Hanesbrands Earnings 2020-06-27

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32891

Hanesbrands Inc.

(Exact name of registrant as specified in its charter)



Maryland		20-3552316
(State of incorporation)		(I.R.S. employer identification no.)

1000 East Hanes Mill Road
Winston-Salem,	North Carolina	27105
(Address of principal executive office)		(Zip code)

(336) 519-8080

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒

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

As of July 24, 2020, there were 348,160,775 shares of the registrant’s common stock outstanding.

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TABLE OF CONTENTS



		Page
Forward-Looking Statements		1

PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Income for the quarters and six months ended June 27, 2020 and June 29, 2019	2
	Condensed Consolidated Statements of Comprehensive Income for the quarters and six months ended June 27, 2020 and June 29, 2019	3
	Condensed Consolidated Balance Sheets at June 27, 2020, December 28, 2019 and June 29, 2019	4
	Condensed Consolidated Statements of Stockholders’ Equity for the quarters and six months ended June 27, 2020 and June 29, 2019	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2020 and June 29, 2019	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39

PART II
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
Signatures		44

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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 future financial performance and the potential effects of the global COVID-19 coronavirus outbreak 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, our Quarterly Report on Form 10-Q for the quarter end March 28, 2020 and our Annual Report on Form 10-K for the year ended December 28, 2019, 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.

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PART I

Item 1.
Financial Statements

HANESBRANDS INC.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)



	Quarters Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales	$	1,738,779	$	1,760,927	$	3,055,241	$	3,348,951
Cost of sales	1,105,767		1,085,404		1,948,497		2,053,397
Gross profit	633,012		675,523		1,106,744		1,295,554
Selling, general and administrative expenses	391,476		445,923		831,078		916,310
Operating profit	241,536		229,600		275,666		379,244
Other expenses	5,050		8,249		11,540		15,700
Interest expense, net	41,659		46,522		78,508		94,581
Income before income tax expense	194,827		174,829		185,618		268,963
Income tax expense	33,646		25,274		32,311		38,320
Net income	$	161,181	$	149,555	$	153,307	$	230,643

Earnings per share:
Basic	$	0.46	$	0.41	$	0.43	$	0.63
Diluted	$	0.46	$	0.41	$	0.43	$	0.63

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)



	Quarters Ended						Six Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Net income	$	161,181		$	149,555		$	153,307		$	230,643
Other comprehensive income (loss):
Translation adjustments	95,033			(3,202		)	(22,121		)	4,184
Unrealized gain (loss) on qualifying cash flow hedges, net of tax of $4,031, $1,915, $(3,249) and $3,573, respectively	(6,177		)	(5,158		)	1,606			(9,077		)
Unrecognized income from pension and postretirement plans, net of tax of $(1,794), $(1,411), $(3,066) and $(2,616), respectively	3,560			3,553			7,154			6,950
Total other comprehensive income (loss)	92,416			(4,807		)	(13,361		)	2,057
Comprehensive income	$	253,597		$	144,748		$	139,946		$	232,700

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)



	June 27, 2020			December 28, 2019			June 29, 2019
Assets
Cash and cash equivalents	$	683,114		$	328,876		$	257,941
Trade accounts receivable, net	1,196,826			815,210			1,011,816
Inventories	1,958,443			1,905,845			2,223,199
Other current assets	193,422			174,634			176,296
Total current assets	4,031,805			3,224,565			3,669,252
Property, net	565,849			587,896			597,444
Right-of-use assets	479,677			487,787			484,168
Trademarks and other identifiable intangibles, net	1,478,721			1,520,800			1,541,306
Goodwill	1,233,184			1,235,711			1,240,853
Deferred tax assets	200,047			203,331			220,927
Other noncurrent assets	123,677			93,896			92,087
Total assets	$	8,112,960		$	7,353,986		$	7,846,037

Liabilities and Stockholders’ Equity
Accounts payable	$	1,152,273		$	959,006		$	1,026,863
Accrued liabilities	568,228			531,184			561,172
Lease liabilities	160,432			166,091			144,453
Notes payable	8,803			4,244			4,695
Accounts Receivable Securitization Facility	—			—			190,311
Current portion of long-term debt	112,512			110,914			156,189
Total current liabilities	2,002,248			1,771,439			2,083,683
Long-term debt	3,985,631			3,256,870			3,671,066
Lease liabilities - noncurrent	362,570			358,281			371,964
Pension and postretirement benefits	374,052			403,458			351,453
Other noncurrent liabilities	309,139			327,343			342,485
Total liabilities	7,033,640			6,117,391			6,820,651

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 — 348,092,986, 362,449,037 and 361,530,648, respectively	3,481			3,624			3,615
Additional paid-in capital	302,522			304,395			308,555
Retained earnings	1,404,326			1,546,224			1,285,842
Accumulated other comprehensive loss	(631,009		)	(617,648		)	(572,626		)
Total stockholders’ equity	1,079,320			1,236,595			1,025,386
Total liabilities and stockholders’ equity	$	8,112,960		$	7,353,986		$	7,846,037

See accompanying notes to Condensed Consolidated Financial Statements.

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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		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at March 28, 2020	348,035	$	3,480	$	297,456	$	1,296,060		$	(723,425	)	$	873,571
Net income	—	—		—		161,181			—			161,181
Dividends ($0.15 per common share)	—	—		—		(52,915		)	—			(52,915		)
Other comprehensive income	—	—		—		—			92,416			92,416
Stock-based compensation	—	—		4,393		—			—			4,393
Net exercise of stock options, vesting of restricted stock units and other	58	1		673		—			—			674
Balances at June 27, 2020	348,093	$	3,481	$	302,522	$	1,404,326		$	(631,009	)	$	1,079,320



	Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at December 28, 2019	362,449		$	3,624		$	304,395		$	1,546,224		$	(617,648	)	$	1,236,595
Net income	—		—			—			153,307			—			153,307
Dividends ($0.30 per common share)	—		—			—			(107,336		)	—			(107,336		)
Other comprehensive loss	—		—			—			—			(13,361		)	(13,361		)
Stock-based compensation	—		—			9,034			—			—			9,034
Net exercise of stock options, vesting of restricted stock units and other	108		2			1,348			—			—			1,350
Share repurchases	(14,464	)	(145		)	(12,255		)	(187,869		)	—			(200,269		)
Balances at June 27, 2020	348,093		$	3,481		$	302,522		$	1,404,326		$	(631,009	)	$	1,079,320

See accompanying notes to Condensed Consolidated Financial Statements.

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HANESBRANDS INC.

Condensed Consolidated Statements of Stockholders’ Equity - (Continued)

(in thousands, except per share data)

(unaudited)



	Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at March 30, 2019	361,471	$	3,615	$	306,084	$	1,191,111		$	(567,819	)	$	932,991
Net income	—	—		—		149,555			—			149,555
Dividends ($0.15 per common share)	—	—		—		(54,824		)	—			(54,824		)
Other comprehensive loss	—	—		—		—			(4,807		)	(4,807		)
Stock-based compensation	—	—		1,982		—			—			1,982
Net exercise of stock options, vesting of restricted stock units and other	60	—		489		—			—			489
Balances at June 29, 2019	361,531	$	3,615	$	308,555	$	1,285,842		$	(572,626	)	$	1,025,386



	Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at December 29, 2018	361,330	$	3,613	$	284,877	$	1,079,503		$	(495,867	)	$	872,126
Net income	—	—		—		230,643			—			230,643
Dividends ($0.30 per common share)	—	—		—		(109,676		)	—			(109,676		)
Other comprehensive income	—	—		—		—			2,057			2,057
Stock-based compensation	—	—		7,039		—			—			7,039
Net exercise of stock options, vesting of restricted stock units and other	201	2		2,265		—			—			2,267
Modification of deferred compensation plans	—	—		14,374		—			—			14,374
Cumulative effect of change in adoption of leases standard	—	—		—		6,556			—			6,556
Stranded tax related to U.S. pension plan	—	—		—		78,816			(78,816		)	—
Balances at June 29, 2019	361,531	$	3,615	$	308,555	$	1,285,842		$	(572,626	)	$	1,025,386

See accompanying notes to Condensed Consolidated Financial Statements.

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

	Six Months Ended
	June 27, 2020			June 29, 2019
Operating activities:
Net income	$	153,307		$	230,643
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	45,399			46,889
Amortization of acquisition intangibles	12,199			12,537
Other amortization	5,107			5,063
Impairment of intangible assets	20,319			—
Amortization of debt issuance costs	5,119			4,758
Stock compensation expense	9,189			7,247
Deferred taxes	(2,201		)	(2,582		)
Other	9,259			5,475
Changes in assets and liabilities:
Accounts receivable	(392,134		)	(137,445		)
Inventories	(61,409		)	(165,512		)
Other assets	(31,570		)	(28,579		)
Accounts payable	210,338			7,699
Accrued pension and postretirement benefits	(19,318		)	(18,321		)
Accrued liabilities and other	18,603			(25,235		)
Net cash from operating activities	(17,793		)	(57,363		)
Investing activities:
Capital expenditures	(46,512		)	(58,285		)
Proceeds from sales of assets	66			518
Other	5,823			—
Net cash from investing activities	(40,623		)	(57,767		)
Financing activities:
Borrowings on notes payable	116,669			162,592
Repayments on notes payable	(112,373		)	(163,703		)
Borrowings on Accounts Receivable Securitization Facility	227,061			123,812
Repayments on Accounts Receivable Securitization Facility	(227,061		)	(95,110		)
Borrowings on Revolving Loan Facilities	1,638,000			1,602,500
Repayments on Revolving Loan Facilities	(1,638,000		)	(1,422,500		)
Borrowings on Senior Notes	700,000			—
Repayments on Term Loan Facilities	—			(141,623		)
Borrowings on International Debt	31,222			7,141
Repayments on International Debt	—			(27,941		)
Share repurchases	(200,269		)	—
Cash dividends paid	(105,896		)	(108,449		)
Payments of debt issuance costs	(14,834		)	(768		)
Taxes paid related to net shares settlement of equity awards	(80		)	(1,157		)
Other	879			985
Net cash from financing activities	415,318			(64,221		)
Effect of changes in foreign exchange rates on cash	(2,669		)	4,282
Change in cash, cash equivalents and restricted cash	354,233			(175,069		)
Cash, cash equivalents and restricted cash at beginning of year	329,923			455,732
Cash, cash equivalents and restricted cash at end of period	684,156			280,663
Less restricted cash at end of period	1,042			22,722
Cash and cash equivalents per balance sheet at end of period	$	683,114		$	257,941

Capital expenditures included in accounts payable at June 27, 2020 and December 28, 2019, were $4,058 and $19,327, respectively. For the six months ended June 27, 2020 and June 29, 2019, right-of-use assets obtained in exchange for lease obligations were $23,769 and $38,840, respectively.

See accompanying notes to Condensed Consolidated Financial Statements.

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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 2019 Annual Report on Form 10-K. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by 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.

Liquidity and Impact of COVID-19

The COVID-19 global pandemic has impacted the Company’s business operations and results of operations for the second quarter and the first six months of 2020 due to decreased customer traffic and temporary retail store closures worldwide. The Company’s e-commerce sites have remained open in all regions. Most of the Company’s retail stores were reopened by the end of the second quarter but have and are expected to continue to experience significant reductions in traffic and therefore, revenue. Many of the Company’s wholesale customers have also substantially reduced their operations. The extent and duration of the global pandemic remains uncertain and may continue to impact consumer purchasing activity throughout the year. The evolving COVID-19 pandemic could continue to have an adverse impact on the Company’s results of operations and liquidity; the operations of the Company’s suppliers, vendors and customers; and employees as a result of quarantines, facility closures, and travel and other restrictions. While the ultimate global and economic impact of the COVID-19 pandemic remains highly uncertain, the Company expects its business operations and results of operations, including net sales, earnings and cash flows, will be materially impacted for at least the balance of 2020.

The Company relies on its cash flows generated from operations and the borrowing capacity under its credit facilities to meet the cash requirements of its business. The primary cash requirements of its business are payments to employees and vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments, business acquisitions, contributions to its pension plans, repurchases of its stock, regular quarterly dividend payments and income tax payments. The Company is focused on preserving its liquidity and managing its cash flow during these unprecedented conditions with preemptive actions to enhance its ability to meet its short-term liquidity needs. Such actions include, but are not limited to, selling personal protective equipment (“PPE”) such as cloth face coverings and gowns; operating manufacturing and distribution facilities on a demand-adjusted basis; reducing discretionary spending such as certain media and marketing expenses; focused working capital management; reducing capital expenditures; suspending its share repurchase program until further notice; reducing payroll costs, through temporary employee furloughs and pay cuts; working globally to maximize the Company’s participation in all eligible government or other initiatives available to businesses or employees impacted by the COVID-19 pandemic; engaging with landlords to negotiate rent deferrals or other rent concessions; issuing new debt and amending certain existing debt facilities.

During the six months of 2020, the rapid expansion of the COVID-19 pandemic has resulted in a sharp decline in net sales and earnings in the Company’s apparel businesses. Sales of PPE used to help mitigate the spread of the COVID-19 virus partially offset the negative impact of the COVID-19 pandemic. In addition, the Company’s operating results also reflected impairment charges related to intangible assets, as well as additional charges to reserve for increased excess and obsolete inventory and bad debt charges due to the ongoing effects of the COVID-19 pandemic.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

In light of temporary store closures related to the COVID-19 pandemic, the Company has taken actions with respect to certain of its existing leases, including withholding rent payments and engaging with landlords in an attempt to obtain rent deferrals and other rent concessions. If such negotiations are not successful, the lease liabilities associated with those leases could become immediately due and payable. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, the Company has elected to treat agreed-upon payment deferrals that result in the total payments required by the modified contract being substantially the same as total payments required by the contract as if there were no modifications to the lease contract. The Company has elected to treat other agreed-upon rent concessions which result in reduced minimum lease payments as variable lease payments. For any agreed-upon rent concessions which change the payment terms from minimum rental amounts to amounts based on a percentage of sales volume, the Company has elected to treat such changes as lease modifications under the current lease guidance.

Goodwill and indefinite-lived intangible assets are evaluated for impairment at least annually as of the first day of the third quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or intangible asset below its carrying values. During the second quarter of 2020, the Company completed a quantitative impairment analysis for certain indefinite-lived intangible assets as a result of the significant impact of the COVID-19 pandemic on their performance. Based on this analysis, the Company recorded impairment charges of $20,319 on trademarks and other intangible assets which are reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. Although the Company determined that no impairment exists for the Company's goodwill, other indefinite-lived or definite-lived intangible assets, these assets could be at risk for impairment should global economic conditions continue to deteriorate as a result of the COVID-19 pandemic.

In March 2020, the Company drew down $630,000 under the Revolving Loan Facility as a precautionary measure, to provide the Company with additional financial flexibility to manage its business with a safety-first emphasis during the unknown duration and impact of the COVID-19 pandemic. The Company subsequently repaid $490,000 of its borrowings under the Revolving Loan Facility in April 2020. In May 2020, the Company issued $700,000 aggregate principal amount of 5.375% Senior Notes resulting in net proceeds of approximately $691,250 which were used to repay all outstanding borrowings under its Revolving Loan Facility, pay related fees and expenses, and for general corporate purposes.

As of June 27, 2020, the Company was in compliance with all financial covenants under its credit facilities and other outstanding indebtedness. In April 2020, given the rapidly changing 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 (as discussed in Note, “Debt and Notes Payable”) prior to any potential covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. After obtaining the debt amendment, which provides relief from certain covenants for a 15-month period and adds additional financial and non-financial covenants, the Company expects to maintain compliance with its covenants for at least one year from the date of these financial statements based on its current expectations and forecasts. If economic conditions caused by the COVID-19 pandemic worsen and the Company’s earnings and operating cash flows do not start to recover as currently estimated by management, this could impact the Company’s ability to maintain compliance with its amended 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.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

Revisions of Previously Issued Consolidated Financial Statements

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 28, 2019, during the fourth quarter of 2019 the Company identified tax errors, which originated prior to 2017, in its previously issued 2018 and 2017 annual consolidated financial statements and quarterly condensed consolidated interim financial statements for each of the quarterly periods of 2018 and the first three quarterly periods of 2019. Although the Company assessed the materiality of the errors and concluded that the errors were not material to the previously issued annual or interim financial statements, the Company did revise its previously issued 2018 and 2017 annual financial statements to correct for such tax errors in connection with the filing of its 2019 Annual Report on Form 10-K, and disclosed that it would be revising its 2019 condensed consolidated interim financial statements in connection with the filing of its Quarterly Reports on Form 10-Q during 2020. In connection with such revision, the Company also corrected for certain other immaterial errors. In connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the accompanying condensed consolidated interim financial statements as of and for the quarter and six months ended June 29, 2019 to correct for the impact of such errors, including the impact to retained earnings as of June 29, 2019 to correct for the errors which originated in periods prior to 2019, which primarily related to the tax errors. The accompanying footnotes have also been corrected to reflect the impact of the revisions of the previously filed condensed consolidated interim consolidated financial statements.

Additionally, in connection with the filing of this Quarterly Report on Form 10-Q, the Company has disclosed the impact of the revisions to the condensed consolidated interim financial statements as of and for the quarter and nine months ended September 28, 2019 to correct for the impact of such errors. The Company will effect the revision of its unaudited condensed consolidated interim financial statements as of and for the quarter and nine months ended September 28, 2019 with the future filing of its Quarterly Report on Form 10-Q for the period ended September 26, 2020. See Note, "Revisions of Previously Issued Condensed Consolidated Interim Financial Statements" for reconciliations between as reported and as revised amounts as of and for the periods ended June 29, 2019 and September 28, 2019.


(2)	Recent Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The new accounting rules eliminate the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. The new accounting rules were effective for the Company in the first quarter of 2020 and applies to its trade receivables.

Under the new accounting rules, trade receivables are now evaluated on a collective (pool) basis and aggregated on the basis of similar risk characteristics. These classifications will be reassessed at each measurement date. A combination of factors, such as industry trends, customers’ financial strength, credit standing and payment and default history are considered in determining the appropriate estimate of expected credit losses. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new accounting rules simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test which previously measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new accounting rules were effective for the Company in the first quarter of 2020. As a result of adopting the new rules, the Company will compare the estimated fair value of its reporting units to their respective carrying values when evaluating the recoverability of goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment charge will be recognized for the amount by which its carrying value exceeds the reporting unit’s fair value; however, the loss recognized will not exceed the goodwill allocated to the reporting unit. The adoption of the new accounting rules did not have an impact on the Company’s financial condition, results of operations or cash flows.

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

Fair Value

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820),” which modifies the disclosure requirements on fair value measurements. The new accounting rules were effective for the Company in the first quarter of 2020. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows; however, its disclosures were updated upon adoption.

Retirement Benefits

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).” The new accounting rules expand disclosure requirements for employer sponsored defined benefit pension and other retirement plans. The new accounting rules were effective for the Company in the first quarter of 2020. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows; however, expanded disclosures will be required on the Company’s Annual Report on Form 10-K for the year ended January 2, 2021.

Internal-Use Software

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 340-40),” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new accounting rules were effective for the Company in the first quarter of 2020. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Codification Improvements to Financial Instruments

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” The new accounting rules clarify guidance around several subtopics by adopting enhanced verbiage to the following subtopics: fair value option disclosures, fair value measurement, investments - debt and equities securities, debt modifications and extinguishments, credit losses, and sales of financial assets. The standard was effective for the Company in the first quarter of 2020. The adoption of the new accounting rules did not have a material impact on the Company’s results of operations or cash flows.

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 will be effective for the Company in the first quarter of 2021. The Company is currently in the process of evaluating the impact of adoption of the new accounting rules on the Company’s financial condition, results of operations, cash flows and disclosures.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The new accounting rules provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments in this standard can be applied anytime between the first quarter of 2020 and 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.

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)


(3)	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				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Third-party brick-and-mortar wholesale	$	1,345,016	$	1,360,994	$	2,323,143	$	2,592,417
Consumer-directed	393,763		399,933		732,098		756,534
Total net sales	$	1,738,779	$	1,760,927	$	3,055,241	$	3,348,951

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-party brick-and-mortar wholesale revenues is 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. Additionally, in the quarter and six months ended June 27, 2020, third-party brick-and-mortar wholesale revenue includes $641,723 of revenue from contracts with governments generated from the sale of both cloth face coverings and gowns for use during the COVID-19 pandemic. Receivables from government contracts of $491,244 are included in “Trade accounts receivable, net” in the Company’s condensed consolidated balance sheet at June 27, 2020.

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.


(4)	Acquisitions

Bras N Things

On February 12, 2018, the Company acquired 100% of the outstanding equity of BNT Holdco Pty Limited (“Bras N Things”) for a total purchase price of A$498,236 (U.S.$391,572). During 2018, due to the final working capital adjustment, the purchase consideration was reduced by A$3,012 (U.S.$2,367), ultimately resulting in a revised purchase price of A$495,224 (U.S.$389,205), which included a cash payment of A$428,956 (U.S.$337,123), an indemnification escrow of A$31,988 (U.S.$25,140) and debt assumed of A$34,280 (U.S.$26,942). U.S. dollar equivalents are based on acquisition date exchange rates.

The Company funded the acquisition with a combination of short-term borrowings under its existing revolving loan facility (the “Revolving Loan Facility”) and cash on hand. During the third quarter of 2019, A$31,425 (U.S.$21,360) of the indemnification escrow, including interest earned, was paid to the sellers. The remaining indemnification escrow, held in one of the Company’s bank accounts, is recognized and classified as restricted cash, with the balance as of June 27, 2020 included in the “Other current assets” line of the Condensed Consolidated Balance Sheet.

Since February 12, 2018, goodwill related to the Bras N Things acquisition decreased by $792 as a result of measurement period adjustments, primarily related to working capital adjustments. The purchase price allocation was finalized in the first quarter of 2019.

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)


(5)	Stockholders’ Equity

Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted average shares of common stock outstanding during the period. Diluted EPS was calculated to give effect to all potentially 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		Six Months Ended
	June 27, 2020	June 29, 2019	June 27, 2020	June 29, 2019
Basic weighted average shares outstanding	350,538	364,637	354,778	364,603
Effect of potentially dilutive securities:
Stock options	143	480	182	475
Restricted stock units	143	415	165	335
Employee stock purchase plan and other	5	5	8	5
Diluted weighted average shares outstanding	350,829	365,537	355,133	365,418

For the quarter ended June 27, 2020, there were 1,599 restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the quarter ended June 29, 2019, there were no anti-dilutive restricted stock units. For the six months ended June 27, 2020 and June 29, 2019, there were 1,330 and 2 restricted stock units excluded from the diluted earnings per share calculation, respectively, because their effect would be anti-dilutive. For the quarters and six months ended June 27, 2020 and June 29, 2019, there were no anti-dilutive stock options to purchase shares of common stock.

On July 28, 2020, 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 September 1, 2020 to stockholders of record at the close of business on August 11, 2020.

On February 6, 2020, the Company’s Board of Directors approved a new share repurchase program for up to 40,000 shares to be repurchased in open market transactions, subject to market conditions, legal requirements and other factors. Additionally, management has been granted authority to establish a trading plan under Rule 10b5-1 of the Exchange Act in connection with share repurchases, which will allow the Company to repurchase shares in the open market during periods in which the stock trading window is otherwise closed for 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. For the quarter ended, June 27, 2020, the Company did not enter into any transactions to repurchase shares under the new program. For the six months ended June 27, 2020, the Company entered into transactions to repurchase 14,464 shares at a weighted average repurchase price of $13.83 per share under the new program. The shares were repurchased at a total cost of $200,269. The Company did not repurchase any shares under the previous share repurchase program during 2020 through the expiration of the program on February 6, 2020 or during the quarter or six months ended June 29, 2019. At June 27, 2020, 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.


(6)	Inventories

Inventories consisted of the following:



	June 27, 2020		December 28, 2019		June 29, 2019
Raw materials	$	97,536	$	83,545	$	107,561
Work in process	137,508		136,592		169,509
Finished goods	1,723,399		1,685,708		1,946,129
	$	1,958,443	$	1,905,845	$	2,223,199

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)


(7)	Debt and Notes Payable

Debt and notes payable consisted of the following:



	Interest Rate as of June 27, 2020	Principal Amount				Maturity Date
	Interest Rate as of June 27, 2020	June 27, 2020		December 28, 2019		Maturity Date
Senior Secured Credit Facility:
Revolving Loan Facility	—	$	—	$	—	December 2022
Term Loan A	2.10%	625,000		625,000		December 2022
Term Loan B	1.93%	300,000		300,000		December 2024
Australian Revolving Loan Facility	1.67%	34,345		—		July 2021
5.375% Senior Notes	5.38%	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%	562,556		558,847		June 2024
European Revolving Loan Facility	1.50%	112,512

Price	15.04	EPS	2
Shares	366	P/E	9
MCap	5,499	P/FCF	22
Net Debt	3,544	EBIT	652
TEV	9,043	TEV/EBIT	14
TTM 2019-09-28, in MM, except price, ratios

10-Q	2020-06-27	Filed 2020-07-31
10-Q	2020-03-28	Filed 2020-04-30
10-K	2019-12-28	Filed 2020-02-11
10-Q	2019-09-28	Filed 2019-10-31
10-Q	2019-06-29	Filed 2019-08-02
10-Q	2019-03-30	Filed 2019-05-02
10-K	2018-12-29	Filed 2019-02-11
10-Q	2018-09-29	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-02
10-Q	2018-03-31	Filed 2018-05-01
10-K	2017-12-30	Filed 2018-02-09
10-Q	2017-09-30	Filed 2017-11-03
10-Q	2017-07-01	Filed 2017-08-02
10-Q	2017-04-01	Filed 2017-05-03
10-K	2016-12-31	Filed 2017-02-03
10-Q	2016-10-01	Filed 2016-10-28
10-Q	2016-07-02	Filed 2016-08-04
10-Q	2016-04-02	Filed 2016-04-26
10-K	2016-01-02	Filed 2016-02-05
10-Q	2015-10-03	Filed 2015-10-29
10-Q	2015-07-04	Filed 2015-07-31
10-Q	2015-04-04	Filed 2015-05-01
10-K	2015-01-03	Filed 2015-02-06
10-Q	2014-09-27	Filed 2014-10-30
10-Q	2014-06-28	Filed 2014-07-24
10-Q	2014-03-29	Filed 2014-04-25
10-K	2013-12-28	Filed 2014-02-06
10-Q	2013-09-28	Filed 2013-10-31
10-Q	2013-06-29	Filed 2013-07-31
10-Q	2013-03-30	Filed 2013-04-24
10-K	2012-12-29	Filed 2013-02-06
10-Q	2012-09-29	Filed 2012-10-24
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-04-25
10-K	2011-12-31	Filed 2012-02-17
10-Q	2011-10-01	Filed 2011-11-03
10-Q	2011-07-02	Filed 2011-07-28
10-Q	2011-04-02	Filed 2011-04-28
10-K	2011-01-01	Filed 2011-02-16
10-Q	2010-10-02	Filed 2010-10-28
10-Q	2010-07-03	Filed 2010-07-28
10-Q	2010-04-03	Filed 2010-04-29
10-K	2010-01-02	Filed 2010-02-09

8-K	2020-08-06	Officers, Exhibits
8-K	2020-07-28	Earnings, Officers, Regulation FD, Exhibits
8-K	2020-06-09
8-K	2020-05-04
8-K	2020-05-04
8-K	2020-04-30
8-K	2020-04-28
8-K	2020-04-27
8-K	2020-03-25
8-K	2020-03-05
8-K	2020-02-07
8-K	2020-01-28
8-K	2020-01-09
8-K	2019-11-21
8-K	2019-10-31
8-K	2019-08-01
8-K	2019-08-01
8-K	2019-05-02
8-K	2019-04-23
8-K	2019-02-07
8-K	2018-11-01
8-K	2018-08-01
8-K	2018-07-24
8-K	2018-05-15
8-K	2018-05-03
8-K	2018-05-01
8-K	2018-04-24
8-K	2018-02-02

EX-10.3	hbi-20200627xex103.htm
EX-10.4	hbi-20200627xex104.htm
EX-31.1	hbi-20200627xex311.htm
EX-31.2	hbi-20200627xex312.htm
EX-32.1	hbi-20200627xex321.htm
EX-32.2	hbi-20200627xex322.htm

HBI 10Q Quarterly Report

Hanesbrands Earnings 2020-06-27