<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 1, 2000 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)
(256) 500-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock.
<TABLE>
<CAPTION>
Class Outstanding at November 10, 2000
<S> <C>
Common Stock, Par Value $.01 Per Share 31,882,189 shares
(Excludes Treasury)
</TABLE>
<PAGE> 2
RUSSELL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
October 1, 2000 and January 1, 2000 2
Consolidated Condensed Statements of Operations --
Thirteen Weeks Ended October 1, 2000 and October 3, 1999 3
Thirty-nine Weeks Ended October 1, 2000 and October 3, 1999 4
Consolidated Condensed Statements of Cash Flows --
Thirty-nine Weeks Ended October 1, 2000 and October 3, 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 12
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
Part II. Other Information:
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
-1-
<PAGE> 3
PART I - FINANCIAL INFORMATION
RUSSELL CORPORATION
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 1, January 1,
2000 2000
----------- -----------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,714 $ 9,123
Accounts receivable, net 268,260 191,803
Inventories - Note 2 419,381 387,841
Prepaid expenses and other current assets 36,295 26,355
----------- -----------
Total current assets 732,650 615,122
Property, plant & equipment 1,231,664 1,229,943
Less accumulated depreciation (774,627) (747,343)
----------- -----------
457,037 482,600
Other assets 68,654 55,409
----------- -----------
Total assets $ 1,258,341 $ 1,153,131
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 31,675 $ --
Accounts payable and accrued expenses 153,996 132,841
Federal and state income taxes 7,463 826
Current maturities of long-term debt 21,414 21,414
----------- -----------
Total current liabilities 214,548 155,081
Long-term debt, less current maturities 452,280 377,865
Deferred liabilities 66,075 70,843
Shareholders' equity:
Common stock, par value $.01 per share; authorized
150,000,000 shares, issued 41,419,958 shares 414 414
Paid-in capital 47,301 48,294
Retained earnings 709,876 720,111
Treasury stock, at cost (9,133,069 shares at
10/1/00 and 8,605,925 shares at 1/1/00) (220,648) (213,461)
Accumulated other comprehensive loss (11,505) (6,016)
----------- -----------
Total shareholders' equity 525,438 549,342
----------- -----------
Total liabilities & shareholders' equity $ 1,258,341 $ 1,153,131
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-2-
<PAGE> 4
RUSSELL CORPORATION
Consolidated Condensed Statements of Operations
(Dollars in Thousands Except Shares and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------------------
October 1, October 3,
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 356,909 $ 344,915
Costs and expenses:
Cost of goods sold 251,684 241,486
Selling, general and administrative expenses 60,066 58,674
Other - net 29,405 5,042
Interest expense 8,953 7,463
----------- -----------
350,108 312,665
----------- -----------
Income before income taxes 6,801 32,250
Provision for income taxes 6,275 12,313
----------- -----------
Net income $ 526 $ 19,937
=========== ===========
Weighted-average common shares outstanding:
Basic 32,487,210 33,301,647
Diluted 32,960,735 33,301,647
Net income per common share:
Basic $ 0.02 $ 0.60
Diluted 0.02 0.60
Cash dividends per common share $ 0.14 $ 0.14
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE> 5
RUSSELL CORPORATION
Consolidated Condensed Statements of Operations
(Dollars in Thousands Except Shares and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks Ended
------------------------------------
October 1, October 3,
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 891,353 $ 838,541
Costs and expenses:
Cost of goods sold 648,197 618,057
Selling, general and administrative expenses 170,103 159,599
Other - net 36,457 28,674
Interest expense 24,306 20,844
----------- -----------
879,063 827,174
----------- -----------
Income before income taxes 12,290 11,367
Provision for income taxes 8,825 4,338
----------- -----------
Net income $ 3,465 $ 7,029
=========== ===========
Weighted-average common shares outstanding:
Basic 32,560,361 34,108,029
Diluted 32,899,760 34,139,696
Net income per common share:
Basic $ 0.11 $ 0.21
Diluted 0.11 0.21
Cash dividends per common share $ 0.42 $ 0.42
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE> 6
RUSSELL CORPORATION
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks Ended
----------------------------------
October 1, October 3,
2000 1999
---------- ----------
<S> <C> <C>
Operating Activities:
Net income $ 3,465 $ 7,029
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 42,998 50,157
Deferred income taxes -- (5,625)
Loss on sale of property, plant & equipment 175 582
Non-cash restructuring, asset impairment and
other unusual charges 32,275 19,090
Foreign currency transaction loss 1,540 1,335
Changes in operating assets and liabilities:
Accounts receivable (74,036) (94,792)
Inventories (27,092) (13,378)
Prepaid expenses and other current assets (9,815) (2,573)
Other assets 6,916 (8,344)
Accounts payable and accrued expenses 11,223 2,887
Income taxes 6,039 1,056
Pension and other deferred liabilities (4,524) 2,483
-------- ---------
Net cash used in operating activities (10,836) (40,093)
Investing Activities:
Purchases of property, plant & equipment (42,706) (35,044)
Cash paid for acquisitions (39,911) --
Proceeds from the sale of property, plant & equipment 4,504 904
-------- ---------
Net cash used in investing activities (78,113) (34,140)
Financing Activities:
Borrowings on credit facility - net 97,436 --
Borrowings on short-term debt 31,675 163,069
Payments on long-term debt (21,214) (26,864)
Dividends on common stock (13,701) (14,367)
Cost of common stock for treasury (4,649) (49,943)
Proceeds from sale of treasury stock 755 --
-------- ---------
Net cash provided by financing activities 90,302 71,895
Effect of exchange rate changes on cash (1,762) (761)
-------- ---------
Net decrease in cash (409) (3,099)
Cash balance at beginning of period 9,123 13,852
-------- ---------
Cash balance at end of period $ 8,714 $ 10,753
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE> 7
RUSSELL CORPORATION
Notes to Consolidated Condensed Financial Statements
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying interim consolidated
condensed financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
financial position of the Company as of October 1, 2000, and the
results of its operations for the thirteen and thirty-nine week
periods ended October 1, 2000 and October 3, 1999; and its cash flows
for the thirty-nine week periods ended October 1, 2000 and October 3,
1999.
The balance sheet at January 1, 2000 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended January 1, 2000.
Certain prior year amounts have been reclassified to conform to fiscal
year 2000 presentation. These changes had no impact on previously
reported results of operations or shareholders' equity.
The Company's revenues and income are subject to seasonal variations.
Consequently, the results of operations for the thirteen and
thirty-nine week periods ended October 1, 2000 are not necessarily
indicative of the results to be expected for the full year.
2. The components of inventory consist of the following: (In thousands)
<TABLE>
<CAPTION>
10/1/00 1/1/00
--------- ---------
<S> <C> <C>
Finished goods $ 297,529 $ 279,212
Work in process 82,415 68,297
Raw materials and supplies 40,626 45,288
--------- ---------
$ 420,570 $ 392,797
LIFO reserve (1,189) (4,956)
--------- ---------
$ 419,381 $ 387,841
========= =========
</TABLE>
3. 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 results of operations for
the interim periods presented here reflect one-time and other unusual
charges associated with the plan in accordance with generally accepted
accounting principles. Consequently, the results of operations for the
thirteen and thirty-nine week periods ended October 1, 2000 and
October 3, 1999 are not necessarily indicative of the results to be
expected on an ongoing recurring basis when the restructuring plan is
completed.
-6-
<PAGE> 8
The charges reflected in the consolidated condensed statements of
operations are as follows: (in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
10/1/00 10/3/99 10/1/00 10/3/99
------- ------- -------- -------
<S> <C> <C> <C> <C>
Restructuring charges:
Employee termination charges $ -- $ 1,596 $ 8,265 $ 7,894
Exit cost related to facilities 789 3,912 3,136 9,801
Termination of certain licenses & contracts 3,300 -- 3,300 --
------- ------- -------- -------
$ 4,089 $ 5,508 $ 14,701 $17,695
------- ------- -------- -------
Asset impairment charges:
Impairment of facilities used in operation $ -- $ -- $ 1,668 $13,389
Impairment of facilities and equipment
held for disposal 17,477 -- 20,254 5,701
Impairment of intangible assets 7,735 -- 7,735
------- ------- -------- -------
$25,212 $ -- $ 29,657 $19,090
------- ------- -------- -------
Other unusual charges:
Inventory losses including warehouse and shipping cost $ 3,977 $ -- $ 3,977 $ --
Accelerated depreciation on facilities and
equipment to be taken out of service -- 501 995 4,951
Expenses associated with the establishment
of dual headquarters 675 598 2,306 2,388
Accounts receivable (recovery) loss 532 -- (236) --
Other 1,153 -- 1,782 --
------- ------- -------- -------
$ 6,337 $ 1,099 $ 8,824 $ 7,339
------- ------- -------- -------
Totals before taxes $35,638 $ 6,607 $ 53,182 $44,124
======= ======= ======== =======
Totals after taxes $25,250 $ 3,964 $ 35,775 $26,475
======= ======= ======== =======
</TABLE>
These charges have been classified in the statements of operations as
follows: (in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
10/01/00 10/03/99 10/01/00 10/03/99
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Cost of goods sold $ 6,274 $ 2,059 $ 15,534 $14,427
Selling, general and administrative expenses 1,267 598 2,898 2,388
Other, net 28,097 3,950 34,750 27,309
------- ------- -------- -------
$35,638 $ 6,607 $ 53,182 $44,124
======= ======= ======== =======
</TABLE>
Charges recorded by segments were recorded as follows: (in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
10/1/00 10/3/99 10/1/00 10/3/99
------- ------- -------- -------
<S> <C> <C> <C> <C>
Restructuring charges:
Activewear $ 789 $ 5,508 $ 10,336 $17,695
International 3,300 -- 4,365 --
All Other -- -- -- --
------- ------- -------- -------
$ 4,089 $ 5,508 $ 14,701 $17,695
======= ======= ======== =======
Asset impairment charges:
Activewear $11,007 $ -- $ 15,452 $19,090
International 14,205 -- 14,205 --
All Other -- -- -- --
------- ------- -------- -------
$25,212 $ -- $ 29,657 $19,090
======= ======= ======== =======
Other unusual charges:
Activewear $ 227 $ 501 $ 1,083 $ 4,951
International 5,435 -- 5,435 --
All Other 675 598 2,306 2,388
------- ------- -------- -------
$ 6,337 $ 1,099 $ 8,824 $ 7,339
======= ======= ======== =======
</TABLE>
-7-
<PAGE> 9
A summary of the activity related to the restructuring, asset
impairment and other unusual charges is as follows: (In thousands)
Cash Related:
<TABLE>
<CAPTION>
Liability at Expense Amount Liability at
01-Jan-00 Incurred Paid 01-Oct-00
------------ -------- ------- ------------
<S> <C> <C> <C> <C>
Exit cost related to facilities $ 534 $ 3,136 $ 3,670 $ --
Employee termination charges 4,770 8,265 9,023 4,012
Other 1,223 7,591 640 8,174
------- ------- ------- -------
$ 6,527 $18,992 $13,333 $12,186
======= ------- ======= =======
Non-cash Related:
Impairment charges and other non-cash charges 34,190
-------
Total Charges $53,182
=======
</TABLE>
At October 1, 2000, the Company held for sale certain closed
facilities with an adjusted carrying value of approximately $39.7
million, which have been included in property, plant and equipment.
The Company announced during the 3rd Quarter 2000 that it would be
restructuring the Russell Athletic line of business in Europe by
Spring 2001, the Cross Creek brand in Australia and the Woodbrook
brand in Europe. As a result of the announcement, the Company recorded
a charge of approximately $8.4 million associated with the cost to
cancel leases on facilities, the cancellation of reseller contracts,
and the write-off of certain European working capital.
During the third quarter 2000, the Company recorded asset impairment
charges of $4.5 million related to the write-down of the equipment to
be removed from the European manufacturing facilities and the write-off
of leasehold improvements associated with the exiting of leased
facilities. The Company also recorded an impairment charge of $7.7
million to write-off the remaining carrying value of goodwill
associated with the European business. This charge was necessary as a
result of the Company's revised undiscounted cash flow forecast for the
European business performed in connection with the decision to
restructure the Russell Athletic Brand in Europe. The Company also
recorded an asset impairment charge of $11.1 million to write-down to
fair market value, less the cost to dispose, a domestic yarn
manufacturing facility that was classified as held for sale in the
third quarter, 2000. The remaining $1.9 million in impairment of
facilities and equipment held for disposal relates to the write-off of
systems previously used in European operations and the loss on sale of
facilities.
There was no charge for cost associated with anticipated severance for
European terminations during the third quarter as the criteria for
recognition under EITF 94-3 had not been met.
Throughout the year, the Company has continued to move sewing
operations to a combination of owned and contractor operated locations
in Central America and Mexico. Year-to-date, the Company announced the
closing of six domestic apparel operations and one textile research
facility. Year-to-date, approximately 900 employees have been notified
of their termination and received detailed information on their
individual severance packages when the facility closings were
announced.
3. On August 4, 2000, the Alabama Supreme Court issued an opinion in
Sullivan, et al. v. Russell Corporation, et al. reversing the judgment
of the trial court and rendering an opinion in favor of the Company
and the other defendants on all counts. A jury in Jefferson County,
Alabama, had previously returned a verdict in the case awarding
$155,200 in compensatory damages for property damage and $52,398,000
in punitive damages to five plaintiff families based on allegations
that textile discharges of the Company and Avondale Mills, Inc., after
treatment at a wastewater treatment plant of the City of Alexander
City, Alabama, constituted a nuisance and indirect trespass when
discharged into Lake Martin. Alabama Power Company, the third
defendant, was alleged to have allowed the nuisance and trespass to
continue as the owner of the land under
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<PAGE> 10
the lake. Plaintiffs filed a petition for rehearing on August 18,
2000, and the Court has not ruled on that petition. The Court has
requested additional oral argument on specific questions related to
nuisance law. That oral argument is scheduled for November 16, 2000.
On February 23, 1999, a similar law suit was filed in Jefferson
County, Alabama by two former residents of the same residential
subdivision, and on January 13, 2000, another lawsuit was filed in
Jefferson County, Alabama by 15 families owning property adjacent to
Lake Martin. The suits seek unspecified damages for alleged nuisance
and trespass and have been consolidated into a single case. The
Company plans to vigorously defend the consolidated suit.
By letter dated January 13, 2000, the Company was notified by the
United States Department of Justice ("DOJ") that the DOJ intended to
institute legal proceedings against the Company and certain other
parties alleging violations by those parties of the Clean Water Act in
connection with the treatment and discharge of waste at a water
treatment facility owned and operated by the City of Alexander City,
Alabama. Preliminary discussions are being held with the DOJ with
regard to the proposed suit by the DOJ. The Company believes it is in
compliance with the Clean Water Act and will vigorously oppose the
imposition of any monetary penalties or injunctive relief in any
lawsuit that may be filed.
5. Earnings per share calculated in accordance with SFAS 128, Earnings
Per Share, are as follows: (In thousands except shares and per share
amounts)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------------------- --------------------------------
10/1/00 10/3/99 10/1/00 10/3/99
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 526 $ 19,937 $ 3,465 $ 7,029
=========== ========== =========== ===========
Basic Calculation:
Weighted-average common shares outstanding 32,487,210 33,301,647 32,560,361 34,108,029
=========== ========== =========== ===========
Net income per share-basic $ 0.02 $ 0.60 $ 0.11 $ 0.21
=========== ========== =========== ===========
Diluted Calculation:
Weighted-average common shares outstanding 32,487,210 33,301,647 32,560,361 34,108,029
Net common shares issuable
on exercise of dilutive stock options 473,525 -- 329,399 31,667
----------- ---------- ----------- -----------
32,960,735 33,301,647 32,899,760 34,139,696
=========== ========== =========== ===========
Net income per share-diluted $ 0.02 $ 0.60 $ 0.11 $ 0.21
=========== ========== =========== ===========
</TABLE>
6. For the period ended October 1, 2000 and October 3, 1999, accumulated
other comprehensive income (loss) as shown in the consolidated
condensed balance sheets was comprised of foreign currency translation
adjustments. The components of comprehensive income, net of tax, for
these periods were as follows: (In thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
---------------------- -----------------------
10/1/00 10/3/99 10/1/00 10/3/99
------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income $ 526 $ 19,937 $ 3,465 $ 7,029
Translation (loss) gain (816) 3,332 (5,489) 336
------- -------- -------- -------
Comprehensive (loss) income $ (290) $ 23,269 $ (2,024) $ 7,365
======= ======== ======== =======
</TABLE>
-9-
<PAGE> 11
7. Russell Corporation has two reportable segments: activewear and
international operations. 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
sources activewear products distributed to international locations in
approximately 50 countries. Other strategic business units that do not
meet the quantitative thresholds for determining reportable segments
sell fabrics to other apparel manufacturers, and manufacture and sell
socks to mass merchants. These are included in the "All Other" data
presented herein.
The Company evaluates performance and allocates resources based on
profit or loss from operations before interest and income taxes,
("EBIT"), excluding certain corporate expenses, restructuring, asset
impairment and other unusual charges. The accounting policies of the
reportable segments are the same as those described in Note One to the
Company's consolidated financial statements in its Annual Report on
Form 10-K for the year ended January 1, 2000, except that inventories
are valued on a standard cost basis at the segment level, where as a
substantial portion of inventories are valued on a Last-In, First-Out
(LIFO) basis in the consolidated financial statements. Intersegment
transfers are recorded at the Company's cost; there is no intercompany
profit or loss on intersegment transfers.
The Company's reportable segments offer various similar products
and/or operate in various locations. The reportable segments are each
managed separately.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-10-
<PAGE> 12
13 Weeks ended October 1, 2000
(In thousands)
<TABLE>
<CAPTION>
Activewear International All Other Total
----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Net sales $ 294,778 $ 30,246 $ 31,885 $ 356,909
Depreciation and
amortization expense 14,273 958 986 16,217
Segment EBIT (loss) 51,190 (1,551) 5,387 55,026
Total assets 1,067,767 104,606 85,968 1,258,341
</TABLE>
13 Weeks ended October 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Activewear International All Other Total
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales $ 272,386 $ 35,299 $ 37,230 $ 344,915
Depreciation and
amortization expense 17,855 534 1,058 19,447
Segment EBIT 42,758 2,506 5,094 50,358
Total assets 1,033,999 111,630 91,837 1,237,466
</TABLE>
39 Weeks ended October 1, 2000
(In thousands)
<TABLE>
<CAPTION>
Activewear International All Other Total
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales $ 706,995 $ 85,739 $ 98,619 $ 891,353
Depreciation and
amortization expense 37,719 2,160 3,119 42,998
Segment EBIT (loss) 98,295 (6,878) 17,175 108,582
Total assets 1,067,767 104,606 85,968 1,258,341
</TABLE>
39 Weeks ended October 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Activewear International All Other Total
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales $ 643,361 $ 97,042 $ 98,138 $ 838,541
Depreciation and
amortization expense 44,424 2,365 3,368 50,157
Segment EBIT 75,737 3,842 14,020 93,599
Total assets 1,033,999 111,630 91,837 1,237,466
</TABLE>
A reconciliation of combined segment EBIT to consolidated income before income
taxes is as follows: (in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
----------------------------- ---------------------------
10/1/00 10/3/99 10/1/00 10/3/99
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Total segment EBIT $ 55,026 $ 50,358 $ 108,582 $ 93,599
Restructuring, asset impairment, and
other unusual charges (35,638) (6,607) (53,182) (44,124)
Unallocated amounts;
Corporate expenses (3,634) (4,038) (18,804) (17,264)
Interest expenses (8,953) (7,463) (24,306) (20,844)
---------- ---------- --------- -----------
Consolidated income before income taxes $ 6,801 $ 32,250 $ 12,290 $ 11,367
========== ========== ========= ===========
</TABLE>
-11-
<PAGE> 13
8. The Company's effective income tax rates for the thirteen and
thirty-nine week periods ended October 1, 2000, were 92.3% and 71.8%,
respectively. These rates were primarily impacted by the non-deductible
impairment charge of $7,735,000 taken during the quarter to write-off the
remaining carrying value of goodwill associated with the European business (See
Note 3). The effective income tax rates for the thirteen and thirty-nine week
periods were 43.2% and 44.1%, respectively, when calculated exclusive of the
above charge. The effective income tax rate for both the thirteen and
thirty-nine week periods ended October 3, 1999 was 38.2%.
9. In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities and in June 2000, the FASB issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment to FASB Statement No. 133. The Statements 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 plans to
adopt the new Statements effective December 31, 2000 and will record the effect
of the transition to these new accounting requirements in the first quarter of
2001. The effect of this change in accounting is not expected to be material to
the Company's results of operations and financial position.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Thirteen weeks ended October 1, 2000 compared to October 3, 1999
NET SALES. Net sales increased 3.5%, or $11,994,000, to $356,909,000 for third
quarter 2000 from $344,915,000 during the comparable prior year period. The
overall net increase consisted of a 8.2% increase, or $22,392,000 within the
Company's Activewear segment; a 14.3% decline, or $5,053,000 within the
Company's International segment; and a 14.4% decline, or $5,345,000, for all
other. The majority of the sales increase within the Activewear segment was due
to strong sales of the Company's JERZEES and JERZEES Outdoors brands of
activewear. Overall dozens shipped within the Activewear segment were up
approximately 13% over the comparable prior year period. Favorable product mix
changes within the Activewear segment offset the negative impact of lower
selling prices within certain categories. Of the decline in the International
segment sales, approximately $3,200,000 was attributable to the weaker Euro
against the British pound sterling and the stronger US dollar against the
British pound sterling. The remaining decline was attributable to an
unfavorable sales mix shift, unexpected shipping delays caused by systems
problems, and discontinued businesses. The decrease in net sales for all other
was primarily attributable to a decrease in sock sales. The overall dozens
shipped were down approximately 18% over the comparable prior year period.
Lower selling prices during the current period versus the comparable prior year
period also contributed to the sales decline.
GROSS MARGIN %. The Company's overall gross margin percentage decreased to
29.5% for third quarter 2000 versus 30.0% in the comparable prior year period.
Excluding the impact of restructuring, asset impairment, and other unusual
charges ("special charges"), as described in Note 3 to the consolidated
condensed financial statements, of $6,274,000 and $2,059,000 for 2000 and 1999,
respectively, the overall gross margin percentage increased to 31.2% for 2000
from 30.6% for 1999. Gross margins were positively impacted by the overall net
increase in sales mentioned above and continue to be positively impacted by the
reduction in manufacturing cost as a result of the Company's continued efforts
to move the assembly of garments to low cost geographic locations. In addition,
the Company continues to improve and streamline other manufacturing processes.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A as a percent of net sales
decreased to 16.8% for third quarter 2000 versus 17.0% in the comparable prior
year period. Excluding the impact of special charges of $1,267,000 and $598,000
for 2000 and 1999, respectively, SG&A as a percent of net sales decreased to
16.5%
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for 2000 from 16.8% for 1999. The Company continues to increase its advertising
and marketing spending over that of prior years in an effort to raise brand
awareness within the market of the JERZEES, Russell Athletic, and Cross Creek
brands. The increased spending to raise brand awareness has been partially
offset by lower distribution costs as a result of major reconfiguration changes
in distribution facilities during 1999.
EARNINGS BEFORE INTEREST AND TAXES (EBIT). The Company's overall EBIT as a
percent of net sales increased to 14.4% for third quarter 2000 from 13.4% in
the comparable prior year period when calculated exclusive of special charges
of $35,638,000 and $6,607,000 for 2000 and 1999, respectively. The Activewear
segment EBIT, exclusive of special charges, as a percent of net sales is 17.4%
for third quarter 2000 up from 15.7% for third quarter 1999. Again, this
improvement is attributed primarily to the overall net increased sales
mentioned above and to reduced manufacturing costs primarily associated with
the continued move of much of the Company's apparel assembly operations
offshore. The International segment EBIT, exclusive of special charges, as a
percent of net sales decreased to a negative 5.1% for third quarter 2000 down
from 7.1% for third quarter 1999. The majority of the decline within the
International segment was due to the foreign currency and other issues
mentioned above, which adversely impacted both sales and margins in Europe. The
all other EBIT, exclusive of special charges, as a percent of net sales
increased to 16.9% for third quarter 2000 up from 13.7% for third quarter 1999
primarily due to lower manufacturing costs.
The Company continues to execute its multi-year strategic plan. This plan, as
originally announced in July, 1998, anticipated charges of $125 million
after-tax, including the closure of 26 facilities impacting 4,000 positions,
primarily associated with the movement of apparel assembly operations to lower
cost areas. Additionally, the plan as announced in 1998 would also generate
one-time expenses associated with the establishment of a strategic headquarters
in Atlanta. That move is now nearly complete. In line with previous
announcements which revised the restructuring plan, the Company has closed 30
facilities and exited several businesses, impacting more that 5,000 positions.
Additional projects are also being considered. The Company estimates future
"special charges" will be in the $25 million range over the next three
quarters. The Company expects earnings, excluding these restructuring and other
one-time expenses, for the full 2000 year to increase 14-18% over the prior
fiscal year and further expects fiscal 2001 earnings per share to increase in
the 10-12% range excluding these "special charges".
Thirty-nine weeks ended October 1, 2000 compared to October 3, 1999
NET SALES. Net sales increased 6.3%, or $52,812,000, to $891,353,000 for the
thirty-nine weeks ended October 1, 2000 from $838,541,000 during the comparable
prior year period. The overall net increase consisted of a 9.9% increase, or
$63,634,000 within the Company's Activewear segment; a 11.6% decline, or
$11,303,000 within the Company's International segment; and a 0.5% increase, or
$481,000, for all other. The majority of the sales increase within the
Activewear segment was due to strong sales within the Company's JERZEES and
JERZEES Outdoors brand of activewear. Overall dozens shipped within the
Activewear segment were up approximately 17% over the comparable prior year
period. Favorable product mix changes within the Activewear segment offset the
negative impact of lower selling prices within certain categories.
Approximately $7,800,000 of the sales decline within the International segment
was attributable to the weaker Euro against the British pound sterling and the
stronger US dollar against the British pound sterling. The remaining decline
was attributable to an unfavorable sales mix shift, the shipping delays
mentioned above and discontinued business. The slight increase in net sales for
all other was primarily attributable to an increase in sock sales. The overall
dozens shipped were up approximately 5% over the comparable prior year period
but were generally offset by lower selling prices.
GROSS MARGIN %. The Company's overall gross margin percentage increased to
27.3% for the thirty-nine weeks ended October 1, 2000 versus 26.3% in the
comparable prior year period. Excluding the impact of special charges of
$15,534,000 and $14,427,000 for 2000 and 1999, respectively, the overall gross
margin percentage increased to 29.0% for 2000 from 28.0% for 1999. Gross
margins were impacted by the overall net increase in sales mentioned above and
continue to be positively impacted by the reduction in manufacturing cost as a
result of the Company's continued efforts to move the assembly of garments to
low cost geographic locations.
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<PAGE> 15
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A as a percent of net sales
increased to 19.1% for the thirty-nine weeks ended October 1, 2000 versus 19.0%
in the comparable prior year period. Excluding the impact special charges of
$2,898,000 and $2,388,000 for 2000 and 1999, respectively, SG&A as a percent of
net sales increased to 18.8% for 2000 from 18.7% for 1999. The Company
continues to increase its advertising and marketing spending over that of prior
years in an effort to raise brand awareness within the market of the JERZEES,
Russell Athletic, and Cross Creek brands. The increased spending to raise brand
awareness has been partially offset by lower distribution costs as a result of
major reconfiguration changes in distribution facilities during 1999.
EARNINGS BEFORE INTEREST AND TAXES (EBIT). The Company's overall EBIT as a
percent of net sales increased to 10.1% for the thirty-nine weeks ended October
1, 2000 from 9.1% in the comparable prior year period when calculated exclusive
of special charges of $53,182,000 and $44,124,000 for 2000 and 1999,
respectively. The Activewear segment EBIT, exclusive of special charges, as a
percent of net sales is 13.9% for the thirty-nine weeks ended October 1, 2000
up from 11.8% in the comparable prior year period. Again, this improvement is
attributed primarily to the overall net increased sales mentioned above and to
reduced manufacturing costs associated with the continued move of much of the
Company's apparel assembly operations offshore. The International segment EBIT,
exclusive of special charges, as a percent of net sales decreased to a negative
8.0% for the thirty-nine weeks ended October 1, 2000 down from 4.0% in the
comparable prior year period. The majority of the decline within the
International segment was due to foreign currency issues mentioned above, which
adversely impacted both sales and margins in Europe. Additionally, the
International segment incurred higher freight and distribution costs than in
the prior year as a result of product shipping delays at the Company's Europe
facility during the first quarter of 2000. The all other EBIT, exclusive of
special charges, as a percent of net sales increased to 17.4% for the
thirty-nine weeks ended October 1, 2000 up from 14.3% in the comparable prior
year period primarily due to lower manufacturing costs.
Liquidity and Capital Resources
At the end of the quarter, the current ratio was 3.4, up from last year's
2.3 primarily because prior year current liabilities contained short-term debt
of $176,101,000. All short-term debt was converted to long-term debt when the
Company entered into a new credit facility during 4th quarter 1999. (See Note 2
to the Consolidated Financial Statements in the Annual Report on Form 10-K for
further details concerning the Company's credit facility). Exclusive of
short-term debt, the prior year current ratio was 5.4. Total debt to
capitalization was 49.0% and 47.5% at October 1, 2000 and October 3, 1999,
respectively.
Required cash for acquisitions, purchases of property, plant and
equipment, dividends and treasury stock purchases was provided by borrowings
under the Company's credit facility (long-term debt) during the period ended
October 1, 2000.
Approximately 288,000 shares of the Company's common stock were
repurchased during the quarter ended October 1, 2000 for a total of
approximately $4,300,000 bringing the total repurchased to approximately
589,000 shares year to date.
Contingencies
For information concerning ongoing litigation of the Company, see Note 4
to the Consolidated Condensed Financial Statements.
FORWARD LOOKING INFORMATION
This quarterly report on Form 10-Q, including management's discussion and
analysis, contains certain statements that describe the Company's beliefs
concerning future business conditions and prospects, growth opportunities, new
product lines 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
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<PAGE> 16
of the Securities and Exchange Act of 1934) by words such as "anticipates,"
"believes," "estimates," "intends," "expects," "projects" and similar phrases.
These forward-looking statements are based upon assumptions the Company
believes are reasonable. Such forward-looking 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, including among other matters, the ability to effect the
restructuring of Europe within the projected timeframe in line with expected
savings, significant competitive activity, including promotional and price
competition, changes and uncertainties in existing and future trade
legislation, currency exchange rates, interest rates, increases in raw material
and energy costs, changes in customer demand for the Company's products,
inherent risks in the market place associated with new products and new product
lines, including uncertainties about trade and consumer acceptance and other
risk factors listed from time to time in the Company's SEC reports and
announcements. The Company assumes no obligation to update publicly any
forward-looking statements whether as a result of new information, future
events or otherwise.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company is exposed to market risks relating to fluctuations in
interest rates, currency exchange rates and commodity prices. There has been no
material change in the Company's market risks that would significantly affect
the disclosures made in the Annual Report on Form 10-K for the year ended
January 1, 2000, except as summarized in the following paragraphs.
In our 1999 Annual Report on Form 10-K, we indicated that the company and
its subsidiaries generally enter into transactions denominated in their
respective functional currencies and that, as a result, foreign currency
exposures arising from transactions denominated in other than the functional
currencies of our subsidiaries generally have not been material.
During fiscal 2000, the company's exposure to currency price risk has
changed. In addition to the foreign currency exposure arising from the
translation of foreign denominated revenues and profits into U.S. dollars, in
Fiscal 2000 operating results also have been adversely impacted by the
continued weakening of the Euro against both the British pound sterling and the
U.S. dollar. In this regard, the Company's principal European subsidiary sells
throughout Europe in local currencies (most of which are linked to the Euro)
and sources most of its products in U.S. dollars. In response, the Company has
entered into foreign currency forward exchange contracts to manage the Euro and
U.S. dollar transactional exposure for anticipated transactions within its
European operations. The Company accounts for these contracts at market value
with periodic changes in fair values included in net income because they have
not been designated as hedges. Based upon the notional amount of currency
forward contracts to sell Euros for fixed U.S. dollar amounts outstanding at
the end of the third quarter, a further 10% decline in the Euro versus the
British pound or 10% adverse change in the U.S. dollar to British pound
exchange rate would not have a material impact on the results from operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Contingencies
For information concerning ongoing litigation of the Company, see Note 4
to the Consolidated Condensed Financial Statements.
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<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RUSSELL CORPORATION
---------------------------------------
(Registrant)
Date November 15, 2000 /s/ Robert D. Martin
----------------- ---------------------------------------
Robert D. Martin
Senior Vice President, and
Chief Financial Officer
Date November 15, 2000 /s/ Larry E. Workman
----------------- ---------------------------------------
Larry E. Workman, Controller
(Principal Accounting Officer)
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