<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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended January 4, 1997
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 35011-0272
(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. [ ]
The aggregate market value of Common Stock, par value $.01, held by
non-affiliates of the registrant, as of March 25, 1997, was approximately
$998,369,643.
As of March 25, 1997, there were 37,726,751 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 January
4, 1997 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 23, 1997 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--Jerzees (formerly 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 1996.
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 December 30, 1995 and December 31, 1994,
completed apparel accounted for more than ninety percent of total revenues.
Foreign and export sales for 1996 were 10.5%. In each of the immediately
preceding two years foreign and export sales were 9.8% and 8.5%, respectively.
One customer, Wal-Mart Stores, Inc. and affiliates, accounted for 17.1 percent
of total revenues in 1996, 15.1 percent in 1995 and 13.1 percent in 1994.
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,
turtlenecks and other golf apparel. 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 37 additional plants in other
communities in Alabama, Florida, Georgia, North Carolina and Virginia. The
Company owns apparel assembly facilities in San Juan Del Rio, Mexico and
Chaloma, Honduras. Warehousing and shipping is conducted in Alexander City, Ft.
Payne and Montgomery, Alabama; Marianna and Miami, Florida; Mt. Airy, North
Carolina; and Columbus, Georgia. 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 and Melbourne, Australia.
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
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textured and filament yarns, used in the manufacturing process. As a result of
its integrated production process, all functions required to produce finished
apparel and fabrics can be performed by the Company without reliance upon
outside contractors. The Company did, however, assemble 16 percent of the
apparel at domestic and offshore contractors, including headwear and certain
activewear and outerwear products sourced from outside suppliers.
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 more effectively manage 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 or blends of
cotton and man-made fibers such as polyester; fabrication of knit and woven
fabrics; dyeing, bleaching, 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 or 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
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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.
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 three plant locations in Alexander City with
additional locations in Wetumpka, Alabama and Mt. Airy and North Wilkesboro,
North Carolina. Additional knitting is done on a contract basis to support the
sock line. 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, Wetumpka,
Sylacauga and Ft. Payne, 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 33 plants in the U.S., two plants in Scotland, and plants
in Mexico and Honduras 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
Jerzees Division - Under the JERZEES(R) label and private labels, this
division designs and markets a wide variety of knitted apparel, including fleece
garments, such as sweatshirts, sweatpants and other fashion items, and
lightweight activewear, such as T-shirts, tank tops, and shorts 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 and in 1995 extended that agreement to include H.I.S.(R) which is
a supplemental license for men's sportswear.
The apparel is sold by a salaried, company-employed salesforce to
distributors, screen printers, mass merchants, craft chains and other
specialized retail outlets. The Division maintains sales offices in Alexander
City, Alabama; New York, New York; Irving, Texas; and Irvine, California.
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Athletic Division - This division produces and markets high-quality
teamwear and activewear through sporting goods dealers, specialty stores,
department stores, sporting goods chains, and major mail-order catalogues. Sales
are made by Company employees.
The Company has a leading position as a supplier of team uniforms,
providing practice and game uniforms for both professional and amateur
participants of almost every major sport. RUSSELL ATHLETIC(R) is the "official"
supplier of team uniforms for Major League Baseball teams. The Company believes
it is the largest manufacturer of athletic uniforms in the United States.
Activewear such as sweatshirts, sweatpants, T-shirts, tank tops, and
shorts are also sold under the RUSSELL ATHLETIC label. The Company merchandises
the RUSSELL ATHLETIC line in product categories such as NuBlend(R), HIGH
COTTON(R), and PRO COTTON(R).
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 customer
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, National Hockey League, the National Collegiate Athletic
Association, the PGA Tour(R) and most major colleges and universities. Products
include various headwear, activewear 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 stores, department 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(R), the
licensed products of RUSSELL ATHLETIC and the CHALK LINE(R) 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(R) brands throughout various countries
outside the United States and Canada. The Company's major international market
is Europe, where the Company engages in 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 Madrid, Spain; Brussels, Belgium; Frankfurt,
Germany; Paris, France; Prague, Czech Republic; Prato, Italy; Hong Kong; Sao
Paulo, Brazil; and Melbourne, Australia.
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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. Sales are made by the Company's
own marketing staff from its Alexander City, Atlanta, and New York sales offices
and also by commission sales representatives located in Dallas, Los Angeles, New
York, and Toronto.
Cross Creek Apparel, Inc. - Cross Creek designs and markets better knit
apparel including placket shirts, turtlenecks and other golf apparel. The CROSS
CREEK PRO COLLECTION(R), 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(R)
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 catalogues 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 JERZEES, DESOTO PLAYER'S
CLUB(R), ATHLETIC CLUB(R), PERFORMANCE CLUB(R), and PLAYER'S PERFORMANCE(R).
Socks are also sold to private label customers and under various licensing
agreements. Sales are made through a Company-employed sales force principally
to discount retailers and the wholesale club market.
DeSoto Mills, Inc. was acquired March 29, 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 January 4, 1997, the Company had 17,843 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
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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.
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, North Carolina, Virginia, Mexico, Honduras,
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 3 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 11,097,300 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 1,536,000
Knitting and Weaving 998,000
Dyeing and Finishing 963,700
Cutting and Sewing 2,213,600
Warehousing and Shipping 3,814,000
Retail/Outlet Stores 147,500
Executive Offices, Maintenance
Shops and Research and
Development 756,000
Scotland 493,800
Mexico 70,400
Honduras 104,300
</TABLE>
All presently utilized facilities in the U.S. are owned, except the
Montgomery and Greenville, Alabama, sewing plants; the regional sales offices;
and the majority of the outlet/retail store locations (see Notes 3 and 10 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 effect upon the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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<PAGE> 9
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 23, 1997 is
incorporated herein by reference.
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 41 1992 Vice President-External
Affairs
Steve R. Forehand 41 1987 Secretary
K. Roger Holliday 38 1988 Treasurer
Thomas R. Johnson, Jr. 54 1989 Executive Vice President-
Manufacturing
W. J. Spires, Jr. 51 1988 President-Cross Creek
Apparel, Inc.
JT Taunton, Jr. 54 1983 Executive Vice President-
Sales and Marketing
Steven S. Williams 37 1996 Asst. Controller,
Asst. Treasurer
Larry E. Workman 53 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. Holliday, employed by the Company since 1986, was named Treasurer
in 1996. He served as President of the Licensed Products Division from 1994 to
1996, President of the Knit Apparel Division from 1991 until 1994 and Assistant
Treasurer from 1988 to 1991.
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. 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.
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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. Williams, employed by the Company as a cost accountant, served as
Manager, General Accounting from 1986 to 1996.
Mr. Workman, employed by the Company since 1969 as an accountant,
served as Manager, 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.
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PART II
ITEM 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
"Dividend and Market Information" on page 37 and in Note 3 to
Consolidated Financial Statements on page 32 of the Annual Shareholders Report
for the year ended January 4, 1997 are incorporated herein by reference.
The approximate number of holders of the Company's common stock at
March 25, 1997 was 12,300.
ITEM 6. Selected Financial Data
"Financial Review" on pages 22 and 23 of the Annual Shareholders Report
for the year ended January 4, 1997 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 24 of the Annual Shareholders Report for the year
ended January 4, 1997 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
January 4, 1997 are incorporated herein by reference:
... Consolidated balance sheets - January 4, 1997 and December 30, 1995
... Consolidated statements of income - Years ended January 4, 1997,
December 30, 1995 and December 31, 1994
... Consolidated statements of cash flows - Years ended January 4,
1997, December 30, 1995 and December 31, 1994
... Consolidated statements of stockholders' equity - Years ended
January 4, 1997, December 30, 1995 and December 31, 1994
... Notes to consolidated financial statements - Years ended January 4,
1997, December 30, 1995 and December 31, 1994
... Report of Independent Auditors
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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PART III
ITEM 10. Directors and Executive Officers of the Registrant
"Election of Directors" on pages one through four and "Principal
Shareholders" on pages 20 and 21 of the Proxy Statement for the Annual Meeting
of Shareholders to be held April 23, 1997 is incorporated herein by reference.
"Executive Officers of the Company" on page 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 62 1987 Vice President-Research
William P. Dickson, Jr. 56 1974 Vice President-
Human Resources
J. Franklin Foy 61 1982 Vice President-
Dyeing and Finishing
John E. Frechette 57 1991 Vice President-
International
Joseph P. Irwin 39 1994 President-Jerzees Division
D.W. Wachtel 58 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.
Mr. Irwin, employed by the Company in 1980, was named President of the
Knit Apparel Division (now the Jerzees 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 Apparel Division.
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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 22 of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 23, 1997 is incorporated herein by reference.
ITEM 11. Executive Compensation
"Executive Compensation" on pages 10 through 19 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 23, 1997 is incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) "Principal Shareholders" on pages 20 and 21 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 23, 1997 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
23, 1997 under the captions "Security Ownership of Management" on page 21 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 22 of the Proxy
Statement for the Annual Meeting of Shareholders to be held April 23, 1997 is
incorporated herein by reference.
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<PAGE> 14
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
<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 30, 1995
(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 30, 1995
(3c) Bylaws Exhibit (3c) to
Annual Report
on Form 10-K
for year ended
December 30, 1995
(4) Rights Agreement dated Exhibit 1 to
October 25, 1989 between Form 8-A dated
the Company and First October 30, 1989
Alabama Bank, Montgomery, Registration
Alabama Statement No. 1-5822
</TABLE>
IV-1
<PAGE> 15
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation
Numbers Description by Reference to
------- ----------- ---------------
<S> <C> <C>
(10a) Form of Deferred Exhibit (10a) to
Compensation Agreement Annual Report on
with certain officers Form 10-K for
year ended
December 30, 1995
(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 (10d) to
Amendment to Stock Annual Report on
Option Plans Form 10-K for
year ended
December 30, 1995
(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) 1996 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 (for SEC
use only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended January 4, 1997.
IV-2
<PAGE> 16
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> 17
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
- - ---------------------------------------------------------------------------------------------------------------------------------
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 JANUARY 4, 1997
Allowance for doubtful accounts $ 8,324,594 $ 5,021,777 $ -0- $ 4,699,638 (1) $ 8,646,733
Reserve for discounts and returns 2,011,974 6,775,460 -0- 7,223,998 (2) 1,563,436
----------- ----------- -------- ----------- -----------
TOTALS $10,336,568 $11,797,237 $ -0- $11,923,636 $10,210,169
=========== =========== ======== =========== ===========
YEAR ENDED DECEMBER 30, 1995
Allowance for doubtful accounts $ 8,115,122 $ 4,407,505 $ -0- $ 4,198,033 (1) $ 8,324,594
Reserve for discounts and returns 2,342,719 9,105,828 -0- 9,436,573 (2) 2,011,974
----------- ----------- -------- ----------- -----------
TOTALS $10,457,841 $13,513,333 $ -0- $13,634,606 $10,336,568
=========== =========== ======== =========== ===========
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
=========== =========== ======== =========== ===========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Discounts and returns allowed customers during the year.
<PAGE> 18
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 CORPORATION
(Registrant)
Date 3/28/97 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 3/28/97
- - ------------------------------ -------
John C. Adams Date
Executive Vice President and
Chief Financial Officer, and
Director (Principal Financial
/S/ James D. Nabors Officer) 3/28/97
- - ------------------------------ -------
James D. Nabors Date
/S/ Herschel M. Bloom Director 3/28/97
- - ------------------------------ -------
Herschel M. Bloom Date
/S/ Ronald G. Bruno Director 3/28/97
- - ------------------------------ -------
Ronald G. Bruno Date
Director
- - ------------------------------ -------
Crawford T. Johnson III Date
/S/ Timothy A. Lewis Director 3/28/97
- - ------------------------------ -------
Timothy A. Lewis Date
</TABLE>
IV-5
<PAGE> 19
<TABLE>
<S> <C> <C>
Director
- - ------------------------------ -------
C. V. Nalley III Date
/S/ Benjamin Russell Director 3/28/97
- - ------------------------------ -------
Benjamin Russell Date
/S/ John R. Thomas Director 3/28/97
- - ------------------------------ -------
John R. Thomas Date
Director
- - ------------------------------ -------
John A. White Date
/S/ Larry E. Workman Controller 3/28/97
- - ------------------------------ (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
---------------------------------------
January 4 December 30 December 31
1997 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary:
Average shares outstanding 38,469,009 39,097,574 39,949,604
Net effect of dilutive stock
options--based on the
treasury stock method using
average market price 183,949 208,981 278,146
----------- ----------- -----------
TOTALS 38,652,958 39,306,555 40,227,750
=========== =========== ===========
Net income $81,575,837 $54,117,229 $78,826,012
=========== =========== ===========
Per share amount $ 2.11 $ 1.38 $ 1.96
=========== =========== ===========
Fully diluted:
Average shares outstanding 38,469,009 39,097,574 39,949,604
Net effect of dilutive stock
options--based on the
treasury stock method using
the year-end market price,
if higher than average market
price 183,949 208,981 300,833
----------- ----------- -----------
TOTALS 38,652,958 39,306,555 40,250,437
=========== =========== ===========
Net income $81,575,837 $54,117,229 $78,826,012
=========== =========== ===========
Per share amount $ 2.11 $ 1.38 $ 1.96
=========== =========== ===========
</TABLE>
IV-7
<PAGE> 1
EXHIBIT (13)
1996 ANNUAL REPORT TO SHAREHOLDERS
IV-8
<PAGE> 2
FINANCIAL REVIEW
<TABLE>
<CAPTION>
<S> <C>
Ten-Year Selected Financial Data 22
Management's Discussion and Analysis
of Financial Condition and Results of Operations 24
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Cash Flows 28
Consolidated Statements of Stockholders' Equity 29
</TABLE>
Cash Flows From Operations Return On Equity
- - -------------------------- ----------------
(dollars in millions) (percent)
Working Capital Debt To Equity
- - --------------------- --------------
(dollars in millions) (percent)
21
<PAGE> 3
Russell Corporation and Subsidiaries
-----------------
Ten-Year Selected
Financial Data
-----------------
<TABLE>
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales 1,244,204 $1,152,633 $1,098,259 $930,787
Cost of goods sold 846,166 816,834 739,700 613,325 592,837
Interest expense 25,738 21,698 19,434 16,948 15,841
Income before income taxes(b) 129,545 87,733 127,585 80,717 129,507
Income taxes(b) 47,969 33,616 48,759 31,619 47,269
Net income applicable to common shares(b) 81,576 54,117 78,826 49,080 81,945
- - ------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Depreciation and amortization $ 72,226 $ 68,010 $ 67,042 $ 66,226 $ 60,444
Net income plus depreciation and amortization 153,802 122,127 145,868 115,306 142,389
Capital expenditures 114,031 86,556 38,562 83,979 109,161
Working capital 412,591 438,070 310,330 277,993 285,469
Long-term debt and redeemable preferred stock 255,935 287,878 144,163 163,334 186,122
Stockholders' equity 679,823 632,558 628,662 587,651 570,003
Capital employed 935,758 920,436 772,825 750,985 756,125
Total assets 1,195,180 1,118,164 1,046,577 1,017,044 964,933
- - ------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Net income(b) $ 2.11 $ 1.38 $ 1.96 $ 1.19 $ 1.99
Dividends .50 .48 .42 .39 .34
Book value 17.87 16.34 15.84 14.54 13.97
Price Range:
High 33.75 31.25 32.63 36.87 40.37
Low 23.13 22.00 24.00 26.00 27.75
- - ------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS Net sales times:
Receivables(a) 5.5 5.3 5.6 5.3 5.8
Inventories(a) 3.7 3.8 3.9 3.7 4.6
Capital employed(a) 1.3 1.4 1.4 1.2 1.2
Interest coverage(b) 6.0 5.0 7.6 5.8 9.2
Income before income taxes as a percent of sales(b) 10.4% 7.6% 11.6% 8.7% 14.4%
Net income as a percent of sales(b) 6.6% 4.7% 7.2% 5.3% 9.1%
Net income as percent of stockholders' equity(a)(b) 12.4% 8.6% 13.0% 8.5% 15.3%
- - ------------------------------------------------------------------------------------------------------------
OTHER DATA
Net common shares outstanding (000s omitted) 38,049 38,715 39,689 40,405 40,810
Approximate number of common shareholders 12,300 12,300 13,000 13,000 13,000
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average of amounts at beginning and end of each fiscal year.
(b) Fiscal 1993 includes a noncash, pre-tax charge of $34,583,080 associated
with the write-down of certain ??????. The after-tax impact of this
write-down on 1993 earnings was $.56 per common share.
22
<PAGE> 4
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1993 1992 1991 1990 1989 1988 1987
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $1,098,259 $930,787 $899,136 $804,585 $713,812 $687,954 $531,136
Cost of goods sold 613,325 592,837 553,160 461,281 457,875 344,109 316,738
Interest expense 16,948 15,841 18,097 18,885 15,643 8,788 6,892
Income before income taxes(b) 80,717 129,507 90,866 109,672 102,728 85,793 80,145
Income taxes(b) 31,619 47,269 34,027 41,725 37,994 32,028 33,811
Net income applicable to common shares(b) 49,080 81,945 56,279 67,378 64,163 53,728 46,334
- - ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Depreciation and amortization $ 66,226 $ 60,444 $ 56,594 $ 52,539 $ 45,633 $ 33,368 $ 26,039
Net income plus depreciation and amortization 115,306 142,389 112,873 119,917 109,796 87,096 72,373
Capital expenditures 83,979 109,161 89,532 113,617 87,410 118,476 77,502
Working capital 277,993 285,469 255,392 249,683 267,178 124,263 162,931
Long-term debt and redeemable preferred stock 163,334 186,122 185,923 196,857 210,470 90,023 73,545
Stockholders' equity 587,651 570,003 502,501 456,352 402,216 345,086 279,611
Capital employed 750,985 756,125 688,424 653,209 612,686 435,109 353,156
Total assets 1,017,044 964,933 818,220 794,521 720,806 560,969 445,252
- - ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Net income(b) $ 1.19 $ 1.99 $ 1.38 $ 1.65 $ 1.57 $ 1.36 $ 1.17
Dividends .39 .34 .32 .32 .28 .23 .19
Book value 14.54 13.97 12.39 11.29 9.95 8.55 7.16
Price Range:
High 36.87 40.37 36.25 31.00 26.50 17.75 20.50
Low 26.00 27.75 19.75 16.00 15.62 11.37 10.62
- - ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS Net sales times:
Receivables(a) 5.3 5.8 5.9 5.3 5.9 5.6 5.8
Inventories(a) 3.7 4.6 4.8 5.1 6.8 6.4 6.9
Capital employed(a) 1.2 1.2 1.2 1.1 1.3 1.3 1.5
Interest coverage(b) 5.8 9.2 6.0 6.8 7.6 10.8 12.6
Income before income taxes as a percent of sales(b) 8.7% 14.4% 11.3% 15.4% 14.9% 16.2% 16.7%
Net income as a percent of sales(b) 5.3% 9.1% 7.0% 9.4% 9.3% 10.1% 9.7%
Net income as percent of stockholders' equity(a)(b) 8.5% 15.3% 11.7% 15.7% 17.2% 17.2% 17.6%
- - ----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net common shares outstanding (000s omitted) 40,405 40,810 40,569 40,407 40,427 40,360 39,050
Approximate number of common shareholders 13,000 13,000 18,000 18,000 18,000 18,000 18,600
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average of amounts at beginning and end of each fiscal year.
(b) Fiscal 1993 includes a noncash, 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.
23
<PAGE> 5
Russell Corporation and Subsidiaries
Management's Discussion
And Analysis
1996 VS 1995
Net sales increased 8% in 1996 to a record $1,244,204,000. The most significant
increases in sales were experienced in DeSoto Mills, Inc., Licensed Products
Division and Cross Creek Apparel, Inc. Growth in core products increased to
solid levels in the fourth quarter. International and export sales growth
slowed in 1996, due to a difficult retail environment in Europe, and
represented 10.5% of sales.
Cotton prices stabilized and returned to more traditional levels during
1996. As a result, gross margins increased to 32.0% from 29.1% in 1995. Most
divisions of the Company experienced much improved gross margins for the year
due to lower raw material prices and ongoing cost reduction programs.
The Company utilizes cotton futures contracts to set sales prices which
are generally set six months to a year in advance of the selling seasons.
Depending upon market conditions, these contracts may be purchased at the time
prices are set. Purchasing futures contracts not only limits the risk of price
increases, but also limits the Company's ability to benefit from price
decreases. At January 4, 1997, the Company had outstanding futures contracts
that, when combined with other contracts and inventory, represented
approximately 86% of the Company's anticipated cotton requirements for 1997.
Selling, general and administrative expenses increased 6.3%, but declined
to 19.6% of sales from 19.9% the year before. The Company continued to
emphasize marketing and customer service in order to gain market share,
domestically and internationally.
The Company utilizes two interest rate swap agreements in the management
of its interest rate exposure. These agreements effectively convert a portion
of the Company's interest rate exposure from a fixed to a floating rate basis
and from a floating rate to a fixed basis. The effect of these agreements was
to lower the effective interest rate on the Company's long-term debt from 6.95%
to 6.77% and from 7.34% to 7.07% in 1996 and 1995, respectively. Interest
expense increased in 1996 due to increased short-term borrowings, generally
offsetting principal payments of long-term debt.
The balance sheet continues to reflect the conservative financial nature
of the Company and its strong financial condition. At the end of 1996,
long-term debt to total capitalization was 27.4% versus 31.3% at the end of
1995. Inventory increased 8%, in line with sales increases. There was a slight
reduction in accounts receivable, year-end 1996 versus 1995. Current ratios
were 3.2 and 4.5, respectively, reflecting increased temporary borrowing for
1996.
Net income plus non-cash charges of approx-
24
<PAGE> 6
imately $149 million and an increase of short-term borrowings of $55 million
provided the majority of the cash requirements for 1996. This cash was used for
capital expenditures, payments on long-term debt, treasury stock repurchases,
working capital and dividends. Capital expenditures of $114 million in 1996
brings the five-year total to more than $432 million reflecting the Company's
ongoing commitment to research and development and modernization of
manufacturing facilities and customer service systems.
Capital expenditures of $124 million are anticipated for 1997.
Approximately $30 million of this amount is planned for new facilities outside
the United States. The balance will be used for expansion and modernization
domestically. The Company maintains $238 million of informal lines of credit
and does not anticipate issuing any additional long-term debt or equity
securities in 1997.
There were no material acquisitions in 1996 or 1995. In 1996, as it did in
1995, the Board of Directors adjusted the stock repurchase authorization upward
to two million shares. Purchases of the Company's Common Stock totaled
$26,049,000 in 1996, representing 932,783 shares, compared to $30,138,000
representing 1,071,435 shares in 1995.
1995 VS 1994
Net sales for 1995 increased 5% to $1,152,633,000 in spite of a soft retail
environment. The Company's core domestic business, while impacted by the
slowdown at retail, posted solid growth in units. International and export
sales, excluding Canada, grew 31% and represented 9.3% of sales in 1995.
1995 saw cotton prices reach post Civil War highs. While the Company had
covered a substantial portion of its cotton requirements through the purchase
of cotton futures contracts, the effect of these record prices on the remaining
requirements, along with competitive pricing pressures and increased cost
associated with contracted domestic apparel assembly, resulted in a decline in
gross margins to 29.1% from 32.6% in 1994.
Selling, general and administrative expense rose both in gross dollars and
as a percent of sales. The Company continued to increase advertising
expenditures in 1995 in order to gain market share in an increasingly
competitive domestic market. Customer service expenditures and higher royalty
rates associated with our licensed product business, also contributed to the
increase over 1994.
The effect of the interest swap agreements was to lower the effective
interest rate on the Company's long-term debt from 7.34% to 7.07% and from 7.48
% to 7.32% in 1995 and 1994, respectively. Interest expense increased in 1995
due to increased borrowings and higher rates on short-term debt. During 1995,
the Company borrowed an additional $175 million of long-term debt. The proceeds
from the borrowings were used to reduce short-term debt and for other general
corporate purposes.
The balance sheet continued to reflect the strong financial condition of
the Company. Working capital increased by $128 million in 1995. Accounts
receivable increased in line with sales growth, and inventories increased by
15%, in line with projected requirements for 1996. At December 30, 1995, the
current ratio was 4.5 versus 2.5 at the end of 1994. Long-term debt to total
capitalization was 31.3% at the end of 1995 versus 18.7% at the end of 1994,
reflecting the aforementioned issuance of long-term debt.
Net income plus non-cash charges of approximately $121 million along with
long-term borrowings of $175 million, provided the majority of cash
requirements in 1995. This cash was used for working capital, capital
expenditures, dividends, treasury stock purchases and the repayment of debt.
1995 capital expenditures were $87 million.
There were no material acquisitions in 1995. In 1994, acquisitions totaled
approximately $10 million with the purchase of DeSoto Mills, Inc. The Company
also acquired the trademarks and licenses of Chalk Line, Inc. and its
affiliates, for approximately $5.6 million in 1994.
In 1995, the Board of Directors adjusted the stock repurchase
authorization upward to a total of two million shares. Purchases of the
Company's Common Stock totals $30,138,000 in 1995 representing 1,071,435
shares, compared to 1,205,527 shares at a total cost of $33,899,000 in 1994.
25
<PAGE> 7
Russell Corporation and Subsidiaries
--------------
Consolidated
Balance Sheets
--------------
January 4, 1997 and December 30, 1995
<TABLE>
<CAPTION>
(In thousands, except share data) 1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,355 $ 4,485
Trade accounts receivable, less allowances of $10,210 in 1996 and $10,337
in 1995 224,155 224,375
Inventories 346,782 321,209
Prepaid expenses and other current assets 13,334 6,824
Future income tax benefits 8,399 7,984
- - ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 600,025 564,877
PROPERTY, PLANT AND EQUIPMENT:
Land 10,683 10,649
Buildings 305,765 253,950
Machinery and equipment 784,081 719,543
Construction-in-progress 22,192 28,785
- - ------------------------------------------------------------------------------------------------
1,122,721 1,012,927
Less allowances for depreciation and amortization (595,935) (531,193)
- - ------------------------------------------------------------------------------------------------
526,786 481,734
OTHER ASSETS 68,369 71,553
- - ------------------------------------------------------------------------------------------------
$1,195,180 $1,118,164
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 63,256 $ 7,389
Accounts payable and accrued expenses:
Trade accounts 40,941 45,613
Employee compensation 22,741 18,080
Other 18,515 17,649
- - ------------------------------------------------------------------------------------------------
82,197 81,342
Income taxes 10,038 6,793
Current maturities of long-term debt and capital lease obligations 31,943 31,283
- - ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 187,434 126,807
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES 255,935 287,878
DEFERRED LIABILITIES:
Income taxes 46,218 48,747
Pension and other 25,770 22,174
- - ------------------------------------------------------------------------------------------------
71,988 70,921
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share; authorized 150,000,000 shares,
issued 41,419,958 shares 414 414
Paid-in capital 50,200 52,405
Retained earnings 726,492 664,163
Treasury stock (1996 - 3,370,885 and 1995 - 2,704,537 shares) (95,057) (76,378)
Currency translation adjustment (2,226) (8,046)
- - ------------------------------------------------------------------------------------------------
679,823 632,558
- - ------------------------------------------------------------------------------------------------
$1,195,180 $1,118,164
================================================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 8
Russell Corporation and Subsidiaries
Consolidated Statements
of Income
-----------------------
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
<TABLE>
<CAPTION>
(In thousands, except share data) 1996 1995 1994
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,244,204 $1,152,633 $1,098,259
Cost of goods sold 846,166 816,834 739,700
- - -------------------------------------------------------------------------------------
398,038 335,799 358,559
Selling, general and administrative expenses 243,759 229,347 213,025
- - -------------------------------------------------------------------------------------
154,279 106,452 145,534
OTHER DEDUCTIONS (INCOME):
Interest expense 25,738 21,698 19,434
Other - net (1,004) (2,979) (1,485)
- - -------------------------------------------------------------------------------------
24,734 18,719 17,949
- - -------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 129,545 87,733 127,585
PROVISION FOR INCOME TAXES:
Currently payable 53,259 35,416 48,123
Deferred (5,290) (1,800) 636
- - -------------------------------------------------------------------------------------
47,969 33,616 48,759
- - -------------------------------------------------------------------------------------
NET INCOME $ 81,576 $ 54,117 $ 78,826
=====================================================================================
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 2.11 $ 1.38 $ 1.96
=====================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 9
Russell Corporation and Subsidiaries
Consolidated Statements
of Cash Flows
-----------------------
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 81,576 $ 54,117 $ 78,826
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 72,226 68,010 67,042
Deferred income taxes (5,290) (1,800) 636
Loss (gain) on sale of property, plant and equipment 200 560 (610)
Changes in assets and liabilities:
Trade accounts receivable 2,237 (13,604) (30,760)
Inventories (22,458) (43,414) 2,474
Prepaid expenses and other current assets (6,045) 175 (45)
Other assets 175 (4,872) (8,219)
Accounts payable and accrued expenses 208 6,027 8,728
Income taxes 3,240 (31) (14,647)
Pension and other deferred liabilities 6,019 (1,103) 1,955
- - -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 132,088 64,065 105,380
INVESTING ACTIVITIES
Purchase of property, plant and equipment (114,031) (86,556) (38,562)
Proceeds from sale of property, plant and equipment 1,280 5,984 1,821
- - -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (112,751) (80,572) (36,741)
FINANCING ACTIVITIES
Short-term borrowings 54,846 - 5,547
Payments on notes payable - - (4,562)
Payments on short-term debt - (90,493) -
Payments on long-term debt (31,282) (19,475) (21,863)
Long-term borrowings - 175,000 -
Dividends on Common Stock (19,247) (18,790) (16,780)
Distribution of treasury shares 5,165 1,252 3,151
Cost of Common Stock for treasury (26,049) (30,138) (33,750)
- - -------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (16,567) 17,356 (68,257)
Effect of exchange rate changes on cash 100 (505) (138)
- - -------------------------------------------------------------------------------------------------------------------------
Net increase in cash 2,870 344 244
Cash balance at beginning of year 4,485 4,141 3,897
- - -------------------------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF YEAR $ 7,355 $ 4,485 $ 4,141
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 10
Russell Corporation and Subsidiaries
Consolidated Statements
of Stockholders' Equity
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
<TABLE>
<CAPTION>
(In thousands, except share data) 1996 1995 1994
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING AND END OF YEAR $ 414 $ 414 $414
=====================================================================================
PAID-IN CAPITAL
Balance at beginning of year $ 52,405 $ 53,511 $49,040
Exercise of stock options (2,205) (1,106) (96)
Acquisitions - - 4,567
- - -------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 50,200 $ 52,405 $53,511
=====================================================================================
RETAINED EARNINGS
Balance at beginning of year $664,163 $628,836 $566,790
Net income for the year 81,576 54,117 78,826
Cash dividends - Common Stock
(1996 - $.50; 1995 - $.48; 1994 - $.42) (19,247) (18,790) (16,780)
- - -------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $726,492 $664,163 $628,836
=====================================================================================
TREASURY STOCK
Balance at beginning of year $ 76,378 $ 48,598 $ 23,040
Cost of shares acquired
(1996 - 932,783; 1995 - 1,071,435; 1994 - 1,205,527) 26,049 30,138 33,899
Shares distributed (1996 - 266,435; 1995 - 97,787;
1994 - 489,255) (7,370) (2,358) (8,341)
- - -------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 95,057 $ 76,378 $ 48,598
=====================================================================================
CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year $ (8,046) $ (5,501) $ (5,552)
Translation gain (loss) 5,820 (2,545) 51
- - -------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ (2,226) $ (8,046) $ (5,501)
=====================================================================================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 11
Russell Corporation and Subsidiaries
Notes to Consolidated
Financial Statements
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
NOTE ONE
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. 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.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 $69,000,000 in 1996 and $51,000,000 in
1995.
30
<PAGE> 12
<TABLE>
<CAPTION>
Inventories are summarized as follows:
(In thousands) 1996 1995
- - ---------------------------------------------------------
<S> <C> <C>
Finished goods $280,368 $274,035
Work-in-process 45,562 43,476
Raw materials and supplies 53,885 62,099
- - ---------------------------------------------------------
379,815 379,610
Less LIFO reserve 33,033 58,401
- - ---------------------------------------------------------
$346,782 $321,209
=========================================================
</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 $35,000,000 and
$36,900,000, which is net of accumulated amortization of $8,600,000 and
$6,700,000 at January 4, 1997 and December 30, 1995, 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 excess of the carrying value over the fair value of the
entity acquired.
LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets under the provisions
of Financial Accounting Standards Board (FASB) Statement 121. When events and
circumstances indicate that assets may be impaired, and the undiscounted cash
flows estimated to be generated from those assets are less than the carrying
value of such assets, the Company records an impairment loss equal to the
excess of the carrying value over the asset's fair value. There were no
impairment losses recorded in either 1996 or 1995.
INCOME TAXES
The Company accounts for income taxes under the provisions of 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.
ADVERTISING, MARKETING AND PROMOTIONS EXPENSE
The cost of advertising, marketing and promotions is expensed as incurred. The
Company incurred $36,454,000, $40,281,000 and $35,625,000 in such costs during
1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Postretirement benefits are recorded under the provisions of FASB Statement
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The cost of such benefits is accrued over the service lives of the employees
expected to be eligible to receive such benefits.
STOCK-BASED COMPENSATION
The Company issues awards under its incentive compensation plans as described
in Note 8. These stock options and awards are accounted for in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees."
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 5).
Sales to a major customer, and its affiliates, represented 17.1%, 15.1%
and 13.1% of the Company's net sales for the years ended January 4, 1997,
December 30, 1995 and December 31, 1994, respectively. Accounts receivable from
this customer represented 23.7% and
31
<PAGE> 13
Russell Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
17.7% of the Company's net accounts receivable at January 4, 1997 and December
30, 1995, 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 reflected in cost of sales as such inventory is sold. The Company also
utilizes forward purchase contracts in its international operations to limit
the currency risks associated with purchase obligations. The effects of
movements in currency exchange rates on these instruments are recognized in the
period in which the purchase obligations are satisfied (Note 5).
The Company utilizes two interest rate swap agreements in the management
of interest rate exposure on long-term debt. The differential to be received,
or paid, under the agreements 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 agreements is included in other
liabilities or assets. The Company believes that the possibility of credit
losses associated with these agreements, resulting from third-party
nonperformance, is remote (Note 5).
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).
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, as is the case for 1996.
Fiscal years 1996, 1995 and 1994 ended on January 4, 1997, December 30, 1995
and December 31, 1994, respectively.
32
<PAGE> 14
NOTE TWO
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.
NOTE THREE
LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations include the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- - --------------------------------------------------------------------------
<S> <C> <C>
Notes payable to financial institutions:
6.72% notes due annually through 2002 $64,286 $75,000
8.83% notes due annually through 1999 32,200 42,900
8.01% notes due annually through 1997 9,000 17,500
6.95% to 8.50% notes due through 1998 142 361
6.78% notes due annually 2003 through 2008 100,000 100,000
Variable rate (5.91% at January 4, 1997)
note due annually 1999 through 2005 75,000 75,000
Capital lease obligations (3.30% to 6.00%)
due annually through 2002 7,250 8,400
- - --------------------------------------------------------------------------
287,878 319,161
Less current maturities 31,943 31,283
- - --------------------------------------------------------------------------
$255,935 $287,878
==========================================================================
</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 January 4, 1997, $119,312,000 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 $5,903,000 and $6,450,000 at
January 4, 1997 and December 30, 1995, respectively.
The following summarizes the maturities of long-term debt and capital
lease obligations: 1997 - $31,943,000; 1998 - $22,628,000; 1999 - $33,364,000;
2000 - $22,564,000; 2001 - $22,564,000; and thereafter - $154,815,000.
33
<PAGE> 15
Russell Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Years ended January 4, 1997, December 30, 1995, and December 31, 1994
NOTE FOUR
SHORT-TERM DEBT
The Company may borrow up to approximately $238 million under informal line of
credit arrangements with seven banks, on such terms as the Company and the banks
may mutually agree. Generally, the arrangements may be canceled by either party
at any time. At January 4, 1997, amounts outstanding under the line of credit
arrangements totaled $63.3 million. The average interest rates of bank
borrowings during 1996, 1995 and 1994 were 5.8%, 6.3% and 4.6%, respectively.
The weighted-average interest rates of bank borrowings outstanding at January 4,
1997, December 30, 1995 and December 31, 1994, were 5.9%, 7.3% and 6.4%,
respectively.
NOTE FIVE
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 January 4,
1997, the Company had outstanding futures contracts that, when combined with
other contracts and inventories, represented approximately 86% of its
anticipated 1997 cotton requirements.
CURRENCY HEDGES
At January 4, 1997, the Company had contracts totaling $7,000,000. There were
no material gains or losses associated with these contracts.
INTEREST RATE SWAP AGREEMENTS
The Company utilizes two interest rate swap agreements in the management of
interest rate exposure on long-term debt. The Company entered into a fixed to
floating rate swap agreement in 1992. Under this agreement, which expires
August 31, 2002, the Company receives a fixed rate payment of 6.14% on
approximately $64 million and pays a floating rate based upon LIBOR, as
determined at six month intervals.
In 1995, the Company entered into a floating to fixed rate swap agreement.
Under this agreement, which expires June 30, 2005, the Company receives a
variable rate based upon LIBOR plus .29%, as determined quarterly, and pays a
fixed rate of 6.67% on $75 million.
These agreements, when combined, effectively lowered the weighted-average
interest rate on the Company's long-term debt from 6.95% to 6.77% and from
7.34% to 7.07% in 1996 and 1995, 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 agreements, as indicated in the following table, is the estimated
termination value of the agreements at the balance sheet date and may not be
indicative of the current termination values. Any gain or loss on the
agreements will be recognized when realized.
OTHER FINANCIAL INSTRUMENTS
At January 4, 1997 and December 30, 1995, 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
agreements:
<TABLE>
<CAPTION>
1996 1995
- - ------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $287,878 $284,074 $319,161 $320,070
Interest rate swap
agreement
terminating
August 31, 2002 2,216 3,013 1,640 5,020
Interest rate swap
agreement
terminating
June 30, 2005 - 445 - (2,438)
- - ------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 16
NOTE SIX
EMPLOYEE RETIREMENT BENEFITS
The Company has a qualified noncontributory pension plan (Retirement Plan)
covering substantially all of its United States employees and a savings plan
that is qualified under Section 401(k) of the Internal Revenue Code (Savings
Plan).
Benefits for the Retirement Plan 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 for the Retirement Plan 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 for the Retirement Plan included the following
components:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,838 $ 5,134 $ 5,007
Interest cost 7,408 7,106 6,147
Actual return on plan assets (10,705) (10,496) (1,345)
Net amortization and deferral 1,416 1,846 (7,066)
- - -------------------------------------------------------------------------------
Net pension cost $ 3,957 $ 3,590 $ 2,743
==============================================================================
</TABLE>
The Retirement Plan's funded status is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including
vested benefits of $81,432
and $76,145, respectively $ (85,753) $ (80,000)
Projected benefit obligation $(112,359) $(102,471)
Plan assets at fair value 103,609 98,205
- - --------------------------------------------------------------------------------
Underfunded status (8,750) (4,266)
Unrecognized net gain (7,166) (7,378)
Unrecognized prior service cost 4,121 4,485
Unrecognized net transition asset (5,056) (5,734)
- - --------------------------------------------------------------------------------
Accrued pension expense $ (16,851) $ (12,893)
================================================================================
</TABLE>
Plan assets at January 4, 1997, 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 $17,878,000. Dividends paid
to the plan by the Company were $300,000 and $288,000 for 1996 and 1995,
respectively. The weighted-average discount rates used in determining the
actuarial present value of the projected benefit obligation were 7.25% in 1996
and 1995 and 8.00% in 1994. The rates of increase in future compensation levels
were 4.00% in 1996 and 1995 and 4.75% in 1994. The expected long-term rate of
return on plan assets was 9.00% in 1996 and 1995 and 8.75% in 1994.
During 1995, the Company implemented the Savings Plan, which allows
substantially all of the Company's United States employees to defer portions of
their annual compensation. The Company provides additional matching and
discretionary contributions. Compensation expense associated with this plan was
$1,322,000 and $1,456,000 for 1996 and 1995, respectively.
NOTE SEVEN
INCOME TAXES
Foreign operations contributed approximately $900,000, $8,000,000 and
$4,000,000 to the Company's income before income taxes in 1996, 1995 and 1994,
respectively. Significant components of the provision for income taxes are as
follows:
35
<PAGE> 17
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Currently Currently Currently
(In thousands) Payable Deferred Payable Deferred Payable Deferred
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $ 47,860 $(4,994) $29,580 $(1,596) $41,719 $567
State 5,709 (596) 3,788 (204) 5,184 69
Foreign (310) 300 2,048 -- 1,220 --
Totals $ 53,259 $(5,290) $35,416 $(1,800) $48,123 $636
======================================================================================
</TABLE>
The reconciliation of income tax computed by applying the statutory
federal income tax rate of 35% to income before income taxes to total income
tax expense is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes at statutory rate on income
before income taxes $ 45,341 $30,707 $44,655
State income taxes, net of
federal income tax benefit 3,324 2,329 3,415
- - --------------------------------------------------------------------------
Goodwill 425 425 391
Other - net (1,121) 155 298
$ 47,969 $33,616 $48,759
==========================================================================
</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 January 4, 1997 and
December 30, 1995, are as follows:
<TABLE>
(In thousands) 1996 1995
- - ---------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $53,434 $54,578
Other 965 847
- - ---------------------------------------------------------------
Total deferred tax liabilities 54,399 55,425
Deferred tax assets:
Pension and postemployment obligations 8,340 6,642
Inventory 4,024 3,739
Accounts receivable 2,883 2,883
Employee benefits 1,333 1,398
Capital loss and credit carryforwards 282 593
- - ---------------------------------------------------------------
Total deferred tax assets 16,862 15,255
Valuation allowance for deferred tax assets (282) (593)
Net deferred tax assets 16,580 14,662
Net deferred tax liabilities $37,819 $40,763
==============================================================
</TABLE>
NOTE EIGHT
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). Per-sons 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, nonqualified 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
2,514,060 shares of Common Stock are reserved for issuance. The options are
granted at a price equal to the stock's fair market value at the 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:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Shares Price of Shares Price of Shares Price
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------
Outstanding 1,452,550 $ 26.55 1,425,730 $ 24.93 1,334,427 $ 23.41
Exercisable 887,350 $ 25.28 934,730 $ 22.88 858,527 $ 21.27
Granted 299,600 $ 27.25 278,600 $ 30.00 245,900 $ 27.47
Exercised 266,280 $ 18.92 97,787 $ 16.35 148,541 $ 19.02
Canceled 6,500 $ 16.81 89,510 $ 27.15 16,000 $ 27.49
Available for
future grants 1,061,510 1,354,610 1,543,700
==================================================================================================
</TABLE>
At January 4, 1997, options outstanding were exercisable at prices which
ranged from $11.88 to $30.00 per share and had a weighted-average remaining
contractual life of six years. SARs which have been awarded to officers and
management of the Company amount to 1,626,700 shares at January 4, 1997. 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, provided certain performance measures are
achieved. No compensation expense with respect to these rights was earned
during 1996, 1995 or 1994.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," provides an alternative to APB Opinion No. 25 in
accounting for stock-based compensation issued to employees.
The Statement allows for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for companies
that continue to follow the accounting provisions of APB Opinion No. 25,
Statement No. 123 requires disclosure of the pro forma effect on net income and
earnings per share as if the accounting provisions of the fair value method of
the Statement had been employed. For the purposes of this disclosure, the fair
value of the Company's employee stock options was estimated at the date of grant
using an option pricing model with the following weighted-average assumptions
for 1996 and 1995: a risk-free interest rate of 6.5%; a dividend yield of 1.7%;
volatility factors of the expected market price of the Company's Common Stock of
.159; and a weighted-average expected life of the option of 10 years. The fair
values derived for options granted during 1996 and 1995 were $9.32 and $10.27,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Since the
Company's employee stock options vest over a period of two years, 1995 pro
forma information disclosed below is not indicative of future periods as it
contains expense for only one year. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
- - --------------------------------------------------------
<S> <C> <C>
Pro forma net income $78,816 $52,753
Pro forma earnings per share $ 2.04 $ 1.35
- - --------------------------------------------------------
</TABLE>
NOTE NINE
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>
(In thousands) 1996 1995 1994
- - --------------------------------------------------------
<S> <C> <C> <C>
Interest $26,192 $21,849 $19,773
Income taxes 47,564 35,001 61,019
- - --------------------------------------------------------
</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.
NOTE TEN
COMMITMENTS
At January 4, 1997, the Company had commitments for the acquisition of
property and equipment totaling $7,804,000 and was committed under noncancelable
operating leases with initial or remaining terms of one year or more to minimum
rental payments aggregating $12,492,000, summarized by fiscal year periods as
follows: 1997 - $4,790,000; 1998 - $3,183,000; 1999 - $2,204,000; 2000 -
$1,320,000; 2001 - $828,000; and thereafter - $167,000.
The Company had $24,100,000 and $24,800,000 outstanding under letters of
credit for the purchase of inventories at January 4, 1997 and December 30,
1995, respectively.
Lease and rental expense for fiscal years 1996, 1995 and 1994 was
$11,558,000, $11,273,000 and $10,097,000, respectively.
36
<PAGE> 18
NOTE ELEVEN
SEGMENT INFORMATION
The Company operates in a single business segment. Foreign and export sales
were approximately 10.5%, 9.8% and 8.5% in 1996, 1995 and 1994, respectively.
All revenues and expenses are allocated to geographical areas in determining
net income. Assets are specifically identified to the geographical area for
which they provide benefit.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $ 1,112,963 $ 1,040,084 $ 1,004,784
Foreign 110,371 95,873 77,887
Export 20,870 16,676 15,588
Inter-area transfers 7,787 4,678 10,225
Eliminations (7,787) (4,678) (10,225)
Total $ 1,244,204 $ 1,152,633 $ 1,098,259
- - ------------------------------------------------------------------------------
INCOME FROM OPERATIONS
United States $ 149,654 $ 99,277 $ 140,067
Foreign 4,625 7,175 5,467
Total $ 154,279 $ 106,452 $ 145,534
- - ------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $ 1,078,155 $ 1,026,152 $ 961,004
Foreign 117,025 92,012 85,573
Total $ 1,195,180 $ 1,118,164 $ 1,046,577
==============================================================================
</TABLE>
NOTE TWELVE
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
Year ended January 4, 1997:
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended
- - ------------------------------------------------------------------
Mar. 31 Jun. 30 Sept. 29 Jan. 4
- - ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $257,854 $290,558 $336,679 $359,113
Gross profit 81,215 90,499 109,192 117,132
Net income 11,652 16,310 24,453 29,161
Net income per common
and common
equivalent share $ 0.30 $ 0.42 $ 0.63 $ 0.76
- - ------------------------------------------------------------------
</TABLE>
Year ended December 30, 1995:
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended
- - ------------------------------------------------------------------
Apr. 2 Jul. 2 Oct. 1 Dec. 30
- - ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $248,315 $268,731 $333,820 $301,767
Gross profit 76,880 77,537 89,412 91,970
Net income 12,232 12,480 12,943 16,462
Net income per common
and common
equivalent share $ 0.31 $ 0.32 $ 0.33 $ 0.42
</TABLE>
37
<PAGE> 19
Russell Corporation and Subsidiaries
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 January 4, 1997 and December 30, 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three fiscal years in the period ended January 4, 1997.
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 January 4, 1997 and December 30, 1995, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 4, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 31, 1997
38
<PAGE> 20
DIVIDEND AND MARKET INFORMATION
Russell Corporation stock trades on the New York Stock Exchange and various
other regional exchanges under the ticker 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
1996 Dividend High Low Close
- - --------------------------------------
<S> <C> <C> <C>
First $.12 $29.25 $25.00
Second .12 28.50 23.13
Third .13 33.75 27.13
Fourth .13 32.38 28.00
$.50 $29.75
</TABLE>
<TABLE>
<CAPTION>
Market Price
1995 Dividend High Low Close
- - -------------------------------------
<S> <C> <C> <C>
First $.12 $31.25 $27.88
Second .12 30.13 27.13
Third .12 29.63 25.50
Fourth .12 27.75 22.00
$.48 $27.75
</TABLE>
The following are registered
trademarks of Russell Corporation
and/or its subsidiaries:
Russell Athletic (R)
Jerzees (R)
The Game (R)
Chalk Line (R)
Cross Creek (R)
Country Cottons (R)
An equal opportunity/affirmative action employer.
Printed on recycled paper.
Designed and produced by Corporate Reports
Inc./Atlanta
39
<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 31, 1997, included in the
1996 Annual Report to Shareholders of Russell Corporation.
Our audit 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 Russell Corporation's
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, Registration Statement Number 33-54361 on
Form S-3, and Registration Statement Number 33-69679 on Form S-8 of our report
dated January 31, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Russell Corporation.
/S/ Ernst & Young LLP
Birmingham, Alabama
March 28, 1997
IV-10
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