Hanesbrands Inc.
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 29, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32891
Hanesbrands Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-3552316
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(State of
incorporation)
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(I.R.S. employer identification
no.)
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1000 East Hanes Mill Road
Winston-Salem, North Carolina
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27105
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(Address of principal executive
office)
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(Zip
code)
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(336) 519-4400
(Registrants telephone
number including area code)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
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Large accelerated
filer þ
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Accelerated filer
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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 May 1, 2008, there were 94,066,944 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, including our
Annual Report on
Form 10-K
for the year ended December 29, 2007.
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. We undertake no
obligation to update or revise forward-looking statements to
reflect events or circumstances that arise after the date made
or to reflect the occurrence of unanticipated events, other than
as required by law.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549.
We make available free of charge at www.hanesbrands.com (in the
Investors section) copies of materials we file with,
or furnish to, the SEC. You can also obtain copies of these
materials at prescribed rates by writing to the Public Reference
Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information on the
operation of the public reference facilities by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a Web site at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically with it. By referring
to our Web site, www.hanesbrands.com, we do not incorporate our
Web site or its contents into this Quarterly Report on
Form 10-Q.
PART I
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Item 1.
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Financial
Statements
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Quarter Ended
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March 29,
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March 31,
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2008
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2007
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Net sales
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$
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987,847
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$
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1,039,894
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Cost of sales
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642,883
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700,215
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Gross profit
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344,964
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339,679
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Selling, general and administrative expenses
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254,612
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254,567
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Restructuring
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2,558
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16,246
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Operating profit
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87,794
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68,866
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Interest expense, net
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40,394
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51,717
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Income before income tax expense
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47,400
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17,149
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Income tax expense
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11,376
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5,145
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Net income
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$
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36,024
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$
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12,004
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Earnings per share:
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Basic
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$
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0.38
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$
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0.12
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Diluted
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$
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0.38
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$
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0.12
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Weighted average shares outstanding:
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Basic
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94,344
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96,475
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Diluted
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95,610
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97,105
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See accompanying notes to Condensed Consolidated Financial
Statements.
2
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March 29, 2008
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December 29, 2007
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Assets
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Cash and cash equivalents
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$
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120,793
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$
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174,236
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Trade accounts receivable, less allowances of $19,775 at
March 29, 2008 and $31,642 at December 29, 2007
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541,900
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575,069
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Inventories
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1,223,979
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1,117,052
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Deferred tax assets and other current assets
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238,579
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227,977
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Total current assets
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2,125,251
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2,094,334
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Property, net
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526,498
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534,286
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Trademarks and other identifiable intangibles, net
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155,406
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151,266
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Goodwill
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312,574
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310,425
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Deferred tax assets and other noncurrent assets
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350,410
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349,172
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Total assets
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$
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3,470,139
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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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309,867
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$
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289,166
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Accrued liabilities
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359,436
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380,239
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Notes payable
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14,562
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19,577
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Total current liabilities
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683,865
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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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159,742
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146,347
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Total liabilities
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3,158,857
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3,150,579
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Stockholders equity:
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Preferred stock (50,000,000 authorized shares; $.01 par
value) Issued and outstanding None
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Common stock (500,000,000 authorized shares; $.01 par
value) Issued and outstanding 94,056,351 at
March 29, 2008 and 95,232,478 at December 29, 2007
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941
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954
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Additional paid-in capital
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204,418
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199,019
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Retained earnings
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146,304
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117,849
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Accumulated other comprehensive loss
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(40,381
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(28,918
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Total stockholders equity
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311,282
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288,904
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Total liabilities and stockholders equity
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$
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3,470,139
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$
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3,439,483
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See accompanying notes to Condensed Consolidated Financial
Statements.
3
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Quarter Ended
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March 29, 2008
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March 31, 2007
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Operating activities:
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Net income
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$
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36,024
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$
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12,004
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Adjustments to reconcile net income to net cash used in
operating
activities:
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Depreciation
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23,591
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26,610
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Amortization of intangibles
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2,673
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1,560
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Restructuring
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(1,119
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(633
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Amortization of debt issuance costs
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1,506
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1,625
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Stock compensation expense
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6,918
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9,564
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Deferred taxes and other
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(2,871
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(3,833
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Changes in assets and liabilities:
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Accounts receivable
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36,183
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(24,806
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Inventories
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(103,597
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(36,865
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Other assets
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(7,061
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15,790
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Accounts payable
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18,315
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10,690
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Accrued liabilities
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(30,043
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(12,297
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Net cash used in operating activities
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(19,481
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(591
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Investing activities:
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Purchases of property and equipment
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(27,580
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(7,394
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Proceeds from sales of assets
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7,070
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4,528
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Other
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(634
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Net cash used in investing activities
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(20,510
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(3,500
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Financing activities:
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Principal payments on capital lease obligations
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(263
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(277
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Borrowings on notes payable
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17,747
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8,992
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Repayments on notes payable
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(23,295
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(11,204
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Cost of debt issuance
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(1,774
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Decrease in bank overdraft
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(834
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Proceeds from stock options exercised
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339
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2,338
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Stock repurchases
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(8,277
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)
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Borrowing on accounts receivable securitization
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19,220
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Repayments on accounts receivable securitization
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(19,220
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Other
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9
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Net cash used in financing activities
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(13,740
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(2,759
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)
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Effect of changes in foreign exchange rates on cash
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288
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167
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Decrease in cash and cash equivalents
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(53,443
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(6,683
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)
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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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120,793
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$
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149,290
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See accompanying notes to Condensed Consolidated Financial
Statements.
4
HANESBRANDS
(dollars and shares in thousands, except per share
data)
(unaudited)
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(1)
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Basis of
Presentation
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These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the
SEC) and, in accordance with those rules and
regulations, do not include all information and footnote
disclosures normally included in annual financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP).
Management believes that the disclosures made are adequate for a
fair statement of the results of operations, financial position
and cash flows of Hanesbrands Inc., a Maryland corporation, and
its consolidated subsidiaries (the Company or
Hanesbrands). In the opinion of management, the
condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the results of operations, financial
position and cash flows for the interim periods presented
herein. The preparation of condensed consolidated financial
statements in conformity with GAAP requires management to make
use of estimates and assumptions that affect the reported
amounts and disclosures. Actual results may vary from these
estimates.
These condensed consolidated interim financial statements should
be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys most
recent Annual Report on
Form 10-K.
The results of operations for any interim period are not
necessarily indicative of the results of operations to be
expected for the full year.
Certain prior year amounts in the condensed consolidated
financial statements have been reclassified to conform with the
current year presentation. These reclassifications, which relate
to changes in the classification of inventory, segment assets,
segment depreciation and amortization expense, segment additions
to long-lived assets and consolidating financial information,
had no impact on the Companys results of operations.
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(2)
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Recently
Issued Accounting Pronouncements
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Fair
Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 was effective for
the Companys financial assets and liabilities on
December 30, 2007. The FASB approved a one-year deferral of
the adoption of SFAS 157 as it relates to non-financial
assets and liabilities with the issuance in February 2008 of
FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157, as a result of
which implementation by the Company is now required on
January 4, 2009. The partial adoption of SFAS 157 in
the first quarter ended March 29, 2008 had no material
impact on the financial condition, results of operations or cash
flows of the Company, but resulted in certain additional
disclosures reflected in Note 8.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value under generally accepted
accounting principles and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
SFAS 159 became effective for the Company on
December 30, 2007. As permitted by SFAS 159, the
Company elected not to adopt the fair value option.
5
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company would be required to recognize
the assets acquired, liabilities assumed, contractual
contingencies and contingent consideration measured at their
fair value at the acquisition date. It further requires that
research and development assets acquired in a business
combination that have no alternative future use be measured at
their acquisition-date fair value and then immediately charged
to expense, and that acquisition-related costs are to be
recognized separately from the acquisition and expensed as
incurred. Among other changes, this statement would also require
that negative goodwill be recognized in earnings as
a gain attributable to the acquisition, and any deferred tax
benefits resulting from a business combination be recognized in
income from continuing operations in the period of the
combination. The Company is in the process of analyzing the
impact of SFAS 141R, which is effective for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
that changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated,
that any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company does
not believe that the adoption of SFAS 160 will have a
material impact on its results of operations or financial
position.
Disclosures
About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands
the disclosure requirements of FASB Statement No. 133 about
an entitys derivative instruments and hedging activities
to include more detailed qualitative disclosures and expanded
quantitative disclosures. The provisions of SFAS 161 are
effective for fiscal years beginning after November 15,
2008. The Company is currently evaluating the impact that
SFAS 161 will have on its results of operations and
financial position.
Basic earnings per share (EPS) was computed by
dividing net income by the number of weighted average shares of
common stock outstanding at March 29, 2008 and
March 31, 2007. Diluted EPS was
6
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
calculated to give effect to all potentially dilutive shares of
common stock. The reconciliation of basic to diluted weighted
average shares for the quarters ended March 29, 2008 and
March 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Basic weighted average shares
|
|
|
94,344
|
|
|
|
96,475
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
298
|
|
|
|
171
|
|
Restricted stock units
|
|
|
966
|
|
|
|
459
|
|
Employee stock purchase plan
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
95,610
|
|
|
|
97,105
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 2,478 and 2,554 shares of common stock
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for the quarters
ended March 29, 2008 and March 31, 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. Upon the achievement of defined service
conditions, the RSUs are converted into shares of the
Companys common stock on a one-for-one basis and issued to
the grantees. All RSUs vest solely upon continued future service
to the Company. The cost of these awards is determined using the
fair value of the shares on the date of grant, and compensation
expense is recognized over the period during which the grantees
provide the requisite service to the Company. The grant date
fair value of the RSUs was $25.10.
During the first quarter ended March 29, 2008 and
March 31, 2007, 34 and 0 shares, respectively, were
purchased under the Hanesbrands Inc. Employee Stock Purchase
Plan of 2006 (the ESPP) by eligible employees. The
Company had 2,330 shares of common stock available for
issuance under the ESPP as of March 29, 2008.
7
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Over the past several years, 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
March 29, 2008, the Company has recognized approximately
$122,000 in restructuring and related charges related to these
efforts since September 5, 2006. Of these charges,
approximately $46,000 relates to employee termination and other
benefits, approximately $64,000 relates to accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed, and approximately $12,000 relates to
lease termination and other costs. Accelerated depreciation
related to the Companys manufacturing facilities and
distribution centers that have been or will be closed is
reflected in the Cost of sales and Selling,
general and administrative expenses lines of the Condensed
Consolidated Statements of Income.
The impact of restructuring on income before income tax expense
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Restructuring programs:
|
|
|
|
|
|
|
|
|
Year ended January 3, 2009 restructuring actions
|
|
$
|
2,942
|
|
|
$
|
|
|
Year ended December 29, 2007 restructuring actions
|
|
|
2,856
|
|
|
|
7,648
|
|
Six months ended December 30, 2006 restructuring actions
|
|
|
13
|
|
|
|
13,648
|
|
Year ended July 1, 2006 and prior restructuring actions
|
|
|
(52
|
)
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
5,759
|
|
|
$
|
21,513
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates where the costs associated with
these actions are recognized in the Condensed Consolidated
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost of sales
|
|
$
|
2,558
|
|
|
$
|
5,267
|
|
Selling, general and administrative expenses
|
|
|
643
|
|
|
|
|
|
Restructuring
|
|
|
2,558
|
|
|
|
16,246
|
|
|
|
|
|
|
|
|
|
|
Decrease in income before income tax expense
|
|
$
|
5,759
|
|
|
$
|
21,513
|
|
|
|
|
|
|
|
|
|
|
Components of the restructuring actions are as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accelerated depreciation
|
|
$
|
3,201
|
|
|
$
|
5,267
|
|
Employee termination and other benefits
|
|
|
2,558
|
|
|
|
6,015
|
|
Noncancelable lease and other contractual obligations
|
|
|
|
|
|
|
10,231
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,759
|
|
|
$
|
21,513
|
|
|
|
|
|
|
|
|
|
|
8
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Rollforward of accrued restructuring is as follows:
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
|
2008
|
|
|
Beginning accrual
|
|
$
|
23,350
|
|
Restructuring expenses
|
|
|
3,677
|
|
Cash payments
|
|
|
(7,225
|
)
|
Adjustments to restructuring expenses
|
|
|
(1,119
|
)
|
|
|
|
|
|
Ending accrual
|
|
$
|
18,683
|
|
|
|
|
|
|
The accrual balance as of March 29, 2008 is comprised of
$15,138 in current accrued liabilities and $3,545 in other
noncurrent liabilities in the Condensed Consolidated Balance
Sheet. The noncurrent portion is primarily related to lease
termination payments.
Adjustments to previous estimates are primarily attributable to
employee termination and other benefits and resulted from actual
costs to settle obligations being lower than expected. The
adjustments were reflected in the Restructuring line
of the Condensed Consolidated Statements of Income.
Year
Ended January 3, 2009 Actions
During the first quarter of 2008, the Company approved actions
to close two manufacturing facilities and eliminate
approximately 1,100 employees in Heredia, Costa Rica and
Aguascalientes, Mexico during the next twelve months. This
production capacity will be relocated to lower cost locations in
Asia and Central America. The Company recorded a charge of
$2,942 primarily attributable to employee termination and other
benefits recognized in accordance with benefit plans previously
communicated to the affected employee group. This charge is
reflected in the Restructuring line of the Condensed
Consolidated Statement of Income. All actions are expected to be
completed within a
12-month
period.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 29,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
164,400
|
|
|
$
|
176,758
|
|
Work in process
|
|
|
170,262
|
|
|
|
122,724
|
|
Finished goods
|
|
|
889,317
|
|
|
|
817,570
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,223,979
|
|
|
$
|
1,117,052
|
|
|
|
|
|
|
|
|
|
|
9
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 obligations at
March 29, 2008 and December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Rate as of
|
|
|
Principal Amount
|
|
|
|
March 29,
|
|
|
March 29,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
Term A
|
|
|
4.59
|
%
|
|
$
|
139,000
|
|
|
$
|
139,000
|
|
Term B
|
|
|
4.89
|
%
|
|
|
976,250
|
|
|
|
976,250
|
|
Second Lien Credit Facility
|
|
|
6.99
|
%
|
|
|
450,000
|
|
|
|
450,000
|
|
Floating Rate Senior Notes
|
|
|
8.20
|
%
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts Receivable Securitization
|
|
|
3.75
|
%
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,315,250
|
|
|
$
|
2,315,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2008, the Company had $0 outstanding under
the Senior Secured Credit Facilitys $500,000 Revolving
Loan Facility and $64,389 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 March 29, 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
$460,658 and $495,245 at March 29, 2008 and
December 29, 2007, respectively, and is reported on the
Companys Condensed Consolidated Balance Sheets in trade
accounts receivables less allowances.
|
|
(8)
|
Fair
Value of Financial Assets and Liabilities
|
The Company has adopted the provisions of SFAS 157 as of
December 30, 2007 for its financial assets and liabilities.
Although this partial adoption of SFAS 157 had no material
impact its financial condition, results of operations or cash
flows, the Company is now required to provide additional
disclosures as part of its financial statements. SFAS 157
clarifies that fair value is an exit price, representing the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. The Company utilizes
market data or assumptions that market participants would use in
pricing the asset or liability. SFAS 157 establishes a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs
about which little or no market data exists, therefore requiring
an entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in SFAS 157.
The three valuation techniques are as follows:
|
|
|
|
|
Market approach prices and other relevant
information generated by market transactions involving identical
or comparable assets or liabilities.
|
|
|
|
Cost approach amount that would be required to
replace the service capacity of an asset or replacement cost.
|
10
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
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 March 29, 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
quarter ended March 29, 2008. There were no changes 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 of the Companys
financial assets and liabilities accounted for at fair value on
a recurring basis at March 29, 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 March 29,
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
|
|
$
|
(173
|
)
|
|
$
|
(32,726
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(173
|
)
|
|
$
|
(32,726
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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
11
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
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
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
36,024
|
|
|
$
|
12,004
|
|
Translation adjustments
|
|
|
(1,530
|
)
|
|
|
473
|
|
Net unrealized loss on qualifying cash flow hedges, net of tax
of $6,307 and $1,484, respectively
|
|
|
(9,906
|
)
|
|
|
(2,331
|
)
|
Amounts amortized into net periodic income:
|
|
|
|
|
|
|
|
|
Prior service cost (benefit), net of tax of $4 and $779,
respectively
|
|
|
6
|
|
|
|
(1,224
|
)
|
Actuarial loss, net of tax of $15 and $362, respectively
|
|
|
24
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
24,618
|
|
|
$
|
9,491
|
|
|
|
|
|
|
|
|
|
|
For the quarters ended March 29, 2008 and March 31,
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% and 30% for the quarters ended March 29, 2008
and March 31, 2007, respectively, and the
U.S. statutory rate of 35.0% is primarily attributable to
unremitted earnings of foreign subsidiaries taxed at rates less
than the U.S. statutory rate. The Companys estimated
annual effective tax rate is reflective of its strategic
initiative to make substantial capital investments outside the
United States in its global supply chain in 2008.
Within 180 days after Sara Lee files its final consolidated
tax return for the period that includes September 5, 2006,
which is expected to occur by September 2008, Sara Lee is
required to deliver to the Company a computation of the amount
of deferred taxes attributable to the Companys United
States and Canadian operations that would be included on the
Companys balance sheet as of September 6, 2006. If
substituting the amount of deferred taxes as finally determined
for the amount of estimated deferred taxes that were included on
that balance sheet at the time of the spin off causes a decrease
in the net book value reflected on that balance sheet, then Sara
Lee will be required to pay the Company the amount of such
decrease. If such substitution causes an increase in the net
book value reflected on that balance sheet, then the Company
will be required to pay Sara Lee the amount of such increase.
|
|
(11)
|
Business
Segment Information
|
The Companys operations are managed and reported in five
operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery,
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.
|
12
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
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
fabric and certain other materials in the United States and
Latin America in order to maintain asset utilization at certain
manufacturing facilities and generate break even margins.
|
The Company evaluates the operating performance of its segments
based upon segment operating profit, which is defined as
operating profit before general corporate expenses, amortization
of trademarks and other identifiable intangibles and
restructuring and related accelerated depreciation charges. The
accounting policies of the segments are consistent with those
described in Note 2 to the Companys consolidated
financial statements included in its Annual Report on
Form 10-K
for the year ended December 29, 2007.
Certain prior year segment assets, depreciation and amortization
expense and additions to long-lived assets disclosures have been
revised to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
543,730
|
|
|
$
|
590,447
|
|
Outerwear
|
|
|
272,205
|
|
|
|
283,635
|
|
Hosiery
|
|
|
66,741
|
|
|
|
73,693
|
|
International
|
|
|
104,636
|
|
|
|
90,777
|
|
Other
|
|
|
11,121
|
|
|
|
15,398
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales(1)
|
|
|
998,433
|
|
|
|
1,053,950
|
|
Intersegment(2)
|
|
|
(10,586
|
)
|
|
|
(14,056
|
)
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
987,847
|
|
|
$
|
1,039,894
|
|
|
|
|
|
|
|
|
|
|
13
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
53,675
|
|
|
$
|
75,968
|
|
Outerwear
|
|
|
16,417
|
|
|
|
6,100
|
|
Hosiery
|
|
|
24,121
|
|
|
|
20,045
|
|
International
|
|
|
14,804
|
|
|
|
7,778
|
|
Other
|
|
|
(840
|
)
|
|
|
(775
|
)
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
108,177
|
|
|
|
109,116
|
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,951
|
)
|
|
|
(17,177
|
)
|
Amortization of trademarks and other identifiable intangibles
|
|
|
(2,673
|
)
|
|
|
(1,560
|
)
|
Restructuring
|
|
|
(2,558
|
)
|
|
|
(16,246
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(2,558
|
)
|
|
|
(5,267
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
87,794
|
|
|
|
68,866
|
|
Interest expense, net
|
|
|
(40,394
|
)
|
|
|
(51,717
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
47,400
|
|
|
$
|
17,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29,
|
|
|
December 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,278,246
|
|
|
$
|
1,247,441
|
|
Outerwear
|
|
|
792,845
|
|
|
|
754,178
|
|
Hosiery
|
|
|
97,449
|
|
|
|
97,804
|
|
International
|
|
|
236,351
|
|
|
|
232,142
|
|
Other
|
|
|
15,391
|
|
|
|
16,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,420,282
|
|
|
|
2,348,372
|
|
Corporate(3)
|
|
|
1,049,857
|
|
|
|
1,091,111
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,470,139
|
|
|
$
|
3,439,483
|
|
|
|
|
|
|
|
|
|
|
14
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
10,551
|
|
|
$
|
11,319
|
|
Outerwear
|
|
|
7,130
|
|
|
|
6,897
|
|
Hosiery
|
|
|
1,631
|
|
|
|
2,542
|
|
International
|
|
|
423
|
|
|
|
821
|
|
Other
|
|
|
337
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,072
|
|
|
|
21,712
|
|
Corporate
|
|
|
6,192
|
|
|
|
6,458
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense
|
|
$
|
26,264
|
|
|
$
|
28,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Additions to long-lived assets:
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
7,402
|
|
|
$
|
3,861
|
|
Outerwear
|
|
|
13,002
|
|
|
|
1,937
|
|
Hosiery
|
|
|
79
|
|
|
|
304
|
|
International
|
|
|
474
|
|
|
|
360
|
|
Other
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,960
|
|
|
|
6,469
|
|
Corporate
|
|
|
6,620
|
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
Total additions to long-lived assets
|
|
$
|
27,580
|
|
|
$
|
7,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes sales between segments. Such sales are at transfer
prices that are at cost plus markup or at prices equivalent to
market value. |
|
(2) |
|
Intersegment sales included in the segments net sales are
as follows: |
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Innerwear
|
|
$
|
1,356
|
|
|
$
|
1,725
|
|
Outerwear
|
|
|
5,430
|
|
|
|
6,798
|
|
Hosiery
|
|
|
3,131
|
|
|
|
4,824
|
|
International
|
|
|
669
|
|
|
|
709
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,586
|
|
|
$
|
14,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
Principally cash and equivalents, certain fixed assets, net
deferred tax assets, goodwill, trademarks and other identifiable
intangibles, and certain other noncurrent assets. |
15
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
(12)
|
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.
16
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 March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,023,459
|
|
|
$
|
97,446
|
|
|
$
|
644,959
|
|
|
$
|
(778,017
|
)
|
|
$
|
987,847
|
|
Cost of sales
|
|
|
801,169
|
|
|
|
39,213
|
|
|
|
560,838
|
|
|
|
(758,337
|
)
|
|
|
642,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
222,290
|
|
|
|
58,233
|
|
|
|
84,121
|
|
|
|
(19,680
|
)
|
|
|
344,964
|
|
Selling, general and administrative expenses
|
|
|
219,300
|
|
|
|
21,591
|
|
|
|
13,274
|
|
|
|
447
|
|
|
|
254,612
|
|
Restructuring
|
|
|
(515
|
)
|
|
|
|
|
|
|
3,073
|
|
|
|
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
3,505
|
|
|
|
36,642
|
|
|
|
67,774
|
|
|
|
(20,127
|
)
|
|
|
87,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
63,706
|
|
|
|
36,777
|
|
|
|
|
|
|
|
(100,483
|
)
|
|
|
|
|
Interest expense, net
|
|
|
26,343
|
|
|
|
8,891
|
|
|
|
5,160
|
|
|
|
|
|
|
|
40,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
40,868
|
|
|
|
64,528
|
|
|
|
62,614
|
|
|
|
(120,610
|
)
|
|
|
47,400
|
|
Income tax expense (benefit)
|
|
|
4,844
|
|
|
|
2,118
|
|
|
|
4,414
|
|
|
|
|
|
|
|
11,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
36,024
|
|
|
$
|
62,410
|
|
|
$
|
58,200
|
|
|
$
|
(120,610
|
)
|
|
$
|
36,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
Quarter Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
1,042,703
|
|
|
$
|
202,596
|
|
|
$
|
599,701
|
|
|
$
|
(805,106
|
)
|
|
$
|
1,039,894
|
|
Cost of sales
|
|
|
805,905
|
|
|
|
150,407
|
|
|
|
536,603
|
|
|
|
(792,700
|
)
|
|
|
700,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
236,798
|
|
|
|
52,189
|
|
|
|
63,098
|
|
|
|
(12,406
|
)
|
|
|
339,679
|
|
Selling, general and administrative expenses
|
|
|
220,847
|
|
|
|
3,582
|
|
|
|
24,516
|
|
|
|
5,622
|
|
|
|
254,567
|
|
Restructuring
|
|
|
15,901
|
|
|
|
|
|
|
|
345
|
|
|
|
|
|
|
|
16,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
50
|
|
|
|
48,607
|
|
|
|
38,237
|
|
|
|
(18,028
|
)
|
|
|
68,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of subsidiaries
|
|
|
52,674
|
|
|
|
25,305
|
|
|
|
|
|
|
|
(77,979
|
)
|
|
|
|
|
Interest expense, net
|
|
|
41,388
|
|
|
|
10,637
|
|
|
|
(301
|
)
|
|
|
(7
|
)
|
|
|
51,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
11,336
|
|
|
|
63,275
|
|
|
|
38,538
|
|
|
|
(96,000
|
)
|
|
|
17,149
|
|
Income tax expense (benefit)
|
|
|
(668
|
)
|
|
|
1,173
|
|
|
|
4,640
|
|
|
|
|
|
|
|
5,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,004
|
|
|
$
|
62,102
|
|
|
$
|
33,898
|
|
|
$
|
(96,000
|
)
|
|
$
|
12,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,396
|
|
|
$
|
1,958
|
|
|
$
|
92,439
|
|
|
$
|
|
|
|
$
|
120,793
|
|
Trade accounts receivable
|
|
|
(2,271
|
)
|
|
|
8,053
|
|
|
|
538,184
|
|
|
|
(2,066
|
)
|
|
|
541,900
|
|
Inventories
|
|
|
932,683
|
|
|
|
49,604
|
|
|
|
292,780
|
|
|
|
(51,088
|
)
|
|
|
1,223,979
|
|
Deferred tax assets and other current assets
|
|
|
196,443
|
|
|
|
6,925
|
|
|
|
37,699
|
|
|
|
(2,488
|
)
|
|
|
238,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,153,251
|
|
|
|
66,540
|
|
|
|
961,102
|
|
|
|
(55,642
|
)
|
|
|
2,125,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
267,769
|
|
|
|
7,645
|
|
|
|
251,084
|
|
|
|
|
|
|
|
526,498
|
|
Trademarks and other identifiable intangibles, net
|
|
|
31,320
|
|
|
|
118,494
|
|
|
|
5,592
|
|
|
|
|
|
|
|
155,406
|
|
Goodwill
|
|
|
232,883
|
|
|
|
16,934
|
|
|
|
62,757
|
|
|
|
|
|
|
|
312,574
|
|
Investments in subsidiaries
|
|
|
477,770
|
|
|
|
614,871
|
|
|
|
|
|
|
|
(1,092,641
|
)
|
|
|
|
|
Deferred tax assets and other noncurrent assets
|
|
|
307,611
|
|
|
|
268,655
|
|
|
|
(164,610
|
)
|
|
|
(61,246
|
)
|
|
|
350,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,470,604
|
|
|
$
|
1,093,139
|
|
|
$
|
1,115,925
|
|
|
$
|
(1,209,529
|
)
|
|
$
|
3,470,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
137,755
|
|
|
$
|
2,825
|
|
|
$
|
83,640
|
|
|
$
|
85,647
|
|
|
$
|
309,867
|
|
Accrued liabilities
|
|
|
274,705
|
|
|
|
23,982
|
|
|
|
63,389
|
|
|
|
(2,640
|
)
|
|
|
359,436
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
14,562
|
|
|
|
|
|
|
|
14,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
412,460
|
|
|
|
26,807
|
|
|
|
161,591
|
|
|
|
83,007
|
|
|
|
683,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,615,250
|
|
|
|
450,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
131,612
|
|
|
|
1,693
|
|
|
|
22,009
|
|
|
|
4,428
|
|
|
|
159,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,159,322
|
|
|
|
478,500
|
|
|
|
433,600
|
|
|
|
87,435
|
|
|
|
3,158,857
|
|
Stockholders equity
|
|
|
311,282
|
|
|
|
614,639
|
|
|
|
682,325
|
|
|
|
(1,296,964
|
)
|
|
|
311,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,470,604
|
|
|
$
|
1,093,139
|
|
|
$
|
1,115,925
|
|
|
$
|
(1,209,529
|
)
|
|
$
|
3,470,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Quarter Ended March 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(45,823
|
)
|
|
$
|
36,758
|
|
|
$
|
91,516
|
|
|
$
|
(101,932
|
)
|
|
$
|
(19,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,971
|
)
|
|
|
(1,879
|
)
|
|
|
(18,730
|
)
|
|
|
|
|
|
|
(27,580
|
)
|
Proceeds from sales of assets
|
|
|
6,172
|
|
|
|
|
|
|
|
898
|
|
|
|
|
|
|
|
7,070
|
|
Other
|
|
|
2,750
|
|
|
|
|
|
|
|
(2,199
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,951
|
|
|
|
(1,879
|
)
|
|
|
(20,031
|
)
|
|
|
(551
|
)
|
|
|
(20,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
17,747
|
|
|
|
|
|
|
|
17,747
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(23,295
|
)
|
|
|
|
|
|
|
(23,295
|
)
|
Proceeds from stock options exercised
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339
|
|
Stock repurchases
|
|
|
(8,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,277
|
)
|
Borrowing on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
19,220
|
|
|
|
|
|
|
|
19,220
|
|
Repayments on accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
(19,220
|
)
|
|
|
|
|
|
|
(19,220
|
)
|
Other
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Net transactions with related entities
|
|
|
(6,016
|
)
|
|
|
(39,250
|
)
|
|
|
(57,217
|
)
|
|
|
102,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(14,208
|
)
|
|
|
(39,250
|
)
|
|
|
(62,765
|
)
|
|
|
102,483
|
|
|
|
(13,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(58,080
|
)
|
|
|
(4,371
|
)
|
|
|
9,008
|
|
|
|
|
|
|
|
(53,443
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
84,476
|
|
|
|
6,329
|
|
|
|
83,431
|
|
|
|
|
|
|
|
174,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
26,396
|
|
|
$
|
1,958
|
|
|
$
|
92,439
|
|
|
$
|
|
|
|
$
|
120,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
HANESBRANDS
Notes to
Condensed Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
Quarter Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidating
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Entries and
|
|
|
|
|
|
|
Company
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
26,141
|
|
|
$
|
30,577
|
|
|
$
|
20,966
|
|
|
$
|
(78,275
|
)
|
|
$
|
(591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5,473
|
)
|
|
|
(235
|
)
|
|
|
(1,686
|
)
|
|
|
|
|
|
|
(7,394
|
)
|
Proceeds from sales of assets
|
|
|
414
|
|
|
|
1,162
|
|
|
|
2,952
|
|
|
|
|
|
|
|
4,528
|
|
Other
|
|
|
(366
|
)
|
|
|
84
|
|
|
|
(709
|
)
|
|
|
357
|
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(5,425
|
)
|
|
|
1,011
|
|
|
|
557
|
|
|
|
357
|
|
|
|
(3,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital lease obligations
|
|
|
(262
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(277
|
)
|
Borrowings on notes payable
|
|
|
|
|
|
|
|
|
|
|
8,992
|
|
|
|
|
|
|
|
8,992
|
|
Repayments on notes payable
|
|
|
|
|
|
|
|
|
|
|
(11,204
|
)
|
|
|
|
|
|
|
(11,204
|
)
|
Cost of debt issuance
|
|
|
(1,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,774
|
)
|
Decrease in bank overdraft
|
|
|
|
|
|
|
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
(834
|
)
|
Proceeds from stock options exercised
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,338
|
|
Net transactions with related entities
|
|
|
(47,711
|
)
|
|
|
(26,106
|
)
|
|
|
(4,101
|
)
|
|
|
77,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(47,409
|
)
|
|
|
(26,121
|
)
|
|
|
(7,147
|
)
|
|
|
77,918
|
|
|
|
(2,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(26,693
|
)
|
|
|
5,467
|
|
|
|
14,543
|
|
|
|
|
|
|
|
(6,683
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
60,960
|
|
|
|
(1,251
|
)
|
|
|
96,264
|
|
|
|
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
34,267
|
|
|
$
|
4,216
|
|
|
$
|
110,807
|
|
|
$
|
|
|
|
$
|
149,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements that involve risks and uncertainties.
Please see Forward-Looking Statements for a
discussion of the uncertainties, risks and assumptions
associated with these statements. This discussion should be read
in conjunction with our historical financial statements and
related notes thereto and the other disclosures contained
elsewhere in this Quarterly Report on
Form 10-Q.
The unaudited condensed consolidated financial statements and
notes included herein should be read in conjunction with our
audited consolidated financial statements and notes for the year
ended December 29, 2007, which were included in our Annual
Report on
Form 10-K
filed with the Securities and Exchange Commission. The results
of operations for the periods reflected herein are not
necessarily indicative of results that may be expected for
future periods, and our actual results may differ materially
from those discussed in the forward-looking statements as a
result of various factors, including but not limited to those
included elsewhere in this Quarterly Report on
Form 10-Q
and those included in 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 first quarter ended
March 29, 2008 from our Innerwear segment were
$544 million, representing approximately 54% 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 first quarter
ended March 29, 2008 from our Outerwear segment were
$272 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 first quarter ended
March 29, 2008 from our Hosiery segment were
$67 million, representing approximately 7% 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.
|
22
|
|
|
|
|
International. International includes products
that span across the Innerwear, Outerwear and Hosiery reportable
segments and include products marketed under the Hanes,
Champion, Wonderbra, Playtex,
Rinbros, Bali and Stedman brands. Our net
sales for the first quarter ended March 29, 2008 from our
International segment were $105 million, representing
approximately 11% of total segment net sales and included sales
in Latin America, Asia, Canada and Europe. Japan, Canada and
Mexico are our largest international markets, and we also have
sales offices in India and China.
|
|
|
|
Other. Our net sales for the first quarter
ended March 29, 2008 in our Other segment were
$11 million, representing approximately 1% of total segment
net sales and are comprised of sales of nonfinished products
such as fabric and certain other materials in the United States
and Latin America in order to maintain asset utilization at
certain manufacturing facilities and generate break even margins.
|
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather, back-to-school shopping and holidays.
Sales levels in a period are also impacted by customers
decisions to increase or decrease their inventory levels in
response to anticipated consumer demand. Our customers may
cancel orders, change delivery schedules or change the mix of
products ordered with minimal notice to us. Our results of
operations are also impacted by fluctuations and volatility in
the price of cotton and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions. 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 54 cents per pound
in the first quarter of 2008 as compared to 56 cents per pound
in the first quarter of 2007. Taking into consideration the
agreements that we currently have in effect and 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 70 cents per
pound range which is the price that will impact our operating
results in the third and fourth quarters of 2008. Additionally,
the prices for the cotton crop grown this coming summer season,
which will impact our operating results in 2009, have risen to
the upper 70 cents per pound range.
Highlights
from the First Quarter Ended March 29, 2008
|
|
|
|
|
Diluted earnings per share were $0.38 in the first quarter of
2008, compared with $0.12 in 2007.
|
|
|
|
Operating profit was $88 million in the first quarter of
2008, up from $69 million in 2007.
|
|
|
|
Total net sales in the first quarter of 2008 were lower by
$52 million at $988 million compared to 2007.
|
|
|
|
We approved actions to close two manufacturing facilities in
Heredia, Costa Rica and Aguascalientes, Mexico during the first
quarter of 2008. In addition, we completed several actions in
the first quarter of 2008 that were announced in 2007.
|
|
|
|
Capital expenditures were $28 million during the first
quarter of 2008 as we continued to build out our textile and
sewing network in Asia and Central America.
|
|
|
|
Using cash flow from operating activities, we repurchased
$8 million of company stock during the first quarter of
2008.
|
23
|
|
|
|
|
We ended the first quarter of 2008 with an excess of
$600 million of liquidity, which consists of
$436 million of borrowing availability under our undrawn
revolving loan facility, $121 million in cash and cash
equivalents and $96 million of borrowing availability under
our international loan facilities.
|
Condensed
Consolidated Results of Operations First Quarter
Ended March 29, 2008 Compared with First Quarter Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales
|
|
$
|
987,847
|
|
|
$
|
1,039,894
|
|
|
$
|
(52,047
|
)
|
|
|
(5.0
|
)%
|
Cost of sales
|
|
|
642,883
|
|
|
|
700,215
|
|
|
|
(57,332
|
)
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
344,964
|
|
|
|
339,679
|
|
|
|
5,285
|
|
|
|
1.6
|
|
Selling, general and administrative expenses
|
|
|
254,612
|
|
|
|
254,567
|
|
|
|
45
|
|
|
|
0.0
|
|
Restructuring
|
|
|
2,558
|
|
|
|
16,246
|
|
|
|
(13,688
|
)
|
|
|
(84.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
87,794
|
|
|
|
68,866
|
|
|
|
18,928
|
|
|
|
27.5
|
|
Interest expense, net
|
|
|
40,394
|
|
|
|
51,717
|
|
|
|
(11,323
|
)
|
|
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
47,400
|
|
|
|
17,149
|
|
|
|
30,251
|
|
|
|
176.4
|
|
Income tax expense
|
|
|
11,376
|
|
|
|
5,145
|
|
|
|
6,231
|
|
|
|
121.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,024
|
|
|
$
|
12,004
|
|
|
$
|
24,020
|
|
|
|
200.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
987,847
|
|
|
$
|
1,039,894
|
|
|
$
|
(52,047
|
)
|
|
|
(5.0
|
)%
|
Consolidated net sales were lower by $52 million or 5.0% in
the first quarter of 2008 compared to 2007. Our Innerwear,
Outerwear, Hosiery and Other segment net sales were lower by
$47 million (7.9%), $11 million (4.0%),
$7 million (9.4%) and $4 million (27.8%),
respectively, and were partially offset by higher segment net
sales in International of $14 million (15.3%). Although the
majority of our products are replenishment in nature and tend to
be purchased by consumers on a planned, rather than on an
impulse, basis, softness in the retail environment can impact
our results in the short-term, as it did in the first quarter of
2008. Sales to our retail customers during the first quarter of
2008 were reflective of a difficult economic and retail
environment in which the ultimate consumers of our products have
been limiting their discretionary spending.
The net sales decline was broad based affecting most product
categories and most customers. The overall lower net sales were
primarily due to a decline in sales volume across most product
categories in our key brands Hanes, Champion, Bali,
Just My Size and barely there. Playtex brand net
sales were flat compared to last year. Net sales in the Hosiery
segment were lower 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.
The lower net sales were partially offset by higher net sales in
the International segment that were driven by a favorable impact
of $11 million related to foreign currency exchange rates.
The favorable impact was primarily due to the strengthening of
the Canadian dollar, Euro, Japanese yen and Brazilian real and
by the growth in the European casualwear business.
24
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Gross profit
|
|
$
|
344,964
|
|
|
$
|
339,679
|
|
|
$
|
5,285
|
|
|
|
1.6
|
%
|
As a percent of net sales, our gross profit percentage was 34.9%
in the first quarter of 2008 compared to 32.7% in 2007. The
higher gross profit percentage was primarily due to
$11 million of savings from our cost reduction initiatives
and prior restructuring actions, $11 million of lower
production costs, a $5 million favorable impact related to
foreign currency exchange rates, and lower accelerated
depreciation of $3 million. The favorable foreign currency
exchange rate impact in our International segment was primarily
due to the strengthening of the Canadian dollar, Euro, Japanese
yen and Brazilian real.
These lower costs were partially offset by $19 million of
lower sales volume, higher freight costs of $5 million
primarily due to a greater use of air freight and higher sales
incentives of $2 million.
Our per pound cotton costs were $2 million lower in the
first quarter of 2008 as compared to 2007. The cotton prices
reflected in our results were 54 cents per pound in the first
quarter of 2008 as compared to 56 cents per pound in 2007. After
taking into consideration the agreements that we currently have
in effect and cotton costs currently included in inventory, we
expect our cost of cotton to average 66 cents per pound for the
full year 2008.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Selling, general and administrative expenses
|
|
$
|
254,612
|
|
|
$
|
254,567
|
|
|
$
|
45
|
|
|
|
0.0
|
%
|
Our selling, general and administrative expenses were flat in
the first quarter of 2008 compared to 2007. Our cost reduction
efforts have allowed us to offset higher investments in our
strategic initiatives of higher media related media, advertising
and promotion expenses (MAP) of $10 million and
higher technology consulting expenses of $9 million during
the first quarter of 2008. Our media related MAP expenses were
higher in the first quarter of 2008 to support the launch of
Hanes No Ride Up Panties and marketing initiatives for
Playtex.
The higher expenses were offset by $8 million of savings
from our prior restructuring actions primarily for compensation
and related benefits, $4 million of lower pension expense,
$2 million of lower stock compensation expense,
$2 million of lower distribution expenses and
$2 million of lower non-media related MAP expenses. MAP
expenses may vary from period to period during a fiscal year
depending on the timing of our advertising campaigns for retail
selling seasons and product introductions.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Restructuring
|
|
$
|
2,558
|
|
|
$
|
16,246
|
|
|
$
|
(13,688
|
)
|
|
|
(84.3
|
)%
|
During the first quarter of 2008, we approved actions to close
two manufacturing facilities and eliminate approximately
1,100 employees in Heredia, Costa Rica and Aguascalientes,
Mexico during the next twelve months. This production capacity
will be relocated to lower cost locations in Asia and Central
America. We recorded a charge of $3 million primarily
attributable to employee termination and other benefits
recognized in accordance with benefit plans previously
communicated to the affected employee group. In connection with
our consolidation and globalization strategy, in the first
quarters of 2008 and 2007 we recognized non-cash
25
charges of $3 million and $5 million, respectively, in
the Cost of sales line and a non-cash charge of
$1 million in the Selling, general and administrative
expenses line in the first quarter of 2008 related to
accelerated depreciation of buildings and equipment for
facilities that have been closed or will be closed.
The change in restructuring expense in 2008 compared to 2007 is
attributable to $16 million in restructuring charges we
incurred during the first quarter of 2007 which primarily
related to a $10 million charge for lease termination costs
and $6 million in charges for employee termination and
other benefits associated with previously approved actions for
plant closures.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
Operating
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Operating profit
|
|
$
|
87,794
|
|
|
$
|
68,866
|
|
|
$
|
18,928
|
|
|
|
27.5
|
%
|
Operating profit was higher in the first quarter of 2008 by
$19 million compared to 2007 primarily as a result of lower
restructuring charges for facility closures of $14 million
and higher gross profit of $5 million. Our ability to
control costs and execute on our consolidation and globalization
strategy has allowed us to offset higher investments in our
strategic initiatives of $19 million during the first
quarter of 2008 compared to 2007.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Interest expense, net
|
|
$
|
40,394
|
|
|
$
|
51,717
|
|
|
$
|
(11,323
|
)
|
|
|
(21.9
|
)%
|
Interest expense, net was lower by $11 million in the first
quarter of 2008 compared to 2007. The lower interest expense is
primarily attributable to a lower weighted average interest
rate, $6 million of which resulted from a lower LIBOR and
$2 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
$3 million as a result of our net prepayments of long-term
debt during 2007 of $178 million. Our weighted average
interest rate on our outstanding debt was 6.69% during the first
quarter of 2008 compared to 7.89% in 2007.
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Income tax expense
|
|
$
|
11,376
|
|
|
$
|
5,145
|
|
|
$
|
6,231
|
|
|
|
121.1
|
%
|
Our estimated annual effective income tax rate was 24% in the
first quarter of 2008 compared to 30% in 2007. The lower
effective income tax rate is attributable primarily to higher
unremitted earnings from foreign subsidiaries in the first
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.
26
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
36,024
|
|
|
$
|
12,004
|
|
|
$
|
24,020
|
|
|
|
200.1
|
%
|
Net income for the first quarter of 2008 was higher than 2007
primarily due to lower restructuring charges, lower interest
expense, higher gross profit and a lower effective income tax
rate.
Operating
Results by Business Segment First Quarter Ended
March 29, 2008 Compared with First Quarter Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
Higher
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Lower)
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
543,730
|
|
|
$
|
590,447
|
|
|
$
|
(46,717
|
)
|
|
|
(7.9
|
)%
|
Outerwear
|
|
|
272,205
|
|
|
|
283,635
|
|
|
|
(11,430
|
)
|
|
|
(4.0
|
)
|
Hosiery
|
|
|
66,741
|
|
|
|
73,693
|
|
|
|
(6,952
|
)
|
|
|
(9.4
|
)
|
International
|
|
|
104,636
|
|
|
|
90,777
|
|
|
|
13,859
|
|
|
|
15.3
|
|
Other
|
|
|
11,121
|
|
|
|
15,398
|
|
|
|
(4,277
|
)
|
|
|
(27.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
998,433
|
|
|
|
1,053,950
|
|
|
|
(55,517
|
)
|
|
|
(5.3
|
)
|
Intersegment
|
|
|
(10,586
|
)
|
|
|
(14,056
|
)
|
|
|
(3,470
|
)
|
|
|
(24.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
987,847
|
|
|
$
|
1,039,894
|
|
|
$
|
(52,047
|
)
|
|
|
(5.0
|
)%
|
Segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
53,675
|
|
|
$
|
75,968
|
|
|
$
|
(22,293
|
)
|
|
|
(29.3
|
)%
|
Outerwear
|
|
|
16,417
|
|
|
|
6,100
|
|
|
|
10,317
|
|
|
|
169.1
|
|
Hosiery
|
|
|
24,121
|
|
|
|
20,045
|
|
|
|
4,076
|
|
|
|
20.3
|
|
International
|
|
|
14,804
|
|
|
|
7,778
|
|
|
|
7,026
|
|
|
|
90.3
|
|
Other
|
|
|
(840
|
)
|
|
|
(775
|
)
|
|
|
(65
|
)
|
|
|
(8.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
108,177
|
|
|
|
109,116
|
|
|
|
(939
|
)
|
|
|
(0.9
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(11,951
|
)
|
|
|
(17,177
|
)
|
|
|
(5,226
|
)
|
|
|
(30.4
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(2,673
|
)
|
|
|
(1,560
|
)
|
|
|
1,113
|
|
|
|
71.3
|
|
Restructuring
|
|
|
(2,558
|
)
|
|
|
(16,246
|
)
|
|
|
(13,688
|
)
|
|
|
(84.3
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(2,558
|
)
|
|
|
(5,267
|
)
|
|
|
(2,709
|
)
|
|
|
(51.4
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(643
|
)
|
|
|
|
|
|
|
643
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
87,794
|
|
|
|
68,866
|
|
|
|
18,928
|
|
|
|
27.5
|
|
Interest expense, net
|
|
|
(40,394
|
)
|
|
|
(51,717
|
)
|
|
|
(11,323
|
)
|
|
|
(21.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
47,400
|
|
|
$
|
17,149
|
|
|
$
|
30,251
|
|
|
|
176.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
543,730
|
|
|
$
|
590,447
|
|
|
$
|
(46,717
|
)
|
|
|
(7.9
|
)%
|
Segment operating profit
|
|
|
53,675
|
|
|
|
75,968
|
|
|
|
(22,293
|
)
|
|
|
(29.3
|
)
|
Overall net sales in the Innerwear segment were lower by
$47 million or 7.9% in the first quarter of 2008 compared
to 2007. The net sales decline was broad based, affecting most
product categories and most customers. We experienced lower
sales of Hanes brand mens underwear of
$10 million, lower Hanes brand kids underwear
sales of $8 million, lower Champion brand sock sales
of $4 million, lower Hanes brand socks sales of
$3 million and lower Hanes brand sleepwear sales of
$3 million. In addition, we experienced lower sales of
Just My Size brand intimate apparel of $6 million,
lower sales of barely there brand intimate apparel of
$5 million, lower sales of Bali brand intimate
apparel of $4 million and lower sales of Hanes brand
intimate apparel of $2 million.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 38.3% in the first quarter of 2008
compared to 38.6% in 2007. The lower gross profit is primarily
attributable to lower sales volume of $15 million,
unfavorable product sales mix of $8 million, higher freight
costs of $5 million and higher production costs of
$2 million. These factors were partially offset by savings
from our cost reduction initiatives and prior restructuring
actions of $7 million and lower excess and obsolete
inventory costs of $5 million.
The lower Innerwear segment operating profit in the first
quarter of 2008 compared to 2007 is primarily attributable to
lower gross profit on lower sales volume, higher MAP expenses of
$10 million and higher technology consulting expenses of
$5 million partially offset by savings from prior
restructuring actions of $5 million and lower distribution
expenses of $2 million and $3 million of lower
spending in numerous other areas. A significant portion of the
selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for the first
quarter of 2008 is consistent with 2007. Our consolidated
selling, general and administrative expenses before segment
allocations was flat in the first quarter of 2008 compared to
2007.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
272,205
|
|
|
$
|
283,635
|
|
|
$
|
(11,430
|
)
|
|
|
(4.0
|
)%
|
Segment operating profit
|
|
|
16,417
|
|
|
|
6,100
|
|
|
|
10,317
|
|
|
|
169.1
|
|
Net sales in the Outerwear segment were lower by
$11 million or 4.0% in the first quarter of 2008 compared
to 2007 primarily as a result of lower sales of promotional
t-shirts sold primarily through our embellishment channel of
$7 million and lower sales of retail casualwear of
$6 million. Champion brand activewear net sales for
the first quarter of 2008 was $2 million higher as compared
to 2007.
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 23.9% in the first quarter of 2008
compared to 18.9% in 2007. The higher gross profit is primarily
attributable to lower production costs of $10 million,
favorable product sales mix of $7 million and savings from
our cost reduction initiatives and prior restructuring actions
of $4 million offset primarily by higher excess and
obsolete inventory costs of $4 million, lower sales volume
of $3 million and higher sales incentives of
$3 million.
The higher Outerwear segment operating profit in the first
quarter of 2008 compared to 2007 is primarily attributable to
higher gross profit and savings from our cost reduction
initiatives and prior restructuring actions
28
of $3 million offset by higher technology consulting
expenses of $2 million and $2 million of higher
spending in numerous other areas. A significant portion of the
selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for the first
quarter of 2008 is consistent with 2007. Our consolidated
selling, general and administrative expenses before segment
allocations was flat in the first quarter of 2008 compared to
2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
66,741
|
|
|
$
|
73,693
|
|
|
$
|
(6,952
|
)
|
|
|
(9.4
|
)%
|
Segment operating profit
|
|
|
24,121
|
|
|
|
20,045
|
|
|
|
4,076
|
|
|
|
20.3
|
|
Net sales in the Hosiery segment were lower by $7 million
or 9.4% in the first quarter of 2008 compared to 2007 primarily
due to lower sales of the Hanes brand to national chains
and department stores and the Leggs brand to mass
retailers and food and drug stores. 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
53.0% in the first quarter of 2008 compared to 45.7% in 2007
primarily due to lower production costs of $3 million and
lower sales incentives of $2 million. These lower expenses
were partially offset by an unfavorable product sales mix of
$4 million.
Hosiery segment operating profit was higher in the first quarter
of 2008 compared to 2007 primarily due to the improvement in
gross profit, savings from our cost reduction initiatives and
prior restructuring actions of $1 million and lower 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 first quarter of 2008 is consistent with 2007. Our
consolidated selling, general and administrative expenses before
segment allocations was flat in the first quarter of 2008
compared to 2007.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
104,636
|
|
|
$
|
90,777
|
|
|
$
|
13,859
|
|
|
|
15.3
|
%
|
Segment operating profit
|
|
|
14,804
|
|
|
|
7,778
|
|
|
|
7,026
|
|
|
|
90.3
|
|
Overall net sales in the International segment were higher by
$14 million or 15.3% in the first quarter of 2008 compared
to 2007. During the first quarter of 2008 we experienced higher
net sales, in each case including the impact of foreign
currency, in Europe of $5 million, Canada of
$5 million and Latin America 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. Changes in foreign currency exchange rates had a
favorable impact on net sales of $11 million in the first
quarter of 2008 compared to 2007. The favorable foreign currency
exchange rate impact was primarily due to the strengthening of
the Canadian dollar, Euro, Japanese yen and Brazilian real.
As a percent of segment net sales, gross profit percentage was
42.6% in the first quarter of 2008 compared to 40.9% in 2007.
The higher gross profit was primarily attributable to a
favorable impact related to foreign currency exchange rates of
$5 million and a favorable product sales mix of
$4 million.
29
The higher International segment operating profit in the first
quarter of 2008 compared to 2007 is primarily attributable to
the higher gross profit from higher sales volume. Changes in
foreign currency exchange rates, which are included in the
impact on gross profit above, had a favorable impact on segment
operating profit of $2 million in the first quarter of 2008
compared to 2007.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 29,
|
|
March 31,
|
|
Higher
|
|
Percent
|
|
|
2008
|
|
2007
|
|
(Lower)
|
|
Change
|
|
|
(dollars in thousands)
|
|
Net sales
|
|
$
|
11,121
|
|
|
$
|
15,398
|
|
|
$
|
(4,277
|
)
|
|
|
(27.8
|
)%
|
Segment operating profit
|
|
|
(840
|
)
|
|
|
(775
|
)
|
|
|
(65
|
)
|
|
|
(8.4
|
)
|
Overall lower net sales from our Other segment were primarily
due to lower sales of nonfinished fabric and other materials to
third parties in the first quarter of 2008 as compared to 2007.
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 first quarter of
2008 compared to 2007 primarily due to higher foreign exchange
transaction gains of $3 million and $2 million of
lower
start-up and
shut-down costs.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Our primary sources of liquidity are our cash flows from
operating activities and availability under our revolving loan
facility. At March 29, 2008, we have in excess of
$600 million of liquidity, which consists of
$436 million of borrowing availability under our undrawn
$500 million revolving loan facility (after taking into
account outstanding letters of credit), $121 million in
cash and cash equivalents and $96 million of borrowing
availability under our international loan facilities. We
currently believe that our cash provided from operating
activities, 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 expect to repurchase up to 10 million shares of our
stock in the open market over the next few years,
1.9 million of which we have repurchased as of
March 29, 2008.
|
We expect to continue our restructuring efforts as we continue
to execute our consolidation and globalization strategy. The
implementation of these efforts, which are designed to improve
operating efficiencies and lower costs, has resulted and is
likely to continue to result in significant costs and savings.
As 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. As part of
our efforts to consolidate our operations, we also expect to
continue to incur costs associated with the integration of our
information
30
technology systems across our company over the next several
years. This process involves the replacement of eight
independent information technology platforms so that our
business functions are served by fewer platforms.
While capital spending could vary significantly from year to
year, we anticipate that our capital spending over the next
three years could be as high as $500 million as we execute
our supply chain consolidation and globalization strategy and
complete the integration and consolidation of our technology
systems. Capital spending in any given year over the next three
years could be as high as $100 million in excess of our
annual depreciation and amortization expense until the
completion of actions related to our globalization strategy at
which time we would expect our annual capital spending to be
relatively comparable to our annual depreciation and
amortization expense. The majority of our capital spending will
be focused on growing our supply chain operations in Central
America, the Caribbean Basin and Asia. These locations will
enable us to expand and leverage our large production scale as
we balance our supply chain across hemispheres.
As we continue to add new manufacturing capacity in Central
America, the Caribbean Basin and Asia, our exposure to events
that could disrupt our foreign supply chain, including political
instability, acts of war or terrorism or other international
events resulting in the disruption of trade, disruptions in
shipping and freight forwarding services, increases in oil
prices (which would increase the cost of shipping),
interruptions in the availability of basic services and
infrastructure and fluctuations in foreign currency exchange
rates, is increased. Disruptions in our foreign supply chain
could negatively impact our liquidity by interrupting 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.
Our U.S. qualified pension plans are currently
approximately 97% funded which should result in minimal pension
funding requirements in the future. Due to the current funded
status of the plans, we are not required to make any mandatory
contributions to our pension plans in 2008.
Consolidated
Cash Flows
The information presented below for the quarters ended
March 29, 2008 and March 31, 2007 was derived from our
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 29,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars in thousands)
|
|
|
Operating activities
|
|
$
|
(19,481
|
)
|
|
$
|
(591
|
)
|
Investing activities
|
|
|
(20,510
|
)
|
|
|
(3,500
|
)
|
Financing activities
|
|
|
(13,740
|
)
|
|
|
(2,759
|
)
|
Effect of changes in foreign currency exchange rates on cash
|
|
|
288
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
$
|
(53,443
|
)
|
|
$
|
(6,683
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
174,236
|
|
|
|
155,973
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
120,793
|
|
|
$
|
149,290
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash used in operating activities was $19 million in
the first quarter of 2008 compared to $1 million in 2007.
The higher cash used in operating activities of $18 million
is attributable to the higher uses of our working capital which
was primarily driven by changes in inventory and accrued
liabilities offset by accounts receivable. While inventory
levels grew $107 million from December 2007 year-end
levels as we build for back-to-school programs, inventory levels
are lower compared to the first quarter of 2007 by
$30 million. We 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.
31
Investing
Activities
Net cash used in investing activities was $21 million in
the first quarter of 2008 compared to $4 million in 2007.
The higher cash used in investing activities of $17 million
was primarily the result of higher capital expenditures. During
the first quarter of 2008 capital expenditures were
$28 million as we continue to build out our textile and
sewing network in Central America and Asia and invest in our
technology strategic initiatives.
Financing
Activities
Net cash used in financing activities was $14 million in
the first quarter of 2008 compared to $3 million in 2007.
The higher cash used in financing activities of $11 million
was primarily the result of higher net repayments on notes
payable of $3 million and stock repurchases of
$8 million.
Cash
and Cash Equivalents
As of March 29, 2008 and December 29, 2007, cash and
cash equivalents were $121 million and $174 million,
respectively. The lower cash and cash equivalents as of
March 29, 2008 was primarily the result of net capital
expenditures of $21 million, $8 million of stock
repurchases, $6 million of net repayments on notes payable
and $18 million related to other uses of working capital.
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 first quarter ended March 29,
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 8 of the Condensed Consolidated Financial Statements.
32
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.
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 March 29, 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 quarter ended March 29,
2008. There were no changes to our valuation technique used to
measure asset and liability fair values on a recurring basis.
As required by SFAS 157, assets and liabilities are
classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. Our
assessment of the significance of a particular input to the fair
value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels. The
determination of fair values incorporates various factors
required under SFAS 157. These factors include not only the
credit standing of the counterparties involved and the impact of
credit enhancements, but also the impact of our nonperformance
risk on our liabilities.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 permits
companies to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value under generally accepted
accounting principles and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The provisions of
SFAS 159 became effective for us on December 30, 2007.
As permitted by SFAS 159, we elected not to adopt the fair
value option.
33
Business
Combinations
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). The objective of SFAS 141R is
to improve the relevance, representational faithfulness, and
comparability of the information that a company provides in its
financial reports about a business combination and its effects.
Under SFAS 141R, a company would be required to recognize
the assets acquired, liabilities assumed, contractual
contingencies and contingent consideration measured at their
fair value at the acquisition date. It further requires that
research and development assets acquired in a business
combination that have no alternative future use be measured at
their acquisition-date fair value and then immediately charged
to expense, and that acquisition-related costs are to be
recognized separately from the acquisition and expensed as
incurred. Among other changes, this statement would also require
that negative goodwill be recognized in earnings as
a gain attributable to the acquisition, and any deferred tax
benefits resulting from a business combination be recognized in
income from continuing operations in the period of the
combination. We are in the process of analyzing the impact of
SFAS 141R, which is effective for business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). The objective of this Statement is
to improve the relevance, comparability, and transparency of the
financial information that a company provides in its
consolidated financial statements. SFAS 160 requires a
company to clearly identify and present ownership interests in
subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the companys equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income;
that changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated,
that any retained noncontrolling equity investment in the former
subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. We do not believe
that the adoption of SFAS 160 will have a material impact
on our results of operations or financial position.
Disclosures
About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 expands
the disclosure requirements of FASB Statement No. 133 about
an entitys derivative instruments and hedging activities
to include more detailed qualitative disclosures and expanded
quantitative disclosures. The provisions of SFAS 161 are
effective for fiscal years beginning after November 15,
2008. We are currently evaluating the impact that SFAS 161
will have on our results of operations and financial position.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We are required under the Senior Secured Credit Facility and the
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 March 29, 2008, we have outstanding
hedging arrangements whereby we capped the interest rate on
$950 million of our floating rate debt at 5.75%. We also
entered into interest rate swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the interest rate on an aggregate
of $600 million of our floating rate debt. Approximately
67% of our total debt outstanding at March 29, 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 $14.8 million during
the first quarter ended March 29, 2008, which has been
deferred into Accumulated Other Comprehensive Loss in our
Condensed Consolidated Balance Sheet until the hedged
transactions impact our earnings.
34
Cotton is the primary raw material we use to manufacture many of
our products. While we attempt to protect our business from the
volatility of the market price of cotton through short-term
supply agreements and hedges, our business can be adversely
affected by dramatic movements in cotton prices. The price of
cotton has recently exceeded its historical trading range of 30
to 70 cents per pound. The price of cotton currently in our
inventory has risen to the 70 cents per pound range which is the
price that will impact our operating results in the third and
fourth quarters of 2008. Additionally, the prices for the cotton
crop grown this coming summer season, which will impact our
operating results in 2009, have risen to the upper 70 cents per
pound range. The ultimate effect of these pricing levels on our
earnings cannot be quantified, as the effect of movements in
cotton prices on industry selling prices are uncertain, but any
dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations, financial
condition and cash flows.
There have been no other significant changes in our market risk
exposures from those described in Item 7A of our Annual
Report on
Form 10-K
for the year ended December 29, 2007.
|
|
Item 4.
|
Controls
and Procedures
|
As required by Exchange Act
Rule 13a-15(b),
our management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness
of our disclosure controls and procedures, as defined in
Exchange Act
Rule 13a-15(e),
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective.
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.
Item 1A. Risk
Factors
No updates to the report.
35
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table provides information about purchases by
Hanesbrands during the first quarter ended March 29, 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)
|
|
|
12/30/07 02/02/08
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
8,387,006
|
|
02/03/08 03/01/08
|
|
|
334,980
|
|
|
|
24.69
|
|
|
|
334,980
|
|
|
|
8,052,026
|
|
03/02/08 03/29/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,052,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
334,980
|
|
|
$
|
24.69
|
|
|
|
334,980
|
|
|
|
8,052,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
first quarter ended March 29, 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.
36
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: May 6, 2008
37
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Amendment and Restatement of Hanesbrands Inc.
(incorporated by reference from Exhibit 3.1 to the
Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.2
|
|
Articles Supplementary (Junior Participating Preferred
Stock, Series A) (incorporated by reference from
Exhibit 3.2 to the Registrants Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 5, 2006).
|
|
3
|
.3
|
|
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by
reference from Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 27, 2007).
|
|
3
|
.4
|
|
Certificate of Formation of BA International, L.L.C.
(incorporated by reference from Exhibit 3.4 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.5
|
|
Limited Liability Company Agreement of BA International, L.L.C.
(incorporated by reference from Exhibit 3.5 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.6
|
|
Certificate of Incorporation of Caribesock, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.6 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.7
|
|
Bylaws of Caribesock, Inc. (incorporated by reference from
Exhibit 3.7 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.8
|
|
Certificate of Incorporation of Caribetex, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.8 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.9
|
|
Bylaws of Caribetex, Inc. (incorporated by reference from
Exhibit 3.9 to the Registrants Registration Statement
on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.10
|
|
Certificate of Formation of CASA International, LLC
(incorporated by reference from Exhibit 3.10 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.11
|
|
Limited Liability Company Agreement of CASA International, LLC
(incorporated by reference from Exhibit 3.11 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.12
|
|
Certificate of Incorporation of Ceibena Del, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.12 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.13
|
|
Bylaws of Ceibena Del, Inc. (incorporated by reference from
Exhibit 3.13 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.14
|
|
Certificate of Formation of Hanes Menswear, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act and Certificate of Change
of Location of Registered Office and Registered Agent
(incorporated by reference from Exhibit 3.14 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
E-1
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.15
|
|
Limited Liability Company Agreement of Hanes Menswear, LLC
(incorporated by reference from Exhibit 3.15 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.16
|
|
Certificate of Incorporation of HPR, Inc., together with
Certificate of Merger of Hanes Puerto Rico, Inc. into HPR, Inc.
(now known as Hanes Puerto Rico, Inc.) (incorporated by
reference from Exhibit 3.16 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.17
|
|
Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference
from Exhibit 3.17 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.18
|
|
Articles of Organization of Sara Lee Direct, LLC, together with
Articles of Amendment reflecting the change of the entitys
name to Hanesbrands Direct, LLC (incorporated by reference from
Exhibit 3.18 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.19
|
|
Limited Liability Company Agreement of Sara Lee Direct, LLC (now
known as Hanesbrands Direct, LLC) (incorporated by reference
from Exhibit 3.19 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.20
|
|
Certificate of Incorporation of Sara Lee Distribution, Inc.,
together with Certificate of Amendment of Certificate of
Incorporation of Sara Lee Distribution, Inc. reflecting the
change of the entitys name to Hanesbrands Distribution,
Inc. (incorporated by reference from Exhibit 3.20 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.21
|
|
Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands
Distribution, Inc.)(incorporated by reference from
Exhibit 3.21 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.22
|
|
Certificate of Formation of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.22 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.23
|
|
Operating Agreement of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.23 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.24
|
|
Certificate of Incorporation of HBI Branded Apparel Limited,
Inc. (incorporated by reference from Exhibit 3.24 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.25
|
|
Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by
reference from Exhibit 3.25 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.26
|
|
Certificate of Formation of HbI International, LLC (incorporated
by reference from Exhibit 3.26 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.27
|
|
Limited Liability Company Agreement of HbI International, LLC
(incorporated by reference from Exhibit 3.27 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.28
|
|
Certificate of Formation of SL Sourcing, LLC, together with
Certificate of Amendment to the Certificate of Formation of SL
Sourcing, LLC reflecting the change of the entitys name to
HBI Sourcing, LLC (incorporated by reference from
Exhibit 3.28 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
E-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.29
|
|
Limited Liability Company Agreement of SL Sourcing, LLC (now
known as HBI Sourcing, LLC) (incorporated by reference from
Exhibit 3.29 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.30
|
|
Certificate of Formation of Inner Self LLC (incorporated by
reference from Exhibit 3.30 to the Registrants
Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.31
|
|
Limited Liability Company Agreement of Inner Self LLC
(incorporated by reference from Exhibit 3.31 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.32
|
|
Certificate of Formation of Jasper-Costa Rica, L.L.C.
(incorporated by reference from Exhibit 3.32 to the
Registrants Registration Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.33
|
|
Amended and Restated Limited Liability Company Agreement of
Jasper-Costa Rica, L.L.C.(incorporated by reference from
Exhibit 3.33 to the Registrants Registration
Statement on
Form S-4
(Commission file number
333-142371)
filed with the Securities and Exchange Commission on
April 26, 2007).
|
|
3
|
.34
|
|
Certificate of Formation of Playtex Dorado, LLC, together with
Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act (incorporated by reference
from Exhibit 3.36 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
|
.35
|
|
Amended and Restated Limited Liability Company Agreement of
Playtex Dorado, LLC (incorporated by reference from
Exhibit 3.37 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
|
.36
|
|
Certificate of Incorporation of Playtex Industries, Inc.
(incorporated by reference from Exhibit 3.38 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
|
.37
|
|
Bylaws of Playtex Industries, Inc. (incorporated by reference
from Exhibit 3.39 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
|
.38
|
|
Certificate of Formation of Seamless Textiles, LLC, together
with Certificate of Conversion from a Corporation to a Limited
Liability Company Pursuant to
Section 18-214
of the Limited Liability Company Act (incorporated by reference
from Exhibit 3.40 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
|
.39
|
|
Limited Liability Company Agreement of Seamless Textiles, LLC
(incorporated by reference from Exhibit 3.41 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
|
.40
|
|
Certificate of Incorporation of UPCR, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.42 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
|
.41
|
|
Bylaws of UPCR, Inc. (incorporated by reference from
Exhibit 3.43 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-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.42
|
|
Certificate of Incorporation of UPEL, Inc., together with
Certificate of Change of Location of Registered Office and
Registered Agent (incorporated by reference from
Exhibit 3.44 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
|
.43
|
|
Bylaws of UPEL, Inc. (incorporated by reference from
Exhibit 3.45 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).
|
|
10
|
.1
|
|
Severance/Change in Control Agreement dated February 26,
2008 between the Registrant and W. Howard Upchurch, Jr.
|
|
31
|
.1
|
|
Certification of Richard A. Noll, Chief Executive Officer.
|
|
31
|
.2
|
|
Certification of E. Lee Wyatt Jr., Chief Financial Officer.
|
|
32
|
.1
|
|
Section 1350 Certification of Richard A. Noll, Chief
Executive Officer.
|
|
32
|
.2
|
|
Section 1350 Certification of E. Lee Wyatt Jr., Chief
Financial Officer.
|
E-4