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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2021

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									20-3552316
(State of incorporation)									(I.R.S. employer identification no.)
1000 East Hanes Mill Road
Winston-Salem,			North Carolina						27105
(Address of principal executive office)									(Zip code)

(336) 519-8080

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Common Stock, Par Value $0.01			HBI			New York Stock Exchange

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 7, 2021, there were 349,115,441 shares of the registrant’s common stock outstanding.

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Table of Contents

TABLE OF CONTENTS

 

						Page
Forward-Looking Statements						1
PART I
Item 1.			Financial Statements (unaudited):
			Condensed Consolidated Statements of Income for the quarters ended April 3, 2021 and March 28, 2020			2
			Condensed Consolidated Statements of Comprehensive Income for the quarters ended April 3, 2021 and March 28, 2020			3
			Condensed Consolidated Balance Sheets at April 3, 2021, January 2, 2021 and March 28, 2020			4
			Condensed Consolidated Statements of Stockholders’ Equity for the quarters ended April 3, 2021 and March 28, 2020			5
			Condensed Consolidated Statements of Cash Flows for the quarters ended April 3, 2021 and March 28, 2020			6
			Notes to Condensed Consolidated Financial Statements			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			28
Item 4.			Controls and Procedures			28
PART II
Item 1.			Legal Proceedings			29
Item 1A.			Risk Factors			29
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 3.			Defaults Upon Senior Securities			29
Item 4.			Mine Safety Disclosures			29
Item 5.			Other Information			29
Item 6.			Exhibits			30
Signatures						31

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Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains information that may constitute “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 (the “Exchange Act”). 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. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding our intent, belief and current expectations about our strategic direction, prospects and future results are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. In particular, statements with respect to trends associated with our business, our Full Potential plan, our future financial performance and the potential effects of the ongoing global COVID-19 coronavirus pandemic included in this Quarterly Report on Form 10-Q specifically appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include forward-looking statements.

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 this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 2, 2021, under the caption “Risk Factors,” and available on the “Investors” section of our corporate website, www.Hanes.com/investors. The contents of our corporate website are not incorporated by reference in this Quarterly Report on Form 10-Q.

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PART I

Item 1.			Financial Statements

HANESBRANDS INC.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

			Quarters Ended
			April 3, 2021						March 28, 2020
Net sales			$	1,508,029					$	1,203,070
Cost of sales			905,348						784,902
Gross profit			602,681						418,168
Selling, general and administrative expenses			412,559						370,215
Operating profit			190,122						47,953
Other expenses			2,561						6,101
Interest expense, net			44,460						36,027
Income from continuing operations before income tax expense			143,101						5,825
Income tax expense			14,697						707
Income from continuing operations			128,404						5,118
Loss from discontinued operations, net of tax			(391,666)						(12,992)
Net loss			$	(263,262)					$	(7,874)
Earnings (loss) per share - basic:
Continuing operations			$	0.37					$	0.01
Discontinued operations			(1.12)						(0.04)
Net loss			$	(0.75)					$	(0.02)
Earnings (loss) per share - diluted:
Continuing operations			$	0.37					$	0.01
Discontinued operations			(1.11)						(0.04)
Net loss			$	(0.75)					$	(0.02)

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

			Quarters Ended
			April 3, 2021						March 28, 2020
Net loss			$	(263,262)					$	(7,874)
Other comprehensive income (loss):
Translation adjustments			(25,201)						(117,154)
Unrealized gain on qualifying cash flow hedges, net of tax of $(5,176) and $(7,280), respectively			8,540						7,783
Unrecognized income from pension and postretirement plans, net of tax of $(2,049) and $(1,272), respectively			6,735						3,594
Total other comprehensive loss			(9,926)						(105,777)
Comprehensive loss			$	(273,188)					$	(113,651)

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

			April 3, 2021						January 2, 2021						March 28, 2020
Assets
Cash and cash equivalents			$	530,403					$	900,615					$	1,069,490
Trade accounts receivable, net			807,738						768,221						666,603
Inventories			1,489,565						1,367,758						1,787,660
Other current assets			153,358						158,700						155,074
Current assets of discontinued operations			303,045						234,086						296,889
Total current assets			3,284,109						3,429,380						3,975,716
Property, net			458,434						477,821						502,167
Right-of-use assets			416,136						432,631						434,225
Trademarks and other identifiable intangibles, net			1,269,932						1,293,847						1,161,350
Goodwill			1,150,138						1,158,938						1,119,646
Deferred tax assets			355,826						367,976						181,807
Other noncurrent assets			54,678						64,773						113,263
Noncurrent assets of discontinued operations			—						494,501						479,927
Total assets			$	6,989,253					$	7,719,867					$	7,968,101
Liabilities and Stockholders’ Equity
Accounts payable			$	976,887					$	891,868					$	876,394
Accrued liabilities			571,410						609,864						357,514
Lease liabilities			132,127						136,510						138,298
Notes payable			—						—						1,660
Accounts Receivable Securitization Facility			—						—						152,153
Current portion of long-term debt			34,375						263,936						2,533
Current liabilities of discontinued operations			288,936						222,183						285,359
Total current liabilities			2,003,735						2,124,361						1,813,911
Long-term debt			3,649,631						3,739,434						4,236,955
Lease liabilities - noncurrent			315,382						331,577						327,745
Pension and postretirement benefits			333,460						381,457						331,205
Other noncurrent liabilities			202,564						216,091						272,780
Noncurrent liabilities of discontinued operations			—						112,989						111,934
Total liabilities			6,504,772						6,905,909						7,094,530
Stockholders’ equity:
Preferred stock (50,000,000 authorized shares; $.01 par value)
Issued and outstanding — None			—						—						—
Common stock (2,000,000,000 authorized shares; $.01 par value)
Issued and outstanding — 349,090,472, 348,802,220 and 348,035,310, respectively			3,491						3,488						3,480
Additional paid-in capital			304,090						307,883						297,456
Retained earnings			753,785						1,069,546						1,296,060
Accumulated other comprehensive loss			(576,885)						(566,959)						(723,425)
Total stockholders’ equity			484,481						813,958						873,571
Total liabilities and stockholders’ equity			$	6,989,253					$	7,719,867					$	7,968,101

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share data)

(unaudited)

			Common Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total
			Shares						Amount
Balances at January 2, 2021			348,802						$	3,488					$	307,883					$	1,069,546					$	(566,959)					$	813,958
Net loss			—						—						—						(263,262)						—						(263,262)
Dividends ($0.15 per common share)			—						—						—						(52,499)						—						(52,499)
Other comprehensive loss			—						—						—						—						(9,926)						(9,926)
Stock-based compensation			—						—						(1,534)						—						—						(1,534)
Net exercise of stock options, vesting of restricted stock units and other			288						3						(2,259)						—						—						(2,256)
Balances at April 3, 2021			349,090						$	3,491					$	304,090					$	753,785					$	(576,885)					$	484,481

			Common Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total
			Shares						Amount
Balances at December 28, 2019			362,449						$	3,624					$	304,395					$	1,546,224					$	(617,648)					$	1,236,595
Net loss			—						—						—						(7,874)						—						(7,874)
Dividends ($0.15 per common share)			—						—						—						(54,421)						—						(54,421)
Other comprehensive loss			—						—						—						—						(105,777)						(105,777)
Stock-based compensation			—						—						4,641						—						—						4,641
Net exercise of stock options, vesting of restricted stock units and other			50						1						675						—						—						676
Share repurchases			(14,464)						(145)						(12,255)						(187,869)						—						(200,269)
Balances at March 28, 2020			348,035						$	3,480					$	297,456					$	1,296,060					$	(723,425)					$	873,571

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

			Quarters Ended
			April 3, 2021(1)						March 28, 2020(1)
Operating activities:
Net loss			$	(263,262)					$	(7,874)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation			24,142						22,781
Amortization of acquisition intangibles			6,179						6,113
Other amortization			3,020						2,477
Impairment of intangible assets and goodwill			163,047						—
Loss on classification of assets held for sale			226,352						—
Amortization of debt issuance costs			4,580						2,123
Other			(5,835)						(5,258)
Changes in assets and liabilities:
Accounts receivable			(63,955)						73,694
Inventories			(122,781)						(86,785)
Other assets			9,606						26,790
Accounts payable			109,197						(13,605)
Accrued pension and postretirement benefits			(38,757)						(21,481)
Accrued liabilities and other			(34,587)						(82,191)
Net cash from operating activities			16,946						(83,216)
Investing activities:
Capital expenditures			(17,804)						(25,759)
Proceeds from sales of assets			2,406						66
Other			1,794						1,216
Net cash from investing activities			(13,604)						(24,477)
Financing activities:
Repayments on Term Loan Facilities			(300,000)						—
Borrowings on Accounts Receivable Securitization Facility			—						227,061
Repayments on Accounts Receivable Securitization Facility			—						(74,909)
Borrowings on Revolving Loan Facilities			—						1,638,000
Repayments on Revolving Loan Facilities			—						(688,000)
Borrowings on International Debt			—						31,222
Borrowings on notes payable			21,106						62,312
Repayments on notes payable			(20,276)						(64,352)
Share repurchases			—						(200,269)
Cash dividends paid			(52,351)						(53,683)
Payments of debt issuance costs
Other			(2,902)						132
Net cash from financing activities			(354,423)						877,514
Effect of changes in foreign exchange rates on cash			(17,662)						(15,061)
Change in cash, cash equivalents and restricted cash			(368,743)						754,760
Cash, cash equivalents and restricted cash at beginning of year			910,603						329,923
Cash, cash equivalents and restricted cash at end of period			541,860						1,084,683
Less restricted cash at end of period			1,153						903
Cash and cash equivalents at end of period			$	540,707					$	1,083,780
Balances included in the Condensed Consolidated Balance Sheets:
Cash and cash equivalents			$	530,403					$	1,069,490
Cash and cash equivalents included in current assets of discontinued operations			10,304						14,290
Cash and cash equivalents at end of period			$	540,707					$	1,083,780

(1)The cash flows related to discontinued operations have not been segregated and remain included in the major classes of assets and liabilities. Accordingly, the Condensed Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.

Capital expenditures included in accounts payable at April 3, 2021 and January 2, 2021 were $4,670 and $17,931, respectively. For the quarters ended April 3, 2021 and March 28, 2020, right-of-use assets obtained in exchange for lease obligations were $4,755 and $17,551, respectively.

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements

(amounts 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. and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated interim 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 Company’s Annual Report on Form 10-K for the year ended January 2, 2021. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

In the first quarter of 2021, the Company announced that as part of its strategic plan, it was exploring alternatives for its European Innerwear business and subsequently reached the decision to exit this business. The Company determined that its European Innerwear business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021. Accordingly, the Company began to separately report the results of its European Innerwear business as discontinued operations in its Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the condensed consolidated interim financial statements relates to continuing operations. See note “Discontinued Operations” for additional information on discontinued operations.

(2)    Recent Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The new accounting rules reduce complexity by removing specific exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The new accounting rules also simplify accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new accounting rules were effective for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, “Reference Rate Reform: Scope.” The new accounting rules provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments in this standard can be adopted any time before the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations, cash flows and disclosures.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

Codification Improvements

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.” The new accounting rules improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules were effective for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures.

(3)    Discontinued Operations

In the first quarter of 2021, the Company announced that as part of its strategic plan, it was exploring alternatives for its European Innerwear business and subsequently reached the decision to exit this business. The Company determined that its European Innerwear business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021. Accordingly, the Company began to separately report the results of its European Innerwear business as discontinued operations in its Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. These changes have been applied to all periods presented. The Company is actively marketing the business to prospective buyers and expects to complete the sale of this business within one year.

The operations of the European Innerwear business were previously reported primarily in the International segment. Certain expenses related to its operations were included in general corporate expenses, restructuring and other action-related charges and amortization of intangibles which were previously excluded from segment operating profit and have been reclassified to discontinued operations beginning in the first quarter of 2021 and for all periods presented. Discontinued operations does not include any allocation of corporate overhead expense or interest expense.

Upon meeting the criteria for held for sale classification which qualified as a triggering event, the Company performed a full impairment analysis of the disposal group's indefinite-lived intangible assets and goodwill. As a result of the strategic decision to exit the European Innerwear business, a strategic review was completed in the first quarter of 2021 with revised forecasts to include updated market conditions and the removal of strategic operating decisions that would no longer occur under the Company's ownership. The revised forecasts indicated impairment charges of certain indefinite-lived trademarks and license agreements as well as the full goodwill balance. A non-cash charge of $155,745 was recorded as "Impairment of intangible assets and goodwill" in the summarized discontinued operations financial information for the quarter ended April 3, 2021. In addition, the Company recorded a non-cash charge of $226,352 as "Loss on classification of assets held for sale" in the summarized discontinued operations financial information for the quarter ended April 3, 2021 to record a valuation allowance against the net assets held for sale to write down the carrying value of the disposal group to the estimated fair value less costs of disposal. Additionally, the Company recorded an impairment charge of $7,302 in continuing operations on an indefinite-lived trademark which is reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. This charge relates to the full impairment of an indefinite-lived trademark related to a specific brand within the European Innerwear business that was excluded from the disposal group as it is not being marketed for sale. The Company intends to exit this brand subsequent to the sale of the European Innerwear business.

The Company expects to continue certain sales from its supply chain to the European Innerwear business after the sale of the business. Those sales and the related profit are included in continuing operations in the Condensed Consolidated Statements of Income in all periods presented and have not been eliminated as intercompany transactions in consolidation. The related receivables from the European Innerwear business have been reclassified to “Trade accounts receivable, net” in the Condensed Consolidated Balance Sheets for all periods presented.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The operating results of the discontinued operations only reflect revenues and expenses that are directly attributable to the European Innerwear business that will be eliminated from continuing operations. The key components from discontinued operations related to the European Innerwear business are as follows:

			Quarters Ended
			April 3, 2021						March 28, 2020
Net sales			$	135,845					$	127,671
Cost of sales			75,523						72,107
Gross profit			60,322						55,564
Selling, general and administrative expenses			83,392						69,387
Impairment of intangible assets and goodwill			155,745						—
Loss on classification of assets held for sale			226,352						—
Operating loss			(405,167)						(13,823)
Interest expense, net			90						822
Other expenses			334						389
Loss from discontinued operations before income tax expense			(405,591)						(15,034)
Income tax benefit			(13,925)						(2,042)
Net loss from discontinued operations, net of tax			$	(391,666)					$	(12,992)

Assets and liabilities of discontinued operations classified as held for sale in the Condensed Consolidated Balance Sheets as of April 3, 2021, January 2, 2021 and March 28, 2020 consist of the following:

			April 3, 2021						January 2, 2021(1)						March 28, 2020(1)
Cash and cash equivalents			$	10,304					$	8,822					$	14,290
Trade accounts receivable, net			80,458						84,632						83,331
Inventories			106,192						123,337						176,097
Other current assets			11,190						17,295						23,171
Property, net			61,763						67,950						68,838
Right-of-use assets			34,779						34,637						39,711
Trademarks and other identifiable intangibles, net			208,601						284,170						274,006
Goodwill			—						96,692						85,549
Deferred tax assets			8,505						5,438						6,197
Other noncurrent assets			4,860						5,614						5,626
Allowance to adjust assets to estimated fair value, less costs of disposal			(223,607)						—						—
Total assets of discontinued operations			$	303,045					$	728,587					$	776,816
Accounts payable			62,199						77,636						73,866
Accrued liabilities			120,475						133,431						89,887
Lease liabilities			9,159						10,332						12,270
Notes payable			1,574						784						510
Current portion of long-term debt			—						—						108,826
Lease liabilities - noncurrent			27,038						28,775						31,103
Pension and postretirement benefits			44,428						46,569						44,306
Other noncurrent liabilities			24,063						37,645						36,525
Total liabilities of discontinued operations			$	288,936					$	335,172					$	397,293

(1)Amounts at January 2, 2021 and March 28, 2020 have been classified as current and long-term in the Condensed Consolidated Balance Sheets.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The cash flows related to discontinued operations have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows. The following table presents cash flow and non-cash information related to discontinued operations:

			Quarters Ended
			April 3, 2021						March 28, 2020
Depreciation			$	2,608					$	2,665
Amortization			1,460						1,282
Capital expenditures			3,335						3,538
Impairment of intangible assets and goodwill			155,745						—
Loss on classification of assets held for sale			226,352						—
Other investing activities			1,794						1,216
Capital expenditures included in accounts payable			52						1,033

(4)    Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied, which occurs at a point in time, upon either shipment or delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration includes trade discounts, rebates, volume-based incentives, cooperative advertising and product returns, which are offered within contracts between the Company and its customers, employing the practical expedient for contract costs. Incidental items that are immaterial to the context of the contract are recognized as expense at the transaction date.

The following table presents the Company’s revenues disaggregated by the customer’s method of purchase:

			Quarters Ended
			April 3, 2021						March 28, 2020
Third-party brick-and-mortar wholesale			$	1,024,739					$	886,535
Consumer-directed			483,290						316,535
Total net sales			$	1,508,029					$	1,203,070

Revenue Sources

Third-Party Brick-and-Mortar Wholesale Revenue

Third-party brick-and-mortar wholesale revenue is primarily generated by sales of the Company’s products to retailers to support their brick-and-mortar operations. Also included within third-party brick-and-mortar wholesale revenue is royalty revenue from licensing agreements. The Company earns royalties through license agreements with manufacturers of other consumer products that incorporate certain of the Company’s brands. The Company accrues revenue earned under these contracts based upon reported sales from the licensees.

Consumer-Directed Revenue

Consumer-directed revenue is primarily generated through sales driven directly by the consumer through company-operated stores and e-commerce platforms, which include both owned sites and the sites of the Company’s retail customers.

(5)    Stockholders’ Equity

Basic earnings per share (“EPS”) was computed by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. Diluted EPS was calculated to give effect to all potentially issuable dilutive shares of common stock using the treasury stock method.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The reconciliation of basic to diluted weighted average shares outstanding is as follows:

			Quarters Ended
			April 3, 2021						March 28, 2020
Basic weighted average shares outstanding			351,003						359,017
Effect of potentially dilutive securities:
Stock options			9						220
Restricted stock units			671						188
Employee stock purchase plan and other			3						11
Diluted weighted average shares outstanding			351,686						359,436

For the quarter ended April 3, 2021, there were 592 restricted stock units and 167 stock options to purchase shares of common stock excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the quarter ended March 28, 2020, there were 1,080 restricted stock units and no stock options to purchase shares of common stock excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.

On May 11, 2021, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share on outstanding shares of common stock to be paid on June 1, 2021 to stockholders of record at the close of business on May 21, 2021.

On February 6, 2020, the Company’s Board of Directors approved a new share repurchase program for up to 40,000 shares to be repurchased in open market transactions, subject to market conditions, legal requirements and other factors. Additionally, management has been granted authority to establish one or more trading plans under Rule 10b5-1 of the Exchange Act in connection with share repurchases, which will allow the Company to repurchase shares in the open market during periods in which the stock trading window is otherwise closed for the Company and certain of the Company’s officers and employees pursuant to the Company’s insider trading policy. Unless terminated earlier by the Company’s Board of Directors, the new program will expire when the Company has repurchased all shares authorized for repurchase under the new program. The new program replaced the Company’s previous share repurchase program for up to 40,000 shares that was originally approved in 2016. For the quarter ended April 3, 2021, the Company did not enter into any transactions to repurchase shares under the new program. For the quarter ended March 28, 2020, the Company entered into transactions to repurchase 14,464 shares at a weighted average repurchase price of $13.83 per share under the new program. The shares were repurchased at a total cost of $200,269. At April 3, 2021, the remaining repurchase authorization under the current share repurchase program totaled 25,536 shares. The primary objective of the share repurchase program is to utilize excess cash to generate shareholder value. Share repurchases are currently prohibited under the Senior Secured Credit Facility as a result of the amendment signed in April 2020. See Note “Debt” for additional information on the Company’s debt facilities.

(6)    Inventories

Inventories consisted of the following: 

			April 3, 2021						January 2, 2021						March 28, 2020
Raw materials			$	74,123					$	67,111					$	73,450
Work in process			99,619						108,844						115,129
Finished goods			1,315,823						1,191,803						1,599,081
			$	1,489,565					$	1,367,758					$	1,787,660

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

(7)    Debt

Debt consisted of the following: 

			Interest Rate as of April 3, 2021						Principal Amount												Maturity Date
									April 3, 2021						January 2, 2021
Senior Secured Credit Facility:
Revolving Loan Facility			—						$	—					$	—					December 2022
Term Loan A			2.11%						625,000						625,000						December 2022
Term Loan B			—						—						300,000						December 2024
Australian Revolving Loan Facility			—						—						—						July 2021
5.375% Senior Notes			5.38%						700,000						700,000						May 2025
4.875% Senior Notes			4.88%						900,000						900,000						May 2026
4.625% Senior Notes			4.63%						900,000						900,000						May 2024
3.5% Senior Notes			3.50%						587,959						610,724						June 2024
Accounts Receivable Securitization Facility			—						—						—						June 2022
Total debt									3,712,959						4,035,724
Less long-term debt issuance costs									28,953						32,354
Less current maturities									34,375						263,936
Total long-term debt									$	3,649,631					$	3,739,434

As of April 3, 2021, the Company had $995,824 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account $4,176 of standby and trade letters of credit issued and outstanding under this facility. In March 2021, the Company repaid the outstanding balance of Term Loan B which consisted of a required excess cash flow prepayment of $238,936 and a voluntary prepayment of $61,064.

The Company’s accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”) entered into in November 2007 was amended in March 2021. The latest amendment decreased the fluctuating facility limit to $175,000 (previously $225,000) and extended the maturity date to June 2022. Additionally, the amendment changed certain ratios and borrowing base calculations, raised pricing and added certain receivables to the pledged collateral pool for the facility. Borrowings under the Accounts Receivable Securitization Facility are permitted only to the extent that the face of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans and also subject to a fluctuating facility limit, not to exceed $175,000. The Company’s maximum borrowing capacity under the Accounts Receivable Securitization Facility was $150,000 as of April 3, 2021. The Company had $87,403 of borrowing availability under the Accounts Receivable Securitization Facility at April 3, 2021.

The Company had $45,572 of borrowing availability under the Australian Revolving Loan Facility and $85,245 of borrowing availability under other international credit facilities after taking into account outstanding borrowings and letters of credit outstanding under the applicable facilities at April 3, 2021.

In April 2020, given the rapidly changing business environment and level of uncertainty being created by the COVID-19 pandemic and the associated impact on future earnings, the Company amended its Senior Secured Credit Facility prior to any potential covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. The amendment changed certain provisions and covenants under the Senior Secured Credit Facility through the fiscal quarter ending July 3, 2021, after which the covenants revert to their original, pre-amendment levels.

As of April 3, 2021, the Company was in compliance with all financial covenants under its credit facilities and other outstanding indebtedness. Under the terms of its Senior Secured Credit Facility, among other financial and non-financial covenants, the Company is required to maintain a minimum interest coverage ratio and a maximum leverage ratio. The interest coverage ratio covenant is the ratio of the Company’s EBITDA for the preceding four fiscal quarters to its consolidated total interest expense and the maximum leverage ratio covenant is the ratio of the Company’s net debt to EBITDA for the preceding four fiscal quarters. EBITDA is defined as earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility.

The Company expects to maintain compliance with its covenants for at least one year from the date of these financial statements based on its current expectations and forecasts. If economic conditions caused by the COVID-19 pandemic worsen

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

and the Company’s earnings and operating cash flows do not recover as currently estimated by management, this could impact the Company’s ability to maintain compliance with its financial covenants and require the Company to seek additional amendments to its Senior Secured Credit Facility. If the Company is not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.

(8)    Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss (“AOCI”) are as follows:

			Cumulative Translation Adjustment(1)						Cash Flow Hedges						Defined Benefit Plans						Income Taxes						Accumulated Other Comprehensive Loss
Balance at January 2, 2021			$	(52,820)					$	(26,538)					$	(668,730)					$	181,129					$	(566,959)
Amounts reclassified from accumulated other comprehensive loss			—						5,242						7,085						(3,004)						9,323
Current-period other comprehensive income (loss) activity			(25,201)						8,474						1,699						(4,221)						(19,249)
Total other comprehensive income (loss)			(25,201)						13,716						8,784						(7,225)						(9,926)
Balance at April 3, 2021			$	(78,021)					$	(12,822)					$	(659,946)					$	173,904					$	(576,885)

			Cumulative Translation Adjustment(1)						Cash Flow Hedges						Defined Benefit Plans						Income Taxes						Accumulated Other Comprehensive Loss
Balance at December 28, 2019			$	(157,138)					$	4,786					$	(629,360)					$	164,064					$	(617,648)
Amounts reclassified from accumulated other comprehensive loss			—						(5,017)						4,866						—						(151)
Current-period other comprehensive income (loss) activity			(117,154)						20,080						—						(8,552)						(105,626)
Total other comprehensive income (loss)			(117,154)						15,063						4,866						(8,552)						(105,777)
Balance at March 28, 2020			$	(274,292)					$	19,849					$	(624,494)					$	155,512					$	(723,425)

(1)Cumulative Translation Adjustment includes translation adjustments and net investment hedges. See Note, “Financial Instruments and Risk Management” for additional disclosures about net investment hedges.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The Company had the following reclassifications out of AOCI:

Component of AOCI						Location of Reclassification into Income						Amount of Reclassification from AOCI
												Quarters Ended
												April 3, 2021						March 28, 2020
Gain (loss) on forward foreign exchange contracts designated as cash flow hedges						Cost of sales						$	(4,377)					$	2,869
						Income tax						1,208						(762)
						Loss from discontinued operations, net of tax						(244)						1,638
						Net of tax						(3,413)						3,745
Loss on cross-currency swap contracts designated as cash flow hedges						Selling, general and administrative expenses						(557)						—
						Income tax						89						—
						Net of tax						(468)						—
Amortization of deferred actuarial loss and prior service cost						Other expenses						(7,707)						(2,762)
						Income tax						1,746						1,233
						Loss from discontinued operations, net of tax						519						(2,065)
						Net of tax						(5,442)						(3,594)
Total reclassifications												$	(9,323)					$	151

(9)    Financial Instruments and Risk Management

The Company uses forward foreign exchange contracts and cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the Euro, Australian dollar, Canadian dollar and Mexican peso. The Company also uses a combination of cross-currency swap contracts and long-term debt to manage its exposure to foreign currency risk associated with the Company’s net investment in certain European subsidiaries.

			Hedge Type						April 3, 2021						January 2, 2021
U.S. dollar equivalent notional amount of derivative instruments:
Forward foreign exchange contracts			Cash Flow and Mark to Market						$	426,204					$	617,912
Cross-currency swap contracts			Cash Flow						$	352,920					$	—
Cross-currency swap contracts			Net Investment						$	335,940					$	335,940

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

Fair Values of Derivative Instruments

The fair values of derivative financial instruments related to forward foreign exchange contracts and cross-currency swap contracts recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:

			Balance Sheet Location						Fair Value
									April 3, 2021						January 2, 2021
Derivatives designated as hedging instruments:
Forward foreign exchange contracts			Other current assets						$	1,676					$	1
Cross-currency swap contracts			Other current assets						2,817						918
Forward foreign exchange contracts			Current assets of discontinued operations						226						40
Forward foreign exchange contracts			Other noncurrent assets						488						—
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts			Other current assets						1,564						2,459
Forward foreign exchange contracts			Current assets of discontinued operations						64						198
Total derivative assets									6,835						3,616
Derivatives designated as hedging instruments:
Forward foreign exchange contracts			Accrued liabilities						(6,152)						(12,898)
Forward foreign exchange contracts			Current liabilities of discontinued operations						(656)						(4,747)
Forward foreign exchange contracts			Other noncurrent liabilities						—						(2,190)
Cross-currency swap contracts			Other noncurrent liabilities						(6,530)						(16,526)
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts			Accrued liabilities						(5,327)						(16,488)
Forward foreign exchange contracts			Current liabilities of discontinued operations						(850)						(2,195)
Total derivative liabilities									(19,515)						(55,044)
Net derivative liability									$	(12,680)					$	(51,428)

Cash Flow Hedges

The Company uses forward foreign exchange contracts and cross-currency swap contracts to reduce the effect of fluctuating foreign currencies on 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.

On April 1, 2021, in connection with a reduction in the amount of the 3.5% Senior Notes designated in the European net investment hedge discussed below, the Company entered into three pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000. The Company designated these cross-currency swap contracts to hedge the undesignated portion of the foreign currency cash flow exposure related to the Company’s 3.5% Senior Notes, which had a carrying amount of €500,000 as of April 3, 2021. These cross-currency swap contracts, which mature on June 15, 2024, swap Euro-denominated interest payments for U.S. dollar-denominated interest payments, thereby economically converting €300,000 of the Company’s €500,000 fixed-rate 3.5% Senior Notes to a fixed-rate 4.7945% USD-denominated obligation.

The Company expects to reclassify into earnings during the next 12 months a net loss from AOCI of approximately $18,182. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next 16 months and for long-term debt over the next 39 months.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:

			Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments
			Quarters Ended
			April 3, 2021						March 28, 2020
Forward foreign exchange contracts			$	8,486					$	20,080
Cross-currency swap contracts			(12)						—
Total			$	8,474					$	20,080

			Location of Gain (Loss) Reclassified from AOCI  into Income						Amount of Gain (Loss) Reclassified from AOCI into Income
									Quarters Ended
									April 3, 2021						March 28, 2020
Forward foreign exchange contracts(1)			Cost of sales						$	(4,377)					$	2,869
Forward foreign exchange contracts(1)			Loss from discontinued operations, net of tax						(308)						2,148
Cross-currency swap contracts(1)			Selling, general and administrative expenses						(557)						—
Total									$	(5,242)					$	5,017

(1)The Company does not exclude amounts from effectiveness testing for cash flow hedges that would require recognition into earnings based on changes in fair value.

									Quarters Ended
									April 3, 2021						March 28, 2020
Total cost of sales in which the effects of cash flow hedges are recorded									$	905,348					$	784,902
Total selling, general and administrative expenses in which the effects of cash flow hedges are recorded									$	412,559					$	370,215
Total loss from discontinued operations, net of tax in which the effects of cash flow hedges are recorded									$	(391,666)					$	(12,992)

Net Investment Hedges

In July 2019, the Company entered into two pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000 that were designated as hedges of a portion of the beginning balance of the Company’s net investment in certain European subsidiaries. These cross-currency swap contracts, which mature on May 15, 2024, swap U.S. dollar-denominated interest payments for Euro-denominated interest payments, thereby economically converting a portion of the Company’s fixed-rate 4.625% Senior Notes to a fixed-rate 2.3215% Euro-denominated obligation.

In July 2019, the Company also designated the full amount of its 3.5% Senior Notes with a carrying value of €500,000, which is a nonderivative financial instrument, as a hedge of a portion of the beginning balance of the Company’s European net investment. As of April 1, 2021, the Company reduced the amount of its 3.5% Senior Notes designated in the European net investment hedge from €500,000 to €200,000. As of April 3, 2021 and January 2, 2021, the U.S. dollar equivalent carrying value of Euro-denominated long-term debt designated as a partial European net investment hedge was $235,183 and $610,724, respectively.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The amount of after-tax gains (losses) included in AOCI in the Condensed Consolidated Balance Sheets related to derivative instruments and nonderivative financial instruments designated as net investment hedges and the amount of gains included in the “Interest expense, net” line in the Condensed Consolidated Statements of Income related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges are as follows:

									Amount of Gain Recognized in AOCI
									Quarters Ended
									April 3, 2021						March 28, 2020
Euro-denominated long-term debt									$	19,300					$	2,658
Cross-currency swap contracts									7,373						11,732
Total									$	26,673					$	14,390

			Location of Gain Recognized in Income						Amount of Gain Recognized in Income (Amount Excluded from Effectiveness Testing)
									Quarters Ended
									April 3, 2021						March 28, 2020
Cross-currency swap contracts			Interest expense, net						$	1,899					$	1,947
									Quarters Ended
									April 3, 2021						March 28, 2020
Total interest expense, net in which the amounts excluded from effectiveness testing for net investment hedges are recorded									$	44,460					$	36,027

Mark to Market Hedges

A derivative used as a hedging instrument whose change in fair value is recognized to act as a hedge against changes in the values of the hedged item is designated as a mark to market hedge. The Company uses forward foreign exchange derivative contracts as hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. Forward 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. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheets. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.

The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:

			Location of Gain (Loss) Recognized in Income on Derivatives						Amount of Gain (Loss) Recognized in Income
									Quarters Ended
									April 3, 2021						March 28, 2020
Forward foreign exchange contracts			Cost of sales						$	12,995					$	6,549
Forward foreign exchange contracts			Selling, general and administrative expenses						2,211						(1,034)
Forward foreign exchange contracts			Loss from discontinued operations, net of tax						2,639						(425)
Total									$	17,845					$	5,090

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

(10)    Fair Value of Assets and Liabilities

As of April 3, 2021, 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 Company’s derivative instruments related to forward foreign exchange derivative contracts, cross-currency swap derivative contracts and deferred compensation plan liabilities. The fair values of forward foreign exchange derivative contracts are determined using the cash flows of the forward contracts, discount rates to account for the passage of time and current foreign exchange market data which are all based on inputs readily available in public markets and are categorized as Level 2. The fair values of cross-currency swap derivative contracts are determined using the cash flows of the swap contracts, discount rates to account for the passage of time, current foreign exchange and interest rate market data and credit risk, which are all based on inputs readily available in public markets and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a quarterly recurring basis.

There were no changes during the quarter ended April 3, 2021 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of and during the quarter ended April 3, 2021, 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.

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities within continuing operations accounted for at fair value on a recurring basis.

			Assets (Liabilities) at Fair Value as of April 3, 2021
			Total						Quoted Prices In Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Forward foreign exchange contracts - assets			$	3,728					$	—					$	3,728					$	—
Cross-currency swap contracts - assets			2,817						—						2,817						—
Forward foreign exchange contracts - liabilities			(11,479)						—						(11,479)						—
Cross-currency swap contracts - liabilities			(6,530)						—						(6,530)						—
			(11,464)						—						(11,464)						—
Deferred compensation plan liability			(18,809)						—						(18,809)						—
Total			$	(30,273)					$	—					$	(30,273)					$	—

 

			Assets (Liabilities) at Fair Value as of January 2, 2021
			Total						Quoted Prices In Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Forward foreign exchange contracts - assets			$	2,460					$	—					$	2,460					$	—
Cross-currency swap contracts - assets			918						—						918						—
Forward foreign exchange contracts - liabilities			(31,576)						—						(31,576)						—
Cross-currency swap contracts - liabilities			(16,526)						—						(16,526)						—
			(44,724)						—						(44,724)						—
Deferred compensation plan liability			(21,878)						—						(21,878)						—
Total			$	(66,602)					$	—					$	(66,602)					$	—

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

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 April 3, 2021 and January 2, 2021. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $55,543 and $48,745 as of April 3, 2021 and January 2, 2021, respectively. The fair value of debt, which is classified as a Level 2 liability, was $3,912,331 and $4,230,985 as of April 3, 2021 and January 2, 2021, respectively. Debt had a carrying value of $3,712,959 and $4,035,724 as of April 3, 2021 and January 2, 2021, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amount of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value primarily due to the short-term nature of these instruments.

(11)    Income Taxes

The Company’s effective income tax rate was 10.3% and 12.1% for the quarters ended April 3, 2021 and March 28, 2020, respectively. The lower effective tax rate for the quarter ended April 3, 2021 was primarily due to a discrete benefit for the release of reserves for unrecognized tax benefits of $7,034, partially offset by a discrete charge for changes in valuation allowances of $3,672.

The Company is subject to examinations in the U.S., various state and foreign jurisdictions and believes that it maintains appropriate accruals for unrecognized tax benefits related to uncertain tax positions, which are evaluated each quarter. During the quarter ended April 3, 2021, the Company’s liability for unrecognized tax benefits, including interest and penalties, decreased by $8,414, of which $7,034 was a discrete reduction of the effective income tax rate. The decrease was related to expirations of statutes of limitations and approvals of certain filings with income tax authorities.

(12)    Business Segment Information

The Company’s operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of the Company’s U.S.-based outlet stores and U.S. hosiery business.

The types of products and services from which each reportable segment derives its revenues are as follows:

•Innerwear includes sales in the United States of basic branded apparel products that are replenishment in nature under the product categories of men’s underwear, women’s panties, children’s underwear and socks, and intimate apparel, which includes bras and shapewear.

•Activewear includes sales in the United States of basic branded products that are primarily seasonal in nature to both retailers and wholesalers, as well as licensed sports apparel and licensed logo apparel in collegiate bookstores, mass retailers and other channels.

•International includes sales of products in all of the Company’s categories outside the United States, primarily in Australasia, Europe, Asia, Canada and Latin America. 

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses, restructuring and other action-related charges and amortization of intangibles. The accounting policies of the segments are consistent with those described in Note, “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 2, 2021.

			Quarters Ended
			April 3, 2021						March 28, 2020
Net sales:
Innerwear			$	570,435					$	422,402
Activewear			364,003						288,000
International			506,261						428,230
Other			67,330						64,438
Total net sales			$	1,508,029					$	1,203,070

			Quarters Ended
			April 3, 2021						March 28, 2020
Segment operating profit:
Innerwear			$	127,417					$	81,551
Activewear			60,594						8,108
International			87,180						50,745
Other			1,886						(3,393)
Total segment operating profit			277,077						137,011
Items not included in segment operating profit:
General corporate expenses			(59,823)						(57,426)
Restructuring and other action-related charges			(19,393)						(24,324)
Amortization of intangibles			(7,739)						(7,308)
Total operating profit			190,122						47,953
Other expenses			(2,561)						(6,101)
Interest expense, net			(44,460)						(36,027)
Income from continuing operations before income tax expense			$	143,101					$	5,825

For the quarter ended April 3, 2021, the Company incurred pre-tax restructuring and other action-related charges of $19,393, of which $2,807 is reported in the “Cost of sales” line and $16,586 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended March 28, 2020, the Company incurred pre-tax restructuring and other action-related charges of $24,324, of which $21,811 is reported in the “Cost of sales” line and $2,513 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.

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Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s 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 interim 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 2, 2021, which were included in our Annual Report on Form 10-K filed with the SEC. 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 for the year ended January 2, 2021. In particular, statements with respect to trends associated with our business, our Full Potential plan, our future financial performance and the potential effects of the global novel coronavirus ("COVID-19") pandemic included in this MD&A include forward-looking statements.

Overview

Hanesbrands Inc. (collectively with its subsidiaries, “we,” “us,” “our,” or the “Company”) is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Australia, Europe and Asia/Pacific under some of the world’s strongest apparel brands, including Hanes, Champion, Bonds, Bali, Maidenform, Playtex, Bras N Things, JMS/Just My Size, Wonderbra, Alternative, Berlei, L’eggs and Gear for Sports. We sell T-shirts, bras, panties, shapewear, underwear, socks, hosiery and activewear produced in our low-cost global supply chain. Our products are marketed to consumers shopping in mass merchants, mid-tier and department stores, specialty stores and the consumer-directed channel, which includes our owned retail locations, as well as e-commerce sites. Our brands hold either the number one or number two market position by units sold in many of the product categories and geographies in which we compete.

Our operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of our U.S.-based outlet stores and U.S. hosiery business.

Our Key Business Strategies

Our business strategy integrates our brand superiority, industry-leading innovation and low-cost global supply chain to provide higher value products while lowering production costs. We operate in the global innerwear and global activewear apparel categories. These are stable, heavily branded categories where we have a strong consumer franchise based on a global portfolio of industry-leading brands that we have built over multiple decades, through hundreds of millions of direct interactions with consumers. In 2020, we undertook a comprehensive global business review focused on building consumer-centric growth. The review resulted in our Full Potential plan, which is our multi-year growth strategy that focuses on four pillars to drive growth and enhance long-term profitability and identifies initiatives to unlock growth. Our four pillars of growth are to grow the Champion brand globally, drive growth in Innerwear with brands and products that appeal to younger consumers, drive consumer-centricity by delivering innovative products and improving awareness through investments in brand marketing and digital capabilities, and streamline our global portfolio. In order to deliver this growth and create a more efficient and productive business model, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan’s objectives. We remain highly confident that our strong brand portfolio, world-class supply chain and diverse category and geographic footprint will help us unlock our full potential, deliver long-term growth and create stockholder value.

In the first quarter of 2021, we announced that as part of our strategic plan, we were exploring alternatives for our European Innerwear business and subsequently reached the decision to exit this business. We determined that our European Innerwear business met held-for-sale and discontinued operations accounting criteria during the first quarter of 2021. Accordingly, we began to separately report the results of our European Innerwear business as discontinued operations in our Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. See note “Discontinued Operations” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information on discontinued operations.

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Impact of COVID-19 on Our Business

The COVID-19 pandemic impacted our business operations and financial results for the first quarter of 2021 and 2020 as described in more detail under “Condensed Consolidated Results of Operations - First Quarter Ended April 3, 2021 Compared with First Quarter Ended March 28, 2020” below, primarily through reduced traffic and closures of company-operated and third-party retail locations for portions of each of the quarters in certain markets. While many retail stores have reopened and some government restrictions have been partially or fully removed, the future impact of the COVID-19 pandemic remains highly uncertain, and our business and results of operations, including our net revenues, earnings and cash flows, could continue to be adversely impacted.

Outlook for 2021

We estimate our 2021 guidance as follows:

•Net sales of $6.2 billion to $6.3 billion;

•Operating profit of $730 million to $760 million;

•Full Potential plan-related charges of approximately $85 million reflected in operating profit;

•Interest expense and other expenses of approximately $185 million combined;

•An annual effective tax rate from continuing operations of approximately 14%;

•Diluted earnings per share from continuing operations from $1.33 to $1.41;

•Cash flow from operating activities of $500 million to $550 million; and

•Capital expenditures of approximately $140 million, which includes approximately $50 million related to our Full Potential plan.

Seasonality and Other Factors

Absent the effects of the COVID-19 pandemic, our operating results are typically subject to some variability due to seasonality and other factors. For instance, we have historically generated higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Sales levels in any period are also impacted by our 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 consumer spending trends. Discretionary spending is affected by many factors that are outside our control, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, energy prices, unemployment trends and other matters that influence consumer confidence and spending. 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. As a result, consumers may choose to purchase fewer of our products, 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.

Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as seasonal and replenishable activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to consumers’ preferences and discretionary spending.

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Condensed Consolidated Results of Operations — First Quarter Ended April 3, 2021 Compared with First Quarter Ended March 28, 2020

 

			Quarters Ended
			April 3, 2021						March 28, 2020						Higher (Lower)						Percent Change
			(dollars in thousands)
Net sales			$	1,508,029					$	1,203,070					$	304,959					25.3		%
Cost of sales			905,348						784,902						120,446						15.3
Gross profit			602,681						418,168						184,513						44.1
Selling, general and administrative expenses			412,559						370,215						42,344						11.4
Operating profit			190,122						47,953						142,169						296.5
Other expenses			2,561						6,101						(3,540)						(58.0)
Interest expense, net			44,460						36,027						8,433						23.4
Income from continuing operations before income tax expense			143,101						5,825						137,276						2,356.7
Income tax expense			14,697						707						13,990						1,978.8
Income from continuing operations			128,404						5,118						123,286						2,408.9
Loss from discontinued operations, net of tax			(391,666)						(12,992)						(378,674)						(2,914.7)
Net loss			$	(263,262)					$	(7,874)					$	(255,388)					(3,243.4)		%

Net Sales

Net sales increased 25% during the first quarter of 2021 primarily due to the following:

•The overlap of the initial COVID-19 pandemic shutdown in the first quarter of 2020;

•Retailers continuing to replenish inventory levels as stores reopened after temporary closures due to the COVID-19 pandemic in 2020 and incremental sales partially as a result of U.S. government stimulus spending; and

•The favorable impact from foreign exchange rates in our International business of approximately $43 million.

Partially offset by:

•The disruption of certain of our International businesses related to the negative effects of the COVID-19 pandemic. Net sales in Asia, Europe and the Americas continue to be impacted by COVID-19 related lockdowns.

Operating Profit

Operating profit as a percentage of net sales was 12.6%, representing an increase from 4.0% in the prior year. Increased operating profit was the result of higher sales, favorable product mix and the favorable impact from foreign exchange rates which more than offset higher freight costs and sourcing premiums to service demand. Included in operating profit in the first quarter of 2021 were charges of $19 million related to the implementation of our Full Potential plan. Included in operating profit in the first quarter of 2020 were charges of $24 million related to supply chain, program exit and other restructuring actions.

Other Highlights

Other Expenses – Other expenses decreased $4 million in the first quarter of 2021 compared to the first quarter of 2020 due to lower pension expense and lower funding fees for sales of accounts receivable to financial institutions in 2021.

Interest Expense – Interest expense was higher by $8 million in the first quarter of 2021 compared to the first quarter of 2020 driven by a higher weighted average interest rate on our borrowings during the quarter. Our weighted average interest rate on our outstanding debt was 4.07% for the first quarter of 2021, compared to 3.92% for the first quarter of 2020.

Income Tax Expense – Our effective income tax rate was 10.3% and 12.1% for the first quarters of 2021 and 2020, respectively. The lower effective tax rate for the quarter ended April 3, 2021 was primarily due to a discrete benefit for the release of reserves for unrecognized tax benefits of $7 million, partially offset by a discrete charge for changes in valuation allowances of $4 million.

Discontinued Operations – The results of our discontinued operations include the operations of our European Innerwear business which we reached the decision to exit at the end of the first quarter of 2021 in connection with our Full Potential plan. See note “Discontinued Operations” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for a discussion of non-cash asset impairment charges and a non-cash charge to record a valuation allowance against the net assets held for sale to write down the carrying value to the estimated fair value less costs of disposal.

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Operating Results by Business Segment — First Quarter Ended April 3, 2021 Compared with First Quarter Ended March 28, 2020

 

			Net Sales
			Quarters Ended
			April 3, 2021						March 28, 2020						Higher (Lower)						Percent Change
			(dollars in thousands)
Innerwear			$	570,435					$	422,402					$	148,033					35.0		%
Activewear			364,003						288,000						76,003						26.4
International			506,261						428,230						78,031						18.2
Other			67,330						64,438						2,892						4.5
Total			$	1,508,029					$	1,203,070					$	304,959					25.3		%

			Operating Profit and Margin
			Quarters Ended
			April 3, 2021												March 28, 2020												Higher (Lower)						Percent Change
			(dollars in thousands)
Innerwear			$	127,417					22.3		%				$	81,551					19.3		%				$	45,866					56.2		%
Activewear			60,594						16.6						8,108						2.8						52,486						647.3
International			87,180						17.2						50,745						11.8						36,435						71.8
Other			1,886						2.8						(3,393)						(5.3)						5,279						NM
Corporate			(86,955)						NM						(89,058)						NM						2,103						(2.4)
Total			$	190,122					12.6		%				$	47,953					4.0		%				$	142,169					296.5		%

Innerwear 

Innerwear net sales increased 35% compared to the first quarter of 2020 driven by a 39% and a 27% increase in net sales in our basics and intimate apparel businesses, respectively, primarily as a result of the overlap of the initial COVID-19 pandemic shutdown in the first quarter of 2020, retailers continuing to replenish inventory levels as stores reopened after temporary closures due to the COVID-19 pandemic in 2020 and incremental sales partially as a result of U.S. government stimulus spending. In our basics business, we experienced growth in each product category. In our intimate apparel business, the increase in bra sales more than offset the decline in shapewear sales, which is a category that continues to be negatively impacted by the COVID-19 pandemic.

Innerwear operating margin was 22.3%, an increase from 19.3% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales and favorable product mix partially offset by higher costs to service demand, such as air freight and sourcing premiums.

Activewear 

Activewear net sales increased 26% compared to the first quarter last year driven by growth in the online and brick-and-mortar channels, the overlap of the initial COVID-19 pandemic shutdown in the first quarter of 2020 and incremental sales partially as a result of U.S. government stimulus spending. We experienced growth in all product categories except our sports apparel business which continues to be negatively impacted by the COVID-19 pandemic.

Activewear operating margin was 16.6%, an increase from 2.8% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales and favorable product mix.

International

Net sales in the International segment increased 18% as a result of the negative impact of the COVID-19 pandemic in the first quarter of 2020 and the favorable impact of foreign currency exchange rates of approximately $43 million. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, increased 8.2%. The impact of foreign exchange rates is calculated by applying prior period exchange rates to the current year financial results. Net sales in our international markets continue to be negatively impacted by COVID-19 related lockdowns.

International operating margin was 17.2%, an increase from 11.8% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales.

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Other

Other net sales increased as a result of increased sales at our retail outlets during the first quarter of 2021 as a result of stores reopening after temporary store closures during the first quarter of 2020 due to the COVID-19 pandemic partially offset by continued declines in hosiery sales in the United States. Operating margin increased due to the increase in sales volume.

Corporate

Corporate expenses in the first quarter of 2021 included incremental recurring COVID-19 related costs such as cleaning and health-related supplies to protect our employees and customers, as well as higher variable compensation expense compared to the first quarter of 2020. Corporate expenses in the first quarter of 2020 included $11 million of bad debt expense related to charges for anticipated bankruptcies. Corporate expenses were lower in the first quarter of 2021 compared to the first quarter of 2020 due to lower restructuring and other action-related charges. Included in restructuring and other action-related charges in the first quarter of 2021 were $19 million of charges related to the implementation of our Full Potential plan. We recorded impairment charges of $7 million related to the full impairment of an indefinite-lived trademark related to a specific brand within the European Innerwear business that was excluded from the disposal group as it is not being marketed for sale. Supply chain actions include actions to reduce overhead costs. Program exit charges are costs associated with exiting our C9 Champion mass program and the DKNY intimate apparel license at the end of 2019. Other restructuring costs include action-related costs such as corporate workforce reductions.

			Quarters Ended
			April 3, 2021						March 28, 2020
			(dollars in thousands)
Restructuring and other action-related charges included in operating profit:
Full Potential Plan:
Professional services			$	11,706					$	—
Impairment of intangible assets			7,302						—
Other restructuring costs			385						—
2020 actions:
Supply chain actions			—						14,065
Program exit costs			—						8,213
Other restructuring costs			—						2,046
Total restructuring and other action-related charges included in operating profit			$	19,393					$	24,324

Liquidity and Capital Resources

Cash Requirements and Trends and Uncertainties Affecting Liquidity

We rely on our cash flows generated from operations and the borrowing capacity under our credit facilities to meet the cash requirements of our business. Our primary uses of cash are payments to our employees and vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments, contributions to our pension plans, regular quarterly dividend payments and income tax payments.

In April 2020, given the rapidly changing business environment and level of uncertainty created by the COVID-19 pandemic and the associated impact on future earnings, we amended our Senior Secured Credit Facility prior to any potential covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. The amendment changed certain provisions and covenants under the Senior Secured Credit Facility through the fiscal quarter ending July 3, 2021, after which our covenants revert to their original, pre-amendment levels.

We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts. If economic conditions caused by the COVID-19 pandemic worsen, our earnings and operating cash flows could be negatively impacted which could impact our ability to maintain compliance with our financial covenants and require us to seek additional amendments to our Senior Secured Credit Facility. If we are not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, our lenders could require us to repay our outstanding debt. In that situation, we may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.

Based on our current estimate of future earnings and cash flows, we believe we have sufficient cash and available borrowings for at least one year from the issuance of these financial statements based on our current expectations and forecasts.

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Our primary sources of liquidity are cash generated from global operations and cash available under our Revolving Loan Facility, our Australian Revolving Loan Facility, our Accounts Receivable Securitization Facility and our international credit facilities.

We had the following borrowing capacity and available liquidity under our credit facilities as of April 3, 2021:

			As of April 3, 2021
			Borrowing Capacity						Available Liquidity
			(dollars in thousands)
Senior Secured Credit Facility:
Revolving Loan Facility			$	1,000,000					$	995,824
Australian Revolving Loan Facility			45,572						45,572
Accounts Receivable Securitization Facility(1)			87,403						87,403
Other international credit facilities			116,734						85,245
Total liquidity from credit facilities			$	1,249,709					$	1,214,044
Cash and cash equivalents									530,403
Total liquidity									$	1,744,447

(1)Borrowing availability under the Accounts Receivable Securitization Facility is subject to a quarterly fluctuating facility limit, not to exceed $175 million, and permitted only to the extent that the face of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans.

The following have impacted or may impact our liquidity:

•The negative impact of the COVID-19 pandemic on our business.

•We have historically paid a regular quarterly dividend. The declaration of any future dividends and, if declared, the amount of any such dividends, will be subject to our actual future earnings, capital requirements, regulatory restrictions, debt covenants, other contractual restrictions and to the discretion of our Board of Directors.

•We have principal and interest obligations under our debt and ongoing financial covenants under those debt facilities, even after taking into account recent amendments. In March 2021, we repaid the outstanding balance of Term Loan B which consisted of a required excess cash flow prepayment of $239 million and a voluntary prepayment of $61 million.

•We have invested in efforts to accelerate worldwide omnichannel and global growth initiatives, as well as marketing and brand building.

•As part of our Full Potential plan, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan’s objectives.

•Although currently prohibited under our Senior Secured Credit Facility, in the future, we may pursue strategic business acquisitions.

•We made a contribution of $40 million to our U.S. pension plan in the quarter ended April 3, 2021. We may also elect to make additional voluntary contributions.

•We may increase or decrease the portion of the current-year income of our foreign subsidiaries that we remit to the United States, which could impact our effective income tax rate. Consistent with our investment strategy as it pertains to our historical foreign earnings as of January 2, 2021, we intend to remit foreign earnings totaling $668 million.

•We are obligated to make installment payments over an eight-year period related to our transition tax liability resulting from the implementation of the Tax Cuts and Jobs Act, which began in 2018, in addition to any estimated income taxes due based on current year taxable income. In the quarter ended April 3, 2021, we made no installment payments on our transition tax liability. On April 13, 2021, we made an installment payment of $10 million on our transition tax liability. We currently have a remaining balance due of approximately $42 million to be paid in installment payments through 2025.

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Sources and Uses of Our Cash

The information presented below regarding the sources and uses of our cash flows for the quarters ended April 3, 2021 and March 28, 2020 was derived from our condensed consolidated interim financial statements.

			Quarters Ended
			April 3, 2021						March 28, 2020
			(dollars in thousands)
Operating activities			$	16,946					$	(83,216)
Investing activities			(13,604)						(24,477)
Financing activities			(354,423)						877,514
Effect of changes in foreign exchange rates on cash			(17,662)						(15,061)
Change in cash, cash equivalents and restricted cash			(368,743)						754,760
Cash, cash equivalents and restricted cash at beginning of year			910,603						329,923
Cash, cash equivalents and restricted cash at end of period			541,860						1,084,683
Less restricted cash at end of period			1,153						903
Cash and cash equivalents at end of period			$	540,707					$	1,083,780
Balances included in the Condensed Consolidated Balance Sheets:
Cash and cash equivalents			$	530,403					$	1,069,490
Cash and cash equivalents included in current assets of discontinued operations			10,304						14,290
Cash and cash equivalents at end of period			$	540,707					$	1,083,780

Operating Activities

Our overall liquidity has historically been driven by our cash flow provided by operating activities, which is dependent on net income and changes in our working capital. We typically use cash during the first half of the year and generate most of our cash flow in the second half of the year. As compared to the prior year, the higher net cash provided by operating activities was primarily due to higher income from continuing operations partially offset by changes in working capital. Cash used by operating activities includes a $40 million and a $25 million contribution to our U.S. pension plan made in the first quarter of 2021 and 2020, respectively.

Investing Activities

Investing activities in the first quarter of 2021 and 2020 primarily include capital investments into our business. The decrease in cash used by investing activities in first quarter of 2021 compared to 2020 was primarily the result of a decrease in capital investments into our business as we manage our spending on our focused strategic goals.

Financing Activities

Net cash from financing activities decreased primarily as a result of lower borrowings as compared to the same period of 2020. We increased our borrowings in the first quarter of 2020 primarily to strengthen our cash position and to provide us with additional financial flexibility to manage our business with a safety-first emphasis during the unknown duration and impact of the COVID-19 pandemic. Additionally, in the first quarter of 2021, we repaid the outstanding balance of Term Loan B which consisted of a required excess cash flow prepayment of $239 million and a voluntary prepayment of $61 million. We also repurchased shares at a total cost of $200 million in the first quarter of 2020.

Financing Arrangements

In March 2021, we amended the Accounts Receivable Securitization Facility. This amendment primarily decreased the fluctuating facility limit to $175 million (previously $225 million) and extended the maturity date to June 2022. Additionally, the amendment changed certain ratios and borrowing base calculations, raised pricing and added certain receivables to the pledged collateral pool for the facility.

We believe our financing structure provides a secure base to support our operations and key business strategies. As of April 3, 2021, we were in compliance with all financial covenants under our credit facilities and other outstanding indebtedness. We continue to monitor our covenant compliance carefully. Under the terms of our Senior Secured Credit Facility, we are required to maintain a minimum interest coverage ratio and a maximum leverage ratio. The interest coverage ratio covenant is the ratio of our EBITDA for the preceding four fiscal quarters to our consolidated total interest expense and the leverage ratio covenant is the ratio of our net debt to EBITDA for the preceding four fiscal quarters. EBITDA is defined as earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility. In April 2020, given the rapidly changing business environment and level of uncertainty being created by the COVID-19 pandemic and the associated impact on future earnings, we amended our Senior Secured Credit Facility prior to any potential

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covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. We expect to maintain compliance with our covenants for at least one year from the date of these financial statements based on our current expectations and forecasts, however economic conditions or the occurrence of events discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended January 2, 2021 or other SEC filings could cause noncompliance.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of SEC Regulation S-K.

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, “Summary of Significant Accounting Policies,” to our financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021.

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 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 2, 2021. There have been no material changes in these policies from those described in our Annual Report on Form 10-K for the year ended January 2, 2021.

Recently Issued Accounting Pronouncements

For a summary of recently issued accounting pronouncements, see Note, “Recent Accounting Pronouncements” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.

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 2, 2021.

Item 4.			Controls and Procedures

Disclosure Controls and Procedures

As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief Accounting Officer (who is currently serving as our Principal 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 Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of April 3, 2021.

Changes in Internal Control over Financial Reporting

In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and Chief Accounting Officer (who is currently serving as our Principal 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.

PART II

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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

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.			Defaults Upon Senior Securities

None.

Item 4.			Mine Safety Disclosures

Not applicable.

Item 5.			Other Information

None.

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Item 6.			Exhibits

Exhibit Number						Description
3.1						Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s 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 Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).
3.3						Articles of Amendment to Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2015).
3.4						Articles Supplementary (Reclassifying Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2015).
3.5						Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2017).
4.1						Supplemental Indenture No. 10 (to Indenture dated June 3, 2016), dated as of April 12, 2021, among Hanesbrands Finance Luxembourg S.C.A., HBI Holdings Switzerland GmbH and U.S. Bank Trustees Limited.
10.1						Letter Agreement with Tracy M. Preston dated February 12, 2021.*
31.1						Certification of Stephen B. Bratspies, Chief Executive Officer.
31.2						Certification of M. Scott Lewis, Chief Accounting Officer and Principal Financial Officer.
32.1						Section 1350 Certification of Stephen B. Bratspies, Chief Executive Officer.
32.2						Section 1350 Certification of M. Scott Lewis, Chief Accounting Officer and Principal Financial Officer.
101.INS XBRL						Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
104						Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)

*    Management contract or compensatory plans or arrangements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

HANESBRANDS INC.
By:						/s/ M. Scott Lewis
						M. Scott Lewis Chief Accounting Officer and Principal Financial Officer (Duly authorized officer and principal financial officer)

Date: May 12, 2021

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