UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

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o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

HANESBRANDS INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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1000 East Hanes Mill Road

Winston-Salem, North Carolina 27105

 

 

March 10, 2008

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Hanesbrands Inc., a Maryland corporation, which is being held on Tuesday, April 22, 2008, at 1:00 p.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019.

 

At this year’s Annual Meeting, you will be asked to (i) elect nine directors, (ii) to consider and vote upon the approval of the Hanesbrands Inc. Omnibus Incentive Plan of 2006, (iii) to consider and vote upon the approval of the Hanesbrands Inc. Performance-Based Annual Incentive Plan, (iv) ratify the appointment of PricewaterhouseCoopers LLP as Hanesbrands’ independent registered public accounting firm for 2008, and (v) transact such other business as may properly come before the meeting.

 

We are taking advantage of the new Securities and Exchange Commission rule that allows us to furnish proxy materials to our stockholders over the Internet. We believe that this new “e-proxy” process will expedite stockholders’ receipt of proxy materials and lower the costs and reduce the environmental impact of our Annual Meeting. On March 10, 2008, we mailed to our stockholders a Notice of Annual Meeting and Internet Availability containing instructions on how to access our 2008 Proxy Statement and Annual Report and authorize a proxy to vote our shares online. The Proxy Statement and the Notice of Annual Meeting and Internet Availability contain instructions on how you can receive a paper or e-mail copy of the Proxy Statement and Annual Report.

 

If you requested and received a paper copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided. You can authorize a proxy by telephone or over the Internet as described in the enclosed materials.

 

We appreciate your continued support and interest in Hanesbrands.

 

Sincerely yours,

 

 

Lee A. Chaden

Chairman of the Board of Directors

 

HANESBRANDS INC.

 

NOTICE OF THE 2008
ANNUAL MEETING OF STOCKHOLDERS

 

The 2008 Annual Meeting of Stockholders of Hanesbrands Inc. will be held on Tuesday, April 22, 2008, at 1:00 p.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019 for the following purposes:

 

1. to elect nine directors;

 

2. to consider and vote upon the approval of the Hanesbrands Inc. Omnibus Incentive Plan of 2006;

 

3. to consider and vote upon the approval of the Hanesbrands Inc. Performance-Based Annual Incentive Plan;

 

4. to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2008 fiscal year; and

 

5. to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

Stockholders of record at the close of business on February 15, 2008 are entitled to notice of and to vote at the Annual Meeting.

 

Whether or not you plan to attend the meeting, we urge you to authorize a proxy to vote your shares via the toll-free telephone number or over the Internet, as described in the enclosed materials. If you requested and received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the envelope provided.

 

By Order of the Board of Directors

 

Joia M. Johnson

Executive Vice President, General Counsel and
  Corporate Secretary

 

March 10, 2008

Winston-Salem, North Carolina

 

ADMISSION TO THE 2008 ANNUAL MEETING

 

An admission ticket (or other proof of stock ownership) and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the Annual Meeting. Only stockholders who own Hanesbrands common stock as of the close of business on February 15, 2008 will be entitled to attend the Annual Meeting. An admission ticket will serve as verification of your ownership.

 

 

No cameras, recording devices or large packages will be permitted in the meeting room. Bags will be subject to a search.

 

TABLE OF CONTENTS

 

HANESBRANDS INC.
1000 EAST HANES MILL ROAD
WINSTON-SALEM, NORTH CAROLINA 27105

 

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 2008

 

 

 

Why did I receive this Proxy Statement?

 

You have received these proxy materials because the Board of Directors of Hanesbrands Inc., a Maryland corporation (“Hanesbrands”), is soliciting your proxy to vote your shares at the Annual Meeting and at any postponement or adjournment of the Annual Meeting. This Proxy Statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission and that is designed to assist you in voting your shares.

 

Will I receive a printed copy of this Proxy Statement?

 

As permitted by rules recently adopted by the Securities and Exchange Commission, we are delivering our Proxy Statement and Annual Report to stockholders via the Internet. On March 10, 2008, we mailed to our stockholders a Notice of Annual Meeting and Internet Availability containing instructions on how to access our Proxy Statement and Annual Report and authorize a proxy to vote your shares online or by telephone. You will not receive a printed copy of the Proxy Statement or Annual Report in the mail unless you request a printed copy. You may request a printed or e-mail copy of the Proxy Statement and Annual Report by following the instructions included in the Notice of Annual Meeting and Internet Availability.

 

When and where will the Annual Meeting be held?

 

The Annual Meeting will be held on April 22, 2008 at 1:00 p.m., Eastern time, at the Jumeirah Essex House, Grand Salon, 160 Central Park South, New York, New York 10019. If you plan to attend the Annual Meeting and have a disability or require special assistance, please contact our Investor Relations department at (336) 519-3501.

 

What proposals will be voted on at the Annual Meeting?

 

At the Annual Meeting, stockholders will consider and vote upon proposals:

 

1. to elect nine directors;

 

2. to approve the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (the “Omnibus Incentive Plan”);

 

3. to approve the Hanesbrands Inc. Performance-Based Annual Incentive Plan (the “AIP”);

 

4. to ratify the appointment of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as our independent registered public accounting firm for our 2008 fiscal year; and

 

5. to transact such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof.

 

The Board is not aware of any matter that will be presented at the Annual Meeting that is not described above. If any other matter is properly presented at the Annual Meeting, the persons named as proxies on the proxy card will, in the absence of stockholder instructions to the contrary, vote the shares for which such persons have voting authority in accordance with their discretion on any such matter.

Who is entitled to vote at the Annual Meeting?

 

If you were a stockholder of Hanesbrands at the close of business on February 15, 2008 (the “Record Date”), you are entitled to notice of, and to vote at, the Annual Meeting. You have one vote for each share of Hanesbrands common stock (“Shares”) you held at the close of business on the Record Date on each matter that is properly submitted to a vote at the Annual Meeting, including Shares:

 

 

On the Record Date there were 95,321,253 Shares outstanding and entitled to vote at the Annual Meeting and there were 45,347 record holders of Shares. The Shares are the only outstanding class of voting securities of Hanesbrands.

 

Who may attend the Annual Meeting?

 

Only stockholders who owned Shares as of the close of business on the Record Date will be entitled to attend the Annual Meeting. An admission ticket (or other proof of stock ownership) and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the Annual Meeting. An admission ticket will serve as verification of your ownership.

 

 

No cameras, recording devices or large packages will be permitted in the meeting room. Bags will be subject to a search.

 

How many Shares must be present to hold the Annual Meeting?

 

The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting constitutes a quorum for the transaction of business. Your Shares are counted as present at the Annual Meeting if you:

 

 

Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present at the Annual Meeting.

If a quorum is not present when the Annual Meeting is convened, the Annual Meeting may be adjourned by the presiding officer.

 

How many votes are required to approve each proposal?

 

Directors will be elected by a plurality of all the votes cast at the Annual Meeting, either in person or represented by properly completed or authorized proxy. This means that the nine nominees who receive the highest number of “FOR” votes cast will be elected as directors. Stockholders cannot cumulate votes in the election of directors. Abstentions or withheld votes will have no effect. If a nominee who is serving as a director is not elected at the Annual Meeting, under Maryland law the director would continue to serve on the Board of Directors as a “holdover director” until the director’s successor is elected and qualified.

 

Approval of each of the Omnibus Incentive Plan and the AIP requires “FOR” votes from a majority of the votes cast at the Annual Meeting, either in person or represented by properly completed or authorized proxy.

 

Ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm requires “FOR” votes from a majority of the votes cast at the Annual Meeting, either in person or represented by properly completed or authorized proxy. If the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for 2008 is not ratified by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider another independent registered public accounting firm for next year. However, because of the difficulty in making any substitution of independent registered public accounting firm so long after the beginning of the current year, the appointment for 2008 will stand, unless the Audit Committee finds other good reason for making a change.

 

What are broker non-votes?

 

If you have Shares that are held by a broker, you may give the broker voting instructions and the broker must vote as you directed. If you do not give the broker any instructions, the broker may vote at its discretion on all routine matters (such as the election of directors and the ratification of an independent registered public accounting firm). For non-routine matters, however, the broker may NOT vote using its discretion. A broker’s failure to vote on a matter under these circumstances is referred to as a broker non-vote. The approval of the AIP and approval of the Omnibus Incentive Plan are non-routine matters.

 

How are abstentions, withheld votes and broker non-votes counted?

 

Shares not voted due to withheld votes, abstentions or broker non-votes with respect to the election of a director, the approval of the Omnibus Incentive Plan, the approval of the AIP or the ratification of the appointment of the independent registered public accounting firm will be counted as neither votes for nor votes against approval and will not have any effect on the outcome of such matters.

 

How do I vote?

 

You may vote in person at the Annual Meeting or you may authorize a proxy to vote on your behalf. There are three ways to authorize a proxy:

 

Mail:  If you requested and received your proxy materials by mail, by signing, dating and mailing the enclosed proxy card.

 

Internet:  By accessing the Internet at www.proxyvote.com and following the instructions on the proxy card.

 

Telephone:  By calling toll-free 1-800-690-6903 and following the instructions on the proxy card.

 

If you authorize a proxy to vote your shares over the Internet or by telephone, you should not return your proxy card.

Each Share represented by a properly completed written proxy or properly completed or authorized proxy by telephone or over the Internet will be voted at the Annual Meeting in accordance with the stockholder’s instructions specified in the proxy, unless such proxy has been revoked. If no instructions are specified, such Shares will be voted FOR the election of each of the nominees for director, FOR the approval of the Omnibus Incentive Plan, FOR the approval of the AIP, FOR ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm for 2008, and in the discretion of the proxy holder on any other business as may properly come before the Annual Meeting.

 

If you participate in one of the 401(k) Plans and have contributions invested in the Hanesbrands stock fund in that 401(k) Plan, you will receive a voting authorization form, which will serve as voting instructions for the trustee of the 401(k) Plan in which you participate. You must return your voting authorization form to Broadridge Financial Solutions, Inc. (“Broadridge”) on or prior to April 17, 2008. If your voting authorization form is not received by Broadridge by that date or if you sign and return your proxy card without instructions marked in the boxes, the trustee of the 401(k) Plan in which you participate will vote Shares attributable to your investment in the Hanesbrands stock fund in that 401(k) Plan in the same proportion as other Shares held in that Hanesbrands stock fund with respect to which that trustee received timely instructions.

 

If you participate in the Employee Stock Purchase Plan, you will receive a voting authorization form, which will serve as voting instructions for the administrator of the Employee Stock Purchase Plan. Shares will be voted only at the direction of participants in the Employee Stock Purchase Plan. You must return your voting authorization form to Broadridge on or prior to April 17, 2008. If your voting authorization form is not received by Broadridge by that date or if you sign and return your proxy card without instructions marked in the boxes, your Shares will not be voted.

 

How can I revoke a previously submitted proxy?

 

You may revoke (cancel) a proxy at any time before the Annual Meeting by (i) giving written notice of revocation to the Corporate Secretary of Hanesbrands with a date later than the date of the previously submitted proxy, (ii) properly authorizing a new proxy with a later date by mail, Internet or telephone, or (iii) attending the Annual Meeting and voting in person, although attendance at the Annual Meeting will not, by itself, constitute revocation of a proxy. Any notice of revocation should be sent to: Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary.

 

What does it mean if I receive more than one Notice of Annual Meeting and Internet Availability?

 

If you receive more than one Notice of Annual Meeting and Internet Availability, it means your Shares are not all registered in the same way (for example, some are in your name and others are jointly with a spouse) and are in more than one account. In order to ensure that you vote all of the shares that you are entitled to vote, you should return all proxy cards that you receive.

 

Information Regarding Tabulation of the Vote

 

Hanesbrands has a policy that all proxies, ballots and votes tabulated at a meeting of stockholders shall be confidential, and the votes will not be revealed to any Hanesbrands employee or anyone else, other than to the non-employee tabulator of votes or an independent election inspector, except (1) as necessary to meet applicable legal requirements, or (2) in the event a proxy solicitation in opposition to the election of the Board is filed with the Securities and Exchange Commission. Representatives of Broadridge will tabulate votes and act as Inspectors of Election at the Annual Meeting.

 

How does the Board recommend that I vote?

 

The Board recommends that you vote FOR each of the director nominees, FOR the approval of the Omnibus Incentive Plan, FOR the approval of the AIP and FOR ratification of the appointment of PricewaterhouseCoopers as Hanesbrands’ independent registered public accounting firm for 2008.

 

Our Board has adopted Corporate Governance Guidelines, which provide a framework for our corporate governance and cover topics including, but not limited to, Board and committee composition, director qualifications and director responsibilities. The Governance and Nominating Committee is responsible for overseeing and reviewing the Corporate Governance Guidelines and reporting and recommending to the Board any changes to the Corporate Governance Guidelines.

 

Our directors are elected at the annual meeting of stockholders and will serve until our next annual meeting of stockholders. Our Board currently has ten members: Lee A. Chaden, Harry A. Cockrell, Charles W. Coker, Bobby J. Griffin, James C. Johnson, Jessica T. Mathews, J. Patrick Mulcahy, Richard A. Noll, Alice M. Peterson and Andrew J. Schindler. Eight of the ten members of our Board, Mr. Cockrell, Mr. Coker, Mr. Griffin, Mr. Johnson, Ms. Mathews, Mr. Mulcahy, Ms. Peterson and Mr. Schindler, are independent under New York Stock Exchange listing standards. Mr. Noll is our Chief Executive Officer, and Mr. Chaden is not considered an independent director because he served as our Executive Chairman until December 29, 2007. The nine directors other than Mr. Noll are currently non-management directors.

 

The Board has determined to decrease the size of the Board from ten to nine members effective on the date of the Annual Meeting and, therefore, only nine directors will be elected at the Annual Meeting.

 

The Board, after considering the recommendation of the Governance and Nominating Committee, annually will select one independent director to serve as the Presiding Director. Mr. Coker is currently the Presiding Director, and the Board has selected Mr. Coker to continue to serve as the Presiding Director for a term beginning after the completion of the Annual Meeting. To encourage all independent directors to at some time serve as the Presiding Director, no independent director will serve more than two consecutive one-year terms as Presiding Director.

 

In 2007, our Board met five times and held regularly scheduled executive sessions without management, presided over by the Presiding Director. In addition to those meetings, directors attended meetings of individual Board committees. For our incumbent Board as a whole, attendance in 2007 at Board meetings was 100%, and attendance at committee meetings was over 98%. Our Corporate Governance Guidelines provide that, except in extenuating circumstances, each director will be expected to attend all meetings of the Board and of committees to which he or she is appointed, and all annual meetings of stockholders.

 

Our Board has three standing committees: the Audit Committee, the Compensation Committee and the Governance and Nominating Committee. Below is a list of Committee memberships, which is followed by a description of each committee of the Board. The nine directors who are nominated for election as directors at the Annual Meeting will, if re-elected, retain the committee memberships described below immediately following the Annual Meeting, and the chairs of the committees will also remain the same.

Committee Membership
(as of February 15, 2008)

 

 

 

 

Audit Committee

 

The Audit Committee currently is comprised of Mr. Griffin, Ms. Mathews, Mr. Mulcahy and Ms. Peterson; Ms. Peterson is its chair. Each of the members of our Audit Committee is financially literate, as required under applicable New York Stock Exchange listing standards. In addition, the Board has determined that each of Ms. Peterson and Mr. Mulcahy possesses the experience and qualifications required of an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission, and is independent, as required by the New York Stock Exchange and as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934 (the “Exchange Act”). No member of the Audit Committee serves on the audit committees of more than three public companies.

 

The Audit Committee is responsible for assisting the Board in fulfilling the oversight of:

 

 

The Audit Committee is also responsible for preparing a report that is to be included in our proxy statement relating to the annual meeting of stockholders or annual report filed on Form 10-K with the Securities and Exchange Commission. In addition, the Audit Committee is responsible for reviewing and discussing our annual audited financial statements and quarterly financial statements with management and the independent auditor and recommending, based on its review, that the Board include the annual financial statements in our annual report on Form 10-K.

 

Compensation Committee

 

The Compensation Committee currently is comprised of Mr. Cockrell, Mr. Coker, Mr. Johnson and Mr. Schindler, with Mr. Coker serving as its chair. The Compensation Committee is responsible for assisting the Board in discharging its responsibilities relating to the compensation of our executives and the Chief Executive Officer performance evaluation process, and for preparing a report on executive compensation that is to be included in our proxy statement relating to the annual meeting of stockholders.

The Compensation Committee is also responsible for:

 

 

Governance and Nominating Committee

 

The Governance and Nominating Committee currently is comprised of Mr. Cockrell, Mr. Coker, Mr. Johnson and Mr. Schindler; Mr. Johnson is its chair. The Governance and Nominating Committee is responsible for:

 

 

In order to assist our Board in making the independence determinations required by the New York Stock Exchange listing standards, the Board has adopted categorical standards of independence. These standards, which are contained in our Corporate Governance Guidelines, are included as Appendix A to this Proxy Statement and are also available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.” Eight of the ten current members of our Board, Mr. Cockrell, Mr. Coker, Mr. Griffin, Mr. Johnson, Ms. Mathews, Mr. Mulcahy, Ms. Peterson and Mr. Schindler, are independent under New York Stock Exchange listing standards and under our Corporate Governance Guidelines. In determining Board independence, the Board did not discuss, and was not aware of any related person transactions, relationships or arrangements that existed with respect to any of these directors.

 

Our Audit Committee’s charter requires that the Audit Committee be composed of at least three members, all of whom must be independent directors who meet the requirements of the New York Stock Exchange listing standards and the rules of the Securities and Exchange Commission. Each of the members of our Audit Committee is an independent director under the New York Stock Exchange listing standards and meets the standards of independence applicable to audit committee members under applicable Securities and Exchange Commission rules.

 

Our Compensation Committee’s charter requires that all of the members of the Compensation Committee be independent directors who meet the requirements of the New York Stock Exchange listing standards, “non-employee directors” within the meaning of Securities and Exchange Commission Rule 16b-3 under the Exchange Act and “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and the regulations thereunder. Each of the members of our Compensation Committee is an independent director under the New York Stock Exchange listing standards, a

non-employee director within the meaning Rule 16b-3 under the Exchange Act and an outside director within the meaning of Section 162(m) of the Internal Revenue Code.

 

Our Governance and Nominating Committee’s charter requires that all of the members of the Governance and Nominating Committee be independent directors who meet the requirements of the New York Stock Exchange listing standards. Each of the members of our Governance and Nominating Committee is an independent director under the New York Stock Exchange listing standards.

 

Our Board has adopted a written policy setting forth procedures to be followed in connection with the review, approval or ratification of “related person transactions.” The phrase “related person transaction” refers to any financial transaction, arrangement or relationship in which we or any of our subsidiaries is a participant and in which any director, nominee for director, or executive officer, or any of their immediate family members, has a direct or indirect material interest.

 

Each director, director nominee and executive officer must promptly notify our Chief Executive Officer and our Corporate Secretary in writing of any material interest that such person or an immediate family member of such person had, has or will have in a related person transaction. The Governance and Nominating Committee is responsible for the review, approval or ratification of all related person transactions involving a director, director nominee or executive officer. At the discretion of the Governance and Nominating Committee, the consideration of a related person transaction may be delegated to the full Board, another standing committee, or to an ad hoc committee of the Board comprised of at least three members, none of whom has an interest in the transaction.

 

The Governance and Nominating Committee, or other governing body to which approval or ratification is delegated, may approve or ratify a transaction if it determines, in its business judgment, based on its review of the available information, that the transaction is fair and reasonable to us and consistent with our best interests. Factors to be taken into account in making a determination of fairness and reasonableness may include:

 

 

If the Governance and Nominating Committee decides not to approve or ratify a transaction, the transaction may be referred to legal counsel for review and consultation regarding possible further action, including, but not limited to, termination of the transaction on a prospective basis, rescission of such transaction or modification of the transaction in a manner that would permit it to be ratified and approved by the Governance and Nominating Committee.

 

There were no related person transactions, or series of similar transactions, involving us and our directors or executive officers to report in this Proxy Statement.

 

Stockholders and other interested parties may send written communications directly to our Board or to specified individual directors, including our Presiding Director or any of our non-management directors, by sending such communications to Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary. Such communications will be reviewed by our legal department and, depending on the content, will be:

 

 

 

The Governance and Nominating Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board for nomination. The Governance and Nominating Committee will consider director candidates proposed by the Chief Executive Officer, by any director or by any stockholder. From time to time, the Governance and Nominating Committee also retains search firms to assist it in identifying and evaluating director nominees. In evaluating potential director candidates, the Committee seeks to present candidates to the Board who have distinguished records of leadership and success in their arena of activity and who will make substantial contributions to the Board. The Governance and Nominating Committee considers the qualifications listed in Hanesbrands’ Corporate Governance Guidelines, which include:

 

 

Any recommendation submitted by a stockholder to the Governance and Nominating Committee should include information relating to each of the qualifications outlined above concerning the potential candidate. The Governance and Nominating Committee applies the same standards in evaluating candidates submitted by stockholders as it does in evaluating candidates submitted by other sources. Suggestions regarding potential director candidates, together with the required information described above, should be submitted in writing to Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary. The Governance and Nominating Committee has not received any stockholder recommendations for Board nominees for the Annual Meeting. Stockholders who want to nominate a director for consideration at next year’s annual meeting should refer to the procedures described in “Stockholder Proposals for Next Annual Meeting” on Page 52.

 

Our Global Business Standards, which serve as our code of ethics, apply to all directors and officers and other employees of our company and its subsidiaries. Any waiver of applicable requirements in the Global Business Standards that is granted to any of our directors, to our principal executive officer, to any of our senior financial officers (including our principal financial officer, principal accounting officer or controller)

or to any other person who is an executive officer of Hanesbrands requires the approval of the Audit Committee. Any waiver of the Global Business Standards will be disclosed on our corporate Web site, www.hanesbrands.com, on the “Investors” page, or in a Current Report on Form 8-K.

 

Copies of our corporate governance documents, including the written charters for the Audit Committee, Compensation Committee and Governance and Nominating Committee, as well as our Corporate Governance Guidelines, Global Business Practices and other corporate governance information are available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.” You may obtain printed copies of these documents by writing to Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105, Attention: Corporate Secretary.

 

Audit Committee Report

 

The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or “filed” or “incorporated by reference” in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Hanesbrands specifically incorporates it by reference into a document filed under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act.

 

Each of the members of our Audit Committee, which was established in accordance with Section 3(a)(58) of the Exchange Act, meets the standards of independence applicable to audit committee members under applicable Securities and Exchange Commission rules and New York Stock Exchange listing standards. The Audit Committee assists the Board in oversight of the integrity of Hanesbrands’ financial statements, financial reporting process and systems of internal accounting and financial controls, Hanesbrands’ compliance with legal and regulatory financial disclosure requirements, the independent auditors’ qualifications and independence, and the performance of Hanesbrands’ internal audit function and independent auditors. The Audit Committee operates under a written charter, a copy of which is available on our corporate Web site, www.hanesbrands.com, on the “Investors” page under the link “Corporate Governance.”

 

Management is primarily responsible for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. PricewaterhouseCoopers, the Audit Committee-appointed independent registered public accounting firm for the fiscal year ended December 29, 2007, is responsible for expressing opinions on the conformity of Hanesbrands’ audited financial statements with accounting principles generally accepted in the United States of America. In addition, PricewaterhouseCoopers expresses its opinion on the effectiveness of Hanesbrands’ internal control over financial reporting.

 

In this context, the Audit Committee reviewed and discussed with management and PricewaterhouseCoopers the audited financial statements for the fiscal year ended December 29, 2007, management’s assessment of the effectiveness of Hanesbrands’ internal control over financial reporting and PricewaterhouseCoopers’ evaluation of Hanesbrands’ internal control over financial reporting. The Audit Committee met 11 times (including telephone meetings) during the fiscal year ended December 29, 2007. The Audit Committee has discussed with PricewaterhouseCoopers the matters that are required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees), as modified or supplemented. In addition, the Audit Committee has discussed various matters with PricewaterhouseCoopers related to Hanesbrands’ financial statements, including critical accounting policies and practices used, alternative treatments for material items that have been discussed with management, and other material written communications between PricewaterhouseCoopers and management. The Audit Committee has also received written disclosures and the letter from PricewaterhouseCoopers required by Independence Standards Board Standard No. 1, “Independence Discussion with Audit Committees” and has discussed with PricewaterhouseCoopers its independence from Hanesbrands and its management. In addition, the Audit Committee has received written material addressing PricewaterhouseCoopers’ internal quality control procedures and other matters, as required by the New York Stock Exchange listing standards. The Audit Committee

understands the need for PricewaterhouseCoopers to maintain objectivity and independence in its audit of our financial statements and internal control over financial reporting. The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm.

 

Based on the considerations referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements for the fiscal year ended December 29, 2007 be included in our Annual Report on Form 10-K for 2007 and selected PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending January 3, 2009.

 

By the members of the
Audit Committee consisting of:

 

Alice M. Peterson (Chair)
Bobby J. Griffin
Jessica T. Mathews
J. Patrick Mulcahy

 

Auditor Fees and Services

 

The following table sets forth the fees billed to us by PricewaterhouseCoopers for services in the fiscal year ended December 29, 2007, the six months ended December 30, 2006 and the fiscal year ended July 1, 2006:

 

 

In the above table, in accordance with applicable Securities and Exchange Commission rules, “Audit fees” include fees billed for professional services for the audit of our Consolidated Financial Statements included in our Annual Report on Form 10-K or Transition Report on Form 10-K and review of our financial statements included in our Quarterly Reports on Form 10-Q, fees billed for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements, fees related to services rendered in connection with securities offerings and for the fiscal year ended December 29, 2007, the audit of our internal control over financial reporting.

 

“Audit-related fees” are fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the caption “Audit fees.” For the fiscal year ended December 29, 2007 and the six months ended December 30, 2006, these fees relate to social security audits, due diligence related to acquisitions and consultations concerning financial accounting and reporting standards.

 

“Tax fees” for the fiscal year ended December 29, 2007 and the six months ended December 30, 2006 include consultation and compliance services for domestic and certain foreign jurisdictions.

 

For the fiscal year ended July 1, 2006, audit fees of $3,519,193 billed directly to and paid by Sara Lee Corporation (“Sara Lee”) in connection with our spin off from Sara Lee are not included in the above table. These fees relate to professional services for the audit of our Combined and Consolidated Financial Statements included in our Registration Statement on Form 10.

Pre-Approval of Audit Services

 

Our Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. For audit services (including statutory audit engagements as required under local country laws), the independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year. The independent registered public accounting firm also submits an audit services fee proposal, which is approved by the Audit Committee before the audit commences. The Audit Committee may delegate the authority to pre-approve audit and non-audit engagements and the related fees and terms with the independent auditors to one or more designated members of the Audit Committee, as long as any decision made pursuant to such delegation is presented to the Audit Committee at its next regularly scheduled meeting. All audit and permissible non-audit services provided by PricewaterhouseCoopers to Hanesbrands since our spin off from Sara Lee were pre-approved by the Audit Committee.

 

Under our charter, each of our directors is elected to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of directors to be elected at the Annual Meeting. Each nominee has agreed to serve on the Board if elected. Set forth below is information as of February 15, 2008, regarding the nominees for election, which has been confirmed by each of them for inclusion in this Proxy Statement.

 

No family relationship exists between any nominee for director or executive officer. To the best of our knowledge, there are no pending material legal proceedings to which any of our directors or nominees for director, or any of their associates, is a party adverse to us or any of our affiliates, or has a material interest adverse to us or any of our affiliates. Additionally, to the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any of our directors or nominees for director during the past five years.

 

Our Corporate Governance Guidelines provide that no director may stand for re-election to the Board after he or she has reached the age of 72, but the Governance and Nominating Committee may extend the retirement age of an individual director for up to two periods of one year each. The Governance and Nominating Committee has extended the retirement age of Mr. Coker for a period of one year.

 

 

 

The Board unanimously recommends a vote FOR election of these nominees.

 

At the Annual Meeting, our stockholders will be asked to approve the Hanesbrands Inc. Omnibus Incentive Plan of 2006, or the “Omnibus Incentive Plan.” We previously adopted the Omnibus Incentive Plan, and the Board has recommended it for stockholder approval. Stockholder approval of the Omnibus Incentive Plan is being sought solely to qualify certain awards granted under the Omnibus Incentive Plan as performance-based compensation that is exempt from the $1 million deduction limit under Section 162(m) of the Internal Revenue Code. No additional shares are being requested under the Omnibus Incentive Plan at this time.

 

The following is a summary of the Omnibus Incentive Plan, which is qualified in its entirety by reference to the Omnibus Incentive Plan, a copy of which is attached as Appendix B.

 

Material Features of the Omnibus Incentive Plan

 

Introduction/Purpose.  The Omnibus Incentive Plan permits the issuance of long-term incentive awards to our employees, non-employee directors and employees of our subsidiaries to promote the interests of our company and our stockholders. The Omnibus Incentive Plan is designed to promote these interests by providing such individuals with a proprietary interest in pursuing the long-term growth, profitability and financial success of our company. Awards under the Omnibus Incentive Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, stock awards, cash awards, performance shares and performance cash awards. Benefits, if any, payable under the Omnibus Incentive Plan for 2008 and future years are dependent on the actions of the Compensation Committee and are therefore not determinable at this time. During 2007, the only types of grants awarded to our executive officers were stock options and time-vested restricted stock units. Additional details regarding the awards made pursuant to the Omnibus Incentive Plan during the fiscal year ended December 29, 2007 are

discussed below under “Discussion of Summary Compensation Table and Grants of Plan-Based Awards Table.”

 

Eligible Participants.  Eligible participants include all executive officers and each other employee of Hanesbrands who has been selected to participate in the Omnibus Incentive Plan as well as non-employee directors, and in 2007 consisted of approximately 140 employees and all eight of our current non-employee directors.

 

Shares Available for Issuance.  The aggregate number of shares of our common stock that may be issued under the Omnibus Incentive Plan will not exceed 13,105,000 (subject to the adjustment provisions discussed below).

 

Types of Awards.  The following types of awards may be made pursuant to the Omnibus Incentive Plan:

 

 

 

Performance Goals.  Awards of restricted stock, RSUs, DSUs, performance stock, performance cash awards and other incentives under the Omnibus Incentive Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Internal Revenue Code, including, but not limited to: revenue; revenue growth; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings per share; operating income; pre-or after-tax income; net operating profit after taxes; ratio of operating earnings to capital spending; cash flow (before or after dividends); cash flow per share (before or after dividends); net earnings; net sales; sales growth; share price performance; return on assets or net assets; return on equity; return on capital (including return on total capital or return on invested capital); cash flow return on investment; total stockholder return; improvement in or attainment of expense levels; and improvement in or attainment of working capital levels. Any performance criteria selected by the Compensation Committee may be used to measure our performance as a whole or the performance of any of our business units and may be measured relative to a peer group or index. In addition:

 

 

The Compensation Committee may make retroactive adjustments to, and employees, including named executive officers, would be required to reimburse us for, any cash or equity-based incentive compensation paid to employees where such compensation was predicated upon achieving certain financial results that were substantially the subject of a restatement, if as a result of the restatement it is determined that the employees otherwise would not have been paid such compensation, regardless of whether or not the restatement resulted from the employees’ misconduct. While the foregoing decision is made in the discretion of the Compensation Committee, the Omnibus Incentive Plan provides that Hanesbrands shall, to the extent permitted by governing law, require reimbursement of any cash or equity based incentive compensation paid to any named executive officer where: (i) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement, and (ii) in the view of the Compensation Committee the

named executive officer engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement.

 

The Compensation Committee may make retroactive adjustments and seek reimbursement for any Omnibus Incentive Plan payment previously paid to a participating employee where a participating employee breaches any confidentiality, proprietary information, or non-compete provisions of any agreement or plan then in effect between Hanesbrands and the employee.

 

Administration.  The Omnibus Incentive Plan is administered by the Compensation Committee. Each member of the Compensation Committee is an “outside director” within the meaning of Internal Revenue Code Section 162(m). The Compensation Committee will approve the aggregate awards and the individual awards for executive officers and non-employee directors. The Compensation Committee may delegate some of its authority under the Omnibus Incentive Plan to one or more of our officers to approve awards for other employees. The Compensation Committee has the authority to interpret the Omnibus Incentive Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of the Omnibus Incentive Plan. The determinations of the Compensation Committee pursuant to its authority under the Omnibus Incentive Plan shall be conclusive and binding.

 

Amendment and Termination.  Our Board or the Compensation Committee will have the right and power to amend or terminate the Omnibus Incentive Plan; however, neither the Board nor the Compensation Committee may amend the Omnibus Incentive Plan in a manner which would reduce the amount of an existing award without the holder’s consent. However, the Compensation Committee will have the right to unilaterally amend or terminate an award to comply with changes in law. In addition, stockholder approval will be obtained for any amendment to the Omnibus Incentive Plan if required by law or listing rules. No award may be made under the Omnibus Incentive Plan more than 10 years after its adoption by the Board.

 

Change in Control.  Except as otherwise determined by the Compensation Committee at the time of the grant of an award, the treatment of outstanding awards upon the occurrence of a change in control after the spin off shall be as described below. For purposes of the Omnibus Incentive Plan, the term “Change in Control” means one or more of the following events: (1) the acquisition, directly or indirectly, of our securities representing at least 20% of the combined voting power of our outstanding securities (other than by any of our employee benefit plans); (2) the consummation of certain mergers and consolidations involving us; (3) the consummation of the sale or other disposition of all or substantially all of our assets; (4) the approval of a plan of complete liquidation or dissolution by our stockholders; and (5) a change in the majority of our Board.

 

 

 

Adjustments.  If there is any change affecting our common stock by reason of any stock split, stock dividend, spin off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, the total number of shares available for awards, the maximum number of shares which may be subject to an award in any calendar year and the number of shares subject to outstanding awards, and the price of such shares, as applicable, will be equitably adjusted by the Compensation Committee in its discretion. The Compensation Committee also shall have the right to substitute stock options or other awards denominated in the shares of another company for awards outstanding at the time of any such transaction.

 

Substitution and Assumption of Awards.  Without affecting the number of shares reserved or available under the Omnibus Incentive Plan, either the Board or the Compensation Committee may authorize the issuance of awards in connection with the assumption of, or substitution for, outstanding awards previously granted to individuals who become our employees or employees of any of our subsidiaries as the result of any merger, consolidation, acquisition of property or stock, or reorganization other than a Change in Control, upon such terms and conditions as it deems appropriate.

 

Reusage.  If a stock option granted under the Omnibus Incentive Plan expires or is terminated, surrendered or canceled without having been fully exercised or if restricted stock, RSUs, performance shares or SARs granted under the Omnibus Incentive Plan are forfeited or terminated without the issuance of all of the shares subject thereto, the shares covered by such awards will again be available for use under the Omnibus Incentive Plan. The number of shares which are transferred to us by a participant or withheld by us to pay the exercise or purchase price of an award or to pay withholding taxes in connection with the exercise or payment of an award will not be counted as used. Shares covered by an award granted under the Omnibus Incentive Plan that is settled in cash will not be counted as used.

 

Certain Federal Income Tax Consequences.

 

There are no income tax consequences for us or the option holder upon the grant of either an incentive stock option or a nonqualified stock option. When a nonqualified stock option is exercised, the option holder will recognize ordinary income equal to the excess of fair market value of all the shares of stock for which the option is exercised on the date of exercise over the aggregate exercise price, and we are entitled to a corresponding deduction. When an incentive stock option is exercised, the option holder does not recognize income and we are not entitled to a deduction. In the event of a “disqualifying disposition” by the option holder (i.e., the option holder does not hold the stock long enough to qualify under Internal Revenue Service rules), we are entitled to a deduction equal to the compensation income recognized by the option holder. Stock options can qualify as performance-based compensation exempt from the $1 million deduction limit of Internal Revenue Code Section 162(m) if certain requirements (including stockholder approval of the plan) are satisfied.

 

When a SAR is granted, there are no income tax consequences for us or the recipient. When a SAR is exercised, we are entitled to a deduction equal to the compensation recognized by the participant. SARs can qualify as performance-based compensation exempt from the $1 million deduction limit of Internal Revenue Code Section 162(m) if certain requirements (including stockholder approval of the plan) are satisfied.

 

Subject to the limitations of Internal Revenue Code Section 162(m), we are entitled to a deduction equal to the compensation recognized by a participant in connection with the vesting of restricted stock, or upon the participant’s earlier election to include the restricted stock in income pursuant to Section 83(b) of the Internal Revenue Code, as the case may be. Unless the awards are subject to performance goals as described above, they do not qualify as performance-based compensation exempt from the $1 million deduction limit of Internal Revenue Code Section 162(m).

With respect to other awards granted under the Omnibus Incentive Plan, we will be entitled to a deduction equal to the compensation recognized by a participant upon the delivery of shares or payment of cash in satisfaction of any award. Unless the awards are subject to performance goals as described above, they do not qualify as performance-based compensation exempt from the $1 million deduction limit of Internal Revenue Code Section 162(m).

 

As stated above, the Omnibus Incentive Plan is being submitted for stockholder approval at the Annual Meeting solely so that payments under the Omnibus Incentive Plan can qualify for deductibility by Hanesbrands under Internal Revenue Code Section 162(m). However, stockholder approval of the Omnibus Incentive Plan is only one of several requirements under Internal Revenue Code Section 162(m) that must be satisfied for amounts payable under the Omnibus Incentive Plan to qualify for the performance-based compensation exemption under Internal Revenue Code Section 162(m), and approval of the Omnibus Incentive Plan by stockholders should not be viewed as a guarantee that all amounts paid under the Omnibus Incentive Plan will, in practice, be deductible by Hanesbrands.

 

The foregoing is only a summary of the effect of federal income taxation upon employees and Hanesbrands with respect to amounts paid pursuant to the Omnibus Incentive Plan. It does not purport to be complete and does not discuss the tax consequences arising in the context of the employee’s death or the income tax laws of any municipality, state or foreign country in which the employee’s income or gain may be taxable.

 

The Board unanimously recommends a vote FOR approval of the Omnibus Incentive Plan.

 

At the Annual Meeting, our stockholders will be asked to approve the Hanesbrands Inc. Performance-Based Annual Incentive Plan, or the “AIP”. We previously adopted the AIP, and the Board has recommended it for stockholder approval. Pursuant to its terms, the AIP will terminate if it is not approved by our stockholders. Stockholder approval of the AIP is being sought to ensure that any bonuses we pay qualify as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code.

 

Awards made under the AIP to our named executive officers in 2007 are reported in the Summary Compensation Table appearing below and are discussed in the Compensation Discussion and Analysis section below. Amounts, if any, payable under the AIP for 2008 and future years are dependent on performance and are therefore not determinable at this time. No additional advance approval of the AIP will be required for purposes of Internal Revenue Code Section 162(m) unless the Compensation Committee changes the material terms of the AIP.

 

The following is a summary of the AIP, which is qualified in its entirety by reference to the AIP, a copy of which is attached as Appendix C.

 

Material Features of the AIP

 

Purpose.  The purpose of the AIP is to motivate performance and to advance the interests of Hanesbrands by linking a portion of the annual compensation paid to participants to the achievement of financial objectives and key performance indicators, while contributing to increased long-term stockholder value. The AIP provides annual bonuses designed to satisfy the conditions for performance-based compensation under Internal Revenue Code Section 162(m) that qualifies for an exemption from Section 162(m)’s $1 million limit on deductible compensation.

 

Eligible Participants.  Eligible participants include all executive officers and each other employee of Hanesbrands who has been selected to participate in the AIP, and in 2007 consisted of approximately 960 employees.

 

Incentive Pool.  Under the AIP, the Compensation Committee will grant annual incentive award opportunities to key employees of Hanesbrands. Each annual incentive award will be paid out of an incentive pool established for a performance period. Typically, the performance period will be our fiscal year. The

incentive pool will equal 3.0% of Hanesbrands’ operating income for the performance period. Our operating income is our operating income for the applicable performance period as reported in our income statement and as adjusted to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items, other unusual or non-recurring items, and the cumulative effect of tax or accounting changes.

 

Individual Awards.  Within 90 days of the start of a performance period, the Compensation Committee will allocate a percentage of the incentive pool to participants that the Compensation Committee believes may be subject to the limitations of Section 162(m). In no event may more than 40% of the total pool for a performance period be allocated to any one participant. A participant’s allocation of the incentive pool is the maximum potential award for Internal Revenue Code purposes. Awards made under the AIP to our named executive officers in 2007 were below the maximum potential awards, and are reported in the Summary Compensation Table appearing below and discussed in the Compensation Discussion and Analysis section below. The actual award attributable to any performance period may be reduced before payment as discussed in the next paragraph.

 

Award Payment and Reduction.  At the end of each performance period, each named executive officer’s incentive award will be certified by the Compensation Committee based on the employee’s allocated portion of the incentive pool and the attainment of specified performance measures. The Compensation Committee may reduce (but in no event may increase) the amount payable to any executive officer based upon financial and non-financial goals established by the Compensation Committee discussed in the Compensation Discussion and Analysis section below.

 

Payment of any award shall be made in cash (or in stock or stock-based awards under the Omnibus Incentive Plan). Employees also may elect to defer payments pursuant to the terms of any deferred compensation plan then in effect.

 

The Compensation Committee may make retroactive adjustments to, and employees, including named executive officers, would be required to reimburse us for, any cash or equity-based incentive compensation paid to employees where such compensation was predicated upon achieving certain financial results that were substantially the subject of a restatement, if as a result of the restatement it is determined that the employees otherwise would not have been paid such compensation, regardless of whether or not the restatement resulted from the employees’ misconduct. While the foregoing decision is made in the discretion of the Compensation Committee, the AIP provides that Hanesbrands shall, to the extent permitted by governing law, require reimbursement of any cash or equity based incentive compensation paid to any named executive officer where: (i) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement, and (ii) in the view of the Compensation Committee the named executive officer engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement.

 

The Compensation Committee may make retroactive adjustments and seek reimbursement for any AIP payment previously paid to a participating employee where a participating employee breaches any confidentiality, proprietary information, or non-compete provisions of any agreement or plan then in effect between Hanesbrands and the employee.

 

Administration.  The AIP is administered by the Compensation Committee. Each member of the Compensation Committee is an “outside director” within the meaning of Internal Revenue Code Section 162(m). The Compensation Committee has the authority to interpret the AIP, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of the AIP. The determinations of the Compensation Committee pursuant to its authority under the AIP shall be conclusive and binding.

 

Amendment and Termination.  The Compensation Committee, subject to the approval of the Board where required, may alter, amend, suspend or terminate the AIP at any time, but any amendment to the AIP shall be approved by our stockholders if approval is necessary for annual bonuses to continue qualifying as performance-based compensation under Internal Revenue Code Section 162(m).

Certain Federal Income Tax Consequences

 

All amounts paid pursuant to the AIP constitute taxable income to the employee when received. If a participant elects to defer a portion of the award, the participant may be entitled to defer the recognition of income. Generally, and subject to Internal Revenue Code Section 162(m), we will be entitled to a federal income tax deduction when amounts paid under the AIP are included in employee income. Subject to stockholder approval of the AIP, the failure of any aspect of the AIP to satisfy Internal Revenue Code Section 162(m) shall not void any action taken by the Compensation Committee under the AIP.

 

As stated above, the AIP is being submitted for stockholder approval at the Annual Meeting so that payments under the AIP can qualify for deductibility by Hanesbrands under Internal Revenue Code Section 162(m). However, stockholder approval of the AIP is only one of several requirements under Internal Revenue Code Section 162(m) that must be satisfied for amounts payable under the AIP to qualify for the performance-based compensation exemption under Internal Revenue Code Section 162(m), and approval of the AIP by stockholders should not be viewed as a guarantee that all amounts paid under the AIP will in practice be deductible by Hanesbrands.

 

The foregoing is only a summary of the effect of federal income taxation upon employees and Hanesbrands with respect to amounts paid pursuant to the AIP. It does not purport to be complete and does not discuss the tax consequences arising in the context of the employee’s death or the income tax laws of any municipality, state or foreign country in which the employee’s income or gain may be taxable.

 

The Board unanimously recommends a vote FOR approval of the AIP.

 

The Audit Committee has appointed PricewaterhouseCoopers as our independent registered public accounting firm for our 2008 fiscal year. While not required by law, the Board is asking the stockholders to ratify the selection of PricewaterhouseCoopers as a matter of good corporate practice. Representatives of PricewaterhouseCoopers are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.

 

If the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for 2008 is not ratified by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider another independent registered public accounting firm for next year. However, because of the difficulty in making any substitution of independent registered public accounting firm so long after the beginning of the current year, the appointment for 2008 will stand, unless the Audit Committee finds other good reason for making a change.

 

PricewaterhouseCoopers was first appointed as our independent registered public accounting firm for our fiscal year ended July 1, 2006. For additional information regarding our relationship with PricewaterhouseCoopers, please refer to the Audit Committee Report on page 10 and the Auditor Fees and Services disclosure on page 11.

 

The Board unanimously recommends a vote FOR ratification of the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for 2008.

 

The following table sets forth information, as of February 15, 2008 regarding beneficial ownership by (1) each person who is known by us to beneficially own more than 5% of our common stock, (2) each director, director nominee and executive officer and (3) all of our directors, director nominees and executive officers as a group. The address of each director and executive officer shown in the table below is c/o Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105.

 

 

 

 

 

 

 

Annual Compensation

 

In 2007, we compensated each non-employee director for service on our board of directors as follows:

 

 

The Chairman of the Board of Directors (Mr. Chaden) will receive an additional cash retainer of $320,000 in 2008.

 

Directors who are also our employees receive no additional compensation for serving as a director.

The following table summarizes the compensation paid to the non-employee directors for the fiscal year ended December 29, 2007.

 

Director Compensation — 2007

 

 

 

 

In January 2008, after reviewing information about the compensation paid to non-employee directors at the Benchmark Companies (this term is defined below), the Compensation Committee determined to increase the amount of the annual equity retainer to $110,000 and to increase the annual retainers paid to the chair of the Audit Committee to $15,000 and to the chairs of the Compensation Committee and the Governance and Nominating Committee to $10,000. We expect that the Compensation Committee will conduct a similar review each year and may alter either the cash or equity portion of director compensation following any such review.

 

Beginning with the 2008 annual grant, RSUs for non-employee directors will be payable immediately upon vesting in shares of our common stock on a one-for-one basis (rather than being automatically deferred at vesting and becoming payable in stock six months after termination of service on our board of directors). The Compensation Committee considered this change appropriate in light of the stock ownership and retention guidelines (discussed below) which it implemented for the non-employee directors at the same time it implemented these changes in terms of the RSUs.

The table below shows the value of total cash compensation and equity incentive compensation compared to total compensation for each of our non-employee directors for 2008 and 2007. This table presents information that is supplemental to, and should not be considered a substitute for, the information contained in the “Director Compensation — 2007” table above. This table is not required by Securities and Exchange Commission rules, and we have chosen to include it to help investors better understand how our non-employee directors are compensated. Amounts are estimates and do not necessarily reflect exact amounts that were or will be paid.

 

Cash and Equity Compensation

 

 

Non-Employee Director Deferred Compensation Plan

 

Under the Director Deferred Compensation Plan, a nonqualified, unfunded deferred compensation plan, our non-employee directors may defer all (and prior to December 31, 2007, could defer a portion) of their annual retainer and any additional cash retainers for committee service. At the election of the director, amounts deferred under the Director Deferred Compensation Plan will (i) earn a return equivalent to the return on an investment in an interest-bearing account earning interest based on the Federal Reserve’s published rate for five-year constant maturity Treasury notes at the beginning of the calendar year, which was 4.68% for 2007 and will be 3.28% for 2008, or (ii) be deemed to be invested in a stock equivalent account and earn a return based on our stock price. Any awards of restricted stock or RSUs to non-employee directors that are deferred are deferred under the Director Deferred Compensation Plan. Amounts deferred, plus any dividend equivalents or interest, will be paid in cash or in shares of our common stock, as applicable, with any shares of common stock being issued from the Omnibus Incentive Plan. The amount payable to participants will be payable either on the withdrawal date elected by the participant or upon the occurrence of certain events as provided under the Director Deferred Compensation Plan. A participant may designate one or more beneficiaries to receive any portion of the obligations payable in the event of death, however neither participants nor their beneficiaries may transfer any right or interest in the Director Deferred Compensation Plan.

 

Director Share Ownership and Retention Guidelines

 

We believe that our directors who are not employees of Hanesbrands should have significant ownership of Hanesbrands. Our non-employee directors receive a substantial portion of their compensation in the form of equity-based compensation and also may elect to receive all or a portion of their annual cash retainer and additional cash retainers for committee service in the form of options to purchase our common stock or to defer such amounts under the Director Deferred Compensation Plan and have such deferred amounts deemed

invested in a stock equivalent account. To promote such equity ownership and further align the interests of these directors with our stockholders, we have adopted share retention and ownership guidelines for these directors. A non-employee director may not dispose of any shares of our common stock until such director holds shares of common stock with a value equal to at least five times the current annual equity retainer, and may then only dispose of shares in excess of those with that value. In addition to shares directly held by a non-employee director, shares held for such director in the Director Deferred Compensation Plan (including hypothetical share equivalents held in that plan) will be counted for purposes of determining whether the ownership requirements are met.

 

Under our insider trading policy, no director or employee of Hanesbrands is permitted to engage in “short sales” or “sales against the box” or trade in puts, calls or other options on our securities. This prohibition is intended to prevent any Hanesbrands director, officer or employee from trading on inside information.

 

This compensation discussion and analysis provides information about our compensation objectives and policies for our principal executive officer, our principal financial officer and our three other most highly compensated executive officers (we refer to these officers as our “named executive officers”), who for the fiscal year ended December 29, 2007 are Richard A. Noll, our Chief Executive Officer, E. Lee Wyatt Jr., our Executive Vice President, Chief Financial Officer, Lee. A Chaden, who until his retirement on December 29, 2007 was our Executive Chairman, Gerald W. Evans Jr., who until February 25, 2008 was our Executive Vice President, Chief Supply Chain Officer and effective that date became our President, Global Supply Chain and Asia Business Development, and Kevin W. Oliver, our Executive Vice President, Human Resources. It also contains analysis about how and why significant compensation decisions were made, and places in context the information contained in the tables that follow this discussion. This section is organized as follows:

 

 

Introduction

 

The Compensation Committee is a standing committee of our Board of Directors. It is composed solely of independent directors who have no employment or business connection with Hanesbrands. The Compensation Committee is responsible to our Board, and indirectly to our stockholders, for developing and administering our compensation program for our Chief Executive Officer and other executives. The Committee has the authority to retain an independent executive compensation consultant to assist in the evaluation of compensation for our executive officers, including our named executive officers, and to help ensure the objectivity and

appropriateness of the actions of the Compensation Committee. The Compensation Committee has the sole authority to retain, at our expense, and terminate any such consultant, including the sole authority to approve such consultant’s fees and other terms of engagement. During 2007, after conducting a rigorous search and examining multiple firms, the Compensation Committee selected as its compensation consultant Frederic W. Cook & Co., which had been serving as its executive compensation consultant prior to such search. The Cook firm assists in the development of compensation programs for our executive officers and our non-employee directors by providing information about compensation by the Benchmark Companies (this term is defined below), relevant market trend data, information on current issues in the regulatory environment, recommendations for program design and best practices, and corporate governance guidance. The Cook firm does not provide any other services to Hanesbrands, and this independence was an important factor in the Compensation Committee’s selection of the Cook firm.

 

At the direction of the Compensation Committee, our management has worked with the Cook firm to develop information about the compensation of our executive officers. Our Chief Executive Officer uses this information to make recommendations to the Compensation Committee regarding compensation of our executive officers, other than the Chief Executive Officer and the Executive Chairman. The Cook firm makes independent recommendations to the Compensation Committee for the compensation of our Chief Executive Officer and our Executive Chairman without the foreknowledge of management. The Compensation Committee uses this information and considers these recommendations in making decisions about executive compensation for all of our executive officers. All decisions regarding compensation of executive officers, including our named executive officers, are made solely by the Compensation Committee. Members of management and a representative of the Cook firm attended all but one of the meetings of the Compensation Committee during 2007. The Compensation Committee meets in executive sessions at each of its meetings, and each executive session includes some time when no persons other than the members of the Compensation Committee are present. Members of management and representatives of the Cook firm may be asked to attend portions of an executive session where the Compensation Committee wishes such persons to provide information to the Compensation Committee or where such attendance will otherwise be helpful to the Compensation Committee.

 

Objectives of our Compensation Programs

 

We are committed to providing market competitive total compensation packages to attract and motivate talented employees. We believe in pay for performance, and we link total compensation to performance throughout our organization to create the appropriate level of incentives and risks. We actively manage our compensation structures and levels to adapt to changes in the marketplace and the continuing evolution of our company. We also seek to align the interests of our executives, including our named executive officers, with our stockholders. The Compensation Committee reviewed our compensation philosophy during 2007 and did not make any changes.

 

The goal of our compensation programs is to create a sustainable competitive advantage by achieving higher productivity and lower costs than our competitors. Our compensation objectives at all compensation levels, including for our named executive officers, support this goal by:

 

 

To accomplish these goals, we use the following operating principles:

 

 

Developing Competitive Compensation Packages

 

As noted above, one objective of our compensation program is to attract and motivate highly qualified and talented employees through compensation packages that are appropriately competitive with compensation packages offered by other companies in the apparel and consumer products industries. To determine what constitutes a “competitive” compensation package for named executive officers, the Compensation Committee generally considers total compensation, comprised of base salary, annual incentive compensation (which we refer to as the annual bonus) and long-term equity compensation, as well as the allocation among those elements of compensation, at benchmarks determined by market rates of compensation paid by selected comparable companies. For these purposes, the Compensation Committee determines “market” rates by considering compensation paid by two groups of companies: Peer Benchmark Companies and Validation Benchmark Companies, which we refer to collectively as the “Benchmark Companies.” During 2007, the Compensation Committee reviewed the companies comprising the Peer Benchmark Companies and the Validation Benchmark Companies and did not make any changes.

 

Peer Benchmark Companies.  With the assistance of the Cook firm, we have selected eight apparel companies as our primary peer benchmark companies, which we refer to collectively as the “Peer Benchmark Companies:” VF Corp., Jones Apparel Group Inc., Liz Claiborne Inc., Quiksilver Inc., Phillips-Van Heusen Corp., Kellwood Inc., Warnaco Group Inc. and Carter’s Inc. The Peer Benchmark Companies were selected due to their similarity to us primarily in terms of industry and to a lesser extent revenue size.

 

Validation Benchmark Companies.  Because we identified only eight apparel companies as Peer Benchmark Companies, we selected for purposes of validation an additional 12 companies with revenue sizes similar to ours from the consumer durables and apparel, food and beverage and household and personal product groups, which we refer to collectively as the “Validation Benchmark Companies:” Fortune Brands Inc., Black & Decker Corp., Newell Rubbermaid Inc., Brunswick Corp., Hormel Foods Corp., Mattel Inc., Hershey Co., Clorox Co., Jarden Corp., Stanley Works, Hasbro Inc. and Del Monte Foods Inc.

 

As one illustration of our use of benchmarking, we consider target compensation information from the Benchmark Companies to set target total compensation for our named executive officers, as well as the allocation of that compensation among the various compensation elements. We consider total compensation paid at the median level by the Benchmark Companies, as well as total compensation paid at the 25th and 75th quartile levels, with a goal of targeting total compensation opportunities for our named executive officers at levels that are reasonable in comparison to this range based upon the relative experience and scope of responsibilities of the named executive officers, the marketability of their experience and how critical their position is to our efforts to execute our consolidation and globalization strategy. While our preference is that total compensation opportunities for all of our executives, including our named executive officers, be near the median total compensation opportunities for similar officers at the Benchmark Companies, consideration of the foregoing factors in some circumstances requires us to set total compensation opportunities that are closer to the 75th percentile level. When we evaluate benchmark information on this basis, we refer to it as applying our “executive compensation benchmarking criteria.”

 

Once we have set total compensation in this manner, we consider the allocation of compensation among the various compensation elements by the Benchmark Companies in allocating the total compensation opportunities of our named executive officers among the elements of compensation that we offer. We also consider relative experience and scope of responsibilities of the named executive officers, the marketability of their experience and how critical their position is to our efforts to execute our consolidation and globalization strategy. After considering these other factors, we confirm that the result is reasonable by applying the executive compensation benchmarking criteria.

 

Linking Total Compensation to Performance

 

Our compensation program seeks to link the total compensation we pay to our named executive officers to our company’s performance. We believe that the performance of individual officers is best viewed through the impact of their performance on our company’s performance and stockholder value. As a result our compensation programs focus on the performance of our company, rather than individual performance. We

pursue our goal of linking total compensation to performance through both the equity-based compensation and non-equity based elements of total compensation. Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance. As discussed below in “Allocation of Compensation Elements,” both the long-term incentive awards as a percentage of total compensation and the bonus opportunity as a percentage of total compensation of these executives is greater than that of our other employees. Because both the value of equity compensation and bonus opportunities are tied to the performance of our company, the total compensation of our named executive officers has the potential to increase or decrease based on the performance of Hanesbrands and its common stock.

 

Aligning the Interests of our Named Executive Officers with Stockholders

 

Our compensation program also seeks to align the interests of our executives, including our named executive officers, with our stockholders. The equity compensation element of our compensation package serves this purpose. A greater portion of the total compensation opportunity for our named executive officers is comprised of long-term equity compensation as compared to our other employees. See “Elements of Compensation and Analysis of Compensation Decisions — Determination of Total Compensation and Allocation of Compensation Elements” below for a comparison of the portion of the compensation paid to our named executive officers that consists of long-term equity compensation. We grant named executive officers a mix of stock options and restricted stock units that vest over time, the value of which depends on the performance of our common stock over time.

 

Recoupment.  To further align the interests of employees with the interests of our stockholders and strengthen the link between total compensation and our company’s performance, under the Omnibus Incentive Plan the Compensation Committee may make retroactive adjustments to, and employees, including named executive officers, would be required to reimburse us for, any cash or equity-based incentive compensation paid to employees where such compensation was predicated upon achieving certain financial results that were substantially the subject of a restatement, if as a result of the restatement it is determined that the employees otherwise would not have been paid such compensation, regardless of whether or not the restatement resulted from the employees’ misconduct. While the foregoing decision is made in the discretion of the Compensation Committee, the Omnibus Incentive Plan provides that Hanesbrands shall, to the extent permitted by governing law, require reimbursement of any cash or equity based incentive compensation paid to any named executive officer where: (i) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a substantial restatement, and (ii) in the view of the Compensation Committee the named executive officer engaged in fraud or misconduct that caused or partially caused the need for the substantial restatement.

 

In addition to the equity incentive compensation element of our compensation package, we have an annual incentive program with payouts tied to the achievement of key annual financial and operating metrics that are considered to be key measures of the success of our business strategy.

 

Elements of Compensation and Analysis of Compensation Decisions

 

Determination of Total Compensation and Allocation of Compensation Elements

 

As discussed above, in setting total compensation opportunities for our named executive officers, we apply the executive compensation benchmarking criteria, and also consider the relative experience and scope of responsibilities of the named executive officers, the marketability of their experience and how critical their position is to our efforts to execute our consolidation and globalization strategy. This process results in total compensation opportunities at different levels among the named executive officers, as well as different allocations among the elements of compensation.

 

Once we have set total compensation opportunities in this manner, we consider the allocation of compensation among the various compensation elements by the Benchmark Companies in allocating the total compensation opportunities of our named executive officers among the elements of compensation that we offer. We consider the factors listed above in allocating compensation opportunities among the elements of

compensation. After considering these factors, we confirm that the result is reasonable by applying the executive compensation benchmarking criteria.

 

After reviewing information about the allocation among the elements of compensation at the Benchmark Companies, the Compensation Committee approves an allocation among these elements for our named executive officers which is intended to further the objectives of our compensation policy, such as our objective of aligning the interests of our named executive officers with those of our stockholders through equity compensation. The allocations approved by the Compensation Committee result in different allocations among the elements of compensation for the named executive officers. For example, in January 2007, the Compensation Committee, following a review of total compensation opportunities for Hanesbrands’ executive officers, including the named executive officers, and applying the executive compensation benchmarking criteria, determined to increase the total compensation opportunity of Mr. Noll, our Chief Executive Officer. Using the same criteria, the Compensation Committee determined that the increase should be in the form of additional equity compensation for Mr. Noll.

 

For our named executive officers, the percentage of total compensation opportunity for 2007 represented by base salary, annual bonus at target levels and long-term equity incentive awards is illustrated in the chart below.

 

 

2008 Actions

 

In January 2008, the Compensation Committee engaged in a review of total compensation opportunities for Hanesbrands’ executive officers, including the named executive officers, applying the executive compensation benchmarking criteria.

 

As a result of such review, the Compensation Committee determined not to increase the total compensation opportunity of Mr. Noll or change the allocation among base salary, bonus and long-term equity compensation. Mr. Noll’s base salary will remain $800,000. His annual bonus opportunity pursuant to the AIP will continue to be 0%, 150% and 225% of base salary at the threshold, target and maximum levels of performance by the Company relative to the targets set by the Committee, respectively. Mr. Noll will receive an equity grant with the same value as that which he received in 2007, which is equal to 575% of base salary. Unlike the award Mr. Noll received in 2007, 75% of the value of which was in the form of stock options and 25% of the value of which was in the form of restricted stock units, the entire value of Mr. Noll’s equity award for 2008 will be in the form of stock options.

 

Also as a result of such review, the Compensation Committee determined to increase the total compensation opportunities of Mr. Wyatt, Mr. Evans and Mr. Oliver. Mr. Wyatt’s total compensation opportunity was increased by increasing his annual base salary from $550,000 to $585,000. In determining the appropriateness of increasing total compensation opportunity through an increase in base salary, the Compensation Committee, in addition to applying the executive compensation benchmarking criteria, considered that Mr. Wyatt’s base salary had not changed since he joined our company in September 2005.

 

The Compensation Committee determined to increase Mr. Evans’ total compensation opportunity by increasing his base salary from $425,000 to $600,000. In addition to the executive compensation benchmarking criteria, the Compensation Committee considered the critical nature of Mr. Evans’ position to Hanesbrands and his unique skill set that combines marketing and supply chain expertise. In determining the appropriateness of

increasing total compensation opportunity through an increase in base salary, the Compensation Committee, in addition to applying the executive compensation benchmarking criteria, considered that Mr. Evans’ base salary had not changed since July 2006.

 

The Compensation Committee determined to increase Mr. Oliver’s total compensation opportunity by increasing his base salary from $330,000 to $375,000. The Compensation Committee also increased the target bonus opportunity for Mr. Oliver from 85% to 100% of his base salary and the maximum bonus opportunity from 127.5% to 150% of his base salary. The Compensation Committee also increased Mr. Oliver’s equity compensation from 150% to 200% of his base salary. In addition to applying the executive compensation benchmarking criteria, the Compensation Committee considered the global nature of Mr. Oliver’s position and that Mr. Oliver’s cash compensation had not been increased since 2005 in determining that an increase in total compensation opportunity was appropriate.

 

Base Salary

 

The base salaries for our named executive officers are determined based on their experience and the scope of their responsibilities both on an individual basis and in relation to the experience and scope of responsibilities of other executives. The Compensation Committee also applies the executive compensation benchmarking criteria. These factors result in different compensation levels among the named executive officers. Base salaries are reviewed annually, and adjusted from time to time to reflect individual responsibilities, performance and experience, as well as market compensation levels. As discussed above in “2008 Actions,” in January 2008 the Compensation Committee determined to increase the base salaries of some of our named executive officers.

 

Annual Bonus

 

Bonus compensation pursuant to the AIP is designed to motivate performance and to advance the interests of Hanesbrands by linking a portion of the annual compensation paid to participants to the achievement of financial objectives and key performance indicators, while contributing to increased long-term stockholder value. Because, as noted above, our compensation programs focus on the performance of our company rather than the performance of individual officers, individual performance targets are not set for our executives. The design of the AIP is intended to make it easy for participants to understand what performance is required to earn bonuses, consistent with our operating principles of transparency and clarity in communicating our compensation programs. Annual targets under the AIP are consistent with our long-term financial targets, and are balanced with shorter term key performance indicators that are expected to change from year to year.

 

Bonus opportunities exist for performance at a target level and for performance at a maximum level. No bonus opportunity exists for performance at or below the threshold level, but a pro rated amount may be earned if performance is above the threshold level but below the target level. Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance, and their bonus opportunity, which is tied to the performance of the company, as a percentage of their base salary is greater than that of our other executives and employees. In addition, the Compensation Committee considered information about the bonus opportunities available to comparable officers at the Benchmark Companies, and this resulted in bonus opportunities differing among the named executive officers. The chart below illustrates the 2007 bonus opportunity, expressed as a percentage of base salary, for each of our named executive officers at the threshold, target and maximum levels.

 

As discussed above in “2008 Actions,” in January 2008 the Compensation Committee determined to increase Mr. Oliver’s bonus opportunity.

 

Analysis of 2007 AIP Payments.  Given our business model, we consider the performance measures we have chosen to determine bonus amounts under the AIP to be key measures of the success of our business strategy. For 2007, the components used to determine bonus amounts under the AIP for our Chief Executive Officer and Executive Chairman were sales growth and net operating profit after taxes, which we also refer to as “NOPAT”. For each of the Chief Executive Officer and the Executive Chairman, sales growth was weighted 20% and net operating profit after taxes was weighted 80%. For example, our Chief Executive Officer would be eligible to receive 20% of his target bonus if sales increase at the target level over sales for the previous year, and would be eligible to receive 20% of his maximum bonus if sales increase by the maximum level over such prior period sales.

 

Sales Growth.  We have announced a long-term goal of annual sales growth of 1% to 3%, excluding acquisitions and divestitures. Under the AIP for 2007, sales growth of 2%, the mid-point of the range of our long-term goal, would result in participating employees being eligible for the portion of their bonus attributable to sales growth at the target level, while sales growth of 4% would result in participating employees being eligible for the portion of their bonus attributable to sales growth at the maximum level. The threshold level of sales growth was set at 0%. For the fiscal year ended December 29, 2007, sales growth was approximately 1.614% , or 80.7% of the target amount.

 

Net Operating Profit After Taxes.  Under the AIP for 2007, net operating profit after taxes of $246 million would result in participating employees being eligible for the portion of their bonus attributable to net operating profit after taxes at the target level, while net operating profit after taxes of $492 million would result in participating employees being eligible for the portion of their bonus attributable to net operating profit after taxes at the maximum level. As discussed below, setting targets for net operating profits after taxes takes into consideration the return that holders of our equity and debt expect to receive, further linking total compensation to performance and aligning the interests of our executive officers, including our named executive officers, with those of our stockholders. We set the targets for net operating profit after taxes for a fiscal year by multiplying our net invested capital as of the end of our previous fiscal year by our weighted average cost of capital for our previous fiscal year. These components are discussed below. These targets are set objectively by reference to our capital employed, with no opportunity for our named executive officers or other employees to “negotiate” target levels that might be more likely to result in higher bonuses.

 

Our net invested capital is equal to our total assets minus total current liabilities. Our investors and employees can determine those amounts by reference to our earnings releases and other information that we file with the Securities and Exchange Commission. As of December 30, 2006, we reported total assets of $3.436 billion and total current liabilities of $611 million, resulting in net invested capital of $2.825 billion.

 

Our weighted average cost of capital is calculated by totaling the relative cost of equity and the relative cost of debt as follows:

 

 

 

When multiplied by the net invested capital of $2.825 billion, the weighted average cost of capital results in target net operating profits after taxes for 2007 of $246 million. For purposes of setting our 2007 threshold level of net operating profit after taxes of $136 million, we multiplied our net invested capital by the risk-free rate of 4.8%. We set our maximum level of net operating profit after taxes for 2007 by multiplying our net invested capital by two times our weighted average cost of capital (for 2007, 8.7% times two, or 17.4%).

 

Although we set the targets for net operating profit after taxes for a fiscal year by multiplying our net invested capital as of the end of our previous fiscal year by our weighted average cost of capital for our previous fiscal year, we actually calculate net operating profit after taxes for a completed fiscal year as operating profit, excluding certain actions, multiplied by one minus our tax rate for the period. We disclose our operating profit, excluding certain actions, when we release our earnings information for completed fiscal periods. For the fiscal year ended December 29, 2007, net operating profit after taxes excluded plant closings and reorganization, amortization of gain on postretirement benefits included in selling, general and administrative expenses, gain on curtailment of postretirement benefits, separation of pension plan assets and liabilities included in selling, general and administrative expenses and spin off and related charges included in selling, general and administrative expenses. Other than those reflected in our publicly disclosed earnings information, no adjustments are made to our operating profit, excluding actions, in determining net operating profit after taxes for purposes of the AIP.

 

For the fiscal year ended December 29, 2007, net operating profit after taxes was $295.9 million, or 120.3% of the target amount. Our investors and employees can understand how our net operating profit after taxes compares to our net operating profit as determined in accordance with generally accepted accounting principles by reference to our earnings releases and other information that we file with the Securities and Exchange Commission.

 

For 2007, the components used to determine bonus amounts under the AIP for participants, including our named executive officers (other than our Chief Executive Officer and Executive Chairman) were (i) sales growth, (ii) net operating profit after taxes and (iii) four key non-financial performance indicators that are described in greater detail below. For these participants, each of the three categories of components was weighted from 0% to 80%, so that the total of the three categories represents 100% of the bonus amount. For example, if sales growth is assigned a weight of 20% for a participating employee, that participating employee would be eligible to receive 20% of his or her target bonus if sales increase at the target level over sales for the previous year, and would be eligible to receive 20% of his or her maximum bonus if sales increase by the maximum level over such prior period sales. The chart below illustrates for each of our named executive officers the weight assigned to each of three categories of performance components for 2007.

 

 

Key Performance Indicators.  Our Chief Executive Officer uses the key performance indicators as a tool to drive behavior throughout the top levels of our organization. The bonus opportunities of over 700 employees are tied to our company’s performance relative to the key performance indicators. The targets associated with the key performance indicators are recommended to the Compensation Committee each year by our Chief

Executive Officer, whose bonus, as discussed below, is not derived from the key performance indicators. Key performance indicators for 2007 were workforce diversity, product quality, customer service and inventory management. These key performance indicators are described below:

 

 

Key performance indicators are assigned an aggregate weight of 30% in determining the bonus for all named executive officers (other than our Executive Chairman, Mr. Chaden, and our Chief Executive Officer, Mr. Noll, for whom key performance indicators are not applicable). The key performance indicators, the related performance targets and the relative weights assigned to them with respect to each named executive officer are expected to change from year to year as the Compensation Committee and the Chief Executive Officer determine the need to focus on different operating metrics.

 

For the fiscal year ended December 29, 2007, Hanesbrands performed near the target level for the customer service and inventory management key performance indicators, and near the maximum level for the workforce diversity and product quality key performance indicators. Because our Chief Executive Officer uses the key performance indicators as a tool to drive behavior throughout the top levels of our organization, we put action plans in place designed to deliver these results. Although we set challenging goals with respect to the key performance indicators, we believed that our strong focus on these areas and the resources that we expected to devote to meeting the desired performance levels would allow us to meet our goals. Therefore, at the time the 2007 targets were set, we believed that it was likely that Hanesbrands would perform at least at the target performance level with respect to each of the key performance indicators.

 

As a result of Hanesbrands’ performance for the fiscal year ended December 29, 2007, our named executive officers received bonuses at the following approximate percentages of their base salary level: Mr. Noll, 156.4%, Mr. Wyatt, 113.6%, Mr. Chaden, 156.4%, Mr. Evans, 113.6% and Mr. Oliver, 96.6%.

 

2008 Targets.  For 2008, the components used to determine bonus amounts under the AIP for our Chief Executive Officer will again be sales growth and net operating profit after taxes. The components used to determine bonus amounts under the AIP for participants, including our named executive officers (other than our Chief Executive Officer), will be sales growth, net operating profit after taxes and four key non-financial performance indicators: workforce diversity, product quality, customer service and a new key performance indicator, Asia transformation labor levels. Asia transformation labor levels is the measure of full time equivalent employees that are in place in Asia by the end of the year. Components will be assigned the same weights as in 2007.

 

The sales growth targets are the same for 2008, and we expect that the sales growth targets at these levels will remain in place unless we change our long-term annual sales growth goal. We multiplied our net invested capital of $2.75 billion as of December 29, 2007 by our weighted average cost of capital of 8.68%, and we set our 2008 target level of net operating profit after taxes at 125% of that amount, or approximately $298 million. We multiplied this number by 75% and 150% to set the threshold and maximum levels of approximately $224 million and $447 million, respectively.

 

Achieving the 2008 targets set for key performance indicators will require the coordinated efforts of thousands of individuals located in the many different countries in which we operate, and because our Chief Executive Officer uses the key performance indicators as a tool to drive behavior throughout the top levels of our organization, we have action plans in place designed to deliver these results. Although we have set challenging goals for 2008 with respect to the key performance indicators, we believe that our strong focus on

these areas and the resources that we expect to devote to meeting the desired performance levels should allow us to meet or exceed our goals. Therefore, we believe it is likely that Hanesbrands will achieve performance levels within the targeted range for each of the key performance indicators.

 

Long-Term Incentive Program

 

The Omnibus Incentive Plan permits the issuance of equity incentive awards to our employees, non-employee directors and employees of our subsidiaries to promote the interests of our company and our stockholders. The Omnibus Incentive Plan is designed to promote these interests by providing such individuals with a proprietary interest in pursuing the long-term growth, profitability and financial success of our company. During 2007, the only types of grants awarded to our executive officers were stock options and time-vested restricted stock units. Restricted stock units and options vest according to schedules established at grant, conditioned on continued employment with Hanesbrands, with vestings in the event of a qualifying termination of employment for death, disability, retirement or involuntary termination or a change in control as determined as the time of grant. Awards of this type are generally consistent with the types of awards made by the Benchmark Companies. Additional details regarding the awards made pursuant to the Omnibus Incentive Plan during the fiscal year ended December 29, 2007 are discussed below under “Discussion of Summary Compensation Table and Grants of Plan-Based Awards Table.”

 

We made equity grants to our named executive officers and other employees in September 2006 and February 2007. The September 2006 awards, including the date on which the awards were granted, were approved prior to our spin off from Sara Lee on September 5, 2006 and were made on the 15th trading date following the completion of the spin off, which we believe was a reasonable time period to permit the development of an orderly market for the trading of our common stock.

 

When the February 2007 grants were approved by the Compensation Committee, we had previously released earnings for only one quarter, during most of which we were not yet an independent company, and were preparing to release earnings for our first full quarter as an independent company. Because the trading history of our common stock was still relatively limited at that time, the Compensation Committee determined to make those grants on the second trading day following the day on which we released our earnings information for the prior fiscal period. The Compensation Committee did this to allow sufficient time for the market to absorb the impact of earnings information before the trading price of our common stock would be used to determine the number of restricted stock units and options that would be awarded, as well as the exercise price of any options awarded. Given the special circumstances surrounding our spin off, we believed that these delays in grant date were prudent. After consultation with the Cook firm, the Compensation Committee determined that the awards for 2008 would also be made on the second trading day following the day on which we release our earnings. In making this decision, we considered our relatively short history as an independent company and the proximity in time of the meeting at which the Compensation Committee determined to approve the equity awards to the planned date for the release of our earnings information for the fiscal year ended December 29, 2007.

 

Equity awards to executive officers and other employees are approved as a dollar amount, which on the grant date is converted into restricted stock units and, in the case of certain executive officers, including the named executive officers, stock options. The number of restricted stock units is determined by using the closing price of our common stock on the date of grant. The number of stock options is determined by a third party using a Black-Scholes option-pricing model, with the closing price of our common stock on the date of grant as one of the factors used. The exercise price of the stock options granted is the closing price of our common stock on the date of grant.

 

Analysis of 2007 Long-Term Incentive Plan Grants.  Our executives with the most senior leadership positions within our organization have the greatest ability to influence our company’s performance. Therefore, the value of their long-term incentive awards as a percentage of their base salary is greater than that of our other employees. As discussed above, in January 2007, the Compensation Committee, following a review of total compensation opportunities for Hanesbrands’ executive officers, including the named executive officers, and a comparison of such opportunities to those available to executive officers of the Benchmark Companies,

determined to increase the equity compensation component of the total compensation opportunity of Mr. Noll, our Chief Executive Officer to 575% of his annual base salary; Mr. Noll previously received equity compensation with a value equal to 300% of his annual base salary. Based on the benchmarking, the Compensation Committee did not increase the equity compensation component of the total compensation opportunities of our other executive officers.

 

As discussed above in “2008 Actions,” in January 2008 the Compensation Committee determined to change the allocation of Mr. Noll’s equity compensation from a combination of RSUs and stock options to all stock options and to increase Mr. Oliver’s equity compensation.

 

The table below shows the value of total target cash compensation and equity incentive compensation compared to total target compensation for each of the named executive officers for 2008 and 2007. This table presents information that is supplemental to, and should not be considered a substitute for, the information contained in the Summary Compensation Table which appears below under “Summary of Compensation.” This table is not required by Securities and Exchange Commission rules, and we have chosen to include it to help investors better understand how our named executive officers are compensated. Amounts are target amounts and do not necessarily reflect exact amounts that were or will be paid.

 

Target Cash and Equity Compensation

 

 

Post-Employment Compensation

 

Our named executive officers are eligible to receive post-employment compensation pursuant to the Hanesbrands Inc. Pension and Retirement Plan, or the “Pension Plan,” and the Hanesbrands Inc. Supplemental Employee Retirement Plan, or the “SERP, and pursuant to Severance/Change in Control Agreements, or “Severance Agreements.” Each of these arrangements is discussed below.

 

The Pension Plan.  The Pension Plan is a defined benefit pension plan under which benefits have been frozen since December 31, 2005, intended to be qualified under Section 401(a) of the Internal Revenue Code, that provides the benefits that had accrued for any of our employees, including our named executive officers, under the Sara Lee Corporation Consolidated Pension and Retirement Plan as of December 31, 2005. Because the Pension Plan is frozen, no additional employees will become eligible to participate in the Pension Plan, and existing participants in the Pension Plan will not accrue any additional benefits after December 31, 2005.

 

The SERP.  The SERP is a nonqualified supplemental retirement plan. Although, as described below, the 401(k) Plan provides for employer contributions to our executive officers, including our named executive officers, at the same percent of their eligible compensation as provided for all employees who participate in the 401(k) Plan, compensation and benefit limitations imposed on the 401(k) Plan by the Internal Revenue Code generally prevent us from making the full employer contributions contemplated by the 401(k) Plan with respect to any employee whose compensation exceeds a threshold set by Internal Revenue Code provisions, which threshold was $225,000 for 2007 and is $230,000 for 2008. Our named executive officers are among those employees whose compensation exceeds this threshold. The SERP provides to those employees whose

compensation exceeds this threshold benefits that would be earned under the 401(k) Plan but for these limitations.

 

Severance Agreements.  We have entered into Severance Agreements with all of our executive officers, including our named executive officers. The Severance Agreements provide our executive officers with benefits upon the involuntary termination of their employment other than for wrongful behavior or misconduct. The Severance Agreements also contain change in control benefits for our executive officers to help keep them focused on their work responsibilities during the uncertainty that accompanies a change in control, to provide benefits for a period of time after a change in control transaction and to help us attract and retain key talent. We determined the levels of severance provided to our named executive officers under the Severance Agreements by reference to market studies conducted prior to entering into the first Severance Agreements in connection with our spin off. We believe the levels of benefits offered by the Severance Agreements are appropriate and conservatively competitive and that these benefits were reasonable in light of Hanesbrands’ status as a newly public company following the spin off. Compensation that could potentially be paid to our named executive officers pursuant to the Severance Agreements is described below in “Potential Payments upon Termination or Change in Control.” Each agreement is effective for an unlimited term, unless we give at least 18 months prior written notice that the agreement will not be renewed. In addition, if a change in control occurs during the term of the agreement, the agreement will automatically continue for two years after the end of the month in which the change in control occurs.

 

Other Compensation

 

Our executive officers, including our named executive officers, are eligible to participate in certain employee benefits plans and arrangements offered by our company. These include the 401(k) Plan, the SERP, the Hanesbrands Inc. Executive Deferred Compensation Plan, or the “Executive Deferred Compensation Plan,” the Hanesbrands Inc. Executive Life Insurance Program and the Hanesbrands Inc. Executive Disability Program. These plans and arrangements are described below.

 

Under the Executive Deferred Compensation Plan, a group of approximately 270 executives at the director level and above, including our named executive officers, may defer receipt of cash and equity compensation. We offer the Executive Deferred Compensation Plan because programs of its kind are offered by some of the Benchmark Companies, and because we wanted to allow those of our executives who were participating in a similar plan offered by Sara Lee prior to the spin off to maintain a similar benefit after the spin off.

 

In addition to allowing us to make full employer contributions to employees whose compensation exceeds a threshold set by the Internal Revenue Service as discussed above, the SERP also provides benefits consisting of (i) those supplemental retirement benefits that had been accrued under the Sara Lee Corporation Supplemental Executive Retirement Plan as of December 31, 2005 and (ii) transitional defined contribution credits for one to five years and ranging from 4% to 15% of eligible compensation for certain executives. These transitional credits are being provided to a broad group of executives in connection with our transition (prior to the spin off) from providing both a defined benefit plan (as discussed above, the Pension Plan is frozen) and a defined contribution plan to providing only defined contribution plans, to mitigate the negative impact of that transition. The determination of the credits provided to an executive was based on the extent to which such executive was negatively impacted by the transition, including the executive’s age and years of service as of January 1, 2006.

 

The Hanesbrands Inc. Executive Life Insurance Plan is designed to provide life insurance benefits to a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of Hanesbrands. The Hanesbrands Inc. Executive Life Insurance Plan provides life insurance coverage during active employment for certain of our executives at the level of vice president and above, including our named executive officers, in an amount equal to three times their annual base salary. We also offer continuing coverage following retirement equal to such executive officer’s annual base salary immediately prior to retirement. The Hanesbrands Inc. Executive Disability Plan is designed to provide long-term disability benefits for persons employed by its divisions and subsidiaries as

eligible executives. The Hanesbrands Inc. Executive Disability Plan provides disability coverage for a group of approximately 90 employees at the level of vice president and above, including our named executive officers. If an eligible employee becomes totally disabled, the program will provide a monthly disability benefit equal to 1/12 of the sum of (i) 75% of the employee’s annual base salary up to an amount not in excess of $500,000, and (ii) 50% of the three-year average of the employee’s annual short-term incentive bonus up to an amount not in excess of $250,000. The maximum monthly disability benefit is $41,667 and is reduced by any disability benefits that an employee is entitled to receive under Social Security, workers’ compensation, a state compulsory disability law or another plan of Hanesbrands providing benefits for disability.

 

Perquisites.  We offer limited perquisites to our executive officers, including our named executive officers, and have eliminated or reduced many of the perquisites and similar benefits that had been available to our executive officers prior to the spin off. For example, we no longer pay country club fees or provide reimbursement for financial advisory services. In addition, we no longer provide our executives with a company automobile for their use, but instead provide a reduced benefit by providing an automobile allowance program consisting of a payment to our executives of an amount equal to 4% of their base salary. We established the automobile allowance program because we believe it is necessary in light of current market practice.

 

Share Ownership and Retention Guidelines

 

We believe that our executives should have significant ownership of Hanesbrands. To promote such equity ownership and further align the interests of our executives with our stockholders, we have adopted share retention and ownership guidelines for our key executives, including our named executive officers. These ownership guidelines vary based upon the executive’s level and range from a minimum of one times base salary to, in the case of the Chief Executive Officer, four times base salary. The Compensation Committee reviewed the guidelines during the fiscal year ended December 29, 2007 and did not make any changes.

 

Our key executives have a substantial portion of their incentive compensation paid in the form of our common stock. In addition to shares directly held by a key executive, shares held for such executive in the 401(k) Plan, the Executive Deferred Compensation Plan and the SERP (including hypothetical share equivalents held in the latter two plans) will be counted for purposes of determining whether the ownership requirements are met. Although it is currently the practice of our executive officers not to participate in the Employee Stock Purchase Plan and thereby not to benefit from the discounted purchase price for our common stock available under that plan, any shares held in that plan in the future would also be counted.

 

Until the stock ownership guidelines are met, an executive is required to retain 50% of any shares received (on a net after tax basis) under our equity-based compensation plans. The Compensation Committee reviewed compliance by our executive officers, including our named executive officers, at the end of 2007 and determined that, with the exception of Joia M. Johnson, our Executive Vice President, General Counsel and Corporate Secretary, and William J. Nictakis, our President, Chief Commercial Officer, who joined our company in January 2007 and November 2007, respectively, each of our executive officers had achieved ownership of at least 50% of the shares set forth in the guidelines during the time following the spin off in September 2006.

 

Under our insider trading policy, no director or employee of Hanesbrands is permitted to engage in “short sales” or “sales against the box” or trade in puts, calls or other options on our securities. This prohibition is intended to prevent any Hanesbrands director, officer or employee from trading on inside information.

 

Impact of Certain Regulatory Requirements

 

Section 162(m) of the Internal Revenue Code limits the tax deductibility of certain compensation paid to our chief executive officer and three other executive officers, other than our chief financial officer, with the highest total compensation. This provision disallows the deductibility of certain compensation in excess of $1 million per year unless it is considered performance-based compensation under the Internal Revenue Code. We have adopted policies and practices that are intended to take into account the maximum tax deduction

possible under Section 162(m) of the Internal Revenue Code for our annual bonus payments and stock option awards; however, there can be no guarantee that the IRS will agree on the amount of those deductions. In addition, we may forgo any or all of the tax deduction if we believe it to be in the best long-term interests of our stockholders. Time-vested restricted stock units are not deemed “performance based”; and therefore are not tax deductible if the value at vesting, in combination with other non-performance-based compensation such as salary, exceeds $1 million for an executive officer. For the fiscal year ended December 29, 2007, the compensation paid to our named executive officers is expected to be tax deductible.

 

In making decisions about executive compensation, we also consider the impact of other regulatory provisions, including the provisions of Section 409A of the Internal Revenue Code regarding non-qualified deferred compensation and the “golden parachute” provisions of Section 280G of the Internal Revenue Code. For example, we have attempted to structure the Severance Agreements so that they will not result in adverse tax consequences under Section 409A of the Internal Revenue Code. In making decisions about executive compensation, we also consider how various elements of compensation will impact our financial results. In this regard, we consider the impact of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” which determines how we recognize the cost of employee services received in exchange for awards of equity instruments.

 

The following table sets forth certain information with respect to compensation for the fiscal year ended December 29, 2007 and the six months ended December 30, 2006 earned by or paid to our named executive officers.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

The following table sets forth certain information with respect to grants of plan-based awards for the fiscal year ended December 29, 2007 to the named executive officers.

 

Grants of Plan-Based Awards in 2007

 

 

 

 

 

 

As discussed above under “Elements of Compensation and Analysis of Compensation Decisions,” the base salaries for our named executive officers are determined based on their experience and the scope of their responsibilities both on an individual basis and in relation to the experience and scope of responsibilities of other executives. The Compensation Committee also applies the executive compensation benchmarking criteria. For the fiscal year ended December 29, 2007, bonuses were paid in accordance with the performance targets set under the AIP. See “Elements of Compensation and Analysis of Compensation Decisions” for an analysis of the salary and bonus paid to our named executive officers in 2007.

 

During the fiscal year ended December 29, 2007, consistent with the objectives of the Omnibus Incentive Plan of providing employees with a proprietary interest in our company and aligning employee interest with that of our stockholders, we made our 2007 annual equity awards. For executive officers, including the named executive officers, the form of these awards was split evenly between stock options and RSUs (except that Mr. Noll received 75% of his award in the form of stock options and 25% in the form of RSUs) that vest 33%, 34% and 33% on the first anniversary, second anniversary and third anniversary, respectively, of the date of grant. The number of stock options granted to each recipient was determined based on a Black-Scholes option-pricing model. The exercise price of the stock options is 100% of the fair market value of our common stock on the grant date. We also made recruitment awards to two of our executive officers who joined Hanesbrands during 2007, Ms. Johnson and Mr. Nictakis. The awards made to our named executive officers are reflected in the “Summary Compensation Table” and the “Grants of Plan-Based Award Table” above and are discussed above in “Elements of Compensation and Analysis of Compensation Decisions.”

 

The following table sets forth certain information with respect to outstanding equity awards at December 29, 2007 with respect to the named executive officers.

 

Outstanding Equity Awards at Fiscal 2007 Year-End