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These excerpts taken from the HBI 10-K filed Feb 19, 2008. Manufacturing
and Sourcing
During the year ended December 29, 2007, approximately 79%
of our finished goods sold in the United States were
manufactured through a combination of facilities we own and
operate and facilities owned and operated by third-party
contractors who perform some of the steps in the manufacturing
process for us, such as cutting
and/or
sewing. We sourced the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned,
contracted and sourced manufacturing located across different
geographic regions, increases the efficiency of our operations,
reduces product costs and offers customers a reliable source of
supply.
Finished
Goods That Are Manufactured by Hanesbrands
The manufacturing process for finished goods that we manufacture
begins with raw materials we obtain from third parties. The
principal raw materials in our product categories are cotton and
synthetics. Our costs for cotton yarn and cotton-based textiles
vary based upon the fluctuating and often volatile cost of
cotton, which is affected by, among other factors, weather,
consumer demand, speculation on the commodities market and the
relative valuations and fluctuations of the currencies of
producer versus consumer countries. We attempt to mitigate the
effect of fluctuating raw material costs by entering into
short-term supply agreements that set the price we will pay for
cotton yarn and cotton-based textiles in future periods. We also
enter into hedging contracts on cotton designed to protect us
from severe market fluctuations in the wholesale prices of
cotton. In addition to cotton yarn and cotton-based textiles, we
use thread and trim for product identification, buttons,
zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also influence
the prices of items used in our business, such as chemicals,
dyestuffs, polyester yarn and foam. Alternate sources of these
materials and services are readily available. After they are
sourced, cotton and synthetic materials are spun into yarn,
which is then knitted into cotton, synthetic and blended
fabrics. We spin a significant portion of the yarn and knit a
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significant portion of the fabrics we use in our owned and
operated facilities. To a lesser extent, we purchase fabric from
several domestic and international suppliers in conjunction with
scheduled production. These fabrics are cut and sewn into
finished products, either by us or by third-party contractors.
Most of our cutting and sewing operations are located in Central
America and the Caribbean Basin.
Rising fuel, energy and utility costs may have a significant
impact on our manufacturing costs. These costs may fluctuate due
to a number of factors outside our control, including government
policy and regulation and weather conditions.
We continue to consolidate our manufacturing facilities, and
currently operate 62 manufacturing facilities, down from 70 at
the time of our spin off. In making decisions about the location
of manufacturing operations and third-party sources of supply,
we consider a number of factors, including local labor costs,
quality of production, applicable quotas and duties, and freight
costs. Over the past ten years, we have engaged in a substantial
asset relocation strategy designed to eliminate or relocate
portions of our
U.S.-based
manufacturing operations to lower-cost locations in Central
America, the Caribbean Basin and Asia. For example, during the
third quarter of 2007, we acquired the 1,300-employee textile
manufacturing operations in San Juan Opico, El Salvador of
Industrias Duraflex, S.A. de C.V., at which textiles are knit,
dyed, finished and cut. These operations had been a supplier to
us since the early 1990s. This acquisition provides a textile
base in Central America from which to expand and leverage our
large scale as well as supply our sewing network throughout
Central America. Also, we announced plans in October 2007 to
build a textile production plant in Nanjing, China, which will
be the first company-owned textile production facility in Asia.
The Nanjing textile facility will enable us to expand and
leverage our production scale in Asia as we balance our supply
chain across hemispheres. In December 2007, we acquired the
900-employee sheer hosiery facility in Las Lourdes, El Salvador
of Inversiones Bonaventure, S.A. de C.V. For the past
12 years, these operations had been a primary contract
sewing operation for Hanes and L’eggs hosiery
products. The acquisition streamlines a critical part of our
overall hosiery supply chain and is part of our strategy to
operate larger, company-owned production facilities.
During the year ended December 29, 2007, in furtherance of
our efforts to execute our consolidation and globalization
strategy, we approved actions to close 17 manufacturing
facilities and three distribution centers in the Dominican
Republic, Mexico, the United States, Brazil and Canada while
moving production to lower-cost operations in Central America
and Asia. In addition, we completed previously announced actions
during 2007. We also have recognized accelerated depreciation
with respect to owned or leased assets associated with 17
manufacturing facilities and five distribution centers which we
anticipate closing in the next three to five years as part of
our consolidation and globalization strategy. The implementation
of these efforts, which are designed to improve operating
efficiencies and lower costs, has resulted and is likely to
continue to result in significant costs and savings. As further
plans are developed and approved by management and in some cases
our board of directors, we expect to recognize additional
restructuring costs to eliminate duplicative functions within
the organization and transition a significant portion of our
manufacturing capacity to lower-cost locations. As a result of
these efforts, we expect to incur approximately
$250 million in restructuring and related charges over the
three year period following the spin off from Sara Lee,
approximately half of which is expected to be noncash. As of
December 29, 2007, we have recognized approximately
$116 million in restructuring and related charges related
to these efforts. Of these charges, $43 million relates to
employee termination and other benefits, $61 million
relates to accelerated depreciation of buildings and equipment
for facilities that have been or will be closed and
$12 million relates to lease termination costs.
Finished
Goods That Are Manufactured by Third Parties
In addition to our manufacturing capabilities, we also source
finished goods designed by us from third-party manufacturers,
also referred to as “turnkey products.” Many of these
turnkey products are sourced from international suppliers by our
strategic sourcing hubs in Hong Kong and other locations in Asia.
All contracted and sourced manufacturing must meet our high
quality standards. Further, all contractors and third-party
manufacturers must be preaudited and adhere to our strict
supplier and business practices guidelines. These requirements
provide strict standards covering hours of work, age of workers,
health and
Table of Contents
safety conditions and conformity with local laws. Each new
supplier must be inspected and agree to comprehensive compliance
terms prior to performance of any production on our behalf. We
audit compliance with these standards and maintain strict
compliance performance records. In addition to our audit
procedures, we require certain of our suppliers to be Worldwide
Responsible Apparel Production, or “WRAP,” certified.
WRAP is a recognized apparel certification program that
independently monitors and certifies compliance with certain
specified manufacturing standards that are intended to ensure
that a given factory produces sewn goods under lawful, humane,
and ethical conditions. WRAP uses third-party, independent
certification firms and requires
factory-by-factory
certification.
Manufacturing and Sourcing During the year ended December 29, 2007, approximately 79% of our finished goods sold in the United States were manufactured through a combination of facilities we own and operate and facilities owned and operated by third-party contractors who perform some of the steps in the manufacturing process for us, such as cutting and/or sewing. We sourced the remainder of our finished goods from third-party manufacturers who supply us with finished products based on our designs. We believe that our balanced approach to product supply, which relies on a combination of owned, contracted and sourced manufacturing located across different geographic regions, increases the efficiency of our operations, reduces product costs and offers customers a reliable source of supply. Finished Goods That Are Manufactured by Hanesbrands The manufacturing process for finished goods that we manufacture begins with raw materials we obtain from third parties. The principal raw materials in our product categories are cotton and synthetics. Our costs for cotton yarn and cotton-based textiles vary based upon the fluctuating and often volatile cost of cotton, which is affected by, among other factors, weather, consumer demand, speculation on the commodities market and the relative valuations and fluctuations of the currencies of producer versus consumer countries. We attempt to mitigate the effect of fluctuating raw material costs by entering into short-term supply agreements that set the price we will pay for cotton yarn and cotton-based textiles in future periods. We also enter into hedging contracts on cotton designed to protect us from severe market fluctuations in the wholesale prices of cotton. In addition to cotton yarn and cotton-based textiles, we use thread and trim for product identification, buttons, zippers, snaps and lace. Fluctuations in crude oil or petroleum prices may also influence the prices of items used in our business, such as chemicals, dyestuffs, polyester yarn and foam. Alternate sources of these materials and services are readily available. After they are sourced, cotton and synthetic materials are spun into yarn, which is then knitted into cotton, synthetic and blended fabrics. We spin a significant portion of the yarn and knit a
Table of Contentssignificant portion of the fabrics we use in our owned and operated facilities. To a lesser extent, we purchase fabric from several domestic and international suppliers in conjunction with scheduled production. These fabrics are cut and sewn into finished products, either by us or by third-party contractors. Most of our cutting and sewing operations are located in Central America and the Caribbean Basin. Rising fuel, energy and utility costs may have a significant impact on our manufacturing costs. These costs may fluctuate due to a number of factors outside our control, including government policy and regulation and weather conditions. We continue to consolidate our manufacturing facilities, and currently operate 62 manufacturing facilities, down from 70 at the time of our spin off. In making decisions about the location of manufacturing operations and third-party sources of supply, we consider a number of factors, including local labor costs, quality of production, applicable quotas and duties, and freight costs. Over the past ten years, we have engaged in a substantial asset relocation strategy designed to eliminate or relocate portions of our U.S.-based manufacturing operations to lower-cost locations in Central America, the Caribbean Basin and Asia. For example, during the third quarter of 2007, we acquired the 1,300-employee textile manufacturing operations in San Juan Opico, El Salvador of Industrias Duraflex, S.A. de C.V., at which textiles are knit, dyed, finished and cut. These operations had been a supplier to us since the early 1990s. This acquisition provides a textile base in Central America from which to expand and leverage our large scale as well as supply our sewing network throughout Central America. Also, we announced plans in October 2007 to build a textile production plant in Nanjing, China, which will be the first company-owned textile production facility in Asia. The Nanjing textile facility will enable us to expand and leverage our production scale in Asia as we balance our supply chain across hemispheres. In December 2007, we acquired the 900-employee sheer hosiery facility in Las Lourdes, El Salvador of Inversiones Bonaventure, S.A. de C.V. For the past 12 years, these operations had been a primary contract sewing operation for Hanes and L’eggs hosiery products. The acquisition streamlines a critical part of our overall hosiery supply chain and is part of our strategy to operate larger, company-owned production facilities. During the year ended December 29, 2007, in furtherance of our efforts to execute our consolidation and globalization strategy, we approved actions to close 17 manufacturing facilities and three distribution centers in the Dominican Republic, Mexico, the United States, Brazil and Canada while moving production to lower-cost operations in Central America and Asia. In addition, we completed previously announced actions during 2007. We also have recognized accelerated depreciation with respect to owned or leased assets associated with 17 manufacturing facilities and five distribution centers which we anticipate closing in the next three to five years as part of our consolidation and globalization strategy. The implementation of these efforts, which are designed to improve operating efficiencies and lower costs, has resulted and is likely to continue to result in significant costs and savings. As further plans are developed and approved by management and in some cases our board of directors, we expect to recognize additional restructuring costs to eliminate duplicative functions within the organization and transition a significant portion of our manufacturing capacity to lower-cost locations. As a result of these efforts, we expect to incur approximately $250 million in restructuring and related charges over the three year period following the spin off from Sara Lee, approximately half of which is expected to be noncash. As of December 29, 2007, we have recognized approximately $116 million in restructuring and related charges related to these efforts. Of these charges, $43 million relates to employee termination and other benefits, $61 million relates to accelerated depreciation of buildings and equipment for facilities that have been or will be closed and $12 million relates to lease termination costs. Finished Goods That Are Manufactured by Third Parties In addition to our manufacturing capabilities, we also source finished goods designed by us from third-party manufacturers, also referred to as “turnkey products.” Many of these turnkey products are sourced from international suppliers by our strategic sourcing hubs in Hong Kong and other locations in Asia. All contracted and sourced manufacturing must meet our high quality standards. Further, all contractors and third-party manufacturers must be preaudited and adhere to our strict supplier and business practices guidelines. These requirements provide strict standards covering hours of work, age of workers, health and
Table of Contentssafety conditions and conformity with local laws. Each new supplier must be inspected and agree to comprehensive compliance terms prior to performance of any production on our behalf. We audit compliance with these standards and maintain strict compliance performance records. In addition to our audit procedures, we require certain of our suppliers to be Worldwide Responsible Apparel Production, or “WRAP,” certified. WRAP is a recognized apparel certification program that independently monitors and certifies compliance with certain specified manufacturing standards that are intended to ensure that a given factory produces sewn goods under lawful, humane, and ethical conditions. WRAP uses third-party, independent certification firms and requires factory-by-factory certification. This excerpt taken from the HBI 10-K filed Sep 28, 2006. Manufacturing
and Sourcing
In fiscal 2006, approximately 80% of our finished goods sold in
the United States were manufactured through a combination of
facilities we own and operate and facilities owned and operated
by third-party contractors. These contractors perform some of
the steps in the manufacturing process for us, such as cutting
and/or
sewing. We sourced the remainder of our finished goods from
third-party manufacturers who supply us with finished products
based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned,
contracted and sourced manufacturing located across different
geographic regions, increases the efficiency of our operations,
reduces product costs and offers customers a reliable source of
supply.
Finished
Goods That Are Manufactured by Hanesbrands
The manufacturing process for finished goods that we manufacture
begins with raw materials we obtain from third parties. The
principal raw materials in our product categories are cotton and
synthetics. Our costs for cotton yarn and cotton-based textiles
vary based upon the fluctuating and volatile cost of cotton,
which is affected by weather, consumer demand, speculation on
the commodities market and the relative valuations and
fluctuations of the currencies of producer versus consumer
countries. We attempt to mitigate the effect of fluctuating raw
material costs by entering into short-term supply agreements
that set the price we will pay for cotton yarn and cotton-based
textiles in future periods. We also enter into hedging contracts
on cotton designed to protect us from severe market fluctuations
in the wholesale prices of cotton. In addition to cotton yarn
and cotton-based textiles, we use thread and trim for product
identification, buttons, zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices also may influence
the prices of items used in our business, such as chemicals,
dyestuffs, polyester yarn and foam. Alternate sources of these
materials and services are readily available. After they are
sourced, cotton and synthetic materials are spun into yarn,
which is then knitted into cotton, synthetic and blended
fabrics. We spin a significant portion of the yarn and knit a
significant portion of the fabrics we use in our owned and
operated facilities. To a lesser extent, we purchase fabric from
several domestic and international suppliers in conjunction with
scheduled production. These fabrics are cut and sewn into
finished products, either by us or by third-party contractors.
Most of our cutting and sewing operations are located in Central
America and the Caribbean Basin.
In making decisions about the location of manufacturing
operations and third-party sources of supply, we consider a
number of factors including local labor costs, quality of
production, applicable quotas and duties and freight costs.
Although, according to a 2005 study, approximately 80% of our
workforce in fiscal 2005 was located outside the United States,
approximately 70% of our labor costs in fiscal 2005 were related
to our domestic workforce. We continue to evaluate actions to
reduce our U.S. workforce over time, which should have the
effect of reducing our total labor costs. Over the past ten
years, we have engaged in a substantial asset relocation
strategy designed to relocate or eliminate portions of our
U.S. based manufacturing operations to lower-cost locations
in Central America, the Caribbean Basin and Asia. In this
regard, we have recently launched two textile manufacturing
projects outside of the United States—an owned textile
manufacturing facility in the Dominican Republic, which began
production in early 2006, and a strategic alliance with a
third-party textile manufacturer in El Salvador, which began
production in 2005. At these facilities, textiles are knit,
dyed, finished and cut in accordance with our specifications. We
expect to achieve cost efficiencies from our operations at these
facilities primarily as a result of lower labor costs. In
addition, because these manufacturing facilities are located in
close proximity to the sewing operations to which the
manufactured textiles must be transported, we expect to achieve
additional efficiencies by reducing the amount of time
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needed to produce finished goods. We also expect to increase
asset utilization through the operations at these facilities. In
connection with moving operations from other facilities, we
reduced excess manufacturing capacity. We also expect to benefit
from locating many of the processes that require constant
changes to the manufacturing line at a single facility, which
allows for fewer changes at other facilities. We closed two of
our owned textile facilities in the United States in connection
with these projects. We also recently closed two additional
facilities in the United States and one in Mexico.
Finished
Goods That Are Manufactured by Third Parties
In addition to our manufacturing capabilities, we also source
finished goods designed by us from
third-party
manufacturers, also referred to as “turnkey products.”
Many of these turnkey products are sourced from international
suppliers by our strategic sourcing hubs in Hong Kong and other
locations in Asia.
All contracted and sourced manufacturing must meet our high
quality standards. Further, all contractors and third-party
manufacturers must be preaudited and adhere to our strict
supplier and business practices guidelines. These requirements
provide strict standards covering hours of work, age of workers,
health and safety conditions and conformity with local laws.
Each new supplier must be inspected and agree to comprehensive
compliance terms prior to performance of any production on our
behalf. We audit compliance with these standards and maintain
strict compliance performance records. In addition to our audit
procedures, we require certain of our suppliers to be Worldwide
Responsible Apparel Production, or “WRAP,” certified.
WRAP is a stringent apparel certification program that
independently monitors and certifies compliance with certain
specified manufacturing standards that are intended to ensure
that a given factory produces sewn goods under lawful, humane
and ethical conditions. WRAP uses third-party, independent
certification firms, and requires
factory-by-factory
certification.
This excerpt taken from the HBI 8-K filed Sep 5, 2006. Manufacturing and Sourcing In fiscal 2005, approximately 85% of our finished goods sold in the United States were manufactured through a combination of facilities we own and operate and facilities owned and operated by third-party contractors. These contractors perform some of the steps in the manufacturing process for us, such as cutting and/or sewing. We sourced the remainder of our finished goods from third-party manufacturers who supply us with finished products based on our designs. We believe that our balanced approach to product supply, which relies on a combination of owned, contracted and sourced manufacturing located across different geographic regions, increases the efficiency of our operations, reduces product costs and offers customers a reliable source of supply. Finished Goods That Are Manufactured by Hanesbrands The manufacturing process for finished goods that we manufacture begins with raw materials we obtain from third parties. The principal raw materials in our product categories are cotton and synthetics. Our costs for cotton yarn and cotton-based textiles vary based upon the fluctuating and volatile cost of cotton, which is affected by weather, consumer demand, speculation on the commodities market and the relative valuations and fluctuations of the currencies of producer versus consumer countries. We attempt to mitigate the effect of fluctuating raw material costs by entering into short-term supply agreements that set the price we will pay for cotton yarn and cotton-based textiles in future periods. We also enter into hedging contracts on cotton designed to protect us from severe market fluctuations in the wholesale prices of cotton. In addition to cotton yarn and cotton-based textiles, we use thread and trim for product identification, buttons, zippers, snaps and lace. Fluctuations in crude oil or petroleum prices may also influence the prices of items used in our business, such as chemicals, dyestuffs, polyester yarn and foam. Alternate sources of these materials and services are readily available. We did not experience difficulty in satisfying our raw material needs during fiscal 2005. After they are sourced, cotton and synthetic materials are spun into yarn, which is then knitted into cotton, synthetic and blended fabrics. We spin a significant portion of the yarn and knit a significant portion of the fabrics we use in our owned and operated facilities. To a lesser extent, we purchase fabric from several domestic and international suppliers in conjunction with scheduled production. These fabrics are cut and sewn into finished products, either by us or by third-party contractors. Most of our cutting and sewing operations are located in Central America and the Caribbean Basin. In making decisions about the location of manufacturing operations and third-party sources of supply, we consider a number of factors including local labor costs, quality of production, applicable quotas and duties, and freight costs. Although approximately 80% of our workforce is currently located outside the United States, approximately 70% of our labor costs in fiscal 2005 were related to our domestic workforce. Over the past ten years, we have engaged in a substantial asset relocation strategy designed to relocate or eliminate portions of our U.S. based manufacturing operations to lower-cost locations in Central America, the Caribbean Basin and Asia. In fiscal 2005, we launched two textile manufacturing projects offshore—an owned textile facility in the Dominican Republic and a strategic alliance with a third-party textile manufacturer in El Salvador. We closed two of our owned textile facilities in the United States in connection with these projects.
79
Table of ContentsFinished Goods That Are Manufactured by Third Parties In addition to our manufacturing capabilities, we also source finished goods designed by us from third-party manufacturers, also referred to as “turnkey products.” We continue to evaluate actions to reduce our U.S. workforce over time, which should have the effect of reducing our total labor costs. Many of these turnkey products are sourced from international suppliers by our strategic sourcing hubs in Hong Kong and other locations in Asia. All contracted and sourced manufacturing must meet our high quality standards. Further, all contractors and third-party manufacturers must be preaudited and adhere to our strict supplier and business practices guidelines. These requirements provide strict standards covering hours of work, age of workers, health and safety conditions and conformity with local laws. Each new supplier must be inspected and agree to comprehensive compliance terms prior to performance of any production on our behalf. We audit compliance with these standards and maintain strict compliance performance records. In addition to our audit procedures, we require certain of our suppliers to be Worldwide Responsible Apparel Production, or “WRAP,” certified. WRAP is a stringent apparel certification program that independently monitors and certifies compliance with certain specified manufacturing standards which are intended to ensure that a given factory produces sewn goods under lawful, humane, and ethical conditions. WRAP uses third-party, independent certification firms, and requires factory-by-factory certification. | EXCERPTS ON THIS PAGE:
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