<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ______________
Commission file number 0-1790
RUSSELL CORPORATION
(Exact name of registrant as specified in its charter)
Alabama 63-0180720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 Lee Street
Alexander City, Alabama 35010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 329-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock, par value $.01, held by
non-affiliates of the registrant, as of March 9, 1995, was approximately
$838,000,000.
As of March 9, 1995, there were 39,428,922 shares of Common Stock, $.01 par
value outstanding (excluding treasury shares).
-Continued-
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Shareholders Report for the year ended December 31,
1994 are incorporated by reference into Parts II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 26, 1995 are incorporated by reference into Part III.
<PAGE> 3
PART I
ITEM 1. Business
GENERAL
Russell Corporation (together with its subsidiaries, the "Company") is a
vertically integrated international manufacturer and marketer of activewear,
athletic uniforms, better knit shirts, licensed sports apparel, sports and
casual socks, and a comprehensive line of lightweight, yarn-dyed woven fabrics.
The Company's manufacturing operations include the entire process of converting
raw fibers into finished apparel and fabrics. Russell's products are marketed
through five sales divisions--Knit Apparel, Athletic, Licensed Products,
International, and Fabrics--as well as through Cross Creek Apparel, Inc. and
DeSoto Mills, Inc., two wholly owned subsidiaries. Products are marketed to
sporting goods dealers, department and specialty stores, mass merchandisers,
golf pro shops, college bookstores, screen printers, distributors, mail-order
houses, and other apparel manufacturers. There was no material change in the
nature of the business conducted by Russell Corporation during 1994.
Of the Company's total revenues, more than ninety percent are derived from
the sale of completed apparel, with the balance from woven fabrics. During the
two previous fiscal years ending January 1, 1994 and January 2, 1993, completed
apparel accounted for more than ninety percent of total revenues. Foreign and
export sales for 1994 and each of the immediately preceding two years were less
than ten percent of total net sales. One customer, Wal-Mart Stores, Inc.,
accounted for 13.1 percent of total revenues in 1994 and 16.1 percent in 1993.
No single customer accounted for more than ten percent of total revenues in
1992.
The Company produces athletic uniforms for most recognized sports activities
and for players of all ages and sizes. These products are marketed to
professional, collegiate, high school and other teams as well as to
individuals. Knit apparel, such as T-shirts, fleece sweatshirts and
sweatpants, pullovers, jackets, and other similar knitted products, is produced
for the general consumer market. Knit product lines also include knit placket
shirts, rugby-styled shirts and turtlenecks. The Company also produces sports
and casual socks including tube, quarter anklet and crew socks for men, women
and children. Woven fabrics are produced and sold to other apparel
manufacturers for men's, women's and children's wear.
The Company's principal manufacturing facilities are located in and around
Alexander City, Alabama. It also operates 31 additional plants in other
communities in Alabama, Florida, Georgia, North Carolina and Virginia.
Warehousing and shipping is conducted in Alexander City, Dothan and Montgomery,
Alabama; Marianna and Miami, Florida; Mt. Airy, North Carolina; Columbus,
Georgia; Chicago, Illinois; Sparks, Nevada; and Palisades Park, New Jersey.
The primary manufacturing and distribution facilities for Russell Corp. UK
Limited are located in and around Livingston, Scotland. The Company also
maintains warehouses in Mexico City and San Juan del Rio, Mexico.
As a vertically integrated operation, the Company converts raw fibers into
finished apparel and fabrics utilizing company-owned spinning mills, knitting
and weaving equipment, dyeing and finishing facilities, and cutting and sewing
operations. Generally, the Company produces most of the yarns, other than
textured and filament yarns, used in the manufacturing process. As a result of
its integrated production process, substantially all functions required to
produce finished apparel and fabrics can be performed by the Company without
reliance upon outside contractors. The Company does, however, rely on outside
suppliers for headwear and certain outerwear products.
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<PAGE> 4
The Company benefits from flexibility in its production scheduling
capability, permitting it to shift product emphasis as markets improve, change
or temporarily decline for particular products. This ability to respond
quickly to market changes has enabled the Company to manage more effectively
the utilization of its manufacturing capacity.
The Company's revenue and income are subject to minor seasonal variations.
However, due to the time which may elapse between the placement of orders and
shipment of goods, prices may or may not immediately reflect changes in the
Company's cost of raw materials and other costs. Working capital needs may
change with the increase or decrease in inventories or accounts receivable as a
result of a variety of credit terms and time between production and shipments.
Production schedules are based upon current orders, the history of customer
orders, market research, and similar factors. The Company has no meaningful
backlog figures.
The Company does not hold any significant patents, franchises or
concessions. The Company's ability to manufacture and sell licensed apparel
products is dependent upon licenses held by the Company to utilize various
trademarks and tradenames on such apparel. These licenses are subject to
periodic renewal and negotiation and certain minimum payments.
MANUFACTURING
The Company has the capability of converting raw fibers into finished
products in major production complexes which are complemented by several
satellite production facilities in the same geographic areas. The Company
emphasizes the utilization of technological advances and devotes a major
portion of its capital expenditure program to keeping its manufacturing
machinery and equipment modern and efficient.
The total process includes spinning of yarn from cotton and blends of cotton
and man-made fibers such as polyester; fabrication of knit and woven fabrics;
dyeing, bleaching, screen printing and otherwise finishing those fabrics; and
manufacturing finished apparel in various cutting and sewing operations. These
operations are discussed below:
Yarn Manufacturing - The spinning of yarns, the process by which fibers of
raw cotton and blends of cotton and man-made fibers are converted into
continuous strands, is a key operation in the manufacturing process. Yarn
uniformity and strength are the principal characteristics which materially
affect the efficiency of subsequent manufacturing processes and the quality of
the finished fabrics or apparel. The Company manufactures a variety of yarn
sizes for various end uses.
The Company purchases synthetic fibers from one principal supplier. There
are approximately four major producers of such fibers in the United States.
The Company purchases cotton, primarily grown in the Southeastern region, from
various cotton merchants. The Company also purchases all of its requirements
of filament and textured yarns from other manufacturers. The Company has
experienced no material difficulty in purchasing adequate supplies, and does
not presently anticipate any difficulties in the future. The Company has no
long-term contracts for the supply of raw materials and is, therefore, subject
to market price fluctuations.
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<PAGE> 5
Fabrication - The yarns described above are converted by the Company into
cloth or fabrics through the processes of single knitting, supplemented by
smaller operations of weaving, double knitting and warp knitting. These
operations are conducted in four plant locations in Alexander City.
Fabrication facilities for Cross Creek are located in Mt. Airy, North Carolina.
Similar fabrication facilities in Livingston, Scotland, service Russell Corp.
UK Limited.
Dyeing and Finishing - Fabrics described above are either used in the
production of the Company's own apparel or sold to others. These fabrics are
dyed and finished in company-owned facilities in Alexander City and Sylacauga,
Alabama; Mt. Airy, North Carolina; and Livingston, Scotland. Yarn-dyed fabrics
are dyed in the yarn manufacturing stage. The dyeing and finishing processes
impart and affect the appearance, the hand (feel), colorfastness, uniformity,
shade, and stability (retention of shape and form) of the fabric.
Cutting and Sewing - The Company's cutting and sewing operations are
currently located in 30 plants in the U.S. and three plants in Scotland which
serve its apparel marketing operations. The Company employs an engineering
staff to assist in the design and development of new equipment to improve
efficiencies and automate production facilities in the cutting and sewing
operations which historically have been characterized by high labor costs.
The Company places a major emphasis upon maintaining sufficient modern
cutting and sewing equipment, thereby providing flexibility to accommodate
changing patterns, styles and designs of its apparel products.
MARKETING
Knit Apparel Division - Under the JERZEES label and private labels, this
division designs and markets a wide variety of knitted apparel, including
fleece sportswear, such as sweatshirts and sweatpants, and lightweight
sportswear, such as T-shirts and tank tops for children and adults. The Company
signed an exclusive licensing agreement in 1993 to introduce a line of women's
and girls' activewear under the chic(R) brand name in the United States.
The apparel is sold by a salaried, company-employed salesforce to
distributors, screen printers, mass merchandising chains, and other retail
outlets. The Division maintains sales offices in Alexander City, Alabama; New
York, New York; Irving, Texas; and Irvine, California.
Athletic Division - RUSSELL ATHLETIC produces and markets high-quality
teamwear and knit activewear through distribution partners including sporting
goods dealers, specialty stores, department stores, sporting goods chains, and
major mail-order catalogs. Sales are made by Company employees.
The Company has a dominant position as a supplier of team uniforms,
providing practice and game uniforms for both professional and amateur
participants of almost every major sport. Russell is the "official" supplier
of team uniforms for 25 of 28 Major League Baseball teams and outfits more NFL
teams than any other company. The Company believes it is the largest
manufacturer of athletic uniforms in the United States.
I-3
<PAGE> 6
Activewear such as sweatshirts, sweatpants, T-shirts, and tank tops are also
sold under the RUSSELL ATHLETIC label. The Company merchandises the RUSSELL
ATHLETIC line in product categories such as NuBlend, HIGH COTTON, and PRO
COTTON.
The Company furnishes most of its own yarn and fabric used in this division
and also supplements its requirements with purchases from outside suppliers.
The uniforms are manufactured in a wide variety of styles, fabrics and colors,
with lettering and numerical arrangements available to customers'
specifications.
Licensed Products Division - The Company is a leading factor in the licensed
sports apparel market, selling its products under licenses granted by Major
League Baseball, the National Football League, the National Basketball
Association, the National Hockey League, the National Collegiate Athletic
Association, the 1996 Olympics, and most major colleges and universities.
Products include various headwear and outerwear items. The Company has the
exclusive rights to market authentic game jerseys under Major League Baseball
Properties' Authentic Diamond Collection.
These products are sold through commission sales representatives and a
company-employed salesforce to retailers across the nation. Distribution
channels include specialty footwear stores, department stores, superstores,
licensed product specialty stores, full-line sporting goods stores, college
bookstores, concessionaires, and souvenir and gift stores.
The Licensed Products Division was formed in 1994 to coordinate the
Company's domestic licensed products business, including The Game, the licensed
products of Russell Athletic and the Chalk Line family of brands. As part of
this effort, The Game Inc. subsidiary was merged into Russell Corporation
effective December 31, 1994.
International Division - The International Division markets the JERZEES,
RUSSELL ATHLETIC and CROSS CREEK brands throughout various countries outside
the United States. It also handles the Company's licensed products efforts
outside the U.S. and Canada. The Company's major international market is
Europe with both manufacturing and marketing.
Russell's European production operations include knitting, dyeing and
finishing, cutting and sewing, and distribution facilities in and around
Livingston, Scotland. Russell has developed an international sales
infrastructure with offices in Alicante, Spain; Brussels, Belgium; Frankfurt,
Germany; Paris, France; Prague, Czech Republic; Prato, Italy; and Mexico City,
Mexico. The Company will open sales offices in Hong Kong and Buenos Aires in
1995.
Fabrics Division - The Fabrics Division designs and markets quality woven
fabrics of cotton and blends of cotton and man-made fibers in a wide variety of
patterns, colors and constructions for sale primarily to other manufacturers of
apparel. Most of the woven fabrics are made with dyed yarns to produce fabrics
to meet customer specifications. A fabric screen printing operation also
permits color printing of woven fabrics, thereby providing a more diversified
product line. Sales are made by the Company's own marketing staff from its
Alexander City, Atlanta, Los Angeles, and New York sales offices and also by
commission sales representatives located in Dallas, New York and Toronto.
The Division's expertise in finishing plain-woven fabrics is also utilized
in a contract finishing operation where customer-owned fabrics are finished, or
printed and finished, on a contractual basis.
I-4
<PAGE> 7
Cross Creek Apparel, Inc. - Cross Creek designs and markets better knit
apparel including placket shirts, turtlenecks and rugbys. The CROSS CREEK PRO
COLLECTION, designed specifically for golfers, is sold in golf pro shops and
resort areas. The CROSS CREEK retail line is distributed through department
stores and men's specialty shops. The CROSS CREEK COUNTRY COTTONS and JERZEES
lines of placket shirts are marketed through national distributors to screen
printers and embroiderers. CROSS CREEK also manufactures private label apparel
for high-end catalogs and other retailers. In addition to commission agents,
Cross Creek maintains a company-employed sales force with offices in Mt. Airy,
North Carolina and New York, New York.
DeSoto Mills, Inc. - DeSoto Mills, Inc., is a finisher/manufacturer of
popularly priced socks for men, women and children. DeSoto Mills produces and
sells sports and casual socks under the brand names of DeSoto Player's Club,
Athletic Club, Performance Club, and Player's Performance. Socks are also sold
to private label customers and under licensing agreements such as Beverly Hills
Polo Club and Hytest. Sales are made through a Company-employed sales force
principally to the wholesale club market and to discount retailers.
DeSoto Mills, Inc. was acquired April 1, 1994 in a stock transaction valued
at approximately $10,000,000. DeSoto Mills, Inc. is operated as a wholly owned
subsidiary of Russell Corporation.
COMPETITION
The textile-apparel industry is keenly competitive, and the Company has many
domestic and foreign competitors, both large textile-apparel companies and
smaller concerns. While the sales of a number of manufacturers are
substantially greater than those of the Company, no single manufacturer
dominates the industry.
EMPLOYEES
As of December 31, 1994, the Company had 16,771 employees. The Company has
never had a strike or work stoppage and considers its relationship with its
employees to be good.
REGULATION
The Company is subject to federal, state, and local laws and regulations
affecting its business, including those promulgated under the Occupational
Safety and Health Act (OSHA), the Consumer Product Safety Act (CPSA), the
Flammable Fabrics Act, the Textile Fiber Product Identification Act, and the
rules and regulations of the Consumer Products Safety Commission (CPSC). The
Company believes that it is in substantial compliance with all applicable
governmental regulations under these statutes. The Company has complied with
all known current environmental requirements and expects no major additional
expenditures in this area in the foreseeable future.
I-5
<PAGE> 8
ITEM 2. Properties
The Company's principal executive offices, manufacturing plants and research
facilities are located in Alexander City, Alabama, with additional plants in
Alabama, Florida, Georgia, Nevada, North Carolina, Virginia and (in and around)
Livingston, Scotland. The Company has no material mortgages on any of its real
property or manufacturing machinery except for capitalized lease obligations
(see Note 4 of Notes to Consolidated Financial Statements), and believes that
all of its properties are well maintained and suitable for its operations and
are currently fully utilized for such purposes.
The Company utilizes an aggregate of approximately 9,740,000 square feet of
manufacturing, warehousing and office facilities. The following table
summarizes the approximate areas of such facilities:
<TABLE>
<CAPTION>
Approximate
Primary Use Square Feet
----------- -----------
<S> <C>
Spinning 1,552,500
Knitting and Weaving 768,400
Dyeing and Finishing 698,400
Cutting and Sewing 2,021,900
Warehousing and Shipping 3,504,800
Retail/Outlet Stores 139,800
Executive Offices, Maintenance
Shops and Research and
Development 574,200
Scotland 429,600
Mexico 50,400
</TABLE>
All presently utilized facilities in the U.S. are owned, except the
Montgomery and Greenville, Alabama, sewing plants; Columbus, Georgia and
Sparks, Nevada distribution facilities; several regional warehouses; the
regional sales offices; and the majority of the outlet/retail store locations
(see Notes 4 and 11 of Notes to Consolidated Financial Statements).
ITEM 3. Legal Proceedings
The Company is a party to various lawsuits arising out of the conduct of
its business, none of which, if adversely determined, would have a material
adverse affect upon the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
EXECUTIVE OFFICERS OF THE COMPANY
"Election of Directors" on pages one through four of the Proxy
Statement for the Annual Meeting of Shareholders to be held April 26, 1995 is
incorporated herein by reference.
I-6
<PAGE> 9
Additional executive officers who are not directors are as follows:
<TABLE>
<CAPTION>
Officer
Name Age Since Position
---- --- ------- --------
<S> <C> <C> <C>
Fred O. Braswell III 39 1992 Vice President-External
Affairs
Steve R. Forehand 39 1987 Secretary
Thomas R. Johnson, Jr. 52 1989 Executive Vice President- Manufacturing
J. Anthony Meyer, Jr. 45 1991 Treasurer
W. J. Spires, Jr. 49 1988 President - Cross Creek
Apparel, Inc.
JT Taunton, Jr. 52 1983 Executive Vice President- Sales and Marketing
Larry E. Workman 51 1987 Controller
</TABLE>
Mr. Braswell, employed by the Company in 1992, was Director of the Alabama
Development Office from 1990 until 1992. Prior to 1990, he was Director of the
Alabama Department of Economic and Community Affairs.
Mr. Forehand, employed by the Company in 1985 as Director of Taxes, served
as Assistant Secretary from 1987 to 1988. Prior to joining the Company, he was
engaged in the private practice of law.
Mr. Johnson, employed by the Company since 1989, most recently served as
Vice President, Greige Manufacturing. Prior to joining Russell, he served as
Operations Manager for Eden Yarns, Inc. from 1987 to 1989 and as a Plant
Manager for Avondale Mills from 1984 to 1987. Prior to that, Mr. Johnson was
employed by Chicopee, a division of Johnson & Johnson.
Mr. Meyer, employed by the Company in 1991, was associated with Wachovia
Bank of Georgia from 1979 to 1991 where he was a Senior Vice President. He was
Southern District Manager, Corporate Banking, from 1981 to 1991.
Mr. Spires, employed by the Company in 1969, was elected President, Cross
Creek Apparel, Inc. in 1993. Prior to that, he served from 1988 to 1993 as
Vice President, Services, where he directed the Company's Distribution,
Transportation and Information Services activities. Prior to 1988, Mr. Spires
held several management positions with Russell in both sales and operations.
Mr. Taunton, employed by the Company since 1973, most recently served as
President of the Fabrics Division from 1988 to 1993. Prior to that, he served
as Vice President, Operations and as Operations Manager for the Fabrics
Division.
Mr. Workman, employed by the Company since 1969 as an accountant, served
as Manager of Cost Accounting from 1970 to 1987.
All executive officers and all other officers of the Company are elected
by the Board of Directors and serve at the pleasure of the Board of Directors.
I-7
<PAGE> 10
PART II
ITEM 5. Market for the Registrant's Common
Stock and Related Security Holder Matters
"Dividend and Market Information" on page 22 and in Note 4 to Consolidated
Financial Statements on page 18 of the Annual Shareholders Report for the year
ended December 31, 1994 are incorporated herein by reference.
The approximate number of holders of the Company's common stock at March 9,
1995 was 13,000.
ITEM 6. Selected Financial Data
"Financial Review" on pages 24 and 25 of the Annual Shareholders Report for
the year ended December 31, 1994 is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 23 of the Annual Shareholders Report for the year ended
December 31, 1994 is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and its
subsidiaries, included in the Annual Shareholders Report for the year ended
December 31, 1994 are incorporated herein by reference:
... Consolidated balance sheets - December 31, 1994 and January 1, 1994
... Consolidated statements of income - Years ended December 31, 1994,
January 1, 1994 and January 2, 1993
... Consolidated statements of cash flow - Years ended December 31, 1994,
January 1, 1994 and January 2, 1993
... Consolidated statements of stockholders' equity - Years ended
December 31, 1994, January 1, 1994 and January 2, 1993
... Notes to consolidated financial statements - Years ended
December 31, 1994, January 1, 1994 and January 2, 1993
... Report of Independent Auditors
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None
II-1
<PAGE> 11
PART III
ITEM 10. Directors and Executive Officers of the Registrant
"Election of Directors" on pages one through four and "Principal
Shareholders" on pages 15 and 16 of the Proxy Statement for the Annual Meeting
of Shareholders to be held April 26, 1995 is incorporated herein by reference.
"Executive Officers of the Company" on pages I-6 and I-7 of this report is
incorporated herein by reference.
Other significant employees are as follows:
<TABLE>
<CAPTION>
Officer
Name Age Since Position
---- --- ------- --------
<S> <C> <C> <C>
Fletcher D. Adamson 60 1987 Vice President-Research
William P. Dickson, Jr. 54 1974 Vice President-
Human Resources
J. Franklin Foy 59 1982 Vice President-
Dyeing and Finishing
John E. Frechette 55 1991 Vice President-
International
Jerry W. Green 51 1990 Vice President-
Apparel Operations
K. Roger Holliday 36 1988 President-Licensed
Products Division
Joseph P. Irwin 37 1994 President-Knit Apparel
Division
D.W. Wachtel 56 1991 President-Athletic Division
</TABLE>
Mr. Adamson, employed by the Company since 1955, was Director, Machine
Research and Development from 1969 to 1987. He began his career in the cutting
operation for the Athletic Division and was a Supervisor in the division's
sewing operations from 1960 to 1969.
Mr. Dickson, employed by the Company in 1974, was previously Industrial
Relations Manager for the Bibb Company.
Mr. Foy, employed by the Company since 1959, was Operating Vice President,
Dyeing and Finishing prior to 1982.
Mr. Frechette, employed by the Company in 1991, operated J.F. & Associates
from 1986 to 1991. J.F. & Associates provided general management and marketing
consulting with focus on the apparel industry. Prior to 1986, he was employed
by Levi Strauss & Company for 15 years, most recently, as Vice President and
General Manager of the Jeans Division U.S.A.
III-1
<PAGE> 12
Mr. Green, employed by the Company since 1969, has held various management
positions in the apparel operations of the Company. Most recently, he served
as Operating Vice President, Apparel Manufacturing from 1986 to 1990.
Mr. Holliday, employed by the Company since 1986, was named President of the
Licensed Products Division in 1994. He served as President of the Knit Apparel
Division from 1991 until 1994 and Assistant Treasurer from 1988 to 1991.
Mr. Irwin, employed by the Company in 1980, was named President of the Knit
Apparel Division in 1994. Prior to that he served in various capacities in the
Knit Apparel Division including, Vice President, Sales from 1993 to 1994; Vice
President, Retail/Private Label from 1991 to 1993; and Vice President,
Operations from 1990 to 1991. From 1988 until 1990, he served as Sales Manager
for the Knit Division.
Mr. Wachtel, employed by the Company in 1976, was promoted to President of
the Athletic Division in 1991. He formed the Mid-South Regional Office in 1980
and formed the Mid-Southeast Sales Office in 1986. He was General Manager of
Russell Athletic, Inc. in Snellville, Georgia from 1989 to 1990 and Vice
President, Sales in the Athletic Division from 1990 to 1991.
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" on
page 17 of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 26, 1995 is incorporated herein by reference.
ITEM 11. Executive Compensation
"Executive Compensation" on pages 6 through 14 of the Proxy Statement for
the Annual Meeting of Shareholders to be held April 26, 1995 is incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) "Principal Shareholders" on pages 15 and 16 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 26, 1995 is
incorporated herein by reference.
(b) Information concerning security ownership of management set forth in
the Proxy Statement for the Annual Meeting of Shareholders to be held April 26,
1995 under the captions "Security Ownership of Management" on page 16 is
incorporated herein by reference.
(c) There are no arrangements known to the registrant the operation of
which may at a subsequent date result in a change in control of the registrant.
ITEM 13. Certain Relationships and Related Transactions
"Transactions with Management and Others" on page 17 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 26, 1995 is
incorporated herein by reference.
III-2
<PAGE> 13
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements
All financial statements of the registrant as
set forth under Item 8 of this Report on Form 10-K
(2) Financial Statement Schedule (for SEC use only)
<TABLE>
<CAPTION>
Schedule Page
Number Description Number
-------- ----------- ------
<S> <C> <C>
II Valuation and Qualifying
Accounts IV-4
</TABLE>
All other financial statements and schedules not listed have been
omitted since the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable or required.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation
Numbers Description by Reference to
------- ----------- ---------------
<S> <C> <C>
(3a) Restated Articles of Exhibit (3a) to
Incorporation Annual Report
on Form 10-K
for year ended
December 31,
1988
(3b) Certificate of Adoption Exhibit (3b) to
of Resolutions by Board Annual Report
of Directors of Russell on Form 10-K
Corporation dated for year ended
October 25, 1989 December 29,
1990
(3c) Bylaws Exhibit (3b) to
Annual Report
on Form 10-K
for year ended
December 31,
1988
( 4) Rights Agreement dated Exhibit 1 to
October 25, 1989 between Form 8-A dated
the Company and First October 30,
Alabama Bank, Montgomery, 1989 Registra-
Alabama tion Statement
No. 1-5822
</TABLE>
IV-1
<PAGE> 14
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation
Numbers Description by Reference to
------- ----------- ---------------
<S> <C> <C>
(10a) Form of Deferred Exhibits 19(a)
Compensation Agreement and 19(b) to
with certain officers Quarterly
Report on
Form 10-Q for
Quarter ended
July 3, 1988
(10b) Fuel supply contract Exhibit 13(c)
with Russell Lands, to Registration
Incorporated dated Statement
May 21, 1975 No. 2-33943
(10c) 1978 Stock Option Plan Exhibit 1 to
Registration
Statement
No. 2-64496
(10d) October 28, 1981 Exhibit 10(i)
Amendment to Stock to Annual Report
Option Plans on Form 10-K
for year ended
January 2, 1988
(10e) 1987 Stock Option Plan Exhibit 1 to
Registration
Statement
No. 33-24898
(10f) 1993 Executive Long-Term Exhibit 4(c) to
Incentive Plan Registration
Statement
No. 33-69679
(11) Computations of Earnings IV-7
per Common Share
(13) 1994 Annual Report to IV-8
Shareholders
(21) List of Significant IV-9
Subsidiaries
(23) Consent of Ernst & Young LLP, IV-10
Independent Auditors
(27) Financial Data Schedule IV-11
(for SEC use only)
(99) Proxy Statement for April 26, 1995 IV-12
</TABLE>
(b) Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of the year
ended December 31, 1994.
IV-2
<PAGE> 15
For the purpose of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the undertakings contained in Part II of the
registrant's registration statements on Form S-8 numbers 2-64496 and 33-24898:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
IV-3
<PAGE> 16
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO COSTS AT END
DESCRIPTION OF PERIOD AND EXPENSES ACQUISITION DEDUCTIONS OF PERIOD
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts $ 8,487,284 $ 3,978,303 $ 40,000 $ 4,390,465 (1) $ 8,115,122
Reserve for discounts and returns 2,634,399 17,713,714 -0- 18,005,394 (2) 2,342,719
----------- ----------- ---------- ----------- -----------
TOTALS $11,121,683 $21,692,017 $ 40,000 $22,395,859 $10,457,841
=========== =========== ========== =========== ===========
YEAR ENDED JANUARY 1, 1994
Allowance for doubtful accounts $ 5,579,113 $ 7,852,497 $ 779,198 $ 5,723,524 (1) $ 8,487,284
Reserve for discounts and returns 2,548,190 14,912,255 170,274 14,996,320 (2) 2,634,399
----------- ----------- ---------- ----------- -----------
TOTALS $ 8,127,303 $22,764,752 $ 949,472 $20,719,844 $11,121,683
=========== =========== ========== =========== ===========
YEAR ENDED JANUARY 2, 1993
Allowance for doubtful accounts $ 5,239,488 $ 4,086,251 $ -0- $ 3,746,626 (1) $ 5,579,113
Reserve for discounts and returns 1,821,809 13,441,653 -0- 12,715,272 (2) 2,548,190
----------- ----------- ---------- ----------- -----------
TOTALS $ 7,061,297 $17,527,904 $ -0- $16,461,898 $ 8,127,303
=========== =========== ========== =========== ===========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Discounts and returns allowed customers during the year.
IV-4
<PAGE> 17
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunder duly authorized.
RUSSELL COPORATION
(Registrant)
Date 3/27/95 By /s/ John C. Adams
------- ----------------------------------
John C. Adams
Chairman, President and CEO
Pursuant to the requirements of the securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ John C. Adams Chairman, President and CEO 3/27/95
--------------------------------- -------
John C. Adams Date
Executive Vice President and
Chief Financial Officer, and
director (Principal Financial
/s/ James D. Nabors Officer) 3/27/95
--------------------------------- -------
James D. Nabors Date
/s/ Herschel M. Bloom Director 3/27/95
--------------------------------- -------
Herschel M. Bloom Date
Director
--------------------------------- -------
Ronald G. Bruno Date
Director
--------------------------------- -------
H. Scott Howell Date
Director
--------------------------------- -------
Glenn Ireland II Date
</TABLE>
IV-5
<PAGE> 18
<TABLE>
<S> <C> <C>
Director
--------------------------------- -------
Crawford T. Johnson III Date
/s/ C. V. Nalley III Director 3/27/95
--------------------------------- -------
C. V. Nalley III Date
/s/ Benjamin Russell Director 3/27/95
--------------------------------- -------
Benjamin Russell Date
/s/ John R. Thomas Director 3/27/95
--------------------------------- -------
John R. Thomas Date
/s/ John A. White Director 3/27/95
--------------------------------- -------
John A. White Date
/s/ Larry E. Workman Controller 3/27/95
--------------------------------- (Principal Accounting Officer) -------
Larry E. Workman Date
</TABLE>
IV-6
<PAGE> 1
Exhibit (11)
COMPUTATIONS OF EARNINGS PER COMMON SHARE
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------
December 31 January 1 January 2
1994 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Primary:
Average shares outstanding 39,949,604 40,847,222 40,708,052
Net effect of dilutive stock
options--based on the
treasury stock method using
average market price 278,146 374,950 512,904
----------- ----------- -----------
TOTALS 40,227,750 41,222,172 41,220,956
=========== =========== ===========
Net income applicable to
common shareholders $78,826,012 $49,079,599 $81,944,872
=========== =========== ===========
Per share amount $ 1.96 $ 1.19 $ 1.99
=========== =========== ===========
Fully diluted:
Average shares outstanding 39,949,604 40,847,222 40,708,052
Net effect of dilutive stock
options--based on the
treasury stock method using
the year-end market price,
if higher than average market
price 300,833 374,950 512,904
----------- ----------- -----------
TOTALS 40,250,437 41,222,172 41,220,956
=========== =========== ===========
Net income applicable to
common shareholders $78,826,012 $49,079,599 $81,944,872
=========== =========== ===========
Per share amount $1.96 $1.19 $1.99
=========== =========== ===========
</TABLE>
IV-7
<PAGE> 1
Exhibit (13)
1994 ANNUAL REPORT SHAREHOLDERS
IV-8
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................................. $ 4,141,481 $ 3,897,324
Trade accounts receivable, less
allowances of $10,457,841 in 1994 and $11,121,683 in 1993...................... 211,976,139 176,949,035
Inventories...................................................................... 279,393,299 278,620,072
Prepaid expenses and other current assets........................................ 7,087,498 6,747,470
Future income tax benefits....................................................... 8,277,169 7,374,562
----------------- -----------------
TOTAL CURRENT ASSETS 510,875,586 473,588,463
PROPERTY, PLANT AND EQUIPMENT
Land............................................................................. 10,442,824 4,940,279
Buildings........................................................................ 238,338,807 230,549,534
Machinery and equipment.......................................................... 684,835,099 651,282,078
Construction in progress......................................................... 5,860,283 11,348,504
----------------- -----------------
939,477,013 898,120,395
Less allowances for depreciation
and amortization............................................................... (472,433,255) (407,234,556)
----------------- -----------------
467,043,758 490,885,839
OTHER ASSETS 68,657,883 52,569,344
----------------- -----------------
$ 1,046,577,227 $ 1,017,043,646
================= =================
</TABLE>
12
<PAGE> 3
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and notes payable................................................ $ 97,941,500 $ 95,187,706
Accounts payable and accrued expenses:
Trade accounts............................................................... 45,004,391 35,080,704
Employee compensation........................................................ 20,228,234 15,502,481
Other........................................................................ 11,074,632 8,203,283
----------------- -----------------
76,307,257 58,786,468
Income taxes..................................................................... 6,823,751 21,471,162
Current maturities of long-term debt
and capital lease obligations.................................................. 19,472,889 20,150,437
----------------- -----------------
TOTAL CURRENT LIABILITIES 200,545,397 195,595,773
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS--less current maturities.............................................. 144,162,822 163,333,633
DEFERRED LIABILITIES
Income taxes..................................................................... 50,840,056 49,301,746
Pension and other................................................................ 22,366,874 21,161,179
----------------- -----------------
73,206,930 70,462,925
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share;
authorized 150,000,000 shares;
issued 41,419,958 shares....................................................... 414,200 414,200
Paid-in capital.................................................................. 53,511,162 49,040,060
Retained earnings................................................................ 628,835,959 566,789,639
Treasury Stock (1994-1,730,889 shares;
1993-1,014,617 shares)......................................................... (48,598,010) (23,040,306)
Currency translation adjustment.................................................. (5,501,233) (5,552,278)
----------------- -----------------
628,662,078 587,651,315
COMMITMENTS
----------------- -----------------
$ 1,046,577,227 $ 1,017,043,646
================= =================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales.................................................... $ 1,098,259,041 $ 930,786,539 $ 899,136,495
Cost of goods sold........................................... 739,699,638 613,324,466 592,836,566
----------------- ---------------- ----------------
358,559,403 317,462,073 306,299,929
Selling, general and
administrative expenses................................... 213,025,400 185,107,319 161,655,145
Write-down of assets......................................... -0- 34,583,080 -0-
----------------- ---------------- ----------------
145,534,003 97,771,674 144,644,784
Other deductions (income):
Interest expense.......................................... 19,434,299 16,948,170 15,841,273
Other--net................................................ (1,485,405) 106,278 (703,032)
----------------- ---------------- ----------------
17,948,894 17,054,448 15,138,241
----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 127,585,109 80,717,226 129,506,543
Provision for income taxes:
Currently payable......................................... 48,123,394 38,772,176 43,142,987
Deferred.................................................. 635,703 (7,152,811) 4,126,507
----------------- ---------------- ----------------
48,759,097 31,619,365 47,269,494
----------------- ---------------- ----------------
NET INCOME 78,826,012 49,097,861 82,237,049
Preferred Stock dividends.................................... -0- 18,262 292,177
----------------- ---------------- ----------------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 78,826,012 $ 49,079,599 $ 81,944,872
================= ================ ================
Net income per common and common
equivalent share.......................................... $ 1.96 $ 1.19 $ 1.99
================= ================ ================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOW
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 78,826,012 $ 49,097,861 $ 82,237,049
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....................... 67,041,355 66,226,569 60,444,051
Deferred income taxes............................... 635,703 (7,152,811) 4,126,507
(Gain) loss on sale of property, plant and equipment (609,506) 1,152,666 708,079
Write-down of assets................................ -0- 34,583,080 -0-
Changes in assets and liabilities:
Accounts receivable................................ (30,760,052) 4,612,635 (36,415,202)
Inventories........................................ 2,474,302 (21,297,900) (69,652,047)
Prepaid expenses and other current assets.......... (45,179) 590,563 159,197
Other assets....................................... (8,218,968) (3,768,707) (1,429,602)
Accounts payable and accrued expenses.............. 8,728,321 (4,469,029) 13,141,746
Income taxes payable............................... (14,647,411) 10,809,586 (3,302,860)
Pension and other deferred liabilities............. 1,955,307 5,667,899 6,122,618
---------------- ---------------- ----------------
Net cash provided by operating activities................. 105,379,884 136,052,412 56,139,536
INVESTING ACTIVITIES
Decrease in temporary investments....................... -0- -0- 10,073,726
Acquisition (net of cash acquired)...................... -0- (34,548,300) -0-
Purchase of property, plant and equipment............... (38,561,906) (83,979,186) (109,161,075)
Proceeds from sale of property, plant and equipment..... 1,820,795 5,609,631 2,981,041
---------------- ---------------- ----------------
Net cash used in investing activities..................... (36,741,111) (112,917,855) (96,106,308)
FINANCING ACTIVITIES
Payments on notes payable............................... (4,562,010) (400,000) (1,722,786)
Short-term borrowings................................... 5,547,326 27,700,031 35,253,222
Payments on long-term debt.............................. (21,863,175) (22,876,277) (47,861,770)
Long-term borrowings.................................... -0- -0- 75,000,000
Dividends on Preferred Stock............................ -0- (18,262) (292,177)
Retirement of Preferred Stock........................... -0- (622,100) (4,962,329)
Dividends on Common Stock............................... (16,779,692) (15,950,013) (13,837,718)
Distribution of treasury shares......................... 3,151,244 2,104,841 2,046,096
Cost of Common Stock for treasury....................... (33,750,145) (15,196,000) (137,046)
---------------- ---------------- ----------------
Net cash (used in) provided by financing activities....... (68,256,452) (25,257,780) 43,485,492
EFFECT OF EXCHANGE RATE CHANGES ON CASH...................... (138,164) (74,386) (767,862)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 244,157 (2,197,609) 2,750,858
Cash balance at beginning of year............................ 3,897,324 6,094,933 3,344,075
---------------- ---------------- ----------------
Cash balance at end of year.................................. $ 4,141,481 $ 3,897,324 $ 6,094,933
================ ================ ================
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING AND END OF YEAR $ 414,200 $ 414,200 $ 414,200
=============== =============== ===============
PAID-IN CAPITAL
Balance at beginning of year.............................. $ 49,040,060 $ 49,022,677 $ 47,383,897
Exercise of stock options................................. (95,592) 17,383 (270,386)
Acquisitions.............................................. 4,566,694 -0- 1,909,166
--------------- --------------- ---------------
BALANCE AT END OF YEAR $ 53,511,162 $ 49,040,060 $ 49,022,677
=============== =============== ===============
RETAINED EARNINGS
Balance at beginning of year.............................. $ 566,789,639 $ 533,660,053 $ 465,552,899
Net income for the year................................... 78,826,012 49,097,861 82,237,049
--------------- --------------- ---------------
645,615,651 582,757,914 547,789,948
Cash dividends--Preferred Stock........................... -0- 18,262 292,177
Cash dividends--Common Stock
(1994-$.42; 1993-$.39; 1992-$.34)....................... 16,779,692 15,950,013 13,837,718
--------------- --------------- ---------------
BALANCE AT END OF YEAR $ 628,835,959 $ 566,789,639 $ 533,660,053
=============== =============== ===============
TREASURY STOCK
Balance at beginning of year.............................. $ 23,040,306 $ 9,931,764 $ 13,601,818
Cost of shares acquired (1994-1,205,527;
1993-549,360; 1992-4,191)............................... 33,898,976 15,196,000 137,046
Shares distributed (1994-489,255; 1993-144,537;
1992-245,459)........................................... (8,341,272) (2,087,458) (3,807,100)
--------------- --------------- ---------------
BALANCE AT END OF YEAR $ 48,598,010 $ 23,040,306 $ 9,931,764
=============== =============== ===============
CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year.............................. $ (5,552,278) $ (3,162,092) $ 2,751,721
Translation gain (loss)................................... 51,045 (2,390,186) (5,913,813)
--------------- --------------- ---------------
BALANCE AT END OF YEAR $ (5,501,233) $ (5,552,278) $ (3,162,092)
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1994, January 1, 1994 and January 2, 1993
NOTE 1-DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Russell Corporation is a vertically integrated international designer,
manufacturer and marketer of activewear, athletic uniforms, better knit shirts,
leisure apparel, licensed sports apparel, sports and casual socks, and a
comprehensive line of lightweight, yarn-dyed woven fabrics. The Company
operates in a single business segment. Apparel products are marketed to
sporting goods dealers, department and specialty stores, mass merchandisers,
golf pro shops, college bookstores, screen printers, distributors, mail-order
houses, and other apparel manufacturers.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Russell Corporation and its subsidiaries after the elimination of
intercompany accounts and transactions.
INVENTORIES: Inventories of finished goods, work-in-process and raw materials
are carried at the lower of cost or market, with cost for a substantial portion
of inventories determined under the Last-In, First-Out (LIFO) method. Certain
inventories are carried under the First-In, First-Out (FIFO) method, or the
average cost method, and were valued at approximately $64,000,000 in 1994 and
$56,000,000 in 1993.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Finished goods................................. $ 227,625,111 $ 243,875,628
Work-in-process................................ 37,639,332 30,381,653
Raw materials and supplies..................... 47,868,089 41,102,626
-------------- --------------
313,132,532 315,359,907
Less LIFO reserve.............................. 33,739,233 36,739,835
-------------- --------------
TOTALS $ 279,393,299 $ 278,620,072
============== ==============
-------------------------------------------------------------------------------------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT: Provision for depreciation of the principal
items of property, plant and equipment (recorded at cost), including those
items held under capital lease agreements, has been computed generally on the
straight-line method at rates based upon their estimated useful lives.
OTHER ASSETS: Included in other assets is goodwill of approximately $37,600,000
and $30,000,000, which is net of accumulated amortization of $4,800,000 and
$3,100,000 at December 31, 1994 and January 1, 1994, respectively. Goodwill is
being amortized over fifteen to twenty-five years on a straight-line basis. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable based upon the undiscounted cash flows of the entity acquired over
the remaining amortization period, the Company's carrying value of the goodwill
is reduced by the estimated shortfall of cash flow.
INCOME TAXES: Effective January 3, 1993, the Company adopted Financial
Accounting Standards Board (FASB) Statement 109, "Accounting for Income Taxes".
Under Statement 109, deferred tax assets and liabilities are determined based
upon differences between financial reporting and tax bases of assets and
liabilities and are measured at the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The impact of adopting
Statement 109 was not material and, as permitted by Statement 109, prior years'
financial statements have not been restated. The Company had previously recorded
income tax expense under the deferred method, whereby timing differences were
recorded at the tax rates in effect for the year in which the differences arose
and were not adjusted for tax rate changes.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (Standard), requires
that employers providing postemployment benefits, other than pension benefits,
accrue the cost of those benefits over the service lives of the employees
expected to be eligible to receive such benefits. Effective January 3, 1993, the
Company adopted Statement 106, and elected to immediately expense the present
value of the past service obligation, which was not material. Such costs were
previously recognized on a "pay as you go" basis.
CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS: Financial instruments
which subject the Company to credit risk, are primarily trade accounts
receivable. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number and diversity of customers
comprising the Company's customer base. Management believes that any risk
associated with trade accounts receivable is adequately provided for in the
allowance for doubtful accounts (Note 6).
Sales to a major customer, and its affiliates, represented 13.1% and 16.1%
of the Company's net sales for the years ended December 31, 1994 and January 1,
1994, respectively. Accounts receivable from this customer represented 15.9%
and 12.7% of the Company's net accounts receivable at December 31, 1994 and
January 1, 1994, respectively.
The Company periodically enters into futures contracts as hedges for its
purchases of cotton inventory. Gains and losses on these hedges are deferred
and matched to inventory purchases and reflected in cost of sales as such
inventory is sold (Note 6).
The Company utilizes an interest rate swap agreement to effectively change a
portion of its interest rate exposure from a fixed to a floating rate basis.
Under this agreement, the Company receives a fixed rate payment in exchange for
a floating rate payment on a portion of the Company's long-term debt. The
differential to be received, or paid, is accrued as interest rates change and
recorded as an adjustment to interest expense. The related amount payable to,
or receivable from, the counterparties to the agreement is included in other
liabilities or assets. The Company is exposed to credit losses in the event of
third party nonperformance, but does not anticipate any such losses. The fair
value of the agreement is not recognized in the accompanying consolidated
financial statements.
EARNINGS PER COMMON SHARE: Earnings per common share are computed by using the
average number of shares of Common Stock outstanding, plus equivalent shares
(employee stock options) with net income adjusted for Preferred Stock dividends.
Earnings per common share, assuming full conversion, have not been reported
since any difference is minimal.
FISCAL YEAR: The Company's fiscal year ends on the Saturday nearest to January
1, which periodically results in a fiscal year of 53 weeks. Fiscal years 1994,
1993 and 1992 ended on December 31, 1994, January 1,1994 and January 2, 1993,
respectively.
17
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
NOTE 2-ACQUISITIONS
On March 29, 1994, the Company acquired DeSoto Mills, Inc., a manufacturer
and marketer of sports and casual socks, through an exchange of approximately
356,000 shares of the Company's Common Stock. The transaction of approximately
$10,000,000 was accounted for as a purchase. The excess of the purchase price
over the fair value of the assets and liabilities acquired, approximately
$5,800,000, was recorded as goodwill. The consolidated income statements
include the results of operations of DeSoto Mills, Inc. subsequent to March 29,
1994.
On December 23, 1993, the Company acquired The Game Inc. The Game Inc. is a
leading designer, producer and marketer of high-quality, licensed sports
headwear and apparel for colleges and universities and the four major
professional sports leagues (National Football League, National Basketball
Association, Major League Baseball, and National Hockey League). The all cash
transaction, of approximately $35,000,000, was accounted for as a purchase. The
excess of the purchase price over the fair value of assets and liabilities
acquired, approximately $18,000,000, was recorded as goodwill. The consolidated
income statements include the results of operations of The Game Inc. subsequent
to December 23, 1993.
The following unaudited pro forma information shows the results of the
Company's operations as if the acquisitions had occurred on January 3, 1993.
The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of fiscal 1993.
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Net sales.............................. $ 1,109,952,148 $ 1,036,369,965
Net income............................. 78,884,505 43,085,990
Net income
per common share.................... $ 1.96 $ 1.04
</TABLE>
--------------------------------------------------------------------------------
NOTE 3-WRITE-DOWN OF ASSETS
During the third quarter of 1993, the Company completed a strategic review
of its operations and concluded that certain property, plant and equipment and
goodwill had a net realizable value substantially less than the book value of
such assets. As a result, during the third quarter, the Company recognized a
non-cash, pre-tax charge totaling approximately $35 million, which principally
involved the Company's textile operations and its Cross Creek Apparel, Inc.
subsidiary. The charge included a write-off of $7 million in goodwill associated
with the 1988 purchase of Cross Creek Apparel, Inc. The remaining charges were
for property, plant and equipment primarily used to manufacture fabrics that go
into higher priced specialty markets including placket shirts, slacks, dress
shorts, and dress shirts. The Company overestimated the market's potential for
these items as volumes did not materialize. Implementation of the results of the
Company's strategic review resulted in reduced pre-tax depreciation and
amortization charges of approximately $5 million during 1994 and had an
immaterial impact on net sales.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
NOTE 4-LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations include the following:
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Notes payable to financial institutions:
8.83% notes due annually through 1999................................................. $ 53,600,000 $ 64,300,000
6.72% notes due annually 1996 through 2002............................................ 75,000,000 75,000,000
8.01% notes due annually through 1997................................................. 26,000,000 34,500,000
5.00% to 8.5% notes due through 1998.................................................. 635,711 1,087,577
Capital lease obligations (5.75% to 6.0%) due annually 1996 through 2002................. 8,400,000 8,596,493
-------------- --------------
163,635,711 183,484,070
Less current maturities.................................................................. 19,472,889 20,150,437
-------------- --------------
TOTALS $ 144,162,822 $ 163,333,633
============== ==============
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes are unsecured and contain restrictions on the payment of
dividends; incurrence of indebtedness, liens or leases; acquisition of
investments; retirement of capital stock; and the maintenance of working
capital. At December 31, 1994, $139,272,570 of retained earnings was
unrestricted for payment of dividends.
The capital lease obligations relate to land, buildings and machinery and
equipment financed primarily by industrial revenue bonds. The property
collateralized under the capital lease obligations is included in property,
plant and equipment with a net carrying value of $6,998,097 and $7,575,432 at
December 31, 1994 and January 1, 1994, respectively.
The following summarizes the maturities of long-term debt and capital lease
obligations: 1995--$19,472,889; 1996--$31,285,176; 1997--$31,943,035;
1998--$22,627,469; 1999--$22,664,286; and thereafter--$35,642,856.
--------------------------------------------------------------------------------
NOTE 5-SHORT-TERM DEBT AND NOTES PAYABLE
The Company may borrow up to $284 million under informal line of credit
arrangements with six banks, on such terms as the Company and the banks may
mutually agree. Generally, the arrangements may be cancelled by either party
at any time. At December 31, 1994, amounts outstanding under the line of credit
arrangements totaled $98 million. The average interest rates of bank borrowings
during 1994, 1993 and 1992 were 4.6%, 3.5% and 3.7%, respectively. The weighted
average interest rates of bank borrowings outstanding at December 31, 1994,
January 1, 1994 and January 2, 1993 were 6.4%, 3.9% and 3.7%, respectively.
--------------------------------------------------------------------------------
NOTE 6-FINANCIAL INSTRUMENTS
COTTON FUTURES: The Company utilizes commodity futures contracts in connection
with estimating product sales prices in advance of the selling seasons. These
transactions effectively limit the Company's risk associated with future cotton
price increases as well as the benefits of future price decreases. At December
31, 1994, the Company had outstanding futures contracts that, when combined
with other contracts and inventory, represented approximately 75% of its
anticipated 1995 cotton requirements.
INTEREST RATE SWAP: The Company utilizes an interest-rate swap agreement to
effectively convert a portion of its interest rate exposure to a floating rate
basis. Under the agreement, the Company receives a fixed rate of 6.14% on $75
million and pays a floating rate based upon LIBOR, as determined at six-month
intervals. This agreement, which expires
18
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
NOTE 6-FINANCIAL INSTRUMENTS (CONTINUED)
August 31, 2002, effectively lowered the weighted average interest rate on the
Company's long-term debt from 7.48% to 7.32% and 7.59% to 6.46% in 1994 and
1993, respectively. The Company believes that future changes in interest rates
will not have a material impact on the Company's consolidated financial
position or results of operations. The fair value of the swap, as indicated
below, is the estimated termination value of the agreement at the balance sheet
date and may not be indicative of the current termination value. Any gain or
loss on the interest rate swap will be recognized when realized.
OTHER FINANCIAL INSTRUMENTS: At December 31, 1994 and January 1, 1994, the
carrying value of financial instruments such as cash, trade accounts receivable
and payables approximated their fair values, based upon the short-term
maturities of these instruments. The fair value of the Company's long-term debt
is estimated using discounted cash flow analysis, based upon the Company's
current incremental borrowing rates for similar types of borrowing
arrangements. The following table summarizes fair value information for the
Company's long-term debt and interest rate swap agreement:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Long-term debt................. $ 163,636,000 $ 157,270,000 $ 183,484,000 $ 186,831,000
Interest-rate swap............. 1,110,000 (6,550,000) 841,000 3,430,000
-------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7-QUALIFIED NONCONTRIBUTORY PENSION AND RETIREMENT PLAN
The Company has a qualified noncontributory pension plan covering
substantially all of its employees. The benefits are based upon years of
service and the employees' highest consecutive five years of compensation
during the last ten years of employment. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed to service-to-date, but also for those expected to be earned in the
future.
Net pension cost included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Service cost...................................... $ 5,007,111 $ 4,708,930 $ 4,049,195
Interest cost..................................... 6,146,574 6,181,603 5,479,499
Actual return on plan assets...................... (1,344,804) (5,067,652) (2,075,773)
Net amortization and deferral..................... (7,065,969) (2,688,432) (5,254,102)
-------------- -------------- --------------
NET PENSION COST $ 2,742,912 $ 3,134,449 $ 2,198,819
============== ============== ==============
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested
benefits of $61,874,159 and $66,025,320, respectively........... $ (65,135,094) $ (70,967,887)
============== ==============
Projected benefit obligation......................................... $ (89,726,695) $ (90,572,471)
Plan assets at fair value............................................ 87,756,115 90,912,913
-------------- --------------
(Under) over funded status........................................... (1,970,580) 340,442
Unrecognized net gain................................................ (10,771,545) (10,316,763)
Unrecognized prior service cost...................................... 4,847,837 5,503,205
Unrecognized net transition asset.................................... (6,412,542) (7,090,802)
-------------- --------------
ACCRUED PENSION EXPENSE $ (14,306,830) $ (11,563,918)
============== ==============
</TABLE>
Plan assets at December 31, 1994, are invested primarily in U.S. government
securities and listed corporate bonds and stocks, including 600,960 shares of
the Company's Common Stock having a market value of $18,855,120. Dividends paid
to the plan by the Company were $252,000 and $234,000 for 1994 and 1993,
respectively. The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were 8.0% in 1994,
7.25% in 1993 and 7.75% in 1992. The rates of increase in future compensation
levels were 4.75% in 1994, 4.0% in 1993 and 4.5% in 1992. The expected
long-term rate of return on plan assets was 8.75% in 1994, 1993 and 1992.
--------------------------------------------------------------------------------
NOTE 8-INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
LIABILITY METHOD Deferred Method
-------------------------------------------------------------- -----------------------------
1994 1993 1992
-------------------------------------------------------------- -----------------------------
CURRENTLY Currently Currently
PAYABLE DEFERRED Payable Deferred Payable Deferred
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal................ $ 42,937,691 $ 567,201 $ 36,091,121 $ (6,658,202) $ 38,779,296 $ 3,754,318
State.................. 5,185,703 68,502 2,681,055 (494,609) 4,363,691 372,189
------------- ------------ ------------- ------------ ------------- ------------
TOTALS $ 48,123,394 $ 635,703 $ 38,772,176 $ (7,152,811) $ 43,142,987 $ 4,126,507
============= ============ ============= ============ ============= ============
</TABLE>
19
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
NOTE 8-INCOME TAXES-(CONTINUED)
The components of deferred income tax expense for 1992 are as follows:
<TABLE>
<CAPTION>
1992
--------------
<S> <C>
Depreciation................................................... $ 6,611,706
Provision for bad debts........................................ (246,407)
Pension and employee benefits.................................. (802,805)
Inventory...................................................... (1,192,462)
Other-net...................................................... (243,525)
--------------
TOTALS $ 4,126,507
==============
</TABLE>
The reconciliation of income tax computed by applying the statutory
federal income tax rate of 35% (34% for 1992) to income before income taxes to
total income tax expense is:
<TABLE>
<CAPTION>
LIABILITY Deferred
METHOD Method
--------------------------------- --------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Taxes at statutory rate on pre-tax income......................... $ 44,654,788 $ 28,251,029 $ 44,032,225
State income taxes, net of federal income tax benefit............. 3,415,233 1,421,190 3,113,859
Goodwill ......................................................... 390,718 2,728,900 368,799
Adoption of FASB Statement 109.................................... -0- (1,988,705) -0-
Effect of tax rate change on temporary differences................ -0- 1,183,411 -0-
Other-net......................................................... 298,358 23,540 (245,389)
-------------- -------------- --------------
TOTALS $ 48,759,097 $ 31,619,365 $ 47,269,494
============== ============== ==============
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets, as of December 31, 1994
and January 1, 1994 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment..................................................... $ 54,904,614 $ 50,873,048
Other............................................................................. 3,468,622 4,247,500
-------------- --------------
TOTAL DEFERRED TAX LIABILITIES 58,373,236 55,120,548
Deferred tax assets:
Pension and postemployment obligations............................................ 7,030,691 6,128,970
Inventory......................................................................... 4,233,546 2,582,411
Accounts receivable............................................................... 2,676,823 2,704,763
Employee benefits................................................................. 1,869,289 1,777,220
Capital loss and credit carryforwards............................................. 1,072,912 1,696,984
-------------- --------------
Total deferred tax assets............................................................ 16,883,261 14,890,348
Valuation allowance for deferred tax assets.......................................... (1,072,912) (1,696,984)
-------------- --------------
NET DEFERRED TAX ASSETS 15,810,349 13,193,364
-------------- --------------
NET DEFERRED TAX LIABILITIES $ 42,562,887 $ 41,927,184
============== ==============
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9-STOCK RIGHTS PLAN AND EXECUTIVE LONG-TERM INCENTIVE PLAN
On October 25, 1989, the Board of Directors declared a dividend of one Right
for each share of Common Stock outstanding, which, when exercisable, entitles
the holder to purchase a unit of one one-hundredth share of Series A Junior
Participating Preferred Stock, par value $.01, at a purchase price of $85. Upon
certain events relating to the acquisition of, or right to acquire, beneficial
ownership of 20% or more of the Company's outstanding Common Stock by a
third-party, or a change in control of the Company, the Rights entitle the
holder to acquire, after the Rights are no longer redeemable by the Company,
shares of Common Stock for each Right held at a significant discount to market.
The Rights will expire on October 25, 1999, unless redeemed earlier by the
Company at $.01 per Right under certain circumstances.
During 1993, the Company's shareholders approved the 1993 Executive
Long-Term Incentive Plan (1993 Plan). Persons eligible to participate in the
1993 Plan include all officers and key employees of the Company and its
subsidiaries. The 1993 Plan permits the issuance of awards in several forms
including restricted stock, incentive stock options, non-qualified stock
options, stock appreciation rights (SARs) and performance shares and
performance unit awards.
Under the 1993 Plan and predecessor stock option plans, a total of 2,878,127
shares of Common Stock are reserved for issuance. The options are granted at a
price equal to the stock's fair market value at date of grant. The options are
exercisable two years after the date of grant and expire ten years after the
date of grant. The following table summarizes the status of options under the
1993 Plan and predecessor plans:
20
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
NOTE 9-STOCK RIGHTS PLAN AND EXECUTIVE LONG-TERM INCENTIVE PLAN-(CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
NUMBER OPTION Number Option Number Option
OF SHARES PRICE of Shares Price of Shares Price
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding...................... 1,326,027 $ 11.88 1,253,068 $ 11.88 1,171,205 $ 8.88
TO to to
$ 29.00 $ 29.00 $ 29.00
Exercisable...................... 858,527 $ 11.88 1,023,068 $ 11.88 631,795 $ 8.88
TO to to
$ 29.00 $ 29.00 $ 22.06
Granted.......................... 237,500 $ 27.44 230,000 $ 27.50 -0- $ .00
Exercised........................ 148,541 $ 11.88 144,537 $ 8.88 149,297 $ 8.88
TO to to
$ 26.38 $ 26.38 $ 22.06
Cancelled........................ 16,000 $ 27.44 3,600 $ 26.38 19,500 $ 22.06
TO to
$ 27.50 $ 29.00
Available for future grants...... 1,552,100 1,773,600 448,260
</TABLE>
SARs which have been awarded to officers and management of the Company amount
to 1,362,300 shares at December 31, 1994. SARs permit the optionee to surrender
an exercisable option for a cash or Company stock award equal to the difference
between the market price and option price when the right is exercised. No
compensation expense with respect to these rights was earned during 1994 or
1993.
--------------------------------------------------------------------------------
NOTE 10-CASH FLOWS
SUPPLEMENTAL CASH FLOW INFORMATION: Net cash provided by operating activities
in the consolidated statements of cash flows reflects cash payments for
interest and income taxes as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Interest.................. $ 19,773,431 $ 18,087,866 $ 15,812,548
Income taxes.............. 61,019,006 29,630,833 42,491,105
</TABLE>
Excluded from the consolidated statements of cash flows was the effect of
the exchange of the Company's Common Stock valued at approximately $10,000,000
for DeSoto Mills, Inc., acquired in 1994, and $3,400,000 for a company acquired
in 1992.
--------------------------------------------------------------------------------
NOTE 11-COMMITMENTS
At December 31, 1994, the Company had commitments for the acquisition of
property and equipment totaling $11,870,000 and was committed under
noncancellable operating leases with initial or remaining terms of one year or
more to minimum rental payments aggregating $16,243,134, summarized by fiscal
year periods as follows: 1995--$5,048,490; 1996--$3,598,450; 1997--$2,889,034;
1998--$2,312,749; 1999--$1,121,897; and thereafter--$1,272,514.
The Company had $17,600,000 and $12,200,000 outstanding under letters of
credit for the purchase of inventory at December 31, 1994 and January 1, 1994,
respectively.
Lease and rental expense for fiscal years 1994, 1993, and 1992 was
$10,096,501, $6,724,000 and $5,774,000, respectively.
--------------------------------------------------------------------------------
NOTE 12-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
Year ended December 31, 1994:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
April 3 July 3 October 2 December 31
---------------------------------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales...................................... $232,118 $243,505 $317,131 $305,505
Gross profit................................... 76,235 73,862 100,309 108,153
Net income..................................... 13,366 12,715 24,204 28,541
Net income per common and
common equivalent share..................... $.33 $.32 $.60 $.71
</TABLE>
21
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
NOTE 12-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)-(CONTINUED)
<TABLE>
<CAPTION>
Year ended January 1, 1994: Quarter Ended
----------------------------------------------------------
April 4 July 4 October 3 January 1
----------------------------------------------------------
<S> <S> <S> <S> <S>
Net sales...................................... $204,654 $209,061 $266,622 $250,450
Gross profit................................... 70,651 66,384 89,021 91,406
Write-down of assets........................... -0- -0- (34,583) -0-
Net income (loss).............................. 16,033 12,699 (3,759) 24,125
Net income (loss) per common and
common equivalent share..................... $.39 $.31 $(.09) $.59
</TABLE>
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
Board of Directors and Shareholders
Russell Corporation
We have audited the accompanying consolidated balance sheets of Russell
Corporation and Subsidiaries as of December 31, 1994 and January 1, 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three fiscal years in the period ending December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Russell
Corporation and Subsidiaries at December 31, 1994 and January 1, 1994, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
January 27, 1995
DIVIDEND AND MARKET INFORMATION
--------------------------------------------------------------------------------
The Common Stock of Russell Corporation is traded on the New York Stock
Exchange and other regional exchanges under the symbol RML. The range of high
and low prices of the Common Stock and the dividends per share paid during each
calendar quarter of the last two years are presented below:
<TABLE>
<CAPTION>
Market Price
---------------------------------------------
Dividend High Low Close
---------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
First............................ $.10 $ 31.00 $24.00
Second........................... .10 30.50 26.75
1994 Third............................ .10 32.63 28.50
Fourth........................... .12 31.75 28.75
----------
$.42 $31.37
First............................ $.09 $ 36.87 $30.62
Second........................... .10 35.87 28.00
1993 Third............................ .10 30.25 27.00
Fourth........................... .10 29.00 26.00
----------
$.39 $28.25
</TABLE>
22
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------------
OPERATIONS
----------
COMPARATIVE PERFORMANCE, 1994 VS. 1993
Net sales for 1994 increased 18% to $1,098,259,000, an all-time high for
the Company. Sales benefitted from increased unit volumes of fleecewear,
T-shirts, placket shirts and teamwear; revenues from acquisitions; and solid
growth in international operations. Record sales were achieved without
assistance from higher average selling prices. The year included $79,305,000 in
sales from the acquisitions of The Game Inc. and DeSoto Mills, Inc. Excluding
the effect of acquisitions, sales rose 10%. International and export revenues
grew 43% and represented 8.5% of the Company's 1994 net sales.
Gross margin of 32.6% was lower than the prior year's 34.1% principally as
a result of higher raw material costs, competitive pricing pressure and less
than optimal plant operating schedules during the first quarter of 1994. The
latter two issues resulted from industry-wide excesses of activewear in 1993
which produced an inventory correction into mid-1994. Production and capacity
cutbacks throughout the industry, coupled with rebounding fleece and T-shirt
demand, have resulted in tightened supplies. The Company has implemented price
increases on activewear items and believes that these increases will be
maintained. Higher raw material costs, particularly cotton and polyester
fibers, are expected to mitigate this improved pricing to some extent.
Selling, general and administrative expenses were higher principally due
to the inclusion of acquisitions in 1994's results. The benefits of higher unit
volumes and continuing expense management resulted in a decline in selling,
general and administrative expenses as a percent of sales for the year.
The Company utilizes an interest rate swap agreement to effectively
convert a portion of its interest rate exposure to a floating rate basis. That
agreement effectively lowered the weighted average interest rate on the
Company's long-term debt in 1994. Borrowing costs increased in 1994, however,
as a result of higher market interest rates on short-term debt.
The Company utilizes cotton futures contracts to set sales prices which
are generally set six months to a year in advance of the selling season.
Depending upon market conditions, futures may be purchased to cover the
Company's cotton requirements, generally, at the time that prices are set.
Purchasing futures not only reduces the risks of adverse price fluctuations,
but also limits the Company's ability to benefit from positive price
fluctuations over the terms of the agreements.
In anticipation of higher cotton prices in 1994, the Company purchased
futures contracts to cover its cotton requirements. Cotton prices rose
significantly during the year, and those contracts mitigated the effect of such
increases for a major portion of this period. At December 31, 1994, the Company
had outstanding futures contracts that, when combined with other contracts and
inventory, represented approximately 75% of anticipated 1995 cotton
requirements.
Implementation of the results of the Company's 1993 strategic review of
its operations continued in 1994 and resulted in reduced pre-tax depreciation
and amortization charges of approximately $5 million and had an immaterial
impact on sales.
Working capital increased by $32 million in 1994. Accounts receivable
increased at a rate in line with sales growth and receivables turnover
improved. Excluding acquisitions, inventories declined year-over-year. Other
assets increased principally due to goodwill arising from the acquisition of
DeSoto Mills, Inc. and due to the purchase of the licenses and trademarks of
Chalk Line, Inc. and its affiliates. The carrying value of goodwill is reviewed
by management when facts and circumstances suggest that it may be impaired.
Should this review indicate that goodwill will not be recoverable, based upon
undiscounted cash flows of the entity, the Company's carrying value of the
goodwill is reduced by the estimated shortfall of cash flow.
Consistently strong cash flows and a strong balance sheet demonstrate the
Company's sound financial condition. The combination of net income plus
non-cash charges, $145 million in 1994, continued to be a major source of
funds. Net income plus non-cash charges, along with short-term borrowings,
primarily provided cash requirements for capital expenditures, working capital,
dividend payments, treasury share purchases and repayment of debt. At year-end
1994, the Company maintained $284 million in informal lines of credit.
Long-term debt as a percentage of total capital employed was 18.7% vs. 21.7% in
1993. No long-term debt or equity issues are anticipated in 1995.
Cash expenditures for capital projects were $39 million compared to $84
million in 1993. This brought the five-year total to $485 million. Capital
expenditures are expected to be approximately $100 million in 1995 as the
Company continues to focus on productivity and quality gains through
modernization of manufacturing and distribution processes and customer service
activities.
Acquisitions totaled approximately $10 million in 1994 with the purchase
of DeSoto Mills, Inc., a manufacturer and marketer of sports and casual socks.
This transaction was completed through an exchange of the Company's common
stock and approximately $5.8 million was recorded as goodwill. The Company also
acquired the trademarks and licenses of Chalk Line, Inc., and its affiliates,
for approximately $5.6 million. Acquisitions totaled $35 million in 1993.
Common stock repurchases totaled $33,898,976 in 1994, representing
1,205,527 shares, compared to 549,360 shares at a cost of $15,196,000 in 1993.
Subsequent to year-end, the Board of Directors adjusted the stock repurchase
authorization upward to a total of two million shares.
COMPARATIVE PERFORMANCE, 1993 VS. 1992
Net sales for 1993 increased 4% to $930,787,000. Sales benefitted from
higher unit volumes of teamwear and fleece apparel and improved average selling
prices of teamwear and of T-shirts, which resulted from a product mix shift.
These improvements were partially offset by lower average selling prices of
fleece and placket shirts and lower unit volumes of T-shirts and placket
shirts. International sales grew 44% and represented 7.5% of the Company's 1993
net sales.
Gross margin remained the same for the year at 34.1%. Improved
manufacturing efficiencies and lower raw material costs offset lower production
volume and pricing pressure brought on by slow economic growth and overcapacity
in the activewear industry.
Selling, general and administrative expenses were 19.9% of net sales
compared to 18.0% in 1992. The increase principally reflected aggressive
brand-building activities, including a 37% increase in advertising. These
expenditures were considered "catch-up" as the Company's historical outlays for
electronic media exposure were considered low compared to competition. The
"catch-up" was completed and future advertising increases are expected to be in
line with sales growth, on a percentage basis.
Interest expense increased due to higher short-term debt levels used to
support increased working capital assets, principally inventory. Excluding
acquisitions, inventories increased 9%.
During the third quarter of 1993, the Company completed a strategic review
of its operations and concluded that certain property, plant and equipment
(PP&E) and goodwill had a net realizable value substantially less than the book
value of such assets. As a result, during the third quarter, the Company
recognized a non-cash, pre-tax charge totaling approximately $35 million, which
principally involved the Company's textile operations and Cross Creek Apparel,
Inc. The charge included a write-off of $7 million in goodwill associated with
the 1988 purchase of Cross Creek Apparel, Inc. which was deemed unrecoverable
based upon a forecast of the subsidiary's undiscounted cash flows. The
remaining charges were for PP&E primarily used to manufacture fabrics that go
into higher priced specialty markets including placket shirts, slacks, dress
shorts, and dress shirts. The Company overestimated the market potential for
these items as volumes did not materialize.
The increase in the effective tax rate in 1993 to 39.1% from 36.5%
reflected both the federal income tax rate increase from 34% to 35% effective
retroactively to January 1, 1993, and a $1,200,000 increase to net deferred tax
liabilities as a result of the tax rate change. Also, the effective tax rate
increased as a result of a write-off of goodwill discussed above which was not
deductible in arriving at taxable income in the current year and will not be
recoverable in future years.
Effective January 3, 1993, the Company adopted Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions", and No. 109, "Accounting for Income Taxes." The
effect of these accounting changes on income was not material in 1993 and is
not expected to be material in future years.
The combination of net income plus non-cash charges, $144 million in 1993,
was a major source of funds. Net income plus non-cash charges, along with
short-term borrowings, primarily provided cash requirements for normal capital
expenditures, working capital needs, dividend payments, treasury share
purchases, acquisitions, and repayment of debt. At year-end 1993, the Company
maintained $213 million in informal lines of credit. Long-term debt as a
percentage of total capital employed was 21.7% vs. 24.6% in 1992. Cash
expenditures for capital projects were $84 million compared to $109 million in
1992.
Acquisitions totaled $35 million in 1993 with the cash purchase of The
Game Inc., a leading producer of licensed sports headwear and apparel. There
were no material acquisitions in 1992. Common stock repurchases totaled
$15,196,000 in 1993, representing 549,360 shares, compared to 4,191 shares at a
cost of $137,046 in 1992. All of the Company's Preferred Stock was redeemed in
1993.
IMPACT OF INFLATION AND CHANGING PRICES
During the periods presented, inflation has not had a material effect on
the Company's results of operations.
23
<PAGE> 14
FINANCIAL REVIEW
--------------------------------------------------------------------------------
RUSSELL CORPORATION AND SUBSIDIARIES
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net sales....................................................... $ 1,098,259 $ 930,787 $ 899,136
Cost of goods sold.............................................. 739,700 613,324 592,837
Interest expense................................................ 19,434 16,948 15,841
Income before income taxes (c).................................. 127,585 80,717 129,507
Income taxes.................................................... 48,759 31,619 47,269
Net income applicable to common shares (c)...................... 78,826 49,080 81,945
---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Depreciation and amortization................................... $ 67,041 $ 66,227 $ 60,444
Net income plus depreciation and amortization................... 145,867 115,307 142,389
Capital expenditures............................................ 38,562 83,979 109,161
Working capital................................................. 310,330 277,993 285,469
Long-term debt and redeemable preferred stock................... 144,163 163,334 186,122
Stockholders' equity............................................ 628,662 587,651 570,003
Capital employed................................................ 772,825 750,985 756,125
Total assets.................................................... 1,046,577 1,017,044 964,933
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (a)
Net income (c).................................................. $ 1.96 $ 1.19 $ 1.99
Dividends....................................................... .42 .39 .34
Book value...................................................... 15.84 14.54 13.97
Price range:
High......................................................... 32.63 36.87 40.37
Low.......................................................... 24.00 26.00 27.75
---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS
Net sales times: receivables (b)................................ 5.6 5.3 5.8
inventories (b)................................ 3.9 3.7 4.6
capital employed (b)........................... 1.4 1.2 1.2
Interest coverage (c)........................................... 7.6 5.8 9.2
Income before income taxes as percent of sales (c).............. 11.6% 8.7% 14.4%
Net income as percent of sales (c).............................. 7.2% 5.3% 9.1%
Net income as percent of stockholders' equity (b) (c)........... 13.0% 8.5% 15.3%
---------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net common shares outstanding (a) (000's omitted)............... 39,689 40,405 40,810
Approximate number of common shareowners........................ 13,000 13,000 13,000
</TABLE>
(a) Adjusted for a stock distribution in 1986
(b) Average of amounts at beginning and end of fiscal year
(c) Fiscal 1993 includes a non-cash, pre-tax charge of $34,583,080 associated
with the write-down of certain fixed assets and goodwill. The after-tax
impact of this write-down on 1993 earnings was $.56 per common share.
24
<PAGE> 15
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 804,585 $ 713,812 $ 687,954 $ 531,136 $ 479,880 $ 437,520 $ 385,433
553,160 461,281 457,875 344,109 316,738 284,965 268,806
18,097 18,885 15,643 8,788 6,892 4,051 3,801
90,866 109,672 102,728 85,793 80,145 80,382 51,951
34,027 41,725 37,994 32,028 33,811 37,100 22,339
56,279 67,378 64,163 53,728 46,334 43,282 29,612
-----------------------------------------------------------------------------------------------------------------------------------
$ 56,594 $ 52,539 $ 45,633 $ 33,368 $ 26,039 $ 22,850 $ 19,955
112,873 119,917 109,796 87,096 72,373 66,132 49,567
89,532 113,617 87,410 118,476 77,502 40,113 31,920
255,392 249,683 267,178 124,263 162,931 148,188 135,540
185,923 196,857 210,470 90,023 73,545 38,043 41,849
502,501 456,352 402,216 345,086 279,611 248,347 219,733
688,424 653,209 612,686 435,109 353,156 286,390 261,582
818,220 794,521 720,806 560,969 445,252 351,041 322,161
-----------------------------------------------------------------------------------------------------------------------------------
$ 1.38 $ 1.65 $ 1.57 $ 1.36 $ 1.17 $ 1.08 $ .74
.32 .32 .28 .23 .19 .16 .15
12.39 11.29 9.95 8.55 7.16 6.33 5.55
36.25 31.00 26.50 17.75 20.50 19.62 10.00
19.75 16.00 15.62 11.37 10.62 9.31 6.81
-----------------------------------------------------------------------------------------------------------------------------------
5.9 5.3 5.9 5.6 5.8 6.0 5.7
4.8 5.1 6.8 6.4 6.9 6.6 5.7
1.2 1.1 1.3 1.3 1.5 1.6 1.6
6.0 6.8 7.6 10.8 12.6 20.8 14.7
11.3% 15.4% 14.9% 16.2% 16.7% 18.4% 13.5%
7.0% 9.4% 9.3% 10.1% 9.7% 9.9% 7.7%
11.7% 15.7% 17.2% 17.2% 17.6% 18.5% 14.2%
-----------------------------------------------------------------------------------------------------------------------------------
40,569 40,407 40,427 40,360 39,050 39,214 39,573
18,000 18,000 18,000 18,000 18,600 13,600 11,600
</TABLE>
25
<PAGE> 1
Exhibit (21)
LIST OF SIGNIFICANT SUBSIDIARIES
Cross Creek Apparel, Inc. (incorporated in North Carolina)
DeSoto Mills, Inc. (incorporated in Alabama)
Russell Corp. UK Limited (organized under the laws of the United Kingdom)
IV-9
<PAGE> 1
Exhibit (23)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Russell Corporation of our report dated January 27, 1995, included in the
1994 Annual Report to Shareholders of Russell Corporation.
Our audits also included the financial statement schedule of Russell Corporation
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in Post-Effective Amendment
Number 1 to Registration Statement Number 2-64496 on Form S-8, Registration
Statement Number 33-24898 on Form S-8, Registration Statement Number 33-47906
on Form S-3 and Registration Statement Number 33-69679 on Form S-8 of our
report on the consolidated financial statements and schedule of Russell
Corporation and subsidiaries included in this Form 10-K for the year ended
December 31, 1994.
/S/ Ernst & Young LLP
Birmingham, Alabama
March 27, 1995
IV-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSSELL CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,141
<SECURITIES> 1,416
<RECEIVABLES> 222,434
<ALLOWANCES> 10,458
<INVENTORY> 279,393
<CURRENT-ASSETS> 510,876
<PP&E> 939,477
<DEPRECIATION> 472,433
<TOTAL-ASSETS> 1,046,577
<CURRENT-LIABILITIES> 200,545
<BONDS> 144,163
<COMMON> 414
0
0
<OTHER-SE> 628,248
<TOTAL-LIABILITY-AND-EQUITY> 1,046,577
<SALES> 1,098,259
<TOTAL-REVENUES> 1,098,259
<CGS> 739,700
<TOTAL-COSTS> 739,700
<OTHER-EXPENSES> 207,562
<LOSS-PROVISION> 3,978
<INTEREST-EXPENSE> 19,434
<INCOME-PRETAX> 127,585
<INCOME-TAX> 48,759
<INCOME-CONTINUING> 78,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,826
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
</TABLE>
<PAGE> 1
EXHIBIT 99
PROXY STATEMENT FOR APRIL 26, 1995
ANNUAL SHAREHOLDERS' MEETING
IV-12
<PAGE> 2
(LOGO)
RUSSELL
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
RUSSELL CORPORATION
To the Shareholders of Russell Corporation:
Notice is hereby given that the Annual Meeting of the Shareholders
(the "Annual Meeting") of Russell Corporation (the "Company") will be held on
Wednesday, April 26, 1995 at 10:00 a.m., Central Time, at the general offices
of the Company in Alexander City, Alabama, for the following purposes:
(1) To elect four directors to the Board of Directors for terms of
three years each;
(2) To consider and take action on a proposal to amend the
Restated Articles of Incorporation of the Company by the
addition of a new Article 10 restricting and limiting under
certain circumstances the liability of directors of the
Company to the Company and its shareholders for monetary
damages for actions or omissions as a director, all as more
fully described in the accompanying Proxy Statement; and
(3) To transact such other business as may properly come before
the meeting.
Holders of the common stock of the Company at the close of business
on March 9, 1995 are entitled to notice of and to vote upon all matters at the
Annual Meeting.
The Annual Meeting may be adjourned from time to time without notice
other than announcement at the Annual Meeting, or at any adjournment thereof,
and any business for which notice is hereby given may be transacted at any such
adjournment.
You are cordially invited to attend the Annual Meeting so that we may
have the opportunity to meet with you and discuss the affairs of the Company.
WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY SO THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM
AT THE ANNUAL MEETING. A stamped, addressed envelope is enclosed for your
convenience in returning your proxy.
By Order of The Board of Directors
Steve R. Forehand
Secretary
Russell Corporation
Alexander City, Alabama 35010
March 23, 1995
<PAGE> 3
RUSSELL CORPORATION
--------------------------------------------------------------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 26, 1995
--------------------------------------------------------------------------------
This Proxy Statement is furnished by and the accompanying proxy is
solicited on behalf of the Board of Directors of Russell Corporation, an
Alabama corporation (the "Company"), for use at its Annual Meeting of
Shareholders to be held at the general offices of the Company in Alexander
City, Alabama, on Wednesday, April 26, 1995 at 10:00 a.m., Central Time, and
at any adjournment thereof (the "Annual Meeting"). It is contemplated that the
Proxy Statement and accompanying proxy will be mailed on or about March 23,
1995.
Shares represented by a properly executed proxy in the accompanying
form will be voted at the meeting and, when instructions have been given by the
shareholder, will be voted in accordance with those instructions. In the
absence of contrary instructions, the proxies received by the Board of
Directors will be voted FOR the election of all nominees for director of the
Company and FOR the proposed amendments to the Restated Articles of
Incorporation of the Company. A shareholder who has given a proxy may revoke
it at any time prior to its exercise by giving written notice of such
revocation to the Secretary of the Company, executing and delivering to the
Company a later dated proxy reflecting contrary instructions or appearing at
the Annual Meeting and taking appropriate steps to vote in person.
ELECTION OF DIRECTORS
The Bylaws of the Company ("Bylaws") provide for a Board of Directors
of not less than nine nor more than 15 members. In addition, the Bylaws also
provide that the Board of Directors shall set the number of Directors within
the specified limitations by resolution adopted by a majority of the entire
Board of Directors and that the Board will be divided into three classes, as
nearly equal in number as possible, each of which will serve for three years.
On February 19, 1993, a majority of the Board of Directors adopted a resolution
which established the size of the Board of Directors at eleven members,
effective April 28, 1993. It is proposed to elect four directors to serve until
the Annual Meeting of Shareholders in 1998 and until their successors have
been duly elected and qualified. Proxies cannot be voted for more than four
persons. It is intended that shares represented by the Board of Directors'
proxies will be voted for the election of the following four persons:
NOMINEES TO SERVE UNTIL ANNUAL MEETING OF SHAREHOLDERS IN 1998:
<TABLE>
<CAPTION>
YEAR FIRST SHARES
NAME, AGE AND ELECTED DIRECTOR BENEFICIALLY
PRINCIPAL OCCUPATION OF THE OWNED AS OF PERCENT
OF NOMINEE COMPANY MARCH 9, 1995 OF CLASS
--------------------------- ---------------- ------------- --------
<S> <C> <C> <C>
C.V. Nalley III(52) 1989 1,000 -
Chief Executive Officer of
The Nalley Companies,
Atlanta, Georgia
automobile and truck sales
and leasing companies
John R. Thomas (58) 1966 588,682 (5) 1.49
Chairman, President and
Chief Executive Officer of
Aliant National Corporation
Alexander City, Alabama
a bank holding company
John A. White (55) 1992 1,650 -
Dean of Engineering
Georgia Institute of Technology
Atlanta, Georgia
Timothy A. Lewis (39) - - -
President of
T.A. Lewis &Associates, Inc.
Birmingham, Alabama
telecommunications consultants
</TABLE>
-1-
<PAGE> 4
EACH OF THE DIRECTORS NAMED BELOW WILL CONTINUE IN OFFICE AFTER THE ANNUAL
MEETING UNTIL HIS TERM EXPIRES AS INDICATED:
<TABLE>
<CAPTION>
ANNUAL MEETING YEAR FIRST SHARES
AT WHICH ELECTED DIRECTOR BENEFICIALLY
NAME, AGE AND TERM OF THE OWNED AS OF PERCENT
PRINCIPAL OCCUPATION EXPIRES COMPANY MARCH 9, 1994 OF CLASS
---------------------- -------------- ---------------- ------------- --------
<S> <C> <C> <C> <C>
Herschel M. Bloom (51) 1996 1986 5,499 .01
Partner
King & Spalding
Atlanta, Georgia
attorneys
Ronald G. Bruno (43) 1996 1992 1,200 -
Chairman and Chief
Executive Officer
Bruno's, Inc.
Birmingham, Alabama
retail food stores
Glenn Ireland II (69) 1996 1969 15,904 .04
Investments
John C. Adams (56) 1997 1991 684,338 (1)(2) 1.74
Chairman, President and Chief
Executive Officer of the Company
Crawford T. Johnson III (70) 1997 1978 15,000 .04
Chairman of the Board
Coca-Cola Bottling Company
United, Inc.
Birmingham, Alabama
James D. Nabors (52) 1997 1988 1,397,768 (1)(2)(3) 3.55
Executive Vice President and
Chief Financial Officer
of the Company
Benjamin Russell (57) 1997 1963 5,932,526 (4) 15.05
Chairman and
Chief Executive Officer
Russell Lands, Incorporated
Alexander City, Alabama
a land and timber company
</TABLE>
(1) The shares of the Company's Common Stock owned by Messrs. Adams and Nabors
include 26,000 and 25,000 shares, respectively, which may be acquired by
them pursuant to options granted under the Company's existing stock
option plans described below, which options may be exercised within sixty
days of the date of this Proxy Statement. See also Security Ownership of
Management on page 16.
(2) Messrs. Adams and Nabors are two of the trustees of the Company's pension
plan which owns 600,960 shares of the Company's Common Stock. As such
trustees, they have the right to vote such shares. These shares are
included in the shares shown as beneficially owned by each of such
persons.
-2-
<PAGE> 5
(3) Includes 731,296 shares held by the Benjamin and Roberta Russell
Foundation, Incorporated, a charitable corporation of which Mr. Nabors is
one of seven directors, and 22,131 shares owned by the Thomas D. Russell
Marital Trust, of which Mr. Nabors is one of two trustees, as to which
shares Mr. Nabors disclaims any beneficial ownership.
(4) Includes 731,296 shares held by the Benjamin and Roberta Russell
Foundation, Incorporated, a charitable corporation of which Mr. Russell
is one of seven directors; 3,945,024 shares held by a trust created
under the will of Benjamin C. Russell, of which Mr. Russell is one of
four trustees; 100,000 shares held by the Adelia Russell Charitable
Foundation, of which Mr. Russell is one of three trustees; and 5,000
shares held by the Russell Lands Profit Sharing Plan, of which Mr.
Russell is one of three trustees.
(5) Includes 134,434 shares owned directly and 454,248 shares owned indirectly
by Mr. Thomas as a general and limited partner in two limited
partnerships.
With the exceptions of John C. Adams, John A. White, Timothy A. Lewis
and Ronald G. Bruno, each of the above named persons has been a director of
the Company for at least the last five years. Except as noted in the
remainder of this paragraph, each of the above named persons has held the same
or comparable positions with the indicated entities for at least the last five
years. Mr. Adams was named Chairman, President and Chief Executive Officer of
the Company effective April 28, 1993. He had previously served as President and
Chief Executive Officer since April 22, 1992, as President and Chief Operating
Officer since May 6, 1991, as Senior Vice President, Apparel Operations of the
Company since July, 1989, and as President of the Knit Apparel Division from
1983 to 1989. Dr. White has served since July 1, 1991, as Dean of Engineering
at Georgia Institute of Technology, having been a member of the faculty since
1975. During the previous three years he served as Assistant Director of the
National Science Foundation in Washington, D.C. through an Intergovernmental
Personnel Agreement with Georgia Tech. Mr. Bruno was elected Chairman of the
Board of Bruno's, Inc. in 1991. Prior to that time he had served as President
and Chief Executive officer since 1990 and President and Chief Operating Officer
since 1986. Mr. Lewis has served since 1987 as President of T.A. Lewis &
Associates, Inc., a telecommunications consulting company. From 1983 to 1987
he served as a marketing and sales executive for Signal Communications, a
national long distance telecommunications company.
H. Scott Howell, retired from the Company, has announced his
retirement from the Board of Directors and will not stand for re-election.
Crawford T. Johnson III is a director of Protective Life Corporation
and Alabama Power Company. John R. Thomas is a director of Alfa Corporation.
Ronald G. Bruno is a director of Bruno's, Inc., SouthTrust Bank of Alabama,
N.A. and Books-A-Million, Inc.
Should any nominee be unable or unwilling to accept election, it is
expected that the proxies will vote for the election of such other person for
the office of director as the Board of Directors of the Company may then
recommend. The Board of Directors has no reason to believe that any of the
persons named will be unable or will decline to serve if elected.
The Company has an Executive Committee consisting of John C. Adams
and James D. Nabors, which is authorized to act in place of the Board of
Directors between meetings of the Board. The Executive Committee held eleven
meetings during 1994.
The Company has an Executive Compensation Committee consisting of
Glenn Ireland II, Crawford T. Johnson III, Ronald G. Bruno, and John R. Thomas,
which supervises the Company's Executive Incentive Program. The Compensation
Committee held two meetings during 1994.
The Company also has an Audit Committee consisting of Herschel M.
Bloom, Glenn Ireland II, Ronald G. Bruno, Crawford T. Johnson III, C.V.
Nalley III, John A. White, and Benjamin Russell, which recommends to the Board
of Directors the independent accountants selected to be the Company's auditors
and reviews the audit plan, financial statements and audit results. The Audit
Committee held two meetings during 1994.
-3-
<PAGE> 6
The Company has a Nominating Committee which recommends candidates
for election to the Company's Board of Directors. The Nominating Committee
consists of Crawford T. Johnson III, Herschel M. Bloom, Benjamin Russell, John
R. Thomas and John A. White and held two meetings in 1994.
During the year ended December 31, 1994, the Board of Directors of
the Company held four regular meetings. Each member of the Board attended at
least 75% of the meetings of the Board and the committees of which they are
members. Members of the Board who are not employees or affiliates of the
Company receive a quarterly retainer of $3,750 and a fee of $1,000 for each
meeting attended. Members of the Board who are affiliates of the Company, but
not employees receive a quarterly retainer of $1,100. Members of committees
of the Board who are not employees of the Company receive $650 per quarter
(except the chairman who receives $1,300 per quarter).
PROPOSAL TO AMEND THE
RESTATED ARTICLES OF INCORPORATION
TO ELIMINATE CERTAIN LIABILITIES OF DIRECTORS
The State of Alabama, under whose corporate law the Company is
organized, has adopted a new Alabama Business Corporation Act (the "Act") which
became effective January 1, 1995. Among the changes included in the new Act
is a provision (Section 10-2B-2.02(b)(3)), permitting inclusion in the
articles of incorporation of an Alabama corporation of a provision eliminating
or limiting liability of a director to the corporation or its shareholders for
certain conduct as a director. The Act does not permit any limitation on the
liability of a director for (i) the amount of a financial benefit received by
the director to which such director is not entitled, (ii) an intentional
infliction of harm on the corporation or its shareholders, (iii) a violation of
Section 10-2B-8.33 of the Act relating to the paying or making of an improper
dividend or distribution to shareholders or an improper stock repurchase,
(iv) an intentional violation of criminal law, or (v) a breach of such
director's duty of loyalty to the corporation or its shareholders.
Accordingly, the provision limiting or eliminating the potential liability of
directors permitted by Section 10-2B-2.02(b)(3) applies in general to
unintentional errors in the deliberations or judgment of director and not to
conduct which is intentionally wrongful or in bad faith.
The provision contained in the Act is not unique. Other states, as
well as the Revised Model Business Corporation Act drafted by the Corporation
Laws Committee of the American Bar Association's Section of Business Law (on
which the Act and numerous other state corporation acts are based), also
include in their corporation statutes provisions reducing the personal risks
inherent in serving a corporation as a director. This legislative activity is
a response to court decisions in various jurisdictions increasingly
considering, with the advantage of hindsight, whether directors' decisions
have been made in keeping with the "duty of care." Such judicial review may
cause directors to be unduly averse to business risks when making decisions
because of possible personal liability should those decisions be challenged
with the benefit of hindsight.
The Board of Directors of the Company, by unanimous vote, has approved
an amendment to the Restated Articles of Incorporation of the Company
eliminating liability of directors as permitted by Section 10-2B-2.02(b)(3) of
the Act and has recommended to shareholders approval of the amendment at the
Annual Meeting. Approval of the amendment by shareholders requires the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's common stock casting votes for or against approval of the proposed
amendment. The proposed amendment would add a new Article 10 to the Company's
Restated Articles of Incorporation, which would read as follows:
-4-
<PAGE> 7
10. A director of the corporation shall not be
liable to the corporation or its shareholders for money
damages for any action taken, or failure to take action,
as a director, except for (i) the amount of a financial
benefit received by such director to which such director
is not entitled; (ii) an intentional infliction of harm
by such director on the corporation or its shareholders;
(iii) a violation of Section 10-2B-8.33 of the Code of
Alabama of 1975 or any successor provision to such
section; (iv) an intentional violation by such director
of criminal law; or (v) a breach of such director's duty
of loyalty to the corporation or its shareholders. If the
Alabama Business Corporation Act, or any successor statute
thereto, is hereafter amended to authorize the further
elimination or limitation of the liability of a director of
a corporation, then the liability of a director of the
corporation, in addition to the limitations on liability
provided herein, shall be limited to the fullest extent
permitted by the Alabama Business Corporation Act, as
amended, or any successor statute thereto. The limitation
on liability of directors of the corporation contained
herein shall apply to liabilities arising out of acts or
omissions occurring subsequent to the adoption of this
Article 10 and, except to the extent prohibited by law, to
liabilities arising out of acts or omissions occurring
prior to the adoption of this Article 10. Any repeal or
modification of this Article 10 by the shareholders of
the corporation shall be prospective only and shall not
adversely affect any limitation of the liability of a
director of the corporation existing at the time of such
repeal or modification.
If the amendment is adopted, the Company or a shareholder will be
able to prosecute an action against a director for monetary damages only if
it can be shown that the director (i) has received a financial benefit to which
he or she is not entitled, (ii) has intentionally inflicted harm on the Company
or its shareholders, (iii) has approved an illegal dividend or stock
repurchase, (iv) has intentionally violated criminal law, or (v) has breached
such director's duty of loyalty to the Company or its shareholders. The
amendment eliminated personal liability of a director for negligence or gross
negligence in satisfying the director's duty of care. The amendment will not
limit or eliminate the right of the Company or any shareholder to seek an
injunction or any other non-monetary relief in the event of a breach of a
director's duty of care; however, in certain circumstances, these equitable
remedies may not be available or effective as a practical matter. The
amendment will apply to any act or omission occurring subsequent to its
effective date and, to the extent permitted or not prohibited by the Act, the
amendment will apply to any act or omission occurring prior to the effective
date of amendment. In addition, the amendment applies only to claims against
a director arising out of his role as a director and not, if he is also an
officer of the Company, his role as an officer or in any other capacity. The
amendment does not apply to claims against a director arising out of his
responsibilities under any other law, such as the federal securities laws. The
amendment also provides that if the Act is amended after the amendment becomes
effective so as to permit the further limitation on or elimination of the
personal liability of directors, then the liability of the Company's directors
will be limited or eliminated to the fullest extent permitted under the Act
without further approval of the Company's shareholders. The Company is not
aware of any proposed or anticipated changes to the Act which would affect the
personal liability of directors.
Although the Board of Directors believes the effects of the proposed
amendment will be as stated in this paragraph, it is not aware of any
judicial interpretations with respect to the validity or precise scope of
Section 10-2B-2.02(b)(3); accordingly, the precise effect under Alabama law
of the adoption of the proposed amendment is uncertain.
The Board of Directors strongly believes that the proposed amendment
is in the best interest of the Company and its shareholders. While the
existing members of the Board of Directors have indicated willingness to
continue to serve as directors before the adoption of Section 10-2B-2.02(b)(3)
and have not indicated an intention to resign if the proposed amendment is not
approved by shareholders, they believe that the proposed amendment is
important in order to help assure the ability of the Company to recruit and
retain competent directors. Although the existing members of the Board of
Directors have expressed concern with respect to their personal liability in
serving in such capacities, the Board of Directors is unaware of any person
who has refused to serve as a director for such reasons. The Board of
Directors also believes that effective corporate governance is hampered when
directors are not assured the protections they have traditionally been provided
against lawsuits which second guess the prudence of business judgments made in
good faith.
-5-
<PAGE> 8
There is no pending or threatened litigation, nor has there been any
litigation, involving members of the Board of Directors of the Company
arising out of their service as directors of the Company which might have
been affected by the provisions of the proposed amendment had such
provisions been in effect at the time of the actions or omissions complained of
in such suits.
The Board of Directors acknowledges that current and future
directors would personally benefit from the approval of the proposed
amendment, and in this connection the Board of Directors may be considered
to have a conflict of interest with respect to the proposed amendment. For the
reasons stated above, however, approval of the proposed amendment is
recommended by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENTS
TO THE RESTATED ARTICLES OF INCORPORATION TO ELIMINATE OR LIMIT THE
LIABILITY OF DIRECTORS OF THE COMPANY.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's shareholders adopted the 1993 Executive Long-Term
Incentive Plan (the "1993 Plan")on April 28, 1993. The 1993 Plan is a key
component of the Executive Incentive Program (the "Program") which
encompasses all elements of compensation. The goals of the Program are to
support our overall objectives of enhancing shareholder value, maintaining and
improving our quality standards and maximizing our competitive advantage
resulting from vertical integration. This is accomplished through the
following practices:
1) Hiring and retaining the caliber of executive talent needed to
manage the Company currently as well as to position it strategically for the
future. A management team that is both stable and performance-oriented, with a
focus on teamwork, is critical to our success;
2) Having a pay-for-performance philosophy throughout the Company
that integrates our compensation program with annual and long-term strategic
planning and that links incentive compensation not only to Company performance
but also to individual and overall market performance;
3) Enhancing the pay-for-performance philosophy by placing a
substantial portion of pay for senior executives "at-risk"; and
4) Establishing the proper mix of program elements to appropriately
balance our financial, quality, customer and strategic goals for both the
short-term and long-term.
The Program is designed to optimize the connection between executive
pay, corporate strategy and return to shareholders. Specifically, the Program
is intended to meet these objectives:
- Establish target awards
- Set corporate and business unit goals in concert with the
strategic planning process
- Communicate award opportunities in advance
- Focus executives' actions on appropriate needs and reward true
success
- Motivate participants
The Executive Compensation Committee (the "Committee") believes these
objectives are met by the Program.
ELEMENTS OF THE PROGRAM
The Program is comprised of the following elements:
Base salaries;
Short-term incentives; and
Long-term incentives.
The following describes the elements of the Program, as well as the
1993 Plan, in more detail.
-6-
<PAGE> 9
BASE SALARIES
The Company's practice is to target base salaries for executives
at the 50th percentile of the market. For salary comparison purposes, the
"market" includes companies in the Company's industry, in similar industries
and those with headquarters in smaller cities. The companies used for this
market analysis of compensation are different than those included in the Value
Line Apparel Index shown in the performance graph contained in this Proxy
Statement. The Committee believes the market for executive talent extends
beyond the textile and apparel industry and includes individuals whose
experience includes a manufacturing focus similar to the Company's. In
addition, due to the Company's location, the Committee does not believe
market compensation amounts for executives should be influenced by
compensation at companies in areas with higher costs of living.
During 1994, the Committee continued the program implemented in 1993
to adjust its salary administration practices, and to increase executive
salaries to market levels, over time. As reported in prior years, the Committee
concluded this program was appropriate based on a 1992 study of pay conducted
by an independent consulting firm. In deciding the amount of specific
increases, factors such as overall responsibility, tenure, internal equity,
market levels of pay and, most importantly, job performance, are considered.
No specific weighting is assigned to these factors. Because the program to
increase salaries to the market median is still underway, salaries for
executive officers remained below the market median during 1994.
To ensure that executive salary levels continue to reflect the
Committee's philosophy, the Company intends to periodically conduct similar
pay comparisons. The Committee believes that maintaining competitive
compensation will ensure that the Company has the executive management
expertise required for the future. Considering the entire compensation package,
the Committee believes that targeting base salaries at the 50th percentile of
the market is a key element in the overall program to attract and retain
talented executives.
SHORT-TERM INCENTIVE PLAN
The Program is designed to motivate participants to achieve
predetermined goals for Return on Assets Employed ("ROAE") and quality. The
Committee believes the Program's performance orientation represents an
improvement over other plans used in prior years. Specifically, the short-term
incentives include the following elements:
1) Eligible participants include not only executives but also other
employees who fulfill key roles in the Company;
2) Target awards are established at the beginning of the year to
motivate participants and guide their efforts; and
3) Cash awards that reflect ROAE, quality, and individual performance
results for the year are paid after the end of the year.
The plan's financial performance measure, ROAE, is measured at the
overall level for executives in corporate staff and manufacturing positions.
For this purpose, ROAE is defined as (a) net income before taxes and interest,
divided by the sum of (b) assets used in the business.
Target awards for executive officers are based upon the median of the
competitive market (as described in "Base Salaries" above). In assigning target
awards, the relative responsibility of each position also is considered.
Based upon this, target awards for some positions may be adjusted, on a
subjective basis, to be slightly above or below market levels. Executives at
the business unit level are measured on ROAE results at the single business
unit level, with a 75% weighting. Based upon their respective business unit,
the executives' remaining 25%of the financial performance portion of the award
is based either upon overall corporate ROAE results, or upon ROAE results for
a combination of select business units.
-7-
<PAGE> 10
Target level awards are paid if the target ROAE goal is achieved. In
addition, if actual ROAE results are less than target ROAE but equal a
predetermined threshold, awards will be paid at one-half of target amounts.
If actual ROAE results are greater than target ROAE and equal or exceed a
predetermined maximum, awards will be paid at one and one-half times target
amounts. Awards for performance between these levels are made based upon an
interpolation within the range.
Awards otherwise earned based upon financial results may be
adjusted up or down by a maximum of 20% (in increments of 10%), to reflect
participants' contributions toward the Company's quality goals, and also to
reflect their individual performance. Although the plan initially contemplated
establishing specific, measurable goals for quality, the Committee decided
it was more appropriate to initially include quality as a subjective
adjustment to awards based upon financial results.
Incentive awards for all the executives named in the Summary
Compensation Table in this proxy statement were based solely upon overall
corporate ROAE results. Adjustments based upon individual performance were
made to the payouts for certain of the named officers in accordance with the
provisions of the plan.
For 1994, overall corporate ROAE performance was was slightly above
the level at which target awards would be paid, but below the level necessary
for maximum award payouts. Although ROAE results were above threshold for most
business units but below target, ROAE for some business units was below
threshold levels. Payments made to the named executives shown in the Summary
Compensation Table elsewhere in this proxy statement reflect these results.
LONG-TERM INCENTIVE PLAN
The long-term incentive element of the 1993 Plan includes a variety
of stock based performance awards. The Committee presently intends that
long-term incentives be granted in the form of stock options and, for corporate
officers only, performance units. The Committee intends to balance the
short-term incentive payments with long-term stock options and performance
units to reward executives and key employees when superior returns are provided
to shareholders.
With these elements, the Committee believes it has established a
strong link between the participants' long-term financial interests and the
long-term interests of our shareholders in the following manner:
1) Stock Options. Pay will be closely aligned with return to
shareholders since no benefit is received by participants unless the stock
price increases.
2) Performance Units. The long-term incentive element of the 1993
Plan focuses on the Company's Total Shareholder Return ("TSR"), relative to
both a broad market index (the S & P Industrials) as well as to the Company's
historical performance. TSR includes stock price increases plus dividends,
divided by beginning stock price for the period of measurement. When the
Company's TSR is at the median of the S & P Industrials, and also at a
predetermined absolute level, target awards will be paid.
Stock option grants have been a component of previous incentive
programs. Under the 1993 Plan, the Committee made grants of stock options and
performance units at competitive levels to executive officers during 1994.
Award sizes for each position were established at the median of the competitive
market described under "Base Salaries" above. The economic value of the total
long-term grants comes half from stock options and half from performance units.
The Committee worked with an independent consultant when this plan was designed
to determine these values and the resulting award sizes. In making these
grants, the Committee's intent was to make awards that were competitive with
the market on an annualized basis. For this reason, the Committee did not
consider existing stock holdings of executives, or prior grants, in deciding
the number of stock options or performance units to grant to an executive
officer. These awards are consistent with the Committee's goals for the
overall compensation program.
Payment of performance units would be made depending upon the measurement of
the Company's TSR over a three-year period, with a new three-year period
beginning each fiscal year. The primary comparison would focus
-8-
<PAGE> 11
on the Company's TSR against that of the S & P Industrials Index (the "Index").
Threshold awards are 25%of target awards and are made if the Company's
TSR equals the 33rd percentile of the Index; a secondary comparison against the
Company's historical performance could result in a maximum reduction of 50%
of awards otherwise earned. (The Committee's determination of the amount of
target awards is discussed above.) This secondary comparison focuses on TSR
for the period of measurement against the Company's own historical
performance. For such purposes, the Company's historical performance covers
the preceding ten three-year periods, with each fiscal year beginning a new
three-year period.
Preliminary awards will be based upon comparing the Company's actual
TSR for a three-year performance period to the TSRs of each company in the
Index. If the Company's TSR ranks at the median of the Index companies, target
awards will be earned. If the Company's TSR is at a predetermined maximum
percentile, maximum awards (at two times target) will be earned. Minimum
nonzero awards, at 50% of target awards, will be earned if the Company's TSR
is at a predetermined threshold percentile. If the Company's TSRranks above
threshold but below median, or above median but below maximum, awards earned
for performance between points will be interpolated on a straight-line basis.
Next, the Company's actual TSR for the three-year period will be
compared against an absolute benchmark established at the inception of the
plan determined by using the Company's historical performance and the
historical performance of the Index. If the Company's actual three-year
TSR is at or above this absolute level, the preliminary awards earned based
upon the relative TSR comparison will be paid. However, if actual TSR is below
this benchmark, preliminary awards earned may be reduced by a maximum of 50%.
By measuring relative TSR, the Committee believes this plan rewards
executives for their contributions to Company performance, isolated from
broad stock market performance. By measuring absolute TSR, the Committee
believes this plan rewards executives appropriately based upon actual returns
received by shareholders.
When the performance at each level is taken into account, the 1993
Plan provides market pay opportunities if target awards are set at market
levels. The performance factors ensure that above-market pay is only earned
for better-than-average performance and that poor performance earns
below-market pay.
As with the stock option element of the 1993 Plan, the Committee
intends to adjust awards of performance units so that total pay opportunities
for both elements are at market levels. The target percentage of
compensation represented by performance units is not intended to change
annually, but it may change periodically as the Committee makes
adjustments to keep long-term pay opportunities at market levels.
SPECIFICS OF 1994 CEO COMPENSATION
During 1994, the compensation of the Chief Executive Officer, Mr.
Adams, consisted of the following:
Base salary of $466,000 was derived by reference to executive pay at
the market companies described earlier in this report. This amount is still
below the median base salary for the market base salary for the market. Mr.
Adams' salary increase of $66,000 from 1993 to 1994 was intended to move him
closer to the market median amount. Although no one factor was weighted more
than any other by the Committee, this increase generally was based upon the
Committee's assessment of his performance during 1994 and his contributions
to the performance of the Company. In assessing Mr. Adams' performance,
the Committee considered a number of corporate performance measures,
including increase in revenue, net income, return on assets, earnings per
share and stock price performance. The Committee evaluates these factors
subjectively in making decisions about Mr. Adams' base salary.
For 1994, Mr. Adams' payout from the annual incentive plan was
$321,000. This was based upon a target award of 60% of salary, and upon
overall corporate ROAEresults at slightly above target levels (as discussed
previously). The Committee then increased the award earned by 10% to reflect
its subjective conclusion that Mr. Adams' performance for 1994 merited this
additional award payment.
-9-
<PAGE> 12
Mr. Adams' stock option grant during 1994 was 16,900 shares. The
number of stock options granted to Mr. Adams was determined in the same manner
as stock option grants to all other executive officers. For a discussion of
the Committee's determination of the number of stock options granted to a
named executive officer, see the discussion above under the caption "Long-Term
Incentive Plan."
Mr. Adams also received a grant of performance units at a target award
level equal to 45% of base salary. As discussed earlier, the performance
period over which these units can be earned is 1994 through 1996. Thus, no
payouts were received with respect to performance units in 1994.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
During 1993, a new section " Section 162(m) " was added to the
Internal Revenue Code that generally limits to $1 million amounts that can
be deducted for compensation paid to executives, unless certain requirements
are met. This Committee has carefully considered the impact of this new
provision. Because no executive receives pay greater than $1 million, the
Committee has concluded that no compensation amounts are nondeductible at
present. The Committee will continue to monitor the applicability of this
provision to its programs and will determine, at the appropriate time, what
action it intends to take.
Executive Compensation Committee
John R. Thomas, Ronald G. Bruno,
Glenn Ireland II, Crawford T. Johnson III
COMPARATIVE FIVE-YEAR TOTAL RETURNS
RUSSELL CORPORATION, S & P 500, VALUE LINE APPAREL INDEX
PERFORMANCE RESULTS THROUGH 12/31/94
(GRAPH)
VALUE OF $100 INVESTED ON 12/31/88 AT:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
RML 100.00 88.27 140.03 124.55 113.59 127.92
S & P 500 100.00 96.83 126.41 136.25 150.00 151.97
Value Line Apparel Index 100.00 82.00 143.63 176.53 132.77 122.54
</TABLE>
-10-
<PAGE> 13
NOTES
1) Assumes that the value of the investment in the Company's Common Stock and
in each index was $100 on the last trading day preceding the first day of the
fifth preceding fiscal year and that all dividends were reinvested.
2) The Value Line Apparel Index presently includes: Farah, Incorporated; Fruit
of the Loom, Inc.; Garan, Incorporated; Oshkosh B'Gosh, Inc.; Hartmarx
Corporation; Kellwood Company; Liz Claiborne, Inc.; Oxford Industries, Inc.;
Phillips-Van Heusen Corporation; Tultex Corporation; V.F. Corporation; and the
Company.
SUMMARY COMPENSATION TABLE
The following information is furnished for the years ended December
31, 1994, January 1, 1994 and January 2, 1993 with respect to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company during 1994 whose salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- ------------------------------
AWARDS PAYOUTS
-------------------- -------
NAME AND OTHER RESTRICTED
PRINCIPAL ANNUAL(B) STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS (A) COMPENSATION AWARDS SAR'S PAYOUTS COMPENSATION
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Adams 1994 $466,000 $321,000 $5,500 - 16,900 - -
Chairman, 1993 400,000 131,700 - - 14,300 - -
President 1992 306,250 100,000 - - - - -
and CEO
James D. Nabors 1994 286,000 147,600 - - 6,800 - -
Exec. V. P. 1993 270,000 67,900 - - 6,400 - -
and CFO 1992 260,000 85,000 - - - - -
JT Taunton, Jr. 1994 221,000 114,000 - - 4,000 - -
Exec. V.P. - Sales 1993 155,000 38,400 - - 3,100 - -
and Marketing 1992 110,000 25,000 - - - - -
Thomas R. Johnson, Jr. 1994 192,667 90,700 - - 2,200 - -
Exec. V.P. - 1993 139,100 27,500 - - 2,000 - -
Manufacturing 1992 129,991 20,000 - - - - -
John E. Frechette 1994 202,600 72,600 - - 3,300 - -
V.P. - International 1993 152,600 8,500 - - 2,800 - -
1992 135,100 25,000 - - - - -
</TABLE>
(A) Bonus payments are reported for the year in which related services were
performed.
(B) Value of personal use of aircraft.
-11-
<PAGE> 14
OPTION/SAR GRANTS IN 1994
The following information concerns grants of incentive stock options
to the named executives for the year ended December 31, 1994. No SAR grants
were made during 1994.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-----------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS PRICE APPRECIATION
OPTIONS/SARS GRANTED EXERCISE FOR OPTION TERM
GRANTED TO EMPLOYEES PRICE EXPIRATION -----------------------
NAME IN 1994 IN 1994 PER SHARE DATE 5% 10%
---------------------- ------------ ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John C. Adams 16,900 6.96 27.4375 1/27/04 $291,567 $739,079
James D. Nabors 6,800 2.80 27.4375 1/27/04 117,317 297,381
JT Taunton, Jr. 4,000 1.65 27.4375 1/27/04 69,010 174,930
Thomas R. Johnson, Jr. 2,200 0.91 27.4375 1/27/04 37,956 96,212
John E. Frechette 3,300 1.36 27.4375 1/27/04 56,933 144,317
</TABLE>
(1) The stock options were granted at an exercise price equal to the fair
market value of the Company's common stock on the date of the grant.
The stock options become exercisable in full on the second anniversary
of the grant. No other instruments were granted in tandem with the
options, nor do they carry either reload or tax reimbursement features.
AGGREGATED OPTION/SAR EXERCISES IN 1994 AND YEAR-END VALUE TABLE
The following information is furnished for the year ended December
31, 1994 with respect to the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers of the Company for
stock option exercises which occurred during 1994.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARs IN-THE-MONEY OPTIONS/SARs
SHARES AT DECEMBER 31, 1994 AT DECEMBER 31, 1994(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Adams - - 26,000 31,200 $298,125 $121,956
James D. Nabors - - 25,000 13,200 293,125 51,575
JT Taunton, Jr. 2,500 $33,969 12,900 7,100 162,819 27,763
Thomas R. Johnson, Jr. - - 12,200 4,200 91,205 16,413
John E. Frechette - - 5,800 6,100 13,775 23,844
</TABLE>
(1) This amount represents the aggregate of the market value of the Company's
Common Stock at the time each option was exercised, less the exercise
price for such option.
(2) This amount represents the aggregate of the number of options multiplied
by the difference between the closing price of the Company's Common Stock
on the New York Stock Exchange, Inc. on December 30, 1994, less the
exercise price for such option.
-12-
<PAGE> 15
LONG-TERM INCENTIVE PLAN AWARDS IN 1994
The 1993 Executive Long-Term Incentive Plan provides for the award of
long-term cash incentives to officers of the Company. Performance units may be
awarded based upon achievement of target goals over a three year period.
Performance units were awarded in accordance with the following schedule:
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
SHARES, UNTIL PRICE-BASED PLANS
UNITS OR MATURATION ---------------------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---------------------- ------------ -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
John C. Adams 209,250 1994-1996 $52,312 $209,250 $418,500
James D. Nabors 85,500 1994-1996 21,375 85,500 171,000
JTTaunton, Jr. 66,000 1994-1996 16,500 66,000 132,000
Thomas R. Johnson, Jr. 22,500 1994-1996 5,625 22,500 45,000
John E. Frechette 36,000 1994-1996 9,000 36,000 72,000
</TABLE>
Performance units are earned based upon Company Total Shareholder
Return ("TSR") relative to a peer group, the S & P Industrials. Threshold,
target and maximum awards are earned when TSR is at the 33rd percentile, the
median percentile or the 90th percentile of the peer group. Awards earned based
upon relative TSR performance may be decreased by up to 50% if the Company's
absolute TSR for the performance period is less than a predetermined level.
For further discussion of the 1993 Executive Long-Term Incentive Plan,
see the discussion above under the caption "EXECUTIVE COMPENSATION - Executive
Compensation Committee Report on Executive Compensation - Long-Term Incentive
Plan".
PENSION PLAN
Officers of the Company are covered by the Russell Corporation
Revised Pension Plan (the "Plan"), a defined benefit plan covering all
employees of the Company. The amount of contributions made by the Company to
the Plan is not reflected in the cash compensation table above, since the
amount of the contribution with respect to a specified person is not and
cannot readily be separately or individually calculated by the regular
actuaries for the Plan.
Benefits under the Plan are based upon years of credited service at
retirement and upon "Final Average Earnings," which is the average base
compensation for the highest sixty consecutive months out of the final 120
months of employment. This compensation consists only of salary and excludes
any bonus and any form of contribution to other benefit plans or any other
form of compensation. Normal or delayed retirement benefits are payable upon
retirement on the first day of any month following attainment of age 65 and
continue for the life of the employee (and his spouse, if any) or in
accordance with other elections permitted by the Plan.
On January 26, 1994, the Board of Directors adopted a supplemental
retirement plan covering any employee's compensation in excess of the
limitation amount specified in Section 401 et seq., of the Internal Revenue
Code. This plan is a non-qualified plan thereby rendering any benefits subject
to claims of general creditors and not deductible until paid.
The following table presents estimated annual benefits payable from
the Plan and the supplemental retirement plan mentioned above upon normal or
delayed retirement to persons in specified remuneration and years-of-credited
service classifications. The amounts shown assume the current maximum social
security benefit and that the employee has elected for benefits to be payable
for his life only.
-13-
<PAGE> 16
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------------------------------------------------------
Remuneration 15 20 25 30 35 40
------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $23,747 $ 31,663 $ 39,579 $ 47,494 $ 55,410 $ 59,535
175,000 27,872 37,163 46,454 55,744 65,035 69,847
200,000 31,997 42,663 53,329 63,994 74,660 80,160
225,000 36,122 48,163 60,204 72,224 84,285 90,472
250,000 40,247 53,663 67,079 80,494 93,910 100,785
300,000 48,497 64,663 80,829 96,994 113,160 121,410
350,000 56,747 75,663 94,579 113,494 132,410 142,035
400,000 64,997 86,663 108,329 129,994 151,660 162,660
450,000 73,247 97,663 122,079 146,494 170,910 183,285
500,000 81,497 108,663 135,829 162,994 190,160 203,910
</TABLE>
Years of service credited under the Plan for individuals shown in the
summary compensation table on page 13 are as follows: Mr. Adams, 18 years;
Mr. Nabors, 24 years; Mr. Taunton, 19 years; Mr. Johnson, 5 years; and
Mr. Frechette, 3 years.
STOCK OPTION PLANS
The Company has previously adopted the 1978 Stock Option Plan and the
1987 Stock Option Plan (the "Stock Option Plans") pursuant to which the Company
grants to key employees of the Company wither incentive stock options ("ISO's")
or nonqualified stock options ("NQSO's"). The term of the options cannot
exceed ten years from the date of grant, and the option price must equal fair
market value of the shares covered at the time of grant. No further options
are subject to being granted under the Stock Option Plans.
The 1993 Executive Long Term Incentive Plan (the "1993 Plan")
previously discussed herein is a flexible plan which will give the Executive
Compensation Committee broad discretion to fashion the terms of awards in order
to provide eligible participants with stock based incentives as the Committee
deems appropriate. It will permit the issuance of awards in a variety of
forms, including; (a) restricted stock (b) incentive stock options (c)
non-qualified stock options (d) stock appreciation rights and (e) performance
share and performance unit awards.
The 1993 Plan provides for the grant of up to 2,000,000 shares of the Common
Stock of the Company and issuance of awards under the 1993 Plan will cease as
of January 1, 2003.
OTHER MATTERS
The Board of Directors of the company does not know at this time of any other
matters to come before the Annual Meeting.
-14-
<PAGE> 17
PRINCIPAL SHAREHOLDERS
The following table sets forth each person who, to the Company's
knowledge, had sole or shared voting or investment power over more than five
percent of the outstanding shares of Common Stock of the Company as of March 9,
1995.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
------------------------------ -------------------- --------
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Edith L. Russell 4,684,320 shares (1) 11.88
P.O. Box 272
Alexander City, Alabama 35010
Benjamin Russell 5,932,526 shares (2) 15.05
P.O. Box 272
Alexander City, Alabama 35010
Roberta A. Baumgardner 8,192,246 shares (3) 20.78
P.O. Box 272
Alexander City, Alabama 35010
Helen Alison 2,064,192 shares (4) 5.24
P.O. Box 272
Alexander City, Alabama 35010
Nancy R. Gwaltney 4,702,436 shares (5) 11.93
P.O. Box 272
Alexander City, Alabama 35010
Ariel Capital Management, Inc. 2,542,352 shares (6) 6.45
307 North Michigan Avenue
Chicago, Illinois 60601
FMR Corp. 2,055,815 shares (7) 5.21
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
(1) Includes 8,000 shares as to which Mrs. Russell has sole voting and
investment power, and 4,676,320 shares as to which she has shared voting
and investment power consisting of 731,296 shares held by the Benjamin
and Roberta Russell Foundation, Incorporated, a charitable corporation
of which Mrs. Russell is one of seven directors, and 3,945,024 shares
held of record and beneficially owned by a trust created under the will
of Benjamin C. Russell of which Mrs. Russell is one of four trustees.
The trustees of the trust created under the will of Benjamin C. Russell
can invade the corpus of the trust for the benefit of Mrs. Russell.
(2) Includes 1,151,206 shares as to which Mr. Russell has sole voting and
investment power and 4,781,320 shares as to which he has shared voting and
investment power. See Note (4) on page 3.
-15-
<PAGE> 18
(3) Includes 1,451,734 shares as to which Mrs. Baumgardner has sole voting and
investment power and 6,740,512 shares as to which she has shared voting
and investment power, consisting of 731,296 shares held by the Benjamin
and Roberta Russell Foundation, Incorporated, a charitable corporation
of which Mrs. Baumgardner is one of seven directors, 3,945,024 shares
held of record and beneficially owned by a trust created under the will
of Benjamin C. Russell of which Mrs. Baumgardner is one of four trustees,
and 2,064,192 shares held by the estate of J. C. Alison of which Mrs.
Baumgardner is one of three co-executors.
(4) Includes 2,064,192 shares held by the estate of J. C. Alison, of which
Mrs. Alison is one of three trustees and with respect to which Mrs.
Alison has shared voting and investment power.
(5) Includes 2,420 shares owned by the Thomas D. Russell Share A Trust of
which Mrs. Gwaltney has shared voting and investment power; 731,296
shares held by the Benjamin and Roberta Russell Foundation, Incorporated,
a charitable corporation of which Mrs. Gwaltney is one of seven
directors; 3,945,024 shares held by a trust created under the will of
Benjamin C. Russell of which Mrs. Gwaltney is one of four trustees; and
23,696 shares as to which Mrs. Gwaltney has sole voting and investment
power.
(6) Information contained in Schedule 13G filed with the Company on
February 8, 1995. The Schedule 13G states that Ariel Capital Management,
Inc. has sole voting power with respect to 1,788,447 shares, shared
voting power with respect to 150,515 shares, sole dispositive power with
respect to 2,542,352 shares and shared dispositive power with respect to
0 shares.
(7) Information contained in Schedule 13G filed with the Company on
February 13, 1995. The Schedule 13G states that FMR Corp. has sole
voting power with respect to 8,269 shares, sole dispositive power with
respect to 2,055,815 shares, and shared voting and dispositive power
respect to 0 shares.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------
SOLE VOTING OPTIONS
AND EXERCISABLE OTHER PERCENT
INVESTMENT WITHIN BENEFICIAL OF
NAME OF INDIVIDUAL OR GROUP POWER 60 DAYS OWNERSHIP CLASS
--------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Adams 32,416 26,000 625,922 (1)(2) 1.74
James D. Nabors 18,381 25,000 1,354,387 (2)(3) 3.55
H. Scott Howell 21,000 0 0 .05
Herschel M. Bloom 5,499 0 0 .01
Glenn Ireland II 15,904 0 0 .04
Crawford T. Johnson III 15,000 0 0 .04
C.V. Nalley III 1,000 0 0 -
Timothy A. Lewis 0 0 0 -
Ronald G. Bruno 1,200 0 0 -
John A. White 1,650 0 0 -
John R. Thomas 134,434 0 454,248 1.49
Benjamin Russell 1,151,206 0 4,781,320 (4) 15.05
JT Taunton, Jr. 7,780 12,900 0 .05
Thomas R. Johnson, Jr. 0 12,200 0 .03
John E. Frechette 0 5,800 0 .01
All Executive Officers and Directors
as a Group (26 persons) 2,059,247 210,709 7,210,877 24.05
</TABLE>
(1) Includes 24,962 shares owned by Mr. Adams' spouse.
(2) See Note (2) on page 2.
(3) See Note (3) on page 3.
(4) See Note (4) on page 3.
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<PAGE> 19
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Based solely upon review of Forms 3, 4 and 5 and amendments thereto
related to the Company's most recent fiscal year, and written representations
from certain reporting persons that no Form 5 was required, the Company
believes that H. Scott Howell had one late Form 4 filing in 1994.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company entered into a fuel supply contract with Russell Lands,
Incorporated on May 21, 1975, under which Russell Lands, Incorporated provides
sawdust, bark, shavings, chips, and other wood materials for use in the
Company's wood chip boilers. The initial term of the contract was four years,
and may be renewed by agreement of the parties from year-to-year thereafter.
In addition, the contract may be cancelled by either party during any renewal
period upon 30 days notice following the occurrence of certain specified
conditions. Benjamin Russell is Chairman, Chief Executive Officer and a
director of Russell Lands, Incorporated, and owns beneficially approximately
70% of the equity interest in such company. Management believes this contract
is in the best interest of the Company's shareholders. During the fiscal year
ended December 31, 1994, the Company paid Russell Lands, Incorporated
approximately $1,145,000 for wood materials to operate these boilers.
AUDITORS
Ernst & Young LLP, independent accountants, was selected as the
Company's auditors for 1994 after having previously served in the same capacity
since 1930. Representatives of Ernst & Young will be in attendance at the
Annual Meeting and will be given the opportunity to make a statement and to
respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
The next annual meeting of shareholders is scheduled to be held on
April 24, 1996, and shareholders of the Company may submit proposals for
consideration for inclusion in the proxy statement of the Company relating to
such annual meeting of shareholders. However, in order for such proposals to
be considered for inclusion in the proxy statement of the Company relating
to such annual meeting, such proposals must be received by the Company not
later than November 25, 1995.
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<PAGE> 20
GENERAL INFORMATION
The Board of Directors of the Company has fixed the close of
business on March 9, 1995, as the record date for determining the holders
of the Common Stock of the Company entitled to notice of and to vote at the
Annual Meeting. As of such date, the Company had issued and outstanding and
entitled to vote at the Annual Meeting an aggregate of 39,428,922 shares
of Common Stock, each share of which is entitled to one (1) vote on all
matters to be considered at the Annual Meeting.
As of the date of the Proxy Statement, the Board of Directors does
not intend to present, and has not been informed that any other person intends
to present, any matter for action at the Annual Meeting other than those
matters stated in the Notice of the Annual Meeting. If other matters should
properly come before the Annual Meeting, it is intended that the holders of
the proxies will act in respect thereto in accordance with their best judgment.
Pursuant to Section 10-2B-7.25 of the Code of Alabama 1975, as
amended, and the Company's bylaws, a majority of the Common Stock shares
entitled to vote, represented in person or by proxy, will constitute a quorum
at a meeting of the Shareholders. Section 10-2B-7.28 of the Code of Alabama
1975, as amended, requires that each of the nominees to be elected to the
Board of Directors receive the affirmative vote of the majority of the votes
cast by the holders of shares of Common Stock represented at the Annual
Meeting as part of the quorum. Section 10-2B-7.25 of the Code of Alabama
1975, as amended, requires, for the approval of the amendment to add a new
Article 10 to the Company's Restated Articles of Incorporation restricting and
limiting under certain circumstances the liability of directors to the Company
and its shareholders, the affirmative vote of the holders of a majority of
the outstanding shares of the Company's common stock casting votes for or
against approval of the proposed amendment at a meeting of shareholders at
which a quorum is present. In neither the case of the election of directors
nor consideration of the proposed amendment does the vote include shares
which abstain from voting on a matter or which are not voted on such matter by
a nominee because such nominee is not permitted to exercise discretionary
voting authority and the nominee has not received voting instructions from
the beneficial owner of such shares. Generally, brokers who act as nominees
will be permitted to exercise discretionary voting authority where they have
received no instructions in uncontested elections for directors and on certain
other matters which are not contested where the brokers have complied with
Rule 451 concerning the delivery of proxy materials to beneficial owners of
the Company's Common Stock held by such brokers.
In addition to the use of the mails, proxies may be solicited by
personal interview or by telephone or telegraph. The cost of solicitation
of proxies will be borne by the Company. The Company may request brokerage
houses, nominees, custodians, and fiduciaries to forward soliciting
material to the beneficial owners of the stock held of record and will
reimburse such persons for any reasonable expense incurred in forwarding the
material.
Copies of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, in form as filed with the Securities and Exchange
Commission, may be obtained from Steve R. Forehand, the Secretary of the
Company, without charge, by persons who were shareholders beneficially or of
record as of March 9, 1995.
RUSSELL CORPORATION
Steve R. Forehand
Secretary
Alexander City, Alabama
March 23, 1995
