ITEM 1. Business
GENERAL
Russell Corporation is an international branded apparel company specializing in activewear, casualwear and athletic uniforms. Major brands include Russell Athletic(R), JERZEES(R), Cross Creek(R), and Mossy Oak Apparel(R). The Company designs and merchandises a variety of leisure and sports apparel marketed to sporting goods dealers, department and specialty stores, mass merchandisers, golf pro shops, college bookstores, mail order houses, screen printers and embroiderers, and distributors. Products are derived from a combination of internally produced products and third-party sources.
On July 22, 1998, the Company announced a three-year restructuring and reorganization plan to improve the Company's global competitiveness. For further discussion of activities under the plan, see Note 10 of Notes to Consolidated Financial Statements.
More than 95% of the Company's total revenues in 2000 were derived from the sale of completed apparel, with the balance from woven fabrics. During each of the two previous fiscal years ending January 1, 2000 and January 2, 1999, completed apparel also accounted for more than 95% of total revenues. Foreign and export sales for 2000 were 9.1%. In each of the immediately preceding two years, foreign and export sales were 10.8% and 10.7%, respectively. One customer, Wal-Mart Stores, Inc. and affiliates, accounted for 17.9% of total revenues in 2000, 19.4% in 1999 and 19.0% in 1998.
The Company produces athletic uniforms for most sports activities and for players of all ages and sizes. These products are marketed to professional, collegiate, high school, and other teams as well as to individuals. Activewear and casual apparel, such as t-shirts, fleece sweatshirts and sweatpants, pullovers, jackets, and other knitted apparel products, are produced for the general consumer market. Product lines also include placket shirts, turtlenecks and golf apparel. The Company also produces sports and casual socks, including tube, quarter anklet and crew socks for men, women and children. Woven fabrics are produced and sold to other apparel manufacturers.
The Company's principal owned manufacturing facilities are located in Alabama, North Carolina, Mexico, and Honduras. Warehousing and shipping is conducted in Alexander City, Ft. Payne and Montgomery, Alabama; Mt. Airy, North Carolina; West Point, Mississippi; and Vidalia, Georgia. The primary distribution facilities for the International Division are at Russell Europe Limited, located in and around Livingston, Scotland. The Company also maintains warehouses in Mexico and Australia.
As a vertically integrated operation, the Company converts raw fibers into finished apparel and fabrics utilizing company-owned facilities, as well as contractors and general suppliers for spinning, knitting and weaving, dyeing and finishing, and cutting and sewing operations. Generally, the Company produces most of the yarns, other than textured and filament yarns, used in the Company's manufacturing processes. As a result of its integrated production process, the majority of the functions required to produce finished apparel and fabrics can be performed by the Company without reliance upon outside contractors. The Company is not, however, solely reliant on owned facilities and operations, particularly in apparel assembly. During the year approximately 84% of its products for domestic consumption were assembled at contractors, owned operations or purchased from other suppliers outside the United States.
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The Company benefits from flexibility in its production scheduling capability, permitting it to shift product emphasis as markets improve, change or temporarily decline for particular products. This ability to respond quickly to market changes has enabled the Company to manage the utilization of its manufacturing capacity.
The Company's revenues and income are subject to seasonal variations. However, due to the time which may elapse between the acceptance of customers' orders and shipment of goods, prices may or may not immediately reflect changes in the Company's cost of raw materials and other costs. Working capital needs may change with the increase or decrease in inventories or accounts receivable as a result of a variety of credit terms and time between production and shipments. Production schedules are based primarily on forecasts incorporating current orders, the history of customer orders, market research, and similar market factors. The Company has no meaningful backlog figures.
The Company does not hold any significant patents, franchises or concessions in any of its segments. The Company's ability to manufacture and sell certain licensed apparel products is dependent upon licenses held by the Company to utilize various trademarks and tradenames on such apparel. The licenses are subject to periodic renewal and negotiation and certain minimum payments.
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SEGMENTS
The Company has two reportable segments: Activewear and International. These segments offer similar products and operate in multiple locations. The reportable segments are each managed separately because they manufacture and distribute products into different geographical areas. The segment information found in Note 11 on pages 44 and 45 of the 2000 Annual Report to Shareholders is hereby incorporated by reference.
Activewear - The Company's Activewear segment consists of four brands that sell to sporting goods dealers, department and specialty stores, mass merchants, wholesale clubs, college bookstores, screen printers, distributors, golf pro shops, and mail order catalogs. The Company's activewear apparel products include t-shirts, fleece products, such as sweatshirts and sweatpants, athletic uniforms, knit shirts, and other activewear casual apparel.
The Activewear segment consists of the primary operations of the Company's JERZEES(R), Russell Athletic(R), Cross Creek(R), and Mossy Oak Apparel(R) brands. Activewear is sold by a combination of a salaried, company-employed sales force and commission agents.
The Activewear segment utilizes company-owned manufacturing facilities to produce product, as well as contractors or other vendors for components in the manufacturing process or for the procurement of finished product. Generally, company-owned and operated manufacturing facilities for Activewear consist of fabrication, dyeing and finishing, cutting, and sewing.
Russell Yarn consists of the spinning of yarns, the process by which fibers of raw cotton or blends of cotton and synthetic fibers are converted into continuous strands. Yarn uniformity and strength are the principal characteristics which materially affect the efficiency of subsequent manufacturing processes and the quality of the finished fabrics or apparel. This unit manufactures a variety of yarn sizes primarily for use in the balance of the Company's manufacturing processes.
Russell Yarn purchases synthetic fibers from one principal supplier. There are approximately four major producers of such fibers in the world. The Company purchases cotton from various merchants and producers.
This unit has experienced no material difficulty in purchasing adequate supplies and does not presently anticipate difficulties in the future. Russell Yarn has no contracts for the supply of raw materials extending beyond a year.
Fabrication is the process of converting yarn, provided by the Company's yarn unit or purchased from a third party, into cloth or fabrics. This is done through the process of single knitting, supplemented by smaller operations of double knitting and warp knitting. These operations are generally conducted in plant locations in Alabama and North Carolina.
These fabrics are then dyed and/or finished in company-owned facilities or by contractors. The dyeing and/or finishing processes impart and affect the appearances, the hand (feel), color fastness, uniformity, shade, and stability (retention and form) of the fabric.
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Company-owned cutting and sewing operations for Activewear, located in plants in the United States, Mexico, and Honduras, are augmented by various contractors in the Caribbean, North America, Central America and South America.
International - The International segment distributes activewear products primarily under the JERZEES(R) and Russell Athletic(R) brands throughout various countries outside the United States and Canada. This segment's major market is Europe, where the Company engages in marketing of activewear.
All Other - Other segments that do not meet the quantitative thresholds for determining reportable segments manufacture and sell fabrics to other apparel manufacturers and manufacture and sell socks.
Russell Fabrics designs, manufactures and markets quality woven fabrics of cotton, polyester and cotton/polyester blends in a variety of patterns, colors and constructions to other apparel manufacturers, primarily for the manufacture of school and industrial uniforms.
DeSoto Mills supplies popularly priced socks for men, women and children primarily under the Company's JERZEES(R) and Russell Athletic(R) brands, through a company-employed sales force principally to the discount retailer and wholesale club markets.
COMPETITION
The textile-apparel industry in all of the Company's business segments is highly competitive, and the Company has many domestic and foreign competitors, both large textile-apparel companies and smaller concerns. While the sales of a few competitors are substantially greater than those of the Company, no single competitor dominates the industry.
EMPLOYEES
As of December 30, 2000, the Company had 16,540 employees, as follows:
The Company has never had a strike or work stoppage and considers its relationship with its employees to be good.
REGULATION
The Company is subject to federal, state and local laws and regulations affecting its business, including those promulgated under the Occupational Safety and Health Act (OSHA), the Consumer Product Safety Act (CPSA), the Flammable Fabrics Act, the Textile Fiber Product Identification Act, and the rules and regulations of the Consumer Products Safety Commission (CPSC). The Company believes that it is in compliance with all applicable governmental regulations under these statutes. The Company believes it is in compliance with all current environmental requirements and expects no major additional expenditures in this area in the foreseeable future.
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FORWARD-LOOKING INFORMATION
With the exception of historical information, the matters and statements discussed, made or incorporated by reference in this Annual Report on Form 10-K constitute forward-looking statements and are discussed, made or incorporated by reference, as the case may be, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these "forward-looking" statements (as defined in Section 21E of the Securities and Exchange Act of 1934) by words such as "anticipates," "believes," "intends," "estimates," "expects" and similar phrases. In addition, the Company and its representatives may from time to time make other oral or written statements that are also forward-looking statements.
Some forward-looking statements concern anticipated sales levels, cost estimates and resulting earnings that are not necessarily indicative of subsequent periods due to the mix of future orders, at once orders and product mix changes, which may vary significantly from year to year or quarter to quarter, and the timing and effect of the Company's restructuring and reorganization plan. These forward-looking statements are based upon assumptions the Company believes are reasonable; however, such statements are subject to risks and uncertainties which could cause the Company's actual results, performance and achievements to differ materially from those expressed in, or implied or contemplated by, these statements. These risks and uncertainties include, but are not limited to, the overall level of consumer spending for apparel; the financial strength of the retail industry; actions by competitors that may impact the Company's business (including in particular changes in pricing); accuracy of forecasts; the existence of excess capacity in the Company's industry; changes in prices of raw materials used in the Company's manufacturing processes; the ability of the Company to reduce cost in more labor-intensive segments of the manufacturing process; the success of planned advertising, marketing and promotional campaigns and international activities; changes in customer relationships; the impact of economic changes in the markets where the Company competes, such as changes in interest rates, currency exchange rates, inflation rates, recession, and other external economic and political factors over which the Company has no control; and other risks and uncertainties discussed or indicated in other documents filed by the Company with the Securities and Exchange Commission from time to time. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 2.
ITEM 2. Properties
The Company's principal executive offices are located in Atlanta, Georgia and Alexander City, Alabama, with owned manufacturing plants located in Alabama, North Carolina, Mexico and Honduras. The Company has no material mortgages on any of its real property or manufacturing machinery except for capitalized lease obligations (see Note 2 of Notes to Consolidated Financial Statements), and believes that all of its properties are well maintained and suitable for its operations and are currently fully utilized for such purposes, excluding plants that are held for resale as a result of restructuring. (See Note 10 of Notes to Consolidated Financial Statement.)
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The Company utilizes an aggregate of approximately 9,143,000 square feet of manufacturing, warehousing and office facilities, and has 1,389,000 square feet that is either idle or held for sale. The following table summarizes the approximate areas of such facilities:
All presently utilized facilities in the U.S. are owned, except the regional sales offices, certain distribution facilities and the Company's headquarters in Atlanta, Georgia (see Notes 2 and 9 of Notes to Consolidated Financial Statements).
ITEM 3.
ITEM 3. Legal Proceedings
The Company has been a co-defendant in Sullivan, et al. v. Russell Corporation, et al., in Jefferson County, Alabama. Five families were plaintiffs in this case; other defendants were Avondale Mills, Inc. and Alabama Power Company. The claims asserted at the trial of this case were for trespass and nuisance relating to property owned by the plaintiffs on Lake Martin in a subdivision of Alexander City, Alabama. The damages claimed by the plaintiffs were for decreased value of their homes, mental anguish and punitive damages. In November 1998, the jury returned a verdict against all three defendants in the amount of $155,200 compensatory damages for alleged property devaluation, $0 damages for mental anguish and punitive damages of $52,398,000. The defendants appealed this verdict to the Alabama Supreme Court, which on August 4, 2000, reversed the jury verdict and rendered judgment in favor of the Company and the other defendants on all claims. The plaintiffs filed an application for rehearing before the Alabama Supreme Court, which denied that application and reaffirmed its ruling in favor of the defendants in an opinion issued on January 12, 2001. The Alabama Supreme Court issued a Certificate of Judgment affecting such actions on January 30, 2001.
On February 23, 1999, a similar lawsuit was filed in Jefferson County, Alabama, by two former residents of the same residential subdivision, which suit was dismissed with prejudice without liability on the Company's part on February 1, 2001. On January 13, 2000, another lawsuit was filed in Jefferson County, Alabama, by 15 families owning property adjacent to Lake Martin, seeking unspecified damages for alleged nuisance and trespass. The Company plans to vigorously defend this 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 operated by the City of Alexander City, Alabama. Continuing 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.
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The Company is a party to various other lawsuits arising out of the conduct of its business, the majority of which, if adversely determined, would not have a material adverse effect upon the Company.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE COMPANY
"Election of Directors" on pages 1 through 3 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference.
Additional executive officers who are not directors are as follows:
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Mr. Letzler was employed by the Company in 1998, as Senior Vice President and Chief Executive Officer of JERZEES. Prior to joining the Company, he was with Sara Lee Corporation, from 1980 to 1998, most recently as President of Hanes Hosiery and prior to that he was President of the Hanes Printables Division.
Mr. Martin, employed by the Company in 2000, was most recently Senior Vice President and CFO for Sunbeam Corporation's international operations. Prior to joining Sunbeam, he had been with Sara Lee Corporation's branded apparel operations for 21 years, most recently as Vice President and CFO of the European business.
Mr. Hoffman was employed by the Company in 1999 in his current position. Prior to joining the Company, he was most recently Vice President-General Counsel and Secretary for OSI Industries, Inc. from 1996 to 1999. Prior to that, he was Vice President-Deputy General Counsel and Assistant Secretary for Sara Lee Corporation.
Mr. Hoyle, was employed by the Company in 1998, as the Executive Vice President and Chief Financial Officer of the Company from 1998 to 2000. Prior to joining the Company, he was most recently with Ithaca Industries, from 1994 to 1998, serving as Chief Financial Officer. During the time Mr. Hoyle served as Chief Financial Officer, Ithaca Industries, Inc. filed a petition in bankruptcy court under Chapter 11 of the Bankruptcy Code.
Mr. Johnson, employed by the Company since 1989, most recently served as Executive Vice President, Manufacturing. Prior to that, he was Vice President, Greige Manufacturing.
Ms. Mabe, employed by the Company in 1999, most recently served as President of Russell Athletic. She was named President and Chief Executive Officer of Russell Athletic and Senior Vice President of Russell Corporation in 2000. Prior to joining Russell she was Vice President of strategic marketing for VF Jeanswear, Inc. She has also held executive positions with Victoria's Secret Stores and Sara Lee Corporation.
Mr. Taunton, employed by the Company since 1973, most recently served as Executive Vice President, Sales and Marketing. Prior to that, he served as President of the Fabrics Division from 1988 to 1993.
Mr. Holliday, employed by the Company since 1986, was named Vice President, Investor Relations in 1998, and Treasurer in 1996. He served as President of the Licensed Products Division from 1994 to 1996, President of the Knit Apparel Division from 1991 to 1994 and Assistant Treasurer from 1988 to 1991.
Ms. Young was employed by the Company in 1998 in her current role. Prior to joining the Company, she was with Sara Lee Corporation from 1984 to 1998, most recently as Director, Corporate Affairs and Community Relations.
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Mr. Workman, employed by the Company since 1969 as an accountant, served as Manager, Cost Accounting from 1970 to 1987.
Mr. Forehand, employed by the Company in 1985 as Director of Taxes, served as Assistant Secretary from 1987 to 1988 and Secretary from 1989 to 1998.
Mr. Champion joined the Company in 1994 as a staff attorney. He was named Director, Government Relations in 1999, and assumed his current duties in 2001.
All executive officers and all other officers of the Company were elected or re-elected to their positions at the Board of Directors meeting on February 21, 2001.
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PART II
ITEM 5.
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters
"Dividend and Market Information" on the inside back cover of the Annual Shareholders Report for the year ended December 30, 2000 is incorporated herein by reference.
The approximate number of holders of the Company's common stock at March 27, 2001 was 8,000.
ITEM 6.
ITEM 6. Selected Financial Data
"Ten Year Selected Financial Data" on pages 22 and 23 of the Annual Shareholders Report for the year ended December 30, 2000 is incorporated herein by reference with respect to fiscal years 2000, 1999, 1998, 1997, and 1996.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 24 through 27 of the Annual Shareholders Report for the year ended December 30, 2000 is incorporated herein by reference.
ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
"Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 24 through 27 of the Annual Shareholders Report for the year ended December 30, 2000 are incorporated herein by reference.
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ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and its subsidiaries included in the Annual Shareholders Report for the year ended December 30, 2000 are incorporated herein by reference:
Consolidated Balance Sheets - December 30, 2000 and January 1, 2000
Consolidated Statements of Operations - Years ended December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Statements of Cash Flows - Years ended December 30, 2000, January 1, 2000 and January 2, 1999
Consolidated Statements of Stockholders' Equity - Years ended December 30, 2000, January 1, 2000 and January 2, 1999
Notes to Consolidated Financial Statements - Years ended December 30, 2000, January 1, 2000 and January 2, 1999
Report of Independent Auditors
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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PART III
ITEM 10.
ITEM 10. Directors and Executive Officers of the Registrant
"Election of Directors" on pages 1 through 3 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference.
"Executive Officers of the Company" on pages I-7 through I-9 of this report is incorporated herein by reference.
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference.
ITEM 11.
ITEM 11. Executive Compensation
"Executive Compensation" on pages 10 through 14 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference. "Management Development and Compensation Committee Report on Executive Compensation" and "Comparative Five-Year Cumulative Total Returns Through 12/30/2000" on pages 7 through 10 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 are incorporated herein by reference, but pursuant to Instruction (9) to Item 402 (a)(3) of Regulation S-K shall not deemed to be filed with the Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) "Principal Shareholders" on pages 4 and 5 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference.
(b) Information concerning security ownership of management set forth in the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 under the captions "Security Ownership of Executive Officers and Directors" on page 3 is incorporated herein by reference.
(c) There are no arrangements known to the registrant the operation of which may at a subsequent date result in a change in control of the registrant.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
"Transactions with Management and Others" on page 6 of the Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2001 is incorporated herein by reference.
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PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements All financial statements of the registrant as set forth under Item 8 of this Report on Form 10-K
(2) Financial Statement Schedule
All other financial statements and schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
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Pursuant to Item 601(b)(4)(iii) of Regulation S-K, upon request of the Commission, the registrant will furnish copies to the Commission of any agreement which defines the rights of holders of long-term debt of the registrant for which the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis and which have not heretofore been filed with the Commission.
(b) Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of the year ended December 30, 2000.
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS RUSSELL CORPORATION AND SUBSIDIARIES
(1) Uncollectible accounts written off, net of recoveries.
(2) Discounts and returns allowed customers during the year.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS RUSSELL CORPORATION AND SUBSIDIARIES
(3) Represents cash paid
(4) Represents assets write-off
(5) Represents assets sold after write-down
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized.
RUSSELL CORPORATION (Registrant)
Date: 3/29/01 By: /s/ John F. Ward ------- ----------------------------------------- John F. Ward Chairman, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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