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8-K - FORM 8-K - Hanesbrands Inc.d405083d8k.htm
EX-99.3 - PRESENTATION OF HANESBRANDS INC. - Hanesbrands Inc.d405083dex993.htm
EX-99.1 - PRESS RELEASE - Hanesbrands Inc.d405083dex991.htm

Exhibit 99.2

 

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Hanesbrands Inc.

Supplemental Information Regarding the Condensed Consolidated Statement of Income (Loss)

(Amounts in thousands, except per-share amounts)

(Unaudited)

 

     2011     2012  
     First
Quarter Ended
April 2, 2011
    Second
Quarter Ended
July 2, 2011
    Second Quarter
Year to Date
July 2, 2011
    Third
Quarter Ended
October 1, 2011
    Third Quarter
Year to Date
October 1, 2011
    Fourth
Quarter Ended
December 31, 2011
    Year Ended
December 31, 2011
    First
Quarter Ended
March 31, 2012
 

Net sales

   $ 980,050      $ 1,167,986      $ 2,148,036      $ 1,185,304      $ 3,333,340      $ 1,100,951      $ 4,434,291      $ 973,133   

Cost of sales

     639,092        757,962        1,397,054        771,251        2,168,305        772,778        2,941,083        718,019   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     340,958        410,024        750,982        414,053        1,165,035        328,173        1,493,208        255,114   

As a % of net sales

     34.8     35.1     35.0     34.9     35.0     29.8     33.7     26.2

Selling, general and administrative expenses

     248,866        274,202        523,068        269,109        792,177        253,904        1,046,081        244,469   

As a % of net sales

     25.4     23.5     24.4     22.7     23.8     23.1     23.6     25.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     92,092        135,822        227,914        144,944        372,858        74,269        447,127        10,645   

As a % of net sales

     9.4     11.6     10.6     12.2     11.2     6.7     10.1     1.1

Other expenses

     601        814        1,415        880        2,295        4,082        6,377        645   

Interest expense, net

     41,101        39,127        80,228        38,255        118,483        37,715        156,198        36,995   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax expense (benefit)

     50,390        95,881        146,271        105,809        252,080        32,472        284,552        (26,995

Income tax expense (benefit)

     9,423        18,121        27,544        20,739        48,283        (6,300     41,983        (2,724

Effective tax rate

     19     19     19     20     19     -19     15     10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     40,967        77,760        118,727        85,070        203,797        38,772        242,569        (24,271

Income (loss) from discontinued operations, net of tax

     7,142        9,022        16,164        5,762        21,926        2,193        24,119        (2,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 48,109      $ 86,782      $ 134,891      $ 90,832      $ 225,723      $ 40,965      $ 266,688      $ (26,830
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share - basic:

                

Continuing operations

   $ 0.42      $ 0.80      $ 1.22      $ 0.87      $ 2.09      $ 0.39      $ 2.48      $ (0.25

Discontinued operations

     0.07        0.09        0.17        0.06        0.22        0.02        0.25        (0.03
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.49      $ 0.89      $ 1.39      $ 0.93      $ 2.31      $ 0.42      $ 2.73      $ (0.27
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share - diluted:

                

Continuing operations

   $ 0.42      $ 0.78      $ 1.20      $ 0.85      $ 2.05      $ 0.39      $ 2.44      $ (0.25

Discontinued operations

     0.07        0.09        0.16        0.06        0.22        0.02        0.24        (0.03
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.49      $ 0.87      $ 1.36      $ 0.91      $ 2.28      $ 0.41      $ 2.69      $ (0.27
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

                

Basic

     97,194        97,537        97,366        97,925        97,559        98,157        97,710        98,533   

Diluted

     98,589        99,224        98,927        99,535        99,200        99,375        99,251        98,533   

In May 2012, the Company sold its European imagewear business, and the Company is completing the discontinuation of its private-label and Outer Banks domestic imagewear operations serving wholesalers that sell to the screen-print industry. As a result of these actions, the current year and prior-year disclosures reflect these operations as discontinued operations. This information is solely for illustrative purposes and the information regarding income that we previously reported in our SEC filings remains accurate. For more information about our income as reported for periods prior to the second quarter of 2012, please refer to our periodic reports for those periods.


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Hanesbrands Inc.

Supplemental Information Regarding Sales and Operating Profit by Segment

(Amounts in thousands)

(Unaudited)

 

     2011     2012  
     First
Quarter Ended
April 2, 2011
    Second
Quarter Ended
July 2, 2011
    Second Quarter
Year to Date
July 2, 2011
    Third
Quarter Ended
October 1, 2011
    Third Quarter
Year to Date
October 1, 2011
    Fourth
Quarter Ended
December 31, 2011
    Year Ended
December 31, 2011
    First
Quarter Ended
March 31, 2012
 

Net sales:

                

Innerwear

   $ 502,683      $ 650,697      $ 1,153,380      $ 558,422      $ 1,711,802      $ 549,364      $ 2,261,166      $ 509,038   

Outerwear

     286,305        291,788        578,093        392,683        970,776        318,537        1,289,313        272,564   

Direct to Consumer

     82,798        97,456        180,254        97,565        277,819        97,621        375,440        84,713   

International

     108,264        128,045        236,309        136,634        372,943        135,429        508,372        106,818   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

   $ 980,050      $ 1,167,986      $ 2,148,036      $ 1,185,304      $ 3,333,340      $ 1,100,951      $ 4,434,291      $ 973,133   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating profit (loss):

                

Innerwear

   $ 74,765      $ 102,837      $ 177,602      $ 88,372      $ 265,974      $ 70,719      $ 336,693      $ 51,642   

Outerwear

     18,632        27,254        45,886        48,379        94,265        10,792        105,057        (21,244

Direct to Consumer

     327        9,360        9,687        12,268        21,955        7,267        29,222        1,082   

International

     16,754        11,724        28,478        14,797        43,275        10,679        53,954        4,696   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating profit

     110,478        151,175        261,653        163,816        425,469        99,457        524,926        36,176   

Items not included in segment operating profit:

                

General corporate expenses

     (15,201     (12,171     (27,372     (15,680     (43,052     (21,930     (64,982     (22,104

Amortization of trademarks and other identifiable intangibles

     (3,185     (3,182     (6,367     (3,192     (9,559     (3,258     (12,817     (3,427
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating profit

     92,092        135,822        227,914        144,944        372,858        74,269        447,127        10,645   

Other expenses

     (601     (814     (1,415     (880     (2,295     (4,082     (6,377     (645

Interest expense, net

     (41,101     (39,127     (80,228     (38,255     (118,483     (37,715     (156,198     (36,995
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax expense

   $ 50,390      $ 95,881      $ 146,271      $ 105,809      $ 252,080      $ 32,472      $ 284,552      $ (26,995
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As a result of the reduced size of sheer hosiery and changing trends, we decided in the first quarter of 2012 to change our external segment reporting to include hosiery operations within the Innerwear segment. Hosiery had previously been reported as a separate segment. Prior-year segment sales and operating profit results, including other minor allocation changes, have been revised to conform to the current-year presentation. In addition, in May 2012, HanesBrands sold its European imagewear business, and the Company is completing the discontinuation of its private label and Outer Banks domestic imagewear operations serving wholesalers that sell to the screen-print industry. As a result, the current year and prior-year segment disclosures do not reflect the sales and operating profit results of these discontinued businesses. This information is solely for illustrative purposes and the information regarding segment sales and operating profit that we previously reported in our SEC filings remains accurate. For more information about our segments as reported for periods prior to the second quarter of 2012, please refer to our periodic reports for those periods.


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Discontinued Operations FAQ

Q: Was there a choice as to the accounting treatment of the sale of European Imagewear, private-label Imagewear and Outer Banks businesses as discontinued operations?

A: No. Generally Accepted Accounting Principles (GAAP) dictates the accounting treatment of these actions. In addition, we are required to provide revised historical results in future 10-K and 10-Q filings for comparative purposes.

Q: For 2012, what was the expected impact from discontinued operations on sales, profits and free cash flow?

A: In February, inherent in our initial guidance was that discontinued operations were expected to generate full year 2012 sales of about $190 million, an operating profit loss less than $1 million, and about $15 million of cash flow from operations.

Q: Were you expecting back-half profits from the discontinued operations that you will no longer have?

A: Yes. While the businesses were expected to lose less than $1 million for the full-year, they were expected to lose money in the first half when cotton costs were high and contribute to profits in the second half as costs come down.

Q: Should we see 2012 margins change when excluding discontinued operations?

A: Yes. Annual operating margins should increase by approximately 40 basis points due to the exit from discontinued operations.

Q: Is the promotional sector of Branded Printwear included in discontinued operations?

A: No. While we are pulling back from this sector, these results are still included in ongoing operations.

Q: How much did the removal of discontinued operations help gross margins in the first half of the year?

A: Gross margins in the first quarter benefited by 100 basis points. For the second quarter, as we initiated specific actions to exit those businesses, the operating results were negatively impacted, and therefore we cannot quantify the potential gross margin impact.

Q: What are sales now expected to be in the Branded Printwear sector?

A: Branded Printwear sales for 2012 are now expected to be between $180 million - $190 million dollars, and could decline to around $150 million in 2013 as we overlap the reduction in the promotional sector.

Q: What were the components of the profits and losses associated with discontinued operations?

A: In the second quarter, the sale of European Imagewear resulted in a pre-tax loss of roughly $32 million and the Company-incurred pretax charges, substantially all noncash, for the write-down of intangibles, inventory markdowns and other negative operating impacts from winding down those operations totaling about $58 million. In addition, operating losses from the discontinued operations are included. More specifics will be provided in the second quarter 10-Q.

Q: Were the charges associated with the supply chain adjustments attributable to discontinued operations?

A: No. Per GAAP guidelines, only costs directly related to the affected businesses can be included in discontinued operations. Approximately $16 million of supply chain restructuring charges are still included in continuing operations for 2012.

Q: What was the forecast for discontinued operations in the second quarter of 2012?

A: We will not be providing guidance for discontinued operations going forward. The majority of costs associated with exiting those operations have been recognized, with minimal activity expected in the second half of the year.


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Q: How is the supplemental information regarding the condensed consolidated statement of income prepared?

A: In accordance with GAAP rules, the same methodology is used and only items directly attributable to the discontinued operations may be used. This is true for historical revisions as well as any future activity within the discontinued operations.

Q: Is the balance sheet or cash flow statement revised?

A: No, they are not required to be revised.

Q: When calculating historical Days Sales Outstanding (DSO) or inventory turn metrics, will they change by removing discontinued operations?

A: Yes. We would advise using the as-reported financials as a better indication of asset productivity. For example, calculating DSO at the end of the second quarter for all sales would be 43, but using only continuing operations would be 45, a difference of 2 days.

Updated September 5, 2012

Q: Per the second quarter 2012 10-Q, why was there such a large gross profit loss on the discontinued operations?

A: The $25 million gross profit loss was primarily attributable to inventory markdown and returns of Outer Banks product, which was slightly over $20 million. The balance of the gross profit loss was attributable to the actual loss related to sales generated by the discontinued operations. As stated above, removing the discontinued operations benefited the gross margins of ongoing operations by roughly 100 basis points.

Q: Were other excess costs related to ongoing operations recognized in discontinued operations?

A: No. Generally Accepted Accounting Principles (GAAP) dictate only costs directly related to the affected businesses can be included in discontinued operations.

Q: What is the impact of discontinued operations on free cash flow?

A: The costs associated with discontinued operations were substantially non-cash. When initial guidance was provided in February, what would become discontinued operations were expected to contribute about $15 million of operating cash flow.

Q: Did discontinued operations have any impact on the allowance for doubtful accounts?

A: No. As we entered the recession at the end of 2008, Hanesbrands had two customers enter into bankruptcy. In a press release dated October 24, 2008, the company indicated it would take pre-tax charges of $5.5 million related to the Mervyn’s bankruptcy. This reserve, in addition to reserves established for smaller accounts, was established within the allowance for doubtful accounts. As bankruptcy proceedings have neared completion, we have trued up the reserves related to these bankruptcies and as the economic environment has improved, Hanesbrands’ has experienced fewer customer bankruptcies resulting in a lower level of reserves.

Q: Do discontinued operations have any impact on the company’s compliance with debt covenants?

A: The discontinued operations had a minimal impact on covenant compliance. As actions associated with these operations were substantially non-cash, these costs are added back to EBITDA for covenant calculation purposes. In a press release dated July 17, 2012, Hanesbrands announced an amendment to its revolving loan facility resulting in a 100 basis point reduction in the borrowing rate with no changes in covenant requirements. The company remains in good standing with ample covenant cushion under the current debt agreements.

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This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 “will,” “anticipate,” “estimate,” “expect,” “should,” and “may” or similar expressions. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated: current economic conditions, including consumer spending levels and the price elasticity of our products; the loss of or material reduction in sales to any of our top customers; our ability to keep pace with evolving consumer preferences and trends; the impact of significant fluctuations and volatility in various input costs, such as cotton; our ability to remain competitive in the areas of price, quality, brand recognition and research and product development; and our debt and debt service requirements that restrict our operating and financial flexibility and impose interest and financing costs. For additional information concerning factors that could cause actual results to materially differ from those projected herein, please refer to our most recent Form 10-K, 10-Q and 8-K reports filed with the SEC, as well as the investors section of our corporate website at http://tiny.cc/HanesBrandsIR. Except as required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.