Hanesbrands Inc.
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
June 28, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32891
Hanesbrands Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-3552316
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(State of
incorporation)
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(I.R.S. employer identification
no.)
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1000 East Hanes Mill Road
Winston-Salem, North Carolina
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27105
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(Address of principal executive
office)
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(Zip code)
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(336) 519-4400
(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 is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of July 30, 2008, there were 93,768,953 shares of
the registrants common stock outstanding.
TABLE OF
CONTENTS
Trademarks,
Trade Names and Service Marks
We own or have rights to use the trademarks, service marks and
trade names that we use in conjunction with the operation of our
business. Some of the more important trademarks that we own or
have rights to use that appear in this Quarterly Report on
Form 10-Q
include the Hanes, Champion, Playtex, Bali, Just My Size,
barely there, Wonderbra, C9 by Champion,
Leggs, Outer Banks and Stedman 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 December 29, 2007, including under the
caption Risk Factors.
All forward-looking statements contained in this Quarterly
Report on
Form 10-Q
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 December 29, 2007, including under the
caption Risk Factors. We undertake no obligation to
update or revise forward-looking statements to reflect events or
circumstances that arise after the date made or to reflect the
occurrence of unanticipated events, other than as required by
law.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549.
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. You can also obtain copies of these
materials at prescribed rates by writing to the Public Reference
Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information on the
operation of the public reference facilities by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a Web site at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically with it. By referring
to our Web site, www.hanesbrands.com, we do not incorporate our
Web site or its contents into this Quarterly Report on
Form 10-Q.
PART I
Item 1.
Financial Statements
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Quarter Ended
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Six Months Ended
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June 28,
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June 30,
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June 28,
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June 30,
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2008
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2007
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2008
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2007
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Net sales
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$
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1,072,171
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$
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1,121,907
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$
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2,060,018
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$
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2,161,801
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Cost of sales
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691,215
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741,550
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1,334,098
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1,441,765
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Gross profit
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380,956
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380,357
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725,920
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720,036
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Selling, general and administrative expenses
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266,427
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266,017
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521,039
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520,584
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Restructuring
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1,442
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26,225
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4,000
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42,471
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Operating profit
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113,087
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88,115
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200,881
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156,981
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Other expenses
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551
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551
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Interest expense, net
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37,635
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51,230
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78,029
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102,947
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Income before income tax expense
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75,452
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36,334
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122,852
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53,483
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Income tax expense
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18,108
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10,900
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29,484
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16,045
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Net income
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$
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57,344
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$
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25,434
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$
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93,368
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$
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37,438
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Earnings per share:
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Basic
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$
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0.61
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$
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0.26
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$
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0.99
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$
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0.39
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Diluted
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$
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0.60
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$
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0.26
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$
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0.97
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$
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0.39
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Weighted average shares outstanding:
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Basic
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94,355
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96,254
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94,395
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96,343
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Diluted
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96,059
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97,224
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95,839
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97,136
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
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June 28, 2008
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December 29, 2007
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Assets
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Cash and cash equivalents
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$
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96,918
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$
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174,236
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Trade accounts receivable, less allowances of $19,327 at
June 28, 2008 and $31,642 at December 29, 2007
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547,617
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575,069
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Inventories
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1,342,184
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1,117,052
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Deferred tax assets and other current assets
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236,021
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227,977
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Total current assets
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2,222,740
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2,094,334
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Property, net
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547,162
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534,286
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Trademarks and other identifiable intangibles, net
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157,727
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151,266
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Goodwill
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316,257
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310,425
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Deferred tax assets and other noncurrent assets
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333,685
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349,172
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Total assets
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$
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3,577,571
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$
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3,439,483
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Liabilities and Stockholders Equity
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Accounts payable
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$
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320,651
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$
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289,166
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Accrued liabilities
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349,867
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380,239
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Notes payable
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58,636
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19,577
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Total current liabilities
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729,154
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688,982
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Long-term debt
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2,315,250
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2,315,250
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Other noncurrent liabilities
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142,420
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146,347
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Total liabilities
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3,186,824
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3,150,579
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Stockholders equity:
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Preferred stock (50,000,000 authorized shares; $.01 par
value) Issued and outstanding None
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Common stock (500,000,000 authorized shares; $.01 par
value) Issued and outstanding 94,038,303 at
June 28, 2008 and 95,232,478 at December 29, 2007
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940
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954
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Additional paid-in capital
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215,027
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199,019
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Retained earnings
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201,271
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117,849
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Accumulated other comprehensive loss
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(26,491
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(28,918
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Total stockholders equity
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390,747
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288,904
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Total liabilities and stockholders equity
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$
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3,577,571
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$
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3,439,483
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See accompanying notes to Condensed Consolidated Financial
Statements.
3
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Six Months Ended
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June 28, 2008
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June 30, 2007
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Operating activities:
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Net income
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$
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93,368
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$
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37,438
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Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
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Depreciation
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49,322
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63,189
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Amortization of intangibles
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5,638
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3,074
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Restructuring
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(2,631
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(3,222
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Loss on early extinguishment of debt
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551
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Amortization of debt issuance costs
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3,015
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3,289
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Stock compensation expense
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15,101
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19,133
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Deferred taxes and other
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(7,959
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(7,986
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Changes in assets and liabilities, net of acquisition:
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Accounts receivable
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31,183
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(65,716
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Inventories
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(221,340
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(11,012
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Other assets
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(8,909
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15,085
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Accounts payable
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29,821
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32,355
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Accrued liabilities
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(36,571
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15,380
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Net cash (used in) provided by operating activities
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(49,962
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101,558
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Investing activities:
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Purchases of property, plant and equipment
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(73,550
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(18,288
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Acquisition of business
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(9,994
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Proceeds from sales of assets
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9,524
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8,198
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Other
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(1,395
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)
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Net cash used in investing activities
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(74,020
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(11,485
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Financing activities:
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Principal payments on capital lease obligations
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(523
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(588
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Borrowings on notes payable
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210,016
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14,038
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Repayments on notes payable
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(171,346
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(15,483
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Cost of debt issuance
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(69
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(2,243
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Borrowings on revolving loan facility
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155,000
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Repayments on revolving loan facility
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(155,000
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Repayments of debt under credit facilities
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(53,125
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Decrease in bank overdraft
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(834
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Proceeds from stock options exercised
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382
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2,803
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Stock repurchases
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(10,860
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)
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(15,885
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Borrowings on accounts receivable securitization
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20,389
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Repayments on accounts receivable securitization
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(20,389
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)
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Transaction with Sara Lee Corporation
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18,000
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Other
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(67
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613
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Net cash provided by (used in) financing activities
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45,533
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(70,704
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Effect of changes in foreign exchange rates on cash
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1,131
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1,051
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(Decrease) increase in cash and cash equivalents
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(77,318
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)
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20,420
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Cash and cash equivalents at beginning of year
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174,236
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155,973
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Cash and cash equivalents at end of period
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$
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96,918
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$
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176,393
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See accompanying notes to Condensed Consolidated Financial
Statements.
4
HANESBRANDS
(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 position
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 financial statements reflect all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the results of operations, financial
position 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.
During the second quarter ended June 28, 2008, the Company
acquired a sewing operation in Thailand, resulting in $3,571 of
additional goodwill. The Company also added two sewing
facilities in Vietnam during the second quarter ended
June 28, 2008.
Certain prior year amounts in the condensed consolidated
financial statements, none of which are material, have been
reclassified to conform with the current year presentation.
These reclassifications, which relate to changes in the
classification of inventory, segment assets, segment
depreciation and amortization expense, segment additions to
long-lived assets and consolidating financial information, had
no impact on the Companys results of operations.
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(2)
|
Recently
Issued Accounting Pronouncements
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Fair
Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 was effective for
the Companys financial assets and liabilities on
December 30, 2007. The FASB approved a one-year deferral of
the adoption of SFAS 157 as it relates to non-financial
assets and liabilities with the issuance in February 2008 of
FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157, as a result of
which implementation by the Company is now required on
January 4, 2009. The partial adoption of SFAS 157 in
the first quarter ended March 29, 2008 had no material
impact on the financial condition, results of operations or cash
flows of the Company, but resulted in certain additional
disclosures reflected in Note 9. The Company is in the
process of evaluating the impact of SFAS 157 as it relates
to its non-financial assets and liabilities.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not
5
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
currently required to be measured at fair value under generally
accepted accounting principles and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
SFAS 159 became effective for the Company on
December 30, 2007. As permitted by SFAS 159, the
Company elected not to adopt the fair value option.
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company would be required to recognize
the assets acquired, liabilities assumed, contractual
contingencies and contingent consideration measured at their
fair value at the acquisition date. It further requires that
research and development assets acquired in a business
combination that have no alternative future use be measured at
their acquisition-date fair value and then immediately charged
to expense, and that acquisition-related costs are to be
recognized separately from the acquisition and expensed as
incurred. Among other changes, this statement would also require
that negative goodwill be recognized in earnings as
a gain attributable to the acquisition, and any deferred tax
benefits resulting from a business combination be recognized in
income from continuing operations in the period of the
combination. The Company is in the process of analyzing the
impact of SFAS 141R, which is effective for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
that changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated,
that any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company does
not believe that the adoption of SFAS 160 will have a
material impact on its results of operations or financial
position.
Disclosures
About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands
the disclosure requirements of FASB Statement No. 133 about
an entitys derivative instruments and hedging activities
to include more detailed qualitative disclosures and expanded
quantitative disclosures. The provisions of SFAS 161 are
effective for fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008. The
Company is currently evaluating the impact that SFAS 161
will have on its results of operations and financial position.
6
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The
Hierarchy of Generally Accepted Accounting
Principles
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
presented in conformity with GAAP. This statement is effective
60 days after the SECs approval of the Public Company
Accounting Oversight Board amendments to AICPA Professional
Standards AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles. The adoption of SFAS 162 will not have a
material impact on the Companys results of operations or
financial position.
Basic earnings per share (EPS) was computed by
dividing net income by the number of weighted average shares of
common stock outstanding during the second quarters and six
months ended June 28, 2008 and June 30, 2007. Diluted
EPS was calculated to give effect to all potentially dilutive
shares of common stock. The reconciliation of basic to diluted
weighted average shares for the second quarters and six months
ended June 28, 2008 and June 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Basic weighted average shares
|
|
|
94,355
|
|
|
|
96,254
|
|
|
|
94,395
|
|
|
|
96,343
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
777
|
|
|
|
207
|
|
|
|
510
|
|
|
|
180
|
|
Restricted stock units
|
|
|
923
|
|
|
|
761
|
|
|
|
932
|
|
|
|
612
|
|
Employee stock purchase plan
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
96,059
|
|
|
|
97,224
|
|
|
|
95,839
|
|
|
|
97,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 140 and 1,480 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the second
quarter and six months ended June 28, 2008, respectively.
Options to purchase 1,023 and 2,096 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the second
quarter and six months ended June 30, 2007, respectively.
|
|
(4)
|
Stock-Based
Compensation
|
During the first quarter ended March 29, 2008, the Company
granted options to purchase 1,340 shares of common stock
pursuant to the Hanesbrands Inc. Omnibus Incentive Plan of 2006
(the Omnibus Plan) at an exercise price of $25.10
per share, which was the closing price of Hanesbrands
stock on the date of grant. These options can be exercised over
a term of seven years and vest ratably over one to three years.
The fair value of each option granted during the first quarter
ended March 29, 2008 was estimated as of the date of grant
using the Black-Scholes option-pricing model using the following
assumptions: volatility of 28%; expected terms of
3.8 4.5 years; dividend yield of 0%; and
risk-free interest rates ranging from 2.45% to 2.64%. The
Company uses the volatility of peer companies for a period of
time that is comparable to the expected life of the option to
determine volatility assumptions due to the limited trading
history of the Companys common stock since the
Companys spin off from Sara Lee Corporation (Sara
Lee) on September 5, 2006. The Company utilized the
simplified method outlined in SEC Staff Accounting
7
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Bulletin No. 107 to estimate expected lives for
options granted during the first quarter ended March 29,
2008. SEC Staff Accounting Bulletin No. 110, which was
issued in December 2007, amends SEC Staff Accounting
Bulletin No. 107 and gives a limited extension on
using the simplified method for valuing stock option grants to
eligible public companies that do not have sufficient historical
exercise patterns on options granted to employees. The weighted
average fair value of individual options granted during the
first quarter ended March 29, 2008 was $7.04.
During the first quarter ended March 29, 2008, the Company
granted 540 restricted stock units
(RSUs) pursuant to the Omnibus Plan. Upon the
achievement of defined service conditions, the RSUs are
converted into shares of the Companys common stock on a
one-for-one basis and issued to the grantees. All RSUs vest
solely upon continued future service to the Company. The cost of
these awards is determined using the fair value of the shares on
the date of grant, and compensation expense is recognized over
the period during which the grantees provide the requisite
service to the Company. The grant date fair value of the RSUs
was $25.10.
During the quarter and six months ended June 28, 2008, 24
and 58 shares, respectively, were purchased under the
Hanesbrands Inc. Employee Stock Purchase Plan of 2006 (the
ESPP) by eligible employees. During the quarter and
six months ended June 30, 2007, 13 shares were
purchased under the ESPP by eligible employees. The Company had
2,306 shares of common stock available for issuance under
the ESPP as of June 28, 2008.
Since becoming an independent company, the Company has
undertaken a variety of restructuring efforts in connection with
its consolidation and globalization strategy designed to improve
operating efficiencies and lower costs. As a result of these
efforts, the Company expects to incur approximately $250,000 in
restructuring and related charges over the three year period
following the spin off from Sara Lee on September 5, 2006,
of which approximately half is expected to be noncash. As of
June 28, 2008, the Company has recognized approximately
$129,000 in restructuring and related charges related to these
efforts since September 5, 2006. Of these charges,
approximately $48,000 relates to employee termination and other
benefits, approximately $69,000 relates to accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed, and approximately $12,000 relates to
lease termination and other costs. Accelerated depreciation
related to the Companys manufacturing facilities and
distribution centers that have been or will be closed is
reflected in the Cost of sales and Selling,
general and administrative expenses lines of the Condensed
Consolidated Statements of Income.
8
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The impact of restructuring on income before income tax expense
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 3, 2009 restructuring actions
|
|
$
|
2,494
|
|
|
$
|
|
|
|
$
|
5,436
|
|
|
$
|
|
|
Year ended December 29, 2007 restructuring actions
|
|
|
4,172
|
|
|
|
41,404
|
|
|
|
7,028
|
|
|
|
49,052
|
|
Six months ended December 30, 2006 restructuring actions
|
|
|
|
|
|
|
(1,049
|
)
|
|
|
13
|
|
|
|
12,599
|
|
Year ended July 1, 2006 and prior restructuring actions
|
|
|
(13
|
)
|
|
|
(769
|
)
|
|
|
(65
|
)
|
|
|
(552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
6,653
|
|
|
$
|
39,586
|
|
|
$
|
12,412
|
|
|
$
|
61,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates where the costs associated with
these actions are recognized in the Condensed Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
4,633
|
|
|
$
|
12,413
|
|
|
$
|
7,191
|
|
|
$
|
17,680
|
|
Selling, general and administrative expenses
|
|
|
578
|
|
|
|
948
|
|
|
|
1,221
|
|
|
|
948
|
|
Restructuring
|
|
|
1,442
|
|
|
|
26,225
|
|
|
|
4,000
|
|
|
|
42,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
6,653
|
|
|
$
|
39,586
|
|
|
$
|
12,412
|
|
|
$
|
61,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Accelerated depreciation
|
|
$
|
5,211
|
|
|
$
|
13,361
|
|
|
$
|
8,412
|
|
|
$
|
18,628
|
|
Employee termination and other benefits
|
|
|
1,362
|
|
|
|
26,088
|
|
|
|
3,920
|
|
|
|
32,103
|
|
Noncancelable lease and other contractual obligations
|
|
|
80
|
|
|
|
137
|
|
|
|
80
|
|
|
|
10,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,653
|
|
|
$
|
39,586
|
|
|
$
|
12,412
|
|
|
$
|
61,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
|
2008
|
|
|
Beginning accrual
|
|
$
|
23,350
|
|
Restructuring expenses
|
|
|
6,702
|
|
Cash payments
|
|
|
(10,650
|
)
|
Adjustments to restructuring expenses
|
|
|
(2,702
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
16,700
|
|
|
|
|
|
|
9
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The accrual balance as of June 28, 2008 is comprised of
$13,408 in current accrued liabilities, primarily related to
employee termination and other benefits, and $3,292 in other
noncurrent liabilities, primarily related to lease termination
payments, in the Condensed Consolidated Balance Sheet.
Adjustments to previous estimates are primarily attributable to
employee termination and other benefits and resulted from actual
costs to settle obligations being lower than expected. The
adjustments were reflected in the Restructuring line
of the Condensed Consolidated Statements of Income.
Year
Ended January 3, 2009 Actions
During the six months ended June 28, 2008, the Company
approved actions to close two manufacturing facilities and two
distribution centers and eliminate approximately 1,300 positions
in Heredia, Costa Rica, Aguascalientes, Mexico and the United
States. The production capacity related to the manufacturing
facilities will be relocated to lower cost locations in Asia and
Central America. The distribution capacity will be relocated to
our West Coast distribution facility in California in order to
expand capacity for goods we source from Asia. The Company
recorded charges of $2,494 and $5,436 in the second quarter and
six months ended June 28, 2008, respectively. The Company
recognized $2,416 and $5,358 in the second quarter and six
months ended June 28, 2008, respectively, which represents
employee termination and other benefits recognized in accordance
with benefit plans previously communicated to the affected
employee group and $78 in the second quarter and six months
ended June 28, 2008 for accelerated depreciation of
buildings and equipment. These charges are reflected in the
Restructuring and Cost of sales lines of
the Condensed Consolidated Statement of Income. All actions are
expected to be completed within a
12-month
period.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
189,772
|
|
|
$
|
176,758
|
|
Work in process
|
|
|
146,628
|
|
|
|
122,724
|
|
Finished goods
|
|
|
1,005,784
|
|
|
|
817,570
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,342,184
|
|
|
$
|
1,117,052
|
|
|
|
|
|
|
|
|
|
|
10
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
(7)
|
Allowances
for Trade Accounts Receivable
|
The changes in the Companys allowance for doubtful
accounts and allowance for chargebacks and other deductions for
the quarter and six months ended June 28, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
|
|
|
|
Allowance for
|
|
|
Chargebacks
|
|
|
|
|
|
|
Doubtful
|
|
|
and Other
|
|
|
|
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Total
|
|
|
Balance at December 29, 2007:
|
|
$
|
9,328
|
|
|
$
|
22,314
|
|
|
$
|
31,642
|
|
Charged to expenses
|
|
|
84
|
|
|
|
3,419
|
|
|
|
3,503
|
|
Deductions and write-offs
|
|
|
(3,311
|
)
|
|
|
(12,059
|
)
|
|
|
(15,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2008:
|
|
|
6,101
|
|
|
|
13,674
|
|
|
|
19,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to expenses
|
|
|
1,334
|
|
|
|
2,564
|
|
|
|
3,898
|
|
Deductions and write-offs
|
|
|
(753
|
)
|
|
|
(3,593
|
)
|
|
|
(4,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008:
|
|
$
|
6,682
|
|
|
$
|
12,645
|
|
|
$
|
19,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to the allowance for doubtful accounts are reflected in
the Selling, general and administrative expenses
line and charges to the allowance for customer chargebacks and
other customer deductions are primarily reflected as a reduction
in the Net sales line of the Condensed Consolidated
Statements of Income. Deductions and write-offs, which do not
increase or decrease income, represent write-offs of previously
reserved accounts receivables and allowed customer chargebacks
and deductions against gross accounts receivable.
The Company had the following long-term debt at June 28,
2008 and December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
June 28,
|
|
|
June 28,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Term A
|
|
|
4.15
|
%
|
|
$
|
139,000
|
|
|
$
|
139,000
|
|
Term B
|
|
|
4.64
|
%
|
|
|
976,250
|
|
|
|
976,250
|
|
Second Lien Credit Facility
|
|
|
6.66
|
%
|
|
|
450,000
|
|
|
|
450,000
|
|
Floating Rate Senior Notes
|
|
|
6.51
|
%
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts Receivable Securitization
|
|
|
3.09
|
%
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,315,250
|
|
|
$
|
2,315,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 28, 2008, the Company had $0 outstanding under
the Senior Secured Credit Facilitys $500,000 Revolving
Loan Facility and $61,734 of standby and trade letters of credit
issued and outstanding under this facility.
Availability of funding under the accounts receivable
securitization depends primarily upon the eligible outstanding
receivables balance. As of June 28, 2008, the Company had
$250,000 outstanding under the accounts receivable
securitization. The total amount of receivables used as
collateral for the accounts receivable securitization was
$455,619 and $495,245 at June 28, 2008 and
December 29, 2007, respectively,
11
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
and is reported on the Companys Condensed Consolidated
Balance Sheets in trade accounts receivables less allowances.
During the second quarter and six months ended June 30,
2007, the Company recognized $551 of loss on early
extinguishment of debt related to unamortized debt issuance
costs on the Senior Secured Credit Facility as a result of the
prepayment of $50,000 of principal in June 2007. This loss is
reflected in the Other expenses line of the
Condensed Consolidated Statements of Income.
|
|
(9)
|
Fair
Value of Financial Assets and Liabilities
|
The Company has adopted the provisions of SFAS 157 as of
December 30, 2007 for its financial assets and liabilities.
Although this partial adoption of SFAS 157 had no material
impact on its financial condition, results of operations or cash
flows, the Company is now required to provide additional
disclosures as part of its financial statements. SFAS 157
clarifies that 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. SFAS 157 establishes a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs
about which little or no market data exists, therefore requiring
an entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in SFAS 157.
The three valuation techniques are as follows:
|
|
|
|
|
Market approach prices and other relevant
information generated by market transactions involving identical
or comparable assets or liabilities.
|
|
|
|
Cost approach amount that would be required to
replace the service capacity of an asset or replacement cost.
|
|
|
|
Income approach techniques to convert future amounts
to a single present amount based on market expectations,
including present value techniques, option-pricing and other
models.
|
The Company primarily applies the market approach for commodity
derivatives and the income approach for interest rate and
foreign currency derivatives for recurring fair value
measurements and attempts to utilize valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs.
As of June 28, 2008, 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,
foreign exchange rates and cotton. The fair values of cotton
derivatives are determined based on quoted prices in public
markets and are categorized as Level 1. The fair values of
interest rate and foreign exchange rate derivatives are
determined based on inputs that are readily available in public
markets or can be derived from information available in publicly
quoted markets and are categorized as Level 2. The Company
does not have any financial assets or liabilities measured at
fair value on a recurring basis categorized as Level 3, and
there were no transfers in or out of Level 3 during the
second quarter ended June 28, 2008. There were no changes
to the Companys valuation techniques used to measure asset
and liability fair values on a recurring basis.
12
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The following table sets forth by level within
SFAS 157s fair value hierarchy the Companys
financial assets and liabilities accounted for at fair value on
a recurring basis at June 28, 2008. As required by
SFAS 157, assets and liabilities are classified in their
entirety based on the lowest level of input that is significant
to the fair value measurement. The Companys assessment of
the significance of a particular input to the fair value
measurement requires judgment, and may affect the valuation of
fair value assets and liabilities and their placement within the
fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of June 28,
2008
|
|
|
Quoted Prices
|
|
|
|
|
|
|
In Active
|
|
Significant
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Derivative contracts, net
|
|
$
|
|
|
|
$
|
16,620
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
16,620
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The determination of fair values above incorporates various
factors required under SFAS 157. These factors include not
only the credit standing of the counterparties involved and the
impact of credit enhancements, but also the impact of the
Companys nonperformance risk on its liabilities.
|
|
(10)
|
Comprehensive
Income
|
SFAS No. 130, Reporting Comprehensive Income, requires
that all components of comprehensive income, including net
income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as
the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and
other comprehensive income, including foreign currency
translation adjustments, amounts amortized into net periodic
benefit cost as required by SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, and unrealized gains and losses on
qualifying cash flow hedges, are combined, net of their related
tax effect, to arrive at comprehensive income. The
Companys comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
57,344
|
|
|
$
|
25,434
|
|
|
$
|
93,368
|
|
|
$
|
37,438
|
|
Translation adjustments
|
|
|
4,220
|
|
|
|
7,161
|
|
|
|
2,690
|
|
|
|
7,634
|
|
Net unrealized gain (loss) on qualifying cash flow hedges, net
of tax (benefit) of $6,161, $4,218, ($146), and $2,733,
respectively
|
|
|
9,677
|
|
|
|
6,625
|
|
|
|
(229
|
)
|
|
|
4,294
|
|
Amounts amortized into net periodic income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit), net of tax (benefit) of $4,
($779), $8 and ($1,557), respectively
|
|
|
6
|
|
|
|
(1,223
|
)
|
|
|
12
|
|
|
|
(2,446
|
)
|
Actuarial loss, net of tax of $15, $364, $30 and $730,
respectively
|
|
|
24
|
|
|
|
573
|
|
|
|
48
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
71,271
|
|
|
$
|
38,570
|
|
|
$
|
95,889
|
|
|
$
|
48,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
For the second quarters and six months ended June 28, 2008
and June 30, 2007, income taxes have been computed
consistent with Accounting Principles Board Opinion No. 28,
Interim Financial Reporting and FASB Interpretation
No. 18, Accounting for Income Taxes in Interim
Periods.
The difference in the estimated annual effective income tax
rates of 24% for the second quarter and six months ended
June 28, 2008 and 30% for the second quarter and six months
ended June 30, 2007 and the U.S. statutory rate of 35%
is primarily attributable to unremitted earnings of foreign
subsidiaries taxed at rates less than the U.S. statutory
rate. The Companys estimated annual effective tax rate is
reflective of its strategic initiative to make substantial
capital investments outside the United States in its global
supply chain in 2008.
Within 180 days after Sara Lee files its final consolidated
tax return for the period that includes September 5, 2006,
which is expected to occur by September 2008, Sara Lee is
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 balance sheet as of September 6, 2006. If
substituting the amount of deferred taxes as finally determined
for the amount of estimated deferred taxes that were included on
that balance sheet at the time of the spin off causes a decrease
in the net book value reflected on that balance sheet, then Sara
Lee will be required to pay the Company the amount of such
decrease. If such substitution causes an increase in the net
book value reflected on that balance sheet, then the Company
will be required to pay Sara Lee the amount of such increase.
Although Sara Lee has not delivered its computation of the
amount of these deferred taxes and final settlement of any
amounts due has not been determined, during the second quarter
ended June 28, 2008, the Company received a preliminary
cash installment of $18,000 from Sara Lee.
|
|
(12)
|
Business
Segment Information
|
The Companys operations are managed and reported in five
operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery,
International and Other. These segments are organized
principally by product category and geographic location.
Management of each segment is responsible for the operations of
these businesses.
The types of products and services from which each reportable
segment derives its revenues are as follows:
|
|
|
|
|
Innerwear sells basic branded products that are replenishment in
nature under the product categories of womens intimate
apparel, mens underwear, kids underwear, socks,
thermals and sleepwear.
|
|
|
|
Outerwear sells basic branded products that are seasonal in
nature under the product categories of casualwear and activewear.
|
|
|
|
Hosiery sells products in categories such as pantyhose and knee
highs.
|
|
|
|
International relates to the Latin America, Asia, Canada and
Europe geographic locations which sell products that span across
the Innerwear, Outerwear and Hosiery reportable segments.
|
|
|
|
Other is comprised of sales of nonfinished products such as yarn
and certain other materials in the United States and Latin
America in order to maintain asset utilization at certain
manufacturing facilities and generate break even margins.
|
The Company evaluates the operating performance of its segments
based upon segment operating profit, which is defined as
operating profit before general corporate expenses, amortization
of trademarks and other identifiable intangibles and
restructuring and related accelerated depreciation charges. The
accounting policies
14
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 December 29, 2007.
Certain prior year segment assets, depreciation and amortization
expense and additions to long-lived assets disclosures have been
revised to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
636,335
|
|
|
$
|
691,504
|
|
|
$
|
1,180,065
|
|
|
$
|
1,281,951
|
|
Outerwear
|
|
|
260,137
|
|
|
|
263,596
|
|
|
|
532,342
|
|
|
|
547,231
|
|
Hosiery
|
|
|
49,734
|
|
|
|
51,402
|
|
|
|
116,475
|
|
|
|
125,095
|
|
International
|
|
|
130,903
|
|
|
|
109,001
|
|
|
|
235,539
|
|
|
|
199,778
|
|
Other
|
|
|
4,174
|
|
|
|
17,644
|
|
|
|
15,295
|
|
|
|
33,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales(1)
|
|
|
1,081,283
|
|
|
|
1,133,147
|
|
|
|
2,079,716
|
|
|
|
2,187,097
|
|
Intersegment(2)
|
|
|
(9,112
|
)
|
|
|
(11,240
|
)
|
|
|
(19,698
|
)
|
|
|
(25,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,072,171
|
|
|
$
|
1,121,907
|
|
|
$
|
2,060,018
|
|
|
$
|
2,161,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
79,942
|
|
|
$
|
104,680
|
|
|
$
|
133,617
|
|
|
$
|
180,648
|
|
Outerwear
|
|
|
19,927
|
|
|
|
12,302
|
|
|
|
36,344
|
|
|
|
18,402
|
|
Hosiery
|
|
|
15,742
|
|
|
|
14,134
|
|
|
|
39,863
|
|
|
|
34,179
|
|
International
|
|
|
18,848
|
|
|
|
16,927
|
|
|
|
33,652
|
|
|
|
24,705
|
|
Other
|
|
|
830
|
|
|
|
1,064
|
|
|
|
(10
|
)
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
135,289
|
|
|
|
149,107
|
|
|
|
243,466
|
|
|
|
258,223
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(12,584
|
)
|
|
|
(19,892
|
)
|
|
|
(24,535
|
)
|
|
|
(37,069
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(2,965
|
)
|
|
|
(1,514
|
)
|
|
|
(5,638
|
)
|
|
|
(3,074
|
)
|
Restructuring
|
|
|
(1,442
|
)
|
|
|
(26,225
|
)
|
|
|
(4,000
|
)
|
|
|
(42,471
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(4,633
|
)
|
|
|
(12,413
|
)
|
|
|
(7,191
|
)
|
|
|
(17,680
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(578
|
)
|
|
|
(948
|
)
|
|
|
(1,221
|
)
|
|
|
(948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
113,087
|
|
|
|
88,115
|
|
|
|
200,881
|
|
|
|
156,981
|
|
Other expenses
|
|
|
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
(551
|
)
|
Interest expense, net
|
|
|
(37,635
|
)
|
|
|
(51,230
|
)
|
|
|
(78,029
|
)
|
|
|
(102,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
75,452
|
|
|
$
|
36,334
|
|
|
$
|
122,852
|
|
|
$
|
53,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,358,884
|
|
|
$
|
1,247,441
|
|
Outerwear
|
|
|
820,463
|
|
|
|
754,178
|
|
Hosiery
|
|
|
95,605
|
|
|
|
97,804
|
|
International
|
|
|
242,601
|
|
|
|
232,142
|
|
Other
|
|
|
14,910
|
|
|
|
16,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532,463
|
|
|
|
2,348,372
|
|
Corporate(3)
|
|
|
1,045,108
|
|
|
|
1,091,111
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,577,571
|
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
11,481
|
|
|
$
|
11,322
|
|
|
$
|
22,032
|
|
|
$
|
22,641
|
|
Outerwear
|
|
|
5,679
|
|
|
|
5,644
|
|
|
|
12,809
|
|
|
|
12,541
|
|
Hosiery
|
|
|
1,554
|
|
|
|
2,837
|
|
|
|
3,185
|
|
|
|
5,379
|
|
International
|
|
|
749
|
|
|
|
1,223
|
|
|
|
1,172
|
|
|
|
2,044
|
|
Other
|
|
|
258
|
|
|
|
763
|
|
|
|
595
|
|
|
|
896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,721
|
|
|
|
21,789
|
|
|
|
39,793
|
|
|
|
43,501
|
|
Corporate
|
|
|
8,975
|
|
|
|
16,304
|
|
|
|
15,167
|
|
|
|
22,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
28,696
|
|
|
$
|
38,093
|
|
|
$
|
54,960
|
|
|
$
|
66,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
19,101
|
|
|
$
|
5,666
|
|
|
$
|
26,503
|
|
|
$
|
9,527
|
|
Outerwear
|
|
|
19,138
|
|
|
|
1,723
|
|
|
|
32,140
|
|
|
|
3,660
|
|
Hosiery
|
|
|
239
|
|
|
|
794
|
|
|
|
318
|
|
|
|
1,098
|
|
International
|
|
|
668
|
|
|
|
519
|
|
|
|
1,142
|
|
|
|
879
|
|
Other
|
|
|
11
|
|
|
|
52
|
|
|
|
14
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,157
|
|
|
|
8,754
|
|
|
|
60,117
|
|
|
|
15,223
|
|
Corporate
|
|
|
6,813
|
|
|
|
2,140
|
|
|
|
13,433
|
|
|
|
3,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
45,970
|
|
|
$
|
10,894
|
|
|
$
|
73,550
|
|
|
$
|
18,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes sales between segments. Such sales are at transfer
prices that are at cost plus markup or at prices equivalent to
market value. |
16
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
(2) |
|
Intersegment sales included in the segments net sales are
as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
June 28,
|
|
June 30,
|
|
June 28,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Innerwear
|
|
$
|
1,006
|
|
|
$
|
1,662
|
|
|
$
|
2,362
|
|
|
$
|
3,387
|
|
Outerwear
|
|
|
5,227
|
|
|
|
4,981
|
|
|
|
10,657
|
|
|
|
11,779
|
|
Hosiery
|
|
|
2,509
|
|
|
|
3,744
|
|
|
|
5,640
|
|
|
|
8,568
|
|
International
|
|
|
370
|
|
|
|
853
|
|
|
|
1,039
|
|
|
|
1,562
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,112
|
|
|
$
|
11,240
|
|
|
$
|
19,698
|
|
|
$
|
25,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Principally cash and equivalents, certain fixed assets, net
deferred tax assets, goodwill, trademarks and other identifiable
intangibles, and certain other noncurrent assets. |
|
|
(13)
|
Consolidating
Financial Information
|
In accordance with the indenture governing the Companys
$500,000 Floating Rate Senior Notes issued on December 14,
2006, certain of the Companys subsidiaries have guaranteed
the Companys obligations under the Floating Rate Senior
Notes. The following presents the condensed consolidating
financial information separately for:
(i) Parent Company, the issuer of the guaranteed
obligations. Parent Company includes Hanesbrands Inc. and its
100% owned operating divisions which are not legal entities, and
excludes its subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as
specified in the indenture governing the Floating Rate Senior
Notes;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions
between or among Parent Company, the guarantor subsidiaries and
the non-guarantor subsidiaries, (b) eliminate intercompany
profit in inventory, (c) eliminate the investments in our
subsidiaries and (d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each guarantor
subsidiary, each of which is wholly owned, directly or
indirectly, by Hanesbrands Inc. Each entity in the consolidating
financial information follows the same accounting policies as
described in the Companys Consolidated Financial
Statements included in its Annual Report on
Form 10-K
for the year ended December 29, 2007, 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.
Certain prior period amounts have been reclassified to conform
to the current year presentation and legal entity structure
relating to the classification of the investment in subsidiary
balances and related equity in earnings of subsidiaries.
17
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,086,432
|
|
|
$
|
111,692
|
|
|
$
|
761,732
|
|
|
$
|
(887,685
|
)
|
|
$
|
1,072,171
|
|
Cost of sales
|
|
|
871,358
|
|
|
|
44,142
|
|
|
|
666,379
|
|
|
|
(890,664
|
)
|
|
|
691,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
215,074
|
|
|
|
67,550
|
|
|
|
95,353
|
|
|
|
2,979
|
|
|
|
380,956
|
|
Selling, general and administrative expenses
|
|
|
226,412
|
|
|
|
17,409
|
|
|
|
22,491
|
|
|
|
115
|
|
|
|
266,427
|
|
Restructuring
|
|
|
421
|
|
|
|
127
|
|
|
|
894
|
|
|
|
|
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(11,759
|
)
|
|
|
50,014
|
|
|
|
71,968
|
|
|
|
2,864
|
|
|
|
113,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
101,498
|
|
|
|
43,374
|
|
|
|
|
|
|
|
(144,872
|
)
|
|
|
|
|
Interest expense, net
|
|
|
25,443
|
|
|
|
7,971
|
|
|
|
4,228
|
|
|
|
(7
|
)
|
|
|
37,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
64,296
|
|
|
|
85,417
|
|
|
|
67,740
|
|
|
|
(142,001
|
)
|
|
|
75,452
|
|
Income tax expense
|
|
|
6,952
|
|
|
|
3,397
|
|
|
|
7,759
|
|
|
|
|
|
|
|
18,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
57,344
|
|
|
$
|
82,020
|
|
|
$
|
59,981
|
|
|
$
|
(142,001
|
)
|
|
$
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,098,747
|
|
|
$
|
227,523
|
|
|
$
|
642,120
|
|
|
$
|
(846,483
|
)
|
|
$
|
1,121,907
|
|
Cost of sales
|
|
|
814,234
|
|
|
|
169,805
|
|
|
|
562,340
|
|
|
|
(804,829
|
)
|
|
|
741,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
284,513
|
|
|
|
57,718
|
|
|
|
79,780
|
|
|
|
(41,654
|
)
|
|
|
380,357
|
|
Selling, general and administrative expenses
|
|
|
240,564
|
|
|
|
(1,098
|
)
|
|
|
31,857
|
|
|
|
(5,306
|
)
|
|
|
266,017
|
|
Restructuring
|
|
|
26,660
|
|
|
|
5
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
26,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
17,289
|
|
|
|
58,811
|
|
|
|
48,363
|
|
|
|
(36,348
|
)
|
|
|
88,115
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
59,879
|
|
|
|
40,892
|
|
|
|
|
|
|
|
(100,771
|
)
|
|
|
|
|
Other expenses
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
551
|
|
Interest expense, net
|
|
|
40,802
|
|
|
|
10,633
|
|
|
|
(208
|
)
|
|
|
3
|
|
|
|
51,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
35,815
|
|
|
|
89,070
|
|
|
|
48,571
|
|
|
|
(137,122
|
)
|
|
|
36,334
|
|
Income tax expense (benefit)
|
|
|
10,381
|
|
|
|
2,778
|
|
|
|
(2,259
|
)
|
|
|
|
|
|
|
10,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
25,434
|
|
|
$
|
86,292
|
|
|
$
|
50,830
|
|
|
$
|
(137,122
|
)
|
|
$
|
25,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Six Months Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
2,109,891
|
|
|
$
|
209,138
|
|
|
$
|
1,406,691
|
|
|
$
|
(1,665,702
|
)
|
|
$
|
2,060,018
|
|
Cost of sales
|
|
|
1,672,527
|
|
|
|
83,355
|
|
|
|
1,227,217
|
|
|
|
(1,649,001
|
)
|
|
|
1,334,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
437,364
|
|
|
|
125,783
|
|
|
|
179,474
|
|
|
|
(16,701
|
)
|
|
|
725,920
|
|
Selling, general and administrative expenses
|
|
|
445,712
|
|
|
|
39,000
|
|
|
|
35,765
|
|
|
|
562
|
|
|
|
521,039
|
|
Restructuring
|
|
|
(94
|
)
|
|
|
127
|
|
|
|
3,967
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(8,254
|
)
|
|
|
86,656
|
|
|
|
139,742
|
|
|
|
(17,263
|
)
|
|
|
200,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
165,204
|
|
|
|
80,151
|
|
|
|
|
|
|
|
(245,355
|
)
|
|
|
|
|
Interest expense, net
|
|
|
51,786
|
|
|
|
16,862
|
|
|
|
9,388
|
|
|
|
(7
|
)
|
|
|
78,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
105,164
|
|
|
|
149,945
|
|
|
|
130,354
|
|
|
|
(262,611
|
)
|
|
|
122,852
|
|
Income tax expense
|
|
|
11,796
|
|
|
|
5,515
|
|
|
|
12,173
|
|
|
|
|
|
|
|
29,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
93,368
|
|
|
$
|
144,430
|
|
|
$
|
118,181
|
|
|
$
|
(262,611
|
)
|
|
$
|
93,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
2,141,450
|
|
|
$
|
430,119
|
|
|
$
|
1,241,821
|
|
|
$
|
(1,651,589
|
)
|
|
$
|
2,161,801
|
|
Cost of sales
|
|
|
1,620,139
|
|
|
|
320,212
|
|
|
|
1,098,943
|
|
|
|
(1,597,529
|
)
|
|
|
1,441,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
521,311
|
|
|
|
109,907
|
|
|
|
142,878
|
|
|
|
(54,060
|
)
|
|
|
720,036
|
|
Selling, general and administrative expenses
|
|
|
461,411
|
|
|
|
2,484
|
|
|
|
56,373
|
|
|
|
316
|
|
|
|
520,584
|
|
Restructuring
|
|
|
42,561
|
|
|
|
5
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
42,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
17,339
|
|
|
|
107,418
|
|
|
|
86,600
|
|
|
|
(54,376
|
)
|
|
|
156,981
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
112,607
|
|
|
|
67,290
|
|
|
|
|
|
|
|
(179,897
|
)
|
|
|
|
|
Other expenses
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
551
|
|
Interest expense, net
|
|
|
82,244
|
|
|
|
21,270
|
|
|
|
(563
|
)
|
|
|
(4
|
)
|
|
|
102,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
47,151
|
|
|
|
153,438
|
|
|
|
87,163
|
|
|
|
(234,269
|
)
|
|
|
53,483
|
|
Income tax expense
|
|
|
9,713
|
|
|
|
3,951
|
|
|
|
2,381
|
|
|
|
|
|
|
|
16,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
37,438
|
|
|
$
|
149,487
|
|
|
$
|
84,782
|
|
|
$
|
(234,269
|
)
|
|
$
|
37,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,561
|
|
|
$
|
2,105
|
|
|
$
|
66,252
|
|
|
$
|
|
|
|
$
|
96,918
|
|
Trade accounts receivable
|
|
|
(4,676
|
)
|
|
|
8,602
|
|
|
|
547,195
|
|
|
|
(3,504
|
)
|
|
|
547,617
|
|
Inventories
|
|
|
1,081,001
|
|
|
|
50,513
|
|
|
|
249,606
|
|
|
|
(38,936
|
)
|
|
|
1,342,184
|
|
Deferred tax assets and other current assets
|
|
|
191,762
|
|
|
|
8,559
|
|
|
|
38,029
|
|
|
|
(2,329
|
)
|
|
|
236,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,296,648
|
|
|
|
69,779
|
|
|
|
901,082
|
|
|
|
(44,769
|
)
|
|
|
2,222,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
253,658
|
|
|
|
10,274
|
|
|
|
283,230
|
|
|
|
|
|
|
|
547,162
|
|
Trademarks and other identifiable intangibles, net
|
|
|
34,967
|
|
|
|
117,175
|
|
|
|
5,585
|
|
|
|
|
|
|
|
157,727
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
66,441
|
|
|
|
|
|
|
|
316,257
|
|
Investments in subsidiaries
|
|
|
583,528
|
|
|
|
655,138
|
|
|
|
|
|
|
|
(1,238,666
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
138,888
|
|
|
|
307,444
|
|
|
|
(43,488
|
)
|
|
|
(69,159
|
)
|
|
|
333,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,540,571
|
|
|
$
|
1,176,744
|
|
|
$
|
1,212,850
|
|
|
$
|
(1,352,594
|
)
|
|
$
|
3,577,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
150,578
|
|
|
$
|
4,358
|
|
|
$
|
80,067
|
|
|
$
|
85,648
|
|
|
$
|
320,651
|
|
Accrued liabilities
|
|
|
270,407
|
|
|
|
25,919
|
|
|
|
56,215
|
|
|
|
(2,674
|
)
|
|
|
349,867
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
58,636
|
|
|
|
|
|
|
|
58,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
420,985
|
|
|
|
30,277
|
|
|
|
194,918
|
|
|
|
82,974
|
|
|
|
729,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,615,250
|
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
113,589
|
|
|
|
1,660
|
|
|
|
22,625
|
|
|
|
4,546
|
|
|
|
142,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,149,824
|
|
|
|
481,937
|
|
|
|
467,543
|
|
|
|
87,520
|
|
|
|
3,186,824
|
|
Stockholders equity
|
|
|
390,747
|
|
|
|
694,807
|
|
|
|
745,307
|
|
|
|
(1,440,114
|
)
|
|
|
390,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,540,571
|
|
|
$
|
1,176,744
|
|
|
$
|
1,212,850
|
|
|
$
|
(1,352,594
|
)
|
|
$
|
3,577,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
December 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,476
|
|
|
$
|
6,329
|
|
|
$
|
83,431
|
|
|
$
|
|
|
|
$
|
174,236
|
|
Trade accounts receivable
|
|
|
(13,135
|
)
|
|
|
4,389
|
|
|
|
586,327
|
|
|
|
(2,512
|
)
|
|
|
575,069
|
|
Inventories
|
|
|
827,312
|
|
|
|
47,443
|
|
|
|
281,224
|
|
|
|
(38,927
|
)
|
|
|
1,117,052
|
|
Deferred tax assets and other current assets
|
|
|
196,451
|
|
|
|
3,888
|
|
|
|
30,013
|
|
|
|
(2,375
|
)
|
|
|
227,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,095,104
|
|
|
|
62,049
|
|
|
|
980,995
|
|
|
|
(43,814
|
)
|
|
|
2,094,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
286,081
|
|
|
|
6,979
|
|
|
|
241,226
|
|
|
|
|
|
|
|
534,286
|
|
Trademarks and other identifiable intangibles, net
|
|
|
25,955
|
|
|
|
119,682
|
|
|
|
5,629
|
|
|
|
|
|
|
|
151,266
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
60,609
|
|
|
|
|
|
|
|
310,425
|
|
Investments in subsidiaries
|
|
|
424,746
|
|
|
|
585,168
|
|
|
|
|
|
|
|
(1,009,914
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
386,070
|
|
|
|
249,621
|
|
|
|
(232,117
|
)
|
|
|
(54,402
|
)
|
|
|
349,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,450,838
|
|
|
$
|
1,040,433
|
|
|
$
|
1,056,342
|
|
|
$
|
(1,108,130
|
)
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
127,887
|
|
|
$
|
4,344
|
|
|
$
|
71,288
|
|
|
$
|
85,647
|
|
|
$
|
289,166
|
|
Accrued liabilities
|
|
|
299,078
|
|
|
|
22,537
|
|
|
|
61,294
|
|
|
|
(2,670
|
)
|
|
|
380,239
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
19,577
|
|
|
|
|
|
|
|
19,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
426,965
|
|
|
|
26,881
|
|
|
|
152,159
|
|
|
|
82,977
|
|
|
|
688,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,615,250
|
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
119,719
|
|
|
|
1,773
|
|
|
|
19,854
|
|
|
|
5,001
|
|
|
|
146,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,161,934
|
|
|
|
478,654
|
|
|
|
422,013
|
|
|
|
87,978
|
|
|
|
3,150,579
|
|
Stockholders equity
|
|
|
288,904
|
|
|
|
561,779
|
|
|
|
634,329
|
|
|
|
(1,196,108
|
)
|
|
|
288,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,450,838
|
|
|
$
|
1,040,433
|
|
|
$
|
1,056,342
|
|
|
$
|
(1,108,130
|
)
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Six Months Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(15,285
|
)
|
|
$
|
83,519
|
|
|
$
|
128,725
|
|
|
$
|
(246,921
|
)
|
|
$
|
(49,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(18,178
|
)
|
|
|
(5,364
|
)
|
|
|
(50,008
|
)
|
|
|
|
|
|
|
(73,550
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(9,994
|
)
|
|
|
|
|
|
|
(9,994
|
)
|
Proceeds from sales of assets
|
|
|
7,242
|
|
|
|
3
|
|
|
|
2,279
|
|
|
|
|
|
|
|
9,524
|
|
Other
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,501
|
)
|
|
|
(5,361
|
)
|
|
|
(57,723
|
)
|
|
|
(435
|
)
|
|
|
(74,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(523
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
210,016
|
|
|
|
|
|
|
|
210,016
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(171,346
|
)
|
|
|
|
|
|
|
(171,346
|
)
|
Cost of debt issuance
|
|
|
(48
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(69
|
)
|
Borrowings on revolving loan facility
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,000
|
|
Repayments on revolving loan facility
|
|
|
(155,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,000
|
)
|
Proceeds from stock options exercised
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Stock repurchases
|
|
|
(10,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,860
|
)
|
Borrowings on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
20,389
|
|
|
|
|
|
|
|
20,389
|
|
Repayments on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
(20,389
|
)
|
|
|
|
|
|
|
(20,389
|
)
|
Transaction with Sara Lee Corporation
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
Other
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
Net transactions with related entities
|
|
|
(37,013
|
)
|
|
|
(82,372
|
)
|
|
|
(127,971
|
)
|
|
|
247,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(30,129
|
)
|
|
|
(82,382
|
)
|
|
|
(89,312
|
)
|
|
|
247,356
|
|
|
|
45,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
1,131
|
|
|
|
|
|
|
|
1,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(55,915
|
)
|
|
|
(4,224
|
)
|
|
|
(17,179
|
)
|
|
|
|
|
|
|
(77,318
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
84,476
|
|
|
|
6,329
|
|
|
|
83,431
|
|
|
|
|
|
|
|
174,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
28,561
|
|
|
$
|
2,105
|
|
|
$
|
66,252
|
|
|
$
|
|
|
|
$
|
96,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
171,140
|
|
|
$
|
148,577
|
|
|
$
|
(50,277
|
)
|
|
$
|
(167,882
|
)
|
|
$
|
101,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(12,831
|
)
|
|
|
(1,357
|
)
|
|
|
(4,100
|
)
|
|
|
|
|
|
|
(18,288
|
)
|
Proceeds from sales of assets
|
|
|
5,272
|
|
|
|
2,261
|
|
|
|
665
|
|
|
|
|
|
|
|
8,198
|
|
Other
|
|
|
12,602
|
|
|
|
1,381
|
|
|
|
(9,077
|
)
|
|
|
(6,301
|
)
|
|
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
5,043
|
|
|
|
2,285
|
|
|
|
(12,512
|
)
|
|
|
(6,301
|
)
|
|
|
(11,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(562
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(588
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
14,038
|
|
|
|
|
|
|
|
14,038
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(15,483
|
)
|
|
|
|
|
|
|
(15,483
|
)
|
Cost of debt issuance
|
|
|
(2,172
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,243
|
)
|
Repayment of debt under credit facilities
|
|
|
(53,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,125
|
)
|
Decrease in bank overdraft
|
|
|
|
|
|
|
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
(834
|
)
|
Proceeds from stock options exercised
|
|
|
2,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,803
|
|
Stock repurchases
|
|
|
(15,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,885
|
)
|
Other
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
Net transactions with related entities
|
|
|
(119,633
|
)
|
|
|
(149,210
|
)
|
|
|
94,660
|
|
|
|
174,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(187,961
|
)
|
|
|
(149,307
|
)
|
|
|
92,381
|
|
|
|
174,183
|
|
|
|
(70,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(11,778
|
)
|
|
|
1,555
|
|
|
|
30,643
|
|
|
|
|
|
|
|
20,420
|
|
Cash and cash equivalents at beginning of year
|
|
|
60,960
|
|
|
|
(1,251
|
)
|
|
|
96,264
|
|
|
|
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
49,182
|
|
|
$
|
304
|
|
|
$
|
126,907
|
|
|
$
|
|
|
|
$
|
176,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to June 28, 2008, the Company entered into an
interest rate swap with a notional amount of $500,000, as a
result of which the interest rate on the Companys floating
rate senior notes has been fixed at 7.64% for a
4-year term.
In connection with this transaction, the Company terminated an
interest rate cap with a notional amount of $250,000 with an
interest rate of 5.75%.
23
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements that involve risks and uncertainties.
Please see Forward-Looking Statements for a
discussion of the uncertainties, risks and assumptions
associated with these statements. This discussion should be read
in conjunction with our historical financial statements and
related notes thereto and the other disclosures contained
elsewhere in this Quarterly Report on
Form 10-Q.
The unaudited condensed consolidated financial statements and
notes included herein should be read in conjunction with our
audited consolidated financial statements and notes for the year
ended December 29, 2007, 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, Just My Size, barely
there and Wonderbra. We design, manufacture, source
and sell a broad range of apparel essentials such as t-shirts,
bras, panties, mens underwear, kids underwear,
socks, hosiery, casualwear and activewear.
Our operations are managed in five operating segments, each of
which is a reportable segment for financial reporting purposes:
Innerwear, Outerwear, Hosiery, International and Other. These
segments are organized principally by product category and
geographic location. Management of each segment is responsible
for the operations of these businesses.
|
|
|
|
|
Innerwear. The Innerwear segment focuses on
core apparel essentials, and consists of products such as
womens intimate apparel, mens underwear, kids
underwear, socks, thermals and sleepwear, marketed under
well-known brands that are trusted by consumers. We are an
intimate apparel category leader in the United States with our
Hanes, Playtex, Bali, Just My Size,
barely there, and Wonderbra brands. We are also a
leading manufacturer and marketer of mens underwear and
kids underwear under the Hanes and Champion
brand names. Our net sales for the six months ended
June 28, 2008 from our Innerwear segment were
$1.18 billion, representing approximately 57% of total
segment net sales.
|
|
|
|
Outerwear. We are a leader in the casualwear
and activewear markets through our Hanes, Champion
and Just My Size brands, where we offer products such
as t-shirts and fleece. Our casualwear lines offer a range of
quality, comfortable clothing for men, women and children
marketed under the Hanes and Just My Size brands.
The Just My Size brand offers casual apparel designed
exclusively to meet the needs of plus-size women. In addition to
activewear for men and women, Champion provides uniforms
for athletic programs and includes an apparel program, C9 by
Champion, at Target stores. We also license our
Champion name for collegiate apparel and footwear. We
also supply our t-shirts, sportshirts and fleece products
primarily to wholesalers, who then resell to screen printers and
embellishers, through brands such as Hanes, Champion
and Outer Banks. Our net sales for the six months
ended June 28, 2008 from our Outerwear segment were
$532 million, representing approximately 26% of total
segment net sales.
|
|
|
|
Hosiery. We are the leading marketer of
womens sheer hosiery in the United States. We compete in
the hosiery market by striving to offer superior values and
executing integrated marketing activities, as well as focusing
on the style of our hosiery products. We market hosiery products
under our Hanes, Leggs and Just My Size
brands. Our net sales for the six months ended June 28,
2008 from our Hosiery segment were $116 million,
representing approximately 5% of total segment net sales.
Although the decline has slowed in recent years, we expect the
trend of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences.
|
24
|
|
|
|
|
International. International includes products
that span across the Innerwear, Outerwear and Hosiery reportable
segments and include products marketed under the Hanes,
Champion, Wonderbra, Playtex,
Rinbros, Bali and Stedman brands. Our net
sales for the six months ended June 28, 2008 from our
International segment were $236 million, representing
approximately 11% of total segment net sales and included sales
in Latin America, Asia, Canada and Europe. Canada, Europe, Japan
and Mexico are our largest international markets, and we also
have sales offices in India and China.
|
|
|
|
Other. Our net sales for the six months ended
June 28, 2008 in our Other segment were $15 million,
representing approximately 1% of total segment net sales and are
comprised of sales of nonfinished products such as yarn and
certain other materials in the United States and Latin America
in order to maintain asset utilization at certain manufacturing
facilities and generate break even margins.
|
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather, back-to-school shopping and holidays.
Sales levels in a 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. Our results of
operations are also impacted by fluctuations and volatility in
the price of cotton and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions.
Highlights
from the Second Quarter and Six Months Ended June 28,
2008
|
|
|
|
|
Diluted earnings per share were $0.60 in the second quarter of
2008, compared with $0.26 in the same quarter in 2007. Diluted
earnings per share were $0.97 in the six month period in 2008,
compared with $0.39 in the same six month period in 2007.
|
|
|
|
Operating profit was $113 million in the second quarter of
2008, up from $88 million in the same quarter in 2007.
Operating profit was $201 million in the six month period
in 2008, up from $157 million in the same six month period
in 2007.
|
|
|
|
Total net sales in the second quarter of 2008 were lower by
$50 million at $1.07 billion compared to the same
quarter in 2007. Total net sales in the six month period in 2008
were lower by $102 million at $2.06 billion compared
to the same six month period in 2007.
|
|
|
|
During the first six months of 2008, we approved actions to
close two manufacturing facilities and two distribution centers
in Heredia, Costa Rica, Aguascalientes, Mexico and the United
States. The production capacity related to the manufacturing
facilities will be relocated to lower cost locations in Asia and
Central America. The distribution capacity will be relocated to
our West Coast distribution facility in California in order to
expand capacity for goods we source from Asia. In addition, we
completed several such actions in the first six months of 2008
that were approved in 2007.
|
|
|
|
Capital expenditures were $74 million during the first six
months of 2008 as we continued to build out our textile and
sewing network in Asia and Central America.
|
|
|
|
During the second quarter of 2008, we added three company-owned
sewing plants in Southeast Asia two in Vietnam and
one in Thailand giving us four sewing plants in Asia.
|
|
|
|
We repurchased $11 million of company stock during the
first six months of 2008.
|
|
|
|
We ended the second quarter of 2008 with an excess of
$598 million of liquidity, which consists of
$438 million of borrowing availability under our undrawn
revolving loan facility, $97 million in cash and cash
equivalents and $63 million of borrowing availability under
our international loan facilities.
|
25
Condensed
Consolidated Results of Operations Second Quarter
Ended June 28, 2008 Compared with Second Quarter Ended
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,072,171
|
|
|
$
|
1,121,907
|
|
|
$
|
(49,736
|
)
|
|
|
(4.4
|
)%
|
Cost of sales
|
|
|
691,215
|
|
|
|
741,550
|
|
|
|
(50,335
|
)
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
380,956
|
|
|
|
380,357
|
|
|
|
599
|
|
|
|
0.2
|
|
Selling, general and administrative expenses
|
|
|
266,427
|
|
|
|
266,017
|
|
|
|
410
|
|
|
|
0.2
|
|
Restructuring
|
|
|
1,442
|
|
|
|
26,225
|
|
|
|
(24,783
|
)
|
|
|
(94.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
113,087
|
|
|
|
88,115
|
|
|
|
24,972
|
|
|
|
28.3
|
|
Other expenses
|
|
|
|
|
|
|
551
|
|
|
|
(551
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
37,635
|
|
|
|
51,230
|
|
|
|
(13,595
|
)
|
|
|
(26.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
75,452
|
|
|
|
36,334
|
|
|
|
39,118
|
|
|
|
107.7
|
|
Income tax expense
|
|
|
18,108
|
|
|
|
10,900
|
|
|
|
7,208
|
|
|
|
66.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
57,344
|
|
|
$
|
25,434
|
|
|
$
|
31,910
|
|
|
|
125.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,072,171
|
|
|
$
|
1,121,907
|
|
|
$
|
(49,736
|
)
|
|
|
(4.4
|
)%
|
Consolidated net sales were lower by $50 million or 4% in
the second quarter of 2008 compared to 2007 primarily due to
softer sales at retail of our intimate apparel and a shift in
timing by our largest retail customers of back-to-school
programs from June to July in 2008. Our Innerwear, Outerwear,
Hosiery and Other segment net sales were lower by
$55 million (8%), $3 million (1%), $2 million
(3%) and $13 million (76%), respectively, and were
partially offset by higher net sales in our International
segment of $22 million (20%). Although the majority of our
products are replenishment in nature and tend to be purchased by
consumers on a planned, rather than on an impulse, basis,
softness in the retail environment can impact our results in the
short-term, as it did in the first half of 2008. Sales to our
retail customers during the first half of 2008 were reflective
of a difficult economic and retail environment in which the
ultimate consumers of our products have been limiting their
discretionary spending and visiting retail stores less
frequently.
The lower net sales in the Innerwear segment were primarily due
to a decline in the intimate apparel, socks and kids
underwear product categories. Total intimate apparel net sales
were $35 million lower this quarter compared to last year.
We believe there have been softer sales at retail of our
intimate apparel product category primarily in our Hanes
and secondary brands (Just My Size, barely there and
Wonderbra) and private label brands. In the second
quarter of 2008 compared to 2007 net sales in our Bali
brand intimate apparel were flat and net sales in our
Playtex brand intimate apparel were $5 million
higher. In addition, we exited a license arrangement for a
boys character underwear program in 2008 which accounted
for $4 million of the overall decrease in net sales. We
believe a large portion of the net sales decline this quarter is
related to a shift in timing by our largest retail customers of
back-to-school programs from June to July in 2008. The amount of
our back-to-school shipments that shifted from June to July 2008
was approximately $25 million.
The decline in net sales for our Other segment is primarily due
to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties which we expect to
continue the remainder of this year.
26
Net sales of Champion activewear were higher in the
second quarter of 2008 compared to 2007, which mostly offset
lower sales in our casualwear product categories. Net sales in
the Hosiery segment were only slightly lower primarily due to
lower sales of our Hanes brand to national chains and
department stores in the second quarter of 2008 compared to last
year. Although the decline has slowed in recent years, we expect
the trend of declining hosiery sales to continue consistent with
the overall decline in the industry and with shifts in consumer
preferences.
The lower overall net sales were partially offset by higher net
sales in the International segment that were driven by a
favorable impact of $13 million related to foreign currency
exchange rates and by the growth in the European casualwear
business. The favorable impact was primarily due to the
strengthening of the Euro, Japanese yen, Canadian dollar and
Brazilian real.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
380,956
|
|
|
$
|
380,357
|
|
|
$
|
599
|
|
|
|
0.2
|
%
|
As a percent of net sales, our gross profit percentage was 35.5%
in the second quarter of 2008 compared to 33.9% in 2007. The
higher gross profit percentage was primarily due to
$13 million of savings from our cost reduction initiatives
and prior restructuring actions, lower accelerated depreciation
of $8 million, lower sales incentives of $7 million
and a favorable impact related to foreign currency exchange
rates of $5 million. The favorable foreign currency
exchange rate impact in our International segment was primarily
due to the strengthening of the Euro, Japanese yen, Canadian
dollar and Brazilian real.
These lower costs were primarily offset by lower sales volume of
$24 million, slightly higher production costs of
$3 million and higher freight costs of $2 million.
Our per pound cotton costs were $3 million higher in the
second quarter of 2008 as compared to 2007. The cotton prices
reflected in our results were 63 cents per pound in the second
quarter of 2008 as compared to 58 cents per pound in 2007. After
taking into consideration the cotton costs currently included in
inventory, we expect our cost of cotton to average 66 cents per
pound for the full year 2008.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
266,427
|
|
|
$
|
266,017
|
|
|
$
|
410
|
|
|
|
0.2
|
%
|
Our selling, general and administrative expenses were flat in
the second quarter of 2008 compared to 2007. Our cost reduction
efforts resulted in lower expenses in the second quarter of 2008
compared to 2007 related to $5 million of savings from our
prior restructuring actions primarily for compensation and
related benefits, lower media related media, advertising and
promotion expenses (MAP) of $4 million and
$4 million of lower pension expense. 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.
The above lower expenses were offset by higher distribution
expenses of $4 million, $4 million of higher
technology consulting and related expenses and $2 million
of higher computer software amortization expense in the second
quarter of 2008 compared to 2007. Approximately half of the
higher distribution expenses in the second quarter of 2008
compared to 2007 were postage and freight related and the other
half related to rework expenses in our distribution centers. In
addition, we incurred $2 million in amortization of gain on
curtailment of postretirement benefits in the second quarter of
2007 which did not recur in 2008.
27
Our cost reduction efforts have allowed us to offset investments
in our strategic initiatives which were $4 million lower in
the second quarter of 2008 compared to 2007 for media related
MAP expenses and technology consulting expenses.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
1,442
|
|
|
$
|
26,225
|
|
|
$
|
(24,783
|
)
|
|
|
(94.5
|
)%
|
During the second quarter of 2008, we approved actions to close
two distribution centers and eliminate approximately 200
positions in the United States during the next twelve months.
This capacity will be relocated to our West Coast distribution
facility in California in order to expand capacity for goods we
source from Asia. We recorded a charge of $2 million
primarily attributable to employee termination and other
benefits recognized in accordance with benefit plans previously
communicated to the affected employee group. In connection with
our consolidation and globalization strategy, in the second
quarters of 2008 and 2007, we recognized non-cash charges of
$5 million and $12 million, respectively, in the
Cost of sales line and non-cash charges of
$1 million in the Selling, general and administrative
expenses line in the second quarter of each of 2008 and
2007 related to accelerated depreciation of buildings and
equipment for facilities that have been closed or will be closed.
During the second quarter of 2007, we incurred $26 million
in restructuring charges which primarily related to employee
termination and other benefits associated with previously
approved actions for plant closures and the elimination of
certain management and administrative positions.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
113,087
|
|
|
$
|
88,115
|
|
|
$
|
24,972
|
|
|
|
28.3
|
%
|
Operating profit was higher in the second quarter of 2008
primarily as a result of lower restructuring charges for
facility closures of $25 million. Our ability to control
costs and execute our consolidation and globalization strategy
in addition to incurring lower investments in our strategic
initiatives of $4 million offset higher costs in other
areas.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
|
|
|
$
|
551
|
|
|
$
|
(551
|
)
|
|
|
NM
|
|
During the second quarter of 2007, we recognized a loss on early
extinguishment of debt related to unamortized debt issuance
costs on our senior secured credit facility for the prepayment
of $50 million of principal in June 2007.
28
Interest
Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
37,635
|
|
|
$
|
51,230
|
|
|
$
|
(13,595
|
)
|
|
|
(26.5
|
)%
|
Interest expense, net was lower by $14 million in the
second quarter of 2008 compared to 2007. The lower interest
expense is primarily attributable to a lower weighted average
interest rate, $10 million of which resulted from a lower
LIBOR and $1 million of which resulted from reduced
interest rates achieved through changes in our financing
structure such as our accounts receivable securitization that we
entered into in November 2007. In addition, interest expense was
reduced by $3 million as a result of our net prepayments of
long-term debt during 2007 of $178 million. Our weighted
average interest rate on our outstanding debt was 6.02% during
the second quarter of 2008 compared to 7.86% in 2007.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
18,108
|
|
|
$
|
10,900
|
|
|
$
|
7,208
|
|
|
|
66.1
|
%
|
Our estimated annual effective income tax rate was 24% in the
second quarter of 2008 compared to 30% in 2007. The higher
income tax expense is attributable primarily to higher pre-tax
income partially offset by a lower effective income tax rate.
The lower effective income tax rate is primarily attributable to
higher unremitted earnings from foreign subsidiaries in the
second quarter of 2008 taxed at rates less than the
U.S. statutory rate. Our estimated annual effective tax
rate is reflective of our strategic initiative to make
substantial capital investments outside the United States in our
global supply chain in 2008.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
57,344
|
|
|
$
|
25,434
|
|
|
$
|
31,910
|
|
|
|
125.5
|
%
|
Net income for the second quarter of 2008 was higher than 2007
primarily due to higher gross profit from cost reduction
efforts, lower restructuring charges, lower interest expense and
a lower effective income tax rate.
29
Operating
Results by Business Segment Second Quarter Ended
June 28, 2008 Compared with Second Quarter Ended
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
636,335
|
|
|
$
|
691,504
|
|
|
$
|
(55,169
|
)
|
|
|
(8.0
|
)%
|
Outerwear
|
|
|
260,137
|
|
|
|
263,596
|
|
|
|
(3,459
|
)
|
|
|
(1.3
|
)
|
Hosiery
|
|
|
49,734
|
|
|
|
51,402
|
|
|
|
(1,668
|
)
|
|
|
(3.2
|
)
|
International
|
|
|
130,903
|
|
|
|
109,001
|
|
|
|
21,902
|
|
|
|
20.1
|
|
Other
|
|
|
4,174
|
|
|
|
17,644
|
|
|
|
(13,470
|
)
|
|
|
(76.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
1,081,283
|
|
|
|
1,133,147
|
|
|
|
(51,864
|
)
|
|
|
(4.6
|
)
|
Intersegment
|
|
|
(9,112
|
)
|
|
|
(11,240
|
)
|
|
|
(2,128
|
)
|
|
|
(18.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,072,171
|
|
|
$
|
1,121,907
|
|
|
$
|
(49,736
|
)
|
|
|
(4.4
|
)%
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
79,942
|
|
|
$
|
104,680
|
|
|
$
|
(24,738
|
)
|
|
|
(23.6
|
)%
|
Outerwear
|
|
|
19,927
|
|
|
|
12,302
|
|
|
|
7,625
|
|
|
|
62.0
|
|
Hosiery
|
|
|
15,742
|
|
|
|
14,134
|
|
|
|
1,608
|
|
|
|
11.4
|
|
International
|
|
|
18,848
|
|
|
|
16,927
|
|
|
|
1,921
|
|
|
|
11.3
|
|
Other
|
|
|
830
|
|
|
|
1,064
|
|
|
|
(234
|
)
|
|
|
(22.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
$
|
135,289
|
|
|
$
|
149,107
|
|
|
$
|
(13,818
|
)
|
|
|
(9.3
|
)%
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
$
|
(12,584
|
)
|
|
$
|
(19,892
|
)
|
|
$
|
(7,308
|
)
|
|
|
(36.7
|
)%
|
Amortization of trademarks and other intangibles
|
|
|
(2,965
|
)
|
|
|
(1,514
|
)
|
|
|
1,451
|
|
|
|
95.8
|
|
Restructuring
|
|
|
(1,442
|
)
|
|
|
(26,225
|
)
|
|
|
(24,783
|
)
|
|
|
(94.5
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(4,633
|
)
|
|
|
(12,413
|
)
|
|
|
(7,780
|
)
|
|
|
(62.7
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(578
|
)
|
|
|
(948
|
)
|
|
|
(370
|
)
|
|
|
(39.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
113,087
|
|
|
|
88,115
|
|
|
|
24,972
|
|
|
|
28.3
|
|
Other expenses
|
|
|
|
|
|
|
(551
|
)
|
|
|
(551
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
(37,635
|
)
|
|
|
(51,230
|
)
|
|
|
(13,595
|
)
|
|
|
(26.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
75,452
|
|
|
$
|
36,334
|
|
|
$
|
39,118
|
|
|
|
107.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
636,335
|
|
|
$
|
691,504
|
|
|
$
|
(55,169
|
)
|
|
|
(8.0
|
)%
|
Segment operating profit
|
|
|
79,942
|
|
|
|
104,680
|
|
|
|
(24,738
|
)
|
|
|
(23.6
|
)
|
Overall net sales in the Innerwear segment were lower by
$55 million or 8% in the second quarter of 2008 compared to
2007. The lower net sales were primarily due to a decline in
sales of intimate apparel, socks and kids underwear
product categories. We experienced softer sales at retail which
resulted in lower Hanes brand intimate apparel sales of
$22 million, lower intimate apparel sales in our secondary
brands (Just My Size, barely there and Wonderbra)
of $14 million and lower sales of private label brands of
$4 million. In the second quarter of 2008 compared to
2007 net sales in our Bali brand intimate apparel
were flat and net sales in our Playtex brand intimate
apparel were $5 million higher. In addition, we experienced
lower Hanes brand kids underwear sales of
$9 million, lower Hanes brand sock sales of
$5 million and Hanes brand sleepwear sales of
$2 million. We exited a license arrangement for a
boys character underwear program in 2008 which accounted
for $4 million of the overall decrease in the Hanes
kids underwear sales. We believe the net sales decline
this quarter, including some of the declines noted above, was
impacted by a shift in timing by our largest retail customers of
back-to-school programs from June to July in 2008. The amount of
our back-to-school shipments that shifted from June to July 2008
was approximately $25 million.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 38.8% in the second quarter of 2008
compared to 38.6% in 2007. While the gross profit percentage was
higher, gross profit dollars were lower for the second quarter
of 2008 compared to 2007 as a result of lower net sales. The
lower gross profit is primarily attributable to lower sales
volume of $22 million, unfavorable product sales mix of
$8 million, higher production costs of $4 million,
lower product sales pricing of $2 million and higher cotton
costs of $1 million. These factors were partially offset by
savings from our cost reduction initiatives and prior
restructuring actions of $10 million and lower sales
incentives of $7 million.
The lower Innerwear segment operating profit in the second
quarter of 2008 compared to 2007 is primarily attributable to
lower gross profit on lower sales volume, higher distribution
expenses of $3 million, higher technology consulting and
related expenses of $3 million and higher non-media related
MAP expenses of $1 million partially offset by savings from
prior restructuring actions of $4 million. A significant
portion of the selling, general and administrative expenses in
each segment is an allocation of our consolidated selling,
general and administrative expenses, however certain expenses
that are specifically identifiable to a segment are charged
directly to each segment. The allocation methodology for the
consolidated selling, general and administrative expenses for
the second quarter of 2008 is consistent with 2007. Our
consolidated selling, general and administrative expenses before
segment allocations was flat in the second quarter of 2008
compared to 2007.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
260,137
|
|
|
$
|
263,596
|
|
|
$
|
(3,459
|
)
|
|
|
(1.3
|
)%
|
Segment operating profit
|
|
|
19,927
|
|
|
|
12,302
|
|
|
|
7,625
|
|
|
|
62.0
|
|
Net sales in the Outerwear segment were slightly lower by
$3 million or 1% in the second quarter of 2008 compared to
2007 primarily as a result of lower net sales of retail
casualwear of $6 million and lower net sales through our
embellishment channel of $4 million, primarily in
promotional t-shirts, offset by higher fleece sales. These
decreases were mostly offset by higher net sales of Champion
brand activewear of $9 million.
31
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 25.0% in the second quarter of 2008
compared to 22.1% in 2007. The higher gross profit is primarily
attributable to favorable product sales mix of $6 million,
savings from our cost reduction initiatives and prior
restructuring actions of $2 million, higher product sales
pricing of $2 million and lower production costs of
$2 million partially offset by higher cotton costs of
$2 million and higher excess and obsolete inventory costs
of $2 million.
The higher Outerwear segment operating profit in the second
quarter of 2008 compared to 2007 is primarily attributable to
higher gross profit and lower MAP expenses of $3 million
and savings from our cost reduction initiatives and prior
restructuring actions of $2 million partially offset by
higher distribution expenses of $1 million, higher
technology consulting and related expenses of $1 million,
higher non-media related MAP expenses of $1 million and
$2 million of higher spending in numerous areas. 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 each segment. The allocation methodology for
the consolidated selling, general and administrative expenses
for the second quarter of 2008 is consistent with 2007. Our
consolidated selling, general and administrative expenses before
segment allocations was flat in the second quarter of 2008
compared to 2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
49,734
|
|
|
$
|
51,402
|
|
|
$
|
(1,668
|
)
|
|
|
(3.2
|
)%
|
Segment operating profit
|
|
|
15,742
|
|
|
|
14,134
|
|
|
|
1,608
|
|
|
|
11.4
|
|
Net sales in the Hosiery segment were slightly lower by
$2 million or 3% in the second quarter of 2008 compared to
2007 primarily due to lower sales of the Hanes brand to
national chains and department stores. Although the decline has
slowed in recent years, we expect the trend of declining hosiery
sales to continue consistent with the overall decline in the
industry and with shifts in consumer preferences.
As a percent of segment net sales, gross profit percentage was
48.9% in the second quarter of 2008 compared to 48.6% in 2007
primarily due to savings from our cost reduction initiatives and
prior restructuring actions of $1 million and lower excess
and obsolete inventory costs of $1 million. These lower
expenses were partially offset by higher production costs of
$1 million and lower sales volume of $1 million.
Hosiery segment operating profit was higher in the second
quarter of 2008 compared to 2007 primarily due to lower
non-media related MAP expenses of $1 million and lower
distribution expenses of $1 million. A significant portion
of the selling, general and administrative expenses in each
segment is an allocation of our consolidated selling, general
and administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for the second
quarter of 2008 is consistent with 2007. Our consolidated
selling, general and administrative expenses before segment
allocations was flat in the second quarter of 2008 compared to
2007.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
130,903
|
|
|
$
|
109,001
|
|
|
$
|
21,902
|
|
|
|
20.1
|
%
|
Segment operating profit
|
|
|
18,848
|
|
|
|
16,927
|
|
|
|
1,921
|
|
|
|
11.3
|
|
Overall net sales in the International segment were higher by
$22 million or 20% in the second quarter of 2008 compared
to 2007. During the second quarter of 2008 we experienced higher
net sales, in each case including the impact of foreign
currency, in Europe of $10 million, Asia of
$6 million, Canada of $4 million
32
and Latin America of $4 million. The growth in our European
casualwear business was driven by the strength of the Stedman
brand that is sold in the embellishment channel. Changes in
foreign currency exchange rates had a favorable impact on net
sales of $13 million in the second quarter of 2008 compared
to 2007. The favorable impact was primarily due to the
strengthening of the Euro, Japanese yen, Canadian dollar and
Brazilian real.
As a percent of segment net sales, gross profit percentage was
40.2% in the second quarter of 2008 compared to 42.9% in 2007.
While the gross profit percentage was lower, gross profit
dollars were higher for the second quarter of 2008 compared to
2007 as the result of higher net sales. The higher gross profit
was primarily attributable to a favorable impact related to
foreign currency exchange rates of $5 million and lower
excess and obsolete inventory costs of $2 million partially
offset by higher sales incentives of $1 million.
The higher International segment operating profit in the second
quarter of 2008 compared to 2007 is primarily attributable to
the higher gross profit partially offset by higher distribution
expenses of $1 million and $2 million of higher
spending in numerous areas. Changes in foreign currency exchange
rates, which are included in the impact on gross profit above,
had a favorable impact on segment operating profit of
$2 million in the second quarter of 2008 compared to 2007.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
4,174
|
|
|
$
|
17,644
|
|
|
$
|
(13,470
|
)
|
|
|
(76.3
|
)%
|
Segment operating profit
|
|
|
830
|
|
|
|
1,064
|
|
|
|
(234
|
)
|
|
|
(22.0
|
)
|
Overall lower net sales from our Other segment were primarily
due to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties which we expect to
continue the remainder of this year. Net sales in this segment
are generated for the purpose of maintaining asset utilization
at certain manufacturing facilities and generating break even
margins.
General
Corporate Expenses
General corporate expenses were lower in the second quarter of
2008 compared to 2007 primarily due to $6 million of higher
net cost allocations to segments and $1 million of higher
capital gains.
Condensed
Consolidated Results of Operations Six Months
Ended June 28, 2008 Compared with Six Months Ended
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
2,060,018
|
|
|
$
|
2,161,801
|
|
|
$
|
(101,783
|
)
|
|
|
(4.7
|
)%
|
Cost of sales
|
|
|
1,334,098
|
|
|
|
1,441,765
|
|
|
|
(107,667
|
)
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
725,920
|
|
|
|
720,036
|
|
|
|
5,884
|
|
|
|
0.8
|
|
Selling, general and administrative expenses
|
|
|
521,039
|
|
|
|
520,584
|
|
|
|
455
|
|
|
|
0.1
|
|
Restructuring
|
|
|
4,000
|
|
|
|
42,471
|
|
|
|
(38,471
|
)
|
|
|
(90.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
200,881
|
|
|
|
156,981
|
|
|
|
43,900
|
|
|
|
28.0
|
|
Other expenses
|
|
|
|
|
|
|
551
|
|
|
|
(551
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
78,029
|
|
|
|
102,947
|
|
|
|
(24,918
|
)
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
122,852
|
|
|
|
53,483
|
|
|
|
69,369
|
|
|
|
129.7
|
|
Income tax expense
|
|
|
29,484
|
|
|
|
16,045
|
|
|
|
13,439
|
|
|
|
83.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
93,368
|
|
|
$
|
37,438
|
|
|
$
|
55,930
|
|
|
|
149.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
2,060,018
|
|
|
$
|
2,161,801
|
|
|
$
|
(101,783
|
)
|
|
|
(4.7
|
)%
|
Consolidated net sales were lower by $102 million or 5% in
the six months of 2008 compared to 2007 primarily due to softer
sales at retail of our intimate apparel and a shift in timing by
our largest retail customers of back-to-school programs from
June to July in 2008. Our Innerwear, Outerwear, Hosiery and
Other segment net sales were lower by $102 million (8%),
$15 million (3%), $9 million (7%) and $18 million
(54%), respectively, and were partially offset by higher net
sales in our International segment of $36 million (18%) and
lower intersegment sales eliminations of $6 million.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, softness in the retail
environment can impact our results in the short-term, as it did
in the six months of 2008. Sales to our retail customers during
the six months of 2008 were reflective of a difficult economic
and retail environment in which the ultimate consumers of our
products have been limiting their discretionary spending and
visiting retail stores less frequently.
The lower net sales in the Innerwear segment were primarily due
to a decline in the intimate apparel, socks and underwear
product categories. Total intimate apparel net sales were
$53 million lower in the six months of 2008 compared to
2007. We believe there have been softer sales at retail of our
intimate apparel product category primarily in our Hanes
and secondary brands (Just My Size, barely there and
Wonderbra) and private label brands. In the six months of
2008 compared to 2007, our Playtex brand intimate apparel
net sales were higher by $5 million offset by lower Bali
brand intimate apparel net sales of $4 million. In
addition, we exited a license arrangement for a boys
character underwear program in 2008 which accounted for
$7 million of the overall decrease in net sales. We believe
a large portion of the net sales decline in the six months of
2008 compared to 2007 is related to a shift in timing by our
largest retail customers of back-to-school programs from June to
July in 2008. The amount of our back-to-school shipments that
shifted from June to July 2008 was approximately
$25 million.
The decline in net sales for our Other segment is primarily due
to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties which we expect to
continue the remainder of this year.
Net sales of Champion activewear were higher the six
months of 2008 compared to 2007, which mostly offset the lower
sales in our casualwear product categories. Net sales in the
Hosiery segment were lower primarily due to lower sales of our
Hanes brand to national chains and department stores in
the six months of 2008 compared to last year. Although the
decline has slowed in recent years, we expect the trend of
declining hosiery sales to continue consistent with the overall
decline in the industry and with shifts in consumer preferences.
The overall lower net sales were partially offset by higher net
sales in the International segment that were driven by a
favorable impact of $23 million related to foreign currency
exchange rates and by the growth in the European casualwear
business. The favorable impact was primarily due to the
strengthening of the Euro, Canadian dollar, Japanese yen and
Brazilian real.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
725,920
|
|
|
$
|
720,036
|
|
|
$
|
5,884
|
|
|
|
0.8
|
%
|
As a percent of net sales, our gross profit percentage was 35.2%
in the six months of 2008 compared to 33.3% in 2007. The higher
gross profit percentage was primarily due to $24 million of
savings from our cost reduction initiatives and prior
restructuring actions, lower accelerated depreciation of
$11 million, a $10 million
34
favorable impact related to foreign currency exchange rates,
$9 million of lower production costs and lower sales
incentives of $5 million. The favorable foreign currency
exchange rate impact in our International segment was primarily
due to the strengthening of the Euro, Canadian dollar, Japanese
yen and Brazilian real.
These lower costs were primarily offset by $43 million of
lower sales volume, higher freight costs of $7 million,
$2 million of unfavorable product sales mix and lower
product sales pricing of $2 million.
Our per pound cotton costs were $1 million higher in the
six months of 2008 as compared to 2007. The cotton prices
reflected in our results were 58 cents per pound in the six
months of 2008 as compared to 57 cents per pound in 2007. After
taking into consideration the cotton costs currently included in
inventory, we expect our cost of cotton to average 66 cents per
pound for the full year 2008.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
521,039
|
|
|
$
|
520,584
|
|
|
$
|
455
|
|
|
|
0.1
|
%
|
Our selling, general and administrative expenses were flat in
the six months of 2008 compared to 2007. Our media related MAP
expenses were higher in the six months of 2008 primarily to
support the launch of Hanes No Ride Up Panties and
marketing initiatives for Playtex. We experienced higher
technology consulting and related expenses of $13 million,
higher MAP expenses of $6 million, higher computer software
amortization of $3 million and $3 million of higher
distribution expenses in the six months of 2008 compared to
2007. In addition, we incurred $4 million in amortization
of gain on curtailment of postretirement benefits in the six
months of 2007 which did not recur in 2008.
The higher expenses were offset by $13 million of savings
from our prior restructuring actions primarily for compensation
and related benefits, $8 million of lower pension expense,
$3 million of lower stock compensation expense, and
$3 million of lower non-media related MAP expenses. MAP
expenses may vary from period to period during a fiscal year
depending on the timing of our advertising campaigns for retail
selling seasons and product introductions.
Our cost reduction efforts have allowed us to offset higher
investments in our strategic initiatives of higher MAP expenses
of $6 million and higher technology consulting expenses of
$9 million during the six months of 2008 compared to 2007.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
4,000
|
|
|
$
|
42,471
|
|
|
$
|
(38,471
|
)
|
|
|
(90.6
|
)%
|
During the six month period in 2008, we approved actions to
close two manufacturing facilities and two distribution centers
and eliminate approximately 1,300 positions in Heredia, Costa
Rica, Aguascalientes, Mexico and the United States during the
next twelve months. The production capacity related to the
manufacturing facilities will be relocated to lower cost
locations in Asia and Central America. The distribution capacity
will be relocated to our West Coast distribution facility in
California in order to expand capacity for goods we source from
Asia. We recorded a charge of $5 million primarily
attributable to employee termination and other benefits
recognized in accordance with benefit plans previously
communicated to the affected employee group. In connection with
our consolidation and globalization strategy, in the six months
in 2008 and 2007 we recognized non-cash charges of
$7 million and $18 million, respectively, in the
Cost of sales line and non-cash charges of
$1 million in the Selling, general and administrative
expenses line in the six months of each of 2008 and 2007
related to accelerated depreciation of buildings and equipment
for facilities that have been closed or will be closed.
35
During the same six months of 2007, we incurred $42 million
in restructuring charges which primarily related to a charge of
$32 million related to employee termination and other
benefits associated with previously approved actions for plant
closures and the elimination of certain management and
administrative positions and a $10 million charge for
estimated lease termination costs associated with facility
closures.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
200,881
|
|
|
$
|
156,981
|
|
|
$
|
43,900
|
|
|
|
28.0
|
%
|
Operating profit was higher in the six months of 2008 by
$44 million compared to 2007 primarily as a result of
higher gross profit of $6 million and lower restructuring
charges of $38 million. Our ability to control costs and
execute our consolidation and globalization strategy has allowed
us to offset higher investments in our strategic initiatives of
$15 million during the six months of 2008 compared to 2007.
Other
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
|
|
|
$
|
551
|
|
|
$
|
(551
|
)
|
|
|
NM
|
|
During the six months of 2007, we recognized a loss on early
extinguishment of debt related to unamortized debt issuance
costs on our senior secured credit facility for the prepayment
of $50 million of principal in June 2007.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
78,029
|
|
|
$
|
102,947
|
|
|
$
|
(24,918
|
)
|
|
|
(24.2
|
)%
|
Interest expense, net was lower by $25 million in the six
months of 2008 compared to 2007. The lower interest expense is
primarily attributable to a lower weighted average interest
rate, $16 million of which resulted from a lower LIBOR and
$3 million of which resulted from reduced interest rates
achieved through changes in our financing structure such as the
February 2007 amendment to our senior secured credit facility
and our accounts receivable securitization that we entered into
in November 2007. In addition, interest expense was reduced by
$6 million as a result of our net prepayments of long-term
debt during 2007 of $178 million. Our weighted average
interest rate on our outstanding debt was 6.35% during the six
months of 2008 compared to 7.87% in 2007.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
29,484
|
|
|
$
|
16,045
|
|
|
$
|
13,439
|
|
|
|
83.8
|
%
|
36
Our estimated annual effective income tax rate was 24% in the
six months of 2008 compared to 30% in 2007. The higher income
tax expense is attributable primarily to higher pre-tax income
partially offset by a lower effective income tax rate. The lower
effective income tax rate is primarily attributable to higher
unremitted earnings from foreign subsidiaries in the six months
of 2008 taxed at rates less than the U.S. statutory rate.
Our estimated annual effective tax rate is reflective of our
strategic initiative to make substantial capital investments
outside the United States in our global supply chain in 2008.
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
93,368
|
|
|
$
|
37,438
|
|
|
$
|
55,930
|
|
|
|
149.4
|
%
|
Net income for the six months of 2008 was higher than 2007
primarily due to higher gross profit from cost reduction
efforts, lower restructuring charges, lower interest expense and
a lower effective income tax rate.
Operating
Results by Business Segment Six Months Ended
June 28, 2008 Compared with Six Months Ended June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,180,065
|
|
|
$
|
1,281,951
|
|
|
$
|
(101,886
|
)
|
|
|
(7.9
|
)%
|
Outerwear
|
|
|
532,342
|
|
|
|
547,231
|
|
|
|
(14,889
|
)
|
|
|
(2.7
|
)
|
Hosiery
|
|
|
116,475
|
|
|
|
125,095
|
|
|
|
(8,620
|
)
|
|
|
(6.9
|
)
|
International
|
|
|
235,539
|
|
|
|
199,778
|
|
|
|
35,761
|
|
|
|
17.9
|
|
Other
|
|
|
15,295
|
|
|
|
33,042
|
|
|
|
(17,747
|
)
|
|
|
(53.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
2,079,716
|
|
|
|
2,187,097
|
|
|
|
(107,381
|
)
|
|
|
(4.9
|
)
|
Intersegment
|
|
|
(19,698
|
)
|
|
|
(25,296
|
)
|
|
|
(5,598
|
)
|
|
|
(22.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,060,018
|
|
|
$
|
2,161,801
|
|
|
$
|
(101,783
|
)
|
|
|
(4.7
|
)%
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
133,617
|
|
|
$
|
180,648
|
|
|
$
|
(47,031
|
)
|
|
|
(26.0
|
)%
|
Outerwear
|
|
|
36,344
|
|
|
|
18,402
|
|
|
|
17,942
|
|
|
|
97.5
|
|
Hosiery
|
|
|
39,863
|
|
|
|
34,179
|
|
|
|
5,684
|
|
|
|
16.6
|
|
International
|
|
|
33,652
|
|
|
|
24,705
|
|
|
|
8,947
|
|
|
|
36.2
|
|
Other
|
|
|
(10
|
)
|
|
|
289
|
|
|
|
(299
|
)
|
|
|
(103.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
$
|
243,466
|
|
|
$
|
258,223
|
|
|
$
|
(14,757
|
)
|
|
|
(5.7
|
)%
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
$
|
(24,535
|
)
|
|
$
|
(37,069
|
)
|
|
$
|
(12,534
|
)
|
|
|
(33.8
|
)%
|
Amortization of trademarks and other intangibles
|
|
|
(5,638
|
)
|
|
|
(3,074
|
)
|
|
|
2,564
|
|
|
|
83.4
|
|
Restructuring
|
|
|
(4,000
|
)
|
|
|
(42,471
|
)
|
|
|
(38,471
|
)
|
|
|
(90.6
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(7,191
|
)
|
|
|
(17,680
|
)
|
|
|
(10,489
|
)
|
|
|
(59.3
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(1,221
|
)
|
|
|
(948
|
)
|
|
|
273
|
|
|
|
28.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
200,881
|
|
|
|
156,981
|
|
|
|
43,900
|
|
|
|
28.0
|
|
Other expenses
|
|
|
|
|
|
|
(551
|
)
|
|
|
(551
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
(78,029
|
)
|
|
|
(102,947
|
)
|
|
|
(24,918
|
)
|
|
|
(24.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
122,852
|
|
|
$
|
53,483
|
|
|
$
|
69,369
|
|
|
|
129.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,180,065
|
|
|
$
|
1,281,951
|
|
|
$
|
(101,886
|
)
|
|
|
(7.9
|
)%
|
Segment operating profit
|
|
|
133,617
|
|
|
|
180,648
|
|
|
|
(47,031
|
)
|
|
|
(26.0
|
)
|
Overall net sales in the Innerwear segment were lower by
$102 million or 8% in the six months of 2008 compared to
2007. The lower net sales in the Innerwear segment were
primarily due to a decline in sales of intimate apparel,
underwear and sock product categories. We experienced softer
sales at retail which resulted in lower intimate apparel sales
in our secondary brands (Just My Size, barely there and
Wonderbra) of $24 million, lower Hanes brand
intimate apparel sales of $24 million and lower sales of
private label brands of $8 million. In the six months of
2008 compared to 2007, our Playtex brand intimate apparel
net sales were higher by $5 million offset by lower Bali
brand intimate apparel net sales of $4 million. In
addition, we experienced lower Hanes brand kids
underwear sales of $15 million, lower Hanes brand
mens underwear sales of $9 million, lower Hanes
brand sock sales of $8 million, lower Hanes
sleepwear sales of $6 million and lower Champion
brand sock sales of $5 million. We exited a license
arrangement for a boys character underwear program in 2008
which accounted for $7 million of the overall decrease in
the Hanes brand kids underwear sales. We believe
the net sales decline during the six months of 2008, including
some of the declines noted above, was impacted by a shift in
timing by our largest retail customers of back-to-school
programs from June to July in 2008. The amount of our
back-to-school shipments that shifted from June to July 2008 was
approximately $25 million.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 38.5% in the six months of 2008
compared to 38.6% in 2007. The lower gross profit dollars are
attributable to lower sales volume of $37 million,
unfavorable product sales mix of $17 million, higher
freight costs of $6 million, higher production costs of
$5 million, lower product sales pricing of $3 million
and higher cotton costs of $1 million. These higher costs
were offset by $17 million of savings from our cost
reduction initiatives and prior restructuring actions, lower
sales incentives of $7 million and lower excess and
obsolete inventory costs of $5 million.
The lower Innerwear segment operating profit in the six months
of 2008 compared to 2007 is primarily attributable to lower
gross profit and higher MAP expenses of $9 million, higher
technology consulting and related expenses of $7 million
and higher distribution expenses of $2 million partially
offset by savings from prior restructuring actions of
$9 million. Our media related MAP expenses were higher in
the six months of 2008 primarily to support the launch of
Hanes No Ride Up Panties and marketing initiatives for
Playtex. 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 each segment. The allocation
methodology for the consolidated selling, general and
administrative expenses for the six months of 2008 is consistent
with 2007. Our consolidated selling, general and administrative
expenses before segment allocations was flat in the six months
of 2008 compared to 2007.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
532,342
|
|
|
$
|
547,231
|
|
|
$
|
(14,889
|
)
|
|
|
(2.7
|
)%
|
Segment operating profit
|
|
|
36,344
|
|
|
|
18,402
|
|
|
|
17,942
|
|
|
|
97.5
|
|
Net sales in the Outerwear segment were lower by
$15 million or 3% in the six months of 2008 compared to
2007 primarily as a result of lower net sales of retail
casualwear of $13 million and lower net sales through
38
our embellishment channel of $11 million, primarily in
promotional t-shirts, offset by higher fleece sales. These
decreases were partially offset by higher net sales of
Champion brand activewear of $11 million.
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 24.4% in the six months of 2008
compared to 20.5% in 2007. The improvement in gross profit is
primarily attributable to favorable product sales mix of
$13 million, lower production costs of $12 million and
savings from our cost reduction initiatives and prior
restructuring actions of $5 million partially offset by
higher excess and obsolete inventory costs of $6 million,
lower sales volume of $3 million and higher sales
incentives of $3 million.
The higher Outerwear segment operating profit in the six months
of 2008 compared to 2007 is primarily attributable to higher
gross profit and savings from our cost reduction initiatives and
prior restructuring actions of $4 million and lower MAP
expenses of $3 million partially offset by higher
technology consulting and related expenses of $5 million
and higher distribution expenses of $2 million. A
significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to each segment. The allocation methodology for
the consolidated selling, general and administrative expenses
for the six months of 2008 is consistent with 2007. Our
consolidated selling, general and administrative expenses before
segment allocations was flat in the six months of 2008 compared
to 2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
116,475
|
|
|
$
|
125,095
|
|
|
$
|
(8,620
|
)
|
|
|
(6.9
|
)%
|
Segment operating profit
|
|
|
39,863
|
|
|
|
34,179
|
|
|
|
5,684
|
|
|
|
16.6
|
|
Net sales in the Hosiery segment were lower by $9 million
or 7% in the six months of 2008 compared to 2007 primarily due
to lower sales of the Hanes brand to national chains and
department stores and the Leggs brand to mass
retailers and food and drug stores. Although the decline has
slowed in recent years, we expect the trend of declining hosiery
sales to continue consistent with the overall decline in the
industry and with shifts in consumer preferences.
As a percent of segment net sales, gross profit percentage was
51.3% in the six months of 2008 compared to 46.9% in 2007
primarily due to lower production costs of $2 million,
savings from our cost reduction initiatives and prior
restructuring actions of $2 million, lower sales incentives
of $2 million and lower excess and obsolete inventory costs
of $2 million partially offset by unfavorable product sales
mix of $4 million and lower sales volume of $2 million.
Hosiery segment operating profit was higher in the six months of
2008 compared to 2007 primarily due to the higher gross profit,
lower distribution expenses of $2 million, lower non-media
related MAP expenses of $2 million and savings from our
cost reduction initiatives and prior restructuring actions of
$1 million. A significant portion of the selling, general
and administrative expenses in each segment is an allocation of
our consolidated selling, general and administrative expenses,
however certain expenses that are specifically identifiable to a
segment are charged directly to each segment. The allocation
methodology for the consolidated selling, general and
administrative expenses for the six months of 2008 is consistent
with 2007. Our consolidated selling, general and administrative
expenses before segment allocations was flat in the six months
of 2008 compared to 2007.
39
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
235,539
|
|
|
$
|
199,778
|
|
|
$
|
35,761
|
|
|
|
17.9
|
%
|
Segment operating profit
|
|
|
33,652
|
|
|
|
24,705
|
|
|
|
8,947
|
|
|
|
36.2
|
|
Overall net sales in the International segment were higher by
$36 million or 18% in the six months of 2008 compared to
2007. During the six months of 2008, we experienced higher net
sales, in each case including the impact of foreign currency, in
Europe of $15 million, Canada of $9 million, Asia of
$7 million and Latin America of $7 million. The growth
in our European casualwear business was driven by the strength
of the Stedman brand that is sold in the embellishment
channel. Changes in foreign currency exchange rates had a
favorable impact on net sales of $23 million in the six
months of 2008 compared to 2007. The favorable impact was
primarily due to the strengthening of the Euro, Canadian dollar,
Japanese yen and Brazilian real.
As a percent of segment net sales, gross profit percentage was
41.3% in the six months of 2008 compared to 2007 at 42.0%. While
the gross profit percentage was lower, gross profit dollars were
higher for the six months of 2008 compared to 2007 as a result
of higher sales and favorable exchange rates. The higher gross
profit was primarily attributable to a favorable impact related
to foreign currency exchange rates of $10 million and a
favorable product sales mix of $4 million.
The higher International segment operating profit in the six
months of 2008 compared to 2007 is primarily attributable to the
higher gross profit partially offset by higher distribution
expenses of $2 million and $2 million of slightly
higher spending in numerous areas. Changes in foreign currency
exchange rates, which are included in the impact on gross profit
above, had a favorable impact on segment operating profit of
$4 million in the six months of 2008 compared to 2007.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 28,
|
|
June 30,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
15,295
|
|
|
$
|
33,042
|
|
|
$
|
(17,747
|
)
|
|
|
(53.7
|
)%
|
Segment operating profit
|
|
|
(10
|
)
|
|
|
289
|
|
|
|
(299
|
)
|
|
|
(103.5
|
)
|
Overall lower net sales from our Other segment were primarily
due to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties which we expect to
continue the remainder of this year. Net sales in this segment
are generated for the purpose of maintaining asset utilization
at certain manufacturing facilities and generating break even
margins.
General
Corporate Expenses
General corporate expenses were lower in the six months of 2008
compared to 2007 primarily due to $5 million of higher net
cost allocations to segments, $3 million of lower
start-up and
shut-down costs, $3 million of lower foreign exchange
transaction gains and $2 million of higher capital gains.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Our primary sources of liquidity are our cash generated by
operations and availability under our revolving loan facility
and our international loan facilities. At June 28, 2008, we
have in excess of $598 million of liquidity, which consists
of $438 million of borrowing availability under our undrawn
$500 million revolving loan facility (after taking into
account outstanding letters of credit), $97 million in cash
and cash equivalents and $63 million of borrowing
availability under our international loan facilities. We
currently believe that our
40
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.
We expect to be able to manage our working capital levels and
capital expenditure amounts so as to maintain sufficient levels
of liquidity. Depending on conditions in the capital markets and
other factors, we will from time to time consider other
financing transactions, the proceeds of which could be used to
refinance current indebtedness or for other purposes. We
continue to monitor the impact, if any, of the current
conditions in the credit markets on our operations. Our access
to financing at reasonable interest rates could become
influenced by the economic and credit market environment. In May
2008, Standard & Poors Ratings Services raised
its corporate credit rating for us to BB- from B+, and also
raised our bank loan and unsecured debt ratings.
Standard & Poors stated that the rating upgrade
reflects our positive operating momentum as a stand-alone entity
since our spin-off from Sara Lee Corporation (Sara
Lee) in September 2006, and also stated that our credit
protection measures and operating results have improved and are
in line with Standard & Poors expectations.
Standard & Poors also noted that management is
on track in executing our strategies. Standard &
Poors current outlook for us is stable.
The following has or is expected to impact liquidity:
|
|
|
|
|
we have principal and interest obligations under our long-term
debt;
|
|
|
|
we expect to continue to invest in efforts to improve operating
efficiencies and lower costs;
|
|
|
|
we expect to continue to add new manufacturing capacity in
Central America, the Caribbean Basin and Asia;
|
|
|
|
we anticipate that we will decrease the portion of the income of
our foreign subsidiaries that is expected to be remitted to the
United States, which could significantly decrease our effective
income tax rate; and
|
|
|
|
we expect to repurchase up to 10 million shares of our
stock in the open market over the next few years,
2.0 million of which we have repurchased as of
June 28, 2008.
|
Consolidation
and Globalization Strategy
We expect to continue our restructuring efforts as we continue
to execute our consolidation and globalization strategy. The
implementation of these efforts, which are designed to improve
operating efficiencies and lower costs, has resulted and is
likely to continue to result in significant costs and savings as
well as higher inventory levels for a period of time. As further
plans are developed and approved by management and in some cases
our board of directors, we expect to recognize additional
restructuring to eliminate duplicative functions within the
organization and transition a significant portion of our
manufacturing capacity to lower-cost locations.
While capital spending could vary significantly from year to
year, we anticipate that our capital spending over the next
three years could be as high as $500 million as we execute
our supply chain consolidation and globalization strategy and
complete the integration and consolidation of our technology
systems. Capital spending in any given year over the next three
years could be as high as $100 million in excess of our
annual depreciation and amortization expense until the
completion of actions related to our globalization strategy at
which time we would expect our annual capital spending to be
relatively comparable to our annual depreciation and
amortization expense. The majority of our capital spending will
be focused on growing our supply chain operations in Central
America, the Caribbean Basin and Asia. These locations will
enable us to expand and leverage our large production scale as
we balance our supply chain across hemispheres.
As we continue to add new manufacturing capacity in Central
America, the Caribbean Basin and Asia, our exposure to events
that could disrupt our foreign supply chain, including political
instability, acts of war or terrorism or other international
events resulting in the disruption of trade, disruptions in
shipping and freight forwarding services, increases in oil
prices (which would increase the cost of shipping),
interruptions in the availability of basic services and
infrastructure and fluctuations in foreign currency exchange
rates, is increased. Disruptions in our foreign supply chain
could negatively impact our liquidity by interrupting
41
production in facilities outside the United States, increasing
our cost of sales, disrupting merchandise deliveries, delaying
receipt of the products into the United States or preventing us
from sourcing our products at all. Depending on timing, these
events could also result in lost sales, cancellation charges or
excessive markdowns.
Rising
Input Costs and Inflation
Our costs for cotton yarn and cotton-based textiles vary based
upon the fluctuating cost of cotton, which is affected by
weather, consumer demand, speculation on the commodities market,
the relative valuations and fluctuations of the currencies of
producer versus consumer countries and other factors that are
generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges in an attempt
to protect our business from the volatility of the market price
of cotton, our business can be affected by dramatic movements in
cotton prices, although cotton has historically represented only
6% of our cost of sales. Cotton prices were 58 cents per pound
for the six months ended June 28, 2008 and 57 cents per
pound for the six months ended June 30, 2007. Taking into
consideration the cotton costs currently included in inventory,
we expect our cost of cotton to average 66 cents per pound for
the full year 2008. The price of cotton currently in our
inventory has risen to the low 70 cents per pound range which is
the price that will impact our operating results in the third
and fourth quarters of 2008. The prices for the cotton crop
grown this summer season, which will impact our operating
results in 2009, have risen to the mid 70 cents per pound range.
In addition, we continue to experience cost inflation with
regards to other raw materials used in our products, such as
dyes and chemicals, and increases in other costs, such as fuel,
energy and utility costs.
Our ability to sell our products at competitive prices is
subject to certain economic factors, some of which are beyond
our control. Inflation could have a material adverse effect on
our business and results of operations, especially given the
constraints on our ability to pass on incremental costs due to
price increases or other factors. A sustained trend of
significantly increased inflationary pressure could have a
material adverse effect on our business and results of
operations. Inflation can have a long-term impact on us because
increasing costs of materials and labor may impact our ability
to maintain satisfactory margins. In this regard, a significant
portion of our products are manufactured in other countries and
a further decline in the value of the U.S. dollar may
result in higher manufacturing costs. Similarly the cost of the
materials that are used in our manufacturing process, such as
cotton, are increasing as a result of inflation and other
factors. In addition, inflation often is accompanied by higher
interest rates, which could have a negative impact on spending,
in which case our margins could decrease. Moreover, increases in
inflation may not be matched by rises in income, which also
could have a negative impact on spending. If we incur increased
costs that are unable to recoup, or if consumer spending
decreases generally, our business, results of operations,
financial condition and cash flows may be adversely affected.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by our customers. Discretionary spending
is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt
levels, the availability of consumer credit, currency exchange
rates, taxation, electricity power rates, gasoline prices,
unemployment trends and other matters that influence consumer
confidence and spending. Many of these factors are outside of
our control. Our customers purchases of discretionary
items, including our products, could decline during periods when
disposable income is lower, when prices increase in response to
rising costs, or in periods of actual or perceived unfavorable
economic conditions. For example, we are now starting to
experience increased inflationary pressure on our product costs.
The increase in our product costs may not be offset by
comparable rises in the income of consumers of our products.
These consumers may choose to purchase fewer of our products or
lower-priced products of our competitors in response to higher
prices for our products. If this occurs, or if unfavorable
economic conditions continue to challenge the consumer
environment, our business, results of operations, financial
condition and cash flows could be adversely affected.
42
Pension
Plans
Our U.S. qualified pension plans are currently
approximately 92% funded which should result in minimal pension
funding requirements in the future. Due to the current funded
status of the plans, we are not required to make any mandatory
contributions to our pension plans in 2008.
Consolidated
Cash Flows
The information presented below regarding the sources and uses
of our cash flows for the six months ended June 28, 2008
and June 30, 2007 was derived from our consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 28,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Operating activities
|
|
$
|
(49,962
|
)
|
|
$
|
101,558
|
|
Investing activities
|
|
|
(74,020
|
)
|
|
|
(11,485
|
)
|
Financing activities
|
|
|
45,533
|
|
|
|
(70,704
|
)
|
Effect of changes in foreign currency exchange rates on cash
|
|
|
1,131
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(77,318
|
)
|
|
$
|
20,420
|
|
Cash and cash equivalents at beginning of year
|
|
|
174,236
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
96,918
|
|
|
$
|
176,393
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities was $50 million
in the six months of 2008 compared to cash provided by operating
activities of $102 million in 2007. The net change in cash
from operating activities of $152 million for the six
months of 2008 compared to 2007 is attributable to the higher
uses of our working capital which was primarily driven by
changes in inventory and accrued liabilities offset by accounts
receivable and accounts payable. Inventory grew
$221 million from December 2007 primarily due to increases
in levels to service our business over the next eighteen months
as we execute our consolidation and globalization strategy and
to build for back-to-school programs, as well as a shift in
timing by our largest retail customers of back-to-school
programs from June to July 2008, all of which had a combined
impact of approximately $159 million. In addition, cost
increases for inputs such as cotton, oil, freight and currency
were approximately $47 million. We continually monitor our
inventory levels to best balance current supply and demand with
potential future demand that typically surges when consumers no
longer postpone purchases in our product categories.
Investing
Activities
Net cash used in investing activities was $74 million in
the six months of 2008 compared to $12 million in 2007. The
higher net cash used in investing activities of $62 million
for the six months of 2008 compared to 2007 was primarily the
result of higher capital expenditures and an acquisition of a
sewing operation in Thailand. During the six month period in
2008 capital expenditures were $74 million as we continue
to build out our textile and sewing network in Central America
and Asia and invest in our technology strategic initiatives.
Also, we received cash proceeds from sales of assets of
$10 million, primarily from dispositions of plant and
equipment associated with our restructuring initiatives.
Financing
Activities
Net cash provided by financing activities was $46 million
in the six months of 2008 compared to cash used in financing
activities of $71 million in 2007. The higher net cash
provided by financing activities of $117 million for the
six months of 2008 compared to 2007 was primarily the result of
higher net borrowings on notes payable of $39 million, the
prepayment of $50 million of principal under our senior
secured credit facility in 2007, the receipt from Sara Lee of
$18 million in cash and lower stock repurchases of
$5 million.
43
Cash
and Cash Equivalents
As of June 28, 2008 and December 29, 2007, cash and
cash equivalents were $97 million and $174 million,
respectively. The lower cash and cash equivalents as of
June 28, 2008 was primarily the result of net capital
expenditures of $64 million, $11 million of stock
repurchases, the acquisition of a sewing operation in Thailand
for $10 million and $49 million related to other uses
of working capital partially offset by $39 million of net
borrowings on notes payable and the receipt from Sara Lee of
$18 million in cash.
Critical
Accounting Policies and Estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating
results and financial position in conformity with accounting
principles generally accepted in the United States. We apply
these accounting policies in a consistent manner. Our
significant accounting policies are discussed in Note 2,
titled Summary of Significant Accounting Policies,
to our Consolidated Financial Statements included in our Annual
Report on
Form 10-K
for the year ended December 29, 2007.
The application of critical accounting policies requires that we
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosures. These estimates and assumptions are based on
historical and other factors believed to be reasonable under the
circumstances. We evaluate these estimates and assumptions on an
ongoing basis and may retain outside consultants to assist in
our evaluation. If actual results ultimately differ from
previous estimates, the revisions are included in results of
operations in the period in which the actual amounts become
known. The critical accounting policies that involve the most
significant management judgments and estimates used in
preparation of our consolidated financial statements, or are the
most sensitive to change from outside factors, are discussed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on
Form 10-K
for the year ended December 29, 2007. There have been no
material changes during the six months ended June 28, 2008
in these policies.
Recently
Issued Accounting Pronouncements
Fair
Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 was effective for
our financial assets and liabilities on December 30, 2007.
The FASB approved a one-year deferral of the adoption of
SFAS 157 as it relates to non-financial assets and
liabilities with the issuance in February 2008 of FASB Staff
Position
FAS 157-2,
Effective Date of FASB Statement No. 157, as a result of
which implementation by us is now required on January 4,
2009. The partial adoption of SFAS 157 in the first quarter
ended March 29, 2008 had no material impact on our
financial condition, results of operations or cash flows, but
resulted in certain additional disclosures reflected in
Note 9 of the Condensed Consolidated Financial Statements.
We are in the process of evaluating the impact of SFAS 157
as it relates to our non-financial assets and liabilities.
SFAS 157 clarifies that 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. We utilize
market data or assumptions that market participants would use in
pricing the asset or liability. SFAS 157 establishes a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. 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.
44
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in SFAS 157.
The three valuation techniques are as follows:
|
|
|
|
|
Market approach prices and other relevant
information generated by market transactions involving identical
or comparable assets or liabilities.
|
|
|
|
Cost approach amount that would be required to
replace the service capacity of an asset or replacement cost.
|
|
|
|
Income approach techniques to convert future amounts
to a single present amount based on market expectations,
including present value techniques, option-pricing and other
models.
|
We primarily apply the market approach for commodity derivatives
and the income approach for interest rate and foreign currency
derivatives for recurring fair value measurements and attempt to
utilize valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs.
As of June 28, 2008, we held certain financial assets and
liabilities that are required to be measured at fair value on a
recurring basis. These consisted of our derivative instruments
related to interest rates, foreign exchange rates and cotton.
The fair values of cotton derivatives are determined based on
quoted prices in public markets and are categorized as
Level 1. The fair values of interest rate and foreign
exchange rate derivatives are determined based on inputs that
are readily available in public markets or can be derived from
information available in publicly quoted markets and are
categorized as Level 2. We do not have any financial assets
or liabilities measured at fair value on a recurring basis
categorized as Level 3, and there were no transfers in or
out of Level 3 during the six months ended June 28,
2008. There were no changes to our valuation technique used to
measure asset and liability fair values on a recurring basis.
As required by SFAS 157, assets and liabilities are
classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. Our
assessment of the significance of a particular input to the fair
value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels. The
determination of fair values incorporates various factors
required under SFAS 157. These factors include not only the
credit standing of the counterparties involved and the impact of
credit enhancements, but also the impact of our nonperformance
risk on our liabilities.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value under generally accepted
accounting principles and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
SFAS 159 became effective for us on December 30, 2007.
As permitted by SFAS 159, we elected not to adopt the fair
value option.
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company would be required to recognize
the assets acquired, liabilities assumed, contractual
contingencies and contingent consideration measured at their
fair value at the acquisition date. It further requires that
research and development assets acquired in a business
combination that have no alternative future use be measured at
their acquisition-date fair value and then immediately charged
to expense, and that acquisition-related costs are to be
recognized separately from the acquisition and expensed as
incurred. Among other changes, this statement would also require
that negative goodwill be recognized in earnings as
a gain attributable to the acquisition, and any deferred tax
benefits resulting from a business combination be recognized in
income from continuing operations in the period of the
combination. We are in the process of
45
analyzing the impact of SFAS 141R, which is effective for
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
that changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated,
that any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. We do not believe
that the adoption of SFAS 160 will have a material impact
on our results of operations or financial position.
Disclosures
About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands
the disclosure requirements of FASB Statement No. 133 about
an entitys derivative instruments and hedging activities
to include more detailed qualitative disclosures and expanded
quantitative disclosures. The provisions of SFAS 161 are
effective for fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008. We are
currently evaluating the impact that SFAS 161 will have on
our results of operations and financial position.
The
Hierarchy of Generally Accepted Accounting
Principles
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
presented in conformity with GAAP. This statement is effective
60 days after the SECs approval of the Public Company
Accounting Oversight Board amendments to AICPA Professional
Standards AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles. The adoption of SFAS 162 will not have a
material impact on our results of operations or financial
position.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We are required under our senior secured credit facility and our
second lien credit facility to hedge a portion of our floating
rate debt to reduce interest rate risk caused by floating rate
debt issuance. At June 28, 2008, we have outstanding
hedging arrangements whereby we capped the interest rate on
$950 million of our floating rate debt at 5.75%. We also
entered into interest rate swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the interest rate on an aggregate
of $600 million of our floating rate debt. Approximately
67% of our total debt outstanding at June 28, 2008 is at a
fixed or capped rate. Due to the recent significant changes in
the credit markets, the fair values of our interest rate hedging
instruments have increased approximately $14.4 million and
decreased $0.5 million during the quarter and six months
ended June 28, 2008, respectively. This activity has been
deferred into Accumulated Other Comprehensive Loss in our
Condensed Consolidated Balance Sheet until the hedged
transactions impact our earnings. Subsequent to June 28,
2008, we entered into an interest rate swap with a notional
amount of $500 million, as a result of which the interest rate
on our floating rate senior notes has been fixed at 7.64% for a
4-year term.
In connection with this transaction, we terminated an interest
rate cap with a notional amount of $250 million with an interest
rate of 5.75%.
46
Cotton is the primary raw material we use to manufacture many of
our products. While we attempt to protect our business from the
volatility of the market price of cotton through short-term
supply agreements and hedges, our business can be adversely
affected by dramatic movements in cotton prices. The price of
cotton has recently exceeded its historical trading range of 30
to 70 cents per pound. The price of cotton currently in our
inventory has risen to the low 70 cents per pound range which is
the price that will impact our operating results in the third
and fourth quarters of 2008. Additionally, the prices for the
cotton crop grown this summer season, which will impact our
operating results in 2009, have risen to the mid 70 cents per
pound range. The ultimate effect of these pricing levels on our
earnings cannot be quantified, as the effect of movements in
cotton prices on industry selling prices are uncertain, but any
dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations, financial
condition and cash flows.
There have been no other significant changes in our market risk
exposures from those described in Item 7A of our Annual
Report on
Form 10-K
for the year ended December 29, 2007.
|
|
Item 4.
|
Controls
and Procedures
|
As required by Exchange Act
Rule 13a-15(b),
our management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of our disclosure controls and procedures, as defined in
Exchange Act
Rule 13a-15(e),
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective.
During the second quarter ended June 28, 2008, in
connection with the evaluation required by Exchange Act
Rule 13a-15(d),
our management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the following changes occurred
in our internal control over financial reporting that materially
affected, or are reasonably likely to affect, our internal
control over financial reporting. We migrated certain of our
businesses to the order-to-cash module of SAP, an enterprise
resource planning system. As this systems full
capabilities are utilized, we expect it to further enhance our
internal control environment by automating manual processes,
improving management visibility and standardizing processes.
This conversion to a new system required changes in internal
controls. Testing of the controls related to the new module is
ongoing and is included in the scope of managements
assessment of its internal controls over financial reporting for
2008.
|
|
Item 4T.
|
Controls
and Procedures
|
Not applicable.
PART II
|
|
Item 1.
|
Legal
Proceedings
|
Although we are subject to various claims and legal actions that
occur from time to time in the ordinary course of our business,
we are not party to any pending legal proceedings that we
believe could have a material adverse effect on our business,
results of operations or financial condition.
There are no material changes from the risk factors disclosed in
our Annual Report on
Form 10-K
for the year ended December 29, 2007.
47
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table provides information about purchases by
Hanesbrands during the second quarter ended June 28, 2008
of equity securities that are registered by us pursuant to
Section 12 of the Exchange Act:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value) of
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares that May Yet
|
|
|
|
Total Number of
|
|
|
|
|
|
as Part of Publicly
|
|
|
Be Purchased Under
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Programs(1)
|
|
|
Programs(1)
|
|
|
03/30/08 05/03/08
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
8,052,026
|
|
05/04/08 05/31/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,052,026
|
|
06/01/08 06/28/08
|
|
|
90,500
|
|
|
|
28.51
|
|
|
|
90,500
|
|
|
|
7,961,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90,500
|
|
|
$
|
28.51
|
|
|
|
90,500
|
|
|
|
7,961,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These repurchases were made pursuant to the repurchase program
that was approved by our board of directors in January 2007 and
announced in February 2007, which authorizes us to purchase up
to 10 million shares of our common stock from time to time. |
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Our 2008 Annual Meeting of Stockholders (the Annual
Meeting) was held on April 22, 2008 in New York, New
York. A total of 78,798,990 shares of our common stock
(83.79% of all shares entitled to vote at the Annual Meeting)
were represented at the Annual Meeting, in person or by proxy.
Our stockholders were asked to elect nine directors, and all
nominees were elected, as indicated by the following voting
tabulation:
|
|
|
|
|
|
|
|
|
Name of Nominee
|
|
For
|
|
|
Withheld
|
|
|
Lee A. Chaden
|
|
|
78,002,100
|
|
|
|
796,890
|
|
Charles W. Coker
|
|
|
78,176,467
|
|
|
|
622,523
|
|
Bobby J. Griffin
|
|
|
78,530,237
|
|
|
|
268,753
|
|
James C. Johnson
|
|
|
77.956,187
|
|
|
|
842,803
|
|
Jessica T. Mathews
|
|
|
78,323,600
|
|
|
|
566,390
|
|
J. Patrick Mulcahy
|
|
|
78,523,014
|
|
|
|
275,976
|
|
Richard A. Noll
|
|
|
78,500,570
|
|
|
|
298,420
|
|
Alice M. Peterson
|
|
|
78,248,679
|
|
|
|
550,311
|
|
Andrew J. Schindler
|
|
|
77,929,179
|
|
|
|
869,811
|
|
Our stockholders were asked to approve the Hanesbrands Inc.
Omnibus Incentive Plan of 2006. Of the total votes cast,
56,580,776 votes were cast for the proposal and 6,094,814 votes
were cast against the proposal, and there were 549,350
abstentions and 15,574,050 broker non-votes.
48
Our stockholders were also asked to approve the Hanesbrands Inc.
Performance-Based Annual Incentive Plan. Of the total votes
cast, 59,785,939 votes were cast for the proposal and 2,890,743
votes were cast against the proposal, and there were 537,558
abstentions and 15,584,750 broker non-votes.
Our stockholders were also asked to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for our 2008 fiscal year. Of the total votes
cast, 78,542,490 votes were cast for the proposal, 125,460 votes
were cast against the proposal, and there were 131,040
abstentions.
|
|
Item 5.
|
Other
Information
|
None.
The exhibits listed in the accompanying Exhibit Index on
page E-1
are filed or furnished as part of this Quarterly Report on
Form 10-Q.
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HANESBRANDS INC.
E. Lee Wyatt Jr.
Executive Vice President,
Chief Financial Officer
Date: August 1, 2008
50
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Amendment and Restatement of Hanesbrands Inc.
(incorporated by reference from Exhibit 3.1 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.2
|
|
Articles Supplementary (Junior Participating Preferred
Stock, Series A) (incorporated by reference from
Exhibit 3.2 to the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.3
|
|
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by
reference from Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 27, 2007).
|
|
3
|
.4
|
|
Certificate of Formation of BA International, L.L.C.
(incorporated by reference from Exhibit 3.4 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.5
|
|
Limited Liability Company Agreement of BA International, L.L.C.
(incorporated by reference from Exhibit 3.5 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.6
|
|
Certificate of Incorporation of Caribesock, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.6 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.7
|
|
Bylaws of Caribesock, Inc. (incorporated by reference from
Exhibit 3.7 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.8
|
|
Certificate of Incorporation of Caribetex, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.8 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.9
|
|
Bylaws of Caribetex, Inc. (incorporated by reference from
Exhibit 3.9 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.10
|
|
Certificate of Formation of CASA International, LLC
(incorporated by reference from Exhibit 3.10 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.11
|
|
Limited Liability Company Agreement of CASA International, LLC
(incorporated by reference from Exhibit 3.11 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.12
|
|
Certificate of Incorporation of Ceibena Del, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.12 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.13
|
|
Bylaws of Ceibena Del, Inc. (incorporated by reference from
Exhibit 3.13 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.14
|
|
Certificate of Formation of Hanes Menswear, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act and Certificate of Change
of Location of Registered Office and Registered Agent
(incorporated by reference from Exhibit 3.14 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
E-1
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.15
|
|
Limited Liability Company Agreement of Hanes Menswear, LLC
(incorporated by reference from Exhibit 3.15 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.16
|
|
Certificate of Incorporation of HPR, Inc., together with
Certificate of Merger of Hanes Puerto Rico, Inc. into HPR, Inc.
(now known as Hanes Puerto Rico, Inc.) (incorporated by
reference from Exhibit 3.16 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.17
|
|
Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference
from Exhibit 3.17 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.18
|
|
Articles of Organization of Sara Lee Direct, LLC, together with
Articles of Amendment reflecting the change of the entitys
name to Hanesbrands Direct, LLC (incorporated by reference from
Exhibit 3.18 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.19
|
|
Limited Liability Company Agreement of Sara Lee Direct, LLC (now
known as Hanesbrands Direct, LLC) (incorporated by reference
from Exhibit 3.19 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.20
|
|
Certificate of Incorporation of Sara Lee Distribution, Inc.,
together with Certificate of Amendment of Certificate of
Incorporation of Sara Lee Distribution, Inc. reflecting the
change of the entitys name to Hanesbrands Distribution,
Inc. (incorporated by reference from Exhibit 3.20 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.21
|
|
Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands
Distribution, Inc.)(incorporated by reference from
Exhibit 3.21 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.22
|
|
Certificate of Formation of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.22 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.23
|
|
Operating Agreement of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.23 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.24
|
|
Certificate of Incorporation of HBI Branded Apparel Limited,
Inc. (incorporated by reference from Exhibit 3.24 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.25
|
|
Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by
reference from Exhibit 3.25 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.26
|
|
Certificate of Formation of HbI International, LLC (incorporated
by reference from Exhibit 3.26 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.27
|
|
Limited Liability Company Agreement of HbI International, LLC
(incorporated by reference from Exhibit 3.27 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.28
|
|
Certificate of Formation of SL Sourcing, LLC, together with
Certificate of Amendment to the Certificate of Formation of SL
Sourcing, LLC reflecting the change of the entitys name to
HBI Sourcing, LLC (incorporated by reference from
Exhibit 3.28 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
E-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.29
|
|
Limited Liability Company Agreement of SL Sourcing, LLC (now
known as HBI Sourcing, LLC) (incorporated by reference from
Exhibit 3.29 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.30
|
|
Certificate of Formation of Inner Self LLC (incorporated by
reference from Exhibit 3.30 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.31
|
|
Limited Liability Company Agreement of Inner Self LLC
(incorporated by reference from Exhibit 3.31 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.32
|
|
Certificate of Formation of Jasper-Costa Rica, L.L.C.
(incorporated by reference from Exhibit 3.32 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.33
|
|
Amended and Restated Limited Liability Company Agreement of
Jasper-Costa Rica, L.L.C.(incorporated by reference from
Exhibit 3.33 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.34
|
|
Certificate of Formation of Playtex Dorado, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act (incorporated by reference
from Exhi |