UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2011
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32891
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
Maryland (State of incorporation) |
20-3552316 (I.R.S. employer identification no.) | |
1000 East Hanes Mill Road Winston-Salem, North Carolina (Address of principal executive office) |
27105 (Zip code) |
(336) 519-8080
(Registrants telephone number including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer ¨ | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of October 28, 2011, there were 97,170,548 shares of the registrants common stock outstanding.
Trademarks, Trade Names and Service Marks
We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks that we own or have rights to use that may appear in this Quarterly Report on Form 10-Q include the Hanes, Champion, C9 by Champion, Playtex, Bali, Leggs, Just My Size, barely there, Wonderbra, Stedman, Outer Banks, Zorba, Rinbros, Duofold and Gear for Sports marks, which may be registered in the United States and other jurisdictions. We do not own any trademark, trade name or service mark of any other company appearing in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as may, believe, will, expect, project, estimate, intend, anticipate, plan, continue or similar expressions. In particular, statements under the headings Outlook for 2011 and Business and Industry Trends and other information appearing under Managements Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the SEC), including our Annual Report on Form 10-K for the year ended January 1, 2011, particularly under the caption Risk Factors.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended January 1, 2011, particularly under the caption Risk Factors. We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically.
We make available free of charge at www.hanesbrands.com (in the Investors section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.hanesbrands.com, or any of our other websites, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.
1
Item 1. | Financial Statements |
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
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Net sales |
$ | 1,230,185 | $ | 1,173,362 | $ | 3,491,828 | $ | 3,177,054 | ||||||||
Cost of sales |
804,742 | 809,487 | 2,284,620 | 2,110,943 | ||||||||||||
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Gross profit |
425,443 | 363,875 | 1,207,208 | 1,066,111 | ||||||||||||
Selling, general and administrative expenses |
272,761 | 249,815 | 804,215 | 743,534 | ||||||||||||
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Operating profit |
152,682 | 114,060 | 402,993 | 322,577 | ||||||||||||
Other expenses |
880 | 1,094 | 2,295 | 5,128 | ||||||||||||
Interest expense, net |
38,262 | 36,326 | 118,545 | 110,394 | ||||||||||||
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Income before income tax expense |
113,540 | 76,640 | 282,153 | 207,055 | ||||||||||||
Income tax expense |
22,708 | 15,328 | 56,430 | 23,818 | ||||||||||||
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Net income |
$ | 90,832 | $ | 61,312 | $ | 225,723 | $ | 183,237 | ||||||||
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Earnings per share: |
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Basic |
$ | 0.93 | $ | 0.64 | $ | 2.31 | $ | 1.90 | ||||||||
Diluted |
$ | 0.91 | $ | 0.63 | $ | 2.28 | $ | 1.87 | ||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
97,925 | 96,496 | 97,559 | 96,417 | ||||||||||||
Diluted |
99,535 | 97,752 | 99,200 | 97,790 |
See accompanying notes to Condensed Consolidated Financial Statements.
2
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
October 1, 2011 |
January 1, 2011 |
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Assets | ||||||||
Cash and cash equivalents |
$ | 47,997 | $ | 43,671 | ||||
Trade accounts receivable less allowances of $16,779 at October 1, 2011 and $19,192 at January 1, 2011 |
589,439 | 503,243 | ||||||
Inventories |
1,726,372 | 1,322,719 | ||||||
Deferred tax assets |
146,357 | 149,431 | ||||||
Other current assets |
64,694 | 128,607 | ||||||
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Total current assets |
2,574,859 | 2,147,671 | ||||||
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Property, net |
636,409 | 631,254 | ||||||
Trademarks and other identifiable intangibles, net |
173,156 | 178,622 | ||||||
Goodwill |
432,671 | 430,144 | ||||||
Deferred tax assets and other noncurrent assets |
401,485 | 402,311 | ||||||
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Total assets |
$ | 4,218,580 | $ | 3,790,002 | ||||
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Liabilities and Stockholders Equity | ||||||||
Accounts payable |
$ | 505,884 | $ | 412,369 | ||||
Accrued liabilities |
322,588 | 276,303 | ||||||
Notes payable |
34,111 | 50,678 | ||||||
Current portion of debt |
175,000 | 90,000 | ||||||
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Total current liabilities |
1,037,583 | 829,350 | ||||||
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Long-term debt |
2,005,735 | 1,990,735 | ||||||
Other noncurrent liabilities |
425,021 | 407,243 | ||||||
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Total liabilities |
3,468,339 | 3,227,328 | ||||||
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Stockholders equity: |
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Preferred stock (50,000,000 authorized shares; $.01 par value) |
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Issued and outstanding None |
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Common stock (500,000,000 authorized shares; $.01 par value) |
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Issued and outstanding 97,165,403 at October 1, 2011 and 96,207,025 at January 1, 2011 |
972 | 962 | ||||||
Additional paid-in capital |
257,881 | 294,829 | ||||||
Retained earnings |
705,820 | 480,098 | ||||||
Accumulated other comprehensive loss |
(214,432 | ) | (213,215 | ) | ||||
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Total stockholders equity |
750,241 | 562,674 | ||||||
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Total liabilities and stockholders equity |
$ | 4,218,580 | $ | 3,790,002 | ||||
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See accompanying notes to Condensed Consolidated Financial Statements.
3
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended | ||||||||
October 1, 2011 |
October 2, 2010 |
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Operating activities: |
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Net income |
$ | 225,723 | $ | 183,237 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation |
55,707 | 54,232 | ||||||
Amortization of intangibles |
10,861 | 9,046 | ||||||
Write-off on early extinguishment of debt |
| 2,340 | ||||||
Amortization of debt issuance costs |
7,799 | 9,724 | ||||||
Amortization of loss on interest rate hedge |
8,928 | 13,732 | ||||||
Stock compensation expense |
5,901 | 8,320 | ||||||
Deferred taxes and other |
2,970 | (10,224 | ) | |||||
Changes in assets and liabilities: |
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Accounts receivable |
(90,942 | ) | (77,782 | ) | ||||
Inventories |
(404,801 | ) | (333,132 | ) | ||||
Other assets |
2,305 | 9,112 | ||||||
Accounts payable |
93,526 | 109,964 | ||||||
Accrued liabilities and other |
55,149 | (15,643 | ) | |||||
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Net cash used in operating activities |
(26,874 | ) | (37,074 | ) | ||||
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Investing activities: |
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Purchases of property, plant and equipment |
(68,744 | ) | (78,570 | ) | ||||
Acquisition of business |
(9,154 | ) | | |||||
Proceeds from sales of assets |
12,659 | 45,469 | ||||||
Other |
| (519 | ) | |||||
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Net cash used in investing activities |
(65,239 | ) | (33,620 | ) | ||||
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Financing activities: |
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Borrowings on notes payable |
305,257 | 991,061 | ||||||
Repayments on notes payable |
(322,185 | ) | (1,015,338 | ) | ||||
Borrowings on Accounts Receivable Securitization Facility |
229,396 | 191,424 | ||||||
Repayments on Accounts Receivable Securitization Facility |
(144,396 | ) | (141,424 | ) | ||||
Borrowings on Revolving Loan Facility |
2,448,500 | 1,597,500 | ||||||
Repayments on Revolving Loan Facility |
(2,433,500 | ) | (1,459,000 | ) | ||||
Payments to amend credit facilities |
(3,757 | ) | (1,688 | ) | ||||
Proceeds from stock options exercised |
16,784 | 3,437 | ||||||
Repayment of debt under 2009 Senior Secured Credit Facility |
| (59,063 | ) | |||||
Other |
1,393 | 308 | ||||||
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Net cash provided by financing activities |
97,492 | 107,217 | ||||||
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Effect of changes in foreign exchange rates on cash |
(1,053 | ) | 30 | |||||
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Increase in cash and cash equivalents |
4,326 | 36,553 | ||||||
Cash and cash equivalents at beginning of year |
43,671 | 38,943 | ||||||
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Cash and cash equivalents at end of period |
$ | 47,997 | $ | 75,496 | ||||
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See accompanying notes to Condensed Consolidated Financial Statements.
4
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
(1) | Basis of Presentation |
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc., a Maryland corporation, and its consolidated subsidiaries (the Company or Hanesbrands). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys most recent Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
(2) | Recent Accounting Pronouncements |
Fair Value Disclosures
In January 2010, the Financial Accounting Standards Board (the FASB) issued new accounting rules related to the disclosure requirements for fair value measurements. The new accounting rules require new disclosures regarding significant transfers between Levels 1 and 2 of the fair value hierarchy and the activity within Level 3 of the fair value hierarchy. The new accounting rules also clarify existing disclosures regarding the level of disaggregation of assets or liabilities and the valuation techniques and inputs used to measure fair value. The new accounting rules were effective for the Company in the first quarter of 2010, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures were effective for the Company in the first quarter of 2011. The adoption of these new rules did not have a material impact on the Companys financial condition, results of operations or cash flows but resulted in certain additional disclosures reflected in Note 8.
Fair Value Measurements
In May 2011, the FASB issued new accounting rules related to fair value measurements. The new accounting rules clarify some existing concepts, eliminate wording differences between GAAP and International Financial Reporting Standards (IFRS), and in some limited cases, change some principles to achieve convergence between GAAP and IFRS. The new accounting rules result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. The new accounting rules also expand the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The new accounting rules will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of the new accounting rules to have a material effect on the Companys financial condition, results of operations or cash flows.
5
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Presentation of Comprehensive Income
In June 2011, the FASB issued new accounting rules that require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of equity. The new accounting rules will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of the new accounting rules to have a material effect on the Companys financial condition, results of operations or cash flows.
Goodwill Impairment Testing
In September 2011, the FASB issued new accounting rules related to testing goodwill for impairment. The new accounting rules permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. The new accounting rules will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of the new accounting rules to have a material effect on the Companys financial condition, results of operations or cash flows.
(3) | Earnings Per Share |
Basic earnings per share (EPS) was computed by dividing net income by the number of weighted average shares of common stock outstanding during the quarters and nine months ended October 1, 2011 and October 2, 2010. Diluted EPS was calculated to give effect to all potentially dilutive shares of common stock using the treasury stock method. The reconciliation of basic to diluted weighted average shares outstanding for the quarters and nine months ended October 1, 2011 and October 2, 2010 is as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
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Basic weighted average shares outstanding |
97,925 | 96,496 | 97,559 | 96,417 | ||||||||||||
Effect of potentially dilutive securities: |
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Stock options |
1,230 | 664 | 1,221 | 781 | ||||||||||||
Restricted stock units |
377 | 589 | 418 | 591 | ||||||||||||
Employee stock purchase plan and other |
3 | 3 | 2 | 1 | ||||||||||||
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Diluted weighted average shares outstanding |
99,535 | 97,752 | 99,200 | 97,790 | ||||||||||||
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For the quarters ended October 1, 2011 and October 2, 2010, 13 and 0 restricted stock units, respectively, and options to purchase 0 and 606 shares of common stock, respectively, were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the nine months ended October 1, 2011 and October 2, 2010, 13 and 0 restricted stock units, respectively, and options to purchase 6 and 606 shares of common stock, respectively, were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
6
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
(4) | Trade Accounts Receivable |
Allowances for Trade Accounts Receivable
The changes in the Companys allowance for doubtful accounts and allowance for chargebacks and other deductions for the quarter and nine months ended October 1, 2011 are as follows:
Allowance for Doubtful Accounts |
Allowance for Chargebacks and Other Deductions |
Total | ||||||||||
Balance at January 1, 2011 |
$ | 11,116 | $ | 8,076 | $ | 19,192 | ||||||
Charged to expenses |
(1,419 | ) | 1,538 | 119 | ||||||||
Deductions and write-offs |
(220 | ) | (1,609 | ) | (1,829 | ) | ||||||
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Balance at April 2, 2011 |
9,477 | 8,005 | 17,482 | |||||||||
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Charged to expenses |
(171 | ) | 1,467 | 1,296 | ||||||||
Deductions and write-offs |
(26 | ) | (1,509 | ) | (1,535 | ) | ||||||
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Balance at July 2, 2011 |
9,280 | 7,963 | 17,243 | |||||||||
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Charged to expenses |
766 | 1,110 | 1,876 | |||||||||
Deductions and write-offs |
(810 | ) | (1,530 | ) | (2,340 | ) | ||||||
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Balance at October 1, 2011 |
$ | 9,236 | $ | 7,543 | $ | 16,779 | ||||||
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Charges to the allowance for doubtful accounts are reflected in the Selling, general and administrative expenses line and charges to the allowance for customer chargebacks and other customer deductions are primarily reflected as a reduction in the Net sales line of the Condensed Consolidated Statements of Income. Deductions and write-offs, which do not increase or decrease income, represent write-offs of previously reserved accounts receivable and allowed customer chargebacks and deductions against gross accounts receivable.
Sales of Accounts Receivable
The Company has entered into agreements to sell selected trade accounts receivable to financial institutions. After the sale, the Company does not retain any interests in the receivables and the applicable financial institution services and collects these accounts receivable directly from the customer. Net proceeds of these accounts receivable sale programs are recognized in the Condensed Consolidated Statements of Cash Flows as part of operating cash flows. The Company recognized funding fees of $880 and $2,295 during the quarter and nine months ended October 1, 2011 and $1,094 and $2,557 during the quarter and nine months ended October 2, 2010, respectively, for sales of accounts receivable to financial institutions in the Other expenses line in the Condensed Consolidated Statements of Income.
(5) | Inventories |
Inventories consisted of the following:
October 1, 2011 |
January 1, 2011 |
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Raw materials |
$ | 235,785 | $ | 155,744 | ||||
Work in process |
130,135 | 109,304 | ||||||
Finished goods |
1,360,452 | 1,057,671 | ||||||
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$ | 1,726,372 | $ | 1,322,719 | |||||
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7
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
(6) | Debt |
The Company had the following debt at October 1, 2011 and January 1, 2011:
Interest Rate as of October 1, 2011 |
Principal Amount | Maturity Date | ||||||||||||
October 1, 2011 |
January 1, 2011 |
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Revolving Loan Facility |
5.50 | % | $ | 15,000 | $ | | December 2015 | |||||||
6.375% Senior Notes |
6.38 | % | 1,000,000 | 1,000,000 | December 2020 | |||||||||
8% Senior Notes |
8.00 | % | 500,000 | 500,000 | December 2016 | |||||||||
Floating Rate Senior Notes |
3.77 | % | 490,735 | 490,735 | December 2014 | |||||||||
Accounts Receivable Securitization Facility |
1.43 | % | 175,000 | 90,000 | March 2012 | |||||||||
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2,180,735 | 2,080,735 | |||||||||||||
Less current maturities |
175,000 | 90,000 | ||||||||||||
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$ | 2,005,735 | $ | 1,990,735 | |||||||||||
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As of October 1, 2011, the Company had $15,000 outstanding under the $600,000 revolving credit facility (the Revolving Loan Facility) under the senior secured credit facility that it entered into in 2006 and amended and restated in December 2009 (as amended and restated, the 2009 Senior Secured Credit Facility), $12,729 of standby and trade letters of credit issued and outstanding under this facility and $572,271 of borrowing availability.
In February 2011, the Company amended the 2009 Senior Secured Credit Facility, which includes the Revolving Loan Facility, to reflect improved debt ratings. This amendment reduced the interest rate, extended the maturity date by two years to December 10, 2015, and increased the flexibility of debt covenants and the use of excess cash flow. In addition, the commitment fee for the unused portion of revolving loan commitments was reduced from 75 basis points to 50 basis points. Further, the applicable margin pricing grid for the loans, which varies based on the Companys Leverage Ratio (as defined below), was reduced by 125 basis points at each applicable Leverage Ratio level.
Pursuant to this amendment, the ratio of total debt to EBITDA (the Leverage Ratio) that the Company may not exceed was increased from 4.00 to 1 for each fiscal quarter ending between October 16, 2010 and April 15, 2011 to 4.50 to 1, and will decline over time to 3.75 to 1. Also, the minimum ratio of EBITDA to consolidated total interest expense that the Company is required to maintain was decreased from 3.25 to 1 for each fiscal quarter ending between July 16, 2011 and October 15, 2012 to 3.00 to 1 and will increase over time to 3.25 to 1. In addition, the Company will be required to maintain a maximum ratio of senior secured indebtedness to EBITDA, which for each fiscal quarter ending between October 16, 2010 and October 15, 2012 cannot exceed 2.50 to 1 and will decline over time to 2.00 to 1. The methods of calculating all of the components used in these ratios are included in the 2009 Senior Secured Credit Facility. This amendment also significantly increased the flexibility of the indebtedness, investment and restricted payments baskets and use of excess cash flow under the 2009 Senior Secured Credit Facility. The Company incurred $3,089 in debt amendment fees in connection with the amendment, which will be amortized over the term of the 2009 Senior Secured Credit Facility.
In January 2011, the Company amended the accounts receivable securitization facility that it entered into in November 2007 (the Accounts Receivable Securitization Facility) to provide for two of the subsidiaries acquired by the Company in the Gear for Sports acquisition, in addition to the Company, to sell, on a revolving
8
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
basis, certain domestic trade receivables pursuant to this facility. Prior to this amendment, the Accounts Receivable Securitization Facility contained the same financial ratio provisions as those contained in the 2009 Senior Secured Credit Facility. Pursuant to this amendment, the Company is required to maintain the financial ratios and other financial covenants contained from time to time in the 2009 Senior Secured Credit Facility, provided that any changes to such covenants after the date of this amendment will only be applicable for purposes of the Accounts Receivable Securitization Facility if approved by the managing agents under the Accounts Receivable Securitization Facility or their affiliates. This amendment also provided for certain other amendments to the Accounts Receivable Securitization Facility, including extending the termination date to March 31, 2011. In connection with this amendment, certain fees were due to the managing agents and certain fees payable to the committed purchasers and the conduit purchasers were decreased.
The Company also amended the Accounts Receivable Securitization Facility in March 2011. In order to take greater advantage of favorable interest rates, the amount of funding available under the Accounts Receivable Securitization Facility, which was initially $250,000 and which the Company reduced to $150,000 effective February 2010, was increased to $225,000. This amendment also provided for certain other amendments to the Accounts Receivable Securitization Facility, including extending the termination date to March 16, 2012. In addition, certain of the factors that contribute to the overall availability of funding were modified in a manner that, taken together, could result in an increase in the amount of funding that will be available under the facility. The Company incurred $668 in debt amendment fees in connection with the amendment, which will be amortized over the term of the Accounts Receivable Securitization Facility.
As of October 1, 2011, the Company was in compliance with all financial covenants under its credit facilities.
(7) | Financial Instruments and Risk Management |
The Company uses financial instruments to manage its exposures to movements in interest rates, foreign exchange rates and commodity prices. The use of these financial instruments modifies the Companys exposure to these risks with the goal of reducing the risk or cost to the Company. The Company does not use derivatives for trading purposes and is not a party to leveraged derivative contracts.
The Company recognizes all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. The fair value is based upon either market quotes for actively traded instruments or independent bids for nonexchange traded instruments. The Company formally documents its hedge relationships, including identifying the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions to the hedged risk. On the date the derivative is entered into, the Company designates the derivative as a fair value hedge, cash flow hedge, net investment hedge or a mark to market hedge, and accounts for the derivative in accordance with its designation. The Company also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the Company discontinues hedge accounting, and any deferred gains or losses are recorded in the respective measurement period. The Company currently does not have any fair value or net investment hedge instruments.
The Company may be exposed to credit losses in the event of nonperformance by individual counterparties or the entire group of counterparties to the Companys derivative contracts. Risk of nonperformance by counterparties is mitigated by dealing with highly rated counterparties and by diversifying across counterparties.
9
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Mark to Market Hedges
A derivative used as a hedging instrument whose change in fair value is recognized to act as an economic hedge against changes in the values of the hedged item is designated a mark to market hedge.
Mark to Market Hedges Intercompany Foreign Exchange Transactions
The Company uses foreign exchange derivative contracts to reduce the impact of foreign exchange fluctuations on anticipated intercompany purchase and lending transactions denominated in foreign currencies. Foreign exchange derivative contracts are recorded as mark to market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period. Mark to market hedge derivatives relating to intercompany foreign exchange contracts are reported in the Condensed Consolidated Statements of Cash Flows as cash flow from operating activities. As of October 1, 2011, the U.S. dollar equivalent of commitments to purchase and sell foreign currencies in the Companys foreign currency mark to market hedge derivative portfolio was $1,000 and $76,406, respectively, using the exchange rate at the reporting date.
Cash Flow Hedges
A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is designated as a cash flow hedge. The effective portion of the change in the fair value of a derivative that is designated as a cash flow hedge is recorded in the Accumulated other comprehensive loss line of the Condensed Consolidated Balance Sheets. When the impact of the hedged item is recognized in the income statement, the gain or loss included in Accumulated other comprehensive loss is reported on the same line in the Condensed Consolidated Statements of Income as the hedged item.
Cash Flow Hedges Interest Rate Derivatives
From time to time, the Company uses interest rate cash flow hedges in the form of swaps and caps in order to mitigate the Companys exposure to variability in cash flows for the future interest payments on a designated portion of floating rate debt. The effective portion of interest rate hedge gains and losses deferred in Accumulated other comprehensive loss is reclassified into earnings as the underlying debt interest payments are recognized. Interest rate cash flow hedge derivatives are reported as a component of interest expense and therefore are reported as cash flow from operating activities similar to the manner in which cash interest payments are reported in the Condensed Consolidated Statements of Cash Flows.
The Company is required under the 2009 Senior Secured Credit Facility to hedge a portion of its floating rate debt to reduce interest rate risk caused by floating rate debt issuance. To comply with this requirement, in 2010, the Company entered into hedging arrangements whereby it capped the LIBOR interest rate component on an aggregate of $490,735 of the floating rate debt under the Floating Rate Senior Notes at 4.262%. The interest rate cap arrangements, with notional amounts of $240,735 and $250,000, expire in December 2011.
Cash Flow Hedges Foreign Currency Derivatives
The Company uses forward exchange and option contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments, and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. The effective portion of foreign exchange hedge gains and losses deferred in Accumulated other comprehensive loss is reclassified into earnings as the underlying inventory is sold, using
10
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
historical inventory turnover rates. The settlement of foreign exchange hedge derivative contracts related to the purchase of inventory or other hedged items are reported in the Condensed Consolidated Statements of Cash Flows as cash flow from operating activities.
Historically, the principal currencies hedged by the Company include the Euro, Mexican peso, Canadian dollar and Japanese yen. Forward exchange contracts mature on the anticipated cash requirement date of the hedged transaction, generally within one year. As of October 1, 2011, the U.S. dollar equivalent of commitments to sell foreign currencies in the Companys foreign currency cash flow hedge derivative portfolio was $25,822, using the exchange rate at the reporting date.
Cash Flow Hedges Commodity Derivatives
Cotton is the primary raw material used to manufacture many of the Companys products and is purchased at market prices. The Company is able to lock in the cost of cotton reflected in the price it pays for yarn from its primary yarn suppliers in an attempt to protect its business from the volatility of the market price of cotton. In addition, from time to time, the Company uses commodity financial instruments to hedge the price of cotton, for which there is a high correlation between the hedged item and the hedge instrument. Gains and losses on these contracts are intended to offset losses and gains on the hedged transactions in an effort to reduce the earnings volatility resulting from fluctuating commodity prices. There were no amounts outstanding under cotton futures or cotton option contracts at October 1, 2011 and January 1, 2011.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
Fair Value | ||||||||||
Balance Sheet Location | October 1, 2011 |
January 1, 2011 |
||||||||
Derivative assets hedges |
||||||||||
Interest rate contracts |
Other current assets | $ | | $ | 3 | |||||
Foreign exchange contracts |
Other current assets | 1,533 | 408 | |||||||
|
|
|
|
|||||||
Total derivative assets hedges |
1,533 | 411 | ||||||||
|
|
|
|
|||||||
Derivative assets non-hedges |
||||||||||
Foreign exchange contracts |
Other current assets | 760 | | |||||||
|
|
|
|
|||||||
Total derivative assets |
$ | 2,293 | $ | 411 | ||||||
|
|
|
|
|||||||
Derivative liabilities hedges |
||||||||||
Foreign exchange contracts |
Accrued liabilities | (127 | ) | (874 | ) | |||||
|
|
|
|
|||||||
Total derivative liabilities hedges |
(127 | ) | (874 | ) | ||||||
|
|
|
|
|||||||
Derivative liabilities non-hedges |
||||||||||
Foreign exchange contracts |
Accrued liabilities | (436 | ) | (471 | ) | |||||
|
|
|
|
|||||||
Total derivative liabilities |
$ | (563 | ) | $ | (1,345 | ) | ||||
|
|
|
|
|||||||
Net derivative asset (liability) |
$ | 1,730 | $ | (934 | ) | |||||
|
|
|
|
11
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Net Derivative Gain or Loss
The effect of cash flow hedge derivative instruments is as follows:
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (Effective Portion) |
Location of Gain (Loss) Reclassified from Loss into Income (Effective Portion) |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) |
||||||||||||||||
Quarter Ended | Quarter Ended | |||||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||||
Interest rate contracts |
$ | | $ | (82 | ) | Interest expense, net | $ | (2,550 | ) | $ | (4,214 | ) | ||||||
Foreign exchange contracts |
3,486 | (2,387 | ) | Cost of sales | (96 | ) | (514 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 3,486 | $ | (2,469 | ) | $ | (2,646 | ) | $ | (4,728 | ) | |||||||
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (Effective Portion) |
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) |
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion) |
||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||||
Interest rate contracts |
$ | (3 | ) | $ | (499 | ) | Interest expense, net | $ | (9,187 | ) | $ | (13,836 | ) | |||||
Foreign exchange contracts |
223 | (2,096 | ) | Cost of sales | (1,013 | ) | (1,138 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 220 | $ | (2,595 | ) | $ | (10,200 | ) | $ | (14,974 | ) | |||||||
|
|
|
|
|
|
|
|
The Company expects to reclassify into earnings during the next 12 months a net loss from Accumulated other comprehensive loss of approximately $6,848. The amounts deferred in Accumulated other comprehensive loss associated with a Floating Rate Senior Notes interest rate hedge that was terminated at the time the Company entered into the 2009 Senior Secured Credit Facility were frozen at the termination date and will be amortized over the original remaining term of the interest rate hedge instrument. The unamortized balance in Accumulated other comprehensive loss was $8,115 as of October 1, 2011.
The changes in fair value of derivatives excluded from the Companys effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Income. The Company recognized gains for the quarter and nine months ended October 1, 2011 related to ineffectiveness of hedging relationships for foreign exchange contracts of $254 and $191, respectively. The Company recognized gains (losses) for the quarter and nine months ended October 2, 2010 related to ineffectiveness of hedging relationships for foreign exchange contracts of $(1) and $6, respectively.
12
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The effect of mark to market hedge derivative instruments on the Condensed Consolidated Statements of Income is as follows:
Amount of Gain (Loss) Recognized in Income |
Amount of Gain
(Loss) Recognized in Income |
|||||||||||||||||
Location of Gain (Loss) Recognized in Income on Derivative |
Quarter Ended | Nine Months Ended | ||||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||||
Foreign exchange contracts |
Selling, general and administrative expenses | $ | 756 | $ | (1,838 | ) | $ | (2,330 | ) | $ | (1,309 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 756 | $ | (1,838 | ) | $ | (2,330 | ) | $ | (1,309 | ) | |||||||
|
|
|
|
|
|
|
|
(8) | Fair Value of Assets and Liabilities |
Fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. A three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, is utilized for disclosing the fair value of the Companys assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of October 1, 2011, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Companys derivative instruments related to interest rates and foreign exchange rates. The Companys defined benefit pension plan investments are not required to be measured at fair value on a recurring basis. The fair values of interest rate derivatives are determined with pricing models using LIBOR interest rate curves, spreads, volatilities and other relevant information developed using market data and are categorized as Level 2. The fair values of foreign currency derivatives are determined using the cash flows of the foreign exchange contract, discount rates to account for the passage of time and current foreign exchange market data and are categorized as Level 2.
There were no changes during the quarter ended October 1, 2011 to the Companys valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers between the three level categories and there were no Level 3 assets or liabilities measured on a quarterly basis during the quarter ended October 1, 2011. As of and during the quarter and nine months ended October 1, 2011, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.
13
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
The following tables set forth by level within the fair value hierarchy the Companys financial assets and liabilities accounted for at fair value on a recurring basis.
Assets (Liabilities) at Fair Value as of October 1, 2011 |
||||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
Foreign exchange derivative contracts |
$ | | $ | 2,293 | $ | | ||||||
Foreign exchange derivative contracts |
| (563 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | | $ | 1,730 | $ | | ||||||
|
|
|
|
|
|
Assets (Liabilities) at Fair Value as of January 1, 2011 |
||||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
Foreign exchange derivative contracts |
$ | | $ | 408 | $ | | ||||||
Foreign exchange derivative contracts |
| (1,345 | ) | | ||||||||
Interest rate derivative contracts |
| 3 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | | $ | (934 | ) | $ | | |||||
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of October 1, 2011 and January 1, 2011. The fair value of debt was $2,149,091 and $2,060,828 as of October 1, 2011 and January 1, 2011 and had a carrying value of $2,180,735 and $2,080,735, respectively. The fair values were estimated using quoted market prices as provided in secondary markets which consider the Companys credit risk and market related conditions. The carrying amounts of the Companys notes payable approximated fair value as of October 1, 2011 and January 1, 2011, primarily due to the short-term nature of these instruments.
14
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
(9) | Comprehensive Income |
The Companys comprehensive income is as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||
Net income |
$ | 90,832 | $ | 61,312 | $ | 225,723 | $ | 183,237 | ||||||||
Translation adjustments |
(14,254 | ) | 8,399 | (7,483 | ) | 2,079 | ||||||||||
Amortization of loss on interest rate hedge, net of tax of $982, $1,672, $3,560 and $5,476, respectively |
1,481 | 2,519 | 5,368 | 8,256 | ||||||||||||
Net unrealized gain (loss) on qualifying cash flow hedges, net of tax of $1,463, $(771), $595 and $(540), respectively |
2,206 | (1,162 | ) | 897 | (814 | ) | ||||||||||
Recognition of loss from pension plan settlement, net of tax of $0, $53, $0 and $53, respectively. |
| 69 | | 69 | ||||||||||||
Amounts amortized into net periodic cost: |
||||||||||||||||
Prior service cost, net of tax of $3, $3, $9 and $9, respectively |
4 | 4 | 12 | 12 | ||||||||||||
Actuarial loss, net of tax of $908, $860, $2,724 and $2,580, respectively |
1,370 | 1,297 | 4,110 | 3,891 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 81,639 | $ | 72,438 | $ | 228,627 | $ | 196,730 | ||||||||
|
|
|
|
|
|
|
|
(10) | Income Taxes |
The Companys effective income tax rate was 20% for the quarter and nine months ended October 1, 2011, and 20% and 12% for the quarter and nine months ended October 2, 2010, respectively. The lower effective income tax rate of 12% for the nine months ended October 2, 2010 was primarily attributable to a one-time income tax benefit of approximately $20,000 resulting from the finalization of tax reviews and audits for amounts that were less than originally anticipated.
As previously disclosed, the Company and Sara Lee Corporation (Sara Lee) have disagreed as to the amount of deferred taxes that should have been attributable to the Companys United States and Canadian operations on the Companys opening balance sheet as of September 6, 2006 following its spin off from Sara Lee. The computation of this amount is governed by a tax sharing agreement entered into in connection with the spin off. The Company and Sara Lee have had differing interpretations of the tax sharing agreement, and, in accordance with the dispute resolution provisions of the agreement, the Company and Sara Lee submitted that dispute to arbitration before a three-member tribunal in August 2009. A hearing was held in August 2010. Based on the Companys computation of the final amount of deferred taxes for the Companys opening balance sheet as of September 6, 2006, the amount that the Company expected to collect from Sara Lee based on the Companys computation of $72,223, which reflects a preliminary cash installment received from Sara Lee of $18,000, was included as a receivable in Other current assets.
On July 1, 2011, the tribunal issued a 2-1 decision in which the majority disagreed with the Companys interpretation of the tax sharing agreement and awarded the Company $3,291, plus interest based on the majoritys interpretation of the tax sharing agreement. This amount reflects other payments made or acknowledged to be owed by the parties under the tax sharing agreement. As a result of the tribunals decision, during the second quarter of 2011 the Company recorded a non-cash transaction that reduced Other current assets and Additional paid-in capital by $68,523.
15
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Under section 2.12 of the tax sharing agreement with Sara Lee discussed above, in 2010, the Company recorded a liability of approximately $15,000 to Sara Lee for amounts related to income generated prior to the spin off from Sara Lee which were repatriated in periods since the spin off. The liability is included in Accounts payable in the Condensed Consolidated Balance Sheets as of October 1, 2011 and January 1, 2011 with the resulting offset recorded as a reduction to Additional paid-in capital. Except for the amounts reflected in this Note 10, to the best of the Companys knowledge, there are no material amounts owed to or from Sara Lee under the tax sharing agreement.
(11) | Business Segment Information |
The Companys operations are managed and reported in five operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segments businesses but the segments share a common supply chain and media and marketing platforms.
The types of products and services from which each reportable segment derives its revenues are as follows:
| Innerwear sells basic branded products that are replenishment in nature under the product categories of womens intimate apparel, mens underwear, kids underwear and socks. |
| Outerwear sells basic branded products that are primarily seasonal in nature under the product categories of casualwear and activewear, as well as licensed logo apparel in collegiate bookstores and other channels. |
| Hosiery sells products in categories such as pantyhose, knee highs and tights. |
| Direct to Consumer includes the Companys value-based (outlet) stores and Internet operations which sell products from the Companys portfolio of leading brands. The Companys Internet operations are supported by its catalogs. |
| International primarily relates to the Latin America, Asia, Canada, Europe and Australia geographic locations which sell products that span across the Innerwear, Outerwear and Hosiery reportable segments. |
The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses and amortization of trademarks and other identifiable intangibles. The accounting policies of the segments are consistent with those described in Note 2 to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 1, 2011. Certain prior year segment operating profit disclosures have been revised to conform to the current year presentation. These changes were primarily the result of the Companys decision to cease allocating certain compensation related expenses to the segments.
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||
Net sales: |
||||||||||||||||
Innerwear |
$ | 515,263 | $ | 512,486 | $ | 1,571,277 | $ | 1,522,553 | ||||||||
Outerwear |
432,804 | 389,474 | 1,094,888 | 894,653 | ||||||||||||
Hosiery |
34,481 | 37,442 | 113,051 | 117,273 | ||||||||||||
Direct to Consumer |
97,565 | 100,327 | 277,819 | 278,680 | ||||||||||||
International |
150,072 | 133,633 | 434,793 | 363,895 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 1,230,185 | $ | 1,173,362 | $ | 3,491,828 | $ | 3,177,054 | ||||||||
|
|
|
|
|
|
|
|
16
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||
Segment operating profit: |
||||||||||||||||
Innerwear |
$ | 79,353 | $ | 55,249 | $ | 231,321 | $ | 225,896 | ||||||||
Outerwear |
55,602 | 38,349 | 117,025 | 61,034 | ||||||||||||
Hosiery |
8,792 | 11,223 | 34,465 | 39,224 | ||||||||||||
Direct to Consumer |
12,308 | 10,569 | 22,070 | 18,898 | ||||||||||||
International |
15,839 | 16,748 | 53,614 | 42,462 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total segment operating profit |
171,894 | 132,138 | 458,495 | 387,514 | ||||||||||||
Items not included in segment operating profit: |
||||||||||||||||
General corporate expenses |
(15,587 | ) | (15,160 | ) | (44,641 | ) | (55,891 | ) | ||||||||
Amortization of trademarks and other identifiable intangibles |
(3,625 | ) | (2,918 | ) | (10,861 | ) | (9,046 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating profit |
152,682 | 114,060 | 402,993 | 322,577 | ||||||||||||
Other expenses |
(880 | ) | (1,094 | ) | (2,295 | ) | (5,128 | ) | ||||||||
Interest expense, net |
(38,262 | ) | (36,326 | ) | (118,545 | ) | (110,394 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense |
$ | 113,540 | $ | 76,640 | $ | 282,153 | $ | 207,055 | ||||||||
|
|
|
|
|
|
|
|
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||
Depreciation and amortization expense: |
||||||||||||||||
Innerwear |
$ | 9,293 | $ | 8,631 | $ | 28,286 | $ | 25,847 | ||||||||
Outerwear |
5,938 | 5,337 | 16,931 | 15,026 | ||||||||||||
Hosiery |
361 | 629 | 1,227 | 2,157 | ||||||||||||
Direct to Consumer |
1,805 | 1,589 | 5,291 | 4,359 | ||||||||||||
International |
619 | 418 | 1,680 | 1,573 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
18,016 | 16,604 | 53,415 | 48,962 | |||||||||||||
Corporate |
4,417 | 3,945 | 13,153 | 14,316 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total depreciation and amortization expense |
$ | 22,433 | $ | 20,549 | $ | 66,568 | $ | 63,278 | ||||||||
|
|
|
|
|
|
|
|
Quarter Ended | Nine Months Ended | |||||||||||||||
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
|||||||||||||
Additions to long-lived assets: |
||||||||||||||||
Innerwear |
$ | 8,063 | $ | 10,186 | $ | 27,758 | $ | 37,326 | ||||||||
Outerwear |
10,188 | 6,348 | 28,857 | 25,998 | ||||||||||||
Hosiery |
320 | 124 | 610 | 426 | ||||||||||||
Direct to Consumer |
661 | 2,388 | 5,670 | 9,741 | ||||||||||||
International |
884 | 504 | 2,492 | 1,763 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
20,116 | 19,550 | 65,387 | 75,254 | |||||||||||||
Corporate |
888 | 921 | 3,357 | 3,316 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total additions to long-lived assets |
$ | 21,004 | $ | 20,471 | $ | 68,744 | $ | 78,570 | ||||||||
|
|
|
|
|
|
|
|
17
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
(12) | Consolidating Financial Information |
In accordance with the indenture governing the Companys $500,000 Floating Rate Senior Notes issued on December 14, 2006, the indenture governing the Companys $500,000 8% Senior Notes issued on December 10, 2009 and the indenture governing the Companys $1,000,000 6.375% Senior Notes issued on November 9, 2010 (together, the Indentures), certain of the Companys subsidiaries have guaranteed the Companys obligations under the Floating Rate Senior Notes, the 8% Senior Notes and the 6.375% Senior Notes, respectively. The following presents the condensed consolidating financial information separately for:
(i) Parent Company, the issuer of the guaranteed obligations. Parent Company includes Hanesbrands Inc. and its 100% owned operating divisions which are not legal entities, and excludes its subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the investments in our subsidiaries and (d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes, the 8% Senior Notes and the 6.375% Senior Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary, each of which is wholly owned, directly or indirectly, by Hanesbrands Inc. A guarantor subsidiarys guarantee can be released in certain customary circumstances. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation.
Condensed Consolidating Statement of
Income Quarter Ended October 1, 2011 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net sales |
$ | 1,033,841 | $ | 191,387 | $ | 965,469 | $ | (960,512 | ) | $ | 1,230,185 | |||||||||
Cost of sales |
854,113 | 96,888 | 878,838 | (1,025,097 | ) | 804,742 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
179,728 | 94,499 | 86,631 | 64,585 | 425,443 | |||||||||||||||
Selling, general and administrative expenses |
200,507 | 32,897 | 40,535 | (1,178 | ) | 272,761 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
(20,779 | ) | 61,602 | 46,096 | 65,763 | 152,682 | ||||||||||||||
Equity in earnings (loss) of subsidiaries |
157,422 | 34,198 | | (191,620 | ) | | ||||||||||||||
Other expenses |
880 | | | | 880 | |||||||||||||||
Interest expense, net |
35,802 | (1 | ) | 2,461 | | 38,262 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income tax expense |
99,961 | 95,801 | 43,635 | (125,857 | ) | 113,540 | ||||||||||||||
Income tax expense |
9,129 | 7,479 | 6,100 | | 22,708 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 90,832 | $ | 88,322 | $ | 37,535 | $ | (125,857 | ) | $ | 90,832 | |||||||||
|
|
|
|
|
|
|
|
|
|
18
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of
Income Quarter Ended October 2, 2010 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net sales |
$ | 1,104,713 | $ | 113,915 | $ | 830,265 | $ | (875,531 | ) | $ | 1,173,362 | |||||||||
Cost of sales |
875,963 | 43,270 | 748,701 | (858,447 | ) | 809,487 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
228,750 | 70,645 | 81,564 | (17,084 | ) | 363,875 | ||||||||||||||
Selling, general and administrative expenses |
201,440 | 20,282 | 27,784 | 309 | 249,815 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
27,310 | 50,363 | 53,780 | (17,393 | ) | 114,060 | ||||||||||||||
Equity in earnings (loss) of subsidiaries |
71,944 | 33,908 | | (105,852 | ) | | ||||||||||||||
Other expenses |
1,094 | | | | 1,094 | |||||||||||||||
Interest expense, net |
33,678 | (22 | ) | 2,673 | (3 | ) | 36,326 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income tax expense |
64,482 | 84,293 | 51,107 | (123,242 | ) | 76,640 | ||||||||||||||
Income tax expense |
3,170 | 7,635 | 4,523 | | 15,328 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 61,312 | $ | 76,658 | $ | 46,584 | $ | (123,242 | ) | $ | 61,312 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of
Income Nine Months Ended October 1, 2011 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net sales |
$ | 3,059,251 | $ | 501,886 | $ | 2,824,447 | $ | (2,893,756 | ) | $ | 3,491,828 | |||||||||
Cost of sales |
2,411,850 | 240,932 | 2,495,031 | (2,863,193 | ) | 2,284,620 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
647,401 | 260,954 | 329,416 | (30,563 | ) | 1,207,208 | ||||||||||||||
Selling, general and administrative expenses |
597,983 | 98,775 | 109,484 | (2,027 | ) | 804,215 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
49,418 | 162,179 | 219,932 | (28,536 | ) | 402,993 | ||||||||||||||
Equity in earnings (loss) of subsidiaries |
308,288 | 147,809 | | (456,097 | ) | | ||||||||||||||
Other expenses |
2,295 | | | | 2,295 | |||||||||||||||
Interest expense, net |
110,773 | (35 | ) | 7,807 | | 118,545 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income tax expense |
244,638 | 310,023 | 212,125 | (484,633 | ) | 282,153 | ||||||||||||||
Income tax expense |
18,915 | 21,353 | 16,162 | | 56,430 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 225,723 | $ | 288,670 | $ | 195,963 | $ | (484,633 | ) | $ | 225,723 | |||||||||
|
|
|
|
|
|
|
|
|
|
19
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of
Income Nine Months Ended October 2, 2010 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net sales |
$ | 3,034,863 | $ | 319,231 | $ | 2,317,522 | $ | (2,494,562 | ) | $ | 3,177,054 | |||||||||
Cost of sales |
2,423,688 | 118,694 | 2,054,675 | (2,486,114 | ) | 2,110,943 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
611,175 | 200,537 | 262,847 | (8,448 | ) | 1,066,111 | ||||||||||||||
Selling, general and administrative expenses |
589,755 | 69,018 | 83,734 | 1,027 | 743,534 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
21,420 | 131,519 | 179,113 | (9,475 | ) | 322,577 | ||||||||||||||
Equity in earnings (loss) of |
||||||||||||||||||||
subsidiaries |
260,220 | 117,996 | | (378,216 | ) | | ||||||||||||||
Other expenses |
5,128 | | | | 5,128 | |||||||||||||||
Interest expense, net |
101,490 | (67 | ) | 8,971 | | 110,394 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income tax expense (benefit) |
175,022 | 249,582 | 170,142 | (387,691 | ) | 207,055 | ||||||||||||||
Income tax expense (benefit) |
(8,215 | ) | 20,271 | 11,762 | | 23,818 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 183,237 | $ | 229,311 | $ | 158,380 | $ | (387,691 | ) | $ | 183,237 | |||||||||
|
|
|
|
|
|
|
|
|
|
20
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Balance
Sheet October 1, 2011 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents |
$ | 12,526 | $ | 2,055 | $ | 33,416 | $ | | $ | 47,997 | ||||||||||
Trade accounts receivable less allowances |
5,928 | 61,290 | 527,955 | (5,734 | ) | 589,439 | ||||||||||||||
Inventories |
1,251,668 | 119,703 | 453,423 | (98,422 | ) | 1,726,372 | ||||||||||||||
Deferred tax assets |
156,023 | 1,996 | (11,662 | ) | | 146,357 | ||||||||||||||
Other current assets |
31,336 | 9,888 | 23,642 | (172 | ) | 64,694 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1,457,481 | 194,932 | 1,026,774 | (104,328 | ) | 2,574,859 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property, net |
109,538 | 48,138 | 478,733 | | 636,409 | |||||||||||||||
Trademarks and other identifiable intangibles, net |
14,425 | 136,196 | 22,535 | | 173,156 | |||||||||||||||
Goodwill |
232,882 | 124,214 | 75,575 | | 432,671 | |||||||||||||||
Investments in subsidiaries |
1,843,114 | 1,033,858 | | (2,876,972 | ) | | ||||||||||||||
Deferred tax assets and other noncurrent assets |
(105,222 | ) | 472,501 | 253,512 | (219,306 | ) | 401,485 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 3,552,218 | $ | 2,009,839 | $ | 1,857,129 | $ | (3,200,606 | ) | $ | 4,218,580 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Accounts payable |
$ | 237,446 | $ | 19,201 | $ | 249,237 | $ | | $ | 505,884 | ||||||||||
Accrued liabilities |
192,751 | 50,307 | 79,575 | (45 | ) | 322,588 | ||||||||||||||
Notes payable |
| | 34,111 | | 34,111 | |||||||||||||||
Current portion of debt |
| | 175,000 | | 175,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
430,197 | 69,508 | 537,923 | (45 | ) | 1,037,583 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Long-term debt |
2,005,735 | | | | 2,005,735 | |||||||||||||||
Other noncurrent liabilities |
366,045 | 36,086 | 22,890 | | 425,021 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
2,801,977 | 105,594 | 560,813 | (45 | ) | 3,468,339 | ||||||||||||||
Stockholders equity |
750,241 | 1,904,245 | 1,296,316 | (3,200,561 | ) | 750,241 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 3,552,218 | $ | 2,009,839 | $ | 1,857,129 | $ | (3,200,606 | ) | $ | 4,218,580 | |||||||||
|
|
|
|
|
|
|
|
|
|
21
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Balance
Sheet January 1, 2011 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents |
$ | 17,535 | $ | 2,039 | $ | 24,097 | $ | | $ | 43,671 | ||||||||||
Trade accounts receivable less allowances |
50,375 | 35,256 | 417,612 | | 503,243 | |||||||||||||||
Inventories |
954,073 | 100,435 | 355,908 | (87,697 | ) | 1,322,719 | ||||||||||||||
Deferred tax assets |
160,178 | 2,005 | (12,752 | ) | | 149,431 | ||||||||||||||
Other current assets |
95,702 | 11,475 | 21,646 | (216 | ) | 128,607 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
1,277,863 | 151,210 | 806,511 | (87,913 | ) | 2,147,671 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property, net |
118,596 | 47,842 | 464,816 | | 631,254 | |||||||||||||||
Trademarks and other identifiable intangibles, net |
16,006 | 141,635 | 20,981 | | 178,622 | |||||||||||||||
Goodwill |
232,882 | 124,214 | 73,048 | | 430,144 | |||||||||||||||
Investments in subsidiaries |
1,542,231 | 886,349 | | (2,428,580 | ) | | ||||||||||||||
Deferred tax assets and other noncurrent assets |
115,500 | 350,862 | 146,859 | (210,910 | ) | 402,311 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 3,303,078 | $ | 1,702,112 | $ | 1,512,215 | $ | (2,727,403 | ) | $ | 3,790,002 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Accounts payable |
$ | 243,169 | $ | 17,198 | $ | 152,002 | $ | | $ | 412,369 | ||||||||||
Accrued liabilities |
150,831 | 55,502 | 69,979 | (9 | ) | 276,303 | ||||||||||||||
Notes payable |
| | 50,678 | | 50,678 | |||||||||||||||
Current portion of debt |
| | 90,000 | | 90,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
394,000 | 72,700 | 362,659 | (9 | ) | 829,350 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Long-term debt |
1,990,735 | | | | 1,990,735 | |||||||||||||||
Other noncurrent liabilities |
355,669 | 35,072 | 16,502 | | 407,243 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
2,740,404 | 107,772 | 379,161 | (9 | ) | 3,227,328 | ||||||||||||||
Stockholders equity |
562,674 | 1,594,340 | 1,133,054 | (2,727,394 | ) | 562,674 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and stockholders equity |
$ | 3,303,078 | $ | 1,702,112 | $ | 1,512,215 | $ | (2,727,403 | ) | $ | 3,790,002 | |||||||||
|
|
|
|
|
|
|
|
|
|
22
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of Cash Flows Nine Months Ended October 1, 2011 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 377,231 | $ | 131,185 | $ | (75,437 | ) | $ | (459,853 | ) | $ | (26,874 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing activities: |
||||||||||||||||||||
Purchases of property, plant and equipment |
(11,598 | ) | (8,151 | ) | (48,995 | ) | | (68,744 | ) | |||||||||||
Acquisition of business |
| | (9,154 | ) | | (9,154 | ) | |||||||||||||
Proceeds from sales of assets |
364 | 67 | 12,228 | | 12,659 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
(11,234 | ) | (8,084 | ) | (45,921 | ) | | (65,239 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Financing activities: |
||||||||||||||||||||
Borrowings on notes payable |
| | 305,257 | | 305,257 | |||||||||||||||
Repayments on notes payable |
| | (322,185 | ) | | (322,185 | ) | |||||||||||||
Borrowings on Accounts Receivable Securitization Facility |
| | 229,396 | | 229,396 | |||||||||||||||
Repayments on Accounts Receivable Securitization Facility |
| | (144,396 | ) | | (144,396 | ) | |||||||||||||
Borrowings on Revolving Loan Facility |
2,448,500 | | | | 2,448,500 | |||||||||||||||
Repayments on Revolving Loan Facility |
(2,433,500 | ) | | | | (2,433,500 | ) | |||||||||||||
Payments to amend credit facilities |
(3,089 | ) | | (668 | ) | | (3,757 | ) | ||||||||||||
Proceeds from stock options exercised |
16,784 | | | | 16,784 | |||||||||||||||
Other |
1,430 | | (37 | ) | | 1,393 | ||||||||||||||
Net transactions with related entities |
(401,131 | ) | (123,085 | ) | 64,363 | 459,853 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
(371,006 | ) | (123,085 | ) | 131,730 | 459,853 | 97,492 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of changes in foreign exchange rates on cash |
| | (1,053 | ) | | (1,053 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Increase (decrease) in cash and cash equivalents |
(5,009 | ) | 16 | 9,319 | | 4,326 | ||||||||||||||
Cash and cash equivalents at beginning of year |
17,535 | 2,039 | 24,097 | | 43,671 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | 12,526 | $ | 2,055 | $ | 33,416 | $ | | $ | 47,997 | ||||||||||
|
|
|
|
|
|
|
|
|
|
23
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)
Condensed Consolidating Statement of Cash Flows Nine Months Ended October 2, 2010 |
||||||||||||||||||||
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Consolidating Entries and Eliminations |
Consolidated | ||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 168,472 | $ | 124,951 | $ | 46,204 | $ | (376,701 | ) | $ | (37,074 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investing activities: |
||||||||||||||||||||
Purchases of property, plant and equipment |
(21,652 | ) | (8,989 | ) | (47,929 | ) | | (78,570 | ) | |||||||||||
Proceeds from sales of assets |
44,436 | | 1,033 | | 45,469 | |||||||||||||||
Other |
(519 | ) | | | | (519 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) investing activities |
22,265 | (8,989 | ) | (46,896 | ) | | (33,620 | ) | ||||||||||||
|
|
|
|
|
|
|
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|
|
|||||||||||
Financing activities: |
||||||||||||||||||||
Borrowings on notes payable |
| | 991,061 | | 991,061 | |||||||||||||||
Repayments on notes payable |
| | (1,015,338 | ) | | (1,015,338 | ) | |||||||||||||
Borrowings on Accounts Receivable Securitization Facility |
| | 191,424 | | 191,424 | |||||||||||||||
Repayments on Accounts Receivable Securitization Facility |
| | (141,424 | ) | | (141,424 | ) | |||||||||||||
Borrowings on Revolving Loan Facility |
1,597,500 | | | | 1,597,500 | |||||||||||||||
Repayments on Revolving Loan Facility |
(1,459,000 | ) | | | | (1,459,000 | ) | |||||||||||||
Payments to amend credit facilities |
(1,688 | ) | | | | (1,688 | ) | |||||||||||||
Proceeds from stock options exercised |
3,437 | | | | 3,437 | |||||||||||||||
Repayment of debt under 2009 Senior Secured Credit Facility |
(59,063 | ) | | | | (59,063 | ) | |||||||||||||
Other |
342 | | (34 | ) | | 308 | ||||||||||||||
Net transactions with related entities |
(245,549 | ) | (116,352 | ) | (14,800 | ) | 376,701 | | ||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
(164,021 | ) | (116,352 | ) | 10,889 | 376,701 | 107,217 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
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Effect of changes in foreign exchange rates on cash |
| | 30 | | 30 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Increase (decrease) in cash and cash equivalents |
26,716 | (390 | ) | 10,227 | | 36,553 | ||||||||||||||
Cash and cash equivalents at beginning of year |
12,805 | 1,646 | 24,492 | | 38,943 | |||||||||||||||
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|
|
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|
|
|
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Cash and cash equivalents at end of period |
$ | 39,521 | $ | 1,256 | $ | 34,719 | $ | | $ | 75,496 | ||||||||||
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24
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This managements discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see Forward-Looking Statements in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended January 1, 2011, which were included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the Risk Factors section and elsewhere in our Annual Report on Form 10-K.
Overview
We are a consumer goods company with a portfolio of leading apparel brands, including Hanes, Champion, Playtex, Bali, Leggs, Just My Size, barely there, Wonderbra, Stedman, Outer Banks, Zorba, Rinbros, Duofold and Gear for Sports. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, mens underwear, kids underwear, casualwear, activewear, socks and hosiery.
Our operations are managed and reported in five operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segments businesses but the segments share a common supply chain and media and marketing platforms. Certain prior year segment operating profit disclosures have been revised to conform to the current year presentation. These changes were primarily the result of our decision to cease allocating certain compensation related expenses to the segments.
Seasonality and Other Factors
Our operating results are subject to some variability due to seasonality and other factors. Generally, our diverse range of product offerings helps mitigate the impact of seasonal changes in demand for certain items. Sales are typically higher in the last two quarters (July to December) of each fiscal year. Socks, hosiery and fleece products generally have higher sales during this period as a result of cooler weather, back-to-school shopping and holidays. Sales levels in any period are also impacted by customers decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse, basis, our sales are impacted by discretionary spending by consumers. Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, electricity power rates, gasoline prices, unemployment trends and other matters that influence consumer confidence and spending. Many of these factors are outside our control. Consumers purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. These consumers may choose to purchase fewer of our products or to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
25
Outlook for 2011
We expect net sales of $1.2 billion to $1.3 billion for the fourth quarter of 2011, or $4.7 billion to $4.8 billion for the full year of 2011. Our expectations for net sales reflect a cautious outlook for the fourth quarter.
Because of systemic cost inflation in 2011 as described below, particularly for cotton, energy and labor, we have taken price increases as warranted by cost inflation. The timing, magnitude and frequency of price increases have varied by product category, channel of trade, and country, with some increases as frequently as quarterly. Demand elasticity effects have been factored into our net sales projections for the fourth quarter and full year of 2011.
For 2011, we believe we know the majority of our costs, with cotton prices locked in for the full year. Our current 2011 earnings expectations assume we will realize efficiency savings from our supply chain optimization of approximately $40 million to $45 million in 2011, of which $34 million has already been realized in the nine months of 2011. Our expectations also assume that we will eliminate the majority of excess 2010 freight and other distribution costs related to servicing sales growth of approximately $30 million to $35 million, of which $8 million was eliminated in the third quarter and approximately $25 million to $30 million is expected to be eliminated in the fourth quarter of 2011. Approximately two-thirds of the eliminated excess costs will come from gross profit and one-third will come from selling, general and administrative expenses. Our earnings expectations also assume continued investment in trade and media spending consistent with our historical rate, slightly higher interest expense, and a higher full-year tax rate that could range from a percentage in the teens to the low 20s.
As a result of the cost inflation and higher product pricing, we expect a negative impact on our cash flow from higher working capital, in particular higher accounts receivable and inventories, partially offset by higher accounts payable. We typically use cash for the first half of the year and generate most of our cash flow in the second half of the year.
Year-end 2011 inventory is expected to be approximately $250 million to $300 million higher than year-end 2010 as a result of high inflationary costs.
Business and Industry Trends
Inflation and Changing Prices
The economic environment in which we are operating continues to be uncertain and volatile, which could have unanticipated adverse effects on our business during the remainder of 2011 and beyond. We have seen a sustained increase in various input costs, such as cotton and oil-related materials, utilities, freight and wages, which have impacted our results in 2011 and will continue to do so through at least the first half of 2012. The estimated impact of cost inflation could be approximately $270 million to $280 million higher in 2011 over 2010.
Although nearly 40% of our business, such as bras, sheer hosiery and portions of our activewear categories, is not cotton-based, and we have sold our yarn operations, we are still exposed to fluctuations in the cost of cotton. Rising demand for cotton resulting from the economic recovery, weather-related supply disruptions, significant declines in U.S. inventory and a sharp rise in the futures market for cotton caused cotton prices to surge upward during 2010 and early 2011. During 2010, cotton prices hit their highest levels in 140 years. Increases in the cost of cotton can result in higher costs in the price we pay for yarn from our large-scale yarn suppliers. Our costs for cotton yarn and cotton-based textiles vary based upon the fluctuating cost of cotton, which is affected by, among other factors, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control. We are able to lock in the cost of cotton reflected in the price we pay for yarn from our primary yarn suppliers in an attempt to protect our business from the volatility of the market price of cotton. However, our business can be affected by dramatic movements in cotton prices. The nine months of 2011 reflect an average cost of cotton of 88 cents per pound. After taking into consideration the cotton costs currently included in our finished goods inventory and cotton prices we have locked in, we expect the average cost of cotton will exceed $1.00 per pound for the full year, which will have a negative impact of approximately $140 million to $145 million when compared to 2010. These amounts do not include the impact of cotton costs on the cost of sourced goods.
26
Inflation can have a long-term impact on us because increasing costs of materials and labor may impact our ability to maintain satisfactory margins. For example, the cost of the materials that are used in our manufacturing process, such as oil-related commodities and other raw materials, such as dyes and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result of inflation and other factors. Costs incurred for materials and labor are capitalized into inventory and impact our results as the inventory is sold. In addition, a significant portion of our products are manufactured in countries other than the United States and declines in the value of the U.S. dollar may result in higher manufacturing costs. Increases in inflation may not be matched by rises in consumer income, which also could have a negative impact on spending.
Given the systemic cost inflation that the apparel industry is currently experiencing, many apparel retailers and manufacturers implemented price increases in 2011 in order to maintain satisfactory margins. Higher raw material costs, including cotton, and higher labor costs overseas are the primary reasons that price increases are needed to manage the inflated costs. If we incur increased costs for materials, including cotton, and labor that we are unable to recoup through price increases or improved efficiencies, or if consumer spending declines, our business, results of operations, financial condition and cash flows may be adversely affected.
Other Business and Industry Trends
The basic apparel market is highly competitive and evolving rapidly. Competition is generally based upon brand name recognition, price, product quality, selection, service and purchasing convenience. The majority of our core styles continue from year to year, with variations only in color, fabric or design details. Some products, however, such as intimate apparel, activewear and sheer hosiery, do have more of an emphasis on style and innovation. Our businesses face competition from other large corporations and foreign manufacturers, as well as smaller companies, department stores, specialty stores and other retailers that market and sell basic apparel products under private labels that compete directly with our brands.
Anticipating changes in and managing our operations in response to consumer preferences remains an important element of our business. In recent years, we have experienced changes in our net sales and cash flows in accordance with changes in consumer preferences and trends. For example, we expect the trend of declining hosiery sales to continue consistent with the overall decline in the industry and with shifts in consumer preferences. The Hosiery segment only comprised 4% of our net sales in 2010 however, and as a result, the decline in the Hosiery segment has not had a significant impact on our net sales, revenues or cash flows. Generally, we manage the Hosiery segment for cash, placing an emphasis on reducing our cost structure and managing cash efficiently.
Economic Trends and other Developments that Impact our Business
We are operating in an uncertain and volatile economic environment, which could have unanticipated adverse effects on our business. We have experienced substantial pressure on profitability due to the economic climate, such as higher cotton, energy and labor costs. Rising demand for cotton resulting from the economic recovery, weather-related supply disruptions, significant declines in U.S. inventory and a sharp rise in the futures market for cotton caused cotton prices to surge upward in 2010 and early 2011. Because of systemic cost inflation in 2011, particularly for cotton, energy and labor, we have taken price increases as warranted by cost inflation. The timing, magnitude and frequency of price increases have varied by product category, channel of trade, and country, with some increases as frequently as quarterly.
Highlights from the Third Quarter and Nine Months Ended October 1, 2011
| Total net sales in the third quarter of 2011 were $1.23 billion, compared with $1.17 billion in the same quarter of 2010, representing a 4.8% increase. Total net sales in the first nine months of 2011 were $3.49 billion, compared with $3.18 billion in the same period of 2010, representing a 9.9% increase. |
| Operating profit was $153 million in the third quarter of 2011, compared with $114 million in the same quarter of 2010. As a percent of sales, operating profit was 12.4% in the third quarter of 2011 compared to 9.7% in the same quarter of 2010. The operating margin of 12.4% in the third quarter of 2011 is the highest since our spin off in September 2006. Operating profit was $403 million in the first nine months |
27
of 2011, compared with $323 million in the same period of 2010. As a percent of sales, operating profit was 11.5% in the first nine months of 2011 compared to 10.2% in the same period of 2010. |
| Diluted earnings per share were $0.91 in the third quarter of 2011, compared with $0.63 in the same quarter of 2010. Diluted earnings per share were $2.28 in the first nine months of 2011, compared with $1.87 in the same period of 2010. |
| Gross capital expenditures were $69 million during the first nine months of 2011, compared with $79 million in the same period of 2010. Proceeds from sales of assets were $13 million in the first nine months of 2011 and $45 million in the same period of 2010. |
Condensed Consolidated Results of Operations Third Quarter Ended October 1, 2011 Compared with Third Quarter Ended October 2, 2010
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,230,185 | $ | 1,173,362 | $ | 56,823 | 4.8 | % | ||||||||
Cost of sales |
804,742 | 809,487 | (4,745 | ) | (0.6 | ) | ||||||||||
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Gross profit |
425,443 | 363,875 | 61,568 | 16.9 | ||||||||||||
Selling, general and administrative expenses |
272,761 | 249,815 | 22,946 | 9.2 | ||||||||||||
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Operating profit |
152,682 | 114,060 | 38,622 | 33.9 | ||||||||||||
Other expenses |
880 | 1,094 | (214 | ) | (19.6 | ) | ||||||||||
Interest expense, net |
38,262 | 36,326 | 1,936 | 5.3 | ||||||||||||
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Income before income tax expense |
113,540 | 76,640 | 36,900 | 48.1 | ||||||||||||
Income tax expense |
22,708 | 15,328 | 7,380 | 48.1 | ||||||||||||
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Net income |
$ | 90,832 | $ | 61,312 | $ | 29,520 | 48.1 | % | ||||||||
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Net Sales
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,230,185 | $ | 1,173,362 | $ | 56,823 | 4.8 | % |
Consolidated net sales were higher by $57 million or 5% in the third quarter of 2011 compared to the third quarter of 2010. The third quarter of 2011 is our seventh consecutive quarter of growth. The net sales growth reflects net price increases, incremental net sales from Gear for Sports, which was acquired in the fourth quarter of 2010, and a favorable impact from foreign currency exchange rates, partially offset by lower unit sales volume in most categories.
Our three largest segments, Innerwear, Outerwear and International, demonstrated growth in net sales, with Outerwear and International delivering double digit sales growth. Outerwear, International and Innerwear segment net sales were higher by $43 million (11%), $16 million (12%) and $3 million (1%), respectively. Hosiery and Direct to Consumer segment net sales were lower by $3 million (8%) and $3 million (3%), respectively.
28
Gross Profit
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross profit |
$ | 425,443 | $ | 363,875 | $ | 61,568 | 16.9 | % |
As a percent of net sales, our gross profit was 34.6% in the third quarter of 2011 compared to 31.0% in the third quarter of 2010. Our gross profit was higher by $62 million in the third quarter of 2011 compared to the third quarter of 2010. The higher gross profit was primarily attributable to higher gross profit of $29 million from the Outerwear segment, of which $27 million was attributable to Gear for Sports, $28 million from the Innerwear segment and $8 million from the International segment, partially offset by lower gross profit of $3 million from the Hosiery segment and slightly lower gross profit from the Direct to Consumer segment. General corporate expenses within gross profit, which are not allocated to segments, were slightly higher in the third quarter of 2011 compared to the third quarter of 2010.
Our results in the third quarter of 2011 benefited primarily from net price increases of $115 million, which includes the impact of lower sales incentives of $3 million, favorable product sales mix of $18 million, efficiency savings from our supply chain optimization of $11 million, a favorable impact related to foreign currency exchange rates of $3 million and lower start-up and shut-down costs of $2 million and were negatively impacted by higher input costs of $56 million, particularly cotton and energy and oil-related materials, lower sales volumes of $29 million and higher other manufacturing costs of $2 million, which is net of the elimination of $6 million of excess 2010 costs related to servicing sales growth.
The average cotton price reflected in our results was 97 cents per pound in the third quarter of 2011 compared to 72 cents per pound in the third quarter of 2010. After taking into consideration the cotton costs currently included in our finished goods inventory and cotton prices we have locked in, we expect the average cost of cotton will exceed $1.00 per pound for the full year. These amounts do not include the impact of cotton costs on the cost of sourced goods. While cotton prices have declined in recent months, we will continue to have higher prices for cotton and oil-related materials reflected in our cost of sales, which will impact our results for the remainder of 2011 and the first half of 2012.
Selling, General and Administrative Expenses
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses |
$ | 272,761 | $ | 249,815 | $ | 22,946 | 9.2 | % |
Our selling, general and administrative expenses were $23 million higher in the third quarter of 2011 compared to the third quarter of 2010. As a percent of net sales our selling, general and administrative expenses were 22.2% in the third quarter of 2011 compared to 21.3% in the third quarter of 2010. Outerwear, International and Innerwear segment selling, general and administrative expenses were higher by $12 million, $9 million and $4 million, respectively, and Direct to Consumer and Hosiery segment selling, general and administrative expenses were lower by $2 million and $1 million, respectively. General corporate expenses within selling, general and administrative expenses, which are not allocated to segments, were flat in the third quarter of 2011 compared to the third quarter of 2010.
The higher selling, general and administrative expenses were primarily attributable to higher selling and other marketing expenses of $11 million, incremental administrative costs of $3 million attributable to Gear for Sports, higher media related media, advertising and promotion (MAP) expenses of $2 million, higher stock compensation and certain other benefit costs of $2 million, higher distribution expenses of $2 million, which is net of the elimination of $2 million of excess 2010 costs related to servicing sales growth, and higher expenses as a result of opening new retail stores or expanding existing stores of $2 million.
29
Operating Profit
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Operating profit |
$ | 152,682 | $ | 114,060 | $ | 38,622 | 33.9 | % |
The higher operating profit was primarily attributable to higher operating profit of $24 million from the Innerwear segment, $17 million from the Outerwear segment and $2 million from the Direct to Consumer segment, partially offset by lower operating profit of $2 million from the Hosiery segment and $1 million from the International segment.
Other Expenses
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Other expenses |
$ | 880 | $ | 1,094 | $ | (214 | ) | (19.6 | )% |
During the third quarter of 2011 and the third quarter of 2010, we incurred charges of $1 million for funding fees associated with the sales of certain trade accounts receivable to financial institutions.
Interest Expense, Net
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 38,262 | $ | 36,326 | $ | 1,936 | 5.3 | % |
Interest expense, net was higher by $2 million in the third quarter of 2011 compared to the third quarter of 2010. The higher interest expense was primarily attributable to higher outstanding debt balances that increased interest expense by $3 million. Our weighted average interest rate on our outstanding debt, which excludes the impact of noncash items such as the amortization of debt issuance costs, was 5.50% during the third quarter of 2011 compared to 6.21% in the third quarter of 2010.
Income Tax Expense
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Income tax expense |
$ | 22,708 | $ | 15,328 | $ | 7,380 | 48.1 | % |
Our effective income tax rate was 20% in the third quarter of 2011 and the third quarter of 2010.
Net Income
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net income |
$ | 90,832 | $ | 61,312 | $ | 29,520 | 48.1 | % |
Net income for the third quarter of 2011 was higher than the third quarter of 2010 primarily due to higher operating profit of $39 million, partially offset by higher income tax expense of $7 million and higher interest expense of $2 million.
30
Operating Results by Business Segment Third Quarter Ended October 1, 2011 Compared with Third Quarter Ended October 2, 2010
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Innerwear |
$ | 515,263 | $ | 512,486 | $ | 2,777 | 0.5 | % | ||||||||
Outerwear |
432,804 | 389,474 | 43,330 | 11.1 | ||||||||||||
Hosiery |
34,481 | 37,442 | (2,961 | ) | (7.9 | ) | ||||||||||
Direct to Consumer |
97,565 | 100,327 | (2,762 | ) | (2.8 | ) | ||||||||||
International |
150,072 | 133,633 | 16,439 | 12.3 | ||||||||||||
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|
|
|||||||||
Total net sales |
$ | 1,230,185 | $ | 1,173,362 | $ | 56,823 | 4.8 | % | ||||||||
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Segment operating profit: |
||||||||||||||||
Innerwear |
$ | 79,353 | $ | 55,249 | $ | 24,104 | 43.6 | % | ||||||||
Outerwear |
55,602 | 38,349 | 17,253 | 45.0 | ||||||||||||
Hosiery |
8,792 | 11,223 | (2,431 | ) | (21.7 | ) | ||||||||||
Direct to Consumer |
12,308 | 10,569 | 1,739 | 16.5 | ||||||||||||
International |
15,839 | 16,748 | (909 | ) | (5.4 | ) | ||||||||||
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|
|||||||||
Total segment operating profit |
171,894 | 132,138 | 39,756 | 30.1 | ||||||||||||
Items not included in segment operating profit: |
||||||||||||||||
General corporate expenses |
(15,587 | ) | (15,160 | ) | 427 | 2.8 | ||||||||||
Amortization of trademarks and other intangibles |
(3,625 | ) | (2,918 | ) | 707 | 24.2 | ||||||||||
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|
|
|
|
|||||||||
Total operating profit |
152,682 | 114,060 | 38,622 | 33.9 | ||||||||||||
Other expenses |
(880 | ) | (1,094 | ) | (214 | ) | (19.6 | ) | ||||||||
Interest expense, net |
(38,262 | ) | (36,326 | ) | 1,936 | 5.3 | ||||||||||
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|
|
|
|
|
|
|
|||||||||
Income before income tax expense |
$ | 113,540 | $ | 76,640 | $ | 36,900 | 48.1 | % | ||||||||
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|
|
A significant portion of the selling, general and administrative expenses in each segment is an allocation of our consolidated selling, general and administrative expenses, however certain expenses that are specifically identifiable to a segment are charged directly to such segment. Certain prior year segment selling, general and administrative expenses have been revised to conform to the current year presentation. These changes were primarily the result of our decision to cease allocating certain compensation related expenses to the segments. Other than this change, the allocation methodology for the consolidated selling, general and administrative expenses for the third quarter of 2011 was consistent with the third quarter of 2010. Our consolidated selling, general and administrative expenses before segment allocations were $23 million higher in the third quarter of 2011 compared to the third quarter of 2010.
Innerwear
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 515,263 | $ | 512,486 | $ | 2,777 | 0.5 | % | ||||||||
Segment operating profit |
79,353 | 55,249 | 24,104 | 43.6 |
Overall net sales in the Innerwear segment were higher by $3 million in the third quarter of 2011 compared to the third quarter of 2010, primarily due to stronger net sales in our male underwear and socks product categories, partially offset by lower net sales in our intimate apparel product category.
31
Net sales in the male underwear product category were 10% or $22 million higher in the third quarter of 2011 compared to the third quarter of 2010, primarily due to net price increases, partially offset by lower unit sales volume.
Higher net sales of $3 million or 4% in our socks product category reflect higher Hanes brand net sales of $5 million, partially offset by lower Champion brand net sales of $3 million in the third quarter of 2011 compared to the third quarter of 2010. The higher Hanes brand net sales were primarily due to net price increases, partially offset by lower unit sales volume, and the lower Champion brand net sales were primarily attributable to the loss of a seasonal program.
Intimate apparel net sales were $22 million or 10% lower in the third quarter of 2011 compared to the third quarter of 2010. Our panties and bra product category net sales were both lower by $11 million, primarily due to lower unit sales volume resulting from a softness in the intimate apparel category, partially offset by net price increases.
Innerwear segment gross profit was higher by $28 million in the third quarter of 2011 compared to the third quarter of 2010. The higher gross profit was primarily due to higher net product pricing of $67 million, which includes the impact of higher sales incentives of $2 million, efficiency savings related to our supply chain optimization of $6 million, favorable product sales mix of $3 million, lower excess and obsolete inventory costs of $2 million and lower other manufacturing costs of $2 million. The lower other manufacturing costs of $2 million includes the elimination of $6 million of excess 2010 costs related to servicing sales growth. These factors were offset by $29 million of higher input costs such as cotton costs related to finished goods manufactured internally in our facilities, vendor prices, wages and energy and oil-related materials and lower sales volume of $25 million.
Innerwear segment operating profit was higher in the third quarter of 2011 compared to the third quarter of 2010 primarily as a result of higher gross profit, partially offset by higher distribution expenses of $2 million related to higher costs to implement our price increases partially offset by the elimination of excess 2010 costs related to servicing sales growth.
Outerwear
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 432,804 | $ | 389,474 | $ | 43,330 | 11.1 | % | ||||||||
Segment operating profit |
55,602 | 38,349 | 17,253 | 45.0 |
Outerwear segment net sales were higher by $43 million or 11% in the third quarter of 2011 compared to the third quarter of 2010. Outerwears segment net sales include the impact of Gear for Sports, which was acquired in the fourth quarter of 2010 and contributed $83 million or 21 percentage points of the segments net sales growth and $27 million of gross profit for the third quarter of 2011. The Gear for Sports business includes sales of licensed logo apparel in collegiate bookstores and other channels.
Our Champion brand activewear net sales were lower by $7 million or 4% due to lower shipments to the wholesale club channel, partially offset by higher unit sales volume.
Our casualwear category net sales were lower in the retail channel by $26 million and in the wholesale channel by $6 million. The lower net sales in the retail casualwear channel were primarily attributable to a retailers decision to focus our Just My Size brand toward more core basics versus a mix with fashion-oriented lines, partially offset by net price increases. The lower net sales in the wholesale casualwear channel of 7% were primarily due to lower unit sales volume, partially offset by net price increases.
Outerwear segment gross profit was higher by $29 million in the third quarter of 2011 compared to the third quarter of 2010. The higher gross profit was primarily due to higher net product pricing of $29 million, which includes the impact of lower sales incentives of $4 million, favorable product sales mix of $22 million, efficiency
32
savings related to our supply chain optimization of $4 million and higher sales volume of $3 million. These lower costs were partially offset by $23 million of higher input costs such as cotton costs related to finished goods manufactured internally in our facilities, vendor prices, wages and energy and oil-related materials, higher excess and obsolete inventory costs of $3 million and higher other manufacturing costs of $2 million.
Outerwear segment operating profit was higher in the third quarter of 2011 compared to the third quarter of 2010 primarily as a result of higher gross profit, partially offset by higher selling and other marketing expenses of $8 million and incremental administrative costs of $3 million attributable to Gear for Sports. The higher selling and other marketing expenses were primarily due to incremental costs resulting from the acquisition of Gear for Sports.
Hosiery
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 34,481 | $ | 37,442 | $ | (2,961 | ) | (7.9 | )% | |||||||
Segment operating profit |
8,792 | 11,223 | (2,431 | ) | (21.7 | ) |
Net sales in the Hosiery segment were lower by $3 million or 8%, which was primarily due to lower net sales of our Hanes brand in the national chain and mass merchant channels and lower net sales of our Leggs brand to mass retailers and food and drug stores. The hosiery category has been in a state of consistent decline for the past decade, as the trend toward casual dress reduced demand for sheer hosiery. Generally, we manage the Hosiery segment for cash, placing an emphasis on reducing our cost structure and managing cash efficiently.
Hosiery segment gross profit was lower by $3 million in the third quarter of 2011 compared to the third quarter of 2010. The lower gross profit was primarily the result of lower sales volume of $2 million.
Hosiery segment operating profit was lower in the third quarter of 2011 compared to the third quarter of 2010 primarily as a result of lower gross profit.
Direct to Consumer
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 97,565 | $ | 100,327 | $ | (2,762 | ) | (2.8 | )% | |||||||
Segment operating profit |
12,308 | 10,569 | 1,739 | 16.5 |
Direct to Consumer segment net sales were lower by $3 million or 3% in the third quarter of 2011 compared to the third quarter of 2010 due to lower net sales related to our Internet operations of $3 million. Net sales in our outlet stores were slightly higher in the third quarter of 2011 compared to the third quarter of 2010. Comparable store sales were flat in the third quarter of 2011 compared to the third quarter of 2010.
Direct to Consumer segment gross profit was slightly lower in the third quarter of 2011 compared to the third quarter of 2010 primarily due to higher net product pricing of $4 million, offset by lower sales volume of $4 million.
Direct to Consumer segment operating profit was higher in the third quarter of 2011 compared to the third quarter of 2010 primarily as a result of lower non-media MAP expenses of $3 million, partially offset by higher expenses of $2 million as a result of opening new retail stores or expanding existing stores.
33
International
Quarter Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 150,072 | $ | 133,633 | $ | 16,439 | 12.3 | % | ||||||||
Segment operating profit |
15,839 | 16,748 | (909 | ) | (5.4 | ) |
Overall net sales in the International segment were higher by $16 million or 12% in the third quarter of 2011 compared to the third quarter of 2010, primarily as a result of sales growth in Asia, Latin America and Australia, reflecting net price increases, space gains and a favorable impact of $8 million related to foreign currency exchange rates. Excluding the impact of foreign exchange rates on currency, International segment net sales were higher by 6% in third quarter of 2011 compared to the third quarter of 2010. The favorable impact of foreign currency exchange rates in our International segment was primarily due to the strengthening of the Japanese yen, Canadian dollar and Brazilian real compared to the U.S. dollar.
During the third quarter of 2011, we experienced higher net sales, in each case excluding the impact of foreign currency exchange rates, in our activewear and intimate apparel businesses in Asia of $7 million, in our male underwear and intimate apparel businesses in Latin America of $6 million and in our activewear business in Australia of $5 million, which benefited from the acquisition of the assets of the TNF Group Unit Trust from TNF Group Pty Ltd, as trustee, and of Player Sportswear Unit Trust from Player Sportswear Pty Ltd, as trustee (collectively, TNF) in April 2011, partially offset by lower net sales in our intimate apparel business in Canada of $7 million and in our casualwear business in Europe of $2 million. In certain international markets we are focusing on adopting global designs for some product categories to quickly launch new styles to expand our market position. The higher net sales reflect our successful efforts to improve our strong positions.
International segment gross profit was higher by $8 million in the third quarter of 2011 compared to the third quarter of 2010. The higher gross profit was primarily a result of higher net product pricing of $14 million, which includes the impact of lower sales incentives of $1 million and a favorable impact related to foreign currency exchange rates of $3 million, partially offset by lower sales volume of $3 million, unfavorable product sales mix of $3 million and vendor price increases of $2 million.
International segment operating profit was slightly lower in the third quarter of 2011 compared to the third quarter of 2010, which was primarily attributable to higher selling and other marketing expenses of $3 million, higher distribution expenses of $2 million, higher media related MAP expenses of $1 million and higher non-media related MAP expenses of $1 million, partially offset by higher gross profit. The higher selling and marketing expenses were primarily due to incremental costs resulting from the acquisition of the assets of TNF and costs associated with the growth of our business in China. The changes in foreign currency exchange rates, which are included in the impact on gross profit above, had a favorable impact on operating profit of $1 million in the third quarter of 2011 compared to the third quarter of 2010.
General Corporate Expenses
General corporate expenses were flat in the third quarter of 2011 compared to the third quarter of 2010 primarily due to lower start-up and shut-down costs of $2 million associated with the consolidation and globalization of our supply chain, offset by higher stock compensation and certain other benefit costs of $2 million.
34
Condensed Consolidated Results of Operations Nine Months Ended October 1, 2011 Compared with Nine Months Ended October 2, 2010
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 3,491,828 | $ | 3,177,054 | $ | 314,774 | 9.9 | % | ||||||||
Cost of sales |
2,284,620 | 2,110,943 | 173,677 | 8.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
1,207,208 | 1,066,111 | 141,097 | 13.2 | ||||||||||||
Selling, general and administrative expenses |
804,215 | 743,534 | 60,681 | 8.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating profit |
402,993 | 322,577 | 80,416 | 24.9 | ||||||||||||
Other expenses |
2,295 | 5,128 | (2,833 | ) | (55.2 | ) | ||||||||||
Interest expense, net |
118,545 | 110,394 | 8,151 | 7.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense |
282,153 | 207,055 | 75,098 | 36.3 | ||||||||||||
Income tax expense |
56,430 | 23,818 | 32,612 | 136.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 225,723 | $ | 183,237 | $ | 42,486 | 23.2 | % | ||||||||
|
|
|
|
|
|
|
|
Net Sales
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 3,491,828 | $ | 3,177,054 | $ | 314,774 | 9.9 | % |
Consolidated net sales were higher by $315 million or 10% in the nine months of 2011 compared to 2010. The net sales growth reflects net price increases, incremental net sales from Gear for Sports and a favorable impact from foreign currency exchange rates, partially offset by lower unit sales volume in most categories.
Our three largest segments, Innerwear, Outerwear and International, demonstrated growth in net sales, with Outerwear and International delivering high double digit sales growth. Outerwear, International and Innerwear segment net sales were higher by $200 million (22%), $71 million (20%) and $49 million (3%), respectively. Hosiery and Direct to Consumer segment net sales were lower by $4 million (4%) and $1 million (< 1%).
Gross Profit
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross profit |
$ | 1,207,208 | $ | 1,066,111 | $ | 141,097 | 13.2 | % |
As a percent of net sales, our gross profit was 34.6% in the nine months of 2011 compared to 33.6% in the nine months of 2010. Our gross profit was higher by $141 million in the nine months of 2011 compared to 2010. The higher gross profit was primarily attributable to higher gross profit of $90 million from the Outerwear segment, of which $65 million was attributable to Gear for Sports, $31 million from the International segment, $21 million from the Innerwear segment and $1 million from the Direct to Consumer segment, partially offset by lower gross profit of $9 million from the Hosiery segment. General corporate expenses within gross profit, which are not allocated to segments, were $6 million lower in the nine months of 2011 compared to 2010.
Our results in the nine months of 2011 benefited primarily from net price increases of $206 million, which is net of the impact of higher sales incentives of $34 million, efficiency savings from our supply chain optimization of $34 million, higher sales volumes of $28 million, favorable product sales mix of $22 million, a favorable impact related to foreign currency exchange rates of $11 million, receipt of a one-time termination fee
35
of $5 million related to a royalty license agreement and lower start-up and shut-down costs of $5 million and were negatively impacted by higher input costs of $142 million, particularly cotton and energy and oil-related materials, higher other manufacturing costs of $20 million, which is net of the elimination of $3 million of excess 2010 costs related to servicing sales growth, and higher excess and obsolete inventory costs of $7 million.
The average cotton price reflected in our results was 88 cents per pound in the nine months of 2011 compared to 62 cents per pound in the nine months of 2010. After taking into consideration the cotton costs currently included in our finished goods inventory and cotton prices we have locked in, we expect the average cost of cotton will exceed $1.00 per pound for the full year. These amounts do not include the impact of cotton costs on the cost of sourced goods. While cotton prices have declined in recent months, we will continue to have higher prices for cotton and oil-related materials reflected in our cost of sales, which will impact our results for the remainder of 2011 and the first half of 2012.
Selling, General and Administrative Expenses
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses |
$ | 804,215 | $ | 743,534 | $ | 60,681 | 8.2 | % |
Our selling, general and administrative expenses were $61 million higher in the nine months of 2011 compared to 2010. As a percent of net sales our selling, general and administrative expenses were 23.0% in the nine months of 2011 compared to 23.4% in 2010. Outerwear, International and Innerwear segment selling, general and administrative expenses were higher by $34 million, $19 million and $16 million, respectively, and Hosiery and Direct to Consumer segment selling, general and administrative expenses were lower by $4 million and $2 million, respectively. General corporate expenses within selling, general and administrative expenses, which are not allocated to segments, were $5 million lower in the nine months of 2011 compared to 2010.
The higher selling, general and administrative expenses were primarily attributable to higher selling and other marketing expenses of $32 million, higher distribution expenses of $14 million, which is net of the elimination of $5 million of excess 2010 costs related to servicing sales growth, incremental administrative costs of $7 million attributable to Gear for Sports, higher expenses of $5 million as a result of opening new retail stores or expanding existing stores and higher media related MAP expenses of $4 million, partially offset by lower pension expense of $3 million.
Operating Profit
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Operating profit |
$ | 402,993 | $ | 322,577 | $ | 80,416 | 24.9 | % |
The higher operating profit was primarily attributable to higher operating profit of $56 million from the Outerwear segment, $11 million from the International segment, $5 million from the Innerwear segment and $3 million from the Direct to Consumer segment and lower general corporate expenses of $11 million which are not allocated to segments, partially offset by lower operating profit of $5 million from the Hosiery segment.
Other Expenses
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Other expenses |
$ | 2,295 | $ | 5,128 | $ | (2,833 | ) | (55.2 | )% |
36
During the nine months of 2011, we incurred charges of $2 million for funding fees associated with the sales of certain trade accounts receivable to financial institutions.
During the nine months of 2010, we wrote off unamortized debt issuance costs and incurred charges for funding fees associated with the sales of certain trade accounts receivable to financial institutions, which combined totaled $5 million. The write-off of unamortized debt issuance costs resulted from the repayment of $57 million of principal under the senior secured credit facility that we entered into in 2006 and amended and restated in 2009 (as amended and restated, the 2009 Senior Secured Credit Facility) and from the reduction in borrowing capacity available under the accounts receivable securitization facility that we entered into in November 2007 (the Accounts Receivable Securitization Facility) from $250 million to $150 million that we effected in recognition of our lower trade accounts receivable balance resulting from the sales of certain trade accounts receivable to a financial institution outside the Accounts Receivable Securitization Facility.
Interest Expense, Net
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 118,545 | $ | 110,394 | $ | 8,151 | 7.4 | % |
Interest expense, net was higher by $8 million in the nine months of 2011 compared to 2010. The higher interest expense was primarily attributable to higher outstanding debt balances that increased interest expense by $12 million. In addition, the refinancing of our debt structure in November 2010, which included the sale of our $1 billion 6.375% Senior Notes, and the amendment of the 2009 Senior Secured Credit Facility in February 2011, together with a higher LIBOR, combined caused a net decrease in interest expense in the nine months of 2011 of $4 million.
Our weighted average interest rate on our outstanding debt was 5.62% during the nine months of 2011 compared to 5.71% in the nine months of 2010.
Income Tax Expense
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Income tax expense |
$ | 56,430 | $ | 23,818 | $ | 32,612 | 136.9 | % |
Our effective income tax rate was 20% in the nine months of 2011 compared to 12% in the nine months of 2010. The higher effective income tax rate for the nine months of 2011 compared to the nine months of 2010 was primarily attributable to a one-time benefit of $20 million in the nine months of 2010 resulting from the finalization of tax reviews and audits for amounts that were less than originally anticipated. This non-recurring income tax benefit was partially offset by a higher proportion of our earnings attributed to foreign subsidiaries than in the nine months of 2010, which are taxed at rates lower than the U.S. statutory rate.
Net Income
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net income |
$ | 225,723 | $ | 183,237 | $ | 42,486 | 23.2 | % |
Net income for the nine months of 2011 was higher than the nine months of 2010 primarily due to higher operating profit of $80 million and lower other expenses of $3 million, partially offset by higher income tax expense of $33 million and higher interest expense of $8 million.
37
Operating Results by Business Segment Nine Months Ended October 1, 2011 Compared with Nine Months Ended October 2, 2010
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Innerwear |
$ | 1,571,277 | $ | 1,522,553 | $ | 48,724 | 3.2 | % | ||||||||
Outerwear |
1,094,888 | 894,653 | 200,235 | 22.4 | ||||||||||||
Hosiery |
113,051 | 117,273 | (4,222 | ) | (3.6 | ) | ||||||||||
Direct to Consumer |
277,819 | 278,680 | (861 | ) | (0.3 | ) | ||||||||||
International |
434,793 | 363,895 | 70,898 | 19.5 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Total net sales |
$ | 3,491,828 | $ | 3,177,054 | $ | 314,774 | 9.9 | % | ||||||||
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|
|
|
|
|
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Segment operating profit: |
||||||||||||||||
Innerwear |
$ | 231,321 | $ | 225,896 | $ | 5,425 | 2.4 | % | ||||||||
Outerwear |
117,025 | 61,034 | 55,991 | 91.7 | ||||||||||||
Hosiery |
34,465 | 39,224 | (4,759 | ) | (12.1 | ) | ||||||||||
Direct to Consumer |
22,070 | 18,898 | 3,172 | 16.8 | ||||||||||||
International |
53,614 | 42,462 | 11,152 | 26.3 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Total segment operating profit |
458,495 | 387,514 | 70,981 | 18.3 | ||||||||||||
Items not included in segment operating profit: |
||||||||||||||||
General corporate expenses |
(44,641 | ) | (55,891 | ) | (11,250 | ) | (20.1 | ) | ||||||||
Amortization of trademarks and other intangibles |
(10,861 | ) | (9,046 | ) | 1,815 | 20.1 | ||||||||||
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|
|
|
|
|
|
|
|||||||||
Total operating profit |
402,993 | 322,577 | 80,416 | 24.9 | ||||||||||||
Other expenses |
(2,295 | ) | (5,128 | ) | (2,833 | ) | (55.2 | ) | ||||||||
Interest expense, net |
(118,545 | ) | (110,394 | ) | 8,151 | 7.4 | ||||||||||
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|
|
|
|
|
|
|||||||||
Income before income tax expense |
$ | 282,153 | $ | 207,055 | $ | 75,098 | 36.3 | % | ||||||||
|
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|
|
|
|
|
A significant portion of the selling, general and administrative expenses in each segment is an allocation of our consolidated selling, general and administrative expenses, however certain expenses that are specifically identifiable to a segment are charged directly to such segment. Certain prior year segment selling, general and administrative expenses have been revised to conform to the current year presentation. These changes were primarily the result of our decision to cease allocating certain compensation related expenses to the segments. Other than this change, the allocation methodology for the consolidated selling, general and administrative expenses for the nine months of 2011 was consistent with the nine months of 2010. Our consolidated selling, general and administrative expenses before segment allocations were $61 million higher in the nine months of 2011 compared to 2010.
Innerwear
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,571,277 | $ | 1,522,553 | $ | 48,724 | 3.2 | % | ||||||||
Segment operating profit |
231,321 | 225,896 | 5,425 | 2.4 |
Overall net sales in the Innerwear segment were higher by $49 million in the nine months of 2011 compared to 2010, primarily due to stronger net sales in our male underwear and socks product categories, partially offset by lower net sales in our intimate apparel product category.
38
Net sales in the male underwear product category were 10% or $68 million higher in the nine months of 2011 compared to 2010, primarily due to net price increases and space gains in the discount retail and department store channels, partially offset by lower unit sales volume.
Higher net sales of $13 million or 7% in our socks product category reflect higher Hanes brand net sales of $19 million, partially offset by lower Champion brand net sales of $8 million in the nine months of 2011 compared to 2010. The higher Hanes brand net sales were primarily due to net price increases, partially offset by lower unit sales volume, and the lower Champion brand net sales were primarily attributable to the loss of a seasonal program.
Intimate apparel net sales were $32 million lower in the nine months of 2011 compared to 2010. Our bra category net sales were $27 million lower primarily due to lower unit sales volume resulting from a softness in the intimate apparel category and from higher sales of products with discounted promotional pricing, partially offset by net price increases. Our panties category net sales were lower by $5 million primarily due to lower unit sales volume resulting from a softness in the intimate apparel category, partially offset by net price increases and space gains.
Innerwear segment gross profit was higher by $21 million in the nine months of 2011 compared to 2010. The higher gross profit was primarily due to higher net product pricing of $99 million, which includes the impact of higher sales incentives of $35 million, efficiency savings related to our supply chain optimization of $20 million and favorable product sales mix of $5 million. These lower costs were offset by $68 million of higher input costs such as cotton costs related to finished goods manufactured internally in our facilities, vendor prices, wages and energy and oil-related materials, lower sales volume of $17 million, higher other manufacturing costs of $17 million primarily related to higher volume and freight costs and higher excess and obsolete inventory costs of $3 million. The higher other manufacturing costs of $17 million is net of the elimination of $3 million of excess 2010 costs related to servicing sales growth. Our excess and obsolete inventory costs were higher primarily in our intimate apparel categories as a result of specific retailer program discontinuations.
Innerwear segment operating profit was higher in the nine months of 2011 compared to 2010 primarily as a result of higher gross profit, partially offset by higher distribution expenses of $10 million, higher selling and other marketing expenses of $2 million and higher media related MAP expenses of $2 million. The higher distribution expenses related to higher costs to implement our price increases were partially offset by the elimination of excess 2010 costs related to servicing sales growth.
Outerwear
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,094,888 | $ | 894,653 | $ | 200,235 | 22.4 | % | ||||||||
Segment operating profit |
117,025 | 61,034 | 55,991 | 91.7 |
Outerwear segment net sales were higher by $200 million or 22% in the nine months of 2011 compared to 2010. Outerwears segment net sales include the impact of Gear for Sports, which was acquired in the fourth quarter of 2010 and contributed $191 million or 21 percentage points of the segments 22% net sales growth and $65 million of gross profit for the nine months of 2011. The Gear for Sports business includes sales of licensed logo apparel in collegiate bookstores and other channels.
Our Champion brand activewear net sales were higher by $17 million or 5% due to higher unit sales volume in the mass merchant and wholesale club channels and space gains in the department store and wholesale club channels, partially offset by lower unit sales volume. Our Champion brand has achieved growth by focusing on the fast growing active demographic with a unique moderate price positioning.
Our casualwear category net sales were higher in the wholesale channel by $31 million and lower in the retail channel by $37 million. The higher net sales in the wholesale casualwear channel of 12% were primarily due to net price increases, partially offset by lower unit sales volume. The lower net sales in the retail casualwear
39
channel were impacted by a retailers decision to focus our Just My Size brand toward more core basics versus a mix with fashion-oriented lines, partially offset by net price increases.
Outerwear segment gross profit was higher by $90 million in the nine months of 2011 compared to 2010. The higher gross profit was primarily due to higher net product pricing of $66 million, which includes the impact of lower sales incentives of $1 million, favorable product sales mix of $44 million, higher sales volume of $32 million and efficiency savings related to our supply chain optimization of $12 million, partially offset by $55 million of higher input costs such as cotton costs related to finished goods manufactured internally in our facilities, vendor prices, wages and energy and oil-related materials and higher excess and obsolete inventory costs of $7 million.
Outerwear segment operating profit was higher in the nine months of 2011 compared to 2010 primarily as a result of higher gross profit, partially offset by higher selling and other marketing expenses of $23 million, incremental administrative costs of $8 million attributable to Gear for Sports and higher distribution expenses of $3 million related to higher sales volumes and higher costs to implement our price increases. The higher selling and other marketing expenses were primarily due to higher sales volumes and the incremental costs resulting from the acquisition of Gear for Sports.
Hosiery
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 113,051 | $ | 117,273 | $ | (4,222 | ) | (3.6 | )% | |||||||
Segment operating profit |
34,465 | 39,224 | (4,759 | ) | (12.1 | ) |
Net sales in the Hosiery segment declined by $4 million or 4%, which was primarily due to lower net sales of our Leggs brand to mass retailers and food and drug stores and lower net sales of our Hanes brand in the national chain and mass merchant channels, partially offset by higher net sales of the DKNY brand in the wholesale club channel. The hosiery category has been in a state of consistent decline for the past decade, as the trend toward casual dress reduced demand for sheer hosiery. Generally, we manage the Hosiery segment for cash, placing an emphasis on reducing our cost structure and managing cash efficiently.
Hosiery segment gross profit was lower by $9 million in the nine months of 2011 compared to 2010. The lower gross profit for the nine months of 2011 compared to 2010 was primarily the result of higher other manufacturing costs of $5 million, unfavorable product sales mix of $4 million and lower sales volume of $3 million, partially offset by lower excess and obsolete inventory costs of $3 million.
Hosiery segment operating profit was lower in the nine months of 2011 compared to 2010 primarily as a result of lower gross profit, partially offset by lower distribution expenses of $2 million.
Direct to Consumer
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 277,819 | $ | 278,680 | $ | (861 | ) | (0.3 | )% | |||||||
Segment operating profit |
22,070 | 18,898 | 3,172 | 16.8 |
Direct to Consumer segment net sales were lower by $1 million in the nine months of 2011 compared to 2010 due to lower net sales related to our Internet operations of $4 million, partially offset by higher net sales in our outlet stores of $3 million. Comparable store sales were 1% higher in the nine months of 2011 compared to 2010.
Direct to Consumer segment gross profit was $1 million higher in the nine months of 2011 compared to 2010 primarily due to higher net product pricing of $7 million, partially offset by lower sales volume of $4 million and higher input costs of $2 million.
40
Direct to Consumer segment operating profit was higher in the nine months of 2011 compared to 2010 primarily due to higher gross profit, lower non-media related MAP expenses of $4 million and lower distribution expenses of $2 million, partially offset by higher expenses of $5 million as a result of opening new retail stores or expanding existing stores.
International
Nine Months Ended | ||||||||||||||||
October 1, | October 2, | Higher | Percent | |||||||||||||
2011 | 2010 | (Lower) | Change | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales |
$ | 434,793 | $ | 363,895 | $ | 70,898 | 19.5 | % | ||||||||
Segment operating profit |
53,614 | 42,462 | 11,152 | 26.3 |
Overall net sales in the International segment were higher by $71 million or 20% in the nine months of 2011 compared to 2010, primarily as a result of sales growth in Asia, Latin America, Europe and Australia, which reflects net price increases, space gains and a favorable impact of $26 million related to foreign currency exchange rates. Excluding the impact of foreign exchange rates on currency, International segment net sales were higher by 12% in the nine months of 2011 compared to 2010. The favorable impact of foreign currency exchange rates in our International segment was primarily due to the strengthening of the Japanese yen, Canadian dollar, Brazilian real, Euro and Mexican peso compared to the U.S. dollar.
During the nine months of 2011, we experienced higher net sales, in each case excluding the impact of foreign currency exchange rates, in our activewear, intimate apparel and male underwear businesses in Asia of $27 million, in our hosiery, male underwear and intimate apparel businesses in Latin America of $13 million, in our activewear business in Australia of $11 million, which benefited from the acquisition of the assets of TNF in April 2011, and in our casualwear business in Europe of $8 million. These higher net sales were partially offset by lower net sales in our intimate apparel business in Canada of $11 million. The higher net sales in Asia are primarily attributable to space gains and receipt of a one-time termination fee of $5 million related to a royalty license agreement. We subsequently entered into a new agreement with the licensee. In certain international markets we are focusing on adopting global designs for some product categories to quickly launch new styles to expand our market position. The higher net sales reflect our successful efforts to improve our strong positions.
International segment gross profit was higher by $31 million in the nine months of 2011 compared to 2010. The higher gross profit was primarily a result of higher net product pricing of $33 million, a favorable impact related to foreign currency exchange rates of $11 million, receipt of a one-time termination fee of $5 million related to a royalty license agreement and higher sales volume of $2 million, partially offset by vendor price increases of $16 million and unfavorable product sales mix of $5 million.
International segment operating profit was higher in the nine months of 2011 compared to 2010, which was primarily attributable to the higher gross profit, partially offset by higher selling and other marketing expenses of $8 million, higher distribution expenses of $6 million, higher media related MAP expenses of $2 million and higher non-media related MAP expenses of $2 million. The higher selling and marketing expenses were primarily due to incremental costs resulting from the acquisition of the assets of TNF and costs associated with the growth of our business in China. The changes in foreign currency exchange rates, which are included in the impact on gross profit above, had a favorable impact on operating profit of $4 million in the nine months of 2011 compared to 2010.
General Corporate Expenses
General corporate expenses were lower in the nine months of 2011 compared to 2010 primarily due to lower start-up and shut-down costs of $5 million associated with the consolidation and globalization of our supply chain, lower pension expense of $3 million and lower accelerated depreciation of $2 million.
41
Liquidity and Capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by operations and availability under the $600 million revolving credit facility (the Revolving Loan Facility) under the 2009 Senior Secured Credit Facility, the Accounts Receivable Securitization Facility and our international loan facilities. At October 1, 2011, we had $572 million of borrowing availability under our Revolving Loan Facility (after taking into account outstanding letters of credit), $72 million of borrowing availability under our international loan facilities, $50 million of borrowing availability under our Accounts Receivable Securitization Facility and $48 million in cash and cash equivalents. We currently believe that our existing cash balances and cash generated by operations, together with our available credit capacity, will enable us to comply with the terms of our indebtedness and meet foreseeable liquidity requirements.
The following have impacted or are expected to impact liquidity:
| we have principal and interest obligations under our debt; |
| we expect to continue to invest in efforts to improve operating efficiencies and lower costs; |
| we expect to continue to ramp up and optimize our lower-cost manufacturing capacity in Asia, Central America and the Caribbean Basin and enhance efficiency; |
| we may selectively pursue strategic acquisitions; |
| we could increase or decrease the portion of the income of our foreign subsidiaries that is expected to be remitted to the United States, which could significantly impact our effective income tax rate; and |
| our board of directors has authorized the repurchase of up to 10 million shares of our stock in the open market over the next few years (2.8 million of which we have repurchased as of October 1, 2011 at a cost of $75 million), although we may choose not to repurchase any stock and instead focus on other uses of cash such as the repayment of our debt. |
We expect to be able to manage our working capital levels and capital expenditure amounts to maintain sufficient levels of liquidity. Factors that could help us in these efforts include higher sales volume and the realization of additional cost benefits from previous restructuring and related actions. We have restructured our supply chain over the past four years to create more efficient production clusters that utilize fewer, larger facilities and to balance production capability between the Western Hemisphere and Asia.
Cash Requirements for Our Business
We rely on our cash flows generated from operations and the borrowing capacity under our Revolving Loan Facility, Accounts Receivable Securitization Facility and international loan facilities to meet the cash requirements of our business. The primary cash requirements of our business are payments to vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments, contributions to our pension plans and repurchases of our stock. We believe we have sufficient cash and available borrowings for our liquidity needs.
Our working capital was higher in nine months of 2011 compared to nine months of 2010, primarily in the form of inventory. In 2011 we expect working capital to be higher than 2010 to support sales growth, price increases and cost inflation. Inventory as of the end of the third quarter of 2011 was $404 million higher than year-end 2010 inventory primarily due to higher input costs such as cotton and oil-related materials. Year-end 2011 inventory is expected to be approximately $250 million to $300 million higher than year-end 2010 as a result of high inflationary costs.
As a result of the cost inflation and higher product pricing, we expect a negative impact on our cash flow from higher working capital, in particular higher accounts receivable and inventories, partially offset by higher accounts payable. We typically use cash for the first half of the year and generate most of our cash flow in the second half of the year.
42
Capital spending has varied significantly from year to year as we executed our supply chain consolidation and globalization strategy and the integration and consolidation of our technology systems. We spent $69 million on gross capital expenditures during the nine months of 2011, which were offset by cash proceeds of $13 million primarily from a sale-leaseback transaction. We expect to continue to invest in our infrastructure during 2011 with net capital expenditures for the year approximating $90 million.
We expect, based on a calculation by our actuary, to make required cash contributions of $12 million to the U.S. qualified pension plan in 2011, of which we have made $6 million in the nine months of 2011. We may elect to make voluntary contributions, which are not expected to be significant in 2011.
There have been no other significant changes in the cash requirements for our business from those described in our Annual Report on Form 10-K for the year ended January 1, 2011.
Sources and Uses of Our Cash
The information presented below regarding the sources and uses of our cash flows for the nine months ended October 1, 2011 and October 2, 2010 was derived from our consolidated financial statements.
Nine Months Ended | ||||||||
October 1, | October 2, | |||||||
2011 | 2010 | |||||||
(dollars in thousands) | ||||||||
Operating activities |
$ | (26,874 | ) | $ | (37,074 | ) | ||
Investing activities |
(65,239 | ) | (33,620 | ) | ||||
Financing activities |
97,492 | 107,217 | ||||||
Effect of changes in foreign currency exchange rates on cash |
(1,053 | ) | 30 | |||||
|
|
|
|
|||||
Increase (decrease) in cash and cash equivalents |
4,326 | 36,553 | ||||||
Cash and cash equivalents at beginning of year |
43,671 | 38,943 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 47,997 | $ | 75,496 | ||||
|
|
|
|
Operating Activities
Net cash used in operating activities was $27 million in the nine months of 2011 compared to $37 million in the nine months of 2010. The net decrease in cash used in operating activities of $10 million for the nine months of 2011 compared to the nine months of 2010 is primarily attributable to higher net income, partially offset by higher uses of working capital.
Net inventory increased $349 million from October 2, 2010 primarily due to $259 million of higher inflationary costs, $50 million related to Gear for Sports and $40 million of incremental units to support sales growth. As expected, inventory units on hand decreased from July 1, 2011 to October 1, 2011, however, as a result of high inflationary costs, our inventory dollars increased during the third quarter of 2011. Net inventory increased $404 million from January 1, 2011 primarily due to $265 million of higher inflationary costs and $139 million of incremental units due to planned build to support our seasonally stronger second half of the year.
Accounts receivable was $86 million higher compared to January 1, 2011 primarily due to higher sales volumes and higher net product pricing we have implemented in response to systemic cost inflation, partially offset by the timing of collections.
Investing Activities
Net cash used in investing activities was $65 million in the nine months of 2011 compared to $34 million in the nine months of 2010. The net increase in cash used in investing activities of $31 million in the nine months of 2011 compared to the nine months of 2010 was primarily the result of lower proceeds from sales of assets of $33 million and cash used for the acquisition of the assets of TNF in April 2011 of $9 million, partially offset by lower gross capital expenditures of $10 million. During the nine months of 2011, proceeds from sales of assets were $13 million, primarily resulting from a sale-leaseback transaction involving one distribution center.
43
Financing Activities
Net cash provided by financing activities was $97 million in the nine months of 2011 compared to $107 million in the nine months of 2010. The lower net cash from financing activities of $10 million in the nine months of 2011 compared to the nine months of 2010 was primarily the result of higher net repayments on the Revolving Loan Facility of $124 million, partially offset by higher net borrowings of $35 million on the Accounts Receivable Securitization Facility and higher net borrowings on notes payable of $7 million. In addition, we made $59 million in repayments of debt under the 2009 Senior Secured Credit Facility in the nine months of 2010 that did not recur in the nine months of 2011. We also received higher proceeds from stock options exercised of $13 million, partially offset by higher payments of $2 million in the nine months of 2011 to amend our credit facilities that did not occur in the nine months of 2010.
Cash and Cash Equivalents
As of October 1, 2011 and January 1, 2011, cash and cash equivalents were $48 million and $44 million, respectively. The higher cash and cash equivalents as of October 1, 2011 was primarily the result of net cash provided by financing activities of $97 million, partially offset by net cash used in investing activities of $65 million and net cash used in operating activities of $27 million.
Financing Arrangements
In February 2011, we amended the 2009 Senior Secured Credit Facility, which includes the Revolving Loan Facility, to reflect improved debt ratings. This amendment reduced the interest rate, extended the maturity date by two years to December 10, 2015, and increased the flexibility of debt covenants and the use of excess cash flow. In addition, the commitment fee for the unused portion of revolving loan commitments was reduced from 75 basis points to 50 basis points. Further, the applicable margin pricing grid for the loans, which varies based on the Companys Leverage Ratio (as defined below), was reduced by 125 basis points at each applicable Leverage Ratio level.
Pursuant to this amendment, the ratio of total debt to EBITDA (the Leverage Ratio) that we may not exceed was increased from 4.00 to 1 for each fiscal quarter ending between October 16, 2010 and April 15, 2011 to 4.50 to 1, and will decline over time to 3.75 to 1. Also, the minimum ratio of EBITDA to consolidated total interest expense that we are required to maintain was decreased from 3.25 to 1 for each fiscal quarter ending between July 16, 2011 and October 15, 2012 to 3.00 to 1 and will increase over time to 3.25 to 1. In addition, we will be required to maintain a maximum ratio of senior secured indebtedness to EBITDA, which for each fiscal quarter ending between October 16, 2010 and October 15, 2012 cannot exceed 2.50 to 1 and will decline over time to 2.00 to 1. The methods of calculating all of the components used in these ratios are included in the 2009 Senior Secured Credit Facility. This amendment also significantly increased the flexibility of the indebtedness, investment and restricted payments baskets and use of excess cash flow under the 2009 Senior Secured Credit Facility.
In January 2011, we amended the Accounts Receivable Securitization Facility to provide for two of the subsidiaries acquired by us in the Gear for Sports acquisition, in addition to Hanesbrands, to sell, on a revolving basis, certain domestic trade receivables pursuant to this facility. Prior to this amendment, the Accounts Receivable Securitization Facility contained the same financial ratio provisions as those contained in the 2009 Senior Secured Credit Facility. Pursuant to this amendment, we are required to maintain the financial ratios and other financial covenants contained from time to time in the 2009 Senior Secured Credit Facility, provided that any changes to such covenants after the date of this amendment will only be applicable for purposes of the Accounts Receivable Securitization Facility if approved by the managing agents under the Accounts Receivable Securitization Facility or their affiliates. This amendment also provided for certain other amendments to the Accounts Receivable Securitization Facility, including extending the termination date to March 31, 2011. In connection with this amendment, certain fees were due to the managing agents and certain fees payable to the committed purchasers and the conduit purchasers were decreased.
We also amended the Accounts Receivable Securitization Facility in March 2011. In order to take greater advantage of favorable interest rates, the amount of funding available under the Accounts Receivable
44
Securitization Facility, which was initially $250 million and which we reduced to $150 million effective February 2010, was increased to $225 million. This amendment also provided for certain other amendments to the Accounts Receivable Securitization Facility, including extending the termination date to March 16, 2012. In addition, certain of the factors that contribute to the overall availability of funding were modified in a manner that, taken together, could result in an increase in the amount of funding that will be available under the facility.
As of October 1, 2011, we were in compliance with all financial covenants under our credit facilities. We expect to maintain compliance with our covenants for the foreseeable future, however economic conditions or the occurrence of events discussed under Risk Factors in our Annual Report on Form 10-K or other SEC filings could cause noncompliance.
There have been no other significant changes in the financing arrangements from those described in our Annual Report on Form 10-K for the year ended January 1, 2011.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with accounting principles generally accepted in the United States. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, titled Summary of Significant Accounting Policies, to our financial statements included in our Annual Report on Form 10-K for the year ended January 1, 2011.
The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our financial statements, or are the most sensitive to change from outside factors, are discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 1, 2011. There have been no material changes in these policies during the quarter ended October 1, 2011.
Recently Issued Accounting Pronouncements
Fair Value Measurements
In May 2011, the Financial Accounting Standards Board (the FASB) issued new accounting rules related to fair value measurements. The new accounting rules clarify some existing concepts, eliminate wording differences between accounting principles generally accepted in the United States of America (GAAP) and International Financial Reporting Standards (IFRS), and in some limited cases, change some principles to achieve convergence between GAAP and IFRS. The new accounting rules result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. The new accounting rules also expand the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The new accounting rules will be effective for us beginning after December 15, 2011. We do not expect the adoption of the new accounting rules to have a material effect on our financial condition, results of operations or cash flows.
Presentation of Comprehensive Income
In June 2011, the FASB issued new accounting rules that require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. The new accounting rules eliminate the option to present components of other comprehensive income as part of the statement of equity. The new accounting rules will be effective for us beginning after December 15, 2011. We do not expect the adoption of the new accounting rules to have a material effect on our financial condition, results of operations or cash flows.
45
Goodwill Impairment Testing
In September 2011, the FASB issued new accounting rules related to testing goodwill for impairment. The new accounting rules permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. The new accounting rules will be effective for us beginning after December 15, 2011. We do not expect the adoption of the new accounting rules to have a material effect on our financial condition, results of operations or cash flows.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
There have been no significant changes in our market risk exposures from those described in Item 7A of our Annual Report on Form 10-K for the year ended January 1, 2011.
Item 4. | Controls and Procedures |
As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
46
Item 1. | Legal Proceedings |
Although we are subject to various claims and legal actions that occur from time to time in the ordinary course of our business, we are not party to any pending legal proceedings that we believe could have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 1A. | Risk Factors |
No updates to report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
The exhibits listed in the accompanying Exhibit Index are filed or furnished as part of this Quarterly Report on Form 10-Q.
47
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HANESBRANDS INC. | ||
By: | /s/ Richard D. Moss | |
Richard D. Moss | ||
Chief Financial Officer |
Date: November 3, 2011
48
Exhibit |
Description | |
3.1 | Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
3.2 | Articles Supplementary (Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.2 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
3.3 | Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2008). | |
3.4 | Certificate of Formation of BA International, L.L.C. (incorporated by reference from Exhibit 3.4 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.5 | Limited Liability Company Agreement of BA International, L.L.C. (incorporated by reference from Exhibit 3.5 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.6 | Certificate of Incorporation of Caribesock, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.6 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.7 | Bylaws of Caribesock, Inc. (incorporated by reference from Exhibit 3.7 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.8 | Certificate of Incorporation of Caribetex, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.8 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3 .9 | Bylaws of Caribetex, Inc. (incorporated by reference from Exhibit 3.9 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.10 | Certificate of Formation of CASA International, LLC (incorporated by reference from Exhibit 3.10 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.11 | Limited Liability Company Agreement of CASA International, LLC (incorporated by reference from Exhibit 3.11 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.12 | Amended and Restated Certificate of Incorporation of CC Products, Inc. (incorporated by reference from Exhibit 3.50 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.13 | Amended and Restated Bylaws of CC Products, Inc. (incorporated by reference from Exhibit 3.51 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.14 | Certificate of Incorporation of Ceibena Del, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.12 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-1
Exhibit |
Description | |
3.15 | Bylaws of Ceibena Del, Inc. (incorporated by reference from Exhibit 3.13 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.16 | Articles of Incorporation of Event 1, Inc. (incorporated by reference from Exhibit 3.52 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.17 | Amended and Restated By-Laws of Event 1, Inc. (incorporated by reference from Exhibit 3.53 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.18 | Amended Certificate of Incorporation of GearCo, Inc. (incorporated by reference from Exhibit 3.44 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.19 | Amended and Restated Bylaws of GearCo, Inc. (incorporated by reference from Exhibit 3.45 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.20 | Third Amended and Restated Certificate of Incorporation of GFSI Holdings, Inc. (incorporated by reference from Exhibit 3.46 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.21 | Amended and Restated Bylaws of GFSI Holdings, Inc. (incorporated by reference from Exhibit 3.47 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.22 | Amended and Restated Certificate of Incorporation of GFSI, Inc. (incorporated by reference from Exhibit 3.48 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.23 | Amended and Restated Bylaws of GFSI, Inc. (incorporated by reference from Exhibit 3.49 to the Registrants Registration Statement on Form S-4 (Commission file number 333-171114) filed with the Securities and Exchange Commission on December 10, 2010). | |
3.24 | Certificate of Formation of Hanes Menswear, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act and Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.14 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.25 | Limited Liability Company Agreement of Hanes Menswear, LLC (incorporated by reference from Exhibit 3.15 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.26 | Certificate of Incorporation of HPR, Inc., together with Certificate of Merger of Hanes Puerto Rico, Inc. into HPR, Inc. (now known as Hanes Puerto Rico, Inc.) (incorporated by reference from Exhibit 3.16 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.27 | Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference from Exhibit 3.17 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.28 | Articles of Organization of Sara Lee Direct, LLC, together with Articles of Amendment reflecting the change of the entitys name to Hanesbrands Direct, LLC (incorporated by reference from Exhibit 3.18 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-2
Exhibit |
Description | |
3.29 | Limited Liability Company Agreement of Sara Lee Direct, LLC (now known as Hanesbrands Direct, LLC) (incorporated by reference from Exhibit 3.19 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.30 | Certificate of Incorporation of Sara Lee Distribution, Inc., together with Certificate of Amendment of Certificate of Incorporation of Sara Lee Distribution, Inc. reflecting the change of the entitys name to Hanesbrands Distribution, Inc. (incorporated by reference from Exhibit 3.20 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.31 | Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands Distribution, Inc.) (incorporated by reference from Exhibit 3.21 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.32 | Certificate of Formation of HBI Branded Apparel Enterprises, LLC (incorporated by reference from Exhibit 3.22 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.33 | Operating Agreement of HBI Branded Apparel Enterprises, LLC (incorporated by reference from Exhibit 3.23 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.34 | Certificate of Incorporation of HBI Branded Apparel Limited, Inc. (incorporated by reference from Exhibit 3.24 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.35 | Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by reference from Exhibit 3.25 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.36 | Certificate of Formation of HbI International, LLC (incorporated by reference from Exhibit 3.26 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.37 | Limited Liability Company Agreement of HbI International, LLC (incorporated by reference from Exhibit 3.27 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.38 | Certificate of Formation of SL Sourcing, LLC, together with Certificate of Amendment to the Certificate of Formation of SL Sourcing, LLC reflecting the change of the entitys name to HBI Sourcing, LLC (incorporated by reference from Exhibit 3.28 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.39 | Limited Liability Company Agreement of SL Sourcing, LLC (now known as HBI Sourcing, LLC) (incorporated by reference from Exhibit 3.29 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.40 | Certificate of Formation of Inner Self LLC (incorporated by reference from Exhibit 3.30 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.41 | Limited Liability Company Agreement of Inner Self LLC (incorporated by reference from Exhibit 3.31 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.42 | Certificate of Formation of Jasper-Costa Rica, L.L.C. (incorporated by reference from Exhibit 3.32 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-3
Exhibit |
Description | |
3.43 | Amended and Restated Limited Liability Company Agreement of Jasper-Costa Rica, L.L.C. (incorporated by reference from Exhibit 3.33 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.44 | Certificate of Formation of Playtex Dorado, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act (incorporated by reference from Exhibit 3.36 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.45 | Amended and Restated Limited Liability Company Agreement of Playtex Dorado, LLC (incorporated by reference from Exhibit 3.37 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.46 | Certificate of Incorporation of Playtex Industries, Inc. (incorporated by reference from Exhibit 3.38 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.47 | Bylaws of Playtex Industries, Inc. (incorporated by reference from Exhibit 3.39 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.48 | Certificate of Formation of Seamless Textiles, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act (incorporated by reference from Exhibit 3.40 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.49 | Limited Liability Company Agreement of Seamless Textiles, LLC (incorporated by reference from Exhibit 3.41 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.50 | Certificate of Incorporation of UPCR, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.42 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.51 | Bylaws of UPCR, Inc. (incorporated by reference from Exhibit 3.43 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.52 | Certificate of Incorporation of UPEL, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.44 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.53 | Bylaws of UPEL, Inc. (incorporated by reference from Exhibit 3.45 to the Registrants Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
10.1 | Retention Plan Award Agreement between the Registrant and Richard D. Moss dated June 28, 2011.* | |
10.2 | Severance/Change in Control Agreement dated November 3, 2011 between the Registrant and Richard D. Moss.* | |
31.1 | Certification of Richard A. Noll, Chief Executive Officer. | |
31.2 | Certification of Richard D. Moss, Chief Financial Officer. | |
32.1 | Section 1350 Certification of Richard A. Noll, Chief Executive Officer. | |
32.2 | Section 1350 Certification of Richard D. Moss, Chief Financial Officer. |
E-4
Exhibit Number |
Description | |
101.INS XBRL | Instance Document** | |
101.SCH XBRL | Taxonomy Extension Schema Document** | |
101.CAL XBRL | Taxonomy Extension Calculation Linkbase Document** | |
101.LAB XBRL | Taxonomy Extension Label Linkbase Document** | |
101.PRE XBRL | Taxonomy Extension Presentation Linkbase Document** | |
101.DEF XBRL | Taxonomy Extension Definition Linkbase Document** |
* | Agreement relates to executive compensation. |
** | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
E-5
Confidential | Exhibit 10.1 |
Richard D Moss
Chief Treasury & Tax Officer
Retention Plan Award Agreement
| Richard D Moss will be provided a cash Retention Plan Award Agreement. The specific provisions of this Retention Plan Award Agreement (the Retention Award) are as follows: |
| The Retention Award amount is $275,000 USD (less applicable taxes). |
| The Retention Plan is in effect from May 12, 2011 through August 1, 2012. |
| This Retention Award will be paid in cash (less applicable taxes) as soon as administratively possible after August 1, 2012. |
| The employee must be in an active status to receive the payment. |
| Eligibility for this Retention Award is contingent upon strict confidentiality of the terms of this retention plan during and following the Retention Plan period. |
| In the event of involuntary termination with severance, the employee is eligible for full payment. The payment will be made as soon as administratively possible after the termination date. |
| If the employee resigns or is involuntarily terminated for cause prior to the end of the retention period, the employee will forfeit this award. |
| In case of death or total disability, the employee or employees estate is eligible for a pro-rata portion based upon employees period of active service during the retention period. The payment will be made as soon as administratively possible after the date or death of total disability. |
Signatures:
/s/ Richard D. Moss |
6/28/11 | |
Richard D. Moss Chief Treasury & Tax Officer |
Date | |
/s/ Kevin W. Oliver |
6/15/11 | |
Kevin W. Oliver Chief Human Resources Officer |
Date | |
/s/ Richard A. Noll |
6/22/11 | |
Richard A. Noll Chairman & Chief Executive Officer |
Date | |
/s/ AD 6/14/11 |
||
Annamarie DSouza Initials |
Confidential |
Confidentiality Agreement
for
Richard D Moss
By signing below, you agree that:
1. In consideration of the cash Retention Award, and unless required by law, you will not disclose the existence of the Retention Award or disclose any details of the Retention Award to any third party or entity, except your attorney, tax preparer, accountant, financial planner, spouse, or domestic partner, but only with the understanding that they, too, are strictly bound by this confidentiality provision.
2. You understand that any failure to abide by this Confidentiality Agreement will result in immediate forfeiture and clawback of the entire Retention Award. Your repayment to Hanesbrands Inc. of the entire Award will be due within 30 days after notice by Hanesbrands of your breach/violation of this agreement.
3. You understand that any failure to abide by this Confidentiality Agreement may lead to disciplinary action.
4. The covenants set forth in this agreement will survive and be enforceable in law and/or equity after your resignation or termination of employment.
5. If any provision of this letter Agreement is invalid or unenforceable, the remaining provisions will continue in effect.
6. This Confidentiality Agreement constitutes the entire Agreement regarding its subject matter, and may not be modified or amended in any way except in writing and shall be governed by the law of the State of North Carolina. If legal action is brought at any time based on any claim arising out of, or relating to this Agreement, you agree to submit to the jurisdiction and venue of the state courts of Forsyth County, North Carolina or the federal district court for the Middle District of North Carolina and agree that such courts shall have exclusive jurisdiction and venue of such action.
7. This Confidentiality Agreement is in force until your resignation or earlier termination from Hanesbrands. This cash retention award will be in the amount of $275,000 (less applicable taxes) and paid as soon as administratively possible after August 1, 2012.
The undersigned acknowledges that she has read and understands this Agreement and signs this Agreement intending to be bound by its terms as of the effective date written below.
AGREED as of this of , 20 .
Signatures:
/s/ Richard D. Moss |
6/28/11 | |
Richard D. Moss Chief Treasury & Tax Officer |
Date | |
/s/ Kevin W. Oliver |
6/19/11 | |
Kevin W. Oliver Chief Human Resources Officer |
Date | |
/s/ AD 6/14/11 |
||
Annamarie DSouza Initials |
Exhibit 10.2
SEVERANCE/CHANGE IN CONTROL AGREEMENT
THIS SEVERANCE/CHANGE IN CONTROL AGREEMENT (the Agreement), is made and entered into this 3rd day of November 2011, by and between Hanesbrands Inc., a Maryland corporation (the Company), and Richard D. Moss (Executive).
WHEREAS, Executive is an employee of Company, Company desires to foster the continuous employment of Executive and has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of Executive to his duties free from distractions which could arise in anticipation of an involuntary termination of employment or a Change in Control of Company;
NOW, THEREFORE, in consideration of the mutual agreements herein set forth, Company and Executive agree as follows:
1. Term and Nature of Agreement. This Agreement shall commence on the date it is fully executed (Execution Date) by all parties and shall continue in effect unless the Company gives at least eighteen (18) months prior written notice that this Agreement will not be renewed. In the event of such notice, this Agreement will expire on the next anniversary of the Execution Date that is at least eighteen (18) months after the date of such notice. Notwithstanding the foregoing, if a Change in Control occurs during any term of this Agreement, the term of this Agreement shall be extended automatically for a period of twenty-four (24) months after the end of the month in which the Change in Control occurs. Except to the extent otherwise provided, the parties intend for this Agreement to be construed and enforced as an unfunded welfare benefit plan under the Employee Retirement Income Security Act of 1974, as amended (ERISA), including without limitation the jurisdictional provisions of ERISA.
2. Involuntary Termination Benefits. Executive shall be eligible for severance benefits upon an involuntary termination of employment under the terms and conditions specified in this section 2.
(a) | Eligibility for Severance. |
(i) | Eligible Terminations. Subject to subparagraph (a)(ii) below, Executive shall be eligible for severance payments and benefits under this section 2 if his employment terminates under one of the following circumstances: |
(A) | Executives employment is terminated involuntarily without Cause (defined in subparagraph 2(a)(ii)(A)); or |
(B) | Executive terminates his or her employment at the request of Company. |
(ii) | Ineligible Terminations. Notwithstanding subparagraph (a)(i) next above, Executive shall not be eligible for any severance payments or benefits under this section 2 if his employment terminates under any of the following circumstances: |
(A) | A termination for Cause. For purposes of this Agreement, Cause means Executive has been convicted of (or pled guilty or no contest to) a felony or any crime involving fraud, embezzlement, theft, misrepresentation of financial impropriety; has willfully engaged in misconduct resulting in material harm to Company; has willfully failed to substantially perform duties after written notice; or is in willful violation of Company policies resulting in material harm to Company; |
(B) | A termination as the result of Disability. For purposes of this Agreement Disability shall mean a determination under Companys disability plan covering Executive that Executive is disabled; |
(C) | A termination due to death; |
(D) | A termination due to Retirement. For purposes of this Agreement Retirement shall mean Executives voluntary termination of employment on or after Executives attainment of the normal retirement age as defined in the Hanesbrands Inc. Pension and Retirement Plan (the Retirement Plan); |
(E) | A voluntary termination of employment other than at the request of Company; |
(F) | A termination following which Executive is immediately offered and accepts new employment with Company, or becomes a non-executive member of the Board; |
(G) | The transfer of Executives employment to a subsidiary or affiliate of Company with his consent; |
(H) | A termination of employment that qualifies Executive to receive severance payments or benefits under section 3 below following a Change in Control; or |
(I) | Any other termination of employment under circumstances not described in subparagraph 2(a)(i). |
(iii) | Characterization of Termination. The characterization of Executives termination shall be made by the Committee (as defined in section 5 below) which determination shall be final and binding. |
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(iv) | Termination Date. For purposes of this section 2, Executives Termination Date shall mean the date specified in the separation and release agreement described under section 2(e) below. |
(b) | Severance Benefits Payable. If Executive is terminated under circumstances described in subparagraph 2(a)(i), and not described in subparagraph 2(a)(ii), then in lieu of any benefits payable under any other severance plan of the Company of any type and in consideration of the separation and release agreement and the covenants contained herein, the following shall apply: |
(i) | Executive shall be entitled to receive his Base Salary (the Salary Portion of Severance) during the Severance Period, payable as provided in section 2(c). The Severance Period shall mean the number of months determined by multiplying the number of Executives full years of employment with Company or any subsidiary or affiliate of Company (including periods of employment with Sara Lee Corporation) by two; provided, however, that in no event shall the Severance Period be less than twelve months or more than twenty-four months. Base Salary shall mean the annual salary in effect for Executive immediately prior to his Termination Date. At the discretion of the Committee, Executive may receive an additional salary portion in an amount equal to as much as 100% of Executives target bonus under the Annual Incentive Plan. |
(ii) | Executive shall receive a pro-rata amount (determined based upon the number of days from the first day of the Companys current fiscal year to Executives Termination Date divided by the total number of days in the applicable performance period and based on actual performance and achievement of any performance goals) of: |
(A) | The annual incentive, if any, payable under the Annual Incentive Plan in effect with respect to the fiscal year or Short Year in which the Termination Date occurs based on actual fiscal year performance (the Annual Incentive Portion of Severance). Annual Incentive Plan means the Hanesbrands Inc. annual incentive plan in which Executive participates as of the Termination Date; and |
(B) | The long-term incentive payable under the Omnibus Plan in effect on Executives Termination Date for any performance period or cycle that is at least fifty (50) percent completed prior to Executives Termination Date and which relates to the period of his service prior to his Termination Date. The Omnibus Plan means the Hanesbrands Inc. Omnibus Incentive Plan of 2006, as amended from time to time, and any successor plan or plans. The long-term incentive described in this section (Long-Term Cash Incentive Plan) includes cash long-term incentives, but does not include stock options, RSUs, or other equity awards. |
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Such amounts shall be payable as provided in section 2(c). Treatment of stock options, RSUs, or other equity awards shall be determined pursuant to the Executives award agreement(s). Executive shall not be eligible for any new Annual Incentive Plan grants, Long-Term Cash Incentive Plan grants, or any other grants of stock options, RSUs, or other equity awards under the Omnibus Plan during the Severance Period. |
(iii) | Beginning on his Termination Date, Executive shall be eligible to elect continued coverage under the group medical and dental plan available to similarly situated senior executives. If Executive elects continuation coverage for medical coverage, dental coverage or both, he shall pay the entire COBRA premium charged for such continuation coverage during the Severance Period; provided, however, that during the Severance Period Company shall reimburse Executive for that portion of the COBRA premium paid that exceeds the amount payable by an active executive of Company for similar coverage, as adjusted from time to time. Such reimbursement shall be made to Executive on the 20th day of each calendar month during the Severance Period, or within ten (10) business days thereafter. The amount eligible for reimbursement under this subparagraph in any calendar year shall not affect any amounts eligible for reimbursement to be provided in any other calendar year. In addition, Executives right to reimbursement hereunder shall not be subject to liquidation or exchange for any other benefit. Executives right to COBRA continuation coverage under any such group health plan shall be reduced by the number of months of medical and dental coverage otherwise provided pursuant to this subparagraph. The premium charged for any continuation coverage after the end of the Severance Period shall be entirely at Executives expense and shall be the actuarially determined cost of the continuation coverage as determined by an actuary selected by the Company (in accordance with the requirements under COBRA, to the extent applicable). Executive shall not be entitled to reimbursement of any portion of the premium charged for such coverage after the end of the Severance Period. Executives COBRA continuation coverage shall terminate in accordance with the COBRA continuation of coverage provisions under Companys group medical and dental plans. If Executive is eligible for early retirement under the terms of the Retirement Plan (or would become eligible if the Severance Period is considered as employment), then, after exhausting any COBRA continuation coverage under the group medical plan, Executive may elect to participate in any retiree medical plan available to similarly situated senior executives in accordance with the terms and conditions of such plan in effect on and after Executives Termination Date; provided, that such retiree medical coverage shall not be available to Executive unless he or she elects such coverage within thirty (30) days following his Termination Date. The premium charged for such retiree medical coverage may be different (greater) than the premium charged an active employee for similar coverage; |
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(iv) | Except as otherwise provided herein or in the applicable plan, participation in all other Company plans available to similarly situated senior executives including but not limited to, qualified pension plans, stock purchase plans, matching grant programs, 401(k) plans and ESOPs, personal accident insurance, travel accident insurance, short and long term disability insurance, and accidental death and dismemberment insurance, shall cease on Executives Termination Date. During the Severance Period, Company shall continue to maintain life insurance covering Executive under Companys Executive Life Insurance Plan in accordance with its terms. If Executive is eligible for early retirement or becomes eligible for early retirement during the Severance Period, then Company will continue to pay the premiums (or prepay the entire premium) so that Executive has a paid-up life insurance benefit equal to his annual salary on his Termination Date. |
(c) | Payment of Severance. Subject to section 15: |
(i) | Salary Portion. The Salary Portion of Severance shall be paid as follows: |
(A) | That portion of the Salary Portion of Severance that exceeds the Separation Pay Limit, if any, shall be paid to Executive in a lump sum payment as soon as practicable following the Termination Date, but in no event later than the fifteenth day of the third month after the date of the termination of Executives employment. The Separation Pay Limit shall mean two (2) times the lesser of (1) the sum of Executives annualized compensation based upon the annual rate of pay for services provided to Company for the calendar year immediately preceding the calendar year in which the Termination Date occurs (adjusted for any increase during that calendar year that was expected to continue indefinitely if Executive had not terminated employment); and (2) the maximum dollar amount of compensation that may be taken into account under a tax-qualified retirement plan under Code Section 401(a)(17) for the year in which the Termination Date occurs. The payment to be made to Executive pursuant to this subparagraph (A) is intended to be exempt from Code Section 409A (as defined in section 15) under the exemption found in Regulation Section 1.409A-(b)(4) for short-term deferrals. |
(B) | The remaining portion of the Salary Portion of Severance shall be paid during the Severance Period in accordance with Companys payroll schedule, unless the Committee shall elect to pay the remaining Salary Portion of Severance in a lump sum payment or a combination of regular payments and a lump sum payment. Any lump sum payment shall be paid to Executive as soon as practicable following the Termination Date, but in no event later |
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than the fifteenth day of the third month after the date of the termination of Executives employment. Notwithstanding the foregoing, in no event shall such remaining portion of the Salary Portion of Severance be paid to Executive later than December 31 of the second calendar year following the calendar year in which Executives Termination Date occurs. The payment(s) to be made to Executive pursuant to this subparagraph (B) are intended to be exempt from Code Section 409A (as defined in section 15) under the exemption found in Regulation Section 1.409A-1(b)(9)(iii) for separation pay plans (i.e., the so-called two times pay exemption). |
(ii) | Incentive Portion. The Annual Incentive Portion of Severance, if any, shall be paid in cash on the same date the active participants under the Annual Incentive Plan are paid. The Long-Term Cash Incentive Plan payout, if any, shall be paid in the same form and on the same date the active participants under the Omnibus Plan are paid. |
(iii) | Withholding. All payments hereunder shall be reduced by such amount as Company (or any subsidiary or affiliate of Company) may be required under all applicable federal, state, local or other laws or regulations to withhold or pay over with respect to such payment. |
(d) | Termination of Benefits. Notwithstanding any provisions in this Agreement to the contrary, all rights to receive or continue to receive severance payments and benefits under this section 2 shall cease on the earliest of: (i) the date Executive breaches any of the covenants in the separation and release agreement described in section 2(e); or (ii) the date Executive becomes reemployed by Company or any of its subsidiaries or affiliates. |
(e) | Separation and Release Agreement. No benefits under this section 2 shall be payable to Executive unless Executive and Company have executed a separation and release agreement within forty-five (45) days following the Termination Date and the payment of severance benefits under this section 2 shall be subject to the terms and conditions of the separation and release agreement. |
(f) | Death of Executive. In the event that Executive shall die prior to the payment in full of any benefits described above as payable to Executive for Involuntary Termination, payments of such benefits shall cease on the date of Executives death. |
3. Change in Control Benefits.
(a) | Eligibility for Change in Control Benefits. |
(i) | Eligible Terminations. If (A) within three (3) months preceding a Change in Control, the Executives employment is terminated by the Company at the request of a third party in contemplation of a Change in |
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Control, (B) within twenty-four (24) months following a Change in Control, Executives employment is terminated by Company other than on account of Executives death, disability or retirement and other than for Cause, or (C) within twenty-four (24) months following a Change in Control Executive voluntarily terminates his employment for Good Reason, Executive shall be entitled to the Change in Control benefits as described in section 3(b) below. |
(ii) | Good Reason. For purposes of this section 3, Good Reason means the occurrence of any one or more of the following (without Executives written consent after a Change in Control): |
(A) | A material adverse change in Executives duties or responsibilities; |
(B) | A reduction in Executives annual base salary except any reduction of not more than ten (10) percent; |
(C) | A material reduction in Executives level of participation in any of Companys short- and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices or arrangements in which Executive participates except for any reduction applicable to all senior executives; |
(D) | The failure of any successor to Company to assume and agree to perform this Agreement; or |
(E) | Companys requiring Executive to be based at an office location which is at least fifty (50) miles from his or her office location at the time of the Change in Control. |
The existence of Good Reason shall not be affected by Executives temporary incapacity due to physical or mental illness not constituting a Disability. Executives retirement shall constitute a waiver of his or her rights with respect to any circumstance constituting Good Reason. Executives continued employment shall not constitute a waiver of his or her rights with respect to any circumstances which may constitute Good Reason; provided, however, that Executive may not rely on any particular action or event described in clause (A) through (E) above as a basis for terminating his employment for Good Reason unless he delivers a Notice of Termination based on that action or event within ninety (90) days after its occurrence and Company has failed to correct the circumstances cited by Executive as constituting Good Reason within thirty (30) days of receiving the Notice of Termination. |
(iii) | Change in Control. For purposes of this Agreement, a Change in Control will occur: |
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(A) | Upon the acquisition by any individual, entity or group, including any Person (as defined in the United States Securities Exchange Act of 1934, as amended (the Exchange Act)), of beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of twenty (20) percent or more of the combined voting power of the then outstanding capital stock of Company that by its terms may be voted on all matters submitted to stockholders of Company generally (Voting Stock); provided, however, that the following acquisitions shall not constitute a Change in Control: |
1) | Any acquisition directly from Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities unless such outstanding convertible or exchangeable securities were acquired directly from Company); |
2) | Any acquisition by Company; |
3) | Any acquisition by an employee benefit plan (or related trust) sponsored or maintained by Company or any corporation controlled by Company; or |
4) | Any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (1), (2) and (3) of subparagraph 3(a)(iii)(B) below shall be satisfied; and provided further that, for purposes of clause (2) immediately above, if (i) any Person (other than Company or any employee benefit plan (or related trust) sponsored or maintained by Company or any corporation controlled by Company) shall become the beneficial owner of twenty (20) percent or more of the Voting Stock by reason of an acquisition of Voting Stock by Company, and (ii) such Person shall, after such acquisition by Company, become the beneficial owner of any additional shares of the Voting Stock and such beneficial ownership is publicly announced, then such additional beneficial ownership shall constitute a Change in Control; or |
(B) | Upon the consummation of a reorganization, merger or consolidation of Company, or a sale, lease, exchange or other transfer of all or substantially all of the assets of Company; excluding, however, any such reorganization, merger, |
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consolidation, sale, lease, exchange or other transfer with respect to which, immediately after consummation of such transaction: |
1) | All or substantially all of the beneficial owners of the Voting Stock of Company outstanding immediately prior to such transaction continue to beneficially own, directly or indirectly (either by remaining outstanding or by being converted into voting securities of the entity resulting from such transaction), more than fifty (50) percent of the combined voting power of the voting securities of the entity resulting from such transaction (including, without limitation, Company or an entity which as a result of such transaction owns Company or all or substantially all of Companys property or assets, directly or indirectly) (the Resulting Entity) outstanding immediately after such transaction, in substantially the same proportions relative to each other as their ownership immediately prior to such transaction; and |
2) | No Person (other than any Person that beneficially owned, immediately prior to such reorganization, merger, consolidation, sale or other disposition, directly or indirectly, Voting Stock representing twenty (20) percent or more of the combined voting power of Companys then outstanding securities) beneficially owns, directly or indirectly, twenty (20) percent or more of the combined voting power of the then outstanding securities of the Resulting Entity; and |
3) | At least a majority of the members of the board of directors of the entity resulting from such transaction were members of the board of directors of Company (the Board) at the time of the execution of the initial agreement or action of the Board authorizing such reorganization, merger, consolidation, sale or other disposition; or |
(C) | Upon the consummation of a plan of complete liquidation or dissolution of Company; or |
(D) | When the Initial Directors cease for any reason to constitute at least a majority of the Board. For this purpose, an Initial Director shall mean those individuals serving as the directors of Company as of the date of this Agreement; provided, however, that any individual who becomes a director of Company at or after the first annual meeting of stockholders of Company whose election, or nomination for election by the Companys stockholders, was approved by the vote of at least a majority of the Initial Directors |
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then comprising the Board (or by the nominating committee of the Board, if such committee is comprised of Initial Directors and has such authority) shall be deemed to have been an Initial Director; and provided further, that no individual shall be deemed to be an Initial Director if such individual initially was elected as a director of Company as a result of: (1) an actual or threatened solicitation by a Person (other than the Board) made for the purpose of opposing a solicitation by the Board with respect to the election or removal of directors; or (2) any other actual or threatened solicitation of proxies or consents by or on behalf of any Person (other than the Board). |
(iv) | Termination Date. For purposes of this section 3, Termination Date shall mean the date specified in the Notice of Termination as the date on which the conditions giving rise to Executives termination were first met. |
(b) | Change in Control Benefits. In the event Executive becomes entitled to receive benefits under this section 3, the following shall apply: |
(i) | In consideration of Executives covenants hereunder, Executive shall be entitled to receive the following amounts, payable as provided in section 3(j): |
(A) | A lump sum payment equal to the unpaid portion of Executives annual Base Salary and vacation accrued through the Termination Date; |
(B) | A lump sum payment equal to Executives prorated Annual Incentive Plan payment (as determined in accordance with subparagraph 2(b)(ii)(A) above); |
(C) | A lump sum payment equal to Executives prorated Long-Term Cash Incentive Plan payment (as determined in accordance with subparagraph 2(b)(ii)(B) above); and |
(D) | A lump sum payment equal to two times the sum of (1) Executives annual Base Salary; and (2) the greater of (i) Executives target annual incentive (as defined in the Annual Incentive Plan) for the year in which the Change in Control occurs and (ii) Executives average annual incentive calculated over the three (3) fiscal years immediately preceding the year in which the Change in Control occurs; and (3) an amount equal to the Company matching contribution to the defined contribution plan in which Executive is participating at the Termination Date (currently 4%). |
Treatment of stock options, RSUs, or other equity awards shall be determined pursuant to the Executives award agreement(s). Executive shall not be eligible for any new Annual Incentive Plan grants, Long-Term
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Cash Incentive Plan grants, or any other grants of stock options, RSUs, or other equity awards under the Omnibus Plan with respect to the CIC Severance Period as defined immediately below.
(ii) | For a period of 24 months following Executives Termination Date (the CIC Severance Period), Executive shall have the right to elect continuation of the life insurance, personal accident insurance, travel accident insurance and accidental death and dismemberment insurance coverages which insurance coverages shall be provided at the same levels and the same costs in effect immediately prior to the Change in Control. Beginning on his Termination Date, Executive shall be eligible to elect continued coverage under the group medical and dental plan available to similarly situated senior executives. If Executive elects continuation coverage for medical coverage, dental coverage or both, he shall pay the entire COBRA premium charged for such continuation coverage during the CIC Severance Period; provided, however, that during the CIC Severance Period, Company shall reimburse Executive for that portion of the COBRA premium paid that exceeds the amount payable by an active executive of Company for similar coverage, as adjusted from time to time. Such reimbursement shall be made to Executive on the 20th day of each calendar month during the CIC Severance Period, or within ten (10) business days thereafter. The amount eligible for reimbursement under this subparagraph in any calendar year shall not affect any amounts eligible for reimbursement to be provided in any other calendar year. In addition, Executives right to reimbursement hereunder shall not be subject to liquidation or exchange for any other benefit. Executives right to COBRA continuation coverage under any such group health plan shall be reduced by the number of months of coverage otherwise provided pursuant to this subparagraph. The premium charged for any continuation coverage after the end of the CIC Severance Period shall be entirely at Executives expense and shall be the actuarially determined cost of the continuation coverage as determined by an actuary selected by the Company (in accordance with the requirements under COBRA, to the extent applicable). Executive shall not be entitled to reimbursement of any portion of the premium charged for such coverage after the end of the CIC Severance Period. Executives COBRA continuation coverage shall terminate in accordance with the COBRA continuation of coverage provisions under Companys group medical and dental plans. If Executive is eligible for early retirement under the terms of the Retirement Plan (or would become eligible if the CIC Severance Period is considered as employment), then, after exhausting any COBRA continuation coverage under the group medical plan, Executive may elect to participate in any retiree medical plan available to similarly situated senior executives in accordance with the terms and conditions of such plan in effect on and after Executives Termination Date; provided, that such retiree medical coverage shall not be available to Executive unless he or she elects such coverage within thirty (30) days following his Termination Date. The |
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premium charged for such retiree medical coverage may be different from the premium charged an active employee for similar coverage; |
(iii) | If the aggregate benefits accrued by Executive as of the Termination Date under the savings and retirement plans sponsored by Company are not fully vested pursuant to the terms of the applicable plan(s), the difference between the benefits Executive is entitled to receive under such plans and the benefits he would have received had he been fully vested will be provided to Executive under the Hanesbrands Inc. Supplemental Employee Retirement Plan (the Supplemental Plan). In addition, for purposes of determining Executives benefits under the Supplemental Plan and Executives right to post-retirement medical benefits under Companys retiree medical plan, additional years of age and service credits equivalent to the length of the CIC Severance Period shall be included. However, Executive will not be eligible to begin receiving any retirement benefits under any such plans until the date he or she would otherwise be eligible to begin receiving benefits under such plans; |
(iv) | Except as otherwise provided herein or in the applicable plan, participation in all other plans of Company or any subsidiary or affiliate of Company available to similarly situated Executives of Company, shall cease on Executives Termination Date. |
(c) | Termination for Disability. If Executives employment is terminated due to Disability following a Change in Control, Executive shall receive his Base Salary through the Termination Date, at which time his benefits shall be determined in accordance with Companys disability, retirement, insurance and other applicable plans and programs then in effect, and Executive shall not be entitled to any other benefits provided by this Agreement. |
(d) | Termination for Retirement or Death. If Executives employment is terminated by reason of his retirement or death following a Change in Control, Executives benefits shall be determined in accordance with Companys retirement, survivors benefits, insurance, and other applicable programs then in effect, and Executive shall not be entitled to any other benefits provided by this Agreement. |
(e) | Termination for Cause, or Other Than for Good Reason or Retirement. If Executives employment is terminated either by Company for Cause, or voluntarily by Executive (other than for Retirement or Good Reason) following a Change in Control, Company shall pay Executive his full Base Salary and accrued vacation through the Termination Date, at the rate then in effect, plus all other amounts to which such Executive is entitled under any compensation plans of Company, at the time such payments are due, and Company shall have no further obligations to such Executive under this Agreement. |
(f) | Separation and Release Agreement. No benefits under this section 3 shall be payable to Executive unless Executive and Company have executed a Separation |
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and Release Agreement (in substantially the form attached hereto as Exhibit A) within forty-five (45) days following the Termination Date and the payment of change in control benefits under this section 3 shall be subject to the terms and conditions of the Separation and Release Agreement. |
(g) | Deferred Compensation. All amounts previously deferred by or accrued to the benefit of Executive under any nonqualified deferred compensation plan sponsored by Company (including, without limitation, any vested amounts deferred under incentive plans), together with any accrued earnings thereon, shall be paid in accordance with the terms of such plan following Executives termination. |
(h) | Notice of Termination. Any termination of employment under this section 3 by Company or by Executive for Good Reason shall be communicated by a written notice which shall indicate the specific Change in Control termination provision relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated (a Notice of Termination). |
(i) | Termination of Benefits. All rights to receive or continue to receive severance payments and benefits pursuant to this section 3 by reason of a Change in Control shall cease on the date Executive becomes reemployed by Company or any of its subsidiaries or affiliates. |
(j) | Form and Timing of Benefits. Subject to the provisions of this section 3 and to section 15, the Change in Control benefits described herein shall be paid to Executive in cash in a single lump sum payment as soon as practicable following the Termination Date, but in no event later than the fifteenth day of the third month after the date of the Executives termination of employment. The Change in Control benefits payable to Executive pursuant to this subparagraph (j) are intended to be exempt from Code Section 409A (as defined in section 15) under the exemption found in Regulation Section 1.409A-(b)(4) for short-term deferrals. |
(k) | Excise Tax Adjustment. Subject to the limitation below, in the event that Executive becomes entitled to any payment or benefit under this section 3 (such benefits together with any other payments or benefits payable under any other agreement with, or plan or policy of, Company are referred to in the aggregate as the Total Payments), if all or any part of the Total Payments will, as determined by Company, be subject to the tax (the Excise Tax) imposed by Code Section 4999 (or any similar tax that may hereafter be imposed), then such payment shall be either: (i) provided to Executive in full, or (ii) provided to Executive to such lesser extent as would result in no portion of such payment being subject to such Excise Tax, whichever of the foregoing amounts, when taking into account applicable federal, state, local and foreign income and employment taxes, such Excise Tax, and any other applicable taxes, results in the receipt by Executive, on an after-tax basis, of the greatest amount of the payment, notwithstanding that all or some portion of such payment may be taxable under such Excise Tax. To the |
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extent such payment needs to be reduced pursuant to the preceding sentence, reductions shall come from taxable amounts before non-taxable amounts and beginning with the payments otherwise scheduled to occur soonest. Executive agrees to cooperate fully with Company to determine the benefits applicable under this section. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax, and the amounts of such Excise Tax, the following shall apply: |
(i) | Any other payments or benefits received or to be received by Executive in connection with a Change in Control or Executives termination of employment (whether pursuant to the terms of this Agreement or any other plan, policy, arrangement or agreement with Company, or with any Person whose actions result in a Change in Control or any Person affiliated with Company or such Persons) shall be treated as parachute payments within the meaning of Code Section 280G(b)(2), and all excess parachute payments within the meaning of Code Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of Companys tax counsel as supported by Companys independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Code Section 280G(b)(4) in excess of the base amount within the meaning of Code Section 280G(b)(3), or are otherwise not subject to the Excise Tax; |
(ii) | The value of any noncash benefits or any deferred payment or benefit shall be determined by Companys independent auditors in accordance with the principles of Code Sections 280G(d)(3) and (4); |
(iii) | Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation, and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executives residence on the Termination Date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes; and |
(iv) | In the event the Internal Revenue Service adjusts any item included in Companys computations under this section 3(k) so that Executive did not receive the full net benefit intended under the provisions of this section 3(k), Company shall reimburse Executive for the full amount necessary to make Executive whole as determined by the Committee. Any such payment shall be treated for Section 409A purposes as a payment separate from the payment made pursuant to this subparagraph (k) immediately following Executives termination of employment and shall be made by Company to Executive within twenty (20) days of the date he remits the additional taxes as a result of such adjustment; provided, however, that no |
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such payment shall be made following the calendar year after the calendar year in which such adjustment was made by the Internal Revenue Service. |
(l) | Companys Payment Obligation. Subject to the provisions of section 4, Companys obligation to make the payments and the arrangements provided in this section 3 shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which Company may have against Executive or anyone else. All amounts payable by Company under this section 3 shall be paid without notice or demand and each and every payment made by Company shall be final, and Company shall not seek to recover all or any part of such payment from Executive or from whomsoever may be entitled thereto, for any reason except as provided in section 3(k) above or in section 4. |
(m) | Other Employment. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under this section 3, and the obtaining of any such other employment shall in no event result in any reduction of Companys obligations to make the payments and arrangements required to be made under this section 3, except to the extent otherwise specifically provided in this Agreement. |
(n) | Payment of Legal Fees and Expenses. To the extent permitted by law, Company shall reimburse Executive for all reasonable legal fees, costs of litigation or arbitration, prejudgment or pre-award interest, and other expenses incurred in good faith by Executive as a result of Companys refusal to provide benefits under this section 3, or as a result of Company contesting the validity, enforceability or interpretation of the provisions of this section 3, or as the result of any conflict (including conflicts related to the calculation of parachute payments or the characterization of Executives termination) between Executive and Company; provided that the conflict or dispute is resolved in Executives favor and Executive acts in good faith in pursuing his rights under this section 3. Such reimbursement shall be made within thirty (30) days following final resolution, in favor of Executive, of the conflict or dispute giving rise to such fees and expenses. In no event shall Executive be entitled to receive the reimbursements provided for in this subparagraph if he acts in bad faith or pursues a claim without merit, or if he fails to prevail in any action instituted by him or Company. |
(o) | Arbitration for Change in Control Benefits. Any dispute or controversy arising under or in connection with the benefits provided under this section 3 shall promptly and expeditiously be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of such arbitration proceeding utilizing a panel of three (3) arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of his employment with Company. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The costs and expenses of both parties, including, without limitation, attorneys fees shall be |
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borne by Company. Pending the resolution of any such dispute, controversy or claim, Executive (and his beneficiaries) shall, except to the extent that the arbitrator otherwise expressly provides, continue to receive all payments and benefits due under this section 3. |
4. Remedies. In the event of any actual or threatened breach of the provisions of this Agreement or any separation and release agreement, the party who claims such breach or threatened breach shall give the other party written notice and, except in the case of a breach which is not susceptible to being cured, ten calendar days in which to cure. In the event of a breach of any provision of this Agreement or any separation and release agreement by Executive, (i) Executive shall reimburse Company: the full amount of any payments made under section 2(b)(i), (ii), or (iii) or section 3(b)(i) of this Agreement (as the case may be), (ii) Company shall have the right, in addition to and without waiving any other rights to monetary damages or other relief that may be available to Company at law or in equity, to immediately discontinue any remaining payments due under subparagraph 2(b)(i), (ii) or (iii) or subparagraph 3(b)(i) of this Agreement (as the case may be) including but not limited to any remaining Salary Portion of Severance payments, and (iii) the Severance Period or the CIC Severance Period (as the case may be) shall thereupon cease, provided that Executives obligations under, if applicable, any separation and release agreement shall continue in full force and effect in accordance with their terms for the entire duration of the Severance Period or CIC Severance Period as applicable. In addition, Executive acknowledges that Company will suffer irreparable injury in the event of a breach or violation or threatened breach or violation of the provisions of this Agreement or any separation and release agreement and agrees that in the event of an actual or threatened breach or violation of such provisions, in addition to the other remedies or rights available to under this Agreement or otherwise, Company shall be awarded injunctive relief in the federal or state courts located in North Carolina to prohibit any such violation or breach or threatened violation or breach, without necessity of posting any bond or security.
5. Committee. Except as specifically provided herein, this Agreement shall be administered by the Compensation and Benefits Committee of the Board (the Committee). The Committee may delegate any administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of severance/Change in Control benefits, to designated individuals or committees.
6. Claims Procedure. If Executive believes that he is entitled to receive severance benefits under this Agreement, he may file a claim in writing with the Committee within ninety (90) days after the date such Executive believes he or she should have received such benefits. No later than ninety (90) days after the receipt of the claim, the Committee shall either allow or deny the claim in writing. A denial of a claim, in whole or in part, shall be written in a manner calculated to be understood by Executive and shall include the specific reason or reasons for the denial; specific reference to the pertinent provisions of this Agreement on which the denial is based; a description of any additional material or information necessary for Executive to perfect the claim and an explanation of why such material or information is necessary; and an explanation of the claim review procedure. Executive (or his duly authorized representative) may within sixty 60 days after receipt of the denial of his claim request a review upon written application to the Committee; review pertinent documents; and submit issues and comments in writing. The Committee shall notify Executive of its decision on review within sixty (60) days
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after receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one-hundred twenty (120) days after receipt of a request for review. Notice of the decision on review shall be in writing. The Committees decision on review shall be final and binding on Executive and any successor in interest. If Executive subsequently wishes to file a claim under Section 502(a) of ERISA, any legal action must be filed within ninety (90) days of the Committees final decision. Executive must exhaust the claims procedure provided in this section 6 before filing a claim under ERISA with respect to any benefits provided under section 2 of this Agreement.
7. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class, certified or registered mail, postage prepaid, if to Company at Companys principal place of business, and if to Executive, at his home address most recently filed with Company, or to such other address as either party shall have designated in writing to the other party.
8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina without regard to any states conflict of law principles.
9. Severability and Construction. If any provision of this Agreement is declared void or unenforceable or against public policy, such provision shall be deemed severable and severed from this Agreement and the balance of this Agreement shall remain in full force and effect. If a court of competent jurisdiction determines that any restriction in this Agreement is overbroad or unreasonable under the circumstances, such restriction shall be modified or revised by such court to include the maximum reasonable restriction allowed by law.
10. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition.
11. Entire Agreement Modifications. This Agreement (including all exhibits hereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. In the event of any inconsistency between any provision of this Agreement and any provision of any plan, employee handbook, personnel manual, program, policy, arrangement or agreement of Company or any of its subsidiaries or affiliates, the provisions of this Agreement shall control. This Agreement may be modified or amended only by an instrument in writing signed by both parties. Each of the parties hereto has relied on his or its own judgment in entering into this Agreement.
12. Withholding. All payments made to Executive pursuant to this Agreement will be subject to withholding of employment taxes and other lawful deductions, as applicable.
13. Survivorship. Except as otherwise set forth in this Agreement, to the extent necessary to carry out the intentions of the parties hereunder the respective rights and obligations of the parties hereunder shall survive any termination of Executives employment.
14. Successors and Assigns. This Agreement shall bind and shall inure to the benefit of Company and any and all of its successors and assigns. This Agreement is personal to
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Executive and shall not be assignable by Executive. Company may assign this Agreement to any entity which (i) purchases all or substantially all of the assets of Company or (ii) is a direct or indirect successor (whether by merger, sale of stock or transfer of assets) of Company. Any such assignment shall be valid so long as the entity which succeeds to Company expressly assumes Companys obligations hereunder and complies with its terms.
15. Compliance with Code Section 409A. To the extent applicable, it is intended that the payment of benefits described in this Agreement comply with Code Section 409A and all guidance or regulations thereunder (Section 409A), including compliance with all applicable exemptions from Section 409A (e.g., the short-term deferral exception and the two times pay exemption applicable to severance payments). This Agreement will at all times be construed in a manner to comply with Section 409A and should any provision be found not in compliance with Section 409A, Executive hereby agrees to any changes to the terms of this Agreement deemed necessary and required by legal counsel for Company to achieve compliance with Section 409A, including any applicable exemptions. By signing a copy of this Agreement, Executive irrevocably waives any objections he may have to any changes that may be required by Section 409A. In no event will any payment that becomes payable pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A, if any, and does not satisfy any of the applicable exemptions under Section 409A, be accelerated in violation of Section 409A. If Executive is a specified employee as defined in Section 409A, any payment that becomes payable pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A and does not satisfy any of the applicable exemptions under Section 409A may not be made before the date that is six months after Executives separation from service (or death, if earlier). To the extent Executive becomes subject to the six-month delay rule, all payments that would have been made to Executive during the six months following his separation from service that are not otherwise exempt from Section 409A, if any, will be accumulated and paid to Executive during the seventh month following his separation from service, and any remaining payments due will be made in their ordinary course as described in this Agreement. Company will notify Executive should he become subject to the six month delay rule.
IN WITNESS WHEREOF, Company and Executive have duly executed and delivered this Agreement as of the day and year first above written.
EXECUTIVE: Richard D. Moss | HANESBRANDS INC. | |||||||
Signature: |
/s/ Richard D. Moss |
By: | /s/ Kevin W. Oliver | |||||
Title: | Chief Human Resources Officer |
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Exhibit A
MODEL FORM
SEPARATION AND RELEASE AGREEMENT
Hanesbrands Inc. (the Company) and Richard D. Moss (the Executive) enter into this Separation and Release Agreement which was received by Executive on the day of , 20 , signed by Executive on the day of , 20 , and is effective on the day of , 20 (the Effective Date). The Effective Date shall be no less than 7 days after the date signed by Executive.
W I T N E S S E T H:
WHEREAS, Executive has been employed by the Company as a ; and
WHEREAS, Executives employment with the Company is terminated as of , 20 (the Termination Date); and
WHEREAS, pursuant to that certain Severance/Change in Control Agreement between Company and Executive dated , 2011 (the Change in Control Agreement), upon a termination of Executives employment that satisfies the conditions specified in the Change in Control Agreement, Executive is entitled to the benefits described in the Change in Control Agreement provided Executive executes a separation and release agreement acceptable to Company; and
WHEREAS, this separation and release agreement (the Agreement) is intended to satisfy the requirements of the Change in Control Agreement and to form a part of the Change in Control Agreement in such a manner that all the rights, duties and obligations arising between Executive and Company, including, but in no way limited to, any rights, duties and obligations that have arisen or might arise out of or are in any way related to Executives employment with the Company and the conclusion of that employment are settled herein through the joinder of the Change in Control Agreement with this Agreement.
NOW, THEREFORE, in consideration of the obligations of the parties under the Change in Control Agreement and the additional covenants and mutual promises herein contained, it is further agreed as follows:
1. Termination Date. Executive agrees to resign Executives employment and all appointments Executive holds with Company, and its subsidiaries and affiliates, on the Termination Date. Executive understands and agrees that Executives employment with the Company will conclude on the close of business on the Termination Date.
2. Termination Benefits. Executive and Company agree that Executive shall receive the benefits described in the Change in Control Agreement, less all applicable withholding taxes and other customary payroll deductions, provided in the Change in Control Agreement.
3. Receipt of Other Compensation. Executive acknowledges and agrees that, other than as specifically set forth in the Change in Control Agreement or this Agreement, following
the Termination Date, Executive is not and will not be due any compensation, including, but not limited to, compensation for unpaid salary (except for amounts unpaid and owing for Executives employment with Company, its subsidiaries or affiliates prior to the Termination Date), unpaid bonus, severance and accrued or unused vacation time or vacation pay from the Company or any of its subsidiaries or affiliates. Except as provided herein or in the Change in Control Agreement, Executive will not be eligible to participate in any of the benefit plans of the Company after Executives Termination Date. However, Executive will be entitled to receive benefits which are vested and accrued prior to the Termination Date pursuant to the employee benefit plans of the Company. Any participation by Executive (if any) in any of the compensation or benefit plans of the Company as of and after the Termination Date shall be subject to and determined in accordance with the terms and conditions of such plans, except as otherwise expressly set forth in the Change in Control Agreement or this Agreement.
4. Continuing Cooperation. Following the Termination Date, Executive agrees to cooperate with all reasonable requests for information made by or on behalf of Company with respect to the operations, practices and policies of the Company. In connection with any such requests, the Company shall reimburse Executive for all out-of-pocket expenses reasonably and necessarily incurred in responding to such request(s).
5. Executives Representation and Warranty. Executive hereby represents and warrants that, during Executives period of employment with the Company, Executive did not willfully or negligently breach Executives duties as an employee or officer of the Company, did not commit fraud, embezzlement, or any other similar dishonest conduct, and did not violate the Companys business standards.
6. Non-Solicitation and Non-Compete. In consideration of the benefits provided under this Agreement and in the Change in Control Agreement, Executive agrees that during Executives employment and for the duration of the applicable Severance Period as determined pursuant to the terms of the Change in Control Agreement, Executive will not, without the prior written consent of Company, either alone or in association with others, solicit for employment or assist or encourage the solicitation for employment, any employee of Company, or any of its subsidiaries or affiliates; and will not, without the prior written consent of Company, directly or indirectly counsel, advise, perform services for, or be employed by, or otherwise engage or participate in any Competing Business (regardless of whether Executive receives compensation of any kind). For purposes of this Agreement, a Competing Business shall mean any commercial activity which competes or is reasonably likely to compete with any business that the Company conducts, or demonstrably anticipates conducting, at any time during Executives employment.
7. Confidentiality. At all times after the Effective Date, Executive will maintain the confidentiality of all information in whatever form concerning Company or any of its subsidiaries or affiliates relating to its or their businesses, customers, finances, strategic or other plans, marketing, employees, trade practices, trade secrets, know-how or other matters which are not generally known outside Company or any of its subsidiaries or affiliates, and Executive will not, directly or indirectly, make any disclosure thereof to anyone, or make any use thereof, on Executives own behalf or on behalf of any third party, unless specifically requested by or agreed to in writing by an executive officer of Company. In addition, Executive agrees that Executive will not disclose the existence or terms of this Agreement to any third parties with the exception
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of Executives accountants, attorneys, or spouse, and shall ensure that none of them discloses such existence or terms to any other person, except as required to comply with law. Executive will promptly return to Company all reports, files, memoranda, records, computer equipment and software, credit cards, cardkey passes, door and file keys, computer access codes or disks and instructional manuals, and other physical or personal property which Executive received or prepared or helped prepare in connection with Executives employment and Executive will not retain any copies, duplicates, reproductions or excerpts thereof. The obligations of this paragraph 7 shall survive the expiration of this Agreement.
8. Non-Disparagement. At all times after the Effective Date, Executive will not disparage or criticize, orally or in writing, the business, products, policies, decisions, directors, officers or employees of Company or any of its subsidiaries or affiliates to any person. Company also agrees that none of its executive officers will disparage or criticize Executive to any person or entity. The obligations of this paragraph 8 shall survive the expiration of this Agreement.
9. Breach of Agreement. Any actual or threatened breach of this Agreement will be handled as provided in the Change in Control Agreement.
10. Release.
(a) | Executive on behalf of Executive, Executives heirs, executors, administrators and assigns, does hereby knowingly and voluntarily release, acquit and forever discharge Company and any of its subsidiaries, affiliates, successors, assigns and past, present and future directors, officers, employees, trustees and shareholders (the Released Parties) from and against any and all complaints, claims, cross-claims, third-party claims, counterclaims, contribution claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, which, at any time up to and including the date on which Executive signs this Agreement, exists, have existed, or may arise from any matter whatsoever occurring, including, but not limited to, any claims arising out of or in any way related to Executives employment with Company or its subsidiaries or affiliates and the conclusion thereof, which Executive, or any of Executives heirs, executors, administrators, assigns, affiliates, and agents ever had, now has or at any time hereafter may have, own or hold against any of the Released Parties based on any matter existing on or before the date on which Executive signs this Agreement. Executive acknowledges that in exchange for this release, Company is providing Executive with total consideration, financial or otherwise, which exceeds what Executive would have been given without the release. By executing this Agreement, Executive is waiving, without limitation, all claims (except for the filing of a charge with an administrative agency) against the Released Parties arising under federal, state and local labor and antidiscrimination laws, any employment related claims under the employee Retirement Income Security Act of 1974, as amended, and any other restriction on the right to terminate employment, including, without limitation, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of |
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1990, as amended, and the North Carolina Equal Employment Practices Act, as amended. Nothing herein shall release any party from any obligation under this Agreement. Executive acknowledges and agrees that this release and the covenant not to sue set forth in paragraph (c) below are essential and material terms of this Agreement and that, without such release and covenant not to sue, no agreement would have been reached by the parties and no benefits under the Change in Control Agreement would have been paid. Executive understands and acknowledges the significance and consequences of this release and this Agreement. |
(b) | EXECUTIVE SPECIFICALLY WAIVES AND RELEASES THE RELEASED PARTIES FROM ALL CLAIMS EXECUTIVE MAY HAVE AS OF THE DATE EXECUTIVE SIGNS THIS AGREEMENT REGARDING CLAIMS OR RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, 29 U.S.C. § 621 (ADEA). EXECUTIVE FURTHER AGREES: (i) THAT EXECUTIVES WAIVER OF RIGHTS UNDER THIS RELEASE IS KNOWING AND VOLUNTARY AND IN COMPLIANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990; (ii) THAT EXECUTIVE UNDERSTANDS THE TERMS OF THIS RELEASE; (iii) THAT EXECUTIVES WAIVER OF RIGHTS IN THIS RELEASE IS IN EXCHANGE FOR CONSIDERATION THAT WOULD NOT OTHERWISE BE OWING TO EXECUTIVE PURSUANT TO ANY PREEXISTING OBLIGATION OF ANY KIND HAD EXECUTIVE NOT SIGNED THIS RELEASE; (iv) THAT EXECUTIVE HEREBY IS AND HAS BEEN ADVISED IN WRITING BY COMPANY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE; (v) THAT COMPANY HAS GIVEN EXECUTIVE A PERIOD OF AT LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE; (vi) THAT EXECUTIVE REALIZES THAT FOLLOWING EXECUTIVES EXECUTION OF THIS RELEASE, EXECUTIVE HAS SEVEN (7) DAYS IN WHICH TO REVOKE THIS RELEASE BY WRITTEN NOTICE TO THE UNDERSIGNED, AND (vii) THAT THIS ENTIRE AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT IF EXECUTIVE CHOOSES TO SO REVOKE, AND IF EXECUTIVE CHOOSES NOT TO SO REVOKE, THAT THIS AGREEMENT AND RELEASE THEN BECOME EFFECTIVE AND ENFORCEABLE UPON THE EIGHTH DAY AFTER EXECUTIVE SIGNS THIS AGREEMENT. |
(c) | To the maximum extent permitted by law, Executive covenants not to sue or to institute or cause to be instituted any action in any federal, state, or local agency or court against any of the Released Parties, including, but not limited to, any of the claims released this Agreement. Notwithstanding the foregoing, nothing herein shall prevent Executive or any of the Released Parties from filing a charge with an administrative agency, from instituting any action required to enforce the terms of this Agreement, or from challenging the validity of this Agreement. In addition, nothing herein shall be construed to prevent Executive from enforcing any rights Executive may have to recover vested benefits under the Employee Retirement Income Security Act of 1974, as amended. |
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(d) | Executive represents and warrants that: (i) Executive has not filed or initiated any legal, equitable, administrative, or other proceeding(s) against any of the Released Parties; (ii) no such proceeding(s) have been initiated against any of the Released Parties on Executives behalf; (iii) Executive is the sole owner of the actual or alleged claims, demands, rights, causes of action, and other matters that are released in this paragraph 10; (iv) the same have not been transferred or assigned or caused to be transferred or assigned to any other person, firm, corporation or other legal entity; and (v) Executive has the full right and power to grant, execute, and deliver the releases, undertakings, and agreements contained in this Agreement. |
(e) | The consideration offered herein is accepted by Executive as being in full accord, satisfaction, compromise and settlement of any and all claims or potential claims, and Executive expressly agrees that Executive is not entitled to and shall not receive any further payments, benefits, or other compensation or recovery of any kind from Company or any of the other Released Parties. Executive further agrees that in the event of any further proceedings whatsoever based upon any matter released herein, Company and each of the other Released Parties shall have no further monetary or other obligation of any kind to Executive, including without limitation any obligation for any costs, expenses and attorneys fees incurred by or on behalf of Executive. |
11. Executives Understanding. Executive acknowledges by signing this Agreement that Executive has read and understands this document, that Executive has conferred with or had opportunity to confer with Executives attorney regarding the terms and meaning of this Agreement, that Executive has had sufficient time to consider the terms provided for in this Agreement, that no representations or inducements have been made to Executive except as set forth in this Agreement, and that Executive has signed the same KNOWINGLY AND VOLUNTARILY.
12. Non-Reliance. Executive represents to Company and Company represents to Executive that in executing this Agreement they do not rely and have not relied upon any representation or statement not set forth herein made by the other or by any of the others agents, representatives or attorneys with regard to the subject matter, basis or effect of this Agreement, or otherwise.
13. Severability of Provisions. In the event that any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Moreover, if any one or more of the provisions contained in this Agreement are held to be excessively broad as to duration, scope, activity or subject, such provisions will be construed by limiting and reducing them so as to be enforceable to the maximum extent compatible with applicable law.
14. Non-Admission of Liability. Executive agrees that neither this Agreement nor the performance by the parties hereunder constitutes an admission by any of the Released Parties of any violation of any federal, state, or local law, regulation, common law, breach of any contract, or any other wrongdoing of any type.
A-5
15. Assignability. The rights and benefits under this Agreement are personal to Executive and such rights and benefits shall not be subject to assignment, alienation or transfer, except to the extent such rights and benefits are lawfully available to the estate or beneficiaries of Executive upon death. Company may assign this Agreement to any parent, affiliate or subsidiary or any entity which at any time whether by merger, purchase, or otherwise acquires all or substantially all of the assets, stock or business of Company.
16. Choice of Law. This Agreement shall be constructed and interpreted in accordance with the internal laws of the State of North Carolina without regard to any states conflict of law principles.
17. Entire Agreement. This Agreement, together with the Change in Control Agreement, sets forth all the terms and conditions with respect to compensation, remuneration of payments and benefits due Executive from Company and supersedes and replaces any and all other agreements or understandings Executive may have or may have had with respect thereto. This Agreement may not be modified or amended except in writing and signed by both Executive and an authorized representative of Company.
18. Notice. Any notice to be given hereunder shall be in writing and shall be deemed given when mailed by certified mail, return receipt requested, addressed as follows:
To Executive at:
[add address]
To the Company at:
Hanesbrands Inc.
Attention: General Counsel
1000 East Hanes Mill Road
Winston-Salem, NC 27105
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
EXECUTIVE: Richard D. Moss | HANESBRANDS INC. | |||||
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By: | |||||
Title: |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard A. Noll, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Hanesbrands Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Richard A. Noll |
Richard A. Noll |
Chief Executive Officer |
Date: November 3, 2011
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard D. Moss, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Hanesbrands Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Richard D. Moss |
Richard D. Moss |
Chief Financial Officer |
Date: November 3, 2011
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hanesbrands Inc. (Hanesbrands) on Form 10-Q for the fiscal quarter ended October 1, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Richard A. Noll, Chief Executive Officer of Hanesbrands, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Hanesbrands.
/s/ Richard A. Noll |
Richard A. Noll |
Chief Executive Officer |
Date: November 3, 2011
The foregoing certification is being furnished to accompany Hanesbrands Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2011 (the Report) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of Hanesbrands Inc. that incorporates the Report by reference. A signed original of this written certification required by Section 906 has been provided to Hanesbrands Inc. and will be retained by Hanesbrands Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hanesbrands Inc. (Hanesbrands) on Form 10-Q for the fiscal quarter ended October 1, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Richard D. Moss, Chief Financial Officer of Hanesbrands, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Hanesbrands.
/s/ Richard D. Moss |
Richard D. Moss |
Chief Financial Officer |
Date: November 3, 2011
The foregoing certification is being furnished to accompany Hanesbrands Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2011 (the Report) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of Hanesbrands Inc. that incorporates the Report by reference. A signed original of this written certification required by Section 906 has been provided to Hanesbrands Inc. and will be retained by Hanesbrands Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Data Provided by Refinitiv. Minimum 15 minutes delayed.