A Powerful Growth Platform
2010 ANNUAL REPORT
A POWERFUL GROWTH PLATFORM
HanesBrands has created a powerful growth platform
through its investment in strong worldwide consumer
brands, a global supply chain and a flexible long-term
capital structure.
STRONG BRANDS
LOW-COST GLOBAL SUPPLY CHAIN
STRONG CASH FLOW
The company’s brands are among the
HanesBrands has a balanced low-cost
HanesBrands’ strong operating results
strongest in their basic apparel innerwear
supply chain across the Western Hemi-
and cash flow have resulted in a flexible
and outerwear categories around the
sphere and Asia that supports commercial
long-term capital structure that can deliver
world because of high quality, innovative
businesses in 7 core growth geographies:
shareholder value in numerous ways,
product development and leading
the United States, Canada, Mexico, Brazil,
including debt reduction and acquisitions.
marketing investment. Hanes is America’s
Japan, China and India. The company has
The company successfully acquired
No. 1 basic apparel brand and can be
more than 12,000 employees in Asia,
found in nearly nine of every 10 homes.
compared with 500 just four years ago.
Gear For Sports, a leading licensed logo
apparel seller, last year.
U.S. MARKET SHARE LEADERSHIP
FINANCIAL HIGHLIGHTS
Category
HBI Unit Share Rank
NET SALES (dollars in billions)
DILUTED EPS (in dollars)
INNERWEAR
Intimate Apparel
Male Underwear
Socks
Hosiery/Tights
OUTERWEAR
T-Shirts
Fleece
Activewear
5.0
2.5
# 1
# 1
# 1
# 1
# 2
# 1
# 3
$4.2
$3.9
$4.3
3.0
1.5
$1.34
$0.54
$2.16
$4.3
Source: NPD Group, R12 Nov. 2010
08
09
10
08
09
10
To Our Investors,
We had a great year in 2010. Sales and earnings per share increased by double digits.
We grew both domestically and internationally in our core product categories.
We expanded our market share substantially, and we made a successful acquisition.
Best of all, we are in a great position to do it again in 2011, even with the challenge
of cost inflation. Our brands and market share are stronger than ever, and we aim
to capitalize further on this strength.
GROWTH TAKES OFF IN 2010
After spending several years investing in our brands, investing in our global low-cost supply chain and strengthening
our capital structure, HanesBrands is delivering growth. Net sales in 2010 increased by 11 percent and diluted EPS
increased to $2.16 from $0.54 a year earlier. On the strength of
shelf-space gains, sales increased in nearly every country and in every
SIGNIFICANT U.S. MARKET SHARE GAINS
category except sheer hosiery. Our market share gains were impressive
in such a short period of time, particularly for men’s underwear.
Gear For Sports, a leader in licensed logo apparel, began contributing
to sales growth in the fourth quarter after our acquisition of the
company and will continue this year.
Men’s Underwear
Socks
Women’s Plus-Size
Bras
Activewear
+ 5 pts
+ 2 pts
+ 2 pts
+ 2 pts
+ 1 pt
OVERCOMING CHALLENGES IN 2011
Source: NPD Group, R12 Nov. 2010
The obvious challenge in 2011 for us, and the rest of the industry, is cost inflation, particularly the cost of cotton which has
tripled in the last year. We benefit from our self-owned supply chain, which provides us earlier visibility to input-cost inflation
compared with most of the industry. Fortunately, we used this information to our advantage by securing a substantial portion
of our 2011 cotton needs relatively early and at favorable prices, and we have taken price increases to respond to this new
cost environment. We are in a great position to manage through this year’s inflation challenges. In fact, we believe that we
have a competitive advantage: our brands command the No. 1 market share positions in key categories and our products
are value-priced in the market. Therefore, we plan to price accordingly and continue to invest in our business.
This is the time to protect our product quality, advertise our brands, and partner on trade programs. With this continued
investment, I am confident in our ability to have a very successful 2011.
Richard A. Noll
Chairman and Chief Executive Officer
March 2, 2011
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 1, 2011
or
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-32891
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State of incorporation)
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 R No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer R
Accelerated filer £
Non-accelerated filer £
(Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
As of July 2, 2010, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $2,307,420,788 (based
on the closing price of the common stock of $24.30 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 14, 2011, there were 96,367,197 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 2011 annual meeting of stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
TABLE OF CONTENTS
Page
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2
PART I
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . 24
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 26
Item 7A
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Item 8
Item 9
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 55
Item 9A
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 9B
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
PART III
Item 10
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . 56
Item 13
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 14
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
PART IV
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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 may 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, Duofold and Gear for Sports marks, which may be registered in the United States and other jurisdic-
tions. 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.
2 010 AN N UAL RE P ORT ON FORM 10- K
FORWARD-LOOKING STATEMENTS
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, operational disruptions, changes in
import and export laws, currency restrictions and currency
exchange rate fluctuations;
n the impact of significant fluctuations and volatility in the
price of various input costs, such as cotton and oil-related
materials, utilities, freight and wages;
n the impact of natural disasters;
n the impact of the loss of one or more of our suppliers of
finished goods or raw materials;
n our ability to effectively manage our inventory and reduce
inventory reserves;
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 our ability to continue to effectively distribute our products
through our distribution network;
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 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 do, 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 CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy
statements 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 website
at www.sec.gov that makes available reports, proxy statements
and other information regarding issuers that file electronically.
n the highly competitive and evolving nature of the industry
We make available free of charge at www.hanesbrands.com
in which we compete;
n our ability to keep pace with changing consumer
preferences;
n the impact of any inadequacy, interruption or failure
with respect to our information technology or any data
security breach;
2
(in the “Investors” section) copies of materials we file with,
or furnish to, the SEC. By referring to our corporate website,
www.hanesbrands.com, or any of our other websites, we do
not incorporate any such website or its contents into this Annual
Report on Form 10-K.
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
PART I
ITEM 1. Business
General
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, Duofold and Gear for Sports. We design,
manufacture, source and sell a broad range of basic apparel such
as T-shirts, bras, panties, men’s underwear, kids’ underwear,
casualwear, activewear, socks and hosiery.
The basic apparel sector of the apparel industry is character-
ized by frequently replenished items, such as T-shirts, bras,
panties, men’s underwear, kids’ underwear, socks and hosiery.
Growth and sales in the basic apparel 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 more of an emphasis on style and innova-
tion. We continue to invest in our largest and strongest brands to
achieve our long-term growth goals. In addition to designing and
marketing basic apparel, we have a long history of operating a
global supply chain that incorporates a mix of self-manufacturing,
third-party contractors and third-party sourcing. On November
1, 2010, we completed our acquisition of GearCo, Inc., known
as Gear for Sports, a leading seller of licensed logo apparel in
collegiate bookstores and other channels.
Our fiscal year ends on the Saturday closest to
December 31. All references to “2010,” “2009” and “2008”
relate to the 52 week fiscal years ended on January 1, 2011
and January 2, 2010 and the 53 week fiscal year ended on
January 3, 2009, respectively.
Our operations are managed and reported in five operating
segments, each of which is a reportable segment for financial
reporting purposes: Innerwear, Outerwear, Hosiery, Direct to
Consumer and International. These segments are organized
principally by product category, geographic location and distribu-
tion channel. Each segment has its own management that is
responsible for the operations of the segment’s businesses but
the segments share a common supply chain and media and
marketing platforms. In October 2009, we completed the sale
of our yarn operations and, as a result, we no longer have net
sales in the Other segment, which was primarily comprised of
sales of yarn to third parties. 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
Men’s underwear and
kids’ underwear
Hanes, Polo Ralph Lauren*
Socks
Hanes, Champion
Outerwear
Activewear, such as
performance T-shirts and
shorts, fleece, sports bras
and thermals
Champion, Duofold, Gear for Sports
Casualwear, such as T-shirts,
fleece and sport shirts
Hanes, Just My Size, Outer Banks,
Champion, Hanes Beefy-T
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
* Brand used under a license agreement.
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
** 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 basic apparel
industry. According to The NPD Group/Consumer Tracking
Service, or “NPD,” our brands held either the number one or
number two U.S. market position by units sold in most product
categories in which we compete, for the 12-month period ended
December 31, 2010.
Our products are sold through multiple distribution channels.
During 2010, approximately 44% of our net sales were to mass
merchants in the United States, 15% were to national chains
and department stores in the United States, 12% were in our
International segment, 9% were in our Direct to Consumer
segment in the United States, and 20% were to other retail
channels in the United States such as embellishers, specialty
retailers, wholesale clubs 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 multifunctional customer management teams, which
has allowed us to form strategic long-term relationships with
3
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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 our Just My Size program at
Wal-Mart stores.
Our ability to react to changing customer needs and industry
trends is key to our success. Our design, research and product
development teams, in partnership with our marketing teams,
drive our efforts to bring innovations to market. We seek to
leverage our insights into consumer demand in the basic apparel
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 Barely There Smart Sizes, a new bra sizing system that sim-
plifies and streamlines the traditional bra sizing configuration
from 16 sizes to just five sizes with innovative, “shape to fit”
technology (2010).
n Wonderbra Secret Agent No Slip Fit Collection includes bras
that feature shaping stay-in-place back and no slip straps that
secretly work together to ensure everything stays comfort-
ably in place all day (2010).
n Bali Comfort-U Bra with a feature that ensures that the
straps and back stay in place, delivering the ultimate fit and
comfort in a place most women don’t think to look — the
back (2010).
n Hanes Comfort Flex Underwear feature a softer, more
stretchable waistband that comfortably shifts without
pinching or binding (2010).
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, an 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).
We have restructured our supply chain over the past four
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance 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
4
chain infrastructure in place, we are focused long-term on opti-
mizing our supply chain to further enhance efficiency, improve
working capital and asset turns and reduce costs through several
initiatives, such as supplier-managed inventory for raw materials
and sourced goods ownership arrangements. We commenced
production at our textile production plant in Nanjing, China,
which is our first company-owned textile facility in Asia, in the
fourth quarter of 2009 and we ramped up production in 2010 to
support our growth, with the expectation of ramping up to full
capacity by the end of 2011. The Nanjing facility, along with our
other textile facilities and arrangements with outside contrac-
tors, enables us to expand and leverage our production scale as
we balance our supply chain across hemispheres to support our
production capacity. We consolidated our distribution network by
implementing new warehouse management systems and tech-
nology and adding new distribution centers and new third-party
logistics providers to replace parts of our legacy distribution
network, including relocating distribution capacity to our West
Coast distribution facility in California in order to expand capacity
for goods we source from Asia.
Our Brands
Our portfolio of leading brands is designed to address the
needs and wants of various consumer segments across a broad
range of basic apparel products. Each of our brands has a particu-
lar 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. 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 88% of the U.S.
households that have purchased men’s or women’s casual
clothing or underwear in the five-month period ended
December 31, 2010.
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, offering a range of bras, panties and shape-
wear 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, Duofold and Gear
for Sports. We entered into an agreement with Wal-Mart in 2009
that significantly expanded the presence of our Just My Size
brand. These brands serve to round out our product offerings,
allowing us to give consumers a variety of options to meet their
diverse needs.
H AN E SBRANDS INC.
Our Segments
Our operations are managed and reported in five operating
segments, each of which is a reportable segment for financial
reporting purposes: Innerwear, Outerwear, Hosiery, Direct to
Consumer and International. These segments are organized
principally by product category, geographic location and distribu-
tion channel. Each segment has its own management that is
responsible for the operations of the segment’s businesses but
the segments share a common supply chain and media and
marketing platforms. In October 2009, we completed the sale of
our yarn operations and, as a result, we no longer have net sales
in the Other segment, which was primarily comprised of sales of
yarn to third parties. For more information about our segments,
see Note 18 to our financial statements included in this Annual
Report on Form 10-K.
Innerwear
The Innerwear segment focuses on core apparel 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 2010, net sales from our Innerwear segment
were $2.0 billion, representing approximately 46% 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 clothing for
men, women and children marketed under the Hanes and Just
My Size brands. The Just My Size brand offers casual apparel
designed exclusively to meet the needs of plus-size women.
In 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. On November 1,
2010, we completed our acquisition of Gear for Sports, a leading
seller of licensed logo apparel in collegiate bookstores and other
channels, which significantly strengthens our strategy of creating
stronger branded and defensible businesses in our Outerwear
segment. The operating results of Gear for Sports are included
in the Outerwear segment. During 2010, net sales from our Out-
erwear segment were $1.3 billion, representing approximately
29% 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 2010, net sales from our Hosiery
segment were $167 million, representing approximately 4% 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 websites operating under the Hanes, One Hanes Place,
Just My Size and Champion names. Our Internet operations are
supported by our catalogs. As of January 1, 2011 and January
2, 2010, we had 224 and 228 outlet stores, respectively. During
2010, net sales from our Direct to Consumer segment were
$378 million, representing approximately 9% of total net sales.
International
Our International segment includes products that span
across the Innerwear, Outerwear and Hosiery reportable seg-
ments and are primarily marketed under the Hanes, Champion,
Wonderbra, Playtex, Stedman, Zorba, Rinbros, Kendall, Sol y
Oro, Bali and Ritmo brands. During 2010, net sales from our
International segment were $509 million, representing ap-
proximately 12% 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.
Design, Research and Product Development
At the core of our design, research and product development
capabilities is an integrated team of over 325 professionals. A
facility located in Winston-Salem, North Carolina, is the center of
our research, technical design and product development efforts.
We also employ creative design and product development
personnel in our design center in New York City and design
personnel at the Gear for Sports facility in Lenexa, Kansas.
In 2010, 2009 and 2008, we spent approximately $47 million,
$46 million and $46 million, respectively, on design, research and
product development, including the development of new and
improved products.
Customers
In 2010, approximately 88% of our net sales were to custom-
ers in the United States and approximately 12% were to custom-
ers outside the United States. Domestically, almost 81% of our
net sales were wholesale sales to retailers, 10% were direct to
consumers and 9% were wholesale sales to wholesalers and
third-party embellishers. We have well-established relationships
with some of the largest apparel retailers in the world. Our
largest customers are Wal-Mart Stores, Inc., or “Wal-Mart,” Target
Corporation, or “Target,” and Kohl’s Corporation, or “Kohl’s,”
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2 010 AN N UAL RE P ORT ON FORM 10- K
accounting for 26%, 17% and 6%, respectively, of our total sales
in 2010. As is common in the basic apparel industry, we generally
do not have purchase agreements that obligate our customers to
purchase our products. However, all of our key customer relation-
ships have been in place for ten years or more. Wal-Mart, Target,
Kohl’s and CVS Caremark, “CVS,” are our only customers with
sales that exceed 10% of any individual segment’s sales. In our
Innerwear segment, Wal-Mart accounted for 38% of sales, Target
accounted for 16% of sales and Kohl’s accounted for 11% of
sales during 2010. In our Outerwear segment, Target accounted
for 31% of sales and Wal-Mart accounted for 20% of sales during
2010. In our Hosiery segment, Wal-Mart accounted for 25% of
sales, Target accounted for 12% of sales and CVS accounted for
11% of sales during 2010.
Due to their size and operational scale, high-volume retail-
ers 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 44% of our net sales in 2010. 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
accounted for approximately 26% of our net sales in 2010, is
our largest mass merchant customer.
Sales to the national chains and department stores channel
in the United States accounted for approximately 15% of our net
sales in 2010. 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 char-
acterized by large retailers such as Macy’s and Dillard’s, Inc. We
sell products in our intimate apparel, hosiery, socks, activewear
and underwear categories through department stores.
Sales in our Direct to Consumer segment in the United
States accounted for approximately 9% of our net sales in 2010.
We sell our branded products directly to consumers through our
224 outlet stores, as well as our websites 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 websites, 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 approxi-
mately four million consumers receiving our catalogs and emails.
Our websites received over 20 million unique visitors in 2010.
Sales in our International segment represented approxi-
mately 12% of our net sales in 2010, 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 busi-
ness perspective, we use distributors to service customers
in the Middle East and Asia, and have a limited presence in
Latin America. The brands that are the primary focus of the
export business include Hanes 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 19
to our financial statements.
Sales in other channels in the United States represented
approximately 20% of our net sales in 2010. We sell T-shirts,
golf and sport shirts and fleece sweatshirts to wholesalers
and third-party embellishers primarily under our Hanes, Hanes
Beefy-T and Outer Banks brands. Sales to wholesalers and third-
party embellishers accounted for approximately 8% of our net
sales in 2010. We also sell a significant range of our underwear,
activewear and socks products under the Champion brand to
wholesale clubs, such as Costco, and sporting goods stores,
such as The Sports Authority, Inc. We sell primarily legwear and
underwear products under the Hanes and L’eggs brands to food,
drug and variety stores. We sell products that span across our
Innerwear, Outerwear and Hosiery segments to the U.S. military
for sale to servicemen and servicewomen.
Inventory
Effective inventory management is a key component of our
future success. Because our customers generally do not pur-
chase our products under long-term supply contracts, but rather
on a purchase order basis, effective inventory management
requires close coordination with the customer base. Through
Kanban, a multi-initiative effort that determines production
quantities, and in doing so, facilitates just-in-time production and
ordering systems, as well as inventory management, demand
prioritization and related initiatives, we seek to ensure that prod-
ucts 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
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2 010 AN N UAL RE P ORT ON FORM 10- K
management and various forms of replenishment management
processes. Our supplier-managed inventory initiative is intended
to shift raw material ownership and management to our suppli-
ers until consumption, freeing up cash and improving response
time. We have demand management planners in our customer
management group who work closely with customers to
develop demand forecasts that are passed to the supply chain.
We also have professionals within the customer management
group who coordinate daily with our larger customers to help
ensure that our customers’ planned inventory levels are in fact
available at their individual retail outlets. Additionally, within our
supply chain organization we have dedicated professionals who
translate the demand forecast into our inventory strategy and
specific production plans. These individuals work closely with our
customer management team to balance inventory investment/
exposure with customer service targets.
Seasonality
n Hanes announced a new national environmental advertis-
ing campaign, titled “For Future Generations.” The ad, which
began airing in the Spring of 2010, takes a lighthearted
approach to the brand’s environmental responsibility efforts,
including eco-friendly products. Hanes also debuted a new
consumer website (www.hanesgreen.com) where visitors
can learn more about the brand’s environmental responsibil-
ity effort and watch the “Future Generations” ad.
n Champion introduced a sports bra blog designed to spur
online dialogue around all things related to breast health and
sports bras. The blog features comments and questions by
women of all fitness levels from industry experts to first-
time exercisers as well as the latest on emerging product
innovations and style choices.
n Playtex began airing a series of web videos featuring 10
women who won a Playtex bra makeover trip to New York
with style expert Allison Deyette.
Our operating results are subject to some variability due to
We also continued some of our existing advertising and
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 cus-
tomers may cancel orders, change delivery schedules or change
the mix of products ordered with minimal notice to us. Media,
advertising and promotion (“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.
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 enables
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 2010, we launched a number of new advertising and
marketing initiatives:
n Hanes launched a new men’s underwear marketing cam-
paign starring Michael Jordan in a new television commercial
that shows Hanes Lay Flat Collar undershirts will never
suffer from wavy “bacon necks” like other shirts.
marketing initiatives:
n We continued our television advertising campaign in support
of Hanes Comfort Fit socks for the family.
n Champion continued its “What’s Your Everest” marketing
campaign and online community to support people in reach-
ing their personal aspirations and goals, as accomplished
international mountaineer and motivational speaker Jamie
Clarke led Expedition Hanesbrands to the top of Mount
Everest, driving brand awareness for Champion and Duofold
brands and showcasing our research and development
innovation and textile science leadership.
n Hanes continued its role as the Official Apparel Sponsor of
Passionately Pink for the Cure, a fund-raising program cre-
ated 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 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 “How You Play” national advertising
campaign for Champion. The campaign includes print,
out-of-home and online components and is designed to
capture the everyday moments of fun and sport in a series
of cool and hip lifestyle images.
n We continued the “Live Beautifully” campaign for our Bali
brand. The print, television and online advertising campaign
features Bali bras, panties and shapewear.
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2 010 AN N UAL RE P ORT ON FORM 10- K
n We continued our innovative and expressive advertising and
marketing campaign called “Girl Talk,” 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 1, 2011, we distributed our products from a total
of 31 distribution centers. These facilities include 15 facilities
located in the United States and 16 facilities located outside the
United States in regions where we manufacture our products.
We internally manage and operate 18 of these facilities, and
we use third-party logistics providers who operate the other
13 facilities on our behalf. International distribution operations
use a combination of third-party logistics providers, as well as
owned and operated distribution operations, to distribute goods
to our various international markets.
We have reduced the number of distribution centers
from the 48 that we maintained at the time we became an
independent public company to 31 as of January 1, 2011. We
consolidated our distribution network by implementing new
warehouse management systems and technology and adding
new distribution centers and new third-party logistics providers
to replace parts of our legacy distribution network, including
relocating distribution capacity to our West Coast distribution
facility in California in order to expand capacity for goods we
source from Asia.
Manufacturing and Sourcing
During 2010, approximately 63% 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 sup-
pliers. 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, the relative valuations
and fluctuations of the currencies of producer versus consumer
countries and other factors that are generally unpredictable and
beyond our control. We are able to lock in the cost of cotton
reflected in the price we pay for yarn from our primary yarn sup-
pliers in an attempt 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.
8
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 43 manufacturing facilities, down from 70 at
the time we became an independent public company. In making
decisions about the location of manufacturing operations and
third-party sources of supply, we consider a number of factors,
including labor, local operating costs, quality, regional infra-
structure, applicable quotas and duties, and freight costs. We
commenced production at our textile production plant in Nanjing,
China, which is our first company-owned textile facility in Asia, in
the fourth quarter of 2009 and we ramped up production in 2010
to support our growth, with the expectation of ramping up to full
capacity by the end of 2011. 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 diversify-
ing our production risks.
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 Accredited
Production, or “WRAP,” certified. WRAP is a recognized apparel
certification program that independently monitors and certifies
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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.
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 part-
ners work with U.S. Customs and Border Protection to protect
their supply chains from concealment of terrorist weapons,
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 basic apparel market is highly competitive and rapidly
evolving. Competition generally is based upon brand name rec-
ognition, price, 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 Interna-
tional, 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 custom-
ers, 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 basic apparel products under private labels that
compete directly with our brands.
Our competitive strengths include our strong brands with
leading market positions, our high-volume, core products 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 held either the number one or number
two U.S. market position by units sold in most product
categories in which we compete, for the 12-month period
ended December 31, 2010. According to NPD, our largest
brand, Hanes, was the top-selling apparel brand in the
United States by units sold, for the 12-month period ended
December 31, 2010.
n High-volume, core products. We sell high-volume, fre-
quently replenished basic apparel products. 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 basic apparel products 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 basic apparel in the United States
as measured by units sold for the 12-month period ended
December 31, 2010. 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.
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n Global supply chain. We have restructured our supply chain
over the past four years to create more efficient production
clusters that utilize fewer, larger facilities and to balance our
production capability between the Western Hemisphere and
Asia. With our global supply chain infrastructure in place,
we are focused long-term on optimizing our supply chain
to further enhance efficiency, improve working capital and
asset turns and reduce costs through several initiatives, such
as supplier-managed inventory for raw materials and sourced
goods ownership arrangements.
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 our Just My Size program
at Wal-Mart.
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,
Duofold and Gear for Sports. 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 par-
ties, 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 aggres-
sively protect these trademarks and copyrights from infringe-
ment 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 registrations
in the countries of the world in which we do business, with reg-
istration periods generally ranging between seven and 10 years
depending on the country. Generally, 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 as needed. Most of our
copyrights are unregistered, although we have a sizable portfolio
of copyrighted lace designs that are the subject of a number of
registrations at the U.S. Copyright Office.
We place high importance on product innovation and design,
and a number of these innovations and designs are the subject
of patents. However, we do not regard any segment of our
business as being dependent upon any single patent or group of
related patents. In addition, we own proprietary trade secrets,
technology, and know-how that we have not patented.
Shared Trademark Relationship with Sun Capital
In February 2006, Sara Lee sold its European branded
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,
Croatia, Macedonia, Moldova, Morocco, Norway, 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, Nicara-
gua, 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.
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2 010 AN N UAL RE P ORT ON FORM 10- K
Corporate Social Responsibility
We have a formal corporate social responsibility (“CSR”) pro-
gram that consists of five core initiatives: a global 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 operations; 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
(the “FLA”) and recently completed its two-year accreditation
process of our internal global social compliance program. We are
now a fully accredited member of the FLA. The FLA 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 FLA
are required to fulfill 10 company obligations, including conduct-
ing internal monitoring of facilities, submitting to independent
monitoring audits and verification, and managing and reporting
information on their compliance efforts. The FLA conducts unan-
nounced 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. In November
2010, As You Sow, a San Francisco-based shareholder advocacy
organization, issued a report on apparel supply chain compliance
programs and rated Hanesbrands’ program with the third-highest
grade of companies studied.
We are committed to reducing our greenhouse gas footprint,
and 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 transporta-
tion, adopting cleaner technologies where possible, and actively
tracking our energy metrics. Currently, over 30% of our total
worldwide energy use comes from renewable resources. We
have reduced our CO2 emissions per unit manufactured by over
12% since 2007. We have also worked 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. Hanesbrands earned the U.S. EPA Energy Star partner
of the year award in 2010 for energy efficiency progress. In
October 2010, Newsweek magazine issued its annual list of the
500 greenest companies in America. Hanesbrands ranks No. 91.
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 have earned the U.S. Green Building Council’s sustainability
certification for our Bentonville, Arkansas, and Minneapolis,
Minnesota, sales offices and our Perris, California distribution
center. 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 typical
warehouses of its size through low-water bathroom fixtures and
low-water landscaping, innovative site grading techniques and
use of locally produced concrete. We are also currently working
on LEED certification of manufacturing facilities in El Salvador,
Vietnam and China, as well as one of our corporate headquarters
buildings in Winston-Salem, North Carolina.
Our corporate philanthropic efforts are focused on meeting
the “fundamental needs” of the communities in which we live
and work. In 2010, we were again the largest corporate giver to
our local United Way in Forsyth County, North Carolina, with our
corporate and employee gifts totaling over $2 million. In Central
America and the Caribbean Basin, we have instituted a unique
Green For Good program (Viviendo Verde), in which we use the
proceeds from recycling waste materials in our manufacturing
operations for community improvement projects, such as school
and health-clinic renovations. For more detail on the full range of
our CSR efforts, including our commitment to and work in our
communities, go to www.hanesbrandsCSR.com.
Environmental Matters
We have a well-developed environmental program that
focuses heavily on energy use (in particular the use of renewable
energy), water use and wastewater 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
workplace safety. Noncompliance with these laws and regula-
tions 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 equiva-
lent programs. Where we have determined that a liability has
been incurred and the amount of the loss can reasonably be
estimated, we have accrued amounts in our balance sheet for
losses related to these sites. Compliance with environmental
laws and regulations and our remedial environmental obligations
historically have not had a material impact on our operations, and
we are not aware of any proposed regulations or remedial obliga-
tions that could trigger significant costs or capital expenditures
in order to comply.
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H AN E SBRANDS INC.
Governmental Regulation
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 opera-
tions also are subject to various international trade agreements
and regulations. See “— Trade Regulation.” While we believe that
we are in compliance in all material respects with all applicable
governmental regulations, current governmental regulations may
change or become more stringent or unforeseen events may
occur, any of which could have a material adverse effect on our
financial position or results of operations.
Employees
As of January 1, 2011, we had approximately 55,500
employees, approximately 8,400 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 1,
2011, in the United States, approximately 25 employees were
covered by collective bargaining agreements. Some of our inter-
national 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.
Any disruption to our supply chain or adverse impact on
its extensive network of 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
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2 010 AN N UAL RE P ORT ON FORM 10- K
capacity in various locations. 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 operational disruptions;
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.
In addition, as we have restructured our supply chain over the
past four years to create more efficient production clusters that
utilize fewer, larger facilities, such an event at a particular facility
could have a larger impact on us. 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 various
input costs, such as cotton and oil-related materials, utilities,
freight and wages, may have a material adverse effect on
our business, results of operations, financial condition and
cash flows.
The economic environment in which we are operating
continues to be uncertain and volatile, which could have unantici-
pated adverse effects on our business during 2011 and beyond.
We are seeing a sustained increase in various input costs, such
as cotton and oil-related materials, utilities, freight and wages.
Rising demand for cotton resulting from the economic recovery,
weather-related supply disruptions, significant declines in U.S.
inventory and a sharp rise in the futures market for cotton
caused cotton prices to surge upward during 2010 and early
2011. Inflation can have a long-term impact on us because
increasing costs of materials and labor may impact our ability
to maintain satisfactory margins. For example, the cost of the
materials that are used in our manufacturing process, such as oil-
related 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.
Similarly, a significant portion of our products are manufactured
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
in other countries and declines in the value of the U.S. dollar
may result in higher manufacturing costs. Increases in inflation
may not be matched by rises in income, which also could have a
negative impact on spending.
Although we have sold our yarn operations and nearly 40%
of our business, such as bras, sheer hosiery and portions of our
activewear categories, is not cotton-based, we are still exposed
to fluctuations in the cost of cotton. During 2010, cotton prices
hit their highest levels in 140 years. Increases in the cost of
cotton can result in higher costs in the price we pay for yarn
from our large-scale yarn suppliers. Our costs for cotton yarn
and cotton-based textiles vary based upon the fluctuating cost
of cotton, which is affected by, among other things, weather,
consumer demand, speculation on the commodities market, the
relative valuations and fluctuations of the currencies of producer
versus consumer countries and other factors that are generally
unpredictable and beyond our control. We are able to lock in the
cost of cotton that is reflected in the price we pay for yarn from
our primary yarn suppliers in an attempt to protect our business
from the volatility of the market price of cotton. However, our
business can be affected by dramatic movements in cotton
prices. Although the cost of cotton used in goods manufactured
by us has historically represented only 6% of our cost of sales,
it has risen to around 10% primarily as a result of the cost of
inflation. Costs incurred for materials and labor are capitalized
into inventory and impact our results as the inventory is sold.
After taking into consideration the cotton costs currently in our
finished goods inventory and cotton prices we have locked in
through October, we expect an average for cotton of at least
$1.00 per pound in 2011 for purchases of cotton used in goods
manufactured by us, which would have a negative impact rang-
ing from $100 million to $125 million when compared to 2010.
The first and second quarters of 2011 should reflect an average
cost of 83 cents per pound, the third quarter of 2011 should
reflect an average cost of 89 cents per pound and the fourth
quarter is not locked in at this time. These estimates do not
include the cotton impact on the cost of sourced goods.
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 at current levels of production would
affect our annual cost of sales by $4 million related to finished
goods manufactured internally in our manufacturing facilities and
$1 million related to finished goods sourced from third parties.
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, 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 $5 million, at current levels of usage.
In response to the cost increases described above, par-
ticularly for cotton, energy and labor, we expect to take price
increases as warranted by cost inflation, including multiple
increases already put in place through late summer of 2011. The
timing and frequency of price increases will vary by product
category, channel of trade, and country, with some increases as
frequently as quarterly. The magnitude of price increases will also
vary by product category. If, however, we incur increased costs
for materials, including cotton, and labor that we are unable to
recoup through price increases or improved efficiencies, or if
consumer spending declines, our business, results of operations,
financial condition and cash flows may be adversely affected.
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 37% 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 worldwide economic condi-
tions, production problems, difficulties in sourcing raw materials,
lack of capacity or transportation disruptions, or if for these
or other reasons they raise the prices of the raw materials or
finished products we purchase from them. 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.
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
13
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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.
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.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by consumers. Discretionary spending is
affected by many factors, including, among others, general busi-
ness 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 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 deliv-
ered. 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
14
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 in the last few years. If third
parties on which we rely for raw materials, finished goods or
services are unable to overcome financial difficulties 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.
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 four
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 consolidated
our distribution network by implementing new warehouse man-
agement systems and technology and adding new distribution
centers and new third-party logistics providers to replace parts
of our legacy distribution network. With our global supply chain
infrastructure in place, we are focused long-term on optimizing
our supply chain to further enhance efficiency, improve working
capital and asset turns and reduce costs through several initia-
tives, such as supplier-managed inventory for raw materials and
sourced goods ownership arrangements. If we are not able to
optimize our supply chain, we may not be successful at improv-
ing working capital and asset turns and reducing costs.
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
providers. These facilities include a combination of owned,
leased and contracted distribution centers. We have reduced the
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number of distribution centers from the 48 that we maintained
at the time we became an independent public company to 31
as of January 1, 2011. We consolidated our distribution network
by implementing new warehouse management systems and
technology and adding new distribution centers and new
third-party logistics providers to replace parts of our legacy
distribution network, including relocating distribution capacity
to our West Coast distribution facility in California in order to
expand capacity for goods we source from Asia. In 2009, we
began shipping products from this new 1.3 million square foot
distribution center in Perris, California. 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.
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 2010, our top ten customers accounted for 65% of our net
sales and our top customers, Wal-Mart and Target, accounted
for 26% 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 opera-
tions, 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.
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.
We operate in a highly competitive and rapidly evolving
market, and our market share and results of operations
could be adversely affected if we fail to compete effectively
in the future.
The basic apparel market is highly competitive and evolving
rapidly. Competition is generally based upon brand name recog-
nition, price, 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
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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 Interna-
tional, 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 custom-
ers, 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 basic apparel 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 prod-
ucts 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 brand recognition, price, quality,
research and product development, manufacturing and distribu-
tion 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.
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
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.
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 $600 million
revolving credit facility (the “Revolving Loan Facility”) under our
senior secured credit facility that we entered into in 2006 and
amended and restated in December 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
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due 2016 (the “8% Senior Notes”), our $1 billion 6.375%
Senior Notes due 2020 (the “6.375% Senior Notes”) and the
$150 million accounts receivable securitization facility that we
entered into in November 2007 (the “Accounts Receivable
Securitization Facility”). The 2009 Senior Secured Credit Facility
and the indentures governing the Floating Rate Senior Notes, the
8% Senior Notes and the 6.375% Senior Notes contain restric-
tions 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 transac-
tions 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
basic apparel 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. Economic conditions could
impact our ability to maintain the financial ratios contained in
these agreements. If we fail to maintain these financial ratios,
that failure could result in a default that accelerates the maturity
of the indebtedness under such facilities, which could require
that we repay such indebtedness in full, together with accrued
and unpaid interest, unless we are able to negotiate new finan-
cial ratios or waivers of our current ratios with our lenders. Even
if we are able to negotiate new financial ratios or waivers of our
current financial ratios, we may be required to pay fees or make
other concessions that may adversely impact our business.
Any one of these options could result in significantly higher
interest expense in 2011 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, the 8% Senior Notes and the 6.375% 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 necessary or prudent corporate activities.
If we need to incur additional debt or issue equity in order to
fund working capital and capital expenditures or to make acquisi-
tions and other investments, debt or equity financing may not be
available to us on acceptable terms or at all. If we are not able
to obtain sufficient financing, we may be unable to maintain or
expand our business. If we raise funds through the issuance of
debt or equity, any debt securities or preferred stock issued will
have rights, preferences and privileges senior to those of holders
of our common stock in the event of a liquidation, and the terms
of the debt securities may impose restrictions on our operations.
If we raise funds through the issuance of equity, the issuance
would dilute the ownership interest of our stockholders.
Market returns could have a negative impact on the return
on plan assets for our pension and other postemployment
plans, which may require significant funding.
The plan assets of our pension plans and other postemploy-
ment plans, which had increases in values of approximately
4% and 8% during 2010 and 2009, respectively, are invested
in domestic and international equity and bond markets. We are
unable to predict the variations in asset values or the severity or
duration of any disruptions in the financial markets or 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.
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.
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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
assumed 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”), after consider-
ing whether the acquired business will be operated as a separate
business unit or integrated into an existing business unit.
As of January 1, 2011, we had approximately $179 million of
trademarks and other identifiable intangibles and $430 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 16%
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 2010. 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 economy 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.
To service our debt obligations, we may need to increase
the portion of the income of our foreign subsidiaries that is
expected to be remitted to the United States, which could
increase our income tax expense.
The amount of the income of our foreign subsidiaries that
we expect to remit to the United States may significantly impact
our U.S. federal income tax expense. We pay U.S. federal
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
subsidiaries that we expect to remit to the United States, which
may significantly increase our income tax expense. Conse-
quently, our strategic initiative to enhance our global supply chain
by optimizing lower-cost manufacturing capacity and to support
our commercial operations outside the United States may result
in capital investments outside the United States that impact 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
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 1, 2011, we had approximately $469 million of
net deferred tax assets on our balance sheet, which represents
12% 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.
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
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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 coun-
tries in which our products are manufactured or into which or
from 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 and/or valuation 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.
We had approximately 55,500 employees worldwide as of
January 1, 2011, 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 55,500 employees worldwide as of
January 1, 2011. 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 47,100 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
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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.
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 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.”
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 imitat-
ing our products and infringing our intellectual property rights.
Infringement or counterfeiting of our products could diminish the
20
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 imitation 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 recog-
nizing 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 intel-
lectual 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 trade-
marks 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 proceedings 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
anticipated benefits of acquisitions that we may consummate.
Newly acquired businesses may not achieve expected results
of operations, including expected levels of revenues, and may
require unanticipated costs and expenditures. Acquired busi-
nesses may also subject us to liabilities that we were unable
to discover in the course of our due diligence, and our rights
to indemnification from the sellers of such businesses, even if
obtained, may not be 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 inte-
grate 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.
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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 qualifica-
tion 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 let-
ter 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
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
21
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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 stockhold-
ers, other than the acquirer, shall be granted rights to purchase
our common stock at a certain price. The stockholder rights
agreement 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.
53
51
50
51
53
58
Chairman of the Board of Directors
and Chief Executive Officer
Co-operating Officer, President International
Co-operating Officer, President U.S.
Chief Legal Officer, General Counsel
and Corporate Secretary
Chief Human Resources Officer
Chief Financial Officer
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 Septem-
ber 2005. From December 2002 until 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 Co-operating Officer,
President International, since November 2010. From February
2009 until November 2010, he was our President, International
Business and Global Supply Chain. From February 2008 until
February 2009, he served as our President, Global Supply Chain
and Asia Business Development. From September 2006 until
February 2008, he served as Executive Vice President, Chief
Supply Chain Officer. From July 2005 until September 2006,
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 Co-operating Officer,
President U.S., since November 2010. From November 2007
until November 2010, he was our President, Chief Commercial
Officer. 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 Chief Legal Officer,
General Counsel and Corporate Secretary since January 2007, a
position previously known as Executive Vice President, General
Counsel and Corporate Secretary. 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.
Ms. Johnson currently serves on the board of Crawford & Com-
pany, the world’s largest independent provider of claims manage-
ment solutions to the risk management and insurance industry.
Kevin W. Oliver has served as our Chief Human Resources
Officer since September 2006, a position previously known as
Executive Vice President, Human Resources. From January 2006
until September 2006, 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.
E. Lee Wyatt Jr. has served as our Chief Financial Officer
since September 2006, a position previously known as Executive
Vice President, Chief Financial Officer. From September 2005
until September 2006, 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 Automo-
tive, 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.
22
2 010 AN N UAL RE P ORT ON FORM 10- K
The following table summarizes the properties primarily used
by our segments as of January 1, 2011:
Properties by Segment (1)
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . . . . . . .
International. . . . . . . . . . . . . . . . . . . . . . . . .
Owned
Square Feet
Leased
Square Feet
3,319,699
2,294,310
303,445
—
481,273
4,019,584
2,655,156
39,000
1,840,969
818,903
Total
7,339,283
4,949,466
342,445
1,840,969
1,300,176
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,398,727
9,373,612
15,772,339
(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.
ITEM 3. Legal Proceedings
Although we are subject to various claims and legal ac-
tions 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.
(Removed and Reserved)
H AN E SBRANDS INC.
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 and Lenexa, Kansas. 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 manufactur-
ing 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 1, 2011, we owned and leased properties
in 23 countries, including 43 manufacturing facilities and 31
distribution centers, as well as office facilities. The leases for
these properties expire between 2011 and 2022, with the
exception of some seasonal warehouses that we lease on a
month-by-month basis.
As of January 1, 2011, we also operated 224 direct outlet
stores in 40 states, most of which are leased under five-year,
renewable lease agreements and several of which are leased
under ten-year agreements. We believe that our facilities, as
well as equipment, are in good condition and meet our current
business needs.
The following table summarizes our properties by country as
of January 1, 2011:
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
3,171,576
7,666,324
10,837,900
1,426,866
356,279
1,070,912
835,240
75,255
289,480
251,337
168,282
277,733
—
—
125,289
—
307,327
916,520
47,734
178,033
341,974
105,675
240,365
—
14,142
165,398
164,548
—
77,428
1,734,193
1,272,799
1,118,646
1,013,273
417,229
395,155
491,702
168,282
291,875
165,398
164,548
125,289
77,428
Total non-U.S. facilities. . . . . . . . . . . . . .
4,876,673
2,559,144
7,435,817
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,048,249
10,225,468
18,273,717
(1) Excludes vacant land.
23
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
PART II
ITEM 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market for our Common Stock
Our common stock currently is traded on the New York
Stock Exchange, or the “NYSE,” under the symbol “HBI.” A
“when-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:
2009
Quarter ended April 4, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended July 4, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended October 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
2010
Quarter ended April 3, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended July 3, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended October 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$13.66
$19.07
$22.96
$26.61
$28.40
$31.45
$27.88
$28.42
$ 5.14
$10.76
$13.07
$21.02
$20.95
$23.44
$23.28
$23.94
Holders of Record
On February 14, 2011, there were 40,861 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 73,300 beneficial
owners of our common stock as of February 1, 2011.
Dividends
We currently do not pay regular dividends on our outstanding
stock. The declaration of any future dividends and, if declared,
the amount of any such dividends, will be subject to our actual
future earnings, capital requirements, regulatory restrictions,
debt covenants, other contractual restrictions and to the discre-
tion of our board of directors. Our board of directors may take
into account such matters as general business conditions, our
financial condition and results of operations, our capital require-
ments, our prospects and such other factors as our board of
directors may deem relevant.
Issuer Purchases of Equity Securities
There were no purchases by Hanesbrands during the quarter
or year ended January 1, 2011 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
1 / 0
2 / 3
1
8
1 / 0
2 / 3
1
9
1 / 0
2 / 3
1
0
1 / 1
2 / 3
1
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of January 1, 2011:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,751,336
—
7,751,336
$22.34
—
$22.34
3,945,486
—
3,945,486
(1) The amount appearing under “Number of securities remaining available for future issuance under equity compensation plans” includes 1,945,335 shares available under the Hanesbrands Inc.
Omnibus Incentive Plan of 2006 and 2,000,151 shares available under the Hanesbrands Inc. Employee Stock Purchase Plan of 2006.
24
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 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
1, 2011, January 2, 2010 and January 3, 2009 and the balance
sheet data as of January 1, 2011 and January 2, 2010 have
been derived from our audited consolidated financial state-
ments included elsewhere in this Annual Report on Form 10-K.
The statement of income data for the year ended December
29, 2007, the six-month period ended December 30, 2006 and
the year ended July 1, 2006 and the balance sheet data as of
January 3, 2009, December 29, 2007, December 30, 2006 and
July 1, 2006 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 1,
2011
January 2,
2010
Six Months
Ended
January 3, December 29, December 30,
2006
2009
2007
Year Ended
July 1,
2006
$ 4,326,713 $ 3,891,275 $ 4,248,770 $ 4,474,537 $ 2,250,473 $ 4,472,832
2,987,500
2,626,001
2,911,944
3,033,627
1,530,119
2,871,420
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on curtailment of postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,414,769
1,010,581
—
—
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
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
404,188
20,221
150,236
233,731
22,438
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)
433,600
—
17,280
416,320
93,827
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 211,293 $
51,283 $ 127,169 $ 126,127 $
74,139 $ 322,493
Earnings per share — basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — diluted (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares — basic (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares — diluted (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.19 $
2.16 $
0.54 $
0.54 $
1.35 $
1.34 $
1.31 $
1.30 $
0.77 $
0.77 $
96,500
97,774
95,158
95,668
94,171
95,164
95,936
96,741
96,309
96,620
(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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1,
2011
January 2,
2010
$
43,671 $
38,943 $
3,790,002
3,326,564
January 3, December 29, December 30,
2006
2009
2007
67,342 $ 174,236 $ 155,973 $ 298,252
4,903,886
3,439,483
3,435,620
3,534,049
1,990,735
407,243
2,397,978
562,674
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
(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.
25
3.35
3.35
96,306
96,306
July 1,
2006
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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, Duofold and Gear for Sports. We design,
manufacture, source and sell a broad range of basic apparel such
as T-shirts, bras, panties, men’s underwear, kids’ underwear,
casualwear, activewear, socks and hosiery. According to NPD,
our brands held either the number one or number two U.S. mar-
ket position by units sold in most product categories in which we
compete, for the 12 month period ended December 31, 2010.
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 2010, approximately 44% of our net
sales were to mass merchants in the United States, 15% were
to national chains and department stores in the United States,
12% were in our International segment, 9% were in our Direct
to Consumer segment in the United States, and 20% were to
other retail channels in the United States such as embellishers,
specialty retailers, wholesale clubs, sporting goods stores and
collegiate bookstores.
Our Segments
Our operations are managed and reported in five operating
segments, each of which is a reportable segment for financial
reporting purposes: Innerwear, Outerwear, Hosiery, Direct to
Consumer and International. These segments are organized
principally by product category, geographic location and distribu-
tion channel. Each segment has its own management that is
responsible for the operations of the segment’s businesses but
the segments share a common supply chain and media and
marketing platforms. In October 2009, we completed the sale of
our yarn operations and, as a result, we no longer have net sales
in the Other segment, which was primarily comprised of sales of
yarn to third parties.
n Innerwear. The Innerwear segment focuses on core basic
apparel, 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 2010, net sales from our Innerwear segment
were $2.0 billion, representing approximately 46% of total
net sales.
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 state-
ments as a result of various factors, including but not limited
to those listed under “Risk Factors” in this Annual Report on
Form 10-K and included elsewhere in this Annual Report on
Form 10-K.
MD&A is a supplement to our 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 and background informa-
tion 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 expenses that are key to an understanding of our results
of operations.
n 2010 Highlights. This section discusses some of the
highlights of our performance and activities during 2010.
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.
26
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
n Outerwear. We are a leader in the casualwear and ac-
n International. International includes products that span
tivewear markets through our Hanes, Champion, Just My
Size, Duofold and Gear for Sports brands, where we offer
products such as T-shirts and fleece. Our casualwear lines
offer a range of quality, comfortable clothing for men,
women and children marketed under the Hanes and Just My
Size brands. The Just My Size brand offers casual apparel
designed exclusively to meet the needs of plus-size women.
In 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. On November 1, 2010, we completed our ac-
quisition of Gear for Sports, a leading seller of licensed logo
apparel in collegiate bookstores and other channels, which
significantly strengthens our strategy of creating stronger
branded and defensible businesses in our Outerwear seg-
ment. The operating results of Gear for Sports are included
in the Outerwear segment. During 2010, net sales from our
Outerwear segment were $1.3 billion, representing approxi-
mately 29% 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
2010, net sales from our Hosiery segment were $167 million,
representing approximately 4% 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 websites 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 1, 2011 and January 2, 2010,
we had 224 and 228 outlet stores, respectively. During
2010, net sales from our Direct to Consumer segment
were $378 million, representing approximately 9% 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 2010, net
sales from our International segment were $509 million, rep-
resenting approximately 12% 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.
Outlook for 2011
After a strong performance in 2010 in an uncertain and
volatile economic environment, we expect continued double-
digit growth in 2011 with projected net sales of approximately
$4.85 billion to $5.0 billion compared to $4.33 billion in 2010.
The primary drivers of this growth are expected to be price
increases, partially offset by demand elasticity, a full year of the
Gear for Sports acquisition contributing approximately five points
of growth, and net shelf-space gains and increases in consumer
spending each contributing another one to two points of growth
in net sales.
Because of expected systemic cost inflation in 2011 as
described below, particularly for cotton, energy and labor, we
expect to take price increases throughout the year as warranted
by cost inflation, including multiple increases already put in
place through late summer. The timing and frequency of price
increases will vary by product category, channel of trade, and
country, with some increases as frequently as quarterly. The
magnitude of price increases also will vary by product category.
Demand elasticity effects, which could be significant for higher
double-digit price increases implemented later in 2011, should be
manageable and will have a muted impact in 2011.
For the first three quarters of 2011, we believe we know the
majority of our costs, with cotton prices locked in through October.
Our current 2011 earnings expectations assume we will continue
to realize efficiency savings from our supply chain optimization of
approximately $40 million and eliminate the majority of excess
2010 costs to service the strong sales growth of $25 million to
$30 million; continued investment in trade and media spending
consistent with our historical rate of $90 million to $100 million;
stable interest expense; and a higher full-year tax rate that could
range from a percentage in the teens to the low 20s.
As a result of the cost inflation and higher product pricing,
we expect higher working capital, in particular higher accounts
receivable and inventories, partially offset by higher inventory
turns which will negatively impact our cash flow. We typically
use cash for the first half of the year and generate most of our
cash flow in the second half of the year.
Business and Industry Trends
Inflation and Changing Prices
The economic environment in which we are operating
continues to be uncertain and volatile, which could have unantici-
pated adverse effects on our business during 2011 and beyond.
We are seeing a sustained increase in various input costs, such
27
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
as cotton and oil-related materials, utilities, freight and wages,
which impacted our results in 2010 and will continue to do so
throughout 2011. The estimated impact of cost inflation could be
in the range of $250 million to $300 million higher in 2011 over
2010. Rising demand for cotton resulting from the economic
recovery, weather-related supply disruptions, significant declines
in U.S. inventory and a sharp rise in the futures market for cotton
caused cotton prices to surge upward during 2010 and early
2011. After taking into consideration the cotton costs currently in
our finished goods inventory and cotton prices we have locked
in through October, we expect an average for cotton of at least
$1.00 per pound in 2011 for purchases of cotton used in goods
manufactured by us, which would have a negative impact rang-
ing from $100 million to $125 million when compared to 2010.
The first and second quarters of 2011 should reflect an average
cost of 83 cents per pound, the third quarter of 2011 should
reflect an average cost of 89 cents per pound and the fourth
quarter is not locked in at this time. These estimates do not
include the cotton impact on the cost of sourced goods.
Although we have sold our yarn operations and nearly 40%
of our business, such as bras, sheer hosiery and portions of our
activewear categories, is not cotton-based, we are still exposed
to fluctuations in the cost of cotton. During 2010, cotton prices
hit their highest levels in 140 years. Increases in the cost of
cotton can result in higher costs in the price we pay for yarn
from our large-scale yarn suppliers. Our costs for cotton yarn
and cotton-based textiles vary based upon the fluctuating cost
of cotton, which is affected by, among other factors, weather,
consumer demand, speculation on the commodities market, the
relative valuations and fluctuations of the currencies of producer
versus consumer countries and other factors that are generally
unpredictable and beyond our control. We are able to lock in
the cost of cotton reflected in the price we pay for yarn from
our primary yarn suppliers in an attempt to protect our business
from the volatility of the market price of cotton. However, our
business can be affected by dramatic movements in cotton
prices. Although the cost of cotton used in goods manufactured
by us has historically represented only 6% of our cost of sales,
it has risen to around 10% primarily as a result of cost inflation.
Costs incurred for materials and labor are capitalized into inven-
tory and impact our results as the inventory is sold.
Inflation can have a long-term impact on us because
increasing costs of materials and labor may impact our ability
to maintain satisfactory margins. For example, the cost of the
materials that are used in our manufacturing process, such as
oil-related commodities and other raw materials, such as dyes
and chemicals, and other costs, such as fuel, energy and utility
costs, can fluctuate as a result of inflation and other factors.
Similarly, 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. 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 for materials, including cotton,
and labor that we are unable to recoup through price increases
or improved efficiencies, or if consumer spending declines, our
28
business, results of operations, financial condition and cash
flows may be adversely affected.
Given the systemic cost inflation that the apparel industry is
currently experiencing, most apparel retailers and manufacturers
have announced they will be implementing price increases in
2011 in order to maintain satisfactory margins. Higher raw mate-
rial costs, including cotton, and higher labor costs overseas are
the primary reasons that price increases are needed to manage
the inflated costs.
Other Business and Industry Trends
The basic apparel market is highly competitive and evolving
rapidly. Competition is generally based upon brand name recog-
nition, price, product quality, selection, service and purchasing
convenience. The majority of our core styles continue from year
to year, with variations only in color, fabric or design details.
Some products, however, such as intimate apparel, activewear
and sheer hosiery, do have more of an emphasis on style and
innovation. Our businesses face competition today from other
large corporations and foreign manufacturers, as well as smaller
companies, department stores, specialty stores and other retail-
ers that market and sell basic apparel products under private
labels that compete directly with our brands.
Our top ten customers accounted for 65% of our net sales
and our top customer, Wal-Mart, accounted for over $1 billion of
our sales in 2010. Our largest customers in 2010 were Wal-Mart,
Target and Kohl’s, which accounted for 26%, 17% and 6%
of total sales, respectively. The growth in retailers can create
pricing pressures as our customers grow larger and seek to have
greater concessions in their purchase of our products, while
they can be increasingly demanding that we provide them with
some of our products on an exclusive basis. To counteract these
effects, it has become increasingly important to leverage our
national brands through investment in our largest and strongest
brands as our customers strive to maximize their performance
especially in today’s challenging economic environment. In
addition, during the past several years, various retailers, includ-
ing some of our largest customers, have experienced significant
difficulties, including restructurings, bankruptcies and liquida-
tions, and the ability of retailers to overcome these difficulties
may increase due to worldwide economic conditions. Brands
are important in our core categories to drive traffic and project
required quality and value.
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. The Hosiery segment only comprised
4% of our net sales in 2010 however, and as a result, the decline
in the Hosiery segment has not had a significant impact on our
net sales, revenues or cash flows. Generally, we manage the
Hosiery segment for cash, placing an emphasis on reducing our
cost structure and managing cash efficiently.
H AN E SBRANDS INC.
Growth Platform
We have 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.
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 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 second plank of our growth platform is the low-cost
global supply chain that we have just built. Our low-cost,
high-scale supply chain spans both the Western and Eastern
hemispheres and creates a competitive advantage for us around
the globe. 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. To support our growth, we have increased
our production capacity such as in our Nanjing textile facility,
which we expect will ramp up to full capacity by the end of 2011.
The third plank of our growth platform is our ability to
consistently generate strong cash flow. We have the potential
to increase cash flow, and our flexible long-term capital
structure allows us to use cash in executing multiple strategies
for earnings growth, including debt reduction and selective
tactical acquisitions.
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 basic apparel 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 indus-
try trends. We also support our key brands with targeted,
effective advertising and marketing campaigns.
2 010 AN N UAL RE P ORT ON FORM 10- K
n Foster strategic partnerships with key retailers via
“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 our Just My Size program
at Wal-Mart. Our goal is to strengthen and deepen our exist-
ing 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.
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 four 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 in place, we are focused long-
term on optimizing our supply chain to further enhance
efficiency, improve working capital and asset turns and
reduce costs through several initiatives, such as supplier-
managed inventory for raw materials and sourced goods
ownership arrangements. We commenced production at our
textile production plant in Nanjing, China, which is our first
company-owned textile facility in Asia, in the fourth quarter
of 2009 and we ramped up production in 2010 to support our
growth, with the expectation of ramping up to full capacity
by the end of 2011. 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. We consolidated our distribution
network by implementing new warehouse management
systems and technology and adding new distribution centers
and new third-party logistics providers to replace parts of our
legacy distribution network, including relocating distribution
capacity to our West Coast distribution facility in California in
order to expand capacity for goods we source from Asia.
29
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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 November 2010, we completed a $1.0 billion
senior notes offering and debt refinancing that strength-
ened and added flexibility to our capital structure by fixing a
significant percentage of our debt at favorable interest rates
at longer maturities.
n Continuing to improve turns for accounts receivables,
inventory, accounts payable and fixed assets. Our abil-
ity 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 arrangements and other efforts.
Global Supply Chain
We have restructured our supply chain over the past four
years to create more efficient production clusters that utilize
fewer, larger facilities and to balance 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 in place, we are focused long-term on opti-
mizing our supply chain to further enhance efficiency, improve
working capital and asset turns and reduce costs through several
initiatives, such as supplier-managed inventory for raw materials
and sourced goods ownership arrangements. We commenced
production at our textile production plant in Nanjing, China,
which is our first company-owned textile facility in Asia, in the
fourth quarter of 2009 and we ramped up production in 2010 to
support our growth, with the expectation of ramping up to full
capacity by the end of 2011. The Nanjing facility, along with our
other textile facilities and arrangements with outside contrac-
tors, enables us to expand and leverage our production scale as
we balance our supply chain across hemispheres to support our
production capacity. We consolidated our distribution network by
implementing new warehouse management systems and tech-
nology and adding new distribution centers and new third-party
logistics providers to replace parts of our legacy distribution
network, including relocating distribution capacity to our West
Coast distribution facility in California in order to expand capacity
for goods we source from Asia.
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. Media, advertis-
ing and promotion expenses may vary from period to period
during a fiscal year depending on the timing of our advertising
campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in
nature and tend to be purchased by consumers on a planned,
rather than on an impulse, basis, our sales are impacted by
discretionary spending by consumers. Discretionary spending is
affected by many factors, including, among others, general busi-
ness conditions, interest rates, inflation, consumer debt levels,
the availability of consumer credit, currency exchange rates,
taxation, electricity power rates, gasoline prices, unemployment
trends and other matters that influence consumer confidence
and spending. Many of these factors are outside our control.
Consumers’ purchases of discretionary items, including our
products, could decline during periods when disposable income
is lower, when prices increase in response to rising costs, or in
periods of actual or perceived unfavorable economic conditions.
These consumers may choose to purchase fewer of our 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.
30
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Components of Net Sales and Expenses
Restructuring
Net sales
We generate net sales by selling basic apparel products 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 arrange-
ment, (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 allowances based upon historical return experi-
ence. 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.
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, fees associated with sales of certain trade
accounts receivable to financial institutions, 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 1, 2011
n Total net sales in 2010 were $4.33 billion, compared with
$3.89 billion in 2009, representing an 11% increase.
n Operating profit was $404 million in 2010 compared with
$271 million in 2009, representing a 49% increase. As
a percent of sales, operating profit was 9.3% in 2010
compared to 7.0% in 2009.
n Diluted earnings per share were $2.16 in 2010, compared
with $0.54 in 2009.
n Gross capital expenditures were $106 million in 2010,
compared to $127 million in 2009. Proceeds from sales of
assets were $46 million in 2010 and $38 million in 2009.
31
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
n In November 2010, we completed the acquisition of GearCo,
Inc., known as Gear for Sports, a leading seller of licensed
logo apparel in collegiate bookstores. Gear for Sports, which
sells embellished licensed apparel under several brand
names, including our Champion label, had sales of approxi-
mately $225 million and an operating profit margin of more
than 11% of sales in its fiscal year ended in June 2010. The
Gear for Sports acquisition supports our strategy of creating
stronger branded and defensible businesses in our Outer-
wear segment, which has included building our Champion
activewear brand and increasing sales of higher-margin
graphic apparel. We have significant growth synergies in
both the collegiate bookstore channel and our existing retail
channels and opportunities to take advantage of our low-cost
global supply chain. After giving effect to the acquisition,
graphic apparel sales constitute approximately 20% to 25%
of the Outerwear Segment net sales. The purchase price
was $55 million in cash for shareholders’ equity plus pay-
ment at closing of approximately $172 million of debt of the
privately held company.
n In November 2010, we completed a senior notes offering
and debt refinancing that strengthened and added flexibility
to our capital structure by fixing a significant percentage
of our debt at favorable interest rates at longer maturities.
The refinancing consisted of the sale of $1.0 billion 6.375%
Senior Notes with a 10-year maturity. The proceeds from
the sale of the 6.375% Senior Notes were used to retire
early the entire $691 million outstanding under the $750 mil-
lion floating-rate term loan facility (the “Term Loan Facility”)
under the 2009 Senior Secured Credit Facility and reduce the
outstanding borrowings under the Revolving Loan Facility,
and to pay fees and expenses related to the transaction.
Consolidated Results of Operations — Year Ended
January 1, 2011 (“2010”) Compared with Year Ended
January 2, 2010 (“2009”)
(dollars in thousands)
Years Ended
January 1,
2011
January 2,
2010
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 4,326,713
2,911,944
Cost of sales. . . . . . . . . . . . . . . . .
$ 3,891,275 $ 435,438
285,943
2,626,001
Percent
Change
11.2%
10.9
Gross profit . . . . . . . . . . . . . . .
Selling, general and
1,414,769
1,265,274
149,495
11.8
administrative expenses. . . . .
Restructuring . . . . . . . . . . . . . . . .
1,010,581
—
Operating profit. . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
404,188
20,221
150,236
233,731
22,438
940,530
53,888
270,856
49,301
163,279
70,051
(53,888)
7.4
(100.0)
133,332
(29,080)
(13,043)
49.2
(59.0)
(8.0)
58,276
6,993
175,455
15,445
301.1
220.9
Net income. . . . . . . . . . . . . . . . . . $ 211,293
$
51,283 $ 160,010
312.0%
Net Sales
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . . $ 4,326,713
$ 3,891,275 $ 435,438
11.2%
32
Consolidated net sales were higher by $435 million or 11%
in 2010 compared to 2009, reflecting significant space and distri-
bution gains at retailers, positive retail sell-through and inventory
restocking at retail. Our significant space and distribution gains
at retailers contributed approximately 6% of sales growth, while
approximately 4% of growth was driven by increased retail
sell-through, retailer inventory restocking and foreign currency
exchange rates. Early in the fourth quarter of 2010 we completed
the acquisition of Gear for Sports which accounted for 1% of
our higher net sales. All three of our largest segments delivered
double digit sales growth in 2010, with the Outerwear segment
achieving 20% sales growth.
Innerwear, Outerwear and International segment net sales
were higher by $179 million (10%), $208 million (20%) and
$71 million (16%), respectively, in 2010 compared to 2009.
Direct to Consumer segment net sales were higher by $8 million
(2%), while Hosiery and Other segment net sales were lower by
$19 million (10%) and $13 million, respectively, in 2010 compared
to 2009. Outerwear’s segment net sales include the acquisi-
tion of Gear for Sports during the fourth quarter of 2010 which
contributed 4% of the segment’s growth for the year.
International segment net sales were higher by 16% in
2010 compared to 2009, which reflected a favorable impact
of $22 million related to foreign currency exchange rates due
to the strengthening of the Canadian dollar, Japanese yen,
Brazilian real and Mexican peso compared to the U.S. dollar,
partially offset by the strengthening of the U.S. dollar compared
to the Euro. International segment net sales were higher by 11%
in 2010 compared to 2009 after excluding the impact of foreign
exchange rates on currency.
Gross Profit
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Gross profit. . . . . . . . . . . . . . . . . . $ 1,414,769
$ 1,265,274 $ 149,495
11.8%
As a percent of net sales, our gross profit was 32.7% in 2010
compared to 32.5% in 2009, increasing as a result of the items
described below. Our results in 2010 primarily benefited from
higher sales volumes and savings from cost reduction initiatives
and were negatively impacted by higher cotton costs and higher
service costs.
Our gross profit was higher by $149 million in 2010 com-
pared to 2009 due primarily to higher sales volume of $203 mil-
lion, savings from our prior restructuring actions of $29 million,
vendor price reductions of $27 million, lower start-up and
shut-down costs of $16 million associated with the consolidation
and globalization of our supply chain, a $10 million favorable
impact related to foreign currency exchange rates and lower
accelerated depreciation of $5 million. The favorable impact of
foreign currency exchange rates in our International segment
was primarily due to the strengthening of the Canadian dollar,
Japanese yen, Brazilian real and Mexican peso compared to the
U.S. dollar, partially offset by the strengthening of the U.S. dollar
compared to the Euro.
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Our gross profit was negatively impacted by an unfavorable
product sales mix of $54 million, higher sales incentives of
$34 million, higher cotton costs of $33 million, lower product
pricing of $12 million primarily in the first half of 2010, higher
other manufacturing costs of $6 million and higher production
costs of $4 million. The higher production costs were primarily
attributable to $25 million of incremental costs to service higher
demand, partially offset by lower energy and oil-related costs of
$21 million. Our 2010 sales incentives were higher due to higher
sales volumes and, as a percentage of sales, sales incentives
were flat compared to 2009.
We incurred one-time restructuring related write-offs of
$4 million in 2009 for stranded raw materials and work in
process inventory determined not to be salvageable or cost-
effective to relocate, which did not recur in 2010.
The cotton prices reflected in our results were 69 cents per
pound in 2010 compared to 55 cents per pound in 2009. We
continue to see higher prices for cotton and oil-related materials
in the market.
Selling, General and Administrative Expenses
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Years Ended
We also incurred higher expenses of $7 million in 2010
compared to 2009 as a result of opening new retail stores
or expanding existing stores. We opened five retail stores
during 2010.
These higher expenses were partially offset by lower
pension expense of $7 million, savings of $4 million from our
prior restructuring actions, lower accelerated depreciation of
$3 million and lower stock compensation and certain other
benefit expenses of $2 million in 2010 compared to 2009.
Changes due to foreign currency exchange rates, which
are included in the impact of the changes discussed above,
resulted in higher selling, general and administrative expenses
of $7 million in 2010 compared to 2009.
Restructuring
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Restructuring . . . . . . . . . . . . . . . .
$ —
$ 53,888 $ (53,888)
(100.0)%
During 2009, we incurred $54 million in restructuring charges,
which primarily related to employee termination and other
benefits, charges related to contract obligations, other exit costs
associated with facility closures approved during that period and
fixed asset impairment charges that did not recur in 2010.
Selling, general and
administrative expenses . . . . . . . $ 1,010,581
$ 940,530
$ 70,051
7.4%
Operating Profit
Our selling, general and administrative expenses were
$70 million higher in 2010 compared to 2009. As a percent of
net sales our selling, general and administrative expenses were
23.4% in 2010 compared to 24.2% in 2009.
Our non-media related MAP expenses and media related
MAP expenses were higher by $12 million and $5 million,
respectively, during 2010 compared to 2009 when we reduced
spending due to the recession. 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. For example, during the second quarter of 2010
we launched new television advertising featuring new Hanes
men’s underwear products Comfort Flex waistband and Lay Flat
Collar T-shirts, we introduced new advertising supporting Playtex
18 Hour cooling products and we launched new advertising sup-
porting the new barely there Smart sizes bra sizing system.
We also incurred higher distribution expenses of $28 million,
higher selling and other marketing expenses of $17 million and
higher consulting expenses of $7 million. The higher distribu-
tion expenses were primarily due to higher sales volumes and
$10 million of incremental costs to service higher demand such
as overtime and rework expenses in our distribution centers
while the higher selling and other marketing expenses were
primarily due to higher sales volumes. In addition, we recognized
an $8 million gain related to the sale of our yarn operations to
Parkdale America, LLC (“Parkdale America”) in 2009 that did not
recur in 2010.
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Operating profit . . . . . . . . . . . . . .
$ 404,188
$ 270,856 $ 133,332
49.2%
Operating profit was higher in 2010 compared to 2009 as a
result of higher gross profit of $149 million and lower restructur-
ing charges of $54 million, partially offset by higher selling,
general and administrative expenses of $70 million. Changes
in foreign currency exchange rates had a favorable impact on
operating profit of $3 million in 2010 compared to 2009.
Other Expenses
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Other expenses . . . . . . . . . . . . . .
$ 20,221
$ 49,301 $ (29,080)
(59.0)%
In November 2010, we completed the sale of our 6.375%
Senior Notes. The proceeds from the sale of the 6.375% Senior
Notes were used to retire early the entire $691 million outstand-
ing under the floating-rate Term Loan Facility, and reduce the
outstanding borrowings under the Revolving Loan Facility and to
pay fees and expenses related to the transaction. In connection
with this transaction, we recognized a loss on early extinguish-
ment of debt of $14 million related to unamortized debt issuance
costs and the associated fees and expenses.
33
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Income Tax Expense
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Income tax expense . . . . . . . . . . .
$ 22,438
$ 6,993
$ 15,445
220.9%
Our effective income tax rate was 10% in 2010 compared to
12% in 2009. The effective income tax rate of 10% for 2010 was
primarily attributable to a discrete, non-recurring income tax ben-
efit of approximately $20 million. The income tax benefit resulted
from a change in estimate associated with the remeasurement
of unrecognized tax benefit accruals and the determination that
certain tax positions had been effectively settled following the
finalization of tax reviews and audits for amounts that were
less than originally anticipated. This non-recurring income tax
benefit was partially offset by a lower proportion of our earnings
attributed to foreign subsidiaries than in 2009 which are taxed at
rates lower than the U.S. statutory rate.
Our strategic initiative to enhance our global supply chain
by optimizing lower-cost manufacturing capacity and to support
our commercial operations outside the United States resulted in
capital investments outside the United States in 2009 and 2010
that impacted our effective tax rate.
Net Income
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net income. . . . . . . . . . . . . . . . . .
$ 211,293
$ 51,283 $ 160,010
312.0%
Net income for 2010 was higher than 2009 primarily due to
higher operating profit of $133 million, lower other expenses of
$29 million and lower interest expense of $13 million, which was
partially offset by higher income tax expense of $15 million.
In addition, during 2010 we wrote off unamortized debt
issuance costs and incurred charges for funding fees associated
with the sales of certain trade accounts receivable to financial
institutions, which combined totaled $6 million. The write-off
related to unamortized debt issuance costs resulted from the
repayment of $57 million of principal under the 2009 Senior
Secured Credit Facility and from a reduction in borrowing capac-
ity available under the Accounts Receivable Securitization Facility
from $250 million to $150 million that we effected in recognition
of our lower trade accounts receivable balance resulting from the
sales of certain trade accounts receivable to a financial institution
outside the Accounts Receivable Securitization Facility.
During 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. As a result of the refinancing of our outstanding
borrowings under the 2006 Senior Secured Credit Facility and
repayment of the outstanding borrowings under our $450 million
second lien credit facility that we entered into in 2006 (the
“Second Lien Credit Facility”), we recognized a loss of $26 mil-
lion in 2009 related to termination of certain interest rate
hedging arrangements. In addition, in 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 and we incurred costs of $4 million to amend the 2006
Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility.
Interest Expense, Net
(dollars in thousands)
Years Ended
January 1,
2011
January 2,
2010
Higher
(Lower)
Interest expense, net . . . . . . . . . .
$ 150,236
$ 163,279 $ (13,043)
Percent
Change
(8.0)%
Interest expense, net was lower by $13 million in 2010
compared to 2009. The lower interest expense was primarily
attributable to lower outstanding debt balances that reduced
interest expense by $12 million. In addition, the refinancing
of our debt structure in December 2009, which included the
amendment and restatement of the 2006 Senior Secured Credit
Facility into the 2009 Senior Secured Credit Facility, the issuance
of the 8% Senior Notes and the settlement of certain outstand-
ing interest rate hedging instruments, and the refinancing of our
debt structure in November 2010, which included the sale of our
6.375% Senior Notes, combined with a lower London Interbank
Offered Rate, or “LIBOR,” and federal funds rate, caused a
net decrease in interest expense in 2010 compared to 2009 of
$1 million.
Our weighted average interest rate on our outstanding debt
was 5.91% during 2010 compared to 6.86% in 2009.
34
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Operating Results by Business Segment — Year
Ended January 1, 2011 (“2010”) Compared with Year
Ended January 2, 2010 (“2009”)
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . $ 2,012,922
1,259,935
Outerwear . . . . . . . . . . . . . . . . . .
166,780
Hosiery . . . . . . . . . . . . . . . . . . . . .
377,847
Direct to Consumer . . . . . . . . . . .
509,229
International. . . . . . . . . . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . . . . . .
$ 1,833,616 $ 179,306
208,200
(18,930)
8,108
71,425
(12,671)
1,051,735
185,710
369,739
437,804
12,671
9.8%
19.8
(10.2)
2.2
16.3
(100.0)
Total net sales. . . . . . . . . . . . . $ 4,326,713
$ 3,891,275 $ 435,438
11.2%
Segment operating profit (loss):
Innerwear . . . . . . . . . . . . . . . . . . . $ 263,368
77,656
Outerwear . . . . . . . . . . . . . . . . . .
53,583
Hosiery . . . . . . . . . . . . . . . . . . . . .
25,880
Direct to Consumer . . . . . . . . . . .
59,368
International. . . . . . . . . . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . . . . . .
$ 234,352 $ 29,016
24,606
(7,487)
(11,298)
14,680
2,164
53,050
61,070
37,178
44,688
(2,164)
12.4%
46.4
(12.3)
(30.4)
32.8
100.0
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
in cost of sales . . . . . . . . . . . .
Accelerated depreciation
included in cost of sales . . . . .
Accelerated depreciation
included in selling,
general and
administrative expenses. . . . .
479,855
428,174
51,681
12.1
(63,158)
(75,127)
(11,969)
(15.9)
(12,509)
—
(12,443)
(53,888)
66
(53,888)
0.5
(100.0)
—
—
(4,135)
(4,135)
(100.0)
(8,641)
(8,641)
(100.0)
—
(3,084)
(3,084)
(100.0)
Total operating profit. . . . . . . .
Other expenses . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . .
404,188
(20,221)
(150,236)
270,856
(49,301)
(163,279)
133,332
(29,080)
(13,043)
49.2
(59.0)
(8.0)
Income before income tax
expense . . . . . . . . . . . . . . . $ 233,731
$ 58,276 $ 175,455
301.1%
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 2010 is consistent with 2009. Our consolidated selling,
general and administrative expenses before segment allocations
were $70 million higher in 2010 compared to 2009.
Innerwear
(dollars in thousands)
Years Ended
January 1,
2011
January 2,
2010
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . . $ 2,012,922
263,368
Segment operating profit . . . . . . .
$ 1,833,616 $ 179,306
29,016
234,352
Percent
Change
9.8%
12.4
Overall net sales in the Innerwear segment were higher
by $179 million or 10% in 2010 compared to 2009, primarily
due to space and distribution gains, stronger sales at retail
and retailer inventory restocking. We have achieved space and
distributions gains by leveraging our scale and consumer insight.
Our strong brands across all distribution channels and our
innovation processes allow us to take advantage of long-term
consumer trends.
Net sales in our male underwear product category were
19% or $146 million higher in 2010 compared to 2009, which
reflect higher net sales in our Hanes brand of $135 million
primarily due to distribution gains related to a new customer in
the discount retail channel, space gains in the mass merchant
and department store channels and increased retail sell through.
Our male underwear product category continues to benefit
from the increased media support for our Hanes brand and from
our identification of key long-term megatrends such as comfort
and dyed and color products. We have developed innovations
to capitalize on these trends such as the Hanes Lay Flat Collar
T-shirts and Hanes Comfortsoft waist band briefs and boxers.
Intimate apparel net sales were $22 million higher in 2010
compared to 2009. Our bra category net sales were $13 million
higher in the average figure sizes driven primarily by space and
distribution gains. Our panties category net sales were higher
by $9 million primarily due to distribution gains related to a new
customer in the discount retail channel. From a brand perspec-
tive, our net sales were higher in our smaller brands (barely
there, Just My Size and Wonderbra) by $21 million, in our Hanes
brand by $8 million and in our Bali brand by $3 million, partially
offset by lower net sales in our Playtex brand of $6 million and
lower private label net sales of $4 million.
Higher net sales of $12 million in our socks product category
reflect higher Hanes brand net sales of $26 million, partially
offset by lower Champion brand net sales of $14 million in 2010
compared to 2009. The higher Hanes brand net sales were
primarily due to space gains in the mass merchant channel and
increased retail sell through and the lower Champion brand net
sales were primarily due to lower net sales in the wholesale
club channel.
Innerwear segment gross profit was higher by $45 million
in 2010 compared to 2009. The higher gross profit was primarily
due to higher sales volume of $101 million, savings from our
prior restructuring actions of $21 million, vendor price reductions
of $15 million and higher product pricing of $3 million before
increased sales incentives. These lower costs were partially
offset by higher sales incentives of $43 million due to higher
sales volumes and investments made with retailers, unfavor-
able product sales mix of $22 million, higher cotton costs of
$13 million, higher production costs of $11 million and higher
other manufacturing costs of $5 million. The higher production
costs were due to incremental costs to service higher demand,
partially offset by lower energy and oil-related costs.
As a percent of segment net sales, gross profit in the Inner-
wear segment was 31.6% in 2010 compared to 32.3% in 2009.
35
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Innerwear segment operating profit was higher in 2010
compared to 2009 primarily as a result of higher gross profit and
savings of $2 million from prior restructuring actions primarily
for compensation and related benefits, partially offset by higher
media related MAP expenses of $7 million, higher distribution
expenses of $7 million and higher non-media related MAP
expenses of $4 million.
Outerwear
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . . $ 1,259,935
77,656
Segment operating profit . . . . . . .
$ 1,051,735 $ 208,200
24,606
53,050
19.8%
46.4
Outerwear segment net sales, which benefited from space
and distribution gains and stronger sales at retail, were higher by
$208 million or 20% in 2010 compared to 2009. Our casualwear
category net sales were higher in both the wholesale and retail
channels by $64 million and $59 million, respectively. The higher
net sales in the wholesale casualwear channel of 22% were
primarily due to stronger sales at retail and replenishment timing
of inventory levels by third-party embellishers and wholesalers.
The higher net sales in the retail casualwear channel of 21%
reflect space gains primarily from an exclusive long-term agree-
ment entered into with Wal-Mart in April 2009 that significantly
expanded the presence of our Just My Size brand. This integrat-
ed program with Wal-Mart develops, sources, and merchandises
a line of women’s clothing designed to meet the needs of plus
size women.
Our Champion brand activewear net sales, which continue
to be positively impacted by our marketing investment in the
brand, were higher by $49 million or 10% due to stronger sales
at retail and space gains in the sporting goods channel. Our
Champion brand has achieved consistent growth by focusing on
the fast growing active demographic with a unique moderate
price positioning.
The acquisition of Gear for Sports in early November 2010
added an incremental $36 million of net sales for the year. The
Gear for Sports business includes sales of licensed logo apparel
in collegiate bookstores and other channels.
Outerwear segment gross profit was higher by $48 million
in 2010 compared to 2009. The higher gross profit was primarily
due to higher sales volume of $70 million, lower sales incentives
of $15 million, savings of $7 million from our cost reduction
initiatives and prior restructuring actions, lower production costs
of $5 million related to lower energy and oil-related costs, vendor
price reductions of $5 million, lower other manufacturing costs
of $3 million and lower on-going excess and obsolete inventory
costs of $2 million. These lower costs were partially offset by
lower product pricing of $22 million primarily in the first half of
2010, higher cotton costs of $20 million and unfavorable product
sales mix of $15 million.
As a percent of segment net sales, gross profit in the
Outerwear segment was 22.1% in 2010 compared to 21.9%
in 2009, increasing as a result of the items described above.
Outerwear segment operating profit was higher in 2010
compared to 2009 primarily as a result of higher gross profit and
lower media related MAP expenses of $3 million, partially offset
by higher distribution expenses of $15 million, higher selling and
other marketing expenses of $7 million and higher non-media
related MAP expenses of $4 million.
Hosiery
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 166,780
53,583
$ 185,710 $ (18,930)
(7,487)
61,070
(10.2)%
(12.3)
Net sales in the Hosiery segment declined by $19 million or
10%, which was primarily due to lower net 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 hosiery
category has been in a state of consistent decline for the past
decade, as the trend toward casual dress reduced demand for
sheer hosiery. Generally, we manage the Hosiery segment for
cash, placing an emphasis on reducing our cost structure and
managing cash efficiently.
Hosiery segment gross profit was lower by $9 million in 2010
compared to 2009. The lower gross profit for 2010 compared to
2009 was primarily the result of lower sales volume of $11 mil-
lion and higher on-going excess and obsolete inventory costs of
$2 million, partially offset by lower production costs of $2 million
and vendor price reductions of $1 million.
As a percent of segment net sales, gross profit in the
Hosiery segment was 50.2% in 2010 compared to 49.8%
in 2009.
Hosiery segment operating profit was lower in 2010 com-
pared to 2009 primarily as a result of lower gross profit and
higher media related MAP expenses of $2 million, partially offset
by lower distribution expenses of $2 million.
Direct to Consumer
(dollars in thousands)
Years Ended
January 1,
2011
January 2,
2010
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 377,847
25,880
$ 369,739
37,178
$ 8,108
(11,298)
Percent
Change
2.2%
(30.4)
Direct to Consumer segment net sales were $8 million or
2% higher in 2010 compared to 2009 primarily due to higher net
sales in our outlet stores attributable to new stores opened after
2009 and higher net sales related to our Internet operations.
Comparable store sales in 2010 were flat compared to 2009.
Direct to Consumer segment gross profit was slightly higher
in 2010 compared to 2009. The higher gross profit was primarily
due to higher sales volume of $4 million and higher product
pricing of $2 million which was offset by higher other product
costs of $5 million.
As a percent of segment net sales, gross profit in the Direct
to Consumer segment was 61.1% in 2010 compared to 62.4%
in 2009.
36
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Direct to Consumer segment operating profit was lower in
2010 compared to 2009 primarily as a result of higher expenses
of $7 million as a result of opening new retail stores or expand-
ing existing stores and higher non-media related MAP expenses
of $3 million.
International
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 509,229
59,368
$ 437,804
44,688
$ 71,425
14,680
16.3%
32.8
Overall net sales in the International segment were higher
by $71 million or 16% in 2010 compared to 2009, primarily as a
result of stronger net sales in Canada, Europe, Mexico, Brazil,
China, India and Argentina, which reflects space and distribu-
tion gains and stronger sales at retail, and a favorable impact of
$22 million related to foreign currency exchange rates, partially
offset by lower sales in Japan.
Excluding the impact of foreign exchange rates on currency,
International segment net sales increased by 11% in 2010
compared to 2009. The favorable impact of foreign currency
exchange rates in our International segment was primarily due
to the strengthening of the Canadian dollar, Japanese yen,
Brazilian real, and Mexican peso compared to the U.S. dollar,
partially offset by the strengthening of the U.S. dollar compared
to the Euro.
During 2010, we experienced higher net sales, in each
case excluding the impact of foreign currency exchange rates,
in our activewear, intimate apparel and male underwear busi-
nesses in Canada of $11 million, in our casualwear business in
Europe of $11 million, in our intimate apparel business in Mexico
of $7 million, in our male underwear and hosiery businesses in
Brazil of $7 million, in our thermals and male underwear busi-
nesses in China of $5 million, in our male underwear business in
India of $3 million, in our intimate apparel business in Argentina
of $3 million and higher net sales of $6 million in all other
regions, partially offset by lower net sales in our activewear
and male underwear businesses in Japan of $4 million. Our
innerwear businesses in Canada and Mexico have continued to
produce strong sales growth as we hold leading positions with
strong market shares in intimate apparel and male underwear
product categories. In certain international markets we are
focusing on adopting global designs for some product categories
to quickly launch new styles to expand our market position. The
higher net sales reflect our successful efforts to improve our
strong positions.
International segment gross profit was higher by $37 million
in 2010 compared to 2009. The higher gross profit was primarily
a result of higher sales volume of $22 million, a favorable impact
related to foreign currency exchange rates of $10 million, vendor
price reductions of $6 million and higher product pricing of
$5 million, partially offset by higher sales incentives of $6 million.
As a percent of segment net sales, gross profit in the
International segment was 38.8% in 2010 compared to 36.7%
in 2009, increasing as a result of the items described above.
International segment operating profit was higher in 2010
compared to 2009 primarily as a result of the higher gross profit,
partially offset by higher selling and other marketing expenses of
$9 million, higher distribution expenses of $7 million, higher non-
media related MAP expenses of $3 million and higher consulting
expenses of $2 million.
The changes in foreign currency exchange rates, which are
included in the impact on gross profit above, had a favorable
impact on operating profit of $3 million in 2010 compared
to 2009.
Other
Years Ended
(dollars in thousands)
January 1,
2011
January 2,
2010
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit (loss) . .
$ —
—
$ 12,671 $ (12,671)
2,164
(2,164)
(100.0)%
100.0
Sales in our Other segment primarily consisted of sales of
yarn to third parties, which were intended to maintain asset
utilization at certain manufacturing facilities and generate approxi-
mate break even margins. In October 2009, we completed the
sale of our yarn operations as a result of which we ceased mak-
ing 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 no longer have net sales in our Other segment.
General Corporate Expenses
General corporate expenses were $12 million lower in 2010
compared to 2009 primarily due to lower start-up and shut-down
costs of $16 million associated with the consolidation and global-
ization of our supply chain, lower pension expense of $7 million
and lower stock compensation and certain other benefits of
$5 million, partially offset by lower gains on sales of assets of
$12 million and higher other expenses of $4 million.
37
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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 the 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.
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 the 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 steadily improved
over three consecutive quarters ending with the fourth quarter
of 2009. 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 experienced 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.
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
$ 4,248,770 $ (357,495)
Cost of sales. . . . . . . . . . . . . . . . .
2,626,001
2,871,420
(245,419)
1,265,274
1,377,350
(112,076)
Percent
Change
(8.4)%
(8.5)
(8.1)
Gross profit . . . . . . . . . . . . . . .
Selling, general and
administrative expenses. . . . .
Restructuring . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . .
Other expense (income) . . . . . . . .
Interest expense, net . . . . . . . . . .
Income before income tax
expense . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . .
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 the 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.
38
H AN E SBRANDS INC.
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)
2 010 AN N UAL RE P ORT ON FORM 10- K
We incurred lower one-time restructuring related write-offs 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.
Percent
Change
(8.1)%
Our gross profit was lower by $112 million in 2009 compared
Selling, General and Administrative Expenses
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-school and holiday programs and promotions, in this
recessionary environment to support retailers and position
ourselves for future sales opportunities. We also made signifi-
cant 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 reduc-
tions at our manufacturing 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 manufacturers 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 com-
pared 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.
(dollars in thousands)
Selling, general and
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
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 MAP expenses of
$2 million. The lower distribution 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 was
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 of 2006 (the “Omnibus Incentive Plan”)
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.
39
H AN E SBRANDS INC.
Restructuring
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Restructuring . . . . . . . . . . . . . . . .
$ 53,888
$ 50,263
$ 3,625
Percent
Change
7.2%
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 approximately
175 positions. We also entered into a yarn purchase agreement
with Parkdale 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 sub-
stantial 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
resulted 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 was
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 mil-
lion and $19 million, respectively, of stranded raw materials and
work in process inventory related to the closure of manufactur-
ing 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 in
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.
40
2 010 AN N UAL RE P ORT ON FORM 10- K
These actions were a continuation of our consolidation and
globalization strategy, and 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 associ-
ated with plant closures approved during that period.
Operating Profit
Years Ended
(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)
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Other expense (income) . . . . . . .
$ 49,301
$ (634)
$ 49,935
Percent
Change
NM
In December 2009, we completed the sale of our 8% Senior
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 bor-
rowings 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.
In connection with these transactions in December 2009,
we recognized a loss on early extinguishment of debt of $17 mil-
lion 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.
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
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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.
Operating Results by Business Segment — Year
Ended January 2, 2010 (“2009”) Compared with Year
Ended January 3, 2009 (“2008”)
Interest Expense, Net
Years Ended
(dollars in thousands)
Years Ended
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)
(31,681)
(424)
(58,366)
(9,053)
1,196,155
217,391
370,163
496,170
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 . . . . . . . . . . . . . . . . . . . . . .
Total segment
$ 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
operating profit . . . . . . . . .
428,174
467,483
(39,309)
(8.4)
Items not included in
segment operating profit:
General corporate expenses . . . .
Amortization of trademarks and
other intangibles. . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Inventory write-off included in
(75,127)
(45,177)
29,950
66.3
(12,443)
(53,888)
(12,019)
(50,263)
424
3,625
3.5
7.2
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)%
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.
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Interest expense, net . . . . . . . . . .
$ 163,279
$ 155,077
$ 8,202
Percent
Change
5.3%
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 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.
Income Tax Expense
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 was 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 strategic initiative to enhance
our global supply chain by optimizing lower-cost manufacturing
capacity and to support our commercial operations outside the
United States resulted in capital investments outside the United
States in 2009 that impacted our effective tax rate.
Net Income
Years Ended
(dollars in thousands)
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.
41
H AN E SBRANDS INC.
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
2 010 AN N UAL RE P ORT ON FORM 10- K
Outerwear
Years Ended
Percent
Change
(5.8)%
4.9
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . . $ 1,051,735
53,050
Segment operating profit . . . . . . .
$ 1,196,155 $ (144,420)
(13,099)
66,149
(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 by our customers in this channel and highly
price competitive especially in the recessionary environment.
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 active-
wear 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 mil-
lion 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.
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 consum-
er spending during the year. These declines were partially offset
by an increase of $5 million in our Bali brand intimate apparel net
sales in 2009 compared to 2008.
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, unfavorable
product sales mix of $21 million, lower duty refunds of $17 mil-
lion, 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 recognition 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 mil-
lion 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 Inner-
wear 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 mil-
lion, which partially offset lower gross profit.
42
H AN E SBRANDS INC.
Hosiery
2 010 AN N UAL RE P ORT ON FORM 10- K
International
Years Ended
Years Ended
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
(dollars in thousands)
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 . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 437,804
44,688
$ 496,170 $ (58,366)
(19,661)
64,349
(11.8)%
(30.6)
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 improved over three consecutive quarters ending with
the fourth quarter of 2009. 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 com-
pared to 2008 was the result of lower sales volume of $23 mil-
lion 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 com-
pared 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.
Direct to Consumer
Years Ended
(dollars in thousands)
January 2,
2010
January 3,
2009
Higher
(Lower)
Percent
Change
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit . . . . . . .
$ 369,739
37,178
$ 370,163
44,541
$ (424)
(7,363)
(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.
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.
Overall net sales in the International segment were lower by
$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 experienced 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.
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.
43
H AN E SBRANDS INC.
Other
(dollars in thousands)
Years Ended
January 2,
2010
January 3,
2009
Higher
(Lower)
Net sales . . . . . . . . . . . . . . . . . . .
Segment operating profit (loss) . .
$ 12,671
(2,164)
$ 21,724
328
$ (9,053)
(2,492)
2 010 AN N UAL RE P ORT ON FORM 10- K
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 1, 2011 at a cost of $75 million), although we may
choose not to repurchase any stock and instead focus on
other uses of cash such as the repayment of our debt.
Percent
Change
(41.7)%
NM
We expect to be able to manage our working capital levels
and capital expenditure amounts to maintain sufficient levels of
liquidity. Factors that could help us in these efforts include higher
sales volume and the realization of additional cost benefits from
previous restructuring and related actions. We have restructured
our supply chain over the past four years to create more efficient
production clusters that utilize fewer, larger facilities and to
balance production capability between the Western Hemisphere
and Asia. As a result of sales growth in 2010 and the expectation
of continued sales growth in 2011, we have secured additional
capacity with outside contractors to support sales growth.
Our working capital increased during 2010, primarily in
the form of inventory, to support our higher sales growth. The
inventory increase is the result of both higher input costs and
higher unit growth, including unit growth resulting from the Gear
for Sports acquisition. Given cost inflation and higher product
pricing, we expect higher working capital in 2011, in particular
higher accounts receivable and inventories somewhat offset
by increased inventory turns. With our global supply chain
infrastructure in place, we are focused long-term on optimizing
our supply chain to further enhance efficiency, improve working
capital and asset turns and reduce costs through several initia-
tives, such as supplier-managed inventory for raw materials and
sourced goods ownership arrangements.
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects
on our business. During 2010, while there was a modest
rebound in consumer spending, we also experienced substantial
pressure on profitability due to the economic climate, such as
higher cotton, energy and labor costs. Rising demand for cotton
resulting from the economic recovery, weather-related supply
disruptions, significant declines in U.S. inventory and a sharp
rise in the futures market for cotton have caused cotton prices
to surge upward during 2010. Because of systemic cost inflation,
particularly for cotton, energy and labor, we expect to take price
increases throughout 2011 as warranted by cost inflation, includ-
ing multiple increases already put in place through late summer.
The timing and frequency of price increases will vary by product
category, channel of trade, and country, with some increases
as frequently as quarterly. The magnitude of price increases
also will vary by product category. Demand elasticity effects,
which could be significant for higher double-digit price increases
implemented later in the year, should be manageable and will
have a muted impact in 2011.
Sales in our Other segment primarily consisted of sales
of yarn to third parties intended to maintain asset utilization at
certain manufacturing facilities and generate approximate break
even margins. 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 no longer have net sales in our Other segment.
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.
Liquidity and Capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by opera-
tions and availability under our Revolving Loan Facility, Accounts
Receivable Securitization Facility and international loan facilities.
At January 1, 2011, we had $588 million of borrowing availability
under our $600 million Revolving Loan Facility (after taking into
account outstanding letters of credit), $49 million of borrowing
availability under our Accounts Receivable Securitization Facility,
$44 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 gener-
ated by operations, together with our available credit capacity,
will enable us to comply with the terms of our indebtedness
and meet foreseeable liquidity requirements.
The following have impacted or are expected to
impact liquidity:
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 and optimize 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
44
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
The hosiery category has been in a state of consistent
decline for the past decade, as the trend toward casual dress
reduced demand for sheer hosiery. The Hosiery segment com-
prised only 4% of our net sales in 2010, however, and as a result,
the decline in the Hosiery segment has not had a significant
impact on our net sales or cash flows. Generally, we manage the
Hosiery segment for cash, placing an emphasis on reducing our
cost structure and managing cash efficiently.
Cash Requirements for Our Business
We rely on our cash flows generated from operations
and the borrowing capacity under our Revolving Loan Facility,
Accounts Receivable Securitization Facility and international
loan facilities to meet the cash requirements of our business.
The primary cash requirements of our business are payments to
vendors in the normal course of business, capital expenditures,
maturities of debt and related interest payments, contributions
to our pension plans and repurchases of our stock. We believe
we have sufficient cash and available borrowings for our liquidity
needs. In November 2010, we completed a $1.0 billion senior
notes offering and debt refinancing that strengthened and added
flexibility to our capital structure by fixing a significant percent-
age of our debt at favorable interest rates at longer maturities.
Our working capital was higher in 2010 compared to 2009,
primarily in the form of inventory, to support our higher sales
growth. Year-end 2010 inventory was $274 million higher than
year-end 2009 due to unit growth and after giving effect to the
Gear for Sports acquisition. In addition, our inventory was higher
due to rising input costs such as cotton and oil-related materials
and the Asia supply chain transition and production ramp-up.
In 2011 we expect working capital to be higher than 2010 to
support the continued double-digit sales growth, price increases
and cost inflation.
Capital spending has varied significantly from year to year
as we executed our supply chain consolidation and globalization
strategy and the integration and consolidation of our technology
systems. We spent $106 million on gross capital expenditures
during 2010, which were offset by cash proceeds of $46 million
from sales of exited supply chain facilities and sale-leaseback
transactions. We expect to continue to invest in our infrastruc-
ture during 2011 with net capital expenditures approximating
$100 million.
During 2009 and 2010, we entered into agreements to sell
selected trade accounts receivable to financial institutions on a
nonrecourse basis. After the sale, we do not retain any interests
in the receivables nor are we involved in the servicing or collec-
tion of these receivables.
Pension Plans
Our U.S. qualified pension plan is approximately 74% funded
as of January 1, 2011 compared to 80% funded as of January
2, 2010. 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 perfor-
mance during 2010. Because we have elected not to make a
voluntary cash contribution in 2011 sufficient to achieve a funded
status of 80%, beginning April 1, 2011 we are required under
the Pension Protection Act to implement restrictions on certain
accelerated forms of benefit payments for future retirees.
We performed a thorough review of the impact of making a
voluntary cash contribution to the plan in order to maintain a
funded level of 80%. Based on our review, and given that these
restrictions are expected to impact only a limited number of plan
participants, will not impact the total benefits received by plan
participants and will not have a material impact on our future
cash flows, we determined not to make such a contribution
to the plan. We expect to make required cash contributions of
$7 million to $9 million to the U.S. qualified pension plan in 2011
based on a preliminary calculation by our actuary. We expect
pension expense in 2011 of approximately $11 million compared
to $15 million in 2010. See Note 15 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 Retire-
ment 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 agreed to contribute $14 million to the plan,
$7 million of which we contributed in each of September 2009
and September 2010.
In June 2010, the U.S. Congress passed legislation that
provides for pension funding relief for companies with defined
benefit pension plans by allowing those companies to choose
between two alternative funding schedules: amortizing funding
shortfalls over 15 years for any two plan years between 2008
and 2011, or paying interest on a funding shortfall for only two
plan years of the employer’s choosing after which a seven-year
amortization would apply. We expect either funding relief option
could benefit us with improved cash flow starting in 2011 due to
expected lower pension contributions; however neither option
will improve total cash flow. We are working with our actuaries
to quantify the magnitude of the short-term impact on us.
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. While we may
repurchase additional stock under the program, we may choose
not to repurchase any stock and focus more on other uses of
cash in the next twelve months.
45
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Off-Balance Sheet Arrangements
Operating Activities
We do not have any off-balance sheet arrangements within
Net cash provided by operating activities was $133 million
the meaning of Item 303(a)(4) of SEC Regulation S-K.
Future Contractual Obligations and Commitments
The following table contains information on our contractual
obligations and commitments as of January 1, 2011, and their
expected timing on future cash flows and liquidity.
(in thousands)
At January 1,
2011
Less Than
1 Year
1 - 3 Years
3 - 5 Years
Thereafter
Payments Due by Period
Operating activities:
Inventory purchase
obligations . . . . . . . . . . $ 466,642
$ 466,642
$
—
$
— $
—
Marketing and
advertising
obligations . . . . . . . . . .
Uncertain tax
26,427
18,624
3,783
3,269
751
positions . . . . . . . . . . . .
34,424
587
14,809
7,009
12,019
Deferred
compensation . . . . . . . .
Interest on debt
obligations (1). . . . . . . .
Operating lease
12,273
1,939
5,477
2,338
2,519
953,024
122,898
245,074
226,302
358,750
obligations . . . . . . . . . .
268,898
52,220
78,041
56,699
81,938
Defined benefit
plan minimum
contributions. . . . . . . . .
Severance and other
8,000
8,000
restructuring payments . .
6,042
6,036
Other long-term
—
6
—
—
—
—
obligations (2). . . . . . . .
92,050
10,109
30,678
29,463
21,800
Investing activities:
Capital expenditures . . . .
Financing activities:
Debt . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . .
3,895
3,895
2,080,735
50,678
90,000
50,678
—
—
—
490,735
—
1,500,000
—
Total
. . . . . . . . . . . . . . . . . . $ 4,003,088
$ 831,628
$ 377,868
$ 815,815 $ 1,977,777
(1) Interest obligations on floating rate debt instruments are calculated for future periods using
interest rates in effect at January 1, 2011.
(2) 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.
Sources and Uses of Our Cash
The information presented below regarding the sources and
uses of our cash flows for the years ended January 1, 2011 and
January 2, 2010 was derived from our financial statements.
Years Ended
(dollars in thousands)
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign currency
January 1,
2011
$ 133,054
(283,995)
155,685
exchange rates on cash . . . . . . . . . . . . . . . . . . . . .
(16)
Increase (decrease) in cash and cash equivalents . . .
Cash and cash equivalents at beginning of year. . . . .
4,728
38,943
January 2,
2010
$ 414,504
(88,844)
(354,174)
115
(28,399)
67,342
Cash and cash equivalents at end of year. . . . . . . . . .
$ 43,671
$ 38,943
46
in 2010 compared to $415 million in 2009. The lower cash
from operating activities of $282 million for 2010 compared
to 2009 is primarily attributable to higher uses of our working
capital of $441 million, partially offset by higher net income of
$160 million.
Net inventory increased $274 million from January 2, 2010
resulting from both higher input costs and higher unit growth,
including unit growth resulting from the Gear for Sports acquisi-
tion. In addition, our inventory was higher due to rising input
costs such as cotton and oil-related materials and the Asia supply
chain transition and production ramp-up. We will carry additional
inventory into 2011 to support continuing sales momentum and
will secure additional production capacity with outside contrac-
tors as needed.
Accounts receivable was $53 million higher compared to
January 2, 2010 primarily due to higher sales volumes and the
acquisition of Gear for Sports, partially offset by the sale of
selected trade accounts receivable to financial institutions and
timing of collections.
With our global supply chain infrastructure in place, we are
focused long-term on optimizing our supply chain to further
enhance efficiency, improve working capital and asset turns
and reduce costs through several initiatives, such as supplier-
managed inventory for raw materials and sourced goods owner-
ship arrangements. 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.
Net cash used in investing activities was $284 million in
2010 compared to $89 million in 2009. The higher net cash
used in investing activities of $195 million for 2010 compared
to 2009 was primarily the result of the net cash used for the
acquisition of Gear for Sports in November 2010 of $223 million,
partially offset by lower gross capital expenditures of $21 million
and higher proceeds from sales of assets of $8 million. During
2010, proceeds from sales of assets were $46 million, primarily
resulting from sale-leaseback transactions involving four distribu-
tion centers.
Financing Activities
Net cash provided by financing activities was $156 million
in 2010 compared to net cash used in financing activities of
$354 million in 2009. The higher net cash from financing activi-
ties of $510 million in 2010 compared to 2009 was primarily the
result of higher net borrowings of $443 million under the senior
secured credit facilities and senior notes. The higher net borrow-
ings reflect the acquisition of Gear for Sports in November 2010.
In addition, we had higher net borrowings of $133 million on the
Accounts Receivable Securitization Facility and lower debt fees
associated with the issuance of our 6.375% Senior Notes of
$51 million.
We had higher net repayments on the Revolving Loan
Facility of $103 million and higher net repayments on notes
payable of $21 million in 2010. In addition, the higher net cash
from financing activities was due to higher proceeds from stock
options exercised of $5 million in 2010.
—
—
Investing Activities
H AN E SBRANDS INC.
Cash and Cash Equivalents
As of January 1, 2011 and January 2, 2010, cash and cash
equivalents were $44 million and $39 million, respectively. The
higher cash and cash equivalents as of January 1, 2011 was
primarily the result of net cash provided by financing activities
of $156 million and net cash provided by operating activities of
$133 million, offset by net cash used in investing activities of
$284 million.
Financing Arrangements
We believe our financing structure provides a secure base
to support our ongoing operations and key business strategies.
In November 2010, we completed the sale of $1 billion in
aggregate principal amount of the 6.375% Senior Notes. We
used the net proceeds from the offering of the 6.375% Senior
Notes to repay all outstanding borrowings under the Term Loan
Facility and to reduce the outstanding borrowings under the
Revolving Loan Facility. In December 2009, we completed a
growth-focused debt refinancing that enables us to simultane-
ously 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 refi-
nance 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-.
Moody’s rating outlook for us is “stable” and its rating of
the Floating Rate Senior Notes and 8% Senior Notes is B1.
In November 2010, Moody’s assigned a rating of B1 on the
6.375% Senior Notes and changed the rating of the 2009 Senior
Secured Credit Facility to Baa3. In November 2010, Standard &
Poor’s changed our current outlook to “stable” from “negative,”
changed the rating of the Floating Rate Senior Notes and the 8%
Senior Notes to BB- and assigned a rating of BB- to the 6.375%
Senior Notes.
After considering the Revolving Credit Facility’s new
investment grade rating, we launched an amendment process
in February 2011 that is intended to provide greater flexibility in
managing our debt capital structure and greater flexibility under
our financial covenants. The amendment would also extend the
maturity and lower the interest rate for those lenders agreeing
to it.
As of January 1, 2011, we were in compliance with all finan-
cial covenants under our credit facilities. The maximum leverage
ratio permitted under the 2009 Senior Secured Credit Facility
and the Accounts Receivable Securitization Facility was 4.00
to 1 for the quarter ended January 1, 2011 and declines to
3.75 to 1 beginning with the second fiscal quarter of 2011.
2 010 AN N UAL RE P ORT ON FORM 10- K
We continue to monitor our covenant compliance carefully in
this difficult economic environment. We expect to maintain
compliance with our covenants during 2011, however economic
conditions or the occurrence of events discussed above under
“Risk Factors” could cause noncompliance.
2009 Senior Secured Credit Facility
The 2009 Senior Secured Credit Facility initially provided
for aggregate borrowings of $1.15 billion, consisting of the
$750 million Term Loan Facility and the $400 million Revolving
Loan Facility. 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 are used for general
corporate purposes and working capital needs.
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 swing-
line 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.
In order to support our working capital needs and fund the acqui-
sition of Gear for Sports, in September 2010, we increased the
commitments under the Revolving Loan Facility from $400 mil-
lion to $600 million. In November 2010, we used proceeds from
the issuance of the 6.375% Senior Notes to repay all outstand-
ing borrowings under the Term Loan Facility and to reduce the
outstanding borrowings under the Revolving Loan Facility. As
of January 1, 2011, we had $0 outstanding under the Revolving
Loan Facility, $12 million of standby and trade letters of credit
issued and outstanding under this facility and $588 million of
borrowing availability. At January 1, 2011, the interest rate on the
Revolving Loan Facility was 6.75%.
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 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 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 guaran-
tor, except for certain enumerated interests, and all proceeds
and products of such property and assets.
47
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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.
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 ad-
ministrative agent, and (ii) 2.00%, plus the applicable margin in
effect from time to time. The applicable margin is determined by
reference to a leverage-based pricing grid set forth in the 2009
Senior Secured Credit Facility. The applicable margin ranges
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 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 speci-
fied 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 increases 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 declines 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 contains custom-
ary events of default, including nonpayment of principal when
due; nonpayment of interest, fees or other amounts after
stated grace period; material inaccuracy of representations and
warranties; violations of covenants; certain bankruptcies and
48
liquidations; any cross-default to material indebtedness; certain
material judgments; certain events related to 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).
6.375% Senior Notes
On November 9, 2010, we issued $1 billion aggregate prin-
cipal amount of the 6.375% Senior Notes. The 6.375% Senior
Notes are senior unsecured obligations that rank equal in right
of payment with all of our existing and future unsubordinated
indebtedness. The 6.375% Senior Notes bear interest at an
annual rate equal to 6.375%. Interest is payable on the 6.375%
Senior Notes on June 15 and December 15 of each year. The
6.375% Senior Notes will mature on December 15, 2020. The
net proceeds from the sale of the 6.375% Senior Notes were
approximately $979 million. As noted above, these proceeds
were used to repay all outstanding borrowings under the Term
Loan Facility and reduce the outstanding borrowings under the
Revolving Loan Facility and to pay fees and expenses relating to
these transactions. The 6.375% Senior Notes are guaranteed by
substantially all of our domestic subsidiaries.
We may redeem some or all of the notes prior to
December 15, 2015 at a redemption price equal to 100% of
the principal amount of 6.375% Senior Notes redeemed plus an
applicable premium. We may redeem some or all of the 6.375%
Senior Notes at any time on or after December 15, 2015 at a
redemption price equal to the principal amount of the 6.375%
Senior Notes plus a premium of 3.188% if redeemed during the
12-month period commencing on December 15, 2015, 2.125%
if redeemed during the 12-month period commencing on
December 15, 2016, 1.062% if redeemed during the 12-month
period commencing on December 15, 2017 and no premium if
redeemed after December 15, 2018, as well as any accrued and
unpaid interest as of the redemption date. In addition, at any
time prior to December 15, 2013, we may redeem up to 35% of
the aggregate principal amount of the 6.375% Senior Notes at
a redemption price of 106.375% of the principal amount of the
6.375% Senior Notes redeemed with the net cash proceeds of
certain equity offerings.
The indenture governing the 6.375% 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.
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 pay-
ment with all of our existing and future unsubordinated indebted-
ness. 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 15, 2016. The net proceeds from the sale of the
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
8% Senior Notes were approximately $480 million. As noted
above, these proceeds, together with the proceeds from borrow-
ings 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 transac-
tions. The 8% Senior Notes are guaranteed by substantially all of
our domestic subsidiaries.
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.
We may redeem some or all of the notes prior to
We repurchased $3 million of the Floating Rate Senior Notes
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
8% Senior Notes at a redemption price of 108% of the principal
amount of the 8% Senior 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
unsubordinated 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 redemp-
tion price equal to the principal amount of the Floating Rate
Senior Notes plus a premium of 2% if redeemed during the
12-month period commencing on December 15, 2008, 1%
if 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.
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.
Accounts Receivable Securitization
On November 27, 2007, we entered into the Accounts
Receivable Securitization Facility, which we subsequently
amended several times. The description of the Accounts Receiv-
able Securitization Facility below gives effect to all amendments
to date. The Accounts Receivable Securitization Facility initially
provided for up to $250 million in funding accounted for as a
secured borrowing, limited to the availability of eligible receiv-
ables, and is secured by certain domestic trade receivables.
Effective February 2010, we elected to reduce the amount of
funding available under the Accounts Receivable Securitization
Facility from $250 million to $150 million. Under the terms of
the Accounts Receivable Securitization Facility, we and certain
of our subsidiaries sell, 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 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 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 us maintaining sufficient
eligible receivables, by continuing to sell trade receivables to
Receivables LLC, unless an event of default occurs. Unless the
term is extended, the Accounts Receivable Securitization Facility
will terminate on March 31, 2011.
Availability of funding under the Accounts Receivable Secu-
ritization Facility depends primarily upon the eligible outstanding
receivables balance. As of January 1, 2011, we had $90 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 con-
duits 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 HSBC Bank USA, N.A. as its prime rate or at the
49
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
LIBO Rate (as defined in the Accounts Receivable Securitization
Facility) plus the applicable margin in effect from time to time. In
addition, Receivables LLC is required to 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. The average blended interest rate for the out-
standing balance as of January 1, 2011 was 2.81%.
The Accounts Receivable Securitization Facility contains cus-
tomary events of default and requires us to maintain the same
interest coverage ratio and leverage ratio contained from time to
time in the 2009 Senior Secured Credit Facility, provided that any
changes to such covenants will only be applicable for purposes
of the Accounts Receivable Securitization Facility if approved by
the Managing Agents or their affiliates. As of January 1, 2011,
we were in compliance with all financial covenants.
Notes Payable
Notes payable were $51 million at January 1, 2011 and
$67 million at January 2, 2010.
We have a short-term revolving facility arrangement with a
Salvadoran branch of a Canadian bank amounting to $30 million
of which $29.7 million was outstanding at January 1, 2011 which
accrues interest at 4.20%.
We have a short-term revolving facility arrangement with a
Chinese branch of a U.S. bank amounting to RMB 155 million
($23.5 million) of which $12.9 million was outstanding at
January 1, 2011 which accrues interest at 7.65%. 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 50%.
We have a short-term revolving facility arrangement with a
Vietnamese branch of a U.S. bank amounting to $14 million of
which $3.4 million was outstanding at January 1, 2011 which
accrues interest at 5.05%.
We have a short-term revolving facility arrangement with a
Japanese branch of a U.S. bank amounting to JPY 800 million
($9.8 million) of which $2.5 million was outstanding at January 1,
2011 which accrues interest at 4.61%.
We have a short-term revolving facility arrangement with
an Indian branch of a U.S. bank amounting to INR 100 million
($2.2 million) of which $1.8 million was outstanding at January 1,
2011 which accrues interest at 12.80%.
We have a short-term revolving facility arrangement with a
Brazilian bank amounting to BRL 2 million ($1.2 million) of which
$0.4 million was outstanding at January 1, 2011 which accrues
interest at 13.56%.
In addition, we have short-term revolving credit facilities
in various other locations that can be drawn on from time to
time amounting to $4.6 million of which $0 was outstanding at
January 1, 2011.
We were in compliance with the financial covenants
contained in each of these facilities at January 1, 2011.
Derivatives
Our debt under the Revolving Loan Facility, Floating Rate
Senior Notes and Accounts Receivable Securitization Facility
bears 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 were 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%. In addition, in November 2010, we completed a $1.0 bil-
lion senior notes offering and debt refinancing that strengthened
and added flexibility to our capital structure by fixing a significant
percentage of our debt at favorable interest rates at longer
maturities. As a result, approximately 96% of our total debt
outstanding at January 1, 2011 is now at a fixed or capped rate.
After giving effect to these arrangements, a 25-basis point move-
ment in the annual interest rate charged on the outstanding debt
balances as of January 1, 2011 would result in a change in annual
interest expense of $2 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.
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.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating results
and financial condition in conformity with accounting principles
generally accepted in the United States. We apply these
accounting policies in a consistent manner. Our significant
accounting policies are discussed in Note 2, titled “Summary of
Significant Accounting Policies,” to our financial statements.
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
operations in the period in which the actual amounts become
known. The critical accounting policies that involve the most
significant management judgments and estimates used in
preparation of our financial statements, or are the most sensitive
to change from outside factors, are described below.
50
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Sales Recognition and Incentives
We recognize revenue when (i) there is persuasive evidence
of an arrangement, (ii) the sales price is fixed or determinable,
(iii) title and the risks of ownership have been transferred to
the customer and (iv) collection of the receivable is reasonably
assured, which occurs primarily upon shipment. We record
provisions for any uncollectible amounts based upon our histori-
cal collection statistics and current customer information. Our
management reviews these estimates each quarter and makes
adjustments based upon actual experience.
Note 2(d), titled “Summary of Significant Accounting
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.
Inventory Valuation
We carry inventory on our balance sheet at the estimated
lower of cost or market. Cost is determined by the first-in, first-
out, or “FIFO,” method for our inventories. We carry obsolete,
damaged, and excess inventory at the net realizable value, which
we determine by assessing historical recovery rates, current
market conditions and our future marketing and sales plans.
Because our assessment of net realizable value is made at a
point in time, there are inherent uncertainties related to our val-
ue 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. Decisions we make as to the amount of earnings
permanently reinvested in foreign jurisdictions, due to antici-
pated cash flow or other business requirements, may impact our
federal income tax provision and effective tax rate.
We periodically estimate the probable tax obligations using
historical experience in tax jurisdictions and our informed judg-
ment. There are inherent uncertainties related to the interpreta-
tion of tax regulations in the jurisdictions in which we transact
business. The judgments and estimates made at a point in time
may change based on the outcome of tax audits, as well as
changes to, or further interpretations of, regulations. Income tax
expense is adjusted in the period in which these events occur,
and these adjustments are included in our Consolidated State-
ments of Income. If such changes take place, there is a risk that
our effective tax rate may increase or decrease in any period. 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.
51
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
We recognized a change in our estimate of unrecognized
tax benefit accruals of $20 million in 2010. This change in
estimate resulted from the circumstances described above in
“Consolidated Results of Operations — Year Ended January 1,
2011 Compared with Year Ended January 2, 2010,” and was not a
result of any change in the application of our accounting policies.
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 includ-
ed 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 General-
ly 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 mil-
lion, is included as a receivable in Other Current Assets in the
Consolidated Balance Sheets as of January 1, 2011 and January
2, 2010. We exchanged information with Sara Lee in connection
with this matter, but Sara Lee disagreed with our computation.
52
In accordance with the dispute resolution provisions of the tax
sharing agreement, in August 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 obliga-
tions, plan assets, and how we measure the amount of these
costs, see Note 15 titled “Defined Benefit Pension Plans” to our
consolidated financial statements.
Our U.S. qualified pension plan is approximately 74% funded
as of January 1, 2011 compared to 80% funded as of January 2,
2010. 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
2010. Because we have elected not to make a voluntary cash
contribution in 2011 sufficient to achieve a funded status of
80%, beginning April 1, 2011 we are required under the Pension
Protection Act to implement restrictions on certain accelerated
forms of benefit payments for future retirees. We performed
a thorough review of the impact of making a voluntary cash
contribution to the plan in order to maintain a funded level of
80%. Based on our review, and given that these restrictions are
expected to impact only a limited number of plan participants,
will not impact the total benefits received by plan participants
and will not have a material impact on our future cash flows,
we determined not to make such a contribution to the plan.
We expect to make required cash contributions of $7 million
to $9 million to the U.S. qualified pension plan in 2011 based
on a preliminary calculation by our actuary. See Note 15 to our
financial statements for more information on the plan asset
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
components. The funded status of our defined benefit pension
plans are recognized on our balance sheet and changes in the
funded status are reflected in comprehensive income. We mea-
sure the funded status of our plans as of the date of our fiscal
year end. We expect pension expense in 2011 of approximately
$11 million compared to $15 million in 2010.
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 rec-
ognized 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 December 31, 2005.
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)
$ 124
(102)
—
—
Trademarks and Other Identifiable Intangibles
to obtain future cash flows. As of January 1, 2011, the net book
value of trademarks and other identifiable intangible assets was
$179 million, of which we are amortizing the entire balance.
We anticipate that our amortization expense for 2011 will be
$14 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 “— Depre-
ciation and Impairment of Property, Plant and Equipment.” We
assess identifiable intangible assets not subject to amortization
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, includ-
ing operating results, business plans, and present value tech-
niques. The rates we use to discount cash flows are based on
interest rates and the cost of capital at a point in time. Because
there are inherent uncertainties related to these factors and
our judgment in applying them, the assumptions underlying the
impairment analysis may change in such a manner that impair-
ment in value may occur in the future. Such impairment will be
recognized in the period in which it becomes known.
Goodwill
As of January 1, 2011, we had $430 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. The estimated fair values significantly exceeded
the carrying values of each of our reporting units as of the first
day of the third fiscal quarter, and no impairment of goodwill was
identified as a result of the testing conducted in 2010.
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.
Trademarks, license agreements, customer and distributor
We evaluate the recoverability of goodwill using a two-step
relationships and computer software are our primary identifi-
able intangible assets. We amortize identifiable intangibles with
finite lives, and we do not amortize identifiable intangibles with
indefinite lives. We base the estimated useful life of an identifi-
able 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
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.
53
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Depreciation and Impairment of Property,
Plant and Equipment
We state property, plant and equipment at its historical cost,
and we compute depreciation using the straight-line method
over the asset’s life. We estimate an asset’s life based on histori-
cal experience, manufacturers’ estimates, engineering or
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’ com-
pensation and other casualty programs. We are responsible for
losses up to certain limits and are required to estimate a liability
that represents the ultimate exposure for aggregate losses
below those limits. This liability is based on management’s
estimates of the ultimate costs to be incurred to settle known
claims and claims not reported as of the balance sheet date. The
estimated liability is not discounted and is based on a number of
assumptions and factors, including historical trends, actuarial
assumptions and economic conditions. If actual trends differ
from the estimates, the financial results could be impacted.
Actual trends have not differed materially from the estimates.
Assets and Liabilities Acquired in Business Combinations
We account for business acquisitions using the purchase
method, which requires us to allocate the cost of an acquired
business to the acquired assets and liabilities based on their
estimated fair values at the acquisition date. We recognize
the excess of an acquired business’s cost over the fair value
of acquired assets and liabilities as goodwill. 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
54
obligations associated with defined benefit pension plans, and
legal counsel to assess obligations associated with legal and
environmental claims.
Recently Issued Accounting Pronouncements
Fair Value Disclosures
In January 2010, the Financial Accounting Standards Board
issued new accounting rules related to the disclosure require-
ments for fair value measurements. The new accounting rules
require new disclosures regarding significant transfers between
Levels 1 and 2 of the fair value hierarchy and the activity within
Level 3 of the fair value hierarchy. The new accounting rules also
clarify existing disclosures regarding the level of disaggregation
of assets or liabilities and the valuation techniques and inputs
used to measure fair value. The new accounting rules were
effective for us in the first quarter of 2010, except for the disclo-
sures about purchases, sales, issuances and settlements in the
rollforward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after Decem-
ber 15, 2010, and for interim periods within those fiscal years.
The adoption of the disclosures effective for our first quarter
of 2010 did not have a material impact on our financial condi-
tion, results of operations or cash flows but resulted in certain
additional disclosures reflected in Note 14 to the consolidated
financial statements.
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 denomi-
nated in U.S. dollars; however, we purchase some raw materials,
pay a portion of our wages and make other payments in our
supply chain in foreign currencies. Our exposure to foreign
exchange rates exists primarily with respect to the Canadian
dollar, European euro, Mexican peso and Japanese yen against
the U.S. dollar. We use foreign exchange forward and option
contracts to hedge material exposure to adverse changes in
foreign exchange rates. A sensitivity analysis technique has been
used to evaluate the effect that changes in the market value of
foreign exchange currencies will have on our forward and option
contracts. At January 1, 2011, the potential change in fair value
of foreign currency derivative instruments, assuming a 10%
adverse change in the underlying currency price, was $13 million.
Interest Rates
Our debt under the Revolving Loan Facility, Floating Rate
Senior Notes and Accounts Receivable Securitization Facility
bears 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 were required under the 2009 Senior
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
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%. In addition, in November 2010, we completed a $1.0 bil-
lion senior notes offering and debt refinancing that strengthened
and added flexibility to our capital structure by fixing a significant
percentage of our debt at favorable interest rates at longer
maturities. As a result, approximately 96% of our total debt
outstanding at January 1, 2011 is now at a fixed or capped rate.
After giving effect to these arrangements, a 25-basis point move-
ment in the annual interest rate charged on the outstanding debt
balances as of January 1, 2011 would result in a change in annual
interest expense of $2 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. During
2010, cotton prices hit their highest levels in 140 years. Increases
in the cost of cotton can result in higher costs in the price we
pay for yarn from our large-scale yarn suppliers. Our costs for
cotton yarn and cotton-based textiles vary based upon the fluc-
tuating cost of cotton, which is affected by, among other things,
weather, consumer demand, speculation on the commodities
market, the relative valuations and fluctuations of the currencies
of producer versus consumer countries and other factors that
are generally unpredictable and beyond our control. We are able
to lock in the cost of cotton reflected in the price we pay for yarn
from our primary yarn suppliers in an attempt to protect our busi-
ness from the volatility of the market price of cotton. However,
our business can be affected by dramatic movements in cotton
prices. Although the cost of cotton used in goods manufactured
by us has historically represented only 6% of our cost of sales, it
has risen to around 10% primarily as a result of cost inflation. The
cotton prices reflected in our results were 69 cents per pound in
2010 and 55 cents per pound in 2009. Costs incurred for materi-
als and labor are capitalized into inventory and impact our results
as the inventory is sold. For example, we estimate that a change
of $0.01 per pound in cotton prices at current levels of produc-
tion would affect our annual cost of sales by $4 million related
to finished goods manufactured internally in our manufacturing
facilities and $1 million related to finished goods sourced from
third parties. 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 manufac-
ture 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 $5 million, at
current levels of usage.
ITEM 8. Financial Statements and
Supplementary Data
Our financial statements required by this item are contained
on pages F-1 through F-40 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.
55
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Information required by this Item 10 regarding our executive officers is included in Item 1C of this Annual Report on Form 10-K.
We will provide other information that is responsive to this Item 10 in our definitive proxy statement or in an amendment to this
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.
56
H AN E SBRANDS INC.
SIGNATURES
2 010 AN N UAL RE P ORT ON FORM 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 15th day of February, 2011.
HANESBRANDS INC.
/s/ Richard A. Noll
Richard A. Noll
Chief Executive Officer
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
jointly and severally, Richard A. Noll, E. Lee Wyatt Jr. and Joia M. Johnson, and each one of them, his or her attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Capacity
Date
/s/ Richard A. Noll
Richard A. Noll
/s/ E. Lee Wyatt Jr.
E. Lee Wyatt Jr.
/s/ Dale W. Boyles
Dale W. Boyles
/s/ Lee A. Chaden
Lee A. Chaden
/s/ Bobby J. Griffin
Bobby J. Griffin
/s/ James C. Johnson
James C. Johnson
/s/ Jessica T. Mathews
Jessica T. Mathews
/s/ J. Patrick Mulcahy
J. Patrick Mulcahy
/s/ Ronald L. Nelson
Ronald L. Nelson
/s/ Andrew J. Schindler
Andrew J. Schindler
/s/ Ann E. Ziegler
Ann E. Ziegler
Chief Executive Officer and Chairman of the Board of Directors
February 15, 2011
(principal executive officer)
Chief Financial Officer
(principal financial officer)
February 15, 2011
Chief Accounting Officer and Controller
February 15, 2011
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 15, 2011
February 15, 2011
February 15, 2011
February 15, 2011
February 15, 2011
February 15, 2011
February 15, 2011
February 15, 2011
57
H AN E SBRANDS INC.
INDEX TO EXHIBITS
2 010 AN N UAL RE P ORT ON FORM 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).
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).
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 (incorporat-
ed 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).
Amended and Restated Certificate of Incorporation of CC Products, Inc.
(incorporated by reference from Exhibit 3.50 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-171114) filed with the
Securities and Exchange Commission on December 10, 2010).
Amended and Restated Bylaws of CC Products, Inc. (incorporated by refer-
ence from Exhibit 3.51 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
E-1
3.14
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
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).
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).
Articles of Incorporation of Event 1, Inc. (incorporated by reference from
Exhibit 3.52 to the Registrant’s Registration Statement on Form S-4 (Com-
mission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
Amended and Restated Bylaws of Event 1, Inc. (incorporated by reference
from Exhibit 3.53 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
Amended and Restated Certificate of Incorporation of GearCo, Inc.
(incorporated by reference from Exhibit 3.44 to the Registrant’s Registration
Statement on Form S-4 (Commission file number 333-171114) filed with the
Securities and Exchange Commission on December 10, 2010).
Amended and Restated Bylaws of GearCo, Inc. (incorporated by reference
from Exhibit 3.45 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
Third Amended and Restated Certificate of Incorporation of GFSI Holdings,
Inc. (incorporated by reference from Exhibit 3.46 to the Registrant’s Registra-
tion Statement on Form S-4 (Commission file number 333-171114) filed with
the Securities and Exchange Commission on December 10, 2010).
Amended and Restated Bylaws of GFSI Holdings, Inc. (incorporated by refer-
ence from Exhibit 3.47 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
Amended and Restated Certificate of Incorporation of GFSI, Inc. (incorporated
by reference from Exhibit 3.48 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-171114) filed with the Securities and
Exchange Commission on December 10, 2010).
Amended and Restated Bylaws of GFSI, Inc. (incorporated by reference
from Exhibit 3.49 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-171114) filed with the Securities and Exchange
Commission on December 10, 2010).
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).
3.25
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).
H AN E SBRANDS INC.
Exhibit
Number Description
3.26
3.27
3.28
3.29
3.30
3.31
3.32
3.33
3.34
3.35
3.36
3.37
3.38
Certificate of 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 Cer-
tificate 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 Registra-
tion 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).
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).
2 010 AN N UAL RE P ORT ON FORM 10- K
Exhibit
Number Description
3.39
3.40
3.41
3.42
3.43
3.44
3.45
3.46
3.47
3.48
3.49
3.50
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 refer-
ence 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 refer-
ence from Exhibit 3.32 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Amended and Restated Limited Liability Company Agreement of Jasper-Costa
Rica, L.L.C. (incorporated by reference from Exhibit 3.33 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Formation of Playtex Dorado, LLC, together with Certificate of
Conversion from a Corporation to a Limited Liability Company Pursuant to
Section 18-214 of the Limited Liability Company Act (incorporated by refer-
ence from Exhibit 3.36 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Amended and Restated Limited Liability Company Agreement of Playtex
Dorado, LLC (incorporated by reference from Exhibit 3.37 to the Registrant’s
Registration Statement on Form S-4 (Commission file number 333-142371)
filed with the Securities and Exchange Commission on April 26, 2007).
Certificate of Incorporation of Playtex Industries, Inc. (incorporated by refer-
ence from Exhibit 3.38 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
Bylaws of Playtex Industries, Inc. (incorporated by reference from Exhibit
3.39 to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-142371) filed with the Securities and Exchange Commission on
April 26, 2007).
Certificate of Formation of Seamless Textiles, LLC, together with Certificate
of Conversion from a Corporation to a Limited Liability Company Pursuant to
Section 18-214 of the Limited Liability Company Act (incorporated by 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 refer-
ence from Exhibit 3.42 to the Registrant’s Registration Statement on Form S-4
(Commission file number 333-142371) filed with the Securities and Exchange
Commission on April 26, 2007).
3.51
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).
E-2
H AN E SBRANDS INC.
Exhibit
Number Description
3.52
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).
3.53
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
4.6
4.7
4.8
4.9
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 the Registrant,
certain subsidiaries of the Registrant and 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 (the “2006 Indenture”), among
the Registrant, certain subsidiaries of the Registrant and Branch Banking
and Trust Company (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).
First Supplemental Indenture (to the 2006 Indenture) dated August 13, 2010
among the Registrant, certain subsidiaries of the Registrant and Branch
Banking and Trust Company (incorporated by reference from Exhibit 10.50
to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-171114) filed with the Securities and Exchange Commission on
December 10, 2010).
Second Supplemental Indenture (to the 2006 Indenture) dated November 1,
2010 among the Registrant, certain subsidiaries of the Registrant and Branch
Banking and Trust Company (incorporated by reference from Exhibit 4.5 to
the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 10, 2010).
Registration Rights Agreement dated as of December 14, 2006 among the
Registrant, certain subsidiaries of the Registrant, 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).
Indenture, dated as of August 1, 2008 (the “2008 Indenture”) among the
Registrant, certain subsidiaries of the Registrant, and Branch Banking and
Trust Company (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).
Underwriting Agreement dated December 3, 2009 between the Registrant,
certain subsidiaries of the Registrant 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).
2 010 AN N UAL RE P ORT ON FORM 10- K
Exhibit
Number Description
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.3
10.4
10.5
First Supplemental Indenture (to the 2008 Indenture) dated December 10,
2009 among the Registrant, certain subsidiaries of the Registrant 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).
Second Supplemental Indenture (to the 2008 Indenture) dated August 13, 2010
among the Registrant, certain subsidiaries of the Registrant and Branch
Banking and Trust Company (incorporated by reference from Exhibit 10.49
to the Registrant’s Registration Statement on Form S-4 (Commission file
number 333-171114) filed with the Securities and Exchange Commission on
December 10, 2010).
Third Supplemental Indenture (to the 2008 Indenture) dated November 1,
2010 among the Registrant, certain subsidiaries of the Registrant and Branch
Banking and Trust Company (incorporated by reference from Exhibit 4.4 to
the Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 10, 2010).
Purchase Agreement dated November 4, 2010 among the Registrant, certain
subsidiaries of the Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Barclays Capital Inc., HSBC Securities (USA) Inc., J.P. Morgan
Securities LLC and Goldman, Sachs & Co. (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 November 10, 2010).
Fourth Supplemental Indenture (to the 2008 Indenture) dated November 9,
2010 among the Registrant, certain subsidiaries of the Registrant 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 November 10, 2010).
Registration Rights Agreement dated November 9, 2010 among the
Registrant, certain subsidiaries of the Registrant and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Barclays Capital Inc., HSBC Securities (USA)
Inc., J.P. Morgan Securities LLC and Goldman, Sachs & Co. (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 November 10, 2010).
Hanesbrands Inc. Omnibus Incentive Plan of 2006, as amended (incorporated
by reference from Exhibit 10.1 to the Registrant’s Registration Statement on
Form S-4 (Commission file number 333-171114) filed with the Securities and
Exchange Commission on December 10, 2010).*
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).*
Form of Performance Cash Award 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 9, 2010).*
Form of Performance Stock and Cash Award — Stock Component Grant
Notice and Agreement under the 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
December 10, 2010).*
E-3
H AN E SBRANDS INC.
Exhibit
Number Description
10.6
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). *
10.7
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).*
10.8
Hanesbrands Inc. Retirement Savings Plan, as amended.*
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Hanesbrands Inc. Supplemental Employee Retirement Plan (incorporated by
reference from Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on February 9, 2010).*
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, as amended
(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
April 29, 2010).*
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).*
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).*
2 010 AN N UAL RE P ORT ON FORM 10- K
Exhibit
Number Description
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
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).†
First Amendment dated February 22, 2007 to the 2006 Senior Secured Credit
Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Cur-
rent Report on Form 8-K filed with the Securities and Exchange Commission
on February 28, 2007).
Second Amendment dated August 21, 2008 to the 2006 Senior Secured Credit
Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Cur-
rent Report on Form 8-K filed with the Securities and Exchange Commission
on August 27, 2008).
E-4
H AN E SBRANDS INC.
Exhibit
Number Description
10.32
10.33
10.34
10.35
10.36
10.37
10.38
Third Amendment dated March 10, 2009 to the 2006 Senior Secured Credit
Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Cur-
rent Report on Form 8-K filed with the Securities and Exchange Commission
on 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 (incorporated by reference from Exhibit
10.32 to the Registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 9, 2010).
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 Incor-
porated, Morgan Stanley Senior Funding, Inc., Citicorp USA, Inc. and Citibank,
N.A. (incorporated by reference from Exhibit 10.29 to the Registrant’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
September 28, 2006).†
First Amendment dated August 21, 2008 to the Second Lien Credit Agreement
(incorporated by reference from Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission
on August 27, 2008).
Receivables Purchase Agreement dated as of November 27, 2007 (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).†
Amendment No. 1 dated as of March 16, 2009 to the Accounts Receivables
Securitization Facility (incorporated by reference from Exhibit 10.2 to the Reg-
istrant’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 10.3 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 11, 2009).†
2 010 AN N UAL RE P ORT ON FORM 10- K
Exhibit
Number Description
10.39
10.40
10.41
Amendment No. 3 dated as of August 17, 2009 to the Accounts Receivables
Securitization Facility (incorporated by reference from Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 5, 2009).
Amendment No. 4 dated as of December 10, 2009 to the Accounts Receiv-
ables Securitization Facility (incorporated by reference from Exhibit 10.39 to
the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 9, 2010).
Amendment No. 5 dated as of December 21, 2009 to the Accounts Receiv-
ables Securitization Facility (incorporated by reference from Exhibit 10.40 to
the Registrant’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 9, 2010).†
10.42
Amendment No. 6 dated as of December 18, 2010 to the Accounts Receiv-
ables Securitization Facility.
10.43
Amendment No. 7 dated as of January 31, 2011 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.
101
.INS XBRL
Instance Document**
101
.SCH XBRL Taxonomy Extension Schema Document**
101
.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101
.LAB XBRL Taxonomy Extension Labels Linkbase Document**
101
.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
101
.DEF XBRL Taxonomy Extension Definition Linkbase Document**
* Agreement relates to executive compensation.
**
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101
hereto are deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are
deemed not filed for purposes of Section 18 of the Securities and Exchange Act of
1934, as amended, and otherwise are not subject to liability under those sections.
†
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-5
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 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 1, 2011, January 2, 2010 and January 3, 2009 . . . . . . . . . . . . . F- 4
Consolidated Balance Sheets at January 1, 2011 and January 2, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended
January 1, 2011, January 2, 2010 and January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 6
Consolidated Statements of Cash Flows for the years ended January 1, 2011, January 2, 2010 and January 3, 2009 . . . . . . . . . . F- 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
F-1
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 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 1, 2011,
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 1, 2011.
The effectiveness of our internal control over financial reporting as of January 1, 2011 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.
2 010 AN N UAL RE P ORT ON FORM 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 1, 2011 and January 2, 2010, and the results of its operations
and its cash flows for each of the three years in the period ended January 1, 2011 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 1, 2011, 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 15, 2011
F-3
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Consolidated Statements of Income
(in thousands, except per share amounts)
Years Ended
January 1, 2011
January 2, 2010
January 3, 2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,326,713
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,911,944
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,414,769
1,010,581
—
404,188
20,221
150,236
233,731
22,438
$ 3,891,275
2,626,001
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
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 211,293
$
51,283
$ 127,169
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.19
2.16
$
$
0.54
0.54
$
$
1.35
1.34
96,500
97,774
95,158
95,668
94,171
95,164
See accompanying notes to Consolidated Financial Statements.
F-4
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
January 1, 2011
January 2, 2010
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable less allowances of $19,192 at January 1, 2011 and $25,776 at January 2, 2010. . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
43,671
$
38,943
503,243
1,322,719
149,431
128,607
2,147,671
631,254
178,622
430,144
319,798
82,513
450,541
1,049,204
139,836
144,033
1,822,557
602,826
136,214
322,002
357,103
85,862
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,790,002
$ 3,326,564
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 412,369
$ 351,971
Accrued liabilities and other:
Payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,303
87,384
6,036
93,580
50,678
90,000
829,350
1,990,735
301,889
105,354
3,227,328
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 —
96,207,025 at January 1, 2011 and 95,396,967 at January 2, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
962
294,829
480,098
(213,215)
562,674
76,315
85,069
18,244
116,007
66,681
164,688
878,975
1,727,547
290,030
95,293
2,991,845
—
954
287,955
268,805
(222,995)
334,719
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,790,002
$ 3,326,564
See accompanying notes to Consolidated Financial Statements.
F-5
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Retained Comprehensive
Loss
Earnings
Total
Balances at December 29, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,232
—
$ 954 $ 199,019
—
—
$ 117,849
127,169
$ (28,918)
—
$ 288,904
127,169
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)
—
—
—
—
2
(12)
(9)
—
—
—
31,002
10,076
(2,767)
10,837
—
—
(29,463)
(38,818)
(29,463)
(38,818)
—
(184,270)
(184,270)
—
—
(27,496)
—
(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other . . . . . . . . . . . . . .
—
—
—
—
—
1,877
—
—
—
—
—
19
—
—
—
—
51,283
—
—
—
18,966
28,580
51,283
18,966
28,580
—
10,928
10,928
37,391
2,397
—
—
109,757
37,391
2,416
—
—
Balances at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,397
$ 954 $ 287,955
$ 268,805
$ (222,995)
$ 334,719
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized gain on qualifying cash flow hedges, net of tax of $6,773. . . . . . . . . . .
Net unrecognized loss from pension and postretirement plans,
net of tax of $2,608. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options, vesting of restricted stock units and other . . . . . . . . . . . . . .
Net transactions related to spin off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
810
—
—
—
—
—
—
8
—
—
—
—
19,226
3,317
—
(15,669)
211,293
—
211,293
—
—
3,661
10,189
3,661
10,189
—
(4,070)
(4,070)
—
—
—
221,073
19,226
3,325
(15,669)
—
—
—
Balances at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,207
$ 962 $ 294,829
$ 480,098
$ (213,215)
$ 562,674
See accompanying notes to Consolidated Financial Statements.
F-6
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of loss on interest rate hedge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend and refinance credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incurrence of debt under the 2009 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of debt under 2009 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of debt under 2006 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 6.375% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2011
January 2, 2010
January 3, 2009
Years Ended
$
211,293
$
51,283
$ 127,169
74,103
12,509
—
16,526
—
—
—
12,739
17,774
19,534
15,794
(3,432)
(329)
(231,845)
11,597
29,934
(53,143)
133,054
(106,240)
(222,878)
45,642
(519)
(283,995)
1,394,782
(1,411,295)
(23,833)
2,228,500
(2,280,000)
—
(750,000)
—
1,000,000
—
—
207,290
(217,290)
5,938
—
—
1,593
155,685
(16)
4,728
38,943
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)
(74,976)
2,034,026
(1,982,526)
750,000
—
(1,440,250)
—
500,000
(2,788)
183,451
(326,068)
1,179
—
—
(847)
(354,174)
115
(28,399)
67,342
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
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
43,671
$
38,943
$ 67,342
See accompanying notes to Consolidated Financial Statements.
F-7
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(1) Background
(d) Sales Recognition and Incentives
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, Duofold and Gear for Sports. The Company designs,
manufactures, sources and sells a broad range of basic apparel
such as T-shirts, bras, panties, men’s underwear, kids’ under-
wear, casualwear, activewear, socks and hosiery.
The Company’s fiscal year ends on the Saturday closest
to December 31. All references to “2010”, “2009” and “2008”
relate to the 52 week fiscal years ended on January 1, 2011
and January 2, 2010, and the 53 week fiscal year ended on
January 3, 2009, respectively.
(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 elimi-
nated in consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make use of estimates and
assumptions that affect the reported amount of assets and
liabilities, certain financial statement disclosures at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results may
vary from these estimates.
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 Consoli-
dated 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.
(c) Foreign Currency Translation
Cooperative Advertising
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.
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.
Fixtures and Racks
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.
F-8
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(e) Advertising Expense
(k)
Inventory Valuation
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 $185,488, $166,467 and $187,034 in 2010,
2009, and 2008, respectively.
(f) Shipping and Handling Costs
Revenue received for shipping and handling costs is included
in net sales and was $22,054, $22,434, and $24,244 in 2010,
2009 and 2008, 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 facili-
ties, were $250,029, $222,169 and $238,340 in 2010, 2009 and
2008, 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 $47,082, $46,305 and
$46,460 in 2010, 2009 and 2008, 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.
(j) Accounts Receivable Valuation
Accounts receivable are stated at their net realizable value.
The allowance for doubtful accounts reflects the Company’s best
estimate of probable losses inherent in the accounts receivable
portfolio determined on the basis of historical experience, aging
of trade receivables, specific allowances for known troubled
accounts and other currently available information.
Inventories are stated at the estimated lower of cost or
market. Cost is determined by the first-in, first-out, or “FIFO,”
method for inventories. Obsolete, damaged, and excess inven-
tory 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 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.
(l) Property
Property is stated at historical cost and depreciation
expense is computed using the straight-line method over the
estimated useful lives of the assets. Machinery and equipment
is depreciated over periods ranging from three to 25 years
and buildings and building improvements over periods of up
to 40 years. A change in the depreciable life is treated as a
change in accounting estimate and the accelerated depreciation
is accounted for in the period of change and future periods.
Additions and improvements that 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.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(m)
Trademarks and Other Identifiable
Intangible Assets
The primary identifiable intangible assets of the Company
are trademarks, license agreements, customer and distributor
relationships 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 expendi-
tures required to obtain future cash flows. Finite-lived trademarks
are being amortized over periods ranging from nine to 30 years,
license agreements are being amortized over periods ranging
from six to 15 years, customer and distributor relationships are
being amortized over periods ranging from three to 10 years and
computer software is being amortized over periods ranging from
three to seven years. Identifiable intangible assets that are sub-
ject 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.
F-10
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.
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(q) Financial Instruments
The Company uses financial instruments, including forward
exchange, option and swap contracts, to manage its exposures
to movements in interest rates, foreign exchange rates and
commodity prices. The use of these financial instruments
modifies the exposure to 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 State-
ments of Income.
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.
Cash Flow Hedge
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is designated as a cash flow hedge. The effective
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
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 additional
disclosures for transfers of financial assets and the entity’s con-
tinuing involvement with them and changes the requirements for
derecognizing financial assets. The new accounting rules were
effective for financial asset transfers occurring in 2010. The adop-
tion of these new rules had no impact on the financial condition,
results of operations or 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 were
effective for the Company in 2010. The adoption of these new
rules had no material impact on the financial condition, results of
operations or cash flows of the Company.
Fair Value Disclosures
In January 2010, the FASB issued new accounting rules
related to the disclosure requirements for fair value measure-
ments. The new accounting rules require new disclosures
regarding significant transfers between Levels 1 and 2 of the fair
value hierarchy and the activity within Level 3 of the fair value
hierarchy. The new accounting rules also clarify existing disclo-
sures regarding the level of disaggregation of assets or liabilities
and the valuation techniques and inputs used to measure fair
value. The new accounting rules were effective for the Company
in the first quarter of 2010, except for the disclosures about
purchases, sales, issuances and settlements in the rollforward
of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years. The adoption of
the disclosures effective for the Company’s first quarter of 2010
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 Note 14.
F-11
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(3) Earnings Per Share
Basic earnings per share (“EPS”) was computed by divid-
ing net income by the number of weighted average shares of
common stock outstanding during the period. Diluted EPS was
calculated to give effect to all potentially dilutive shares of com-
mon stock using the treasury stock method. The reconciliation of
basic to diluted weighted average shares outstanding for 2010,
2009, and 2008 is as follows:
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
Basic weighted average
shares outstanding . . . . . . . . . . . . . . . . .
96,500
95,158
94,171
Effect of potentially dilutive securities:
Stock options . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . .
Employee stock purchase plan
and other . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average
783
489
2
—
510
—
100
882
11
shares outstanding . . . . . . . . . . . . . . . . .
97,774
95,668
95,164
Options to purchase 827, 6,273, and 3,735 shares of
common stock and 250, 234, and 0 restricted stock units
were excluded from the diluted earnings per share calculation
because their effect would be anti-dilutive for 2010, 2009, and
2008, respectively.
(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 employ-
ees 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
granted to date generally vest ratably over two to three years,
although stock options granted to employees after December 1,
2010 will generally not fully vest over a period of less than three
years, and can generally 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 2010, 2009, and 2008, respectively.
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
Dividend yield. . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years). . . . . . . . . . . . . . . . . .
—%
1.64-1.90%
50-54%
5.3-6.0
F-12
—%
—%
2.49% 1.68-2.64%
28-37%
3.8-6.0
48%
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.
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 29, 2007 . . . . . . . . . . . . . . 3,645
Granted . . . . . . . . . . . . . . . . . . . . . . 2,624
(98)
Exercised . . . . . . . . . . . . . . . . . . . . .
(142)
Forfeited . . . . . . . . . . . . . . . . . . . . .
$ 23.41
19.81
22.50
23.35
$ 16,369
5.44
Options outstanding at
January 3, 2009 . . . . . . . . . . . . . . . . . 6,029
466
Granted . . . . . . . . . . . . . . . . . . . . . .
(66)
Exercised . . . . . . . . . . . . . . . . . . . . .
(142)
Forfeited . . . . . . . . . . . . . . . . . . . . .
Options outstanding at
$ 21.86 $
—
5.99
24.33
17.71
21.32
January 2, 2010 . . . . . . . . . . . . . . . . . 6,287
221
Granted . . . . . . . . . . . . . . . . . . . . . .
(289)
Exercised . . . . . . . . . . . . . . . . . . . . .
(1)
Forfeited . . . . . . . . . . . . . . . . . . . . .
$ 22.10
27.16
20.51
22.37
$ 15,770
7.77
Options outstanding at
January 1, 2011 . . . . . . . . . . . . . . . . . 6,218
$ 22.35
$ 19,914
6.90
Options exercisable at
January 1, 2011 . . . . . . . . . . . . . . . . .
4,824
$ 22.46
$ 14,741
6.52
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 2,133, 2,981 and 968 options that vested during
2010, 2009 and 2008, respectively. The total intrinsic value of
options that were exercised during 2010, 2009 and 2008 was
$1,923, $465 and $1,057, respectively. The weighted average fair
value of individual options granted during 2010, 2009 and 2008
was $13.32, $11.80 and $6.29, respectively.
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Cash received from option exercises under all share-based
payment arrangements for 2010, 2009 and 2008 was $5,938,
$1,179 and $2,191, respectively. The actual tax benefit realized
for the tax deductions from option exercise of the share-based
payment arrangements totaled $1,705, $465 and $806 for 2010,
2009 and 2008, respectively.
Stock Unit Awards
Restricted stock units (RSUs) of Hanesbrands’ stock are
granted to certain Company employees and non-employee direc-
tors to incent performance and retention over periods ranging
from one to three years, although RSUs granted to employees
after December 1, 2010 will generally not fully vest over a period
of less than 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. Some RSUs which have been
granted under the Hanesbrands OIP vest upon continued future
service to the Company, while others also have a performance
based vesting feature. The cost of these awards is determined
using the fair value of the shares on the date of grant, and com-
pensation 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 Aggregate
Weighted-
Average
Remaining
Intrinsic Contractual
Value Term (Years)
Grant Date
Fair Value
Shares
Nonvested share units outstanding at
December 29, 2007 . . . . . . . . . . . . . . . . .
Granted — non-performance based . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested share units outstanding at
January 3, 2009. . . . . . . . . . . . . . . . . . . .
Granted — non-performance based . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested share units outstanding at
January 2, 2010. . . . . . . . . . . . . . . . . . . .
Granted — non-performance based . . .
Granted — performance based. . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested share units outstanding at
January 1, 2011. . . . . . . . . . . . . . . . . . . .
1,578
1,512
(583)
(105)
2,402
408
(1,193)
(91)
1,526
391
143
(721)
(9)
$ 23.47 $ 43,922
1.89
18.19
23.28
23.69
$ 20.19 $ 31,652
1.89
24.29
20.84
19.57
$ 20.82 $ 36,796
1.76
27.02
27.16
21.28
19.21
1,330
$ 23.08 $ 33,794
1.73
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.
The total fair value of shares vested during 2010, 2009 and
2008 was $15,346, $24,871 and $13,560, respectively. Certain
participants elected to defer receipt of shares earned upon
vesting. As of January 1, 2011, a total of 203 shares of common
stock are issuable in future years for such deferrals.
For all share-based payments under the Hanesbrands OIP,
during 2010, 2009 and 2008, the Company recognized total com-
pensation expense of $19,226, $37,391 and $31,002 and rec-
ognized a deferred tax benefit of $7,435, $14,464 and $11,585,
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 1, 2011, there was $10,135 of total unrecog-
nized compensation cost related to non-vested stock-based
compensation arrangements, of which $7,276, $2,237 and
$622 is expected to be recognized in 2011, 2012 and 2013,
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 1,945 were available
for future grants as of January 1, 2011.
In 2010, in addition to granting RSUs that vest solely upon
continued future service to the Company, the Company also
granted 143 performance-based restricted stock units with a
performance feature that has a target range of 0% to 200%
based upon meeting certain performance thresholds. These
performance stock awards, which are included in the table
above, represent unearned awards that are earned based on
future performance and service.
Employee Stock Purchase Plan
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 2010,
2009 and 2008, 79, 156 and 129 shares, respectively, were
purchased under the ESPP by eligible employees. The Company
had 2,000 shares of common stock available for issuance under
the ESPP as of January 1, 2011. The Company recognized $308,
$306 and $447 of stock compensation expense under the ESPP
during 2010, 2009 and 2008, respectively.
F-13
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(5) Trade Accounts Receivable
(7) Property, Net
Allowances for Trade Accounts Receivable
Property is summarized as follows:
The changes in the Company’s allowance for doubtful
accounts and allowance for chargebacks and other deductions
are as follows:
Balance at December 29, 2007 . . . . . . . . .
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
Allowance
for
Doubtful
Accounts
$ 9,328
8,074
(4,847)
Allowance for
Chargebacks
and Other
Deductions
Total
$ 22,314
5,366
(18,338)
$ 31,642
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
Charged to expenses . . . . . . . . . . . . . .
Deductions and write-offs . . . . . . . . . .
(1,116)
(3,270)
3,715
(5,913)
2,599
(9,183)
Balance at January 1, 2011 . . . . . . . . . . . .
$ 11,116
$ 8,076
$ 19,192
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
receivable and allowed customer chargebacks and deductions
against gross accounts receivable.
Sales of Accounts Receivable
The Company has entered into agreements to sell selected
trade accounts receivable to financial institutions. After the sale,
the Company does not retain any interests in the receivables and
the applicable financial institution services and collects these
accounts receivable directly from the customer. Net proceeds
of these accounts receivable sale programs are recognized in
the Consolidated Statements of Cash Flows as part of operating
cash flows. The Company recognized funding fees of $3,464
and $163 in 2010 and 2009, respectively, for sales of accounts
receivable to financial institutions in the “Other expenses” line in
the Consolidated Statements of Income.
(6)
Inventories
Inventories consisted of the following:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1,
2011
$ 155,744
109,304
1,057,671
$ 1,322,719
January 2,
2010
$ 106,138
100,686
842,380
$ 1,049,204
January 1,
2011
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Land
Buildings and improvements . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . .
Capital leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,122
467,378
868,995
31,904
6,988
Less accumulated depreciation . . . . . . . . . . . . . . . .
1,401,387
770,133
$
January 2,
2010
28,544
478,148
895,336
28,973
4,018
1,435,019
832,193
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 631,254
$ 602,826
(8) Notes Payable
The Company had the following short-term obligations at
January 1, 2011 and January 2, 2010:
Short-term revolving facility in El Salvador . . .
Short-term revolving facility in China . . . . . . . .
Short-term revolving facility in Vietnam . . . . . .
Short-term revolving facility in Japan . . . . . . . .
Short-term revolving facility in India . . . . . . . . .
Short-term revolving facility in Brazil . . . . . . . .
Short-term revolving facility in Luxembourg . . .
Short-term revolving facility in Thailand . . . . . .
Interest
Rate as of
January 1,
2011
4.20%
7.65%
5.05%
4.61%
12.80%
13.56%
Principal Amount
January 1,
2011
January 2,
2010
$ 29,700
12,941
3,371
2,459
1,846
361
—
—
$ 30,000
7,397
—
—
—
—
25,000
4,284
$ 50,678
$ 66,681
The Company has a short-term revolving facility arrange-
ment with a Salvadoran branch of a Canadian bank amounting to
$30,000 of which $29,700 was outstanding at January 1, 2011
which accrues interest at 4.20%.
The Company has a short-term revolving facility arrangement
with a Chinese branch of a U.S. bank amounting to RMB 155 mil-
lion ($23,460) of which $12,941 was outstanding at January 1,
2011 which accrues interest at 7.65%. Borrowings under the facil-
ity accrue interest at the prevailing base lending rates published
by the People’s Bank of China from time to time plus 50%.
The Company has a short-term revolving facility arrangement
with a Vietnamese branch of a U.S. bank amounting to $14,000
of which $3,371 was outstanding at January 1, 2011 which
accrues interest at 5.05%.
The Company has a short-term revolving facility arrange-
ment with a Japanese branch of a U.S. bank amounting to
JPY 800 million ($9,812) of which $2,459 was outstanding at
January 1, 2011 which accrues interest at 4.61%.
The Company has a short-term revolving facility arrangement
with an Indian branch of a U.S. bank amounting to INR 100 mil-
lion ($2,224) of which $1,846 was outstanding at January 1, 2011
which accrues interest at 12.80%.
F-14
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
The Company has a short-term revolving facility arrangement
2009 Senior Secured Credit Facility
with a Brazilian bank amounting to BRL 2 million ($1,205) of
which $361 was outstanding at January 1, 2011 which accrues
interest at 13.56%.
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 $4,646 of which $0 was outstanding
at January 1, 2011.
As of January 1, 2011 and January 2, 2010, the Company had
total borrowing availability of $34,669 and $34,935, respectively,
under these international loan facilities.
The Company was in compliance with the financial cov-
enants contained in each of these facilities at January 1, 2011.
Total interest paid on notes payable was $2,267, $3,974 and
$2,208 in 2010, 2009 and 2008, respectively.
(9) Debt
The Company had the following debt at January 1, 2011 and
January 2, 2010:
Interest
Rate as of
January 1,
2011
Principal Amount
January 1,
2011
January 2,
2010
Maturity Date
2009 Senior Secured
Credit Facility:
Term Loan Facility . .
$
— $ 750,000
Revolving Loan
Facility . . . . . . . . .
6.375% Senior Notes. . . . .
8% Senior Notes . . . . . . . .
Floating Rate Senior
Notes. . . . . . . . . . . . . . .
Accounts Receivable
Securitization Facility . .
Less current maturities . . .
6.75%
6.38%
8.00%
—
1,000,000
500,000
51,500
—
500,000
December 2013
December 2020
December 2016
3.83%
490,735
490,735
December 2014
2.81%
90,000
100,000 March 2011
2,080,735 1,892,235
164,688
90,000
$ 1,990,735 $ 1,727,547
The Company’s primary financing arrangements are the
senior secured credit facility that it entered into in 2006 (the
“2006 Senior Secured Credit Facility”) and amended and
restated in December 2009 to provide for a new senior secured
credit facility (the “2009 Senior Secured Credit Facility”),
$500,000 in aggregate principle amount of floating rate senior
notes (the “Floating Rate Senior Notes”) issued in December
2006, $500,000 in aggregate principal amount of 8.000% senior
notes (the “8% Senior Notes”) issued in December 2009,
$1,000,000 in aggregate principal amount of 6.375% senior
notes (the “6.375% Senior Notes”) issued in November 2010
and the Accounts Receivable Securitization Facility. The outstand-
ing balances at January 1, 2011 are reported in the “Long-term
debt” and “Current portion of debt” lines of the Consolidated
Balance Sheets.
Total cash paid for interest related to debt in 2010, 2009 and
2008 was $116,492, $161,854 and $150,898, respectively.
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”). 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 that the Company entered
into in 2006 (the “Second Lien Credit Facility”). Proceeds of the
Revolving Loan Facility were used to pay fees and expenses in
connection with these transactions, and are used for general
corporate purposes and working capital needs.
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 finan-
cial covenants described below. In order to support its working
capital needs and fund the acquisition of GearCo, Inc., known as
Gear for Sports, in September 2010, the Company increased the
commitments under the Revolving Loan Facility from $400,000
to $600,000. In November 2010, the Company used proceeds
from the issuance of the 6.375% Senior Notes to repay all out-
standing borrowings under the Term Loan Facility and to reduce
the outstanding borrowings under the Revolving Loan Facility. As
of January 1, 2011, the Company had $0 outstanding under the
Revolving Loan Facility, $12,305 of standby and trade letters of
credit issued and outstanding under this facility and $587,695 of
borrowing availability. At January 1, 2011, the interest rate on the
Revolving Loan Facility was 6.75%.
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 Facil-
ity a valid and perfected first priority (subject to certain custom-
ary 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-15
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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.
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 refer-
ence 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 is determined by reference
to a leverage-based pricing grid set forth in the 2009 Senior
Secured Credit Facility. The applicable margin ranges 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 2009 Senior Secured Credit Facility requires the Compa-
ny 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 increases 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
declines 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.
F-16
The 2009 Senior Secured Credit Facility contains custom-
ary events of default, including nonpayment of principal when
due; nonpayment of interest, 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). As of January 1, 2011, the Company was in
compliance with all financial covenants.
6.375% Senior Notes
On November 9, 2010, the Company issued $1,000,000
aggregate principal amount of the 6.375% Senior Notes. The
6.375% 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 6.375% Senior
Notes bear interest at an annual rate equal to 6.375%. Interest
is payable on the 6.375% Senior Notes on June 15 and
December 15 of each year. The 6.375% Senior Notes will
mature on December 15, 2020. The net proceeds from the
sale of the 6.375% Senior Notes were approximately $979,000.
As noted above, these proceeds were used to repay all out-
standing borrowings under the Term Loan Facility and reduce
the outstanding borrowings under the Revolving Loan Facility
and to pay fees and expenses relating to these transactions. The
6.375% 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, 2015 at a redemption price equal to 100% of the
principal amount of the 6.375% Senior Notes redeemed plus an
applicable premium. The Company may redeem some or all of
the 6.375% Senior Notes at any time on or after December 15,
2015 at a redemption price equal to the principal amount of the
6.375% Senior Notes plus a premium of 3.188% if redeemed
during the 12-month period commencing on December 15,
2015, 2.125% if redeemed during the 12-month period com-
mencing on December 15, 2016, 1.062% if redeemed during
the 12-month period commencing on December 15, 2017 and
no premium if redeemed after December 15, 2018, as well as
any accrued and unpaid interest as of the redemption date. In
addition, at any time prior to December 15, 2013, the Company
may redeem up to 35% of the aggregate principal amount of the
6.375% Senior Notes at a redemption price of 106.375% of the
principal amount of the 6.375% Senior Notes redeemed with
the net cash proceeds of certain equity offerings.
The indenture governing the 6.375% 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.
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (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 un-
subordinated 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 15, 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
applicable 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 Decem-
ber 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 8% Senior Notes at a redemption price of
108% of the principal amount of the 8% Senior 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 the Company
subsequently amended several times. The description of the
Accounts Receivable Securitization Facility below gives effect to
all amendments to date. The Accounts Receivable Securitization
Facility 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 receiv-
ables. Effective February 2010, the Company elected to reduce
the amount of funding available under the Accounts Receivable
Securitization Facility from $250,000 to $150,000. Under the
terms of the Accounts Receivable Securitization Facility, the
Company and certain of its subsidiaries sell, 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 liabilities of Receivables
LLC are fully reflected on the Consolidated Balance Sheet, and
the securitization is treated as a secured borrowing for account-
ing 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
F-17
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Receivables LLC, unless an event of default occurs. Unless the
term is extended, the Accounts Receivable Securitization Facility
will terminate on March 31, 2011.
Availability of funding under the Accounts Receivable
Securitization Facility depends primarily upon the eligible
outstanding receivables balance. As of January 1, 2011, the
Company had $90,000 outstanding under the Accounts
Receivable 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 HSBC Bank
USA, N.A. 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. In addition, Receivables LLC
is required to 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. The
average blended interest rate for the outstanding balance as of
January 1, 2011 was 2.81%.
The Accounts Receivable Securitization Facility contains
customary events of default and requires the Company to
maintain the same interest coverage ratio and leverage ratio
contained from time to time in the 2009 Senior Secured Credit
Facility, provided that any changes to such covenants will
only be applicable for purposes of the Accounts Receivable
Securitization Facility if approved by the Managing Agents or
their affiliates. As of January 1, 2011, the Company was in
compliance with all financial covenants.
The total amount of receivables used as collateral for the
credit facility was $305,978 at January 1, 2011 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: $90,000 due in 2011, $0 due in 2012,
$0 due in 2013, $490,735 due in 2014, $0 due in 2015 and
$1,500,000 thereafter.
Debt Issuance Costs
The Company incurred $23,833 in capitalized debt issuance
costs in connection with increasing the borrowing availability
under the Revolving Loan Facility and issuing the 6.375% Senior
Notes in 2010. In 2009, the Company incurred $54,342 in capital-
ized debt issuance costs in connection with entering into the
2009 Senior Secured Credit Facility and the amendments to the
2006 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility. The Company incurred $69 in debt issu-
ance costs in connection with entering into the amendments
to the 2006 Senior Secured Credit Facility and the Accounts
Receivable Securitization Facility in 2008. Debt issuance costs
are amortized to interest expense over the respective lives of
the debt instruments, which range from one to ten years. As of
January 1, 2011, the net carrying value of unamortized debt
issuance costs was $60,296 which is included in other noncur-
rent assets in the Consolidated Balance Sheet. The Company’s
debt issuance cost amortization was $12,739, $10,967 and
$6,032 in 2010, 2009 and 2008, respectively.
In 2010, the Company recognized charges of $14,186 in
the “Other expenses” line of the Consolidated Statements of
Income, which represents certain costs related to the issuance
of the 6.375% Senior Notes. The Company recognized $1,654
of a write-off on early extinguishment of debt in 2010 related to
the prepayment of $57,188 on the 2009 Senior Secured Credit
Facility and $686 of write-off on early extinguishment of debt on
the Accounts Receivable Securitization Facility as a result of the
reduction in borrowing capacity. The Company also recognized
$231 in additional charges in 2010 related to the amendments of
credit facilities in 2009.
In 2009, the Company recognized charges of $20,634 in
the “Other expenses” line of the Consolidated Statements of
Income, which represents certain costs related to entering into
the 2009 Senior Secured Credit 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 was 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.
F-18
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(10) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (20,233)
18,966
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,267)
3,661
Cumulative
Translation
Adjustment
Net Unrealized
Income (Loss)
on Cash Flow
Hedges
$ (81,395)
46,219
(35,176)
16,962
Pension and
Postretirement
$ (345,449)
12,763
(332,686)
(6,678)
Income Taxes
$ 165,608
(19,474)
146,134
(4,165)
Accumulated
Other
Comprehensive
Loss
$ (281,469)
58,474
(222,995)
9,780
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,394
$ (18,214)
$ (339,364)
$ 141,969
$ (213,215)
(11) Commitments and Contingencies
The Company is a party to various pending legal proceed-
ings, 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 opera-
tions 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 $65,575, $63,759 and
$53,072 in 2010, 2009 and 2008, respectively.
Future minimum lease payments under noncancelable
operating leases (with initial or remaining lease terms in
excess of one year) are as follows: $52,220 in 2011, $43,737
in 2012, $34,304 in 2013, $29,889 in 2014, $26,810 in 2015 and
$81,938 thereafter.
During 2010, the Company entered into sale-leaseback trans-
actions involving four distribution facilities. The facilities are being
leased back over terms ranging from three years to twelve years
and are classified as operating leases. The Company received
net proceeds on the sales of $41,282, resulting in deferred gains
of $15,441 which will be amortized over the lease terms.
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 trans-
actions involving two distribution centers and one manufacturing
facility. The facilities are being leased back over terms ranging
from one to four years and are classified as operating leases.
The Company received net proceeds on the sales of $18,782,
resulting in deferred gains of $6,317 which will be amortized
over the lease terms.
License Agreements
The Company is party to several royalty-bearing license
agreements for use of third-party trademarks in certain of their
products. The license agreements typically require a minimum
guarantee to be paid either at the commencement of the agree-
ment, by a designated date during the term of the agreement
or by the end of the agreement period. When payments are
made in advance of when they are due, the Company records a
prepayment and amortizes the expense in the “Cost of sales”
line of the Consolidated Statements of Income uniformly over
the guaranteed period. For guarantees required to be paid at the
F-19
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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 2010, 2009 and 2008, the Company incurred
royalty expense of approximately $12,772, $11,105 and
$11,709, respectively.
Minimum amounts due under the license agreements are
approximately $3,796 in 2011, $8,852 in 2012, $8,114 in 2013,
$8,086 in 2014 and $8,422 in 2015. In addition to the minimum
guaranteed amounts under license agreements, the Company
is a party to a partnership agreement which includes a minimum
fee of $5,622 for each year from 2011 through 2017.
(12)
Intangible Assets and Goodwill
During 2010, the Company completed the business acquisi-
tion of Gear for Sports. The acquisition resulted in the recognition
of $108,142 of goodwill and $52,700 of intangible assets, which
consisted primarily of college and pro sports license agreements
and customer and distributor relationships.
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.
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 ASC805, “Business Combina-
tions,” are not presented.
(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 1, 2011:
Intangible assets subject to amortization:
Trademarks and brand names . . . . . . . . . . . $ 195,538 $ 85,175 $ 110,363
47,015
Licensing agreements . . . . . . . . . . . . . . . . .
3,104
Customer and distributor relationships. . . .
16,264
Computer software . . . . . . . . . . . . . . . . . . .
1,876
Other intangibles . . . . . . . . . . . . . . . . . . . . .
47,600
3,200
58,494
1,900
585
96
42,230
24
Net book value of intangible assets . . . .
$ 178,622
$ 306,732 $ 128,110
Year ended January 2, 2010:
Accumulated
Gross Amortization
Net Book
Value
Intangible assets subject to amortization:
Trademarks and brand names . . . . . . . . . . . $ 192,440 $ 77,146 $ 115,294
20,920
Computer software . . . . . . . . . . . . . . . . . . .
56,356
35,436
$ 248,796 $ 112,582
Net book value of intangible assets . . . .
$ 136,214
The amortization expense for intangibles subject to amortiza-
tion was $12,509, $12,443 and $12,019 for 2010, 2009 and 2008,
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: $13,755 in 2011, $13,473 in 2012, $12,996 in
2013, $12,105 in 2014 and $9,632 in 2015. There was no impair-
ment of trademarks in any of the periods presented.
(b) Goodwill
Goodwill and the changes in those amounts during the period are as follows:
Innerwear
Outerwear
Hosiery
Direct to
Consumer
International
Total
Net book value at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 219,729
$ 63,814
$ 25,173
$ 255
$ 13,031
$ 322,002
Net book value at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,729
—
603
63,814
108,142
(603)
25,173
—
—
255
—
—
13,031
—
—
322,002
108,142
—
Net book value at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 220,332
$ 171,353
$ 25,173
$ 255
$ 13,031
$ 430,144
There has been no impairment of goodwill.
F-20
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(13) 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 invest-
ment 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 relat-
ing 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 1, 2011 and January 2, 2010.
January 1, 2011
January 2, 2010
Foreign currency bought (sold):
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (8,327)
(2,167)
—
—
(29,267)
—
$ (3,420)
(863)
(2,650)
1,732
(38,028)
14,061
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
From time to time, the Company uses 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 reclas-
sified into earnings as the underlying debt interest payments
are recognized. Interest rate cash flow hedge derivatives are
reported as a component of interest expense and therefore are
reported as cash flow from operating activities similar to the
manner in which cash interest payments are reported in the
Consolidated Statements of Cash Flows.
The Company is required under the 2009 Senior Secured
Credit Facility to hedge a portion of its floating rate debt to
reduce interest rate risk caused by floating rate debt issuance.
To comply with this requirement, in 2010, the Company entered
into hedging arrangements whereby it capped the LIBOR inter-
est rate component on an aggregate of $490,735 of the floating
rate debt under the Floating Rate Senior Notes at 4.262%.
The interest rate cap arrangements, with notional amounts of
$240,735 and $250,000, expire in December 2011.
F-21
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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 “Accu-
mulated 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 Statements of
Cash Flows as cash flow from operating activities.
Historically, the principal currencies hedged by the Company
include the Euro, Mexican peso, Canadian dollar and Japanese
yen. Forward exchange contracts mature on the anticipated cash
requirement date of the hedged transaction, generally within
one year. 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 1,
2011 and January 2, 2010.
January 1, 2011
January 2, 2010
Foreign currency bought (sold):
Canadian dollar. . . . . . . . . . . . . . . . . . . . . . . . .
Japanese yen . . . . . . . . . . . . . . . . . . . . . . . . . .
European euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Mexican peso . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (43,778)
(11,681)
(28,180)
(10,147)
$ (32,955)
(12,526)
—
(16,307)
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. The Company is able to lock in the cost of cotton
reflected in the price it pays for yarn from its primary yarn
suppliers in an attempt to protect the business from the volatility
of the market price of cotton. In addition, from time to time, the
Company uses commodity financial instruments to hedge the
price of cotton, for which there is a high correlation between the
hedged item and the hedge instrument. Gains and losses on
these contracts are intended to offset losses and gains on the
hedged transactions in an effort to reduce the earnings volatility
resulting from fluctuating commodity prices. The effective por-
tion of commodity hedge gains and losses deferred in “Accu-
mulated 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 1, 2011 and
January 2, 2010.
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 Sheet
Location
January 1,
2011
January 2,
2010
Derivative assets — hedges
Interest rate
contracts . . . . . . . . . . . . . . . . .
Other noncurrent
assets
Foreign exchange contracts . . . . . Other current assets
Total derivative
assets — hedges . . . . . . . .
Derivative assets — non-hedges
$
3
408
$ —
407
411
407
Foreign exchange contracts . . . . . Other current assets
—
Total derivative assets . . . . . . . . .
$ 411
207
$ 614
Derivative liabilities — hedges
Foreign exchange contracts . . . . .
Accrued liabilities
$
(874)
$ (107)
Total derivative
liabilities — hedges . . . . . .
Derivative liabilities —
non-hedges
(874)
(107)
Foreign exchange contracts . . . . .
Accrued liabilities
(471)
Total derivative liabilities. . . . . . .
Net derivative asset (liability) . .
$ (1,345)
$
(934)
(432)
$ (539)
$ 75
F-22
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (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 1,
2011
$
(516)
(2,180)
—
January 2,
2010
$ 20,559
(1,560)
—
January 3,
2009
$ (66,088)
756
(208)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (2,696)
$ 18,999
$ (65,540)
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Loss into
Income (Effective Portion)
Year Ended
January 1,
2011
$ (17,964)
—
(1,715)
—
January 2,
2010
$ (1,820)
(26,029)
721
(95)
January 3,
2009
$ (1,176)
—
(2,025)
473
Location of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive Loss into
Income (Effective Portion)
Interest expense, net
Other income (expense)
Cost of sales
Cost of sales
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (19,679)
$ (27,223)
$ (2,728)
The Company expects to reclassify into earnings during the
next 12 months a net loss from Accumulated Other Comprehen-
sive Loss of approximately $10,171.
As disclosed in Note 9, 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 $17,043 as of January 1, 2011.
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 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 2010 of $6 related to
interest rate contracts. 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.
F-23
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (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:
Location of Gain (Loss)
Recognized in Income
on Derivative
Selling, general and
administrative expenses
Amount of Gain (Loss) Recognized in Income
Year Ended
January 2,
2010
January 1,
2011
January 3,
2009
$ (2,073)
$ (2,073)
$ 3,846
$ 3,846
$ (6,691)
$ (6,691)
counterparties involved and the impact of credit enhancements,
but also the impact of the Company’s nonperformance 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 1, 2011 and January 2, 2010, 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 2010 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.
As of January 1, 2011, the Company did not have any non-
financial assets or liabilities that are required to be measured at
fair value on a recurring basis.
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14) 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 com-
modity derivatives and for all defined benefit plan investment
assets, and the income approach for interest rate and foreign
currency derivatives for recurring fair value measurements and
attempts to utilize valuation techniques that maximize the use
of observable inputs and minimize the use of unobservable
inputs. 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
F-24
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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 1, 2011
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:
Interest rate
derivative contracts . . . . . . . . . .
Foreign exchange
derivative contracts . . . . . . . . . .
Foreign exchange
derivative contracts . . . . . . . . . .
$
—
157,661
36,889
5,433
—
2,621
202,604
$
—
—
27,423
106,311
—
—
$ 275,650
—
—
—
23,180
—
133,734
298,830
—
—
—
—
3
408
(1,345)
(934)
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . .
$ 202,604
$ 132,800
$ 298,830
The table below sets forth a summary of changes in the fair
value of the Level 3 investment assets in 2010 and 2009.
Balance at January 3, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedge fund
of funds
$ 242,060
33,152
(20,000)
Real estate
$ 27,975
(7,985)
—
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 255,212
$ 19,990
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,438
—
3,190
—
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 275,650
$ 23,180
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 1, 2011 and January 2,
2010. The fair value of debt was $2,060,828 and $1,881,868 as
of January 1, 2011 and January 2, 2010 and had a carrying value
of $2,080,735 and $1,892,235, 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 1, 2011
and January 2, 2010, primarily due to the short-term nature of
these instruments.
Assets (Liabilities) at Fair Value as of
January 2, 2010
(15) Defined Benefit Pension Plans
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:
Foreign exchange
derivative contracts . . . . . . . . . .
Foreign exchange
derivative contracts . . . . . . . . . .
$
—
143,603
37,815
4,775
—
15,378
201,571
$
—
—
26,978
108,839
—
—
$ 255,212
—
—
—
19,990
—
135,817
275,202
—
—
—
614
(539)
75
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . .
$ 201,571
$ 135,892
$ 275,202
At January 1, 2011, the Company’s pension plans
consisted of the Hanesbrands Inc. Pension Plan, various
nonqualified retirement plans and international plans. Benefits
under the Hanesbrands Inc. Pension Plan were frozen effective
December 31, 2005.
F-25
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
In the fourth quarter of 2010, the Company recognized a one-
time out of period adjustment resulting from a review of census
data for the Hanesbrands Inc. Pension Plan, which reduced the
accumulated benefit obligation by $18,892 and accumulated
other comprehensive loss by $11,359 (net of taxes). The impact
of the adjustment was not considered material to any current
year or prior year periods.
The total accumulated benefit obligation and the accumu-
lated benefit obligation and fair value of plan assets for the
Company’s pension plans with accumulated benefit obligations
in excess of plan assets are as follows:
Accumulated benefit obligation. . . . . . . . . . . . . . . .
Plans with accumulated benefit
obligation in excess of plan assets
Accumulated benefit obligation . . . . . . . . . . . . .
Fair value of plan assets. . . . . . . . . . . . . . . . . . .
January 1,
2011
January 2,
2010
$ 931,621
$ 899,208
931,621
635,168
898,997
612,317
Amounts recognized in the Company’s Consolidated Balance
Sheets consist of:
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . .
January 1,
2011
$
—
(2,177)
(294,276)
(339,846)
January 2,
2010
$
51
(3,591)
(283,078)
(332,370)
Amounts recognized in accumulated other comprehensive
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
139
339,707
$ 339,846
January 1,
2011
January 2,
2010
$
165
332,205
$ 332,370
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.
Total recognized in other
comprehensive loss (income) . . . . . .
Total recognized in net periodic
benefit cost and other
comprehensive loss (income) . . . . . .
6,579
(11,973)
299,987
$ 21,385
$ 9,320
$ 288,186
loss consist of:
The annual cost (income) incurred by the Company for these
defined benefit plans in 2010, 2009 and 2008, was $14,806,
$21,293 and $(11,801), respectively. The components of net
periodic benefit cost and other amounts recognized in other
comprehensive loss of the Company’s noncontributory defined
benefit pension plans were as follows:
Service cost . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on assets . . . . . . . . . . . . .
Settlement cost . . . . . . . . . . . . . . . . . . . . .
Amortization of:
Prior service cost. . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . .
January 1,
2011
$ 1,225
49,337
(44,094)
139
Years Ended
January 2,
2010
$ 1,198
50,755
(39,832)
—
January 3,
2009
$ 1,136
51,412
(64,549)
—
26
8,173
26
9,146
39
161
Net periodic benefit cost (income) . .
$ 14,806
$ 21,293
$ (11,801)
Other Changes in Plan Assets
and Benefit Obligations
Recognized in Other
Comprehensive
Income (Loss)
Net (gain) loss . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . .
$ 6,605
(26)
$ (11,947)
(26)
$ 300,127
(140)
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 2011 are $9,111 and $29, respectively.
The funded status of the Company’s defined benefit pension
plans at the respective year ends was as follows:
January 1,
2011
January 2,
2010
Accumulated benefit obligation:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 899,208
1,225
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,337
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(56,859)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,939
Impact of exchange rate change . . . . . . . . . . . . .
(1,284)
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,055
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
931,621
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of exchange rate change . . . . . . . . . . . . .
612,590
67,624
11,956
(56,859)
(1,284)
1,141
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
635,168
$ 854,414
1,198
50,755
(57,782)
2,711
(5,394)
53,306
899,208
564,705
92,805
16,052
(57,782)
(5,744)
2,554
612,590
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (296,453)
$ (286,618)
F-26
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (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 1,
2011
January 2,
2010
January 3,
2009
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) . . . . . . . .
5.78%
7.48
3.70
5.27%
3.75
6.11%
7.41
3.38
5.78%
3.70
6.34%
8.03
3.63
6.11%
3.38
(1) The compensation increase assumption applies to the international plans and portions
of the nonqualified retirement plans, as benefits under these plans were not frozen at
January 1, 2011, January 2, 2010 and January 3, 2009.
(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 1,
2011
January 2,
2010
Asset category:
Hedge fund of funds . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity securities . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign equity securities. . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43%
25
18
10
4
—
42%
23
19
11
3
2
The Company’s asset strategy and primary investment objec-
tive 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 invest-
ment styles within these asset classes, and by retaining
multiple, third-party investment management firms with
complementary investment styles and philosophies to imple-
ment 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 1, 2011. 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 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 1, 2011, the Company had
$202,604 classified as Level 1 assets, $133,734 classified as
Level 2 assets and $298,830 classified as Level 3 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, certain debt securities, certain
foreign equity securities and cash and cash equivalents, Level 2
assets consisted primarily of certain 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 14 for the Company’s complete disclosure of the fair value
of pension plan assets.
The Company expects to make a $7,000 to $9,000
contribution to the Hanesbrands Inc. Pension Plan in 2011
based on a preliminary calculation by its actuary. Expected
benefit payments are as follows: $50,993 in 2011, $50,430 in
2012, $50,341 in 2013, $52,510 in 2014, $53,392 in 2015 and
$280,310 thereafter.
F-27
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(16)
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 1,
2011
January 2,
2010
January 3,
2009
12.1%
87.9
(142.8)%
242.8
0.6%
99.4
100.0%
100.0%
100.0%
35.0%
1.2
35.0%
(3.4)
35.0%
0.6
earnings . . . . . . . . . . . . . . . . . . . . . . .
2.5
33.9
1.5
Foreign taxes less than U.S.
statutory rate . . . . . . . . . . . . . . . . . . .
Change in state effective tax rate . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . .
Release of unrecognized tax
benefit reserves . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes at effective worldwide
(24.5)
—
1.3
3.0
(8.8)
(0.1)
(46.4)
(14.1)
10.6
(9.9)
—
6.3
(16.3)
—
0.6
2.1
—
(1.5)
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:
Property and equipment . . . . . . . . . . . . . . . . . . . . .
Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . .
January 1,
2011
January 2,
2010
$
5,165
93,972
—
135,438
11,404
13,049
170,247
11,064
41,864
7,204
16,305
505,712
(27,064)
478,648
4,204
5,473
9,677
$ 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
—
2,718
2,718
Net deferred tax assets . . . . . . . . . . . . . . . . . . .
$ 468,971
$ 491,800
tax rates . . . . . . . . . . . . . . . . . . . . . . .
9.6%
12.0%
22.0%
In assessing the realizability of deferred tax assets, manage-
Current and deferred tax provisions (benefits) were:
Year ended January 1, 2011
Domestic . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 2, 2010
Domestic . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended January 3, 2009
Domestic . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Deferred
Total
$ (14,268)
23,157
(2,245)
$ 17,340
(8,077)
6,531
$ 3,072
15,080
4,286
$ 6,644
$ 15,794
$ 22,438
$
—
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
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
Cash payments for income taxes . . . . . . . .
$ 23,350
$ 15,163
$ 32,767
Cash payments above represent cash tax payments made by
the Company primarily in foreign jurisdictions.
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. Manage-
ment 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 tax-
able income and projections for future taxable income over the
periods which the deferred tax assets are deductible, manage-
ment believes it is more likely than not the Company will realize
the benefits of these deductible differences, net of the existing
valuation allowances.
The valuation allowance for deferred tax assets as of
January 1, 2011 and January 2, 2010 was $27,064 and $21,556,
respectively. The net change in the total valuation allowance for
2010 was $5,508 which, including foreign currency fluctuations,
related to foreign loss carryforwards generated partially offset
by favorable financial performance in certain foreign jurisdictions.
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 valuation allowance at January 1, 2011 and January 2,
2010 relates to deferred tax assets established for foreign loss
carryforwards of $25,560 and $21,556, respectively.
F-28
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
At January 1, 2011, the Company has total net operating loss
carryforwards of approximately $113,223 for foreign jurisdictions,
which will expire as follows:
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Fiscal Year:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,188
5,724
23,925
9,503
11,979
58,904
At January 1, 2011, the Company had tax credit carry-
forwards totaling $11,064 which expire after 2019.
At January 1, 2011, 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
$231,000 would have been recognized in the Consolidated
Financial Statements.
The Company and Sara Lee entered into a tax sharing
agreement in connection with the spin off of the Company
from Sara Lee on September 5, 2006. In accordance with
section 2.12 of the tax sharing agreement, the Company
recorded a liability of approximately $15,000 to Sara Lee for
amounts related to income generated prior to the spin off from
Sara Lee which were repatriated in periods since the spin off.
The liability is included in Accounts payable in the Consolidated
Balance Sheet as of January 1, 2011 resulting in a reduction to
Additional paid-in capital. Except for amounts reflected in this
Note 16, to the best of the Company’s knowledge, there are
no other amounts owed to or from Sara Lee under the tax
sharing agreement.
In 2010, the Company recognized a benefit of $20,504 which
resulted from a change in estimate associated with the remea-
surement of unrecognized tax benefit accruals and the deter-
mination that certain tax positions had been effectively settled
following the finalization of tax reviews and audits for amounts
less than originally estimated. Although it is not reasonably pos-
sible to estimate the amount by which 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 authori-
ties, the Company currently does not expect any changes for
unrecognized tax benefits accrued at January 1, 2011 within the
next twelve months.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,929
10,312
(20,504)
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,737
Included in unrecognized tax benefits are $29,737 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 $1,386, $1,010 and $647 for
interest and penalties classified as income tax expense in the
Consolidated Statement of Income for 2010, 2009 and 2008,
respectively. At January 1, 2011 and January 2, 2010, the
Company had a total of $4,687 and $2,377, 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. 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 rela-
tion to any potential assessments.
Under the tax sharing agreement with Sara Lee discussed
above, within 180 days after Sara Lee filed its final consolidated
tax return for the period that included September 5, 2006, Sara
Lee was required to deliver to the Company a computation of
the amount of deferred taxes attributable to the Company’s
United States and Canadian operations that would be included
on the Company’s opening balance sheet as of September 6,
2006 (“as finally determined”) which has been done. The
Company has the right to participate in the computation of the
amount of deferred taxes. Under the tax sharing agreement, if
substituting the amount of deferred taxes as finally determined
for the amount of estimated deferred taxes that were included
on that balance sheet at the time of the spin off causes a
decrease in the net book value reflected on that balance sheet,
then Sara Lee will be required to pay the Company the amount
of such decrease. If such substitution causes an increase in
the net book value reflected on that balance sheet, then the
Company will be required to pay Sara Lee the amount of such
increase. For purposes of this computation, the Company’s
deferred taxes are the amount of deferred tax benefits (including
F-29
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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 1, 2011
and January 2, 2010. The Company and Sara Lee exchanged
information in connection with this matter, but Sara Lee dis-
agreed with the Company’s computation. In accordance with
the dispute resolution provisions of the tax sharing agreement,
in August 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.
(17) 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 1, 2011 and
January 2, 2010, 96,207 and 95,397 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 repur-
chases are made periodically in open-market transactions, and
are subject to market conditions, legal requirements and other
factors. Additionally, management has been granted authority to
establish a trading plan under Rule 10b5-1 of the Exchange Act in
connection with share repurchases, which will allow the
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 certificated
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.
F-30
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
The Company may redeem the rights in whole, but not in
part, at a price of $0.001 per right (subject to adjustment and
payable in cash, common stock or other consideration deemed
appropriate by the board of directors) at any time prior to the ear-
lier of the stock acquisition date and the rights expiration date.
Immediately upon the action of the board of directors authoriz-
ing any redemption, the rights will terminate and the holders
of rights will only be entitled to receive the redemption price.
At any time after a person becomes an acquiring person and
prior to the earlier of (i) the time any person, together with all
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.
(18) Business Segment Information
The Company’s operations are managed and reported in five
operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery,
Direct to Consumer and International. These segments are
organized principally by product category, geographic location
and distribution channel. Each segment has its own manage-
ment that is responsible for the operations of the segment’s
businesses but the segments share a common supply chain and
media and marketing platforms. In October 2009, the Company
completed the sale of its yarn operations and, as a result, the
Company no longer has net sales in the Other segment, which
was primarily comprised of sales of yarn to third parties.
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
primarily seasonal in nature under the product categories
of casualwear and activewear.
n Hosiery sells products in categories such as pantyhose,
knee highs and tights.
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 primarily 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.
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.”
Net sales:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
$ 2,012,922 $ 1,833,616 $ 1,947,167
1,259,935 1,051,735 1,196,155
217,391
185,710
370,163
369,739
496,170
437,804
21,724
12,671
166,780
377,847
509,229
—
Total net sales . . . . . . . . . . . . . . . .
$ 4,326,713 $ 3,891,275 $ 4,248,770
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
Segment operating profit (loss):
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
$ 263,368 $ 234,352 $ 223,420
66,149
68,696
44,541
64,349
328
77,656
53,583
25,880
59,368
—
53,050
61,070
37,178
44,688
(2,164)
Total segment operating profit . . .
479,855
428,174
467,483
Items not included in segment
operating profit (loss):
General corporate expenses . . . . . . . . .
Amortization of trademarks and other
identifiable intangibles . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Inventory write-offs included in cost
of sales . . . . . . . . . . . . . . . . . . . . . . .
Accelerated depreciation included in
cost of sales . . . . . . . . . . . . . . . . . . .
Accelerated depreciation included in
selling, general and
administrative expenses. . . . . . . . . .
Total operating profit . . . . . . . . . . .
Other (expense) income . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . .
Income before income
(63,158)
(75,127)
(45,177)
(12,509)
—
(12,443)
(53,888)
(12,019)
(50,263)
—
—
(4,135)
(18,696)
(8,641)
(23,862)
—
(3,084)
14
404,188
(20,221)
(150,236)
270,856
(49,301)
(163,279)
317,480
634
(155,077)
tax expense . . . . . . . . . . . . . . . .
$ 233,731 $ 58,276 $ 163,037
F-31
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Assets:
Innerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1,
2011
January 2,
2010
$ 1,269,839
828,142
71,496
88,623
278,757
—
2,536,857
1,253,145
$ 1,101,632
707,118
83,662
80,243
221,504
1,622
2,195,781
1,130,783
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,790,002
$ 3,326,564
Additions to long-lived assets:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . .
Total additions to
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
$ 49,319
38,000
550
11,679
2,543
—
102,091
4,149
$ 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
January 1,
2011
Years Ended
January 2,
2010
January 3,
2009
long-lived assets . . . . . . . . . . . .
$ 106,240
$ 126,825
$ 186,957
(1) Principally cash and equivalents, certain fixed assets, net deferred tax assets, goodwill,
trademarks and other identifiable intangibles, and certain other noncurrent assets.
Sales to Wal-Mart, Target and Kohl’s were substantially in
the Innerwear and Outerwear segments and represented 26%,
17% and 6% of total sales in 2010, respectively.
Worldwide sales by product category for Innerwear,
Outerwear and Hosiery were $2,616,865, $1,485,152 and
$224,696, respectively, in 2010.
Depreciation and
amortization expense:
Innerwear . . . . . . . . . . . . . . . . . . . . .
Outerwear . . . . . . . . . . . . . . . . . . . . .
Hosiery . . . . . . . . . . . . . . . . . . . . . . .
Direct to Consumer . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . .
Total depreciation and
$ 35,095
21,709
2,627
6,116
2,096
—
67,643
18,969
$ 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
amortization expense . . . . . . . .
$ 86,612
$ 96,755
$ 115,145
(19) Geographic Area Information
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central America and the Caribbean Basin . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2011
Years Ended or at
January 2, 2010
January 3, 2009
Sales
$ 3,819,296
77,104
3,905
96,543
144,154
66,543
57,078
15,246
46,844
$ 4,326,713
Long-Lived
Assets
$ 176,035
2,004
265,625
485
5,159
464
792
138,254
42,436
$ 631,254
Sales
$ 3,447,751
65,832
10,419
94,037
124,197
59,679
44,957
10,197
34,206
$ 3,891,275
Long-Lived
Assets
$ 185,821
1,672
260,564
240
5,084
520
678
114,100
34,147
$ 602,826
Sales
$ 3,748,382
68,453
13,550
98,251
139,971
93,560
44,197
9,397
33,009
$ 4,248,770
Long-Lived
Assets
$ 237,841
7,097
232,625
311
4,817
489
500
72,654
31,855
$ 588,189
The net sales by geographic region is attributed by customer location.
F-32
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
(20) Quarterly Financial Data (Unaudited)
First
Second
Third
Fourth
Total
2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$927,840
327,430
36,513
0.38
0.37
$857,841
257,876
(19,328)
(0.20)
(0.20)
$1,075,852
374,806
85,412
0.89
0.87
$986,022
327,391
30,555
0.32
0.32
$1,173,362
363,875
61,312
0.64
0.63
$1,058,673
356,680
41,138
0.43
0.43
$1,149,659
348,658
28,056
0.29
0.29
$988,739
323,327
(1,082)
(0.01)
(0.01)
$4,326,713
1,414,769
211,293
2.19
2.16
$3,891,275
1,265,274
51,283
0.54
0.54
The amounts above include the impact of restructuring as described in Note 22 to the consolidated financial statements.
(21) Consolidating Financial Information
In accordance with the indenture governing the Company’s
$500,000 Floating Rate Senior Notes issued on December 14,
2006, the indenture governing the Company’s $500,000 8%
Senior Notes issued on December 10, 2009 and the indenture
governing the Company’s $1,000,000 6.375% Senior Notes
issued on November 9, 2010 (together, the “Indentures”),
certain of the Company’s subsidiaries have guaranteed the
Company’s obligations under the Floating Rate Senior Notes, the
8% Senior Notes and the 6.375% Senior Notes, respectively.
The following presents the condensed consolidating financial
information separately for:
(i) Parent Company, the issuer of the guaranteed obligations.
Parent Company includes Hanesbrands Inc. and its 100% owned
operating divisions which are not legal entities, and excludes its
subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified
in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing
adjustments to (a) eliminate intercompany transactions between
or among Parent Company, the guarantor subsidiaries and the
non-guarantor subsidiaries, (b) eliminate intercompany profit in
inventory, (c) eliminate the investments in our subsidiaries and
(d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes, the 8% Senior Notes
and the 6.375% Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each guarantor
subsidiary, each of which is wholly owned, directly or indirectly,
by Hanesbrands Inc. Each entity in the consolidating financial
information follows the same accounting policies as described
in the consolidated financial statements, except for the use by
the Parent Company and guarantor subsidiaries of the equity
method of accounting to reflect ownership interests in subsidiar-
ies which are eliminated upon consolidation.
F-33
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Consolidating Statement of Income Year Ended January 1, 2011
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,018,341
3,268,900
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 470,527
187,657
$ 3,025,488
2,672,497
$ (3,187,643)
(3,217,110)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
749,441
793,210
(43,769)
396,080
20,221
138,746
193,344
(17,949)
282,870
99,636
183,234
155,925
—
(90)
339,249
27,625
352,991
116,713
236,278
—
—
11,584
224,694
12,762
29,467
1,022
28,445
(552,005)
—
(4)
(523,556)
—
Consolidated
$ 4,326,713
2,911,944
1,414,769
1,010,581
404,188
—
20,221
150,236
233,731
22,438
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 211,293
$ 311,624
$ 211,932
$
(523,556)
$ 211,293
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
F-34
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Condensed Consolidating Balance Sheet
January 1, 2011
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,535
50,375
Trade accounts receivable less allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
954,073
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255,880
Deferred tax assets and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,277,863
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other identifiable intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets and other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,596
16,006
232,882
1,542,231
115,500
$
2,039
35,256
100,435
13,480
151,210
47,842
141,635
124,214
886,349
350,862
$
24,097
417,612
355,908
8,894
806,511
464,816
20,981
73,048
—
146,859
Consolidating
Entries and
Eliminations
$
—
—
(87,697)
(216)
(87,913)
—
—
—
(2,428,580)
(210,910)
Consolidated
$
43,671
503,243
1,322,719
278,038
2,147,671
631,254
178,622
430,144
—
402,311
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,303,078
$ 1,702,112
$ 1,512,215
$ (2,727,403)
$ 3,790,002
Liabilities and Stockholders’ Equity:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243,169
150,831
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Current portion of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
394,000
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,990,735
355,669
2,740,404
562,674
$
17,198
55,502
—
—
72,700
—
35,072
107,772
1,594,340
$ 152,002
69,979
50,678
90,000
362,659
—
16,502
379,161
1,133,054
$
—
(9)
—
—
(9)
—
—
(9)
(2,727,394)
$ 412,369
276,303
50,678
90,000
829,350
1,990,735
407,243
3,227,328
562,674
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,303,078
$ 1,702,112
$ 1,512,215
$ (2,727,403)
$ 3,790,002
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,727,547
331,809
2,503,925
334,719
$
5,237
22,902
—
—
28,139
—
3,626
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
F-35
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Year Ended January 1, 2011
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 381,450
$ 162,475
$
139,614
$ (550,485)
$ 133,054
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to amend and refinance credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt under 2009 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . .
Issuance of 6.375% 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,813)
—
44,269
(519)
17,937
—
—
(23,833)
2,228,500
(2,280,000)
(750,000)
1,000,000
—
—
5,938
1,639
(576,901)
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(394,657)
Effect of changes in foreign exchange rates on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
4,730
12,805
(11,403)
(222,878)
—
—
(234,281)
—
—
—
—
—
—
—
—
—
—
—
72,199
72,199
—
393
1,646
(69,024)
—
1,373
—
(67,651)
1,394,782
(1,411,295)
—
—
—
—
—
207,290
(217,290)
—
(46)
(45,783)
(72,342)
(16)
(395)
24,492
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
550,485
550,485
—
—
—
(106,240)
(222,878)
45,642
(519)
(283,995)
1,394,782
(1,411,295)
(23,833)
2,228,500
(2,280,000)
(750,000)
1,000,000
207,290
(217,290)
5,938
1,593
—
155,685
(16)
4,728
38,943
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
17,535
$
2,039
$
24,097
$
—
$
43,671
F-36
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
Condensed Consolidating Statement of Cash Flows
Year Ended January 2, 2010
Parent
Company
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Entries and
Eliminations
Consolidated
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,296
$ 497,035
$ 140,743
$ (393,570)
$ 414,504
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incurrence of debt under 2009 Senior Secured Credit Facility. . . . . . . . . . . . . . . . . . . . . .
Payments to amend and refinance credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transactions with related entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,442)
32,931
(148)
11,341
—
—
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
—
—
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
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,805
$
1,646
$
24,492
$
—
$
38,943
F-37
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 2006 Senior Secured Credit Facility . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,129)
—
20,612
2,047
(9,470)
—
—
(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
—
—
—
(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
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,210
$
2,355
$ 48,777
$
—
$ 67,342
(22) Restructuring
The Company has restructured its supply chain over the past
The reported results for 2010, 2009 and 2008 reflect amounts
three years to create more efficient production clusters that
utilize fewer, larger facilities and to balance production capabil-
ity between the Western Hemisphere and Asia. With its global
supply chain infrastructure in place, the Company is focused
long-term on optimizing its supply chain to further enhance
efficiency, improve working capital and asset turns and reduce
costs through several initiatives, such as supplier-managed
inventory for raw materials and sourced goods ownership
arrangements. The Company consolidated its distribution
network by implementing new warehouse management
systems and technology and adding new distribution centers and
new third-party logistics providers to replace parts of its legacy
distribution network, including relocating distribution capacity to
its West Coast distribution facility in California in order to expand
capacity for goods it sources from Asia.
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:
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
Restructuring programs:
Year ended January 2, 2010
restructuring actions . . . . . . . . . . .
$ —
$ 46,216
$
—
Year ended January 3, 2009
restructuring actions . . . . . . . . . . .
Year ended December 29, 2007
restructuring actions . . . . . . . . . . .
Six months ended December 30, 2006
and prior restructuring actions . . .
—
—
—
$ —
17,833
87,117
4,631
8,661
1,068
(2,971)
$ 69,748
$ 92,807
F-38
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
The following table illustrates where the costs associated
Year Ended January 2, 2010 Actions
with these actions are recognized in the Consolidated State-
ments of Income:
Cost of sales. . . . . . . . . . . . . . . . . . . . . .
Selling, general and
administrative expenses. . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
$ —
$ 12,776
$ 42,558
—
—
3,084
53,888
(14)
50,263
$ —
$ 69,748
$ 92,807
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. . . . . . . . . . . . . . . . . . . . . .
Years Ended
January 1,
2011
January 2,
2010
January 3,
2009
$ —
—
—
$ 11,725
4,135
7,503
$ 23,848
18,696
8,993
—
23,941
34,409
—
$ —
22,444
6,861
$ 69,748
$ 92,807
Rollforward of accrued restructuring is as follows:
Beginning accrual. . . . . . . . . . . . . . . . . .
Restructuring expenses . . . . . . . . . . . . .
Cash payments. . . . . . . . . . . . . . . . . . . .
Adjustments to
restructuring expenses . . . . . . . . . . .
January 1,
2011
$ 22,399
—
(16,357)
Years Ended
January 2,
2010
January 3,
2009
$ 21,793 $ 23,350
49,198
(41,185)
45,720
(42,282)
—
(2,832)
(9,570)
Ending accrual . . . . . . . . . . . . . . . . . . . .
$
6,042
$ 22,399 $ 21,793
The accrual balance as of January 1, 2011 is comprised of
$6,036 in current accrued liabilities and $6 in other noncurrent
liabilities. The $6,036 in current accrued liabilities consists of
$2,713 for employee termination and other benefits and $3,323
for noncancelable lease and other contractual obligations. The $6
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.
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 1, 2011, the severance
obligation remaining in accrued restructuring on the Consolidated
Balance Sheet was $1,928. The noncancelable lease and other
contractual obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 1, 2011 was $192.
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.
F-39
H AN E SBRANDS INC.
2 010 AN N UAL RE P ORT ON FORM 10- K
Notes to Consolidated Financial Statements (Continued)
Years ended January 1, 2011, January 2, 2010 and January 3, 2009 (amounts in thousands, except per share data)
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 1, 2011, there was
no remaining severance obligation on the Consolidated Balance
Sheet. The lease termination and other contractual obligations
remaining in accrued restructuring on the Consolidated Balance
Sheet as of January 1, 2011 was $48.
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.
Year Ended January 3, 2009 Actions
During 2008, the Company approved actions to close 11
manufacturing facilities and three distribution centers and elimi-
nate 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 Carib-
bean 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 com-
pleted 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 previ-
ously 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 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 1, 2011, the severance
obligation remaining in accrued restructuring on the Consoli-
dated Balance Sheet was $785. The lease termination and other
contractual obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 1, 2011 was $3,089.
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.
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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
Investor Relations
1000 East Hanes Mill Road
Winston-Salem, NC 27105
Phone: (336) 519-7130
E-mail: ir@hanesbrands.com
TRANSFER AGENT
Computershare Investor Services
Phone: (312) 360-5212
or (800) 697-8592
Website:
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
Investor Relations
1000 East Hanes Mill Road
Winston-Salem, NC 27105
CORPORATE WEBSITE
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 websites, 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 websites,
we do not incorporate our
websites 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. Typeset-
ting the body of the report, which
enhances the presentation of the
content, reduced the printed page
count by 31 percent compared
with the document filed
electronically with the Securities
and Exchange Commission.
HANESBRANDS AT A GLANCE
REVENUES
$4.3 billion
EMPLOYEES
55,500 in more than 25 countries
PRODUCTS
Basic innerwear and outerwear apparel including T-shirts, male underwear,
intimate apparel, socks, sheer hosiery, fleece and other activewear and casualwear items.
CUSTOMERS
BRANDS
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, Gear For Sports,
Stedman, Zorba, Outer Banks, Rinbros, Sol y Oro and Duofold
MARKETS
7 key growth markets around the world:
United States, Canada, Mexico, Brazil, Japan, China and India
CORPORATE SOCIAL RESPONSIBILITY LEADERSHIP
HanesBrands is making a difference.
We are proud to be an award-winning leader in environmental and social responsibility,
protecting our world for future generations through a culture of integrity.
®
In Central America, more than 1,100 employees
are seeking their high school diplomas
with our help. Above, the first graduating
class celebrates.
Our corporate social responsibility website
is a public record of the details and
data behind our achievements.
Visit www.HanesBrandsCSR.com.
We use EcoSmart® polyester fibers made
from recycled plastic bottles and EcoSmart
cotton yarn made from recycled fabric waste
in specially-marked Hanes products.
LEADERSHIP IN USE OF CLEAN,
DOUBLE-DIGIT REDUCTION
CARBON REDUCTION
RENEWABLE ENERGY
IN CARBON EMISSIONS
More than 30 percent of the energy we
We have reduced our carbon emissions
use comes from innovative renewable
by 27 percent per garment produced
sources that limit carbon emissions.
since 2007 by using more clean energy
PROTECTING WORKERS’ RIGHTS
and being more efficient.
HanesBrands has a leading worldwide
CONSERVING WATER
social compliance program that is
We have reduced our water usage by
accredited by the Fair Labor Association,
28 percent per garment produced
a nonprofit workers’ rights organization.
since 2007.
(kg of CO2
per manufactured unit 1)
.30
.15
–2%
–13%
–15%
07
08
09
10
1 Excludes yarn production, which is no longer
produced by HanesBrands
We rank No. 91 on Newsweek magazine’s
list of 500 greenest U.S. companies, and our
energy conservation efforts have earned us
the U.S. Environmental Protection Agency’s
Energy Star Partner of the Year award for
two consecutive years.
We recycle more than
70 percent of our waste,
reducing the need for
landfills and raising money
to fund community
improvement projects.
HanesBrands’ strong consumer brands and worldwide
supply chain support expansion initiatives around the world
in the company’s 7 core growth geographies.
1000 East Hanes Mill Road
Winston-Salem, NC 27105
(336) 519-8080
www.hanesbrands.com
COMPANY MARKET SHARE1 AND GDP RANKINGS2
UNITED STATES
CANADA
MEXICO
BRAZIL
# 1
Intimate apparel,
male underwear,
socks, fleece
# 2 Outerwear T-shirts
# 1 World GDP Rank
# 2
Intimate apparel,
male underwear
# 14 World GDP Rank
# 1
Intimate apparel,
male underwear
# 11 World GDP Rank
# 1 Male underwear
# 7 World GDP Rank
JAPAN
CHINA
INDIA
# 4 Activewear
# 5 Male underwear
# 3 World GDP Rank
N/A Emerging market share
# 2 World GDP Rank
N/A Emerging market share
# 4 World GDP Rank
1 Unit market share sources: NPD
Group, NPD Group Canada, Reliable
Sources Mfg Shipments, IBOPE
Pantry Check, Yano Research, and
HanesBrands research
2 Estimates of 2010 Gross Domestic
Product: CIA “The World Factbook”
A STRONG PORTFOLIO OF GREAT BRANDS AROUND THE WORLD
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