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Hanesbrands Inc. - Quarter Report: 2016 April (Form 10-Q)

Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-32891
 
 
 
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
 
20-3552316
(State of incorporation)
 
(I.R.S. employer
identification no.)
 
 
1000 East Hanes Mill Road
Winston-Salem, North Carolina
 
27105
(Address of principal executive office)
 
(Zip code)
(336) 519-8080
(Registrant’s telephone number including area code)
 
 
 
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  x    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  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
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  x
As of April 22, 2016, there were 377,517,432 shares of the registrant’s common stock outstanding.
 


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, statements under the heading “Outlook” and other information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 2, 2016, under the caption “Risk Factors,” and available on the “Investors” section of our corporate website, www.Hanes.com/investors.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended January 2, 2016, particularly under the caption “Risk Factors.” We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.

WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s web site at prescribed rates, you may complete an online form at www.sec.gov, send a fax to (202) 772-9337 or submit a written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information.
We make available free of charge at www.Hanes.com/investors (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.Hanes.com/corporate, or any of our other websites, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.


1

Table of Contents

PART I

Item 1.
Financial Statements

HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(unaudited)

 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Net sales
$
1,219,140

 
$
1,208,921

Cost of sales
761,884

 
762,690

Gross profit
457,256

 
446,231

Selling, general and administrative expenses
334,851

 
356,300

Operating profit
122,405

 
89,931

Other expenses
649

 
382

Interest expense, net
31,566

 
26,887

Income before income tax expense
90,190

 
62,662

Income tax expense
9,921

 
10,026

Net income
$
80,269

 
$
52,636

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.21

 
$
0.13

Diluted
$
0.21

 
$
0.13



See accompanying notes to Condensed Consolidated Financial Statements.
2

Table of Contents

HANESBRANDS INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)

 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Net income
$
80,269

 
$
52,636

Other comprehensive income, net of tax of $1,439 and $3,840, respectively
10,216

 
4,843

Comprehensive income
$
90,485

 
$
57,479



See accompanying notes to Condensed Consolidated Financial Statements.
3

Table of Contents

HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

 
April 2,
2016
 
January 2,
2016
Assets
 
 
 
Cash and cash equivalents
$
332,422

 
$
319,169

Trade accounts receivable, net
722,103

 
680,417

Inventories
1,969,872

 
1,814,602

Other current assets
93,283

 
103,679

Total current assets
3,117,680

 
2,917,867

 
 
 
 
Property, net
652,126

 
650,462

Trademarks and other identifiable intangibles, net
711,950

 
700,515

Goodwill
838,984

 
834,315

Deferred tax assets
452,709

 
445,179

Other noncurrent assets
48,612

 
49,252

Total assets
$
5,822,061

 
$
5,597,590

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
530,436

 
$
672,972

Accrued liabilities
460,514

 
460,333

Notes payable
115,237

 
117,785

Accounts Receivable Securitization Facility
200,000

 
195,163

Current portion of long-term debt
62,325

 
57,656

Total current liabilities
1,368,512

 
1,503,909

Long-term debt
2,963,424

 
2,232,712

Pension and postretirement benefits
322,586

 
362,266

Other noncurrent liabilities
215,498

 
222,812

Total liabilities
4,870,020

 
4,321,699

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock (50,000,000 authorized shares; $.01 par value)
 
 
 
Issued and outstanding — None

 

Common stock (2,000,000,000 authorized shares; $.01 par value)
 
 
 
Issued and outstanding — 377,513,184 and 391,652,810, respectively
3,775

 
3,917

Additional paid-in capital
275,937

 
277,569

Retained earnings
1,057,046

 
1,389,338

Accumulated other comprehensive loss
(384,717
)
 
(394,933
)
Total stockholders’ equity
952,041

 
1,275,891

Total liabilities and stockholders’ equity
$
5,822,061

 
$
5,597,590



See accompanying notes to Condensed Consolidated Financial Statements.
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Table of Contents

HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 
Quarter ended
 
April 2,
2016
 
April 4,
2015
Operating activities:
 
 
 
Net income
$
80,269

 
$
52,636

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation and amortization of long-lived assets
22,820

 
24,573

Amortization of debt issuance costs
1,790

 
1,690

Stock compensation expense
7,508

 
4,152

Deferred taxes and other
(8,372
)
 
1,446

Changes in assets and liabilities, net of acquisition of business:
 
 
 
Accounts receivable
(34,927
)
 
(58,024
)
Inventories
(140,393
)
 
(180,352
)
Other assets
3,030

 
(6,166
)
Accounts payable
(141,341
)
 
10,534

Accrued pension and postretirement
(37,793
)
 
(98,366
)
Accrued liabilities and other
(37,397
)
 
(11,468
)
Net cash from operating activities
(284,806
)
 
(259,345
)
 
 
 
 
Investing activities:
 
 
 
Purchases of property, plant and equipment
(27,859
)
 
(36,368
)
Proceeds from sales of assets
15,286

 
4,735

Acquisition of business, net of cash acquired
(7,062
)
 

Net cash from investing activities
(19,635
)
 
(31,633
)
 
 
 
 
Financing activities:
 
 
 
Borrowings on notes payable
368,778

 
43,828

Repayments on notes payable
(367,016
)
 
(61,137
)
Borrowings on Accounts Receivable Securitization Facility
53,261

 
79,039

Repayments on Accounts Receivable Securitization Facility
(48,424
)
 
(90,393
)
Borrowings on Revolving Loan Facility
1,471,500

 
1,327,500

Repayments on Revolving Loan Facility
(732,500
)
 
(921,000
)
Repayments on Euro Term Loan Facility

 
(974
)
Repayments on Term Loan A Facility
(9,063
)
 

Repayments on Term Loan B Facility
(1,063
)
 

Borrowings on International Debt
2,895

 
3,352

Repayments on International Debt
(1,728
)
 
(1,913
)
Share repurchases
(379,901
)
 

Cash dividends paid
(42,683
)
 
(40,083
)
Taxes paid related to net shares settlement of equity awards
(837
)
 
(17,982
)
Excess tax benefit from stock-based compensation
924

 
12,833

Debt issuance costs and other
541

 
684

Net cash from financing activities
314,684

 
333,754

Effect of changes in foreign exchange rates on cash
3,010

 
(5,564
)
Change in cash and cash equivalents
13,253

 
37,212

Cash and cash equivalents at beginning of year
319,169

 
239,855

Cash and cash equivalents at end of period
$
332,422

 
$
277,067



See accompanying notes to Condensed Consolidated Financial Statements.
5

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)



(1)
Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc., a Maryland corporation, and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.
Certain prior year amounts in the notes to condensed consolidated financial statements, none of which are material, have been reclassified to conform with the current year presentation. These reclassifications had no impact on the Company’s results of operations.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
(2)
Recent Accounting Pronouncements
Consolidation
In February 2015, the Financial Accounting Standards Board (the “FASB”) issued an update to their existing consolidation model, which changes the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new rules were effective for the Company in the first quarter of 2016. The adoption of the new accounting rules did not have an impact on the Company’s financial condition, results of operations or cash flows.
Debt Issuance Costs
In April 2015, the FASB issued new accounting rules, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The new rules were effective for the Company in the first quarter of 2016. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Cloud Computing
In April 2015, the FASB issued new accounting rules, related to a customer’s accounting for fees paid in a cloud computing arrangement. The guidance provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting for other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. The new rules were effective for the Company in the first quarter of 2016. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Fair Value Measurement
In May 2015, the FASB issued an update to their accounting guidance related to fair value measurements. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient, and requires separate disclosure of those investments instead. These disclosures were effective for the Company in the first quarter of 2016. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

Measurement Period Adjustments
In September 2015, the FASB issued new accounting rules, which simplify the accounting for measurement period adjustments by eliminating the requirements to restate prior period financial statements for these adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard, which should be applied prospectively to measurement period adjustments that occur after the effective date, was effective for the Company in the first quarter of 2016. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.
Stock Compensation
In March 2016, the FASB issued new accounting rules related to accounting for stock compensation. The new guidance requires all excess tax benefits and deficiencies to be recognized in income as they occur. The new guidance also changes the cash flow presentation of excess tax benefits, classifying them as operating inflows or outflows. The new standard, which can be applied retrospectively or prospectively, is effective for the Company in the first quarter of 2017. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows.
Inventory
In July 2015, the FASB issued new accounting rules, which require inventory to be recorded at the lower of cost or net realizable value. The new standard will be effective for the Company in the first quarter of 2017. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations or cash flows.
Revenue from Contracts with Customers
In July 2015, the FASB decided to delay effective dates for the new accounting rules related to revenue recognition for contracts with customers by one year. In March 2016, the FASB issued an update to the accounting rules regarding revenue from contracts with customers, which clarifies revenue recognition when an agent, along with the entity, is involved in providing a good or service to a customer. In April 2016, the FASB issued an additional update, which clarifies the principle for determining whether a good or service is “separately identifiable” and, therefore, should be accounted for separately. The new standard will be effective for the Company in the first quarter of 2018 with retrospective application required. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows.
Hedge Accounting
In March 2016, the FASB issued new accounting rules related to hedge accounting, which clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. The new standard, which can be adopted prospectively or on a modified retrospective basis, is effective for the Company in the first quarter of 2018. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows.
Lease Accounting
In February 2016, the FASB issued new accounting rules related to lease accounting, which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. The new rules will be effective for the Company in the first quarter of 2019. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows.

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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(3)
Acquisitions
Knights Apparel
In April 2015, the Company completed the acquisition of Knights Holdco, Inc. (“Knights Apparel”), a leading seller of licensed collegiate logo apparel in the mass retail channel, from Merit Capital Partners in an all cash transaction valued at $192,888 on an enterprise value basis. The Company funded the acquisition with cash on hand and short-term borrowings under its Revolving Loan Facility.
Factors that contribute to the amount of goodwill recognized for the acquisition include the value of the existing work force and cost savings by utilizing the Company’s low-cost supply chain and expected synergies with existing Company functions. Goodwill associated with the acquisition is not tax deductible.
Since January 2, 2016, goodwill decreased by $3,551 as a result of measurement period adjustments to the acquired income tax balances. The purchase price allocation was finalized in the first quarter of 2016.
The acquired assets and assumed liabilities at the date of acquisition (April 6, 2015) include the following:
 
 
Cash and cash equivalents
$
59

Trade accounts receivable
14,879

Inventories
22,820

Deferred tax assets and other
5,741

Trademarks and other identifiable intangibles
59,950

Total assets acquired
103,449

Accounts payable, accrued liabilities and other
6,807

Deferred tax liabilities and other noncurrent liabilities
18,142

Total liabilities assumed
24,949

Net assets acquired
78,500

Goodwill
114,388

Purchase price
$
192,888

 
 
 
 
(4)
Stockholders’ Equity
Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted average shares of common stock outstanding. Diluted EPS was calculated to give effect to all potentially dilutive shares of common stock using the treasury stock method.
The reconciliation of basic to diluted weighted average shares outstanding is as follows:
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Basic weighted average shares outstanding
386,598

 
403,578

Effect of potentially dilutive securities:
 
 
 
Stock options
1,400

 
3,166

Restricted stock units
1,040

 
1,498

Employee stock purchase plan and other
5

 
18

Diluted weighted average shares outstanding
389,043

 
408,260

For the quarters ended April 2, 2016 and April 4, 2015, there were no options or restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
For the quarters ended April 2, 2016 and April 4, 2015, the Company declared cash dividends of $0.11 and $0.10 per share, respectively.

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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

In 2007, the Company’s Board of Directors authorized up to 40,000 shares to be repurchased in open-market transactions, and such repurchases are subject to market conditions, legal requirements and other factors. During the quarter ended April 2, 2016, the Company entered into transactions to repurchase 14,243 shares at a weighted average repurchase price of $26.65 per share. The shares were repurchased at a total cost of $379,901. At April 2, 2016, the remaining repurchase authorization totaled 2,261 shares. The program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s discretion.
(5)
Inventories
Inventories consisted of the following: 
 
April 2,
2016
 
January 2,
2016
Raw materials
$
162,016

 
$
173,336

Work in process
219,833

 
200,836

Finished goods
1,588,023

 
1,440,430

 
$
1,969,872

 
$
1,814,602

(6)
Debt
Debt consisted of the following: 
 
Interest
Rate as of
April 2,
2016
 
Principal Amount
 
Maturity Date
 
April 2,
2016
 
January 2,
2016
 
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Revolving Loan Facility
1.99%
 
$
802,500

 
$
63,500

 
April 2020
Euro Term Loan
3.50%
 
117,304

 
113,098

 
August 2021
Term Loan A
1.90%
 
696,250

 
705,313

 
April 2020
Term Loan B
3.25%
 
420,750

 
421,813

 
April 2022
6.375% Senior Notes
6.38%
 
1,000,000

 
1,000,000

 
December 2020
Accounts Receivable Securitization Facility
1.33%
 
200,000

 
195,163

 
March 2017
Other International Debt
Various
 
9,582

 
8,094

 
Various
 
 
 
3,246,386

 
2,506,981

 
 
Less long-term debt issuance cost
 
 
20,637

 
21,450

 
 
Less current maturities
 
 
262,325

 
252,819

 
 
 
 
 
$
2,963,424

 
$
2,232,712

 
 
As of April 2, 2016, the Company had $182,005 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account outstanding borrowings and $15,495 of standby and trade letters of credit issued and outstanding under this facility.
In March 2016, the Company amended the accounts receivable securitization facility that it entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the termination date to March 2017 and changed the borrowing capacity from a fixed capacity to a varying limit throughout the year, in order to minimize fees for the Company’s unused portion of the facility.
As of April 2, 2016, the Company was in compliance with all financial covenants under its credit facilities.

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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(7)
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss (“AOCI”) are as follows:
 
Cumulative Translation Adjustment
 
Hedges
 
Defined Benefit Plans
 
Income Taxes
 
Accumulated Other Comprehensive Loss
 
 
 
 
Balance at January 2, 2016
$
(57,675
)
 
$
6,743

 
$
(563,759
)
 
$
219,758

 
$
(394,933
)
Amounts reclassified from accumulated other comprehensive loss

 
(2,324
)
 
4,205

 
(732
)
 
1,149

Current-period other comprehensive income (loss) activity
12,474

 
(5,578
)
 

 
2,171

 
9,067

 
 
 
 
 
 
 
 
 
 
Balance at April 2, 2016
$
(45,201
)
 
$
(1,159
)
 
$
(559,554
)
 
$
221,197

 
$
(384,717
)
The Company had the following reclassifications out of AOCI:
Component of AOCI
 
Location of Reclassification into Income
 
Amount of Reclassification
from AOCI
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Gain (loss) on foreign exchange contracts
 
Cost of sales
 
$
2,324

 
$
835


 
Income tax
 
(904
)
 
(507
)

 
Net of tax
 
1,420

 
328

Amortization of deferred actuarial loss and prior service cost
 
Selling, general and administrative
expenses
 
(4,205
)
 
(2,770
)

 
Income tax
 
1,636

 
1,200


 
Net of tax
 
(2,569
)
 
(1,570
)
 
 
 
 
 
 
 
Total reclassifications
 
 
 
$
(1,149
)
 
$
(1,242
)
(8)
Financial Instruments and Risk Management
The Company uses forward foreign exchange contracts to manage its exposures to movements in foreign exchange rates. As of April 2, 2016, the notional U.S. dollar equivalent of commitments to sell and purchase foreign currencies within the Company’s derivative portfolio was $229,472 and $2,614, respectively, primarily consisting of contracts hedging exposures to the Euro, Canadian dollar, Mexican peso, Australian dollar, Japanese yen and Brazilian real.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
 
Balance Sheet Location
 
Fair Value
 
April 2,
2016
 
January 2,
2016
Hedges
Other current assets
 
$
131

 
$
3,700

Non-hedges
Other current assets
 
339

 
1,514

Total derivative assets
 
 
470

 
5,214

 
 
 
 
 
 
Hedges
Accrued liabilities
 
(3,728
)
 
(330
)
Non-hedges
Accrued liabilities
 
(1,297
)
 
(775
)
Total derivative liabilities
 
 
(5,025
)
 
(1,105
)
 
 
 
 
 
 
Net derivative asset (liability)
 
 
$
(4,555
)
 
$
4,109

Cash Flow Hedges

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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

The Company uses forward foreign exchange 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 Company expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $65.
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 Condensed Consolidated Statements of Income.
The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of AOCI and Income is as follows:
 
Amount of Gain (Loss)
Recognized in AOCI
(Effective Portion)
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Foreign exchange contracts
$
(5,578
)
 
$
11,185

 
 
Location of
Gain (Loss)
Reclassified from AOCI into Income
(Effective Portion)
Amount of Gain
Reclassified from AOCI
into Income
(Effective Portion)
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Foreign exchange contracts
Cost of sales
$
2,324

 
$
835

Derivative Contracts Not Designated As Hedges
The Company uses foreign exchange derivative contracts as economic hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheet. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.
The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:
 
Location of Gain (Loss)
Recognized in Income on
Derivative
 
Amount of Gain (Loss)
Recognized in Income
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Foreign exchange contracts
Selling, general and administrative expenses
 
$
(2,408
)
 
$
3,470


(9)
Fair Value of Assets and Liabilities
As of April 2, 2016, 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 foreign exchange rates and deferred compensation plan liabilities. The fair values of foreign currency derivatives are determined using the cash flows of the foreign

11

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

exchange contract, discount rates to account for the passage of time and current foreign exchange market data and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a recurring basis.
There were no changes during the quarter ended April 2, 2016 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers into or out of Level 1, Level 2 or Level 3 during the quarter ended April 2, 2016. As of and during the quarter ended April 2, 2016, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.
The following tables set forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities accounted for at fair value on a recurring basis.
 
Assets (Liabilities) at Fair Value as of
April 2, 2016
 
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts
$

 
$
470

 
$

Foreign exchange derivative contracts

 
(5,025
)
 

 

 
(4,555
)
 

Deferred compensation plan liability

 
(36,015
)
 

Total
$

 
$
(40,570
)
 
$

 
 
Assets (Liabilities) at Fair Value as of
January 2, 2016
 
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts
$

 
$
5,214

 
$

Foreign exchange derivative contracts

 
(1,105
)
 

 

 
4,109

 

Deferred compensation plan liability

 
(36,257
)
 

Total
$

 
$
(32,148
)
 
$

Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of April 2, 2016 and January 2, 2016. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $14,696 and $13,100 as of April 2, 2016 and January 2, 2016, respectively. The fair value of debt, which is classified as a Level 2 liability, was $3,285,216 and $2,537,640 as of April 2, 2016 and January 2, 2016, respectively. Debt had a carrying value of $3,246,386 and $2,506,981 as of April 2, 2016 and January 2, 2016, respectively. In the first quarter of 2016, the Company adopted new accounting rules, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. Hence, the carrying value of debt reflected on the face of the balance sheet reflects the adoption of the new accounting rules. However, the carrying value of debt reflected in this footnote disclosure reflects the gross amount owed to creditors. 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, which is classified as a Level 2 liability, approximated fair value as of April 2, 2016 and January 2, 2016, primarily due to the short-term nature of these instruments.

12

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

(10)
Income Taxes
The Company’s effective income tax rate was 11% and 16% for the quarters ended April 2, 2016 and April 4, 2015, respectively. The lower effective income tax rate for the quarter ended April 2, 2016 compared to the quarter ended April 4, 2015 was primarily due to a lower proportion of earnings attributed to domestic subsidiaries, which are taxed at rates higher than foreign subsidiaries.
(11)
Subsequent Event
The Company announced on April 7, 2016 that it had entered into a definitive agreement to acquire Champion Europe S.p.A (“Champion Europe”), which owns the trademark for the Champion brand in Europe, the Middle East and Africa. The purchase price will be 10 times actual calendar year 2016 earnings before interest, taxes, depreciation and amortization (“EBITDA”), subject to adjustment for cash, debt and working capital. Champion Europe expects calendar year 2016 EBITDA of approximately €20,000. The acquisition, which is subject to certain closing conditions, is expected to close midyear 2016.
(12)
Business Segment Information
The Company’s operations are managed and reported in four operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. As a result of a shift in management responsibilities, the Company decided in the first quarter of 2016 to move its wholesale e-commerce business from its Direct to Consumer segment into the respective Innerwear and Activewear segments. Prior year segment sales and operating profit results have been revised to conform to the current year presentation.
The types of products and services from which each reportable segment derives its revenues are as follows:
Innerwear sells basic branded products that are replenishment in nature under the product categories of men’s underwear, panties, children’s underwear, socks, hosiery and intimate apparel, which includes bras and shapewear.
Activewear sells basic branded products that are primarily seasonal in nature under the product categories of branded printwear and retail activewear, as well as licensed logo apparel in collegiate bookstores, mass retail and other channels.
Direct to Consumer includes the Company’s value-based (“outlet”) stores and Internet operations that sell products from the Company’s portfolio of leading brands.
International primarily relates to the Europe, Asia, Latin America, Canada and Australia geographic locations that sell products that span across the Innerwear and Activewear reportable segments. 
The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses and amortization of intangibles. The Company decided in the first quarter of 2016 to revise the manner in which the Company allocates certain selling, general and administrative expenses. Certain prior year segment operating profit disclosures have been revised to conform to current year presentation. The accounting policies of the segments are consistent with those described in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 2, 2016.
 
Quarter Ended
April 2,
2016
 
April 4,
2015
Net sales:
 
 
 
Innerwear
$
560,726

 
$
553,604

Activewear
309,525

 
301,010

Direct to Consumer
69,802

 
71,157

International
279,087

 
283,150

Total net sales
$
1,219,140

 
$
1,208,921



13

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
Segment operating profit:
 
 
 
Innerwear
$
117,972

 
$
116,063

Activewear
32,569

 
31,170

Direct to Consumer
(3,022
)
 
(4,530
)
International
24,719

 
21,495

Total segment operating profit
172,238

 
164,198

Items not included in segment operating profit:
 
 
 
General corporate expenses
(21,435
)
 
(26,244
)
Acquisition, integration and other action related charges
(24,669
)
 
(43,228
)
Amortization of intangibles
(3,729
)
 
(4,795
)
Total operating profit
122,405

 
89,931

Other expenses
(649
)
 
(382
)
Interest expense, net
(31,566
)
 
(26,887
)
Income before income tax expense
$
90,190

 
$
62,662

For the quarter ended April 2, 2016, the Company incurred acquisition, integration and other action related charges of $24,669, of which $4,869 is reported in the “Cost of sales” line and $19,800 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended April 4, 2015, the Company incurred acquisition, integration and other action related charges of $43,228, of which $14,068 is reported in the “Cost of sales” line and $29,160 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.
As part of the Hanes Europe Innerwear acquisition strategy, the Company has identified management and administrative positions that are considered non-essential and/or duplicative that will be eliminated. As of April 2, 2016, the Company has accrued approximately $50,269 for employee termination and other benefits recognized in accordance with expected benefit payments for affected employees. The charges are reflected in the “Cost of sales” and “Selling, general and administrative expenses” lines of the Consolidated Statements of Income. As of April 2, 2016, approximately $3,731 of benefit payments had been made. $30,596 and $19,673, respectively, is included in the “Accrued liabilities” and “Other noncurrent liabilities” line of the Consolidated Balance Sheet.
(13)    Consolidating Financial Information
In accordance with the indenture governing the Company’s $1,000,000 6.375% Senior Notes issued on November 9, 2010, as supplemented from time to time, certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the 6.375% Senior Notes. The following presents the condensed consolidating financial information separately for:
(i) Parent Company, the issuer of the guaranteed obligations. Parent Company includes Hanesbrands Inc. and its 100% owned operating divisions, which are not legal entities, and excludes its subsidiaries, which are legal entities;
(ii) 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 the Company’s subsidiaries and (d) record consolidating entries; and
(v) The Company, on a consolidated basis.
The 6.375% Senior Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary, each of which is 100% owned, directly or indirectly, by Hanesbrands Inc. A guarantor subsidiary’s guarantee can be released in certain customary circumstances. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor

14

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation.
 
Condensed Consolidating Statement of Comprehensive Income
Quarter Ended April 2, 2016
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
876,884

 
$
178,588

 
$
865,234

 
$
(701,566
)
 
$
1,219,140

Cost of sales
649,945

 
92,022

 
638,057

 
(618,140
)
 
761,884

Gross profit
226,939

 
86,566

 
227,177

 
(83,426
)
 
457,256

Selling, general and administrative expenses
189,432

 
44,619

 
103,279

 
(2,479
)
 
334,851

Operating profit
37,507

 
41,947

 
123,898

 
(80,947
)
 
122,405

Equity in earnings of subsidiaries
96,432

 
101,331

 

 
(197,763
)
 

Other expenses
649

 

 

 

 
649

Interest expense, net
27,088

 
1

 
4,527

 
(50
)
 
31,566

Income before income tax expense
106,202

 
143,277

 
119,371

 
(278,660
)
 
90,190

Income tax expense
25,933

 
(24,465
)
 
8,453

 

 
9,921

Net income
$
80,269

 
$
167,742

 
$
110,918

 
$
(278,660
)
 
$
80,269

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
90,485

 
$
167,742

 
$
118,621

 
$
(286,363
)
 
$
90,485

 
 
Condensed Consolidating Statement of Comprehensive Income
Quarter Ended April 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net sales
$
951,090

 
$
153,174

 
$
792,012

 
$
(687,355
)
 
$
1,208,921

Cost of sales
772,889

 
74,310

 
600,410

 
(684,919
)
 
762,690

Gross profit
178,201

 
78,864

 
191,602

 
(2,436
)
 
446,231

Selling, general and administrative expenses
224,682

 
52,864

 
80,454

 
(1,700
)
 
356,300

Operating profit
(46,481
)
 
26,000

 
111,148

 
(736
)
 
89,931

Equity in earnings of subsidiaries
131,166

 
108,170

 

 
(239,336
)
 

Other expenses
382

 

 

 

 
382

Interest expense, net
19,123

 
(4
)
 
7,782

 
(14
)
 
26,887

Income before income tax expense
65,180

 
134,174

 
103,366

 
(240,058
)
 
62,662

Income tax expense
12,544

 
(11,090
)
 
8,572

 

 
10,026

Net income
$
52,636

 
$
145,264

 
$
94,794

 
$
(240,058
)
 
$
52,636

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
57,479

 
$
145,264

 
$
90,404

 
$
(235,668
)
 
$
57,479

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

15

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Balance Sheet
April 2, 2016
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20,955

 
$
5,826

 
$
305,641

 
$

 
$
332,422

Trade accounts receivable, net
95,789

 
67,911

 
559,680

 
(1,277
)
 
722,103

Inventories
1,302,946

 
167,467

 
692,236

 
(192,777
)
 
1,969,872

Other current assets
35,966

 
9,933

 
47,384

 

 
93,283

Total current assets
1,455,656

 
251,137

 
1,604,941

 
(194,054
)
 
3,117,680

Property, net
96,408

 
42,950

 
512,768

 

 
652,126

Trademarks and other identifiable intangibles, net
6,132

 
130,161

 
575,657

 

 
711,950

Goodwill
232,882

 
238,635

 
367,467

 

 
838,984

Investments in subsidiaries
4,681,675

 
2,335,565

 

 
(7,017,240
)
 

Deferred tax assets
365,965

 
75,999

 
10,745

 

 
452,709

Receivables from related entities
5,497,304

 
5,251,814

 
2,536,205

 
(13,285,323
)
 

Other noncurrent assets
38,569

 
317

 
9,726

 

 
48,612

Total assets
$
12,374,591

 
$
8,326,578

 
$
5,617,509

 
$
(20,496,617
)
 
$
5,822,061

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ 
Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
189,512

 
$
25,815

 
$
315,109

 
$

 
$
530,436

Accrued liabilities
169,252

 
24,978

 
266,546

 
(262
)
 
460,514

Notes payable

 

 
115,237

 

 
115,237

Accounts Receivable Securitization Facility

 

 
200,000

 

 
200,000

Current portion of long-term debt
58,625

 

 
3,700

 

 
62,325

Total current liabilities
417,389

 
50,793

 
900,592

 
(262
)
 
1,368,512

Long-term debt
2,841,461

 

 
121,963

 

 
2,963,424

Pension and postretirement benefits
265,495

 

 
57,091

 

 
322,586

Payables to related entities
7,803,803

 
3,822,944

 
1,658,576

 
(13,285,323
)
 

Other noncurrent liabilities
94,402

 
11,777

 
109,319

 

 
215,498

Total liabilities
11,422,550

 
3,885,514

 
2,847,541

 
(13,285,585
)
 
4,870,020

Stockholders’ equity
952,041

 
4,441,064

 
2,769,968

 
(7,211,032
)
 
952,041

Total liabilities and stockholders’ equity
$
12,374,591

 
$
8,326,578

 
$
5,617,509

 
$
(20,496,617
)
 
$
5,822,061



16

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Balance Sheet
January 2, 2016
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
6,348

 
$
7,683

 
$
305,138

 
$

 
$
319,169

Trade accounts receivable, net
92,287

 
68,710

 
520,697

 
(1,277
)
 
680,417

Inventories
1,123,320

 
145,533

 
656,714

 
(110,965
)
 
1,814,602

Other current assets
32,793

 
10,775

 
57,331

 
2,780

 
103,679

Total current assets
1,254,748

 
232,701

 
1,539,880

 
(109,462
)
 
2,917,867

Property, net
96,223

 
42,619

 
511,620

 

 
650,462

Trademarks and other identifiable intangibles, net
4,166

 
130,296

 
566,053

 

 
700,515

Goodwill
232,882

 
242,186

 
359,247

 

 
834,315

Investments in subsidiaries
4,595,424

 
2,229,254

 

 
(6,824,678
)
 

Deferred tax assets
362,414

 
72,448

 
10,317

 

 
445,179

Receivables from related entities
5,145,108

 
5,099,420

 
2,366,888

 
(12,611,416
)
 

Other noncurrent assets
38,938

 
319

 
9,995

 

 
49,252

Total assets
$
11,729,903

 
$
8,049,243

 
$
5,364,000

 
$
(19,545,556
)
 
$
5,597,590

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ 
Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
248,114

 
$
21,733

 
$
403,125

 
$

 
$
672,972

Accrued liabilities
168,440

 
51,766

 
240,528

 
(401
)
 
460,333

Notes payable

 

 
117,785

 

 
117,785

Accounts Receivable Securitization Facility

 

 
195,163

 

 
195,163

Current portion of long-term debt
54,094

 

 
3,562

 

 
57,656

Total current liabilities
470,648

 
73,499

 
960,163

 
(401
)
 
1,503,909

Long-term debt
2,115,081

 

 
117,631

 

 
2,232,712

Pension and postretirement benefits
307,738

 

 
54,528

 

 
362,266

Payables to related entities
7,462,706

 
3,691,969

 
1,456,741

 
(12,611,416
)
 

Other noncurrent liabilities
97,839

 
11,659

 
113,314

 

 
222,812

Total liabilities
10,454,012

 
3,777,127

 
2,702,377

 
(12,611,817
)
 
4,321,699

Stockholders’ equity
1,275,891

 
4,272,116

 
2,661,623

 
(6,933,739
)
 
1,275,891

Total liabilities and stockholders’ equity
$
11,729,903

 
$
8,049,243

 
$
5,364,000

 
$
(19,545,556
)
 
$
5,597,590


17

Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Statement of Cash Flows
Three Months Ended April 2, 2016
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net cash from operating activities
$
(173,346
)
 
$
107,704

 
$
(26,118
)
 
$
(193,046
)
 
$
(284,806
)
Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(9,008
)
 
(4,446
)
 
(14,405
)
 

 
(27,859
)
Proceeds from sales of assets
15,338

 

 
(52
)
 

 
15,286

Acquisition of business, net of cash acquired

 

 
(7,062
)
 

 
(7,062
)
Net cash from investing activities
6,330

 
(4,446
)
 
(21,519
)
 

 
(19,635
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings on notes payable

 

 
368,778

 

 
368,778

Repayments on notes payable

 

 
(367,016
)
 

 
(367,016
)
Borrowings on Accounts Receivable Securitization Facility

 

 
53,261

 

 
53,261

Repayments on Accounts Receivable Securitization Facility

 

 
(48,424
)
 

 
(48,424
)
Borrowings on Revolving Loan Facility
1,471,500

 

 

 

 
1,471,500

Repayments on Revolving Loan Facility
(732,500
)
 

 

 

 
(732,500
)
Repayments on Term Loan A Facility
(9,063
)
 

 

 

 
(9,063
)
Repayments on Term Loan B Facility
(1,063
)
 

 

 

 
(1,063
)
Borrowings on International Debt

 

 
2,895

 

 
2,895

Repayments on International Debt

 

 
(1,728
)
 

 
(1,728
)
Cash dividends paid
(42,683
)
 

 

 

 
(42,683
)
Share repurchases
(379,901
)
 

 

 


(379,901
)
Taxes paid related to net shares settlement of equity awards
(837
)
 

 

 

 
(837
)
Excess tax benefit from stock-based compensation
924

 

 

 

 
924

Debt issuance costs and other
980

 

 
(439
)
 

 
541

Net transactions with related entities
(125,734
)
 
(105,115
)
 
37,803

 
193,046

 

Net cash from financing activities
181,623

 
(105,115
)
 
45,130

 
193,046

 
314,684

Effect of changes in foreign exchange rates on cash

 

 
3,010

 

 
3,010

Change in cash and cash equivalents
14,607

 
(1,857
)
 
503

 

 
13,253

Cash and cash equivalents at beginning of year
6,348

 
7,683

 
305,138

 

 
319,169

Cash and cash equivalents at end of period
$
20,955

 
$
5,826

 
$
305,641

 
$

 
$
332,422



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Table of Contents
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
(unaudited)

 
Condensed Consolidating Statement of Cash Flow
Three Months Ended April 4, 2015
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net cash from operating activities
$
(115,241
)
 
$
68,660

 
$
(391,119
)
 
$
178,355

 
$
(259,345
)
Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(8,864
)
 
(3,796
)
 
(23,708
)
 

 
(36,368
)
Proceeds from sales of assets

 
4,322

 
413

 

 
4,735

Net cash from investing activities
(8,864
)
 
526

 
(23,295
)
 

 
(31,633
)
Financing activities:
 
 
 
 
 
 
 
 
 
Borrowings on notes payable

 

 
43,828

 

 
43,828

Repayments on notes payable

 

 
(61,137
)
 

 
(61,137
)
Borrowings on Accounts Receivable Securitization Facility

 

 
79,039

 

 
79,039

Repayments on Accounts Receivable Securitization Facility

 

 
(90,393
)
 

 
(90,393
)
Borrowings on Revolving Loan Facility
1,327,500

 

 

 

 
1,327,500

Repayments on Revolving Loan Facility
(921,000
)
 

 

 

 
(921,000
)
Cash dividends paid
(40,083
)
 

 

 

 
(40,083
)
Repayments on Euro Term Loan Facility

 

 
(974
)
 

 
(974
)
Borrowings on International Debt

 

 
3,352

 

 
3,352

Repayments on International Debt

 

 
(1,913
)
 

 
(1,913
)
Taxes paid related to net shares settlement of equity awards
(17,982
)
 

 

 

 
(17,982
)
Excess tax benefit from stock-based compensation
12,833

 

 

 

 
12,833

Other
1,183

 

 
(493
)
 
(6
)
 
684

Net transactions with related entities
(245,013
)
 
(67,871
)
 
491,233

 
(178,349
)
 

Net cash from financing activities
117,438

 
(67,871
)
 
462,542

 
(178,355
)
 
333,754

Effect of changes in foreign exchange rates on cash

 

 
(5,564
)
 

 
(5,564
)
Change in cash and cash equivalents
(6,667
)
 
1,315

 
42,564

 

 
37,212

Cash and cash equivalents at beginning of year
10,910

 
10,796

 
218,149

 

 
239,855

Cash and cash equivalents at end of period
$
4,243

 
$
12,111

 
$
260,713

 
$

 
$
277,067


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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended January 2, 2016, which were included in our Annual Report on Form 10-K filed with the SEC. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended January 2, 2016.
Overview
We are a consumer goods company with a portfolio of leading apparel brands, including Hanes, Champion, Maidenform, DIM, Playtex, Bali, JMS/Just My Size, Nur Die/Nur Der, L’eggs, Lovable, Wonderbra, Flexees, Lilyette, Gear for Sports, Shock Absorber, Abanderado, Rinbros and Zorba. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, men’s underwear, children’s underwear, activewear, socks and hosiery.
Our operations are managed and reported in four operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear, Direct to Consumer and International. These segments are organized principally by product category, geographic location and distribution channel. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. As a result of a shift in management responsibilities, we decided in the first quarter of 2016 to move our wholesale e-commerce business from our Direct to Consumer segment to the respective Innerwear and Activewear segments. In addition, we decided in the first quarter of 2016 to revise the manner in which we allocate certain selling, general and administrative expenses. Prior year segment sales and operating profit results have been revised to conform to the current year presentation.
Highlights from the Quarter Ended April 2, 2016
Key financial highlights are as follows:
Total net sales in the first quarter of 2016 were $1.22 billion, compared with $1.21 billion in the same period of 2015, representing a 1% increase.
Operating profit increased 36% to $122 million in the first quarter of 2016, compared with $90 million in the same period of 2015. As a percentage of sales, operating profit was 10.0% in the first quarter of 2016 compared to 7.4% in the same period of 2015. Included within operating profit for the first quarter of 2016 and 2015 were acquisition, integration and other action related charges of $25 million and $43 million, respectively.
Diluted earnings per share increased 62% to $0.21 in the first quarter of 2016, compared with diluted earnings per share of $0.13 in the same period of 2015.
We purchased approximately 14.2 million shares of our stock for approximately $380 million at a weighted average cost per share of $26.65.
Subsequent to quarter end, on April 7, 2016, we announced that we had entered into a definitive agreement to acquire Champion Europe. The purchase price will be 10 times actual calendar year 2016 earnings before interest, taxes, depreciation and amortization (“EBITDA”), subject to adjustment for cash, debt and working capital. Champion Europe expects calendar year 2016 EBITDA of approximately €20 million. The acquisition, which is subject to certain closing conditions, is expected to close midyear 2016.
Outlook
We expect our 2016 full year net sales to be approximately $5.8 to $5.9 billion.
Interest expense and other expenses are expected to be approximately $115 million to $120 million.
We estimate our full year effective income tax rate to be approximately 10% to 11%.
We expect net cash flow from operations to be in the range of $750 million to $850 million. Net capital expenditures are expected to be approximately $70 million. Pretax acquisition and integration related charges are expected to be approximately $85 million.

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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. We generally have higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Sales levels in any period are also impacted by customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel or change delivery schedules, manage on-hand inventory levels, or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse basis, our sales are impacted by discretionary spending by consumers. Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, gasoline prices, weather, unemployment trends and other matters that influence consumer confidence and spending. Many of these factors are outside of our control. Consumers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. These consumers may choose to purchase fewer of our products or to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to customers’ preferences and discretionary spending.
Condensed Consolidated Results of Operations — First Quarter Ended April 2, 2016 Compared with First Quarter Ended April 4, 2015
 
 
Quarter Ended
 
 
 
 
 
April 2,
2016
 
April 4,
2015
 
Higher
(Lower)
 
Percent
Change
 
(dollars in thousands)
Net sales
$
1,219,140

 
$
1,208,921

 
$
10,219

 
0.8
 %
Cost of sales
761,884

 
762,690

 
(806
)
 
(0.1
)
Gross profit
457,256

 
446,231

 
11,025

 
2.5

Selling, general and administrative expenses
334,851

 
356,300

 
(21,449
)
 
(6.0
)
Operating profit
122,405

 
89,931

 
32,474

 
36.1

Other expenses
649

 
382

 
267

 
69.9

Interest expense, net
31,566

 
26,887

 
4,679

 
17.4

Income before income tax expense
90,190

 
62,662

 
27,528

 
43.9

Income tax expense
9,921

 
10,026

 
(105
)
 
(1.0
)
Net income
$
80,269

 
$
52,636

 
$
27,633

 
52.5
 %
Net Sales
Net sales increased 1% during the first quarter of 2016 primarily due to the following:
Acquisition of Knights Apparel in April 2015, which added an incremental $21 million of net sales in 2016;
Higher net sales in our Innerwear segment primarily driven by sales of basic apparel in the mass merchant channel; and
Continued growth in the Activewear segment within the licensed sports apparel business.
Offset by:
Lower sales in the mid-tier and department store channel;

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Lower sales in our Direct to Consumer segment due to lower comparable store sales and the planned reduction of our catalog distribution; and
Unfavorable foreign currency exchange rates. Excluding the impact of foreign currency reductions, consolidated net sales and International segment net sales increased 2% and increased 3%, respectively.
Gross Profit
The increase in gross profit was attributable to a sales shift to higher margin products, reduced acquisition, integration and other action related costs, supply chain efficiencies and benefits from our Innovate-to-Elevate strategy, which combines our brand power, our innovation platforms and our low cost supply chain to drive margin expansion by increasing our price per unit and reducing our cost per unit. Included in gross profit in the first quarters of 2016 and 2015 are charges of approximately $5 million and $14 million, respectively, related to acquisition, integration and other action related costs.
Selling, General and Administrative Expenses
As a percentage of net sales, our selling, general and administrative expenses were 27.5% for the first quarter of 2016 compared to 29.5% in the same period of 2015. Included in selling, general and administrative expenses were charges of $20 million and $29 million of acquisition, integration and other action related costs for the first quarters of 2016 and 2015, respectively. Exclusive of acquisition, integration and other action related costs and the purchase of Knights Apparel, selling, general and administrative expenses were lower due to synergy benefits from the integration of acquisitions, planned reduction of our catalog distribution and continued cost control.
Other Highlights
Interest Expense – higher by $5 million in the first quarter of 2016 compared to the first quarter of 2015 primarily due to higher debt balances to fund share repurchases and working capital needs. Our weighted average interest rate on our outstanding debt was 3.59% during the first quarter of 2016, compared to 4.04% in the first quarter of 2015.
Income Tax Expense – our effective income tax rate was 11% and 16% for the first quarter of 2016 and 2015, respectively.  The lower tax rate in 2016 compared to the same period in 2015 is primarily due to a lower proportion of earnings attributed to domestic subsidiaries, which are taxed at rates higher than foreign subsidiaries.
Operating Results by Business Segment — First Quarter Ended April 2, 2016 Compared with First Quarter Ended April 4, 2015
 
 
Net Sales
 
Operating Profit
 
Quarter Ended
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
 
April 2,
2016
 
April 4,
2015
 
(dollars in thousands)
Innerwear
$
560,726

 
$
553,604

 
$
117,972

 
$
116,063

Activewear
309,525

 
301,010

 
32,569

 
31,170

Direct to Consumer
69,802

 
71,157

 
(3,022
)
 
(4,530
)
International
279,087

 
283,150

 
24,719

 
21,495

Corporate

 

 
(49,833
)
 
(74,267
)
Total
$
1,219,140

 
$
1,208,921

 
$
122,405

 
$
89,931

Innerwear 
 
Quarter Ended
 
 
 
 
 
April 2,
2016
 
April 4,
2015
 
Higher
(Lower)
 
Percent
Change
 
(dollars in thousands)
Net sales
$
560,726

 
$
553,604

 
$
7,122

 
1.3
%
Segment operating profit
117,972

 
116,063

 
1,909

 
1.6
%
The higher net sales in our Innerwear segment primarily resulted from stronger net sales within the mass merchant channel, offset by softness in the mid-tier and department store channel.
Increased operating profit was driven largely by increased sales and continued cost control offset by costs associated with our inventory reduction related efforts.

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Activewear 
 
Quarter Ended
 
 
 
 
 
April 2,
2016
 
April 4,
2015
 
Higher
(Lower)
 
Percent
Change
 
(dollars in thousands)
Net sales
$
309,525

 
$
301,010

 
$
8,515

 
2.8
%
Segment operating profit
32,569

 
31,170

 
1,399

 
4.5

Activewear net sales increased due to the following:
The acquisition of Knights Apparel in April 2015, which added an incremental $21 million of net sales in 2016; and
Continued growth in our licensed sports apparel business.
Partially offset by:
A bankruptcy of a large sporting goods retailer; and
Space shifts within our seasonal activewear business.
Operating profit within the Activewear segment increased primarily as a result of higher sales volume.
Direct to Consumer
 
Quarter Ended
 
 
 
 
 
April 2,
2016
 
April 4,
2015
 
Higher
(Lower)
 
Percent
Change
 
(dollars in thousands)
Net sales
$
69,802

 
$
71,157

 
$
(1,355
)
 
(1.9
)%
Segment operating profit
(3,022
)
 
(4,530
)
 
1,508

 
33.3

Direct to Consumer segment net sales were lower as a result of increased online sales, offset by reduced comparable store sales and reduced catalog sales.
Operating margins increased due to cost savings related to our catalog distribution, offset by lower sales.
International
 
Quarter Ended
 
 
 
 
 
April 2,
2016
 
April 4,
2015
 
Higher
(Lower)
 
Percent
Change
 
(dollars in thousands)
Net sales
$
279,087

 
$
283,150

 
$
(4,063
)
 
(1.4
)%
Segment operating profit
24,719

 
21,495

 
3,224

 
15.0

Net sales in the International segment were lower as a result of the following:
$12 million unfavorable impact of foreign currency exchange rates; and
The planned exit of small, low performing brands in Hanes Europe Innerwear.
Offset by:
Continued space gains in Asia within our Activewear product category.
Operating profit increased primarily due to higher sales volume in Asia and cost synergies in our Hanes Europe Innerwear business, partially offset by foreign currency exchange rates.
Corporate
Corporate expenses were comprised primarily of certain administrative costs and acquisition, integration and other action related charges totaling $25 million in the first quarter of 2016 as compared to $43 million for the first quarter of 2015. Acquisition and integration costs are expenses related directly to an acquisition and its integration into the organization. These costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write-offs, infrastructure (including information technology), and similar charges. Foundational costs are expenses associated with building infrastructure to support and integrate current and future acquisitions; primarily consisting of information technology spend. Other costs relate to other items not included in the aforementioned categories such as charges

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incurred related to the Target exit from Canada in the first quarter of 2015 and its related bankruptcy and other international realignment and configuration activities. Maidenform acquisition and integration costs and foundational costs were completed in 2015.
 
Quarter Ended
 
April 2,
2016
 
April 4,
2015
 
(dollars in thousands)
Acquisition and integration costs:

 
 
Hanes Europe Innerwear
$
19,034

 
$
23,005

Knights Apparel
3,910

 
1,102

Maidenform

 
4,267

Champion Japan licensee transaction
1,725

 

Total acquisition and integration costs
24,669

 
28,374

Foundational costs

 
6,727

Other costs

 
8,127

 
$
24,669

 
$
43,228

Liquidity and Capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by operations and availability under the $1.0 billion revolving credit facility (the “Revolving Loan Facility”) under our senior secured credit facility (the “Senior Secured Credit Facility”), our accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”) and our international loan facilities.
At April 2, 2016, we had $182 million of borrowing availability under our Revolving Loan Facility (after taking into account outstanding letters of credit), $101 million of borrowing availability under our international loan facilities, $332 million in cash and cash equivalents and no borrowing availability under our Accounts Receivable Securitization Facility. We currently believe that our existing cash balances and cash generated by operations, together with our available credit capacity, will enable us to comply with the terms of our indebtedness and meet foreseeable liquidity requirements.
The following have impacted or are expected to impact our liquidity:
we have principal and interest obligations under out debt;
we acquired Knights Apparel in April 2015 and have announced our intent to acquire Champion Europe mid-year 2016 and we may pursue additional strategic business acquisitions in the future;
we expect to continue to invest in efforts to improve operating efficiencies and lower costs;
we made a $100 million contribution to our pension plans in January 2015 and a $40 million contribution in January 2016;
we may increase or decrease the portion of the current-year income of our foreign subsidiaries that we remit to the United States, which could significantly impact our effective income tax rate;
our Board of Directors has authorized a regular quarterly dividend; and
our Board of Directors has authorized share repurchases under our previously authorized share repurchase program.
Dividends
As part of our cash deployment strategy, in January 2016, our Board of Directors declared a regular quarterly dividend of $0.11 per share, which was paid in March 2016.
Share Repurchase Program
We resumed repurchasing Company common stock in the open market during the third quarter of 2015 under a program previously announced in 2007. Our Board of Directors authorized up to 40 million shares to be repurchased in open-market transactions, and such repurchases are subject to market conditions, legal requirements and other factors. During the quarter ended April 2, 2016, we entered into transactions to repurchase 14 million shares at a weighted average repurchase price of

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$26.65 per share. The shares were repurchased at a total cost of $380 million. Since inception of the program, we have purchased 37.7 million shares, leaving 2.3 million shares authorized for repurchase under the program. The program does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time at our discretion.
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, repurchases of our stock and regular quarterly dividend payments. We believe we have sufficient cash and available borrowings for our foreseeable liquidity needs.
There have been no significant changes in the cash requirements for our business from those described in our Annual Report on Form 10-K for the year ended January 2, 2016.
Sources and Uses of Our Cash
The information presented below regarding the sources and uses of our cash flows for the three months ended April 2, 2016 and April 4, 2015 was derived from our condensed consolidated financial statements.
 
Quarter ended
 
April 2,
2016
 
April 4,
2015
 
(dollars in thousands)
Operating activities
$
(284,806
)
 
$
(259,345
)
Investing activities
(19,635
)
 
(31,633
)
Financing activities
314,684

 
333,754

Effect of changes in foreign currency exchange rates on cash
3,010

 
(5,564
)
Change in cash and cash equivalents
13,253

 
37,212

Cash and cash equivalents at beginning of year
319,169

 
239,855

Cash and cash equivalents at end of period
$
332,422

 
$
277,067

Operating Activities
Our overall liquidity is primarily driven by our strong cash flow provided by operating activities, which is dependent on net income, as well as changes in our working capital. We typically use cash during the first half of the year and generate most of our cash flow in the second half of the year. As compared to prior year, the lower net cash from operating activities is due to changes in working capital, specifically related to accounts payable and accrued liabilities, partially offset by a smaller voluntary pension contribution in the first quarter of 2016 of $40 million compared to $100 million in the same period of 2015. The increase in inventory in the first quarter is in line with our normal seasonal build as we typically build inventory unit levels to support the back-to-school shopping season. We have initiated inventory reduction efforts in the first quarter of 2016 that will continue through the second quarter and expected to generate cash flow in the second half of 2016.
Investing Activities
The lower net cash used in investing activities is the result of lower capital spending and increased cash proceeds from sale of assets in 2016 compared to the same period in 2015. Offsetting, in part, the aforementioned favorable investing cash flow activity was the investment to re-acquire the remainder of the rights to Champion in Japan from Goldwin, Inc.
Financing Activities
The lower net cash from financing activities was primarily the result of our share repurchases in the quarter, offset by higher net borrowings on our loan facilities, specifically due to new borrowings under the Senior Secured Credit Facility.
Financing Arrangements
In March 2016, we amended the accounts receivable securitization facility that we entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the termination date to March 2017 and changed the borrowing capacity from a fixed to a varying limit throughout the year, in order to minimize fees for our unused portion of the facility.

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Table of Contents

As of April 2, 2016, we were in compliance with all financial covenants under our credit facilities. We expect to maintain compliance with these covenants for the foreseeable future, however economic conditions or the occurrence of events discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended January 2, 2016 or other SEC filings could cause noncompliance.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of SEC Regulation S-K.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” to our financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2016.
The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 2, 2016. There have been no material changes in these policies from those described in our Annual Report on Form 10-K for the year ended January 2, 2016.
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements, see Note, “Recent Accounting Pronouncements” to our financial statements.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our market risk exposures from those described in Item 7A of our Annual Report on Form 10-K for the year ended January 2, 2016.
Item 4.
Controls and Procedures
As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II

Item 1.
Legal Proceedings
Although we are subject to various claims and legal actions that occur from time to time in the ordinary course of our business, we are not party to any pending legal proceedings that we believe could have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 1A.
Risk Factors
The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2016. There are no material changes to the risk factors previously disclosed, nor have we identified any previously undisclosed risks that could materially adversely affect our business and financial results.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
The following table sets forth information in connection with purchases made by, or on behalf of, the Company or any affiliate purchaser of the Company, of shares of the Company’s common stock during the year ended January 2, 2016.
 
 
Total Number of Shares Purchased (1)
 
Average
Price Paid
Per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Program
 
Maximum Number of Shares that May Yet Be Purchased under the Program
January 3, 2016 to February 6, 2016
 

 

 

 
16,503,527

February 7, 2016 to March 5, 2016
 
14,242,829

 
26.65

 
14,242,829

 
2,260,698

March 6, 2016 to April 2, 2016
 

 

 

 
2,260,698

Total
 
14,242,829

 
 
 
14,242,829

 
 
 
 
(1) On February 1, 2007, the Company announced that the Board of Directors granted authority for the repurchase of up to 40 million shares of the Company’s common stock. Since inception of the program, the Company has purchased 37.7 million shares, leaving 2.3 million shares that may yet be purchased under the program.
(2) Average price paid per share for shares purchased as part of our publicly-announced plan.
We net settle our employee stock option exercises and restricted stock unit and performance stock unit vestings, which result in the withholding of shares to cover the option exercise price and the minimum statutory withholding tax obligations that we are required to pay in cash to the applicable taxing authorities on behalf of our employees. We do not consider these transactions to be common stock repurchases.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.

27

Table of Contents

Item 6.
Exhibits
The exhibits listed in the accompanying Exhibit Index are filed or furnished as part of this Quarterly Report on Form 10-Q.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
HANESBRANDS INC.
 
 
By:
 
/s/ Richard D. Moss
 
 
Richard D. Moss
Chief Financial Officer
(Duly authorized officer and principal financial officer)
Date: April 26, 2016

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INDEX TO EXHIBITS 
Exhibit
Number
 
Description
 
 
 
3.1
 
Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).
 
 
 
3.2
 
Articles Supplementary (Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).
 
 
 
3.3
 
Articles of Amendment to Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on From 8-K filed with the Securities and Exchange Commission on January 28, 2015).
 
 
 
3.4
 
Articles Supplementary (Reclassifying Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2015).
 
 
 
3.5
 
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by reference from Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2015).
 
 
 
4.1
 
Sixteenth Supplemental Indenture (to the 2008 Indenture) dated March 11, 2016 among Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc. and Branch Banking and Trust Company (incorporated by reference from Exhibit 4.22 to the Registrant’s Post-Effective Amendment No. l to Registration Statement on Form S-3 (Commission file number 333-192932) filed with the Securities and Exchange Commission on April 15, 2016).
 
 
 
31.1
 
Certification of Richard A. Noll, Chief Executive Officer.
 
 
 
31.2
 
Certification of Richard D. Moss, Chief Financial Officer.
 
 
 
32.1
 
Section 1350 Certification of Richard A. Noll, Chief Executive Officer.
 
 
 
32.2
 
Section 1350 Certification of Richard D. Moss, Chief Financial Officer.
 
101.INS XBRL
 
Instance Document
 
 
 
101.SCH XBRL
 
Taxonomy Extension Schema Document
 
 
 
101.CAL XBRL
 
Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB XBRL
 
Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE XBRL
 
Taxonomy Extension Presentation Linkbase Document
 
 
 
101.DEF XBRL
 
Taxonomy Extension Definition Linkbase Document
 
 


E-1