Since its spinoff in September 2007, Hanesbrands has repaid $285 million in debt, voluntarily contributed $96 million to its qualified pension plans, which are now 97 percent funded, and bought back $44 million worth of stock.
Long-Term Capital Structure: Hanesbrands has $2.3 billion of long-term debt, and the company's debt leverage, as measured by adjusted debt to EBITDAR ratio, has decreased from 5.2 at spinoff to 4.6.
The company announced that the company's leverage goal is adjusted debt to EBITDAR of 4.0 times with a target range of between 3.5 and less than 5.0 times.
"Because of our strong cash flow due to the replenishment nature of our core categories, a leveraged profile for Hanesbrands is desirable," said Hanesbrands Chief Financial Officer E. Lee Wyatt.
"Our first priority is always to use cash to invest in our business and meet our obligations. With excess cash, we believe we have greater potential for value creation by repurchasing shares or making acquisitions than continuing to reduce our debt leverage below the 3.5 ratio."
With the current conditions in the financial markets, Hanesbrands will maintain its current debt structure. The company's long-term debt doesn't start to mature for at least four years. When financial markets normalize, the company plans to refinance its debt.
"We will always use our cash judiciously to create value," Wyatt said. "We are in a good position with our capital structure in financial market. With our current capital structure, we benefit from the declining interest rate environment, we have high liquidity and we can continue to reduce debt.
When the markets normalize, we can refinance to gain greater flexibility in our use of cash, including using it to increase share repurchases and pursue potential acquisitions."
Hanesbrands does not envision any significant commercial acquisitions with its current capital structure, although smaller tactical acquisition opportunities may be considered. Longer term, Hanesbrands would only consider acquisitions that meet strict criteria.
Any acquisition would have to support its strategic initiatives, be consistent with its core business, provide synergies, complement growth, and generate returns greater than the weighted average cost of capital.
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