l
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n
2 0 0 9 a
r
t
o
p
e
r
a strong
portfolio of
great brands
around
the world
®
®
®
®
®
®
®
®
®
A Powerful Growth Platform
Hanesbrands has built a powerful three-plank growth
platform designed to use big brands to increase sales
domestically and internationally, use a low-cost
worldwide supply chain to expand margins, and
use strong cash flow to support multiple strategies
to create value.
caribbean
cluster
asian
cluster
central
america
cluster
global growth driven by
7 major commercial geographies and
3 balanced production clusters
big brands, big markets, big potential
Investment in our brands, product development and marketing has generated brand
equity that has never been greater for our company. For 2010, we earned the equivalent
of 62 miles of additional shelf space from our retail customers in the United States, and
our major international commercial businesses operate in the fast-growing Mexico,
Canada, Japan, India, Brazil and China markets.
manufacturing scale and power
We have built a low-cost, high-scale supply chain spanning both the Western and Eastern
hemispheres that creates a competitive advantage for our brands and products around
the globe. We can favorably take advantage of trade rules in reaching 70 percent of
the world’s gross domestic product.
flexibility of strong cash flow
Hanesbrands has established a long-term flexible capital structure that allows strong
®
free cash flow to be used for debt reduction, small tactical acquisitions, or both.
To Our Investors:
hanesbrands is at an exciting inflection point. Our company has
emerged from the recession of 2009 with significant momentum, and
we are ready to bring to bear the full power of the new growth platform
we have steadily built over the past three years.
We have remade our company through focused investment, diligent change management, and a carefully crafted
set of sell more, spend less and generate cash strategies. Our mission is simple: To be the largest apparel essentials
company in the world by leveraging the three planks of our growth platform: using our big brands to drive sales
growth domestically and internationally; using our low-cost global supply chain to drive margin improvement;
and using our strong cash flow for further earnings growth.
Growth Platform The first plank of our growth platform is the size and power of our brands. We have made
significant investment in our consumer insights capability, innovative product development, and marketing. We
have very large U.S. share positions, with the No. 1 share in all of our innerwear categories and strong positions
in outerwear categories, but we have ample opportunities to further build share. Internationally, our commercial
markets include Mexico, Canada, Japan, India, Brazil and China where a substantial amount of gross domestic
product growth outside the United States will be concentrated over the next decade.
The growth platform’s second plank is the unique, low-cost global supply chain that we have built. No other
company in the world has a supply chain as geographically balanced and as low cost across the entire apparel
essentials category. The scale and position of our supply chain is designed for the global market, not just the
United States. Our supply chain has generated significant cost savings, margin expansion and contributions
to cash flow and will continue to do so as we further optimize our size, scale and production capability.
Our third growth plank is our ability to consistently generate strong cash flow. Over the past four years, we
used $1.3 billion to invest in our business and significantly delever our balance sheet. We have the potential
to increase cash flow, and we have a new flexible long-term capital structure that allows us to use cash in
executing multiple strategies for earnings growth, including debt reduction and selective tactical acquisitions.
Long-Term Goals This is a very exciting time for Hanesbrands. As we leverage our growth platform,
our long-term growth targets are 2 percent to 4 percent for net sales and 10 percent to 20 percent for EPS.
Because of the collective efforts in our company to reshape our business, manage change and confront the
recession, we have a very bright future. We are now poised like never before to drive growth, build market share
and change the profile of our company.
Richard A. Noll, Chairman and Chief Executive Officer
March 2, 2010
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 2, 2010
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) 519-8080
(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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes £ 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 July 2, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $1,387,889,493 (based
on the closing price of the common stock of $14.72 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 1, 2010, there were 95,399,708 shares of the registrant’s common stock outstanding.
Part III of this Form 10-K incorporates by reference to portions of the registrant’s proxy statement for its 2010 annual meeting of stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
H AN E SBRANDS INC.
2 0 0 9 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 1C
Executive Officers of the Registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . 25
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 27
Item 7A
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Item 8
Item 9
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 58
Item 9A
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Item 9B
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
PART III
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . 59
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 14
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PART IV
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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 9 AN NUAL RE P ORT ON F ORM 10- K
FORWARd-LOOkING s TATemeNTs
This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 (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 successfully manage social, political,
economic, legal and other conditions affecting our
supply chain, such as disruption of markets, changes
in import and export laws, currency restrictions and
currency exchange rate fluctuations;
n the impact of dramatic changes in the volatile market
price of cotton and increases in prices of other materials
used in our products;
n the impact of natural disasters;
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 our ability to continue to effectively distribute our
products through our distribution network as we
continue to consolidate our distribution network;
n our ability to optimize our global supply chain;
n current economic conditions;
n consumer spending levels;
n the risk of inflation or deflation;
n financial difficulties experienced by, or loss of or reduction in
sales to, any of our top customers or groups of customers;
n gains and losses in the shelf space that our customers
devote to our products;
n the highly competitive and evolving nature of the industry
in which we compete;
n our ability to keep pace with changing consumer
preferences;
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 our ability to comply with environmental and occupational
health and safety laws and regulations;
n costs and adverse publicity from violations of labor or
environmental laws by us or our suppliers;
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 current 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 SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. You can obtain information regarding the operation of
the SEC’s Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a Web site at
www.sec.gov that makes available reports, proxy statements
and other information regarding issuers that file electronically.
We make available free of charge at www.hanesbrands.com
(in the “Investors” section) copies of materials we file with,
or furnish to, the SEC. By referring to our Web site,
www.hanesbrands.com, we do not incorporate our Web
site or its contents into this Annual Report on Form 10-K.
2
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
PART I
ITem 1. Business
We are a consumer goods company with a portfolio of
leading apparel brands, including Hanes, Champion, Playtex,
Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman,
Outer Banks, Zorba, Rinbros and Duofold. We design, manufac-
ture, source and sell a broad range of apparel 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 sector 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. All references to “2009”, “2008” and “2007”
relate to the 52 week fiscal year ended on January 2, 2010, the
53 week fiscal year ended on January 3, 2009 and the 52 week
fiscal year ended on December 29, 2007, respectively.
During the fourth quarter of 2009, as we sought to drive
more outerwear sales through our retail operations by expand-
ing our Hanes and Champion offerings, we made the decision
to change our internal organizational structure so that our retail
operations, previously included in our Innerwear segment, would
be a separate “Direct to Consumer” segment. As a result, our
operations are managed and reported in six operating segments,
each of which is a reportable segment for financial reporting
purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer,
International and Other. Certain other insignificant changes
between segments have been reflected in the segment dis-
closures to conform to the current organizational structure. The
following table summarizes our operating segments by category:
Segment
Primary Products
Primary Brands
Innerwear
Intimate apparel, such as
bras, panties and shapewear
Hanes, Playtex, Bali, barely there,
Just My Size, Wonderbra
Outerwear
Men’s underwear and
kids’ underwear
Socks
Activewear, such as
performance T-shirts and
shorts, fleece, sports bras
and thermals
Hanes, Polo Ralph Lauren*
Hanes, Champion
Champion, Duofold
Casualwear, such as T-shirts,
fleece and sport shirts
Hanes, Just My Size, Outer Banks,
Champion, Hanes Beefy-T
Segment
Primary Products
Primary Brands
Hosiery
Hosiery
Direct to
Consumer
International
Activewear, men’s underwear,
kids’ underwear, intimate
apparel, socks, hosiery
and casualwear
Activewear, men’s underwear,
kids’ underwear, intimate
apparel, socks, hosiery
and casualwear
L’eggs, Hanes, Donna Karan,*
DKNY,* Just My Size
Bali, Hanes, Playtex, Champion,
barely there, L’eggs, Just My Size
Hanes, Champion, Wonderbra,**
Playtex,** Stedman, Zorba, Rinbros,
Kendall,* Sol y Oro, Bali, Ritmo
Other
Nonfinished products,
primarily yarn
* Brand used under a license agreement.
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 essentials
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
December 31, 2009. In 2009, Hanes was number one for the
sixth consecutive year as the most preferred men’s apparel
brand, women’s intimate apparel brand 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. In 2008, the most
recent year in which the survey was conducted, 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.
Our products are sold through multiple distribution channels.
During 2009, approximately 45% of our net sales were to mass
merchants in the United States, 16% were to national chains
and department stores in the United States, 11% were in our
International segment, 10% were in our Direct to Consumer
segment in the United States, and 18% were to other retail
channels in the United States such as embellishers, specialty
retailers and sporting goods stores. We have strong, long-term
relationships 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 multi-
functional 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 and the recently expanded presence at Wal-Mart stores
of our Just My Size brand.
3
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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 appealing, addressing changing customer needs and
industry trends. Examples of our recent innovations include:
n Hanes dyed V-neck underwear T-shirts in black, gray and
navy colors (2009).
n Champion 360° Max Support sports bra that controls
movement in all directions, scientifically tested on athletes
to deliver 360° support (2009).
n Playtex 18 Hour Seamless Smoothing bra that features
fused fabric to smooth sides and back (2009).
n Bali Natural Uplift bras that feature advanced lift for the
bust without adding size (2009).
n Hanes No Ride Up panties, specially designed for a better
fit that helps women stay “wedgie-free” (2008).
n Hanes Lay Flat Collar T-shirts and Hanes No Ride Up boxer
briefs, the brand’s latest innovation in product comfort and
fit (2008).
n Playtex 18 Hour Active Lifestyle bra that features active
styling with wickable fabric (2008).
n Bali Concealers bras, with revolutionary concealing petals
for complete modesty (2008).
n Hanes Concealing Petals bras (2008).
n Hanes Comfortsoft T-shirt (2007).
n Hanes All Over Comfort bras (2007).
n Bali Passion for Comfort bras, designed to be the ultimate
comfort bra, features a silky smooth lining for a luxurious
feel against the body (2007).
We have restructured our supply chain over the past three
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. 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. With our global supply
chain infrastructure substantially in place, we are now focused
on optimizing our supply chain to further enhance efficiency,
improve working capital and asset turns and reduce costs. We
are focused on optimizing the working capital needs of our supply
chain through several initiatives, such as supplier-managed
inventory for raw materials and sourced goods ownership
relationships. We completed the construction of a textile produc-
tion plant in Nanjing, China which is our first company-owned
textile facility in Asia. Production commenced in the fourth
quarter of 2009 and we expect to ramp up production over the
next 18 months. The Nanjing facility, along with our other textile
facilities and arrangements with outside contractors, enables
us to expand and leverage our production scale as we balance
our supply chain across hemispheres to support our production
capacity. The consolidation of our distribution network is still in
process but will not result in any substantial charges in future
periods. The distribution network consolidation involves the
implementation of new warehouse management systems and
technology, and opening of new distribution centers and new
third-party logistics providers to replace parts of our legacy
distribution network.
Our Brands
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
competitors 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 2009, Hanes was number one for the sixth
consecutive year as the most preferred men’s apparel brand,
women’s intimate apparel brand and children’s apparel brand of
consumers in Retailing Today magazine’s “Top Brands Study.”
In 2008, the most recent year the survey was conducted,
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. 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 85% of the U.S. households that have purchased men’s or
women’s casual clothing or underwear in the 12-month period
ended December 31, 2009.
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 C9 by Champion
products exclusively through Target stores.
Playtex, the third-largest brand within our portfolio, offers
a line of bras, panties and shapewear, including products that
offer solutions 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. We entered into an agreement with Wal-Mart in April
2009 that significantly expanded the presence of our Just My
Size brand. These brands serve to round out our product offer-
ings, allowing us to give consumers a variety of options to meet
their diverse needs.
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H AN E SBRANDS INC.
Our segments
During the fourth quarter of 2009, as we sought to drive
more outerwear sales through our retail operations by expand-
ing our Hanes and Champion offerings, we made the decision
to change our internal organizational structure so that our retail
operations, previously included in our Innerwear segment, would
be a separate “Direct to Consumer” segment. As a result, our
operations are managed and reported in six operating segments,
each of which is a reportable segment for financial reporting
purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer,
International and Other. Certain other insignificant changes
between segments have been reflected in the segment disclo-
sures to conform to the current organizational structure. These
segments are organized principally by product category, geo-
graphic location and distribution channel. Management of each
segment is responsible for the operations of these segments’
businesses but shares a common supply chain and media and
marketing platforms. For more information about our segments,
see Note 20 to our financial statements included in this Annual
Report on Form 10-K.
Innerwear
The Innerwear segment focuses on core apparel essentials,
and consists of products such as women’s intimate apparel,
men’s underwear, kids’ underwear, and socks, 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 and Wonderbra
brands. We are also a leading manufacturer and marketer of
men’s underwear and kids’ underwear under the Hanes and
Polo Ralph Lauren brand names. During 2009, net sales from
our Innerwear segment were $1.8 billion, representing approxi-
mately 47% of total net sales.
Outerwear
We are a leader in the casualwear and activewear markets
through our Hanes, Champion, Just My Size and Duofold
brands, where we offer products such as T-shirts and fleece.
Our casualwear lines offer a range of quality, comfortable cloth-
ing 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 2009, we entered into a multi-year agreement to
provide a women’s casualwear program with our Just My Size
brand at Wal-Mart stores. 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, sport shirts and fleece
products, including brands such as Hanes, Champion, Outer
Banks and Hanes Beefy-T, to customers, primarily wholesalers,
who then resell to screen printers and embellishers. During
2009, net sales from our Outerwear segment were $1.1 billion,
representing approximately 27% of total net sales.
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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 prod-
ucts. We market hosiery products under our L’eggs, Hanes and
Just My Size brands. During 2009, net sales from our Hosiery
segment were $186 million, representing approximately 5% of
total 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.
Direct to Consumer
Our Direct to Consumer operations include our value-based
(“outlet”) stores and Internet operations which sell products
from our portfolio of leading brands. We sell our branded
products directly to consumers through our outlet stores, as well
as our Web sites operating under the Hanes, One Hanes Place,
Just My Size and Champion names. Our Internet operations are
supported by our catalogs. As of January 2, 2010 and January 3,
2009, we had 228 and 213 outlet stores, respectively. During
2009, net sales from our Direct to Consumer segment were
$370 million, representing approximately 10% of total net sales.
International
International includes products that span across the
Innerwear, Outerwear and Hosiery reportable segments and
are primarily marketed under the Hanes, Champion, Wonderbra,
Playtex, Stedman, Zorba, Rinbros, Kendall, Sol y Oro, Bali and
Ritmo brands. During 2009, net sales from our International
segment were $438 million, representing approximately 11% of
total net sales and included sales in Latin America, Asia, Canada,
Europe and South America. Our largest international markets
are Canada, Japan, Mexico, Europe and Brazil, and we also have
sales offices in India and China.
Other
Our Other segment primarily consists of sales of yarn to
third parties in the United States and Latin America that main-
tain asset utilization at certain manufacturing facilities and are
intended to generate approximate break even margins. During
2009, net sales from our Other segment were $13 million,
representing less than 1% of total net sales. In October 2009,
we completed the sale of our yarn operations as a result of
which we ceased making our own yarn and now source all of our
yarn requirements from large-scale yarn suppliers. As a result of
the sale of our yarn operations we will no longer have net sales
in our Other segment in the future.
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design, Research and Product development
At the core of our design, research and product development
capabilities is a team of approximately 300 professionals. We
have combined our design, research and development teams
into an integrated group for all of our product categories. A facil-
ity 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. In 2009, 2008 and 2007,
we spent approximately $46 million, $46 million and $45 million,
respectively, on design, research and product development,
including the development of new and improved products.
customers
In 2009, approximately 89% of our net sales were to
customers in the United States and approximately 11% were to
customers outside the United States. Domestically, almost 81%
of our net sales were wholesale sales to retailers, 11% were
direct to consumers and 8% were wholesale sales to third-party
embellishers. We have well-established relationships with some
of the largest apparel retailers in the world. Our largest custom-
ers are Wal-Mart Stores, Inc., or “Wal-Mart,” Target Corporation,
or “Target,” and Kohl’s Corporation, or “Kohl’s,” accounting for
27%, 17% and 7%, respectively, of our total sales in 2009. As is
common in the apparel essentials industry, we generally do not
have purchase agreements that obligate our customers to
purchase our products. However, all of our key customer
relationships have been in place for ten years or more. Wal-Mart,
Target and Kohl’s are our only customers with sales that exceed
10% of any individual segment’s sales. In our Innerwear seg-
ment, Wal-Mart accounted for 40% of sales, Target accounted
for 16% of sales and Kohl’s accounted for 12% of sales during
2009. In our Outerwear segment, Target accounted for 34% of
sales and Wal-Mart accounted for 19% of sales during 2009.
In our Hosiery segment, Wal-Mart accounted for 27% of sales
during 2009 and Target accounted for 10% of sales during 2009.
Due to their size and operational scale, high-volume retailers
such as Wal-Mart and Target require extensive category and
product knowledge and specialized services regarding the
quantity, quality and timing of product orders. We have orga-
nized 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 efficient use of resources that delivers
a high level of category and channel expertise and services to
these customers.
Sales to the mass merchant channel in the United States
accounted for approximately 45% of our net sales in 2009. We
sell all of our product categories in this channel primarily under
our Hanes, Just My Size and Playtex 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 char-
acterized by large retailers, such as Wal-Mart. Wal-Mart, which
6
accounted for approximately 27% of our net sales in 2009, is
our largest mass merchant customer.
Sales to the national chains and department stores channel
in the United States accounted for approximately 16% of our net
sales in 2009. These retailers target a higher-income 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 retailers 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 consumers 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 in our Direct to Consumer segment in the United
States accounted for approximately 10% of our net sales in
2009. We sell our branded products directly to consumers
through our 228 outlet stores, as well as our Web sites operating
under the Hanes, One Hanes Place, Just My Size and Champion
names. Our outlet stores are value-based, offering the consumer
a savings of 25% to 40% off suggested retail prices, and sell
first-quality, excess, post-season, obsolete and slightly imperfect
products. Our Web sites, supported by our catalogs, address
the growing direct to consumer channel that operates in today’s
24/7 retail environment, and we have an active database of
approximately four million consumers receiving our catalogs and
emails. Our Web sites continue to experience growth as more
consumers embrace this retail shopping channel.
Sales in our International segment represented approxi-
mately 11% of our net sales in 2009, and included sales in Latin
America, Asia, Canada, Europe and South America. Our largest
international markets are Canada, Japan, Mexico, Europe and
Brazil, 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 business
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 and Champion socks, Champion
activewear, 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. For more
information about our sales on a geographic basis, see Note 21
to our financial statements.
Sales in other channels in the United States represented
approximately 18% of our net sales in 2009. We sell T-shirts,
golf and sport shirts and fleece sweatshirts to third-party embel-
lishers primarily under our Hanes, Hanes Beefy-T and Outer
Banks brands. Sales to third-party embellishers accounted for
approximately 7% of our net sales in 2009. We also sell a sig-
nificant range of our underwear, activewear and socks products
under the Champion brand to wholesale clubs, such as Costco,
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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 generally do not
purchase our products under long-term supply contracts, but
rather on a purchase order basis, effective inventory manage-
ment requires close coordination with the customer base.
Through Kanban, a multi-initiative effort that determines
production quantities, and in doing so, facilitates just-in-time
production and ordering systems, as well as inventory manage-
ment, demand prioritization and related initiatives, we seek to
ensure that products are available to meet customer demands
while effectively managing inventory levels. We also employ
various other types of inventory management techniques that
include collaborative forecasting and planning, supplier-managed
inventory, key event management and various forms of re-
plenishment management processes. Our supplier-managed
inventory initiative is intended to shift raw material ownership
and management to our suppliers until consumption, freeing up
cash and improving response time. We have demand manage-
ment 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.
seasonality and Other Factors
Our operating results are subject to some variability due to
seasonality and other factors. Generally, our diverse range of
product offerings helps mitigate the impact of seasonal changes
in demand for certain items. Sales are typically higher in the
last two quarters (July to December) of each fiscal year. Socks,
hosiery and fleece products generally have higher sales during
this period as a result of cooler weather, back-to-school shopping
and holidays. Sales levels in any period are also impacted by
customers’ decisions to increase or decrease their inventory
levels in response to anticipated consumer demand. Our
customers may cancel orders, change delivery schedules or
change the mix of products ordered with minimal notice to us.
For example, we have experienced a shift in timing by our largest
retail customers of back-to-school programs between June
and July the last two years. 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
market in a compelling way. Our approach is to build targeted,
effective 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 en-
ables us to meet key consumer needs and leverage advertising
dollars. We believe that the strength of our consumer insights,
our distinctive brand propositions and our focus on integrated
marketing give us a competitive advantage in the fragmented
apparel marketplace.
In 2009, we launched a number of new advertising and
marketing initiatives:
n We launched a new television advertising campaign in
support of Hanes Comfort Fit socks for the family.
n We announced that our Champion and Duofold brands have
partnered with accomplished international mountaineer
and motivational speaker Jamie Clarke to lead Expedition
Hanesbrands, a Mount Everest expedition in 2010 designed
to drive brand awareness and showcase our research and
development innovation and textile science leadership.
n In connection with our Expedition Hanesbrands initiative,
Champion launched a new “What’s Your Everest” marketing
campaign and online community to support people in
reaching their personal aspirations and goals.
n Hanes became the Official Apparel Sponsor of Passionately
Pink for the Cure, a fund-raising program created by
Susan G. Komen for the Cure that inspires breast cancer
advocacy and honors those affected by the disease. Hanes
also offers a special “pink collection” of panties, bras, socks
and graphic tees, and has created a campaign Web site,
www.hanespink.com, that features interactive content to
inspire people to make a difference in the breast cancer
support community.
n Champion was selected by US Lacrosse, the sport’s national
governing body, as the “Official Performance Apparel of US
Lacrosse” and Champion has the right to manufacture apparel
with the US Lacrosse logo that will be sold to participating
teams. In addition to the apparel partnership, the 2010 US
Lacrosse National Convention, the largest lacrosse-specific
educational and networking opportunity in the country, will
be presented by Champion.
We also continued some of our existing advertising and
marketing initiatives:
n We continued our men’s underwear advertising featuring
Michael Jordan, in support of Hanes Lay Flat Collar T-shirts
and No Ride Up boxer briefs.
n We continued our television advertising featuring Sarah
Chalke in another “Look Who” advertising campaign in
support of our Hanes No Ride Up panties.
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n We continued our alliance with The Walt Disney Company
by opening Disney Design-a-Tee presented by Hanes, an
innovative next-generation store for apparel souvenirs at the
Walt Disney World Resort in Orlando, Florida, an interactive
T-shirt design and printing store that enables Disney guests
to enhance their magical Disney experience with a personal-
ized custom-designed Hanes T-shirt printed while they wait.
n We continued our “How You Play” national advertising
campaign for Champion that we launched in 2007. The
campaign includes print, out-of-home and online compo-
nents 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 advertising campaign features Bali bras and
panties from its Passion for Comfort, Seductive Curves
and Cotton Creations lines.
n We continued our innovative and expressive advertising
and marketing campaign called “Girl Talk,” launched in
September 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 2, 2010, we distributed our products for
the U.S. market from a total of 19 distribution centers. These
facilities include 17 facilities located in the United States and two
facilities located outside the United States in regions where we
manufacture our products. We internally manage and operate
13 of these facilities, and we use third-party logistics providers
who operate the other six facilities on our behalf. International
distribution operations use a combination of third-party logistics
providers, as well as owned and operated distribution opera-
tions, to distribute goods to our various international markets.
We have reduced the number of distribution centers from
the 48 that we maintained at the time of the spin off to 33 as of
January 2, 2010. The consolidation of our distribution network
is still in process but will not result in any substantial charges in
future periods. The distribution network consolidation involves
the implementation of new warehouse management systems
and technology, and opening of new distribution centers and
new third-party logistics providers to replace parts of our legacy
distribution network. In January 2009, we began shipping
products from a new 1.3 million square foot distribution center
in Perris, California.
manufacturing and sourcing
During 2009, approximately 70% of our finished goods
sold were 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 manufactur-
ing process for us, such as cutting and/or sewing. We sourced
the remainder of our finished goods from third-party manufactur-
ers 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, contracted and sourced
manufacturing located across different geographic regions,
increases the efficiency of our operations, reduces product
costs and offers customers a reliable source of supply.
Finished Goods That Are Manufactured by Hanesbrands
The manufacturing process for the finished goods that
we manufacture begins with raw materials we obtain from
suppliers. 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 valuations and fluctuations of the currencies of producer
versus consumer countries and other factors that are gener-
ally unpredictable and beyond our control. We employ a dollar
cost averaging strategy by entering 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, narrow elastic and trim for
product identification, buttons, zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also
influence the prices of items used in our business, such as
chemicals, dyestuffs, polyester yarn and foam. Alternate sources
of these materials and services are readily available. Cotton and
synthetic materials are typically spun into yarn, which is then
knitted into cotton, synthetic and blended fabrics. Although
historically we have spun a significant portion of the yarn and
knit a significant portion of the fabrics we use in our owned and
operated facilities, in October 2009, we completed the sale of
our yarn operations as a result of which we ceased making our
own yarn and now source all of our yarn requirements from
large-scale yarn suppliers. To a lesser extent, we purchase fabric
from several domestic and international 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 strategically
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
government policy and regulation, foreign exchange rates
and weather conditions.
We continued to consolidate our manufacturing facilities and
currently operate 41 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 labor, local operat-
ing costs, quality, regional infrastructure, applicable quotas and
duties, and freight costs. During the fourth quarter of 2009, we
commenced production at our textile production plant in Nanjing,
China, our first company-owned textile production facility in Asia.
The Nanjing textile facility will enable us to expand and leverage
our production scale in Asia as we balance our supply chain
across hemispheres, thereby diversifying our production risks.
During the fourth quarter of 2008, we commenced production at
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our 500,000 square foot sock manufacturing 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. In October 2008, we acquired a 370-employee
embroidery and screen-print 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 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 Asia.
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 workers,
health and safety conditions and conformity with local laws and
Hanesbrands’ standards. Each new supplier must be inspected
and agree to comprehensive compliance terms prior to perfor-
mance of any production on our behalf. We audit compliance
with these standards and maintain strict compliance perfor-
mance records. In addition to our audit procedures, we require
certain of our suppliers to be Worldwide Responsible Apparel
Production, or “WRAP,” certified. 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 certification 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
facilities in Asia, Central America, the Caribbean Basin and
Mexico, and from suppliers in those areas and in Europe, South
America, Africa and the Middle East. These import transactions
are subject to customs, trade and other laws and regulations
governing their entry into the United States and to tariffs
applicable to such merchandise.
In addition, much of the merchandise we import is subject
to duty free entry into the United States under various trade
preferences and/or free trade agreements provided the goods
meet certain criteria and characteristics. Compliance with
these specific requirements as well as all other requirements is
reviewed periodically by the United States Customs and Border
Control and other governmental agencies.
Finally, imported apparel merchandise may be subject to
various restrictive trade actions initiated by the United States
government, domestic industry, labor or other parties under
various U.S. laws. Such actions could result in the U.S. govern-
ment imposing quotas or additional tariffs against apparel under
special safeguard actions applicable to China, other safeguard
actions applicable to any country, or antidumping or countervail-
ing duties applicable to specific products from specific countries.
Currently there are no such actions, additional, special or
safeguard duties or quotas imposed against products which
we import. Our management evaluates the possible impact of
these and similar actions on our ability to import products from
China and other countries. If such safeguards or duties were to
be imposed, we do not expect that these restraints would have
a material impact on us.
Moreover, our management monitors new developments
and risks relating 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
management has chosen to continue its balanced approach
to manufacturing and sourcing. We attempt to limit our sourc-
ing 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 perspective and adjust as
needed to changes in the global production environment.
We also monitor a number of international security risks.
We are a member of the Customs-Trade Partnership Against
Terrorism, 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 weap-
ons, including weapons 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.
Fruit of the Loom, Inc., a subsidiary of Berkshire Hathaway Inc.,
competes with us across most of our segments through its
own offerings and those of its Russell Corporation and Vanity
Fair Intimates offerings. Other competitors in our Innerwear
segment include Limited Brands, Inc.’s Victoria’s Secret brand,
Jockey International, Inc., Warnaco Group Inc. and Maidenform
Brands, Inc. Other competitors in our Outerwear segment
include various private label and controlled brands sold by many
of our customers, Gildan Activewear, Inc. and Gap Inc. 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 essentials prod-
ucts under private labels that compete directly with our brands.
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Our competitive strengths include our strong brands with
leading market positions, our high-volume, core essentials focus,
our significant scale of operations, our global supply chain 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 December 31, 2009. 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
December 31, 2009.
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
predictable 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 units sold for the 12 month period ended
December 31, 2009. 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
provide us with greater manufacturing efficiencies, purchas-
ing power and product design, marketing and customer
management resources than our smaller competitors.
n Global Supply Chain. We have restructured our supply
chain over the past three years to create more efficient
production clusters that utilize fewer, larger facilities and
to balance our production capability between the Western
Hemisphere and Asia. With our global supply chain infrastruc-
ture substantially in place, we are now focused on optimizing
our supply chain to further enhance efficiency, improve
working capital and asset turns and reduce costs.
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 and the recently expanded
presence at Wal-Mart of our Just My Size brand.
10
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 of which are 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 underwear, and we also hold licenses from various
toy and media companies that give us the right to use certain of
their proprietary characters, names and trademarks.
Some of our own trademarks are licensed to third parties,
such as Champion for athletic-oriented accessories. In the
United States, the Playtex trademark is owned by Playtex
Marketing Corporation, of which we own a 50% interest 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% interest in Playtex
Marketing Corporation is owned by Playtex Products, Inc., an
unrelated third-party, who has a perpetual royalty-free license to
the Playtex trademark 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 February 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 marketing efforts and have substantial value.
We aggressively protect these trademarks and copyrights
from infringement and dilution through appropriate measures,
including court actions and administrative 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 registra-
tions 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.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Shared Trademark Relationship with Sun Capital
Under the terms of the agreements, we reserve the right
In February 2006, Sara Lee sold its European branded
apparel 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, Bulgaria,
Croatia, Macedonia, Moldova, Morocco, Norway, Romania,
Russia, Serbia-Montenegro, South Africa, Switzerland, Ukraine,
Andorra, Albania, Channel Islands, Lichtenstein, Monaco, Gibraltar,
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, Nicaragua,
Belize, Guatemala, Mexico, Puerto Rico, the United States,
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 has been extended to March 31, 2010, 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,
including underwear, socks, sportswear products, bras, panties
and girdles. 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, sportswear, watches, bags and towels in the
Philippines. 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
business, Tupperware also signed two five-year distributorship
agreements providing Tupperware with the right 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.
to apply for, prosecute and maintain trademark registrations
in Mexico for those products covered by the distributorship
agreement. 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 core 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 15 full-time CSR personnel
across the world to manage our program.
In February 2008, we joined the Fair Labor Association
and are currently undergoing the final stages of the Fair Labor
Association’s two-year implementation process for accreditation
of our internal global social compliance program. The Fair Labor
Association works with industry, civil society organizations and
colleges and universities to protect workers’ 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 conducting internal monitoring
of facilities, submitting to independent monitoring audits and
verification, and managing and reporting information on their
compliance efforts. The Fair Labor Association conducts
unannounced independent external monitoring audits of a
sample of a participating company’s plants and suppliers and
publishes the results of those audits for the public to review.
We are committed to reducing our greenhouse gas foot-
print and our contribution to global climate change. We have
implemented a comprehensive corporate energy policy. We
manage this commitment by reducing our energy consumption
as much as possible, exploring better supply chain management
to reduce our use of energy-intensive transportation, adopting
cleaner technologies where possible and actively tracking our
energy metrics. We have partnered closely with Energy Star,
a joint program of the U.S. Environmental Protection Agency
and the U.S. Department of Energy that helps save money
and protect the environment through energy efficient products
and practices.
We also incorporate Leadership in Energy and Environmental
Design, or “LEED”-based practices into many remodeling and
new construction projects for our facilities around the world.
We earned the U.S. Green Building Council’s sustainability
certification for our Bentonville, Arkansas sales office. We are
also currently working on LEED certification of manufacturing
facilities in El Salvador, Vietnam and China and our distribution
center in Perris, California. Sustainable features of the Perris
facility 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
11
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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 storage and shower and changing room facilities.
Our corporate philanthropic efforts are focused on meeting
the “fundamental needs” of the communities in which we live
and work. Last year, we were again the largest corporate giver
to our local United Way in Forsyth County, North Carolina, with
our corporate and employee gifts totaling nearly $2 million. While
we do not have company-owned operations in Haiti, we donated
over $2.2 million in apparel to the relief effort, made a $25,000
cash donation to CARE, and donated food and other staples
directly to the employees of third-party contractors we use in
Port-au-Prince in early 2010.
Governmental Regulation
Finally, we are subject to U.S. federal, state and local laws
and regulations that could affect our business, including those
promulgated 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 Consumer Products Safety Commission and various
environmental laws and regulations. While we have had a prod-
uct safety program in place for many years focused heavily on
children’s products, we have reinforced our product safety team
and technological capabilities to ensure that we are fully in com-
pliance with the new Consumer Products Safety Improvement
Act. Our international businesses are subject to similar laws and
regulations in the countries in which they operate. 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.
environmental matters
We have a well-developed environmental program that
employees
focuses heavily on energy use (in particular the use of renewable
energy), water use and treatment, and the use of chemicals that
comply with our restricted substances list. 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 generating emissions, water
discharges, waste, product and packaging content and work-
place 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
Environmental 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 estimat-
ed, 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.
As of January 2, 2010, we had approximately 47,400
employees, approximately 7,800 of whom were located in the
United States. Of the employees located in the United States,
approximately 2,400 were full or part-time employees in our
stores within our direct to consumer channel. As of January 2,
2010, in the United States, approximately 25 employees were
covered by collective bargaining agreements. Some of our
international employees were also covered by collective
bargaining agreements. We believe our relationships with
our employees are good.
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
uncertainties 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.
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H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Our supply chain relies on an extensive network of
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. A significant
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 supply chain 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;
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 supply chain could negatively impact our
business by interrupting production, increasing our cost of sales,
disrupting merchandise deliveries, delaying receipt of products
into the United States or preventing us from sourcing our prod-
ucts 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 effect on our business,
results of operations, financial condition and cash flows.
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 manufacturing
of many of our products. While we have sold our yarn opera-
tions, we are still exposed to fluctuations in the cost of cotton.
Increases in the cost of cotton can result in higher costs in the
price we pay for yarn from our large-scale yarn suppliers. Our
costs for cotton yarn and cotton-based textiles vary based upon
the fluctuating cost of cotton, which is affected by 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 attempt to pro-
tect our business from the volatility of the market price of cotton
through employing a dollar cost averaging strategy by entering
into hedging contracts from time to time, our business can be
adversely affected by dramatic movements in cotton prices. The
cotton prices reflected in our results were 55 cents per pound
in 2009 and 65 cents per pound in 2008. 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.
We are not always successful in our efforts to protect our
business from the volatility of the market price of cotton, 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 quanti-
fied, 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 busi-
ness, results of operations, financial condition and cash flows.
In addition, oil-related commodity prices and the costs of
other raw materials used in our products, such as dyes and
chemicals, and other costs, such as fuel, energy and utility
costs, may fluctuate due to a number of factors outside our
control, including government policy and regulation and weather
conditions. For example, we estimate that a change of $10.00
per barrel in the price of oil would affect our freight costs by
approximately $3 million, at current levels of usage.
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 30% 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 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
manufacturers experience financial difficulties that they are not
able to overcome resulting from the deterioration in worldwide
economic conditions, reproduction problems, lack of capacity or
transportation 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. Quality
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.
13
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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, and we are continuing to implement strate-
gies such as supplier-managed inventory. Inventory reserves can
result from the complexity of our supply chain, a long manu-
facturing process and the seasonal nature of certain products.
Increases in inventory levels may also be needed to service
our business as we continue to optimize our supply chain to
further enhance efficiency, improve working capital and asset
turns and reduce costs. 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 equipment 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 oppor-
tunities if we underestimate market demand and produce too
little inventory for any particular period. Because sales of our
products 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 may not be able to achieve the benefits we are seeking
through optimizing our supply chain, which could impair
our ability to further enhance efficiency, improve working
capital and asset turns and reduce costs.
We have restructured our supply chain over the past three
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. We have closed
plant locations, reduced our workforce and relocated some
of our manufacturing capacity to lower cost locations in Asia,
14
Central America and the Caribbean Basin and our global supply
chain infrastructure is substantially in place, we are now focused
on optimizing our supply chain to further enhance efficiency,
improve working capital and asset turns and reduce costs. If
we are not able to optimize our supply chain, we may not be
successful at improving working capital and asset turns and
reducing costs. The consolidation of our distribution network is
still in process but will not result in any substantial charges in
future periods. The distribution network consolidation involves
the implementation of new warehouse management systems
and technology, and opening of new distribution centers and
new third-party logistics providers to replace parts of our legacy
distribution network.
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 have reduced the number
of distribution centers from the 48 that we maintained at the
time of the spin off to 33 as of January 2, 2010. In January 2009,
we began shipping products from a new 1.3 million square foot
distribution center in Perris, California. The consolidation of our
distribution is still in process but will not result in any substantial
charges in future periods. The distribution network consolidation
involves the implementation of new warehouse management
systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace parts
of our legacy distribution network. Because substantially all of
our products are distributed from a relatively small number of
locations, our operations could also be interrupted by extraordi-
nary weather conditions or natural disasters, such as hurricanes,
earthquakes, tsunamis, floods or fires near our distribution
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.
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 deteriorated
significantly since mid-2008 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
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
impacted by discretionary spending by our customers. Discre-
tionary spending is affected by many factors, including, among
others, general business conditions, interest rates, inflation,
consumer debt levels, consumers’ uncertainty about financial
conditions, 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. During the past several years, various
retailers, including some of our largest customers, have
experienced significant difficulties, including restructurings,
bankruptcies and liquidations, and the inability of retailers to
overcome these difficulties may increase due to 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 discontinue 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 purchases by that customer. 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. Any of these
occurrences could have a material adverse effect on our busi-
ness, results of operations, financial condition and cash flows.
Our product costs may also increase, and these increases
may not be offset by comparable rises in the income of con-
sumers 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 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 restructur-
ings, bankruptcies, liquidations and other unfavorable events for
our customers, suppliers of raw materials and finished goods,
logistics and other service providers and financial institutions
which are counterparties to our credit facilities and derivatives
transactions. In addition, the inability of these third parties to
overcome these difficulties may increase. For example, several
customers filed for bankruptcy during 2008 and 2009. If third
parties on which we rely for raw materials, finished goods or
services are unable to overcome difficulties resulting 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.
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, pay a portion 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 materials 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 forward 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 financial statements due to the
translation of operating results and financial position of our
foreign subsidiaries.
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 operations, financial condition and cash flows.
In 2009, our top ten customers accounted for 65% of
our net sales and our top customers, Wal-Mart and Target,
accounted for 27% and 17% 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 business,
results of operations, financial condition and cash flows.
Sales to our customers could be reduced if they devote
less selling space to apparel products, which could have
a material adverse effect on our business, results of
operations, financial condition and cash flows.
Over time, some of our customers that sell a variety of
goods may devote less selling space to apparel products. If any
of our customers devote less selling space to apparel products,
our sales to those customers could be reduced even if we
maintain our share of their apparel business. Any material reduc-
tion in sales resulting from reductions in apparel selling space
could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
15
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Current market returns have had a negative impact on the
return on plan assets for our pension and other postemploy-
ment plans, which may require significant funding.
As widely reported, financial markets in the United States,
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.
Europe and Asia have been experiencing extreme disruption
since mid-2008. As a result of this disruption in the domestic
and international equity and bond markets, our pension plans
and other postemployment plans had an increase in asset values
of approximately 8% during 2009 and had a decrease of 32%
during 2008. We are unable to predict the significant variations in
asset values or the severity or duration of the current disruptions
in the financial markets and the adverse economic conditions in
the United States, Europe and Asia. 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 Protection 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.
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. 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 discon-
tinue 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
affected by these pricing pressures when we are forced to
reduce our prices without being able to correspondingly reduce
our production costs.
16
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.
Fruit of the Loom, Inc., a subsidiary of Berkshire Hathaway Inc.,
competes with us across most of our segments through its
own offerings and those of its Russell Corporation and Vanity
Fair Intimates offerings. Other competitors in our Innerwear
segment include Limited Brands, Inc.’s Victoria’s Secret brand,
Jockey International, Inc., Warnaco Group Inc. and Maidenform
Brands, Inc. Other competitors in our Outerwear segment
include various private label and controlled brands sold by many
of our customers, Gildan Activewear, Inc. and Gap Inc. 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 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 manufactured by us,
which have significantly lower gross margins than our branded
products. 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 profitability. Our ability to remain competitive in the
areas of price, quality, brand recognition, research and product
development, manufacturing 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.
H AN E SBRANDS INC.
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Our substantial indebtedness subjects us to various
restrictions and could decrease our profitability and
otherwise adversely affect our business.
We have a substantial amount of indebtedness. As
described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and
Capital Resources,” our indebtedness includes the $750 mil-
lion term loan and $400 million revolving credit facility (the
“Revolving Loan Facility”) pursuant to our senior secured credit
facility that we entered into in 2006 and amended and restated
on December 10, 2009 (as amended and restated, the “2009
Senior Secured Credit Facility”), our $500 million Floating Rate
Senior Notes due 2014 (the “Floating Rate Senior Notes”), our
$500 million 8.000% Senior Notes due 2016 (the “8% Senior
Notes”) and the $250 million accounts receivable securitization
facility that we entered into on November 27, 2007 as amended
in December 2009 (the “Accounts Receivable Securitization
Facility”). The 2009 Senior Secured Credit Facility and the
indentures governing the Floating Rate Senior Notes and the 8%
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 transactions 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
competitors could have greater financial flexibility to pursue
strategic acquisitions, secure additional financing for their opera-
tions by incurring additional debt, expend capital to expand their
manufacturing and production operations to lower-cost areas
and apply pricing pressure on us. In addition, because many of
our customers rely on us to fulfill a substantial portion of their
apparel essentials 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 2009 Senior Secured Credit Facility and the
Accounts Receivable Securitization 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 financial 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 conces-
sions that may adversely impact our business. Any one of these
options could result in significantly higher interest expense in
2010 and beyond. 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.
The lenders under the 2009 Senior Secured Credit Facility
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 Accounts Receivable Securitization 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 2009 Senior Secured Credit Facility or the
Accounts Receivable Securitization Facility, the lenders under
those facilities will be entitled to foreclose on substantially all
of our assets and, at their option, liquidate these assets.
Our indebtedness restricts our ability to obtain additional
capital in the future.
The restrictions contained in the 2009 Senior Secured Credit
Facility and in the indentures governing the Floating Rate Senior
Notes and the 8% 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 advantageous
transactions that monetize our assets, or conduct other neces-
sary 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.
17
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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.
Unanticipated changes in our tax rates or exposure to
additional income tax liabilities could increase our income
taxes and decrease our net income.
We are subject to income taxes in both the United States
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
income taxes on that portion of the income of our foreign
subsidiaries 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 subsid-
iaries 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.
Our balance sheet includes a significant amount of
intangible assets and goodwill. A decline in the estimated
fair value of an intangible asset or of a business unit could
result in an asset impairment charge, which would be
recorded as an operating expense in our Consolidated
Statement of Income.
Under current accounting standards, we estimate the fair
value of acquired assets, including intangible assets, and as-
sumed liabilities arising from a business acquisition. The excess,
if any, of the cost of the acquired business over the fair value
of net tangible assets acquired is goodwill. The goodwill is then
assigned to a business unit (“reporting unit”), are considering
whether the acquired business will be operated as a separate
business unit or integrated into an existing business unit.
As of January 2, 2010, we had approximately $136 million of
trademarks and other identifiable intangibles and $322 million
of goodwill on our balance sheet. Our trademarks are subject to
amortization while goodwill is not required to be amortized under
current accounting rules. The combined amounts represent 14%
of our total assets.
Goodwill must be tested for impairment at least annually. No
impairment was identified as a result of the testing conducted
in 2009. The impairment test requires us to estimate the fair
value of our reporting units, primarily using discounted cash flow
methodologies based on projected revenues and cash flows
that will be derived from a reporting unit. Intangible assets that
are being amortized must be tested for impairment whenever
events or circumstances indicate that their carrying value might
not be recoverable.
The fair value of a reporting unit could decline if projected
revenues or cash flows were to be lower in the future due to
effects of the global recession or other causes. If the carrying
value of intangible assets or of goodwill were to exceed its fair
value, the asset would be written down to its fair value, with the
impairment loss recognized as a noncash charge in the Consoli-
dated Statement of Income. We have not had any impairment
charges in the last three years. However, changes in the future
outlook of a reporting unit could result in an impairment loss,
which could have a material adverse effect on our results of
operations and financial condition.
18
and numerous foreign jurisdictions. Significant judgment is
required in determining our worldwide provision for income
taxes and, in the ordinary course of business, there are many
transactions and calculations for which the ultimate tax deter-
mination is uncertain. Our effective tax rates could be adversely
affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in the valuation of deferred
tax assets and liabilities, the resolution of issues arising from tax
audits with various tax authorities, changes in tax laws, adjust-
ments to income taxes upon finalization of various tax returns
and other factors. Our tax determinations are regularly subject to
audit by tax authorities and developments in those audits could
adversely affect our income tax provision. Although we believe
that our tax estimates are reasonable, any significant increase
in our future effective tax rates could adversely impact our net
income for future periods.
Our balance sheet includes a significant amount of
deferred tax assets. We must generate sufficient future
taxable income to realize the deferred tax benefits.
As of January 2, 2010, we had approximately $492 million of
net deferred tax assets on our balance sheet which represents
15% of our total assets. Deferred tax assets relate to temporary
differences (differences between the assets and liabilities in the
consolidated financial statements and the assets and liabilities
in the calculation of taxable income). The recognition of deferred
tax assets is reduced by a valuation allowance if it is more likely
than not that the tax benefits associated with the deferred tax
benefits will not be realized. If we are unable to generate suf-
ficient future taxable income in certain jurisdictions, or if there
is a significant change in the actual effective tax rates or the
time period within which the underlying temporary differences
become taxable or deductible, we could be required to increase
the valuation allowances against our deferred tax assets, which
would cause an increase in our effective tax rate. A significant
increase in our effective tax rate could have a material adverse
effect on our financial condition or results of operations.
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
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
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
the implementation to succeed. Many key strategic initiatives
of major 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 experience 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.
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 processing of
transactions through our direct to consumer operations require
us to receive and store a large amount of personally identifiable
data. This type of data is subject to legislation and regulation in
various jurisdictions. Data security breaches suffered by well-
known companies and institutions have attracted a substantial
amount of media attention, prompting state and federal legisla-
tive 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 information 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
location, new unfavorable regulations are enacted in that area
or favorable regulations currently in effect are changed. The
countries 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.
19
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
We had approximately 47,400 employees worldwide as of
January 2, 2010, 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 47,400 employees worldwide as of
January 2, 2010. 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 39,600 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 agree-
ments. If there were a significant increase in the number of
our employees who are members of labor organizations or
become parties to collective bargaining agreements, we would
become vulnerable 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 manu-
facturers violates or is accused of violating local or international
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 negative public-
ity, 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.
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 mechanisms
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
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.
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. Con-
sequently, we will not be able to take advantage of business
opportunities 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.”
20
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
If we are unable to protect our intellectual property rights,
our business may be adversely affected.
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
administrative proceedings. We are susceptible to others
imitating our products and infringing our intellectual property
rights. Infringement or counterfeiting of our products could
diminish the value of our brands or otherwise adversely affect
our business. Actions we have taken to establish and protect our
intellectual property rights may not be adequate to prevent imita-
tion of our products by others or to prevent others from seeking
to invalidate our trademarks or block sales of our products as a
violation of the trademarks and intellectual property rights of
others. In addition, unilateral actions in the United States or
other countries, such as changes to or the repeal of laws
recognizing trademark or other intellectual property rights,
could have an impact on our ability to enforce those rights.
The value of our intellectual property could diminish if others
assert rights in, or ownership of, our trademarks and other
intellectual property rights. We may be unable to successfully
resolve these types of conflicts to our satisfaction. In some
cases, there may be trademark owners who have prior rights to
our trademarks because the laws of certain foreign countries
may not protect intellectual property rights to the same extent
as do the laws of the United States. In other cases, there may
be holders who have prior rights to similar trademarks. We are
from time to time involved in opposition and cancellation pro-
ceedings with respect to some items of our intellectual property.
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.
Businesses that we may acquire may fail to perform to
expectations, 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 indemnifica-
tion from the sellers of such businesses, even if obtained, may
not be sufficient to offset the relevant liabilities. In addition, the
integration of newly acquired businesses may be expensive and
time-consuming 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 successfully integrate newly acquired businesses
or if acquired businesses fail to produce targeted results, it
could have an adverse effect on our results of operations or
financial condition.
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
Internal Revenue Code generally is binding on the IRS, the
continuing validity of the ruling is subject to the accuracy of
factual representations 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 certain 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 inaccuracy 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
21
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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 indemnify
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 qualifying as a
tax-free transaction to Sara Lee and to Sara Lee’s stockholders
under Sections 355 and 368(a)(1)(D) of the Internal 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, informa-
tion, 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 and 368(a)(1)(D) of the
Internal Revenue Code. Our indemnification 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. Under Maryland law, 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 or at the direction of our board of directors or by a
stockholder who is entitled to vote at the meeting and has com-
plied with the advance notice procedures of our bylaws. Also,
under Maryland law, business combinations between us and an
interested stockholder or an affiliate of an interested stockholder,
including mergers, consolidations, share exchanges or, in circum-
stances specified in the statute, asset transfers or issuances or
reclassifications 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 transaction 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 prohibi-
tion, 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 stockholders 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.
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 acquirer, 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 charter
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.
52
50
49
49
52
57
Chairman of the Board of Directors
and Chief Executive Officer
President, International Business
and Global Supply Chain
President, Chief Commercial Officer
Executive Vice President, General Counsel
and Corporate Secretary
Executive Vice President, Human Resources
Executive Vice President, Chief Financial Officer
22
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
E. Lee Wyatt Jr. has served as our Executive Vice President,
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 President,
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
finished products based on our designs.
As of January 2, 2010, we owned and leased properties in
23 countries, including 41 manufacturing facilities and 19 distri-
bution centers, as well as office facilities. The leases for these
properties expire between 2010 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 of Financial Condi-
tion and Results of Operations — Future Contractual Obligations
and Commitments.”
As of January 2, 2010, we also operated 228 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.
Richard A. Noll has served as Chairman of the Board of
Directors since January 2009, as our Chief Executive Officer
since April 2006 and as a director since our formation in
September 2005. 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 Sara Lee Bakery Group from July 2003 to July 2005 and as
the Chief Operating Officer of 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, Interna-
tional Business and Global Supply Chain since February 2009.
From February 2008 until February 2009, he served as our
President, Global Supply Chain and Asia Business Development.
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.
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 distributes branded snacks.
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 Executive 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 President,
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.
23
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
The following table summarizes our properties by country as
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
business, we are not party to any pending legal proceedings that
we believe could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
ITem 4. Submission of Matters to a Vote
of Security Holders
No matters were submitted to a vote of stockholders during
the quarter ended January 2, 2010.
of January 2, 2010:
Properties by Country (1)
United States . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. facilities:
El Salvador . . . . . . . . . . . . . . . . . . . . . . .
Honduras. . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dominican Republic . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . .
Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . .
Costa Rica . . . . . . . . . . . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . . . . . . . . . . . . . . .
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Argentina . . . . . . . . . . . . . . . . . . . . . . . .
10 other countries. . . . . . . . . . . . . . . . . .
Owned
Square Feet
Leased
Square Feet
Total
7,552,597
5,467,635
13,020,232
1,094,170
356,279
1,070,912
746,484
185,152
289,480
111,385
303,419
277,733
—
—
87,279
—
277,487
974,376
43,740
175,661
347,730
126,777
202,361
—
24,992
165,428
164,548
7,301
77,426
1,371,657
1,330,655
1,114,652
922,145
532,882
416,257
313,746
303,419
302,725
165,428
164,548
94,580
77,426
Total non-U.S. facilities. . . . . . . . . . . . . .
4,522,293
2,587,827
7,110,120
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,074,890
8,055,462
20,130,352
(1) Excludes vacant land.
The following table summarizes the properties primarily used
by our segments as of January 2, 2010:
Properties by Segment (1)
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . . . . . . .
International. . . . . . . . . . . . . . . . . . . . . . . . .
Other (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned
Square Feet
Leased
Square Feet
4,627,196
2,744,663
1,138,082
—
452,014
—
3,557,336
1,398,907
39,000
1,727,303
900,283
—
Total
8,184,532
4,143,570
1,177,082
1,727,303
1,352,297
—
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,961,955
7,622,829
16,584,784
(1) Excludes vacant land, facilities under construction, 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 primarily of sales of yarn to third parties in the
United States and Latin America that maintain asset utilization at certain manufacturing
facilities used by one or more of our other segments. No facilities are used primarily by
our Other segment.
24
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 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-issued” 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 trans-
ferable with and only with the transfer of the underlying share of
common stock. We have not made any unregistered sales of our
equity securities.
The following table sets forth the high and low sales prices
for our common stock for the indicated periods:
2008
Quarter ended March 29, 2008 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended June 28, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended September 27, 2008. . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Quarter ended April 4, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended July 4, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended October 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$30.40
$37.73
$29.00
$22.77
$13.66
$19.07
$22.96
$26.61
$21.47
$27.45
$21.38
$ 8.54
$ 5.14
$10.76
$13.07
$21.02
Holders of Record
On February 1, 2010, there were 43,529 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 approximately 86,000 beneficial
owners of our common stock as of February 1, 2010.
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
discretion 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
requirements, our prospects and such other factors as our
board of directors may deem relevant.
Issuer Purchases of equity securities
There were no purchases by Hanesbrands during the quarter
or year ended January 2, 2010 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 cumula-
tive 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.
Comparison of Cumulative Five Year Total Return
$ 250
$ 200
$ 150
$ 100
$ 50
$ 0
1 / 0
8 / 1
6
Hanesbrands Inc.
S&P MidCap 400 Index
S&P 1500 Apparel, Accessories & Luxury Goods Index
6
1 / 0
2 / 3
1
7
0 / 0
6 / 3
7
1 / 0
2 / 3
1
8
0 / 0
6 / 3
8
1 / 0
2 / 3
1
9
0 / 0
6 / 3
9
1 / 0
2 / 3
1
equity compensation Plan Information
The following table provides information about our equity compensation plans as of January 2, 2010.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,987,847
—
7,987,847
$21.73
—
$21.73
4,535,888
—
4,535,888
(1) The amount appearing under “Number of securities remaining available for future issuance under equity compensation plans” includes 2,456,864 shares available under the Hanesbrands Inc.
Omnibus Incentive Plan of 2006 and 2,079,024 shares available under the Hanesbrands Inc. Employee Stock Purchase Plan of 2006.
25
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
ITem 6. Selected Financial Data
The following table presents our selected historical
financial data. The statement of income data for the years ended
January 2, 2010, January 3, 2009 and December 29, 2007 and
the balance sheet data as of January 2, 2010 and January 3,
2009 have been derived from our audited consolidated financial
statements included elsewhere in this Annual Report on Form
10-K. The statement of income data for the six-month period
ended December 30, 2006 and the years ended July 1, 2006
and July 2, 2005 and the balance sheet data as of December 29,
2007, December 30, 2006, July 1, 2006 and July 2, 2005
has been derived from our 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 the
Saturday closest to December 31. As a result of this change, the
table below includes presentation of the transition period begin-
ning 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
elsewhere in this Annual Report on Form 10-K.
(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 expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
Six Months
Ended
January 3, December 29, December 30,
2006
2009
2007
January 2,
2010
Years Ended
July 1,
2006
July 2,
2005
$ 3,891,275 $ 4,248,770 $ 4,474,537 $ 2,250,473 $ 4,472,832 $ 4,683,683
3,223,571
2,626,001
3,033,627
2,871,420
1,530,119
2,987,500
1,265,274
940,530
—
53,888
1,377,350
1,009,607
—
50,263
1,440,910
1,040,754
(32,144)
43,731
270,856
49,301
163,279
58,276
6,993
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
433,600
—
17,280
416,320
93,827
359,480
—
13,964
345,516
127,007
$
$
$
51,283 $ 127,169 $ 126,127 $
74,139 $ 322,493 $ 218,509
0.54 $
0.54 $
1.35 $
1.34 $
1.31 $
1.30 $
0.77 $
0.77 $
3.35 $
3.35 $
95,158
95,668
94,171
95,164
95,936
96,741
96,309
96,620
96,306
96,306
2.27
2.27
96,306
96,306
January 2,
2010
January 3, December 29, December 30,
2006
2009
2007
July 1,
2006
July 2,
2005
38,943 $
$
3,326,564
67,342 $ 174,236 $ 155,973 $ 298,252 $ 1,080,799
4,257,307
3,439,483
3,435,620
4,903,886
3,534,049
1,727,547
385,323
2,112,870
334,719
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
(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.
26
H AN E SBRANDS INC.
2 0 0 9 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. The results of operations for the periods reflected herein
are not necessarily indicative of results that may be expected for
future periods, and our actual results may differ materially from
those discussed in the forward-looking statements as a result
of various factors, including but not limited to those 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 financial statements and
notes thereto included elsewhere in this Annual Report on
Form 10-K, and is provided to enhance your understanding 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 Expenses. 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 2009 Highlights. This section discusses some of the
highlights of our performance and activities during 2009.
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 statements 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.
n Recently Issued Accounting Pronouncements. This section
provides a summary of the most recent authoritative
accounting pronouncements 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, Playtex,
Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman,
Outer Banks, Zorba, Rinbros and Duofold. We design, manufac-
ture, source and sell a broad range of apparel 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
December 31, 2009. In 2009, Hanes was number one for the
sixth consecutive year as the most preferred men’s apparel
brand, women’s intimate apparel brand 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. In 2008, the most
recent year in which the survey was conducted, 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.
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. During 2009, approximately 45% of our net sales were
to mass merchants in the United States, 16% were to national
chains and department stores in the United States, 11% were in
our International segment, 10% were in our Direct to Consumer
segment in the United States, and 18% were to other retail
channels in the United States such as embellishers, specialty
retailers and sporting goods stores.
Our Segments
During the fourth quarter of 2009, as we sought to drive
more outerwear sales through our retail operations by expand-
ing our Hanes and Champion offerings, we made the decision
to change our internal organizational structure so that our retail
operations, previously included in our Innerwear segment, would
be a separate “Direct to Consumer” segment. As a result, our
operations are managed and reported in six operating segments,
each of which is a reportable segment for financial reporting
purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer,
International and Other. Certain other insignificant changes
between segments have been reflected in the segment disclo-
sures to conform to the current organizational structure. These
segments are organized principally by product category, geo-
graphic location and distribution channel. Management of each
segment is responsible for the operations of these segments’
businesses but shares a common supply chain and media and
marketing platforms.
27
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
n Innerwear. The Innerwear segment focuses on core ap-
n International. International includes products that span
parel essentials, and consists of products such as women’s
intimate apparel, men’s underwear, kids’ underwear, and
socks, 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 and Wonderbra brands. We are also a leading
manufacturer and marketer of men’s underwear and kids’
underwear under the Hanes and Polo Ralph Lauren brand
names. During 2009, net sales from our Innerwear segment
were $1.8 billion, representing approximately 47% of total
net sales.
n Outerwear. We are a leader in the casualwear and
activewear markets through our Hanes, Champion, Just
My Size and Duofold 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 exclu-
sively to meet the needs of plus-size women. In 2009, we
entered into a multi-year agreement to provide a women’s
casualwear program with our Just My Size brand at
Wal-Mart stores. 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, sport
shirts and fleece products, including brands such as Hanes,
Champion, Outer Banks and Hanes Beefy-T, to customers,
primarily wholesalers, who then resell to screen printers and
embellishers. During 2009, net sales from our Outerwear
segment were $1.1 billion, representing approximately 27%
of total net sales.
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
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 My Size brands. During
2009, net sales from our Hosiery segment were $186 mil-
lion, representing approximately 5% of total 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 Direct to Consumer. Our Direct to Consumer operations
include our value-based (“outlet”) stores and Internet
operations which sell products from our portfolio of leading
brands. We sell our branded products directly to consumers
through our outlet stores as well as our Web sites operat-
ing under the Hanes, One Hanes Place, Just My Size and
Champion names. Our Internet operations are supported by
our catalogs. As of January 2, 2010 and January 3, 2009, we
had 228 and 213 outlet stores, respectively. During 2009, net
sales from our Direct to Consumer segment were $370 mil-
lion, representing approximately 10% of total net sales.
across the Innerwear, Outerwear and Hosiery reportable
segments and are primarily marketed under the Hanes,
Champion, Wonderbra, Playtex, Stedman, Zorba, Rinbros,
Kendall, Sol y Oro, Bali and Ritmo brands. During 2009, net
sales from our International segment were $438 million, rep-
resenting approximately 11% of total net sales and included
sales in Latin America, Asia, Canada, Europe and South
America. Our largest international markets are Canada,
Japan, Mexico, Europe and Brazil, and we also have sales
offices in India and China.
n Other. Our Other segment primarily consists of sales of yarn
to third parties in the United States and Latin America that
maintain asset utilization at certain manufacturing facilities
and are intended to generate approximate break even mar-
gins. During 2009, net sales from our Other segment were
$13 million, representing less than 1% of total net sales. In
October 2009, we completed the sale of our yarn operations
as a result of which we ceased making our own yarn and
now source all of our yarn requirements from large-scale
yarn suppliers. As a result of the sale of our yarn operations
we will no longer have net sales in our Other segment in
the future.
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 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 potential job losses among many
sectors of the economy, significant declines in the stock market
resulting in large losses to consumer retirement and invest-
ment accounts, and uncertainty regarding future federal tax
and economic policies have all added to declines in consumer
confidence and curtailed retail spending.
During 2009, we did not see a sustained rebound in
consumer spending but rather mixed results. We also experi-
enced substantial pressure on profitability due to the economic
climate, increased pension costs and increased costs associated
with implementing our price increase which became effective in
February 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.
28
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Our top ten customers accounted for 65% of our net sales
For the Outerwear segment, growth will be driven by the
and our top customer, Wal-Mart, accounted for over $1 billion of
our sales in 2009. Our largest customers in 2009 were Wal-Mart,
Target and Kohl’s, which accounted for 27%, 17% and 7%
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.
Anticipating changes in and managing our operations in
response to consumer preferences remains an important
element of our business. In recent years, we have experienced
changes in our net sales, 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
consistent with the overall decline in the industry and with shifts
in consumer preferences. Hosiery products continue to be more
adversely impacted than other apparel categories by reduced
consumer discretionary spending, which contributes to weaker
sales and lowering of inventory levels by retailers. The Hosiery
segment only comprised 5% of our net sales in 2009 however,
and as a result, the decline in the Hosiery segment has not had
a significant impact on our net sales, revenues or cash flows.
Generally, we manage the Hosiery segment for cash, placing
an emphasis on reducing our cost structure and managing
cash efficiently.
2010 Outlook
expansion of our Just My Size brand in the first half as a result
of a multi-year agreement we entered into with Wal-Mart in April
2009 that significantly expanded the presence of our Just My
Size brand. In the second half of 2010, Champion has confirmed
space and distribution gains in fleece, performance apparel and
sports bras across a broad set of accounts.
Our projected sales growth, combined with our cost
savings, should drive greater operating profit growth in 2010.
To support this growth, we have increased our production
capacity. Our Nanjing textile facility started production in the
fourth quarter of 2009 and is right on plan. We also secured
additional capacity with outside contractors. The earthquake in
Haiti caused some short-term disruption and incremental costs
in early 2010, however we do not believe it will have a material
impact on net sales.
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
appealing, addressing changing customer needs and industry
trends. We also support our key brands with targeted,
effective advertising and marketing campaigns.
We have secured significant shelf-space and distribution
n Foster strategic partnerships with key retailers via
gains, starting primarily in 2010. Program gains significantly
outnumber program losses, and we expect the net space gains
to generate approximately 5% incremental sales growth in 2010,
independent of a consumer spending rebound. If consumer
spending does rebound, we have potential for additional upside
in sales growth. By segment, two-thirds of the increases are
expected in our Innerwear segment and most of the remainder
in our Outerwear segment. However, both our Direct to
Consumer and International segments should also see
mid-single-digit growth in 2010.
Specifically for our Innerwear segment, the bulk of the gains
are in men’s underwear and intimate apparel. The new programs
in men’s underwear have already begun to ship, with the new
intimate apparel program starting to ship in the second quarter
of 2010. The remaining growth in the Innerwear segment in the
back half of the year will be driven by replenishment of these
new programs.
“team selling.” We foster relationships with key retailers
by applying our extensive category and product knowledge,
leveraging our use of multi-functional customer management
teams and developing new customer-specific programs such
as C9 by Champion for Target and the recently expanded
presence at Wal-Mart of our Just My Size brand. 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.
29
H AN E SBRANDS INC.
Spend Less
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 Optimizing our global supply chain to improve our
cost-competitiveness and operating flexibility. We have
restructured our supply chain over the past three years to
create more efficient production clusters that utilize fewer,
larger facilities and to balance our production capability
between the Western Hemisphere and Asia. 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. With our global
supply chain infrastructure substantially in place, we are now
focused on optimizing our supply chain to further enhance
efficiency, improve working capital and asset turns and
reduce costs. The consolidation of our distribution network
is still in process but will not result in any substantial charges
in future periods. The distribution network consolidation in-
volves the implementation of new warehouse management
systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace
parts of our legacy distribution network.
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. In 2009, we completed a growth-focused debt
refinancing that enables us to simultaneously reduce lever-
age and consider acquisition opportunities.
n Continuing to improve turns for accounts receivables,
inventory, accounts payable and fixed assets. Our ability
to generate cash is enhanced through more efficient
management of accounts receivables, inventory, accounts
payable and fixed assets through several initiatives, such as
supplier-managed inventory for raw materials, sourced goods
ownership relationships and other efforts.
30
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Consolidation and Globalization Strategy
We have restructured our supply chain over the past three
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. 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. With our global supply chain
infrastructure substantially in place, we are now focused on
optimizing our supply chain to further enhance efficiency, improve
working capital and asset turns and reduce costs. We are focused
on optimizing the working capital needs of our supply chain
through several initiatives, such as supplier-managed inventory
for raw materials and sourced goods ownership relationships.
We completed the construction of a textile production plant in
Nanjing, China which is our first company-owned textile facility
in Asia. Production commenced in the fourth quarter of 2009
and we expect to ramp up production over the next 18 months.
The Nanjing facility, along with our other textile facilities and
arrangements with outside contractors, enables us to expand
and leverage our production scale as we balance our supply chain
across hemispheres to support our production capacity. The
consolidation of our distribution network is still in process but
will not result in any substantial charges in future periods. The
distribution network consolidation involves the implementation
of new warehouse management systems and technology, and
opening of new distribution centers and new third-party logistics
providers to replace parts of our legacy distribution network.
During 2009, we ceased making our own yarn and now
source all of our yarn requirements from large-scale yarn sup-
pliers. We entered into an agreement with Parkdale America,
LLC (“Parkdale America”) under which we agreed to sell or
lease assets related to operations at our four yarn manufacturing
facilities to Parkdale America. The transaction closed in October
2009 and resulted in Parkdale America operating three of the
four facilities. We approved an action to close the fourth yarn
manufacturing facility, as well as a yarn warehouse and a cotton
warehouse, all located in the United States, which will result in
the elimination of approximately 175 positions. We also entered
into a yarn purchase agreement with Parkdale America and
Parkdale Mills, LLC (together with Parkdale America, “Parkdale”).
Under this agreement, which has an initial term of six years,
Parkdale will produce and sell to us a substantial amount of our
Western Hemisphere yarn requirements. During the first two
years of the term, Parkdale will also produce and sell to us a
substantial amount of the yarn requirements of our Nanjing,
China textile facility.
In addition to the actions discussed above, during 2009 we
approved actions to close seven manufacturing facilities and
three distribution centers in the Dominican Republic, the United
States, Costa Rica, Honduras, Puerto Rico and Canada which will
result in the elimination of an aggregate of approximately 3,925
positions in those countries 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
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
to our West Coast distribution facility in California in order to
expand capacity for goods we source from Asia. In addition,
approximately 300 management and administrative positions
were eliminated, with the majority of these positions based in
the United States. We also have recognized accelerated depre-
ciation with respect to owned or leased assets associated with
manufacturing facilities and distribution centers which closed
during 2009 or we anticipate closing in the next year as part of
our consolidation and globalization strategy.
As a result of the restructuring actions taken since our
becoming an independent company on September 5, 2006,
our cost structure has been reduced and efficiencies improved,
generating savings of $78 million during 2009. In addition to the
savings generated from restructuring actions, we benefited from
$21 million in savings related to other cost reduction initiatives
during 2009.
As a result of our consolidation and globalization strategy, we
expected 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 was expected to be noncash. Through this three year period,
we have recognized approximately $278 million in restructuring
and related charges related to this strategy, of which approxi-
mately half have been noncash. Of the amounts recognized,
approximately $103 million related to employee termination and
other benefits, approximately $96 million related to accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed, approximately $30 million related to
noncancelable lease and other contractual obligations, approxi-
mately $23 million related to write-offs of stranded raw materials
and work in process inventory determined not to be salvageable
or cost-effective to relocate, approximately $17 million related to
impairments of fixed assets and approximately $9 million related
to other exit costs such as equipment moving costs. Accelerated
depreciation related to our manufacturing facilities and distribu-
tion 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.
Seasonality and Other Factors
Our operating results are subject to some variability due to
seasonality and other factors. Generally, our diverse range of
product offerings helps mitigate the impact of seasonal changes
in demand for certain items. Sales are typically higher in the
last two quarters (July to December) of each fiscal year. Socks,
hosiery and fleece products generally have higher sales during
this period as a result of cooler weather, back-to-school shopping
and holidays. Sales levels in any period are also impacted by cus-
tomers’ 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
have experienced a shift in timing by our largest retail customers
of back-to-school programs between June and July the last two
years. Our results of operations are also impacted by fluctua-
tions 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 levels,
the availability of consumer credit, currency exchange rates,
taxation, electricity power rates, gasoline prices, unemployment
trends and other matters that influence consumer confidence
and spending. Many of these factors are outside 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 to purchase lower-priced products of our competitors in
response to higher prices for our products, or may choose not to
purchase our products at prices that reflect our price increases
that become effective from time to time.
Inflation and Changing Prices
Inflation can have a long-term impact on us because
increasing costs of materials and labor may impact our ability to
maintain satisfactory margins. For example, a significant portion
of our products are manufactured in other countries and declines
in the value of the U.S. dollar may result in higher manufacturing
costs. Similarly, the cost of the materials that are used in our
manufacturing process, such as oil-related commodity prices
and other raw materials, such as dyes and chemicals, and other
costs, such as fuel, energy and utility costs, can fluctuate as a
result of inflation and other factors. In addition, inflation often
is accompanied by higher interest 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 we are unable to
recoup, or if consumer spending continues to decrease gener-
ally, our business, results of operations, financial condition and
cash flows may be adversely affected. In an effort to mitigate the
impact of incremental costs on our operating results, we raised
domestic prices effective February 2009. We implemented an
average gross price increase of four percent in our domestic
product categories. The range of price increases varied by
individual product category.
Although we have sold our yarn operations, we are still
exposed to fluctuations in the cost of cotton. Increases in the
cost of cotton can result in higher costs in the price we pay for
yarn from our large-scale yarn suppliers. Our costs for cotton
yarn and cotton-based textiles vary based upon the fluctuating
cost of cotton, which is affected by weather, consumer demand,
31
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
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 employ a dollar cost averaging
strategy by entering into hedging contracts 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
6% of our cost of sales. The cotton prices reflected in our results
were 55 cents per pound in 2009 and 65 cents per pound in
2008. Costs incurred for materials and labor are capitalized into
inventory and impact our results as the inventory is sold.
components of Net sales and expenses
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 recognized
net of discounts, coupons, rebates, volume-based incentives
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 ownership
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 allow-
ances 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. Royalty income from license
agreements with manufacturers of other consumer products
that incorporate our brands is also included in 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
includes 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 inventory 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 facilities, and thus our gross margins may not be
comparable to those of other entities that include such costs in
cost of sales.
Selling, general and administrative expenses
Our selling, general and administrative expenses include
selling, 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. Selling, general
and administrative expenses also include management payroll,
benefits, travel, information systems, accounting, insurance and
legal expenses.
32
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 expense (income)
Our other expense (income) include charges such as losses
on early extinguishment of debt, costs to amend and restate our
credit facilities and charges related to the termination of certain
interest rate hedging arrangements.
Interest expense, net
Our interest expense is net of interest income. Interest
income is the return we earned on our cash and cash equiva-
lents. Our cash and cash equivalents are invested in highly liquid
investments with original maturities of three months or less.
Income tax expense
Our effective income tax rate fluctuates from period to
period and can be materially impacted by, among other things:
n changes in the mix of our earnings from the various
jurisdictions 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 2, 2010
n Total net sales in 2009 were $3.89 billion, compared with
$4.25 billion in 2008.
n Operating profit was $271 million in 2009 compared with
$317 million in 2008.
n Diluted earnings per share were $0.54 in 2009, compared
with $1.34 in 2008.
n During 2009, we approved actions to close eight manufactur-
ing facilities, three distribution centers and two warehouses
in the Dominican Republic, the United States, Costa Rica,
Honduras, Puerto Rico and Canada and eliminate an aggre-
gate of approximately 4,100 positions in those countries and
El Salvador. In addition, approximately 300 management and
administrative positions were eliminated, with the majority
of these positions based in the United States. In addition,
we completed several such actions in 2009 that were
approved in 2008.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
n We completed the construction of a textile production plant
in Nanjing, China which is our first company-owned textile
facility in Asia. Production commenced in the fourth quarter
of 2009 and we expect to ramp up production over the next
18 months. The Nanjing facility, along with our other textile
facilities and arrangements with outside contractors, enables
us to expand and leverage our production scale as we
balance our supply chain across hemispheres to support
our production capacity.
n In October 2009, we completed the sale of our yarn
operations to Parkdale America as a result of which we
ceased making our own yarn and now source all of our
yarn requirements from large-scale yarn suppliers. We also
entered into a yarn purchase agreement with Parkdale.
Under this agreement, which has an initial term of six years,
Parkdale will produce and sell to us a substantial amount of
our Western Hemisphere yarn requirements. During the first
two years of the term, Parkdale will also produce and sell
to us a substantial amount of the yarn requirements of our
Nanjing, China textile facility.
n Gross capital expenditures were $127 million in 2009 as
we continued to build out our textile and sewing network
in Asia, Central America and the Caribbean Basin and were
lower by $60 million compared to 2008.
n In December 2009, we completed a growth-focused debt
refinancing that enables us to simultaneously reduce leverage
and consider acquisition opportunities. The refinancing gives
us more flexibility in our use of excess cash flow, allows
continued debt reduction, and provides a stable long-term
capital structure with extended debt maturities at rates
slightly lower than previous effective rates. The refinancing
consisted of the sale of our $500 million 8% Senior Notes
and the concurrent amendment and restatement of our 2006
Senior Secured Credit Facility to provide for the $1.15 billion
2009 Senior Secured Credit Facility. The proceeds from the
sale of the 8% Senior Notes, together with the proceeds
from borrowings under the 2009 Senior Secured Credit
Facility, were used to refinance borrowings under the 2006
Senior Secured Credit Facility, to repay all borrowings under
our existing second lien credit facility and to pay fees and
expenses relating to these transactions.
n During 2009, we reduced debt by $284 million through the
use of cash flows generated from operations which was
primarily from the reduction of inventory by $249 million.
n We ended 2009 with $307 million of borrowing availability
under our $400 million Revolving Loan Facility, $91 million
of borrowing availability under our Accounts Receivable
Securitization Facility, $39 million in cash and cash equiva-
lents and $35 million of borrowing availability under our
international loan facilities.
consolidated Results of Operations — Year ended
January 2, 2010 (“2009”) compared with Year ended
January 3, 2009 (“2008”)
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 3,891,275
2,626,001
Cost of sales. . . . . . . . . . . . . . . . .
$ 4,248,770 $ (357,495)
(245,419)
2,871,420
Percent
Change
(8.4)%
(8.5)
Gross profit . . . . . . . . . . . . . . .
Selling, general and
administrative expenses. . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other expense (income) . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
1,265,274
1,377,350
(112,076)
(8.1)
940,530
53,888
270,856
49,301
163,279
1,009,607
50,263
317,480
(634)
155,077
(69,077)
3,625
(46,624)
49,935
8,202
(6.8)
7.2
(14.7)
NM
5.3
58,276
6,993
163,037
35,868
(104,761)
(28,875)
(64.3)
(80.5)
Net income. . . . . . . . . . . . . . . . . . $
51,283
$ 127,169 $ (75,886)
(59.7)%
Net Sales
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 3,891,275
$ 4,248,770 $ (357,495)
Percent
Change
(8.4)%
Consolidated net sales were lower by $357 million or 8% in
2009 compared to 2008. Net sales were lower by $303 million or
7% in 2009 compared to 2008 after excluding the impact of the
53rd week in 2008. In 2009, we did not see a sustained rebound
in consumer spending in our categories but rather mixed results.
Overall retail sales for apparel continued to decline during 2009
at most of our larger customers as the continuing recession con-
strained consumer spending. Our sales incentives were higher
in 2009 compared to 2008 as we made significant investments,
especially in back-to-school and holiday programs and promo-
tions, in this recessionary environment to support retailers and
position ourselves for future sales opportunities. We also made
significant investments with key retailers to obtain incremental
shelf space for 2010 and beyond.
Innerwear, Outerwear, Hosiery and International segment
net sales were lower by $114 million (6%), $144 million (12%),
$32 million (15%) and $58 million (12%), respectively, in 2009
compared to 2008. Our Direct to Consumer segment sales were
flat in 2009 compared to 2008. Our Other segment net sales
were lower, as expected, by $9 million in 2009 compared to
2008. As a result of the sale of our yarn operations we will no
longer have net sales in our Other segment in the future.
Innerwear segment net sales were lower (6%) in 2009
compared to 2008, primarily due to lower net sales of intimate
apparel (12%) and socks (10%) as a result of continued weak
sales at retail in this difficult economic environment, partially
offset by higher net sales of male underwear (4%). Innerwear
segment net sales were lower by $87 million or 5% in 2009
compared to 2008 after excluding the impact of the 53rd week
in 2008.
33
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Outerwear segment net sales were lower (12%) in 2009
compared to 2008, primarily due to the lower casualwear net
sales (24%) in the wholesale channel, which has been highly
price competitive especially in this recessionary environment,
and lower casualwear net sales (19%) in the retail channel. The
lower casualwear net sales in both channels were partially offset
by higher net sales (4%) of our Champion brand activewear. The
results for the first half of 2009 were negatively impacted by
losses of seasonal programs in the retail casualwear channel.
Outerwear segment net sales were lower by $130 million or
11% in 2009 compared to 2008 after excluding the impact of
the 53rd week in 2008.
Hosiery segment net sales were lower (15%) in 2009
compared to 2008. The net sales decline rate has steadily
improved over the most recent three consecutive quarters.
Hosiery products in all channels continue to be more adversely
impacted than other apparel categories by reduced consumer
discretionary spending. Hosiery segment net sales were lower
by $28 million or 13% in 2009 compared to 2008 after excluding
the impact of the 53rd week in 2008.
Direct to Consumer segment net sales were flat in 2009
compared to 2008 primarily due to higher net sales in our
outlet stores attributable to new store openings offset by lower
comparable store sales driven by lower traffic. The higher net
sales in our outlet stores were partially offset by lower net sales
related to our Internet operations. Direct to Consumer segment
net sales were higher by $7 million or 2% in 2009 compared to
2008 after excluding the impact of the 53rd week in 2008.
International segment net sales were lower (12%) in 2009
compared to 2008, primarily attributable to an unfavorable
impact of $22 million related to foreign currency exchange
rates and weak demand globally primarily in Europe, Japan and
Canada, which are experiencing recessionary environments
similar to that in the United States. International segment net
sales declined by 7% in 2009 compared to 2008 after excluding
the impact of foreign exchange rates on currency. International
segment net sales were lower by $56 million or 11% in 2009
compared to 2008 after excluding the impact of the 53rd week
in 2008.
Gross Profit
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Gross profit. . . . . . . . . . . . . . . . . . $ 1,265,274
$ 1,377,350 $ (112,076)
Percent
Change
(8.1)%
school and holiday programs and promotions, in this recession-
ary environment to support retailers and position ourselves for
future sales opportunities. We also made significant investments
in the fourth quarter of 2009 of approximately $13 million with
key retailers to obtain incremental shelf space for 2010 and
beyond. Other factors contributing to lower gross profit were
higher other manufacturing costs of $33 million primarily related
to lower volume partially offset by cost reductions at our manu-
facturing facilities, higher production costs of $14 million related
to higher energy and oil-related costs, including freight costs,
higher cost of finished goods sourced from third party manufac-
turers of $10 million primarily resulting from foreign exchange
transaction losses, other vendor price increases of $9 million
and an $8 million unfavorable impact related to foreign currency
exchange rates. The unfavorable impact of foreign currency
exchange rates in our International segment was primarily due
to the strengthening of the U.S. dollar compared to the Mexican
peso, Canadian dollar, Euro and Brazilian real partially offset by
the strengthening of the Japanese yen compared to the U.S.
dollar during 2009 compared to 2008. Duty refunds were lower
by $19 million in 2009 compared to 2008 as a result of the final
passage of the Dominican Republic-Central America-United
States Free Trade Agreement in Costa Rica which allowed us to
recover in 2008 $15 million of duties previously paid. In addition,
we incurred $8 million of favorable cost recognition in 2008 that
did not reoccur in 2009 related to the capitalization of certain
inventory supplies.
Our gross profit was positively impacted by higher product
pricing of $123 million before increased sales incentives, sav-
ings from our prior restructuring actions of $45 million, lower
on-going excess and obsolete inventory costs of $30 million and
lower cotton costs of $26 million. The higher product pricing was
due to the implementation of an average gross price increase
of four percent in our domestic product categories in February
2009. The range of price increases varied by individual product
category. The lower excess and obsolete inventory costs in 2009
are attributable to both our continuous evaluation of inventory
levels and simplification of our product category offerings. We
realized these benefits by driving down obsolete inventory levels
through aggressive management and promotions.
The cotton prices reflected in our results were 55 cents per
pound in 2009 as compared to 65 cents in 2008. Energy and
oil-related costs were higher in 2009 due to a spike in oil-related
commodity prices during the summer of 2008 which impacted
our cost of sales in 2009.
Our gross profit was lower by $112 million in 2009 compared
We incurred lower one-time restructuring related write-offs
to 2008. Gross profit as a percent of net sales remained flat at
32.5% in 2009 compared to 32.4% in 2008.
Gross profit was lower due to lower sales volume of
$167 million, higher sales incentives of $52 million and unfavor-
able product sales mix of $45 million. Our sales incentives were
higher as we made significant investments, especially in back-to-
of $15 million in 2009 compared to 2008 for stranded raw
materials and work in process inventory determined not to be
salvageable or cost-effective to relocate. In addition, accelerated
depreciation was lower by $15 million in 2009 compared to 2008.
34
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Selling, General and Administrative Expenses
Restructuring
(dollars in thousands)
Selling, general and
Years Ended
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Restructuring . . . . . . . . . . . . . . . .
$ 53,888
$ 50,263
$ 3,625
Percent
Change
7.2%
administrative expenses. . . . .
$ 940,530
$ 1,009,607 $ (69,077)
(6.8)%
Our selling, general and administrative expenses were
$69 million lower in 2009 compared to 2008. Our continued
focus on cost reductions resulted in lower expenses related to
savings of $33 million from our prior restructuring actions for
compensation and related benefits, lower technology expenses
of $21 million, lower distribution expenses of $16 million, lower
bad debt expense of $7 million primarily due to a customer
bankruptcy in 2008, lower selling and other marketing related
expenses of $5 million, lower consulting related expenses of
$3 million and lower non-media related media, advertising and
promotion (“MAP”) expenses of $2 million. The lower distribu-
tion expenses were primarily attributable to lower sales volume
that reduced our labor, postage and freight expenses and lower
rework expenses in our distribution centers. In addition, in
October 2009, we recognized an $8 million gain related to the
sale of our yarn operations to Parkdale America.
Our media related MAP expenses were $24 million lower
in 2009 compared to 2008. While we chose to reduce our
spending earlier in 2009, we made significant investments in
the fourth quarter of 2009 to support retailers and position
ourselves for future sales opportunities. 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.
Our pension and stock compensation expenses, which are
noncash, were higher by $33 million and $6 million, respectively,
in 2009 compared to 2008. The higher pension expense is
primarily due to the lower funded status of our pension plans at
the end of 2008, which resulted from a decline in the fair value
of plan assets due to the stock market’s performance during
2008 and a higher discount rate at the end of 2008.
We also incurred higher expenses of $4 million in 2009
compared to 2008 as a result of opening retail stores. We
opened 17 retail stores during 2009. In addition, we incurred
higher accelerated depreciation of $3 million and higher other
expenses of $2 million related to amending the terms of all
outstanding stock options granted under the Hanesbrands Inc.
Omnibus Incentive Plan (the “Omnibus Incentive Plan”) of 2006
that had an original term of five or seven years to the tenth
anniversary of the original grant date. Changes due to foreign
currency exchange rates, which are included in the impact of the
changes discussed above, resulted in lower selling, general and
administrative expenses of $6 million in 2009 compared to 2008.
During 2009, we ceased making our own yarn and now
source all of our yarn requirements from large-scale yarn suppli-
ers. We entered into an agreement with Parkdale America under
which we agreed to sell or lease assets related to operations
at our four yarn manufacturing facilities to Parkdale America.
The transaction closed in October 2009 and resulted in Parkdale
America operating three of the four facilities. We approved an
action to close the fourth yarn manufacturing facility, as well as
a yarn warehouse and a cotton warehouse, all located in the
United States, which will result in the elimination of approxi-
mately 175 positions. We also entered into a yarn purchase
agreement with Parkdale. Under this agreement, which has an
initial term of six years, Parkdale will produce and sell to us a
substantial amount of our Western Hemisphere yarn require-
ments. During the first two years of the term, Parkdale will
also produce and sell to us a substantial amount of the yarn
requirements of our Nanjing, China textile facility.
In addition to the actions discussed above, during 2009 we
approved actions to close seven manufacturing facilities and
three distribution centers in the Dominican Republic, the United
States, Costa Rica, Honduras, Puerto Rico and Canada which
will result in the elimination of an aggregate of approximately
3,925 positions in those countries and El Salvador. The produc-
tion capacity represented by the manufacturing facilities will be
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 300 management and administrative positions
were eliminated, with the majority of these positions based in
the United States.
During 2009, we recorded charges related to employee
termination and other benefits of $24 million recognized in
accordance with benefit plans previously communicated to the
affected employee group, charges related to contract obligations
of $14 million, other exit costs of $8 million related to moving
equipment and inventory from closed facilities and fixed asset
impairment charges of $8 million.
In 2009 and 2008, we recorded one-time write-offs of
$4 million and $19 million, respectively, of stranded raw materials
and work in process inventory related to the closure of manu-
facturing facilities and recorded in the “Cost of sales” line. The
raw materials and work in process inventory was determined
not to be salvageable or cost-effective to relocate. In addition,
in connection with our consolidation and globalization strategy,
we recognized noncash charges of $9 million and $24 million
2009 and 2008, respectively, in the “Cost of sales” line and a
noncash charge of $3 million in 2009 in the “Selling, general and
administrative expenses” line related to accelerated depreciation
of buildings and equipment for facilities that have been closed or
will be closed.
35
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
These actions were a continuation of our consolidation and
globalization strategy, and are expected to result in benefits
of moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and consoli-
dating production capacity. These approved actions represent the
substantial completion of the consolidation and globalization of
our supply chain.
During 2008, we incurred $50 million in restructuring charges
which primarily related to employee termination and other
benefits and charges related to exiting supply contracts
associated with plant closures approved during that period.
Operating Profit
In March 2009, we incurred costs of $4 million to amend the
2006 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility.
During 2008, we recognized a gain of $2 million related to
the repurchase of $6 million of the 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
issuance costs on the 2006 Senior Secured Credit Facility for
the prepayment of $125 million of principal in 2008.
Interest Expense, Net
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Years Ended
Interest expense, net . . . . . . . . . .
$ 163,279
$ 155,077
$ 8,202
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Operating profit . . . . . . . . . . . . . .
$ 270,856
$ 317,480 $ (46,624)
(14.7)%
Operating profit was lower in 2009 compared to 2008 as a
result of lower gross profit of $112 million and higher restructur-
ing and related charges of $4 million, partially offset by lower
selling, general and administrative expenses of $69 million.
Changes in foreign currency exchange rates had an unfavorable
impact on operating profit of $1 million in 2009 compared to
2008. Operating profit was $41 million lower in 2009 compared
to 2008 excluding the impact of the 53rd week in 2008.
Other Expense (Income)
Years Ended
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Other expense (income) . . . . . . . .
$ 49,301
$ (634)
$ 49,935
NM
Interest expense, net was higher by $8 million in 2009
compared to 2008. The amendments of the 2006 Senior Secured
Credit Facility and Accounts Receivable Securitization Facility
in March 2009 increased our interest-rate margin by 300 basis
points and 325 basis points, respectively, which increased
interest expense in 2009 compared to 2008 by $31 million. The
execution of the 2009 Senior Secured Credit Facility and the
issuance of the 8% Senior Notes in December 2009 increased
interest expense in 2009 compared to 2008 by $3 million.
These increases in interest expense were partially offset by
a lower London Interbank Offered Rate, or “LIBOR,” and lower
outstanding debt balances that reduced interest expense by a
combined $23 million. In addition, interest expense, net was
lower by $3 million in 2009 due to the impact of the 53rd week
in 2008. Our weighted average interest rate on our outstanding
debt was 6.86% during 2009 compared to 6.09% in 2008.
Percent
Change
5.3%
In December 2009, we completed the sale of our 8% Senior
Income Tax Expense
Notes and concurrently amended and restated the 2006 Senior
Secured Credit Facility to provide for the 2009 Senior Secured
Credit Facility. The proceeds from the sale of the 8% Senior
Notes, together with the proceeds from borrowings under
the 2009 Senior Secured Credit Facility, were used to refinance
borrowings under the 2006 Senior Secured Credit Facility,
to repay all borrowings under our $450 million second lien
credit facility that we entered into in 2006 (the “Second Lien
Credit Facility”), and to pay fees and expenses relating to
these transactions.
In connection with these transactions in December 2009,
we recognized a loss on early extinguishment of debt of
$17 million related to unamortized debt issuance costs and
fees paid in connection with the execution of the 2009 Senior
Secured Credit Facility and the issuance of the 8% Senior
Notes. In addition, in December 2009, we recognized a loss of
$26 million related to certain interest rate hedging arrangements
which were terminated as a result of the refinancing of our
outstanding borrowings under the 2006 Senior Secured Credit
Facility and repayment of the outstanding borrowings under the
Second Lien Credit Facility.
In September 2009 we incurred a $2 million loss on early
extinguishment of debt related to unamortized debt issuance
costs resulting from the prepayment of $140 million of principal
under the 2006 Senior Secured Credit Facility.
36
Years Ended
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 6,993
$ 35,868 $ (28,875)
(80.5)%
Our annual effective income tax rate was 12.0% in 2009
compared to 22.0% in 2008. Our domestic earnings were lower
in 2009 as a result of higher restructuring and related charges
and the debt refinancing costs. The lower effective income tax
rate is attributable primarily to a higher proportion of our earnings
attributed to foreign subsidiaries which are taxed at rates lower
than the U.S. statutory rate. Also, we recognized net tax benefits
of $12 million due to updated assessments of previously accrued
amounts. Our annual effective tax rate reflected our strategic
initiative to make substantial capital investments outside the
United States in our global supply chain in 2009.
Net Income
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Net income. . . . . . . . . . . . . . . . . .
$ 51,283
$ 127,169 $ (75,886)
(59.7)%
Net income for 2009 was lower than 2008 primarily due to
higher other expenses of $50 million, lower operating profit of
$47 million and higher interest expense of $8 million, partially
offset by lower income tax expense of $29 million. Net income
was $73 million lower in 2009 compared to 2008 after excluding
the impact of the 53rd week in 2008.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Operating Results by Business segment — Year
ended January 2, 2010 (“2009”) compared with
Year ended January 3, 2009 (“2008”)
consumer spending during the year. These declines were
partially offset by an increase of $5 million of our Bali brand
intimate apparel net sales in 2009 compared to 2008.
Years Ended
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 1,833,616
1,051,735
Outerwear . . . . . . . . . . . . . . . . . .
185,710
Hosiery . . . . . . . . . . . . . . . . . . . . .
369,739
Direct to Consumer . . . . . . . . . . .
437,804
International. . . . . . . . . . . . . . . . .
12,671
Other . . . . . . . . . . . . . . . . . . . . . .
$ 1,947,167 $ (113,551)
(144,420)
1,196,155
(31,681)
217,391
(424)
370,163
(58,366)
496,170
(9,053)
21,724
(5.8)%
(12.1)
(14.6)
(0.1)
(11.8)
(41.7)
Total net sales. . . . . . . . . . . . . $ 3,891,275
$ 4,248,770 $ (357,495)
(8.4)%
Segment operating profit (loss):
Innerwear . . . . . . . . . . . . . . . . . . . $ 234,352
53,050
Outerwear . . . . . . . . . . . . . . . . . .
61,070
Hosiery . . . . . . . . . . . . . . . . . . . . .
37,178
Direct to Consumer . . . . . . . . . . .
44,688
International. . . . . . . . . . . . . . . . .
(2,164)
Other . . . . . . . . . . . . . . . . . . . . . .
$ 223,420 $ 10,932
(13,099)
(7,626)
(7,363)
(19,661)
(2,492)
66,149
68,696
44,541
64,349
328
4.9%
(19.8)
(11.1)
(16.5)
(30.6)
NM
Total segment operating
profit. . . . . . . . . . . . . . . . . . .
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks
and other intangibles . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Inventory write-off included
428,174
467,483
(39,309)
(8.4)
(75,127)
(45,177)
29,950
66.3
(12,443)
(53,888)
(12,019)
(50,263)
424
3,625
3.5
7.2
in cost of sales . . . . . . . . . . . .
(4,135)
(18,696)
(14,561)
(77.9)
Accelerated depreciation
included in cost of sales . . . . .
(8,641)
(23,862)
(15,221)
(63.8)
Accelerated depreciation
included in selling,
general and
administrative expenses. . . . .
Total operating profit. . . . . . . .
Other (expense) income . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
(3,084)
270,856
(49,301)
(163,279)
14
3,098
NM
317,480
634
(155,077)
(46,624)
49,935
8,202
(14.7)
NM
5.3
expense . . . . . . . . . . . . . . . $
58,276
$ 163,037 $ (104,761)
(64.3)%
Innerwear
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,833,616
234,352
Segment operating profit . . . . . . .
$ 1,947,167 $ (113,551)
10,932
223,420
Percent
Change
(5.8)%
4.9
Overall net sales in the Innerwear segment were lower by
$114 million or 6% in 2009 compared to 2008 as the recession-
ary environment continued to constrain consumer spending.
Total intimate apparel net sales were $110 million lower in 2009
compared to 2008 and represents 97% of the total segment net
sales decline. We believe our lower net sales in our Hanes brand
of $47 million, our Playtex brand of $34 million and our smaller
brands (barely there, Just My Size and Wonderbra) of $27 million
and $6 million lower private label net sales were primarily
attributable to weaker sales at retail as a result of lower
Total male underwear net sales were $27 million higher in
2009 compared to 2008 which reflect higher net sales in our
Hanes brand of $26 million. The higher Hanes brand male under-
wear sales reflect growth in key segments of this category such
as crewneck and V-neck T-shirts and boxer briefs and product
innovations like the Comfort Fit waistbands. Lower net sales in
our socks product category of $28 million in 2009 compared to
2008 reflect a decline in Hanes and Champion brand net sales
in our men’s and kids’ product category. Innerwear segment
net sales were lower by $87 million or 5% in 2009 compared
to 2008 after excluding the impact of the 53rd week in 2008.
The Innerwear segment gross profit was lower by $51 mil-
lion in 2009 compared to 2008. The lower gross profit was due
to lower sales volume of $62 million, higher sales incentives
of $38 million due to investments made with retailers, unfavor-
able product sales mix of $21 million, lower duty refunds of
$17 million, higher other manufacturing costs of $14 million,
higher production costs of $8 million related to higher energy
and oil-related costs, including freight costs and other vendor
price increases of $7 million. Additionally, favorable cost recogni-
tion of $8 million occurred in 2008 that did not reoccur in 2009
related to the capitalization of certain inventory supplies. These
higher costs were partially offset by higher product pricing of
$69 million before increased sales incentives, savings from our
prior restructuring actions of $23 million, lower on-going excess
and obsolete inventory costs of $23 million and lower cotton
costs of $10 million.
As a percent of segment net sales, gross profit in the
Innerwear segment was 32.3% in 2009 compared to 33.0%
in 2008, decreasing as a result of the items described above.
The higher Innerwear segment operating profit in 2009
compared to 2008 was primarily attributable to lower media
related MAP expenses of $25 million, savings of $18 million
from prior restructuring actions primarily for compensation and
related benefits, lower technology expenses of $11 million,
lower bad debt expense of $5 million primarily due to a
customer bankruptcy in 2008 and lower distribution expenses
of $2 million, which partially offset lower gross profit.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2009 is consistent with 2008. Our consolidated selling,
general and administrative expenses before segment allocations
was $69 million lower in 2009 compared to 2008.
37
H AN E SBRANDS INC.
Outerwear
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,051,735
53,050
Segment operating profit . . . . . . .
$ 1,196,155 $ (144,420)
(13,099)
66,149
Percent
Change
(12.1)%
(19.8)
Net sales in the Outerwear segment were lower by
$144 million or 12% in 2009 compared to 2008, primarily as
a result of lower casualwear net sales in our wholesale and
retail channels of $93 million and $63 million, respectively. The
wholesale channel has been significantly impacted by lower
consumer spending with our customers in this channel and
highly price competitive especially in this recessionary environ-
ment. The lower retail casualwear net sales reflect an $89 million
impact due to the losses of seasonal programs not renewed
for 2009 that only impacted the first half of 2009 partially offset
by additional net sales and royalty income resulting from an
exclusive long-term agreement entered into with Wal-Mart
in April 2009 that significantly expanded the presence of our
Just My Size brand in all Wal-Mart stores. In addition, total
activewear product category net sales were $13 million higher.
Our Champion brand activewear sales, which continue to
benefit from our marketing investment in the brand, were higher
by $18 million. Outerwear segment net sales were lower by
$130 million or 11% in 2009 compared to 2008 after excluding
the impact of the 53rd week in 2008.
The Outerwear segment gross profit was lower by $39 million
in 2009 compared to 2008. The lower gross profit is due to lower
sales volume of $47 million, unfavorable product sales mix of
$20 million, higher other manufacturing costs of $15 million,
higher sales incentives of $8 million due to investments made
with retailers, higher production costs of $6 million related to
higher energy and oil-related costs, including freight costs, and
other vendor price increases of $2 million. These higher costs were
partially offset by savings of $22 million from our prior restructuring
actions, lower cotton costs of $16 million, higher product pricing of
$16 million before increased sales incentives and lower on-going
excess and obsolete inventory costs of $5 million.
As a percent of segment net sales, gross profit in the
Outerwear segment was 21.9% in 2009 compared to 22.5%
in 2008, declining as a result of the items described above.
The lower Outerwear segment operating profit in 2009
compared to 2008 was primarily attributable to lower gross profit
and higher media related MAP expenses of $5 million partially
offset by lower distribution expenses of $11 million, savings of
$10 million from our prior restructuring actions, lower technology
expenses of $7 million, lower non-media related MAP expenses
of $3 million and lower bad debt expense of $2 million primarily
due to a customer bankruptcy in 2008.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2009 is consistent with 2008. Our consolidated selling,
general and administrative expenses before segment allocations
was $69 million lower in 2009 compared to 2008.
38
Hosiery
(dollars in thousands)
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 185,710
61,070
$ 217,391 $ (31,681)
(7,626)
68,696
(14.6)%
(11.1)
Net sales in the Hosiery segment declined by $32 million
or 15%, which was primarily due to lower sales of our L’eggs
brand to mass retailers and food and drug stores and our Hanes
brand to national chains and department stores. The net sales
decline rate has improved over the most recent three consecu-
tive quarters. Hosiery products continue to be more adversely
impacted than other apparel categories by reduced consumer
discretionary spending, which contributes to weaker retail sales
and lowering of inventory levels by retailers. 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. Hosiery segment net sales were lower by $28 million
or 13% in 2009 compared to 2008 after excluding the impact of
the 53rd week in 2008.
The Hosiery segment gross profit was lower by $16 million
in 2009 compared to 2008. The lower gross profit for 2009
compared to 2008 was the result of lower sales volume of
$23 million and higher other manufacturing costs of $4 million,
partially offset by higher product pricing of $12 million. As a
percent of segment net sales, gross profit in the Hosiery
segment was 49.8% in 2009 and in 2008.
The lower Hosiery segment operating profit in 2009
compared to 2008 is primarily attributable to lower gross profit,
partially offset by lower distribution expenses of $3 million,
savings of $2 million from our prior restructuring actions and
lower technology expenses of $2 million.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2009 is consistent with 2008. Our consolidated selling,
general and administrative expenses before segment allocations
was $69 million lower in 2009 compared to 2008.
Direct to Consumer
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 369,739
37,178
$ 370,163
44,541
$
(424)
(7,363)
Percent
Change
(0.1)%
(16.5)
Direct to Consumer segment net sales were flat in 2009
compared to 2008 primarily due to higher net sales in our outlet
stores of $1 million attributable to new store openings offset
by lower comparable store sales (3%) driven by lower traffic.
The higher net sales in our outlet stores were partially offset by
lower net sales of $1 million related to our Internet operations.
Direct to Consumer segment net sales were higher by $7 million
or 2% in 2009 compared to 2008 after excluding the impact of
the 53rd week in 2008.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
The Direct to Consumer segment gross profit was higher by
$5 million in 2009 compared to 2008. The higher gross profit is
due to higher product pricing of $13 million and lower on-going
excess and obsolete inventory costs of $2 million, partially offset
by lower sales volume of $7 million and unfavorable product
sales mix of $4 million.
As a percent of segment net sales, gross profit in the Direct
to Consumer segment was 62.4% in 2009 compared to 61.1%
in 2008, increasing as a result of the items described above.
The lower Direct to Consumer segment operating profit in
2009 compared to 2008 was primarily attributable to higher non-
media related MAP expenses of $6 million and higher expenses
of $4 million as a result of opening 17 retail stores during 2009,
partially offset by higher gross profit.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2009 is consistent with 2008. Our consolidated selling,
general and administrative expenses before segment allocations
was $69 million lower in 2009 compared to 2008.
The International segment gross profit was lower by
$38 million in 2009 compared to 2008. The lower gross profit
was a result of lower sales volume of $17 million, higher cost
of finished goods sourced from third party manufacturers of
$12 million primarily resulting from foreign exchange transaction
losses, unfavorable product sales mix of $7 million, an unfavor-
able impact related to foreign currency exchange rates of $8 mil-
lion and higher sales incentives of $4 million due to investments
made with retailers, partially offset by higher product pricing of
$11 million.
As a percent of segment net sales, gross profit in the
International segment was 36.7% in 2009 compared to 2008
at 40.1%, declining as a result of the items described above.
The lower International segment operating profit in 2009
compared to 2008 is primarily attributable to the lower gross
profit, partially offset by lower media related MAP expenses of
$5 million, lower selling and other marketing related expenses of
$5 million, lower non-media related MAP expenses of $3 million,
lower distribution expenses of $2 million and savings of $2 mil-
lion from our prior restructuring actions. The changes in foreign
currency exchange rates, which are included in the impact on
gross profit above, had an unfavorable impact on segment
operating profit of $1 million in 2009 compared to 2008.
International
(dollars in thousands)
Years Ended
Other
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
(dollars in thousands)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 437,804
44,688
$ 496,170 $ (58,366)
(19,661)
64,349
(11.8)%
(30.6)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit (loss) . .
Years Ended
January 2,
2010
$ 12,671
(2,164)
January 3,
2009
Higher
(Lower)
Percent
Change
$ 21,724
328
$ (9,053)
(2,492)
(41.7)%
NM
Overall net sales in the International segment were lower by
Sales in our Other segment primarily consist of sales of
yarn to third parties which are intended to maintain asset
utilization at certain manufacturing facilities and generate
approximate break even margins. In October 2009, we com-
pleted the sale of our yarn operations as a result of which we
ceased making our own yarn and now source all of our yarn
requirements from large-scale yarn suppliers. As a result of the
sale of our yarn operations we will no longer have net sales in
our Other segment in the future.
General Corporate Expenses
General corporate expenses were $30 million higher in 2009
compared to 2008 primarily due to higher pension expense of
$33 million, $8 million of higher foreign exchange transaction
losses and higher other expenses of $2 million related to amend-
ing the terms of all outstanding stock options granted under the
Omnibus Incentive Plan that had an original term of five or seven
years to the tenth anniversary of the original grant date, partially
offset by higher gains on sales of assets of $2 million. In addi-
tion, in October 2009, we recognized an $8 million gain related
to the sale of our yarn operations to Parkdale America.
$58 million or 12% in 2009 compared to 2008 primarily attribut-
able to an unfavorable impact of $22 million related to foreign
currency exchange rates and weak demand globally primarily in
Europe, Japan and Canada, which are experiencing recessionary
environments similar to that in the United States. International
segment net sales declined by 7% in 2009 compared to 2008
after excluding the impact of foreign exchange rates on currency.
The unfavorable impact of foreign currency exchange rates in our
International segment was primarily due to the strengthening of
the U.S. dollar compared to the Mexican peso, Canadian dollar,
Euro and Brazilian real partially offset by the strengthening of the
Japanese yen compared to the U.S. dollar during 2009 compared
to 2008.
During 2009, we experienced lower net sales, in each
case excluding the impact of foreign currency exchange rates
but including the impact of the 53rd week, in our casualwear
business in Europe of $25 million, in our male underwear and
activewear businesses in Japan of $13 million, in our casualwear
business in Puerto Rico of $7 million resulting from moving
the distribution capacity to the United States and in our socks
and intimate apparel business in Canada of $11 million. Lower
segment net sales were partially offset by higher sales in our
intimate apparel and male underwear businesses in Mexico
of $12 million and in our male underwear business in Brazil
of $4 million. International segment net sales were lower by
$56 million or 11% in 2009 compared to 2008 after excluding
the impact of the 53rd week in 2008.
39
H AN E SBRANDS INC.
2 0 0 9 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
$ 4,474,537 $ (225,767)
Cost of sales. . . . . . . . . . . . . . . . .
2,871,420
3,033,627
(162,207)
Gross profit . . . . . . . . . . . . . . .
Selling, general and
1,377,350
1,440,910
(63,560)
Percent
Change
(5.0)%
(5.3)
(4.4)
administrative expenses. . . . .
1,009,607
1,040,754
(31,147)
(3.0)
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other expense (income) . . . . . . . .
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)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,248,770
$ 4,474,537 $ (225,767)
Percent
Change
(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 $153 mil-
lion (7%), $60 million (5%), $34 million (14%) and $35 million
(62%), respectively, and were partially offset by higher net sales
in our Direct to Consumer segment and International segment
of $10 million (3%) and $48 million (11%), respectively. 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 and male under-
wear product categories. Total intimate apparel net sales were
$115 million lower in 2008 compared to 2007. We experienced
lower intimate apparel sales in our Hanes brand of $52 million,
our smaller brands (barely there, Just My Size and Wonderbra)
of $45 million and our private label brands of $6 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 $2 million and our Bali
brand intimate apparel net sales were lower by $13 million. Net
sales in our male underwear product category were $11 million
40
lower, which includes the impact of exiting a license arrange-
ment for a boys’ character underwear program in early 2008 that
lowered sales by $15 million. In addition, total socks net sales
were lower in 2008 compared to 2007 by $33 million.
In our Outerwear segment, net sales of our Champion brand
activewear were $26 million higher in 2008 compared to 2007,
and were offset by lower net sales of our casualwear product
categories of $82 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 lower net sales discussed above were partially offset by
higher net sales in our Direct to Consumer segment and Interna-
tional segment. The higher net sales in our Direct to Consumer
segment were primarily attributable to higher net sales in our
Internet operations. The higher net sales in our International
segment were driven by a favorable 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 was primar-
ily 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.
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
increases 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. In addition, in connection with the consolidation and glo-
balization 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
accelerated 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
$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
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
$9 million favorable impact related to foreign currency exchange
rates, $8 million of favorable one-time out of period cost
recognition 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 consolidation 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 million. The lower excess and obsolete inventory costs in
2008 are attributable to both our continuous evaluation of inven-
tory 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 the prior year. The favor-
able 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 MAP expenses of $3 million, lower accelerated depre-
ciation 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
recognized in 2007 did not recur in 2008. Our pension income
of $12 million was higher by $9 million, which included an
adjustment 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
number 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 international business, higher postage and freight costs and
higher rework expenses in our distribution centers. We also in-
curred higher expenses of $3 million in 2008 compared to 2007
as a result of having opened 10 retail stores in 2008. 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)
Restructuring . . . . . . . . . . . . . . . .
$ 50,263
$ 43,731
$ 6,532
Percent
Change
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
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.
41
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
In 2008, we recorded $19 million in one-time 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 manufacturing facilities in the “Cost of
sales” line. In addition, in connection with our consolidation and
globalization 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 “Selling,
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
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
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.
of principal in 2007, including a prepayment of $250 million that
was made in connection with funding from the Accounts Receiv-
able Securitization 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 com-
pared to 2007. The lower interest expense is primarily attributable
to a lower weighted average interest rate, $32 million of which
resulted from a lower LIBOR and $4 million of which resulted
from reduced interest rates achieved through changes in our
financing structure such as the February 2007 amendment to our
2006 Senior Secured Credit Facility and the Accounts Receivable
Securitization 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
hedging arrangements whereby we capped the interest rate
on $400 million of our floating rate debt at 3.50% and 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.
Income Tax Expense
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
attributable 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 sub-
sidiaries in 2008 taxed at rates less than the U.S. statutory rate.
Our annual effective tax rate reflects our strategic initiative to
make substantial capital investments outside the United States
in our global supply chain in 2008.
Other Expense (Income)
Years Ended
Net Income
(dollars in thousands)
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Other expense (income) . . . . . . . .
$ (634)
$ 5,235
$ (5,869)
(112.1)%
Net income. . . . . . . . . . . . . . . . . .
$ 127,169
$ 126,127
$ 1,042
Percent
Change
0.8%
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
issuance costs on the 2006 Senior Secured Credit Facility for
the prepayment of $125 million of principal in December 2008.
During 2007, we recognized losses on early extinguishment of
debt related to unamortized debt issuance costs on the 2006
Senior Secured Credit Facility for prepayments of $428 million
Net income for 2008 was higher than 2007 primarily due to
lower interest expense, lower selling, general and administra-
tive expenses and a lower effective income tax rate offset by
lower gross profit resulting from lower sales volume and higher
manufacturing input costs, a gain on curtailment of postretire-
ment 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.
42
H AN E SBRANDS INC.
2 0 0 9 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 . . . . . . . . . . . . . . . . . . . $ 1,947,167
1,196,155
Outerwear . . . . . . . . . . . . . . . . . .
217,391
Hosiery . . . . . . . . . . . . . . . . . . . . .
370,163
Direct to Consumer . . . . . . . . . . .
496,170
International. . . . . . . . . . . . . . . . .
21,724
Other . . . . . . . . . . . . . . . . . . . . . .
$ 2,100,554 $ (153,387)
(60,059)
(34,340)
9,663
47,552
(35,196)
1,256,214
251,731
360,500
448,618
56,920
(7.3)%
(4.8)
(13.6)
2.7
10.6
(61.8)
Total net sales. . . . . . . . . . . . . $ 4,248,770
$ 4,474,537 $ (225,767)
(5.0)%
Segment operating profit (loss):
Innerwear . . . . . . . . . . . . . . . . . . . $ 223,420
66,149
Outerwear . . . . . . . . . . . . . . . . . .
68,696
Hosiery . . . . . . . . . . . . . . . . . . . . .
44,541
Direct to Consumer . . . . . . . . . . .
64,349
International. . . . . . . . . . . . . . . . .
328
Other . . . . . . . . . . . . . . . . . . . . . .
$ 242,132 $
67,340
74,636
57,489
57,820
(1,333)
(18,712)
(1,191)
(5,940)
(12,948)
6,529
1,661
(7.7)%
(1.8)
(8.0)
(22.5)
11.3
(124.6)
Total segment operating profit:
467,483
498,084
(30,601)
(6.1)
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks and
other intangibles. . . . . . . . . . .
Gain on curtailment of
postretirement benefits . . . . .
Restructuring . . . . . . . . . . . . . . . .
Inventory write-off included in
(45,177)
(52,271)
(7,094)
(13.6)
(12,019)
(6,205)
5,814
93.7
—
(50,263)
32,144
(43,731)
(32,144)
6,532
NM
14.9
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 . . . . . . . . . . . . . . . . . . . $ 1,947,167
223,420
Segment operating profit . . . . . . .
$ 2,100,554 $ (153,387)
(18,712)
242,132
Percent
Change
(7.3)%
(7.7)
Overall net sales in the Innerwear segment were lower
by $153 million or 7% in 2008 compared to 2007. The difficult
economic and retail environment significantly impacted consum-
ers’ discretionary spending which resulted in lower sales in our
intimate apparel and socks product categories. Total intimate
apparel net sales were $115 million lower in 2008 compared to
2007. We experienced lower intimate apparel sales in our Hanes
brand of $52 million and our smaller brands (barely there, Just
My Size and Wonderbra) of $45 million and our private label
brands of $6 million which we believe was primarily attributable
to weaker sales at retail. In 2008 compared to 2007, our Playtex
brand intimate apparel net sales were higher by $2 million and
our Bali brand intimate apparel net sales were lower by $13 mil-
lion. 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 $11 million
lower, which includes the impact of exiting a license arrange-
ment for a boys’ character underwear program in early 2008 that
lowered 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 $20 million and Champion brand net sales
of $10 million primarily related to the loss of a men’s program
for one of our customers. The total impact of the 53rd week in
2008, which is included in the amounts above, was a $27 million
increase in sales for the Innerwear segment.
As a percent of segment net sales, gross profit percentage
in the Innerwear segment was 33.0% in 2008 compared to
33.3% in 2007. The lower gross profit was due to lower sales
volume of $86 million, unfavorable product sales mix of $16 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 $26 million, lower sales incentives
of $23 million, $11 million of lower duty costs primarily related
to higher refunds, $8 million of favorable one-time out of period
cost recognition related to the capitalization of certain inventory
supplies to be on a consistent basis across all business lines and
lower other manufacturing overhead costs of $4 million. In addi-
tion, 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. These higher costs were partially
offset by savings of $17 million from prior restructuring actions
primarily for compensation and related benefits, lower non-
media related MAP expenses of $13 million, lower media related
MAP expenses of $8 million and lower spending of $2 million
in numerous other areas. A significant portion of the selling,
general and administrative expenses in each segment is an
allocation of our consolidated selling, general and administrative
expenses, however certain expenses that are specifically identifi-
able 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.
43
H AN E SBRANDS INC.
Outerwear
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 1,196,155
66,149
Segment operating profit . . . . . . .
$ 1,256,214 $ (60,059)
(1,191)
67,340
Percent
Change
(4.8)%
(1.8)
Net sales in the Outerwear segment were lower by $60 mil-
lion or 5% in 2008 compared to 2007, primarily as a result of
higher net sales of Champion brand activewear of $26 million
offset by lower net sales of retail casualwear of $63 million and
lower net sales through our wholesale channel of $19 million,
primarily in promotional T-shirts and sport shirts. Our Champion
brand sales continued 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 $63 million
reflect a $6 million impact related to the loss of seasonal pro-
grams continuing into the first half of 2009. The impact on 2009
net sales of losing these programs, which consisted of recurring
seasonal programs that were renewed in prior years but were
not renewed for 2009, occurred primarily in the first half of 2009.
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 percent-
age in the Outerwear segment was 22.5% in 2008 compared
to 22.2% in 2007. While the gross profit percentage was
higher, gross profit dollars were lower due to higher cotton
costs of $18 million, lower sales volume of $17 million, higher
production costs of $10 million related to higher energy and oil
related costs including freight costs, higher sales incentives of
$7 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, favorable product sales mix
of $2 million and lower on-going excess and obsolete inventory
costs of $2 million.
The lower Outerwear segment operating profit in 2008
compared to 2007 is primarily attributable to lower gross profit,
higher technology consulting and related expenses of $3 mil-
lion and higher bad debt expense of $2 million primarily related
to the Mervyn’s bankruptcy. These higher costs were partially
offset by savings of $5 million from our cost reduction initia-
tives and prior restructuring actions and lower media-related
MAP expenses of $6 million. A significant portion of the selling,
general and administrative expenses in each segment is an
allocation of our consolidated selling, general and administrative
expenses, however certain expenses that are specifically identifi-
able 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.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Hosiery
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 217,391
68,696
$ 251,731 $ (34,340)
(5,940)
74,636
(13.6)%
(8.0)
Net sales in the Hosiery segment declined by $34 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.
As a percent of segment net sales, gross profit percentage
was 49.8% in 2008 compared to 49.1% in 2007. While the gross
profit percentage was higher, gross profit dollars were lower
due to lower sales volume of $20 million, unfavorable product
sales mix of $2 million and vendor price increases of $2 million,
partially offset by savings of $4 million from our cost reduction
initiatives and prior restructuring actions and lower sales
incentives of $4 million.
The lower Hosiery segment operating profit in 2008 compared
to 2007 is primarily attributable to lower gross profit partially
offset by lower distribution expenses of $3 million, lower non-
media related MAP expenses of $3 million, savings of $1 million
from our cost reduction initiatives and prior restructuring actions,
and lower spending of $2 million in numerous other areas.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to each segment. The allocation methodology
for the consolidated selling, general and administrative expenses
for 2008 is consistent with 2007. Our consolidated selling,
general and administrative expenses before segment allocations
was $31 million lower in 2008 compared to 2007.
Direct to Consumer
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 370,163
44,541
$ 360,500 $ 9,663
(12,948)
57,489
Percent
Change
2.7%
(22.5)
Direct to Consumer segment net sales were higher by
$10 million or 3% in 2008 compared to 2007 primarily due
to higher net sales of $10 million in our Internet operations.
Net sales in our outlet stores were flat overall primarily due to
higher net sales attributable to new store openings offset by
lower comparable store sales (2%) driven by lower traffic. We
ended 2008 with 213 outlet stores, reflecting 10 store openings
44
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
during 2008. The total impact of the 53rd week in 2008, which
is included in the amounts above, was a $7 million increase in
sales for the Direct to Consumer segment.
As a percent of segment net sales, gross profit in the Direct
to Consumer segment was 61.1% in 2008 compared to 61.4% in
2007. While the gross profit percentage was lower, gross profit
dollars were higher due to higher sales volume of $6 million
and favorable product sales mix of $4 million, partially offset by
higher other overhead manufacturing costs of $4 million.
The lower Direct to Consumer segment operating profit
in 2008 compared to 2007 was primarily attributable to higher
non-media related MAP expenses of $9 million, higher distribu-
tion expenses of $4 million and higher expenses of $3 million
as a result of opening 10 retail stores in 2008, partially offset by
higher gross profit. A significant portion of the selling, general
and administrative expenses in each segment is an allocation of
our consolidated selling, general and administrative expenses,
however certain expenses that are specifically identifiable to
a segment are charged directly to such segment. The alloca-
tion 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.
International
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 496,170
64,349
$ 448,618
57,820
$ 47,552
6,529
10.6%
11.3
Overall net sales in the International segment were higher by
$48 million or 11% in 2008 compared to 2007. During 2008, we
experienced higher net sales, in each case excluding the impact
of foreign currency exchange rates but including the impact of
the 53rd week, in Europe of $13 million, Canada of $9 million
and Asia of $5 million. The growth in our European casualwear
business was driven by the strength of the Stedman brand that
is sold in the wholesale channel. Higher sales in our Champion
and Hanes brands activewear and male underwear businesses
in Canada and in our Champion brand casualwear business in
Asia 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 strengthening 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 40.1% in 2008 compared to 2007 at 40.6%. While the
gross profit percentage was lower, gross profit dollars were
higher for 2008 compared to 2007 as a result of higher sales
volume of $15 million, a favorable impact related to foreign
currency exchange rates of $9 million and lower on-going excess
and obsolete inventory costs of $3 million partially offset by
higher sales incentives of $7 million, unfavorable product sales
mix of $2 million and higher spending of $3 million in numerous
other areas.
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 non-media related MAP expenses of $3 million and
higher 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.
Other
(dollars in thousands)
Years Ended
January 3,
2009
December 29,
2007
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit (loss) . .
$ 21,724
328
$ 56,920 $ (35,196)
1,661
(1,333)
(61.8)%
124.6
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.
General Corporate Expenses
General corporate expenses were lower in 2008 compared
to 2007 primarily due to lower pension expense of $8 million,
which reflects a $3 million adjustment that reduced pension
expense in 2007 related to the final separation of our pension
assets and liabilities from Sara Lee, $4 million of lower start-up
and shut-down costs associated with our consolidation and
globalization of our supply chain, $3 million of spin off and
related charges recognized in 2007 which did not recur in 2008
and $2 million of higher foreign exchange transaction gains.
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 and higher spending in
numerous areas of $3 million.
Liquidity and capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by
operations and availability under our Revolving Loan Facility,
Accounts Receivable Securitization Facility and our international
loan facilities. At January 2, 2010, we had $307 million of
borrowing availability under our $400 million Revolving Loan
Facility (after taking into account outstanding letters of credit),
$91 million of borrowing availability under our Accounts
Receivable Securitization Facility, $39 million in cash and cash
equivalents and $35 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.
45
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
The following have impacted or are expected to
impact liquidity:
n we have principal and interest obligations under our debt;
n we expect to continue to invest in efforts to improve
operating efficiencies and lower costs;
n we expect to continue to ramp up our lower-cost
manufacturing capacity in Asia, Central America and
the Caribbean Basin and enhance efficiency;
n we may selectively pursue strategic acquisitions;
n we could increase or decrease the portion of the income
of our foreign subsidiaries that is expected to be remitted
to the United States, which could significantly impact our
effective income tax rate; and
n our board of directors has authorized the repurchase of up
to 10 million shares of our stock in the open market over the
next few years (2.8 million of which we have repurchased as
of January 2, 2010 at a cost of $75 million), although we may
choose not to repurchase any stock and instead focus on the
repayment of our debt in the next 12 months in light of the
current economic recession.
We have restructured our supply chain over the past three
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global
supply chain infrastructure substantially in place, we are now
focused on optimizing our supply chain to further enhance
efficiency, improve working capital and asset turns and reduce
costs. We are focused on optimizing the working capital
needs of our supply chain through several initiatives, such as
supplier-managed inventory for raw materials and sourced goods
ownership relationships. The consolidation of our distribution
network is still in process but will not result in any substantial
charges in future periods. The distribution network consolidation
involves the implementation of new warehouse management
systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace parts
of our legacy distribution network.
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects
on our business. The retail environment has been impacted by
recent volatility in the financial markets, including 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 potential job losses
among many sectors of the economy, significant declines in the
stock market resulting in large losses to consumer retirement
and investment accounts, and uncertainty regarding future
federal tax and economic policies have all added to declines in
consumer confidence and curtailed retail spending.
During 2009, we did not see a sustained rebound in
consumer spending but rather mixed results. We also experi-
enced substantial pressure on profitability due to the economic
climate, increased pension costs and increased costs associated
with implementing our price increase which became effective in
February 2009, including repackaging costs.
Hosiery products continue to be more adversely impacted
than other apparel categories by reduced consumer discretion-
ary spending, which contributes to weaker sales and lowering
of inventory levels by retailers. The Hosiery segment comprised
5% only of our net sales in 2009 however, and as a result, the
decline in the Hosiery segment has not had a significant impact
on our net sales or cash flows. Generally, we manage the
Hosiery segment for cash, placing an emphasis on reducing
our cost structure and managing cash efficiently.
We expect to be able to manage our working capital levels
and capital expenditure amounts to maintain sufficient levels of
liquidity. Factors that could help us in these efforts include higher
sales volume and the realization of additional cost benefits
from previous restructuring and related actions. During 2009,
we reduced our media spending as the continuing recession
constrained consumer spending. In 2010 we anticipate that
we will restore our media spending back to a range of $90 to
$100 million in an effort to generate sales growth.
2010 Outlook
We have secured significant shelf-space and distribution
gains, starting primarily in 2010. Program gains significantly
outnumber program losses, and we expect the net space gains
to generate approximately 5% incremental sales growth in 2010,
independent of a consumer spending rebound. If consumer
spending does rebound, we have potential for additional upside
in sales growth. By segment, two-thirds of the increases are
expected in our Innerwear segment and most of the remainder
in our Outerwear segment. However, both our Direct to Consumer
and International segments should also see mid-single-digit
growth in 2010.
Specifically for our Innerwear segment, the bulk of the gains
are in men’s underwear and intimate apparel. The new programs
in men’s underwear have already begun to ship, with the new
intimate apparel program starting to ship in the second quarter
of 2010. The remaining growth in the Innerwear segment in the
back half of the year will be driven by replenishment of these
new programs.
For the Outerwear segment, growth will be driven by the
expansion of our Just My Size brand in the first half as a result
of a multi-year agreement we entered into with Wal-Mart in April
2009 that significantly expanded the presence of our Just My
Size brand. In the second half of 2010, Champion has confirmed
space and distribution gains in fleece, performance apparel and
sports bras across a broad set of accounts.
Our projected sales growth, combined with our cost savings,
should drive greater operating profit growth in 2010. To support
this growth, we have increased our production capacity. Our
Nanjing textile facility started production in the fourth quarter
of 2009 and is right on plan. We also secured additional capac-
ity with outside contractors. The earthquake in Haiti caused
some short-term disruption and incremental costs in early 2010,
however we do not believe it will have a material impact on
net sales.
46
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Cash Requirements for Our Business
Pension Plans
We rely on our cash flows generated from operations
and the borrowing capacity under our Revolving Loan Facility,
Accounts Receivable Securitization Facility and international
loan facilities to meet the cash requirements of our business.
The primary cash requirements of our business are payments to
vendors in the normal course of business, restructuring costs,
capital expenditures, maturities of debt and related interest
payments, contributions to our pension plans and repurchases
of our stock. We believe we have sufficient cash and available
borrowings for our liquidity needs. The flexibility provided by our
debt refinancing provides greater opportunity to pay down debt,
repurchase our stock, pursue selected acquisitions or make
discretionary contributions to our pension plans. During 2009,
we reduced debt by $284 million through the use of cash flows
from operations generated primarily by the reduction of inven-
tory by $249 million.
The implementation of our consolidation and globalization
strategy, which was designed to improve operating efficiencies
and lower costs, has resulted in significant costs and will gener-
ate savings in future years. Restructuring charges related to
our consolidation and globalization strategy were substantially
completed by the end of 2009. The consolidation of our dis-
tribution network is still in process but will not result in any
substantial charges in future periods. The distribution network
consolidation involves the implementation of new warehouse
management systems and technology, and opening of new
distribution centers and new third-party logistics providers to
replace parts of our legacy distribution network. As a result of
our consolidation and globalization strategy, we expected 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
was expected to be noncash. Through this three year period,
we have recognized approximately $278 million in restructuring
and related charges related to this strategy, of which approxi-
mately half have been noncash. These actions represent the
substantial completion of the consolidation and globalization
of our supply chain.
In December 2009, we entered into an agreement to sell
selected trade accounts receivable to a financial institution
on a nonrecourse basis. After the sale, we do not retain any
interests in the receivables nor are we involved in the servicing
or collection of these receivables. As of January 2, 2010, we had
sold $71 million of accounts receivable at their stated value less
applicable discount charges and fees.
Capital spending has varied significantly from year to
year as we have executed our supply chain consolidation and
globalization strategy and the integration and consolidation of
our technology systems. We spent $127 million on gross capital
expenditures during 2009. During 2010, we expect our annual
gross capital spending to be relatively comparable to our annual
depreciation and amortization expense and should represent our
last high year of gross capital spending related to these efforts.
Our U.S. qualified pension plan is approximately 80%
funded as of January 2, 2010 compared to 86% funded as of
January 3, 2009. The funded status reflects an increase in the
benefit obligation due to a decrease in the discount rate used
in the valuation of the liability, partially offset by an increase in
the fair value of plan assets as a result of the stock market’s
performance during 2009. We may elect to make voluntary
contributions, which are not expected to be significant, to
maintain an 80% funded level which will avoid certain benefit
payment restrictions under the Pension Protection Act. We
expect pension expense in 2010 of approximately $17 million
compared to $22 million in 2009. See Note 16 to our financial
statements for more information on the plan asset components.
In connection with closing a manufacturing facility in early
2009, we, as required, notified the Pension Benefit Guaranty
Corporation (the “PBGC”) of the closing and requested a
liability determination under section 4062(e) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)
with respect to the National Textiles, L.L.C. Pension Plan. In
September 2009, we entered into an agreement with the PBGC
under which we contributed $7 million to the plan in September
2009 and agreed to contribute an additional $7 million to the plan
by September 2010. In addition, in September 2009 we made
a voluntary contribution of $2 million to the Hanesbrands Inc.
Pension Plan to maintain a funding level sufficient to avoid
certain benefit payment restrictions under the Pension
Protection Act and may elect to do the same again in 2010.
Share Repurchase Program
On February 1, 2007, we announced that our Board of
Directors 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.
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 exer-
cise 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 other uses of cash in the next
twelve months.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements within
the meaning of Item 303(a)(4) of SEC Regulation S-K.
47
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Future Contractual Obligations and Commitments
Sources and Uses of Our Cash
The following table contains information on our contractual
obligations and commitments as of January 2, 2010, and their
expected timing on future cash flows and liquidity.
The information presented below regarding the sources and
uses of our cash flows for the years ended January 2, 2010 and
January 3, 2009 was derived from our financial statements.
Payments Due by Period
Years Ended
At January 2,
2010
Less Than
1 Year
1 - 3 Years
3 - 5 Years
Thereafter
(dollars in thousands)
obligations . . . . . . . . . $ 256,468
$ 256,468
$
—
$
— $
Other purchase
obligations (1). . . . . . .
158,285
158,285
—
—
—
—
(in thousands)
Operating activities:
Inventory purchase
Marketing and
advertising
obligations . . . . . . . . .
Uncertain tax
January 2,
2010
$ 414,504
(88,844)
(354,174)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign currency
exchange rates on cash . . . . . . . . . . . . . . . . . . . . .
115
Decrease in cash and cash equivalents. . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . .
(28,399)
67,342
January 3,
2009
$ 177,397
(177,248)
(104,738)
(2,305)
(106,894)
174,236
18,773
16,973
1,550
250
—
Cash and cash equivalents at end of year. . . . . . . . . .
$ 38,943
$ 67,342
positions . . . . . . . . . . .
28,070
3,268
16,822
—
7,980
Operating Activities
Deferred
compensation . . . . . . .
16,629
4,029
6,321
1,952
4,327
Interest on debt
obligations (2). . . . . . .
599,463
104,896
195,228
185,477
113,862
Operating lease
obligations . . . . . . . . .
249,944
49,047
71,373
43,361
86,163
Defined benefit
plan mandatory
contributions (3) . . . . .
Severence and other
6,816
6,816
—
restructuring payments . .
22,399
18,244
4,155
Other long-term
—
—
—
—
obligations (4). . . . . . .
67,874
16,153
17,674
13,363
20,684
Investing activities:
Capital expenditures . . . .
Financing activities:
Debt . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . .
13,965
12,139
1,826
—
—
1,892,235
66,681
164,688
66,681
13,125
—
557,235
—
1,157,187
—
Total
. . . . . . . . . . . . . . . . . . $ 3,397,602
$ 877,687
$ 328,074
$ 801,638 $ 1,390,203
(1) Includes other purchase obligations, excluding inventory 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 com-
mitment 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 2, 2010, as well as obligations for accounts payable and accrued liabilities recorded
on the Consolidated Balance Sheet.
(2) Interest obligations on floating rate debt instruments are calculated for future periods using
interest rates in effect at January 2, 2010.
(3) In connection with closing a manufacturing facility in early 2009, we, as required, notified
the PBGC of the closing and requested a liability determination under section 4062(e)
of ERISA with respect to a defined benefit plan. In September 2009, we entered into an
agreement with the PBGC under which we contributed $7 million to the defined contribution
plan in September 2009 and agreed to contribute an additional $7 million to the plan by
September 2010.
(4) Represents the projected payment for long-term liabilities recorded on the Consolidated
Balance Sheet for certain employee benefit claims, royalty-bearing license agreement
payments and capital leases.
Net cash provided by operating activities was $415 million
in 2009 compared to $177 million in 2008. The net increase in
cash from operating activities of $237 million for 2009 compared
to 2008 is primarily attributable to significantly lower uses of
our working capital of $284 million, partially offset by lower
net income.
Accounts receivable increased $40 million from January 3,
2009 primarily due to a longer collection cycle reflecting a more
challenging retail environment, partially offset by the sale of
selected accounts receivable as discussed in the “Cash
Requirements for Our Business” section above.
Net inventory decreased $249 million from January 3, 2009
primarily due to decreases in levels as we complete the execu-
tion of our supply chain consolidation and globalization strategy,
lower input costs such as cotton, oil and freight and lower
excess and obsolete inventory levels. 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. The
lower excess and obsolete inventory levels are attributable to
both our continuous evaluation of inventory levels and simplifica-
tion of our product category offerings. We realized these benefits
by driving down obsolete inventory levels through aggressive
management and promotions.
With our global supply chain substantially restructured,
we are now focused on optimizing our supply chain to further
enhance efficiency, improve working capital and asset turns and
reduce costs. We are focused on optimizing the working capital
needs of our supply chain through several initiatives, such as
supplier-managed inventory for raw materials and sourced goods
ownership relationships. The consolidation of our distribution
network is still in process but will not result in any substantial
charges in future periods. The distribution network consolidation
involves the implementation of new warehouse management
systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace
parts of our legacy distribution network.
48
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
In October 2009, we completed the sale of our yarn
Financing Arrangements
operations to Parkdale America as a result of which we ceased
making our own yarn and now source all of our yarn require-
ments from large-scale yarn suppliers. We also entered into a
yarn purchase agreement with Parkdale. Under this agreement,
which has an initial term of six years, Parkdale will produce and
sell to us a substantial amount of our Western Hemisphere yarn
requirements. During the first two years of the term, Parkdale
will also produce and sell to us a substantial amount of the yarn
requirements of our Nanjing, China textile facility. Exiting yarn
production and entering into a supply agreement is expected to
generate $100 million of working capital improvements within
six months after the sale from reduced raw material require-
ments, reduced inventory, and sale proceeds.
Investing Activities
Net cash used in investing activities was $89 million in
2009 compared to $177 million in 2008. The lower net cash
used in investing activities of $88 million for 2009 compared to
2008 was primarily the result of lower net spending on capital
expenditures in 2009 compared to 2008 and acquisitions of a
sewing operation in Thailand and an embroidery and screen print
operation in Honduras for an aggregate cost of $15 million during
2008. During 2009, gross capital expenditures were $127 million
as we continued to build out our textile and sewing network in
Asia, Central America and the Caribbean Basin.
Financing Activities
Net cash used in financing activities was $354 million in
2009 compared to $105 million in 2008. The higher net cash
used in financing activities of $249 million for 2009 compared to
2008 was primarily the result of higher repayments of debt of
$147 million, fees paid for the amendments of the 2006 Senior
Secured Credit Facility and Accounts Receivable Securitiza-
tion Facility of $22 million in 2009 and fees paid related to the
issuance of the 8% Senior Notes and the execution of the 2009
Senior Secured Credit Facility of $53 million in 2009. Lower net
borrowings on notes payable of $38 million also contributed to
the higher net cash used in financing activities in 2009 compared
to 2008. In addition, we received $18 million in cash from Sara
Lee in 2008 which was offset by stock repurchases of $30 mil-
lion in 2008 that did not recur in 2009.
Cash and Cash Equivalents
As of January 2, 2010 and January 3, 2009, cash and cash
equivalents were $39 million and $67 million, respectively. The
lower cash and cash equivalents as of January 2, 2010 was
primarily the result of net cash used in financing activities
of $354 million and net cash used in investing activities of
$89 million, partially offset by cash provided by operating
activities of $415 million.
We believe our financing structure provides a secure base
to support our ongoing operations and key business strategies.
In December 2009, we completed a growth-focused debt
refinancing that enables us to simultaneously reduce leverage
and consider acquisition opportunities. The refinancing gives us
more flexibility in our use of excess cash flow, allows continued
debt reduction, and provides a stable long-term capital structure
with extended debt maturities at rates slightly lower than previ-
ous effective rates. The refinancing consisted of the sale of our
$500 million 8% Senior Notes and the concurrent amendment
and restatement of our 2006 Senior Secured Credit Facility to
provide for the $1.15 billion 2009 Senior Secured Credit Facility.
The proceeds from the sale of the 8% Senior Notes, together
with the proceeds from borrowings under the 2009 Senior
Secured Credit Facility, were used to refinance borrowings
under the 2006 Senior Secured Credit Facility, to repay all
borrowings under the Second Lien Credit Facility and to pay
fees and expenses relating to these transactions.
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
November 2009, Moody’s changed our rating outlook to “stable”
from “negative,” affirmed our corporate rating, probability of
default rating and speculative grade liquidity rating, and assigned
a rating of Ba1 to the 2009 Senior Secured Credit Facility. In
December 2009, Moody’s again affirmed our corporate rating,
probability of default rating and speculative grade liquidity rating,
assigned a rating of B1 to the 8% Senior Notes, and raised the
rating on the Floating Rate Notes from B1 to B2. In September
2009, Standard & Poor’s changed our current outlook to “nega-
tive” and placed our corporate credit rating and all issue-level
ratings for us on “Creditwatch with negative implications.” In
December 2009, Standard & Poor’s affirmed our corporate rating
and outlook, and removed us from “Creditwatch with negative
implications.” Standard & Poor’s also assigned ratings of BB+
and B+ to the 2009 Senior Secured Credit Facility and the 8%
Senior Notes, respectively, and raised the rating on the Floating
Rate Notes to B+.
As of January 2, 2010, we were in compliance with all
financial covenants under our credit facilities. We ended the
year with a leverage ratio, as calculated under the 2009 Senior
Secured Credit Facility and the Accounts Receivable Securitiza-
tion Facility, of 4.11 to 1. The maximum leverage ratio permitted
under the 2009 Senior Secured Credit Facility and the Accounts
Receivable Securitization Facility was 4.50 to 1 for the quarter
ended January 2, 2010 and will decline over time until it reaches
3.75 to 1 beginning with the second fiscal quarter of 2011. We
continue to monitor our covenant compliance carefully in this
difficult economic environment. We expect to maintain com-
pliance with our covenants during 2010, however economic
conditions or the occurrence of events discussed above under
“Risk Factors” could cause noncompliance.
49
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
2009 Senior Secured Credit Facility
The 2009 Senior Secured Credit Facility initially provides
for aggregate borrowings of $1.15 billion, consisting of a
$750 million term loan facility (the “Term Loan Facility”) and the
$400 million Revolving Loan Facility. A portion of the Revolving
Loan Facility is available for the issuances of letters of credit
and the making of swingline loans, and any such issuance of
letters of credit or making of a swingline loan will reduce the
amount available under the Revolving Loan Facility. At our option,
we may add one or more term loan facilities or increase the
commitments under the Revolving Loan Facility in an aggregate
amount of up to $300 million so long as certain conditions are
satisfied, including, among others, that no default or event of
default is in existence and that we are in pro forma compliance
with the financial covenants described below. As of January 2,
2010, we had $52 million outstanding under the Revolving Loan
Facility, $41 million of standby and trade letters of credit issued
and outstanding under this facility and $307 million of borrowing
availability. At January 2, 2010, the interest rates on the Term
Loan Facility and the Revolving Loan Facility were 5.25% and
6.75% respectively.
The proceeds of the Term Loan Facility were used to
refinance all amounts outstanding under the Term A loan facility
(in an initial principal amount of $250 million) and Term B loan
facility (in an initial principal amount of $1.4 billion) under the
2006 Senior Secured Credit Facility and to repay all amounts
outstanding under the Second Lien Credit Facility. Proceeds of
the Revolving Loan Facility were used to pay fees and expenses
in connection with these transactions, and will be used for
general corporate purposes and working capital needs.
The 2009 Senior Secured Credit Facility is guaranteed by
substantially 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 2009 Senior Secured Credit Facility have granted the lend-
ers under the 2009 Senior Secured Credit Facility a valid and
perfected first priority (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 first tier foreign subsidiaries; and
n substantially all present and future property and assets,
real and personal, tangible and intangible, of us and each
guarantor, except for certain enumerated interests, and all
proceeds and products of such property and assets.
The Term Loan Facility matures on December 10, 2015.
The Term Loan Facility will be repaid in equal quarterly install-
ments in an amount equal to 1% per annum, with the balance
due on the maturity date. The Revolving Loan Facility matures
on December 10, 2013. All borrowings under the Revolving
Loan Facility must be repaid in full upon maturity. Outstanding
borrowings under the 2009 Senior Secured Credit Facility are
prepayable without penalty. There are mandatory prepayments
of principal in connection with (i) the incurrence of certain indebt-
edness, (ii) non-ordinary course asset sales or other dispositions
(including as a result of casualty or condemnation) that exceed
certain thresholds in any period of 12 consecutive months, with
customary reinvestment provisions, and (iii) excess cash flow,
which percentage will be based upon our leverage ratio during
the relevant fiscal period.
At our option, borrowings under the 2009 Senior Secured
Credit Facility may be maintained from time to time as (a) Base
Rate loans, which shall bear interest at the highest of (i) 1/2
of 1% in excess of the federal funds rate, (ii) the rate publicly
announced by JPMorgan Chase Bank as its “prime rate” at its
principal office in New York City, in effect from time to time and
(iii) the LIBO Rate (as defined in the 2009 Senior Secured Credit
Facility and adjusted for maximum reserves) for LIBOR-based
loans with a one-month interest period plus 1.0%, in effect
from time to time, in each case plus the applicable margin, or
(b) LIBOR-based loans, which shall bear interest at the higher of
(i) LIBO Rate (as defined in the 2009 Senior Secured Credit
Facility and adjusted for maximum reserves), as determined
by reference to the rate for deposits in dollars appearing on
the Reuters Screen LIBOR01 Page for the respective interest
period or other commercially available source designated by the
administrative agent, and (ii) 2.00%, plus the applicable margin
in effect from time to time. The applicable margin for the Term
Loan Facility and the Revolving Loan Facility will be determined
by reference to a leverage-based pricing grid set forth in the
2009 Senior Secured Credit Facility. In the case of the Term Loan
Facility, the applicable margin will be (a) 3.25% for LIBOR-based
loans and 2.25% for Base Rate loans if our leverage ratio is
greater than or equal to 2.50 to 1, and (b) 3.00% for LIBOR-
based loans and 2.00% for Base Rate loans if our leverage ratio
is less than 2.50 to 1. In the case of the Revolving Loan Facility,
the applicable margin will range from a maximum of 4.75% in
the case of LIBOR-based loans and 3.75% in the case of Base
Rate loans if our leverage ratio is greater than or equal to 4.00
to 1, and will step down in 0.25% increments to a minimum of
4.00% in the case of LIBOR-based loans and 3.00% in the case
of Base Rate loans if our leverage ratio is less than 2.50 to 1.
The applicable margin from the closing date of the 2009 Senior
Secured Credit Facility through the delivery of our financial state-
ments for the second fiscal quarter of 2010 will be (a) in the case
of the Term Loan Facility, 3.25% and 2.25% for LIBOR-based
loans and Base Rate loans, respectively, and (b) in the case of
the Revolving Loan Facility, 4.50% and 3.50% for LIBOR-based
loans and Base Rate loans, respectively.
The 2009 Senior Secured Credit Facility requires us to
comply with customary affirmative, negative and financial
covenants. The 2009 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, as computed pursuant
to the 2009 Senior Secured Credit Facility), 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 beginning with the fourth
fiscal quarter of 2009. This ratio was 2.50 to 1 for the fourth
50
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
fiscal quarter of 2009 and will increase over time until it reaches
3.25 to 1 for the third fiscal quarter of 2011 and thereafter. The
leverage ratio covenant requires that the ratio of our total debt
to EBITDA for the preceding four fiscal quarters will not be more
than a specified ratio for each fiscal quarter beginning with the
fourth fiscal quarter of 2009. This ratio was 4.50 to 1 for the
fourth fiscal quarter of 2009 and will decline over time until
it reaches 3.75 to 1 for the second fiscal quarter of 2011 and
thereafter. The method of calculating all of the components
used in the covenants is included in the 2009 Senior Secured
Credit Facility.
The 2009 Senior Secured Credit Facility also requires us
to calculate excess cash flow (as computed pursuant to the
2009 Senior Secured Credit Facility) as of the end of each fiscal
year and we may be required in certain circumstances to make
mandatory prepayments of amounts outstanding under the Term
Loan Facility as a result of such calculation. As a result of the
excess cash flow calculation for 2009, we are required to prepay
$57.2 million under the Term Loan Facility during the second
quarter of 2010.
The 2009 Senior Secured Credit Facility contains custom-
ary events of default, including nonpayment of principal when
due; nonpayment of interest after a stated grace period, fees or
other amounts after stated grace period; material inaccuracy of
representations and warranties; violations of covenants; certain
bankruptcies and liquidations; any cross-default to material
indebtedness; certain material judgments; certain events related
to ERISA, actual or asserted invalidity of any guarantee, secu-
rity document or subordination provision or non-perfection of
security interest, and a change in control (as defined in the 2009
Senior Secured Credit Facility).
8% Senior Notes
On December 10, 2009, we issued $500 million aggregate
principal amount of the 8% Senior Notes. The 8% Senior Notes
are senior unsecured obligations that rank equal in right of
payment with all of our existing and future unsubordinated
indebtedness. The 8% Senior Notes bear interest at an annual
rate equal to 8%. Interest is payable on the 8% Senior Notes on
June 15 and December 15 of each year. The 8% Senior Notes
will mature on December 10, 2016. The net proceeds from the
sale of the 8% Senior Notes were approximately $480 million.
As noted above, these proceeds, together with the proceeds
from borrowings under the 2009 Senior Secured Credit Facil-
ity, were used to refinance borrowings under the 2006 Senior
Secured Credit Facility, to repay all borrowings under the Second
Lien Credit Facility and to pay fees and expenses relating to
these transactions. The 8% Senior Notes are guaranteed by
substantially all of our domestic subsidiaries.
We may redeem some or all of the notes prior to
December 15, 2013 at a redemption price equal to 100% of
the principal amount of 8% Senior Notes redeemed plus an
applicable premium. We may redeem some or all of the 8%
Senior Notes at any time on or after December 15, 2013 at a
redemption price equal to the principal amount of the 8% Senior
Notes plus a premium of 4% if redeemed during the 12-month
period commencing on December 15, 2013, 2% if redeemed
during the 12-month period commencing on December 15, 2014
and no premium if redeemed after December 15, 2015, as well
as any accrued and unpaid interest as of the redemption date.
In addition, at any time prior to December 15, 2012, we may
redeem up to 35% of the aggregate principal amount of the
Notes at a redemption price of 108% of the principal amount
of the Notes redeemed with the net cash proceeds of certain
equity offerings.
The indenture governing the 8% Senior Notes contains
customary events of default which include (subject in certain
cases to customary grace and cure periods), among others, non-
payment of principal or interest; breach of other agreements in
such indenture; failure to pay certain other indebtedness; failure
to pay certain final judgments; failure of certain guarantees to be
enforceable; and certain events of bankruptcy or insolvency.
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. These proceeds, together with
our working capital, were used to repay in full the $500 million
outstanding under the bridge loan facility that we entered into
in 2006. 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
redemption 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 redeemed 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 redemption date.
The indenture governing the Floating Rate Senior Notes
contains customary events of default which include (subject
in certain cases to customary grace and cure periods), among
others, nonpayment of principal or interest; breach of other
agreements in such indenture; failure to pay certain other
indebtedness; failure to pay certain final judgments; failure of
certain guarantees to be enforceable; and certain events of
bankruptcy or insolvency.
We repurchased $3 million of the Floating Rate Senior Notes
for $2.8 million resulting in a gain of $0.2 million in 2009. We
repurchased $6 million of the Floating Rate Senior Notes for
$4 million resulting in a gain of $2 million in 2008.
51
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Accounts Receivable Securitization
On November 27, 2007, we entered into the Accounts
Receivable Securitization Facility, which initially provided 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. Under the terms of the
Accounts Receivable Securitization Facility, we sell, on a revolv-
ing basis, certain domestic trade receivables 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 us or through committed bank purchasers if the conduits
fail to fund. The assets and liabilities of Receivables LLC are fully
reflected on the Consolidated Balance Sheet, and the securitiza-
tion is treated as a secured borrowing for accounting purposes.
The borrowings under the Accounts Receivable Securitization
Facility remain outstanding throughout the term of the agree-
ment subject to us maintaining sufficient eligible receivables,
by continuing to sell trade receivables to Receivables LLC,
unless an event of default occurs. All of the proceeds from the
Accounts Receivable Securitization Facility were used to make
a prepayment of principal under the 2006 Senior Secured Credit
Facility. On January 29, 2010, Receivables LLC gave notice to the
agent and the managing agents under the Accounts Receivable
Securitization Facility that, as permitted by the terms of the
Accounts Receivable Securitization Facility, effective February
11, 2010, the amount of funding available under the Accounts
Receivable Securitization Facility was being reduced from
$250 million to $150 million.
Availability of funding under the Accounts Receivable
Securitization Facility depends primarily upon the eligible
outstanding receivables balance. As of January 2, 2010, we
had $100 million outstanding under the Accounts Receivable
Securitization Facility. The outstanding balance under the
Accounts Receivable Securitization Facility is reported on our
Consolidated Balance Sheet in the line “Current portion of debt.”
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 Consolidated Statement of
Income. If the conduits fail to fund, the Accounts Receivable
Securitization 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 Accounts Receivable
Securitization Facility) plus the applicable margin in effect from
time to time. The average blended interest rate for the outstand-
ing balance as of January 2, 2010 was 2.80%.
On March 16, 2009, we and Receivables LLC entered into
Amendment No. 1 (“Amendment No. 1”) to the Accounts
Receivable Securitization Facility. Prior to the execution of
Amendment No. 1, the Accounts Receivable Securitization
Facility contained the same leverage ratio and interest coverage
ratio provisions as the 2006 Senior Secured Credit Facility, and
Amendment No. 1 conformed these ratios to the ratios provided
for in the 2006 Senior Secured Credit Facility as modified by an
52
amendment to the 2006 Senior Secured Credit Facility that was
also entered into in March 2009. Pursuant to Amendment No.1,
the rate that would be payable to the conduit purchasers or the
committed purchasers party to the Accounts Receivable Secu-
ritization Facility in the event of certain defaults was increased
from 1% over the prime rate to 3% over the greatest of (i) the
one-month LIBO rate plus 1%, (ii) the weighted average rates
on federal funds transactions plus 0.5%, or (iii) the prime rate.
Also pursuant to Amendment No. 1, several of the factors that
contribute to the overall availability of funding were amended
in a manner that would be expected to generally reduce the
amount of funding that would be available under the Accounts
Receivable Securitization Facility. Amendment No. 1 also pro-
vides for certain other amendments to the Accounts Receivable
Securitization Facility, including changing the termination date for
the Accounts Receivable Securitization Facility from November
27, 2010 to March 15, 2010, and requiring that Receivables LLC
make certain payments to a conduit purchaser, a committed
purchaser, or certain entities that provide funding to or are
affiliated with them, in the event that assets and liabilities of a
conduit purchaser are consolidated for financial and/or regulatory
accounting purposes with certain other entities.
On April 13, 2009, we and Receivables LLC entered into
Amendment No. 2 (“Amendment No. 2”) to the Accounts
Receivable Securitization Facility. Pursuant to Amendment No.
2, several of the factors that contribute to the overall availability
of funding were amended in a manner would be expected to
generally increase over time the amount of funding that would
be available under the Accounts Receivable Securitization Facility
as compared to the amount that would be available pursuant to
Amendment No. 1. Amendment No. 2 also provides for certain
other amendments to the Accounts Receivable Securitization
Facility, including changing the termination date for the Accounts
Receivable Securitization Facility from March 15, 2010 to April 12,
2010. In addition, HSBC Securities (USA) Inc. replaced JPMorgan
Chase Bank, N.A. as agent under the Accounts Receivable
Securitization Facility, PNC Bank, N.A. replaced JPMorgan Chase
Bank, N.A. as a managing agent, and PNC Bank, N.A. and an
affiliate of PNC Bank, N.A. replaced affiliates of JPMorgan
Chase Bank, N.A. as a committed purchaser and a conduit
purchaser, respectively.
On August 17, 2009, we and HBI Receivables entered into
Amendment No. 3 to the Accounts Receivable Securitization
Facility, pursuant to which certain definitions were amended
to clarify the calculation of certain ratios that impact reporting
under the Accounts Receivable Securitization Facility.
On December 10, 2009, we and Receivables LLC entered
into Amendment No. 4 (“Amendment No. 4”) to the Accounts
Receivable Securitization Facility. Prior to the execution of
Amendment No. 4, the Accounts Receivable Securitization
Facility contained the same leverage ratio and interest cover-
age ratio provisions as the 2006 Senior Secured Credit Facility.
Amendment No. 4 conformed these ratios to the ratios provided
for in the 2009 Senior Secured Credit Facility.
On December 21, 2009, we and Receivables LLC entered
into Amendment No. 5 (“Amendment No. 5”) to the Accounts
Receivable Securitization Facility. Pursuant to Amendment No. 5,
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Receivables LLC was permitted to sell receivables from certain
obligors back to us, and to cease purchasing receivables of these
certain obligors from us in the future. Amendment No. 5 also
provides for certain other amendments to the Accounts Receiv-
able Securitization Facility, including changing the termination
date for the Accounts Receivable Securitization Facility from
April 12, 2010 to December 20, 2010. In addition, certain of the
factors that contribute to the overall availability of funding were
modified in a manner that, taken together, could result in a
reduction in the amount of funding that will be available under
the Accounts Receivable Securitization Facility. In connection
with Amendment No. 5, certain fees were due to the managing
agents and certain fees payable to the committed purchasers and
the conduit purchasers were decreased.
The Accounts Receivable Securitization Facility contains cus-
tomary events of default and requires us to maintain the same
interest coverage ratio and leverage ratio as required by the 2009
Senior Secured Credit Facility. As of January 2, 2010, we were in
compliance with all financial covenants.
Notes Payable
Notes payable were $67 million at January 2, 2010 and
$62 million at January 3, 2009.
We have a short-term revolving facility arrangement with a
Salvadoran branch of a Canadian bank amounting to $30 million
of which $30 million was outstanding at January 2, 2010 which
accrues interest at 4.47%. We were in compliance with the
financial covenants contained in this facility at January 2, 2010.
We have a short-term revolving facility arrangement with a
U.S. bank amounting to $25.0 million of which $25.0 million was
outstanding at January 2, 2010 which accrues interest at 3.23%.
We were in compliance with the financial covenants contained in
this facility at January 2, 2010.
We have a short-term revolving facility arrangement with a
Hong Kong bank amounting to THB 600 million ($18 million) of
which $4.3 million was outstanding at January 2, 2010 which
accrues interest at 5.32%. We were in compliance with the
financial covenants contained in this facility at January 2, 2010.
We have a short-term revolving facility arrangement with
a Chinese branch of a U.S. bank amounting to RMB 56 million
($8.2 million) of which $7.4 million was outstanding at January
2, 2010 which accrues interest at 6.37%. Borrowings under the
facility accrue interest at the prevailing base lending rates pub-
lished by the People’s Bank of China from time to time plus 20%.
We were in compliance with the financial covenants contained in
this facility at January 2, 2010.
In addition, we have short-term revolving credit facilities in
various other locations that can be drawn on from time to time
amounting to $20.4 million of which $0 was outstanding at
January 2, 2010.
Derivatives
In connection with the amendment and restatement of the
2006 Senior Secured Credit Facility and repayment of the Second
Lien Credit Facility in December 2009, all outstanding interest
rate hedging instruments which were hedging these underlying
debt instruments along with the interest rate hedge instru-
ment related to the Floating Rate Senior Notes were settled for
$62 million, of which $40 million was paid in December 2009 and
the remaining $22 million was included in the “Accounts Pay-
able” line of the Consolidated Balance Sheet at January 2, 2010.
The amounts deferred in Accumulated Other Comprehensive
Loss associated with the 2006 Senior Secured Credit Facility
and Second Lien Credit Facility were released to earnings as the
underlying forecasted interest payments were no longer prob-
able of occurring, which resulted in recognition of losses totaling
$26 million that are included in the “Other Expense (Income)”
line of the Consolidated Statement of Income. The amounts
deferred in Accumulated Other Comprehensive Loss associated
with the Floating Rate Senior Notes interest rate hedge were
frozen at the termination date and will be amortized over the
original remaining term of the interest rate hedge instrument.
We are required under the 2009 Senior Secured Credit Facil-
ity to hedge a portion of our floating rate debt to reduce interest
rate risk caused by floating rate debt issuance. To comply with
this requirement, in the first quarter of 2010 we entered into a
hedging arrangement whereby we capped the LIBOR interest
rate component on $490.7 million of the floating rate debt under
the Floating Rate Senior Notes at 4.262%, as a result of which
approximately 52% of our total debt outstanding at January 2,
2010 is now at a fixed rate.
We use forward exchange and option contracts to reduce the
effect of fluctuating foreign currencies for a portion of our antici-
pated short-term foreign currency-denominated transactions.
Cotton is the primary raw material used to manufacture many
of our products. While we have sold our yarn operations, we are
still exposed to fluctuations in the cost of cotton. Increases in the
cost of cotton can result in higher costs in the price we pay for
yarn from our large-scale yarn suppliers. While we do employ a
dollar cost averaging strategy by entering into hedging contracts
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.
critical Accounting Policies and estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating results
and financial condition in conformity with accounting principles
generally accepted in the United States. We apply these account-
ing policies in a consistent manner. Our significant accounting
policies are discussed in Note 2, titled “Summary of Significant
Accounting Policies,” to our 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 assump-
tions 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 opera-
tions in the period in which the actual amounts become known.
The critical accounting policies that involve the most significant
management judgments and estimates used in preparation of
our financial statements, or are the most sensitive to change
from outside factors, are the following:
53
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Sales Recognition and Incentives
Inventory Valuation
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
historical 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
Policies — Sales Recognition and Incentives,” to our 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 future
customer utilization and redemption rates. We use historical 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 experience
and other available information. We classify the costs associated
with cooperative advertising as a reduction of “Net sales” in our
Consolidated Statements of Income.
Accounts Receivable Valuation
Accounts receivable consist primarily of amounts due
from customers. We carry our accounts receivable at their
net realizable value. In determining the appropriate allowance
for doubtful accounts, we consider a combination of factors,
such as the aging of trade receivables, industry trends, and our
customers’ financial strength, credit standing, and payment and
default history. Changes in the aforementioned factors, among
others, may lead to adjustments in our allowance for doubtful
accounts. The calculation of the required allowance requires
judgment by our management as to the impact of these and
other factors on the ultimate realization of our trade receivables.
Charges to the allowance for doubtful accounts are reflected
in the “Selling, general and administrative expenses” line and
charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in the
“Net sales” line of 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.
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.
Because 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 financial statements, consumer tastes and
preferences will continue to change and we could experience
additional inventory write-downs in the future.
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
reporting using tax rates in effect for the years in which the
differences are expected to reverse. We have recorded deferred
taxes related 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 uncertain, 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 valua-
tion 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.
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 decisions made
by us 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 anticipated 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
judgment. There are inherent uncertainties related to the
interpretation 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
54
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
tax expense is adjusted in the period in which these events
occur, and these adjustments are included in our Consolidated
Statements of Income. If such changes take place, there is a risk
that our effective tax rate may increase or decrease in any period.
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.
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 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 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
generally 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
included 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
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 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 attributable to deductible temporary differences
and carryforwards) that would be recognized as assets on the
Company’s balance sheet computed in accordance with Generally
Accepted Accounting Principles (“GAAP”), but without regard to
valuation allowances, less the amount of deferred tax liabilities
(including deferred tax consequences attributable to taxable
temporary 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.
Based on our computation of the final amount of deferred
taxes for our opening balance sheet as of September 6, 2006,
the amount that is expected to be collected from Sara Lee based
on our computation of $72 million, which reflects a preliminary
cash installment received from Sara Lee of $18,000, is included
as a receivable in Other Current Assets in the Consolidated
Balance Sheets as of January 2, 2010 and January 3, 2009. We
have exchanged information with Sara Lee in connection with
this matter, but Sara Lee has disagreed with our computation.
In accordance with the dispute resolution provisions of the tax
sharing agreement, on August 3, 2009, we submitted the dispute
to binding arbitration. The arbitration process is ongoing, and
we will continue to prosecute our claim. We do not believe that
the resolution of this dispute will have a material impact on our
financial position, results of operations or cash flows.
Stock Compensation
We established 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 employees, non-employee directors and employees of our
subsidiaries to promote the interest of our company and incent
performance and retention of employees. Stock-based compen-
sation 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 utilize the simplified method outlined
in SEC accounting rules to estimate expected lives for options
granted. The simplified method is used for valuing stock option
grants by eligible public companies that do not have sufficient
historical exercise patterns on options granted to employees. We
estimate forfeitures for stock-based awards granted that 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
obligations, plan assets, and how we measure the amount of
these costs, see Note 16 titled “Defined Benefit Pension Plans”
to our consolidated financial statements.
Our U.S. qualified pension plan is approximately 80% funded
as of January 2, 2010 compared to 86% funded as of January 3,
2009. The funded status reflects an increase in the benefit obliga-
tion due to a decrease in the discount rate used in the valuation
of the liability, partially offset by an increase in the fair value of
plan assets as a result of the stock market’s performance during
2009. We may elect to make voluntary contributions to maintain
an 80% funded level which will avoid certain benefit payment
restrictions under the Pension Protection Act. The funded status
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H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
of our defined benefit pension plans are recognized on our
balance sheet and changes in the funded status are reflected in
comprehensive income. We measure the funded status of our
plans as of the date of our fiscal year end. We expect pension
expense in 2010 of approximately $17 million compared to
$22 million in 2009.
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
return. 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
assumptions 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
experience and anticipated future management actions. The
salary increase assumption only applies to the Canadian
plans and portions of the Hanesbrands nonqualified retire-
ment plans, as benefits under these plans are not frozen.
The benefits under the Hanesbrands Inc. Pension Plan were
frozen as of January 1, 2006.
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 investments, 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.
The sensitivity of changes in actuarial assumptions on our
annual pension expense and on our plans’ projected benefit
obligations, all other factors being equal, is illustrated by
the following:
(in millions)
Increase (Decrease) in
Pension
Expense
Projected Benefit
Obligation
1% decrease in discount rate . . . . . . . . . . . . . . . . . . .
1% increase in discount rate . . . . . . . . . . . . . . . . . . . .
1% decrease in expected investment return. . . . . . . .
1% increase in expected investment return . . . . . . . .
$ 1
(1)
6
(6)
$ 114
(94)
—
—
Trademarks and Other Identifiable Intangibles
Trademarks and computer software are our primary
identifiable intangible assets. We amortize identifiable intan-
gibles 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 2, 2010, the net book value of trademarks and other
identifiable intangible assets was $136 million, of which we
are amortizing the entire balance. We anticipate that our
amortization expense for 2010 will be $12 million.
We evaluate identifiable intangible assets subject to
amortization for impairment using a process similar to that
used to evaluate asset amortization described below under
“Depreciation 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 triggering
events occur. In order to determine the impairment of identifi-
able 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 identi-
fiable 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, including operating results, business plans, and present
value techniques. 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 underly-
ing 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.
Goodwill
As of January 2, 2010, 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 rely on a number of factors
to determine the fair value of our reporting units and evalu-
ate various factors to discount anticipated future cash flows,
including operating results, business plans, and present value
techniques. As discussed above under “Trademarks and Other
Identifiable Intangibles,” there are inherent uncertainties 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
carrying 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 9 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
historical experience, manufacturers’ estimates, engineering or
appraisal 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 utiliza-
tion. 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. 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’
compensation 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 manage-
ment’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 assumptions and economic conditions. If actual trends
differ from the estimates, the financial results could be impact-
ed. 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. 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
Accounting for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board
(“FASB”) issued new accounting rules for transfers of financial
assets. The new rules require greater transparency and addi-
tional disclosures for transfers of financial assets and the entity’s
continuing involvement with them and change the requirements
for derecognizing financial assets. The new accounting rules are
effective for financial asset transfers occurring after the begin-
ning of our first fiscal year that begins after November 15, 2009.
We are evaluating the impact of adoption of these new rules on
our financial condition, results of operations and cash flows.
Consolidation — Variable Interest Entities
In June 2009, the FASB issued new accounting rules related
to the accounting and disclosure requirements for the consolida-
tion of variable interest entities. The new accounting rules are
effective for our first fiscal year that begins after November 15,
2009. We are evaluating the impact of adoption of these rules on
our financial condition, results of operations and cash flows.
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.
Foreign exchange Risk
We sell the majority of our products in transactions
denominated 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 2, 2010, the potential change in fair value
of foreign currency derivative instruments, assuming a 10%
adverse change in the underlying currency price, was $7 million.
57
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
ITem 8. Financial Statements and
Supplementary Data
Our financial statements required by this item are contained
on pages F-1 through F- 42 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
Accountants 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 our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as defined in Exchange
Act Rule 13a-15(e), as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls
and procedures were effective.
Internal control over Financial Reporting
Our management is responsible for establishing and
maintaining 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 incorpo-
rated 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 our Chief Executive
Officer and Chief Financial Officer, concluded that no changes in
our internal control over financial reporting occurred during the
period covered by this report that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
ITem 9B. Other Information
None.
H AN E SBRANDS INC.
Interest Rates
Our debt under the 2009 Senior Secured Credit Facility,
Floating Rate Senior Notes and Accounts Receivable
Securitization Facility bear interest at variable rates. As a
result, we are exposed to changes in market interest rates that
could impact the cost of servicing our debt. We are required
under the 2009 Senior Secured Credit Facility to hedge a portion
of our floating rate debt to reduce interest rate risk caused by
floating rate debt issuance. To comply with this requirement, in
the first quarter of 2010 we entered into a hedging arrangement
whereby we capped the LIBOR interest rate component on
$490.7 million of the floating rate debt under the Floating Rate
Senior Notes at 4.262%, as a result of which approximately 52%
of our total debt outstanding at January 2, 2010 is now at a fixed
rate. After giving effect to these arrangements, a 25-basis point
movement in the annual interest rate charged on the outstand-
ing debt balances as of January 2, 2010 would result in a change
in annual interest expense of $3.5 million. We may also execute
interest rate cash flow hedges in the form of caps and swaps in
the future in order to mitigate our exposure to variability in cash
flows for the future interest payments on a designated portion
of borrowings.
commodities
Cotton is the primary raw material used in manufacturing
many of our products. While we have sold our yarn operations,
we are still exposed to fluctuations in the cost of cotton. While
we attempt to protect our business from the volatility of the
market price of cotton through employing a dollar cost averaging
strategy by entering into hedging contracts from time to time,
our business can be adversely affected by dramatic movements
in cotton prices. The cotton prices reflected in our results were
55 cents per pound in 2009. We expect the cost of cotton
included in our results to average 68 cents per pound for the
full year of 2010. 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. 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, fluctuations in crude oil or petroleum prices
may influence the prices of other raw materials we use to
manufacture our products, such as chemicals, dyestuffs,
polyester yarn and foam. We generally purchase raw materials
at market prices. We estimate that a change of $10.00 per barrel
in the price of oil would affect our freight costs by approximately
$3 million, at current levels of usage.
58
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 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
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 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 on Form 10-K not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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 on Form 10-K not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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 on Form 10-K not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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 on Form 10-K not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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.
59
H AN E SBRANDS INC.
SIGNATURES
2 0 0 9 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 9th day of February, 2010.
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
Chief Executive Officer and Chairman of the Board of Directors
February 9, 2010
(principal executive officer)
Executive Vice President, Chief Financial Officer
February 9, 2010
(principal financial officer)
Vice President, Chief Accounting Officer and Controller
February 9, 2010
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 9, 2010
February 9, 2010
February 9, 2010
February 9, 2010
February 9, 2010
February 9, 2010
February 9, 2010
February 9, 2010
/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/ Andrew J. Schindler
Andrew J. Schindler
/s/ Ann E. Ziegler
Ann E. Ziegler
60
H AN E SBRANDS INC.
INDEX TO EXHIBITS
2 0 0 9 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
3.1
Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated
by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 5, 2006).
3.14
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
reference 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).
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
Certificate of Formation of Hanes Menswear, LLC, together with Certificate
of Conversion from a Corporation to a Limited Liability Company Pursuant
to Section 18-214 of the Limited Liability Company Act and Certificate of
Change of Location of Registered Office and Registered Agent (incorporated
by reference from Exhibit 3.14 to the 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 (incorporat-
ed 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).
E-1
H AN E SBRANDS INC.
Exhibit
Number Description
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).
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).
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).
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
reference 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).
3.25
3.26
3.27
3.28
3.29
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
E-2
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Exhibit
Number Description
3.38
3.39
3.40
3.41
3.42
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 refer-
ence 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).
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
reference 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).
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).
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
reference 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
Current 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
subsidiaries 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).
H AN E SBRANDS INC.
Exhibit
Number Description
4.7
4.8
10.1
10.2
10.3
Underwriting Agreement dated December 3, 2009 between the Registrant,
the subsidiary guarantors party thereto and J.P. Morgan Securities Inc.
(incorporated by reference from Exhibit 1.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission
on December 11, 2009).
First Supplemental Indenture, dated December 10, 2009, among the
Registrant, the subsidiary guarantors and Branch Banking and Trust Company
(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 December 11, 2009).
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).*
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).*
10.4
Form of Performance Cash Award Grant Notice and Agreement under the
Hanesbrands Inc. Omnibus Incentive Plan of 2006.*
10.5
Form of Non-Employee Director 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 Annual
Report on Form 10-K filed with the Securities and Exchange Commission
on February 11, 2009).*
10.6
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).*
10.7
Hanesbrands Inc. Retirement Savings Plan*
10.8
Hanesbrands Inc. Supplemental Employee Retirement Plan*
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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).*
Hanesbrands Inc. Executive Life Insurance Plan (incorporated by reference
from Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission on February 11, 2009).*
Hanesbrands Inc. Executive Long-Term Disability Plan. (incorporated by
reference from Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 11, 2009).*
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).*
Hanesbrands Inc. Non-Employee Director Deferred Compensation Plan
(incorporated by reference from Exhibit 10.13 to the Registrant’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission
on February 11, 2009).*
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and Richard A. Noll. (incorporated by reference from Exhibit
10.14 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 11, 2009).*
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Exhibit
Number Description
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and Gerald W. Evans Jr. (incorporated by reference from
Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 11, 2009).*
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and E. Lee Wyatt Jr. (incorporated by reference from Exhibit
10.16 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 11, 2009).*
Severance/Change in Control Agreement dated December 10, 2008 between
the Registrant and Kevin W. Oliver (incorporated by reference from Exhibit
10.17 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 11, 2009).*
Severance/Change in Control Agreement dated December 17, 2008 between
the Registrant and Joia M. Johnson (incorporated by reference from Exhibit
10.18 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 11, 2009).*
Severance/Change in Control Agreement dated December 18, 2008 between
the Registrant and William J. Nictakis (incorporated by reference from Exhibit
10.19 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 11, 2009).*
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
Registrant 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).
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).
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 “2006 Senior
Secured Credit Facility”) among the Registrant the various financial institu-
tions 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).†
10.29
First Amendment dated February 22, 2007 to the 2006 Senior Secured
Credit Facility (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).
E-3
H AN E SBRANDS INC.
Exhibit
Number Description
10.30
10.31
10.32
10.33
10.34
10.35
Second Amendment dated August 21, 2008 to the 2006 Senior Secured
Credit Facility (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 August 27, 2008).
Third Amendment dated March 10, 2009 to the 2006 Senior Secured
Credit Facility (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 March 16, 2009).
Amended and Restated Credit Agreement dated as of September 5, 2006,
as amended and restated as of December 10, 2009, among the Registrant,
the various financial institutions and other Persons from time to time party to
this Agreement, Barclays Bank PLC and Goldman Sachs Credit Partners L.P.,
as the co-documentation agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the co-syndication agents, JPMorgan Chase Bank, N.A., as the
administrative agent and the collateral agent, and J.P. Morgan Securities
Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays
Capital, the investment banking division of Barclays Bank PLC, as the joint
lead arrangers and joint bookrunners.
Second Lien Credit Agreement dated September 5, 2006 (the “Second Lien
Credit Agreement”) among HBI Branded Apparel Limited, Inc., 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 10.29 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 (the
“Accounts Receivable Securitization Facility”) 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).†
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Exhibit
Number Description
10.36
10.37
10.38
Amendment No. 1 dated as of March 16, 2009 to the Accounts Receivables
Securitization Facility (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 March 16, 2009).†
Amendment No. 2 dated as of April 13, 2009 to the Accounts Receivables
Securitization Facility (incorporated by reference from Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 11, 2009).†
Amendment No. 3 dated as of August 17, 2009 to the Accounts Receivables
Securitization Facility (incorporated by reference from Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 5, 2009).
10.39
Amendment No. 4 dated as of December 10, 2009 to the Accounts
Receivables Securitization Facility.
10.40
Amendment No. 5 dated as of December 21, 2009 to the Accounts
Receivables Securitization Facility.†
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.
E-4
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HANESBRANDS INC.
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 2, 2010, January 3, 2009 and December 29, 2007. . . . . . . . . . F-4
Consolidated Balance Sheets at January 2, 2010 and January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended
January 2, 2010, January 3, 2009 and December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended January 2, 2010, January 3, 2009 and December 29, 2007 . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
F-1
H AN E SBRANDS INC.
2 0 0 9 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
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 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 state-
ments 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 2, 2010,
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
determined that Hanesbrands’ internal control over financial reporting was effective as of January 2, 2010.
The effectiveness of our internal control over financial reporting as of January 2, 2010 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 9 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. (the “Company”) at January 2, 2010 and January 3, 2009, and the results of its operations
and its cash flows for each of the three years in the period ended January 2, 2010 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 2, 2010, 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 statements and on the Company’s internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Account-
ing 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 disclosures in the financial statements, assessing the accounting principles used and significant esti-
mates 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.
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 statements 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 9, 2010
F-3
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Income
(in thousands, except per share amounts)
Years Ended
January 2, 2010
January 3, 2009
December 29, 2007
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,891,275
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,626,001
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,265,274
940,530
—
53,888
270,856
49,301
163,279
58,276
6,993
$ 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
51,283
$ 127,169
$ 126,127
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.54
0.54
$
$
1.35
1.34
$
$
1.31
1.30
95,158
95,668
94,171
95,164
95,936
96,741
See accompanying notes to Consolidated Financial Statements.
F-4
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
January 2, 2010
January 3, 2009
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable less allowances of $25,776 at January 2, 2010 and $21,897 at January 3, 2009. . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
38,943
450,541
1,049,204
139,836
144,033
$
67,342
404,930
1,290,530
181,850
165,673
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,822,557
2,110,325
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
602,826
136,214
322,002
357,103
85,862
588,189
147,443
322,002
321,037
45,053
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,326,564
$ 3,534,049
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 351,971
$ 347,153
Accrued liabilities and other:
Payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,315
85,069
18,244
116,007
66,681
164,688
878,975
82,815
69,102
21,381
120,459
61,734
45,640
748,284
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,727,547
2,130,907
Pension and postretirement benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
290,030
95,293
294,095
175,608
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,991,845
3,348,894
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 —
95,396,967 at January 2, 2010 and 93,520,132 at January 3, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
954
287,955
268,805
(222,995)
334,719
935
248,167
217,522
(281,469)
185,155
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,326,564
$ 3,534,049
See accompanying notes to Consolidated Financial Statements.
F-5
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Retained Comprehensive
Loss
Earnings
Total
Balances at December 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,312
—
$ 963 $ 94,852
—
—
$ 33,024
126,127
$ (59,568)
—
$ 69,271
126,127
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 gain from pension and postretirement plans,
net of tax of $23,590. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20,114
(6,877)
20,114
(6,877)
(19,639)
(19,639)
—
37,052
37,052
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other . . . . . . . . . . . . . .
—
533
—
33,185
7
3,428
—
—
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,613)
(16)
(2,006)
(42,451)
Final separation of pension plan assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions related to spin off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of new pension accounting rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
74,189
(4,629)
—
—
—
1,149
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 . . . . . . . . . . . . . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions related to spin off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
456
(1,224)
(944)
—
—
—
—
—
—
—
—
127,169
—
127,169
—
—
(29,463)
(38,818)
(29,463)
(38,818)
—
(184,270)
(184,270)
—
31,002
2
10,076
—
—
(12)
(2,767)
(27,496)
(9)
10,837
—
(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
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gain on qualifying cash flow hedges, net of tax of $17,639. . . . . . . . . .
Net unrecognized gain from pension and postretirement plans,
net of tax of $1,835. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
51,283
—
—
—
18,966
28,580
51,283
18,966
28,580
—
10,928
10,928
109,757
37,391
2,416
—
—
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other. . . . . . . . . . . . . .
—
1,877
—
19
37,391
2,397
—
—
Balances at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,397
$ 954 $ 287,955
$ 268,805
$ (222,995)
$ 334,719
See accompanying notes to Consolidated Financial Statements.
F-6
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Consolidated Statements of Cash Flows
January 2, 2010
January 3, 2009
December 29, 2007
Years Ended
$
51,283
$ 127,169
$ 126,127
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges incurred for amendments of credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate hedge termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incurrence of debt under the 2009 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend and refinance credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of debt under 2006 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 8% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on Accounts Receivable Securitization Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on Accounts Receivable Securitization Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction with Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84,312
12,443
8,207
—
2,423
(157)
20,634
26,029
10,967
37,697
(9,152)
(10,252)
(39,805)
248,820
22,210
3,522
(54,677)
414,504
(126,825)
—
—
37,965
16
(88,844)
1,628,764
(1,624,139)
750,000
(74,976)
2,034,026
(1,982,526)
(1,440,250)
500,000
(2,788)
183,451
(326,068)
1,179
—
—
(847)
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)
602,627
(560,066)
—
(69)
791,000
(791,000)
(125,000)
—
(4,354)
20,944
(28,327)
2,191
(30,275)
18,000
(409)
(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)
66,413
(88,970)
—
(3,266)
—
—
(428,125)
—
—
250,000
—
6,189
(44,473)
—
(1,147)
(243,379)
3,687
18,263
155,973
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(354,174)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
(28,399)
67,342
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
38,943
$ 67,342
$ 174,236
See accompanying notes to Consolidated Financial Statements.
F-7
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(1) Background
(d) sales Recognition and Incentives
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 allowances
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 recognition 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
reimburse the reseller for a portion of the costs incurred by
the reseller to advertise and promote certain of the Company’s
products. The Company recognizes the cost of cooperative
advertising programs in the period in which the advertising and
promotional activity first takes place. In 2007, the Company
changed the manner in which it accounted for cooperative
advertising, which resulted in a change in the classification from
media, advertising and promotion expenses to a reduction in
sales, because the estimated fair value of the identifiable benefit
was no longer obtained beginning in 2007.
Hanesbrands Inc., a Maryland corporation (the “Company”),
is a consumer goods company with a portfolio of leading apparel
brands, including Hanes, Champion, Playtex, Bali, L’eggs, Just
My Size, barely there, Wonderbra, Stedman, Outer Banks, Zorba,
Rinbros and Duofold. The Company designs, manufactures,
sources and sells a broad range of apparel essentials such
as T-shirts, bras, panties, men’s underwear, kids’ underwear,
casualwear, activewear, socks and hosiery.
The Company’s fiscal year ends on the Saturday closest
to December 31. All references to “2009”, “2008” and “2007”
relate to the 52 week fiscal year ended on January 2, 2010, the
53 week fiscal year ended on January 3, 2009 and the 52 week
fiscal year ended on December 29, 2007, respectively.
The Company has also evaluated subsequent events and
transactions for potential recognition or disclosure in the financial
statements through February 9, 2010, the day the financial
statements were issued.
(2) Summary of Significant Accounting Policies
(a) consolidation
The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated
in consolidation.
(b) Use of estimates
The preparation of Consolidated Financial Statements in
conformity with U.S. generally accepted accounting principles
requires management to make use of estimates and assump-
tions 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 reporting period. Actual results may
vary from these estimates.
(c) Foreign currency Translation
Foreign currency-denominated assets and liabilities are
translated into U.S. dollars at exchange rates existing at the
respective balance sheet dates. Translation adjustments resulting
from fluctuations in exchange rates are recorded as a separate
component of accumulated other comprehensive loss within
stockholders’ equity. 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 transactions are included in the “Selling,
general and administrative expenses” line of the Consolidated
Statements of Income.
F-8
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Fixtures and Racks
(j) Accounts Receivable Valuation
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
production 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 State-
ments of Income of $166,467, $187,034, and $188,327 in 2009,
2008 and 2007, respectively.
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, aging
of trade receivables, specific allowances for known troubled
accounts and other currently available information.
(k)
Inventory Valuation
Inventories are stated at the lower of cost or market.
Obsolete, damaged, and excess inventory is carried at the net
realizable value, which is determined by assessing historical
recovery rates, current market conditions and future marketing
and sales plans. Rebates, discounts and other cash consider-
ation 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.
(f) shipping and Handling costs
(l) Property
Revenue received for shipping and handling costs is included
in net sales and was $22,434, $24,244, and $22,751 in 2009,
2008 and 2007, respectively. Shipping costs, that comprise pay-
ments to third party shippers, and handling costs, which consist
of warehousing costs in the Company’s various distribution
facilities, were $222,169, $238,340, and $234,070 in the 2009,
2008 and 2007, respectively. 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.
(h) Research and development
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 $46,305, $46,460,
and $45,409 in 2009, 2008 and 2007, respectively.
(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 equivalents.
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 account-
ing estimate and the accelerated depreciation is accounted for in
the period of change and future periods. Additions and improve-
ments that substantially 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.
Restoration of a previously recognized impairment loss is not
permitted under U.S. generally accepted accounting principles.
F-9
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(m)
Trademarks and Other Identifiable
Intangible Assets
The primary identifiable intangible assets of the Company
are trademarks and computer software all of which have finite
lives that are subject to amortization. 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 future 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. Identifiable intangible
assets that are subject to amortization are evaluated for
impairment using a process similar to that used in evaluating
elements of property.
The Company capitalizes internal software development
costs, which 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 implementation of purchased computer software. Additions
to computer software are included in purchases of property and
equipment in the Consolidated Statements of Cash Flows.
(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 combination is com-
pleted, 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. 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 liabili-
ties 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.
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 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. 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
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. 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. The Company
periodically estimates the probable tax obligations using histori-
cal experience in tax jurisdictions and informed judgment. There
are inherent uncertainties related to the interpretation of tax
regulations in the jurisdictions in which the Company transacts
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 the Company’s
Consolidated Statements 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. 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.
F-10
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(q) Financial Instruments
Cash Flow Hedge
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 commodity prices. The use of these financial instru-
ments 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 trading 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
linking 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
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 administrative 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
“Selling, 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.
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is 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
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
In June 2009, the Financial Accounting Standards Board
(“FASB”) issued the FASB Accounting Standards Codification
(the “Codification”). The Codification is the single source for
all authoritative Generally Accepted Accounting Principles
(“GAAP”) recognized by the FASB to be applied in the
preparation of financial statements of nongovernmental
entities issued for periods ending after September 15, 2009.
The Codification supersedes all existing non-SEC accounting
and reporting standards. The Codification did not change GAAP
and did not have a material impact on the Company’s financial
condition, results of operations or cash flows but resulted in
certain additional disclosures.
Fair Value Measurements
In September 2006, the FASB issued new accounting
rules for fair value measurements, which defines fair value,
establishes a framework for measuring fair value in GAAP
and expands disclosures about fair value measurements.
In February 2008, the FASB approved a one-year deferral of
the adoption of the rules as it relates to certain non-financial
assets and liabilities. The Company adopted the provisions for
its financial assets and liabilities effective December 30, 2007
and adopted the provisions for its non-financial assets and
liabilities effective January 4, 2009. Neither the adoption in
the first quarter ended March 29, 2008 for financial assets and
liabilities nor the adoption in the first quarter ended April 4, 2009
for non-financial assets and liabilities had a material impact on
the financial condition, results of operations or cash flows of
the Company, but both adoptions resulted in certain additional
disclosures reflected in Note 15.
F-11
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Noncontrolling Interests in Consolidated
Financial Statements
In December 2007, the FASB issued new accounting
rules on business combinations and noncontrolling interests
in consolidated financial statements. The new rules improve
the relevance, comparability, and transparency of the financial
information that a company provides in its consolidated financial
statements. The new rules require 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 that the amount of consolidated net
income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the
consolidated statement of income; that changes in ownership
interest be accounted for similarly, as equity transactions; and
when a subsidiary is deconsolidated, that any retained noncon-
trolling equity investment in the former subsidiary and the gain
or loss on the deconsolidation of the subsidiary be measured
at fair value. The Company adopted the new accounting rules in
the first quarter ended April 4, 2009. The adoption did not have a
material impact on the Company’s financial condition, results of
operations or cash flows.
Disclosures About Derivative Instruments and
Hedging Activities
In March 2008, the FASB issued new accounting guidance
which expands the disclosure requirements about an entity’s
derivative instruments and hedging activities. The Company
adopted the new accounting rules in the first quarter ended
April 4, 2009. The adoption did not have a material impact on
the Company’s financial condition, results of operations or cash
flows but resulted in certain additional disclosures reflected in
Note 14.
Employers’ Disclosures about Postretirement Benefit
Plan Assets
In December 2008, the FASB issued rules on the disclosure
of postretirement benefit plan assets. The rules expand the
disclosure requirements to include more detailed disclosures
about an employers’ plan assets, including employers’ invest-
ment strategies, major categories of plan assets, concentrations
of risk within plan assets, and valuation techniques used to
measure the fair value of plan assets. The Company adopted the
new accounting rules as of January 2, 2010. The adoption did
not have a material impact on the Company’s financial condi-
tion, results of operations or cash flows but resulted in certain
additional disclosures reflected in Notes 15, 16 and 17.
F-12
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued new accounting rules for
transfers of financial assets. The new rules require greater
transparency and additional disclosures for transfers of financial
assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. The
new accounting rules are effective for financial asset transfers
occurring after the beginning of the Company’s first fiscal year
that begins after November 15, 2009. The Company is evaluating
the impact of adoption of these new rules on the financial condi-
tion, results of operations and cash flows of the Company.
Consolidation — Variable Interest Entities
In June 2009, the FASB issued new accounting rules related
to the accounting and disclosure requirements for the consolida-
tion of variable interest entities. The new accounting rules are
effective for the Company’s first fiscal year that begins after
November 15, 2009. The Company is evaluating the impact of
adoption of these rules on the financial condition, results of
operations and cash flows of the Company.
(s) Reclassifications
A revision to the balance sheet classification was made
to the 2008 Consolidated Balance Sheet for freight expenses
payable of $21,635, which had previously been included in
accrued liabilities but has been reclassified into accounts
payable. Only amounts related to invoices received from vendors
were reclassified from accrued liabilities into accounts payable.
This reclassification had no impact on the Company’s previously
reported total assets, total liabilities, shareholders’ equity or
net income.
(3) Earnings Per Share
Basic earnings per share (“EPS”) was computed by
dividing net income by the number of weighted average shares
of common stock outstanding during the period. Diluted EPS
was calculated to give effect to all potentially dilutive shares of
common stock using the treasury stock method. The reconcilia-
tion of basic to diluted weighted average shares for 2009, 2008
and 2007 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 2,
2010
January 3,
2009
December 29,
2007
95,158
94,171
95,936
—
510
—
100
882
11
278
527
—
Diluted weighted average shares . . . . . . . .
95,668
95,164
96,741
Options to purchase 6,273, 3,735 and 1,163 shares of
common stock and 234, 0 and 0 restricted stock units were
excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for 2009, 2008
and 2007, respectively.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(4) Stock-Based Compensation
The Company established 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.
Stock Options
The exercise price of each stock option equals the closing
market price of Hanesbrands’ stock on the date of grant. Options
generally vest ratably over two to three years and can gener-
ally be exercised over a term of 10 years. 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 2009, 2008
and 2007, respectively.
Years Ended
January 2,
2010
January 3,
2009
December 29,
2007
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
Aggregate
Weighted-
Average
Remaining
Intrinsic Contractual
Value Term (Years)
Options outstanding at
December 30, 2006. . . . . . . . . . . . . . . 2,949
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222
(277)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
(249)
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at
December 29, 2007. . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
3,645
2,624
(98)
(142)
Options outstanding at
January 3, 2009 . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .
6,029
466
(66)
(142)
Options outstanding at
$ 22.37
25.59
22.37
22.97
$ 23.41
19.81
22.50
23.35
$ 21.86
24.33
17.71
21.32
$ 3,686
5.99
$ 16,369
5.44
$
—
5.99
—
—
January 2, 2010 . . . . . . . . . . . . . . . . .
6,287
$ 22.10
$ 15,770
7.77
Dividend yield. . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years). . . . . . . . . . . . . . . . . .
—
2.49%
48%
6.0
1.68-2.64% 3.24-4.92%
26-28%
2.5-4.5
28-37%
3.8-6.0
The dividend yield assumption is based on the Company’s
current intent not to pay dividends. The Company uses a
combination of the volatility of the 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
due to the limited trading history of the Company’s common
stock. The Company utilizes the simplified method outlined in
SEC accounting rules to estimate expected lives for options
granted. The simplified method is used for valuing stock option
grants by eligible public companies that do not have sufficient
historical exercise patterns on options granted to employees.
Options exercisable at
January 2, 2010 . . . . . . . . . . . . . . . . 3,754
$ 22.51
$ 7,569
7.22
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
retroactively, and to approve equity grants simultaneously with
those decisions. Regarding 2008 compensation, the Compensa-
tion Committee made decisions and approved equity grants
at its meeting in January 2008. Therefore, two equity awards,
including awards of stock options, were made to executive
officers and other employees during 2008.
There were 2,981, 968 and 634 options that vested during
2009, 2008 and 2007, respectively. The total intrinsic value of
options that were exercised during 2009, 2008 and 2007 was
$465, $1,057 and $1,804, respectively. The weighted average fair
value of individual options granted during 2009, 2008 and 2007
was $11.80, $6.29 and $7.83, respectively.
Cash received from option exercises under all share-based
payment arrangements for 2009, 2008 and 2007 was $1,179,
$2,191 and $6,189, respectively. The actual tax benefit realized
for the tax deductions from option exercise of the share-based
payment arrangements totaled $465, $806, and $1,503 for 2009,
2008 and 2007, respectively.
F-13
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The total fair value of shares vested during 2009, 2008 and
2007 was $24,871, $13,560 and $9,853, respectively. Certain
participants elected to defer receipt of shares earned upon
vesting. As of January 2, 2010, a total of 174 shares of common
stock are issuable in future years for such deferrals.
For all share-based payments under the Hanesbrands OIP,
during 2009, 2008 and 2007, the Company recognized total
compensation expense of $37,391, $31,002 and $33,185 and
recognized a deferred tax benefit of $14,464, $11,585 and
$12,360, respectively. During 2009, the Company incurred
$1,814 related to amending the terms of all outstanding stock
options granted under the Hanesbrands OIP that had an original
term of five or seven years to the tenth anniversary of the
original grant date.
At January 2, 2010, there was $9,529 of total unrecog-
nized compensation cost related to non-vested stock-based
compensation arrangements, of which $7,205, $1,854, and
$470 is expected to be recognized in 2010, 2011 and 2012,
respectively. The Company satisfies the requirement for com-
mon 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 2,457 were available
for future grants as of January 2, 2010.
The Company established the Hanesbrands 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 common 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 2009,
2008 and 2007, 156, 129 and 78 shares, respectively, were
purchased under the ESPP by eligible employees. The Company
had 2,079 shares of common stock available for issuance under
the ESPP as of January 2, 2010. The Company recognized $306,
$447 and $440 of stock compensation expense under the ESPP
during 2009, 2008 and 2007, respectively.
$ 43,922
1.89
Employee Stock Purchase Plan
Stock Unit Awards
Restricted stock units (RSUs) of Hanesbrands’ stock
are granted to certain Company employees and non-employee
directors 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 determined using the fair value of the shares on the
date of grant, and compensation expense is recognized over the
period during which the grantees provide the requisite service
to the Company. A summary of the changes in the restricted
stock unit awards outstanding under the Hanesbrands OIP is
presented below:
Weighted-
Average
Exercise
Price
Shares
Aggregate
Weighted-
Average
Remaining
Intrinsic Contractual
Value Term (Years)
$ 36,516
2.41
Nonvested share units outstanding at
December 30, 2006. . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . .
Nonvested share units outstanding at
December 29, 2007. . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . .
1,546
615
(440)
(143)
1,578
1,512
(583)
(105)
Nonvested share units outstanding at
2,402
January 3, 2009 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . .
408
Vested . . . . . . . . . . . . . . . . . . . . . . . (1,193)
(91)
Forfeited. . . . . . . . . . . . . . . . . . . . . .
Nonvested share units outstanding at
$ 22.37
25.38
22.37
23.17
$ 23.47
18.19
23.28
23.69
$ 20.19
24.29
20.84
19.57
$ 31,652
1.89
January 2, 2010 . . . . . . . . . . . . . . . . .
1,526
$ 20.82
$ 36,796
1.76
Vested share units at
January 2, 2010 . . . . . . . . . . . . . . . . .
2,216
$ 21.79
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 2008.
F-14
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(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 operating efficiencies and lower costs. As a result of this
strategy, the Company expected to incur approximately $250,000
in restructuring and related charges over the three year period
following the spin off from Sara Lee Corporation (“Sara Lee”) on
September 5, 2006, of which approximately half was expected to
be noncash. As of January 2, 2010, the Company has recognized
approximately $278,000 in restructuring and related charges
related to this strategy since September 5, 2006, of which ap-
proximately half have been noncash. Of the amounts recognized,
approximately $103,000 related to employee termination and
other benefits, approximately $96,000 related to accelerated
depreciation of buildings and equipment for facilities that have
been or will be closed, approximately $30,000 related to noncan-
celable lease and other contractual obligations, approximately
$23,000 related to write-offs of stranded raw materials and
work in process inventory determined not to be salvageable
or cost-effective to relocate, approximately $17,000 related to
impairments of fixed assets and approximately $9,000 related to
other exit costs such as equipment moving costs. The consolida-
tion of the distribution network is still in process but will not
result in any substantial charges in future periods. The distribu-
tion network consolidation involves the implementation of new
warehouse management systems and technology, and opening
of new distribution centers and new third-party logistics providers
to replace parts of the Company’s legacy distribution network.
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 2009, 2008 and 2007 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:
January 2, 2010
January 3, 2009
December 29, 2007
Years Ended
Restructuring programs:
Year ended January 2, 2010 restructuring actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 3, 2009 restructuring actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 29, 2007 restructuring actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six months ended December 30, 2006 and prior restructuring actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 46,216
17,833
4,631
1,068
$ 69,748
$
—
87,117
8,661
(2,971)
$ 92,807
$
—
—
70,050
13,133
$ 83,183
The following table illustrates where the costs associated with these actions are recognized in the Consolidated Statements
of Income:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of the restructuring actions are as follows:
Accelerated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee termination and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncancelable lease and other contractual obligations and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rollforward of accrued restructuring is as follows:
January 2, 2010
January 3, 2009
December 29, 2007
Years Ended
$ 12,776
3,084
53,888
$ 69,748
$ 42,558
(14)
50,263
$ 92,807
Years Ended
$ 36,912
2,540
43,731
$ 83,183
January 2, 2010
January 3, 2009
December 29, 2007
$ 11,725
4,135
7,503
23,941
22,444
$ 69,748
$ 23,848
18,696
8,993
34,409
6,861
$ 92,807
Years Ended
$ 39,452
—
1,857
31,780
10,094
$ 83,183
January 2, 2010
January 3, 2009
December 29, 2007
Beginning accrual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to restructuring expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending accrual
$ 21,793
45,720
(42,282)
(2,832)
$ 22,399
$ 23,350
49,198
(41,185)
(9,570)
$ 21,793
$ 17,029
46,762
(35,517)
(4,924)
$ 23,350
F-15
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The accrual balance as of January 2, 2010 is comprised of
$18,244 in current accrued liabilities and $4,155 in other noncur-
rent liabilities. The $18,244 in current accrued liabilities consists
of $9,415 for employee termination and other benefits and
$8,829 for noncancelable lease and other contractual obligations.
The $4,155 in other noncurrent liabilities primarily consists of
noncancelable lease and other contractual obligations.
Adjustments to previous estimates resulted from actual
costs to settle obligations being lower than expected. The
adjustments were reflected in the “Restructuring” line of
the Consolidated Statements of Income.
Year Ended January 2, 2010 Actions
During 2009, the Company approved actions to close
eight manufacturing facilities, three distribution centers, a yarn
warehouse and a cotton warehouse in the Dominican Republic,
the United States, Costa Rica, Honduras, Puerto Rico and
Canada, and eliminate an aggregate of approximately 4,100
positions in those countries and El Salvador. The production
capacity represented by the manufacturing facilities has been
primarily 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 center
in California in order to expand capacity for goods the Company
sources from Asia. In addition, approximately 300 management
and administrative positions were eliminated, with the majority
of these positions based in the United States. The Company
recorded charges of $46,216 in 2009, related to these actions.
The Company recognized $25,038 for employee termination and
other benefits recognized in accordance with benefit plans previ-
ously communicated to the affected employee group, $9,204 for
accelerated depreciation of buildings and equipment, $6,071 for
noncancelable lease and other contractual obligations related to
the closure of certain manufacturing facilities, $3,529 for fixed
asset impairments related to the closure of certain manufactur-
ing facilities, $1,635 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 manu-
facturing facilities and $739 for other exit costs. These charges
are reflected in the “Restructuring,” “Cost of sales” and “Selling,
general and administrative expenses” lines of the Consolidated
Statements of Income. As of January 2, 2010, 3,044 employees
had been terminated and the severance obligation remaining in
accrued restructuring on the Consolidated Balance Sheet was
$8,977. The noncancelable lease and other contractual obliga-
tions remaining in accrued restructuring on the Consolidated
Balance Sheet as of January 2, 2010 was $5,471. All actions are
expected to be completed within a 12-month period.
During 2009, the Company ceased making its own yarn
and now sources all of its yarn requirements from large-scale
yarn suppliers. The Company entered into an agreement with
Parkdale America, LLC (“Parkdale America”) under which the
Company agreed to sell or lease assets related to operations
at the Company’s four yarn manufacturing facilities to Parkdale
America. The transaction closed in October 2009 and resulted
in Parkdale America operating three of the four facilities. As
discussed above, the Company approved an action to close the
fourth yarn manufacturing facility, as well as a yarn warehouse
and a cotton warehouse. The Company also entered into a yarn
purchase agreement with Parkdale America and Parkdale Mills,
LLC (together with Parkdale America, “Parkdale”). Under this
agreement, which has an initial term of six years, Parkdale will
produce and sell to the Company a substantial amount of the
Company’s Western Hemisphere yarn requirements. During the
first two years of the term, Parkdale will also produce and sell to
the Company a substantial amount of the yarn requirements of
the Company’s Nanjing, China textile facility.
The following table summarizes planned and actual
employee terminations by location as of January 2, 2010:
Number of Employees
Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actions remaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
1,366
1,246
681
599
332
117
67
4,408
3,044
1,364
4,408
Year Ended January 3, 2009 Actions
During 2008, 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 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 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 positions were eliminated, with the majority
of these positions based in the United States. All actions were
substantially 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 communicated 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 manufacturing
F-16
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
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 2, 2010, 6,978 employees had been terminated
and the severance obligation remaining in accrued restructuring
on the Consolidated Balance Sheet was $1,353. The lease
termination and other contractual obligations remaining in
accrued restructuring on the Consolidated Balance Sheet as
of January 2, 2010 was $6,322.
During 2009, the Company recognized additional charges,
as well as credits for certain actions which were completed for
amounts more favorable than previously estimated, associated
with facility closures announced in 2008, resulting in a decrease
of $17,833 to income before income tax expense. In 2009, the
Company recognized charges of $7,628 for noncancelable lease
and other contractual obligations associated with plant closures
announced in 2008, charges of $7,620 for other exit costs,
charges of $2,732 for fixed asset impairments related to the
closure of certain manufacturing facilities and charges of $2,411
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.
The Company recognized credits of $836 for employee termina-
tion and other benefits resulting from actual costs to settle
obligations being lower than expected and credits of $1,722 to
accelerated depreciation as a result of proceeds from sales of
fixed assets to which accelerated depreciation was previously
charged exceeding previous estimates. These charges and
credits are reflected in the “Restructuring,” and “Cost of sales”
and “Selling, general and administrative expenses” lines of the
Consolidated Statements of Income.
The following table summarizes planned and actual
employee terminations by location as of January 2, 2010:
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
6,978
26
7,004
Year Ended December 29, 2007 Restructuring Actions
During 2007, the Company, in connection with its consolida-
tion 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 were substantially 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 2, 2010, 6,256
employees had been terminated and the severance obligation
remaining in accrued liabilities on the Consolidated Balance
Sheet was $46. The lease termination and other contractual
obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 2, 2010 was $94.
During 2008, the Company recognized additional restructur-
ing charges associated with plant closures announced in 2007,
resulting in a decrease of $8,661 to net income before income
tax expense. The Company recognized charges of $10,484 for
accelerated depreciation of buildings and equipment associated
with plant closures and charges of $661 for lease termination
costs, other contractual obligations and other restructuring
related expenses. The additional charges are reflected in the
“Cost of sales,” “Selling, general and administrative expenses”
and “Restructuring” lines of the Consolidated Statements
of Income.
During 2008, certain actions were completed for amounts
more favorable than originally estimated, resulting in an increase
of $2,484 to income before income tax expense. 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 “Restructur-
ing” line of the Consolidated Statements of Income.
During 2009, the Company recognized additional restructur-
ing charges associated with plant closures announced in 2007,
resulting in a decrease of $4,631 to income before income tax
expense. In 2009, the Company recognized charges of $4,222
for accelerated depreciation of buildings and equipment associ-
ated with plant closures and $409 for other exit costs. These
charges are reflected in the “Restructuring,” “Cost of sales”
and “Selling, general and administrative expenses” lines of the
Consolidated Statements of Income.
The following table summarizes planned and actual
employee terminations by location as of January 2, 2010:
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
6,256
1
6,257
F-17
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(6)
Inventories
(8) Property, Net
Inventories consisted of the following:
Property is summarized as follows:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2,
2010
$ 106,138
100,686
842,380
$ 1,049,204
January 3,
2009
$ 172,494
116,800
1,001,236
$ 1,290,530
January 2,
2010
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Land
Buildings and improvements . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . .
Capital leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,544
478,148
895,336
28,973
4,018
Less accumulated depreciation . . . . . . . . . . . . . . . .
1,435,019
832,193
$
January 3,
2009
29,633
413,375
952,301
106,043
3,794
1,505,146
916,957
(7) Trade Accounts Receivable
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 602,826
$ 588,189
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:
Allowance
for
Doubtful
Accounts
Allowance for
Chargebacks
and Other
Deductions
Balance at December 30, 2006 . . . . . . . . .
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
$ 10,662
(363)
(971)
$ 17,047
45,966
(40,699)
Total
$ 27,709
45,603
(41,670)
Balance at December 29, 2007 . . . . . . . . .
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
9,328
8,074
(4,847)
22,314
31,642
5,366
(18,338)
13,440
(23,185)
Balance at January 3, 2009 . . . . . . . . . . . .
12,555
9,342
21,897
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
3,647
(700)
5,724
(4,792)
9,371
(5,492)
Balance at January 2, 2010 . . . . . . . . . . . .
$ 15,502
$ 10,274
$ 25,776
Charges to the allowance for doubtful accounts are reflected
in the “Selling, general and administrative expenses” line and
charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in
the “Net sales” line of the 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.
Sale of Accounts Receivable
In December 2009, the Company entered into an agreement
to sell selected trade accounts receivable to a financial institu-
tion. After the sale, the Company does not retain any interests
in the receivables and the financial institution services and
collects these accounts receivable directly from the customer.
Net proceeds of this accounts receivable sale program are
recognized in the Consolidated Statement of Cash Flows as
part of operating cash flows. By January 2, 2010, the Company
sold $71,248 of accounts receivable at their stated value, and
accordingly accounts receivable in the January 2, 2010 Consoli-
dated Balance Sheet was reduced by that amount. The funding
fee of $163 charged by the financial institution for this program in
2009 was recorded in the “Other expense (income)” line in the
Consolidated Statement of Income.
F-18
(9) Notes Payable
The Company had the following short-term obligations at
January 2, 2010 and January 3, 2009:
Short-term revolving facility in El Salvador . . .
Short-term revolving facility in Luxembourg . . .
Short-term revolving facility in Thailand . . . . . .
Short-term revolving facility in China . . . . . . . .
Short-term revolving facility in El Salvador . . . .
Short-term revolving facility in India . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Rate as of
January 2,
2010
4.47%
3.23%
5.32%
6.37%
—
—
—
Principal Amount
January 2,
2010
January 3,
2009
$ 30,000
25,000
4,284
7,397
—
—
—
$
—
—
15,472
8,203
28,730
5,300
4,029
$ 66,681
$ 61,734
The Company has a short-term revolving facility arrangement
with a Salvadoran branch of a Canadian bank amounting to
$30,000 of which $30,000 was outstanding at January 2, 2010
which accrues interest at 4.47%. The Company was in compli-
ance with the financial covenants contained in this facility at
January 2, 2010.
The Company has a short-term revolving facility arrangement
with a U.S. bank amounting to $25,000 of which $25,000 was
outstanding at January 2, 2010 which accrues interest at 3.23%.
The Company was in compliance with the financial covenants
contained in this facility at January 2, 2010.
The Company has a short-term revolving facility arrangement
with a Hong Kong bank amounting to THB 600 million ($17,980)
of which $4,284 was outstanding at January 2, 2010 which
accrues interest at 5.32%. The Company was in compliance
with the financial covenants contained in this facility at
January 2, 2010.
The Company has a short-term revolving facility arrangement
with a Chinese branch of a U.S. bank amounting to RMB 56 mil-
lion ($8,203) of which $7,397 was outstanding at January 2, 2010
which accrues interest at 6.37%. Borrowings under the facility
accrue interest at the prevailing base lending rates published
by the People’s Bank of China from time to time plus 20%.
The Company was in compliance with the financial covenants
contained in this facility at January 2, 2010.
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
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 $20,433 of which $0 was outstanding
at January 2, 2010.
Total interest paid on notes payable was $3,974, $2,208 and
borrowings under the Second Lien Credit Facility and to pay
fees and expenses related to these transactions. The outstand-
ing balances at January 2, 2010 are reported in the “Long-term
debt” and “Current portion of debt” lines of the Consolidated
Balance Sheets.
$1,175 in 2009, 2008 and 2007, respectively.
Total cash paid for interest related to debt in 2009, 2008 and
(10) Debt
The Company had the following debt at January 2, 2010 and
January 3, 2009:
Interest
Rate as of
January 2,
2010
Principal Amount
January 2,
2010
January 3,
2009
Maturity Date
2009 Senior Secured
Credit Facility:
Term Loan Facility . .
5.25% $ 750,000 $
—
December 2015
Revolving Loan
Facility . . . . . . . . .
8% Senior Notes . . . . . . . .
Floating Rate Senior
Notes. . . . . . . . . . . . . . .
Accounts Receivable
Securitization Facility . .
2006 Senior Secured
Credit Facility:
Term A Facility . . . . .
Term B Facility . . . . .
Second Lien Credit
Facility. . . . . . . . . . . . . .
Less current maturities . . .
6.75%
8.00%
51,500
500,000
—
—
December 2013
December 2016
3.83%
490,735
493,680
December 2014
2.80%
100,000
242,617
December 2010
—
—
139,000
851,250
September 2012
September 2013
—
450,000 March 2014
1,892,235
164,688
2,176,547
45,640
$ 1,727,547 $ 2,130,907
In connection with the spin off on September 5, 2006, the
Company entered into a $2,150,000 senior secured credit facility
(the “2006 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, the Company entered into an accounts receivable
securitization facility (“the Accounts Receivable Securitization
Facility”), which initially provided 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. On December 10, 2009, the Company completed
the sale of $500,000 in aggregate principal amount of 8.000%
senior notes (the “8% Senior Notes”) and amended and
restated the 2006 Senior Secured Credit Facility to provide for a
new $1,150,000 senior secured credit facility (the “2009 Senior
Secured Credit Facility”). The Company used the net proceeds
from the offering of the 8% Senior Notes together with the
proceeds from the borrowings under the 2009 Senior Secured
Credit Facility, to refinance outstanding borrowings under the
2006 Senior Secured Credit Facility, to repay the outstanding
2007 was $161,854, $150,898 and $165,331, respectively.
2009 Senior Secured Credit Facility
The 2009 Senior Secured Credit Facility initially provides for
aggregate borrowings of $1,150,000, consisting of a $750,000
term loan facility (the “Term Loan Facility”) and a $400,000
revolving loan facility (the “Revolving Loan Facility”). A portion
of the Revolving Loan Facility is available for the issuances of
letters of credit and the making of swingline loans, and any such
issuance of letters of credit or making of a swingline loan will
reduce the amount available under the Revolving Loan Facility.
At the Company’s option, it may add one or more term loan
facilities or increase the commitments under the Revolving Loan
Facility in an aggregate amount of up to $300,000 so long as
certain conditions are satisfied, including, among others, that no
default or event of default is in existence and that the Company
is in pro forma compliance with the financial covenants
described below. As of January 2, 2010, the Company had
$51,500 outstanding under the Revolving Loan Facility, $41,496
of standby and trade letters of credit issued and outstanding
under this facility and $307,004 of borrowing availability. At
January 2, 2010, the interest rates on the Term Loan Facility and
the Revolving Loan Facility were 5.25% and 6.75% respectively.
The proceeds of the Term Loan Facility were used to refinance
all amounts outstanding under the Term A loan facility (in an
initial principal amount of $250,000) and Term B loan facility (in
an initial principal amount of $1,400,000) under the 2006 Senior
Secured Credit Facility and to repay all amounts outstanding
under the Second Lien Credit Facility. Proceeds of the Revolving
Loan Facility were used to pay fees and expenses in connection
with these transactions, and will be used for general corporate
purposes and working capital needs.
The 2009 Senior Secured Credit Facility is guaranteed by
substantially all of the Company’s existing and future direct and
indirect U.S. subsidiaries, with certain customary or agreed-upon
exceptions for certain subsidiaries. The Company and each of the
guarantors under the 2009 Senior Secured Credit Facility have
granted the lenders under the 2009 Senior Secured Credit
Facility a valid and perfected first priority (subject to certain
customary exceptions) lien and security interest in the following:
n the equity interests of substantially all of the Company’s
direct and indirect U.S. subsidiaries and 65% of the voting
securities of certain first tier foreign subsidiaries; and
n substantially all present and future property and assets, real
and personal, tangible and intangible, of the Company and
each guarantor, except for certain enumerated interests, and
all proceeds and products of such property and assets.
F-19
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The Term Loan Facility matures on December 10, 2015.
The Term Loan Facility will be repaid in equal quarterly install-
ments in an amount equal to 1% per annum, with the balance
due on the maturity date. The Revolving Loan Facility matures
on December 10, 2013. All borrowings under the Revolving
Loan Facility must be repaid in full upon maturity. Outstanding
borrowings under the 2009 Senior Secured Credit Facility are
prepayable without penalty. There are mandatory prepayments
of principal in connection with (i) the incurrence of certain indebt-
edness, (ii) non-ordinary course asset sales or other dispositions
(including as a result of casualty or condemnation) that exceed
certain thresholds in any period of 12 consecutive months, with
customary reinvestment provisions, and (iii) excess cash flow,
which percentage will be based upon the Company’s leverage
ratio during the relevant fiscal period.
At the Company’s option, borrowings under the 2009 Senior
Secured Credit Facility may be maintained from time to time as
(a) Base Rate loans, which shall bear interest at the highest of
(i) 1/2 of 1% in excess of the federal funds rate, (ii) the rate
publicly announced by JPMorgan Chase Bank as its “prime rate”
at its principal office in New York City, in effect from time to time
and (iii) the LIBO Rate (as defined in the 2009 Senior Secured
Credit Facility and adjusted for maximum reserves) for LIBOR-
based loans with a one-month interest period plus 1.0%, in
effect from time to time, in each case plus the applicable margin,
or (b) LIBOR-based loans, which shall bear interest at the higher
of (i) LIBO Rate (as defined in the 2009 Senior Secured Credit
Facility and adjusted for maximum reserves), as determined
by reference to the rate for deposits in dollars appearing on
the Reuters Screen LIBOR01 Page for the respective interest
period or other commercially available source designated by
the administrative agent, and (ii) 2.00%, plus the applicable
margin in effect from time to time. The applicable margin for
the Term Loan Facility and the Revolving Loan Facility will be
determined by reference to a leverage-based pricing grid set
forth in the 2009 Senior Secured Credit Facility. In the case of
the Term Loan Facility, the applicable margin will be (a) 3.25%
for LIBOR-based loans and 2.25% for Base Rate loans if the
Company’s leverage ratio is greater than or equal to 2.50 to 1,
and (b) 3.00% for LIBOR-based loans and 2.00% for Base Rate
loans if the Company’s leverage ratio is less than 2.50 to 1. In
the case of the Revolving Loan Facility, the applicable margin
will range from a maximum of 4.75% in the case of LIBOR-
based loans and 3.75% in the case of Base Rate loans if the
Company’s leverage ratio is greater than or equal to 4.00 to 1,
and will step down in 0.25% increments to a minimum of 4.00%
in the case of LIBOR-based loans and 3.00% in the case of Base
Rate loans if the Company’s leverage ratio is less than 2.50 to 1.
The applicable margin from the closing date of the 2009 Senior
Secured Credit Facility through the delivery of the Company’s
financial statements for the second fiscal quarter of 2010 will be
(a) in the case of the Term Loan Facility, 3.25% and 2.25% for
LIBOR-based loans and Base Rate loans, respectively, and (b)
in the case of the Revolving Loan Facility, 4.50% and 3.50% for
LIBOR-based loans and Base Rate loans, respectively.
The 2009 Senior Secured Credit Facility requires the Company
to comply with customary affirmative, negative and financial
covenants. The 2009 Senior Secured Credit Facility requires that
the Company maintain a minimum interest coverage ratio and a
maximum total debt to EBITDA (earnings before income taxes,
depreciation expense and amortization as computed pursuant
to the 2009 Senior Secured Credit Facility), or leverage ratio.
The interest coverage ratio covenant requires that the ratio of
the Company’s EBITDA for the preceding four fiscal quarters to
its consolidated total interest expense for such period shall not
be less than a specified ratio for each fiscal quarter beginning
with the fourth fiscal quarter of 2009. This ratio was 2.50 to 1
for the fourth fiscal quarter of 2009 and will increase over time
until it reaches 3.25 to 1 for the third fiscal quarter of 2011 and
thereafter. The leverage ratio covenant requires that the ratio of
the Company’s total debt to EBITDA for the preceding four fiscal
quarters will not be more than a specified ratio for each fiscal
quarter beginning with the fourth fiscal quarter of 2009. This
ratio was 4.50 to 1 for the fourth fiscal quarter of 2009 and will
decline over time until it reaches 3.75 to 1 for the second fiscal
quarter of 2011 and thereafter. The method of calculating all of
the components used in the covenants is included in the 2009
Senior Secured Credit Facility.
The 2009 Senior Secured Credit Facility also requires the
Company to calculate excess cash flow (as computed pursuant
to the 2009 Senior Secured Credit Facility) as of the end of
each fiscal year and the Company may be required in certain
circumstances to make mandatory prepayments of amounts
outstanding under the Term Loan Facility as a result of such
calculation. As a result of the excess cash flow calculation for
2009, the Company is required to prepay $57,188 million under
the Term Loan Facility during the second quarter of 2010.
The 2009 Senior Secured Credit Facility contains custom-
ary events of default, including nonpayment of principal when
due; nonpayment of interest after a stated grace period, fees
or other amounts after stated grace period; material inaccuracy
of representations and warranties; violations of covenants;
certain bankruptcies and liquidations; any cross-default to
material indebtedness; certain material judgments; certain
events related to the Employee Retirement Income Security Act
of 1974, as amended (“ERISA”), actual or asserted invalidity of
any guarantee, security document or subordination provision or
non-perfection of security interest, and a change in control (as
defined in the 2009 Senior Secured Credit Facility).
F-20
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
8% Senior Notes
On December 10, 2009, the Company issued $500,000
aggregate principal amount of the 8% Senior Notes. The 8%
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 8% Senior Notes bear inter-
est at an annual rate equal to 8%. Interest is payable on the 8%
Senior Notes on June 15 and December 15 of each year. The 8%
Senior Notes will mature on December 10, 2016. The net pro-
ceeds from the sale of the 8% Senior Notes were approximately
$480,000. As noted above, these proceeds, together with the
proceeds from borrowings under the 2009 Senior Secured Credit
Facility, were used to refinance borrowings under the 2006
Senior Secured Credit Facility, to repay all borrowings under the
Second Lien Credit Facility and to pay fees and expenses relating
to these transactions. The 8% Senior Notes are guaranteed by
substantially all of the Company’s domestic subsidiaries.
The Company may redeem some or all of the notes prior to
December 15, 2013 at a redemption price equal to 100% of the
principal amount of 8% Senior Notes redeemed plus an ap-
plicable premium. The Company may redeem some or all of the
8% Senior Notes at any time on or after December 15, 2013 at a
redemption price equal to the principal amount of the 8% Senior
Notes plus a premium of 4% if redeemed during the 12-month
period commencing on December 15, 2013, 2% if redeemed
during the 12-month period commencing on December 15, 2014
and no premium if redeemed after December 15, 2015, as well
as any accrued and unpaid interest as of the redemption date. In
addition, at any time prior to December 15, 2012, the Company
may redeem up to 35% of the aggregate principal amount of
the Notes at a redemption price of 108% of the principal amount
of the Notes redeemed with the net cash proceeds of certain
equity offerings.
The indenture governing the 8% Senior Notes contains
customary events of default which include (subject in certain
cases to customary grace and cure periods), among others, non-
payment of principal or interest; breach of other agreements in
such indenture; failure to pay certain other indebtedness; failure
to pay certain final judgments; failure of certain guarantees to be
enforceable; and certain events of bankruptcy or insolvency.
Floating Rate Senior Notes
On December 14, 2006, the Company issued $500,000
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 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%. 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 $492,000. 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 Company’s domestic
subsidiaries. The Company may redeem some or all of the
Floating Rate Senior Notes at any time on or after December 15,
2008 at a redemption 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 redeemed during the 12-month period commenc-
ing on December 15, 2009 and no premium if redeemed after
December 15, 2010, as well as any accrued and unpaid interest
as of the redemption date.
The indenture governing the Floating Rate Senior Notes
contains customary events of default which include (subject
in certain cases to customary grace and cure periods), among
others, nonpayment of principal or interest; breach of other
agreements in such indenture; failure to pay certain other indebt-
edness; failure to pay certain final judgments; failure of certain
guarantees to be enforceable; and certain events of bankruptcy
or insolvency.
The Company repurchased $2,945 of the Floating Rate
Senior Notes for $2,788 resulting in a gain of $157 in 2009. The
Company repurchased $6,320 of the Floating Rate Senior Notes
for $4,354 resulting in a gain of $1,966 in 2008.
Accounts Receivable Securitization Facility
On November 27, 2007, the Company entered into the
Accounts Receivable Securitization Facility, which initially pro-
vided 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. Under the terms
of the Accounts Receivable Securitization 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 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 the Consolidated
Balance Sheet, and the securitization is treated as a secured
borrowing for accounting purposes. The borrowings under the
Accounts Receivable Securitization 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
F-21
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
occurs. All of the proceeds from the Accounts Receivable
Securitization Facility were used to make a prepayment of
principal under the 2006 Senior Secured Credit Facility. On
January 29, 2010, Receivables LLC gave notice to the agent
and the managing agents under the Accounts Receivable
Securitization Facility that, as permitted by the terms of the
Accounts Receivable Securitization Facility, effective February 11,
2010, the amount of funding available under the Accounts
Receivable Securitization Facility was being reduced from
$250,000 to $150,000.
Availability of funding under the Accounts Receivable
Securitization Facility depends primarily upon the eligible
outstanding receivables balance. As of January 2, 2010, the
Company had $100,000 outstanding under the Accounts Receiv-
able Securitization Facility. The outstanding balance under the
Accounts Receivable Securitization Facility is reported on the
Consolidated Balance Sheet in the line “Current portion of debt.”
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 Consolidated Statement of
Income. If the conduits fail to fund, the Accounts Receivable
Securitization 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 Accounts
Receivable Securitization Facility) plus the applicable margin in
effect from time to time. The average blended interest rate for
the outstanding balance as of January 2, 2010 was 2.80%.
On March 16, 2009, the Company and Receivables LLC
entered into Amendment No. 1 (“Amendment No. 1”) to the
Accounts Receivable Securitization Facility. Prior to the execution
of Amendment No. 1, the Accounts Receivable Securitization
Facility contained the same leverage ratio and interest coverage
ratio provisions as the 2006 Senior Secured Credit Facility, and
Amendment No. 1 conformed these ratios to the ratios provided
for in the 2006 Senior Secured Credit Facility as modified by an
amendment to the 2006 Senior Secured Credit Facility that was
also entered into in March 2009. Pursuant to Amendment No.1,
the rate that would be payable to the conduit purchasers or the
committed purchasers party to the Accounts Receivable Secu-
ritization Facility in the event of certain defaults was increased
from 1% over the prime rate to 3% over the greatest of (i) the
one-month LIBO rate plus 1%, (ii) the weighted average rates
on federal funds transactions plus 0.5%, or (iii) the prime rate.
Also pursuant to Amendment No. 1, several of the factors that
contribute to the overall availability of funding were amended
in a manner that would be expected to generally reduce the
amount of funding that would be available under the Accounts
Receivable Securitization Facility. Amendment No. 1 also pro-
vides for certain other amendments to the Accounts Receivable
Securitization Facility, including changing the termination date for
the Accounts Receivable Securitization Facility from November
27, 2010 to March 15, 2010, and requiring that Receivables LLC
make certain payments to a conduit purchaser, a committed
purchaser, or certain entities that provide funding to or are
affiliated with them, in the event that assets and liabilities of a
conduit purchaser are consolidated for financial and/or regulatory
accounting purposes with certain other entities.
On April 13, 2009, the Company and Receivables LLC
entered into Amendment No. 2 (“Amendment No. 2”) to the
Accounts Receivable Securitization Facility. Pursuant to Amend-
ment No. 2, several of the factors that contribute to the overall
availability of funding were amended in a manner would be
expected to generally increase over time the amount of
funding that would be available under the Accounts Receivable
Securitization Facility as compared to the amount that would
be available pursuant to Amendment No. 1. Amendment No. 2
also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the termina-
tion date for the Accounts Receivable Securitization Facility from
March 15, 2010 to April 12, 2010. In addition, HSBC Securities
(USA) Inc. replaced JPMorgan Chase Bank, N.A. as agent under
the Accounts Receivable Securitization Facility, PNC Bank, N.A.
replaced JPMorgan Chase Bank, N.A. as a managing agent, and
PNC Bank, N.A. and an affiliate of PNC Bank, N.A. replaced affili-
ates of JPMorgan Chase Bank, N.A. as a committed purchaser
and a conduit purchaser, respectively.
On August 17, 2009, the Company and HBI Receivables
entered into Amendment No. 3 to the Accounts Receivable
Securitization Facility, pursuant to which certain definitions were
amended to clarify the calculation of certain ratios that impact
reporting under the Accounts Receivable Securitization Facility.
On December 10, 2009, the Company and Receivables LLC
entered into Amendment No. 4 (“Amendment No. 4”) to the
Accounts Receivable Securitization Facility. Prior to the execution
of Amendment No. 4, the Accounts Receivable Securitization
Facility contained the same leverage ratio and interest cover-
age ratio provisions as the 2006 Senior Secured Credit Facility.
Amendment No. 4 conformed these ratios to the ratios provided
for in the 2009 Senior Secured Credit Facility.
On December 21, 2009, the Company and Receivables
LLC entered into Amendment No. 5 (“Amendment No. 5”)
to the Accounts Receivable Securitization Facility. Pursuant
to Amendment No. 5, Receivables LLC was permitted to sell
receivables from certain obligors back to the Company, and to
cease purchasing receivables of these certain obligors from us
in the future. Amendment No. 5 also provides for certain other
F-22
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
amendments to the Accounts Receivable Securitization
Facility, including changing the termination date for the
Accounts Receivable Securitization Facility from April 12, 2010
to December 20, 2010. In addition, certain of the factors that
contribute to the overall availability of funding were modified
in a manner that, taken together, could result in a reduction in
the amount of funding that will be available under the Accounts
Receivable Securitization Facility. In connection with Amend-
ment No. 5, certain fees were due to the managing agents
and certain fees payable to the committed purchasers and the
conduit purchasers were decreased.
The Accounts Receivable Securitization Facility contains
customary events of default and requires the Company to
maintain the same interest coverage ratio and leverage ratio
as required by the 2009 Senior Secured Credit Facility. As
of January 2, 2010, the Company was in compliance with all
financial covenants.
The total amount of receivables used as collateral for the
credit facility was $310,477 at January 2, 2010 and is reported
on the Company’s Consolidated Balance Sheet in trade accounts
receivable less allowances.
Future Principal Payments
Future principal payments for all of the facilities described
above are as follows: $164,688 due in 2010, $5,625 due in 2011,
$7,500 due in 2012, $59,000 due in 2013, $498,235 due in 2014
and $1,157,187 thereafter.
Debt Issuance Costs
The Company incurred $54,342 in capitalized debt
issuance costs in connection with entering into of the 2009
Senior Secured Facility and the amendments to the 2006
Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility in 2009. The Company incurred $69 and
$3,266 in debt issuance costs in connection with entering into
the amendments to the 2006 Senior Secured Credit Facility
and the Accounts Receivable Securitization Facility in 2008 and
2007, respectively. Debt issuance costs are amortized to interest
expense over the respective lives of the debt instruments,
which range from one to seven years. As of January 2, 2010,
the net carrying value of unamortized debt issuance costs was
$65,729 which is included in other noncurrent assets in the
Consolidated Balance Sheet. The Company’s debt issuance cost
amortization was $10,967, $6,032 and $6,475 in 2009, 2008 and
2007, respectively.
In 2009, the Company recognized charges of $20,634 in the
“Other expense (income)” line of the Consolidated Statements
of Income, which represents certain costs related to the issu-
ance of the 2009 Senior Secured Facility and the amendments
to the 2006 Senior Secured Credit Facility and the Accounts
Receivable Securitization Facility. The Company recognized
$2,423 of losses on early extinguishment of debt in 2009 related
to the prepayment of $140,250 on the 2006 Senior Secured
Credit Facility.
The Company recognized $1,332 of losses on early
extinguishment of debt in 2008 which is comprised of a loss
of $1,269 related to the prepayment of $125,000 on the 2006
Senior Secured Credit Facility and $63 related to the repurchase
of $6,320 of Floating Rate Senior Notes. In 2007, the Company
recognized $5,235 of losses on early extinguishment of debt
related to prepayments of $425,000 on the 2006 Senior Secured
Credit Facility.
(11) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
Balance at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative
Translation
Adjustment
$ 9,230
(29,463)
(20,233)
18,966
Net Unrealized
Income (Loss)
on Cash Flows
Hedges
$ (17,894)
(63,501)
(81,395)
46,219
Pension and
Postretirement
$ (44,167)
(301,282)
(345,449)
12,763
Income Taxes
$ 23,913
141,695
165,608
(19,474)
Accumulated
Other
Comprehensive
Loss
$ (28,918)
(252,551)
(281,469)
58,474
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (1,267)
$ (35,176)
$ (332,686)
$ 146,134
$ (222,995)
F-23
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
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 has concluded that there
are no liabilities recorded at inception of the agreements.
During 2009, 2008 and 2007, the Company incurred
royalty expense of approximately $11,105, $11,709 and
$11,583, respectively.
Minimum amounts due under the license agreements are
approximately $8,775 in 2010, $2,644 in 2011, $1,296 in 2012,
$60 in 2013 and $60 in 2014. In addition to the minimum guaran-
teed amounts under license agreements, in 2007 the Company
entered into a partnership 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 2, 2010:
Intangible assets subject to amortization:
Trademarks and brand names . . . . . . . . . . . $ 192,440 $ 77,146 $ 115,294
20,920
Computer software . . . . . . . . . . . . . . . . . . .
56,356
35,436
Net book value of intangible assets . . . .
$ 136,214
$ 248,796 $ 112,582
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 $ 120,091
27,352
28,204
$ 248,413 $ 100,970
Net book value of intangible assets . . . .
$ 147,443
The amortization expense for intangibles subject to
amortization was $12,443, $12,019 and $6,205 for 2009, 2008
and 2007, respectively. The estimated amortization expense
for the next five years, assuming no change in the estimated
useful lives of identifiable intangible assets or changes in foreign
exchange rates is as follows: $11,620 in 2010, $8,876 in 2011,
$8,484 in 2012, $8,201 in 2013 and $7,782 in 2014. There was
no impairment of trademarks in any of the periods presented.
(12) Commitments and Contingencies
The Company is a party to various pending legal proceedings,
claims and environmental actions by government agencies.
In accordance with the accounting rules 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
particular matter. The recorded liabilities for these items were
not material 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 Com-
pany’s legal counsel 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 $63,759, $53,072 and
$47,366 in 2009, 2008 and 2007, respectively.
Future minimum lease payments under noncancelable
operating leases (with initial or remaining lease terms in excess
of one year) are as follows: $49,047 in 2010, $40,450 in 2011,
$30,923 in 2012, $22,770 in 2013, $20,591 in 2014 and
$86,163 thereafter.
During 2009, the Company entered into a sale-leaseback
transaction involving a manufacturing facility. The facility is being
leased back over 22 months and is classified as an operating
lease. The Company received net proceeds on the sale of $2,517,
resulting in a deferred gain of $348 which will be amortized over
the lease term.
During 2008, the Company entered into sale-leaseback
transactions involving two distribution centers and one manu-
facturing 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
F-24
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(b) Goodwill
During 2008, the Company completed two business acquisi-
tions: a sewing operation in Thailand and an embroidery and
screen-printing production operation in Honduras, that resulted
in the recognition of goodwill of $3,665 and $3,797, respectively.
During 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 additional goodwill for
these acquisitions in 2008 upon completion of final purchase
price allocations.
None of the preceding business acquisitions were deter-
mined by the Company to be material, individually or in the
aggregate. 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:
Net book value at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 211,209
8,520
Net book value at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,729
$ 62,711
1,103
63,814
Net book value at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 219,729
$ 63,814
Innerwear
Outerwear
Hosiery
$ 23,219
1,954
25,173
$ 25,173
Direct to
Consumer
$ 255
—
255
$ 255
International
Total
$ 13,031
—
13,031
$ 13,031
$ 310,425
11,577
322,002
$ 322,002
There has been no impairment of goodwill.
(14) Financial Instruments and Risk Management
The Company uses financial instruments to manage its
exposures to movements in interest rates, foreign exchange
rates and commodity prices. The use of these financial instru-
ments modifies the Company’s exposure to these risks with the
goal of reducing the risk or cost to the Company. The Company
does not use derivatives for trading purposes and is not a party
to leveraged derivative contracts.
The Company recognizes all derivative instruments as either
assets or liabilities at fair value in the Consolidated Balance
Sheets. The fair value is based upon either market quotes for
actively traded instruments or independent bids for nonexchange
traded instruments. The Company formally documents its hedge
relationships, including identifying the hedging instruments and
the hedged items, as well as its risk management objectives and
strategies for undertaking the hedge transaction. This process
includes linking derivatives that are designated as hedges of
specific assets, liabilities, firm commitments or forecasted
transactions to the hedged risk. On the date the derivative is
entered into, the Company designates the derivative as a fair
value hedge, cash flow hedge, net investment hedge or a mark
to market hedge, and accounts for the derivative in accordance
with its designation. The Company also formally assesses,
both at inception and at least quarterly thereafter, whether the
derivatives are highly effective in offsetting changes in either the
fair value or cash flows of the hedged item. If it is determined
that a derivative ceases to be a highly effective hedge, or if the
anticipated transaction is no longer likely to occur, the Company
discontinues hedge accounting, and any deferred gains or
losses are recorded in the respective measurement period.
The Company currently does not have any fair value or net
investment hedge instruments.
The Company may be exposed to credit losses in the event
of nonperformance by individual counterparties or the entire
group of counterparties to the Company’s derivative contracts.
Risk of nonperformance by counterparties is mitigated by
dealing with highly rated counterparties and by diversifying
across counterparties.
Mark to Market Hedges
A derivative used as a hedging instrument whose change
in fair value is recognized to act as an economic hedge against
changes in the values of the hedged item is designated a mark
to market hedge.
Mark to Market Hedges — Intercompany Foreign
Exchange Transactions
The Company uses foreign exchange derivative contracts
to reduce the impact of foreign exchange fluctuations on
anticipated intercompany purchase and lending transactions
denominated in foreign currencies. Foreign exchange derivative
contracts are recorded as mark to market hedges when the
hedged item is a recorded asset or liability that is revalued in
each accounting period. Mark to market hedge derivatives
relating to intercompany foreign exchange contracts are reported
in the Consolidated Statements of Cash Flows as cash flow from
operating activities. The table below summarizes the U.S. dollar
equivalent of commitments to purchase and sell foreign curren-
cies in the Company’s foreign currency mark to market hedge
derivative portfolio using the exchange rate at the reporting date
as of January 2, 2010 and January 3, 2009.
January 2, 2010
January 3, 2009
Foreign currency bought (sold):
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
(3,420)
(863)
(2,650)
1,732
(38,028)
14,061
$ 40,537
—
—
(18,181)
5,347
(11,310)
—
F-25
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Cash Flow Hedges
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is des-
ignated as a cash flow hedge is recorded in the “Accumulated
other comprehensive loss” line of the Consolidated Balance
Sheets. When the impact of the hedged item is recognized in
the income statement, the gain or loss included in accumulated
other comprehensive loss is reported on the same line in the
Consolidated Statements of Income as the hedged item.
Cash Flow Hedges — Interest Rate Derivatives
The Company has executed in the past 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 floating
rate debt. The effective portion of interest rate hedge gains and
losses deferred in “Accumulated other comprehensive loss” is
reclassified into earnings as the underlying debt interest pay-
ments are recognized. Interest rate cash flow hedge derivatives
are reported as a component of interest expense and therefore
are reported as cash flow from operating activities similar to
the manner in which cash interest payments are reported in
the Consolidated Statements of Cash Flows.
Cash Flow Hedges — Foreign Currency Derivatives
The Company uses forward exchange and option contracts
to reduce the effect of fluctuating foreign currencies on
short-term foreign currency-denominated transactions, foreign
currency-denominated investments, and other known foreign
currency exposures. Gains and losses on these contracts are
intended to offset losses and gains on the hedged transaction
in an effort to reduce the earnings volatility resulting from
fluctuating foreign currency exchange rates. The effective
portion of foreign exchange hedge gains and losses deferred
in “Accumulated other comprehensive loss” is reclassified into
earnings as the underlying inventory is sold, using historical
inventory turnover rates. The settlement of foreign exchange
hedge derivative contracts related to the purchase of inventory
or other hedged items are reported in the Consolidated State-
ments of Cash Flows as cash flow from operating activities.
Historically, the principal currencies hedged by the Company
include the Euro, Mexican peso, Canadian dollar and Japanese
yen. Forward exchange contracts mature on the anticipated cash
requirement date of the hedged transaction, generally within
one year. The table below summarizes the U.S. dollar equivalent
of commitments to purchase and sell foreign currencies in the
Company’s foreign currency cash flow hedge derivative portfolio
using the exchange rate at the reporting date as of January 2,
2010 and January 3, 2009.
January 2, 2010
January 3, 2009
Foreign currency bought (sold):
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
$(32,955)
(12,526)
—
(16,307)
$(29,430)
(7,839)
(7,568)
—
Cash Flow Hedges — Commodity Derivatives
Cotton is the primary raw material used to manufacture
many of the Company’s products and is purchased at market
prices. From time to time, the Company uses commodity finan-
cial instruments to hedge the price of cotton, for which there
is a high correlation between the hedged item and the hedge
instrument. Gains and losses on these contracts are intended
to offset losses and gains on the hedged transactions in an
effort to reduce the earnings volatility resulting from fluctuating
commodity prices. The effective portion of commodity hedge
gains and losses deferred in “Accumulated other comprehensive
loss” is reclassified into earnings as the underlying inventory is
sold, using historical inventory turnover rates. The settlement of
commodity hedge derivative contracts related to the purchase
of inventory is reported in the Consolidated Statements of
Cash Flows as cash flow from operating activities. There were
no amounts outstanding under cotton futures or cotton option
contracts at January 2, 2010 and January 3, 2009.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized
in the Consolidated Balance Sheets of the Company were
as follows:
Fair Value
Balance Shet
Location
January 2,
2010
January 3,
2009
Derivative assets — hedges
Interest rate contracts . . . . . . . . . Other current assets
Foreign exchange contracts . . . . . Other current assets
$ —
407
$
46
1,209
Total derivative
assets — hedges . . . . . . . .
Derivative assets — non-hedges
407
1,255
Foreign exchange contracts . . . . . Other current assets
207
3,286
Total derivative assets. . . . . . . . . .
Derivative liabilities — hedges
Interest rate contracts . . . . . . . . .
Interest rate
contracts . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . .
Accrued liabilities
Other noncurrent
liabilities
Accrued liabilities
Total derivative
liabilities — hedges . . . . . .
Derivative liabilities —
non-hedges
$ 614
$ 4,541
$ —
$ (6,084)
—
(107)
(76,927)
(1,347)
(107)
(84,358)
Foreign exchange contracts . . . . .
Accrued liabilities
(432)
(533)
Total derivative liabilities. . . . . . .
Net derivative asset (liability) . . .
$ (539)
$ (84,891)
$
75
$ (80,350)
F-26
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Net Derivative Gain or Loss
The effect of cash flow hedge derivative instruments on the Consolidated Statements of Income and Accumulated Other
Comprehensive Loss is as follows:
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Gain (Loss) Recognized in
Accumulated Other Comprehensive Loss
(Effective Portion)
Year Ended
January 2,
2010
$ 20,559
(1,560)
—
January 3,
2009
December 29,
2007
$ (66,088)
756
(208)
$ (16,357)
(920)
(1,212)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,999
$ (65,540)
$ (18,489)
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Loss into
Income (Effective Portion)
Year Ended
Location of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Loss into
Income (Effective Portion)
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2,
2010
$
(1,820)
(26,029)
721
(95)
January 3,
2009
December 29,
2007
$ (1,176)
—
(2,025)
473
$
(717)
—
(6)
(6,464)
Interest expense, net
Other income (expense)
Cost of sales
Cost of sales
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (27,223)
$ (2,728)
$
(7,187)
As disclosed in Note 10, in connection with the amendment
and restatement of the 2006 Senior Secured Credit Facility
and repayment of the Second Lien Credit Facility in December
2009, all outstanding interest rate hedging instruments which
were hedging these underlying debt instruments along with the
interest rate hedge instrument related to the Floating Rate Senior
Notes were settled for $62,256, of which $40,391 was paid in
December 2009 and the remaining $21,865 was included in the
“Accounts Payable” line of the Consolidated Balance Sheet at
January 2, 2010. The amounts deferred in Accumulated Other
Comprehensive Loss associated with the 2006 Senior Secured
Credit Facility and Second Lien Credit Facility were released to
earnings as the underlying forecasted interest payments were
no longer probable of occurring, which resulted in recognition of
losses totaling $26,029 that are included in the “Other Expense
(Income)” line of the Consolidated Statement of Income. The
amounts deferred in Accumulated Other Comprehensive Loss
associated with the Floating Rate Senior Notes interest rate
hedge were frozen at the termination date and will be amortized
over the original remaining term of the interest rate hedge
instrument. The unamortized balance in Accumulated Other
Comprehensive Loss was $34,817 as of January 2, 2010. In the
first quarter of 2010, the Company entered into two interest
rate caps to hedge the risks associated with fluctuations in the
6-month LIBOR rate for the Floating Rate Senior Notes. The
terms of the interest rate caps include: a total notional amount of
$490,735, consisting of $240,735 and $250,000, respectively, an
expiration date of December 2011, and a capped 6-month LIBOR
interest rate of 4.26%.
The Company expects to reclassify into earnings during the
next 12 months a net loss from Accumulated Other Comprehen-
sive Loss of approximately $18,660 as a result of terminating a
swap in December 2009 with respect to which the underlying
hedged item still exists as of January 2, 2010.
The changes in fair value of derivatives 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. The Company recognized gains (losses) related
to ineffectiveness of hedging relationships in 2009 of $161,
consisting of $152 for interest rate contracts and $9 for foreign
exchange contracts. The Company recognized gains (losses)
related to ineffectiveness of hedging relationships in 2008 of
$(323), consisting of $(149) for interest rate contracts and $(174)
for foreign exchange contracts. The Company recognized gains
(losses) related to ineffectiveness of hedging relationships in
2007 of $80, consisting of $10 for interest rate contracts and
$70 for foreign exchange contracts.
F-27
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The effect of mark to market hedge derivative instruments on the Consolidated Statements of Income is as follows:
Foreign exchange
contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Location of Gain (Loss)
Recognized in Income
on Derivative
Selling, general and
administrative expenses
Amount of Gain (Loss) Recognized in Income
Year Ended
January 3,
2009
January 2,
2010
December 29,
2007
$ 3,846
$ 3,846
$ (6,691)
$ (6,691)
$ (451)
$ (451)
(15) Fair Value of Assets and Liabilities
Fair value is an exit price, representing the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measure-
ment date. The Company utilizes market data or assumptions
that market participants would use in pricing the asset or liability.
A three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value, is utilized for disclosing the fair value of
the Company’s assets and liabilities. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable;
and Level 3, defined as unobservable inputs about which little or
no market data exists, therefore requiring an entity to develop its
own assumptions.
Assets and liabilities measured at fair value are based on one
or more of the following three valuation techniques:
n Market approach — prices and other relevant information
generated by market transactions involving identical or
comparable 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,
including present value techniques, option-pricing and
other models.
The Company primarily applies the market approach for
commodity derivatives and for all defined benefit plan invest-
ment assets, and the income approach for interest rate and
foreign currency derivatives for recurring fair value measure-
ments and attempts to utilize valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. Assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to
the fair value measurement. The determination of fair values
incorporates various factors that include not only the credit
standing of the counterparties involved and the impact of credit
enhancements, but also the impact of the Company’s nonperfor-
mance risk on its liabilities. The Company’s 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.
As of January 2, 2010 and 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 exchange rates and defined benefit pension
plan investment assets. The fair values of cotton derivatives are
determined based on quoted prices in public markets and are
categorized as Level 1. The fair values of interest rate and foreign
exchange rate derivatives are determined based on inputs
that are readily available in public markets or can be derived
from information available in publicly quoted markets and are
categorized as Level 2. The fair values of defined benefit pension
plan investments include: U.S. equity securities, certain foreign
equity securities and debt securities that are determined based
on quoted prices in public markets categorized as Level 1 certain
foreign equity securities and debt securities that are determined
based on inputs readily available in public markets or can be
derived from information available in publicly quoted markets
categorized as Level 2, and investments in hedge funds of
funds and real estate investments that are based on unobserv-
able inputs about which little or no market data exists that are
classified as Level 3. There were no changes during 2009 to the
Company’s valuation techniques used to measure asset and
liability fair values on a recurring basis. The hedge fund of funds
and real estate investments have varying redemption terms of
monthly, quarterly and annually, and have required notification
periods ranging from 45 to 90 days.
F-28
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
As of January 2, 2010, the Company did not have any non-
financial assets or liabilities that are required to be measured at
fair value on a recurring basis.
The following tables set forth by level within the fair value
hierarchy the Company’s financial assets and liabilities accounted
for at fair value on a recurring basis.
Assets (Liabilities) at Fair Value as of
January 2, 2010
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 3)
Inputs
(Level 2)
Defined benefit pension plan
investment assets:
Hedge fund of funds . . . . . . . . . . .
U.S. equity securities . . . . . . . . . .
Foreign equity securities. . . . . . . .
Debt securities . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . .
Cash and other . . . . . . . . . . . . . . .
Derivative contracts, net . . . . . . . . . .
$
—
143,603
37,815
4,775
—
15,378
201,571
—
$
—
—
26,978
108,839
—
—
135,817
75
$ 255,212
—
—
—
19,990
—
275,202
—
Total . . . . . . . . . . . . . . . . . . . . . . .
$ 201,571
$ 135,892
$ 275,202
Assets (Liabilities) at Fair Value as of
January 3, 2009
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 3)
Inputs
(Level 2)
Derivative contracts, net . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
$
$
—
—
$ (80,350)
$ (80,350)
$
$
—
—
The table below sets forth a summary of changes in the fair
value of the Level 3 investment assets in 2009.
Hedge fund
of funds
Real estate
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 242,060
33,152
(20,000)
$ 27,975
(7,985)
—
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255,212
$ 19,990
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade
accounts receivable, notes receivable and accounts payable
approximated fair value as of January 2, 2010 and January 3,
2009. The fair value of debt was $1,881,868 and $1,753,885 as
of January 2, 2010 and January 3, 2009 and had a carrying value
of $1,892,235 and $2,176,547, respectively. The fair values were
estimated using quoted market prices as provided in secondary
markets which consider the Company’s credit risk and market
related conditions. The carrying amounts of the Company’s
notes payable approximated fair value as of January 2, 2010
and January 3, 2009, primarily due to the short-term nature of
these instruments.
(16) Defined Benefit Pension Plans
Effective as of January 1, 2006, the Company created the
Hanesbrands Inc. Pension and Retirement 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 employees. 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 Canada Pension Plans and certain
other plans that related to the Company’s current and former
employees and assumed other Sara Lee retirement plans cover-
ing only Company employees. 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”).
Effective August 31, 2009, the Company merged the Playtex
Plan and the National Textiles Plan into the Hanesbrands Inc.
Pension and Retirement Plan, which was renamed the Hanes-
brands Inc. Pension Plan (the “Hanesbrands Pension Plan”).
During 2007, the Company completed 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 approxi-
mately $74,000 with a corresponding credit to additional paid-in
capital and resulted in a decrease of approximately $6,000 to
pension expense in 2007.
The annual cost (income) incurred by the Company for these
defined benefit plans in 2009, 2008 and 2007, was $21,293,
$(11,801) and $(3,390), respectively.
F-29
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The components of net periodic benefit cost and other
The total accumulated benefit obligation and the accumu-
amounts recognized in other comprehensive loss of the
Company’s noncontributory defined benefit pension plans
were as follows:
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. . . . . . . . . . . . . . . .
Plans with accumulated benefit
obligation in excess of plan assets
Accumulated benefit obligation . . . . . . . . . . . . .
Fair value of plan assets. . . . . . . . . . . . . . . . . . .
January 2,
2010
January 3,
2009
$ 899,208
$ 854,414
898,997
612,317
854,414
564,705
Amounts recognized in the Company’s Consolidated Balance
Sheets consist of:
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . .
January 2,
2010
$
51
(3,591)
(283,078)
(332,370)
January 3,
2009
$
—
(2,919)
(286,790)
(344,343)
Amounts recognized in accumulated other comprehensive
loss consist of:
(11,973)
299,987
(61,162)
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
165
332,205
$ 332,370
January 2,
2010
January 3,
2009
$
191
344,152
$ 344,343
Accrued benefit costs related to the Company’s defined
benefit pension plans are reported in the “Other noncurrent
assets”, “Accrued liabilities — Payroll and employee benefits”
and “Pension and postretirement benefits” lines of the
Consolidated Balance Sheets.
Service cost . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on assets . . . . . . . . . . . . .
Asset allocation . . . . . . . . . . . . . . . . . . . . .
Settlement cost . . . . . . . . . . . . . . . . . . . . .
Amortization of:
Prior service cost. . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . .
January 2,
2010
$ 1,198
50,755
(39,832)
—
—
26
9,146
Years Ended
January 3, December 29,
2007
2009
$ 1,136
51,412
(64,549)
—
—
$ 1,446
49,494
(55,588)
(1,867)
345
39
161
43
2,737
Net periodic benefit cost (income) . . .
$ 21,293
$ (11,801)
$ (3,390)
Other Changes in Plan Assets
and Benefit Obligations
Recognized in Other
Comprehensive
Income (Loss)
Net (gain) loss . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . .
$ (11,947)
(26)
$ 300,127
(140)
$ (61,162)
—
Total recognized in other
comprehensive loss (income) . . . . . .
Total recognized in net periodic
benefit cost and other
comprehensive loss (income) . . . . . .
$ 9,320
$ 288,186
$ (64,552)
The estimated net loss and prior service credit for the
defined benefit pension plans that will be amortized from
accumulated other comprehensive loss into net periodic benefit
cost in 2010 are $8,628 and $26, respectively.
The funded status of the Company’s defined benefit pension
plans at the respective year ends was as follows:
January 2,
2010
January 3,
2009
Accumulated benefit obligation:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 854,414
1,198
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,755
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(57,782)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Plan curtailment . . . . . . . . . . . . . . . . . . . . . . . . . .
2,711
Impact of exchange rate change . . . . . . . . . . . . .
(5,394)
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,306
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
899,208
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of exchange rate change . . . . . . . . . . . . .
564,705
92,805
16,052
(57,782)
(5,744)
2,554
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
612,590
$ 837,416
1,136
51,412
(54,318)
1,123
(4,367)
—
22,012
854,414
834,214
(213,491)
3,702
(54,319)
—
(5,401)
564,705
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (286,618)
$ (289,709)
F-30
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(a) measurement date and Assumptions
A December 31 measurement date is used to value plan
assets and obligations for the pension plans. In determining the
discount rate, the Company utilizes, as a general benchmark,
the single discount rate equivalent to discounting the expected
cash flows from each plan using the yields at each duration
from a published yield curve as of the measurement date. The
expected long-term rate of return on plan assets was based on
the Company’s investment policy target allocation of the asset
portfolio between various asset classes and the expected real
returns of each asset class over various periods of time. The
weighted average actuarial assumptions used in measuring the
net periodic benefit cost and plan obligations for the periods
presented were as follows:
January 2,
2010
January 3,
2009
December 29,
2007
Net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of return on plan assets . . . .
Rate of compensation increase (1) . . . . . . . .
Plan obligations:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (1) . . . . . . . .
6.11%
7.41
3.38
6.34%
8.03
3.63
5.78%
3.70
6.11%
3.38
5.80%
7.59
3.63
6.34%
3.63
(1) The compensation increase assumption applies to the non domestic plans and portions
of the Hanesbrands nonqualified retirement plans, as benefits under these plans were not
frozen at January 2, 2010, January 3, 2009 and December 29, 2007.
(b)
Plan Assets, expected Benefit Payments,
and Funding
The allocation of pension plan assets as of the respective
period end measurement dates is as follows:
January 2,
2010
January 3,
2009
Asset category:
Hedge fund of funds . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity securities . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign equity securities. . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42%
23
19
11
3
2
43%
22
20
9
5
1
The Company’s asset strategy and primary investment
objective are to maximize the principal value of the plan
assets to meet current and future benefit obligations to
plan participants and their beneficiaries. To accomplish this
goal, the assets of the plan are broadly diversified to protect
against large investment losses and to reduce the likelihood
of excessive volatility of returns. Diversification of assets is
achieved through strategic allocations to various asset classes,
as well as various investment styles within these asset classes,
and by retaining multiple, third-party investment management
firms with complementary investment styles and philosophies
to implement these allocations. The Company has established
a target asset allocation based upon analysis of risk/return
tradeoffs and correlations of asset mixes given long-term
historical data, prospective capital market returns and forecasted
liabilities of the plans. The target asset allocation approximates
the actual asset allocation as of January 2, 2010. In addition to
volatility protection, diversification enables the assets of the
plan the best opportunity to provide adequate returns in order
to meet the Company’s investment return objectives. These
objectives include, over a rolling five-year period, to achieve a
total return which exceeds the required actuarial rate of return
for the plan and to outperform a passive portfolio, consisting of
a similar asset allocation.
The Company utilizes market data or assumptions that
market participants would use in pricing the pension plan
assets. Effective January 2, 2010, the Company has adopted
new pension disclosure rules. In accordance with these rules, a
three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value, is utilized for disclosing the fair value
of the Company’s pension plan assets. At January 2, 2010, the
Company had $201,571 classified as Level 1 assets, $135,817
classified as Level 2 assets and $275,202 classified as Level 3
assets. The Level 1 assets consisted primarily of U.S. equity
securities, debt securities, certain foreign equity securities and
cash and cash equivalents, Level 2 assets consisted primarily of
debt securities and certain foreign equity securities, and Level 3
assets consisted primarily of hedge fund of funds and real estate
investments. Refer to Note 15 for the Company’s complete
disclosure of the fair value of pension plan assets.
In September 2009, the Company entered into an agree-
ment with the Pension Benefit Guaranty Corporation (the
“PBGC”) under which the Company agreed to contribute $7,000
in 2009 and $6,816 in 2010. The Company is not required to
make any other contributions to the pension plans in 2010.
Expected benefit payments are as follows: $54,223 in 2010,
$52,632 in 2011, $52,721 in 2012, $52,700 in 2013, $55,602 in
2014 and $283,598 thereafter.
(17)
Postretirement Healthcare and
Life Insurance Plans
On December 1, 2007 the Company effectively terminated
all retiree medical coverage. A gain on curtailment of $32,144
is recorded in the Consolidated 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 postretire-
ment plan benefits to (a) pass along a higher share of retiree
medical costs to all retirees effective February 1, 2007,
(b) eliminate company 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 termination of the medical plan on
December 1, 2007.
The postretirement plan expense (income) incurred by the
Company for these postretirement plans for 2009, 2008 and
2007 is $504, $386 and $(5,410), respectively.
F-31
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
The components of the Company’s postretirement
Accrued benefit costs related to the Company’s postretire-
healthcare 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 2,
2010
January 3,
2009
December 29,
2007
$ —
480
—
$ —
393
(7)
$
256
835
(7)
—
—
24
—
—
—
(62)
(7,380)
948
Net periodic benefit (income) cost . . . .
$ 504
$ 386
$ (5,410)
Other Changes in Plan Assets and
Benefit Obligations Recognized
in Other Comprehensive Income
Net (gain) loss . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of settlement of
$ (766)
$ 1,298
$
(191)
healthcare plan . . . . . . . . . . . . . . . . . . . . .
(24)
—
(32,144)
ment 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.
(a) measurement date and Assumptions
A December 31 measurement date is used to value
plan assets and obligations for the postretirement plans. The
weighted average actuarial assumptions used in measuring the
net periodic benefit cost and plan obligations for the plans at the
respective measurement dates were as follows:
Net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of return
January 2,
2010
January 3,
2009
December 29,
2007
6.30%
6.20%
6.20%
Total recognized loss (gain) in
other comprehensive income . . . . . . . .
Total recognized in net periodic
benefit cost and other
comprehensive loss . . . . . . . . . . . . . . . .
(790)
1,298
(32,335)
on plan assets. . . . . . . . . . . . . . . . . . . . . .
3.70
3.70
3.70
Plan obligations:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . .
5.50%
6.30%
6.20%
$ (286)
$ 1,684
$ (37,745)
(b) contributions and Benefit Payments
The funded status of the Company’s postretirement
healthcare and life insurance plans at the respective year
end was as follows:
January 2,
2010
January 3,
2009
Accumulated benefit obligation:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,949
480
(140)
(766)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,523
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
140
(140)
—
$ 6,598
393
(175)
1,133
7,949
173
(173)
166
(166)
—
Funded status and accrued benefit
cost recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,523)
$ (7,949)
Amounts recognized in the Company’s
Consolidated Balance Sheet consist of:
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(571)
(6,952)
$
(645)
(7,304)
$ (7,523)
$ (7,949)
Amounts recognized in accumulated other
comprehensive loss consist of:
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 316
$ 1,106
The Company expects to make a contribution of $586 in
2010. Expected benefit payments are as follows: $586 in 2010,
$589 in 2011, $591 in 2012, $591 in 2013, $590 in 2014 and
$2,865 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 . . . . . . . . . . . . . . . . . . . . . . . .
Tax expense at U.S. statutory rate. . . . . .
State income taxes . . . . . . . . . . . . . . . . .
Tax on remittance of foreign
Years Ended
January 2,
2010
January 3,
2009
December 29,
2007
(142.8)%
242.8
0.6%
99.4
6.0%
94.0
100.0%
100.0%
100.0%
35.0%
(3.4)
35.0%
0.6
35.0%
0.6
earnings . . . . . . . . . . . . . . . . . . . . . . .
33.9
1.5
10.8
Foreign taxes less than U.S.
statutory rate . . . . . . . . . . . . . . . . . . .
Change in state effective tax rate . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes at effective worldwide
tax rates. . . . . . . . . . . . . . . . . . . . . .
(46.4)
(14.1)
10.6
(9.9)
6.3
(16.3)
—
0.6
2.1
(1.5)
(15.3)
—
0.5
1.6
(1.7)
12.0%
22.0%
31.5%
F-32
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Current and deferred tax provisions (benefits) were:
Year ended January 2, 2010
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 3, 2009
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 29, 2007
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$
—
15,783
362
$ 6,727
(9,503)
(6,376)
$ 6,727
6,280
(6,014)
$ 16,145
$ (9,152)
$ 6,993
$ 13,531
20,285
3,497
$ (3,672)
4,264
(2,037)
$ 9,859
24,549
1,460
$ 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
Years Ended
January 2,
2010
January 3, December 29,
2007
2009
Cash payments for income taxes. . . . . . . . .
$ 15,163
$ 32,767
$ 20,562
Cash payments above represent cash tax payments made
by the Company primarily in foreign jurisdictions.
The deferred tax assets and liabilities at the respective
year-ends were as follows:
Deferred tax assets:
Nondeductible reserves . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt allowance . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss and other tax carryforwards . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . .
Less valuation allowances. . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
January 2,
2010
January 3,
2009
$ 10,962
84,964
6,266
156,696
13,170
11,590
160,671
11,312
40,192
13,976
6,275
516,074
(21,556)
494,518
$ 15,269
94,803
7,076
155,248
12,439
20,507
166,120
1,903
21,527
31,614
2,796
529,302
(23,727)
505,575
Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities. . . . . . . . . . . . . . . . . . . . .
2,718
2,718
3,443
3,443
Net deferred tax assets. . . . . . . . . . . . . . . . . . . .
$ 491,800
$ 502,132
The valuation allowance for deferred tax assets as of
January 2, 2010 and January 3, 2009 was $21,556 and $23,727,
respectively. The net change in the total valuation allowance for
2009 was $(2,171) which, including foreign currency fluctuations,
consisted of a release of $(6,816) related to favorable financial
performance in certain foreign jurisdictions partially offset by
foreign loss carryforwards generated. The net change in the
total valuation allowance for 2008 was $7,735 which consisted
of foreign loss carryforwards generated and foreign currency
fluctuations. The net change in the total valuation allowance for
2007 was $1,401 which, including foreign currency fluctuations,
consisted of $2,082 of foreign loss carryforward additions
partially offset by reductions to foreign goodwill of $(681).
The valuation allowance at January 2, 2010 relates to
deferred tax assets established for foreign loss carryforwards
of $21,556. The valuation allowance at January 3, 2009 relates
in part to deferred tax assets established for foreign loss
carryforwards of $21,527 and to foreign goodwill of $2,200.
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, projected 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 differ-
ences, net of the existing valuation allowances.
At January 2, 2010, the Company has total net operating loss
carryforwards of approximately $220,244, consisting of $20,822
for federal, $92,102 for foreign, and $107,320 for state, which will
expire as follows:
Fiscal Year:
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,114
3,377
3,739
10,055
9,567
191,392
At January 2, 2010, the Company had tax credit carryforwards
totaling $11,312 which expire after 2019.
At January 2, 2010, applicable U.S. federal income taxes
and foreign withholding taxes have not been provided on the
accumulated earnings of foreign subsidiaries that are expected
to be permanently reinvested. If these earnings had not been
permanently reinvested, deferred taxes of approximately
$158,000 would have been recognized in the Consolidated
Financial Statements.
The Company adopted new accounting rules in 2007 which
resulted in no adjustment to 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 settlements that may be
paid, if any, to tax authorities, the Company currently expects
a reduction of $3,268 for unrecognized tax benefits accrued at
January 2, 2010 within the next twelve months.
F-33
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(450)
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,182
12,677
Additions based on tax positions related to the current year . . . . . . . . . . . . .
2,520
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(450)
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,929
Included in unrecognized tax benefits are $25,869 of tax
benefits that, if recognized, would reduce the Company’s annual
effective tax rate. The Company’s policy is to recognize interest
and/or penalties related to income tax matters in income tax
expense. The Company recognized $1,010, $647 and $720 for
interest and penalties classified as income tax expense in the
Consolidated Statement of Income for 2009, 2008, and 2007,
respectively. At January 2, 2010 and January 3, 2009, the
Company had a total of $2,377 and $1,367, respectively, of inter-
est and penalties accrued related to unrecognized tax benefits.
The Company files a consolidated U.S. federal income tax
return, as well as separate and combined income tax returns
in numerous state and foreign jurisdictions. The tax years
subject to examination vary by jurisdiction. At January 2, 2010,
all tax years since the spin off from Sara Lee remain subject to
examination. The Company regularly assesses the outcomes of
both ongoing and future examinations for the current or prior
years to ensure the Company’s provision for income taxes is
sufficient. The Company recognizes liabilities based on estimates
of whether additional taxes will be due and believes its reserves
are adequate in relation to any potential assessments.
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 substitut-
ing 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
F-34
purposes of this computation, 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 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 temporary differences) 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.
Based on the Company’s computation of the final amount of
deferred taxes for the Company’s opening balance sheet as of
September 6, 2006, the amount that is expected to be collected
from Sara Lee based on the Company’s computation of $72,223,
which reflects a preliminary cash installment received from
Sara Lee of $18,000, is included as a receivable in Other current
assets in the Consolidated Balance Sheet as of January 2, 2010
and January 3, 2009. The Company and Sara Lee have exchanged
information in connection with this matter, but Sara Lee has
disagreed with the Company’s computation. In accordance with
the dispute resolution provisions of the tax sharing agreement,
on August 3, 2009, the Company submitted the dispute to
binding arbitration. The arbitration process is ongoing, and the
Company will continue to prosecute its claim. The Company
does not believe that the resolution of this dispute will have a
material impact on the Company’s financial position, results of
operations or cash flows.
(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 the
Company’s board of directors may, without stockholder approval,
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 2, 2010 and
January 3, 2009, 95,397 and 93,520 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 10,000 shares of the Company’s common stock. Share
repurchases 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
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
allow the Company 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.
Since inception of the program, the Company has purchased
2,800 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.
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
Company’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 associated 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, without 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
earlier of the stock acquisition date and the rights expiration
date. Immediately upon the action of the board of directors
authorizing 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 affiliates 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.
(20) Business Segment Information
During the fourth quarter of 2009, as the Company sought
to drive more outerwear sales through its retail operations by
expanding its Hanes and Champion offerings, the Company
made the decision to change its internal organizational structure
so that its retail operations, previously included in the Innerwear
segment, would be a separate “Direct to Consumer” segment.
As a result, the Company’s operations are managed and reported
in six operating segments, each of which is a reportable seg-
ment for financial reporting purposes: Innerwear, Outerwear,
Hosiery, Direct to Consumer, International and Other. Certain
other insignificant changes between segments have been
reflected in the segment disclosures to conform to the current
organizational structure. These segments are organized princi-
pally by product category, geographic location and distribution
channel. Management of each segment is responsible for the
operations of these segments’ businesses but shares a common
supply chain and media and marketing platforms.
The types of products and services from which each
reportable segment derives its revenues are as follows:
n Innerwear sells basic branded products that are
replenishment in nature under the product categories
of women’s intimate apparel, men’s underwear, kids’
underwear and socks.
n Outerwear sells basic branded products that are seasonal
in nature under the product categories of casualwear
and activewear.
n Hosiery sells products in categories such as pantyhose and
knee highs.
n Direct to Consumer includes the Company’s value-based
(“outlet”) stores and Internet operations which sell products
from the Company’s portfolio of leading brands. The Com-
pany’s Internet operations are supported by its catalogs.
n International relates to the Latin America, Asia, Canada,
Europe and South America geographic locations which sell
products that span across the Innerwear, Outerwear and
Hosiery reportable segments.
F-35
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
n Other is primarily comprised of sales of yarn to third parties
in the United States and Latin America in order to maintain
asset utilization at certain manufacturing facilities and are
intended to generate approximate 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
Significant Accounting Policies.”
Years Ended
January 2,
2010
January 3, December 29,
2007
2009
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,833,616
1,051,735
185,710
369,739
437,804
12,671
$ 1,947,167 $ 2,100,554
1,256,214
251,731
360,500
448,618
56,920
1,196,155
217,391
370,163
496,170
21,724
Total net sales . . . . . . . . . . . . . . . .
$ 3,891,275
$ 4,248,770 $ 4,474,537
Segment operating profit (loss):
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 2,
2010
January 3, December 29,
2007
2009
$ 234,352
53,050
61,070
37,178
44,688
(2,164)
$ 223,420 $ 242,132
67,340
74,636
57,489
57,820
(1,333)
66,149
68,696
44,541
64,349
328
Total segment operating profit . . .
428,174
467,483
498,084
Items not included in segment
operating profit (loss):
General corporate expenses . . . . . . . . .
Amortization of trademarks and other
identifiable intangibles . . . . . . . . . . .
Gain on curtailment of postretirement
benefits . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Inventory write-offs included in cost
Assets:
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2,
2010
January 3,
2009
$ 1,101,632
707,118
83,662
80,243
221,504
1,622
2,195,781
1,130,783
$ 1,207,971
828,706
87,518
77,687
201,957
5,985
2,409,824
1,124,225
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,326,564
$ 3,534,049
Years Ended
January 2,
2010
January 3, December 29,
2007
2009
$ 36,328
21,988
3,831
5,621
2,071
169
70,008
26,747
$ 39,949
25,092
5,778
3,713
2,288
802
77,622
37,523
$ 40,545
25,346
9,157
2,335
4,432
1,645
83,460
48,216
Depreciation and
amortization expense:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . .
Total depreciation and
amortization expense . . . . . . . .
$ 96,755
$ 115,145
$ 131,676
Additions to long-lived assets:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 2,
2010
January 3, December 29,
2007
2009
$ 49,061
59,048
711
8,914
1,504
16
119,254
7,571
$ 70,808
84,412
781
11,152
2,693
46
169,892
17,065
$ 33,509
28,025
1,914
4,212
1,951
693
70,304
26,322
(75,127)
(45,177)
(52,271)
Corporate . . . . . . . . . . . . . . . . . . . . .
(12,443)
(12,019)
(6,205)
Total additions to
—
(53,888)
—
(50,263)
32,144
(43,731)
(1) Principally cash and equivalents, certain fixed assets, net deferred tax assets, goodwill,
trademarks and other identifiable intangibles, and certain other noncurrent assets.
long-lived assets . . . . . . . . . . . .
$ 126,825
$ 186,957
$ 96,626
of sales . . . . . . . . . . . . . . . . . . . . . . .
(4,135)
(18,696)
—
Accelerated depreciation included in
cost of sales . . . . . . . . . . . . . . . . . . .
(8,641)
(23,862)
(36,912)
Accelerated depreciation included in
selling, general and
administrative expenses. . . . . . . . . .
Total operating profit . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . .
Income before income
tax expense . . . . . . . . . . . . . . . . .
(3,084)
270,856
(49,301)
(163,279)
14
(2,540)
317,480
634
(155,077)
388,569
(5,235)
(199,208)
$ 58,276
$ 163,037 $ 184,126
Sales to Wal-Mart, Target and Kohl’s were substantially in
the Innerwear and Outerwear segments and represented 27%,
17% and 7% of total sales in 2009, respectively.
Worldwide sales by product category for Innerwear,
Outerwear, Hosiery and Other were $2,395,056, $1,238,806,
$244,742 and $12,671, respectively, in 2009.
F-36
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
(21) Geographic Area Information
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central America and the Caribbean Basin. . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2, 2010
Years Ended or at
January 3, 2009
December 29, 2007
Sales
$ 3,447,751
65,832
10,419
94,037
124,197
59,679
10,197
79,163
$ 3,891,275
Long-Lived
Assets
$ 185,821
1,672
260,564
240
5,084
520
114,100
34,825
$ 602,826
Sales
$ 3,748,382
68,453
13,550
98,251
139,971
93,560
9,397
77,206
$ 4,248,770
Long-Lived
Assets
$ 237,841
7,097
232,625
311
4,817
489
72,654
32,355
$ 588,189
Sales
$ 4,013,738
73,427
26,851
83,606
124,500
70,364
6,561
75,490
$ 4,474,537
Long-Lived
Assets
$ 312,310
12,527
177,295
205
6,196
536
11,526
13,691
$ 534,286
The net sales by geographic region is attributed by customer location.
(22) Quarterly Financial Data (Unaudited)
First
Second
Third
Fourth
Total
2009
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 857,841
257,876
(19,328)
(0.20)
(0.20)
$ 987,847
344,964
36,024
0.38
0.38
$ 986,022
327,391
30,555
0.32
0.32
$ 1,072,171
380,956
57,344
0.61
0.60
$ 1,058,673
356,680
41,138
0.43
0.43
$ 1,153,635
341,784
15,920
0.17
0.17
$ 988,739
323,327
(1,082)
(0.01)
(0.01)
$ 1,035,117
309,646
17,881
0.19
0.19
$ 3,891,275
1,265,274
51,283
0.54
0.54
$ 4,248,770
1,377,350
127,169
1.35
1.34
The amounts above include the impact of restructuring and curtailment as described in Notes 5 and 17, respectively, to the
Consolidated 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.
(23) Consolidating Financial Information
In accordance with the indenture governing the Company’s
$500,000 Floating Rate Senior Notes issued on December 14,
2006 and the indenture governing the Company’s $500,000
8% Senior Notes issued on December 10, 2009 (together,
the “Indentures”), certain of the Company’s subsidiaries have
guaranteed the Company’s obligations under the Floating
Rate Senior Notes and the 8% Senior Notes, respectively.
The following presents the condensed consolidating financial
information separately for:
(i) Parent Company, the issuer of the guaranteed obligations.
Parent Company includes Hanesbrands Inc. and its 100% owned
operating divisions which are not legal entities, and excludes its
subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified
in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions between
or among Parent Company, the guarantor subsidiaries and the
non-guarantor subsidiaries, (b) eliminate intercompany profit in
inventory, (c) eliminate the investments in our subsidiaries and
(d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes and the 8% Senior Notes are
fully and unconditionally guaranteed on a joint and several basis
by each guarantor subsidiary, each of which is wholly owned,
directly or indirectly, by Hanesbrands Inc. Each entity in the
consolidating financial information follows the same accounting
policies as described in the consolidated financial statements,
except for the use by the Parent Company and guarantor subsid-
iaries of the equity method of accounting to reflect ownership
interests in subsidiaries which are eliminated upon consolidation.
F-37
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Consolidating Statement of Income Year Ended January 2, 2010
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,911,759
3,201,313
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 429,717
157,800
$ 2,707,159
2,402,017
$ (3,157,360)
(3,135,129)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
710,446
743,907
48,319
(81,780)
294,200
49,301
123,760
39,359
(11,924)
271,917
88,993
—
182,924
102,506
—
21,284
264,146
3,843
305,142
105,366
5,569
194,207
—
—
18,235
175,972
15,074
(22,231)
2,264
—
(24,495)
(396,706)
—
—
(421,201)
—
Consolidated
$ 3,891,275
2,626,001
1,265,274
940,530
53,888
270,856
—
49,301
163,279
58,276
6,993
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
51,283
$ 260,303
$ 160,898
$
(421,201)
$
51,283
Consolidating Statement of Income Year Ended January 3, 2009
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,456,838
3,520,096
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 432,209
169,115
$ 2,839,424
2,537,883
$ (3,479,701)
(3,355,674)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
936,742
839,023
34,313
63,406
170,714
(634)
103,919
130,835
3,666
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
(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
Consolidating Statement of Income Year Ended December 29, 2007
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,421,464
3,527,794
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 875,358
640,341
$2,532,886
2,240,203
$ (3,355,171)
(3,374,711)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings (loss) of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
893,670
923,127
(32,144)
39,625
(36,938)
339,034
5,235
154,367
142,494
16,367
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
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-38
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Condensed Consolidating Balance Sheet
January 2, 2010
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade accounts receivable less allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,805
47,654
838,685
233,073
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,132,217
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,476
20,677
232,882
927,105
371,287
$
1,646
5,973
52,165
13,605
73,389
17,787
109,833
16,934
730,159
153,617
$
24,492
398,807
291,062
37,643
752,004
430,563
5,704
72,186
—
29,259
Consolidating
Entries and
Eliminations
$
—
(1,893)
(132,708)
(452)
(135,053)
—
—
—
(1,657,264)
(111,198)
Consolidated
$
38,943
450,541
1,049,204
283,869
1,822,557
602,826
136,214
322,002
—
442,965
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,838,644
$ 1,101,719
$ 1,289,716
$ (1,903,515)
$ 3,326,564
Liabilities and Stockholders’ Equity
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172,802
207,079
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,688
Current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
444,569
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,727,547
331,809
$
5,237
22,902
—
—
28,139
—
3,626
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,503,925
334,719
31,765
1,069,954
$
88,285
65,689
66,681
100,000
320,655
—
45,597
366,252
923,464
$
85,647
(35)
—
—
85,612
—
4,291
89,903
(1,993,418)
$ 351,971
295,635
66,681
164,688
878,975
1,727,547
385,323
2,991,845
334,719
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,838,644
$ 1,101,719
$ 1,289,716
$ (1,903,515)
$ 3,326,564
Condensed Consolidating Balance Sheet
January 3, 2009
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade accounts receivable less allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,210
(4,956)
1,078,048
288,208
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
$
2,355
6,096
49,581
10,158
68,190
13,914
114,630
16,934
649,513
397,802
$
48,777
406,305
295,946
49,734
800,762
365,431
5,614
72,186
—
(37,980)
Consolidating
Entries and
Eliminations
$
—
(2,515)
(133,045)
(577)
(136,137)
—
—
—
(1,195,379)
(85,133)
Consolidated
$
67,342
404,930
1,290,530
347,523
2,110,325
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 183,369
207,996
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Current portion of 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
—
—
34,855
450,000
7,344
492,199
768,784
$
74,157
57,555
61,734
45,640
239,086
196,977
34,968
471,031
734,982
$
85,647
(2,669)
—
—
82,978
—
4,139
87,117
(1,503,766)
$ 347,153
293,757
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
F-39
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (amounts in thousands, except per share data)
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,296
$ 497,035
$
140,743
$ (393,570)
$
414,504
Condensed Consolidating Statement of Cash Flows
Year Ended January 2, 2010
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
—
—
148
148
—
—
—
—
—
—
—
—
—
—
—
—
—
393,422
393,422
—
—
—
—
(126,825)
37,965
16
(88,844)
1,628,764
(1,624,139)
750,000
(74,976)
2,034,026
(1,982,526)
(1,440,250)
500,000
(2,788)
183,451
(326,068)
1,179
(847)
—
(354,174)
115
(28,399)
67,342
$
38,943
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,442)
32,931
(148)
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,341
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incurrence of debt under 2009 credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend and refinance credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under 2006 credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 8% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of Floating Rate Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on Accounts Receivable Securitization Facility . . . . . . . . . . . . . . . . . . . . . . .
Repayments on Accounts Receivable Securitization Facility. . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
750,000
(71,826)
2,034,026
(1,982,526)
(990,250)
500,000
(2,788)
—
—
1,179
(815)
(422,042)
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(185,042)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,405)
16,210
(8,036)
—
16
(8,020)
—
—
—
—
—
—
(450,000)
—
—
—
—
—
—
(39,724)
(489,724)
—
(709)
2,355
(97,347)
5,034
—
(92,313)
1,628,764
(1,624,139)
—
(3,150)
—
—
—
—
—
183,451
(326,068)
—
(32)
68,344
(72,830)
115
(24,285)
48,777
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,805
$
1,646
$
24,492
$
F-40
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,129)
—
20,612
2,047
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,470)
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 Facility . . . . . . . . . . . . . . . . . . . . . . .
Repayments on Accounts Receivable Securitization Facility. . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction with Sara Lee Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(48)
791,000
(791,000)
(125,000)
(4,354)
—
—
2,191
(30,275)
18,000
(395)
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)
602,627
(560,066)
(11)
—
—
—
—
20,944
(28,327)
—
—
—
(14)
(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)
—
—
—
—
—
—
—
—
—
—
—
—
—
301,073
301,073
—
—
—
—
(186,957)
(14,655)
25,008
(644)
(177,248)
602,627
(560,066)
(69)
791,000
(791,000)
(125,000)
(4,354)
20,944
(28,327)
2,191
(30,275)
18,000
(409)
—
(104,738)
(2,305)
(106,894)
174,236
$ 67,342
F-41
H AN E SBRANDS INC.
2 0 0 9 AN NUAL RE P ORT ON F ORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(43,206)
—
—
9,180
(1,962)
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35,988)
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on Accounts Receivable
Securitization Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(3,135)
(428,125)
—
6,189
(44,473)
(287)
(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)
—
—
(131)
—
—
—
—
(26)
(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
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
84,476
$
6,329
$ 83,431
$
—
—
—
—
1,148
1,148
—
—
—
—
—
—
—
—
475,425
475,425
—
—
—
—
(91,626)
(20,243)
(5,000)
16,573
(789)
(101,085)
66,413
(88,970)
(3,266)
(428,125)
250,000
6,189
(44,473)
(1,147)
—
(243,379)
3,687
18,263
155,973
$ 174,236
F-42
This page left intentionally blank.
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) 519-8080
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:
www.computershare.com/
investor
Regular Mail:
P.O. Box 43078
Providence, RI 02940-3078
Overnight Mail:
Computershare Investor Services
250 Royall Street; Mail Stop 1A
Canton, MA 02021
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
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.onehanes-
place.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.
about this report
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. The cover
and body of this annual report is
printed entirely on FSC-certified
paper. The cover pages are
printed on Mohawk Options,
a 100 percent post-consumer
recycled and acid-free paper
stock manufactured entirely
with wind-generated electricity.
The body of this annual report
is printed on Domtar paper
manufactured using 10 percent
post-consumer waste. Typesetting
the body of the report, which
enhances the presentation
of the content, reduced the
printed page count by 33 percent
compared with the document filed
electronically with the Securities
and Exchange Commission.
Cert no. SCS-COC-000648
hanesbrands at a glance
revenues
employees
products
customers
brands
markets
$3.9 billion (2009)
Approximately 47,000 in more than 25 countries
Innerwear, outerwear and hosiery apparel essentials, including
T-shirts, male underwear, intimate apparel, socks, sheer hosiery,
fleece and other activewear and casualwear items
All channels of trade, including dollar-store, mass-merchandise,
mid-tier, department-store and club channels, as well as direct
to consumers via catalogs, the Internet and company-owned
retail stores
Some of the largest and strongest apparel brands around the
world, including Hanes, Champion, Playtex, Bali, Just My Size,
L’eggs, barely there, Wonderbra, Zorba, Rinbros and Sol y Oro
Primarily the Americas and Asia, including the United States,
Canada, Mexico, Japan, Brazil, India and China, as well as Europe
corporate social responsibility
An Ethical Thread Woven
into Our Culture
Doing the right thing is the basis for long-term success of
a company. Our culture of integrity is based on ensuring high
standards for employees in the areas of conduct, compliance and
business ethics, providing clean, safe, secure and rewarding
workplaces, and offering consumers the safest and highest-quality
products. We are also active participants in the communities where
we manufacture and market our products. Our company is working
with communities around the globe to improve schools, healthcare
systems and community services. Most recently we sent more
than $3 million in humanitarian earthquake aid to Haiti in the
form of apparel, cash, food and water, and tents.
united states: Our company and employees
are perennially one of the largest contributors to the
United Way and Arts Council in our hometown of
Winston-Salem.
dominican republic: The wastewater
treatment system at our picturesque Dos Rios
textile plant is the most sophisticated in the
country and was designed to adhere to best
practices globally.
el salvador: We use proceeds
from recycling in El Salvador to fund
community projects, including
restoring running water to homes
and refurbishing local schools.
el salvador: More than 200 Hanesbrands
employees from around the world volunteered to
renovate the health clinic in San Juan Opico and
celebrated the accomplishment with a health fair.
china: Hanesbrands built its new textile plant
in Nanjing using many principles of the U.S. Green
Building Council’s Leadership in Energy and
Environmental Design standards.
hong kong: Hanesbrands was named the best
corporate partner by the Boys’ & Girls’ Club Association,
in part because of our volunteers teaching children
about nature and the environment.
1000 East Hanes Mill Road
Winston-Salem, NC 27105
(336) 519-8080
www.hanesbrands.com