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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
For the quarterly period ended April 6, 2003
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.)
3330 CUMBERLAND BLVD., SUITE 800, ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices) (Zip Code)
(678) 742-8000
(Registrant's Telephone Number, Including Area Code)
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report: 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 for 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
The number of shares outstanding of each of the issuer's classes of common
stock.
Class Outstanding at May 16, 2003
Common Stock, Par Value $.01 Per Share 32,330,886 shares
(Excludes Treasury)
RUSSELL CORPORATION
INDEX
Page No.
-------
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
April 6, 2003, January 4, 2003 and March 31, 2002 2
Condensed Consolidated Statements of Operations --
Thirteen Weeks Ended April 6, 2003 and March 31, 2002 3
Condensed Consolidated Statements of Cash Flows --
Thirteen Weeks Ended April 6, 2003 and March 31, 2002 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and 15
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 21
Item 4. Controls and Procedures 21
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
1
RUSSELL CORPORATION
Condensed Consolidated Balance Sheets
(In Thousands Except Share and Per Share Amounts)
April 6, January 4, March 31,
2003 2003 2002
---------------------------------------------
(Unaudited) (Note 1) (Unaudited)
ASSETS
Current assets:
Cash $ 35,351 $ 68,619 $ 12,271
Accounts receivable, net 176,194 148,915 167,264
Inventories - Note 2 359,835 306,658 372,777
Prepaid expenses & other current assets 17,927 26,653 37,658
---------------------------------------------
Total current assets 589,307 550,845 589,970
Property, plant & equipment 1,038,504 1,034,710 1,053,221
Less accumulated depreciation (718,517) (702,701) (704,457)
---------------------------------------------
319,987 332,009 348,764
Other assets 82,451 80,261 66,623
---------------------------------------------
Total assets $ 991,745 $ 963,115 $ 1,005,357
=============================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,394 $ 71,291 $ 65,657
Accrued expenses 73,286 82,183 64,790
Short-term debt 7,037 7,253 3,487
Current maturities of long-term debt 5,000 5,000 39,271
---------------------------------------------
Total current liabilities 157,717 165,727 173,205
Long-term debt, less current maturities 295,000 265,000 317,994
Deferred liabilities 67,674 65,135 58,642
Stockholders' equity:
Common stock, par value $.01 per share; authorized
150,000,000 shares, issued 41,419,958 shares 414 414 414
Paid-in capital 42,302 42,877 45,211
Retained earnings 677,611 675,448 647,627
Treasury stock, at cost (9,176,200 shares at
4/6/03 and 9,233,545 shares at 1/4/03 and
9,400,492 shares at 3/31/02) (216,511) (218,113) (222,869)
Accumulated other comprehensive loss (32,462) (33,373) (14,867)
---------------------------------------------
Total stockholders' equity 471,354 467,253 455,516
---------------------------------------------
Total liabilities & stockholders' equity $ 991,745 $ 963,115 $ 1,005,357
=============================================
See accompanying notes to condensed consolidated
financial statements.
2
RUSSELL CORPORATION
Condensed Consolidated Statements of Operations
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
13 Weeks Ended
----------------------------------
April 6, March 31,
2003 2002
----------- ------------
Net sales $ 227,983 $ 215,825
Cost of goods sold 165,162 155,989
----------- ------------
Gross profit 62,821 59,836
Selling, general & administrative expenses 49,378 48,968
Other expense (income) - net 714 (11)
----------- ------------
Operating income 12,729 10,879
Interest expense 7,167 6,694
----------- ------------
Income before income taxes 5,562 4,185
Provision for income taxes 2,114 1,557
----------- ------------
Net income $ 3,448 $ 2,628
=========== ============
Weighted-average common shares outstanding:
Basic 32,208,425 32,016,884
Diluted 32,416,133 32,037,374
Net income per common share:
Basic $ 0.11 $ 0.08
Diluted $ 0.11 $ 0.08
Cash dividends per common share $ 0.04 $ 0.04
See accompanying notes to condensed consolidated
financial statements.
3
RUSSELL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
13 Weeks Ended
-----------------------------
April 6, March 31,
2003 2002
------------ ----------
Operating Activities:
Net income $ 3,448 $ 2,628
Adjustments to reconcile net income to
cash (used in) provided by operating activities:
Depreciation 11,909 11,741
Amortization 75 58
Provision for doubtful accounts 673 1,164
Loss (gain) on sale of property, plant & equipment 72 (86)
Foreign currency transaction loss 55 99
Other 203 -
Changes in operating assets & liabilities:
Accounts receivable (19,930) (2,516)
Inventories (46,150) (13,039)
Prepaid expenses & other current assets 9,135 3,211
Other assets 608 1,106
Accounts payable & accrued expenses (8,680) 3,713
Other deferred liabilities 2,539 942
------------ ----------
Net cash (used in) provided by operating activities (46,043) 9,021
Investing Activities:
Purchases of property, plant & equipment (6,139) (4,037)
Proceeds from the sale of property, plant & equipment 7,029 664
Cash paid for acquisitions, joint ventures and other (17,342) -
------------ ----------
Net cash used in investing activities (16,452) (3,373)
Financing Activities:
Borrowings on credit facility - net 30,000 7,052
Payments on short-term debt (128) (2,598)
Debt issuance & amendment costs paid (464) (2,470)
Dividends on common stock (1,285) (1,280)
Treasury stock reissued 414 122
------------ ----------
Net cash provided by financing activities 28,537 826
Effect of exchange rate changes on cash 690 (85)
------------ ----------
Net (decrease) increase in cash (33,268) 6,389
Cash balance at beginning of period 68,619 5,882
------------ ----------
Cash balance at end of period $ 35,351 $ 12,271
============ ==========
See accompanying notes to condensed consolidated
financial statements.
4
RUSSELL CORPORATION
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States 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 accounting principles generally accepted in the United
States for complete financial statements. In our opinion, the
accompanying interim condensed consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly our financial position as of April 6, 2003
and March 31, 2002, and the results of our operations for the thirteen
week periods ended April 6, 2003 and March 31, 2002, and our cash flows
for the thirteen week periods ended April 6, 2003 and March 31, 2002.
The condensed consolidated balance sheet at January 4, 2003 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete
financial statements.
For further information about our significant accounting policies,
refer to the consolidated financial statements and footnotes thereto
included in our Annual Report on Form 10-K for the year ended January
4, 2003. See also Notes 6 and 10 for further information on changes in
our accounting policies during the first quarter of 2003 and pending
changes in accounting policies.
Our revenues and income are subject to seasonal variations.
Consequently, the results of operations for the thirteen week period
ended April 6, 2003, are not necessarily indicative of the results to
be expected for the full year.
2. INVENTORIES
The components of inventories consist of the following: (in thousands)
4/6/03 1/4/03 3/31/02
----------- ------------ -----------
Finished goods $ 292,044 $ 240,964 $ 307,335
Work in process 51,832 48,272 44,747
Raw materials and supplies 19,414 19,143 23,488
----------- ------------ -----------
363,290 308,379 375,570
LIFO and lower-of-cost or
market adjustments, net (3,455) (1,721) (2,793)
----------- ------------ -----------
$ 359,835 $ 306,658 $ 372,777
=========== ============ ===========
5
3. ACQUISITIONS
On February 6, 2003, we acquired assets of Bike Athletic Company.
Bike's products include athletic supporters, knee and elbow pads,
braces, protective equipment, team uniforms, and performance apparel.
On May 16, 2003, we completed the acquisition of the brands, inventory,
contracts, and related assets of the sporting goods business of
Spalding Sports Worldwide, Inc. for $65 million. Spalding is a leading
producer and marketer of basketballs, volleyballs, footballs, and
soccer balls under the SPALDING brand and of softballs under the DUDLEY
brand.
4. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER UNUSUAL CHARGES (SPECIAL
CHARGES)
In July 1998, we adopted a restructuring and reorganization program
with the objectives of (1) transitioning our company from a
manufacturing-driven business to a consumer-focused organization that
markets branded apparel products and (2) creating an efficient,
low-cost operating structure with the flexibility to take advantage of
future opportunities to reduce our costs. The plan originally called
for the closing of a number of our world-wide facilities, which
included 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; and
other cost saving activities. The plan also called for the
establishment of a dual headquarters in Atlanta, Georgia, in addition
to Alexander City, Alabama. In July 2001, we announced an extension of
this program to align the organization by distribution channel to
provide stronger customer service, supply chain management and more
cost-effective operations.
We substantially completed our multi-year restructuring and
reorganization program in 2001. There were no additional special
charges incurred during the thirteen weeks ended April 6, 2003 and
March 31, 2002.
A summary of activity in the restructuring liability accounts follows:
(in thousands)
13 Weeks Ended
---------------------------------------
4/6/03 3/31/02
------------ -----------
Restructuring liabilities at beginning of period $ 2,333 $ 16,139
Payments charged to the liability accounts (1,394) (4,554)
------------ -----------
Restructuring liabilities at end of period $ 939 $ 11,585
============ ===========
The remaining restructuring liabilities are made up of the following:
(in thousands)
4/6/03
-------------
Employee terminations $ 40
Termination of certain licenses and contracts 171
Exit costs related to facilities 728
-------------
$ 939
=============
At April 6, 2003, we held for sale certain closed facilities with an
adjusted carrying value of approximately $13.1 million, which have been
included in property, plant and equipment as part of the Domestic
Activewear segment.
6
5. COMMITMENTS AND CONTINGENCIES
Commitments
During fiscal 2001, we entered into a supply agreement with Frontier
Yarns to purchase certain minimum quantities of yarn. Refer to Note 8
to our consolidated financial statements in our 2002 Annual Report on
Form 10-K for a description of the agreement.
Contingencies
We are a co-defendant in Locke, et al. v. Russell Corporation, et al.
in Jefferson County, Alabama. Fifteen families who own property on Lake
Martin in the Raintree Subdivision in Alexander City, Alabama, were the
original plaintiffs in the case, which sought unspecified money damages
for trespass and nuisance. However, ten families dropped out of the
case and there are five remaining plaintiff families. In May 2002, the
trial court entered summary judgment in our favor on all but one of the
plaintiffs' claims. The remaining claim, which involves a private right
of action for public nuisance, is set for trial on October 20, 2003. A
complaint substantially identical to the one filed in the Locke case
was filed on November 20, 2001, in the Circuit Court of Jefferson
County, Alabama, by two residents of the Raintree Subdivision (Gould v.
Russell Corporation, et al.). The trial court has entered summary
judgment in our favor on all claims in that case, and the plaintiffs in
the case have filed a motion to alter that determination, which remains
pending. The allegations in the Locke and Gould cases are similar to
those contained in a case styled Sullivan, et al. v. Russell
Corporation, et al., which was resolved in our favor by a ruling by the
Alabama Supreme Court in 2001. We plan to vigorously defend the Locke
and Gould suits.
We also are a party to various other lawsuits arising out of the
conduct of our business. We do not believe that any of these lawsuits,
if adversely determined, would have a material adverse effect upon us.
6. STOCK-BASED COMPENSATION
On January 5, 2003, we adopted the prospective transition provisions of
FASB Statement of Financial Accounting Standards (SFAS) No. 148, which
amended SFAS No. 123, Accounting and Disclosure of Stock-based
Compensation. SFAS No. 148 uses a fair value based method of accounting
for employee stock options and similar equity instruments. By electing
the prospective transition method of SFAS No. 148, our results of
operations and our financial position are not affected by stock
compensation awards granted prior to January 5, 2003. We recognized
approximately $0.1 million of stock-based employee compensation during
the thirteen week period ended April 6, 2003. For stock compensation
awards granted prior to January 5, 2003, we used the intrinsic value
approach under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. The following table presents a
comparison of reported results versus pro forma results that assumes
the fair value based method of accounting had been applied to all stock
compensation awards granted. For purposes of calculating the pro forma
amounts below, the estimated fair value of the options is determined
using the Black-Scholes option valuation model and is amortized to
expense over the options' vesting period. (in thousands)
13 Weeks Ended
--------------------------------------
4/6/03 3/31/02
--------- ---------
Reported net income $ 3,448 $ 2,628
Stock-based employee compensation, net of tax,
assuming SFAS No. 148 was applied (270) (636)
--------- ---------
Pro forma net income $ 3,178 $ 1,992
========= =========
Reported net income per share-basic $ .11 $ .08
Pro forma net income per share-basic $ .10 $ .06
Reported net income per share-diluted $ .11 $ .08
Pro forma net income per share-diluted $ .10 $ .06
7
7. DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Our diluted weighted-average common shares outstanding are calculated
as follows:
13 Weeks Ended
----------------------------------------
4/6/03 3/31/02
------------ ------------
Basic weighted-average common shares outstanding 32,208,425 32,016,884
Net common shares on unissued restricted stock and
issuable on exercise of dilutive stock options 207,708 20,490
------------ ------------
Diluted weighted-average common shares outstanding 32,416,133 32,037,374
Options to purchase 2.4 million and 2.7 million shares of our common
stock were excluded from the computation of diluted weighted-average
common shares outstanding for the thirteen weeks ended April 6, 2003
and March 31, 2002, respectively, because the exercise prices of the
options exceeded the average market price.
8. COMPREHENSIVE INCOME
At April 6, 2003, accumulated other comprehensive loss as shown in the
condensed consolidated balance sheet was comprised of foreign currency
translation adjustments, minimum pension liabilities and foreign
currency forward contracts. The components of comprehensive income, net
of tax, for the periods indicated below are as follows: (in thousands)
13 Weeks Ended
-----------------------------------------
4/6/03 3/31/02
------------ -----------
Net income $ 3,448 $ 2,628
Foreign currency translation gain (loss) 998 (898)
(Loss) gain on derivative instruments (323) 713
Other 236 -
------------ -----------
Comprehensive income $ 4,359 $ 2,443
============ ===========
9. SEGMENT INFORMATION
We operate our business in two segments: Domestic Activewear and
International Activewear. Domestic Activewear is further aligned by
distribution channel: Russell Athletic, Mass Retail and
Artwear/Careerwear. Russell Athletic, Mass Retail and
Artwear/Careerwear have been aggregated into the Domestic Activewear
reportable segment because these business lines are similar in economic
characteristics, products, production processes, type of customer,
distribution method, and regulatory environment. The International
Activewear business distributes our products in approximately 40
countries.
Our management evaluates performance and allocates resources based on
profit or loss from operations before interest, income taxes and
special charges (Segment EBIT). Segment EBIT as presented by us may not
be comparable to similarly titled measures used by other companies. The
accounting policies of the reportable segments are the same as those
described in Note One to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended January 4, 2003.
Intersegment transfers are recorded at cost; there is no intercompany
profit or loss on intersegment transfers.
8
13 Weeks Ended April 6, 2003
(in thousands)
-----------------------------------------------------
Domestic International
Activewear Activewear Total
------------- ------------- -----------
Net sales $ 204,735 $ 23,248 $ 227,983
Depreciation & amortization
expense 11,806 178 11,984
Segment EBIT 15,484 (395) 15,089
Total assets 922,825 68,920 991,745
13 Weeks Ended March 31, 2002
(in thousands)
-------------------------------------------------------
Domestic International
Activewear Activewear Total
------------- --------------- -----------
Net sales $ 195,135 $ 20,690 $ 215,825
Depreciation & amortization
expense 11,639 160 11,799
Segment EBIT 14,190 120 14,310
Total assets 947,096 58,261 1,005,357
A reconciliation of combined segment EBIT to consolidated income before
income taxes is as follows:
13 Weeks Ended
(in thousands)
------------------------------------
4/6/03 3/31/02
------------ -------------
Total segment EBIT $ 15,089 $ 14,310
Unallocated amounts:
Corporate expenses (2,360) (3,431)
Interest expense (7,167) (6,694)
------------ -------------
Consolidated income before income taxes $ 5,562 $ 4,185
============ =============
NET SALES BY DISTRIBUTION CHANNEL
13 Weeks Ended
(in thousands)
------------------------------------
4/6/03 3/31/02
------------ -------------
Domestic Russell Athletic $ 77,544 $ 59,056
Domestic Mass Retail 48,533 42,363
Domestic Artwear/Careerwear 78,658 93,716
International Activewear 23,248 20,690
------------- -------------
Consolidated Total $ 227,983 $ 215,825
============= =============
9
10. NEW ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued Financial Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). This
interpretation addresses consolidation by business enterprises of
variable interest entities with certain defined characteristics. This
interpretation applies to the first interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. We have not
yet determined what effect, if any, the adoption of FIN 46 will have on
our results of operations and financial position.
11. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following tables present condensed consolidating financial
information for: (a) Russell Corporation (the "Parent") on a
stand-alone basis; (b) on a combined basis, the guarantors of the
Senior Notes ("Subsidiary Guarantors"), which include Jerzees Apparel,
LLC; Mossy Oak Apparel Company; Cross Creek Apparel, LLC; Cross Creek
Holdings, Inc.; DeSoto Mills, Inc.; Russell Financial Services, Inc.;
Russell Asset Management, Inc.; Russell Apparel LLC; RINTEL Properties,
Inc.; Russell Yarn, LLC; Russell Athletic, Inc.; Russell Athletic West,
Inc.; and Russell Co-Op, LLC (all of which are wholly owned); and (c)
on a combined basis, the non-guarantor subsidiaries, which include
Alexander City Flying Service, Inc.; Russell Corporation - Delaware;
Russell Servicing Co., Inc.; Russell Europe Limited; Russell Mexico,
S.A. de C.V.; Jerzees Campeche, S.A. de C.V.; Jerzees Yucatan, S.A. de
C.V.; Athletic de Camargo, S.A. de C.V.; Cross Creek de Jimenez, S.A.
de C.V. (now known as Jerzees de Jimenez, S.A. de C.V.); Cross Creek de
Honduras, S.A. de C.V.; Russell Corp. Australia Pty Ltd; Russell do
Brasil, Ltda.; Russell Corp. Far East Limited; Russell Japan KK;
Russell Corp. Canada Limited; Jerzees de Honduras, S.A. de C.V.;
Jerzees Buena Vista, S.A.; Jerzees Choloma, S.A.; Russell del Caribe,
Inc.; Russell France SARL; Russell CZ s.r.o.; Russell Germany GmbH;
Russell Spain, S.L.; Russell Italy S.r.l.; Servicios Russell, S.A. de
C.V.; Russell Foreign Sales Ltd.; Russell Corp. Bangladesh Limited;
Russell Holdings Europe B.V.; Ruservicios, S.A.; Eagle R Holdings
Limited; and Citygate Textiles Limited. Separate financial statements
of the Subsidiary Guarantors are not presented because the guarantee by
each 100% owned Subsidiary Guarantor is full and unconditional, joint
and several, and we believe separate financial statements and other
disclosures regarding the Subsidiary Guarantors are not material to
investors. Furthermore, there are no significant legal restrictions on
the Parent's ability to obtain funds from its subsidiaries by dividend
or loan. While Russell Athletic, Inc. and Russell Athletic West, Inc.
were Subsidiary Guarantors at the time the indenture was executed,
these entities were dissolved prior to June 30, 2002, and the assets of
these entities were distributed to the Parent or other Subsidiary
Guarantors.
The Parent is comprised of Alabama manufacturing operations and certain
corporate management, information services and finance functions.
10
RUSSELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
APRIL 6, 2003
(In thousands) Subsidiary Non-Guarantor
(unaudited) Parent Guarantors Subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 5,557 $ 24,231 $ 5,563 $ - $ 35,351
Trade accounts receivables, net 2,324 148,458 25,412 - 176,194
Inventories 281,311 42,029 36,495 - 359,835
Prepaid expenses and other current
assets 12,834 2,584 2,509 - 17,927
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 302,026 217,302 69,979 - 589,307
Property, plant and equipment, net 225,267 69,394 25,326 - 319,987
Investment in subsidiaries 863,634 195 - (863,829) -
Intercompany balances (509,760) 532,726 (22,966) - -
Other assets 58,218 23,760 473 - 82,451
- ---------------------------------------------------------------------------------------------------------------------------
$ 939,385 $ 843,377 $ 72,812 $ (863,829) $ 991,745
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,938 $ 4,944 $ 7,512 $ - $ 72,394
Accrued expenses 48,551 15,787 8,948 - 73,286
Short-term debt - - 7,037 - 7,037
Current maturities of long-term debt 5,000 - - - 5,000
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 113,489 20,731 23,497 - 157,717
Long-term debt, less current maturities 295,000 - - - 295,000
Deferred liabilities 59,542 4,888 3,244 - 67,674
Stockholders' equity 471,354 817,758 46,071 (863,829) 471,354
- ---------------------------------------------------------------------------------------------------------------------------
$ 939,385 $ 843,377 $ 72,812 $ (863,829) $ 991,745
===========================================================================================================================
11
RUSSELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE 13 WEEKS ENDED MARCH 31, 2002
(In thousands) Subsidiary Non-Guarantor
(unaudited) Parent Guarantors Subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $ 146,475 $ 48,669 $ 31,712 $ (11,031) $ 215,825
Costs and expenses:
Cost of goods sold 105,244 36,038 24,456 (9,749) 155,989
Selling, general and administrative
expenses 29,463 14,673 5,940 (1,108) 48,968
Interest expense (income) - net 14,670 (7,945) (31) - 6,694
Other expense (income) - net 27,305 (27,284) 142 (174) (11)
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
equity in earnings of consolidated
subsidiaries (30,207) 33,187 1,205 - 4,185
Provision (benefit) for income taxes (10,691) 11,697 551 - 1,557
Equity in earnings of consolidated
subsidiaries, net of income taxes 22,144 - - (22,144) -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,628 $ 21,490 $ 654 $ (22,144) $ 2,628
===========================================================================================================================
RUSSELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE 13 WEEKS ENDED APRIL 6, 2003
(In thousands) Subsidiary Non-Guarantor
(unaudited) Parent Guarantors Subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $ 175,702 $ 29,361 $ 34,969 $ (12,049) $ 227,983
Costs and expenses:
Cost of goods sold 127,009 21,533 28,567 (11,947) 165,162
Selling, general and administrative
expenses 30,248 13,307 5,823 - 49,378
Interest expense (income) - net 13,753 (6,550) (36) - 7,167
Other expense (income) - net 28,193 (27,429) 52 (102) 714
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
equity in earnings of consolidated
subsidiaries (23,501) 28,500 563 - 5,562
Provision (benefit) for income taxes (9,331) 11,267 178 - 2,114
Equity in earnings of consolidated
subsidiaries, net of income taxes 17,618 - - (17,618) -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,448 $ 17,233 $ 385 $ (17,618) $ 3,448
===========================================================================================================================
12
RUSSELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE 13 WEEKS ENDED MARCH 31, 2002
(In thousands) Subsidiary Non-Guarantor
(unaudited) Parent Guarantors Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net cash provided by (used in) operating
activities $ 9,150 $ (2,904) $ 2,775 $ - $ 9,021
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,595) (349) (93) - (4,037)
Investment in and advances to subsidiaries 1,632 3,775 (5,407) - -
Proceeds from the sale of property,plant and
equipment 664 - - - 664
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,299) 3,426 (5,500) - (3,373)
FINANCING ACTIVITIES
Borrowings (payments) on credit
facility - net 2,700 - 4,352 - 7,052
Payment on short-term debt - - (2,598) - (2,598)
Debt issuance & amendment costs paid (2,470) - - - (2,470)
Dividends on common stock (1,280) - - - (1,280)
Treasury stock reissued 122 - - - 122
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (928) - 1,754 - 826
Effect of exchange rate changes on cash - - (85) - (85)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 6,923 522 (1,056) - 6,389
Cash balance at beginning of period 3,277 (1,583) 4,188 - 5,882
- -----------------------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 10,200 $ (1,061) $ 3,132 $ - $ 12,271
=============================================================================================================================
13
RUSSELL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE 13 WEEKS ENDED APRIL 6, 2003
(In thousands) Subsidiary Non-Guarantor
(unaudited) Parent Guarantors Subsidiaries Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net cash provided by operating
activities $ (55,575) $ 15,588 $ (6,056) $ - $ (46,043)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,562) (1,399) (178) - (6,139)
Investment in and advances to subsidiaries (1,632) (41) 1,673 - -
Proceeds from sales of property, plant and
equipment 5,048 1,981 - - 7,029
Cash paid for acquisitions, joint ventures and other (17,342) - - - (17,342)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (18,488) 541 1,495 - (16,452)
FINANCING ACTIVITIES
Borrowings (payments) on credit facility - net 30,000 - - - 30,000
Borrowings on short-term debt - - (128) - (128)
Debt issuance & amendment costs paid (464) - - - (464)
Dividends on common stock (1,285) - - - (1,285)
Treasury stock reissued 414 - - - 414
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 28,665 - (128) - 28,537
Effect of exchange rate changes on cash - - 690 - 690
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (45,398) 16,129 (3,999) - (33,268)
Cash balance at beginning of period 50,955 8,102 9,562 - 68,619
- -----------------------------------------------------------------------------------------------------------------------------------
Cash balance at end of period $ 5,557 $ 24,231 $ 5,563 $ - $ 35,351
===================================================================================================================================
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Our results of operations are affected by numerous factors, including
competition, general economic conditions, seasonal variation, raw material
costs, mix of products sold, and plant utilization. Typically, demand for our
products is higher during the third and fourth quarters of each fiscal year.
Changes in the weather also affect the demand for our products, particularly for
our fleece products. In addition, some of our athletic and activewear products
are generally available from multiple sources and our customers often purchase
products from more than one source. To remain competitive, we review and adjust
our pricing structure from time to time.
Our product mix affects our overall gross profit margin. Additionally, plant
utilization levels are important to our profitability because a substantial
portion of our total production cost is fixed. The cost of yarn is a significant
component of our cost of goods sold. As a result of our restructuring and
reorganization program, in 2002 we began purchasing all of our yarn from
Frontier Yarns, Frontier Spinning Mills, Inc. and other third-party suppliers.
Yarn prices fluctuate principally as a result of supply and demand in the yarn
and raw cotton markets. Furthermore, fluctuations in petroleum prices can
influence the prices of chemicals, dyestuffs and polyester yarn. Accordingly, we
adjust the timing and size of raw material purchases when necessary to minimize
the impact of these market forces.
The following information is derived from our unaudited condensed consolidated
statements of operations for the thirteen week periods ended April 6, 2003 and
March 31, 2002.
13 Weeks Ended
------------------------------------------
April 6, March 31,
2003 2002
------------------------------------------
(Dollars in millions)
Net sales $ 228.0 100.0% $215.8 100.0%
Cost of goods sold 165.2 72.4% 156.0 72.3%
------------------------------------------
Gross profit 62.8 27.6% 59.8 27.7%
Selling, general and administrative expense (SG&A) 49.4 21.7% 49.0 22.7%
Other expense (income) - net 0.7 .3% - -%
------------------------------------------
Operating income 12.7 5.6% 10.8 5.0%
Interest expense 7.2 3.2% 6.7 3.1%
------------------------------------------
Income before taxes 5.5 2.4% 4.1 1.9%
Provision for income taxes 2.1 .9% 1.5 .7%
------------------------------------------
Net income $ 3.4 1.5% $ 2.6 1.2%
==========================================
Thirteen weeks ended April 6, 2003 compared to March 31, 2002.
NET SALES. Net sales for the 2003 first quarter were $228.0 million, an increase
of $12.2 million, or 5.6%, from last year's first quarter sales of $215.8
million. After excluding sales from businesses that were acquired or
discontinued, 2003 first quarter net sales on an ongoing basis increased 3.5%
over ongoing net sales for the comparable period last year. The increase in
sales from ongoing businesses was primarily driven by new and expanded programs
in our Domestic Activewear segment. The businesses that were discontinued
principally consisted of the direct marketing of our CROSS CREEK brand to
golf-pro shops and department stores.
For the 2003 first quarter, net sales in our Domestic Activewear segment totaled
$204.7 million, an increase of $9.6 million, or 4.9%, from the comparable period
last year. This increase was driven by a 2.4% growth in dozens shipped and
higher retail sales of our RUSSELL ATHLETIC, JERZEES, DISCUS, and MOSSY OAK
branded products. In addition, net sales during the quarter were favorably
impacted by increases in our team sports and college bookstore businesses as
well as the acquisitions of Bike and Moving Comfort. The increase in net sales
was partially offset by price reductions and lower volumes in the distributor
market of the Artwear channel.
15
Our Domestic Activewear segment is further aligned by distribution channel:
Russell Athletic, Mass Retail and Artwear/Careerwear. For the 2003 first
quarter:
- - Net sales in our Russell Athletic channel increased $18.5 million, or
31.3%, to $77.5 million, while dozens shipped were up 31.6% from last
year's first quarter. These increases were primarily driven by higher
retail sales of our RUSSELL ATHLETIC and DISCUS branded products. In
addition, net sales and dozens shipped during the quarter were favorably
impacted by increases in our team sports and college bookstore businesses.
On February 6, 2003, we acquired assets of Bike Athletic Company. Bike's
products include athletic supporters, knee and elbow pads, braces,
protective equipment, team uniforms, and performance apparel.
The acquisition of Moving Comfort, a leading brand of women's performance
activewear, was completed on August 22, 2002. Its products include
performance sports underwear, shorts, pants, tops, and outerwear that
support the company's slogan, "A FIT WOMAN IS A POWERFUL WOMAN".
The Bike and Moving Comfort acquisitions favorably impacted net sales by
$7.4 million during the 2003 first quarter.
- - Net sales in our Mass Retail channel increased $6.2 million, or 14.6%, to
$48.5 million, while overall dozens shipped were up 4.2% from last year's
first quarter. The increases in sales and dozens shipped were due to
increased sales of our JERZEES and MOSSY OAK brands as well as increased
sock sales. The increases in sales and dozens shipped were somewhat offset
by lower pricing and, to a lesser extent, by lower sales to Kmart.
- - Net sales in our Artwear/Careerwear channel decreased $15.1 million, or
16.1%, to $78.7 million, while dozens shipped to the distributor market
were down 8.3% from last year's first quarter. However, after excluding
sales from discontinued businesses, our net sales of $78.7 million in the
2003 first quarter were down $12.4 million, or 13.6% from last year's first
quarter. The decreases in sales and dozens shipped reflect industry-wide
lower prices, primarily in the promotional T-shirt market, and reduced
corporate purchasing of our higher priced products, such as sports shirts,
denims and wovens.
International Activewear segment net sales for the 2003 quarter were $23.3
million, an increase of 12.4%, or $2.6 million, while overall dozens shipped
decreased 1.9% from the prior period. The increase in net sales for the segment
was primarily impacted by the strengthening of the Euro and British pound
against the U.S. dollar.
GROSS PROFIT AND GROSS MARGIN. Our gross profit was $62.8 million, or a 27.6%
gross margin, in the 2003 first quarter versus a gross profit of $59.8 million,
or a 27.7% gross margin, in the prior year. During the 2003 first quarter, our
gross profit was positively impacted by our acquisitions of Bike and Moving
Comfort, higher sales volumes in the Russell Athletic and Mass Retail channels,
improved plant utilization, and other efforts to improve and streamline our
manufacturing/sourcing processes as well as our continued focus on reducing
expenses. However, these positive impacts were offset by pricing pressures
primarily in the distributor market of the Artwear channel, higher raw material
costs for cotton and polyester, higher insurance costs, higher natural gas
prices, and additional costs for new product features.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). Our SG&A expenses were
$49.4 million, or 21.7% of net sales, versus $49.0 million, or 22.7% of net
sales, in the comparable prior year period. Lower general and administrative
costs mainly in our Artwear/Careerwear business were substantially offset by the
additional SG&A expenses associated with our acquisitions of Bike and Moving
Comfort and the increase in our bad debt reserve by $0.5 million (pre-tax) to
provide for potential additional losses on our pre-petition receivables from
Kmart. This increase brought our reserve level to 94% of the $12.4 million
pre-petition accounts receivable balance due from Kmart.
16
OTHER-NET. Other-net was an expense of $0.7 million in the 2003 first quarter
versus income of eleven thousand dollars in the 2002 first quarter.
OPERATING INCOME. Our consolidated operating income in the 2003 first quarter
was $12.7 million, or 5.6% of net sales, versus $10.8 million, or 5.0% of net
sales, in the prior year. Our consolidated operating income benefited from
higher sales volumes in the Russell Athletic and Mass Retail channels, our
acquisitions of Bike and Moving Comfort and our ongoing cost saving program. The
components of this comprehensive program include: offshore assembly, yarn
savings from outsourcing, textile cost savings through plant restructurings,
increased global procurement, organizational savings, distribution efficiencies,
and improved inventory management.
In the 2003 first quarter, our Domestic Activewear segment operating income was
$15.5 million, or 7.6% of the segment's net sales, versus $14.2 million or 7.3%
of the segment's net sales, in the comparable period last year. The increase in
our Domestic Activewear segment operating income was primarily attributable to
the benefits from higher sales volumes in the Russell Athletic and Mass Retail
channels, our acquisitions of Bike and Moving Comfort, and the other factors
described above in the gross profit and SG&A sections of this quarterly report.
In the 2003 first quarter, our International Activewear segment operating income
was a loss of $0.4 million versus a profit of $0.1 million in the prior year.
The positive benefits from currency and higher sales in Canada and Europe were
more than offset by lower sales in Mexico and Japan coupled with higher selling,
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Our total debt to capitalization ratio improved 4.8 percentage points, declining
to 39.4% at April 6, 2003, versus 44.2% at March 31, 2002. The improvement was
primarily attributable to our strategic initiative to reduce our investment in
working capital, which enabled us to reduce inventories by $12.9 million and
contributed to the net reduction of total debt by $53.7 million during the last
twelve months. We have reduced our seasonal inventory levels by focusing on
increasing our inventory turns and improving our production planning.
We believe that EBITDA, which we define as net income before interest, income
taxes, depreciation, and amortization, is a useful measure of a company's
ability to service its debt. EBITDA for the 2003 first quarter was $24.7 million
versus $22.7 million in the comparable period last year. EBITDA is a non-GAAP
financial measure that does not represent net income, as defined by accounting
principles generally accepted in the United States. EBITDA should not be
considered as a substitute for net income, or as an indicator of operating
performance or whether cash flows will be sufficient to fund cash needs.
Below is a reconciliation of EBITDA to net income:
13 Weeks Ended
(in thousands)
----------------------------------
4/6/03 3/31/02
-------- ---------
EBITDA $ 24,713 $ 22,678
Depreciation and amortization (11,984) (11,799)
Taxes (2,114) (1,557)
Interest (7,167) (6,694)
-------- ---------
Net income $ 3,448 $ 2,628
======== =========
17
Cash From Operating Activities
Our operations used approximately $46.0 million of cash during the first quarter
of 2003, versus providing $9.0 million during the same period in 2002. Due to
the seasonality of our business, we build inventory levels in the first quarter.
Our inventory build was greater in the first quarter 2003 than in 2002 primarily
due to higher inventory levels in December 2001.
The increase in accounts receivable was greater in the first quarter of 2003
versus 2002 as a result of increases in sales in our RUSSELL ATHLETIC, JERZEES,
DISCUS, and MOSSY OAK branded products. To a lesser extent, the Moving Comfort
and Bike acquisitions also contributed to the increase in accounts receivable in
the first quarter of 2003 versus 2002.
The decrease in accounts payable and accrued expenses was greater in the first
quarter of 2003 versus 2002 as a result of the payout of year-end employee
performance and customer incentive accruals that were substantially higher at
December 2002 than at December 2001.
Our business is seasonal and our cash flows from operations are ordinarily
higher in the second half of the year.
Cash From Investing Activities
Net cash used in investing activities was $16.5 million in the first quarter of
2003 versus $3.4 million in the prior year period. Our investing activities in
the 2003 first quarter consisted of capital expenditures of $6.1 million and the
acquisition of the Bike Athletic business, less proceeds from the sale of
property, plant and equipment. In the first quarter of 2002, our investing
activities consisted of capital expenditures of $4.0 million, less proceeds from
the sale of property, plant and equipment.
For fiscal 2003, we are forecasting capital expenditures to be approximately $40
million to $45 million. The majority of planned fiscal 2003 capital expenditures
are to further enhance our manufacturing and distribution capabilities and our
information systems.
Cash From Financing Activities
We paid $1.3 million in dividends ($.04 per share) during the first quarter of
2003.
On April 18, 2002, we completed our debt refinancing. Refer to Note 2 of the
consolidated financial statements in our Annual Report on Form 10-K for the year
ended January 4, 2003 for more information.
On April 6, 2003, our debt facilities and outstanding debt obligations included:
- $320 million in Senior Secured Credit Facilities (the "Facilities").
The Facilities include a $300 million Senior Secured Revolving Credit
Facility (the "Revolver") due April 2007, of which $30 million was
outstanding, and $20 million outstanding under our Senior Secured Term
Loan (the "Term Loan") due ratably through April 2007; and
- $250 million in 9.25% Senior Unsecured Notes (the "Senior Notes") due
2010.
On March 11, 2003, we amended the Facilities to, among other things, provide for
an additional pricing tier. The amendment also: (1) lessens some of the
restrictions on our ability to make acquisitions, (2) permits us to make
additional investments and guarantees, and (3) allows us to repurchase a portion
of our Senior Notes and capital stock, subject to annual limitations.
Under the Facilities, variable interest on the Revolver from January 5, 2003 to
March 10, 2003 was either LIBOR plus 1.75% or Base Rate plus 0.25% and on the
Term Loan was either LIBOR plus 2.25% or Base
18
Rate plus 0.75%, with an annual commitment fee on the unused portion of the
Facilities of 0.375%. On March 11, 2003 through the end of the first quarter,
variable interest on the Revolver was either LIBOR plus 1.5% or Base Rate and on
the Term Loan was either LIBOR plus 2.0% or Base Rate plus 0.5%.
For the second quarter of 2003, variable interest on the Revolver will be either
LIBOR plus 1.75% or Base Rate plus 0.25% and on the Term Loan will be either
LIBOR plus 2.25% or Base Rate plus 0.75% with an annual commitment fee on the
unused portion of the Facilities of 0.375%.
Adequacy of Borrowing Capacity
The availability under our Revolver is subject to a borrowing base limitation
that is determined on the basis of eligible accounts receivable and inventory.
As of April 6, 2003, we had $161.0 million of availability under our Revolver.
We also had $35.4 million in cash available to fund ongoing operations. We
expect to fund the acquisition of the Spalding business from the availability
under our Revolver. Although there can be no assurances, we believe that cash
flow available from operations, along with the availability under our Revolver
and cash on hand, will be sufficient to operate our business, satisfy our
working capital and capital expenditure requirements and meet our foreseeable
liquidity requirements, including debt service on our Facilities.
Contingencies
For information concerning our ongoing litigation, see Note 5 to the Condensed
Consolidated Financial Statements.
Commitments
For information about our contractual cash obligations and other commercial
commitments, refer to Management's Discussion & Analysis of Financial Condition
and Results of Operations in our 2002 Annual Report on Form 10-K.
Quantitative and Qualitative Disclosures About Market Risks
We are exposed to market risks relating to fluctuations in interest rates,
currency exchange rates and commodity prices. Our financial risk management
objectives are to minimize the potential impact of interest rate, foreign
exchange rate and commodity price fluctuations on our earnings, cash flows and
equity. To manage these risks, we may use various financial instruments,
including interest rate swap agreements and forward currency exchange contracts.
Refer to Notes 1 and 4 of the consolidated financial statements in our Annual
Report on Form 10-K for the year ended January 4, 2003, for a more complete
description of our accounting policies and the extent of our use of such
instruments.
The following analyses present the sensitivity of the market value, earnings or
cash flows, as applicable, of our significant financial instruments to
hypothetical changes in interest rates, exchange rates and commodity prices as
if these changes had occurred at April 6, 2003. The range of changes chosen for
these analyses reflects our view of changes that 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 not include
other potential effects, which could impact our business as a result of these
changes in interest rates, exchange rates and commodity prices.
19
INTEREST RATE AND DEBT SENSITIVITY ANALYSIS. At April 6, 2003, our outstanding
debt totaled $307.0 million, which consisted of fixed-rate debt of $250.0
million and variable-rate debt of $57.0 million. Based on our first quarter
average outstanding borrowings under our variable-rate debt, a one-percentage
point increase in interest rates would have negatively impacted our first
quarter pre-tax earnings and cash flows by approximately $0.1 million. A
one-percentage point increase in market interest rates would decrease the fair
market value of our fixed-rate debt at April 6, 2003 by approximately $7.1
million. Changes in the fair value of our fixed rate debt will not have any
impact on us unless we repurchase the debt in the open market.
CURRENCY EXCHANGE RATE SENSITIVITY. We have foreign currency exposures related
to buying, selling and financing in currencies other than our functional
currencies. We also have foreign currency exposure related to foreign
denominated revenues and costs translated into U.S. dollars. These exposures are
primarily concentrated in the Euro, British pound sterling and Mexican peso. We
enter into foreign currency forward contracts to manage the risk associated with
doing business in foreign currencies. Our policy is to hedge currency exposures
of firm commitments and anticipated transactions denominated in non-functional
currencies to protect against the possibility of diminished cash flow and
adverse impacts on earnings. At April 6, 2003, we had a $2.4 million liability
associated with these foreign currency forward contracts. A ten percent adverse
change in the foreign currency spot rates would increase our foreign currency
forward contract liability held at April 6, 2003 by $3.5 million. Changes in the
fair value of our foreign currency forward contract liability will not have any
impact on our results of operations unless these contracts are deemed to be
ineffective at hedging currency exposures of anticipated transactions. We
generally view our net investments in foreign subsidiaries that have a
functional currency other than the U.S. dollar as long-term. As a result, we
generally do not hedge these net investments.
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. In
addition, the price of polyester is subject to fluctuations, due to the economic
climate or other unforeseen circumstances. We are purchasing yarn primarily from
Frontier Yarns, LLC, Frontier Spinning Mills, Inc. and other third parties, and
our yarn pricing will continue to be impacted by the price of cotton and
polyester. We do not have any outstanding commodity futures contracts at April
6, 2003.
Forward Looking Information
With the exception of historical information, this Quarterly Report on Form
10-Q, including management's discussion and analysis, contains certain
forward-looking statements within the meaning of the federal securities laws.
This includes statements concerning plans, objectives, projections and
expectations relating to our operations or economic performance. Wherever
possible, we have identified these forward-looking statements by terms and
phrases such as "anticipate", "believe", "intend", "estimate", "expect",
"continue", "could", "may", "plan", "project", "predict", "will" and similar
expressions. In addition, the Company and its representatives may from time to
time make oral or other written statements that are also forward-looking
statements. All such forward-looking statements are based on assumptions that we
believe are reasonable when made.
Such forward-looking statements are subject to risks and uncertainties that
could cause our actual results and performance to differ materially from those
expressed in, or implied by, such forward-looking statements, including, but not
limited to, risks related to: (a) the seasonal nature of our business; (b) the
Moving Comfort, Bike Athletic and Spalding acquisitions and our overall
acquisition strategy; (c) our ability to realize the savings and efficiencies
contemplated by our multi-year restructuring and reorganization plan; (d)
dependence on third parties for production of yarn and manufacture of our
products; (e) the effects of lawsuits; (f) changes in customer demands for our
products; (g) significant competitive activity, including, but not limited to,
pricing and the similarity of some of our products with those of our
competitors; (h) our product mix; (i) our efficient utilization of production
facilities; (j) raw material price volatility; (k) the impact of economic
conditions in the markets where we operate, such as changes in interest rates,
currency exchange rates, inflation rates, and other external factors over which
we have no control; (l) the cost of insuring our business; (m) the
collectibility of receivables from our customers; (n) the ability to effect our
cost savings program; (o) our management of inventory levels and working
capital; (p) our debt structure and cash management; and (q)
20
other risk factors listed from time to time in our SEC reports and
announcements. The risks listed above are not exhaustive and other sections of
this Quarterly Report on Form 10-Q may include additional factors that could
adversely affect our business and financial performance. We assume no obligation
to publicly update any forward looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to market risks relating to fluctuations in interest rates,
currency exchange rates and commodity prices. Please see our update under the
"Liquidity and Capital Resources" section of Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"). Based on such evaluation, such
officers have concluded that, as of the Evaluation Date, our disclosure controls
and procedures are effective in alerting them on a timely basis to material
information relating to us (including our consolidated subsidiaries) required to
be included in our reports filed or submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not been
any significant changes in our internal controls or in other factors that could
significantly affect such controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Contingencies
For information concerning our ongoing litigation, see Note 5 to the Condensed
Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on April 23, 2003.
At the Annual Meeting, Shareholders voted upon the following nominees
to serve as Directors for a three-year term expiring in 2006. The
results of the vote are as follows:
Name For Withheld
- ------------------------------------- ------------------------- ----------------------
John F. Ward 22,674,859 7,816,570
Margaret M. Porter 22,670,265 7,821,164
All nominees were elected.
Tim Lewis, C. V. Nalley, III, John R. Thomas, and John A. White will continue in
office until their terms expire in 2004. Herschel M. Bloom, Ronald G. Bruno and
Mary Jane Robertson will continue in office until their terms expire in 2005.
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit
Numbers Description
- ------- -----------
99 Certification: Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code)
(c) Reports on Form 8-K
None
22
SIGNATURES
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: May 20, 2003 /s/ Robert D. Martin
----------------------------
Robert D. Martin
Senior Vice President and
Chief Financial Officer
Date: May 20, 2003 /s/ Larry E. Workman
----------------------------
Larry E. Workman, Controller
(Principal Accounting Officer)
23
CERTIFICATIONS
I, John F. Ward, Chairman and Chief Executive Officer of Russell Corporation,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Russell Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
By: /s/ John F. Ward
-------------------------
John F. Ward
Chairman and Chief Executive Officer
I, Robert D. Martin, Senior Vice President and Chief Financial Officer of
Russell Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Russell Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
By: /s/ Robert D. Martin
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Robert D. Martin
Senior Vice President and Chief Financial Officer