e424b2
CALCULATION OF
REGISTRATION FEE
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Proposed
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Proposed
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Maximum
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Maximum
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate
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Amount of
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Securities to be Registered
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Registered
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per Note
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Offering Price
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Registration Fee(1)(2)
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8.000% Senior Notes due 2016
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$
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500,000,000
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98.686
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%
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$
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493,430,000
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$
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27,533.39
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(1) Calculated in accordance with Rule 457(r) of the
Securities Act of 1933, as amended.
(2) Paid herewith.
Filed Pursuant to
Rule 424(b)(2)
Registration Statement
No. 333-152733
Prospectus supplement
(To prospectus dated August 1, 2008)
$500,000,000
8.000% Senior Notes due
2016
We are offering $500,000,000 of our 8.000% Senior Notes due
2016, which we refer to as the notes. The notes will mature on
December 15, 2016. We will pay interest on the notes on
each June 15 and December 15, beginning on
June 15, 2010.
We may redeem some or all of the notes at any time on or after
December 15, 2013 at the redemption prices set forth under
Description of notesOptional redemption and
prior to such date at a make-whole redemption price.
We may also redeem up to 35% of the notes prior to
December 15, 2012 with cash proceeds we receive from
certain equity offerings. If we sell certain assets and do not
reinvest the proceeds or repay senior indebtedness or if we
experience specific kinds of changes of control, we must offer
to repurchase the notes.
The notes will be our senior unsecured obligations and will rank
equally in right of payment with all of our existing and future
senior unsecured indebtedness and senior in right of payment to
all of our future subordinated indebtedness. The notes will be
effectively subordinated to any of our existing and future
secured debt to the extent of the value of the collateral
securing such indebtedness, including all borrowings under our
new senior secured credit facilities. The notes will be
structurally subordinated to all liabilities of any of our
subsidiaries that do not issue guarantees of the notes.
The obligations under the notes will be fully and
unconditionally guaranteed by substantially all of our current
domestic subsidiaries and by certain of our future restricted
subsidiaries. The guarantee of any subsidiary will be released
when such entity is no longer a subsidiary of ours (including as
a result of a sale of a majority of the capital stock of such
entity) if such entity no longer guarantees certain specified
indebtedness, or when such entity is designated an unrestricted
subsidiary under the terms of the indenture. The guarantees will
rank equally in right of payment with the existing and future
senior unsecured indebtedness of the guarantors and will rank
senior to any future subordinated indebtedness of the
guarantors. The guarantees will be effectively subordinated to
all existing and future secured indebtedness of the guarantors,
including guarantees of our borrowings under our new senior
secured credit facilities to the extent of the value of the
collateral securing such indebtedness.
Investing in the notes involves risk. See Risk
factors beginning on
page S-11
of this prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Underwriting
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Proceeds, before
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Price to
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discounts
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expenses, to
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public1
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and commissions
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Hanesbrands Inc.
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Per note
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98.686%
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2.250%
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96.436%
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Total
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$493,430,000
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$11,250,000
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$482,180,000
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(1)
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Plus accrued interest, if any, from
December 10, 2009.
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The notes will not be listed on a securities exchange.
Currently, there is no public market for the notes.
The underwriters expect to deliver the notes on or about
December 10, 2009 in book-entry form through The Depository
Trust Company for the account of its participants,
including Clearstream Banking société anonyme and
Euroclear Bank S.A./N.V.
Joint book-running managers
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J.P.
Morgan |
BofA Merrill Lynch |
HSBC |
Goldman, Sachs & Co. |
Co-managers
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Barclays
Capital |
BB&T Capital Markets |
PNC Capital Markets |
RBC Capital Markets |
December 3, 2009
Table of
contents
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S-ii
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S-ii
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S-iii
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S-1
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S-11
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S-34
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S-34
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S-35
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S-36
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S-38
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S-98
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S-114
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S-117
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S-123
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S-177
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S-182
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S-187
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S-189
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S-191
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S-191
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S-i
About this
prospectus supplement
This document is in two parts. The first part is the prospectus
supplement and the documents incorporated herein, which
describes the specific terms of this offering of the notes. The
second part is the accompanying prospectus, which gives more
general information, some of which may not apply to the notes or
this offering. If the information relating to the offering
varies between the prospectus supplement and the accompanying
prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement, the
accompanying prospectus and any related free writing prospectus
filed by us with the Securities and Exchange Commission
(SEC). We have not, and the underwriters have not,
authorized any dealer, salesman or other person to provide you
with additional or different information. If anyone provides you
with different or inconsistent information, you should not rely
on it. This prospectus supplement and the accompanying
prospectus are not an offer to sell or the solicitation of an
offer to buy any securities other than the securities to which
they relate and are not an offer to sell or a solicitation of an
offer to buy securities in any jurisdiction to any person to
whom it is unlawful to make an offer or solicitation in that
jurisdiction. You should not assume that the information
contained in this prospectus supplement is accurate as of any
date other than the date on the front cover of this prospectus
supplement, or that the information contained in the
accompanying prospectus, any document incorporated by reference
and any such free writing prospectus is accurate as of any date
other than their respective dates, regardless of the time of
delivery of this prospectus supplement or any sale of a
security. Our business, financial condition, results of
operations and prospects may have changed since those dates.
Unless otherwise indicated or the context otherwise requires,
all references in this prospectus supplement to we,
our, us, the Company or
Hanesbrands are to Hanesbrands Inc., a Maryland
corporation, and its subsidiaries.
Where you can
find more information
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You can obtain information
regarding the operation of the SECs Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a Web site at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically.
We make available free of charge at www.hanesbrands.com (in the
Investors section) copies of materials we file with,
or furnish to, the SEC. By referring to our website and the
SECs website, we do not incorporate such websites or their
contents into this prospectus.
The SEC allows us to incorporate by reference
information that we file with them, which means that we can
disclose important information to you by referring you to
documents previously filed with the SEC. The information
incorporated by reference is an important part of this
prospectus supplement, and the information that we later file
with the SEC will automatically update and supersede this
information. This prospectus incorporates by reference the
documents and reports listed below (other than portions of these
documents deemed to be furnished or not deemed to be
filed, including the portions of these documents
that are
S-ii
either (1) described in paragraphs (d)(1), (d)(2), (d)(3)
or (e)(5) of Item 407 of
Regulation S-K
promulgated by the SEC or (2) furnished under
Item 2.02 or Item 7.01 of a Current Report on
Form 8-K,
including any exhibits included with such Items):
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our Annual Report on
Form 10-K
for the fiscal year ended January 3, 2009;
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our Quarterly Report on
Form 10-Q
for the fiscal quarters ended April 4, 2009, July 4,
2009 and October 3, 2009;
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our Current Reports on
Form 8-K
filed on March 16, 2009, April 27, 2009, July 30,
2009, September 21, 2009 and October 28, 2009; and
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our Proxy Statement on Schedule 14A filed on March 12,
2009.
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We also incorporate by reference the information contained in
all other documents we file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 (the Exchange Act) (other than
portions of these documents deemed to be furnished
or not deemed to be filed, including the portions of
these documents that are either (1) described in paragraphs
(d)(1), (d)(2), (d)(3) or (e)(5) of Item 407 of
Regulation S-K
promulgated by the SEC or (2) furnished under
Item 2.02 or Item 7.01 of a Current Report on
Form 8-K,
including any exhibits included with such Items, unless
otherwise specifically indicated therein) after the date of this
prospectus supplement and prior to the termination of this
offering. The information contained in any such document will be
considered part of this prospectus supplement from the date the
document is filed with the SEC.
Any statement contained in this prospectus supplement or in a
document incorporated or deemed to be incorporated by reference
in this prospectus supplement will be deemed to be modified or
superseded to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed
to be incorporated by reference in this prospectus supplement
modifies or supersedes that statement. Any statement so modified
or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus supplement.
We undertake to provide without charge to any person, including
any beneficial owner, to whom a copy of this prospectus is
delivered, upon oral or written request of such person, a copy
of any or all of the documents that have been incorporated by
reference in this prospectus supplement, other than exhibits to
such other documents (unless such exhibits are specifically
incorporated by reference therein). We will furnish any exhibit
not specifically incorporated by reference upon the payment of a
specified reasonable fee, which fee will be limited to our
reasonable expenses in furnishing such exhibit. All requests for
such copies should be directed to Corporate Secretary,
Hanesbrands Inc., 1000 East Hanes Mill Road, Winston-Salem,
North Carolina 27105.
Cautionary
statement regarding forward-looking statements
This prospectus supplement, the accompanying prospectus, any
related free writing prospectus and the documents incorporated
by reference therein include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933
(the Securities Act) and Section 21E of the
Exchange Act. Forward-looking statements include all statements
that do not relate solely to historical or current facts, and
can generally be identified by the use of words such as
may, believe, will,
expect, project, estimate,
intend, anticipate, plan,
S-iii
continue or similar expressions. In particular,
information appearing under Description of our
business, Risk factors and
Managements discussion and analysis of financial
condition and results of operations includes
forward-looking statements. Forward-looking statements
inherently involve many risks and uncertainties that could cause
actual results to differ materially from those projected in
these statements. Where, in any forward-looking statement, we
express an expectation or belief as to future results or events,
such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and
believed to have a reasonable basis, but there can be no
assurance that the expectation or belief will result or be
achieved or accomplished. The following include some but not all
of the factors that could cause actual results or events to
differ materially from those anticipated:
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our ability to execute our consolidation and globalization
strategy, including migrating our production and manufacturing
operations to lower-cost locations around the world;
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our ability to successfully manage social, political, economic,
legal and other conditions affecting our foreign operations and
supply chain sources, such as disruption of markets, changes in
import and export laws, currency restrictions and currency
exchange rate fluctuations;
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current economic conditions;
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consumer spending levels;
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the risk of inflation or deflation;
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financial difficulties experienced by, or loss of or reduction
in sales to, any of our top customers or groups of customers;
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gains and losses in the shelf space that our customers devote to
our products;
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our debt and debt service requirements that restrict our
operating and financial flexibility and impose interest and
financing costs;
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the financial ratios that our debt instruments require us to
maintain;
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future financial performance, including availability, terms and
deployment of capital;
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failure to protect against dramatic changes in the volatile
market price of cotton;
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the impact of increases in prices of other materials used in our
products and increases in other costs;
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the impact of increases in prices of oil-related materials and
other costs such as energy and utility costs;
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our ability to effectively manage our inventory and reduce
inventory reserves;
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retailer consolidation and other changes in the apparel
essentials industry;
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the highly competitive and evolving nature of the industry in
which we compete;
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our ability to keep pace with changing consumer preferences;
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our ability to continue to effectively distribute our products
through our distribution network as we continue to consolidate
our distribution network;
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S-iv
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our ability to comply with environmental and occupational health
and safety laws and regulations;
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costs and adverse publicity from violations of labor or
environmental laws by us or our suppliers;
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our ability to attract and retain key personnel;
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new litigation or developments in existing litigation; and
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possible terrorist attacks and ongoing military action in the
Middle East and other parts of the world.
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There may be other factors that may cause our actual results to
differ materially from the forward-looking statements. Our
actual results, performance or achievements could differ
materially from those expressed in, or implied by, the
forward-looking statements. We can give no assurances that any
of the events anticipated by the forward-looking statements will
occur or, if any of them does, what impact they will have on our
results of operations and financial condition. You should
carefully read the factors described in the Risk
factors section of this prospectus supplement for a
description of certain risks that could, among other things,
cause our actual results to differ from these forward-looking
statements.
All forward-looking statements speak only as of the date of this
prospectus supplement and are expressly qualified in their
entirety by the cautionary statements included in this
prospectus supplement. We undertake no obligation to update or
revise forward-looking statements that may be made to reflect
events or circumstances that arise after the date made or to
reflect the occurrence of unanticipated events, other than as
required by law.
S-v
Summary
This summary highlights selected information contained
elsewhere in this prospectus supplement, the accompanying
prospectus and the documents we incorporate by reference. It
does not contain all of the information you should consider
before making an investment decision. You should read the entire
prospectus supplement, the accompanying prospectus, the
documents incorporated by reference and the other documents to
which we refer for a more complete understanding of our business
and this offering. Please read the section entitled Risk
factors and additional information contained in our Annual
Report on
Form 10-K
for the year ended January 3, 2009 and our Quarterly
Reports on
Form 10-Q
for the quarters ended October 3, 2009, July 4, 2009
and April 4, 2009 incorporated by reference in this
prospectus supplement for more information about important
factors you should consider before investing in the notes in
this offering.
Our
company
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, C9
by Champion, Playtex, Bali,
Leggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, casualwear, activewear, socks and hosiery.
The apparel essentials sector of the apparel industry is
characterized by frequently replenished items, such as t-shirts,
bras, panties, mens underwear, kids underwear, socks
and hosiery. Growth and sales in the apparel essentials industry
are not primarily driven by fashion, in contrast to other areas
of the broader apparel industry. We focus on the core attributes
of comfort, fit and value, while remaining current with regard
to consumer trends. The majority of our core styles continue
from year to year, with variations only in color, fabric or
design details. Some products, however, such as intimate
apparel, activewear and sheer hosiery, do have an emphasis on
style and innovation. We continue to invest in our largest and
strongest brands to achieve our long-term growth goals. In
addition to designing and marketing apparel essentials, we have
a long history of operating a global supply chain that
incorporates a mix of self-manufacturing, third-party
contractors and third-party sourcing.
Our products are sold through multiple distribution channels.
During the year ended January 3, 2009, approximately 44% of
our net sales were to mass merchants, 18% were to national
chains and department stores, 9% were direct to consumers, 11%
were in our International segment and 18% were to other retail
channels such as embellishers, specialty retailers, warehouse
clubs and sporting goods stores. We have strong, long-term
relationships with our top customers, including relationships of
more than ten years with each of our top ten customers as of
January 3, 2009. The size and operational scale of the
high-volume retailers with which we do business require
extensive category and product knowledge and specialized
services regarding the quantity, quality and planning of product
orders. We have organized multifunctional customer management
teams, which has allowed us to form strategic long-term
relationships with these customers and efficiently focus
resources on category, product and service expertise. We also
have customer-specific programs such as the C9 by Champion
products marketed and sold through Target stores.
S-1
Our
brands
Our brands have a strong heritage in the apparel essentials
industry. According to The NPD Group/Consumer Tracking Service,
or NPD, our brands hold either the number one or
number two U.S. market position by sales value in most
product categories in which we compete, for the 12 month
period ended November 30, 2008. In 2008, Hanes was
number one for the fifth consecutive year on the Womens
Wear Daily Top 100 Brands Survey for apparel and
accessory brands that women know best and was number one for the
fifth consecutive year as the most preferred mens,
womens and childrens apparel brand of consumers in
Retailing Today magazines Top Brands Study.
Additionally, we had five of the top ten intimate apparel brands
preferred by consumers in the Retailing Today
studyHanes, Playtex, Bali, Just My
Size and Leggs.
Our competitive
strengths
Strong brands with leading market
positions. According to NPD, our brands hold either the
number one or number two U.S. market position by sales
value in most product categories in which we compete, for the
12 month period ended November 30, 2008. According to
NPD, our largest brand, Hanes, is the top-selling apparel
brand in the United States by units sold, for the 12 month
period ended November 30, 2008.
High-volume, core essentials focus. We sell
high-volume, frequently replenished apparel essentials. The
majority of our core styles continue from year to year, with
variations only in color, fabric or design details, and are
frequently replenished by consumers. We believe that our status
as a high-volume seller of core apparel essentials creates a
more stable and predictable revenue base and reduces our
exposure to dramatic fashion shifts often observed in the
general apparel industry.
Significant scale of operations. According to NPD,
we are the largest seller of apparel essentials in the United
States as measured by sales value for the 12 month period
ended November 30, 2008. Most of our products are sold to
large retailers that have high-volume demands. We believe that
we are able to leverage our significant scale of operations to
provide us with greater manufacturing efficiencies, purchasing
power and product design, marketing and customer management
resources than our smaller competitors.
Strong customer relationships. We sell our products
primarily through large, high-volume retailers, including mass
merchants, department stores and national chains. We have
strong, long-term relationships with our top customers,
including relationships of more than ten years with each of our
top ten customers as of January 3, 2009. We have aligned
significant parts of our organization with corresponding parts
of our customers organizations. We also have entered into
customer-specific programs such as the C9 by Champion
products marketed and sold through Target stores.
Key business
strategies
Sell more, spend less and generate cash are our broad strategies
to build our brands, reduce our costs and generate cash.
S-2
Sell more. Through our sell more
strategy, we seek to drive profitable growth by consistently
offering consumers brands they love and trust and products with
unsurpassed value. Key initiatives we are employing to implement
this strategy include:
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Build big, strong brands in big core categories with innovative
key items. Our ability to react to changing customer needs and
industry trends is key to our success. Our design, research and
product development teams, in partnership with our marketing
teams, drive our efforts to bring innovations to market. We seek
to leverage our insights into consumer demand in the apparel
essentials industry to develop new products within our existing
lines and to modify our existing core products in ways that make
them more appealing, addressing changing customer needs and
industry trends. We also support our key brands with targeted,
effective advertising and marketing campaigns.
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Foster strategic partnerships with key retailers via team
selling. We foster relationships with key retailers by
applying our extensive category and product knowledge,
leveraging our use of multi-functional customer management teams
and developing new customer-specific programs such as C9 by
Champion for Target. Our goal is to strengthen and deepen
our existing strategic relationships with retailers and develop
new strategic relationships.
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Use Kanban concepts to have the right products available in the
right quantities at the right time. Through Kanban, a
multi-initiative effort that determines production quantities,
and in doing so, facilitates
just-in-time
production and ordering systems, we seek to ensure that products
are available to meet customer demands while effectively
managing inventory levels.
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Spend less. Through our spend less
strategy, we seek to become an integrated organization that
leverages its size and global reach to reduce costs, improve
flexibility and provide a high level of service. Key initiatives
we are employing to implement this strategy include:
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Globalizing our supply chain by balancing across hemispheres
into economic clusters with fewer, larger
facilities. As a provider of high-volume products, we are
continually seeking to improve our cost-competitiveness and
operating flexibility through supply chain initiatives. Through
our consolidation and globalization strategy, which is discussed
in more detail below, we will continue to transition additional
parts of our supply chain to lower-cost locations in Asia,
Central America and the Caribbean Basin in an effort to optimize
our cost structure. As part of this process, we are using Kanban
concepts to optimize the way we manage demand, to increase
manufacturing flexibility to better respond to demand
variability and to simplify our finished goods and the raw
materials we use to produce them. We expect that these changes
in our supply chain will result in significant cost efficiencies
and increased asset utilization.
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Leverage our global purchasing and manufacturing scale.
Historically, we have had a decentralized operating structure
with many distinct operating units. We are in the process of
consolidating purchasing, manufacturing and sourcing across all
of our product categories in the United States. We believe that
these initiatives will streamline our operations, improve our
inventory management, reduce costs and standardize processes.
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Generate cash. Through our generate cash
strategy, we seek to effectively generate and invest cash at or
above our weighted average cost of capital to provide superior
returns for both
S-3
our equity and debt investors. Key initiatives we are employing
to implement this strategy include:
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Optimizing our capital structure to take advantage of our
business models strong and consistent cash flows.
Maintaining appropriate debt leverage and utilizing excess cash
to, for example, pay down debt, invest in our own stock and
selectively pursue strategic acquisitions are keys to building a
stronger business and generating additional value for investors.
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Continuing to improve turns for accounts receivables, inventory,
accounts payable and fixed assets. Our ability to generate cash
is enhanced through more efficient management of accounts
receivables, inventory, accounts payable and fixed assets.
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Our ability to react to changing customer needs and industry
trends will continue to be key to our success. Our design,
research and product development teams, in partnership with our
marketing teams, drive our efforts to bring innovations to
market. We seek to leverage our insights into consumer demand in
the apparel essentials industry to develop new products within
our existing lines and to modify our existing core products in
ways that make them more appealing, addressing changing customer
needs and industry trends. Examples of our recent innovations
include:
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Hanes no ride up panties, specially designed for a better
fit that helps women stay wedgie-free (2008).
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Hanes Lay Flat Collar Undershirts and Hanes No Ride Up
Boxer briefs, the brands latest innovation in product
comfort and fit (2008).
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Bali Concealers bras, the first and only bra with
revolutionary concealing petals for complete modesty (2008).
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Hanes Comfort Soft T-shirt (2007).
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Bali Passion for Comfort bra, designed to be the ultimate
comfort bra, features a silky smooth lining for a luxurious feel
against the body (2007).
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Hanes All-Over Comfort Bra, which features stay-put
straps that dont slip, cushioned wires that dont
poke and a tag-free back (2006).
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One of our key initiatives is to globalize our supply chain by
balancing across hemispheres into economic clusters
with fewer, larger facilities. We expect to continue our
restructuring efforts through the end of 2009 as we continue to
execute our consolidation and globalization strategy. We have
closed plant locations, reduced our workforce, and relocated
some of our manufacturing capacity to lower cost locations in
Asia, Central America and the Caribbean Basin. We have
restructured our supply chain over the past three years to
create more efficient production clusters that utilize fewer,
larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global supply
chain restructured, we are now focused on optimizing our supply
chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the
working capital needs of our supply chain through several
initiatives, such as supplier-managed inventory for raw
materials and sourced goods ownership relationships.
S-4
Company
information
We were incorporated in Maryland on September 30, 2005 and
became an independent public company following our spin off from
Sara Lee Corporation (Sara Lee) on September 5,
2006. Our principal executive offices are located at 1000 East
Hanes Mill Road, Winston-Salem, North Carolina 27105. Our main
telephone number is
(336) 519-8080.
The
transactions
As used in this prospectus supplement, the term
Transactions refers to the financing transactions
described below.
We will use the proceeds from this offering, together with the
borrowings under the term loan and revolving loan facilities
under our existing senior secured first lien credit facility
(the Senior Secured Credit Facilities) that will be
amended and restated concurrently with the consummation of this
offering (as amended and restated, the New Senior Secured
Credit Facilities), including borrowings under the
revolving credit facility of the New Senior Secured Credit
Facilities, to (i) refinance all borrowings outstanding
under the Senior Secured Credit Facilities, (ii) repay all
borrowings outstanding under our existing senior secured second
lien credit facility (the Second Lien Credit
Facility and, together with the Senior Secured Credit
Facilities, the Existing Credit Facilities)
and (iii) to pay the fees and expenses related to the
Transactions. The Second Lien Credit Facility will be paid in
full and terminated concurrently with the closing of this
offering. See Use of proceeds.
S-5
The
offering
The following summary contains basic information about the
notes and is not intended to be complete. For a more complete
understanding of the notes, please refer to the section in this
prospectus supplement entitled Description of notes
and the section in the accompanying prospectus entitled
Description of debt securities.
|
|
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Issuer |
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Hanesbrands Inc. |
|
The notes |
|
$500,000,000 aggregate principal amount of 8.000% Senior
Notes due 2016. |
|
Maturity |
|
December 15, 2016. |
|
Interest payment dates |
|
Interest is payable on the notes on June 15 and
December 15 of each year, beginning on June 15, 2010. |
|
Optional redemption |
|
We may, at our option, redeem all or part of the notes at any
time prior to December 15, 2013 at a make-whole price, and
at any time on or after December 15, 2013 at fixed
redemption prices, plus accrued and unpaid interest, if any, to
the date of redemption, as described under Description of
notesOptional redemption. In addition, prior to
December 15, 2012, we may, at our option, redeem up to 35%
of the notes with the proceeds of certain equity offerings. |
|
Guarantees |
|
The payment of the principal, premium and interest on the notes
will be fully and unconditionally guaranteed on a senior
unsecured basis by substantially all of our existing domestic
subsidiaries and by certain of our future restricted
subsidiaries. In the future, the guarantees may be released or
terminated under certain circumstances. See Description of
notesGuarantees. |
|
Ranking |
|
The notes and the guarantees will be our and the
guarantors senior unsecured obligations and will: |
|
|
|
rank equally in right of payment with all our and
the guarantors existing and future senior unsecured
indebtedness;
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rank senior in right of payment to all our and the
guarantors future senior subordinated and subordinated
indebtedness;
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be effectively subordinated in right of payment to
all our and the guarantors existing and future secured
indebtedness to the extent of the value of the collateral
securing such indebtedness (including all of our borrowings and
the guarantors guarantees under our New Senior Secured
Credit Facilities); and
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|
be structurally subordinated in right of payment to
all existing and future indebtedness and other liabilities of
any of our subsidiaries that is not also a guarantor of the
notes.
|
S-6
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|
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|
As of October 3, 2009, after giving effect to the
Transactions and the application of the estimated net proceeds
therefrom as set forth under Use of proceeds, we
would have had total consolidated indebtedness of
$2,087.7 million, consisting of $845.0 million of
secured indebtedness outstanding under our New Senior Secured
Credit Facilities, $500.0 million of the notes offered
hereby, $493.7 million of our floating rate senior notes
and $249.0 million outstanding under accounts receivable
securitization facility that we entered into on November 27,
2007 (the Accounts Receivable Securitization
Facility). The subsidiary guarantors would have guaranteed
total indebtedness of $1,838.7 million, consisting of
$845.0 million of secured guarantees under our New Senior
Secured Credit Facilities, $500.0 million of unsecured
guarantees of the notes offered hereby and $493.7 million
of unsecured guarantees of our floating rate senior notes,
excluding intercompany indebtedness, and we would have been able
to incur an additional $305.0 million of secured
indebtedness under our New Senior Secured Credit Facilities. Our
non-guarantor subsidiaries would have had $249.0 million of
total indebtedness, consisting of the amounts outstanding under
the Accounts Receivable Securitization Facility. For further
discussion, see Description of other indebtedness. |
|
Covenants |
|
The indenture governing the notes will contain covenants that,
among other things, limit our ability and the ability of our
restricted subsidiaries to: |
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|
|
incur additional debt;
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|
make certain investments or pay dividends or
distributions on our capital stock or purchase, redeem or retire
capital stock (restricted payments);
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sell assets, including capital stock of our
restricted subsidiaries;
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restrict dividends or other payments by restricted
subsidiaries;
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create liens that secure debt;
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enter into transactions with affiliates; and
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merge or consolidate with another company.
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These covenants are subject to a number of important limitations
and exceptions, including a provision allowing us to make
restricted payments in an amount calculated pursuant to a
formula based upon 50% of our adjusted consolidated net income
(as defined in the indenture) since October 1, 2006. As of
October 3, 2009, after giving effect to the Transactions,
we would have had approximately $391.9 million of available
restricted payment capacity pursuant to that provision, in
addition to the restricted payment capacity available under
other exceptions. See Description of
notesCovenants. |
S-7
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|
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In addition, most of the covenants will be suspended if both
Standard & Poors Ratings Services and Moodys
Investors Service, Inc., assign the notes an investment grade
rating and no default exists with respect to the notes. |
|
Change of control offer |
|
If we experience certain kinds of changes of control, we must
give the holders of the notes the opportunity to sell us their
notes at 101% of their principal amount, plus accrued and unpaid
interest, if any, to the repurchase date. |
|
No public market |
|
The notes are a series of securities for which there is
currently no established trading market. The underwriters have
advised us that they presently intend to make a market in the
notes. However, you should be aware that they are not obligated
to make a market in the notes and may discontinue their
market-making activities at any time without notice. As a
result, a liquid market for the notes may not be available if
you try to sell your notes. We do not intend to apply for a
listing of the notes on any securities exchange or any automated
dealer quotation system. |
|
Use of proceeds |
|
We will use the estimated net proceeds from this offering of
approximately $479.9 million to repay or refinance a
portion of the borrowings under our Existing Credit Facilities.
See Use of proceeds. |
|
Form |
|
The notes will be represented by one or more registered global
securities registered in the name of Cede & Co., the
nominee of the depositary, The Depository Trust Company.
Beneficial interests in the notes will be shown on, and
transfers of beneficial interests will be effected through,
records maintained by The Depository Trust Company and its
participants. |
Risk
factors
Investing in the notes involves substantial risk. You should
carefully consider the risk factors set forth in the section
entitled Risk factors and the other information
contained in this prospectus supplement and the accompanying
prospectus and the documents incorporated by reference therein,
prior to making an investment in the notes. See Risk
factors beginning on
page S-11.
S-8
Summary financial
data
Set forth below is our summary consolidated historical financial
data for the periods indicated. The historical financial data
for the periods ended January 3, 2009 and December 29,
2007 and the balance sheet data as of January 3, 2009 and
December 29, 2007 have been derived from our audited
financial statements incorporated by reference in this
prospectus supplement. Our historical financial data as of
October 3, 2009 and September 27, 2008 and for the
nine months ended October 3, 2009 and September 27,
2008 are derived from our unaudited financial statements. You
should read the following summary financial data in conjunction
with Managements discussion and analysis of
financial condition and results of operations and our
historical financial statements and related notes thereto
incorporated by reference in this prospectus supplement.
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|
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Nine months ended
|
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Years ended
|
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|
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October 3,
|
|
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September 27,
|
|
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January 3,
|
|
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December 29,
|
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(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2007
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net sales
|
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$
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2,902,536
|
|
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$
|
3,213,653
|
|
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$
|
4,248,770
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|
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$
|
4,474,537
|
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Cost of sales
|
|
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1,960,589
|
|
|
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2,145,949
|
|
|
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2,871,420
|
|
|
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3,033,627
|
|
|
|
|
|
|
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Gross profit
|
|
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941,947
|
|
|
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1,067,704
|
|
|
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1,377,350
|
|
|
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1,440,910
|
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Selling, general and administrative expenses
|
|
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702,204
|
|
|
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776,267
|
|
|
|
1,009,607
|
|
|
|
1,040,754
|
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Gain on curtailment of postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(32,144
|
)
|
Restructuring
|
|
|
46,319
|
|
|
|
32,355
|
|
|
|
50,263
|
|
|
|
43,731
|
|
|
|
|
|
|
|
Operating profit
|
|
|
193,424
|
|
|
|
259,082
|
|
|
|
317,480
|
|
|
|
388,569
|
|
Other (income) expense
|
|
|
6,537
|
|
|
|
|
|
|
|
(634
|
)
|
|
|
5,235
|
|
Interest expense, net
|
|
|
124,548
|
|
|
|
115,282
|
|
|
|
155,077
|
|
|
|
199,208
|
|
|
|
|
|
|
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Income before income tax expense (benefit)
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|
|
62,339
|
|
|
|
143,800
|
|
|
|
163,037
|
|
|
|
184,126
|
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Income tax expense (benefit)
|
|
|
9,974
|
|
|
|
34,512
|
|
|
|
35,868
|
|
|
|
57,999
|
|
|
|
|
|
|
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Net income
|
|
$
|
52,365
|
|
|
$
|
109,288
|
|
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$
|
127,169
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|
|
$
|
126,127
|
|
|
|
S-9
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|
|
|
|
|
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|
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|
|
|
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October 3,
|
|
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September 27,
|
|
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January 3,
|
|
|
December 29,
|
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(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2007
|
|
|
|
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Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents
|
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$
|
38,617
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|
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$
|
86,212
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|
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$
|
67,342
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|
|
$
|
174,236
|
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Total assets
|
|
|
3,491,913
|
|
|
|
3,627,638
|
|
|
|
3,534,049
|
|
|
|
3,439,483
|
|
Accounts Receivable Securitization Facility
|
|
|
249,043
|
|
|
|
|
|
|
|
45,640
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Long-term debt
|
|
|
1,793,680
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|
|
|
2,315,250
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|
|
|
2,130,907
|
|
|
|
2,315,250
|
|
Other noncurrent liabilities
|
|
|
481,425
|
|
|
|
159,870
|
|
|
|
469,703
|
|
|
|
146,347
|
|
Total noncurrent liabilities
|
|
|
2,275,105
|
|
|
|
2,475,120
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|
|
|
2,600,610
|
|
|
|
2,461,597
|
|
Total stockholders equity
|
|
|
293,184
|
|
|
|
380,934
|
|
|
|
185,155
|
|
|
|
288,904
|
|
|
S-10
Risk
factors
An investment in the notes involves risk. In addition to the
risks described below, you should also carefully read all of the
other information included in this prospectus supplement, the
accompanying prospectus and the documents we have incorporated
by reference into this prospectus supplement in evaluating an
investment in the notes. If any of the described risks actually
were to occur, our business, financial condition or results of
operations could be affected materially and adversely. In that
case, our ability to fulfill our obligations under the notes
could be materially affected and you could lose all or part of
your investment.
The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we
currently deem immaterial individually or in the aggregate may
also impair our business operations.
This prospectus supplement and documents incorporated by
reference also contain forward-looking statements that involve
risks and uncertainties, some of which are described in the
documents incorporated by reference in this prospectus
supplement and the accompanying prospectus. Our actual results
could differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including the risks and uncertainties faced by us described
below or incorporated by reference in this prospectus supplement
and the accompanying prospectus.
Risks related to
our business
We are continuing
to execute our consolidation and globalization strategy and this
process involves significant costs and the risk of operational
interruption.
Since becoming an independent company, we have undertaken a
variety of restructuring efforts in connection with our
consolidation and globalization strategy designed to improve
operating efficiencies and lower costs. As a result of this
strategy, we expected to incur approximately $250 million
in restructuring and related charges over the three year period
following the spin off from Sara Lee on September 5, 2006,
of which approximately half was expected to be noncash. As of
October 3, 2009, we have recognized approximately
$262 million and announced approximately $253 million
in restructuring and related charges related to this strategy
since September 5, 2006, approximately half of which have
been noncash. This process may also result in operational
interruptions, which may have an adverse effect on our business,
results of operations, financial condition and cash flows.
Our supply chain
relies on an extensive network of foreign operations and any
disruption to or adverse impact on such operations may adversely
affect our business, results of operations, financial condition
and cash flows.
We have an extensive global supply chain in which a significant
portion of our products are manufactured in or sourced from
locations in Asia, Central America, the Caribbean Basin and
Mexico and we are continuing to add new manufacturing capacity
in Asia, Central America and the Caribbean Basin. Potential
events that may disrupt our foreign operations include:
|
|
|
political instability and acts of war or terrorism or other
international events resulting in the disruption of trade;
|
|
|
other security risks;
|
S-11
|
|
|
disruptions in shipping and freight forwarding services;
|
|
|
increases in oil prices, which would increase the cost of
shipping;
|
|
|
interruptions in the availability of basic services and
infrastructure, including power shortages;
|
|
|
fluctuations in foreign currency exchange rates resulting in
uncertainty as to future asset and liability values, cost of
goods and results of operations that are denominated in foreign
currencies;
|
|
|
extraordinary weather conditions or natural disasters, such as
hurricanes, earthquakes, tsunamis, floods or fires; and
|
|
|
the occurrence of an epidemic, the spread of which may impact
our ability to obtain products on a timely basis.
|
Disruptions in our foreign supply chain could negatively impact
our business by interrupting production in facilities outside
the United States, increasing our cost of sales, disrupting
merchandise deliveries, delaying receipt of the products into
the United States or preventing us from sourcing our products at
all. Depending on timing, these events could also result in lost
sales, cancellation charges or excessive markdowns. All of the
foregoing can have an adverse effect on our business, results of
operations, financial condition and cash flows.
Current economic
conditions may adversely impact demand for our products, reduce
access to credit and cause our customers and others with which
we do business to suffer financial hardship, all of which could
adversely impact our business, results of operations, financial
condition and cash flows.
Worldwide economic conditions have recently deteriorated
significantly in many countries and regions, including the
United States, and may remain depressed for the foreseeable
future. 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 spending by our customers. Discretionary spending
is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt
levels, the availability of consumer credit, currency exchange
rates, taxation, electricity power rates, gasoline prices,
unemployment trends and other matters that influence consumer
confidence and spending. Many of these factors are outside of
our control. Our customers 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. For example, we experienced a spike in oil
related commodity prices during the summer of 2008. Increases in
our product costs may not be offset by comparable rises in the
income of consumers of our products. These consumers may choose
to purchase fewer of our products or 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 domestic price increases that become effective from
time to time. If any of these events occur, or if unfavorable
economic conditions continue to challenge the consumer
environment, our business, results of operations, financial
condition and cash flows could be adversely affected.
In addition, economic conditions, including decreased access to
credit, may result in financial difficulties leading to
restructurings, bankruptcies, liquidations and other unfavorable
events for our customers, suppliers of raw materials and
finished goods, logistics and other service
S-12
providers and financial institutions which are counterparties to
our credit facilities and derivatives transactions. In addition,
the inability of these third parties to overcome these
difficulties may increase. For example, one of our customers,
Mervyns, a regional retailer in California and the
Southwest that originally filed for reorganization under
Chapter 11 in July 2008, announced in October 2008 its
intention to wind down its business and conduct
going-out-of-business sales at remaining store locations. If
third parties on which we rely for raw materials, finished goods
or services are unable to overcome difficulties resulting from
the deterioration in worldwide economic conditions and provide
us with the materials and services we need, or if counterparties
to our credit facilities or derivatives transactions do not
perform their obligations, our business, results of operations,
financial condition and cash flows could be adversely affected.
Our customers
generally purchase our products on credit, and as a result, our
results of operations, financial condition and cash flows may be
adversely affected if our customers experience financial
difficulties.
During the past several years, various retailers, including some
of our largest customers, have experienced significant
difficulties, including restructurings, bankruptcies and
liquidations, and the inability of retailers to overcome these
difficulties may increase due to the recent deterioration of
worldwide economic conditions. This could adversely affect us
because our customers generally pay us after goods are
delivered. Adverse changes in a customers financial
position could cause us to limit or discontinue business with
that customer, require us to assume more credit risk relating to
that customers future purchases or limit our ability to
collect accounts receivable relating to previous purchases by
that customer. Any of these occurrences could have a material
adverse effect on our business, results of operations, financial
condition and cash flows.
Our substantial
indebtedness subjects us to various restrictions and could
decrease our profitability and otherwise adversely affect our
business.
We have, and following the consummation of this offering
continue to have, a substantial amount of indebtedness. As
described in Managements discussion and analysis of
financial condition and results of operationsLiquidity and
capital resources, our indebtedness includes the
$2.1 billion existing Senior Secured Credit Facilities, the
$450 million existing Second Lien Credit Facility, our
$500 million Floating Rate Senior Notes due 2014 (the
Floating Rate Senior Notes) and the
$250 million Accounts Receivable Securitization Facility.
Simultaneous with the closing of this offering, we expect to
refinance the Senior Secured Credit Facilities and to repay and
terminate the Second Lien Credit Facility. As of October 3,
2009, after giving effect to the Transactions, our total debt
would have been $2,087.7 million, excluding
$305.0 million of unused commitments under the revolving
loan facility of the New Senior Secured Credit Facilities. See
Use of proceeds. The Existing Credit Facilities and
the indenture governing the Floating Rate Senior Notes contain,
and the New Senior Secured Credit Facilities and the indenture
governing the notes offered hereby will contain, restrictions
that affect, and in some cases significantly limit or prohibit,
among other things, our ability to borrow funds, pay dividends
or make other distributions, make investments, engage in
transactions with affiliates, or create liens on our assets.
Our leverage also could put us at a competitive disadvantage
compared to our competitors that are less leveraged. These
competitors could have greater financial flexibility to pursue
strategic
S-13
acquisitions, secure additional financing for their operations
by incurring additional debt, expend capital to expand their
manufacturing and production operations to lower-cost areas and
apply pricing pressure on us. In addition, because many of our
customers rely on us to fulfill a substantial portion of their
apparel essentials demand, any concern these customers may have
regarding our financial condition may cause them to reduce the
amount of products they purchase from us. Our leverage could
also impede our ability to withstand downturns in our industry
or the economy.
If we are unable
to maintain financial ratios associated with our indebtedness,
such failure could cause the acceleration of the maturity of
such indebtedness which would adversely affect our
business.
Covenants in the Existing Credit Facilities and the Accounts
Receivable Securitization Facility require us to maintain a
minimum interest coverage ratio and a maximum total debt to
EBITDA (earnings before income taxes, depreciation expense and
amortization), or leverage ratio. The recent deterioration of
worldwide economic conditions could impact our ability to
maintain the financial ratios contained in these agreements. If
we fail to maintain these financial ratios, that failure could
result in a default that accelerates the maturity of the
indebtedness under such facilities, which could require that we
repay such indebtedness in full, together with accrued and
unpaid interest, unless we are able to negotiate new financial
ratios or waivers of our current ratios with our lenders. Even
if we are able to negotiate new financial ratios or waivers of
our current financial ratios, we may be required to pay fees or
make other concessions that may adversely impact our business.
Any one of these options could result in significantly higher
interest expense in 2009 and beyond. In addition, these options
could require modification of our interest rate derivative
portfolio, which could require us to make a cash payment in the
event of terminating a derivative instrument or impact the
effectiveness of our interest rate hedging instruments and
require us to take non-cash charges. For information regarding
our compliance with these covenants, see Managements
discussion and analysis of financial condition and results of
operationsLiquidity and capital resourcesTrends and
uncertainties affecting liquidity. We expect that the New
Senior Secured Credit Facilities will contain similar
restrictions. See Description of other
indebtednessNew senior secured credit facilities.
If we fail to
meet our payment or other obligations, the lenders could
foreclose on, and acquire control of, substantially all of our
assets.
In connection with our incurrence of indebtedness under the
Existing Credit Facilities, the lenders under those facilities
have received a pledge of substantially all of our existing and
future direct and indirect subsidiaries, with certain customary
or
agreed-upon
exceptions for foreign subsidiaries and certain other
subsidiaries. Additionally, these lenders generally have a lien
on substantially all of our assets and the assets of our
subsidiaries, with certain exceptions. The financial
institutions that are party to the Accounts Receivable
Securization Facility have a lien on certain of our domestic
accounts receivables. As a result of these pledges and liens, if
we fail to meet our payment or other obligations under the
Existing Credit Facilities, the New Senior Secured Credit
Facilities or the Accounts Receivable Securization Facility, the
lenders under those facilities will be entitled to foreclose on
substantially all of our assets and, at their option, liquidate
these assets.
S-14
Our indebtedness
restricts our ability to obtain additional capital in the
future.
The restrictions contained in the Existing Credit Facilities,
the New Senior Secured Credit Facilities and in the indentures
governing the Floating Rate Senior Notes and the notes offered
hereby could limit our ability to obtain additional capital in
the future to fund capital expenditures or acquisitions, meet
our debt payment obligations and capital commitments, fund any
operating losses or future development of our business
affiliates, obtain lower borrowing costs that are available from
secured lenders or engage in advantageous transactions that
monetize our assets, or conduct other necessary or prudent
corporate activities.
If we need to incur additional debt or issue equity in order to
fund working capital and capital expenditures or to make
acquisitions and other investments, debt or equity financing may
not be available to us on acceptable terms or at all. If we are
not able to obtain sufficient financing, we may be unable to
maintain or expand our business. If we raise funds through the
issuance of debt or equity, any debt securities or preferred
stock issued will have rights, preferences and privileges senior
to those of holders of our common stock in the event of a
liquidation, and the terms of the debt securities may impose
restrictions on our operations. If we raise funds through the
issuance of equity, the issuance would dilute the ownership
interest of our stockholders.
To service our
debt obligations, we may need to increase the portion of the
income of our foreign subsidiaries that is expected to be
remitted to the United States, which could increase our income
tax expense.
The amount of the income of our foreign subsidiaries that we
expect to remit to the United States may significantly
impact our U.S. federal income tax expense. We pay
U.S. federal income taxes on that portion of the income of
our foreign subsidiaries that is expected to be remitted to the
United States and be taxable. In order to service our debt
obligations, we may need to increase the portion of the income
of our foreign subsidiaries that we expect to remit to the
United States, which may significantly increase our income tax
expense. Consequently, our income tax expense has been, and will
continue to be, impacted by our strategic initiative to make
substantial capital investments outside the United States.
Significant
fluctuations and volatility in the price of cotton and other raw
materials we purchase may have a material adverse effect on our
business, results of operations, financial condition and cash
flows.
Cotton is the primary raw material used in the manufacturing of
many of our products. Our costs for cotton yarn and cotton-based
textiles vary based upon the fluctuating cost of cotton, which
is affected by weather, consumer demand, speculation on the
commodities market, the relative valuations and fluctuations of
the currencies of producer versus consumer countries and other
factors that are generally unpredictable and beyond our control.
While we attempt to protect our business from the volatility of
the market price of cotton through short-term supply agreements
and hedges from time to time, our business can be adversely
affected by dramatic movements in cotton prices. The cotton
prices reflected in our results were 58 cents per pound for the
nine months ended October 3, 2009 and 62 cents per pound
for the nine months ended September 27, 2008. After taking
into consideration the cotton costs currently included in
inventory, we expect our cost of cotton to average 55 cents per
pound for the full year of 2009 compared to 65 cents per pound
for 2008. The ultimate effect of these pricing levels on our
earnings cannot be quantified, as the effect of movements in
cotton prices on industry selling
S-15
prices are uncertain, but any dramatic increase in the price of
cotton could have a material adverse effect on our business,
results of operations, financial condition and cash flows.
We are not always successful in our efforts to protect our
business from the volatility of the market price of cotton
through short-term supply agreements and hedges, and our
business can be adversely affected by dramatic movements in
cotton prices. For example, we estimate that a change of $0.01
per pound in cotton prices would affect our annual raw material
costs by $3 million, at levels of production as of January
3, 2009. The ultimate effect of this change on our earnings
cannot be quantified, as the effect of movements in cotton
prices on industry selling prices are uncertain, but any
dramatic increase in the price of cotton would have a material
adverse effect on our business, results of operations, financial
condition and cash flows.
In addition, during the summer of 2008 we experienced a spike in
oil related commodity prices and other raw materials used in our
products, such as dyes and chemicals, and increases in other
costs, such as fuel, energy and utility costs. These costs may
fluctuate due to a number of factors outside our control,
including government policy and regulation and weather
conditions.
Current market
returns have had a negative impact on the return on plan assets
for our pension and other postemployment plans, which may
require significant funding.
As widely reported, financial markets in the United States,
Europe and Asia have been experiencing extreme disruption in
recent months. As a result of this disruption in the domestic
and international equity and bond markets, our pension plans and
other postemployment plans had a decrease in asset values of
approximately 32% during the year ended January 3, 2009. We
are unable to predict the severity or the duration of the
current disruptions in the financial markets and the adverse
economic conditions in the United States, Europe and Asia. The
funded status of these plans, and the related cost reflected in
our financial statements, are affected by various factors that
are subject to an inherent degree of uncertainty, particularly
in the current economic environment. Under the Pension
Protection Act of 2006 (the Pension Protection Act),
continued losses of asset values may necessitate increased
funding of the plans in the future to meet minimum federal
government requirements. The continued downward pressure on the
asset values of these plans may require us to fund obligations
earlier than we had originally planned, which would have a
negative impact on cash flows from operations.
The loss of one
or more of our suppliers of finished goods or raw materials may
interrupt our supplies and materially harm our
business.
As of January 3, 2009, we purchase all of the raw materials used
in our products and approximately 34% of the apparel designed by
us from a limited number of third-party suppliers and
manufacturers. Our ability to meet our customers needs
depends on our ability to maintain an uninterrupted supply of
raw materials and finished products from our third-party
suppliers and manufacturers. Our business, financial condition
or results of operations could be adversely affected if any of
our principal third-party suppliers or manufacturers experience
financial difficulties that they are not able to overcome
resulting from the deterioration in worldwide economic
conditions, reproduction problems, lack of capacity or
transportation disruptions. The magnitude of this risk depends
upon the timing of any interruptions, the materials or products
that the third-party manufacturers provide and the volume of
production.
Our dependence on third parties for raw materials and finished
products subjects us to the risk of supplier failure and
customer dissatisfaction with the quality of our products.
Quality failures
S-16
by our third-party manufacturers or changes in their financial
or business condition that affect their production could disrupt
our ability to supply quality products to our customers and
thereby materially harm our business.
If we fail to
manage our inventory effectively, we may be required to
establish additional inventory reserves or we may not carry
enough inventory to meet customer demands, causing us to suffer
lower margins or losses.
We are faced with the constant challenge of balancing our
inventory with our ability to meet marketplace needs. We
continually monitor our inventory levels to best balance current
supply and demand with potential future demand that typically
surges when consumers no longer postpone purchases in our
product categories. Inventory reserves can result from the
complexity of our supply chain, a long manufacturing process and
the seasonal nature of certain products. Increases in inventory
levels may also be needed to service our business as we continue
to execute our consolidation and globalization strategy. As a
result, we could be subject to high levels of obsolescence and
excess stock. Based on discussions with our customers and
internally generated projections, we produce, purchase
and/or store
raw material and finished goods inventory to meet our expected
demand for delivery. However, we sell a large number of our
products to a small number of customers, and these customers
generally are not required by contract to purchase our goods.
If, after producing and storing inventory in anticipation of
deliveries, demand is lower than expected, we may have to hold
inventory for extended periods or sell excess inventory at
reduced prices, in some cases below our cost. There are inherent
uncertainties related to the recoverability of inventory, and it
is possible that market factors and other conditions underlying
the valuation of inventory may change in the future and result
in further reserve requirements. Excess inventory charges can
reduce gross margins or result in operating losses, lowered
plant and equipment utilization and lowered fixed operating cost
absorption, all of which could have a material adverse effect on
our business, results of operations, financial condition or cash
flows.
Conversely, we also are exposed to lost business opportunities
if we underestimate market demand and produce too little
inventory for any particular period. Because sales of our
products are generally not made under contract, if we do not
carry enough inventory to satisfy our customers demands
for our products within an acceptable time frame, they may seek
to fulfill their demands from one or several of our competitors
and may reduce the amount of business they do with us. Any such
action could have a material adverse effect on our business,
results of operations, financial condition and cash flows.
We rely on a
relatively small number of customers for a significant portion
of our sales, and the loss of or material reduction in sales to
any of our top customers would have a material adverse effect on
our business, results of operations, financial condition and
cash flows.
During the year ended January 3, 2009, our top ten
customers accounted for 65% of our net sales and our top
customers, Wal-Mart and Target, accounted for 27% and 16% of our
net sales, respectively. We expect that these customers will
continue to represent a significant portion of our net sales in
the future. In addition, our top customers are the largest
market participants in our primary distribution channels across
all of our product lines. Any loss of or material reduction in
sales to any of our top ten customers, especially Wal-Mart and
Target, would be difficult to recapture, and would have a
material adverse effect on our business, results of operations,
financial condition and cash flows.
S-17
We generally do
not sell our products under contracts, and, as a result, our
customers are generally not contractually obligated to purchase
our products, which causes some uncertainty as to future sales
and inventory levels.
We generally do not enter into purchase agreements that obligate
our customers to purchase our products, and as a result, most of
our sales are made on a purchase order basis. If any of our
customers experiences a significant downturn in its business, or
fails to remain committed to our products or brands, the
customer is generally under no contractual obligation to
purchase our products and, consequently, may reduce or
discontinue purchases from us. In the past, such actions have
resulted in a decrease in sales and an increase in our inventory
and have had an adverse effect on our business, results of
operations, financial condition and cash flows. If such actions
occur again in the future, our business, results of operations
and financial condition will likely be similarly affected.
Our existing
customers may require products on an exclusive basis, forms of
economic support and other changes that could be harmful to our
business.
Customers increasingly may require us to provide them with some
of our products on an exclusive basis, which could cause an
increase in the number of stock keeping units, or
SKUs, we must carry and, consequently, increase our
inventory levels and working capital requirements. Moreover, our
customers may increasingly seek markdown allowances, incentives
and other forms of economic support which reduce our gross
margins and affect our profitability. Our financial performance
is negatively affected by these pricing pressures when we are
forced to reduce our prices without being able to
correspondingly reduce our production costs.
We operate in a
highly competitive and rapidly evolving market, and our market
share and results of operations could be adversely affected if
we fail to compete effectively in the future.
The apparel essentials market is highly competitive and evolving
rapidly. Competition is generally based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. Our businesses face competition today from other
large corporations and foreign manufacturers. These competitors
include Berkshire Hathaway Inc. through its subsidiary Fruit of
the Loom, Inc., Warnaco Group Inc., Maidenform Brands, Inc. and
Gildan Activewear, Inc. in our Innerwear business segment and
Gildan Activewear, Inc., Berkshire Hathaway Inc. through its
subsidiaries Russell Corporation and Fruit of the Loom, Inc.,
Nike, Inc., adidas AG through its adidas and Reebok brands and
Under Armour Inc. in our Outerwear business segment. We also
compete with many small manufacturers across all of our business
segments, including our International segment. Additionally,
department stores, specialty stores and other retailers,
including many of our customers, market and sell apparel
essentials products under private labels that compete directly
with our brands. These customers may buy goods that are
manufactured by others, which represents a lost business
opportunity for us, or they may sell private label products
manufactured by us, which have significantly lower gross margins
than our branded products. We also face intense competition from
specialty stores that sell private label apparel not
manufactured by us, such as Victorias Secret, Old Navy and
The Gap. Increased competition may result in a loss of or a
reduction in shelf space and promotional support and reduced
prices, in each case decreasing our cash flows, operating
margins and profitability. Our ability to remain competitive in
the areas of price, quality, brand recognition, research and
product development, manufacturing and distribution will, in
large part, determine our future
S-18
success. If we fail to compete successfully, our market share,
results of operations and financial condition will be materially
and adversely affected.
Sales of and
demand for our products may decrease if we fail to keep pace
with evolving consumer preferences and trends, which could have
an adverse effect on net sales and profitability.
Our success depends on our ability to anticipate and respond
effectively to evolving consumer preferences and trends and to
translate these preferences and trends into marketable product
offerings. If we are unable to successfully anticipate, identify
or react to changing styles or trends or misjudge the market for
our products, our sales may be lower than expected and we may be
faced with a significant amount of unsold finished goods
inventory. In response, we may be forced to increase our
marketing promotions, provide markdown allowances to our
customers or liquidate excess merchandise, any of which could
have a material adverse effect on our net sales and
profitability. Our brand image may also suffer if customers
believe that we are no longer able to offer innovative products,
respond to consumer preferences or maintain the quality of our
products.
We are prohibited
from selling our Wonderbra and Playtex intimate
apparel products in the EU, as well as certain other countries
in Europe and South Africa, and therefore are unable to take
advantage of business opportunities that may arise in such
countries.
In February 2006, Sara Lee sold its European branded apparel
business to an affiliate of Sun Capital Partners, Inc.
(Sun Capital). In connection with the sale, Sun
Capital received an exclusive, perpetual, royalty-free license
to manufacture, sell and distribute apparel products under the
Wonderbra and Playtex trademarks in the member states of
the European Union (EU), as well as Russia,
South Africa, Switzerland and certain other nations in Europe.
Due to the exclusive license, we are not permitted to sell
Wonderbra and Playtex branded products in these
nations and Sun Capital is not permitted to sell Wonderbra
and Playtex branded products outside of these
nations. Consequently, we will not be able to take advantage of
business opportunities that may arise relating to the sale of
Wonderbra and Playtex products in these nations.
For more information on these sales restrictions see
Description of our businessIntellectual
property.
Our business
could be harmed if we are unable to deliver our products to the
market due to problems with our distribution network.
We distribute our products from facilities that we operate as
well as facilities that are operated by third-party logistics
providers. These facilities include a combination of owned,
leased and contracted distribution centers. We are in the
process of consolidating our distribution network to fewer
larger facilities, including the recent opening of a
1.3 million square foot facility in Perris, California.
This consolidation of our distribution network will involve
significant change, including movement of product during the
transitional period, implementation of new warehouse management
systems and technology, and opening of new distribution centers
and new third-party logistics providers to replace parts of our
legacy distribution network. Because substantially all of our
products are distributed from a relatively small number of
locations, our operations could also be interrupted by
extraordinary weather conditions or natural disasters, such as
hurricanes, earthquakes, tsunamis, floods or fires near our
distribution centers. We maintain business interruption
insurance, but it may not adequately protect us from the adverse
S-19
effects that could be caused by significant disruptions to our
distribution network. In addition, our distribution network is
dependent on the timely performance of services by third
parties, including the transportation of product to and from our
distribution facilities. If we are unable to successfully
operate our distribution network, our business, results of
operations, financial condition and cash flows could be
adversely affected.
Any inadequacy,
interruption, integration failure or security failure with
respect to our information technology could harm our ability to
effectively operate our business.
Our ability to effectively manage and operate our business
depends significantly on our information technology systems. As
part of our efforts to consolidate our operations, we also
expect to continue to incur costs associated with the
integration of our information technology systems across our
company over the next several years. This process involves the
consolidation or possible replacement of technology platforms so
that our business functions are served by fewer platforms, and
has resulted in operational inefficiencies and in some cases
increased our costs. We are subject to the risk that we will not
be able to absorb the level of systems change, commit the
necessary resources or focus the management attention necessary
for the implementation to succeed. Many key strategic
initiatives of major business functions, such as our supply
chain and our finance operations, depend on advanced
capabilities enabled by the new systems and if we fail to
properly execute or if we miss critical deadlines in the
implementation of this initiative, we could experience serious
disruption and harm to our business. The failure of these
systems to operate effectively, problems with transitioning to
upgraded or replacement systems, difficulty in integrating new
systems or systems of acquired businesses or a breach in
security of these systems could adversely impact the operations
of our business.
If we experience
a data security breach and confidential customer information is
disclosed, we may be subject to penalties and experience
negative publicity, which could affect our customer
relationships and have a material adverse effect on our
business.
We and our customers could suffer harm if customer information
were accessed by third parties due to a security failure in our
systems. The collection of data and processing of transactions
through our
direct-to-consumer
internet and catalog operations require us to receive and store
a large amount of personally identifiable data. This type of
data is subject to legislation and regulation in various
jurisdictions. Recently, data security breaches suffered by
well-known companies and institutions have attracted a
substantial amount of media attention, prompting state and
federal legislative proposals addressing data privacy and
security. If some of the current proposals are adopted, we may
be subject to more extensive requirements to protect the
customer information that we process in connection with the
purchases of our products. We may become exposed to potential
liabilities with respect to the data that we collect, manage and
process, and may incur legal costs if our information security
policies and procedures are not effective or if we are required
to defend our methods of collection, processing and storage of
personal data. Future investigations, lawsuits or adverse
publicity relating to our methods of handling personal data
could adversely affect our business, results of operations,
financial condition and cash flows due to the costs and negative
market reaction relating to such developments.
S-20
Compliance with
environmental and other regulations could require significant
expenditures.
We are subject to various federal, state, local and foreign laws
and regulations that govern our activities, operations and
products that may have adverse environmental, health and safety
effects, including laws and regulations relating to generating
emissions, water discharges, waste, product and packaging
content and workplace safety. Noncompliance with these laws and
regulations may result in substantial monetary penalties and
criminal sanctions. Future events that could give rise to
manufacturing interruptions or environmental remediation include
changes in existing laws and regulations, the enactment of new
laws and regulations, a release of hazardous substances on or
from our properties or any associated offsite disposal location,
or the discovery of contamination from current or prior
activities at any of our properties. While we are not aware of
any proposed regulations or remedial obligations that could
trigger significant costs or capital expenditures in order to
comply, any such regulations or obligations could adversely
affect our business, results of operations, financial condition
and cash flows.
International
trade regulations may increase our costs or limit the amount of
products that we can import from suppliers in a particular
country, which could have an adverse effect on our
business.
Because a significant amount of our manufacturing and production
operations are located, or our products are sourced from,
outside the United States, we are subject to international trade
regulations. The international trade regulations to which we are
subject or may become subject include tariffs, safeguards or
quotas. These regulations could limit the countries in which we
produce or from which we source our products or significantly
increase the cost of operating in or obtaining materials
originating from certain countries. Restrictions imposed by
international trade regulations can have a particular impact on
our business when, after we have moved our operations to a
particular location, new unfavorable regulations are enacted in
that area or favorable regulations currently in effect are
changed. The countries in which our products are manufactured or
into which they are imported may from time to time impose
additional new regulations, or modify existing regulations,
including:
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additional duties, taxes, tariffs and other charges on imports,
including retaliatory duties or other trade sanctions, which may
or may not be based on World Trade Organization
(WTO) rules, and which would increase the cost of
products produced in such countries;
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limitations on the quantity of goods which may be imported into
the United States from a particular country, including the
imposition of further safeguard mechanisms by the
U.S. government or governments in other jurisdictions,
limiting our ability to import goods from particular countries,
such as China;
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changes in the classification of products that could result in
higher duty rates than we have historically paid;
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modification of the trading status of certain countries;
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requirements as to where products are manufactured;
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creation of export licensing requirements, imposition of
restrictions on export quantities or specification of minimum
export pricing; or
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creation of other restrictions on imports.
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S-21
Adverse international trade regulations, including those listed
above, would have a material adverse effect on our business,
results of operations, financial condition and cash flows.
Due to the
extensive nature of our foreign operations, fluctuations in
foreign currency exchange rates could negatively impact our
results of operations.
We sell a majority of our products in transactions denominated
in U.S. dollars; however, we purchase many of our raw
materials, including cotton, our primary raw material, pay a
portion of our wages and make other payments in our supply chain
in foreign currencies. As a result, when the U.S. dollar
weakens against any of these currencies, our cost of sales could
increase substantially. Outside the United States, we may pay
for materials or finished products in U.S. dollars, and in
some cases a strengthening of the U.S. dollar could
effectively increase our costs where we use foreign currency to
purchase the U.S. dollars we need to make such payments. We
use foreign exchange forward and option contracts to hedge
material exposure to adverse changes in foreign exchange rates.
We are also exposed to gains and losses resulting from the
effect that fluctuations in foreign currency exchange rates have
on the reported results in our financial statements due to the
translation of operating results and financial position of our
foreign subsidiaries.
We had
approximately 45,200 employees worldwide as of
January 3, 2009, and our business operations and financial
performance could be adversely affected by changes in our
relationship with our employees or changes to U.S. or foreign
employment regulations.
We had approximately 45,200 employees worldwide as of
January 3, 2009. This means we have a significant exposure
to changes in domestic and foreign laws governing our
relationships with our employees, including wage and hour laws
and regulations, fair labor standards, minimum wage
requirements, overtime pay, unemployment tax rates,
workers compensation rates, citizenship requirements and
payroll taxes, which likely would have a direct impact on our
operating costs. Approximately 35,000 of those employees were
outside of the United States. A significant increase in minimum
wage or overtime rates in countries where we have employees
could have a significant impact on our operating costs and may
require that we relocate those operations or take other steps to
mitigate such increases, all of which may cause us to incur
additional costs, expend resources responding to such increases
and lower our margins.
In addition, some of our employees are members of labor
organizations or are covered by collective bargaining
agreements. If there were a significant increase in the number
of our employees who are members of labor organizations or
become parties to collective bargaining agreements, we would
become vulnerable to a strike, work stoppage or other labor
action by these employees that could have an adverse effect on
our business.
We may suffer
negative publicity if we or our third-party manufacturers
violate labor laws or engage in practices that are viewed as
unethical or illegal, which could cause a loss of
business.
We cannot fully control the business and labor practices of our
third-party manufacturers, the majority of whom are located in
Asia, Central America and the Caribbean Basin. If one of our own
manufacturing operations or one of our third-party manufacturers
violates or is accused of violating local or international labor
laws or other applicable regulations, or engages in labor or
other practices that would be viewed in any market in which our
products are sold as unethical, we could suffer negative
publicity, which could tarnish our brands image or result
in a loss of
S-22
sales. In addition, if such negative publicity affected one of
our customers, it could result in a loss of business for us.
Our business
depends on our senior management team and other key
personnel.
Our success depends upon the continued contributions of our
senior management team and other key personnel, some of whom
have unique talents and experience and would be difficult to
replace. The loss or interruption of the services of a member of
our senior management team or other key personnel could have a
material adverse effect on our business during the transitional
period that would be required for a successor to assume the
responsibilities of the position. Our future success will also
depend on our ability to attract and retain key managers, sales
people and others. We may not be able to attract or retain these
employees, which could adversely affect our business.
The success of
our business is tied to the strength and reputation of our
brands, including brands that we license to other parties. If
other parties take actions that weaken, harm the reputation of
or cause confusion with our brands, our business, and
consequently our sales, results of operations and cash flows,
may be adversely affected.
We license some of our important trademarks to third parties.
For example, we license Champion to third parties for
athletic-oriented accessories. Although we make concerted
efforts to protect our brands through quality control mechanisms
and contractual obligations imposed on our licensees, there is a
risk that some licensees may not be in full compliance with
those mechanisms and obligations. In that event, or if a
licensee engages in behavior with respect to the licensed marks
that would cause us reputational harm, we could experience a
significant downturn in that brands business, adversely
affecting our sales and results of operations. Similarly, any
misuse of the Wonderbra or Playtex brands by Sun
Capital could result in negative publicity and a loss of sales
for our products under these brands, any of which may have a
material adverse effect on our business, results of operations,
financial condition or cash flows.
We design,
manufacture, source and sell products under trademarks that are
licensed from third parties. If any licensor takes actions
related to their trademarks that would cause their brands or our
company reputational harm, our business may be adversely
affected.
We design, manufacture, source and sell a number of our products
under trademarks that are licensed from third parties such as
our Polo Ralph Lauren mens underwear. Because we do
not control the brands licensed to us, our licensors could make
changes to their brands or business models that could result in
a significant downturn in a brands business, adversely
affecting our sales and results of operations. If any licensor
engages in behavior with respect to the licensed marks that
would cause us reputational harm, or if any of the brands
licensed to us violates the trademark rights of another or are
deemed to be invalid or unenforceable, we could experience a
significant downturn in that brands business, adversely
affecting our sales and results of operations, and we may be
required to expend significant amounts on public relations,
advertising and, possibly, legal fees.
S-23
Businesses that
we may acquire may fail to perform to expectations, and we may
be unable to successfully integrate acquired businesses with our
existing business.
From time to time, we may evaluate potential acquisition
opportunities to support and strengthen our business. We may not
be able to realize all or a substantial portion of the
anticipated benefits of acquisitions that we may consummate.
Newly acquired businesses may not achieve expected results of
operations, including expected levels of revenues, and may
require unanticipated costs and expenditures. Acquired
businesses may also subject us to liabilities that we were
unable to discover in the course of our due diligence, and our
rights to indemnification from the sellers of such businesses,
even if obtained, may not be sufficient to offset the relevant
liabilities. In addition, the integration of newly acquired
businesses may be expensive and time-consuming and may not be
entirely successful. Integration of the acquired businesses may
also place additional pressures on our systems of internal
control over financial reporting. If we are unable to
successfully integrate newly acquired businesses or if acquired
businesses fail to produce targeted results, it could have an
adverse effect on our results of operations or financial
condition.
Our historical
financial information and operations for periods prior to the
spin off are not necessarily indicative of our results as a
separate company and therefore may not be reliable as an
indicator of our future financial results.
Our historical financial statements for periods prior to the
spin off on September 5, 2006 were created from Sara
Lees financial statements using our historical results of
operations and historical bases of assets and liabilities as
part of Sara Lee. Accordingly, historical financial information
for periods prior to the spin off is not necessarily indicative
of what our financial position, results of operations and cash
flows would have been if we had been a separate, stand alone
entity during those periods. Our historical financial
information for periods prior to the spin off is also not
necessarily indicative of what our results of operations,
financial position and cash flows will be in the future and, for
periods prior to the spin off, does not reflect many significant
changes in our capital structure, funding and operations
resulting from the spin off. While our results of operations for
periods prior to the spin off include all costs of Sara
Lees branded apparel business, these costs and expenses do
not include all of the costs that would have been incurred by us
had we been an independent company during those periods. In
addition, we have not made adjustments to our historical
financial information to reflect changes, many of which are
significant, that occurred in our cost structure, financing and
operations as a result of the spin off, including the
substantial debt we incurred and pension liabilities we assumed
in connection with the spin off. In addition, our effective
income tax rate as reflected in our historical financial
information for periods prior to the spin off has not been and
may not be indicative of our future effective income tax rate.
If the Internal
Revenue Service determines that our spin off from Sara Lee does
not qualify as a tax-free distribution or a
tax-free reorganization, we may be subject to
substantial liability.
Sara Lee has received a private letter ruling from the Internal
Revenue Service, or the IRS, to the effect that,
among other things, the spin off qualifies as a tax-free
distribution for U.S. federal income tax purposes under
Section 355 of the Internal Revenue Code of 1986, as
amended, or the Code, and as part of a tax-free
reorganization under Section 368(a)(1)(D) of the Code, and
the transfer to us of assets and the assumption by us of
liabilities in connection
S-24
with the spin off will not result in the recognition of any gain
or loss for U.S. federal income tax purposes to Sara Lee.
Although the private letter ruling relating to the qualification
of the spin off under Sections 355 and 368(a)(1)(D) of the
Code generally is binding on the IRS, the continuing validity of
the ruling is subject to the accuracy of factual representations
and assumptions made in connection with obtaining such private
letter ruling. Also, as part of the IRSs general policy
with respect to rulings on spin off transactions under
Section 355 of the Code, the private letter ruling obtained
by Sara Lee is based upon representations by Sara Lee that
certain conditions which are necessary to obtain tax-free
treatment under Section 355 and Section 368(a)(1)(D)
of the Code have been satisfied, rather than a determination by
the IRS that these conditions have been satisfied. Any
inaccuracy in these representations could invalidate the ruling.
If the spin off does not qualify for tax-free treatment for
U.S. federal income tax purposes, then, in general, Sara
Lee would be subject to tax as if it has sold the common stock
of our company in a taxable sale for its fair market value. Sara
Lees stockholders would be subject to tax as if they had
received a taxable distribution equal to the fair market value
of our common stock that was distributed to them, taxed as a
dividend (without reduction for any portion of a Sara Lees
stockholders basis in its shares of Sara Lee common stock)
for U.S. federal income tax purposes and possibly for
purposes of state and local tax law, to the extent of a Sara
Lees stockholders pro rata share of Sara Lees
current and accumulated earnings and profits (including any
arising from the taxable gain to Sara Lee with respect to the
spin off). It is expected that the amount of any such taxes to
Sara Lees stockholders and to Sara Lee would be
substantial.
Pursuant to a tax sharing agreement we entered into with Sara
Lee in connection with the spin off, we agreed to indemnify Sara
Lee and its affiliates for any liability for taxes of Sara Lee
resulting from: (1) any action or failure to act by us or
any of our affiliates following the completion of the spin off
that would be inconsistent with or prohibit the spin off from
qualifying as a tax-free transaction to Sara Lee and to Sara
Lees stockholders under Sections 355 and 368(a)(1)(D)
of the Code, or (2) any action or failure to act by us or
any of our affiliates following the completion of the spin off
that would be inconsistent with or cause to be untrue any
material, information, covenant or representation made in
connection with the private letter ruling obtained by Sara Lee
from the IRS relating to, among other things, the qualification
of the spin off as a tax-free transaction described under
Sections 355 and 368(a)(1)(D) of the Code. Our
indemnification obligations to Sara Lee and its affiliates are
not limited in amount or subject to any cap. We expect that the
amount of any such taxes to Sara Lee would be substantial.
Anti-takeover
provisions of our charter and bylaws, as well as Maryland law
and our stockholder rights agreement, may reduce the likelihood
of any potential change of control or unsolicited acquisition
proposal that our investors might consider favorable.
Our charter permits our Board of Directors, without stockholder
approval, to amend the charter to increase or decrease the
aggregate number of shares of stock or the number of shares of
stock of any class or series that we have the authority to
issue. In addition, our Board of Directors may classify or
reclassify any unissued shares of common stock or preferred
stock and may set the preferences, conversion or other rights,
voting powers and other terms of the classified or reclassified
shares. Our Board of Directors could establish a series of
preferred stock that could have the effect of delaying,
deferring or preventing a transaction or a change in
S-25
control that might involve a premium price for our common stock
or otherwise be in the best interest of our stockholders. Our
Board of Directors also is permitted, without stockholder
approval, to implement a classified board structure at any time.
Our bylaws, which only can be amended by our Board of Directors,
provide that nominations of persons for election to our Board of
Directors and the proposal of business to be considered at a
stockholders meeting may be made only in the notice of the
meeting, by our Board of Directors or by a stockholder who is
entitled to vote at the meeting and has complied with the
advance notice procedures of our bylaws. Also, under Maryland
law, business combinations between us and an interested
stockholder or an affiliate of an interested stockholder,
including mergers, consolidations, share exchanges or, in
circumstances specified in the statute, asset transfers or
issuances or reclassifications of equity securities, are
prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. An
interested stockholder includes any person who beneficially owns
10% or more of the voting power of our shares or any affiliate
or associate of ours who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10%
or more of the voting power of our stock. A person is not an
interested stockholder under the statute if our Board of
Directors approved in advance the transaction by which he
otherwise would have become an interested stockholder. However,
in approving a transaction, our Board of Directors may provide
that its approval is subject to compliance, at or after the time
of approval, with any terms and conditions determined by our
board. After the five-year prohibition, any business combination
between us and an interested stockholder generally must be
recommended by our Board of Directors and approved by two
supermajority votes or our common stockholders must receive a
minimum price, as defined under Maryland law, for their shares.
The statute permits various exemptions from its provisions,
including business combinations that are exempted by our Board
of Directors prior to the time that the interested stockholder
becomes an interested stockholder.
In addition, we have adopted a stockholder rights agreement
which provides that in the event of an acquisition of or tender
offer for 15% of our outstanding common stock, our stockholders,
other than the acquiror, shall be granted rights to purchase our
common stock at a certain price. The stockholder rights
agreement could make it more difficult for a third-party to
acquire our common stock without the approval of our Board of
Directors.
These and other provisions of Maryland law or our charter and
bylaws could have the effect of delaying, deferring or
preventing a transaction or a change in control that might
involve a premium price for our common stock or otherwise be
considered favorably by our investors.
Risks relating to
the notes
We and the
guarantors have significant indebtedness and may incur
substantial additional indebtedness in the future, including
indebtedness ranking equal to the notes and the
guarantees.
At October 3, 2009, after giving effect to the Transactions
and the application of the estimated net proceeds therefrom as
set forth under Use of proceeds, we would have had
total consolidated indebtedness of $2,087.7 million,
(including $845.0 million of secured indebtedness and
guarantees under our New Senior Secured Credit Facilities) and
we would have been able to incur an additional
$305.0 million of secured indebtedness under our New Senior
Secured Credit Facilities. For further discussion, see
Description of other indebtednessNew senior secured
credit facilities.
S-26
Subject to the restrictions in the indenture governing the notes
and in other instruments governing our other outstanding
indebtedness (including our New Senior Secured Credit
Facilities), we and our subsidiaries may incur substantial
additional indebtedness (including secured indebtedness) in the
future. Although the indenture governing the notes and the
instruments governing certain of our other outstanding
indebtedness contain restrictions on the incurrence of
additional indebtedness, these restrictions are subject to
waiver and a number of significant qualifications and
exceptions, and indebtedness incurred in compliance with these
restrictions could be substantial.
If we or any subsidiary guarantor incurs any additional
indebtedness that ranks equally with the notes (or with the
guarantee thereof), including trade payables, the holders of
that indebtedness will be entitled to share ratably with
noteholders in any proceeds distributed in connection with any
insolvency, liquidation, reorganization, dissolution or other
winding-up
of us or such subsidiary guarantor. This may have the effect of
reducing the amount of proceeds paid to noteholders in
connection with such a distribution and we may not be able to
meet some or all of our debt obligations, including repayment of
notes.
Any increase in our level of indebtedness will have several
important effects on our future operations, including, without
limitation:
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we will have additional cash requirements in order to support
the payment of interest on our outstanding indebtedness;
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increases in our outstanding indebtedness and leverage will
increase our vulnerability to adverse changes in general
economic and industry conditions, as well as to competitive
pressure; and
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depending on the levels of our outstanding indebtedness, our
ability to obtain additional financing for working capital,
capital expenditures, general corporate and other purposes may
be limited.
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Our debt
instruments have restrictive covenants that could limit our
financial flexibility.
The indentures related to the notes offered hereby and to our
existing Floating Rate Senior Notes and the Existing Credit
Facilities and the New Senior Secured Credit Facilities contain
or will contain restrictive covenants that limit our ability to
engage in activities that may be in our long-term best
interests. Our ability to borrow under these credit facilities
is subject to compliance with certain financial covenants,
including total leverage and interest coverage ratios. The
Existing Credit Facilities and the New Senior Secured Credit
Facilities also include or will include other restrictions that,
among other things, limit our ability to incur certain
additional indebtedness and certain types of liens, to effect
mergers and sales or transfer of assets and to pay cash
dividends.
The indenture governing the notes will contain covenants that,
among other things, limit our ability and the ability of our
restricted subsidiaries to:
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incur additional debt;
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make certain investments or pay dividends or distributions on
our capital stock or purchase, redeem or retire capital stock;
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sell assets, including capital stock of our restricted
subsidiaries;
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S-27
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restrict dividends or other payments by restricted subsidiaries;
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create liens that secure debt;
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enter into transactions with affiliates; and
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merge or consolidate with another company.
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These restrictions could, among other things, limit our ability
to finance our future operations or capital needs, make
acquisitions or pursue available business opportunities.
These covenants are subject to a number of important limitations
and exceptions, including a provision allowing us to make
restricted payments in an amount calculated pursuant to a
formula based upon 50% of our adjusted consolidated net income
(as defined in the indenture) since October 1, 2006. As of
October 3, 2009, after giving effect to the Transactions, we
would have had approximately $391.9 million of available
restricted payment capacity pursuant to that provision, in
addition to the restricted payment capacity available under
other exceptions. See Description of
notesCovenants.
In addition, most of the covenants will be suspended if both
Standard & Poors Ratings Services and Moodys
Investors Service, Inc., assign the notes an investment grade
rating and no default exists with respect to the notes.
See Description of other indebtedness and
Description of notes. Our failure to comply with
these covenants could result in an event of default that, if not
cured or waived, could result in the acceleration of all of our
indebtedness. We do not have sufficient working capital to
satisfy our debt obligations in the event of an acceleration of
all or a significant portion of our outstanding indebtedness.
We may not be
able to generate sufficient cash to service all of our
indebtedness, including the notes, and may be forced to take
other actions to satisfy our obligations under our indebtedness,
which may not be successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We may not be able to
maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness, including the notes.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay planned investments and capital expenditures, or to sell
assets, seek additional financing in the debt or equity markets
or restructure or refinance our indebtedness, including the
notes. Our ability to restructure or refinance our debt will
depend on the condition of the capital markets and our financial
condition at such time. Any refinancing of our debt could be at
higher interest rates and may require us to comply with more
onerous covenants, which could further restrict our business
operations. The terms of existing or future debt instruments and
the indenture governing the notes may restrict us from adopting
some of these alternatives. In addition, any failure to make
payments of interest and principal on our outstanding
indebtedness on a timely basis would likely result in a
reduction of our credit rating, which could harm our ability to
incur additional indebtedness. We could also face substantial
liquidity problems and might be required to dispose of material
assets or operations
S-28
to meet our debt service and other obligations. Our credit
facilities and the indentures governing the notes offered hereby
and our existing Floating Rate Senior Notes restrict our ability
to dispose of assets and use the proceeds from the disposition.
We may not be able to consummate those dispositions or to obtain
the proceeds that we could have realized from them and any
proceeds may not be adequate to meet any debt service
obligations then due. These alternative measures may not be
successful and may not permit us to meet our debt service
obligations.
An increase in
interest rates would increase the cost of servicing our debt and
could reduce our profitability.
Our debt under our New Senior Secured Credit Facilities will
bear and our existing Floating Rate Senior Notes bear interest
at variable rates. We may also incur indebtedness with variable
interest rates in the future. As a result, an increase in market
interest rates could increase the cost of servicing our debt and
could materially reduce our profitability and cash flows.
Your right to
receive payments on the notes is effectively subordinated to the
right of lenders who have a security interest in our assets to
the extent of the value of those assets.
Our obligations under the notes and the guarantors
obligations under their guarantees of the notes will be
unsecured, but our obligations under our New Senior Secured
Credit Facilities and each guarantors obligations under
its guarantee of our New Senior Secured Credit Facilities will
be secured by a security interest in substantially all of our
assets and the ownership interests of all of our subsidiaries.
If we are declared bankrupt or insolvent, or if we default under
our New Senior Secured Credit Facilities the funds borrowed
thereunder, together with accrued interest, could become
immediately due and payable. If we were unable to repay such
indebtedness, the lenders under our New Senior Secured Credit
Facilities could foreclose on the pledged assets to the
exclusion of holders of the notes, even if an event of default
exists under the indenture governing the notes at such time.
Furthermore, if the lenders foreclose and sell the pledged
equity interests in any guarantor in a transaction permitted
under the terms of the indenture governing the notes, then such
guarantor will be released from its guarantee of the notes
automatically and immediately upon such sale. In any such event,
because the notes are not secured by any of such assets or by
the equity interests in any such guarantor, it is possible that
there would be no assets from which your claims could be
satisfied or, if any assets existed, they might be insufficient
to satisfy your claims in full.
As of October 3, 2009, after giving effect to the
Transactions and the application of the estimated net proceeds
therefrom as set forth under Use of proceeds, we
would have had total consolidated indebtedness of
$2,087.7 million, consisting of $845.0 million of
secured indebtedness outstanding under the New Senior Secured
Credit Facilities, $500.0 million of the notes offered
hereby, $493.7 million of the Floating Rate Senior Notes
and $249.0 million outstanding under our Accounts
Receivable Securitization Facility. The subsidiary guarantors
would have guaranteed total indebtedness of
$1,838.7 million, consisting of $845.0 million of
secured guarantees under our New Senior Secured Credit
Facilities $500.0 million of guarantees of the notes
offered hereby and $493.7 million of guarantees of the
Floating Rate Senior Notes, excluding intercompany indebtedness,
and we would have been able to incur an additional
$305.0 million of secured indebtedness under our New Senior
Secured Credit Facilities. For further discussion, see
Description of other indebtedness.
S-29
Our ability to
repay our debt, including the notes, is affected by the cash
flow generated by our subsidiaries.
Our subsidiaries own a portion of our assets and conduct a
portion of our operations. Accordingly, repayment of our
indebtedness, including the notes, will be dependent on the
generation of cash flow by our subsidiaries and their ability to
make such cash available to us, by dividend, debt repayment or
otherwise. Substantially all of our existing domestic
subsidiaries on the date of completion of this offering will
guarantee our obligations under the notes. Unless they guarantee
the notes, any of our future subsidiaries will not have any
obligation to pay amounts due on the notes or to make funds
available for that purpose. Our subsidiaries may not be able to,
or may not be permitted to, make distributions to enable us to
make payments in respect of our indebtedness, including the
notes. Each subsidiary is a distinct legal entity and, under
certain circumstances, legal and contractual restrictions may
limit our ability to obtain cash from our subsidiaries. While
the indenture governing the notes limits the ability of our
subsidiaries to incur consensual encumbrances or restrictions on
their ability to pay dividends or make other intercompany
payments to us, these limitations are subject to waiver and
certain qualifications and exceptions. In the event that we do
not receive distributions from our subsidiaries, we may be
unable to make required principal, premium, if any, and interest
payments on our indebtedness, including the notes. If we are
unable to obtain sufficient funds from our subsidiaries, we may
have to undertake alternative financing plans, such as
refinancing or restructuring our debt, selling assets, reducing
or delaying capital investments or seeking to raise additional
capital. We cannot guarantee that such alternative financing
would be possible or successful. Our inability to generate
sufficient cash flow to satisfy our debt obligations, or to
refinance our obligations on commercially reasonable terms would
have an adverse effect on our business, financial condition,
results of operations and cash flow as well as on our ability to
pay interest or principal on the notes when due, or redeem the
notes upon a change of control.
Claims of
noteholders will be structurally subordinated to claims of
creditors of any of our future subsidiaries that do not
guarantee the notes.
We conduct a portion of our operations through our subsidiaries.
Subject to certain limitations, the indenture governing the
notes permits us to form or acquire certain subsidiaries that
are not guarantors of the notes and to permit such non-guarantor
subsidiaries to acquire assets and incur indebtedness, and
noteholders would not have any claim as a creditor against any
of our non-guarantor subsidiaries to the assets and earnings of
those subsidiaries. The claims of the creditors of those
subsidiaries, including their trade creditors, banks and other
lenders, would have priority over any of our claims or those of
our other subsidiaries as equity holders of the non-guarantor
subsidiaries. Consequently, in any insolvency, liquidation,
reorganization, dissolution or other
winding-up
of any of the non-guarantor subsidiaries, creditors of those
subsidiaries would be paid before any amounts would be
distributed to us or to any of the guarantors as equity, and
thus be available to satisfy our obligations under the notes and
other claims against us or the guarantors.
If we default on
our obligations to pay our other indebtedness, we may not be
able to make payments on the notes.
Any default under the agreements governing our indebtedness,
including a default under our New Senior Secured Credit
Facilities and the indentures governing our existing Floating
Rate Senior Notes and the notes offered hereby, that is not
waived, and the remedies sought by the
S-30
holders of such indebtedness, could prevent us from paying
principal, premium, if any, and interest on the notes and
substantially decrease the market value of the notes. If we are
unable to generate sufficient cash flow and are otherwise unable
to obtain funds necessary to meet required payments of
principal, premium, if any, and interest on our indebtedness, or
if we otherwise fail to comply with the various covenants in the
instruments governing our indebtedness, including covenants in
our New Senior Secured Credit Facilities and the indentures
governing the notes offered hereby and our existing Floating
Rate Senior Notes, we could be in default under the terms of the
agreements governing such indebtedness, including our New Senior
Secured Credit Facilities and the indentures governing the notes
offered hereby and our existing Floating Rate Senior Notes. In
the event of such default:
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the holders of such indebtedness could elect to declare all the
funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest;
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the lenders under our New Senior Secured Credit Facilities could
elect to terminate their commitments thereunder, cease making
further loans and institute foreclosure proceedings against our
assets; and
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we could be forced into bankruptcy or liquidation.
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If our operating performance declines, we may in the future need
to obtain waivers under our New Senior Secured Credit Facilities
to avoid being in default. If we breach our covenants under our
New Senior Secured Credit Facilities and seek a waiver, we may
not be able to obtain a waiver from the required lenders. If
this occurs, we would be in default under our New Senior Secured
Credit Facilities, the lenders could exercise their rights, as
described above, and we could be forced into bankruptcy or
liquidation.
We may not be
able to repurchase the notes upon a change of control.
Upon the occurrence of specific kinds of change of control
events, we may be required to offer to repurchase all
outstanding notes offered hereby and our existing Floating Rate
Senior Notes at 101% of their principal amount plus accrued and
unpaid interest, if any. The source of funds for any such
purchase of such notes will be our available cash or cash
generated from the operations of our subsidiaries or other
sources, including borrowings, sales of assets or sales of
equity or debt securities. We may not be able to repurchase such
notes upon a change of control because we may not have
sufficient financial resources to purchase all of the notes that
are tendered upon a change of control. Our failure to repurchase
the notes offered hereby and our existing Floating Rate Senior
Notes upon a change of control could cause a default under the
indentures governing the notes offered hereby and our existing
Floating Rate Senior Notes and could lead to a cross default
under our New Senior Secured Credit Facilities.
The change of
control put right might not be enforceable.
In a recent decision, the Chancery Court of Delaware raised the
possibility that a change of control put right occurring as a
result of a failure to have continuing directors
comprising a majority of a board of directors might be
unenforceable on public policy grounds.
S-31
Federal
bankruptcy and state fraudulent transfer laws and other
limitations may preclude the recovery of payments under the
guarantees.
Initially, substantially all of our domestic subsidiaries will
guarantee the notes. Federal bankruptcy and state fraudulent
transfer laws permit a court, if it makes certain findings, to
avoid all or a portion of the obligations of the guarantors
pursuant to their guarantees of the notes, or to subordinate any
such guarantors obligations under such guarantee to claims
of its other creditors, reducing or eliminating the
noteholders ability to recover under such guarantees.
Although laws differ among these jurisdictions, in general,
under applicable fraudulent transfer or conveyance laws, a
guarantee could be voided as a fraudulent transfer or conveyance
if (1) the guarantee was incurred with the intent of
hindering, delaying or defrauding creditors; or (2) the
guarantor received less than reasonably equivalent value or fair
consideration in return for incurring the guarantee and, in the
case of (2) only, one of the following is also true:
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the guarantor was insolvent or rendered insolvent by reason of
the incurrence of the guarantee or subsequently become insolvent
for other reasons;
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the incurrence of the guarantee left the guarantor with an
unreasonably small amount of capital to carry on the
business; or
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the guarantor intended to, or believed that it would, incur
debts beyond its ability to pay such debts as they mature.
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A court would likely find that a guarantor did not receive
reasonably equivalent value or fair consideration for its
guarantee if the guarantor did not substantially benefit
directly or indirectly from the issuance of the notes. If a
court were to void a guarantee, you would no longer have a claim
against the guarantor. Sufficient funds to repay the notes may
not be available from other sources, including the remaining
guarantors, if any. In addition, the court might direct you to
repay any amounts that you already received from the guarantor.
The measures of insolvency for purposes of fraudulent transfer
laws vary depending upon the governing law. Generally, a
guarantor would be considered insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all its assets;
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
became absolute and mature; or
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it could not pay its debts as they became due.
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Each guarantee will contain a provision intended to limit the
guarantors liability to the maximum amount that it could
incur without causing the incurrence of obligations under its
guarantee to be a fraudulent transfer. This provision may not be
effective to protect the guarantees from being voided under
fraudulent transfer law.
An active trading
market for the notes may not develop.
There is no existing market for the notes. The notes will not be
listed on any securities exchange. There can be no assurance
that a trading market for the notes will ever develop or will be
maintained. Further, there can be no assurance as to the
liquidity of any market that may develop for the notes, your
ability to sell your notes or the price at which you will be
able to sell your
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notes. Future trading prices of the notes will depend on many
factors, including prevailing interest rates, our financial
condition and results of operations, the then-current ratings
assigned to the notes and the market for similar securities. Any
trading market that develops would be affected by many factors
independent of and in addition to the foregoing, including the:
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time remaining to the maturity of the notes;
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outstanding amount of the notes;
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terms related to optional redemption of the notes; and
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level, direction and volatility of market interest rates
generally.
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If an active market does not develop or is not maintained, the
market price and liquidity of the notes may be adversely
affected.
Many of the
covenants contained in the indenture will be suspended if the
notes are rated investment grade by both of Standard &
Poors Ratings Services and Moodys Investors Service,
Inc.
Many of the covenants in the indenture governing the notes will
be suspended if the notes are rated investment grade by both of
Standard & Poors Ratings Service and
Moodys Investors Service, Inc., provided at such time no
default under the indenture has occurred and is continuing.
These covenants restrict, among other things, our ability to pay
dividends, to incur debt and to enter into certain other
transactions. There can be no assurance that the notes will ever
be rated investment grade, or that if they are rated investment
grade, that the notes will maintain such ratings. However,
suspension of these covenants would allow us to engage in
certain transactions that would not be permitted while these
covenants were in force. Please see Description of
notesCovenantsChanges in covenants when notes rated
investment grade.
S-33
Ratio of earnings
to fixed charges
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Nine months
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ended
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Years ended
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Six months ended
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Years ended
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October 3,
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January 3,
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December 29,
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December 30,
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July 1,
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July 2,
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July 3,
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2009
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2009
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2007
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2006
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2006
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2005
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2004
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Ratio of earnings to fixed
charges(1)
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1.35
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1.91
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1.83
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2.24
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10.37
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7.64
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8.71
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(1)
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The Ratio of Earnings to Fixed
Charges should be read in conjunction with our financial
statements and Managements Discussion and Analysis of
Financial Condition and Results of Operations included or
incorporated by reference in this prospectus supplement. The
interest expense included in the fixed charges calculation above
excludes interest expense relating to the Companys
uncertain tax positions. The percentage of rent included in the
calculation is a reasonable approximation of the interest factor.
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Use of
proceeds
We expect the net proceeds of this offering to be approximately
$479.9 million, after deducting underwriting discounts and
estimated expenses payable by us.
We intend to use the net proceeds from this offering, together
with the proceeds from the borrowings under our New Senior
Secured Credit Facilities to refinance the borrowings under our
existing Senior Secured Credit Facilities, to repay the
borrowings under our existing Second Lien Credit Facility and to
pay fees and expenses relating to the Transactions. Our Second
Lien Credit Facility will be terminated concurrently with the
closing of this offering. In connection with the Transactions,
we expect to recognize cash and non-cash expenses relating to
the unamortized portion of the deferred financing fees relating
to our Existing Credit Facilities and expenses related to this
offering and our New Senior Credit Facilities. We also expect to
recognize an expense of approximately $30.0 million
relating to the termination of a portion of the hedging
arrangements relating to our Existing Credit Facilities. The
expense related to the termination of the hedging arrangements
could change based on changes in interest rates and overall
market conditions.
The revolving credit facility under our Senior Secured Credit
Facilities matures on September 5, 2011 and the term A loan
facility and the term B loan facility under our Senior Secured
Credit Facilities mature on September 5, 2012 and
September 5, 2013, respectively. The Second Lien Credit
Facility matures on March 5, 2014.
As of October 3, 2009, borrowings under the revolving
credit facility of our Senior Secured Credit Facilities would
bear interest at 6.75% and borrowings under the term A loan
facility and the term B loan facility of our Senior Secured
Credit Facilities bore interest at 5.00% and 5.25%,
respectively. Borrowings under the Second Lien Credit Facility
bore interest at 4.25%. See Description of other
indebtednessSenior Secured Credit Facilities and
Description of other indebtednessSecond Lien Credit
Facility, for additional information.
We used borrowings under our Existing Credit Facilities for
payments to Sara Lee in connection with our spin off and for
general corporate purposes.
S-34
Capitalization
The following table sets forth our cash and cash equivalents and
capitalization on a historical basis as of October 3, 2009,
on an actual basis and as adjusted to give effect to the
Transactions. This table should be read in conjunction with
Use of proceeds, Selected historical financial
data, Managements discussion and analysis of
financial condition and results of operations, and our
financial statements and corresponding notes incorporated by
reference in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
October 3, 2009
|
|
(in thousands)
|
|
Actual
|
|
|
As
adjusted(6)
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,617
|
|
|
$
|
38,617
|
|
|
|
|
|
|
|
Debt, including current and long-term
Senior Secured Credit
Facilities:(1)
|
|
|
|
|
|
|
|
|
Term A loan facility
|
|
|
139,000
|
|
|
|
|
|
Term B loan facility
|
|
|
711,000
|
|
|
|
|
|
Revolving credit
facility(2)
|
|
|
|
|
|
|
|
|
Second Lien Credit
Facility(3)
|
|
|
450,000
|
|
|
|
|
|
New Senior Secured Credit
Facilities:(4)
|
|
|
|
|
|
|
|
|
Term loan facility
|
|
|
|
|
|
|
750,000
|
|
Revolving credit facility
|
|
|
|
|
|
|
95,000
|
|
Notes offered
hereby(5)
|
|
|
|
|
|
|
500,000
|
|
Floating Rate Senior Notes
|
|
|
493,680
|
|
|
|
493,680
|
|
Accounts Receivable Securitization Facility
|
|
|
249,043
|
|
|
|
249,043
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
2,042,723
|
|
|
$
|
2,087,723
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
293,184
|
|
|
$
|
293,184
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,335,907
|
|
|
$
|
2,380,907
|
|
|
|
|
|
|
(1)
|
|
The Senior Secured Credit
Facilities consist of a term loan A facility, a term loan B
facility and a revolving credit facility and provide for
aggregate borrowings of up to $2.15 billion. As of
October 3, 2009, we had $139.0 million outstanding
under the term loan A facility, $711.0 million outstanding
under the term loan B facility and no amounts outstanding under
the revolving credit facility. See Description of other
indebtedness for additional information.
|
|
(2)
|
|
As of November 27, 2009, we
had approximately $30.0 million outstanding under the
revolving credit facility, excluding approximately
$26.0 million in letters of credit outstanding.
|
|
(3)
|
|
The Second Lien Credit Facility
provides for aggregate borrowings of $450.0 million by our
wholly-owned subsidiary, HBI Branded Apparel Limited, Inc. As of
October 3, 2009, we had $450.0 million outstanding
under the Second Lien Credit Facility. See Description of
other indebtedness for additional information.
|
|
(4)
|
|
The New Senior Secured Credit
Facilities will consist of a term loan facility and a revolving
credit facility, provide for aggregate borrowings of up to
$1.15 billion, subject to certain conditions, and will have
a six-year maturity for the term loan facility and a four-year
maturity for the revolving credit facility. See
Description of other indebtednessNew senior secured
credit facilities.
|
|
(5)
|
|
Represents the aggregate principal
amount of the notes. The fees and expenses and the discount
related to this offering will accrete over the life of the notes
and will be amortized into interest expense.
|
|
(6)
|
|
Actual amounts may vary from
estimated amounts depending on several factors, including the
discount to the stated principal amount of the notes in
connection with this offering, fluctuations in cash on hand
between October 3, 2009 and the actual closing date of the
Transactions, payments of accrued interest subsequent to
October 3, 2009 and differences from our estimated fees and
expenses. Any changes in these amounts may affect the amount of
cash required for the Transactions.
|
S-35
Selected
historical financial data
The following table presents our selected historical financial
data. The statement of income data for the years ended
January 3, 2009 and December 29, 2007, the six-month
period ended December 30, 2006 and the years ended
July 1, 2006, July 2, 2005 and July 3, 2004, and
the balance sheet data as of January 3, 2009,
December 29, 2007, December 30, 2006, July 1,
2006, July 2, 2005 and July 3, 2004 have been derived
from our audited Consolidated Financial Statements. The
statement of income data for the nine months ended
October 3, 2009 and September 27, 2008 and the balance
sheet data as of October 3, 2009 and September 27,
2008 have been derived from our unaudited Condensed Consolidated
Financial Statements and, in our opinion, have been prepared on
a basis consistent with our audited financial statements. The
results for any interim period are not necessarily indicative of
the results that may be expected for a full fiscal year.
In October 2006, our Board of Directors approved a change in our
fiscal year end from the Saturday closest to June 30 to the
Saturday closest to December 31. As a result of this
change, our financial statements include presentation of the
transition period beginning on July 2, 2006 and ending on
December 30, 2006.
Our historical financial data for periods prior to our spin off
from Sara Lee on September 5, 2006 is not necessarily
indicative of our future performance or what our financial
position and results of operations would have been if we had
operated as a separate, stand alone entity during all of the
periods shown. The data should be read in conjunction with our
historical financial statements and Managements
discussion and analysis of financial condition and results of
operations included elsewhere or incorporated by reference
in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
Years ended
|
|
|
ended
|
|
|
Years ended
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,902,536
|
|
|
$
|
3,213,653
|
|
|
$
|
4,248,770
|
|
|
$
|
4,474,537
|
|
|
$
|
2,250,473
|
|
|
$
|
4,472,832
|
|
|
$
|
4,683,683
|
|
|
$
|
4,632,741
|
|
Cost of sales
|
|
|
1,960,589
|
|
|
|
2,145,949
|
|
|
|
2,871,420
|
|
|
|
3,033,627
|
|
|
|
1,530,119
|
|
|
|
2,987,500
|
|
|
|
3,223,571
|
|
|
|
3,092,026
|
|
|
|
|
|
|
|
Gross profit
|
|
|
941,947
|
|
|
|
1,067,704
|
|
|
|
1,377,350
|
|
|
|
1,440,910
|
|
|
|
720,354
|
|
|
|
1,485,332
|
|
|
|
1,460,112
|
|
|
|
1,540,715
|
|
Selling, general and administrative expenses
|
|
|
702,204
|
|
|
|
776,267
|
|
|
|
1,009,607
|
|
|
|
1,040,754
|
|
|
|
547,469
|
|
|
|
1,051,833
|
|
|
|
1,053,654
|
|
|
|
1,087,964
|
|
Gain on curtailment of postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,144
|
)
|
|
|
(28,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
46,319
|
|
|
|
32,355
|
|
|
|
50,263
|
|
|
|
43,731
|
|
|
|
11,278
|
|
|
|
(101
|
)
|
|
|
46,978
|
|
|
|
27,466
|
|
|
|
|
|
|
|
Operating profit
|
|
|
193,424
|
|
|
|
259,082
|
|
|
|
317,480
|
|
|
|
388,569
|
|
|
|
190,074
|
|
|
|
433,600
|
|
|
|
359,480
|
|
|
|
425,285
|
|
Other (income) expense
|
|
|
6,537
|
|
|
|
|
|
|
|
(634
|
)
|
|
|
5,235
|
|
|
|
7,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
124,548
|
|
|
|
115,282
|
|
|
|
155,077
|
|
|
|
199,208
|
|
|
|
70,753
|
|
|
|
17,280
|
|
|
|
13,964
|
|
|
|
24,413
|
|
|
|
|
|
|
|
Income before income tax expense (benefit)
|
|
|
62,339
|
|
|
|
143,800
|
|
|
|
163,037
|
|
|
|
184,126
|
|
|
|
111,920
|
|
|
|
416,320
|
|
|
|
345,516
|
|
|
|
400,872
|
|
Income tax expense (benefit)
|
|
|
9,974
|
|
|
|
34,512
|
|
|
|
35,868
|
|
|
|
57,999
|
|
|
|
37,781
|
|
|
|
93,827
|
|
|
|
127,007
|
|
|
|
(48,680
|
)
|
|
|
Net income
|
|
$
|
52,365
|
|
|
$
|
109,288
|
|
|
$
|
127,169
|
|
|
$
|
126,127
|
|
|
$
|
74,139
|
|
|
$
|
322,493
|
|
|
$
|
218,509
|
|
|
$
|
449,552
|
|
|
|
S-36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,617
|
|
|
$
|
86,212
|
|
|
$
|
67,342
|
|
|
$
|
174,236
|
|
|
$
|
155,973
|
|
|
$
|
298,252
|
|
|
$
|
1,080,799
|
|
|
$
|
674,154
|
|
Total assets
|
|
|
3,491,913
|
|
|
|
3,627,638
|
|
|
|
3,534,049
|
|
|
|
3,439,483
|
|
|
|
3,435,620
|
|
|
|
4,903,886
|
|
|
|
4,257,307
|
|
|
|
4,402,758
|
|
Accounts Receivable Securitization Facility
|
|
|
249,043
|
|
|
|
|
|
|
|
45,640
|
|
|
|
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,793,680
|
|
|
|
2,315,250
|
|
|
|
2,130,907
|
|
|
|
2,315,250
|
|
|
|
2,484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
|
481,425
|
|
|
|
159,870
|
|
|
|
469,703
|
|
|
|
146,347
|
|
|
|
271,168
|
|
|
|
49,987
|
|
|
|
53,559
|
|
|
|
35,934
|
|
Total noncurrent liabilities
|
|
|
2,275,105
|
|
|
|
2,475,120
|
|
|
|
2,600,610
|
|
|
|
2,461,597
|
|
|
|
2,755,168
|
|
|
|
49,987
|
|
|
|
53,559
|
|
|
|
35,934
|
|
Total stockholders or parent companies equity
|
|
|
293,184
|
|
|
|
380,934
|
|
|
|
185,155
|
|
|
|
288,904
|
|
|
|
69,271
|
|
|
|
3,229,134
|
|
|
|
2,602,362
|
|
|
|
2,797,370
|
|
|
|
S-37
Managements
discussion and analysis of
financial condition and results of operations
This managements discussion and analysis of financial
condition and results of operations, or MD&A, contains
forward-looking statements that involve risks and uncertainties.
Please see Cautionary statement regarding forward-looking
statements and Risk factors in this prospectus
supplement 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 prospectus supplement. On
October 26, 2006, our Board of Directors approved a change
in our fiscal year end from the Saturday closest to June 30 to
the Saturday closest to December 31. We refer to the
resulting transition period from July 2, 2006 to
December 30, 2006 in this prospectus supplement as the six
months ended December 30, 2006. The results of operations
for the periods reflected herein are not necessarily indicative
of results that may be expected for future periods, and our
actual results may differ materially from those discussed in the
forward-looking statements as a result of various factors,
including but not limited to those listed under Risk
factors in this prospectus supplement and included
elsewhere in this prospectus supplement.
MD&A is a supplement to our financial statements and notes
thereto incorporated by reference in this prospectus supplement,
and is provided to enhance your understanding of our results of
operations and financial condition. Our MD&A is organized
as follows:
|
|
|
Overview. This section provides a general
description of our company and operating segments, business and
industry trends, our key business strategies, our consolidation
and globalization strategy, and background information on other
matters discussed in this MD&A.
|
|
|
Components of net sales and expense. This section
provides an overview of the components of our net sales and
expense that are key to an understanding of our results of
operations.
|
|
|
Highlights from the year ended January 3,
2009. This section discusses some of the highlights of
our performance and activities during 2008.
|
|
|
Consolidated results of operations and operating results by
business segment. These sections provide our analysis
and outlook for the significant line items on our statements of
income, as well as other information that we deem meaningful to
an understanding of our results of operations on both a
consolidated basis and a business segment basis.
|
|
|
Liquidity and capital resources. This section
provides an analysis of trends and uncertainties affecting
liquidity, cash requirements for our business, sources and uses
of our cash and our financing arrangements.
|
|
|
Critical accounting policies and estimates. This
section discusses the accounting policies that we consider
important to the evaluation and reporting of our financial
condition and results of operations, and whose application
requires significant judgments or a complex estimation process.
|
|
|
Recently issued accounting pronouncements. This
section provides a summary of the most recent authoritative
accounting pronouncements and guidance that we will be required
to adopt in a future period.
|
S-38
Overview
Our
company
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, C9
by Champion, Playtex, Bali,
Leggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, casualwear, activewear, socks and hosiery.
According to NPD, our brands hold either the number one or
number two U.S. market position by sales value in most
product categories in which we compete, for the 12 month
period ended November 30, 2008. In 2008, Hanes was
number one for the fifth consecutive year on the Womens
Wear Daily Top 100 Brands Survey for apparel and
accessory brands that women know best and was number one for the
fifth consecutive year as the most preferred mens,
womens and childrens apparel brand of consumers in
Retailing Today magazines Top Brands Study.
Additionally, the company had five of the top ten intimate
apparel brands preferred by consumers in the Retailing Today
studyHanes, Playtex, Bali, Just My Size and
Leggs.
Our distribution channels include direct-to-consumer sales at
our outlet stores, national chains and department stores and
warehouse clubs, mass-merchandise outlets and international
sales. For the year ended January 3, 2009, approximately
44% of our net sales were to mass merchants, 18% were to
national chains and department stores, 9% were direct to
consumers, 11% were in our International segment and 18% were to
other retail channels such as embellishers, specialty retailers,
warehouse clubs and sporting goods stores.
Our
segments
Our operations are managed in five operating segments, each of
which is a reportable segment for financial reporting purposes:
Innerwear, Outerwear, Hosiery, International and Other. These
segments are organized principally by product category and
geographic location. Management of each segment is responsible
for the operations of these segments businesses but share
a common supply chain and media and marketing platforms.
|
|
|
Innerwear. The Innerwear segment focuses on core
apparel essentials, and consists of products such as
womens intimate apparel, mens underwear, kids
underwear, socks and thermals, marketed under well-known brands
that are trusted by consumers. We are an intimate apparel
category leader in the United States with our Hanes, Playtex,
Bali, barely there, Just My Size and Wonderbra
brands. We are also a leading manufacturer and marketer of
mens underwear and kids underwear under the
Hanes, Champion, C9 by Champion and Polo
Ralph Lauren brand names. Our
direct-to-consumer
retail operations are included within the Innerwear segment. The
retail operations include our value-based (outlet)
stores, internet operations and catalogs which sell products
from our portfolio of leading brands. As of October 3, 2009
and January 3, 2009, we had 228 and 213 outlet stores,
respectively. Net sales for the nine months ended
October 3, 2009 from our Innerwear segment were
$1.71 billion, representing approximately 58% of total
segment net sales. Net sales for the year ended January 3,
2009 from our Innerwear segment were $2.4 billion,
representing approximately 56% of total segment net sales.
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Outerwear. We are a leader in the casualwear and
activewear markets through our Hanes, Champion and
Just My Size brands, where we offer products such as
t-shirts and fleece. Our
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casualwear lines offer a range of quality, comfortable clothing
for men, women and children marketed under the Hanes and
Just My Size brands. The Just My Size brand offers
casual apparel designed exclusively to meet the needs of
plus-size women. In addition to activewear for men and women,
Champion provides uniforms for athletic programs and
includes an apparel program, C9 by Champion, at Target
stores. We also license our Champion name for collegiate
apparel and footwear. We also supply our t-shirts, sportshirts
and fleece products, including brands such as Hanes,
Champion, Outer Banks and Hanes Beefy-T, to
customers, primarily wholesalers, who then resell to screen
printers and embellishers. Net sales for the nine months ended
October 3, 2009 from our Outerwear segment were
$776 million, representing approximately 26% of total
segment net sales. Net sales for the year ended January 3,
2009 from our Outerwear segment were $1.2 billion,
representing approximately 28% of total segment net sales.
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Hosiery. We are the leading marketer of womens
sheer hosiery in the United States. We compete in the hosiery
market by striving to offer superior values and executing
integrated marketing activities, as well as focusing on the
style of our hosiery products. We market hosiery products under
our Leggs, Hanes and Just My Size brands.
Net sales for the nine months ended October 3, 2009 from
our Hosiery segment were $139 million, representing
approximately 5% of total segment net sales. Net sales for the
year ended January 3, 2009 from our Hosiery segment were
$228 million, representing approximately 5% of total
segment net sales. We expect the trend of declining hosiery
sales to continue consistent with the overall decline in the
industry and with shifts in consumer preferences.
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International. International includes products that
span across the Innerwear, Outerwear and Hosiery reportable
segments and are primarily marketed under the Hanes,
Wonderbra, Champion, Stedman, Playtex, Zorba, Rinbros, Kendall,
Sol y Oro, Ritmo and Bali brands. Net sales for the
nine months ended October 3, 2009 from our International
segment were $295 million, representing approximately 10%
of total segment net sales. Net sales for the year ended
January 3, 2009 from our International segment were
$460 million, representing approximately 11% of total
segment net sales and included sales in Latin America, Asia,
Canada and Europe. Canada, Europe, Japan and Mexico are our
largest international markets, and we also have sales offices in
India and China.
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Other. Our Other segment primarily consists of sales
of yarn to third parties in the United States and Latin
America that maintain asset utilization at certain manufacturing
facilities and are intended to generate approximate break even
margins. Net sales for the nine months ended October 3,
2009 in our Other segment were $12 million, representing
less than 1% of total segment net sales. Net sales for the year
ended January 3, 2009 in our Other segment were
$22 million, representing less than 1% of total segment net
sales. Net sales from our Other segment are expected to continue
to decline and to ultimately become insignificant to us as we
complete the implementation of our consolidation and
globalization efforts. In September 2009, we announced that we
will cease making our own yarn and that we will source all of
our yarn requirements from large-scale yarn suppliers, which is
expected to further reduce net sales of our Other segment.
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Business and
industry trends
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects on
our business. The current retail environment has been impacted
by recent volatility in the financial markets, including
declines in stock prices, and by uncertain
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economic conditions. Increases in food and fuel prices, changes
in the credit and housing markets leading to the current
financial and credit crisis, actual and potential job losses
among many sectors of the economy, significant declines in the
stock market resulting in large losses to consumer retirement
and investment accounts, and uncertainty regarding future
federal tax and economic policies have all added to declines in
consumer confidence and curtailed retail spending.
The apparel essentials market is highly competitive and evolving
rapidly. Competition is generally based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. The majority of our core styles continue from year
to year, with variations only in color, fabric or design
details. Some products, however, such as intimate apparel,
activewear and sheer hosiery, do have an emphasis on style and
innovation. Our businesses face competition today from other
large corporations and foreign manufacturers, as well as smaller
companies, department stores, specialty stores and other
retailers that market and sell apparel essentials products under
private labels that compete directly with our brands.
Our top ten customers accounted for 65% of our net sales and our
top customer, Wal-Mart, accounted for over $1.1 billion of
our sales for the year ended January 3, 2009. Our largest
customers in the year ended January 3, 2009 were Wal-Mart,
Target and Kohls, which accounted for 27%, 16% and 6% of
total sales, respectively. The growth in retailers can create
pricing pressures as our customers grow larger and seek to have
greater concessions in their purchase of our products, while
they can be increasingly demanding that we provide them with
some of our products on an exclusive basis. To counteract these
effects, it has become increasingly important to leverage our
national brands through investment in our largest and strongest
brands as our customers strive to maximize their performance
especially in todays challenging economic environment. In
addition, during the past several years, various retailers,
including some of our largest customers, have experienced
significant difficulties, including restructurings, bankruptcies
and liquidations, and the ability of retailers to overcome these
difficulties may increase due to the recent deterioration of
worldwide economic conditions.
Anticipating changes in and managing our operations in response
to consumer preferences remains an important element of our
business. In recent years, we have experienced changes in our
net sales, revenues and cash flows in accordance with changes in
consumer preferences and trends. For example, we expect the
trend of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences. The Hosiery segment only comprised 5% of our net
sales in the year ended January 3, 2009 however, and as a
result, the decline in the Hosiery segment has not had a
significant impact on our net sales, revenues or cash flows.
Generally, we manage the Hosiery segment for cash, placing an
emphasis on reducing our cost structure and managing cash
efficiently.
Our key business
strategies
Sell more, spend less and generate cash are our broad strategies
to build our brands, reduce our costs and generate cash.
S-41
Sell
more
Through our sell more strategy, we seek to drive
profitable growth by consistently offering consumers brands they
love and trust and products with unsurpassed value. Key
initiatives we are employing to implement this strategy include:
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Build big, strong brands in big core categories with innovative
key items. Our ability to react to changing customer needs and
industry trends is key to our success. Our design, research and
product development teams, in partnership with our marketing
teams, drive our efforts to bring innovations to market. We seek
to leverage our insights into consumer demand in the apparel
essentials industry to develop new products within our existing
lines and to modify our existing core products in ways that make
them more appealing, addressing changing customer needs and
industry trends. We also support our key brands with targeted,
effective advertising and marketing campaigns.
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Foster strategic partnerships with key retailers via team
selling. We foster relationships with key retailers by
applying our extensive category and product knowledge,
leveraging our use of multi-functional customer management teams
and developing new customer-specific programs such as C9 by
Champion for Target. Our goal is to strengthen and deepen
our existing strategic relationships with retailers and develop
new strategic relationships.
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Use Kanban concepts to have the right products available in the
right quantities at the right time. Through Kanban, a
multi-initiative effort that determines production quantities,
and in doing so, facilitates
just-in-time
production and ordering systems, we seek to ensure that products
are available to meet customer demands while effectively
managing inventory levels.
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Spend
less
Through our spend less strategy, we seek to become
an integrated organization that leverages its size and global
reach to reduce costs, improve flexibility and provide a high
level of service. Key initiatives we are employing to implement
this strategy include:
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Globalizing our supply chain by balancing across hemispheres
into economic clusters with fewer, larger
facilities. As a provider of high-volume products, we are
continually seeking to improve our cost-competitiveness and
operating flexibility through supply chain initiatives. Through
our consolidation and globalization strategy, which is discussed
in more detail below, we will continue to transition additional
parts of our supply chain to lower-cost locations in Asia,
Central America and the Caribbean Basin in an effort to optimize
our cost structure. As part of this process, we are using Kanban
concepts to optimize the way we manage demand, to increase
manufacturing flexibility to better respond to demand
variability and to simplify our finished goods and the raw
materials we use to produce them. We expect that these changes
in our supply chain will result in significant cost efficiencies
and increased asset utilization.
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Leverage our global purchasing and manufacturing scale.
Historically, we have had a decentralized operating structure
with many distinct operating units. We are in the process of
consolidating purchasing, manufacturing and sourcing across all
of our product categories in the United States. We believe that
these initiatives will streamline our operations, improve our
inventory management, reduce costs and standardize processes.
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Generate
cash
Through our generate cash strategy, we seek to
effectively generate and invest cash at or above our weighted
average cost of capital to provide superior returns for both our
equity and debt investors. Key initiatives we are employing to
implement this strategy include:
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Optimizing our capital structure to take advantage of our
business models strong and consistent cash flows.
Maintaining appropriate debt leverage and utilizing excess cash
to, for example, pay down debt, invest in our own stock and
selectively pursue strategic acquisitions are keys to building a
stronger business and generating additional value for investors.
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Continuing to improve turns for accounts receivables, inventory,
accounts payable and fixed assets. Our ability to generate cash
is enhanced through more efficient management of accounts
receivables, inventory, accounts payable and fixed assets.
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Consolidation and
globalization strategy
We expect to continue our restructuring efforts through the end
of 2009 as we continue to execute our consolidation and
globalization strategy. We have closed plant locations, reduced
our workforce, and relocated some of our manufacturing capacity
to lower cost locations in Asia, Central America and the
Caribbean Basin.
During the nine months of 2009, we announced that we will cease
making our own yarn and that we will source all of our yarn
requirements from large-scale yarn suppliers. We entered into an
agreement with Parkdale America, LLC (Parkdale
America) under which we agreed to sell or lease assets
related to operations at our four yarn manufacturing facilities
to Parkdale America. The transaction closed in October 2009 and
resulted in Parkdale America operating three of the four
facilities. We approved an action to close the fourth yarn
manufacturing facility, as well as a yarn warehouse and a cotton
warehouse, all located in the United States, which will result
in the elimination of approximately 175 positions. We also
entered into a yarn purchase agreement with Parkdale America and
Parkdale Mills, LLC (together with Parkdale America,
Parkdale). Under this agreement, which has an
initial term of six years, Parkdale will produce and sell to us
a substantial amount of our Western Hemisphere yarn
requirements. During the first two years of the term, Parkdale
will also produce and sell to us a substantial amount of the
yarn requirements of our Nanjing, China textile facility.
We have restructured our supply chain over the past three years
to create more efficient production clusters that utilize fewer,
larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global supply
chain restructured, we are now focused on optimizing our supply
chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the
working capital needs of our supply chain through several
initiatives, such as supplier-managed inventory for raw
materials and sourced goods ownership relationships.
In addition to the actions discussed above relating to our yarn
operations, during the nine months ended October 3, 2009,
in furtherance of our consolidation and globalization strategy,
we approved actions to close four manufacturing facilities and
two distribution centers in the Dominican Republic, the United
States, Honduras, Puerto Rico and Canada, and eliminate an
aggregate of approximately 2,925 positions in those countries
and El Salvador. In addition, approximately 300 management and
administrative positions were eliminated, with the majority of
these positions based in the United States. We also have
recognized accelerated depreciation
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with respect to owned or leased assets associated with
manufacturing facilities and distribution centers which closed
during 2009 or we anticipate closing in the next year as part of
our consolidation and globalization strategy.
During the year ended January 3, 2009, in furtherance of
our consolidation and globalization strategy, we approved
actions to close 11 manufacturing facilities and three
distribution centers and eliminate approximately 6,800 positions
in Mexico, the United States, Costa Rica, Honduras and El
Salvador. In addition, approximately 200 management and
administrative positions were eliminated, with the majority of
these positions based in the United States. We also have
recognized accelerated depreciation with respect to owned or
leased assets associated with manufacturing facilities and
distribution centers which closed during 2008 or we anticipate
closing in the next several years as part of our consolidation
and globalization strategy.
While we believe that this strategy has had and will continue to
have a beneficial impact on our operational efficiency and cost
structure, we have incurred significant costs to implement these
initiatives. In particular, we have recorded charges for
severance and other employment-related obligations relating to
workforce reductions, as well as payments in connection with
lease and other contract terminations. In addition, we incurred
charges for one-time write-offs of stranded raw materials and
work in process inventory determined not to be salvageable or
cost-effective to relocate related to the closure of
manufacturing facilities. These amounts are included in the
Cost of sales, Restructuring and
Selling, general and administrative expenses lines
of our statements of income.
Our significant supply chain capital spending and acquisition
actions during 2008 include:
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During the second quarter of 2008, we added three company-owned
sewing plants in Southeast Asiatwo in Vietnam and one in
Thailandgiving us four sewing plants in Asia.
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In October 2008, we acquired a 370-employee embroidery facility
in Honduras. For the past eight years, these operations have
produced embroidered and screen-printed apparel for us. This
acquisition better positions us for long-term growth in these
segments.
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During the fourth quarter of 2008, we commenced production at
our 500,000 square foot socks manufacturing facility in El
Salvador. This facility, co-located with textile manufacturing
operations that we acquired in 2007, provides a manufacturing
base in Central America from which to leverage our production
scale at a lower cost location.
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We continued construction of a textile production plant in
Nanjing, China, which is our first company-owned textile
production facility in Asia. We commenced production in the
fourth quarter of 2009. The Nanjing textile facility will enable
us to expand and leverage our production scale in Asia as we
balance our supply chain across hemispheres.
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We have made significant progress in our multiyear goal of
generating gross savings that could approach or exceed
$200 million. As a result of the restructuring actions
taken since our spin off from Sara Lee on September 5,
2006, our cost structure was reduced and efficiencies improved,
generating savings of $62 million during the nine months
ended October 3, 2009 and during the year ended
January 3, 2009. In addition to the savings generated from
restructuring actions, we benefited from $21 million in
savings related to other cost reduction initiatives during the
nine months ended October 3, 2009, and we benefited from
$14 million in savings related to other cost reduction
initiatives during the year ended January 3, 2009. Of the
seven manufacturing facilities and distribution centers approved
for closure in 2006, two were closed in 2006 and five were
closed in 2007. Of the 19 manufacturing facilities and
distribution centers approved
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for closure in 2007, 10 were closed in 2007 and nine were closed
in 2008. Of the 14 manufacturing facilities and distribution
centers approved for closure in 2008, nine were closed in 2008
and five are expected to close in 2009. For more information
about our restructuring actions, see Note 5, titled
Restructuring to our Consolidated Financial
Statements for the year ended January 3, 2009 and
Note 4 to our Condensed Consolidated Financial Statements
for the period ended October 3, 2009 incorporated by
reference in this prospectus supplement.
The continued implementation of our globalization and
consolidation strategy, which is designed to improve operating
efficiencies and lower costs, has resulted and is likely to
continue to result in significant costs in the short-term and
generate savings as well as higher inventory levels for the next
12 to 15 months. As further plans are developed and
approved, we expect to recognize additional restructuring costs
as we eliminate duplicative functions within the organization
and transition a significant portion of our manufacturing
capacity to lower-cost locations. As a result of this strategy,
we expect to incur approximately $250 million in
restructuring and related charges over the three year period
following the spin off from Sara Lee on September 5, 2006,
of which approximately half is expected to be noncash. As of
January 3, 2009, we have recognized approximately
$209 million and announced approximately $219 million
in restructuring and related charges related to these efforts
since September 5, 2006. Of these charges, approximately
$84 million relates to accelerated depreciation of
buildings and equipment for facilities that have been or will be
closed, approximately $79 million relates to employee
termination and other benefits, approximately $19 million
relates to write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or
cost-effective to relocate, approximately $17 million
relates to lease termination and other costs and approximately
$10 million related to impairments of fixed assets.
Seasonality and
other factors
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather,
back-to-school
shopping and holidays. Sales levels in any period are also
impacted by 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. For example, we have experienced a shift in timing
by our largest retail customers of
back-to-school
programs between June and July the last two years. Our results
of operations are also impacted by fluctuations and volatility
in the price of cotton and oil-related materials and the timing
of actual spending for our media, advertising and promotion
expenses. 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 spending by our customers. Discretionary spending
is affected by many factors, including, among others, general
business conditions, interest rates, inflation, consumer debt
levels, the availability of consumer credit, currency exchange
rates, taxation, electricity power rates, gasoline prices,
unemployment trends and other matters that influence consumer
confidence and spending. Many of these factors are outside of
our control. Our customers purchases of discretionary
items, including our products, could decline during periods when
disposable
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income is lower, when prices increase in response to rising
costs, or in periods of actual or perceived unfavorable economic
conditions. These consumers may choose to purchase fewer of our
products or 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 and
changing prices
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, a significant portion of our
products are manufactured in other countries and declines in the
value of the U.S. dollar may result in higher manufacturing
costs. Similarly, the cost of the materials that are used in our
manufacturing process, such as oil related commodity prices,
rose during the summer of 2008 as a result of inflation and
other factors. In addition, inflation often is accompanied by
higher interest rates, which could have a negative impact on
spending, in which case our margins could decrease. Moreover,
increases in inflation may not be matched by rises in income,
which also could have a negative impact on spending. If we incur
increased costs that we are unable to recoup, or if consumer
spending continues to decrease generally, our business, results
of operations, financial condition and cash flows may be
adversely affected. In an effort to mitigate the impact of these
incremental costs on our operating results, we raised domestic
prices effective February 2009. We implemented an average gross
price increase of four percent in our domestic product
categories. The range of price increases varies by individual
product category.
Our costs for cotton yarn and cotton-based textiles vary based
upon the fluctuating cost of cotton, which is affected by
weather, consumer demand, speculation on the commodities market,
the relative valuations and fluctuations of the currencies of
producer versus consumer countries and other factors that are
generally unpredictable and beyond our control. While we do
enter into short-term supply agreements and hedges from time to
time in an attempt to protect our business from the volatility
of the market price of cotton, our business can be affected by
dramatic movements in cotton prices, although cotton
historically represents only 8% of our cost of sales. The cotton
prices reflected in our results were 58 cents per pound for the
nine months ended October 3, 2009, 62 cents per pound for
the nine months ended September 27, 2008, 65 cents per
pound for the year ended January 3, 2009 and 56 cents per
pound for the year ended December 29, 2007. After taking
into consideration the cotton costs currently included in
inventory, we expect our cost of cotton to average 55 cents per
pound for the full year of 2009 compared to 65 cents per pound
for 2008. In addition, during the summer of 2008 we experienced
a spike in oil-related commodity prices and other raw materials
used in our products, such as dyes and chemicals, and increases
in other costs, such as fuel, energy and utility costs. Costs
incurred for materials and labor are capitalized into inventory
and impact our results as the inventory is sold. Our results in
the nine months of 2009 were impacted by higher costs for cotton
and oil-related materials, however we started to benefit in the
second quarter of 2009 from lower cotton costs and in the third
quarter of 2009 from lower oil-related material costs and other
manufacturing costs.
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Components of net
sales and expense
Net
sales
We generate net sales by selling apparel essentials such as
t-shirts, bras, panties, mens underwear, kids
underwear, socks, hosiery, casualwear and activewear. Our net
sales are recognized net of discounts, coupons, rebates,
volume-based incentives and cooperative advertising costs. We
recognize revenue when (i) there is persuasive evidence of
an arrangement, (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have
been transferred to the customer and (iv) collection of the
receivable is reasonably assured, which occurs primarily upon
shipment. Net sales include an estimate for returns and
allowances based upon historical return experience. We also
offer a variety of sales incentives to resellers and consumers
that are recorded as reductions to net sales.
Cost of
sales
Our cost of sales includes the cost of manufacturing finished
goods, which consists of labor, raw materials such as cotton and
petroleum-based products and overhead costs such as depreciation
on owned facilities and equipment. Our cost of sales also
includes finished goods sourced from third-party manufacturers
that supply us with products based on our designs as well as
charges for slow moving or obsolete inventories. Rebates,
discounts and other cash consideration received from a vendor
related to inventory purchases are reflected in cost of sales
when the related inventory item is sold. Our costs of sales do
not include shipping costs, comprised of payments to third party
shippers, or handling costs, comprised of warehousing costs in
our distribution facilities, and thus our gross margins may not
be comparable to those of other entities that include such costs
in cost of sales.
Selling, general
and administrative expenses
Our selling, general and administrative expenses include
selling, advertising, costs of shipping, handling and
distribution to our customers, research and development, rent on
leased facilities, depreciation on owned facilities and
equipment and other general and administrative expenses. Also
included for periods presented prior to the spin off on
September 5, 2006 are allocations of corporate expenses
that consist of expenses for business insurance, medical
insurance, employee benefit plan amounts and, because we were
part of Sara Lee those periods, allocations from Sara Lee for
certain centralized administration costs for treasury, real
estate, accounting, auditing, tax, risk management, human
resources and benefits administration. These allocations of
centralized administration costs were determined on bases that
we and Sara Lee considered to be reasonable and take into
consideration and include relevant operating profit, fixed
assets, sales and payroll. Selling, general and administrative
expenses also include management payroll, benefits, travel,
information systems, accounting, insurance and legal expenses.
Restructuring
We have from time to time closed facilities and reduced
headcount, including in connection with previously announced
restructuring and business transformation plans. We refer to
these activities as restructuring actions. When we decide to
close facilities or reduce headcount, we take estimated charges
for such restructuring, including charges for exited
non-cancelable leases and other contractual obligations, as well
as severance and benefits. If the actual charge is
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different from the original estimate, an adjustment is
recognized in the period such change in estimate is identified.
Other (income)
expenses
Our other (income) expenses include charges such as losses on
early extinguishment of debt and certain other non-operating
items.
Interest expense,
net
As part of the spin off from Sara Lee on September 5, 2006,
we incurred $2.6 billion of debt. Since the spin off, we
have made changes in our financing structuring and have repaid
some of our debt. In December 2006, we issued $500 million
of Floating Rate Senior Notes and the proceeds were used to
repay a portion of the debt incurred at the spin off. In
November 2007, we entered into the Accounts Receivable
Securitization Facility which provides for up to
$250 million in funding accounted for as a secured
borrowing, all of which we borrowed and used to repay a portion
of the Senior Secured Credit Facilities. In addition, we have
amended the terms of our Senior Secured Credit Facilities and
Second Lien Credit Facility to provide more flexibility to
change our financial structure in the future.
Our interest expense is net of interest income. Interest income
is the return we earned on our cash and cash equivalents and,
historically, on money we loaned to Sara Lee as part of its
corporate cash management practices. Our cash and cash
equivalents are invested in highly liquid investments with
original maturities of three months or less.
Income tax
expense (benefit)
Our effective income tax rate fluctuates from period to period
and can be materially impacted by, among other things:
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changes in the mix of our earnings from the various
jurisdictions in which we operate;
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the tax characteristics of our earnings;
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the timing and amount of earnings of foreign subsidiaries that
we repatriate to the United States, which may increase our
tax expense and taxes paid; and
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the timing and results of any reviews of our income tax filing
positions in the jurisdictions in which we transact business.
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Highlights from
the third quarter and nine months ended October 3,
2009
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Total net sales in the third quarter of 2009 were
$1.06 billion, compared with $1.15 billion in the same
quarter of 2008. Total net sales in the nine-month period in
2009 were $2.90 billion, compared with $3.21 billion
in the same nine-month period of 2008.
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Operating profit was $93 million in the third quarter of
2009, compared with $58 million in the same quarter of
2008. Operating profit was $193 million in the nine-month
period in 2009, compared with $259 million in the same
nine-month period of 2008.
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Diluted earnings per share were $0.43 in the third quarter of
2009, compared with $0.17 in the same quarter of 2008. Diluted
earnings per share were $0.55 in the nine-month period in 2009,
compared with $1.14 in the same nine-month period of 2008.
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During the first nine months of 2009, we approved actions to
close five manufacturing facilities, two distribution centers
and two warehouses in the Dominican Republic, the
United States, Honduras, Puerto Rico and Canada, and
eliminate an aggregate of approximately 3,100 positions in those
countries and El Salvador. In addition, approximately 300
management and administrative positions were eliminated, with
the majority of these positions based in the United States. In
addition, we completed several such actions in 2009 that were
approved in 2008.
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We announced that we will cease making our own yarn and that we
will source all of our yarn requirements from large-scale yarn
suppliers. We entered into an agreement with Parkdale America
under which we agreed to sell or lease assets related to
operations at our four yarn manufacturing facilities to Parkdale
America. The transaction closed in October 2009 and resulted in
Parkdale America operating three of the four facilities. We also
entered into a yarn purchase agreement with Parkdale. Under this
agreement, which has an initial term of six years, Parkdale will
produce and sell to us a substantial amount of our Western
Hemisphere yarn requirements. During the first two years of the
term, Parkdale will also produce and sell to us a substantial
amount of the yarn requirements of our Nanjing, China textile
facility.
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Gross capital expenditures were $100 million during the
first nine months of 2009 as we continued to build out our
textile and sewing network in Asia, Central America and the
Caribbean Basin and were lower by $24 million compared to
the nine months of 2008.
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|
|
In September 2009, we made a prepayment of $140 million of
principal on the Senior Secured Credit Facilities.
|
|
|
We ended the third quarter of 2009 with $474 million of
borrowing availability under our existing $500 million
revolving loan facility (the Revolving Loan
Facility), $39 million in cash and cash equivalents
and $71 million of borrowing availability under our
international loan facilities.
|
|
|
In March 2009, we amended our Senior Secured Credit Facilities
and Accounts Receivable Securitization Facility to provide for
additional cushion for the leverage ratio and interest coverage
ratio covenant requirements.
|
Highlights from
the year ended January 3, 2009
|
|
|
Diluted earnings per share were $1.34 in the year ended
January 3, 2009, compared with $1.30 in the year ended
December 29, 2007.
|
|
|
Operating profit was $317 million in the year ended
January 3, 2009, compared with $389 million in the
year ended December 29, 2007.
|
|
|
Total net sales in the year ended January 3, 2009 was
$4.25 billion, compared with $4.47 billion in the year
ended December 29, 2007.
|
|
|
During the year ended January 3, 2009, we approved actions
to close 11 manufacturing facilities and three distribution
centers in Mexico, the United States, Costa Rica, Honduras and
El Salvador. The production capacity represented by the
manufacturing facilities has been relocated to lower cost
locations in Asia, Central America and the Caribbean Basin. The
|
S-49
|
|
|
distribution capacity has been relocated to our West Coast
distribution facility in California in order to expand capacity
for goods we source from Asia. In addition, we completed several
such actions in the year ended January 3, 2009 that were
approved in 2008.
|
|
|
|
Gross capital expenditures were $187 million during the
year ended January 3, 2009 as we continued to build out our
textile and sewing network in Asia, Central America and the
Caribbean Basin.
|
|
|
During the second quarter of 2008, we added three company-owned
sewing plants in Southeast Asiatwo in Vietnam and one in
Thailandgiving us four sewing plants in Asia. In addition,
during the fourth quarter of 2008, we acquired an embroidery
facility in Honduras.
|
|
|
We repurchased $30 million of company stock during the year
ended January 3, 2009.
|
|
|
We ended 2008 with $463 million of borrowing availability
under our $500 million Revolving Loan Facility,
$67 million in cash and cash equivalents and
$67 million of borrowing availability under our
international loan facilities, compared to $430 million,
$174 million and $89 million, respectively, at the end
of 2007.
|
Condensed
consolidated results of operationsNine months ended
October 3, 2009 compared with nine months ended
September 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
2,902,536
|
|
|
$
|
3,213,653
|
|
|
$
|
(311,117
|
)
|
|
|
(9.7%
|
)
|
Cost of sales
|
|
|
1,960,589
|
|
|
|
2,145,949
|
|
|
|
(185,360
|
)
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
941,947
|
|
|
|
1,067,704
|
|
|
|
(125,757
|
)
|
|
|
(11.8
|
)
|
Selling, general and administrative expenses
|
|
|
702,204
|
|
|
|
776,267
|
|
|
|
(74,063
|
)
|
|
|
(9.5
|
)
|
Restructuring
|
|
|
46,319
|
|
|
|
32,355
|
|
|
|
13,964
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
193,424
|
|
|
|
259,082
|
|
|
|
(65,658
|
)
|
|
|
(25.3
|
)
|
Other expenses
|
|
|
6,537
|
|
|
|
|
|
|
|
6,537
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
124,548
|
|
|
|
115,282
|
|
|
|
9,266
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
62,339
|
|
|
|
143,800
|
|
|
|
(81,461
|
)
|
|
|
(56.6
|
)
|
Income tax expense
|
|
|
9,974
|
|
|
|
34,512
|
|
|
|
(24,538
|
)
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,365
|
|
|
$
|
109,288
|
|
|
$
|
(56,923
|
)
|
|
|
(52.1%
|
)
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
2,902,536
|
|
|
$
|
3,213,653
|
|
|
$
|
(311,117
|
)
|
|
|
(9.7%
|
)
|
|
|
S-50
Consolidated net sales were lower by $311 million or 10% in
the nine months of 2009 compared to 2008. The net sales decline
in the nine months of 2009 was primarily attributed to the
recessionary environment that continued into the first nine
months of 2009. Overall retail sales for apparel continued to
decline during 2009 at most of our larger customers as the
continuing recession constrained consumer spending. Our sales
incentives were higher in the nine months of 2009 compared to
2008 as we made significant investments, especially in
back-to-school
programs and promotions, in this recessionary environment to
support retailers and position ourselves for future sales
opportunities. Excluding the cost of these investments, our net
sales would have declined by 9%.
Innerwear, Outerwear, Hosiery and International segment net
sales were lower by $120 million (7%), $105 million
(12%), $27 million (16%) and $57 million (16%),
respectively, in the nine months of 2009 compared to 2008. Our
Other segment net sales were lower, as expected, by
$8 million in the nine months of 2009 compared to 2008.
Innerwear segment net sales were lower (7%) in the nine months
of 2009 compared to 2008, primarily due to lower net sales of
intimate apparel (13%) and socks (12%) primarily due to weak
sales at retail in this difficult economic environment,
partially offset by stronger net sales (2%) in our male
underwear product category.
Outerwear segment net sales were lower (12%) in the nine months
of 2009 compared to 2008, primarily due to the lower casualwear
net sales in both the retail (27%) and wholesale (21%) channels.
The wholesale channel has been highly price competitive
especially in this recessionary environment. The lower
casualwear net sales in the retail and wholesale channels were
partially offset by higher net sales (8%) of our Champion
brand activewear. The results for the first half of 2009
were negatively impacted by losses of seasonal programs in the
retail casualwear channel that are not impacting our results in
the second half of 2009.
Hosiery segment net sales were lower (16%) in the nine months of
2009 compared to 2008. The net sales decline rate over the most
recent two consecutive quarters has improved compared to the net
sales decline rate for the second half of 2008 and the first
quarter of 2009 in each of which net sales declined by more than
20%. Hosiery products in all channels continue to be more
adversely impacted than other apparel categories by reduced
consumer discretionary spending.
International segment net sales were lower (16%) in the nine
months of 2009 compared to 2008, primarily attributable to an
unfavorable impact of $31 million related to foreign
currency exchange rates and weak demand globally primarily in
Europe, Japan and Canada which are experiencing recessionary
environments similar to that in the United States. Excluding the
impact of foreign exchange rates on currency, International
segment net sales declined by 8% in the nine months of 2009
compared to 2008.
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Gross profit
|
|
$
|
941,947
|
|
|
$
|
1,067,704
|
|
|
$
|
(125,757
|
)
|
|
|
(11.8%
|
)
|
|
|
S-51
Our gross profit was lower by $126 million in the nine
months of 2009 compared to 2008. As a percent of net sales, our
gross profit was 32.5% in the nine months of 2009 compared to
33.2% in 2008, declining as a result of the items described
below.
Gross profit was lower due to lower sales volume of
$139 million, unfavorable product sales mix of
$53 million and higher sales incentives of
$31 million. Our sales incentives were higher as we made
significant investments, especially in
back-to-school
programs and promotions, in this recessionary environment to
support retailers and position ourselves for future sales
opportunities. Other factors contributing to lower gross profit
were higher production costs of $21 million related to
higher energy and oil-related costs, including freight costs,
higher other manufacturing costs of $16 million primarily
related to lower volume partially offset by cost reductions at
our manufacturing facilities, other vendor price increases of
$13 million, higher cost of finished goods sourced from
third party manufacturers of $12 million primarily
resulting from foreign exchange transaction losses, an
$11 million unfavorable impact related to foreign currency
exchange rates and $3 million of higher
start-up and
shutdown costs associated with the consolidation and
globalization of our supply chain. The unfavorable impact of
foreign currency exchange rates in our International segment was
primarily due to the strengthening of the U.S. dollar
compared to the Mexican peso, Canadian dollar, Brazilian real
and Euro partially offset by the strengthening of the Japanese
yen compared to the U.S. dollar during the nine months of
2009 compared to 2008.
Our gross profit was positively impacted by higher product
pricing of $91 million before increased sales incentives,
savings from our prior restructuring actions of
$38 million, lower on-going excess and obsolete inventory
costs of $18 million and lower cotton costs of
$8 million. The higher product pricing was due to the
implementation of an average gross price increase of four
percent in our domestic product categories in February 2009. The
range of price increases varies by individual product category.
The lower excess and obsolete inventory costs in the first nine
months of 2009 are attributable to both our continuous
evaluation of inventory levels and simplification of our product
category offerings. We realized these benefits by driving down
obsolete inventory levels through aggressive management and
promotions.
The cotton prices reflected in our results were 58 cents per
pound in the nine months of 2009 as compared to 62 cents per
pound in 2008. After taking into consideration the cotton costs
currently included in inventory, we expect our cost of cotton to
average 55 cents per pound for the full year of 2009 compared to
65 cents per pound for 2008. Energy and oil-related costs were
higher due to a spike in oil-related commodity prices during the
summer of 2008. Our results in the nine months of 2009 were
impacted by higher costs for cotton and oil-related materials,
however we started to benefit in the second quarter of 2009 from
lower cotton costs and in the third quarter of 2009 from lower
oil-related material costs and other manufacturing costs.
We incurred lower one-time restructuring related write-offs of
$11 million in the nine months of 2009 compared to 2008 for
stranded raw materials and work in process inventory determined
not to be salvageable or cost-effective to relocate. Accelerated
depreciation was lower by $9 million in the nine months of
2009 compared to 2008.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
702,204
|
|
|
$
|
776,267
|
|
|
$
|
(74,063
|
)
|
|
|
(9.5%
|
)
|
|
|
S-52
Our selling, general and administrative expenses were
$74 million lower in the nine months of 2009 compared to
2008. Our continued focus on cost reductions resulted in lower
expenses in the nine months of 2009 compared to 2008 related to
savings of $24 million from our prior restructuring actions
for compensation and related benefits, lower technology expenses
of $21 million, lower bad debt expense of $7 million
primarily due to a customer bankruptcy in 2008, lower selling
and other marketing related expenses of $5 million, lower
consulting related expenses of $3 million and lower
non-media related media, advertising and promotion
(MAP) expenses of $1 million. In addition, our
distribution expenses were lower by $12 million in the nine
months of 2009 compared to 2008, which was primarily
attributable to lower sales volume that reduced our labor,
postage and freight expenses and lower rework expenses in our
distribution centers.
Our media related MAP expenses were $34 million lower in
the nine months of 2009 compared to 2008 as we chose to reduce
our spending. MAP 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.
Our pension and stock compensation expenses, which are noncash,
were higher by $24 million and $5 million,
respectively, in the nine months of 2009 compared to 2008. The
higher pension expense is primarily due to the lower funded
status of our pension plans at the end of 2008, which resulted
from a decline in the fair value of plan assets due to the stock
markets performance during 2008 and a higher discount rate
at the end of 2008.
We also incurred higher expenses of $4 million in the nine
months of 2009 compared to 2008 as a result of opening retail
stores. We opened 17 retail stores during the nine months of
2009. In addition, we incurred higher other expenses of
$2 million related to amending the terms of all outstanding
stock options granted under the Hanesbrands Inc. Omnibus
Incentive Plan of 2006 (the Omnibus Incentive Plan)
that had an original term of five or seven years to the tenth
anniversary of the original grant date. Changes due to foreign
currency exchange rates, which are included in the impact of the
changes discussed above, resulted in lower selling, general and
administrative expenses of $9 million in the nine months of
2009 compared to 2008.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Restructuring
|
|
$
|
46,319
|
|
|
$
|
32,355
|
|
|
$
|
13,964
|
|
|
$
|
43.2%
|
|
|
|
During the nine months of 2009, we announced that we will cease
making our own yarn and that we will source all of our yarn
requirements from large-scale yarn suppliers. We entered into an
agreement with Parkdale America under which we agreed to sell or
lease assets related to operations at our four yarn
manufacturing facilities to Parkdale America. The transaction
closed in October 2009 and resulted in Parkdale America
operating three of the four facilities. We approved an action to
close the fourth yarn manufacturing facility, as well as a yarn
warehouse and a cotton warehouse, all located in the United
States, which will result in the elimination of approximately
175 positions. We also entered into a yarn purchase agreement
with Parkdale. Under this agreement, which has an initial term
of six years, Parkdale will produce and sell to us a substantial
amount of our Western Hemisphere yarn requirements. During the
first two years of the term, Parkdale will also produce and sell
to us a substantial amount of the yarn requirements of our
Nanjing, China textile facility.
S-53
In addition to the actions discussed above, during the nine
months of 2009 we approved actions to close four manufacturing
facilities and two distribution centers in the Dominican
Republic, the United States, Honduras, Puerto Rico and Canada
which will result in the elimination of an aggregate of
approximately 2,925 positions in those countries and El
Salvador. The production capacity represented by the
manufacturing facilities will be relocated to lower cost
locations in Asia, Central America and the Caribbean Basin. The
distribution capacity has been relocated to our West Coast
distribution facility in California in order to expand capacity
for goods we source from Asia. In addition, approximately 300
management and administrative positions were eliminated, with
the majority of these positions based in the United States.
During the nine months of 2009, we recorded charges related to
employee termination and other benefits of $21 million
recognized in accordance with benefit plans previously
communicated to the affected employee group, charges related to
contract obligations of $12 million, other exit costs of
$7 million related to moving equipment and inventory from
closed facilities and fixed asset impairment charges of
$6 million.
In the nine months of 2009, we recorded one-time write-offs of
$4 million of stranded raw materials and work in process
inventory related to the closure of manufacturing facilities and
recorded in the Cost of sales line. The raw
materials and work in process inventory was determined not to be
salvageable or cost-effective to relocate. In addition, in
connection with our consolidation and globalization strategy, we
recognized noncash charges of $2 million and
$11 million in nine months of 2009 and the nine months of
2008, respectively, in the Cost of sales line and a
noncash charge of $1 million and a noncash credit of
$1 million in the Selling, general and administrative
expenses line in the nine months of 2009 and nine months
of 2008, respectively, related to accelerated depreciation of
buildings and equipment for facilities that have been closed or
will be closed.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During the nine months of 2008, we incurred $32 million in
restructuring charges which primarily related to employee
termination and other benefits and charges related to exiting
supply contracts associated with plant closures approved during
that period.
Operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Operating profit
|
|
$
|
193,424
|
|
|
$
|
259,082
|
|
|
$
|
(65,658
|
)
|
|
|
(25.3%
|
)
|
|
|
Operating profit was lower in the nine months of 2009 compared
to 2008 as a result of lower gross profit of $126 million
and higher restructuring and related charges of
$14 million, partially offset by lower selling, general and
administrative expenses of $74 million. Changes in foreign
currency exchange rates had an unfavorable impact on operating
profit of $2 million in the nine months of 2009 compared to
2008.
S-54
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Other expenses
|
|
$
|
6,537
|
|
|
$
|
|
|
|
$
|
6,537
|
|
|
|
NM
|
|
|
|
During the nine months of 2009, we incurred costs of
$4 million to amend the Senior Secured Credit Facilities
and the Accounts Receivable Securitization Facility. In March
2009, we amended these credit facilities to provide for
additional cushion in our financial covenant requirements. These
amendments delay the most restrictive debt-leverage ratio
requirements from the fourth quarter of 2009 to the third
quarter of 2011. In April 2009, we amended the Accounts
Receivable Securitization Facility to generally increase over
time the amount of funding that will be available under the
facility as compared to the amount that would be available
pursuant to the amendment to that facility that we entered into
in March 2009. In addition, during the nine months of 2009 we
incurred a $2 million loss on early extinguishment of debt
related to unamortized debt issuance costs resulting from the
prepayment of $140 million of principal in September 2009.
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Interest expense, net
|
|
$
|
124,548
|
|
|
$
|
115,282
|
|
|
$
|
9,266
|
|
|
|
8.0%
|
|
|
|
Interest expense, net was higher by $9 million in the nine
months of 2009 compared to 2008. The amendments of our Senior
Secured Credit Facilities and Accounts Receivable Securitization
Facility, which increased our interest-rate margin by
300 basis points and 325 basis points, respectively,
increased interest expense in the nine months of 2009 compared
to 2008 by $24 million, which was partially offset by a
lower London Interbank Offered Rate (LIBOR) and
lower outstanding debt balances that reduced interest expense by
$15 million. Our weighted average interest rate on our
outstanding debt was 6.84% during the nine months of 2009
compared to 6.17% in 2008.
At October 3, 2009, we had outstanding interest rate
hedging arrangements whereby we have capped the LIBOR interest
rate component on $400 million of our floating rate debt at
3.50% and have fixed the LIBOR interest rate component on
$1.4 billion of our floating rate debt at approximately
4.16%. Approximately 88% of our total debt outstanding at
October 3, 2009 was at a fixed or capped LIBOR rate.
Income tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Income tax expense
|
|
$
|
9,974
|
|
|
$
|
34,512
|
|
|
$
|
(24,538
|
)
|
|
|
(71.1%
|
)
|
|
|
S-55
Our estimated annual effective income tax rate was 16% in the
nine months of 2009 compared to 24% in 2008. The lower effective
income tax rate is attributable primarily to a higher proportion
of our earnings attributed to foreign subsidiaries which are
taxed at rates lower than the U.S. statutory rate. Our
estimated annual effective tax rate reflects our strategic
initiative to make substantial capital investments outside the
United States in our global supply chain in 2009.
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net income
|
|
$
|
52,365
|
|
|
$
|
109,288
|
|
|
$
|
(56,923
|
)
|
|
|
(52.1%
|
)
|
|
|
Net income for the nine months of 2009 was lower than 2008
primarily due to lower operating profit of $66 million,
higher interest expense of $9 million and higher other
expenses of $7 million, partially offset by lower income
tax expense of $25 million.
S-56
Operating results
by business segmentNine months ended October 3, 2009
compared with nine months ended September 27,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
1,710,920
|
|
|
$
|
1,830,437
|
|
|
$
|
(119,517
|
)
|
|
|
(6.5%
|
)
|
Outerwear
|
|
|
776,282
|
|
|
|
880,809
|
|
|
|
(104,527
|
)
|
|
|
(11.9
|
)
|
Hosiery
|
|
|
139,300
|
|
|
|
166,672
|
|
|
|
(27,372
|
)
|
|
|
(16.4
|
)
|
International
|
|
|
294,674
|
|
|
|
352,120
|
|
|
|
(57,446
|
)
|
|
|
(16.3
|
)
|
Other
|
|
|
12,022
|
|
|
|
20,064
|
|
|
|
(8,042
|
)
|
|
|
(40.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
2,933,198
|
|
|
|
3,250,102
|
|
|
|
(316,904
|
)
|
|
|
(9.8
|
)
|
Intersegment
|
|
|
(30,662
|
)
|
|
|
(36,449
|
)
|
|
|
(5,787
|
)
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,902,536
|
|
|
$
|
3,213,653
|
|
|
$
|
(311,117
|
)
|
|
|
(9.7%
|
)
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
210,443
|
|
|
$
|
204,714
|
|
|
$
|
5,729
|
|
|
|
2.8%
|
|
Outerwear
|
|
|
23,269
|
|
|
|
55,587
|
|
|
|
(32,318
|
)
|
|
|
(58.1
|
)
|
Hosiery
|
|
|
42,678
|
|
|
|
52,944
|
|
|
|
(10,266
|
)
|
|
|
(19.4
|
)
|
International
|
|
|
28,089
|
|
|
|
47,662
|
|
|
|
(19,573
|
)
|
|
|
(41.1
|
)
|
Other
|
|
|
(4,395
|
)
|
|
|
304
|
|
|
|
(4,699
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
300,084
|
|
|
|
361,211
|
|
|
|
(61,127
|
)
|
|
|
(16.9
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(44,602
|
)
|
|
|
(37,128
|
)
|
|
|
7,474
|
|
|
|
20.1
|
|
Amortization of trademarks and other intangibles
|
|
|
(9,293
|
)
|
|
|
(8,683
|
)
|
|
|
610
|
|
|
|
7.0
|
|
Restructuring
|
|
|
(46,319
|
)
|
|
|
(32,355
|
)
|
|
|
13,964
|
|
|
|
43.2
|
|
Inventory write-off included in cost of sales
|
|
|
(3,516
|
)
|
|
|
(14,027
|
)
|
|
|
(10,511
|
)
|
|
|
(74.9
|
)
|
Accelerated depreciation included in cost of sales
|
|
|
(2,392
|
)
|
|
|
(11,202
|
)
|
|
|
(8,810
|
)
|
|
|
(78.6
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
(538
|
)
|
|
|
1,266
|
|
|
|
1,804
|
|
|
|
142.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
193,424
|
|
|
|
259,082
|
|
|
|
(65,658
|
)
|
|
|
(25.3
|
)
|
Other expenses
|
|
|
(6,537
|
)
|
|
|
|
|
|
|
6,537
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(124,548
|
)
|
|
|
(115,282
|
)
|
|
|
9,266
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
62,339
|
|
|
$
|
143,800
|
|
|
$
|
(81,461
|
)
|
|
|
(56.6%
|
)
|
|
|
S-57
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
1,710,920
|
|
|
$
|
1,830,437
|
|
|
$
|
(119,517
|
)
|
|
|
(6.5%
|
)
|
Segment operating profit
|
|
|
210,443
|
|
|
|
204,714
|
|
|
|
5,729
|
|
|
|
2.8
|
|
|
|
Overall net sales in the Innerwear segment were lower by
$120 million or 7% in the nine months of 2009 compared to
2008 as we continued to be negatively impacted by weak consumer
demand related to the recessionary environment. Total intimate
apparel net sales were $96 million lower in the nine months
of 2009 compared to 2008 and represents 80% of the total segment
net sales decline. We believe our lower net sales in our
Hanes brand of $34 million, our smaller brands
(barely there, Just My Size and Wonderbra)
of $29 million and our Playtex brand of
$28 million were primarily attributable to weaker sales at
retail. Our Bali brand intimate apparel net sales in the
nine months of 2009 were flat compared to 2008.
Total male underwear net sales were $13 million higher in
the nine months of 2009 compared to 2008 which reflect higher
net sales in our Hanes brand of $19 million,
partially offset by lower net sales of our Champion brand
of $6 million. The higher Hanes brand male underwear
sales reflect growth in key segments of this category such as
crewneck and V-neck T-shirts and boxer briefs and product
innovations like the Comfort Fit waistbands. Lower net sales in
our socks product category of $28 million in the nine
months of 2009 compared to 2008 reflect a decline in Hanes
and Champion brand net sales in our mens and
kids product category. Net sales in our thermals business
were lower by $2 million in the nine months of 2009
compared to 2008. Net sales in our
direct-to-consumer
retail business were flat due to higher sales at our outlet
stores resulting from the addition of recently opened retail
stores offset by lower internet sales.
The Innerwear segment gross profit was lower by $39 million
in the nine months of 2009 compared to 2008. The lower gross
profit was due to lower sales volume of $74 million, higher
sales incentives of $19 million due to investments made
with retailers, unfavorable product sales mix of
$18 million, higher production costs of $12 million
related to higher energy and oil-related costs, including
freight costs, other vendor price increases of $9 million
and higher other manufacturing costs of $3 million. Higher
costs were partially offset by higher product pricing of
$64 million before increased sales incentives, savings from
our prior restructuring actions of $19 million, lower
on-going excess and obsolete inventory costs of $11 million
and lower cotton costs of $2 million.
As a percent of segment net sales, gross profit in the Innerwear
segment was 37.4% in the nine months of 2009 compared to 37.1%
in 2008, increasing as a result of the items described above.
The higher Innerwear segment operating profit in the nine months
of 2009 compared to 2008 was primarily attributable to lower
media related MAP expenses of $31 million, savings of
$14 million from prior restructuring actions primarily for
compensation and related benefits, lower technology expenses of
$11 million, lower distribution expenses of $5 million
and lower bad debt expense of $4 million primarily due to a
customer bankruptcy in 2008, partially offset by lower gross
profit, higher pension expense of $14 million, higher
expenses of $4 million as a result of opening retail stores
and higher other non-media related MAP expenses of
$2 million.
S-58
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology for
the consolidated selling, general and administrative expenses
for the nine months of 2009 is consistent with 2008. Our
consolidated selling, general and administrative expenses before
segment allocations was $74 million lower in the nine
months of 2009 compared to 2008.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
776,282
|
|
|
$
|
880,809
|
|
|
$
|
(104,527
|
)
|
|
|
(11.9%
|
)
|
Segment operating profit
|
|
|
23,269
|
|
|
|
55,587
|
|
|
|
(32,318
|
)
|
|
|
(58.1
|
)
|
|
|
Net sales in the Outerwear segment were lower by
$105 million or 12% in the nine months of 2009 compared to
2008, primarily as a result of lower casualwear net sales in our
retail and wholesale channels of $66 million and
$65 million, respectively. The lower retail casualwear net
sales reflect an $89 million impact due to the losses of
seasonal programs not renewed for 2009 that only impacted the
first half of 2009, partially offset by additional sales
resulting from an exclusive long-term agreement entered into
with Wal-Mart in April 2009 that significantly expanded the
presence of our Just My Size brand in all Wal-Mart
stores. The wholesale channel has been highly price competitive
especially in this recessionary environment. These decreases
were partially offset by higher net sales of our Champion
brand activewear of $25 million. Our Champion
brand sales continue to benefit from our marketing investment in
the brand.
The Outerwear segment gross profit was lower by $48 million
in the nine months of 2009 compared to 2008. The lower gross
profit is due to unfavorable product sales mix of
$30 million, lower sales volume of $28 million, higher
sales incentives of $13 million due to investments made
with retailers, higher production costs of $9 million
related to higher energy and oil-related costs, including
freight costs, higher other manufacturing costs of
$8 million and other vendor price increases of
$4 million. Higher costs were partially offset by savings
of $19 million from our prior restructuring actions, higher
product pricing of $12 million before increased sales
incentives, lower on-going excess and obsolete inventory costs
of $7 million and lower cotton costs of $6 million.
As a percent of segment net sales, gross profit in the Outerwear
segment was 20.0% in the nine months of 2009 compared to 23.1%
in 2008, declining as a result of the items described above.
The lower Outerwear segment operating profit in the nine months
of 2009 compared to 2008 was primarily attributable to lower
gross profit and higher pension expense of $6 million,
partially offset by savings of $7 million from our prior
restructuring actions, lower technology expenses of
$6 million, lower non-media related MAP expenses of
$3 million, lower distribution expenses of $3 million
and lower bad debt expense of $2 million primarily due to a
customer bankruptcy in 2008.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment.
S-59
The allocation methodology for the consolidated selling, general
and administrative expenses for the nine months of 2009 is
consistent with 2008. Our consolidated selling, general and
administrative expenses before segment allocations was
$74 million lower in the nine months of 2009 compared to
2008.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
139,300
|
|
|
$
|
166,672
|
|
|
$
|
(27,372
|
)
|
|
|
(16.4%
|
)
|
Segment operating profit
|
|
|
42,678
|
|
|
|
52,944
|
|
|
|
(10,266
|
)
|
|
|
(19.4
|
)
|
|
|
Net sales in the Hosiery segment declined by $27 million or
16%, which was primarily due to lower sales of our
Leggs brand to mass retailers and food and drug
stores and our Hanes brand to national chains and
department stores. Hosiery products continue to be more
adversely impacted than other apparel categories by reduced
consumer discretionary spending, which contributes to weaker
retail sales and lowering of inventory levels by retailers. We
expect the trend of declining hosiery sales to continue
consistent with the overall decline in the industry and with
shifts in consumer preferences. Generally, we manage the Hosiery
segment for cash, placing an emphasis on reducing our cost
structure and managing cash efficiently.
The Hosiery segment gross profit was lower by $17 million
in the nine months of 2009 compared to 2008. The lower gross
profit for the nine months of 2009 compared to 2008 was the
result of lower sales volume of $19 million and higher
other manufacturing costs of $4 million, partially offset
by higher product pricing of $8 million.
As a percent of segment net sales, gross profit in the Hosiery
segment was 46.1% in the nine months of 2009 compared to 48.6%
in 2008, declining as a result of the items described above.
The lower Hosiery segment operating profit in the nine months of
2009 compared to 2008 is primarily attributable to lower gross
profit, partially offset by lower distribution expenses of
$3 million, savings of $2 million from our prior
restructuring actions and lower technology expenses of
$2 million.
A significant portion of the selling, general and administrative
expenses in each segment is an allocation of our consolidated
selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are
charged directly to such segment. The allocation methodology for
the consolidated selling, general and administrative expenses
for the nine months of 2009 is consistent with 2008. Our
consolidated selling, general and administrative expenses before
segment allocations was $74 million lower in the nine
months of 2009 compared to 2008.
S-60
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
294,674
|
|
|
$
|
352,120
|
|
|
$
|
(57,446
|
)
|
|
|
(16.3%
|
)
|
Segment operating profit
|
|
|
28,089
|
|
|
|
47,662
|
|
|
|
(19,573
|
)
|
|
|
(41.1
|
)
|
|
|
Overall net sales in the International segment were lower by
$57 million or 16% in the nine months of 2009 compared to
2008 primarily attributable to an unfavorable impact of
$31 million related to foreign currency exchange rates and
weak demand globally primarily in Europe, Japan and Canada,
which are experiencing recessionary environments similar to that
in the United States. Excluding the impact of foreign exchange
rates on currency, International segment net sales declined by
8% in the nine months of 2009 compared to 2008. The unfavorable
impact of foreign currency exchange rates in our International
segment was primarily due to the strengthening of the
U.S. dollar compared to the Mexican peso, Canadian dollar,
Brazilian real and Euro partially offset by the strengthening of
the Japanese yen compared to the U.S. dollar during the
nine months of 2009 compared to 2008. During the nine months of
2009, we experienced lower net sales, in each case excluding the
impact of foreign currency exchange rates, in our casualwear
business in Europe of $21 million, in our casualwear
business in Puerto Rico of $7 million resulting from moving
the distribution capacity to the United States, in our male
underwear and activewear businesses in Japan of $6 million
and in our intimate apparel business in Canada of
$3 million. Lower segment net sales were partially offset
by higher sales in our intimate apparel and male underwear
businesses in Mexico of $6 million and in our male
underwear business in Brazil of $2 million.
The International segment gross profit was lower by
$32 million in the nine months of 2009 compared to 2008.
The lower gross profit was a result of lower sales volume of
$13 million, higher cost of finished goods sourced from
third party manufacturers of $12 million primarily
resulting from foreign exchange transaction losses, an
unfavorable impact related to foreign currency exchange rates of
$11 million and an unfavorable product sales mix of
$6 million. Higher costs were partially offset by higher
product pricing of $8 million.
As a percent of segment net sales, gross profit in the
International segment was 37.9% in the nine months of 2009
compared to 2008 at 40.9%, declining as a result of the items
described above.
The lower International segment operating profit in the nine
months of 2009 compared to 2008 is primarily attributable to the
lower gross profit, partially offset by lower selling and other
marketing related expenses of $5 million, lower media
related MAP expenses of $2 million, lower distribution
expenses of $1 million, lower non-media related MAP of
$1 million and savings of $1 million from our prior
restructuring actions. The changes in foreign currency exchange
rates, which are included in the impact on gross profit above,
had an unfavorable impact on segment operating profit of
$2 million in the nine months of 2009 compared to 2008.
S-61
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
|
|
|
|
|
October 3,
|
|
|
September 27,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
12,022
|
|
|
$
|
20,064
|
|
|
$
|
(8,042
|
)
|
|
|
(40.1%
|
)
|
Segment operating profit
|
|
|
(4,395
|
)
|
|
|
304
|
|
|
|
(4,699
|
)
|
|
|
NM
|
|
|
|
Sales in our Other segment primarily consist of sales of yarn to
third parties which are intended to maintain asset utilization
at certain manufacturing facilities and generate approximate
break even margins. We expect sales of our Other segment to
continue to be insignificant to us as we complete the
implementation of our consolidation and globalization efforts.
In September 2009, we announced that we will cease making our
own yarn and that we will source all of our yarn requirements
from large-scale yarn suppliers, which is expected to further
reduce net sales of our Other segment.
General
corporate expenses
General corporate expenses were $7 million higher in the
nine months of 2009 compared to 2008 primarily due to higher
start-up and
shut-down costs of $5 million associated with our
consolidation and globalization of our supply chain,
$3 million of higher foreign exchange transaction losses
and higher other expenses of $2 million related to amending
the terms of all outstanding stock options granted under the
Hanesbrands Inc. Omnibus Incentive Plan of 2006 that had an
original term of five or seven years to the tenth anniversary of
the original grant date, partially offset by $3 million of
higher gains on sales of assets.
S-62
Consolidated
results of operationsyear ended January 3, 2009
(2008) compared with year ended December 29,
2007 (2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
4,248,770
|
|
|
$
|
4,474,537
|
|
|
$
|
(225,767
|
)
|
|
|
(5.0%
|
)
|
Cost of sales
|
|
|
2,871,420
|
|
|
|
3,033,627
|
|
|
|
(162,207
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,377,350
|
|
|
|
1,440,910
|
|
|
|
(63,560
|
)
|
|
|
(4.4
|
)
|
Selling, general and administrative expenses
|
|
|
1,009,607
|
|
|
|
1,040,754
|
|
|
|
(31,147
|
)
|
|
|
(3.0
|
)
|
Gain on curtailment of postretirement benefits
|
|
|
|
|
|
|
(32,144
|
)
|
|
|
(32,144
|
)
|
|
|
NM
|
|
Restructuring
|
|
|
50,263
|
|
|
|
43,731
|
|
|
|
6,532
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
317,480
|
|
|
|
388,569
|
|
|
|
(71,089
|
)
|
|
|
(18.3
|
)
|
Other (income) expense
|
|
|
(634
|
)
|
|
|
5,235
|
|
|
|
(5,869
|
)
|
|
|
(112.1
|
)
|
Interest expense, net
|
|
|
155,077
|
|
|
|
199,208
|
|
|
|
(44,131
|
)
|
|
|
(22.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
163,037
|
|
|
|
184,126
|
|
|
|
(21,089
|
)
|
|
|
(11.5
|
)
|
Income tax expense
|
|
|
35,868
|
|
|
|
57,999
|
|
|
|
(22,131
|
)
|
|
|
(38.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
127,169
|
|
|
$
|
126,127
|
|
|
$
|
1,042
|
|
|
|
0.8%
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
4,248,770
|
|
|
$
|
4,474,537
|
|
|
$
|
(225,767
|
)
|
|
|
(5.0%
|
)
|
|
|
Consolidated net sales were lower by $226 million or 5% in
2008 compared to 2007 primarily due to weak sales at retail,
which reflect a difficult economic and retail environment in
which the ultimate consumers of our products have been
significantly limiting their discretionary spending and visiting
retail stores less frequently. The economic recession continued
to impact consumer spending, resulting in one of the worst
holiday shopping seasons in 40 years as retail sales fell
for the sixth straight month in December. Our Innerwear,
Outerwear, Hosiery and Other segment net sales were lower by
$154 million (6%), $41 million (3%), $38 million
(14%) and $35 million (62%), respectively, and were
partially offset by higher net sales in our International
segment of $38 million (9%). 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,
weakness in the retail environment can impact our results in the
short-term, as it did in 2008. The total impact of the
53rd week in 2008, which is included in the amounts above,
was a $54 million increase in sales.
The lower net sales in our Innerwear segment were primarily due
to a decline in the intimate apparel, socks, thermals and
sleepwear product categories. Total intimate apparel net sales
were $102 million lower in 2008 compared to 2007. We
experienced lower intimate apparel sales in
S-63
our smaller brands (barely there, Just My Size and
Wonderbra) of $49 million, our Hanes brand of
$42 million and our private label brands of
$10 million which we believe was primarily attributable to
weaker sales at retail as noted above. In 2008 compared to 2007,
our Playtex brand intimate apparel net sales were higher
by $10 million and our Bali brand intimate apparel
net sales were lower by $11 million. Net sales in our male
underwear product category were $8 million lower, which
includes the impact of exiting a license arrangement for a
boys character underwear program in early 2008 that
lowered sales by $15 million. In addition, net sales of
socks, thermals and sleepwear product categories were lower in
2008 compared to 2007 by $32 million, $10 million and
$4 million, respectively.
In our Outerwear segment, net sales of our Champion brand
activewear were $34 million higher in 2008 compared to
2007, and were offset by lower net sales of our casualwear
product categories of $79 million. Net sales in our Hosiery
segment declined substantially more than the long-term trend
primarily due to lower sales of the Hanes brand to
national chains and department stores and our Leggs
brand to mass retailers and food and drug stores in 2008
compared to 2007. We expect the trend of declining hosiery sales
to continue consistent with the overall decline in the industry
and with shifts in consumer preferences.
The overall lower net sales were partially offset by higher net
sales in our International segment that were driven by a
favorable impact of $22 million related to foreign currency
exchange rates and by the growth in our casualwear businesses in
Europe and Asia. The favorable impact of foreign currency
exchange rates was primarily due to the strengthening of the
Japanese yen, Euro and Brazilian real.
The decline in net sales for our Other segment is primarily due
to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties. We expect this
decline to continue and sales for this segment to ultimately
become insignificant to us as we complete the implementation of
our consolidation and globalization efforts.
Gross
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Gross profit
|
|
$
|
1,377,350
|
|
|
$
|
1,440,910
|
|
|
$
|
(63,560
|
)
|
|
|
(4.4%
|
)
|
|
|
As a percent of net sales, our gross profit percentage was 32.4%
in 2008 compared to 32.2% in 2007. While the gross profit
percentage was higher, gross profit dollars were lower due to
lower sales volume of $85 million, unfavorable product
sales mix of $35 million, higher cotton costs of
$30 million, higher production costs of $20 million
related to higher energy and oil related costs including freight
costs and other vendor price increases of $12 million. The
cotton prices reflected in our results were 65 cents per pound
in 2008 as compared to 56 cents per pound in 2007. Energy and
oil related costs were higher due to a spike in oil related
commodity prices during the summer of 2008. Our results will
continue to reflect higher costs for cotton and oil related
materials until these costs cease to be reflected on our balance
sheet in the first half of 2009 and we will start to benefit in
the second half of 2009 from lower commodity costs. In addition,
in connection with the consolidation and globalization of our
supply chain, we incurred one-time restructuring related
write-offs of stranded raw materials and work in process
S-64
inventory determined not to be salvageable or cost-effective to
relocate of $19 million in 2008, which were offset by lower
accelerated depreciation of $13 million.
These higher expenses were primarily offset by savings from our
cost reduction initiatives and prior restructuring actions of
$41 million, lower other manufacturing overhead costs of
$24 million primarily related to better volumes earlier in
the year, lower on-going excess and obsolete inventory costs of
$14 million, lower sales incentives of $11 million,
$10 million of lower duty costs primarily related to higher
refunds of $9 million, a $9 million favorable impact
related to foreign currency exchange rates, $8 million of
favorable one-time out of period cost recognition related to the
capitalization of certain inventory supplies to be on a
consistent basis across all business lines, $4 million of
lower
start-up and
shut down costs associated with our consolidation and
globalization of our supply chain and higher product sales
pricing of $3 million. Our duty refunds were higher in 2008
primarily due to the final passage of the Dominican
Republic-Central
America-United
States Free Trade Agreement in Costa Rica as a result of which
we can, on a one-time basis, recover duties paid since
January 1, 2004 totaling approximately $15 million.
The lower excess and obsolete inventory costs in 2008 are
attributable to both our continuous evaluation of inventory
levels and simplification of our product category offerings
since the spin off. We realized the benefits of driving down
obsolete inventory levels through aggressive management and
promotions and realized the benefits from decreases in style
counts ranging from 7% to 30% in our various product category
offerings. The quality of our inventory remained good with
obsolete inventory down 23% from last year. The favorable
foreign currency exchange rate impact in our International
segment was primarily due to the strengthening of the Japanese
yen, Euro and Brazilian real.
Selling,
general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
1,009,607
|
|
|
$
|
1,040,754
|
|
|
$
|
(31,147
|
)
|
|
|
(3.0%
|
)
|
|
|
Our selling, general and administrative expenses were
$31 million lower in 2008 compared to 2007. Our cost
reduction efforts resulted in lower expenses in 2008 compared to
2007 related to savings of $21 million from our prior
restructuring actions for compensation and related benefits,
lower consulting expenses related to various areas of
$5 million, lower non-media related MAP expenses of
$3 million, lower accelerated depreciation of
$3 million, lower postretirement healthcare and life
insurance expense of $2 million and lower stock
compensation expense of $2 million.
Our media related MAP expenses were $11 million lower in
2008 as compared to 2007. While our spending for media related
MAP was down in 2008, it was the second highest spending level
in our history. We supported our key brands with targeted,
effective advertising and marketing campaigns such as the launch
of Hanes No Ride Up Panties and marketing initiatives for
Champion and Playtex in the first half of 2008 and
significantly lowered our overall spending during the second
half of 2008. In contrast, in 2007, our media related MAP
spending was spread across multiple product categories and
brands. MAP 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.
S-65
In addition, spin off and related charges of $3 million
recognized in 2007 did not recur in 2008. Our pension income of
$12 million was higher by $9 million, which included
an adjustment that reduced pension expense in 2007 related to
the final separation of our pension assets and liabilities from
those of Sara Lee.
We experienced higher bad debt expense of $7 million
primarily related to the Mervyns bankruptcy, higher
computer software amortization costs of $5 million, higher
technology consulting and related expenses of $4 million
and higher distribution expenses of $4 million in 2008
compared to 2007. The higher technology consulting and computer
software amortization costs are related to our efforts to
integrate our information technology systems across our company
which involves reducing the number of information technology
platforms serving our business functions. The higher
distribution expenses in 2008 compared to 2007 were primarily
related to higher volumes in our international business, higher
postage and freight costs and higher rework expenses in our
distribution centers. We also incurred higher expenses of
$3 million in 2008 compared to 2007 as a result of opening
10 retail stores over the last 12 months. In addition, we
incurred $7 million in amortization of gain on curtailment
of postretirement benefits in 2007 which did not recur in 2008.
Gain on
curtailment of postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Gain on curtailment of postretirement benefits
|
|
$
|
|
|
|
$
|
(32,144
|
)
|
|
$
|
(32,144
|
)
|
|
|
NM
|
|
|
|
In December 2006, we notified retirees and employees of the
phase out of premium subsidies for early retiree medical
coverage and move to an access-only plan for early retirees by
the end of 2007. In December 2007, in connection with the
termination of the postretirement medical plan, we recognized a
final gain on curtailment of plan benefits of $32 million.
Concurrently with the termination of the existing plan, we
established a new access only plan that is fully paid by the
participants.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Restructuring
|
|
$
|
50,263
|
|
|
$
|
43,731
|
|
|
$
|
6,532
|
|
|
|
14.9%
|
|
|
|
During 2008, we approved actions to close 11 manufacturing
facilities and three distribution centers and eliminate
approximately 6,800 positions in Mexico, the United States,
Costa Rica, Honduras and El Salvador. The production capacity
represented by the manufacturing facilities has been relocated
to lower cost locations in Asia, Central America and the
Caribbean Basin. The distribution capacity has been relocated to
our West Coast distribution facility in California in order to
expand capacity for goods we source from Asia. In addition,
approximately 200 management and administrative positions were
eliminated, with the majority of these positions based in the
United States. We recorded a charge of $34 million related
to employee termination and other benefits recognized in
accordance with benefit plans previously communicated
S-66
to the affected employee group, fixed asset impairment charges
of $9 million and charges related to exiting supply
contracts of $11 million, which was partially offset by
$4 million of favorable settlements of contract obligations
for lower amounts than previously estimated.
In 2008, we recorded $19 million in one-time write-offs of
stranded raw materials and work in process inventory determined
not to be salvageable or cost-effective to relocate related to
the closure of manufacturing facilities in the Cost of
sales line. In addition, in connection with our
consolidation and globalization strategy, in 2008 and 2007, we
recognized non-cash charges of $24 million and
$37 million, respectively, in the Cost of sales
line and a non-cash charge of $3 million in the
Selling, general and administrative expenses line in
2007 related to accelerated depreciation of buildings and
equipment for facilities that have been closed or will be closed.
These actions, which are a continuation of our consolidation and
globalization strategy, are expected to result in benefits of
moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and
consolidating production capacity.
During 2007, we incurred $44 million in restructuring
charges which primarily related to a charge of $32 million
related to employee termination and other benefits associated
with plant closures approved during that period and the
elimination of certain management and administrative positions,
a $10 million charge for estimated lease termination costs
associated with facility closures and a $2 million
impairment charge associated with facility closures.
Operating
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Operating profit
|
|
$
|
317,480
|
|
|
$
|
388,569
|
|
|
$
|
(71,089
|
)
|
|
|
(18.3%
|
)
|
|
|
Operating profit was lower in 2008 compared to 2007 as a result
of lower gross profit of $64 million, a $32 million
gain on curtailment of postretirement benefits recognized in
2007 which did not recur in 2008 and higher restructuring and
related charges for facility closures of $7 million
partially offset by lower selling, general and administrative
expenses of $31 million. The lower gross profit was
primarily the result of lower sales volume, unfavorable product
sales mix and increases in manufacturing input costs for cotton
and energy and other oil related costs, all of which exceeded
our savings from executing our consolidation and globalization
strategy during 2008. The total impact of the 53rd week in
2008, which is included in the amounts above, was a
$6 million increase in operating profit.
Other (income)
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Other (income) expense
|
|
$
|
(634
|
)
|
|
$
|
5,235
|
|
|
$
|
(5,869
|
)
|
|
|
(112.1%
|
)
|
|
|
During 2008, we recognized a gain of $2 million related to
the repurchase of $6 million of our Floating Rate Senior
Notes for $4 million. This gain was partially offset by a
$1 million loss on early extinguishment of debt related to
unamortized debt issuance costs on the Senior Secured
S-67
Credit Facilities for the prepayment of $125 million of
principal in December 2008. During 2007, we recognized losses on
early extinguishment of debt related to unamortized debt
issuance costs on the Senior Secured Credit Facilities for
prepayments of $428 million of principal in 2007, including
a prepayment of $250 million that was made in connection
with funding from the Accounts Receivable Securitization
Facility we entered into in November 2007.
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Interest expense, net
|
|
$
|
155,077
|
|
|
$
|
199,208
|
|
|
$
|
(44,131
|
)
|
|
|
(22.2%
|
)
|
|
|
Interest expense, net was lower by $44 million in 2008
compared to 2007. The lower interest expense is primarily
attributable to a lower weighted average interest rate,
$32 million of which resulted from a lower LIBOR and
$4 million of which resulted from reduced interest rates
achieved through changes in our financing structure such as the
February 2007 amendment to our Senior Secured Credit Facilities
and the Accounts Receivable Securitization Facility that we
entered into in November 2007. In addition, interest expense was
reduced by $8 million as a result of our net prepayments of
long-term debt during 2007 and 2008 of $303 million. Our
weighted average interest rate on our outstanding debt was 6.09%
during 2008 compared to 7.74% in 2007.
At January 3, 2009, we had outstanding interest rate
hedging arrangements whereby we have capped the interest rate on
$400 million of our floating rate debt at 3.50% and had
fixed the interest rate on $1.4 billion of our floating
rate debt at 4.16%. Approximately 82% of our total debt
outstanding at January 3, 2009 was at a fixed or capped
LIBOR rate.
Income tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Income tax expense
|
|
$
|
35,868
|
|
|
$
|
57,999
|
|
|
$
|
(22,131
|
)
|
|
|
(38.2%
|
)
|
|
|
Our annual effective income tax rate was 22.0% in 2008 compared
to 31.5% in 2007. The lower income tax expense is attributable
primarily to lower pre-tax income and a lower effective income
tax rate. The lower effective income tax rate is primarily due
to higher unremitted earnings from foreign subsidiaries in 2008
taxed at rates less than the U.S. statutory rate. Our
annual effective tax rate reflects our strategic initiative to
make substantial capital investments outside the United States
in our global supply chain in 2008.
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net income
|
|
$
|
127,169
|
|
|
$
|
126,127
|
|
|
$
|
1,042
|
|
|
|
0.8%
|
|
|
|
S-68
Net income for 2008 was higher than 2007 primarily due to lower
interest expense, lower selling, general and administrative
expenses and a lower effective income tax rate offset by lower
gross profit resulting from lower sales volume and higher
manufacturing input costs, a gain on curtailment of
postretirement benefits recognized in 2007 which did not recur
in 2008 and higher restructuring charges. The total impact of
the 53rd week in 2008 was a $3 million increase in net
income.
Operating results
by business segmentyear ended January 3, 2009
(2008) compared with year ended December 29,
2007 (2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
2,402,831
|
|
|
$
|
2,556,906
|
|
|
$
|
(154,075
|
)
|
|
|
(6.0%
|
)
|
Outerwear
|
|
|
1,180,747
|
|
|
|
1,221,845
|
|
|
|
(41,098
|
)
|
|
|
(3.4
|
)
|
Hosiery
|
|
|
227,924
|
|
|
|
266,198
|
|
|
|
(38,274
|
)
|
|
|
(14.4
|
)
|
International
|
|
|
460,085
|
|
|
|
421,898
|
|
|
|
38,187
|
|
|
|
9.1
|
|
Other
|
|
|
21,724
|
|
|
|
56,920
|
|
|
|
(35,196
|
)
|
|
|
(61.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
4,293,311
|
|
|
|
4,523,767
|
|
|
|
(230,456
|
)
|
|
|
(5.1
|
)
|
Intersegment
|
|
|
(44,541
|
)
|
|
|
(49,230
|
)
|
|
|
(4,689
|
)
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
4,248,770
|
|
|
$
|
4,474,537
|
|
|
$
|
(225,767
|
)
|
|
|
(5.0
|
)
|
Segment operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innerwear
|
|
$
|
277,486
|
|
|
$
|
305,959
|
|
|
$
|
(28,473
|
)
|
|
|
(9.3
|
)
|
Outerwear
|
|
|
68,769
|
|
|
|
71,364
|
|
|
|
(2,595
|
)
|
|
|
(3.6
|
)
|
Hosiery
|
|
|
71,596
|
|
|
|
76,917
|
|
|
|
(5,321
|
)
|
|
|
(6.9
|
)
|
International
|
|
|
57,070
|
|
|
|
53,147
|
|
|
|
3,923
|
|
|
|
7.4
|
|
Other
|
|
|
(472
|
)
|
|
|
(1,361
|
)
|
|
|
889
|
|
|
|
65.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit
|
|
|
474,449
|
|
|
|
506,026
|
|
|
|
(31,577
|
)
|
|
|
(6.2
|
)
|
Items not included in segment operating profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses
|
|
|
(52,143
|
)
|
|
|
(60,213
|
)
|
|
|
(8,070
|
)
|
|
|
(13.4
|
)
|
Amortization of trademarks and other intangibles
|
|
|
(12,019
|
)
|
|
|
(6,205
|
)
|
|
|
5,814
|
|
|
|
93.7
|
|
Gain on curtailment of postretirement benefits
|
|
|
|
|
|
|
32,144
|
|
|
|
(32,144
|
)
|
|
|
NM
|
|
Restructuring
|
|
|
(50,263
|
)
|
|
|
(43,731
|
)
|
|
|
6,532
|
|
|
|
14.9
|
|
Inventory write-off included in cost of sales
|
|
|
(18,696
|
)
|
|
|
|
|
|
|
18,696
|
|
|
|
NM
|
|
Accelerated depreciation included in cost of sales
|
|
|
(23,862
|
)
|
|
|
(36,912
|
)
|
|
|
(13,050
|
)
|
|
|
(35.4
|
)
|
Accelerated depreciation included in selling, general and
administrative expenses
|
|
|
14
|
|
|
|
(2,540
|
)
|
|
|
(2,554
|
)
|
|
|
(100.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
317,480
|
|
|
|
388,569
|
|
|
|
(71,089
|
)
|
|
|
(18.3
|
)
|
Other income (expense)
|
|
|
634
|
|
|
|
(5,235
|
)
|
|
|
5,869
|
|
|
|
112.1
|
|
Interest expense, net
|
|
|
(155,077
|
)
|
|
|
(199,208
|
)
|
|
|
(44,131
|
)
|
|
|
(22.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
163,037
|
|
|
$
|
184,126
|
|
|
$
|
(21,089
|
)
|
|
|
(11.5%
|
)
|
|
|
S-69
Innerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
2,402,831
|
|
|
$
|
2,556,906
|
|
|
$
|
(154,075
|
)
|
|
|
(6.0%
|
)
|
Segment operating profit
|
|
|
277,486
|
|
|
|
305,959
|
|
|
|
(28,473
|
)
|
|
|
(9.3
|
)
|
|
|
Overall net sales in the Innerwear segment were lower by
$154 million or 6% in 2008 compared to 2007. The difficult
economic and retail environment significantly impacted
consumers discretionary spending which resulted in lower
sales in our intimate apparel, socks, thermals and sleepwear
product categories. Total intimate apparel net sales were
$102 million lower in 2008 compared to 2007. We experienced
lower intimate apparel sales in our smaller brands (barely
there, Just My Size and Wonderbra) of
$49 million, our Hanes brand of $42 million and
our private label brands of $10 million which we believe
was primarily attributable to weaker sales at retail. In 2008
compared to 2007, our Playtex brand intimate apparel net
sales were higher by $10 million and our Bali brand
intimate apparel net sales were lower by $11 million. The
growth in our Playtex brand sales was supported by
successful marketing initiatives in the first half of 2008. Net
sales in our male underwear product category were
$8 million lower, which includes the impact of exiting a
license arrangement for a boys character underwear program
in early 2008 that lowered sales by $15 million. The lower
net sales in our socks product category reflects a decline in
kids and mens Hanes brand net sales of
$19 million and Champion brand net sales of
$11 million primarily related to the loss of a mens
program for one of our customers. In addition, net sales of
thermals and sleepwear product categories were lower in 2008
compared to 2007 by $10 million and $4 million,
respectively. The total impact of the 53rd week in 2008,
which is included in the amounts above, was a $34 million
increase in sales for the Innerwear segment.
As a percent of segment net sales, gross profit percentage in
the Innerwear segment was 36.9% in 2008 compared to 36.8% in
2007. While the gross profit percentage was higher, gross profit
dollars were lower due to lower sales volume of
$67 million, unfavorable product sales mix of
$28 million, higher cotton costs of $12 million,
higher production costs of $10 million related to higher
energy and oil related costs including freight costs, other
vendor price increases of $7 million and lower product
sales pricing of $4 million. These higher costs were offset
by savings from our cost reduction initiatives and prior
restructuring actions of $27 million, lower sales
incentives of $21 million, $11 million of lower duty
costs primarily related to higher refunds and $8 million of
favorable one-time out of period cost recognition related to the
capitalization of certain inventory supplies to be on a
consistent basis across all business lines. In addition, we
incurred lower on-going excess and obsolete inventory costs of
$8 million arising from realizing the benefits of driving
down obsolete inventory levels through aggressive management and
promotions and simplifying our product category offerings which
reduced our style counts ranging from 7% to 30% in our various
product category offerings.
The lower Innerwear segment operating profit in 2008 compared to
2007 is primarily attributable to lower gross profit and higher
bad debt expense of $4 million primarily related to the
Mervyns bankruptcy. We also incurred higher expenses of
$3 million in 2008 compared to 2007 as a result of opening
10 retail stores over the last 12 months. These higher
costs were partially offset by savings of $15 million from
prior restructuring actions primarily for compensation and
related benefits, lower media related MAP expenses of
$8 million and lower non-media related
S-70
MAP expenses of $7 million. A significant portion of the
selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for 2008 is
consistent with 2007. Our consolidated selling, general and
administrative expenses before segment allocations was
$31 million lower in 2008 compared to 2007.
Outerwear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
1,180,747
|
|
|
$
|
1,221,845
|
|
|
$
|
(41,098
|
)
|
|
|
(3.4%
|
)
|
Segment operating profit
|
|
|
68,769
|
|
|
|
71,364
|
|
|
|
(2,595
|
)
|
|
|
(3.6
|
)
|
|
|
Net sales in the Outerwear segment were lower by
$41 million or 3% in 2008 compared to 2007, primarily as a
result of higher net sales of Champion brand activewear
of $34 million offset by lower net sales of retail
casualwear of $55 million and lower net sales through our
embellishment channel of $24 million, primarily in
promotional t-shirts and sportshirts. Our Champion brand
sales continued to benefit from our investment in the brand
through our marketing initiatives. Our How You Play
marketing campaign has received a very positive response from
consumers. The lower retail casualwear net sales of
$55 million reflect a $6 million impact related to the
loss of seasonal programs continuing into the first half of
2009. We expect the impact on 2009 net sales of losing
these programs, which consist of recurring seasonal programs
that were renewed in prior years but were not renewed for 2009,
to occur primarily in the first half of 2009; losses may be
offset by any new seasonal programs we may add. The total impact
of the 53rd week in 2008, which is included in the amounts
above, was a $14 million increase in sales for the
Outerwear segment.
As a percent of segment net sales, gross profit percentage in
the Outerwear segment was 22.1% in 2008 compared to 21.6% in
2007. While the gross profit percentage was higher, gross profit
dollars were lower due to higher cotton costs of
$18 million, higher production costs of $10 million
related to higher energy and oil related costs including freight
costs, lower sales volume of $9 million, higher sales
incentives of $8 million and other vendor price increases
of $3 million. These higher costs were partially offset by
lower other manufacturing overhead costs of $23 million,
savings of $11 million from our cost reduction initiatives
and prior restructuring actions, higher product sales pricing of
$7 million, lower on-going excess and obsolete inventory
costs of $2 million and favorable product sales mix of
$2 million.
The lower Outerwear segment operating profit in 2008 compared to
2007 is primarily attributable to lower gross profit, higher
distribution expenses of $5 million, higher technology
consulting and related expenses of $3 million, higher
non-media related MAP expenses of $3 million and higher bad
debt expense of $2 million primarily related to the
Mervyns bankruptcy. These higher costs were partially
offset by savings of $6 million from our cost reduction
initiatives and prior restructuring actions and lower
media-related MAP expenses of $5 million. A significant
portion of the selling, general and administrative expenses in
each segment is an allocation of our consolidated selling,
general and administrative expenses, however certain expenses
that are specifically identifiable to a segment are charged
directly to
S-71
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for 2008 is
consistent with 2007. Our consolidated selling, general and
administrative expenses before segment allocations was
$31 million lower in 2008 compared to 2007.
Hosiery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
227,924
|
|
|
$
|
266,198
|
|
|
$
|
(38,274
|
)
|
|
|
(14.4%
|
)
|
Segment operating profit
|
|
|
71,596
|
|
|
|
76,917
|
|
|
|
(5,321
|
)
|
|
|
(6.9
|
)
|
|
|
Net sales in the Hosiery segment declined by $38 million or
14%, which was substantially more than the long-term trend
primarily due to lower sales of the Hanes brand to
national chains and department stores and the Leggs
brand to mass retailers and food and drug stores. In
addition, we experienced lower sales of $4 million related
the Donna Karan and DKNY license agreement and lower sales of
our Just My Size brand of $3 million. We expect the
trend of declining hosiery sales to continue consistent with the
overall decline in the industry and with shifts in consumer
preferences. Generally, we manage the Hosiery segment for cash,
placing an emphasis on reducing our cost structure and managing
cash efficiently. The total impact of the 53rd week in
2008, which is included in the amounts above, was a
$4 million increase in sales for the Hosiery segment.
As a percent of segment net sales, gross profit percentage was
47.1% in 2008 compared to 47.2% in 2007. The lower gross profit
percentage for 2008 compared to 2007 is the result of
unfavorable product sales mix of $17 million and lower
sales volume of $10 million, offset by savings of
$4 million from our cost reduction initiatives and prior
restructuring actions, lower sales incentives of $4 million
and lower other manufacturing overhead costs of $2 million.
The lower Hosiery segment operating profit in 2008 compared to
2007 is primarily attributable to lower gross profit partially
offset by lower distribution expenses of $5 million,
savings of $2 million from our cost reduction initiatives
and prior restructuring actions, lower non-media related MAP
expenses of $2 million and lower spending of
$3 million in numerous areas. A significant portion of the
selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to
each segment. The allocation methodology for the consolidated
selling, general and administrative expenses for 2008 is
consistent with 2007. Our consolidated selling, general and
administrative expenses before segment allocations was
$31 million lower in 2008 compared to 2007.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
460,085
|
|
|
$
|
421,898
|
|
|
$
|
38,187
|
|
|
|
9.1%
|
|
Segment operating profit
|
|
|
57,070
|
|
|
|
53,147
|
|
|
|
3,923
|
|
|
|
7.4
|
|
|
|
S-72
Overall net sales in the International segment were higher by
$38 million or 9% in 2008 compared to 2007. During 2008, we
experienced higher net sales, in each case including the impact
of foreign currency and the 53rd week, in Europe of
$20 million, Asia of $18 million and Canada of
$2 million. The growth in our European casualwear business
was driven by the strength of the Stedman brand that is
sold in the embellishment channel. Higher sales in our
Champion brand casualwear business in Asia and our
Champion and Hanes brands male underwear business
in Canada also contributed to the sales growth. Changes in
foreign currency exchange rates had a favorable impact on net
sales of $22 million in 2008 compared to 2007. The
favorable impact was primarily due to the strengthening of the
Japanese yen, Euro and Brazilian real. The total impact of the
53rd week in 2008 was a $2 million increase in sales
for the International segment.
As a percent of segment net sales, gross profit percentage was
40.8% in 2008 compared to 2007 at 41.3%. While the gross profit
percentage was lower, gross profit dollars were higher for 2008
compared to 2007 as a result of a favorable impact related to
foreign currency exchange rates of $9 million, favorable
product sales mix of $7 million and lower on-going excess
and obsolete inventory costs of $3 million partially offset
by higher sales incentives of $6 million.
The higher International segment operating profit in 2008
compared to 2007 is primarily attributable to the higher gross
profit partially offset by higher distribution expenses of
$3 million, higher media-related MAP expenses of
$2 million and higher non-media related MAP expenses of
$2 million. Changes in foreign currency exchange rates,
which are included in the impact on gross profit above, had a
favorable impact on segment operating profit of $4 million
in 2008 compared to 2007.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
Higher
|
|
|
Percent
|
|
(dollars in thousands)
|
|
2009
|
|
|
2007
|
|
|
(lower)
|
|
|
change
|
|
|
|
|
Net sales
|
|
$
|
21,724
|
|
|
$
|
56,920
|
|
|
$
|
(35,196
|
)
|
|
|
(61.8%
|
)
|
Segment operating profit
|
|
|
(472
|
)
|
|
|
(1,361
|
)
|
|
|
889
|
|
|
|
65.3
|
|
|
|
The decline in net sales in our Other segment is primarily due
to the continued vertical integration of a yarn and fabric
operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties. We expect this
decline to continue and sales for this segment to ultimately
become insignificant to us as we complete the implementation of
our consolidation and globalization efforts. Net sales in this
segment are generated for the purpose of maintaining asset
utilization at certain manufacturing facilities and generating
break even margins.
General
corporate expenses
General corporate expenses were lower in 2008 compared to 2007
primarily due to $11 million of higher foreign exchange
transaction gains, $6 million of higher gains on sales of
assets, $3 million of lower
start-up and
shut-down costs associated with our consolidation and
globalization of our supply chain and $3 million of spin
off and related charges recognized in 2007 which did not recur
in 2008. These lower expenses were partially offset by
$7 million in amortization of gain on curtailment of
postretirement benefits in 2007 which did not recur in
S-73
2008, $7 million in losses from foreign currency
derivatives and a $3 million adjustment that reduced
pension expense in 2007 related to the final separation of our
pension assets and liabilities from those of Sara Lee.
Liquidity and
capital resources
Trends and
uncertainties affecting liquidity
Our primary sources of liquidity are cash generated by
operations and availability under our Revolving Loan Facility
and our international loan facilities. At October 3, 2009,
we had $474 million of borrowing availability under our
$500 million Revolving Loan Facility (after taking into
account outstanding letters of credit), $39 million in cash
and cash equivalents and $71 million of borrowing
availability under our international loan facilities. As of
October 3, 2009, after giving effect to the Transactions
and the application of the estimated net proceeds therefrom as
set forth under Use of proceeds, we would have had
total consolidated indebtedness of $2,087.7 million,
consisting of $845.0 million of secured indebtedness
outstanding under the New Senior Secured Credit Facilities,
$500.0 million of the notes offered hereby,
$493.7 million of the Floating Rate Senior Notes and
$249.0 million outstanding under our Accounts Receivable
Securitization Facility. We currently believe that our existing
cash balances and cash generated by operations, together with
our available credit capacity, will enable us to comply with the
terms of our indebtedness and meet foreseeable liquidity
requirements.
The following has or is expected to impact liquidity:
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we have principal and interest obligations under our long-term
debt;
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we expect to continue to invest in efforts to improve operating
efficiencies and lower costs;
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we expect to continue to add new lower-cost manufacturing
capacity in Asia, Central America and the Caribbean Basin;
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we could increase or decrease the portion of the income of our
foreign subsidiaries that is expected to be remitted to the
United States, which could significantly impact our effective
income tax rate; and
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our Board of Directors has authorized the repurchase of up to
10 million shares of our stock in the open market over the
next few years (2.8 million of which we have repurchased as
of October 3, 2009 at a cost of $75 million), although
we may choose not to repurchase any stock and instead focus on
the repayment of our debt in the next 12 months in light of
the current economic recession.
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We have restructured our supply chain over the past three years
to create more efficient production clusters that utilize fewer,
larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global supply
chain restructured, we are now focused on optimizing our supply
chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the
working capital needs of our supply chain through several
initiatives, such as supplier-managed inventory for raw
materials and sourced goods ownership relationships.
We are operating in an uncertain and volatile economic
environment, which could have unanticipated adverse effects on
our business. The retail environment has been impacted by recent
volatility in the financial markets, including stock prices, and
by uncertain economic
S-74
conditions. Increases in food and fuel prices, changes in the
credit and housing markets leading to the current financial and
credit crisis, actual and potential job losses among many
sectors of the economy, significant declines in the stock market
resulting in large losses to consumer retirement and investment
accounts, and uncertainty regarding future federal tax and
economic policies have all added to declines in consumer
confidence and curtailed retail spending.
In the third quarter of 2009, we have not seen a sustained
consistent rebound in consumer spending but rather mixed
results. We expect the weak retail environment to continue and
do not expect macroeconomic conditions to be conducive to growth
in 2009. We also expect substantial pressure on profitability
due to the economic climate, increased pension costs and
increased costs associated with implementing our price increase
which became effective in February 2009, including repackaging
costs. Our results in the first nine months of 2009 were
impacted by higher costs for cotton and oil-related materials
incurred in 2008, however we started to benefit in the second
quarter of 2009 from lower cotton costs and in the third quarter
of 2009 from lower oil-related material costs and other
manufacturing costs. In addition, hosiery products continue to
be more adversely impacted than other apparel categories by
reduced consumer discretionary spending, which contributes to
weaker sales and lowering of inventory levels by retailers. The
Hosiery segment comprised only 5% of our net sales in the first
nine months of 2009; therefore the decline in the Hosiery
segment has not had a significant impact on our net sales or
cash flows. Generally, we manage the Hosiery segment for cash,
placing an emphasis on reducing our cost structure and managing
cash efficiently.
We expect to be able to manage our working capital levels and
capital expenditure amounts to maintain sufficient levels of
liquidity. Factors that could help us in these efforts include
the domestic gross price increase of 4% which became effective
in February 2009, lower commodity costs in the remainder of
2009, the ability to execute previously discussed discretionary
spending cuts and the realization of additional cost benefits
from previous restructuring and related actions. Depending on
conditions in the capital markets and other factors, we will
from time to time consider other financing transactions, the
proceeds of which could be used to refinance current
indebtedness or for other purposes. We continue to monitor the
impact, if any, of the current conditions in the credit markets
on our operations. Our access to financing at reasonable
interest rates could become influenced by the economic and
credit market environment.
Cash
requirements for our business
We rely on our cash flows generated from operations and the
borrowing capacity under our Revolving Loan Facility and
international loan facilities to meet the cash requirements of
our business. The primary cash requirements of our business are
payments to vendors in the normal course of business,
restructuring costs, capital expenditures, maturities of debt
and related interest payments, contributions to our pension
plans and repurchases of our stock. We believe we have
sufficient cash and available borrowings for our liquidity
needs. In light of the current economic environment and our
outlook for 2009, we expect to use excess cash flows to pay down
long-term debt of approximately $300 million rather than to
repurchase our stock or make discretionary contributions to our
pension plans. In September 2009, we made a prepayment of
$140 million of principal on the Senior Secured Credit
Facilities.
The implementation of our consolidation and globalization
strategy, which is designed to improve operating efficiencies
and lower costs, has resulted and is likely to continue to
result in significant costs in the short-term and generate
savings in future years. As further plans are developed and
approved, we expect to recognize additional restructuring costs
as we eliminate
S-75
duplicative functions within the organization and transition a
significant portion of our manufacturing capacity to lower-cost
locations. We expect that restructuring charges related to our
consolidation and globalization strategy will be completed by
the end of 2009. During the nine months of 2009 we recognized
$53 million in restructuring and related charges for our
restructuring actions.
Capital spending has varied significantly from year to year as
we have executed our supply chain consolidation and
globalization strategy and completed the integration and
consolidation of our technology systems. We spent
$100 million on gross capital expenditures during the nine
months of 2009 which represents approximately 80% of planned
expenditures for the full year in 2009. We will place emphasis
in the near term on careful management of our capital
expenditures for the rest of 2009 as we complete our supply
chain consolidation and globalization strategy. During 2010, we
expect our annual gross capital spending to be relatively
comparable to our annual depreciation and amortization expense.
Pension
plans
Since the spin off, we have voluntarily contributed
$98 million to our pension plans as of January 3,
2009. Additionally, during 2007 we completed the separation of
our pension plan assets and liabilities from those of Sara Lee
in accordance with governmental regulations, which resulted in a
higher total amount of pension plan assets of approximately
$74 million being transferred to us than originally was
estimated prior to the spin off. Prior to spin off, the fair
value of plan assets included in the annual valuations
represented a best estimate based upon a percentage allocation
of total assets of the Sara Lee trust.
As widely reported, financial markets in the United States,
Europe and Asia have been experiencing extreme disruption in
recent months. As a result of this disruption in the domestic
and international equity and bond markets, our pension plans had
a decrease in asset values of approximately 32% during the year
ended January 3, 2009.
In March 2009, the IRS published guidance regarding pension
funding requirements for 2009, which allowed for the selection
of a monthly discount rate from any month within a five-month
lookback period prior to the pension plan year-end as compared
to the use of the December 2008 monthly discount rate in
the valuation of liabilities. Applying the October
2008 monthly discount rate in accordance with this new IRS
guidance, the funded status of our U.S. qualified pension
plans as of January 3, 2009, the date as of which pension
contributions are determined for 2009, was 86% rather than 75%
as calculated under the previous guidance and previously
reported. In connection with closing a manufacturing facility in
early 2009, we, as required, notified the Pension Benefit
Guaranty Corporation (the PBGC) of the closing and
requested a liability determination under section 4062(e)
of the Employee Retirement Income Security Act of 1974 with
respect to the National Textiles, L.L.C. Pension Plan. In
September 2009, we entered an agreement with the PBGC under
which we contributed $7 million to the plan in September
2009 and agreed to contribute an additional $7 million to
the plan by September 2010. In addition, in September 2009 we
made a voluntary contribution of $2 million to the plan to
maintain a funding level sufficient to avoid certain benefit
payment restrictions under the Pension Protection Act. We do not
expect to make any more contributions to our plan in 2009.
Share
repurchase program
On February 1, 2007, we announced that our Board of
Directors granted authority for the repurchase of up to
10 million shares of our common stock. Share repurchases
are made periodically
S-76
in open-market transactions, and are subject to market
conditions, legal requirements and other factors. Additionally,
management has been granted authority to establish a trading
plan under
Rule 10b5-1
of the Exchange Act in connection with share repurchases, which
will allow us to repurchase shares in the open market during
periods in which the stock trading window is otherwise closed
for our company and certain of our officers and employees
pursuant to our insider trading policy. During 2008, we
purchased 1.2 million shares of our common stock at a cost
of $30 million (average price of $24.71). Since inception
of the program, we have purchased 2.8 million shares of our
common stock at a cost of $75 million (average price of
$26.33). The primary objective of our share repurchase program
is to reduce the impact of dilution caused by the exercise of
options and vesting of stock unit awards. In light of the
current economic recession, we may choose not to repurchase any
stock and focus more on the repayment of our debt in the next
twelve months.
Off-balance
sheet arrangements
We do not have any off-balance sheet arrangements within the
meaning of Item 303(a)(4) of SEC
Regulation S-K.
Future
contractual obligations and commitments
The following table contains information on our contractual
obligations and commitments as of January 3, 2009, and
their expected timing on future cash flows and liquidity, in
each case, without giving effect to the Transactions.
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Payments due by period
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At January 3,
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Less than
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(in thousands)
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2009
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1 year
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1-3 years
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3-5 years
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Thereafter
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Long-term debt
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$
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2,176,547
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$
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45,640
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$
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276,602
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$
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910,625
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$
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943,680
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Notes payable
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61,734
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61,734
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Interest on debt
obligations(1)
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575,778
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121,479
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224,966
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200,063
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29,270
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Operating lease obligations
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226,633
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43,488
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71,840
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41,639
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69,666
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Purchase
obligations(2)
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626,919
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507,373
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41,149
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27,076
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51,321
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Other long-term
obligations(3)
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76,856
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29,460
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19,712
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14,334
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13,350
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Total
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$
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3,744,467
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$
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809,174
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$
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634,269
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$
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1,193,737
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$
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1,107,287
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(1)
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Interest obligations on floating
rate debt instruments are calculated for future periods using
interest rates in effect at January 3, 2009.
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(2)
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Purchase obligations,
as disclosed in the table, are obligations to purchase goods and
services in the ordinary course of business for production and
inventory needs (such as raw materials, supplies, packaging, and
manufacturing arrangements), capital expenditures, marketing
services, royalty-bearing license agreement payments and other
professional services. This table only includes purchase
obligations for which we have agreed upon a fixed or minimum
quantity to purchase, a fixed, minimum or variable pricing
arrangement, and an approximate delivery date. Actual cash
expenditures relating to these obligations may vary from the
amounts shown in the table above. We enter into purchase
obligations when terms or conditions are favorable or when a
long-term commitment is necessary. Many of these arrangements
are cancelable after a notice period without a significant
penalty. This table omits purchase obligations that did not
exist as of January 3, 2009, as well as obligations for
accounts payable and accrued liabilities recorded on the
Consolidated Balance Sheet at January 3, 2009.
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(3)
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Represents the projected payment
for long-term liabilities recorded on the Consolidated Balance
Sheet at January 3, 2009 for deferred compensation,
severance, certain employee benefit claims, capital leases and
unrecognized tax benefits.
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S-77
Sources and
uses of our cash
The information presented below regarding the sources and uses
of our cash flows for the nine months ended October 3, 2009
and September 27, 2008 and for the years ended
January 3, 2009 and December 29, 2007 was derived from
our financial statements.
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Nine months ended
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Years ended
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October 3,
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September 27,
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January 3,
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December 29,
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(dollars in thousands)
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2009
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2008
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2009
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2007
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Operating activities
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$
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210,807
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$
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(18,621
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)
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$
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177,397
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$
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359,040
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Investing activities
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(83,885
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)
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(109,644
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)
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(177,248
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)
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(101,085
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)
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Financing activities
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(155,935
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)
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40,776
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(104,738
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)
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(243,379
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Effect of changes in foreign currency exchange rates on cash
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288
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(535
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)
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(2,305
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)
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3,687
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Increase (decrease) in cash and cash equivalents
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$
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(28,725
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)
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$
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(88,024
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)
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$
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(106,894
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)
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$
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18,263
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Cash and cash equivalents at beginning of year
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67,342
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|
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174,236
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174,236
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|
|
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155,973
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Cash and cash equivalents at end of period
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$
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38,617
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$
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86,212
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$
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67,342
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$
|
174,236
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Operating
activities
Net cash provided by operating activities was $211 million
in the nine months of 2009 compared to net cash used in
operating activities of $19 million in the nine months of
2008. The net increase in cash from operating activities of
$230 million for the nine months of 2009 compared to the
nine months of 2008 is primarily attributable to significantly
lower uses of our working capital of $272 million,
partially offset by lower net income of $57 million.
Net inventory decreased $159 million from January 3,
2009 primarily due to decreases in levels as we complete the
execution of our supply chain consolidation and globalization
strategy, lower input costs such as cotton, oil and freight and
lower excess and obsolete inventory levels. We continually
monitor our inventory levels to best balance current supply and
demand with potential future demand that typically surges when
consumers no longer postpone purchases in our product
categories. The lower excess and obsolete inventory levels are
attributable to both our continuous evaluation of inventory
levels and simplification of our product category offerings. We
realized these benefits by driving down obsolete inventory
levels through aggressive management and promotions.
Accounts receivable increased $129 million from
January 3, 2009 primarily due to higher sales in the third
quarter of 2009 compared to the fourth quarter of 2008 and a
longer collection cycle reflecting a more challenging retail
environment.
With our global supply chain restructured, we are now focused on
optimizing our supply chain to further enhance efficiency,
improve working capital and asset turns and reduce costs. We are
focused on optimizing the working capital needs of our supply
chain through several initiatives, such as supplier-managed
inventory for raw materials and sourced goods ownership
relationships. In September 2009, we announced that we will
cease making our own yarn and that we
S-78
will source all of our yarn requirements from large-scale yarn
suppliers. We entered into an agreement with Parkdale America
under which we agreed to sell or lease assets related to
operations at our four yarn manufacturing facilities to Parkdale
America. We also entered into a yarn purchase agreement with
Parkdale. Under this agreement, which has an initial term of six
years, Parkdale will produce and sell to us a substantial amount
of our Western Hemisphere yarn requirements. Exiting yarn
production and entering into a supply agreement is expected to
generate a $100 million of working capital improvements
from reduced raw material requirements, reduced inventory, and
sale proceeds. During the first two years of the term, Parkdale
will also produce and sell to us a substantial amount of the
yarn requirements of our Nanjing, China textile facility.
Net cash provided by operating activities was $177 million
in 2008 compared to $359 million in 2007. The net change in
cash from operating activities of $182 million for 2008
compared to 2007 is attributable to the higher uses of our
working capital, primarily driven by changes in inventory.
Inventory grew $183 million from December 29, 2007
primarily due to increases in levels needed to service our
business as we continued to execute our consolidation and
globalization strategy which had an impact of approximately
$112 million. In addition, cost increases for inputs such
as cotton, oil and freight were approximately $53 million
and other factors such as reserves had an impact of
approximately $18 million. We continually monitor our
inventory levels to best balance current supply and demand with
potential future demand that typically surges when consumers no
longer postpone purchases in our product categories. Accounts
receivable was lower in 2008 compared to 2007 primarily as a
result of lower sales volume in the fourth quarter of 2008.
Investing
activities
Net cash used in investing activities was $84 million in
the nine months of 2009 compared to $110 million in the
nine months of 2008. The lower net cash used in investing
activities of $26 million for the nine months of 2009
compared to the nine months of 2008 was primarily the result of
lower net spending on capital expenditures in the nine months of
2009 compared to the nine months of 2008 and an acquisition of a
sewing operation in Thailand for $10 million in the nine
months of 2008. During the nine months of 2009, gross capital
expenditures were $100 million as we continued to build out
our textile and sewing network in Asia, Central America and the
Caribbean Basin and approximated 80% of our planned spending for
all of 2009.
Net cash used in investing activities was $177 million in
2008 compared to $101 million in 2007. The higher net cash
used in investing activities of $76 million for 2008
compared to 2007 was primarily the result of higher capital
expenditures. During 2008 gross capital expenditures were
$187 million as we continued to build out our textile and
sewing network in Asia, Central America and the Caribbean Basin
and invest in our technology strategic initiatives which were
offset by cash proceeds from sales of assets of
$25 million, primarily from dispositions of plant and
equipment associated with our restructuring initiatives. In
addition, we acquired a sewing operation in Thailand and an
embroidery operation in Honduras for an aggregate cost of
$15 million during 2008.
Financing
activities
Net cash used in financing activities was $156 million in
the nine months of 2009 compared to cash provided by financing
activities of $41 million in the nine months of 2008. The
lower net
S-79
cash from financing activities of $197 million for the nine
months of 2009 compared to the nine months of 2008 was primarily
the result of the prepayment of $140 million of principal
in September 2009 and payments of $22 million for debt
amendment fees associated with the amendments of the Senior
Secured Credit Facilities and the Accounts Receivable
Securitization Facility in 2009. Lower net borrowings on notes
payable of $51 million partially offset by higher net
borrowings of $6 million on the Accounts Receivable
Securitization Facility also contributed to the higher net cash
used in financing activities in the nine months of 2009 compared
to the nine months of 2008. In addition, we received
$18 million in cash from Sara Lee in the nine months of
2008 which was offset by stock repurchases of $30 million
in the nine months of 2008.
Net cash used in financing activities was $105 million in
2008 compared to $243 million in 2007. The lower net cash
used in financing activities of $138 million for 2008
compared to 2007 was primarily the result of lower repayments of
$303 million under the Senior Secured Credit Facilities,
higher net borrowings on notes payable of $65 million, the
receipt from Sara Lee of $18 million in cash in 2008 and
lower stock repurchases of $14 million, partially offset by
borrowings of $250 million of principal under the Accounts
Receivable Securitization Facility in 2007, repayments of
$7 million under the Accounts Receivable Securitization
Facility in 2008 and cash paid to repurchase $4 million of
Floating Rate Senior Notes in 2008.
Cash and cash
equivalents
As of October 3, 2009 and January 3, 2009, cash and
cash equivalents were $39 million and $67 million,
respectively. The lower cash and cash equivalents as of
October 3, 2009 was primarily the result of cash provided
by operating activities of $211 million, partially offset
by net cash used in financing activities of $156 million
and net cash used in investing activities of $84 million
As of January 3, 2009 and December 29, 2007, cash and
cash equivalents were $67 million and $174 million,
respectively. The lower cash and cash equivalents as of
January 3, 2009 was primarily the result of net capital
expenditures of $162 million, net principal payments on
debt of $139 million, $30 million of stock
repurchases, the acquisitions of a sewing operation in Thailand
and an embroidery operation in Honduras for an aggregate cost of
$15 million partially offset by $178 million related
to other uses of working capital, $43 million of net
borrowings on notes payable and the receipt from Sara Lee of
$18 million in cash.
Material
financing arrangements
We believe our financing structure provides a secure base to
support our ongoing operations and key business strategies.
Depending on conditions in the capital markets and other
factors, we will from time to time consider other financing
transactions, the proceeds of which could be used to refinance
current indebtedness or for other purposes. We continue to
monitor the impact, if any, of the current conditions in the
credit markets on our operations. Our access to financing at
reasonable interest rates could become influenced by the
economic and credit market environment. Deterioration in the
capital markets, which has caused many financial institutions to
seek additional capital, merge with larger and stronger
financial institutions and, in some cases, fail, has led to
concerns about the stability of financial institutions. We
currently hold interest rate cap and swap derivative instruments
to mitigate a portion of our interest rate risk and hold foreign
exchange rate derivative instruments to mitigate the potential
impact of currency fluctuations. Credit risk is the exposure to
nonperformance of another party to these
S-80
arrangements. We mitigate credit risk by dealing with highly
rated bank counterparties. We believe that our exposures are
appropriately diversified across counterparties and that these
counterparties are creditworthy financial institutions.
Moodys Investors Services (Moodys)
corporate credit rating for our company is Ba3 and
Standard & Poors Ratings Services
(Standard & Poors) corporate credit
rating for us is BB-. In November 2009, Moodys changed our
rating outlook to stable from negative
and affirmed certain of our ratings, including the Ba3 corporate
credit and probability of default ratings and the speculative
grade liquidity rating of SGL-2. Moodys also upgraded its
ratings on some of the Senior Secured Credit Facilities and the
Second Lien Credit Facility. Moodys indicated that the
outlook revision reflects the progress we have made toward
deleveraging our balance sheet. In September 2009,
Standard & Poors changed our current outlook to
negative and placed our corporate credit rating and
all issue-level ratings for us on Creditwatch with
negative implications. Standard & Poors
cited its concern that our operating performance and credit
metrics had weakened materially through the second quarter of
2009.
In connection with the spin off, on September 5, 2006, we
entered into the $2.15 billion Senior Secured Credit
Facilities (which include the $500 million Revolving Loan
Facility that was undrawn at the time of the spin off), the
$450 million Second Lien Credit Facility and the
$500 million Bridge Loan Facility. We paid
$2.4 billion of the proceeds of these borrowings to Sara
Lee in connection with the consummation of the spin off. The
Bridge Loan Facility was paid off in full through the issuance
of the $500 million of Floating Rate Senior Notes issued in
December 2006. On November 27, 2007, we entered into the
Accounts Receivable Securitization Facility which provides for
up to $250 million in funding accounted for as a secured
borrowing, limited to the availability of eligible receivables,
and is secured by certain domestic trade receivables. The
proceeds from the Accounts Receivable Securitization Facility
were used to pay off a portion of the Senior Secured Credit
Facilities.
As of October 3, 2009, we were in compliance with all
covenants under our credit facilities. We continue to monitor
our debt covenant compliance carefully in this difficult
economic environment. We expect to maintain compliance in the
fourth quarter of 2009 with all of our covenant ratios.
Maintaining future compliance with our leverage ratio covenant,
which was amended earlier in 2009, requires generating
sufficient EBITDA and reducing debt. As previously stated, it is
our goal to reduce debt by approximately $300 million by
the end of fiscal year 2009.
We intend to use a portion of the net proceeds from the
Transactions to refinance outstanding borrowings under the
Senior Secured Credit Facilities and to repay outstanding
borrowings under the Second Lien Credit Facility. We will
terminate the Second Lien Credit Facility concurrently with the
closing of this offering. See Use of proceeds.
Senior secured
credit facilities
The Senior Secured Credit Facilities initially provided for
aggregate borrowings of $2.15 billion, consisting of:
(i) a $250.0 million Term A loan facility (the
Term A Loan Facility); (ii) a $1.4 billion
Term B loan facility (the Term B Loan Facility); and
(iii) the $500 million Revolving Loan Facility that
was undrawn as of January 3, 2009. Issuances of letters of
credit reduce the amount available under the Revolving Loan
Facility.
The Senior Secured Credit Facilities are guaranteed by
substantially all of our existing and future direct and indirect
U.S. subsidiaries, with certain customary or
agreed-upon
exceptions for certain subsidiaries.
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The Term A Loan Facility matures on September 5, 2012. The
Term B Loan Facility matures on September 5, 2013. The
Revolving Loan Facility matures on September 5, 2011. All
borrowings under the Revolving Loan Facility must be repaid in
full upon maturity. Outstanding borrowings under the Senior
Secured Credit Facilities are prepayable without penalty.
We intend to use a portion of the net proceeds from the
Transactions to refinance outstanding borrowings under the
Senior Secured Credit Facilities. We will amend and restate the
Senior Secured Credit Facilities concurrently with the closing
of this offering. See Use of proceeds and
New senior secured credit facilities.
Second lien
credit facility
The Second Lien Credit Facility provides for aggregate
borrowings of $450 million by Hanesbrands
wholly-owned subsidiary, HBI Branded Apparel Limited, Inc. The
Second Lien Credit Facility is unconditionally guaranteed by
Hanesbrands and each entity guaranteeing the Senior Secured
Credit Facilities, subject to the same exceptions and exclusions
provided in the Senior Secured Credit Facilities. The Second
Lien Credit Facility and the guarantees in respect thereof are
secured on a second-priority basis (subordinate only to the
Senior Secured Credit Facilities and any permitted additions
thereto or refinancings thereof) by substantially all of the
assets that secure the Senior Secured Credit Facilities (subject
to the same exceptions).
The Second Lien Credit Facility matures on March 5, 2014,
and includes premiums for prepayment of the loan prior to
September 5, 2009 based on the timing of the prepayment.
The Second Lien Credit Facility will not amortize and will be
repaid in full on its maturity date.
We intend to use a portion of the net proceeds from the
Transactions to repay outstanding borrowings under the Second
Lien Credit Facility and to terminate the Second Lien Credit
Facility concurrently with the closing of this offering. See
Use of proceeds.
New senior
secured credit facilities
Simultaneously with the closing of this offering, we expect to
amend and restate our Senior Secured Credit Facilities to
provide for the $1.15 billion New Senior Secured Credit
Facilities. We intend to use a portion of the net proceeds from
this offering and the New Senior Secured Credit Facilities to
refinance outstanding borrowings under the Senior Secured Credit
Facilities and repay the outstanding borrowings under the Second
Lien Credit Facility. See Use of proceeds.
The New Senior Secured Credit Facilities initially provides for
aggregate borrowings of $1.15 billion, consisting of:
(i) a $750.0 million term loan facility (the New
Term Loan Facility) and (ii) a $400 million
revolving loan facility (the New Revolving Loan
Facility). A portion of the New Revolving Loan Facility is
available for the issuances of letters of credit and the making
of swingline loans, and any such issuance of letters of credit
or making of a swingline loan will reduce the amount available
under the New Revolving Loan Facility. At our option, at any
time after the effective date of the New Senior Secured Credit
Facilities, we may add one or more term loan facilities or
increase the commitments under the New Revolving Loan Facility
in an aggregate amount of up to $300 million so long as
certain conditions are satisfied, including, among others, that
no default or event of default is in existence and that we are
in pro forma compliance with the financial covenants set forth
below.
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The proceeds of the New Term Loan Facility will be used to
refinance all of the loans outstanding under the existing Term A
Loan Facility and Term B Loan Facility. The proceeds of the New
Revolving Loan Facility will be used to pay fees and expenses in
connection with the transaction, for general corporate purposes
and working capital needs.
The New Senior Secured Credit Facilities are guaranteed by
substantially all of our existing and future direct and indirect
U.S. subsidiaries, with certain customary or
agreed-upon
exceptions for certain subsidiaries. We and each of the
guarantors under the New Senior Secured Credit Facilities have
granted the lenders under the New Senior Secured Credit
Facilities a valid and perfected first priority (subject to
certain customary exceptions) lien and security interest in the
following:
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the equity interests of substantially all of our direct and
indirect U.S. subsidiaries and 65% of the voting securities
of certain first tier foreign subsidiaries; and
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substantially all present and future property and assets, real
and personal, tangible and intangible, of Hanesbrands and each
guarantor, except for certain enumerated interests, and all
proceeds and products of such property and assets.
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The New Term Loan Facility matures in December 2015. The New
Term Loan Facility will be repaid in equal quarterly
installments in an amount equal to 1% per annum, with the
balance due on the maturity date. The New Revolving Loan
Facility matures in December 2013. All borrowings under the New
Revolving Loan Facility must be repaid in full upon maturity.
Outstanding borrowings under the New Senior Secured Credit
Facilities are prepayable without penalty. There are mandatory
prepayments of principal in connection with (i) the
incurrence of certain indebtedness, (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, and (iii) excess cash flow, which
percentage will be based upon our leverage ratio during the
relevant fiscal period.
At our option, borrowings under the New Senior Secured Credit
Facilities may be maintained from time to time as (a) Base
Rate loans, which shall bear interest at the highest of
(i) 1/2 of 1% in excess of the federal funds rate,
(ii) the rate publicly announced by JPMorgan Chase Bank as
its prime rate at its principal office in New York
City and (iii) the LIBO Rate (as defined in the New Senior
Secured Credit Facilities and adjusted for maximum reserves) for
LIBOR-based loans with a one-month interest period plus 1.0%, in
each case in effect from time to time, plus the applicable
margin (which is 2.50% for the New Term Loan Facility and 3.50%
for the New Revolving Loan Facility), or (b) LIBOR-based
loans, which shall bear interest at the LIBO Rate, as determined
by reference to the rate for deposits in dollars appearing on
the Reuters Screen LIBOR01 Page for the respective interest
period plus the applicable margin in effect from time to time
(which is 3.50% for the New Term Loan Facility and 4.50% for the
New Revolving Loan Facility).
The New Senior Secured Credit Facilities requires us to comply
with customary affirmative, negative and financial covenants.
The New Senior Secured Credit Facilities requires that we
maintain a minimum interest coverage ratio and a maximum total
debt to EBITDA (earnings before income taxes, depreciation
expense and amortization), or leverage ratio. The interest
coverage ratio covenant requires that the ratio of our EBITDA
for the preceding four fiscal quarters to our consolidated total
interest expense for such period shall not be less than a
specified ratio for each fiscal quarter beginning with the
fourth fiscal quarter of 2009. This ratio is 2.50 to 1 for the
fourth fiscal quarter of 2009 and will increase over time until
it reaches 3.25 to 1 for the third fiscal quarter of 2011 and
thereafter. The leverage ratio covenant requires that
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the ratio of our total debt to our EBITDA for the preceding four
fiscal quarters will not be more than a specified ratio for each
fiscal quarter beginning with the fourth fiscal quarter of 2009.
This ratio is 4.50 to 1 for the fourth fiscal quarter of 2009
and will decline over time until it reaches 3.75 to 1 for the
second fiscal quarter of 2011 and thereafter. The method of
calculating all of the components used in the covenants is
included in the New Senior Secured Credit Facilities.
The New Senior Secured Credit Facilities contains customary
events of default, including nonpayment of principal when due;
nonpayment of interest after stated grace period, fees or other
amounts after stated grace period; material inaccuracy of
representations and warranties; violations of covenants; certain
bankruptcies and liquidations; any cross-default to material
indebtedness; certain material judgments; certain events related
to the Employee Retirement Income Security Act of 1974, as
amended, or ERISA, actual or asserted invalidity of
any guarantee, security document or subordination provision or
non-perfection of security interest, and a change in control (as
defined in the New Senior Secured Credit Facilities).
Notes offered
hereby
The indenture governing the notes offered hereby, among other
restrictions, will limits our ability and the ability of our
restricted subsidiaries to:
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incur additional indebtedness;
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pay dividends or make other distributions or repurchase or
redeem our capital stock;
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make loans and investments;
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transfer or sell assets;
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incur certain liens;
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enter into transactions with affiliates;
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alter the businesses we conduct;
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enter into agreements restricting our subsidiaries ability
to pay dividends;
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consolidate, merge or sell all or substantially all of our
assets; and
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enter into sale and leaseback transactions.
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These covenants are subject to a number of important limitations
and exceptions, including a provision allowing us to make
restricted payments in an amount calculated pursuant to a
formula based upon 50% of our adjusted consolidated net income
(as defined in the indenture) since October 1, 2006. As of
October 3, 2009, after giving effect to the Transactions,
we would have had approximately $391.9 million of available
restricted payment capacity pursuant to that provision, in
addition to the restricted payment capacity available under
other exceptions. See Description of
notesCovenants.
In addition, most of the covenants will be suspended if both
Standard & Poors Ratings Services and
Moodys Investors Service, Inc., assign the notes an
investment grade rating and no default exists with respect to
the notes.
Subject to certain exceptions, the indenture governing the notes
offered hereby will also permit us and our restricted
subsidiaries to incur additional indebtedness, including senior
indebtedness and secured indebtedness. For more details, see
Description of notes and Description of other
indebtedness.
S-84
Floating rate
senior notes
On December 14, 2006, we issued $500 million aggregate
principal amount of the Floating Rate Senior Notes. The Floating
Rate Senior Notes are senior unsecured obligations that rank
equal in right of payment with all of our existing and future
unsubordinated indebtedness. The Floating Rate Senior Notes bear
interest at an annual rate, reset semi-annually, equal to LIBOR
plus 3.375%. Interest is payable on the Floating Rate Senior
Notes on June 15 and December 15 of each year. The Floating Rate
Senior Notes will mature on December 15, 2014. The net
proceeds from the sale of the Floating Rate Senior Notes were
approximately $492 million. As noted above, these proceeds,
together with our working capital, were used to repay in full
the $500 million outstanding under the Bridge Loan
Facility. The Floating Rate Senior Notes are guaranteed by
substantially all of our domestic subsidiaries.
We may redeem some or all of the Floating Rate Senior Notes at
any time on or after December 15, 2008 at a redemption
price equal to the principal amount of the Floating Rate Senior
Notes plus a premium of 2% if redeemed during the
12-month
period commencing on December 15, 2008, 1% if redeemed
during the
12-month
period commencing on December 15, 2009 and no premium if
redeemed after December 15, 2010, as well as any accrued
and unpaid interest as of the redemption date. We repurchased
$6 million of the Floating Rate Senior Notes for
$4 million resulting in a gain of $2 million during
the year ended January 3, 2009.
Accounts
receivable securitization facility
On November 27, 2007, we entered into the Accounts
Receivable Securitization Facility, which provides for up to
$250 million in funding accounted for as a secured
borrowing, limited to the availability of eligible receivables,
and is secured by certain domestic trade receivables. The
Accounts Receivable Securitization Facility will terminate on
November 27, 2010. Under the terms of the Accounts
Receivable Securitization Facility, the company sells, on a
revolving basis, certain domestic trade receivables to HBI
Receivables LLC (Receivables LLC), a wholly-owned
bankruptcy-remote subsidiary that in turn uses the trade
receivables to secure the borrowings, which are funded through
conduits that issue commercial paper in the short-term market
and are not affiliated with us or through committed bank
purchasers if the conduits fail to fund. The assets and
liabilities of Receivables LLC are fully reflected on our
balance sheet, and the securitization is treated as a secured
borrowing for accounting purposes. The borrowings under the
Accounts Receivable Securitization Facility remain outstanding
throughout the term of the agreement subject to our maintaining
sufficient eligible receivables by continuing to sell trade
receivables to Receivables LLC unless an event of default
occurs. Availability of funding under the facility depends
primarily upon the eligible outstanding receivables balance. As
of January 3, 2009, we had $243 million outstanding
under the Accounts Receivable Securitization Facility. The
outstanding balance under the Accounts Receivable Securitization
Facility is reported on our balance sheet in long-term debt
based on the three-year term of the agreement and the fact that
remittances on the receivables do not automatically reduce the
outstanding borrowings. The Accounts Receivable Securitization
Facility contains customary events of default.
We used all $250 million of the proceeds from the Accounts
Receivable Securitization Facility to make a prepayment of
principal under the Senior Secured Credit Facilities. Unless the
conduits fail to fund, the yield on the commercial paper is the
conduits cost to issue the commercial paper plus certain
dealer fees, is considered a financing cost and is included in
interest expense on the Consolidated Statement of Income. If the
conduits fail to fund, the Accounts Receivable Securitization
Facility would be funded through committed bank purchasers, and
the interest
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rate payable at our option at the rate announced from time to
time by JPMorgan as its prime rate or at the LIBO Rate (as
defined in the Accounts Receivable Securitization Facility) plus
the applicable margin in effect from time to time. The average
blended interest rate for the year ended January 3, 2009
was 3.50%.
On March 16, 2009, we and Receivables LLC entered into
Amendment No. 1 (the First Amendment) to the
Accounts Receivable Securitization Facility dated as of
November 27, 2007. The Accounts Receivable Securitization
Facility contains the same leverage ratio and interest coverage
ratio provisions as the Senior Secured Credit Facilities. The
First Amendment effects the same changes to the leverage ratio
and the interest coverage ratio that are effected by the Third
Amendment described above. Pursuant to the First Amendment, the
rate that would be payable to the conduit purchasers or the
committed purchasers party to the Accounts Receivable
Securitization Facility in the event of certain defaults is
increased from 1% over the prime rate to 3% over the greatest of
(i) the one-month LIBO rate plus 1%, (ii) the weighted
average rates on federal funds transactions plus 0.5%, or
(iii) the prime rate. Also pursuant to the First Amendment,
several of the factors that contribute to the overall
availability of funding have been amended in a manner that would
be expected to generally reduce the amount of funding that will
be available under the Accounts Receivable Securitization
Facility. The First Amendment also provides for certain other
amendments to the Accounts Receivable Securitization Facility,
including changing the termination date for the Accounts
Receivable Securitization Facility from November 27, 2010
to March 15, 2010, and requiring that Receivables LLC make
certain payments to a conduit purchaser, a committed purchaser,
or certain entities that provide funding to or are affiliated
with them, in the event that assets and liabilities of a conduit
purchaser are consolidated for financial
and/or
regulatory accounting purposes with certain other entities.
On April 13, 2009, we and Receivables LLC entered into
Amendment No. 2 (the Second Amendment) to the
Accounts Receivable Securitization Facility. Pursuant to the
Second Amendment, several of the factors that contribute to the
overall availability of funding have been amended in a manner
that is expected to generally increase over time the amount of
funding that will be available under the Accounts Receivable
Securitization Facility as compared to the amount that would be
available pursuant to the First Amendment. The Second Amendment
also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the
termination date for the Accounts Receivable Securitization
Facility from March 15, 2010 to April 12, 2010. In
addition, HSBC Securities (USA) Inc. replaced JPMorgan Chase
Bank, N.A. as agent under the Accounts Receivable Securitization
Facility, PNC Bank, N.A. replaced JPMorgan Chase Bank, N.A. as a
managing agent, and PNC Bank, N.A. and an affiliate of PNC Bank,
N.A. replaced affiliates of JPMorgan Chase Bank, N.A. as a
committed purchaser and a conduit purchaser, respectively. On
August 17, 2009, we and Receivables LLC entered into
Amendment No. 3 to the to the Accounts Receivable
Securitization Facility, pursuant to which certain definitions
were amended to clarify the calculation of certain ratios that
impact reporting under the Accounts Receivable Securitization
Facility.
Notes
payable
Notes payable were $62 million at January 3, 2009 and
$20 million at December 29, 2007.
We have a short-term revolving facility arrangement with a
Salvadoran branch of a U.S. bank amounting to
$45 million of which $29 million was outstanding at
January 3, 2009 which
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accrues interest at 7.38%. We were in compliance with the
covenants contained in this facility at January 3, 2009.
We have a short-term revolving facility arrangement with a Thai
branch of a U.S. bank amounting to THB 600 million
($17 million) of which $15 million was outstanding at
January 3, 2009 which accrues interest at 4.35%. We were in
compliance with the covenants contained in this facility at
January 3, 2009.
We have a short-term revolving facility arrangement with a
Chinese branch of a U.S. bank amounting to RMB
56 million ($8 million) of which $8 million was
outstanding at January 3, 2009 which accrues interest at
5.36%. Borrowings under the facility accrue interest at the
prevailing base lending rates published by the Peoples
Bank of China from time to time less 10%. We were in compliance
with the covenants contained in this facility at January 3,
2009.
We have a short-term revolving facility arrangement with an
Indian branch of a U.S. bank amounting to INR
260 million ($5 million) of which $5 million was
outstanding at January 3, 2009 which accrues interest at
16.50%. We were in compliance with the covenants contained in
this facility at January 3, 2009.
We have other short-term obligations amounting to $4,029 which
consisted of a short-term revolving facility arrangement with a
Japanese branch of a U.S. bank amounting to JPY
1,100 million ($12 million) of which $2 million
was outstanding at January 3, 2009 which accrues interest
at 2.42%, and a short-term revolving facility arrangement with a
Vietnamese branch of a U.S. bank amounting to
$14 million of which $2 million was outstanding at
January 3, 2009 which accrues interest at 12.14%. We were
in compliance with the covenants contained in the facilities at
January 3, 2009.
In addition, we have short-term revolving credit facilities in
various other locations that can be drawn on from time to time
amounting to $27 million of which $0 was outstanding at
January 3, 2009.
Derivatives
Given the recent turmoil in the financial and credit markets, we
expanded our interest rate hedging portfolio at what we believe
to be advantageous rates that are expected to minimize our
overall interest rate risk. In addition, until September 5,
2009, we were required under the Senior Secured Credit
Facilities and the Second Lien Credit Facility to hedge a
portion of our floating rate debt to reduce interest rate risk
caused by floating rate debt issuance. At October 3, 2009,
we have outstanding hedging arrangements whereby we capped the
LIBOR interest rate component on $400 million of our
floating rate debt at 3.50%. We also entered into interest rate
swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the LIBOR interest rate component
on an aggregate of $1.4 billion of our floating rate debt
at a blended rate of approximately 4.16%. Approximately 88% of
our total debt outstanding at October 3, 2009 is at
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a fixed or capped LIBOR rate. The table below summarizes our
interest rate derivative portfolio with respect to our long-term
debt as of October 3, 2009.
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Interest
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Hedge
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rate
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expiration
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Amount
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LIBOR
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spreads
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dates
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Debt covered by interest rate caps:
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Senior Secured and Second Lien Credit Facilities
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$
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400,000
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3.50%
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3.75% to 4.75%
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October 2009
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Debt covered by interest rate swaps:
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Floating Rate Notes
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493,680
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4.26%
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3.38%
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December 2012
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Senior Secured and Second Lien Credit Facilities
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500,000
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5.14% to 5.18%
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3.75% to 4.75%
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October 2009
October 2011
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Senior Secured and Second Lien Credit Facilities
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400,000
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2.80%
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3.75% to 4.75%
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October 2010
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Unhedged debt:
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Accounts Receivable Securitization Facility
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249,043
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Not applicable
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Not applicable
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Not applicable
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$
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2,042,723
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We use forward exchange and option contracts to reduce the
effect of fluctuating foreign currencies for a portion of our
anticipated short-term foreign currency-denominated transactions.
Cotton is the primary raw material we use to manufacture many of
our products. We generally purchase our raw materials at market
prices. We use commodity financial instruments, options and
forward contracts to hedge the price of cotton, for which there
is a high correlation between the hedged item and the hedged
instrument. We generally do not use commodity financial
instruments to hedge other raw material commodity prices.
Critical
accounting policies and estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report our operating
results and financial position 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 2,
titled Summary of Significant Accounting Policies,
to our Consolidated Financial Statements for the year ended
January 3, 2009.
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
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to be reasonable under the circumstances. We evaluate these
estimates and assumptions on an ongoing basis and may retain
outside consultants to assist in our evaluation. If actual
results ultimately differ from previous estimates, the revisions
are included in results of operations in the period in which the
actual amounts become known. The critical accounting policies
that involve the most significant management judgments and
estimates used in preparation of our financial statements, or
are the most sensitive to change from outside factors, are the
following:
Sales
recognition and incentives
We recognize revenue when (i) there is persuasive evidence
of an arrangement, (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have
been transferred to the customer and (iv) collection of the
receivable is reasonably assured, which occurs primarily upon
shipment. We record provisions for any uncollectible amounts
based upon our historical collection statistics and current
customer information. Our management reviews these estimates
each quarter and makes adjustments based upon actual experience.
Note 2(d), titled Summary of Significant Accounting
PoliciesSales Recognition and Incentives, to our
Consolidated Financial Statements for the year ended
January 3, 2009 describes a variety of sales incentives
that we offer to resellers and consumers of our products.
Measuring the cost of these incentives requires, in many cases,
estimating future customer utilization and redemption rates. We
use historical data for similar transactions to estimate the
cost of current incentive programs. Our management reviews these
estimates each quarter and makes adjustments based upon actual
experience and other available information. We classify the
costs associated with cooperative advertising as a reduction of
Net sales in our statements of income.
Accounts
receivable valuation
Accounts receivable consist primarily of amounts due from
customers. We carry our accounts receivable at their net
realizable value. We record provisions for any uncollectible
amounts based upon our best estimate of probable losses inherent
in the accounts receivable portfolio determined on the basis of
historical experience, specific allowances for known troubled
accounts and other currently available information. Charges to
the allowance for doubtful accounts are reflected in the
Selling, general and administrative expenses line
and charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in
the Net sales line of our statements of income. Our
management reviews these estimates each quarter and makes
adjustments based upon actual experience. Because we cannot
predict future changes in the financial stability of our
customers, actual future losses from uncollectible accounts may
differ from our estimates. If the financial condition of our
customers were to deteriorate, resulting in their inability to
make payments, a large reserve might be required. The amount of
actual historical losses has not varied materially from our
estimates for bad debts.
Catalog
expenses
We incur expenses for printing catalogs for our products to aid
in our sales efforts. We initially record these expenses as a
prepaid item and charge it against selling, general and
administrative expenses over time as the catalog is used.
Expenses are recognized at a rate that approximates our
historical experience with regard to the timing and amount of
sales attributable to a catalog distribution.
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Inventory
valuation
We carry inventory on our balance sheet at the estimated lower
of cost or market. Cost is determined by the
first-in,
first-out, or FIFO, method for our inventories. We
carry obsolete, damaged, and excess inventory at the net
realizable value, which we determine by assessing historical
recovery rates, current market conditions and our future
marketing and sales plans. Because our assessment of net
realizable value is made at a point in time, there are inherent
uncertainties related to our value determination. Market factors
and other conditions underlying the net realizable value may
change, resulting in further reserve requirements. A reduction
in the carrying amount of an inventory item from cost to market
value creates a new cost basis for the item that cannot be
reversed at a later period. While we believe that adequate
write-downs for inventory obsolescence have been provided in the
financial statements, consumer tastes and preferences will
continue to change and we could experience additional inventory
write-downs in the future.
Rebates, discounts and other cash consideration received from a
vendor related to inventory purchases are reflected as
reductions in the cost of the related inventory item, and are
therefore reflected in cost of sales when the related inventory
item is sold.
Income
taxes
Deferred taxes are recognized for the future tax effects of
temporary differences between financial and income tax reporting
using tax rates in effect for the years in which the differences
are expected to reverse. We have recorded deferred taxes related
to operating losses and capital loss carryforwards. Realization
of deferred tax assets is dependent on future taxable income in
specific jurisdictions, the amount and timing of which are
uncertain, possible changes in tax laws and tax planning
strategies. If in our judgment it appears that we will not be
able to generate sufficient taxable income or capital gains to
offset losses during the carryforward periods, we have recorded
valuation allowances to reduce those deferred tax assets to
amounts expected to be ultimately realized. An adjustment to
income tax expense would be required in a future period if we
determine that the amount of deferred tax assets to be realized
differs from the net recorded amount. Prior to spin off on
September 5, 2006, all income taxes were computed and
reported on a separate return basis as if we were not part of
Sara Lee.
Federal income taxes are provided on that portion of our income
of foreign subsidiaries that is expected to be remitted to the
United States and be taxable, reflecting the historical
decisions made by Sara Lee with regards to earnings permanently
reinvested in foreign jurisdictions. In periods after the spin
off, we may make different decisions as to the amount of
earnings permanently reinvested in foreign jurisdictions, due to
anticipated cash flow or other business requirements, which may
impact our federal income tax provision and effective tax rate.
We periodically estimate the probable tax obligations using
historical experience in tax jurisdictions and our informed
judgment. There are inherent uncertainties related to the
interpretation of tax regulations in the jurisdictions in which
we transact business. The judgments and estimates made at a
point in time may change based on the outcome of tax audits, as
well as changes to, or further interpretations of, regulations.
Income tax expense is adjusted in the period in which these
events occur, and these adjustments are included in our
statements of income. If such changes take place, there is a
risk that our effective tax rate may increase or decrease in any
period. A company must recognize the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination
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by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial
statements from such a position are measured based on the
largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate resolution.
In conjunction with the spin off, we and Sara Lee entered into a
tax sharing agreement, which allocates responsibilities between
us and Sara Lee for taxes and certain other tax matters. Under
the tax sharing agreement, Sara Lee generally is liable for all
U.S. federal, state, local and foreign income taxes
attributable to us with respect to taxable periods ending on or
before September 5, 2006. Sara Lee also is liable for
income taxes attributable to us with respect to taxable periods
beginning before September 5, 2006 and ending after
September 5, 2006, but only to the extent those taxes are
allocable to the portion of the taxable period ending on
September 5, 2006. We are generally liable for all other
taxes attributable to us. Changes in the amounts payable or
receivable by us under the stipulations of this agreement may
impact our tax provision in any period.
Under the tax sharing agreement, within 180 days after Sara
Lee filed its final consolidated tax return for the period that
included September 5, 2006, Sara Lee was required to
deliver to us a computation of the amount of deferred taxes
attributable to our United States and Canadian operations that
would be included on our opening balance sheet as of
September 6, 2006 (as finally determined) which
has been done. We have the right to participate in the
computation of the amount of deferred taxes. Under the tax
sharing agreement, if substituting the amount of deferred taxes
as finally determined for the amount of estimated deferred taxes
that were included on that balance sheet at the time of the spin
off causes a decrease in the net book value reflected on that
balance sheet, then Sara Lee will be required to pay us the
amount of such decrease. If such substitution causes an increase
in the net book value reflected on that balance sheet, then we
will be required to pay Sara Lee the amount of such increase.
For purposes of this computation, our deferred taxes are the
amount of deferred tax benefits (including deferred tax
consequences attributable to deductible temporary differences
and carryforwards) that would be recognized as assets on the
Companys balance sheet computed in accordance with GAAP,
but without regard to valuation allowances, less the amount of
deferred tax liabilities (including deferred tax consequences
attributable to deductible temporary differences) that would be
recognized as liabilities on our opening balance sheet computed
in accordance with GAAP, but without regard to valuation
allowances. Neither we nor Sara Lee will be required to make any
other payments to the other with respect to deferred taxes.
Our computation of the final amount of deferred taxes for our
opening balance sheet as of September 6, 2006 is as follows:
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Estimated deferred taxes subject to the tax sharing agreement
included in opening balance sheet on September 6, 2006
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$
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450,683
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Final calculation of deferred taxes subject to the tax sharing
agreement
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360,460
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Decrease in deferred taxes as of opening balance sheet on
September 6, 2006
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90,223
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Preliminary cash installment received from Sara Lee
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18,000
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Amount due from Sara Lee
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$
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72,223
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The amount that is expected to be collected from Sara Lee based
on our computation of $72 million is included as a
receivable in Other Current Assets in the Consolidated Balance
Sheet
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as of January 3, 2009 and in Deferred Tax Assets and Other
Current Assets in the Condensed Consolidated Balance Sheet as of
October 3, 2009.
Stock
compensation
We established the Omnibus Incentive Plan to award stock
options, stock appreciation rights, restricted stock, restricted
stock units, deferred stock units, performance shares and cash
to our employees, non-employee directors and employees of our
subsidiaries to promote the interest of our company and incent
performance and retention of employees. Stock-Based compensation
is estimated at the grant date based on the awards fair
value and is recognized as expense over the requisite service
period. Estimation of stock-based compensation for stock options
granted, utilizing the Black-Scholes option-pricing model,
requires various highly subjective assumptions including
volatility and expected option life. We use a combination of the
volatility of our company and the volatility of peer companies
for a period of time that is comparable to the expected life of
the option to determine volatility assumptions. We have utilized
the simplified method outlined in SEC accounting guidance to
estimate expected lives of options granted during the period.
The simplified method is used for valuing stock option grants to
eligible public companies that do not have sufficient historical
exercise patterns on options granted to employees. We estimate
forfeitures for stock-based awards granted, which are not
expected to vest. If any of these inputs or assumptions changes
significantly, our stock-based compensation expense could be
materially different in the future.
Defined
benefit pension plans
For a discussion of our net periodic benefit cost, plan
obligations, plan assets, and how we measure the amount of these
costs, see Note 16 titled Defined Benefit Pension
Plans to our Consolidated Financial Statements for the
year ended January 3, 2009.
In conjunction with the spin off from Sara Lee which occurred on
September 5, 2006, we established the Hanesbrands Inc.
Pension and Retirement Plan, which assumed the portion of the
underfunded liabilities and the portion of the assets of pension
plans sponsored by Sara Lee that relate to our employees. In
addition, we assumed sponsorship of certain other Sara Lee plans
and continued sponsorship of the Playtex Apparel Inc. Pension
Plan and the National Textiles, L.L.C. Pension Plan. As of
January 1, 2006, the benefits under these plans were
frozen. Since the spin off, we have voluntarily contributed
$98 million to our pension plans. Additionally, during 2007
we completed the separation of our pension plan assets and
liabilities from those of Sara Lee in accordance with
governmental regulations, which resulted in a higher total
amount of pension plan assets of approximately $74 million
being transferred to us than originally was estimated prior to
the spin off. As a result, our U.S. qualified pension plans
were approximately 75% funded as of January 3, 2009. We may
elect to make voluntary contributions to obtain an 80% funded
level which will avoid certain benefit payment restrictions
under the Pension Protection Act. The funded status as of
January 3, 2009 reflects a significant decrease in the fair
value of plan assets due to the stock markets performance
during 2008.
In September 2006, the Financial Accounting Standards Board
(FASB) issued new accounting guidance which requires
that the funded status of defined benefit postretirement plans
be recognized on a companys balance sheet, and changes in
the funded status be reflected in comprehensive income,
effective fiscal years ending after December 15, 2006,
which we adopted as of and for the six months ended
December 30, 2006. The impact of adopting the funded status
provisions was an increase in assets of $1 million, an
increase in liabilities of $26 million
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and a pretax increase in the accumulated other comprehensive
loss of $32 million. The guidance also requires companies
to measure the funded status of the plan as of the date of its
fiscal year end, effective for fiscal years ending after
December 15, 2008. We adopted the measurement date
provision during the year ended December 29, 2007, which
had an immaterial impact on beginning retained earnings,
accumulated other comprehensive income and pension liabilities.
The net periodic cost of the pension plans is determined using
projections and actuarial assumptions, the most significant of
which are the discount rate and the long-term rate of asset
return. The net periodic pension income or expense is recognized
in the year incurred. Gains and losses, which occur when actual
experience differs from actuarial assumptions, are amortized
over the average future expected life of participants.
Our policies regarding the establishment of pension assumptions
are as follows:
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In determining the discount rate, we utilized the Citigroup
Pension Discount Curve (rounded to the nearest 10 basis
points) in order to determine a unique interest rate for each
plan and match the expected cash flows for each plan.
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Salary increase assumptions were based on historical experience
and anticipated future management actions. The salary increase
assumption applies to the Canadian plans and portions of the
Hanesbrands nonqualified retirement plans, as benefits under
these plans are not frozen.
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In determining the long-term rate of return on plan assets we
applied a proportionally weighted blend between assuming the
historical long-term compound growth rate of the plan portfolio
would predict the future returns of similar investments, and the
utilization of forward looking assumptions.
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Retirement rates were based primarily on actual experience while
standard actuarial tables were used to estimate mortality.
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Trademarks and
other identifiable intangibles
Trademarks and computer software are our primary identifiable
intangible assets. We amortize identifiable intangibles with
finite lives, and we do not amortize identifiable intangibles
with indefinite lives. We base the estimated useful life of an
identifiable intangible asset upon a number of factors,
including the effects of demand, competition, expected changes
in distribution channels and the level of maintenance
expenditures required to obtain future cash flows. As of
January 3, 2009, the net book value of trademarks and other
identifiable intangible assets was $147 million, of which
we are amortizing the entire balance. We anticipate that our
amortization expense for 2009 will be $12 million.
We evaluate identifiable intangible assets subject to
amortization for impairment using a process similar to that used
to evaluate asset amortization described below under
Depreciation and impairment of property, plant and
equipment. We assess identifiable intangible assets not
subject to amortization for impairment at least annually and
more often as triggering events occur. In order to determine the
impairment of identifiable intangible assets not subject to
amortization, we compare the fair value of the intangible asset
to its carrying amount. We recognize an impairment loss for the
amount by which an identifiable intangible assets carrying
value exceeds its fair value.
We measure a trademarks fair value using the royalty saved
method. We determine the royalty saved method by evaluating
various factors to discount anticipated future cash flows,
including
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operating results, business plans, and present value techniques.
The rates we use to discount cash flows are based on interest
rates and the cost of capital at a point in time. Because there
are inherent uncertainties related to these factors and our
judgment in applying them, the assumptions underlying the
impairment analysis may change in such a manner that impairment
in value may occur in the future. Such impairment will be
recognized in the period in which it becomes known.
Goodwill
As of January 3, 2009, we had $322 million of
goodwill. We do not amortize goodwill, but we assess for
impairment at least annually and more often as triggering events
occur. The timing of our annual goodwill impairment testing is
the first day of the third fiscal quarter.
In evaluating the recoverability of goodwill, we estimate the
fair value of our reporting units. We have determined that our
reporting units are at the operating segment level. We rely on a
number of factors to determine the fair value of our reporting
units and evaluate various factors to discount anticipated
future cash flows, including operating results, business plans,
and present value techniques. As discussed above under
Trademarks and other identifiable intangibles,
there are inherent uncertainties related to these factors, and
our judgment in applying them and the assumptions underlying the
impairment analysis may change in such a manner that impairment
in value may occur in the future. Such impairment will be
recognized in the period in which it becomes known.
We evaluate the recoverability of goodwill using a two-step
process based on an evaluation of reporting units. The first
step involves a comparison of a reporting units fair value
to its carrying value. In the second step, if the reporting
units carrying value exceeds its fair value, we compare
the goodwills implied fair value and its carrying value.
If the goodwills carrying value exceeds its implied fair
value, we recognize an impairment loss in an amount equal to
such excess.
Depreciation
and impairment of property, plant and equipment
We state property, plant and equipment at its historical cost,
and we compute depreciation using the straight-line method over
the assets life. We estimate an assets life based on
historical experience, manufacturers estimates,
engineering or appraisal evaluations, our future business plans
and the period over which the asset will economically benefit
us, which may be the same as or shorter than its physical life.
Our policies require that we periodically review our
assets remaining depreciable lives based upon actual
experience and expected future utilization. A change in the
depreciable life is treated as a change in accounting estimate
and the accelerated depreciation is accounted for in the period
of change and future periods. Based upon current levels of
depreciation, the average remaining depreciable life of our net
property other than land is five years.
We test an asset for recoverability whenever events or changes
in circumstances indicate that its carrying value may not be
recoverable. Such events include significant adverse changes in
business climate, several periods of operating or cash flow
losses, forecasted continuing losses or a current expectation
that an asset or asset group will be disposed of before the end
of its useful life. We evaluate an assets recoverability
by comparing the asset or asset groups net carrying amount
to the future net undiscounted cash flows we expect such asset
or asset group
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will generate. If we determine that an asset is not recoverable,
we recognize an impairment loss in the amount by which the
assets carrying amount exceeds its estimated fair value.
When we recognize an impairment loss for an asset held for use,
we depreciate the assets adjusted carrying amount over its
remaining useful life. We do not restore previously recognized
impairment losses if circumstances change.
Insurance
reserves
We maintain insurance coverage for property, workers
compensation and other casualty programs. We are responsible for
losses up to certain limits and are required to estimate a
liability that represents the ultimate exposure for aggregate
losses below those limits. This liability is based on
managements estimates of the ultimate costs to be incurred
to settle known claims and claims not reported as of the balance
sheet date. The estimated liability is not discounted and is
based on a number of assumptions and factors, including
historical trends, actuarial assumptions and economic
conditions. If actual trends differ from the estimates, the
financial results could be impacted. Actual trends have not
differed materially from the estimates.
Assets and
liabilities acquired in business combinations
We account for business acquisitions using the purchase method,
which requires us to allocate the cost of an acquired business
to the acquired assets and liabilities based on their estimated
fair values at the acquisition date. We recognize the excess of
an acquired businesss cost over the fair value of acquired
assets and liabilities as goodwill as discussed below under
Goodwill. We use a variety of information sources to
determine the fair value of acquired assets and liabilities. We
generally use third-party appraisers to determine the fair value
and lives of property and identifiable intangibles, consulting
actuaries to determine the fair value of obligations associated
with defined benefit pension plans, and legal counsel to assess
obligations associated with legal and environmental claims.
Recently issued
accounting pronouncements
Employers
disclosures about postretirement benefit plan
assets
In December 2008, the FASB issued guidance on the disclosure of
postretirement benefit plan assets. The guidance expands the
disclosure requirements to include more detailed disclosures
about an employers plan assets, including employers
investment strategies, major categories of plan assets,
concentrations of risk within plan assets, and valuation
techniques used to measure the fair value of plan assets. The
guidance is effective for fiscal years ending after
December 15, 2009. Since the guidance only requires
additional disclosures, adoption of the guidance is not expected
to have a material impact on our financial condition, results of
operations or cash flows.
Accounting for
transfers of financial assets
In June 2009, the FASB issued new accounting guidance for
transfers of financial assets. The new guidance requires greater
transparency and additional disclosures for transfers of
financial assets and the entitys continuing involvement
with them and changes the requirements for derecognizing
financial assets. The new accounting guidance is effective for
financial asset transfers
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occurring after the beginning of our first fiscal year that
begins after November 15, 2009. We are evaluating the
impact of adoption of this new guidance on our financial
condition, results of operations and cash flows.
Consolidationvariable
interest entities
In June 2009, the FASB issued new accounting guidance related to
the accounting and disclosure requirements for the consolidation
of variable interest entities. The new accounting guidance is
effective for our first fiscal year that begins after
November 15, 2009. We are evaluating the impact of adoption
of this guidance on our financial condition, results of
operations and cash flows.
Quantitative and
qualitative disclosures about market risk
We are exposed to market risk from changes in foreign exchange
rates, interest rates and commodity prices. Our risk management
control system uses analytical techniques including market
value, sensitivity analysis and value at risk estimations.
Foreign
exchange risk
We sell the majority of our products in transactions denominated
in U.S. dollars; however, we purchase some raw materials,
pay a portion of our wages and make other payments in our supply
chain in foreign currencies. Our exposure to foreign exchange
rates exists primarily with respect to the Canadian dollar,
European euro, Mexican peso and Japanese yen against the
U.S. dollar. We use foreign exchange forward and option
contracts to hedge material exposure to adverse changes in
foreign exchange rates. A sensitivity analysis technique has
been used to evaluate the effect that changes in the market
value of foreign exchange currencies will have on our forward
and option contracts. At January 3, 2009, the potential
change in fair value of foreign currency derivative instruments,
assuming a 10% adverse change in the underlying currency price,
was $4.5 million.
Interest
rates
Given the recent turmoil in the financial and credit markets, we
expanded our interest rate hedging portfolio at what we believe
to be advantageous rates that are expected to minimize our
overall interest rate risk. In addition, until September 5,
2009, we were required under the Senior Secured Credit
Facilities and the Second Lien Credit Facility to hedge a
portion of our floating rate debt to reduce interest rate risk
caused by floating rate debt issuance. At October 3, 2009,
we have outstanding hedging arrangements whereby we capped the
LIBOR interest rate component on $400 million of our
floating rate debt at 3.50%. We also entered into interest rate
swaps tied to the
3-month and
6-month
LIBOR rates whereby we fixed the LIBOR interest rate component
on an aggregate of $1.4 billion of our floating rate debt
at a blended rate of approximately 4.16%. Approximately 88% of
our total debt outstanding at October 3, 2009 is at a fixed
or capped LIBOR rate. Due to the recent changes in the credit
markets, the fair values of our interest rate hedging
instruments have increased approximately $18 million during
the nine months ended October 3, 2009. As these derivative
instruments are accounted for as hedges, the change in fair
value has been deferred into Accumulated Other Comprehensive
Loss in our balance sheets until the hedged transactions impact
our earnings.
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Commodities
Cotton is the primary raw material we use to manufacture many of
our products. While we attempt to protect our business from the
volatility of the market price of cotton through short-term
supply agreements and hedges from time to time, our business can
be adversely affected by dramatic movements in cotton prices.
The cotton prices reflected in our results were 58 cents per
pound for the nine months ended October 3, 2009. After
taking into consideration the cotton costs currently included in
our inventory, we expect our cost of cotton to average 55 cents
per pound for the full year of 2009 compared to 65 cents per
pound for 2008. The ultimate effect of these pricing levels on
our earnings cannot be quantified, as the effect of movements in
cotton prices on industry selling prices are uncertain, but any
dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations, financial
condition and cash flows.
In addition, fluctuations in crude oil or petroleum prices may
influence the prices of other raw materials we use to
manufacture our products, such as chemicals, dyestuffs,
polyester yarn and foam. We generally purchase our raw materials
at market prices. We use commodity financial instruments to
hedge the price of cotton, for which there is a high correlation
between costs and the financial instrument. We generally do not
use commodity financial instruments to hedge other raw material
commodity prices. As of January 3, 2009, we did not have
any cotton commodity derivatives outstanding.
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Description of
our business
General
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, C9
by Champion, Playtex, Bali,
Leggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, casualwear, activewear, socks and hosiery.
The apparel essentials sector of the apparel industry is
characterized by frequently replenished items, such as t-shirts,
bras, panties, mens underwear, kids underwear, socks
and hosiery. Growth and sales in the apparel essentials industry
are not primarily driven by fashion, in contrast to other areas
of the broader apparel industry. We focus on the core attributes
of comfort, fit and value, while remaining current with regard
to consumer trends. The majority of our core styles continue
from year to year, with variations only in color, fabric or
design details. Some products, however, such as intimate
apparel, activewear and sheer hosiery, do have an emphasis on
style and innovation. We continue to invest in our largest and
strongest brands to achieve our long-term growth goals. In
addition to designing and marketing apparel essentials, we have
a long history of operating a global supply chain that
incorporates a mix of self-manufacturing, third-party
contractors and third-party sourcing.
Our fiscal year ends on the Saturday closest to December 31 and,
until it was changed during 2006, ended on the Saturday closest
to June 30. We refer to the fiscal year ended
January 3, 2009 as the year ended January 3, 2009. A
reference to a year ended on another date is to the fiscal year
ended on that date.
Our operations are managed and reported in five operating
segments: Innerwear, Outerwear, Hosiery, International and
Other. The following table summarizes our operating segments by
category:
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Segment
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Primary product(s)
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Primary brand(s)
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Innerwear
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Intimate apparel, such as bras, panties and bodywear
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Hanes, Playtex, Bali, barely there, Just My Size, Wonderbra,
Duofold
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Mens underwear and kids underwear
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Hanes, Champion, C9 by Champion, Polo Ralph Lauren*
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Socks
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Hanes, Champion, C9 by Champion
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Outerwear
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Activewear, such as performance
t-shirts and
shorts and fleece
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Champion, C9 by Champion
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Casualwear, such as t-shirts, fleece and sport shirts
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Hanes, Just My Size, Outer Banks, Champion, Hanes Beefy-T
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Hosiery
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Hosiery
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Leggs, Hanes, Donna Karan*, DKNY*, Just My Size
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International
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Activewear, mens underwear, kids underwear, intimate
apparel, socks, hosiery and casualwear
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Hanes, Wonderbra**, Champion, Stedman, Playtex**, Zorba,
Rinbros, Kendall*,Sol y Oro, Ritmo, Bali
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Other
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Nonfinished products, primarily yarn
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Not applicable
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*
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Brand used under a license
agreement.
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**
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As a result of the February 2006
sale of the European branded apparel business of Sara Lee, we
are not permitted to sell this brand in the member states of
EU several other European countries and South Africa.
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Our competitive
strengths
Our brands have a strong heritage in the apparel essentials
industry. According to The NPD Group/Consumer Tracking Service,
or NPD, our brands hold either the number one or
number two U.S. market position by sales value in most
product categories in which we compete, for the 12 month
period ended November 30, 2008. In 2008, Hanes was
number one for the fifth consecutive year on the Womens
Wear Daily Top 100 Brands Survey for apparel and
accessory brands that women know best and was number one for the
fifth consecutive year as the most preferred mens,
womens and childrens apparel brand of consumers in
Retailing Today magazines Top Brands Study.
Additionally, we had five of the top ten intimate apparel brands
preferred by consumers in the Retailing Today
studyHanes, Playtex, Bali, Just My
Size and Leggs.
Our products are sold through multiple distribution channels.
During the year ended January 3, 2009, approximately 44% of
our net sales were to mass merchants, 18% were to national
chains and department stores, 9% were direct to consumers, 11%
were in our International segment and 18% were to other retail
channels such as embellishers, specialty retailers, warehouse
clubs and sporting goods stores. We have strong, long-term
relationships with our top customers, including relationships of
more than ten years with each of our top ten customers as of
January 3, 2009. The size and operational scale of the
high-volume retailers with which we do business require
extensive category and product knowledge and specialized
services regarding the quantity, quality and planning of product
orders. We have organized multifunctional customer management
teams, which has allowed us to form strategic long-term
relationships with these customers and efficiently focus
resources on category, product and service expertise. We also
have customer-specific programs such as the C9 by Champion
products marketed and sold through Target stores.
Our ability to react to changing customer needs and industry
trends is key to our success. Our design, research and product
development teams, in partnership with our marketing teams,
drive our efforts to bring innovations to market. We seek to
leverage our insights into consumer demand in the apparel
essentials industry to develop new products within our existing
lines and to modify our existing core products in ways that make
them more appealing, addressing changing customer needs and
industry trends. Examples of our recent innovations include:
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Hanes no ride up panties, specially designed for a better
fit that helps women stay wedgie-free (2008).
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Hanes Lay Flat Collar Undershirts and Hanes No Ride Up
Boxer briefs, the brands latest innovation in product
comfort and fit (2008).
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Bali Concealers bras, the first and only bra with
revolutionary concealing petals for complete modesty (2008).
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Hanes Comfort Soft T-shirt (2007).
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Bali Passion for Comfort bra, designed to be the ultimate
comfort bra, features a silky smooth lining for a luxurious feel
against the body (2007).
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Hanes All-Over Comfort Bra, which features stay-put
straps that dont slip, cushioned wires that dont
poke and a tag-free back (2006).
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One of our key initiatives is to globalize our supply chain by
balancing across hemispheres into economic clusters
with fewer, larger facilities. We expect to continue our
restructuring efforts through the end of 2009 as we continue to
execute our consolidation and globalization strategy. We have
closed plant locations, reduced our workforce, and relocated
some of our manufacturing capacity to lower cost locations in
Asia, Central America and the Caribbean Basin. We have
restructured our supply chain over the past three years to
create more efficient production clusters that utilize fewer,
larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global supply
chain restructured, we are now focused on optimizing our supply
chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the
working capital needs of our supply chain through several
initiatives, such as supplier-managed inventory for raw
materials and sourced goods ownership relationships. While we
believe that this strategy has had and will continue to have a
beneficial impact on our operational efficiency and cost
structure, we have incurred significant costs to implement these
initiatives. In particular, we have recorded charges for
severance and other employment-related obligations relating to
workforce reductions, as well as payments in connection with
lease and other contract terminations. In addition, we incurred
charges for one-time write-offs of stranded raw materials and
work in process inventory determined not to be salvageable or
cost-effective to relocate related to the closure of
manufacturing facilities.
We were spun off from Sara Lee on September 5, 2006. In
connection with the spin off, Sara Lee contributed its branded
apparel Americas and Asia business to us and distributed all of
the outstanding shares of our common stock to its stockholders
on a pro rata basis. References in this prospectus supplement to
our assets, liabilities, products, businesses or activities of
our business for periods including or prior to the spin off are
generally intended to refer to the historical assets,
liabilities, products, businesses or activities of the
contributed businesses as the businesses were conducted as part
of Sara Lee and its subsidiaries prior to the spin off.
Our
brands
Our portfolio of leading brands is designed to address the needs
and wants of various consumer segments across a broad range of
apparel essentials products. Each of our brands has a particular
consumer positioning that distinguishes it from its competitors
and guides its advertising and product development. We discuss
some of our most important brands in more detail below.
Hanes is the largest and most widely recognized brand in
our portfolio. In 2008, Hanes was number one for the
fifth consecutive year on the Womens Wear Daily Top
100 Brands Survey for apparel and accessory brands that
women know best and was number one for the fifth consecutive
year as the most preferred mens, womens and
childrens apparel brand of consumers in Retailing Today
magazines Top Brands Study. The Hanes
brand covers all of our product categories, including
mens underwear, kids underwear, bras, panties,
socks, t-shirts, fleece and sheer hosiery. Hanes stands
for outstanding comfort, style and value. According to Millward
Brown Market Research, Hanes is found in over 85% of the
United States households that have purchased mens or
womens casual clothing or underwear in the
12-month
period ended December 31, 2008.
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Champion is our second-largest brand. Specializing in
athletic and other performance apparel, the Champion
brand is designed for everyday athletes. We believe that
Champions combination of comfort, fit and style
provides athletes with mobility, durability and up-to-date
styles, all product qualities that are important in the sale of
athletic products. We also distribute products under the C9
by Champion brand exclusively through Target stores.
Playtex, the third-largest brand within our portfolio,
offers a line of bras, panties and shapewear, including products
that offer solutions for hard to fit figures. Bali is the
fourth-largest brand within our portfolio. Bali offers a
range of bras, panties and shapewear sold in the department
store channel. Our brand portfolio also includes the following
well-known brands: Leggs, Just My Size,
barely there, Wonderbra, Outer Banks and
Duofold. These brands serve to round out our product
offerings, allowing us to give consumers a variety of options to
meet their diverse needs.
Design, research
and product development
At the core of our design, research and product development
capabilities is a team of more than 300 professionals as of
January 3, 2009. We have combined our design, research and
development teams into an integrated group for all of our
product categories. A facility located in Winston-Salem,
North Carolina, is the center of our research, technical
design and product development efforts. We also employ creative
design and product development personnel in our design center in
New York City. During the years ended January 3, 2009 and
December 29, 2007, the six months ended December 30,
2006 and the year ended July 1, 2006, we spent
approximately $46 million, $45 million,
$23 million and $55 million, respectively, on design,
research and product development.
Customers
In the year ended January 3, 2009, approximately 88% of our
net sales were to customers in the United States and
approximately 12% were to customers outside the United States.
Domestically, almost 83% of our net sales were wholesale sales
to retailers, 9% were direct to consumers and 8% were wholesale
sales to third-party embellishers. We have well-established
relationships with some of the largest apparel retailers in the
world. Our largest customers are Wal-Mart Stores, Inc., or
Wal-Mart, Target Corporation, or Target,
and Kohls Corporation, or Kohls,
accounting for 27%, 16% and 6%, respectively, of our total sales
in the year ended January 3, 2009. As is common in the
apparel essentials industry, we generally do not have purchase
agreements that obligate our customers to purchase our products.
However, all of our key customer relationships have been in
place for ten years or more. Wal-Mart and Target are our only
customers with sales that exceed 10% of any individual
segments sales. In our Innerwear segment, Wal-Mart
accounted for 32% of sales and Target accounted for 13% of sales
during the year ended January 3, 2009. In our Outerwear
segment, Target accounted for 30% of sales and Wal-Mart
accounted for 21% of sales during the year ended January 3,
2009.
Due to their size and operational scale, high-volume retailers
such as Wal-Mart require extensive category and product
knowledge and specialized services regarding the quantity,
quality and timing of product orders. We have organized
multifunctional customer management teams, which has allowed us
to form strategic long-term relationships with these customers
and efficiently focus resources on category, product and service
expertise.
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Smaller regional customers attracted to our leading brands and
quality products also represent an important component of our
distribution. Our organizational model provides for an efficient
use of resources that delivers a high level of category and
channel expertise and services to these customers.
Sales to the mass merchant channel accounted for approximately
44% of our net sales in the year ended January 3, 2009. We
sell all of our product categories in this channel primarily
under our Hanes, Just My Size, Playtex and
C9 by Champion brands. Mass merchants feature
high-volume, low-cost sales of basic apparel items along with a
diverse variety of consumer goods products, such as grocery and
drug products and other hard lines, and are characterized by
large retailers, such as Wal-Mart. Wal-Mart, which accounted for
approximately 27% of our net sales during the year ended
January 3, 2009, is our largest mass merchant customer.
Sales to the national chains and department stores channel
accounted for approximately 18% of our net sales during the year
ended January 3, 2009. These retailers target a
higher-income consumer than mass merchants, focus more of their
sales on apparel items rather than other consumer goods such as
grocery and drug products, and are characterized by large
retailers such as Kohls, JC Penney Company, Inc. and Sears
Holdings Corporation. We sell all of our product categories in
this channel. Traditional department stores target higher-income
consumers and carry more high-end, fashion conscious products
than national chains or mass merchants and tend to operate in
higher-income areas and commercial centers. Traditional
department stores are characterized by large retailers such as
Macys and Dillards, Inc. We sell products in our
intimate apparel, hosiery and underwear categories through
department stores.
Sales to the direct to consumer channel, which are included
within the Innerwear segment, accounted for approximately 9% of
our net sales in the year ended January 3, 2009. We sell
our branded products directly to consumers through our 228
outlet stores, as well as our catalogs and our web sites
operating under the Hanes, OneHanesPlace, Just My Size
and Champion names. Our outlet stores are
value-based, offering the consumer a savings of 25% to 40% off
suggested retail prices, and sell first-quality, excess,
post-season, obsolete and slightly imperfect products. Our
catalogs and web sites address the growing direct to consumer
channel that operates in todays 24/7 retail environment,
and as of January 3, 2009 we had an active database of
approximately three million consumers receiving our catalogs and
emails. Our web sites have experienced significant growth and we
expect this trend to continue as more consumers embrace this
retail shopping channel.
Sales in our International segment represented approximately 11%
of our net sales during the year ended January 3, 2009, and
included sales in Latin America, Asia, Canada and Europe.
Canada, Europe, Japan and Mexico are our largest international
markets, and we also have sales offices in India and China. We
operate in several locations in Latin America including Mexico,
Argentina, Brazil and Central America. From an export business
perspective, we use distributors to service customers in the
Middle East and Asia, and have a limited presence in Latin
America. The brands that are the primary focus of the export
business include Hanes underwear and Bali,
Playtex, Wonderbra and barely there
intimate apparel. As discussed below under
Intellectual Property, we are not permitted to sell
Wonderbra and Playtex branded products in the
member states of the EU, several other European countries, and
South Africa.
Sales in other channels represented approximately 18% of our net
sales during the year ended January 3, 2009. We sell
t-shirts, golf and sport shirts and fleece sweatshirts to
third-party embellishers primarily under our Hanes,
Hanes Beefy-T and Outer Banks brands. Sales to
third-party embellishers accounted for approximately 8% of our
net sales during the year ended
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January 3, 2009. We also sell a significant range of our
underwear, activewear and socks products under the Champion
brand to wholesale clubs, such as Costco, and sporting goods
stores, such as The Sports Authority, Inc. We sell primarily
legwear and underwear products under the Hanes and
Leggs brands to food, drug and variety stores. We
sell products that span across our Innerwear, Outerwear and
Hosiery segments to the U.S. military for sale to
servicemen and servicewomen.
Inventory
Effective inventory management is a key component of our future
success. Because our customers do not purchase our products
under long-term supply contracts, but rather on a purchase order
basis, effective inventory management requires close
coordination with the customer base. Through Kanban sales and
production planning, inventory management, product scheduling,
demand prioritization and related initiatives that facilitate
just-in-time
production and ordering systems, we seek to ensure that products
are available to meet customer demands while effectively
managing inventory levels. We also employ various other types of
inventory management techniques that include collaborative
forecasting and planning, vendor-managed inventory, key event
management and various forms of replenishment management
processes. We have demand management planners in our customer
management group who work closely with customers to develop
demand forecasts that are passed to the supply chain. We also
have professionals within the customer management group who
coordinate daily with our larger customers to help ensure that
our customers planned inventory levels are in fact
available at their individual retail outlets. Additionally,
within our supply chain organization we have dedicated
professionals who translate the demand forecast into our
inventory strategy and specific production plans. These
individuals work closely with our customer management team to
balance inventory investment/exposure with customer service
targets.
Seasonality and
other factors
Our operating results are subject to some variability.
Generally, our diverse range of product offerings helps mitigate
the impact of seasonal changes in demand for certain items.
Sales are typically higher in the last two quarters (July to
December) of each fiscal year. Socks, hosiery and fleece
products generally have higher sales during this period as a
result of cooler weather, back-to-school shopping and holidays.
Sales levels in any period are also impacted by 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. For example, we have
experienced a shift in timing by our largest retail customers of
back-to-school programs between June and July the last two
years. Our results of operations are also impacted by
fluctuations and volatility in the price of cotton and
oil-related materials and the timing of actual spending for our
media, advertising and promotion expenses. 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.
Marketing
Our strategy is to bring consumer-driven innovation to market in
a compelling way. Our approach is to build targeted, effective
multimedia advertising and marketing campaigns to increase
awareness of our key brands. Driving growth platforms across
categories is a major
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element of our strategy as it enables us to meet key consumer
needs and leverage advertising dollars. We believe that the
strength of our consumer insights, our distinctive brand
propositions and our focus on integrated marketing give us a
competitive advantage in the fragmented apparel marketplace.
In 2008, we launched a number of new advertising and marketing
initiatives:
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We launched new Look Who advertising in June
featuring Michael Jordan and Charlie Sheen to support our new
Hanes Lay Flat Collar Undershirts and Hanes No Ride Up
Boxer briefs. The campaign includes television advertising
as well as online and video game advertising.
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We introduced our new Hanes No Ride Up Panty with
television advertising featuring Sarah Chalke in another new
Look Who advertising campaign.
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Building on the
10-year
strategic alliance with The Walt Disney Company that we entered
into in October 2007, we introduced a line of apparel inspired
by the Champion items worn by characters in Walt Disney
Pictures High School Musical 3: Senior Year to
coincide with the opening of that movie in October 2008.
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We also continued some of our existing advertising and marketing
initiatives:
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Our alliance with The Walt Disney Company includes a number of
features. Hanes is the presenting sponsor of the Rock
n Roller Coaster Starring Aerosmith, one of the most
popular attractions at Disney-Hollywood Studios in Florida.
Hanes has a customizable apparel venue in Downtown Disney
at Walt Disney World Resort that enables guests to design and
personalize their own custom t-shirts and other items.
Champion has naming rights for the stadium at
Disneys Wide World of Sports Complex, the nations
premier amateur sports venue. In addition to Champion
Stadium, Champion has brand placement and promotional
opportunities throughout the complex. We have in-store
promotional and brand building opportunities at eight ESPN Zone
restaurants and stores located across the country. Hanes
and Champion have category exclusivity for select
apparel at Disneyland Resort in Anaheim, Calif., Walt Disney
World Resort and Disneys Wide World of Sports Complex
Stadium, both in Florida, and eight ESPN Zone stores. Our
products, including t-shirts and tanks and fleece sweatshirts,
sweatpants, hoodies and other family fleece, including infant
and toddler items, are co-labeled, including Disneyland Resort
by Hanes, Walt Disney World by Hanes,
Disneys Wide World of Sports Complex by Champion
and ESPN Zone by Champion.
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We continued our How You Play national advertising
campaign for Champion that we launched in 2007. The
campaign, which is the first campaign for our Champion
brand since 2003, includes print, out-of-home and online
components and is designed to capture the everyday moments of
fun and sport in a series of cool and hip lifestyle images.
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We continued the Live Beautifully campaign for our
Bali brand, launched in the Spring of 2007. The print,
television and online ad campaign features Bali bras and
panties from its Passion for Comfort, Seductive Curve
and Cotton Creations lines.
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We continued our innovative and expressive advertising and
marketing campaign called Girl Talk, launched in
September 2007, in which confident, everyday women talk about
their breasts, in support of our Playtex 18 Hour and
Playtex Secrets product lines.
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Distribution
As of January 3, 2009, we distributed our products for the
U.S. market from a total of 22 distribution centers. These
facilities include 20 facilities located in the U.S. and
two facilities located in regions where we manufacture our
products. We internally manage and operate 16 of these
facilities, and we use third-party logistics providers who
operate the other six facilities on our behalf. International
distribution operations use a combination of third-party
logistics providers, as well as owned and operated distribution
operations, to distribute goods to our various international
markets.
We are in the process of consolidating our distribution network
to fewer larger facilities and have reduced the number of
distribution centers from the 48 that we maintained at the time
of the spin off to 36 as of January 3, 2009. In late 2008
we began preparing to ship products from a new 1.3 million
square foot distribution center in Perris, California, and on
January 13, 2009 began shipping products from this facility
to our customers.
Manufacturing and
sourcing
During the year ended January 3, 2009, approximately 66% of
our finished goods sold were manufactured through a combination
of facilities we own and operate and facilities owned and
operated by third-party contractors who perform some of the
steps in the manufacturing process for us, such as cutting
and/or
sewing. We sourced the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned,
contracted and sourced manufacturing located across different
geographic regions, increases the efficiency of our operations,
reduces product costs and offers customers a reliable source of
supply.
Finished goods
that are manufactured by Hanesbrands
The manufacturing process for finished goods that we manufacture
begins with raw materials we obtain from third parties. The
principal raw materials in our product categories are cotton and
synthetics. Our costs for cotton yarn and cotton-based textiles
vary based upon the fluctuating cost of cotton, which is
affected by, among other factors, weather, consumer demand,
speculation on the commodities market and the relative
valuations and fluctuations of the currencies of producer versus
consumer countries and other factors that are generally
unpredictable and beyond our control. We attempt to mitigate the
effect of fluctuating raw material costs by entering into
short-term supply agreements that set the price we will pay for
cotton yarn and cotton-based textiles in future periods. We also
enter into hedging contracts on cotton designed to protect us
from severe market fluctuations in the wholesale prices of
cotton. In addition to cotton yarn and cotton-based textiles, we
use thread and trim for product identification, buttons,
zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also influence
the prices of items used in our business, such as chemicals,
dyestuffs, polyester yarn and foam. Alternate sources of these
materials and services are readily available. After they are
sourced, cotton and synthetic materials are spun into yarn,
which is then knitted into cotton, synthetic and blended
fabrics. We have spun a significant portion of the yarn and knit
a significant portion of the fabrics we use in our owned and
operated facilities, although we recently announced that we are
ceasing the production of our own yarn. To a lesser extent, we
purchase fabric from several domestic
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and international suppliers in conjunction with scheduled
production. These fabrics are cut and sewn into finished
products, either by us or by third-party contractors. Most of
our cutting and sewing operations are located in Asia, Central
America and the Caribbean Basin.
Rising fuel, energy and utility costs may have a significant
impact on our manufacturing costs. These costs may fluctuate due
to a number of factors outside our control, including government
policy and regulation and weather conditions.
We continue to consolidate our manufacturing facilities and as
of January 3, 2009 operated 52 manufacturing facilities,
down from 70 at the time of our spin off. In making decisions
about the location of manufacturing operations and third-party
sources of supply, we consider a number of factors, including
local labor costs, quality of production, applicable quotas and
duties, and freight costs. During the second quarter of 2008, we
added three company-owned sewing plants in Southeast
Asiatwo in Vietnam and one in Thailandgiving us four
sewing plants in Asia. In October 2008, we acquired a
370-employee embroidery facility in Honduras. For the past eight
years, these operations have produced embroidered and
screen-printed apparel for us. This acquisition better positions
us for long-term growth in these segments. During the fourth
quarter of 2008, we commenced production at our
500,000 square foot socks manufacturing facility in El
Salvador. This facility, co-located with textile manufacturing
operations that we acquired in 2007, provides a manufacturing
base in Central America from which to leverage our production
scale at a lower cost location. During the fourth quarter of
2009, we commenced production at our textile production plant in
Nanjing, China, our first company-owned textile production
facility in Asia. The Nanjing textile facility will enable us to
expand and leverage our production scale in Asia as we balance
our supply chain across hemispheres.
Finished goods
that are manufactured by third parties
In addition to our manufacturing capabilities, we also source
finished goods we design from third-party manufacturers, also
referred to as turnkey products. Many of these
turnkey products are sourced from international suppliers by our
strategic sourcing hubs in Hong Kong and other locations in Asia.
All contracted and sourced manufacturing must meet our high
quality standards. Further, all contractors and third-party
manufacturers must be preaudited and adhere to our strict
supplier and business practices guidelines. These requirements
provide strict standards covering hours of work, age of workers,
health and safety conditions and conformity with local laws.
Each new supplier must be inspected and agree to comprehensive
compliance terms prior to performance of any production on our
behalf. We audit compliance with these standards and maintain
strict compliance performance records. In addition to our audit
procedures, we require certain of our suppliers to be Worldwide
Responsible Apparel Production, or WRAP, certified.
WRAP is a recognized apparel certification program that
independently monitors and certifies compliance with certain
specified manufacturing standards that are intended to ensure
that a given factory produces sewn goods under lawful, humane,
and ethical conditions. WRAP uses third-party, independent
certification firms and requires
factory-by-factory
certification.
Trade
regulation
We are exposed to certain risks of doing business outside of the
United States. We import goods from company-owned facilities in
Asia, Central America, the Caribbean Basin and Mexico, and from
suppliers in those areas and in Europe, Africa and the Middle
East. These import
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transactions had been subject to constraints imposed by
bilateral agreements that imposed quotas that limited the amount
of certain categories of merchandise from certain countries that
could be imported into the United States and the EU.
Effective on January 1, 2005, the United States and other
WTO member countries, with few exceptions, removed quotas on
textile and apparel goods from WTO member countries including
China. However in the middle of 2005, several countries,
including the United States, imposed special safeguard quotas on
some Chinese textile and apparel goods pursuant special
provisions contained in Chinas Accession Agreement to the
WTO. These quotas expired at the end of 2008. Under different
provisions of U.S. law, similar safeguard quotas may be
re-imposed against China or imposed against other countries in
the future. Our management evaluates the possible impact of
these and similar actions on our ability to import products from
China. If such safeguards were to be re-imposed, we do not
expect that these restraints would have a material impact on us.
Our management monitors new developments and risks relating to
duties, tariffs and quotas. Changes in these areas have the
potential to harm or, in some cases, benefit our business. In
response to the changing import environment resulting from the
elimination of quotas, management has chosen to continue its
balanced approach to manufacturing and sourcing. We attempt to
limit our sourcing exposure through geographic diversification
with a mix of company-owned and contracted production, as well
as shifts of production among countries and contractors. We will
continue to manage our supply chain from a global perspective
and adjust as needed to changes in the global production
environment.
We also monitor a number of international security risks. We are
a member of the Customs-Trade Partnership Against Terrorism, or
C-TPAT, a partnership between the government and
private sector initiated after the events of September 11,
2001 to improve supply chain and border security. C-TPAT
partners work with U.S. Customs and Border Protection to
protect their supply chains from concealment of terrorist
weapons, including weapons of mass destruction. In exchange,
U.S. Customs and Border Protection provides reduced
inspections at the port of arrival and expedited processing at
the border.
Competition
The apparel essentials market is highly competitive and rapidly
evolving. Competition generally is based upon price, brand name
recognition, product quality, selection, service and purchasing
convenience. Our businesses face competition today from other
large corporations and foreign manufacturers. These competitors
include Berskhire Hathaway Inc. through its subsidiary Fruit of
the Loom, Inc., Warnaco Group Inc., Maidenform Brands, Inc. and
Gildan Activewear, Inc. in our Innerwear business segment and
Gildan Activewear, Inc., Berkshire Hathaway Inc. through its
subsidiaries Russell Corporation and Fruit of the Loom, Inc.,
Nike, Inc., adidas AG through its adidas and Reebok brands and
Under Armour Inc. in our Outerwear business segment. We also
compete with many small manufacturers across all of our business
segments, including our International segment. Additionally,
department stores and other retailers, including many of our
customers, market and sell apparel essentials products under
private labels that compete directly with our brands. We also
face intense competition from specialty stores that sell private
label apparel not manufactured by us such as Victorias
Secret, Old Navy and The Gap.
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Our competitive strengths include our strong brands with leading
market positions, our high-volume, core essentials focus, our
significant scale of operations and our strong customer
relationships.
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Strong brands with leading market
positions. According to NPD, our brands hold either the
number one or number two U.S. market position by sales
value in most product categories in which we compete, for the
12 month period ended November 30, 2008. According to
NPD, our largest brand, Hanes, is the top-selling apparel
brand in the United States by units sold, for the 12 month
period ended November 30, 2008.
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High-volume, core essentials focus. We sell
high-volume, frequently replenished apparel essentials. The
majority of our core styles continue from year to year, with
variations only in color, fabric or design details, and are
frequently replenished by consumers. We believe that our status
as a high-volume seller of core apparel essentials creates a
more stable and predictable revenue base and reduces our
exposure to dramatic fashion shifts often observed in the
general apparel industry.
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Significant scale of operations. According to NPD,
we are the largest seller of apparel essentials in the United
States as measured by sales value for the 12 month period
ended November 30, 2008. Most of our products are sold to
large retailers that have high-volume demands. We believe that
we are able to leverage our significant scale of operations to
provide us with greater manufacturing efficiencies, purchasing
power and product design, marketing and customer management
resources than our smaller competitors.
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Strong customer relationships. We sell our products
primarily through large, high-volume retailers, including mass
merchants, department stores and national chains. We have
strong, long-term relationships with our top customers,
including relationships of more than ten years with each of our
top ten customers. We have aligned significant parts of our
organization with corresponding parts of our customers
organizations. We also have entered into customer-specific
programs such as the C9 by Champion products marketed and
sold through Target stores.
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Intellectual
property
Overview
We market our products under hundreds of trademarks and service
marks in the United States and other countries around the world,
the most widely recognized Hanes, Champion, C9
by Champion, Playtex, Bali,
Leggs, Just My Size, barely there,
Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. Some of our
products are sold under trademarks that have been licensed from
third parties, such as Polo Ralph Lauren mens
underwear, and we also hold licenses from various toy and media
companies that give us the right to use certain of their
proprietary characters, names and trademarks.
Some of our own trademarks are licensed to third parties, such
as Champion for athletic-oriented accessories. In the
United States, the Playtex trademark is owned by Playtex
Marketing Corporation, of which we own a 50% share and which
grants to us a perpetual royalty-free license to the Playtex
trademark on and in connection with the sale of apparel in
the United States and Canada. The other 50% share of
Playtex Marketing Corporation is owned by Playtex Products,
Inc., an unrelated third-party, who has a perpetual royalty-free
license to the Playtex trademark on and in connection
with the sale of non-apparel products in the
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United States. Outside the United States and Canada, we own
the Playtex trademark and perpetually license such
trademark to Playtex Products, Inc. for non-apparel products. In
addition, as described below, as part of Sara Lees sale in
February 2006 of its European branded apparel business, an
affiliate of Sun Capital has an exclusive, perpetual,
royalty-free license to manufacture, sell and distribute apparel
products under the Wonderbra and Playtex
trademarks in the member states of the EU, as well as
several other European nations and South Africa. We also own a
number of copyrights. Our trademarks and copyrights are
important to our marketing efforts and have substantial value.
We aggressively protect these trademarks and copyrights from
infringement and dilution through appropriate measures,
including court actions and administrative proceedings.
Although the laws vary by jurisdiction, trademarks generally
remain valid as long as they are in use
and/or their
registrations are properly maintained. Most of the trademarks in
our portfolio, including our core brands, are covered by
trademark registrations in the countries of the world in which
we do business, with registration periods generally ranging
between seven and 10 years depending on the country.
Trademark registrations can be renewed indefinitely as long as
the trademarks are in use. We have an active program designed to
ensure that our trademarks are registered, renewed, protected
and maintained. We plan to continue to use all of our core
trademarks and plan to renew the registrations for such
trademarks for as long as we continue to use them. Most of our
copyrights are unregistered, although we have a sizable
portfolio of copyrighted lace designs that are the subject of a
number of registrations at the U.S. Copyright Office.
We place high importance on product innovation and design, and a
number of these innovations and designs are the subject of
patents. However, we do not regard any segment of our business
as being dependent upon any single patent or group of related
patents. In addition, we own proprietary trade secrets,
technology, and know how that we have not patented.
Shared trademark
relationship with Sun Capital
In February 2006, Sara Lee sold its European branded apparel
business to an affiliate of Sun Capital. In connection with the
sale, Sun Capital received an exclusive, perpetual, royalty-free
license to manufacture, sell and distribute apparel products
under the Wonderbra and Playtex trademarks in the
member states of the EU, as well as Belarus, Bosnia-Herzegovina,
Bulgaria, Croatia, Macedonia, Moldova, Morocco, Norway, Romania,
Russia, Serbia-Montenegro, South Africa, Switzerland, Ukraine,
Andorra, Albania, Channel Islands, Lichtenstein, Monaco,
Gibraltar, Guadeloupe, Martinique, Reunion and French Guyana,
which we refer to as the Covered Nations. We are not
permitted to sell Wonderbra and Playtex branded
products in the Covered Nations, and Sun Capital is not
permitted to sell Wonderbra and Playtex branded
products outside of the Covered Nations. In connection with the
sale, we also have received an exclusive, perpetual royalty-free
license to sell DIM and UNNO branded products in Panama,
Honduras, El Salvador, Costa Rica, Nicaragua, Belize, Guatemala,
Mexico, Puerto Rico, the United States, Canada and, for DIM
products, Japan. We are not permitted to sell DIM or UNNO
branded apparel products outside of these countries and Sun
Capital is not permitted to sell DIM or UNNO branded apparel
products inside these countries. In addition, the rights to
certain European-originated brands previously part of Sara
Lees branded apparel portfolio were transferred to Sun
Capital and are not included in our brand portfolio.
S-109
Licensing
relationship with Tupperware Corporation
In December 2005, Sara Lee sold its direct selling business,
which markets cosmetics, skin care products, toiletries and
clothing in 18 countries, to Tupperware Corporation, or
Tupperware. In connection with the sale, Dart
Industries Inc., or Dart, an affiliate of
Tupperware, received a three-year exclusive license agreement,
which has been extended to December 31, 2009, to use the C
Logo, Champion U.S.A., Wonderbra, W by
Wonderbra, The One and Only Wonderbra,
Playtex, Just My Size and Hanes trademarks
for the manufacture and sale, under the applicable brands, of
certain mens and womens apparel in the Philippines,
including underwear, socks, sportswear products, bras, panties
and girdles, and for the exhaustion of similar product inventory
in Malaysia. Dart also received a ten-year, royalty-free,
exclusive license to use the Girls Attitudes trademark for
the manufacture and sale of certain toiletries, cosmetics,
intimate apparel, underwear, sports wear, watches, bags and
towels in the Philippines. The rights and obligations under
these agreements were assigned to us as part of the spin off.
In connection with the sale of Sara Lees direct selling
business, Tupperware also signed two five-year distributorship
agreements providing Tupperware with the right, which is
exclusive for the first three years of the agreements, to
distribute and sell, through door-to-door and similar channels,
Playtex, Champion, Rinbros, Aire,
Wonderbra, Hanes and Teens by Hanes apparel
items in Mexico that we have discontinued
and/or
determined to be obsolete. The agreements also provide
Tupperware with the exclusive right for five years to distribute
and sell through such channels such apparel items sold by us in
the ordinary course of business. The agreements also grant a
limited right to use such trademarks solely in connection with
the distribution and sale of those products in Mexico.
Under the terms of the agreements, we reserve the right to apply
for, prosecute and maintain trademark registrations in Mexico
for those products covered by the distributorship agreement. The
rights and obligations under these agreements were assigned to
us as part of the spin off.
Corporate social
responsibility
We have a formal corporate social responsibility
(CSR) program that consists of five initiatives: a
global business practices ethics program for all employees
worldwide; a facility compliance program that seeks to ensure
company and supplier plants meet our labor and social compliance
standards; a product safety program; a global environmental
management system that seeks to reduce the environmental impact
of our operations; and a commitment to corporate philanthropy
which seeks to meet the fundamental needs of the
communities in which we live and work. We employ over
20 full-time CSR personnel across the globe to manage our
program.
In February 2008, we joined the Fair Labor Association and will
undergo the Fair Labor Associations two-year
implementation process for accreditation of our global social
compliance program. The Fair Labor Association works with
industry, civil society organizations and colleges and
universities to protect workers rights and improve working
conditions in factories around the world. Participating
companies in the Fair Labor Association are required to fulfill
10 company obligations, including conducting internal
monitoring of facilities, submitting to independent monitoring
audits and verification, and managing and reporting information
on their compliance efforts. The Fair Labor Association conducts
unannounced independent external monitoring audits of a sample
of a participating companys plants and suppliers and
publishes the results of those audits (and any corrective action
plans that may be needed) for the public to review.
S-110
We incorporate Leadership in Energy and Environmental Design, or
LEED-based practices into many remodeling and new
construction projects for our facilities around the world. In
May 2008, we earned the U.S. Green Building Councils
sustainability certification for our Bentonville, Arkansas sales
office. The LEED certification was the first in Bentonville and
the first for commercial interiors in Arkansas. The
approximately 10,000 square-foot office, which opened in
August 2007 to support our business with Wal-Mart, features
advanced lighting, heating and cooling systems, natural light
for every workspace, energy-efficient appliances, and
low-emission construction materials such as paint, adhesives,
sealants, carpet, coatings and furniture. LEED for Commercial
Interiors is the tenant-improvement category of the
U.S. Green Building Councils nationally accepted LEED
Green Building Rating System. The category honors tenants
without whole-building control who follow rigorous
sustainability guidelines to design or improve their interior
space. The LEED-certification process took seven months and
required a third-party commissioning agent to verify the
achievement of U.S. Green Building Council standards,
including the performance of lighting and ventilation systems.
In addition, our new distribution center in Perris, California
was built to stringent standards set by the U.S. Green
Building Council, and we will seek certification for the
building from the Green Building Council for Leadership in
Energy and Environmental Design, which would make it the largest
LEED-certified warehouse in Southern California and one of the
biggest in the world. Sustainable features of this distribution
center include reduction of energy usage through extensive use
of natural skylighting, motion-detection lighting, a design that
does not require heating or air conditioning for a comfortable
working environment, reduction of water usage compared with
typical warehouses of its size through low-water bathroom
fixtures and low-water landscaping, innovative site grading
techniques and use of locally produced concrete and steel and
many other LEED concepts such as use of paints, carpets and
other materials with low volatile organic compound content, an
organic-focused pest control program that minimizes chemical
pesticide use, location near public transportation to reduce the
parking lot size and reliance on automobile transportation,
preferred parking for low-emission and low-energy vehicles, and
on-site
bicycle storage and shower and changing room facilities.
Environmental
matters
We are subject to various federal, state, local and foreign laws
and regulations that govern our activities, operations and
products that may have adverse environmental, health and safety
effects, including laws and regulations relating to generating
emissions, water discharges, waste, product and packaging
content and workplace safety. Noncompliance with these laws and
regulations may result in substantial monetary penalties and
criminal sanctions. We are aware of hazardous substances or
petroleum releases at a few of our facilities and are working
with the relevant environmental authorities to investigate and
address such releases. We also have been identified as a
potentially responsible party at a few waste
disposal sites undergoing investigation and cleanup under the
federal Comprehensive Environmental Response, Compensation and
Liability Act (commonly known as Superfund) or state Superfund
equivalent programs. Where we have determined that a liability
has been incurred and the amount of the loss can reasonably be
estimated, we have accrued amounts in our balance sheet for
losses related to these sites. Compliance with environmental
laws and regulations and our remedial environmental obligations
historically have not had a material impact on our operations,
and we are not aware of any proposed regulations or remedial
obligations that could trigger significant costs or capital
expenditures in order to comply.
S-111
Government
regulation
We are subject to U.S. federal, state and local laws and
regulations that could affect our business, including those
promulgated under the Occupational Safety and Health Act, the
Consumer Product Safety Act, the Flammable Fabrics Act, the
Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission and
various environmental laws and regulations. Our international
businesses are subject to similar laws and regulations in the
countries in which they operate. Our operations also are subject
to various international trade agreements and regulations. See
Trade regulation. While we believe that we are
in compliance in all material respects with all applicable
governmental regulations, current governmental regulations may
change or become more stringent or unforeseen events may occur,
any of which could have a material adverse effect on our
financial position or results of operations.
Employees
As of January 3, 2009, we had approximately
45,200 employees, approximately 10,200 of whom were located
in the United States. Of the employees located in the United
States, approximately 2,200 were full or part-time employees in
our stores within our direct to consumer channel. As of
January 3, 2009, in the United States, approximately
30 employees were covered by collective bargaining
agreements. A portion of our international employees were also
covered by collective bargaining agreements. We believe our
relationships with our employees are good.
Properties
We own and lease properties supporting our administrative,
manufacturing, distribution and direct outlet activities. We own
our approximately 470,000 square-foot headquarters located
in Winston-Salem, North Carolina, which houses our various
sales, marketing and corporate business functions. Research and
development as well as certain product-design functions also are
located in Winston-Salem, while other design functions are
located in New York City. Our products are manufactured through
a combination of facilities we own and operate and facilities
owned and operated by third-party contractors who perform some
of the steps in the manufacturing process for us, such as
cutting
and/or
sewing. We source the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs.
As of January 3, 2009, we owned and leased properties in 23
countries, including 52 manufacturing facilities and 22
distribution centers, as well as office facilities. The leases
for these properties expire between January 4, 2009 and
2019, with the exception of some seasonal warehouses that we
lease on a
month-by-month
basis. For more information about our capital lease obligations,
see Managements discussion and analysis of financial
condition and results of operationsFuture contractual
obligations and commitments.
As of January 3, 2009, we also operated 213 direct outlet
stores in 40 states, most of which are leased under
five-year, renewable lease agreements. We believe that our
facilities, as well as equipment, are in good condition and meet
our current business needs.
S-112
The following table summarizes our properties by country as of
January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Properties by
country(1)
|
|
Sq. Ft
|
|
|
Sq. Ft.
|
|
|
Total
|
|
|
|
|
United States
|
|
|
10,378,908
|
|
|
|
5,413,658
|
|
|
|
15,792,566
|
|
Non-U.S.
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
867,167
|
|
|
|
355,533
|
|
|
|
1,222,700
|
|
Dominican Republic
|
|
|
746,484
|
|
|
|
400,338
|
|
|
|
1,146,822
|
|
Honduras
|
|
|
356,279
|
|
|
|
917,966
|
|
|
|
1,274,245
|
|
El Salvador
|
|
|
1,051,395
|
|
|
|
268,892
|
|
|
|
1,320,287
|
|
Costa Rica
|
|
|
470,111
|
|
|
|
|
|
|
|
470,111
|
|
Canada
|
|
|
289,480
|
|
|
|
126,777
|
|
|
|
416,257
|
|
Brazil
|
|
|
|
|
|
|
164,548
|
|
|
|
164,548
|
|
Thailand
|
|
|
277,733
|
|
|
|
14,142
|
|
|
|
291,875
|
|
Belgium
|
|
|
|
|
|
|
101,934
|
|
|
|
101,934
|
|
Argentina
|
|
|
87,279
|
|
|
|
7,301
|
|
|
|
94,580
|
|
China
|
|
|
1,099,166
|
|
|
|
87,573
|
|
|
|
1,186,739
|
|
Vietnam
|
|
|
111,385
|
|
|
|
68,129
|
|
|
|
179,514
|
|
10 other countries
|
|
|
|
|
|
|
78,019
|
|
|
|
78,019
|
|
|
|
|
|
|
|
Total
non-U.S.
facilities
|
|
|
5,356,479
|
|
|
|
2,591,152
|
|
|
|
7,947,631
|
|
|
|
|
|
|
|
Totals
|
|
|
15,735,387
|
|
|
|
8,004,810
|
|
|
|
23,740,197
|
|
|
|
|
|
|
(1)
|
|
Excludes vacant land.
|
The following table summarizes the properties primarily used by
our segments as of January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Properties by
segment(1)
|
|
Sq. Ft
|
|
|
Sq. Ft.
|
|
|
Total
|
|
|
|
|
Innerwear
|
|
|
5,149,083
|
|
|
|
3,984,565
|
|
|
|
9,133,648
|
|
Outerwear
|
|
|
4,601,476
|
|
|
|
1,223,013
|
|
|
|
5,824,489
|
|
Hosiery
|
|
|
1,143,897
|
|
|
|
39,000
|
|
|
|
1,182,897
|
|
International
|
|
|
452,014
|
|
|
|
837,960
|
|
|
|
1,289,974
|
|
Other(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
11,346,470
|
|
|
|
6,084,538
|
|
|
|
17,431,008
|
|
|
|
|
|
|
(1)
|
|
Excludes vacant land, facilities no
longer in operation intended for disposal, sourcing offices not
associated with a particular segment, and office buildings
housing corporate functions.
|
|
(2)
|
|
Our Other segment is comprised
primarily of sales of yarn to third parties in the United States
and Latin America that maintain asset utilization at certain
manufacturing facilities used by one or more of the Innerwear,
Outerwear, International or Hosiery segments and are intended to
generate approximate break even margins. No facilities are used
primarily by our Other segment.
|
S-113
Management
Set forth below is certain information regarding our executive
officers and Board of Directors.
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with
Hanesbrands
|
|
|
Richard A. Noll
|
|
|
52
|
|
|
Chairman of the Board of Directors and Chief Executive Officer
|
Gerald W. Evans Jr.
|
|
|
50
|
|
|
President, International Business and Global Supply Chain
|
William J. Nictakis
|
|
|
49
|
|
|
President, Chief Commercial Officer
|
Joia M. Johnson
|
|
|
49
|
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Kevin W. Oliver
|
|
|
52
|
|
|
Executive Vice President, Human Resources
|
E. Lee Wyatt Jr.
|
|
|
56
|
|
|
Executive Vice President, Chief Financial Officer
|
Lee A. Chaden
|
|
|
67
|
|
|
Director
|
Bobby J. Griffin
|
|
|
61
|
|
|
Director
|
James C. Johnson
|
|
|
57
|
|
|
Director
|
Jessica T. Mathews
|
|
|
63
|
|
|
Director
|
J. Patrick Mulcahy
|
|
|
65
|
|
|
Director
|
Ronald L. Nelson
|
|
|
57
|
|
|
Director
|
Andrew J. Schindler
|
|
|
65
|
|
|
Director
|
Ann E. Ziegler
|
|
|
51
|
|
|
Director
|
|
|
Richard A. Noll has served as Chairman of the Board of
Directors since January 2009, as our Chief Executive Officer
since April 2006 and as a director since our formation in
September 2005. From December 2002 until the completion of the
spin off in September 2006, he also served as a Senior Vice
President of Sara Lee. From July 2005 to April 2006,
Mr. Noll served as President and Chief Operating Officer of
Sara Lee Branded Apparel. Mr. Noll served as Chief
Executive Officer of the Sara Lee Bakery Group from July 2003 to
July 2005 and as the Chief Operating Officer of the Sara Lee
Bakery Group from July 2002 to July 2003. From July 2001 to July
2002, Mr. Noll was Chief Executive Officer of Sara Lee
Legwear, Sara Lee Direct and Sara Lee Mexico. Mr. Noll
joined Sara Lee in 1992 and held a number of management
positions with increasing responsibilities while employed by
Sara Lee.
Gerald W. Evans Jr. has served as our President,
International Business and Global Supply Chain since
February 2009. From February 2008 until February 2009, he
was our President, Global Supply Chain and Asia Business
Development. From the completion of the spin off in September
2006 until February 2008, he served as Executive Vice President,
Chief Supply Chain Officer. From July 2005 until the completion
of the spin off, Mr. Evans served as a Vice President of
Sara Lee and as Chief Supply Chain Officer of Sara Lee Branded
Apparel. Mr. Evans served as President and Chief Executive
Officer of Sara Lee Sportswear and Underwear from March 2003
until June 2005 and as President and Chief Executive Officer of
Sara Lee Sportswear from March 1999 to February 2003.
William J. Nictakis has served as our President, Chief
Commercial Officer since November 2007. From June 2003 until
November 2007, Mr. Nictakis served as President of the Sara
Lee Bakery Group. From May 1999 through June 2003,
Mr. Nictakis was Vice President, Sales, of Frito-Lay, Inc.,
a subsidiary of PepsiCo, Inc. that manufactures, markets, sells
and distributes branded snacks.
S-114
Joia M. Johnson has served as our Executive Vice
President, General Counsel and Corporate Secretary since January
2007. From May 2000 until January 2007, Ms. Johnson served
as Executive Vice President, General Counsel and Secretary of
RARE Hospitality International, Inc., an owner, operator and
franchisor of national chain restaurants.
Kevin W. Oliver has served as our Executive Vice
President, Human Resources since the completion of the spin off
in September 2006. From January 2006 until the completion of the
spin off, Mr. Oliver served as a Vice President of Sara Lee
and as Senior Vice President, Human Resources of Sara Lee
Branded Apparel. From February 2005 to December 2005,
Mr. Oliver served as Senior Vice President, Human Resources
for Sara Lee Food and Beverage and from August 2001 to January
2005 as Vice President, Human Resources for the Sara Lee Bakery
Group.
E. Lee Wyatt Jr. has served as our Executive Vice
President, Chief Financial Officer since the completion of the
spin off in September 2006. From September 2005 until the
completion of the spin off, Mr. Wyatt served as a Vice
President of Sara Lee and as Chief Financial Officer of Sara Lee
Branded Apparel. Prior to joining Sara Lee, Mr. Wyatt was
Executive Vice President, Chief Financial Officer and Treasurer
of Sonic Automotive, Inc. from April 2003 to September 2005, and
Vice President of Administration and Chief Financial Officer of
Sealy Corporation from September 1998 to February 2003.
Lee A. Chaden has served as a member of our Board of
Directors since our formation in September 2005. From December
2007 until December 2008, Mr. Chaden served as
non-executive Chairman of the Board. From April 2006 until
December 2007, Mr. Chaden served as our Executive Chairman.
From May 2003 until the completion of the spin off in September
2006, he also served as an Executive Vice President of Sara Lee.
From May 2004 until April 2006, Mr. Chaden served as Chief
Executive Officer of Sara Lee Branded Apparel. He has also
served at the Sara Lee corporate level as Executive Vice
PresidentGlobal Marketing and Sales from May 2003 to May
2004 and Senior Vice PresidentHuman Resources from 2001 to
May 2003. Mr. Chaden joined Sara Lee in 1991 as President
of the U.S. and Westfar divisions of Playtex
Apparel, Inc., which Sara Lee acquired that year. While
employed by Sara Lee, Mr. Chaden also served as President
and Chief Executive Officer of Sara Lee Intimates, Vice
President of Sara Lee Corporation, Senior Vice President of Sara
Lee Corporation and Chief Executive Officer of Sara Lee Branded
ApparelEurope. Mr. Chaden currently serves on the
Board of Directors of R.R. Donnelley & Sons Company
and Carlson Companies, Inc.
Bobby J. Griffin has served as a member of our Board of
Directors since the completion of the spin off in September
2006. From March 2005 to March 2007, Mr. Griffin served as
President, International Operations of Ryder System, Inc.
Beginning in 1986, Mr. Griffin served in various other
management positions with Ryder System, Inc., including as
Executive Vice President, International Operations from 2003 to
March 2005 and Executive Vice President, Global Supply Chain
Operations from 2001 to 2003. Mr. Griffin also serves on
the Board of Directors of United Rentals, Inc.
James C. Johnson has served as a member of our Board of
Directors since the completion of the spin off in September
2006. Mr. Johnson served as Vice President and Assistant
General Counsel of the Boeing Commercial Airplanes division of
The Boeing Company from August 2007 until March 2009. From May
1998 until August 2007, Mr. Johnson served as Vice
President, Corporate Secretary and Assistant General Counsel of
The Boeing Company, and continued to serve as Corporate
Secretary until December 2007. Prior to July 2004,
Mr. Johnson served in various positions with The Boeing
Company, including as Senior Vice President, Corporate Secretary
and Assistant General Counsel from September 2002 until a
management reorganization in July 2004. Mr. Johnson
currently serves on the Board of Directors of Ameren Corporation.
S-115
Jessica T. Mathews has served as a member of our Board of
Directors since October 2006. She has been serving as president
of the Carnegie Endowment for International Peace since 1997.
She was a senior fellow at the Council on Foreign Relations from
1993 to 1997, and in 1993 also served in the United States
Department of State as deputy to the Undersecretary of State for
Global Affairs. From 1982 to 1993, she was founding vice
president and director of research of the World Resources
Institute, a center for policy research on environmental and
natural-resource management issues. She served on the editorial
board of the Washington Post from 1980 to 1982. From 1977 to
1979, Ms. Mathews was director of the Office of Global
Issues of the National Security Council. Ms. Mathews is a
member of the Council on Foreign Relations and the Trilateral
Commission and serves as a trustee of numerous nonprofit
organizations. Ms. Mathews also currently serves on the
Board of Directors of SomaLogic, Inc.
J. Patrick Mulcahy has served as a member of our Board of
Directors since the completion of the spin off in September
2006. From January 2007 to the present, Mr. Mulcahy has
served as Chairman of the Board of Energizer Holdings, Inc., and
from January 2005 to January 2007, as its Vice Chairman. From
2000 to January 2005, Mr. Mulcahy served as Chief Executive
Officer of Energizer Holdings, Inc. From 1967 to 2000,
Mr. Mulcahy served in a number of management positions with
Ralston Purina Company, including as Co-Chief Executive Officer
from 1997 to 1999. In addition to serving on the Board of
Directors of Energizer Holdings, Inc., Mr. Mulcahy also
currently serves on the Board of Directors of Solutia Inc. and
Ralcorp Holdings, Inc.
Ronald L. Nelson has served as a member of our Board of
Directors since July 2008. Mr. Nelson has been Chairman and
Chief Executive Officer of Avis Budget Group, Inc. since August
2006. Avis Budget Group, Inc. is the legal successor to Cendant
Corporation, which split into three separate public companies as
of August 1, 2006. Prior to the split, Mr. Nelson was
a director of Cendant Corporation from April 2003, Chief
Financial Officer from May 2003 until August 2006 and President
from October 2004 to August 2006. Mr. Nelson was also
Chairman and Chief Executive Officer of Cendant
Corporations Vehicle Rental business from January 2006 to
August 2006. From December 2005 to April 2006, Mr. Nelson
was interim Chief Executive Officer of Cendant
Corporations former Travel Distribution Division. From
April 2003 to May 2003, Mr. Nelson was Senior Executive
Vice President, Finance. From November 1994 to March 2003,
Mr. Nelson was Co-Chief Operating Officer of DreamWorks
SKG. Prior thereto, he was Executive Vice President, Chief
Financial Officer and a director at Paramount Communications,
Inc., formerly Gulf + Western Industries, Inc. In addition to
Avis Budget Group, Inc., Mr. Nelson is a director of
Convergys Corporation.
Andrew J. Schindler has served as a member of our Board
of Directors since the completion of the spin off in September
2006. From 1974 to 2005, Mr. Schindler served in various
management positions with R.J. Reynolds Tobacco Holdings, Inc.,
including Chairman of Reynolds American Inc. from December 2004
to December 2005 and Chairman and Chief Executive Officer from
1999 to 2004. Mr. Schindler currently serves on the Board
of Directors of Krispy Kreme Doughnuts, Inc. and ConAgra Foods,
Inc.
Ann E. Ziegler has served as a member of our Board of
Directors since December 2008. She has served as Senior Vice
President and Chief Financial Officer and a member of the
executive committee of CDW Corporation, a leading provider of
technology products and services for business, government and
education, since May 2008. From April 2005 until April 2008,
Ms. Ziegler served as Senior Vice President, Administration
and Chief Financial Officer of Sara Lee Food and Beverage. From
April 2003 until April 2005, she was Chief Financial Officer of
Sara Lee Bakery Group. From November 2000 until April 2003, she
was Senior Vice President, Corporate Development of Sara Lee.
Ms. Ziegler is also a director of Unitrin, Inc.
S-116
Description of
other indebtedness
Senior secured
credit facilities
The Senior Secured Credit Facilities initially provided for
aggregate borrowings of $2.15 billion, consisting of:
(i) a $250.0 million Term A Loan Facility; (ii) a
$1.4 billion Term B Loan Facility; and (iii) a
$500.0 million Revolving Loan Facility that was undrawn as
of January 3, 2009. Issuances of letters of credit reduce
the amount available under the Revolving Loan Facility.
The Senior Secured Credit Facilities are guaranteed by
substantially all of our existing and future direct and indirect
U.S. subsidiaries, with certain customary or
agreed-upon
exceptions for certain subsidiaries.
At the Companys option, borrowings under the Senior
Secured Credit Facilities may be maintained from time to time as
(a) Base Rate loans, which bear interest at the
higher of
(i) 1/2
of 1% in excess of the federal funds rate and (ii) the rate
published in the Wall Street Journal as the prime
rate (or equivalent), in each case in effect from time to
time, plus the applicable margin in effect from time to time, or
(b) LIBOR-based loans, which bear interest at the LIBO
Rate (as defined in the Senior Secured Credit Facility and
adjusted for maximum reserves), for the respective interest
period plus the applicable margin in effect from time to time.
The Term A Loan Facility matures on September 5, 2012. The
Term B Loan Facility matures on September 5, 2013. The
Revolving Loan Facility matures on September 5, 2011. All
borrowings under the Revolving Loan Facility must be repaid in
full upon maturity. Outstanding borrowings under the Senior
Secured Credit Facilities are prepayable without penalty.
We intend to use a portion of the net proceeds from the
Transactions to refinance outstanding borrowings under the
Senior Secured Credit Facilities. We will amend and restate the
Senior Secured Credit Facilities concurrently with the closing
of this offering. See Use of proceeds and
New senior secured credit facilities.
Second lien
credit facility
The Second Lien Credit Facility provides for aggregate
borrowings of $450 million by Hanesbrands
wholly-owned subsidiary, HBI Branded Apparel Limited, Inc. The
Second Lien Credit Facility is unconditionally guaranteed by
Hanesbrands and each entity guaranteeing the Senior Secured
Credit Facilities, subject to the same exceptions and exclusions
provided in the Senior Secured Credit Facilities. The Second
Lien Credit Facility and the guarantees in respect thereof are
secured on a second-priority basis (subordinate only to the
Senior Secured Credit Facilities and any permitted additions
thereto or refinancings thereof) by substantially all of the
assets that secure the Senior Secured Credit Facilities (subject
to the same exceptions).
The Second Lien Credit Facility matures on March 5, 2014,
and includes premiums for prepayment of the loan prior to
September 5, 2009 based on the timing of the prepayment.
The Second Lien Credit Facility will not amortize and will be
repaid in full on its maturity date.
We intend to use a portion of the net proceeds from the
Transactions to repay outstanding borrowings under the Second
Lien Credit Facility and to terminate the Second Lien Credit
Facility concurrently with the closing of this offering. See
Use of proceeds.
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Loans under the Second Lien Credit Facility bear interest in the
same manner as those under the Senior Secured Credit Facilities,
subject to a margin of 2.75% for Base Rate loans and 3.75% for
LIBOR based loans.
New senior
secured credit facilities
Simultaneously with the closing of this offering, we expect to
amend and restate our Senior Secured Credit Facilities to
provide for the $1.15 billion New Senior Secured Credit
Facilities. We intend to use a portion of the net proceeds from
this offering and the New Senior Secured Credit Facilities to
refinance outstanding borrowings under the Senior Secured Credit
Facilities and repay the outstanding borrowings under the Second
Lien Credit Facility. See Use of proceeds.
The New Senior Secured Credit Facilities initially provides for
aggregate borrowings of $1.15 billion, consisting of:
(i) the $750.0 million New Term Loan Facility and
(ii) the $400 million New Revolving Loan Facility. A
portion of the New Revolving Loan Facility is available for the
issuances of letters of credit and the making of swingline
loans, and any such issuance of letters of credit or making of a
swingline loan will reduce the amount available under the New
Revolving Loan Facility. At our option, at any time after the
effective date of the New Senior Secured Credit Facilities, we
may add one or more term loan facilities or increase the
commitments under the New Revolving Loan Facility in an
aggregate amount of up to $300 million so long as certain
conditions are satisfied, including, among others, that no
default or event of default is in existence and that we are in
pro forma compliance with the financial covenants set forth
below.
The proceeds of the New Term Loan Facility will be used to
refinance all of the loans outstanding under the existing Term A
Loan Facility and Term B Loan Facility. The proceeds of the New
Revolving Loan Facility will be used to pay fees and expenses in
connection with the transaction, for general corporate purposes
and working capital needs.
The New Senior Secured Credit Facilities are guaranteed by
substantially all of our existing and future direct and indirect
U.S. subsidiaries, with certain customary or
agreed-upon
exceptions for certain subsidiaries. We and each of the
guarantors under the New Senior Secured Credit Facilities have
granted the lenders under the New Senior Secured Credit
Facilities a valid and perfected first priority (subject to
certain customary exceptions) lien and security interest in the
following:
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the equity interests of substantially all of our direct and
indirect U.S. subsidiaries and 65% of the voting securities
of certain first tier foreign subsidiaries; and
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substantially all present and future property and assets, real
and personal, tangible and intangible, of Hanesbrands and each
guarantor, except for certain enumerated interests, and all
proceeds and products of such property and assets.
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The New Term Loan Facility matures in December 2015. The New
Term Loan Facility will be repaid in equal quarterly
installments in an amount equal to 1% per annum, with the
balance due on the maturity date. The New Revolving Loan
Facility matures in December 2013. All borrowings under the New
Revolving Loan Facility must be repaid in full upon maturity.
Outstanding borrowings under the New Senior Secured Credit
Facilities are prepayable without penalty. There are mandatory
prepayments of principal in connection with (i) the
incurrence of certain indebtedness, (ii) non-ordinary
course asset sales or other dispositions (including as a
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result of casualty or condemnation) that exceed certain
thresholds in any period of twelve-consecutive months, with
customary reinvestment provisions, and (iii) excess cash
flow, which percentage will be based upon our leverage ratio
during the relevant fiscal period.
At our option, borrowings under the New Senior Secured Credit
Facilities may be maintained from time to time as (a) Base
Rate loans, which shall bear interest at the highest of
(i) 1/2 of 1% in excess of the federal funds rate,
(ii) the rate publicly announced by JPMorgan Chase Bank as
its prime rate at its principal office in New York
City and (iii) the LIBO Rate (as defined in the New Senior
Secured Credit Facilities and adjusted for maximum reserves) for
LIBOR-based loans with a one-month interest period plus 1.0%, in
each case in effect from time to time, plus the applicable
margin (which is 2.50% for the New Term Loan Facility and 3.50%
for the New Revolving Loan Facility), or (b) LIBOR-based
loans, which shall bear interest at the LIBO Rate, as determined
by reference to the rate for deposits in dollars appearing on
the Reuters Screen LIBOR01 Page for the respective interest
period plus the applicable margin in effect from time to time
(which is 3.50% for the New Term Loan Facility and 4.50% for the
New Revolving Loan Facility).
The New Senior Secured Credit Facilities require us to comply
with customary affirmative, negative and financial covenants.
The New Senior Secured Credit Facilities requires that we
maintain a minimum interest coverage ratio and a maximum total
debt to EBITDA (earnings before income taxes, depreciation
expense and amortization), or leverage ratio. The interest
coverage ratio covenant requires that the ratio of our EBITDA
for the preceding four fiscal quarters to our consolidated total
interest expense for such period shall not be less than a
specified ratio for each fiscal quarter beginning with the
fourth fiscal quarter of 2009. This ratio is 2.50 to 1 for the
fourth fiscal quarter of 2009 and will increase over time until
it reaches 3.25 to 1 for the third fiscal quarter of 2011 and
thereafter. The leverage ratio covenant requires that the ratio
of our total debt to our EBITDA for the preceding four fiscal
quarters will not be more than a specified ratio for each fiscal
quarter beginning with the fourth fiscal quarter of 2009. This
ratio is 4.50 to 1 for the fourth fiscal quarter of 2009 and
will decline over time until it reaches 3.75 to 1 for the second
fiscal quarter of 2011 and thereafter. The method of calculating
all of the components used in the covenants is included in the
New Senior Secured Credit Facilities.
The New Senior Secured Credit Facilities contains customary
events of default, including nonpayment of principal when due;
nonpayment of interest after stated grace period, fees or other
amounts after stated grace period; material inaccuracy of
representations and warranties; violations of covenants; certain
bankruptcies and liquidations; any cross-default to material
indebtedness; certain material judgments; certain events related
to the Employee Retirement Income Security Act of 1974, as
amended, or ERISA, actual or asserted invalidity of
any guarantee, security document or subordination provision or
non-perfection of security interest, and a change in control (as
defined in the New Senior Secured Credit Facilities).
Floating rate
senior notes
On December 14, 2006, we issued $500 million aggregate
principal amount of the Floating Rate Senior Notes. The Floating
Rate Senior Notes are senior unsecured obligations that rank
equal in right of payment with all of our existing and future
unsubordinated indebtedness. The Floating Rate Senior Notes bear
interest at an annual rate, reset semi-annually, equal to LIBOR
plus 3.375%. Interest is payable on the Floating Rate Senior
Notes on June 15 and December 15 of each year. The Floating Rate
Senior Notes will mature on December 15, 2014. The net
proceeds
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from the sale of the Floating Rate Senior Notes were
approximately $492 million. As noted above, these proceeds,
together with our working capital, were used to repay in full
the $500 million outstanding under the Bridge Loan
Facility. The Floating Rate Senior Notes are guaranteed by
substantially all of our domestic subsidiaries.
We may redeem some or all of the Floating Rate Senior Notes at
any time on or after December 15, 2008 at a redemption
price equal to the principal amount of the Floating Rate Senior
Notes plus a premium of 2% if redeemed during the
12-month
period commencing on December 15, 2008, 1% if redeemed
during the
12-month
period commencing on December 15, 2009 and no premium if
redeemed after December 15, 2010, as well as any accrued
and unpaid interest as of the redemption date. We repurchased
$6 million of the Floating Rate Senior Notes for
$4 million resulting in a gain of $2 million during
the year ended January 3, 2009.
Accounts
receivable securitization facility
On November 27, 2007, we entered into the Accounts
Receivable Securitization Facility, which provides for up to
$250 million in funding accounted for as a secured
borrowing, limited to the availability of eligible receivables,
and is secured by certain domestic trade receivables. The
Accounts Receivable Securitization Facility will terminate on
November 27, 2010. Under the terms of the Accounts
Receivable Securitization Facility, the company sells, on a
revolving basis, certain domestic trade receivables to
Receivables LLC, a wholly-owned bankruptcy-remote subsidiary
that in turn uses the trade receivables to secure the
borrowings, which are funded through conduits that issue
commercial paper in the short-term market and are not affiliated
with us or through committed bank purchasers if the conduits
fail to fund. The assets and liabilities of Receivables LLC are
fully reflected on our balance sheet, and the securitization is
treated as a secured borrowing for accounting purposes. The
borrowings under the Accounts Receivable Securitization Facility
remain outstanding throughout the term of the agreement subject
to our maintaining sufficient eligible receivables by continuing
to sell trade receivables to Receivables LLC unless an event of
default occurs. Availability of funding under the facility
depends primarily upon the eligible outstanding receivables
balance. As of January 3, 2009, we had $243 million
outstanding under the Accounts Receivable Securitization
Facility. The outstanding balance under the Accounts Receivable
Securitization Facility is reported on our balance sheet in
long-term debt based on the three-year term of the agreement and
the fact that remittances on the receivables do not
automatically reduce the outstanding borrowings. The Accounts
Receivable Securitization Facility contains customary events of
default.
We used all $250 million of the proceeds from the Accounts
Receivable Securitization Facility to make a prepayment of
principal under the Senior Secured Credit Facilities. Unless the
conduits fail to fund, the yield on the commercial paper is the
conduits cost to issue the commercial paper plus certain
dealer fees, is considered a financing cost and is included in
interest expense on the Consolidated Statement of Income. If the
conduits fail to fund, the Accounts Receivable Securitization
Facility would be funded through committed bank purchasers, and
the interest rate payable at our option at the rate announced
from time to time by JPMorgan as its prime rate or at the LIBO
Rate (as defined in the Accounts Receivable Securitization
Facility) plus the applicable margin in effect from time to
time. The average blended interest rate for the year ended
January 3, 2009 was 3.50%.
On March 16, 2009, we and Receivables LLC, entered into the
First Amendment to the Accounts Receivable Securitization
Facility dated as of November 27, 2007. The Accounts
Receivable
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Securitization Facility contains the same leverage ratio and
interest coverage ratio provisions as the Senior Secured Credit
Facilities. The First Amendment effects the same changes to the
leverage ratio and the interest coverage ratio that are effected
by the Third Amendment described above. Pursuant to the First
Amendment, the rate that would be payable to the conduit
purchasers or the committed purchasers party to the Accounts
Receivable Securitization Facility in the event of certain
defaults is increased from 1% over the prime rate to 3% over the
greatest of (i) the one-month LIBO rate plus 1%,
(ii) the weighted average rates on federal funds
transactions plus 0.5%, or (iii) the prime rate. Also
pursuant to the First Amendment, several of the factors that
contribute to the overall availability of funding have been
amended in a manner that would be expected to generally reduce
the amount of funding that will be available under the Accounts
Receivable Securitization Facility. The First Amendment also
provides for certain other amendments to the Accounts Receivable
Securitization Facility, including changing the termination date
for the Accounts Receivable Securitization Facility from
November 27, 2010 to March 15, 2010, and requiring
that Receivables LLC make certain payments to a conduit
purchaser, a committed purchaser, or certain entities that
provide funding to or are affiliated with them, in the event
that assets and liabilities of a conduit purchaser are
consolidated for financial
and/or
regulatory accounting purposes with certain other entities.
On April 13, 2009, we and Receivables LLC entered into the
Second Amendment to the Accounts Receivable Securitization
Facility. Pursuant to the Second Amendment, several of the
factors that contribute to the overall availability of funding
have been amended in a manner that is expected to generally
increase over time the amount of funding that will be available
under the Accounts Receivable Securitization Facility as
compared to the amount that would be available pursuant to the
First Amendment. The Second Amendment also provides for certain
other amendments to the Accounts Receivable Securitization
Facility, including changing the termination date for the
Accounts Receivable Securitization Facility from March 15,
2010 to April 12, 2010. In addition, HSBC Securities (USA)
Inc. replaced JPMorgan Chase Bank, N.A. as agent under the
Accounts Receivable Securitization Facility, PNC Bank, N.A.
replaced JPMorgan Chase Bank, N.A. as a managing agent, and PNC
Bank, N.A. and an affiliate of PNC Bank, N.A. replaced
affiliates of JPMorgan Chase Bank, N.A. as a committed purchaser
and a conduit purchaser, respectively. On August 17, 2009,
we and Receivables LLC entered into Amendment No. 3 to the
to the Accounts Receivable Securitization Facility, pursuant to
which certain definitions were amended to clarify the
calculation of certain ratios that impact reporting under the
Accounts Receivable Securitization Facility.
Notes
payable
Notes payable were $62 million at January 3, 2009 and
$20 million at December 29, 2007.
We have a short-term revolving facility arrangement with a
Salvadoran branch of a U.S. bank amounting to
$45 million of which $29 million was outstanding at
January 3, 2009 which accrues interest at 7.38%. We were in
compliance with the covenants contained in this facility at
January 3, 2009.
We have a short-term revolving facility arrangement with a Thai
branch of a U.S. bank amounting to THB 600 million
($17 million) of which $15 million was outstanding at
January 3, 2009 which accrues interest at 4.35%. We were in
compliance with the covenants contained in this facility at
January 3, 2009.
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We have a short-term revolving facility arrangement with a
Chinese branch of a U.S. bank amounting to RMB
56 million ($8 million) of which $8 million was
outstanding at January 3, 2009 which accrues interest at
5.36%. Borrowings under the facility accrue interest at the
prevailing base lending rates published by the Peoples
Bank of China from time to time less 10%. We were in compliance
with the covenants contained in this facility at January 3,
2009.
We have a short-term revolving facility arrangement with an
Indian branch of a U.S. bank amounting to INR
260 million ($5 million) of which $5 million was
outstanding at January 3, 2009 which accrues interest at
16.50%. We were in compliance with the covenants contained in
this facility at January 3, 2009.
We have other short-term obligations amounting to $4,029 which
consisted of a short-term revolving facility arrangement with a
Japanese branch of a U.S. bank amounting to JPY
1,100 million ($12 million) of which $2 million
was outstanding at January 3, 2009 which accrues interest
at 2.42%, and a short-term revolving facility arrangement with a
Vietnamese branch of a U.S. bank amounting to
$14 million of which $2 million was outstanding at
January 3, 2009 which accrues interest at 12.14%. We were
in compliance with the covenants contained in the facilities at
January 3, 2009.
In addition, we have short-term revolving credit facilities in
various other locations that can be drawn on from time to time
amounting to $27 million of which $0 was outstanding at
January 3, 2009.
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Description of
notes
We will issue the Notes under an indenture, as supplemented by a
supplemental indenture (collectively the Indenture),
among us, the Subsidiary Guarantors and Branch Banking and
Trust Company, as trustee (the Trustee). The
terms of the Notes include those expressly set forth in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the
Trust Indenture Act). The Indenture is
unlimited in aggregate principal amount, although the issuance
of Notes in this offering will be limited to
$500.0 million. We may issue an unlimited principal amount
of additional notes having identical terms and conditions as the
Notes (the Additional Notes), as well as debt
securities of other series. We will only be permitted to issue
such Additional Notes in compliance with the covenant described
under the subheading CovenantsLimitation on
Indebtedness. Any Additional Notes will be part of the
same series as the Notes that we are currently offering and will
vote on all matters with the holders of the Notes. Unless the
context otherwise requires, for all purposes of the Indenture
and this Description of notes, references to the
Notes include any Additional Notes actually issued.
This description of notes, together with the Description
of debt securities included in the accompanying base
prospectus, is intended to be an overview of the material
provisions of the Notes and the Indenture. Since this
description of notes and such Description of debt
securities is only a summary, you should refer to the
Indenture for a complete description of the obligations of the
Company and your rights. This description of notes supersedes
the Description of debt securities in the
accompanying base prospectus to the extent it is inconsistent
with such Description of debt securities.
You will find the definitions of capitalized terms used in this
description of notes under the heading
Definitions. For purposes of this description,
references to the Company, we,
our and us refer only to Hanesbrands
Inc. and not to any of its subsidiaries. The registered holder
of a Note will be treated as the owner of it for all purposes.
Only registered holders of Notes will have rights under the
Indenture, and all references to holders in this
description of notes are to registered holders of Notes.
General
The notes. The Notes:
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are general unsecured, senior obligations of the Company;
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mature on December 15, 2016;
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will be issued in denominations of $2,000 and integral multiples
of $1,000 in excess of $2,000;
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will be represented by one or more registered Notes in global
form, but in certain circumstances may be represented by Notes
in definitive form, see Book-entry, delivery and
form;
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rank senior in right of payment to all existing and future
subordinated obligations of the Company;
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rank equally in right of payment to any future senior
Indebtedness of the Company, without giving effect to collateral
arrangements;
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will be initially unconditionally guaranteed on a senior basis
by certain of current Subsidiaries of the Company, see
Guarantees;
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effectively rank junior to any existing or future secured
Indebtedness of the Company, including amounts that may be
borrowed under our Credit Agreement, to the extent of the value
of the collateral securing such Indebtedness; and
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rank structurally junior to the indebtedness and other
obligations of our future non-guarantor subsidiaries, if any.
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Interest. Interest on the Notes will:
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accrue at the rate of 8.000% per annum;
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accrue from the Closing Date or, if interest has already been
paid, from the most recent interest payment date;
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be payable in cash semi-annually in arrears on June 15 and
December 15, commencing on June 15, 2010;
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be payable to the holders of record on the June 1 and
December 1 immediately preceding the related interest
payment dates; and
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be computed on the basis of a
360-day year
comprised of twelve
30-day
months.
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If an interest payment date falls on a day that is not a
Business Day, the interest payment to be made on such interest
payment date will be made on the next succeeding Business Day
with the same force and effect as if made on such interest
payment date, and no additional interest will accrue as a result
of such delayed payment. The Company will pay interest on
overdue principal of the Notes at the above rate, and overdue
installments of interest at such rate, to the extent lawful.
Payments on the
notes; paying agent and registrar
We will pay principal of, premium, if any, and interest on the
Notes at the office or agency designated by the Company, except
that we may, at our option, pay interest on the Notes by check
mailed to holders of the Notes at their registered address as it
appears in the registrars books. We have initially
designated the corporate trust office of the Trustee at 223 Nash
Street, Wilson, North Carolina to act as our paying agent and
registrar. We may, however, change the paying agent or registrar
without prior notice to the holders of the Notes, and the
Company or any of its Restricted Subsidiaries may act as paying
agent or registrar.
We will pay principal of, premium, if any, and interest on,
Notes in global form registered in the name of or held by The
Depository Trust Company or its nominee in immediately
available funds to The Depository Trust Company or its
nominee, as the case may be, as the registered holder of such
global Note.
Transfer and
exchange
A holder may transfer or exchange Notes in accordance with the
Indenture. The registrar and the Trustee may require a holder,
among other things, to furnish appropriate endorsements and
transfer documents in connection with a transfer of Notes. No
service charge will be imposed by the Company, the Trustee or
the registrar for any registration of transfer or exchange of
Notes,
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but the Company may require a holder to pay a sum sufficient to
cover any transfer tax or other governmental taxes and fees
required by law or permitted by the Indenture. The Company is
not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered holder of a Note will be treated its owner for
all purposes.
Optional
redemption
On and after December 15, 2013, we may redeem all or, from
time to time, a part of the Notes upon not less than 30 nor more
than 60 days notice, at the following redemption
prices (expressed as a percentage of principal amount of the
Notes), plus accrued and unpaid interest on the Notes, if any,
to the applicable redemption date (subject to the right of
holders of record on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed
during the twelve-month period beginning on December 15 of
the years indicated below:
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Year
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Percentage
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2013
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104.000%
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2014
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102.000%
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2015 and thereafter
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100.000%
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Prior to December 15, 2012, we may, at our option, on any
one or more occasions redeem up to 35% of the aggregate
principal amount of the Notes (including Additional Notes)
issued under the Indenture with the Net Cash Proceeds of one or
more sales of certain types of common stock at a redemption
price of 108.000% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date (subject to
the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date);
provided that
(1) at least 65% of the original principal amount of the
Notes issued on the Closing Date remains outstanding after each
such redemption; and
(2) the redemption occurs within 180 days after the
closing of the related sale of common stock.
In addition, the Notes may be redeemed, in whole or in part, at
any time prior to December 15, 2013 at the option of the
Company upon not less than 30 nor more than 60 days
prior notice mailed by first-class mail to each holder of Notes
at its registered address, at a redemption price equal to 100%
of the principal amount of the Notes redeemed plus the
Applicable Premium as of, and accrued and unpaid interest to,
the applicable redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on
the relevant interest payment date).
Selection and
notice
If the Company is redeeming less than all of the outstanding
Notes, the Trustee will select the Notes for redemption in
compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or,
if the Notes are not listed, then on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion will
deem to be fair
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and appropriate, although no Note of $2,000 in original
principal amount or less will be redeemed in part. If any Note
is to be redeemed in part only, the notice of redemption
relating to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the partially
redeemed Note. On and after the redemption date, interest will
cease to accrue on Notes or the portion of them called for
redemption unless we default in the payment thereof.
Mandatory
redemption; Offers to purchase; Open market purchases
We are not required to make mandatory redemption payments or
sinking fund payments with respect to the Notes. However, under
certain circumstances, we may be required to offer to purchase
Notes as described under the captions Repurchase of
notes upon a change of control and
CovenantsLimitation on asset sales.
We may acquire Notes by means other than a redemption or
required repurchase, whether by tender offer, open market
purchases, negotiated transactions or otherwise, in accordance
with applicable securities laws, so long as such acquisition
does not otherwise violate the terms of the Indenture. However,
other existing or future agreements of the Company may limit the
ability of the Company or its Subsidiaries to purchase Notes
prior to maturity.
Ranking
The Notes will be general unsecured obligations of the Company
that rank senior in right of payment to all existing and future
Indebtedness that is expressly subordinated in right of payment
to the Notes. The Notes will rank equally in right of payment
with all existing and future liabilities of the Company that are
not so subordinated and will be effectively subordinated to all
of our secured Indebtedness, including Indebtedness Incurred
under our Credit Agreement, to the extent of the value of the
collateral securing such Indebtedness, and liabilities of any of
our future Subsidiaries that do not guarantee the Notes. In the
event of bankruptcy, liquidation, reorganization or other
winding up of the Company or its Subsidiary Guarantors or upon a
default in payment with respect to, or the acceleration of, any
Indebtedness under the Credit Agreement or other secured
Indebtedness, the assets of the Company and its Subsidiary
Guarantors that secure secured Indebtedness will be available to
pay obligations on the Notes and the Subsidiary Guarantees only
after all Indebtedness under the Credit Agreement and other
secured Indebtedness has been repaid in full from such assets.
In addition, in the event of bankruptcy, liquidation,
reorganization or other winding up of a non-guarantor
Subsidiary, the assets of such Subsidiary will be available to
pay obligations on the Notes only after all obligations of such
Subsidiary have been repaid in full from such assets. We advise
you that there may not be sufficient assets remaining to pay
amounts due on any or all the Notes and the Subsidiary
Guarantees then outstanding.
As of October 3, 2009, on an as adjusted basis after giving
effect to this offering and the Transactions, as more fully
described in Use of proceeds:
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we would have had $2,087.7 million of total Indebtedness
(excluding Hedging Obligations and intercompany
Indebtedness); and
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of the $2,087.7 million of such total Indebtedness,
$845.0 million would have constituted secured Indebtedness
under our Credit Agreement, and we would have additional
availability of $305.0 million under our Credit Agreement
as to which the Notes would have been
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effectively subordinated to the extent of the value of the
collateral thereunder. For further discussion, see
Description of other indebtednessNew senior secured
credit facilities.
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Guarantees
Payment of the principal of, premium, if any, and interest on
the Notes will be fully and unconditionally Guaranteed, jointly
and severally, on an unsecured unsubordinated basis by each
Restricted Subsidiary (other than HBI Playtex BATH LLC, HBI
Receivables LLC and those that are a Foreign Subsidiary or an
Immaterial Subsidiary) existing on the Closing Date the equity
interests of all of which are 100% owned, directly or
indirectly, by the Company. In addition, each future Restricted
Subsidiary (other than those that are a Foreign Subsidiary or an
Immaterial Subsidiary) will Guarantee the payment of the
principal of, premium if any, and interest on the Notes.
As of October 3, 2009, on an as adjusted basis and after
giving effect to this offering and the application of net
proceeds from this offering, as more fully described under
Use of proceeds, the Subsidiary Guarantors would
have guaranteed $1,838.7 million of Indebtedness (excluding
intercompany Indebtedness), consisting of secured guarantees of
$845.0 million under the Credit Agreement, unsecured
guarantees of $500.0 million under the Notes and
$493.7 million of unsecured guarantees of the Existing
Notes.
The obligations of each Subsidiary Guarantor under its Note
Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable Federal or state laws. Each
Subsidiary Guarantor that makes a payment or distribution under
its Note Guarantee will be entitled to contribution from any
other Subsidiary Guarantor or the Company, as the case may be.
The Note Guarantee issued by any Subsidiary Guarantor will be
automatically and unconditionally released and discharged upon
(1) any sale, exchange or transfer to any Person (other
than an Affiliate of the Company) of a majority of the Capital
Stock of such Subsidiary Guarantor so long as such entity does
not guarantee any other Indebtedness of the Company or any of
its Restricted Subsidiaries following such sale, exchange or
transfer or (2) the designation of such Subsidiary
Guarantor as an Unrestricted Subsidiary, in each case, in
compliance with the terms of the Indenture.
As of the Closing Date, all of the Companys Subsidiaries
will be Restricted Subsidiaries. Under certain circumstances,
the Company may designate Subsidiaries as Unrestricted
Subsidiaries. None of the Unrestricted Subsidiaries will be
subject to the restrictive covenants in the Indenture and none
will guarantee the Notes.
Covenants
Overview
The Indenture contains covenants that limit the Companys
and its Restricted Subsidiaries ability, among other
things, to:
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incur additional debt and issue preferred stock;
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pay dividends, acquire shares of capital stock, make payments on
subordinated debt or make investments;
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place limitations on distributions from Restricted Subsidiaries;
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issue or sell capital stock of Restricted Subsidiaries;
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issue guarantees;
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sell or exchange assets;
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enter into transactions with shareholders and affiliates;
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create liens;
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engage in unrelated businesses; and
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effect mergers.
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In addition, if a Change of Control occurs, each Holder of Notes
will have the right to require the Company to repurchase all or
a part of the Holders Notes at a price equal to 101% of
their principal amount, plus any accrued interest to the date of
repurchase.
Changes in
covenants when notes rated investment grade
If on any date following the date of the Indenture:
(1) the Notes are rated Baa3 or better by Moodys and
BBB- or better by S&P (or, if either such entity ceases to
rate the Notes for reasons outside of the control of the
Company, the equivalent investment grade credit rating from any
other nationally recognized statistical rating
organization within the meaning of
Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act selected by the Company as a replacement
agency); and
(2) no Default or Event of Default shall have occurred and
be continuing,
then, beginning on that day and subject to the provisions of the
following paragraph, the covenants specifically listed under the
following captions in this prospectus will be suspended:
(1) Limitation on indebtedness;
(2) Limitation on restricted
payments;
(3) Limitation on dividend and other
payment restrictions affecting restricted subsidiaries;
(4) Limitation on transactions with
shareholders and affiliates;
(5) Limitation on asset
sales; and
(6) clause (3) of the covenant described below under
the caption Consolidation, merger and sale of
assets.
During any period that the foregoing covenants have been
suspended, the Companys Board of Directors may not
designate any of its Subsidiaries as Unrestricted Subsidiaries.
Notwithstanding the foregoing, if the rating assigned by either
such rating agency should subsequently decline to below Baa3 or
BBB−, respectively, the foregoing covenants will be
reinstituted as of and from the date of such rating decline.
Calculations under the reinstated Limitation on restricted
payments or Limitation on indebtedness
covenants will be made as if the Limitation on restricted
payments or Limitation on indebtedness
covenant, as the case may be, had been in effect since the date
of the Indenture except that no Default will be
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deemed to have occurred solely by reason of a Restricted Payment
or incurrence of Indebtedness made while such relevant covenant
was suspended and it being understood that no actions taken by
(or omissions of) the Company or any of its Restricted
Subsidiaries during the suspension period shall constitute a
Default or an Event of Default under the covenants listed in
clauses (1) through (6) above. There can be no
assurance that the Notes will ever achieve an investment grade
rating or that any such rating will be maintained.
Limitation on
indebtedness
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than
the Notes, the Note Guarantees and other Indebtedness existing
on the Closing Date (other than Indebtedness described in
clause (1) below, the incurrence of which will be governed
by such clause (1))) and the Company will not permit any of its
Restricted Subsidiaries to issue any Disqualified Stock;
provided, however, that the Company or any Subsidiary Guarantor
may Incur Indebtedness (including, without limitation, Acquired
Indebtedness) if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds
therefrom, the Fixed Charge Coverage Ratio would be greater than
2.0:1.0.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of
the following:
(1) the incurrence by the Company and any Subsidiary
Guarantor of additional Indebtedness and letters of credit under
Credit Facilities in an aggregate principal amount at any one
time outstanding under this clause (1) (with letters of credit
being deemed to have a principal amount equal to the maximum
potential liability of the Company and such Subsidiary Guarantor
thereunder) (together with refinancings thereof) not to exceed
the greater of (A) $1,700.0 million less any amount of
such Indebtedness permanently repaid with the Net Proceeds of
Asset Sales as provided under the Limitation on asset
sales covenant and (B) the sum of (i) 85% of the
net book value of the inventory of the Company and its
Restricted Subsidiaries and (ii) 85% of the net book value
of the accounts receivable of the Company and its Restricted
Subsidiaries, in each case, determined in accordance with GAAP;
(2) Indebtedness owed to the Company or any Restricted
Subsidiary; provided that (x) any event which results in
any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of
such Indebtedness not permitted by this clause (2) and
(y) if the Company or any Subsidiary Guarantor is the
obligor on such Indebtedness, such Indebtedness shall be deemed
to be subordinated in right of payment to the Notes, in the case
of the Company, or the Note Guarantee, in the case of a
Subsidiary Guarantor;
(3) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then
outstanding Indebtedness including, without limitation, the
Notes and the Existing Notes (other than Indebtedness
outstanding under clauses (1), (2), (5), (6), (7), (8),
(9) and (13) and any refinancings thereof) in an
amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided
that (a) Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the
Notes or a Note Guarantee shall only be permitted under this
clause (3) if (x) in case the Notes are
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refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes or a Note Guarantee, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is
outstanding, is pari passu with, or expressly subordinate
in right of payment to, the remaining Notes or the Note
Guarantee, or (y) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes or a Note
Guarantee, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the Notes or the Note
Guarantee on terms not materially less favorable in the
aggregate to the subordination provisions of the Indebtedness to
be refinanced or refunded, (b) the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of
the Indebtedness to be refinanced or refunded and (c) such
new Indebtedness shall not include (i) Indebtedness of a
Subsidiary of the Company that is not a Subsidiary Guarantor
that refinances or refunds Indebtedness of the Company or a
Subsidiary Guarantor and (ii) Indebtedness of the Company
or a Restricted Subsidiary that refinances or refunds
Indebtedness of an Unrestricted Subsidiary;
(4) Indebtedness of the Company, to the extent the net
proceeds thereof are (A) used to purchase Notes tendered in
an Offer to Purchase made as a result of a Change in Control or
an Optional Redemption or (B) promptly deposited to defease
the Notes as described under Defeasance or
Satisfaction and discharge;
(5) Guarantees of Indebtedness of the Company or any
Restricted Subsidiary of the Company by any other Restricted
Subsidiary of the Company; provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the
Limitation on issuance of guarantees by restricted
subsidiaries covenant;
(6) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary
course of business provided, however, that such
Indebtedness is extinguished within five business days of
Incurrence;
(7) Indebtedness (i) in respect of industrial revenue
bonds or other similar governmental or municipal bonds,
(ii) evidencing the deferred purchase price of newly
acquired property or incurred to finance the acquisition of
property, plant or equipment of the Company and its Restricted
Subsidiaries (pursuant to purchase money mortgages or otherwise,
whether owed to the seller or a third party) (provided
that, such Indebtedness is incurred within 365 days of
the acquisition of such property, plant or equipment) and
(iii) in respect of Capitalized Lease Obligations;
provided that, the aggregate amount of all Indebtedness
outstanding pursuant to this clause shall not at any time exceed
the greater of (x) $200.0 million and (y) 5.0% of
Total Assets;
(8) Indebtedness of Foreign Subsidiaries and Guarantees
thereof in an aggregate outstanding principal amount not to
exceed $500.0 million at any one time outstanding;
(9) Indebtedness of a Person existing at the time such
Person became a Restricted Subsidiary, but only if such
Indebtedness was not created or incurred in contemplation of
such Person becoming a Restricted Subsidiary;
(10) Indebtedness incurred in the ordinary course of
business in connection with cash pooling arrangements, cash
management and other Indebtedness incurred in the ordinary
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course of business in respect of netting services, overdraft
protections and similar arrangements in each case in connection
with cash management and deposit accounts;
(11) (x) Permitted Securitization and Standard
Securitization Undertakings and (y) a Permitted Factoring
Program;
(12) Indebtedness consisting of (i) the financing of
insurance premiums or (ii) take or pay obligations in
supply agreements, in each case in the ordinary course of
business;
(13) Hedging Obligations entered into in the ordinary
course of business and not for speculative purposes;
(14) Indebtedness of the Company and its Subsidiaries
representing the obligation of such Person to make payments with
respect to the cancellation or repurchase of Capital Stock of
officers, employees or directors (or their estates) of the
Company or such Subsidiaries pursuant to the terms of
employment, severance or termination agreements, benefit plans
or similar documents; and
(15) additional Indebtedness of the Company or any
Subsidiary Guarantor (in addition to Indebtedness permitted
under clauses (1) through (14) above) in an aggregate
principal amount outstanding at any time (together with
refinancings thereof) not to exceed $250.0 million.
(b) Notwithstanding any other provision of this
Limitation on indebtedness covenant, the maximum
amount of Indebtedness that may be Incurred pursuant to this
Limitation on indebtedness covenant will not be
deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies. The amount of any particular
Indebtedness incurred in a foreign currency will be calculated
based on the exchange rate for such currency vis-à-vis the
U.S. dollar on the date of such incurrence.
(c) For purposes of determining any particular amount of
Indebtedness under this Limitation on indebtedness
covenant, (x) Indebtedness outstanding under the Credit
Agreement on the Closing Date shall be treated as Incurred
pursuant to clause (1) of the second paragraph of part
(a) of this Limitation on indebtedness
covenant, (y) Guarantees, Liens or obligations with respect
to letters of credit supporting Indebtedness otherwise included
in the determination of such particular amount shall not be
included and (z) any Liens granted pursuant to the equal
and ratable provisions referred to in the Limitation on
liens covenant shall not be treated as Indebtedness. For
purposes of determining compliance with this Limitation on
indebtedness covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of
Indebtedness described above (other than Indebtedness referred
to in clause (x) of the preceding sentence), including
under the first paragraph of clause (a), the Company, in its
sole discretion, may classify, and from time to time may
reclassify, all or any portion of such item of Indebtedness.
(d) The Company and the Subsidiary Guarantors will not
Incur any Indebtedness if such Indebtedness is subordinate in
right of payment to any other Indebtedness unless such
Indebtedness is also subordinate in right of payment to the
Notes (in the case of the Company) or the Note Guarantees (in
the case of any Subsidiary Guarantor), in each case, at least to
the same extent. For purposes of the foregoing, no Indebtedness
will be deemed subordinate in right of payment to any other
Indebtedness by virtue of being unsecured.
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Limitation on
restricted payments
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on
or with respect to its Capital Stock (other than
(x) dividends or distributions payable solely in shares of
Capital Stock (other than Disqualified Stock) of the Company or
in options, warrants or other rights to acquire shares of such
Capital Stock and (y) pro rata dividends or distributions
on equity securities of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Company or any of
its Restricted Subsidiaries;
(2) purchase, call for redemption or redeem, retire or
otherwise acquire for value any shares of Capital Stock
(including options, warrants or other rights to acquire such
shares of Capital Stock) of the Company;
(3) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or
other acquisition or retirement for value, of Indebtedness of
the Company that is expressly subordinated in right of payment
to the Notes or any Indebtedness of a Subsidiary Guarantor that
is expressly subordinated in right of payment to a Note
Guarantee, in each case, prior to the date that is one year
before the Stated Maturity of such subordinated
Indebtedness; or
(4) make any Investment, other than a Permitted Investment,
in any Person;
(such payments or any other actions described in
clauses (1) through (4) above being collectively
Restricted Payments) if, at the time of, and after
giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and
be continuing,
(B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of part (a) of the
Limitation on indebtedness covenant, or
(C) the aggregate amount of all Restricted Payments made
after the Closing Date would exceed the sum of:
(1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of the amount of such loss) less
the amount of any net reduction in Investments included pursuant
to clause (3) below that would otherwise be included in
Adjusted Consolidated Net Income, accrued on a cumulative basis
during the period (taken as one accounting period) beginning on
October 1, 2006 and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports
have been filed with the SEC or provided to the Trustee, plus
(2) the aggregate Net Cash Proceeds received by the Company
after the Closing Date as a capital contribution or from the
issuance and sale of its Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary of the Company,
including the Net Cash Proceeds received by the Company from any
issuance or sale permitted by the Indenture of convertible
Indebtedness of the Company subsequent to the Closing Date, but
only upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the
issuance to a Person who is not a Subsidiary of the Company of
any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Disqualified
Stock or any options, warrants or other rights that are
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redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes) plus
(3) an amount equal to the net reduction in Investments in
any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers
of assets, in each case, to the Company or any Restricted
Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (whether or not any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income)
or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of Investments), not to exceed, in each
case, the aggregate amount of all Investments previously made by
the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(1) the payment of any dividend or redemption of any
Capital Stock within 60 days after the related date of
declaration or call for redemption if, at said date of
declaration or call for redemption, such payment or redemption
would comply with the preceding paragraph;
(2) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes or any Note
Guarantee with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (3) of the second paragraph of part
(a) of the Limitation on indebtedness covenant;
(3) the repurchase, redemption or other acquisition of
Capital Stock of the Company or a Restricted Subsidiary (or
options, warrants or other rights to acquire such Capital Stock)
in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares
of Capital Stock (other than Disqualified Stock) of the Company
(or options, warrants or other rights to acquire such Capital
Stock); provided that such new options, warrants or other rights
are not redeemable at the option of the holder, or required to
be redeemed, prior to the Stated Maturity of the Notes;
(4) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for
value of Indebtedness which is subordinated in right of payment
to the Notes or any Note Guarantee in exchange for, or out of
the proceeds of a capital contribution or a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or
other rights to acquire such Capital Stock); provided that such
new options, warrants or other rights are not redeemable at the
option of the holder, or required to be redeemed, prior to the
Stated Maturity of the Notes;
(5) payments or distributions, to dissenting stockholders
required by applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets of the Company that
complies with the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially
all of the property and assets of the Company;
(6) Investments acquired as a capital contribution to, or
in exchange for, or out of the proceeds of a substantially
concurrent offering of, Capital Stock (other than Disqualified
Stock) of the Company;
(7) the repurchase of Capital Stock deemed to occur upon
the exercise of options or warrants if such Capital Stock
represents all or a portion of the exercise price thereof or
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payments in lieu of the issuance of fractional shares of Capital
Stock or withholding to pay for taxes payable by such employee
upon such grant or award;
(8) Investments by any Foreign Subsidiary in any other
Foreign Subsidiary;
(9) the repurchase, redemption, retirement or otherwise
acquisition of Capital Stock required by the employee stock
ownership programs of the Company or required or permitted under
employee agreements;
(10) other Investments in an amount not to exceed
$200.0 million at any time outstanding;
(11) Permitted Additional Restricted Payments;
(12) the purchase, redemption, cancellation or other
retirement for a nominal value per right of any rights granted
to all the holders of common stock of the Company pursuant to
any shareholder rights plan adopted for the purpose of
protecting shareholders from takeover tactics;
(13) the repurchase, redemption or other acquisition of
Disqualified Stock of the Company or its Restricted Subsidiaries
in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares
of Disqualified Stock of the Company (or options, warrants or
other rights to acquire such Disqualified Stock); or
(14) the purchase or redemption of any Indebtedness which
is subordinated in right of payment to the Notes or any Note
Guarantee (i) at a purchase price not greater than 101% of
the principal amount of such Indebtedness in the event of a
Change of Control in accordance with provisions
similar to those described under the caption
Repurchase of notes upon a change of control
or (ii) at a purchase price not greater than 100% of the
principal amount thereof in accordance with the provisions
similar to the Limitation on asset sales covenant;
provided that, prior to or simultaneously with such purchase or
redemption, the Company has made an Offer to Purchase as
provided in such covenants with respect to the Notes and has
completed the repurchase or redemption of the Notes validly
tendered for payment in connection with such Offer to Purchase
and the provisions described under the captions
Repurchase of notes upon a change of control
and CovenantsLimitation on asset sales,
as applicable.
provided that, in the case of clauses (2), (4), (11),
(13) and (14) no Default (of the type described in
clauses (1), (2), (9) or (10) under Events
of default) or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments
set forth therein.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in
clause (2), (7) or (11) thereof or an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in
clause (3) or (4) thereof or an Investment acquired as
a capital contribution or in exchange for Capital Stock referred
to in clause (6) thereof) shall be included in calculating
whether the conditions of clause (C) of the first paragraph
of this Limitation on restricted payments covenant
have been met with respect to any subsequent Restricted
Payments, and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (3), (4) or (6) of the
preceding paragraph shall not be included in such calculation.
In the event the proceeds of an issuance of Capital Stock of the
Company are used for the redemption, repurchase or other
acquisition of the Notes, or Indebtedness that is pari
passu with the Notes or any Note Guarantee, then the Net
Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this Limitation
on restricted payments
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covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
For purposes of determining compliance with this
Limitation on restricted payments covenant, (x)
(i) for a Restricted Payment or series of related
Restricted Payments involving in excess of $50.0 million,
the amount, if other than in cash, of any Restricted Payment
shall be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a
resolution of the Board of Directors or (ii) for a
Restricted Payment or series of related Restricted Payments
involving $50.0 million or less, the amount, if other than
in cash, of any Restricted Payment shall be determined in good
faith by the chief financial officer, whose determination shall
be conclusive and evidenced by a certificate to such effect and
(y) in the event that a Restricted Payment meets the
criteria of more than one of the types of Restricted Payments
described in the above clauses, including the first paragraph of
this Limitation on restricted payments covenant, the
Company, in its sole discretion, may order and classify, and
from time to time may reclassify, such Restricted Payment if it
would have been permitted at the time such Restricted Payment
was made and at the time of such reclassification.
Limitation on
dividend and other payment restrictions affecting restricted
subsidiaries
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary (other than
a Receivables Subsidiary) to (1) pay dividends or make any
other distributions permitted by applicable law on any Capital
Stock of such Restricted Subsidiary owned by the Company or any
other Restricted Subsidiary (it being understood that the
priority of any preferred stock in receiving dividends or
liquidating distributions prior to the dividends or liquidating
distributions being paid on common stock shall not be deemed a
restriction on the ability to make distributions on Capital
Stock), (2) make loans or advances to the Company or any
other Restricted Subsidiary (it being understood that the
subordination of loans or advances made to the Company or any
Restricted Subsidiary to other Indebtedness Incurred by the
Company or any Restricted Subsidiary shall not be deemed a
restriction on the ability to make loans or advances) or
(3) repay any Indebtedness owed to the Company or any other
Restricted Subsidiary or transfer any of its property or assets
to the Company or any other Restricted Subsidiary (it being
understood that such transfers shall not include any type of
transfer described in clause (1), (2) or (3) above).
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Closing Date in the Credit Agreement,
the Indenture, the Existing Notes Indenture or any other
agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any
such extensions, refinancings, renewals or replacements taken as
a whole are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or
replaced;
(2) existing under or by reason of applicable law or any
applicable rule, regulation or order;
(3) that are customary non-assignment provisions in
contracts, agreements, leases, permits and licenses;
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(4) that are purchase money obligations for property
acquired and Capitalized Lease Obligations that impose
restrictions on the property purchased or leased;
(5) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or
assets of such Person so acquired and any extensions,
refinancings, renewals or replacements thereof; provided
that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements taken as a whole are no
less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(6) in the case of clause (3) of the first paragraph
of this Limitation on dividend and other payment
restrictions affecting restricted subsidiaries covenant:
(A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture,
(C) arising or agreed to in the normal course of business,
not relating to any Indebtedness, and that do not, individually
or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary; or
(D) pursuant to customary provisions restricting
dispositions of real property interests set forth in any
reciprocal easement agreements of the Company or any Restricted
Subsidiary;
(7) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale
or disposition of all or substantially all of the Capital Stock
of, or property and assets of, such Restricted Subsidiary;
(8) relating to a Subsidiary Guarantor and contained in the
terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if:
(A) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company in good
faith); and
(B) the Company determines that any such encumbrance or
restriction will not materially affect the Companys
ability to make principal or interest payments on the Notes;
(9) arising from customary provisions in joint venture
agreements and other similar agreements;
(10) existing in the documentation governing any Permitted
Securitization or Permitted Factoring Program; or
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(11) contained in any agreement governing Indebtedness
permitted under clause (8) of the second paragraph of part
(a) of the Limitation on indebtedness covenant.
Nothing contained in this Limitation on dividend and other
payment restrictions affecting restricted subsidiaries
covenant shall prevent the Company or any Restricted Subsidiary
from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the Limitation on
liens covenant or (2) restricting the sale or other
disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company
or any of its Restricted Subsidiaries.
Limitation on the
issuance and sale of capital stock of restricted
subsidiaries
The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares
of Capital Stock of a Restricted Subsidiary (including options,
warrants or other rights to purchase shares of such Capital
Stock) except:
(1) to the Company or a Wholly Owned Restricted Subsidiary;
(2) issuances of directors qualifying shares or sales
to foreign nationals or other persons of shares of Capital Stock
of foreign Restricted Subsidiaries, in each case, to the extent
required by applicable law;
(3) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would
have been permitted to be made under the Limitation on
restricted payments covenant if made on the date of such
issuance or sale; or
(4) sales of Capital Stock (other than Disqualified Stock)
(including options, warrants or other rights to purchase shares
of such Capital Stock) of a Restricted Subsidiary, provided that
the Company or such Restricted Subsidiary either
(a) applies the Net Cash Proceeds of any such sale in
accordance with the Limitation on asset sales
covenant or (b) to the extent such sale is of preferred
stock, such sale is permitted under the Limitation on
indebtedness covenant.
Limitation on
issuance of guarantees by restricted subsidiaries
The Company will cause each Restricted Subsidiary other than a
Foreign Subsidiary or an Immaterial Subsidiary to execute and
deliver a supplemental indenture to the Indenture providing for
a Guarantee (a Subsidiary Guarantee) of payment of
the Notes by such Restricted Subsidiary.
The Company will not permit any Restricted Subsidiary which is
not a Subsidiary Guarantor, directly or indirectly, to Guarantee
any Indebtedness (Guaranteed Indebtedness) of the
Company or any other Restricted Subsidiary (other than a Foreign
Subsidiary or an Immaterial Subsidiary), unless (a) such
Restricted Subsidiary promptly executes and delivers a
supplemental indenture to the Indenture providing for a
Guarantee (also a Subsidiary Guarantee) of payment
of the Notes by such Restricted Subsidiary and (b) such
Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights
against the Company or any other
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Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee until the
Notes have been paid in full.
If the Guaranteed Indebtedness is (A) pari passu in
right of payment with the Notes or any Note Guarantee, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu
in right of payment with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated in right of payment to the
Notes or any Note Guarantee, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated in right of
payment to the Subsidiary Guarantee to an extent that is not
materially less favorable than that the Guaranteed Indebtedness
is subordinated to the Notes or the Note Guarantee.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Subsidiary Guarantor may provide by its terms that it shall be
automatically and unconditionally released and discharged upon:
(1) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of Capital Stock of such Subsidiary
Guarantor after which such Subsidiary Guarantor no longer is a
Restricted Subsidiary of the Company, or the sale of all or
substantially all the assets of such Subsidiary Guarantor (which
sale, exchange or transfer is not prohibited by the Indenture)
or upon the designation of such Subsidiary Guarantor as an
Unrestricted Subsidiary in accordance with the terms of the
Indenture; or
(2) the release or discharge of the Guarantee which
resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such
Guarantee.
Limitation on
transactions with shareholders and affiliates
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any Affiliate of the Company or
any Restricted Subsidiary, except upon terms not materially less
favorable to the Company or such Restricted Subsidiary than
could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of
the execution of the agreement providing therefor, in a
comparable arms-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or (B) for
which the Company or a Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized investment
banking, accounting, valuation or appraisal firm stating that
the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view;
(2) any transaction solely between the Company and any of
its Restricted Subsidiaries or solely among Restricted
Subsidiaries;
(3) the payment of regular fees to directors of the Company
who are not employees of the Company and director and officer
indemnification arrangements entered into by the Company in the
ordinary course of business of the Company;
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(4) transactions with a Person that is an Affiliate of the
Company solely because the Company owns, directly or through a
Restricted Subsidiary, an Equity Interest in, or controls, such
Person;
(5) transactions in connection with a Permitted
Securitization including Standard Securitization Undertakings or
a Permitted Factoring Program;
(6) any sale of shares of Capital Stock (other than
Disqualified Stock) of the Company, and the granting of
registration and other customary rights in connection therewith;
(7) any Permitted Investments or any Restricted Payments
not prohibited by the Limitation on restricted
payments covenant;
(8) any agreement as in effect or entered into as of the
Closing Date (as disclosed in this prospectus) or any amendment
thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) and any replacement agreement
thereto so long as any such amendment or replacement agreement
is not more disadvantageous to the Holders in any material
respect than the original agreement as in effect on the Closing
Date;
(9) any employment agreement, change in control/severance
agreement, employee benefit plan (including retirement, health
and other benefit plans), officer or director indemnification
agreement or any similar arrangement or compensation (including
bonuses and equity compensation) entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of
business and payments pursuant thereto;
(10) any tax sharing agreement or payment pursuant thereto,
between the Company
and/or one
or more Subsidiaries on the one hand, and any other Person with
which the Company or such Subsidiaries are required or permitted
to file consolidated tax return or with which the Company or
such Subsidiaries are part of a consolidated group for tax
purposes on the other hand, which payments by the Company and
the Restricted Subsidiaries are not in excess of the tax
liabilities that would have been payable by them on a
stand-alone basis; and
(11) transactions with customers, suppliers or purchasers
or sellers of goods or services, in each case, in the ordinary
course of business of the Company and its Restricted
Subsidiaries and otherwise in compliance with the terms of this
Indenture; provided, that, in the reasonable determination of
the Board of Directors or senior management of the Company, such
transactions are on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person.
Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this
Limitation on transactions with shareholders and
affiliates covenant and not covered by clauses (2)
through (10) of this paragraph, (a) the aggregate
amount of which exceeds $50.0 million in value, must be
approved or determined to be fair in the manner provided for in
clause (1)(A) or (B) above and (b) the aggregate
amount of which exceeds $100.0 million in value, must be
determined to be fair in the manner provided for in clause
(1)(B) above.
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Limitation on
liens
The Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character (including
any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary), which Lien is securing any Indebtedness, without
making effective provision for all of the Notes and all other
amounts due under the Indenture to be directly secured equally
and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the
Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to:
(1) Liens existing on the Closing Date;
(2) Liens granted on or after the Closing Date on any
assets or Capital Stock of the Company or its Restricted
Subsidiaries created in favor of the Holders;
(3) Liens in connection with a Permitted Securitization or
a Permitted Factoring Program;
(4) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred
under clause (3) of the second paragraph of part
(a) of the Limitation on indebtedness covenant;
provided that such Liens do not extend to or cover any property
or assets of the Company or any Restricted Subsidiary other than
the property or assets securing the Indebtedness being
refinanced;
(5) Liens to secure Indebtedness permitted under
clause (1) of the second paragraph of part (a) of the
Limitation on indebtedness covenant;
(6) Liens (including extensions and renewals thereof)
securing Indebtedness permitted under clause (7) of the
second paragraph of part (a) of the Limitation on
indebtedness covenant; provided that, (i) such Lien
is granted within 365 days after such Indebtedness is
incurred, (ii) the Indebtedness secured thereby does not
exceed the lesser of the cost or the fair market value of the
applicable property, improvements or equipment at the time of
such acquisition (or construction) and (iii) such Lien
secures only the assets that are the subject of the Indebtedness
referred to in such clause;
(7) Liens on cash set aside at the time of the Incurrence
of any Indebtedness, or government securities purchased with
such cash, in either case, to the extent that such cash or
government securities pre-fund the payment of interest on such
Indebtedness and are held in a collateral or escrow account or
similar arrangement to be applied for such purpose;
(8) Liens on any assets or properties of Foreign
Subsidiaries to secure Indebtedness permitted under
clause (8) of the second paragraph of part (a) of the
Limitation on indebtedness covenant;
(9) Liens on (A) incurred premiums, dividends and
rebates which may become payable under insurance policies and
loss payments which reduce the incurred premiums on such
insurance policies and (B) rights which may arise under
State insurance guarantee funds relating to any such insurance
policy, in each case securing Indebtedness permitted to be
incurred pursuant to clause (12) of the second paragraph of
part (a) of the Limitation on indebtedness
covenant;
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(10) other Liens securing Indebtedness or other obligations
permitted under the Indenture and outstanding in an aggregate
principal amount not to exceed $200.0 million; or
(11) Permitted Liens.
Limitation on
asset sales
The Company will not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless (1) the
consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (2) at least 75% of the
consideration received consists of (a) cash or Temporary
Cash Investments, (b) the assumption of Indebtedness of the
Company or any Restricted Subsidiary (in each case, other than
Indebtedness owed to the Company or any Affiliate of the
Company), provided that the Company or such other Restricted
Subsidiary is irrevocably released in writing from all liability
under such Indebtedness, (c) Replacement Assets or
(d) a combination of the foregoing.
The Company will, or will cause the relevant Restricted
Subsidiary to:
(1) within twelve months after the date of receipt of any
Net Cash Proceeds from an Asset Sale:
(A) apply an amount equal to such Net Cash Proceeds to
permanently repay Indebtedness under any Credit Facility or
other unsubordinated Indebtedness of the Company or any
Subsidiary Guarantor or Indebtedness of any other Restricted
Subsidiary, in each case, owing to a Person other than the
Company or any Affiliate of the Company (and to cause a
corresponding permanent reduction in commitments if such repaid
Indebtedness was outstanding under the revolving portion of a
Credit Facility); or
(B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of
such agreement) in Replacement Assets, and
(2) apply (no later than the end of the
12-month
period referred to in clause (1)) any excess Net Cash Proceeds
(to the extent not applied pursuant to clause (1)) as provided
in the following paragraphs of this Limitation on asset
sales covenant.
The amount of such excess Net Cash Proceeds required to be
applied (or to be committed to be applied) during such
12-month
period as set forth in clause (1) of the preceding sentence
and not applied as so required by the end of such period shall
constitute Excess Proceeds.
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to
Purchase pursuant to this Limitation on asset sales
covenant totals at least $50.0 million, the Company must
commence, not later than the last business day of such month,
and consummate an Offer to Purchase from the Holders (and, if
required by the terms of any Indebtedness that is pari passu
with the Notes (Pari passu Indebtedness),
from the holders of such Pari passu Indebtedness) on a
pro rata basis an aggregate principal amount of Notes (and
Pari passu Indebtedness) equal to the Excess Proceeds on
such date, at a purchase price equal to 100% of their principal
amount, plus, in each case, accrued interest (if any) to the
Payment Date. To the extent that any Excess Proceeds remain
after consummation of an Offer to Purchase pursuant to this
Limitation on asset sales covenant, the Company may
use those Excess Proceeds for any purpose not otherwise
prohibited by the Indenture and the amount of Excess Proceeds
shall be reset to zero.
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Pending the final application of any Net Proceeds, the Company
may temporarily reduce revolving credit borrowings or otherwise
invest the Net Proceeds in any manner that is not prohibited by
the Indenture.
Limitation on
business activities
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than Permitted
Businesses.
Payments for
consent
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration to or for the benefit of any Holder for or as
an inducement to any consent, waiver or amendment of any of the
terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid and is paid to all Holders
that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent,
waiver or agreement.
Repurchase of
notes upon a change of control
If a Change of Control occurs, unless the Company has exercised
its right to redeem all of the Notes as described under
Optional redemption, each holder will have the right
to require the Company to repurchase all or any part (equal to
$2,000 or an integral multiple of $1,000 in excess thereof) of
such holders Notes at a purchase price in cash equal to
101% of the principal amount of the Notes plus accrued and
unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
Notwithstanding the foregoing, the Company may make its offer to
purchase the Notes as described in this section in advance of a
Change of Control, conditioned upon consummation of such Change
of Control, if a definitive agreement in respect of such
anticipated Change of Control is in place as of the time of such
offer.
Within 30 days following any Change of Control, unless the
Company has exercised its right to redeem all of the Notes as
described under Optional redemption, the Company
will mail a notice (the Change of Control Offer) to
each holder, with a copy to the Trustee, stating:
(1) that a Change of Control has occurred (or, if
applicable, that a definitive agreement in respect of such
Change of Control is in place) and that such holder has the
right to require the Company to purchase such holders
Notes at a purchase price in cash equal to 101% of the principal
amount of such Notes plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of
record on a record date to receive interest on the relevant
interest payment date) (the Change of Control
Payment);
(2) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such
notice is mailed) (the Change of Control Payment
Date); and
(3) the procedures determined by the Company, consistent
with the Indenture, that a holder must follow in order to have
its Notes repurchased.
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On the Change of Control Payment Date, the Company will, to the
extent lawful:
(1) accept for payment all Notes or portions of Notes (in
integral multiples of $1,000) properly tendered pursuant to the
Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all Notes or portions of
Notes so tendered; and
(3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers Certificate
stating the aggregate principal amount of Notes or portions of
Notes being purchased by the Company.
The paying agent will promptly mail to each holder of Notes so
tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new Note equal in
principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in
a principal amount of $2,000 or an integral multiple of $1,000
in excess thereof.
If the Change of Control Payment Date is on or after an interest
record date and on or before the related interest payment date,
any accrued and unpaid interest, if any, will be paid to the
Person in whose name a Note is registered at the close of
business on such record date, and no additional interest will be
payable to holders who tender pursuant to the Change of Control
Offer.
The Change of Control provisions described above will be
applicable whether or not any other provisions of the Indenture
are applicable. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions
that permit the holders to require that the Company repurchase
or redeem the Notes in the event of a takeover, recapitalization
or similar transaction.
The Company will not be required to make a Change of Control
Offer upon a Change of Control if (a) a third party makes
the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer or (b) an
irrevocable notice of redemption in respect of all of the
outstanding Notes has been given pursuant to the provisions
under the caption Optional redemption, unless
and until there is a default in payment of the applicable
redemption price.
The Company will comply, to the extent applicable, with the
requirements of
Rule 14e-1
under the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant
to this covenant. To the extent that the provisions of any
securities laws or regulations conflict with provisions of the
Indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have
breached its obligations described in the Indenture by virtue of
the conflict.
The Companys ability to repurchase Notes pursuant to a
Change of Control Offer may be limited by a number of factors.
The occurrence of certain of the events that constitute a Change
of Control would constitute a default under the Credit
Agreement. In addition, certain events that may constitute a
change of control under the Credit Agreement and cause a default
under that agreement may not constitute a Change of Control
under the Indenture. Future Indebtedness of the Company and its
Subsidiaries may also contain prohibitions of certain events
that
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would constitute a Change of Control or require such
Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require
the Company to repurchase the Notes could cause a default under
such Indebtedness, even if the Change of Control itself does
not, due to the financial effect of such repurchase on the
Company. Finally, the Companys ability to pay cash to the
holders upon a repurchase may be limited by the Companys
then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make
any required repurchases.
Even if sufficient funds were otherwise available, the terms of
the Credit Agreement will, and future Indebtedness may, prohibit
the Companys prepayment of Notes before their scheduled
maturity. Consequently, if the Company is not able to prepay the
Credit Agreement and any such other Indebtedness containing
similar restrictions or obtain requisite consents, as described
above, the Company will be unable to fulfill its repurchase
obligations if holders of Notes exercise their repurchase rights
following a Change of Control, resulting in a default under the
Indenture. A default under the Indenture may result in a
cross-default under the Credit Agreement.
If holders of not less than 90% in aggregate principal amount of
the outstanding Notes validly tender and do not withdraw such
Notes in a Change of Control Offer and the Company, or any third
party making a Change of Control Offer in lieu of the Company as
described above, purchases all of the Notes validly tendered and
not withdrawn by such holders, the Company will have the right,
upon not less than 30 nor more than 60 days prior
notice, given not more than 30 days following such purchase
pursuant to the Change of Control Offer described above, to
redeem all Notes that remain outstanding following such purchase
at a redemption price in cash equal to the applicable Change of
Control Payment plus, to the extent not included in the Change
of Control Payment, accrued and unpaid interest, if any, to the
date of redemption.
The Change of Control provisions described above may deter
certain mergers, tender offers and other takeover attempts
involving the Company by increasing the capital required to
effectuate such transactions. The Change of Control purchase
feature is a result of negotiations between the underwriters and
us. As of the Closing Date, we have no present intention to
engage in a transaction involving a Change of Control, although
it is possible that we could decide to do so in the future.
Subject to the limitations discussed below, we could, in the
future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such
time or otherwise affect our capital structure or credit
ratings. Restrictions on our ability to incur additional
Indebtedness are contained in the covenants described under
CovenantsLimitation on indebtedness and
CovenantsLimitation on liens. Such
restrictions in the Indenture can be waived only with the
consent of the holders of a majority in principal amount of the
Notes then outstanding. Except for the limitations contained in
such covenants, however, the Indenture will not contain any
covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The definition of Change of Control includes a
disposition of all or substantially all of the property and
assets of the Company and its Restricted Subsidiaries taken as a
whole to any Person. Although there is a limited body of case
law interpreting the phrase substantially all, there
is no precise established definition of the phrase under
applicable law. Accordingly, in certain circumstances there may
be a degree of uncertainty as to whether a particular
transaction would involve a disposition of all or
substantially all of the property or assets of a Person.
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As a result, it may be unclear as to whether a Change of Control
has occurred and whether a holder of Notes may require the
Company to make an offer to repurchase the Notes as described
above.
The provisions under the Indenture relative to our obligation to
make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified or terminated with the written
consent of the holders of a majority in principal amount of the
Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes)
prior to the occurrence of such Change of Control.
SEC reports and
reports to holders
Whether or not required by the SECs rules and regulations,
so long as any Notes are outstanding, the Company will furnish
to the Holders or cause the Trustee to furnish to the Holders,
within the time periods specified in the SECs rules and
regulations:
(1) all quarterly and annual reports that would be required
to be filed with the SEC on
Forms 10-Q
and 10-K if
the Company were required to file such reports; and
(2) all current reports that would be required to be filed
with the SEC on
Form 8-K
if the Company were required to file such reports.
All such reports will be prepared in all material respects in
accordance with the rules and regulations applicable to such
reports. Each annual report on
Form 10-K
will include a report on the Companys consolidated
financial statements by the Companys certified independent
accountants. Notwithstanding the foregoing, the furnishing or
filing of such reports with the SEC on EDGAR (or any successor
system thereto) shall be deemed to constitute furnishing of such
reports with the Trustee.
In addition, the Company will file a copy of each of the reports
referred to in clauses (1) and (2) above with the SEC
for public availability within the time periods specified in the
rules and regulations applicable to such reports (unless the SEC
will not accept such a filing) and will post the reports on its
website within those time periods.
If the Company is no longer subject to the periodic reporting
requirements of the Exchange Act for any reason, the Company
will nevertheless continue filing the reports specified in the
preceding paragraphs of this covenant with the SEC within the
time periods specified above unless the SEC will not accept such
a filing. The Company will not take any action for the purpose
of causing the SEC not to accept any such filings. If,
notwithstanding the foregoing, the SEC will not accept the
Companys filings for any reason, the Company will post the
reports referred to in the preceding paragraphs on its website
within the time periods that would apply to a non-accelerated
filer if the Company were required to file those reports with
the SEC.
In addition, the Company and the Subsidiary Guarantors agree
that, for so long as any Notes remain outstanding, if at any
time they are not required to file with the SEC the reports
required by the preceding paragraphs, they will furnish to the
Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
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Events of
default
The following events will be defined as Events of
Default in the Indenture:
(1) default for 30 days in the payment when due of
interest on the Notes;
(2) default in the payment when due (at maturity, upon
redemption or otherwise) of the principal of, or premium, if
any, on the Notes;
(3) (A) failure by the Company or any of its
Restricted Subsidiaries for 30 days after notice to the
Company by the trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding voting
as a single class to comply with the provisions under the
caption Repurchase of notes upon a change of
control or (B) failure by the Company or any of its
Restricted Subsidiaries to comply with the provisions under the
caption Consolidation, merger and sale of
assets;
(4) failure by the Company or any of its Restricted
Subsidiaries for 30 days after notice to the Company by the
trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding voting as a single class to
comply with the provisions under the captions
CovenantsLimitation on restricted
payments, CovenantsLimitation on
indebtedness or CovenantsLimitation on
asset sales;
(5) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice to the Company by the
trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding voting as a single class to
comply with any of the other agreements in the Indenture;
(6) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Indebtedness or Guarantee now exists
or is created after the date of the Indenture, if that default:
(A) is caused by a failure to pay principal of, or interest
or premium, if any, on, such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on
the date of such default; or
(B) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness or the maturity of which has been so
accelerated, aggregates $100.0 million or more;
(7) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments entered by a court or courts
of competent jurisdiction aggregating in excess of
$100.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days;
(8) except as permitted by the Indenture, any Note
Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and
effect or any Subsidiary Guarantor, or any Person acting on
behalf of any Subsidiary Guarantor denies or disaffirms its
obligations under its Note Guarantee;
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(9) the Company or any of its Restricted Subsidiaries that
would constitute a Significant Subsidiary pursuant to or within
the meaning of Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; and
(10) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Restricted Subsidiaries that is a Significant Subsidiary in an
involuntary case;
(B) appoints a custodian of the Company or any of its
Restricted Subsidiaries that is a Significant Subsidiary or for
all or substantially all of the property of the Company or any
of its Restricted Subsidiaries that is a Significant
Subsidiary; or
(C) orders the liquidation of the Company or any of its
Restricted Subsidiaries that is a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
If an Event of Default (other than an Event of Default specified
in clause (9) or (10) above that occurs with respect
to the Company) occurs and is continuing under the Indenture,
the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes, then outstanding, by written
notice to the Company (and to the Trustee if such notice is
given by the Holders), may, and the Trustee at the request of
such Holders shall, declare the principal of, premium, if any,
and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of,
premium, if any, and accrued interest shall be immediately due
and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (6) above
has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to
clause (6) shall be remedied or cured by the Company or the
relevant Restricted Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration
of acceleration with respect thereto. If an Event of Default
specified in clause (9) or (10) above occurs with
respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall
automatically become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any
Holder.
The Holders of at least a majority in principal amount of the
Notes by written notice to the Company and to the Trustee, may
waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (x) all existing
Events of Default, other than the nonpayment of the principal
of, premium, if any, and accrued interest on the Notes that have
become due solely by such declaration of acceleration, have been
cured or waived and (y) the rescission would not conflict
with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see
Modification and waiver.
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The Holders of at least a majority in aggregate principal amount
of the Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts
with law or the Indenture or that may involve the Trustee in
personal liability and may take any other action it deems proper
that is not inconsistent with any such direction received from
Holders of Notes. A Holder may not pursue any remedy with
respect to the Indenture or the Notes unless:
(1) the Holder gives the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal
amount of Notes make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or
expense;
(4) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of
indemnity; and
(5) during such
60-day
period, the Holders of a majority in aggregate principal amount
of the Notes do not give the Trustee a direction that is
inconsistent with the request.
However, such limitations do not apply to the right of any
Holder of a Note to receive payment of the principal of or
premium, if any, or interest on, such Note, or to bring suit for
the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or
affected without the consent of the Holder.
Officers of the Company must certify, on or before a date not
more than 90 days after the end of each fiscal year, that
the Company and its Restricted Subsidiaries have fulfilled all
obligations thereunder, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default
and the nature and status thereof. the Company will also be
obligated to notify the Trustee of any default or defaults in
the performance of any covenants or agreements under the
Indenture.
Consolidation,
merger and sale of assets
The Company will not (1), directly or indirectly, consolidate or
merge with or into another Person (whether or not the Company is
the surviving corporation), or (2) sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all
of the property or assets of the Company and its Restricted
Subsidiaries taken as a whole, in one or more related
transactions, to another Person, unless:
(1) it shall be the continuing Person, or the Person (if
other than it) formed by such consolidation or into which it is
merged or that acquired or leased such property and assets (the
Surviving Person) shall be a corporation, limited
partnership, limited liability company or other entity organized
and validly existing under the laws of the United States of
America or any jurisdiction thereof and shall expressly assume,
by a supplemental indenture, executed and delivered to the
Trustee, all of the Companys obligations under the
Indenture and the Notes; provided, however, that if the
Surviving Person is not a corporation, a corporation that has no
material assets or liabilities other than the Notes shall become
a co-issuer of the Notes pursuant to a supplemental indenture
duly executed by the Trustee;
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(2) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction on
a pro forma basis either (a) the Company (or the
Surviving Person, if applicable) could Incur at least $1.00 of
Indebtedness under the first paragraph of part (a) of the
Limitation on indebtedness covenant or (b) the
Companys (of the Surviving Persons, if applicable)
Fixed Charge Coverage Ratio is greater than that of the Company
prior to the consummation of such transaction; and
(4) the Company will have delivered to the Trustee an
officers certificate (attaching the arithmetic
computations to demonstrate compliance with clause (3) of
this paragraph) and an opinion of counsel, each stating that
such transaction and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture
comply with the applicable provisions of the Indenture, that all
conditions precedent in the Indenture relating to such
transaction have been satisfied and that supplemental indenture
is enforceable;
provided, however, that clause (3) above does not
apply if, in the good faith determination of the Board of
Directors, whose determination shall be evidenced by a
resolution of the Board of Directors, the principal purpose of
such transaction is to change the state of incorporation of the
Company and any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
No Subsidiary Guarantor will consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of
all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any
Person to merge with or into it unless:
(1) it shall be the continuing Person, or the Person (if
other than it) formed by such consolidation or into which it is
merged or that acquired or leased such property and assets shall
expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of such Subsidiary
Guarantors obligations under its Note Guarantee;
(2) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be
continuing; and
(3) the Company will have delivered to the Trustee an
officers certificate and an opinion of counsel, each
stating that such transaction and such supplemental indenture
comply with the applicable provisions of the Indenture, that all
conditions precedent in the Indenture relating to such
transaction have been satisfied and that such supplemental
indenture is enforceable.
The foregoing requirements of this paragraph shall not apply to
a consolidation or merger of any Subsidiary Guarantor with and
into the Company or any other Subsidiary Guarantor, so long as
the Company or such Subsidiary Guarantor survives such
consolidation or merger.
Defeasance
Defeasance and
discharge
The Indenture provides that the Company will be deemed to have
paid and will be discharged from any and all obligations in
respect of the Notes on the day of the deposit referred to
below,
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and the provisions of the Indenture will no longer be in effect
with respect to the Notes (except for, among other matters,
certain obligations to register the transfer or exchange of the
Notes, to replace stolen, lost or mutilated Notes, to maintain
paying agencies and to hold monies for payment in trust) if,
among other things:
(A) the Company has deposited with the Trustee, in trust,
money and/or
U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes;
(B) the Company has delivered to the Trustee
(1) either (x) an opinion of counsel to the effect
that Holders will not recognize income, gain or loss for federal
income tax purposes as a result of the Companys exercise
of its option under this Defeasance provision and
will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred,
which opinion of counsel must be based upon (and accompanied by
a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal
income tax law after the Closing Date such that a ruling is no
longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as
the aforementioned opinion of counsel and (2) an
officers certificate to the effect that the deposit was
not made with the intent of preferring holders of the Notes over
any other creditors with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others;
(C) immediately after giving effect to such deposit on a
pro forma basis, no Event of Default, or event that after the
giving of notice or lapse of time or both would become an Event
of Default, shall have occurred and be continuing on the date of
such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement
or instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is
bound; and
(D) if at such time the Notes are listed on a national
securities exchange, the Company has delivered to the Trustee an
opinion of counsel to the effect that the Notes will not be
delisted as a result of such deposit, defeasance and discharge.
Defeasance of
certain covenants and certain events of default.
The Indenture further provides that the provisions of the
Indenture will no longer be in effect with respect to
clause (3) of the first paragraph under
Consolidation, merger and sale of assets and
all the covenants described herein under
Covenants, and clause (c) under
Events of default with respect to such
clause (3) of the first paragraph under
Consolidation, merger and sale of assets,
clauses (4) and (5) under Events of
default with respect to such other covenants and
clauses (6) and (7) under Events of
default shall be deemed not to be Events of Default upon,
among other things, the deposit with the Trustee, in trust, of
money and/or
U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(2), (C) and
(D) of the preceding paragraph and the
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delivery by the Company to the Trustee of an opinion of counsel
to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance of certain covenants
and Events of Default and will be subject to federal income tax
on the same amount and in the same manner and at the same times
as would have been the case if such deposit and defeasance had
not occurred.
In the event that the Company exercises its option to omit
compliance with certain covenants and provisions of the
Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due
and payable because of the occurrence of an Event of Default
that remains applicable, the amount of money
and/or
U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time
of their Stated Maturity but may not be sufficient to pay
amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will
remain liable for such payments and the Companys
obligations or any Subsidiary Guarantors Note Guarantee
with respect to such payments will remain in effect.
Satisfaction and
discharge
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of
transfer or exchange of the Notes, as expressly provided for in
the Indenture) as to all Notes when:
(1) either:
(A) all of the Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust by the Company and
thereafter repaid to the Company) have been delivered to the
Trustee for cancellation or
(B) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable pursuant to an optional
redemption notice or otherwise or will become due and payable
within one year, and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the trustee for cancellation,
for principal of, premium, if any, and interest on the Notes to
the date of deposit together with irrevocable instructions from
the Company directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case may
be; and
(2) the Company has paid all other sums payable under the
Indenture by the Company.
The Trustee will acknowledge the satisfaction and discharge of
the Indenture if the Company has delivered to the Trustee an
officers certificate and an opinion of counsel stating
that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been
complied with.
Modification and
waiver
The Indenture may be amended, without the consent of any Holder,
to:
(1) cure any ambiguity, defect or inconsistency in the
Indenture;
(2) provide for uncertificated Notes in addition to or in
place of certificated Notes;
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(3) conform the text of the indenture to any provisions of
this description of Notes to the extent that a portion of this
description of Notes was intended to be a verbatim recitation of
the Indenture or the Notes;
(4) provide for the issuance of additional Notes under the
Indenture to the extent otherwise so permitted under the terms
of the Indenture;
(5) comply with the provisions described under
CovenantsConsolidation, merger and sale of
assets or CovenantsLimitation on
issuance of guarantees by restricted subsidiaries;
(6) comply with any requirements of the SEC in connection
with the qualification of the Indenture under the
Trust Indenture Act;
(7) evidence and provide for the acceptance of appointment
by a successor Trustee;
(8) to add a Subsidiary Guarantor; or
(9) make any change that, in the good faith opinion of the
Board of Directors, does not materially and adversely affect the
rights of any Holder.
Modifications and amendments of the Indenture may be made by the
Company, the Subsidiary Guarantors and the Trustee with the
consent of the Holders of not less than a majority in aggregate
principal amount of the Notes; provided, however, that no
such modification or amendment may, without the consent of each
Holder affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(2) reduce the principal amount of, or premium, if any, or
interest on, any Note;
(3) change the optional redemption dates or optional
redemption prices of the Notes from that stated under the
caption Optional redemption;
(4) change the place or currency of payment of principal
of, or premium, if any, or interest on, any Note;
(5) impair the right to institute suit for the enforcement
of any payment on or after the Stated Maturity (or, in the case
of a redemption, on or after the Redemption Date) of any
Note;
(6) waive a default in the payment of principal of,
premium, if any, or interest on the Notes (other than a
rescission of acceleration of the Notes to the extent that such
acceleration was initially instituted pursuant to a vote of the
Holders);
(7) release any Subsidiary Guarantor from its Note
Guarantee, except as provided in the Indenture;
(8) amend or modify any of the provisions of the Indenture
in any manner which subordinates the Notes issued thereunder in
right of payment to any other Indebtedness of the Company or
which subordinates any Note Guarantee in right of payment to any
other Indebtedness of the Subsidiary Guarantor issuing any such
Note Guarantee; or
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(9) reduce the percentage or aggregate principal amount of
Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for
waiver of certain defaults.
Governing
law
The Indenture and the Notes will be governed by and construed in
accordance with the laws of the State of New York.
No personal
liability of incorporators, stockholders, officers, directors,
or employees
No recourse for the payment of the principal of, premium, if
any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company or
any Subsidiary Guarantor in the Indenture, or in any of the
Notes or Note Guarantees or because of the creation of any
Indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer, director, employee or
controlling person of the Company or any Subsidiary Guarantor or
of any successor Person thereof. Each Holder, by accepting the
Notes, waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the
Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws.
Concerning the
trustee
Except during the continuance of a Default, the Trustee will not
be liable, except for the performance of such duties as are
specifically set forth in the Indenture. If an Event of Default
has occurred and is continuing, the Trustee will use the same
degree of care and skill in its exercise of the rights and
powers vested in it under the Indenture as a prudent person
would exercise under the circumstances in the conduct of such
persons own affairs.
The Indenture and provisions of the Trust Indenture Act of
1939, as amended, incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a
creditor of the Company or any Subsidiary Guarantor, to obtain
payment of claims in certain cases or to realize on certain
property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such
conflict or resign.
Definitions
Set forth below are defined terms used in the covenants and
other provisions of the Indenture. Reference is made to the
Indenture for other capitalized terms used in this
Description of the Notes for which no definition is
provided.
Acquired Indebtedness means Indebtedness of a
Person existing at the time such Person becomes a Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary assumed in
connection with an Asset Acquisition by such Restricted
Subsidiary; provided such Indebtedness was not Incurred
in connection with or in contemplation of such Person becoming a
Restricted Subsidiary or such Asset Acquisition.
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Adjusted Consolidated Net Income means, for
any period, the aggregate net income (or loss) of the Company
and its Restricted Subsidiaries for such period determined in
conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income
(without duplication):
(1) the net income (or loss) of any Person that is not a
Restricted Subsidiary except to the extent that dividends or
similar distributions have been paid by such Person to the
Company or a Restricted Subsidiary;
(2) solely for purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C)
of the first paragraph of the Limitation on restricted
payments covenant, the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or
is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company
or any of its Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income
is at the time prohibited by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such
Restricted Subsidiary;
(4) any gains or losses (on an after-tax basis)
attributable to asset dispositions;
(5) all extraordinary gains or extraordinary losses;
(6) the cumulative effect of a change in accounting
principles;
(7) any non-cash compensation expenses recorded from grants
of stock options, restricted stock, stock appreciation rights
and other equity equivalents to officers, directors and
employees;
(8) any impairment charge or asset write off;
(9) net cash charges associated with or related to any
restructurings since October 1, 2006 in an aggregate amount
not to exceed $120.0 million;
(10) all other non-cash charges, including unrealized gains
or losses on agreements with respect to Hedging Obligations and
all non-cash charges associated with announced restructurings,
whether announced previously or in the future (such non-cash
restructuring charges being Non-Cash Restructuring
Charges); and
(11) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during
such period whether or not such operations were classified as
discontinued).
Affiliate means, as applied to any Person,
any other Person directly or indirectly controlling, controlled
by, or under direct or indirect common control with, such
Person. For purposes of this definition, control
(including, with correlative meanings, the terms
controlling, controlled by and
under common control with), as applied to any
Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
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Applicable Premium means, with respect to any
Note on any applicable redemption date, the greater of:
(1) 1.0% of the principal amount of such Note; or
(2) the excess, if any, of:
(a) the present value at such redemption date of
(i) the redemption price of such Note at December 15,
2013 (such redemption price being set forth in the table
appearing above under the caption Optional
redemption) plus (ii) all required interest payments
(excluding accrued and unpaid interest to such redemption date)
due on such Note through December 15, 2013 computed using a
discount rate equal to the Treasury Rate as of such redemption
date plus 50 basis points; over
(b) the principal amount of such Note.
Asset Acquisition means (1) an
investment by the Company or any of its Restricted Subsidiaries
in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries or
(2) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than
the Company or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business
of such Person.
Asset Disposition means the sale or other
disposition by the Company or any of its Restricted Subsidiaries
of (1) all or substantially all of the Capital Stock of any
Restricted Subsidiary or (2) all or substantially all of
the assets that constitute a division or line of business of the
Company or any of its Restricted Subsidiaries.
Asset Sale means any sale, transfer or other
disposition (including by way of merger or consolidation or Sale
Leaseback Transaction) in one transaction or a series of related
transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of:
(1) all or any of the Capital Stock of any Restricted
Subsidiary (other than sales of preferred stock that are
permitted under the Limitations on indebtedness
covenant);
(2) all or substantially all of the property and assets of
a division or line of business of the Company or any of its
Restricted Subsidiaries; or
(3) any other property and assets (other than the Capital
Stock or other Investment in an Unrestricted Subsidiary) of the
Company or any of its Restricted Subsidiaries outside the
ordinary course of business of the Company or such Restricted
Subsidiary, and in each case, that is not governed by the
provisions of the Indenture applicable to mergers,
consolidations and sales of assets of the Company;
provided that Asset Sale shall not include:
(a) sales, transfers or other dispositions of assets
constituting a Permitted Investment or Restricted Payment
permitted to be made under the Limitation on restricted
payments covenant;
(b) sales, transfers or other dispositions of assets with a
fair market value not in excess of $25.0 million in any
transaction or series of related transactions;
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(c) any sale, transfer, assignment or other disposition of
any property or equipment that has become damaged, worn out,
obsolete or otherwise unsuitable for use in connection with the
business of the Company or its Restricted Subsidiaries;
(d) the sale or discount of accounts receivable, but only
in connection with the compromise or collection thereof, or the
disposition of assets in connection with a foreclosure or
transfer in lieu of a foreclosure or other exercise of remedial
action;
(e) any exchange of like property similar to (but not
limited to) those allowable under Section 1031 of the
Internal Revenue Code;
(f) sales or grants of licenses to use the Companys
or any Restricted Subsidiarys patents, trade secrets,
know-how and technology to the extent that such license does not
prohibit the licensor from using the patent, trade secret,
know-how or technology
(g) transactions permitted under the Consolidation,
merger and sale of assets covenant;
(h) sales in connection with a Permitted Securitization or
a Permitted Factoring Program;
(i) dispositions of property to the extent that
(i) such property is exchanged for credit against the
purchase price of similar replacement property or (ii) the
proceeds of such disposition are promptly applied to the
purchase price of such replacement property;
(j) dispositions constituting leases, subleases, licenses
or sublicenses of property (including intellectual property) in
the ordinary course of business and which do not materially
interfere with the business of the Company and its Subsidiaries
(for the avoidance of doubt, other than any perpetual licenses
of any material intellectual property); or
(k) a grant of options to purchase, lease or acquire real
or personal property in the ordinary course of business, so long
as the disposition resulting from the exercise of such option
would not constitute an Asset Sale under clauses
(1), (2) or (3) of this definition, in each case, after giving
effect to clauses (a) through (j) above.
Average Life means, at any date of
determination with respect to any debt security, the quotient
obtained by dividing (1) the sum of the products of
(a) the number of years from such date of determination to
the dates of each successive scheduled principal payment of such
debt security and (b) the amount of such principal payment
by (2) the sum of all such principal payments.
Bankruptcy Law means Title 11,
U.S. Code or any similar federal or state law for the
relief of debtors.
Board of Directors means, with respect to any
Person, the Board of Directors of such Person, any duly
authorized committee of such Board of Directors, or any Person
to which the Board of Directors has properly delegated authority
with respect to any particular matter. Unless otherwise
indicated, the Board of Directors refers to the
Board of Directors of the Company.
Capital Stock means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting)
in equity of such Person, whether outstanding on the Closing
Date or issued thereafter, including, without limitation, all
common stock and preferred stock.
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Capitalized Lease means, as applied to any
Person, any lease of any property (whether real, personal or
mixed) of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP,
is required to be capitalized on the balance sheet of such
Person.
Capitalized Lease Obligations means all
monetary obligations of any Person and its Subsidiaries under
any leasing or similar arrangement which, in accordance with
GAAP, should be classified as Capitalized Leases and the Stated
Maturity thereof shall be the date that the last payment of rent
or any other amount due under such Capitalized Lease prior to
the first date upon which such lease may be terminated by the
lessee without payment of a premium or penalty is due thereunder.
Change of Control means such time as:
(1) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(2) a person or group (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate beneficial owner (as defined in
Rule 13d-3
under the Exchange Act) of more than 50% of the total voting
power of the Voting Stock of the Company on a fully diluted
basis;
(3) during any period of 24 consecutive months, individuals
who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose
election to such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company
then in office; or
(4) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any person (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act).
Closing Date means the date on which the
Notes were originally issued under the Indenture.
Commodity Agreement means any forward
contract, commodity swap agreement, commodity option agreement
or other similar agreement or arrangement.
Consolidated EBITDA means, for any period,
Adjusted Consolidated Net Income for such period plus, to the
extent such amount was deducted in calculating such Adjusted
Consolidated Net Income:
(1) Fixed Charges;
(2) amounts shown under the item Taxes on the
Companys income statement;
(3) depreciation expense;
(4) amortization expense;
(5) (a) non-cash compensation expense, or other
non-cash expenses or charges, arising from the sale of stock,
the granting of stock options, the granting of stock
appreciation rights and similar arrangements (including any
repricing, amendment, modification, substitution or
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change of any such stock, stock option, stock appreciation
rights or similar arrangements), (b) any fees and expenses
incurred by the Company and its Restricted Subsidiaries in
connection with the Transactions, including without limitation,
any cash expenses incurred in connection with the termination or
modification of any Hedging Obligations in connection with the
Transactions; (c) to the extent non-recurring and not
capitalized, any financial advisory fees, accounting fees, legal
fees and similar advisory and consulting fees and related costs
and expenses of the Company and its Restricted Subsidiaries
incurred as a result of Asset Acquisitions, Investments, Asset
Sales permitted under the Indenture and the issuance of Capital
Stock or Indebtedness permitted hereunder, all determined in
accordance with GAAP and in each case eliminating any increase
or decrease in income resulting from non-cash accounting
adjustments made in connection with the related Asset
Acquisition, Investment or Asset Sale, (d) to the extent
the related loss is not added back pursuant to the definition of
Adjusted Consolidated Net Income, all proceeds of business
interruption insurance policies, (e) expenses incurred by
the Company or any Restricted Subsidiary to the extent
reimbursed in cash by a third party, and (f) extraordinary,
unusual or non-recurring cash charges not to exceed
$10.0 million in any Fiscal Year; minus
(6) to the extent included in determining such Adjusted
Consolidated Net Income, the sum of (a) reversals (in whole
or in part) of any restructuring charges previously treated as
Non-Cash Restructuring Charges in any prior period, (b) all
non-cash items increasing Adjusted Consolidated Net Income,
other than (A) the accrual of revenue consistent with past
practice and (B) the reversal in such period of an accrual
of, or cash reserve for, cash expenses in a prior period, to the
extent such accrual or reserve did not increase EBITDA in a
prior period;
all as determined on a consolidated basis for the Company and
its Restricted Subsidiaries in conformity with GAAP; provided
that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of the Adjusted Consolidated
Net Income attributable to such Restricted Subsidiary multiplied
by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such
period by the Company or any of its Restricted Subsidiaries.
Consolidated Interest Expense means, for any
period, the aggregate amount of interest in respect of
Indebtedness (including, without limitation, amortization of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers acceptance
financing; the net costs associated with Interest Rate
Agreements; and Indebtedness that is Guaranteed or secured by
the Company or any of its Restricted Subsidiaries); and all but
the principal component of rentals in respect of Capitalized
Lease Obligations paid, in each case, accrued or scheduled to be
paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however,
(1) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income
pursuant to clause (3) of the definition thereof (but only
in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (3) of the
definition thereof), (2) any interest expense attributable
to a Permitted Factoring Program, and (3) any premiums,
fees and expenses (and any amortization thereof) payable in
connection with the offering of the Notes, all as determined on
a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
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Contingent Liability means any agreement,
undertaking or arrangement by which any Person guarantees,
endorses or otherwise becomes or is contingently liable upon (by
direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against
loss) the Indebtedness of any other Person (other than by
endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon
the capital securities of any other Person. The amount of any
Persons obligation under any Contingent Liability shall
(subject to any limitation with respect thereto) be deemed to be
the outstanding principal amount of the debt, obligation or
other liability guaranteed thereby.
Credit Agreement means that certain Credit
Agreement, to be dated on or about December 10, 2009, among
the Company as borrower, the guarantors party thereto, the
several banks and other financial institutions or entities from
time to time party thereto as lenders, JPMorgan Chase Bank, N.A,
as administrative agent and collateral agent, Barclays Bank PLC
and Goldman Sachs Credit Partners L.P., as co-documentation
agents, Bank of America, N.A. and HSBC Securities (USA) Inc. as
co-syndication agents, and J.P. Morgan Securities Inc.,
Banc of America Securities LLC, HSBC Securities (USA) Inc. and
Barclays Capital, as joint lead arrangers and joint bookrunners.
Credit Facilities means, with respect to the
Company and its Restricted Subsidiaries, one or more debt
facilities (including the Credit Agreement), commercial paper
facilities, or indentures providing for revolving credit loans,
term, loans, notes or other financings or letters of credit, or
other credit facilities, in each case, as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
Currency Agreement means any foreign exchange
contract, currency swap agreement or other similar agreement or
arrangement.
Default means any event that is, or after
notice or passage of time or both would be, an Event of Default.
Determination Date, with respect to an
Interest Period, will be the second London Banking Day preceding
the first day of the Interest Period.
Disqualified Stock means any class or series
of Capital Stock of any Person that by its terms or otherwise is
(1) required to be redeemed prior to the date that is
91 days after the Stated Maturity of the Notes,
(2) redeemable at the option of the holder of such class or
series of Capital Stock at any time prior to the date that is
91 days after the Stated Maturity of the Notes or
(3) convertible into or exchangeable for Capital Stock
referred to in clause (1) or (2) above or Indebtedness
having a scheduled maturity prior to the date that is
91 days after the Stated Maturity of the Notes; provided
that, only the portion of such Capital Stock which is so
required to be redeemed, redeemable or convertible or
exchangeable prior to such date will be deemed to be
Disqualified Stock; provided further that any Capital
Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require
such Person to repurchase or redeem such Capital Stock upon the
occurrence of an asset sale or change of
control occurring prior to the date that is 91 days
after the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the asset sale or change
of control provisions applicable to such Capital Stock are
no more favorable to the holders of such Capital Stock than the
provisions contained in Limitation on asset sales
and Repurchase of notes upon a change of control
covenants and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to
such provision prior to the Companys
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repurchase of such Notes as are required to be repurchased
pursuant to the Limitation on asset sales and
Repurchase of notes upon a change of control
covenants; provided further that, any class or series of
Capital Stock of such Person that by its terms or otherwise,
authorizes such Person to satisfy in full its obligations with
respect to the payment of dividends or upon maturity, redemption
(pursuant to a sinking fund or otherwise) or repurchase thereof
or otherwise by the delivery of any Capital Stock that is not
Disqualified Stock, will not be deemed to be Disqualified Stock
so long as such Person satisfies its obligations with respect
thereto solely by delivery of such Capital Stock.
Existing Notes means the Floating Rate Senior
Notes due 2014.
Existing Notes Indenture means the indenture
dated as of December 14, 2006, with respect to the Existing
Notes.
fair market value means the price that would
be paid in an arms-length transaction between an informed
and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy, as determined in
good faith by (i) for a transaction or series of related
transactions in excess of $50.0 million, the Board of
Directors, whose determination shall be conclusive if evidenced
by a resolution of the Board of Directors or (ii) for a
transaction or series of related transactions involving
$50.0 million or less, by the chief financial officer,
whose determination shall be conclusive if evidenced by a
certificate to such effect.
Fiscal Year means any period of fifty-two or
fifty-three consecutive calendar weeks ending on the Saturday
nearest to the last day of December; references to a Fiscal Year
with a number corresponding to any calendar year (e.g., the
2009 Fiscal Year) refer to the Fiscal Year ending on
the Saturday nearest to the last day of December of such
calendar year; provided that in the event that the
Company gives notice to the Trustee that it intends to change
its Fiscal Year, Fiscal Year will mean any period of fifty-two
or fifty-three consecutive calendar weeks or twelve consecutive
calendar months ending on the date set forth in such notice.
Fixed Charge Coverage Ratio means, for any
Person on any Transaction Date, the ratio of (1) the
aggregate amount of Consolidated EBITDA for the then most recent
four fiscal quarters prior to such Transaction Date for which
reports have been filed with the SEC or provided to the Trustee
(the Four Quarter Period) to (2) the aggregate
Fixed Charges during such Four Quarter Period. In making the
foregoing calculation:
(A) pro forma effect shall be given to any
Indebtedness Incurred or repaid during the period (the
Reference Period) commencing on the first day of the
Four Quarter Period and ending on the Transaction Date, in each
case, as if such Indebtedness had been Incurred or repaid on the
first day of such Reference Period;
(B) Consolidated Interest Expense attributable to interest
on any Indebtedness (whether existing or being Incurred)
computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the
Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term in excess of 12 months or,
if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire period;
(C) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro
forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they
had occurred and such proceeds had been applied on the first day
of such Reference Period; and
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(D) pro forma effect shall be given to asset
dispositions and asset acquisitions (including giving pro
forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the
Company or any Restricted Subsidiary during such Reference
Period and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions
or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference
Period; provided that to the extent that clause (C)
or (D) of this paragraph requires that pro forma
effect be given to an Asset Acquisition or Asset
Disposition, such pro forma calculation shall be based
upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business
of the Person, that is acquired or disposed for which financial
information is available; and provided further, that such
pro forma calculation will take into account all
adjustments required by Article 11 of
Regulation S-X
to be reflected, any adjustments permitted by Article 11 of
Regulation S-X
that the Company, in its reasonable judgment, elects to make and
any Pro Forma Cost Savings arising from such transaction.
Fixed Charges means, with respect to any
Person for any period, the sum, without duplication, of:
(1) Consolidated Interest Expense, plus
(2) the product of (x) the amount of all dividend
payments on any series of preferred stock of such Person or any
of its Restricted Subsidiaries (other than dividends payable
solely in Capital Stock of such Person or such Restricted
Subsidiary (other than Disqualified Stock) or to such Person or
a Restricted Subsidiary of such Person) paid, accrued or
scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of such
Person, expressed as a decimal, as determined on a consolidated
basis in accordance with GAAP.
Foreign Subsidiary means any Restricted
Subsidiary of the Company that is an entity which is a
controlled foreign corporation under Section 957 of the
Internal Revenue Code.
GAAP means generally accepted accounting
principles in the United States of America as in effect as of
the Closing Date as determined by the Public Company Accounting
Oversight Board. All ratios and computations contained or
referred to in the Indenture shall be computed in conformity
with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (1) the
amortization of any expenses incurred in connection with the
offering of the Notes and (2) except as otherwise provided,
the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
Governmental Authority means the government
of the United States, any other nation or any political
subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or
pertaining to government.
Guarantee means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the
generality of the
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foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (1) to purchase or pay (or
advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such
purchase arrangements are on arms-length terms and are
entered into in the normal course of business), to
take-or-pay,
or to maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other
manner the obligee of such Indebtedness of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term
Guarantee shall not include endorsements for
collection or deposit in the normal course of business. The term
Guarantee used as a verb has a corresponding meaning.
Hedging Obligations means, with respect to
any Person, all liabilities of such Person under foreign
exchange contracts, commodity hedging agreements, currency
exchange agreements, interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and all
other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, currency exchange rates
or commodity prices.
Holder means a holder of any Notes.
Immaterial Subsidiary shall mean, at any
time, any Restricted Subsidiary of the Company that is
designated by the Company as an Immaterial
Subsidiary if and for so long as such Restricted
Subsidiary, together with all other Immaterial Subsidiaries, has
(i) total assets at such time not exceeding 5% of the
Companys consolidated assets as of the most recent fiscal
quarter for which balance sheet information is available and
(ii) total revenues and operating profit for the most
recent
12-month
period for which income statement information is available not
exceeding 5% of the Companys consolidated revenues and
operating profit, respectively; provided, that a
Restricted Subsidiary will not be considered to be an Immaterial
Subsidiary if it guarantees or otherwise provides material
credit support for any Indebtedness of the Company.
Incur means, with respect to any
Indebtedness, to incur, create, issue, assume, Guarantee or
otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that (1) any Indebtedness of a
Person existing at the time such Person becomes a Restricted
Subsidiary will be deemed to be incurred by such Restricted
Subsidiary at the time it becomes a Restricted Subsidiary and
(2) neither the accrual of interest nor the accretion of
original issue discount nor the payment of interest in the form
of additional Indebtedness (to the extent provided for when the
Indebtedness on which such interest is paid was originally
issued) shall be considered an Incurrence of Indebtedness.
Indebtedness means, with respect to any
Person at any date of determination (without duplication):
(1) the principal component of all indebtedness of such
Person for borrowed money;
(2) the principal component of all obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) the principal component of all obligations of such
Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations
(other than obligations described in (1) or (2) above
or (5), (6) or (7) below) entered into in the normal
course of business of such Person to the extent such letters of
credit are not drawn upon or, if drawn upon, to the extent such
drawing is
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reimbursed no later than the third business day following
receipt by such Person of a demand for reimbursement);
(4) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase
price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables;
(5) all Capitalized Lease Obligations;
(6) the principal component of all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether
or not such Indebtedness is assumed by such Person; provided
that the amount of such Indebtedness shall be the lesser of
(A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness;
(7) the principal component of all Indebtedness of other
Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person;
(8) to the extent not otherwise included in this
definition, obligations under Commodity Agreements, Currency
Agreements and Interest Rate Agreements (other than Commodity
Agreements, Currency Agreements and Interest Rate Agreements
designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in commodity prices, foreign
currency exchange rates or interest rates and that do not
increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in commodity prices,
foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable
thereunder); and
(9) all Disqualified Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Stock
being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price,
but excluding accrued dividends, if any.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided that:
(A) the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as
determined in conformity with GAAP;
(B) money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment
of the interest on such Indebtedness shall not be deemed to be
Indebtedness so long as such money is held to secure
the payment of such interest; and
(C) Indebtedness shall not include:
(i) any liability for federal, state, local or other taxes;
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(ii) obligations in respect of performance, bid and surety
bonds and completion guarantees in respect of activities being
performed by, on behalf of or for the benefit of the Company or
its Restricted Subsidiaries;
(iii) agreements providing for indemnification, adjustment
of purchase price earn-out, incentive, non-compete, consulting,
deferred compensation or similar obligations, or Guarantees or
letters of credit, surety bonds or performance bonds securing
any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case, Incurred
in connection with the acquisition or disposition of any
business, assets or Restricted Subsidiary (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for
the purpose of financing such acquisition);
(iv) any liability for trade payables incurred in the
ordinary course of business; or
(v) any obligations (including letters of credit) incurred
in the ordinary course of business in connection with
workers compensation claims, payment obligations in
connection with self-insurance or similar requirements of the
Company or any Restricted Subsidiary.
Interest Period means the period commencing
on and including an interest payment date and ending on and
including the day immediately preceding the next succeeding
interest payment date, with the exception that the first
Interest Period shall commence on and include the date of the
Indenture and end on and include June 14, 2010.
Interest Rate Agreement means any interest
rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement
(whether fixed to floating or floating to fixed), interest rate
cap agreement, interest rate collar agreement, interest rate
hedge agreement, option or future contract or other similar
agreement or arrangement.
Investment in any Person means any direct or
indirect advance, loan or other extension of credit (including,
without limitation, by way of Guarantee or similar arrangement,
but excluding advances to customers or suppliers in the ordinary
course of business that are, in conformity with GAAP, recorded
as accounts receivable, prepaid expenses or deposits on the
balance sheet of the Company or its Restricted Subsidiaries and
endorsements for collection or deposit arising in the ordinary
course of business) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person
and shall include (1) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary and (2) the
retention of the Capital Stock (or any other Investment) by the
Company or any of its Restricted Subsidiaries of (or in) any
Person that has ceased to be a Restricted Subsidiary, including
without limitation, by reason of any transaction permitted by
clause (3) or (4) of the Limitation on the
issuance and sale of capital stock of restricted
subsidiaries covenant. For purposes of the definition of
Unrestricted Subsidiary and the Limitation on
restricted payments covenant, (a) the amount of or a
reduction in an Investment shall be equal to the fair market
value thereof at the time such Investment is made or reduced and
(b) in the event the Company or a Restricted Subsidiary
makes an Investment by transferring assets to any Person and as
part of such transaction receives Net Cash Proceeds, the amount
of such Investment shall be the fair market value of the assets
less the amount of Net
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Cash Proceeds so received, provided the Net Cash Proceeds are
applied in accordance with the Limitation on asset
sales covenant.
Leverage Ratio means, as of any date, the
ratio of
(a) Total Debt outstanding on the last day of the most
recently ended fiscal quarter for which reports have been filed
with the SEC or provided to the Trustee; to
(b) Consolidated EBITDA computed for the then most recent
four fiscal quarters prior to such date for which reports have
been filed with the SEC or provided to the Trustee.
Lien means any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including,
without limitation, any conditional sale or other title
retention agreement or lease in the nature thereof or any
agreement to give any security interest).
Material Adverse Effect means a material
adverse effect on (i) the business, financial condition,
operations, performance, or assets of the Company or the Company
and its Restricted Subsidiaries (other than a Receivables
Subsidiary) taken as a whole, (ii) the rights and remedies
of any Holder under the Indenture or (iii) the ability of
the Company or its Restricted Subsidiaries to perform its
obligations under the Indenture.
Moodys means Moodys Investors
Service, Inc. and its successors and assigns.
Net Cash Proceeds means:
(a) with respect to any Asset Sale, the proceeds of such
Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash
equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of
(1) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers)
related to such Asset Sale;
(2) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of
the Company and its Restricted Subsidiaries, taken as a whole;
(3) payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that
either (x) is secured by a Lien on the property or assets
sold or (y) is required to be paid as a result of such sale;
(4) appropriate amounts to be provided by the Company or
any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP; and
(5) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Sale; and
(b) with respect to any issuance or sale of Capital Stock,
the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the
principal, but not interest,
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component thereof) when received in the form of cash or cash
equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of
attorneys fees, accountants fees, underwriters
or placement agents fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a
result thereof.
Note Guarantee means any Guarantee of the
obligations of the Company under the Indenture and the Notes by
any Subsidiary Guarantor.
Offer to Purchase means an offer to purchase
Notes by the Company from the Holders commenced by mailing a
notice to the Trustee and each Holder stating:
(1) the provision of the Indenture pursuant to which the
offer is being made and that all Notes validly tendered will be
accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase, which
shall be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed (the
Payment Date);
(3) that any Note not tendered will continue to accrue
interest pursuant to its terms;
(4) that, unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after
the Payment Date;
(5) that Holders electing to have a Note purchased pursuant
to the Offer to Purchase will be required to surrender the Note,
together with the form entitled Option of the Holder to
Elect Purchase on the reverse side of the Note completed,
to the Paying Agent at the address specified in the notice prior
to the close of business on the business day immediately
preceding the Payment Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close
of business on the third business day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of
Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and
(7) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be
in a principal amount of $2,000 or integral multiples of $1,000
in excess thereof.
On the Payment Date, the Company shall (a) accept for
payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (b) deposit with the
Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and (c) deliver, or
cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an officers certificate
specifying the Notes or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail to the Holders
of Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail to
such Holders a new Note equal in principal amount to any
unpurchased portion of the Note surrendered; provided
that each Note purchased and each new Note issued shall be
in a principal amount of $2,000 or integral multiples of $1,000
in excess thereof. The Company will publicly announce the
results of an Offer to Purchase as soon
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as practicable after the Payment Date. The Trustee shall act as
the Paying Agent for an Offer to Purchase. The Company will
comply with
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder, to the extent such laws and regulations
are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase. To the extent
that the provisions of any securities laws or regulations
conflict with the provisions of the Indenture relating to an
Offer to Purchase, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have
breached its obligations under such provisions of the Indenture
by virtue of such conflict.
Permitted Additional Restricted Payment
means, for any Fiscal Year set forth below, Restricted
Payments made by the Company in the amount set forth opposite
such Fiscal Year:
|
|
|
|
Fiscal year
|
|
Cash amount
|
|
|
2009
|
|
$57.3 million
|
2010 and thereafter
|
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$48.0 million
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|
|
provided, to the extent that the amount of Permitted
Additional Restricted Payments made by the Company during any
Fiscal Year is less than the aggregate amount permitted
(including after giving effect to this proviso) for such Fiscal
Year, then such unutilized amount may be carried forward and
utilized by the Company to make Permitted Additional Restricted
Payments in any succeeding Fiscal Year or Years and provided
further that, for each Fiscal Year, the amounts set forth
above in such Fiscal Years shall be increased by an additional
$120.0 million so long as both before and after giving
effect to such Restricted Payment, the Leverage Ratio is less
than 3.75:1.00.
Permitted Business means the business of the
Company and its Subsidiaries engaged in on the Closing Date and
any other activities that are reasonably related, supportive,
complementary, ancillary or incidental thereto or reasonable
extensions thereof.
Permitted Factoring Program means any and all
agreements or facilities entered into by the Company or any of
its Subsidiaries for the purpose of factoring its receivables or
payables for cash consideration.
Permitted Investment means:
(1) an Investment in the Company or any Restricted
Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary (including, if as a
result of such Investment, such Person is merged or consolidated
with or into or transfers or conveys all or substantially all
its assets to the Company or any Restricted Subsidiary);
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP;
(4) stock, obligations or securities received in
satisfaction of judgments;
(5) an Investment in an Unrestricted Subsidiary consisting
solely of an Investment in another Unrestricted Subsidiary;
(6) Commodity Agreements, Interest Rate Agreements and
Currency Agreements intended to protect the Company or its
Restricted Subsidiaries against fluctuations in commodity
prices, interest rates or foreign currency exchange rates or
manage interest rate risk;
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(7) loans and advances to employees and officers of the
Company and its Restricted Subsidiaries made in the ordinary
course of business for bona fide business purposes not to exceed
$12.0 million in the aggregate at any one time outstanding;
(8) Investments in securities of trade creditors or
customers received
(a) pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade
creditors or customers, or
(b) in settlement of delinquent obligations of, and other
disputes with, customers, suppliers and others, in each case
arising in the ordinary course of business or otherwise in
satisfaction of a judgment;
(9) Investments made by the Company or its Restricted
Subsidiaries consisting of consideration received in connection
with an Asset Sale made in compliance with the Limitation
on asset sales covenant;
(10) Investments of a Person or any of its Subsidiaries
existing at the time such Person becomes a Restricted Subsidiary
of the Company or at the time such Person merges or consolidates
with the Company or any of its Restricted Subsidiaries, in
either case, in compliance with the Indenture; provided that
such Investments were not made by such Person in connection
with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such merger
or consolidation;
(11) Investments in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person under
a Permitted Securitization or a Permitted Factoring Program;
provided that any Investment in a Receivables Subsidiary is in
the form of a Purchase Money Note, contribution of additional
receivables and related assets or any equity interests;
(12) Investments to the extent made in exchange for the
Issuance of Capital Stock (other than Disqualified Stock) of the
Company;
(13) any Investment made within 90 days after the date
of the commitment to make the Investment, that when such
commitment was made, would have complied with the terms of the
Indenture;
(14) repurchases of the Notes or any other outstanding
senior indebtedness;
(15) other Investments made since the date of the Indenture
that do not exceed, at any one time outstanding,
$100.0 million;
(16) Investments in any Person engaged primarily in one or
more Permitted Businesses and supporting ongoing business
operations of the Company or its Restricted Subsidiaries
(including, without limitation, Unrestricted Subsidiaries, and
Persons that are not Subsidiaries of the Company) that do not
exceed, at any one time outstanding,
$100.0 million; and
(17) any Investments existing on the Closing Date and any
amendment, modification , restatement, extension, renewal,
refunding, replacement or refinancing, in whole or in part,
thereof; provided that the principal amount of any
Investment following any such amendment, modification,
restatement, extension, renewal, refunding, replacement or
refinancing pursuant to this clause (17) shall not exceed
the principal amount of such Investment on the Closing Date.
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Permitted Liens means:
(1) Liens in connection with a Permitted Securitization or
a Permitted Factoring Program;
(2) Liens existing as of the Closing Date and securing
indebtedness existing as of the Closing Date and any
refinancings, refundings, reallocations, renewals or extensions
of such Indebtedness; provided that, no such Lien shall encumber
any additional property (except for accessions to such property
and the products and proceeds thereof) and the amount of
Indebtedness secured by such Lien is not increased from that
existing on the Closing Date;
(3) Liens securing Indebtedness of the type permitted by
clause (7) of the covenant entitled Limitation on
indebtedness that, (i) such Lien is granted within
365 days after such Indebtedness is incurred, (ii) the
Indebtedness secured thereby does not exceed the lesser of the
cost or the fair market value of the applicable property,
improvements or equipment at the time of such acquisition (or
construction) and (iii) such Lien secures only the assets
that are the subject of the Indebtedness referred to in such
clause;
(4) Liens securing Indebtedness permitted by under
clause (9) of the covenant entitled Limitation on
indebtedness; provided that, such Liens existed prior to
such Person becoming a Restricted Subsidiary, were not created
in anticipation thereof and attach only to specific tangible
assets of such Person;
(5) Liens in favor of carriers, warehousemen, mechanics,
repairmen, materialmen, customs and revenue authorities and
landlords and other similar statutory Liens and Liens in favor
of suppliers (including sellers of goods pursuant to customary
reservations or retention of title, in each case) granted in the
ordinary course of business for amounts not overdue for a period
of more than 60 days or are being diligently contested in
good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on
its books or with respect to which the failure to make payment
could not reasonably be expected to have a Material Adverse
Effect;
(6) Liens incurred or deposits made in the ordinary course
of business in connection with workers compensation,
unemployment insurance or other forms of governmental insurance
or benefits, or to secure performance of tenders, statutory
obligations, bids, leases, trade contracts or other similar
obligations (other than for borrowed money) entered into in the
ordinary course of business or to secure obligations on surety
and appeal bonds or performance bonds, performance and
completion guarantees and other obligations of a like nature
(including those to secure health, safety and environmental
obligations) incurred in the ordinary course of business and
(ii) obligations in respect of letters of credit or bank
guarantees that have been posted to support payment of the items
set forth in the immediately preceding clause (i);
(7) judgment Liens that are being appealed in good faith or
with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies and
which do not otherwise result in an Event of Default;
(8) easements,
rights-of-way,
covenants, conditions, building codes, restrictions,
reservations, minor defects or irregularities in title and other
similar encumbrances and matters that would be disavowed by a
full survey of real property not interfering in any material
respect with the value or use of the affected or encumbered real
property to which such Lien is attached;
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(9) Liens securing Indebtedness permitted by
clause (8) of the covenant entitled Limitation on
indebtedness;
(10) Liens arising solely by virtue of any statutory or
common law provision relating to bankers liens, rights of
set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution
and Liens attaching to commodity trading accounts or other
commodities brokerage accounts incurred in the ordinary course
of business;
(11) (i) licenses, sublicenses, leases or subleases
granted to third Persons in the ordinary course of business not
interfering in any material respect with the business of the
Company or any of its Restricted Subsidiaries, (ii) other
agreements with respect to the use and occupancy of real
property entered into in the ordinary course of business or in
connection with an Asset Sale permitted by the covenant entitled
Limitation on asset sales or (iii) the rights
reserved or vested in any Person by the terms of any lease,
license, franchise, grant or permit held by the Company or any
of its Restricted Subsidiaries or by a statutory provision, to
terminate any such lease, license, franchise, grant or permit,
or to require annual or periodic payments as a condition to the
continuance thereof;
(12) Liens on the property of the Company or any of its
Restricted Subsidiaries securing (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed
money), leases, licenses and statutory obligations,
(ii) Contingent Liabilities on surety and appeal bonds, and
(iii) other non-delinquent obligations of a like nature; in
each case, incurred in the ordinary course of business;
(13) Liens on Receivables transferred to a Receivables
Subsidiary under a Permitted Securitization or a Permitted
Factoring Program;
(14) Liens upon specific items or inventory or other goods
and proceeds of the Company or any of its Restricted
Subsidiaries securing such Persons obligations in respect
of bankers acceptances or documentary letters of credit
issued or created for the account of such Person to facilitate
the shipment or storage of such inventory or other goods;
(15) Liens (i) (A) on advances of cash or Cash
Equivalents in favor of the seller of any property to be
acquired as a Permitted Investment to be applied against the
purchase price for such Permitted Investment and
(B) consisting of an agreement involving an Asset Sale
permitted by the covenant entitled Limitation on asset
sales, in each case under this clause (i), solely to the
extent such Permitted Investment or Asset Sale, as the case may
be, would have been permitted on the date of the creation of
such Lien and (ii) on earnest money deposits of cash or
Cash Equivalents made by the Company or any of its Restricted
Subsidiaries in connection with any letter of intent or purchase
agreement permitted hereunder;
(16) Liens arising from precautionary Uniform Commercial
Code financing statement filings (or similar filings under other
applicable Law);
(17) Liens (i) arising out of conditional sale, title
retention, consignment or similar arrangements for sale of goods
(including under Article 2 of the UCC) and Liens that are
contractual rights of set-off relating to purchase orders and
other similar agreements entered into by
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the Company or any of its Restricted Subsidiaries and
(ii) relating to the establishment of depository relations
with banks not given in connection with the issuance of
Indebtedness and (iii) relating to pooled deposit or sweep
accounts of the Company or any Restricted Subsidiary to permit
satisfaction of overdraft or similar obligations in each case in
the ordinary course of business and not prohibited by this
Agreement;
(18) ground leases in respect of real property on which
facilities owned or leased by the Company or any of its
Restricted Subsidiaries are located or any Liens senior to any
lease,
sub-lease or
other agreement under which the Company or any of its Restricted
Subsidiaries uses or occupies any real property;
(19) Liens constituting security given to a public or
private utility or any Governmental Authority as required in the
ordinary course of business;
(20) pledges or deposits of cash and Cash Equivalents
securing deductibles, self-insurance, co-payment, co-insurance,
retentions and similar obligations to providers of insurance in
the ordinary course of business;
(21) Liens on (A) incurred premiums, dividends and
rebates which may become payable under insurance policies and
loss payments which reduce the incurred premiums on such
insurance policies and (B) rights which may arise under
State insurance guarantee funds relating to any such insurance
policy, in each case securing Indebtedness permitted to be
incurred pursuant to clause (12)(i) of the covenant entitled
Limitation on indebtedness;
(22) Liens for taxes not at the time delinquent or
thereafter payable without penalty or being diligently contested
in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on
its books or with respect to which the failure to make payment
could not reasonably be expected to have a Material Adverse
Effect; and
(23) Liens in respect of Hedging Obligations.
Permitted Securitization means any sale,
transfer or other disposition by the Company or any of its
Restricted Subsidiaries of Receivables and related collateral,
credit support and similar rights and any other assets that are
customarily transferred in a securitization of receivables,
pursuant to one or more securitization programs, to a
Receivables Subsidiary or a Person who is not an Affiliate of
the Company; provided that (i) the consideration to
be received by the Company and its Restricted Subsidiaries other
than a Receivables Subsidiary for any such disposition consists
of cash, a promissory note or a customary contingent right to
receive cash in the nature of a hold-back or similar
contingent right, (ii) no Default shall have occurred and
be continuing or would result therefrom, and (iii) the
aggregate outstanding balance of the Indebtedness in respect of
all such programs at any point in time is not in excess of
$500.0 million.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Pro Forma Cost Savings means with respect to
any acquisition or disposition transaction, cost savings
reasonably expected to be realized in connection with that
transaction, as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced
by a resolution of the Board of Directors, in consultation with
a nationally recognized accounting
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firm (regardless of whether those cost savings could then be
reflected in pro forma financial statements under GAAP,
Regulation S-X
promulgated by the SEC or any other regulation or policy of the
SEC).
Purchase Money Note means a promissory note
evidencing a line of credit, or evidencing other Indebtedness
owed to the Company or any Restricted Subsidiary in connection
with a Permitted Securitization or a Permitted Factoring
Program, which note shall be repaid from cash available to the
maker of such note, other than amounts required to be
established as reserves, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors
and amounts paid in connection with the purchase of newly
generated accounts receivable.
Receivable shall mean a right to receive
payment arising from a sale or lease of goods or the performance
of services by a Person pursuant to an arrangement with another
Person pursuant to which such other Person is obligated to pay
for goods or services under terms that permit the purchase of
such goods and services on credit and shall include, in any
event, any items of property that would be classified as an
account, chattel paper, payment
intangible or instrument under the UCC and any
supporting obligations.
Receivables Subsidiary shall mean any Wholly
Owned Restricted Subsidiary of the Company (or another Person in
which the Company or any Restricted Subsidiary makes an
Investment and to which the Company or one or more of its
Restricted Subsidiaries transfer Receivables and related assets)
which engages in no activities other than in connection with the
financing of Receivables and which is designated by the Board of
Directors of the applicable Restricted Subsidiary (as provided
below) as a Receivables Subsidiary and which meets the following
conditions:
(a) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which:
(i) is guaranteed by the Company or any Restricted
Subsidiary (that is not a Receivables Subsidiary);
(ii) is recourse to or obligates the Company or any
Restricted Subsidiary (that is not a Receivables
Subsidiary); or
(iii) subjects any property or assets of the Company or any
Restricted Subsidiary (that is not a Receivables Subsidiary),
directly or indirectly, contingently or otherwise, to the
satisfaction thereof;
(b) with which neither the Company nor any Restricted
Subsidiary (that is not a Receivables Subsidiary) has any
material contract, agreement, arrangement or understanding
(other than Standard Securitization Undertakings); and
(c) to which neither the Company nor any Restricted
Subsidiary (that is not a Receivables Subsidiary) has any
obligation to maintain or preserve such entitys financial
condition or cause such entity to achieve certain levels of
operating results.
Any such designation by the Board of Directors of the applicable
Restricted Subsidiary shall be evidenced by a certified copy of
the resolution of the Board of Directors of such Restricted
Subsidiary giving effect to such designation and an officers
certificate certifying, to the best of such officers
knowledge and belief, that such designation complies with the
foregoing conditions.
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Replacement Assets means, on any date,
property or assets (other than current assets) of a nature or
type or that are used in a Permitted Business (or an Investment
in a Permitted Business).
Restricted Subsidiary means any Subsidiary of
the Company other than an Unrestricted Subsidiary.
S&P means Standard &
Poors Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
Sale and Leaseback Transaction means a
transaction whereby a Person sells or otherwise transfers assets
or properties and then or thereafter leases such assets or
properties or any part thereof or any other assets or properties
which such Person intends to use for substantially the same
purpose or purposes as the assets or properties sold or
otherwise transferred.
SEC means the United States Securities and
Exchange Commission or any successor agency.
Significant Subsidiary means, any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such regulation
is in effect on the date of the Indenture.
Standard Securitization Undertakings shall
mean representations, warranties, covenants and indemnities
entered into by the Company or any Restricted Subsidiary which
are reasonably customary in a securitization of Receivables.
Stated Maturity means, (1) with respect
to any debt security, the date specified in such debt security
as the fixed date on which the final installment of principal of
such debt security is due and payable and (2) with respect
to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the
fixed date on which such installment is due and payable.
Subsidiary means, with respect to any Person,
any corporation, association or other business entity of which
more than 50% of the voting power of the outstanding Voting
Stock is owned, directly or indirectly, by such Person and one
or more other Subsidiaries of such Person.
Subsidiary Guarantor means any Subsidiary of
the Company that is a Guarantor of the Notes, including any
Restricted Subsidiary of the Company which provides a Note
Guarantee of the Companys obligations under the Indenture
and the Notes pursuant to the Limitation on Issuance of
Guarantees by Restricted Subsidiaries covenant.
Temporary Cash Investment means any of the
following:
(a) any direct obligation of (or unconditionally guaranteed
by) the United States or a State thereof (or any agency or
political subdivision thereof, to the extent such obligations
are supported by the full faith and credit of the United States
or a State thereof) maturing not more than one year after such
time;
(b) commercial paper maturing not more than 270 days
from the date of issue, which is issued by (i) a
corporation (other than an Affiliate of the Company or any
Subsidiary of the Company) organized under the laws of any State
of the United States or of the District of Columbia and rated
A-1 or
higher by S&P or
P-1 or
higher by Moodys;
(c) any certificate of deposit, time deposit or bankers
acceptance, maturing not more than one year after its date of
issuance, which is issued by any bank organized under the laws
of
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the United States (or any State thereof) and which has
(A) a credit rating of A2 or higher from Moodys or A
or higher from S&P and (B) a combined capital and
surplus greater than $500.0 million;
(d) any repurchase agreement having a term of 30 days
or less entered into with any commercial banking institution
satisfying the criteria set forth in clause (c) which
(i) is secured by a fully perfected security interest in
any obligation of the type described in clause (a), and
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the
repurchase obligation of such commercial banking institution
thereunder;
(e) with respect to any Foreign Subsidiary, non-Dollar
denominated (i) certificates of deposit of, bankers
acceptances of, or time deposits with, any commercial bank which
is organized and existing under the laws of the country in which
such Person maintains its chief executive office or principal
place of business or is organized provided such country
is a member of the Organization for Economic Cooperation and
Development, and which has a short-term commercial paper rating
from S&P of at least
A-1
or the equivalent thereof or from Moodys of at least
P-1
or the equivalent thereof (any such bank being an
Approved Foreign Bank) and maturing within
one year of the date of acquisition and (ii) equivalents of
demand deposit accounts which are maintained with an Approved
Foreign Bank; or
(f) readily marketable obligations issued or directly and
fully guaranteed or insured by the government or any agency or
instrumentality of any member nation of the European Union whose
legal tender is the Euro and which are denominated in Euros or
any other foreign currency comparable in credit quality and
tenor to those referred to above and customarily used by
corporations for cash management purposes in any jurisdiction
outside the United States to the extent reasonably required in
connection with any business conducted by any Foreign Subsidiary
organized in such jurisdiction, having (i) one of the three
highest ratings from either Moodys or S&P and
(ii) maturities of not more than one year from the date of
acquisition thereof; provided that the full faith and
credit of any such member nation of the European Union is
pledged in support thereof.
Total Assets means the total consolidated
assets of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as
shown on the most recent balance sheet of the Company filed with
the SEC or delivered to the Trustee.
Total Debt means, on any date, the
outstanding principal amount of all:
(1) obligations of such Person for borrowed money or
advances and all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments;
(2) monetary obligations, contingent or otherwise, relative
to the face amount of all letters of credit, whether or not
drawn, and bankers acceptances issued for the account of
such Person;
(3) all Capitalized Lease Obligations of such
Person; and
(4) the full outstanding balance of trade receivables,
notes or other instruments sold with full recourse (and the
portion thereof subject to potential recourse, if sold with
limited recourse), other than in any such case any thereof sold
solely for purposes of collection of delinquent accounts and
other than in connection with any Permitted Securitization or
Permitted Factoring Program, of the Company and its Subsidiaries
(other than a Receivables
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Subsidiary), in each case exclusive of intercompany Indebtedness
between the Company and its Subsidiaries and any Contingent
Liability in respect of any of the foregoing.
Trade Payables means, with respect to any
Person, any accounts payable or any other indebtedness or
monetary obligation to trade creditors created, assumed or
Guaranteed by such Person or any of its Subsidiaries arising in
the ordinary course of business in connection with the
acquisition of goods or services.
Transactions means, collectively,
(i) the issuance of the Notes, (ii) the entering into
of the documents governing the Credit Agreement and the making
of the loans thereunder, (iii) the repayment of all
borrowings and termination of certain credit facilities of the
Company concurrent with the closing of the offering of the
Notes, and (iv) the payment of fees and expenses in
connection and in accordance with the foregoing.
Transaction Date means, with respect to the
Incurrence of any Indebtedness, the date such Indebtedness is to
be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
Treasury Rate means, as of any redemption
date, the yield to maturity at the time of computation of United
States Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve Statistical
Release H.15 (519) which has become publicly available at
least two Business Days prior to the redemption date (or, if
such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to
the period from the redemption date to December 15, 2013;
provided, however, that if the period from the redemption
date to December 15, 2013 is not equal to the constant
maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the
period from the redemption date to December 15, 2013 is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year shall be used. The Company will
(a) calculate the Treasury Rate as of the second Business
Day preceding the applicable redemption date and (b) prior
to such redemption date file with the Trustee an Officers
Certificate setting forth the Applicable Premium and the
Treasury Rate and showing the calculation of each in reasonable
detail.
Unrestricted Subsidiary means (1) any
Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (2) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Restricted Subsidiary (including any newly
acquired or newly formed Subsidiary of the Company) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital
Stock of, or owns or holds any Lien on any property of, the
Company or any Restricted Subsidiary; provided that
(A) any Guarantee by the Company or any Restricted
Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an Incurrence of such
Indebtedness and an Investment by the Company or
such Restricted Subsidiary (or both, if applicable) at the time
of such designation; (B) either (I) the Subsidiary to
be so designated has total assets of $2.0 million or less
or (II) if such Subsidiary has assets greater than
$2.0 million, such designation would be permitted under the
Limitation on restricted payments covenant; and
(C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would
be permitted under the Limitation on indebtedness
and Limitation on restricted payments covenants. The
Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that (a) no
Default or Event of Default shall have
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occurred and be continuing at the time of or after giving effect
to such designation and (b) all Liens and Indebtedness of
such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted
to be Incurred (and shall be deemed to have been Incurred) for
all purposes of the Indenture. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly
filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an
officers certificate certifying that such designation
complied with the foregoing provisions.
U.S. Government Obligations means
securities that are (1) direct obligations of the United
States of America for the payment of which its full faith and
credit is pledged or (2) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of
the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not
callable or redeemable at the option of the Company thereof at
any time prior to the Stated Maturity of the Notes, and shall
also include a depository receipt issued by a bank or trust
company as custodian with respect to any such
U.S. Government Obligation or a specific payment of
interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder
of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government
Obligation evidenced by such depository receipt.
Voting Stock means with respect to any
Person, Capital Stock of any class or kind ordinarily having the
power to vote for the election of directors, managers or other
voting members of the governing body of such Person.
Wholly Owned of any specified Person, as of
any date, means the Capital Stock of such Person (other than
directors and foreign nationals qualifying shares)
that is at the time entitled to vote in the election of the
Board of Directors of such Person is owned by the referent
Person.
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Book-entry,
delivery and form
We have obtained the information in this section concerning The
Depository Trust Company (DTC), Clearstream
Banking, S.A., Luxembourg (Clearstream, Luxembourg)
and Euroclear Bank S.A./N.V., as operator of the Euroclear
System (Euroclear), and their book-entry systems and
procedures from sources that we believe to be reliable. We take
no responsibility for an accurate portrayal of this information.
In addition, the description of the clearing systems in this
section reflects our understanding of the rules and procedures
of DTC, Clearstream, Luxembourg and Euroclear as they are
currently in effect. Those systems could change their rules and
procedures at any time.
The notes will initially be represented by one or more fully
registered global notes. Each such global note will be deposited
with, or on behalf of, DTC or any successor thereto and
registered in the name of Cede & Co. (DTCs
nominee). You may hold your interests in the global notes in the
United States through DTC, or in Europe through Clearstream,
Luxembourg or Euroclear, either as a participant in such systems
or indirectly through organizations which are participants in
such systems. Clearstream, Luxembourg and Euroclear will hold
interests in the global notes on behalf of their respective
participating organizations or customers through customers
securities accounts in Clearstream, Luxembourgs or
Euroclears names on the books of their respective
depositaries, which in turn will hold those positions in
customers securities accounts in the depositaries
names on the books of DTC. Citibank, N.A. will act as depositary
for Clearstream, Luxembourg and JPMorgan Chase Bank, N.A. will
act as depositary for Euroclear.
So long as DTC or its nominee is the registered owner of the
global securities representing the notes, DTC or such nominee
will be considered the sole owner and holder of the notes for
all purposes of the notes and the indenture. Except as provided
below, owners of beneficial interests in the notes will not be
entitled to have the notes registered in their names, will not
receive or be entitled to receive physical delivery of the notes
in definitive form and will not be considered the owners or
holders of the notes under the indenture, including for purposes
of receiving any reports delivered by us or the trustee pursuant
to the indenture. Accordingly, each person owning a beneficial
interest in a note must rely on the procedures of DTC or its
nominee and, if such person is not a participant, on the
procedures of the participant through which such person owns its
interest, in order to exercise any rights of a holder of notes.
Unless and until we issue the notes in fully certificated,
registered form under the limited circumstances described below
under the heading Certificated notes:
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you will not be entitled to receive a certificate representing
your interest in the notes;
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all references in this prospectus supplement to actions by
holders will refer to actions taken by DTC upon instructions
from its direct participants; and
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all references in this prospectus supplement to payments and
notices to holders will refer to payments and notices to DTC or
Cede & Co., as the registered holder of the notes, for
distribution to you in accordance with DTC procedures.
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The Depository
Trust Company
DTC will act as securities depositary for the notes. The notes
will be issued as fully registered notes registered in the name
of Cede & Co. DTC is:
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a limited-purpose trust company organized under the New York
Banking Law;
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a banking organization under the New York Banking
Law;
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a member of the Federal Reserve System;
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a clearing corporation under the New York Uniform
Commercial Code; and
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a clearing agency registered under the provisions of
Section 17A of the Exchange Act.
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DTC holds securities that its direct participants deposit with
DTC. DTC facilitates the settlement among direct participants of
securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in direct participants accounts, thereby
eliminating the need for physical movement of securities
certificates.
Direct participants of DTC include securities brokers and
dealers (including the underwriters), banks, trust companies,
clearing corporations and certain other organizations. DTC is
owned by a number of its direct participants. Indirect
participants of DTC, such as securities brokers and dealers,
banks and trust companies, can also access the DTC system if
they maintain a custodial relationship with a direct participant.
Purchases of notes under DTCs system must be made by or
through direct participants, which will receive a credit for the
notes on DTCs records. The ownership interest of each
beneficial owner is in turn to be recorded on the records of
direct participants and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct
participants or indirect participants through which such
beneficial owners entered into the transaction. Transfers of
ownership interests in the notes are to be accomplished by
entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in notes,
except as provided below in Certificated notes.
To facilitate subsequent transfers, all notes deposited with DTC
are registered in the name of DTCs nominee,
Cede & Co. The deposit of notes with DTC and their
registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the notes. DTCs records
reflect only the identity of the direct participants to whose
accounts such notes are credited, which may or may not be the
beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Book-entry
format
Under the book-entry format, the paying agent will pay interest
or principal payments to Cede & Co., as nominee of
DTC. DTC will forward the payment to the direct participants,
who will then forward the payment to the indirect participants
(including Clearstream, Luxembourg or Euroclear) or to you as
the beneficial owner. You may experience some delay in receiving
your payments under this system. None of us, any Subsidiary
Guarantor, the trustee under the indenture or any paying agent
has any direct responsibility or liability for the payment of
principal or interest on the notes to owners of beneficial
interests in the notes.
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DTC is required to make book-entry transfers on behalf of its
direct participants and is required to receive and transmit
payments of principal, premium, if any, and interest on the
notes. Any direct participant or indirect participant with which
you have an account is similarly required to make book-entry
transfers and to receive and transmit payments with respect to
the notes on your behalf. We, the Subsidiary Guarantors and the
trustee under the indenture have no responsibility for any
aspect of the actions of DTC, Clearstream, Luxembourg or
Euroclear or any of their direct or indirect participants. In
addition, we, the Subsidiary Guarantors and the trustee under
the indenture have no responsibility or liability for any aspect
of the records kept by DTC, Clearstream, Luxembourg, Euroclear
or any of their direct or indirect participants relating to or
payments made on account of beneficial ownership interests in
the notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. We also
do not supervise these systems in any way.
The trustee will not recognize you as a holder under the
indenture, and you can only exercise the rights of a holder
indirectly through DTC and its direct participants. DTC has
advised us that it will only take action regarding a note if one
or more of the direct participants to whom the note is credited
direct DTC to take such action and only in respect of the
portion of the aggregate principal amount of the notes as to
which that participant or participants has or have given that
direction. DTC can only act on behalf of its direct
participants. Your ability to pledge notes to non-direct
participants, and to take other actions, may be limited because
you will not possess a physical certificate that represents your
notes.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the notes unless authorized
by a direct participant in accordance with DTCs
procedures. Under its usual procedures, DTC will mail an omnibus
proxy to its direct participant as soon as possible after the
record date. The omnibus proxy assigns Cede &
Co.s consenting or voting rights to those direct
participants to whose accounts the notes are credited on the
record date (identified in a listing attached to the omnibus
proxy).
Clearstream, Luxembourg or Euroclear will credit payments to the
cash accounts of Clearstream, Luxembourg customers or Euroclear
participants in accordance with the relevant systems rules
and procedures, to the extent received by its depositary. These
payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. Clearstream,
Luxembourg or Euroclear, as the case may be, will take any other
action permitted to be taken by a holder under the indenture on
behalf of a Clearstream, Luxembourg customer or Euroclear
participant only in accordance with its relevant rules and
procedures and subject to its depositarys ability to
effect those actions on its behalf through DTC.
DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of the
notes among participants of DTC, Clearstream, Luxembourg and
Euroclear. However, they are under no obligation to perform or
continue to perform those procedures, and they may discontinue
those procedures at any time.
Transfers within
and among book-entry systems
Transfers between DTCs direct participants will occur in
accordance with DTC rules. Transfers between Clearstream,
Luxembourg customers and Euroclear participants will occur in
accordance with their respective applicable rules and operating
procedures.
DTC will effect cross-market transfers between persons holding
directly or indirectly through DTC, on the one hand, and
directly or indirectly through Clearstream, Luxembourg customers
or
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Euroclear participants, on the other hand, in accordance with
DTC rules on behalf of the relevant European international
clearing system by its depositary. However, cross-market
transactions will require delivery of instructions to the
relevant European international clearing system by the
counterparty in that system in accordance with its rules and
procedures and within its established deadlines (European time).
The relevant European international clearing system will, if the
transaction meets its settlement requirements, instruct its
depositary to effect final settlement on its behalf by
delivering or receiving securities in DTC and making or
receiving payment in accordance with normal procedures for
same-day
funds settlement applicable to DTC. Clearstream, Luxembourg
customers and Euroclear participants may not deliver
instructions directly to the depositaries.
Because of time-zone differences, credits of securities received
in Clearstream, Luxembourg or Euroclear resulting from a
transaction with a DTC direct participant will be made during
the subsequent securities settlement processing, dated the
business day following the DTC settlement date. Those credits or
any transactions in those securities settled during that
processing will be reported to the relevant Clearstream,
Luxembourg customer or Euroclear participant on that business
day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream,
Luxembourg customer or a Euroclear participant to a DTC direct
participant will be received with value on the DTC settlement
date but will be available in the relevant Clearstream,
Luxembourg or Euroclear cash amount only as of the business day
following settlement in DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed
to the foregoing procedures in order to facilitate transfers of
debt securities among their respective participants, they are
under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Certificated
notes
Unless and until they are exchanged, in whole or in part, for
notes in definitive form in accordance with the terms of the
notes, the notes may not be transferred except (1) as a
whole by DTC to a nominee of DTC or (2) by a nominee of DTC
to DTC or another nominee of DTC or (3) by DTC or any such
nominee to a successor of DTC or a nominee of such successor.
We will issue notes to you or your nominees, in fully
certificated registered form, rather than to DTC or its
nominees, only if:
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we advise the trustee in writing that DTC is no longer willing
or able to discharge its responsibilities properly or that DTC
is no longer a registered clearing agency under the Exchange
Act, and we have not appointed a qualified successor within
90 days;
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an event of default has occurred and is continuing under the
indenture and DTC has notified us and the trustee of its desire
to exchange the global notes for certificated notes; or
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subject to DTCs rules, we, at our option, elect to
terminate the book-entry system through DTC.
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If any of the three above events occurs, DTC is required to
notify all direct participants that notes in fully certificated
registered form are available through DTC. DTC will then
surrender the global note representing the notes along with
instructions for re-registration. We will reissue the notes in
fully certificated registered form and will recognize the
registered holders of the certificated notes as holders under
the indenture.
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Unless and until we issue the notes in fully certificated,
registered form, (1) you will not be entitled to receive a
certificate representing your interest in the notes;
(2) all references in this prospectus supplement to actions
by holders will refer to actions taken by the depositary upon
instructions from its direct participants; and (3) all
references in this prospectus supplement to payments and notices
to holders will refer to payments and notices to the depositary
or its nominee, as the registered holder of the notes, for
distribution to you in accordance with its policies and
procedures.
Same day
settlement and payment
We will make payments in respect of the notes represented by the
global notes (including principal, premium, if any, and
interest) by wire transfer of immediately available funds to the
accounts specified by DTC or its nominee. We will make all
payments of principal, interest and premium, if any, with
respect to certificated notes by wire transfer of immediately
available funds to the accounts specified by the holders of the
certificated notes or, if no such account is specified, by
mailing a check to each such holders registered address.
The notes represented by the global notes are expected to be
eligible to trade in DTCs
Same-Day
Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. We expect that
secondary trading in any certificated notes will also be settled
in immediately available funds.
Because of time zone differences, the securities account of a
Clearstream, Luxembourg customer or Euroclear participant
purchasing an interest in a global note from another customer or
participant will be credited, and any such crediting will be
reported to the relevant Clearstream, Luxembourg customer or
Euroclear participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised us that cash received in Clearstream, Luxembourg
or Euroclear as a result of sales of interests in a global note
by or through a Clearstream, Luxembourg customer or Euroclear
participant to another customer or participant will be received
with value on the settlement date of DTC but will be available
in the relevant Clearstream, Luxembourg or Euroclear cash
account only as of the business day for Euroclear or
Clearstream, Luxembourg following DTCs settlement date.
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U.S. federal
income tax consequences
The following is a summary of the material United States federal
income tax considerations relating to the purchase, ownership
and disposition of the notes, but does not purport to be a
complete analysis of all potential tax considerations. This
summary is based on the provisions of the Code, the Treasury
regulations promulgated thereunder, judicial authority,
published administrative positions of the IRS and other
applicable authorities, all as in effect on the date of this
document, and all of which are subject to change, possibly on a
retroactive basis. We have not sought any ruling from the IRS
with respect to the statements made and the conclusions reached
in the following summary and there can be no assurance that the
IRS will agree with our statements and conclusions.
This summary deals only with beneficial owners of notes that
purchase the notes in this offering at their issue price (as
defined below) and that will hold the notes as capital
assets within the meaning of section 1221 of the Code
(generally, property held for investment). This summary does not
purport to deal with all aspects of United States federal income
taxation that might be relevant to particular holders in light
of their personal investment circumstances or status, nor does
it address tax considerations applicable to investors that may
be subject to special tax rules, such as certain financial
institutions, tax-exempt organizations, controlled foreign
corporations, corporations that accumulate earnings to avoid
United States federal income tax, passive foreign investment
companies, S corporations, partnerships or other pass
through entities for United States federal income tax purposes
(or investors in such entities), insurance companies, dealers or
traders in securities or currencies, certain former citizens or
residents of the United States and taxpayers subject to the
alternative minimum tax. This summary also does not discuss
notes held as part of a hedge, straddle, synthetic security or
conversion transaction, or situations in which the
functional currency of a United States Holder (as
defined below) is not the United States dollar. Moreover, the
effect of any applicable estate or gift, state, local or
non-United
States tax laws is not discussed.
In the case of a beneficial owner of notes that is classified as
a partnership for United States federal income tax purposes, the
tax treatment of the notes to a partner of the partnership
generally will depend upon the tax status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding notes, then you should consult your own tax
advisors.
The following discussion is for informational purposes only and
is not a substitute for careful tax planning and advice.
Investors considering the purchase of notes should consult their
own tax advisors with respect to the application of the United
States federal income tax laws to their particular situations,
as well as any tax consequences arising under the federal estate
or gift tax laws or the laws of any state, local or
non-United
States taxing jurisdiction or under any applicable tax treaty.
United States
holders
The term United States Holder means a beneficial
owner of a note that is, for United States federal income tax
purposes:
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an individual who is a citizen or a resident of the United
States;
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a corporation, or other entity taxable as a corporation for
United States federal income tax purposes, created or organized
in the United States or under the laws of the United States, any
state thereof or the District of Columbia;
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an estate, the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust, if (i) a court within the United States is able to
exercise primary jurisdiction over its administration and one or
more United States persons have the authority to control all of
its substantial decisions, or (ii) in the case of a trust
that was treated as a domestic trust under the law in effect
before 1997, a valid election is in place under applicable
Treasury regulations to treat such trust as a domestic trust.
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Payment of stated
interest
Stated interest on a note will be included in the gross income
of a United States Holder as ordinary income at the time such
interest is accrued or received, in accordance with the
holders method of accounting for United States federal
income tax purposes.
Sale, exchange,
redemption, retirement or other taxable disposition of the
notes
Upon the sale, exchange, redemption, retirement or other taxable
disposition of a note, a United States Holder generally will
recognize gain or loss equal to the difference between
(i) the amount realized upon the disposition and
(ii) that holders adjusted tax basis in the note. The
amount realized will be equal to the sum of the amount of cash
and the fair market value of any property received in exchange
for the note (less any portion allocable to any accrued and
unpaid stated interest, which will be treated as ordinary income
to the extent not previously included in income). A United
States Holders adjusted tax basis in a note generally will
equal the cost of the note to such holder. This gain or loss
generally will be capital gain or loss, and will be long-term
capital gain or loss if the United States Holder has held the
note for more than one year. In general, long-term capital gains
of a non-corporate United States Holder are taxed at reduced
rates. The deductibility of capital losses is subject to
limitations. United States Holders should consult their own tax
advisors as to the deductibility of capital losses in their
particular circumstances.
Information
reporting and backup withholding tax
In general, certain information must be reported to the IRS with
respect to payments of interest on a note and payments of the
proceeds of the sale or other disposition (including a
retirement or redemption) of a note, to certain non-corporate
United States Holders. The payor (which may be us or an
intermediate payor) may be required to impose backup withholding
tax, currently at a rate of 28%, if (i) the payee fails to
furnish a taxpayer identification number (TIN) to
the payor or to establish an exemption from backup withholding
tax; (ii) the IRS notifies the payor that the TIN furnished
by the payee is incorrect; (iii) there has been a notified
payee underreporting described in section 3406(c) of the
Code; or (iv) the payee has not certified under penalties
of perjury that it has furnished a correct TIN and that the IRS
has not notified the payee that it is subject to backup
withholding tax under the Code. Any amounts withheld under the
backup withholding tax rules from a payment to a United States
Holder will be allowed as a credit against that holders
United States federal income tax liability and may entitle the
holder to a refund, provided that the required information is
timely furnished to the IRS.
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Non-United
States holders
The term
non-United
States Holder means a beneficial owner of a note that is
neither a United States Holder nor a partnership (or other
entity taxable as a partnership for United States federal income
tax purposes).
For purposes of the following discussion, interest and gain on
the sale, exchange or other disposition (including a retirement
or redemption) of a note will be considered United States
trade or business income if the income or gain is
effectively connected with the conduct of a United States trade
or business.
Payment of
interest
Subject to the discussion of backup withholding tax below,
interest paid on a note by us or any paying agent to a
non-United
States Holder will be exempt from United States withholding tax
under the portfolio interest exemption; provided
that (i) the
non-United
States Holder does not, actually or constructively, own 10% or
more of the combined voting power of all classes of our stock
entitled to vote, (ii) the
non-United
States Holder is not a controlled foreign corporation related to
the Company, actually or constructively, (iii) the
non-United
States Holder is not a bank that acquired the notes in
consideration for an extension of credit made pursuant to a loan
agreement entered into in the ordinary course of business,
(iv) the interest income is not United States trade or
business income of the
non-United
States Holder, and (v) either (a) the
non-United
States Holder provides to us or our paying agent an applicable
IRS
Form W-8BEN
(or a suitable substitute form), signed under penalties of
perjury, that includes its name and address and that certifies
its
non-United
States status in compliance with applicable law and regulations,
or (b) a securities clearing organization, bank or other
financial institution that holds customers securities in
the ordinary course of its trade or business holds the notes on
behalf of the
non-United
States Holder and provides a statement to us or our agent under
penalties of perjury in which it certifies that an applicable
IRS
Form W-8BEN
(or a suitable substitute form) has been received by it from the
non-United
States Holder or qualifying intermediary and furnishes a copy to
us or our agent. This certification requirement may be satisfied
with other documentary evidence in the case of a note held in an
offshore account or through certain foreign intermediaries.
If a
non-United
States Holder cannot satisfy the requirements of the portfolio
interest exemption described above, payments of interest made to
such holder generally will be subject to United States
withholding tax at the rate of 30%, unless a United States
income tax treaty applies to reduce or eliminate withholding.
United States trade or business income will not be subject to
United States federal withholding tax but will be taxed on a net
income basis in generally the same manner as taxable income of a
United States Holder (unless an applicable income tax treaty
provides otherwise), and if the
non-United
States Holder is a foreign corporation, such United States trade
or business income may be subject to the branch profits tax
equal to 30% of its effectively connected earnings and profits
attributable to such interest, or a lower rate provided by an
applicable treaty. In order to claim the benefit provided by a
tax treaty or to claim exemption from withholding because the
income is United States trade or business income, a
non-United
States Holder must provide either:
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a properly executed IRS
Form W-8BEN
(or suitable substitute form) claiming an exemption from or
reduction in withholding under the benefit of an applicable tax
treaty; or;
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a properly executed IRS
Form W-8ECI
(or suitable substitute form) stating that interest paid on the
note is not subject to withholding tax because it is United
States trade or business income.
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Sale, exchange,
redemption, retirement or other disposition of notes
Subject to the discussion of backup withholding tax below, a
non-United
States Holder generally will not be subject to United States
federal income tax or withholding tax on any gain realized on a
sale, exchange, redemption, retirement or other disposition of a
note (other than any amount representing accrued but unpaid
stated interest on the note, which is subject to the rules
discussed above under
Non-United
States holdersPayment of interest) unless
(i) the
non-United
States Holder is an individual who was present in the United
States for 183 days or more in the taxable year of the
disposition and certain other conditions are met (in which case
such holder will be subject to a 30% United States federal
income tax on the gain derived from the sale, which may be
offset by certain United States source capital losses), or
(ii) the gain is United States trade or business income (in
which case such holder will be required to pay United States
federal income tax on the net gain derived from the sale in the
same manner as a United States Holder, except as otherwise
required by an applicable tax treaty, and if such holder is a
foreign corporation, it may also be required to pay a branch
profits tax equal to 30% of its effectively connected earnings
and profits attributable to such gain, or a lower rate provided
by an applicable income tax treaty).
Information
reporting and backup withholding tax
The amount of interest paid to a
non-United
States Holder and the amount of tax, if any, withheld from such
payment generally must be reported annually to the
non-United
States Holder and to the IRS. The IRS may make this information
available under the provisions of an applicable income tax
treaty to the tax authorities in the country in which a
non-United
States Holder is resident.
Provided that a
non-United
States Holder has complied with certain reporting procedures
(usually satisfied by providing an IRS
Form W-8BEN)
or otherwise establishes an exemption, a
non-United
States Holder generally will not be subject to backup
withholding tax with respect to interest payments on, and the
proceeds from disposition (including a retirement or redemption)
of, a note, unless the payor knows or has reason to know that
the holder is a United States person. Additional rules relating
to information reporting requirements and backup withholding tax
with respect to the payment of proceeds from the disposition of
a note are as follows:
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If the proceeds are paid to or through the United States office
of a broker, a
non-United
States Holder generally will be subject to backup withholding
tax and information reporting unless the
non-United
States Holder certifies under penalties of perjury that it is
not a United States person (usually on an IRS
Form W-8BEN)
or otherwise establishes an exemption.
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If the proceeds are paid to or through a
non-United
States office of a broker that is not a United States person and
is not a person with certain specified United States connections
(a United States Related Person), a
non-United
States Holder will not be subject to backup withholding tax or
information reporting.
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If the proceeds are paid to or through a
non-United
States office of a broker that is a United States person or a
United States Related Person, a
non-United
States Holder generally will be subject to information reporting
(but generally not backup withholding tax) unless the
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non-United
States Holder certifies under penalties of perjury that it is
not a United States person (usually on an IRS
Form W-8BEN)
or otherwise establishes an exemption.
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Any amounts withheld under the backup withholding tax rules will
be allowed as a refund or a credit against the
non-United
States Holders United States federal income tax liability,
provided the required information is timely furnished to the IRS.
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Certain ERISA
considerations
The following is a summary of certain considerations associated
with the purchase of the notes by employee benefit plans that
are subject to Title I of ERISA, plans, individual
retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any other
federal, state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code (collectively, Similar Laws), and
entities whose underlying assets are considered to include
plan assets of any such plan, account or arrangement
(each, a Plan).
General fiduciary
matters
ERISA and the Code impose certain duties on persons who are
fiduciaries of a Plan subject to Title I of ERISA or
Section 4975 of the Code (an ERISA Plan) and
prohibit certain transactions involving the assets of an ERISA
Plan and its fiduciaries or other interested parties. Under
ERISA and the Code, any person who exercises any discretionary
authority or control over the administration of such an ERISA
Plan or the management or disposition of the assets of such an
ERISA Plan, or who renders investment advice for a fee or other
compensation to such an ERISA Plan, is generally considered to
be a fiduciary of the ERISA Plan.
In considering an investment in the notes of a portion of the
assets of any Plan, a fiduciary should determine whether the
investment is in accordance with the documents and instruments
governing the Plan and the applicable provisions of ERISA, the
Code or any Similar Law relating to a fiduciarys duties to
the Plan including, without limitation, the prudence,
diversification, delegation of control and prohibited
transaction provisions of ERISA, the Code and any other
applicable Similar Laws.
Prohibited
transaction issues
Section 406 of ERISA and Section 4975 of the Code
prohibit ERISA Plans from engaging in specified transactions
involving plan assets with persons or entities who are
parties in interest, within the meaning of ERISA, or
disqualified persons, within the meaning of
Section 4975 of the Code, unless an exemption is available.
A party in interest or disqualified person who engaged in a
non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In
addition, the fiduciary of the ERISA Plan that engaged in such a
non-exempt prohibited transaction may be subject to penalties
and liabilities under ERISA and the Code. The acquisition
and/or
holding of notes by an ERISA Plan with respect to which we, an
underwriter, or a guarantor is considered a party in interest or
a disqualified person may constitute or result in a direct or
indirect prohibited transaction under Section 406 of ERISA
and/or
Section 4975 of the Code, unless the investment is acquired
and is held in accordance with an applicable statutory, class or
individual prohibited transaction exemption. In this regard, the
U.S. Department of Labor has issued prohibited transaction
class exemptions, or PTCEs, that may apply to the
acquisition and holding of the notes. These class exemptions
include, without limitation,
PTCE 84-14
respecting transactions determined by independent qualified
professional asset managers,
PTCE 90-1
respecting insurance company pooled separate accounts,
PTCE 91-38
respecting bank collective investment funds,
PTCE 95-60
respecting life insurance company general accounts and
PTCE 96-23
respecting transactions determined by in-house asset managers.
In addition, Section 408(b)(17) of ERISA and
Section 4975(d)(20) of the Code provide relief from the
prohibited transaction provisions of ERISA and Section 4975
of
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the Code for certain transactions, provided that neither the
issuer of the securities nor any of its affiliates (directly or
indirectly) have or exercise any discretionary authority or
control or render any investment advice with respect to the
assets of any ERISA Plan involved in the transaction and
provided further that the ERISA Plan pays no more than adequate
consideration in connection with the transaction. There can be
no assurance that all of the conditions of any such exemptions
will be satisfied.
Because of the foregoing, the notes should not be purchased or
held by any person investing plan assets of any
Plan, unless such purchase and holding will not constitute a
non-exempt prohibited transaction under ERISA and the Code or a
similar violation of any applicable Similar Law.
Representation
Accordingly, by acceptance of a note, each purchaser and
subsequent transferee of a note will be deemed to have
represented and warranted that either (i) no portion of the
assets used by such purchaser or transferee to acquire or hold
the notes constitutes assets of any Plan or (ii) the
purchase and holding of the notes by such purchaser or
transferee will not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975
of the Code or a similar violation under any applicable Similar
Law.
The foregoing discussion is general in nature and is not
intended to be all inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons
considering purchasing the notes on behalf of, or with the
assets of, any Plan, consult with their counsel regarding the
potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption
would be applicable to the purchase and holding of the notes.
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Underwriting
Subject to the terms and conditions stated in the underwriting
agreement among us, the guarantors and J.P. Morgan
Securities Inc., on behalf of the several underwriters, we have
agreed to sell to each underwriter and each underwriter named
below has severally agreed to purchase from us, the principal
amount of notes that appears opposite its name in the table
below.
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Underwriter
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Principal amount
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J.P. Morgan Securities Inc.
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$
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137,500,000
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Banc of America Securities LLC
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100,000,000
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HSBC Securities (USA) Inc.
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100,000,000
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Goldman, Sachs & Co.
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75,000,000
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Barclays Capital Inc.
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50,000,000
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BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
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12,500,000
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PNC Capital Markets LLC
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12,500,000
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RBC Capital Markets Corporation
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12,500,000
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Total
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$
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500,000,000
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The underwriters have severally agreed to purchase all of the
notes if any of them are purchased. The underwriting agreement
provides that the obligations of the underwriters to purchase
the notes included in this offering are subject to, among other
customary conditions, the delivery of certain legal opinions by
their counsel. The underwriting agreement also provides that if
an underwriter defaults, the purchase commitments of
non-defaulting underwriters may also be increased or the
offering may be terminated.
The underwriters initially propose to offer the notes to the
public at the public offering price that appears on the cover
page of this prospectus supplement. The underwriters may offer
the notes to selected dealers at the public offering price minus
a concession of up to 0.375% of the principal amount. In
addition, the underwriters may allow, and those selected dealers
may reallow, a concession of up to 0.25% of the principal amount
to certain other dealers. After the initial offering, the
underwriters may change the public offering price and any other
selling terms. The underwriters may offer and sell notes through
certain of their affiliates. The offering of the notes by the
underwriters is subject to receipt and acceptance and subject to
the underwriters right to reject any order in whole or in
part.
In the underwriting agreement, we have agreed that:
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we will not offer or sell any of our debt securities (other than
the notes) for a period of 90 days after the date of this
prospectus supplement without the prior consent of
J.P. Morgan Securities Inc.; and
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we will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to
payments that the underwriters may be required to make in
respect of those liabilities.
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The notes are new issues of securities with no established
trading market. We do not intend to apply for the notes to be
listed on any securities exchange or to arrange for the notes to
be quoted on any quotation system. The underwriters have advised
us that they intend to make a
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market in the notes. However, they are not obligated to do so
and they may discontinue any market making at any time in their
sole discretion. Therefore, we cannot assure you that a liquid
trading market will develop for the notes, that you will be able
to sell your notes at a particular time or that the prices that
you receive when you sell will be favorable.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date), each underwriter has not made and
will not make an offer of notes to the public in that Relevant
Member State prior to the publication of a prospectus in
relation to the notes which has been approved by the competent
authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of notes to the public in that Relevant Member
State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of J.P. Morgan Securities Inc.
for any such offer; or
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in any other circumstances which do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of notes to the public in relation to any
notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the notes to be offered so as to enable an
investor to decide to purchase or subscribe the notes, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
This prospectus is only being distributed to, and is only
directed at, persons in the United Kingdom that are qualified
investors within the meaning of Article 2(1)(e) of the
Prospectus Directive (Qualified Investors) that are
also (i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This prospectus and its contents are confidential and should not
be distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
person should not act or rely on this document or any of its
contents.
In connection with this offering of the notes, the underwriters
may engage in overallotments, stabilizing transactions and
syndicate covering transactions in accordance with
Regulation M under the Exchange Act. Overallotment involves
sales in excess of the offering size, which
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creates a short position for the underwriter. Stabilizing
transactions involve bids to purchase the notes in the open
market for the purpose of pegging, fixing or maintaining the
price of the notes, as applicable. Syndicate covering
transactions involve purchases of the notes in the open market
after the distribution has been completed in order to cover
short positions. The underwriters may also impose a penalty bid.
This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by
it because the representatives have repurchased notes sold by or
for the account of such underwriter in stabilizing or short
covering transactions. Stabilizing transactions and syndicate
covering transactions, as well as other purchases by the
underwriters for its own accounts, may cause the price of the
notes to be higher than it would otherwise be in the absence of
those transactions. If any of the underwriters engages in
stabilizing or syndicate covering transactions, it may
discontinue them at any time. These transactions may be effected
in the
over-the-counter
market or otherwise.
The underwriters and certain of their affiliates have provided
from time to time, and may provide in the future, investment and
commercial banking and financial advisory services to us and our
affiliates in the ordinary course of business, for which they
have received and may continue to receive customary fees and
commissions. In particular, affiliates of some of the
underwriters act as lenders under the Existing Credit Facilities
and, in such capacities, will receive a portion of the proceeds
from this offering. JPMorgan Chase Bank, N.A., an affiliate of
J.P. Morgan Securities Inc., will act as administrative
agent, collateral agent and lender under our New Senior Secured
Credit Facilities and certain of the other underwriters and/or
their affiliates will act as agents and/or lenders under our New
Senior Secured Credit Facilities.
We estimate that our total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately
$2.3 million.
Legal
matters
That the notes are duly authorized by the issuer, and certain
other matters of Maryland law, will be passed upon on our behalf
by Venable LLP. That the guarantees are duly authorized by the
guarantors organized in the State of Delaware, and certain other
matters of Delaware law, will be passed upon on our behalf by
Kirkland & Ellis LLP, a limited liability partnership
that includes professional corporations, Chicago, Illinois. That
the guarantees are duly authorized by the guarantor organized in
the State of Colorado, and certain other matters of Colorado
law, will be passed upon on our behalf by Hogan &
Hartson LLP. In addition, certain legal matters will be passed
upon for the underwriters by Simpson Thacher &
Bartlett LLP, New York, New York.
Experts
The Consolidated Financial Statements of Hanesbrands Inc. as of
January 3, 2009 and December 29, 2007, and for the
years ended January 3, 2009, December 29, 2007, the
six months ended December 30, 2006, and the year ended
July 1, 2006 and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control Over Financial Reporting) as of January 3, 2009
included in this prospectus supplement have been so included in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
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PROSPECTUS
Hanesbrands Inc.
DEBT SECURITIES, PREFERRED
STOCK, COMMON STOCK,
WARRANTS, DEPOSITARY SHARES,
STOCK PURCHASE UNITS
AND STOCK PURCHASE
CONTRACTS
We may from time to time sell any combination of debt
securities, preferred stock, common stock, warrants, depositary
shares, stock purchase units and stock purchase contracts
described in this prospectus in one or more offerings. This
prospectus provides a general description of the securities we
may offer. Each time we sell securities we will provide specific
terms of the securities offered in a supplement to this
prospectus and will also describe the specific manner in which
we will offer these securities. The prospectus supplement may
also add, update or change information contained in this
prospectus. You should read this prospectus and the applicable
prospectus supplement carefully before you invest in any
securities. This prospectus may not be used to consummate a sale
of securities unless accompanied by the applicable prospectus
supplement.
Our common stock is traded on the New York Stock Exchange under
the symbol HBI. On July 31, 2008, the last
reported sale price for our common stock on the New York Stock
Exchange was $21.44 per share.
See Risk Factors on page 1 of
this prospectus to read about factors you should consider before
investing in these securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is August 1, 2008.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is a part of a registration statement that we
filed with the Securities and Exchange Commission (the
SEC) utilizing a shelf registration
process. Under this shelf registration process, we may sell any
combination of the securities described in this prospectus in
one or more offerings from time to time. This prospectus
provides you with a general description of the securities we may
offer. Each time we sell securities under this shelf
registration, we will provide a prospectus supplement that will
contain specific information about the terms of that offering.
The prospectus supplement may also add, update or change
information contained in this prospectus. Therefore, if there is
any inconsistency between the information in this prospectus and
the prospectus supplement, you should rely on the information in
the prospectus supplement. You should read both this prospectus
and any prospectus supplement together with additional
information described under the heading Where You Can Find
More Information.
We have not authorized any dealer, salesman or other person to
give any information or to make any representation other than
those contained or incorporated by reference in this prospectus
and the accompanying supplement to this prospectus. You must not
rely upon any information or representation not contained or
incorporated by reference in this prospectus or the accompanying
prospectus supplement. This prospectus and the accompanying
supplement to this prospectus do not constitute an offer to sell
or the solicitation of an offer to buy any securities other than
the registered securities to which they relate, nor do this
prospectus and the accompanying supplement to this prospectus
constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information
contained in this prospectus and the accompanying prospectus
supplement is accurate on any date subsequent to the date set
forth on the front of the document or that any information we
have incorporated by reference is correct on any date subsequent
to the date of the document incorporated by reference, even
though this prospectus and any accompanying prospectus
supplement is delivered or securities are sold on a later date.
Unless the context otherwise requires or as otherwise expressly
stated, references in this prospectus to
Hanesbrands, we, us and
our and similar terms refer to Hanesbrands Inc. and
its direct and indirect subsidiaries on a consolidated basis.
References to our common stock or our
preferred stock refer to the common stock or
preferred stock of Hanesbrands Inc.
We own or have rights to use the trademarks, service marks and
trade names that we use in conjunction with the operation of our
business. Some of the more important trademarks that we own or
have rights to use that appear in this prospectus include the
Hanes, Champion, Playtex, Bali,
Just My Size, barely there and Wonderbra
marks, which may be registered in the United States and
other jurisdictions.
i
OUR
COMPANY
We are a consumer goods company with a portfolio of leading
apparel brands, including Hanes, Champion, Playtex, Bali,
Just My Size, barely there and Wonderbra. We design,
manufacture, source and sell a broad range of apparel essentials
such as t-shirts, bras, panties, mens underwear,
kids underwear, socks, hosiery, casualwear and activewear.
Our products are sold through multiple distribution channels.
During the year ended December 29, 2007, approximately 46%
of our net sales were to mass merchants, 19% were to national
chains and department stores, 8% were direct to consumers, 9%
were in our International segment and 18% were to other retail
channels such as embellishers, specialty retailers, warehouse
clubs and sporting goods stores. In addition to designing and
marketing apparel essentials, we have a long history of
operating a global supply chain that incorporates a mix of
self-manufacturing, third-party contractors and third-party
sourcing.
The apparel essentials segment of the apparel industry is
characterized by frequently replenished items, such as t-shirts,
bras, panties, mens underwear, kids underwear, socks
and hosiery. Growth and sales in the apparel essentials industry
are not primarily driven by fashion, in contrast to other areas
of the broader apparel industry. Rather, we focus on the core
attributes of comfort, fit and value, while remaining current
with regard to consumer trends. The majority of our core styles
continue from year to year, with variations only in color,
fabric or design details. We continue to invest in our largest
and strongest brands to achieve our long-term growth goals.
We were spun off from Sara Lee Corporation (Sara
Lee) on September 5, 2006. In connection with the
spin off, Sara Lee contributed its branded apparel Americas and
Asia business to us and distributed all of the outstanding
shares of our common stock to its stockholders on a pro rata
basis. As a result of the spin off, Sara Lee ceased to own any
equity interest in our company. In this prospectus, we describe
the businesses contributed to us by Sara Lee in the spin off as
if the contributed businesses were our business for all
historical periods described. References in this prospectus to
our assets, liabilities, products, businesses or activities of
our business for periods including or prior to the spin off are
generally intended to refer to the historical assets,
liabilities, products, businesses or activities of the
contributed businesses as the businesses were conducted as part
of Sara Lee and its subsidiaries prior to the spin off. Our
fiscal year ends on the Saturday closest to December 31 and
previously ended on the Saturday closest to June 30. We
refer to the fiscal year ended December 29, 2007 as the
year ended December 29, 2007. A reference to a year ended
on another date is to the fiscal year ended on that date.
We were incorporated in Maryland on September 30, 2005 and
became an independent public company following our spin off from
Sara Lee on September 5, 2006. Our principal executive
offices are located at 1000 East Hanes Mill Road, Winston-Salem,
North Carolina 27105. Our main telephone number is
(336) 519-4400.
Our website is www.hanesbrands.com. Information on our website
is not a part of this prospectus and is not incorporated into
this prospectus by reference.
RISK
FACTORS
Our business is subject to uncertainties and risks. You should
carefully consider and evaluate all of the information included
and incorporated by reference in this prospectus, including the
risk factors incorporated by reference from our most recent
annual report on
Form 10-K,
as updated by our quarterly reports on
Form 10-Q
and other filings we make with the SEC. It is possible that our
business, financial condition, liquidity or results of
operations could be materially adversely affected by any of
these risks.
FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated by reference into
this prospectus contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended , or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Forward-looking
statements include all statements that do not relate solely to
historical or current facts, and can
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generally be identified by the use of words such as
may, believe, will,
expect, project, estimate,
intend, anticipate, plan,
continue or similar expressions. In particular,
information in any prospectus supplement or report incorporated
herein by reference appearing under Business,
Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of
Operations includes forward-looking statements.
Forward-looking statements inherently involve many risks and
uncertainties that could cause actual results to differ
materially from those projected in these statements. Where, in
any forward-looking statement, we express an expectation or
belief as to future results or events, such expectation or
belief is based on the current plans and expectations of our
management and expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or
accomplished. The following include some but not all of the
factors that could cause actual results or events to differ
materially from those anticipated:
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our ability to migrate our production and manufacturing
operations to lower-cost locations around the world;
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risks associated with our foreign operations or foreign supply
sources, such as disruption of markets, changes in import and
export laws, currency restrictions and currency exchange rate
fluctuations;
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the impact of economic and business conditions and industry
trends in the countries in which we operate our supply chain;
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the highly competitive and evolving nature of the industry in
which we compete;
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our ability to effectively manage our inventory and reduce
inventory reserves;
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our ability to keep pace with changing consumer preferences;
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loss of or reduction in sales to any of our top customers,
especially Wal-Mart;
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financial difficulties experienced by any of our top customers;
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failure by us to protect against dramatic changes in the
volatile market price of cotton, the primary material used in
the manufacture of our products;
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the impact of increases in prices of other materials used in our
products, such as dyes and chemicals, and increases in other
costs, such as fuel, energy and utility costs;
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costs and adverse publicity arising from violations of labor or
environmental laws by us or any of our third-party manufacturers;
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our ability to attract and retain key personnel;
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our debt and debt service requirements that restrict our
operating and financial flexibility, and impose interest and
financing costs;
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the risk of inflation or deflation;
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consumer disposable income and spending levels, including the
availability and amount of individual consumer debt;
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retailer consolidation and other changes in the apparel
essentials industry;
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future financial performance, including availability, terms and
deployment of capital;
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new litigation or developments in existing litigation;
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our ability to comply with environmental and occupational health
and safety laws and regulations;
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general economic conditions; and
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possible terrorists attacks and ongoing military action in the
Middle East and other parts of the world.
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There may be other factors that may cause our actual results to
differ materially from the forward-looking statements. Our
actual results, performance or achievements could differ
materially from those expressed in, or
2
implied by, the forward-looking statements. We can give no
assurances that any of the events anticipated by the
forward-looking statements will occur or, if any of them does,
what impact they will have on our results of operations and
financial condition. You should carefully read the factors
described in the Risk Factors section of this
prospectus and the documents incorporated by reference into this
prospectus for a description of certain risks that could, among
other things, cause our actual results to differ from these
forward-looking statements.
Forward-looking statements speak only as of the date they were
made. We undertake no obligation to update or revise
forward-looking statements to reflect events or circumstances
that arise after the date made or to reflect the occurrence of
unanticipated events, other than as required by law.
3
USE OF
PROCEEDS
We will use the net proceeds from our sale of the securities for
our general corporate purposes, which may include repaying
indebtedness, making additions to our working capital, funding
future acquisitions or for any other purpose we describe in the
applicable prospectus supplement.
RATIO OF
EARNINGS TO FIXED CHARGES
Set forth below is information concerning our ratio of earnings
to fixed charges. For purposes of determining the ratio of
earnings to fixed charges, earnings consist of the total of
(i) the following (a) pretax income from continuing
operations before adjustment for minority interests in
consolidated subsidiaries or income or loss from equity
investees, (b) fixed charges, (c) amortization of
capitalized interest, and (d) distributed income of equity
investees, minus the total of (ii) the following:
(a) interest capitalized and (b) the minority interest
in pre-tax income of subsidiaries that have not incurred fixed
charges. Fixed charges are defined as the sum of the following:
(a) interest expensed and capitalized, (b) amortized
premiums, discounts and capitalized expenses related to
indebtedness, and (c) an appropriate estimate of the
interest within rental expense.
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Six-Months
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Six-Months
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Year Ended
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Ended
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Year Ended
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Ended
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December 29,
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December 30,
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July 1,
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July 2,
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July 3,
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June 28,
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June 28, 2008
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2007
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2006(1)
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2006
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2005
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2004
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2003
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Ratios of earnings to fixed charges
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2.38x
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1.83
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2.24
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10.37
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7.64
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8.71
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10.35x
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In October 2006, our board of directors approved a change in our
fiscal year end from the Saturday closest to June 30 to the
Saturday closest to December 31. |
4
DESCRIPTION
OF DEBT SECURITIES
We may offer secured or unsecured debt securities, which may be
convertible or exchangeable. Our debt securities and any related
guarantees will be issued under an indenture entered into
between us and Branch Banking and Trust Company. Holders of
our indebtedness will be structurally subordinated to holders of
any indebtedness (including trade payables) of any of our
subsidiaries that do not guarantee our payment obligations under
such indebtedness.
We have summarized certain general features of the debt
securities from the indenture. The indenture is attached as an
exhibit to the registration statement of which this prospectus
forms a part. The following description of the terms of the debt
securities and the guarantees sets forth certain general terms
and provisions. The particular terms of the debt securities and
guarantees offered by any prospectus supplement and the extent,
if any, to which such general provisions may apply to the debt
securities and guarantees will be described in the related
prospectus supplement. Accordingly, for a description of the
terms of a particular issue of debt securities, reference must
be made to both the related prospectus supplement and to the
following description.
General
The aggregate principal amount of debt securities that may be
issued under the indenture is unlimited. The debt securities may
be issued in one or more series as may be authorized from time
to time.
Reference is made to the applicable prospectus supplement for
the following terms of the debt securities (if applicable):
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title of the series of debt securities;
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the price or prices (expressed as a percentage of the principal
amount) at which we will sell the debt securities;
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any limit on the aggregate principal amount of the series of
debt securities;
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whether the debt securities rank as senior subordinated debt or
subordinated debt or any combination thereof, and the terms of
any such subordination;
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whether securities issued by us will be entitled to the benefits
of any guarantees and the form and terms of any guarantee;
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the terms and conditions, if any, upon which the series of debt
securities shall be converted into or exchanged for other
securities;
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whether securities issued by us will be secured or unsecured,
and if secured, what the collateral will consist of;
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maturity date(s);
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the rate or rates (which may be fixed or variable) per annum or
the method used to determine the rate or rates (including any
currency exchange rate, commodity, commodity index, stock
exchange index or financial index) at which the debt securities
will bear interest, the date or dates from which interest will
accrue or the method for determining dates from which interest
will accrue, the date or dates on which interest will commence
and be payable and any regular record date for the interest
payable on any interest payment date;
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the manner in which the amounts of payment of principal of or
interest, if any, on the series of debt securities will be
determined (if such amounts may be determined by reference to an
index based on a currency or currencies or by reference to a
currency exchange rate, commodity, commodity index, stock
exchange index or financial index);
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the place or places where principal of, premium, if any, and
interest, if any, on the debt securities will be payable and the
method of such payment, if by wire transfer, mail or other means;
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provisions related to redemption or early repayment of the debt
securities of our option;
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our obligation, if any, to redeem or purchase any series of debt
securities pursuant to any sinking fund or analogous provisions
or at the option of a holder thereof and the period or periods
within which, the price or prices at which and the terms and
conditions upon which such debt securities shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
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authorized denominations;
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the form of the debt securities and whether the debt securities
will be issued in bearer or fully registered form (and if in
fully registered form, whether the debt securities will be
issuable, in whole or in part, as global debt securities);
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any depositaries, interest rate calculation agents, exchange
rate calculation agents or other agents with respect to the debt
securities;
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any changes in the trustee for such debt securities;
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the portion of principal amount of the debt securities payable
upon declaration of acceleration of the maturity date, if other
than the principal amount;
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any changes in or additions to the covenants applicable to the
particular debt securities being issued;
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additions to or changes in the events of default with respect to
the securities and any change in the right of the trustee or the
holders to declare the principal, premium and interest with
respect to such securities to be due and payable;
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the currency of denomination of the debt securities;
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the designation of the currency, currencies or currency units in
which the purchase price for, the principal of and any premium
and any interest on, such securities will be payable;
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if payments of principal of, premium or interest on the debt
securities will be made in one or more currencies or currency
units other than that or those in which the debt securities are
denominated, the manner in which the exchange rate with respect
to these payments will be determined;
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securities exchange(s) on which the debt securities will be
listed, if any;
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whether any underwriter(s) will act as market maker(s) for the
debt securities;
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extent to which a secondary market for the debt securities is
expected to develop;
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additions to or changes in the provisions relating to covenant
defeasance and legal defeasance;
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additions to or changes in the provisions relating to
satisfaction and discharge of the indenture;
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additions to or changes in the provisions relating to the
modification of the indenture both with and without the consent
of holders of debt securities issued under the
indenture; and
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any other terms of the debt securities, which may modify,
supplement or delete any provision of the indenture as it
applies to that series.
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One or more series of debt securities may be sold at a
substantial discount below their stated principal amount,
bearing no interest or interest at a rate which at the time of
issuance is below market rates. One or more series of debt
securities may be variable rate debt securities that may be
exchanged for fixed rate debt securities.
United States federal income tax consequences and special
considerations, if any, applicable to any such series will be
described in the applicable prospectus supplement.
The term debt securities includes debt securities
denominated in U.S. dollars or, if specified in the
applicable prospectus supplement, in any other freely
transferable currency or units based on or relating to foreign
currencies.
6
We expect most debt securities to be issued in fully registered
form without coupons and in denominations of $1,000 and any
integral multiples thereof.
Transfer
and Exchange
Unless otherwise stated in the applicable prospectus supplement,
each debt security will be represented by either one or more
global securities registered in the name of The Depository
Trust Company, as depositary, or a nominee (we will refer
to any debt security represented by a global debt security as a
book-entry debt security), or a certificate issued
in definitive registered form (we will refer to any debt
security represented by a certificated security as a
certificated debt security) as set forth in the
applicable prospectus supplement. Except as set forth under the
heading Global Debt Securities and Book-Entry System
below, book-entry debt securities will not be issuable in
certificated form.
Certificated Debt Securities. You may
transfer or exchange certificated debt securities at any office
we maintain for this purpose in accordance with the terms of the
indenture. No service charge will be made for any transfer or
exchange of certificated debt securities, but we may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with a transfer or
exchange.
You may effect the transfer of certificated debt securities and
the right to receive the principal of, premium and interest on
certificated debt securities only by surrendering the
certificate representing those certificated debt securities and
either reissuance by us or the trustee of the certificate to the
new holder or the issuance by us or the trustee of a new
certificate to the new holder.
Global Debt Securities and Book-Entry
System. Each global debt security
representing book-entry debt securities will be deposited with,
or on behalf of, the depositary, and registered in the name of
the depositary or a nominee of the depositary.
We anticipate that the depositary will follow the following
procedures with respect to book-entry debt securities.
Ownership of beneficial interests in book-entry debt securities
will be limited to persons that have accounts with the
depositary for the related global debt security, which we refer
to as participants, or persons that may hold interests through
participants. Upon the issuance of a global debt security, the
depositary will credit, on its book-entry registration and
transfer system, the participants accounts with the
respective principal amounts of the book-entry debt securities
represented by such global debt security beneficially owned by
such participants. The accounts to be credited will be
designated by any dealers, underwriters or agents participating
in the distribution of the book-entry debt securities. Ownership
of book-entry debt securities will be shown on, and the transfer
of such ownership interests will be effected only through,
records maintained by the depositary for the related global debt
security (with respect to interests of participants) and on the
records of participants (with respect to interests of persons
holding through participants). The laws of some states may
require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may
impair the ability to own, transfer or pledge beneficial
interests in book-entry debt securities.
So long as the depositary for a global debt security, or its
nominee, is the registered owner of that global debt security,
the depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the book-entry debt
securities represented by such global debt security for all
purposes under the indenture. Except as described below,
beneficial owners of book-entry debt securities will not be
entitled to have securities registered in their names, will not
receive or be entitled to receive physical delivery of a
certificate in definitive form representing securities and will
not be considered the owners or holders of those securities
under the indenture. Accordingly, each person beneficially
owning book-entry debt securities must rely on the procedures of
the depositary for the related global debt security and, if such
person is not a participant, on the procedures of the
participant through which such person owns its interest, to
exercise any rights of a holder under the indenture.
We understand, however, that under existing industry practice,
the depositary will authorize the persons on whose behalf it
holds a global debt security to exercise certain rights of
holders of debt securities, and the
7
indenture provides that we, the trustee and our respective
agents will treat as the holder of a debt security the persons
specified in a written statement of the depositary with respect
to that global debt security for purposes of obtaining any
consents or directions required to be given by holders of the
debt securities pursuant to the indenture.
We will make payments of principal of, and premium and interest
on book-entry debt securities to the depositary or its nominee,
as the case may be, as the registered holder of the related
global debt security. We, the trustee and any other agent of
ours or agent of the trustee will not have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in a global
debt security or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
We expect that the depositary, upon receipt of any payment of
principal of, premium or interest on a global debt security,
will immediately credit participants accounts with
payments in amounts proportionate to the respective amounts of
book-entry debt securities held by each participant as shown on
the records of such depositary. We also expect that payments by
participants to owners of beneficial interests in book-entry
debt securities held through those participants will be governed
by standing customer instructions and customary practices, as is
now the case with the securities held for the accounts of
customers in bearer form or registered in street
name, and will be the responsibility of those participants.
We will issue certificated debt securities in exchange for each
global debt security if the depositary is at any time unwilling
or unable to continue as depositary or ceases to be a clearing
agency registered under the Exchange Act, and a successor
depositary registered as a clearing agency under the Exchange
Act is not appointed by us within 90 days. In addition, we
may at any time and in our sole discretion determine not to have
the book-entry debt securities of any series represented by one
or more global debt securities and, in that event, will issue
certificated debt securities in exchange for the global debt
securities of that series. Global debt securities will also be
exchangeable by the holders for certificated debt securities if
an event of default with respect to the book-entry debt
securities represented by those global debt securities has
occurred and is continuing. Any certificated debt securities
issued in exchange for a global debt security will be registered
in such name or names as the depositary shall instruct the
trustee. We expect that such instructions will be based upon
directions received by the depositary from participants with
respect to ownership of book-entry debt securities relating to
such global debt security.
We have obtained the foregoing information concerning the
depositary and the depositarys book-entry system from
sources we believe to be reliable, but we take no responsibility
for the accuracy of this information.
Change of
Control
Unless otherwise stated in the applicable prospectus supplement,
the debt securities will not contain any provisions which may
afford holders of the debt securities protection in the event we
have a change in control or in the event of a highly leveraged
transaction (whether or not such transaction results in a change
in control) which could adversely affect holders of debt
securities.
Covenants
We will set forth in the applicable prospectus supplement any
restrictive covenants applicable to any issue of debt securities.
8
Consolidation,
Merger and Sale of Assets
Unless otherwise stated in the applicable prospectus supplement,
we may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of our properties and
assets to, any person, which we refer to as a successor person,
unless:
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we are the surviving corporation or the successor person (if
other than Hanesbrands) is a corporation organized and validly
existing under the laws of any U.S. domestic jurisdiction
and expressly assumes our obligations on the debt securities and
under the indenture;
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immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time, or
both, would become an event of default, shall have occurred and
be continuing under the indenture; and
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certain other conditions that may be set forth in the applicable
prospectus supplement are met.
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Events of
Default
Unless otherwise stated in the applicable prospectus supplement,
event of default means, with respect to any series of debt
securities, any of the following:
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default in the payment of any interest upon any debt security of
that series when it becomes due and payable, and continuance of
that default for a period of 30 days (unless the entire
amount of the payment is deposited by us with the trustee or
with a paying agent prior to the expiration of the
30-day
period);
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default in the payment of principal of or premium on any debt
security of that series when due and payable at maturity, upon
redemption or otherwise;
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default in the deposit of any sinking fund payment, when and as
due in respect of any debt security of that series;
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default in the performance or breach of any other covenant or
warranty by us in the indenture (other than a covenant or
warranty that has been included in the indenture solely for the
benefit of a series of debt securities other than that series),
which default continues uncured for a period of 60 days
after we receive written notice from the trustee or we and the
trustee receive written notice from the holders of not less than
a majority in principal amount of the outstanding debt
securities of that series as provided in the indenture;
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certain events of bankruptcy, insolvency or
reorganization; and
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any other event of default provided with respect to debt
securities of that series that is described in the applicable
prospectus supplement accompanying this prospectus.
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No event of default with respect to a particular series of debt
securities (except as to certain events of bankruptcy,
insolvency or reorganization) necessarily constitutes an event
of default with respect to any other series of debt securities.
The occurrence of an event of default may constitute an event of
default under our bank credit agreements in existence from time
to time. In addition, the occurrence of certain events of
default or an acceleration under the indenture may constitute an
event of default under certain of our other indebtedness
outstanding from time to time.
If an event of default with respect to debt securities of any
series at the time outstanding occurs and is continuing, then
the trustee or the holders of not less than a majority in
principal amount of the outstanding debt securities of that
series may, by a notice in writing to us (and to the trustee if
given by the holders), declare to be due and payable immediately
the principal (or, if the debt securities of that series are
discount securities, that portion of the principal amount as may
be specified in the terms of that series) of and accrued and
unpaid interest, if any, on all debt securities of that series.
In the case of an event of default resulting from certain events
of bankruptcy, insolvency or reorganization, the principal (or
such specified amount) of and accrued and unpaid interest, if
any, on all outstanding debt securities will become and be
immediately due and
9
payable without any declaration or other act on the part of the
trustee or any holder of outstanding debt securities. At any
time after a declaration of acceleration with respect to debt
securities of any series has been made, but before a judgment or
decree for payment of the money due has been obtained by the
trustee, the holders of a majority in principal amount of the
outstanding debt securities of that series may rescind and annul
the acceleration if all events of default, other than the
non-payment of accelerated principal and interest, if any, with
respect to debt securities of that series, have been cured or
waived as provided in the indenture. We refer you to the
prospectus supplement relating to any series of debt securities
that are discount securities for the particular provisions
relating to acceleration of a portion of the principal amount of
such discount securities upon the occurrence of an event of
default.
The indenture provides that the trustee will be under no
obligation to exercise any of its rights or powers under the
indenture at the request of any holder of outstanding debt
securities, unless the trustee receives indemnity reasonably
satisfactory to it against any loss, liability or expense.
Subject to certain rights of the trustee, the holders of a
majority in principal amount of the outstanding debt securities
of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
Unless stated otherwise in the applicable prospectus supplement,
no holder of any debt security of any series will have any right
to institute any proceeding, judicial or otherwise, with respect
to the indenture or for the appointment of a receiver or
trustee, or for any remedy under the indenture, unless:
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that holder has previously given to the trustee written notice
of a continuing event of default with respect to debt securities
of that series;
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the holders of at least a majority in principal amount of the
outstanding debt securities of that series have made written
request to the trustee to pursue the remedy;
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the holder or holders offer and, if requested, provide to the
trustee indemnity reasonably satisfactory to the trustee against
any loss, liability or expense;
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the trustee does not comply with the request within
60 days; and
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the trustee has not received from the holders of a majority in
principal amount of the outstanding debt securities of that
series a direction inconsistent with that request and has failed
to institute the proceeding within 60 days.
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Notwithstanding the foregoing, the holder of any debt security
will have an absolute and unconditional right to receive payment
of the principal of, premium and any interest on that debt
security on or after the due dates expressed in that debt
security and to institute suit for the enforcement of payment.
The indenture requires us, within 120 days after the end of
our fiscal year, to furnish to the trustee a statement as to
compliance with the indenture. The indenture provides that the
trustee may withhold notice to the holders of debt securities of
any series of any default or event of default (except in payment
on any debt securities of that series) with respect to debt
securities of that series if it in good faith determines that
withholding notice is in the interest of the holders of those
debt securities.
Modification
and Waiver
We may modify and amend the indenture with the consent of the
holders of at least a majority in principal amount of the
outstanding debt securities of each series affected by the
modifications or amendments. We may not make any modification or
amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
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reduce the amount of debt securities whose holders must consent
to an amendment, supplement or waiver;
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reduce the rate of or extend the time for payment of interest
(including default interest) on any debt security;
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reduce the principal of or premium on or change the fixed
maturity of any debt security or reduce the amount of, or
postpone the date fixed for, the payment of any sinking fund or
analogous obligation with respect to any series of debt
securities;
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reduce the principal amount of discount securities payable upon
acceleration of maturity;
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waive a default in the payment of the principal of, premium or
interest on any debt security (except a rescission of
acceleration of the debt securities of any series by the holders
of at least a majority in aggregate principal amount of the then
outstanding debt securities of that series and a waiver of the
payment default that resulted from such acceleration);
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make the principal of or premium or interest on any debt
security payable in currency other than that stated in the debt
security;
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make any change to certain provisions of the indenture relating
to, among other things, the right of holders of debt securities
to receive payment of the principal of, premium and interest on
those debt securities and to institute suit for the enforcement
of any such payment and to waivers or amendments; or
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waive a redemption payment with respect to any debt security or
change any of the provisions with respect to the redemption of
any debt securities.
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Except for certain specified provisions, the holders of at least
a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all
debt securities of that series waive our compliance with
provisions of the indenture. The holders of a majority in
principal amount of the outstanding debt securities of any
series may on behalf of the holders of all the debt securities
of such series waive any past default under the indenture with
respect to that series and its consequences, except a default in
the payment of the principal of, premium or any interest on any
debt security of that series or in respect of a covenant or
provision which cannot be modified or amended without the
consent of the holder of each outstanding debt security of the
series affected; provided, however, that the holders of a
majority in principal amount of the outstanding debt securities
of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from the
acceleration.
Defeasance
of Debt Securities and Certain Covenants in Certain
Circumstances
Legal Defeasance. The indenture
provides that, unless otherwise provided by the terms of the
applicable series of debt securities, we may be discharged from
any and all obligations in respect of the debt securities of any
series (except for certain obligations to register the transfer
or exchange of debt securities of such series, to replace
stolen, lost or mutilated debt securities of such series, and to
maintain paying agencies and certain provisions relating to the
treatment of funds held by paying agents). We will be so
discharged upon the deposit with the trustee, in trust, of money
and/or
U.S. government obligations or, in the case of debt
securities denominated in a single currency other than
U.S. dollars, foreign government obligations, that, through
the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient in the opinion
of a nationally recognized firm of independent public
accountants to pay and discharge each installment of principal,
premium and interest on and any mandatory sinking fund payments
in respect of the debt securities of that series on the stated
maturity of those payments in accordance with the terms of the
indenture and those debt securities.
This discharge may occur only if, among other things, we have
delivered to the trustee an opinion of counsel stating that we
have received from, or there has been published by, the United
States Internal Revenue Service a ruling or, since the date of
execution of the indenture, there has been a change in the
applicable United States federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm
that, the holders of the debt securities of that series will not
recognize income, gain or loss for United States federal
income tax purposes as a result of the deposit, defeasance and
discharge and will be subject to United States federal income
tax on the same amounts and in the same manner and at the same
times as would have been the case if the deposit, defeasance and
discharge had not occurred.
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Defeasance of Certain Covenants. The
indenture provides that, unless otherwise provided by the terms
of the applicable series of debt securities, upon compliance
with certain conditions:
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we may omit to comply with the covenant described under the
heading Consolidation, Merger and Sale of Assets and
certain other covenants set forth in the indenture, as well as
any additional covenants which may be set forth in the
applicable prospectus supplement; and
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any omission to comply with those covenants will not constitute
a default or an event of default with respect to the debt
securities of that series, or covenant defeasance.
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The conditions include:
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depositing with the trustee money
and/or
U.S. government obligations or, in the case of debt
securities denominated in a single currency other than
U.S. dollars, foreign government obligations, that, through
the payment of interest and principal in accordance with their
terms, will provide money in an amount sufficient in the opinion
of a nationally recognized firm of independent public
accountants to pay and discharge each installment of principal
of, premium and interest on and any mandatory sinking fund
payments in respect of the debt securities of that series on the
stated maturity of those payments in accordance with the terms
of the indenture and those debt securities; and
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delivering to the trustee an opinion of counsel to the effect
that the holders of the debt securities of that series will not
recognize income, gain or loss for United States federal income
tax purposes as a result of the deposit and related covenant
defeasance and will be subject to United States federal income
tax on the same amounts and in the same manner and at the same
times as would have been the case if the deposit and related
covenant defeasance had not occurred.
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Covenant Defeasance and Events of
Default. In the event we exercise our option
to effect covenant defeasance with respect to any series of debt
securities and the debt securities of that series are declared
due and payable because of the occurrence of any event of
default, the amount of money
and/or
U.S. government obligations or foreign government
obligations on deposit with the trustee will be sufficient to
pay amounts due on the debt securities of that series at the
time of their stated maturity but may not be sufficient to pay
amounts due on the debt securities of that series at the time of
the acceleration resulting from the event of default. However,
we shall remain liable for those payments.
Guarantees
Any debt securities may be guaranteed by one or more of our
direct or indirect subsidiaries. Each prospectus supplement will
describe any guarantees for the benefit of the series of debt
securities to which it relates, including required financial
information of the subsidiary guarantors, as applicable.
Governing
Law
The indenture, the debt securities and the guarantees shall be
construed in accordance with and governed by the laws of the
State of New York, without giving effect to the principles
thereof relating to conflicts of law.
DESCRIPTION
OF CAPITAL STOCK
The following description is a summary of the material terms of
our capital stock and reflects our charter and bylaws that are
in effect as of the date of this prospectus. The following
summary of the terms of our capital stock is qualified by
reference to our bylaws, our charter and our rights plan. See
Where You Can Find More Information.
General
Our charter provides that we may issue up to 500 million
shares of common stock, par value $0.01 per share, and up to
50 million shares of preferred stock, par value $0.01 per
share, and permits our board of directors, without stockholder
approval, to amend the charter to increase or decrease the
aggregate number of
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shares of stock or the number of shares of stock of any class or
series that we have authority to issue. As of June 28,
2008, 94,038,303 shares of our common stock were issued and
outstanding, options to purchase 4,859,355 shares of our
common stock were outstanding, restricted stock units covering
1,868,332 shares of our common stock were outstanding and
no shares of our preferred stock were issued and outstanding.
500,000 shares of Preferred Stock have been classified and
designated as Junior Participating Preferred Stock,
Series A, or Series A Preferred Stock, and
reserved for issuance upon the exercise of rights under our
rights agreement. See Preferred Stock
and Certain Provisions of Maryland Law and of
Our Charter and Bylaws That Could Have the Effect of Delaying,
Deferring or Preventing a Change in Control Rights
Agreement. The Maryland General Corporation Law, or
MGCL, provides that our stockholders are generally
not obligated to us or our creditors with respect to our stock,
except to the extent that the subscription price or other agreed
upon consideration has not been paid.
Common
Stock
General. Holders of our common stock
have no preference, conversion, exchange, sinking fund,
redemption or appraisal rights. Holders of our common stock are
entitled to receive dividends when authorized by our board of
directors out of our assets legally available for the payment of
dividends. Holders of our common stock are also entitled to
share ratably in our assets legally available for distribution
to our stockholders in the event of our liquidation, dissolution
or winding up, after payment of or adequate provision for all of
our known debts and liabilities. These rights are subject to,
and may be adversely affected by, the preferential rights
granted to any other class or series of our stock.
Each outstanding share of our common stock entitles the holder
to one vote on all matters submitted to a vote of our
stockholders, including the election of directors. Except as
provided with respect to any other class or series of stock, the
holders of our common stock will possess exclusive voting power.
A plurality of all votes cast at a stockholders meeting at which
a quorum is present will be sufficient for the election of
directors, and there is no cumulative voting in the election of
directors.
Under MGCL, a Maryland corporation generally cannot dissolve,
amend its charter, merge, sell all or substantially all of its
assets, engage in a share exchange or engage in similar
transactions outside of the ordinary course of business, unless
approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter.
However, a Maryland corporation may provide in its charter for
the approval of these matters by a lesser percentage, as long as
such percentage is not less than a majority of all the votes
entitled to be cast on the matter. Our charter provides for
approval by a majority of all the votes entitled to be cast in
these situations, except for certain amendments to our charter
relating to directors.
Holders of our common stock, solely by virtue of their holdings,
do not have preemptive rights to subscribe for or purchase any
shares of our capital stock which we may issue in the future.
Our common stock is and is expected to remain uncertificated.
Therefore our stockholders will not be able to obtain stock
certificates.
Preferred Stock Purchase Rights. We
have adopted a stockholder rights agreement. Under the
stockholder rights agreement, each outstanding share of common
stock has attached to it a right entitling its holder to
purchase from us one one-thousandth of a share of Series A
Preferred Stock (subject to antidilution provisions) upon the
occurrence of certain triggering events. Until the rights
distribution date, the rights will not be evidenced by separate
certificates and may be transferred only with the common stock
to which they are attached.
For so long as the rights continue to be associated with our
common stock, each new share of common stock we issue will
include a right. Stockholders will not be required to pay any
separate consideration for the rights issued with our common
stock.
For a more detailed discussion of the rights under our rights
agreement, please see Certain Provisions of
Maryland Law and of Our Charter and Bylaws That Could Have the
Effect of Delaying, Deferring or Preventing a Change in
Control Rights Agreement.
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Preferred
Stock
The following briefly summarizes the material terms of our
preferred stock, other than pricing and related terms that will
be disclosed in an accompanying prospectus supplement. You
should read the particular terms of any series of preferred
stock offered by us, which will be described in more detail in
any prospectus supplement relating to such series, together with
the more detailed provisions of our charter, including the
articles supplementary thereto, relating to each particular
series of preferred stock for provisions that may be important
to you. The articles supplementary to our charter relating to
the particular series of preferred stock offered by an
accompanying prospectus supplement and this prospectus will be
filed as an exhibit to a document incorporated by reference in
the registration statement. The prospectus supplement will also
state whether any of the terms summarized below do not apply to
the series of preferred stock being offered.
Blank Check Preferred
Stock. Our charter authorizes our board of
directors to authorize blank check preferred stock.
Our board of directors can classify and issue from time to time
any unissued shares of preferred stock and reclassify any
previously classified but unissued shares of any series of
preferred stock. The applicable terms of a particular series of
preferred stock shall be set forth in the articles supplementary
to our charter establishing such series of preferred stock.
These terms must include, but are not limited to, some or all of
the following:
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title of the series;
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the number of shares of the series, which number our board of
directors may thereafter increase or decrease;
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whether and in what circumstances the holder is entitled to
receive dividends and other distributions;
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whether (and if so, when and on what terms) the series can be
redeemed by us or the holder or converted or exchanged by the
holder;
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whether the series will rank senior or junior to or on parity
with any other class or series of preferred stock; and
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voting and other rights of the series, if any.
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Unless otherwise described in the articles supplementary, in the
event we liquidate, dissolve or wind up our affairs, the holders
of any series of preferred stock will have preference over the
holders of common stock and any other capital stock ranking
junior to such series for payment out of our assets of the
amount specified in the applicable articles supplementary.
Holders of our preferred stock, solely by virtue of their
holdings, do not have preemptive rights to subscribe for or
purchase any shares of our capital stock which we may issue in
the future.
Series A Preferred Stock. Shares
of our Series A Preferred Stock have been reserved for
issuance upon exercise of the rights under our rights agreement.
For a more detailed discussion of our rights agreement and our
Series A Preferred Stock, see Certain
Provisions of Maryland Law and of Our Charter and Bylaws That
Could Have the Effect of Delaying, Deferring or Preventing a
Change in Control Rights Agreement. Shares of
our Series A Preferred Stock may only be purchased after
the rights have become exercisable. Each share of Series A
Preferred Stock:
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will rank junior to other senior series of stock as provided in
the terms of such series of stock and senior to our common stock;
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will entitle holders to a cumulative quarterly dividend, when,
as and if declared by our board of directors in an amount equal
to the greater of (a) $25.00, or (b) the product of
(i) 1,000 (subject to antidilution adjustment) and
(ii) the aggregate per share amount of all dividends on our
common stock since the preceding dividend payment date (or the
date of first issuance of Series A Preferred Stock if
dividends have not previously been paid thereon;
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will entitle holders to 1,000 votes (subject to antidilution
adjustment) on all matters submitted to a vote of our
stockholders;
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in the event of a liquidation, will entitle holders to a
preferred liquidation payment equal to the greater of
(a) $100, plus accrued and unpaid dividends, and
(b) an aggregate amount per share equal to the product of
(i) 1,000 (subject to antidilution adjustment) and
(ii) the aggregate amount to be distributed per share to
holders of our common stock; and
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in the event of any consolidation, merger, combination or other
transaction in which shares of our common stock are exchanged
for or changed into stock or securities of another entity, cash
and/or other
property, will entitle holders to exchange their Series A
Preferred Stock in an amount per share equal to the product of
(i) 1,000 (subject to antidilution adjustment) and
(ii) the aggregate amount of stock, securities, cash
and/or other
property into which or for which each share of our common stock
is changed or exchanged.
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The Series A Preferred Stock is not redeemable.
Transfer
Agent and Registrar
The transfer agent and registrar for the common stock is
Computershare Investor Services, LLC. The transfer agent,
registrar, dividend disbursing agent and redemption agent for
shares of each series of preferred stock will be named in the
prospectus supplement relating to such series.
New York
Stock Exchange Listing
Our common stock is listed on the New York Stock Exchange under
the symbol HBI.
Certain
Provisions of Maryland Law and of Our Charter and Bylaws That
Could Have the Effect of Delaying, Deferring or Preventing a
Change in Control
Provisions of MGCL, our charter and bylaws could make the
following more difficult:
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acquisition of us by means of a tender offer or merger;
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acquisition of us by means of a proxy contest or
otherwise; or
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removal of our incumbent officers and directors.
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These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids. These
provisions also are designed to encourage persons seeking to
acquire control of us to first negotiate with our board of
directors. We believe that the benefits of the potential ability
to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure our company outweigh the
disadvantages of discouraging those proposals because
negotiation with such proponent could result in an improvement
of their terms.
Board of Directors. Our charter and
bylaws provide that the number of our directors may be
established by the board of directors but may not be fewer than
one nor more than 25. Our charter provides that any vacancy will
be filled by a majority of the remaining directors.
Our board of directors is not currently classified. However, it
would be permissible under MGCL for our board of directors to
classify or declassify itself without stockholder approval.
Our charter provides that, subject to the rights of one or more
classes or series of preferred stock, a director may be removed
from office only for cause and then only by the affirmative vote
of at least two thirds of the votes entitled to be cast
generally in the election of directors. For the purpose of the
charter, cause means the conviction of a felony or a final
judgment of a court of competent jurisdiction holding that such
director caused demonstrable, material harm to the corporation
through bad faith or active and deliberate dishonesty.
Authority to Issue Blank Check Preferred
Stock. The rights of holders of our common
stock or preferred stock offered may be adversely affected by
the rights of holders of any shares of preferred stock that may
be issued in the future. Our board of directors may cause shares
of preferred stock to be issued in public
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or private transactions for any proper corporate purpose.
Examples of proper corporate purposes include issuances to
obtain additional financing in connection with acquisitions or
otherwise, and issuances to our or our subsidiaries
officers, directors and employees pursuant to benefit plans or
otherwise. Shares of preferred stock we issue may have the
effect of rendering more difficult or discouraging an
acquisition of us deemed undesirable by our board of directors.
Power to Reclassify Shares of Our Common and Preferred
Stock. Our charter also authorizes our board
of directors to classify and reclassify any unissued shares of
our common stock and preferred stock into other classes or
series of capital stock, and permits our board of directors,
without stockholder approval, to amend the charter to increase
or decrease the aggregate number of shares of capital stock or
the number of shares of capital stock of any class or series
that we have authority to issue. Prior to issuance of shares of
each class or series, our board of directors is required under
MGCL and by our charter to set the preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or
conditions of redemption for each class or series.
We believe that the power to issue additional shares of common
stock or preferred stock and to classify or reclassify unissued
shares of common stock or preferred stock and thereafter to
issue the classified or reclassified shares provides us with
increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs which might arise.
These actions can be taken without stockholder approval, unless
stockholder approval is required by applicable law or the rules
of any stock exchange or automated quotation system on which our
securities may be listed or traded. The New York Stock Exchange
currently requires stockholder approval as a prerequisite to
listing shares in several instances, including where the present
or potential issuance of shares could result in an increase in
the number of shares of common stock or in the amount of voting
securities outstanding by at least 20%. If the approval of our
stockholders is not required for the issuance of our common
stock or preferred stock, our board of directors may determine
not to seek stockholder approval. Although we have no present
intention of doing so, we could issue a class or series of stock
that could, depending on the terms of such class or series, have
the effect of delaying, deferring or preventing a transaction or
a change in control that might involve a premium price for
holders of common stock or otherwise be believed to be in the
best interest of our stockholders.
Business Combinations. Under the MGCL,
business combinations between a Maryland corporation
and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent
date on which the interested stockholder becomes an interested
stockholder. These business combinations include certain
mergers, consolidations, share exchanges, asset transfers or
issuances or reclassifications of equity securities. An
interested stockholder is defined as:
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any person who beneficially owns 10% or more of the voting power
of the corporations shares; or
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an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation.
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A person is not an interested stockholder under the statute if
the board of directors approved in advance the transaction by
which the stockholder otherwise would have become an interested
stockholder. However, in approving a transaction, the board of
directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms or
conditions determined by the board.
After the five-year prohibition, any business combination
between the corporation and an interested stockholder generally
must be recommended by the board of directors of the corporation
and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by the holders of
voting stock of the corporation other than voting shares held by
the interested stockholder with whom or with whose affiliate the
business combination is to be effected or held by an affiliate
or associate of the interested stockholder.
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These super-majority vote requirements do not apply to business
combinations in which the common stockholders receive a minimum
price, as defined under Maryland law, for their shares in the
form of cash or other consideration in the same form as
previously paid by the interested stockholder for its shares.
The statute provides for various exemptions from its provisions,
including business combinations that are exempted by the board
of directors prior to the time that the interested stockholder
becomes an interested stockholder.
The business combination statute could have the effect of
delaying, deferring or preventing a transaction or a change in
control that might involve a premium price for holders of our
common stock or otherwise believed to be in the best interest of
our stockholders.
Control Share
Acquisitions. Marylands control share
acquisition act provides that control shares of a Maryland
corporation acquired in a control share acquisition have no
voting rights, except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares
entitled to vote on the matter. Control shares are voting shares
of stock, which, if aggregated with all other shares of stock
owned by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within
one of the following ranges:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority; or
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a majority or more of all voting power.
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Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition may compel the board of directors of the corporation
to call a special meeting of stockholders, to be held within
50 days after a request and written undertaking, to
consider the voting rights of the control shares. The right to
compel the calling of a special meeting is subject to the
satisfaction of certain conditions, including delivery of an
acquiring person statement and a written undertaking to pay the
expenses of the meeting. If no request for a meeting is made,
the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then the corporation may redeem for
fair value any or all of the control shares, except those for
which voting rights have previously been approved. The right of
the corporation to redeem control shares is subject to certain
conditions and limitations. Fair value of the control shares is
determined, without regard to the absence of voting rights for
the control shares, as of the date of the last control share
acquisition by the acquiror or, if a meeting of stockholders is
held at which the voting rights of the shares are considered and
not approved, as of the date of such meeting. If voting rights
for control shares are approved at a stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may elect to exercise
appraisal rights.
The fair value of the shares as determined for purposes of
appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction, or to acquisitions
approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting any and all
acquisitions by any person of shares of our stock from
Marylands control share acquisition act. Our board of
directors may, however, amend or eliminate this provision in the
future without stockholder approval.
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Amendments to the Charter. Subject to
certain exceptions, our charter may be amended only if declared
advisable by the board of directors and approved by the
affirmative vote of the holders of not less than a majority of
all of the votes entitled to be cast on the matter. Among the
exceptions provided for in the charter, the board of directors
may, without action by our stockholders, amend our charter to
increase or decrease the aggregate number of shares of capital
stock or the number of shares of capital stock of any class or
series that we have authority to issue, or change the name or
designation or par value of any class or series of our capital
stock or the aggregate par value. In addition, certain
amendments to provisions of our charter relating to removal of
directors require the affirmative vote of the holders of not
less than two-thirds of all the votes entitled to be cast on the
matter.
Advance Notice of Director Nominations and New
Business. Our bylaws provide that with
respect to an annual meeting of stockholders, nominations of
persons for election to the board of directors and the proposal
of other business to be considered by stockholders may be made
only:
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pursuant to our notice of the meeting;
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by or at the direction of the board of directors; or
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by a stockholder who is a holder of record at both the time of
giving notice and the time of the meeting and who is entitled to
vote at the meeting and who has complied with the advance notice
procedures provided for in our bylaws.
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In order to comply with the advance notice procedures of our
bylaws, a stockholder must give written notice to our corporate
secretary at least 120 days, but no more that 150 days
in advance of the anniversary of the date that we mailed the
notice for the preceding years annual meeting. For
nominations to the board, the notice must include information
about the director nominee, including his or her name, holdings
of our stock, as well as information required by SEC rules
regarding elections to boards of directors. For other business
that a stockholder proposes to bring before the meeting, the
notice must include the reasons for proposing the business at
the meeting and a discussion of the stockholders material
interest in such business. Whether the notice relates to a
nomination to the board of directors or to other business to be
proposed at the meeting, among other information, the notice
also must include information about the stockholder and the
stockholders holdings of our stock.
With respect to special meetings of stockholders, only the
business specified in our notice of the special meeting may be
brought before the meeting. Nominations of persons for election
to the board of directors at a special meeting may be made only:
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pursuant to our notice of the special meeting;
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by or of the direction of the board of directors; or
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provided that the board of directors has determined that
directors shall be elected at such special meeting, by a
stockholder who is a holder of record at both the time of giving
notice and the time of the meeting and who is entitled to vote
at the meeting and who has complied with the advance notice
procedures provided for in our bylaws.
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Stockholder Action by Written
Consent. Our bylaws provide that any action
required or permitted to be taken by our stockholders may be
taken without a meeting only by a unanimous written consent of
all of the stockholders entitled to vote on the matter or, if
the action is advised and submitted to the stockholders for
approval by the board of directors, by a written consent of
stockholders entitled to cast not less than the minimum number
of votes that would be necessary for such action at a meeting of
stockholders.
Rights Agreement. Pursuant to our
stockholder rights agreement, one preferred stock purchase right
is distributed with and attached to each share of our common
stock. Each right will entitle its holder, under the
circumstances described below, to purchase from us one
one-thousandth of a share of our Series A Preferred Stock
at an initial exercise price per right of $75.00 per
one-thousandth of a share of Series A Preferred Stock,
subject to certain adjustments. The description and terms of the
rights are set forth in a rights agreement between us and
Computershare Investor Services, LLC, as rights agent. The
following description of the rights
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is a summary and is qualified in its entirety by reference to
the rights agreement, which has been included as an exhibit to
the registration statement of which this prospectus is a part.
Initially, the rights will be associated with our common stock
and evidenced by book-entry statements, which will contain a
notation incorporating the rights by reference. Each right
initially will be transferable with and only with the transfer
of the underlying share of common stock. The rights will become
exercisable and separately certificated only upon the rights
distribution date, which will occur upon the earlier of:
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ten days following a public announcement by us that a person or
group (an acquiring person) has acquired, or
obtained the right to acquire, beneficial ownership of 15% or
more of our outstanding shares of common stock (the date of the
announcement being the stock acquisition
date); or
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ten business days (or later if so determined by our board of
directors) following the commencement of or public disclosure of
an intention to commence a tender offer or exchange offer by a
person if, after acquiring the maximum number of securities
sought pursuant to such offer, such person, or any affiliate or
associate of such person, would acquire, or obtain the right to
acquire, beneficial ownership of 15% or more of our outstanding
shares of our common stock.
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Until the rights distribution date, the transfer of any shares
of common stock outstanding also will constitute the transfer of
the rights associated with such shares.
As soon as practicable after the rights distribution date, the
rights agent will mail to each record holder of our common stock
as of the close of business on the rights distribution date
certificates evidencing the rights. From and after the rights
distribution date, the separate certificates alone will
represent the rights. Except as otherwise provided in the rights
agreement, only shares of common stock issued or sold by
Hanesbrands prior to the rights distribution date will receive
rights.
The rights are not exercisable until the rights distribution
date and will expire ten years from September 1, 2006,
unless earlier redeemed or exchanged by us as described below.
Upon our public announcement that a person or group has become
an acquiring person (a flip-in event), each holder
of a right (other than any acquiring person and certain related
parties, whose rights will have automatically become null and
void) will have the right to receive, upon exercise, common
stock with a current market value equal to two times the
exercise price of the right. Under the stockholder rights
agreement current market value as of a particular date means the
average of the daily closing prices per share for the thirty
consecutive trading days immediately prior to such date.
For example, at an exercise price of $75 per right, each right
not owned by an acquiring person (or by certain related parties)
following a flip-in event would entitle its holder to purchase
$150 worth of common stock (as described above) for $75.
Assuming that the common stock had a current market value of $50
per share at that time, the holder of each valid right would be
entitled to purchase three shares of common stock for $150.
In the event that, at any time after a person becomes an
acquiring person:
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we are acquired in a merger or other business combination in
which we are not the surviving entity;
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we are acquired in a merger or other business combination in
which we are the surviving entity and all or part of our common
stock is converted into or exchanged for securities of another
entity, cash or other property;
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we effect a share exchange in which all or part of our common
stock is exchanged for securities of another entity, cash or
other property; or
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50% or more of our assets or earning power is sold or
transferred,
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(the above events being business combinations) then
each holder of a right (except rights which previously have been
voided as described above) will have the right to receive, upon
exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the right.
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The exercise price of the rights, the number of shares of
Series A Preferred Stock issuable and the number of
outstanding rights will adjust to prevent dilution that may
occur from a stock dividend, a stock split or a reclassification
of the Series A Preferred Stock or common stock.
We may redeem the rights in whole, but not in part, at a price
of $0.001 per right (subject to adjustment and payable in cash,
common stock or other consideration deemed appropriate by our
board of directors) at any time prior to the earlier of the
stock acquisition date and the rights expiration date.
Immediately upon the action of our board of directors
authorizing any redemption, the rights will terminate and the
holders of rights will only be entitled to receive the
redemption price.
At any time after a person becomes an acquiring person and prior
to the earlier of (i) the time any person, together with
all affiliates and associates, becomes the beneficial owner of
50% or more of our outstanding common stock and (ii) the
occurrence of a business combination, our board of directors may
cause us to exchange for all or part of the then-outstanding and
exercisable rights shares of our common stock at an exchange
ratio of one common share per right, adjusted to reflect any
stock split, stock dividend or similar transaction.
Until a right is exercised, its holder, as such, will have no
rights as a stockholder with respect to such rights, including,
without limitation, the right to vote or to receive dividends.
While the distribution of the rights will not result in the
recognition of taxable income by our stockholders or us,
stockholders may, depending upon the circumstances, recognize
taxable income after a triggering event.
The terms of the rights may be amended by our board of directors
without the consent of the holders of the rights. From and after
the stock acquisition date, however, no amendment can adversely
affect the interests of the holders of the rights.
The rights will have certain anti-takeover effects. For example,
the rights will cause substantial dilution to any person or
group who attempts to acquire a significant interest in us
without advance approval from our board of directors. As a
result, the overall effect of the rights may be to render it
more difficult or to discourage any attempt to acquire us, even
if the acquisition would be in the best interest of our
stockholders. Because we can redeem the rights, the rights will
not interfere with a merger or other business combination
approved by our board of directors.
DESCRIPTION
OF WARRANTS
We may issue warrants for the purchase of debt securities,
common stock or preferred stock. We may issue warrants
independently or together with any other securities offered by
any prospectus supplement and may be attached to or separate
from the other offered securities. Each series of warrants will
be issued under a separate warrant agreement to be entered into
by us with a warrant agent. The warrant agent will act solely as
our agent in connection with the series of warrants and will not
assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of the warrants. Further
terms of the warrants and the applicable warrant agreements will
be set forth in the applicable prospectus supplement. As of the
date of this prospectus we have no warrants outstanding.
The applicable prospectus supplement will describe the terms of
the warrants in respect of which this prospectus is being
delivered, including, where applicable, the following:
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the title of the warrants;
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the aggregate number of the warrants;
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the price or prices at which the warrants will be issued;
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the designation, terms and number of shares of debt securities,
common stock or preferred stock purchasable upon exercise of the
warrants;
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the designation and terms of the offered securities, if any,
with which the warrants are issued and the number of the
warrants issued with each offered security;
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the date, if any, on and after which the warrants and the
related debt securities, common stock or preferred stock will be
separately transferable;
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the price at which each share of debt securities, common stock
or preferred stock purchasable upon exercise of the warrants may
be purchased;
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the date on which the right to exercise the warrants shall
commence and the date on which that right shall expire;
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the minimum or maximum amount of the warrants which may be
exercised at any one time;
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information with respect to book-entry procedures, if any;
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a discussion of certain Federal income tax
considerations; and
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any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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DESCRIPTION
OF DEPOSITARY SHARES
We may, at our option, elect to offer fractional or multiple
shares of preferred stock, rather than single shares of
preferred stock. In the event we exercise this option, we will
issue receipts for depositary shares, each of which will
represent a fraction or multiple of, to be described in an
applicable prospectus supplement, of shares of a particular
series of preferred stock. The preferred stock represented by
depositary shares will be deposited under a deposit agreement
between us and a bank or trust company selected by us and having
its principal office in the United States and having a combined
capital and surplus of at least $50,000,000. Subject to the
terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion to the applicable preferred
stock or fraction or multiple thereof represented by the
depositary share, to all of the rights and preferences of the
preferred stock or other equity stock represented thereby,
including any dividend, voting, redemption, conversion or
liquidation rights. For an additional description of our common
stock and preferred stock, see the descriptions in this
prospectus under the heading Description of Capital
Stock.
The depositary shares will be evidenced by depositary receipts
issued pursuant to the deposit agreement. The particular terms
of the depositary shares offered by any prospectus supplement
will be described in the prospectus supplement, which will also
include a discussion of certain U.S. federal income tax
consequences.
A copy of the form of deposit agreement, including the form of
depositary receipt, will be included as an exhibit to the
registration statement or a current report on
Form 8-K
incorporated by reference herein.
DESCRIPTION
OF STOCK PURCHASE UNITS
AND STOCK PURCHASE CONTRACTS
We may issue stock purchase contracts, including contracts
obligating holders to purchase from us, and us to sell to the
holders, a specified number of shares of common stock at a
future date or dates. The price per share of common stock and
the number of shares of common stock may be fixed at the time
the stock purchase contracts are issued or may be determined by
reference to a specific formula stated in the stock purchase
contracts.
The stock purchase contracts may be issued separately or as part
of units that we call stock purchase units. Stock
purchase units consist of a stock purchase contract and either
our debt securities or debt obligations of third parties,
including U.S. treasury securities, securing the
holders obligations to purchase the common stock under the
stock purchase contracts.
The stock purchase contracts may require us to make periodic
payments to the holders of the stock purchase units or vice
versa, and these payments may be unsecured or refunded on some
basis. The stock purchase contracts may require holders to
secure their obligations in a specified manner.
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The applicable prospectus supplement will describe the terms of
the stock purchase contracts or stock purchase units. The
description in the prospectus supplement will only be a summary,
and you should read the stock purchase contracts, and, if
applicable, collateral or depositary arrangements, relating to
the stock purchase contracts or stock purchase units. Material
United States federal income tax considerations applicable to
the stock purchase units and the stock purchase contracts will
also be discussed in the applicable prospectus supplement.
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PLAN OF
DISTRIBUTION
We may sell the securities offered pursuant to this prospectus
in any of the following ways:
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directly to one or more purchasers;
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through agents;
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through underwriters, brokers or dealers; or
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through a combination of any of these methods of sale.
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We will identify the specific plan of distribution, including
any underwriters, brokers, dealers, agents or direct purchasers
and their compensation, in a prospectus supplement.
LEGAL
MATTERS
Kirkland & Ellis LLP, Chicago, Illinois or Venable
LLP, Baltimore, Maryland will issue an opinion about certain
legal matters with respect to the securities. Any underwriters
or agents will be advised about other issues relating to any
offering by counsel named in the applicable prospectus
supplement.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus by reference to the Annual Report on
Form 10-K
for the fiscal year ended December 29, 2007 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You can inspect, read and
copy these reports, proxy statements and other information at
the public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549. We
make available free of charge at www.hanesbrands.com (in the
Investors section) copies of materials we file with,
or furnish to, the SEC. You can also obtain copies of these
materials at prescribed rates by writing to the Public Reference
Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information on the
operation of the public reference facilities by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that makes
available reports, proxy statements and other information
regarding issuers that file electronically with it. By referring
to our website and the SECs website, we do not incorporate
such websites or their contents into this prospectus.
This prospectus is one part of a registration statement filed on
Form S-3
with the SEC under the Securities Act. This prospectus does not
contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration
statement. For further information concerning us and the
securities, you should read the entire registration statement
and the additional information described under
Incorporation of Certain Information by Reference
below. The registration statement has been filed electronically
and may be obtained in any manner listed above. Any statements
contained herein concerning the provisions of any document are
not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the
registration statement or otherwise filed with the SEC. Each
such statement is qualified in its entirety by such reference.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference
information into this prospectus, which means that we can
disclose important information about us by referring you to
another document filed separately with the
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SEC. The information incorporated by reference is considered to
be a part of this prospectus. This prospectus incorporates by
reference the documents and reports listed below (other than
portions of these documents deemed to be furnished
or not deemed to be filed, including the portions of
these documents that are either (1) described in paragraphs
(d)(1), (d)(2), (d)(3) or (e)(5) of Item 407 of
Regulation S-K
promulgated by the SEC or (2) furnished under
Item 2.02 or Item 7.01 of a Current Report on
Form 8-K,
including any exhibits included with such Items):
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our Annual Report on
Form 10-K
for the fiscal year ended December 29, 2007;
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our Quarterly Reports on
Form 10-Q
for the fiscal quarters ended March 29, 2008 and
June 28, 2008;
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our Current Reports on
Form 8-K
filed on February 1, 2008 and May 8, 2008;
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our Definitive Proxy Statement on Schedule 14A filed on
March 10, 2008; and
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the description of our common stock contained in our
Registration Statement on Form 10 filed with the SEC on
August 10, 2006.
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We also incorporate by reference the information contained in
all other documents we file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
(other than portions of these documents deemed to be
furnished or not deemed to be filed,
including the portions of these documents that are either
(1) described in paragraphs (d)(1), (d)(2), (d)(3) or
(e)(5) of Item 407 of
Regulation S-K
promulgated by the SEC or (2) furnished under
Item 2.02 or Item 7.01 of a Current Report on
Form 8-K,
including any exhibits included with such Items, unless
otherwise specifically indicated therein) after the date of this
prospectus and prior to the termination of this offering. The
information contained in any such document will be considered
part of this prospectus from the date the document is filed with
the SEC.
Any statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference in this
prospectus will be deemed to be modified or superseded to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement so modified or
superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
We undertake to provide without charge to any person, including
any beneficial owner, to whom a copy of this prospectus is
delivered, upon oral or written request of such person, a copy
of any or all of the documents that have been incorporated by
reference in this prospectus, other than exhibits to such other
documents (unless such exhibits are specifically incorporated by
reference therein). We will furnish any exhibit not specifically
incorporated by reference upon the payment of a specified
reasonable fee, which fee will be limited to our reasonable
expenses in furnishing such exhibit. All requests for such
copies should be directed to Corporate Secretary, Hanesbrands
Inc., 1000 East Hanes Mill Road, Winston-Salem, North Carolina
27105.
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