Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.81M
2: EX-10.1 Material Contract HTML 33K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 23K
12: R1 Cover Page HTML 74K
13: R2 Condensed Consolidated Statements of Operations HTML 112K
(Unaudited)
14: R3 Condensed Consolidated Statements of Comprehensive HTML 53K
Income (Loss) (Unaudited)
15: R4 Condensed Consolidated Statements of Comprehensive HTML 27K
Income (Loss) (Unaudited) (Parenthetical)
16: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 137K
17: R6 Condensed Consolidated Balance Sheets (Unaudited) HTML 42K
(Parenthetical)
18: R7 Condensed Consolidated Statements of Stockholders' HTML 82K
Equity (Unaudited)
19: R8 Condensed Consolidated Statements of Cash Flows HTML 139K
(Unaudited)
20: R9 Basis of Presentation HTML 40K
21: R10 Recent Accounting Pronouncements HTML 40K
22: R11 Assets and Liabilities Held for Sale HTML 73K
23: R12 Revenue Recognition HTML 38K
24: R13 Stockholders' Equity HTML 46K
25: R14 Inventories HTML 32K
26: R15 Debt HTML 66K
27: R16 Income Taxes HTML 28K
28: R17 Accumulated Other Comprehensive Loss HTML 136K
29: R18 Financial Instruments and Risk Management HTML 164K
30: R19 Fair Value of Assets and Liabilities HTML 63K
31: R20 Business Segment Information HTML 143K
32: R21 Pay vs Performance Disclosure HTML 34K
33: R22 Insider Trading Arrangements HTML 27K
34: R23 Assets and Liabilities Held for Sale (Tables) HTML 73K
35: R24 Revenue Recognition (Tables) HTML 34K
36: R25 Stockholders' Equity (Tables) HTML 47K
37: R26 Inventories (Tables) HTML 33K
38: R27 Debt (Tables) HTML 45K
39: R28 Accumulated Other Comprehensive Loss (Tables) HTML 138K
40: R29 Financial Instruments and Risk Management (Tables) HTML 164K
41: R30 Fair Value of Assets and Liabilities (Tables) HTML 59K
42: R31 Business Segment Information (Tables) HTML 129K
43: R32 Basis of Presentation (Details) HTML 48K
44: R33 Recent Accounting Pronouncements (Details) HTML 27K
45: R34 Assets and Liabilities Held for Sale - Balance HTML 34K
Sheet (Details)
46: R35 Assets and Liabilities Held for Sale - Additional HTML 47K
Information (Details)
47: R36 Discontinued Operations - Income Statement HTML 59K
(Details)
48: R37 Discontinued Operations - Cash Flows (Details) HTML 30K
49: R38 Revenue Recognition (Details) HTML 34K
50: R39 Stockholders' Equity Reconciliation of Basic to HTML 38K
Diluted Weighted Average Shares (Details)
51: R40 Stockholders' Equity (Additional Information) HTML 57K
(Details)
52: R41 Inventories (Details) HTML 31K
53: R42 Debt - Summary of Debt (Details) HTML 66K
54: R43 Debt - Additional Information (Detail) HTML 138K
55: R44 Income Taxes (Details) HTML 30K
56: R45 Accumulated Other Comprehensive Loss (Rollforward) HTML 84K
(Details)
57: R46 Accumulated Other Comprehensive Loss (Details) HTML 75K
58: R47 Financial Instruments and Risk Management - HTML 36K
Notional Amounts of Derivative Instruments
(Details)
59: R48 Financial Instruments and Risk Management - Fair HTML 57K
Values of Derivative Instruments (Details)
60: R49 Financial Instruments and Risk Management - Effect HTML 61K
of Cash Flow Hedge Derivative Instruments
(Details)
61: R50 Financial Instruments and Risk Management - Effect HTML 54K
of Net Investment Hedge Instruments (Details)
62: R51 Financial Instruments and Risk Management - Effect HTML 31K
of Mark to Market Hedge Derivative Instruments
(Details)
63: R52 Financial Instruments and Risk Management - HTML 94K
Additional Information (Details)
64: R53 Fair Value of Assets and Liabilities (Fair Value HTML 67K
of Financial Assets and Liabilities Measured on
Recurring Basis) (Details)
65: R54 Fair Value of Assets and Liabilities (Additional HTML 32K
Information) (Details)
66: R55 Business Segment Information - Net Sales (Details) HTML 39K
67: R56 Business Segment Information - Segment Operating HTML 55K
Profit (Detail)
68: R57 Business Segment Information - Restructuring and HTML 42K
Other Action-Related Charges by Income Statement
Line (Details)
69: R58 Business Segment Information - Components of HTML 77K
Restructuring and Other Action-Related Charges
(Details)
70: R59 Business Segment Information - Restructuring and HTML 97K
Other Action-Related Charges - Additional
Information (Details)
73: XML IDEA XML File -- Filing Summary XML 132K
71: XML XBRL Instance -- hbi-20230930_htm XML 2.63M
72: EXCEL IDEA Workbook of Financial Report Info XLSX 153K
8: EX-101.CAL XBRL Calculations -- hbi-20230930_cal XML 156K
9: EX-101.DEF XBRL Definitions -- hbi-20230930_def XML 812K
10: EX-101.LAB XBRL Labels -- hbi-20230930_lab XML 1.77M
11: EX-101.PRE XBRL Presentations -- hbi-20230930_pre XML 1.18M
7: EX-101.SCH XBRL Schema -- hbi-20230930 XSD 180K
74: JSON XBRL Instance as JSON Data -- MetaLinks 479± 724K
75: ZIP XBRL Zipped Folder -- 0001359841-23-000049-xbrl Zip 392K
(Exact name of registrant as specified in its charter)
iMaryland
i20-3552316
(State
of incorporation)
(I.R.S. employer identification no.)
i1000 East Hanes Mill Road
iWinston-Salem,
iNorth
Carolina
i27105
(Address of principal executive office)
(Zip code)
(i336) i519-8080
(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
iCommon Stock, Par Value
$0.01
iHBI
iNew 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. iYes☒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). iYes☒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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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). Yesi☐No☒
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,”“could,”“will,”“expect,”“outlook,”“potential,”“project,”“estimate,”“future,”“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 and are subject to risks and uncertainties that could cause actual results to differ materially from those implied or expressed by such statements. These risks and uncertainties include trends associated with our business; our ability to successfully implement our multi-year transformation strategy (“Full Potential transformation plan”) and our global Champion performance plan; our ability to identify, execute, and realize benefits from any potential strategic transaction involving Champion; the rapidly changing retail environment and the level of consumer demand; the effects of any geopolitical conflicts (including the ongoing Russia-Ukraine conflict and the Israel-Hamas war) or any potential ongoing effects of the COVID-19 pandemic, including effects
on consumer spending, global supply chains and the financial markets; our ability to deleverage on the anticipated time frame or at all, which could negatively impact our ability to satisfy the financial covenants in our credit agreement or other contractual arrangements; any inadequacy, interruption, integration failure or security failure with respect to our information technology (including the ransomware attack announced May 31, 2022); future intangible assets or goodwill impairment due to changes in our business; legal, regulatory, political and economic risks related to our international operations; our ability to effectively manage our complex international tax structure; and our future financial performance. 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. Such statements
speak only as of the date when made and 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.
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 December 31, 2022, under the caption “Risk Factors,” and available on the “Investors” section of our corporate website, www.Hanes.com/investors.
The contents of our corporate website are not incorporated by reference in this Quarterly Report on Form 10-Q.
Adjustments
to reconcile net income (loss) to net cash from operating activities:
Depreciation
i56,246
i56,140
Amortization
of acquisition intangibles
i12,478
i14,045
Other
amortization
i9,856
i8,121
Loss
on extinguishment of debt
i8,466
i—
(Gain)
loss on sale of business and classification of assets held for sale
i3,641
(i6,185)
Amortization
of debt issuance costs and debt discount
i6,577
i5,483
Other
i8,984
i11,717
Changes
in assets and liabilities:
Accounts receivable
i12,169
(i63,003)
Inventories
i444,592
(i612,544)
Other
assets
(i20,833)
(i71,613)
Accounts
payable
(i125,411)
(i22,289)
Accrued
pension and postretirement benefits
i4,181
(i1,066)
Accrued
liabilities and other
(i37,935)
(i101,392)
Net
cash from operating activities
i287,344
(i491,682)
Investing
activities:
Capital expenditures
(i35,790)
(i70,955)
Purchase
of trademarks
i—
(i103,000)
Proceeds
from sales of assets
i172
i259
Other
i20,241
(i5,640)
Net
cash from investing activities
(i15,377)
(i179,336)
Financing
activities:
Borrowings on Term Loan Facilities
i891,000
i—
Repayments
on Term Loan Facilities
(i29,500)
(i18,750)
Borrowings
on Accounts Receivable Securitization Facility
i1,728,500
i1,303,589
Repayments
on Accounts Receivable Securitization Facility
(i1,737,500)
(i1,092,089)
Borrowings
on Revolving Loan Facilities
i1,616,500
i1,337,500
Repayments
on Revolving Loan Facilities
(i1,908,500)
(i908,500)
Borrowings
on Senior Notes
i600,000
i—
Repayments
on Senior Notes
(i1,436,884)
i—
Borrowings
on notes payable
i—
i21,454
Repayments
on notes payable
i—
(i21,713)
Share
repurchases
i—
(i25,018)
Cash
dividends paid
i—
(i156,962)
Payments
to amend and refinance credit facilities
(i28,503)
(i633)
Other
(i2,884)
(i3,630)
Net
cash from financing activities
(i307,771)
i435,248
Effect
of changes in foreign exchange rates on cash
(i11,518)
(i71,728)
Change
in cash and cash equivalents
(i47,322)
(i307,498)
Cash
and cash equivalents at beginning of year
i238,413
i560,629
Cash
and cash equivalents at end of period
$
i191,091
$
i253,131
(1)The
cash flows related to discontinued operations have not been segregated and remain included in the major classes of assets and liabilities in the periods prior to the sale of the European Innerwear business on March 5, 2022. Accordingly, the Condensed Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.
Capital expenditures included in accounts payable at September 30, 2023 and December 31, 2022 were $i12,691
and $i10,549, respectively. For the nine months ended September 30, 2023 and October 1, 2022, right-of-use assets obtained in exchange for lease obligations were $i95,275
and $i67,588, respectively.
See accompanying notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except per share data)
(unaudited)
(1) iBasis 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 December 31, 2022. The year-end condensed consolidated balance sheet data was derived from audited consolidated 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 or any future period.
Key Business Strategies
In June of 2022, the Company purchased the Champion trademark for footwear in the United States, Puerto Rico and Canada from Keds, LLC (“KEDS”) for $i102,500. The trademark was recorded in “Trademarks and other identifiable intangibles, net” line in the Condensed Consolidated
Balance Sheets and has an indefinite life. The Company previously licensed the Champion trademark for footwear in these locations. The purchase of the trademark was part of an agreement with KEDS settling litigation between the two parties.
Ransomware Attack
As previously disclosed, on May 24, 2022, the Company identified that it had become subject to a ransomware attack and activated its incident response and business continuity plans designed to contain the incident. As part of the Company’s forensic investigation and assessment
of the impact, the Company determined that certain of its information technology systems were affected by the ransomware attack.
Upon discovering the incident, the Company took a series of measures to further safeguard the integrity of its information technology systems, including working with cybersecurity experts to contain the incident and implementing business continuity plans to restore and support continued operations. These measures also included resecuring data, remediation of the malware across infected machines, rebuilding critical systems, global password reset and enhanced security monitoring. The Company notified appropriate law enforcement authorities as
well as certain data protection regulators. In addition to the Company’s public announcements of the incident, the Company provided breach notifications and regulatory filings as required by applicable law starting in August 2022, and that notification process is complete. The Company believes the incident has been contained, the Company has restored its critical information technology systems, and manufacturing, retail and other internal operations continue. There is no ongoing operational impact on the Company’s ability to provide its products
and services. The Company maintains insurance, including coverage for cyber-attacks, subject to certain deductibles and policy limitations, in an amount that the Company believes appropriate.
The Company is named in a putative class action in connection with its previously disclosed ransomware incident, entitled Toussaint et al. v. HanesBrands,[sic] Inc. This lawsuit is pending in the United States District Court for the Middle District of North Carolina, and follows the consolidation of two previously pending lawsuits, entitled Roman v. Hanes Brands,[sic]
Inc., and Toussaint v. HanesBrands,[sic] Inc. The lawsuit alleges, among other things, negligence, negligence per se, breach of implied contract, invasion of privacy, unjust enrichment, breach of implied covenant of good faith and fair dealing and unfair business practices under the California Business and Professions Code. The pending lawsuit seeks, among other things, monetary and injunctive relief. The Company is vigorously defending the pending matter and believes the case is without merit. The Company does not expect any of these claims, individually or in the aggregate, to have a material
adverse effect on its
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
consolidated financial position or results of operations. However, at this early stage in the proceedings, the Company is not able to determine the probability of the outcome of this matter or a range of reasonably expected losses,
if any.
During the quarter ended September 30, 2023, the Company recognized a benefit related to business interruption insurance proceeds of $i17,792, of which $i15,000
was received in the quarter. During the nine months ended September 30, 2023, the Company recognized a benefit related to business interruption insurance proceeds of $i24,062, of which $i20,562
was received during the nine months ended September 30, 2023. The remaining receivable for the expected final payment was recognized in the “Other current assets” line in the Condensed Consolidated Balance Sheets at September 30, 2023 and was received in October 2023. The business interruption insurance proceeds received were primarily related to the recovery of lost profit from business interruptions. The Company recognized a benefit of $i17,792
and $i23,354, respectively, for the business interruption insurance proceeds in the “Cost of sales” line of the Condensed Consolidated Statements of Operations during the quarter and nine months ended September 30, 2023. The Company recognized a benefit of $i708
for the reimbursement of costs related primarily to legal fees in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations during the nine months ended September 30, 2023.
During the quarter and nine months ended October 1, 2022, the Company incurred costs of $ii921/
and $i16,430, net of expected insurance recoveries, respectively, related to the ransomware attack. The costs, net of expected insurance recoveries, incurred during the quarter ended October 1, 2022 primarily related to information technology and legal fees and are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations. The costs incurred during the nine months ended October 1, 2022 included $i14,168
primarily related to supply chain disruptions, which are reflected in the “Cost of sales” line of the Condensed Consolidated Statements of Operations and $i2,262, net of expected insurance recoveries, primarily related to information technology, legal and consulting fees, which are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations.
Although the Company expects to incur minimal costs, primarily
for legal fees, related to the ransomware attack, the Company cannot determine, at this time, the full extent of any proceedings or additional costs or expenses related to the security event or whether such impact will ultimately have a material adverse effect.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are evaluated for impairment at least annually as of the first day of the third quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or intangible asset below its carrying value. In connection with the annual impairment analysis, the Company performs a quantitative assessment
utilizing an income approach to estimate the fair values of its reporting units and certain indefinite-lived intangible assets. The most significant assumptions used to estimate the fair values of the reporting units and certain indefinite-lived intangible assets include the weighted average cost of capital, revenue growth rate, terminal growth rate and operating profit margin.
During the quarter ended September 30, 2023, the Company completed its annual quantitative impairment analysis for each reporting unit and the respective goodwill balances. While the analysis indicated that all reporting units had fair values that exceeded their carrying values, the Company noted meaningful declines in the fair value
cushion above the carrying value for three reporting units. The decline in the U.S. Activewear reporting unit fair value cushion was driven by the continued challenging activewear market dynamics and the impact of continued strategic actions geared toward improving Champion’s brand position, regaining momentum and positioning the business for long-term profitable growth through a more disciplined product and channel segmentation approach, a shift in mix and assortment changes, which continue to weigh on the reporting unit’s financial results and resulted in a fair value that exceeded the carrying value by less than 10% at the time the analysis was performed. The decline in the fair value cushions of the Champion Europe and Australia reporting units was primarily driven by continued macroeconomic pressures impacting consumer spending which resulted in fair value cushions that exceeded their carrying values by less than 15%
at the time the analysis was performed. As a result, the goodwill associated with these three reporting units was considered to be at a higher risk for future impairment if economic conditions worsen or reporting unit earnings and operating cash flows do not recover as currently estimated by management. As of September 30, 2023, the combined goodwill associated with these three reporting units was approximately $i677,650.
The Company also completed its annual quantitative impairment
analysis for certain indefinite-lived intangible assets during the quarter ended September 30, 2023. The analysis indicated that the indefinite-lived intangible assets had fair values that exceeded their carrying values by more than 20% at the time the analysis was performed.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Although the
Company determined that no impairment existed for the Company's goodwill or indefinite-lived intangible assets as of September 30, 2023, these assets could be at risk for future impairment due to changes in the Company’s business or global economic conditions.
(2) iRecent
Accounting Pronouncements
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, “Reference Rate Reform: Scope.” The new accounting rules provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. In December 2022, the FASB deferred the expiration date of Topic 848 with the issuance of ASU 2022-06, “Reference Rate Reform: Deferral of the Sunset Date of Topic 848.”
The new accounting rules extend the relief in Topic 848 beyond the cessation date of USD London Interbank Offered Rate (“LIBOR”). The new accounting rules must be adopted by the fourth quarter of 2024. 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 and does not currently intend to early adopt the new rules.
Business Combinations
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers.” The new accounting rules require entities to apply “Revenue from Contracts with Customers (Topic 606)” to recognize and measure contract assets and contract liabilities in a business combination. The new accounting rules were effective for the Company in the first quarter of 2023. The adoption of the new accounting rules did not have any impact on the Company’s financial condition,
results of operations, cash flows or disclosures.
Derivatives and Hedging
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method.” The new accounting rules allow entities to expand the use of the portfolio layer method to all financial assets and designate multiple hedged layers within a single closed portfolio. The new accounting rules also clarify guidance related to hedge basis adjustments and the related disclosures for these adjustments. The new accounting rules were effective for the Company in the first quarter of 2023. As the Company does not currently have any fair value hedging programs that leverage the portfolio layer method,
the adoption of the new accounting rules did not have any impact on the Company’s financial condition, results of operations, cash flows or disclosures.
Supplier Finance Program Obligations
In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The new accounting rules create certain disclosure requirements for a buyer in a supplier finance program. The new accounting rules require qualitative and quantitative disclosures including key terms of the program, balance sheet presentation of related amounts, and the obligation amount the buyer has confirmed as valid to the finance provider, including a rollforward of the obligation. Only the amount of the obligation outstanding is required
to be disclosed in interim periods. The accounting rules do not impact the recognition, measurement, or financial statement presentation of supplier finance program obligations. The new accounting rules were effective for the Company in the first quarter of 2023. While the new accounting rules did not have an impact on the Company’s financial condition, results of operations or cash flows, adoption of the new accounting rules did result in additional disclosures beginning in the first quarter of 2023 which are included below.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The Company reviews supplier terms and conditions on an ongoing basis and has negotiated payment term extensions in recent years in connection with its efforts to effectively manage working capital and improve cash flow. Separate from these payment term extension actions noted above, the Company and certain financial institutions facilitate voluntary supplier finance programs that enable participating suppliers the ability to request payment of their invoices from the financial institutions earlier
than the terms stated in Company’s payment policy. The Company is not a party to the arrangements between the suppliers and the financial institutions and its obligations to suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ participation in the supplier finance programs. The Company’s payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. The Company has no economic interest in a supplier’s decision to participate in the supplier finance programs and has no financial impact in connection with the supplier finance programs. Accordingly, obligations under these programs continue to be trade
payables and are not indicative of borrowing arrangements. As of September 30, 2023, the amounts due to suppliers participating in supplier finance programs totaled $i191,889 and are included in the “Accounts Payable” line of the Condensed Consolidated Balance Sheets.
Leases
In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” The new accounting rules require that leasehold improvements associated with common control leases be amortized
by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. These leases should also be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The new accounting rules will be effective for the Company in the first quarter of 2024, including interim periods. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations,
cash flows and disclosures.
(3) iAssets and Liabilities Held for Sale
i
Total
current assets and current liabilities classified as held for sale in the Condensed Consolidated Balance Sheets consist of the following:
Total
current assets held for sale - U.S. Sheer Hosiery business
$
i—
$
i13,327
$
i14,906
Total
current liabilities held for sale - U.S. Sheer Hosiery business
$
i—
$
i13,327
$
i14,906
/
U.S.
Sheer Hosiery Business - Continuing Operations
In the fourth quarter of 2021, the Company reached the decision to divest its U.S. Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential transformation plan and determined that this business met held-for-sale accounting criteria. The Company recorded a non-cash charge in the fourth quarter of 2021 to record a valuation allowance against the net assets held for sale to write down the carrying value of the disposal group to the estimated fair value less costs of disposal. In the quarter and nine months ended October 1, 2022, the
Company recognized a non-cash loss of $i4,310 and a non-cash gain of $i6,558, respectively,
which were reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, to adjust the valuation allowance resulting primarily from changes in carrying value due to changes in working capital. The operations of the U.S. Sheer Hosiery business were reported in “Other” for all periods presented in Note “Business Segment Information”. The related assets and liabilities were presented as held for sale in the Condensed Consolidated Balance Sheets at December 31, 2022 and October 1, 2022.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The Company completed the sale of its U.S. Sheer Hosiery business to AllStar Hosiery LLC (“AllStar”), an affiliate of AllStar Marketing Group, LLC, on September 29, 2023 for $i3,300
in total proceeds. Proceeds from the sale included cash of $i1,300, which was reported in “Net cash from investing activities” in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and a receivable of $i2,000,
which will be paid by AllStar in two equal installments in six months and nine months after the date of sale and was reflected in the “Other current assets” line in the Condensed Consolidated Balance Sheets at September 30, 2023. In the quarter and nine months ended September 30, 2023, the Company recognized a gain of $i1,558 and a
loss, net of proceeds, of $i3,641, respectively, which were reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations.
European Innerwear Business - Discontinued Operations
In the first quarter of 2021, the Company announced that it reached the decision to exit its European Innerwear business as
part of its strategy to streamline its portfolio under its Full Potential transformation plan and determined that this business met held-for-sale and discontinued operations accounting criteria. Accordingly, the Company began to separately report the results of its European Innerwear business as discontinued operations in its Condensed Consolidated Statements of Operations, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. On November 4, 2021, the Company announced that it had reached an agreement to sell its European Innerwear business to an affiliate of Regent, L.P. and completed the sale on March 5, 2022. Under the agreement, the purchaser
received all the assets and operating liabilities of the European Innerwear business. The operations of the European Innerwear business were previously reported primarily in the International segment.
Upon meeting the criteria for held-for-sale classification in the first quarter of 2021 which qualified as a triggering event, the Company performed a full impairment analysis of the disposal group's indefinite-lived intangible assets and goodwill which resulted in a non-cash charge to impair certain indefinite-lived trademarks and license agreements as well as the full goodwill balance attributable to the European Innerwear business. Additionally, the Company recorded 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, resulting in a non-cash charge in the first quarter of 2021. In the nine months ended October 1, 2022, the Company recorded the final loss on the sale of the European Innerwear business of $i373 as "Loss on sale of business and classification of assets held for sale" in the summarized discontinued operations financial information below primarily resulting from changes
in working capital balances and foreign exchange rates.
The Company continued certain sales from its supply chain to the European Innerwear business on a transitional basis after the sale of the business. The Company is contracted to provide services under the terms of the Manufacturing and Supply Agreement that was signed as part of closing the transaction through January 2024. Additionally, the Company entered into a Transitional Services Agreement pursuant to which the Company provided transitional services including information technology, human resources, facilities management,
and limited finance and accounting services which expired in March of 2023. The sales and the related profit are included in continuing operations in the Condensed Consolidated Statements of Operations and in “Other” in Note “Business Segment Information” in all periods presented and have not been eliminated as intercompany transactions in consolidation for the period when the European Innerwear business was owned by the Company. The related receivables from the European Innerwear business are included in “Trade accounts receivable, net” in the Condensed Consolidated Balance Sheets for all periods presented.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
i
The operating results of the discontinued operations only reflect revenues and expenses that are directly attributable to the European Innerwear business. Discontinued operations does not include any allocation of corporate overhead expense or interest expense. The
key components from discontinued operations related to the European Innerwear business are as follows:
Loss
on sale of business and classification of assets held for sale
i—
i—
i—
i373
Operating
loss
i—
i—
i—
(i14,163)
Other
expenses
i—
i—
i—
i283
Interest
expense, net
i—
i—
i—
i10
Loss
from discontinued operations before income tax benefit
i—
i—
i—
(i14,456)
Income
tax benefit
i—
i—
i—
(i18,421)
Net
income from discontinued operations, net of tax
$
i—
$
i—
$
i—
$
i3,965
/
There
were no assets and liabilities of discontinued operations classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023, December 31, 2022 and October 1, 2022.
i
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:
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. Third-party brick-and-mortar wholesale revenue also includes royalty revenue from licensing agreements. The Company earns royalties through license agreements with manufacturers of other consumer products that incorporate certain of the Company’s brands. The Company accrues revenue earned under these contracts
based upon reported sales from the licensees.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
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) iStockholders’ 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.
i
The
reconciliation of basic to diluted weighted average shares outstanding is as follows:
In
the quarter and nine months ended September 30, 2023, all potentially dilutive securities were excluded from the diluted earnings per share calculation because the Company incurred a net loss for the quarter and nine months and their inclusion would be anti-dilutive.
On February 2, 2022, the Company’s Board of Directors approved a new share repurchase program for up to $i600,000
of shares to be repurchased in open market transactions or privately negotiated transactions, subject to market conditions, legal requirements and other factors. Additionally, management has been granted authority to establish a trading plan under Rule 10b5-1 of the Exchange Act in connection with share repurchases, which allows the Company to repurchase shares in the open market during periods in which the stock trading window is otherwise closed for the Company, the Company’s directors and certain of the Company’s officers and employees pursuant to the
Company’s insider trading policy. The new program replaced the Company’s previous share repurchase program for up to i40,000 shares that was originally approved on February 6, 2020. For the quarter and nine months ended September 30, 2023, the Company did
not enter into any transactions to repurchase shares under the new program. For the quarter ended October 1, 2022, the Company did not enter into any transactions to repurchase shares under the new program. For the nine months ended October 1, 2022, the Company entered into transactions to repurchase i1,577 shares at a weighted
average repurchase price of $i15.84 per share under the new program. The shares were repurchased at a total cost of $i25,018 including broker’s commissions of $i31.
The Company did not repurchase any shares under the previous share repurchase program during 2022 through the expiration of the program on February 2, 2022. At September 30, 2023, the remaining repurchase authorization under the current share repurchase program totaled $i575,013.
Less
long-term debt issuance costs and debt discount
i36,744
i13,198
Less
current maturities
i259,500
i247,000
$
i3,310,256
$
i3,612,077
/
Debt
Refinancing and Amendments
In February and March of 2023, the Company refinanced its debt structure to provide greater near-term financial flexibility given the uncertainty within the current macroeconomic environment. The refinancing consisted of entering into a new senior secured term loan B facility in an aggregate principal amount of $i900,000 due in 2030 (the “Term Loan B”), issuing $i600,000
aggregate principal amount of 9.000% senior unsecured notes due in 2031 (the “9.000% Senior Notes”) and redeeming the Company’s 4.625% senior notes due in May 2024 (the “4.625% Senior Notes”) and 3.5% senior notes due in June 2024 (the “3.5% Senior Notes”).
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
In
February and March of 2023, the Company used the net proceeds from borrowings under the Term Loan B together with the net proceeds from the offering of the 9.000% Senior Notes to redeem all of its outstanding 4.625% Senior Notes and 3.5% Senior Notes and pay the related fees and expenses which resulted in total charges of $i8,466. The charges, which are recorded in the “Other expenses” line in the Condensed Consolidated Statements of Operations, included a payment of $i4,632
for a required make-whole premium related to the redemption of the 3.5% Senior Notes, a non-cash charge of $i1,654 for the write-off of unamortized debt issuance costs related to the redemption of the 3.5% Senior Notes and a non-cash charge of $i2,180
for the write-off of unamortized debt issuance costs related to the redemption of the 4.625% Senior Notes. The refinancing activities resulted in a debt discount of $i9,000 related to the Term Loan B and total capitalized debt issuance costs of $i22,965
which included $i11,909 related to the Term Loan B and $i11,056 related to the 9.000% Senior Notes. The debt discount and debt issuance costs are amortized into interest expense over the respective terms of the debt instruments. The cash payments for the make-whole premium
and fees capitalized as debt issuance costs are reported in “Net cash from financing activities” in the Condensed Consolidated Statements of Cash Flows.
Term Loan B
In March 2023, the Company entered into the Term Loan B in an aggregate principal amount of $i900,000 as an incremental term loan facility under the credit agreement that governs the Company’s
existing Senior Secured Credit Facility. The issuance of the Term Loan B resulted in proceeds, net of the debt discount of $i9,000 and debt issuance costs of $i11,909, of approximately $i879,091.
The Term Loan B bears interest based on the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 3.75%, subject to a floor of 0.50%. The Term Loan B Facility is guaranteed by each domestic subsidiary of the Company which guarantees the other facilities under the Senior Secured Credit Facility (the “U.S. Subsidiary Guarantors”) and is secured by substantially all of the assets of the Company and the U.S. Subsidiary Guarantors, on a pari passu basis with the other facilities under the Senior Secured Credit Facility. Outstanding borrowings under the Term Loan B are repayable in 0.25% quarterly installments, with the remainder of the outstanding principal to be repaid at maturity. If the Term Loan B is repriced or refinanced
on or prior to the six month anniversary of its funding and as a result of such repricing or refinancing the effective interest rate of the Term Loan B decreases, the Company shall be required to pay a prepayment fee equal to 1.0% of the aggregate principal amount of the Term Loan B subject to such repricing or refinancing. Additionally, the Company is required to prepay any outstanding amounts in connection with (i) the incurrence of certain indebtedness and (ii) non-ordinary course asset sales or other dispositions (including as a result of casualty or condemnation) that exceed certain thresholds in any period of twelve-consecutive months, with customary reinvestment provisions. The Term Loan B also requires the
Company, as applicable, to prepay any outstanding term loans under the Term Loan B in connection with excess cash flow, which percentage will be based upon the Company’s leverage ratio during the relevant fiscal period. All such prepayments will be made on a pro rata basis under each of the applicable term loans that are subject to such prepayments. The Term Loan B matures on March 8, 2030.
9.000% Senior Notes
In February 2023, the Company issued $i600,000
aggregate principal amount of 9.000% Senior Notes, with interest payable on February 15 and August 15 of each year. The issuance of the 9.000% Senior Notes resulted in proceeds, net of debt issuance costs of $i11,056, of approximately $i588,944.
The 9.000% Senior Notes mature on February 15, 2031.
Prior to February 15, 2026, the Company has the right to redeem all or of a portion of the 9.000% Senior Notes at a redemption price equal to 100% of the principal amount plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, prior to February 15, 2026, the Company may on any one or more occasions redeem up to 40% of the notes with the net proceeds from certain equity offerings at a redemption price equal to 109.000% of the principal amount thereof, plus accrued and unpaid interest,
if any, to, but excluding, the redemption date. On and after February 15, 2026, the Company has the right to redeem all or a portion of the 9.000% Senior Notes, at the redemption prices set forth in the indenture governing the 9.000% Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In the event of a change of control of the Company and a rating downgrade, the Company will be required to offer to repurchase all outstanding 9.000% Senior Notes at a purchase price in cash equal to 101% of the principal amount, plus accrued and unpaid
interest, if any, to, but excluding, the repurchase date.
The 9.000% Senior Notes are senior unsecured obligations of the Company and are guaranteed by the Company and certain of its domestic subsidiaries that guarantee its credit facilities and certain other material indebtedness. The indenture contains customary covenants and events of default. The 9.000% Senior Notes were issued in a transaction exempt from
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
registration under the Securities Act of 1933 and do not require disclosure of separate financial information for the guarantor subsidiaries.
Senior Secured Credit Facility Amendments
In November 2022 and in February 2023, given the economic conditions and the associated potential impact on future earnings, the Company amended the
credit agreement governing its Senior Secured Credit Facility to modify the financial covenants in order to avoid a potential covenant violation and to provide operating flexibility. The November 2022 and February 2023 amendments effected changes to certain provisions and covenants under the Senior Secured Credit Facility during the period beginning with the fiscal quarter ending December 31, 2022 and continuing through the fiscal quarter ending March 30, 2024 or such earlier date as the Company may elect (such period of time, the “Covenant Relief Period”), including: (a) an increase in the maximum consolidated net total leverage ratio to i5.25
to 1.00 for the quarter ending December 31, 2022, i6.75 to 1.00 for the quarter ending April 1, 2023, i7.25 to 1.00 for the quarter ending July 1, 2023, i6.75
to 1.00 for the quarter ending September 30, 2023, i5.25 to 1.00 for the quarter ending December 30, 2023, and i5.00 to 1.00 for the quarter ending March 30, 2024, and reverting back to iii4.50//
to 1.00 for each quarter after the Covenant Relief Period has ended; (b) a reduction of the minimum interest coverage ratio from i3.00 to 1.00 to ii2.60/
to 1.00 for the quarter ending December 31, 2022 and the quarter ending April 1, 2023, iii2.00//
to 1.00 for the quarters ending July 1, 2023, September 30, 2023 and December 30, 2023, and i2.50 to 1.00 for the quarter ending March 30, 2024, with an increase to iii2.75//
to 1.00 for each quarter after the Covenant Relief Period has ended; (c) suspension of restricted payments in connection with share repurchases; (d) suspension of restricted payments pursuant to the Company's leverage ratio-based and "Available Amount" restricted payments baskets; (e) a cap on annual dividend payments of $iii75,000//,
which will revert back to the greater of (x) $iii350,000//
and (y) 8.0% of Total Tangible Assets after the Covenant Relief Period has ended; (f) suspension of the Company’s “Available Amount” basket for investments in foreign subsidiaries and other investments; (g) suspension of the 0.50 to 1.00 increase in the maximum permitted consolidated net total leverage ratio resulting from a material permitted acquisition; and (h) the addition of two new tiers to the top of the pricing grid if the maximum consolidated net total leverage ratio exceeds 5.00 to 1.00 and 5.50 to 1.00. In conjunction with the November 2022 Amendment, the Company transitioned the Senior Secured Credit Facility from LIBOR to SOFR with a 10 basis points credit spread adjustment already included
in the Senior Secured Credit Facility. In addition, the February 2023 Amendment limited the Company's ability to incur incremental secured indebtedness during the Covenant Relief Period to $iii1,750,000//,
subject to compliance with the financial covenants.
Additionally, in November 2023, given the continuing uncertain economic environment and the associated potential impact on future earnings, the Company further amended the credit agreement governing its Senior Secured Credit Facility prior to any potential future covenant violation in order to modify the financial covenants and to provide greater strategic financial flexibility. The November 2023 amendment effects additional changes to certain provisions and covenants under the Senior Secured Credit Facility, including changes to certain covenants and provisions that were previously amended in November 2022 and February 2023, during the period beginning with the fiscal quarter ending December 30, 2023 and continuing through the fiscal quarter
ending September 27, 2025, or such earlier date as the Company may elect (such period of time, the “Extended Covenant Relief Period”), including: (a) an extension of the original Covenant Relief Period from March 30, 2024 to September 27, 2025; (b) an increase in the maximum leverage ratio to ii6.75/
to 1.00 for the quarters ending December 30, 2023 and March 30, 2024, ii6.63/ to 1.00 for the quarters ending June
29, 2024 and September 28, 2024, i6.38 to 1.00 for the quarter ending December 28, 2024, i5.63 to 1.00 for the quarter ending March 29, 2025, i5.25
to 1.00 for the quarter ending June 28, 2025, and i5.00 to 1.00 for the quarter ending September 27, 2025, reverting back to i4.50 to 1.00 for each quarter after the Extended Covenant Relief Period has ended; and (c) a reduction of the minimum interest coverage ratio to
iiii1.63///
to 1.00 for the quarters ending December 30, 2023 through September 28, 2024, i1.75 to 1.00 for the quarter ending December 28, 2024, i2.00 to 1.00 for the quarter ending March
29, 2025, i2.25 to 1.00 for the quarter ending June 28, 2025, and ii2.50/
to 1.00 for the quarter ending September 27, 2025 and each quarter after the Extended Covenant Relief Period has ended. The November 2023 amendment also includes the following additional baskets and restrictions: (a) an additional basket for permitted asset sales of $iiiiiiii60,000///////;
(b) suspends the Company’s reinvestment rights with respect to net proceeds in respect of certain asset sales (including the additional asset sale basket described in (a) above) and casualty and condemnation events (requiring the Company to prepay the credit agreement term loan obligations with such net proceeds, subject to step-downs for such prepayment requirement based on the leverage ratio); (c) reduces the cap on the Company’s general lien basket from $i165,000
to $iiiiiiii85,000///////
during the Extended Covenant Relief Period; (d) reduces the maximum amount for incremental facilities secured by a lien to $iiiiiiii100,000///////
during the Extended Covenant Relief Period; and (e) suspends the payment of annual dividends during the Extended Covenant Relief Period, which will revert back to the greater of (x) $i350,000 and (y) 8.0% of Total
Notes to Condensed Consolidated Financial
Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Tangible Assets after the Extended Covenant Relief Period has ended. In addition, the November 2023 amendment increases the applicable interest rate margins and commitment fee rates based on the leverage ratio during the Extended Covenant Relief Period.
Other Debt Related Activity
As of September 30, 2023, the Company had $i935,913
of borrowing availability under the $i1,000,000 Revolving Loan Facility after taking into account $i60,500 of USD revolver loans and $i3,587
of standby and trade letters of credit issued and outstanding under this facility.
The Company’s accounts receivable securitization facility (the “ARS Facility”) entered into in November 2007 was amended in June 2023. The amendment extended the maturity date to May 2024 with no change to the quarterly fluctuating facility limit. Additionally, the amendment created two pricing tiers based on a consolidated net total leverage ratio of 4.50 to 1.00. Borrowing availability under the ARS Facility is subject to a quarterly fluctuating facility limit ranging from $i200,000
in the first and second quarters to $i225,000 in the third and fourth quarters and permitted only to the extent that the face of the receivables in the collateral pool, net of applicable concentrations, reserves and other deductions, exceeds the outstanding loans. As of September 30, 2023, the quarterly fluctuating facility limit was $i225,000,
the maximum borrowing capacity was $i200,891 and the Company had $i391 of borrowing availability under the ARS Facility.
The
Company had $i35,994 of borrowing availability under other international credit facilities after taking into account outstanding borrowings and letters of credit outstanding under the applicable facilities at September 30, 2023.
As of September 30, 2023, 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, each of which is defined in the Senior Secured Credit Facility. The method of calculating all the components used in the covenants is included in the Senior Secured Credit Facility.
(8) iIncome
Taxes
In the quarter ended September 30, 2023, income tax expense was $i23,041 resulting in an effective income tax rate of (i146.2)% and in the quarter
ended October 1, 2022, income tax expense was $i16,410 resulting in an effective income tax rate of i17.0%. In the nine months ended September 30, 2023, income tax expense
was $i51,541 resulting in an effective income tax rate of (i116.8)% and in the nine months ended October 1, 2022, income tax expense was $i58,775
resulting in an effective income tax rate of i17.0%. The Company's effective tax rate for the quarter and nine months ended September 30, 2023 primarily differs from the U.S. statutory rate due to valuation allowances against certain net deferred tax assets. Additionally, the Company had favorable discrete items of $i3,355
and unfavorable discrete items of $i3,860 for the quarter and nine months ended September 30, 2023, respectively, and unfavorable discrete items of $i3,174 and $i9,217
for the quarter and nine months ended October 1, 2022, respectively.
The Organization for Economic Co-operation and Development (the “OECD”), an international association of 38 countries including the U.S., has proposed changes to numerous long-standing tax principles, including a global minimum tax initiative. On December 12, 2022, the European Union member states agreed to implement the OECD’s Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least $790,000, which would go into effect in 2024. Currently, South Korea, Japan, Mauritius and the United Kingdom are the only countries to enact legislation consistent with the rules, while other countries including Switzerland, Canada and Australia are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals.
The Company will continue to monitor the developing laws.
In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IR Act”), which, among other things, introduces a 15% minimum tax based on adjusted financial statement income of certain large corporations with a three year average adjusted financial statement income in excess of $1,000,000, a 1% excise tax on the fair market stock repurchases by covered corporations and several tax incentives to promote clean energy. The Company is continuing to evaluate the IR Act and its potential impact on future periods, and at this time the Company does not expect the IR Act to have a material impact on its consolidated
financial statements.
(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.
(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.
Write-off of cumulative translation associated
with sale of business
Income from discontinued operations, net of tax
$
i—
$
i—
$
i—
$
i13,473
Gain
(loss) on forward foreign exchange contracts designated as cash flow hedges
Cost of sales
(i79)
i2,516
i3,129
i6,790
Income
tax
(i137)
(i730)
(i1,304)
(i2,008)
Income
from discontinued operations, net of tax
i—
i—
i—
(i232)
Net
of tax
(i216)
i1,786
i1,825
i4,550
Gain
on interest rate contracts designated as cash flow hedges
Interest expense, net
i1,897
i—
i3,204
i—
Income
tax
i—
i—
i—
i—
Net
of tax
i1,897
i—
i3,204
i—
Gain
(loss) on cross-currency swap contracts designated as cash flow hedges
Selling, general and administrative expenses
i—
(i18,764)
i973
(i47,118)
Interest
expense, net
i—
(i1,669)
i581
(i4,710)
Income
tax
i—
i3,474
i—
i8,811
Net
of tax
i—
(i16,959)
i1,554
(i43,017)
Amortization
of deferred actuarial loss and prior service cost
Other expenses
(i4,077)
(i5,202)
(i12,231)
(i15,608)
Income
tax
i1
i1,365
(i118)
i4,102
Pension
activity associated with sale of business
Income from discontinued operations, net of tax
i—
i—
i—
(i460)
Net
of tax
(i4,076)
(i3,837)
(i12,349)
(i11,966)
Total
reclassifications
$
(i2,395)
$
(i19,010)
$
(i5,766)
$
(i36,960)
/
(10) iFinancial
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 and interest rate contracts to manage its exposures to movements in interest rates. 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 its European subsidiaries.
The fair values of derivative instruments related to forward foreign exchange contracts, cross-currency swap contracts and interest rate contracts recognized in the Condensed Consolidated Balance Sheets of the
Company were as follows:
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 i3.5% Senior Notes designated in the European net investment hedge discussed below, the Company entered into ithree
pay-fixed rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €i300,000. 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
i3.5% Senior Notes. These cross-currency swap contracts swapped Euro-denominated interest payments for U.S. dollar-denominated interest payments, thereby economically converting €i300,000
of the Company’s €i500,000 fixed-rate i3.5% Senior Notes to a fixed-rate i4.7945%
USD-denominated obligation. In February 2023, in connection with the redemption of the i3.5% Senior Notes, the Company unwound these cross-currency swap contracts, which had an original maturity date of June 15, 2024. The Company paid $i30,935
to settle the cross-currency swap contracts, which was reported in “Net cash from operating activities” in the Condensed Consolidated Statements of Cash Flows. The remaining gain in AOCI of $i1,254 was released into earnings at the time of settlement and is
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
recorded in the “Interest expense, net” line in the Condensed Consolidated Statements of Operations. The Company had ino cross-currency swap contracts
designated as cash flow hedges as of September 30, 2023.
In March 2023, the Company entered into an interest rate contract with a total notional amount of $i900,000, which amortizes down to $i600,000
on March 31, 2025. The Company designated this interest rate contract, which matures on March 31, 2026, to hedge the variability in contractually specified interest rates above 50 basis points associated with future interest payments on a portion of the Company’s variable-rate term loans to lock in certainty of future cash flows.
The Company
expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $i15,583. The Company is hedging exposure to the variability in future foreign currency-denominated cash flows for forecasted transactions over the next i16
months and the variability in future interest payments on debt over the next i30 months.
i
The effect of derivative instruments designated as cash flow hedges on the Condensed Consolidated
Statements of Operations and AOCI is as follows:
Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments
(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.
The following table presents the amounts in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded:
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
Net Investment Hedges
In July 2019, the Company entered into itwo pay-fixed
rate, receive-fixed rate cross-currency swap contracts with a total notional amount of €i300,000 that were designated as hedges of a portion of the beginning balance of the Company’s net investment in its European subsidiaries. These cross-currency swap contracts,
which had an original maturity date of May 15, 2024, swapped U.S. dollar-denominated interest payments for Euro-denominated interest payments, thereby economically converting a portion of the Company’s fixed-rate i4.625% Senior Notes to a fixed-rate i2.3215%
Euro-denominated obligation.
In July 2019, the Company also designated the full amount of its i3.5% Senior Notes with a carrying value of €i500,000,
which was 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 i3.5% Senior Notes designated in the European net investment hedge from €i500,000
to €i200,000. As of December 31, 2022, the U.S. dollar equivalent carrying value of Euro-denominated long-term debt designated as a partial European net investment hedge was $i214,110.
In February 2023, in connection with the redemption of the i3.5% Senior Notes, the Company de-designated the remainder of the i3.5% Senior Notes in the European net investment
hedge and unwound these cross-currency swap contracts. The Company received $i18,942 to settle the cross-currency swap contracts, which was reported in “Net cash from investing activities” in the Condensed Consolidated Statements of Cash Flows. There was a cumulative gain of $i5,525
from the designated portion of the i3.5% Senior Notes and a cumulative gain of $i19,001 from the cross-currency swap contracts
that will remain in cumulative translation adjustment, a component of AOCI, until the net investment in the Company’s EUR-functional subsidiaries is sold, liquidated, or substantially liquidated. The Company had ino derivative or nonderivative financial instruments designated as net investment hedges as of September 30,
2023.
i
The amount of after-tax gains (losses) included in AOCI in the Condensed Consolidated Balance Sheets related to derivative instruments and nonderivative financial instruments designated as net investment hedges are as follows:
The
effect of derivative and non-derivative instruments designated as net investment hedges on the Condensed Consolidated Statements of Operations are as follows:
Location of Gain (Loss) Reclassified from AOCI into Income
Amount
of Gain (Loss) Reclassified from AOCI into Income
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
The following table presents the amounts in the Condensed Consolidated Statements of Operations in which the effects of net investment hedges are recorded:
Interest
expense, net (amounts excluded from effectiveness testing)
$
i72,609
$
i41,721
$
i205,666
$
i107,408
Mark
to Market Hedges
Derivatives used in mark to market hedges are not designated as hedges under the accounting standards. The Company uses forward foreign exchange derivative contracts as hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. Forward foreign exchange derivative contracts are recorded as mark to market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period. 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.
i
The effect of derivative instruments not designated as hedges on the Condensed Consolidated Statements of Operations is as follows:
Location
of Gain (Loss) Recognized in Income on Derivatives
As of September 30, 2023 and December 31, 2022, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments 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 and interest rate derivative contracts are determined using the cash flows of the 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 plan liabilities is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required
to be measured at fair value or disclosed on a quarterly recurring basis.
There were no changes during the quarter and nine months ended September 30, 2023 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of and during the quarter and nine months ended September 30, 2023, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring basis or non-recurring basis.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
i
The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities accounted
for at fair value on a recurring basis.
The carrying amounts of cash and cash equivalents, trade accounts receivable and accounts payable approximated fair value as of September 30, 2023 and December 31, 2022. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $i51,089 and $i52,023
as of September 30, 2023 and December 31, 2022, respectively. The fair value of debt, which is classified as a Level 2 liability, was $i3,488,327 and $i3,697,856 as of September 30,
2023 and December 31, 2022, respectively. Debt had a carrying value of $i3,606,500 and $i3,872,275 as of September 30, 2023 and December 31,
2022, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions.
(12) iBusiness Segment Information
The Company’s operations are managed and reported
in ithree operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of the Company’s U.S.-based outlet stores, U.S. Sheer Hosiery business and certain sales from
its supply chain and transitional services with the European Innerwear business which was sold on March 5, 2022. In the fourth quarter of 2021, the Company reached the decision to divest its U.S. Sheer Hosiery business, including the L’eggs brand, as part of its strategy to streamline its portfolio under its Full Potential transformation plan and completed the sale to AllStar on September 29, 2023. See Note “Assets and Liabilities Held for Sale” for additional information regarding the U.S. Sheer Hosiery business and the sale of the European Innerwear business.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
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 branded activewear and outerwear products
that are primarily seasonal in nature to both retailers and wholesalers, as well as licensed sports apparel and licensed logo apparel.
•International primarily includes sales of the Company’s innerwear and activewear products outside the United States, primarily in Australia, Europe, Asia, Latin America and Canada.
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 December 31, 2022.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
i
The Company incurred restructuring and other action-related charges that were reported in the following lines in the Condensed Consolidated Statements of Operations:
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts in thousands, except per share data)
(unaudited)
In the quarter and nine months ended September 30, 2023, restructuring and other action-related charges within operating profit included $ii73,735/
of charges associated with the Company’s global Champion performance plan. The global Champion performance plan includes actions and related charges regarding the Company’s accelerated and enhanced strategic initiatives to further streamline the operations and position the brand for long term profitable growth and the evaluation of strategic alternatives for the global Champion business. The charges in the quarter and nine months ended September 30, 2023 included $ii59,432/
of inventory write-downs related to the execution of the channel, mix and product segmentation strategy including the exit of discontinued programs, which are reflected in the “Cost of Sales” line in the Condensed Consolidated Statements of Operations. These charges also include $ii14,303/
related to supply chain segmentation, store closures, severance and other costs, of which $ii4,673/
are reflected in the “Cost of Sales” line in the Condensed Consolidated Statements of Operations and $ii9,630/
are reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations.
Restructuring and other action-related charges within operating profit also included $i3,336 and $i26,451
of charges related to the implementation of the Company’s Full Potential transformation plan in the quarters ended September 30, 2023 and October 1, 2022, respectively. Full Potential transformation plan charges in the quarter ended September 30, 2023 included a gain of $i1,558 which is reflected
in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, resulting from the sale of the Company’s U.S. Sheer Hosiery business to AllStar on September 29, 2023. Full Potential transformation plan charges in the quarter ended October 1, 2022 included a non-cash loss of $i4,310, which is reflected
in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. See Note “Assets and Liabilities Held for Sale” for additional information regarding the U.S. Sheer Hosiery business. Full potential transformation plan charges in the quarters ended September 30, 2023 and October 1, 2022 also included charges of $i660
and $i13,298, respectively, which are reflected in the “Cost of Sales” line in the Condensed Consolidated Statements of Operations, related to supply chain segmentation charges to restructure and position the Company’s manufacturing network to align with its Full potential transformation plan demand trends.
Restructuring and other action-related charges within operating profit included $i27,518
and $i37,633 of charges related to the implementation of the Company’s Full Potential transformation plan in the nine months ended September 30, 2023 and October 1, 2022, respectively. Full Potential transformation plan charges in the nine months ended September 30, 2023 included a loss, net of proceeds, of $i3,641,
which is reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, resulting from the sale of the Company’s U.S. Sheer Hosiery business to AllStar on September 29, 2023 and to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. Full Potential transformation plan charges in the nine months ended October 1, 2022 included a non-cash gain of $i6,558,
which is reflected in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations, to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. See Note “Assets and Liabilities Held for Sale” for additional information regarding the U.S. Sheer Hosiery business. Full potential transformation plan charges in the nine months ended September 30, 2023 and October 1, 2022 also included charges of $i5,435
and $i14,587, respectively, which are reflected in the “Cost of Sales” line in the Condensed Consolidated Statements of Operations, related to supply chain segmentation charges to restructure and position the Company’s manufacturing network to align with its Full potential transformation plan demand trends.
The remaining Full Potential transformation plan restructuring and other action-related charges within operating profit include technology charges which relate
to the implementation of the Company’s technology modernization initiative including the implementation of a global enterprise resource planning platform, charges for professional services primarily including consulting and advisory services related to the implementation of the Full Potential transformation plan and charges related to headcount actions and related severance resulting from operating model initiatives.
Notes to Condensed Consolidated Financial Statements — (Continued)
(amounts
in thousands, except per share data)
(unaudited)
In the nine months ended September 30, 2023, the Company recorded a charge of $i8,466 in restructuring and other action-related charges related to the redemption of its 4.625% Senior Notes and 3.5% Senior Notes. The charge, which is recorded in the “Other expenses” line in the Condensed Consolidated
Statements of Operations, included a payment of $i4,632 for a required make-whole premium related to the redemption of the 3.5% Senior Notes and a non-cash charge of $i3,834 for the write-off of unamortized debt issuance costs related to the redemption of the
4.625% Senior Notes and the 3.5% Senior Notes. See Note “Debt” for additional information. Additionally, in the nine months ended September 30, 2023, in connection with the redemption of the 3.5% Senior Notes, the Company unwound the related cross-currency swap contracts previously designated as cash flow hedges and the remaining gain in AOCI of $i1,254 was released
into earnings at the time of settlement which is recorded in the “Interest expense, net” line in the Condensed Consolidated Statements of Operations. See Note “Financial Instruments” for additional information.
Restructuring and other action-related charges in the quarter and nine months ended September 30, 2023 included discrete tax benefits representing an adjustment to non-cash reserves established at December 31, 2022 related to deferred taxes established for Swiss statutory impairments, which are not indicative of the Company’s core operations. In the quarter and nine months ended October 1, 2022, restructuring and other action-related charges included the tax effect on actions,
which represents the applicable effective tax rate on the restructuring and other action-related charges based on the jurisdiction of where the charges were incurred.
At December 31, 2022, the Company had an accrual of $i16,170 for expected benefit payments related to actions taken in prior years. During the nine months ended September 30, 2023, the
Company approved actions to align the Company’s workforce and manufacturing and distribution network with its Full Potential transformation plan initiatives and actions related to the Company’s global Champion performance plan resulting in charges of $i12,669 for employee termination and other benefits for employees affected by the actions. These charges in the nine months ended September 30,
2023 included $i3,632 in the “Cost of sales” line in the Condensed Consolidated Statements of Operations that are reflected in the “Supply chain segmentation” and the “Global Champion performance plan” lines in the restructuring and other action-related charges table above and $i9,037
in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Operations that are reflected in the “Headcount actions and related severance” and the “Global Champion performance plan” lines in the restructuring and other action-related charges table above. During the nine months ended September 30, 2023, the Company made benefit payments and other adjustments of $i13,319,
resulting in an ending accrual of $i15,520 which is included in the “Accrued liabilities” line of the Condensed Consolidated Balance Sheets at September 30, 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This management’s discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report
on Form 10-Q. The unaudited condensed consolidated interim financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended December 31, 2022, which were included in our Annual Report on Form 10-K filed with the SEC. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for the full year or future periods, and our actual results may differ materially from those expressed in or implied by 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 December 31, 2022. In particular, among others, statements
with respect to trends associated with our business, our multi-year growth strategy (“Full Potential transformation plan”), our strategic review process for Champion, our expectations regarding the impacts of the ransomware attack announced May 31, 2022, future intangible assets or goodwill impairment due to changes in our business and our future financial performance 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, Australasia, Europe and Asia under some of the world’s strongest apparel brands, including Hanes, Champion, Bonds, Maidenform, Bali, Bras N Things, Playtex, JMS/Just My Size, Gear for Sports, Wonderbra, Berlei, Comfortwash and Alternative. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, shapewear, underwear, socks and activewear produced in our low-cost global supply chain. Our products are marketed to consumers shopping in mass merchants, mid-tier and department stores, specialty stores and the consumer-directed channel, which includes our owned retail locations, as well as e-commerce sites. Our brands hold either the number one or number two market position by units sold in many of the product categories and geographies in which we compete.
Our
operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management team that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of our U.S.-based outlet stores, U.S. Sheer Hosiery business and certain sales from our supply chain to the European Innerwear business. We completed the sale of our U.S. Sheer Hosiery business to AllStar Hosiery LLC (“AllStar”), an affiliate of AllStar Marketing Group, LLC, on September 29, 2023 and as previously disclosed, we completed the sale of the European Innerwear business on March 5, 2022.
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. Our Full Potential transformation plan focuses on four pillars to drive growth and enhance long-term profitability and identifies the current 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, build e-commerce excellence across
channels and streamline our global portfolio. In order to deliver this growth and create a more efficient and productive business model, we have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve the Full Potential transformation 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.
We announced in September of 2023 that our Board of Directors and executive leadership team, with the assistance of financial and legal advisors, are undertaking an evaluation of strategic alternatives for the global Champion business. As part of this process, the Board of Directors will consider a broad range of alternatives to maximize shareholder value, including,
among others, a potential sale or other strategic transaction, as well as continuing to operate the business as part of the Company. There can be no assurance that our assessment process for the global Champion business will result in the Company pursuing any particular transaction or other strategic outcome regarding Champion. We have not set a timetable for completion of this
process and may
suspend or terminate the review at any time. We do not intend to make any further announcements regarding the evaluation of strategic alternatives for the global Champion business unless and until we determine that further disclosure is appropriate or necessary.
In connection with this process, we continued to make significant structural improvements through a global Champion performance plan that is comprised of an accelerated and enhanced channel, mix and product segmentation strategy geared toward improving Champion’s brand position, regaining momentum and positioning the business for long-term profitable growth and the evaluation of strategic alternatives for the global Champion business.
In
the first quarter of 2021, we announced that we reached the decision to exit our European Innerwear business as part of our strategy to streamline our portfolio under our Full Potential transformation plan and determined that this business met held-for-sale and discontinued operations accounting criteria. Accordingly, we began to separately report the results of our European Innerwear business as discontinued operations in our Condensed Consolidated Statements of Operations, and to present the related assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets. On November 4, 2021, we announced that we reached an agreement to sell our European Innerwear business to an affiliate of Regent, L.P. and completed the sale on March 5, 2022. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements
included in this Quarterly Report on Form 10-Q for additional information.
In addition, in the fourth quarter of 2021, we reached the decision to divest our U.S. Sheer Hosiery business, including the L’eggs brand, as part of our strategy to streamline our portfolio under our Full Potential transformation plan and determined that this business met held-for-sale accounting criteria. We completed the sale of our U.S. Sheer Hosiery business to AllStar on September 29, 2023 for approximately $3 million in total proceeds. The related assets and liabilities were presented as held for sale in the Condensed Consolidated Balance Sheets at December 31, 2022 and October 1, 2022. The operations of our U.S. Sheer Hosiery business were reported
in “Other” for all periods presented in Note “Business Segment Information” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
We seek to generate strong cash flow through effectively optimizing our capital structure and managing working capital levels. We recently shifted our capital allocation strategy to focus the use of all our free cash flow (cash from operations less capital expenditures) on reducing debt and bringing our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization excluding restructuring and other action-related
costs and certain other losses, charges and expenses. Net debt is defined as the total of current debt, long-term debt, and borrowings under the accounts receivable securitization facility (excluding long-term debt issuance costs) less other debt and cash adjustments and cash and cash equivalents.
Ransomware Attack
As previously disclosed, on May 24, 2022, we identified that we had become subject to a ransomware attack and activated our incident response and business continuity plans designed to contain the incident. As part of our forensic investigation and assessment of the impact, we determined that certain of our information technology systems were affected by the ransomware attack.
Upon discovering the incident, we took a series of measures to further safeguard the integrity of our
information technology systems, including working with cybersecurity experts to contain the incident and implementing business continuity plans to restore and support continued operations. These measures also included resecuring data, remediation of the malware across infected machines, rebuilding critical systems, global password reset and enhanced security monitoring. We notified appropriate law enforcement authorities as well as certain data protection regulators. In addition to our public announcements of the incident, we provided breach notifications and regulatory filings as required by applicable law starting in August 2022, and that notification process is complete. We believe the incident has been contained, we have restored our critical information technology systems, and manufacturing, retail and other internal operations continue. There is no ongoing operational impact on our ability to provide our products and services. We maintain insurance, including coverage
for cyber-attacks, subject to certain deductibles and policy limitations, in an amount that we believe appropriate.
We are named in a putative class action in connection with our previously disclosed ransomware incident, entitled Toussaint et al. v. HanesBrands,[sic] Inc. This lawsuit is pending in the United States District Court for the Middle District of North Carolina, and follows the consolidation of two previously pending lawsuits, entitled Roman v. Hanes Brands,[sic] Inc., and Toussaint v. HanesBrands,[sic] Inc. The lawsuit alleges, among other things, negligence, negligence per se, breach of implied contract,
invasion of privacy, unjust enrichment, breach of implied covenant of good faith and fair dealing and unfair business practices under the California Business and Professions Code. The pending lawsuit seeks, among other things, monetary and injunctive relief. We are vigorously defending the pending matter and believe the case is without merit. We do not expect any of these claims, individually or in the aggregate, to have a material adverse effect on our consolidated financial
position or results of operations. However, at this early stage in the proceedings, we are not able to determine the probability of the outcome of this matter or a range of reasonably
expected losses, if any.
During the third quarter of 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $18 million, of which $15 million was received during the quarter. During the nine months of 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $24 million, of which approximately $21 million was received during the nine months of 2023. The remaining receivable for the expected final payment was recognized in the “Other current assets” line in the Condensed Consolidated Balance Sheets at September 30, 2023 and was received in October 2023. The business interruption insurance proceeds received were primarily related to the recovery of lost profit from business interruptions. We recognized a benefit of approximately $18 million and $23 million, respectively, for the business
interruption insurance proceeds in the “Cost of sales” line of the Condensed Consolidated Statements of Operations during the third quarter and nine months of 2023. We recognized a benefit of approximately $1 million for the reimbursement of costs related primarily to legal fees in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations during the nine months of 2023.
During the third quarter and nine months of 2022, we incurred costs of approximately $1 million and $16 million, net of expected insurance recoveries, respectively, related to the ransomware attack. The costs, net of expected insurance recoveries, incurred during the third quarter of 2022 primarily related to information technology and legal fees and are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations. The costs
incurred during the nine months of 2022 included approximately $14 million primarily related to supply chain disruptions, which are reflected in the “Cost of sales” line of the Condensed Consolidated Statements of Operations and approximately $2 million, net of expected insurance recoveries, primarily related to information technology, legal and consulting fees, which are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations.
Although we expect to incur minimal costs, primarily for legal fees, related to the ransomware attack, we cannot determine, at this time, the full extent of any proceedings or additional costs or expenses related to the security event or whether such impact will ultimately have a material adverse effect.
Goodwill and Indefinite-lived Intangible Assets
Goodwill
and indefinite-lived intangible assets are evaluated for impairment at least annually as of the first day of the third quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or intangible asset below its carrying value. In connection with the annual impairment analysis, we perform a quantitative assessment utilizing an income approach to estimate the fair values of our reporting units and certain indefinite-lived intangible assets. The most significant assumptions used to estimate the fair values of the reporting units and certain indefinite-lived intangible assets include the weighted average cost of capital, revenue growth rate, terminal growth rate and operating profit margin.
During the third quarter of 2023, we completed our annual quantitative impairment analysis for each reporting unit and the respective goodwill balances. While
the analysis indicated that all reporting units had fair values that exceeded their carrying values, we noted meaningful declines in the fair value cushion above the carrying value for three reporting units. The decline in the U.S. Activewear reporting unit fair value cushion was driven by the continued challenging activewear market dynamics and the impact of continued strategic actions geared toward improving Champion’s brand position, regaining momentum and positioning the business for long-term profitable growth through a more disciplined product and channel segmentation approach, a shift in mix and assortment changes, which continue to weigh on the reporting unit’s financial results and resulted in a fair value that exceeded the carrying value by less than 10% at the time the analysis was performed. The decline in the fair value cushions of the Champion Europe and Australia reporting units was primarily driven by continued
macroeconomic pressures impacting consumer spending which resulted in fair value cushions that exceeded their carrying values by less than 15% at the time the analysis was performed. As a result, the goodwill associated with these three reporting units was considered to be at a higher risk for future impairment if economic conditions worsen or reporting unit earnings and operating cash flows do not recover as currently estimated by management. As of September 30, 2023, the combined goodwill associated with these three reporting units was approximately $678 million.
We also completed our annual quantitative impairment analysis for certain indefinite-lived intangible assets during the third quarter of 2023. The analysis indicated that the indefinite-lived intangible assets had fair values that exceeded their carrying values by more than 20% at the time the analysis was performed.
Although
we determined that no impairment existed for our goodwill or indefinite-lived intangible assets as of September 30, 2023, these assets could be at risk for future impairment due to changes in our business or global economic conditions.
In November 2023, given the continuing uncertain economic environment and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility prior to any potential future covenant violation in order to modify the financial covenants and to provide
greater strategic financial flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
In June 2023, we amended the ARS Facility. This amendment extended the maturity date to May 2024 with no change to the quarterly fluctuating facility limit, which was $225 million as of September 30, 2023. Additionally, the amendment created two pricing tiers based on a consolidated net total leverage ratio of 4.50 to 1.00. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
In February and March of 2023, we refinanced our debt structure to provide greater near-term financial flexibility given the uncertainty within the current macroeconomic
environment. The refinancing consisted of entering into a new senior secured term loan B facility in an aggregate principal amount of $900 million due in 2030 (the “Term Loan B”), issuing $600 million aggregate principal amount of 9.000% senior unsecured notes due in 2031 (the “9.000% Senior Notes”) and redeeming our 4.625% senior notes due in May 2024 (the “4.625% Senior Notes”) and our 3.5% senior notes due in June 2024 (the “3.5% Senior Notes”). Additionally, in November 2022 and in February 2023, given the economic conditions and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility to modify the financial covenants in order to avoid a potential covenant violation and to provide operating flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Impact
of the Macroeconomic Pressures on Our Business
The macroeconomic pressures caused by the lingering effects from the COVID-19 pandemic continue to impact our business operations and financial results, as described in more detail under “Condensed Consolidated Results of Operations - Third Quarter Ended September 30, 2023 Compared with Third Quarter Ended October 1, 2022” and “Condensed Consolidated Results of Operations - Nine Months Ended September 30, 2023 Compared with Nine Months Ended October 1, 2022” below, primarily through reduced traffic and closures of Company-operated and third-party retail locations in certain markets, global supply chain disruptions and higher levels of inflation due to factory disruptions,
port congestion, transportation delays as well as labor and container shortages, which resulted in higher operating costs causing pressure on our gross and operating profit. At the height of the global supply chain disruptions in 2022, we experienced delayed inventory orders which, in turn, resulted in the inability to fulfill certain customer orders and decreased product availability in our Company-owned stores and e-commerce sites which negatively impacted our net revenues and increased net inventory levels. We took aggressive measures in 2022 to focus on reducing inventory units, including manufacturing time-out costs which reduced our inventory units by 6% at the end of 2022 compared to 2021. Gross and operating margin pressure continued in the first half of fiscal 2023 as we continued to sell through our higher-cost inventory. We expect segment gross and operating margin pressure
to ease in the second half of 2023 as lower cost inventory currently being produced is sold and we anniversary the manufacturing time-out costs related to our inventory reduction initiatives in 2022. The future impact of the macroeconomic pressures, including the COVID-19 pandemic, supply chain disruptions, inflation and higher interest rates, remain highly uncertain, and our business and results of operations, including our net revenues, earnings and cash flows, could continue to be adversely impacted.
Outlook for 2023
We estimate our 2023 guidance as follows:
•Net sales of approximately $5.70 billion, net of approximately $65 million of unfavorable foreign currency exchange impact;
•Operating profit of approximately $309 million, net of approximately
$10 million of unfavorable foreign currency exchange impact;
•Pretax restructuring and other action-related charges totaling $123 million including Full Potential transformation plan-related charges of approximately $31 million and global Champion performance plan-related charges of approximately $85 million, both included in operating profit, and refinancing charges of approximately $7 million included in interest and other expenses;
•Interest expense and other expenses of approximately $317 million combined;
•Tax expense from continuing operations of approximately $71 million;
•Diluted loss per share from continuing operations of approximately $(0.22);
•Cash
flow from operating activities of approximately $500 million; and
•Capital investments of approximately $100 million, including capital expenditures of $50 million within investing cash flow activities and cloud computing arrangements of $50 million within operating cash flow activities.
Seasonality and Other Factors
Absent the effects of the COVID-19 pandemic, our operating results are typically subject to some variability due to seasonality and other factors. For instance, we have historically generated higher sales during the back-to-school
and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Our diverse range of product offerings, however, typically mitigates some of the impact of seasonal changes in demand for certain items. Sales levels in any period are also impacted by our customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse basis, our sales are impacted by discretionary
consumer spending trends. Discretionary spending is affected by many factors that are outside our control, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, energy prices, unemployment trends and other matters that influence consumer confidence and spending. Consumers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. As a result, consumers may choose to purchase fewer of our products, to purchase lower-priced products of our competitors in response to higher prices for our products or may choose not to purchase our products at prices that reflect our price increases that become effective from time to time.
Inflation
can have a long-term impact on us because increasing costs of materials and labor may impact our ability to maintain satisfactory margins. For example, the cost of the materials that are used in our manufacturing process, such as oil-related commodity prices and other raw materials, including cotton, dyes and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result of inflation and other factors. Disruptions to the global supply chain due to factory closures, port congestion, transportation delays as well as labor and container shortages may negatively impact product availability, revenue growth and gross margins. We would work to mitigate the impact of the global supply chain disruptions through a combination of cost savings and operating efficiencies, as well as pricing actions, which could have an adverse impact on demand. Costs incurred for materials and labor are capitalized into inventory and impact our results as the inventory
is sold. In addition, a significant portion of our products are manufactured in countries other than the United States and declines in the value of the U.S. dollar may result in higher manufacturing costs. Increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on spending.
Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as seasonal and replenishable activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal
in nature, as sales of socks 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.
•Total net sales in the third quarter of 2023 were $1.51 billion, compared with $1.67 billion in the same period of 2022, representing a 10% decrease.
•Operating profit decreased 53% to $66 million in the third quarter of 2023, compared with $141 million in the same period of
2022. As a percentage of sales, operating profit was 4.4% in the third quarter of 2023 compared to 8.5% in the same period of 2022.
•Diluted loss per share from continuing operations was $(0.11) in the third quarter of 2023 compared with diluted earnings per share from continuing operations of $0.23 in the same period of 2022.
Income
(loss) from continuing operations before income tax expense
(15,758)
96,511
(112,269)
(116.3)
Income tax expense
23,041
16,410
6,631
40.4
Income
(loss) from continuing operations
(38,799)
80,101
(118,900)
(148.4)
Income from discontinued operations, net of tax
—
—
—
NM
Net
income (loss)
$
(38,799)
$
80,101
$
(118,900)
(148.4)
%
Net Sales
Net sales decreased 10% during the third quarter of 2023 compared to the third quarter of 2022 primarily due to the decline in U.S. Activewear, the continued macro-driven slowdown impacting consumer spending in our international businesses and the unfavorable impact from foreign currency exchange rates
in our International business of approximately $4 million partially offset by growth from product innovation and the impact of prior year business disruption caused by the ransomware attack on the business in the second quarter of 2022.
Operating Profit
Operating profit as a percentage of net sales was 4.4% during the third quarter of 2023, representing a decrease from 8.5% in the third quarter of 2022. The operating margin decline resulted from approximately 150 basis points of unfavorable sales mix and approximately 135 net basis points of commodity and ocean freight cost inflation partially offset by approximately 120 basis points from the recovery of the business interruption insurance claim received during the current quarter related to the ransomware attack which occurred in the second quarter of 2022 and approximately 110 basis points related to manufacturing time-out costs
associated with our inventory reduction actions taken in the third quarter of 2022. Included in operating profit were restructuring and other action-related charges of $77 million in the third quarter of 2023, primarily related to our global Champion performance plan, and $26 million in the third quarter of 2022, related to the implementation of our Full Potential transformation plan, which resulted in a decline in operating margin of approximately 350 basis points.
Other Highlights
Other Expenses – Other expenses increased $6 million in the third quarter of 2023 compared to the third quarter of 2022 primarily due to higher funding fees for sales of accounts receivable to financial institutions and higher pension expense in 2023.
Interest Expense –
Interest expense was higher by $31 million in the third quarter of 2023 compared to the third quarter of 2022 primarily due to a higher weighted average interest rate on our borrowings during the third quarter of 2023 compared to the third quarter of 2022. Our weighted average interest rate on our outstanding debt was 7.45% for the third quarter of 2023 compared to 4.08% for the third quarter of 2022.
Income Tax Expense – In the third quarter of 2023, income tax expense was $23 million, resulting in an effective income tax rate of (146.2)% and in the third quarter of 2022, income tax expense was $16 million, resulting in an effective income tax rate of 17.0%. Our effective tax rate for the third quarter of 2023 primarily differs from the U.S. statutory rate due to valuation allowances against certain net deferred tax assets. Additionally, we had favorable discrete items of $3 million in the third quarter
of 2023 and unfavorable discrete items of approximately $3 million in the third quarter of 2022.
Innerwear
net sales decreased slightly compared to the third quarter of 2022 primarily due to softer point-of-sale trends stemming from the macroeconomic pressures partially offset by growth from product innovation.
Innerwear operating margin was 17.5%, an increase from 16.0% in the third quarter of 2022. The operating margin increase primarily resulted from approximately 220 basis points related to manufacturing time-out costs associated with our inventory reduction actions taken in the third quarter of 2022 partially offset by approximately 45 basis points of unfavorable product mix and approximately 20 net basis points of commodity and ocean freight cost inflation. Unfavorable product mix was driven by higher sales in our lower margin categories such as socks and kids underwear.
Activewear
Activewear net sales decreased
17% compared to the third quarter of 2022 driven by the continued slowdown in consumer spending in the U.S. activewear category, which resulted in softer point-of-sale trends and excess channel inventory, as well as the short-term impact from continued strategic actions within Champion in the U.S taken to strengthen the brand and position Champion for long-term profitable growth, including a more disciplined product and channel segmentation approach, a shift in mix, and assortment changes.
Activewear operating margin was 6.5%, a decrease from 11.6% in the third quarter of 2022. The operating margin decline primarily resulted from approximately 455 basis points of unfavorable business mix from lower royalty income and unfavorable channel mix within Champion and approximately 370 basis points
of commodity and ocean freight cost inflation partially offset by approximately 90 basis points from pricing actions taken during 2022, approximately 100 basis points from lower inventory reserves as compared to last year and approximately 85 basis points related to manufacturing time-out costs associated with our inventory reduction actions taken in the third quarter of 2022.
International
Net sales in the International segment decreased 12% compared to the third quarter of 2022 due to macroeconomic pressures impacting consumer sentiment in Australia, Europe and Asia and unfavorable foreign currency exchange rates. The unfavorable impact of foreign currency exchange rates decreased net sales approximately $4 million in the third quarter of 2023. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, decreased 11%. The
impact of foreign currency exchange rates is calculated by applying prior period exchange rates to the current year financial results. We believe constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in our businesses.
International operating margin was 12.7%, a decrease from 13.9% in the third quarter of 2022. The operating margin decline primarily resulted from approximately 335 basis points due to the deleverage of selling, general and administrative expenses as a result of the decline in sales volume and approximately 80 net basis points of commodity and ocean freight
cost inflation partially offset by approximately 205 basis points of net cost reduction actions and efficiencies within our supply chain.
Other
Other net sales decreased primarily as a result of decreased sales from our supply chain to the European Innerwear business and decreased sales at our retail outlets as a result of softer consumer demand in the third quarter of 2023 compared to the third quarter of 2022. Operating margin decreased primarily due to the deleverage of selling, general and administrative expenses due to the decline in sales volume.
We continued certain sales from our supply chain to the European Innerwear business on a transitional basis after the sale of the business in the first quarter of 2022. These sales and the related profit are included in Other in all periods presented and have not been eliminated as intercompany
transactions in consolidation for the period when the European Innerwear business was owned by us. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Corporate
Corporate expenses were higher in the third quarter of 2023 compared to the third quarter of 2022 primarily due to higher restructuring and other action-related charges, variable compensation costs and information technology costs partially offset by the business interruption insurance proceeds received during the third quarter of 2023 related to the ransomware attack which occurred during the second quarter of 2022.
During the third quarter of 2023, we recognized a benefit related to business interruption insurance proceeds
of approximately $18 million, of which $15 million was received in the quarter. The business interruption insurance proceeds received were primarily related to the recovery of lost profit from business interruptions and are reflected in the “Cost of sales” line of the Condensed Consolidated Statements of Operations during the third quarter of 2023. During the third quarter of 2022, we incurred costs of approximately $1 million, net of expected insurance recoveries, which were primarily related to information technology and legal fees and are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations.
In the third quarter of 2023, restructuring and other action-related charges within operating profit included $74 million of charges associated with our global Champion performance plan which included
over $59 million of inventory write-downs related to the execution of an accelerated and enhanced channel, mix and product segmentation strategy including the exit of discontinued programs and over $14 million of charges related to supply chain segmentation, store closures, severance and other costs as we work to further streamline the operations and position the brand for long-term profitable growth.
Restructuring and other action-related charges within operating profit in the third quarters of 2023 and 2022 also included $3 million and $26 million, respectively, of charges related to the implementation of our Full Potential transformation plan. Full Potential transformation plan charges in the third quarter of 2023 included a gain of $2 million resulting from the sale of our U.S. Sheer Hosiery business to AllStar on September 29, 2023. Full Potential transformation plan charges
in the third quarter of 2022 included a non-cash loss of $4 million to adjust the valuation allowance related to our U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. Full potential transformation plan charges in the third quarters of 2023 and 2022 also included charges of $1 million and $13 million, respectively, related to supply chain segmentation charges to restructure and position our manufacturing network to align with our Full potential transformation plan demand trends. The remaining Full Potential transformation plan restructuring and other action-related charges within operating profit include technology charges which relate to the implementation of our technology modernization initiative including the implementation of a global enterprise resource planning platform, charges for professional services primarily including consulting and advisory services related to the implementation of our Full
Potential transformation plan and charges related to headcount actions and related severance resulting from operating model initiatives.
Income
(loss) from continuing operations before income tax expense
(44,126)
345,714
(389,840)
(112.8)
Income tax expense
51,541
58,775
(7,234)
(12.3)
Income
(loss) from continuing operations
(95,667)
286,939
(382,606)
(133.3)
Income from discontinued operations, net of tax
—
3,965
(3,965)
(100.0)
Net
income (loss)
$
(95,667)
$
290,904
$
(386,571)
(132.9)
%
Net
Sales
Net sales decreased 9% during the nine months of 2023 compared to the nine months of 2022 primarily due to the decline in U.S. Activewear, the continued macro-driven slowdown impacting consumer spending in our international businesses and the unfavorable impact from foreign currency exchange rates in our International business of approximately $53 million partially offset by growth from product innovation, increased space for back-to-school and the impact of business disruption caused by the ransomware attack on the business in the nine months of 2022.
Operating
profit as a percentage of net sales was 4.4% for the nine months of 2023, representing a decrease from 9.6% in the prior year. The operating margin decline resulted from unfavorable sales mix of approximately 235 basis points and commodity and ocean freight cost inflation of approximately 230 basis points partially offset by pricing actions of approximately 105 basis points and the recovery of the business interruption insurance claim during the current year related to the ransomware attack which occurred in the second quarter of 2022 of approximately 90 basis points. Included in operating profit were restructuring and other action-related charges of $101 million in the nine months of 2023, related to our global Champion performance plan and the implementation of our Full Potential transformation plan, and $38 million in the nine months of 2022, related to the implementation of our Full Potential transformation plan, which
resulted in a decline in operating margin of approximately 150 basis points.
Other Highlights
Other Expenses – Other expenses increased $25 million in the nine months of 2023 compared to the same period in 2022 primarily due to charges of nearly $9 million incurred as a result of the redemption of our 4.625% Senior Notes and our 3.5% Senior Notes in the nine months of 2023. The charges included a payment of $5 million for a required make-whole premium related to the redemption of the 3.5% Senior Notes and non-cash charges of $4 million for the write-off of unamortized debt issuance costs. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information. Other expenses also included higher funding fees for sales of accounts receivable to financial institutions and higher
pension expense in the nine months of 2023.
Interest Expense – Interest expense was higher by $98 million in the nine months of 2023 compared to the same period in 2022, primarily due to a higher weighted average interest rate on our borrowings and higher weighted average outstanding debt balances during the nine months of 2023 compared to the nine months of 2022. Additionally, in conjunction with the redemption of the 3.5% Senior Notes described in “Other Expenses” above, we unwound the related cross-currency swap contracts previously designated as cash flow hedges and the remaining gain in AOCI of $1 million was released into earnings at the time of settlement which partially offset interest expense in the nine months of 2023. See Note “Financial Instruments” to our condensed consolidated interim
financial statements included in this Quarterly Report on Form 10-Q for additional information. Our weighted average interest rate on our outstanding debt was 6.81% for the nine months of 2023, compared to 3.45% for the nine months of 2022.
Income Tax Expense – In the nine months of 2023, income tax expense was $52 million, resulting in an effective income tax rate of (116.8)% and in the nine months of 2022 income tax expense was $59 million, resulting in an effective income tax rate of 17.0%. Our effective tax rate for the nine months of 2023 primarily differs from the U.S. statutory rate due to valuation allowances against certain net deferred tax assets. Additionally, we had unfavorable discrete items of $4 million and $9 million in the nine months of 2023 and 2022, respectively.
DiscontinuedOperations
– The results of our discontinued operations include the operations of our European Innerwear business which was sold on March 5, 2022. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Innerwear
net sales decreased 0.4% compared to the nine months of 2022 primarily due to softer point-of-sale trends stemming from the macroeconomic pressures partially offset by growth from product innovation, increased space for back-to-school, pricing actions and lower sales in prior year due to business disruption caused by the ransomware attack in the second quarter of 2022.
Innerwear operating margin was 16.2%, a decrease from 18.2% in the same period a year ago. The operating margin decline primarily resulted from approximately 285 basis points of commodity and ocean freight cost inflation and approximately 130 basis points of unfavorable product mix partially offset by approximately 75 basis points related to manufacturing time-out costs associated with our inventory reduction actions taken in the third quarter of 2022, approximately 70 basis points of selective price increases and approximately 80 basis points of expense management
within our selling, general and administrative expenses. Unfavorable product mix was driven by higher sales in our lower margin categories such as socks and kids underwear.
Activewear
Activewear net sales decreased 18% compared to the nine months of 2022 driven by the continued slowdown in consumer spending in the U.S. activewear category, which resulted in softer point-of-sale trends and excess channel inventory, as well as the short-term impact from continued strategic actions within Champion in the U.S taken to strengthen the brand and position Champion for long-term profitable growth, including a more disciplined product and channel segmentation approach, a shift in mix, and assortment changes.
Activewear operating margin was 3.3%, a decrease
from 10.6% in the same period a year ago. The operating margin decline primarily resulted from approximately 450 basis points of unfavorable business mix from lower royalty income and unfavorable channel mix within Champion, approximately 300 basis points of commodity and ocean freight cost inflation, approximately 165 basis points from higher reserves as compared to last year due to higher inventory levels at retail and approximately 65 basis points of wage inflation partially offset by approximately 235 basis points from pricing actions taken during 2022.
International
Net sales in the International segment decreased 9% compared to the nine months of 2022 due to unfavorable foreign currency exchange rates and macroeconomic pressures impacting consumer sentiment in Australia, Europe and Asia. The unfavorable impact of foreign currency
exchange rates decreased net sales approximately $53 million in the nine months of 2023. International net sales on a constant currency basis, defined as net sales excluding the impact of foreign currency, decreased 5%. The impact of foreign currency exchange rates is calculated by applying prior period exchange rates to the current year financial results. We believe constant-currency information is useful to management and investors to facilitate comparison of operating results and better identify trends in our businesses.
International operating margin was 10.7%, a decrease from 15.0% in the same period a year ago. The operating margin decline primarily resulted from approximately 285 basis points of unfavorable business mix as consumers shifted to lower margin categories driven by the macroeconomic environment, approximately 210 basis points due to the deleverage of selling, general and administrative expenses as a result
of the decline in sales volume and approximately 95 net basis points of commodity and ocean freight cost inflation partially offset by approximately 125 basis points of net cost reduction actions and efficiencies within our supply chain.
Other
Other net sales decreased primarily as a result of decreased sales from our supply chain to the European Innerwear business and decreased sales at our retail outlets as a result of softer consumer demand during the nine months of 2023
compared to the nine months of 2022. Operating margin decreased due to the deleverage of selling,
general and administrative expenses due to the decline in sales volume.
We continued certain sales from our supply chain to the European Innerwear business on a transitional basis after the sale of the business in the first quarter of 2022. These sales and the related profit are included in Other in all periods presented and have not been eliminated as intercompany transactions in consolidation for the period when the European Innerwear business was owned by us. See Note “Assets and Liabilities Held for Sale” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Corporate
Corporate expenses were higher in the nine months of 2023 compared to the nine months of 2022 primarily due to higher restructuring and other action-related charges, information technology
costs and variable compensation costs partially offset by the business interruption insurance proceeds received and lower costs incurred during the nine months of 2023 related to the ransomware attack which occurred during the second quarter of 2022.
During the nine months of 2023, we recognized a benefit related to business interruption insurance proceeds of approximately $24 million, of which approximately $21 million was received during the nine months of 2023. The business interruption insurance proceeds received were primarily related to the recovery of lost profit from business interruptions. We recognized a benefit of approximately $23 million for the business interruption insurance proceeds in the “Cost of sales” line of the Condensed Consolidated Statements of Operations during the nine months of 2023. We recognized a benefit of approximately $1 million for the reimbursement of costs related primarily to legal
fees in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations during the nine months of 2023. During the nine months of 2022, we incurred costs of approximately $16 million, net of expected insurance recoveries, related to the ransomware attack. The costs incurred during the nine months of 2022 included approximately $14 million primarily related to supply chain disruptions, which are reflected in the “Cost of sales” line of the Condensed Consolidated Statements of Operations and approximately $2 million, net of expected insurance recoveries, primarily related to information technology, legal and consulting fees, which are reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Operations.
In the nine months of 2023, restructuring and other action-related charges within operating profit included
$74 million of charges associated with our global Champion performance plan which included over $59 million of inventory write-downs related to the execution of an accelerated and enhanced channel, mix and product segmentation strategy including the exit of discontinued programs and over $14 million of charges related to supply chain segmentation, store closures, severance and other costs as we work to further streamline the operations and position the brand for long-term profitable growth.
Restructuring and other action-related charges within operating profit in the nine months of 2023 and 2022 also included $28 million and $38 million, respectively, of charges related to the implementation of our Full Potential transformation plan. Full Potential transformation plan charges in the nine months of 2023 included a loss, net of proceeds, of $4 million, resulting from the sale of
our U.S. Sheer Hosiery business to AllStar on September 29, 2023 and to adjust the valuation allowance related to the U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. Full Potential transformation plan charges in the nine months of 2022 included a non-cash gain of $7 million to adjust the valuation allowance related to our U.S. Sheer Hosiery business resulting primarily from changes in carrying value due to changes in working capital. Full potential transformation plan charges in the nine months of 2023 and 2022 also included charges of $5 million and $15 million, respectively, related to supply chain segmentation charges to restructure and position our manufacturing network to align with our Full potential transformation plan demand trends. The remaining Full Potential transformation plan restructuring and other action-related charges within operating profit
include technology charges which relate to the implementation of our technology modernization initiative including the implementation of a global enterprise resource planning platform, charges for professional services primarily including consulting and advisory services related to the implementation of our Full Potential transformation plan and charges related to headcount actions and related severance resulting from operating model initiatives.
(Gain) loss on sale of business and classification of assets held for sale
3,641
(6,558)
Other
957
650
Total Full Potential
transformation plan
27,518
37,633
Total included in operating profit
101,253
37,633
Loss on extinguishment of debt included in other expenses
8,466
—
Gain on final settlement of cross currency swap contracts
included in other expenses
(116)
—
Gain on final settlement of cross currency swap contracts included in interest expense, net
(1,254)
—
Total included in income (loss) from continuing operations before income tax expense
108,349
37,633
Discrete
tax benefits
4,263
—
Tax effect on actions
—
6,394
Total benefit included in income tax expense
4,263
6,394
Total restructuring and other action-related charges
$
104,086
$
31,239
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. We recently shifted our capital allocation strategy to utilize our cash from operations for payments to our employees and vendors in the normal course of business and to reinvest in our business through capital expenditures. We then plan to utilize our free cash flow (cash from operations less capital expenditures) to pay down debt to bring our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis.
Based on our current expectations and forecasts of future earnings and cash flows, we believe we have sufficient cash and available borrowings to support
our operations and key business strategies for at least the next 12 months and we currently believe our cash flows and available borrowings, together with our access to the capital markets, are sufficient to support our longer term liquidity needs as well.
In November 2023, given the continuing uncertain economic environment and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility prior to any potential future covenant violation in order to modify the financial covenants and to provide greater strategic financial flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
In February and March of 2023, we refinanced our debt structure to provide greater near-term financial flexibility given the uncertainty
within the current macroeconomic environment. The refinancing consisted of entering into the Term Loan B, issuing the 9.000% Senior Notes and redeeming our 4.625% Senior Notes and our 3.5% Senior Notes. Additionally, in November 2022 and in February 2023, given the economic conditions and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility to modify the financial covenants in order to avoid a potential covenant violation and to provide operating flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
Our primary sources of liquidity are cash generated from global operations and cash available under our Revolving Loan Facility, our accounts receivable securitization facility (the “ARS Facility”) and our other international credit
facilities.
(1)A
portion of the Revolving Loan Facility is available to be borrowed in Euros or Australian dollars.
(2)Borrowing availability under the ARS Facility is subject to a quarterly fluctuating facility limit ranging from $200 million to $225 million based on the applicable quarter and permitted only to the extent that the face of the receivables in the collateral pool, net of applicable concentrations, reserves and other deductions, exceeds the outstanding loans.
The following have impacted or may impact our liquidity:
•In February and March of 2023, we entered into the Term Loan B, issued the 9.000% Senior Notes and redeemed our 4.625% Senior Notes and our 3.5% Senior Notes.
•We have principal and interest obligations under our
debt and ongoing financial covenants under those debt facilities.
•The macroeconomic pressures including the COVID-19 pandemic, supply chain disruptions and inflationary pressures have had, and may continue to have, a negative impact on our business.
•Although we have historically paid a regular quarterly dividend, the Hanesbrands Board of Directors eliminated our quarterly cash dividend as we recently shifted our capital allocation strategy to pay down debt to bring our leverage back to a range that is no greater than two to three times on a net debt-to-adjusted EBITDA basis. 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 invested in efforts to accelerate worldwide omnichannel and global growth initiatives, as well as marketing and brand building.
•We have launched a multi-year cost savings program intended to self-fund the investments necessary to achieve our Full Potential transformation plan’s objectives.
•We expect capital expenditures of approximately $100 million in 2023, including capital expenditures of $50 million within investing cash flow activities and cloud computing arrangements of $50 million within operating cash flow activities.
•In the future, we may pursue strategic business acquisitions or divestitures.
•We
expect to have no required cash contributions to our U.S. pension plans in 2023 based on a preliminary calculation by our actuary but we may also elect to make 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. We have not changed our reinvestment strategy from the prior year with regards to our unremitted foreign earnings and intend to remit foreign earnings totaling $269 million.
The information presented below regarding the sources and uses of our cash flows for the nine months ended September 30, 2023 and October 1, 2022 was derived from our condensed consolidated interim financial statements.
Effect
of changes in foreign exchange rates on cash
(11,518)
(71,728)
Change in cash and cash equivalents
(47,322)
(307,498)
Cash and cash equivalents at beginning of year
238,413
560,629
Cash and cash equivalents at end of period
$
191,091
$
253,131
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. As compared to the prior year, net cash provided by operating activities resulted from improved working capital management primarily driven by lower inventory production and favorable accounts receivable and accruals activity partially offset by the payment to unwind and settle the cross-currency swap contracts previously designated as cash flow hedges in connection with the redemption of 3.5% Senior Notes and the increase in capital investments in our cloud computing assets.
Investing Activities
The decrease in net cash used by investing activities in the nine months
of 2023 compared to the same period of 2022 was primarily the result of the purchase of the Champion trademark for footwear in the United States, Puerto Rico and Canada from Keds, LLC for $103 million in the nine months of 2022, the final settlement of the cross currency swap contracts previously designated as net investment hedges in connection with the redemption of 3.5% Senior Notes which resulted in a $19 million cash inflow in the nine months of 2023, the sale of the European Innerwear business which resulted in an $11 million cash outflow in the nine months of 2022, $1 million of cash proceeds from the sale of the U.S. Hosiery business in the nine months of 2023 and the decrease in capital investments into our business as we manage our spending on our focused strategic goals.
Financing
Activities
Net cash used for financing activities in the nine months of 2023 primarily resulted from net payments on our ARS Facility and our Revolving Loan Facility as compared to the same period of 2022 where net cash provided by financing activities resulted from net borrowings on our ARS Facility and our Revolving Loan Facility. Additionally, in the nine months of 2023, we refinanced our debt structure to provide greater near-term financial flexibility given the uncertainty within the current macroeconomic environment. The refinancing consisted of entering into the Term Loan B, issuing the 9.000% Senior Notes and redeeming our 4.625% Senior Notes and 3.5% Senior Notes. We paid approximately $28 million to amend and refinance the credit facilities which included a required make-whole premium of $5 million related to the redemption of the 3.5% Senior Notes and total capitalized debt issuance costs of $23 million related to
the issuance of Term Loan B and the 9.000% Senior Notes. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information. Net cash from financing activities in the nine months of 2022 also included a dividend payment of $157 million and shares repurchased at a total cost of $25 million. Additionally, we made total scheduled repayments on Term Loan A and Term B of $30 million in the nine months of 2023 and $19 million in the nine months of 2022.
Financing Arrangements
In November 2023, given the continuing uncertain economic environment and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility prior to any potential future covenant violation in order to modify the financial covenants and to provide greater strategic
financial flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
In June 2023, we amended the ARS Facility. This amendment extended the maturity date to May 2024 with no change to the quarterly fluctuating facility limit, which was $225 million as of September 30, 2023. Additionally, the amendment created two pricing tiers based on a consolidated net total leverage ratio of 4.50 to 1.00. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
In February and March of 2023, we refinanced our debt structure to provide greater near-term financial flexibility given the uncertainty within the current macroeconomic environment. The refinancing consisted of entering into the Term Loan B, issuing the 9.000% Senior Notes and redeeming our 4.625% Senior Notes and our 3.5% Senior Notes. Additionally, in November 2022 and in February 2023, given the economic conditions and the associated potential impact on future earnings, we amended the credit agreement governing our Senior Secured Credit Facility to modify the financial covenants in order to avoid a potential covenant violation and to provide operating flexibility. See Note “Debt” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q for additional information.
We believe our financing structure provides
a secure base to support our operations and key business strategies. As of September 30, 2023, we were in compliance with all financial covenants under our credit facilities and other outstanding indebtedness. Under the terms of our Senior Secured Credit Facility, among other financial and non-financial covenants, we are required to maintain a minimum interest coverage ratio and a maximum total debt to EBITDA (earnings before interest, income taxes, depreciation expense and amortization, as computed pursuant to the Senior Secured Credit Facility), or leverage ratio, each of which is defined in the Senior Secured Credit Facility. The method of calculating all of the components used in the covenants is included in the Senior Secured Credit Facility.
We expect to maintain compliance with our covenants, as amended, for at least one year from the issuance of these financial statements
based on our current expectations and forecasts, however economic conditions or the occurrence of events discussed under “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 or other SEC filings could cause noncompliance. If economic conditions worsen or our earnings and operating cash flows do not recover as currently estimated by management, this could impact our ability to maintain compliance with our amended 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.
For
further details regarding our liquidity from our available cash balances and credit facilities see “Cash Requirements and Trends and Uncertainties Affecting Liquidity” above.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to 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 consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
The
application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the year ended December 31, 2022. There have been no material changes in these policies from those described in our Annual Report on Form 10-K for the year ended December 31, 2022.
Recently Issued Accounting Pronouncements
For a summary of recently issued accounting pronouncements, see Note “Recent Accounting Pronouncements” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.
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 December 31, 2022.
As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
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 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
Item 1.
Legal Proceedings
No new legal proceedings became reportable
during the quarter ended September 30, 2023 and there have been no material developments during such quarter regarding any previously reported legal proceedings which have not been previously disclosed.
We are also subject to various claims and legal actions that occur from time to time in the ordinary course of our business. However, we are not party to any pending legal proceedings, including the pending lawsuit in connection with the previously disclosed ransomware incident discussed in Note “Basis of Presentation” to our condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q, 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 information presented below supplements the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”). In addition to the risk factor set forth below, refer to Part I, Item 1A., Risk Factors, in the Form 10-K for information regarding other factors that could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial
condition, liquidity or results of operations.
Our ongoing evaluation of strategic options for the global Champion business is subject to risks and uncertainties, and any particular transaction or other strategic outcome regarding Champion may not be completed or otherwise achieve its intended goals.
On September 19, 2023, we announced that we are undertaking an evaluation of strategic options for the global Champion business. Potential alternatives include, among others, a potential sale or other strategic transaction involving Champion, as well as continuing to operate the business as part of the Company. There can be no assurance that our assessment
process for the global Champion business will result in the Company pursuing any particular transaction or other strategic outcome regarding Champion, or that, if completed, any transaction or outcome will be on attractive terms or achieve the intended goals of deleveraging and maximizing shareholder value. No timetable has been set for the completion of the review process and we may suspend or terminate the review at any time. If we seek to engage in any transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management, including as a result of any gain or loss realized, or asset impairment charges recognized, by the
Company on completion. We may also incur substantial costs in connection with the pursuit of any strategic transaction, whether or not any such transaction is ultimately consummated.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
iiiiNone
of our directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended September 30, 2023.///
Inline XBRL Instance Document - The instance document does not appear
in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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.
M. Scott Lewis Chief Financial Officer and Chief Accounting Officer (Duly authorized officer, principal financial officer and principal accounting officer)
