we are
what you wear
2008 Annual Report
e
Hanesbrands at a Glance
Hanesbrands is a strong and
l
responsible global apparel
company focused on driving
ful
profi table growth through powerful
d integrated
consumer brands, an effi cient and integrated
hly skilled and
worldwide supply chain, and highly skilled and
es. revenue:
committed world-class employees. revenue:
ees: approximately
$4.25 billion (2008) employees: approximately
45,000 in more than 25 countries products: essential innerwear
and outerwear apparel including T-shirts, socks, bras, underwear, sheer
hosiery, activewear and casualwear customers: all channels of trade,
including dollar-store, mass-merchandise, mid-tier, department-store
and club retailers, and direct to consumers via catalogs, the Internet and
company-owned retail stores brands: big, strong consumer-packaged
brands that are some of the largest in retail sales: Hanes ($5 billion+),
of t
Champion ($1.5 billion+), Playtex, Bali and
Ch
Just My Size ($400 million+), L’eggs, barely there
Jus
and Wonderbra ($200 million+)
markets: North and South America,
Europe and Asia.
long-term growth goals
revenues
1 to 3% annually, excluding acquisitions
operating profit *
earnings per share*
6 to 8% annually
10 to 20% annually
*Operating profit and earnings per share growth goals exclude one-time actions and restructuring,
which are not generally accepted accounting principle measures.
powerful
consumer
brands
®
®
®
®
®
®
®
®
®
®
To our investors:
In the midst of one of the worst recessions we have seen in decades, I am pleased with
the accomplishments we achieved in 2008, thankful for the resiliency of our business model
and strategies, and confident in the priorities we have set for 2009. Our goal is to emerge
from this economic downturn with momentum and as an even stronger company.
We have been successfully executing against the same
set of Sell More, Spend Less and Generate Cash strategies
for the past three years. That consistency is paying off.
Our progress has been evident during the period since
our spinoff as an independent company in 2006.
strong strategies Under our Sell More
strategy, Hanesbrands has major brand-building initiatives under
way in core categories with its strongest and largest brands,
including Hanes, Champion, Playtex and Bali. We are using
our brands, the investments we make in our brands and the
essential nature of our basic apparel products to advance
strategic partnerships with key retailers.
With our Spend Less strategy, we are ahead of schedule
in realigning our global supply chain into lower-cost countries,
consolidating and streamlining our organization and distribution
network, and leveraging the collective size and power of our
purchasing organization.
We have been using our Generate Cash strategy to reduce
our debt leverage by using free cash flow to prepay debt, and
we will continue to do so over the next 12 to 24 months.
In this economic climate, we intend to stay sharply focused on
conservatively managing inventory and costs, actively managing
our capital structure, generating cash to pay down debt, and
maximizing the power of our brands and global supply chain.
2008 accomplishments We had many achieve-
ments in 2008, a year in which we faced rising commodity costs
and an unprecedented collapse in the consumer retail sales
environment. We successfully controlled year-end inventories,
paid down debt, reduced costs, executed our supply chain
strategy ahead of schedule, and announced a price increase.
In the end, we delivered diluted EPS excluding actions growth
of more than 25 percent despite a 5 percent sales decline.*
We invested in media at the second-highest level in
the company’s history, gaining share in our key innerwear
segment. We moved all remaining knit textile production
offshore ahead of schedule, and made significant progress in
building our supply chain in Asia. We paid down $139 million
of debt in 2008, and we have paid down more than $420 million
of debt since the spinoff.
2009 and long-term goals Our single
biggest challenge in 2009 is the economic recession and
its impact on our top line. While it is highly unlikely in
this environment that we will achieve our long-term financial
growth goals in 2009, these goals remain appropriate for our
company: to expand operating profit excluding actions and
earnings per share excluding actions at a faster rate than sales.
Our priorities for operating through the economic downturn
are: 1) to maintain liquidity and reduce debt, 2) to gain market
share to mitigate revenue declines, 3) to continue to improve
our cost competitiveness, and 4) to maintain reasonable levels
of profit and cash flow.
We have opportunities to mitigate the impact of the
recession, including a recently implemented price increase,
cost reductions, and favorable commodity costs in the second
half. Our strategies are sound and strong, and we are executing
well. People are still wearing underwear, socks, bras, T-shirts
and activewear as often as before and will need to replenish.
Our cash flow should be adequate to support our debt and
to provide ample cushion to weather the storm.
At some point, the recession will end. Our sound business
model and our consistent execution against our strategies will
allow us to emerge as a stronger company.
*Diluted EPS excluding actions is a non-GAAP measure used to better assess underlying business
performance because it excludes the effect of unusual actions that are not directly related to
operations, which was $2.09 for 2008 compared to GAAP diluted EPS of $1.34. The unusual
actions in 2008 were restructuring and related charges and the tax effect on these items.
Richard A. Noll
Chairman and Chief Executive Officer
March 5, 2009
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
R ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 2009
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-32891
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State of incorporation)
1000 East Hanes Mill Road
Winston-Salem, North Carolina
(Address of principal executive office)
20-3552316
(I.R.S. employer identification no.)
27105
(Zip code)
(336) 519-4400
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share and related
Preferred Stock Purchase Rights
Name of each exchange on which registered:
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes R No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes £ No R
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 R No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer R
Accelerated filer £
Non-accelerated filer £
(Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
As of June 27, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $2,604,038,549 (based
on the closing price of the common stock of $27.75 per share on that date, as reported on the New York Stock Exchange and, for purposes of this
computation only, the assumption that all of the registrant’s directors and executive officers are affiliates and that beneficial holders of 5% or more
of the outstanding common stock are not affiliates).
As of February 2, 2009, there were 93,576,662 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference to portions of the registrant’s proxy statement for its 2009 annual meeting of stockholders.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
TABLE OF CONTENTS
Page
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2
PART 1
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Item 1A
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 1C
Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . 22
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 24
Item 7A
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Item 8
Item 9
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 59
Item 9A
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 9B
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PART III
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . 60
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 14
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
PART IV
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
TRAdemARks, TRAde NAmes ANd seRVIce mARks
We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation
of our business. Some of the more important trademarks that we own or have rights to use that appear in this Annual Report on
Form 10-K include the Hanes, Champion, C9 by Champion, Playtex, Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman,
Outer Banks, Zorba, Rinbros and Duofold marks, which may be registered in the United States and other jurisdictions. We do not
own any trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K.
1
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
FORWARd-LOOkING s TATemeNTs
n the highly competitive and evolving nature of the industry
This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securi-
ties 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.
In particular, information appearing under “Business,” “Risk Fac-
tors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” includes forward-looking
statements. Forward-looking statements inherently involve many
risks and uncertainties that could cause actual results to differ
materially from those projected in these statements. Where, in
any forward-looking statement, we express an expectation or
belief as to future results or events, such expectation or belief is
based on the current plans and expectations of our management
and expressed in good faith and believed to have a reasonable
basis, but there can be no assurance that the expectation or
belief will result or be achieved or accomplished. The following
include some but not all of the factors that could cause actual
results or events to differ materially from those anticipated:
n our ability to execute our consolidation and globalization
strategy, including migrating our production and manufactur-
ing operations to lower-cost locations around the world;
n our ability to successfully manage social, political, economic
and other conditions affecting our foreign operations and
supply chain sources, such as disruption of markets, changes
in import and export laws, currency restrictions and currency
exchange rate fluctuations;
n current economic conditions;
n consumer spending levels;
n the risk of inflation or deflation;
n financial difficulties experienced by any of our top customers
or groups of customers;
n our debt and debt service requirements that restrict our
operating and financial flexibility and impose interest and
financing costs;
n the financial ratios that our debt instruments require us to
maintain;
n future financial performance, including availability, terms and
deployment of capital;
n dramatic changes in the volatile market price of cotton, the
primary material used in the manufacture of our products;
n the impact of increases in prices of other materials used in
our products, such as dyes and chemicals;
n the impact of increases in prices of oil-related materials and
other costs, such as energy and utility costs;
n our ability to effectively manage our inventory and reduce
inventory reserves;
n loss of or reduction in sales to any of our top customers,
especially Wal-Mart, or group of customers;
2
in which we compete;
n our ability to keep pace with changing consumer prefer-
ences;
n our ability to continue to effectively distribute our products
through our distribution network as we continue to consoli-
date our distribution network;
n our ability to comply with environmental and occupational
health and safety laws and regulations;
n costs and adverse publicity arising from violations of labor
laws by us or any of our third-party manufacturers;
n our ability to attract and retain key personnel;
n new litigation or developments in existing litigation; and
n possible terrorist attacks and ongoing military action in the
Middle East and other parts of the world.
There may be other factors that may cause our actual results
to differ materially from the forward-looking statements. Our
actual results, performance or achievements could differ materi-
ally from those expressed in, or implied by, the forward-looking
statements. We can give no assurances that any of the events
anticipated by the forward-looking statements will occur or, if
any of them does, what impact they will have on our results of
operations and financial condition. You should carefully read the
factors described in the “Risk Factors” section of this Annual
Report on Form 10-K for a description of certain risks that could,
among other things, cause our actual results to differ from these
forward-looking statements.
All forward-looking statements speak only as of the date
of this Annual Report on Form 10-K and are expressly qualified
in their entirety by the cautionary statements included in this
Annual Report on Form 10-K. We undertake no obligation to
update or revise forward-looking statements that may be made
to reflect events or circumstances that arise after the date made
or to reflect the occurrence of unanticipated events, other than
as required by law.
WHeRe YOU c AN FINd mORe INFORmATION
We file annual, quarterly and special reports, proxy state-
ments and other information with the Securities and Exchange
Commission (the “SEC”). You can inspect, read and copy these
reports, proxy statements and other information at the public
reference facilities the SEC maintains at 100 F Street, N.E.,
Washington, D.C. 20549.
We make available free of charge at www.hanesbrands.com
(in the “Investors” section) copies of materials we file with, or
furnish to, the SEC. You can also obtain copies of these materials
at prescribed rates by writing to the Public Reference Section
of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You
can obtain information on the operation of the public reference
facilities by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that makes available re-
ports, proxy statements and other information regarding issuers
that file electronically with it. By referring to our website, www.
hanesbrands.com, we do not incorporate our website or its
contents into this Annual Report on Form 10-K.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
PART I
ITem 1. Business
General
We are a consumer goods company with a portfolio of
leading apparel brands, including Hanes, Champion, C9 by
Champion, Playtex, Bali, L’eggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks, Zorba, Rinbros and Duofold.
We design, manufacture, source and sell a broad range of ap-
parel essentials such as t-shirts, bras, panties, men’s underwear,
kids’ underwear, casualwear, activewear, socks and hosiery.
The apparel essentials sector of the apparel industry is
characterized by frequently replenished items, such as t-shirts,
bras, panties, men’s underwear, kids’ underwear, socks and
hosiery. Growth and sales in the apparel essentials industry
are not primarily driven by fashion, in contrast to other areas of
the broader apparel industry. We focus on the core attributes of
comfort, fit and value, while remaining current with regard to
consumer trends. The majority of our core styles continue from
year to year, with variations only in color, fabric or design details.
Some products, however, such as intimate apparel, activewear
and sheer hosiery, do have an emphasis on style and innovation.
We continue to invest in our largest and strongest brands to
achieve our long-term growth goals. In addition to designing and
marketing apparel essentials, we have a long history of operating
a global supply chain that incorporates a mix of self-manufactur-
ing, third-party contractors and third-party sourcing.
Our fiscal year ends on the Saturday closest to December 31
and, until it was changed during 2006, ended on the Saturday
closest to June 30. We refer to the fiscal year ended January 3,
2009 as the year ended January 3, 2009. A reference to a year
ended on another date is to the fiscal year ended on that date.
Our operations are managed and reported in five operating seg-
ments: Innerwear, Outerwear, International, Hosiery and Other. The
following table summarizes our operating segments by category:
Segment
Primary Products
Primary Brands
Innerwear
Intimate apparel, such as
bras, panties and bodywear
Hanes, Playtex, Bali, barely there,
Just My Size, Wonderbra, Duofold
Men’s underwear
and kids’ underwear
Socks
Activewear, such as
performance t-shirts
and shorts and fleece
Outerwear
Hanes, Champion, C9 by Champion,
Polo Ralph Lauren*
Hanes, Champion, C9 by Champion
Champion, C9 by Champion
Casualwear, such as t-shirts,
fleece and sport shirts
Hanes, Just My Size, Outer Banks,
Champion, Hanes Beefy-T
International Activewear, men’s underwear, Hanes, Wonderbra,** Champion,
kids’ underwear, intimate
apparel, socks, hosiery and
casualwear
Stedman, Playtex,** Zorba, Rinbros,
Kendall,* Sol y Oro, Ritmo, Bali
Hosiery
Hosiery
Other
Nonfinished products,
including fabric and certain
other materials
* Brand used under a license agreement.
L’eggs, Hanes, Donna Karan,*
DKNY,* Just My Size
Not applicable
** As a result of the February 2006 sale of the European branded apparel business of Sara Lee
Corporation, or “Sara Lee,” we are not permitted to sell this brand in the member states of
the European Union, or the “EU,” several other European countries and South Africa.
Our brands have a strong heritage in the apparel essen-
tials industry. According to The NPD Group/Consumer Tracking
Service, or “NPD,” our brands hold either the number one or
number two U.S. market position by sales value in most product
categories in which we compete, for the 12 month period ended
November 30, 2008. In 2008, Hanes was number one for the
fifth consecutive year on the Women’s Wear Daily “Top 100
Brands Survey” for apparel and accessory brands that women
know best and was number one for the fifth consecutive year as
the most preferred men’s, women’s and children’s apparel brand
of consumers in Retailing Today magazine’s “Top Brands Study.”
Additionally, we had five of the top ten intimate apparel brands
preferred by consumers in the Retailing Today study — Hanes,
Playtex, Bali, Just My Size and L’eggs.
Our products are sold through multiple distribution channels.
During the year ended January 3, 2009, approximately 44% of our
net sales were to mass merchants, 18% were to national chains
and department stores, 9% were direct to consumers, 11% were
in our International segment and 18% were to other retail chan-
nels such as embellishers, specialty retailers, warehouse clubs
and sporting goods stores. We have strong, long-term relation-
ships with our top customers, including relationships of more
than ten years with each of our top ten customers. The size and
operational scale of the high-volume retailers with which we do
business require extensive category and product knowledge and
specialized services regarding the quantity, quality and planning
of product orders. We have organized multifunctional customer
management teams, which has allowed us to form strategic
long-term relationships with these customers and efficiently focus
resources on category, product and service expertise. We also
have customer-specific programs such as the C9 by Champion
products marketed and sold through Target stores.
Our ability to react to changing customer needs and industry
trends is key to our success. Our design, research and product
development teams, in partnership with our marketing teams,
drive our efforts to bring innovations to market. We seek to lever-
age our insights into consumer demand in the apparel essentials
industry to develop new products within our existing lines and to
modify our existing core products in ways that make them more
appealing, addressing changing customer needs and industry
trends. Examples of our recent innovations include:
n Hanes no ride up panties, specially designed for a better
fit that helps women stay “wedgie-free” (2008).
n Hanes Lay Flat Collar Undershirts and Hanes No Ride Up
Boxer briefs, the brand’s latest innovation in product comfort
and fit (2008).
n Bali Concealers bras, the first and only bra with revolutionary
concealing petals for complete modesty (2008).
n Hanes Comfort Soft T-shirt (2007).
n Bali Passion for Comfort bra, designed to be the ultimate
comfort bra, features a silky smooth lining for a luxurious
feel against the body (2007).
n Hanes All-Over Comfort Bra, which features stay-put
straps that don’t slip, cushioned wires that don’t poke
and a tag-free back (2006).
3
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
One of our key initiatives is to globalize our supply chain by
Our Brands
balancing across hemispheres into “economic” clusters with
fewer, larger facilities. During the year ended January 3, 2009,
in furtherance of our efforts to execute our consolidation and
globalization strategy, we approved actions to close 11 manufac-
turing facilities and three distribution centers and eliminate
approximately 6,800 positions in Mexico, the United States,
Costa Rica, Honduras and El Salvador. The production capacity
represented by the manufacturing facilities has been relocated
to lower cost locations in Asia, Central America and the Caribbean
Basin. The distribution capacity has been relocated to our West
Coast distribution facility in California in order to expand capacity
for goods we source from Asia. In addition, approximately 200
management and administrative positions were eliminated, with
the majority of these positions based in the United States. We
also have recognized accelerated depreciation with respect to
owned or leased assets associated with manufacturing facilities
and distribution centers which we closed during 2008 or antici-
pate closing in the next several years as part of our consolidation
and globalization strategy. The continued implementation of this
strategy, which is designed to improve operating efficiencies
and lower costs, has resulted and is likely to continue to result
in significant costs in the short-term and to generate savings as
well as higher inventory levels for the next 12 to 15 months. As
further plans are developed and approved, we expect to recognize
additional restructuring costs as we eliminate duplicative func-
tions within the organization and transition a significant portion
of our manufacturing capacity to lower-cost locations. As a result
of this strategy, we expect to incur approximately $250 million
in restructuring and related charges over the three year period
following the spin off from Sara Lee on September 5, 2006,
approximately half of which is expected to be noncash. As of
January 3, 2009, we have recognized approximately $209 million
and announced approximately $219 million in restructuring and
related charges related to this strategy since September 5, 2006.
We were spun off from Sara Lee on September 5, 2006. In
connection with the spin off, Sara Lee contributed its branded
apparel Americas and Asia business to us and distributed all of
the outstanding shares of our common stock to its stockholders
on a pro rata basis. References in this Annual Report on Form
10-K to our assets, liabilities, products, businesses or activities
of our business for periods including or prior to the spin off are
generally intended to refer to the historical assets, liabilities,
products, businesses or activities of the contributed businesses
as the businesses were conducted as part of Sara Lee and its
subsidiaries prior to the spin off.
Our portfolio of leading brands is designed to address the
needs and wants of various consumer segments across a broad
range of apparel essentials products. Each of our brands has a
particular consumer positioning that distinguishes it from its com-
petitors and guides its advertising and product development. We
discuss some of our most important brands in more detail below.
Hanes is the largest and most widely recognized brand in our
portfolio. In 2008, Hanes was number one for the fifth consecu-
tive year on the Women’s Wear Daily “Top 100 Brands Survey”
for apparel and accessory brands that women know best and
was number one for the fifth consecutive year as the most pre-
ferred men’s, women’s and children’s apparel brand of consum-
ers in Retailing Today magazine’s “Top Brands Study.” The Hanes
brand covers all of our product categories, including men’s
underwear, kids’ underwear, bras, panties, socks, t-shirts, fleece
and sheer hosiery. Hanes stands for outstanding comfort, style
and value. According to Millward Brown Market Research, Hanes
is found in over 85% of the United States households that have
purchased men’s or women’s casual clothing or underwear in the
12-month period ended December 31, 2008.
Champion is our second-largest brand. Specializing in athletic
and other performance apparel, the Champion brand is designed
for everyday athletes. We believe that Champion’s combination
of comfort, fit and style provides athletes with mobility, durability
and up-to-date styles, all product qualities that are important in
the sale of athletic products. We also distribute products under
the C9 by Champion brand exclusively through Target stores.
Playtex, the third-largest brand within our portfolio, offers a line
of bras, panties and shapewear, including products that offer solu-
tions for hard to fit figures. Bali is the fourth-largest brand within
our portfolio. Bali offers a range of bras, panties and shapewear
sold in the department store channel. Our brand portfolio also
includes the following well-known brands: L’eggs, Just My Size,
barely there, Wonderbra, Outer Banks and Duofold. These brands
serve to round out our product offerings, allowing us to give con-
sumers a variety of options to meet their diverse needs.
Our segments
Our operations are managed in five operating segments,
each of which is a reportable segment for financial reporting
purposes: Innerwear, Outerwear, International, Hosiery and
Other. These segments are organized principally by product cat-
egory and geographic location. Management of each segment
is responsible for the operations of these businesses but share
a common supply chain and media and marketing platforms.
For more information about our segments, see Note 21 to our
Consolidated Financial Statements included in this Annual
Report on Form 10-K.
4
H AN E SBRANDS INC.
Innerwear
The Innerwear segment focuses on core apparel essentials,
and consists of products such as women’s intimate apparel,
men’s underwear, kids’ underwear, socks, thermals and sleep-
wear, marketed under well-known brands that are trusted by
consumers. We are an intimate apparel category leader in the
United States with our Hanes, Playtex, Bali, barely there, Just My
Size, Wonderbra and Duofold brands. We are also a leading manu-
facturer and marketer of men’s underwear and kids’ underwear
under the Hanes, Champion, C9 by Champion and Polo Ralph
Lauren brand names. Our direct-to-consumer retail operations
are included within the Innerwear segment. The retail operations
include our value-based (“outlet”) stores, internet operations and
catalogs which sell products from our portfolio of leading brands.
As of January 3, 2009 and December 29, 2007, we had 213 and
216 outlet stores, respectively. Net sales for the year ended
January 3, 2009 from our Innerwear segment were $2.4 billion,
representing approximately 56% of total segment net sales.
Outerwear
We are a leader in the casualwear and activewear markets
through our Hanes, Champion and Just My Size brands, where
we offer products such as t-shirts and fleece. Our casualwear
lines offer a range of quality, comfortable clothing for men, wom-
en and children marketed under the Hanes and Just My Size
brands. The Just My Size brand offers casual apparel designed
exclusively to meet the needs of plus-size women. In addition to
activewear for men and women, Champion provides uniforms
for athletic programs and includes an apparel program, C9 by
Champion, at Target stores. We also license our Champion name
for collegiate apparel and footwear. We also supply our t-shirts,
sportshirts and fleece products primarily to wholesalers, who
then resell to screen printers and embellishers, through brands
such as Hanes, Champion, Outer Banks and Hanes Beefy-T. Net
sales for the year ended January 3, 2009 from our Outerwear
segment were $1.2 billion, representing approximately 28% of
total segment net sales.
International
International includes products that span across the In-
nerwear, Outerwear and Hosiery reportable segments and are
marketed primarily under the Hanes, Wonderbra, Champion,
Stedman, Playtex, Zorba, Rinbros, Kendall, Sol y Oro, Ritmo
and Bali brands. Net sales for the year ended January 3, 2009
from our International segment were $460 million, representing
approximately 11% of total segment net sales and included sales
in Latin America, Asia, Canada and Europe. Canada, Europe,
Japan and Mexico are our largest international markets, and
we also have sales offices in India and China.
Hosiery
We are the leading marketer of women’s sheer hosiery in
the United States. We compete in the hosiery market by striving
to offer superior values and executing integrated marketing
activities, as well as focusing on the style of our hosiery products.
We market hosiery products under our L’eggs, Hanes and Just
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
My Size brands. Net sales for the year ended January 3, 2009
from our Hosiery segment were $228 million, representing
approximately 5% of total segment net sales. We expect the trend
of declining hosiery sales to continue consistent with the overall
decline in the industry and with shifts in consumer preferences.
Other
Our Other segment consists of sales of nonfinished
products such as yarn and certain other materials in the United
States and Latin America that maintain asset utilization at certain
manufacturing facilities and are expected to generate break even
margins. Net sales for the year ended January 3, 2009 in our
Other segment were $22 million, representing less than 1%
of total segment net sales. Net sales from our Other segment
are expected to continue to decline and to ultimately become
insignificant to us as we complete the implementation of our
consolidation and globalization efforts.
design, Research and Product development
At the core of our design, research and product development
capabilities is a team of more than 300 professionals. We have
combined our design, research and development teams into
an integrated group for all of our product categories. A facility
located in Winston-Salem, North Carolina, is the center of our
research, technical design and product development efforts. We
also employ creative design and product development personnel
in our design center in New York City. During the years ended
January 3, 2009 and December 29, 2007, the six months ended
December 30, 2006 and the year ended July 1, 2006, we spent
approximately $46 million, $45 million, $23 million and $55 mil-
lion, respectively, on design, research and product development.
customers
In the year ended January 3, 2009, approximately 88%
of our net sales were to customers in the United States and
approximately 12% were to customers outside the United States.
Domestically, almost 83% of our net sales were wholesale sales
to retailers, 9% were direct to consumers and 8% were whole-
sale sales to third-party embellishers. We have well-established
relationships with some of the largest apparel retailers in the
world. Our largest customers are Wal-Mart Stores, Inc., or “Wal-
Mart,” Target Corporation, or “Target,” and Kohl’s Corporation,
or “Kohl’s,” accounting for 27%, 16% and 6%, respectively, of
our total sales in the year ended January 3, 2009. As is com-
mon in the apparel essentials industry, we generally do not have
purchase agreements that obligate our customers, including
Wal-Mart, to purchase our products. However, all of our key
customer relationships have been in place for ten years or more.
Wal-Mart and Target are our only customers with sales that
exceed 10% of any individual segment’s sales. In our Innerwear
segment, Wal-Mart accounted for 32% of sales and Target ac-
counted for 13% of sales during the year ended January 3, 2009.
In our Outerwear segment, Target accounted for 30% of sales
and Wal-Mart accounted for 21% of sales during the year ended
January 3, 2009.
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H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Due to their size and operational scale, high-volume
Sales in our International segment represented approximately
retailers such as Wal-Mart require extensive category and
product knowledge and specialized services regarding the
quantity, quality and timing of product orders. We have
organized multifunctional customer management teams, which
has allowed us to form strategic long-term relationships with
these customers and efficiently focus resources on category,
product and service expertise.
Smaller regional customers attracted to our leading brands
and quality products also represent an important component
of our distribution. Our organizational model provides for an ef-
ficient use of resources that delivers a high level of category and
channel expertise and services to these customers.
Sales to the mass merchant channel accounted for approxi-
mately 44% of our net sales in the year ended January 3, 2009.
We sell all of our product categories in this channel primarily
under our Hanes, Just My Size, Playtex and C9 by Champion
brands. Mass merchants feature high-volume, low-cost sales
of basic apparel items along with a diverse variety of consumer
goods products, such as grocery and drug products and other
hard lines, and are characterized by large retailers, such as Wal-
Mart. Wal-Mart, which accounted for approximately 27% of our
net sales during the year ended January 3, 2009, is our largest
mass merchant customer.
Sales to the national chains and department stores channel
accounted for approximately 18% of our net sales during the
year ended January 3, 2009. These retailers target a higher-in-
come consumer than mass merchants, focus more of their sales
on apparel items rather than other consumer goods such as
grocery and drug products, and are characterized by large retail-
ers such as Kohl’s, JC Penney Company, Inc. and Sears Holdings
Corporation. We sell all of our product categories in this channel.
Traditional department stores target higher-income consum-
ers and carry more high-end, fashion conscious products than
national chains or mass merchants and tend to operate in higher-
income areas and commercial centers. Traditional department
stores are characterized by large retailers such as Macy’s and
Dillard’s, Inc. We sell products in our intimate apparel, hosiery
and underwear categories through department stores.
Sales to the direct to consumer channel, which are included
within the Innerwear segment, accounted for approximately 9%
of our net sales in the year ended January 3, 2009. We sell our
branded products directly to consumers through our 213 outlet
stores, as well as our catalogs and our web sites operating
under the Hanes, OneHanesPlace, Just My Size and Champion
names. Our outlet stores are value-based, offering the consum-
er a savings of 25% to 40% off suggested retail prices, and sell
first-quality, excess, post-season, obsolete and slightly imper-
fect products. Our catalogs and web sites address the growing
direct to consumer channel that operates in today’s 24/7 retail
environment, and we have an active database of approximately
three million consumers receiving our catalogs and emails. Our
web sites have experienced significant growth and we expect
this trend to continue as more consumers embrace this retail
shopping channel.
11% of our net sales during the year ended January 3, 2009,
and included sales in Latin America, Asia, Canada and Europe.
Canada, Europe, Japan and Mexico are our largest international
markets, and we also have sales offices in India and China. We
operate in several locations in Latin America including Mexico,
Argentina, Brazil and Central America. From an export busi-
ness perspective, we use distributors to service customers in
the Middle East and Asia, and have a limited presence in Latin
America. The brands that are the primary focus of the export
business include Hanes underwear and Bali, Playtex, Wonderbra
and barely there intimate apparel. As discussed below under
“Intellectual Property,” we are not permitted to sell Wonderbra
and Playtex branded products in the member states of the EU,
several other European countries, and South Africa.
Sales in other channels represented approximately 18% of
our net sales during the year ended January 3, 2009. We sell
t-shirts, golf and sport shirts and fleece sweatshirts to third-party
embellishers primarily under our Hanes, Hanes Beefy-T and
Outer Banks brands. Sales to third-party embellishers accounted
for approximately 8% of our net sales during the year ended
January 3, 2009. We also sell a significant range of our under-
wear, activewear and socks products under the Champion brand
to wholesale clubs, such as Costco, and sporting goods stores,
such as The Sports Authority, Inc. We sell primarily legwear and
underwear products under the Hanes and L’eggs brands to food,
drug and variety stores. We sell products that span across our
Innerwear, Outerwear and Hosiery segments to the U.S. military
for sale to servicemen and servicewomen.
Inventory
Effective inventory management is a key component of
our future success. Because our customers do not purchase
our products under long-term supply contracts, but rather on a
purchase order basis, effective inventory management requires
close coordination with the customer base. Through Kanban sales
and production planning, inventory management, product sched-
uling, demand prioritization and related initiatives that facilitate
just-in-time production and ordering systems, we seek to ensure
that products are available to meet customer demands while ef-
fectively managing inventory levels. We also employ various other
types of inventory management techniques that include collab-
orative forecasting and planning, vendor-managed inventory, key
event management and various forms of replenishment manage-
ment processes. We have demand management planners in our
customer management group who work closely with customers
to develop demand forecasts that are passed to the supply chain.
We also have professionals within the customer management
group who coordinate daily with our larger customers to help
ensure that our customers’ planned inventory levels are in fact
available at their individual retail outlets. Additionally, within our
supply chain organization we have dedicated professionals who
translate the demand forecast into our inventory strategy and
specific production plans. These individuals work closely with our
customer management team to balance inventory investment/
exposure with customer service targets.
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H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
seasonality and Other Factors
Our operating results are subject to some variability. Gener-
ally, our diverse range of product offerings helps mitigate the
impact of seasonal changes in demand for certain items. Sales
are typically higher in the last two quarters (July to December)
of each fiscal year. Socks, hosiery and fleece products generally
have higher sales during this period as a result of cooler weather,
back-to-school shopping and holidays. Sales levels in any
period are also impacted by customers’ decisions to increase
or decrease their inventory levels in response to anticipated
consumer demand. Our customers may cancel orders, change
delivery schedules or change the mix of products ordered with
minimal notice to us. For example, we experienced a shift in
timing by our largest retail customers of back-to-school programs
from June to July in 2008. Our results of operations are also
impacted by fluctuations and volatility in the price of cotton and
oil-related materials and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions.
marketing
Our strategy is to bring consumer-driven innovation to mar-
ket in a compelling way. Our approach is to build targeted, effec-
tive multimedia advertising and marketing campaigns to increase
awareness of our key brands. Driving growth platforms across
categories is a major element of our strategy as it enables us to
meet key consumer needs and leverage advertising dollars. We
believe that the strength of our consumer insights, our distinc-
tive brand propositions and our focus on integrated marketing
give us a competitive advantage in the fragmented apparel
marketplace.
In 2008, we launched a number of new advertising and
marketing initiatives:
n We launched new “Look Who” advertising in June featuring
Michael Jordan and Charlie Sheen to support our new Hanes
Lay Flat Collar Undershirts and Hanes No Ride Up Boxer
briefs. The campaign includes television advertising as well
as online and video game advertising.
n We introduced our new Hanes No Ride Up Panty with
television advertising featuring Sarah Chalke in another
new “Look Who” advertising campaign.
n Building on the 10-year strategic alliance with The Walt
Disney Company that we entered into in October 2007, we
introduced a line of apparel inspired by the Champion items
worn by characters in Walt Disney Pictures’ “High School
Musical 3: Senior Year” to coincide with the opening of that
movie in October 2008.
We also continued some of our existing advertising and
marketing initiatives:
n Our alliance with The Walt Disney Company includes a
number of features. Hanes is the presenting sponsor of the
Rock ‘n’ Roller Coaster Starring Aerosmith, one of the most
popular attractions at Disney-Hollywood Studios in Florida.
Hanes has a customizable apparel venue in Downtown
Disney at Walt Disney World Resort that enables guests
to design and personalize their own custom t-shirts and
other items. Champion has naming rights for the stadium at
Disney’s Wide World of Sports Complex, the nation’s premier
amateur sports venue. In addition to Champion Stadium,
Champion has brand placement and promotional opportu-
nities throughout the complex. We have in-store promo-
tional and brand building opportunities at eight ESPN Zone
restaurants and stores located across the country. Hanes
and Champion have category exclusivity for select apparel
at Disneyland Resort in Anaheim, Calif., Walt Disney World
Resort and Disney’s Wide World of Sports Complex Stadium,
both in Florida, and eight ESPN Zone stores. Our products,
including t-shirts and tanks and fleece sweatshirts, sweat-
pants, hoodies and other family fleece, including infant and
toddler items, are co-labeled, including Disneyland Resort by
Hanes, Walt Disney World by Hanes, Disney’s Wide World of
Sports Complex by Champion and ESPN Zone by Champion.
n We continued our “How You Play” national advertising cam-
paign for Champion that we launched in 2007. The campaign,
which is the first campaign for our Champion brand since
2003, includes print, out-of-home and online components
and is designed to capture the everyday moments of fun and
sport in a series of cool and hip lifestyle images.
n We continued the “Live Beautifully” campaign for our Bali
brand, launched in the Spring of 2007. The print, television and
online ad campaign features Bali bras and panties from its Pas-
sion for Comfort, Seductive Curve and Cotton Creations lines.
n We continued our innovative and expressive advertising and
marketing campaign called “Girl Talk,” launched in Septem-
ber 2007, in which confident, everyday women talk about
their breasts, in support of our Playtex 18 Hour and Playtex
Secrets product lines.
distribution
As of January 3, 2009, we distributed our products for
the U.S. market from a total of 22 distribution centers. These
facilities include 20 facilities located in the U.S. and two facili-
ties located in regions where we manufacture our products. We
internally manage and operate 16 of these facilities, and we use
third-party logistics providers who operate the other six facili-
ties on our behalf. International distribution operations use a
combination of third-party logistics providers, as well as owned
and operated distribution operations, to distribute goods to our
various international markets.
We are in the process of consolidating our distribution net-
work to fewer larger facilities and have reduced the number of
distribution centers from the 48 that we maintained at the time
of the spin off to 36 as of January 3, 2009. In late 2008 we began
preparing to ship products from a new 1.3 million square foot
distribution center in Perris, California, and on January 13, 2009
began shipping products from this facility to our customers.
7
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
manufacturing and sourcing
During the year ended January 3, 2009, approximately 66%
of our finished goods sold were manufactured through a combi-
nation of facilities we own and operate and facilities owned and
operated by third-party contractors who perform some of the
steps in the manufacturing process for us, such as cutting and/
or sewing. We sourced the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned, contract-
ed and sourced manufacturing located across different geographic
regions, increases the efficiency of our operations, reduces prod-
uct costs and offers customers a reliable source of supply.
Finished Goods That Are Manufactured by Hanesbrands
The manufacturing process for finished goods that we manu-
facture begins with raw materials we obtain from third parties.
The principal raw materials in our product categories are cotton
and synthetics. Our costs for cotton yarn and cotton-based
textiles vary based upon the fluctuating cost of cotton, which is
affected by, among other factors, weather, consumer demand,
speculation on the commodities market and the relative valu-
ations and fluctuations of the currencies of producer versus
consumer countries and other factors that are generally unpre-
dictable and beyond our control. We attempt to mitigate the ef-
fect of fluctuating raw material costs by entering into short-term
supply agreements that set the price we will pay for cotton yarn
and cotton-based textiles in future periods. We also enter into
hedging contracts on cotton designed to protect us from severe
market fluctuations in the wholesale prices of cotton. In addition
to cotton yarn and cotton-based textiles, we use thread and trim
for product identification, buttons, zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also influ-
ence the prices of items used in our business, such as chemi-
cals, dyestuffs, polyester yarn and foam. Alternate sources of
these materials and services are readily available. After they are
sourced, cotton and synthetic materials are spun into yarn, which
is then knitted into cotton, synthetic and blended fabrics. We spin
a significant portion of the yarn and knit a significant portion of the
fabrics we use in our owned and operated facilities. To a lesser
extent, we purchase fabric from several domestic and interna-
tional suppliers in conjunction with scheduled production. These
fabrics are cut and sewn into finished products, either by us or by
third-party contractors. Most of our cutting and sewing operations
are located in Asia, Central America and the Caribbean Basin.
Rising fuel, energy and utility costs may have a significant
impact on our manufacturing costs. These costs may fluctuate
due to a number of factors outside our control, including govern-
ment policy and regulation and weather conditions.
We continue to consolidate our manufacturing facilities and
currently operate 52 manufacturing facilities, down from 70 at
the time of our spin off. In making decisions about the location
of manufacturing operations and third-party sources of supply,
we consider a number of factors, including local labor costs,
quality of production, applicable quotas and duties, and freight
costs. During the second quarter of 2008, we added three
company-owned sewing plants in Southeast Asia — two in
Vietnam and one in Thailand — giving us four sewing plants in
8
Asia. In October 2008, we acquired a 370-employee embroidery
facility in Honduras. For the past eight years, these operations
have produced embroidered and screen-printed apparel for
us. This acquisition better positions us for long-term growth in
these segments. During the fourth quarter of 2008, we com-
menced production at our 500,000 square foot socks manufac-
turing facility in El Salvador. This facility, co-located with textile
manufacturing operations that we acquired in 2007, provides a
manufacturing base in Central America from which to leverage
our production scale at a lower cost location. We also continued
construction of a textile production plant in Nanjing, China, which
will be our first company-owned textile production facility in
Asia. We expect production to commence in the fourth quarter
of 2009. The Nanjing textile facility will enable us to expand and
leverage our production scale in Asia as we balance our supply
chain across hemispheres.
Finished Goods That Are Manufactured by Third Parties
In addition to our manufacturing capabilities, we also source
finished goods we design from third-party manufacturers, also
referred to as “turnkey products.” Many of these turnkey prod-
ucts are sourced from international suppliers by our strategic
sourcing hubs in Hong Kong and other locations in Asia.
All contracted and sourced manufacturing must meet our
high quality standards. Further, all contractors and third-party
manufacturers must be preaudited and adhere to our strict
supplier and business practices guidelines. These requirements
provide strict standards covering hours of work, age of work-
ers, health and safety conditions and conformity with local laws.
Each new supplier must be inspected and agree to comprehen-
sive compliance terms prior to performance of any production
on our behalf. We audit compliance with these standards and
maintain strict compliance performance records. In addition to
our audit procedures, we require certain of our suppliers to be
Worldwide Responsible Apparel Production, or “WRAP,” certi-
fied. WRAP is a recognized apparel certification program that
independently monitors and certifies compliance with certain
specified manufacturing standards that are intended to ensure
that a given factory produces sewn goods under lawful, humane,
and ethical conditions. WRAP uses third-party, independent certi-
fication firms and requires factory-by-factory certification.
Trade Regulation
We are exposed to certain risks of doing business outside of
the United States. We import goods from company-owned facili-
ties in Asia, Central America, the Caribbean Basin and Mexico,
and from suppliers in those areas and in Europe, Africa and the
Middle East. These import transactions had been subject to con-
straints imposed by bilateral agreements that imposed quotas
that limited the amount of certain categories of merchandise
from certain countries that could be imported into the United
States and the EU.
Effective on January 1, 2005, the United States and other
World Trade Organization, or “WTO,” member countries, with
few exceptions, removed quotas on textile and apparel goods
from WTO member countries including China. However in the
middle of 2005, several countries, including the United States,
imposed special safeguard quotas on some Chinese textile and
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
apparel goods pursuant to special provisions contained in China’s
Accession Agreement to the WTO. These quotas expired at
the end of 2008. Under different provisions of U.S. law, similar
safeguard quotas may be re-imposed against China or imposed
against other countries in the future. Our management evaluates
the possible impact of these and similar actions on our ability
to import products from China. If such safeguards were to be
re-imposed, we do not expect that these restraints would have a
material impact on us.
Our management monitors new developments and risks re-
lating to duties, tariffs and quotas. Changes in these areas have
the potential to harm or, in some cases, benefit our business. In
response to the changing import environment resulting from the
elimination of quotas, management has chosen to continue its
balanced approach to manufacturing and sourcing. We attempt
to limit our sourcing exposure through geographic diversification
with a mix of company-owned and contracted production, as
well as shifts of production among countries and contractors.
We will continue to manage our supply chain from a global per-
spective and adjust as needed to changes in the global produc-
tion environment.
We also monitor a number of international security risks. We
are a member of the Customs-Trade Partnership Against Terror-
ism, or “C-TPAT,” a partnership between the government and
private sector initiated after the events of September 11, 2001 to
improve supply chain and border security. C-TPAT partners work
with U.S. Customs and Border Protection to protect their supply
chains from concealment of terrorist weapons, including weap-
ons of mass destruction. In exchange, U.S. Customs and Border
Protection provides reduced inspections at the port of arrival and
expedited processing at the border.
competition
The apparel essentials market is highly competitive and
rapidly evolving. Competition generally is based upon price,
brand name recognition, product quality, selection, service and
purchasing convenience. Our businesses face competition today
from other large corporations and foreign manufacturers. These
competitors include Berskhire Hathaway Inc. through its sub-
sidiary Fruit of the Loom, Inc., Warnaco Group Inc., Maidenform
Brands, Inc. and Gildan Activewear, Inc. in our Innerwear busi-
ness segment and Gildan Activewear, Inc., Berkshire Hathaway
Inc. through its subsidiaries Russell Corporation and Fruit of the
Loom, Inc., Nike, Inc., adidas AG through its adidas and Ree-
bok brands and Under Armour Inc. in our Outerwear business
segment. We also compete with many small manufacturers
across all of our business segments, including our International
segment. Additionally, department stores and other retailers,
including many of our customers, market and sell apparel essen-
tials products under private labels that compete directly with our
brands. We also face intense competition from specialty stores
that sell private label apparel not manufactured by us such as
Victoria’s Secret, Old Navy and The Gap.
Our competitive strengths include our strong brands with
leading market positions, our high-volume, core essentials focus,
our significant scale of operations and our strong customer
relationships.
n Strong Brands with Leading Market Positions. According
to NPD, our brands hold either the number one or number
two U.S. market position by sales value in most product
categories in which we compete, for the 12 month period
ended November 30, 2008. According to NPD, our largest
brand, Hanes, is the top-selling apparel brand in the United
States by units sold, for the 12 month period ended Novem-
ber 30, 2008.
n High-Volume, Core Essentials Focus. We sell high-volume,
frequently replenished apparel essentials. The majority of our
core styles continue from year to year, with variations only in
color, fabric or design details, and are frequently replenished by
consumers. We believe that our status as a high-volume seller
of core apparel essentials creates a more stable and predict-
able revenue base and reduces our exposure to dramatic
fashion shifts often observed in the general apparel industry.
n Significant Scale of Operations. According to NPD, we are
the largest seller of apparel essentials in the United States
as measured by sales value for the 12 month period ended
November 30, 2008. Most of our products are sold to large
retailers that have high-volume demands. We believe that we
are able to leverage our significant scale of operations to pro-
vide us with greater manufacturing efficiencies, purchasing
power and product design, marketing and customer manage-
ment resources than our smaller competitors.
n Strong Customer Relationships. We sell our products
primarily through large, high-volume retailers, including mass
merchants, department stores and national chains. We have
strong, long-term relationships with our top customers,
including relationships of more than ten years with each of
our top ten customers. We have aligned significant parts of
our organization with corresponding parts of our customers’
organizations. We also have entered into customer-specific
programs such as the C9 by Champion products marketed
and sold through Target stores.
Intellectual Property
Overview
We market our products under hundreds of trademarks and
service marks in the United States and other countries around
the world, the most widely recognized Hanes, Champion, C9
by Champion, Playtex, Bali, L’eggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks, Zorba, Rinbros and Duofold.
Some of our products are sold under trademarks that have been
licensed from third parties, such as Polo Ralph Lauren men’s un-
derwear, and we also hold licenses from various toy and media
companies that give us the right to use certain of their propri-
etary characters, names and trademarks.
Some of our own trademarks are licensed to third parties,
such as Champion for athletic-oriented accessories. In the Unit-
ed States, the Playtex trademark is owned by Playtex Marketing
Corporation, of which we own a 50% share and which grants to
us a perpetual royalty-free license to the Playtex trademark on
and in connection with the sale of apparel in the United States
and Canada. The other 50% share of Playtex Marketing Corpora-
tion is owned by Playtex Products, Inc., an unrelated third-party,
9
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
which has a perpetual royalty-free license to the Playtex trade-
mark on and in connection with the sale of non-apparel products
in the United States. Outside the United States and Canada,
we own the Playtex trademark and perpetually license such
trademark to Playtex Products, Inc. for non-apparel products. In
addition, as described below, as part of Sara Lee’s sale in Febru-
ary 2006 of its European branded apparel business, an affiliate
of Sun Capital Partners, Inc., or “Sun Capital,” has an exclusive,
perpetual, royalty-free license to manufacture, sell and distribute
apparel products under the Wonderbra and Playtex trademarks in
the member states of the EU, as well as several other European
nations and South Africa. We also own a number of copyrights.
Our trademarks and copyrights are important to our market-
ing efforts and have substantial value. We aggressively protect
these trademarks and copyrights from infringement and dilution
through appropriate measures, including court actions and ad-
ministrative proceedings.
Although the laws vary by jurisdiction, trademarks generally
remain valid as long as they are in use and/or their registrations
are properly maintained. Most of the trademarks in our portfolio,
including our core brands, are covered by trademark registrations
in the countries of the world in which we do business, with
registration periods generally ranging between seven and
10 years depending on the country. Trademark registrations can
be renewed indefinitely as long as the trademarks are in use. We
have an active program designed to ensure that our trademarks
are registered, renewed, protected and maintained. We plan to
continue to use all of our core trademarks and plan to renew the
registrations for such trademarks for as long as we continue to
use them. Most of our copyrights are unregistered, although we
have a sizable portfolio of copyrighted lace designs that are the
subject of a number of registrations at the U.S. Copyright Office.
We place high importance on product innovation and design,
and a number of these innovations and designs are the subject
of patents. However, we do not regard any segment of our
business as being dependent upon any single patent or group
of related patents. In addition, we own proprietary trade secrets,
technology, and know how that we have not patented.
Shared Trademark Relationship with Sun Capital
In February 2006, Sara Lee sold its European branded ap-
parel business to an affiliate of Sun Capital. In connection with
the sale, Sun Capital received an exclusive, perpetual, royalty-
free license to manufacture, sell and distribute apparel products
under the Wonderbra and Playtex trademarks in the member
states of the EU, as well as Belarus, Bosnia-Herzegovina, Bul-
garia, Croatia, Macedonia, Moldova, Morocco, Norway, Romania,
Russia, Serbia-Montenegro, South Africa, Switzerland, Ukraine,
Andorra, Albania, Channel Islands, Lichtenstein, Monaco, Gibral-
tar, Guadeloupe, Martinique, Reunion and French Guyana, which
we refer to as the “Covered Nations.” We are not permitted to
sell Wonderbra and Playtex branded products in the Covered
Nations, and Sun Capital is not permitted to sell Wonderbra and
Playtex branded products outside of the Covered Nations. In
connection with the sale, we also have received an exclusive,
perpetual royalty-free license to sell DIM and UNNO branded
products in Panama, Honduras, El Salvador, Costa Rica, Nicara-
gua, Belize, Guatemala, Mexico, Puerto Rico, the United States,
10
Canada and, for DIM products, Japan. We are not permitted to
sell DIM or UNNO branded apparel products outside of these
countries and Sun Capital is not permitted to sell DIM or UNNO
branded apparel products inside these countries. In addition,
the rights to certain European-originated brands previously part
of Sara Lee’s branded apparel portfolio were transferred to Sun
Capital and are not included in our brand portfolio.
Licensing Relationship with Tupperware Corporation
In December 2005, Sara Lee sold its direct selling business,
which markets cosmetics, skin care products, toiletries and
clothing in 18 countries, to Tupperware Corporation, or “Tupper-
ware.” In connection with the sale, Dart Industries Inc., or “Dart,”
an affiliate of Tupperware, received a three-year exclusive license
agreement which expires in June 2009 to use the C Logo,
Champion U.S.A., Wonderbra, W by Wonderbra, The One and
Only Wonderbra, Playtex, Just My Size and Hanes trademarks
for the manufacture and sale, under the applicable brands, of
certain men’s and women’s apparel in the Philippines, includ-
ing underwear, socks, sportswear products, bras, panties and
girdles, and for the exhaustion of similar product inventory in
Malaysia. Dart also received a ten-year, royalty-free, exclusive
license to use the Girls’ Attitudes trademark for the manufac-
ture and sale of certain toiletries, cosmetics, intimate apparel,
underwear, sports wear, watches, bags and towels in the Philip-
pines. The rights and obligations under these agreements were
assigned to us as part of the spin off.
In connection with the sale of Sara Lee’s direct selling busi-
ness, Tupperware also signed two five-year distributorship agree-
ments providing Tupperware with the right, which is exclusive
for the first three years of the agreements, to distribute and sell,
through door-to-door and similar channels, Playtex, Champion,
Rinbros, Aire, Wonderbra, Hanes and Teens by Hanes apparel
items in Mexico that we have discontinued and/or determined to
be obsolete. The agreements also provide Tupperware with the
exclusive right for five years to distribute and sell through such
channels such apparel items sold by us in the ordinary course of
business. The agreements also grant a limited right to use such
trademarks solely in connection with the distribution and sale of
those products in Mexico.
Under the terms of the agreements, we reserve the right
to apply for, prosecute and maintain trademark registrations in
Mexico for those products covered by the distributorship agree-
ment. The rights and obligations under these agreements were
assigned to us as part of the spin off.
corporate social Responsibility
We have a formal corporate social responsibility (“CSR”)
program that consists of five initiatives: a global business
practices ethics program for all employees worldwide; a facility
compliance program that seeks to ensure company and supplier
plants meet our labor and social compliance standards; a product
safety program; a global environmental management system
that seeks to reduce the environmental impact of our opera-
tions; and a commitment to corporate philanthropy which seeks
to meet the “fundamental needs” of the communities in which
we live and work. We employ over 20 full-time CSR personnel
across the globe to manage our program.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
In February 2008, we joined the Fair Labor Association and
will undergo the Fair Labor Association’s two-year implementa-
tion process for accreditation of our global social compliance
program. The Fair Labor Association works with industry, civil so-
ciety organizations and colleges and universities to protect work-
ers’ rights and improve working conditions in factories around
the world. Participating companies in the Fair Labor Association
are required to fulfill 10 company obligations, including conduct-
ing internal monitoring of facilities, submitting to independent
monitoring audits and verification, and managing and reporting
information on their compliance efforts. The Fair Labor Associa-
tion conducts unannounced independent external monitoring
audits of a sample of a participating company’s plants and suppli-
ers and publishes the results of those audits (and any corrective
action plans that may be needed) for the public to review.
We incorporate Leadership in Energy and Environmental De-
sign, or “LEED”-based practices into many remodeling and new
construction projects for our facilities around the world. In May
2008, we earned the U.S. Green Building Council’s sustainability
certification for our Bentonville, Arkansas sales office. The LEED
certification was the first in Bentonville and the first for commer-
cial interiors in Arkansas. The approximately 10,000 square-foot
office, which opened in August 2007 to support our business
with Wal-Mart, features advanced lighting, heating and cool-
ing systems, natural light for every workspace, energy-efficient
appliances, and low-emission construction materials such as
paint, adhesives, sealants, carpet, coatings and furniture. LEED
for Commercial Interiors is the tenant-improvement category
of the U.S. Green Building Council’s nationally accepted LEED
Green Building Rating System. The category honors tenants
without whole-building control who follow rigorous sustainability
guidelines to design or improve their interior space. The LEED-
certification process took seven months and required a third-party
commissioning agent to verify the achievement of U.S. Green
Building Council standards, including the performance of lighting
and ventilation systems.
In addition, our new distribution center in Perris, California
was built to stringent standards set by the U.S. Green Building
Council, and we will seek certification for the building from the
Green Building Council for Leadership in Energy and Environ-
mental Design, which would make it the largest LEED-certified
warehouse in Southern California and one of the biggest in the
world. Sustainable features of this distribution center include
reduction of energy usage through extensive use of natural
skylighting, motion-detection lighting, a design that does not
require heating or air conditioning for a comfortable working
environment, reduction of water usage compared with typical
warehouses of its size through low-water bathroom fixtures and
low-water landscaping, innovative site grading techniques and
use of locally produced concrete and steel and many other LEED
concepts such as use of paints, carpets and other materials
with low volatile organic compound content, an organic-focused
pest control program that minimizes chemical pesticide use,
location near public transportation to reduce the parking lot size
and reliance on automobile transportation, preferred parking for
low-emission and low-energy vehicles, and on-site bicycle stor-
age and shower and changing room facilities.
environmental matters
We are subject to various federal, state, local and foreign
laws and regulations that govern our activities, operations and
products that may have adverse environmental, health and
safety effects, including laws and regulations relating to generat-
ing emissions, water discharges, waste, product and packaging
content and workplace safety. Noncompliance with these laws
and regulations may result in substantial monetary penalties and
criminal sanctions. We are aware of hazardous substances or
petroleum releases at a few of our facilities and are working with
the relevant environmental authorities to investigate and address
such releases. We also have been identified as a “potentially
responsible party” at a few waste disposal sites undergoing
investigation and cleanup under the federal Comprehensive Envi-
ronmental Response, Compensation and Liability Act (commonly
known as Superfund) or state Superfund equivalent programs.
Where we have determined that a liability has been incurred and
the amount of the loss can reasonably be estimated, we have
accrued amounts in our balance sheet for losses related to these
sites. Compliance with environmental laws and regulations and
our remedial environmental obligations historically have not had
a material impact on our operations, and we are not aware of any
proposed regulations or remedial obligations that could trigger
significant costs or capital expenditures in order to comply.
Government Regulation
We are subject to U.S. federal, state and local laws and regu-
lations that could affect our business, including those promulgat-
ed under the Occupational Safety and Health Act, the Consumer
Product Safety Act, the Flammable Fabrics Act, the Textile Fiber
Product Identification Act, the rules and regulations of the Con-
sumer Products Safety Commission and various environmental
laws and regulations. Our international businesses are subject to
similar laws and regulations in the countries in which they oper-
ate. Our operations also are subject to various international trade
agreements and regulations. See “— Trade Regulation.” While
we believe that we are in compliance in all material respects with
all applicable governmental regulations, current governmental
regulations may change or become more stringent or unforeseen
events may occur, any of which could have a material adverse
effect on our financial position or results of operations.
employees
As of January 3, 2009, we had approximately 45,200 employ-
ees, approximately 10,200 of whom were located in the United
States. Of the employees located in the United States, approxi-
mately 2,200 were full or part-time employees in our stores within
our direct to consumer channel. As of January 3, 2009, in the Unit-
ed States, approximately 30 employees were covered by collec-
tive bargaining agreements. A portion of our international employ-
ees were also covered by collective bargaining agreements. We
believe our relationships with our employees are good.
11
H AN E SBRANDS INC.
ITem 1A. Risk Factors
This section describes circumstances or events that could
have a negative effect on our financial results or operations or
that could change, for the worse, existing trends in our busi-
nesses. The occurrence of one or more of the circumstances or
events described below could have a material adverse effect on
our financial condition, results of operations and cash flows or on
the trading prices of our common stock. The risks and uncertain-
ties described in this Annual Report on Form 10-K are not the only
ones facing us. Additional risks and uncertainties that currently
are not known to us or that we currently believe are immaterial
also may adversely affect our businesses and operations.
We are continuing to execute our consolidation and global-
ization strategy and this process involves significant costs
and the risk of operational interruption.
The implementation of our consolidation and globalization
strategy, which is designed to improve operating efficiencies
and lower costs, has resulted and is likely to continue to result
in significant costs in the short-term and generate savings as
well as higher inventory levels for the next 12 to 15 months.
As further plans are developed and approved, we expect to
recognize additional restructuring costs as we eliminate duplica-
tive functions within the organization and transition a significant
portion of our manufacturing capacity to lower-cost locations.
As a result of this strategy, we expect to incur approximately
$250 million in restructuring and related charges over the
three year period following the spin off from Sara Lee on
September 5, 2006, of which approximately half is expected to
be noncash. As of January 3, 2009, we have recognized approxi-
mately $209 million and announced approximately $219 million
in restructuring and related charges related to this strategy since
September 5, 2006. This process may also result in operational
interruptions, which may have an adverse effect on our business,
results of operations, financial condition and cash flows.
Our supply chain relies on an extensive network of foreign
operations and any disruption to or adverse impact on such
operations may adversely affect our business, results of
operations, financial condition and cash flows.
We have an extensive global supply chain in which a sig-
nificant portion of our products are manufactured in or sourced
from locations in Asia, Central America, the Caribbean Basin and
Mexico and we are continuing to add new manufacturing capac-
ity in Asia, Central America and the Caribbean Basin. Potential
events that may disrupt our foreign operations include:
n political instability and acts of war or terrorism or other
international events resulting in the disruption of trade;
n other security risks;
n disruptions in shipping and freight forwarding services;
n increases in oil prices, which would increase the cost
of shipping;
n interruptions in the availability of basic services and
infrastructure, including power shortages;
12
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
n fluctuations in foreign currency exchange rates resulting
in uncertainty as to future asset and liability values, cost
of goods and results of operations that are denominated
in foreign currencies;
n extraordinary weather conditions or natural disasters, such
as hurricanes, earthquakes, tsunamis, floods or fires; and
n the occurrence of an epidemic, the spread of which may
impact our ability to obtain products on a timely basis.
Disruptions in our foreign supply chain could negatively
impact our business by interrupting production in facilities out-
side the United States, increasing our cost of sales, disrupting
merchandise deliveries, delaying receipt of the products into the
United States or preventing us from sourcing our products at
all. Depending on timing, these events could also result in lost
sales, cancellation charges or excessive markdowns. All of the
foregoing can have an adverse affect on our business, results
of operations, financial condition and cash flows.
Current economic conditions may adversely impact
demand for our products, reduce access to credit and
cause our customers and others with which we do
business to suffer financial hardship, all of which could
adversely impact our business, results of operations,
financial condition and cash flows.
Worldwide economic conditions have recently deteriorated
significantly in many countries and regions, including the United
States, and may remain depressed for the foreseeable future.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by our customers. Discretionary spend-
ing is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt lev-
els, the availability of consumer credit, currency exchange rates,
taxation, electricity power rates, gasoline prices, unemployment
trends and other matters that influence consumer confidence
and spending. Many of these factors are outside of our control.
Our customers’ purchases of discretionary items, including our
products, could decline during periods when disposable income
is lower, when prices increase in response to rising costs, or in
periods of actual or perceived unfavorable economic conditions.
For example, we experienced a spike in oil related commodity
prices during the summer of 2008. Increases in our product
costs may not be offset by comparable rises in the income of
consumers of our products. These consumers may choose to
purchase fewer of our products or lower-priced products of our
competitors in response to higher prices for our products, or
may choose not to purchase our products at prices that reflect
our domestic price increases that become effective from time
to time. If any of these events occur, or if unfavorable economic
conditions continue to challenge the consumer environment,
our business, results of operations, financial condition and cash
flows could be adversely affected.
In addition, economic conditions, including decreased access
to credit, may result in financial difficulties leading to restructurings,
bankruptcies, liquidations and other unfavorable events for our
customers, suppliers of raw materials and finished goods, logis-
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
tics and other service providers and financial institutions which
are counterparties to our credit facilities and derivatives transac-
tions. In addition, the inability of these third parties to overcome
these difficulties may increase. For example, one of our custom-
ers, Mervyn’s, a regional retailer in California and the Southwest
that originally filed for reorganization under Chapter 11 in July
2008, announced in October 2008 its intention to wind down its
business and conduct going-out-of-business sales at remaining
store locations. If third parties on which we rely for raw materials,
finished goods or services are unable to overcome difficulties re-
sulting from the deterioration in worldwide economic conditions
and provide us with the materials and services we need, or if
counterparties to our credit facilities or derivatives transactions do
not perform their obligations, our business, results of operations,
financial condition and cash flows could be adversely affected.
Our customers generally purchase our products on credit,
and as a result, our results of operations, financial condition
and cash flows may be adversely affected if our customers
experience financial difficulties.
During the past several years, various retailers, including
some of our largest customers, have experienced significant dif-
ficulties, including restructurings, bankruptcies and liquidations,
and the inability of retailers to overcome these difficulties may
increase due to the recent deterioration of worldwide economic
conditions. This could adversely affect us because our customers
generally pay us after goods are delivered. Adverse changes in a
customer’s financial position could cause us to limit or discon-
tinue business with that customer, require us to assume more
credit risk relating to that customer’s future purchases or limit
our ability to collect accounts receivable relating to previous pur-
chases by that customer. Any of these occurrences could have
a material adverse effect on our business, results of operations,
financial condition and cash flows.
Our indebtedness subjects us to various restrictions and
could decrease our profitability and otherwise adversely
affect our business.
As described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and
Capital Resources,” our indebtedness includes the $2.1 billion
senior secured credit facility that we entered into on Septem-
ber 5, 2006 (the “Senior Secured Credit Facility”), the $450 mil-
lion senior secured second lien credit facility that we entered
into on September 5, 2006 (the “Second Lien Credit Facility”
and, together with the Senior Secured Credit Facility, the “Credit
Facilities”), our $500 million Floating Rate Senior Notes due 2014
(the “Floating Rate Senior Notes”) and the $250 million accounts
receivable securitization facility that we entered into on Novem-
ber 27, 2007 (the “Receivables Facility”). The Senior Secured
Credit Facility, Second Lien Credit Facility and the indenture
governing the Floating Rate Senior Notes contain restrictions
that affect, and in some cases significantly limit or prohibit,
among other things, our ability to borrow funds, pay dividends
or make other distributions, make investments, engage in trans-
actions with affiliates, or create liens on our assets.
Our leverage also could put us at a competitive disadvantage
compared to our competitors that are less leveraged. These com-
petitors could have greater financial flexibility to pursue strategic
acquisitions, secure additional financing for their operations by
incurring additional debt, expend capital to expand their manu-
facturing and production operations to lower-cost areas and apply
pricing pressure on us. In addition, because many of our custom-
ers rely on us to fulfill a substantial portion of their apparel essen-
tials demand, any concern these customers may have regarding
our financial condition may cause them to reduce the amount of
products they purchase from us. Our leverage could also impede
our ability to withstand downturns in our industry or the economy.
If we are unable to maintain financial ratios associated with
our indebtedness, such failure could cause the acceleration
of the maturity of such indebtedness which would adversely
affect our business.
Covenants in the Credit Facilities and the Receivables Facility
require us to maintain a minimum interest coverage ratio and a
maximum total debt to EBITDA (earnings before income taxes,
depreciation expense and amortization), or leverage ratio. The
recent deterioration of worldwide economic conditions could
impact our ability to maintain the financial ratios contained in
these agreements. If we fail to maintain these financial ratios,
that failure could result in a default that accelerates the maturity
of the indebtedness under such facilities, which could require
that we repay such indebtedness in full, together with accrued
and unpaid interest, unless we are able to negotiate new finan-
cial ratios or waivers of our current ratios with our lenders. Even
if we are able to negotiate new financial ratios or waivers of our
current financial ratios, we may be required to pay fees or make
other concessions that may adversely impact our business. Any
one of these options could result in significantly higher interest
expense in 2009 and beyond. In addition, these options could
require modification of our interest rate derivative portfolio,
which could require us to make a cash payment in the event of
terminating a derivative instrument or impact the effectiveness
of our interest rate hedging instruments and require us to take
non-cash charges. For information regarding our compliance with
these covenants, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Liquidity and
Capital Resources — Trends and Uncertainties Affecting Liquidity.”
If we fail to meet our payment or other obligations,
the lenders could foreclose on, and acquire control of,
substantially all of our assets.
In connection with our incurrence of indebtedness under the
Credit Facilities, the lenders under those facilities have received
a pledge of substantially all of our existing and future direct and
indirect subsidiaries, with certain customary or agreed-upon
exceptions for foreign subsidiaries and certain other subsidiaries.
Additionally, these lenders generally have a lien on substantially
all of our assets and the assets of our subsidiaries, with certain
exceptions. The financial institutions that are party to the Receiv-
ables Facility have a lien on certain of our domestic accounts
receivables. As a result of these pledges and liens, if we fail to
meet our payment or other obligations under the Credit Facilities
or the Receivables Facility, the lenders under those facilities will
be entitled to foreclose on substantially all of our assets and, at
their option, liquidate these assets.
13
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Our indebtedness restricts our ability to obtain additional
capital in the future.
The restrictions contained in the Credit Facilities and in the
indenture governing the Floating Rate Senior Notes could limit
our ability to obtain additional capital in the future to fund capital
expenditures or acquisitions, meet our debt payment obligations
and capital commitments, fund any operating losses or future
development of our business affiliates, obtain lower borrowing
costs that are available from secured lenders or engage in advan-
tageous transactions that monetize our assets, or conduct other
necessary or prudent corporate activities.
If we need to incur additional debt or issue equity in order to
fund working capital and capital expenditures or to make acquisi-
tions and other investments, debt or equity financing may not be
available to us on acceptable terms or at all. If we are not able
to obtain sufficient financing, we may be unable to maintain or
expand our business. If we raise funds through the issuance of
debt or equity, any debt securities or preferred stock issued will
have rights, preferences and privileges senior to those of holders
of our common stock in the event of a liquidation, and the terms
of the debt securities may impose restrictions on our operations.
If we raise funds through the issuance of equity, the issuance
would dilute the ownership interest of our stockholders.
To service our debt obligations, we may need to increase
the portion of the income of our foreign subsidiaries that
is expected to be remitted to the United States, which
could increase our income tax expense.
The amount of the income of our foreign subsidiaries that
we expect to remit to the United States may significantly impact
our U.S. federal income tax expense. We pay U.S. federal in-
come taxes on that portion of the income of our foreign subsid-
iaries that is expected to be remitted to the United States and be
taxable. In order to service our debt obligations, we may need
to increase the portion of the income of our foreign subsidiar-
ies that we expect to remit to the United States, which may
significantly increase our income tax expense. Consequently, our
income tax expense has been, and will continue to be, impacted
by our strategic initiative to make substantial capital investments
outside the United States.
Significant fluctuations and volatility in the price of cotton
and other raw materials we purchase may have a material
adverse effect on our business, results of operations,
financial condition and cash flows.
Cotton is the primary raw material used in the manufacture of
many of our products. Our costs for cotton yarn and cotton-based
textiles vary based upon the fluctuating cost of cotton, which
is affected by weather, consumer demand, speculation on the
commodities market, the relative valuations and fluctuations of
the currencies of producer versus consumer countries and other
factors that are generally unpredictable and beyond our control.
While we do enter into short-term supply agreements and hedg-
es from time to time in an attempt to protect our business from
the volatility of the market price of cotton, our business can be
affected by dramatic movements in cotton prices, although cotton
represents only 8% of our cost of sales. Cotton prices were 65
cents per pound for the year ended January 3, 2009 and 56 cents
14
per pound for the year ended December 29, 2007. The price of
cotton currently in our inventory is in the mid 60 cents per pound
range which is the price that will impact our operating results in
the first half of 2009. The prices for the most recent cotton crop,
which will impact our operating results in the second half of
2009, have decreased to the low 50 cents per pound range.
We are not always successful in our efforts to protect our
business from the volatility of the market price of cotton through
short-term supply agreements and hedges, and our business
can be adversely affected by dramatic movements in cotton
prices. For example, we estimate that a change of $0.01 per
pound in cotton prices would affect our annual raw material
costs by $3 million, at current levels of production. The ultimate
effect of this change on our earnings cannot be quantified, as the
effect of movements in cotton prices on industry selling prices
are uncertain, but any dramatic increase in the price of cotton
would have a material adverse effect on our business, results of
operations, financial condition and cash flows.
In addition, during the summer of 2008 we experienced a
spike in oil related commodity prices and other raw materials
used in our products, such as dyes and chemicals, and increases
in other costs, such as fuel, energy and utility costs. These costs
may fluctuate due to a number of factors outside our control, in-
cluding government policy and regulation and weather conditions.
Current market returns have had a negative impact on
the return on plan assets for our pension and other
postemployment plans, which may require significant funding.
As widely reported, financial markets in the United States,
Europe and Asia have been experiencing extreme disruption in
recent months. As a result of this disruption in the domestic and
international equity and bond markets, our pension plans and
other postemployment plans had a decrease in asset values of
approximately 32% during the year ended January 3, 2009. We
are unable to predict the severity or the duration of the current
disruptions in the financial markets and the adverse economic
conditions in the United States, Europe and Asia. We are not
required to make any mandatory contributions to our plans in
2009. Nevertheless, the funded status of these plans, and the
related cost reflected in our financial statements, are affected
by various factors that are subject to an inherent degree of
uncertainty, particularly in the current economic environment.
Under the Pension Protection Act of 2006 (the “Pension Protec-
tion Act”), continued losses of asset values may necessitate
increased funding of the plans in the future to meet minimum
federal government requirements. The continued downward
pressure on the asset values of these plans may require us to
fund obligations earlier than we had originally planned, which
would have a negative impact on cash flows from operations.
The loss of one or more of our suppliers of finished goods
or raw materials may interrupt our supplies and materially
harm our business.
We purchase all of the raw materials used in our products and
approximately 34% of the apparel designed by us from a limited
number of third-party suppliers and manufacturers. Our ability to
meet our customers’ needs depends on our ability to maintain an
uninterrupted supply of raw materials and finished products from
H AN E SBRANDS INC.
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our third-party suppliers and manufacturers. Our business,
financial condition or results of operations could be adversely
affected if any of our principal third-party suppliers or manufac-
turers experience financial difficulties that they are not able to
overcome resulting from the deterioration in worldwide economic
conditions, reproduction problems, lack of capacity or transporta-
tion disruptions. The magnitude of this risk depends upon the
timing of any interruptions, the materials or products that the
third-party manufacturers provide and the volume of production.
Our dependence on third parties for raw materials and
finished products subjects us to the risk of supplier failure and
customer dissatisfaction with the quality of our products. Qual-
ity failures by our third-party manufacturers or changes in their
financial or business condition that affect their production could
disrupt our ability to supply quality products to our customers
and thereby materially harm our business.
If we fail to manage our inventory effectively, we may
be required to establish additional inventory reserves
or we may not carry enough inventory to meet customer
demands, causing us to suffer lower margins or losses.
We are faced with the constant challenge of balancing
our inventory with our ability to meet marketplace needs. We
continually monitor our inventory levels to best balance current
supply and demand with potential future demand that typically
surges when consumers no longer postpone purchases in our
product categories. Inventory reserves can result from the com-
plexity of our supply chain, a long manufacturing process and the
seasonal nature of certain products. Increases in inventory levels
may also be needed to service our business as we continue to
execute our consolidation and globalization strategy. As a result,
we could be subject to high levels of obsolescence and excess
stock. Based on discussions with our customers and internally
generated projections, we produce, purchase and/or store raw
material and finished goods inventory to meet our expected
demand for delivery. However, we sell a large number of our
products to a small number of customers, and these customers
generally are not required by contract to purchase our goods. If,
after producing and storing inventory in anticipation of deliveries,
demand is lower than expected, we may have to hold inventory
for extended periods or sell excess inventory at reduced prices,
in some cases below our cost. There are inherent uncertainties
related to the recoverability of inventory, and it is possible that
market factors and other conditions underlying the valuation of
inventory may change in the future and result in further reserve
requirements. Excess inventory charges can reduce gross
margins or result in operating losses, lowered plant and equip-
ment utilization and lowered fixed operating cost absorption, all
of which could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
Conversely, we also are exposed to lost business opportuni-
ties if we underestimate market demand and produce too little
inventory for any particular period. Because sales of our prod-
ucts are generally not made under contract, if we do not carry
enough inventory to satisfy our customers’ demands for our
products within an acceptable time frame, they may seek to
fulfill their demands from one or several of our competitors and
may reduce the amount of business they do with us. Any such
action could have a material adverse effect on our business,
results of operations, financial condition and cash flows.
We rely on a relatively small number of customers for a
significant portion of our sales, and the loss of or material
reduction in sales to any of our top customers would have
a material adverse effect on our business, results of opera-
tions, financial condition and cash flows.
During the year ended January 3, 2009, our top ten custom-
ers accounted for 65% of our net sales and our top customers,
Wal-Mart and Target, accounted for 27% and 16% of our net
sales, respectively. We expect that these customers will continue
to represent a significant portion of our net sales in the future. In
addition, our top customers are the largest market participants in
our primary distribution channels across all of our product lines.
Any loss of or material reduction in sales to any of our top ten
customers, especially Wal-Mart and Target, would be difficult to
recapture, and would have a material adverse effect on our busi-
ness, results of operations, financial condition and cash flows.
We generally do not sell our products under contracts, and,
as a result, our customers are generally not contractually
obligated to purchase our products, which causes some
uncertainty as to future sales and inventory levels.
We generally do not enter into purchase agreements that
obligate our customers to purchase our products, and as a result,
most of our sales are made on a purchase order basis. For exam-
ple, we have no agreements with Wal-Mart that obligate Wal-Mart
to purchase our products. If any of our customers experiences a
significant downturn in its business, or fails to remain committed
to our products or brands, the customer is generally under no
contractual obligation to purchase our products and, consequently,
may reduce or discontinue purchases from us. In the past, such
actions have resulted in a decrease in sales and an increase in our
inventory and have had an adverse effect on our business, results
of operations, financial condition and cash flows. If such actions
occur again in the future, our business, results of operations and
financial condition will likely be similarly affected.
Our existing customers may require products on an
exclusive basis, forms of economic support and other
changes that could be harmful to our business.
Customers increasingly may require us to provide them with
some of our products on an exclusive basis, which could cause
an increase in the number of stock keeping units, or “SKUs,” we
must carry and, consequently, increase our inventory levels and
working capital requirements. Moreover, our customers may
increasingly seek markdown allowances, incentives and other
forms of economic support which reduce our gross margins and
affect our profitability. Our financial performance is negatively af-
fected by these pricing pressures when we are forced to reduce
our prices without being able to correspondingly reduce our
production costs.
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We operate in a highly competitive and rapidly evolving
market, and our market share and results of operations
could be adversely affected if we fail to compete effectively
in the future.
The apparel essentials market is highly competitive and
evolving rapidly. Competition is generally based upon price,
brand name recognition, product quality, selection, service and
purchasing convenience. Our businesses face competition today
from other large corporations and foreign manufacturers. These
competitors include Berskhire Hathaway Inc. through its sub-
sidiary Fruit of the Loom, Inc., Warnaco Group Inc., Maidenform
Brands, Inc. and Gildan Activewear, Inc. in our Innerwear busi-
ness segment and Gildan Activewear, Inc., Berkshire Hathaway
Inc. through its subsidiaries Russell Corporation and Fruit of the
Loom, Inc., Nike, Inc., adidas AG through its adidas and Ree-
bok brands and Under Armour Inc. in our Outerwear business
segment. We also compete with many small manufacturers
across all of our business segments, including our International
segment. Additionally, department stores, specialty stores and
other retailers, including many of our customers, market and sell
apparel essentials products under private labels that compete
directly with our brands. These customers may buy goods that
are manufactured by others, which represents a lost business
opportunity for us, or they may sell private label products manu-
factured by us, which have significantly lower gross margins
than our branded products. We also face intense competition
from specialty stores that sell private label apparel not manu-
factured by us, such as Victoria’s Secret, Old Navy and The Gap.
Increased competition may result in a loss of or a reduction in
shelf space and promotional support and reduced prices, in each
case decreasing our cash flows, operating margins and profitabil-
ity. Our ability to remain competitive in the areas of price, quality,
brand recognition, research and product development, manu-
facturing and distribution will, in large part, determine our future
success. If we fail to compete successfully, our market share,
results of operations and financial condition will be materially
and adversely affected.
Sales of and demand for our products may decrease if
we fail to keep pace with evolving consumer preferences
and trends, which could have an adverse effect on net
sales and profitability.
Our success depends on our ability to anticipate and respond
effectively to evolving consumer preferences and trends and to
translate these preferences and trends into marketable product
offerings. If we are unable to successfully anticipate, identify or
react to changing styles or trends or misjudge the market for our
products, our sales may be lower than expected and we may be
faced with a significant amount of unsold finished goods inven-
tory. In response, we may be forced to increase our marketing
promotions, provide markdown allowances to our customers or
liquidate excess merchandise, any of which could have a material
adverse effect on our net sales and profitability. Our brand image
may also suffer if customers believe that we are no longer able
to offer innovative products, respond to consumer preferences
or maintain the quality of our products.
We are prohibited from selling our Wonderbra and Playtex
intimate apparel products in the EU, as well as certain other
countries in Europe and South Africa, and therefore are
unable to take advantage of business opportunities that
may arise in such countries.
In February 2006, Sara Lee sold its European branded
apparel business to Sun Capital. In connection with the sale,
Sun Capital received an exclusive, perpetual, royalty-free license
to manufacture, sell and distribute apparel products under the
Wonderbra and Playtex trademarks in the member states of
the EU, as well as Russia, South Africa, Switzerland and certain
other nations in Europe. Due to the exclusive license, we are
not permitted to sell Wonderbra and Playtex branded products in
these nations and Sun Capital is not permitted to sell Wonderbra
and Playtex branded products outside of these nations. Conse-
quently, we will not be able to take advantage of business op-
portunities that may arise relating to the sale of Wonderbra and
Playtex products in these nations. For more information on these
sales restrictions see “Business — Intellectual Property.”
Our business could be harmed if we are unable to deliver
our products to the market due to problems with our
distribution network.
We distribute our products from facilities that we operate as
well as facilities that are operated by third-party logistics provid-
ers. These facilities include a combination of owned, leased
and contracted distribution centers. We are in the process of
consolidating our distribution network to fewer larger facilities,
including the recent opening of a 1.3 million square foot facility
in Perris, California. This consolidation of our distribution network
will involve significant change, including movement of product
during the transitional period, implementation of new warehouse
management systems and technology, and opening of new
distribution centers and new third-party logistics providers to re-
place parts of our legacy distribution network. Because substan-
tially all of our products are distributed from a relatively small
number of locations, our operations could also be interrupted by
extraordinary weather conditions or natural disasters, such as
hurricanes, earthquakes, tsunamis, floods or fires near our dis-
tribution centers. We maintain business interruption insurance,
but it may not adequately protect us from the adverse effects
that could be caused by significant disruptions to our distribution
network. In addition, our distribution network is dependent on
the timely performance of services by third parties, including the
transportation of product to and from our distribution facilities. If
we are unable to successfully operate our distribution network,
our business, results of operations, financial condition and cash
flows could be adversely affected.
Any inadequacy, interruption, integration failure or security
failure with respect to our information technology could
harm our ability to effectively operate our business.
Our ability to effectively manage and operate our business
depends significantly on our information technology systems. As
part of our efforts to consolidate our operations, we also expect
to continue to incur costs associated with the integration of our
information technology systems across our company over the
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next several years. This process involves the consolidation or
possible replacement of technology platforms so that our busi-
ness functions are served by fewer platforms, and has resulted
in operational inefficiencies and in some cases increased our
costs. We are subject to the risk that we will not be able to
absorb the level of systems change, commit the necessary
resources or focus the management attention necessary for the
implementation to succeed. Many key strategic initiatives of ma-
jor business functions, such as our supply chain and our finance
operations, depend on advanced capabilities enabled by the new
systems and if we fail to properly execute or if we miss critical
deadlines in the implementation of this initiative, we could expe-
rience serious disruption and harm to our business. The failure of
these systems to operate effectively, problems with transitioning
to upgraded or replacement systems, difficulty in integrating
new systems or systems of acquired businesses or a breach in
security of these systems could adversely impact the operations
of our business.
If we experience a data security breach and confidential
customer information is disclosed, we may be subject to
penalties and experience negative publicity, which could
affect our customer relationships and have a material
adverse effect on our business.
In addition, we and our customers could suffer harm if
customer information were accessed by third parties due to a
security failure in our systems. The collection of data and pro-
cessing of transactions through our direct-to-consumer internet
and catalog operations require us to receive and store a large
amount of personally identifiable data. This type of data is sub-
ject to legislation and regulation in various jurisdictions. Recently,
data security breaches suffered by well-known companies and
institutions have attracted a substantial amount of media atten-
tion, prompting state and federal legislative proposals addressing
data privacy and security. If some of the current proposals are
adopted, we may be subject to more extensive requirements to
protect the customer information that we process in connection
with the purchases of our products. We may become exposed
to potential liabilities with respect to the data that we collect,
manage and process, and may incur legal costs if our informa-
tion security policies and procedures are not effective or if we
are required to defend our methods of collection, processing
and storage of personal data. Future investigations, lawsuits or
adverse publicity relating to our methods of handling personal
data could adversely affect our business, results of operations,
financial condition and cash flows due to the costs and negative
market reaction relating to such developments.
Compliance with environmental and other regulations
could require significant expenditures.
We are subject to various federal, state, local and foreign
laws and regulations that govern our activities, operations and
products that may have adverse environmental, health and
safety effects, including laws and regulations relating to generat-
ing emissions, water discharges, waste, product and packaging
content and workplace safety. Noncompliance with these laws
and regulations may result in substantial monetary penalties and
criminal sanctions. Future events that could give rise to manu-
facturing interruptions or environmental remediation include
changes in existing laws and regulations, the enactment of new
laws and regulations, a release of hazardous substances on or
from our properties or any associated offsite disposal location, or
the discovery of contamination from current or prior activities at
any of our properties. While we are not aware of any proposed
regulations or remedial obligations that could trigger significant
costs or capital expenditures in order to comply, any such regula-
tions or obligations could adversely affect our business, results
of operations, financial condition and cash flows.
International trade regulations may increase our costs
or limit the amount of products that we can import from
suppliers in a particular country, which could have an
adverse effect on our business.
Because a significant amount of our manufacturing and
production operations are located, or our products are sourced
from, outside the United States, we are subject to international
trade regulations. The international trade regulations to which we
are subject or may become subject include tariffs, safeguards or
quotas. These regulations could limit the countries in which we
produce or from which we source our products or significantly
increase the cost of operating in or obtaining materials originat-
ing from certain countries. Restrictions imposed by international
trade regulations can have a particular impact on our business
when, after we have moved our operations to a particular loca-
tion, new unfavorable regulations are enacted in that area or
favorable regulations currently in effect are changed. The coun-
tries in which our products are manufactured or into which they
are imported may from time to time impose additional new
regulations, or modify existing regulations, including:
n additional duties, taxes, tariffs and other charges on imports,
including retaliatory duties or other trade sanctions, which
may or may not be based on WTO rules, and which would
increase the cost of products produced in such countries;
n limitations on the quantity of goods which may be imported
into the United States from a particular country, including the
imposition of further “safeguard” mechanisms by the U.S.
government or governments in other jurisdictions, limiting our
ability to import goods from particular countries, such as China;
n changes in the classification of products that could result in
higher duty rates than we have historically paid;
n modification of the trading status of certain countries;
n requirements as to where products are manufactured;
n creation of export licensing requirements, imposition of
restrictions on export quantities or specification of minimum
export pricing; or
n creation of other restrictions on imports.
Adverse international trade regulations, including those listed
above, would have a material adverse effect on our business,
results of operations, financial condition and cash flows.
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Due to the extensive nature of our foreign operations,
fluctuations in foreign currency exchange rates could
negatively impact our results of operations.
We sell a majority of our products in transactions denomi-
nated in U.S. dollars; however, we purchase many of our raw
materials, including cotton, our primary raw material, pay a por-
tion of our wages and make other payments in our supply chain
in foreign currencies. As a result, when the U.S. dollar weakens
against any of these currencies, our cost of sales could increase
substantially. Outside the United States, we may pay for ma-
terials or finished products in U.S. dollars, and in some cases a
strengthening of the U.S. dollar could effectively increase our
costs where we use foreign currency to purchase the U.S. dollars
we need to make such payments. We use foreign exchange for-
ward and option contracts to hedge material exposure to adverse
changes in foreign exchange rates. We are also exposed to gains
and losses resulting from the effect that fluctuations in foreign
currency exchange rates have on the reported results in our Con-
solidated Financial Statements due to the translation of operating
results and financial position of our foreign subsidiaries.
We had approximately 45,200 employees worldwide as of
January 3, 2009, and our business operations and financial
performance could be adversely affected by changes in our
relationship with our employees or changes to U.S. or
foreign employment regulations.
We had approximately 45,200 employees worldwide as of
January 3, 2009. This means we have a significant exposure to
changes in domestic and foreign laws governing our relation-
ships with our employees, including wage and hour laws and
regulations, fair labor standards, minimum wage requirements,
overtime pay, unemployment tax rates, workers’ compensation
rates, citizenship requirements and payroll taxes, which likely
would have a direct impact on our operating costs. Approximate-
ly 35,000 of those employees were outside of the United States.
A significant increase in minimum wage or overtime rates in
countries where we have employees could have a significant
impact on our operating costs and may require that we relocate
those operations or take other steps to mitigate such increases,
all of which may cause us to incur additional costs, expend
resources responding to such increases and lower our margins.
In addition, some of our employees are members of labor
organizations or are covered by collective bargaining agreements.
If there were a significant increase in the number of our employ-
ees who are members of labor organizations or become parties
to collective bargaining agreements, we would become vulner-
able to a strike, work stoppage or other labor action by these
employees that could have an adverse effect on our business.
We may suffer negative publicity if we or our third-party
manufacturers violate labor laws or engage in practices
that are viewed as unethical or illegal, which could cause
a loss of business.
We cannot fully control the business and labor practices of
our third-party manufacturers, the majority of whom are located
in Asia, Central America and the Caribbean Basin. If one of
our own manufacturing operations or one of our third-party
manufacturers violates or is accused of violating local or interna-
tional labor laws or other applicable regulations, or engages in
labor or other practices that would be viewed in any market in
which our products are sold as unethical, we could suffer nega-
tive publicity, which could tarnish our brands’ image or result in a
loss of sales. In addition, if such negative publicity affected one
of our customers, it could result in a loss of business for us.
Our business depends on our senior management team
and other key personnel.
Our success depends upon the continued contributions of
our senior management team and other key personnel, some of
whom have unique talents and experience and would be difficult
to replace. The loss or interruption of the services of a member
of our senior management team or other key personnel could
have a material adverse effect on our business during the transi-
tional period that would be required for a successor to assume
the responsibilities of the position. Our future success will also
depend on our ability to attract and retain key managers, sales
people and others. We may not be able to attract or retain these
employees, which could adversely affect our business.
The success of our business is tied to the strength and
reputation of our brands, including brands that we license to
other parties. If other parties take actions that weaken, harm
the reputation of or cause confusion with our brands, our
business, and consequently our sales, results of operations
and cash flows, may be adversely affected.
We license some of our important trademarks to third
parties. For example, we license Champion to third parties for
athletic-oriented accessories. Although we make concerted
efforts to protect our brands through quality control mecha-
nisms and contractual obligations imposed on our licensees,
there is a risk that some licensees may not be in full compliance
with those mechanisms and obligations. In that event, or if a
licensee engages in behavior with respect to the licensed marks
that would cause us reputational harm, we could experience a
significant downturn in that brand’s business, adversely affecting
our sales and results of operations. Similarly, any misuse of the
Wonderbra or Playtex brands by Sun Capital could result in nega-
tive publicity and a loss of sales for our products under these
brands, any of which may have a material adverse effect on our
business, results of operations, financial condition or cash flows.
We design, manufacture, source and sell products under
trademarks that are licensed from third parties. If any
licensor takes actions related to their trademarks that
would cause their brands or our company reputational
harm, our business may be adversely affected.
We design, manufacture, source and sell a number of our
products under trademarks that are licensed from third parties
such as our Polo Ralph Lauren men’s underwear. Because we do
not control the brands licensed to us, our licensors could make
changes to their brands or business models that could result in
a significant downturn in a brand’s business, adversely affecting
our sales and results of operations. If any licensor engages in
behavior with respect to the licensed marks that would cause us
reputational harm, or if any of the brands licensed to us violates
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the trademark rights of another or are deemed to be invalid or
unenforceable, we could experience a significant downturn in
that brand’s business, adversely affecting our sales and results
of operations, and we may be required to expend significant
amounts on public relations, advertising and, possibly, legal fees.
Businesses that we may acquire may fail to perform to ex-
pectations, and we may be unable to successfully integrate
acquired businesses with our existing business.
From time to time, we may evaluate potential acquisition
opportunities to support and strengthen our business. We may
not be able to realize all or a substantial portion of the antici-
pated benefits of acquisitions that we may consummate. Newly
acquired businesses may not achieve expected results of opera-
tions, including expected levels of revenues, and may require
unanticipated costs and expenditures. Acquired businesses may
also subject us to liabilities that we were unable to discover in the
course of our due diligence, and our rights to indemnification from
the sellers of such businesses, even if obtained, may not be suffi-
cient to offset the relevant liabilities. In addition, the integration of
newly acquired businesses may be expensive and time-consum-
ing and may not be entirely successful. Integration of the acquired
businesses may also place additional pressures on our systems
of internal control over financial reporting. If we are unable to suc-
cessfully integrate newly acquired businesses or if acquired busi-
nesses fail to produce targeted results, it could have an adverse
effect on our results of operations or financial condition.
Our historical financial information and operations for
periods prior to the spin off are not necessarily indicative
of our results as a separate company and therefore may not
be reliable as an indicator of our future financial results.
Our historical financial statements for periods prior to the
spin off on September 5, 2006 were created from Sara Lee’s
financial statements using our historical results of operations
and historical bases of assets and liabilities as part of Sara Lee.
Accordingly, historical financial information for periods prior to
the spin off is not necessarily indicative of what our financial
position, results of operations and cash flows would have been if
we had been a separate, stand alone entity during those periods.
Our historical financial information for periods prior to the spin
off is also not necessarily indicative of what our results of opera-
tions, financial position and cash flows will be in the future and,
for periods prior to the spin off, does not reflect many significant
changes in our capital structure, funding and operations result-
ing from the spin off. While our results of operations for periods
prior to the spin off include all costs of Sara Lee’s branded
apparel business, these costs and expenses do not include all
of the costs that would have been incurred by us had we been
an independent company during those periods. In addition, we
have not made adjustments to our historical financial information
to reflect changes, many of which are significant, that occurred
in our cost structure, financing and operations as a result of the
spin off, including the substantial debt we incurred and pension
liabilities we assumed in connection with the spin off. In addi-
tion, our effective income tax rate as reflected in our historical
financial information for periods prior to the spin off has not been
and may not be indicative of our future effective income tax rate.
If the IRS determines that our spin off from Sara Lee does
not qualify as a “tax-free” distribution or a “tax-free”
reorganization, we may be subject to substantial liability.
Sara Lee has received a private letter ruling from the Internal
Revenue Service, or the “IRS,” to the effect that, among other
things, the spin off qualifies as a tax-free distribution for U.S.
federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended, or the “Internal Revenue
Code,” and as part of a tax-free reorganization under Section
368(a)(1)(D) of the Internal Revenue Code, and the transfer to us
of assets and the assumption by us of liabilities in connection
with the spin off will not result in the recognition of any gain or
loss for U.S. federal income tax purposes to Sara Lee.
Although the private letter ruling relating to the qualification
of the spin off under Sections 355 and 368(a)(1)(D) of the Inter-
nal Revenue Code generally is binding on the IRS, the continuing
validity of the ruling is subject to the accuracy of factual repre-
sentations and assumptions made in connection with obtaining
such private letter ruling. Also, as part of the IRS’s general policy
with respect to rulings on spin off transactions under Section 355
of the Internal Revenue Code, the private letter ruling obtained
by Sara Lee is based upon representations by Sara Lee that cer-
tain conditions which are necessary to obtain tax-free treatment
under Section 355 and Section 368(a)(1)(D) of the Internal
Revenue Code have been satisfied, rather than a determination
by the IRS that these conditions have been satisfied. Any inac-
curacy in these representations could invalidate the ruling.
If the spin off does not qualify for tax-free treatment for
U.S. federal income tax purposes, then, in general, Sara Lee
would be subject to tax as if it has sold the common stock of
our company in a taxable sale for its fair market value. Sara Lee’s
stockholders would be subject to tax as if they had received a
taxable distribution equal to the fair market value of our common
stock that was distributed to them, taxed as a dividend (without
reduction for any portion of a Sara Lee’s stockholder’s basis in its
shares of Sara Lee common stock) for U.S. federal income tax
purposes and possibly for purposes of state and local tax law,
to the extent of a Sara Lee’s stockholder’s pro rata share of Sara
Lee’s current and accumulated earnings and profits (including
any arising from the taxable gain to Sara Lee with respect to
the spin off). It is expected that the amount of any such taxes to
Sara Lee’s stockholders and to Sara Lee would be substantial.
Pursuant to a tax sharing agreement we entered into with
Sara Lee in connection with the spin off, we agreed to indem-
nify Sara Lee and its affiliates for any liability for taxes of Sara
Lee resulting from: (1) any action or failure to act by us or any
of our affiliates following the completion of the spin off that
would be inconsistent with or prohibit the spin off from qualify-
ing as a tax-free transaction to Sara Lee and to Sara Lee’s
stockholders under Sections 355 and 368(a)(1)(D) of the Inter-
nal Revenue Code, or (2) any action or failure to act by us or
any of our affiliates following the completion of the spin off that
would be inconsistent with or cause to be untrue any material,
information, covenant or representation made in connection
with the private letter ruling obtained by Sara Lee from the IRS
relating to, among other things, the qualification of the spin off
as a tax-free transaction described under Sections 355
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and 368(a)(1)(D) of the Internal Revenue Code. Our indemnifi-
cation obligations to Sara Lee and its affiliates are not limited
in amount or subject to any cap. We expect that the amount
of any such taxes to Sara Lee would be substantial.
Anti-takeover provisions of our charter and bylaws, as well
as Maryland law and our stockholder rights agreement, may
reduce the likelihood of any potential change of control or
unsolicited acquisition proposal that you might consider
favorable.
Our charter permits our board of directors, without stock-
holder approval, to amend the charter to increase or decrease
the aggregate number of shares of stock or the number of
shares of stock of any class or series that we have the authority
to issue. In addition, our board of directors may classify or reclas-
sify any unissued shares of common stock or preferred stock
and may set the preferences, conversion or other rights, voting
powers and other terms of the classified or reclassified shares.
Our board of directors could establish a series of preferred stock
that could have the effect of delaying, deferring or preventing a
transaction or a change in control that might involve a premium
price for our common stock or otherwise be in the best interest
of our stockholders. Our board of directors also is permitted,
without stockholder approval, to implement a classified board
structure at any time.
Our bylaws, which only can be amended by our board of
directors, provide that nominations of persons for election to our
board of directors and the proposal of business to be considered
at a stockholders meeting may be made only in the notice of
the meeting, by our board of directors or by a stockholder who
is entitled to vote at the meeting and has complied with the
advance notice procedures of our bylaws. Also, under Mary-
land law, business combinations between us and an interested
stockholder or an affiliate of an interested stockholder, including
mergers, consolidations, share exchanges or, in circumstances
specified in the statute, asset transfers or issuances or reclassifi-
cations of equity securities, are prohibited for five years after the
most recent date on which the interested stockholder becomes
an interested stockholder. An interested stockholder includes
any person who beneficially owns 10% or more of the voting
power of our shares or any affiliate or associate of ours who, at
any time within the two-year period prior to the date in question,
was the beneficial owner of 10% or more of the voting power of
our stock. A person is not an interested stockholder under the
statute if our board of directors approved in advance the transac-
tion by which he otherwise would have become an interested
stockholder. However, in approving a transaction, our board of
directors may provide that its approval is subject to compliance,
at or after the time of approval, with any terms and conditions
determined by our board. After the five-year prohibition, any
business combination between us and an interested stockholder
generally must be recommended by our board of directors and
approved by two supermajority votes or our common stockhold-
ers must receive a minimum price, as defined under Maryland
law, for their shares. The statute permits various exemptions
from its provisions, including business combinations that are
exempted by our board of directors prior to the time that the
interested stockholder becomes an interested stockholder.
20
In addition, we have adopted a stockholder rights agreement
which provides that in the event of an acquisition of or tender
offer for 15% of our outstanding common stock, our stockholders,
other than the acquiror, shall be granted rights to purchase our
common stock at a certain price. The stockholder rights agree-
ment could make it more difficult for a third-party to acquire our
common stock without the approval of our board of directors.
These and other provisions of Maryland law or our char-
ter and bylaws could have the effect of delaying, deferring or
preventing a transaction or a change in control that might involve
a premium price for our common stock or otherwise be consid-
ered favorably by our stockholders.
ITem 1B. Unresolved Staff Comments
Not applicable.
ITem 1c. Executive Officers of the Registrant
The chart below lists our executive officers and is followed
by biographic information about them. No family relationship
exists between any of our directors or executive officers.
Name
Age
Positions
Richard A. Noll
Gerald W. Evans Jr.
William J. Nictakis
Joia M. Johnson
Kevin W. Oliver
E. Lee Wyatt Jr.
51
49
48
48
51
56
Chief Executive Officer
and Chairman of the Board of Directors
President, Global Supply Chain
and Asia Business Development
President, Chief Commercial Officer
Executive Vice President, General Counsel
and Corporate Secretary
Executive Vice President, Human Resources
Executive Vice President, Chief Financial Officer
Richard A. Noll has served as our Chief Executive Officer
since April 2006, as a director since our formation in September
2005 and as Chairman of the Board of Directors since January
2009. From December 2002 until the completion of the spin off in
September 2006, he also served as a Senior Vice President of Sara
Lee. From July 2005 to April 2006, Mr. Noll served as President
and Chief Operating Officer of Sara Lee Branded Apparel. Mr. Noll
served as Chief Executive Officer of the Sara Lee Bakery Group
from July 2003 to July 2005 and as the Chief Operating Officer of
the Sara Lee Bakery Group from July 2002 to July 2003. From July
2001 to July 2002, Mr. Noll was Chief Executive Officer of Sara
Lee Legwear, Sara Lee Direct and Sara Lee Mexico. Mr. Noll joined
Sara Lee in 1992 and held a number of management positions
with increasing responsibilities while employed by Sara Lee.
Gerald W. Evans Jr. has served as our President, Global
Supply Chain and Asia Business Development since February
2008. From the completion of the spin off in September 2006
until February 2008, he served as Executive Vice President, Chief
Supply Chain Officer. From July 2005 until the completion of the
spin off, Mr. Evans served as a Vice President of Sara Lee and
as Chief Supply Chain Officer of Sara Lee Branded Apparel. Mr.
Evans served as President and Chief Executive Officer of Sara
Lee Sportswear and Underwear from March 2003 until June
2005 and as President and Chief Executive Officer of Sara Lee
Sportswear from March 1999 to February 2003.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
William J. Nictakis has served as our President, Chief
Commercial Officer since November 2007. From June 2003
until November 2007, Mr. Nictakis served as President of the
Sara Lee Bakery Group. From May 1999 through June 2003, Mr.
Nictakis was Vice President, Sales, of Frito-Lay, Inc., a subsidiary
of PepsiCo, Inc. that manufactures, markets, sells and distrib-
utes branded snacks.
of Financial Condition and Results of Operations — Future
Contractual Obligations and Commitments.”
As of January 3, 2009, we also operated 213 direct outlet
stores in 40 states, most of which are leased under five-year,
renewable lease agreements. We believe that our facilities, as
well as equipment, are in good condition and meet our current
business needs.
Joia M. Johnson has served as our Executive Vice President,
General Counsel and Corporate Secretary since January 2007.
From May 2000 until January 2007, Ms. Johnson served as Ex-
ecutive Vice President, General Counsel and Secretary of RARE
Hospitality International, Inc., an owner, operator and franchisor
of national chain restaurants.
Kevin W. Oliver has served as our Executive Vice Presi-
dent, Human Resources since the completion of the spin off in
September 2006. From January 2006 until the completion of the
spin off, Mr. Oliver served as a Vice President of Sara Lee and as
Senior Vice President, Human Resources of Sara Lee Branded
Apparel. From February 2005 to December 2005, Mr. Oliver
served as Senior Vice President, Human Resources for Sara Lee
Food and Beverage and from August 2001 to January 2005 as
Vice President, Human Resources for the Sara Lee Bakery Group.
The following table summarizes our properties by country as
of January 3, 2009:
Properties by Country (1)
United States . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. facilities:
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dominican Republic . . . . . . . . . . . . . . . . . . .
Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . .
El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . .
Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 other countries . . . . . . . . . . . . . . . . . . . .
Owned
Square Feet
Leased
Square Feet
Total
10,378,908
5,413,658
15,792,566
867,167
746,484
356,279
1,051,395
470,111
289,480
—
277,733
—
87,279
1,099,166
111,385
—
355,533
400,338
917,966
268,892
—
126,777
164,548
14,142
101,934
7,301
87,573
68,129
78,019
1,222,700
1,146,822
1,274,245
1,320,287
470,111
416,257
164,548
291,875
101,934
94,580
1,186,739
179,514
78,019
E. Lee Wyatt Jr. has served as our Executive Vice President,
Total non-U.S. facilities . . . . . . . . . . . . . . . .
5,356,479
2,591,152
7,947,631
Chief Financial Officer since the completion of the spin off in
September 2006. From September 2005 until the completion
of the spin off, Mr. Wyatt served as a Vice President of Sara
Lee and as Chief Financial Officer of Sara Lee Branded Apparel.
Prior to joining Sara Lee, Mr. Wyatt was Executive Vice Presi-
dent, Chief Financial Officer and Treasurer of Sonic Automotive,
Inc. from April 2003 to September 2005, and Vice President of
Administration and Chief Financial Officer of Sealy Corporation
from September 1998 to February 2003.
ITem 2. Properties
We own and lease properties supporting our administrative,
manufacturing, distribution and direct outlet activities. We own
our approximately 470,000 square-foot headquarters located in
Winston-Salem, North Carolina, which houses our various sales,
marketing and corporate business functions. Research and
development as well as certain product-design functions also
are located in Winston-Salem, while other design functions are
located in New York City. Our products are manufactured through
a combination of facilities we own and operate and facilities
owned and operated by third-party contractors who perform
some of the steps in the manufacturing process for us, such as
cutting and/or sewing. We source the remainder of our finished
goods from third-party manufacturers who supply us with fin-
ished products based on our designs.
As of January 3, 2009, we owned and leased properties
in 23 countries, including 52 manufacturing facilities and 22
distribution centers, as well as office facilities. The leases for
these properties expire between January 4, 2009 and 2019, with
the exception of some seasonal warehouses that we lease on
a month-by-month basis. For more information about our capital
lease obligations, see “Management’s Discussion and Analysis
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,735,387
8,004,810
23,740,197
(1) Excludes vacant land.
The following table summarizes the properties primarily used
by our segments as of January 3, 2009:
Properties by Segment (1)
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . .
International. . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned
Square Feet
Leased
Square Feet
5,149,083
4,601,476
452,014
1,143,897
—
3,984,565
1,223,013
837,960
39,000
—
Total
9,133,648
5,824,489
1,289,974
1,182,897
—
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,346,470
6,084,538
17,431,008
(1) Excludes vacant land, facilities no longer in operation intended for disposal, sourcing offices
not associated with a particular segment, and office buildings housing corporate functions.
(2) Our Other segment is comprised of sales of nonfinished products such as fabric and certain
other materials in the United States and Latin America that maintain asset utilization at cer-
tain manufacturing facilities used by one or more of the Innerwear, Outerwear, International
or Hosiery segments and are expected to generate break even margins. No facilities are
used primarily by our Other segment.
ITem 3. Legal Proceedings
Although we are subject to various claims and legal actions
that occur from time to time in the ordinary course of our busi-
ness, 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 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of stockholders during
the quarter ended January 3, 2009.
21
H AN E SBRANDS INC.
2 0 0 8 AN Nu Al REp oR t oN FoRM 10-K
PART II
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
market for our Common Stock
our common stock currently is traded on the New York Stock
Exchange, or the “NYSE,” under the symbol “HBI.” A “when-is-
sued” trading market for our common stock on the NYSE began
on August 16, 2006, and “regular way” trading of our common
stock began on September 6, 2006. prior to August 16, 2006,
there was no public market for our common stock. Each share
of our common stock has attached to it one preferred stock
purchase right. these rights initially will be transferable with and
only with the transfer of the underlying share of common stock.
We have not made any unregistered sales of our equity securi-
ties.
the following table sets forth the high and low sales prices
for our common stock for the indicated periods:
Issuer Purchases of equity Securities
there were no purchases by Hanesbrands during the quarter
ended January 3, 2009 of equity securities that are registered
under Section 12 of the Exchange Act.
Performance Graph
the following graph compares the cumulative total stock-
holder return on our common stock with the comparable cumu-
lative return of the S&p MidCap 400 Index and the S&p 1500
Apparel, Accessories & luxury Goods Index. the graph assumes
that $100 was invested in our common stock and each index
on August 11, 2006, the effective date of the registration of our
common stock under Section 12 of the Exchange Act, although
a “when-issued” trading market for our common stock did not
begin until August 16, 2006, and “regular way” trading did not
begin until September 6, 2006. the stock price performance on
the following graph is not necessarily indicative of future stock
price performance.
High
Low
Comparison of Cumulative Total Return
2007
Quarter ended March 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended September 29, 2007 . . . . . . . . . . . . . . . . . . . . . .
Quarter ended December 29, 2007 . . . . . . . . . . . . . . . . . . . . . .
2008
Quarter ended March 29, 2008 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended June 28, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended September 27, 2008 . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
$29 .65
$29 .65
$33 .73
$31 .58
$30 .40
$37 .73
$29 .00
$22 .77
$23 .69
$25 .25
$24 .00
$25 .20
$21 .47
$27 .45
$21 .38
$ 8 .54
Holders of Record
on February 2, 2009, there were 44,338 holders of record
of our common stock. Because many of the shares of our com-
mon stock are held by brokers and other institutions on behalf of
stockholders, we are unable to determine the exact number of
beneficial stockholders represented by these record holders, but
we believe that there were more than 98,000 beneficial owners
of our common stock as of February 2, 2009.
Dividends
We currently do not pay regular dividends on our outstanding
stock. 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 discre-
tion of our board of directors. our board of directors may take
into account such matters as general business conditions, our
financial condition and results of operations, our capital require-
ments, our prospects and such other factors as our board of
directors may deem relevant.
$ 250
$ 200
$ 150
$ 100
$ 50
$ 0
1 / 0
8 / 1
Hanesbrands Inc.
S&P MidCap 400 Index
S&P 1500 Apparel, Accessories & Luxury Goods Index
6
0 / 0
9 / 3
6
1
2 / 3
6
1 / 0
3 / 3
7
1 / 0
7
0 / 0
0 / 0
9 / 3
7
1
2 / 3
7
1 / 0
6 / 3
8
1 / 0
3 / 3
8
0 / 0
6 / 3
8
0 / 0
9 / 3
8
1 / 0
2 / 3
1
Compliance with Certain New York Stock exchange
Requirements
As required by the rules of the New York Stock Exchange,
Richard A. Noll, our Chief Executive officer must certify to the
New York Stock Exchange each year that he is not aware of any
violation by Hanesbrands of New York Stock Exchange corporate
governance listing standards as of the date of his certification,
qualifying the certification to the extent necessary. Mr. Noll’s
certification filed with the New York Stock Exchange on May 15,
2008 did not contain any qualifications. We are filing, as exhibits
to this Annual Report on Form 10-K, the certifications required by
Section 302 of the Sarbanes-oxley Act of 2002.
22
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
equity compensation Plan Information
The following table provides information about our equity compensation plans as of January 3, 2009.
Plan Category
Number of Securities to be Issued
Upon Exercise of Outstanding
Options, Warrants and Rights
Weighted Average Exercise
Price of Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available
for Future Issuance (1)
Equity compensation plans approved by security holders. . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security holders . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,503,216
—
8,503,216
$22.78
—
$22.78
5,781,240
—
5,781,240
(1) The amount appearing under “Number of securities remaining available for future issuance under equity compensation plans” includes 3,546,505 shares available under the Hanesbrands Inc.
Omnibus Incentive Plan of 2006 and 2,234,735 shares available under the Hanesbrands Inc. Employee Stock Purchase Plan of 2006.
ITem 6. Selected Financial Data
The following table presents our selected historical financial
data. The statement of income data for the years ended January
3, 2009 and December 29, 2007, the six-month period ended
December 30, 2006 and the year ended July 1, 2006 and the
balance sheet data as of January 3, 2009 and December 29,
2007 have been derived from our audited Consolidated Finan-
cial Statements included elsewhere in this Annual Report on
Form 10-K. The statement of income data for the years ended
July 2, 2005 and July 3, 2004 and the balance sheet data as of
December 30, 2006, July 1, 2006, July 2, 2005 and July 3, 2004
has been derived from our consolidated financial statements not
included in this Annual Report on Form 10-K.
In October 2006, our Board of Directors approved a change
in our fiscal year end from the Saturday closest to June 30 to
(amounts in thousands, except per share data)
Statement of Income Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
the Saturday closest to December 31. As a result of this change,
our consolidated financial statements include presentation of
the transition period beginning on July 2, 2006 and ending on
December 30, 2006.
Our historical financial data for periods prior to our spin off
from Sara Lee on September 5, 2006 is not necessarily indica-
tive of our future performance or what our financial position and
results of operations would have been if we had operated as a
separate, stand alone entity during all of the periods shown. The
data should be read in conjunction with our historical financial
statements and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included else-
where in this Annual Report on Form 10-K.
Years Ended
Six Months
Ended
January 3, December 29, December 30,
2006
2009
2007
Years Ended
July 1,
2006
July 2,
2005
July 3,
2004
$ 4,248,770 $ 4,474,537 $ 2,250,473 $ 4,472,832 $ 4,683,683 $ 4,632,741
3,092,026
3,033,627
2,871,420
1,530,119
2,987,500
3,223,571
1,377,350
1,009,607
—
50,263
1,440,910
1,040,754
(32,144)
43,731
317,480
(634)
155,077
163,037
35,868
388,569
5,235
199,208
184,126
57,999
720,354
547,469
(28,467)
11,278
190,074
7,401
70,753
111,920
37,781
1,485,332
1,051,833
—
(101)
1,460,112
1,053,654
—
46,978
1,540,715
1,087,964
—
27,466
433,600
—
17,280
416,320
93,827
359,480
—
13,964
345,516
127,007
425,285
—
24,413
400,872
(48,680)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 127,169 $ 126,127 $ 74,139 $ 322,493 $ 218,509 $ 449,552
Earnings per share — basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares — basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares — diluted (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ or parent companies’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.35 $ 1.31 $ 0.77 $ 3.35 $ 2.27 $ 4.67
$ 1.34 $ 1.30 $ 0.77 $ 3.35 $ 2.27 $ 4.67
96,306
96,306
94,171
95,164
96,309
96,620
95,936
96,741
96,306
96,306
96,306
96,306
January 3, December 29, December 30,
2006
2009
2007
July 1,
2006
July 2,
2005
July 3,
2004
$ 67,342 $ 174,236 $ 155,973 $ 298,252 $ 1,080,799 $ 674,154
4,402,758
3,439,483
3,534,049
3,435,620
4,903,886
4,257,307
2,130,907
469,703
2,600,610
185,155
2,315,250
146,347
2,461,597
288,904
2,484,000
271,168
2,755,168
69,271
—
49,987
49,987
3,229,134
—
53,559
53,559
2,602,362
—
35,934
35,934
2,797,370
(1) Prior to the spin off on September 5, 2006, the number of shares used to compute basic and diluted earnings per share is 96,306, which was the number of shares of our common stock
outstanding on September 5, 2006.
(2) Subsequent to the spin off on September 5, 2006, the number of shares used to compute diluted earnings per share is based on the number of shares of our common stock outstanding,
plus the potential dilution that could occur if restricted stock units and options granted under our equity-based compensation arrangements were exercised or converted into common stock.
23
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
ITem 7. 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” and “Risk Factors” in this
Annual Report on Form 10-K for a discussion of the uncertain-
ties, 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 Annual Report on Form
10-K. On October 26, 2006, our Board of Directors approved a
change in our fiscal year end from the Saturday closest to June
30 to the Saturday closest to December 31. We refer to the
resulting transition period from July 2, 2006 to December 30,
2006 in this Annual Report on Form 10-K as the six months end-
ed December 30, 2006. 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 state-
ments as a result of various factors, including but not limited to
those listed under “Risk Factors” in this Annual Report on Form
10-K and included elsewhere in this Annual Report on Form 10-K.
MD&A is a supplement to our Consolidated Financial State-
ments and notes thereto included elsewhere in this Annual
Report on Form 10-K, and is provided to enhance your under-
standing of our results of operations and financial condition.
Our MD&A is organized as follows:
n Overview. This section provides a general description of our
company and operating segments, business and industry
trends, our key business strategies, our consolidation and
globalization strategy, and background information on other
matters discussed in this MD&A.
n Components of Net Sales and Expense. This section
provides an overview of the components of our net sales
and expense that are key to an understanding of our results
of operations.
n Highlights from the Year Ended January 3, 2009.
This section discusses some of the highlights of our
performance and activities during 2008.
n Consolidated Results of Operations and Operating
Results by Business Segment. These sections provide our
analysis and outlook for the significant line items on our state-
ments of income, as well as other information that we deem
meaningful to an understanding of our results of operations
on both a consolidated basis and a business segment basis.
n Liquidity and Capital Resources. This section provides an
analysis of trends and uncertainties affecting liquidity, cash
requirements for our business, sources and uses of our cash
and our financing arrangements.
n Critical Accounting Policies and Estimates. This section
discusses the accounting policies that we consider impor-
tant to the evaluation and reporting of our financial condition
and results of operations, and whose application requires
significant judgments or a complex estimation process.
24
n Recently Issued Accounting Pronouncements. This sec-
tion provides a summary of the most recent authoritative
accounting pronouncements and guidance that we will be
required to adopt in a future period.
Overview
Our Company
We are a consumer goods company with a portfolio of
leading apparel brands, including Hanes, Champion, C9 by
Champion, Playtex, Bali, L’eggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks, Zorba, Rinbros and Duofold.
We design, manufacture, source and sell a broad range of ap-
parel essentials such as t-shirts, bras, panties, men’s underwear,
kids’ underwear, casualwear, activewear, socks and hosiery.
According to NPD, our brands hold either the number one or
number two U.S. market position by sales value in most product
categories in which we compete, for the 12 month period ended
November 30, 2008. In 2008, Hanes was number one for the
fifth consecutive year on the Women’s Wear Daily “Top 100
Brands Survey” for apparel and accessory brands that women
know best and was number one for the fifth consecutive year as
the most preferred men’s, women’s and children’s apparel brand
of consumers in Retailing Today magazine’s “Top Brands Study.”
Additionally, the company had five of the top ten intimate apparel
brands preferred by consumers in the Retailing Today study —
Hanes, Playtex, Bali, Just My Size and L’eggs.
Our distribution channels include direct to consumer sales
at our outlet stores, national chains and department stores and
warehouse clubs, mass-merchandise outlets and international
sales. For the year ended January 3, 2009, approximately 44%
of our net sales were to mass merchants, 18% were to national
chains and department stores, 9% were direct to consumers,
11% were in our International segment and 18% were to other
retail channels such as embellishers, specialty retailers, ware-
house clubs and sporting goods stores.
Our Segments
Our operations are managed in five operating segments,
each of which is a reportable segment for financial reporting
purposes: Innerwear, Outerwear, International, Hosiery and
Other. These segments are organized principally by product cat-
egory and geographic location. Management of each segment is
responsible for the operations of these businesses but share a
common supply chain and media and marketing platforms.
n Innerwear. The Innerwear segment focuses on core ap-
parel essentials, and consists of products such as women’s
intimate apparel, men’s underwear, kids’ underwear, socks,
thermals and sleepwear, marketed under well-known brands
that are trusted by consumers. We are an intimate apparel
category leader in the United States with our Hanes, Playtex,
Bali, barely there, Just My Size, Wonderbra and Duofold
brands. We are also a leading manufacturer and marketer
of men’s underwear and kids’ underwear under the Hanes,
Champion, C9 by Champion and Polo Ralph Lauren brand
names. Our direct-to-consumer retail operations are included
within the Innerwear segment. The retail operations include
our value-based (“outlet”) stores, internet operations and
catalogs which sell products from our portfolio of leading
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
brands. As of January 3, 2009 and December 29, 2007, we
had 213 and 216 outlet stores, respectively. Net sales for the
year ended January 3, 2009 from our Innerwear segment
were $2.4 billion, representing approximately 56% of total
segment net sales.
n Outerwear. We are a leader in the casualwear and activewear
markets through our Hanes, Champion and Just My Size
brands, where we offer products such as t-shirts and fleece.
Our casualwear lines offer a range of quality, comfortable
clothing for men, women and children marketed under the
Hanes and Just My Size brands. The Just My Size brand
offers casual apparel designed exclusively to meet the needs
of plus-size women. In addition to activewear for men and
women, Champion provides uniforms for athletic programs
and includes an apparel program, C9 by Champion, at Target
stores. We also license our Champion name for collegiate
apparel and footwear. We also supply our t-shirts, sportshirts
and fleece products primarily to wholesalers, who then resell
to screen printers and embellishers, through brands such
as Hanes, Champion, Outer Banks and Hanes Beefy-T. Net
sales for the year ended January 3, 2009 from our Outer-
wear segment were $1.2 billion, representing approximately
28% of total segment net sales.
n International. International includes products that span
across the Innerwear, Outerwear and Hosiery reportable
segments and are primarily marketed under the Hanes,
Wonderbra, Champion, Stedman, Playtex, Zorba, Rinbros,
Kendall, Sol y Oro, Ritmo and Bali brands. Net sales for the
year ended January 3, 2009 from our International segment
were $460 million, representing approximately 11% of total
segment net sales and included sales in Latin America, Asia,
Canada and Europe. Canada, Europe, Japan and Mexico are
our largest international markets, and we also have sales
offices in India and China.
n Hosiery. We are the leading marketer of women’s sheer
hosiery in the United States. We compete in the hosiery
market by striving to offer superior values and executing inte-
grated marketing activities, as well as focusing on the style
of our hosiery products. We market hosiery products under
our L’eggs, Hanes and Just My Size brands. Net sales for
the year ended January 3, 2009 from our Hosiery segment
were $228 million, representing approximately 5% of total
segment net sales. We expect the trend of declining hosiery
sales to continue consistent with the overall decline in the
industry and with shifts in consumer preferences.
n Other. Our Other segment consists of sales of nonfinished
products such as yarn and certain other materials in the United
States and Latin America that maintain asset utilization at
certain manufacturing facilities and are expected to generate
break even margins. Net sales for the year ended January 3,
2009 in our Other segment were $22 million, representing
less than 1% of total segment net sales. Net sales from our
Other segment are expected to continue to decline and to
ultimately become insignificant to us as we complete the
implementation of our consolidation and globalization efforts.
Business and Industry Trends
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects on
our business. The current retail environment has been impacted
by recent volatility in the financial markets, including declines in
stock prices, and by uncertain economic conditions. Increases in
food and fuel prices, changes in the credit and housing markets
leading to the current financial and credit crisis, actual and poten-
tial job losses among many sectors of the economy, significant
declines in the stock market resulting in large losses to consum-
er retirement and investment accounts, and uncertainty regard-
ing future federal tax and economic policies have all added to
declines in consumer confidence and curtailed retail spending.
We expect the weak retail environment to continue and
do not expect macroeconomic conditions to be conducive to
growth in 2009. Achieving financial results that compare favor-
ably with year-ago results will be challenging in the first half of
2009. In the first quarter of 2009, we expect a sales decline that
is more or less consistent with the fourth quarter 2008 trend
and reflects expected lower casualwear sales in the Outerwear
segment primarily in the first half of 2009. We also expect
substantial pressure on profitability due to the economic climate,
significantly higher commodity costs, increased pension costs
and increased costs associated with implementing our price
increase that is not effective for the entire first quarter of 2009,
including repackaging costs.
The apparel essentials market is highly competitive and
evolving rapidly. Competition is generally based upon price,
brand name recognition, product quality, selection, service and
purchasing convenience. The majority of our core styles continue
from year to year, with variations only in color, fabric or design
details. Some products, however, such as intimate apparel,
activewear and sheer hosiery, do have an emphasis on style and
innovation. Our businesses face competition today from other
large corporations and foreign manufacturers, as well as smaller
companies, department stores, specialty stores and other
retailers that market and sell apparel essentials products under
private labels that compete directly with our brands.
Our top ten customers accounted for 65% of our net sales
and our top customer, Wal-Mart, accounted for over $1.1 billion
of our sales for the year ended January 3, 2009. Our largest
customers in the year ended January 3, 2009 were Wal-Mart,
Target and Kohl’s, which accounted for 27%, 16% and 6% of
total sales, respectively. The growth in retailers can create pricing
pressures as our customers grow larger and seek to have greater
concessions in their purchase of our products, while they can be
increasingly demanding that we provide them with some of our
products on an exclusive basis. To counteract these effects, it has
become increasingly important to leverage our national brands
through investment in our largest and strongest brands as our
customers strive to maximize their performance especially in
today’s challenging economic environment. In addition, during the
past several years, various retailers, including some of our largest
customers, have experienced significant difficulties, including
restructurings, bankruptcies and liquidations, and the ability of
retailers to overcome these difficulties may increase due to the
recent deterioration of worldwide economic conditions.
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2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Anticipating changes in and managing our operations in
Spend Less
response to consumer preferences remains an important
element of our business. In recent years, we have experienced
changes in our net sales, revenues and cash flows in accordance
with changes in consumer preferences and trends. For example,
we expect the trend of declining hosiery sales to continue con-
sistent with the overall decline in the industry and with shifts in
consumer preferences. The Hosiery segment only comprised 5%
of our net sales in the year ended January 3, 2009 however, and
as a result, the decline in the Hosiery segment has not had a sig-
nificant impact on our net sales, revenues or cash flows. Generally,
we manage the Hosiery segment for cash, placing an emphasis
on reducing our cost structure and managing cash efficiently.
Our Key Business Strategies
Sell more, spend less and generate cash are our broad strat-
egies to build our brands, reduce our costs and generate cash.
Sell More
Through our “sell more” strategy, we seek to drive profitable
growth by consistently offering consumers brands they love and
trust and products with unsurpassed value. Key initiatives we are
employing to implement this strategy include:
n Build big, strong brands in big core categories with
innovative key items. Our ability to react to changing
customer needs and industry trends is key to our success.
Our design, research and product development teams, in
partnership with our marketing teams, drive our efforts to
bring innovations to market. We seek to leverage our insights
into consumer demand in the apparel essentials industry to
develop new products within our existing lines and to modify
our existing core products in ways that make them more ap-
pealing, addressing changing customer needs and industry
trends. We also support our key brands with targeted, effec-
tive advertising and marketing campaigns.
n Foster strategic partnerships with key retailers via “team
selling.” We foster relationships with key retailers by apply-
ing our extensive category and product knowledge, leverag-
ing our use of multi-functional customer management teams
and developing new customer-specific programs such as
C9 by Champion for Target. Our goal is to strengthen and
deepen our existing strategic relationships with retailers and
develop new strategic relationships.
n Use Kanban concepts to have the right products avail-
able in the right quantities at the right time. Through
Kanban, a multi-initiative effort that determines production
quantities, and in doing so, facilitates just-in-time produc-
tion and ordering systems, we seek to ensure that products
are available to meet customer demands while effectively
managing inventory levels.
Through our “spend less” strategy, we seek to become an
integrated organization that leverages its size and global reach
to reduce costs, improve flexibility and provide a high level of
service. Key initiatives we are employing to implement this
strategy include:
n Globalizing our supply chain by balancing across hemi-
spheres into “economic” clusters with fewer, larger
facilities. As a provider of high-volume products, we are
continually seeking to improve our cost-competitiveness
and operating flexibility through supply chain initiatives.
Through our consolidation and globalization strategy, which is
discussed in more detail below, we will continue to transition
additional parts of our supply chain to lower-cost locations in
Asia, Central America and the Caribbean Basin in an effort to
optimize our cost structure. As part of this process, we are
using Kanban concepts to optimize the way we manage de-
mand, to increase manufacturing flexibility to better respond
to demand variability and to simplify our finished goods and
the raw materials we use to produce them. We expect that
these changes in our supply chain will result in significant
cost efficiencies and increased asset utilization.
n Leverage our global purchasing and manufacturing
scale. Historically, we have had a decentralized operating
structure with many distinct operating units. We are in the
process of consolidating purchasing, manufacturing and
sourcing across all of our product categories in the United
States. We believe that these initiatives will streamline our
operations, improve our inventory management, reduce
costs and standardize processes.
Generate Cash
Through our “generate cash” strategy, we seek to effectively
generate and invest cash at or above our weighted average cost
of capital to provide superior returns for both our equity and debt
investors. Key initiatives we are employing to implement this
strategy include:
n Optimizing our capital structure to take advantage of
our business model’s strong and consistent cash flows.
Maintaining appropriate debt leverage and utilizing excess cash
to, for example, pay down debt, invest in our own stock and
selectively pursue strategic acquisitions are keys to building a
stronger business and generating additional value for investors.
n Continuing to improve turns for accounts receivables,
inventory, accounts payable and fixed assets. Our ability
to generate cash is enhanced through more efficient manage-
ment of accounts receivables, inventory, accounts payable
and fixed assets.
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Consolidation and Globalization Strategy
We expect to continue our restructuring efforts as we
continue to execute our consolidation and globalization strategy.
We have closed plant locations, reduced our workforce, and
relocated some of our manufacturing capacity to lower cost
locations in Asia, Central America and the Caribbean Basin. For
example, during the year ended January 3, 2009, in furtherance
of our consolidation and globalization strategy, we approved
actions to close 11 manufacturing facilities and three distribution
centers and eliminate approximately 6,800 positions in Mexico,
the United States, Costa Rica, Honduras and El Salvador. In
addition, approximately 200 management and administrative
positions were eliminated, with the majority of these positions
based in the United States. We also have recognized accelerated
depreciation with respect to owned or leased assets associ-
ated with manufacturing facilities and distribution centers which
closed during 2008 or we anticipate closing in the next several
years as part of our consolidation and globalization strategy.
While we believe that this strategy has had and will continue to
have a beneficial impact on our operational efficiency and cost
structure, we have incurred significant costs to implement these
initiatives. In particular, we have recorded charges for severance
and other employment-related obligations relating to workforce
reductions, as well as payments in connection with lease and
other contract terminations. In addition, we incurred charges for
one-time write-offs of stranded raw materials and work in pro-
cess inventory determined not to be salvageable or cost-effec-
tive to relocate related to the closure of manufacturing facilities.
These amounts are included in the “Cost of sales,” “Restructur-
ing” and “Selling, general and administrative expenses” lines of
our statements of income.
Our significant supply chain capital spending and acquisition
actions during 2008 include:
n During the second quarter of 2008, we added three compa-
ny-owned sewing plants in Southeast Asia — two in Vietnam
and one in Thailand — giving us four sewing plants in Asia.
n In October 2008, we acquired a 370-employee embroidery
facility in Honduras. For the past eight years, these opera-
tions have produced embroidered and screen-printed apparel
for us. This acquisition better positions us for long-term
growth in these segments.
n During the fourth quarter of 2008, we commenced produc-
tion at our 500,000 square foot socks manufacturing facility
in El Salvador. This facility, co-located with textile manufactur-
ing operations that we acquired in 2007, provides a manufac-
turing base in Central America from which to leverage our
production scale at a lower cost location.
n We continued construction of a textile production plant in
Nanjing, China, which will be our first company-owned textile
production facility in Asia. We expect production to com-
mence in the fourth quarter of 2009. The Nanjing textile facil-
ity will enable us to expand and leverage our production scale
in Asia as we balance our supply chain across hemispheres.
We have made significant progress in our multiyear goal of
generating gross savings that could approach or exceed $200 mil-
lion. As a result of the restructuring actions taken since our spin
off from Sara Lee on September 5, 2006, our cost structure was
reduced and efficiencies improved, generating savings of $62
million during the year ended January 3, 2009. In addition to the
savings generated from restructuring actions, we benefited from
$14 million in savings related to other cost reduction initiatives dur-
ing the year ended January 3, 2009. Of the seven manufacturing
facilities and distribution centers approved for closure in 2006, two
were closed in 2006 and five were closed in 2007. Of the 19 manu-
facturing facilities and distribution centers approved for closure in
2007, 10 were closed in 2007 and nine were closed in 2008. Of the
14 manufacturing facilities and distribution centers approved for
closure in 2008, nine were closed in 2008 and five are expected
to close in 2009. For more information about our restructuring
actions, see Note 5, titled “Restructuring” to our Consolidated
Financial Statements included in this Annual Report on Form 10-K.
The continued implementation of our globalization and con-
solidation strategy, which is designed to improve operating effi-
ciencies and lower costs, has resulted and is likely to continue to
result in significant costs in the short-term and generate savings
as well as higher inventory levels for the next 12 to 15 months.
As further plans are developed and approved, we expect to
recognize additional restructuring costs as we eliminate duplica-
tive functions within the organization and transition a significant
portion of our manufacturing capacity to lower-cost locations.
As a result of this strategy, we expect to incur approximately
$250 million in restructuring and related charges over the three
year period following the spin off from Sara Lee on September 5,
2006, of which approximately half is expected to be noncash.
As of January 3, 2009, we have recognized approximately
$209 million and announced approximately $219 million in
restructuring and related charges related to these efforts since
September 5, 2006. Of these charges, approximately $84 million
relates to accelerated depreciation of buildings and equipment
for facilities that have been or will be closed, approximately
$79 million relates to employee termination and other benefits,
approximately $19 million relates to write-offs of stranded raw
materials and work in process inventory determined not to be
salvageable or cost-effective to relocate, approximately $17 mil-
lion relates to lease termination and other costs and approxi-
mately $10 million related to impairments of fixed assets.
Seasonality and Other Factors
Our operating results are subject to some variability. Gener-
ally, our diverse range of product offerings helps mitigate the
impact of seasonal changes in demand for certain items. Sales
are typically higher in the last two quarters (July to December)
of each fiscal year. Socks, hosiery and fleece products generally
have higher sales during this period as a result of cooler weather,
back-to-school shopping and holidays. Sales levels in any period
are also impacted by customers’ decisions to increase or de-
crease their inventory levels in response to anticipated
27
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
consumer demand. Our customers may cancel orders, change
delivery schedules or change the mix of products ordered with
minimal notice to us. For example, we experienced a shift in
timing by our largest retail customers of back-to-school programs
from June to July in 2008. Our results of operations are also
impacted by fluctuations and volatility in the price of cotton and
oil-related materials and the timing of actual spending for our
media, advertising and promotion expenses. Media, advertising
and promotion expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by our customers. Discretionary spend-
ing is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt lev-
els, the availability of consumer credit, currency exchange rates,
taxation, electricity power rates, gasoline prices, unemployment
trends and other matters that influence consumer confidence
and spending. Many of these factors are outside of our control.
Our customers’ purchases of discretionary items, including our
products, could decline during periods when disposable income
is lower, when prices increase in response to rising costs, or in
periods of actual or perceived unfavorable economic conditions.
These consumers may choose to purchase fewer of our prod-
ucts or lower-priced products of our competitors in response to
higher prices for our products, or may choose not to purchase
our products at prices that reflect our domestic price increases
that become effective from time to time.
Inflation and Changing Prices
Inflation can have a long-term impact on us because increas-
ing costs of materials and labor may impact our ability to maintain
satisfactory margins. For example, a significant portion of our
products are manufactured in other countries and a further de-
cline in the value of the U.S. dollar may result in higher manufac-
turing costs. Similarly, the cost of the materials that are used in
our manufacturing process, such as oil related commodity prices,
rose during the summer of 2008 as a result of inflation and other
factors. In addition, inflation often is accompanied by higher inter-
est rates, which could have a negative impact on spending, in
which case our margins could decrease. Moreover, increases in
inflation may not be matched by rises in income, which also could
have a negative impact on spending. If we incur increased costs
that are unable to be recouped, or if consumer spending contin-
ues to decrease generally, our business, results of operations,
financial condition and cash flows may be adversely affected. In
an effort to mitigate the impact of these incremental costs on our
operating results, we informed our retail customers during 2008
that we would be raising domestic prices effective during the first
quarter of 2009. We are implementing an average gross price
increase of four percent in our domestic product categories. The
range of price increases varies by individual product category.
Our costs for cotton yarn and cotton-based textiles vary
based upon the fluctuating cost of cotton, which is affected by
weather, consumer demand, speculation on the commodities
market, the relative valuations and fluctuations of the currencies
of producer versus consumer countries and other factors that
are generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges from time
to time in an attempt to protect our business from the volatility
of the market price of cotton, our business can be affected by
dramatic movements in cotton prices, although cotton repre-
sents only 8% of our cost of sales. Cotton prices were 65 cents
per pound for the year ended January 3, 2009 and 56 cents per
pound for the year ended December 29, 2007. The price of cot-
ton currently in our inventory is in the mid 60 cents per pound
range which is the price that will impact our operating results
in the first half of 2009. The prices for the most recent cotton
crop, which will impact our operating results in the second half
of 2009, have decreased to the low 50 cents per pound range.
In addition, during the summer of 2008 we experienced a spike
in oil related commodity prices and other raw materials used in
our products, such as dyes and chemicals, and increases in other
costs, such as fuel, energy and utility costs. Further discussion
of the market sensitivity of cotton is included in “Quantitative
and Qualitative Disclosures about Market Risk.”
components of Net sales and expense
Net sales
We generate net sales by selling apparel essentials such as
t-shirts, bras, panties, men’s underwear, kids’ underwear, socks,
hosiery, casualwear and activewear. Our net sales are recog-
nized net of discounts, coupons, rebates, volume-based incen-
tives and cooperative advertising costs. We recognize revenue
when (i) there is persuasive evidence of an arrangement, (ii) the
sales price is fixed or determinable, (iii) title and the risks of own-
ership have been transferred to the customer and (iv) collection
of the receivable is reasonably assured, which occurs primarily
upon shipment. Net sales include an estimate for returns and al-
lowances based upon historical return experience. We also offer
a variety of sales incentives to resellers and consumers that are
recorded as reductions to net sales.
Cost of sales
Our cost of sales includes the cost of manufacturing finished
goods, which consists of labor, raw materials such as cotton and
petroleum-based products and overhead costs such as deprecia-
tion on owned facilities and equipment. Our cost of sales also in-
cludes finished goods sourced from third-party manufacturers that
supply us with products based on our designs as well as charges
for slow moving or obsolete inventories. Rebates, discounts and
other cash consideration received from a vendor related to inven-
tory purchases are reflected in cost of sales when the related
inventory item is sold. Our costs of sales do not include shipping
costs, comprised of payments to third party shippers, or handling
costs, comprised of warehousing costs in our distribution facili-
ties, and thus our gross margins may not be comparable to those
of other entities that include such costs in cost of sales.
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2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Selling, general and administrative expenses
Income tax expense (benefit)
Our selling, general and administrative expenses include sell-
Our effective income tax rate fluctuates from period to pe-
ing, advertising, costs of shipping, handling and distribution to our
customers, research and development, rent on leased facilities,
depreciation on owned facilities and equipment and other general
and administrative expenses. Also included for periods presented
prior to the spin off on September 5, 2006 are allocations of
corporate expenses that consist of expenses for business insur-
ance, medical insurance, employee benefit plan amounts and,
because we were part of Sara Lee those periods, allocations
from Sara Lee for certain centralized administration costs for
treasury, real estate, accounting, auditing, tax, risk management,
human resources and benefits administration. These allocations
of centralized administration costs were determined on bases
that we and Sara Lee considered to be reasonable and take into
consideration and include relevant operating profit, fixed assets,
sales and payroll. Selling, general and administrative expenses
also include management payroll, benefits, travel, information
systems, accounting, insurance and legal expenses.
Restructuring
We have from time to time closed facilities and reduced
headcount, including in connection with previously announced
restructuring and business transformation plans. We refer
to these activities as restructuring actions. When we decide
to close facilities or reduce headcount, we take estimated
charges for such restructuring, including charges for exited
non-cancelable leases and other contractual obligations, as well
as severance and benefits. If the actual charge is different from
the original estimate, an adjustment is recognized in the period
such change in estimate is identified.
Other (income) expenses
Our other (income) expenses include charges such as
losses on early extinguishment of debt and certain other
non-operating items.
Interest expense, net
As part of the spin off from Sara Lee on September 5, 2006,
we incurred $2.6 billion of debt. Since the spin off, we have
made changes in our financing structuring and have made net
principal payments of $423 million of debt. In December 2006,
we issued $500 million of Floating Rate Senior Notes and the
proceeds were used to repay a portion of the debt incurred at
the spin off. In November 2007, we entered into the Receivables
Facility which provides for up to $250 million in funding ac-
counted for as a secured borrowing, all of which we borrowed
and used to repay a portion of the Senior Secured Credit Facility.
In addition, we have amended the terms of our Senior Secured
Credit Facility and Second Lien Credit Facility to provide more
flexibility to change our financial structure in the future.
Our interest expense is net of interest income. Interest
income is the return we earned on our cash and cash equiva-
lents and, historically, on money we loaned to Sara Lee as part
of its corporate cash management practices. Our cash and cash
equivalents are invested in highly liquid investments with original
maturities of three months or less.
riod and can be materially impacted by, among other things:
n changes in the mix of our earnings from the various jurisdic-
tions in which we operate;
n the tax characteristics of our earnings;
n the timing and amount of earnings of foreign subsidiaries
that we repatriate to the United States, which may increase
our tax expense and taxes paid; and
n the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
Highlights from the Year ended January 3, 2009
n Diluted earnings per share were $1.34 in the year ended
January 3, 2009, compared with $1.30 in the year ended
December 29, 2007.
n Operating profit was $317 million in the year ended Janu-
ary 3, 2009, compared with $389 million in the year ended
December 29, 2007.
n Total net sales in the year ended January 3, 2009 was
$4.25 billion, compared with $4.47 billion to the year ended
December 29, 2007.
n During the year ended January 3, 2009, we approved actions
to close 11 manufacturing facilities and three distribution
centers in Mexico, the United States, Costa Rica, Honduras
and El Salvador. The production capacity represented by the
manufacturing facilities has been relocated to lower cost
locations in Asia, Central America and the Caribbean Basin.
The distribution capacity has been relocated to our West
Coast distribution facility in California in order to expand
capacity for goods we source from Asia. In addition, we
completed several such actions in the year ended January 3,
2009 that were approved in 2008.
n Gross capital expenditures were $187 million during the year
ended January 3, 2009 as we continued to build out our
textile and sewing network in Asia, Central America and the
Caribbean Basin.
n During the second quarter of 2008, we added three compa-
ny-owned sewing plants in Southeast Asia — two in Vietnam
and one in Thailand — giving us four sewing plants in Asia. In
addition, during the fourth quarter of 2008, we acquired an
embroidery facility in Honduras.
n We repurchased $30 million of company stock during the
year ended January 3, 2009.
n We ended 2008 with $463 million of borrowing availability
under our $500 million revolving loan facility (the “Revolving
Loan Facility”), $67 million in cash and cash equivalents and
$67 million of borrowing availability under our international
loan facilities, compared to $430 million, $174 million and
$89 million, respectively, at the end of 2007.
29
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
consolidated Results of Operations —
Year ended January 3, 2009 (“2008”) compared
with Year ended december 29, 2007 (“2007”)
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,248,770
2,871,420
Cost of sales. . . . . . . . . . . . . . . . .
$ 4,474,537 $ (225,767)
(162,207)
3,033,627
Percent
Change
(5.0)%
(5.3)
Gross profit. . . . . . . . . . . . . . . . . .
Selling, general and
1,377,350
1,440,910
(63,560)
(4.4)
administrative expenses. . . . .
1,009,607
1,040,754
(31,147)
(3.0)
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other (income) expense . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
—
50,263
317,480
(634)
155,077
(32,144)
43,731
388,569
5,235
199,208
(32,144)
6,532
(71,089)
(5,869)
(44,131)
NM
14.9
(18.3)
(112.1)
(22.2)
163,037
35,868
184,126
57,999
(21,089)
(22,131)
(11.5)
(38.2)
Net income. . . . . . . . . . . . . . . . . . $ 127,169
$ 126,127 $ 1,042
0.8%
Net Sales
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . . $ 4,248,770
$ 4,474,537 $ (225,767)
(5.0)%
Consolidated net sales were lower by $226 million or
5% in 2008 compared to 2007 primarily due to weak sales at
retail, which reflect a difficult economic and retail environment
in which the ultimate consumers of our products have been
significantly limiting their discretionary spending and visiting
retail stores less frequently. The economic recession continued
to impact consumer spending, resulting in one of the worst
holiday shopping seasons in 40 years as retail sales fell for the
sixth straight month in December. Our Innerwear, Outerwear,
Hosiery and Other segment net sales were lower by $154 mil-
lion (6%), $41 million (3%), $38 million (14%) and $35 million
(62%), respectively, and were partially offset by higher net sales
in our International segment of $38 million (9%). 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, weakness in the retail environment can impact
our results in the short-term, as it did in 2008. The total impact of
the 53rd week in 2008, which is included in the amounts above,
was a $54 million increase in sales.
The lower net sales in our Innerwear segment were primarily
due to a decline in the intimate apparel, socks, thermals and
sleepwear product categories. Total intimate apparel net sales
were $102 million lower in 2008 compared to 2007. We experi-
enced lower intimate apparel sales in our smaller brands (barely
there, Just My Size and Wonderbra) of $49 million, our Hanes
brand of $42 million and our private label brands of $10 million
which we believe was primarily attributable to weaker sales at
retail as noted above. In 2008 compared to 2007, our Playtex
brand intimate apparel net sales were higher by $10 million and
our Bali brand intimate apparel net sales were lower by $11 mil-
lion. Net sales in our male underwear product category were $8
million lower, which includes the impact of exiting a license
30
arrangement for a boys’ character underwear program in early
2008 that lowered sales by $15 million. In addition, net sales of
socks, thermals and sleepwear product categories were lower in
2008 compared to 2007 by $32 million, $10 million and $4 mil-
lion, respectively.
In our Outerwear segment, net sales of our Champion brand
activewear were $34 million higher in 2008 compared to 2007,
and were offset by lower net sales of our casualwear product
categories of $79 million. Net sales in our Hosiery segment
declined substantially more than the long-term trend primarily
due to lower sales of the Hanes brand to national chains and de-
partment stores and our L’eggs brand to mass retailers and food
and drug stores in 2008 compared to 2007. We expect the trend
of declining hosiery sales to continue consistent with the overall
decline in the industry and with shifts in consumer preferences.
The overall lower net sales were partially offset by higher net
sales in our International segment that were driven by a favor-
able impact of $22 million related to foreign currency exchange
rates and by the growth in our casualwear businesses in Europe
and Asia. The favorable impact of foreign currency exchange
rates was primarily due to the strengthening of the Japanese
yen, Euro and Brazilian real.
The decline in net sales for our Other segment is primar-
ily due to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of non-
finished fabric and yarn to third parties. We expect this decline
to continue and sales for this segment to ultimately become
insignificant to us as we complete the implementation of our
consolidation and globalization efforts.
Gross Profit
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Gross profit. . . . . . . . . . . . . . . . . . $ 1,377,350
$ 1,440,910
$ (63,560)
Percent
Change
(4.4)%
As a percent of net sales, our gross profit percentage was
32.4% in 2008 compared to 32.2% in 2007. While the gross
profit percentage was higher, gross profit dollars were lower due
to lower sales volume of $85 million, unfavorable product sales
mix of $35 million, higher cotton costs of $30 million, higher
production costs of $20 million related to higher energy and oil
related costs including freight costs and other vendor price in-
creases of $12 million. The cotton prices reflected in our results
were 65 cents per pound in 2008 as compared to 56 cents per
pound in 2007. Energy and oil related costs were higher due to
a spike in oil related commodity prices during the summer of
2008. Our results will continue to reflect higher costs for cotton
and oil related materials until these costs cease to be reflected
on our balance sheet in the first half of 2009 and we will start to
benefit in the second half of 2009 from lower commodity costs.
In addition, in connection with the consolidation and globaliza-
tion of our supply chain, we incurred one-time restructuring
related write-offs of stranded raw materials and work in process
inventory determined not to be salvageable or cost-effective to
relocate of $19 million in 2008, which were offset by lower accel-
erated depreciation of $13 million.
These higher expenses were primarily offset by savings
from our cost reduction initiatives and prior restructuring actions
of $41 million, lower other manufacturing overhead costs of
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
$24 million primarily related to better volumes earlier in the year,
lower on-going excess and obsolete inventory costs of $14 mil-
lion, lower sales incentives of $11 million, $10 million of lower
duty costs primarily related to higher refunds of $9 million, a
$9 million favorable impact related to foreign currency exchange
rates, $8 million of favorable one-time out of period cost recogni-
tion related to the capitalization of certain inventory supplies to
be on a consistent basis across all business lines, $4 million of
lower start-up and shut down costs associated with our consoli-
dation and globalization of our supply chain and higher product
sales pricing of $3 million. Our duty refunds were higher in 2008
primarily due to the final passage of the Dominican Republic-
Central America-United States Free Trade Agreement in Costa
Rica as a result of which we can, on a one-time basis, recover
duties paid since January 1, 2004 totaling approximately $15 mil-
lion. The lower excess and obsolete inventory costs in 2008 are
attributable to both our continuous evaluation of inventory levels
and simplification of our product category offerings since the spin
off. We realized the benefits of driving down obsolete inventory
levels through aggressive management and promotions and
realized the benefits from decreases in style counts ranging from
7% to 30% in our various product category offerings. The quality
of our inventory remained good with obsolete inventory down
23% from last year. The favorable foreign currency exchange rate
impact in our International segment was primarily due to the
strengthening of the Japanese yen, Euro and Brazilian real.
Selling, General and Administrative Expenses
(dollars in thousands)
Selling, general and
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
administrative expenses. . . . . $ 1,009,607
$ 1,040,754
$ (31,147)
(3.0)%
Our selling, general and administrative expenses were
$31 million lower in 2008 compared to 2007. Our cost reduction
efforts resulted in lower expenses in 2008 compared to 2007
related to savings of $21 million from our prior restructuring
actions for compensation and related benefits, lower consulting
expenses related to various areas of $5 million, lower non-media
related media, advertising and promotion expenses (“MAP”) ex-
penses of $3 million, lower accelerated depreciation of $3 million,
lower postretirement healthcare and life insurance expense of $2
million and lower stock compensation expense of $2 million.
Our media related MAP expenses were $11 million lower in
2008 as compared to 2007. While our spending for media related
MAP was down in 2008, it was the second highest spending
level in our history. We supported our key brands with targeted,
effective advertising and marketing campaigns such as the
launch of Hanes No Ride Up Panties and marketing initiatives for
Champion and Playtex in the first half of 2008 and significantly
lowered our overall spending during the second half of 2008. In
contrast, in 2007, our media related MAP spending was spread
across multiple product categories and brands. MAP expenses
may vary from period to period during a fiscal year depending on
the timing of our advertising campaigns for retail selling seasons
and product introductions.
In addition, spin off and related charges of $3 million rec-
ognized in 2007 did not recur in 2008. Our pension income of
$12 million was higher by $9 million, which included an adjust-
ment that reduced pension expense in 2007 related to the final
separation of our pension assets and liabilities from those of
Sara Lee.
We experienced higher bad debt expense of $7 million
primarily related to the Mervyn’s bankruptcy, higher computer
software amortization costs of $5 million, higher technology con-
sulting and related expenses of $4 million and higher distribution
expenses of $4 million in 2008 compared to 2007. The higher
technology consulting and computer software amortization costs
are related to our efforts to integrate our information technology
systems across our company which involves reducing the num-
ber of information technology platforms serving our business
functions. The higher distribution expenses in 2008 compared to
2007 were primarily related to higher volumes in our internation-
al business, higher postage and freight costs and higher rework
expenses in our distribution centers. We also incurred higher
expenses of $3 million in 2008 compared to 2007 as a result
of opening 10 retail stores over the last 12 months. In addition,
we incurred $7 million in amortization of gain on curtailment of
postretirement benefits in 2007 which did not recur in 2008.
Gain on Curtailment of Postretirement Benefits
(dollars in thousands)
Gain on curtailment of
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
postretirement benefits . . . . .
$ —
$ (32,144) $ (32,144)
NM
In December 2006, we notified retirees and employees of
the phase out of premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees
by the end of 2007. In December 2007, in connection with the
termination of the postretirement medical plan, we recognized a
final gain on curtailment of plan benefits of $32 million. Concur-
rently with the termination of the existing plan, we established a
new access only plan that is fully paid by the participants.
Restructuring
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Restructuring . . . . . . . . . . . . . . . .
$ 50,263
$ 43,731
$ 6,532
14.9%
During 2008, we approved actions to close 11 manufacturing
facilities and three distribution centers and eliminate approxi-
mately 6,800 positions in Mexico, the United States, Costa Rica,
Honduras and El Salvador. The production capacity represented
by the manufacturing facilities has been relocated to lower cost
locations in Asia, Central America and the Caribbean Basin.
The distribution capacity has been relocated to our West Coast
distribution facility in California in order to expand capacity for
goods we source from Asia. In addition, approximately 200
management and administrative positions were eliminated, with
the majority of these positions based in the United States. We
recorded a charge of $34 million related to employee termination
and other benefits recognized in accordance with benefit plans
previously communicated to the affected employee group, fixed
31
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
asset impairment charges of $9 million and charges related to
exiting supply contracts of $11 million, which was partially offset
by $4 million of favorable settlements of contract obligations for
lower amounts than previously estimated.
In 2008, we recorded $19 million in one-time write-offs of
stranded raw materials and work in process inventory deter-
mined not to be salvageable or cost-effective to relocate related
to the closure of manufacturing facilities in the “Cost of sales”
line. In addition, in connection with our consolidation and glo-
balization strategy, in 2008 and 2007, we recognized non-cash
charges of $24 million and $37 million, respectively, in the “Cost
of sales” line and a non-cash charge of $3 million in the “Sell-
ing, general and administrative expenses” line in 2007 related to
accelerated depreciation of buildings and equipment for facilities
that have been closed or will be closed.
These actions, which are a continuation of our consolidation
and globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities, leverag-
ing our large scale in high-volume products and consolidating
production capacity.
During 2007, we incurred $44 million in restructuring charges
which primarily related to a charge of $32 million related to
employee termination and other benefits associated with plant
closures approved during that period and the elimination of
certain management and administrative positions, a $10 million
charge for estimated lease termination costs associated with
facility closures and a $2 million impairment charge associated
with facility closures.
Operating Profit
Years Ended
During 2007, we recognized losses on early extinguishment of
debt related to unamortized debt issuance costs on the Senior
Secured Credit Facility for prepayments of $428 million of prin-
cipal in 2007, including a prepayment of $250 million that was
made in connection with funding from the Receivables Facility
we entered into in November 2007.
Interest Expense, net
Years Ended
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Interest expense, net . . . . . . . . . .
$ 155,077
$ 199,208
$ (44,131)
(22.2)%
Interest expense, net was lower by $44 million in 2008
compared to 2007. The lower interest expense is primarily at-
tributable to a lower weighted average interest rate, $32 million
of which resulted from a lower London Interbank Offered Rate,
or “LIBOR,” and $4 million of which resulted from reduced inter-
est rates achieved through changes in our financing structure
such as the February 2007 amendment to our Senior Secured
Credit Facility and the Receivables Facility that we entered into
in November 2007. In addition, interest expense was reduced by
$8 million as a result of our net prepayments of long-term debt
during 2007 and 2008 of $303 million. Our weighted average
interest rate on our outstanding debt was 6.09% during 2008
compared to 7.74% in 2007.
At January 3, 2009, we had outstanding interest rate hedg-
ing arrangements whereby we have capped the interest rate on
$400 million of our floating rate debt at 3.50% and had fixed the
interest rate on $1.4 billion of our floating rate debt at 4.16%.
Approximately 82% of our total debt outstanding at January 3,
2009 was at a fixed or capped LIBOR rate.
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Income Tax Expense
Operating profit . . . . . . . . . . . . . .
$ 317,480
$ 388,569
$ (71,089)
(18.3)%
Operating profit was lower in 2008 compared to 2007 as
a result of lower gross profit of $64 million, a $32 million gain
on curtailment of postretirement benefits recognized in 2007
which did not recur in 2008 and higher restructuring and related
charges for facility closures of $7 million partially offset by lower
selling, general and administrative expenses of $31 million. The
lower gross profit was primarily the result of lower sales volume,
unfavorable product sales mix and increases in manufacturing
input costs for cotton and energy and other oil related costs, all
of which exceeded our savings from executing our consolidation
and globalization strategy during 2008. The total impact of the
53rd week in 2008, which is included in the amounts above, was
a $6 million increase in operating profit.
Other (Income) Expense
Years Ended
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Other (income) expense . . . . . . . .
$ (634)
$ 5,235
$ (5,869)
(112.1)%
During 2008, we recognized a gain of $2 million related to
the repurchase of $6 million of our Floating Rate Senior Notes
for $4 million. This gain was partially offset by a $1 million loss on
early extinguishment of debt related to unamortized debt issu-
ance costs on the Senior Secured Credit Facility for the prepay-
ment of $125 million of principal in December 2008.
32
Years Ended
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 35,868
$ 57,999
$ (22,131)
(38.2)%
Our annual effective income tax rate was 22.0% in 2008
compared to 31.5% in 2007. The lower income tax expense is at-
tributable primarily to lower pre-tax income and a lower effective
income tax rate. The lower effective income tax rate is primarily
due to higher unremitted earnings from foreign subsidiaries in
2008 taxed at rates less than the U.S. statutory rate. Our annual
effective tax rate reflects our strategic initiative to make substan-
tial capital investments outside the United States in our global
supply chain in 2008.
Net Income
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net income. . . . . . . . . . . . . . . . . .
$ 127,169
$ 126,127
$ 1,042
Percent
Change
0.8%
Net income for 2008 was higher than 2007 primarily due to
lower interest expense, lower selling, general and administrative
expenses and a lower effective income tax rate offset by lower
gross profit resulting from lower sales volume and higher manu-
facturing input costs, a gain on curtailment of postretirement
benefits recognized in 2007 which did not recur in 2008 and
higher restructuring charges. The total impact of the 53rd week
in 2008 was a $3 million increase in net income.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Operating Results by Business segment —
Year ended January 3, 2009 (“2008”) compared
with Year ended december 29, 2007 (“2007”)
Years Ended
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 2,402,831
1,180,747
Outerwear . . . . . . . . . . . . . . . . . .
460,085
International. . . . . . . . . . . . . . . . .
227,924
Hosiery . . . . . . . . . . . . . . . . . . . . .
21,724
Other . . . . . . . . . . . . . . . . . . . . . .
$ 2,556,906 $ (154,075)
(41,098)
38,187
(38,274)
(35,196)
1,221,845
421,898
266,198
56,920
(6.0)%
(3.4)
9.1
(14.4)
(61.8)
Total segment net sales . . . . .
Intersegment . . . . . . . . . . . . . . . .
4,293,311
(44,541)
4,523,767
(49,230)
(230,456)
(4,689)
(5.1)
(9.5)
Total net sales. . . . . . . . . . . . . $ 4,248,770
$ 4,474,537 $ (225,767)
(5.0)%
Segment operating profit:
Innerwear . . . . . . . . . . . . . . . . . . . $ 277,486
68,769
Outerwear . . . . . . . . . . . . . . . . . .
57,070
International. . . . . . . . . . . . . . . . .
71,596
Hosiery . . . . . . . . . . . . . . . . . . . . .
(472)
Other . . . . . . . . . . . . . . . . . . . . . .
$ 305,959 $ (28,473)
(2,595)
3,923
(5,321)
889
71,364
53,147
76,917
(1,361)
(9.3)%
(3.6)
7.4
(6.9)
65.3
Total segment operating
profit. . . . . . . . . . . . . . . . . . .
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks
474,449
506,026
(31,577)
(6.2)
(52,143)
(60,213)
(8,070)
(13.4)
and other intangibles . . . . . . .
(12,019)
(6,205)
5,814
93.7
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Inventory write-off included
—
(50,263)
32,144
(43,731)
(32,144)
6,532
NM
14.9
in cost of sales . . . . . . . . . . . .
(18,696)
—
18,696
NM
Accelerated depreciation
included in cost of sales . . . . .
(23,862)
(36,912)
(13,050)
(35.4)
Accelerated depreciation
included in selling,
general and
administrative expenses. . . . .
14
(2,540)
(2,554)
(100.6)
Total operating profit. . . . . . . .
Other income (expense) . . . . . . . .
Interest expense, net . . . . . . . . . .
317,480
634
(155,077)
388,569
(5,235)
(199,208)
(71,089)
5,869
(44,131)
(18.3)
112.1
(22.2)
Income before income tax
expense . . . . . . . . . . . . . . . $ 163,037
$ 184,126 $ (21,089)
(11.5)%
Innerwear
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 2,402,831
277,486
Segment operating profit . . . . . . .
$ 2,556,906 $ (154,075)
(28,473)
305,959
Percent
Change
(6.0)%
(9.3)
Overall net sales in the Innerwear segment were lower by
$154 million or 6% in 2008 compared to 2007. The difficult eco-
nomic and retail environment significantly impacted consumers’
discretionary spending which resulted in lower sales in our inti-
mate apparel, socks, thermals and sleepwear product categories.
Total intimate apparel net sales were $102 million lower in 2008
compared to 2007. We experienced lower intimate apparel sales
in our smaller brands (barely there, Just My Size and Wonderbra)
of $49 million, our Hanes brand of $42 million and our private la-
bel brands of $10 million which we believe was primarily attribut-
able to weaker sales at retail. In 2008 compared to 2007, our
Playtex brand intimate apparel net sales were higher by $10 mil-
lion and our Bali brand intimate apparel net sales were lower by
$11 million. The growth in our Playtex brand sales was supported
by successful marketing initiatives in the first half of 2008. Net
sales in our male underwear product category were $8 million
lower, which includes the impact of exiting a license arrangement
for a boys’ character underwear program in early 2008 that low-
ered sales by $15 million. The lower net sales in our socks product
category reflects a decline in kids’ and men’s Hanes brand net
sales of $19 million and Champion brand net sales of $11 million
primarily related to the loss of a men’s program for one of our cus-
tomers. In addition, net sales of thermals and sleepwear product
categories were lower in 2008 compared to 2007 by $10 million
and $4 million, respectively. The total impact of the 53rd week in
2008, which is included in the amounts above, was a $34 million
increase in sales for the Innerwear segment.
As a percent of segment net sales, gross profit percentage
in the Innerwear segment was 36.9% in 2008 compared to
36.8% in 2007. While the gross profit percentage was higher,
gross profit dollars were lower due to lower sales volume
of $67 million, unfavorable product sales mix of $28 mil-
lion, higher cotton costs of $12 million, higher production
costs of $10 million related to higher energy and oil related
costs including freight costs, other vendor price increases of
$7 million and lower product sales pricing of $4 million. These
higher costs were offset by savings from our cost reduction
initiatives and prior restructuring actions of $27 million, lower
sales incentives of $21 million, $11 million of lower duty costs
primarily related to higher refunds and $8 million of favorable
one-time out of period cost recognition related to the capital-
ization of certain inventory supplies to be on a consistent basis
across all business lines. In addition, we incurred lower on-
going excess and obsolete inventory costs of $8 million arising
from realizing the benefits of driving down obsolete inventory
levels through aggressive management and promotions and
simplifying our product category offerings which reduced our
style counts ranging from 7% to 30% in our various product
category offerings.
The lower Innerwear segment operating profit in 2008
compared to 2007 is primarily attributable to lower gross profit
and higher bad debt expense of $4 million primarily related to
the Mervyn’s bankruptcy. We also incurred higher expenses of
$3 million in 2008 compared to 2007 as a result of opening 10
retail stores over the last 12 months. These higher costs were
partially offset by savings of $15 million from prior restructur-
ing actions primarily for compensation and related benefits,
lower media related MAP expenses of $8 million and lower
non-media related MAP expenses of $7 million. A significant
portion of the selling, general and administrative expenses
in each segment is an allocation of our consolidated selling,
general and administrative expenses, however certain expens-
es that are specifically identifiable to a segment are charged
directly to each segment. The allocation methodology for the
consolidated selling, general and administrative expenses for
2008 is consistent with 2007. Our consolidated selling, general
and administrative expenses before segment allocations was
$31 million lower in 2008 compared to 2007.
33
H AN E SBRANDS INC.
Outerwear
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,180,747
68,769
Segment operating profit . . . . . . .
$ 1,221,845
71,364
$ (41,098)
(2,595)
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
International
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 460,085
57,070
$ 421,898
53,147
$ 38,187
3,923
Percent
Change
(3.4)%
(3.6)
Percent
Change
9.1%
7.4
Net sales in the Outerwear segment were lower by $41 mil-
lion or 3% in 2008 compared to 2007, primarily as a result of
higher net sales of Champion brand activewear of $34 million
offset by lower net sales of retail casualwear of $55 million
and lower net sales through our embellishment channel of
$24 million, primarily in promotional t-shirts and sportshirts. Our
Champion brand sales continue to benefit from our investment
in the brand through our marketing initiatives. Our “How You
Play” marketing campaign has received a very positive response
from consumers. The lower retail casualwear net sales of
$55 million reflect a $6 million impact related to the loss of sea-
sonal programs continuing into the first half of 2009. We expect
the impact on 2009 net sales of losing these programs, which
consist of recurring seasonal programs that were renewed in
prior years but were not renewed for 2009, to occur primarily in
the first half of 2009; losses may be offset by any new seasonal
programs we may add. The total impact of the 53rd week in
2008, which is included in the amounts above, was a $14 million
increase in sales for the Outerwear segment.
As a percent of segment net sales, gross profit percentage
in the Outerwear segment was 22.1% in 2008 compared to
21.6% in 2007. While the gross profit percentage was higher,
gross profit dollars were lower due to higher cotton costs of
$18 million, higher production costs of $10 million related to
higher energy and oil related costs including freight costs,
lower sales volume of $9 million, higher sales incentives of
$8 million and other vendor price increases of $3 million. These
higher costs were partially offset by lower other manufacturing
overhead costs of $23 million, savings of $11 million from our
cost reduction initiatives and prior restructuring actions, higher
product sales pricing of $7 million, lower on-going excess and
obsolete inventory costs of $2 million and favorable product
sales mix of $2 million.
The lower Outerwear segment operating profit in 2008
compared to 2007 is primarily attributable to lower gross profit,
higher distribution expenses of $5 million, higher technology
consulting and related expenses of $3 million, higher non-media
related MAP expenses of $3 million and higher bad debt ex-
pense of $2 million primarily related to the Mervyn’s bankruptcy.
These higher costs were partially offset by savings of $6 million
from our cost reduction initiatives and prior restructuring actions
and lower media-related MAP expenses of $5 million. A signifi-
cant portion of the selling, general and administrative expenses
in each segment is an allocation of our consolidated selling, gen-
eral and administrative expenses, however certain expenses that
are specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for 2008 is consis-
tent with 2007. Our consolidated selling, general and administra-
tive expenses before segment allocations was $31 million lower
in 2008 compared to 2007.
34
Overall net sales in the International segment were higher
by $38 million or 9% in 2008 compared to 2007. During 2008,
we experienced higher net sales, in each case including the
impact of foreign currency and the 53rd week, in Europe of
$20 million, Asia of $18 million and Canada of $2 million. The
growth in our European casualwear business was driven by the
strength of the Stedman brand that is sold in the embellish-
ment channel. Higher sales in our Champion brand casualwear
business in Asia and our Champion and Hanes brands male
underwear business in Canada also contributed to the sales
growth. Changes in foreign currency exchange rates had a
favorable impact on net sales of $22 million in 2008 compared
to 2007. The favorable impact was primarily due to the strength-
ening of the Japanese yen, Euro and Brazilian real. The total
impact of the 53rd week in 2008 was a $2 million increase in
sales for the International segment.
As a percent of segment net sales, gross profit percentage
was 40.8% in 2008 compared to 2007 at 41.3%. While the gross
profit percentage was lower, gross profit dollars were higher for
2008 compared to 2007 as a result of a favorable impact related
to foreign currency exchange rates of $9 million, favorable
product sales mix of $7 million and lower on-going excess and
obsolete inventory costs of $3 million partially offset by higher
sales incentives of $6 million.
The higher International segment operating profit in 2008
compared to 2007 is primarily attributable to the higher gross
profit partially offset by higher distribution expenses of $3 mil-
lion, higher media-related MAP expenses of $2 million and
higher non-media related MAP expenses of $2 million. Changes
in foreign currency exchange rates, which are included in the
impact on gross profit above, had a favorable impact on segment
operating profit of $4 million in 2008 compared to 2007.
Hosiery
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 227,924
71,596
$ 266,198
76,917
$ (38,274)
(5,321)
(14.4)%
(6.9)
Net sales in the Hosiery segment declined by $38 million
or 14%, which was substantially more than the long-term trend
primarily due to lower sales of the Hanes brand to national
chains and department stores and the L’eggs brand to mass
retailers and food and drug stores. In addition, we experienced
lower sales of $4 million related to the Donna Karan and DKNY
license agreement and lower sales of our Just My Size brand
of $3 million. We expect the trend of declining hosiery sales to
continue consistent with the overall decline in the industry and
with shifts in consumer preferences. Generally, we manage the
Hosiery segment for cash, placing an emphasis on reducing our
cost structure and managing cash efficiently. The total impact of
the 53rd week in 2008, which is included in the amounts above,
was a $4 million increase in sales for the Hosiery segment.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
As a percent of segment net sales, gross profit percentage
was 47.1% in 2008 compared to 47.2% in 2007. The lower gross
profit percentage for 2008 compared to 2007 is the result of
unfavorable product sales mix of $17 million and lower sales vol-
ume of $10 million, offset by savings of $4 million from our cost
reduction initiatives and prior restructuring actions, lower sales
incentives of $4 million and lower other manufacturing overhead
costs of $2 million.
The lower Hosiery segment operating profit in 2008 com-
pared to 2007 is primarily attributable to lower gross profit
partially offset by lower distribution expenses of $5 million,
savings of $2 million from our cost reduction initiatives and prior
restructuring actions, lower non-media related MAP expenses of
$2 million and lower spending of $3 million in numerous areas.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to each segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2008 is consistent with 2007. Our consolidated selling,
general and administrative expenses before segment allocations
was $31 million lower in 2008 compared to 2007.
Other
Years Ended
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 21,724
(472)
$ 56,920
(1,361)
$ (35,196)
889
(61.8)%
65.3
The decline in net sales in our Other segment is primarily due
to the continued vertical integration of a yarn and fabric operation
acquisition from 2006 with less focus on sales of nonfinished
fabric and yarn to third parties. We expect this decline to continue
and sales for this segment to ultimately become insignificant to
us as we complete the implementation of our consolidation and
globalization efforts. Net sales in this segment are generated for
the purpose of maintaining asset utilization at certain manufactur-
ing facilities and generating break even margins.
General Corporate Expenses
General corporate expenses were lower in 2008 compared
to 2007 primarily due to $11 million of higher foreign exchange
transaction gains, $6 million of higher gains on sales of assets,
$3 million of lower start-up and shut-down costs associated
with our consolidation and globalization of our supply chain and
$3 million of spin off and related charges recognized in 2007
which did not recur in 2008. These lower expenses were partially
offset by $7 million in amortization of gain on curtailment of
postretirement benefits in 2007 which did not recur in 2008,
$7 million in losses from foreign currency derivatives and a
$3 million adjustment that reduced pension expense in 2007
related to the final separation of our pension assets and liabilities
from those of Sara Lee.
consolidated Results of Operations —
Year ended december 29, 2007 compared
with Twelve months ended december 30, 2006
The information presented below for the year ended
December 29, 2007 was derived from our consolidated financial
statements. The unaudited information presented for the twelve
months ended December 30, 2006 (which twelve month period
we refer to as “2006” in this “Consolidated Results of Opera-
tion — Year Ended December 29, 2007 Compared with Twelve
Months Ended December 30, 2006” section and the section
entitled “Operating Results by Business Segment — Year Ended
December 29, 2007 Compared with Twelve Months Ended De-
cember 30, 2006”) is presented due to the change in our fiscal
year end and was derived by combining the six months ended
July 1, 2006 and the six months ended December 30, 2006.
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Years Ended
(unaudited)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,474,537
3,033,627
Cost of sales. . . . . . . . . . . . . . . . .
$ 4,403,466
2,960,759
$ 71,071
72,868
1.6%
2.5
Gross profit . . . . . . . . . . . . . . .
Selling, general and
1,440,910
1,442,707
(1,797)
(0.1)
administrative expenses. . . . .
1,040,754
1,093,436
(52,682)
(4.8)
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
(32,144)
43,731
388,569
5,235
199,208
(28,467)
11,516
366,222
7,401
79,621
3,677
32,215
22,347
(2,166)
119,587
12.9
279.7
6.1
(29.3)
150.2
184,126
57,999
279,200
71,184
(95,074)
(13,185)
(34.1)
(18.5)
Net income . . . . . . . . . . . . . . . $ 126,127
$ 208,016
$ (81,889)
(39.4)%
Net Sales
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,474,537
$ 4,403,466
$ 71,071
Percent
Change
1.6%
Consolidated net sales were higher by $71 million or 2% in
2007 compared to 2006. Our Outerwear, International and Other
segment net sales were higher by $68 million (6%), $22 million
(5%) and $12 million (27%), respectively, and were offset by
lower segment net sales in Innerwear of $18 million (1%) and
Hosiery of $12 million (4%).
The overall higher net sales were primarily due to double
digit growth in sales volume in Champion brand sales, growth in
Hanes brand casualwear, socks, sleepwear, intimate apparel and
men’s underwear sales and Bali brand intimate apparel sales.
Our Champion brand sales have increased by double-digits in
each of the last three years. The higher net sales were offset
primarily by lower sales of promotional t-shirts sold primar-
ily through our embellishment channel, lower Playtex brand
intimate apparel sales, lower Hanes brand kids’ underwear sales
and lower licensed men’s underwear sales in the department
store channel.
35
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Our strategy of investing in our largest and strongest brands
generated growth in 2007. In 2007, we launched a number of
new advertising and marketing initiatives for our top brands,
including our Hanes ComfortSoft campaigns, Bali Passion for
Comfort, Playtex “Girl Talk” and most recently our Champion
“How you Play” advertising campaign which is the first cam-
paign for the brand since 2003. We also announced a 10-year
strategic alliance with The Walt Disney Company that includes
basic apparel exclusivity for the Hanes and Champion brands,
product co-branding, attraction sponsorships and other brand vis-
ibility and signage at Disney properties. The alliance included the
naming rights for the stadium at Disney’s Wide World of Sports
Complex, now known as Champion Stadium.
Net sales in the Hosiery segment were lower primarily due
to lower sales of the L’eggs brand to mass retailers and food and
drug stores. We expect the trend of declining hosiery sales to
continue consistent with the overall decline in the industry and
with shifts in consumer preferences. The higher net sales from
our Other segment primarily resulted from an immaterial change
in the way we recognized sales to third party suppliers in 2006.
The full year change was reflected in 2006 with a $5 million
impact on net sales and minimal impact on net income.
The changes in foreign currency exchange rates had a favor-
able impact on net sales of $15 million in 2007 compared to 2006.
Gross Profit
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Gross profit. . . . . . . . . . . . . . . . . . $ 1,440,910
$ 1,442,707
$ (1,797)
(0.1)%
As a percent of net sales, our gross profit percentage was
32.2% in 2007 compared to 32.8% in 2006. The lower gross
profit percentage was primarily due to higher cotton costs of
$21 million, higher excess and obsolete inventory costs of
$21 million, $16 million of higher accelerated depreciation,
$16 million of unfavorable product sales mix and $13 million
of higher start-up and shut down costs associated with the
consolidation and globalization of our supply chain. In addition,
gross profit was negatively impacted by higher incentives of
$14 million of which $16 million resulted from a change in the
classification of certain sales incentives in 2007 which were pre-
viously classified as media, advertising and promotion expenses
in 2006. This change in classification was made in accordance
with EITF 01-9, Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendor’s Products),
because the estimated fair value of the identifiable benefit was
no longer obtained beginning in 2007.
Cotton prices, which were approximately 50 cents per
pound in 2006, returned to the ten year historical average of
approximately 56 cents per pound in 2007. The higher excess
and obsolete inventory costs in 2007 compared to 2006 are
primarily attributable to $9 million of costs associated with
the rationalization of our socks product category offerings and
$5 million related to exiting a licensing arrangement for a kids’
underwear program. The remaining $7 million of higher excess
and obsolete costs aggregates all other product categories as
part of our continuous evaluation of both inventory levels and
simplification of our product category offerings. The higher
accelerated depreciation in 2007 was a result of facilities closed
or to be closed in connection with our consolidation and global-
ization strategy.
These higher costs were offset primarily by savings from
our cost reduction initiatives and prior restructuring actions of
$30 million, lower allocations of overhead costs of $24 million,
$19 million of improved plant performance, $13 million of higher
sales volume, lower duty costs of $9 million, primarily due to
the receipt of $8 million in duty refunds relating to duties paid
several years ago, and $4 million of lower spending in numerous
other areas.
Selling, General and Administrative Expenses
(dollars in thousands)
Selling, general and
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
administrative expenses. . . . . $ 1,040,754
$ 1,093,436
$ (52,682)
(4.8)%
Selling, general and administrative expenses were $53 mil-
lion lower in 2007 compared to 2006. Our expenses were lower
primarily due to lower spin off and related charges of $45 million,
$12 million of savings from prior restructuring actions, $10 mil-
lion of lower distribution expenses and $7 million in amortization
of gain on curtailment of postretirement benefits. Our MAP
expenses were lower by $41 million, primarily with respect to
non-media related MAP expenses. The lower non-media related
MAP expenses are primarily attributable to $25 million of cost
reduction initiatives and better deployment of these resources
and $16 million due to a change in the classification of certain
sales incentives in 2007 which were classified as MAP expenses
in 2006. MAP expenses may vary from period to period during a
fiscal year depending on the timing of our advertising campaigns
for retail selling seasons and product introductions. In addition,
pension expense was reduced by $3 million in 2007 as a result
of the final separation of our pension assets and liabilities from
those of Sara Lee.
Our cost reduction efforts during 2007 allowed us to offset
$7 million of higher stand alone expenses associated with being
an independent company and make investments in our stra-
tegic initiatives resulting in $16 million of higher media related
MAP expenses and $13 million in higher technology consulting
expenses in 2007. In addition, our allocations of overhead costs
were $24 million lower during 2007 compared to 2006. Acceler-
ated depreciation was $3 million higher in 2007 as a result of
facilities closed or to be closed in connection with our consolida-
tion and globalization strategy.
36
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Gain on Curtailment of Postretirement Benefits
(dollars in thousands)
Gain on curtailment of
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
postretirement benefits . . . . .
$ (32,144)
$ (28,467)
$ 3,677
12.9%
In December 2006, we notified retirees and employees of
the phase out of premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees by
the end of 2007. We also eliminated the medical plan for retirees
ages 65 and older as a result of coverage available under the
expansion of Medicare with Part D drug coverage and eliminated
future postretirement life benefits. The gain on curtailment in
2006 represented the unrecognized amounts associated with
prior plan amendments that were being amortized into income
over the remaining service period of the participants prior to the
December 2006 amendments. In 2007, we recognized $7 million
in postretirement benefit income which was recorded in “Selling,
general and administrative expenses,” primarily representing the
amortization of negative prior service costs, which was partially
offset by service costs, interest costs on the accumulated benefit
obligation and actuarial gains and losses accumulated in the plan.
In December 2007, we terminated the existing plan and recog-
nized a final gain on curtailment of plan benefits of $32 million.
Concurrently with the termination of the existing plan, we estab-
lished a new access only plan that is fully paid by the participants.
Restructuring
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Restructuring . . . . . . . . . . . . . . . .
$ 43,731
$ 11,516
$ 32,215
279.7%
During 2007, we approved actions to close 16 manufacturing
facilities and three distribution centers affecting 6,213 employ-
ees in the Dominican Republic, Mexico, the United States, Brazil
and Canada, while moving production to lower-cost operations
in Asia, Central America and the Caribbean Basin. In addition,
428 management and administrative positions were eliminated,
with the majority of these positions based in the United States.
These actions resulted in a charge of $32 million, representing
costs associated with the planned termination of 6,641 employ-
ees, primarily attributable to employee and other termination
benefits recognized in accordance with benefit plans previously
communicated to the affected employee group. In addition, we
recognized a charge of $10 million for estimated lease termina-
tion costs and $2 million primarily related to impairment charges
associated with facility closures approved in prior periods, for
facilities that were exited during 2007.
Of the seven manufacturing facilities and distribution centers
that were approved for closure in 2006, two were closed in 2006
and five were closed in 2007. Of the 19 manufacturing facilities
and distribution centers that were approved for closure in 2007,
10 were closed in 2007 and nine were expected to close in 2008.
In connection with our consolidation and globalization strat-
egy, non-cash charges of $37 million and $3 million, respectively,
of accelerated depreciation of buildings and equipment for facili-
ties closed or to be closed is reflected in “Cost of sales” and
“Selling, general and administrative expenses.”
These actions, which are a continuation of our consolidation
and globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities, leverag-
ing our large scale in high-volume products and consolidating
production capacity.
Operating Profit
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Operating profit . . . . . . . . . . . . . .
$ 388,569
$ 366,222
$ 22,347
Percent
Change
6.1%
Operating profit was higher in 2007 by $22 million com-
pared to 2006 primarily as a result of lower selling, general and
administrative expenses of $53 million and higher gain on curtail-
ment of postretirement benefits of $4 million partially offset by
higher restructuring charges of $32 million and lower gross profit
of $2 million. Our ability to control costs and execute on our
consolidation and globalization strategy during 2007 allowed us
to offset $29 million of higher investments in our strategic initia-
tives and $7 million of higher stand alone expenses associated
with being an independent company.
Other Expenses
Years Ended
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Other expenses . . . . . . . . . . . . . .
$ 5,235
$ 7,401
$ (2,166)
(29.3)%
We recognized losses on early extinguishment of debt re-
lated to unamortized debt issuance costs on the Senior Secured
Credit Facility for prepayments of $428 million of principal in
2007, including a prepayment of $250 million that was made
in connection with funding from the Receivables Facility we
entered into in November 2007.
Interest Expense, net
Years Ended
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Interest expense, net . . . . . . . . . .
$ 199,208
$ 79,621 $ 119,587
150.2%
37
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Interest expense, net was higher in 2007 by $120 million
compared to 2006 primarily as a result of the indebtedness
incurred in connection with the spin off from Sara Lee on Sep-
tember 5, 2006, consisting of $2.6 billion pursuant to the Senior
Secured Credit Facility, the Second Lien Credit Facility and the
Bridge Loan Facility. In December 2006, we issued $500 million
of Floating Rate Senior Notes and the net proceeds were used
to repay the Bridge Loan Facility.
In February 2007, we entered into a first amendment to the
Senior Secured Credit Facility with our lenders, which primarily
lowered the applicable borrowing margin with respect to the
Term B loan facility from 2.25% to 1.75% on LIBOR based loans
and from 1.25% to 0.75% on Base Rate loans. In November
2007, we entered into the Receivables Facility with conduits that
issue commercial paper in the short-term market and are not af-
filiated with us, which provides for up to $250 million in funding
accounted for as a secured borrowing and is secured by certain
domestic trade receivables. The borrowing rate is generally the
conduits’ cost to issue commercial paper, plus certain dealer
fees, which equated to 5.93% from November 27, 2007 through
December 29, 2007. Our weighted average interest rate on our
outstanding debt in 2007 was 7.74%.
Income Tax Expense
Years Ended
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 57,999
$ 71,184
$ (13,185)
(18.5)%
Our effective income tax rate was 31.5% in 2007 compared
to 25.5% in 2006. The higher effective tax rate is attributable
primarily to our new independent structure and higher remitted
earnings from foreign subsidiaries in 2007.
Our effective tax rate is heavily influenced by the amount of
permanent capital investment we make outside the United States
to fund our supply chain consolidation and globalization strategy
rather than remitting those earnings back to the United States.
As we continue to fund our supply chain consolidation and
globalization strategy in future years, we may elect to perma-
nently invest earnings from foreign subsidiaries which would
result in a lower overall effective tax rate.
Operating Results by Business segment —
Year ended december 29, 2007 compared
with Twelve months ended december 30, 2006
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Years Ended
(unaudited)
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 2,556,906
1,221,845
Outerwear . . . . . . . . . . . . . . . . . .
421,898
International. . . . . . . . . . . . . . . . .
266,198
Hosiery . . . . . . . . . . . . . . . . . . . . .
56,920
Other . . . . . . . . . . . . . . . . . . . . . .
$ 2,574,967
1,154,107
400,167
278,253
44,670
$ (18,061)
67,738
21,731
(12,055)
12,250
Total net segment sales . . . . .
Intersegment . . . . . . . . . . . . . . . .
4,523,767
(49,230)
4,452,164
(48,698)
71,603
532
(0.7)%
5.9
5.4
(4.3)
27.4
1.6
1.1
Total net sales. . . . . . . . . . . . . $ 4,474,537
$ 4,403,466
$ 71,071
1.6%
Segment operating profit:
Innerwear . . . . . . . . . . . . . . . . . . . $ 305,959
71,364
Outerwear . . . . . . . . . . . . . . . . . .
53,147
International. . . . . . . . . . . . . . . . .
76,917
Hosiery . . . . . . . . . . . . . . . . . . . . .
(1,361)
Other . . . . . . . . . . . . . . . . . . . . . .
Total segment operating
$ 339,528
57,310
37,799
49,281
(931)
$ (33,569)
14,054
15,348
27,636
(430)
(9.9)%
24.5
40.6
56.1
(46.2)
profit. . . . . . . . . . . . . . . . . .
506,026
482,987
23,039
4.8
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks and
other intangibles. . . . . . . . . . .
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Accelerated depreciation
(60,213)
(104,065)
(43,852)
(42.1)
(6,205)
(8,452)
(2,247)
(26.6)
32,144
(43,731)
28,467
(11,516)
3,677
32,215
12.9
279.7
included in cost of sales . . . . .
(36,912)
(21,199)
15,713
74.1
Accelerated depreciation
included in selling,
general and
administrative expenses. . . . .
Total operating profit. . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
(2,540)
388,569
(5,235)
(199,208)
—
2,540
NM
366,222
(7,401)
(79,621)
22,347
(2,166)
119,587
6.1
(29.3)
150.2
expense . . . . . . . . . . . . . . . $ 184,126
$ 279,200
$ (95,074)
(34.1)%
Net Income
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
(dollars in thousands)
Innerwear
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
(0.7)%
(9.9)
Net sales . . . . . . . . . . . . . . . . . . . $ 2,556,906
305,959
Segment operating profit . . . . . . .
$ 2,574,967
339,528
$ (18,061)
(33,569)
Overall net sales in the Innerwear segment were slightly
lower by $18 million or 1% in 2007 compared to 2006. We ex-
perienced lower sales volume of Playtex brand intimate apparel
sales of $23 million, lower Hanes brand kids’ underwear sales of
$21 million, lower licensed men’s underwear sales in the depart-
ment store channel of $10 million and $3 million lower Just My
Net income. . . . . . . . . . . . . . . . . .
$ 126,127
$ 208,016
$ (81,889)
(39.4)%
Net income for 2007 was lower than 2006 primarily due to
higher interest expense and a higher effective income tax rate
as a result of our independent structure partially offset by higher
operating profit and lower other expenses.
38
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Size brand sales. The lower net sales were partially offset by
higher Hanes brand socks, sleepwear, intimate apparel sales and
men’s underwear of $11 million, $8 million, $5 million and $4 mil-
lion, respectively, and higher Bali brand sales of $12 million.
Net sales for the Hanes brand were higher in most key
categories, except for kid’s underwear. Hanes men’s underwear
benefited from an increased focus on core products and better
overall performance at retail during the year-end holiday season.
Total socks sales, which exceeded $340 million in 2007, were
higher by 4%, primarily due to new programs at our top two
customers. Our Bali brand sales were higher primarily as a result
of our Passion for Comfort media campaign launched in 2007.
Playtex brand sales were lower in 2007 due to soft department
store retail sales and a reduction in retail inventory primarily in
the first three quarters of 2007.
As a percent of segment net sales, gross profit percent-
age in the Innerwear segment was 36.8% in 2007 compared
to 37.4% in 2006. The gross profit percentage was lower due
to unfavorable product sales mix of $19 million, higher excess
and obsolete inventory costs of $13 million, unfavorable product
sales pricing of $12 million, $9 million in higher cotton costs
and unfavorable plant performance of $4 million. The higher
excess and obsolete inventory costs in 2007 compared to 2006
are primarily attributable to $9 million of costs associated with
the rationalization of our socks product category offerings and
$5 million related to exiting a licensing arrangement for a kids’
underwear program. In addition, gross profit was negatively
impacted by higher incentives of $15 million primarily due to a
change in the classification of certain sales incentives in 2007
which were classified as media, advertising and promotion
expenses in 2006. These higher expenses were partially offset
by lower allocations of overhead costs of $15 million, lower duty
costs of $14 million primarily due to the receipt of $7 million in
duty refunds relating to duties paid several years ago, $10 million
of higher sales volume and $10 million in savings from our cost
reduction initiatives and prior restructuring actions.
The lower Innerwear segment operating profit in 2007 com-
pared to 2006 is primarily attributable to lower gross profit and a
higher allocation of selling, general and administrative expenses
of $22 million. These higher expenses were partially offset by
lower MAP expenses of $11 million, primarily due to a change in
the classification of certain sales incentives in 2007 which were
classified as MAP expenses in 2006. Our consolidated selling,
general and administrative expenses before segment allocations
were lower in 2007 compared to 2006 primarily due to lower
spin off and related charges, savings from prior restructuring
actions, lower distribution expenses, amortization of gain on cur-
tailment of postretirement benefits, lower MAP expenses and
lower pension expense offset by higher stand alone expenses,
lower allocations of overhead costs, higher accelerated deprecia-
tion and higher technology consulting expenses.
Outerwear
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,221,845
71,364
Segment operating profit . . . . . . .
$ 1,154,107
57,310
$ 67,738
14,054
Percent
Change
5.9%
24.5
Net sales in the Outerwear segment were higher by $68 mil-
lion in 2007 compared to 2006 primarily as a result of higher
Champion brand activewear and Hanes brand retail casualwear
net sales. Overall activewear and retail casualwear net sales
were higher by $60 million and $50 million, respectively, in 2007
compared to 2006. The higher net sales were partially offset by
lower net sales in our casualwear business as a result of lower
sales of promotional t-shirts sold primarily through our embel-
lishment channel of $42 million, most of which occurred in the
first half of 2007. Champion, our second largest brand, benefited
from higher penetration in the sporting goods channel, and,
together with C9 by Champion, in the mid-tier department store
channel. In 2007, we expanded the depth and breadth of distribu-
tion in sporting goods with our Champion Double Dry perfor-
mance products. Champion sales have increased by double-
digits in each of the three years ended December 2007.
As a percent of segment net sales, gross profit percent-
age in the Outerwear segment was 21.6% in 2007 compared
to 19.4% in 2006. The improvement in gross profit is primarily
attributable to improved plant performance of $18 million, sav-
ings from our cost reduction initiatives and prior restructuring
actions of $16 million, higher sales volume of $13 million, lower
allocations of overhead costs of $9 million and favorable product
sales pricing of $8 million offset primarily by higher cotton costs
of $11 million, higher excess and obsolete inventory costs of
$8 million, higher duty costs of $4 million and higher sales incen-
tives of $4 million.
The higher Outerwear segment operating profit in 2007
compared to 2006 is primarily attributable to a higher gross profit
and lower MAP expenses of $3 million which was offset by a
higher allocation of selling, general and administrative expenses
of $28 million. Our consolidated selling, general and administra-
tive expenses before segment allocations were lower in 2007
compared to 2006 primarily due to lower spin off and related
charges, savings from prior restructuring actions, lower distribu-
tion expenses, amortization of gain on curtailment of postretire-
ment benefits, lower MAP expenses and lower pension expense
offset by higher stand alone expenses, lower allocations of
overhead costs, higher accelerated depreciation and higher tech-
nology consulting expenses.
39
H AN E SBRANDS INC.
International
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 421,898
53,147
$ 400,167
37,799
$ 21,731
15,348
Percent
Change
5.4%
40.6
Overall net sales in the International segment were higher
by $22 million in 2007 compared to 2006. During 2007 we
experienced higher net sales, in each case including the impact
of foreign currency, in Europe of $17 million, higher net sales
of $6 million in our emerging markets in Asia and $3 million of
higher sales in Latin America, which were partially offset by
lower sales in Canada of $5 million. The growth in our European
casualwear business was primarily driven by the strength of
the Stedman and Hanes brands that are sold in the embel-
lishment channel. The higher sales in Asia were the result of
significant retail distribution gains in China and India. Changes
in foreign currency exchange rates had a favorable impact on
net sales of $15 million in 2007 compared to 2006 primarily
due to the strengthening of the Canadian dollar, Brazilian real
and the Euro.
As a percent of segment net sales, gross profit percentage
was 41.3% in 2007 compared to 40.7% in 2006 primarily due to
$4 million of lower sales incentives, $2 million of favorable prod-
uct sales mix and $2 million of favorable product sales pricing.
The higher International segment operating profit in 2007
compared to 2006 is primarily attributable to the higher gross
profit from higher sales volume, $3 million in lower MAP ex-
penses and $1 million in lower distribution expenses. Changes
in foreign currency exchange rates had a favorable impact on
segment operating profit of $3 million in 2007 compared to 2006
primarily due to the strengthening of the Canadian dollar, Brazil-
ian real and the Euro.
Hosiery
(dollars in thousands)
Years Ended
December 29,
2007
December 30,
2006
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 266,198
76,917
$ 278,253
49,281
$ (12,055)
27,636
Percent
Change
(4.3)%
56.1
Net sales in the Hosiery segment were lower by $12 million
in 2007 compared to 2006 primarily due to lower sales of the
L’eggs brand to mass retailers and food and drug stores. We
expect the trend of declining hosiery sales to continue consis-
tent with the overall decline in the industry and with shifts in
consumer preferences.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
As a percent of segment net sales, gross profit percentage
was 47.2% in 2007 compared to 41.3% in 2006 primarily due to
improved plant performance of $10 million, lower sales incen-
tives of $3 million and $5 million in savings from our cost reduc-
tion initiatives and prior restructuring actions which was partially
offset by $10 million of lower sales volume.
Hosiery segment operating profit was higher in 2007 com-
pared to 2006 primarily due to a higher gross profit, $6 million in
lower MAP expenses and $12 million in lower allocated selling,
general and administrative expenses.
Our consolidated selling, general and administrative expens-
es before segment allocations were lower in 2007 compared to
2006 primarily due to lower spin off and related charges, savings
from prior restructuring actions, lower distribution expenses,
amortization of gain on curtailment of postretirement benefits,
lower MAP expenses and lower pension expense offset by
higher stand alone expenses, lower allocations of overhead
costs, higher accelerated depreciation and higher technology
consulting expenses.
Other
Years Ended
(dollars in thousands)
December 29,
2007
December 30,
2006
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 56,920
(1,361)
$ 44,670
(931)
$ 12,250
(430)
27.4%
(46.2)
The higher net sales from our Other segment primarily
resulted from an immaterial change in the way we recognized
sales to third party suppliers in 2006. The full year change was
reflected in 2006 with a $5 million impact on net sales and
minimal impact on segment operating profit. Net sales in this
segment are generated for the purpose of maintaining asset
utilization at certain manufacturing facilities.
General Corporate Expenses
General corporate expenses were lower in 2007 compared
to 2006 primarily due to lower spin off and related charges of
$45 million, amortization of gain on postretirement benefits of
$7 million and a $3 million reduction in pension expense related
to the final separation of our pension plan assets and liabilities
from those of Sara Lee. These lower expenses were partially
offset by higher stand alone expenses associated with being
an independent company of $7 million and $4 million of higher
expenses in numerous other areas.
40
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
consolidated Results of Operations —
six months ended december 30, 2006 compared
with six months ended december 31, 2005
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
Six Months Ended
savings were offset partially by higher cotton costs, unusual
charges primarily to exit certain contracts and low margin
product lines, and accelerated depreciation as a result of our
announced plans to close four textile and sewing plants in the
United States, Puerto Rico and Mexico.
(unaudited)
Gross Profit
Net sales . . . . . . . . . . . . . . . . . . . $ 2,250,473
1,530,119
Cost of sales. . . . . . . . . . . . . . . . .
$ 2,319,839 $ (69,366)
(26,741)
1,556,860
(3.0)%
(1.7)
Gross profit . . . . . . . . . . . . . . .
Selling, general and
720,354
762,979
(42,625)
(5.6)
administrative expenses. . . . .
547,469
505,866
41,603
8.2
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
(28,467)
11,278
190,074
7,401
70,753
—
(339)
257,452
—
8,412
28,467
11,617
(67,378)
7,401
62,341
NM
NM
(26.2)
NM
741.1
111,920
37,781
249,040
60,424
(137,120)
(22,643)
(55.1)
(37.5)
Net income . . . . . . . . . . . . . . . $ 74,139
$ 188,616 $ (114,477)
(60.7)%
Net Sales
(dollars in thousands)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
Six Months Ended
(unaudited)
Gross profit. . . . . . . . . . . . . . . . . .
$ 720,354
$ 762,979
$ (42,625)
(5.6)%
As a percent of net sales, gross profit percentage decreased
to 32.0% for the six months ended December 30, 2006 from
32.9% for the six months ended December 31, 2005. The
decrease in gross profit percentage was due to $21 million in
accelerated depreciation as a result of our announced plans
to close four textile and sewing plants, higher cotton costs
of $18 million, $15 million of unusual charges primarily to exit
certain contracts and low margin product lines and an $11 million
impact from lower manufacturing volume. The higher costs were
partially offset by $38 million of net favorable spending from
our prior year restructuring actions, manufacturing cost savings
initiatives and a favorable impact of shifting certain production to
lower cost locations. In addition, the impact on gross profit from
lower net sales was $16 million.
Net sales . . . . . . . . . . . . . . . . . . . $ 2,250,473
$ 2,319,839
$ (69,366)
(3.0)%
Selling, General and Administrative Expenses
Net sales decreased $52 million, $12 million and
$17 million in our Innerwear, Hosiery and Other segments,
respectively. These declines were offset by increases in net
sales of $13 million and $2 million in our Outerwear and Inter-
national segments, respectively. Overall net sales decreased
due to a $28 million impact from our intentional discontinu-
ation of low-margin product lines in the Outerwear segment
and a $12 million decrease in sheer hosiery sales. Additionally,
the acquisition of National Textiles, L.L.C. in September 2005
caused a $16 million decrease in our Other segment as sales
to this business were included in net sales in periods prior to
the acquisition. Finally, we experienced slower sell-through of
innerwear products in the mass merchandise and department
store retail channels during the latter half of the six months
ended December 30, 2006.
Cost of Sales
(dollars in thousands)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Cost of sales. . . . . . . . . . . . . . . . . $ 1,530,119
$ 1,556,860
$ (26,741)
(1.7)%
Cost of sales were lower year over year as a result of a
decrease in net sales, favorable spending from the benefits of
manufacturing cost savings initiatives and a favorable impact
from shifting certain production to lower cost locations. These
(dollars in thousands)
Selling, general and
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
administrative expenses. . . . .
$ 547,469
$ 505,866
$ 41,603
8.2%
Selling, general and administrative expenses increased
partially due to higher non-recurring spin off and related costs
of $17 million and incremental costs associated with being an
independent company of $10 million, excluding the corporate
allocations associated with Sara Lee ownership in the prior year
of $21 million. Media, advertising and promotion costs increased
$12 million primarily due to unusual charges to exit certain
license agreements and additional investments in our brands.
Other unusual charges increasing selling, general and adminis-
trative expenses by $12 million primarily included certain freight
revenue being moved to net sales during the six months ended
December 30, 2006 and a reduction of estimated allocations
to inventory costs. In addition, we experienced slightly higher
spending of approximately $10 million in numerous areas such
as technology consulting, distribution, severance and market
research, which were partially offset by headcount savings from
prior year restructuring actions and a reduction in pension and
postretirement expenses.
41
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Gain on Curtailment of Postretirement Benefits
Operating Profit
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(dollars in thousands)
Six Months Ended
(unaudited)
Gain on curtailment of
postretirement benefits . . . . .
$ (28,467)
$ —
$ 28,467
NM
In December 2006, we notified retirees and employees that
we would phase out premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees by
the end of 2007. We also decided to eliminate the medical plan
for retirees ages 65 and older as a result of coverage available
under the expansion of Medicare with Part D drug coverage and
eliminate future postretirement life benefits. The gain on curtail-
ment represents the unrecognized amounts associated with
prior plan amendments that were being amortized into income
over the remaining service period of the participants prior to
the December 2006 amendments. We recorded postretirement
benefit income related to this plan in 2007, primarily representing
the amortization of negative prior service costs, which was par-
tially offset by service costs, interest costs on the accumulated
benefit obligation and actuarial gains and losses accumulated in
the plan. We recorded a final gain on curtailment of plan benefits
in December 2007.
Restructuring
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Operating profit . . . . . . . . . . . . . .
$ 190,074
$ 257,452
$ (67,378)
(26.2)%
Operating profit for the six months ended December 30,
2006 decreased as compared to the six months ended Decem-
ber 31, 2005 primarily as a result of facility closures announced
in the six months ended December 30, 2006 and restructuring
related costs of $32 million, higher non-recurring spin off and
related charges of $17 million, higher costs associated with
being an independent company of $10 million, unusual charges
of $35 million primarily to exit certain contracts and low margin
product lines, charges to exit certain license agreements and
additional investments in our brands. In addition, we experienced
higher cotton and production related costs of $29 million, lower
gross margin from lower net sales of $16 million and slightly
higher selling, general and administrative spending of approxi-
mately $10 million in numerous areas such as technology consult-
ing, distribution, severance and market research. These higher
costs were offset partially by favorable spending from our prior
year restructuring actions, manufacturing cost savings initiatives,
a favorable impact of shifting certain production to lower cost
locations and lower corporate allocations from Sara Lee total-
ing $59 million and the gain on curtailment of postretirement
benefits of $28 million.
Other Expenses
Six Months Ended
Restructuring . . . . . . . . . . . . . . . .
$ 11,278
$ (339)
$ 11,617
NM
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
During the six months ended December 30, 2006, we
approved actions to close four textile and sewing plants in the
United States, Puerto Rico and Mexico and consolidate three
distribution centers in the United States. These actions resulted
in a charge of $11 million, representing costs associated with the
planned termination of 2,989 employees for employee termina-
tion and other benefits in accordance with benefit plans previ-
ously communicated to the affected employee group. In connec-
tion with these restructuring actions, a charge of $21 million for
accelerated depreciation of buildings and equipment is reflected
in the “Cost of sales” line of the Consolidated Statement of
Income. These actions were expected to be completed in early
2007. These actions, which are a continuation of our long-term
global supply chain globalization strategy, are expected to result
in benefits of moving production to lower-cost manufacturing
facilities, improved alignment of sewing operations with the flow
of textiles, leveraging our large scale in high-volume products
and consolidating production capacity.
(unaudited)
Other expenses . . . . . . . . . . . . . .
$ 7,401
$ —
$ 7,401
NM
In connection with the offering of the Floating Rate Senior
Notes we recognized a $6 million loss on early extinguishment
of debt for unamortized debt issuance costs on the Bridge Loan
Facility entered into in connection with the spin off from Sara
Lee. We recognized approximately $1 million loss on early extin-
guishment of debt related to unamortized debt issuance costs
on the Senior Secured Credit Facility for the prepayment
of $100 million of principal in December 2006.
Interest Expense, net
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Interest expense, net . . . . . . . . . .
$ 70,753
$ 8,412
$ 62,341
741.1%
In connection with the spin off, we incurred $2.6 billion of
debt pursuant to the Senior Secured Credit Facility, the Second
Lien Credit Facility and the Bridge Loan Facility, $2.4 billion of
the proceeds of which was paid to Sara Lee. As a result, our net
interest expense in the six months ended December 30, 2006
was substantially higher than in the comparable period.
42
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Under the Credit Facilities, we are required to hedge a por-
tion of our floating rate debt to reduce interest rate risk caused
by floating rate debt issuance. During the six months ended
December 30, 2006, we entered into various hedging arrange-
ments whereby we capped the interest rate on $1 billion of our
floating rate debt at 5.75%. We also entered into interest rate
swaps tied to the 3-month LIBOR whereby we fixed the interest
rate on an aggregate of $500 million of our floating rate debt at
a blended rate of approximately 5.16%. Approximately 60% of
our total debt outstanding at December 30, 2006 was at a fixed
or capped rate. There was no hedge ineffectiveness during the
six months ended December 30, 2006 period related to these
instruments.
In December 2006, we completed the offering of $500
million aggregate principal amount of the Floating Rate Senior
Notes. The Floating Rate Senior Notes bear interest at a per
annum rate, reset semiannually, equal to the six month LIBOR
plus a margin of 3.375%. The proceeds from the offering were
used to repay all outstanding borrowings under the Bridge Loan
Facility.
Income Tax Expense
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 37,781
$ 60,424
$ (22,643)
(37.5)%
(unaudited)
Our effective income tax rate increased from 24.3% for
the six months ended December 31, 2005 to 33.8% for the six
months ended December 30, 2006. The increase in our effective
tax rate as an independent company is attributable primarily to
the expiration of tax incentives for manufacturing in Puerto Rico
of $9 million, which were repealed effective for the periods after
July 1, 2006, higher taxes on remittances of foreign earnings
for the period of $9 million and $5 million tax effect of lower
unremitted earnings from foreign subsidiaries in the six months
ended December 30, 2006 taxed at rates less than the U.S.
statutory rate. The tax expense for both periods was impacted
by a number of significant items that are set out in the reconcilia-
tion of our effective tax rate to the U.S. statutory rate in Note 18
titled “Income Taxes” to our Consolidated Financial Statements.
Net Income
(dollars in thousands)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Net income. . . . . . . . . . . . . . . . . .
$ 74,139
$ 188,616 $ (114,477)
(60.7)%
Net income for the six months ended December 30, 2006
was lower than for the six months ended December 31, 2005
primarily as a result of reduced operating profit, increased inter-
est expense, higher income taxes as an independent company
and losses on early extinguishment of debt.
Operating Results by Business segment —
six months ended december 30, 2006 compared
with six months ended december 31, 2005
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 1,295,868
616,298
Outerwear . . . . . . . . . . . . . . . . . .
197,729
International. . . . . . . . . . . . . . . . .
144,066
Hosiery . . . . . . . . . . . . . . . . . . . . .
19,381
Other . . . . . . . . . . . . . . . . . . . . . .
$ 1,347,582 $ (51,714)
12,713
1,749
(11,831)
(16,715)
603,585
195,980
155,897
36,096
(3.8)%
2.1
0.9
(7.6)
(46.3)
Total net segment sales . . . . .
Intersegment . . . . . . . . . . . . . . . .
2,273,342
(22,869)
2,339,140
(19,301)
(65,798)
3,568
(2.8)
18.5
Total net sales. . . . . . . . . . . . . $ 2,250,473
$ 2,319,839 $ (69,366)
(3.0)%
Segment operating profit:
Innerwear . . . . . . . . . . . . . . . . . . . $ 172,008
21,316
Outerwear . . . . . . . . . . . . . . . . . .
15,236
International. . . . . . . . . . . . . . . . .
36,205
Hosiery . . . . . . . . . . . . . . . . . . . . .
(288)
Other . . . . . . . . . . . . . . . . . . . . . .
Total segment operating
$ 192,449 $ (20,441)
(27,932)
(1,338)
9,674
(1,490)
49,248
16,574
26,531
1,202
(10.6)%
(56.7)
(8.1)
36.5
NM
profit. . . . . . . . . . . . . . . . . .
244,477
286,004
(41,527)
(14.5)
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks
(46,927)
(24,846)
22,081
88.9
and other intangibles . . . . . . .
(3,466)
(4,045)
(579)
(14.3)
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Accelerated depreciation
28,467
(11,278)
—
339
28,467
11,617
included in cost of sales . . . . .
(21,199)
—
21,199
Total operating profit. . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
190,074
(7,401)
(70,753)
257,452
—
(8,412)
(67,378)
7,401
62,341
NM
NM
NM
(26.2)
NM
NM
Income before income tax
expense . . . . . . . . . . . . . . . $ 111,920
$ 249,040 $ (137,120)
(55.1)%
Innerwear
(dollars in thousands)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,295,868
172,008
Segment operating profit . . . . . . .
$ 1,347,582
192,449
$ (51,714)
(20,441)
(3.8)%
(10.6)
Net sales in our Innerwear segment decreased primarily due
to lower men’s underwear and kids’ underwear sales of $36 mil-
lion and lower thermal sales of $14 million, as well as additional
investments in our brands as compared to the six months ended
December 31, 2005. We experienced lower sell-through of
products in the mass merchandise and department store retail
channels primarily in the latter half of the six months ended
December 30, 2006.
43
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
As a percent of segment net sales, gross profit percentage
International
Outerwear
(dollars in thousands)
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(dollars in thousands)
Hosiery
in the Innerwear segment increased from 36.5% for the six
months ended December 31, 2005 to 37.0% for the six months
ended December 30, 2006, reflecting a positive impact of favor-
able spending of $21 million from our prior year restructuring
actions, cost savings initiatives and savings associated with mov-
ing to lower cost locations. These changes were partially offset
by an unfavorable impact of lower volumes of $18 million, higher
cotton costs of $7 million and unusual costs of $8 million primar-
ily associated with exiting certain low margin product lines.
The decrease in segment operating profit is primarily attribut-
able to the gross profit impact of the items noted above and
higher allocated selling, general and administrative expenses of
$8 million. Media, advertising and promotion costs were slightly
higher due to changes in license agreements, net of lower media
spend on innerwear categories. Our total selling, general and
administrative expenses before segment allocations increased
as a result of unusual charges, higher stand alone costs as an
independent company and higher spending in numerous areas
such as technology consulting, distribution, severance and mar-
ket research, which were partially offset by headcount savings
from prior year restructuring actions and a reduction in pension
and postretirement expenses.
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 616,298
21,316
(unaudited)
$ 603,585
49,248
$ 12,713
(27,932)
2.1%
(56.7)
Net sales in our Outerwear segment increased primarily due
to $33 million of increased sales of activewear and $33 million of
increased sales of boys’ fleece as compared to the six months
ended December 31, 2005. These changes were partially offset
by the $28 million impact of our intentional exit of certain lower
margin fleece product lines, lower women’s and girls’ fleece
sales of $16 million and $9 million of lower sportshirt, jersey and
other fleece sales.
As a percent of segment net sales, gross profit percentage
declined from 20.7% for the six months ended December 31,
2005 to 19.8% for the six months ended December 30, 2006
primarily as a result of higher cotton costs of $11 million, $5 mil-
lion associated with exiting certain low margin product lines and
higher duty, freight and contractor costs of $6 million, partially
offset by $19 million in cost savings initiatives and a favorable
impact with shifting production to lower cost locations.
The decrease in segment operating profit is primarily attribut-
able to the gross profit impact of the items noted above, higher
media advertising and promotion expenses directly attributable
to our casualwear products of $15 million and higher allocated
selling, general and administrative expenses of $10 million. Our
total selling, general and administrative expenses before seg-
ment allocations increased as a result of unusual charges, higher
stand alone costs as an independent company and higher spend-
ing in numerous areas such as technology consulting, distribu-
tion, severance and market research, which were partially offset
by headcount savings from prior year restructuring actions and a
reduction in pension and postretirement expenses.
44
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 197,729
15,236
(unaudited)
$ 195,980
16,574
$ 1,749
(1,338)
0.9%
(8.1)
Net sales in our International segment increased slightly
due to higher sales of t-shirts in Europe and higher sales in our
emerging markets in China, India and Brazil, partially offset by
softer sales in Mexico and lower sales in Japan due to a shift in
the launch of fall seasonal products. Changes in foreign currency
exchange rates increased net sales by $3 million.
As a percent of segment net sales, gross profit percent-
age increased from 39.7% to 40.2% for the six months ended
December 30, 2006. The increase resulted primarily from a
$3 million decrease in overall spending and $1 million from posi-
tive changes in foreign currency exchange rates. These changes
were offset by a $4 million impact from unfavorable manufactur-
ing efficiencies compared to the prior period.
The decrease in segment operating profit is attributable to the
gross profit impact of the items noted above offset by higher al-
located selling, general and administrative expenses of $3 million.
Six Months Ended
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
(unaudited)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 144,066
36,205
$ 155,897
26,531
$ (11,831)
9,674
(7.6)%
36.5
Net sales in our Hosiery segment decreased primarily due
to the continued decline in U.S. sheer hosiery consumption. As
compared to the six months ended December 31, 2005, overall
sales for the Hosiery segment declined 8% due to a continued
reduction in sales of L’eggs to mass retailers and food and drug
stores and declining sales of Hanes to department stores. Over-
all, the hosiery market declined 4.5% for the six months ended
December 30, 2006.
Gross profit declined slightly primarily due to the decline in net
sales offset by favorable spending of $3 million from cost savings
initiatives and a reduction in pension and postretirement expenses.
Segment operating profit increased due primarily to $10 million
of lower allocated selling, general and administrative expenses.
Other
Six Months Ended
(dollars in thousands)
December 30,
2006
December 31,
2005
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 19,381
(288)
$ 36,096
1,202
$ (16,715)
(1,490)
(46.3)%
NM
(unaudited)
Net sales in the Other segment decreased primarily due to
the acquisition of National Textiles, L.L.C. in September 2005
which caused a $16 million decline as sales to this business
were previously included in net sales prior to the acquisition.
As a percent of segment net sales, gross profit percentage
increased from 4.8% for the six months ended December 31,
2005 to 9.9% for the six months ended December 30, 2006
primarily as a result of favorable manufacturing variances.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
The decrease in segment operating profit is primarily attribut-
Selling, General and Administrative Expenses
able to higher allocated selling, general and administrative ex-
penses in the current period of $2 million offset by the favorable
manufacturing variances noted above. As sales of this segment
are generated for the purpose of maintaining asset utilization at
certain manufacturing facilities, gross profit and operating profit
are lower than those of our other segments.
General Corporate Expenses
General corporate expenses increased primarily due to
higher nonrecurring spin off and related costs of $17 million
and higher stand alone costs of $10 million of operating as an
independent company.
consolidated Results of Operations — Year ended
July 1, 2006 compared with Year ended July 2, 2005
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,472,832
2,987,500
Cost of sales. . . . . . . . . . . . . . . . .
$ 4,683,683 $ (210,851)
(236,071)
3,223,571
Gross profit . . . . . . . . . . . . . . .
Selling, general and
1,485,332
1,460,112
25,220
1.7
administrative expenses. . . . .
Restructuring . . . . . . . . . . . . . . . .
1,051,833
(101)
1,053,654
46,978
Operating profit. . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
433,600
17,280
359,480
13,964
(1,821)
(47,079)
74,120
3,316
(0.2)
NM
20.6
23.7
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
416,320
93,827
345,516
127,007
70,804
(33,180)
20.5
(26.1)
Net income . . . . . . . . . . . . . . . $ 322,493
$ 218,509 $ 103,984
47.6%
Net Sales
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,472,832
$ 4,683,683 $ (210,851)
Percent
Change
(4.5)%
Net sales declined primarily due to the $142 million impact
from the discontinuation of low-margin product lines in the Inner-
wear, Outerwear and International segments and a $48 million
decline in sheer hosiery sales. Other factors netting to $21 mil-
lion of this decline include lower selling prices and changes in
product sales mix.
Cost of Sales
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Cost of sales. . . . . . . . . . . . . . . . . $ 2,987,500
$ 3,223,571 $ (236,071)
Percent
Change
(7.3)%
Cost of sales declined year over year primarily as a result of
the decline in net sales. As a percent of net sales, gross margin
increased from 31.2% in 2005 to 33.2% in 2006. The increase
in gross margin percentage was primarily due to a $140 million
impact from lower cotton costs, and lower charges for slow mov-
ing and obsolete inventories and a $13 million impact from the
benefits of prior year restructuring actions partially offset by an
$84 million impact of lower selling prices and changes in product
sales mix. Although our 2006 results benefited from lower cotton
prices, our costs vary based upon the fluctuating cost of cotton.
(dollars in thousands)
Selling, general and
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
administrative expenses. . . . . $ 1,051,833
$ 1,053,654
$ (1,821)
(0.2)%
Selling, general and administrative expenses declined due
to a $31 million benefit from prior year restructuring actions, an
$11 million reduction in variable distribution costs and a $7 mil-
lion reduction in pension plan expense. These decreases were
partially offset by a $47 million decrease in recovery of bad
debts, higher share-based compensation expense, increased
advertising and promotion costs and higher costs incurred re-
lated to the spin off. Measured as a percent of net sales, selling,
general and administrative expenses increased from 22.5% in
2005 to 23.5% in 2006.
Percent
Change
(4.5)%
(7.3)
Restructuring
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Restructuring . . . . . . . . . . . . . . . .
$ (101)
$ 46,978
$ (47,079)
Percent
Change
NM
The charge for restructuring in 2005 is primarily attribut-
able to costs for severance actions related to the decision to
terminate 1,126 employees, most of whom were located in the
United States. The income from restructuring in 2006 resulted
from the impact of certain restructuring actions that were
completed for amounts more favorable than originally expected
which is partially offset by $4 million of costs associated with the
decision to terminate 449 employees.
Operating Profit
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Operating profit . . . . . . . . . . . . . .
$ 433,600
$ 359,480
$ 74,120
Percent
Change
20.6%
Operating profit in 2006 was higher than in 2005 as a result
of the items discussed above.
Interest Expense, net
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
Interest expense, net . . . . . . . . . .
$ 17,280
$ 13,964
$ 3,316
23.7%
Interest expense decreased year over year as a result of lower
average balances on borrowings from Sara Lee. Interest income
decreased significantly as a result of lower average cash balances.
Income Tax Expense
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 93,827
$ 127,007
$ (33,180)
(26.1)%
Our effective income tax rate decreased from 36.8% in 2005
to 22.5% in 2006. The decrease in our effective tax rate is attribut-
able primarily to an $81.6 million charge in 2005 related to the
repatriation of the earnings of foreign subsidiaries to the United
States. Of this total, $50.0 million was recognized in connection
with the remittance of current year earnings to the United States,
45
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Innerwear
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 2,627,101
344,643
Segment operating profit . . . . . . .
$ 2,703,637
300,796
$ (76,536)
43,847
Percent
Change
(2.8)%
14.6
Net sales in the Innerwear segment decreased primarily due
to a $65 million impact of our discontinuation of certain sleep-
wear, thermal and private label product lines and the closure of
certain retail stores. Net sales were also negatively impacted
by $15 million of lower sock sales due to both lower shipment
volumes and lower pricing.
Gross profit percentage in the Innerwear segment increased
from 35.1% in 2005 to 37.2% in 2006, reflecting a $78 million
impact of lower charges for slow moving and obsolete inven-
tories, lower cotton costs and benefits from prior restructuring
actions, partially offset by lower gross margins for socks due to
pricing pressure and mix.
The increase in Innerwear segment operating profit is
primarily attributable to the increase in gross margin and a
$37 million impact of lower allocated selling expenses and other
selling, general and administrative expenses due to headcount
reductions. This is partially offset by $21 million related to higher
allocated media advertising and promotion costs.
Outerwear
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
(4.8)%
8.6
Net sales . . . . . . . . . . . . . . . . . . . $ 1,140,703
74,170
Segment operating profit . . . . . . .
$ 1,198,286
68,301
$ (57,583)
5,869
Net sales in the Outerwear segment decreased primarily
due to the $64 million impact of our exit of certain lower-margin
fleece product lines and a $33 million impact of lower sales of
casualwear products both in the retail channel and in the embel-
lishment channel, resulting from lower prices and an unfavorable
sales mix, partially offset by a $44 million impact from higher
sales of activewear products.
Gross profit percentage in the Outerwear segment increased
from 18.9% in 2005 to 20.0% in 2006, reflecting a $72 million
impact of lower charges for slow moving and obsolete invento-
ries, lower cotton costs, benefits from prior restructuring actions
and the exit of certain lower-margin fleece product lines, partially
offset by pricing pressures and an unfavorable sales mix of t-shirts
sold in the embellishment channel.
The increase in Outerwear segment operating profit is
primarily attributable to a higher gross profit percentage and a
$7 million impact of lower allocated selling, general and adminis-
trative expenses due to the benefits of prior restructuring actions.
Total net sales. . . . . . . . . . . . . $ 4,472,832
$ 4,683,683 $ (210,851)
(4.5)%
(dollars in thousands)
and $31.6 million related to earnings repatriated under the provi-
sions of the American Jobs Creation Act of 2004. The tax ex-
pense for both periods was impacted by a number of significant
items which are set out in the reconciliation of our effective tax
rate to the U.S. statutory rate in Note 18 titled “Income Taxes”
to our Consolidated Financial Statements.
Net Income
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
Net income. . . . . . . . . . . . . . . . . .
$ 322,493
$ 218,509 $ 103,984
47.6%
Net income in 2006 was higher than in 2005 as a result of
the items discussed above.
Operating Results by Business segment — Year ended
July 1, 2006 compared with Year ended July 2, 2005
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Percent
Change
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 2,627,101
1,140,703
Outerwear . . . . . . . . . . . . . . . . . .
398,157
International. . . . . . . . . . . . . . . . .
290,125
Hosiery . . . . . . . . . . . . . . . . . . . . .
62,809
Other . . . . . . . . . . . . . . . . . . . . . .
$ 2,703,637 $ (76,536)
(57,583)
(1,832)
(48,343)
(26,050)
1,198,286
399,989
338,468
88,859
(2.8)%
(4.8)
(0.5)
(14.3)
(29.3)
Total net segment sales . . . . .
Intersegment . . . . . . . . . . . . . . . .
4,518,895
(46,063)
4,729,239
(45,556)
(210,344)
507
(4.4)
1.1
Segment operating profit:
Innerwear . . . . . . . . . . . . . . . . . . . $ 344,643
74,170
Outerwear . . . . . . . . . . . . . . . . . .
37,003
International. . . . . . . . . . . . . . . . .
39,069
Hosiery . . . . . . . . . . . . . . . . . . . . .
127
Other . . . . . . . . . . . . . . . . . . . . . .
Total segment operating
$ 300,796 $ 43,847
5,869
4,772
(1,707)
301
68,301
32,231
40,776
(174)
14.6%
8.6
14.8
(4.2)
NM
profit. . . . . . . . . . . . . . . . . .
495,012
441,930
53,082
12.0
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks
and other identifiable
intangibles . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Accelerated depreciation
(52,482)
(21,823)
30,659
140.5
(9,031)
101
(9,100)
(46,978)
(69)
(47,079)
(0.8)
NM
included in cost of sales . . . . .
—
(4,549)
(4,549)
Total operating profit. . . . . . . .
Interest expense, net . . . . . . . . . .
433,600
(17,280)
359,480
(13,964)
74,120
3,316
NM
20.6
23.7
Income before income tax
expense . . . . . . . . . . . . . . . $ 416,320
$ 345,516 $ 70,804
20.5%
46
H AN E SBRANDS INC.
International
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 398,157
37,003
$ 399,989
32,231
$ (1,832)
4,772
Percent
Change
(0.5)%
14.8
Net sales in the International segment decreased primarily
as a result of $4 million in lower sales in Latin America which
were mainly the result of a $13 million impact from our exit of
certain low-margin product lines. Changes in foreign currency
exchange rates increased net sales by $10 million.
Gross profit percentage increased from 39.1% in 2005 to
40.6% in 2006. The increase is due to lower allocated selling,
general and administrative expenses and margin improvements
in sales in Canada resulting from greater purchasing power for
contracted goods.
The increase in International segment operating profit is
primarily attributable to a $7 million impact of improvements in
gross profit in Canada.
Hosiery
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 290,125
39,069
$ 338,468
40,776
$ (48,343)
(1,707)
Percent
Change
(14.3)%
(4.2)
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Gross profit and segment operating profit remained flat as
compared to 2005. As sales in this segment are generated for
the purpose of maintaining asset utilization at certain manufac-
turing facilities, gross profit and operating profit are lower than
those of our other segments.
General Corporate Expenses
General corporate expenses not allocated to the segments
increased in 2006 from 2005 as a result of higher incurred costs
related to the spin off.
Liquidity and capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are our cash generated by
operations and availability under our Revolving Loan Facility
and our international loan facilities. At January 3, 2009 we had
$463 million of borrowing availability under our $500 million
Revolving Loan Facility (after taking into account outstanding
letters of credit), $67 million in cash and cash equivalents and
$67 million of borrowing availability under our international loan
facilities. We currently believe that our existing cash balances
and cash generated by operations, together with our available
credit capacity, will enable us to comply with the terms of our
indebtedness and meet foreseeable liquidity requirements.
The following has or is expected to impact liquidity:
Net sales in the Hosiery segment decreased primarily due
n we have principal and interest obligations under our long-
to the continued decline in sheer hosiery consumption in the
United States. Outside unit volumes in the Hosiery segment
decreased by 13% in 2006, with an 11% decline in L’eggs
volume to mass retailers and food and drug stores and a 22%
decline in Hanes volume to department stores. Overall the
hosiery market declined 11%.
Gross profit percentage in the Hosiery segment increased
from 38.0% in 2005 to 40.2% in 2006. The increase resulted
primarily from improved product sales mix and pricing.
The decrease in Hosiery segment operating profit is primarily
attributable to lower sales volume.
Other
(dollars in thousands)
Years Ended
July 1,
2006
July 2,
2005
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 62,809
127
$ 88,859
(174)
$ (26,050)
301
Percent
Change
(29.3)%
NM
Net sales decreased primarily due to the acquisition of
National Textiles, L.L.C. in September 2005 which caused a
$72 million decline as sales to this business were previously
included in net sales prior to the acquisition. Sales to National
Textiles, L.L.C. subsequent to the acquisition of this business
are eliminated for purposes of segment reporting. This decrease
was partially offset by $40 million in fabric sales to third parties
by National Textiles, L.L.C. subsequent to the acquisition. An
additional offset was related to increased sales of $7 million due
to the acquisition of a Hong Kong based sourcing business at the
end of 2005.
term debt;
n we expect to continue to invest in efforts to improve operat-
ing efficiencies and lower costs;
n we expect to continue to add new manufacturing capacity in
Asia, Central America and the Caribbean Basin;
n we anticipate that we will decrease the portion of the in-
come of our foreign subsidiaries that is expected to be remit-
ted to the United States, which could significantly decrease
our effective income tax rate; and
n we have the authority to repurchase up to 10 million shares of
our stock in the open market over the next few years, 2.8 mil-
lion of which we have repurchased as of January 3, 2009 at a
cost of $75 million. In light of the current economic recession,
we may choose not to repurchase any stock and focus more
on the repayment of our debt in the next twelve months.
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects on
our business. The current retail environment has been impacted
by recent volatility in the financial markets, including declines in
stock prices, and by uncertain economic conditions. Increases in
food and fuel prices, changes in the credit and housing markets
leading to the current financial and credit crisis, actual and poten-
tial job losses among many sectors of the economy, significant
declines in the stock market resulting in large losses to consum-
er retirement and investment accounts, and uncertainty regard-
ing future federal tax and economic policies have all added to
declines in consumer confidence and curtailed retail spending.
47
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
We expect the weak retail environment to continue and do not
expect macroeconomic conditions to be conducive to growth in
2009. Achieving financial results that compare favorably with year-
ago results will be challenging in the first half of 2009. In the first
quarter of 2009, we expect a sales decline that is more or less con-
sistent with the fourth quarter 2008 trend and reflects expected
lower casualwear sales in the Outerwear segment primarily in the
first half of 2009. We also expect substantial pressure on profit-
ability due to the economic climate, significantly higher commodity
costs, increased pension costs and increased costs associated
with implementing our price increase that is not effective for the
entire first quarter of 2009, including repackaging costs.
We expect to be able to manage our working capital levels
and capital expenditure amounts to maintain sufficient levels of
liquidity. Factors that could help us in these efforts include the
domestic gross price increase of 4% commencing during the
first quarter of 2009, lower commodity costs in the second half
of the year, the ability to execute previously discussed discre-
tionary spending cuts and additional cost benefits from previous
restructuring and related actions. Depending on conditions in
the capital markets and other factors, we will from time to time
consider other financing transactions, the proceeds of which
could be used to refinance current indebtedness or for other pur-
poses. We continue to monitor the impact, if any, of the current
conditions in the credit markets on our operations. Our access to
financing at reasonable interest rates could become influenced
by the economic and credit market environment.
As of January 3, 2009, we were in compliance with all cov-
enants under our credit facilities. We ended the year with a lever-
age ratio, as calculated under the Senior Secured Credit Facility,
the Second Lien Credit Facility and the Receivables Facility, of
3.3 to 1. The maximum leverage ratio permitted under the Senior
Secured Credit Facility and the Receivables Facility, which are
the most restrictive, was 3.75 to 1 for the quarter ended January
3, 2009 and will decline over time until it reaches 3.00 to 1 for
quarters beginning with the fourth quarter of 2009. Particularly
in the current adverse economic climate, we continue to moni-
tor our covenant compliance carefully. We expect to maintain
compliance with our covenants during 2009, however economic
conditions or the occurrence of events discussed above under
“Risk Factors” could cause noncompliance. We have been
exploring and will continue to explore the multiple options avail-
able, including amendments to credit facilities, to ensure that
we remain in compliance with our covenants in this uncertain
economic environment. Any one of these options could result
in significantly higher interest expense in 2009 and beyond. In
addition, these options could require modification of our interest
rate derivative portfolio, which could require us to make a cash
payment in the event of terminating a derivative instrument or
impact the effectiveness of our interest rate hedging instru-
ments and require us to take non-cash charges.
Cash Requirements for Our Business
We rely on our cash flows generated from operations and
the borrowing capacity under our Revolving Loan Facility and
international loan facilities to meet the cash requirements of our
business. The primary cash requirements of our business are
payments to vendors in the normal course of business, restruc-
48
turing costs, capital expenditures, maturities of long-term debt
and related interest payments, contributions to our pension
plans and repurchases of our stock. We believe we have suf-
ficient cash and available borrowings for our short-term needs.
In light of the current economic environment and our outlook for
2009, we expect to use excess cash flows to pay down long-
term debt rather than to repurchase our stock or make discre-
tionary contributions to our pension plans.
The implementation of our consolidation and globalization
strategy, which is designed to improve operating efficiencies and
lower costs, has resulted and is likely to continue to result in sig-
nificant costs in the short-term and generate savings as well as
higher inventory levels for the next 12 to 15 months. As further
plans are developed and approved, we expect to recognize ad-
ditional restructuring costs as we eliminate duplicative functions
within the organization and transition a significant portion of our
manufacturing capacity to lower-cost locations.
While capital spending could vary significantly from year to
year, we anticipated early in 2008 that our capital spending over
the next three years could be as high as $500 million as we
continue to execute our supply chain consolidation and global-
ization strategy and complete the integration and consolidation
of our technology systems. In light of the current economic
recession, we have re-evaluated our future spending plans and
reduced the expected amounts during 2008 through 2010 to be
approximately $400 million. We will place emphasis in the near
term on careful management of our capital expenditures in 2009
and 2010. Capital spending in any given year over the next three
years could be significantly in excess of our annual depreciation
and amortization expense until the completion of actions related
to our globalization strategy at which time we would expect our
annual capital spending to be relatively comparable to our annual
depreciation and amortization expense.
Pension Plans
Since the spin off, we have voluntarily contributed $98 mil-
lion to our pension plans. Additionally, during 2007 we complet-
ed the separation of our pension plan assets and liabilities from
those of Sara Lee in accordance with governmental regulations,
which resulted in a higher total amount of pension plan assets of
approximately $74 million being transferred to us than originally
was estimated prior to the spin off. Prior to spin off, the fair value
of plan assets included in the annual valuations represented a
best estimate based upon a percentage allocation of total assets
of the Sara Lee trust.
As widely reported, financial markets in the United States,
Europe and Asia have been experiencing extreme disruption in
recent months. As a result of this disruption in the domestic and
international equity and bond markets, our pension plans had a
decrease in asset values of approximately 32% during the year
ended January 3, 2009. Our U.S. qualified pension plans are
approximately 75% funded as of January 3, 2009 and we do not
expect to be required to make any mandatory contributions to our
plans in 2009. We may elect to make voluntary contributions to
obtain an 80% funded level which will avoid certain benefit pay-
ment restrictions under the Pension Protection Act. The funded
status reflects a significant decrease in the fair value of plan
assets due to the stock market’s performance during 2008 which
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
we expect will result in increased pension expense in 2009 of $33
million to $21 million. See Note 16 to our Consolidated Financial
Statements for more information on the plan asset components.
Share Repurchase Program
On February 1, 2007, we announced that our Board of Direc-
tors granted authority for the repurchase of up to 10 million
shares of our common stock. Share repurchases are made peri-
odically in open-market transactions, and are subject to market
conditions, legal requirements and other factors. Additionally,
management has been granted authority to establish a trading
plan under Rule 10b5-1 of the Exchange Act in connection with
share repurchases, which will allow us to repurchase shares
in the open market during periods in which the stock trading
window is otherwise closed for our company and certain of our
officers and employees pursuant to our insider trading policy.
During 2008, we purchased 1.2 million shares of our common
stock at a cost of $30 million (average price of $24.71). Since
inception of the program, we have purchased 2.8 million shares
of our common stock at a cost of $75 million (average price of
$26.33). The primary objective of our share repurchase program is
to reduce the impact of dilution caused by the exercise of options
and vesting of stock unit awards. In light of the current economic
recession, we may choose not to repurchase any stock and focus
more on the repayment of our debt in the next twelve months.
Off-Balance Sheet Arrangements
Due to our current funded status of our pension plans, we
do not expect to be required to make any mandatory contri-
butions to the plans in the next year. The future timing of the
pension funding obligations associated with our defined benefit
pension and postretirement plans beyond the next year is
dependent on a number of factors including investment results
and other factors that contribute to future pension expense and
cannot be reasonably estimated at this time. A discussion of our
pension and postretirement plans is included in Notes 16 and
17 to our Consolidated Financial Statements. Our obligations
for employee health and property and casualty losses are also
excluded from the table.
Sources and Uses of Our Cash
The information presented below regarding the sources and
uses of our cash flows for the years ended January 3, 2009 and
December 29, 2007 was derived from our consolidated financial
statements.
Years Ended
(dollars in thousands)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign currency exchange rates
on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 3,
2009
$ 177,397
(177,248)
(104,738)
(2,305)
Increase (decrease) in cash and cash equivalents . . .
Cash and cash equivalents at beginning of year. . . . .
$ (106,894)
174,236
December 29,
2007
$ 359,040
(101,085)
(243,379)
3,687
$ 18,263
155,973
$ 174,236
We do not have any off-balance sheet arrangements within
Cash and cash equivalents at end of year. . . . . . . . . .
$ 67,342
the meaning of Item 303(a)(4) of SEC Regulation S-K.
Future Contractual Obligations and Commitments
The following table contains information on our contractual
obligations and commitments as of January 3, 2009, and their
expected timing on future cash flows and liquidity.
Payments Due by Period
At January 3,
2009
Less Than
1 Year
1 - 3 Years
3 - 5 Years
Thereafter
$ 2,176,547 $ 45,640
61,734
61,734
$ 276,602 $ 910,625
—
—
$ 943,680
—
(in thousands)
Long-term debt. . . . . . .
Notes payable . . . . . . .
Interest on debt
obligations (1). . . . .
575,778
121,479
224,966
200,063
29,270
Operating lease
obligations . . . . . . .
226,633
43,488
71,840
41,639
69,666
Purchase
obligations (2). . . . .
626,919
507,373
41,149
27,076
51,321
Other long-term
obligations (3). . . . .
76,856
29,460
19,712
14,334
13,350
Total . . . . . . . . . . . . . . .
$ 3,744,467 $ 809,174
$ 634,269 $ 1,193,737
$ 1,107,287
(1) Interest obligations on floating rate debt instruments are calculated for future periods using
interest rates in effect at January 3, 2009.
(2) “Purchase obligations,” as disclosed in the table, are obligations to purchase goods and
services in the ordinary course of business for production and inventory needs (such as
raw materials, supplies, packaging, and manufacturing arrangements), capital expenditures,
marketing services, royalty-bearing license agreement payments and other professional ser-
vices. This table only includes purchase obligations for which we have agreed upon a fixed
or minimum quantity to purchase, a fixed, minimum or variable pricing arrangement, and an
approximate delivery date. Actual cash expenditures relating to these obligations may vary
from the amounts shown in the table above. We enter into purchase obligations when terms
or conditions are favorable or when a long-term commitment is necessary. Many of these
arrangements are cancelable after a notice period without a significant penalty. This table
omits purchase obligations that did not exist as of January 3, 2009, as well as obligations for
accounts payable and accrued liabilities recorded on the Consolidated Balance Sheet.
(3) Represents the projected payment for long-term liabilities recorded on the Consolidated
Balance Sheet for deferred compensation, severance, certain employee benefit claims,
capital leases and unrecognized tax benefits in accordance with FASB Interpretation 48,
Accounting for Uncertainty in Income Taxes (“FIN 48”).
Operating Activities
Net cash provided by operating activities was $177 million
in 2008 compared to $359 million in 2007. The net change in
cash from operating activities of $182 million for 2008 com-
pared to 2007 is attributable to the higher uses of our working
capital, primarily driven by changes in inventory. Inventory grew
$183 million from December 29, 2007 primarily due to increases
in levels needed to service our business as we continue to ex-
ecute our consolidation and globalization strategy which had an
impact of approximately $112 million. In addition, cost increases
for inputs such as cotton, oil and freight were approximately
$53 million and other factors such as reserves had an impact of
approximately $18 million. We continually monitor our inventory
levels to best balance current supply and demand with potential
future demand that typically surges when consumers no longer
postpone purchases in our product categories. Accounts receiv-
able was lower in 2008 compared to 2007 primarily as a result of
lower sales volumes in the fourth quarter of 2008.
Over the next twelve to fifteen months, we expect to
decrease our inventory levels to approximately $1.15 billion as
we complete the execution of our supply chain consolidation
and globalization strategy. Due to the normal pattern of building
inventories for back to school selling seasons, first quarter 2009
inventories could temporarily increase from this year end level.
Investing Activities
Net cash used in investing activities was $177 million in 2008
compared to $101 million in 2007. The higher net cash used in
investing activities of $76 million for 2008 compared to 2007 was
primarily the result of higher capital expenditures. During 2008
gross capital expenditures were $187 million as we continued to
49
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
build out our textile and sewing network in Asia, Central America
and the Caribbean Basin and invest in our technology strategic ini-
tiatives which were offset by cash proceeds from sales of assets
of $25 million, primarily from dispositions of plant and equipment
associated with our restructuring initiatives. In addition, we ac-
quired a sewing operation in Thailand and an embroidery operation
in Honduras for an aggregate cost of $15 million during 2008.
Financing Activities
Net cash used in financing activities was $105 million in
2008 compared to $243 million in 2007. The lower net cash
used in financing activities of $138 million for 2008 compared to
2007 was primarily the result of lower repayments of $303 mil-
lion under the Senior Secured Credit Facility, higher net bor-
rowings on notes payable of $65 million, the receipt from Sara
Lee of $18 million in cash in 2008 and lower stock repurchases
of $14 million, partially offset by borrowings of $250 million of
principal under the Receivables Facility in 2007, repayments of
$7 million under the Receivables Facility in 2008 and cash paid
to repurchase $4 million of Floating Rate Senior Notes in 2008.
Cash and Cash Equivalents
As of January 3, 2009 and December 29, 2007, cash and
cash equivalents were $67 million and $174 million, respectively.
The lower cash and cash equivalents as of January 3, 2009 was
primarily the result of net capital expenditures of $162 million,
net principal payments on debt of $139 million, $30 million of
stock repurchases, the acquisitions of a sewing operation in Thai-
land and an embroidery operation in Honduras for an aggregate
cost of $15 million partially offset by $178 million related to other
uses of working capital, $43 million of net borrowings on notes
payable and the receipt from Sara Lee of $18 million in cash.
Financing Arrangements
We believe our financing structure provides a secure base
to support our ongoing operations and key business strategies.
Depending on conditions in the capital markets and other fac-
tors, we will from time to time consider other financing transac-
tions, the proceeds of which could be used to refinance current
indebtedness or for other purposes. We continue to monitor the
impact, if any, of the current conditions in the credit markets on
our operations. Our access to financing at reasonable inter-
est rates could become influenced by the economic and credit
market environment. Deterioration in the capital markets, which
has caused many financial institutions to seek additional capital,
merge with larger and stronger financial institutions and, in some
cases, fail, has led to concerns about the stability of financial
institutions. We currently hold interest rate cap and swap deriva-
tive instruments to mitigate a portion of our interest rate risk and
hold foreign exchange rate derivative instruments to mitigate
the potential impact of currency fluctuations. Credit risk is the
exposure to nonperformance of another party to these arrange-
ments. We mitigate credit risk by dealing with highly rated bank
counterparties. We believe that our exposures are appropriately
diversified across counterparties and that these counterparties
are creditworthy financial institutions.
Moody’s Investors Service’s (“Moody’s”) corporate credit
rating for us is Ba3 and Standard & Poor’s Ratings Services’
(“Standard & Poor’s”) corporate credit rating for us is BB-. In
50
May 2008, Standard & Poor’s raised our corporate credit rating
from B+, and also raised our bank loan and unsecured debt rat-
ings. Standard & Poor’s stated that the rating upgrade reflects
our positive operating momentum as a stand-alone entity since
our spin off from Sara Lee in September 2006, and also stated
that our credit protection measures and operating results have
improved and are in line with Standard & Poor’s expectations.
Standard & Poor’s also noted that management is on track in
executing our strategies. The current outlook of both Standard
& Poor’s and Moody’s for us is “stable.” Moody’s did not change
our corporate credit rating or its ratings for our bank loans or
unsecured debt during 2008.
In connection with the spin off, on September 5, 2006, we en-
tered into the $2.15 billion Senior Secured Credit Facility which in-
cludes the $500 million Revolving Loan Facility that was undrawn
at the time of the spin off, the $450 million Second Lien Credit Fa-
cility and the $500 million Bridge Loan Facility. We paid $2.4 billion
of the proceeds of these borrowings to Sara Lee in connection
with the consummation of the spin off. As of January 3, 2009, we
had $463 million of borrowing availability under the Revolving Loan
Facility after taking into account outstanding letters of credit. The
Bridge Loan Facility was paid off in full through the issuance of the
$500 million of Floating Rate Senior Notes issued in December
2006. On November 27, 2007, we entered into the Receivables
Facility which provides for up to $250 million in funding accounted
for as a secured borrowing, limited to the availability of eligible
receivables, and is secured by certain domestic trade receivables.
The proceeds from the Receivables Facility were used to pay off a
portion of the Senior Secured Credit Facility.
Senior Secured Credit Facility
The Senior Secured Credit Facility initially provided for ag-
gregate borrowings of $2.15 billion, consisting of: (i) a $250.0
million Term A loan facility (the “Term A Loan Facility”); (ii) a
$1.4 billion Term B loan facility (the “Term B Loan Facility”); and
(iii) the $500 million Revolving Loan Facility that was undrawn
as of January 3, 2009. Issuances of letters of credit reduce the
amount available under the Revolving Loan Facility. As of Janu-
ary 3, 2009, $37 million of standby and trade letters of credit
were issued under this facility and $463 million was available for
borrowing. As of January 3, 2009, $139 million and $851 million
in principal was outstanding under the Term A Loan Facility and
Term B Loan Facility, respectively.
The Senior Secured Credit Facility is guaranteed by sub-
stantially all of our existing and future direct and indirect U.S.
subsidiaries, with certain customary or agreed-upon exceptions
for certain subsidiaries. We and each of the guarantors under the
Senior Secured Credit Facility have granted the lenders under
the Senior Secured Credit Facility a valid and perfected first prior-
ity (subject to certain customary exceptions) lien and security
interest in the following:
n the equity interests of substantially all of our direct and
indirect U.S. subsidiaries and 65% of the voting securities of
certain foreign subsidiaries; and
n substantially all present and future property and assets, real
and personal, tangible and intangible, of Hanesbrands and
each guarantor, except for certain enumerated interests, and
all proceeds and products of such property and assets.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
The Term A Loan Facility matures on September 5, 2012. The
Term A Loan Facility will amortize in an amount per annum equal
to the following: year 1 — 5.00%; year 2 — 10.00%; year 3 —
15.00%; year 4 — 20.00%; year 5 — 25.00%; year 6 — 25.00%.
The Term B Loan Facility matures on September 5, 2013. The Term
B Loan Facility will be repaid in equal quarterly installments in
an amount equal to 1% per annum, with the balance due on the
maturity date. The Revolving Loan Facility matures on September
5, 2011. All borrowings under the Revolving Loan Facility must be
repaid in full upon maturity. Outstanding borrowings under the
Senior Secured Credit Facility are prepayable without penalty. As
a result of the prepayments of principal we have made, we do not
have any mandatory payments of principal in 2009.
At our option, borrowings under the Senior Secured Credit
Facility may be maintained from time to time as (a) Base Rate
loans, which shall bear interest at the higher of (i) 1/2 of 1% in
excess of the federal funds rate and (ii) the rate published in the
Wall Street Journal as the “prime rate” (or equivalent), in each
case in effect from time to time, plus the applicable margin in
effect from time to time (which is currently 0.50% for the Term
A Loan Facility and the Revolving Loan Facility and 0.75% for the
Term B Loan Facility), or (b) LIBOR-based loans, which shall bear
interest at the LIBO Rate (as defined in the Senior Secured Cred-
it Facility and adjusted for maximum reserves), as determined by
the administrative agent for the respective interest period plus
the applicable margin in effect from time to time (which is cur-
rently 1.50% for the Term A Loan Facility and the Revolving Loan
Facility and 1.75% for the Term B Loan Facility).
In February 2007, we entered into an amendment to the Se-
nior Secured Credit Facility, pursuant to which the applicable mar-
gin with respect to Term B Loan Facility was reduced from 2.25%
to 1.75% with respect to LIBOR-based loans and from 1.25% to
0.75% with respect to loans maintained as Base Rate loans.
On August 21, 2008, we entered into a Second Amendment
(the “Second Amendment”) to the Senior Secured Credit Facility.
Pursuant to the Second Amendment, the amount of unsecured
indebtedness which we and our subsidiaries that are obligors pur-
suant to the Senior Secured Credit Facility may incur under senior
notes was increased from $500,000 to $1,000,000. The provisions
of the Senior Secured Credit Facility which require the proceeds of
the issuance of any such notes be applied to repay amounts due
with respect to the Senior Secured Credit Facility, and specify how
any such proceeds will be applied, remain unchanged.
The Senior Secured Credit Facility requires us to comply
with customary affirmative, negative and financial covenants.
The Senior Secured Credit Facility requires that we maintain a
minimum interest coverage ratio and a maximum total debt to
EBITDA (earnings before income taxes, depreciation expense
and amortization), or leverage ratio. The interest coverage ratio
covenant requires that the ratio of our EBITDA for the preceding
four fiscal quarters to our consolidated total interest expense for
such period shall not be less than a specified ratio for each fiscal
quarter ending after December 15, 2006. This ratio was 2.75 to 1
for the quarter ended January 3, 2009 and will increase over time
until it reaches 3.25 to 1 for fiscal quarters ending after October
15, 2009. The leverage ratio covenant requires that the ratio of
our total debt to our EBITDA for the preceding four fiscal quarters
will not be more than a specified ratio for each fiscal quarter
ending after December 15, 2006. This ratio was 3.75 to 1 for the
quarter ended January 3, 2009 and will decline over time until it
reaches 3 to 1 for fiscal quarters ending after October 15, 2009.
The method of calculating all of the components used in the
covenants is included in the Senior Secured Credit Facility. As of
January 3, 2009, we were in compliance with all covenants.
The Senior Secured Credit Facility contains customary events
of default, including nonpayment of principal when due; nonpay-
ment of interest, fees or other amounts after stated grace period;
inaccuracy of representations and warranties; violations of cov-
enants; certain bankruptcies and liquidations; any cross-default of
more than $50 million; certain judgments of more than $50 mil-
lion; certain events related to the Employee Retirement Income
Security Act of 1974, as amended, or “ERISA,” and a change in
control (as defined in the Senior Secured Credit Facility).
Second Lien Credit Facility
The Second Lien Credit Facility provides for aggregate bor-
rowings of $450 million by Hanesbrands’ wholly-owned subsid-
iary, HBI Branded Apparel Limited, Inc. The Second Lien Credit
Facility is unconditionally guaranteed by Hanesbrands and each
entity guaranteeing the Senior Secured Credit Facility, subject
to the same exceptions and exclusions provided in the Senior
Secured Credit Facility. The Second Lien Credit Facility and the
guarantees in respect thereof are secured on a second-priority
basis (subordinate only to the Senior Secured Credit Facility and
any permitted additions thereto or refinancings thereof) by sub-
stantially all of the assets that secure the Senior Secured Credit
Facility (subject to the same exceptions).
Loans under the Second Lien Credit Facility will bear interest
in the same manner as those under the Senior Secured Credit
Facility, subject to a margin of 2.75% for Base Rate loans and
3.75% for LIBOR based loans.
On August 21, 2008, we entered into an amendment (the
“Second Lien Amendment”) to the Second Lien Credit Facil-
ity. Pursuant to the Second Lien Amendment, the amount of
unsecured indebtedness which we and our subsidiaries that are
obligors pursuant to the Second Lien Credit Facility may incur
under senior notes was increased from $500,000 to $1,000,000.
The provisions of the Second Lien Credit Facility which require the
proceeds of the issuance of any such notes be applied to repay
amounts due with respect to the Second Lien Credit Facility, and
specify how any such proceeds will be applied, remain unchanged.
The Second Lien Credit Facility requires us to comply with
customary affirmative, negative and financial covenants. The
Second Lien Credit Facility requires that we maintain a mini-
mum interest coverage ratio and a maximum leverage ratio. The
interest coverage ratio covenant requires that the ratio of our
EBITDA for the preceding four fiscal quarters to our consolidated
total interest expense for such period shall not be less than a
specified ratio for each fiscal quarter ending after December 15,
2006. This ratio was 2.0 to 1 for the quarter ended January 3,
2009 and will increase over time until it reaches 2.5 to 1 for fiscal
quarters ending after April 15, 2009. The leverage ratio covenant
requires that the ratio of our total debt to our EBITDA for the
preceding four fiscal quarters will not be more than a specified
ratio for each fiscal quarter ending after December 15, 2006. This
51
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
ratio was 4.5 to 1 for the quarter ended January 3, 2009 and
will decline over time until it reaches 3.75 to 1 for fiscal quarters
ending after October 15, 2009. The method of calculating all of
the components used in the covenants is included in the Second
Lien Credit Facility. As of January 3, 2009, we were in compli-
ance with all covenants.
The Second Lien Credit Facility contains customary events
of default, including nonpayment of principal when due; non-
payment of interest, fees or other amounts after stated grace
period; inaccuracy of representations and warranties; violations
of covenants; certain bankruptcies and liquidations; any cross-
default of more than $60 million; certain judgments of more
than $60 million; certain ERISA-related events; and a change in
control (as defined in the Second Lien Credit Facility).
The Second Lien Credit Facility matures on March 5, 2014,
and includes premiums for prepayment of the loan prior to
September 5, 2009 based on the timing of the prepayment. The
Second Lien Credit Facility will not amortize and will be repaid in
full on its maturity date.
Floating Rate Senior Notes
On December 14, 2006, we issued $500 million aggregate
principal amount of the Floating Rate Senior Notes. The Floating
Rate Senior Notes are senior unsecured obligations that rank
equal in right of payment with all of our existing and future un-
subordinated indebtedness. The Floating Rate Senior Notes bear
interest at an annual rate, reset semi-annually, equal to LIBOR
plus 3.375%. Interest is payable on the Floating Rate Senior
Notes on June 15 and December 15 of each year. The Floating
Rate Senior Notes will mature on December 15, 2014. The net
proceeds from the sale of the Floating Rate Senior Notes were
approximately $492 million. As noted above, these proceeds,
together with our working capital, were used to repay in full
the $500 million outstanding under the Bridge Loan Facility. The
Floating Rate Senior Notes are guaranteed by substantially all of
our domestic subsidiaries.
We may redeem some or all of the Floating Rate Senior
Notes at any time on or after December 15, 2008 at a redemp-
tion price equal to the principal amount of the Floating Rate
Senior Notes plus a premium of 2% if redeemed during the
12-month period commencing on December 15, 2008, 1% if re-
deemed during the 12-month period commencing on December
15, 2009 and no premium if redeemed after December 15, 2010,
as well as any accrued and unpaid interest as of the redemp-
tion date. We repurchased $6 million of the Floating Rate Senior
Notes for $4 million resulting in a gain of $2 million during the
year ended January 3, 2009.
Accounts Receivable Securitization
On November 27, 2007, we entered into the Receivables
Facility, which provides for up to $250 million in funding ac-
counted for as a secured borrowing, limited to the availability
of eligible receivables, and is secured by certain domestic trade
receivables. The Receivables Facility will terminate on Novem-
ber 27, 2010. Under the terms of the Receivables Facility, the
company sells, on a revolving basis, certain domestic trade
receivables to HBI Receivables LLC (“Receivables LLC”), a
wholly-owned bankruptcy-remote subsidiary that in turn uses the
52
trade receivables to secure the borrowings, which are funded
through conduits that issue commercial paper in the short-term
market and are not affiliated with us or through committed bank
purchasers if the conduits fail to fund. The assets and liabilities of
Receivables LLC are fully reflected on our Consolidated Balance
Sheet, and the securitization is treated as a secured borrowing
for accounting purposes. The borrowings under the Receivables
Facility remain outstanding throughout the term of the agree-
ment subject to our maintaining sufficient eligible receivables by
continuing to sell trade receivables to Receivables LLC unless an
event of default occurs. Availability of funding under the facil-
ity depends primarily upon the eligible outstanding receivables
balance. As of January 3, 2009, we had $243 million outstanding
under the Receivables Facility. The outstanding balance under
the Receivables Facility is reported on our Consolidated Balance
Sheet in long-term debt based on the three-year term of the
agreement and the fact that remittances on the receivables do
not automatically reduce the outstanding borrowings.
We used all $250 million of the proceeds from the Re-
ceivables Facility to make a prepayment of principal under the
Senior Secured Credit Facility. Unless the conduits fail to fund,
the yield on the commercial paper is the conduits’ cost to issue
the commercial paper plus certain dealer fees, is considered a
financing cost and is included in interest expense on the Con-
solidated Statement of Income. If the conduits fail to fund, the
Receivables Facility would be funded through committed bank
purchasers, and the interest rate payable at our option at the
rate announced from time to time by JPMorgan as its prime rate
or at the LIBO Rate (as defined in the Receivables Facility) plus
the applicable margin in effect from time to time. The average
blended interest rate for the year ended January 3, 2009 was
3.50%.
The Receivables Facility contains customary events of default
and requires us to maintain the same interest coverage ratio and
leverage ratio as required by the Senior Secured Credit Facility. As
of January 3, 2009, we were in compliance with all covenants.
Notes Payable
Notes payable were $62 million at January 3, 2009 and $20
million at December 29, 2007.
We have a short-term revolving facility arrangement with a
Salvadoran branch of a U.S. bank amounting to $45 million of
which $29 million was outstanding at January 3, 2009 which
accrues interest at 7.38%. We were in compliance with the cov-
enants contained in this facility at January 3, 2009.
We have a short-term revolving facility arrangement with a
Thai branch of a U.S. bank amounting to THB 600 million ($17
million) of which $15 million was outstanding at January 3, 2009
which accrues interest at 4.35%. We were in compliance with
the covenants contained in this facility at January 3, 2009.
We have a short-term revolving facility arrangement with a
Chinese branch of a U.S. bank amounting to RMB 56 million ($8
million) of which $8 million was outstanding at January 3, 2009
which accrues interest at 5.36%. Borrowings under the facility
accrue interest at the prevailing base lending rates published
by the People’s Bank of China from time to time less 10%. We
were in compliance with the covenants contained in this facility
at January 3, 2009.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
We have a short-term revolving facility arrangement with an
Indian branch of a U.S. bank amounting to INR 260 million ($5
million) of which $5 million was outstanding at January 3, 2009
which accrues interest at 16.50%. We were in compliance with
the covenants contained in this facility at January 3, 2009.
which accrues interest at 2.42%, and a short-term revolving facility
arrangement with a Vietnamese branch of a U.S. bank amounting to
$14 million of which $2 million was outstanding at January 3, 2009
which accrues interest at 12.14%. We were in compliance with the
covenants contained in the facilities at January 3, 2009.
We have other short-term obligations amounting to $4,029
which consisted of a short-term revolving facility arrangement with
a Japanese branch of a U.S. bank amounting to JPY 1,100 million
($12 million) of which $2 million was outstanding at January 3, 2009
In addition, we have short-term revolving credit facilities
in various other locations that can be drawn on from time to
time amounting to $27 million of which $0 was outstanding at
January 3, 2009.
Derivatives
We are required under the Senior Secured Credit Facility
and the Second Lien Credit Facility to hedge a portion of our
floating rate debt to reduce interest rate risk caused by floating
rate debt issuance. Given the recent turmoil in the financial and
credit markets, we have expanded our interest rate hedging
portfolio at what we believe to be advantageous rates that are
expected to minimize our overall interest rate risk. At January
3, 2009, we have outstanding hedging arrangements whereby
we capped the interest rate on $400 million of our floating rate
debt at 3.50%. We also entered into interest rate swaps tied to
the 3-month and 6-month LIBOR rates whereby we fixed the
interest rate on an aggregate of $1.4 billion of our floating rate
debt at a blended rate of approximately 4.16%. Approximately
82% of our total debt outstanding at January 3, 2009 is at a
fixed or capped LIBOR rate. The table below summarizes our
interest rate derivative portfolio with respect to our long-term
debt as of January 3, 2009.
Debt covered by interest rate caps:
Senior Secured and Second Lien Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt covered by interest rate swaps:
Floating Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Secured and Second Lien Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Secured and Second Lien Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unhedged debt:
Accounts Receivable Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Secured and Second Lien Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
LIBOR
Interest Rate Spreads
Hedge Expiration Dates
$ 400,000
3.50%
0.75% to 3.75%
October 2009
493,680
500,000
400,000
4.26%
5.14% to 5.18%
2.80%
3.38%
0.75% to 3.75%
0.75% to 3.75%
December 2012
October 2009 - October 2011
October 2010
242,617
140,250
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
$ 2,176,547
We use forward exchange and option contracts to reduce
the effect of fluctuating foreign currencies for a portion of our an-
ticipated short-term foreign currency-denominated transactions.
Cotton is the primary raw material we use to manufacture
many of our products. We generally purchase our raw materials at
market prices. We use commodity financial instruments, options
and forward contracts to hedge the price of cotton, for which
there is a high correlation between the hedged item and the
hedged instrument. We generally do not use commodity financial
instruments to hedge other raw material commodity prices.
critical Accounting Policies and estimates
We have chosen accounting policies that we believe are ap-
propriate to accurately and fairly report our operating results and
financial position in conformity with accounting principles gener-
ally accepted in the United States. We apply these accounting
policies in a consistent manner. Our significant accounting
policies are discussed in Note 2, titled “Summary of Significant
Accounting Policies,” to our Consolidated Financial Statements.
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 man-
agement judgments and estimates used in preparation of our
Consolidated Financial Statements, or are the most sensitive to
change from outside factors, are the following:
Sales Recognition and Incentives
We recognize revenue when (i) there is persuasive evidence
of an arrangement, (ii) the sales price is fixed or determinable,
(iii) title and the risks of ownership have been transferred to
the customer and (iv) collection of the receivable is reasonably
assured, which occurs primarily upon shipment. We record
provisions for any uncollectible amounts based upon our histori-
cal collection statistics and current customer information. Our
management reviews these estimates each quarter and makes
adjustments based upon actual experience.
Note 2(d), titled “Summary of Significant Accounting Poli-
cies — Sales Recognition and Incentives,” to our Consolidated
Financial Statements describes a variety of sales incentives that
we offer to resellers and consumers of our products. Measuring
the cost of these incentives requires, in many cases, estimating
53
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
future customer utilization and redemption rates. We use histori-
cal data for similar transactions to estimate the cost of current
incentive programs. Our management reviews these estimates
each quarter and makes adjustments based upon actual experi-
ence and other available information. We classify the costs
associated with cooperative advertising as a reduction of “Net
sales” in our Consolidated Statements of Income in accordance
with EITF 01-9, Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendor’s Products).
Accounts Receivable Valuation
Accounts receivable consist primarily of amounts due from
customers. We carry our accounts receivable at their net realiz-
able value. We record provisions for any uncollectible amounts
based upon our best estimate of probable losses inherent in
the accounts receivable portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available information. Charges to
the allowance for doubtful accounts are reflected in the “Selling,
general and administrative expenses” line and charges to the
allowance for customer chargebacks and other customer deduc-
tions are primarily reflected as a reduction in the “Net sales” line
of our Consolidated Statements of Income. Our management
reviews these estimates each quarter and makes adjustments
based upon actual experience. Because we cannot predict
future changes in the financial stability of our customers, actual
future losses from uncollectible accounts may differ from our
estimates. If the financial condition of our customers were to
deteriorate, resulting in their inability to make payments, a large
reserve might be required. The amount of actual historical losses
has not varied materially from our estimates for bad debts.
Catalog Expenses
We incur expenses for printing catalogs for our products to
aid in our sales efforts. We initially record these expenses as a
prepaid item and charge it against selling, general and adminis-
trative expenses over time as the catalog is used. Expenses are
recognized at a rate that approximates our historical experience
with regard to the timing and amount of sales attributable to a
catalog distribution.
Inventory Valuation
We carry inventory on our balance sheet at the estimated
lower of cost or market. Cost is determined by the first-in, first-
out, or “FIFO,” method for our inventories. We carry obsolete,
damaged, and excess inventory at the net realizable value, which
we determine by assessing historical recovery rates, current
market conditions and our future marketing and sales plans. Be-
cause our assessment of net realizable value is made at a point
in time, there are inherent uncertainties related to our value
determination. Market factors and other conditions underlying
the net realizable value may change, resulting in further reserve
requirements. A reduction in the carrying amount of an inventory
item from cost to market value creates a new cost basis for the
item that cannot be reversed at a later period. While we believe
that adequate write-downs for inventory obsolescence have
been provided in the Consolidated Financial Statements, con-
sumer tastes and preferences will continue to change and we
could experience additional inventory write-downs in the future.
54
Rebates, discounts and other cash consideration received
from a vendor related to inventory purchases are reflected as
reductions in the cost of the related inventory item, and are
therefore reflected in cost of sales when the related inventory
item is sold.
Income Taxes
Deferred taxes are recognized for the future tax effects of
temporary differences between financial and income tax report-
ing using tax rates in effect for the years in which the differences
are expected to reverse. We have recorded deferred taxes relat-
ed to operating losses and capital loss carryforwards. Realization
of deferred tax assets is dependent on future taxable income in
specific jurisdictions, the amount and timing of which are uncer-
tain, possible changes in tax laws and tax planning strategies. If
in our judgment it appears that we will not be able to generate
sufficient taxable income or capital gains to offset losses during
the carryforward periods, we have recorded valuation allowances
to reduce those deferred tax assets to amounts expected to be
ultimately realized. An adjustment to income tax expense would
be required in a future period if we determine that the amount of
deferred tax assets to be realized differs from the net recorded
amount. Prior to spin off on September 5, 2006, all income taxes
were computed and reported on a separate return basis as if we
were not part of Sara Lee.
Federal income taxes are provided on that portion of our
income of foreign subsidiaries that is expected to be remitted to
the United States and be taxable, reflecting the historical deci-
sions made by Sara Lee with regards to earnings permanently
reinvested in foreign jurisdictions. In periods after the spin off,
we may make different decisions as to the amount of earnings
permanently reinvested in foreign jurisdictions, due to anticipat-
ed cash flow or other business requirements, which may impact
our federal income tax provision and effective tax rate.
We periodically estimate the probable tax obligations using
historical experience in tax jurisdictions and our informed judg-
ment. There are inherent uncertainties related to the interpreta-
tion of tax regulations in the jurisdictions in which we transact
business. The judgments and estimates made at a point in time
may change based on the outcome of tax audits, as well as
changes to, or further interpretations of, regulations. Income tax
expense is adjusted in the period in which these events occur,
and these adjustments are included in our Consolidated State-
ments of Income. If such changes take place, there is a risk that
our effective tax rate may increase or decrease in any period. In
July 2006, the Financial Accounting Standards Board (“FASB”)
issued Interpretation 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), which became effective during the year ended
December 29, 2007. FIN 48 addresses the determination of how
tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under FIN 48, a
company must recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized
in the financial statements from such a position are measured
based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
In conjunction with the spin off, we and Sara Lee entered
into a tax sharing agreement, which allocates responsibilities
between us and Sara Lee for taxes and certain other tax mat-
ters. Under the tax sharing agreement, Sara Lee generally is
liable for all U.S. federal, state, local and foreign income taxes
attributable to us with respect to taxable periods ending on or
before September 5, 2006. Sara Lee also is liable for income
taxes attributable to us with respect to taxable periods beginning
before September 5, 2006 and ending after September 5, 2006,
but only to the extent those taxes are allocable to the portion of
the taxable period ending on September 5, 2006. We are gener-
ally liable for all other taxes attributable to us. Changes in the
amounts payable or receivable by us under the stipulations of
this agreement may impact our tax provision in any period.
Under the tax sharing agreement, within 180 days after Sara
Lee filed its final consolidated tax return for the period that in-
cluded September 5, 2006, Sara Lee was required to deliver to us
a computation of the amount of deferred taxes attributable to our
United States and Canadian operations that would be included on
our opening balance sheet as of September 6, 2006 (“as finally
determined”) which has been done. We have the right to partici-
pate in the computation of the amount of deferred taxes. Under
the tax sharing agreement, if substituting the amount of deferred
taxes as finally determined for the amount of estimated deferred
taxes that were included on that balance sheet at the time of
the spin off causes a decrease in the net book value reflected on
that balance sheet, then Sara Lee will be required to pay us the
amount of such decrease. If such substitution causes an increase
in the net book value reflected on that balance sheet, then we
will be required to pay Sara Lee the amount of such increase. For
purposes of this computation, our deferred taxes are the amount
of deferred tax benefits (including deferred tax consequences at-
tributable to deductible temporary differences and carryforwards)
that would be recognized as assets on the Company’s balance
sheet computed in accordance with GAAP, but without regard to
valuation allowances, less the amount of deferred tax liabilities
(including deferred tax consequences attributable to taxable tem-
porary differences) that would be recognized as liabilities on our
opening balance sheet computed in accordance with GAAP, but
without regard to valuation allowances. Neither we nor Sara Lee
will be required to make any other payments to the other with
respect to deferred taxes.
Our computation of the final amount of deferred taxes for our
opening balance sheet as of September 6, 2006 is as follows:
(in thousands)
Estimated deferred taxes subject to the tax sharing agreement
included in opening balance sheet on September 6, 2006 . . . . . . . . . . . . $ 450,683
Final calculation of deferred taxes subject to the tax sharing agreement . . . 360,460
Decrease in deferred taxes as of opening balance sheet on
September 6, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preliminary cash installment received from Sara Lee. . . . . . . . . . . . . . . . . . .
90,223
18,000
Amount due from Sara Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,223
The amount that is expected to be collected from Sara Lee
based on our computation of $72 million is included as a receiv-
able in Other Current Assets in the Consolidated Balance Sheet
as of January 3, 2009.
Stock Compensation
We established the Hanesbrands Inc. Omnibus Incentive Plan
of 2006, the (“Omnibus Incentive Plan”) to award stock options,
stock appreciation rights, restricted stock, restricted stock units,
deferred stock units, performance shares and cash to our employ-
ees, non-employee directors and employees of our subsidiaries
to promote the interest of our company and incent performance
and retention of employees. We account for stock-based com-
pensation in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), Share-Based Payment. Under
SFAS No. 123(R), stock-based compensation is estimated at the
grant date based on the award’s fair value and is recognized as
expense over the requisite service period. Estimation of stock-
based compensation for stock options granted, utilizing the Black-
Scholes option-pricing model, requires various highly subjective
assumptions including volatility and expected option life. We use
a combination of the volatility of our company and the volatility
of peer companies for a period of time that is comparable to the
expected life of the option to determine volatility assumptions.
We have utilized the simplified method outlined in SEC Staff
Accounting Bulletin No. 107 to estimate expected lives of options
granted during the period. SEC Staff Accounting Bulletin (SAB)
No. 110, which was issued in December 2007, amends SEC Staff
Accounting Bulletin No. 107 and gives a limited extension on us-
ing the simplified method for valuing stock option grants to eligible
public companies that do not have sufficient historical exercise
patterns on options granted to employees. Further, as required
under SFAS No. 123(R), we estimate forfeitures for stock-based
awards granted, which are not expected to vest. If any of these
inputs or assumptions changes significantly, our stock-based
compensation expense could be materially different in the future.
Defined Benefit Pension Plans
For a discussion of our net periodic benefit cost, plan obliga-
tions, plan assets, and how we measure the amount of these
costs, see Note 16 titled “Defined Benefit Pension Plans” to
our Consolidated Financial Statements.
In conjunction with the spin off from Sara Lee which occurred
on September 5, 2006, we established the Hanesbrands Inc.
Pension and Retirement Plan, which assumed the portion of the
underfunded liabilities and the portion of the assets of pension
plans sponsored by Sara Lee that relate to our employees. In
addition, we assumed sponsorship of certain other Sara Lee plans
and continued sponsorship of the Playtex Apparel Inc. Pension
Plan and the National Textiles, L.L.C. Pension Plan. As of January 1,
2006, the benefits under these plans were frozen. Since the spin
off, we have voluntarily contributed $98 million to our pension
plans. Additionally, during 2007 we completed the separation
of our pension plan assets and liabilities from those of Sara Lee
in accordance with governmental regulations, which resulted in
a higher total amount of pension plan assets of approximately
$74 million being transferred to us than originally was estimated
prior to the spin off. As a result, our U.S. qualified pension plans
are approximately 75% funded as of January 3, 2009. We may
elect to make voluntary contributions to obtain an 80% funded
level which will avoid certain benefit payment restrictions under
the Pension Protection Act. The funded status as of January 3,
2009 reflects a significant decrease in the fair value of plan assets
due to the stock market’s performance during 2008.
55
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans — An Amendment of FASB No. 87, 88, 106
and 132(R)” (“SFAS 158”). SFAS 158 requires that the funded
status of defined benefit postretirement plans be recognized on
a company’s balance sheet, and changes in the funded status be
reflected in comprehensive income, effective fiscal years ending
after December 15, 2006, which we adopted as of and for the
six months ended December 30, 2006. The impact of adopting
the funded status provisions of SFAS 158 was an increase in
assets of $1 million, an increase in liabilities of $26 million and
a pretax increase in the accumulated other comprehensive loss
of $32 million. SFAS 158 also requires companies to measure
the funded status of the plan as of the date of its fiscal year
end, effective for fiscal years ending after December 15, 2008.
We adopted the measurement date provision during the year
ended December 29, 2007, which had an immaterial impact on
beginning retained earnings, accumulated other comprehensive
income and pension liabilities.
The net periodic cost of the pension plans is determined
using projections and actuarial assumptions, the most significant
of which are the discount rate and the long-term rate of asset re-
turn. The net periodic pension income or expense is recognized
in the year incurred. Gains and losses, which occur when actual
experience differs from actuarial assumptions, are amortized
over the average future expected life of participants.
Our policies regarding the establishment of pension assump-
tions are as follows:
n In determining the discount rate, we utilized the Citigroup
Pension Discount Curve (rounded to the nearest 10 basis
points) in order to determine a unique interest rate for each
plan and match the expected cash flows for each plan.
n Salary increase assumptions were based on historical experi-
ence and anticipated future management actions. The salary
increase assumption applies to the Canadian plans and por-
tions of the Hanesbrands nonqualified retirement plans, as
benefits under these plans are not frozen.
n In determining the long-term rate of return on plan assets we
applied a proportionally weighted blend between assuming
the historical long-term compound growth rate of the plan
portfolio would predict the future returns of similar invest-
ments, and the utilization of forward looking assumptions.
n Retirement rates were based primarily on actual experience
while standard actuarial tables were used to estimate mortality.
Trademarks and Other Identifiable Intangibles
Trademarks and computer software are our primary identifi-
able intangible assets. We amortize identifiable intangibles with
finite lives, and we do not amortize identifiable intangibles with
indefinite lives. We base the estimated useful life of an identifiable
intangible asset upon a number of factors, including the effects of
demand, competition, expected changes in distribution channels
and the level of maintenance expenditures required to obtain
future cash flows. As of January 3, 2009, the net book value of
trademarks and other identifiable intangible assets was $147 mil-
lion, of which we are amortizing the entire balance. We anticipate
that our amortization expense for 2009 will be $12 million.
We evaluate identifiable intangible assets subject to amor-
tization for impairment using a process similar to that used to
evaluate asset amortization described below under “— Depre-
ciation and Impairment of Property, Plant and Equipment.” We
assess identifiable intangible assets not subject to amortiza-
tion for impairment at least annually and more often as trig-
gering events occur. In order to determine the impairment of
identifiable intangible assets not subject to amortization, we
compare the fair value of the intangible asset to its carrying
amount. We recognize an impairment loss for the amount by
which an identifiable intangible asset’s carrying value exceeds
its fair value.
We measure a trademark’s fair value using the royalty saved
method. We determine the royalty saved method by evaluating
various factors to discount anticipated future cash flows, includ-
ing operating results, business plans, and present value tech-
niques. The rates we use to discount cash flows are based on
interest rates and the cost of capital at a point in time. Because
there are inherent uncertainties related to these factors and
our judgment in applying them, the assumptions underlying the
impairment analysis may change in such a manner that impair-
ment in value may occur in the future. Such impairment will be
recognized in the period in which it becomes known.
Goodwill
As of January 3, 2009, we had $322 million of goodwill. We
do not amortize goodwill, but we assess for impairment at least
annually and more often as triggering events occur. The timing
of our annual goodwill impairment testing is the first day of the
third fiscal quarter.
In evaluating the recoverability of goodwill, we estimate the
fair value of our reporting units. We have determined that our
reporting units are at the operating segment level. We rely on
a number of factors to determine the fair value of our reporting
units and evaluate various factors to discount anticipated future
cash flows, including operating results, business plans, and pres-
ent value techniques. As discussed above under “Trademarks
and Other Identifiable Intangibles,” there are inherent uncertain-
ties related to these factors, and our judgment in applying them
and the assumptions underlying the impairment analysis may
change in such a manner that impairment in value may occur in
the future. Such impairment will be recognized in the period in
which it becomes known.
We evaluate the recoverability of goodwill using a two-step
process based on an evaluation of reporting units. The first step
involves a comparison of a reporting unit’s fair value to its car-
rying value. In the second step, if the reporting unit’s carrying
value exceeds its fair value, we compare the goodwill’s implied
fair value and its carrying value. If the goodwill’s carrying value
exceeds its implied fair value, we recognize an impairment loss
in an amount equal to such excess.
56
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Depreciation and Impairment of Property, Plant
and Equipment
We state property, plant and equipment at its historical cost,
and we compute depreciation using the straight-line method
over the asset’s life. We estimate an asset’s life based on histori-
cal experience, manufacturers’ estimates, engineering or ap-
praisal evaluations, our future business plans and the period over
which the asset will economically benefit us, which may be the
same as or shorter than its physical life. Our policies require that
we periodically review our assets’ remaining depreciable lives
based upon actual experience and expected future utilization. A
change in the depreciable life is treated as a change in account-
ing estimate and the accelerated depreciation is accounted for
in the period of change and future periods. Based upon current
levels of depreciation, the average remaining depreciable life of
our net property other than land is five years.
We test an asset for recoverability whenever events or
changes in circumstances indicate that its carrying value may not
be recoverable. Such events include significant adverse changes
in business climate, several periods of operating or cash flow
losses, forecasted continuing losses or a current expectation
that an asset or asset group will be disposed of before the end
of its useful life. We evaluate an asset’s recoverability by compar-
ing the asset or asset group’s net carrying amount to the future
net undiscounted cash flows we expect such asset or asset
group will generate. If we determine that an asset is not recover-
able, we recognize an impairment loss in the amount by which
the asset’s carrying amount exceeds its estimated fair value.
When we recognize an impairment loss for an asset held for
use, we depreciate the asset’s adjusted carrying amount over its
remaining useful life. We do not restore previously recognized
impairment losses if circumstances change.
Insurance Reserves
We maintain insurance coverage for property, workers’ com-
pensation and other casualty programs. We are responsible for
losses up to certain limits and are required to estimate a liability
that represents the ultimate exposure for aggregate losses
below those limits. This liability is based on management’s
estimates of the ultimate costs to be incurred to settle known
claims and claims not reported as of the balance sheet date. The
estimated liability is not discounted and is based on a number of
assumptions and factors, including historical trends, actuarial as-
sumptions and economic conditions. If actual trends differ from
the estimates, the financial results could be impacted. Actual
trends have not differed materially from the estimates.
Assets and Liabilities Acquired in Business Combinations
We account for business acquisitions using the purchase
method, which requires us to allocate the cost of an acquired
business to the acquired assets and liabilities based on their
estimated fair values at the acquisition date. We recognize the
excess of an acquired business’s cost over the fair value of
acquired assets and liabilities as goodwill as discussed below
under “Goodwill.” We use a variety of information sources to
determine the fair value of acquired assets and liabilities. We
generally use third-party appraisers to determine the fair value
and lives of property and identifiable intangibles, consulting
actuaries to determine the fair value of obligations associated
with defined benefit pension plans, and legal counsel to assess
obligations associated with legal and environmental claims.
Recently Issued Accounting Pronouncements
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally ac-
cepted accounting principles and expands disclosures about fair
value measurements. SFAS 157 was effective for our financial
assets and liabilities on December 30, 2007. The FASB approved
a one-year deferral of the adoption of SFAS 157 as it relates to
non-financial assets and liabilities with the issuance in February
2008 of FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157, as a result of which implementation by us is
now required on January 4, 2009. The partial adoption of SFAS
157 in the first quarter ended March 29, 2008 had no material
impact on our financial condition, results of operations or cash
flows, but resulted in certain additional disclosures reflected in
Note 15 of our Consolidated Financial Statements. We are in the
process of evaluating the impact of SFAS 157 as it relates to our
non-financial assets and liabilities.
SFAS 157 clarifies that fair value is an exit price, represent-
ing the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. We utilize market data or
assumptions that market participants would use in pricing the
asset or liability. SFAS 157 establishes a three-tier fair value hier-
archy, which prioritizes the inputs used in measuring fair value.
These tiers include: Level 1, defined as observable inputs such
as quoted prices in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either directly
or indirectly observable; and Level 3, defined as unobservable
inputs about which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in SFAS 157. The
three valuation techniques are as follows:
n Market approach — prices and other relevant information
generated by market transactions involving identical or com-
parable assets or liabilities.
n Cost approach — amount that would be required to replace
the service capacity of an asset or replacement cost.
n Income approach — techniques to convert future amounts to a
single present amount based on market expectations, includ-
ing present value techniques, option-pricing and other models.
We primarily apply the market approach for commodity
derivatives and the income approach for interest rate and foreign
currency derivatives for recurring fair value measurements and
attempt to utilize valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs.
57
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
As of January 3, 2009, we held certain financial assets and
liabilities that are required to be measured at fair value on a
recurring basis. These consisted of our derivative instruments re-
lated to interest rates and foreign exchange rates. The fair values
of cotton derivatives are determined based on quoted prices in
public markets and are categorized as Level 1, however, we did
not have any outstanding cotton derivatives outstanding at Janu-
ary 3, 2009. The fair values of interest rate and foreign exchange
rate derivatives are determined based on inputs that are readily
available in public markets or can be derived from information
available in publicly quoted markets and are categorized as Level
2. We do not have any financial assets or liabilities measured at
fair value on a recurring basis categorized as Level 3, and there
were no transfers in or out of Level 3 during the year ended
January 3, 2009. There were no changes during the year ended
January 3, 2009 to our valuation techniques used to measure
asset and liability fair values on a recurring basis. See Note 15
to our Consolidated Financial Statements for the amounts at fair
value as of January 3, 2009.
As required by SFAS 157, assets and liabilities are classified
in their entirety based on the lowest level of input that is sig-
nificant to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of fair value
assets and liabilities and their placement within the fair value
hierarchy levels. The determination of fair values incorporates
various factors required under SFAS 157. These factors include
not only the credit standing of the counterparties involved and
the impact of credit enhancements, but also the impact of our
nonperformance risk on our liabilities.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (“SFAS 141R”). The objec-
tive of SFAS 141R is to improve the relevance, representational
faithfulness, and comparability of the information that a company
provides in its financial reports about a business combination
and its effects. Under SFAS 141R, a company would be required
to recognize the assets acquired, liabilities assumed, contractual
contingencies and contingent consideration measured at their
fair value at the acquisition date. It further requires that research
and development assets acquired in a business combination that
have no alternative future use be measured at their acquisition-
date fair value and then immediately charged to expense, and
that acquisition-related costs are to be recognized separately
from the acquisition and expensed as incurred. Among other
changes, this statement would also require that “negative good-
will” be recognized in earnings as a gain attributable to the ac-
quisition, and any deferred tax benefits resulting from a business
combination be recognized in income from continuing operations
in the period of the combination. SFAS 141R is effective for busi-
ness combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or
after December 15, 2008.
Noncontrolling Interests in Consolidated Financial
Statements
In December 2007, the FASB issued Statement No. 160,
“Noncontrolling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51” (“SFAS 160”). The objective
of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a company pro-
vides in its consolidated financial statements. SFAS 160 requires
a company to clearly identify and present ownership interests
in subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the company’s equity. It also requires the amount
of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income; that changes in
ownership interest be accounted for similarly, as equity transac-
tions; and when a subsidiary is deconsolidated, that any retained
noncontrolling equity investment in the former subsidiary and
the gain or loss on the deconsolidation of the subsidiary be
measured at fair value. SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or
after December 15, 2008. We do not believe that the adoption of
SFAS 160 will have a material impact on our results of operations
or financial position.
Disclosures About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161, Disclosures
About Derivative Instruments and Hedging Activities — an
amendment of FASB Statement No. 133 (“SFAS 161”). SFAS
161 expands the disclosure requirements of FASB Statement
No. 133 about an entity’s derivative instruments and hedging
activities to include more detailed qualitative disclosures and
expanded quantitative disclosures. The provisions of SFAS 161
are effective for fiscal years and interim periods beginning after
November 15, 2008. The adoption of SFAS 161 will not have a
material impact on our results of operations.
Employers’ Disclosures about Postretirement Benefit
Plan Assets
In December 2008, the FASB issued Staff Position No. FAS
132(R)-1, Employers’ Disclosures about Postretirement Benefit
Plan Assets (“FSP 132(R)-1”). FSP 132(R)-1 will require addi-
tional disclosures about the major categories of plan assets and
concentrations of risk, as well as disclosure of fair value levels,
similar to the disclosure requirements of SFAS 157. The en-
hanced disclosures about plan assets required by FSP 132(R)-1
must be provided in our Annual Report on Form 10-K for the year
ending January 2, 2010.
ITem 7A. Quantitative and Qualitative Disclosures
about Market Risk
We are exposed to market risk from changes in foreign
exchange rates, interest rates and commodity prices. Our risk
management control system uses analytical techniques including
market value, sensitivity analysis and value at risk estimations.
58
H AN E SBRANDS INC.
Foreign Exchange Risk
We sell the majority of our products in transactions denomi-
nated in u.S. dollars; however, we purchase some raw materials,
pay a portion of our wages and make other payments in our
supply chain in foreign currencies. our exposure to foreign
exchange rates exists primarily with respect to the Canadian
dollar, European euro, Mexican peso and Japanese yen against
the u.S. dollar. We use foreign exchange forward and option
contracts to hedge material exposure to adverse changes in
foreign exchange rates. A sensitivity analysis technique has been
used to evaluate the effect that changes in the market value of
foreign exchange currencies will have on our forward and option
contracts. At January 3, 2009, the potential change in fair value of
foreign currency derivative instruments, assuming a 10% adverse
change in the underlying currency price, was $4.5 million.
Interest Rates
We are required under the Senior Secured Credit Facility and
the Second lien Credit Facility to hedge a portion of our floating
rate debt to reduce interest rate risk caused by floating rate
debt issuance. At January 3, 2009, we have outstanding hedg-
ing arrangements whereby we capped the lIBoR interest rate
component on $400 million of our floating rate debt at 3.50%.
We also entered into interest rate swaps tied to the 3-month and
6-month lIBoR rates whereby we fixed the lIBoR interest rate
component on an aggregate of $1.4 billion of our floating rate
debt at a blended rate of approximately 4.16%. Approximately
82% of our total debt outstanding at January 3, 2009 is at a
fixed or capped rate. After giving effect to these arrangements,
a 25-basis point movement in the annual interest rate charged
on the outstanding debt balances as of January 3, 2009 would
result in a change in annual interest expense of $2.0 million.
Due to the recent significant changes in the credit markets,
the fair values of our interest rate hedging instruments have
decreased approximately $66.7 million during the year ended
January 3, 2009. this activity has been deferred into Accumu-
lated other Comprehensive loss in our Consolidated Balance
Sheet until the hedged transactions impact our earnings.
Commodities
Cotton, which represents 8% of our cost of sales, is the
primary raw material we use to manufacture many of our
products. While we attempt to protect our business from the
volatility of the market price of cotton through short-term supply
agreements and hedges from time to time, our business can
be adversely affected by dramatic movements in cotton prices.
the price of cotton currently in our inventory is in the mid 60
cents per pound range which is the price that will impact our
operating results in the first half of 2009. the prices for the
most recent cotton crop, which will impact our operating results
in the second half of 2009, have decreased to the low 50 cents
per pound range. the ultimate effect of these pricing levels on
our earnings cannot be quantified, as the effect of movements
in cotton prices on industry selling prices are uncertain, but any
dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. In addition, fluctuations in crude oil
or petroleum prices may influence the prices of other raw
2 0 0 8 AN Nu Al REp oR t oN FoRM 10-K
materials we use to manufacture our products, such as chemicals,
dyestuffs, polyester yarn and foam. We generally purchase our
raw materials at market prices. We use commodity financial
instruments to hedge the price of cotton, for which there is a
high correlation between costs and the financial instrument. We
generally do not use commodity financial instruments to hedge
other raw material commodity prices. At January 3, 2009, we did
not have any cotton commodity derivatives outstanding.
ItEm 8. Financial Statements and Supplementary
Data
our financial statements required by this item are contained
on pages F-1 through F-43 of this Annual Report on Form 10-K.
See Item 15(a)(1) for a listing of financial statements provided.
ItEm 9. Changes in and Disagreements with Ac-
countants on Accounting and Financial
Disclosure
None.
ItEm 9A. Controls and Procedures
Disclosure Controls and Procedures
As required by Exchange Act Rule 13a-15(b), our manage-
ment, including the Chief Executive officer and Chief Financial
officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as defined in Exchange
Act Rule 13a-15(e), as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive officer and
Chief Financial officer concluded that our disclosure controls
and procedures were effective.
Internal Control over Financial Reporting
our management is responsible for establishing and main-
taining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Management’s annual
report on internal control over financial reporting and the report of
independent registered public accounting firm are incorporated by
reference to pages F-2 and F-3 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
In connection with the evaluation required by Exchange Act
Rule 13a-15(d), our management, including the Chief Executive
officer and Chief Financial officer, concluded that no changes in
our internal control over financial reporting occurred during the
period covered by this report that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
ItEm 9B. Other Information
None.
59
H AN E SBRANDS INC.
2 0 0 8 AN Nu Al REp oR t oN FoRM 10-K
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item 10 regarding our executive officers is included in Item 1C of this Annual Report on Form 10-K.
We will provide other information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this An-
nual Report not later than 120 days after the end of the fiscal year covered by this Annual Report. that information is incorporated in
this Item 10 by reference.
Item 11. Executive Compensation
We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal year covered by this Annual Report. that information is incorporated in this
Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal year covered by this Annual Report. that information is incorporated in this
Item 12 by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal year covered by this Annual Report. that information is incorporated in this
Item 13 by reference.
Item 14. Principal Accounting Fees and Services
We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal year covered by this Annual Report. that information is incorporated in this
Item 14 by reference.
Item 15. Exhibits and Financial Statement Schedules
(a)(1)-(2) Financial Statements and Schedules
PART IV
the financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements on page F-1 are
filed as part of this Report.
(a)(3) exhibits
See “Index to Exhibits” beginning on page E-1, which is incorporated by reference herein. the Index to Exhibits lists all exhibits
filed with this Report and identifies which of those exhibits are management contracts and compensation plans.
60
H AN E SBRANDS INC.
SIGNATURES
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 11th day of February, 2009.
HANESBRANDS INC.
/s/ Richard A. Noll
Richard A. Noll
Chief Executive Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
jointly and severally, Richard A. Noll, E. Lee Wyatt Jr. and Joia M. Johnson, and each one of them, his or her attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form
10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Capacity
Date
/s/ Richard A. Noll
Richard A. Noll
/s/ E. Lee Wyatt Jr.
E. Lee Wyatt Jr.
/s/ Dale W. Boyles
Dale W. Boyles
/s/ Lee A. Chaden
Lee A. Chaden
/s/ Bobby J. Griffin
Bobby J. Griffin
/s/ James C. Johnson
James C. Johnson
/s/ Jessica T. Mathews
Jessica T. Mathews
/s/ J. Patrick Mulcahy
J. Patrick Mulcahy
/s/ Ronald L. Nelson
Ronald L. Nelson
/s/ Alice M. Peterson
Alice M. Peterson
/s/ Andrew J. Schindler
Andrew J. Schindler
/s/ Ann E. Ziegler
Ann E. Ziegler
Chief Executive Officer and Chairman of the Board of Directors
February 11, 2009
(principal executive officer)
Executive Vice President, Chief Financial Officer
February 11, 2009
(principal financial officer)
Vice President, Chief Accounting Officer and Controller
February 11, 2009
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
February 11, 2009
61
H AN E SBRANDS INC.
INDEX TO EXHIBITS
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
References in this Index to Exhibits to the “Registrant” are to Hanesbrands Inc. The Registrant will furnish you, without charge, a
copy of any exhibit, upon written request. Written requests to obtain any exhibit should be sent to Corporate Secretary, Hanesbrands
Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina 27105.
Exhibit
Number Description
Exhibit
Number Description
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).
3.14
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
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).
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by refer-
ence from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 15, 2008).
Certificate of Formation of BA International, L.L.C. (incorporated by reference
from Exhibit 3.4 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Limited Liability Company Agreement of BA International, L.L.C. (incorporated
by reference from Exhibit 3.5 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Certificate of Incorporation of Caribesock, Inc., together with Certificate of
Change of Location of Registered Office and Registered Agent (incorporated
by reference from Exhibit 3.6 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Bylaws of Caribesock, Inc. (incorporated by reference from Exhibit 3.7 to
the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission
on April 26, 2007).
Certificate of Incorporation of Caribetex, Inc., together with Certificate of
Change of Location of Registered Office and Registered Agent (incorporated
by reference from Exhibit 3.8 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Bylaws of Caribetex, Inc. (incorporated by reference from Exhibit 3.9 to
the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission
on April 26, 2007).
3.10
3.11
3.12
Certificate of Formation of CASA International, LLC (incorporated by reference
from Exhibit 3.10 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Limited Liability Company Agreement of CASA International, LLC (incorporated
by reference from Exhibit 3.11 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Certificate of Incorporation of Ceibena Del, Inc., together with Certificate of
Change of Location of Registered Office and Registered Agent (incorporated
by reference from Exhibit 3.12 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
3.13
Bylaws of Ceibena Del, Inc. (incorporated by reference from Exhibit 3.13
to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission
on April 26, 2007).
E-1
Certificate of Formation of Hanes Menswear, LLC, together with Certificate
of Conversion from a Corporation to a Limited Liability Company Pursuant to
Section 18-214 of the Limited Liability Company Act and Certificate of Change
of Location of Registered Office and Registered Agent (incorporated by refer-
ence from Exhibit 3.14 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Limited Liability Company Agreement of Hanes Menswear, LLC (incorporated
by reference from Exhibit 3.15 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Certificate of Incorporation of HPR, Inc., together with Certificate of Merger of
Hanes Puerto Rico, Inc. into HPR, Inc. (now known as Hanes Puerto Rico, Inc.)
(incorporated by reference from Exhibit 3.16 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-142371) filed with the
Securities and Exchange Commission on April 26, 2007).
Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference from Exhibit
3.17 to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission on
April 26, 2007).
Articles of Organization of Sara Lee Direct, LLC, together with Articles of
Amendment reflecting the change of the entity’s name to Hanesbrands Direct,
LLC (incorporated by reference from Exhibit 3.18 to the Registrant’s Registra-
tion Statement on Form S-4 (Commission file number 333-142371) filed with
the Securities and Exchange Commission on April 26, 2007).
Limited Liability Company Agreement of Sara Lee Direct, LLC (now known as
Hanesbrands Direct, LLC) (incorporated by reference from Exhibit 3.19 to the
Registrant’s Registration Statement on Form S-4 (Commission file number 333-
142371) filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Incorporation of Sara Lee Distribution, Inc., together with
Certificate of Amendment of Certificate of Incorporation of Sara Lee
Distribution, Inc. reflecting the change of the entity’s name to Hanesbrands
Distribution, Inc. (incorporated by reference from Exhibit 3.20 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands Distribu-
tion, Inc.) (incorporated by reference from Exhibit 3.21 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Formation of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.22 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-142371) filed with
the Securities and Exchange Commission on April 26, 2007).
Operating Agreement of HBI Branded Apparel Enterprises, LLC
(incorporated by reference from Exhibit 3.23 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-142371) filed with
the Securities and Exchange Commission on April 26, 2007).
Certificate of Incorporation of HBI Branded Apparel Limited, Inc.
(incorporated by reference from Exhibit 3.24 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-142371) filed with
the Securities and Exchange Commission on April 26, 2007).
Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by reference
from Exhibit 3.25 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
3.25
H AN E SBRANDS INC.
Exhibit
Number Description
Exhibit
Number Description
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
3.26
3.27
3.28
3.29
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
3.38
Certificate of Formation of HbI International, LLC (incorporated by reference
from Exhibit 3.26 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Limited Liability Company Agreement of HbI International, LLC (incorporated
by reference from Exhibit 3.27 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Certificate of Formation of SL Sourcing, LLC, together with Certificate of
Amendment to the Certificate of Formation of SL Sourcing, LLC reflecting the
change of the entity’s name to HBI Sourcing, LLC (incorporated by reference
from Exhibit 3.28 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Limited Liability Company Agreement of SL Sourcing, LLC (now known as HBI
Sourcing, LLC) (incorporated by reference from Exhibit 3.29 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
3.39
3.40
3.41
3.42
Limited Liability Company Agreement of Seamless Textiles, LLC (incorporated
by reference from Exhibit 3.41 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities and
Exchange Commission on April 26, 2007).
Certificate of Incorporation of UPCR, Inc., together with Certificate of Change
of Location of Registered Office and Registered Agent (incorporated by refer-
ence from Exhibit 3.42 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Bylaws of UPCR, Inc. (incorporated by reference from Exhibit 3.43 to the
Registrant’s Registration Statement on Form S-4 (Commission file number
333-142371) filed with the Securities and Exchange Commission on
April 26, 2007).
Certificate of Incorporation of UPEL, Inc., together with Certificate of Change
of Location of Registered Office and Registered Agent (incorporated by refer-
ence from Exhibit 3.44 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Certificate of Formation of Inner Self LLC (incorporated by reference from
Exhibit 3.30 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities
and Exchange Commission on April 26, 2007).
3.43
Bylaws of UPEL, Inc. (incorporated by reference from Exhibit 3.45 to the
Registrant’s Registration Statement on Form S-4 (Commission file number
333-142371) filed with the Securities and Exchange Commission on
April 26, 2007).
Limited Liability Company Agreement of Inner Self LLC (incorporated by
reference from Exhibit 3.31 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities
and Exchange Commission on April 26, 2007).
Certificate of Formation of Jasper-Costa Rica, L.L.C. (incorporated by
reference from Exhibit 3.32 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities
and Exchange Commission on April 26, 2007).
Amended and Restated Limited Liability Company Agreement of Jasper-Costa
Rica, L.L.C. (incorporated by reference from Exhibit 3.33 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Formation of Playtex Dorado, LLC, together with Certificate of
Conversion from a Corporation to a Limited Liability Company Pursuant to
Section 18-214 of the Limited Liability Company Act (incorporated by refer-
ence from Exhibit 3.36 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Amended and Restated Limited Liability Company Agreement of Playtex
Dorado, LLC (incorporated by reference from Exhibit 3.37 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Incorporation of Playtex Industries, Inc. (incorporated by refer-
ence from Exhibit 3.38 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Bylaws of Playtex Industries, Inc. (incorporated by reference from Exhibit
3.39 to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission on
April 26, 2007).
Certificate of Formation of Seamless Textiles, LLC, together with Certificate
of Conversion from a Corporation to a Limited Liability Company Pursuant
to Section 18-214 of the Limited Liability Company Act (incorporated by
reference from Exhibit 3.40 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-142371) filed with the Securities
and Exchange Commission on April 26, 2007).
4.1
4.2
4.3
4.4
4.5
Rights Agreement between Hanesbrands Inc. and Computershare Trust
Company, N.A., Rights Agent. (incorporated by reference from Exhibit 4.1
to the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 5, 2006).
Form of Rights Certificate (incorporated by reference from Exhibit 4.2 to
the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 5, 2006).
Placement Agreement, dated December 11, 2006, among Hanesbrands Inc.,
certain subsidiaries of Hanesbrands Inc., Morgan Stanley & Co. Incorporated
and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by refer-
ence from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 15, 2006).
Indenture, dated as of December 14, 2006, among Hanesbrands Inc., certain
subsidiaries of Hanesbrands Inc., and Branch Banking and Trust Company, as
Trustee (incorporated by reference from Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
December 20, 2006).
Registration Rights Agreement with respect to Floating Rate Senior Notes
due 2014, dated as of December 14, 2006, among Hanesbrands Inc., certain
subsidiaries of Hanesbrands Inc., and Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, ABN AMRO Incorporated,
Barclays Capital Inc., Citigroup Global Markets Inc., and HSBC Securities
(USA) Inc. (incorporated by reference from Exhibit 4.2 to the Registrant’s Cur-
rent Report on Form 8-K filed with the Securities and Exchange Commission
on December 20, 2006).
4.6
Indenture, dated as of August 1, 2008, among the Registrant, certain subsid-
iaries of the Registrant, and Branch Banking and Trust Company, as Trustee
(incorporated by reference from Exhibit 4.3 to the Registrant’s Registration
Statement on Form S-3 (Commission file number 333-152733) filed with the
Securities and Exchange Commission on August 1, 2008).
10.1
10.2
Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by reference
from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 5, 2006).*
Form of Stock Option Grant Notice and Agreement under the Hanesbrands
Inc. Omnibus Incentive Plan of 2006 (incorporated by reference from Exhibit
10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on September 5, 2006).*
E-2
H AN E SBRANDS INC.
Exhibit
Number Description
Exhibit
Number Description
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
10.3
Form of Restricted Stock Unit Grant Notice and Agreement under the
Hanesbrands Inc. Omnibus Incentive Plan of 2006. (incorporated by reference
from Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 5, 2006).*
10.25
Indemnification and Insurance Matters Agreement dated August 31, 2006
between the Registrant and Sara Lee Corporation (incorporated by reference
from Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission on September 28, 2006).
10.4
Form of Non-Employee Director Restricted Stock Unit Grant Notice and
Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006.*
10.26
10.5
Form of Non-Employee Director Stock Option Grant Notice and Agreement
under the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by
reference from Exhibit 10.5 to the Registrant’s Transition Report on Form 10-K
filed with the Securities and Exchange Commission on February 22, 2007).*
10.27
10.6 Hanesbrands Inc. Retirement Savings Plan.*
10.7 Hanesbrands Inc. Supplemental Employee Retirement Plan *
10.8
10.9
Hanesbrands Inc. Performance-Based Annual Incentive Plan (incorporated by
reference from Exhibit 10.7 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 5, 2006).*
Hanesbrands Inc. Executive Deferred Compensation Plan (incorporated by
reference from Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on October 31, 2008).*
10.10 Hanesbrands Inc. Executive Life Insurance Plan.*
10.11 Hanesbrands Inc. Executive Long-Term Disability Plan.*
10.12
Hanesbrands Inc. Employee Stock Purchase Plan of 2006 (incorporated by
reference from Exhibit 10.11 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 5, 2006).*
10.13 Hanesbrands Inc. Non-Employee Director Deferred Compensation Plan.*
10.14
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and Richard A. Noll.*
10.15
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and Gerald W. Evans Jr.*
10.16
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and E. Lee Wyatt Jr.*
10.17
Severance/Change in Control Agreement dated December 10, 2008 between
the Registrant and Kevin W. Oliver.*
10.28
10.29
10.30
10.31
10.18
Severance/Change in Control Agreement dated December 17, 2008 between
the Registrant and Joia M. Johnson.*
10.32
10.19
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and William J. Nictakis.*
Intellectual Property Matters Agreement dated August 31, 2006 between the
Registrant and Sara Lee Corporation (incorporated by reference from Exhibit
10.27 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 28, 2006).
First Lien Credit Agreement dated September 5, 2006 (the “Senior Secured
Credit Facility”) among the Registrant the various financial institutions and
other persons from time to time party thereto, HSBC Bank USA, National
Association, LaSalle Bank National Association, Barclays Bank PLC, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding,
Inc., Citicorp USA, Inc. and Citibank, N.A. (incorporated by reference from
Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 28, 2006).†
First Amendment dated February 22, 2007 to the Senior Secured Credit Facil-
ity (incorporated by reference from Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
February 28, 2007).
Second Amendment dated August 21, 2008 to the Senior Secured Credit
Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Cur-
rent Report on Form 8-K filed with the Securities and Exchange Commission
on August 27, 2008).
Second Lien Credit Agreement dated September 5, 2006 (the “Second Lien
Credit Agreement”) among HBI Branded Apparel Limited, Inc., Hanesbrands
Inc., the various financial institutions and other persons from time to time
party thereto, HSBC Bank USA, National Association, LaSalle Bank National
Association, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incor-
porated, Morgan Stanley Senior Funding, Inc., Citicorp USA, Inc. and Citibank,
N.A. (incorporated by reference from Exhibit 10.29 to the Registrant’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
September 28, 2006).†
First Amendment dated August 21, 2008 to the Second Lien Credit Agreement
(incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on August
27, 2008).
Receivables Purchase Agreement dated as of November 27, 2007 among HBI
Receivables LLC and the Registrant, JPMorgan Chase Bank, N.A., HSBC Bank
USA, National Association, Falcon Asset Securitization Company LLC, Bryant
Park Funding LLC, and HSBC Securities (USA) Inc. (incorporated by reference
from Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission on February 19, 2008).†
Master Separation Agreement dated August 31, 2006 between the Registrant
and Sara Lee Corporation (incorporated by reference from Exhibit 10.21 to
the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on September 28, 2006).
Tax Sharing Agreement dated August 31, 2006 between the Registrant
and Sara Lee Corporation (incorporated by reference from Exhibit 10.22 to
the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on September 28, 2006).
Employee Matters Agreement dated August 31, 2006 between the Registrant
and Sara Lee Corporation (incorporated by reference from Exhibit 10.23 to
the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on September 28, 2006).
Master Transition Services Agreement dated August 31, 2006 between the
Registrant and Sara Lee Corporation (incorporated by reference from Exhibit
10.24 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 28, 2006).
Real Estate Matters Agreement dated August 31, 2006 between the Regis-
trant and Sara Lee Corporation (incorporated by reference from Exhibit 10.25
to the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on September 28, 2006).
10.20
10.21
10.22
10.23
10.24
E-3
12.1 Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1
Powers of Attorney (included on the signature pages hereto).
31.1 Certification of Richard A. Noll, Chief Executive Officer.
31.2 Certification of E. Lee Wyatt Jr., Chief Financial Officer.
32.1 Section 1350 Certification of Richard A. Noll, Chief Executive Officer.
32.2 Section 1350 Certification of E. Lee Wyatt Jr., Chief Financial Officer.
*
†
Agreement relates to executive compensation.
Portions of this exhibit were redacted pursuant to a confidential treatment request
filed with the Secretary of the Securities and Exchange Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
H AN E SBRANDS INC.
2 0 0 8 AN Nu Al REp oR t oN FoRM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HANESBRANDS
Consolidated Financial Statements
Page
Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
Report of Independent Registered public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-3
Consolidated Statements of Income for the years ended January 3, 2009 and December 29, 2007, six months ended
December 30, 2006 and year ended July 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-4
Consolidated Balance Sheets at January 3, 2009 and December 29, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Stockholders’ or parent Companies’ Equity and Comprehensive Income for the years ended
January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 . . . . . . . . . . . .
F-6
Consolidated Statements of Cash Flows for the years ended January 3, 2009 and December 29, 2007, six months ended
December 30, 2006 and year ended July 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-8
F-1
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Management’s Report on Internal Control Over Financial Reporting
Management of Hanesbrands Inc. (“Hanesbrands”) is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a−15(f) under the Securities and Exchange Act of 1934. Internal control over financial report-
ing is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of finan-
cial statements for external purposes in accordance with accounting principles generally accepted in the United States. Hanesbrands’
system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Hanesbrands; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States, and that receipts and expenditures of Hanesbrands are being made
only in accordance with authorizations of management and directors of Hanesbrands; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of Hanesbrands’ assets that could have a material effect
on the financial statements.
Management has evaluated the effectiveness of Hanesbrands’ internal control over financial reporting as of January 3, 2009,
based upon criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation, management deter-
mined that Hanesbrands’ internal control over financial reporting was effective as of January 3, 2009.
The effectiveness of our internal control over financial reporting as of January 3, 2009 has been audited by Pricewaterhouse-
Coopers LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8 of this
Annual Report on Form 10-K.
F-2
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Hanesbrands Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects,
the financial position of Hanesbrands Inc. at January 3, 2009 and December 29, 2007, and the results of its operations and its cash
flows for each of the two years in the period ended January 3, 2009, the six months ended December 30, 2006, and the year ended
July 1, 2006 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2009, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). The Company’s management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial state-
ments and on the Company’s internal control over financial reporting based on our audits which were integrated audits in 2008 and
2007. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Notes 16 and 17 to the consolidated financial statements, the Company changed the manner in which it accounts
for its defined benefit pension and other postretirement plans effective December 30, 2006, and changed the measurement date for
its plan assets and benefit obligations effective December 29, 2007.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial state-
ments in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 11, 2009
F-3
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Income
(in thousands, except share and per share amounts)
Years Ended
January 3, 2009
December 29, 2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,248,770
2,871,420
1,377,350
1,009,607
—
50,263
317,480
(634)
155,077
163,037
35,868
$ 4,474,537
3,033,627
1,440,910
1,040,754
(32,144)
43,731
388,569
5,235
199,208
184,126
57,999
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
127,169
$
126,127
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.35
1.34
$
$
1.31
1.30
94,171
95,164
95,936
96,741
Six Months Ended
December 30, 2006
$ 2,250,473
1,530,119
720,354
547,469
(28,467)
11,278
190,074
7,401
70,753
111,920
37,781
74,139
0.77
0.77
96,309
96,620
$
$
$
Year Ended
July 1, 2006
$ 4,472,832
2,987,500
1,485,332
1,051,833
—
(101)
433,600
—
17,280
416,320
93,827
$
322,493
$
$
3.35
3.35
96,306
96,306
See accompanying notes to Consolidated Financial Statements.
F-4
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
January 3, 2009
December 29, 2007
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable less allowances of $21,897 at January 3, 2009 and $31,642 at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
67,342
$
174,236
404,930
1,290,530
181,850
165,673
2,110,325
588,189
147,443
322,002
321,037
45,053
575,069
1,117,052
172,909
55,068
2,094,334
534,286
151,266
310,425
263,157
86,015
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,534,049
$ 3,439,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
325,518
$
289,166
Accrued liabilities and other:
Payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Freight and duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82,815
69,102
31,153
21,381
110,941
61,734
45,640
748,284
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,130,907
Pension and postretirement benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294,095
175,608
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,348,894
115,133
85,359
36,894
19,636
123,217
19,577
—
688,982
2,315,250
38,657
107,690
3,150,579
Stockholders’ equity:
Preferred stock (50,000,000 authorized shares; $.01 par value) Issued and outstanding — None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock (500,000,000 authorized shares; $.01 par value) Issued and outstanding —
93,520,132 at January 3, 2009 and 95,232,478 at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
935
248,167
217,522
(281,469)
185,155
954
199,019
117,849
(28,918)
288,904
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,534,049
$ 3,439,483
See accompanying notes to Consolidated Financial Statements.
F-5
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Stockholders’ or Parent Companies’ Equity and Comprehensive Income
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006
(in thousands)
Common Stock
Shares Amount
Additional
Paid-In
Capital
Accumulated
Other
Retained Comprehensive
Loss
Earnings
Parent
Companies’
Equity
Investment
Total
Balances at July 2, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on qualifying cash flow hedges, net of tax of $2,358 . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with parent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at July 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from July 2, 2006 through September 4, 2006 . . . . . . . . . . . . . . . . . . . . . .
Net income from September 5, 2006 through December 30, 2006. . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on qualifying cash flow hedges, net of tax of $453 . . . . . . . . . . . .
Minimum pension and postretirement liability from September 6, 2006
—
—
—
—
—
—
—
—
—
—
$
$ —
—
— $
—
—
—
—
—
—
—
$ —
$
— $
—
—
—
—
through December 30, 2006, net of tax of $6,281 . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with parent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to Sara Lee Corporation in connection with the spin off . . . . . . . . . . . . . . . .
—
—
—
—
Consummation of spin off transaction on September 5, 2006, including
distribution of Hanesbrands Inc. common stock by Sara Lee Corporation . . . . . . . .
96,306
963
84,537
Minimum pension and postretirement liability from July 2, 2006 through
September 5, 2006, net of tax of $34,261 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 158, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
6
—
—
—
—
—
—
10,176
139
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
33,024
—
—
—
—
—
—
—
—
—
—
$ (18,209)
—
$ 2,620,571
322,493
$ 2,602,362
322,493
13,518
(3,693)
—
—
—
294,454
13,518
(3,693)
332,318
294,454
$
(8,384)
$ 3,237,518
$ 3,229,134
—
—
(5,989)
(597)
(9,864)
—
—
—
(53,813)
—
—
19,079
41,115
—
—
—
—
41,115
33,024
(5,989)
(597)
(9,864)
57,689
(793,133)
(793,133)
(2,400,000)
(2,400,000)
(85,500)
—
—
—
—
—
(53,813)
10,176
139
19,079
Balances at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,312
$ 963
$ 94,852 $ 33,024
$ (59,568)
$
—
$
69,271
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on qualifying cash flow hedges, net of tax of $4,456 . . . . . . . . . . .
Recognition of gain from healthcare plan settlement, net of tax of $12,505. . . . . . . . .
Net unrecognized loss from pension and postretirement plans, net of tax of $23,590 . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other . . . . . . . . . . . . . .
—
—
—
—
—
—
533
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Final separation of pension plan assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,613)
—
Net transactions related to spin off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 158, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
7
(16)
—
—
—
—
—
—
—
—
33,185
3,428
(2,006)
74,189
(4,629)
—
126,127
—
—
—
—
—
—
(42,451)
—
—
1,149
—
20,114
(6,877)
(19,639)
37,052
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
126,127
20,114
(6,877)
(19,639)
37,052
156,777
33,185
3,435
(44,473)
74,189
(4,629)
1,149
Balances at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,232
$ 954
$ 199,019 $ 117,849
$ (28,918)
$
—
$ 288,904
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on qualifying cash flow hedges, net of tax of $24,683 . . . . . . . . . .
Net unrecognized loss from pension and postretirement plans, net of tax of $117,012 . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other . . . . . . . . . . . . . .
—
—
—
—
—
456
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,224)
Net transactions related to spin off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(944)
—
—
—
—
—
2
(12)
(9)
—
—
—
—
31,002
10,076
127,169
—
—
—
—
—
(2,767)
(27,496)
10,837
—
—
(29,463)
(38,818)
(184,270)
—
—
—
—
—
—
—
—
—
—
—
—
127,169
(29,463)
(38,818)
(184,270)
(125,382)
31,002
10,078
(30,275)
10,828
Balances at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,520
$ 935
$ 248,167 $ 217,522
$ (281,469)
$
—
$ 185,155
See accompanying notes to Consolidated Financial Statements.
F-6
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses on early extinguishment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on repurchase of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to and from related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of debt issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of bridge loan facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on accounts receivable securitization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on accounts receivable securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction with Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in bank overdraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable to related entities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with parent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 3, 2009
December 29, 2007
Six Months Ended
December 30, 2006
Year Ended
July 1, 2006
$ 127,169
$ 126,127
$
74,139
$
322,493
103,126
12,019
5,133
—
1,332
(1,966)
6,032
31,449
(1,445)
(1,616)
163,687
(182,971)
(49,256)
—
34,046
(69,342)
177,397
(186,957)
(14,655)
—
25,008
(644)
(177,248)
(892)
602,627
(560,066)
—
(69)
—
791,000
(791,000)
(125,000)
—
(4,354)
—
20,944
(28,327)
2,191
(30,275)
18,000
483
—
—
—
—
(104,738)
(2,305)
(106,894)
174,236
125,471
6,205
(3,446)
(32,144)
5,235
—
6,475
33,625
28,069
(75)
(81,396)
96,338
19,212
—
67,038
(37,694)
359,040
(91,626)
(20,243)
(5,000)
16,573
(789)
(101,085)
(1,196)
66,413
(88,970)
—
(3,266)
—
—
—
(428,125)
—
—
—
250,000
—
6,189
(44,473)
—
883
(834)
—
—
—
(243,379)
3,687
18,263
155,973
69,946
3,466
(812)
(28,467)
7,401
—
2,279
15,623
3,485
1,693
22,004
23,191
(38,726)
—
17,546
(36,689)
136,079
(29,764)
(6,666)
—
12,949
450
(23,031)
(3,088)
10,741
(3,508)
2,600,000
(50,248)
(2,424,606)
—
—
(106,625)
500,000
—
(500,000)
—
—
139
—
—
—
(274,551)
—
193,255
(195,381)
(253,872)
(1,455)
(142,279)
298,252
105,173
9,031
(4,220)
—
—
—
—
—
(46,804)
1,456
59,403
69,215
21,169
(5,048)
(673)
(20,574)
510,621
(110,079)
(2,436)
—
5,520
(3,666)
(110,661)
(5,542)
7,984
(93,073)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
275,385
143,898
(1,251,962)
(259,026)
(1,182,336)
(171)
(782,547)
1,080,799
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
67,342
$ 174,236
$
155,973
$
298,252
See accompanying notes to Consolidated Financial Statements.
F-7
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(1) Background
On February 10, 2005, Sara Lee Corporation (“Sara Lee”)
announced an overall transformation plan which included spin-
ning off Sara Lee’s apparel business in the Americas and Asia
(the “Branded Apparel Americas and Asia Business”). In connec-
tion with the spin off, Sara Lee incorporated Hanesbrands Inc.,
a Maryland corporation (“Hanesbrands” and, together with its
consolidated subsidiaries, the “Company”), to which it would
transfer the assets and liabilities related to the Branded Apparel
Americas and Asia Business. On August 31, 2006, Sara Lee
transferred to the Company substantially all the assets and liabili-
ties, at historical cost, comprising the Branded Apparel Americas
and Asia Business.
On September 5, 2006, as a condition to the distribution
to Sara Lee’s stockholders of all of the outstanding shares of
the common stock of Hanesbrands, the Company distributed
to Sara Lee a cash dividend payment of $1,950,000 and repaid
a loan from Sara Lee in the amount of $450,000, and Sara Lee
distributed to its stockholders all of the outstanding shares of
Hanesbrands’ common stock, with each stockholder receiving
one share of Hanesbrands’ common stock for each eight shares
of Sara Lee’s common stock that they held as of the August
18, 2006 record date. As a result of such distribution, Sara Lee
ceased to own any equity interest in the Company and the
Company became an independent, separately traded, publicly
held company.
The Consolidated Financial Statements reflect the consoli-
dated operations of Hanesbrands Inc. and its subsidiaries as a
separate, stand alone entity subsequent to September 5, 2006,
in addition to the historical operations of the Branded Apparel
Americas and Asia Business which were operated as part of
Sara Lee prior to the spin off. Under Sara Lee’s ownership, cer-
tain of the Branded Apparel Americas and Asia Business’s opera-
tions were divisions of Sara Lee and not separate legal entities,
while the Branded Apparel Americas and Asia Business’s foreign
operations were subsidiaries of Sara Lee. A direct ownership
relationship did not exist among the various units comprising
the Branded Apparel Americas and Asia Business prior to the
spin off on September 5, 2006. Subsequent to the spin off on
September 5, 2006, the Company began accumulating its re-
tained earnings and recognized the par value and paid-in-capital
in connection with the issuance of approximately 96,306 shares
of common stock.
Prior to the spin off on September 5, 2006, the Branded
Apparel Americas and Asia Business utilized the services of
Sara Lee for certain functions. These services included provid-
ing working capital, as well as certain legal, finance, internal
audit, financial reporting, tax advisory, insurance, global informa-
tion technology, environmental matters and human resource
services, including various corporate-wide employee benefit
programs. The cost of these services has been allocated to the
Company and included in the Consolidated Financial Statements
for periods prior to the spin off on September 5, 2006. The
allocations were determined on the basis which Sara Lee and
the Branded Apparel Americas and Asia Business considered to
be reasonable reflections of the utilization of services provided
by Sara Lee. A more detailed discussion of the relationship with
Sara Lee prior to the spin off on September 5, 2006, includ-
ing a description of the costs which have been allocated to the
Branded Apparel Americas and Asia Business, as well as the
method of allocation, is included in Note 20 to the Consolidated
Financial Statements.
Management believes the assumptions underlying the Con-
solidated Financial Statements for these periods are reasonable.
However, the Consolidated Financial Statements included herein
for the periods through September 5, 2006 do not necessarily
reflect the Branded Apparel Americas and Asia Business’s opera-
tions and cash flows in the future or what its results of opera-
tions and cash flows would have been had the Branded Apparel
Americas and Asia Business been a stand alone company during
the periods presented.
In October 2006, the Company’s Board of Directors ap-
proved a change in the Company’s fiscal year end from the Satur-
day closest to June 30 to the Saturday closest to December 31.
As a result of this change, the Consolidated Financial State-
ments include presentation of the transition period beginning on
July 2, 2006 and ending on December 30, 2006. Fiscal year 2008
included 53 weeks and fiscal years 2007 and 2006 included 52
weeks. Unless otherwise stated, references to years relate to
fiscal years.
The following table presents certain financial informa-
tion for the six months ended December 30, 2006 and
December 31, 2005.
Six Months Ended
December 30, 2006
December 31, 2005
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative
$ 2,250,473
1,530,119
720,354
(unaudited)
$ 2,319,839
1,556,860
762,979
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
547,469
505,866
Gain on curtailment of postretirement
benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:. . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,467)
11,278
190,074
7,401
70,753
111,920
37,781
74,139
0.77
0.77
96,309
96,620
$
$
$
—
(339)
257,452
—
8,412
249,040
60,424
188,616
1.96
1.96
96,306
96,306
$
$
$
F-8
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(2) Summary of Significant Accounting Policies
(d) sales Recognition and Incentives
(a) consolidation
The Consolidated Financial Statements include the accounts
of the Company, its controlled subsidiary companies which in
general are majority owned entities, and the accounts of vari-
able interest entities (VIEs) for which the Company is deemed
the primary beneficiary, as defined by the Financial Accounting
Standards Board’s (FASB) Interpretation No. 46, Consolidation
of Variable Interest Entities (FIN 46-R) and related interpreta-
tions. Excluded from the accounts of the Company are Sara
Lee entities which maintained legal ownership of certain of
the Company’s divisions (Parent Companies) until the spin off
on September 5, 2006. The results of companies acquired or
disposed of during the year are included in the Consolidated
Financial Statements from the effective date of acquisition, or up
to the date of disposal. All intercompany balances and transac-
tions have been eliminated in consolidation.
The Company consolidates one VIE, an Israeli manufac-
turer and supplier of yarn. The Company has a 49% ownership
interest in the Israeli joint venture, however, based upon certain
terms of the supply contract, the Company has a disproportion-
ate share of expected losses and residual returns. The effect of
consolidating this VIE was the inclusion of $11,042 of total as-
sets and $7,534 of total liabilities at January 3, 2009 and $11,903
of total assets and $8,351 of total liabilities at December 29,
2007 on the Consolidated Balance Sheets.
The Company reported a minority interest of $5,907 and
$5,749 in the “Other noncurrent liabilities” line of the Consolidat-
ed Balance Sheets at January 3, 2009 and December 29, 2007,
respectively.
(b) Use of estimates
The preparation of Consolidated Financial Statements in con-
formity with U.S. generally accepted accounting principles requires
management to make use of estimates and assumptions that
affect the reported amount of assets and liabilities, certain financial
statement disclosures at the date of the financial statements, and
the reported amounts of revenues and expenses during the report-
ing period. Actual results may vary from these estimates.
(c) Foreign currency Translation
Foreign currency-denominated assets and liabilities are trans-
lated into U.S. dollars at exchange rates existing at the respective
balance sheet dates. Translation adjustments resulting from fluc-
tuations in exchange rates are recorded as a separate component
of accumulated other comprehensive loss within stockholders’ eq-
uity. The Company translates the results of operations of its foreign
operations at the average exchange rates during the respective
periods. Gains and losses resulting from foreign currency transac-
tions, the amounts of which are not material for any of the periods
presented, are included in the “Selling, general and administrative
expenses” line of the Consolidated Statements of Income.
The Company recognizes revenue when (i) there is persua-
sive evidence of an arrangement, (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have been
transferred to the customer and (iv) collection of the receivable
is reasonably assured, which occurs primarily upon shipment.
The Company records a sales reduction for returns and allowanc-
es based upon historical return experience. The Company earns
royalty revenues through license agreements with manufactur-
ers 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 licensee.
The Company offers a variety of sales incentives to resellers and
consumers of its products, and the policies regarding the rec-
ognition and display of these incentives within the Consolidated
Statements of Income are as follows:
Discounts, Coupons, and Rebates
The Company recognizes the cost of these incentives at the
later of the date at which the related sale is recognized or the
date at which the incentive is offered. The cost of these incen-
tives is estimated using a number of factors, including historical
utilization and redemption rates. All cash incentives of this type
are included in the determination of net sales. The Company
includes incentives offered in the form of free products in the
determination of cost of sales.
Volume-Based Incentives
These incentives typically involve rebates or refunds of cash
that are redeemable only if the reseller completes a specified
number of sales transactions. Under these incentive programs,
the Company estimates the anticipated rebate to be paid and
allocates a portion of the estimated cost of the rebate to each
underlying sales transaction with the customer. The Company
includes these amounts in the determination of net sales.
Cooperative Advertising
Under these arrangements, the Company agrees to re-
imburse the reseller for a portion of the costs incurred by the
reseller to advertise and promote certain of the Company’s prod-
ucts. The Company recognizes the cost of cooperative advertis-
ing programs in the period in which the advertising and promo-
tional activity first takes place. For the year ended December 29,
2007, the Company changed the manner in which it accounted
for cooperative advertising that resulted in a change in the clas-
sification from media, advertising and promotion expenses to
a reduction in sales. This change in classification was made in
accordance with EITF 01-9, Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products), because the estimated fair value of the identifiable
benefit was no longer obtained beginning in 2007.
F-9
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Fixtures and Racks
(h) Research and development
Store fixtures and racks are periodically used by resellers to
display Company products. The Company expenses the cost of
these fixtures and racks in the period in which they are delivered
to the resellers. The Company includes the costs of fixtures and
racks incurred by resellers and charged back to the Company in
the determination of net sales. Fixtures and racks purchased by
the Company and provided to resellers are included in selling,
general and administrative expenses.
(e) Advertising expense
Advertising costs, which include the development and produc-
tion of advertising materials and the communication of these
materials through various forms of media, are expensed in the
period the advertising first takes place. The Company recognized
advertising expense in the “Selling, general and administrative
expenses” caption in the Consolidated Statements of Income of
$187,034 in the year ended January 3, 2009 and $188,327 in the
year ended December 29, 2007, $99,786 in the six months ended
December 30, 2006 and $190,934 in the year ended July 1, 2006.
(f) shipping and Handling costs
Revenue received for shipping and handling costs is included
in net sales and was $24,244 in the year ended January 3, 2009,
$22,751 in the year ended December 29, 2007, $11,711 in the
six months ended December 30, 2006 and $20,405 in the year
ended July 1, 2006. Shipping costs, that comprise payments to
third party shippers, and handling costs, which consist of ware-
housing costs in the Company’s various distribution facilities,
were $238,340 in the year ended January 3, 2009, $234,070 in
the year ended December 29, 2007, $123,850 in the six months
ended December 30, 2006 and $235,690 in the year ended
July 1, 2006. The Company recognizes shipping, handling and
distribution costs in the “Selling, general and administrative
expenses” line of the Consolidated Statements of Income.
(g) catalog expenses
The Company incurs expenses for printing catalogs for
products to aid in the Company’s sales efforts. The Company
initially records these expenses as a prepaid item and charges it
against selling, general and administrative expenses over time
as the catalog is used. Expenses are recognized at a rate that
approximates historical experience with regard to the timing and
amount of sales attributable to a catalog distribution.
Research and development costs are expensed as incurred
and are included in the “Selling, general and administrative
expenses” line of the Consolidated Statements of Income.
Research and development expense was $46,460 in the year
ended January 3, 2009, $45,409 in the year ended December
29, 2007, $23,460 in the six months ended December 30, 2006
and $54,571 in the year ended July 1, 2006.
(i) cash and cash equivalents
All highly liquid investments with a maturity of three months
or less at the time of purchase are considered to be cash equiva-
lents.
(j) Accounts Receivable Valuation
Accounts receivable are stated at their net realizable value.
The allowance for doubtful accounts reflects the Company’s best
estimate of probable losses inherent in the accounts receivable
portfolio determined on the basis of historical experience, spe-
cific allowances for known troubled accounts and other currently
available information.
(k)
Inventory Valuation
Inventories are stated at the lower of cost or market.
Rebates, discounts and other cash consideration received from
a vendor related to inventory purchases are reflected as reduc-
tions in the cost of the related inventory item, and are therefore
reflected in cost of sales when the related inventory item is sold.
During the six months ended December 30, 2006, the Company
elected to convert all inventory valued by the last-in, first-out, or
“LIFO,” method to the first-in, first-out, or “FIFO,” method. In
accordance with the Statement of Financial Accounting Stan-
dards (SFAS) No. 154, Accounting Changes and Error Corrections
(SFAS 154), a change from the LIFO to FIFO method of inventory
valuation constitutes a change in accounting principle. Histori-
cally, inventory valued under the LIFO method, which was 4% of
total inventories, would have the same value if measured under
the FIFO method. Therefore, the conversion has no retrospective
reporting impact.
F-10
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(l) Property
Property is stated at historical cost and depreciation expense
is computed using the straight-line method over the estimated
useful lives of the assets. Machinery and equipment is depreci-
ated over periods ranging from three to 25 years and buildings and
building improvements over periods of up to 40 years. A change in
the depreciable life is treated as a change in accounting estimate
and the accelerated depreciation is accounted for in the period of
change and future periods. Additions and improvements that sub-
stantially extend the useful life of a particular asset and interest
costs incurred during the construction period of major properties
are capitalized. Repairs and maintenance costs are expensed as
incurred. Upon sale or disposition of an asset, the cost and related
accumulated depreciation are removed from the accounts.
Property is tested for recoverability whenever events or
changes in circumstances indicate that its carrying value may not
be recoverable. Such events include significant adverse changes
in the business climate, several periods of operating or cash flow
losses, forecasted continuing losses or a current expectation
that an asset or an asset group will be disposed of before the
end of its useful life. Recoverability of property is evaluated by
a comparison of the carrying amount of an asset or asset group
to future net undiscounted cash flows expected to be generated
by the asset or asset group. If these comparisons indicate that
an asset is not recoverable, the impairment loss recognized is
the amount by which the carrying amount of the asset exceeds
the estimated fair value. When an impairment loss is recognized
for assets to be held and used, the adjusted carrying amount of
those assets is depreciated over its remaining useful life. Resto-
ration of a previously recognized impairment loss is not permit-
ted under U.S. generally accepted accounting principles.
(m)
Trademarks and Other Identifiable Intangible
Assets
The primary identifiable intangible assets of the Company
are trademarks and computer software. Identifiable intangibles
with finite lives are amortized and those with indefinite lives are
not amortized. The estimated useful life of a finite-lived intangible
asset is based upon a number of factors, including the effects of
demand, competition, expected changes in distribution channels
and the level of maintenance expenditures required to obtain fu-
ture cash flows. Finite-lived trademarks are being amortized over
periods ranging from five to 30 years, while computer software
is being amortized over periods ranging from two to ten years.
The Company capitalizes internal software development
costs under the provisions of AICPA Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Capitalized computer software costs
include the actual costs to purchase software from vendors and
generally include personnel and related costs for employees who
were directly associated with the enhancement and implemen-
tation of purchased computer software. Additions to computer
software are included in purchases of property and equipment in
the Consolidated Statements of Cash Flows.
Identifiable intangible assets that are subject to amorti-
zation are evaluated for impairment using a process similar
to that used in evaluating elements of property. Identifiable
intangible assets not subject to amortization are assessed for
impairment at least annually and as triggering events occur. The
impairment test for identifiable intangible assets not subject
to amortization consists of comparing the fair value of the
intangible asset to its carrying amount. An impairment loss is
recognized for the amount by which the carrying value exceeds
the fair value of the asset. In assessing fair value, management
relies on a number of factors to discount anticipated future
cash flows including operating results, business plans and
present value techniques. Rates used to discount cash flows
are dependent upon interest rates and the cost of capital at a
point in time. There are inherent uncertainties related to these
factors and management’s judgment in applying them to the
analysis of intangible asset impairment.
(n) Goodwill
Goodwill is the amount by which the purchase price
exceeds the fair value of the assets acquired and liabilities
assumed in a business combination. When a business com-
bination is completed, the assets acquired and liabilities
assumed are assigned to the reporting unit or units of the
Company given responsibility for managing, controlling and
generating returns on these assets and liabilities. The Company
has determined that the reporting units are at the operating
segment level. In many instances, all of the acquired assets
and assumed liabilities are assigned to a single reporting unit
and in these cases all of the goodwill is assigned to the same
reporting unit. In those situations in which the acquired assets
and liabilities are allocated to more than one reporting unit, the
goodwill to be assigned to each reporting unit is determined in
a manner similar to how the amount of goodwill recognized in a
business combination is determined.
Goodwill is not amortized; however, it is assessed for
impairment at least annually and as triggering events occur. The
Company’s annual measurement date is the first day of the third
fiscal quarter. The first step involves comparing the fair value
of a reporting unit to its carrying value. If the carrying value of
the reporting unit exceeds its fair value, the second step of the
process involves comparing the implied fair value to the carrying
value of the goodwill of that reporting unit. If the carrying value
of the goodwill of a reporting unit exceeds the implied fair value
of that goodwill, an impairment loss is recognized in an amount
equal to such excess.
F-11
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
In evaluating the recoverability of goodwill, it is necessary
to estimate the fair values of the reporting units. In making this
assessment, management relies on a number of factors to dis-
count anticipated future cash flows including operating results,
business plans and present value techniques. Rates used to
discount cash flows are dependent upon interest rates and the
cost of capital at a point in time. There are inherent uncertainties
related to these factors and management’s judgment in applying
them to the analysis of goodwill impairment.
(o) stock-Based compensation
The employees of the Company participated in the stock-
based compensation plans of Sara Lee prior to the Company’s
spin off on September 5, 2006. In connection with the spin
off, the Company established the Hanesbrands Inc. Omnibus
Incentive Plan of 2006, (the “Hanesbrands OIP”) to award stock
options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units, performance shares and cash
to its employees, non-employee directors and employees of its
subsidiaries to promote the interests of the Company and incent
performance and retention of employees.
In accordance with Statement of Financial Accounting Stan-
dards No. 123(R), “Share-Based Payment” (SFAS No. 123(R)) the
Company recognizes the cost of employee services received in
exchange for awards of equity instruments based upon the grant
date fair value of those awards.
(p)
Income Taxes
For the periods prior to the spin off on September 5, 2006,
income taxes were prepared on a separate return basis as if
the Company had been a group of separate legal entities. As a
result, actual tax transactions that would not have occurred had
the Company been a separate entity have been eliminated in
the preparation of Consolidated Financial Statements for such
periods. Until the Company entered into a tax sharing agreement
with Sara Lee in connection with the spin off, there was no for-
mal tax sharing agreement between the Company and Sara Lee.
The tax sharing agreement allocates responsibilities between the
Company and Sara Lee for taxes and certain other tax matters.
Under the tax sharing agreement, Sara Lee generally is liable
for all U.S. federal, state, local and foreign income taxes attribut-
able to the Company with respect to taxable periods ending on
or before September 5, 2006. Sara Lee also is liable for income
taxes attributable to the Company with respect to taxable periods
beginning before September 5, 2006 and ending after September
5, 2006, but only to the extent those taxes are allocable to the
portion of the taxable period ending on September 5, 2006. The
Company is generally liable for all other taxes attributable to it.
Changes in the amounts payable or receivable by the Company
under the stipulations of this agreement may impact the Com-
pany’s financial position and cash flows in any period.
Deferred taxes are recognized for the future tax effects of
temporary differences between financial and income tax report-
ing using tax rates in effect for the years in which the differences
F-12
are expected to reverse. Given continuing losses in certain
jurisdictions in which the Company operates on a separate
return basis, a valuation allowance has been established for the
deferred tax assets in these specific locations. Net operating loss
carryforwards, charitable contribution carryforwards and capital
loss carryforwards have been determined in these Consolidated
Financial Statements as if the Company had been a group of legal
entities separate from Sara Lee, which results in different car-
ryforward amounts than those shown by Sara Lee. The Company
periodically estimates the probable tax obligations using historical
experience in tax jurisdictions and informed judgment. There are
inherent uncertainties related to the interpretation of tax regula-
tions in the jurisdictions in which the Company transacts busi-
ness. The judgments and estimates made at a point in time may
change based on the outcome of tax audits, as well as changes
to, or further interpretations of, regulations. Income tax expense
is adjusted in the period in which these events occur, and these
adjustments are included in the Company’s Consolidated State-
ments of Income. If such changes take place, there is a risk that
the Company’s effective tax rate may increase or decrease in any
period. In July 2006, the Financial Accounting Standards Board
(“FASB”) issued Interpretation 48, Accounting for Uncertainty in
Income Taxes (“FIN 48”), which became effective during the year
ended December 29, 2007. FIN 48 addresses the determination
of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under
FIN 48, a company must recognize the tax benefit from an uncer-
tain tax position only if it is more likely than not that the tax posi-
tion will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate resolution.
The impact of the reassessment of the Company’s tax positions
in accordance with FIN 48 did not have a material impact on its
results of operations, financial condition or liquidity.
(q) Financial Instruments
The Company uses financial instruments, including forward
exchange, option and swap contracts, to manage its exposures to
movements in interest rates, foreign exchange rates and com-
modity prices. The use of these financial instruments modifies the
exposure of these risks with the intent to reduce the risk or cost
to the Company. The Company does not use derivatives for trad-
ing purposes and is not a party to leveraged derivative contracts.
The Company formally documents its hedge relationships,
including identifying the hedging instruments and the hedged
items, as well as its risk management objectives and strategies
for undertaking the hedge transaction. This process includes link-
ing derivatives that are designated as hedges of specific assets,
liabilities, firm commitments or forecasted transactions. The
Company also formally assesses, both at inception and at least
quarterly thereafter, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes
in either the fair value or cash flows of the hedged item. If it
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
is determined that a derivative ceases to be a highly effective
hedge, or if the anticipated transaction is no longer likely to occur,
the Company discontinues hedge accounting, and any deferred
gains or losses are recorded in the “Selling, general and adminis-
trative expenses” line of the Consolidated Financial Statements.
Derivatives are recorded in the Consolidated Balance Sheets
at fair value in other assets and other liabilities. The fair value is
based upon either market quotes for actively traded instruments
or independent bids for nonexchange traded instruments.
On the date the derivative is entered into, the Company
designates the type of derivative as a fair value hedge, cash flow
hedge, net investment hedge or a mark to market hedge, and
accounts for the derivative in accordance with its designation.
Mark to Market Hedge
A derivative used as a hedging instrument whose change
in fair value is recognized to act as an economic hedge against
changes in the values of the hedged item is designated a mark
to market hedge. For derivatives designated as mark to market
hedges, changes in fair value are reported in earnings in the “Sell-
ing, general and administrative expenses” line of the Consolidated
Statements of Income. Forward exchange 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, in
accordance with SFAS No. 52, Foreign Currency Translation.
Cash Flow Hedge
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective por-
tion of the change in the fair value of a derivative that is des-
ignated as a cash flow hedge is recorded in the “Accumulated
other comprehensive loss” line of the Consolidated Balance
Sheets. When the hedged item affects the income statement,
the gain or loss included in accumulated other comprehensive
income (loss) is reported on the same line in the Consolidated
Statements of Income as the hedged item. In addition, both the
fair value of changes excluded from the Company’s effectiveness
assessments and the ineffective portion of the changes in the
fair value of derivatives used as cash flow hedges are reported
in the “Selling, general and administrative expenses” line in the
Consolidated Statements of Income.
(r) Recently Issued Accounting Pronouncements
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS
157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 was effec-
tive for the Company’s financial assets and liabilities on December
30, 2007. The FASB approved a one-year deferral of the adoption
of SFAS 157 as it relates to non-financial assets and liabilities with
the issuance in February 2008 of FASB Staff Position FAS 157-2,
Effective Date of FASB Statement No. 157, as a result of which
implementation by the Company is now required on January 4,
2009. The partial adoption of SFAS 157 in the first quarter ended
March 29, 2008 had no material impact on the financial condition,
results of operations or cash flows of the Company, but resulted
in certain additional disclosures reflected in Note15. The Company
is in the process of evaluating the impact of SFAS 157 as it relates
to its non-financial assets and liabilities.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (“SFAS 141R”). The objective of
SFAS 141R is to improve the relevance, representational faithful-
ness, and comparability of the information that a company provides
in its financial reports about a business combination and its effects.
Under SFAS 141R, a company would be required to recognize the
assets acquired, liabilities assumed, contractual contingencies
and contingent consideration measured at their fair value at the
acquisition date. It further requires that research and development
assets acquired in a business combination that have no alternative
future use be measured at their acquisition-date fair value and then
immediately charged to expense, and that acquisition-related costs
are to be recognized separately from the acquisition and expensed
as incurred. Among other changes, this statement would also
require that “negative goodwill” be recognized in earnings as a
gain attributable to the acquisition, and any deferred tax benefits
resulting from a business combination be recognized in income
from continuing operations in the period of the combination. SFAS
141R is effective for business combinations for which the acquisi-
tion date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
Noncontrolling Interests in Consolidated Financial
Statements
In December 2007, the FASB issued Statement No. 160,
“Noncontrolling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51” (“SFAS 160”). The objective
of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a company pro-
vides in its consolidated financial statements. SFAS 160 requires
a company to clearly identify and present ownership interests
in subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but
separate from the company’s equity. It also requires the amount
of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income; that changes in
ownership interest be accounted for similarly, as equity transac-
tions; and when a subsidiary is deconsolidated, that any retained
noncontrolling equity investment in the former subsidiary and
the gain or loss on the deconsolidation of the subsidiary be
measured at fair value. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company does not believe that the
adoption of SFAS 160 will have a material impact on its results
of operations or financial position.
F-13
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Disclosures About Derivative Instruments and Hedging
Activities
In March 2008, the FASB issued SFAS No. 161, Disclosures
About Derivative Instruments and Hedging Activities — an
amendment of FASB Statement No. 133 (“SFAS 161”). SFAS
161 expands the disclosure requirements of FASB Statement
No. 133 about an entity’s derivative instruments and hedging
activities to include more detailed qualitative disclosures and
expanded quantitative disclosures. The provisions of SFAS 161
are effective for fiscal years and interim periods beginning after
November 15, 2008. The adoption of SFAS 161 will not have a
material impact on the Company’s results of operations.
Employers’ Disclosures about Postretirement Benefit
Plan Assets
In December 2008, the FASB issued Staff Position No. FAS
132(R)-1, Employers’ Disclosures about Postretirement Benefit
Plan Assets (“FSP 132(R)-1”). FSP 132(R)-1 will require addi-
tional disclosures about the major categories of plan assets and
concentrations of risk, as well as disclosure of fair value levels,
similar to the disclosure requirements of SFAS 157. The en-
hanced disclosures about plan assets required by FSP 132(R)-1
must be provided in the Company’s Annual Report on Form 10-K
for the year ending January 2, 2010.
(s) Reclassifications
Certain prior year amounts in the Consolidated Financial
Statements, none of which are material, have been reclassified
to conform with the current year presentation. These reclassifica-
tions within the footnote disclosures, which relate to changes in
the classification of inventory, segment assets, segment deprecia-
tion and amortization expense and segment additions to long-lived
assets, had no impact on the Company’s results of operations.
(3) Earnings Per Share
Basic earnings per share (“EPS”) was computed by divid-
ing net income by the number of weighted average shares of
common stock outstanding during the period. Diluted EPS was
calculated to give effect to all potentially dilutive shares of com-
mon stock. The reconciliation of basic to diluted weighted average
shares for the years ended January 3, 2009 and December 29,
2007 and the six months ended December 30, 2006 is as follows:
Basic weighted average shares. . . . . . . . . .
Effect of potentially dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . .
Employee stock purchase plan
and other . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 3,
2009
December 29,
2007
Six Months
Ended
December 30,
2006
94,171
95,936
96,309
100
882
11
278
527
—
31
280
—
Diluted weighted average shares . . . . . . . .
95,164
96,741
96,620
F-14
Options to purchase 3,735, 1,163 and 1,832 shares of com-
mon stock were excluded from the diluted earnings per share
calculation because their effect would be anti-dilutive for the
years ended January 3, 2009 and December 29, 2007 and six
months ended December 30, 2006, respectively.
For the year ended July 1, 2006, basic and diluted EPS were
computed using the number of shares of Hanesbrands stock
outstanding on September 5, 2006, the date on which Hanes-
brands common stock was distributed to stockholders of Sara
Lee in connection with the spin off.
(4) Stock-Based Compensation
The Company established the Hanesbrands OIP to award
stock options, stock appreciation rights, restricted stock, restrict-
ed stock units, deferred stock units, performance shares and
cash to its employees, non-employee directors and employees
of its subsidiaries to promote the interests of the Company and
incent performance and retention of employees.
Stock Options
The exercise price of each stock option equals the closing
market price of Hanesbrands’ stock on the date of grant. Options
can generally be exercised over a term of between five and
10 years. Options vest ratably over two to three years with the
exception of one category of award made in September 2006
which vested immediately upon grant. The fair value of each
option grant is estimated on the date of grant using the Black-
Scholes option-pricing model. The following table illustrates the
assumptions for the Black-Scholes option-pricing model used in
determining the fair value of options granted during the years
ended January 3, 2009 and December 29, 2007 and six months
ended December 30, 2006, respectively.
Years Ended
January 3,
2009
December 29,
2007
Dividend yield. . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . 1.68-2.64%
28-37%
Volatility . . . . . . . . . . . . . . . . . . . . . . . .
3.8-6.0
Expected term (years). . . . . . . . . . . . . .
—
—
3.24-4.92%
26-28%
2.5-4.5
Six Months
Ended
December 30,
2006
—
4.52-4.59%
30%
2.5-4.5
The dividend yield assumption is based on the Company’s
current intent not to pay dividends. The Company uses a com-
bination of the volatility of the Company and the volatility of
peer companies for a period of time that is comparable to the ex-
pected life of the option to determine volatility assumptions due
to the limited trading history of the Company’s common stock
since the Company’s spin off from Sara Lee on September 5,
2006. The Company utilized the simplified method outlined in
SEC Staff Accounting Bulletin No. 107 to estimate expected
lives for options granted. SEC Staff Accounting Bulletin No. 110,
which was issued in December 2007, amends SEC Staff
Accounting Bulletin No. 107 and gives a limited extension on
using the simplified method for valuing stock option grants to
eligible public companies that do not have sufficient historical
exercise patterns on options granted to employees.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
A summary of the changes in stock options outstanding
to the Company’s employees under the Hanesbrands OIP is
presented below:
Weighted-
Average
Exercise
Price
Shares
Options outstanding at July 1, 2006 . . . . —
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,955
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . —
Options outstanding at
December 30, 2006. . . . . . . . . . . . . . . 2,949
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222
(277)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
(249)
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at
December 29, 2007. . . . . . . . . . . . . . . 3,645
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,624
(98)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
(142)
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at
$ —
22.37
22.37
—
$ 22.37
25.59
22.37
22.97
$ 23.41
19.81
22.50
23.35
Aggregate
Weighted
Average
Remaining
Intrinsic Contractual
Value Term (Years)
$ —
—
$ 3,686
5.99
$ 16,369
5.44
January 3, 2009 . . . . . . . . . . . . . . . . . 6,029
$ 21.86
$ —
5.99
Options exercisable at
January 3, 2009 . . . . . . . . . . . . . . . . . 2,276
$ 22.89
$ —
4.19
During 2008, after consultation with its compensation
consultants, the Compensation Committee of the Company’s
Board of Directors (the “Compensation Committee”) determined
to make decisions regarding 2009 compensation for executive
officers at its meeting in December 2008, so that such decisions
could be made prior to the January 1, 2009 effective date for any
changes in total compensation opportunities rather than retroac-
tively, and to approve equity grants simultaneously with those
decisions. Regarding 2008 compensation, the Compensation
Committee made decisions and approved equity grants at its
meeting in January 2008. Therefore, two equity awards, includ-
ing awards of stock options, were made to executive officers
and other employees during the year ended January 3, 2009.
There were 968, 634 and 1,123 options that vested dur-
ing the years ended January 3, 2009 and December 29, 2007
and six months ended December 30, 2006, respectively. The
total intrinsic value of options that were exercised during the
years ended January 3, 2009 and December 29, 2007 and the
six months ended December 30, 2006 was $1,057, $1,804 and
$8, respectively. The weighted average fair value of individual
options granted during the years ended January 3, 2009 and
December 29, 2007 and the six months ended December 30,
2006 was $6.29, $7.83 and $6.55, respectively.
Cash received from option exercises under all share-based
payment arrangements for the years ended January 3, 2009 and
December 29, 2007 and the six months ended December 30,
2006 was $2,191, $6,189 and $139, respectively. The actual tax
benefit realized for the tax deductions from option exercise of the
share-based payment arrangements totaled $806, $1,503 and $8
for the years ended January 3, 2009 and December 29, 2007 and
the six months ended December 30, 2006, respectively.
Stock Unit Awards
Restricted stock units (RSUs) of Hanesbrands’ stock are
granted to certain Company employees and non-employee direc-
tors to incent performance and retention over periods ranging
from one to three years. Upon vesting, the RSUs are converted
into shares of the Company’s common stock on a one-for-one
basis and issued to the grantees. All RSUs which have been
granted under the Hanesbrands OIP vest solely upon continued
future service to the Company. The cost of these awards is de-
termined using the fair value of the shares on the date of grant,
and compensation expense is recognized over the period during
which the grantees provide the requisite service to the Company.
A summary of the changes in the restricted stock unit awards
outstanding under the Hanesbrands OIP is presented below:
Weighted-
Average
Grant-Date
Fair Value
Shares
Aggregate
Weighted-
Average
Remaining
Intrinsic Contractual
Value Term (Years)
Nonvested share units at
July 1, 2006. . . . . . . . . . . . . . . . . . . . . —
Granted . . . . . . . . . . . . . . . . . . . . . 1,546
Vested . . . . . . . . . . . . . . . . . . . . . . —
Forfeited. . . . . . . . . . . . . . . . . . . . . —
$ —
22.37
—
—
$ —
—
Nonvested share units at
December 30, 2006. . . . . . . . . . . . . . . 1,546
$ 22.37
$ 36,516
2.41
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . .
615
(440)
(143)
25.38
22.37
23.17
Nonvested share units at
December 29, 2007. . . . . . . . . . . . . . . 1,578
$ 23.47
$ 43,922
1.89
Granted . . . . . . . . . . . . . . . . . . . . . 1,512
(583)
Vested . . . . . . . . . . . . . . . . . . . . . .
(105)
Forfeited. . . . . . . . . . . . . . . . . . . . .
18.19
23.28
23.69
Nonvested share units at
January 3, 2009 . . . . . . . . . . . . . . . . . 2,402
$ 20.19
$ 31,652
1.89
Vested share units at
January 3, 2009 . . . . . . . . . . . . . . . . . 1,023
$ 22.89
During 2008, after consultation with its compensation
consultants, the Compensation Committee determined to make
decisions regarding 2009 compensation for executive officers at
its meeting in December 2008, so that such decisions could be
made prior to the January 1, 2009 effective date for any changes
in total compensation opportunities rather than retroactively, and
to approve equity grants simultaneously with those decisions.
Regarding 2008 compensation, the Compensation Committee
made decisions and approved equity grants at its meeting in
January 2008. Therefore, two equity awards, including awards of
restricted stock units, were made to executive officers and other
employees during the year ended January 3, 2009.
The total fair value of shares vested during the years ended
January 3, 2009 and December 29, 2007 and the six months
ended December 30, 2006 was $13,560, $9,853 and $0, re-
spectively. Certain participants elected to defer receipt of shares
earned upon vesting. As of January 3, 2009, a total of 73 shares
of common stock are issuable in future years for such deferrals.
F-15
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
For all share-based payments under the Hanesbrands OIP,
during the years ended January 3, 2009 and December 29, 2007
and the six months ended December 30, 2006, the Company
recognized total compensation expense of $31,002, $33,185
and $10,176 and recognized a deferred tax benefit of $11,585,
$12,360 and $3,842, respectively. At January 3, 2009, there
was $34,485 of total unrecognized compensation cost related to
non-vested stock-based compensation arrangements, of which
$28,508, $4,861 and $1,116 is expected to be recognized in 2009,
2010 and 2011, respectively. The Company satisfies the require-
ment for common shares for share-based payments to employees
pursuant to the Hanesbrands OIP by issuing newly authorized
shares. The Hanesbrands OIP authorized 13,105 shares for awards
of stock options and restricted stock units, of which 3,547 were
available for future grants as of January 3, 2009.
The employees of the Company participated in the stock-
based compensation plans of Sara Lee prior to the Company’s
spin off on September 5, 2006. As a result of the spin off and con-
sistent with the terms of the awards under Sara Lee’s plans, the
outstanding Sara Lee stock options granted expired six months
after the spin off date. In connection with the spin off, vesting for
all nonvested service-based Sara Lee RSUs was accelerated to
the spin off date resulting in the recognition of $5,447 of addi-
tional compensation expense for the six months ended December
30, 2006. An insignificant number of performance-based Sara Lee
RSUs remained unvested through the spin off date.
Employee Stock Purchase Plan
During April 2007, the Company implemented the Hanes-
brands Inc. Employee Stock Purchase Plan of 2006 (the “ESPP”),
which is qualified under Section 423 of the Internal Revenue
Code. An aggregate of up to 2,442 shares of Hanesbrands com-
mon stock may be purchased by eligible employees pursuant
to the ESPP. The purchase price for shares under the ESPP is
equal to 85% of the stock’s fair market value on the purchase
date. During the years ended January 3, 2009 and December 29,
2007, 129 and 78 shares, respectively, were purchased under the
ESPP by eligible employees. The Company had 2,235 shares of
common stock available for issuance under the ESPP as of Janu-
ary 3, 2009. The Company recognized $447 and $440 of stock
compensation expense under the ESPP during the years ended
January 3, 2009 and December 29, 2007, respectively.
(5) Restructuring
Since becoming an independent company, the Company has
undertaken a variety of restructuring efforts in connection with its
consolidation and globalization strategy designed to improve operat-
ing efficiencies and lower costs. As a result of this strategy, the
Company expects to incur approximately $250,000 in restructuring
and related charges over the three year period following the spin off
from Sara Lee on September 5, 2006, of which approximately half
is expected to be noncash. As of January 3, 2009, the Company has
recognized approximately $209,000 and announced approximately
$219,000 in restructuring and related charges related to this strategy
since September 5, 2006. Of these charges, approximately $84,000
relates to accelerated depreciation of buildings and equipment for
facilities that have been or will be closed, approximately $79,000
relates to employee termination and other benefits, approximately
$19,000 relates to write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or cost-effec-
tive to relocate, approximately $17,000 relates to lease termination
and other costs and approximately $10,000 relates to impairments
of fixed assets. Accelerated depreciation related to the Company’s
manufacturing facilities and distribution centers that have been
or will be closed is reflected in the “Cost of sales” and “Selling,
general and administrative expenses” lines of the Consolidated
Statements of Income. The write-offs of stranded raw materials and
work in process inventory are reflected in the “Cost of sales” line of
the Consolidated Statements of Income.
The reported results for the years ended January 3, 2009 and
December 29, 2007, the six months ended December 30, 2006
and the year ended July 1, 2006 reflect amounts recognized for
restructuring actions, including the impact of certain actions that
were completed for amounts more favorable than previously
estimated. The impact of restructuring efforts on income before
income tax expense is summarized as follows:
Restructuring programs:
Year ended January 3, 2009 restructuring actions. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 30, 2007 restructuring actions . . . . . . . . . . . . . . . . . . . . . . . . .
Six months ended December 30, 2006 restructuring actions . . . . . . . . . . . . . . . . . . .
Year ended July 1, 2006 and prior restructuring actions . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in income before income tax expense. . . . . . . . . . . . . . . . . . . . .
$ 87,117
8,661
(2,698)
(273)
$ 92,807
$ —
70,050
13,128
5
$ 83,183
$ —
—
33,289
(812)
$ 32,477
$ —
—
—
(101)
$ (101)
Years Ended
January 3, 2009
December 29, 2007
Six Months Ended
December 30, 2006
Year Ended
July 1, 2006
The following table illustrates where the costs (income) associated with these actions are recognized in the Consolidated
Statements of Income:
Years Ended
January 3, 2009
December 29, 2007
Six Months Ended
December 30, 2006
Year Ended
July 1, 2006
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in income before income tax expense. . . . . . . . . . . . . . . . . . . . .
$ 42,558
(14)
50,263
$ 92,807
$ 36,912
2,540
43,731
$ 83,183
$ 21,199
—
11,278
$ 32,477
$ —
—
(101)
$ (101)
F-16
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Components of the restructuring actions are as follows:
Accelerated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee termination and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncancelable leases, other contractual obligations and other. . . . . . . . . . . . . . . . . . . .
Rollforward of accrued restructuring is as follows:
Years Ended
January 3, 2009
December 29, 2007
Six Months Ended
December 30, 2006
$ 23,848
34,409
18,696
8,993
6,861
$ 92,807
$ 39,452
31,780
—
1,857
10,094
$ 83,183
$ 21,199
11,278
—
—
—
$ 32,477
Years Ended
January 3, 2009
December 29, 2007
Six Months Ended
December 30, 2006
Beginning accrual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to restructuring expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 23,350
49,198
(41,185)
(9,570)
$ 21,793
$ 17,029
46,762
(35,517)
(4,924)
$ 23,350
$ 21,938
12,180
(16,172)
(917)
$ 17,029
Year Ended
July 1, 2006
$ —
456
—
—
(557)
$
(101)
Year Ended
July 1, 2006
$ 51,677
4,119
(29,638)
(4,220)
$ 21,938
The accrual balance as of January 3, 2009 is comprised of
$21,381 in current accrued liabilities and $412 in other noncur-
rent liabilities. The $21,381 in current accrued liabilities consists
of $19,006 for employee termination and other benefits and
$2,375 for noncancelable leases and other contractual obliga-
tions. The $412 in other noncurrent liabilities is related to noncan-
celable leases and other contractual obligations.
Adjustments to previous estimates resulted from actual
costs to settle obligations being lower than expected. The adjust-
ments were reflected in the “Restructuring” line of the Consoli-
dated Statements of Income.
Year Ended January 3, 2009 Restructuring Actions
During the year ended January 3, 2009, the Company approved
actions to close 11 manufacturing facilities and three distribution
centers and eliminate approximately 6,800 positions in Mexico, the
United States, Costa Rica, Honduras and El Salvador. The produc-
tion capacity represented by the manufacturing facilities has been
relocated to lower cost locations in Asia, Central America and the
Caribbean Basin. The distribution capacity has been relocated to
the Company’s West Coast distribution facility in California in order
to expand capacity for goods the Company sources from Asia. In
addition, approximately 200 management and administrative posi-
tions were eliminated, with the majority of these positions based in
the United States. All actions are expected to be completed within
a 12-month period. The Company recorded charges of $87,117
in the year ended January 3, 2009. The Company recognized
$37,190 which represents employee termination and other benefits
recognized in accordance with benefit plans previously commu-
nicated to the affected employee group, $18,696 for write-offs of
stranded raw materials and work in process inventory determined
not to be salvageable or cost-effective to relocate related to the
closure of certain manufacturing facilities, $14,457 for accelerated
depreciation of buildings and equipment, $8,495 for noncancelable
leases, other contractual obligations and other charges related to
the closure of certain manufacturing facilities and $8,279 for fixed
asset impairments related to the closure of certain manufactur-
ing facilities. These charges are reflected in the “Restructuring,”
“Cost of sales” and “Selling, general and administrative expenses”
lines of the Consolidated Statement of Income. As of January 3,
2009, 5,932 employees had been terminated and the severance
obligation remaining in accrued restructuring on the Consolidated
Balance Sheet was $17,954. The lease termination and other
contractual obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 3, 2009 was $2,235.
The following table summarizes planned and actual employ-
ee terminations by location as of January 3, 2009:
Number of Employees
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions remaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
1,958
1,909
1,710
1,193
150
84
7,004
5,932
1,072
7,004
Year Ended December 29, 2007 Restructuring Actions
During the year ended December 29, 2007, the Company,
in connection with its consolidation and globalization strategy,
approved actions to close 16 manufacturing facilities and three
distribution centers in the Dominican Republic, Mexico, the
United States, Brazil and Canada. All actions are expected to be
completed within a 12-month period. The net impact of these
actions was to reduce income before income tax expense by
$70,050 in the year ended December 29, 2007. As of January
3, 2009, 6,241 employees had been terminated and the sever-
ance obligation remaining in accrued liabilities on the Consoli-
dated Balance Sheet was $803. The lease termination and other
contractual obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 3, 2009 was $193.
During the year ended January 3, 2009, the Company
recognized additional restructuring charges associated with
plant closures announced in the year ended December 29, 2007,
resulting in a decrease of $8,661 to net income before income
tax expenses.
F-17
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
The Company recognized charges of $10,484 in the year ended
January 3, 2009 for accelerated depreciation of buildings and equip-
ment associated with plant closures. The additional charges are
reflected in the “Cost of sales” and “Selling, general and adminis-
trative expenses” lines of the Consolidated Statements of Income.
The Company recognized $661 in the year ended January 3,
2009, which represents charges for lease termination costs,
other contractual obligations and other restructuring related ex-
penses. These charges are reflected in the “Restructuring” line
of the Consolidated Statements of Income.
During the year ended January 3, 2009, certain actions were
completed for amounts more favorable than originally estimated,
resulting in an increase of $2,484 to income before income taxes.
The $2,484 consists of a credit for employee termination and
other benefits and resulted from actual costs to settle obligations
being lower than expected. The adjustment is reflected in the
“Restructuring” line of the Consolidated Statements of Income.
The following table summarizes planned and actual employ-
ee terminations by location as of January 3, 2009:
Number of Employees
Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions remaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
2,635
2,151
1,222
156
93
6,257
6,241
16
6,257
Six Months Ended December 30, 2006 Restructuring Actions
During the six months ended December 30, 2006, the Com-
pany, in connection with its plans to migrate portions of its manufac-
turing operations to lower-cost manufacturing facilities, to improve
alignment of sewing operations with the flow of textiles and to
consolidate production capacity, approved various actions resulting
in the closure of seven facilities. The seven facilities include four
textile and sewing plants in the United States, Puerto Rico and
Mexico and the three distribution centers in the United States. All
actions were to be completed within a 12-month period after being
approved. In the six months ended December 30, 2006, these
actions reduced income before income tax expense by $33,289.
As of January 3, 2009, all of the employees had been terminated.
During the year ended December 29, 2007, the Company rec-
ognized additional restructuring charges associated with plant clo-
sures announced in the six months ended December 30, 2006,
resulting in a decrease of $13,128 to income before income tax
expense. The Company recognized charges of $10,404 for lease
termination costs associated with plant closures announced in
the six months ended December 30, 2006, for facilities which
were exited in the year ended December 29, 2007. The additional
charges are reflected in the “Cost of sales” and “Restructuring”
lines of the Consolidated Statements of Income.
During the year ended January 3, 2009, certain actions were
completed for amounts more favorable than originally estimated,
F-18
resulting in an increase of $2,698 to income before income
taxes. The $2,698 consists of a credit of $24 for employee ter-
mination and other benefits resulting from actual costs to settle
obligations being lower than expected, a credit of $1,093 to ac-
celerated depreciation as a result of proceeds from sales of fixed
assets to which accelerated depreciation was previously charged
exceeding previous estimates, a credit of $2,295 to lease ter-
mination costs as a result of costs to settle the obligation being
lower than expected and a charge of $714 to fixed asset impair-
ments related to the closure of certain manufacturing facilities.
The charges and adjustments are reflected in the “Restructur-
ing,” “Cost of sales” and “Selling, general and administrative
expenses” lines of the Consolidated Statement of Income.
The following table summarizes planned and actual employ-
ee terminations by location as of January 3, 2009:
Number of Employees
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions remaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
967
1,781
2,748
2,748
—
2,748
(6)
Inventories
Inventories consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . .
January 3,
2009
$ 172,494
116,800
1,001,236
$ 1,290,530
December 29,
2007
$ 176,758
122,724
817,570
$ 1,117,052
(7) Allowances for Trade Accounts Receivable
The changes in the Company’s allowance for doubtful
accounts and allowance for chargebacks and other deductions
are as follows:
Balance at July 1, 2006:. . . . . . . . . . . . . . .
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
Allowance
for
Doubtful
Accounts
$ 13,257
(39)
(2,556)
Allowance for
Chargebacks
and Other
Deductions
Total
$ 15,560
24,083
(22,596)
$ 28,817
24,044
(25,152)
Balance at December 30, 2006:. . . . . . . . .
10,662
17,047
27,709
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
Balance at December 29, 2007:. . . . . . . . .
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
(363)
(971)
9,328
8,074
(4,847)
45,966
(40,699)
22,314
5,366
(18,338)
45,603
(41,670)
31,642
13,440
(23,185)
Balance at January 3, 2009: . . . . . . . . . . .
$ 12,555
$ 9,342
$ 21,897
Charges to the allowance for doubtful accounts are reflected
in the “Selling, general and administrative expenses” line and
charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in
H AN E SBRANDS INC.
2 0 0 8 AN Nu Al REp oR t oN FoRM 10-K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
the “Net sales” line of the Consolidated Statements of Income.
Deductions and write-offs, which do not increase or decrease
income, represent write-offs of previously reserved accounts
receivables and allowed customer chargebacks and deductions
against gross accounts receivable.
(8) Property, Net
property is summarized as follows:
January 3,
2009
Land
Buildings and improvements . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,633
413,375
952,301
106,043
3,794
Less accumulated depreciation . . . . . . . . . . . . . . . .
1,505,146
916,957
December 29,
2007
$ 37,969
412,326
1,014,112
33,746
12,262
1,510,415
976,129
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 588,189
$ 534,286
the Company has other short-term obligations amounting to
$4,029 which consisted of a short-term revolving facility arrange-
ment with a Japanese branch of a u.S. bank amounting to JpY
1,100 million ($12,123) of which $2,003 was outstanding at Janu-
ary 3, 2009 which accrues interest at 2.42% and a short-term
revolving facility arrangement with a Vietnamese branch of a u.S.
bank amounting to $14,000 of which $2,026 was outstanding at
January 3, 2009 which accrues interest at 12.14%. the Company
was in compliance with the covenants contained in the facilities
at January 3, 2009.
In addition, the Company has short-term revolving credit
facilities in various other locations that can be drawn on from
time to time amounting to $26,831 million of which $0 was
outstanding at January 3, 2009.
total interest paid on notes payable was $2,208, $1,175,
$308 and $2,588 in the years ended January 3, 2009 and
December 29, 2007, six months ended December 30, 2006 and
year ended July 1, 2006, respectively.
(9) Notes Payable
(10) Long-term debt
the Company had the following short-term obligations at
January 3, 2009 and December 29, 2007:
the Company had the following long-term debt at January 3,
2009 and December 29, 2007:
Short-term revolving facility in El Salvador . .
Short-term revolving facility in Thailand . . . .
Short-term revolving facility in China . . . . . .
Short-term revolving facility in India . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Rate as of
January 3,
2009
7 .38%
4 .35%
5 .36%
16 .50%
7 .31%
Principal Amount
January 3,
2009
December 29,
2007
$ 28,730
15,472
8,203
5,300
4,029
$ —
1,338
6,334
6,245
5,660
$ 61,734
$ 19,577
the Company has a short-term revolving facility arrangement
with a Salvadoran branch of a u.S. bank amounting to $45,000
of which $28,730 was outstanding at January 3, 2009 which
accrues interest at 7.38%. the Company was in compliance with
the covenants contained in this facility at January 3, 2009.
the Company has a short-term revolving facility arrangement
with a thai branch of a u.S. bank amounting to tHB 600 million
($17,251) of which $15,472 was outstanding at January 3, 2009
which accrues interest at 4.35%. the Company was in compliance
with the covenants contained in this facility at January 3, 2009.
the Company has a short-term revolving facility arrange-
ment with a Chinese branch of a u.S. bank amounting to
RMB 56 million ($8,203) of which $8,203 was outstanding at
January 3, 2009 which accrues interest at 5.36%. Borrowings
under the facility accrue interest at the prevailing base lending
rates published by the people’s Bank of China from time to time
less 10%. the Company was in compliance with the covenants
contained in this facility at January 3, 2009.
the Company has a short-term revolving facility arrange-
ment with an Indian branch of a u.S. bank amounting to
INR 260 million ($5,331) of which $5,300 was outstanding at
January 3, 2009 which accrues interest at 16.50%. the Company
was in compliance with the covenants contained in this facility
at January 3, 2009.
Interest
Rate as of
January 3,
2009
Principal Amount
January 3, December 29,
2007
2009
Maturity Date
Senior Secured Credit
Facility:
Term A . . . . . . . . . . . . . .
Term B . . . . . . . . . . . . . .
Revolving Loan Facility . .
Second Lien
Credit Facility . . . . . . . .
Floating Rate
Senior Notes . . . . . . . . .
Accounts Receivable
Securitization . . . . . . . .
5 .02%
5 .19%
3 .75%
$ 139,000 $ 139,000
976,250
—
851,250
—
September 2012
September 2013
September 2011
7 .27%
450,000
450,000
March 2014
5 .70%
493,680
500,000
December 2014
2 .10%
242,617
250,000
November 2010
$ 2,176,547 $ 2,315,250
In connection with the spin off on September 5, 2006, the
Company entered into a $2,150,000 senior secured credit facility
(the “Senior Secured Credit Facility”), a $450,000 senior secured
second lien credit facility (the “Second lien Credit Facility”) and
a $500,000 bridge loan facility (the “Bridge loan Facility”). the
Bridge loan Facility was paid off in full through the issuance of
$500,000 of floating rate senior notes (the “Floating Rate Senior
Notes”) issued in December 2006. on November 27, 2007, we
entered into an accounts receivable securitization facility (“the
Receivables Facility”), which provides for up to $250,000 in
funding accounted for as a secured borrowing, limited to the
availability of eligible receivables, and is secured by certain
domestic trade receivables. the outstanding balances at January 3,
2009 are reported in the “long-term debt” and “Current portion
of long-term debt” lines of the Consolidated Balance Sheets.
total cash paid for interest related to the long-term debt
during the years ended January 3, 2009 and December 29, 2007
and the six months ended December 30, 2006 was $150,898,
$165,331 and $68,569, respectively.
F-19
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Senior Secured Credit Facility
The Senior Secured Credit Facility initially provided for aggre-
gate borrowings of $2,150,000, consisting of: (i) a $250,000 Term
A loan facility (the “Term A Loan Facility”); (ii) a $1,400,000 Term B
loan facility (the “Term B Loan Facility”); and (iii) a $500,000 revolv-
ing loan facility (the “Revolving Loan Facility”). The Senior Secured
Credit Facility is guaranteed by substantially all of Hanesbrands’
U.S. subsidiaries and is secured by equity interests in substan-
tially all of Hanesbrands’ direct and indirect U.S. subsidiaries and
65% of the voting securities of certain foreign subsidiaries and
substantially all present and future assets of Hanesbrands and the
guarantors. At the Company’s option, borrowings under the Senior
Secured Credit Facility may be maintained from time to time as (a)
Base Rate loans, which shall bear interest at the higher of (i) 1/2 of
1% in excess of the federal funds rate and (ii) the rate published
in the Wall Street Journal as the “prime rate” (or equivalent), in
each case in effect from time to time, plus the applicable margin
in effect from time to time (which is currently 0.50% for the Term
A Loan Facility and the Revolving Loan Facility and 0.75% for the
Term B Loan Facility), or (b) LIBOR based loans, which shall bear
interest at the LIBO Rate (as defined in the Senior Secured Credit
Facility and adjusted for maximum reserves), as determined by
the administrative agent for the respective interest period plus the
applicable margin in effect from time to time (which is currently
1.50% for the Term A Loan Facility and the Revolving Loan Facility
and 1.75% for the Term B Loan Facility). The final maturity of the
Term A Loan Facility is September 5, 2012. The Term A Loan Facility
amortizes in an amount per annum equal to the following: year 1
— 5.00%; year 2 — 10.00%; year 3 — 15.00%; year 4 — 20.00%;
year 5 — 25.00%; year 6 — 25.00%. The final maturity of the Term
B Loan Facility is September 5, 2013. The Term B Loan Facility is
payable in equal quarterly installments in an amount equal to 1%
per annum, with the balance due on the maturity date. The final
maturity of the Revolving Loan Facility is September 5, 2011. As
of January 3, 2009, the Company had $0 outstanding under the
Revolving Loan Facility, $37,134 of standby and trade letters of
credit issued and outstanding under this facility and $462,866 of
borrowing availability. At January 3, 2009, the interest rates on
the Term A Loan Facility and the Term B Loan Facility were 5.02%
and 5.19% respectively. Outstanding borrowings under the Senior
Secured Credit Facility are prepayable without penalty.
On February 22, 2007, the Company entered into a First
Amendment (the “First Amendment”) to the Senior Secured
Credit Facility. Pursuant to the First Amendment, the “applicable
margin” with respect to the $1,400,000 Term B loan facility
(“Term B Loan Facility”) that comprises a part of the Senior
Secured Credit Facility was reduced from 2.25% to 1.75% with
respect to loans maintained as “LIBO Rate loans,” and from 1.25%
to 0.75% with respect to loans maintained as “Base Rate loans.”
On August 21, 2008, the Company entered into an amend-
ment (the “Second Amendment”) to the Senior Secured Credit
Facility. Pursuant to the Second Amendment, the amount of
unsecured indebtedness which the Company and its subsidiaries
that are obligors pursuant to the Senior Secured Credit Facility
may incur under senior notes was increased from $500,000 to
F-20
$1,000,000. The provisions of the Senior Secured Credit Facility
which require the proceeds of the issuance of any such notes
be applied to repay amounts due with respect to the Senior
Secured Credit Facility, and specify how any such proceeds will
be applied, remain unchanged.
The Senior Secured Credit Facility requires the Company to
comply with customary affirmative, negative, and financial cov-
enants, and includes customary events of default. As of Janu-
ary 3, 2009, the Company was in compliance with all covenants.
Second Lien Credit Facility
The Second Lien Credit Facility provides for aggregate
borrowings of $450,000 by Hanesbrands’ wholly-owned
subsidiary, HBI Branded Apparel Limited, Inc. The Second Lien
Credit Facility is unconditionally guaranteed by Hanesbrands
and each entity guaranteeing the Senior Secured Credit Facility.
The Second Lien Credit Facility and the guarantees in respect
thereof are secured on a second-priority basis (subordinate
only to the Senior Secured Credit Facility and any permitted
additions thereto or refinancings thereof) by substantially all of
the assets that secure the Senior Secured Credit Facility. Loans
under the Second Lien Credit Facility bear interest in the same
manner as those under the Senior Secured Credit Facility, sub-
ject to a margin of 2.75% for Base Rate loans and 3.75% for
LIBOR based loans. The Second Lien Credit Facility matures on
March 5, 2014, may not be prepaid prior to September 5, 2007,
and includes premiums for prepayment of the loan prior to
September 5, 2009 based upon timing of the prepayments. The
Second Lien Credit Facility will not amortize and will be repaid
in full on its maturity date. At January 3, 2009 the interest rate
on the Second Lien Credit Facility was 7.27%.
On August 21, 2008, the Company entered into an amend-
ment (the “Second Lien Amendment”) to the Second Lien Credit
Facility. Pursuant to the Second Lien Amendment, the amount of
unsecured indebtedness which the Company and its subsidiar-
ies that are obligors pursuant to the Second Lien Credit Facility
may incur under senior notes was increased from $500,000 to
$1,000,000. The provisions of the Second Lien Credit Facility which
require the proceeds of the issuance of any such notes be applied
to repay amounts due with respect to the Second Lien Credit
Facility, and specify how any such proceeds will be applied, remain
unchanged. The Second Lien Credit Facility requires the Company
to comply with customary affirmative, negative, and financial cov-
enants, and includes customary events of default. As of January 3,
2009, the Company was in compliance with all covenants.
Floating Rate Senior Notes
On December 14, 2006, the Company issued $500,000 aggre-
gate principal amount of Floating Rate Senior Notes due 2014. The
Floating Rate Senior Notes are senior unsecured obligations that
rank equal in right of payment with all of the Company’s existing
and future unsubordinated indebtedness. The Floating Rate Senior
Notes bear interest at an annual rate, reset semi-annually, equal to
the London Interbank Offered Rate, or LIBOR, plus 3.375%. Inter-
est is payable on the Floating Rate Senior Notes on June 15 and
December 15 of each year beginning on June 15, 2007. The
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Floating Rate Senior Notes will mature on December 15, 2014.
The net proceeds from the sale of the Floating Rate Senior
Notes were approximately $492,000. These proceeds, together
with working capital, were used to repay in full the $500,000
outstanding under the Bridge Loan Facility. The Floating Rate
Senior Notes are guaranteed by substantially all of the Com-
pany’s domestic subsidiaries. The Floating Rate Senior Notes are
redeemable on or after December 15, 2008, subject to premiums
based upon timing of the prepayments. The Company repur-
chased $6,320 of the Floating Rate Senior Notes for $4,354 result-
ing in a gain of $1,966 during the year ended January 3, 2009.
Accounts Receivable Securitization
On November 27, 2007, the Company entered into the Re-
ceivables Facility, which provides for up to $250,000 in funding
accounted for as a secured borrowing, limited to the availability
of eligible receivables, and is secured by certain domestic trade
receivables. The Receivables Facility will terminate on November
27, 2010. Under the terms of the Receivables Facility, the com-
pany sells, on a revolving basis, certain domestic trade receiv-
ables to HBI Receivables LLC (“Receivables LLC”), a wholly-
owned bankruptcy-remote subsidiary that in turn uses the trade
receivables to secure the borrowings, which are funded through
conduits that issue commercial paper in the short-term market
and are not affiliated with the Company or through committed
bank purchasers if the conduits fail to fund. The assets and liabili-
ties of Receivables LLC are fully reflected on our Consolidated
Balance Sheet, and the securitization is treated as a secured
borrowing for accounting purposes. The borrowings under the
Receivables Facility remain outstanding throughout the term of
the agreement subject to the Company maintaining sufficient
eligible receivables, by continuing to sell trade receivables to
Receivables LLC, unless an event of default occurs.
Availability of funding under the facility depends primarily
upon the eligible outstanding receivables balance. As of Janu-
ary 3, 2009, the Company had $242,617 outstanding under the
Receivables Facility. The outstanding balance under the Re-
ceivables Facility is reported on the Company’s Consolidated
Balance Sheet in long-term debt based on the three-year term
of the agreement and the fact that remittances on the receiv-
ables do not automatically reduce the outstanding borrowings.
All of the proceeds from the Receivables Facility were used
to make a prepayment of principal under the Senior Secured
Credit Facility. Unless the conduits fail to fund, the yield on
the commercial paper, which is the conduits’ cost to issue the
commercial paper plus certain dealer fees, is considered a
financing cost and is included in interest expense on the Con-
solidated Statement of Income. If the conduits fail to fund, the
Receivables Facility would be funded through committed bank
purchasers, and the interest rate payable at the Company’s
option at the rate announced from time to time by JPMorgan
as its prime rate or at the LIBO Rate (as defined in the Receiv-
ables Facility) plus the applicable margin in effect from time
to time. The average blended interest rate for the year ended
January 3, 2009 was 3.50%.
The Receivables Facility contains customary events of
default and requires the Company to maintain the same inter-
est coverage ratio and leverage ratio as required by the Senior
Secured Credit Facility. As of January 3, 2009, the Company was
in compliance with all covenants.
The total amount of receivables used as collateral for the
credit facility was $331,470 at January 3, 2009 and is reported
on the Company’s Consolidated Balance Sheet in trade accounts
receivable less allowances.
Future principal payments for all of the facilities described
above are as follows: $45,640 due in 2009, $229,727 due in
2010, $46,875 due in 2011, $59,375 due in 2012, $851,250 due in
2013 and $943,680 thereafter. Reflected in these future principal
payments were net principal payments of $138,703, $178,125
and $106,625 made during the years ended January 3, 2009 and
December 29, 2007 and six months ended December 30, 2006,
respectively. The prepayments relieved any requirement for the
Company to make mandatory payments on the Term A and Term
B Loan Facilities through 2009.
The Company incurred $69 and $3,266 in debt issuance
costs in connection with entering into the First Amendment
and the Receivables Facility during the years ended January
3, 2009 and December 29, 2007, respectively and $50,248 in
debt issuance costs in connection with the issuance of the
Senior Secured Credit Facility, the Second Lien Facility, Bridge
Loan Facility and the Floating Rate Senior Notes during the six
months ended December 30, 2006. Debt issuance costs are
amortized to interest expense over the respective lives of the
debt instruments, which range from five to eight years. As of
January 3, 2009, the net carrying value was $24,776 which
is included in other noncurrent assets in the Consolidated
Balance Sheet. The Company’s debt issuance cost amortization
was $6,032, $6,475 and $2,279 for the years ended January 3,
2009 and December 29, 2007 and six months ended
December 30, 2006, respectively.
The Company recognized $1,332 of losses on early ex-
tinguishment of debt during the year ended January 3, 2009
which is comprised of a loss of $1,269 related to the prepay-
ment of $125,000 on the Senior Secured Credit Facility and
$63 related to the repurchase of $6,320 of Floating Rate Senior
Notes. During the year ended December 29, 2007, the Com-
pany recognized $5,235 of losses on early extinguishment of
debt related to prepayments of $425,000 on the Senior Se-
cured Credit Facility. During the six months ended December
30, 2006, the Company recognized $7,401 of losses on early
extinguishment of debt which is comprised of a $6,125 loss for
unamortized debt issuance costs on the Bridge Loan Facility in
connection with the issuance of the Floating Rate Senior Notes
and a $1,276 loss related to unamortized debt issuance costs
on the Senior Secured Credit Facility for the prepayment of
$100,000 of principal in December 2006. As discussed above,
the proceeds from the issuance of the Floating Rate Senior
Notes were used to repay the entire outstanding principal of
the Bridge Loan Facility.
F-21
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(11) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
Cumulative
Translation
Adjustment
Net Unrealized
Income (Loss)
on Cash Flow
Hedges
Balance at July 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,895)
(5,989)
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,884)
20,114
9,230
(29,463)
$ (5,576)
(1,050)
(6,626)
(11,268)
(17,894)
(63,501)
Pension and
Postretirement
$ —
(72,412)
(72,412)
28,245
(44,167)
(301,282)
Income Taxes
$ 2,087
28,267
30,354
(6,441)
23,913
141,695
Accumulated
Other
Comprehensive
Loss
$ (8,384)
(51,184)
(59,568)
30,650
(28,918)
(252,551)
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (20,233)
$ (81,395)
$ (345,449)
$ 165,608
$ (281,469)
In connection with the spin off on September 5, 2006, the
Future minimum lease payments under noncancelable operat-
Company assumed obligations relating to the Company’s cur-
rent and former employees included within Sara Lee sponsored
pension and retirement plans, including $53,813 of additional
minimum pension liability that has not been reflected in compre-
hensive income for the six months ended December 30, 2006
but is, however, included in accumulated other comprehensive
loss at December 30, 2006.
During the six months ended December 30, 2006, the
Company adopted SFAS 158 which requires a company to report
the unfunded positions of employee benefit plans on the balance
sheet while all other deferred charges are reported as a compo-
nent of accumulated other comprehensive income. The impact of
adopting the SFAS 158 provision was $19,079, net of tax, which is
not reflected in comprehensive income but is, however, included
in accumulated other comprehensive loss at December 30, 2006.
(12) Commitments and Contingencies
The Company is a party to various pending legal proceed-
ings, claims and environmental actions by government agencies.
In accordance with SFAS No. 5, Accounting for Contingencies,
the Company records a provision with respect to a claim, suit,
investigation, or proceeding when it is probable that a liability
has been incurred and the amount of the loss can reasonably be
estimated. Any provisions are reviewed at least quarterly and are
adjusted to reflect the impact and status of settlements, rulings,
advice of counsel and other information pertinent to the particu-
lar matter. The recorded liabilities for these items were not mate-
rial to the Consolidated Financial Statements of the Company in
any of the years presented. Although the outcome of such items
cannot be determined with certainty, the Company’s legal coun-
sel and management are of the opinion that the final outcome
of these matters will not have a material adverse impact on the
consolidated financial position, results of operations or liquidity.
Operating Leases
The Company leases certain buildings and equipment under
agreements that are classified as operating leases. Rental
expense under operating leases was $53,072 in the year ended
January 3, 2009, $47,366 in the year ended December 29,
2007, $27,590 in the six months ended December 30, 2006 and
$54,874 in the year ended July 1, 2006.
F-22
ing leases (with initial or remaining lease terms in excess of one
year) are as follows: $43,488 in 2009, $39,720 in 2010, $32,119 in
2011, $24,635 in 2012, $17,004 in 2013 and $69,666 thereafter.
During the year ended January 3, 2009, the Company
entered into sale-leaseback transactions involving two distribu-
tion centers and one manufacturing facility. The facilities are
being leased back over terms ranging from one to four years and
are classified as operating leases. The Company received net
proceeds on the sales of $18,782, resulting in deferred gains of
$6,317 which will be amortized over the lease terms.
License Agreements
The Company is party to several royalty-bearing license
agreements for use of third-party trademarks in certain of their
products. The license agreements typically require a minimum
guarantee to be paid either at the commencement of the agree-
ment, by a designated date during the term of the agreement
or by the end of the agreement period. When payments are
made in advance of when they are due, the Company records a
prepayment and amortizes the expense in the “Cost of sales”
line of the Consolidated Statements of Income uniformly over
the guaranteed period. For guarantees required to be paid at the
completion of the agreement, royalties are expensed through
“Cost of sales” as the related sales are made. Management
has reviewed all license agreements and concluded that these
guarantees do not fall under Statement of Financial Account-
ing Standards Interpretation No. 45 Guarantor’s Accounting
and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others, and accordingly, there
are no liabilities recorded at inception of the agreements.
For the years ended January 3, 2009 and December 29,
2007, the six months ended December 30, 2006 and the year
ended July 1, 2006, the Company incurred royalty expense of
approximately $11,709, $11,583, $16,401 and $12,554, respec-
tively. During the six months ended December 30, 2006, the
Company incurred expense of $9,675 in connection with the
buy out of a license agreement and the settlement of certain
contractual terms relating to another license agreement. The
$9,675 was recorded in the “Selling, general and administrative
expenses” line of the Consolidated Statement of Income.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Minimum amounts due under the license agreements are
approximately $7,712 in 2009, $7,642 in 2010, $1,145 in 2011,
$1,296 in 2012 and $120 in 2013. In addition to the minimum
guaranteed amounts under license agreements, in the year
ended December 29, 2007 the Company entered into a partner-
ship agreement which included a minimum fee of $6,300 for
each year from 2008 through 2017.
(13)
Intangible Assets and Goodwill
(a)
Intangible Assets
The primary components of the Company’s intangible assets
and the related accumulated amortization are as follows:
Accumulated
Gross Amortization
Net Book
Value
Year ended January 3, 2009:
Intangible assets subject to amortization:
Trademarks and brand names . . . . . . . . . . . $ 192,857
55,556
Computer software . . . . . . . . . . . . . . . . . . .
$ 72,766
28,204
$ 120,091
27,352
$ 248,413
$ 100,970
Net book value of intangible assets . . . .
$ 147,443
Accumulated
Gross Amortization
Net Book
Value
Year ended December 29, 2007:
Intangible assets subject to amortization:
Trademarks and brand names . . . . . . . . . . . $ 188,300
51,893
Computer software . . . . . . . . . . . . . . . . . . .
$ 63,157
25,770
$ 125,143
26,123
$ 240,193
$ 88,927
During the year ended December 29, 2007, the Company
completed two business acquisitions in El Salvador: a textile
manufacturing operation, and a sheer hosiery manufacturing
company, that resulted in the recognition of goodwill of $27,293
and $1,517, respectively. The Company recognized $4,115 of ad-
ditional goodwill for these acquisitions in the year ended January
3, 2009 upon completion of final purchase price allocations.
None of the preceding business acquisitions were determined
by the Company to be material, individually or in the aggregate,
as set forth in SFAS No. 141, Accounting for Business Combina-
tions (SFAS 141). As a result, the disclosures and supplemental pro
forma information required by SFAS 141 are not presented.
Goodwill and the changes in those amounts during the
period are as follows:
Innerwear
Outerwear
International
Hosiery
Total
Net book value at
December 30, 2006 . . $ 201,533
$ 45,243
$ 13,047 $ 21,702 $ 281,525
Acquisitions of
businesses . . . . .
Foreign exchange . . .
Net book value at
9,931
—
17,468
—
—
(16)
1,517
—
28,916
(16)
December 29, 2007. .
211,464
62,711
13,031
23,219
310,425
Acquisitions
of businesses . . .
8,520
1,103
—
1,954
11,577
Net book value at
January 3, 2009 . . . . $ 219,984
$ 63,814
$ 13,031 $ 25,173 $ 322,002
There was no impairment of goodwill in any of the periods
presented.
Net book value of intangible assets . . . .
$ 151,266
(14) Financial Instruments and Risk Management
The amortization expense for intangibles subject to amortiza-
tion was $12,019 for the year ended January 3, 2009, $6,205 for
the year ended December 29, 2007, $3,466 in the six months
ended December 30, 2006 and $9,031 for the year ended July 1,
2006. The estimated amortization expense for the next five
years, assuming no change in the estimated useful lives of iden-
tifiable intangible assets or changes in foreign exchange rates
is as follows: $12,244 in 2009, $11,080 in 2010, $8,227 in 2011,
$7,999 in 2012 and $7,963 in 2013.
There was no impairment of trademarks in any of the peri-
ods presented. However, in prior years as a result of the annual
impairment reviews, the Company concluded that certain trade-
marks had lives that were no longer indefinite. As a result of this
conclusion, trademarks with a net book value of $79,044 for the
year ended July 1, 2006 were moved from the indefinite lived
category and amortization was initiated over a 30-year period.
(b) Goodwill
During the year ended January 3, 2009, the Company com-
pleted two business acquisitions: a sewing operation in Thailand,
and an embroidery and screen-printing production company in
Honduras, that resulted in the recognition of goodwill of $3,665
and $3,797, respectively.
(a)
Interest Rate derivatives
In connection with the spin off from Sara Lee on September
5, 2006, the Company incurred debt of $2,600,000 plus an un-
funded revolver with capacity of $500,000, all of which bears in-
terest at floating rates. During the years ended January 3, 2009
and December 29, 2007 and the six months ended December
30, 2006, the Company has executed certain interest rate cash
flow hedges in the form of swaps and caps in order to mitigate
the Company’s exposure to variability in cash flows for the future
interest payments on a designated portion of borrowings.
The Company records gains and losses on these derivative
instruments using hedge accounting. Under this accounting meth-
od, gains and losses are deferred into accumulated other compre-
hensive loss until the hedged transaction impacts the Company’s
earnings. However, on a quarterly basis hedge ineffectiveness will
be measured and any resulting ineffectiveness will be recorded as
gains or losses in the respective measurement period.
F-23
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
During the years ended January 3, 2009 and December 29,
2007 and the six months ended December 30, 2006, the Company
deferred losses of $66,728, $16,357 and $2,743, respectively, into
accumulated other comprehensive loss. The tables below summa-
rize our interest rate derivative portfolio as of January 3, 2009.
The Company uses foreign exchange option contracts to
reduce the foreign exchange fluctuations on anticipated
purchase and intercompany transactions. There were no open
foreign exchange option contracts at January 3, 2009 and
December 29, 2007.
Interest Rate Swaps
Notional
Amount
Interest Rates
Receive
3 year: Receive variable-pay fixed . . . . . . . . $ 200,000
100,000
4 year: Receive variable-pay fixed . . . . . . . .
200,000
5 year: Receive variable-pay fixed . . . . . . . .
493,680
4 year: Receive variable-pay fixed . . . . . . . .
200,000
2 year: Receive variable-pay fixed . . . . . . . .
200,000
2 year: Receive variable-pay fixed . . . . . . . .
3-month LIBOR
3-month LIBOR
3-month LIBOR
6-month LIBOR
3-month LIBOR
3-month LIBOR
Interest Rate Caps
Notional
Amount
Interest Rates
Receive
1 year: Receive excess of index over cap. . . $ 200,000
200,000
1 year: Receive excess of index over cap. . .
3-month LIBOR
3-month LIBOR
Pay
5.18%
5.14%
5.15%
4.26%
2.80%
2.80%
Pay
3.50%
3.50%
(c) commodity derivatives
Cotton is the primary raw material the Company uses to
manufacture many of its products and is purchased at market
prices. In the year ended July 1, 2006, the Company started to
use commodity financial instruments to hedge the price of cotton,
for which there is a high correlation between the hedged item and
the hedged instrument. There were no amounts outstanding un-
der cotton futures contracts at January 3, 2009 and December 29,
2007. The Company had no cotton option contracts outstanding at
January 3, 2009. The notional amounts outstanding under the op-
tions contracts at December 29, 2007 were 41 bales of cotton.
(b) Foreign currency derivatives
(d) Net derivative Gain or Loss
The Company uses forward exchange and option contracts to
reduce the effect of fluctuating foreign currencies on short-term
foreign currency-denominated transactions, foreign currency-de-
nominated investments, other known foreign currency exposures
and to reduce the effect of fluctuating commodity prices on raw
materials purchased for production. Gains and losses on these con-
tracts are intended to offset losses and gains on the hedged trans-
action in an effort to reduce the earnings volatility resulting from
fluctuating foreign currency exchange rates and fluctuating com-
modity prices. The Company also has foreign currency derivative
instruments to which hedge accounting is not applied. Gains and
losses are recognized as the fair value of the underlying derivatives
changes and are reflected in Selling, general and administrative
expenses in the Company’s Consolidated Statements of Income.
Historically, the principal currencies hedged by the Company
include the European euro, Mexican peso, Canadian dollar and
Japanese yen. The following table summarizes by major currency
the contractual amounts of the Company’s foreign exchange
forward contracts in U.S. dollars. The bought amounts repre-
sent the net U.S. dollar equivalent of commitments to purchase
foreign currencies, and the sold amounts represent the net U.S.
dollar equivalent of commitments to sell foreign currencies. The
foreign currency amounts have been translated into a U.S. dollar
equivalent value using the exchange rate at the reporting date.
Forward exchange contracts mature on the anticipated cash re-
quirement date of the hedged transaction, generally within one
year. The table below summarizes our foreign currency derivative
portfolio as of January 3, 2009.
January 3, 2009
December 29, 2007
Foreign currency bought (sold):
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (29,430)
40,537
(7,839)
(25,749)
5,347
(11,310)
$ (20,577)
—
(19,931)
—
—
—
F-24
For the interest rate swaps and caps and all forward ex-
change and option contracts, the following table summarizes the
net derivative gains or losses deferred into accumulated other
comprehensive loss and reclassified to earnings in the years
ended January 3, 2009 and December 29, 2007, the six months
ended December 30, 2006 and the year ended July 1, 2006.
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
$ (17,894)
$ (6,626)
$ (5,576) $ 475
(66,229)
(18,455)
(2,604)
(4,452)
2,728
7,187
1,554
(1,599)
$ (81,395)
$ (17,894)
$ (6,626) $ (5,576)
Net accumulated derivative
gain (loss) deferred at
beginning of year . . . . . . . . . .
Deferral of net derivative
loss in accumulated
other comprehensive loss. . . .
Reclassification of net
derivative loss (gain)
to income . . . . . . . . . . . . . . . .
Net accumulated
derivative gain (loss)
at end of year. . . . . . . . . . . .
The Company expects to reclassify into earnings during the
next 12 months net loss from accumulated other comprehensive
loss of approximately $4,865 at the time the underlying hedged
transactions are realized. During the years ended January 3, 2009
and December 29, 2007, the six months ended December 30,
2006 and the year ended July 1, 2006, the Company recognized in-
come (expense) of $(323), $80, $0 and $0, respectively, for hedge
ineffectiveness related to cash flow hedges. Amounts reported for
hedge ineffectiveness are not included in accumulated other com-
prehensive loss and therefore, not included in the above table.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
There were no derivative losses excluded from the assess-
ment of effectiveness or gains or losses resulting from the dis-
qualification of hedge accounting for the years ended January 3,
2009 and December 29, 2007, the six months ended December
30, 2006 and the year ended July 1, 2006. The Company recog-
nized derivative losses related to derivative instruments to which
hedge accounting was not applied of $6,691, $451, $0 and $0
for the years ended January 3, 2009 and December 29, 2007,
the six months ended December 30, 2006 and the year ended
July 1, 2006, respectively.
(e) Fair Values
The carrying amounts of cash and cash equivalents, trade
accounts receivable, notes receivable, accounts payable and
long-term debt approximated fair value as of January 3, 2009 and
December 29, 2007. The fair value of long-term debt was ap-
proximately $1,753,885 as of January 3, 2009 and had a carrying
value of $2,176,547; the fair value of long-term debt at December
29, 2007 approximated the carrying value as of that date. The
fair value was determined using market quotes. The carrying
amounts of the Company’s notes payable approximated fair value
as of January 3, 2009 and December 29, 2007, primarily due to
the short-term nature of these instruments. The fair values of the
remaining financial instruments recognized in the Consolidated
Balance Sheets of the Company at the respective year ends were:
(15) Fair Value of Financial Assets and Liabilities
The Company has adopted the provisions of SFAS 157 as of
December 30, 2007 for its financial assets and liabilities. Al-
though having partially adopted SFAS 157 has had no material im-
pact on its financial condition, results of operations or cash flows,
the Company is now required to provide additional disclosures as
part of its financial statements. SFAS 157 clarifies that fair value
is an exit price, representing the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Com-
pany utilizes market data or assumptions that market participants
would use in pricing the asset or liability. SFAS 157 establishes a
three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as ob-
servable inputs such as quoted prices in active markets; Level 2,
defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and Level 3, defined as
unobservable inputs about which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in SFAS 157. The
three valuation techniques are as follows:
n Market approach — prices and other relevant information
generated by market transactions involving identical or com-
parable assets or liabilities.
January 3, 2009
December 29, 2007
n Cost approach — amount that would be required to replace
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency forwards and options . . . . . . . . .
Interest rate caps . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity forwards and options . . . . . . . . . . . . .
$ (83,011)
2,615
46
—
$ (16,590)
196
304
266
The fair value of the swaps is determined based upon
externally developed pricing models, using financial market data
obtained from swap dealers. The fair value of the forwards and
options is based upon quoted market prices obtained from third-
party institutions.
(f) concentration of credit Risk
Trade accounts receivable due from customers that the
Company considers highly leveraged were $124,281 at January
3, 2009, $115,233 at December 29, 2007, $107,783 at December
30, 2006 and $121,870 at July 1, 2006. The financial position of
these businesses has been considered in determining allow-
ances for doubtful accounts.
See Note 21 for disclosure of significant customer concen-
trations by segment.
the service capacity of an asset or replacement cost.
n Income approach — techniques to convert future amounts to a
single present amount based on market expectations, includ-
ing present value techniques, option-pricing and other models.
The Company primarily applies the market approach for com-
modity derivatives and the income approach for interest rate and
foreign currency derivatives for recurring fair value measurements
and attempts to utilize valuation techniques that maximize the use
of observable inputs and minimize the use of unobservable inputs.
As of January 3, 2009, 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 interest rates and foreign ex-
change rates. The fair values of cotton derivatives are determined
based on quoted prices in public markets and are categorized
as Level 1, however, the Company did not have any outstanding
cotton derivatives outstanding at January 3, 2009. The fair values
of interest rate and foreign exchange rate derivatives are
F-25
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
determined based on inputs that are readily available in public
markets or can be derived from information available in publicly
quoted markets and are categorized as Level 2. The Company
does not have any financial assets or liabilities measured at fair
value on a recurring basis categorized as Level 3, and there were
no transfers in or out of Level 3 during the year ended January 3,
2009. There were no changes during year ended January 3, 2009
to the Company’s valuation techniques used to measure asset
and liability fair values on a recurring basis.
The following table sets forth by level within SFAS 157’s fair
value hierarchy the Company’s financial assets and liabilities ac-
counted for at fair value on a recurring basis January 3, 2009. As
required by SFAS 157, assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the
fair value measurement. The Company’s assessment of the signifi-
cance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of fair value assets and
liabilities and their placement within the fair value hierarchy levels.
Assets (Liabilities) at Fair Value as of January 3, 2009
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Derivative contracts, net . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ —
$ (80,350)
$ —
$ (80,350)
$ —
The determination of fair values above incorporates various
factors required under SFAS 157. These factors include not only
the credit standing of the counterparties involved and the impact
of credit enhancements, but also the impact of the Company’s
nonperformance risk on its liabilities.
(16) Defined Benefit Pension Plans
During the year ended December 29, 2007, the Company com-
pleted the separation of its pension plan assets and liabilities from
those of Sara Lee in accordance with governmental regulations,
which resulted in a higher total amount of pension plan assets
being transferred to the Company than originally was estimated
prior to the spin off. Prior to spin off, the fair value of plan assets
included in the annual valuations represented a best estimate
based upon a percentage allocation of total assets of the Sara Lee
trust. The separation resulted in a reduction to pension liabilities
of approximately $74,000 with a corresponding credit to additional
paid-in capital and resulted in a decrease of approximately $6,000
to pension expense for the year ended December 29, 2007.
Effective as of January 1, 2006, the Company created the
Hanesbrands Inc. Pension and Retirement Plan (the “Hanes-
brands Pension Plan”), a new frozen defined benefit plan to
receive assets and liabilities accrued under the Sara Lee Pension
Plan that are attributable to current and former Company em-
ployees. In connection with the spin off on September 5, 2006,
the Company assumed Sara Lee’s obligations under the Sara
Lee Corporation Consolidated Pension and Retirement Plan, the
Sara Lee Supplemental Executive Retirement Plan, the Sara Lee
F-26
Canada Pension Plans and certain other plans that related to the
Company’s current and former employees and assumed other
Sara Lee retirement plans covering only Company employees.
Prior to the spin off the obligations were not included in the
Company’s Consolidated Financial Statements. The Company
also assumed two noncontributory defined benefit plans, the
Playtex Apparel, Inc. Pension Plan (the “Playtex Plan”) and the
National Textiles, L.L.C. Pension Plan (the “National Textiles
Plan”). The obligations and costs related to all of these plans are
included in the Company’s Consolidated Financial Statements as
of January 3, 2009 and December 29, 2007.
On September 29, 2006, SFAS No. 158, “Employers’ Ac-
counting for Defined Benefit Pension and Other Postretirement
Plans” was issued. The objectives of SFAS 158 are for an employ-
er to a) recognize the overfunded status of a plan as an asset and
the underfunded status of a plan as a liability in the balance sheet
and to recognize changes in the funded status in comprehensive
income or loss, and b) measure the funded status of a plan as of
the date of its balance sheet date. Additional minimum pension
liabilities and related intangible assets are also derecognized
upon adoption of the new standard. SFAS 158 requires initial ap-
plication of the requirement to recognize the funded status of a
benefit plan and the related disclosure provisions as of the end of
fiscal years ending after December 15, 2006. SFAS 158 requires
initial application of the requirement to measure plan assets and
benefit obligations as of the balance sheet date as of the end
of fiscal years ending after December 15, 2008. The Company
adopted part (a) of the statement as of December 30, 2006. The
Company adopted part (b) of the statement as of December
29, 2007. The following table summarizes the effect of required
changes in the additional minimum pension liabilities (AML) as of
December 30, 2006 prior to the adoption of SFAS 158 as well as
the impact of the initial adoption of part (a) of SFAS 158:
Prior to AML
SFAS 158
and SFAS 158 Adjustment Pre SFAS 158 Adjustment
Post AML,
AML
Post AML,
Post SFAS 158
Prepaid pension
asset . . . . . . . .
$ — $ —
$ —
$ 1,356
$ 1,356
Accrued pension
liability . . . . . .
Intangible asset . .
Accumulated other
comprehensive
income, net
of tax . . . . . . . .
Deferred tax asset
90,491
—
48,100
436
138,591
436
61,566
(436)
200,157
—
—
—
(63,677)
40,541
(63,677)
40,541
(2,854)
1,238
(66,531)
41,779
Prior to the spin off from Sara Lee on September 5, 2006,
employees who met certain eligibility requirements participated
in defined benefit pension plans sponsored by Sara Lee. These
defined benefit pension plans included employees from a num-
ber of domestic Sara Lee business units. All obligations pursuant
to these plans have historically been obligations of Sara Lee and
as such, were not included on the Company’s historical Consoli-
dated Balance Sheets, prior to September 5, 2006. The annual
cost of the Sara Lee defined benefit plans was allocated to all
of the participating businesses based upon a specific actuarial
computation which was followed consistently.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
The annual (income) cost incurred by the Company for these
defined benefit plans is as follows:
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
The estimated net loss and prior service credit for the de-
fined benefit pension plans that will be amortized from accumu-
lated other comprehensive loss into net periodic benefit cost
over the next year are $8,324 and $26, respectively.
The funded status of the Company’s defined benefit pension
plans at the respective year ends was as follows:
Participation in Sara Lee
sponsored defined
benefit plans . . . . . . . . . . . . . . $ —
Hanesbrands sponsored
$ —
$ 725 $ 30,835
January 3,
2009
December 29,
2007
benefit plans . . . . . . . . . . . . . .
(10,993)
(2,924)
2,182
—
Playtex Apparel, Inc.
Pension Plan . . . . . . . . . . . . . .
(289)
National Textiles L.L.C.
Pension Plan . . . . . . . . . . . . . .
(519)
(127)
(339)
(30)
(234)
(425)
(1,059)
Total pension plan
(income) cost . . . . . . . . . . . . $ (11,801)
$ (3,390)
$ 2,452 $ 29,542
Due to plant closings during the year ended January 3, 2009,
the Company recorded an expense of $1,406 related to the par-
tial plan termination of the National Textiles L.L.C. Pension Plan
in September 2008, which is reported in the “Restructuring” line
of the Consolidated Statements of Income.
The components of net periodic benefit cost and other
amounts recognized in other comprehensive loss of the
Company’s noncontributory defined benefit pension plans
were as follows:
Years Ended
January 3, December 29,
2007
2009
Service cost . . . . . . . . . . . . . . . . . $ 1,136
51,412
Interest cost . . . . . . . . . . . . . . . . .
(64,549)
Expected return on assets . . . . . .
—
Asset allocation . . . . . . . . . . . . . .
Settlement cost . . . . . . . . . . . . . .
—
Amortization of:
Transition asset. . . . . . . . . . . .
Prior service cost. . . . . . . . . . .
Net actuarial loss . . . . . . . . . .
—
39
161
Net periodic benefit
$ 1,446
49,494
(55,588)
(1,867)
345
—
43
2,737
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
$ 384 $ —
5,291
(6,584)
—
—
17,848
(17,011)
—
—
(98)
(1)
605
—
—
—
Accumulated benefit obligation:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 837,416
1,136
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,412
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54,318)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,123
Plan curtailment . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Adoption of SFAS 158. . . . . . . . . . . . . . . . . . . . . .
(4,367)
Impact of exchange rate change . . . . . . . . . . . . .
22,012
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
854,414
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . .
Separation of assets and liabilities
from Sara Lee. . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS 158. . . . . . . . . . . . . . . . . . . . . .
Impact of exchange rate change . . . . . . . . . . . . .
834,214
(213,491)
—
3,702
(54,319)
—
(5,401)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
564,705
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (289,709)
$ 885,531
1,445
49,494
(53,576)
(428)
(1,485)
4,526
(48,091)
837,416
686,730
69,343
73,833
54,355
(53,576)
(761)
4,290
834,214
$ (3,202)
The total accumulated benefit obligation and the accumu-
lated benefit obligation and fair value of plan assets for the
Company’s pension plans with accumulated benefit obligations
in excess of plan assets are as follows:
Accumulated Benefit Obligation . . . . . . . . . . . . . . . . $ 854,414
Plans with Accumulated Benefit
January 3,
2009
December 29,
2007
$ 837,416
(income) cost . . . . . . . . . . .
$ (11,801)
$ (3,390)
$ 1,727 $ (1,293)
Obligation in excess of plan assets
Other Changes in Plan Assets and
Benefit Obligations Recognized in
Other Comprehensive Income (Loss)
Years Ended
January 3,
2009
December 29,
2007
Accumulated Benefit Obligation. . . . . . . . . . . . . .
Fair value of plan assets. . . . . . . . . . . . . . . . . . . .
854,414
564,705
139,363
103,818
Amounts recognized in the Company’s Consolidated Balance
Sheets consist of:
January 3,
2009
December 29,
2007
Net (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,127
(140)
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (61,162)
—
Total recognized in other comprehensive
loss (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
299,987
(61,162)
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
(2,919)
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(286,790)
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
(344,343)
Accumulated other comprehensive loss . . . . . . . . . .
$ 32,342
(2,775)
(32,769)
(44,358)
Total recognized in net periodic
benefit cost and other
comprehensive
loss (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,186
$ (64,552)
F-27
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Amounts recognized in accumulated other comprehensive
(b)
loss (income) consist of:
Plan Assets, expected Benefit Payments, and
Funding
January 3,
2009
December 29,
2007
Prior service cost (credit) . . . . . . . . . . . . . . . . . . . . . . . $ 191
344,152
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 344,343
$ (332)
(44,026)
$ (44,358)
Accrued benefit costs related to the Company’s defined
benefit pension plans are reported in the “Other noncurrent as-
sets”, “Accrued liabilities — Payroll and employee benefits” and
“Pension and postretirement benefits” lines of the Consolidated
Balance Sheets.
(a) measurement date and Assumptions
In accordance with the adoption of SFAS 158 part (b), a
year end measurement date was used to value plan assets and
obligations for the Company’s defined benefit pension plans
for the years ended January 3, 2009 and December 29, 2007.
The impact of adopting part (b) is an adjustment of $1,058 to
increase retained earnings, with offsetting decreases to pension
liability of $1,804 and accumulated other comprehensive income
of $747 for the year ended December 29, 2007. A measure-
ment date of September 30 was used for the six months ended
December 30, 2006, and a March 31 measurement date for all
previous periods. The weighted average actuarial assumptions
used in measuring the net periodic benefit cost and plan obliga-
tions for the periods presented were as follows:
Net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . .
Long-term rate of return on
January 3,
2009
December 29,
2007
December 30,
2006
July 1,
2006
6.34%
5.80%
5.77%
5.60%
plan assets . . . . . . . . . . . . . .
8.03
Rate of compensation
increase (1). . . . . . . . . . . . . . .
3.63
7.59
3.63
7.57
7.76
3.60
4.00
Plan obligations:
Discount rate . . . . . . . . . . . . . . .
Rate of compensation
6.11%
6.34%
5.77%
5.80%
increase (1). . . . . . . . . . . . . . .
3.38
3.63
3.60
4.00
(1) The compensation increase assumption applies to the non domestic plans and portions
of the Hanesbrands nonqualified retirement plans, as benefits under these plans are not
frozen at January 3, 2009, December 29, 2007, December 30, 2006, and July 1, 2006.
The allocation of pension plan assets as of the respective
period end measurement dates is as follows:
January 3,
2009
December 29,
2007
Asset category:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53%
41
6
65%
29
6
The investment objectives for the pension plan assets are
designed to generate returns that will enable the pension plans
to meet their future obligations. The asset target allocations ap-
proximate the actual asset allocations noted above.
Due to the current funded status of the plans, the Company
is not required to make any mandatory contributions to the pen-
sion plans in 2009. Expected benefit payments are as follows:
$59,354 in 2009, $50,732 in 2010, $49,397 in 2011, $48,648 in
2012, $48,757 in 2013 and $261,190 thereafter.
(17)
Postretirement Healthcare and Life Insurance
Plans
On December 1, 2007 the Company effectively terminated
all retiree medical coverage. Postretirement benefit income of
$28,467 was recorded in the Consolidated Statement of Income
for the six months ended December 30, 2006, which represented
the unrecognized amounts associated with prior plan amendments
that were being amortized into income over the remaining service
period of the participants prior to the December 2006 amend-
ments. A gain on curtailment of $32,144 is recorded in the Con-
solidated Statement of Income for the year ended December 29,
2007, which represents the final settlement of the retirement plan.
In December 2006, the Company changed the postretirement
plan benefits to (a) pass along a higher share of retiree medical
costs to all retirees effective February 1, 2007, (b) eliminate com-
pany contributions toward premiums for retiree medical coverage
effective December 1, 2007, (c) eliminate retiree medical coverage
options for all current and future retirees age 65 and older and
(d) eliminate future postretirement life benefits. Gains associated
with these plan amendments were amortized throughout the year
ended December 29, 2007 in anticipation of the effective termina-
tion of the medical plan on December 1, 2007.
F-28
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
On September 29, 2006, SFAS No. 158, “Employers’ Ac-
counting for Defined Benefit Pension and Other Postretirement
Plans” was issued. The objectives of SFAS 158 are for an em-
ployer to a) recognize the overfunded status of a plan as an asset
and the underfunded status of a plan as a liability in the balance
sheet and to recognize changes in the funded status in compre-
hensive income or loss, and b) measure the funded status of a
plan as of the date of its balance sheet date. Additional minimum
pension liabilities and related intangible assets are also derec-
ognized upon adoption of the new standard. SFAS 158 requires
initial application of the requirement to recognize the funded
status of a benefit plan and the related disclosure provisions as
of the end of fiscal years ending after December 15, 2006. SFAS
158 requires initial application of the requirement to measure
plan assets and benefit obligations as of the balance sheet date
as of the end of fiscal years ending after December 15, 2008.
The Company adopted part (a) of the statement as of December
30, 2006. The Company adopted part (b) of the statement as of
December 29, 2007. The following table summarizes the effect
of the adoption of part (a) of SFAS 158 on the December 30,
2006 balance sheet:
Accrued Postretirement Liability . . . . . .
Accumulated Other Comprehensive
Income, net of tax . . . . . . . . . . . . . . .
Deferred Tax Liability . . . . . . . . . . . . . . .
Pre-SFAS 158
SFAS 158
Adjustment
Post SFAS 158
$ 44,358
$ (35,897)
$ 8,461
—
—
21,933
13,964
21,933
13,964
Prior to the spin off from Sara Lee on September 5, 2006,
employees who met certain eligibility requirements participated
in postretirement healthcare and life insurance sponsored by
Sara Lee. These plans included employees from a number of
domestic Sara Lee business units. All obligations pursuant to
these plans have historically been obligations of Sara Lee and
as such, were not included on the Company’s historical Consoli-
dated Balance Sheets, prior to September 5, 2006. The annual
cost of the Sara Lee defined benefit plans was allocated to all
of the participating businesses based upon a specific actuarial
computation which was followed consistently. In connection
with the spin off on September 5, 2006, the Company assumed
Sara Lee’s obligations under the Sara Lee postretirement plans
related to the Company’s current and former employees.
The postretirement plan expense incurred by the Company
for these postretirement plans is as follows:
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Hanesbrands postretirement
healthcare and life
insurance plans. . . . . . . . . . . . .
Participation in Sara Lee
sponsored postretirement
and life insurance plans . . . . . .
The components of the Company’s postretirement health-
care and life insurance plans were as follows:
Service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of:
Transition asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 3,
2009
December 29,
2007
$ —
393
(7)
$ 256
835
(7)
—
—
—
(62)
(7,380)
948
Net periodic benefit (income) cost . . . . . . . . . . . . . . .
$ 386
$ (5,410)
Other Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of settlement of healthcare plan . . . . . . . . . . .
$ 1,298
—
$ (191)
(32,144)
Total recognized loss (gain) in other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
1,298
(32,335)
Total recognized in net periodic benefit
cost and other comprehensive loss . . . . . . . . . . . . . .
$ 1,684
$ (37,745)
The funded status of the Company’s postretirement healthcare
and life insurance plans at the respective year end was as follows:
January 3,
2009
December 29,
2007
Accumulated benefit obligation:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SFAS 158 adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,598
—
393
(175)
1,133
—
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,949
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
173
(173)
166
(166)
—
$ 8,647
256
836
(2,261)
(903)
23
6,598
186
(13)
2,261
(2,261)
173
Funded status and accrued benefit
cost recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,949)
$ (6,425)
Amounts recognized in the Company’s
Consolidated Balance Sheet consist of:
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (645)
(7,304)
$ (7,949)
$ (351)
(6,074)
$ (6,425)
Amounts recognized in accumulated other
comprehensive income consist of:
Actuarial (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,106)
191
$ (1,106)
$ 191
$ 386
$ (5,410)
$ 237
$ —
Accrued benefit costs related to the Company’s postretirement
—
—
214
6,188
$ 386
$ (5,410)
$ 451
$ 6,188
healthcare and life insurance plans are reported in the “Accrued
liabilities — Payroll and employee benefits” and “Pension and
postretirement benefits” lines of the Consolidated Balance Sheets.
F-29
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(a) measurement date and Assumptions
Current and deferred tax provisions (benefits) were:
In accordance with the adoption of SFAS 158 part (b), a
year end measurement date was used to value plan assets and
obligations for the Company’s postretirement life insurance plans
for the years ended January 3, 2009 and December 29, 2007.
The impact of adopting part (b) was an adjustment of $131 to
increase retained earnings, with an offsetting decrease to post-
retirement liability at December 29, 2007. The weighted average
actuarial assumptions used in measuring the net periodic benefit
cost and plan obligations for the plans at the respective mea-
surement dates were as follows:
Net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . . .
Long-term rate of return on
January 3, December 29,
2007
2009
December 30,
2006
July 1,
2006
6.20%
6.20%
5.58% —%
plan assets . . . . . . . . . . . . . . .
3.70
3.70
3.70 —
Plan obligations:
Discount rate . . . . . . . . . . . . . . . .
6.30%
6.20%
5.58% —%
(b) contributions and Benefit Payments
The Company expects to make a contribution of $645 in
2009. Expected benefit payments are as follows: $645 in 2009,
$644 in 2010, $643 in 2011, $640 in 2012, $637 in 2013 and
$3,086 thereafter.
(18)
Income Taxes
The provision for income tax computed by applying the U.S.
statutory rate to income before taxes as reconciled to the actual
provisions were:
Income before income tax expense:
Domestic . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . .
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
0.6%
99.4
6.0%
94.0
30.4% 23.4%
69.6
76.6
100.0%
100.0%
100.0% 100.0%
Tax expense at U.S.
statutory rate . . . . . . . . . . . . . .
35.0%
35.0%
35.0% 35.0%
Tax on remittance of foreign
earnings . . . . . . . . . . . . . . . . . .
(0.2)
8.9
8.1
3.3
Foreign taxes less than U.S.
statutory rate . . . . . . . . . . . . . .
(16.3)
(15.3)
(11.6)
(8.3)
Current
Deferred
Total
Year ended January 3, 2009
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,531
20,285
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,497
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,672)
4,264
(2,037)
$ 9,859
24,549
1,460
Year ended December 29, 2007
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,313
$ (1,445)
$ 35,868
$ 452
23,471
6,007
$ 22,327
4,780
962
$ 22,779
28,251
6,969
$ 29,930
$ 28,069
$ 57,999
Six Months ended December 30, 2006
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,918
14,711
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,667
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,848
(3,511)
1,148
$ 23,766
11,200
2,815
$ 34,296
$ 3,485
$ 37,781
Year ended July 1, 2006
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,598
18,069
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,964
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (27,103)
(1,911)
(17,790)
$ 92,495
16,158
(14,826)
$ 140,631
$ (46,804)
$ 93,827
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Cash payments for
income taxes. . . . . . . . . . . . . .
$ 32,767
$ 20,562
$ 18,687 $ 14,035
Cash payments above represent cash tax payments made by
the Company primarily in foreign jurisdictions. During the periods
presented prior to September 5, 2006, tax payments made in the
U.S. were made by Sara Lee on the Company’s behalf and were
settled in the funding payable with parent companies account.
The deferred tax assets and liabilities at the respective year-
ends were as follows:
January 3,
2009
December 29,
2007
Deferred tax assets:
Nondeductible reserves . . . . . . . . . . . . . . . . . . . . . $ 15,269
94,803
7,076
155,248
12,439
20,507
166,120
1,903
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt allowance . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss and other tax
—
2.1
1.4
—
1.8
1.1
—
(0.2)
2.5
(4.5)
0.4
(3.4)
carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,527
31,614
2,796
22.0%
31.5%
33.8% 22.5%
Gross deferred tax assets . . . . . . . . . . . . . . . . . .
Less valuation allowances. . . . . . . . . . . . . . . . . . . . . .
529,302
(23,727)
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . .
505,575
Deferred tax liabilities:
Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities. . . . . . . . . . . . . . . . . . . . .
3,443
3,443
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . $ 502,132
$ 425,278
$ 9,884
84,916
5,710
165,792
13,937
41,735
88,568
9,309
13,137
6,931
9,539
449,458
(15,992)
433,466
8,188
8,188
Benefit of Puerto Rico foreign
tax credits . . . . . . . . . . . . . . . . .
Change in valuation allowance . . .
Other, net . . . . . . . . . . . . . . . . . . . .
Taxes at effective worldwide
tax rates. . . . . . . . . . . . . . . . .
F-30
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
The valuation allowance for deferred tax assets as of Janu-
ary 3, 2009 and December 29, 2007 was $23,727 and $15,992,
respectively. The net change in the total valuation allowance for
the years ended January 3, 2009 and December 29, 2007 was
$7,735 and $1,401, respectively.
The valuation allowance relates in part to deferred tax assets
established under SFAS No. 109 for foreign loss carryforwards
at January 3, 2009 and December 29, 2007 was $21,527 and
$13,137, and to foreign goodwill of $2,200 at January 3, 2009
and $2,855 and December 29, 2007.
The Company and Sara Lee entered into a tax sharing agree-
ment in connection with the spin off of the Company from Sara
Lee on September 5, 2006. Under the tax sharing agreement,
within 180 days after Sara Lee filed its final consolidated tax return
for the period that included September 5, 2006, Sara Lee was
required to deliver to the Company a computation of the amount
of deferred taxes attributable to the Company’s United States and
Canadian operations that would be included on the Company’s
opening balance sheet as of September 6, 2006 (“as finally
determined”) which has been done. The Company has the right
to participate in the computation of the amount of deferred taxes.
Under the tax sharing agreement, if substituting the amount of
deferred taxes as finally determined for the amount of estimated
deferred taxes that were included on that balance sheet at the
time of the spin off causes a decrease in the net book value
reflected on that balance sheet, then Sara Lee will be required
to pay the Company the amount of such decrease. If such
substitution causes an increase in the net book value reflected on
that balance sheet, then the Company will be required to pay Sara
Lee the amount of such increase. For purposes of this computa-
tion, the Company’s deferred taxes are the amount of deferred
tax benefits (including deferred tax consequences attributable to
deductible temporary differences and carryforwards) that would
be recognized as assets on the Company’s balance sheet com-
puted in accordance with GAAP, but without regard to valuation
allowances, less the amount of deferred tax liabilities (including
deferred tax consequences attributable to taxable temporary dif-
ferences) that would be recognized as liabilities on the Company’s
opening balance sheet computed in accordance with GAAP, but
without regard to valuation allowances. Neither the Company nor
Sara Lee will be required to make any other payments to the other
with respect to deferred taxes.
The Company’s computation of the final amount of deferred
taxes for the Company’s opening balance sheet as of Septem-
ber 6, 2006 is as follows:
Estimated deferred taxes subject to the tax sharing agreement
included in opening balance sheet on September 6, 2006 . . . . . . . . . . .
$ 450,683
Final calculation of deferred taxes subject to the tax
sharing agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
360,460
Decrease in deferred taxes as of opening balance sheet on . . . . . . . . . . . .
September 6, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preliminary cash installment received from Sara Lee. . . . . . . . . . . . . . . . . .
90,223
18,000
Amount due from Sara Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 72,223
The amount that is expected to be collected from Sara Lee
based on the Company’s computation of $72,223 is included as
a receivable in Other current assets in the Consolidated Balance
Sheet as of January 3, 2009.
In assessing the realizability of deferred tax assets, manage-
ment considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, pro-
jected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances.
At January 3, 2009, the Company has net operating loss carry-
forwards of approximately $83,580 which will expire as follows:
Years Ending:
January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,963
2,704
4,825
4,065
6,197
60,826
At January 3, 2009, applicable U.S. federal income taxes and
foreign withholding taxes have not been provided on the accumu-
lated earnings of foreign subsidiaries that are expected to be per-
manently reinvested. If these earnings had not been permanently
reinvested, deferred taxes of approximately $119,000 would have
been recognized in the Consolidated Financial Statements.
As discussed in Note 2, the Company adopted FIN 48 in the
year ended December 29, 2007. As a result of the implementa-
tion of FIN 48, the Company recognized no adjustment in the
liability for unrecognized income tax benefits as of the beginning
of 2007. Although it is not reasonably possible to estimate the
amount by which these unrecognized tax benefits may increase
or decrease within the next twelve months due to uncertainties
regarding the timing of examinations and the amount of settle-
ments that may be paid, if any, to tax authorities, the Company
does not expect unrecognized tax benefits to significantly change
in the next twelve months. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
Balance at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,267
Additions based on tax positions related to the current year. . . . . . . . . . . . .
10,350
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,617
11,502
Additions based on tax positions related to the current year. . . . . . . . . . . . .
513
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
(450)
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,182
F-31
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
The Company’s policy is to recognize interest and/or penal-
ties related to income tax matters in income tax expense. The
Company recognized $647 and $720 for interest and penalties
classified as income tax expense in the Consolidated Statement
of Income for the years ended January 3, 2009 and December
29, 2007, respectively. At January 3, 2009, the Company had a
total of $1,367 of interest and penalties accrued related to unrec-
ognized tax benefits.
In addition, a $248,118 valuation allowance existed for capital
losses resulting from the sale of U.S. apparel capital assets in
2001 and 2003. Of these capital losses $224,969 expired unused
at July 1, 2006. During the six months ended December 30,
2006, deferred tax assets and the related valuation allowance
were reduced by $23,149 for the remaining capital losses and
$9,387 in foreign net operating losses retained by Sara Lee.
(19) Stockholders’ Equity
The Company is authorized to issue up to 500,000 shares
of common stock, par value $0.01 per share, and up to 50,000
shares of preferred stock, par value $0.01 per share, and permits
the Company’s board of directors, without stockholder approval,
to increase or decrease the aggregate number of shares of
stock or the number of shares of stock of any class or series
that the Company is authorized to issue. At January 3, 2009 and
December 29, 2007, 93,520 and 95,232 shares, respectively, of
common stock were issued and outstanding and no shares of
preferred stock were issued or outstanding. Included within the
50,000 shares of preferred stock, 500 shares are designated
Junior Participating Preferred Stock, Series A (the “Series A
Preferred Stock”) and reserved for issuance upon the exercise of
rights under the rights agreement described below.
On February 1, 2007, the Company announced that the
Board of Directors granted authority for the repurchase of up to
10 million shares of the Company’s common stock. Share repur-
chases are made periodically in open-market transactions, and
are subject to market conditions, legal requirements and other
factors. Additionally, management has been granted authority to
establish a trading plan under Rule 10b5-1 of the Exchange Act
in connection with share repurchases, which will allow the Com-
pany to repurchase shares in the open market during periods
in which the stock trading window is otherwise closed for our
company and certain of the Company’s officers and employees
pursuant to the Company’s insider trading policy. During 2008,
the Company purchased 1.2 million shares of common stock at
a cost of $30,275 (average price of $24.71). Since inception of
the program, the Company has purchased 2.8 million shares of
common stock at a cost of $74,747 (average price of $26.33). The
primary objective of the share repurchase program is to reduce
the impact of dilution caused by the exercise of options and
vesting of stock unit awards.
F-32
Preferred Stock Purchase Rights
Pursuant to a stockholder rights agreement entered into by the
Company prior to the spin off, one preferred stock purchase right
will be distributed with and attached to each share of the Com-
pany’s common stock. Each right will entitle its holder, under the
circumstances described below, to purchase from the Company
one one-thousandth of a share of the Series A Preferred Stock at
an exercise price of $75 per right. Initially, the rights will be associ-
ated with the Company’s common stock, and will be transferable
with and only with the transfer of the underlying share of common
stock. Until a right is exercised, its holder, as such, will have no
rights as a stockholder with respect to such rights, including, with-
out limitation, the right to vote or to receive dividends.
The rights will become exercisable and separately certificat-
ed only upon the rights distribution date, which will occur upon
the earlier of: (i) ten days following a public announcement by
the Company that a person or group (an “acquiring person”) has
acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of its outstanding shares of common stock (the
date of the announcement being the “stock acquisition date”);
or (ii) ten business days (or later if so determined by our board of
directors) following the commencement of or public disclosure
of an intention to commence a tender offer or exchange offer by
a person if, after acquiring the maximum number of securities
sought pursuant to such offer, such person, or any affiliate or
associate of such person, would acquire, or obtain the right to
acquire, beneficial ownership of 15% or more of our outstanding
shares of the Company’s common stock.
Upon the Company’s public announcement that a person or
group has become an acquiring person, each holder of a right
(other than any acquiring person and certain related parties, whose
rights will have automatically become null and void) will have the
right to receive, upon exercise, common stock with a value equal
to two times the exercise price of the right. In the event of certain
business combinations, each holder of a right (except rights which
previously have been voided as described above) will have the right
to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the right.
The Company may redeem the rights in whole, but not in
part, at a price of $0.001 per right (subject to adjustment and
payable in cash, common stock or other consideration deemed
appropriate by the board of directors) at any time prior to the ear-
lier of the stock acquisition date and the rights expiration date.
Immediately upon the action of the board of directors authoriz-
ing any redemption, the rights will terminate and the holders of
rights will only be entitled to receive the redemption price. At
any time after a person becomes an acquiring person and prior
to the earlier of (i) the time any person, together with all affili-
ates and associates, becomes the beneficial owner of 50% or
more of the Company’s outstanding common stock and (ii) the
occurrence of a business combination, the board of directors
may cause the Company to exchange for all or part of the then-
outstanding and exercisable rights shares of its common stock
at an exchange ratio of one common share per right, adjusted to
reflect any stock split, stock dividend or similar transaction.
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(20) Relationship with Sara Lee and Related Entities
n Tax Sharing Agreement. This agreement governs the
Effective upon the completion of the spin off on September
5, 2006, Sara Lee ceased to be a related party to the Com-
pany. Prior to the spin off on September 5, 2006, the Company
participated in a number of Sara Lee administered programs
such as cash funding systems, insurance programs, employee
benefit programs and workers’ compensation programs. In con-
nection with the spin off from Sara Lee, the Company assumed
$299,000 in unfunded employee benefit liabilities for pension,
postretirement and other retirement benefit qualified and
nonqualified plans, and $37,554 of liabilities in connection with
property insurance, workers’ compensation, and other programs.
The Company paid a dividend to Sara Lee of $1,950,000 and
repaid a loan in the amount of $450,000 during the six months
ended December 30, 2006 which is reflected in the Consoli-
dated Statement of Stockholders’ Equity. An additional payment
of approximately $26,306 was paid to Sara Lee during the six
months ended December 30, 2006 in order to satisfy all out-
standing payables from the Company to Sara Lee and Sara Lee
subsidiaries.
Included in the historical information (prior to September 5,
2006) are costs of certain services such as business insurance,
medical insurance, and employee benefit plans and allocations
for certain centralized administration costs for treasury, real
estate, accounting, auditing, tax, risk management, human
resources and benefits administration. Centralized administration
costs were allocated to the Company based upon a proportional
cost allocation method. These allocated costs are included in
the “Selling, general and administrative expenses” line of the
Consolidated Statement of Income. For the years ended January
3, 2009 and December 29, 2007, the total amount allocated for
centralized administration costs by Sara Lee was $0.
In connection with the spin off, the Company entered into
the following agreements with Sara Lee:
n Master Separation Agreement. This agreement governs
the contribution of Sara Lee’s branded apparel Americas/
Asia business to the Company, the subsequent distribu-
tion of shares of Hanesbrands’ common stock to Sara Lee
stockholders and other matters related to Sara Lee’s relation-
ship with the Company. To effect the contribution, Sara Lee
agreed to transfer all of the assets of the branded apparel
Americas/Asia business to the Company and the Company
agreed to assume, perform and fulfill all of the liabilities of
the branded apparel Americas/Asia division in accordance
with their respective terms, except for certain liabilities to
be retained by Sara Lee.
allocation of U.S. federal, state, local, and foreign tax liability
between the Company and Sara Lee, provides for restric-
tions and indemnities in connection with the tax treatment
of the distribution, and addresses other tax-related matters.
This agreement also provides that the Company is liable for
taxes incurred by Sara Lee that arise as a result of the Com-
pany taking or failing to take certain actions that result in the
distribution failing to meet the requirements of a tax-free dis-
tribution under Sections 355 and 368(a)(1)(D) of the Internal
Revenue Code. The Company therefore has generally agreed
that, among other things, it will not take any actions that
would result in any tax being imposed on the spin off.
n Employee Matters Agreement. This agreement allocates
responsibility for employee benefit matters on the date of
and after the spin off, including the treatment of existing
welfare benefit plans, savings plans, equity-based plans
and deferred compensation plans as well as the Company’s
establishment of new plans.
n Master Transition Services Agreement. Under this agree-
ment, the Company and Sara Lee agreed to provide each
other, for varying periods of time, with specified support
services related to among others, human resources and
financial shared services, tax-shared services and information
technology services. Each of these services is provided for
a fee, which differs depending upon the service.
n Real Estate Matters Agreement. This agreement governs
the manner in which Sara Lee will transfer to or share with
the Company various leased and owned properties associ-
ated with the branded apparel business.
n Indemnification and Insurance Matters Agreement. This
agreement provides general indemnification provisions
pursuant to which the Company and Sara Lee have agreed to
indemnify each other and their respective affiliates, agents,
successors and assigns from certain liabilities. This agree-
ment also contains provisions governing the recovery by and
payment to the Company of insurance proceeds related to
its business and arising on or prior to the date of the distribu-
tion and its insurance coverage.
n Intellectual Property Matters Agreement. This agreement
provides for the license by Sara Lee to the Company of certain
software, and governs the wind-down of the Company’s use
of certain of Sara Lee’s trademarks (other than those being
transferred to the Company in connection with the spin off).
The following is a discussion of the relationship with Sara
Lee, the services provided and how they have been accounted
for in the Company’s financial statements.
F-33
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(a) Allocation of corporate costs
(21) Business Segment Information
Prior to the six months ended December 30, 2006, the
costs of certain services that were provided by Sara Lee to the
Company were reflected in the Company’s financial statements.
Beginning with the six months ended December 30, 2006, there
were no costs allocated as the Company’s infrastructure was in
place and did not significantly benefit from these services from
Sara Lee. The costs reflected in the financial statements for peri-
ods prior to the six months ended December 30, 2006 included
charges for services such as business insurance, medical insur-
ance and employee benefit plans and allocations for certain cen-
tralized administration costs for treasury, real estate, accounting,
auditing, tax, risk management, human resources and benefits
administration. These allocations of centralized administration
costs were determined using a proportional cost allocation
method on bases that the Company and Sara Lee considered to
be reasonable, including relevant operating profit, fixed assets,
sales, and payroll. Allocated costs are included in the “Selling,
general and administrative expenses” line of the Consolidated
Statements of Income. The total amount allocated for centralized
administration costs by Sara Lee in the years ended January 3,
2009 and December 29, 2007, the six months ended December
30, 2006 and the year ended July 1, 2006 was $0, $0, $0, and
$37,478, respectively. These costs represent management’s
reasonable allocation of the costs incurred. However, these
amounts may not be representative of the costs necessary for
the Company to operate as a separate stand alone company.
The “Net transactions with parent companies” line item in the
Consolidated Statements of Parent Companies’ Equity primarily
reflects dividends paid to parent companies and costs paid by
Sara Lee on behalf of the Company.
(b)
Other Transactions with sara Lee Related
entities
During all periods presented prior to the spin off on Sep-
tember 5, 2006, the Company’s entities engaged in certain
transactions with other Sara Lee businesses that are not part of
the Company, which included the purchase and sale of certain
inventory, the exchange of services, and royalty arrangements
involving the use of trademarks or other intangibles.
Transactions with related entities are summarized in the
table below:
Sales to related entities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net royalty income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net service expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six Months
Ended
December 30,
2006
$
5
2,026
7
7,878
4,926
Year Ended
July 1,
2006
$ 1,630
1,554
4,449
23,036
5,807
The Company’s operations are managed and reported in
five operating segments, each of which is a reportable seg-
ment for financial reporting purposes: Innerwear, Outerwear,
International, Hosiery and Other. These segments are organized
principally by product category and geographic location. Manage-
ment of each segment is responsible for the operations of these
businesses but share a common supply chain and media and
marketing platforms.
The types of products and services from which each report-
able segment derives its revenues are as follows:
n Innerwear sells basic branded products that are replenish-
ment in nature under the product categories of women’s
intimate apparel, men’s underwear, kids’ underwear, socks,
thermals and sleepwear. Our direct-to-consumer retail opera-
tions are included within the Innerwear segment.
n Outerwear sells basic branded products that are seasonal
in nature under the product categories of casualwear and
activewear.
n International relates to the Latin America, Asia, Canada and
Europe geographic locations which sell products that span
across the Innerwear, Outerwear and Hosiery reportable
segments.
n Hosiery sells products in categories such as panty hose and
knee highs.
n Other is comprised of sales of nonfinished products such as
yarn and certain other materials in the United States and Latin
America that maintain asset utilization at certain manufacturing
facilities and are expected to generate break even margins.
The Company evaluates the operating performance of
its segments based upon segment operating profit, which is
defined as operating profit before general corporate expenses,
amortization of trademarks and other identifiable intangibles and
restructuring and related accelerated depreciation charges and
inventory write-offs. The accounting policies of the segments are
consistent with those described in Note 2, “Summary of Signifi-
cant Accounting Policies.”
Certain prior year segment assets, depreciation and amor-
tization expense and additions to long-lived assets disclosures
have been revised to conform to the current year presentation.
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Net sales:
Innerwear . . . . . . . . . . . $ 2,402,831 $ 2,556,906
1,221,845
421,898
266,198
56,920
Outerwear . . . . . . . . . . .
International . . . . . . . . .
Hosiery . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . .
1,180,747
460,085
227,924
21,724
$ 1,295,868 $ 2,627,101
1,140,703
398,157
290,125
62,809
616,298
197,729
144,066
19,381
Interest income and expense with related entities are
reported in the “Interest expense, net” line of the Consolidated
Statements of Income. The remaining balances included in this
line represent interest with third parties.
Total segment
net sales (1) . . . . . .
Intersegment (2) . . . . . . .
4,293,311
(44,541)
4,523,767
(49,230)
2,273,342
(22,869)
4,518,895
(46,063)
Total net sales . . . . . $ 4,248,770 $ 4,474,537
$ 2,250,473 $ 4,472,832
F-34
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Segment operating profit:
Innerwear . . . . . . . . . . . . . $ 277,486
68,769
57,070
71,596
(472)
Outerwear . . . . . . . . . . . . .
International . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . .
$ 305,959
71,364
53,147
76,917
(1,361)
$ 172,008
21,316
15,236
36,205
(288)
$ 344,643
74,170
37,003
39,069
127
Total segment
operating profit. . . . . .
474,449
506,026
244,477
495,012
Items not included in
segment operating profit:
General corporate expenses . .
Amortization of trademarks
and other identifiable
intangibles . . . . . . . . . . . .
Gain on curtailment of
postretirement benefits . . .
Restructuring . . . . . . . . . . . . .
Inventory write-off included
(52,143)
(60,213)
(46,927)
(52,482)
(12,019)
(6,205)
(3,466)
(9,031)
—
(50,263)
32,144
(43,731)
28,467
(11,278)
in cost of sales . . . . . . . . .
(18,696)
—
—
Accelerated depreciation
included in cost of sales . .
(23,862)
(36,912)
(21,199)
Accelerated depreciation
included in selling,
general and
administrative expenses . .
14
(2,540)
—
—
Total operating profit . . .
Other (income) expense . . . . .
Interest expense, net . . . . . . .
317,480
634
(155,077)
388,569
(5,235)
(199,208)
190,074
(7,401)
(70,753)
433,600
—
(17,280)
—
101
—
—
Depreciation and
amortization expense:
Innerwear . . . . . . . . . . . . . . $ 43,970
24,904
2,257
5,788
811
Outerwear . . . . . . . . . . . . . .
International . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . .
Total depreciation
77,730
37,415
$ 41,700
25,553
4,306
10,144
1,700
83,403
48,273
$ 26,335
13,821
1,678
5,461
1,089
48,384
25,028
$ 59,787
26,693
3,735
13,322
2,157
105,694
8,510
and amortization
expense. . . . . . . . . . . $ 115,145
$ 131,676
$ 73,412
$ 114,204
Years Ended
January 3, December 29,
2007
2009
Six Months
Ended
December 30,
2006
Year
Ended
July 1,
2006
Additions to long-lived
assets:
Innerwear . . . . . . . . . . . . . . $ 81,221
85,178
2,789
765
47
Outerwear . . . . . . . . . . . . . .
International . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . .
Total additions to
170,000
16,957
$ 38,758
26,881
1,997
2,029
693
70,358
26,268
$ 12,764
7,775
1,025
1,749
147
23,460
6,304
$ 43,820
52,230
6,210
5,500
609
108,369
1,710
long-lived assets. . . . $ 186,957
$ 96,626
$ 29,764
$ 110,079
Income before
income tax expense . . . $ 163,037
$ 184,126
$ 111,920
$ 416,320
(1) Includes sales between segments. Such sales are at transfer prices that are at cost plus
markup or at prices equivalent to market value.
January 3,
2009
December 29,
2007
Assets:
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,310,416
813,803
192,741
88,042
9,118
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,414,120
1,119,929
$ 1,247,441
754,178
232,142
97,804
16,807
2,348,372
1,091,111
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,534,049
$ 3,439,483
(2) Intersegment sales included in the segments’ net sales are as follows:
Years Ended
January 3, December 29,
2007
2009
Innerwear . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . .
International. . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . .
$ 7,093
24,348
1,121
11,979
—
$ 6,529
23,154
2,757
16,790
—
Six Months
Ended
December 30,
2006
$ 2,287
9,671
1,355
9,575
(19)
Year
Ended
July 1,
2006
$ 5,293
16,062
3,406
21,302
—
Total. . . . . . . . . . . . . . . . . . .
$ 44,541
$ 49,230
$ 22,869
$ 46,063
(3) Principally cash and equivalents, certain fixed assets, net deferred tax assets, goodwill,
trademarks and other identifiable intangibles, and certain other noncurrent assets.
Sales to Wal-Mart, Target and Kohl’s were substantially in
the Innerwear and Outerwear segments and represented 27%,
16% and 6% of total sales in the year ended January 3, 2009,
respectively.
Worldwide sales by product category for Innerwear, Outer-
wear, Hosiery and Other were $2,705,723, $1,321,582, $244,282
and $21,724, respectively, in the year ended January 3, 2009.
F-35
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
(22) Geographic Area Information
Years Ended or at
January 3, 2009
December 29, 2007
Six Months Ended or at
December 30, 2006
Year Ended or at
July 1, 2006
Sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,748,382
68,453
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,550
Central America and the Caribbean Basin. . . . . . . . .
98,251
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139,971
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,560
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,397
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,206
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Lived
Assets
$ 657,735
20,254
269,837
1,391
4,961
966
73,043
39,530
Sales
Long-Lived
Assets
$ 4,013,738 $ 776,113
12,844
255,319
1,116
8,902
954
11,863
13,035
73,427
26,851
83,606
124,500
70,364
6,561
75,490
Sales
$ 2,058,506
38,920
23,793
43,707
57,898
21,797
2,028
3,824
Long-Lived
Assets
$ 718,489
19,194
185,371
16,302
6,008
752
252
29,204
Sales
Long-Lived
Assets
$ 4,105,168 $ 862,280
35,376
120,161
4,979
6,828
661
158
1,597
77,516
3,185
85,898
118,798
49,374
1,680
29,583
4,248,770
$ 1,067,717
4,474,537 $ 1,080,146
2,250,473
$ 975,572
4,471,202 $ 1,032,040
Related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ 4,248,770
—
$ 4,474,537
—
$ 2,250,473
1,630
$ 4,472,832
The net sales by geographic region is attributed by customer location.
(23) Quarterly Financial Data (Unaudited)
First
Second
Third
Fourth
Total
Year ended January 3, 2009:
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 987,847
344,964
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,024
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.38
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.38
Year ended December 29, 2007: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,039,894
339,679
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,004
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.12
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.12
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,072,171
380,956
57,344
0.61
0.60
$ 1,121,907
380,357
25,434
0.26
0.26
$ 1,153,635
341,784
15,920
0.17
0.17
$ 1,153,606
361,019
38,896
0.41
0.40
$ 1,035,117
309,646
17,881
0.19
0.19
$ 1,159,130
359,855
49,793
0.52
0.52
$ 4,248,770
1,377,350
127,169
1.35
1.34
$ 4,474,537
1,440,910
126,127
1.31
1.30
The amounts above include the impact of restructuring and curtailment as described in Notes 5 and 17, respectively, to the Consoli-
dated Financial Statements. In the fourth quarter of the year ended January 3, 2009, the Company recognized a one-time out of period
adjustment to increase gross profit approximately $8,000 related to the capitalization of certain inventory supplies to be on a consistent
basis across all business lines. The inconsistent application of the policy was not material to prior years or quarterly periods.
(24) Consolidating Financial Information
In accordance with the indenture governing the Company’s
$500,000 Floating Rate Senior Notes issued on December 14,
2006, certain of the Company’s subsidiaries have guaranteed
the Company’s obligations under the Floating Rate Senior Notes.
The following presents the condensed consolidating financial
information separately for:
(i) Parent Company, the issuer of the guaranteed obligations.
Parent Company includes Hanesbrands Inc. and its 100% owned
operating divisions which are not legal entities, and excludes its
subsidiaries which are legal entities;
(ii) For the period prior to the spin off from Sara Lee, division-
al entities, on a combined basis, representing operating divisions
(not legal entities) 100% owned by Sara Lee Corporation (former
parent company);
(iii) Guarantor subsidiaries, on a combined basis, as specified
in the indenture governing the Floating Rate Senior Notes;
(iv) Non-guarantor subsidiaries, on a combined basis;
(v) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions between
or among Parent Company, the guarantor subsidiaries and the
non-guarantor subsidiaries, (b) eliminate intercompany profit in
inventory, (c) eliminate the investments in our subsidiaries and
(d) record consolidating entries; and
(vi) Parent Company, on a consolidated basis.
As described in Note 1, a separate legal entity did not exist
for Hanesbrands Inc. prior to the spin off from Sara Lee because
a direct ownership relationship did not exist among the various
F-36
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
units comprising the Branded Apparel Americas and Asia Busi-
ness. In connection with the spin off from Sara Lee, each guar-
antor subsidiary became a 100% owned direct or indirect subsid-
iary of Hanesbrands Inc. as of September 5, 2006. Therefore, a
parent company entity is not presented for periods prior to the
spin off, but divisional entities of Sara Lee are presented.
The Floating Rate Senior Notes are fully and uncondition-
ally guaranteed on a joint and several basis by each guarantor
subsidiary, each of which is wholly owned, directly or indirectly,
by Hanesbrands Inc. Each entity in the consolidating financial
information follows the same accounting policies as described
in the consolidated financial statements, except for the use by
the Parent Company and guarantor subsidiaries of the equity
method of accounting to reflect ownership interests in subsidiar-
ies which are eliminated upon consolidation.
Certain prior period amounts have been reclassified to con-
form to the current year presentation and legal entity structure
relating to the classification of the investment in subsidiary bal-
ances and related equity in earnings of subsidiaries. Prior period
presentation has been revised to combine Parent and Divisional
Entities columns for periods after the spin off from Sara Lee on
September 5, 2006.
Parent
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,456,838
3,520,096
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
936,742
839,023
34,313
63,406
(634)
170,714
103,919
130,835
3,666
Consolidating Statement of Income Year Ended January 3, 2009
Guarantor
Subsidiaries
$ 432,209
169,115
Non-Guarantor
Subsidiaries
$ 2,839,424
2,537,883
263,094
76,139
375
186,580
—
128,359
33,462
281,477
9,312
301,541
94,281
15,575
191,685
—
—
17,696
173,989
22,890
Consolidating
Entries and
Eliminations
$ (3,479,701)
(3,355,674)
(124,027)
164
—
(124,191)
—
(299,073)
—
(423,264)
—
Consolidated
$ 4,248,770
2,871,420
1,377,350
1,009,607
50,263
317,480
(634)
—
155,077
163,037
35,868
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,169
$ 272,165
$ 151,099
$ (423,264)
$ 127,169
Parent
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,421,464
3,527,794
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
893,670
923,127
(32,144)
39,625
(36,938)
5,235
339,034
154,367
142,494
16,367
Consolidating Statement of Income Year Ended December 29, 2007
Guarantor
Subsidiaries
$ 875,358
640,341
Non-Guarantor
Subsidiaries
$ 2,532,886
2,240,203
235,017
4,096
—
72
230,849
—
137,571
42,299
326,121
13,380
292,683
112,332
—
4,034
176,317
—
—
2,544
173,773
28,252
Consolidating
Entries and
Eliminations
$ (3,355,171)
(3,374,711)
19,540
1,199
—
—
18,341
—
(476,605)
(2)
(458,262)
—
Consolidated
$ 4,474,537
3,033,627
1,440,910
1,040,754
(32,144)
43,731
388,569
5,235
—
199,208
184,126
57,999
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,127
$ 312,741
$ 145,521
$ (458,262)
$ 126,127
F-37
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Consolidating Statement of Income Six Months Ended December 30, 2006
Parent
Company
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,239,788
1,583,683
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
656,105
452,483
(28,467)
2,970
229,119
7,401
(62,193)
56,234
103,291
29,152
Guarantor
Subsidiaries
$ 298,380
412,274
Non-Guarantor
Subsidiaries
$ 1,197,146
1,042,006
Consolidating
Entries and
Eliminations
$ (1,484,841)
(1,507,844)
(113,894)
57,249
—
2,036
(173,179)
—
87,559
15,043
(100,663)
3,113
155,140
60,291
—
6,272
88,577
—
—
(524)
89,101
5,516
23,003
(22,554)
—
—
45,557
—
(25,366)
—
20,191
—
Consolidated
$ 2,250,473
1,530,119
720,354
547,469
(28,467)
11,278
190,074
7,401
—
70,753
111,920
37,781
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,139
$ (103,776)
$ 83,585
$ 20,191
$ 74,139
Divisional
Entities
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,645,494
3,687,964
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
957,530
774,972
701
181,857
—
1,605
180,252
—
Consolidating Statement of Income Year Ended July 1, 2006
Guarantor
Subsidiaries
$ 947,083
791,992
Non-Guarantor
Subsidiaries
$ 2,453,589
2,075,249
155,091
162,128
(201)
(6,836)
234,515
8,820
218,859
83,291
378,340
113,508
(601)
265,433
—
6,855
258,578
10,536
Consolidating
Entries and
Eliminations
$ (3,573,334)
(3,567,705)
(5,629)
1,225
—
(6,854)
(234,515)
—
(241,369)
—
Consolidated
$ 4,472,832
2,987,500
1,485,332
1,051,833
(101)
433,600
—
17,280
416,320
93,827
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,252
$ 135,568
$ 248,042
$ (241,369)
$ 322,493
F-38
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Condensed Consolidating Balance Sheet
January 3, 2009
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,210
(4,956)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,078,048
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
288,208
Deferred tax assets and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,377,510
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208,844
27,199
232,882
545,866
91,401
Consolidated
$ 67,342
404,930
1,290,530
347,523
$ 2,355
6,096
49,581
10,158
$ 48,777
406,305
295,946
49,734
$ —
(2,515)
(133,045)
(577)
68,190
13,914
114,630
16,934
649,513
397,802
800,762
365,431
5,614
72,186
—
(37,980)
(136,137)
2,110,325
—
—
—
(1,195,379)
(85,133)
588,189
147,443
322,002
—
366,090
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,483,702
$ 1,260,983
$ 1,206,013
$ (1,416,649)
$ 3,534,049
Liabilities and Stockholders’ Equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,734
229,631
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
391,365
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,483,930
423,252
2,298,547
185,155
$ 3,980
30,875
—
—
$ 74,157
57,555
61,734
45,640
34,855
450,000
7,344
492,199
768,784
239,086
196,977
34,968
471,031
734,982
$ 85,647
(2,669)
—
—
82,978
—
4,139
87,117
(1,503,766)
$ 325,518
315,392
61,734
45,640
748,284
2,130,907
469,703
3,348,894
185,155
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,483,702
$ 1,260,983
$ 1,206,013
$ (1,416,649)
$ 3,534,049
Condensed Consolidating Balance Sheet
December 29, 2007
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,476
(13,135)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
827,312
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
196,451
Deferred tax assets and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,095,104
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286,081
25,955
232,882
424,746
386,070
Consolidated
$ 174,236
575,069
1,117,052
227,977
$ 6,329
4,389
47,443
3,888
$ 83,431
586,327
281,224
30,013
$ —
(2,512)
(38,927)
(2,375)
62,049
6,979
119,682
16,934
585,168
249,621
980,995
241,226
5,629
60,609
—
(232,117)
(43,814)
2,094,334
—
—
—
(1,009,914)
(54,402)
534,286
151,266
310,425
—
349,172
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,450,838
$ 1,040,433
$ 1,056,342
$ (1,108,130)
$ 3,439,483
Liabilities and Stockholders’ Equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,887
299,078
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
426,965
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,615,250
119,719
2,161,934
288,904
$ 4,344
22,537
—
$ 71,288
61,294
19,577
$ 85,647
(2,670)
—
26,881
450,000
1,773
478,654
561,779
152,159
250,000
19,854
422,013
634,329
82,977
—
5,001
87,978
(1,196,108)
$ 289,166
380,239
19,577
688,982
2,315,250
146,347
3,150,579
288,904
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,450,838
$ 1,040,433
$ 1,056,342
$ (1,108,130)
$ 3,439,483
F-39
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Year Ended January 3, 2009
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,786
$ 139,463
$ 319,393
$ (300,245)
$ 177,397
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of debt issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of floating rate senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on accounts receivable securitization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on accounts receivable securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction with Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,129)
—
20,612
2,047
(9,470)
(878)
—
—
(48)
791,000
(791,000)
(125,000)
(4,354)
—
—
2,191
(30,275)
18,000
483
62,299
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(77,582)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68,266)
84,476
(10,813)
—
38
(91)
(10,866)
—
—
—
(10)
—
—
—
—
—
—
—
—
—
—
(132,561)
(132,571)
—
(3,974)
6,329
(144,015)
(14,655)
4,358
(1,772)
(156,084)
(14)
602,627
(560,066)
(11)
—
—
—
—
20,944
(28,327)
—
—
—
—
(230,811)
(195,658)
(2,305)
(34,654)
83,431
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,210
$
2,355
$ 48,777
$
—
—
—
(828)
(828)
(186,957)
(14,655)
25,008
(644)
$ (177,248)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
301,073
301,073
—
—
—
—
(892)
602,627
(560,066)
(69)
791,000
(791,000)
(125,000)
(4,354)
20,944
(28,327)
2,191
(30,275)
18,000
483
—
(104,738)
(2,305)
(106,894)
174,236
$ 67,342
F-40
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Year Ended December 29, 2007
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,021,014
$ 138,162
$ (323,563)
$ (476,573)
$ 359,040
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of debt issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on accounts receivable securitization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in bank overdraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(43,206)
—
—
9,180
(1,962)
(35,988)
(1,170)
—
—
(3,135)
(428,125)
—
6,189
(44,473)
883
—
(491,679)
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(961,510)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
23,516
60,960
(9,588)
—
(5,000)
5,396
566
(8,626)
(26)
—
—
(131)
—
—
—
—
—
—
(121,799)
(121,956)
—
7,580
(1,251)
(38,832)
(20,243)
—
1,997
(541)
(57,619)
—
66,413
(88,970)
—
—
250,000
—
—
—
(834)
138,053
364,662
3,687
(12,833)
96,264
—
—
—
—
1,148
1,148
—
—
—
—
—
—
—
—
—
—
475,425
475,425
—
—
—
(91,626)
(20,243)
(5,000)
16,573
(789)
(101,085)
(1,196)
66,413
(88,970)
(3,266)
(428,125)
250,000
6,189
(44,473)
883
(834)
—
(243,379)
3,687
18,263
155,973
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,476
$ 6,329
$ 83,431
$ —
$ 174,236
F-41
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Six Months Ended December 30, 2006
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,160
$ (538,152)
$ 123,226
$ 275,845
$ 136,079
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,077)
—
1,269
132,988
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,180
Financing activities:
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of debt issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of bridge loan facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in bank overdraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with parent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,046)
—
—
2,150,000
(41,958)
(1,974,606)
(106,625)
500,000
(500,000)
139
—
(771,890)
152,551
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(595,435)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(200,095)
261,055
(2,527)
—
4,123
(114,692)
(113,096)
(42)
—
—
450,000
(8,290)
(450,000)
—
—
—
—
(275,385)
1,523,794
(321,841)
918,236
—
266,988
(268,239)
(13,160)
(6,666)
7,557
(16,760)
(29,029)
—
10,741
(3,508)
—
—
—
—
—
—
—
834
(283,890)
(26,091)
(301,914)
(1,455)
(209,172)
305,436
—
—
—
(1,086)
(1,086)
—
—
—
—
—
—
—
—
—
—
—
(274,759)
—
(274,759)
—
—
—
(29,764)
(6,666)
12,949
450
(23,031)
(3,088)
10,741
(3,508)
2,600,000
(50,248)
(2,424,606)
(106,625)
500,000
(500,000)
139
(274,551)
193,255
(195,381)
(253,872)
(1,455)
(142,279)
298,252
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,960
$ (1,251)
$ 96,264
$ —
$ 155,973
F-42
H AN E SBRANDS INC.
2 0 0 8 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 3, 2009 and December 29, 2007, six months ended December 30, 2006 and year ended July 1, 2006 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Year Ended July 1, 2006
Divisional
Entities
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,014,001
$ (312,762)
$ 427,471
$ (618,089)
$ 510,621
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in bank overdraft, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings (repayments) on notes payable to related entities, net . . . . . . . . . . . . . . . . .
Net transactions with parent companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(60,878)
—
4,731
(4,433)
(60,580)
(5,227)
—
—
—
119,012
(537,505)
(259,026)
(5,900)
(2,436)
84
(4,636)
(12,888)
(315)
—
—
275,385
(1,205)
(1,192,887)
—
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(682,746)
(919,022)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
270,675
(9,620)
(1,244,672)
976,433
(43,301)
—
705
1,741
(40,855)
—
7,984
(93,073)
—
26,091
(135,997)
—
(194,995)
(171)
191,450
113,986
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
261,055
$ (268,239)
$ 305,436
$
—
—
—
3,662
3,662
—
—
—
—
—
614,427
—
614,427
—
—
—
—
(110,079)
(2,436)
5,520
(3,666)
(110,661)
(5,542)
7,984
(93,073)
275,385
143,898
(1,251,962)
(259,026)
(1,182,336)
(171)
(782,547)
1,080,799
$ 298,252
F-43
additional shareholder
information
Additional information about Hanesbrands
is available to interested parties free of
charge and is made available periodically
throughout the year. The materials include
quarterly earnings statements, significant
news releases, and Forms 10-K, 10-Q and
8-K, which are filed with the Securities
and Exchange Commission. You may find
this information and other information
on the Internet at www.hanesbrands.com.
Printed copies of these materials may
be requested by writing:
Hanesbrands Inc.
Investor Relations
1000 East Hanes Mill Road
Winston-Salem, NC 27105
corporate web site
www.hanesbrands.com
social responsibility
Hanesbrands is committed to the effective
stewardship of energy and environmental
resources as well as conservation of natural
resources to the benefit of the company
and society. Cover pages of this annual
report are printed on Mohawk Paper Mills
Options, a 100 percent post-consumer
recycled and acid-free paper stock manufac-
tured entirely with wind-generated
electricity. The body of this annual report
is printed on Fraser Paper manufactured
using 10 percent post-consumer waste
and certified by the Sustainable Forestry
Initiative. Typesetting the body of the
report, which enhances the presentation
of the content, reduced the printed page
count by 32 percent compared with the
document filed electronically with the
Securities and Exchange Commission.
Corporate Information
stock listing
Hanesbrands common stock
is traded on the New York
Stock Exchange. Our ticker
symbol is HBI.
principal offices
1000 East Hanes Mill Road
Winston-Salem, NC 27105
Phone: (336) 519-4400
investor relations
Hanesbrands Inc.
Investor Relations
1000 East Hanes Mill Road
Winston-Salem, NC 27105
Phone: (336) 519-4710
E-mail: ir@hanesbrands.com
transfer agent
Computershare Investor Services
Phone: (312) 360-5212
or (800) 697-8592
Web site:
https://www-us.computershare.com/
Investor/contactus
Regular Mail:
P.O. Box 43078
Providence, RI 02940-3078
Overnight Mail:
Computershare Investor Services
250 Royall Street; Mail Stop 1A
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Direct to Consumers
It’s easy to buy comfortable, good-looking and affordable
Hanesbrands apparel products. In addition to leading
retailers, consumers may purchase products from our
catalogs, our commercial Web sites, and more than
200 company-owned stores across the United States.
buy our products online
www.hanes.com (Hanes)
www.championusa.com (Champion)
www.onehanesplace.com (various brands)
www.jms.com (Just My Size, Playtex, Bali)
By referring to our Web sites, we do not
incorporate our Web sites or their contents
into this Annual Report.
catalogs
To receive a free copy of our
most recent brand catalogs,
call (800) 671-1674.
1000 East Hanes Mill Road
Winston-Salem, NC 27105
(336) 519-4400
www.hanesbrands.com
Discover the World of Hanesbrands
Discover the World of Hanesbrands
employees who care Hanesbrands is a world-class
apparel company full of opportunities for leadership, professional
g
growth and economic rewards around the globe in a team-oriented,
go
goal-driven culture that embraces collaboration and inclusion.
Pro
Product developers envision. Designers create. Operators spin,
knit
knit and sew. Marketers build brands. Customer managers sell.
Fi
Finance, information technology, purchasing and others help
weave the fabric of success. And we do business the right way.
We are proud of our global reputation for conducting business
in a highly ethical and socially responsible manner. Every year, our
employees also make a difference in their communities — building,
funding, supporting improvements to the quality of life.
© 2009 Hanesbrands Inc.