UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 20212, 2022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32891
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Maryland | | 20-3552316 |
(State of incorporation) | | (I.R.S. employer identification no.) |
| | |
1000 East Hanes Mill Road | | |
Winston-Salem, | North Carolina | | 27105 |
(Address of principal executive office) | | (Zip code) |
(336) 519-8080
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, Par Value $0.01 | HBI | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ | | | | |
| | | | | | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 7, 2021,April 29, 2022, there were 349,115,441348,775,722 shares of the registrant’s common stock outstanding.
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements regarding our intent, belief and current expectations about our strategic direction, prospects and future results are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. In particular,
statements with respect to trends associated with our business, our Full Potential plan and our future financial performance and the potential effects of the ongoing global COVID-19 coronavirus pandemic included in this Quarterly Report on Form 10-Q specifically appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include forward-looking statements.
More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 2, 2021,1, 2022, under the caption “Risk Factors,” and available on the “Investors” section of our corporate website, www.Hanes.com/investors. The contents of our corporate website are not incorporated by reference in this Quarterly Report on Form 10-Q.
PART I
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Item 1. | Financial Statements |
HANESBRANDS INC.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 3, 2021 | | March 28, 2020 | | | | |
Net sales | $ | 1,508,029 | | | $ | 1,203,070 | | | | | |
Cost of sales | 905,348 | | | 784,902 | | | | | |
Gross profit | 602,681 | | | 418,168 | | | | | |
Selling, general and administrative expenses | 412,559 | | | 370,215 | | | | | |
Operating profit | 190,122 | | | 47,953 | | | | | |
Other expenses | 2,561 | | | 6,101 | | | | | |
Interest expense, net | 44,460 | | | 36,027 | | | | | |
Income from continuing operations before income tax expense | 143,101 | | | 5,825 | | | | | |
Income tax expense | 14,697 | | | 707 | | | | | |
Income from continuing operations | 128,404 | | | 5,118 | | | | | |
Loss from discontinued operations, net of tax | (391,666) | | | (12,992) | | | | | |
Net loss | $ | (263,262) | | | $ | (7,874) | | | | | |
| | | | | | | |
Earnings (loss) per share - basic: | | | | | | | |
Continuing operations | $ | 0.37 | | | $ | 0.01 | | | | | |
Discontinued operations | (1.12) | | | (0.04) | | | | | |
Net loss | $ | (0.75) | | | $ | (0.02) | | | | | |
| | | | | | | |
Earnings (loss) per share - diluted: | | | | | | | |
Continuing operations | $ | 0.37 | | | $ | 0.01 | | | | | |
Discontinued operations | (1.11) | | | (0.04) | | | | | |
Net loss | $ | (0.75) | | | $ | (0.02) | | | | | |
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Net sales | $ | 1,576,156 | | | $ | 1,508,029 | | | | | |
Cost of sales | 991,978 | | | 905,348 | | | | | |
Gross profit | 584,178 | | | 602,681 | | | | | |
Selling, general and administrative expenses | 413,666 | | | 412,559 | | | | | |
Operating profit | 170,512 | | | 190,122 | | | | | |
Other expenses | 987 | | | 2,561 | | | | | |
Interest expense, net | 31,963 | | | 44,460 | | | | | |
Income from continuing operations before income tax expense | 137,562 | | | 143,101 | | | | | |
Income tax expense | 23,385 | | | 14,697 | | | | | |
Income from continuing operations | 114,177 | | | 128,404 | | | | | |
Income (loss) from discontinued operations, net of tax | 4,525 | | | (391,666) | | | | | |
Net income (loss) | $ | 118,702 | | | $ | (263,262) | | | | | |
| | | | | | | |
Earnings (loss) per share - basic: | | | | | | | |
Continuing operations | $ | 0.33 | | | $ | 0.37 | | | | | |
Discontinued operations | 0.01 | | | (1.12) | | | | | |
Net income (loss) | $ | 0.34 | | | $ | (0.75) | | | | | |
| | | | | | | |
Earnings (loss) per share - diluted: | | | | | | | |
Continuing operations | $ | 0.32 | | | $ | 0.37 | | | | | |
Discontinued operations | 0.01 | | | (1.11) | | | | | |
Net income (loss) | $ | 0.34 | | | $ | (0.75) | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
2
HANESBRANDS INC.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 3, 2021 | | March 28, 2020 | | | | |
Net loss | $ | (263,262) | | | $ | (7,874) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Translation adjustments | (25,201) | | | (117,154) | | | | | |
Unrealized gain on qualifying cash flow hedges, net of tax of $(5,176) and $(7,280), respectively | 8,540 | | | 7,783 | | | | | |
Unrecognized income from pension and postretirement plans, net of tax of $(2,049) and $(1,272), respectively | 6,735 | | | 3,594 | | | | | |
Total other comprehensive loss | (9,926) | | | (105,777) | | | | | |
Comprehensive loss | $ | (273,188) | | | $ | (113,651) | | | | | |
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Net income (loss) | $ | 118,702 | | | $ | (263,262) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Translation adjustments | 27,297 | | | (25,201) | | | | | |
Unrealized gain on qualifying cash flow hedges, net of tax of $969 and $(5,176), respectively | 3,354 | | | 8,540 | | | | | |
Unrecognized income from pension and postretirement plans, net of tax of $(1,317) and $(2,049), respectively | 4,261 | | | 6,735 | | | | | |
Total other comprehensive income (loss) | 34,912 | | | (9,926) | | | | | |
Comprehensive income (loss) | $ | 153,614 | | | $ | (273,188) | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements.
3
HANESBRANDS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | |
| April 3, 2021 | | January 2, 2021 | | March 28, 2020 |
Assets | | | | | |
Cash and cash equivalents | $ | 530,403 | | | $ | 900,615 | | | $ | 1,069,490 | |
Trade accounts receivable, net | 807,738 | | | 768,221 | | | 666,603 | |
Inventories | 1,489,565 | | | 1,367,758 | | | 1,787,660 | |
Other current assets | 153,358 | | | 158,700 | | | 155,074 | |
Current assets of discontinued operations | 303,045 | | | 234,086 | | | 296,889 | |
Total current assets | 3,284,109 | | | 3,429,380 | | | 3,975,716 | |
Property, net | 458,434 | | | 477,821 | | | 502,167 | |
Right-of-use assets | 416,136 | | | 432,631 | | | 434,225 | |
Trademarks and other identifiable intangibles, net | 1,269,932 | | | 1,293,847 | | | 1,161,350 | |
Goodwill | 1,150,138 | | | 1,158,938 | | | 1,119,646 | |
Deferred tax assets | 355,826 | | | 367,976 | | | 181,807 | |
Other noncurrent assets | 54,678 | | | 64,773 | | | 113,263 | |
Noncurrent assets of discontinued operations | 0 | | | 494,501 | | | 479,927 | |
Total assets | $ | 6,989,253 | | | $ | 7,719,867 | | | $ | 7,968,101 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Accounts payable | $ | 976,887 | | | $ | 891,868 | | | $ | 876,394 | |
Accrued liabilities | 571,410 | | | 609,864 | | | 357,514 | |
Lease liabilities | 132,127 | | | 136,510 | | | 138,298 | |
Notes payable | 0 | | | 0 | | | 1,660 | |
Accounts Receivable Securitization Facility | 0 | | | 0 | | | 152,153 | |
Current portion of long-term debt | 34,375 | | | 263,936 | | | 2,533 | |
Current liabilities of discontinued operations | 288,936 | | | 222,183 | | | 285,359 | |
Total current liabilities | 2,003,735 | | | 2,124,361 | | | 1,813,911 | |
Long-term debt | 3,649,631 | | | 3,739,434 | | | 4,236,955 | |
Lease liabilities - noncurrent | 315,382 | | | 331,577 | | | 327,745 | |
Pension and postretirement benefits | 333,460 | | | 381,457 | | | 331,205 | |
Other noncurrent liabilities | 202,564 | | | 216,091 | | | 272,780 | |
Noncurrent liabilities of discontinued operations | 0 | | | 112,989 | | | 111,934 | |
Total liabilities | 6,504,772 | | | 6,905,909 | | | 7,094,530 | |
| | | | | |
Stockholders’ equity: | | | | | |
Preferred stock (50,000,000 authorized shares; $.01 par value) | | | | | |
Issued and outstanding — None | 0 | | | 0 | | | 0 | |
Common stock (2,000,000,000 authorized shares; $.01 par value) | | | | | |
Issued and outstanding — 349,090,472, 348,802,220 and 348,035,310, respectively | 3,491 | | | 3,488 | | | 3,480 | |
Additional paid-in capital | 304,090 | | | 307,883 | | | 297,456 | |
Retained earnings | 753,785 | | | 1,069,546 | | | 1,296,060 | |
Accumulated other comprehensive loss | (576,885) | | | (566,959) | | | (723,425) | |
Total stockholders’ equity | 484,481 | | | 813,958 | | | 873,571 | |
Total liabilities and stockholders’ equity | $ | 6,989,253 | | | $ | 7,719,867 | | | $ | 7,968,101 | |
| | | | | | | | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 | | April 3, 2021 |
Assets | | | | | |
Cash and cash equivalents | $ | 369,210 | | | $ | 536,277 | | | $ | 530,403 | |
Trade accounts receivable, net | 898,420 | | | 894,151 | | | 807,738 | |
Inventories | 1,819,974 | | | 1,584,015 | | | 1,489,565 | |
Other current assets | 202,015 | | | 186,503 | | | 153,358 | |
Current assets held for sale | 7,959 | | | 327,157 | | | 303,045 | |
Total current assets | 3,297,578 | | | 3,528,103 | | | 3,284,109 | |
Property, net | 443,817 | | | 441,401 | | | 458,434 | |
Right-of-use assets | 350,174 | | | 363,854 | | | 416,136 | |
Trademarks and other identifiable intangibles, net | 1,235,276 | | | 1,220,170 | | | 1,269,932 | |
Goodwill | 1,138,667 | | | 1,133,095 | | | 1,150,138 | |
Deferred tax assets | 326,677 | | | 327,804 | | | 355,826 | |
Other noncurrent assets | 67,520 | | | 57,009 | | | 54,678 | |
Total assets | $ | 6,859,709 | | | $ | 7,071,436 | | | $ | 6,989,253 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Accounts payable | $ | 1,204,196 | | | $ | 1,214,847 | | | $ | 976,887 | |
Accrued liabilities | 575,911 | | | 660,778 | | | 571,410 | |
Lease liabilities | 117,465 | | | 109,526 | | | 132,127 | |
| | | | | |
Accounts Receivable Securitization Facility | 135,500 | | | — | | | — | |
Current portion of long-term debt | 25,000 | | | 25,000 | | | 34,375 | |
Current liabilities held for sale | 7,959 | | | 316,902 | | | 288,936 | |
Total current liabilities | 2,066,031 | | | 2,327,053 | | | 2,003,735 | |
Long-term debt | 3,325,042 | | | 3,326,091 | | | 3,649,631 | |
Lease liabilities - noncurrent | 258,663 | | | 281,852 | | | 315,382 | |
Pension and postretirement benefits | 242,690 | | | 248,518 | | | 333,460 | |
Other noncurrent liabilities | 187,867 | | | 185,429 | | | 202,564 | |
Total liabilities | 6,080,293 | | | 6,368,943 | | | 6,504,772 | |
| | | | | |
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 — 348,775,722, 349,903,253 and 349,090,472, respectively | 3,488 | | | 3,499 | | | 3,491 | |
Additional paid-in capital | 315,675 | | | 315,337 | | | 304,090 | |
Retained earnings | 976,944 | | | 935,260 | | | 753,785 | |
Accumulated other comprehensive loss | (516,691) | | | (551,603) | | | (576,885) | |
Total stockholders’ equity | 779,416 | | | 702,493 | | | 484,481 | |
Total liabilities and stockholders’ equity | $ | 6,859,709 | | | $ | 7,071,436 | | | $ | 6,989,253 | |
See accompanying notes to Condensed Consolidated Financial Statements.
4
HANESBRANDS INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | |
Balances at January 2, 2021 | 348,802 | | | $ | 3,488 | | | $ | 307,883 | | | $ | 1,069,546 | | | $ | (566,959) | | | $ | 813,958 | |
Net loss | — | | | — | | | — | | | (263,262) | | | — | | | (263,262) | |
Dividends ($0.15 per common share) | — | | | — | | | — | | | (52,499) | | | — | | | (52,499) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (9,926) | | | (9,926) | |
Stock-based compensation | — | | | — | | | (1,534) | | | — | | | — | | | (1,534) | |
Net exercise of stock options, vesting of restricted stock units and other | 288 | | | 3 | | | (2,259) | | | — | | | — | | | (2,256) | |
Balances at April 3, 2021 | 349,090 | | | $ | 3,491 | | | $ | 304,090 | | | $ | 753,785 | | | $ | (576,885) | | | $ | 484,481 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | |
Balances at January 1, 2022 | 349,903 | | | $ | 3,499 | | | $ | 315,337 | | | $ | 935,260 | | | $ | (551,603) | | | $ | 702,493 | |
Net income | — | | | — | | | — | | | 118,702 | | | — | | | 118,702 | |
Dividends ($0.15 per common share) | — | | | — | | | — | | | (53,443) | | | — | | | (53,443) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 34,912 | | | 34,912 | |
Stock-based compensation | — | | | — | | | 5,329 | | | — | | | — | | | 5,329 | |
Net exercise of stock options, vesting of restricted stock units and other | 450 | | | 5 | | | (3,564) | | | — | | | — | | | (3,559) | |
Share repurchases | (1,577) | | | (16) | | | (1,427) | | | (23,575) | | | — | | | (25,018) | |
Balances at April 2, 2022 | 348,776 | | | $ | 3,488 | | | $ | 315,675 | | | $ | 976,944 | | | $ | (516,691) | | | $ | 779,416 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | |
Balances at January 2, 2021 | 348,802 | | | $ | 3,488 | | | $ | 307,883 | | | $ | 1,069,546 | | | $ | (566,959) | | | $ | 813,958 | |
Net loss | — | | | — | | | — | | | (263,262) | | | — | | | (263,262) | |
Dividends ($0.15 per common share) | — | | | — | | | — | | | (52,499) | | | — | | | (52,499) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (9,926) | | | (9,926) | |
Stock-based compensation | — | | | — | | | (1,534) | | | — | | | — | | | (1,534) | |
Net exercise of stock options, vesting of restricted stock units and other | 288 | | | 3 | | | (2,259) | | | — | | | — | | | (2,256) | |
Balances at April 3, 2021 | 349,090 | | | $ | 3,491 | | | $ | 304,090 | | | $ | 753,785 | | | $ | (576,885) | | | $ | 484,481 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
| Shares | | Amount | |
Balances at December 28, 2019 | 362,449 | | | $ | 3,624 | | | $ | 304,395 | | | $ | 1,546,224 | | | $ | (617,648) | | | $ | 1,236,595 | |
Net loss | — | | | — | | | — | | | (7,874) | | | — | | | (7,874) | |
Dividends ($0.15 per common share) | — | | | — | | | — | | | (54,421) | | | — | | | (54,421) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (105,777) | | | (105,777) | |
Stock-based compensation | — | | | — | | | 4,641 | | | — | | | — | | | 4,641 | |
Net exercise of stock options, vesting of restricted stock units and other | 50 | | | 1 | | | 675 | | | — | | | — | | | 676 | |
Share repurchases | (14,464) | | | (145) | | | (12,255) | | | (187,869) | | | — | | | (200,269) | |
Balances at March 28, 2020 | 348,035 | | | $ | 3,480 | | | $ | 297,456 | | | $ | 1,296,060 | | | $ | (723,425) | | | $ | 873,571 | |
See accompanying notes to Condensed Consolidated Financial Statements.
5
HANESBRANDS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | |
| Quarters Ended |
| April 3, 2021(1) | | March 28, 2020(1) |
Operating activities: | | | |
Net loss | $ | (263,262) | | | $ | (7,874) | |
Adjustments to reconcile net loss to net cash from operating activities: | | | |
Depreciation | 24,142 | | | 22,781 | |
Amortization of acquisition intangibles | 6,179 | | | 6,113 | |
Other amortization | 3,020 | | | 2,477 | |
Impairment of intangible assets and goodwill | 163,047 | | | 0 | |
Loss on classification of assets held for sale | 226,352 | | | 0 | |
Amortization of debt issuance costs | 4,580 | | | 2,123 | |
| | | |
| | | |
Other | (5,835) | | | (5,258) | |
Changes in assets and liabilities: | | | |
Accounts receivable | (63,955) | | | 73,694 | |
Inventories | (122,781) | | | (86,785) | |
Other assets | 9,606 | | | 26,790 | |
Accounts payable | 109,197 | | | (13,605) | |
Accrued pension and postretirement benefits | (38,757) | | | (21,481) | |
Accrued liabilities and other | (34,587) | | | (82,191) | |
Net cash from operating activities | 16,946 | | | (83,216) | |
Investing activities: | | | |
Capital expenditures | (17,804) | | | (25,759) | |
Proceeds from sales of assets | 2,406 | | | 66 | |
| | | |
Other | 1,794 | | | 1,216 | |
Net cash from investing activities | (13,604) | | | (24,477) | |
Financing activities: | | | |
Repayments on Term Loan Facilities | (300,000) | | | 0 | |
Borrowings on Accounts Receivable Securitization Facility | 0 | | | 227,061 | |
Repayments on Accounts Receivable Securitization Facility | 0 | | | (74,909) | |
Borrowings on Revolving Loan Facilities | 0 | | | 1,638,000 | |
Repayments on Revolving Loan Facilities | 0 | | | (688,000) | |
| | | |
Borrowings on International Debt | 0 | | | 31,222 | |
| | | |
Borrowings on notes payable | 21,106 | | | 62,312 | |
Repayments on notes payable | (20,276) | | | (64,352) | |
Share repurchases | 0 | | | (200,269) | |
Cash dividends paid | (52,351) | | | (53,683) | |
Payments of debt issuance costs | 0 | | 0 |
Other | (2,902) | | | 132 | |
Net cash from financing activities | (354,423) | | | 877,514 | |
Effect of changes in foreign exchange rates on cash | (17,662) | | | (15,061) | |
Change in cash, cash equivalents and restricted cash | (368,743) | | | 754,760 | |
Cash, cash equivalents and restricted cash at beginning of year | 910,603 | | | 329,923 | |
Cash, cash equivalents and restricted cash at end of period | 541,860 | | | 1,084,683 | |
Less restricted cash at end of period | 1,153 | | | 903 | |
Cash and cash equivalents at end of period | $ | 540,707 | | | $ | 1,083,780 | |
| | | |
Balances included in the Condensed Consolidated Balance Sheets: | | | |
Cash and cash equivalents | $ | 530,403 | | | $ | 1,069,490 | |
Cash and cash equivalents included in current assets of discontinued operations | 10,304 | | | 14,290 | |
Cash and cash equivalents at end of period | $ | 540,707 | | | $ | 1,083,780 | |
| | | | | | | | | | | |
| Quarters Ended |
| April 2, 2022(1) | | April 3, 2021(1) |
Operating activities: | | | |
Net income (loss) | $ | 118,702 | | | $ | (263,262) | |
Adjustments to reconcile net income (loss) to net cash from operating activities: | | | |
Depreciation | 18,931 | | | 24,142 | |
Amortization of acquisition intangibles | 4,847 | | | 6,179 | |
Other amortization | 2,508 | | | 3,020 | |
Impairment of intangible assets and goodwill | — | | | 163,047 | |
(Gain) loss on sale of business and classification of assets held for sale | (6,715) | | | 226,352 | |
Amortization of debt issuance costs | 1,887 | | | 4,580 | |
Other | 6,940 | | | (5,835) | |
Changes in assets and liabilities: | | | |
Accounts receivable | (6,090) | | | (63,955) | |
Inventories | (247,567) | | | (122,781) | |
Other assets | (489) | | | 9,606 | |
Accounts payable | (310) | | | 109,197 | |
Accrued pension and postretirement benefits | 24 | | | (38,757) | |
Accrued liabilities and other | (123,857) | | | (34,587) | |
Net cash from operating activities | (231,189) | | | 16,946 | |
Investing activities: | | | |
Capital expenditures | (19,337) | | | (17,804) | |
Proceeds from sales of assets | 19 | | | 2,406 | |
| | | |
Other | (10,272) | | | 1,794 | |
Net cash from investing activities | (29,590) | | | (13,604) | |
Financing activities: | | | |
Repayments on Term Loan Facilities | (6,250) | | | (300,000) | |
Borrowings on Accounts Receivable Securitization Facility | 290,000 | | | — | |
Repayments on Accounts Receivable Securitization Facility | (154,500) | | | — | |
Borrowings on Revolving Loan Facilities | 129,000 | | | — | |
Repayments on Revolving Loan Facilities | (109,000) | | | — | |
| | | |
| | | |
| | | |
Borrowings on notes payable | 21,454 | | | 21,106 | |
Repayments on notes payable | (21,713) | | | (20,276) | |
Share repurchases | (25,018) | | | — | |
Cash dividends paid | (52,297) | | | (52,351) | |
| | | |
| | | |
Other | (4,109) | | | (2,902) | |
Net cash from financing activities | 67,567 | | | (354,423) | |
Effect of changes in foreign exchange rates on cash | 1,793 | | | (17,662) | |
Change in cash, cash equivalents and restricted cash | (191,419) | | | (368,743) | |
Cash, cash equivalents and restricted cash at beginning of year | 560,629 | | | 910,603 | |
Cash, cash equivalents and restricted cash at end of period | 369,210 | | | 541,860 | |
Less restricted cash at end of period | — | | | 1,153 | |
Cash and cash equivalents at end of period | $ | 369,210 | | | $ | 540,707 | |
| | | |
Balances included in the Condensed Consolidated Balance Sheets: | | | |
Cash and cash equivalents | $ | 369,210 | | | $ | 530,403 | |
Cash and cash equivalents included in current assets held for sale | — | | | 10,304 | |
Cash and cash equivalents at end of period | $ | 369,210 | | | $ | 540,707 | |
(1)The cash flows related to discontinued operations have not been segregated and remain included in the major classes of assets and liabilities.liabilities in the periods prior the sale of the European Innerwear business on March 5, 2022. Accordingly, the Condensed Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.
Capital expenditures included in accounts payable at April 3, 20212, 2022 and January 2, 20211, 2022 were $4,670$27,960 and $17,931,$24,164, respectively. For the quarters ended April 2, 2022 and April 3, 2021, and March 28, 2020, right-of-use assets obtained in exchange for lease obligations were $4,755$16,035 and $17,551,$4,755, respectively.
See accompanying notes to Condensed Consolidated Financial Statements.
6
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except per share data)
(unaudited)
(1) Basis of Presentation
These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc. and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated interim financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
In the first quarter of 2021, the Company announced that as part of its strategic plan, it was exploring alternatives for its European Innerwear business and subsequently reached the decision to exit this business. The Companyits European Innerwear business as part of its strategy to streamline its portfolio under its Full Potential plan and determined that its European Innerwearthis business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021.criteria. Accordingly, the Company began to separately report the results of its European Innerwear business as discontinued operations in its Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. These changes have been appliedOn November 4, 2021, the Company announced that it reached an agreement to all periods presented.sell its European Innerwear business to an affiliate of Regent, L.P. and completed the sale on March 5, 2022. Unless otherwise noted, discussion within these notes to the condensed consolidated interim financial statements relates to continuing operations. See note “Discontinued Operations”Note “Assets and Liabilities Held for Sale” for additional information on discontinued operations.information.
In addition, in the fourth quarter of 2021, the Company reached the decision to divest its U.S. Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential plan and determined that this business met held-for-sale accounting criteria. The related assets and liabilities are presented as held for sale in the Condensed Consolidated Balance Sheets at April 2, 2022 and January 1, 2022. The operations of the U.S. Sheer Hosiery business are reported in “Other” for all periods presented in Note “Business Segment Information”. The Company is currently exploring potential purchasers for this business and expects to complete the sale of this business during 2022. See Note “Assets and Liabilities Held for Sale” for additional information.
(2) Recent Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The new accounting rules reduce complexity by removing specific exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The new accounting rules also simplify accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new accounting rules were effective for the Company in the first quarter of 2021. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations, cash flows or disclosures.
Reference Rate Reform
In March 2020, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, “Reference Rate Reform: Scope.” The new accounting rules provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments in this standardnew accounting rules can be adopted any time before the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations, cash flows and disclosures.disclosures and does not currently intend to early adopt the new rules.
Business Combinations
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The new accounting rules require entities to apply Topic 606 to
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Codification Improvements
In October 2020, the FASB issued ASU 2020-10, “Codification Improvements.”recognize and measure contract assets and contract liabilities in a business combination. The new accounting rules improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) that had only been included in the Other Presentation Matters Section (Section 45) of the Codification. Additionally, the new rules also clarify guidance across various topics including defined benefit plans, foreign currency transactions, and interest expense. The new accounting rules werewill be effective for the Company in the first quarter of 2021.2023, including interim periods. Early adoption is permitted. The adoption impact of the new accounting rules did not havewill depend on the magnitude of future acquisitions.
Derivatives and Hedging
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” The new accounting rules allow entities to expand the use of the portfolio layer method to all financial assets and designate multiple hedged layers within a materialsingle closed portfolio. The new accounting rules also clarify guidance related to hedge basis adjustments and the related disclosures for these adjustments. The new accounting rules will be effective for the Company in the first quarter of 2023, including interim periods. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations, cash flows orand disclosures.
(3) Assets and Liabilities Held for Sale
Assets and liabilities classified as held for sale in the Condensed Consolidated Balance Sheets as of April 2, 2022, January 1, 2022 and April 3, 2021 consist of the following:
| | | | | | | | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 | | April 3, 2021 |
U.S. Sheer Hosiery business - continuing operations | $ | 7,959 | | | $ | 5,426 | | | $ | — | |
European Innerwear business - discontinued operations | — | | | 321,731 | | | 303,045 | |
Total current assets held for sale | $ | 7,959 | | | $ | 327,157 | | | $ | 303,045 | |
| | | | | |
U.S. Sheer Hosiery business - continuing operations | $ | 7,959 | | | $ | 5,426 | | | $ | — | |
European Innerwear business - discontinued operations | — | | | 311,476 | | | 288,936 | |
Total current liabilities held for sale | $ | 7,959 | | | $ | 316,902 | | | $ | 288,936 | |
U.S. Sheer Hosiery Business - Continuing Operations
In the fourth quarter of 2021, the Company reached the decision to divest its U.S. Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential plan and determined that this business met held-for-sale accounting criteria. The related assets and liabilities are presented as held for sale in the Condensed Consolidated Balance Sheets at April 2, 2022 and January 1, 2022. The Company recorded a non-cash charge of $38,364 in the fourth quarter of 2021, to record a valuation allowance against the net assets held for sale to write down the carrying value of the disposal group to the estimated fair value less costs of disposal. In the quarter ended April 2, 2022, the Company recorded a non-cash gain of $6,528 to adjust the valuation allowance resulting from a decrease in carrying value due to changes in working capital. The operations of the U.S. Sheer Hosiery business are reported in “Other” for all periods presented in Note “Business Segment Information”. The Company is currently exploring potential purchasers for this business and expects to complete the sale of this business during 2022.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
European Innerwear Business - Discontinued Operations
In the first quarter of 2021, the Company announced that as part of its strategic plan, it was exploring alternatives for its European Innerwear business and subsequently reached the decision to exit this business. The Companyits European Innerwear business as part of its strategy to streamline its portfolio under its Full Potential plan and determined that its European Innerwearthis business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021.criteria. Accordingly, the Company began to separately report the results of its European Innerwear business as discontinued operations in its Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. These changes have been appliedOn November 4, 2021, the Company announced that it had reached an agreement to all periods presented. The Company is actively marketing thesell its European Innerwear business to prospective buyersan affiliate of Regent, L.P. and expects to completecompleted the sale on March 5, 2022. Under the agreement, the purchaser received all the assets and operating liabilities of this business within one year.
the European Innerwear business. The operations of the European Innerwear business were previously reported primarily in the International segment. Certain expenses related to its operations were included in general corporate expenses, restructuring and other action-related charges and amortization of intangibles which were previously excluded from segment operating profit and have been reclassified to discontinued operations beginning in the first quarter of 2021 and for all periods presented. Discontinued operations does not include any allocation of corporate overhead expense or interest expense.
Upon meeting the criteria for held for saleheld-for-sale classification whichin the first quarter of 2021which qualified as a triggering event, the Company performed a full impairment analysis of the disposal group's indefinite-lived intangible assets and goodwill. As a result of the strategic decision to exit the European Innerwear business, a strategic review was completed in the first quarter of 2021 withforecasts were revised forecasts to include updated market conditions and the removal of strategic operating decisions that would no longer occur under the Company's ownership. The revised forecasts indicated impairment charges of certain indefinite-lived trademarks and license agreements as well as the full goodwill balance. Abalance attributable to the European Innerwear business. As a result of this impairment analysis, a non-cash charge of $155,745 was recorded as "Impairment of intangible assets and goodwill" in the summarized discontinued operations financial information for the quarter ended April 3, 2021. In addition, the Company recorded a non-cash charge of $226,352 as "Loss on classification of assets held for sale" in the summarized discontinued operations financial information for the quarter ended April 3, 2021 to record a valuation allowance against the net assets held for sale to write down the carrying value of the disposal group to the estimated fair value less costs of disposal. disposal, resulting in a non-cash charge of $226,352 for the quarter ended April 3, 2021, as "(Gain) loss on sale of business and classification of assets held for sale" in the summarized discontinued operations financial information. In the quarter ended April 2, 2022, the Company recorded the final gain on the sale of the European Innerwear business of $187 primarily resulting from changes in working capital balances and foreign exchange rates.
Additionally, the Company recorded an impairment charge of $7,302 in continuing operations on an indefinite-lived trademark for the quarter ended April 3, 2021 which is reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated StatementStatements of Income. This charge relatesrelated to the full impairment of an indefinite-lived trademark related to a specific brand within the European Innerwear business that was excluded from the disposal group as it iswas not being marketed for sale. Thesale and that the Company intends to exit this brand subsequent to the sale of the European Innerwear business.exit.
The Company expects to continuehas continued certain sales from its supply chain to the European Innerwear business on a transitional basis after the sale of the business. ThoseUnder the terms of the Manufacturing and Supply Agreement, the Company will provide these services for periods up to 34 months from the closing date of the transaction. Additionally, the Company entered into a Transitional Services Agreement pursuant to which the Company will provide transitional services including information technology, human resources, facilities management, and limited finance and accounting services for periods up to 12 months from the closing date of the transaction. The sales and the related profit are included in continuing operations in the Condensed Consolidated Statements of Income and in “Other” in Note “Business Segment Information” in all periods presented and have not been eliminated as intercompany transactions in consolidation. The related receivables from the European Innerwear business have been reclassified toare included in “Trade accounts receivable, net” in the Condensed Consolidated Balance Sheets for all periods presented.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The operating results of the discontinued operations only reflect revenues and expenses that are directly attributable to the European Innerwear business that will beare eliminated from continuing operations. Discontinued operations does not include any allocation of corporate overhead expense or interest expense. The key components from discontinued operations related to the European Innerwear business are as follows:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 3, 2021 | | March 28, 2020 | | | | |
Net sales | $ | 135,845 | | | $ | 127,671 | | | | | |
Cost of sales | 75,523 | | | 72,107 | | | | | |
Gross profit | 60,322 | | | 55,564 | | | | | |
Selling, general and administrative expenses | 83,392 | | | 69,387 | | | | | |
Impairment of intangible assets and goodwill | 155,745 | | | 0 | | | | | |
Loss on classification of assets held for sale | 226,352 | | | 0 | | | | | |
Operating loss | (405,167) | | | (13,823) | | | | | |
Interest expense, net | 90 | | | 822 | | | | | |
Other expenses | 334 | | | 389 | | | | | |
Loss from discontinued operations before income tax expense | (405,591) | | | (15,034) | | | | | |
Income tax benefit | (13,925) | | | (2,042) | | | | | |
Net loss from discontinued operations, net of tax | $ | (391,666) | | | $ | (12,992) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Assets and liabilities of discontinued operations classified as held for sale in the Condensed Consolidated Balance Sheets as of April 3, 2021, January 2, 2021 and March 28, 2020 consist of the following:
| | | | | | | | | | | | | | | | | |
| April 3, 2021 | | January 2, 2021(1) | | March 28, 2020(1) |
Cash and cash equivalents | $ | 10,304 | | | $ | 8,822 | | | $ | 14,290 | |
Trade accounts receivable, net | 80,458 | | | 84,632 | | | 83,331 | |
Inventories | 106,192 | | | 123,337 | | | 176,097 | |
Other current assets | 11,190 | | | 17,295 | | | 23,171 | |
Property, net | 61,763 | | | 67,950 | | | 68,838 | |
Right-of-use assets | 34,779 | | | 34,637 | | | 39,711 | |
Trademarks and other identifiable intangibles, net | 208,601 | | | 284,170 | | | 274,006 | |
Goodwill | 0 | | | 96,692 | | | 85,549 | |
Deferred tax assets | 8,505 | | | 5,438 | | | 6,197 | |
Other noncurrent assets | 4,860 | | | 5,614 | | | 5,626 | |
Allowance to adjust assets to estimated fair value, less costs of disposal | (223,607) | | | 0 | | | 0 | |
Total assets of discontinued operations | $ | 303,045 | | | $ | 728,587 | | | $ | 776,816 | |
| | | | | |
Accounts payable | 62,199 | | | 77,636 | | | 73,866 | |
Accrued liabilities | 120,475 | | | 133,431 | | | 89,887 | |
Lease liabilities | 9,159 | | | 10,332 | | | 12,270 | |
Notes payable | 1,574 | | | 784 | | | 510 | |
Current portion of long-term debt | 0 | | | 0 | | | 108,826 | |
Lease liabilities - noncurrent | 27,038 | | | 28,775 | | | 31,103 | |
Pension and postretirement benefits | 44,428 | | | 46,569 | | | 44,306 | |
Other noncurrent liabilities | 24,063 | | | 37,645 | | | 36,525 | |
Total liabilities of discontinued operations | $ | 288,936 | | | $ | 335,172 | | | $ | 397,293 | |
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Net sales | $ | 101,314 | | | $ | 135,845 | | | | | |
Cost of sales | 60,415 | | | 75,523 | | | | | |
Gross profit | 40,899 | | | 60,322 | | | | | |
Selling, general and administrative expenses | 54,689 | | | 83,392 | | | | | |
Impairment of intangible assets and goodwill | — | | | 155,745 | | | | | |
(Gain) loss on sale of business and classification of assets held for sale | (187) | | | 226,352 | | | | | |
Operating loss | (13,603) | | | (405,167) | | | | | |
Other expenses | 283 | | | 334 | | | | | |
Interest expense, net | 10 | | | 90 | | | | | |
Loss from discontinued operations before income tax expense | (13,896) | | | (405,591) | | | | | |
Income tax benefit | (18,421) | | | (13,925) | | | | | |
Net income (loss) from discontinued operations, net of tax | $ | 4,525 | | | $ | (391,666) | | | | | |
(1)Amounts at January 2, 2021 and March 28, 2020 have been classified as current and long-term in the Condensed Consolidated Balance Sheets.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Assets and liabilities of discontinued operations classified as held for sale in the Condensed Consolidated Balance Sheets as of April 2, 2022, January 1, 2022 and April 3, 2021 consist of the following:
| | | | | | | | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 | | April 3, 2021 |
Cash and cash equivalents | $ | — | | | $ | 24,352 | | | $ | 10,304 | |
Trade accounts receivable, net | — | | | 87,353 | | | 80,458 | |
Inventories | — | | | 141,653 | | | 106,192 | |
Other current assets | — | | | 21,926 | | | 11,190 | |
Property, net | — | | | 62,659 | | | 61,763 | |
Right-of-use assets | — | | | 32,603 | | | 34,779 | |
Trademarks and other identifiable intangibles, net | — | | | 205,204 | | | 208,601 | |
Deferred tax assets | — | | | 4,174 | | | 8,505 | |
Other noncurrent assets | — | | | 4,127 | | | 4,860 | |
Allowance to adjust assets to estimated fair value, less costs of disposal | — | | | (262,320) | | | (223,607) | |
Total assets of discontinued operations | $ | — | | | $ | 321,731 | | | $ | 303,045 | |
| | | | | |
Accounts payable | $ | — | | | $ | 84,327 | | | $ | 62,199 | |
Accrued liabilities | — | | | 122,620 | | | 120,475 | |
Lease liabilities | — | | | 6,562 | | | 9,159 | |
Notes payable | — | | | 329 | | | 1,574 | |
Lease liabilities - noncurrent | — | | | 27,426 | | | 27,038 | |
Pension and postretirement benefits | — | | | 38,325 | | | 44,428 | |
Other noncurrent liabilities | — | | | 31,887 | | | 24,063 | |
Total liabilities of discontinued operations | $ | — | | | $ | 311,476 | | | $ | 288,936 | |
The cash flows related to discontinued operations have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows. The following table presents cash flow and non-cash information related to discontinued operations:
| | | Quarters Ended | | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | | April 2, 2022 | | April 3, 2021 | |
Depreciation | Depreciation | $ | 2,608 | | | $ | 2,665 | | | Depreciation | $ | — | | | $ | 2,608 | | |
Amortization | Amortization | 1,460 | | | 1,282 | | | Amortization | $ | — | | | $ | 1,460 | | |
Capital expenditures | Capital expenditures | 3,335 | | | 3,538 | | | Capital expenditures | $ | 715 | | | $ | 3,335 | | |
Impairment of intangible assets and goodwill | Impairment of intangible assets and goodwill | 155,745 | | | 0 | | | Impairment of intangible assets and goodwill | $ | — | | | $ | 155,745 | | |
Loss on classification of assets held for sale | 226,352 | | | 0 | | | |
Other investing activities | 1,794 | | | 1,216 | | | |
Capital expenditures included in accounts payable | 52 | | | 1,033 | | | |
(Gain) loss on sale of business and classification of assets held for sale | | (Gain) loss on sale of business and classification of assets held for sale | $ | (187) | | | $ | 226,352 | | |
Capital expenditures included in accounts payable at end of period | | Capital expenditures included in accounts payable at end of period | $ | — | | | $ | 52 | | |
Right-of-use assets obtained in exchange for lease obligations | | Right-of-use assets obtained in exchange for lease obligations | $ | 461 | | | $ | 1,495 | | |
|
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
(4) Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied, which occurs at a point in time, upon either shipment or delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration includes trade discounts, rebates, volume-based incentives, cooperative advertising and product returns, which are offered within contracts between the Company and its customers, employing the practical expedient for contract costs. Incidental items that are immaterial to the context of the contract are recognized as expense at the transaction date.
The following table presents the Company’s revenues disaggregated by the customer’s method of purchase:
| | | Quarters Ended | | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | | April 2, 2022 | | April 3, 2021 | |
Third-party brick-and-mortar wholesale | Third-party brick-and-mortar wholesale | $ | 1,024,739 | | | $ | 886,535 | | | Third-party brick-and-mortar wholesale | $ | 1,126,266 | | | $ | 1,024,739 | | |
Consumer-directed | Consumer-directed | 483,290 | | | 316,535 | | | Consumer-directed | 449,890 | | | 483,290 | | |
Total net sales | Total net sales | $ | 1,508,029 | | | $ | 1,203,070 | | | Total net sales | $ | 1,576,156 | | | $ | 1,508,029 | | |
Revenue Sources
Third-Party Brick-and-Mortar Wholesale Revenue
Third-party brick-and-mortar wholesale revenue is primarily generated by sales of the Company’s products to retailers to support their brick-and-mortar operations. Also included within third-partyThird-party brick-and-mortar wholesale revenue isalso includes royalty revenue from licensing agreements. The Company earns royalties through license agreements with manufacturers of other consumer products that incorporate certain of the Company’s brands. The Company accrues revenue earned under these contracts based upon reported sales from the licensees.
Consumer-Directed Revenue
Consumer-directed revenue is primarily generated through sales driven directly by the consumer through company-operated stores and e-commerce platforms, which include both owned sites and the sites of the Company’s retail customers.
(5) Stockholders’ Equity
Basic earnings per share (“EPS”) was computed by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. Diluted EPS was calculated to give effect to all potentially issuable dilutive shares of common stock using the treasury stock method.
The reconciliation of basic to diluted weighted average shares outstanding is as follows:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Basic weighted average shares outstanding | 350,251 | | | 351,003 | | | | | |
Effect of potentially dilutive securities: | | | | | | | |
Stock options | 7 | | | 9 | | | | | |
Restricted stock units | 1,190 | | | 671 | | | | | |
Employee stock purchase plan and other | 5 | | | 3 | | | | | |
Diluted weighted average shares outstanding | 351,453 | | | 351,686 | | | | | |
The following securities were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Stock options | 167 | | | 167 | | | | | |
Restricted stock units | 647 | | | 592 | | | | | |
On April 26, 2022, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share of the Company’s outstanding common stock to be paid on May 31, 2022 to stockholders of record at the close of business on May 10, 2022.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The reconciliation of basic to diluted weighted average shares outstanding is as follows:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 3, 2021 | | March 28, 2020 | | | | |
Basic weighted average shares outstanding | 351,003 | | | 359,017 | | | | | |
Effect of potentially dilutive securities: | | | | | | | |
Stock options | 9 | | | 220 | | | | | |
Restricted stock units | 671 | | | 188 | | | | | |
Employee stock purchase plan and other | 3 | | | 11 | | | | | |
Diluted weighted average shares outstanding | 351,686 | | | 359,436 | | | | | |
For the quarter ended April 3, 2021, there were 592 restricted stock units and 167 stock options to purchase shares of common stock excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the quarter ended March 28, 2020, there were 1,080 restricted stock units and 0 stock options to purchase shares of common stock excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
On May 11, 2021, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share on outstanding shares of common stock to be paid on June 1, 2021 to stockholders of record at the close of business on May 21, 2021.
On February 6, 2020,2, 2022, the Company’s Board of Directors approved a new share repurchase program for up to 40,000$600,000 of shares to be repurchased in open market transactions or privately negotiated transactions, subject to market conditions, legal requirements and other factors. Additionally, management has been granted authority to establish one or morea trading plansplan under Rule 10b5-1 of the Exchange Act in connection with share repurchases, which will allow the Company to repurchase shares in the open market during periods in which the stock trading window is otherwise closed for the Company and certain of the Company’s officers and employees pursuant to the Company’s insider trading policy. Unless terminated earlier by the Company’s Board of Directors, the new program will expire when the Company has repurchased all shares authorized for repurchase under the new program. The new program replaced the Company’s previous share repurchase program for up to 40,000 shares that was originally approved in 2016.on February 6, 2020. For the quarter ended April 3, 2021, the Company did not enter into any transactions to repurchase shares under the new program. For the quarter ended March 28, 2020,2, 2022, the Company entered into transactions to repurchase 14,4641,577 shares at a weighted average repurchase price of $13.83$15.84 per share under the new program. The shares were repurchased at a total cost of $200,269.$25,018 including broker’s commissions of $31. The Company did not repurchase any shares under the previous share repurchase program during the quarter ended April 2, 2022 or April 3, 2021. At April 3, 2021,2, 2022, the remaining repurchase authorization under the current share repurchase program totaled 25,536 shares. The primary objective of the share repurchase program is to utilize excess cash to generate shareholder value. Share repurchases are currently prohibited under the Senior Secured Credit Facility as a result of the amendment signed in April 2020. See Note “Debt” for additional information on the Company’s debt facilities.$575,013.
(6) Inventories
Inventories consisted of the following:
| | | April 3, 2021 | | January 2, 2021 | | March 28, 2020 | | April 2, 2022 | | January 1, 2022 | | April 3, 2021 |
Raw materials | Raw materials | $ | 74,123 | | | $ | 67,111 | | | $ | 73,450 | | Raw materials | $ | 84,734 | | | $ | 68,683 | | | $ | 74,123 | |
Work in process | Work in process | 99,619 | | | 108,844 | | | 115,129 | | Work in process | 121,095 | | | 110,246 | | | 99,619 | |
Finished goods | Finished goods | 1,315,823 | | | 1,191,803 | | | 1,599,081 | | Finished goods | 1,614,145 | | | 1,405,086 | | | 1,315,823 | |
| | $ | 1,489,565 | | | $ | 1,367,758 | | | $ | 1,787,660 | | | $ | 1,819,974 | | | $ | 1,584,015 | | | $ | 1,489,565 | |
(7) Debt
Debt consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate as of April 2, 2022 | | Principal Amount | | Maturity Date |
| April 2, 2022 | | January 1, 2022 | |
Senior Secured Credit Facility: | | | | | | | |
Revolving Loan Facility | 1.69% | | $ | 20,000 | | | $ | — | | | November 2026 |
Term Loan A | 1.75% | | 993,750 | | | 1,000,000 | | | November 2026 |
4.875% Senior Notes | 4.88% | | 900,000 | | | 900,000 | | | May 2026 |
4.625% Senior Notes | 4.63% | | 900,000 | | | 900,000 | | | May 2024 |
3.5% Senior Notes | 3.50% | | 552,425 | | | 568,634 | | | June 2024 |
Accounts Receivable Securitization Facility | 1.25% | | 135,500 | | | — | | | June 2022 |
| | | 3,501,675 | | | 3,368,634 | | | |
Less long-term debt issuance costs | | | 16,133 | | | 17,543 | | | |
Less current maturities | | | 160,500 | | | 25,000 | | | |
| | | $ | 3,325,042 | | | $ | 3,326,091 | | | |
As of April 2, 2022, the Company had $975,824 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account $20,000 of USD revolver loans and $4,176 of standby and trade letters of credit issued and outstanding under this facility.
Borrowings under the Company’s accounts receivable securitization facility (the “ARS Facility”) are permitted only to the extent that the face of the receivables in the collateral pool, net of applicable concentrations, reserves and other deductions, exceeds the outstanding loans and also subject to a quarterly fluctuating facility limit, which is not to exceed $175,000. The Company’s maximum borrowing capacity as per the fluctuating limit under the ARS Facility was $150,000 as of April 2, 2022. The Company had $14,500 of borrowing availability under the ARS Facility at April 2, 2022.
The Company had $56,056 of borrowing availability under other international credit facilities after taking into account outstanding borrowings and letters of credit outstanding under the applicable facilities at April 2, 2022.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
(7) Debt
Debt consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate as of April 3, 2021 | | Principal Amount | | Maturity Date |
| April 3, 2021 | | January 2, 2021 | |
Senior Secured Credit Facility: | | | | | | | |
Revolving Loan Facility | 0 | | $ | 0 | | | $ | 0 | | | December 2022 |
| | | | | | | |
Term Loan A | 2.11% | | 625,000 | | | 625,000 | | | December 2022 |
Term Loan B | 0 | | 0 | | | 300,000 | | | December 2024 |
| | | | | | | |
Australian Revolving Loan Facility | 0 | | 0 | | | 0 | | | July 2021 |
5.375% Senior Notes | 5.38% | | 700,000 | | | 700,000 | | | May 2025 |
4.875% Senior Notes | 4.88% | | 900,000 | | | 900,000 | | | May 2026 |
4.625% Senior Notes | 4.63% | | 900,000 | | | 900,000 | | | May 2024 |
3.5% Senior Notes | 3.50% | | 587,959 | | | 610,724 | | | June 2024 |
Accounts Receivable Securitization Facility | 0 | | 0 | | | 0 | | | June 2022 |
Total debt | | | 3,712,959 | | | 4,035,724 | | | |
Less long-term debt issuance costs | | | 28,953 | | | 32,354 | | | |
Less current maturities | | | 34,375 | | | 263,936 | | | |
Total long-term debt | | | $ | 3,649,631 | | | $ | 3,739,434 | | | |
As of April 3, 2021, the Company had $995,824 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account $4,176 of standby and trade letters of credit issued and outstanding under this facility. In March 2021, the Company repaid the outstanding balance of Term Loan B which consisted of a required excess cash flow prepayment of $238,936 and a voluntary prepayment of $61,064.
The Company’s accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”) entered into in November 2007 was amended in March 2021. The latest amendment decreased the fluctuating facility limit to $175,000 (previously $225,000) and extended the maturity date to June 2022. Additionally, the amendment changed certain ratios and borrowing base calculations, raised pricing and added certain receivables to the pledged collateral pool for the facility. Borrowings under the Accounts Receivable Securitization Facility are permitted only to the extent that the face of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans and also subject to a fluctuating facility limit, not to exceed $175,000. The Company’s maximum borrowing capacity under the Accounts Receivable Securitization Facility was $150,000 as of April 3, 2021. The Company had $87,403 of borrowing availability under the Accounts Receivable Securitization Facility at April 3, 2021.
The Company had $45,572 of borrowing availability under the Australian Revolving Loan Facility and $85,245 of borrowing availability under other international credit facilities after taking into account outstanding borrowings and letters of credit outstanding under the applicable facilities at April 3, 2021.
In April 2020, given the rapidly changing business environment and level of uncertainty being created by the COVID-19 pandemic and the associated impact on future earnings, the Company amended its Senior Secured Credit Facility prior to any potential covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. The amendment changed certain provisions and covenants under the Senior Secured Credit Facility through the fiscal quarter ending July 3, 2021, after which the covenants revert to their original, pre-amendment levels.
As of April 3, 2021,2, 2022, the Company was in compliance with all financial covenants under its credit facilities and other outstanding indebtedness. Under the terms of its Senior Secured Credit Facility, among other financial and non-financial covenants, the Company is required to maintain a minimum interest coverage ratio and a maximum leverage ratio. The interest coverage ratio, covenant is the ratioeach of the Company’s EBITDA for the preceding four fiscal quarters to its consolidated total interest expense and the maximum leverage ratio covenant is the ratio of the Company’s net debt to EBITDA for the preceding four fiscal quarters. EBITDAwhich is defined as earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant toin the Senior Secured Credit Facility. The method of calculating all the components used in the covenants is included in the Senior Secured Credit Facility.
(8) Income Taxes
The Company expectsCompany’s effective income tax rate was 17.0% and 10.3% for the quarters ended April 2, 2022 and April 3, 2021, respectively. The higher effective tax rate for the quarter April 2, 2022 was primarily due to maintain compliance with its covenantsa non-recurring discrete tax benefit for at least one year from the daterelease of these financial statements based on its current expectations and forecasts. If economic conditions causedreserves for unrecognized tax benefits totaling $7,034, partially offset by a discrete charge for changes in valuation allowances of $3,672 during the COVID-19 pandemic worsen
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
and the Company’s earnings and operating cash flows do not recover as currently estimated by management, this could impact the Company’s ability to maintain compliance with its financial covenants and require the Company to seek additional amendments to its Senior Secured Credit Facility. If the Company is not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.
(8)(9) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss (“AOCI”) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustment(1) | | Cash Flow Hedges | | Defined Benefit Plans | | Income Taxes | | Accumulated Other Comprehensive Loss |
Balance at January 2, 2021 | $ | (52,820) | | | $ | (26,538) | | | $ | (668,730) | | | $ | 181,129 | | | $ | (566,959) | |
Amounts reclassified from accumulated other comprehensive loss | 0 | | | 5,242 | | | 7,085 | | | (3,004) | | | 9,323 | |
Current-period other comprehensive income (loss) activity | (25,201) | | | 8,474 | | | 1,699 | | | (4,221) | | | (19,249) | |
Total other comprehensive income (loss) | (25,201) | | | 13,716 | | | 8,784 | | | (7,225) | | | (9,926) | |
| | | | | | | | | |
Balance at April 3, 2021 | $ | (78,021) | | | $ | (12,822) | | | $ | (659,946) | | | $ | 173,904 | | | $ | (576,885) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustment(1) | | Cash Flow Hedges | | Defined Benefit Plans | | Income Taxes | | Accumulated Other Comprehensive Loss |
Balance at December 28, 2019 | $ | (157,138) | | | $ | 4,786 | | | $ | (629,360) | | | $ | 164,064 | | | $ | (617,648) | |
Amounts reclassified from accumulated other comprehensive loss | 0 | | | (5,017) | | | 4,866 | | | 0 | | | (151) | |
Current-period other comprehensive income (loss) activity | (117,154) | | | 20,080 | | | 0 | | | (8,552) | | | (105,626) | |
Total other comprehensive income (loss) | (117,154) | | | 15,063 | | | 4,866 | | | (8,552) | | | (105,777) | |
| | | | | | | | | |
Balance at March 28, 2020 | $ | (274,292) | | | $ | 19,849 | | | $ | (624,494) | | | $ | 155,512 | | | $ | (723,425) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustment(1) | | Cash Flow Hedges | | Defined Benefit Plans | | Income Taxes | | Accumulated Other Comprehensive Loss |
Balance at January 1, 2022 | $ | (134,001) | | | $ | 5,244 | | | $ | (569,161) | | | $ | 146,315 | | | $ | (551,603) | |
Amounts reclassified from accumulated other comprehensive loss | (13,473) | | | 9,789 | | | 5,618 | | | (2,778) | | | (844) | |
Current-period other comprehensive income (loss) activity | 40,770 | | | (7,404) | | | (40) | | | 2,430 | | | 35,756 | |
Total other comprehensive income (loss) | 27,297 | | | 2,385 | | | 5,578 | | | (348) | | | 34,912 | |
| | | | | | | | | |
Balance at April 2, 2022 | $ | (106,704) | | | $ | 7,629 | | | $ | (563,583) | | | $ | 145,967 | | | $ | (516,691) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustment(1) | | Cash Flow Hedges | | Defined Benefit Plans | | Income Taxes | | Accumulated Other Comprehensive Loss |
Balance at January 2, 2021 | $ | (52,820) | | | $ | (26,538) | | | $ | (668,730) | | | $ | 181,129 | | | $ | (566,959) | |
Amounts reclassified from accumulated other comprehensive loss | — | | | 5,242 | | | 7,085 | | | (3,004) | | | 9,323 | |
Current-period other comprehensive income (loss) activity | (25,201) | | | 8,474 | | | 1,699 | | | (4,221) | | | (19,249) | |
Total other comprehensive income (loss) | (25,201) | | | 13,716 | | | 8,784 | | | (7,225) | | | (9,926) | |
| | | | | | | | | |
Balance at April 3, 2021 | $ | (78,021) | | | $ | (12,822) | | | $ | (659,946) | | | $ | 173,904 | | | $ | (576,885) | |
(1)Cumulative Translation Adjustment includes translation adjustments and net investment hedges. See Note “Financial Instruments and Risk Management” for additional disclosures about net investment hedges.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The Company had the following reclassifications out of AOCI:
| Component of AOCI | Component of AOCI | | Location of Reclassification into Income | | Amount of Reclassification from AOCI | Component of AOCI | | Location of Reclassification into Income | | Amount of Reclassification from AOCI |
| Quarters Ended | | Location of Reclassification into Income | | Quarters Ended | |
| April 3, 2021 | | March 28, 2020 | | Location of Reclassification into Income | | April 2, 2022 | | April 3, 2021 | |
Write-off of cumulative translation associated with sale of business | | | $ | 13,473 | | | $ | — | | |
| Gain (loss) on forward foreign exchange contracts designated as cash flow hedges | Gain (loss) on forward foreign exchange contracts designated as cash flow hedges | | Cost of sales | | $ | (4,377) | | | $ | 2,869 | | | Gain (loss) on forward foreign exchange contracts designated as cash flow hedges | | Cost of sales | | $ | 1,612 | | | $ | (4,377) | | |
| | | Income tax | | 1,208 | | | (762) | | | | Income tax | | (508) | | | 1,208 | | |
| | Loss from discontinued operations, net of tax | | (244) | | | 1,638 | | | | Income (loss) from discontinued operations, net of tax | | (232) | | | (244) | | |
| | | Net of tax | | (3,413) | | | 3,745 | | | | Net of tax | | 872 | | | (3,413) | | |
| Loss on cross-currency swap contracts designated as cash flow hedges | | Selling, general and administrative expenses | | (557) | | | 0 | | | |
Gain (loss) on cross-currency swap contracts designated as cash flow hedges | | Gain (loss) on cross-currency swap contracts designated as cash flow hedges | | Selling, general and administrative expenses | | (9,733) | | | (557) | | |
| | | Interest expense, net | | (1,361) | | | — | | |
| | Income tax | | 89 | | | 0 | | | | Income tax | | 1,886 | | | 89 | | |
| | Net of tax | | (468) | | | 0 | | | | Net of tax | | (9,208) | | | (468) | | |
| Amortization of deferred actuarial loss and prior service cost | Amortization of deferred actuarial loss and prior service cost | | Other expenses | | (7,707) | | | (2,762) | | | Amortization of deferred actuarial loss and prior service cost | | Other expenses | | (5,203) | | | (7,707) | | |
| | | Income tax | | 1,746 | | | 1,233 | | | | Income tax | | 1,370 | | | 1,746 | | |
| | Loss from discontinued operations, net of tax | | 519 | | | (2,065) | | | | Income (loss) from discontinued operations, net of tax | | — | | | 519 | | |
Pension activity associated with sale of business | | Pension activity associated with sale of business | | Income (loss) from discontinued operations, net of tax | | (460) | | | — | | |
| | | Net of tax | | (5,442) | | | (3,594) | | | | | Net of tax | | (4,293) | | | (5,442) | | |
| Total reclassifications | Total reclassifications | | $ | (9,323) | | | $ | 151 | | | Total reclassifications | | $ | 844 | | | $ | (9,323) | | |
(9)(10) Financial Instruments and Risk Management
The Company uses forward foreign exchange contracts and cross-currency swap contracts to manage its exposures to movements in foreign exchange rates primarily related to the Euro, Australian dollar, Euro, Mexican peso and Canadian dollar and Mexican peso.dollar. The Company also uses a combination of cross-currency swap contracts and long-term debt to manage its exposure to foreign currency risk associated with the Company’s net investment in certainits European subsidiaries.
| | | Hedge Type | | April 3, 2021 | | January 2, 2021 | | Hedge Type | | April 2, 2022 | | January 2, 2021 |
U.S. dollar equivalent notional amount of derivative instruments: | U.S. dollar equivalent notional amount of derivative instruments: | | | | | | U.S. dollar equivalent notional amount of derivative instruments: | | | | | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Cash Flow and Mark to Market | | $ | 426,204 | | | $ | 617,912 | | Forward foreign exchange contracts | Cash Flow and Mark to Market | | $ | 326,800 | | | $ | 308,071 | |
Cross-currency swap contracts | Cross-currency swap contracts | Cash Flow | | $ | 352,920 | | | $ | 0 | | Cross-currency swap contracts | Cash Flow | | $ | 352,920 | | | $ | 352,920 | |
Cross-currency swap contracts | Cross-currency swap contracts | Net Investment | | $ | 335,940 | | | $ | 335,940 | | Cross-currency swap contracts | Net Investment | | $ | 335,940 | | | $ | 335,940 | |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Fair Values of Derivative Instruments
The fair values of derivative financial instruments related to forward foreign exchange contracts and cross-currency swap contracts recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:
| | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
| | April 3, 2021 | | January 2, 2021 | | April 2, 2022 | | January 1, 2022 |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | | Derivatives designated as hedging instruments: | | | | | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Other current assets | | $ | 1,676 | | | $ | 1 | | Forward foreign exchange contracts | Other current assets | | $ | 1,037 | | | $ | 2,898 | |
Cross-currency swap contracts | Cross-currency swap contracts | Other current assets | | 2,817 | | | 918 | | Cross-currency swap contracts | Other current assets | | 2,986 | | | 974 | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Current assets of discontinued operations | | 226 | | | 40 | | Forward foreign exchange contracts | Other noncurrent assets | | 92 | | | 83 | |
Forward foreign exchange contracts | Other noncurrent assets | | 488 | | | 0 | | |
| Cross-currency swap contracts | | Cross-currency swap contracts | Other noncurrent assets | | 4,585 | | | 1,979 | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
Forward foreign exchange contracts | Other current assets | | 1,564 | | | 2,459 | | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Current assets of discontinued operations | | 64 | | | 198 | | Forward foreign exchange contracts | Other current assets | | 4,942 | | | 5,439 | |
Total derivative assets | Total derivative assets | | 6,835 | | | 3,616 | | Total derivative assets | | 13,642 | | | 11,373 | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Accrued liabilities | | (6,152) | | | (12,898) | | Forward foreign exchange contracts | Accrued liabilities | | (3,381) | | | (349) | |
| Forward foreign exchange contracts | Current liabilities of discontinued operations | | (656) | | | (4,747) | | |
Cross-currency swap contracts | | Cross-currency swap contracts | Accrued liabilities | | (1,583) | | | (222) | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Other noncurrent liabilities | | 0 | | | (2,190) | | Forward foreign exchange contracts | Other noncurrent liabilities | | (329) | | | (14) | |
Cross-currency swap contracts | Cross-currency swap contracts | Other noncurrent liabilities | | (6,530) | | | (16,526) | | Cross-currency swap contracts | Other noncurrent liabilities | | (14,244) | | | (11,387) | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Accrued liabilities | | (5,327) | | | (16,488) | | Forward foreign exchange contracts | Accrued liabilities | | (1,862) | | | (331) | |
Forward foreign exchange contracts | Current liabilities of discontinued operations | | (850) | | | (2,195) | | |
Total derivative liabilities | Total derivative liabilities | | (19,515) | | | (55,044) | | Total derivative liabilities | | (21,399) | | | (12,303) | |
| Net derivative liability | Net derivative liability | | $ | (12,680) | | | $ | (51,428) | | Net derivative liability | | $ | (7,757) | | | $ | (930) | |
Cash Flow Hedges
The Company uses forward foreign exchange contracts and cross-currency swap contracts to reduce the effect of fluctuating foreign currencies on foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates.
On April 1, 2021, in connection with a reduction in the amount of the 3.5% Senior Notes designated in the European net investment hedge discussed below, the Company entered into 3 pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000. The Company designated these cross-currency swap contracts to hedge the undesignated portion of the foreign currency cash flow exposure related to the Company’s 3.5% Senior Notes, which had a carrying amount of €500,000 as of April 3, 2021.2, 2022. These cross-currency swap contracts, which mature on June 15, 2024, swap Euro-denominated interest payments for U.S. dollar-denominated interest payments, thereby economically converting €300,000 of the Company’s €500,000 fixed-rate 3.5% Senior Notes to a fixed-rate 4.7945% USD-denominated obligation.
The Company expects to reclassify into earnings during the next 12 months a net loss from AOCI of approximately $18,182.$4,975. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next 1617 months and for long-term debt over the next 3927 months.
The effect of derivative instruments designated as cash flow hedges on the Condensed Consolidated Statements of Income and AOCI is as follows:
| | | | | | | | | | | | | | | |
| Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
| | | | | | | |
Forward foreign exchange contracts | $ | (3,186) | | | $ | 8,486 | | | | | |
Cross-currency swap contracts | (4,218) | | | (12) | | | | | |
| | | | | | | |
Total | $ | (7,404) | | | $ | 8,474 | | | | | |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:
| | | | | | | | | | | | | | | | | |
| Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments | | |
| Quarters Ended | | | | |
| April 3, 2021 | | March 28, 2020 | | | | | | |
| | | | | | | | | |
Forward foreign exchange contracts | $ | 8,486 | | | $ | 20,080 | | | | | | | |
Cross-currency swap contracts | (12) | | | 0 | | | | | | | |
Total | $ | 8,474 | | | $ | 20,080 | | | | | | | |
| | | | | | | | | |
| | | Location of Gain (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income | | Location of Gain (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income |
| | Quarters Ended | | | Location of Gain (Loss) Reclassified from AOCI into Income | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | | Location of Gain (Loss) Reclassified from AOCI into Income | | April 2, 2022 | | April 3, 2021 | |
| | Forward foreign exchange contracts(1) | Forward foreign exchange contracts(1) | Cost of sales | | $ | (4,377) | | | $ | 2,869 | | | Forward foreign exchange contracts(1) | Cost of sales | | $ | 1,612 | | | $ | (4,377) | | |
Forward foreign exchange contracts(1) | Forward foreign exchange contracts(1) | Loss from discontinued operations, net of tax | | (308) | | | 2,148 | | | Forward foreign exchange contracts(1) | Income (loss) from discontinued operations, net of tax | | (307) | | | (308) | | |
Cross-currency swap contracts(1) | Cross-currency swap contracts(1) | Selling, general and administrative expenses | | (557) | | | 0 | | | Cross-currency swap contracts(1) | Selling, general and administrative expenses | | (9,733) | | | (557) | | |
Cross-currency swap contracts(1) | | Cross-currency swap contracts(1) | Interest expense, net | | (1,361) | | | — | | |
| Total | Total | | $ | (5,242) | | | $ | 5,017 | | | Total | | $ | (9,789) | | | $ | (5,242) | | |
|
(1)The Company does not exclude amounts from effectiveness testing for cash flow hedges that would require recognition into earnings based on changes in fair value.
| | | | | | | | | | | | | | | | | |
| | | Quarters Ended | | |
| | | April 3, 2021 | | March 28, 2020 | | | | |
Total cost of sales in which the effects of cash flow hedges are recorded | | | $ | 905,348 | | | $ | 784,902 | | | | | |
Total selling, general and administrative expenses in which the effects of cash flow hedges are recorded | | | $ | 412,559 | | | $ | 370,215 | | | | | |
| | | | | | | | | |
Total loss from discontinued operations, net of tax in which the effects of cash flow hedges are recorded | | | $ | (391,666) | | | $ | (12,992) | | | | | |
The following table presents the amounts in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded: | | | | | | | | | | | | | | | | | |
| | | Quarters Ended | | |
| | | April 2, 2022 | | April 3, 2021 | | | | |
Cost of sales | | | $ | 991,978 | | | $ | 905,348 | | | | | |
Selling, general and administrative expenses | | | $ | 413,666 | | | $ | 412,559 | | | | | |
Interest expense, net | | | $ | 31,963 | | | $ | 44,460 | | | | | |
Income (loss) from discontinued operations, net of tax | | | $ | 4,525 | | | $ | (391,666) | | | | | |
Net Investment Hedges
In July 2019, the Company entered into 2 pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €300,000 that were designated as hedges of a portion of the beginning balance of the Company’s net investment in certainits European subsidiaries. These cross-currency swap contracts, which mature on May 15, 2024, swap U.S. dollar-denominated interest payments for Euro-denominated interest payments, thereby economically converting a portion of the Company’s fixed-rate 4.625% Senior Notes to a fixed-rate 2.3215% Euro-denominated obligation.
In July 2019, the Company also designated the full amount of its 3.5% Senior Notes with a carrying value of €500,000, which is a nonderivative financial instrument, as a hedge of a portion of the beginning balance of the Company’s European net investment. As of April 1, 2021, the Company reduced the amount of its 3.5% Senior Notes designated in the European net investment hedge from €500,000 to €200,000. As of April 3, 20212, 2022 and January 2, 2021,1, 2022, the U.S. dollar equivalent carrying value of Euro-denominated long-term debt designated as a partial European net investment hedge was $235,183$220,970 and $610,724,$227,454, respectively.
The amount of after-tax gains (losses) included in AOCI in the Condensed Consolidated Balance Sheets related to derivative instruments and nonderivative financial instruments designated as net investment hedges are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Amount of Gain (Loss) Recognized in AOCI |
| | | Quarters Ended | | |
| | | April 2, 2022 | | April 3, 2021 | | | | |
Euro-denominated long-term debt | | $ | 4,721 | | | $ | 19,300 | | | | | |
Cross-currency swap contracts | | 1,932 | | | 7,373 | | | | | |
Total | | $ | 6,653 | | | $ | 26,673 | | | | | |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The amounteffect of after-tax gains (losses) included in AOCI in the Condensed Consolidated Balance Sheets related to derivative instruments and nonderivative financialnon-derivative instruments designated as net investment hedges andon the amountCondensed Consolidated Statements of gains included inIncome are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Location of Gain (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income |
| | Quarters Ended | | |
| | April 2, 2022 | | April 3, 2021 | | | | |
Euro-denominated long-term debt | Income (loss) from discontinued operations, net of tax | | $ | (13,348) | | | $ | — | | | | | |
Cross-currency swap contracts | Income (loss) from discontinued operations, net of tax | | (2,505) | | | — | | | | | |
Cross-currency swap contracts (amounts excluded from effectiveness testing) | Interest expense, net | | 2,012 | | | 1,899 | | | | | |
Total | | | $ | (13,841) | | | $ | 1,899 | | | | | |
The following table presents the “Interest expense, net” lineamounts in the Condensed Consolidated Statements of Income related to amounts excluded fromin which the assessmenteffects of hedge effectiveness for derivative instruments designated as net investment hedges are as follows:recorded:
| | | | | | | | | | | | | | | | | | | | | |
| | | Amount of Gain Recognized in AOCI |
| | | Quarters Ended | | |
| | | April 3, 2021 | | March 28, 2020 | | | | |
Euro-denominated long-term debt | | $ | 19,300 | | | $ | 2,658 | | | | | |
Cross-currency swap contracts | | 7,373 | | | 11,732 | | | | | |
Total | | $ | 26,673 | | | $ | 14,390 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Location of Gain Recognized in Income | | Amount of Gain Recognized in Income (Amount Excluded from Effectiveness Testing) |
| | Quarters Ended | | |
| | April 3, 2021 | | March 28, 2020 | | | | |
Cross-currency swap contracts | Interest expense, net | | $ | 1,899 | | | $ | 1,947 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | Quarters Ended | | |
| | | April 3, 2021 | | March 28, 2020 | | | | |
Total interest expense, net in which the amounts excluded from effectiveness testing for net investment hedges are recorded | | $ | 44,460 | | | $ | 36,027 | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Quarters Ended | | |
| | April 2, 2022 | | April 3, 2021 | | | | |
Income (loss) from discontinued operations, net of tax | | 4,525 | | | (391,666) | | | | | |
Interest expense, net (amounts excluded from effectiveness testing) | | 31,963 | | | 44,460 | | | | | |
Mark to Market Hedges
A derivativeDerivatives used as a hedging instrument whose change in fair value is recognized to act as a hedge against changes in the values of the hedged item is designated as a mark to market hedge.hedges are not designated as hedges under the accounting standards. The Company uses forward foreign exchange derivative contracts as hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. Forward foreign exchange derivative contracts are recorded as mark to market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheets. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.
The effect of derivative contractsinstruments not designated as hedges on the Condensed Consolidated Statements of Income is as follows:
| | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income | | Location of Gain (Loss) Recognized in Income on Derivatives | | Amount of Gain (Loss) Recognized in Income |
| | Quarters Ended | | Location of Gain (Loss) Recognized in Income on Derivatives | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | Location of Gain (Loss) Recognized in Income on Derivatives | | April 2, 2022 | | April 3, 2021 | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Cost of sales | | $ | 12,995 | | | $ | 6,549 | | | $ | (4,202) | | | $ | 12,995 | | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Selling, general and administrative expenses | | 2,211 | | | (1,034) | | | Forward foreign exchange contracts | 292 | | | 2,211 | | |
Forward foreign exchange contracts | Forward foreign exchange contracts | Loss from discontinued operations, net of tax | | 2,639 | | | (425) | | | Forward foreign exchange contracts | Income (loss) from discontinued operations, net of tax | | — | | | 2,639 | | |
Total | Total | | $ | 17,845 | | | $ | 5,090 | | | Total | | $ | (3,910) | | | $ | 17,845 | | |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
(10)(11) Fair Value of Assets and Liabilities
As of April 3, 2021,2, 2022 and January 1, 2022, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments related to forward foreign exchange derivative contracts, cross-currency swap derivative contracts and deferred compensation plan liabilities. The fair values of forward foreign exchange derivative contracts are determined using the cash flows of the forward contracts, discount rates to account for the passage of time and current foreign exchange market data which are all based on inputs readily available in public markets and are categorized as Level 2. The fair values of cross-currency swap derivative contracts are determined using the cash flows of the swap contracts, discount rates to account for the passage of time, current foreign exchange and interest rate market data and credit risk, which are all based on inputs readily available in public markets and are categorized as Level 2. The fair value of deferred compensation plansplan liabilities is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a quarterly recurring basis.
There were no changes during the quarter ended April 3, 20212, 2022 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of and during the quarter ended April 3, 2021,2, 2022, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring basis or non-recurring basis.
The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities within continuing operations accounted for at fair value on a recurring basis.
| | | Assets (Liabilities) at Fair Value as of April 3, 2021 | | Assets (Liabilities) at Fair Value as of April 2, 2022 |
| | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Forward foreign exchange contracts - assets | Forward foreign exchange contracts - assets | $ | 3,728 | | | $ | 0 | | | $ | 3,728 | | | $ | 0 | | Forward foreign exchange contracts - assets | $ | 6,071 | | | $ | — | | | $ | 6,071 | | | $ | — | |
Cross-currency swap contracts - assets | Cross-currency swap contracts - assets | 2,817 | | | 0 | | | 2,817 | | | 0 | | Cross-currency swap contracts - assets | 7,571 | | | — | | | 7,571 | | | — | |
Forward foreign exchange contracts - liabilities | Forward foreign exchange contracts - liabilities | (11,479) | | | 0 | | | (11,479) | | | 0 | | Forward foreign exchange contracts - liabilities | (5,572) | | | — | | | (5,572) | | | — | |
Cross-currency swap contracts - liabilities | Cross-currency swap contracts - liabilities | (6,530) | | | 0 | | | (6,530) | | | 0 | | Cross-currency swap contracts - liabilities | (15,827) | | | — | | | (15,827) | | | — | |
| (11,464) | | | 0 | | | (11,464) | | | 0 | | |
Total derivative contracts | | Total derivative contracts | (7,757) | | | — | | | (7,757) | | | — | |
Deferred compensation plan liability | Deferred compensation plan liability | (18,809) | | | 0 | | | (18,809) | | | 0 | | Deferred compensation plan liability | (18,030) | | | — | | | (18,030) | | | — | |
Total | Total | $ | (30,273) | | | $ | 0 | | | $ | (30,273) | | | $ | 0 | | Total | $ | (25,787) | | | $ | — | | | $ | (25,787) | | | $ | — | |
| | | Assets (Liabilities) at Fair Value as of January 2, 2021 | | Assets (Liabilities) at Fair Value as of January 1, 2022 |
| | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Forward foreign exchange contracts - assets | Forward foreign exchange contracts - assets | $ | 2,460 | | | $ | 0 | | | $ | 2,460 | | | $ | 0 | | Forward foreign exchange contracts - assets | $ | 8,420 | | | $ | — | | | $ | 8,420 | | | $ | — | |
Cross-currency swap contracts - assets | Cross-currency swap contracts - assets | 918 | | | 0 | | | 918 | | | 0 | | Cross-currency swap contracts - assets | 2,953 | | | — | | | 2,953 | | | — | |
Forward foreign exchange contracts - liabilities | Forward foreign exchange contracts - liabilities | (31,576) | | | 0 | | | (31,576) | | | 0 | | Forward foreign exchange contracts - liabilities | (694) | | | — | | | (694) | | | — | |
Cross-currency swap contracts - liabilities | Cross-currency swap contracts - liabilities | (16,526) | | | 0 | | | (16,526) | | | 0 | | Cross-currency swap contracts - liabilities | (11,609) | | | — | | | (11,609) | | | — | |
| (44,724) | | | 0 | | | (44,724) | | | 0 | | |
Total derivative contracts | | Total derivative contracts | (930) | | | — | | | (930) | | | — | |
Deferred compensation plan liability | Deferred compensation plan liability | (21,878) | | | 0 | | | (21,878) | | | 0 | | Deferred compensation plan liability | (20,916) | | | — | | | (20,916) | | | — | |
Total | Total | $ | (66,602) | | | $ | 0 | | | $ | (66,602) | | | $ | 0 | | Total | $ | (21,846) | | | $ | — | | | $ | (21,846) | | | $ | — | |
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable notes receivable and accounts payable approximated fair value as of April 3, 20212, 2022 and January 2, 2021.1, 2022. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $55,543$66,142 and $48,745$61,948 as of April 3, 20212, 2022 and January 2, 2021,1, 2022, respectively. The fair value of debt, which is classified as a Level 2 liability, was $3,912,331$3,487,963 and $4,230,985$3,504,412 as of April 3, 20212, 2022 and January 2, 2021,1, 2022, respectively. Debt had a carrying value of $3,712,959$3,501,675 and $4,035,724$3,368,634 as of April 3, 20212, 2022 and January 2, 2021,1, 2022, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amount of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value primarily due to the short-term nature of these instruments.
(11) Income Taxes
The Company’s effective income tax rate was 10.3% and 12.1% for the quarters ended April 3, 2021 and March 28, 2020, respectively. The lower effective tax rate for the quarter ended April 3, 2021 was primarily due to a discrete benefit for the release of reserves for unrecognized tax benefits of $7,034, partially offset by a discrete charge for changes in valuation allowances of $3,672.
The Company is subject to examinations in the U.S., various state and foreign jurisdictions and believes that it maintains appropriate accruals for unrecognized tax benefits related to uncertain tax positions, which are evaluated each quarter. During the quarter ended April 3, 2021, the Company’s liability for unrecognized tax benefits, including interest and penalties, decreased by $8,414, of which $7,034 was a discrete reduction of the effective income tax rate. The decrease was related to expirations of statutes of limitations and approvals of certain filings with income tax authorities.
(12) Business Segment Information
The Company’s operations are managed and reported in 3 operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of the Company’s U.S.-based outlet stores, U.S. Sheer Hosiery business and certain sales from its supply chain and transitional services with the European Innerwear business which was sold on March 5, 2022. In the fourth quarter of 2021, the Company reached the decision to divest its U.S. hosiery business.Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential plan. See Note “Assets and Liabilities Held for Sale” for additional information.
The types of products and services from which each reportable segment derives its revenues are as follows:
•Innerwear includes sales in the United States of basic branded apparel products that are replenishment in nature under the product categories of men’s underwear, women’s panties, children’s underwear and socks, and intimate apparel, which includes bras and shapewear.
•Activewear includes sales in the United States of basic branded products that are primarily seasonal in nature to both retailers and wholesalers, as well as licensed sports apparel and licensed logo apparel in collegiate bookstores, mass retailers and other channels.apparel.
•International primarily includes sales of products in all of the Company’s categoriesinnerwear and activewear products outside the United States, primarily in Australasia, Europe, Asia, CanadaLatin America and Latin America.Canada.
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses, restructuring and other action-related charges and amortization of intangibles. The accounting policies of the segments are consistent with those described in Note “Summary of Significant Accounting Policies” to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022.
| | | Quarters Ended | | | Quarters Ended | |
April 3, 2021 | | March 28, 2020 | | | April 2, 2022 | | April 3, 2021 | |
Net sales: | Net sales: | | | | | | | | |
Innerwear | Innerwear | $ | 570,435 | | | $ | 422,402 | | | Innerwear | $ | 578,947 | | | $ | 570,435 | | |
Activewear | Activewear | 364,003 | | | 288,000 | | | Activewear | 386,937 | | | 364,003 | | |
International | International | 506,261 | | | 428,230 | | | International | 510,129 | | | 506,261 | | |
Other | Other | 67,330 | | | 64,438 | | | Other | 100,143 | | | 67,330 | | |
Total net sales | Total net sales | $ | 1,508,029 | | | $ | 1,203,070 | | | Total net sales | $ | 1,576,156 | | | $ | 1,508,029 | | |
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 3, 2021 | | March 28, 2020 | | | | |
Segment operating profit: | | | | | | | |
Innerwear | $ | 127,417 | | | $ | 81,551 | | | | | |
Activewear | 60,594 | | | 8,108 | | | | | |
International | 87,180 | | | 50,745 | | | | | |
Other | 1,886 | | | (3,393) | | | | | |
Total segment operating profit | 277,077 | | | 137,011 | | | | | |
Items not included in segment operating profit: | | | | | | | |
General corporate expenses | (59,823) | | | (57,426) | | | | | |
Restructuring and other action-related charges | (19,393) | | | (24,324) | | | | | |
Amortization of intangibles | (7,739) | | | (7,308) | | | | | |
Total operating profit | 190,122 | | | 47,953 | | | | | |
Other expenses | (2,561) | | | (6,101) | | | | | |
Interest expense, net | (44,460) | | | (36,027) | | | | | |
Income from continuing operations before income tax expense | $ | 143,101 | | | $ | 5,825 | | | | | |
For the quarter ended April 3, 2021, theHANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Segment operating profit: | | | | | | | |
Innerwear | $ | 102,146 | | | $ | 127,417 | | | | | |
Activewear | 48,984 | | | 60,594 | | | | | |
International | 89,438 | | | 87,180 | | | | | |
Other | (671) | | | 1,886 | | | | | |
Total segment operating profit | 239,897 | | | 277,077 | | | | | |
Items not included in segment operating profit: | | | | | | | |
General corporate expenses | (57,228) | | | (59,823) | | | | | |
Restructuring and other action-related charges | (4,802) | | | (19,393) | | | | | |
Amortization of intangibles | (7,355) | | | (7,739) | | | | | |
Total operating profit | 170,512 | | | 190,122 | | | | | |
Other expenses | (987) | | | (2,561) | | | | | |
Interest expense, net | (31,963) | | | (44,460) | | | | | |
Income from continuing operations before income tax expense | $ | 137,562 | | | $ | 143,101 | | | | | |
The Company incurred pre-tax restructuring and other action-related charges of $19,393, of which $2,807 isthat were reported in the “Costfollowing lines in the Condensed Consolidated Statements of sales” lineIncome:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
April 2, 2022 | | April 3, 2021 | | | | |
Cost of sales | $ | 499 | | | $ | 2,807 | | | | | |
Selling, general and administrative expenses | 4,303 | | | 16,586 | | | | | |
Total included in operating profit | 4,802 | | | 19,393 | | | | | |
Income tax expense | 816 | | | 11,302 | | | | | |
Total restructuring and other action-related charges | $ | 3,986 | | | $ | 8,091 | | | | | |
The components of restructuring and $16,586other action-related charges were as follows:
| | | | | | | | | | | | | | | |
| Quarters Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Full Potential Plan: | | | | | | | |
Professional services | $ | 7,908 | | | $ | 11,706 | | | | | |
Gain on classification of assets held for sale | (6,528) | | | — | | | | | |
Operating model | (1,919) | | | — | | | | | |
Supply chain segmentation | 1,020 | | | — | | | | | |
Technology | 4,459 | | | — | | | | | |
Impairment of intangible assets | — | | | 7,302 | | | | | |
Other | (138) | | | 385 | | | | | |
Total included in operating profit | 4,802 | | | 19,393 | | | | | |
Discrete tax benefits | — | | | 7,295 | | | | | |
Tax effect on actions | 816 | | | 4,007 | | | | | |
Total benefit included in income tax expense | 816 | | | 11,302 | | | | | |
Total restructuring and other action-related charges | $ | 3,986 | | | $ | 8,091 | | | | | |
Restructuring and other action-related charges within operating profit included $4,802 and $19,393 of charges related to the implementation of the Company’s Full Potential plan in the quarters ended April 2, 2022 and April 3, 2021, respectively. Full Potential plan charges in the quarter ended April 2, 2022 included a non-cash gain of $6,528, which is reportedreflected in the “Selling, general and administrative expenses” line inof the Condensed Consolidated StatementStatements of Income. ForIncome, to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting from a decrease in carrying value due to changes in working capital. Full Potential plan charges in the quarter ended March 28, 2020, the Company incurred pre-tax restructuring and other action-relatedApril 3, 2021 included impairment charges of $24,324, of$7,302, which $21,811 is reported in the “Cost of sales” line and $2,513 is reportedare reflected in the “Selling, general and administrative expenses” line inof the Condensed Consolidated StatementStatements of Income.Income,
HANESBRANDS INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
related to the full impairment of an indefinite-lived trademark related to a specific brand within the European Innerwear business that was excluded from the disposal group as it was not marketed for sale and that the Company intends to exit.
In the third quarter of 2021, the Company recorded a charge for an action to resize its U.S. corporate office workforce through a voluntary retirement program which was included in restructuring and other action-related charges. At January 1, 2022, the accrual for employee termination and other benefits related to the Company’s 2021 voluntary retirement program was $15,688. The Company made benefit payments of $3,066 during the quarter ended April 2, 2022, resulting in an ending accrual of $12,622 which is included in the “Accrued liabilities” line of the Condensed Consolidated Balance Sheets at April 2, 2022.
| | | | | |
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 interim consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended January 2, 2021,1, 2022, which were included in our Annual Report on Form 10-K filed with the SEC. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022. In particular, statements with respect to trends associated with our business, our Full Potential plan and our future financial performance and the potential effects of the global novel coronavirus ("COVID-19") pandemic included in this MD&A include forward-looking statements.
Overview
Hanesbrands Inc. (collectively with its subsidiaries, “we,” “us,” “our,” or the “Company”) is a socially responsible leading marketer of everyday basic innerwear and activewear apparel in the Americas, Australia,Australasia, Europe and Asia/PacificAsia under some of the world’s strongest apparel brands, including Hanes, Champion, Bonds, Bali, Maidenform, Playtex, Bras N Things, JMS/Just My Size, Wonderbra, Alternative, Berlei, L’eggsWonderbra, Gear for Sports and Gear for Sports.Comfortwash. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, shapewear, underwear, socks hosiery and activewear produced in our low-cost global supply chain. Our products are marketed to consumers shopping in mass merchants, mid-tier and department stores, specialty stores and the consumer-directed channel, which includes our owned retail locations, as well as e-commerce sites. Our brands hold either the number one or number two market position by units sold in many of the product categories and geographies in which we compete.
Our operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of our U.S.-based outlet stores, U.S. Sheer Hosiery business and certain sales from our supply chain to the European Innerwear business which was sold on March 5, 2022. In the fourth quarter of 2021, we reached the decision to divest our U.S. hosiery business.Sheer Hosiery business, including the L’eggs brand, as part of our strategy to streamline our portfolio under our Full Potential plan. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Our Key Business Strategies
Our business strategy integrates our brand superiority, industry-leading innovation and low-cost global supply chain to provide higher value products while lowering production costs. We operate in the global innerwear and global activewear apparel categories. These are stable, heavily branded categories where we have a strong consumer franchise based on a global portfolio of industry-leading brands that we have built over multiple decades, through hundreds of millions of direct interactions with consumers. In 2020, we undertook a comprehensive global business review focused on building consumer-centric growth. The review resulted in our Full Potential plan, which is ourOur multi-year growth strategy that(“Full Potential plan”) focuses on four pillars to drive growth and enhance long-term profitability and identifies the initiatives to unlock growth. Our four pillars of growth are to grow the Champion brand globally, drive growth in Innerwear with brands and products that appeal to younger consumers, drive consumer-centricity by delivering innovative products and improving awareness through investments in brand marketing and digital capabilities,build e-commerce excellence across channels and streamline our global portfolio. In order to deliver this growth and create a more efficient and productive business model, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan’s objectives. We remain highly confident that our strong brand portfolio, world-class supply chain and diverse category and geographic footprint will help us unlock our full potential, deliver long-term growth and create stockholder value.
In the first quarter of 2021, we announced that as part of our strategic plan, we were exploring alternatives for our European Innerwear business and subsequently reached the decision to exit this business. Weour European Innerwear business as part of our strategy to streamline our portfolio under our Full Potential plan and determined that our European Innerwearthis business met held-for-sale and discontinued operations accounting criteria during the first quarter of 2021.criteria. Accordingly, we began to separately report the results of our European Innerwear business as discontinued operations in our Condensed Consolidated Statements of Income, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. On November 4, 2021, we announced that we reached an agreement to sell our European Innerwear business to an affiliate of Regent, L.P. and completed the sale on March 5, 2022. See note “Discontinued Operations”Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information on discontinued operations.information.
In addition, in the fourth quarter of 2021, we reached the decision to divest our U.S. Sheer Hosiery business, including the L’eggs brand, as part of our strategy to streamline our portfolio under our Full Potential plan and determined that this business met held-for-sale accounting criteria. The related assets and liabilities are presented as held for sale in the Condensed Consolidated Balance Sheets at April 2, 2022 and January 1, 2022. The operations of our U.S. Sheer Hosiery business are reported in “Other” for all periods presented in Note “Business Segment Information” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q. We are currently exploring potential purchasers for this business and expect to complete the sale of this business during 2022. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Impact of COVID-19 on Our Business
As the global impact of COVID-19 continues, our priority has been to protect the health and safety of our employees and customers around the world. To help mitigate the spread of the COVID-19 virus and in response to health advisories and governmental actions and regulations, we have modified our business practices and have implemented health and safety measures that are designed to protect employees in our corporate, retail, distribution and manufacturing facilities around the world.
The COVID-19 pandemic has impacted our business operations and financial results, for the first quarter of 2021 and 2020 as described in more detail under “Condensed Consolidated Results of Operations - First Quarter Ended April 3, 20212, 2022 Compared with First Quarter Ended March 28, 2020”April 3, 2021” below, primarily through reduced traffic and closures of company-operatedCompany-operated and third-party retail locations for portions of eachthe first quarter of the quarters2021 in certain markets. While many retailmarkets and global supply chain disruptions and inflation in both periods due to factory disruptions, port congestion, transportation delays as well as labor and container shortages which resulted in higher operating costs and higher levels of inflation. These global supply chain disruptions have delayed and are expected to continue to delay inventory orders and, in turn, deliveries to our wholesale customers and availability in our company-operated stores and e-commerce sites. Supply chain disruptions resulted in the inability to fulfill certain customer orders which negatively impacted our net revenues. We anticipate these supply chain disruptions could impact our sales volumes in future periods. We have reopenedalso incurred higher distribution costs including freight and some government restrictions have been partially or fully removed, thelabor costs to mitigate these delays. We continue to monitor these delays and other potential disruptions in our supply chain and will implement mitigation plans as needed. The future impact of the COVID-19 pandemic, remainssupply chain disruptions and inflation remain highly uncertain, and our business and results of operations, including our net revenues, earnings and cash flows, could continue to be adversely impacted.
Outlook for 2021of 2022
We estimate our 20212022 guidance as follows:
•Net sales of $6.2approximately $7.00 billion to $6.3 billion;$7.15 billion, net of approximately $125 million of unfavorable foreign exchange impact;
•Operating profit of $730approximately $780 million to $760 million;$850 million, net of approximately $17 million of unfavorable foreign currency exchange impact;
•Full Potential plan-related charges of approximately $85$60 million reflectedincluded in operating profit;
•Interest expense and other expenses of approximately $185$148 million combined;
•An annual effective tax rate from continuing operations of approximately 14%17%;
•Diluted earnings per share from continuing operations from $1.33of approximately $1.50 to $1.41;$1.67;
•Cash flow from operating activities of $500 million to $550approximately $400 million; and
•Capital expenditures of approximately $140$150 million which includes approximately $50 million related to our Full Potential plan.$175 million.
Seasonality and Other Factors
Absent the effects of the COVID-19 pandemic, our operating results are typically subject to some variability due to seasonality and other factors. For instance, we have historically generated higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Our diverse range of product offerings, however, typically mitigates some of the impact of seasonal changes in demand for certain items. Sales levels in any period are also impacted by our customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse basis, our sales are impacted by discretionary consumer spending trends. Discretionary spending is affected by many factors that are outside our control, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, energy prices, unemployment trends and other matters that influence consumer confidence and spending. Consumers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. As a result, consumers may choose to purchase fewer of our products, to purchase lower-priced products of our competitors in response to higher prices for our products, or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
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, including cotton, dyes and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result of inflation and other factors. Disruptions to the global supply chain due to factory closures, port congestion, transportation delays as well as labor and container shortages may negatively impact product availability, revenue growth and gross margins. We would work to mitigate the impact of the global supply chain disruptions through a combination of cost savings and operating efficiencies, as well as pricing actions, which could have an adverse impact on demand. Costs incurred for materials and labor are capitalized into inventory and impact our results as the inventory is sold. In addition, a significant portion of our products are manufactured in countries other than the United States and declines in the value of the U.S. dollar may result in higher manufacturing costs. Increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on spending.
Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as seasonal and replenishable activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to consumers’ preferences and discretionary spending.
Highlights from the First Quarter Ended April 2, 2022
Key financial highlights are as follows:
•Total net sales in the first quarter of 2022 were $1.58 billion, compared with $1.51 billion in the same period of 2021, representing a 5% increase.
•Operating profit decreased 10.3% to $170.5 million in the first quarter of 2022, compared with $190.1 million in the same period of 2021. As a percentage of sales, operating profit was 10.8% in the first quarter of 2022 compared to 12.6% in the same period of 2021.
•Diluted earnings per share from continuing operations was $0.32 and $0.37 in the first quarters of 2022 and 2021, respectively.
•As part of our strategy to streamline our portfolio under our Full Potential plan, we sold our European Innerwear business on March 5, 2022.
•We repurchased approximately 1.6 million shares at a weighted average repurchase price of $15.84 per share. The shares were repurchased at a total cost of $25 million including broker’s commissions.
Condensed Consolidated Results of Operations — First Quarter Ended April 3, 20212, 2022 Compared with First Quarter Ended March 28, 2020April 3, 2021
| | | Quarters Ended | | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | Higher (Lower) | | Percent Change | | April 2, 2022 | | April 3, 2021 | | Higher (Lower) | | Percent Change |
| | (dollars in thousands) | | (dollars in thousands) |
Net sales | Net sales | $ | 1,508,029 | | | $ | 1,203,070 | | | $ | 304,959 | | | 25.3 | % | Net sales | $ | 1,576,156 | | | $ | 1,508,029 | | | $ | 68,127 | | | 4.5 | % |
Cost of sales | Cost of sales | 905,348 | | | 784,902 | | | 120,446 | | | 15.3 | | Cost of sales | 991,978 | | | 905,348 | | | 86,630 | | | 9.6 | |
Gross profit | Gross profit | 602,681 | | | 418,168 | | | 184,513 | | | 44.1 | | Gross profit | 584,178 | | | 602,681 | | | (18,503) | | | (3.1) | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 412,559 | | | 370,215 | | | 42,344 | | | 11.4 | | Selling, general and administrative expenses | 413,666 | | | 412,559 | | | 1,107 | | | 0.3 | |
Operating profit | Operating profit | 190,122 | | | 47,953 | | | 142,169 | | | 296.5 | | Operating profit | 170,512 | | | 190,122 | | | (19,610) | | | (10.3) | |
Other expenses | Other expenses | 2,561 | | | 6,101 | | | (3,540) | | | (58.0) | | Other expenses | 987 | | | 2,561 | | | (1,574) | | | (61.5) | |
Interest expense, net | Interest expense, net | 44,460 | | | 36,027 | | | 8,433 | | | 23.4 | | Interest expense, net | 31,963 | | | 44,460 | | | (12,497) | | | (28.1) | |
Income from continuing operations before income tax expense | Income from continuing operations before income tax expense | 143,101 | | | 5,825 | | | 137,276 | | | 2,356.7 | | Income from continuing operations before income tax expense | 137,562 | | | 143,101 | | | (5,539) | | | (3.9) | |
Income tax expense | Income tax expense | 14,697 | | | 707 | | | 13,990 | | | 1,978.8 | | Income tax expense | 23,385 | | | 14,697 | | | 8,688 | | | 59.1 | |
Income from continuing operations | Income from continuing operations | 128,404 | | | 5,118 | | | 123,286 | | | 2,408.9 | | Income from continuing operations | 114,177 | | | 128,404 | | | (14,227) | | | (11.1) | |
Loss from discontinued operations, net of tax | (391,666) | | | (12,992) | | | (378,674) | | | (2,914.7) | | |
Net loss | $ | (263,262) | | | $ | (7,874) | | | $ | (255,388) | | | (3,243.4) | % | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | 4,525 | | | (391,666) | | | 396,191 | | | (101.2) | |
Net income (loss) | | Net income (loss) | $ | 118,702 | | | $ | (263,262) | | | $ | 381,964 | | | (145.1) | % |
Net Sales
Net sales increased 25%5% during the first quarter of 2022 versus the first quarter of 2021 primarily due to the following:
•The overlap of the initial COVID-19 pandemic shutdownStrong consumer demand in the first quarter of 2020;U.S., Europe and the Americas.
Partially offset by:
•Global supply chain disruptions resulting in product delays;
•Retailers continuing to replenish inventory levels as stores reopened after temporary closures due to the COVID-19 pandemicOngoing COVID-related pressures on consumer traffic in 2020 and incremental sales partially as a result of U.S. government stimulus spending;certain markets in Asia; and
•The favorableunfavorable impact from foreign currency exchange rates in our International business of approximately $43$30 million.
Partially offset by:
•The disruption of certain of our International businesses related to the negative effects of the COVID-19 pandemic. Net sales in Asia, Europe and the Americas continue to be impacted by COVID-19 related lockdowns.
Operating Profit
Operating profit as a percentage of net sales was 12.6%,10.8% during the first quarter of 2022, representing an increasea decrease from 4.0%12.6% in the prior year. Increased operating profit was theOperating margin decreased as a result of inflationary pressures, higher sales, favorable product mixtransportation and the favorable impact from foreign exchange rates which more than offset higher freightdistribution costs and sourcing premiums to service demand.increased Full Potential-related investments in brand marketing and technology partially offset by cost reductions, pricing actions and favorable sales mix. Included in operating profit in the first quarter of 2022 and 2021 were charges of $5 million and $19 million, respectively, related to the implementation of our Full Potential plan. Included in operating profit in the first quarter of 2020 were charges of $24 million related to supply chain, program exit and other restructuring actions.
Other Highlights
Other Expenses – Other expenses decreased $4$2 million in the first quarter of 20212022 compared to the first quarter of 20202021 due to lower pension expense and lower funding fees for sales of accounts receivable to financial institutions in 2021.2022.
Interest Expense – Interest expense was higherlower by $8$12 million in the first quarter of 20212022 compared to the first quarter of 2020 driven by2021 primarily due to lower outstanding debt balances and a higherlower weighted average interest rate on our borrowings during the quarter.first quarter of 2022 compared to the first quarter of 2021. Our weighted average interest rate on our outstanding debt was 3.53% for the first quarter of 2022 compared to 4.07% for the first quarter of 2021, compared to 3.92% for the first quarter of 2020.2021.
Income Tax Expense – Our effective income tax rate was 10.3%17.0% and 12.1%10.3% for the first quarters of 20212022 and 2020,2021, respectively. The lowerhigher effective tax rate for the first quarter ended April 3, 2021of 2022 was primarily due to a non-recurring discrete tax benefit for the release of reserves for unrecognized tax benefits of $7 million, partially offset by a discrete charge for changes in valuation allowances of $4 million.million during the first quarter of 2021.
Discontinued Operations – The results of our discontinued operations include the operations of our European Innerwear business which we reached the decision to exit at the end of the first quarter of 2021 in connection with our Full Potential plan. On March 5, 2022, we completed the sale of the European Innerwear business. See note “Discontinued Operations”Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for a discussion of non-cash asset impairment charges and a non-cash charge to record a valuation allowance against the net assets held for sale to write down the carrying value to the estimated fair value less costs of disposal.additional information.
Operating Results by Business Segment — First Quarter Ended April 3, 20212, 2022 Compared with First Quarter Ended March 28, 2020April 3, 2021
| | | Net Sales | | | Net Sales | |
| | Quarters Ended | | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | Higher (Lower) | | Percent Change | | April 2, 2022 | | April 3, 2021 | | Higher (Lower) | | Percent Change |
| | (dollars in thousands) | | (dollars in thousands) |
Innerwear | Innerwear | $ | 570,435 | | | $ | 422,402 | | | $ | 148,033 | | | 35.0 | % | Innerwear | $ | 578,947 | | | $ | 570,435 | | | $ | 8,512 | | | 1.5 | % |
Activewear | Activewear | 364,003 | | | 288,000 | | | 76,003 | | | 26.4 | | Activewear | 386,937 | | | 364,003 | | | 22,934 | | | 6.3 | |
International | International | 506,261 | | | 428,230 | | | 78,031 | | | 18.2 | | International | 510,129 | | | 506,261 | | | 3,868 | | | 0.8 | |
Other | Other | 67,330 | | | 64,438 | | | 2,892 | | | 4.5 | | Other | 100,143 | | | 67,330 | | | 32,813 | | | 48.7 | |
Total | Total | $ | 1,508,029 | | | $ | 1,203,070 | | | $ | 304,959 | | | 25.3 | % | Total | $ | 1,576,156 | | | $ | 1,508,029 | | | $ | 68,127 | | | 4.5 | % |
| | | Operating Profit and Margin | | | Operating Profit and Margin | |
| | Quarters Ended | | | Quarters Ended | |
| | April 3, 2021 | | March 28, 2020 | | Higher (Lower) | | Percent Change | | April 2, 2022 | | April 3, 2021 | | Higher (Lower) | | Percent Change |
| | (dollars in thousands) | | (dollars in thousands) |
Innerwear | Innerwear | $ | 127,417 | | | 22.3 | % | | $ | 81,551 | | | 19.3 | % | | $ | 45,866 | | | 56.2 | % | Innerwear | $ | 102,146 | | | 17.6 | % | | $ | 127,417 | | | 22.3 | % | | $ | (25,271) | | | (19.8) | % |
Activewear | Activewear | 60,594 | | | 16.6 | | | 8,108 | | | 2.8 | | | 52,486 | | | 647.3 | | Activewear | 48,984 | | | 12.7 | | | 60,594 | | | 16.6 | | | (11,610) | | | (19.2) | |
International | International | 87,180 | | | 17.2 | | | 50,745 | | | 11.8 | | | 36,435 | | | 71.8 | | International | 89,438 | | | 17.5 | | | 87,180 | | | 17.2 | | | 2,258 | | | 2.6 | |
Other | Other | 1,886 | | | 2.8 | | | (3,393) | | | (5.3) | | | 5,279 | | | NM | Other | (671) | | | (0.7) | | | 1,886 | | | 2.8 | | | (2,557) | | | (135.6) | |
Corporate | Corporate | (86,955) | | | NM | | (89,058) | | | NM | | 2,103 | | | (2.4) | | Corporate | (69,385) | | | NM | | (86,955) | | | NM | | 17,570 | | | (20.2) | |
Total | Total | $ | 190,122 | | | 12.6 | % | | $ | 47,953 | | | 4.0 | % | | $ | 142,169 | | | 296.5 | % | Total | $ | 170,512 | | | 10.8 | % | | $ | 190,122 | | | 12.6 | % | | $ | (19,610) | | | (10.3) | % |
Innerwear
Innerwear net sales increased 35%more than 1% compared to the first quarter of 2020 driven2021 primarily due to retail space gains, a positive mix and the partial-quarter benefit of a price increase partially offset by a 39%last year’s one-time sales benefits from retailer restocking and a 27%government stimulus. This increase in netincludes sales growth in our basicswomen’s, men’s and intimate apparel businesses, respectively, primarily as a result of the overlap of the initial COVID-19 pandemic shutdown in the first quarter of 2020, retailers continuing to replenish inventory levels as stores reopened after temporary closures due to the COVID-19 pandemic in 2020 and incremental sales partially as a result of U.S. government stimulus spending. In our basics business, we experienced growth in eachsocks product category. In our intimate apparel business, the increase in bra sales more than offset the decline in shapewear sales, which is a category that continues to be negatively impacted by the COVID-19 pandemic.categories.
Innerwear operating margin was 22.3%17.6%, an increasea decrease from 19.3%22.3% in the same period a year ago. OperatingThe operating margin enhancementdecline resulted primarily from fixed cost leverageinflationary pressures, increased investments in brand marketing and increased distribution costs resulting from higher sales and favorable product mixexpedited freight to service new retail space gains partially offset by higher costs to service demand, such as air freightincreased sales volume, price increases and sourcing premiums.business mix.
Activewear
Activewear net sales increased 26%6% compared to the first quarter last yearof 2021 primarily driven by growth in the online and brick-and-mortar channels, the overlap of the initial COVID-19 pandemic shutdowncollegiate channel. Net sales in the first quarter of 2020 and incremental sales partially asChampion brand within the Activewear segment were consistent with the same period a result of U.S. government stimulus spending. We experienced growth in all product categories except our sports apparel business which continues to beyear ago despite being negatively impacted by the COVID-19 pandemic.global supply chain disruptions resulting in product delays and unfulfilled customer orders.
Activewear operating margin was 16.6%12.7%, an increasea decrease from 2.8%16.6% in the same period a year ago. OperatingThe operating margin enhancementdecline resulted primarily from higher levels of inflation, merchandise mix and increased brand marketing investments partially offset by improvement in our fixed cost leverage from higher sales and favorable product mix.sales.
International
Net sales in the International segment increased 18% as a result of1% driven by growth in Europe, the negative impact of the COVID-19 pandemicAmericas and certain markets in the first quarter of 2020Asia, including China, partially offset by global supply chain disruptions resulting in product delays in Australia, ongoing COVID-related pressures on consumer traffic in certain markets in Asia, particularly Japan, and the favorableunfavorable foreign currency exchange rates. The unfavorable impact of foreign currency exchange rates decreased net sales approximately $30 million in the first quarter of approximately $43 million.2022. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, increased 8.2%6.8%. The impact of foreign currency exchange rates is calculated by applying prior period exchange rates to the current year financial results. Net sales in our international markets continue to be negatively impacted by COVID-19 related lockdowns.
International operating margin was 17.2%17.5%, an increase from 11.8%17.2% in the same period a year ago. OperatingThe increase in operating margin enhancementprimarily resulted primarily from fixed cost leverage from higher sales.sales in Europe, the Americas and certain markets in Asia.
Other
Other net sales increased as a result ofprimarily due to increased sales from our supply chain to the European Innerwear business partially offset by lower sales at our retail outlets during the first quarter of 2021 as a result of stores reopening after temporary store closures during the first quarter of 2020 due to the COVID-19 pandemic partially offset by continued declines in hosiery sales in the United States. Operating margin increased due to the increase in sales volume.
Corporate
Corporate expenses in the first quarter of 2021 included incremental recurring COVID-19 related costs such as cleaning and health-related supplies to protect our employees and customers, as well as higher variable compensation expense2022 compared to the first quarter of 2020. Corporate expenses2021. We have continued certain sales from our supply chain to the European Innerwear business on a transitional basis after the sale of the business. These sales and the related profit are included in Other in all periods presented and have not been eliminated as intercompany transactions in consolidation. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information. Operating margin decreased due to the first quarter of 2020 included $11 million of bad debt expense related to charges for anticipated bankruptcies. decrease in sales volume in our retail outlets and U.S. Sheer Hosiery business.
Corporate
Corporate expenses were lower in the first quarter of 20212022 compared to the first quarter of 20202021 primarily due to lower restructuring and other action-related charges. Included in restructuring and other action-related charges within operating profit in the first quarter of 2022 and 2021 were $5 million and $19 million, respectively, of charges related to the implementation of our Full Potential plan. We recordedFull Potential plan charges in the first quarter of 2022 included a non-cash gain of $7 million to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting from a decrease in carrying value due to changes in working capital. Full Potential plan charges in the first quarter of 2021 included impairment charges of $7 million related to the full impairment of an indefinite-lived trademark related to a specific brand within the European Innerwear business that was excluded from the disposal group as it is not being marketed for sale. Supply chain actions include actionsand that we intend to reduce overhead costs. Program exit charges are costs associated with exiting our C9 Champion mass program and the DKNY intimate apparel license at the end of 2019. Other restructuring costs include action-related costs such as corporate workforce reductions.exit.
| | | | | | | | | | | |
| Quarters Ended |
| April 3, 2021 | | March 28, 2020 |
| (dollars in thousands) |
Restructuring and other action-related charges included in operating profit: | | | |
Full Potential Plan: | | | |
Professional services | $ | 11,706 | | | $ | — | |
Impairment of intangible assets | 7,302 | | | — | |
| | | |
| | | |
Other restructuring costs | 385 | | | — | |
2020 actions: | | | |
Supply chain actions | — | | | 14,065 | |
Program exit costs | — | | | 8,213 | |
Other restructuring costs | — | | | 2,046 | |
Total restructuring and other action-related charges included in operating profit | $ | 19,393 | | | $ | 24,324 | |
| | | | | | | | | | | |
| Quarters Ended |
| April 2, 2022 | | April 3, 2021 |
| (dollars in thousands) |
Restructuring and other action-related charges: | | | |
Full Potential Plan: | | | |
Professional services | $ | 7,908 | | | $ | 11,706 | |
Gain on classification of assets held for sale | (6,528) | | | — | |
Operating model | (1,919) | | | — | |
Supply chain segmentation | 1,020 | | | — | |
Technology | 4,459 | | | — | |
Impairment of intangible assets | — | | | 7,302 | |
Other | (138) | | | 385 | |
Total included in operating profit | $ | 4,802 | | | $ | 19,393 | |
Discrete tax benefits | — | | | 7,295 | |
Tax effect on actions | 816 | | | 4,007 | |
Total benefit included in income tax expense | 816 | | | 11,302 | |
Total restructuring and other action-related charges | $ | 3,986 | | | $ | 8,091 | |
Liquidity and Capital Resources
Cash Requirements and Trends and Uncertainties Affecting Liquidity
We rely on our cash flows generated from operations and the borrowing capacity under our credit facilities to meet the cash requirements of our business. Our primary uses of cash are payments to our employees and vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments, contributions to our pension plans, repurchases of our stock, regular quarterly dividend payments and income tax payments.
In April 2020, given the rapidly changing business environment and level of uncertainty created by the COVID-19 pandemic and the associated impact on future earnings, we amended our Senior Secured Credit Facility prior to any potential covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. The amendment changed certain provisions and covenants under the Senior Secured Credit Facility through the fiscal quarter ending July 3, 2021, after which our covenants revert to their original, pre-amendment levels.
We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts. If economic conditions caused by the COVID-19 pandemic worsen, our earnings and operating cash flows could be negatively impacted which could impact our ability to maintain compliance with our financial covenants and require us to seek additional amendments to our Senior Secured Credit Facility. If we are not able to obtain such necessary additional amendments, this would lead to an event of default and, if not cured timely, our lenders could require us to repay our outstanding debt. In that situation, we may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.
Based on our current estimate of future earnings and cash flows, we believe we have sufficient cash and available borrowings to support our operations and key business strategies for at least one year from the issuance of these financial statements based on our current expectations and forecasts.
Our primary sources of liquidity are cash generated from global operations and cash available under our Revolving Loan Facility, our Australian Revolving Loan Facility, our Accounts Receivable Securitization Facility and our other international credit facilities.
We had the following borrowing capacity and available liquidity under our credit facilities as of April 3, 2021:2, 2022:
| | | As of April 3, 2021 | | As of April 2, 2022 |
Borrowing Capacity | | Available Liquidity | Borrowing Capacity | | Available Liquidity |
| | (dollars in thousands) | | (dollars in thousands) |
Senior Secured Credit Facility: | Senior Secured Credit Facility: | | Senior Secured Credit Facility: | |
Revolving Loan Facility(1) | Revolving Loan Facility(1) | $ | 1,000,000 | | | $ | 995,824 | | Revolving Loan Facility(1) | $ | 1,000,000 | | | $ | 975,824 | |
| Australian Revolving Loan Facility | 45,572 | | | 45,572 | | |
| Accounts Receivable Securitization Facility(1) | 87,403 | | | 87,403 | | |
Accounts Receivable Securitization Facility(2) | | Accounts Receivable Securitization Facility(2) | 150,000 | | | 14,500 | |
Other international credit facilities | Other international credit facilities | 116,734 | | | 85,245 | | Other international credit facilities | 75,803 | | | 56,056 | |
Total liquidity from credit facilities | Total liquidity from credit facilities | $ | 1,249,709 | | | $ | 1,214,044 | | Total liquidity from credit facilities | $ | 1,225,803 | | | $ | 1,046,380 | |
Cash and cash equivalents | Cash and cash equivalents | | | 530,403 | | Cash and cash equivalents | | | 369,210 | |
Total liquidity | Total liquidity | | $ | 1,744,447 | | Total liquidity | | $ | 1,415,590 | |
(1)A portion of the Revolving Loan Facility is available to be borrowed in Euros or Australian dollars.
(2)Borrowing availability under the Accounts Receivable Securitization Facility is subject to a quarterly fluctuating facility limit, not to exceed $175 million, and permitted only to the extent that the face of the receivables in the collateral pool, net of applicable concentrations, reserves and other deductions, exceeds the outstanding loans.
The following have impacted or may impact our liquidity:
•The COVID-19 pandemic which resulted in supply chain disruptions and inflationary pressures has had, and may continue to have, a negative impact of the COVID-19 pandemic on our business.
•For the quarter ended April 2, 2022, we entered into transactions to repurchase approximately 1.6 million shares of our common stock at a total cost of $25 million including broker’s commissions. At April 2, 2022, the remaining repurchase authorization under our current share repurchase program announced on February 2, 2022 totaled approximately $575 million.
•We have historically paid a regular quarterly dividend. The declaration of any future dividends and, if declared, the amount of any such dividends, will be subject to our actual future earnings, capital requirements, regulatory restrictions, debt covenants, other contractual restrictions and to the discretion of our Board of Directors.
•We have principal and interest obligations under our debt and ongoing financial covenants under those debt facilities, even after taking into account recent amendments. In March 2021, we repaid the outstanding balance of Term Loan B which consisted of a required excess cash flow prepayment of $239 million and a voluntary prepayment of $61 million.facilities.
•We have invested in efforts to accelerate worldwide omnichannel and global growth initiatives, as well as marketing and brand building.
•As part of our Full Potential plan, weWe have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve theour Full Potential plan’s objectives.
•Although currently prohibited under our Senior Secured Credit Facility,We expect capital investments of approximately $150 million to $175 million in 2022.
•In the future, we may pursue strategic business acquisitions.acquisitions or divestitures.
•We made a contribution of $40 millionexpect to have no required cash contributions to our U.S. pension plan in the quarter ended April 3, 2021. We2022 based on a preliminary calculation by our actuary but we may also elect to make additional voluntary contributions.
•We may increase or decrease the portion of the current-year income of our foreign subsidiaries that we remit to the United States, which could impact our effective income tax rate. ConsistentWe have not changed our reinvestment strategy from the prior year with our investment strategy as it pertainsregards to our historicalunremitted foreign earnings as of January 2, 2021, weand intend to remit foreign earnings totaling $668$579 million.
•We are obligated to make installment payments over an eight-year period related to our transition tax liability resulting from the implementation of the Tax Cuts and Jobs Act, which began in 2018, in addition to any estimated income taxes due based on current year taxable income. In the quarter ended April 3, 2021, we made no installment payments on our transition tax liability. On April 13, 2021, we made an installment payment of $10 million on our transition tax liability. We currently have a remaining balance due of approximately $42 million to be paid in installment payments through 2025.
Sources and Uses of Our Cash
The information presented below regarding the sources and uses of our cash flows for the quarters ended April 2, 2022 and April 3, 2021 and March 28, 2020 was derived from our condensed consolidated interim financial statements.
| | | Quarters Ended | | Quarters Ended |
| | April 3, 2021 | | March 28, 2020 | | April 2, 2022 | | April 3, 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
Operating activities | Operating activities | $ | 16,946 | | | $ | (83,216) | | Operating activities | $ | (231,189) | | | $ | 16,946 | |
Investing activities | Investing activities | (13,604) | | | (24,477) | | Investing activities | (29,590) | | | (13,604) | |
Financing activities | Financing activities | (354,423) | | | 877,514 | | Financing activities | 67,567 | | | (354,423) | |
Effect of changes in foreign exchange rates on cash | Effect of changes in foreign exchange rates on cash | (17,662) | | | (15,061) | | Effect of changes in foreign exchange rates on cash | 1,793 | | | (17,662) | |
Change in cash, cash equivalents and restricted cash | Change in cash, cash equivalents and restricted cash | (368,743) | | | 754,760 | | Change in cash, cash equivalents and restricted cash | (191,419) | | | (368,743) | |
Cash, cash equivalents and restricted cash at beginning of year | Cash, cash equivalents and restricted cash at beginning of year | 910,603 | | | 329,923 | | Cash, cash equivalents and restricted cash at beginning of year | 560,629 | | | 910,603 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | 541,860 | | | 1,084,683 | | Cash, cash equivalents and restricted cash at end of period | 369,210 | | | 541,860 | |
Less restricted cash at end of period | Less restricted cash at end of period | 1,153 | | | 903 | | Less restricted cash at end of period | — | | | 1,153 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 540,707 | | | $ | 1,083,780 | | Cash and cash equivalents at end of period | $ | 369,210 | | | $ | 540,707 | |
| Balances included in the Condensed Consolidated Balance Sheets: | | |
Cash and cash equivalents | $ | 530,403 | | | $ | 1,069,490 | | |
Cash and cash equivalents included in current assets of discontinued operations | 10,304 | | | 14,290 | | |
Cash and cash equivalents at end of period | $ | 540,707 | | | $ | 1,083,780 | | |
Operating Activities
Our overall liquidity has historically been driven by our cash flow provided by operating activities, which is dependent on net income and changes in our working capital. We typically use cash during the first half of the year and generate most of our cash flow in the second half of the year. As compared to the prior year, the higher net cash providedused by operating activities was primarily due to higher income from continuing operationschanges in working capital primarily accounts payable, accruals and inventory due to supply chain disruptions and inflationary increases, partially offset by changesimprovement in working capital. Cash used byaccounts receivable and lower pension plan contributions in the first quarter of 2022. Net cash from operating activities includes a $40 million and a $25 million contribution to our U.S. pension plan made in the first quarter of 2021 and 2020, respectively.2021.
Investing Activities
Investing activities in the first quarter of 2021 and 2020 primarily include capital investments into our business. The decreaseincrease in cash used by investing activities in the first quarter of 20212022 compared to 20202021 was primarily the result of a decreasethe sale of the European Innerwear business which resulted in an $11 million cash outflow and an increase in capital investments into our business as we manage our spending on our focused strategic goals.business.
Financing Activities
Net cash from financing activities decreasedincreased in the first quarter of 2022 primarily as a result of lowerincreased borrowings as compared toon our Accounts Receivable Securitization Facility and our Revolving Loan Facility coupled with the same periodrepayment of 2020. We increased our borrowings in the first quarter of 2020 primarily to strengthen our cash position and to provide us with additional financial flexibility to manage our business with a safety-first emphasis during the unknown duration and impact of the COVID-19 pandemic. Additionally, in the first quarter of 2021, we repaid the outstanding balance of Term Loan B in the first quarter of 2021, which consisted of a required excess cash flow prepayment of $239 million and a voluntary prepayment of $61 million. WeNet cash from financing activities in the first quarter of 2022 also included shares repurchased shares at a total cost of $200 million in the first quarter of 2020.$25 million.
Financing Arrangements
In March 2021, we amended the Accounts Receivable Securitization Facility. This amendment primarily decreased the fluctuating facility limit to $175 million (previously $225 million) and extended the maturity date to June 2022. Additionally, the amendment changed certain ratios and borrowing base calculations, raised pricing and added certain receivables to the pledged collateral pool for the facility.
We believe our financing structure provides a secure base to support our operations and key business strategies. As of April 3, 2021,2, 2022, we were in compliance with all financial covenants under our credit facilities and other outstanding indebtedness. We continue to monitor our covenant compliance carefully. Under the terms of our Senior Secured Credit Facility, among other financial and non-financial covenants, we are required to maintain a minimum interest coverage ratio and a maximum leverage ratio. The interest coverage ratio covenant is the ratio of our EBITDA for the preceding four fiscal quarters to our consolidated total interest expense and the leverage ratio covenant is the ratio of our net debt to EBITDA for the preceding four fiscal quarters. EBITDA is defined as earnings(earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility. In April 2020, givenFacility), or leverage ratio, each of which is defined in the rapidly changing business environment and level of uncertainty being created by the COVID-19 pandemic and the associated impact on future earnings, we amended our Senior Secured Credit Facility prior to any potential
covenant violationcalculating all of the components used in order to modify the financial covenants and to provide operating flexibility duringis included in the COVID-19 crisis.Senior Secured Credit Facility. We expect to maintain compliance with our covenants for at least one year from the issuance date of these financial statements based on our current expectations and forecasts, however economic conditions or the occurrence of events discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended January 2, 20211, 2022 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.For further details regarding our liquidity from our available cash balances and credit facilities see “Cash Requirements and Trends and Uncertainties Affecting Liquidity” above.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with accounting principles generally accepted in the United States. We apply these accounting policies in a
consistent manner. Our significant accounting policies are discussed in Note “Summary of Significant Accounting Policies,”Policies” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022.
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 consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022. There have been no material changes in these policies from those described in our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022.
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements, see Note “Recent Accounting Pronouncements” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
There have been no significant changes in our market risk exposures from those described in Item 7A of our Annual Report on Form 10-K for the year ended January 2, 2021.1, 2022.
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Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, (who is currently serving as our Principal Financial Officer), conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief AccountingFinancial Officer concluded that our disclosure controls and procedures were effective as of April 3, 2021.2, 2022.
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 AccountingFinancial Officer, (who is currently serving as our Principal Financial Officer), concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
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.
The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.1, 2022.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.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 quarter ended April 2, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares Purchased | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Value of Shares that May Yet Be Purchased under the Program (2) |
January 2, 2022 to February 5, 2022 | | — | | | $ | — | | | — | | | $ | 600,000,000 | |
February 6, 2022 to March 5, 2022 | | 1,577,386 | | | $ | 15.84 | | | 1,577,386 | | | $ | 575,013,357 | |
March 6, 2022 to April 2, 2022 | | — | | | $ | — | | | — | | | $ | 575,013,357 | |
Total | | 1,577,386 | | | | | 1,577,386 | | | |
(1)Average price paid per share for shares purchased excluding any broker commissions as part of our publicly-announced program.
(2)On February 2, 2022, our Board of Directors approved a new share repurchase program for up to $600 million of shares to be repurchased in open market transactions or privately negotiated transactions, subject to market conditions, legal requirements and other factors. Unless terminated earlier by our Board of Directors, the new program will expire on December 28, 2024. The new program replaced our previous share repurchase program for up to 40 million shares that was originally approved on February 6, 2020. We did not repurchase any shares under the previous program during the quarter ended April 2, 2022 or April 3, 2021.
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.
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Item 3. | Defaults Upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
Not applicable.
None.
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Exhibit Number | | Description |
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3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
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3.5 | | |
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4.1 | | |
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10.1 | | |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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32.2 | | |
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101.INS XBRL | | Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH XBRL | | Taxonomy Extension Schema Document |
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101.CAL XBRL | | Taxonomy Extension Calculation Linkbase Document |
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101.LAB XBRL | | Taxonomy Extension Label Linkbase Document |
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101.PRE XBRL | | Taxonomy Extension Presentation Linkbase Document |
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101.DEF XBRL | | Taxonomy Extension Definition Linkbase Document |
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104 | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) |
* Management contract or compensatory plans or arrangements.
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.
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HANESBRANDS INC. |
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By: | | /s/ M. Scott LewisMichael P. Dastugue |
| | M. Scott LewisMichael P. Dastugue Chief Accounting Officer and Principal Financial Officer (Duly authorized officer and principal financial officer) |
Date: May 12, 20215, 2022