hbi-20210403

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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 April 3, 2021


☐			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, there were 349,115,441 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
Forward-Looking Statements		1

PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Income for the quarters ended April 3 , 202 1 and March 28, 20 20	2
	Condensed Consolidated Statements of Comprehensive Income for the quarters ended April 3 , 202 1 and March 2 8, 20 20	3
	Condensed Consolidated Balance Sheets at Apr il 3 , 202 1, Janu a ry 2 , 20 21 and March 28, 20 20	4
	Condensed Consolidated Statements of Stockholders’ Equity for the quarters ended April 3, 202 1 and March 28, 20 20	5
	Condensed Consolidated Statements of Cash Flows for the quarters ended April 3 , 202 1 and March 28, 20 20	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28

PART II
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

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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, 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, 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 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)

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
	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)

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 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	—		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	—		—		1,660
Accounts Receivable Securitization Facility	—		—		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	—		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	—		—		—
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

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
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.

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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		—
Loss on classification of assets held for sale	226,352		—
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)		—
Borrowings on Accounts Receivable Securitization Facility	—		227,061
Repayments on Accounts Receivable Securitization Facility	—		(74,909)
Borrowings on Revolving Loan Facilities	—		1,638,000
Repayments on Revolving Loan Facilities	—		(688,000)

Borrowings on International Debt	—		31,222

Borrowings on notes payable	21,106		62,312
Repayments on notes payable	(20,276)		(64,352)
Share repurchases	—		(200,269)
Cash dividends paid	(52,351)		(53,683)
Payments of debt issuance costs
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

(1)The cash flows related to discontinued operations have not been segregated and remain included in the major classes of assets and liabilities. 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, 2021 and January 2, 2021 were $4,670 and $17,931, respectively. For the quarters ended April 3, 2021 and March 28, 2020, right-of-use assets obtained in exchange for lease obligations were $4,755 and $17,551, 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 Annual Report on Form 10-K for the year ended January 2, 2021. 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.

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 Company determined that its European Innerwear business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021. 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 applied to all periods presented. Unless otherwise noted, discussion within these notes to the condensed consolidated interim financial statements relates to continuing operations. See note “Discontinued Operations” for additional information on discontinued operations.

(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 FASB issued 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 standard 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.

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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.” 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 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.

(3) 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 Company determined that its European Innerwear business met held-for-sale and discontinued operations accounting criteria at the end of the first quarter of 2021. 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 applied to all periods presented. The Company is actively marketing the business to prospective buyers and expects to complete the sale of this business within one year.

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 sale classification which 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 with 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. 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. Additionally, the Company recorded an impairment charge of $7,302 in continuing operations on an indefinite-lived trademark which is reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. This charge relates 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. The Company intends to exit this brand subsequent to the sale of the European Innerwear business.

The Company expects to continue certain sales from its supply chain to the European Innerwear business after the sale of the business. Those sales and the related profit are included in continuing operations in the Condensed Consolidated Statements of Income 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 to “Trade accounts receivable, net” in the Condensed Consolidated Balance Sheets for all periods presented.

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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 be eliminated from continuing operations. 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		—
Loss on classification of assets held for sale	226,352		—
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	—		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)		—		—
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	—		—		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

(1)Amounts at January 2, 2021 and March 28, 2020 have been classified as current and long-term in the Condensed Consolidated Balance Sheets.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

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
	April 3, 2021		March 28, 2020
Depreciation	$	2,608	$	2,665
Amortization	1,460		1,282
Capital expenditures	3,335		3,538
Impairment of intangible assets and goodwill	155,745		—
Loss on classification of assets held for sale	226,352		—
Other investing activities	1,794		1,216
Capital expenditures included in accounts payable	52		1,033

(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
	April 3, 2021		March 28, 2020
Third-party brick-and-mortar wholesale	$	1,024,739	$	886,535
Consumer-directed	483,290		316,535
Total net sales	$	1,508,029	$	1,203,070

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 revenue 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.

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.

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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 no 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, 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 one or more trading plans 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 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, 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. At April 3, 2021, 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.

(6) Inventories

Inventories consisted of the following:


	April 3, 2021		January 2, 2021		March 28, 2020
Raw materials	$	74,123	$	67,111	$	73,450
Work in process	99,619		108,844		115,129
Finished goods	1,315,823		1,191,803		1,599,081
	$	1,489,565	$	1,367,758	$	1,787,660

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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	—	$	—	$	—	December 2022

Term Loan A	2.11%	625,000		625,000		December 2022
Term Loan B	—	—		300,000		December 2024

Australian Revolving Loan Facility	—	—		—		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	—	—		—		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, 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 ratio 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. EBITDA is defined as earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility.

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

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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) 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	—		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	—		(5,017)		4,866		—		(151)
Current-period other comprehensive income (loss) activity	(117,154)		20,080		—		(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)

(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.

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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	Location of Reclassification into Income	Amount of Reclassification from AOCI
		Quarters Ended
		April 3, 2021		March 28, 2020
Gain (loss) on forward foreign exchange contracts designated as cash flow hedges	Cost of sales	$	(4,377)	$	2,869
	Income tax	1,208		(762)
	Loss from discontinued operations, net of tax	(244)		1,638
	Net of tax	(3,413)		3,745

Loss on cross-currency swap contracts designated as cash flow hedges	Selling, general and administrative expenses	(557)		—

	Income tax	89		—
	Net of tax	(468)		—

Amortization of deferred actuarial loss and prior service cost	Other expenses	(7,707)		(2,762)
	Income tax	1,746		1,233
	Loss from discontinued operations, net of tax	519		(2,065)
	Net of tax	(5,442)		(3,594)

Total reclassifications		$	(9,323)	$	151

(9) 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, Canadian dollar and Mexican peso. 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 certain European subsidiaries.


	Hedge Type	April 3, 2021		January 2, 2021
U.S. dollar equivalent notional amount of derivative instruments:
Forward foreign exchange contracts	Cash Flow and Mark to Market	$	426,204	$	617,912
Cross-currency swap contracts	Cash Flow	$	352,920	$	—
Cross-currency swap contracts	Net Investment	$	335,940	$	335,940

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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
		April 3, 2021		January 2, 2021
Derivatives designated as hedging instruments:
Forward foreign exchange contracts	Other current assets	$	1,676	$	1
Cross-currency swap contracts	Other current assets	2,817		918
Forward foreign exchange contracts	Current assets of discontinued operations	226		40
Forward foreign exchange contracts	Other noncurrent assets	488		—

Derivatives not designated as hedging instruments:
Forward foreign exchange contracts	Other current assets	1,564		2,459
Forward foreign exchange contracts	Current assets of discontinued operations	64		198
Total derivative assets		6,835		3,616

Derivatives designated as hedging instruments:
Forward foreign exchange contracts	Accrued liabilities	(6,152)		(12,898)

Forward foreign exchange contracts	Current liabilities of discontinued operations	(656)		(4,747)
Forward foreign exchange contracts	Other noncurrent liabilities	—		(2,190)
Cross-currency swap contracts	Other noncurrent liabilities	(6,530)		(16,526)
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts	Accrued liabilities	(5,327)		(16,488)
Forward foreign exchange contracts	Current liabilities of discontinued operations	(850)		(2,195)
Total derivative liabilities		(19,515)		(55,044)

Net derivative liability		$	(12,680)	$	(51,428)

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 three 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. 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. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next 16 months and for long-term debt over the next 39 months.

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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)		—
Total	$	8,474	$	20,080


	Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
		Quarters Ended
		April 3, 2021		March 28, 2020


Forward foreign exchange contracts(1)	Cost of sales	$	(4,377)	$	2,869
Forward foreign exchange contracts(1)	Loss from discontinued operations, net of tax	(308)		2,148
Cross-currency swap contracts(1)	Selling, general and administrative expenses	(557)		—

Total		$	(5,242)	$	5,017

(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)

Net Investment Hedges

In July 2019, the Company entered into two 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 certain 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, 2021 and January 2, 2021, the U.S. dollar equivalent carrying value of Euro-denominated long-term debt designated as a partial European net investment hedge was $235,183 and $610,724, respectively.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

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 and the amount of gains included in the “Interest expense, net” line in the Condensed Consolidated Statements of Income related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges are as follows:


	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

Mark to Market Hedges

A derivative 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. 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 contracts 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
		Quarters Ended
		April 3, 2021		March 28, 2020
Forward foreign exchange contracts	Cost of sales	$	12,995	$	6,549
Forward foreign exchange contracts	Selling, general and administrative expenses	2,211		(1,034)
Forward foreign exchange contracts	Loss from discontinued operations, net of tax	2,639		(425)
Total		$	17,845	$	5,090

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(amounts in thousands, except per share data)

(unaudited)

(10) Fair Value of Assets and Liabilities

As of April 3, 2021, 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 plans is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a quarterly recurring basis.

There were no changes during the quarter ended April 3, 2021 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, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.

The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities within continuing operations accounted for at fair value on a recurring basis.


	Assets (Liabilities) at Fair Value as of April 3, 2021
	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	$	3,728	$	—	$	3,728	$	—
Cross-currency swap contracts - assets	2,817		—		2,817		—
Forward foreign exchange contracts - liabilities	(11,479)		—		(11,479)		—
Cross-currency swap contracts - liabilities	(6,530)		—		(6,530)		—
	(11,464)		—		(11,464)		—
Deferred compensation plan liability	(18,809)		—		(18,809)		—
Total	$	(30,273)	$	—	$	(30,273)	$	—


	Assets (Liabilities) at Fair Value as of January 2, 2021
	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	$	2,460	$	—	$	2,460	$	—
Cross-currency swap contracts - assets	918		—		918		—
Forward foreign exchange contracts - liabilities	(31,576)		—		(31,576)		—
Cross-currency swap contracts - liabilities	(16,526)		—		(16,526)		—
	(44,724)		—		(44,724)		—
Deferred compensation plan liability	(21,878)		—		(21,878)		—
Total	$	(66,602)	$	—	$	(66,602)	$	—

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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, 2021 and January 2, 2021. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $55,543 and $48,745 as of April 3, 2021 and January 2, 2021, respectively. The fair value of debt, which is classified as a Level 2 liability, was $3,912,331 and $4,230,985 as of April 3, 2021 and January 2, 2021, respectively. Debt had a carrying value of $3,712,959 and $4,035,724 as of April 3, 2021 and January 2, 2021, 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 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 the Company’s U.S.-based outlet stores and U.S. hosiery business.

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.

•International includes sales of products in all of the Company’s categories outside the United States, primarily in Australasia, Europe, Asia, Canada and Latin America.

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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.


	Quarters Ended
	April 3, 2021		March 28, 2020
Net sales:
Innerwear	$	570,435	$	422,402
Activewear	364,003		288,000
International	506,261		428,230
Other	67,330		64,438
Total net sales	$	1,508,029	$	1,203,070


	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, the Company incurred pre-tax restructuring and other action-related charges of $19,393, of which $2,807 is reported in the “Cost of sales” line and $16,586 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended March 28, 2020, the Company incurred pre-tax restructuring and other action-related charges of $24,324, of which $21,811 is reported in the “Cost of sales” line and $2,513 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.

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Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed 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, 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. In particular, statements with respect to trends associated with our business, our Full Potential plan, 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, Europe and Asia/Pacific 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’eggs and Gear for Sports. We sell 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 and U.S. hosiery business.

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 our multi-year growth strategy that focuses on four pillars to drive growth and enhance long-term profitability and identifies 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, 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. We determined that our European Innerwear business met held-for-sale and discontinued operations accounting criteria during the first quarter of 2021. 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. See note “Discontinued Operations” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information on discontinued operations.

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Impact of COVID-19 on Our Business

The COVID-19 pandemic 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, 2021 Compared with First Quarter Ended March 28, 2020” below, primarily through reduced traffic and closures of company-operated and third-party retail locations for portions of each of the quarters in certain markets. While many retail stores have reopened and some government restrictions have been partially or fully removed, the future impact of the COVID-19 pandemic remains 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 2021

We estimate our 2021 guidance as follows:

•Net sales of $6.2 billion to $6.3 billion;

•Operating profit of $730 million to $760 million;

•Full Potential plan-related charges of approximately $85 million reflected in operating profit;

•Interest expense and other expenses of approximately $185 million combined;

•An annual effective tax rate from continuing operations of approximately 14%;

•Diluted earnings per share from continuing operations from $1.33 to $1.41;

•Cash flow from operating activities of $500 million to $550 million; and

•Capital expenditures of approximately $140 million, which includes approximately $50 million related to our Full Potential plan.

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. 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.

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.

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Condensed Consolidated Results of Operations — First Quarter Ended April 3, 2021 Compared with First Quarter Ended March 28, 2020


	Quarters Ended
	April 3, 2021		March 28, 2020		Higher (Lower)		Percent Change
	(dollars in thousands)
Net sales	$	1,508,029	$	1,203,070	$	304,959	25.3	%
Cost of sales	905,348		784,902		120,446		15.3
Gross profit	602,681		418,168		184,513		44.1
Selling, general and administrative expenses	412,559		370,215		42,344		11.4
Operating profit	190,122		47,953		142,169		296.5
Other expenses	2,561		6,101		(3,540)		(58.0)
Interest expense, net	44,460		36,027		8,433		23.4
Income from continuing operations before income tax expense	143,101		5,825		137,276		2,356.7
Income tax expense	14,697		707		13,990		1,978.8
Income from continuing operations	128,404		5,118		123,286		2,408.9
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)	%

Net Sales

Net sales increased 25% during the first quarter of 2021 primarily due to the following:

•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; and

•The favorable impact from foreign exchange rates in our International business of approximately $43 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%, representing an increase from 4.0% in the prior year. Increased operating profit was the result of higher sales, favorable product mix and the favorable impact from foreign exchange rates which more than offset higher freight costs and sourcing premiums to service demand. Included in operating profit in the first quarter of 2021 were charges of $19 million 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 million in the first quarter of 2021 compared to the first quarter of 2020 due to lower pension expense and lower funding fees for sales of accounts receivable to financial institutions in 2021.

Interest Expense – Interest expense was higher by $8 million in the first quarter of 2021 compared to the first quarter of 2020 driven by a higher weighted average interest rate on our borrowings during the quarter. Our weighted average interest rate on our outstanding debt was 4.07% for the first quarter of 2021, compared to 3.92% for the first quarter of 2020.

Income Tax Expense – Our effective income tax rate was 10.3% and 12.1% for the first quarters of 2021 and 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 million, partially offset by a discrete charge for changes in valuation allowances of $4 million.

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. See note “Discontinued Operations” 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.

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Operating Results by Business Segment — First Quarter Ended April 3, 2021 Compared with First Quarter Ended March 28, 2020


	Net Sales
	Quarters Ended
	April 3, 2021		March 28, 2020		Higher (Lower)		Percent Change
	(dollars in thousands)
Innerwear	$	570,435	$	422,402	$	148,033	35.0	%
Activewear	364,003		288,000		76,003		26.4
International	506,261		428,230		78,031		18.2
Other	67,330		64,438		2,892		4.5
Total	$	1,508,029	$	1,203,070	$	304,959	25.3	%


	Operating Profit and Margin
	Quarters Ended
	April 3, 2021				March 28, 2020				Higher (Lower)		Percent Change
	(dollars in thousands)
Innerwear	$	127,417	22.3	%	$	81,551	19.3	%	$	45,866	56.2	%
Activewear	60,594		16.6		8,108		2.8		52,486		647.3
International	87,180		17.2		50,745		11.8		36,435		71.8
Other	1,886		2.8		(3,393)		(5.3)		5,279		NM
Corporate	(86,955)		NM		(89,058)		NM		2,103		(2.4)
Total	$	190,122	12.6	%	$	47,953	4.0	%	$	142,169	296.5	%

Innerwear

Innerwear net sales increased 35% compared to the first quarter of 2020 driven by a 39% and a 27% increase in net sales in our basics 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 each 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.

Innerwear operating margin was 22.3%, an increase from 19.3% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales and favorable product mix partially offset by higher costs to service demand, such as air freight and sourcing premiums.

Activewear

Activewear net sales increased 26% compared to the first quarter last year driven by growth in the online and brick-and-mortar channels, the overlap of the initial COVID-19 pandemic shutdown in the first quarter of 2020 and incremental sales partially as a result of U.S. government stimulus spending. We experienced growth in all product categories except our sports apparel business which continues to be negatively impacted by the COVID-19 pandemic.

Activewear operating margin was 16.6%, an increase from 2.8% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales and favorable product mix.

International

Net sales in the International segment increased 18% as a result of the negative impact of the COVID-19 pandemic in the first quarter of 2020 and the favorable impact of foreign currency exchange rates of approximately $43 million. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, increased 8.2%. The impact of foreign 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%, an increase from 11.8% in the same period a year ago. Operating margin enhancement resulted primarily from fixed cost leverage from higher sales.

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Other

Other net sales increased as a result of increased 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 expense compared to the first quarter of 2020. Corporate expenses in the first quarter of 2020 included $11 million of bad debt expense related to charges for anticipated bankruptcies. Corporate expenses were lower in the first quarter of 2021 compared to the first quarter of 2020 due to lower restructuring and other action-related charges. Included in restructuring and other action-related charges in the first quarter of 2021 were $19 million of charges related to the implementation of our Full Potential plan. We recorded 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 actions 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.


	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

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, 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 for at least one year from the issuance of these financial statements based on our current expectations and forecasts.

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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 international credit facilities.

We had the following borrowing capacity and available liquidity under our credit facilities as of April 3, 2021:


	As of April 3, 2021
	Borrowing Capacity		Available Liquidity
	(dollars in thousands)
Senior Secured Credit Facility:
Revolving Loan Facility	$	1,000,000	$	995,824


Australian Revolving Loan Facility	45,572		45,572

Accounts Receivable Securitization Facility(1)	87,403		87,403
Other international credit facilities	116,734		85,245
Total liquidity from credit facilities	$	1,249,709	$	1,214,044
Cash and cash equivalents			530,403
Total liquidity			$	1,744,447

(1)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 reserves and other deductions, exceeds the outstanding loans.

The following have impacted or may impact our liquidity:

•The negative impact of the COVID-19 pandemic on our business.

•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.

•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, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential plan’s objectives.

•Although currently prohibited under our Senior Secured Credit Facility, in the future, we may pursue strategic business acquisitions.

•We made a contribution of $40 million to our U.S. pension plan in the quarter ended April 3, 2021. 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. Consistent with our investment strategy as it pertains to our historical foreign earnings as of January 2, 2021, we intend to remit foreign earnings totaling $668 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.

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Sources and Uses of Our Cash

The information presented below regarding the sources and uses of our cash flows for the quarters ended April 3, 2021 and March 28, 2020 was derived from our condensed consolidated interim financial statements.


	Quarters Ended
	April 3, 2021		March 28, 2020
	(dollars in thousands)
Operating activities	$	16,946	$	(83,216)
Investing activities	(13,604)		(24,477)
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

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 provided by operating activities was primarily due to higher income from continuing operations partially offset by changes in working capital. Cash used by 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.

Investing Activities

Investing activities in the first quarter of 2021 and 2020 primarily include capital investments into our business. The decrease in cash used by investing activities in first quarter of 2021 compared to 2020 was primarily the result of a decrease in capital investments into our business as we manage our spending on our focused strategic goals.

Financing Activities

Net cash from financing activities decreased primarily as a result of lower borrowings as compared to the same period 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 which consisted of a required excess cash flow prepayment of $239 million and a voluntary prepayment of $61 million. We also repurchased shares at a total cost of $200 million in the first quarter of 2020.

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, 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, 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 before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility. 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, we amended our Senior Secured Credit Facility prior to any potential

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covenant violation in order to modify the financial covenants and to provide operating flexibility during the COVID-19 crisis. We expect to maintain compliance with our covenants for at least one year from the 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, 2021 or other SEC filings could cause noncompliance.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with 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,” to our financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021.

The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 2, 2021. 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.

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.


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.


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 Accounting 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 Accounting Officer concluded that our disclosure controls and procedures were effective as of April 3, 2021.

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 Accounting 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

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Item 1.			Legal Proceedings

Although we are subject to various claims and legal actions that occur from time to time in the ordinary course of our business, we are not party to any pending legal proceedings that we believe could have a material adverse effect on our business, results of operations, financial condition or cash flows.


Item 1A.			Risk Factors

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.


Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.			Defaults Upon Senior Securities

None.


Item 4.			Mine Safety Disclosures

Not applicable.


Item 5.			Other Information

None.

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Item 6.			Exhibits


Exhibit Number						Description

3.1						Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).

3.2						Articles Supplementary (Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).

3.3						Articles of Amendment to Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2015).

3.4						Articles Supplementary (Reclassifying Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2015).

3.5						Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 26, 2017).

4.1						Supplemental Indenture No. 10 (to Indenture dated June 3, 2016), dated as of April 12, 2021, among Hanesbrands Finance Luxembourg S.C.A., HBI Holdings Switzerland GmbH and U.S. Bank Trustees Limited.

10.1						Letter Agreement with Tracy M. Preston dated February 1 2 , 202 1 .*

31.1						Certification of Stephen B. Bratspies, Chief Executive Officer.

31.2						Certification of M. Scott Lewis, Chief Accounting Officer and Principal Financial Officer .

32.1						Section 1350 Certification of Stephen B. Bratspies, Chief Executive Officer.

32.2						Section 1350 Certification of M. Scott Lewis, Chief Accounting Officer and Principal Financial Officer .

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101.CAL XBRL						Taxonomy Extension Calculation Linkbase Document

101.LAB XBRL						Taxonomy Extension Label Linkbase Document

101.PRE XBRL						Taxonomy Extension Presentation Linkbase Document

101.DEF XBRL						Taxonomy Extension Definition Linkbase Document

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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


HANESBRANDS INC.

By:						/s/ M. Scott Lewis
						M. Scott Lewis Chief Accounting Officer and Principal Financial Officer (Duly authorized officer and principal financial officer)

Date: May 12, 2021