FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 27, 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
(State of
incorporation)
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20-3552316
(I.R.S. employer
identification no.)
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1000 East Hanes Mill Road
Winston-Salem, North Carolina
(Address of principal
executive office)
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27105
(Zip
code)
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(336) 519-4400
(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 October 29, 2008, there were 93,480,321 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.
1
PART I
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Item 1.
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Financial
Statements
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HANESBRANDS
Condensed
Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
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Quarter Ended
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Nine Months Ended
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September 27,
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September 29,
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September 27,
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September 29,
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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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1,153,635
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$
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1,153,606
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$
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3,213,653
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$
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3,315,407
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Cost of sales
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811,851
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792,587
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2,145,949
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2,234,352
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Gross profit
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341,784
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361,019
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1,067,704
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1,081,055
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Selling, general and administrative expenses
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255,228
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253,233
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776,267
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773,817
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Restructuring
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28,355
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2,062
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32,355
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44,533
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Operating profit
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58,201
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105,724
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259,082
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262,705
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Other expenses
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889
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1,440
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Interest expense, net
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37,253
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49,270
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115,282
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152,217
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Income before income tax expense
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20,948
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55,565
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143,800
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109,048
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Income tax expense
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5,028
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16,669
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34,512
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32,714
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Net income
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$
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15,920
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$
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38,896
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$
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109,288
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$
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76,334
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Earnings per share:
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Basic
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$
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0.17
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$
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0.41
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$
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1.16
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$
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0.79
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Diluted
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$
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0.17
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$
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0.40
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$
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1.14
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$
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0.79
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Weighted average shares outstanding:
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Basic
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93,992
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95,664
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94,283
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96,100
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Diluted
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95,018
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96,615
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95,483
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96,682
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
HANESBRANDS
Condensed
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
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September 27,
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December 29,
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2008
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2007
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Assets
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Cash and cash equivalents
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$
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86,212
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$
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174,236
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Trade accounts receivable, less allowances of $23,951 at
September 27, 2008 and $31,642 at December 29, 2007
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562,937
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575,069
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Inventories
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1,359,008
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1,117,052
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Deferred tax assets and other current assets
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244,224
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227,977
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Total current assets
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2,252,381
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2,094,334
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Property, net
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562,963
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534,286
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Trademarks and other identifiable intangibles, net
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155,879
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151,266
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Goodwill
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318,112
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310,425
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Deferred tax assets and other noncurrent assets
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338,303
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349,172
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Total assets
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$
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3,627,638
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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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322,824
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$
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289,166
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Accrued liabilities
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377,232
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380,239
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Notes payable
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71,528
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19,577
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Total current liabilities
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771,584
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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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159,870
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146,347
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Total liabilities
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3,246,704
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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; $.01 par
value) Issued and outstanding 93,355,527 at
September 27, 2008 and 95,232,478 at December 29, 2007
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934
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954
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Additional paid-in capital
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222,338
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199,019
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Retained earnings
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199,641
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117,849
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Accumulated other comprehensive loss
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(41,979
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)
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(28,918
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Total stockholders equity
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380,934
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288,904
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Total liabilities and stockholders equity
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$
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3,627,638
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$
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3,439,483
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See accompanying notes to Condensed Consolidated Financial
Statements.
3
HANESBRANDS
(in thousands)
(unaudited)
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Nine Months Ended
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September 27,
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September 29,
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2008
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2007
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Operating activities:
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Net income
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$
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109,288
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$
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76,334
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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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68,930
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95,405
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Amortization of intangibles
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8,683
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4,516
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Restructuring
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(5,591
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)
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(3,446
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Losses on early extinguishment of debt
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1,440
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Amortization of debt issuance costs
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4,523
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4,937
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Stock compensation expense
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23,052
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27,141
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Deferred taxes and other
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(6,329
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)
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(12,351
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)
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Changes in assets and liabilities, net of acquisition:
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Accounts receivable
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11,565
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(109,494
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Inventories
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(242,711
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38,121
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Other assets
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(17,068
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)
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23,539
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Accounts payable
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32,808
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67,954
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Accrued liabilities
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(5,771
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)
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21,747
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Net cash (used in) provided by operating activities
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(18,621
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)
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235,843
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Investing activities:
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Purchases of property, plant and equipment
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(123,319
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)
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(45,387
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Acquisition of business
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(10,011
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)
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(17,380
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)
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Proceeds from sales of assets
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24,329
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13,022
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Other
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(643
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)
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(575
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)
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Net cash used in investing activities
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(109,644
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)
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(50,320
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)
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Financing activities:
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Principal payments on capital lease obligations
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(707
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)
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(914
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)
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Borrowings on notes payable
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316,958
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29,969
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Repayments on notes payable
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(265,195
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)
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(26,845
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)
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Cost of debt issuance
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(69
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)
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(2,533
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)
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Borrowings on revolving loan facility
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524,000
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Repayments on revolving loan facility
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(524,000
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)
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Repayments of debt under credit facilities
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(128,125
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)
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Decrease in bank overdraft
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(834
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)
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Proceeds from stock options exercised
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2,200
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5,464
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Stock repurchases
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(30,275
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)
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(44,473
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)
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Borrowings on accounts receivable securitization
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20,944
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Repayments on accounts receivable securitization
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(20,944
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)
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|
|
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Transaction with Sara Lee Corporation
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18,000
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|
|
|
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Other
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(136
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)
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|
552
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|
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Net cash provided by (used in) financing activities
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40,776
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(167,739
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)
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Effect of changes in foreign exchange rates on cash
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(535
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)
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2,620
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(Decrease) increase in cash and cash equivalents
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(88,024
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)
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20,404
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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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86,212
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$
|
176,377
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See accompanying notes to Condensed Consolidated Financial
Statements.
4
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(1)
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Basis of
Presentation
|
These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the
SEC) and, in accordance with those rules and
regulations, do not include all information and footnote
disclosures normally included in annual financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP).
Management believes that the disclosures made are adequate for a
fair statement of the results of operations, financial 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
approximately $3,600 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.
|
|
(2)
|
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
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.
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
5
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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. SFAS 141R 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 beginning after
November 15, 2008. The adoption of SFAS 161 will not
have a material impact on the Companys results of
operations.
6
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Basic earnings per share (EPS) was computed by
dividing net income by the number of weighted average shares of
common stock outstanding during the third quarters and nine
months ended September 27, 2008 and September 29,
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 third
quarters and nine months ended September 27, 2008 and
September 29, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Basic weighted average shares
|
|
|
93,992
|
|
|
|
95,664
|
|
|
|
94,283
|
|
|
|
96,100
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
151
|
|
|
|
346
|
|
|
|
383
|
|
|
|
221
|
|
Restricted stock units
|
|
|
871
|
|
|
|
603
|
|
|
|
812
|
|
|
|
361
|
|
Employee stock purchase plan
|
|
|
4
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
95,018
|
|
|
|
96,615
|
|
|
|
95,483
|
|
|
|
96,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 2,454 and 1,458 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the third
quarter and nine months ended September 27, 2008,
respectively.
Options to purchase 998 and 1,008 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the third
quarter and nine months ended September 29, 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
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 with a grant date fair value of $25.10 which
was the closing price of Hanesbrands stock on the date of
grant. During the third quarter ended September 27, 2008,
the Company
7
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
granted 10 RSUs pursuant to the Omnibus Plan with a grant date
fair value of $21.44 which was the closing price of
Hanesbrands stock on the date of grant. 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. Share-based
compensation expense for these awards is recognized over the
period during which the grantees provide the requisite service
to the Company.
During the third quarter and nine months ended
September 27, 2008, 35 and 93 shares, respectively,
were purchased under the Hanesbrands Inc. Employee Stock
Purchase Plan of 2006 (the ESPP) by eligible
employees. During the third quarter and nine months ended
September 29, 2007, 33 and 46 shares, respectively,
were purchased under the ESPP by eligible employees. The Company
had 2,271 shares of common stock available for issuance
under the ESPP as of September 27, 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
September 27, 2008, the Company has recognized
approximately $173,000 in restructuring and related charges
related to these efforts since September 5, 2006. Of these
charges, approximately $70,000 relates to accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed, approximately $68,000 relates to
employee termination and other benefits, approximately $21,000
relates to lease termination and other costs and approximately
$14,000 relates to write-offs of stranded raw materials and work
in process inventory determined not to be salvageable or
cost-effective to relocate. Accelerated depreciation related to
the Companys manufacturing facilities and distribution
centers that have been or will be closed is reflected in the
Cost of sales and Selling, general and
administrative expenses lines of the Condensed
Consolidated Statements of Income. The write-offs of stranded
raw materials and work in process inventory are reflected in the
Cost of sales line of the Condensed Consolidated
Statements of Income.
The impact of restructuring efforts on income before income tax
expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 3, 2009 restructuring actions
|
|
$
|
46,633
|
|
|
$
|
|
|
|
$
|
52,069
|
|
|
$
|
|
|
Year ended December 29, 2007 restructuring actions
|
|
|
691
|
|
|
|
15,786
|
|
|
|
7,719
|
|
|
|
64,838
|
|
Six months ended December 30, 2006 restructuring actions
|
|
|
(3,430
|
)
|
|
|
(922
|
)
|
|
|
(3,417
|
)
|
|
|
11,677
|
|
Year ended July 1, 2006 and prior restructuring actions
|
|
|
12
|
|
|
|
(51
|
)
|
|
|
(53
|
)
|
|
|
(603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
43,906
|
|
|
$
|
14,813
|
|
|
$
|
56,318
|
|
|
$
|
75,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The following table illustrates where the costs associated with
these actions are recognized in the Condensed Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
18,038
|
|
|
$
|
11,802
|
|
|
$
|
25,229
|
|
|
$
|
29,482
|
|
Selling, general and administrative expenses
|
|
|
(2,487
|
)
|
|
|
949
|
|
|
|
(1,266
|
)
|
|
|
1,897
|
|
Restructuring
|
|
|
28,355
|
|
|
|
2,062
|
|
|
|
32,355
|
|
|
|
44,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
43,906
|
|
|
$
|
14,813
|
|
|
$
|
56,318
|
|
|
$
|
75,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Accelerated depreciation
|
|
$
|
1,524
|
|
|
$
|
12,565
|
|
|
$
|
9,936
|
|
|
$
|
31,193
|
|
Employee termination and other benefits
|
|
|
21,283
|
|
|
|
1,533
|
|
|
|
25,203
|
|
|
|
33,636
|
|
Inventory write-offs
|
|
|
14,027
|
|
|
|
186
|
|
|
|
14,027
|
|
|
|
186
|
|
Noncancelable lease and other contractual obligations
|
|
|
7,072
|
|
|
|
529
|
|
|
|
7,152
|
|
|
|
10,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,906
|
|
|
$
|
14,813
|
|
|
$
|
56,318
|
|
|
$
|
75,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
|
2008
|
|
|
Beginning accrual
|
|
$
|
23,350
|
|
Restructuring expenses
|
|
|
36,636
|
|
Cash payments
|
|
|
(24,625
|
)
|
Adjustments to restructuring expenses
|
|
|
(5,662
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
29,699
|
|
|
|
|
|
|
The accrual balance as of September 27, 2008 is comprised
of $29,139 in current accrued liabilities, primarily related to
employee termination and other benefits, and $560 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 lease termination
costs 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 nine months ended September 27, 2008, the
Company approved actions to close 11 manufacturing facilities
and two distribution centers and eliminate approximately 9,400
positions in El Salvador, Mexico, Costa Rica, Honduras and the
United States. The production capacity represented by the
manufacturing facilities will be relocated to lower cost
locations in Asia, the Caribbean Basin and Central America. The
distribution capacity will be relocated to the Companys
West Coast distribution facility in California in order to
expand capacity for goods
9
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
the Company sources from Asia. The Company recorded charges of
$46,633 and $52,069 in the third quarter and nine months ended
September 27, 2008, respectively. The Company recognized
$21,741 and $27,099 in the third quarter and nine months ended
September 27, 2008, respectively, which represents employee
termination and other benefits recognized in accordance with
benefit plans previously communicated to the affected employee
group, $1,734 and $1,812 in the third quarter and nine months
ended September 27, 2008, respectively, for accelerated
depreciation of buildings and equipment, $9,131 in each of the
third quarter and nine months ended September 27, 2008 for
noncancelable lease and other contractual obligations related to
the closure of certain manufacturing facilities and $14,027 in
each of the third quarter and nine months ended
September 27, 2008 for write-offs of stranded raw materials
and work in process inventory determined not to be salvageable
or cost-effective to relocate related to the closure of certain
manufacturing facilities. These charges are reflected in the
Restructuring and Cost of sales lines of
the Condensed Consolidated Statement of Income. All actions are
expected to be completed within a
12-month
period.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
187,726
|
|
|
$
|
176,758
|
|
Work in process
|
|
|
141,536
|
|
|
|
122,724
|
|
Finished goods
|
|
|
1,029,746
|
|
|
|
817,570
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,359,008
|
|
|
$
|
1,117,052
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
|
Allowances
for Trade Accounts Receivable
|
The changes in the Companys allowance for doubtful
accounts and allowance for chargebacks and other deductions for
the third quarter and nine months ended September 27, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to expenses
|
|
|
7,071
|
|
|
|
69
|
|
|
|
7,140
|
|
Deductions and write-offs
|
|
|
(468
|
)
|
|
|
(2,048
|
)
|
|
|
(2,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 27, 2008:
|
|
$
|
13,285
|
|
|
$
|
10,666
|
|
|
$
|
23,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
10
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The Company had the following long-term debt at
September 27, 2008 and December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
|
|
September 27,
|
|
|
September 27,
|
|
|
December 29,
|
|
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Maturity Date
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term A
|
|
|
4.15
|
%
|
|
$
|
139,000
|
|
|
$
|
139,000
|
|
|
September 2012
|
Term B
|
|
|
4.55
|
%
|
|
|
976,250
|
|
|
|
976,250
|
|
|
September 2013
|
Revolving Loan Facility
|
|
|
5.50
|
%
|
|
|
|
|
|
|
|
|
|
September 2011
|
Second Lien Credit Facility
|
|
|
6.55
|
%
|
|
|
450,000
|
|
|
|
450,000
|
|
|
March 2014
|
Floating Rate Senior Notes
|
|
|
6.51
|
%
|
|
|
500,000
|
|
|
|
500,000
|
|
|
December 2014
|
Accounts Receivable Securitization
|
|
|
3.24
|
%
|
|
|
250,000
|
|
|
|
250,000
|
|
|
November 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,315,250
|
|
|
$
|
2,315,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 27, 2008, the Company had $0 outstanding
under the Senior Secured Credit Facilitys $500,000
Revolving Loan Facility and $57,139 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 September 27, 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
$481,720 and $495,245 at September 27, 2008 and
December 29, 2007, respectively, and is reported on the
Companys Condensed Consolidated Balance Sheets in trade
accounts receivables, less allowances.
During the third quarter and nine months ended
September 29, 2007, the Company recognized $889 and $1,440,
respectively, of losses on early extinguishment of debt related
to unamortized debt issuance costs on the Senior Secured Credit
Facility as a result of prepayments of $50,000 of principal in
June 2007 and $75,000 of principal made in September 2007. These
losses are reflected in the Other expenses line of
the Condensed Consolidated Statements of Income.
On August 21, 2008, the Company entered into a Second
Amendment (the Second Amendment) to the Senior
Secured Credit Facility dated as of September 5, 2006 and a
First Amendment (the First Amendment) to the Second
Lien Credit Facility dated as of September 5, 2006.
Pursuant to the Second Amendment and the First Amendment, the
amount of unsecured indebtedness which the Company and its
subsidiaries that are obligors pursuant to the Senior Secured
Credit Facility and the Second Lien Credit Facility,
respectively, may incur under senior notes was increased from
$500,000 to $1,000,000. The provisions of the Senior Secured
Credit Facility and the Second Lien Credit Facility that require
the proceeds of the issuance of any such notes be applied to
repay amounts due with respect to these Credit Facilities, and
specify how any such proceeds will be applied, remain unchanged.
|
|
(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 having partially adopted SFAS 157 has had no
material impact on its financial condition, results of
operations or cash flows, the Company is now required to provide
additional disclosures
11
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 September 27, 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 third quarter and nine months ended
September 27, 2008. There were no changes during the third
quarter and nine months ended September 27, 2008 to the
Companys valuation techniques used to measure asset and
liability fair values on a recurring basis.
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 September 27, 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 September 27,
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
|
|
$
|
|
|
|
$
|
(23,309
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(23,309
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
15,920
|
|
|
$
|
38,896
|
|
|
$
|
109,288
|
|
|
$
|
76,334
|
|
Translation adjustments
|
|
|
(8,196
|
)
|
|
|
9,389
|
|
|
|
(5,506
|
)
|
|
|
17,023
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
benefit of $(1,297), $(3,558), $(1,443), and $(824), respectively
|
|
|
(2,038
|
)
|
|
|
(5,589
|
)
|
|
|
(2,267
|
)
|
|
|
(1,295
|
)
|
Recognition of loss from pension plan curtailment, net of tax
benefit of $(547)
|
|
|
859
|
|
|
|
|
|
|
|
859
|
|
|
|
|
|
Postretirement income released through other comprehensive
income, net of tax of $842
|
|
|
|
|
|
|
(1,323
|
)
|
|
|
|
|
|
|
(1,323
|
)
|
Amounts amortized into net periodic income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (benefit), net of tax (benefit) of $(4),
$778, $(12) and $2,336, respectively
|
|
|
6
|
|
|
|
(1,223
|
)
|
|
|
18
|
|
|
|
(3,669
|
)
|
Actuarial loss (gain), net of tax (benefit) of $(15), $754,
$(45) and $24, respectively
|
|
|
24
|
|
|
|
(1,184
|
)
|
|
|
72
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
6,575
|
|
|
$
|
38,966
|
|
|
$
|
102,464
|
|
|
$
|
87,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the third quarters and nine months ended September 27,
2008 and September 29, 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 third quarter and nine months ended
September 27, 2008 and 30% for the third quarter and nine
months ended September 29, 2007 and the U.S. statutory
rate of 35% is primarily attributable to unremitted earnings of
foreign subsidiaries taxed
13
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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 filed its final consolidated
tax return for the period that includes September 5, 2006,
Sara Lee was required to deliver to the Company a computation of
the amount of deferred taxes attributable to the Companys
United States and Canadian operations that would be included on
the Companys 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 the 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 and
inventory write-offs. The accounting policies of the segments
are consistent with those described in Note 2 to the
Companys consolidated financial statements included in its
Annual Report on
Form 10-K
for the year ended December 29, 2007.
14
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
650,372
|
|
|
$
|
635,167
|
|
|
$
|
1,830,437
|
|
|
$
|
1,917,118
|
|
Outerwear
|
|
|
348,467
|
|
|
|
349,352
|
|
|
|
880,809
|
|
|
|
896,583
|
|
Hosiery
|
|
|
50,197
|
|
|
|
64,120
|
|
|
|
166,672
|
|
|
|
189,215
|
|
International
|
|
|
116,581
|
|
|
|
103,341
|
|
|
|
352,120
|
|
|
|
303,119
|
|
Other
|
|
|
4,769
|
|
|
|
13,587
|
|
|
|
20,064
|
|
|
|
46,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales(1)
|
|
|
1,170,386
|
|
|
|
1,165,567
|
|
|
|
3,250,102
|
|
|
|
3,352,664
|
|
Intersegment(2)
|
|
|
(16,751
|
)
|
|
|
(11,961
|
)
|
|
|
(36,449
|
)
|
|
|
(37,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,153,635
|
|
|
$
|
1,153,606
|
|
|
$
|
3,213,653
|
|
|
$
|
3,315,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
71,097
|
|
|
$
|
63,173
|
|
|
$
|
204,714
|
|
|
$
|
243,821
|
|
Outerwear
|
|
|
19,243
|
|
|
|
36,051
|
|
|
|
55,587
|
|
|
|
54,453
|
|
Hosiery
|
|
|
13,081
|
|
|
|
18,670
|
|
|
|
52,944
|
|
|
|
52,849
|
|
International
|
|
|
14,010
|
|
|
|
9,616
|
|
|
|
47,662
|
|
|
|
34,321
|
|
Other
|
|
|
314
|
|
|
|
(306
|
)
|
|
|
304
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
117,745
|
|
|
|
127,204
|
|
|
|
361,211
|
|
|
|
385,427
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(12,593
|
)
|
|
|
(5,225
|
)
|
|
|
(37,128
|
)
|
|
|
(42,294
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(3,045
|
)
|
|
|
(1,442
|
)
|
|
|
(8,683
|
)
|
|
|
(4,516
|
)
|
Restructuring
|
|
|
(28,355
|
)
|
|
|
(2,062
|
)
|
|
|
(32,355
|
)
|
|
|
(44,533
|
)
|
Inventory write-offs included in cost of sales
|
|
|
(14,027
|
)
|
|
|
(186
|
)
|
|
|
(14,027
|
)
|
|
|
(186
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(4,011
|
)
|
|
|
(11,616
|
)
|
|
|
(11,202
|
)
|
|
|
(29,296
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
2,487
|
|
|
|
(949
|
)
|
|
|
1,266
|
|
|
|
(1,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
58,201
|
|
|
|
105,724
|
|
|
|
259,082
|
|
|
|
262,705
|
|
Other expenses
|
|
|
|
|
|
|
(889
|
)
|
|
|
|
|
|
|
(1,440
|
)
|
Interest expense, net
|
|
|
(37,253
|
)
|
|
|
(49,270
|
)
|
|
|
(115,282
|
)
|
|
|
(152,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
20,948
|
|
|
$
|
55,565
|
|
|
$
|
143,800
|
|
|
$
|
109,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,341,991
|
|
|
$
|
1,247,441
|
|
Outerwear
|
|
|
909,161
|
|
|
|
754,178
|
|
Hosiery
|
|
|
99,191
|
|
|
|
97,804
|
|
International
|
|
|
231,379
|
|
|
|
232,142
|
|
Other
|
|
|
11,733
|
|
|
|
16,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,593,455
|
|
|
|
2,348,372
|
|
Corporate(3)
|
|
|
1,034,183
|
|
|
|
1,091,111
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,627,638
|
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
10,610
|
|
|
$
|
9,970
|
|
|
$
|
32,642
|
|
|
$
|
32,611
|
|
Outerwear
|
|
|
5,652
|
|
|
|
6,152
|
|
|
|
18,461
|
|
|
|
18,693
|
|
Hosiery
|
|
|
1,441
|
|
|
|
2,444
|
|
|
|
4,626
|
|
|
|
7,823
|
|
International
|
|
|
583
|
|
|
|
1,129
|
|
|
|
1,755
|
|
|
|
3,173
|
|
Other
|
|
|
198
|
|
|
|
668
|
|
|
|
793
|
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,484
|
|
|
|
20,363
|
|
|
|
58,277
|
|
|
|
63,864
|
|
Corporate
|
|
|
4,169
|
|
|
|
13,295
|
|
|
|
19,336
|
|
|
|
36,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
22,653
|
|
|
$
|
33,658
|
|
|
$
|
77,613
|
|
|
$
|
99,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
25,377
|
|
|
$
|
10,297
|
|
|
$
|
51,880
|
|
|
$
|
19,824
|
|
Outerwear
|
|
|
21,217
|
|
|
|
6,603
|
|
|
|
53,357
|
|
|
|
10,263
|
|
Hosiery
|
|
|
9
|
|
|
|
188
|
|
|
|
327
|
|
|
|
1,286
|
|
International
|
|
|
724
|
|
|
|
456
|
|
|
|
1,866
|
|
|
|
1,335
|
|
Other
|
|
|
16
|
|
|
|
578
|
|
|
|
30
|
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,343
|
|
|
|
18,122
|
|
|
|
107,460
|
|
|
|
33,345
|
|
Corporate
|
|
|
2,426
|
|
|
|
8,977
|
|
|
|
15,859
|
|
|
|
12,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
49,769
|
|
|
$
|
27,099
|
|
|
$
|
123,319
|
|
|
$
|
45,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Innerwear
|
|
$
|
4,270
|
|
|
$
|
1,670
|
|
|
$
|
6,468
|
|
|
$
|
5,057
|
|
Outerwear
|
|
|
8,538
|
|
|
|
5,475
|
|
|
|
19,303
|
|
|
|
17,254
|
|
Hosiery
|
|
|
3,603
|
|
|
|
4,124
|
|
|
|
9,293
|
|
|
|
12,692
|
|
International
|
|
|
340
|
|
|
|
692
|
|
|
|
1,385
|
|
|
|
2,254
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,751
|
|
|
$
|
11,961
|
|
|
$
|
36,449
|
|
|
$
|
37,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,253,006
|
|
|
$
|
112,281
|
|
|
$
|
770,153
|
|
|
$
|
(981,805
|
)
|
|
$
|
1,153,635
|
|
Cost of sales
|
|
|
953,856
|
|
|
|
42,439
|
|
|
|
683,669
|
|
|
|
(868,113
|
)
|
|
|
811,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
299,150
|
|
|
|
69,842
|
|
|
|
86,484
|
|
|
|
(113,692
|
)
|
|
|
341,784
|
|
Selling, general and administrative expenses
|
|
|
205,633
|
|
|
|
17,566
|
|
|
|
32,146
|
|
|
|
(117
|
)
|
|
|
255,228
|
|
Restructuring
|
|
|
24,036
|
|
|
|
139
|
|
|
|
4,180
|
|
|
|
|
|
|
|
28,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
69,481
|
|
|
|
52,137
|
|
|
|
50,158
|
|
|
|
(113,575
|
)
|
|
|
58,201
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
(32,753
|
)
|
|
|
45,678
|
|
|
|
|
|
|
|
(12,925
|
)
|
|
|
|
|
Interest expense, net
|
|
|
24,964
|
|
|
|
7,733
|
|
|
|
4,543
|
|
|
|
13
|
|
|
|
37,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
11,764
|
|
|
|
90,082
|
|
|
|
45,615
|
|
|
|
(126,513
|
)
|
|
|
20,948
|
|
Income tax expense (benefit)
|
|
|
(4,156
|
)
|
|
|
3,938
|
|
|
|
5,246
|
|
|
|
|
|
|
|
5,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,920
|
|
|
$
|
86,144
|
|
|
$
|
40,369
|
|
|
$
|
(126,513
|
)
|
|
$
|
15,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,143,537
|
|
|
$
|
229,998
|
|
|
$
|
621,840
|
|
|
$
|
(841,769
|
)
|
|
$
|
1,153,606
|
|
Cost of sales
|
|
|
878,409
|
|
|
|
164,846
|
|
|
|
545,064
|
|
|
|
(795,732
|
)
|
|
|
792,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
265,128
|
|
|
|
65,152
|
|
|
|
76,776
|
|
|
|
(46,037
|
)
|
|
|
361,019
|
|
Selling, general and administrative expenses
|
|
|
199,450
|
|
|
|
(54,260
|
)
|
|
|
(16,162
|
)
|
|
|
124,205
|
|
|
|
253,233
|
|
Restructuring
|
|
|
905
|
|
|
|
67
|
|
|
|
1,090
|
|
|
|
|
|
|
|
2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
64,773
|
|
|
|
119,345
|
|
|
|
91,848
|
|
|
|
(170,242
|
)
|
|
|
105,724
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
31,496
|
|
|
|
37,420
|
|
|
|
|
|
|
|
(68,916
|
)
|
|
|
|
|
Other expenses
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
889
|
|
Interest expense, net
|
|
|
38,797
|
|
|
|
10,633
|
|
|
|
(168
|
)
|
|
|
8
|
|
|
|
49,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
56,583
|
|
|
|
146,132
|
|
|
|
92,016
|
|
|
|
(239,166
|
)
|
|
|
55,565
|
|
Income tax expense (benefit)
|
|
|
17,687
|
|
|
|
6,404
|
|
|
|
(7,422
|
)
|
|
|
|
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
38,896
|
|
|
$
|
139,728
|
|
|
$
|
99,438
|
|
|
$
|
(239,166
|
)
|
|
$
|
38,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Nine Months Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
3,362,897
|
|
|
$
|
321,419
|
|
|
$
|
2,176,844
|
|
|
$
|
(2,647,507
|
)
|
|
$
|
3,213,653
|
|
Cost of sales
|
|
|
2,626,383
|
|
|
|
125,794
|
|
|
|
1,910,886
|
|
|
|
(2,517,114
|
)
|
|
|
2,145,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
736,514
|
|
|
|
195,625
|
|
|
|
265,958
|
|
|
|
(130,393
|
)
|
|
|
1,067,704
|
|
Selling, general and administrative expenses
|
|
|
651,345
|
|
|
|
56,566
|
|
|
|
67,911
|
|
|
|
445
|
|
|
|
776,267
|
|
Restructuring
|
|
|
23,942
|
|
|
|
266
|
|
|
|
8,147
|
|
|
|
|
|
|
|
32,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
61,227
|
|
|
|
138,793
|
|
|
|
189,900
|
|
|
|
(130,838
|
)
|
|
|
259,082
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
132,451
|
|
|
|
125,829
|
|
|
|
|
|
|
|
(258,280
|
)
|
|
|
|
|
Interest expense, net
|
|
|
76,750
|
|
|
|
24,595
|
|
|
|
13,931
|
|
|
|
6
|
|
|
|
115,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
116,928
|
|
|
|
240,027
|
|
|
|
175,969
|
|
|
|
(389,124
|
)
|
|
|
143,800
|
|
Income tax expense
|
|
|
7,640
|
|
|
|
9,453
|
|
|
|
17,419
|
|
|
|
|
|
|
|
34,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
109,288
|
|
|
$
|
230,574
|
|
|
$
|
158,550
|
|
|
$
|
(389,124
|
)
|
|
$
|
109,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Nine Months Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
3,284,987
|
|
|
$
|
660,117
|
|
|
$
|
1,863,661
|
|
|
$
|
(2,493,358
|
)
|
|
$
|
3,315,407
|
|
Cost of sales
|
|
|
2,498,548
|
|
|
|
485,058
|
|
|
|
1,644,007
|
|
|
|
(2,393,261
|
)
|
|
|
2,234,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
786,439
|
|
|
|
175,059
|
|
|
|
219,654
|
|
|
|
(100,097
|
)
|
|
|
1,081,055
|
|
Selling, general and administrative expenses
|
|
|
660,861
|
|
|
|
(51,777
|
)
|
|
|
40,212
|
|
|
|
124,521
|
|
|
|
773,817
|
|
Restructuring
|
|
|
43,466
|
|
|
|
72
|
|
|
|
995
|
|
|
|
|
|
|
|
44,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
82,112
|
|
|
|
226,764
|
|
|
|
178,447
|
|
|
|
(224,618
|
)
|
|
|
262,705
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
132,846
|
|
|
|
104,184
|
|
|
|
|
|
|
|
(237,030
|
)
|
|
|
|
|
Other expenses
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,440
|
|
Interest expense, net
|
|
|
121,041
|
|
|
|
31,903
|
|
|
|
(731
|
)
|
|
|
4
|
|
|
|
152,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
|
92,477
|
|
|
|
299,045
|
|
|
|
179,178
|
|
|
|
(461,652
|
)
|
|
|
109,048
|
|
Income tax expense
|
|
|
16,143
|
|
|
|
10,355
|
|
|
|
6,216
|
|
|
|
|
|
|
|
32,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
76,334
|
|
|
$
|
288,690
|
|
|
$
|
172,962
|
|
|
$
|
(461,652
|
)
|
|
$
|
76,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
HANESBRANDS
Notes to Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
34,960
|
|
|
$
|
1,720
|
|
|
$
|
49,532
|
|
|
$
|
|
|
|
$
|
86,212
|
|
Trade accounts receivable
|
|
|
(6,359
|
)
|
|
|
6,959
|
|
|
|
564,055
|
|
|
|
(1,718
|
)
|
|
|
562,937
|
|
Inventories
|
|
|
1,116,124
|
|
|
|
54,091
|
|
|
|
334,380
|
|
|
|
(145,587
|
)
|
|
|
1,359,008
|
|
Deferred tax assets and other current assets
|
|
|
198,721
|
|
|
|
8,232
|
|
|
|
39,456
|
|
|
|
(2,185
|
)
|
|
|
244,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,343,446
|
|
|
|
71,002
|
|
|
|
987,423
|
|
|
|
(149,490
|
)
|
|
|
2,252,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
236,731
|
|
|
|
12,830
|
|
|
|
313,402
|
|
|
|
|
|
|
|
562,963
|
|
Trademarks and other identifiable intangibles, net
|
|
|
34,296
|
|
|
|
115,949
|
|
|
|
5,634
|
|
|
|
|
|
|
|
155,879
|
|
Goodwill
|
|
|
232,882
|
|
|
|
16,934
|
|
|
|
68,296
|
|
|
|
|
|
|
|
318,112
|
|
Investments in subsidiaries
|
|
|
537,675
|
|
|
|
673,309
|
|
|
|
|
|
|
|
(1,210,984
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
199,499
|
|
|
|
348,357
|
|
|
|
(131,439
|
)
|
|
|
(78,114
|
)
|
|
|
338,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,584,529
|
|
|
$
|
1,238,381
|
|
|
$
|
1,243,316
|
|
|
$
|
(1,438,588
|
)
|
|
$
|
3,627,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
155,493
|
|
|
$
|
3,188
|
|
|
$
|
78,496
|
|
|
$
|
85,647
|
|
|
$
|
322,824
|
|
Accrued liabilities
|
|
|
287,553
|
|
|
|
29,845
|
|
|
|
62,468
|
|
|
|
(2,634
|
)
|
|
|
377,232
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
71,528
|
|
|
|
|
|
|
|
71,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
443,046
|
|
|
|
33,033
|
|
|
|
212,492
|
|
|
|
83,013
|
|
|
|
771,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,615,250
|
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
145,299
|
|
|
|
1,845
|
|
|
|
8,302
|
|
|
|
4,424
|
|
|
|
159,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,203,595
|
|
|
|
484,878
|
|
|
|
470,794
|
|
|
|
87,437
|
|
|
|
3,246,704
|
|
Stockholders equity
|
|
|
380,934
|
|
|
|
753,503
|
|
|
|
772,522
|
|
|
|
(1,526,025
|
)
|
|
|
380,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,584,529
|
|
|
$
|
1,238,381
|
|
|
$
|
1,243,316
|
|
|
$
|
(1,438,588
|
)
|
|
$
|
3,627,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Nine Months Ended September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(28,878
|
)
|
|
$
|
133,333
|
|
|
$
|
136,650
|
|
|
$
|
(259,726
|
)
|
|
$
|
(18,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(25,211
|
)
|
|
|
(8,852
|
)
|
|
|
(89,256
|
)
|
|
|
|
|
|
|
(123,319
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(10,011
|
)
|
|
|
|
|
|
|
(10,011
|
)
|
Proceeds from sales of assets
|
|
|
20,059
|
|
|
|
38
|
|
|
|
4,232
|
|
|
|
|
|
|
|
24,329
|
|
Other
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
(554
|
)
|
|
|
(643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,241
|
)
|
|
|
(8,814
|
)
|
|
|
(95,035
|
)
|
|
|
(554
|
)
|
|
|
(109,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(700
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(707
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
316,958
|
|
|
|
|
|
|
|
316,958
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(265,195
|
)
|
|
|
|
|
|
|
(265,195
|
)
|
Cost of debt issuance
|
|
|
(48
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
(69
|
)
|
Borrowings on revolving loan facility
|
|
|
524,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524,000
|
|
Repayments on revolving loan facility
|
|
|
(524,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(524,000
|
)
|
Proceeds from stock options exercised
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
Stock repurchases
|
|
|
(30,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,275
|
)
|
Borrowings on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
20,944
|
|
|
|
|
|
|
|
20,944
|
|
Repayments on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
(20,944
|
)
|
|
|
|
|
|
|
(20,944
|
)
|
Transaction with Sara Lee Corporation
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
|
Other
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
Net transactions with related entities
|
|
|
(4,438
|
)
|
|
|
(129,118
|
)
|
|
|
(126,724
|
)
|
|
|
260,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(15,397
|
)
|
|
|
(129,128
|
)
|
|
|
(74,979
|
)
|
|
|
260,280
|
|
|
|
40,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(535
|
)
|
|
|
|
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(49,516
|
)
|
|
|
(4,609
|
)
|
|
|
(33,899
|
)
|
|
|
|
|
|
|
(88,024
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
84,476
|
|
|
|
6,329
|
|
|
|
83,431
|
|
|
|
|
|
|
|
174,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
34,960
|
|
|
$
|
1,720
|
|
|
$
|
49,532
|
|
|
$
|
|
|
|
$
|
86,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Nine Months Ended September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
313,752
|
|
|
$
|
188,626
|
|
|
$
|
48,214
|
|
|
$
|
(314,749
|
)
|
|
$
|
235,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(25,680
|
)
|
|
|
(6,048
|
)
|
|
|
(13,659
|
)
|
|
|
|
|
|
|
(45,387
|
)
|
Acquisition of business
|
|
|
|
|
|
|
|
|
|
|
(17,380
|
)
|
|
|
|
|
|
|
(17,380
|
)
|
Proceeds from sales of assets
|
|
|
7,286
|
|
|
|
4,870
|
|
|
|
866
|
|
|
|
|
|
|
|
13,022
|
|
Other
|
|
|
(1,444
|
)
|
|
|
103
|
|
|
|
3
|
|
|
|
763
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(19,838
|
)
|
|
|
(1,075
|
)
|
|
|
(30,170
|
)
|
|
|
763
|
|
|
|
(50,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(888
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
29,969
|
|
|
|
|
|
|
|
29,969
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(26,845
|
)
|
|
|
|
|
|
|
(26,845
|
)
|
Cost of debt issuance
|
|
|
(2,415
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,533
|
)
|
Repayment of debt under credit facilities
|
|
|
(128,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,125
|
)
|
Decrease in bank overdraft
|
|
|
|
|
|
|
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
(834
|
)
|
Proceeds from stock options exercised
|
|
|
5,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,464
|
|
Stock repurchases
|
|
|
(44,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,473
|
)
|
Other
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
Net transactions with related entities
|
|
|
(156,631
|
)
|
|
|
(187,818
|
)
|
|
|
30,463
|
|
|
|
313,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(326,516
|
)
|
|
|
(187,962
|
)
|
|
|
32,753
|
|
|
|
313,986
|
|
|
|
(167,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
2,620
|
|
|
|
|
|
|
|
2,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(32,602
|
)
|
|
|
(411
|
)
|
|
|
53,417
|
|
|
|
|
|
|
|
20,404
|
|
Cash and cash equivalents at beginning of year
|
|
|
60,960
|
|
|
|
(1,251
|
)
|
|
|
96,264
|
|
|
|
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
28,358
|
|
|
$
|
(1,662
|
)
|
|
$
|
149,681
|
|
|
$
|
|
|
|
$
|
176,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to September 27, 2008, the Company entered into
interest rate swap agreements with a notional amount totaling
$400,000, as a result of which the Company has fixed LIBOR on a
portion of its outstanding debt at 2.80% for a
2-year term.
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 and Risk
Factors 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 nine months ended
September 27, 2008 from our Innerwear segment were
$1.8 billion, representing approximately 56% 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 nine months
ended September 27, 2008 from our Outerwear segment were
$881 million, representing approximately 27% 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 nine months ended
September 27, 2008 from our Hosiery segment were
$167 million, representing approximately 5% of total
segment net sales. We expect the trend of declining hosiery
sales to continue consistent with the overall decline in the
industry and with shifts in consumer preferences.
|
24
|
|
|
|
|
International. International includes products
that span across the Innerwear, Outerwear and Hosiery reportable
segments and are marketed under the Hanes,
Champion, Wonderbra, Playtex,
Rinbros, Bali and Stedman brands. Our net
sales for the nine months ended September 27, 2008 from our
International segment were $352 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 nine months ended
September 27, 2008 in our Other segment were
$20 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. Net sales from our Other segment are expected to
continue to decline during the remainder of this year and to
ultimately become insignificant to us.
|
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. For example, we
experienced a shift in timing by our largest retail customers of
back-to-school programs from June to July in 2008. 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.
Our operating results are also impacted by economic factors,
some of which are beyond our control. 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 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 be recouped, or if consumer spending
decreases generally, our business, results of operations,
financial condition and cash flows may be adversely affected. In
an effort to mitigate the impact of these incremental costs on
our operating results, we have informed our retail customers
that we are raising domestic prices effective during the first
quarter of 2009. We are implementing an average gross price
increase of four percent in our domestic product categories. The
range of price increases varies by individual product category.
Highlights
from the Third Quarter and Nine Months Ended September 27,
2008
|
|
|
|
|
Diluted earnings per share were $0.17 in the third quarter of
2008, compared with $0.40 in the same quarter in 2007. Diluted
earnings per share were $1.14 in the nine month period in 2008,
compared with $0.79 in the same nine month period in 2007.
|
|
|
|
Operating profit was $58 million in the third quarter of
2008, compared with $106 million in the same quarter in
2007. Operating profit was $259 million in the nine month
period in 2008, compared with $263 million in the same nine
month period in 2007.
|
|
|
|
Total net sales in the third quarter of 2008 of
$1.15 billion were comparable to the same quarter in 2007.
Total net sales in the nine month period in 2008 were lower by
$102 million at $3.21 billion compared to the same
nine month period in 2007.
|
|
|
|
During the first nine months of 2008, we approved actions to
close 11 manufacturing facilities and two distribution centers
in El Salvador, Mexico, Costa Rica, Honduras and the United
States. The production capacity represented by the manufacturing
facilities will be relocated to lower cost locations
|
25
|
|
|
|
|
in Asia, the Caribbean Basin 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 nine months of 2008 that were approved
in 2007.
|
|
|
|
|
|
Capital expenditures were $123 million during the first
nine months of 2008 as we continued to build out our textile and
sewing network in Asia, the Caribbean Basin and Central America.
|
|
|
|
We repurchased $30 million of company stock during the
first nine months of 2008.
|
|
|
|
We ended the third quarter of 2008 with $443 million of
borrowing availability under our revolving loan facility,
$86 million in cash and cash equivalents and
$47 million of borrowing availability under our
international loan facilities.
|
Condensed
Consolidated Results of Operations Third Quarter
Ended September 27, 2008 Compared with Third Quarter Ended
September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,153,635
|
|
|
$
|
1,153,606
|
|
|
$
|
29
|
|
|
|
0.0
|
%
|
Cost of sales
|
|
|
811,851
|
|
|
|
792,587
|
|
|
|
19,264
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
341,784
|
|
|
|
361,019
|
|
|
|
(19,235
|
)
|
|
|
(5.3
|
)
|
Selling, general and administrative expenses
|
|
|
255,228
|
|
|
|
253,233
|
|
|
|
1,995
|
|
|
|
0.8
|
|
Restructuring
|
|
|
28,355
|
|
|
|
2,062
|
|
|
|
26,293
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
58,201
|
|
|
|
105,724
|
|
|
|
(47,523
|
)
|
|
|
(45.0
|
)
|
Other expenses
|
|
|
|
|
|
|
889
|
|
|
|
(889
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
37,253
|
|
|
|
49,270
|
|
|
|
(12,017
|
)
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
20,948
|
|
|
|
55,565
|
|
|
|
(34,617
|
)
|
|
|
(62.3
|
)
|
Income tax expense
|
|
|
5,028
|
|
|
|
16,669
|
|
|
|
(11,641
|
)
|
|
|
(69.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,920
|
|
|
$
|
38,896
|
|
|
$
|
(22,976
|
)
|
|
|
(59.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
1,153,635
|
|
|
$
|
1,153,606
|
|
|
$
|
29
|
|
|
|
0.0
|
%
|
Consolidated net sales in the third quarter of 2008 were
comparable to 2007. Sales levels were impacted by softer sales
at retail and, as anticipated, lower Other segment sales offset
by a shift in timing by our largest retail customers of
back-to-school programs from June to July in 2008. Our Innerwear
and International segment net sales were higher by
$15 million (2%) and $13 million (13%), respectively,
and were offset by lower net sales in our Outerwear, Hosiery and
Other segments of $1 million (0%), $14 million (22%)
and $9 million (65%), respectively, and higher intersegment
sales eliminations of $5 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 third quarter of 2008.
Softer sales at retail during the third quarter of 2008 were
reflective of a difficult economic and retail environment in
which the ultimate consumers of our products have been
significantly limiting their discretionary spending and visiting
retail stores less frequently.
The higher net sales in our Innerwear segment were primarily due
to an increase in sales in the Hanes brand male underwear
product category of $23 million, which includes the impact
of exiting a license
26
arrangement for a boys character underwear program in
early 2008 that lowered sales by $4 million. Net sales of
our Playtex brand intimate apparel were $11 million
higher and net sales of our Bali brand intimate apparel
were flat in the third quarter of 2008 compared to 2007. In
addition, we experienced a shift in timing by our largest retail
customers of back-to-school programs from June to July in 2008,
which primarily impacted our underwear, socks and intimate
apparel product categories. The amount of our back-to-school
shipments that shifted from June to July 2008 was approximately
$25 million. Intimate apparel sales in our secondary brands
(barely there, Wonderbra and Just My Size) were
lower by $13 million which we believe was primarily
attributable to softer sales at retail as noted above. In
addition, intimate apparel sales in our Hanes brand were
lower by $7 million.
The higher net sales in our International segment were driven by
a favorable impact of $7 million related to foreign
currency exchange rates and by the growth in our casualwear
businesses in Europe and Asia and our male underwear business in
Canada. The favorable impact of foreign currency exchange rates
was primarily due to the strengthening of the Euro, Japanese yen
and Brazilian real.
In our Outerwear segment, net sales of our Champion brand
activewear increased by double digits in the third quarter of
2008 compared to 2007, and were offset by lower net sales of our
casualwear product categories. Net sales in our Hosiery segment
declined substantially more than the long-term trend primarily
due to lower sales of our Leggs brand to mass
retailers and food and drug stores and our Hanes brand to
national chains and department stores in the third quarter of
2008 compared to last year. 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 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. We expect this
decline to continue during the remainder of this year and sales
for this segment to ultimately become insignificant to us.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
341,784
|
|
|
$
|
361,019
|
|
|
$
|
(19,235
|
)
|
|
|
(5.3
|
)%
|
As a percent of net sales, our gross profit percentage was 29.6%
in the third quarter of 2008 compared to 31.3% in 2007. The
lower gross profit percentage was primarily due to one-time
restructuring related write-offs of stranded raw materials and
work in process inventory determined not to be salvageable or
cost-effective to relocate of $14 million in the third
quarter of 2008 offset by lower accelerated depreciation of
$8 million in connection with the consolidation and
globalization of our supply chain. In addition, we experienced
higher production costs of $7 million related to higher
energy and oil related costs including freight costs, higher
cotton costs of $12 million, $6 million of unfavorable
timing in cost recognition that is expected to reverse in the
fourth quarter, unfavorable product sales mix of
$5 million, other vendor price increases of
$4 million, lower sales volume of $4 million and
higher other manufacturing overhead costs of $3 million.
The cotton prices reflected in our results were 69 cents per
pound in the third quarter 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.
These higher expenses were partially offset by $7 million
of savings from our cost reduction initiatives and prior
restructuring actions, lower on-going excess and obsolete
inventory costs of $7 million, lower sales incentives of
$6 million, lower
start-up and
shut down costs associated with our consolidation and
globalization of our supply chain of $3 million, a
favorable impact related to foreign currency exchange rates of
$3 million and higher product sales pricing of
$2 million. The favorable foreign currency exchange rate
impact in our International segment was primarily due to the
strengthening of the Euro, Japanese yen and Brazilian real.
27
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
255,228
|
|
|
$
|
253,233
|
|
|
$
|
1,995
|
|
|
|
0.8
|
%
|
|
Our selling, general and administrative expenses were
$2 million higher in the third quarter of 2008 compared to
2007. Our cost reduction efforts resulted in lower expenses in
the third quarter of 2008 compared to 2007 related to lower
technology consulting expenses of $4 million, savings of
$3 million from our prior restructuring actions primarily
for compensation and related benefits, lower accelerated
depreciation of $3 million, lower media related media,
advertising and promotion expenses (MAP) of
$2 million and lower non-media related MAP expenses of
$2 million. 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.
In addition, $2 million of spin off and related charges
recognized in the third quarter of 2007 did not recur in 2008.
|
|
The above lower expenses were offset by higher bad debt expense
of $7 million primarily related to the bankruptcy of
Mervyns LLC and its affiliated entities
(Mervyns), higher distribution expenses of
$2 million and higher computer software amortization
expense of $2 million in the third quarter of 2008 compared
to 2007. Approximately half of the higher distribution expenses
in the third quarter of 2008 compared to 2007 were postage and
freight related and the other half related to rework expenses in
our distribution centers. Our pension income of $3 million
was lower by $4 million which is primarily attributable to
an adjustment that reduced pension expense in 2007 related to
the final separation of our pension assets and liabilities from
those of Sara Lee Corporation (Sara Lee). We also
incurred higher expenses of $1 million in the third quarter
of 2008 compared to 2007 as a result of opening 10 retail stores
over the last 12 months. In addition, we incurred
$2 million in amortization of gain on curtailment of
postretirement benefits in the third quarter of 2007 which did
not recur in 2008.
|
|
Our cost reduction efforts have allowed us to offset investments
in our strategic initiatives which were $6 million lower in
the third quarter of 2008 compared to 2007 for media related MAP
expenses and technology consulting expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
28,355
|
|
|
$
|
2,062
|
|
|
$
|
26,293
|
|
|
|
NM
|
|
During the third quarter of 2008, we approved actions to close
nine manufacturing facilities and eliminate approximately 8,100
positions in El Salvador, Mexico, Costa Rica, Honduras and the
United States during the next twelve months. The production
capacity represented by the manufacturing facilities will be
relocated to lower cost locations in Asia, the Caribbean Basin
and Central America. We recorded a charge of $21 million
that was primarily attributable to employee termination and
other benefits recognized in accordance with benefit plans
previously communicated to the affected employee group and
$9 million in charges related to exiting supply contracts,
which was partially offset by a $2 million favorable
settlement of a lease obligation for a lower amount than
previously estimated.
In the third quarter of 2008, we recorded $14 million in
one-time write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or
cost-effective to relocate related to the closure of the nine
manufacturing facilities in the Cost of sales line.
In addition, in connection with our consolidation and
globalization strategy, in the third quarters of 2008 and 2007,
we recognized non-cash charges of $4 million and
$12 million, respectively, in the Cost of sales
line and a non-cash credit of $2 million and a non-cash
charge of $1 million, respectively, in the Selling,
general and administrative
28
expenses line in the third quarters of 2008 and 2007
related to accelerated depreciation of buildings and equipment
for facilities that have been closed or will be closed.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During the third quarter of 2007, we incurred $2 million in
restructuring charges which primarily related to employee
termination and other benefits associated with previously
approved actions for plant closures.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
58,201
|
|
|
$
|
105,724
|
|
|
$
|
(47,523
|
)
|
|
|
(45.0
|
)%
|
|
Operating profit was lower in the third quarter of 2008
primarily as a result of higher restructuring and related
charges for nine facility closures of $29 million and lower
gross profit due to increases in manufacturing input costs for
cotton, freight and energy and other oil related costs, all of
which exceeded our savings from executing our consolidation and
globalization strategy during the third quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
|
|
|
$
|
889
|
|
|
$
|
(889
|
)
|
|
|
NM
|
|
|
During the third 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 $75 million of principal in September 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
37,253
|
|
|
$
|
49,270
|
|
|
$
|
(12,017
|
)
|
|
|
(24.4
|
)%
|
Interest expense, net was lower by $12 million in the third
quarter of 2008 compared to 2007. The lower interest expense is
primarily attributable to a lower weighted average interest
rate, $9 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
$2 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 5.80% during the third
quarter of 2008 compared to 7.71% in 2007.
During the third quarter of 2008, we terminated an interest rate
cap with a notional amount of $250 million and a capped
interest rate of 5.75%. At September 27, 2008, we had
outstanding interest rate hedging arrangements whereby we have
capped the interest rate on $700 million of our floating
rate debt at 5.75% and had fixed the interest rate on
$600 million of our floating rate debt at 5.04%.
Approximately 56% of our total debt outstanding at
September 27, 2008 was at a fixed or capped rate.
During and subsequent to the third quarter of 2008, we entered
into additional interest rate hedging arrangements that will
become effective during the fourth quarter of 2008 that,
combined with expirations of other portions of our interest rate
derivative portfolio, will result in approximately 86% of our
floating rate debt bearing interest at a fixed or capped rate.
Once these interest rate hedging arrangements become effective
29
in the fourth quarter of 2008, the interest rate on
$600 million of our floating rate debt will be capped at
3.50% and the interest rate on $1.4 billion of our floating
rate debt will be fixed at a weighted average rate of 4.17%.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
5,028
|
|
|
$
|
16,669
|
|
|
$
|
(11,641
|
)
|
|
|
(69.8
|
)%
|
|
Our estimated annual effective income tax rate was 24% in the
third quarter of 2008 compared to 30% in 2007. The lower
effective income tax expense is primarily attributable to lower
pre-tax income and higher unremitted earnings from foreign
subsidiaries in the third 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
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
15,920
|
|
|
$
|
38,896
|
|
|
$
|
(22,976
|
)
|
|
|
(59.1
|
)%
|
Net income for the third quarter of 2008 was lower than 2007
primarily due to lower operating profit resulting in part from
higher restructuring and related charges and higher
manufacturing input costs, which were partially offset by
savings from our cost reduction initiatives, lower interest
expense and a lower income tax expense.
30
Operating
Results by Business Segment Third Quarter Ended
September 27, 2008 Compared with Third Quarter Ended
September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
650,372
|
|
|
$
|
635,167
|
|
|
$
|
15,205
|
|
|
|
2.4
|
%
|
Outerwear
|
|
|
348,467
|
|
|
|
349,352
|
|
|
|
(885
|
)
|
|
|
(0.3
|
)
|
Hosiery
|
|
|
50,197
|
|
|
|
64,120
|
|
|
|
(13,923
|
)
|
|
|
(21.7
|
)
|
International
|
|
|
116,581
|
|
|
|
103,341
|
|
|
|
13,240
|
|
|
|
12.8
|
|
Other
|
|
|
4,769
|
|
|
|
13,587
|
|
|
|
(8,818
|
)
|
|
|
(64.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
1,170,386
|
|
|
|
1,165,567
|
|
|
|
4,819
|
|
|
|
0.4
|
|
Intersegment
|
|
|
(16,751
|
)
|
|
|
(11,961
|
)
|
|
|
4,790
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,153,635
|
|
|
$
|
1,153,606
|
|
|
$
|
29
|
|
|
|
(0.0
|
)%
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
71,097
|
|
|
$
|
63,173
|
|
|
$
|
7,924
|
|
|
|
12.5
|
%
|
Outerwear
|
|
|
19,243
|
|
|
|
36,051
|
|
|
|
(16,808
|
)
|
|
|
(46.6
|
)
|
Hosiery
|
|
|
13,081
|
|
|
|
18,670
|
|
|
|
(5,589
|
)
|
|
|
(29.9
|
)
|
International
|
|
|
14,010
|
|
|
|
9,616
|
|
|
|
4,394
|
|
|
|
45.7
|
|
Other
|
|
|
314
|
|
|
|
(306
|
)
|
|
|
620
|
|
|
|
202.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
$
|
117,745
|
|
|
$
|
127,204
|
|
|
$
|
(9,459
|
)
|
|
|
(7.4
|
)%
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
$
|
(12,593
|
)
|
|
$
|
(5,225
|
)
|
|
$
|
7,368
|
|
|
|
141.0
|
%
|
Amortization of trademarks and other intangibles
|
|
|
(3,045
|
)
|
|
|
(1,442
|
)
|
|
|
1,603
|
|
|
|
111.2
|
|
Restructuring
|
|
|
(28,355
|
)
|
|
|
(2,062
|
)
|
|
|
26,293
|
|
|
|
NM
|
|
Inventory write-off included in cost of sales
|
|
|
(14,027
|
)
|
|
|
(186
|
)
|
|
|
13,841
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
(4,011
|
)
|
|
|
(11,616
|
)
|
|
|
(7,605
|
)
|
|
|
(65.5
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
2,487
|
|
|
|
(949
|
)
|
|
|
(3,436
|
)
|
|
|
(362.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
58,201
|
|
|
|
105,724
|
|
|
|
(47,523
|
)
|
|
|
(45.0
|
)
|
Other expenses
|
|
|
|
|
|
|
(889
|
)
|
|
|
(889
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
(37,253
|
)
|
|
|
(49,270
|
)
|
|
|
(12,017
|
)
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
20,948
|
|
|
$
|
55,565
|
|
|
$
|
(34,617
|
)
|
|
|
(62.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
650,372
|
|
|
$
|
635,167
|
|
|
$
|
15,205
|
|
|
|
2.4
|
%
|
Segment operating profit
|
|
|
71,097
|
|
|
|
63,173
|
|
|
|
7,924
|
|
|
|
12.5
|
|
|
Overall net sales in the Innerwear segment were higher by
$15 million or 2% in the third quarter of 2008 compared to
2007. The higher net sales were primarily due to an increase in
the Hanes brand male underwear product category of
$23 million, which includes the impact of exiting a license
arrangement for a boys character underwear program in
early 2008 that lowered sales by $4 million. Net sales of
our Playtex brand intimate apparel were $11 million
higher and net sales of our Bali brand intimate apparel
were flat in the third quarter of 2008 compared to 2007. In
addition, we experienced a shift in timing by our largest retail
customers of back-to-school programs from June to July in 2008,
which primarily impacted our underwear, socks and intimate
apparel product categories. The amount of our back-to-school
shipments that shifted from June to July 2008 was approximately
$25 million. Intimate apparel sales in our secondary brands
(barely there, Wonderbra and Just My Size) were
lower by $13 million which we believe was primarily
attributable to softer sales at retail. In addition, intimate
apparel sales in our Hanes brand were lower by
$7 million.
|
|
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 34.4% in the third quarter of 2008
compared to 35.7% in 2007. The lower gross profit is primarily
attributable to higher cotton costs of $5 million, higher
production costs of $3 million, other vendor price
increases of $2 million and higher other manufacturing
overhead costs of $2 million. The higher production costs
were related to higher energy and oil related costs including
freight costs. These factors were partially offset by lower
sales incentives of $5 million and lower on-going excess
and obsolete inventory costs of $4 million.
|
|
The higher Innerwear segment operating profit in the third
quarter of 2008 compared to 2007 is primarily attributable to
lower media related MAP expenses of $7 million, lower
non-media related MAP expenses of $4 million, savings from
prior restructuring actions of $2 million and lower
technology consulting expenses of $2 million partially
offset by lower gross profit and higher bad debt expense of
$4 million primarily related to the Mervyns
bankruptcy. In addition, we incurred higher expenses of
$1 million in the third quarter of 2008 compared to 2007 as
a result of opening 10 retail stores over the last
12 months. 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 third quarter of 2008 is
consistent with 2007. Our consolidated selling, general and
administrative expenses before segment allocations was
$2 million higher in the third quarter of 2008 compared to
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
348,467
|
|
|
$
|
349,352
|
|
|
$
|
(885
|
)
|
|
|
(0.3
|
)%
|
Segment operating profit
|
|
|
19,243
|
|
|
|
36,051
|
|
|
|
(16,808
|
)
|
|
|
(46.6
|
)
|
Net sales in the Outerwear segment were slightly lower by
$1 million in the third quarter of 2008 compared to 2007
primarily as a result of higher net sales of Champion
brand activewear of $17 million and higher intersegment
sales of $3 million offset by lower net sales of retail
casualwear of $17 million and lower net sales through our
embellishment channel of $6 million, primarily in
promotional t-shirts, offset by higher fleece sales.
32
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 21.1% in the third quarter of 2008
compared to 23.6% in 2007. The lower gross profit is primarily
attributable to higher cotton costs of $7 million,
$6 million of unfavorable timing in cost recognition that
is expected to reverse in the fourth quarter, higher production
costs of $4 million, other vendor price increases of
$1 million and unfavorable product sales mix of
$1 million partially offset by savings from our cost
reduction initiatives and prior restructuring actions of
$5 million, higher product sales pricing of $3 million
and lower on-going excess and obsolete inventory costs of
$2 million. The higher production costs were related to
higher energy and oil related costs including freight costs.
The lower Outerwear segment operating profit in the third
quarter of 2008 compared to 2007 is primarily attributable to
lower gross profit, higher media related MAP expenses of
$4 million, higher bad debt expense of $2 million
primarily related to the Mervyns bankruptcy, higher
non-media related MAP expenses of $2 million and higher
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 third
quarter of 2008 is consistent with 2007. Our consolidated
selling, general and administrative expenses before segment
allocations was $2 million higher in the third quarter of
2008 compared to 2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
50,197
|
|
|
$
|
64,120
|
|
|
$
|
(13,923
|
)
|
|
|
(21.7
|
)%
|
Segment operating profit
|
|
|
13,081
|
|
|
|
18,670
|
|
|
|
(5,589
|
)
|
|
|
(29.9
|
)
|
Net sales in the Hosiery segment declined by $14 million or
22%, which was substantially more than the long-term trend
primarily due to lower sales of our Leggs brand to
mass retailers and food and drug stores and lower sales of the
Hanes brand to national chains and department stores. 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
42.4% in the third quarter of 2008 compared to 46.4% in 2007
primarily due to unfavorable sales mix of $5 million, lower
sales volume of $4 million and other vendor price increases
of $1 million partially offset by savings from our cost
reduction initiatives and prior restructuring actions of
$1 million and lower sales incentives of $1 million.
Hosiery segment operating profit was lower in the third quarter
of 2008 compared to 2007 primarily due to lower gross profit
partially offset by 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 third quarter of 2008 is
consistent with 2007. Our consolidated selling, general and
administrative expenses before segment allocations was
$2 million higher in the third quarter of 2008 compared to
2007.
33
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
116,581
|
|
|
$
|
103,341
|
|
|
$
|
13,240
|
|
|
|
12.8
|
%
|
Segment operating profit
|
|
|
14,010
|
|
|
|
9,616
|
|
|
|
4,394
|
|
|
|
45.7
|
|
|
Overall net sales in the International segment were higher by
$13 million or 13% in the third quarter of 2008 compared to
2007. During the third quarter of 2008 our net sales were
higher, in each case including the impact of foreign currency,
in Asia of $5 million, Europe of $4 million and Canada
of $3 million. The growth in our European casualwear
business was driven by the strength of the Stedman brand
that is sold in the embellishment channel. Higher sales in our
Champion brand casualwear business in Asia and our
Hanes brand male underwear business in Canada also
contributed to the sales growth. Changes in foreign currency
exchange rates had a favorable impact on net sales of
$7 million in the third quarter of 2008 compared to 2007.
The favorable impact was primarily due to the strengthening of
the Euro, Japanese yen and Brazilian real.
|
|
As a percent of segment net sales, gross profit percentage was
40.1% in the third quarter of 2008 compared to 39.2% in 2007.
The higher gross profit was primarily attributable to a
favorable impact related to foreign currency exchange rates of
$3 million and favorable product sales mix of
$3 million.
|
|
The higher International segment operating profit in the third
quarter of 2008 compared to 2007 is primarily attributable to
the higher gross profit partially offset by higher distribution
expenses of $1 million. 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
$1 million in the third quarter of 2008 compared to 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
4,769
|
|
|
$
|
13,587
|
|
|
$
|
(8,818
|
)
|
|
|
(64.9
|
)%
|
Segment operating profit
|
|
|
314
|
|
|
|
(306
|
)
|
|
|
620
|
|
|
|
202.6
|
|
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. We expect this
decline to continue during the remainder of this year and sales
for this segment to ultimately become insignificant to us. 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 higher in the third quarter of
2008 compared to 2007 primarily due to $7 million of lower
net cost allocations to the segments, a $5 million
adjustment that reduced pension expense in 2007 related to the
final separation of our pension assets and liabilities from
those of Sara Lee, $2 million in amortization of gain on
curtailment of postretirement benefits in the third quarter of
2007 which did not recur in 2008 and $2 million in losses
from foreign currency derivatives partially offset by
$4 million of higher gains on sales of assets, lower
start-up and
shut down costs associated with our consolidation and
globalization of our supply chain of $3 million and
$2 million of spin off and related charges recognized in
the third quarter of 2007 which did not recur in 2008.
34
Condensed
Consolidated Results of Operations Nine Months Ended
September 27, 2008 Compared with Nine Months Ended
September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
3,213,653
|
|
|
$
|
3,315,407
|
|
|
$
|
(101,754
|
)
|
|
|
(3.1
|
)%
|
Cost of sales
|
|
|
2,145,949
|
|
|
|
2,234,352
|
|
|
|
(88,403
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,067,704
|
|
|
|
1,081,055
|
|
|
|
(13,351
|
)
|
|
|
(1.2
|
)
|
Selling, general and administrative expenses
|
|
|
776,267
|
|
|
|
773,817
|
|
|
|
2,450
|
|
|
|
0.3
|
|
Restructuring
|
|
|
32,355
|
|
|
|
44,533
|
|
|
|
(12,178
|
)
|
|
|
(27.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
259,082
|
|
|
|
262,705
|
|
|
|
(3,623
|
)
|
|
|
(1.4
|
)
|
Other expenses
|
|
|
|
|
|
|
1,440
|
|
|
|
(1,440
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
115,282
|
|
|
|
152,217
|
|
|
|
(36,935
|
)
|
|
|
(24.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
143,800
|
|
|
|
109,048
|
|
|
|
34,752
|
|
|
|
31.9
|
|
Income tax expense
|
|
|
34,512
|
|
|
|
32,714
|
|
|
|
1,798
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
109,288
|
|
|
$
|
76,334
|
|
|
$
|
32,954
|
|
|
|
43.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
3,213,653
|
|
|
$
|
3,315,407
|
|
|
$
|
(101,754
|
)
|
|
|
(3.1
|
)%
|
Consolidated net sales were lower by $102 million or 3% in
the nine months of 2008 compared to 2007 primarily due to softer
sales at retail which are reflective of a difficult economic and
retail environment in which the ultimate consumers of our
products have been significantly limiting their discretionary
spending and visiting retail stores less frequently. Our
Innerwear, Outerwear, Hosiery and Other segment net sales were
lower by $87 million (5%), $16 million (2%),
$23 million (12%) and $27 million (57%), respectively,
and were partially offset by higher net sales in our
International segment of $49 million (16%). 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 nine months of
2008.
The lower net sales in our Innerwear segment were primarily due
to a decline in the intimate apparel, socks, sleepwear and
thermals product categories. Total intimate apparel net sales
were $64 million lower in the nine months of 2008 compared
to 2007. We experienced lower intimate apparel sales in our
secondary brands (barely there, Just My Size, and
Wonderbra) of $36 million, our Hanes brand of
$31 million and our private label brands of $9 million
which we believe was primarily attributable to softer sales at
retail as noted above. In the nine months of 2008 compared to
2007, our Playtex brand intimate apparel net sales were
higher by $16 million and our Bali brand intimate
apparel net sales were lower by $4 million. We have
experienced higher net sales in our male underwear product
category of $3 million, which includes the impact of
exiting a license arrangement for a boys character
underwear program in early 2008 that lowered sales by
$11 million. In addition, net sales of socks, sleepwear and
thermals product categories were lower in the nine months of
2008 compared to 2007 by $15 million, $6 million and
$6 million, respectively.
In our Outerwear segment, net sales of our Champion brand
activewear were higher in the nine months of 2008 compared to
2007, and were offset by lower net sales of our casualwear
product categories. Net sales in our Hosiery segment declined
substantially more than the long-term trend primarily due to
lower sales of the Hanes brand to national chains and
department stores and our Leggs brand to mass
retailers and food and
35
drug stores in the nine months of 2008 compared to last year. 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 our International segment that were driven by a
favorable impact of $31 million related to foreign currency
exchange rates and by the growth in our casualwear businesses in
Europe and Asia and our male underwear business in Canada. The
favorable impact of foreign currency exchange rates was
primarily due to the strengthening of the Euro, Japanese yen,
Canadian dollar and Brazilian real.
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. We expect this
decline to continue during the remainder of this year and sales
for this segment to ultimately become insignificant to us.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
1,067,704
|
|
|
$
|
1,081,055
|
|
|
$
|
(13,351
|
)
|
|
|
(1.2
|
)%
|
|
As a percent of net sales, our gross profit percentage was 33.2%
in the nine months of 2008 compared to 32.6% in 2007. While the
gross profit percentage was higher, gross profit dollars were
lower for the nine months of 2008 compared to 2007 primarily as
a result of lower sales. The lower gross profit is primarily
attributable to $46 million of lower sales volume, higher
cotton costs of $13 million, $11 million of higher
production costs related to higher energy and oil related costs
including freight costs, unfavorable product sales mix of
$7 million, other vendor price increases of
$7 million, $6 million of higher freight costs due to
a greater use of air freight and $6 million of unfavorable
timing in cost recognition that is expected to reverse in the
fourth quarter. In addition, in connection with the
consolidation and globalization of our supply chain we incurred
one-time restructuring related write-offs of stranded raw
materials and work in process inventory determined not to be
salvageable or cost-effective to relocate of $14 million in
2008 which were offset by lower accelerated depreciation of
$18 million.
|
|
The cotton prices reflected in our results were 62 cents per
pound in the nine 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.
|
|
These higher expenses were primarily offset by $31 million
of savings from our cost reduction initiatives and prior
restructuring actions, a $13 million favorable impact
related to foreign currency exchange rates, lower sales
incentives of $11 million, lower other manufacturing
overhead costs of $12 million, lower on-going excess and
obsolete inventory costs of $8 million and $4 million
of lower
start-up and
shut down costs associated with our consolidation and
globalization of our supply chain. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
776,267
|
|
|
$
|
773,817
|
|
|
$
|
2,450
|
|
|
|
0.3
|
%
|
Our selling, general and administrative expenses were
$2 million higher in the nine months of 2008 compared to
2007. Our cost reduction efforts resulted in lower expenses in
the nine months of 2008 compared to 2007 related to savings of
$16 million from our prior restructuring actions primarily
for compensation and related benefits, lower non-media related
MAP expenses of $5 million, lower stock compensation
expense of
36
$4 million and lower accelerated depreciation of
$3 million. In addition, spin off and related charges of
$3 million recognized in 2007 did not recur in 2008. In
addition, our pension income of $8 million was higher by
$4 million which included an adjustment that reduced
pension expense in 2007 related to the final separation of our
pension assets and liabilities from those of Sara Lee.
Our media related MAP expenses were $4 million higher in
the nine months of 2008 primarily to support the launch of
Hanes No Ride Up Panties and marketing initiatives for
Champion and Playtex in the first half of 2008.
MAP expenses may vary from period to period during a fiscal year
depending on the timing of our advertising campaigns for retail
selling seasons and product introductions. We experienced higher
technology consulting and related expenses of $11 million,
higher computer software amortization of $4 million, higher
distribution expenses of $5 million and higher bad debt
expense of $7 million primarily related to the
Mervyns bankruptcy in the nine months of 2008 compared to
2007. Approximately half of the higher distribution expenses in
the third quarter of 2008 compared to 2007 were postage and
freight related and the other half related to rework expenses in
our distribution centers. We also incurred higher expenses of
$2 million in the nine months of 2008 compared to 2007 as a
result of opening 10 retail stores over the last 12 months.
In addition, we incurred $6 million in amortization of gain
on curtailment of postretirement benefits in the nine months of
2007 which did not recur in 2008.
Our cost reduction efforts have allowed us to offset higher
investments in our strategic initiatives of higher technology
consulting expenses of $6 million and higher MAP expenses
of $4 million during the nine months of 2008 compared to
2007.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
32,355
|
|
|
$
|
44,533
|
|
|
$
|
(12,178
|
)
|
|
|
(27.3
|
)%
|
During the nine month period in 2008, we approved actions to
close 11 manufacturing facilities and two distribution centers
and eliminate approximately 9,400 positions in El Salvador,
Mexico, Costa Rica, Honduras and the United States during the
next twelve months. The production capacity represented by the
manufacturing facilities will be relocated to lower cost
locations in Asia, the Caribbean Basin 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
$25 million that was primarily attributable to employee
termination and other benefits recognized in accordance with
benefit plans previously communicated to the affected employee
group and $9 million in charges related to exiting supply
contracts, which was partially offset by a $2 million
favorable settlement of a lease obligation for a lower amount
than previously estimated.
In the nine months of 2008, we recorded $14 million in
one-time write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or
cost-effective to relocate related to the closure of
manufacturing facilities in the Cost of sales line.
In addition, in connection with our consolidation and
globalization strategy, in the nine months in 2008 and 2007, we
recognized non-cash charges of $11 million and
$29 million, respectively, in the Cost of sales
line and a non-cash credit of $1 million and a non-cash
charge of $2 million, respectively, in the Selling,
general and administrative expenses line in the nine
months of 2008 and 2007 related to accelerated depreciation of
buildings and equipment for facilities that have been closed or
will be closed.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During the same nine months of 2007, we incurred
$45 million in restructuring charges which primarily
related to a charge of $35 million related to employee
termination and other benefits associated with plant
37
closures approved during that period and the elimination of
certain management and administrative positions and a
$10 million charge for estimated lease termination costs
associated with facility closures.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
259,082
|
|
|
$
|
262,705
|
|
|
$
|
(3,623
|
)
|
|
|
(1.4
|
)%
|
|
Operating profit was slightly lower in the nine months of 2008
compared to 2007 as a result of lower gross profit due to
increases in manufacturing input costs for cotton, freight and
energy and other oil related costs, all of which exceeded our
savings from executing our consolidation and globalization
strategy during the nine months of 2008, partially offset by
lower restructuring and related charges for facility closures of
$20 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Other expenses
|
|
$
|
|
|
|
$
|
1,440
|
|
|
$
|
(1,440
|
)
|
|
|
NM
|
|
|
During the nine months of 2007, we recognized losses 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 and
$75 million of principal in September 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
115,282
|
|
|
$
|
152,217
|
|
|
$
|
(36,935
|
)
|
|
|
(24.3
|
)%
|
Interest expense, net was lower by $37 million in the nine
months of 2008 compared to 2007. The lower interest expense is
primarily attributable to a lower weighted average interest
rate, $25 million of which resulted from a lower LIBOR and
$4 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
$8 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 6.17% during the nine
months of 2008 compared to 7.82% in 2007.
During the third quarter of 2008, we terminated an interest rate
cap with a notional amount of $250 million and a capped
interest rate of 5.75%. At September 27, 2008, we had
outstanding interest rate hedging arrangements whereby we have
capped the interest rate on $700 million of our floating
rate debt at 5.75% and had fixed the interest rate on
$600 million of our floating rate debt at 5.04%.
Approximately 56% of our total debt outstanding at
September 27, 2008 was at a fixed or capped rate.
During and subsequent to the third quarter of 2008, we entered
into additional interest rate hedging arrangements that will
become effective during the fourth quarter of 2008 that,
combined with expirations of other portions of our interest rate
derivative portfolio, will result in approximately 86% of our
floating rate debt bearing interest at a fixed or capped rate.
Once these interest rate hedging arrangements become effective
in the fourth quarter of 2008, the interest rate on
$600 million of our floating rate debt will be capped at
3.50% and the interest rate on $1.4 billion of our floating
rate debt will be fixed at a weighted average rate of 4.17%.
38
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
34,512
|
|
|
$
|
32,714
|
|
|
$
|
1,798
|
|
|
|
5.5
|
%
|
|
Our estimated annual effective income tax rate was 24% in the
nine 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 due to higher unremitted
earnings from foreign subsidiaries in the nine 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
109,288
|
|
|
$
|
76,334
|
|
|
$
|
32,954
|
|
|
|
43.2
|
%
|
Net income for the nine months of 2008 was higher than 2007
primarily due to lower interest expense, lower restructuring and
related charges and a lower effective income tax rate partially
offset by lower gross profit resulting from higher manufacturing
input costs.
39
Operating
Results by Business Segment Nine Months Ended
September 27, 2008 Compared with Nine Months Ended
September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,830,437
|
|
|
$
|
1,917,118
|
|
|
$
|
(86,681
|
)
|
|
|
(4.5
|
)%
|
Outerwear
|
|
|
880,809
|
|
|
|
896,583
|
|
|
|
(15,774
|
)
|
|
|
(1.8
|
)
|
Hosiery
|
|
|
166,672
|
|
|
|
189,215
|
|
|
|
(22,543
|
)
|
|
|
(11.9
|
)
|
International
|
|
|
352,120
|
|
|
|
303,119
|
|
|
|
49,001
|
|
|
|
16.2
|
|
Other
|
|
|
20,064
|
|
|
|
46,629
|
|
|
|
(26,565
|
)
|
|
|
(57.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
3,250,102
|
|
|
|
3,352,664
|
|
|
|
(102,562
|
)
|
|
|
(3.1
|
)
|
Intersegment
|
|
|
(36,449
|
)
|
|
|
(37,257
|
)
|
|
|
(808
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
3,213,653
|
|
|
$
|
3,315,407
|
|
|
$
|
(101,754
|
)
|
|
|
(3.1
|
)%
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
204,714
|
|
|
$
|
243,821
|
|
|
$
|
(39,107
|
)
|
|
|
(16.0
|
)%
|
Outerwear
|
|
|
55,587
|
|
|
|
54,453
|
|
|
|
1,134
|
|
|
|
2.1
|
|
Hosiery
|
|
|
52,944
|
|
|
|
52,849
|
|
|
|
95
|
|
|
|
0.2
|
|
International
|
|
|
47,662
|
|
|
|
34,321
|
|
|
|
13,341
|
|
|
|
38.9
|
|
Other
|
|
|
304
|
|
|
|
(17
|
)
|
|
|
321
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
$
|
361,211
|
|
|
$
|
385,427
|
|
|
$
|
(24,216
|
)
|
|
|
(6.3
|
)%
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
$
|
(37,128
|
)
|
|
$
|
(42,294
|
)
|
|
$
|
(5,166
|
)
|
|
|
(12.2
|
)%
|
Amortization of trademarks and other intangibles
|
|
|
(8,683
|
)
|
|
|
(4,516
|
)
|
|
|
4,167
|
|
|
|
92.3
|
|
Restructuring
|
|
|
(32,355
|
)
|
|
|
(44,533
|
)
|
|
|
(12,178
|
)
|
|
|
(27.3
|
)
|
Inventory write-off included in cost of sales
|
|
|
(14,027
|
)
|
|
|
(186
|
)
|
|
|
13,841
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
(11,202
|
)
|
|
|
(29,296
|
)
|
|
|
(18,094
|
)
|
|
|
(61.8
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
1,266
|
|
|
|
(1,897
|
)
|
|
|
(3,163
|
)
|
|
|
(166.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
259,082
|
|
|
|
262,705
|
|
|
|
(3,623
|
)
|
|
|
(1.4
|
)
|
Other expenses
|
|
|
|
|
|
|
(1,440
|
)
|
|
|
(1,440
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
(115,282
|
)
|
|
|
(152,217
|
)
|
|
|
(36,935
|
)
|
|
|
(24.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
143,800
|
|
|
$
|
109,048
|
|
|
$
|
34,752
|
|
|
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
1,830,437
|
|
|
$
|
1,917,118
|
|
|
$
|
(86,681
|
)
|
|
|
(4.5
|
)%
|
Segment operating profit
|
|
|
204,714
|
|
|
|
243,821
|
|
|
|
(39,107
|
)
|
|
|
(16.0
|
)
|
|
Overall net sales in the Innerwear segment were lower by
$87 million or 5% in the nine months of 2008 compared to
2007. The lower net sales in our Innerwear segment were
primarily due to a decline in the intimate apparel, socks,
thermals and sleepwear product categories. We experienced softer
sales at retail which resulted in lower intimate apparel sales
in our secondary brands (barely there, Just My Size and
Wonderbra) of $36 million, lower Hanes brand
intimate apparel sales of $31 million and lower sales of
private label brands of $9 million. In the nine months of
2008 compared to 2007, our Playtex brand intimate apparel
net sales were higher by $16 million offset by lower
Bali brand intimate apparel net sales of $4 million.
Lower net sales in our socks product category reflects a decline
in our Hanes brand of $10 million and Champion
brand of $5 million. In addition, net sales of
sleepwear and thermals product categories were each lower in the
nine months of 2008 compared to 2007 by $6 million. Net
sales were higher in our male underwear product category by
$3 million, which includes the impact of exiting a license
arrangement for a boys character underwear program in
early 2008 that lowered sales by $11 million.
|
|
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 37.1% in the nine months of 2008
compared to 37.6% in 2007. The lower gross profit is
attributable to lower sales volume of $37 million,
unfavorable product sales mix of $17 million,
$7 million of higher freight costs due to a greater use of
air freight, higher production costs of $5 million, lower
product sales pricing of $5 million, higher cotton costs of
$5 million, other vendor price increases of $4 million
and higher other manufacturing overhead costs of
$2 million. The higher production costs were related to
higher energy and oil related costs including freight costs.
These higher costs were offset by $18 million of savings
from our cost reduction initiatives and prior restructuring
actions, lower sales incentives of $12 million and lower
on-going excess and obsolete inventory costs of $9 million.
|
|
The lower Innerwear segment operating profit in the nine months
of 2008 compared to 2007 is primarily attributable to lower
gross profit, higher technology consulting and related expenses
of $6 million, higher bad debt expense of $4 million
primarily related to the Mervyns bankruptcy and higher
distribution expenses of $2 million partially offset by
savings from prior restructuring actions of $11 million,
lower non-media related MAP expenses of $4 million and
lower spending in various areas of $2 million. In addition,
we incurred higher expenses of $2 million in the nine
months of 2008 compared to 2007 as a result of opening 10 retail
stores over the last 12 months. 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 nine months
of 2008 is consistent with 2007. Our consolidated selling,
general and administrative expenses before segment allocations
was $2 million higher in the nine months of 2008 compared
to 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
880,809
|
|
|
$
|
896,583
|
|
|
$
|
(15,774
|
)
|
|
|
(1.8
|
)%
|
Segment operating profit
|
|
|
55,587
|
|
|
|
54,453
|
|
|
|
1,134
|
|
|
|
2.1
|
|
Net sales in the Outerwear segment were lower by
$16 million or 2% in the nine months of 2008 compared to
2007 primarily as a result of lower net sales of retail
casualwear of $29 million and lower net sales through our
embellishment channel of $16 million, primarily in
promotional t-shirts, offset by higher
41
fleece sales. These decreases were offset by higher net sales of
Champion brand activewear of $28 million and higher
intersegment sales of $2 million.
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 23.1% in the nine months of 2008
compared to 21.7% in 2007. The improvement in gross profit is
primarily attributable to savings from our cost reduction
initiatives and prior restructuring actions of $11 million,
favorable product sales mix of $11 million, lower other
manufacturing overhead costs of $11 million, higher product
sales pricing of $5 million and lower freight costs of
$2 million. These lower costs were partially offset by
higher cotton costs of $8 million, higher production costs
of $6 million, $6 million of unfavorable timing in
cost recognition that is expected to reverse in the fourth
quarter, higher on-going excess and obsolete inventory costs of
$4 million, lower sales volume of $4 million, higher
sales incentives of $2 million and other vendor price
increases of $1 million. The higher production costs were
related to higher energy and oil related costs including freight
costs.
The higher Outerwear segment operating profit in the nine 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 $5 million partially offset
by higher technology consulting and related expenses of
$4 million, higher distribution expenses of
$3 million, higher bad debt expense of $2 million
primarily related to the Mervyns bankruptcy, higher
media-related MAP expenses of $1 million and higher
non-media related MAP 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 nine months of 2008 is consistent with 2007. Our
consolidated selling, general and administrative expenses before
segment allocations was $2 million higher in the nine
months of 2008 compared to 2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
166,672
|
|
|
$
|
189,215
|
|
|
$
|
(22,543
|
)
|
|
|
(11.9
|
)%
|
Segment operating profit
|
|
|
52,944
|
|
|
|
52,849
|
|
|
|
95
|
|
|
|
0.2
|
|
Net sales in the Hosiery segment declined by $23 million or
12%, which was substantially more than the long-term trend
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. 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
48.6% in the nine months of 2008 compared to 46.7% in 2007.
While the gross profit percentage was higher, gross profit
dollars were lower for the nine months of 2008 compared to 2007
as a result of unfavorable product sales mix of $9 million,
lower sales volume of $6 million and other vendor price
increases of $2 million partially offset by savings from
our cost reduction initiatives and prior restructuring actions
of $3 million, lower sales incentives of $3 million,
lower other manufacturing overhead costs of $2 million and
lower on-going excess and obsolete inventory costs of
$2 million.
Hosiery segment operating profit was flat in the nine months of
2008 compared to 2007 primarily due to lower distribution
expenses of $3 million and savings from our cost reduction
initiatives and prior restructuring actions of $2 million
and lower non-media related MAP expenses of $1 million
partially offset by the lower gross profit. A significant
portion of the selling, general and administrative expenses in
each segment is an allocation of our consolidated selling,
general and administrative expenses, however certain expenses
that are specifically identifiable to a segment are charged
directly to each segment. The allocation methodology for the
consolidated selling, general and administrative expenses for
the nine months of 2008 is consistent with 2007.
42
Our consolidated selling, general and administrative expenses
before segment allocations was $2 million higher in the
nine months of 2008 compared to 2007.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
352,120
|
|
|
$
|
303,119
|
|
|
$
|
49,001
|
|
|
|
16.2
|
%
|
Segment operating profit
|
|
|
47,662
|
|
|
|
34,321
|
|
|
|
13,341
|
|
|
|
38.9
|
|
|
Overall net sales in the International segment were higher by
$49 million or 16% in the nine months of 2008 compared to
2007. During the nine months of 2008, our net sales were higher,
in each case including the impact of foreign currency, in Europe
of $19 million, Asia of $12 million, Canada of
$11 million, and Latin America of $8 million. The
growth in our European casualwear business was driven by the
strength of the Stedman brand that is sold in the
embellishment channel. Higher sales in our Champion brand
casualwear business in Asia and our Hanes brand male
underwear business in Canada also contributed to the sales
growth. Changes in foreign currency exchange rates had a
favorable impact on net sales of $31 million in the nine
months 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
40.9% in the nine months of 2008 compared to 2007 at 41.1%.
While the gross profit percentage was lower, gross profit
dollars were higher for the nine months of 2008 compared to 2007
as a result of a favorable impact related to foreign currency
exchange rates of $13 million and favorable product sales
mix of $8 million partially offset by higher sales
incentives of $2 million.
|
|
The higher International segment operating profit in the nine
months of 2008 compared to 2007 is primarily attributable to the
higher gross profit partially offset by higher distribution
expenses of $2 million, higher media-related MAP expenses
of $1 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
$5 million in the nine months of 2008 compared to 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 27,
|
|
September 29,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
20,064
|
|
|
$
|
46,629
|
|
|
$
|
(26,565
|
)
|
|
|
(57.0
|
)%
|
Segment operating profit
|
|
|
304
|
|
|
|
(17
|
)
|
|
|
321
|
|
|
|
NM
|
|
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. We expect this
decline to continue during the remainder of this year and sales
of this segment to ultimately become insignificant to us. 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 nine months of 2008
compared to 2007 primarily due to $5 million of higher
gains on sales of assets, $4 million of higher net cost
allocations to the segments, $4 million of lower
start-up and
shut-down costs associated with our consolidation and
globalization of our supply chain, $3 million of spin off
and related charges recognized in the nine months of 2007 which
did not recur in 2008 and $2 million of higher foreign
exchange transaction gains partially offset by $6 million
in amortization of gain on curtailment of postretirement
benefits in the nine months of 2007 which did not recur
43
in 2008, a $5 million adjustment that reduced pension
expense in 2007 related to the final separation of our pension
assets and liabilities from those of Sara Lee and
$2 million in losses from foreign currency derivatives.
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 September 27,
2008, we have $443 million of borrowing availability under
our $500 million revolving loan facility (after taking into
account outstanding letters of credit), $86 million in cash
and cash equivalents and $47 million of borrowing
availability under our international loan facilities. We
currently believe that our existing cash balances and cash
generated by operations, together with our available credit
capacity, will enable us to comply with the terms of our
indebtedness and meet foreseeable liquidity requirements.
The following 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 have the authority to repurchase up to 10 million shares
of our stock in the open market over the next few years,
2.8 million of which we have repurchased as of
September 27, 2008.
|
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.
Deterioration in the capital markets, which has caused many
financial institutions to seek additional capital, merge with
larger and stronger financial institutions and, in some cases,
fail, has led to concerns about the stability of financial
institutions. We currently hold interest rate cap and swap
derivative instruments to mitigate a portion of our interest
rate risk and hold foreign exchange rate derivative instruments
to mitigate the potential impact of currency fluctuations.
Credit risk is the exposure to nonperformance of another party
to an agreement. We mitigate credit risk by dealing with highly
rated bank counterparties. We believe that our exposures are
appropriately diversified across counterparties and that these
counterparties are creditworthy financial institutions.
Accordingly, we do not anticipate nonperformance by our
counterparties.
Given the recent turmoil in the financial and credit markets, we
have expanded our interest rate hedging portfolio at what we
believe to be advantageous rates that are expected to minimize
our overall interest rate risk. Approximately 56% of our total
debt outstanding at September 27, 2008 was at a fixed or
capped LIBOR rate. During and subsequent to the third quarter of
2008, we entered into additional interest rate hedging
arrangements that will become effective during the fourth
quarter of 2008 and that, combined with expirations of other
portions of our interest rate derivative portfolio, will result
in approximately 86% of our floating rate debt bearing interest
at a fixed or capped LIBOR rate. The table below summarizes our
interest rate derivative
44
portfolio with respect to our long-term debt that will be
effective in the fourth quarter of 2008 which takes into
consideration derivatives that become effective and expire
subsequent to the third quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Rate
|
|
Hedge
|
|
|
Amount
|
|
|
LIBOR
|
|
Spreads
|
|
Expiration Dates
|
|
Debt covered by interest rate caps:
|
|
|
|
|
|
|
|
|
|
|
Senior Secured and Second Lien Credit Facilities
|
|
$
|
600,000
|
|
|
3.50%
|
|
1.50% to 3.75%
|
|
October 2009
|
Debt covered by interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Notes
|
|
|
500,000
|
|
|
4.26%
|
|
3.38%
|
|
December 2012
|
Senior Secured and Second Lien Credit Facilities
|
|
|
500,000
|
|
|
5.14% to 5.18%
|
|
1.50% to 3.75%
|
|
October 2009
October 2011
|
Senior Secured and Second Lien Credit Facilities
|
|
|
400,000
|
|
|
2.80%
|
|
1.50% to 3.75%
|
|
October 2010
|
Unhedged debt:
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Securitization
|
|
|
250,000
|
|
|
Not applicable
|
|
Not applicable
|
|
Not applicable
|
Senior Secured and Second Lien Credit Facilities
|
|
|
65,250
|
|
|
Not applicable
|
|
Not applicable
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,315,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
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 in the
short-term and generate 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.
45
Disruptions in our foreign supply chain could negatively impact
our liquidity by interrupting 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 62 cents per pound
for the nine months ended September 27, 2008 and 57 cents
per pound for the nine months ended September 29, 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 mid 70 cents per pound range
which is the price that will impact our operating results in the
fourth quarter of 2008 and first quarter of 2009. The prices for
the most recent cotton crop, which will impact our operating
results in mid 2009, have decreased to the 50 cents per pound
range. In addition, we continue to experience cost inflation
with regards to oil related and other raw materials used in our
products, such as dyes and chemicals, and increases in other
costs, such as fuel, energy and utility costs.
Our ability to sell our products at competitive prices is
subject to certain economic factors, some of which are beyond
our control. 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 be
recouped, or if consumer spending decreases generally, our
business, results of operations, financial condition and cash
flows may be adversely affected. In an effort to mitigate the
impact of these incremental costs on our operating results, we
have informed our retail customers that we are raising domestic
prices effective during the first quarter of 2009. We are
implementing an average gross price increase of four percent in
our domestic product categories. The range of price increases
varies by individual product category.
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 experiencing 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,
or may choose not to purchase our products at prices that
reflect our domestic price increases that will become effective
during the first quarter of 2009. If any of these events occur,
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.
46
Pension
Plans
Our U.S. qualified pension plans are currently estimated at
approximately 88% funded which should result in minimal pension
funding requirements in the future. The funded status reflects a
significant decrease in the fair value of plan assets due to the
stock markets performance during 2008. Due to the current
funded status of the plans, we are not required to make any
material 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 nine months ended September 27,
2008 and September 29, 2007 was derived from our
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 27,
|
|
|
September 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Operating activities
|
|
$
|
(18,621
|
)
|
|
$
|
235,843
|
|
Investing activities
|
|
|
(109,644
|
)
|
|
|
(50,320
|
)
|
Financing activities
|
|
|
40,776
|
|
|
|
(167,739
|
)
|
Effect of changes in foreign currency exchange rates on cash
|
|
|
(535
|
)
|
|
|
2,620
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(88,024
|
)
|
|
$
|
20,404
|
|
Cash and cash equivalents at beginning of year
|
|
|
174,236
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
86,212
|
|
|
$
|
176,377
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities was $19 million in
the nine months of 2008 compared to cash provided by operating
activities of $236 million in 2007. The net change in cash
from operating activities of $255 million for the nine
months of 2008 compared to 2007 is attributable to the higher
uses of our working capital which was primarily driven by
changes in inventory. Inventory grew $243 million from
December 2007 primarily due to increases in levels needed to
service our business over the next eighteen months as we execute
our consolidation and globalization strategy which had an impact
of approximately $185 million. In addition, cost increases
for inputs such as cotton, oil and freight were approximately
$52 million and the currency impact was approximately
$6 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 $110 million in
the nine months of 2008 compared to $50 million in 2007.
The higher net cash used in investing activities of
$60 million for the nine months of 2008 compared to 2007
was primarily the result of higher capital expenditures. During
the nine month period in 2008 capital expenditures were
$123 million as we continue to build out our textile and
sewing network in Central America, the Caribbean Basin and Asia
and invest in our technology strategic initiatives. Also, we
received cash proceeds from sales of assets of $24 million,
primarily from dispositions of plant and equipment associated
with our restructuring initiatives. In addition, we acquired a
sewing operation in Thailand for $10 million during 2008.
Financing
Activities
Net cash provided by financing activities was $41 million
in the nine months of 2008 compared to cash used in financing
activities of $168 million in 2007. The higher net cash
provided by financing activities of $209 million for the
nine months of 2008 compared to 2007 was primarily the result of
higher net borrowings on notes payable of $49 million,
repayments of $128 million of principal under our senior
secured credit facility in 2007, the receipt from Sara Lee of
$18 million in cash in 2008 and lower stock repurchases of
$14 million.
47
Cash
and Cash Equivalents
As of September 27, 2008 and December 29, 2007, cash
and cash equivalents were $86 million and
$174 million, respectively. The lower cash and cash
equivalents as of September 27, 2008 was primarily the
result of net capital expenditures of $99 million,
$30 million of stock repurchases, the acquisition of a
sewing operation in Thailand for $10 million and
$19 million related to other uses of working capital
partially offset by $52 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 nine months ended September 27,
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.
48
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 September 27, 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 third quarter and nine months
ended September 27, 2008. There were no changes during the
third quarter and nine months ended September 27, 2008 to
our valuation techniques 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.
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. SFAS 141R 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
49
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 beginning after
November 15, 2008. The adoption of SFAS 161 will not
have a material impact on our results of operations.
|
|
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 September 27, 2008, we have outstanding
hedging arrangements whereby we capped the interest rate on
$700 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
56% of our total debt outstanding at September 27, 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 decreased approximately
$6.7 million and $7.2 million during the third quarter
and nine months ended September 27, 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 September 27, 2008, we entered into interest
rate swap agreements with a notional amount totaling
$400 million, as a result of which we have fixed LIBOR on a
portion of our outstanding debt at 2.80% for a
2-year term.
These agreements will become effective during the fourth quarter
of 2008 and, when combined with expirations of other portions of
our interest rate derivative portfolio, will result in
approximately 86% of our floating rate debt bearing interest at
a fixed or capped rate. Once these interest rate hedging
arrangements become effective in the fourth quarter of 2008, the
LIBOR interest rate component on $600 million of our
floating rate debt will be capped at 3.50% and the LIBOR
interest rate component on $1.4 billion of our floating
rate debt will be fixed at a weighted average rate of 4.17%.
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 currently in our inventory has risen to the mid 70 cents
per pound range which is the price that will impact our
operating results in the fourth quarter of 2008 and first
quarter of 2009. The prices for the most recent cotton crop,
which will impact our operating results in mid 2009, have
decreased to the 50 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.
50
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.
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 no changes in our internal
control over financial reporting occurred during the period
covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
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.
Current economic conditions may adversely impact demand
for our products, reduce access to credit and cause our
customers and others with which we do business to suffer
financial hardship, all of which could adversely impact our
business, results of operations, financial condition and cash
flows.
Worldwide economic conditions have recently deteriorated
significantly in many countries and regions, including the
United States, and may remain depressed for the foreseeable
future. 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 experiencing 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,
or may choose not to purchase our products at prices that
reflect our domestic price increases that become effective from
time to time. If any of these events occur, 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.
51
In addition, economic conditions, including decreased access to
credit, may result in financial difficulties leading to
restructurings, bankruptcies, liquidations and other unfavorable
events for our customers, suppliers of raw materials and
finished goods, logistics and other service providers and
financial institutions which are counterparties to our credit
facilities and derivatives transactions. In addition, the
ability of these third parties to overcome these difficulties
may increase. For example, one of our customers, Mervyns,
a regional retailer in California and the Southwest that
originally filed for reorganization under Chapter 11 in
July 2008, announced on October 17, 2008 its intention to
wind down its business and conduct going-out-of-business sales
at 149 remaining store locations under Chapter 11 of the
U.S. Bankruptcy Code. The impact of this disclosure by
Mervyns led us to take a $5.5 million charge in the
third quarter. If third parties on which we rely for raw
materials, finished goods or services are unable to overcome
difficulties resulting from the deterioration in worldwide
economic conditions and provide us with the materials and
services we need, or if counterparties to our credit facilities
or derivatives transactions do not perform their obligations,
our business, results of operations, financial condition and
cash flows could be adversely affected.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table provides information about purchases by
Hanesbrands during the third quarter ended September 27,
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)
|
|
|
06/29/08 08/02/08
|
|
|
269,350
|
|
|
$
|
27.55
|
|
|
|
269,350
|
|
|
|
7,692,176
|
|
08/03/08 08/30/08
|
|
|
529,300
|
|
|
|
22.63
|
|
|
|
529,300
|
|
|
|
7,162,876
|
|
08/31/08 09/27/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,162,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
798,650
|
|
|
$
|
24.29
|
|
|
|
798,650
|
|
|
|
7,162,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
No matters were submitted to a vote of stockholders during the
third quarter ended September 27, 2008.
|
|
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.
52
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: October 31, 2008
53
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).
|
|
|