Institutional Shareholder Services
July 11, 2006
Forward-Looking Statement
The following presentation includes certain forward-looking statements.
These forward-looking statements are estimates and are subject to
various risks and uncertainties, including market conditions, customer
demand and the economy, which could cause actual results to differ
materially from those stated or implied by such statements. The forward-
looking statements contained in this presentation are subject to change
or amendment without notice, and we assume no obligation to revise
such statements to reflect any future events or circumstances.
2
Participants
Russell Independent Directors
Herschel M. Bloom: Director
Ronald G. Bruno: Director
Russell Management
Bob Koney: Senior Vice President and Chief Financial Officer
Floyd Hoffman: Senior Vice President, General Counsel and Secretary
Roger Holliday: Vice President, Investor Relations
Financial Advisor
Jim Katzman: Managing Director, Goldman, Sachs & Co.
Proxy Solicitors
Alan Miller: Innisfree M&A Incorporated
Jennifer Shotwell: Innisfree M&A Incorporated
3
Agenda
Transaction Overview
Russell Stock Price Performance
Board Process Designed to Deliver Shareholder Value
Financial Analysis
Conclusion
General Discussion and Q&A
4
Transaction Overview
5
Overview of Transaction
Rigorous, deliberative Board process designed to ensure shareholders
receive maximum value for their investment
Considered all reasonable alternatives to deliver full value to shareholders
Leading law firm advised on fiduciary responsibilities and structure of contract
Advised by internationally recognized financial firm
Fair value of $18.00 cash per share
Significant premium to pre-announcement share price (35.3% premium)
Valuation supported by publicly traded companies analysis, present value of
future stock price analysis, DCF analysis, sale in pieces analysis, selected
transactions analysis and LBO analysis
Optimal structure and certainty of terms
100% cash with no financing issues / condition
Customary “no shop” provision that allows Russell to consider and accept better
offers - none received to date
6
Overview of Transaction
Transaction Terms
Berkshire Hathaway acquires Russell for $18.00 cash per share
Sale of 100% of the stock of Russell
One-step merger
No financing issues / condition
Customary break-up fee of $22 million (negotiated down from $25 million)
2.2% of enterprise value vs. 3.2% median for 2000-2006 YTD transactions
3.6% of equity value vs. 3.3% median for 2000-2006 YTD transactions
Customary “no shop” provision that allows Russell to consider and
accept better offers
HSR antitrust review waiting period terminated on May 30, 2006
Russell shareholder vote scheduled for August 1, 2006
7
Overview of Transaction
$18.00 per share offers attractive valuation for shareholders
15.8x 2006E IBES median EPS estimate vs. 12.1x Russell’s 3-year average
7.2x LTM (2005A) EV/EBITDA vs. 6.4x Russell’s 3-year average
Certainty of price and financing
Limited due diligence
Speed of execution
Transaction timing designed to allow higher offers to emerge
Significant challenges / risks to remaining independent
Board carefully considered other strategic alternatives as sources of
shareholder value, but deemed them to have greater risk and lower
probability of a higher valuation now or in the future
Post-signing market check process
No other bids have emerged
No requests for due diligence have been made
Transaction Rationale
8
Premium Analysis
Overview of Transaction
Value ($)
Premium (%)
Offer Price Per Share
$
18.00
Stock Price (17-Apr-06)
$
13.30
35.3
%
1-week prior (10-Apr-06)
$
13.44
33.9
%
4-weeks prior (20-Mar-06)
$
14.14
27.3
%
Equity Value @ $18.00 per share
$
612.9
Less Existing Cash (as of 31-Dec-2005)
(42.8)
Total Debt and Minority Interest (as of 31-Dec-2005)
418.8
Enterprise Value
$
988.9
9
Overview of Transaction
Valuation Metrics
Enterprise Value/Sales
2005A
$1,435
0.7
x
2006E
$1,482
0.7
x
Enterprise Value/EBITDA
2005A
$137
7.2
x
2006E
$151
6.6
x
Offer Price/EPS (Mgmt.)
2006E
$1.20
15.0
x
2007E
$1.60
11.3
x
Offer Price/EPS (IBES)
2006E
$1.14
15.8
x
2007E
$1.35
13.3
x
10
Russell Stock Price Performance
11
Historical Stock Price Performance (10 years)
$10
$15
$20
$25
$30
$35
$40
Apr-1996
Oct-1998
Apr-2001
Oct-2003
Apr-2006
Daily from 17-Apr-1996 to 17-Apr-2006
Russell Corp.
01-Apr-1998
Jack Ward appointed
CEO of Russell Corp
22-Jul-1998
Russell announced 7-pt
restructuring plan involving
closing of 25 high-cost facilities,
expansion in Mexico and the
Honduras, and establishment
of dual headquarters in Atlanta
and Alexander City
15-Oct-1999
Russell Europe announced it planned to
close two plants in Scotland with the loss of
more than 300 jobs and transfer the
European headquarters to the Hague
30-Oct-2000
Additional $25mm
charge for European
restructuring plan
announced, including
phase-out of Russell
Athletic brand in
Europe
01-Feb-2000
Russell announced
additional restructuring
including 5,000 job cuts,
supply chain
improvements and
movement of 90% of
apparel operations
offshore
26-Jul-2001
Russell announced the
expansion of its restructuring
plans with a 5% cut in global
workforce and $70mm -
$80mm related restructuring
charges
30-Oct-2003
Russell announces Operational
Improvement Plan involving
realignment of operations based on
product segments and plans for new
textile facility in the Honduras for the
Activewear Group
$13.30
20-Jan-2006
Company announces
restructuring plan involving
offshore apparel
operations, reorganization
of sales & marketing and
reduction in overhead
12
20-Jan-2006
Company announces restructuring plan involving
offshoring apparel operations, reorganization of
sales & marketing and reduction in overhead
Historical Stock Price Performance (3 years)
13
30-Oct-2003
Q3 EPS drop of 21% is better
than analyst expectations;
Company raises full year
guidance to $1.31 - $1.39
16-May-2005
Company outlines new long-
term strategy at an investor
conference. Announces a
Spalding agreement that
includes products and retail
stores in China
22-Dec-2005
Company announces it
will miss 2005 guidance.
Also announces intention
to take aggressive action
in early 2006 to improve
ongoing earnings
27-Oct-2005
Company reports third quarter
adjusted earnings of $0.60 at the top
end of latest guidance. Cites lower
than expected costs in Activewear,
strong sales and profit improvements
in international apparel
16-Feb-2006
Reports fourth quarter earnings
of $0.36 per share. Stock price
drops 4.8% on weak sales
forecast and anticipated
restructuring charges
09-Sep-2003
Company revises earnings expectations for Q3
and full year citing difficult conditions in
Artwear. Q3 guidance revised from $0.72 -
$0.85 to $0.47 - $0.53. Full year guidance
revised from $1.60 - - $1.75 to $1.25 - $1.35
14-Jul-2005
Company cuts Q2 guidance from $0.18 -
$0.22 to $0.12 - $0.14; Cites higher costs
and lower than expected sales in certain
divisions
19-Sep-2005
Company announces that it expects Q3 earnings of
$0.50 - $0.60 and full year earnings in the $1.25 to
$1.35 range; below previously issued earnings
guidance of $0.62 - $0.70 for Q3 and $1.40 - - $1.48
for the full year period
Daily From 17-Apr-2003 to 17-Apr-2006
Relative Stock Price Performance
Russell stock declined (24.3)% for the year ended April 17, 2006
Russell stock declined (26.8)% for the 3-years ended April 17, 2006
12.1x Russell’s 3-year average forward P/E ratio
vs. 15.8x 2006E IBES median EPS implied by Berkshire Hathaway offer
6.4x Russell’s 3-year average LTM EV/EBITDA multiple
vs. 7.2x 2005A EV/EBITDA implied by Berkshire Hathaway offer
Offer price is at a 35.3% premium to the April 17, 2006 stock price
14
Earnings Track Record vs. Research Analyst
Estimates
¹ To be consistent with IBES estimates, 2005 EPS is not adjusted for one-time charges of COO departure and hurricane related missed sales and losses.
15
Board Process Designed to
Maximize Shareholder Value
16
Board of Directors
Independent, Knowledgeable and Committed to Shareholder Value
7 out of the 10 directors are independent directors
Former President of J.F. Ward Group, Inc.; Chief Executive Officer
of the Hanes Group and Senior Vice President of Sara Lee
Corporation
Chairman and Chief Executive Officer
John F. Ward
Chancellor of the University of Arkansas; Director of Motorola,
Inc., Logility, Inc. and J.B. Hunt Transport Services, Inc.
Director, Independent Outsider
John A. White
Chairman, President, and Chief Executive Officer of Aliant
Financial Corporation; Director of ALFA Corporation
Director, Independent Outsider
John R. Thomas
Executive Vice President and Chief Financial Officer for Crum &
Forster
Director, Independent Outsider
Mary Jane Robertson
Former Mayor of Mountain Brook, Alabama; Director of National
Association of Children’s Hospitals and Related Institutions and
the Eyesight Foundation of Alabama
Director, Affiliated Outsider
Margaret M. Porter
Chairman of Nalley Automotive Group
Director, Independent Outsider
C.V. Nalley, III
President, Chief Operating Officer and Director of Mothers Work,
Inc.; Director of CSS Industries
Director, Independent Outsider
Rebecca C. Matthias
President and CEO of Juvenile Diabetes Research Foundation;
Former Chairman of Merisant Company; Director of Carnival
Corporation
Director, Independent Outsider
Arnold W. Donald
President of Bruno Capital Management Corporation; Director of
Books-a-Million, Inc.
Director, Independent Outsider
Ronald G. Bruno
Partner at King & Spalding; Director of Post Properties, Inc.
Director, Affiliated Outsider
Herschel M. Bloom
Description/Biography
Position
Name
17
Transaction Background and Key Dates
18
September 2005
J. Holland (CEO of Fruit of the Loom) contacted J. Ward (CEO)
December 7, 2005
Russell Board meeting
- Review of market environment
- Decision to engage investment bank to assist in evaluation of strategic options
January 2006
Formally engaged Goldman Sachs
February 2006
Two unsolicited general indications of interest – neither pursued a
transaction
February 15, 2006
Board Meeting
- Discussed and decided not to pursue other strategic alternatives at the time in
favor of pursuing a transaction with Berkshire Hathaway
- Authorized approach to Berkshire Hathaway proposing $20.00/share
March 6, 2006
Goldman Sachs contacted Berkshire Hathaway
March 16, 2006
Management to management meeting with Fruit of the Loom
March 25, 2006
Berkshire Hathaway offered $18.00 per share with a break-up fee of $25 million,
subsequently negotiated down to $22 million
April 2, 2006
Board Meeting
- Reviewed legal duties of Board of Directors
- Reviewed Proposal
- Ward provided his new financial projection (“upside case projection”)
- Koney provided financial performance update for Q1 2006
April 17, 2006
Board Meeting – adopted Merger Agreement
Approval of All 9 Outside Directors
In the course of reaching its decision, over a period of several months,
the Board consulted members of senior management, financial and legal
counsel and considered a number of factors:
None of the possible alternatives to the merger were reasonably likely to present
superior opportunities for Russell or create greater shareholder value
Likelihood of achieving the “updated base case projection”
Russell’s financial condition and prospects in light of multiple missed earnings
projections in 2005
The likelihood that Q1 2006 would not meet Russell’s Q1 operating budget,
according to the CFO and based on preliminary results
Mr. Ward’s was the sole dissenting vote
Mr. Ward cited his belief that timing was inappropriate, and that an improvement
in business practices, reduction in tax rate, and implementation of CAFTA, which
would result in lower cost of goods, would enable Russell to achieve internal
projections that were significantly higher than Wall Street estimates
19
Approval of All 9 Outside Directors
The Board vigorously discussed all financial projections with the
Company’s advisors, CFO and general counsel
The Board concluded that the “base financial plan,” the “updated base
case projection” and the “upside case projection” were subject to
significant risk and based on Russell’s prior performance and industry
conditions, were unlikely to be achieved
Subsequently, the Board determined, based on these considerations
and discussions and the Company’s failure to meet its earnings
projections in 2005, to pursue the proposed transaction with Berkshire
Hathaway
20
Board Delivered Value for Shareholders
Board process designed to ensure shareholders receive full value for
their investment
Considered all reasonable alternatives to deliver full value to shareholders
Leading law firm advised on fiduciary responsibilities and structure of contract
Advised by internationally recognized financial firm
Fair value of $18.00 cash per share
Significant premium of 35.3% over the April 17, 2006 stock price
Valuation supported by publicly traded companies analyses, present value of
future stock price analyses, DCF analyses, sale in pieces analyses, selected
transactions analyses and LBO analyses
Optimal structure and certainty of terms
100% cash with no financing issues / condition
Customary “no shop” provision that allows Russell to consider and accept better
offers - none received to date
21
Research Analyst Commentary Post-Signing
“The deal should be viewed favorably by RML shareholders, receiving a 35% premium to the April
17 closing price, given the difficulties the company has experienced over the last year. We believe
this is a good fit with Berkshire”
BB&T
Capital
Markets
18 Apr 2006
“The $18 deal price represents a 35% premium over Monday’s closing price of $13.30. Since
Russell’s business segments have been under considerable operational and competitive pressures
for the last few years with declining organic sales and EBITDA, this acquisition “bails out”
shareholders from an uncertain future”
CL King &
Associates
18 Apr 2006
“We believe such a deal would make strategic sense for both parties. Berkshire Hathaway owns
and operates competitor Fruit of the Loom after acquiring the company out of bankruptcy in 2002.
The longer-term consolidation of operations for Russell’s Activewear business (47.0% of RML FY05
sales) and Fruit of the Loom should generate much needed scale (we estimate >40-50% share in
Russell’s “Activewear” sub-categories) and improved operating efficiencies to help contend with
competitors that possess more favorable cost structures (e.g. Gildan Activewear)”
“We view the 35% premium to the stock's current value as a clear positive for shareholders,
particularly as the market has given management little credit for the restructuring initiatives it
announced earlier this year”
JPMorgan
17 Apr 2006
Comments
Broker
22
Research Analyst Commentary Post-Signing
“RML’s Activewear (47% of revenue) and Sporting Goods (43%) segments will fit well with Berkshire's
existing holdings, Fruit of the Loom, Fechhemer (activewear), and H.H. Brown Shoe. We doubt any
potential suitor wants to get in a bidding war with Berkshire. We therefore expect the transaction to
close as planned in 3Q06, and expect the stock to remain in the $18 trading range until the deal
closes”
SunTrust
Robinson
Humphrey
26 Apr 2006
“We believe Berkshire Hathaway is at an advantage to other potential buyers and that the stock, at it
recent share price of $18.17, is fully valued”
“There has been speculation that Berkshire Hathaway’s offer for Russell of $18 per share is too low
and rival bids will soon appear. However, we believe it is more likely that Berkshire Hathaway will
prevail”
“Although the multiples at the acquisition price are lower than the industry average, we believe the
company’s lower-than-average operating margins (5.9% vs. 9.5%), ROE (6% vs. 16.4%); and sales
growth (10.5% vs. 16.4%) justify the valuation”
Ferris, Baker
Watts,
Incorporated
15 May 2006
“We do view the acquisition as a good fit with Berkshire's existing holdings, which include Fruit of the
Loom, Fechhemer (activewear), and H.H. Brown Shoe. We are uncertain if there will be other
competing bids for this business but believe there is a limited number of companies that would want
both the Activewear (47% of revenue) and Sporting Goods (43%) businesses”
SunTrust
Robinson
Humphrey
17 Apr 2006
Comments
Broker
23
Financial Analysis
24
Financial Assumptions
All financial analysis based on financial projections provided by
Russell management and estimates from Wall Street research
Projections provided by management assume “updated base case
projection,” reflecting a lower-than-initially-expected effective tax rate
However, 2006E EPS remained unchanged
Russell management projections were also compared to the available
Wall Street estimates
Significant gap between Wall Street estimates and management projections
25
Illustrative Per Share Ranges
Methodology
Summary of Financial Analysis
Note: As of 17-Apr-2006
26
Conclusion
27
Conclusion
Board process designed to ensure shareholders receive full value for
their investment
Considered all reasonable alternatives to deliver full value to shareholders
Fair value of $18.00 cash per share
Fairness of price supported by valuation analysis
Optimal structure and certainty of terms
100% cash with no financing issues / condition
Customary “no shop” provision that allows Russell to consider and
accept better offers
No other offers or requests for due diligence received to date
Russell Board continues to believe the proposed transaction is in the
best interest of shareholders
28
General Discussion
and
Q&A
29