UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



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

For the transition period from to

Commission file number: 001-32891

Hanesbrands Inc.

(Exact name of registrant as specified in its charter)



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

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

(336) 519-8080

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨	Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~October~~July 27, ~~2017,~~2018, there were ~~364,584,181~~360,507,281 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS



		Page
Forward-Looking Statements		1
Where You Can Find More Information		1

PART I
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Income for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~October~~July 1, ~~2016~~2017	2
	Condensed Consolidated Statements of Comprehensive Income for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~October~~July 1, ~~2016~~2017	3
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2018 and December ~~31, 2016~~30, 2017	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~October~~July 1, ~~2016~~2017	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3029
Item 4.	Controls and Procedures	3029

PART II
Item 1.	Legal Proceedings	3130
Item 1A.	Risk Factors	3130
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3130
Item 3.	Defaults Upon Senior Securities	3130
Item 4.	Mine Safety Disclosures	3130
Item 5.	Other Information	3130
Item 6.	Exhibits	3231
Signatures		3332

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, statements under the heading “Outlook” and other information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include 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, expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that the expectation or belief will result or will be achieved or accomplished. More information on factors that could cause actual results or events to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”), including this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017, under the caption “Risk Factors,” and available on the “Investors” section of our corporate website, www.Hanes.com/investors.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017, particularly under the caption “Risk Factors.” 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.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. To receive copies of public records not posted to the SEC’s web site at prescribed rates, you may complete an online form at www.sec.gov, send a fax to (202) 772-9337 or submit a written request to the SEC, Office of FOIA/PA Operations, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information.

We make available free of charge at www.Hanes.com/investors (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.Hanes.com/corporate, or any of our other websites, we do not incorporate any such website or its contents into this Quarterly Report on Form 10-Q.

PART I



Item 1.	Financial Statements

HANESBRANDS INC.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)


	Quarter Ended				Nine Months Ended					Quarter Ended				Six Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016		June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017
Net sales	$	1,799,270	$	1,761,019	$	4,826,235		$	4,452,890	$	1,715,443	$	1,646,610	$	3,186,947	$	3,026,965
Cost of sales	1,120,813		1,111,653		2,962,345			2,788,977		1,055,487		1,000,708		1,948,070		1,841,532
Gross profit	678,457		649,366		1,863,890			1,663,913		659,956		645,902		1,238,877		1,185,433
Selling, general and administrative expenses	425,153		421,014		1,260,641			1,091,946		439,893		412,197		872,756		825,299
Operating profit	253,304		228,352		603,249			571,967		220,063		233,705		366,121		360,134
Other expenses	1,881		1,559		4,659			50,533		6,570		6,422		12,331		12,967
Interest expense, net	43,917		43,433		130,184			111,539		48,430		44,130		94,193		86,267
Income from continuing operations before income tax expense	207,506		183,360		468,406			409,895		165,063		183,153		259,597		260,900
Income tax expense	4,150		10,570		19,804			28,693		24,430		10,989		39,555		15,654
Income from continuing operations	203,356		172,790		448,602			381,202		140,633		172,164		220,042		245,246
Income (loss) from discontinued operations, net of tax	—		1,068		(2,097		)	1,068		—		368		—		(2,097		)
Net income	$	203,356	$	173,858	$	446,505		$	382,270	$	140,633	$	172,532	$	220,042	$	243,149

Earnings per share — basic:
Earnings (loss) per share — basic:
Continuing operations	$	0.56	$	0.46	$	1.22		$	1.00	$	0.39	$	0.47	$	0.61	$	0.66
Discontinued operations	—		—		(0.01		)	—		—		—		—		(0.01		)
Net income	$	0.56	$	0.46	$	1.21		$	1.00	$	0.39	$	0.47	$	0.61	$	0.66

Earnings per share — diluted:
Earnings (loss) per share — diluted:
Continuing operations	$	0.55	$	0.45	$	1.21		$	0.99	$	0.39	$	0.47	$	0.61	$	0.66
Discontinued operations	—		—		(0.01		)	—		—		—		—		(0.01		)
Net income	$	0.55	$	0.45	$	1.20		$	0.99	$	0.39	$	0.47	$	0.61	$	0.65

HANESBRANDS INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Quarter Ended					Nine Months Ended				Quarter Ended						Six Months Ended
	September 30, 2017		October 1, 2016			September 30, 2017		October 1, 2016		June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Net income	$	203,356	$	173,858		$	446,505	$	382,270	$	140,633		$	172,532		$	220,042		$	243,149
Other comprehensive income (loss), net of tax of $1,427, ($247), $7,870 and ($701), respectively	5,051		(2,713		)	9,349		13,691
Other comprehensive income (loss), net of tax of ($9,982), $2,351, ($11,079) and $6,443, respectively										(21,855		)	(11,928		)	(33,348		)	4,298
Comprehensive income	$	208,407	$	171,145		$	455,854	$	395,961	$	118,778		$	160,604		$	186,694		$	247,447

HANESBRANDS INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	September 30, 2017			December 31, 2016			June 30, 2018			December 30, 2017
Assets
Cash and cash equivalents	$	400,045		$	460,245		$	397,971		$	421,566
Trade accounts receivable, net	1,009,188			836,924			973,807			903,318
Inventories	1,953,918			1,840,565			2,112,211			1,874,990
Other current assets	196,875			137,535			132,757			186,496
Current assets of discontinued operations	—			45,897
Total current assets	3,560,026			3,321,166			3,616,746			3,386,370
Property, net	624,602			692,464			617,302			623,991
Trademarks and other identifiable intangibles, net	1,371,007			1,285,458			1,610,567			1,402,857
Goodwill	1,141,942			1,098,540			1,259,010			1,167,007
Deferred tax assets	504,059			464,872			218,269			234,932
Other noncurrent assets	79,087			67,980			105,992			79,618
Total assets	$	7,280,723		$	6,930,480		$	7,427,886		$	6,894,775

Liabilities and Stockholders’ Equity
Accounts payable	$	852,671		$	761,647		$	935,176		$	867,649
Accrued liabilities	614,599			619,795			506,360			649,634
Notes payable	23,969			56,396			14,540			11,873
Accounts Receivable Securitization Facility	250,995			44,521			153,386			125,209
Current portion of long-term debt	154,395			133,843			181,349			124,380
Current liabilities of discontinued operations	—			9,466
Total current liabilities	1,896,629			1,625,668			1,790,811			1,778,745
Long-term debt	3,566,547			3,507,685			4,149,201			3,702,054
Pension and postretirement benefits	378,573			371,612			388,256			405,238
Other noncurrent liabilities	207,807			201,601			332,427			322,536
Total liabilities	6,049,556			5,706,566			6,660,695			6,208,573

Stockholders’ equity:
Preferred stock (50,000,000 authorized shares; $.01 par value)
Issued and outstanding — None	—			—			—			—
Common stock (2,000,000,000 authorized shares; $.01 par value)
Issued and outstanding — 364,571,559 and 378,687,052, respectively	3,646			3,787
Issued and outstanding — 360,503,574 and 360,125,894, respectively							3,605			3,601
Additional paid-in capital	267,675			260,002			275,120			271,462
Retained earnings	1,386,488			1,396,116			961,020			850,345
Accumulated other comprehensive loss	(426,642		)	(435,991		)	(472,554		)	(439,206		)
Total stockholders’ equity	1,231,167			1,223,914			767,191			686,202
Total liabilities and stockholders’ equity	$	7,280,723		$	6,930,480		$	7,427,886		$	6,894,775

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

	Nine Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			June 30, 2018			July 1, 2017
Operating activities:
Net income	$	446,505		$	382,270		$	220,042		$	243,149
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization of long-lived assets	89,762			73,715			65,493			58,095
Write-off on early extinguishment of debt	2,153			12,667			—			1,559
Charges incurred for amendments of credit facilities	—			34,624
Amortization of debt issuance costs	7,943			6,401			4,627			5,437
Stock compensation expense	6,351			16,292			3,033			4,388
Deferred taxes and other	(12,744		)	(18,938		)	(6,709		)	6,543
Changes in assets and liabilities, net of acquisition of businesses:
Changes in assets and liabilities, net of acquisition of business:
Accounts receivable	(147,933		)	(198,217		)	(81,512		)	(79,429		)
Inventories	(74,945		)	4,557			(244,743		)	(130,554		)
Other assets	(42,664		)	(6,167		)	(6,193		)	(48,901		)
Accounts payable	71,264			(80,589		)	68,777			9,019
Accrued pension and postretirement benefits	15,021			(34,419		)	(7,438		)	11,025
Accrued liabilities and other	(29,623		)	16,095			(79,775		)	(46,081		)
Net cash from operating activities	331,090			208,291			(64,398		)	34,250
Investing activities:
Purchases of property, plant and equipment	(60,418		)	(65,439		)	(40,640		)	(30,838		)
Proceeds from sales of assets	4,398			68,701			1,840			4,378
Acquisition of businesses, net of cash acquired	(524		)	(963,127		)
Acquisition of business, net of cash acquired							(334,916		)	(524		)
Disposition of businesses	40,285			—			—			40,285
Net cash from investing activities	(16,259		)	(959,865		)	(373,716		)	13,301
Financing activities:
Borrowings on notes payable	212,804			854,915			153,901			141,384
Repayments on notes payable	(249,708		)	(943,893		)	(153,772		)	(128,987		)
Borrowings on Accounts Receivable Securitization Facility	342,315			194,549			114,477			262,216
Repayments on Accounts Receivable Securitization Facility	(135,841		)	(145,638		)	(86,300		)	(103,128		)
Borrowings on Revolving Loan Facilities	2,957,799			2,995,442			2,025,860			2,147,299
Repayments on Revolving Loan Facilities	(2,738,000		)	(2,992,000		)	(1,498,000		)	(1,747,500		)
Borrowings on Senior Notes	—			2,359,347
Repayments on Senior Notes	—			(1,000,000		)
Borrowings on Term Loan Facilities	—			301,272
Repayments on Term Loan Facilities	(201,281		)	(154,670		)	(21,250		)	(128,215		)
Borrowings on International Debt	—			8,368
Repayments on International Debt	(44,073		)	(11,186		)	(1,105		)	(43,141		)
Share repurchases	(299,919		)	(379,901		)	—			(299,919		)
Cash dividends paid	(165,211		)	(125,798		)	(108,115		)	(110,529		)
Payments to amend and refinance credit facilities	(559		)	(79,492		)
Payment of contingent consideration	(41,250		)	—			(3,540		)	(41,250		)
Taxes paid related to net shares settlement of equity awards	(8,075		)	(2,919		)	(4,185		)	(6,228		)
Other	3,401			1,529			(88		)	2,787
Net cash from financing activities	(367,598		)	879,925			417,883			(55,211		)
Effect of changes in foreign exchange rates on cash	(7,433		)	2,693			20,176			(3,170		)
Change in cash and cash equivalents	(60,200		)	131,044
Change in cash, cash equivalents and restricted cash							(55		)	(10,830		)
Cash and cash equivalents at beginning of year	460,245			319,169			421,566			460,245
Cash and cash equivalents at end of period	$	400,045		$	450,213
Cash, cash equivalents and restricted cash at end of period							421,511			449,415
Less restricted cash at end of period							23,540			—
Cash and cash equivalents per balance sheet at end of period							$	397,971		$	449,415

See accompanying notes to Condensed Consolidated Financial Statements.

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)


(1)	Basis of Presentation

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes that the disclosures made are adequate for a fair statement of the results of operations, financial condition and cash flows of Hanesbrands Inc.~~, a Maryland corporation,~~ and its consolidated subsidiaries (the “Company” or “Hanesbrands”). In the opinion of management, the condensed consolidated interim financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the interim periods presented herein. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts and disclosures. Actual results may vary from these estimates. ~~Three~~Four subsidiaries of the Company close on ~~the calendar month-end,~~a day which is less than a week different than the Company’s consolidated quarter end. The difference in reporting of financial information for these subsidiaries did not have a material impact on the Company’s financial condition, results of operations or cash flows.

As a result of further policy harmonization related to acquired businesses, certain prior year amounts in the condensed consolidated financial statements, none of which are material, have been reclassified to conform with the current year presentation. The reclassification on the Condensed Consolidated Balance Sheet is between the “Trade accounts receivable, net” line and the “Accrued liabilities” line of $22,746 as of December 31, 2016. The reclassification on the Condensed Consolidated Statement of Cash Flow is between the “Accounts Receivable” and the “Accrued liabilities and other” line of $2,744 for the nine months ended October 1, 2016. This reclassification had no impact on the Company’s results of operations.

These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.


(2)	Recent Accounting Pronouncements

~~Inventory~~

In July 2015, the FASB issued ASU 2015-11, “Inventory: Simplifying the Measurement of Inventory”, which requires inventory to be recorded at the lower of cost or net realizable value. The new standard was effective for the Company in the first quarter of 2017. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

~~Hedge Accounting~~

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”, which clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. The new standard, which can be adopted prospectively or on a modified retrospective basis, was effective for the Company in the first quarter of 2017. Also in March 2016, the FASB issued ASU 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments”, which clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The new standard was effective for the Company in the first quarter of 2017. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations and cash flows.

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

Revenue from Contracts with Customers

In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, a new accounting standard on revenue recognition that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. The new standard ~~will be~~was effective for the Company in the first quarter of 2018 and ~~can be~~ applied using a modified retrospective ~~or full retrospective~~ method. The Company has established an implementation team consisting of finance, accounting and front-end business partners to analyze the impact of the guidance across all of its revenue sources. The Company has evaluated the new standard against its existing accounting policies and practices, including reviewing standard purchase orders, invoices, shipping terms, conducting questionnaires with our global team and reviewing contracts with customers. The Company has not identified any information that would indicate that the new guidance will have a material impact on the Company’s financial statements. The Company expects to haveincluded enhanced disclosures related to disaggregation of revenue sources and accounting policies. The ~~Company expects to adopt~~adoption of the new ~~standard~~accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows, but did result in ~~the first quarter of 2018 using the modified retrospective transition method.~~additional disclosures. Refer to Note, “Revenue Recognition.”

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash ~~Payments”. Issues addressed in the~~Payments.” The new guidance ~~that are relevant to~~addresses the ~~Company include~~classification of debt prepayment and extinguishment costs and contingent consideration payments made after a business ~~combination and beneficial interests in securitization transactions.~~combination. The new ~~rules will be~~standard was effective for the Company in the first quarter of 2018. The ~~Company does not expect the~~ adoption of the new accounting rules todid not have a material impact on the Company’s financial condition, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” This standard requires that restricted cash and restricted cash equivalents be included in cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. The Company adopted the provisions of ASU 2016-18 in the first quarter of 2018 using the retrospective transition method. The Company did not have restricted cash in prior periods, therefore the adoption of the new guidance did not have an impact to previously reported cash flows. The Condensed Consolidated Statement of Cash Flow for the six months ended June 30, 2018 includes restricted cash of $23,540.

Retirement Benefits

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The new standard was effective for the Company in the first quarter of 2018 and applied with retrospective treatment. Accordingly, the Company reclassified $5,028 and $10,189 from the “Selling, general and administrative expenses” line to the “Other expenses” line within the Condensed Consolidated Statements of Income for the quarter and six months ended July 1, 2017, respectively. The adoption of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Income Taxes

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than ~~Inventory”.~~Inventory.” The new rules eliminate the exception for an intra-entity transfer of an asset other than inventory, which aligns the recognition of income tax consequences for such transfers. The new rules require the recognition of current and deferred income taxes resulting from these transfers when the transfer occurs rather than when it is sold to an external party. The new ~~rules will be~~standard was effective for the Company in the first quarter of 2018. The ~~Company does not expect the~~ adoption of the new accounting rules todid not have a material impact on the Company’s financial condition, results of operations ~~and~~or cash flows.

In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740).” The new rules amended the SEC Staff Accounting Bulletin No. 118 (“SAB 118”) to incorporate the impact of the Tax Cuts and Jobs Act. The new standard was effective for the Company in the first quarter of 2018 and will be considered in the Company’s tax related disclosures throughout the year.

Definition of a Business

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a ~~Business”.~~Business.” The new rules provide for the application of a screen test to consider whether substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If the screen test determines this to be true, the set is not a business. The new ~~rules will be~~standard was effective for the Company in the first quarter of 2018. The ~~Company does not expect the~~ adoption of the new accounting rules todid not have a material impact on the Company’s financial condition, results of operations ~~and cash flows.~~

~~Compensation Retirement Benefits~~

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost”. The new rules require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The new rules will be effective for the Company in the first quarter of 2018. Early adoption is permitted. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows.

Stock Compensation

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification ~~Accounting”.~~Accounting.” The new rules provide guidance about which changes to the terms or conditions of a share-based payment award

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

require an entity to apply modification accounting. Under the new rules, an entity should account for the effects of a modification unless the fair value, vesting conditions and classification of the modified award are the same as the original award immediately before the original award is modified. The new ~~rules will be~~standard was effective for the Company in the first quarter of 2018. ~~Early~~The adoption ~~is permitted.~~of the new accounting rules did not have a material impact on the Company’s financial condition, results of operations or cash flows.

Financial Instruments

In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10).” The new rules clarify previously issued guidance regarding determination of the fair value of financial instruments. The new standard will be effective for the Company in the third quarter of 2018. The Company does not expect the adoption of the new accounting ~~rules~~standard to have a material impact on the Company’s financial condition, results of operations and cash flows.

Lease Accounting

In February 2016, the FASB issued ASU 2016-02, ~~“Leases”,~~“Leases,” which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. The standard will also result in enhanced quantitative and qualitative disclosures surrounding leases. The new rules will be effective for the Company in the first quarter of 2019. The Company has established a cross-functional implementation team to analyze the impact and implement the new standard. The

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

Company has collected relevant data in order to evaluate lease arrangements, assess potential embedded leases and evaluate accounting policy elections. The Company is ~~currently~~also evaluating its processes and internal controls to identify any changes necessary as a result of the new rules. To assist in the ~~process~~implementation and enable the preparation of the required financial disclosures, the Company has identified a global lease management and accounting software. While the Company is still evaluating the impact of ~~adoption of~~ the new rules, the Company expects that this adoption will result in material increases in assets and liabilities in its consolidated balance sheet and enhanced disclosures and has not identified any information that would indicate that the new guidance will have a material impact on the Company’s ~~financial condition,~~ results of operations ~~and~~or cash flows.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging ~~Activities”.~~Activities.” The new rules expand the hedging strategies that qualify for hedge accounting, including contractually-specified price components of a commodity purchase or sale, hedges of the benchmark rate component of the contractual coupon cash flows of fixed-rate assets and liabilities, hedges of the portion of a closed portfolio of prepayable assets and partial-term hedges of fixed-rate assets and liabilities. The new rules also allow additional time to complete hedge effectiveness testing and allow qualitative assessments subsequent to initial quantitative tests if there is a supportable expectation that the hedge will remain highly effective. The new rules will be effective for the Company in the first quarter of 2019, with early adoption permitted. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows.

Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The new rules allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The new rules will be effective for the Company in the first quarter of 2019. The Company is in the process of assessing the impact of the new accounting rules on the Company’s financial condition and does not expect the adoption of the new accounting rules to have a material impact on the Company’s results of operations or cash flows.

Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ~~Impairment”.~~Impairment.” The new rules simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2020. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations and cash flows.


(3)	~~Acquisitions~~Revenue Recognition

~~Hanes Australasia~~

On ~~July 14, 2016,~~December 31, 2017, the Company ~~acquired 100%~~adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”) using the modified retrospective method applied to contracts which were pending as of December 31, 2017. Financial results included in the Company’s Condensed Consolidated Statement of Income for the quarter and six months ended June 30, 2018 are presented under Topic 606, while prior year amounts have not been restated and continue to be reported in accordance with ASC 605, “Revenue Recognition” (“Topic 605”). As a result of adopting Topic 606, the Company did not adjust opening retained earnings.

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied, which occurs at a point in time, upon either shipment or delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. Variable consideration includes trade discounts, rebates, volume-based incentives, cooperative advertising and product returns, which are offered within contracts between the Company and its customers, employing the practical expedient for contract costs. Incidental items that are immaterial to the context of the ~~outstanding shares of Pacific Brands Limited (“Hanes Australasia”) for a total purchase price of AUD$1,049,360 ($800,871). US dollar equivalents~~contract are ~~based on acquisition date exchange rates. The Company funded~~recognized as expense at the acquisition through a combination of cash on hand, a portion of the net proceeds from the 3.5% Senior Notes issued in June 2016 and borrowings under the Australian Term A-1 Loan Facility and the Australian Term A-2 Loan Facility.

transaction date.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

The ~~acquired assets and assumed liabilities at~~following table presents the ~~date~~Company’s revenues disaggregated by method of ~~acquisition (July 14, 2016) include the following:~~purchase:

Cash and cash equivalents $ 54,294
Accounts receivable, net 36,019
Inventories 104,806
Other current assets 16,588
Current assets of discontinued operations 50,839
Property, net 34,835
Trademarks and other identifiable intangibles 506,170
Deferred tax assets and other noncurrent assets 23,687
Total assets acquired 827,238
Accounts payable 89,309
Accrued liabilities and other 24,912
Current liabilities of discontinued operations 14,564
Long-term debt 41,976
Deferred tax liabilities and other noncurrent liabilities 16,320
Total liabilities assumed 187,081
Net assets acquired 640,157
Goodwill 160,714
Purchase price $ 800,871



	Quarter Ended		Six Months Ended
	June 30, 2018		June 30, 2018
Third-party brick-and-mortar wholesale	$	1,345,992	$	2,510,300
Consumer-directed	369,451		676,647
Total net sales	$	1,715,443	$	3,186,947

~~Since July 14, 2016, goodwill decreased~~Revenue Sources

Third-Party Brick-and-Mortar Wholesale Revenue

Third-party brick-and-mortar wholesale revenue is primarily generated through sales to retailers to support their brick-and-mortar operations. Also included within third-party brick-and-mortar wholesale revenues is revenue from royalty agreements. The Company earns royalties through license agreements with manufacturers of other consumer products that incorporate certain of the Company’s brands. The Company accrues revenue earned under these contracts based upon reported sales from the licensees.

Consumer-Directed Revenue

Consumer-directed revenue is primarily generated through sales driven directly by ~~$25,434~~the consumer through company-operated stores and e-commerce platforms, which include both owned sites and the sites of the Company’s retail customers.

Variable Consideration

Trade discounts and rebates

The Company provides customers with discounts and rebates that are explicitly stated in the Company’s contracts and are recorded as a ~~result~~reduction of measurement period adjustments, primarily related to the valuation adjustments for the Dunlop Flooring and Tontine Pillow businesses and completion of deferred tax balances. The purchase price allocation was finalizedrevenue in the ~~third quarter~~period the product revenue is recognized. The cost of ~~2017.~~

~~Champion Europe~~

~~On June 30, 2016, the Company acquired 100%~~these incentives is estimated using a number of ~~Champion Europe S.p.A. (“Champion Europe”), which owns the trademark for the~~ ~~Champion~~ ~~brand in Europe, the Middle East~~factors, including historical utilization and Africa, from certain individual shareholders in an all-cash transaction valued at €220,751 ($245,554) on an enterprise value basis, less working capital adjustments as defined in the purchase agreement, which included €40,700 ($45,277) in estimated contingent consideration. US dollar equivalents are based on acquisition date exchangeredemption rates. The Company ~~funded~~includes incentives offered in the ~~acquisition through a combination~~form of free products in the determination of cost of sales.

Volume based incentives

Volume-basedincentives involve rebates or refunds of cash ~~on hand~~that are redeemable only if the customer completes a specified number of sales transactions. Under these incentive programs, the Company estimates the anticipated rebate to be paid and allocates a portion of the ~~net proceeds from~~estimated cost of the ~~3.5% Senior Notes issued in June 2016.~~

The estimated contingent consideration is included in the “Accrued liabilities” line in the accompanying Condensed Consolidated Balance Sheet and is based on 10 times Champion Europe’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) in excess of €18,600, calculated as defined by the purchase agreement, for the calendar year 2016 and is payable in 2017. The contingent consideration is requiredrebate to ~~be revalued~~ each ~~reporting period until paid. At September 30, 2017, the contingent consideration payment was pending finalization of Champion Europe’s calendar year 2016 EBITDA calculation in accordance~~underlying sales transaction with the ~~purchase agreement. On April 28, 2017, an initial payment of €37,820 ($41,250) was made~~customer.

Cooperative advertising

Under cooperative advertising arrangements, the Company agrees to reimburse the ~~sellers towards the contingent consideration liability, which represents the mutually agreed~~retailer for a portion of the ~~contingent consideration. Management continues~~costs incurred by the retailer to ~~evaluate~~advertise and ~~discuss~~promote certain of the ~~proposed adjustments~~Company’s products. The Company recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity takes place.

Product returns

The Company generally offers customers a limited right of return for a purchased product. The Company estimates the amount of its product sales that may be returned by its customers and records this as a reduction of revenue in the period the related product revenue is recognized.

For all variable consideration, where appropriate, the Company estimates the amount using the expected value, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which the ~~EBITDA calculation with~~customer is entitled based on the ~~sellers and believes~~terms of the remaining accrual is consistent with management’s expectations for any additional amount that will be due in connection with the contingent consideration. In addition to the initial payment, additional contingent consideration payments could total up to approximately €46,600.contracts.

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~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

~~The acquired assets, contingent consideration and assumed liabilities at the date of acquisition (June 30, 2016) include the following:~~

Cash and cash equivalents $ 14,581
Trade accounts receivable, net 27,926
Inventories 53,816
Other current assets 5,976
Property, net 24,605
Trademarks and other identifiable intangibles 135,277
Deferred tax assets and other noncurrent assets 3,777
Total assets acquired 265,958
Accounts payable 66,594
Accrued liabilities and other (including contingent consideration) 60,887
Notes payable 27,748
Deferred tax liabilities and other noncurrent liabilities 20,282
Total liabilities assumed and contingent consideration 175,511
Net assets acquired 90,447
Goodwill 109,830
Initial consideration paid 200,277
Estimated contingent consideration 45,277
Total purchase price $ 245,554

~~Since June 30, 2016, goodwill increased by $1,665 as a result of measurement period adjustments primarily to working capital. The purchase price allocation was finalized in the second quarter of 2017.~~

~~Consolidated Pro Forma Results~~

Consolidated unaudited pro forma results of operations for the Company are presented below assuming that the 2016 acquisitions of Hanes Australasia and Champion Europe had occurred on January 4, 2015. Pro forma operating results for the quarter and nine months ended October 1, 2016 exclude expenses totaling $751 and $6,187 respectively, for acquisition-related adjustments primarily related to inventory and stock compensation.

Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net sales $ 1,799,270
$ 1,780,530
$ 4,826,235
$ 4,859,619
Net income from continuing operations 203,356
172,040
448,602
448,589
Earnings per share from continuing operations:
Basic $ 0.56
$ 0.45
$ 1.22
$ 1.17
Diluted 0.55
0.45
1.21
1.16

~~Subsequent Event~~

On October 13, 2017, the Company acquired 100% of Alternative Apparel, Inc. (“Alternative Apparel”) from Rosewood Capital V, L.P. and certain individual shareholders in an all-cash transaction valued at approximately ~~$60,000~~ ~~on an enterprise value basis. Alternative Apparel sells the~~ ~~Alternative~~ ~~brand better basics T-shirts, fleece and other tops and bottoms.~~ ~~Alternative~~ is a lifestyle brand known for its comfort, style and social responsibility. The Company funded the acquisition with cash on hand and short term borrowing under the Revolving Loan Facility. The Company believes this acquisition will create growth opportunities by supporting its Activewear growth strategy by expanding its market and channel penetration, including online, supported by the Company’s global low-cost supply chain and manufacturing network. Due to the immaterial nature of this acquisition, the Company has not provided additional disclosures herein.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)


(4)	Acquisitions

Bras N Things

On February 12, 2018, the Company acquired 100% of the outstanding equity of BNT Holdco Pty Limited (“Bras N Things”) for a total purchase price of A$498,236 (US$391,572), which included a cash payment of A$428,956 (US$337,123), an indemnification escrow of A$31,988 (US$25,140) and debt assumed of A$34,280 (US$26,942). During the quarter ended June 30, 2018, the purchase consideration was reduced by A$3,012 (US$2,367) associated with the final working capital adjustment, resulting in a revised purchase price of A$495,224 (US$389,205).

U.S. dollar equivalents are based on acquisition date exchange rates. The Company funded the acquisition with a combination of short-term borrowings under its Revolving Loan Facility and cash on hand. The A$31,988 indemnification escrow is held in a retention account for a period of 18 months after the date of the acquisition to secure indemnification claims or other obligations of the sellers under the purchase agreement. The remaining balance of the indemnification escrow, including interest earned, if any, will be paid to the sellers at the end of the 18 month period. The indemnification escrow, held in one of the Company’s bank accounts, is recognized and classified as restricted cash and included in the “Other noncurrent assets” line of the Condensed Consolidated Balance Sheet.

Bras N Things contributed net revenues of $47,587 and pretax earnings of $8,970 (excluding acquisition and integration related charges of approximately $3,276) since the date of acquisition. The results of Bras N Things have been included in the Company’s condensed consolidated financial statements since the date of acquisition and are reported as part of the International segment.

Bras N Things is a leading intimate apparel retailer and e-commerce business in Australia, New Zealand and South Africa. Bras N Things sells proprietary bras, panties and lingerie sets through a retail network of approximately 170 stores and an e-commerce platform. The Company believes this acquisition will create opportunities for expansion of the Bras N Things’ consumer-directed sales model. Factors that contribute to the amount of goodwill recognized for the acquisition include the value of entry into the outlet store sector, expansion of online presence, including the third-party marketplace, and expected synergies with existing Company functions. Goodwill associated with the acquisition is not tax deductible.

The Bras N Things trademark and brand name, which management believes to have an indefinite life, has been valued at $275,071. Amortizable intangible assets have been assigned values of $2,358 for noncompete agreements and $785 for customer lists. Noncompete agreements and the customer list are being amortized over three years.

The allocation of purchase price is preliminary and subject to change. The primary areas of the purchase price allocation that are not yet finalized are related to income taxes and residual goodwill. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances, which existed at the acquisition date. The acquired assets and liabilities as of the date of acquisition (February 12, 2018) include the following:



Cash and cash equivalents	$	2,765
Accounts receivable, net	197
Inventories	9,610
Other current assets	1,637
Property, net	12,013
Trademarks and other identifiable intangibles	278,214
Deferred tax assets and other noncurrent assets	2,539
Total assets acquired	306,975
Accounts payable	4,929
Accrued liabilities and other	16,339
Deferred tax liabilities and other noncurrent liabilities	7,663
Total liabilities assumed	28,931
Net assets acquired	278,044
Goodwill	111,161
Total purchase price	$	389,205

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

Total purchase price of the Bras N Things acquisition consisted of the following components:



Cash consideration paid	$	337,123
Indemnification escrow asset	25,140
Debt assumed	26,942
Total purchase price	$	389,205

Since February 12, 2018, goodwill decreased by $1,463 as a result of measurement period adjustments, primarily related to working capital adjustments.

Unaudited pro forma results of operations for the Company are presented below assuming that the 2018 acquisition of Bras N Things had occurred on January 1, 2017. Pro forma operating results for the quarter and six months ended July 1, 2017 include expenses totaling $307 and $1,436 respectively, for acquisition-related adjustments primarily related to inventory and intangible assets.



	Quarter Ended				Six Months Ended
	June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017
Net sales	$	1,715,443	$	1,673,533	$	3,205,007	$	3,080,706
Net income from continuing operations	141,395		172,226		223,586		248,300
Earnings per share from continuing operations:
Basic	$	0.39	$	0.47	$	0.62	$	0.67
Diluted	0.39		0.47		0.62		0.67

Champion Europe

In 2016, the Company acquired 100% of Champion Europe S.p.A. (“Champion Europe”), in an all-cash transaction valued at €220,751 (US$245,554) on an enterprise value basis, less working capital adjustments as defined in the purchase agreement, which included an estimated contingent consideration of €40,700 (US$45,277). The final contingent consideration for the Champion Europe acquisition was determined to be €64,250 (US$73,738), of which €37,820 (US$41,250) was paid in April 2017 and €26,430 (US$32,488) was paid in February 2018. U.S. dollar equivalents are based on acquisition date or payment date exchange rates, as applicable.


(5)	Stockholders’ Equity

Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted average shares of common stock outstanding. Diluted EPS was calculated to give effect to all potentially dilutive shares of common stock using the treasury stock method.

The reconciliation of basic to diluted weighted average shares outstanding is as follows:



	Quarter Ended		Six Months Ended
	June 30, 2018	July 1, 2017	June 30, 2018	July 1, 2017
Basic weighted average shares outstanding	362,011	365,911	361,944	370,075
Effect of potentially dilutive securities:
Stock options	876	1,565	968	1,605
Restricted stock units	367	515	333	466
Employee stock purchase plan and other	—	1	—	1
Diluted weighted average shares outstanding	363,254	367,992	363,245	372,147

There were 14 restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive for the quarter and six months ended June 30, 2018. For the quarter and six months ended July 1, 2017, there were no restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the quarters and six months ended June 30, 2018 and July 1, 2017, there were no anti-dilutive options to purchase shares of common stock.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

For the quarters ended June 30, 2018 and July 1, 2017, the Company declared cash dividends of $0.15 per share. For the six months ended June 30, 2018 and July 1, 2017, the Company declared cash dividends of $0.30 per share.

On July 24, 2018, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share on outstanding shares of common stock to be paid on September 5, 2018 to stockholders of record at the close of business on August 14, 2018.

On April 27, 2016, the Company’s Board of Directors approved the current share repurchase program for up to 40,000 shares to be repurchased in open market transactions, subject to market conditions, legal requirements and other factors. The Company did not repurchase any shares during the quarter and six months ended June 30, 2018 and quarter ended July 1, 2017. For the six months ended July 1, 2017, the Company entered into transactions to repurchase 14,696 shares at a weighted average purchase price of $20.39 per share. The shares were repurchased at a total cost of $299,919. At June 30, 2018, the remaining repurchase authorization totaled 20,360 shares. The program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s discretion.


(6)	Inventories

Inventories consisted of the following:



	June 30, 2018		December 30, 2017
Raw materials	$	137,205	$	129,287
Work in process	214,679		226,659
Finished goods	1,760,327		1,519,044
	$	2,112,211	$	1,874,990


(7)	Debt

Debt consisted of the following:



	Interest Rate as of June 30, 2018	Principal Amount				Maturity Date
	Interest Rate as of June 30, 2018	June 30, 2018		December 30, 2017		Maturity Date
Senior Secured Credit Facility:
Revolving Loan Facility	3.60%	$	488,000	$	—	December 2022
Term Loan A	3.48%	731,250		750,000		December 2022
Term Loan B	3.84%	497,500		500,000		December 2024
Australian Term A-1	3.47%	128,860		135,826		July 2019
4.875% Senior Notes	4.88%	900,000		900,000		May 2026
4.625% Senior Notes	4.63%	900,000		900,000		May 2024
3.5% Senior Notes	3.50%	584,249		599,649		June 2024
European Revolving Loan Facility	1.50%	116,850		81,539		September 2018
Accounts Receivable Securitization Facility	2.81%	153,386		125,209		March 2019
Other International Debt	Various	22,103		1,044		Various
		4,522,198		3,993,267
Less long-term debt issuance cost		38,262		41,624
Less current maturities		334,735		249,589
		$	4,149,201	$	3,702,054

As of June 30, 2018, the Company had $507,915 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account outstanding borrowings and $4,085 of standby and trade letters of credit issued and outstanding under this facility. The Company’s maximum borrowing capacity under the Accounts Receivable Securitization Facility was $200,000 as of June 30, 2018, however based on the outstanding borrowings and net eligible receivables balance within the collateral pool, the Accounts Receivable Securitization Facility was fully utilized as of June 30, 2018. Borrowings under the Accounts

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

Receivable Securitization Facility are permitted only to the extent that the face of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans and also subject to a fluctuating facility limit, not to exceed $225,000. The Company had $47,710 of borrowing availability under the Australian Revolving Loan Facility, no borrowing availability under the European Revolving Loan Facility and $120,726 of borrowing availability under other international lines of credit after taking into account outstanding borrowings and letters of credit outstanding under the applicable facility.

In March 2018, the Company amended the Accounts Receivable Securitization Facility that it entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the maturity date to March 2019. In June 2018, the Company amended the Accounts Receivable Securitization Facility to remove certain receivables from being pledged as collateral for the facility and reduce the maximum availability to $225,000.

As of June 30, 2018, the Company was in compliance with all financial covenants under its credit facilities.


(8)	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss (“AOCI”) are as follows:



	Cumulative Translation Adjustment			Hedges			Defined Benefit Plans			Income Taxes			Accumulated Other Comprehensive Loss
Balance at December 30, 2017	$	(43,505	)	$	(25,461	)	$	(614,000	)	$	243,760		$	(439,206	)
Amounts reclassified from accumulated other comprehensive loss	—			7,219			8,015			(3,659		)	11,575
Current-period other comprehensive income (loss) activity	(62,777		)	25,274			—			(7,420		)	(44,923		)

Balance at June 30, 2018	$	(106,282	)	$	7,032		$	(605,985	)	$	232,681		$	(472,554	)

The Company had the following reclassifications out of AOCI:



Component of AOCI	Location of Reclassification into Income	Amount of Reclassification from AOCI						Amount of Reclassification from AOCI
		Quarter Ended						Six Months Ended
		June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Gain (loss) on foreign exchange contracts	Cost of sales	$	(5,554	)	$	2,636		$	(7,219	)	$	2,934
	Income tax	1,113			(1,012		)	1,415			(1,125		)
	Net of tax	(4,441		)	1,624			(5,804		)	1,809
Amortization of deferred actuarial loss and prior service cost	Other expenses	(4,948		)	(4,768		)	(8,015		)	(9,578		)
	Income tax	1,066			1,831			2,244			3,678
	Net of tax	(3,882		)	(2,937		)	(5,771		)	(5,900		)

Total reclassifications		$	(8,323	)	$	(1,313	)	$	(11,575	)	$	(4,091	)


(9)	Financial Instruments and Risk Management

The Company uses forward foreign exchange contracts to manage its exposures to movements in foreign exchange rates. As of June 30, 2018, the notional U.S. dollar equivalent of the Company’s derivative portfolio was $581,464, primarily consisting of contracts hedging exposures to the Euro, Australian dollar, Canadian dollar and Mexican peso.

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

Fair Values of Derivative Instruments

The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:



	Balance Sheet Location	Fair Value
	Balance Sheet Location	June 30, 2018			December 30, 2017
Hedges	Other current assets	$	18,325		$	1,464
Non-hedges	Other current assets	4,122			136
Total derivative assets		22,447			1,600

Hedges	Accrued liabilities	(732		)	(14,750		)
Non-hedges	Accrued liabilities	(703		)	(7,818		)
Total derivative liabilities		(1,435		)	(22,568		)

Net derivative asset (liability)		$	21,012		$	(20,968	)

Cash Flow Hedges

A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is designated as a cash flow hedge. The Company uses forward foreign exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates.

The Company expects to reclassify into earnings during the next 12 months a net gain from AOCI of approximately $7,987.

The ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in the “Cost of sales” line in the Condensed Consolidated Statements of Income.

The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:



	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)					Amount of Gain (Loss) Recognized in AOCI (Effective Portion)
	Quarter Ended					Six Months Ended
	June 30, 2018		July 1, 2017			June 30, 2018		July 1, 2017
Foreign exchange contracts	$	26,982	$	(8,167	)	$	25,274	$	(26,281	)



	Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)					Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
		Quarter Ended					Six Months Ended
		June 30, 2018			July 1, 2017		June 30, 2018			July 1, 2017
Foreign exchange contracts	Cost of sales	$	(5,554	)	$	2,636	$	(7,219	)	$	2,934

Mark to Market Hedges

A derivative used as a hedging instrument whose change in fair value is recognized to act as an economic hedge against changes in the values of the hedged item is designated a mark to market hedge. The Company uses foreign exchange derivative contracts as economic hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

balances and intercompany lending transactions denominated in foreign currencies. Foreign exchange derivative contracts are recorded as mark to market hedges when the hedged item is a recorded asset or liability that is revalued in each accounting period. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheets. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.

The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:



	Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income					Amount of Gain (Loss) Recognized in Income
		Quarter Ended					Six Months Ended
		June 30, 2018		July 1, 2017			June 30, 2018		July 1, 2017
Foreign exchange contracts	Cost of sales	$	10,011	$	—		$	19,111	$	—
Foreign exchange contracts	Selling, general and administrative expenses	472		(411		)	775		(4,675		)
Total		$	10,483	$	(411	)	$	19,886	$	(4,675	)


(10)	Fair Value of Assets and Liabilities

As of June 30, 2018, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments related to foreign exchange rates and deferred compensation plan liabilities. The fair values of foreign exchange rate derivatives are determined using the cash flows of the foreign exchange contract, discount rates to account for the passage of time and current foreign exchange market data which are all based on inputs readily available in public markets and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and is categorized as Level 2. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a recurring basis.

There were no changes during the quarter ended June 30, 2018 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers into or out of Level 1, Level 2 or Level 3 during the quarter ended June 30, 2018. As of and during the quarter and six months ended June 30, 2018, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.

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



	Assets (Liabilities) at Fair Value as of June 30, 2018
	Total			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Foreign exchange derivative contracts - assets	$	22,447		$	—	$	22,447		$	—
Foreign exchange derivative contracts - liabilities	(1,435		)	—		(1,435		)	—
	21,012			—		21,012			—
Deferred compensation plan liability	(49,329		)	—		(49,329		)	—
Total	$	(28,317	)	$	—	$	(28,317	)	$	—

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)



	Assets (Liabilities) at Fair Value as of December 30, 2017
	Total			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Foreign exchange derivative contracts - assets	$	1,600		$	—	$	1,600		$	—
Foreign exchange derivative contracts - liabilities	(22,568		)	—		(22,568		)	—
	(20,968		)	—		(20,968		)	—
Deferred compensation plan liability	(52,758		)	—		(52,758		)	—
Total	$	(73,726	)	$	—	$	(73,726	)	$	—

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of June 30, 2018 and December 30, 2017. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of $28,489 and $26,096 as of June 30, 2018 and December 30, 2017, respectively. The fair value of debt, which is classified as a Level 2 liability, was $4,495,967 and $4,093,229 as of June 30, 2018 and December 30, 2017, respectively. Debt had a carrying value of $4,522,198 and $3,993,267 as of June 30, 2018 and December 30, 2017, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amounts of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value as of June 30, 2018 and December 30, 2017, primarily due to the short-term nature of these instruments.


(11)	Income Taxes

The Company’s effective income tax rate for continuing operations was 14.8% and 6.0% for the quarters ended June 30, 2018 and July 1, 2017, respectively. The Company’s effective income tax rate for continuing operations was 15.2% and 6.0% for the six months ended June 30, 2018 and July 1, 2017, respectively. The higher effective income tax rate for the quarter and six months ended June 30, 2018 compared to the quarter and six months ended July 1, 2017 was primarily due to certain provisions of the Tax Cuts and Jobs Act (the “Tax Act”), specifically the base-broadening provision which imposed a new minimum tax on global intangible low-tax income (“GILTI”).

The recently enacted Tax Act significantly revised U.S. corporate income tax law by, among other things, reducing the federal income tax rate to 21% and implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. In response to the Tax Act, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which allows issuers to recognize provisional estimates of the impact of the Tax Act in their financial statements, or in circumstances where estimates cannot be made, to disclose and recognize at a later date. For the year ended December 30, 2017, the Company included in its financial statements provisional charges for the revaluation of the Company’s net domestic deferred tax assets, the transition tax, as well as other less material provisions of the Tax Act.

As of June 30, 2018, the Company is in the process of evaluating the impact of the Tax Act on being partially reinvested with respect to prior year undistributed earnings. A provisional charge of $4,659 was recognized in the quarter ended June 30, 2018 for actual and planned permanent repatriations; however, the Company is continuing to evaluate the overall impact of its partial permanent reinvestment assertion. Furthermore, a provisional benefit of $4,022 was recognized related to the refinement of the Company’s transition tax. There are no additional changes at this time to the provisional amounts recorded as of the year ended December 30, 2017. The accounting is expected to be completed and disclosed within the one-year measurement period as allowed by SAB 118.

During the first quarter ended March 31, 2018, the Company finalized its accounting policy decision with respect to the new GILTI tax rules, and has concluded that GILTI will be treated as a periodic charge in the year in which it arises, and will not record deferred taxes for the basis associated with GILTI earnings.

For the quarter ended March 31, 2018 and six months ended June 30, 2018, the Company recorded a liability for an unrecognized tax benefit of $17,643, related to the acquisition of Bras N Things, as part of purchase accounting.

Table of Contents

HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)


(12)	Discontinued Operations

As part of the Company’s acquisition of Hanes Australasia in 2016, the Company acquired Hanes Australasia’s legacy Dunlop Flooring and Tontine Pillow businesses. The Company concluded that these businesses were not a strategic fit; therefore, the decision was made to divest of the businesses.

In February 2017, the Company sold its Dunlop Flooring business for ~~AUD$~~A$34,564 ($(US$26,219) in net cash proceeds at the time of sale, with an additional ~~AUD$~~A$1,334 ($(US$1,012) of proceeds received in April 2017 related to a working capital adjustment, resulting in a pre-tax loss of ~~AUD$~~A$2,715 ($(US$2,083). USU.S. dollar equivalents are based on exchange rates on the date of the sale transaction. The Dunlop Flooring business was reported as part of discontinued operations since the date of acquisition.

In March 2017, the Company sold its Tontine Pillow business for ~~AUD$~~A$13,500 ($(US$10,363) in net cash proceeds at the time of sale. A working capital adjustment of ~~AUD$~~A$966 ($(US$742) was paid to the buyer in April 2017, resulting in a net pre-tax gain of ~~AUD$~~A$2,415 ($(US$1,856). USU.S. dollar equivalents are based on exchange rates on the date of the sale transaction. The Tontine Pillow business was reported as part of discontinued operations since the date of acquisition.

The operating results of these discontinued operations only reflect revenues and expenses that are directly attributable to these businesses that were eliminated from ongoing operations. The key components from discontinued operations related to the Dunlop Flooring and Tontine Pillow businesses were as follows:


	Quarter Ended				Nine Months Ended					Quarter Ended			Six Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016		July 1, 2017			July 1, 2017
Net sales	$	—	$	15,587	$	6,865		$	15,587	$	—		$	6,865
Cost of sales	—		9,996		4,507			9,996		—			4,507
Gross profit	—		5,591		2,358			5,591		—			2,358
Selling, general and administrative expenses	—		3,570		3,729			3,570		(2		)	3,729
Operating profit (loss)	—		2,021		(1,371		)	2,021		2			(1,371		)
Other expenses	—		495		303			495		—			303
Net loss on disposal of businesses	—		—		242			—
Net (gain) loss on disposal of businesses										(524		)	242
Income (loss) from discontinued operations before income tax expense	—		1,526		(1,916		)	1,526		526			(1,916		)
Income tax expense	—		458		181			458		158			181
Net income (loss) from discontinued operations, net of tax	$	—	$	1,068	$	(2,097	)	$	1,068	$	368		$	(2,097	)


~~(5)~~	~~Stockholders’ Equity~~

~~The reconciliation of basic to diluted weighted average shares outstanding is as follows:~~

Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Basic weighted average shares outstanding 366,083
379,368
368,885
382,235
Effect of potentially dilutive securities:
Stock options 1,541
1,890
1,591
2,016
Restricted stock units 535
1,293
470
1,210
Employee stock purchase plan and other 1
7
1
17
Diluted weighted average shares outstanding 368,160
382,558
370,947
385,478

~~There were 28 and 58 restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive for the quarter and nine months ended~~ ~~September 30, 2017, respectively. For the quarter and nine months~~

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

ended October 1, 2016, there were 42 restricted stock units excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. For the quarters and nine months ended September 30, 2017 and October 1, 2016, no options were excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.

For the quarters ended September 30, 2017 and October 1, 2016, the Company declared cash dividends of $0.15 and $0.11 per share, respectively. For the nine months ended September 30, 2017 and October 1, 2016, the Company declared cash dividends of $0.45 and $0.33 per share, respectively.

On October 24, 2017, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.15 per share on outstanding shares of common stock to be paid on December 5, 2017 to stockholders of record at the close of business on November 14, 2017.

On April 27, 2016, the Company’s Board of Directors approved a new share repurchase program for up to 40,000 shares to be repurchased in open market transactions, subject to market conditions, legal requirements and other factors. The Company did not repurchase any shares during the quarters ended September 30, 2017 and October 1, 2016. For the nine months ended September 30, 2017, the Company entered into transactions to repurchase 14,696 shares at a weighted average repurchase price of $20.39 per share. The shares were repurchased at a total cost of $299,919. For the nine months ended October 1, 2016, the Company repurchased 14,243 shares under the previous share repurchase program at a weighted average purchase price of $26.65 per share. The shares were repurchased at a total cost of $379,901. At September 30, 2017, the remaining repurchase authorization totaled 25,304 shares. The program does not obligate the Company to acquire any particular amount of common stock and may be suspended or discontinued at any time at the Company’s discretion.


~~(6)~~	~~Inventories~~

~~Inventories consisted of the following:~~

September 30,
2017 December 31,
2016
Raw materials $ 130,567
$ 131,228
Work in process 201,729
185,066
Finished goods 1,621,622
1,524,271
$ 1,953,918
$ 1,840,565

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~


~~(7)~~	~~Debt~~

~~Debt consisted of the following:~~

Interest Rate as of September 30, 2017 Principal Amount Maturity Date
September 30,
2017 December 31,
2016
Senior Secured Credit Facility:
Revolving Loan Facility 2.99% $ 211,000
$ —
April 2020
Term Loan A 2.95% 605,625
655,469
April 2020
Term Loan B 3.74% 318,625
318,625
April 2022
Australian Term A-1 3.15% 156,974
143,544
July 2019
Australian Term A-2 —% —
143,544
July 2021
4.875% Senior Notes 4.88% 900,000
900,000
May 2026
4.625% Senior Notes 4.63% 900,000
900,000
May 2024
3.5% Senior Notes 3.50% 587,268
520,617
June 2024
European Revolving Loan Facility 1.50% 79,868
62,474
September 2018
Accounts Receivable Securitization Facility 2.12% 250,995
44,521
March 2018
Other International Debt Various 2,027
43,789
Various
4,012,382
3,732,583

Less long-term debt issuance cost 40,445
46,534

Less current maturities 405,390
178,364

$ 3,566,547
$ 3,507,685

As of September 30, 2017, the Company had $784,117 of borrowing availability under the $1,000,000 Revolving Loan Facility after taking into account outstanding borrowings and $4,883 of standby and trade letters of credit issued and outstanding under this facility. The Company also had $24,005 of borrowing availability under the Accounts Receivable Securitization Facility, $37,586 of borrowing availability under the European Revolving Loan Facility, $51,016 of borrowing availability under the Australian Revolving Loan Facility and $60,648 of borrowing availability under other international lines of credit after taking into account outstanding borrowings and letters of credit outstanding under the applicable facility.

In March 2017, the Company amended the Accounts Receivable Securitization Facility that it entered into in November 2007 (the “Accounts Receivable Securitization Facility”). This amendment primarily extended the maturity date to March 2018.

~~In September 2017, the Company amended the European Revolving Loan Facility primarily to extend the maturity date to September 2018.~~

~~As of September 30, 2017, the Company was in compliance with all financial covenants under its credit facilities.~~


~~(8)~~	~~Accumulated Other Comprehensive Loss~~

~~The components of Accumulated other comprehensive loss (“AOCI”) are as follows:~~

Cumulative Translation Adjustment Hedges Defined Benefit Plans Income Taxes Accumulated Other Comprehensive Loss

Balance at December 31, 2016 $ (78,059 ) $ 13,772
$ (606,583 ) $ 234,879
$ (435,991 )
Amounts reclassified from accumulated other comprehensive loss —
(3,348 ) 14,440
(4,611 ) 6,481
Current-period other comprehensive income (loss) activity 34,047
(43,660 ) —
12,481
2,868

Balance at September 30, 2017 $ (44,012 ) $ (33,236 ) $ (592,143 ) $ 242,749
$ (426,642 )

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

~~The Company had the following reclassifications out of AOCI:~~

Component of AOCI Location of Reclassification into Income Amount of Reclassification
from AOCI Amount of Reclassification
from AOCI
Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Gain on foreign exchange contracts Cost of sales $ 414
$ 715
$ 3,348
$ 4,424

Income tax 191
(278 ) (934 ) (1,721 )

Net of tax 605
437
2,414
2,703
Amortization of deferred actuarial loss and prior service cost Selling, general and administrative
expenses (4,862 ) (4,307 ) (14,440 ) (12,843 )

Income tax 1,867
1,675
5,545
4,996

Net of tax (2,995 ) (2,632 ) (8,895 ) (7,847 )

Total reclassifications $ (2,390 ) $ (2,195 ) $ (6,481 ) $ (5,144 )


~~(9)~~	~~Financial Instruments and Risk Management~~

~~The Company uses forward foreign exchange contracts to manage its exposures to movements in foreign exchange rates. As of~~ ~~September 30, 2017, the notional U.S. dollar equivalent of commitments to sell foreign currencies within the Company’s derivative portfolio was~~ ~~$588,866, primarily consisting of contracts hedging exposures to the Australian dollar, Euro, Canadian dollar, Mexican peso, and the New Zealand dollar.~~

~~Fair Values of Derivative Instruments~~

~~The fair values of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets of the Company were as follows:~~

Balance Sheet Location Fair Value
September 30,
2017 December 31,
2016
Hedges Other current assets $ 907
$ 16,729
Non-hedges Other current assets 541
4,363
Total derivative assets 1,448
21,092

Hedges Accrued liabilities (21,169 ) (207 )
Non-hedges Accrued liabilities (4,503 ) (172 )
Total derivative liabilities (25,672 ) (379 )

Net derivative (liability) asset $ (24,224 ) $ 20,713

~~Cash Flow Hedges~~

The Company uses forward foreign exchange contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated transactions, foreign currency-denominated investments and other known foreign currency exposures. Gains and losses on these contracts are intended to offset losses and gains on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates.

~~The Company expects to reclassify into earnings during the next 12 months a net loss from AOCI of approximately $16,432.~~

The changes in fair value of derivatives excluded from the Company’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statements of Income.

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

~~The effect of cash flow hedge derivative instruments on the Condensed Consolidated Statements of Income and AOCI is as follows:~~

Amount of Loss
Recognized in AOCI
(Effective Portion) Amount of Loss
Recognized in AOCI
(Effective Portion)
Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Foreign exchange contracts $ (17,379 ) $ (3,594 ) $ (43,660 ) $ (7,131 )

Location of
Gain Reclassified from AOCI into Income
(Effective Portion) Amount of Gain
Reclassified from AOCI
into Income
(Effective Portion) Amount of Gain
Reclassified from AOCI
into Income
(Effective Portion)
Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Foreign exchange contracts Cost of sales $ 414
$ 715
$ 3,348
$ 4,424

~~Derivative Contracts Not Designated As Hedges~~

The Company uses foreign exchange derivative contracts as economic hedges against the impact of foreign exchange fluctuations on existing accounts receivable and payable balances and intercompany lending transactions denominated in foreign currencies. These contracts are not designated as hedges under the accounting standards and are recorded at fair value in the Condensed Consolidated Balance Sheet. Any gains or losses resulting from changes in fair value are recognized directly into earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities.

~~The effect of derivative contracts not designated as hedges on the Condensed Consolidated Statements of Income is as follows:~~

Location of Gain (Loss)
Recognized in Income on
Derivative Amount of Gain
Recognized in Income Amount of Gain (Loss)
Recognized in Income
Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Foreign exchange contracts Selling, general and administrative expenses $ 3,277
$ 7,694
$ (1,398 ) $ 7,970


~~(10)~~	~~Fair Value of Assets and Liabilities~~

As of September 30, 2017, the Company held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis. These consisted of the Company’s derivative instruments related to foreign exchange rates, deferred compensation plan liabilities and contingent consideration resulting from the Champion Europe acquisition. The fair values of foreign currency derivatives are determined using the cash flows of the foreign exchange contract, discount rates to account for the passage of time and current foreign exchange market data and are categorized as Level 2. The fair value of deferred compensation plans is based on readily available current market data and is categorized as Level 2. The fair value of the contingent consideration obligation was determined by applying a multiple of 10 times Champion Europe’s EBITDA for calendar year 2016 in excess of €18,600, as defined per the purchase agreement, as further described in Note 3 to the Company’s condensed consolidated financial statements, and is categorized as Level 3. An initial payment of €37,820 was made on April 28, 2017 to the sellers, which represents the mutually agreed portion of the contingent consideration. The remaining contingent consideration obligation will be revalued each reporting period until the related contingencies are resolved, with any adjustments to the fair value recognized in earnings. The Company’s defined benefit pension plan investments are not required to be measured at fair value on a recurring basis.

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

There were no changes during the quarter ended September 30, 2017 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. There were no transfers into or out of Level 1, Level 2 or Level 3 during the quarter ended September 30, 2017. As of and during the quarter and nine months ended September 30, 2017, the Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis.

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

Assets (Liabilities) at Fair Value as of
September 30, 2017
Total Quoted Prices In
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts $ 1,448
$ —
$ 1,448
$ —
Foreign exchange derivative contracts (25,672 ) —
(25,672 ) —
(24,224 ) —
(24,224 ) —
Champion Europe contingent consideration (3,383 ) —
—
(3,383 )
Deferred compensation plan liability (53,237 ) —
(53,237 ) —
Total $ (80,844 ) $ —
$ (77,461 ) $ (3,383 )

Assets (Liabilities) at Fair Value as of
December 31, 2016
Total Quoted Prices In
Active Markets
for Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Foreign exchange derivative contracts $ 21,092
$ —
$ 21,092
$ —
Foreign exchange derivative contracts (379 ) —
(379 ) —
20,713
—
20,713
—
Champion Europe contingent consideration (42,378 ) —
—
(42,378 )
Deferred compensation plan liability (51,868 ) —
(51,868 ) —
Total $ (73,533 ) $ —
$ (31,155 ) $ (42,378 )

~~Fair Value of Financial Instruments~~

~~The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable and accounts payable approximated fair value as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016. The carrying amount of trade accounts receivable included allowance for doubtful accounts, chargebacks and other deductions of~~ ~~$23,998~~ ~~and~~ ~~$18,726~~ ~~as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~, respectively. The fair value of debt, which is classified as a Level 2 liability, was $4,206,792 and $3,729,270 as of September 30, 2017 and December 31, 2016, respectively. Debt had a carrying value of ~~$4,012,382~~ ~~and~~ ~~$3,732,583~~ as of September 30, 2017 and December 31, 2016, respectively. The fair values were estimated using quoted market prices as provided in secondary markets, which consider the Company’s credit risk and market related conditions. The carrying amounts of the Company’s notes payable, which is classified as a Level 2 liability, approximated fair value as of ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, primarily due to the short-term nature of these instruments.~~


~~(11)~~	~~Income Taxes~~

The Company’s effective income tax rate for continuing operations was 2% and 6% for the quarters ended September 30, 2017 and October 1, 2016, respectively. The Company’s effective income tax rate for continuing operations was 4% and 7% for the nine months ended September 30, 2017 and October 1, 2016, respectively. The lower effective income tax rate for the quarter and nine months ended September 30, 2017 compared to the quarter and nine months ended October 1, 2016 was primarily due to favorable adjustments resulting from the finalization of the prior year federal tax return, resulting in the recognition of previously unrecognized foreign tax credits, recognized discretely in the period ending September 30, 2017.

~~Table of Contents~~

~~HANESBRANDS INC.~~

~~Notes to Condensed Consolidated Financial Statements — (Continued)~~

~~(dollars and shares in thousands, except per share data)~~

~~(unaudited)~~

Additionally, there was a lower proportion of earnings attributed to domestic subsidiaries, which are taxed at higher rates than foreign subsidiaries, for the nine months ending September 30, 2017 as compared to the nine months ending October 1, 2016.


~~(12)~~(13)	Business Segment Information

In the first quarter of 2017, the Company realigned its reporting segments to reflect the new model under which the business will be managed and results will be reviewed by the chief executive officer, who is the Company’s chief operating decision maker. The former Direct to Consumer segment, which consisted of the Company’s U.S. value-based (“outlet”) stores, legacy catalog business and U.S. retail Internet operations, was eliminated. The Company’s U.S. retail Internet operations, which sells products directly to consumers, is now reported in the respective Innerwear and Activewear segments. Other consists of the Company’s U.S. value-based (“outlet”) stores, U.S. hosiery business (previously reported in the Innerwear segment) and legacy catalog operations. Prior year segment sales and operating profit results have been revised to conform to the current year presentation.

The Company’s operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. Other consists of the Company’s U.S. value-based (“outlet”) stores and U.S. hosiery business.

The types of products and services from which each reportable segment derives its revenues are as follows:

Innerwear sells basic branded products that are replenishment in nature under the product categories of men’s underwear, panties, children’s underwear, socks and intimate apparel, which includes bras and shapewear.

Activewear sells basic branded products that are primarily seasonal in nature under the product categories of branded printwear and retail activewear, as well as licensed logo apparel in collegiate bookstores, mass retail and other channels.

International primarily relates to the Europe, Australia, Asia, Latin America and Canada geographic locations that sell products that span across the Innerwear and Activewear reportable segments.

The Company evaluates the operating performance of its segments based upon segment operating profit, which is defined as operating profit before general corporate expenses, ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related charges and amortization of intangibles. The accounting policies of the segments are consistent with those described in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2016.

Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net sales:
Innerwear $ 644,059
$ 679,096
$ 1,868,255
$ 1,953,807
Activewear 519,496
516,713
1,226,595
1,207,767
International 556,730
478,122
1,509,370
1,026,871
Other 78,985
87,088
222,015
264,445
Total net sales $ 1,799,270
$ 1,761,019
$ 4,826,235
$ 4,452,890

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

of intangibles. In the first quarter of 2018, the Company eliminated the allocation of certain corporate overhead selling, general and administrative expenses related to the legal, human resources, information technology, finance and real estate departments to the segments, in order to reflect the manner in which the business is managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker. Prior year segment operating profit disclosures have been revised to conform to the current year presentation. The accounting policies of the segments are consistent with those described in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 30, 2017.

Quarter Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Segment operating profit:
Innerwear $ 141,002
$ 147,902
$ 407,982
$ 435,660
Activewear 79,015
72,962
162,053
160,076
International 76,414
61,312
185,216
109,184
Other 10,162
9,199
16,250
27,408
Total segment operating profit 306,593
291,375
771,501
732,328
Items not included in segment operating profit:
General corporate expenses (26,136 ) (14,776 ) (63,354 ) (54,798 )
Acquisition-related and integration charges (16,874 ) (42,587 ) (81,303 ) (91,651 )
Amortization of intangibles (10,279 ) (5,660 ) (23,595 ) (13,912 )
Total operating profit 253,304
228,352
603,249
571,967
Other expenses (1,881 ) (1,559 ) (4,659 ) (50,533 )
Interest expense, net (43,917 ) (43,433 ) (130,184 ) (111,539 )
Income from continuing operations before income tax expense $ 207,506
$ 183,360
$ 468,406
$ 409,895



	Quarter Ended				Six Months Ended
	June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017
Net sales:
Innerwear	$	694,694	$	719,006	$	1,185,772	$	1,224,196
Activewear	405,785		379,756		751,910		707,099
International	545,862		475,242		1,115,749		952,640
Other	69,102		72,606		133,516		143,030
Total net sales	$	1,715,443	$	1,646,610	$	3,186,947	$	3,026,965



	Quarter Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Segment operating profit:
Innerwear	$	159,129		$	177,628		$	260,548		$	294,250
Activewear	57,508			58,972			95,795			102,322
International	76,558			60,147			153,619			112,809
Other	7,160			7,716			9,787			10,344
Total segment operating profit	300,355			304,463			519,749			519,725
Items not included in segment operating profit:
General corporate expenses	(46,002		)	(38,565		)	(90,533		)	(81,846		)
Acquisition, integration and other action-related charges	(25,165		)	(26,062		)	(44,782		)	(64,429		)
Amortization of intangibles	(9,125		)	(6,131		)	(18,313		)	(13,316		)
Total operating profit	220,063			233,705			366,121			360,134
Other expenses	(6,570		)	(6,422		)	(12,331		)	(12,967		)
Interest expense, net	(48,430		)	(44,130		)	(94,193		)	(86,267		)
Income from continuing operations before income tax expense	$	165,063		$	183,153		$	259,597		$	260,900

For the quarter ended ~~September~~June 30, ~~2017,~~2018, the Company incurred ~~acquisition-related~~$25,165 of acquisition, integration and ~~integration~~other action-related charges ~~of $16,874,~~that impact operating profit, of which ~~$2,230~~$11,083 is reported in the “Cost of sales” line and ~~$14,644~~$14,082 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the quarter ended ~~October~~July 1, ~~2016,~~2017, the Company incurred $26,062 of acquisition-related and integration charges, of ~~$42,587, of~~ which ~~$13,563~~$4,284 is reported in the “Cost of sales” line and ~~$29,024~~$21,778 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company incurred ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related charges that impact operating profit of ~~$81,303,~~$44,782, of which ~~$21,989~~$21,836 is reported in the “Cost of sales” line and $59,314 is reported in the “Selling, general and administrative expenses” line. For the nine months ended October 1, 2016, the Company incurred acquisition-related and integration charges of $138,942, of which $27,732 is reported in the “Cost of sales” line, $63,919$22,946 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income. For the six months ended July 1, 2017, the Company incurred acquisition-related and ~~$47,291~~integration charges of $64,429, of which $19,759 is reported in the ~~“Other~~“Cost of sales” line and $44,670 is reported in the “Selling, general and administrative expenses” line in the Condensed Consolidated Statement of Income.

As part of the Hanes Europe Innerwear acquisition strategy, in 2015 the Company identified management and administrative positions that were considered non-essential and/or duplicative that have or will be eliminated. As of December ~~31, 2016,~~30, 2017, the Company had accrued ~~approximately $32,542~~$22,302 for expected benefit payments related to employee termination and other benefits for affected employees. During the nine months ended September 30, 2017, there were approximately $9,836 of benefit payments and foreign currency adjustments, resulting in an accrual of $22,706, of which, $10,905 and $11,801, is included in the “Accrued liabilities” and “Other noncurrent liabilities” lines of the Condensed Consolidated Balance Sheet, respectively.

In the first quarter of 2017, the Company approved an action to resize its U.S. corporate office workforce through separation programs affecting employees primarily in the Innerwear and Activewear segments. As of April 1, 2017, the Company accrued approximately $10,145 for employee termination and other benefits in accordance with expected benefit payments, with the majority of charges reflected in the “Selling, general and administrative expenses” line of the Condensed Consolidated Statements of Income. During the nine months ended September 30, 2017, there were approximately $8,477 of benefit payments and an additional accrual of $4,653, resulting in an ending accrual of $6,321 included in the “Accrued liabilities” line of the Condensed Consolidated Balance Sheet.

The Company closed its Nanjing, China textile plant in the first quarter of 2017 as part of a plan to realign its Asia textile production in order to better support its global commercial footprint, which has evolved over the past 10 years through major acquisitions in the United States, Europe and Australia. As of April 1, 2017, the Company accrued approximately $8,534 for employee termination and other benefits in accordance with expected benefit payments for employees. The charges, along with other facility exit costs of $2,831, were reflected in the “Cost of sales” line of the Condensed Consolidated Statements of Income. During the nine months ended September 30, 2017, there were approximately $8,057 of benefit payments and foreign

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HANESBRANDS INC.

Notes to Condensed Consolidated Financial Statements — (Continued)

(dollars and shares in thousands, except per share data)

(unaudited)

other benefits for affected employees. During the six months ended June 30, 2018, there were $4,577 of benefit payments and foreign currency adjustments, resulting in an ending accrual of ~~$477,~~$17,725, of which $9,535 and $8,190 is included in the “Accrued liabilities” ~~line~~and “Other noncurrent liabilities” lines of the Condensed Consolidated Balance Sheet. As of September 30, 2017, the Nanjing, China textile plant, valued at $65,570, was classified as assets held for sale and reported within the “Other current assets” line of the Condensed Consolidated Balance Sheet.Sheet, respectively.



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

This management’s discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with our audited consolidated financial statements and notes for the year ended December ~~31, 2016,~~30, 2017, which were included in our Annual Report on Form 10-K filed with the SEC. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included elsewhere in this Quarterly Report on Form 10-Q and those included in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017.

Overview

We are a consumer goods company with a portfolio of leading apparel brands, including Hanes,, Champion,, ~~DIM~~ Bonds, Maidenform,, DIM, Bali, Playtex,, ~~Bonds~~, ~~Bali~~ JMS/Just My Size, Nur Die/Nur Der, L’eggs, Lovable, Wonderbra, Berlei, Gear for Sports, ~~JMS~~Bras N Things /~~Just My Size~~, ~~Nur Die/Nur Der~~, ~~L’eggs~~, ~~Lovable~~,and ~~Wonderbra~~, ~~Flexees~~, ~~Berlei~~, ~~Lilyette~~ ~~and~~ ~~Gear for Sports.~~Alternative. We design, manufacture, source and sell a broad range of basic apparel such as T-shirts, bras, panties, men’s underwear, children’s underwear, activewear, socks and hosiery.

Our operations are managed and reported in three operating segments, each of which is a reportable segment for financial reporting purposes: Innerwear, Activewear and International. These segments are organized principally by product category and geographic location. Each segment has its own management that is responsible for the operations of the segment’s businesses, but the segments share a common supply chain and media and marketing platforms. In the first quarter of ~~2017,~~2018, we ~~realigned our reporting~~eliminated the allocation of certain corporate overhead selling, general and administrative expenses related to the legal, human resources, information technology, finance and real estate departments to the segments, in order to reflect the ~~new model under~~manner in which the business ~~will be~~is managed and results ~~will be~~are reviewed by the chief executive officer, who is our chief operating decision maker. The former Direct to Consumer segment, which consisted of our U.S. value-based (“outlet”) stores, legacy catalog business and U.S. retail Internet operations, was eliminated. Our U.S. retail Internet operations, which sells products directly to consumers, is now reported in the respective Innerwear and Activewear segments. Other consists of our U.S. value-based (“outlet”) stores, U.S. hosiery business (previously reported in the Innerwear segment) and legacy catalog operations. Prior year segment ~~sales and~~ operating profit ~~results~~disclosures have been revised to conform to the current year presentation.

Highlights from the ~~Third~~Second Quarter Ended ~~September~~June 30, ~~2017~~2018

Key financial highlights are as follows:

Total net sales in the ~~third~~second quarter of ~~2017~~2018 were ~~$1.80~~$1.72 billion, compared with ~~$1.76~~$1.65 billion in the same period of ~~2016,~~2017, representing a 2%4% increase.

Operating profit ~~increased 11%~~decreased 6% to ~~$253~~$220 million in the ~~third~~second quarter of ~~2017,~~2018, compared with ~~$228~~$234 million in the same period of ~~2016.~~2017. As a percentage of sales, operating profit was ~~14.1%~~12.8% in the ~~third~~second quarter of ~~2017~~2018 compared to ~~13.0%~~14.2% in the same period of ~~2016.~~2017. Included within operating profit for both the ~~third~~second quarter of 2018 and 2017 were acquisition, integration and ~~2016 were acquisition-related and integration~~other action-related charges of ~~$17~~$25 million and ~~$43~~$26 million, respectively.

Diluted earnings per share from continuing operations ~~increased 22%~~decreased 17% to ~~$0.55~~$0.39 in the ~~third~~second quarter of ~~2017,~~2018, compared with ~~$0.45~~$0.47 in the same period of ~~2016.~~

In 2017, we began executing a multi-year program (“Project Booster”) to drive investment for sales growth, cost reduction and increased cash flow. Under Project Booster, we are investing to accelerate worldwide omnichannel and global ~~Champion~~ growth, while also investing in marketing and brand building for our leading lineup of brands globally. To fund growth initiatives, reduce costs and increase cash flow, we expect to reduce overhead, including headcount, to reflect market trends and needs; drive additional supply chain optimization beyond integration synergies; and focus on inventory turns and other working capital improvements. We intend to use our size and scale to drive supply chain optimization, including by investing in our domestic distribution center network to better serve the online channel, gaining procurement and product development savings, utilizing global fabric platforms and silhouettes, and continuing to internalize production.

The Project Booster initiative is expected to generate approximately $150 million in annualized cost savings. We expect to annually reinvest approximately $50 million of the savings in targeted growth opportunities, which would result in approximately $100 million of annual net cost savings and incremental cash from operations by the end of 2019. In addition to the annual net cost savings, we also plan to drive approximately $200 million of non-recurring working capital improvements which will result in a one-time benefit to cash from operations by the end of 2019.

2017.

Outlook

We expect ~~our 2017 full year~~2018 net sales ~~to be approximately $6.450~~of $6.72 billion to ~~$6.475~~$6.82 billion.

Interest and other expenses are expected to be approximately ~~$180~~$207 million, combined.

We ~~estimate our full year effective income~~expect the 2018 full-year tax rate to be approximately ~~5%, assuming no changes to U.S. tax law and policy.~~16%.

We expect cash flow from operations to be in the range of ~~$625~~$675 million to ~~$725~~$750 million. We expect capital expenditures of approximately $90 million to $100 million.

Seasonality and Other Factors

Our operating results are subject to some variability due to seasonality and other factors. Generally, our diverse range of product offerings helps mitigate the impact of seasonal changes in demand for certain items. We generally have higher sales during the back-to-school and holiday shopping seasons and during periods of cooler weather, which benefits certain product categories such as fleece. Sales levels in any period are also impacted by customers’ decisions to increase or decrease their inventory levels in response to anticipated consumer demand. Our customers may cancel or change delivery schedules, manage

on-hand inventory levels, or change the mix of products ordered with minimal notice to us. Media, advertising and promotion expenses may vary from period to period during a fiscal year depending on the timing of our advertising campaigns for retail selling seasons and product introductions.

Although the majority of our products are replenishment in nature and tend to be purchased by consumers on a planned, rather than on an impulse, basis, our sales are impacted by discretionary spending by consumers. Discretionary spending is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, gasoline prices, weather, unemployment trends and other matters that influence consumer confidence and spending. Many of these factors are outside of our control. Consumers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower, when prices increase in response to rising costs, or in periods of actual or perceived unfavorable economic conditions. 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.

Changes in product sales mix can impact our gross profit as the percentage of our sales attributable to higher margin products, such as intimate apparel and men’s underwear, and lower margin products, such as activewear, fluctuate from time to time. In addition, sales attributable to higher and lower margin products within the same product category fluctuate from time to time. Our customers may change the mix of products ordered with minimal notice to us, which makes trends in product sales mix difficult to predict. However, certain changes in product sales mix are seasonal in nature, as sales of socks, hosiery and fleece products generally have higher sales during the last two quarters (July to December) of each fiscal year as a result of cooler weather, back-to-school shopping and holidays, while other changes in product mix may be attributable to customers’ preferences and discretionary spending.

Condensed Consolidated Results of Operations — ~~Third~~Second Quarter Ended ~~September~~June 30, ~~2017~~2018 Compared with ~~Third~~Second Quarter Ended ~~October~~July 1, ~~2016~~2017


	Quarter Ended									Quarter Ended
	September 30, 2017		October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018		July 1, 2017		Higher (Lower)			Percent Change
	(dollars in thousands)									(dollars in thousands)
Net sales	$	1,799,270	$	1,761,019	$	38,251		2.2	%	$	1,715,443	$	1,646,610	$	68,833		4.2	%
Cost of sales	1,120,813		1,111,653		9,160			0.8		1,055,487		1,000,708		54,779			5.5
Gross profit	678,457		649,366		29,091			4.5		659,956		645,902		14,054			2.2
Selling, general and administrative expenses	425,153		421,014		4,139			1.0		439,893		412,197		27,696			6.7
Operating profit	253,304		228,352		24,952			10.9		220,063		233,705		(13,642		)	(5.8	)
Other expenses	1,881		1,559		322			20.7		6,570		6,422		148			2.3
Interest expense, net	43,917		43,433		484			1.1		48,430		44,130		4,300			9.7
Income from continuing operations before income tax expense	207,506		183,360		24,146			13.2		165,063		183,153		(18,090		)	(9.9	)
Income tax expense	4,150		10,570		(6,420		)	(60.7	)	24,430		10,989		13,441			122.3
Income from continuing operations	203,356		172,790		30,566			17.7		140,633		172,164		(31,531		)	(18.3	)
Income from discontinued operations, net of tax	—		1,068		(1,068		)	NM		—		368		(368		)	NM
Net income	$	203,356	$	173,858	$	29,498		17.0	%	$	140,633	$	172,532	$	(31,899	)	(18.5	)%

Net Sales

Net sales increased 2%4% during the ~~third~~second quarter of ~~2017~~2018 primarily due to the following:

Acquisition of ~~It’s Greek to Me~~Bras N Things in 2018 and ~~GTM Retail, Inc. (“GTM”)~~Alternative Apparel in ~~2016,~~2017, which added incremental net sales of ~~approximately $15~~$52 million in the ~~third~~second quarter of ~~2017;~~2018;

~~Increased net~~Organic sales on a constant currency basis, defined as sales excluding the impact of foreign currency and businesses acquired within 12 months, increased slightly in the quarter driven by performance of our key growth initiatives. Strong growth in our global Championbrand and ~~global~~ online ~~growth initiatives;~~

~~Increased net~~ sales was offset in part by declines in our intimate apparel and Hanes ~~Australasia business;~~ activewear businesses; and

~~Increased net sales within our sock product category; and~~

Favorable impact offrom foreign exchange rates in our International ~~businesses.~~

~~Partially offset by:~~

~~Lower net sales in our remaining U.S. product categories as a result~~businesses of ~~softer-than-expected back-to-school trends driven by weak traffic at retail and continued declines in the overall apparel category; and~~

~~Declines in hosiery sales within the U.S. and certain European markets.~~approximately $16 million.

Gross Profit

~~The increase~~Gross profit as a percentage of sales was 38.5%, a decrease from prior year of approximately 70 basis points. Gross margin decreased as expansion in our international gross ~~profit was attributable to supply chain efficiencies~~margin and continued realization of acquisition synergies ~~recognized from the integration of~~were more

than offset by higher input costs, product mix within our ~~acquisitions~~Innerwear segment and ~~lower~~higher acquisition-related and integration charges. Included in gross profit in the ~~third~~second quarters of ~~2017~~2018 and ~~2016~~2017 are charges of ~~approximately $2~~$11 million and ~~$14~~$4 million, respectively, related to ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related costs.

Selling, General and Administrative Expenses

As a percentage of net sales, our selling, general and administrative expenses were ~~23.6%~~25.6% for the ~~third~~second quarter of ~~2017~~2018 compared to ~~23.9%~~25.0% in the same period of ~~2016.~~2017. Included in selling, general and administrative expenses were charges of ~~$15~~$14 million and ~~$29~~$22 million of ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related costs for the ~~third~~second quarters of ~~2017~~2018 and ~~2016,~~2017, respectively. Selling, general and administrative expenses, as a percentage of net sales, ~~decreased~~increased slightly due to ~~lower acquisition-related~~planned investments to support our brands and ~~integration costs for the third quarter of 2017 compared to 2016, offset partially by the~~growth strategies, higher distribution expenses from short term labor inefficiencies and higher proportion of selling, general and administrative ~~expenses~~costs at our recently acquired businesses, partially offset by continued realization of acquisition synergies and lower acquisition, integration and other action-related costs for the ~~recently acquired entities, primarily GTM.~~second quarter of 2018 compared to the second quarter of 2017.

Other Highlights

Interest Expense – ~~relatively flat~~higher by $4 million in the ~~third~~second quarter of 2018 compared to the second quarter of 2017 ~~compared to the third quarter of 2016. A~~driven by higher debt balances and higher weighted average interest ~~rate in 2017 compared to the same period of 2016 was nearly offset in full by lower debt balances.~~rate. Our weighted average interest rate on our outstanding debt was ~~3.84%~~3.87% during the ~~third~~second quarter of ~~2017,~~2018, compared to ~~3.69%~~3.76% in ~~third~~the second quarter of ~~2016.~~2017.

Income Tax Expense – our effective income tax rate was 2%14.8% and 6%6.0% for the ~~third~~second quarters of ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~lower~~higher tax rate in ~~2017~~2018 compared to the same period of ~~2016~~2017 is primarily ~~driven by favorable adjustments~~ due to ~~the finalization~~certain provisions of the ~~prior year federal~~Tax Act, specifically the base-broadening provision which imposed a new minimum tax return, resulting in the recognition of previously unrecognized foreign tax credits, recognized discretely in the quarter. Additionally, there was a lower proportion of earnings attributed to domestic subsidiaries in the quarter, which are taxed at higher rates than foreign subsidiaries. on global intangible low-tax income (“GILTI”).

Operating Results by Business Segment — ~~Third~~Second Quarter Ended ~~September~~June 30, ~~2017~~2018 Compared with ~~Third~~Second Quarter Ended ~~October~~July 1, ~~2016~~2017


	Net Sales				Operating Profit						Net Sales				Operating Profit
	Quarter Ended				Quarter Ended						Quarter Ended				Quarter Ended
	September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016			June 30, 2018		July 1, 2017		June 30, 2018			July 1, 2017
	(dollars in thousands)										(dollars in thousands)
Innerwear	$	644,059	$	679,096	$	141,002		$	147,902		$	694,694	$	719,006	$	159,129		$	177,628
Activewear	519,496		516,713		79,015			72,962			405,785		379,756		57,508			58,972
International	556,730		478,122		76,414			61,312			545,862		475,242		76,558			60,147
Other	78,985		87,088		10,162			9,199			69,102		72,606		7,160			7,716
Corporate	—		—		(53,289		)	(63,023		)	—		—		(80,292		)	(70,758		)
Total	$	1,799,270	$	1,761,019	$	253,304		$	228,352		$	1,715,443	$	1,646,610	$	220,063		$	233,705

Innerwear


	Quarter Ended									Quarter Ended
	September 30, 2017		October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)									(dollars in thousands)
Net sales	$	644,059	$	679,096	$	(35,037	)	(5.2	)%	$	694,694		$	719,006		$	(24,312	)	(3.4	)%
Segment operating profit	141,002		147,902		(6,900		)	(4.7	)	159,129			177,628			(18,499		)	(10.4	)
Segment operating margin										22.9		%	24.7		%

Innerwear net sales decreased ~~due to lower net sales~~as strength in ~~both~~ our basics ~~and intimates apparel businesses. Strength in our sock and licensed intimate apparel businesses~~business was more than offset by declines in ~~other product categories as~~our intimate apparel business. Net sales in our basic apparel increased approximately 50 basis points compared to the same period a ~~result of softer-than-expected back-to-school trends~~year ago driven by ~~weak traffic at retail~~improving point-of-sale trends and ~~continued~~strength in men’s underwear and women’s panties, which more than offset the expected short-term pressure from door closures. In addition, we are seeing a strong reception to our latest innovation, Comfort Flex Fit. Net sales across our intimate apparel business decreased, primarily driven by declines in the ~~overall apparel category. Declines at~~off-price retail ~~were partially offset by strong online growth across all~~ and mass merchant channels.

Innerwear ~~product categories.~~

~~Decreased~~ operating ~~profit~~margin was ~~largely driven by lower sales volume coupled with lower margins~~22.9%, representing a decline from ~~unfavorable~~the same period a year ago due to the impact from higher raw material costs and product mix, which was partially offset by lower selling, general and administrative expenses ~~from continued cost control.~~as a result of our prior year’s corporate headcount reduction efforts.

Activewear


	Quarter Ended								Quarter Ended
	September 30, 2017		October 1, 2016		Higher (Lower)		Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)								(dollars in thousands)
Net sales	$	519,496	$	516,713	$	2,783	0.5	%	$	405,785		$	379,756		$	26,029		6.9	%
Segment operating profit	79,015		72,962		6,053		8.3		57,508			58,972			(1,464		)	(2.5	)
Segment operating margin									14.2		%	15.5		%

Activewear net sales increased ~~with~~as a result of our ~~expansion into the teamwear and fanware space with the~~ acquisition of ~~GTM~~Alternative Apparel in ~~2016, increased~~2017, which contributed incremental net sales of $20 million, as well as approximately 1.5% increase in ~~the~~net sales among our Champion and licensed sports apparel ~~business within~~businesses. Core Champion sales, which we define as Champion sales outside of the ~~college bookstore business~~mass retail channel, were up nearly 73% in the quarter driven by strong consumer demand, space gains in the sports specialty channels and growth in the online channel. Growth in core Champion sales and licensed sports apparel in the mass channel ~~across Activewear product categories. Sales increases were~~more than offset ~~partially by sales declines~~the decline in the Champion mass business, which we believe is mature, and the decline in our Hanes activewear ~~apparel, primarily in~~business, within the mass ~~merchant channel.~~retail channel, due to space reductions.

~~Operating profit increased primarily~~Activewear operating margin was 14.2%, representing a decline from prior year as ~~a result of~~favorable product mix ~~favoring~~and cost savings associated with prior year’s corporate headcount reduction efforts were offset by higher ~~gross margin businesses, sales volume~~raw material costs, start-up manufacturing inefficiencies and ~~continued cost control.~~

higher distribution costs.

International


	Quarter Ended								Quarter Ended
	September 30, 2017		October 1, 2016		Higher (Lower)		Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)		Percent Change
	(dollars in thousands)								(dollars in thousands)
Net sales	$	556,730	$	478,122	$	78,608	16.4	%	$	545,862		$	475,242		$	70,620	14.9	%
Segment operating profit	76,414		61,312		15,102		24.6		76,558			60,147			16,411		27.3
Segment operating margin									14.0		%	12.7		%

Net sales in the International segment were higher as a result of the following:

Our acquisition of Bras N Things in the first quarter of 2018, which contributed incremental net sales of nearly $32 million;

Increased net sales driven by our global Champion sales growth, primarily in the Europe and Asia markets; and

~~Increased innerwear net sales within our Hanes Australasia and Latin America businesses; and~~

Favorable impact of foreign currency exchange ~~rates.~~rates of approximately $16 million.

~~Partially offset by:~~

~~Declining hosiery sales and slower traffic at retail in certain European markets.~~

~~Operating profit increased~~International operating margin was 14.0%, an increase from prior year primarily due to ~~higher sales volume,~~scale efficiencies and continued realization of acquisition synergies coupled with ~~cost synergies realized in our Hanes Europe Innerwear and Hanes Australasia businesses.~~high margin contributions from the recently acquired Bras N Things business.

Other


	Quarter Ended									Quarter Ended
	September 30, 2017		October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)									(dollars in thousands)
Net sales	$	78,985	$	87,088	$	(8,103	)	(9.3	)%	$	69,102		$	72,606		$	(3,504	)	(4.8	)%
Segment operating profit	10,162		9,199		963			10.5		7,160			7,716			(556		)	(7.2	)
Segment operating margin										10.4		%	10.6		%

Other net sales were lower as a result of ~~continued declines in hosiery sales in the U.S. and~~ slower traffic at our outlet ~~stores and the impact from weather-related store closures.~~stores. Operating ~~profit increased as a result of~~margin decreased slightly due to decrease in sales volume offset partially by continued cost ~~control partially offset by lower sales volume.~~savings efforts.

Corporate

Corporate expenses included certain administrative costs and ~~acquisition-related~~acquisition, integration and other action-related charges. Acquisition, integration ~~charges. Acquisition-related~~ and ~~integration~~other action-related costs are expenses related directly to an acquisition and its integration into the organization. These costs include legal fees, consulting fees, bank fees, severance costs, certain purchase accounting items, facility closures, inventory write-offs, information technology costs and similar charges. ~~Acquisition-related currency transactions represent the foreign exchange gain from financing activities~~Smaller acquisitions and other action-

related costs include acquisition and integration charges for our smaller acquisitions such as Alternative Apparel, as well as other action-related costs related to ~~the Champion Europe and Hanes Australasia acquisitions.~~supply chain network changes.

Quarter Ended
September 30,
2017 October 1,
2016
(dollars in thousands)
Acquisition-related and integration costs:

Hanes Australasia $ 9,383
$ 19,575
Hanes Europe Innerwear 8,136
18,673
Champion Europe 2,528
6,032
Knights Apparel (3,429 ) 5,588
Other acquisitions 256
549
Acquisition-related currency transactions —
(7,830 )
Total acquisition-related and integration costs $ 16,874
$ 42,587



	Quarter Ended
	June 30, 2018		July 1, 2017
	(dollars in thousands)
Acquisition, integration and other action-related costs:
Hanes Europe Innerwear	$	8,455	$	10,514
Hanes Australasia	6,647		5,970
Bras N Things	2,031		—
Champion Europe	1,078		4,399
Smaller acquisitions and other action-related costs	6,954		5,179
Total acquisition, integration and other action-related costs	$	25,165	$	26,062

Condensed Consolidated Results of Operations — ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared with ~~Nine~~Six Months Ended ~~October~~July 1, ~~2016~~2017


	Nine Months Ended										Six Months Ended
	September 30, 2017			October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018		July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)										(dollars in thousands)
Net sales	$	4,826,235		$	4,452,890	$	373,345		8.4	%	$	3,186,947	$	3,026,965		$	159,982		5.3	%
Cost of sales	2,962,345			2,788,977		173,368			6.2		1,948,070		1,841,532			106,538			5.8
Gross profit	1,863,890			1,663,913		199,977			12.0		1,238,877		1,185,433			53,444			4.5
Selling, general and administrative expenses	1,260,641			1,091,946		168,695			15.4		872,756		825,299			47,457			5.8
Operating profit	603,249			571,967		31,282			5.5		366,121		360,134			5,987			1.7
Other expenses	4,659			50,533		(45,874		)	(90.8	)	12,331		12,967			(636		)	(4.9	)
Interest expense, net	130,184			111,539		18,645			16.7		94,193		86,267			7,926			9.2
Income from continuing operations before income tax expense	468,406			409,895		58,511			14.3		259,597		260,900			(1,303		)	(0.5	)
Income tax expense	19,804			28,693		(8,889		)	(31.0	)	39,555		15,654			23,901			152.7
Income from continuing operations	448,602			381,202		67,400			17.7		220,042		245,246			(25,204		)	(10.3	)
Income from discontinued operations, net of tax	(2,097		)	1,068		(3,165		)	NM
Loss from discontinued operations, net of tax											—		(2,097		)	2,097			NM
Net income	$	446,505		$	382,270	$	64,235		16.8	%	$	220,042	$	243,149		$	(23,107	)	(9.5	)%

Net Sales

Net sales increased 8%5% in the ~~nine~~six months of ~~2017~~2018 compared to the same period of ~~2016~~2017 as a result of the following:

Acquisitions of ~~Hanes Australasia, Champion Europe~~Bras N Things in 2018 and ~~GTM~~Alternative Apparel in ~~2016,~~2017, which added incremental net sales of ~~approximately $451~~$84 million in the ~~nine~~six months of ~~2017;~~2018;

~~Increased net~~Organic sales on a constant currency basis, defined as sales excluding the impact of foreign currency and businesses acquired within 12 months, increased approximately 50 basis points in the six months of 2018 driven by strong growth in our global Championand ~~global~~ online ~~growth initiatives;~~

~~Increased net~~ sales, offset in part by declines in our ~~sock product category; and~~

~~Sales growth in licensed sports~~intimate apparel ~~in the college bookstore business.~~

~~Partially offset by:~~

Lower net sales in our remaining Innerwear product categories as a result of challenging consumer traffic at retail, cautious inventory management by retailers and store closures within the mid-tier and department store channel;

~~Lower net sales in our licensed sports apparel business~~ and Hanes activewear ~~apparel within the mass merchant channel;~~businesses; and

~~Lower net sales~~Favorable impact from foreign exchange rates in ~~Other driven by continued declines in hosiery, slower traffic at~~ our ~~outlet stores and the planned exit from our legacy catalog business in the third quarter~~International businesses of ~~2016.~~approximately $60 million.

Gross Profit

Gross profit ~~increased in~~as a percentage of sales for the ~~nine~~six months of ~~2017 compared to~~2018 was 38.9%, a decrease from the same period of the prior year of approximately 30 basis points. The gross margin decreased as expansion in ~~2016 due to~~our international gross margin and continued realization of acquisition synergies were more than offset by higher ~~sales volume primarily from acquisitions, supply chain efficiencies~~input costs and ~~synergies recognized from the~~higher acquisition, integration ~~of our acquisitions,~~ and ~~lower acquisition-related and integration~~other action-related charges. Included in gross profit in the ~~nine~~six months of ~~2017~~2018 and ~~2016~~2017 are charges of ~~approximately~~ $22 million and ~~$28~~$20 million, respectively, related to ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related costs.

Selling, General and Administrative Expenses

As a percentage of net sales, our selling, general and administrative expenses were ~~26.1%~~27.4% for the ~~nine~~six months of ~~2017~~2018 compared to ~~24.5%~~27.3% in the same period of ~~2016.~~2017. Included in selling, general and administrative expenses were charges of ~~$59~~ $23

million and ~~$64~~$45 million of ~~acquisition-related~~acquisition, integration and ~~integration~~other action-related costs for the ~~nine~~six months of 2018 and 2017, ~~and 2016,~~ respectively. ~~The higher selling,~~Selling, general and administrative expenses, as a percentage of net sales, ~~resulted~~increased slightly due to higher distribution expenses from ~~the~~short term labor inefficiencies and higher proportion of selling, general and administrative ~~expenses for~~costs at our recently acquired businesses, ~~primarily Hanes Australasia, Champion Europe~~offset partially by continued realization of acquisition synergies, lower acquisition, integration and ~~GTM,~~other action-related costs for the six months of 2018 compared to 2017 and ~~expenses related to our Project Booster initiative including our U.S.~~cost savings realized from the corporate ~~office~~ headcount reduction efforts offset partially by synergy benefits from the integration of prior acquisitions, cost savings from the planned reduction of our legacy catalog distribution, lower acquisition-related and integration costs and continued cost control.

in 2017.

Other Highlights

~~Other Expenses~~ –lower by $46 million in the nine months of 2017 compared to 2016, primarily due to costs associated with the redemption of our 6.375% Senior Notes in 2016, which included a call premium and write-off of unamortized debt issuance costs.

Interest Expense – higher by ~~$19~~$8 million for the ~~nine~~six months of ~~2017~~2018 compared to ~~2016~~2017 primarily due to higher debt balances ~~to help fund acquisitions~~ and ~~share repurchases coupled with a~~ higher weighted average interest rate. Our weighted average interest rate on our outstanding debt was ~~3.78%~~3.81% for the ~~nine~~six months of ~~2017~~2018 and ~~3.65%~~3.75% for the ~~nine~~six months of ~~2016.~~2017.

Income Tax Expense – our effective income tax rate was 4%15.2% and 7%6.0% for the ~~nine~~six months of ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~lower~~higher effective income tax rate for the ~~nine~~six months ~~ended September 30, 2017~~of 2018 compared to ~~the nine months ended October 1, 2016~~2017 was primarily due to ~~favorable adjustments related to the finalization~~certain provisions of the ~~prior year federal~~Tax Act, specifically the base-broadening provision which imposed a new minimum tax return, resulting in the recognition of previously unrecognized foreign tax credits, recognized discretely in the third quarter of 2017. Additionally, there was a lower proportion of earnings attributed to domestic subsidiaries in 2017, which are taxed at higher rates than foreign subsidiaries.on GILTI.

Discontinued Operations – the results of our discontinued operations include the operations of two businesses, Dunlop Flooring and Tontine Pillow, which were purchased in the Hanes Australasia acquisition in 2016 and sold during the first quarter of 2017.

Operating Results by Business Segment — ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared with ~~Nine~~Six Months Ended ~~October~~July 1, ~~2016~~2017


	Net Sales				Operating Profit						Net Sales				Operating Profit
	Nine Months Ended				Nine Months Ended						Six Months Ended				Six Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016			June 30, 2018		July 1, 2017		June 30, 2018			July 1, 2017
	(dollars in thousands)										(dollars in thousands)
Innerwear	$	1,868,255	$	1,953,807	$	407,982		$	435,660		$	1,185,772	$	1,224,196	$	260,548		$	294,250
Activewear	1,226,595		1,207,767		162,053			160,076			751,910		707,099		95,795			102,322
International	1,509,370		1,026,871		185,216			109,184			1,115,749		952,640		153,619			112,809
Other	$	222,015	264,445		16,250			27,408			$	133,516	143,030		9,787			10,344
Corporate	—		—		(168,252		)	(160,361		)	—		—		(153,628		)	(159,591		)
Total net sales	$	4,826,235	$	4,452,890	$	603,249		$	571,967
Total											$	3,186,947	$	3,026,965	$	366,121		$	360,134

Innerwear


	Nine Months Ended									Six Months Ended
	September 30, 2017		October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)									(dollars in thousands)
Net sales	$	1,868,255	$	1,953,807	$	(85,552	)	(4.4	)%	$	1,185,772		$	1,224,196		$	(38,424	)	(3.1	)%
Segment operating profit	407,982		435,660		(27,678		)	(6.4	)	260,548			294,250			(33,702		)	(11.5	)
Segment operating margin										22.0		%	24.0		%

Innerwear net sales decreased ~~in both our basics and intimates apparel businesses. Strength~~due to softness in our ~~sock~~intimate apparel business. Net sales in our basic apparel business remained flat to slightly up compared to the same period a year ago driven by strength in our men’s underwear and ~~licensed~~women’s panties businesses. Net sales across our intimate apparel businesses ~~as well as growth in~~declined primarily driven by decreased sales within the ~~online channel was more than offset by declines in other product categories due to challenging consumer traffic at~~off-price retail and ~~cautious inventory management by retailers. Our intimate apparel business also experienced sales declines driven by the~~mass merchant channels and continued impact from ~~retail store closures in the~~ mid-tier and department store ~~channel,~~door closures.

Innerwear operating margin was 22.0%, representing a reduction from the same period a year ago due to the impact from higher raw material costs and product mix, which was partially offset by ~~strong performance from~~lower selling, general and administrative expenses as a result of our ~~new~~ ~~Maidenform~~ ~~sport and millennial product offerings.~~

Decreased operating profit was driven largely by lower sales volume coupled with lower margins from unfavorable product mix, as well as expenses related to Project Booster, offset partially by continued cost control.prior year’s corporate headcount reduction efforts.

Activewear


	Nine Months Ended								Six Months Ended
	September 30, 2017		October 1, 2016		Higher (Lower)		Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)								(dollars in thousands)
Net sales	$	1,226,595	$	1,207,767	$	18,828	1.6	%	$	751,910		$	707,099		$	44,811		6.3	%
Segment operating profit	162,053		160,076		1,977		1.2		95,795			102,322			(6,527		)	(6.4	)
Segment operating margin									12.7		%	14.5		%

Activewear net sales increased as a result of our ~~expansion into the teamwear and fanware space with the~~ acquisition of ~~GTM~~Alternative Apparel in ~~2016,~~2017, which contributed incremental net sales in 2018 of $36 million, as well as approximately 1% increase in net sales among our other activewear businesses. Core Champion sales, which we define as Champion sales outside of the mass retail channel, were up in excess of 60% in the six months driven by strong consumer demand, space gains in the sports specialty channels and growth in ~~our~~the online channel. Growth in core Champion ~~brand outside of the mass merchant channel, increased licensed sports apparel~~ sales more than offset declines in the ~~college bookstore~~Champion at mass business, which we believe is mature, and ~~growth across Activewear product categories online, partially offset by sales declines~~the decline in our Hanesactivewear ~~apparel and licensed sports apparel~~business, within the mass ~~merchant channel.~~retail channel, due to space reductions.

~~Operating profit increased primarily~~Activewear operating margin was 12.7%, representing a decline from prior year as ~~a result of increased sales volume~~favorable product mix and ~~continued~~ cost ~~control~~savings associated with prior year’s corporate headcount reduction efforts were more than offset ~~in part,~~ by ~~the impact of retailer bankruptcies~~higher raw material costs, higher distribution costs driven by labor inefficiencies and higher proportion of selling, general and administrative expenses atfrom our recently acquired ~~GTM business.~~businesses.

International


	Nine Months Ended								Six Months Ended
	September 30, 2017		October 1, 2016		Higher (Lower)		Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)		Percent Change
	(dollars in thousands)								(dollars in thousands)
Net sales	$	1,509,370	$	1,026,871	$	482,499	47.0	%	$	1,115,749		$	952,640		$	163,109	17.1	%
Segment operating profit	185,216		109,184		76,032		69.6		153,619			112,809			40,810		36.2
Segment operating margin									13.8		%	11.8		%

Net sales in the International segment were higher as a result of the following:

~~Incremental~~Our acquisition of Bras N Things in the first quarter of 2018, which contributed incremental net sales ~~from the acquisitions~~ of ~~Hanes Australasia and Champion Europe in 2016; and~~$48 million;

~~Continued growth in Asia within our Activewear product category, primarily~~Increased net sales driven by our global Champion~~and~~ ~~Hanes~~ sales ~~growth.~~growth, primarily in the Europe and Asia markets; and

~~Partially offset by:~~Favorable impact of foreign currency exchange rates of approximately $60 million.

~~Declining hosiery sales and slower traffic at retail in certain European markets.~~

~~Operating profit increased~~International operating margin was 13.8%, an increase from prior year primarily due to ~~higher sales volume,~~scale efficiencies, favorable mix and the continued realization of acquisition synergies coupled with ~~cost synergies realized in our Hanes Europe Innerwear and Hanes Australasia businesses.~~high margin contributions from the recently acquired Bras N Things business.

Other


	Nine Months Ended									Six Months Ended
	September 30, 2017		October 1, 2016		Higher (Lower)			Percent Change		June 30, 2018			July 1, 2017			Higher (Lower)			Percent Change
	(dollars in thousands)									(dollars in thousands)
Net sales	$	222,015	$	264,445	$	(42,430	)	(16.0	)%	$	133,516		$	143,030		$	(9,514	)	(6.7	)%
Segment operating profit	16,250		27,408		(11,158		)	(40.7	)	9,787			10,344			(557		)	(5.4	)
Segment operating margin										7.3		%	7.2		%

Other net sales were lower as a result of continued declines in hosiery sales in the U.S., and slower traffic at our outlet ~~stores and the planned exit from our legacy catalog business in 2016.~~stores. Operating ~~profit decreased~~margin increased slightly as a result of our continued cost control more than offsetting the lower sales ~~volume, offset, in part, by continued cost control.~~

volume.

Corporate

facility closures, inventory write-offs, ~~infrastructure (including~~ information ~~technology),~~technology costs, and similar charges. ~~Acquisition-related currency transactions represent the foreign exchange gain from financing activities~~Smaller acquisitions and other action-related costs include acquisition and integration charges for our smaller acquisitions such as Alternative Apparel, as well as other action-related costs related to ~~the Champion Europe and Hanes Australasia acquisitions.~~supply chain network changes.

Nine Months Ended
September 30,
2017 October 1,
2016
(dollars in thousands)
Acquisition-related and integration costs:
Hanes Europe Innerwear $ 38,528
$ 59,919
Hanes Australasia 27,361
20,732
Champion Europe 8,096
7,550
Knights Apparel 6,885
15,623
Other acquisitions 433
3,466
Acquisition-related currency transactions —
(15,639 )
Total acquisition-related and integration costs $ 81,303
$ 91,651



	Six Months Ended
	June 30, 2018		July 1, 2017
	(dollars in thousands)
Acquisition, integration and other action-related costs:
Hanes Europe Innerwear	$	17,031	$	30,392
Hanes Australasia	12,739		17,978
Bras N Things	3,276		—
Champion Europe	2,958		5,567
Smaller acquisitions and other action-related costs	8,778		10,492
Total acquisition, integration and other action-related costs	$	44,782	$	64,429

Liquidity and Capital Resources

Trends and Uncertainties Affecting Liquidity

Our primary sources of liquidity are cash generated by operations and availability under our ~~$1.0 billion~~ revolving credit facility (the “Revolving Loan Facility”), our senior secured credit facility (the “Senior Secured Credit Facility”), our accounts receivable securitization facility (the “Accounts Receivable Securitization Facility”) and our international loan facilities.

At ~~September 30, 2017, we~~We had ~~$784 million~~ ofthe following borrowing capacity and availability under our ~~Revolving Loan Facility (after taking into account outstanding letters~~credit facilities as of ~~credit), $24 million borrowing~~June 30, 2018:



	As of June 30, 2018
	Borrowing Capacity		Borrowing Availability
	(dollars in thousands)
Senior Secured Credit Facility:
Revolving Loan Facility	$	1,000,000	$	507,915
Australian Revolving Loan Facility	47,710		47,710
European Revolving Loan Facility	116,850		—
Accounts Receivable Securitization Facility¹	200,000		—
Other international credit facilities	179,443		120,726
Total liquidity from credit facilities	$	1,544,003	$	676,351

¹Borrowing availability under ~~our~~the Accounts Receivable Securitization Facility ~~$149~~is subject to a quarterly fluctuating facility limit, not to exceed $225 million, and permitted only to the extent that the face of ~~borrowing availability under our international loan facilities, which includes our European Revolving Loan Facility, our Australian Revolving Loan Facility~~the receivables in the collateral pool, net of applicable reserves and other ~~international notes payable and debt facilities, and~~ deductions, exceeds the outstanding loans.~~$400~~

At June 30, 2018, we had $398 million in cash and cash equivalents. We currently believe that our existing cash balances and cash generated by operations, typically in the second half of the year, together with our available credit capacity, will enable us to comply with the terms of our indebtedness and meet foreseeable liquidity requirements.

The following have impacted or may impact our liquidity:

we have principal and interest obligations under our debt;

we acquired ~~Champion Europe~~Bras N Things in ~~June 2016~~February 2018 and ~~Hanes Australasia~~Alternative Apparel in ~~July 2016~~October 2017 and we may pursue additional strategic business acquisitions in the future;

~~the amount of contingent consideration we are required to pay in connection with the Champion Europe acquisition may be inconsistent with management’s expectations;~~

we expect to continue to invest in efforts to ~~improve operating efficiencies~~accelerate worldwide omnichannel and ~~lower costs;~~global growth initiatives, as well as marketing and brand building;

contributions to our pension plans;

~~we may increase or decrease the portion of the current-year income of our foreign subsidiaries that we remit to the United States, which could significantly impact our effective income tax rate;~~

our Board of Directors has authorized a regular quarterly dividend; and

our Board of Directors has authorized share repurchases.

Dividends

In January and April ~~and July of 2017,~~2018, our Board of Directors declared a regular quarterly dividend of $0.15 per share, which were paid in March and June ~~and September of 2017, respectively.~~2018. On ~~October~~July 24, ~~2017,~~2018, our Board of Directors declared a regular quarterly cash dividend of $0.15 per share on outstanding shares of common stock to be paid on ~~December~~September 5, ~~2017~~2018 to stockholders of record at the close of business on ~~November~~August 14, ~~2017.~~

2018.

Share Repurchase Program

In April 2016, our Board of Directors approved ~~a new~~the current share repurchase program for up to 40 million shares to be repurchased in open market transactions, subject to market conditions, legal requirements and other factors. We did not repurchase any shares during the six months ended June 30, 2018. For the ~~nine~~six months ended ~~September 30,~~July 1, 2017 we ~~entered into transactions to repurchase~~repurchased approximately 15 million shares at a weighted average ~~repurchase~~purchase price of ~~$20.39 per share.~~$20.39. The shares were repurchased at a total cost of $300 million. For the nine months ended October 1, 2016 we repurchased approximately 14 million shares under the previous share repurchase program at a weighted average purchase price of $26.65. The shares were repurchased at a total cost of $380 million. At ~~September~~June 30, ~~2017,~~2018, the remaining repurchase authorization ~~under the current share repurchase program~~ totaled approximately 2520 million shares. The program does not obligate us to acquire any particular amount of common stock and may be suspended or discontinued at any time at our discretion.

Cash Requirements for Our Business

We rely on our cash flows generated from operations and the borrowing capacity under our credit facilities to meet the cash requirements of our business. The primary cash requirements of our business are payments to vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments, business acquisitions, contributions to our pension plans, repurchases of our stock and regular quarterly dividend payments. We believe we have sufficient cash and available borrowings for our foreseeable liquidity needs.

There have been no significant changes in the cash requirements for our business from those described in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~30, 2017.

Sources and Uses of Our Cash

The information presented below regarding the sources and uses of our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~October~~July 1, ~~2016~~2017 was derived from our condensed consolidated financial statements.


	Nine Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			June 30, 2018			July 1, 2017
	(dollars in thousands)						(dollars in thousands)
Operating activities	$	331,090		$	208,291		$	(64,398	)	$	34,250
Investing activities	(16,259		)	(959,865		)	(373,716		)	13,301
Financing activities	(367,598		)	879,925			417,883			(55,211		)
Effect of changes in foreign currency exchange rates on cash	(7,433		)	2,693			20,176			(3,170		)
Change in cash and cash equivalents	(60,200		)	131,044
Change in cash, cash equivalents and restricted cash							(55		)	(10,830		)
Cash and cash equivalents at beginning of year	460,245			319,169			421,566			460,245
Cash and cash equivalents at end of period	$	400,045		$	450,213
Cash, cash equivalents and restricted cash at end of period							421,511			449,415
Less restricted cash at end of period							23,540			—
Cash and cash equivalents per balance sheet at end of period							$	397,971		$	449,415

Operating Activities

Our overall liquidity is primarily driven by our cash flow from operations, which is dependent on net income, as well as changes in our working capital. We typically use cash during the first half of the year and generate most of our cash flow in the second half of the year. As compared to prior year, the higher net cash ~~provided~~used by operating activities is due to ~~strong working capital management, specifically related to increased accounts receivable collections, extension~~the final Champion Europe contingent consideration payment in the first quarter of ~~our accounts payable terms and no voluntary~~2018, the $15 million pension contribution in the ~~first nine months~~second quarter of ~~2017 compared~~2018 and increased inventory levels to ~~$40 million in the same period of 2016.~~support our second half sales projections, offset partially by improved payable terms.

Investing Activities

The ~~lower~~increased net cash used by investing activities is primarily the result of ~~cash~~the acquisition of Bras N Things in the first quarter of 2018 and an increased capital investment into our business to support our global growth. Cash received from ~~our~~investing activities in 2017 was driven by the dispositions of the Dunlop Flooring and Tontine Pillow businesses ~~as well as our acquisitions of Champion Europe and Pacific Brands~~which were acquired in conjunction with the ~~first nine months of 2016.~~Hanes Australasia acquisition.

Financing Activities

The ~~lower~~increased net cash from financing activities was primarily the result of ~~lower~~less cash outflows for share repurchases and higher borrowings on our loan facilities in 2018 as compared to the ~~first nine months~~same period of ~~2017 and the issuance of our three Senior Notes and incurrence of debt under our Australia term loan facilities in 2016 to help fund the acquisitions of Champion Europe and Hanes Australasia.~~

2017.

Financing Arrangements

In March ~~2017,~~2018, we amended the Accounts Receivable Securitization Facility. This amendment primarily extended the maturity date to March ~~2018~~2019.

In ~~September 2017, we~~June 2018, the Company amended the ~~European Revolving Loan~~Accounts Receivable Securitization Facility to ~~extend~~remove certain receivables from being pledged as collateral for the ~~maturity date to September 2018.~~facility.

As of ~~September~~June 30, ~~2017~~2018, we were in compliance with all financial covenants under our credit facilities. We expect to maintain compliance with these covenants for the foreseeable future, however economic conditions or the occurrence of events discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017 or other SEC filings could cause noncompliance.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” to our financial statements included in our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017.

The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017. There have been no material changes in these policies from those described in our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017.

Recently Issued Accounting Pronouncements

For a summary of recently issued accounting pronouncements, see Note, “Recent Accounting Pronouncements” to our financial statements.



Item 3.	Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in our market risk exposures from those described in Item 7A of our Annual Report on Form 10-K for the year ended December ~~31, 2016~~30, 2017.



Item 4.	Controls and Procedures

As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that our disclosure controls and procedures were effective.

In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, concluded that no changes in our internal control over financial reporting occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II



Item 1.	Legal Proceedings

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



Item 1A.	Risk Factors

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016.~~30, 2017. There are no material changes to the risk factors previously disclosed, nor have we identified any previously undisclosed risks that could materially adversely affect our business and financial results.



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

None.



Item 3.	Defaults Upon Senior Securities

None.



Item 4.	Mine Safety Disclosures

Not applicable.



Item 5.	Other Information

None.



Item 6.	Exhibits



Exhibit Number		Description

2.1		~~Scheme Implementation Deed, Dated April 27, 2016,~~Share Purchase Agreement, dated February 2, 2018, between HBI Australia Acquisition Co Pty Limited, Hanesbrands Inc., Brett Blundy, Ray Itaoui and ~~Pacific Brands Limited~~the individual sellers listed therein (incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~July 20, 2016)~~February 8, 2018).

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

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

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

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

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

10.1		Form of Severance/Change in Control Agreement entered into by and between Hanesbrands Inc. and certain of its executive officers after December 2010 and schedule of all such agreements with current executive officers.*

31.1		Certification of Gerald W. Evans, Jr., Chief Executive Officer.

31.2		Certification of ~~Richard D. Moss, Principal~~Barry A. Hytinen, Chief Financial Officer.

32.1		Section 1350 Certification of Gerald W. Evans, Jr., Chief Executive Officer.

32.2		Section 1350 Certification of ~~Richard D. Moss, Principal~~Barry A. Hytinen, Chief Financial Officer.

101.INS XBRL		Instance Document

101.SCH XBRL		Taxonomy Extension Schema Document

101.CAL XBRL		Taxonomy Extension Calculation Linkbase Document

101.LAB XBRL		Taxonomy Extension Label Linkbase Document

101.PRE XBRL		Taxonomy Extension Presentation Linkbase Document

101.DEF XBRL		Taxonomy Extension Definition Linkbase Document

* Management contract or compensatory plans or arrangements.

SIGNATURES

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



HANESBRANDS INC.

By:		/s/ ~~Richard D. Moss~~Barry A. Hytinen
		~~Richard D. Moss~~Barry A. Hytinen ~~Duly Appointed Officer and Principal~~Chief Financial Officer (Duly authorized officer and principal financial officer)

Date: ~~November 2, 2017~~August 1, 2018

3332



Cash and cash equivalents	$	54,294
Accounts receivable, net	36,019
Inventories	104,806
Other current assets	16,588
Current assets of discontinued operations	50,839
Property, net	34,835
Trademarks and other identifiable intangibles	506,170
Deferred tax assets and other noncurrent assets	23,687
Total assets acquired	827,238
Accounts payable	89,309
Accrued liabilities and other	24,912
Current liabilities of discontinued operations	14,564
Long-term debt	41,976
Deferred tax liabilities and other noncurrent liabilities	16,320
Total liabilities assumed	187,081
Net assets acquired	640,157
Goodwill	160,714
Purchase price	$	800,871



Cash and cash equivalents	$	14,581
Trade accounts receivable, net	27,926
Inventories	53,816
Other current assets	5,976
Property, net	24,605
Trademarks and other identifiable intangibles	135,277
Deferred tax assets and other noncurrent assets	3,777
Total assets acquired	265,958
Accounts payable	66,594
Accrued liabilities and other (including contingent consideration)	60,887
Notes payable	27,748
Deferred tax liabilities and other noncurrent liabilities	20,282
Total liabilities assumed and contingent consideration	175,511
Net assets acquired	90,447
Goodwill	109,830
Initial consideration paid	200,277
Estimated contingent consideration	45,277
Total purchase price	$	245,554



	Interest Rate as of September 30, 2017	Principal Amount				Maturity Date
	Interest Rate as of September 30, 2017	September 30, 2017		December 31, 2016		Maturity Date
Senior Secured Credit Facility:
Revolving Loan Facility	2.99%	$	211,000	$	—	April 2020
Term Loan A	2.95%	605,625		655,469		April 2020
Term Loan B	3.74%	318,625		318,625		April 2022
Australian Term A-1	3.15%	156,974		143,544		July 2019
Australian Term A-2	—%	—		143,544		July 2021
4.875% Senior Notes	4.88%	900,000		900,000		May 2026
4.625% Senior Notes	4.63%	900,000		900,000		May 2024
3.5% Senior Notes	3.50%	587,268		520,617		June 2024
European Revolving Loan Facility	1.50%	79,868		62,474		September 2018
Accounts Receivable Securitization Facility	2.12%	250,995		44,521		March 2018
Other International Debt	Various	2,027		43,789		Various
		4,012,382		3,732,583
Less long-term debt issuance cost		40,445		46,534
Less current maturities		405,390		178,364
		$	3,566,547	$	3,507,685



	Location of Gain Reclassified from AOCI into Income (Effective Portion)	Amount of Gain Reclassified from AOCI into Income (Effective Portion)				Amount of Gain Reclassified from AOCI into Income (Effective Portion)
		Quarter Ended				Nine Months Ended
		September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Foreign exchange contracts	Cost of sales	$	414	$	715	$	3,348	$	4,424



	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain Recognized in Income				Amount of Gain (Loss) Recognized in Income
		Quarter Ended				Nine Months Ended
		September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016
Foreign exchange contracts	Selling, general and administrative expenses	$	3,277	$	7,694	$	(1,398	)	$	7,970