities:
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Purchases of property, plant and equipment
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(78,570
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(99,709
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Proceeds from sales of assets
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45,469
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15,814
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Other
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(519
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10
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Net cash used in investing activities
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(33,620
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(83,885
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Financing activities:
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Borrowings on notes payable
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991,061
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1,169,301
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Repayments on notes payable
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(1,015,338
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)
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(1,168,799
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)
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Payments to amend credit facilities
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(1,688
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)
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(22,165
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)
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Borrowings on revolving loan facility
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1,597,500
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1,353,525
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Repayments on revolving loan facility
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(1,459,000
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)
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(1,353,525
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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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Repayment of debt under 2006 Senior Secured Credit Facility
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(140,250
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)
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Borrowings on Accounts Receivable Securitization Facility
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191,424
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176,616
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Repayments on Accounts Receivable Securitization Facility
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(141,424
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)
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(170,190
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)
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Proceeds from stock options exercised
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3,437
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|
|
376
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Other
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308
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(824
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)
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Net cash provided by (used in) financing activities
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107,217
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(155,935
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)
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Effect of changes in foreign exchange rates on cash
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30
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288
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Increase (decrease) in cash and cash equivalents
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36,553
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(28,725
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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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75,496
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$
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38,617
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See accompanying notes to Condensed Consolidated Financial
Statements.
4
HANESBRANDS
INC.
(dollars
and shares in thousands, except per share data)
(unaudited)
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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 nine months ended
October 3, 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.
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 nine months
ended October 2, 2010 and October 3, 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 nine months ended October 2, 2010 and
October 3, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Basic weighted average shares
|
|
|
96,496
|
|
|
|
95,247
|
|
|
|
96,417
|
|
|
|
94,880
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
664
|
|
|
|
205
|
|
|
|
781
|
|
|
|
|
|
Restricted stock units
|
|
|
589
|
|
|
|
970
|
|
|
|
591
|
|
|
|
589
|
|
Employee stock purchase plan and other
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
97,752
|
|
|
|
96,422
|
|
|
|
97,790
|
|
|
|
95,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarters ended October 2, 2010 and October 3,
2009, options to purchase 606 and 4,612 shares of common
stock, respectively, were excluded from the diluted earnings per
share calculation because their effect would be anti-dilutive.
For the nine months ended October 2, 2010 and
October 3, 2009, 0 and 43 restricted stock units,
respectively, and options to purchase 606 and 5,871 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:
|
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
January 2,
|
|
|
|
2010
|
|
|
2010
|
|
|
Raw materials
|
|
$
|
130,573
|
|
|
$
|
106,138
|
|
Work in process
|
|
|
126,674
|
|
|
|
100,686
|
|
Finished goods
|
|
|
1,120,039
|
|
|
|
842,380
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,377,286
|
|
|
$
|
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 nine months ended October 2, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to expenses
|
|
|
914
|
|
|
|
(632
|
)
|
|
|
282
|
|
Deductions and write-offs
|
|
|
(3,433
|
)
|
|
|
(1,947
|
)
|
|
|
(5,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 2, 2010
|
|
$
|
11,127
|
|
|
$
|
9,189
|
|
|
$
|
20,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended October 2, 2010,
the Company recognized funding fees of $1,094 and $2,557,
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 October 2, 2010 and
January 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
|
|
October 2,
|
|
|
October 2,
|
|
|
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
|
|
|
4.76
|
%
|
|
|
190,000
|
|
|
|
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
|
|
|
2.82
|
%
|
|
|
150,000
|
|
|
|
100,000
|
|
|
December 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,021,672
|
|
|
|
1,892,235
|
|
|
|
Less current maturities
|
|
|
|
|
|
|
150,000
|
|
|
|
164,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,871,672
|
|
|
$
|
1,727,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 2, 2010, the Company had $190,000 outstanding
under the $600,000 revolving loan facility (the 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), $17,046 of standby and trade
letters of credit issued and outstanding under this facility and
$392,954 of borrowing availability.
As previously disclosed in the Companys Annual Report on
Form 10-K
for the year ended January 2, 2010, the 2009 Senior Secured
Credit Facility permits the Company, at its option, to add one
or more term loan facilities or increase the commitments under
the Revolving Loan Facility in an aggregate amount of up to
$300,000 so long as certain conditions are satisfied, including,
among others, that no default or event of default is in
existence and that the Company is in pro forma compliance with
the financial covenants in the 2009 Senior Secured Credit
Facility. In order to support its working capital needs and fund
an acquisition, on September 1, 2010, as permitted by the
2009 Senior Secured Credit Facility, the Company increased the
commitments under the Revolving Loan Facility by an aggregate
amount of $200,000, increasing the borrowing availability under
the Revolving Loan Facility from $400,000 to $600,000. During
the quarter and nine months ended October 2, 2010, the
Company incurred $1,688 in capitalized debt issuance costs in
connection with increasing the borrowing availability under the
Revolving Loan Facility. Debt issuance costs are amortized to
interest expense over the life of the debt instrument.
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 nine months ended
October 2, 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 nine months ended October 2, 2010,
the Company recognized $0 and $1,654, respectively, 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
8
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
2009 during the quarter and nine months ended October 2,
2010, respectively. These charges are reflected in the
Other expenses line of the Condensed Consolidated
Statements of Income.
During the quarter and nine months ended October 3, 2009,
the Company recognized $2,423 of a write-off on early
extinguishment of debt related to unamortized debt issuance
costs on the 2006 Senior Secured Credit Facility as a result of
the prepayment of $140,250 of principal in September 2009. This
loss is reflected in the Other expenses line of the
Condensed Consolidated Statements of Income.
During the quarter and nine months ended October 3, 2009,
the Company recognized charges of $0 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 October 2, 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 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.
9
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
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 October 2, 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 was is $12,550 and $38,501,
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.
Cash Flow
Hedges Interest Rate Derivatives
From time to time, the Company uses 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 Companys
$500,000 Floating Rate Senior Notes due 2014 (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 October 2, 2010, the U.S. dollar
equivalent of commitments to sell foreign currencies in the
Companys foreign currency cash flow hedge derivative
portfolio was $53,752, using the exchange rate at that date.
10
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
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 October 2,
2010 and January 2, 2010.
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
|
|
|
|
|
|
October 2,
|
|
|
January 2,
|
|
|
|
Balance Sheet Location
|
|
2010
|
|
|
2010
|
|
|
Derivative assets hedges
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Other assets
|
|
$
|
20
|
|
|
$
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets hedges
|
|
|
|
|
20
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
220
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
|
|
$
|
240
|
|
|
$
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(1,351
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities hedges
|
|
|
|
|
(1,351
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities non-hedges
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
|
(1,408
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
|
$
|
(2,759
|
)
|
|
$
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset (liability)
|
|
|
|
$
|
(2,519
|
)
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
11
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
Net
Derivative Gain or Loss
The effect of cash flow hedge derivative instruments on the
Condensed Consolidated Statements of Income and Accumulated
Other Comprehensive Loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
Amount of
|
|
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
|
|
|
Reclassified from
|
|
|
|
Recognized in
|
|
|
Location of
|
|
Accumulated
|
|
|
|
Accumulated Other
|
|
|
Gain (Loss)
|
|
Other Comprehensive
|
|
|
|
Comprehensive Loss
|
|
|
Reclassified from
|
|
Loss into Income
|
|
|
|
(Effective Portion)
|
|
|
Accumulated Other
|
|
(Effective Portion)
|
|
|
|
Quarter Ended
|
|
|
Comprehensive
|
|
Quarter Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Loss into Income
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
(Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
$
|
(82
|
)
|
|
$
|
(541
|
)
|
|
Interest expense, net
|
|
$
|
(4,214
|
)
|
|
$
|
219
|
|
Foreign exchange contracts
|
|
|
(2,387
|
)
|
|
|
(898
|
)
|
|
Cost of sales
|
|
|
(514
|
)
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2,469
|
)
|
|
$
|
(1,439
|
)
|
|
|
|
$
|
(4,728
|
)
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
Nine Months Ended
|
|
|
Comprehensive
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Loss into Income
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
(Effective Portion)
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
$
|
(499
|
)
|
|
$
|
17,471
|
|
|
Interest expense, net
|
|
$
|
(13,836
|
)
|
|
$
|
348
|
|
Foreign exchange contracts
|
|
|
(2,096
|
)
|
|
|
(1,768
|
)
|
|
Cost of sales
|
|
|
(1,138
|
)
|
|
|
(1,240
|
)
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2,595
|
)
|
|
$
|
15,703
|
|
|
|
|
$
|
(14,974
|
)
|
|
$
|
(796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to reclassify into earnings during the next
12 months a net loss from Accumulated Other Comprehensive
Loss of approximately $11,287.
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 nine months ended October 2, 2010 related
to ineffectiveness of hedging relationships for foreign exchange
contracts of $(1) and $6, respectively. The Company recognized
gains related to ineffectiveness of hedging relationships for
the quarter ended October 3, 2009 of $102, consisting of
$75 for interest rate contracts and $27 for foreign exchange
contracts. The Company recognized gains related to
ineffectiveness of hedging relationships for the nine months
ended October 3, 2009 of $246, consisting of $227 for
interest rate contracts and $19 for foreign exchange contracts.
12
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
The effect of mark to market hedge derivative instruments on the
Condensed Consolidated Statements of Income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
|
Recognized in Income
|
|
|
Recognized in Income
|
|
|
|
Location of Gain (Loss)
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
Recognized in Income on
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
Derivative
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expenses
|
|
$
|
(1,838
|
)
|
|
$
|
4,365
|
|
|
$
|
(1,309
|
)
|
|
$
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(1,838
|
)
|
|
$
|
4,365
|
|
|
$
|
(1,309
|
)
|
|
$
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
As of October 2, 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 October 2,
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 October 2, 2010. As of
October 2, 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.
13
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
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
|
|
|
|
October 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
|
|
$
|
|
|
|
$
|
220
|
|
|
$
|
|
|
Foreign exchange derivative contracts
|
|
|
|
|
|
|
(2,759
|
)
|
|
|
|
|
Interest rate derivative contracts
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(2,519
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 October 2, 2010 and
January 2, 2010. The fair value of debt was $2,036,470 and
$1,881,868 as of October 2, 2010 and January 2, 2010
and had a carrying value of $2,021,672 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 October 2, 2010 and
January 2, 2010, primarily due to the short-term nature of
these instruments.
14
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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$
|
61,312
|
|
|
$
|
41,138
|
|
|
$
|
183,237
|
|
|
$
|
52,365
|
|
Translation adjustments
|
|
|
8,399
|
|
|
|
8,047
|
|
|
|
2,079
|
|
|
|
16,303
|
|
Amortization of loss on interest rate hedge, net of tax of
$1,672, $0, $5,476 and $0, respectively
|
|
|
2,519
|
|
|
|
|
|
|
|
8,256
|
|
|
|
|
|
Net derivative activity on qualifying cash flow hedges, net of
tax of $(771), $(524), $(540) and $5,800, respectively
|
|
|
(1,162
|
)
|
|
|
(823
|
)
|
|
|
(814
|
)
|
|
|
9,108
|
|
Recognition of loss from pension plan settlement, net of tax of
$53, $1,227, $53 and $1,227, respectively
|
|
|
69
|
|
|
|
1,928
|
|
|
|
69
|
|
|
|
1,928
|
|
Amounts amortized into net periodic cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost, net of tax of $3, $3, $9 and $9, respectively
|
|
|
4
|
|
|
|
4
|
|
|
|
12
|
|
|
|
12
|
|
Actuarial loss, net of tax of $860, $888, $2,580 and $2,508,
respectively
|
|
|
1,297
|
|
|
|
1,396
|
|
|
|
3,891
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
72,438
|
|
|
$
|
51,690
|
|
|
$
|
196,730
|
|
|
$
|
83,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective income tax rate was 20% and 12% for
the quarter and nine months ended October 2, 2010,
respectively, and 14% and 16% for the quarter and nine months
ended October 3, 2009, respectively.
The higher effective income tax rate of 20% for the quarter
ended October 2, 2010 compared to 14% for the quarter ended
October 3, 2009 was primarily attributable to a lower
proportion of the Companys earnings attributed to foreign
subsidiaries in the quarter ended October 2, 2010 which are
taxed at rates lower than the U.S. statutory rate. The
lower effective income tax rate of 12% for the nine months ended
October 2, 2010 compared to 16% for the nine months ended
October 3, 2009 was primarily attributable to a discrete,
non-recurring income tax benefit of approximately
$20 million for the nine months ended October 2, 2010,
partially offset by a lower proportion of the Companys
earnings attributed to foreign subsidiaries in the quarter ended
October 2, 2010 which are taxed at rates lower than the
U.S. statutory rate. 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.
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
15
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
book value reflected on that balance sheet, then Sara Lee will
be required to pay the Company the amount of such decrease. If
such substitution causes an increase in the net book value
reflected on that balance sheet, then the Company will be
required to pay Sara Lee the amount of such increase. For
purposes of this computation, the Companys deferred taxes
are the amount of deferred tax benefits (including deferred tax
consequences attributable to deductible temporary differences
and carryforwards) that would be recognized as assets on the
Companys balance sheet computed in accordance with GAAP,
but without regard to valuation allowances, less the amount of
deferred tax liabilities (including deferred tax consequences
attributable to taxable temporary differences) that would be
recognized as liabilities on the Companys opening balance
sheet computed in accordance with GAAP, but without regard to
valuation allowances. Neither the Company nor Sara Lee will be
required to make any other payments to the other with respect to
deferred taxes.
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 October 2,
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, in August 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. Each segment has its own management
that is responsible for the operations of the segments
businesses but the segments share 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 primarily 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
16
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
512,486
|
|
|
$
|
467,577
|
|
|
$
|
1,522,553
|
|
|
$
|
1,393,904
|
|
Outerwear
|
|
|
389,474
|
|
|
|
328,339
|
|
|
|
894,653
|
|
|
|
772,685
|
|
Hosiery
|
|
|
37,442
|
|
|
|
40,978
|
|
|
|
117,273
|
|
|
|
131,326
|
|
Direct to Consumer
|
|
|
100,327
|
|
|
|
100,204
|
|
|
|
278,680
|
|
|
|
275,058
|
|
International
|
|
|
133,633
|
|
|
|
117,830
|
|
|
|
363,895
|
|
|
|
317,541
|
|
Other
|
|
|
|
|
|
|
3,745
|
|
|
|
|
|
|
|
12,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,173,362
|
|
|
$
|
1,058,673
|
|
|
$
|
3,177,054
|
|
|
$
|
2,902,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
55,804
|
|
|
$
|
54,678
|
|
|
$
|
219,475
|
|
|
$
|
185,346
|
|
Outerwear
|
|
|
34,308
|
|
|
|
38,706
|
|
|
|
56,631
|
|
|
|
31,869
|
|
Hosiery
|
|
|
11,333
|
|
|
|
12,781
|
|
|
|
38,672
|
|
|
|
42,358
|
|
Direct to Consumer
|
|
|
10,446
|
|
|
|
13,843
|
|
|
|
18,583
|
|
|
|
29,189
|
|
International
|
|
|
16,754
|
|
|
|
12,834
|
|
|
|
42,392
|
|
|
|
31,971
|
|
Other
|
|
|
|
|
|
|
(462
|
)
|
|
|
|
|
|
|
(2,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
128,645
|
|
|
|
132,380
|
|
|
|
375,753
|
|
|
|
318,461
|
|
Items not included in segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,667
|
)
|
|
|
(20,285
|
)
|
|
|
(44,130
|
)
|
|
|
(62,979
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(2,918
|
)
|
|
|
(3,112
|
)
|
|
|
(9,046
|
)
|
|
|
(9,293
|
)
|
Restructuring
|
|
|
|
|
|
|
(15,104
|
)
|
|
|
|
|
|
|
(46,319
|
)
|
Inventory write-offs included in cost of sales
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
(3,516
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
(2,392
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
114,060
|
|
|
|
93,309
|
|
|
|
322,577
|
|
|
|
193,424
|
|
Other expenses
|
|
|
(1,094
|
)
|
|
|
(2,423
|
)
|
|
|
(5,128
|
)
|
|
|
(6,537
|
)
|
Interest expense, net
|
|
|
(36,326
|
)
|
|
|
(42,941
|
)
|
|
|
(110,394
|
)
|
|
|
(124,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
76,640
|
|
|
$
|
47,945
|
|
|
$
|
207,055
|
|
|
$
|
62,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
8,631
|
|
|
$
|
8,069
|
|
|
$
|
25,847
|
|
|
$
|
27,054
|
|
Outerwear
|
|
|
5,337
|
|
|
|
5,489
|
|
|
|
15,026
|
|
|
|
16,370
|
|
Hosiery
|
|
|
629
|
|
|
|
979
|
|
|
|
2,157
|
|
|
|
3,164
|
|
Direct to Consumer
|
|
|
1,589
|
|
|
|
1,810
|
|
|
|
4,359
|
|
|
|
4,172
|
|
International
|
|
|
418
|
|
|
|
561
|
|
|
|
1,573
|
|
|
|
1,589
|
|
Other
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,604
|
|
|
|
16,967
|
|
|
|
48,962
|
|
|
|
52,536
|
|
Corporate
|
|
|
3,945
|
|
|
|
4,173
|
|
|
|
14,316
|
|
|
|
14,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
20,549
|
|
|
$
|
21,140
|
|
|
$
|
63,278
|
|
|
$
|
66,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
10,186
|
|
|
$
|
8,669
|
|
|
$
|
37,326
|
|
|
$
|
37,677
|
|
Outerwear
|
|
|
6,348
|
|
|
|
9,515
|
|
|
|
25,998
|
|
|
|
47,664
|
|
Hosiery
|
|
|
124
|
|
|
|
146
|
|
|
|
426
|
|
|
|
549
|
|
Direct to Consumer
|
|
|
2,388
|
|
|
|
1,498
|
|
|
|
9,741
|
|
|
|
7,734
|
|
International
|
|
|
504
|
|
|
|
368
|
|
|
|
1,763
|
|
|
|
857
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,550
|
|
|
|
20,196
|
|
|
|
75,254
|
|
|
|
94,500
|
|
Corporate
|
|
|
921
|
|
|
|
1,697
|
|
|
|
3,316
|
|
|
|
5,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
20,471
|
|
|
$
|
21,893
|
|
|
$
|
78,570
|
|
|
$
|
99,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Consolidating
Financial Information
|
In accordance with the indenture governing the Floating Rate
Senior Notes and the indenture governing the Companys
$500,000 8.000% Senior Notes due 2016 (the 8% Senior
Notes) (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;
18
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 October 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,104,713
|
|
|
$
|
113,915
|
|
|
$
|
830,265
|
|
|
$
|
(875,531
|
)
|
|
$
|
1,173,362
|
|
Cost of sales
|
|
|
875,963
|
|
|
|
43,270
|
|
|
|
748,701
|
|
|
|
(858,447
|
)
|
|
|
809,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
228,750
|
|
|
|
70,645
|
|
|
|
81,564
|
|
|
|
(17,084
|
)
|
|
|
363,875
|
|
Selling, general and administrative expenses
|
|
|
201,440
|
|
|
|
20,282
|
|
|
|
27,784
|
|
|
|
309
|
|
|
|
249,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
27,310
|
|
|
|
50,363
|
|
|
|
53,780
|
|
|
|
(17,393
|
)
|
|
|
114,060
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
71,944
|
|
|
|
33,908
|
|
|
|
|
|
|
|
(105,852
|
)
|
|
|
|
|
Other expenses
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,094
|
|
Interest expense, net
|
|
|
33,678
|
|
|
|
(22
|
)
|
|
|
2,673
|
|
|
|
(3
|
)
|
|
|
36,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
64,482
|
|
|
|
84,293
|
|
|
|
51,107
|
|
|
|
(123,242
|
)
|
|
|
76,640
|
|
Income tax expense
|
|
|
3,170
|
|
|
|
7,635
|
|
|
|
4,523
|
|
|
|
|
|
|
|
15,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
61,312
|
|
|
$
|
76,658
|
|
|
$
|
46,584
|
|
|
$
|
(123,242
|
)
|
|
$
|
61,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Quarter Ended October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,054,178
|
|
|
$
|
115,094
|
|
|
$
|
675,167
|
|
|
$
|
(785,766
|
)
|
|
$
|
1,058,673
|
|
Cost of sales
|
|
|
857,175
|
|
|
|
42,714
|
|
|
|
592,759
|
|
|
|
(790,655
|
)
|
|
|
701,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
197,003
|
|
|
|
72,380
|
|
|
|
82,408
|
|
|
|
4,889
|
|
|
|
356,680
|
|
Selling, general and administrative expenses
|
|
|
194,025
|
|
|
|
23,060
|
|
|
|
30,374
|
|
|
|
808
|
|
|
|
248,267
|
|
Restructuring
|
|
|
14,236
|
|
|
|
|
|
|
|
868
|
|
|
|
|
|
|
|
15,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(11,258
|
)
|
|
|
49,320
|
|
|
|
51,166
|
|
|
|
4,081
|
|
|
|
93,309
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
88,536
|
|
|
|
7,515
|
|
|
|
|
|
|
|
(96,051
|
)
|
|
|
|
|
Other expenses
|
|
|
2,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,423
|
|
Interest expense, net
|
|
|
32,145
|
|
|
|
5,285
|
|
|
|
5,523
|
|
|
|
(12
|
)
|
|
|
42,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
42,710
|
|
|
|
51,550
|
|
|
|
45,643
|
|
|
|
(91,958
|
)
|
|
|
47,945
|
|
Income tax expense
|
|
|
1,572
|
|
|
|
461
|
|
|
|
4,774
|
|
|
|
|
|
|
|
6,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
41,138
|
|
|
$
|
51,089
|
|
|
$
|
40,869
|
|
|
$
|
(91,958
|
)
|
|
$
|
41,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Nine Months Ended October 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
3,034,863
|
|
|
$
|
319,231
|
|
|
$
|
2,317,522
|
|
|
$
|
(2,494,562
|
)
|
|
$
|
3,177,054
|
|
Cost of sales
|
|
|
2,423,688
|
|
|
|
118,694
|
|
|
|
2,054,675
|
|
|
|
(2,486,114
|
)
|
|
|
2,110,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
611,175
|
|
|
|
200,537
|
|
|
|
262,847
|
|
|
|
(8,448
|
)
|
|
|
1,066,111
|
|
Selling, general and administrative expenses
|
|
|
589,755
|
|
|
|
69,018
|
|
|
|
83,734
|
|
|
|
1,027
|
|
|
|
743,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
21,420
|
|
|
|
131,519
|
|
|
|
179,113
|
|
|
|
(9,475
|
)
|
|
|
322,577
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
260,220
|
|
|
|
117,996
|
|
|
|
|
|
|
|
(378,216
|
)
|
|
|
|
|
Other expenses
|
|
|
5,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,128
|
|
Interest expense, net
|
|
|
101,490
|
|
|
|
(67
|
)
|
|
|
8,971
|
|
|
|
|
|
|
|
110,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
175,022
|
|
|
|
249,582
|
|
|
|
170,142
|
|
|
|
(387,691
|
)
|
|
|
207,055
|
|
Income tax expense (benefit)
|
|
|
(8,215
|
)
|
|
|
20,271
|
|
|
|
11,762
|
|
|
|
|
|
|
|
23,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
183,237
|
|
|
$
|
229,311
|
|
|
$
|
158,380
|
|
|
$
|
(387,691
|
)
|
|
$
|
183,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Nine Months Ended October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
2,986,315
|
|
|
$
|
317,083
|
|
|
$
|
2,061,233
|
|
|
$
|
(2,462,095
|
)
|
|
$
|
2,902,536
|
|
Cost of sales
|
|
|
2,469,249
|
|
|
|
115,549
|
|
|
|
1,827,681
|
|
|
|
(2,451,890
|
)
|
|
|
1,960,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
517,066
|
|
|
|
201,534
|
|
|
|
233,552
|
|
|
|
(10,205
|
)
|
|
|
941,947
|
|
Selling, general and administrative expenses
|
|
|
558,119
|
|
|
|
67,120
|
|
|
|
75,403
|
|
|
|
1,562
|
|
|
|
702,204
|
|
Restructuring
|
|
|
42,260
|
|
|
|
|
|
|
|
4,059
|
|
|
|
|
|
|
|
46,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(83,313
|
)
|
|
|
134,414
|
|
|
|
154,090
|
|
|
|
(11,767
|
)
|
|
|
193,424
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
231,881
|
|
|
|
81,693
|
|
|
|
|
|
|
|
(313,574
|
)
|
|
|
|
|
Other expenses
|
|
|
6,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,537
|
|
Interest expense, net
|
|
|
93,824
|
|
|
|
17,523
|
|
|
|
13,202
|
|
|
|
(1
|
)
|
|
|
124,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
48,207
|
|
|
|
198,584
|
|
|
|
140,888
|
|
|
|
(325,340
|
)
|
|
|
62,339
|
|
Income tax expense (benefit)
|
|
|
(4,158
|
)
|
|
|
3,320
|
|
|
|
10,812
|
|
|
|
|
|
|
|
9,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
52,365
|
|
|
$
|
195,264
|
|
|
$
|
130,076
|
|
|
$
|
(325,340
|
)
|
|
$
|
52,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
October 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,521
|
|
|
$
|
1,256
|
|
|
$
|
34,719
|
|
|
$
|
|
|
|
$
|
75,496
|
|
Trade accounts receivable less allowances
|
|
|
81,773
|
|
|
|
5,501
|
|
|
|
444,086
|
|
|
|
|
|
|
|
531,360
|
|
Inventories
|
|
|
1,072,217
|
|
|
|
63,879
|
|
|
|
370,517
|
|
|
|
(129,327
|
)
|
|
|
1,377,286
|
|
Deferred tax assets and other current assets
|
|
|
236,708
|
|
|
|
10,226
|
|
|
|
24,960
|
|
|
|
(1,024
|
)
|
|
|
270,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,430,219
|
|
|
|
80,862
|
|
|
|
874,282
|
|
|
|
(130,351
|
)
|
|
|
2,255,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
120,507
|
|
|
|
23,002
|
|
|
|
452,949
|
|
|
|
|
|
|
|
596,458
|
|
Trademarks and other identifiable intangibles, net
|
|
|
17,198
|
|
|
|
90,719
|
|
|
|
21,162
|
|
|
|
|
|
|
|
129,079
|
|
Goodwill
|
|
|
232,883
|
|
|
|
16,071
|
|
|
|
73,048
|
|
|
|
|
|
|
|
322,002
|
|
Investments in subsidiaries
|
|
|
1,169,141
|
|
|
|
875,942
|
|
|
|
|
|
|
|
(2,045,083
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
264,278
|
|
|
|
275,125
|
|
|
|
119,686
|
|
|
|
(206,347
|
)
|
|
|
452,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,234,226
|
|
|
$
|
1,361,721
|
|
|
$
|
1,541,127
|
|
|
$
|
(2,381,781
|
)
|
|
$
|
3,755,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
282,748
|
|
|
$
|
4,525
|
|
|
$
|
174,606
|
|
|
$
|
|
|
|
$
|
461,879
|
|
Accrued liabilities
|
|
|
191,764
|
|
|
|
39,179
|
|
|
|
72,153
|
|
|
|
34
|
|
|
|
303,130
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
42,651
|
|
|
|
|
|
|
|
42,651
|
|
Current portion of debt
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
474,512
|
|
|
|
43,704
|
|
|
|
439,410
|
|
|
|
34
|
|
|
|
957,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,871,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,871,672
|
|
Other noncurrent liabilities
|
|
|
349,515
|
|
|
|
4,670
|
|
|
|
33,249
|
|
|
|
|
|
|
|
387,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,695,699
|
|
|
|
48,374
|
|
|
|
472,659
|
|
|
|
34
|
|
|
|
3,216,766
|
|
Stockholders equity
|
|
|
538,527
|
|
|
|
1,313,347
|
|
|
|
1,068,468
|
|
|
|
(2,381,815
|
)
|
|
|
538,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,234,226
|
|
|
$
|
1,361,721
|
|
|
$
|
1,541,127
|
|
|
$
|
(2,381,781
|
)
|
|
$
|
3,755,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Nine Months Ended October 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
168,472
|
|
|
$
|
124,951
|
|
|
$
|
46,204
|
|
|
$
|
(376,701
|
)
|
|
$
|
(37,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(21,652
|
)
|
|
|
(8,989
|
)
|
|
|
(47,929
|
)
|
|
|
|
|
|
|
(78,570
|
)
|
Proceeds from sales of assets
|
|
|
44,436
|
|
|
|
|
|
|
|
1,033
|
|
|
|
|
|
|
|
45,469
|
|
Other
|
|
|
(519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
22,265
|
|
|
|
(8,989
|
)
|
|
|
(46,896
|
)
|
|
|
|
|
|
|
(33,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
991,061
|
|
|
|
|
|
|
|
991,061
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(1,015,338
|
)
|
|
|
|
|
|
|
(1,015,338
|
)
|
Payments to amend credit facilities
|
|
|
(1,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,688
|
)
|
Borrowings on revolving loan facility
|
|
|
1,597,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,597,500
|
|
Repayments on revolving loan facility
|
|
|
(1,459,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,459,000
|
)
|
Repayment of debt under 2009 Senior Secured Credit Facility
|
|
|
(59,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,063
|
)
|
Borrowings on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
191,424
|
|
|
|
|
|
|
|
191,424
|
|
Repayments on Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
(141,424
|
)
|
|
|
|
|
|
|
(141,424
|
)
|
Proceeds from stock options exercised
|
|
|
3,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,437
|
|
Other
|
|
|
342
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
308
|
|
Net transactions with related entities
|
|
|
(245,549
|
)
|
|
|
(116,352
|
)
|
|
|
(14,800
|
)
|
|
|
376,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(164,021
|
)
|
|
|
(116,352
|
)
|
|
|
10,889
|
|
|
|
376,701
|
|
|
|
107,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
26,716
|
|
|
|
(390
|
)
|
|
|
10,227
|
|
|
|
|
|
|
|
36,553
|
|
Cash and cash equivalents at beginning of year
|
|
|
12,805
|
|
|
|
1,646
|
|
|
|
24,492
|
|
|
|
|
|
|
|
38,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,521
|
|
|
$
|
1,256
|
|
|
$
|
34,719
|
|
|
$
|
|
|
|
$
|
75,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Nine Months Ended October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
557,032
|
|
|
$
|
27,338
|
|
|
$
|
(64,672
|
)
|
|
$
|
(308,891
|
)
|
|
$
|
210,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(15,010
|
)
|
|
|
(7,344
|
)
|
|
|
(77,355
|
)
|
|
|
|
|
|
|
(99,709
|
)
|
Proceeds from sales of assets
|
|
|
11,896
|
|
|
|
|
|
|
|
3,918
|
|
|
|
|
|
|
|
15,814
|
|
Other
|
|
|
(601
|
)
|
|
|
10
|
|
|
|
|
|
|
|
601
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(3,715
|
)
|
|
|
(7,334
|
)
|
|
|
(73,437
|
)
|
|
|
601
|
|
|
|
(83,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
1,169,301
|
|
|
|
|
|
|
|
1,169,301
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(1,168,799
|
)
|
|
|
|
|
|
|
(1,168,799
|
)
|
Payments to amend credit facilities
|
|
|
(20,570
|
)
|
|
|
|
|
|
|
(1,595
|
)
|
|
|
|
|
|
|
(22,165
|
)
|
Borrowings on revolving loan facility
|
|
|
1,353,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,353,525
|
|
Repayments on revolving loan facility
|
|
|
(1,353,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,353,525
|
)
|
Repayments of debt under 2006 Senior Secured Credit Facility
|
|
|
(140,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,250
|
)
|
Borrowings on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
176,616
|
|
|
|
|
|
|
|
176,616
|
|
Repayments on Accounts Receivable Securitization Facility
|
|
|
|
|
|
|
|
|
|
|
(170,190
|
)
|
|
|
|
|
|
|
(170,190
|
)
|
Proceeds from stock options exercised
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376
|
|
Other
|
|
|
(800
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
(824
|
)
|
Net transactions with related entities
|
|
|
(402,945
|
)
|
|
|
(20,828
|
)
|
|
|
115,483
|
|
|
|
308,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(564,189
|
)
|
|
|
(20,828
|
)
|
|
|
120,792
|
|
|
|
308,290
|
|
|
|
(155,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(10,872
|
)
|
|
|
(824
|
)
|
|
|
(17,029
|
)
|
|
|
|
|
|
|
(28,725
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
16,210
|
|
|
|
2,355
|
|
|
|
48,777
|
|
|
|
|
|
|
|
67,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,338
|
|
|
$
|
1,531
|
|
|
$
|
31,748
|
|
|
$
|
|
|
|
$
|
38,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
25
HANESBRANDS
INC.
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars
and shares in thousands, except per share data)
(unaudited)
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 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 nine months ended
October 2, 2010 and October 3, 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
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 2, 2010 restructuring actions
|
|
$
|
|
|
|
$
|
12,278
|
|
|
$
|
|
|
|
$
|
31,522
|
|
Year ended January 3, 2009 restructuring actions
|
|
|
|
|
|
|
2,116
|
|
|
|
|
|
|
|
15,991
|
|
Year ended December 29, 2007 and prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring actions
|
|
|
|
|
|
|
1,280
|
|
|
|
|
|
|
|
5,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
15,674
|
|
|
$
|
|
|
|
$
|
52,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates where the costs associated with
these actions are recognized in the Condensed Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
5,908
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
538
|
|
Restructuring
|
|
|
|
|
|
|
15,104
|
|
|
|
|
|
|
|
46,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
15,674
|
|
|
$
|
|
|
|
$
|
52,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
October 2,
|
|
|
October 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Accelerated depreciation
|
|
$
|
|
|
|
$
|
301
|
|
|
$
|
|
|
|
$
|
2,930
|
|
Inventory write-offs
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
3,516
|
|
Fixed asset impairments
|
|
|
|
|
|
|
5,482
|
|
|
|
|
|
|
|
6,448
|
|
Employee termination and other benefits
|
|
|
|
|
|
|
5,649
|
|
|
|
|
|
|
|
20,859
|
|
Noncancelable lease and other contractual obligations and other
|
|
|
|
|
|
|
3,973
|
|
|
|
|
|
|
|
19,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
15,674
|
|
|
$
|
|
|
|
$
|
52,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
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:
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 2, 2010
|
|
|
Beginning accrual
|
|
$
|
22,399
|
|
Cash payments
|
|
|
(12,781
|
)
|
Adjustments
|
|
|
(2,315
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
7,303
|
|
|
|
|
|
|
The accrual balance as of October 2, 2010 is comprised of
$7,216 in current accrued liabilities and $87 in other
noncurrent liabilities. The $7,216 in current accrued
liabilities consists of $3,737 for noncancelable lease and other
contractual obligations and $3,479 for employee termination and
other benefits. The $87 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.
27
|
|
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. Each segment has its own management that
is responsible for the operations of the segments
businesses but the segments share 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 competitive advantage for us around
the globe. Our supply chain has generated significant cost
savings, margin
28
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 year.
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 three 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. In an effort to
further build market share growth we have invested in
advertising and trade spending during 2010 and expect our media
spending to be approximately $90 million for the full year.
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 are seeing a sustained increase in various input costs, such
as cotton and oil-related materials, which will impact our
results for the remainder of 2010 and in 2011. Rising demand for
cotton resulting from the economic recovery, weather-related
supply disruptions, and a sharp rise in the futures market for
cotton have caused cotton prices to surge upward during 2010.
After taking into consideration the cotton costs currently
included in inventory, we expect the fourth quarter of 2010
should reflect an average cost of 79 cents per pound, a
$26 million negative impact when compared to the fourth
quarter of 2009. 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 in 2010 compared to the full year
of 2009. A substantial portion of our cotton costs are now fixed
for the first three quarters of 2011, and we are gaining
visibility for the rest of 2011. The first and second quarters
of 2011 should reflect an average cost of 83 cents per pound,
and the third quarter of 2011 should reflect an average cost of
88 cents per pound. We will lock in our cotton costs for the
fourth quarter of 2011 later this year.
Because of systemic cost inflation, particularly for cotton,
energy and labor, we have secured price increases to offset
annualized input cost inflation and are working with our
customers on joint efficiency initiatives. The timing and size
of price increases will vary by product category and are
expected to take effect no later than February 2011.
Highlights
from the Third Quarter and Nine Months Ended October 2,
2010
|
|
|
|
|
Total net sales in the third quarter of 2010 were
$1.17 billion, compared with $1.06 billion in the same
quarter of 2009, representing an 11% increase. Total net sales
in the first nine months of 2010 were $3.18 billion,
compared with $2.90 billion in the same period of 2009,
representing a 10% increase.
|
|
|
|
Operating profit was $114 million in the third quarter of
2010, compared with $93 million in the same quarter of
2009. As a percent of sales, operating profit was 9.7% in the
third quarter of 2010 compared to 8.8% in the same quarter of
2009. Operating profit was $323 million in the first nine
months of 2010, compared with $193 million in the same
period of 2009. As a percent of sales, operating profit was
10.2% in the first nine months of 2010 compared to 6.7% in the
same period of 2009.
|
|
|
|
Diluted earnings per share were $0.63 in the third quarter of
2010, compared with $0.43 in the same quarter of 2009. Diluted
earnings per share were $1.87 in the first nine months of 2010,
compared with $0.55 in the same period of 2009.
|
|
|
|
Gross capital expenditures were $79 million during the
first nine months of 2010, compared with $100 million in
the same period of 2009. Proceeds from sales of assets were
$45 million in the first nine months of 2010 and
$16 million in the same period of 2009.
|
29
|
|
|
|
|
On August 10, 2010, we announced that we had entered into a
definitive purchase agreement to acquire GearCo, Inc., known as
Gear For Sports, a leading seller of licensed logo apparel in
collegiate bookstores. Gear For Sports, which sells embellished
licensed apparel under several brand names, including our
Champion label, had sales of approximately
$225 million and an operating profit margin of more than
11% of sales in its fiscal year ended in June 2010. The Gear For
Sports acquisition supports our strategy of creating stronger
branded and defensible businesses in our Outerwear segment,
which has included building our Champion activewear brand
and increasing sales of higher-margin graphic apparel. We have
significant growth synergies in both the collegiate bookstore
channel and our existing retail channels and opportunities to
take advantage of our low-cost global supply chain. After the
acquisition, approximately 20% to 25% of the Outerwear Segment
net sales will be graphic apparel. All necessary approvals,
including those of both companies boards of directors and
Gear For Sports investors, have been obtained, and the
acquisition is expected to be completed in November 2010. The
purchase price is $55 million in cash for
shareholders equity plus payment at closing of
approximately $170 million of debt of the privately held
company.
|
Condensed
Consolidated Results of Operations Third Quarter
Ended October 2, 2010 Compared with Third Quarter Ended
October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,173,362
|
|
|
$
|
1,058,673
|
|
|
$
|
114,689
|
|
|
|
10.8
|
%
|
Cost of sales
|
|
|
809,487
|
|
|
|
701,993
|
|
|
|
107,494
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
363,875
|
|
|
|
356,680
|
|
|
|
7,195
|
|
|
|
2.0
|
|
Selling, general and administrative expenses
|
|
|
249,815
|
|
|
|
248,267
|
|
|
|
1,548
|
|
|
|
0.6
|
|
Restructuring
|
|
|
|
|
|
|
15,104
|
|
|
|
(15,104
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
114,060
|
|
|
|
93,309
|
|
|
|
20,751
|
|
|
|
22.2
|
|
Other expenses
|
|
|
1,094
|
|
|
|
2,423
|
|
|
|
(1,329
|
)
|
|
|
(54.8
|
)
|
Interest expense, net
|
|
|
36,326
|
|
|
|
42,941
|
|
|
|
(6,615
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
76,640
|
|
|
|
47,945
|
|
|
|
28,695
|
|
|
|
59.8
|
|
Income tax expense
|
|
|
15,328
|
|
|
|
6,807
|
|
|
|
8,521
|
|
|
|
125.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
61,312
|
|
|
$
|
41,138
|
|
|
$
|
20,174
|
|
|
|
49.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,173,362
|
|
|
$
|
1,058,673
|
|
|
$
|
114,689
|
|
|
|
10.8
|
%
|
Consolidated net sales were higher by $115 million or 11%
in the third quarter of 2010 compared to the third quarter of
2009. The third quarter of 2010 is our third consecutive quarter
of growth, reflecting significant space and distribution gains
at retailers, positive retail sell-through and inventory
restocking at retail. Our significant space and distribution
gains at retailers contributed approximately 7% of sales growth,
while approximately 4% 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 third quarter of 2010, with the
Outerwear segment achieving nearly 20% sales growth.
Innerwear, Outerwear and International segment net sales were
higher by $45 million (10%), $61 million (19%) and
$16 million (13%), respectively, in the third quarter of
2010 compared to the third quarter of 2009. Direct to Consumer
segment net sales were slightly higher, while Hosiery and Other
segment net sales were
30
lower by $4 million (9%) and $4 million, respectively,
in the third quarter of 2010 compared to the third quarter of
2009.
International segment net sales were higher by 13% in the third
quarter of 2010 compared to the third quarter of 2009, which
reflected a favorable impact of $4 million related to
foreign currency exchange rates due to the strengthening of the
Japanese yen and Canadian dollar 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 10% in the third quarter of 2010 compared
to the third quarter of 2009 after excluding the impact of
foreign exchange rates on currency.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
363,875
|
|
|
$
|
356,680
|
|
|
$
|
7,195
|
|
|
|
2.0
|
%
|
As a percent of net sales, our gross profit was 31.0% in the
third quarter of 2010 compared to 33.7% in the third quarter of
2009. Our results in the third quarter of 2010 primarily
benefited from higher sales volumes and savings from cost
reduction initiatives and were negatively impacted by higher
cotton and production costs.
Our gross profit was higher by $7 million in the third
quarter of 2010 compared to the third quarter of 2009 due
primarily to higher sales volume of $53 million, savings
from our prior restructuring actions of $6 million, lower
start-up and
shut-down costs of $5 million associated with the
consolidation and globalization of our supply chain, vendor
price reductions of $3 million and a $2 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 Japanese yen and Canadian dollar 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 $15 million, higher cotton costs of
$14 million, higher production costs of $12 million
related to higher non-customer related freight costs and energy
and oil-related costs, higher other manufacturing costs of
$8 million, lower product pricing of $7 million,
primarily within the wholesale casualwear channel and an
unfavorable product sales mix of $6 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 cotton prices reflected in our results were 72 cents per
pound in the third quarter of 2010 compared to 49 cents per
pound in the third 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 and in 2011. We are working with our customers
to offset increases in costs through price increases and joint
efficiency initiatives. The timing and size of price increases
will vary by product category and are expected to take effect no
later than February 2011.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
249,815
|
|
|
$
|
248,267
|
|
|
$
|
1,548
|
|
|
|
0.6
|
%
|
Our selling, general and administrative expenses were
$2 million higher in the third quarter of 2010 compared to
the third quarter of 2009. As a percent of net sales our
selling, general and administrative expenses were 21.3% in the
third quarter of 2010 compared to 23.5% in the third quarter of
2009.
31
We incurred higher distribution expenses of $6 million and
higher selling and other marketing expenses of $3 million
in the third quarter of 2010 compared to the third quarter of
2009. 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.
Our media related media, advertising and promotion
(MAP) expenses were lower by $5 million and our
non-media related MAP expenses were higher by $3 million
during the third quarter of 2010 compared to the third quarter
of 2009. 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.
We also incurred higher expenses of $1 million in the third
quarter of 2010 compared to the third quarter of 2009 as a
result of opening new retail stores or expanding existing stores
over the last 12 months. We opened one retail store during
the third quarter of 2010.
These higher expenses were offset by lower stock compensation
and certain other benefit expenses of $4 million and lower
pension expense of $2 million in the third quarter of 2010
compared to the third quarter of 2009.
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
$1 million in the third quarter of 2010 compared to the
third quarter of 2009.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
|
|
|
$
|
15,104
|
|
|
$
|
(15,104
|
)
|
|
|
(100.0
|
)%
|
During the third quarter of 2009, we incurred $15 million
in restructuring charges, which primarily related to employee
termination and other benefits, fixed asset impairment charges
and other exit costs associated with facility closures approved
during that period that did not recur in 2010.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
114,060
|
|
|
$
|
93,309
|
|
|
$
|
20,751
|
|
|
|
22.2
|
%
|
Operating profit was higher in the third quarter of 2010
compared to the third quarter of 2009 as a result of lower
restructuring charges of $15 million and higher gross
profit of $7 million, partially offset by higher selling,
general and administrative expenses of $2 million. Changes
in foreign currency exchange rates had a favorable impact on
operating profit of $1 million in the third quarter of 2010
compared to the third quarter of 2009.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
1,094
|
|
|
$
|
2,423
|
|
|
$
|
(1,329
|
)
|
|
|
(54.8
|
)%
|
During the third quarter of 2010, we incurred charges of
$1 million for funding fees associated with the sales of
certain trade accounts receivable to financial institutions.
During the third quarter of 2009, we incurred a $2 million
loss on early extinguishment of debt related to unamortized debt
issuance costs resulting from the
32
prepayment of $140 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).
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
36,326
|
|
|
$
|
42,941
|
|
|
$
|
(6,615
|
)
|
|
|
(15.4
|
)%
|
Interest expense, net was lower by $7 million in the third
quarter of 2010 compared to the third quarter of 2009. The lower
interest expense was primarily attributable to lower outstanding
debt balances that reduced interest expense by $4 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 third quarter
of 2010 compared to the third quarter of 2009 of $3 million.
Our weighted average interest rate on our outstanding debt was
6.21% during the third quarter of 2010 compared to 6.94% in the
third quarter of 2009.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
15,328
|
|
|
$
|
6,807
|
|
|
$
|
8,521
|
|
|
|
125.2
|
%
|
Our effective income tax rate was 20% in the third quarter of
2010 compared to 14% in the third quarter of 2009. The higher
effective income tax rate for the third quarter of 2010 compared
to the third quarter of 2009 was primarily attributable to a
lower proportion of our earnings attributed to foreign
subsidiaries than in the third 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
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
61,312
|
|
|
$
|
41,138
|
|
|
$
|
20,174
|
|
|
|
49.0
|
%
|
Net income for the third quarter of 2010 was higher than the
third quarter of 2009 primarily due to higher operating profit
of $21 million, lower interest expense of $7 million
and lower other expense of $1 million, which was partially
offset by higher income tax expense of $9 million.
33
Operating
Results by Business Segment Third Quarter Ended
October 2, 2010 Compared with Third Quarter Ended
October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
512,486
|
|
|
$
|
467,577
|
|
|
$
|
44,909
|
|
|
|
9.6
|
%
|
Outerwear
|
|
|
389,474
|
|
|
|
328,339
|
|
|
|
61,135
|
|
|
|
18.6
|
|
Hosiery
|
|
|
37,442
|
|
|
|
40,978
|
|
|
|
(3,536
|
)
|
|
|
(8.6
|
)
|
Direct to Consumer
|
|
|
100,327
|
|
|
|
100,204
|
|
|
|
123
|
|
|
|
0.1
|
|
International
|
|
|
133,633
|
|
|
|
117,830
|
|
|
|
15,803
|
|
|
|
13.4
|
|
Other
|
|
|
|
|
|
|
3,745
|
|
|
|
(3,745
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,173,362
|
|
|
$
|
1,058,673
|
|
|
$
|
114,689
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
55,804
|
|
|
$
|
54,678
|
|
|
$
|
1,126
|
|
|
|
2.1
|
%
|
Outerwear
|
|
|
34,308
|
|
|
|
38,706
|
|
|
|
(4,398
|
)
|
|
|
(11.4
|
)
|
Hosiery
|
|
|
11,333
|
|
|
|
12,781
|
|
|
|
(1,448
|
)
|
|
|
(11.3
|
)
|
Direct to Consumer
|
|
|
10,446
|
|
|
|
13,843
|
|
|
|
(3,397
|
)
|
|
|
(24.5
|
)
|
International
|
|
|
16,754
|
|
|
|
12,834
|
|
|
|
3,920
|
|
|
|
30.5
|
|
Other
|
|
|
|
|
|
|
(462
|
)
|
|
|
462
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
128,645
|
|
|
|
132,380
|
|
|
|
(3,735
|
)
|
|
|
(2.8
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,667
|
)
|
|
|
(20,285
|
)
|
|
|
(8,618
|
)
|
|
|
(42.5
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(2,918
|
)
|
|
|
(3,112
|
)
|
|
|
(194
|
)
|
|
|
(6.2
|
)
|
Restructuring
|
|
|
|
|
|
|
(15,104
|
)
|
|
|
(15,104
|
)
|
|
|
(100.0
|
)
|
Inventory write-off included in cost of sales
|
|
|
|
|
|
|
(269
|
)
|
|
|
(269
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(183
|
)
|
|
|
(183
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
114,060
|
|
|
|
93,309
|
|
|
|
20,751
|
|
|
|
22.2
|
|
Other expenses
|
|
|
(1,094
|
)
|
|
|
(2,423
|
)
|
|
|
(1,329
|
)
|
|
|
(54.8
|
)
|
Interest expense, net
|
|
|
(36,326
|
)
|
|
|
(42,941
|
)
|
|
|
(6,615
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
76,640
|
|
|
$
|
47,945
|
|
|
$
|
28,695
|
|
|
|
59.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 third quarter of 2010 was consistent with the third
quarter of 2009. Our consolidated selling, general and
administrative expenses before segment allocations were
$2 million higher in the third quarter of 2010 compared to
the third quarter of 2009.
34
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
512,486
|
|
|
$
|
467,577
|
|
|
$
|
44,909
|
|
|
|
9.6
|
%
|
Segment operating profit
|
|
|
55,804
|
|
|
|
54,678
|
|
|
|
1,126
|
|
|
|
2.1
|
|
Overall net sales in the Innerwear segment were higher by
$45 million or 10% in the third quarter of 2010 compared to
the third 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 18% or $31 million higher in the third
quarter of 2010 compared to the third 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.
Intimate apparel net sales were $17 million higher in the
third quarter of 2010 compared to the third quarter of 2009. Our
panties category net sales were higher by $11 million
primarily due to replenishment timing and space gains. Our bra
category net sales were $6 million higher in the average
figure sizes driven primarily by space and distribution gains.
From a brand perspective, our net sales were higher in our
smaller brands (barely there, Just My Size and
Wonderbra) by $12 million and in our Hanes
brand by $9 million, partially offset by lower net
sales in our Bali brand of $2 million and our
Playtex brand of $2 million.
Lower net sales of $1 million in our socks product category
reflect lower Champion brand net sales of
$3 million, partially offset by higher Hanes brand
net sales of $2 million in the third quarter of 2010
compared to the third 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.
Innerwear segment gross profit was lower by $1 million in
the third quarter of 2010 compared to the third quarter of 2009.
The lower gross profit was primarily due to higher sales
incentives of $19 million due to higher sales volumes and
investments made with retailers, higher production costs of
$10 million related to higher non-customer related freight
costs and energy and oil-related costs, higher cotton costs of
$5 million and an unfavorable product sales mix of
$5 million. These higher costs were offset by higher sales
volume of $30 million, savings from our prior restructuring
actions of $5 million, lower excess and obsolete inventory
costs of $2 million and vendor price reductions of
$2 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 28.9% in the third quarter of 2010 compared to 32.0%
in the third quarter of 2009.
Innerwear segment operating profit was higher in the third
quarter of 2010 compared to the third quarter of 2009 primarily
as a result of lower media related MAP expenses of
$2 million, partially offset by lower gross profit.
35
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
389,474
|
|
|
$
|
328,339
|
|
|
$
|
61,135
|
|
|
|
18.6
|
%
|
Segment operating profit
|
|
|
34,308
|
|
|
|
38,706
|
|
|
|
(4,398
|
)
|
|
|
(11.4
|
)
|
Outerwear segment net sales were higher by $61 million or
19% in the third quarter of 2010 compared to the third quarter
of 2009 as a result of space and distribution gains, stronger
sales at retail and inventory restocking.
Our casualwear category net sales were higher in both the
wholesale and retail channels by $19 million and
$15 million, respectively. The higher net sales in the
wholesale casualwear channel of 29% were primarily due to
replenishment timing of inventory levels by third-party
embellishers and wholesalers. The higher net sales in the retail
casualwear channel of 12% 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 $27 million or 20% due to stronger
sales at retail and space gains in the sporting goods channel.
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 lower by $2 million in
the third quarter of 2010 compared to the third quarter of 2009.
The lower gross profit was primarily due to higher cotton costs
of $9 million, higher other manufacturing costs of
$8 million, lower product pricing of $8 million,
primarily within the wholesale category, higher production costs
of $2 million and unfavorable product sales mix of
$1 million. These higher costs were offset by higher sales
volume of $21 million and lower sales incentives of
$6 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 22.1% in the third quarter of 2010 compared to 26.9%
in the third quarter of 2009.
Outerwear segment operating profit was lower in the third
quarter of 2010 compared to the third quarter of 2009 primarily
as a result of lower gross profit and higher distribution
expenses of $4 million, partially offset by lower media
related MAP expenses of $3 million.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
37,442
|
|
|
$
|
40,978
|
|
|
$
|
(3,536
|
)
|
|
|
(8.6
|
)%
|
Segment operating profit
|
|
|
11,333
|
|
|
|
12,781
|
|
|
|
(1,448
|
)
|
|
|
(11.3
|
)
|
Net sales in the Hosiery segment declined by $4 million or
9%, which was primarily due to lower sales of our Hanes
brand to national chains and department stores. 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 $2 million in the
third quarter of 2010 compared to the third quarter of 2009. The
lower gross profit for the third quarter of 2010 compared to the
third quarter of 2009 was primarily the result of lower sales
volume of $3 million, partially offset by lower sales
incentives of $1 million.
36
As a percent of segment net sales, gross profit in the Hosiery
segment was 48.3% in the third quarter of 2010 compared to 49.2%
in the third quarter of 2009.
Hosiery segment operating profit was lower in the third quarter
of 2010 compared to the third quarter of 2009 primarily as a
result of lower gross profit.
Direct
to Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
100,327
|
|
|
$
|
100,204
|
|
|
$
|
123
|
|
|
|
0.1
|
%
|
Segment operating profit
|
|
|
10,446
|
|
|
|
13,843
|
|
|
|
(3,397
|
)
|
|
|
(24.5
|
)
|
Direct to Consumer segment net sales were slightly higher in the
third quarter of 2010 compared to the third quarter of 2009 due
to higher sales in our outlet stores of $1 million, offset
by lower sales related to our Internet operations. The higher
net sales in our outlet stores were primarily the result of new
stores opened after the third quarter of 2009. Comparable store
sales were flat in the third quarter of 2010 compared to the
third quarter of 2009.
Direct to Consumer segment gross profit was lower by
$3 million in the third quarter of 2010 compared to the
third quarter of 2009 primarily due to unfavorable product sales
mix of $2 million. As a percent of segment net sales, gross
profit in the Direct to Consumer segment was 60.5% in the third
quarter of 2010 compared to 63.2% in the third quarter of 2009.
Direct to Consumer segment operating profit was lower in the
third quarter of 2010 compared to the third quarter of 2009
primarily as a result of lower gross profit and higher expenses
of $1 million as a result of opening new retail stores or
expanding existing stores over the last 12 months,
partially offset by lower distribution expenses of
$1 million.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
133,633
|
|
|
$
|
117,830
|
|
|
$
|
15,803
|
|
|
|
13.4
|
%
|
Segment operating profit
|
|
|
16,754
|
|
|
|
12,834
|
|
|
|
3,920
|
|
|
|
30.5
|
|
Overall net sales in the International segment were higher by
$16 million or 13% in the third quarter of 2010 compared to
the third quarter of 2009, primarily as a result of stronger net
sales in Mexico, Europe, Brazil and China, which reflects space
and distribution gains and stronger sales at retail, and a
favorable impact of $4 million related to foreign currency
exchange rates.
Excluding the impact of foreign exchange rates on currency,
International segment net sales were higher by 10% in the third
quarter of 2010 compared to the third quarter of 2009. The
favorable impact of foreign currency exchange rates in our
International segment was primarily due to the strengthening of
the Japanese yen and Canadian dollar compared to the
U.S. dollar, partially offset by the strengthening of the
U.S. dollar compared to the Euro.
During the third quarter of 2010, we experienced higher net
sales, in each case excluding the impact of foreign currency
exchange rates, in our intimate apparel and male underwear
businesses in Mexico of $3 million, in our casualwear
business in Europe of $2 million, in our male underwear
business in Brazil of $2 million, in our thermals and male
underwear businesses in China of $2 million and higher net
sales of $3 million in all other regions. Our innerwear
businesses in Mexico have continued 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
37
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
$10 million in the third quarter of 2010 compared to the
third quarter of 2009. The higher gross profit was primarily a
result of higher sales volume of $7 million, a favorable
impact related to foreign currency exchange rates of
$2 million, favorable product sales mix of $2 million
and vendor price reductions of $1 million, partially offset
by higher sales incentives of $3 million.
As a percent of segment net sales, gross profit in the
International segment was 38.3% in the third quarter of 2010
compared to 35.3% in the third quarter of 2009, increasing as a
result of the items described above.
International segment operating profit was higher in the third
quarter of 2010 compared to the third quarter of 2009 which was
primarily attributable to the higher gross profit, partially
offset by higher distribution expenses of $2 million,
higher selling and other marketing expenses of $2 million
and higher non-media related MAP expenses of $1 million.
The changes in foreign currency exchange rates, which are
included in the impact on gross profit above, had a favorable
impact on operating profit of $1 million in the third
quarter of 2010 compared to the third quarter of 2009.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,745
|
|
|
$
|
(3,745
|
)
|
|
|
(100.0
|
)%
|
Segment operating profit (loss)
|
|
|
|
|
|
|
(462
|
)
|
|
|
462
|
|
|
|
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 $9 million lower in the
third quarter of 2010 compared to the third 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, lower stock
compensation and certain other benefits of $3 million and
lower pension expense of $2 million, partially offset by
lower gains on sales of assets of $2 million.
38
Condensed
Consolidated Results of Operations Nine Months Ended
October 2, 2010 Compared with Nine Months Ended
October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
3,177,054
|
|
|
$
|
2,902,536
|
|
|
$
|
274,518
|
|
|
|
9.5
|
%
|
Cost of sales
|
|
|
2,110,943
|
|
|
|
1,960,589
|
|
|
|
150,354
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,066,111
|
|
|
|
941,947
|
|
|
|
124,164
|
|
|
|
13.2
|
|
Selling, general and administrative expenses
|
|
|
743,534
|
|
|
|
702,204
|
|
|
|
41,330
|
|
|
|
5.9
|
|
Restructuring
|
|
|
|
|
|
|
46,319
|
|
|
|
(46,319
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
322,577
|
|
|
|
193,424
|
|
|
|
129,153
|
|
|
|
66.8
|
|
Other expenses
|
|
|
5,128
|
|
|
|
6,537
|
|
|
|
(1,409
|
)
|
|
|
(21.6
|
)
|
Interest expense, net
|
|
|
110,394
|
|
|
|
124,548
|
|
|
|
(14,154
|
)
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
207,055
|
|
|
|
62,339
|
|
|
|
144,716
|
|
|
|
232.1
|
|
Income tax expense
|
|
|
23,818
|
|
|
|
9,974
|
|
|
|
13,844
|
|
|
|
138.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
183,237
|
|
|
$
|
52,365
|
|
|
$
|
130,872
|
|
|
|
249.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
3,177,054
|
|
|
$
|
2,902,536
|
|
|
$
|
274,518
|
|
|
|
9.5
|
%
|
Consolidated net sales were higher by $275 million or 10%
in the nine months of 2010 compared to 2009, reflecting
significant space and distribution gains at retailers, positive
retail sell-through and inventory restocking at retail. Our
significant space and distribution gains at retailers
contributed approximately 7% 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 $129 million (9%),
$122 million (16%), $4 million (1%) and
$46 million (15%), respectively, in the nine months of 2010
compared to 2009. Hosiery and Other segment net sales were lower
by $14 million (11%) and $12 million, respectively, in
the nine months of 2010 compared to 2009.
International segment net sales were higher by 15% in the nine
months of 2010 compared to 2009, which reflected a favorable
impact of $19 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 nine months of 2010 compared to
2009 after excluding the impact of foreign exchange rates on
currency.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
1,066,111
|
|
|
$
|
941,947
|
|
|
$
|
124,164
|
|
|
|
13.2
|
%
|
39
As a percent of net sales, our gross profit was 33.6% in the
nine months of 2010 compared to 32.5% in the nine months of
2009, increasing as a result of the items described below. Our
results in the nine months of 2010 primarily benefited from
higher sales volumes and lower manufacturing costs and were
negatively impacted by higher cotton costs.
Our gross profit was higher by $124 million in the nine
months of 2010 compared to 2009 due primarily to higher sales
volume of $141 million, savings from our prior
restructuring actions of $22 million, vendor price
reductions of $20 million, lower
start-up and
shut-down costs of $15 million associated with the
consolidation and globalization of our supply chain, lower
production costs of $10 million related to lower energy and
oil-related costs offset by higher non-customer related freight
costs and an $8 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 $32 million, an unfavorable product sales mix
of $31 million, lower product pricing of $18 million,
primarily within the wholesale casualwear channel, higher cotton
costs of $8 million and higher other manufacturing costs of
$4 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 nine 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 nine months of 2010.
The cotton prices reflected in our results were 62 cents per
pound in the nine months of 2010 compared to 58 cents per pound
in the nine 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. 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
and in 2011. We are working with our customers to offset
increases in costs through price increases and joint efficiency
initiatives. The timing and size of price increases will vary by
product category and are expected to take effect no later than
February 2011.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
743,534
|
|
|
$
|
702,204
|
|
|
$
|
41,330
|
|
|
|
5.9
|
%
|
Our selling, general and administrative expenses were
$41 million higher in the nine months of 2010 compared to
2009. As a percent of net sales our selling, general and
administrative expenses were 23.4% in the nine months of 2010
compared to 24.2% in 2009.
Our non-media related MAP expenses and media related MAP
expenses were higher by $12 million and $11 million,
respectively, during the nine 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
$17 million, higher selling and other marketing expenses of
$8 million and higher consulting expenses of
$5 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
40
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 $5 million in the nine
months of 2010 compared to 2009 as a result of opening new
retail stores or expanding existing stores over the last
12 months. We opened three retail stores during the nine
months of 2010.
These higher expenses were partially offset by lower stock
compensation and certain other benefit expenses of
$11 million, lower pension expense of $4 million and
savings of $4 million from our prior restructuring actions
in the nine months of 2010 compared to 2009.
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
$6 million in the nine months of 2010 compared to 2009.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
|
|
|
$
|
46,319
|
|
|
$
|
(46,319
|
)
|
|
|
(100.0
|
)%
|
During the nine months of 2009, we incurred $46 million in
restructuring charges, which primarily related to employee
termination and other benefits, charges related to contract
obligations, fixed asset impairment charges and other exit costs
associated with facility closures approved during that period
that did not recur in 2010.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
322,577
|
|
|
$
|
193,424
|
|
|
$
|
129,153
|
|
|
|
66.8
|
%
|
Operating profit was higher in the nine months of 2010 compared
to 2009 as a result of higher gross profit of $124 million
and lower restructuring charges of $46 million, partially
offset by higher selling, general and administrative expenses of
$41 million. Changes in foreign currency exchange rates had
a favorable impact on operating profit of $2 million in the
nine months of 2010 compared to 2009.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
5,128
|
|
|
$
|
6,537
|
|
|
$
|
(1,409
|
)
|
|
|
(21.6
|
)%
|
During the nine 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 $5 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 a 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 nine months of 2009, we incurred costs to amend the
2006 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility of $4 million. In addition, we
incurred a $2 million loss on
41
early extinguishment of debt related to unamortized debt
issuance costs resulting from the prepayment of
$140 million of principal under the 2006 Senior Secured
Credit Facility.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
110,394
|
|
|
$
|
124,548
|
|
|
$
|
(14,154
|
)
|
|
|
(11.4
|
)%
|
Interest expense, net was lower by $14 million in the nine
months of 2010 compared to 2009. The lower interest expense was
primarily attributable to lower outstanding debt balances that
reduced interest expense by $14 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 the 8% Senior Notes and the
settlement of certain outstanding interest rate hedging
instruments, combined with a lower LIBOR and federal funds rate,
caused a net decrease in interest expense in the nine months of
2010 compared to 2009 of $1 million.
Our weighted average interest rate on our outstanding debt was
5.71% during the nine months of 2010 compared to 6.84% in the
nine 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 nine 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
23,818
|
|
|
$
|
9,974
|
|
|
$
|
13,844
|
|
|
|
138.8
|
%
|
Our effective income tax rate was 12% in the nine months of 2010
compared to 16% in the nine months of 2009. The effective income
tax rate of 12% for the nine 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 nine
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
183,237
|
|
|
$
|
52,365
|
|
|
$
|
130,872
|
|
|
|
249.9
|
%
|
Net income for the nine months of 2010 was higher than the nine
months of 2009 primarily due to higher operating profit of
$129 million, lower interest expense of $14 million
and lower other expense of $1 million, which was partially
offset by higher income tax expense of $14 million.
42
Operating
Results by Business Segment Nine Months Ended
October 2, 2010 Compared with Nine Months Ended
October 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
October 2,
|
|
|
October 3,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,522,553
|
|
|
$
|
1,393,904
|
|
|
$
|
128,649
|
|
|
|
9.2
|
%
|
Outerwear
|
|
|
894,653
|
|
|
|
772,685
|
|
|
|
121,968
|
|
|
|
15.8
|
|
Hosiery
|
|
|
117,273
|
|
|
|
131,326
|
|
|
|
(14,053
|
)
|
|
|
(10.7
|
)
|
Direct to Consumer
|
|
|
278,680
|
|
|
|
275,058
|
|
|
|
3,622
|
|
|
|
1.3
|
|
International
|
|
|
363,895
|
|
|
|
317,541
|
|
|
|
46,354
|
|
|
|
14.6
|
|
Other
|
|
|
|
|
|
|
12,022
|
|
|
|
(12,022
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
3,177,054
|
|
|
$
|
2,902,536
|
|
|
$
|
274,518
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
219,475
|
|
|
$
|
185,346
|
|
|
$
|
34,129
|
|
|
|
18.4
|
%
|
Outerwear
|
|
|
56,631
|
|
|
|
31,869
|
|
|
|
24,762
|
|
|
|
77.7
|
|
Hosiery
|
|
|
38,672
|
|
|
|
42,358
|
|
|
|
(3,686
|
)
|
|
|
(8.7
|
)
|
Direct to Consumer
|
|
|
18,583
|
|
|
|
29,189
|
|
|
|
(10,606
|
)
|
|
|
(36.3
|
)
|
International
|
|
|
42,392
|
|
|
|
31,971
|
|
|
|
10,421
|
|
|
|
32.6
|
|
Other
|
|
|
|
|
|
|
(2,272
|
)
|
|
|
2,272
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
375,753
|
|
|
|
318,461
|
|
|
|
57,292
|
|
|
|
18.0
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(44,130
|
)
|
|
|
(62,979
|
)
|
|
|
(18,849
|
)
|
|
|
(29.9
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(9,046
|
)
|
|
|
(9,293
|
)
|
|
|
(247
|
)
|
|
|
(2.7
|
)
|
Restructuring
|
|
|
|
|
|
|
(46,319
|
)
|
|
|
(46,319
|
)
|
|
|
(100.0
|
)
|
Inventory write-off included in cost of sales
|
|
|
|
|
|
|
(3,516
|
)
|
|
|
(3,516
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
|
|
|
|
(2,392
|
)
|
|
|
(2,392
|
)
|
|
|
(100.0
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
|
|
|
|
(538
|
)
|
|
|
(538
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
322,577
|
|
|
|
193,424
|
|
|
|
129,153
|
|
|
|
66.8
|
|
Other expenses
|
|
|
(5,128
|
)
|
|
|
(6,537
|
)
|
|
|
(1,409
|
)
|
|
|
(21.6
|
)
|
Interest expense, net
|
|
|
(110,394
|
)
|
|
|
(124,548
|
)
|
|
|
(14,154
|
)
|
|
|
(11.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
207,055
|
|
|
$
|
62,339
|
|
|
$
|
144,716
|
|
|
|
232.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months of 2010 was consistent with the nine months
of 2009. Our consolidated selling, general and administrative
expenses before segment allocations were $41 million higher
in the nine months of 2010 compared to 2009.
43
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,522,553
|
|
|
$
|
1,393,904
|
|
|
$
|
128,649
|
|
|
|
9.2
|
%
|
Segment operating profit
|
|
|
219,475
|
|
|
|
185,346
|
|
|
|
34,129
|
|
|
|
18.4
|
|
Overall net sales in the Innerwear segment were higher by
$129 million or 9% in the nine months of 2010 compared to
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 male underwear product category were 18% or
$100 million higher in the nine months of 2010 compared to
2009, which reflect higher net sales in our Hanes brand
of $99 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 and increased
retail sell through. 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.
Intimate apparel net sales were $25 million higher in the
nine months of 2010 compared to 2009. Our bra category net sales
were $18 million higher in the full and average figure
sizes driven primarily by space and distribution gains. Our
panties category net sales were higher by $7 million
primarily due to replenishment timing and inventory restocking
at retail. From a brand perspective, our net sales were higher
in our smaller brands (barely there, Just My Size
and Wonderbra) by $22 million, in our Hanes
brand by $8 million and in our Bali brand by
$2 million, partially offset by lower net sales in our
Playtex brand of $4 million.
Higher net sales of $4 million in our socks product
category reflect higher Hanes brand net sales of
$14 million, partially offset by lower Champion
brand net sales of $10 million in the nine 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 $50 million in
the nine months of 2010 compared to 2009. The higher gross
profit was primarily due to higher sales volume of
$78 million, savings from our prior restructuring actions
of $15 million, vendor price reductions of
$11 million, higher product pricing of $3 million
before increased sales incentives and lower production costs of
$3 million related to lower energy and oil-related costs
offset by higher non-customer related freight costs. These lower
costs were partially offset by higher sales incentives of
$41 million due to higher sales volumes and investments
made with retailers, unfavorable product sales mix of
$15 million and higher cotton costs of $2 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 32.9% in the nine months of 2010 compared to 32.4%
in the nine months of 2009, increasing as a result of the items
described above.
Innerwear segment operating profit was higher in the nine 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
$11 million, higher non-media related MAP expenses of
$5 million and higher distribution expenses of
$4 million.
44
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
894,653
|
|
|
$
|
772,685
|
|
|
$
|
121,968
|
|
|
|
15.8
|
%
|
Segment operating profit
|
|
|
56,631
|
|
|
|
31,869
|
|
|
|
24,762
|
|
|
|
77.7
|
|
Outerwear segment net sales, which benefited from space and
distribution gains and stronger sales at retail, were higher by
$122 million or 16% in the nine months of 2010 compared to
2009. Our casualwear category net sales were higher in both the
retail and wholesale channels by $57 million and
$28 million, respectively. The higher net sales in the
retail casualwear channel of 31% 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. The
higher net sales in the wholesale casualwear channel of 12% were
primarily due to replenishment timing of inventory levels by
third-party embellishers and wholesalers.
Our Champion brand activewear net sales, which continue
to be positively impacted by our marketing investment in the
brand, were higher by $36 million or 10% due to stronger
sales at retail and space gains in the sporting goods channel.
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 $35 million in
the nine months of 2010 compared to 2009. The higher gross
profit was primarily due to higher sales volume of
$45 million, lower sales incentives of $15 million,
savings of $6 million from our cost reduction initiatives
and prior restructuring actions, lower production costs of
$5 million related to lower energy and oil-related costs
and vendor price reductions of $4 million. These lower
costs were partially offset by lower product pricing of
$22 million primarily within the wholesale casualwear
channel, unfavorable product sales mix of $9 million,
higher cotton costs of $6 million and higher other
manufacturing costs of $2 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 22.2% in the nine months of 2010 compared to 21.2%
in the nine months of 2009, increasing as a result of the items
described above.
Outerwear segment operating profit was higher in the nine months
of 2010 compared to 2009 primarily as a result of higher gross
profit and lower media related MAP expenses of $1 million,
partially offset by higher distribution expenses of
$8 million and higher non-media related MAP expenses of
$4 million.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
117,273
|
|
|
$
|
131,326
|
|
|
$
|
(14,053
|
)
|
|
|
(10.7
|
)%
|
Segment operating profit
|
|
|
38,672
|
|
|
|
42,358
|
|
|
|
(3,686
|
)
|
|
|
(8.7
|
)
|
Net sales in the Hosiery segment declined by $14 million or
11%, 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 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
nine months of 2010 compared to 2009. The lower gross profit for
the nine months of 2010 compared to 2009 was primarily the
result of lower sales volume of $8 million, partially
offset by lower production costs of $2 million, lower other
manufacturing costs of $1 million and vendor price
reductions of $1 million.
45
As a percent of segment net sales, gross profit in the Hosiery
segment was 52.8% in the nine months of 2010 compared to 49.6%
in the nine months of 2009.
Hosiery segment operating profit was lower in the nine 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
278,680
|
|
|
$
|
275,058
|
|
|
$
|
3,622
|
|
|
|
1.3
|
%
|
Segment operating profit
|
|
|
18,583
|
|
|
|
29,189
|
|
|
|
(10,606
|
)
|
|
|
(36.3
|
)
|
Direct to Consumer segment net sales were $4 million or 1%
higher in the nine 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 stores
opened after the nine months of 2009, partially offset by lower
comparable store sales. The lower comparable store sales of 2%
were driven by lower traffic.
Direct to Consumer segment gross profit was lower by
$2 million in the nine months of 2010 compared to 2009. The
lower gross profit was primarily due to higher other product
costs of $3 million.
As a percent of segment net sales, gross profit in the Direct to
Consumer segment was 61.6% in the nine months of 2010 compared
to 63.1% in the nine months of 2009.
Direct to Consumer segment operating profit was lower in the
nine months of 2010 compared to 2009 primarily as a result of
lower gross profit, higher expenses of $5 million as a
result of opening new retail stores or expanding existing stores
over the last 12 months and higher non-media related MAP
expenses of $2 million.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
363,895
|
|
|
$
|
317,541
|
|
|
$
|
46,354
|
|
|
|
14.6
|
%
|
Segment operating profit
|
|
|
42,392
|
|
|
|
31,971
|
|
|
|
10,421
|
|
|
|
32.6
|
|
Overall net sales in the International segment were higher by
$46 million or 15% in the nine months of 2010 compared to
2009, primarily as a result of stronger net sales in Canada,
Europe, Mexico and Brazil, which reflects space and distribution
gains and stronger sales at retail, and a favorable impact of
$19 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 nine
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, 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 nine 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 $9 million, in our casualwear
business in Europe of $6 million, in our intimate apparel
business in Mexico of $6 million and in our male underwear
and hosiery businesses in Brazil of $4 million, in our
thermals and male underwear businesses in China of
$2 million and higher net sales of $5 million in all
other regions, partially offset by lower net sales in our
activewear business in Japan of $5 million. Our innerwear
businesses in Canada and Mexico have continued 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
46
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
$25 million in the nine months of 2010 compared to 2009.
The higher gross profit was primarily a result of higher sales
volume of $16 million, a favorable impact related to
foreign currency exchange rates of $8 million, vendor price
reductions of $4 million and favorable product mix of
$2 million, partially offset by higher sales incentives of
$7 million.
As a percent of segment net sales, gross profit in the
International segment was 39.0% in the nine months of 2010
compared to 36.8% in 2009, increasing as a result of the items
described above.
International segment operating profit was higher in the nine
months of 2010 compared to 2009 primarily attributable to the
higher gross profit, partially offset by higher selling and
other marketing expenses of $6 million, higher distribution
expenses of $5 million and higher non-media related MAP
expenses of $2 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 nine months
of 2010 compared to 2009.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
October 2,
|
|
October 3,
|
|
Higher
|
|
Percent
|
|
|
2010
|
|
2009
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
|
|
|
$
|
12,022
|
|
|
$
|
(12,022
|
)
|
|
|
(100.0
|
)%
|
Segment operating profit (loss)
|
|
|
|
|
|
|
(2,272
|
)
|
|
|
2,272
|
|
|
|
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 $19 million lower in the
nine months of 2010 compared to 2009 primarily due to lower
start-up and
shut-down costs of $15 million associated with the
consolidation and globalization of our supply chain, lower stock
compensation and certain other benefits of $6 million and
lower pension expense of $4 million, partially offset by
lower gains on sales of assets of $3 million and 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, the Accounts Receivable Securitization
Facility and our international loan facilities. At
October 2, 2010, we had $393 million of borrowing
availability under our $600 million Revolving Loan Facility
(after taking into account outstanding letters of credit),
$32 million of borrowing availability under our
international loan facilities and $75 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:
|
|
|
|
|
we have principal and interest obligations under our debt;
|
|
|
|
we expect to continue to invest in efforts to improve operating
efficiencies and lower costs;
|
47
|
|
|
|
|
we expect to continue to ramp up our lower-cost manufacturing
capacity in Asia, Central America and the Caribbean Basin and
enhance efficiency;
|
|
|
|
we expect to make payments related to actions taken in prior
periods related to our restructuring efforts;
|
|
|
|
we may selectively pursue strategic acquisitions;
|
|
|
|
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
|
|
|
|
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 October 2, 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.
|
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 sales growth 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.
Our working capital has increased during 2010, primarily in the
form of inventory, to support our higher sales growth. The
inventory increase is the result of both higher input costs and
higher unit 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 October 2, 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.
As previously disclosed in our Annual Report on
Form 10-K
for the year ended January 2, 2010, the 2009 Senior Secured
Credit Facility permits us, at our option, to add one or more
term loan facilities or increase the commitments under the
Revolving Loan Facility in an aggregate amount of up to
$300 million so long as certain conditions are satisfied,
including, among others, that no default or event of default is
in existence and that we are in pro forma compliance with the
financial covenants in the 2009 Senior Secured Credit Facility.
In order to support our working capital needs and fund the
acquisition of Gear for Sports, on September 1, 2010, as
permitted by the 2009 Senior Secured Credit Facility, we
increased the commitments under the Revolving Loan Facility by
an aggregate amount of $200 million, increasing the
borrowing availability under the Revolving Loan Facility from
$400 million to $600 million.
48