<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
For the fiscal year ended January 2, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
---------------- ------------------
Commission file number 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: (256)500-4000
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 (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock, par value $.01, held by
non-affiliates of the registrant, as of March 25, 1999, was approximately
$506,327,764.
As of March 25, 1999, there were 34,601,892 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
2, 1999 are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on April 21, 1999 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 line of yarn-dyed woven fabrics. The Company's manufacturing
operations include the entire process of converting raw fibers into finished
apparel and fabrics. Products are marketed to sporting goods dealers, department
and specialty stores, mass merchandisers, wholesale clubs, golf pro shops,
college bookstores, screen printers, distributors, mail-order houses, and other
apparel manufacturers.
On July 22, 1998, the Company announced its intention to undertake a
major restructuring and reorganization to improve the Company's global
competitiveness. Elements of the multi-year strategic plan that were announced
include: the closing of approximately 25 of the Company's 90 worldwide
facilities over the next three years, including selected manufacturing plants,
distribution centers and offices; expanding production outside the United
States; consolidating and downsizing the licensed products businesses; disposing
of owned shopping center real estate; reorganizing the corporate structure;
establishing a dual headquarters in the metropolitan Atlanta area; and other
cost savings activities. It is anticipated that the three-year plan will
ultimately reduce costs by approximately $80 million pre-tax annually and result
in the elimination of 4,000 domestic positions.
During 1998, the Company exited the business of certain licensing
markets of various professional sport leagues and teams, and certain other
licensing agreements as part of the Company's licensed products operation. The
Company remains active in the collegiate licensing business and continues to be
a major supplier to certain outlets of licensed products, such as college
bookstores and sports shops. The discontinued businesses include headwear, or
logoed caps, a business which was sold in the fourth quarter of 1998.
Also during 1998, as part of the multi-year strategic plan, the Company
moved substantial sewing operations to both company owned and contractor
locations in Central America and Mexico. At year-end 1998, approximately 40% of
the Company's sewing capacity for domestic consumption was domiciled outside the
U.S. The Company closed four domestic sewing facilities and reconfigured two
others. The Company has realigned the remaining operation in order to
accommodate a more orderly and efficient product flow of goods throughout the
Company's manufacturing processes. Management also reassessed its decoration and
distribution capabilities' system and facilities and also closed 34 company
operated retail outlet stores in 13 states during 1998.
In total, approximately 2,000 employees had been notified of their
termination and separation and had received the details of their individual
severance packages as of year-end.
Of the Company's total revenues, more than 95 percent was derived from
the sale of completed apparel, with the balance from woven fabrics. During the
two previous fiscal years ending January 3, 1998 and January 4, 1997, completed
apparel accounted for more than ninety percent of total revenues. Foreign and
export sales for 1998 were 10.7%. In each of the immediately preceding two years
foreign and export sales were 11.0% and 10.5%,
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respectively. One customer, Wal-Mart Stores, Inc. and affiliates, accounted for
19.0 percent of total revenues in 1998, 18.8 percent in 1997 and 17.1 percent in
1996.
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. Knitted apparel, such as T-shirts, fleece sweatshirts and
sweatpants, pullovers, jackets, and other similar knitted products, is produced
for the general consumer market. Product lines also include 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.
The Company's principal manufacturing facilities are located in and
around Alexander City, Alabama. It also operates additional plants in other
communities in Alabama, Florida, Georgia, North Carolina and Virginia. The
Company owns apparel assembly facilities in Mexico and Honduras. Warehousing and
shipping is conducted in Alexander City, Ft. Payne and Montgomery, Alabama; and
Mt. Airy, North Carolina. The primary manufacturing and distribution facilities
for the International Division are at Russell Corp. UK Limited, located in and
around Livingston, Scotland. The Company also maintains warehouses in Mexico,
Brazil and Australia.
As a vertically integrated operation, the Company converts raw fibers
into finished apparel and fabrics utilizing company-owned facilities, as well as
contractors and general suppliers for spinning, knitting and weaving, dyeing and
finishing, and cutting and sewing operations. Generally, the Company produces
most of the yarns, other than textured and filament yarns, used in the
manufacturing process. As a result of its integrated production process, all
functions required to produce finished apparel and fabrics can be performed by
the Company without reliance upon outside contractors. The Company is not,
however, solely reliant on owned facilities and operations, particularly in
apparel assembly. Approximately 40 percent of its products for domestic
consumption were assembled at offshore contractors, owned offshore operations,
and other vendors at year end 1998.
The Company benefits from flexibility in its production scheduling
capability, permitting it to shift product emphasis as markets improve, change
or temporarily decline for particular products. This ability to respond quickly
to market changes has enabled the Company to manage the utilization of its
manufacturing capacity.
The Company's revenue and income are subject to seasonal variations in
all segments. 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 in any of its segments. The Company's ability to manufacture and
sell certain licensed apparel products is dependent upon licenses held by the
Company to utilize various trademarks and tradenames on such apparel. The
licenses are subject to periodic renewal and negotiation and certain minimum
payments.
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SEGMENTS
The Company has three reportable segments: Activewear, International
and "All Other". These reportable segments offer various similar products and/or
operate in various locations. The reportable segments are each managed
separately because they manufacture and distribute different types of products.
The segment information found in Note 11 on pages 40 and 41 of the 1998 Annual
Report to Shareholders is hereby incorporated by reference.
Activewear - The Company's Activewear segment consists of three brands
that sell the following products to sporting goods dealers, department and
specialty stores, mass merchants, wholesale clubs, college bookstores, screen
printers, distributors, golf pro shops, and mail order catalogs: t-shirts,
fleece products, such as sweat shirts and pants, athletic uniforms, and knit
shirts.
The Activewear segment consists of the primary operations of the
Company's Jerzees(R), Russell Athletic(R) and Cross Creek(R) brands. Activewear
is sold by a combination of a salaried, company-employed sales force and
commission agents.
The Activewear segment utilizes company owned manufacturing facilities
to produce product, as well as utilizing contractors or other vendors for
components in the manufacturing process or for the procurement of finished
product. Generally, company-owned and operated manufacturing facilities for
Activewear consist of fabrication, dyeing and finishing, cutting, and sewing.
Fabrication is the process of converting yarn, provided by the
Company's yarn unit (included in "All Other") or purchased from a third party,
into cloth or fabrics. This is done through the process of single knitting,
supplemented by smaller operations of 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, North Carolina.
These fabrics are then dyed and finished by a contractor or in
company-owned facilities in Alexander City, Wetumpka and Sylacauga, Alabama and
Mt. Airy, North Carolina. The dyeing and finishing processes impart and affect
the appearances, the hand (feel), color fastness, uniformity, shade, and
stability (retention and form) of the fabric.
Cutting and sewing operations for Activewear are currently located in
plants in United States, Mexico and Honduras.
International - The International strategic business unit manufactures
and distributes activewear products under the Jerzees(R), Russell Athletic(R)
and Cross Creek(R) brands throughout various countries outside the United States
and Canada. This segment's major market is Europe, where the Company engages in
both manufacturing and marketing of activewear, similar to the processes
described above for the Activewear segment.
All Other - Other segments that do not meet the quantitative thresholds
for determining reportable segments manufacture yarn, manufacture and sell
fabrics to other apparel manufacturers and manufacture and sell socks to mass
merchants.
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Russell Fabrics designs, manufactures and markets quality woven fabrics
of cotton, polyester and cotton/polyester blends in a variety of patterns,
colors and constructions to other apparel manufacturers, primarily for the
manufacture of school and industrial uniforms.
DeSoto Mills is a manufacturer of popularly priced socks for men, women
and children under the Company's Jerzees(R) and Russell Athletic(R) brands,
through a company-employed sales force principally to discount retailers and
wholesale clubs markets.
Russell Yarn consists of the spinning of yarns, the process by which
fibers of raw cotton or blends of cotton and synthetic fibers are converted into
continuous strands. 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. This
unit manufactures a variety of yarn sizes primarily for use in the balance of
the Company's manufacturing processes.
Russell Yarn purchases synthetic fibers from one principal supplier.
There are approximately four major producers of such fibers in the United
States. The Company purchases cotton from various merchants.
This unit has experienced no material difficulty in purchasing adequate
supplies, and does not presently anticipate any difficulties in the future.
Russell Yarn has no long-term contracts for the supply of raw materials and is,
therefore, subject to market price fluctuations.
COMPETITION
The textile-apparel industry in all of the Company's business segments
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 2, 1999, the Company had 15,737 employees in total, as
follows:
<TABLE>
<S> <C>
Activewear 12,582
International 771
All Other 1,987
Shared 397
</TABLE>
The Company has never had a strike or work stoppage and considers its
relationship with its employees to be good.
REGULATION
The Company is subject to federal, state, and local laws and
regulations affecting its business, including those promulgated under the
Occupational Safety and Health Act (OSHA), the Consumer Product Safety Act
(CPSA), the Flammable Fabrics Act, the Textile Fiber Product Identification Act,
and the rules and regulations of the Consumer Products Safety Commission (CPSC).
The Company believes that it is in substantial compliance with all applicable
governmental regulations under these statutes. The Company believes it has
complied with all known current environmental requirements and expects no major
additional expenditures in this area in the foreseeable future.
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FORWARD-LOOKING INFORMATION
With the exception of historical information, the matters and
statements discussed, made or incorporated by reference in this Annual Report on
Form 10-K constitute forward-looking statements and are discussed, made or
incorporated by reference, as the case may be, pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Wherever
possible, the Company has identified these "forward-looking" statements (as
defined in Section 21E of the Securities and Exchange Act of 1934) by words such
as "anticipates," "believes," "estimates," "expects" and similar phrases. In
addition, the Company and its representatives may from time to time make other
oral or written statements that are also forward-looking statements.
Some forward-looking statements concern anticipated sales levels, cost
estimates and resulting earnings that are not necessarily indicative of
subsequent periods due to the mix of future orders, at once orders and product
mix changes, which may vary significantly from year to year or quarter to
quarter, and the timing and effect of the Company's restructuring and
reorganization program. These forward-looking statements are based upon
assumptions the Company believes are reasonable; however, such statements are
subject to risks and uncertainties which could cause the Company's actual
results, performance and achievements to differ materially from those expressed
in, or implied or contemplated by, these statements. These risks and
uncertainties include, but are not limited to, the overall level of consumer
spending for apparel; the financial strength of the retail industry; actions by
competitors that may impact the Company's business (including in particular
changes in pricing); the existence of excess capacity in the Company's industry;
changes in prices of raw materials used in the Company's manufacturing
processes; the ability of the Company to reduce cost in more labor-intensive
segments of the manufacturing process; the success of planned advertising,
marketing and promotional campaigns and international activities; changes in
customer relationships; the impact of economic changes in the markets where the
Company competes, such as changes in interest rates, currency exchange rates,
inflation rates, recession, and other external economic and political factors
over which the Company has no control; and other risks and uncertainties
discussed or indicated in other documents filed by the Company with the
Securities and Exchange Commission from time to time. The Company assumes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
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 Scotland. As previously noted, the Company will be establishing a dual
headquarters in Atlanta, Georgia during 1999. The Company has no material
mortgages on any of its real property or manufacturing machinery except for
capitalized lease obligations (see Note 2 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,
excluding plants closed in 1998 that are held for resale.
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The Company utilizes an aggregate of approximately 10,422,000 square
feet of manufacturing, warehousing and office facilities. The following table
summarizes the approximate areas of such facilities:
<TABLE>
<CAPTION>
Total
Primary Use Activewear International All Other Shared Square Feet
----------- ---------- ------------- --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Spinning 1,536,000 1,536,000
Knitting and Weaving 941,000 112,000 1,053,000
Dyeing and Finishing 905,000 96,000 1,001,000
Cutting and Sewing 2,076,000 2,076,000
Warehousing and Shipping 2,906,000 285,000 3,191,000
Retail/Outlet Stores 12,000 12,000
Executive Offices,
Maintenance Shops and
Research and Development
Facilities 729,000 729,000
Scotland 427,000 427,000
Mexico 104,000 151,000 255,000
Honduras 142,000 142,000
</TABLE>
All presently utilized facilities in the U.S. are owned, except the
sewing plant located in Columbia, Alabama, and the regional sales offices (see
Notes 2 and 9 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, the majority of which, if adversely determined, would not have
a material adverse effect upon the Company.
In the fourth quarter of 1998, a Jefferson County, Alabama, jury
returned a verdict in Sullivan, et al. v. Russell Corporation, et al. Five
plaintiff families were awarded a total of $155,200 in compensatory damages for
property damage and $52,398,000 in punitive damages from the three defendants,
The Company, Avondale Mills and Alabama Power Company. Allegations in the case
were that textile discharges of two of the defendants, including The Company,
into the Alexander City wastewater treatment plant, the subsequent treatment by
the City of Alexander City and discharge into Lake Martin constituted a nuisance
and indirect trespass. Alabama Power Company, the third defendant, was alleged
to have allowed the nuisance and trespass to continue as the owner of the land
under the lake. The plaintiffs alleged mental anguish but no damages were
granted for this claim. No allegation of personal injury was made in the case.
The evidence was uncontroverted that The Company is in compliance with
its permit issued by the Alabama Department of Environmental Management (ADEM)
for the indirect discharge of its wastewater to the Alexander City wastewater
treatment plant. Therefore, The Company believes the verdict is contrary to the
evidence and under the applicable law, no damages should have been awarded.
Subsequent to fiscal year end, the trial court denied motions by the Company and
its co-defendants for a judgment in their favor as a matter of law, a new trial
or a reduction in the punitive damages awarded. The matter has now been appealed
to the Alabama Supreme Court, and the Company will vigorously pursue such
appeal. If such appeal proves to be unsuccessful, damages associated with this
matter could have a significant adverse effect on the Company's future results
from operations and its ability to comply with certain debt covenant
requirements. Subsequent to fiscal year end, an additional lawsuit was filed in
the same Alabama state court where the Sullivan case was filed. The plaintiffs
in this new matter allege substantially the same injuries as were alleged by the
Sullivan plaintiffs.
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ITEM 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE COMPANY
"Election of Directors" on pages one through four of the Proxy
Statement for the Annual Meeting of Shareholders to be held April 21, 1999 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>
Steve R. Forehand 43 1987 Assistant General Counsel
and Assistant Secretary
Michael W. Hager 55 1998 Senior Vice President,
Human Resources
Floyd G. Hoffman 56 1999 Senior Vice President,
General Counsel and
Secretary
K. Roger Holliday 40 1988 Vice President, Investor
Relations and Treasurer
Thomas R. Johnson, Jr. 56 1989 Senior Vice President
and Chief Executive
Officer, Yarn
Jonathan Letzler 42 1998 Senior Vice President and
Chief Executive
Officer, Jerzees
W. J. Spires, Jr. 53 1988 Vice President and Chief
Executive Officer,
Cross Creek
JT Taunton, Jr. 56 1983 Senior Vice President and
Chief Executive Officer,
Fabrics and Services
D. W. Wachtel 60 1991 Senior Vice President and
Chief Executive Officer,
Russell Athletic
Larry E. Workman 55 1987 Controller
Nancy N. Young 50 1998 Vice President,
Communications and
Community Relations
</TABLE>
Mr. Forehand, employed by the Company in 1985 as Director of Taxes,
served as Assistant Secretary from 1987 to 1988 and Secretary 1989 to 1998.
Prior to joining the Company, he was engaged in the private practice of law.
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Mr. Hager was employed by the Company in 1998 in his current position.
Prior to joining the company, he was with Banc One Corporation, most recently as
Senior Vice President since 1993.
Mr. Hoffman was employed by the Company in 1999 in his current
position. Prior to joining the Company, he was most recently Vice
President-General Counsel and Secretary for OSI Industries, Inc. since 1996.
Prior to that, he was Vice President-Deputy General Counsel and Assistant
Secretary for Sara Lee Corporation.
Mr. Holliday, employed by the Company since 1986, was named Vice
President, Investor Relations in 1998, and 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 Executive Vice President, Manufacturing. Prior to that, he was 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. Letzler was employed by the Company in 1998 in his current
position. Prior to joining the Company, he was with Sara Lee Corporation, since
1980, most recently as President of Hanes Hosiery and prior to that President of
the Hanes Printables Division.
Mr. Spires, employed by the Company in 1969, was elected President,
Cross Creek Apparel, Inc. in 1993. Prior to that, he served from 1988 to 1993 as
Vice President, Services, where he directed the Company's Distribution,
Transportation and Information Services activities. Prior to 1988, Mr. Spires
held several management positions with Russell in both sales and operations.
Mr. Taunton, employed by the Company since 1973, most recently served
as Executive Vice President, Sales and Marketing. Prior to that, he served as
President of the Fabrics Division from 1988 to 1993.
Mr. Wachtel, employed by the Company in 1976, was most recently
President of the Athletic Division since 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.
Mr. Workman, employed by the Company since 1969 as an accountant,
served as Manager, Cost Accounting from 1970 to 1987.
Ms. Young was employed by the Company in 1998 in her current role.
Prior to joining the Company, she was with Sara Lee Corporation since 1984, most
recently as Director, Corporate Affairs and Community Relations.
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
Equity and Related Stockholder Matters
"Dividend and Market Information" on the inside back cover and in Note
2 to Consolidated Financial Statements on page 34 of the Annual Shareholders
Report for the year ended January 2, 1999 are incorporated herein by reference.
The approximate number of holders of the Company's common stock at
March 10, 1999 was 8,000.
ITEM 6. Selected Financial Data
"Ten Year Selected Financial Data" on pages 22 and 23 of the Annual
Shareholders Report for the year ended January 2, 1999, is incorporated herein
by reference with respect to fiscal years 1998, 1997, 1996, 1995 and 1994.
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 pages 24 through 27 of the Annual Shareholders Report
for the year ended January 2, 1999, is incorporated herein by reference.
ITEM 7.A. Quantitative and Qualitative Disclosures About Market Risk
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 24 through 27 and Note 4 on pages 34 and 35 of
the Annual Shareholders Report for the year ended January 2, 1999, is
incorporated herein by reference.
Russell is exposed to market risks relating to fluctuations in interest
rates, currency exchange rates and commodity prices. The objective of financial
risk management at Russell is to minimize the negative impact of interest rate,
foreign exchange rate and commodity price fluctuations on the Company's
earnings, cash flows and equity. To manage these risks, Russell uses various
derivative financial instruments, including interest rate swap agreements,
forward currency exchange contracts and commodity futures contracts. Russell
only uses commonly traded instruments. These contracts are entered into with
major financial institutions, thereby minimizing the risk of credit loss. Also,
refer to Notes 1 and 4 to the consolidated financial statements for a more
complete description of Russell's accounting policies and use of such
instruments.
The following analyses present the sensitivity of the market value,
earnings and cash flows of Russell's financial instruments to hypothetical
changes in interest rates, exchange rates and commodity prices as if these
changes occurred at January 2, 1999. The range of changes chosen for these
analyses reflect Russell's view of changes which are reasonably possible over a
one-year period. Market values are the present values of projected future cash
flows based on the interest rate assumptions or quoted market prices where
available. These forward-looking disclosures are selective in nature and only
address the potential impacts from financial instruments. They do
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not include other potential effects, which could impact Russell's business as a
result of these changes in interest rates, exchange rates and commodity prices.
Interest Rate and Debt Sensitivity Analysis
At January 2, 1999, Russell has debt totaling $368,165,000 and two
interest rate swap agreements with notional values totaling $113,000,000.
Interest rate swaps are entered into as a hedge of underlying debt instruments
to effectively change the characteristics of the interest rate without altering
the debt instrument. At January 2, 1999, the interest rate swap agreements
converted $70,000,000 of outstanding variable rate debt to fixed rate debt for a
period of time and converted $43,000,000 of outstanding fixed rate debt to
variable rate debt for a period of time. For fixed rate debt, interest rate
changes affect the fair market value but do not impact earnings or cash flows.
Conversely for variable rate debt, interest rate changes generally do not affect
the fair market value but do impact future earnings and cash flows, assuming
other factors are held constant.
At January 2, 1999, after adjusting for the effect of interest rate
swap agreements, Russell has fixed rate debt of $305,450,000 and variable rate
debt of $62,715,000. Assuming all other variables remain constant, a one
percentage point increase in interest rates would decrease the fair market value
of the fixed rate debt by approximately $21,048,000. At January 2, 1999 the
annual pre-tax earnings and cash flow impact resulting from a one percentage
point increase in interest rates would be approximately $1,353,000, holding
other variables constant.
Currency Rate Exchange Sensitivity
Foreign currency exposures arising from transactions include firm
commitments and anticipated transactions denominated in a currency other than an
entity's functional currency. The Company and its subsidiaries generally enter
into transactions denominated in their respective functional currencies.
Therefore foreign currency exposures arising from transactions are not material
to the Company. The Company's primary foreign currency exposure arises from
foreign denominated revenues and profits translated into U.S. dollars.
The primary currencies to which the Company is exposed are the Mexican
peso, British pound and other European currencies.
The company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. dollar. As a result,
the Company does not generally hedge these net investments, and at year end
there were no significant hedges.
Commodity Price Sensitivity
The availability and price of cotton is subject to wide fluctuations
due to unpredictable factors such as weather conditions, governmental
regulations, economic climate or other unforeseen circumstances. To reduce price
risk caused by market fluctuations, the Company enters into futures contracts to
hedge prices on varying proportions of its cotton needs, thereby minimizing the
risk of decreased margins from cotton price increases. A sensitivity analysis
has been prepared to estimate the Company's exposure to market risk from its
cotton position, excluding inventory on hand and fixed price contracts. The fair
value of the Company's position is the fair value calculated by valuing its net
position at quoted futures prices. Market risk is estimated as the potential
loss in fair value resulting from a
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hypothetical 10% adverse change in such prices. The potential loss in fair value
of the Company's cotton futures position at January 2, 1999 from a hypothetical
10% decrease in cotton prices was $5,238,000.
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 2, 1999, are incorporated herein by reference:
...Consolidated Balance Sheets - January 2, 1999 and January 3, 1998
...Consolidated Statements of Operations - Years ended January 2,
1999, January 3, 1998 and January 4, 1997
...Consolidated Statements of Cash Flows - Years ended January
2,1999, January 3, 1998 and January 4, 1997
...Consolidated Statements of Stockholders' Equity - Years ended
January 2, 1999, January 3, 1998 and January 4, 1997
...Notes to Consolidated Financial Statements - Years ended January
2, 1999, January 3, 1998 and January 4, 1997
...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 of the Proxy
Statement for the Annual Meeting of Shareholders to be held April 21, 1999 is
incorporated herein by reference.
"Executive Officers of the Company" on pages I-7 and I-8 of this report
is incorporated herein by reference.
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 15 of
the Proxy Statement for the Annual Meeting of Shareholders to be held April 21,
1999 is incorporated herein by reference.
ITEM 11. Executive Compensation
"Executive Compensation" on pages 4 through 12 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 21, 1999 is incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) "Principal Shareholders" on pages 13 and 14 of the Proxy Statement
for the Annual Meeting of Shareholders to be held April 21, 1999 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
21, 1999 under the captions "Security Ownership of Management" on page 14 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 15 of the Proxy
Statement for the Annual Meeting of Shareholders to be held April 21, 1999 is
incorporated herein by reference.
III-1
<PAGE> 15
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 IV-4
Accounts
</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
(4a) Rights Agreement dated Exhibit 1 to
October 25, 1989 between Form 8-A dated
the Company and First October 30,
Alabama Bank, Montgomery, 1989 Registra-
Alabama tion Statement
No. 1-5822
</TABLE>
IV-1
<PAGE> 16
<TABLE>
<CAPTION>
Page
Number or
Exhibit Incorporation
Numbers Description by Reference to
------- ----------- ---------------
<S> <C> <C>
(4b) Acceptance of Appointment Exhibit (4b) to Annual
as Successor Rights Agent Report on Form 10-K for
year ended January 3, 1998
(10a) Form of Deferred Exhibit (10a) to Annual
Compensation Agreement Report on Form 10-K for
with certain officers year ended December 30,
1995
(10b) Fuel supply contract Exhibit 13(c) to
with Russell Lands, Registration Statement
Incorporated dated No. 2033943
May 21, 1975
(10c) 1987 Stock Option Plan Exhibit 1 to Registration
Statement No. 33-24898
(10d) 1993 Executive Long-Term Exhibit 4(c) to
Incentive Plan Registration Statement
No. 33-69679
(10e) 1996 Amendment to the 1993 Exhibit (10g) to Annual
Executive Long-Term Report on Form 10-K for
Incentive Plan year ended January 3, 1998
(10f) Russell Corporation 1997 IV-7
Non-Employee Directors'
Stock Grant, Stock Option
and Deferred Compensation
Plan
(10g) 1998 Amendment to the 1993 Pages 4 through 11, Proxy
Executive Long-Term Statement dated March 19,
Incentive Plan 1998, filed as Exhibit
IV-13 to Annual Report on
Form 10-K for year ended
January 3, 1998
(10h) Employment Agreement, dated Exhibit 10.1 to Quarterly
March 31, 1998, by and Report on Form 10-Q/A for
Between the Company and quarter ended April 5,
John F. Ward 1998 as filed with the
Securities and Exchange
Commission on August 24, 1998
(10i) Executive Deferred Exhibit 10.2 to Quarterly
Compensation and Buyout Report on Form 10-Q/A for
Plan dated March 31, 1998, quarter ended April 5,
by and between the Company 1998 as filed with the
and John F. Ward Securities and Exchange
Commission on August 24, 1998
</TABLE>
IV-2
<PAGE> 17
<TABLE>
<S> <C> <C>
(10j) Retirement Agreement between Exhibit (10i) to
John C. Adams and the Quarterly Report on
Company dated as of Form 10-Q for quarter
April 1, 1998 Ended July 5, 1998
(10k) Retirement Agreement between IV-8
James D. Nabors and the
Company dated as of
May 31, 1998
(10l) Severance Agreement between IV-9
John E. Frechette and the
Company dated as of
February 1, 1999
(11) Computations of Earnings IV-10
per Common Share
(13) 1998 Annual Report to IV-11
Shareholders
(21) List of Significant IV-12
Subsidiaries
(23) Consent of Ernst & Young LLP, IV-13
Independent Auditors
(27) Financial Data Schedule IV-15
(99) Proxy Statement for April 21, 1999
Annual Shareholders' Meeting IV-14
</TABLE>
(b) Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of
the year ended January 2, 1999.
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 statement on Form S-8 numbers 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> 18
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO COSTS AT END
DESCRIPTION OF PERIOD AND EXPENSES ACQUISITION DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 1999
Allowance for doubtful accounts $ 7,350,437 $ 13,927,466 $ -0- $15,914,035 (1) $5,363,868
Reserve for discounts and returns 3,182,594 8,692,248 -0- 8,676,600 (2) 3,198,242
----------- ---------- ---------- ----------- -----------
TOTALS $10,533,031 $22,619,714 -0- $24,590,635 $8,562,110
=========== =========== ========== =========== ==========
YEAR ENDED JANUARY 3, 1998
Allowance for doubtful accounts $ 8,646,733 $ 3,494,827 $ -0- $ 4,791,123 (1) $ 7,350,437
Reserve for discounts and returns 1,563,436 10,068,224 -0- 8,449,066 (2) 3,182,594
----------- ------------ ---------- --------- -----------
TOTALS $10,210,169 $13,563,051 $ -0- $13,240,189 $10,533,031
=========== =========== ========== =========== ===========
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
=========== =========== ========== =========== ===========
RESTRUCTURING AND REORGANIZATION RESERVES
YEAR ENDED JANUARY 2, 1999
Assets impairment and other exit -0- $ 9,661,000 -0- $ 5,176,000(3)(4) $ 4,485,000
costs related to facilities
Employee termination charges -0- 8,088,000 -0- 3,521,000 (3) 4,567,000
Future minimum royalties on
certain licenses and contracts -0- 7,258,000 -0- 6,035,000 (3) 1,223,000
Inventory writedowns -0- 14,639,000 -0- 12,675,000 (5) 1,964,000
----------- ----------- ---------- ----------- -----------
TOTALS -0- $39,646,000 -0- $27,407,000 $12,239,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Discounts and returns allowed customers during the year.
(3) Represents cash paid
(4) Represents assets write off
(5) Represents assets sold after write-down
IV-4
<PAGE> 19
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 3/29/99 By /s/ John F. Ward
------- ------------------------------
John F. Ward
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.
/s/ John F. Ward Chairman, President and CEO 3/29/99
------------------------- -------
John F. Ward Date
Executive Vice President and
Chief Financial Officer, and
Director (Principal Financial
/s/ Eric N. Hoyle Officer) 3/29/99
------------------------- -------
Eric N. Hoyle Date
/s/ Herschel M. Bloom Director 3/30/99
------------------------- -------
Herschel M. Bloom Date
------------------------- Director --------
Ronald G. Bruno Date
/s/ Timothy A. Lewis Director 3/29/99
------------------------- -------
Timothy A. Lewis Date
/s/ C. V. Nalley III Director 3/30/99
------------------------- -------
C. V. Nalley III Date
IV-5
<PAGE> 20
/s/ Margaret M. Porter 3/29/99
------------------------- -------
Margaret M. Porter Date
/s/ Benjamin Russell Director 3/29/99
------------------------- -------
Benjamin Russell Date
/s/ John R. Thomas Director 3/29/99
------------------------- -------
John R. Thomas Date
Director -------
------------------------- Date
John A. White
/s/ Larry E. Workman Controller 3/29/99
------------------------- (Principal Accounting Officer) -------
Larry E. Workman Date
IV-6
<PAGE> 1
EXHIBIT (10f)
1997 NON-EMPLOYEE DIRECTORS' STOCK GRANT,
STOCK OPTION AND DEFERRED COMPENSATION PLAN
IV-7
<PAGE> 2
RUSSELL CORPORATION
1997 NON-EMPLOYEE DIRECTORS' STOCK GRANT, STOCK OPTION
AND DEFERRED COMPENSATION PLAN
[COMPOSITE AS OF MARCH 30, 1999]
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:
(a) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(b) "Board" shall mean the Board of Directors of Russell
Corporation, an Alabama corporation.
(c) "Committee" shall mean the committee of the Board
appointed pursuant to Article III.
(d) "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(i) Any Person (other than those Persons in control
of the Company as of the Effective Date, or other
than a trustee or other fiduciary holding
securities under an employee benefit plan of the
Company, or a corporation owned directly or
indirectly by the shareholders of the Company in
substantially the same proportions as their
ownership of stock of the Company) becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty
percent (30%) or more of the combined voting
power of the Company's then outstanding
securities; or
(ii) During any period of two (2) consecutive years
(not including any period prior to the Effective
Date), individuals who at the beginning of such
period constitute the Board (and any new
Director, whose election by the Company's
shareholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning
of the period or whose election or nomination for
election was so approved (a "continuing
Director")), cease for any reason to constitute a
majority thereof; or
1
<PAGE> 3
(iii) The shareholders of the Company approve: (A) a
plan of complete liquidation of the Company; or
(B) an agreement for the sale or disposition of
all or substantially all the Company's assets; or
(C) a merger, consolidation, or reorganization of
the Company with or involving any other
corporation, other than a merger, consolidation,
or reorganization that would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity), at
least fifty percent (50%) of the combined voting
power of the voting securities of the Company (or
such surviving entity) outstanding immediately
after such merger, consolidation, or
reorganization.
However, in no event shall a "Change in Control"
be deemed to have occurred, with respect to an
Eligible Director, if the Eligible Director is
part of a purchasing group which consummates the
Change-in-Control transaction. An Eligible
Director shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if
the Eligible Director is an equity participant in
the purchasing company or group (except for: (i)
passive ownership of less than three percent (3%)
of the stock of the purchasing company; or (ii)
ownership of equity participation in the
purchasing company or group which is otherwise
not significant, as determined prior to the
Change in Control by a majority of the
nonemployee continuing Directors).
(e) "Company" shall mean Russell Corporation, an Alabama
corporation, and any successor in interest thereto.
(f) "Eligible Director" shall mean any person who is serving
as a director of the Company who is not an officer of the Company or a
subsidiary of the Company or otherwise employed by the Company or a subsidiary
of the Company.
(g) "Fair Market Value" shall mean the average of the highest
and lowest quoted selling prices for a share of Stock on the relevant date, or
(if there were no sales on such date) the weighted average of the means between
the highest and lowest quoted selling prices on the nearest day before and the
nearest day after the relevant date, as determined by the Board or the
Committee.
(h) "Fee Deferral Account" shall mean the account maintained
for an Eligible Director pursuant to Section 5.2(a) hereof.
(i) "Fees" shall mean the cash retainer and meeting fees
payable to an Eligible Director for service on the Board of the Company and any
committees thereof, as set by the Board from time to time.
2
<PAGE> 4
(j) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
(k) "Option" shall mean an option to purchase Stock granted
pursuant to the provisions of Article VI hereof.
(l) "Optionee" shall mean a person to whom an Option has been
granted hereunder.
(m) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(n) "Plan" shall mean the Russell Corporation 1997
Non-Employee Directors' Stock Grant, Stock Option and Deferred Compensation
Plan, the terms of which are set forth herein.
(o) "Retainer" shall mean the retainer payable to an Eligible
Director for service on the Board of the Company and any committees thereof.
(p) "Stock," with respect to each share to which that term
refers, shall mean the Common Stock, par value $0.01 per share, of the Company
now authorized; any other shares of the Stock of the Company hereafter
authorized; and securities of the Company which, under any conditions, will be
converted into or exchanged for any such Stock.
(q) "Stock Deferral Account" shall mean the account maintained
for an Eligible Director pursuant to Section 5.2 (b) or (c), or both, hereof.
(r) "Stock Grant" shall mean that portion of the Retainer
payable to the Eligible Director in Stock, the amount of such compensation being
set from time to time by the Board.
(s) "Stock Option Agreement" shall mean the agreement between
the Company and the Optionee under which the Optionee may purchase Stock
hereunder.
(t) "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
ARTICLE II
THE PLAN
SECTION 2.1 NAME
This Plan shall be known as the "Russell Corporation 1997 Non-Employee
Directors' Stock Grant, Stock Option and Deferred Compensation Plan."
3
<PAGE> 5
SECTION 2.2 PURPOSE
The purpose of the Plan is to advance the interests of the Company and
its shareholders by affording to Eligible Directors an opportunity to acquire or
increase their proprietary interest in the Company by the grant to such
directors of Stock Grants and Options and, thereby, to align the interests of
the Eligible Directors with the interests of the shareholders of the Company.
The purpose of the Plan is also to enhance the Company's long-term growth and
financial performance by increasing the Company's ability to continue to attract
and retain the services of experienced and knowledgeable directors.
SECTION 2.3 EFFECTIVE DATE
The Plan was adopted by the Board on July 23, 1997, to be effective as
of April 23, 1997. The Plan and all Options granted hereunder are subject to the
receipt by the Company of any consents or approvals required to adopt the Plan
and/or grant Options under applicable law and under any permit, agreement or
instrument to which the Company is a party or by which any of its properties or
assets are bound. Any Option granted prior to such consent and approval of the
Plan as herein provided shall be subject to such approval and shall have no
legal effect and shall convey no rights to the holder thereof in the event said
other consent and approval of the Plan is not obtained. The Plan shall continue
until the earlier of (i) the issuance of all shares of stock authorized by the
Plan or (ii) the termination of the Plan by the Board; provided, however, that
upon termination of the Plan, the applicable provisions of the Plan shall
continue to apply to all Options which are outstanding and to all Fees and Stock
Grants which have been and remain deferred pursuant to the Plan on the date the
Plan is terminated.
ARTICLE III
ADMINISTRATION AND OPERATION
SECTION 3.1 ADMINISTRATION
The Plan shall be administered by the Board of the Company; provided,
however, that the Board may delegate its authority to a Committee appointed by
the Board consisting of at least two (2) members who shall not be Eligible
Directors. Subject to the express provisions of the Plan and the concurrence of
the Board, the Committee shall have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, and to make
all other determinations necessary or advisable in the administration of the
Plan.
Any action of the Committee may be taken without a meeting if a
majority of the members of the Committee sign written consents setting forth the
action taken or to be taken at any time before or after the intended effective
date of such action. Any member of the Committee may participate in a meeting of
the Committee by means of a conference telephone or similar communications
equipment enabling all persons participating in the meeting to hear each other.
4
<PAGE> 6
The Committee may authorize any member thereof to execute all instruments
required in the administration of the Plan, and such instruments may be executed
by facsimile signature.
The Committee may delegate to any member or members of the Committee or
to any employee or employees of the Company the authority to perform any
ministerial act in connection with the administration of the Plan.
SECTION 3.2 MAJORITY RULE
A majority of the members of the Committee shall constitute a quorum,
and any action taken by a majority present at a meeting at which a quorum is
present or any action taken without a meeting evidenced by a writing executed by
a majority of the whole Committee shall constitute the action of the Committee.
SECTION 3.3 COMPANY ASSISTANCE
The Company shall supply full and timely information to the Committee
on all matters relating to Eligible Directors and such pertinent facts related
thereto as the Committee may require. The Company shall furnish the Committee
with such clerical and other assistance as is necessary in the performance of
its duties.
SECTION 3.4 PLAN OPERATION IN COMPLIANCE WITH RULE 16B-3 OF THE 1934 ACT.
The Plan shall be interpreted and administered to comply with Rule
16b-3 promulgated under the 1934 Act, as then applicable to the Company's
employee benefit plans.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
SECTION 4.1 LIMITATIONS
The number of shares of Stock which may be issued and sold hereunder
shall not exceed 200,000 shares of Stock, subject to adjustment pursuant to the
provisions of Section 4.3 hereof. Such shares shall be shares previously issued
and listed on the registered national securities exchanges on which the Stock is
listed and thereafter acquired by the Company, and such amount of shares shall
be and is hereby reserved for issuance pursuant to this Plan. Any of such shares
which may remain unissued or unsold and which are not subject to outstanding
Options at the termination of the Plan shall cease to be reserved for the
purpose of the Plan, but until the termination of the Plan (and for so long
thereafter as any Options issued pursuant to the Plan remain outstanding), the
Company shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan.
5
<PAGE> 7
SECTION 4.2 OPTIONS GRANTED UNDER PLAN
Shares of Stock with respect to which an Option granted hereunder shall
have been exercised shall not again be available for grant hereunder. If Options
granted hereunder shall expire, terminate, or be canceled for any reason without
being wholly exercised, new Options may be granted hereunder covering the number
of shares to which such Option expiration, termination or cancellation relates.
SECTION 4.3 ANTIDILUTION; CHANGE IN CONTROL
In the event that the outstanding shares of Stock hereafter are
increased, decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares, stock
split, or stock dividend after the effective date of the Plan,
(a) the aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted appropriately; and
(b) rights under outstanding Options granted hereunder, both
as to the number of subject shares and the Option price, shall be adjusted
appropriately.
In the event of a dissolution or liquidation of the Company, the
Options granted hereunder shall terminate; provided, however, that the Optionees
shall have the right for a period of thirty (30) days prior to such dissolution
or liquidation to exercise outstanding Options in full without regard to any
installment exercise provisions and whether the Option by its terms is at such
time immediately exercisable in full, to the extent it shall not have been
exercised. In the event of a Change in Control, the Optionee shall have the
right, immediately prior to such Change in Control, to exercise outstanding
Options in full, without regard to any installment exercise provisions and
whether the Option by its terms is at such time immediately exercisable in full,
to the extent that it shall not have been exercised.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Board or the Committee, and any
such adjustment shall provide for the elimination of fractional share interests.
ARTICLE V
DEFERRALS
SECTION 5.1 ELECTION TO DEFER
(a) Each Eligible Director may elect to defer all or any portion of any
of his Fees in accordance with the terms of this Article V. Such election shall
be made by executing and
6
<PAGE> 8
delivering to the Board or Committee a deferred compensation agreement in such
form as the Board or Committee may prescribe or approve. Such an election shall
be effective with respect to Fees paid for services rendered in calendar years
beginning after the executed deferred compensation agreement is delivered to the
Board or Committee and shall continue in effect until terminated. An Eligible
Director may terminate his election to defer Fees by executing and delivering to
the Board or Committee a written instrument in form as the Board or the
Committee may prescribe or approve, and such termination shall be effective with
respect to Fees for services rendered after the end of the calendar year in
which such written instrument is delivered to the Board or Committee. An
Eligible Director who has terminated a prior election to defer Fees may make a
new election to defer Fees in the same manner in which his prior election to
defer Fees was made, and such election shall become effective with respect to
Fees for services provided after the end of the calendar year in which such new
election is made and shall continue in effect until terminated in the manner
above provided. Except as provided herein, an election to defer Fees may not be
modified or terminated.
(b) Each Eligible Director may also elect to defer all or any portion
of any Stock covered by a Stock Grant made to him pursuant to Section 6.1(a)
hereof in accordance with the terms of this Article V. Such election shall be
made by executing and delivering to the Board or Committee a deferred
compensation agreement (which may be a deferred compensation agreement delivered
pursuant to paragraph (a) above) in such form as the Board or Committee may
prescribe or approve. Such an election shall be effective with respect to Stock
covered by Stock Grants made for services rendered in calendar years beginning
after the executed deferred compensation agreement is delivered to the Board or
Committee and shall continue in effect until terminated. An Eligible Director
may terminate his election to defer the issuance of Stock by executing and
delivering to the Board or Committee a written instrument in such form as the
Board or Committee may prescribe or approve, and such termination shall be
effective with respect to Stock covered by Stock Grants made for services
rendered after the end of the calendar year in which such written instrument is
delivered to the Board or Committee. An Eligible Director terminating a prior
election to defer the issuance of Stock may make a new election to defer the
issuance of Stock in the same manner in which his prior election to defer the
issuance of Stock was made, and such election shall become effective with
respect to Stock covered by Stock Grants made for services provided after end of
the calendar year in which such new election is made and shall continue in
effect until terminated in the manner above provided. Except as provided herein,
an election to defer the issuance of Stock may not be modified or terminated.
SECTION 5.2 ACCOUNTS
(a) Unless an Eligible Director who has elected to defer Fees
makes the election described in paragraph (b) of this Section 5.2, the Company
shall establish a Fee Deferral Account for such Eligible Director and shall
adjust the Fee Deferral Account as follows:
(i) At the end of each quarter in which Fees deferred would
otherwise be payable, the Fee Deferral Account shall be credited with
the amount deferred for such quarter; and
7
<PAGE> 9
(ii) As of the last day of each quarter prior to the
distribution to the Eligible Director or his beneficiary of the balance
of the Fee Deferral Account, the Fee Deferral Account shall be credited
with interest on the balance as of the first day of the quarter at the
rate paid on five-year U.S. Treasury notes on the first day of the
quarter for which the interest is to be credited, or at such other rate
as is prescribed by the Board or the Committee in the Eligible
Director's deferred compensation agreement.
(iii) The Fee Deferral Account shall be charged with the
amount distributed to the Eligible Director or his beneficiary as of
the date such distribution is made.
(iv) If Fees are deferred by an Eligible Director pursuant to
two or more deferred compensation agreements and different benefit payment dates
or designated beneficiaries are specified in such deferred compensation
agreements, a separate Deferral Account shall be maintained with respect to Fees
deferred pursuant to each deferred compensation agreement.
(b) In his deferred compensation agreement, an Eligible
Director who has elected to defer Fees may elect to have the provisions of this
paragraph (b) apply in lieu of paragraph (a) above. If such an election is made,
the Company shall establish a Stock Deferral Account for the Eligible Director
and shall adjust the Stock Deferral Account as follows:
(i) As of the date Fees deferred pursuant to such
Deferred Compensation Agreement would otherwise be paid, the Stock
Deferral Account shall be credited with the number of units determined
by dividing the amount of such deferred Fees by the closing price of a
share of Stock on the New York Stock Exchange on such date, or if the
New York Stock Exchange is closed on such date, on the first day
preceding such date on which the New York Stock Exchange was open.
(ii) On each date that payment of a dividend is made
to holders of shares of Stock, the Stock Deferral Account shall be
credited with a number of units determined by dividing the product of
the dividend per share of Stock multiplied by the number of units
credited to the Stock Deferral Account on the record date for payment
of such dividend by the closing price of a share of Stock on the New
York Stock Exchange on the dividend payment date.
(iii) The Stock Deferral Account shall be charged
with a number of units equal to the number of shares of Stock
distributed to the Eligible Director or his Beneficiary on the date
such distribution is made (plus the number, if any, of shares of Stock,
including any fractional share, with respect to which cash was
distributed to the Eligible Director or his beneficiary).
(iv) In the event of any change in corporate
capitalization, such as a stock split, or a corporate transaction such
as a merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization,
whether or not such reorganization comes within the definition of such
term in Section 368
8
<PAGE> 10
of the Internal Revenue Code, or any partial or complete liquidation of
the Company, the Board or the Committee shall make such adjustments in
the number of units credited to such Stock Deferral Account as the
Board or Committee, in its sole discretion, deems appropriate to
prevent dilution or enlargement of the rights of the Eligible Director.
(c) The Company shall establish a Stock Deferral Account for
each Eligible Director who has elected to defer the issuance of all or any
portion of any Stock covered by a Stock Grant pursuant to Section 5.1(b) herein
and shall adjust the Stock Deferral Account as follows:
(i) As of the effective date of a Stock Grant to which the
Eligible Director's election applies, the Stock Deferral Account shall
be credited with a number of units equal to the number of shares of
Stock covered by such Stock Grant.
(ii) On each date that payment of a dividend is made to
holders of shares of Stock, the Stock Deferral Account shall be
credited with a number of units determined by dividing the product of
the dividend per share of Stock multiplied by the number of units
accredited to the Stock Deferral Account on the record date for payment
of such dividend by the closing price of a share of Stock on the New
York Stock Exchange on the dividend payment date.
(iii) The Stock Deferral Account shall be charged with a
number of units equal to the number of shares of Stock distributed to
the Eligible Director or his Beneficiary on the date such distribution
is made (plus the number, if any, of shares of Stock, including any
fractional share, with respect to which cash was distributed to the
Eligible Director or his beneficiary).
(iv) In the event of any change in corporate
capitalization, such as a stock split, or a corporate transaction such
as a merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization,
whether or not such reorganization comes within the definition of such
term in Section 368 of the Internal Revenue Code or any partial or
complete liquidation of the Company, the Board or the Committee shall
make such adjustments in the number of units credited to such Stock
Deferral Account as the Board or Committee in its sole discretion,
deems appropriate to prevent dilution or enlargement of the rights of
the Eligible Director.
Only one Stock Deferral Account (including any such account maintained pursuant
to Section 5.2(b)) shall be maintained for an Eligible Director unless the
issuance of Stock is , pursuant to separate deferred compensation agreements, to
be deferred to more than one date or is to be made to different beneficiaries in
the event of the Eligible Director's death, in which case separate Stock
Deferral Accounts shall be maintained with respect to each deferred compensation
agreement providing for a different issuance date or beneficiary.
(d) Either the Board or the Committee shall provide each
Eligible Director who has made an election under this Article V with an account
statement at least annually.
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<PAGE> 11
SECTION 5.3 PAYMENT
(a) The amount which shall have been credited to the Fee
Deferral Account of an Eligible Director pursuant to Section 5.2, together with
a number of shares of Stock equal to the number of units credited to his Stock
Deferral Account, shall be distributed to him in a lump sum; provided, however,
that if a fractional unit is credited to the Stock Deferral Account of the
Eligible Director, such fractional unit shall be distributed in the form of cash
in the amount equal to the product of the closing price of a share of Stock on
the New York Stock Exchange on the date preceding distribution multiplied by the
fraction of a unit; and provided, further, that if the Company has insufficient
treasury shares to make such distribution in shares of Stock, the number of
units in excess in the number of shares of treasury Stock available for
distribution shall be paid in cash, in an amount determined by multiplying the
number of such units by the closing price of a share of Stock on the New York
Stock Exchange on the date preceding such distribution. Distribution pursuant to
the Section 5.3(a) shall be made within thirty (30) days after such date or
event as the Director may specify in the appropriate deferred compensation
agreement.
(b) Except as provided in Section 5.4 below, the amount
credited to the Fee Deferral Account of an Eligible Director, together with a
number of shares of Stock equal to the number of units credited to his Stock
Deferral Account, at the time of his death shall be paid to his designated
beneficiary in a lump sum within thirty (30) days after the Company is notified
of the Eligible Director's death; provided, however, that if a fractional unit
is credited to the Stock Deferral Account, such fractional unit shall be
distributed in the form of cash in the amount equal to the product of the
closing price of a share of Stock on the New York Stock Exchange on the date
preceding distribution multiplied by the fraction of a unit; and provided,
further, that if the Company has insufficient treasury shares to make such
distribution in shares of Stock, the number of units in excess in the number of
shares of treasury Stock available for distribution shall be paid in cash, in an
amount determined by multiplying the number of such units by the closing price
of a share of Stock on the New York Stock Exchange on the date preceding such
distribution.
SECTION 5.4 HARDSHIP
In the event an Eligible Director or beneficiary of a deceased
Eligible Director suffers a severe financial hardship resulting from a sudden
and unexpected illness or accident of the Eligible Director or beneficiary (or a
dependent, as defined in Section 152(a) of the Internal Revenue Code, of such
Eligible Director or beneficiary), loss of property of the Eligible Director or
beneficiary due to casualty, or other similar or extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Eligible
Director or beneficiary, the Board or the Committee may, in its discretion,
accelerate payment of the amounts credited to the Eligible Directors Fee
Deferral Account or Stock Deferral Account, or both, to the extent reasonably
necessary to eliminate such hardship. The circumstances that will justify such
an acceleration will depend upon the facts of each case, but, in any case,
acceleration may not occur to the extent that such hardship is or may be
relieved
(a) through reimbursement or compensation by insurance or
otherwise, or
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<PAGE> 12
(b) by liquidation of the assets of the Eligible Director or
beneficiary, to the extent the liquidation of such assets would not itself cause
severe financial hardship.
SECTION 5.5 MISCELLANEOUS
(a) An Eligible Director shall have the status of a general,
unsecured creditor of the Company with respect to benefits payable pursuant to
this Article V. The provisions of this Article V constitute a mere promise by
the Company to make benefit payments in the future.
(b) The rights of an Eligible Director to benefit payments
under this Article V are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors of the Eligible Director or his beneficiary.
ARTICLE VI
STOCK GRANTS; OPTIONS
SECTION 6.1 ANNUAL STOCK AND OPTION GRANTS
(a) On July 23, 1997, and thereafter on the date of the Annual
Meeting of Shareholders in each subsequent year (the "Annual Meeting of
Shareholders"), beginning with the date of the Annual Meeting of Shareholders
held in 1998, each director elected to the Board by the shareholders of the
Company at the annual meeting of shareholders in said year and who is an
Eligible Director, and, in addition to the newly elected Eligible Directors,
each Eligible Director then in office on such date shall automatically be
granted on and effective as of such date (i) a Stock Grant for the number of
shares of Stock (rounded up to the next whole number) determined by dividing
$5,000 by the Fair Market Value of the Stock on the date of grant and (ii) an
Option to purchase the number of shares of Stock (rounded up to the next whole
number) determined by dividing $5,000 by the economic value of an option to buy
one share of stock on the terms and conditions as contained in the Option. In
the case of an Option, the economic value shall be calculated using a valuation
methodology approved by the Board or the Committee at the time of the grant. An
Eligible Director who is not initially elected at an annual meeting of the
shareholders shall receive a pro rata portion of the Stock Grants and Options
granted to an Eligible Director on the date of the immediate past shareholders
meeting or, in the case of the year 1997 only, on the date of July 23 (the
exercise price of such Options, however, to be the Fair Market Value on the date
of grant) within 10 business days of his or her election based on the number of
months remaining from the date of election until the next annual meeting of
shareholders divided by twelve. Any fractional shares or Options resulting from
such calculation shall be rounded up to the nearest whole number.
(b) Each Option granted under this Section 6.1 shall be
evidenced by a Stock Option Agreement dated as of the date of grant and executed
by the Company and the Optionee, which Agreement shall set forth such terms and
conditions as may be determined by the Board or the Committee consistent with
the Plan.
11
<PAGE> 13
(c) The per share price of the Stock subject to each Option
granted under this Section 6.1 shall be one hundred percent (100%) of the Fair
Market Value of the Stock on the date the Option is granted.
SECTION 6.2 OPTION PERIOD
The period for the exercise of each Option shall be ten years. Options
granted hereunder shall not be exercisable within the first twenty-four months
after the date of grant; provided, however, that said Options may become
exercisable earlier in accordance with the provisions of this Plan concerning
the termination of an Optionee's directorship on account of mandatory
retirement, total and permanent disability or death (Section 6.4) and change of
control of the Company (Section 4.3). The Board or the Committee, in its
discretion, may accelerate the times when Options are exercisable after the
initial grant thereof.
SECTION 6.3 OPTION EXERCISE
(a) Options may be exercised with respect to whole shares only
and within the period permitted by the exercise thereof as determined by the
Board or the Committee, and shall be exercised by written notice of intent to
exercise the Option with respect to a specified number of shares delivered to
the Company at its principal office, and payment in full to the Company at said
office of the amount of the Option price for the number of shares of Stock with
respect to which the Option is then being exercised.
(b) The Option price upon exercise of any Option shall be
payable to the Company in full either (i) in cash or its equivalent, (ii) by
tendering shares of previously acquired Stock which has been held by the
Optionee for a minimum of six months prior to such exercise, and having a Fair
Market Value as of the business day immediately preceding the date of exercise
equal to the total Option price, or (iii) by a combination of (i) and (ii).
SECTION 6.4 EFFECT OF DEATH OR OTHER TERMINATION OF DIRECTORSHIP
(a) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated for any reason
(including voluntary resignation, early retirement or failure to be re-elected)
other than for cause (as defined below), mandatory retirement according to the
policy of the Board, death or disability, such Option may be exercised (to the
extent that the Optionee shall have been entitled to do so at the date of his
termination) by such Optionee at any time prior to the expiration date of the
Option or within six months after the date of such directorship termination,
whichever is earlier.
(b) If the directorship of an Optionee to whom an Option shall
have been granted hereunder is terminated "for cause," as defined below
(including resignation by the Optionee in connection with a finding by the Board
of "for cause"), all outstanding Options held by the
12
<PAGE> 14
Optionee immediately shall be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested status of the
Options. For purposes of this Section 6.4, the term "for cause" shall be defined
as a good faith express determination by the Board that the Optionee has been
guilty of willful misconduct or dishonesty or a good faith express determination
by the Board that the Optionee has been grossly derelict in or has grossly
neglected the Optionee's duty to the Company.
(c) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated by reason of
mandatory retirement according to the policy of the Board, such Option may be
exercised by such Optionee at any time prior to the expiration date of the
Option.
(d) In the event that the directorship of an Optionee to whom
an Option shall have been granted hereunder shall be terminated by the death or
total and permanent disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code"), or as determined by the Board or
the Committee in its discretion) of such Optionee, such Option may be exercised
by such Optionee, his personal representatives, the executor or administrator of
the estate of the Optionee, or the person or persons to whom an Option granted
hereunder shall have been validly transferred pursuant to a will or the laws of
descent and distribution, at any time prior to the expiration date of the
Option.
SECTION 6.5 NONTRANSFERABILITY OF OPTIONS
No Option granted hereunder may be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated, other than by will or the laws of
descent and distribution. No transfer of an Option by the Optionee by will or by
the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and an
authenticated copy of the will and/or such other evidence as the Board or the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of such
Option. Further, during the lifetime of an Optionee, the Option shall be
exercisable only by him.
SECTION 6.6 RIGHTS AS SHAREHOLDER
An Optionee or a transferee of an Option shall have no rights as a
shareholder with respect to any shares subject to such Option prior to the
purchase of such shares by exercise of such Option as provided herein.
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<PAGE> 15
ARTICLE VII
STOCK CERTIFICATES
SECTION 7.1 STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of an Option granted hereunder
or any portion thereof, prior to fulfillment of all of the following conditions:
(a) the completion of any registration or other qualification
of such shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body, which the Board or the Committee shall, in its discretion, deem
necessary or advisable;
(b) the obtaining of any approval or other clearance from any
federal or state governmental agency which the Board or the Committee shall, in
its discretion, determine to be necessary or advisable;
(c) the lapse of such reasonable period of time following the
exercise of the Option as the Board or the Committee from time to time may
establish for reasons of administrative convenience;
(d) the compliance with any and all applicable federal, state
or local laws; and
(e) such other terms and conditions as may be set forth in the
Plan.
The Company shall further be entitled to place whatever legends on such
certificate as it shall deem reasonably necessary or appropriate.
ARTICLE VIII
TERMINATION, AMENDMENT, AND MODIFICATION OF THE PLAN
The Board may at any time terminate, and may at any time and from time
to time and in any respect amend or modify, the Plan; provided that no
termination, amendment, or modification of the Plan shall in any manner affect
any Stock Option Agreement theretofore entered into pursuant to the Plan without
the consent of the Optionee or valid transferee of the Option.
Upon termination of this Plan, there shall be no further deferrals
hereunder, and the Fee Deferral Accounts and Stock Deferral Accounts of Eligible
Directors shall, at the option of the Board:
(a) be paid out in lump sums to the Eligible Directors as promptly
as practicable after termination, or
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<PAGE> 16
(b) continue to be adjusted in accordance with the provisions of
Section 5.2(b) until paid out in accordance with the
respective elections of the Eligible Directors.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option or
incentive or other compensation plans in effect for the Company or any of its
subsidiaries, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation for employees of the Company or
any of its subsidiaries.
SECTION 9.2 PLAN BINDING ON SUCCESSORS
The Plan shall be binding upon the successors and assigns of the
Company.
SECTION 9.3 SINGULAR, PLURAL; GENDER
Whenever used herein, nouns in the singular shall include the plural,
and the masculine pronoun shall include the feminine gender.
SECTION 9.4 HEADINGS, ETC., NO PART OF PLAN
Headings of Articles and Sections hereof are inserted for convenience
and references; they constitute no part of the Plan.
SECTION 9.5 INVESTMENT REPRESENTATION
Each Stock Option Agreement may contain an agreement that, upon demand
by the Board or the Committee for such a representation, the Optionee shall
deliver to the Board at the time of any exercise of an Option a written
representation that the shares of Stock to be acquired upon such exercise are to
be acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the delivery
of any shares issued upon exercise of an Option and prior to the expiration of
the Option period shall be a condition precedent to the right of the Optionee or
such other persons to purchase any such shares.
SECTION 9.6 COMPLIANCE WITH OTHER LAWS AND REGULATIONS
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency or national
securities exchange as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to the completion of
any registration or
15
<PAGE> 17
qualification of such shares under any federal or state law, or any ruling or
regulation of any governmental body or national securities exchange which the
Company shall, in its sole discretion, determine to be necessary or advisable.
SECTION 9.7 WITHHOLDING BY THE COMPANY
A Stock Option Agreement executed pursuant to this Plan may contain a
provision to the effect that the Optionee will consent to any withholding
actions that the Company deems reasonably necessary to enable the Company to
obtain the benefit of an income tax deduction under the Code, and any related
state or local income tax laws.
16
<PAGE> 1
EXHIBIT (10k)
RETIREMENT AGREEMENT BETWEEN JAMES D. NABORS
AND THE COMPANY DATED AS OF APRIL 1, 1998
IV-8
<PAGE> 2
RETIREMENT AGREEMENT
This RETIREMENT AGREEMENT is made and entered into as of the 30th day
of April, 1998, by and between JAMES D. NABORS, an individual ("Retiree"), and
RUSSELL CORPORATION, an Alabama corporation (the "Corporation").
WITNESSETH:
WHEREAS, the Corporation is engaged in the design, manufacture and
marketing of athletic and leisure clothing and fabrics, with its principal place
of business located in Alexander City, Alabama; and
WHEREAS, Retiree has been employed by the Corporation for in excess of
27 years in various executive positions, most recently serving as its Executive
Vice President and Chief Financial Officer; and
WHEREAS, the Corporation requested that Retiree retire, and Retiree
agreed to retire, from active employment by the Corporation upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the terms, conditions, covenants
and premises herein contained, it is mutually agreed by and between Retiree and
the Corporation as follows:
1. Retirement. Effective April 30, 1998, Retiree retired from
active employment by the Corporation.
2. Compensation and Benefits.
(a) Retirement Compensation.
(1) Commencing on May 1, 1998 and continuing
through April 30, 2000, Retiree shall be paid
retirement compensation of $27,666.67 per calendar
month (the "Retirement Compensation"), to be paid at
the times and in the manner specified in the
Corporation's general policies regarding the payment
of employment compensation as established from time
to time. The initial six monthly payments hereunder
shall be in full satisfaction of all amounts which
may be due Retiree under the Corporation's Salaried
Employees Severance Pay Plan. The Corporation further
agrees that (i) Retiree's 1998 bonus under the
Short-Term Incentive Plan component of the
Corporation's Executive Incentive Program shall be
computed and paid in accordance with the terms of the
Plan, prorated for the portion of fiscal year 1998
for which Retiree was employed by the Company. For
federal, state and local tax purposes, said
compensation shall be treated as "wages" and the
Corporation shall withhold
<PAGE> 3
all appropriate taxes therefrom and shall remit such
taxes, together with the taxes imposed by ss. 3111 of
the Internal Revenue Code of 1986 on the Corporation,
to the applicable taxing authorities; provided that
subject to the Corporation's obligation to withhold
and remit income tax on said compensation to the
applicable taxing authorities, Retiree shall be
responsible for and pay any additional income tax due
and owing thereon.
(2) In addition, the Corporation shall cause
Retiree to accrue benefits under the Corporation's
Revised Pension Plan and Supplemental Retirement
Benefit Plan during the period commencing May 1, 1998
and ending on April 30, 2000, as if Retiree were
employed by the Corporation and received a monthly
salary equal to the monthly amount of the Retirement
Compensation during said period. If Retiree is
prohibited from participating in, or accruing such
benefit under, any such plans, the Corporation shall
provide Retiree comparable benefits outside such
plans. Retiree shall be responsible for and pay any
income taxes due or owing by Retiree as the result of
the Corporation's providing (i) participation and
coverage for Retiree, and where applicable, his
spouse, under such retirement plans, and (ii)
comparable benefits outside such retirement plans in
the event Retiree is prohibited from participating in
any such plans to the extent provided in this
subparagraph (2) of this Section 2(a).
(b) Continuation of Retirement Compensation upon Death of
Retiree Prior to April 30, 2000. If Retiree dies on or before
April 30, 2000, the Corporation shall continue to pay to
Retiree's spouse Marie T. Nabors, if she is living and was
married to Retiree at the time of Retiree's death, or if
Retiree's spouse Marie T. Nabors (i) is not living at the time
of Retiree's death or was not married to Retiree at the time
of Retiree's death, or (ii) Retiree's spouse Marie T. Nabors
should subsequently die, to Retiree's estate, amounts equal to
the remaining unpaid Retirement Compensation to be paid or
provided to Retiree under Paragraph (a)(1) of this Section 2,
which would have been paid to Retiree had he not died, with
said amounts to be paid as and when they would have been paid
to Retiree had he not died.
3. Employee Benefits.
(a) Medical Plans. Until the end of the calendar month in
which Retiree's 65th birthday occurs, Retiree shall, in the
same manner and at the same cost to him as would be applicable
to executives of the Corporation holding positions similar to
the position which Retiree held on the date of his retirement,
continue participation and coverage for himself and, where
applicable, his spouse under the following employee and fringe
benefit plans and policies of the Corporation in which he
participated at the time of his retirement, as, and to the
extent, such plans or policies may hereafter from time to time
be in effect: i.e., the Corporation's (i) Group Health Plan,
(ii) Cancer
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<PAGE> 4
Expense Protection Plan, and (iii) Dental Insurance Plan;
provided that if prior to the end of the calendar month in
which his 65th birthday occurs, Retiree is employed by another
entity offering a group health insurance plan in which Retiree
employees of such employer, the Corporation shall no longer be
obligated to permit Retiree, and his spouse, if applicable, to
participate in any of the foregoing plans of the Corporation,
except as otherwise provided in paragraph (b) of this Section
3. If Retiree is prohibited from participating in any such
plan or policy under the terms of such policy or applicable
law, the Corporation shall provide Retiree comparable benefits
outside such plan or policy.
(b) Retiree Fringe Benefit Plans. Retiree shall, in the
same manner and cost to him as is applicable to other retirees
of the Corporation who are retired on the date hereof
("Existing Retirees"), be permitted to participate and obtain
coverage for himself and, where applicable, his spouse under
such employee and fringe benefit plans and policies of the
Corporation as Existing Retirees of the Corporation are
permitted to participate, as, and to the extent, such plans or
policies may hereafter from time to time be in effect with
respect to the Existing Retirees.
(c) Taxes. Retiree shall be responsible for and pay any
income taxes due or owning by Retiree as the result of the
Corporation's providing (i) participation and coverage for
Retiree, and where applicable, his spouse, under the plans and
policies designated in this Section 3 and (ii) comparable
benefits outside such plans and policies in the event Retiree
is prohibited from participating in any such plans or
policies.
4. Pension Benefits.
(a) Retiree shall be entitled to receive, and this
Agreement shall not affect, Retiree's benefits payable under
the Corporation's Revised Pension Plan, 401(k) Retirement
Savings Plan and Supplemental Retirement Benefit Plan, which
benefits shall be paid at the times and in the manner as
Retiree has or may hereafter elect under the terms of said
plans. Notwithstanding the preceding sentence, Retiree may
elect to commence receiving benefits under said Plans
beginning on the 1st day of the calendar month following the
calendar month in which Retiree's 62nd birthday occurs, and
receive benefits under such plans determined as if Retiree
(and Retiree's spouse, if applicable) were the ages on such
beginning benefit date that Retiree (and Retiree's spouse, if
applicable) would have been at the end of the calendar month
in which Retiree's 65th birthday will occur. If the
Corporation is prohibited from paying benefits in such amounts
under any such plans, the Corporation shall provide Retiree
comparable benefit payments or supplemental payments outside
such Plans.
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<PAGE> 5
(b) To the extent the provisions of Section 2(a)(2) and Section 4
of this Agreement constitute an "employee benefit plan" under
the Employee Retirement Income Security Act of 1974, as
amended, the claims procedure for such "employee benefit plan"
shall be the claims procedure under the Corporation's
Supplemental Executive Retirement Plan.
5. Exercise of Stock Options. Effective upon Retiree's retirement
from the active employment by the Corporation, all options granted by
the Corporation to Retiree for the purchase of the Corporation's stock
pursuant to the Corporation's 1993 Executive Long-Term Incentive Plan
(the "1993 Plan"), or any predecessor stock option plan sponsored by
the Corporation, were immediately vested and non-cancelable, and may be
exercised by Retiree at any time on or before April 30, 2001 in the
manner specified in the 1993 Plan or predecessor stock option plan. The
Corporation acknowledges that Retiree possesses the following options
to purchase shares of the Corporation's common stock:
[Correct dates, amounts and prices to be inserted or
verified - I have obtained this information from
proxy statements and the numbers tie to the year end
1997 tables in the 1998 Proxy Statement]
(1) Option dated July 24, 1991, to purchase
[10,000] shares of the Corporation's common stock at
a price of $26.375 per share.
(2) Option dated July 28, 1993, to purchase
[6,400] shares of the Corporation's common stock at a
price of $27.50 per share.
(3) Option dated January 26, 1994, to purchase
[6,800] shares of the Corporation's common stock at a
price of $27.4375 per share.
(4) Option dated January 25, 1995, to purchase
[6,600] shares of the Corporation's common stock at a
price of $30.00 per share.
(5) Option dated January 24, 1996, to purchase
[7,200] shares of the Corporation's common stock at a
price of $27.25 per share.
(6) Option dated January 22, 1997, to purchase
[6,900] shares of the Corporation's common stock at a
price of $30.875 per share.
(7) Option dated January 28, 1998, to purchase
[8,900] shares of the Corporation's common stock at a
price of $24.375 per share.
6. Covenant Not to Compete. Commencing upon the execution of this
Agreement and continuing through April 30, 2000, Retiree shall not,
directly or indirectly, individually or as a partner, corporate
employee, member, stockholder (other than as a shareholder of less than
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<PAGE> 6
1% of a corporation whose shares are listed on a national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934), officer, director, consultant or
advisor, work for or lend assistance to a competitor of the Corporation
engaged in manufacturing, marketing, selling or distributing
activewear, athletic uniforms, knit shirts, socks, uniform fabrics or
licensed sports apparel, or solicit any business from any customer of
the Corporation for or on behalf of any such competitor of the
Corporation. It is further agreed that due to the irreparable injury
and damage to the Corporation resulting from Retiree's violation of
this covenant, the Corporation will be entitled to injunctive relief
against the violation by Retiree of this covenant in addition to all
other remedies otherwise available to the Corporation. If any court of
competent jurisdiction should hold that the restrictions contained in
this Section 7 are unreasonable, said restrictions shall be deemed to
be reduced, but only to the extent necessary, in the opinion of said
court, to make them reasonable.
7. Confidential Information. Retiree agrees that all confidential
information that comes into his possession by reason of his employment
by the Corporation is the property of the Corporation. Retiree shall
not, during the term of this Agreement or thereafter, disclose or
acknowledge the content of any confidential information to any person
other than an employee of the Corporation who is authorized to possess
such confidential information or Retiree's advisors, such as
accountants or attorneys. For the purposes of this Section 8,
"confidential information" shall include all information relating to
the operations of the Corporation which has not been specifically
designated for release to the public by an authorized representative of
the Corporation, including, without limitation, trade secrets, plans,
pricing information, customer lists and other information developed by
or originated by the Corporation for its own use.
8. Offers to Personnel. Retiree acknowledges that the employees
of the Corporation have been and will be trained at great expense by
the Corporation, and the Corporation has a compelling interest in
maintaining its contractual relationship and expectation of future
contractual relationship with its employees. In addition, if the
employees of the Corporation were to terminate their relationship with
the Corporation and render services to Retiree, Retiree would be
unfairly benefitted without adequate compensation to the Corporation,
by the investment of the Corporation. Accordingly, Retiree covenants
that he shall not from the date hereof through April 30, 2000, directly
or indirectly, impair or initiate any attempt to impair the
relationship or expectancy of a continuing relationship which exists or
will exist between the Corporation and its employees or make offers or
contracts of employment or offers or contracts for services with such
employees or with any partnership, corporation or association through
which such employees may render services or employment to Retiree.
9. Resignation as Director and Trustee. Retiree hereby resigns,
effective immediately, as a director of the Corporation and as a
trustee under the Corporation's Revised Pension Plan and under all
other employee benefit plans or trusts, if any, of which he serves as
trustee or other fiduciary.
-5-
<PAGE> 7
10. Release and Indemnification. The Corporation, on its own
behalf and on behalf of its subsidiaries, affiliates, successors and
assigns, (i) releases, acquits and forever discharges Retiree, his
successors, assigns and personal representatives, for any and all
claims, actions, causes of actions, demands, damages, costs and
expenses whatsoever, which the Corporation, or anyone acting by it or
on its behalf, has, may have or which may hereafter accrue, and (ii)
agrees to defend and indemnify Retiree, his successors, assigns and
personal representatives, against and hold them harmless from any and
all claims, actions, causes of action, demands, costs and expenses
whatsoever, which in any way arise out of or relate to Retiree's
service as a trustee of any employee benefit or retirement plan
sponsored by the Corporation.
11. Notices. Any notice required or permitted to be given under
this Agreement shall be in writing and placed in the United States
Certified Mail, addressed to the party entitled to receive said notice,
at the following addresses:
(a) If to Retiree:
James D. Nabors
1695 Magnolia
Alexander City, Alabama 35010
(b) If to the Corporation:
Russell Corporation
755 Lee Street
P. O. Box 272
Alexander City, Alabama 35011-0272
or at such other address as may be specified from time to time in notices given
in accordance with the provisions of this Section 12.
12. Assignment. Neither this Agreement, nor the rights or
obligations of any party hereunder, may be assigned without the prior
written consent of the other party; provided that in the event the
Corporation is merged into another corporation or all or substantially
all of the Corporation's assets are transferred to another corporation,
such other corporation shall assume all of the obligations of the
Corporation hereunder, and such transaction shall not require the
consent of Retiree for the rights of the Corporation hereunder to be
assigned to such other corporation.
13. Waiver of Breach. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by any party.
-6-
<PAGE> 8
14. Section Headings. The headings of the sections of this
Agreement are solely for the purpose of convenience and are not a part
hereof, and shall not be used in the construction or interpretation of
any provision.
15. Modifications. This Agreement may not be changed or modified,
nor may any provision hereof be waived, except by an agreement in
writing executed by the party against whom enforcement of the change,
modification or waiver is asserted.
16. Succession. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their heirs, personal
representatives, successors and assigns.
17. Governing Law. To the extent not preempted by federal law,
this Agreement shall be construed and interpreted under, and the rights
and obligations of the parties hereunder shall be controlled and
governed by, the laws of the State of Alabama.
18. Execution of Release; Effect on Agreement. Concurrently with
the execution and delivery of this Agreement by the parties hereto, and
in consideration of the Corporation's delivery hereof, the Retiree is
executing and delivering in favor of the Corporation a Release as to
certain matters. This Agreement shall not become effective until ten
days following the date of execution and delivery of said Release. In
the event of the revocation of said Release by the Retiree in
accordance with the provisions thereof, this Agreement shall be null
and void and shall be of no further force and effect.
19. Severability. Should any court of competent jurisdiction
decide, hold, adjudge or decree that any provision, paragraph, clause
or term of this Agreement is void or unenforceable in whole or as
applied in a particular situation, such determination shall not effect
any other provision of this Agreement, and all other provisions of this
Agreement shall remain in full force and effect in such situation, and
all provisions of this Agreement shall remain in full force and effect
in any and all other situations.
IN WITNESS WHEREOF, Retiree and the Corporation have executed, or
caused to be executed, this Agreement on December 7, 1998, but as of
the date herein first above written.
"RETIREE"
/s/ Steve R. Forehand /s/ James D. Nabors
- ----------------------------------- --------------------------
Witness James D. Nabors
-7-
<PAGE> 9
"EMPLOYER"
ATTEST: RUSSELL CORPORATION, AN ALABAMA
CORPORATION
By /s/ Steve R. Forehand By /s/ John F. Ward
---------------------------- -------------------------------
Its Secretary Its Chairman, President & CEO
--------------------------
-8-
<PAGE> 1
EXHIBIT (10l)
SEVERANCE AGREEMENT BETWEEN JOHN E. FRECHETTE
AND THE COMPANY DATED AS OF FEBRUARY 1, 1999
IV-9
<PAGE> 2
AGREEMENT
This AGREEMENT is made and entered into as of the 25th day of
January, 1999, by and between JOHN E. FRECHETTE, an individual
("Employee"), and RUSSELL CORPORATION, an Alabama corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the design, manufacture and
marketing of athletic and leisure clothing and fabrics, with its principal
place of business located in Alexander City, Alabama; and
WHEREAS, Employee has been employed by the Company; and
WHEREAS, the Company and Employee desire to terminate their
relationship in an orderly fashion.
NOW, THEREFORE, in consideration of the terms, conditions, covenants
and premises herein contained, it is mutually agreed by and between Employee
and the Company as follows:
1. Resignation. Effective February 1, 1999, Employee resigns from active
employment by the Company, and the Company accepts Employee's
resignation.
2. Compensation. Commencing on February 28, 1999, and continuing through
July 31, 1999, Employee shall be paid severance compensation of
$22,083.33 per calendar month (the "Compensation"), to be paid at the
times and in the manner specified in the Company's general policies
regarding the payment of employment compensation as established from
time to time. In the event that Employee has not secured other
employment by July 31, 1999, the Company will extend the payment of
severance compensation on a month-to-month basis up to a maximum of
six (6) months (hereinafter referred to as "Conditional Severance
Pay"). In the event that Employee obtains other employment, no further
Conditional Severance Pay shall be due and payable to the Employee. In
no event shall Conditional Severance Pay be paid after the earlier of
the end of the month during which Employee obtains other employment or
January 31, 2000. The payments hereunder shall be in full satisfaction
of all amounts which may be due Employee under the Company's Salaried
Employees Severance Pay Plan and shall be inclusive of any amounts
payable as vacation pay or any other benefit. For federal, state and
local tax purposes, said compensation shall be treated as "wages" and
the Company shall withhold all appropriate taxes therefrom and shall
remit such taxes, together with the taxes imposed byss.3111 of the
Internal Revenue Code of 1986 on the Company, to the applicable taxing
authorities; provided that subject to the Company's obligation to
withhold and remit income tax on said compensation to the applicable
taxing
-1-
<PAGE> 3
authorities, Employee shall be responsible for and pay any additional
income tax due and owing thereon.
3. Cooperation. Employee shall, upon request by the Company, render such
information and assistance concerning Employee's former job
responsibilities as the Company may request. Such information and
assistance shall include, but not be limited to, information
concerning duties, responsibilities, files, projects, documents,
information, data, computer programs, filing dates, deadlines,
correspondence, relationships, parties, contracts, legal documents,
customers, price lists, product design and specifications,
organizational structure, research and development activities,
accounting information, equipment, agreements, claims, releases and
any additional information (the "Information") the Company deems
necessary, proper and relevant to the conduct of its business.
Employee agrees to provide the Information as part of this Agreement
and without additional compensation.
4. Medical Benefits. Until July 31, 1999, Employee shall, in the same
manner and at the same cost to him as would be applicable to employees
of the Company holding positions similar to the position which
Employee held on the date of his resignation, continue participation
and coverage for himself and, where applicable, his dependents under
the following employee and fringe benefit plans and policies of the
Company in which he participated at the time of his resignation, as,
and to the extent, such plans or policies may hereafter from time to
time be in effect:
Group Health Plan
In the event that Employee shall be entitled to receive Conditional
Severance Pay, the entitlement to participate in the above-referenced
employee and fringe benefit plans shall be extended for such time as
Employee shall be entitled to receive Conditional Severance Pay. In
the event that, prior to July 31, 1999, or during the period of
Conditional Severance Pay, Employee is employed by another entity
offering a group health insurance plan in which Employee may
participate or terms and conditions similar to other employees of such
employer, the Company shall have no further obligation under this
paragraph. In no event shall Employee be entitled to participate in
the Company's Group Health Plan after the earlier of Employee's
eligibility to participate in another entity's health insurance plan
or January 31, 2000. Employee shall be entitled to "COBRA continuation
coverage" under any group health plan in accordance with Section 601
et seq. of the Employee Retirement Income Security Act of 1974
("ERISA") on the terms and conditions provided herein for a period of
eighteen months from the date Employee's participation in the
Company's Group Health Plan ends.
-2-
<PAGE> 4
5. Pension Benefits.
(a) Employee shall be entitled to receive, and this Agreement
shall not affect, Employee's benefits payable under the
Company's Revised Pension Plan, 401(k) Retirement Savings
Plan and Supplemental Retirement Benefit Plan, if any, which
benefits shall be paid at the times and in the manner as
Employee has or may hereafter elect under the terms of said
plans.
(b) To the extent the provisions of this Agreement constitute an
"employee benefit plan" under ERISA, as amended, the claims
procedure for such "employee benefit plan" shall be the
claims procedure under the Company's Supplemental Executive
Retirement Plan.
6. Exercise of Stock Options. Effective upon Employee's resignation from
the active employment by the Company, all vested options granted by
the Company to Employee for the purchase of the Company's stock
pursuant to the Company's 1993 Executive Long-Term Incentive Plan (the
"1993 Plan"), or any predecessor stock option plan sponsored by the
Company shall remain exercisable at any time prior to the expiration
date or until July 31, 1999, whichever period is shorter, in the
manner specified in the 1993 Plan or predecessor stock option plan.
The Company acknowledges that Employee possesses the following options
to purchase shares of the Company's common stock:
<TABLE>
<CAPTION>
Grant Date Shares Price
---------- ------ -----
<S> <C> <C>
December 31, 1991 5,800 29.00
July 28, 1993 2,800 27.50
January 26, 1994 3,300 27.4375
January 25, 1995 4,100 30.00
January 25, 1996 3,700 27.25
January 25, 1997 3,500 30.875
January 28, 1998 4,500 24.375
</TABLE>
7. Covenant Not to Compete. Commencing upon the execution of this
Agreement and continuing through January 31, 2000, Employee shall not,
directly or indirectly, individually or as a partner, corporate
employee, member, stockholder (other than as a shareholder of less
than 1% of a company whose shares are listed on a national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934), officer, director, consultant or
advisor, work for or lend assistance to a competitor of the Company
engaged in manufacturing, marketing, selling or distributing
activewear, athletic uniforms, knit shirts, socks, uniform fabrics or
licensed sports apparel, or solicit any business from any customer of
the Company for or on behalf of any such competitor of the Company. It
is further agreed that due to the irreparable injury and damage to the
Company resulting from Employee's violation of this covenant, the
Company will be entitled to injunctive relief against
-3-
<PAGE> 5
the violation by Employee of this covenant in addition to all other
remedies otherwise available to the Company. If any court of competent
jurisdiction should hold that the restrictions contained in this
Section 7 are unreasonable, said restrictions shall be deemed to be
reduced, but only to the extent necessary, in the opinion of said
court, to make them reasonable.
8. Confidential Information. Employee agrees that all confidential
information that comes into his possession by reason of his employment
by the Company is the property of the Company. Employee shall not,
during the term of this Agreement or thereafter, disclose or
acknowledge the content of any confidential information to any person
other than an employee of the Company who is authorized to possess
such confidential information or Employee's advisors, such as
accountants or attorneys. For the purposes of this Section 8,
"Confidential Information" shall include all information relating to
the operations of the Company which has not been specifically
designated for release to the public by an authorized representative
of the Company, including, without limitation, trade secrets, plans,
pricing information, customer lists and other information developed by
or originated by the Company for its own use.
9. Offers to Personnel. Employee acknowledges that the employees of the
Company have been and will be trained at great expense by the Company,
and the Company has a compelling interest in maintaining its
contractual relationship and expectation of future contractual
relationship with its employees. In addition, if the employees of the
Company were to terminate their relationship with the Company and
render services to Employee, Employee would be unfairly benefitted
without adequate compensation to the Company, by the investment of the
Company. Accordingly, Employee covenants that he shall not from the
date hereof through January 31, 2000, directly or indirectly, impair
or initiate any attempt to impair the relationship or expectancy of a
continuing relationship which exists or will exist between the Company
and its employees or make offers or contracts of employment or offers
or contracts for services with such employees or with any partnership,
company or association through which such employees may render
services or employment to Employee.
10. Nondisclosure of Agreement. Employee shall not disclose or acknowledge
the existence of this Agreement or any terms or conditions contained
herein other than to Employee's advisors, such as accountants or
attorneys.
11. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and placed in the United States
Certified Mail, addressed to the party entitled to receive said
notice, at the following addresses:
-4-
<PAGE> 6
(a) If to Employee:
Mr. John E. Frechette
200 West 60th Street
Apt. #15A
New York, NY 10023
(b) If to the Company
Michael W. Hager
Russell Corporation
755 Lee Street
P. O. Box 272
Alexander City, Alabama 35011-0272
or at such other address as may be specified from time to time in
notices given in accordance with the provisions of this Section 11.
12. Assignment. Neither this Agreement, nor the rights or obligations of
any party hereunder, may be assigned without the prior written consent
of the other party; provided that in the event the Company is merged
into another company or all or substantially all of the Company's
assets are transferred to another company, such other company shall
assume all of the obligations of the Company hereunder, and such
transaction shall not require the consent of Employee for the rights
of the Company hereunder to be assigned to such other company.
13. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
14. Section Headings. The headings of the sections of this Agreement are
solely for the purpose of convenience and are not a part hereof, and
shall not be used in the construction or interpretation of any
provision.
15. Modifications. This Agreement may not be changed or modified, nor may
any provision hereof be waived, except by an agreement in writing
executed by the party against whom enforcement of the change,
modification or waiver is asserted.
16. Succession. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their heirs, personal
representatives, successors and assigns.
-5-
<PAGE> 7
17. Governing Law. To the extent not preempted by federal law, this
Agreement shall be construed and interpreted under, and the rights and
obligations of the parties hereunder shall be controlled and governed
by, the laws of the State of Alabama.
18. Execution of Release; Effect on Agreement. Concurrently with the
execution and delivery of this Agreement by the parties hereto, and in
consideration of the Company's delivery hereof, the Employee is
executing and delivering in favor of the Company a Release as to
certain matters. This Agreement shall not become effective until ten
days following the date of execution and delivery of said Release. In
the event of the revocation of said Release by the Employee in
accordance with the provisions thereof, this Agreement shall be null
and void and shall be of no further force and effect.
19. Severability. Should any court of competent jurisdiction decide, hold,
adjudge or decree that any provision, paragraph, clause or term of
this Agreement is void or unenforceable in whole or as applied in a
particular situation, such determination shall not effect any other
provision of this Agreement, and all other provisions of this
Agreement shall remain in full force and effect in such situation, and
all provisions of this Agreement shall remain in full force and effect
in any and all other situations.
IN WITNESS WHEREOF, Employee and the Company have executed, or caused
to be executed as of the date herein first above written.
EMPLOYEE
/s/ John E. Frechette
- ------------------------------- -------------------------------
Witness John E. Frechette
RUSSELL CORPORATION
By /s/ Mike W. Hager
-----------------------------
Its Senior VP Human Resources
-----------------------------
-6-
<PAGE> 1
EXHIBIT (11)
COMPUTATIONS OF EARNINGS PER COMMON SHARE
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
January 2 January 3 January 4
1999 1998 1997
------------- ------------ --------------
<S> <C> <C> <C>
Basic:
Net Income (Loss) ($10,379,000) $54,447,859 $81,575,837
============= =========== ===========
Average Common Shares
Outstanding 36,216,571 36,879,901 38,469,009
============ =========== ===========
Earnings (Loss) per Share-Basic ($.29) $1.48 $2.12
============ =========== ===========
Diluted:
Net Income (Loss) ($10,379,000) $54,447,859 $81,575,837
============ =========== ===========
Average Common Shares
Outstanding 36,216,571 36,879,901 38,469,009
Net Effect of Dilutive
Stock Options -0- 167,532 183,949
------------ ----------- -----------
Total 36,216,571 37,047,433 38,652,958
============ =========== ===========
Earnings (Loss) ($.29) $ 1.47 $ 2.11
============ =========== ===========
Per Share Diluted
</TABLE>
IV-10
<PAGE> 1
EXHIBIT (13)
1998 ANNUAL SHAREHOLDERS REPORT
IV-11
<PAGE> 2
FINANCIAL REVIEW
RUSSELL CORPORATION AND SUBSIDIARIES
CONTENTS
Ten-Year Selected Financial Data 22
Management's Discussion and Analysis
of Financial Condition and Results of Operations 24
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29
Consolidated Statements of Cash Flows 30
Consolidated Statements of Stockholders' Equity 31
Notes to Consolidated Financial Statements 32
Report of Independent Auditors 42
CASH FLOWS FROM OPERATIONS WORKING CAPITAL
(in millions) (in millions)
(GRAPH) (GRAPH)
TOTAL CAPITAL EMPLOYED LONG-TERM DEBT TO EQUITY
(in millions)
(GRAPH) (GRAPH)
21
<PAGE> 3
TEN-YEAR SELECTED FINANCIAL HIGHLIGHTS
RUSSELL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net sales $1,180,118 $1,228,198 $1,244,204
Cost of goods sold 878,106 857,531 846,166
Interest expense 27,824 28,165 25,738
Income (loss) before income taxes(a) (10,265) 88,352 129,545
Income taxes(a) 114 33,904 47,969
Net income (loss) applicable to common shares(a) (10,379) 54,448 81,576
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL DATA
Depreciation and amortization $ 74,368 $ 74,421 $ 72,226
Net income plus depreciation and amortization 63,989 128,869 153,802
Capital expenditures 72,864 72,926 114,031
Working capital 435,819 501,431 412,591
Long-term debt and redeemable preferred stock 323,043 360,607 255,935
Stockholders' equity 614,771 665,602 679,823
Capital employed 937,814 1,026,209 935,758
Total assets 1,153,564 1,247,962 1,195,180
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Net income (loss) assuming dilution(a) $ (.29) $ 1.47 $ 2.11
Dividends .56 .53 .50
Book value 17.31 18.25 17.87
Price Range:
High 33.88 38.38 33.75
Low 18.00 25.00 23.13
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS
Net sales times:
Receivables(b) 5.6 5.3 5.5
Inventories(b) 3.2 3.4 3.7
Capital employed(b) 1.2 1.3 1.3
Interest coverage(a) .6 4.1 6.0
Income (loss) before income taxes as a percent of sales(a) (.9%) 7.2% 10.4%
Net income (loss) as a percent of sales(a) (.9%) 4.4% 6.6%
Net income (loss) as a percent of stockholders' equity(a) (b) (1.6%) 8.2% 12.4%
- ------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net common shares outstanding (000s omitted) 35,519 36,463 38,049
Approximate number of common shareholders 8,000 10,100 12,300
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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. Fiscal 1998
includes a pre-tax charge of $75,007,000 associated with the write-down of
certain fixed assets, severance and goodwill. The after-tax impact of this
write-down on 1998 earnings was ($1.35) per common share.
(b) Average of amounts at beginning and end of each fiscal year.
22
<PAGE> 4
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,152,633 $1,098,259 $ 930,787 $ 899,136 $ 804,585 $ 713,812 $ 687,954
816,834 739,700 613,325 592,837 553,160 461,281 457,875
21,698 19,434 16,948 15,841 18,097 18,885 15,643
87,733 127,585 80,717 129,507 90,866 109,672 102,728
33,616 48,759 31,619 47,269 34,027 41,725 37,994
54,117 78,826 49,080 81,945 56,279 67,378 64,163
- ----------------------------------------------------------------------------------------------------------------
$ 68,010 $ 67,042 $ 66,226 $ 60,444 $ 56,594 $ 52,539 $ 45,633
122,127 145,868 115,306 142,389 112,873 119,917 109,796
86,556 38,562 83,979 109,161 89,532 113,617 87,410
438,070 310,330 277,993 285,469 255,392 249,683 267,178
287,878 144,163 163,334 186,122 185,923 196,857 210,470
632,558 628,662 587,651 570,003 502,501 456,352 402,216
920,436 772,825 750,985 756,125 688,424 653,209 612,686
1,118,164 1,046,577 1,017,044 964,933 818,220 794,521 720,806
- ----------------------------------------------------------------------------------------------------------------
$ 1.38 $ 1.96 $ 1.19 $ 1.99 $ 1.38 $ 1.65 $ 1.57
.48 .42 .39 .34 .32 .32 .28
16.34 15.84 14.54 13.97 12.39 11.29 9.95
31.25 32.63 36.87 40.37 36.25 31.00 26.50
22.00 24.00 26.00 27.75 19.75 16.00 15.62
- ----------------------------------------------------------------------------------------------------------------
5.3 5.6 5.3 5.8 5.9 5.3 5.9
3.8 3.9 3.7 4.6 4.8 5.1 6.8
1.4 1.4 1.2 1.2 1.2 1.1 1.3
5.0 7.6 5.8 9.2 6.0 6.8 7.6
7.6% 11.6% 8.7% 14.4% 11.3% 15.4% 14.9%
4.7% 7.2% 5.3% 9.1% 7.0% 9.4% 9.3%
8.6% 13.0% 8.5% 15.3% 11.7% 15.7% 17.2%
- ----------------------------------------------------------------------------------------------------------------
38,715 39,689 40,405 40,810 40,569 40,407 40,427
12,300 13,000 13,000 13,000 18,000 18,000 18,000
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RUSSELL CORPORATION AND SUBSIDIARIES
1998 VS 1997
Net sales for the year decreased 3.9% on unit declines of less than one percent
of domestic apparel. The decrease in sales was primarily attributable to weak
sales in the Company's activewear segment during the fourth quarter of the year.
Sales in the final 13-week period were down 17% in dollars and 36% in domestic
apparel unit sales. Domestic sales were significantly impacted by unseasonably
warm weather, softness in retail apparel sales and further industry-wide price
reductions in activewear, particularly in decorated and screenprint markets.
The Company's Jerzees brand of activewear was the most significantly
impacted by these factors. The Russell Athletic brand of activewear had slight
decreases in sales for the year, generally in line with expectations, while
Cross Creek Apparel, Inc. experienced moderate growth for the year despite
declines in the fourth quarter. International sales were down 1.1% for the year,
due to overall softness in apparel sales at retail locations.
RESTRUCTURING AND OTHER ITEMS
On July 22, 1998, the Company announced its intention to undertake a major
restructuring and reorganization to improve the Company's global
competitiveness. Elements of the multi-year strategic plan that were announced
include: the closing of approximately 25 of the Company's 90 worldwide
facilities over the next three years, including selected manufacturing plants,
distribution centers and offices; expanding production outside the United
States; consolidating and downsizing the licensed products businesses; disposing
of owned shopping center real estate; reorganizing the corporate structure;
establishing a dual headquarters in the metropolitan Atlanta area; and other
cost savings activities. It is anticipated that the three-year plan will
ultimately reduce costs by approximately $80 million pre-tax annually and result
in the elimination of 4,000 domestic positions.
As discussed in Note 10 of the financial statements, management expects
that the Company will record restructuring, asset impairment and other
associated unusual charges in the range of $100 to $125 million on an after-tax
basis. These charges relate to the closing of facilities, including plants,
distribution centers and offices; consolidation and/or exiting certain product
lines and brands and disposing of owned shopping center real estate and will be
reflected in the Company's consolidated financial statements over the three-year
period beginning in the third quarter of 1998. The recognition of these charges
will depend, in large part, on expansion of production capabilities outside the
United States. For the year ended January 2, 1999, charges of $75,007,000,
$47,997,000 after-tax, or $1.35 on a per share basis, were recorded for
restructuring, asset impairment and other unusual costs.
During 1998, the Company exited the business of certain licensing
markets of various professional sport leagues and teams, and certain other
licensing agreements as part of the Company's licensed products operation. The
Company remains active in the collegiate licensing business and continues to be
a major supplier to certain outlets of licensed products, such as college
bookstores and sports shops. The discontinued businesses include headwear, or
logoed caps; a business which was sold in the fourth quarter of 1998.
Also during 1998, as part of the multi-year strategic plan, the Company
moved substantial sewing operations to both company owned and contractor
locations in Central America and Mexico. At year-end 1998, approximately 40% of
the Company's sewing capacity for domestic consumption was domiciled outside the
U.S. The Company closed four domestic sewing facilities and reconfigured two
others. The Company has realigned the remaining operations in order to
accommodate a more orderly and efficient product flow of goods throughout the
Company's manufacturing processes. Management also reassessed its decoration and
distribution capabilities' system and facilities resulting in the closure of 34
company operated retail or outlet stores in 13 states during 1998.
In total, approximately 2,000 employees have been notified of their
termination and separation and have received the details of their individual
severance packages as of year-end.
For 1998, gross margins declined to 25.6% of sales versus 30.2% of
sales in 1997. Gross margins were impacted by the previously mentioned
activities which involved a reduction in selling prices and write-downs of
certain inventories. For the year, $14.6 million of other unusual charges was
reflected in cost of goods sold and related to the write-down of certain
inventories associated with the exiting of certain businesses and licensing
arrangements and severance accruals associated with the closure of certain
facilities. Excluding the impact of the inventory write-downs and severance
accruals, gross margins would have been 27.5% which is below prior year levels
due primarily to reductions in selling prices.
In 1998, selling, general and administrative expense includes
approximately $8 million related to the retirement, and subsequent replacement,
of the Chairman, President and Chief Executive Officer of the Company,
approximately $11 million related to the disposition of certain accounts
receivable and $2 million of severance costs related to the elimination of
administrative job positions and expenses related to the consolidation of
certain warehousing operations. During 1998, management revised the Company's
selling terms and credit policies in order to reduce its credit risk and improve
cash flows by reducing days sales outstanding in accounts receivable. These
changes combined with a continuing decline in the financial condition of some
customers contributed to the significant disposition of accounts receivable
during the year. Selling,
24
<PAGE> 6
general and administrative expenses decreased 2.3% for the year despite the
aforementioned inclusion of those charges as a result of changes in Chairman,
President and CEO.
In 1998, $39.5 million is reflected as a loss in other income and
expense and consists of a write-down of assets (machinery, equipment and
facilities) to fair value, the reduction of the carrying value of goodwill to
the discounted expected future cash flows of the associated entities and the
recognition of termination costs under certain licensing agreements associated
with business in which the Company will no longer participate. The impairment
was caused by the Company's decision to exit certain products and brands
primarily related to licensed products.
In 1998, the Company's effective income tax rate was significantly
impacted by certain impairment charges related to goodwill which were not
deductible for tax purposes. The impact of such non-deductible charges was also
magnified by the level of operating results. Additionally, profitable operations
in different tax jurisdictions combined with certain tax assessments also
adversely impacted the Company's effective tax rate during the current year.
1997 VS 1996
Net sales for the year decreased 1.3% to $1,228,198,000. The most dramatic
decreases were experienced in licensed products and Jerzees within the
activewear segment. The deterioration in licensed products was consistent
throughout the year and resulted in the reorganization or elimination of parts
of that division during 1997.
Jerzees products experienced sales declines in the distributor/
screenprint market where price cutting, led by major competitors, was severe.
These price pressures, not only had the effect of lowering sales, but also
resulted in turmoil and sluggish purchase patterns in that market as well.
Jerzees sales direct to retail were up slightly for the year, but did not meet
expectations in the second half, due to overall softness in apparel sales at
retail.
Cross Creek Apparel, Inc. experienced good growth for the 1997 year as
the Jerzees brand of placket shirts was expanded in the distributor market.
Russell Athletic products had moderate sales increases, generally in line with
expectations, while International sales increases slowed and represented 11% of
the Company's total sales.
Stable cotton prices, improved manufacturing efficiencies, and ongoing
programs to reduce cost mitigated the impact of lower selling prices on margins.
Margins declined to 30.2% versus the 32.0% experienced in 1996.
Selling, general and administrative expenses increased 3.5% during the
year, to 20.5% of sales, versus 19.6% the previous year. Certain costs
associated with the reorganization and elimination of some aspects of the
Licensed Products and International divisions contributed to the increase.
Additional expenses included increased advertising, particularly for Jerzees
products, and a continued emphasis on marketing and customer service, both
domestically and internationally.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 1998, charges associated with the Company's
restructuring and reorganization plan caused the Company's interest coverage
ratio to fall below the ratio required in agreements related to the Company's
long-term debt. The Company has reached agreements with all primary lenders and
financial covenants have been amended to exclude the impact of the
aforementioned charges of up to $125 million after-tax. The Company's
restructuring plan is intended to improve asset utilization and should not have
a negative impact on the Company's ability to perform under these agreements.
In the fourth quarter of 1998, a Jefferson County, Alabama, jury
returned a verdict in Sullivan, et al. v. Russell Corporation, et al. Five
plaintiff families were awarded a total of $155,200 in compensatory damages for
property damage and $52,398,000 in punitive damages from the three defendants,
Russell Corporation, Avondale Mills and Alabama Power Company. Allegations in
the case were that textile discharges of two of the defendants, including
Russell Corporation, into the Alexander City wastewater treatment plant, the
subsequent treatment by the City of Alexander City and discharge into Lake
Martin constituted a nuisance and indirect trespass. Alabama Power Company, the
third defendant, was alleged to have allowed the nuisance and trespass to
continue as the owner of the land under the lake. The plaintiffs alleged mental
anguish but no damages were granted for this claim. No allegation of personal
injury was made in the case.
The evidence was uncontroverted that Russell Corporation is in
compliance with its permit issued by the Alabama Department of Environmental
Management (ADEM) for the indirect discharge of its wastewater to the Alexander
City wastewater treatment plant. Therefore, the Company believes the verdict is
contrary to the evidence and under the applicable law, no damages should have
been awarded. The Company has initiated post-trial motions and appellate
proceedings and is vigorously pursuing such actions. If such actions prove to be
unsuccessful, damages associated with this matter could have a significant
adverse effect on the Company's future results from operations and its ability
to comply with certain debt covenant requirements.
The balance sheet continues to reflect the conservative financial
nature of the Company and its strong financial condition. At the end of 1998,
long-term debt to total capitalization decreased to 34.4% versus 35.1% at the
end of 1997. Inventories at year-end 1998, were held to less than a 1% increase
despite the significant fourth quarter sales decline. There was a 26% decrease
in receivables, attributed primarily to the disposition of certain accounts,
lower sales in the fourth quarter of the year, and improved policies and
procedures in the Company's credit area. Current ratios were 3.9 and 4.4,
respectively, for year-end 1998 and 1997.
At the end of 1997, long-term debt to total capitalization increased
with the new long-term debt, to 35.1% versus 27.4% at the end of 1996.
Inventories were held to less than a 7% increase, despite a fourth quarter sales
decline of almost 8%. There was also
25
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RUSSELL CORPORATION AND SUBSIDIARIES
an 8% increase in receivables, attributed primarily to International and slow
payments from certain customers. Current ratios were 4.4 and 3.2, respectively,
reflecting the impact of the additional long-term debt.
Operations provided the majority of the cash requirements in 1998. This
cash was used for capital expenditures, payments on long-term and short-term
debt, dividends and treasury stock repurchases. Capital expenditures of $73
million in 1998 brings the five-year total to more than $385 million.
Operations and the increase in long-term debt provided the majority of
the cash requirements in 1997. This cash was used for capital expenditures,
treasury stock repurchases, payments on long-term and short-term debt, working
capital and dividends. Capital expenditures for the year were $73 million in
1997.
The Company anticipates that 1999 capital expenditures will approximate
depreciation or approximately $70 million. The majority of the 1999 capital
expenditures will be for further enhancements of the Company's manufacturing and
distribution capabilities. At January 2, 1999, the Company had accrued
liabilities of approximately $6.3 million related to employee severance and
costs to exit certain facilities, licenses and contracts. The Company
anticipates that it could incur additional cash charges of $16,000,000 and
$6,000,000 in 1999 and 2000, respectively, related to the continued execution of
its restructuring and reorganization plan.
The Company maintains $287 million of informal lines of credit and does
not anticipate issuing any additional long-term debt or equity securities in
1999.
In 1998, the Board of Directors adjusted the stock repurchase
authorization upward to three million shares. Purchases of the Company's Common
Stock totaled $22,355,000 in 1998, representing 1,041,800 shares, compared to
$51,638,000 representing 1,821,201 shares in 1997.
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 2, 1999, and January 3, 1998, the Company had outstanding
futures contracts that, when combined with other contracts and inventory,
represented all of the Company's anticipated cotton requirements for 1999 and
1998, respectively.
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
6.74% to 6.47%, from 6.83% to 6.64% and from 6.95% to 6.77% in 1998, 1997 and
1996, respectively. Interest expense decreased in 1998 due to lower rates and
decreased borrowing. Interest expense increased in 1997 due to increased
short-term borrowing, generally, until August when the Company secured an
additional $125 million of long-term debt with a weighted-average life of seven
years at a rate of 6.65%. Proceeds were then used to reduce short-term debt.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company will adopt the
new Statement effective January 1, 2000. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet completed its
analysis of the impact, if any, that Statement 133 may have on its financial
statements.
YEAR 2000 DISCLOSURE STATEMENT
The Company has been involved in an organized program to assure that the
Company's information technology systems and related infrastructure will be Year
2000 compliant. These efforts began in July of 1996 with the assignment of a
full-time coordinator of the Year 2000 Compliance. The project initially
involved the computer applications which support the parent company.
The initial phase of the corporate project involved the inventory and
analysis of existing information systems. From this analysis a plan for
remediation was formulated and put into action in January of 1997. This plan is
now 95% complete in bringing these systems into Year 2000 compliance with 20,413
actual hours expended against a planned 21,543 hours. The planned completion
date for testing and implementation of this phase is March 31, 1999.
The second phase of the corporate project was to inventory, analyze and
test the infrastructure that involves imbedded microchips. This phase began in
January of 1998 and has identified 3,856 unique products (hardware and models,
software and releases) that are being certified through vendor certification and
26
<PAGE> 8
testing where possible. To date, 2,465 or 64% of these products have been
certified. The planned completion date for this phase is June of 1999.
The Year 2000 corporate project was expanded into a third phase to
include the Cross Creek and DeSoto Mills subsidiaries under the same project
format and phases as the parent company. DeSoto Mills is 100% complete in
remediation of business and manufacturing systems and has certified 64% of
infrastructure products. The Cross Creek subsidiary is 71% complete on
remediation of information systems and has certified 65% of infrastructure
products.
The fourth phase of the Year 2000 project involves the identification,
analysis and certification of suppliers of materials and services to the
Company. There have been 2,555 suppliers identified and individually contacted
by questionnaires, letters and telephone to determine their compliance status
and ability to service the Company in the Year 2000. If it is determined that a
supplier will be in noncompliance or of questionable compliance, contingency
plans will be developed to address the need, including the selection and
introduction of new suppliers.
The fifth phase of the Year 2000 project involves an assessment of the
major customers of the Company and their Year 2000 readiness. A questionnaire
was mailed in November 1998 to 200 customers to begin the assessment of their
Year 2000 status and their potential as a viable customer in the Year 2000.
Response has been positive in this area with most customers having compliance in
place or planned by June 1999.
The Year 2000 efforts in the Russell UK subsidiary involve the
replacement of purchased application software. The first phase of this project
was to identify and select an information systems software solution that would
meet the business needs of the subsidiary and resolve the Year 2000 issue. The
progress to date has been to select a software solution and to conduct a pilot
project for acceptance. This has been completed and the implementation project
is scheduled to be completed by the end of June 1999. The second phase of the
Russell UK project was the identification of infrastructure products. To date,
456 products were identified with 384 being certified as compliant.
Management has determined that the costs for correction of the Year
2000 issues are expected to total approximately $1,895,000 with $1,470,000 being
expended through the end of 1998. The Year 2000 project is being funded out of
normal operating funds.
Senior management receives monthly updates on the progress of this
project by each individual phase. The Year 2000 compliance project is a priority
project for the Company and especially the IT department. Other IT projects,
including upgrade of certain existing systems and implementation of new systems,
continue while the Year 2000 project is being accomplished.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As previously noted, the
Company has not yet completed all necessary phases of the Year 2000 program. In
the event that the Company does not complete any additional phases, the Company
may be unable to take customer orders, manufacture and ship products, invoice
customers or collect payments. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also materially adversely affect the
Company. The Company could be subject to litigation for computer systems product
failure, for example, equipment shutdown or failure to properly date business
records. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
At the present time the Company does not have a contingency plan to
operate in the event that its business systems are not Year 2000 compliant. If
further systems testing and supplier analysis were to indicate that there is a
substantial risk to the Company's ability to operate effectively, a contingency
plan will be developed in those areas affected.
This document contains Year 2000 Readiness Disclosures as defined in
the Year 2000 Information and Readiness Disclosure Act, P.L.105-271 (Oct. 19,
1998). Accordingly, this disclosure, in whole or in part, is not, to the extent
provided in the act, admissible in any state or federal civil action to prove
the accuracy or truth of any Year 2000 statements contained herein.
FORWARD LOOKING INFORMATION
This annual report, including management's discussion and analysis, contains
certain statements which describe the Company's beliefs concerning future
business conditions and the outlook for the Company based upon currently
available information. Wherever possible, the Company has identified these
"forward looking" statements (as defined in Section 21E of the Securities and
Exchange Act of 1934) by words such as "anticipates," "believes," "estimates,"
"expects" and similar phrases. These forward looking statements are based upon
current assumptions and expectations the Company believes are reasonable,
however, such statements are subject to risks and uncertainties which could
cause the Company's actual results, performance and achievements to differ
materially from those expressed in, or implied by, these statements. These risks
and uncertainties include, but are not limited to, the matters discussed under
the caption "Forward Looking Information" in the Company's Annual Report on Form
10-K for the year ended January 2, 1999, which will be filed by April 2, 1999,
and other risks and uncertainties detailed from time to time in the Company's
SEC filings. Some forward looking statements concern anticipated sales levels,
cost estimates and resulting earnings that are not necessarily indicative of
subsequent periods due to the mix of future orders, at once orders and product
mix changes, which may vary significantly from year to year or quarter to
quarter and the effects of the Company's restructuring and reorganization plan.
The Company assumes no obligation to update publicly any forward looking
statements whether as a result of new information, future events or otherwise.
27
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
RUSSELL CORPORATION AND SUBSIDIARIES
January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
(In thousands, except share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 13,852 $ 8,609
Trade accounts receivable, less allowances of $8,562 in 1998 and $10,533 in 1997 179,307 242,988
Inventories 371,579 369,923
Prepaid expenses and other current assets 11,091 20,517
Future income tax benefits 8,885 5,006
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 584,714 647,043
PROPERTY, PLANT AND EQUIPMENT:
Land 10,405 10,563
Buildings 331,663 310,053
Machinery and equipment 876,597 833,318
Construction-in-progress 5,577 24,014
- ---------------------------------------------------------------------------------------------------------------------
1,224,242 1,177,948
Less allowances for depreciation and amortization (704,255) (651,835)
- ---------------------------------------------------------------------------------------------------------------------
519,987 526,113
OTHER ASSETS 48,863 74,806
- ---------------------------------------------------------------------------------------------------------------------
$1,153,564 $1,247,962
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 12,908 $ 39,256
Accounts payable and accrued expenses:
Trade accounts 49,688 41,425
Employee compensation 31,590 22,885
Other 20,506 20,568
- ---------------------------------------------------------------------------------------------------------------------
101,784 84,878
Income taxes 1,989 --
Current maturities of long-term debt and capital lease obligations 32,214 21,478
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 148,895 145,612
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES 323,043 360,607
DEFERRED LIABILITIES:
Income taxes 34,121 49,810
Pension and other 32,734 26,331
- ---------------------------------------------------------------------------------------------------------------------
66,855 76,141
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share; authorized 150,000,000 shares,
issued 41,419,958 shares 414 414
Paid-in capital 48,294 48,654
Retained earnings 730,723 761,428
Treasury stock (1998 - 5,900,564 and 1997 - 4,957,336 shares) (160,093) (140,170)
Accumulated other comprehensive (loss) income (4,567) (4,724)
- ---------------------------------------------------------------------------------------------------------------------
614,771 665,602
- ---------------------------------------------------------------------------------------------------------------------
$1,153,564 $1,247,962
=====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
<TABLE>
<CAPTION>
(In thousands, except share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 1,180,118 $ 1,228,198 $ 1,244,204
COST AND EXPENSES:
Cost of goods sold 878,106 857,531 846,166
Selling, general and administrative expenses 246,518 252,387 243,759
Other - net 37,935 1,763 (1,004)
Interest expense 27,824 28,165 25,738
- -----------------------------------------------------------------------------------------------------
1,190,383 1,139,846 1,114,659
- -----------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES (10,265) 88,352 129,545
PROVISION FOR INCOME TAXES:
Currently payable 19,682 27,688 53,259
Deferred (19,568) 6,216 (5,290)
- -----------------------------------------------------------------------------------------------------
114 33,904 47,969
- -----------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (10,379) $ 54,448 $ 81,576
=====================================================================================================
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (.29) $ 1.48 $ 2.12
Diluted $ (.29) $ 1.47 $ 2.11
AVERAGE SHARES OUTSTANDING:
Basic 36,216,571 36,879,901 38,469,009
Diluted 36,216,571 37,047,433 38,652,958
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (10,379) $ 54,448 $ 81,576
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 74,368 74,421 72,226
Deferred income taxes (19,568) 6,216 (5,290)
(Gain) loss on sale of property, plant and equipment (111) (438) 200
Non-cash restructuring charges 55,742 -- --
Changes in operating assets and liabilities:
Trade accounts receivable 52,038 (19,532) 2,237
Inventories (18,192) (25,087) (22,458)
Prepaid expenses and other current assets (583) 1,705 (6,045)
Other assets 1,189 (9,918) 175
Accounts payable and accrued expenses 16,299 3,942 208
Income taxes 12,372 (20,113) 3,240
Pension and other deferred liabilities 6,216 2,050 6,019
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 169,391 67,694 132,088
INVESTING ACTIVITIES
Purchase of property, plant and equipment (72,864) (72,926) (114,031)
Proceeds from sale of property, plant and equipment 2,224 2,380 1,280
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (70,640) (70,546) (112,751)
FINANCING ACTIVITIES
Short-term borrowings -- -- 54,846
Payments on short-term debt (26,416) (23,736) --
Payments on long-term debt (26,828) (30,793) (31,282)
Long-term borrowings -- 125,000 --
Dividends on common stock (20,326) (19,512) (19,247)
Distribution of treasury stock 2,072 4,979 5,165
Cost of common stock for treasury (22,355) (51,638) (26,049)
- -----------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (93,853) 4,300 (16,567)
Effect of exchange rate changes on cash 345 (194) 100
- -----------------------------------------------------------------------------------------------------------
Net increase in cash 5,243 1,254 2,870
Cash balance at beginning of year 8,609 7,355 4,485
- -----------------------------------------------------------------------------------------------------------
CASH BALANCE AT END OF YEAR $ 13,852 $ 8,609 $ 7,355
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Treasury Retained Comprehensive
(In thousands, except share data) Stock Capital Stock Earnings Income (Loss) Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1995 $414 $52,405 $ (76,378) $664,163 $(8,046) $632,558
Comprehensive income:
Net income -- -- -- 81,576 -- 81,576
Foreign currency translation adjustments -- -- -- -- 5,820 5,820
--------
Comprehensive income 87,396
--------
Exercise of stock options -- (2,205) -- -- -- (2,205)
Treasury stock acquired (932,783 shares) -- -- (26,049) -- -- (26,049)
Treasury stock distributed (266,435 shares) -- -- 7,370 -- -- 7,370
Cash dividends ($.50 per share) -- -- -- (19,247) -- (19,247)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 4, 1997 414 50,200 (95,057) 726,492 (2,226) 679,823
Comprehensive income:
Net income -- -- -- 54,448 -- 54,448
Foreign currency translation adjustments -- -- -- -- (2,498) (2,498)
--------
Comprehensive income 51,950
--------
Exercise of stock options -- (1,546) -- -- -- (1,546)
Treasury stock acquired (1,821,201 shares) -- -- (51,638) -- -- (51,638)
Treasury stock distributed (234,750 shares) -- -- 6,525 -- -- 6,525
Cash dividends ($.53 per share) -- -- -- (19,512) -- (19,512)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 414 48,654 (140,170) 761,428 (4,724) 665,602
Comprehensive (loss) income:
Net loss -- -- -- (10,379) -- (10,379)
Foreign currency translation adjustments -- -- -- -- 157 157
--------
Comprehensive loss (10,222)
--------
Exercise of stock options -- (360) -- -- -- (360)
Treasury stock acquired (1,041,800 shares) -- -- (22,355) -- -- (22,355)
Treasury stock distributed (98,572 shares) -- -- 2,432 -- -- 2,432
Cash dividends ($.56 per share) -- -- -- (20,326) -- (20,326)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 2, 1999 $414 $48,294 $(160,093) $730,723 $(4,567) $614,771
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
NOTE 1 DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Russell Corporation is a vertically integrated international designer,
manufacturer and marketer of activewear (including athletic uniforms, better
knit shirts, leisure apparel, licensed sports apparel) and also produces sports
and casual socks and a line of lightweight, yarn-dyed woven fabrics. The
Company's 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.
REVENUE RECOGNITION
The Company records revenues when products are shipped to customers.
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 $59,000,000 in 1998 and $79,000,000 in 1997.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------
<S> <C> <C>
Finished goods $288,465 $286,254
Work-in-process 58,182 52,498
Raw materials and supplies 54,943 65,476
- --------------------------------------------------------
401,590 404,228
Less LIFO reserve (30,011) (34,305)
- --------------------------------------------------------
$371,579 $369,923
========================================================
</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. Estimated useful lives range from 25 to
37 years for buildings and from five to 11 years for machinery and equipment.
OTHER ASSETS
Included in other assets is goodwill of approximately $12,600,000 and
$33,100,000, which is net of accumulated amortization of $6,985,000 and
$10,500,000 at January 2, 1999 and January 3, 1998, respectively. Goodwill is
being amortized over 15 to 25 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.
During 1998, the Company recorded impairment charges of $22,240,000 related to
goodwill and other intangible assets (Note 10).
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. Asset impairment charges
related to the closing of certain facilities and retail store locations and for
the anticipated sale of the Company's interest in shopping center real estate
are described in Note 10. There were no material impairment losses recorded in
1997 or 1996.
32
<PAGE> 14
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 $37,236,000, $41,099,000 and $36,454,000 in such costs during
1998, 1997 and 1996, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Postemployment 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 7. 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.
Accounts receivable from Wal-Mart represented 25.8% and 27.9% of the
Company's net accounts receivable at January 2, 1999 and January 3, 1998,
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 4).
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
non-performance, is remote (Note 4).
EARNINGS PER COMMON SHARE
The Company reports earnings per share in accordance with FASB Statement No.
128, "Earnings Per Share." Basic earnings per share is computed by using the
average number of common shares outstanding during the period without
consideration of common stock equivalents. Diluted earnings per share is
computed by using the average number of common shares outstanding plus common
stock equivalents (employee stock options).
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 was the case for 1996.
Fiscal years 1998, 1997, and 1996 ended on January 2, 1999, January 3, 1998 and
January 4, 1997, respectively.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement effective January 1, 2000. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative
33
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
will either be offset against the change in fair value of the hedged asset,
liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet completed its analysis of the
impact, if any, that Statement 133 may have on its financial statements.
NOTE 2 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations include the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to financial institutions:
6.72% notes due annually through 2002 $ 42,857 $ 53,571
8.83% notes due annually through 1999 10,800 21,500
6.95% notes due through 1998 -- 64
6.65% notes due annually 2001 through 2007 125,000 125,000
6.78% notes due annually 2003 through 2008 100,000 100,000
Variable rate (5.57% at January 2, 1999)
note due semi-annually through 2005 69,650 75,000
Capital lease obligations (variable rate of 3.60% at
January 2, 1999) due 2017 6,950 6,950
- ----------------------------------------------------------------------------------
355,257 382,085
Less current maturities (32,214) (21,478)
- ----------------------------------------------------------------------------------
$323,043 $360,607
==================================================================================
</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 2, 1999, $58,565,000 of retained earnings was unrestricted
for payment of dividends.
Recording the charges associated with the Company's restructuring and
reorganization plan has caused the Company's interest coverage ratio to fall
below the ratio required in agreements related to the Company's long-term debt.
The Company and all primary lenders amended the covenants to exclude the impact
of these charges. There exists no violations of loan covenants; therefore, the
debt has been classified as short-term or long-term according to its terms.
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 $5,231,000 and $5,484,000 at
January 2, 1999 and January 3, 1998, respectively.
The following summarizes the maturities of long-term debt and capital
lease obligations: 1999 - $32,214,000; 2000 - $21,414,000; 2001 - $39,272,000;
2002 - $39,272,000; 2003 - $45,224,000 and thereafter $177,861,000.
NOTE 3 SHORT-TERM DEBT
The Company may borrow up to approximately $287 million under informal line of
credit arrangements with six banks, on such terms as the Company and the banks
may mutually agree. Generally, the arrangements may be canceled by either party
at any time. At January 2, 1999 and January 3, 1998, amounts outstanding under
the line of credit arrangements totaled $12.9 million and $39.3 million,
respectively. The weighted-average interest rates of bank borrowings during
1998, 1997 and 1996 were 6.3%, 6.0% and 5.8%, respectively. The weighted-average
interest rates of bank borrowings outstanding at January 2, 1999, January 3,
1998 and January 4, 1997 were 6.8%, 6.8% and 5.9%, respectively.
NOTE 4 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 2,
1999, the Company had outstanding futures contracts that, when combined with
other contracts and inventories, represented all of its anticipated 1999 cotton
requirements.
34
<PAGE> 16
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
$43 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 $70 million.
These agreements, when combined, effectively lowered the
weighted-average interest rate on the Company's long-term debt from 6.74% to
6.47%, 6.83% to 6.64% and 6.95% to 6.77% in 1998, 1997 and 1996, 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 below, 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 2, 1999 and January 3, 1998, the carrying value of financial
instruments such as cash, trade accounts receivable and payables, approximated
their fair values, based on the short-term maturities of these instruments. The
fair value of the Company's long-term debt is estimated using discounted cash
flow analyses, 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>
1998 1997
- ----------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(In thousands) VALUE VALUE Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $355,257 $354,503 $382,085 $392,780
Interest rate swap
agreement terminating
August 31, 2002 4,407 7,084 3,388 4,958
Interest rate swap
agreement terminating
June 30, 2005 -- (2,478) -- (852)
</TABLE>
NOTE 5 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 employee's 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>
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $114,965,715 $112,359,286
Service cost 5,807,255 5,916,303
Interest cost 8,141,800 7,800,160
Actuarial loss (gain) 16,165,102 (5,299,398)
Benefits paid (6,111,922) (5,810,636)
- -------------------------------------------------------------------------------------
Benefit obligation at end of year 138,967,950 114,965,715
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 118,063,298 103,608,821
Actual return on plan assets 12,028,088 16,646,298
Company contributions 1,742,290 3,618,815
Benefits paid (6,111,922) (5,810,636)
- -------------------------------------------------------------------------------------
Fair value of plan assets at end of year 125,721,754 118,063,298
- -------------------------------------------------------------------------------------
Funded status of the plan
(underfunded) overfunded (13,246,196) 3,097,583
Unrecognized prior service cost 3,394,573 3,757,889
Unrecognized net actuarial gain (5,780,333) (19,882,428)
Unrecognized transition asset (3,699,502) (4,377,762)
- -------------------------------------------------------------------------------------
Accrued benefit cost $(19,331,458) $(17,404,718)
=====================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
Discount rate 6.75% 7.25%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 3.75% 3.75%
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $5,807 $5,916 $5,838
Interest cost 8,142 7,800 7,408
Expected return on plan assets (9,851) (9,229) (8,974)
Net amortization and deferral (429) (315) 1,416
- -------------------------------------------------------------------------------------
Net pension cost $3,669 $4,172 $5,688
=====================================================================================
</TABLE>
The primary impact on benefit obligations, the actuarial loss, was
effected by a change in assumptions in the discount rate (from 7.25% to 6.75% in
1998) resulting in an
35
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
increased benefit obligation of approximately $10.2 million. Other changes
(mortality, retirement and withdrawal assumptions) were all updated to better
reflect anticipated experience resulting in increased obligations of $6.1
million.
Plan assets at January 2, 1999 include 600,960 shares of the Company's
Common Stock having a market value of $12,207,000. Dividends paid to the plan by
the Company were $337,000 and $319,000 for 1998 and 1997, respectively.
The Company has a 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 $1,426,000,
$1,286,000 and $1,322,000 for 1998, 1997 and 1996, respectively.
NOTE 6 INCOME TAXES
Foreign operations contributed approximately $(7,060,000), $(1,989,000) and
$900,000 to the Company's income (loss) before income taxes in 1998, 1997 and
1996, respectively. Significant components of the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
CURRENTLY Currently Currently
(In thousands) PAYABLE DEFERRED Payable Deferred Payable Deferred
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $16,142 $(15,105) $24,136 $6,160 $47,860 $(4,994)
State 3,391 (2,210) 3,233 825 5,709 (596)
Foreign 149 (2,253) 319 (769) (310) 300
- ---------------------------------------------------------------------------------------------------
Totals $19,682 $(19,568) $27,688 $6,216 $53,259 $(5,290)
===================================================================================================
</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) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes (benefit) at statutory rate on
income before income taxes $(3,593) $30,923 $45,341
State income taxes, net of
federal income tax benefit 1,174 2,637 3,324
Goodwill 1,622 425 425
Other - net 911 (81) (1,121)
- -------------------------------------------------------------------------------
$ 114 $33,904 $47,969
===============================================================================
</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 2,
1999 and January 3, 1998, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $52,366 $57,266
Inventories 2,691 1,747
Accounts receivable 429 1,594
Other -- 1,782
- -----------------------------------------------------------------------
Total deferred tax liabilities 55,486 62,389
Deferred tax assets:
Pension and postemployment obligations 10,176 8,555
Inventories 6,849 5,416
Net operating losses 5,843 1,981
Employee benefits 3,809 1,633
Capital loss and credit carryforwards 233 233
Other 3,573 --
- -----------------------------------------------------------------------
Total deferred tax assets 30,483 17,818
Valuation allowance for deferred tax assets (233) (233)
- -----------------------------------------------------------------------
Net deferred tax assets 30,250 17,585
- -----------------------------------------------------------------------
Net deferred tax liabilities $25,236 $44,804
=======================================================================
</TABLE>
Net operating losses (NOLs) pertain primarily to the Company's United
Kingdom operations. NOLs can be carried forward indefinitely in the United
Kingdom.
NOTE 7 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.
36
<PAGE> 18
The Rights will expire on October 25, 1999, unless redeemed earlier by the
Company at $.01 per Right under certain circumstances.
During 1993, the Company's shareholders approved the 1993 Executive
Long-Term Incentive Plan (1993 Plan). Persons eligible to participate in the
1993 Plan include all officers and key employees of the Company and its
subsidiaries. The 1993 Plan permits the issuance of awards in several forms
including restricted stock, incentive stock options, non-qualified stock
options, stock appreciation rights (SARs) and performance shares and performance
unit awards.
Under the 1993 Plan and predecessor stock option plans, a total of
4,257,710 and 2,276,410 shares of Common Stock were reserved for issuance at
January 2, 1999 and January 3, 1998, respectively. 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 10 years after the
date of grant. The following table summarizes the status of options under the
1993 Plan and predecessor plans:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
NUMBER OF AVERAGE Number of Average Number of Average
SHARES PRICE Shares Price Shares Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding 2,394,416 $19.68 1,414,950 $28.21 1,452,550 $26.55
Exercisable 1,133,350 $27.60 891,250 $27.71 887,350 $25.28
Granted 998,166 $25.34 277,700 $30.88 299,600 $27.25
Exercised 20,300 $27.74 237,650 $21.20 266,280 $18.92
Canceled -- 77,650 $28.20 6,500 $16.81
Available for
future grants 1,863,294 861,460 1,061,510
</TABLE>
At January 2, 1999, options outstanding were exercisable at prices
which ranged from $21.59 to $31.34 per share and had a weighted-average
remaining contractual life of six years. Performance units which have been
awarded to officers and management of the Company amount to 2,454,500 shares at
January 2, 1999. No compensation expense with respect to these units was earned
during 1998, 1997 or 1996. SARs are also available for grants to officers and
management. To date, none have been granted. SARs carry an award of $1 each and
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.
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. The fair values derived for options granted during 1998 and 1997
were $7.40 and $9.69, respectively, using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.2% 5.4%
Dividend yield 2.2% 1.8%
Volatility factor .198 .186
Weighted-average
expected life of options 10 years 10 years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Pro forma net income (loss) $(12,798) $52,790
Pro forma earnings per share:
Basic $ (.35) $ 1.43
Diluted $ (.35) $ 1.42
</TABLE>
Under the Russell Corporation 1997 Non-Employee Directors' Stock Grant,
Stock Option and Deferred Compensation Plan (the "Directors' Plan"), which was
adopted by the Board of Directors on July 23, 1997, each non-employee director
of the Company (an "Eligible Director") receives annually (i) shares of Common
Stock having a value of $5,000, based on the market value of the Common Stock on
the date of grant and (ii) an option to purchase shares of Common Stock,
exercisable for ten years at a price equal to the market value of the Common
Stock on the date of grant, having, based on the number of shares subject
thereto, an economic value of $5,000. Under the Directors' Plan, 1,368 and 1,456
shares were issued in 1998 and 1997, respectively, and options to purchase an
aggregate of 2,824 shares of Common Stock at a price of $28.84 per share were
granted. Options to purchase an aggregate of 2,824 shares of Common Stock at a
price of $28.84 per share are presently outstanding under the Directors' Plan.
197,176 shares of the 200,000 shares of Common Stock originally authorized to be
issued under the Directors' Plan remain available for issuance under the
Directors' Plan.
37
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
NOTE 8 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) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest $28,929 $29,114 $26,192
Income taxes 9,177 49,699 47,564
</TABLE>
NOTE 9 COMMITMENTS AND CONTINGENCIES
At January 2, 1999, the Company had commitments for the acquisition of property
and equipment totaling $10,596,000 and was committed under noncancelable
operating leases with initial or remaining terms of one year or more to minimum
rental payments aggregating $6,470,000, summarized by fiscal year periods as
follows: 1999 - $2,064,000; 2000 - $1,428,000; 2001 - $1,208,000; 2002 -
$474,000; 2003 - $278,000 and thereafter $1,018,000.
The Company had $26,738,000 and $21,852,000 outstanding under letters
of credit for the purchase of inventories at January 2, 1999 and January 3,
1998, respectively.
Lease and rental expense for fiscal years 1998, 1997 and 1996 was
$9,943,000, $10,740,000 and $11,558,000, respectively.
In the fourth quarter of 1998, a Jefferson County, Alabama, jury
returned a verdict in Sullivan, et al. v. Russell Corporation, et al. Five
plaintiff families were awarded a total of $155,200 in compensatory damages for
property damage and $52,398,000 in punitive damages from the three defendants,
Russell Corporation, Avondale Mills and Alabama Power Company. Allegations in
the case were that textile discharges of two of the defendants, including
Russell Corporation, into the Alexander City wastewater treatment plant, the
subsequent treatment by the City of Alexander City and discharge into Lake
Martin constituted a nuisance and indirect trespass. Alabama Power Company, the
third defendant, was alleged to have allowed the nuisance and trespass to
continue as the owner of the land under the lake. The plaintiffs alleged mental
anguish but no damages were granted for this claim. No allegation of personal
injury was made in the case.
The evidence was uncontroverted that Russell Corporation is in
compliance with its permit issued by the Alabama Department of Environmental
Management (ADEM) for the indirect discharge of its wastewater to the Alexander
City wastewater treatment plant. Therefore, the Company believes the verdict is
contrary to the evidence and under the applicable law, no damages should have
been awarded. The Company has initiated post-trial motions and appellate
proceedings and is vigorously pursuing such actions. If such actions prove to be
unsuccessful, damages associated with this matter could have a significant
adverse effect on the Company's future results from operations and its ability
to comply with certain debt covenant requirements.
NOTE 10 RESTRUCTURING, ASSET IMPAIRMENT AND OTHER UNUSUAL CHARGES
On July 22, 1998, the Company announced the Board of Directors had approved a
three-year restructuring and reorganization plan to improve the Company's global
competitiveness. The Company expects to incur total charges in the range of $100
million to $125 million after-tax over three years for restructuring, asset
impairment and other associated unusual charges as a result of the restructuring
and reorganization plan. For the year ended January 2, 1999, the Company
recorded expenses of approximately $75 million ($48 million after-tax)
representing restructuring charges of $19.8 million, asset impairment charges of
$27.4 million and other associated unusual charges of $27.8 million.
38
<PAGE> 20
The charges have been classified in the statement of operations as
follows (in thousands):
<TABLE>
<CAPTION>
Selling,
General and
Cost of Administrative Other
Goods sold Expenses Expense
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
RESTRUCTURING CHARGES:
Employee termination charges $ 7,588 $ 335 $ 164
Exit costs related to facilities -- -- 4,480
Termination of certain licenses
and contracts -- -- 7,258
- -------------------------------------------------------------------------------------
$ 7,588 $ 335 $11,902
=====================================================================================
ASSET IMPAIRMENT CHARGES:
Asset impairment related to
facilities used in operations $ -- $ -- $ 1,553
Asset impairment related to
facilities held for disposal -- -- 3,628
Asset impairment charges
related to intangible assets -- -- 22,240
- -------------------------------------------------------------------------------------
$ -- $ -- $27,421
=====================================================================================
OTHER UNUSUAL CHARGES:
Inventory losses including
shipping and warehousing costs $14,639 $ 1,470 $ --
Disposition of receivables -- 11,120 --
Other -- 393 139
- -------------------------------------------------------------------------------------
$14,639 $12,983 $ 139
=====================================================================================
</TABLE>
The Company did not reflect restructuring, asset impairment or other
unusual charges in the results of operating segments, but rather recorded the
charges at the corporate level. If the charges had been allocated to the
segments, operating results for each segment would have been impacted as
follows:
<TABLE>
<CAPTION>
Asset Other
Restructuring Impairment Unusual
Charges Charges Charges
- ----------------------------------------------------------------
<S> <C> <C> <C>
Activewear $19,311 $25,755 $24,860
International 514 622 2,901
All Other -- 1,044 --
- ----------------------------------------------------------------
$19,825 $27,421 $27,761
================================================================
</TABLE>
A summary of the activity related to the restructuring and asset
impairment charges is as follows:
<TABLE>
<CAPTION>
Expense Amount Liability at
Incurred Paid Adjustments January 2, 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH RELATED:
Exit costs related to facilities $ 1,816 $ 1,282 $-- $ 534
Employee termination charges 8,088 3,521 -- 4,567
Future minimum royalties on
certain licenses and contracts 7,258 6,035 -- 1,223
------- ------- --- ------
$17,162 $10,838 $-- $6,324
======= ======= === ======
NON-CASH RELATED:
Exit costs related to facilities $ 2,664
Asset impairment charges
related to facilities 5,180
Asset impairment charges
related to intangible assets 22,240
-------
$30,084
=======
</TABLE>
Revenues and operating losses for 1998 related to exited activities
with separately identifiable operations totaled $46,366,000 and $(21,032,000).
The Company expects to incur cash charges of $16,000,000 and $6,000,000 related
to the remaining elements of the restructuring and reorganization plan during
1999 and 2000, respectively.
RESTRUCTURING CHARGES
During 1998, the Company moved substantial sewing operations to a combination of
owned and contractor locations in Central America and Mexico as part of its
restructuring and reorganization plan to improve global competitiveness by
reducing costs. The Company closed four domestic sewing facilities and
reconfigured two others in 1998. In order to further control costs, the plan
realigned and consolidated certain manufacturing and distribution functions and
facilities to accommodate a more orderly and efficient product flow of goods
throughout the manufacturing and distribution processes. The restructuring and
reorganization plan concluded that the Company should exit 34 company operated
retail or outlet stores in 13 states. In total, approximately 2,000 employees of
the facilities closed during 1998 have been notified of their termination and
received detailed information on their individual severance packages when the
related facility closings were announced. Restructuring charges were recorded as
a result of the plan to reduce the domestic production capacity and increase the
offshore assembly capacity. The facilities closed included manufacturing plants,
distribution centers and offices and retail stores. Also, as part of the plan,
the Company discontinued certain licensed products in 1998 and recorded charges
for the termination of the related agreements.
ASSET IMPAIRMENT CHARGES
The Company recorded asset impairment charges of approximately $1.6 million
related to assets currently being used in operations primarily related to the
Company's interests in shopping center real estate which are anticipated to be
sold during 1999. The carrying value of certain of these assets exceeded the
fair value of the assets. The carrying amount of the assets used in operations
were reduced to their estimated fair values. Fair values were determined
utilizing cash flow projections and estimated disposal proceeds primarily
derived from negotiated offers to buy facilities.
39
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
RUSSELL CORPORATION AND SUBSIDIARIES
Years ended January 2, 1999, January 3, 1998 and January 4, 1997
Assets held for disposal at January 2, 1999, are carried at $29 million
and are expected to be disposed of during fiscal 1999. Charges for impairment of
assets held for disposal of $3.6 million were recorded when the facility or
equipment was removed from operations. These assets have been written down to
their fair values less the cost to sell those assets and depreciation is
suspended on the assets. Fair values used in recording asset impairment charges
were determined utilizing cash flow projections and estimated disposal proceeds
primarily derived from appraisals or prices of comparable facilities. The effect
of suspending depreciation on these assets during 1998 reduced depreciation
expense by $0.3 million.
Asset impairment charges of $22.2 million were also recorded for
intangible assets related to the discontinued use of previously purchased
trademarks and goodwill recorded as a result of business combinations. All
facilities and products acquired in these business combinations were sold,
closed or held for disposal at January 2, 1999. For goodwill associated with
property and equipment the projected future cash flow from the sale of the
facilities indicated that the goodwill had no value. For other intangibles such
as trademarks related to certain products, the projected cash flow was
substantially reduced as a result of the restructuring and reorganization plan
eliminating those products from operations thus reducing the fair value of such
intangibles to a nominal amount.
OTHER UNUSUAL CHARGES
As a result of exiting certain products, brands and trademarks, the Company
recorded charges in the third and fourth quarters related to valuing
discontinued inventory at the lower of cost or market. The inventory consisted
primarily of headwear products under a discontinued brand, items held at retail
locations and inventory produced to satisfy the terms of certain licensing
agreements which the Company terminated.
During 1998, management implemented more stringent credit and
collection policies that significantly restrict shipments to slow paying
customers and intensify and accelerate collection efforts through agencies and
other means. In connection with implementation of the new policies, the Company
recorded a charge of $11.1 million to write off certain accounts receivable in
the third and fourth quarters.
The Company recorded charges of approximately $8 million during 1998
related to the retirement and subsequent replacement of the Chairman, President
and Chief Executive Officer of the Company which was not an element of the
restructuring and reorganization plan previously described. These charges are
included in selling, general and administrative expenses.
NOTE 11 SEGMENT INFORMATION
DESCRIPTION OF THE TYPES OF PRODUCTS FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUES
Russell Corporation has three reportable segments: activewear, international
operations and "all other." The Company's activewear segment consists of three
strategic business units that sell the following products to sporting goods
dealers, department and specialty stores, mass merchants, wholesale clubs,
college bookstores, screen printers, distributors, golf pro shops, and mail
order catalogs: T-shirts, fleece products, such as sweatshirts and pants,
athletic uniforms, and knit shirts. The international strategic business unit
manufactures and distributes activewear products to international locations in
approximately 50 countries. Other segments that do not meet the quantitative
thresholds for determining reportable segments sell fabrics to other apparel
manufacturers and manufactures and sells socks to mass merchants.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest and income taxes. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies except that the Company recognizes and measures
all of its segments based on earnings before interest and taxes (EBIT) and
accounts for inventory on a First-In, First-Out (FIFO) basis at the segment
level compared to a Last-In, First-Out (LIFO) basis at the consolidated level.
Intersegment transfers are recorded at the Company's cost; there is no
intercompany profit or loss on
40
<PAGE> 22
intersegment transfers. During fiscal 1998, 1997 and 1996, the Company did not
allocate assets to segments but did allocate depreciation for the purpose of
determining each segment's earnings before interest and income taxes.
FACTORS MANAGEMENT USED TO IDENTIFY THE ENTERPRISE'S REPORTABLE SEGMENTS
The Company's reportable segments offer various similar products and/or operate
in various locations. The reportable segments are each managed separately
because they manufacture and distribute different types of products.
SEGMENT FINANCIAL INFORMATION FOR THE YEAR ENDED
JANUARY 2, 1999
<TABLE>
<CAPTION>
ACTIVEWEAR INTERNATIONAL ALL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES FROM
EXTERNAL CUSTOMERS $908,826 $126,332 $144,960 $1,180,118
DEPRECIATION AND
AMORTIZATION EXPENSE 66,445 3,199 4,724 74,368
EBIT (loss) 101,518 (4,603) 19,640 116,555
</TABLE>
SEGMENT FINANCIAL
INFORMATION FOR THE YEAR ENDED
JANUARY 3, 1998
<TABLE>
<CAPTION>
Activewear International All Other Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from
external customers $969,292 $127,752 $131,154 $1,228,198
Depreciation and
amortization expense 66,377 3,199 4,845 74,421
EBIT (loss) 99,880 (1,665) 16,700 114,915
</TABLE>
SEGMENT FINANCIAL
INFORMATION FOR THE YEAR ENDED
JANUARY 4, 1997
<TABLE>
<CAPTION>
Activewear International All Other Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from
external customers $990,985 $120,949 $132,270 $1,244,204
Depreciation and
amortization expense 64,110 3,199 4,917 72,226
EBIT 133,258 1,712 18,138 153,108
</TABLE>
PROFIT OR LOSS
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total profit or loss for
reportable segments $ 116,555 $ 114,915 $ 153,108
Restructuring and
impairment charges (47,246) -- --
Other charges (27,761) -- --
- --------------------------------------------------------------------------------------
Other profit or loss (204) (1,056) (694)
Unallocated amounts:
Corporate expenses (24,401) -- --
LIFO reserves 616 2,658 2,869
Interest expense (27,824) (28,165) (25,738)
- ---------------------------------------------------------------------------------------
Income (loss) before
income taxes $ (10,265) $ 88,352 $ 129,545
=======================================================================================
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
Revenues 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $1,053,786 $1,100,446 $1,124,255
Europe 104,341 97,355 92,950
Other foreign countries 21,991 30,397 26,999
- --------------------------------------------------------------------------------------
Consolidated total $1,180,118 $1,228,198 $1,244,204
======================================================================================
<CAPTION>
Long-lived Assets 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
United States $496,393 $505,469
Europe 18,339 20,187
Other foreign countries 5,255 457
- -------------------------------------------------------------
Consolidated total $519,987 $526,113
=============================================================
</TABLE>
Revenues are attributed to countries based on the location of customers.
MAJOR CUSTOMER
Revenues from Wal-Mart represent approximately 19.0%, 18.8% and 17.1% of the
Company's consolidated revenue for the years ended January 2, 1999, January 3,
1998 and January 4, 1997, respectively.
NOTE 12 SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
Year ended January 2, 1999:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
APRIL 5 JULY 5 OCTOBER 4 JANUARY 2
- ----------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES $256,229 $271,824 $377,208 $274,857
GROSS PROFIT 72,430 73,236 96,351 59,995
NET INCOME (LOSS) 1,849 6,560 (14,156) (4,632)
NET INCOME (LOSS) PER
COMMON SHARE:
BASIC $ .05 $ .18 $ (.39) $ (.13)
DILUTED $ .05 $ .18 $ (.39) $ (.13)
</TABLE>
Year ended January 3, 1998:
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------
April 6 July 6 October 5 January 3
- -----------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $258,159 $270,273 $368,274 $331,492
Gross profit 82,011 78,067 115,118 95,471
Net income 11,303 8,113 23,234 11,798
Net income per
common share:
Basic $ .30 $ .22 $ .64 $ .32
Diluted $ .30 $ .22 $ .64 $ .32
</TABLE>
41
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
RUSSELL CORPORATION AND SUBSIDIARIES
BOARD OF DIRECTORS AND SHAREHOLDERS
RUSSELL CORPORATION
We have audited the accompanying consolidated balance sheets of Russell
Corporation and Subsidiaries as of January 2, 1999 and January 3, 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended January 2, 1999. 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 2, 1999 and January 3, 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 2, 1999, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
January 29, 1999
Birmingham, Alabama
42
<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-12
<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 29, 1999, included in the
1998 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
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 29, 1999, 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 29, 1999
IV-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RUSSELL CORPORATION FOR THE YEAR ENDED JANUARY 2, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 13,852
<SECURITIES> 765
<RECEIVABLES> 187,869
<ALLOWANCES> 8,562
<INVENTORY> 371,579
<CURRENT-ASSETS> 584,714
<PP&E> 1,224,242
<DEPRECIATION> 704,255
<TOTAL-ASSETS> 1,153,564
<CURRENT-LIABILITIES> 148,895
<BONDS> 323,043
0
0
<COMMON> 414
<OTHER-SE> 614,357
<TOTAL-LIABILITY-AND-EQUITY> 1,153,564
<SALES> 1,180,118
<TOTAL-REVENUES> 1,180,118
<CGS> 878,106
<TOTAL-COSTS> 878,106
<OTHER-EXPENSES> 270,526
<LOSS-PROVISION> 13,927
<INTEREST-EXPENSE> 27,824
<INCOME-PRETAX> (10,265)
<INCOME-TAX> 114
<INCOME-CONTINUING> (10,379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,379)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
<PAGE> 1
EXHIBIT 99
PROXY STATEMENT FOR APRIL 21, 1999
ANNUAL SHAREHOLDERS' MEETING
IV-14
<PAGE> 2
(RUSSELL(R) LOGO)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
RUSSELL CORPORATION
To the Shareholders of Russell Corporation:
Notice is hereby given that the Annual Meeting of the Shareholders (the
"Annual Meeting") of Russell Corporation (the "Company") will be held on
Wednesday, April 21, 1999, at 11:00 a.m., Central Daylight Time, at the general
offices of the Company, 755 Lee Street, Alexander City, Alabama, for the
following purposes:
(1) To elect two directors to the Board of Directors for three year
terms ending with the Annual Meeting of Shareholders in 2001 and
two directors to the Board of Directors to fill unexpired terms
ending with the Annual Meeting of Shareholders in 2000; and
(2) To transact such other business as may properly come before the
meeting.
Holders of the common stock of the Company at the close of business on
March 3, 1999, are entitled to notice of and to vote upon all matters at the
Annual Meeting or at any adjournment thereof.
You are cordially invited to attend the Annual Meeting so that we may
have the opportunity to meet with you and discuss the affairs of the Company.
WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY SO THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT
THE ANNUAL MEETING. A stamped, addressed envelope is enclosed for your
convenience in returning your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
FLOYD G. HOFFMAN
Senior Vice President,
General Counsel and Secretary
Alexander City, Alabama
March 18, 1999
<PAGE> 3
RUSSELL CORPORATION
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 21, 1999
This Proxy Statement is furnished by and the accompanying proxy is
solicited on behalf of the Board of Directors of Russell Corporation, an Alabama
corporation (the "Company"), for use at its Annual Meeting of Shareholders to be
held at the general offices of the Company in Alexander City, Alabama, on
Wednesday, April 21, 1999, at 11:00 a.m., Central Daylight Time, and at any
adjournment thereof (the "Annual Meeting"). The Proxy Statement and accompanying
proxy will initially be mailed to shareholders on or about March 18, 1999.
Shares represented by a properly executed proxy in the accompanying form
will be voted at the meeting and, when instructions have been given by the
shareholder, will be voted in accordance with those instructions. In the absence
of contrary instructions, the proxies received by the Board of Directors will be
voted FOR the election of all nominees for director of the Company. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Secretary of the
Company, by executing and delivering to the Company a later dated proxy
reflecting contrary instructions or by appearing at the Annual Meeting and
taking appropriate steps to vote in person.
ELECTION OF DIRECTORS
The Bylaws of the Company ("Bylaws") provide for a Board of Directors of
not less than nine nor more than 15 members. In addition, the Bylaws also
provide that the Board of Directors shall set the number of directors within the
specified limitations by resolution adopted by a majority of the entire Board of
Directors and that the Board will be divided into three classes, as nearly equal
in number as possible, each of which will serve for three years. On February 28,
1996, a majority of the Board of Directors adopted a resolution which
established the size of the Board of Directors at ten members, effective April
24, 1996. It is proposed to elect two directors to serve until the Annual
Meeting of Shareholders in 2002 and two directors to fill unexpired terms ending
with the Annual Meeting of Shareholders in 2000, to serve in each case until
their successors have been duly elected and qualified. Proxies cannot be voted
for more than two persons for the terms ending in 2002 and for more than two
persons for the terms ending in 2000. It is intended that shares represented by
the Board of Directors' proxies will be voted for the election of the following
four persons to serve in each case for the terms indicated:
NOMINEES TO SERVE UNTIL ANNUAL MEETING OF SHAREHOLDERS IN 2002:
<TABLE>
<CAPTION>
Year First Shares
Name, Age and Elected Director Beneficially
Principal Occupation of the Owned as of Percent
of Nominee Company March 3, 1999 of Class
---------- ------- ------------- --------
<S> <C> <C> <C>
Herschel M. Bloom (55) 1986 7,355 *
Partner,
King & Spalding
Atlanta, Georgia
attorneys
Ronald G. Bruno (47) 1992 11,899 *
President,
Bruno Capital
Management Corporation
Birmingham, Alabama
an investment company
</TABLE>
- 1 -
<PAGE> 4
NOMINEES TO FILL UNEXPIRED TERMS ENDING WITH ANNUAL MEETING OF SHAREHOLDERS IN
2000:
<TABLE>
<CAPTION>
Year First Shares
Name, Age and Elected Director Beneficially
Principal Occupation of the Owned as of Percent
of Nominee Company March 3, 1999 of Class
---------- ------- ------------- --------
<S> <C> <C> <C>
John F. Ward (55) 1998 955,153(1)(2) 2.74
Chairman, President and Chief
Executive Officer of
the Company
Eric N. Hoyle (51) 1998 612,960(2) 1.76
Executive Vice President and
Chief Financial Officer
of the Company
</TABLE>
EACH OF THE DIRECTORS NAMED BELOW WILL CONTINUE IN OFFICE AFTER THE ANNUAL
MEETING UNTIL HIS OR HER TERM EXPIRES AS INDICATED:
<TABLE>
<CAPTION>
Annual Meeting Year First Shares
at Which Elected Director Beneficially
Name, Age and Term of the Owned as of Percent
Principal Occupation Expires Company March 3, 1999 of Class
- -------------------- ------- ------- ------------- --------
<S> <C> <C> <C> <C>
Benjamin Russell (61) 2000 1963 5,896,501(3) 16.93
Chairman and
Chief Executive Officer,
Russell Lands, Incorporated
Alexander City, Alabama
a land and timber company
Margaret M. Porter (48) 2000 1997 2,053 *
Civic Volunteer
Birmingham, Alabama
C.V. Nalley III (56) 2001 1989 2,185 *
Chief Executive Officer,
The Nalley Companies
Atlanta, Georgia
automobile and truck sales
and leasing companies
John R. Thomas (62) 2001 1966 599,228(4) 1.72
Chairman, President and
Chief Executive Officer,
Aliant Financial Corporation
Alexander City, Alabama
a bank holding company
John A. White (59) 2001 1992 3,054 *
Chancellor,
University of Arkansas
Fayetteville, Arkansas
Tim Lewis (43) 2001 1995 534 *
President,
T.A. Lewis & Associates, Inc.
Birmingham, Alabama
telecommunications consultants
</TABLE>
(*)Represents less than one percent (1%).
- 2 -
<PAGE> 5
(1) The shares of the Company's Common Stock owned by Mr. Ward include
282,066 which may be acquired by him pursuant to options granted under
the Company's existing stock option plans described below, which options
may be exercised within sixty days of March 3, 1999. See also "Security
Ownership of Management" on page 14.
(2) Messrs. Ward and Hoyle are two of the trustees of the Company's pension
plan, which owns 600,960 shares of the Company's Common Stock. As such
trustees, they have the right to vote such shares. These shares are
included in the shares shown as beneficially owned by each of such
persons. However, Messrs. Ward and Hoyle disclaim any beneficial
ownership as to all of such shares.
(3) Includes (i) 731,296 shares held by the Benjamin and Roberta Russell
Foundation, Incorporated, a charitable corporation of which Mr. Russell
is one of nine directors, (ii) 3,945,024 shares held by a trust created
under the will of Benjamin C. Russell, of which Mr. Russell is one of
four trustees, (iii) 225,000 shares held by the Adelia Russell Charitable
Foundation, of which Mr. Russell is one of three trustees, and (iv) 4,000
shares held by Colley's Point, Inc. Profit Sharing Plan, of which Mr.
Russell is one of two trustees.
(4) Includes (i) 112,607 shares owned directly or indirectly, (ii) 32,372
shares held by the Finis Morgan Family Trust, of which Mr. Thomas is one
of three trustees, and (iii) 454,249 shares owned indirectly by Mr.
Thomas as a general and limited partner in two limited partnerships. See
also "Security Ownership of Management" on page 14.
With the exceptions of John F. Ward, Eric N. Hoyle, Tim Lewis and
Margaret M. Porter, each of the above named persons has been a director of the
Company for at least the last five years. Except as noted in the remainder of
this paragraph, each of the above named persons has held the same or comparable
positions with the indicated entities for at least the last five years.
Mr. Ward was elected President and Chief Executive Officer of the Company
effective April 1, 1998, and Chairman of the Board effective April 22, 1998. In
accordance with the Bylaws, Mr. Ward was elected by the Board of Directors to
serve as a director of the Company until the Annual Meeting, filling the
unexpired term of John C. Adams. Prior to his elections to such positions, Mr.
Ward was President of J. F. Ward Group, Inc., a consulting firm specializing in
domestic and international apparel and textile industries from 1996 to 1998.
Prior to that time, Mr. Ward was Chief Executive Officer of the Hanes Group and
Senior Vice President of Sara Lee Corporation.
Mr. Hoyle was elected Executive Vice President and Chief Financial
Officer and a Director effective August 11, 1998. In accordance with the Bylaws,
Mr. Hoyle was elected by the Board of Directors to serve as a director of the
Company until the Annual Meeting, filling the unexpired term of James D. Nabors.
Mr. Hoyle was Chief Financial Officer of Ithaca Industries, Inc. from 1994 to
1998. During the time Mr. Hoyle served as its Chief Financial Officer, Ithaca
Industries, Inc., filed a petition in bankruptcy under Chapter 11 of the
Bankruptcy Code. Prior to that time, he served as Vice President, Finance and
Administration and Chief Financial Officer of the Bali Company, a division of
Sara Lee Corporation, and Sara Lee Intimates group from 1983 to 1994.
Margaret M. Porter has served since 1992 as Chairman of McWane Center in
Birmingham, Alabama. McWane Center is a non-profit organization which promotes
the public understanding and appreciation of science, technology and the
environment and is a statewide resource for Alabama schools. From 1984 to 1996,
Ms. Porter served on the Mtn. Brook (Alabama) City Council, serving as President
of the Council from 1992 to 1996 and as Mayor from July, 1996 to October, 1996.
Ms. Porter has also served in various Alabama public interest organizations,
including the Board of Trustees of The Children's Hospital of Alabama, the Board
of Directors of the Alabama School of Fine Arts Foundation and as Chairman of
the Literacy Council of Central Alabama.
John R. Thomas is a director of Alfa Corporation. Ronald G. Bruno is a
director of Bruno's, Inc., SouthTrust Bank, N.A. and Books-A-Million, Inc.
Herschel M. Bloom is a director of Post Properties, Inc. John A. White is a
director of Motorola, Inc., Logility, Inc., Eastman Chemical Company and J.B.
Hunt Transport Services, Inc.
Should any nominee be unable or unwilling to accept election, it is
expected that the proxies will vote for the election of such other person for
the office of director as the Board of Directors of the Company may then
recommend. The Board of Directors has no reason to believe that any of the
persons named will be unable or will decline to serve if elected.
- 3 -
<PAGE> 6
During the year ended January 2, 1999, the Board of Directors of the
Company held four regular meetings. Each member of the Board attended at least
75% of the meetings of the Board and the committees of which they are members.
The Company has an Executive Committee consisting of John F. Ward and
Eric N. Hoyle, which is authorized to act in place of the Board of Directors
between meetings of the Board. The Executive Committee held eighteen meetings
during 1998.
The Company has an Executive Compensation Committee consisting of C.V.
Nalley III, Chairman, Herschel M. Bloom and Ronald G. Bruno, which supervises
the Company's general compensation strategies, including incentive compensation,
stock options and benefit programs. The Compensation Committee held three
meetings during 1998.
The Company has an Audit Committee consisting of John A. White, Chairman,
Herschel M. Bloom, Ronald G. Bruno, Tim Lewis, C.V. Nalley III, Margaret M.
Porter, Benjamin Russell, and John R. Thomas, which recommends to the Board of
Directors the appointment of the Company's independent accountants selected to
be the Company's auditors and reviews the audit plan, financial statements and
audit results. The Audit Committee held two meetings during 1998.
The Company has a Finance Committee consisting of Ronald G. Bruno,
Chairman, Herschel M. Bloom, Eric N. Hoyle, Tim Lewis and John R. Thomas. The
Finance Committee reviews the Company's capital structure and financing
activities and held two meetings during 1998.
The Company has a Nominating Committee which recommends candidates for
election to the Company's Board of Directors. The Nominating Committee consists
of Herschel M. Bloom, Chairman, Margaret M. Porter, Benjamin Russell, John R.
Thomas and John A. White and held no meetings during 1998.
Each non-employee director receives a quarterly retainer of $3,750 and a
fee of $1,000 for each Board meeting attended. Members of committees of the
Board who are not employees of the Company receive $650 per quarter per
committee (except chairmen, who receive $1,300 per quarter). In addition, under
the Russell Corporation 1997 Non-Employee Directors' Stock Grant, Stock Option
and Deferred Compensation Plan (the "Directors' Plan"), which was adopted by the
Board of Directors on July 23, 1997, each non-employee director (an "Eligible
Director") receives annually (i) shares of Common Stock having a value of
$5,000, based upon the market value of the Common Stock on the date of grant,
and (ii) an option to purchase shares of Common Stock, exercisable for ten years
at a price equal to the market value of the Common Stock on the date of grant,
having, based upon the number of shares subject thereto, an economic value of
$5,000. In addition, the Directors' Plan allows an Eligible Director to defer
the payment of fees to such director at a fixed rate of interest and to defer
the receipt of Common Stock granted pursuant to the Directors' Plan. Two hundred
thousand (200,000) shares of Common Stock are presently authorized to be issued
under the Directors' Plan and 197,176 shares remain available for issuance.
EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Directors (the
"Committee") is comprised solely of directors who are not current or former
employees of the Company. The Committee is responsible for establishing the
compensation policy and administering the compensation programs for the
Company's executive officers and other key employees. The Committee periodically
engages independent compensation consultants to assist them in this process. The
Committee intends to make all reasonable efforts to comply with the requirements
to exempt executive compensation from the $1 million deduction limitation under
Section 162(m) of the Internal Revenue Code, unless the Committee determines
that such compliance would not be in the best interests of the Company and its
shareholders. Amendments to the 1993 Executive Long-Term Incentive Plan approved
by shareholders in 1997 and 1998 allow the executive compensation plans to be in
compliance with ss.162(m).
During 1998, an independent consultant conducted a full review of the
Company's executive compensation program. The Committee approved several
significant changes for implementation in 1999. The following report discusses
these changes along with the programs that were in place during 1998.
- 4 -
<PAGE> 7
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The compensation program for executive officers is designed to attract,
motivate and retain talented executives who will strive to attain the Company's
strategic and financial objectives and thereby increase shareholder value. The
main elements of the program are:
- - annual compensation (base salary and annual incentives) and
- - long-term compensation (stock options and performance units).
The Company's philosophy is to provide total compensation at a level that
is consistent with its size and performance relative to other leading branded
consumer apparel companies. These companies include many of those in the Value
Line Apparel Index used in the performance graph on page 7. The Committee
periodically reviews the reasonableness of total compensation levels and mix
using public information from comparable company proxy statements and annual
reports as well as survey information from third-party industry surveys.
Annual Compensation
Base Salary - The Committee annually reviews and approves base salaries
for the Company's executive officers, considering the responsibilities of their
positions, their individual performance and their competitive position relative
to comparable companies and industry surveys. Salary ranges are targeted at the
median of the competitive market place. Salary increases, including increases
due to promotions, for the most recent fiscal year are based upon these
criteria.
Annual Incentive - Executive officers are eligible to receive annual
incentive awards under provisions of the 1993 Executive Long-Term Incentive
Plan, as amended in 1997 and 1998. Under this plan, the Committee established
Return on Assets Employed (ROAE) goals for 1998 at the beginning of the year.
These goals applied either at the corporate level and/or the business unit
level, depending upon the participant. Threshold, target and maximum performance
levels were set for each ROAE goal. Target award levels were established for
each participant and incentive awards between 50% and 150% of target were earned
based upon ROAE performance relative to the pre-established performance levels.
No awards were earned for performance below threshold. Awards were payable at
120% of the amount earned, subject to reduction to the extent individual
performance was evaluated as less than outstanding.
For 1999 and subsequent years, annual performance goals will be
established by the Committee for the Company and each operating unit. Maximum
incentive opportunity will be communicated to each participant, as well as the
performance scale under which incentives will be earned. Threshold performance
levels will be established for each goal, below which no incentive will be paid.
Individual standards of performance will provide each participant the
opportunity to earn incentives based upon the accomplishment of strategic and
tactical objectives and will be agreed upon at the beginning of each year. Award
opportunities for the Chief Executive Officer and Chief Financial Officer will
be tied solely to the accomplishment of financial goals approved in advance by
the Committee.
Long-Term Compensation
Performance Units - Since 1993, the Committee has annually awarded
performance units to executive officers. These performance units are earned
based upon the Company's Total Shareholder Return ("TSR") relative to that of
the Standard and Poor's Industrial Index over a three-year period. New grants
have been made each year. In order for any earn out to occur, the Company's TSR
must be between the 33rd and 90th percentile. For the 1996-1998 performance
cycle, since TSR was below the 33rd percentile, no performance units were
earned.
Under the revised executive compensation plan, grants of performance
units will be discontinued. No further performance units will be granted in
1999, although the performance cycles currently in effect (1997- 1999 and
1998-2000) will continue under the provisions established for previous grants.
Stock Options - The Committee believes stock options to be one of the
most effective ways of linking executives with the interests of the
shareholders, since no gain is realized by the executive unless the stock price
increases. The Company grants stock options annually during the first quarter,
although special grants
- 5 -
<PAGE> 8
may be made throughout the year in unique circumstances such as recruiting
situations. Options are granted with an exercise price equal to the market value
on the date of grant. Options granted prior to 1999 have become exercisable two
years after they are granted. Options expire ten years from the date of grant.
For the foreseeable future, stock options will be the only form of
long-term compensation at the Company. Stock option grant guidelines have been
increased to reflect that grants of performance units have been discontinued,
and to meet the median competitive practice of the marketplace. Options granted
in 1999 and beyond will become exercisable pro-rata on the first four
anniversaries of the grant to reinforce retention and further align executives'
compensation with shareholder returns.
Chief Executive Officer
John F. Ward - Effective April 1, 1998, the Board of Directors elected
John F. Ward President and Chief Executive Officer. His compensation principally
consists of base salary, annual bonus and stock option awards.
- - Annual Compensation
- Base Salary: Mr. Ward's annual salary during 1998 was $650,000,
based upon an assessment of competitive compensation practices in
comparable companies at the time he joined the Company.
- Annual Incentive: The Committee awarded Mr. Ward an annual
incentive payment for 1998 equal to $350,000, which is the amount
guaranteed in his employment agreement. Despite disappointing
financial and shareholder returns, the Company made significant
progress in restructuring the organization, revitalizing the
senior management team and establishing and implementing a
strategic plan that is expected to begin producing results by the
beginning of next year.
- - Long-term compensation
- Stock Options: In accordance with his employment agreement, on
March 31, 1998, Mr. Ward was granted options to purchase 125,000
shares of stock, with an exercise price of $27.1563, the fair
market value on that date. The terms and conditions that apply to
Mr. Ward's stock option grants are described in the notes to the
Summary Compensation Table on page 8.
- - Other benefits: In connection with Mr. Ward's employment, the Company
paid additional amounts designed to replace compensation forfeited by Mr.
Ward due to accepting employment with the Company. These payments are
described in the Summary Compensation Table and the notes thereto on page
8. Additional provisions of Mr. Ward's agreements are described on page
12.
John C. Adams - Prior to his retirement on March 31, 1998, Mr. Adams was
Chairman of the Board, President and Chief Executive Officer. The provisions of
his retirement agreement are summarized on page 11. The Committee made the
following decisions regarding his compensation during 1998:
- - Annual Compensation
- Base Salary: Mr. Adams received no increase in salary during 1998.
- Annual Incentive: Mr. Adams received no annual incentive payment
for 1998.
- - Long-term compensation
- Performance Units: Mr. Adams was granted 270,000 performance units
for the 1998-2000 performance cycle. Any payment with respect to
these performance units will be pro-rated for the period that Mr.
Adams was actively employed during the performance cycle.
- Stock Options: Mr. Adams was granted 24,600 stock options, with an
exercise price of $24.375 per share, in February 1998 based upon
the grant guidelines previously approved by the Committee. These
options are exercisable in accordance with the 1993 Executive Long
Term Incentive Plan for a period of three years following his
retirement.
Conclusion
The Committee believes that the executive compensation programs directly tie the
pay opportunities of the Company's executives to the financial and shareholder
returns of the Company. The changes that are being implemented in 1999 further
reinforce the linkage between pay and performance, and between executive
compensation and shareholder return, and allow the Company to attract and retain
the caliber of executives required in the highly competitive global environment
in which executives of the Company must perform.
Executive Compensation Committee
C.V. Nalley III
Ronald G. Bruno
Herschel M. Bloom
- 6 -
<PAGE> 9
COMPARATIVE FIVE-YEAR CUMULATIVE TOTAL RETURNS THROUGH 12/31/98
VALUE OF $100 INVESTED ON 12/31/93 AT FISCAL YEAR-END:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Russell Corporation $ 100.00 $ 112.62 $ 101.32 $ 110.49 $ 100.45 $ 78.47
S&P 500 100.00 101.60 139.71 172.18 229.65 294.87
Value Line Apparel Index 100.00 110.17 120.83 165.49 193.05 238.83
</TABLE>
NOTES
1) Assumes that the value of the investment in the Company's Common Stock and in
each index was $100 on the last trading day preceding the first day of the fifth
preceding fiscal year and that all dividends were reinvested.
2) The Value Line Apparel Index presently includes: Fruit of the Loom, Inc.;
Hartmarx Corporation; Jones Apparel Group; Kellwood Company; Liz Claiborne,
Inc.; Nautica Enterprises, Inc.; Oshkosh B'Gosh, Inc.; Oxford Industries, Inc.;
Phillips-Van Heusen Corporation; Polo-Ralph Lauren; Quicksilver, Inc.; St. John
Knits, Inc.; Tommy Hilfiger Corp.; Tultex Corporation; VF Corporation; Warnaco
Group, Inc.; and the Company.
- 7 -
<PAGE> 10
SUMMARY COMPENSATION TABLE
The following information is furnished for the fiscal years ended January
2, 1999, January 3, 1998 and January 4, 1997 with respect to the Company's Chief
Executive Officer, retired Chief Executive Officer, each of the four other most
highly compensated executive officers of the Company during 1998 whose salary
and bonus exceeded $100,000 and one individual for whom such disclosure would
have been required but for the fact that such individual was not serving as an
executive officer at the end of the 1998 fiscal year (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------- -----------------------------------
Awards Payouts
------------------------ -------
Name and Other Restricted All
Principal Fiscal Annual Stock Options/ LTIP Other
Position Year Salary Bonus (1) Compensation Awards SAR's Payouts Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Ward 1998 $490,000 $350,000 $44,375(2) 12,127(3) 407,066(4) $3,496,031(5)
Chairman, 1997
President 1996
and C.E.O.
JT Taunton, Jr. 1998 300,000 38,500 8,000
Sr. V.P. & 1997 290,000 0 6,100
C.E.O. Fabrics 1996 265,000 105,000 6,200
and Services
John Frechette (6) 1998 265,000 0 4,500
V.P. International 1997 260,100 0 3,500
1996 256,267 18,000 3,700
Thomas R. Johnson, Jr. 1998 240,000 0 5,200
Sr. V.P. & 1997 235,000 0 4,900
C.E.O. Russell Yarn 1996 223,333 77,900 6,400
Dale W. Wachtel 1998 221,000 80,000 4,500
Sr. V.P. & 1997 210,000 104,000 2,700
C.E.O. Russell 1996 188,433 94,200 2,700
Athletic
John C. Adams 1998 600,000 0 2,060 24,600
Retired Chairman 1997 600,000 0 14,616 19,400
President & C.E.O. 1996 551,000 285,000 8,597 19,800
James D. Nabors 1998 332,000 0 8,900
Retired Exec. V.P. 1997 330,000 0 502 6,900
& C.F.O. 1996 309,667 120,000 627 7,200
</TABLE>
(1) Bonus payments are reported for the year in which related services were
performed.
(2) Pursuant to Mr. Ward's employment agreement, includes personal use of
Company aircraft, personal office closure expenses, temporary housing,
club dues and Company provided automobile. For Messrs. Adams and Nabors,
this includes personal use of Company aircraft.
(3) Pursuant to Mr. Ward's employment agreement, one third of this amount
vested on April 1, 1998, with the remainder vesting ratably over the next
two succeeding years.
(4) Pursuant to Mr. Ward's employment agreement, 125,000 options vest ratably
in each of the three years following April 1, 1998, the date of the
grant. The exercise price of these options is $27.1563, the fair market
value on the date of grant, and the options are exercisable until April
1, 2008. Pursuant to the Executive Deferred Compensation and Buyout Plan,
282,066 vested options were issued to Mr. Ward at an exercise price of
$27.1563, the fair market value on the date of grant and are exercisable
until October 1, 2002.
(5) Amounts either paid to Mr. Ward or deposited into a deferred compensation
trust for his benefit to replace benefits and opportunities Mr. Ward
forfeited pursuant to agreements with his former employer as a result of
accepting employment with the Company.
(6) Mr. Frechette resigned from the Company effective January 25, 1999. His
severance agreement is summarized on page 12.
- 8 -
<PAGE> 11
OPTION/SAR GRANTS IN FISCAL 1998
The following table sets forth grants of incentive stock options to the
named executives for the year ended January 2, 1999. This information is
furnished with respect to the Named Executive Officers. No SAR grants were made
during such fiscal year.
<TABLE>
<CAPTION>
Individual Grants (1)
- ------------------------------------------------------------------------------------- Potential Realizable
Number Of Value At Assumed
Securities % Of Total Annual Rates Of Stock
Underlying Options/SARs Price Appreciation
Options/SARs Granted Exercise For Option Term
Granted to Employees Price Expiration -----------------------------
Name in 1998 in 1998 Per Share Date 5% 10%
- ---- ------------ ------------ --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John F. Ward 125,000(2) 12.52 $27.1563 4/01/08 $ 5,529,345 $ 8,804,557
282,066(2) 28.26 27.1563 10/01/02 9,543,384 11,775,555
JT Taunton, Jr. 8,000 0.80 24.375 1/28/08 317,634 505,780
John E. Frechette 4,500 0.45 24.375 7/31/99(3) 118,051 126,689
Thomas R. Johnson, Jr. 5,200 0.52 24.375 1/28/08 204,848 324,177
Dale W. Wachtel 4,500 0.45 24.375 1/28/08 178,670 284,502
John C. Adams 24,600 2.46 24.375 4/01/01(3) 699,937 811,429
James D. Nabors 8,900 0.89 24.375 5/31/01(3) 255,276 298,272
</TABLE>
(1) The stock options were granted at an exercise price equal to the fair
market value of the Company's common stock on the date of the grant. The
stock options become exercisable in full on the second anniversary of the
grant. No other instruments were granted in tandem with the options, nor
do they carry either reload or tax reimbursement features.
(2) See Note (4) on page 8.
(3) Exercise period shortened due to retirement or termination of employment.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1998 AND YEAR-END VALUE TABLE
The following table sets forth information concerning the exercise of
stock options for the Named Executive Officers for the fiscal year ended January
2, 1999:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs
Shares at January 2, 1999 at January 2, 1999 (2)
Acquired Value --------------------------- -------------------------
Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Ward 0 $0 282,066 125,000 $0 $0
JT Taunton, Jr. 0 0 24,100 14,100 0 0
John E. Frechette 0 0 27,700 0 0 0
Thomas R. Johnson, Jr. 0 0 24,900 11,300 0 0
Dale W. Wachtel 0 0 15,900 7,200 0 0
John C. Adams 0 0 124,000 0 0 0
James D. Nabors 0 0 52,800 0 0 0
</TABLE>
(1) This amount represents the aggregate of the market value of the Company's
Common Stock at the time each option was exercised, less the exercise
price for such option.
(2) This amount represents the aggregate of the number of options multiplied
by the difference between the closing price of the Company's Common Stock
on December 31, 1998, less the exercise price for such option.
- 9 -
<PAGE> 12
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL 1998
The 1993 Executive Long-Term Incentive Plan provides for the award of
long-term cash incentives to officers of the Company. Performance Units may be
awarded based upon achievement of target goals over a three year period.
Performance Units were awarded in accordance with the following schedule:
<TABLE>
<CAPTION>
Performance or
Number of Other Period Estimated Future Payouts Under Non-Stock
Shares, Until Price-Based Plans
Units or Maturation ----------------------------------------
Name Other Rights or Payout Threshold Target Maximum
- --------------------- ------------ -------------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
John F. Ward (1) -- -- -- -- --
JT Taunton, Jr. 90,000 1998-2000 22,500 90,000 180,000
John E. Frechette 44,200 1998-2000 11,050 44,200 88,400
Thomas R. Johnson, Jr. 45,000 1998-2000 18,000 72,000 144,000
Dale W. Wachtel 44,200 1998-2000 11,050 44,200 88,400
John C. Adams 270,000 1998-2000 67,500 270,000 540,000
James D. Nabors 99,600 1998-2000 24,900 99,600 199,200
</TABLE>
(1) The Company did not grant Performance Units in 1998 subsequent to January
28, 1998; consequently, no Performance Units were granted to Mr. Ward. The
Company does not intend to grant Performance Units after 1998.
Performance units are earned based upon Company Total Shareholder
Return ("TSR") relative to a peer group, the S & P Industrials. Threshold,
target and maximum awards are earned when TSR is at the 33rd percentile, the
median percentile or the 90th percentile of the peer group. Awards earned based
upon relative TSR performance may be decreased by up to 50% if the Company's
absolute TSR for the performance period is less than a predetermined level.
For further discussion of the 1993 Executive Long-Term Incentive Plan,
see the discussion above under the caption "EXECUTIVE COMPENSATION - EXECUTIVE
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION - LONG-TERM
COMPENSATION".
PENSION PLAN
The officers of the Company participate in the Russell Corporation
Revised Pension Plan (the "Plan"), a defined benefit plan covering all employees
of the Company. The amount of contributions made by the Company to the Plan is
not reflected in the cash compensation table above, since the amount of the
contribution with respect to a specified person is not and cannot readily be
separately or individually calculated by the regular actuaries for the Plan.
Benefits under the Plan are based upon years of credited service at
retirement and upon "Final Average Earnings," which is the average base
compensation for the highest sixty consecutive months out of the final 120
months of employment. This compensation consists only of salary and excludes any
bonus and any form of contribution to other benefit plans or any other form of
compensation. Normal or delayed retirement benefits are payable upon retirement
on the first day of any month following attainment of age 65 and continue for
the life of the employee (and his spouse, if any) or in accordance with other
elections permitted by the Plan.
On January 26, 1994, the Board of Directors adopted a supplemental
retirement plan covering any participant's compensation in excess of the
limitation amount specified in Section 401 et seq., of the Internal Revenue
Code. This plan is a non-qualified plan, thereby rendering any benefits subject
to claims of general creditors and not deductible until paid.
The following table presents estimated annual benefits payable from the
Plan and the supplemental retirement plan mentioned above upon normal or delayed
retirement to participants in specified remuneration and years-of-credited
service classifications. The amounts shown assume the current maximum social
security benefit and that the participant has elected for benefits to be payable
for a single life only.
- 10 -
<PAGE> 13
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Credited Service
5 Year Average ----------------------------------------------------------
Remuneration 15 20 25 30 35 40
- -------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 150,000 $ 23,612 $31,483 $39,354 $47,225 $55,096 $59,221
175,000 27,737 36,983 46,229 55,475 64,721 69,533
200,000 31,862 42,483 53,104 63,725 74,346 79,846
225,000 35,987 47,983 59,979 71,975 83,971 90,158
250,000 40,112 53,483 66,854 80,225 93,596 100,471
300,000 48,362 64,483 80,604 96,725 112,846 121,096
350,000 56,612 75,483 94,354 113,225 132,096 141,721
400,000 64,862 86,483 108,104 129,725 151,346 162,346
450,000 73,112 97,483 121,854 146,225 170,596 182,971
500,000 81,362 108,483 135,604 162,725 189,846 203,596
600,000 97,862 130,483 163,104 195,725 228,346 244,846
700,000 114,362 152,483 190,604 228,725 266,846 286,096
800,000 130,862 174,483 218,104 261,725 305,346 327,346
900,000 147,362 196,483 245,604 294,725 343,846 368,598
1,000,000 163,862 218,483 273,104 327,725 382,346 409,846
</TABLE>
Years of service credited under the Plan for individuals shown in the
summary compensation table on page 8 are as follows: Mr. Ward, 0 years; Mr.
Taunton, 23 years; Mr. Frechette, 7 years; Mr. Johnson, 9 years; Mr. Wachtel, 22
years; Mr. Adams, 22 years; and Mr. Nabors, 28 years;
STOCK OPTION PLANS
The Company has previously adopted the 1987 Stock Option Plan pursuant
to which the Company granted to key employees of the Company either incentive
stock options or nonqualified stock options. The terms of the options did not
exceed ten years from the dates of grant, and the option prices equaled fair
market value of the shares covered at the times of grant. No further options can
be granted under such plan.
The 1993 Executive Long-Term Incentive Plan (the "1993 Plan")
previously discussed herein is a flexible plan which gives the Executive
Compensation Committee broad discretion to fashion the terms of awards in order
to provide eligible participants with stock based incentives as the Committee
deems appropriate. It permits the issuance of awards in a variety of forms,
including: (a) restricted stock (b) incentive stock options (c) non-qualified
stock options (d) stock appreciation rights and (e) performance share and
performance unit awards.
The 1993 Plan presently provides for the grant of up to 4,000,000
shares of the Common Stock of the Company. There are 1,020,394 shares currently
available for issuance under the 1993 Plan. Issuance of awards under the 1993
Plan will cease as of January 1, 2003.
CERTAIN AGREEMENTS
In connection with the retirement of John C. Adams, the Company and Mr.
Adams entered into an agreement providing for the payment to Mr. Adams in 1998
of the salary and other compensation benefits he would have received had he not
retired. The Company also agreed to pay to Mr. Adams $400,000 per year until he
reaches age 65, and if he should die prior to that time, to pay such amounts to
his wife. Upon attaining age 65, Mr. Adams will receive payments of $300,000 per
year during his lifetime, less the annual benefits payable to him under the
Company's various retirement plans or other deferral arrangements that become
payable at age 65. For purposes of computing the benefits payable to Mr. Adams
under the Company's various retirement plans or other deferral arrangements, Mr.
Adams will be credited with service through the earlier of his death or
- 11 -
<PAGE> 14
65th birthday at an annual compensation of $600,000. The Company has also agreed
to continue to provide Mr. Adams with certain life insurance and medical
benefits until he reaches age 65. The payment of the amounts and benefits above
are subject to certain agreements by Mr. Adams concerning non-competition and
related matters.
Effective May 31, 1998, James D. Nabors entered into a retirement
agreement with the Company, which provides that the Company will pay retirement
compensation to Mr. Nabors, or his spouse if Mr. Nabors should die, in an amount
equal to his annual salary at the time of his retirement until May 31, 2000. The
retirement agreement further provides that Mr. Nabors will qualify for full
retirement benefits at age 62.
Effective January 25, 1999, John E. Frechette entered into a severance
agreement with the Company whereby Mr. Frechette will receive his current
monthly salary until July 31, 1999. If Mr. Frechette has not secured other
employment by that date, he will continue to receive such monthly compensation
until such time as he secures other employment, but in no event beyond January
31, 2000.
As noted above in this Proxy Statement, John F. Ward was employed as
the President and Chief Executive Officer of the Company, effective April 1,
1998, upon the retirement of Mr. Adams. The Company entered into an agreement
with Mr. Ward providing for the employment of Mr. Ward for three years until
March 31, 2001, at an annual base salary of $650,000, subject to increase(s) in
the discretion of the Board of Directors and a bonus of $350,000 for 1998. After
1998, Mr. Ward is entitled to receive annual bonuses under the Company's regular
compensation plans, with bonus potential of not less than 100% of base salary,
subject to any increase determined appropriate by the Board of Directors. The
employment agreement provides that the Company will offer health care and
certain other supplemental benefits to Mr. Ward. As noted in the Summary
Compensation Table, Mr. Ward is also entitled to receive certain payments for
reimbursement of expenses in connection with his relocation and employment with
the Company. The agreement also provides that any termination of employment of
Mr. Ward after April 1, 2001 shall be treated as retirement for purpose of the
Company's various plans and benefits. As noted above Mr. Ward was also granted
options in 1998 to purchase 125,000 shares of Company Common Stock at the market
price on the date of grant of $27.1563 and is to be granted options to purchase
a minimum of 75,000 shares each year thereafter at market price at the time of
grant.
Also as noted above, to compensate Mr. Ward for the forfeiture of
certain benefits from his former employer, the Company agreed to make a cash
payment to him of approximately $1,028,000, to put into a trust for his benefit
approximately $2,467,000, to issue him 12,127 shares of common stock of the
Company, and to grant him options to purchase 282,066 shares of Company Common
Stock at the market price of $27.1563 on March 31, 1998. The amounts placed in
trust will be paid to Mr. Ward after April 1, 2001 unless his employment is
terminated by the Company for cause or is terminated by Mr. Ward for any reason
other than death, total disability or certain other reasons set forth in the
agreements. In the event of such termination prior to April 1, 2001, Mr. Ward
will be entitled to receive a prorated amount from the trust based upon the
ratio that the time he has been employed by the Company bears to three years.
Similarly, the options granted to him will be forfeited on the same basis as the
amounts in trust based upon time employed with the Company.
OTHER MATTERS
The Board of Directors does not know at this time of any other matters
to come before the Annual Meeting.
As of the date of the Proxy Statement, the Board of Directors does not
intend to present, and has not been informed that any other person intends to
present, any matter for action at the Annual Meeting other than those matters
stated in the Notice of the Annual Meeting. Accordingly, if other matters should
properly come before the Annual Meeting, it is intended that the holders of the
proxies will act in respect thereto in accordance with their best judgment.
- 12 -
<PAGE> 15
PRINCIPAL SHAREHOLDERS
The following table sets forth each person who, to the Company's
knowledge, had sole or shared voting or investment power over more than five
percent of the outstanding shares of Common Stock of the Company as of March 3,
1999.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------ -------------------- --------
<S> <C> <C>
Benjamin Russell 5,896,501 shares (1) 16.93
755 Lee Street
P.O. Box 272
Alexander City, Alabama 35011-0272
Roberta A. Baumgardner 5,868,774 shares (2) 16.85
755 Lee Street
P.O. Box 272
Alexander City, Alabama 35011-0272
Edith L. Russell 4,686,320 shares (3) 13.45
755 Lee Street
P.O. Box 272
Alexander City, Alabama 35011-0272
Nancy R. Gwaltney 4,677,642 shares (4) 13.43
755 Lee Street
P.O. Box 272
Alexander City, Alabama 35011-0272
Merrill Lynch Asset Management Group 3,274,469 shares (5) 9.40
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Invesco Capital Management, Inc. 2,439,544 shares (6) 7.00
1315 Peachtree Street N.E., Suite 500
Atlanta, GA 30309
Helen Alison 2,012,588 shares (7) 5.78
755 Lee Street
P.O. Box 272
Alexander City, Alabama 35011-0272
</TABLE>
(1) Includes 991,181 shares as to which Mr. Russell has sole voting and
investment power and 4,905,320 shares as to which he has shared voting
and investment power. See Note (3) on page 3.
(2) Includes 1,192,454 shares as to which Mrs. Baumgardner has sole voting
and investment power and 4,676,320 shares as to which she has shared
voting and investment power, consisting of 731,296 shares held by the
Benjamin and Roberta Russell Foundation, Incorporated, a charitable
corporation of which Mrs. Baumgardner is one of nine directors; and
3,945,024 shares held of record and beneficially owned by a trust
created under the will of Benjamin C. Russell of which Mrs.
Baumgardner is one of four trustees.
- 13 -
<PAGE> 16
(3) Includes 10,000 shares as to which Mrs. Russell has sole voting and
investment power, and 4,676,320 shares as to which she has shared
voting and investment power consisting of 731,296 shares held by the
Benjamin and Roberta Russell Foundation, Incorporated, a charitable
corporation of which Mrs. Russell is one of nine directors, and
3,945,024 shares held of record and beneficially owned by a trust
created under the will of Benjamin C. Russell of which Mrs. Russell is
one of four trustees. The trustees of the trust created under the will
of Benjamin C. Russell can invade the corpus of the trust for the
benefit of Mrs. Russell.
(4) Includes 731,296 shares held by the Benjamin and Roberta Russell
Foundation, Incorporated, a charitable corporation of which Mrs.
Gwaltney is one of nine directors; 3,945,024 shares held by a trust
created under the will of Benjamin C. Russell of which Mrs. Gwaltney
is one of four trustees; and 1,322 shares as to which Mrs. Gwaltney
has sole voting and investment power.
(5) Information contained in Schedule 13G filed with the Company on
February 8, 1999. The Schedule 13G states that Merrill Lynch Asset
Management Group has sole voting power with respect to no shares, sole
dispositive power with respect to no shares and shared voting and
dispositive power with respect to 3,274,469 shares.
(6) Information contained in Schedule 13G filed with the Company on
February 18, 1999. The Schedule 13G states that Invesco Capital
Management, Inc. has sole voting power with respect to no shares, sole
dispositive power with respect to no shares and shared voting and
dispositive power with respect to 2,439,544 shares.
(7) Includes 2,012,588 shares held by trusts created under the will of
J. C. Alison, of which Mrs. Alison is one of two co-trustees and with
respect to which Mrs. Alison has shared voting and investment power.
Information contained in a Schedule 13G filed with the Company on
February 15, 1999 on behalf of Helen Alison and National Bank of
Commerce in Birmingham, Alabama.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
-----------------------------------------
Sole Voting Options
and Exercisable Other Percent
Investment Within Beneficial of
Name of Individual or Group Power 60 Days Ownership Class
- --------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
John F. Ward 57,127 282,066 615,960 (1)(2) 2.74
Eric N. Hoyle 12,000 0 600,960 (2) 1.76
Tim Lewis 534 0 0 *
Herschel M. Bloom 7,355 0 0 *
C.V. Nalley III 2,185 0 0 *
Ronald G. Bruno 11,899 0 0 *
John A. White 3,054 0 0 *
John R. Thomas 109,107 0 490,121 (3)(4) 1.72
Benjamin Russell 991,181 0 4,905,320 (5) 16.93
Margaret M. Porter 2,053 0 0 *
JT Taunton, Jr. 14,674 30,200 0 *
John E. Frechette 0 23,200 0 *
Thomas R. Johnson, Jr. 2,000 29,800 0 *
Dale W. Wachtel 8,189 18,600 0 *
All Executive Officers and Directors
as a Group (24 persons) 1,783,328 430,166 5,247,733 19.69
</TABLE>
(*) Represents less than one percent (1%).
(1) Includes 15,000 shares owned by Mr. Ward's spouse.
(2) See Note (2) on page 3.
(3) See Note (4) on page 3.
(4) Includes 3,500 shares owned by Mr. Thomas' spouse.
(5) See Note (3) on page 3.
- 14 -
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Based solely upon review of Forms 3, 4 and 5 and amendments thereto
related to the Company's most recent fiscal year, and written representations
from certain reporting persons that no Form 5 was required, the Company
believes that all required filings were timely for 1998.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company entered into a fuel supply contract with Russell Lands,
Incorporated on May 21, 1975, under which Russell Lands, Incorporated provides
sawdust, bark, shavings, chips, and other wood materials for use in the
Company's wood chip boilers. The initial term of the contract was four years,
and may be renewed by agreement of the parties from year-to-year thereafter. In
addition, the contract may be cancelled by either party during any renewal
period upon 30 days notice following the occurrence of certain specified
conditions. Benjamin Russell is Chairman, Chief Executive Officer and a
director of Russell Lands, Incorporated, and owns beneficially approximately
70% of the equity interest in such company. Management believes this contract
is in the best interest of the Company's shareholders. During the fiscal year
ended January 2, 1999, the Company paid Russell Lands, Incorporated
approximately $1,035,000 for wood materials to operate these boilers.
The Company purchased miscellaneous building materials and supplies
from Russell Do-It Center, a building supply retailer. The Company also
purchased concrete for various construction and repair projects from Area
Concrete, Inc. Russell Do-It Center is a division of and Area Concrete, Inc. is
a wholly owned subsidiary of Russell Lands, Incorporated. Benjamin Russell is
Chairman, Chief Executive Officer and a director of Russell Lands, Incorporated
and owns beneficially approximately 70% of the equity interest in such company.
Management believes these purchases to be in the best interest of the Company's
shareholders. During the fiscal year ended January 2, 1999, the Company paid
Russell Do-It Center and Area Concrete, Inc. approximately $88,000 and $28,000,
respectively, for the purchases described above.
AUDITORS
Ernst & Young LLP, independent accountants, was selected as the
Company's auditors for 1998 after having previously served in the same capacity
since 1930. Representatives of Ernst & Young will be in attendance at the
Annual Meeting and will be given the opportunity to make a statement and to
respond to appropriate questions.
PROPOSALS BY SHAREHOLDERS
The next annual meeting of shareholders is scheduled to be held on
April 26, 2000, and shareholders of the Company may submit proposals for
consideration for inclusion in the proxy statement of the Company relating to
such annual meeting of shareholders. However, in order for such proposals to be
considered for inclusion in the proxy statement of the Company relating to such
annual meeting, such proposals must be received by the Company not later than
November 19, 1999.
If a shareholder fails to notify the Company on or before February 2,
2000 of a proposal which such shareholder intends to present at the Company's
April 26, 2000 Annual Meeting by a means other than inclusion of such proposal
in the Company's proxy materials for that meeting, then if the proposal is
presented at such annual meeting, the holders of the Board of Director's
proxies at such meeting may use their discretionary voting authority with
respect to such proposal, regardless of whether the proposal was discussed in
the Company's proxy statement for such meeting.
- 15 -
<PAGE> 18
GENERAL INFORMATION
The Board of Directors of the Company has fixed the close of business
on March 3, 1999, as the record date for determining the holders of the Common
Stock of the Company entitled to notice of and to vote at the Annual Meeting.
As of such date, the Company had issued and outstanding and entitled to vote at
the Annual Meeting an aggregate of 34,833,094 shares of Common Stock, each
share of which is entitled to one (1) vote on all matters to be considered at
the Annual Meeting.
Pursuant to Section 10-2B-7.25 of the Code of Alabama 1975, as
amended, and the Company's Bylaws, a majority of the Common Stock shares
entitled to vote, represented in person or by proxy, will constitute a quorum
at a meeting of the shareholders. Section 10-2B-7.28 of the Code of Alabama
1975, as amended, requires that each of the nominees to be elected to the Board
of Directors receive the affirmative vote of the majority of the votes cast by
the holders of shares of Common Stock represented at the Annual Meeting as part
of the quorum. The vote for election of directors does not include shares which
abstain from voting on a matter or which are not voted on such matter by a
nominee because such nominee is not permitted to exercise discretionary voting
authority and the nominee has not received voting instructions from the
beneficial owner of such shares. Generally, brokers who act as nominees will be
permitted to exercise discretionary voting authority where they have received
no instructions in uncontested elections for directors and on certain other
matters which are not contested where the brokers have complied with Rule 451
concerning the delivery of proxy materials to beneficial owners of the
Company's Common Stock held by such brokers.
The Annual Meeting may be adjourned from time to time without notice
other than announcement at the Annual Meeting, or at any adjournment thereof,
and any business for which notice was given in the accompanying Notice of
Annual Meeting of Shareholders may be transacted at any such adjournment.
In addition to the use of the mails, proxies may be solicited by
personal interview or by telephone or telegraph. The cost of solicitation of
proxies will be borne by the Company. The Company may request brokerage houses,
nominees, custodians, and fiduciaries to forward soliciting material to the
beneficial owners of the stock held of record and will reimburse such persons
for any reasonable expense incurred in forwarding the material.
Copies of the Company's Annual Report on Form 10-K for the year ended
January 2, 1999, in form as filed with the Securities and Exchange Commission,
may be obtained from Floyd G. Hoffman, the Senior Vice President, General
Counsel and Secretary of the Company, without charge, by persons who were
shareholders beneficially or of record as of March 3, 1999.
By Order of the Board of Directors
FLOYD G. HOFFMAN
Senior Vice President,
General Counsel and Secretary
Alexander City, Alabama
March 18, 1999
- 16 -
<PAGE> 19
RUSSELL CORPORATION
Alexander City, Alabama
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS _ April 21, 1999
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned shareholder of Russell Corporation (the "Company")
hereby appoints C.V. Nalley III and John A. White, and each of them, with full
power of substitution, proxies to vote the shares of stock which the
undersigned could vote if personally present at the Annual Meeting of
Shareholders of Russell Corporation to be held at the general offices of the
Company in Alexander City, Alabama, on April 21, 1999 at 11:00 a.m., Central
Daylight Time, or any adjournment thereof:
<TABLE>
<S> <C>
(1) ELECTION OF DIRECTORS
For terms expiring with the Annual Meeting of Shareholders in 2002:
Herschel M. Bloom, Ronald G. Bruno
[ ] FOR all nominees above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees above
For the remainder of the terms expiring with the Annual Meeting of Shareholders in 2000:
John F. Ward, Eric N. Hoyle
[ ] FOR all nominees above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees above
</TABLE>
INSTRUCTION: To withhold authority to vote for an
individual nominee, write the nominee's name in the
space provided below.
(over)
<PAGE> 20
(2) IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTEDFOR
ELECTION OF THE PERSONS NOMINATED BY THE BOARD OF DIRECTORS
AS DIRECTORS.
Please date and sign exactly as name appears on the envelope in which
this material was mailed. If shares are held jointly, each shareholder should
sign. Executors, administrators, trustees, etc. should use full title and, if
more than one, all should sign. If the shareholder is a corporation, please
sign full corporate name by an authorized officer.
-------------------------------------------
Signature(s) of Shareholder(s)
-------------------------------------------
Dated , 1999
-------------------------------
