1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended July 2, 2000 Commission file number 0-1790
RUSSELL CORPORATION
(Exact name of registrant as specified in its charter)
Alabama 63-0180720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 Lee Street, Alexander City, Alabama 35011-0272
(Address of principal executive offices) (Zip Code)
(256) 500-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock.
Class Outstanding at August 14, 2000
Common Stock, Par Value .01 Per Share 32,574,826 shares
(Excludes Treasury)
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RUSSELL CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
July 2, 2000 and January 1, 2000 2
Consolidated Condensed Statements of Operations --
Thirteen Weeks Ended July 2, 2000 and July 4, 1999 3
Twenty-six Weeks Ended July 2, 2000 and July 4, 1999 4
Consolidated Condensed Statements of Cash Flows --
Twenty-six Weeks Ended July 2, 2000 and July 4, 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
Part II. Other Information:
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
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PART I - FINANCIAL INFORMATION
RUSSELL CORPORATION
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
July 2, January 1,
2000 2000
----------- -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash $ 10,162 $ 9,123
Accounts receivable, net 201,397 191,803
Inventories - Note 2 442,316 387,841
Prepaid expenses and other current assets 29,835 26,355
----------- -----------
Total current assets 683,710 615,122
Property, plant & equipment 1,234,787 1,229,943
Less accumulated depreciation (754,605) (747,343)
----------- -----------
480,182 482,600
Other assets 65,988 55,409
----------- -----------
Total assets $ 1,229,880 $ 1,153,131
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 135,938 $ 132,841
Federal and state income taxes 411 826
Current maturities of long-term debt 21,414 21,414
----------- -----------
Total current liabilities 157,763 155,081
Long-term debt, less current maturities 467,822 377,865
Deferred liabilities 70,464 70,843
Shareholders' equity:
Common stock, par value $.01 per share; authorized
150,000,000 shares, issued 41,419,958 shares 414 414
Paid-in capital 48,292 48,294
Retained earnings 713,911 720,111
Treasury stock, at cost (8,907,206 shares at
7/2/00 and 8,605,925 shares at 1/1/00) (218,097) (213,461)
Accumulated other comprehensive loss (10,689) (6,016)
----------- -----------
Total shareholders' equity 533,831 549,342
----------- -----------
Total liabilities & shareholders' equity $ 1,229,880 $ 1,153,131
=========== ===========
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Operations
(Dollars in Thousands Except Shares and Per Share Amounts)
(Unaudited)
13 Weeks Ended
-----------------------------
July 2, July 4,
2000 1999
----------- -----------
Net sales $ 282,462 $ 260,449
Costs and expenses:
Cost of goods sold 209,216 199,776
Selling, general and administrative expenses 55,861 49,399
Other - net 4,241 2,033
Interest expense 8,476 6,489
----------- -----------
277,794 257,697
----------- -----------
Income before income taxes 4,668 2,752
Provision for income taxes 2,196 1,309
----------- -----------
Net income $ 2,472 $ 1,443
=========== ===========
Weighted-average common shares outstanding:
Basic 32,523,764 34,065,723
Diluted 33,052,135 34,145,263
Net income per common share:
Basic $ 0.08 $ 0.04
Diluted 0.07 0.04
Cash dividends per common share $ 0.14 $ 0.14
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Operations
(Dollars in Thousands Except Shares and Per Share Amounts)
(Unaudited)
26 Weeks Ended
-----------------------------
July 2, July 4,
2000 1999
----------- -----------
Net sales $ 534,444 $ 493,626
Costs and expenses:
Cost of goods sold 396,513 376,571
Selling, general and administrative expenses 110,037 100,925
Other - net 7,053 23,632
Interest expense 15,353 13,382
----------- -----------
528,956 514,510
----------- -----------
Income (loss) before income taxes 5,488 (20,884)
Provision (benefit) for income taxes 2,550 (7,976)
----------- -----------
Net income (loss) $ 2,938 $ (12,908)
=========== ===========
Weighted-average common shares outstanding:
Basic 32,595,360 34,514,500
Diluted 32,867,697 34,514,500
Net income (loss) per common share:
Basic $ 0.09 $ (0.37)
Diluted 0.09 (0.37)
Cash dividends per common share $ 0.28 $ 0.28
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
26 Weeks Ended
-----------------------
July 2, July 4,
2000 1999
-------- --------
Operating Activities:
Net income (loss) $ 2,938 $(12,908)
Adjustments to reconcile net income (loss) to
cash used in operating activities:
Depreciation and amortization 27,776 35,160
Deferred income taxes -- (5,625)
Loss on sale of property, plant & equipment 4,320 657
Non-cash restructuring, asset impairment and
other unusual charges 2,060 19,090
Changes in operating assets and liabilities:
Accounts receivable (7,907) (5,865)
Inventories (51,319) (46,983)
Prepaid expenses and other current assets (3,864) (5,147)
Other assets 2,891 (4,637)
Accounts payable and accrued expenses 1,488 7,641
Income taxes (492) (11,192)
Pension and other deferred liabilities (208) 1,869
-------- --------
Net cash used in operating activities (22,317) (27,940)
Investing Activities:
Purchases of property, plant & equipment (32,231) (22,518)
Cash paid for acquisitions (23,450) --
Proceeds from the sale of property, plant & equipment 1,924 780
-------- --------
Net cash used in investing activities (53,757) (21,738)
Financing Activities:
Borrowings on credit facility - net 96,441 --
Borrowings on short-term debt -- 97,892
Payments on notes payable (5,350) (5,350)
Dividends on common stock (9,141) (9,689)
Cost of common stock for treasury (4,636) (37,376)
-------- --------
Net cash provided by financing activities 77,314 45,477
Effect of exchange rate changes on cash (201) 342
-------- --------
Net increase (decrease) in cash 1,039 (3,859)
Cash balance at beginning of period 9,123 13,852
-------- --------
Cash balance at end of period $ 10,162 $ 9,993
======== ========
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Notes to Consolidated Condensed Financial Statements
1. In the opinion of Management, the accompanying audited and unaudited
consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of July 2, 2000, and January 1, 2000,
and the results of operations for the thirteen and twenty-six week
periods ended July 2, 2000 and July 4, 1999, and cash flows for the
twenty-six week periods ended July 2, 2000 and July 4, 1999.
The accounting policies followed by the Company are set forth in Note
One to the Company's consolidated financial statements in Form 10-K for
the year ended January 1, 2000.
Certain prior year amounts have been reclassified to conform to fiscal
year 2000 presentation. These changes had no impact on previously
reported results of operations or shareholders' equity.
2. The components of inventory consist of the following: (In thousands)
7/2/00 1/1/00
-------- --------
Finished goods $317,914 $279,212
Work in process 89,156 68,297
Raw materials and supplies 40,202 45,288
-------- --------
447,272 392,797
LIFO reserve (4,956) (4,956)
-------- --------
$442,316 $387,841
======== ========
3. On July 22, 1998, the Company announced the Board of Directors had
approved a three-year restructuring and reorganization plan to improve
the Company's global competitiveness. Consequently, the results of
operations for the thirteen and twenty-six week periods ended July 2,
2000 and July 4, 1999 are not necessarily indicative of the results to
be expected for the full year.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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13 WEEKS ENDED 26 WEEKS ENDED
7/2/00 7/4/99 7/2/00 7/4/99
------- ------- -------- -------
Restructuring charges:
Employee termination charges $ 2,860 $ 2,337 $ 8,265 $ 6,298
Exit cost related to facilities 1,226 2,040 2,347 5,889
------- ------- -------- -------
$ 4,086 $ 4,377 $ 10,612 $12,187
------- ------- -------- -------
Asset impairment charges:
Impairment of facilities used in operation $ 1,668 $ -- $ 1,668 $13,389
Impairment of facilities and equipment
held for disposal 1,265 -- 2,777 5,701
------- ------- -------- -------
$ 2,933 $ -- $ 4,445 $19,090
------- ------- -------- -------
Other unusual charges:
Accelerated depreciation on facilities and $ 498 $ 2,224 $ 995 $ 4,450
equipment to be taken out of service
Expenses associated with the establishment
of dual headquarters 1,109 1,015 1,631 1,790
Accounts receivable recovery (768) -- (768) --
Other 339 -- 630 --
------- ------- -------- -------
$ 1,178 $ 3,239 $ 2,488 $ 6,240
------- ------- -------- -------
Totals before taxes $ 8,197 $ 7,616 $ 17,545 $37,517
======= ======= ======== =======
Totals after taxes $ 4,919 $ 4,570 $ 10,527 $22,511
======= ======= ======== =======
These charges have been classified in the statement of operations as follows:
(in thousands)
13 WEEKS ENDED 26 WEEKS ENDED
7/2/00 7/4/99 7/2/00 7/4/99
------- ------- -------- -------
Cost of goods sold $ 3,600 $ 5,032 $ 9,260 $12,368
Selling, general and administrative expenses 1,109 1,016 1,631 1,791
Other, net 3,488 1,568 6,654 23,358
------- ------- -------- -------
$ 8,197 $ 7,616 $ 17,545 $37,517
======= ======= ======== =======
Charges recorded by segments were recorded as follows: (in thousands)
13 WEEKS ENDED 26 WEEKS ENDED
7/2/00 7/4/99 7/2/00 7/4/99
------- ------- -------- -------
Restructuring charges:
Activewear $ 4,086 $ 4,377 $ 9,547 $12,187
International -- -- 1,065 --
All Other -- -- -- --
------- ------- -------- -------
$ 4,086 $ 4,377 $ 10,612 $12,187
======= ======= ======== =======
Asset impairment charges:
Activewear $ 2,933 $ -- $ 4,445 $19,090
International -- -- -- --
All Other -- -- -- --
------- ------- -------- -------
$ 2,933 $ -- $ 4,445 $19,090
======= ======= ======== =======
Other unusual charges:
Activewear $ 1,178 $ 3,239 $ 2,488 $ 6,240
International -- -- -- --
All Other -- -- -- --
------- ------- -------- -------
$ 1,178 $ 3,239 $ 2,488 $ 6,240
======= ======= ======== =======
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A SUMMARY OF THE ACTIVITY RELATED TO THE RESTRUCTURING, ASSET
IMPAIRMENT AND OTHER UNUSUAL CHARGES IS AS FOLLOWS: (In thousands)
Liability at Expense Amount Liability at
January 1, 2000 Incurred Paid July 2, 2000
--------------- -------- ------ ------------
Cash Related:
Exit cost related to facilities $ 534 $ 2,347 $2,881 $ --
Employee termination charges 4,770 8,265 5,754 7,281
Other 1,223 1,493 1,122 1,594
------- ------- ------ ------
$ 6,527 $12,105 $9,757 $8,875
======= ======= ====== ======
Non-cash related:
Impairment charges and accelerated depreciation $ 5,440
-------
$ 5,440
=======
At July 2, 2000, the Company held for sale certain closed facilities
with an adjusted carrying value of approximately $62.9 million, which
have been included in property, plant and equipment.
During the second quarter of 2000, the Company continued to move sewing
operations to a combination of owned and contractor locations in
Central America and Mexico. The Company announced the closing of two
domestic apparel operations. During the quarter approximately 415
employees were notified of their termination and received detailed
information on their individual severance packages when the facility
closings were announced.
During the first quarter of 2000, the Company continued to move sewing
operations to a combination of owned and contractor locations in
Central America and Mexico. The Company announced the closing of four
domestic apparel operations and one textile research facility. During
the quarter approximately 500 employees were notified of their
termination and received detailed information on their individual
severance packages when the facility closings were announced.
4. On August 4, 2000, the Alabama Supreme Court issued an opinion in
Sullivan, et al. v. Russell Corporation, et al. reversing the judgment
of the trial court and rendering an opinion in favor of the Company and
the other defendants on all counts. A jury in Jefferson County,
Alabama, had previously returned a verdict in the case awarding
$155,200 in compensatory damages for property damage and $52,398,000 in
punitive damages to five plaintiff families based on allegations that
textile discharges of the Company and Avondale Mills, Inc., after
treatment at a wastewater treatment plant of the City of Alexander
City, Alabama, constituted a nuisance and indirect trespass when
discharged into Lake Martin. Alabama Power Company, the third
defendant, was alleged to have allowed the nuisance and trespass to
continue as the owner of the land under the lake. The decision of the
Alabama Supreme Court is subject to the possibility that the plaintiffs
will request a rehearing by August 18, 2000.
Because management believed that the amount of the final verdict should
either be overturned on appeal or be significantly reduced, no accrual
for the amount of the verdict was recorded by the Company. Accordingly,
the action of the Alabama Supreme Court will have no effect on the
Company's financial statements as the result of the reversal of any
previous accrual with respect to the trial court verdict.
On February 23, 1999, a similar law suit was filed in Jefferson County,
Alabama by two former residents of the same residential subdivision,
and on January 13, 2000, another lawsuit was filed in Jefferson County,
Alabama by 15 families owning property adjacent to Lake Martin. The
suits seek unspecified damages for alleged nuisance and trespass and
have been consolidated into a single case. The company has been
informed that four additional families have filed a similar suit and
are seeking to consolidate it with the existing lawsuit. The Company
plans to vigorously defend the consolidated suit, and the additional
claims being made.
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
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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.
Preliminary discussions are being held with the DOJ with regard to the
proposed suit by the DOJ. The Company believes it is in compliance with
the Clean Water Act and will vigorously oppose the imposition of any
monetary penalties or injunctive relief in any lawsuit that may be
filed.
5. Earnings per share calculated in accordance with SFAS 128, Earnings Per
Share, are as follows: (In thousands except shares and per share amounts)
13 Weeks Ended 26 Weeks Ended
---------------------------- -----------------------------
7/2/00 7/4/99 7/2/00 7/4/99
----------- ----------- ----------- ------------
Net income (loss) $ 2,472 $ 1,443 $ 2,938 $ (12,908)
Basic Calculation:
Weighted-average common shares outstanding 32,523,764 34,065,723 32,595,360 34,514,500
=========== =========== =========== ============
Net income (loss) per share-basic $ 0.08 $ 0.04 $ 0.09 $ (0.37)
=========== =========== =========== ============
Diluted Calculation:
Weighted-average common shares outstanding 32,523,764 34,065,723 32,595,360 34,514,500
Net common shares issuable
on exercise of dilutive stock options 528,371 79,540 272,337 0
----------- ----------- ----------- ------------
33,052,135 34,145,263 32,867,697 34,514,500
=========== =========== =========== ============
Net income (loss) per share-diluted $ 0.07 $ 0.04 $ 0.09 $ (0.37)
=========== =========== =========== ============
6. For the period ended July 2, 2000 and July 4, 1999, accumulated other
comprehensive loss as shown in the consolidated condensed balance sheets
was comprised of foreign currency translation adjustments. The components
of comprehensive income, net of tax, for these periods were as follows: (In
thousands)
13 Weeks Ended 26 Weeks Ended
--------------------- -----------------------
7/2/00 7/4/99 7/2/00 7/4/99
------- ------- -------- --------
Net income (loss) $ 2,472 $ 1,443 $ 2,938 $(12,908)
Translation loss (3,874) (688) (4,673) (2,996)
------- ------- -------- --------
Comprehensive (loss) income $(1,402) $ 755 $ (1,735) $(15,904)
======= ======= ======== ========
7. Russell Corporation has two reportable segments: activewear and
international operations. The Company's activewear segment consists of
three strategic business units that sell the following products to
sporting goods dealers, department and specialty stores, mass
merchants, wholesale clubs, college bookstores, screen printers,
distributors, golf pro shops and mail order catalogs: T-shirts, fleece
products (such as sweatshirts and pants), athletic uniforms and knit
shirts. The international strategic business unit manufactures and
sources activewear products distributed to international locations in
approximately 50 countries. Other segments that do not meet the
quantitative thresholds for determining reportable segments sell
fabrics to other apparel manufacturers, and manufacture and sell socks
to mass merchants. These are included in the "All Other" data presented
herein.
The Company evaluates performance and allocates resources based on profit
or loss from operations before interest, income taxes, certain corporate
expenses, restructuring, reorganization and other unusual charges. The
accounting policies of the reportable segments are the same as those
described in Note One to the Company's consolidated financial statements in
Form 10-K for the year ended January 1, 2000, except that inventories are
valued on a Standard basis at the segment level, where a substantial
portion of inventories are valued on a Last-In, First-Out (LIFO) basis in
the consolidated financial statements. Intersegment transfers are recorded
at the Company's cost; there is no intercompany profit or loss on
intersegment transfers.
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The Company's reportable segments offer various similar products and/or
operate in various locations. The reportable segments are each managed
separately because of the geographic locations they serve.
13 Weeks Ended July 2, 2000
-------------------------------------------------------
(Dollars in Thousands)
Activewear International All Other Total
---------- ------------- --------- ----------
Net sales $ 215,472 $ 27,058 $39,932 $ 282,462
Depreciation and
amortization expense 11,787 591 1,067 13,445
Segment EBIT 27,149 (2,959) 6,692 30,882
Total assets 1,025,205 117,372 87,303 1,229,880
13 Weeks Ended July 4, 1999
-------------------------------------------------------
(Dollars in Thousands)
Activewear International All Other Total
---------- ------------- --------- ----------
Net sales $ 195,499 $ 31,383 $33,567 $ 260,449
Depreciation and
amortization expense 12,267 1,068 1,149 14,484
Segment EBIT 18,711 871 4,676 24,258
Total assets 982,436 117,632 87,159 1,187,227
26 Weeks ended July 2, 2000
-------------------------------------------------------
(Dollars in Thousands)
Activewear International All Other Total
---------- ------------- --------- ----------
Net sales $ 412,216 $ 55,493 $66,735 $ 534,444
Depreciation and
amortization expense 23,446 1,202 2,133 26,781
Segment EBIT 46,950 (5,327) 11,788 53,411
Total assets 1,025,205 117,372 87,303 1,229,880
26 Weeks ended July 4, 1999
-------------------------------------------------------
(Dollars in Thousands)
Activewear International All Other Total
---------- ------------- --------- ----------
Net sales $ 370,976 $ 61,743 $60,907 $ 493,626
Depreciation and
amortization expense 26,569 1,831 2,310 30,710
Segment EBIT 32,977 1,338 8,926 43,241
Total assets 982,436 117,632 87,159 1,187,227
A reconciliation of combined EBIT for the three segments to consolidated
income (loss) before income taxes is as follows: (In thousands)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
7/2/00 7/4/99 7/2/00 7/4/99
-------- -------- -------- --------
Total segment EBIT $ 30,882 $ 24,258 $ 53,411 $ 43,241
Restructuring, asset impairment, and
other unusual charges (8,197) (7,616) (17,545) (37,517)
Unallocated amounts:
Corporate expenses (9,541) (7,401) (15,025) (13,226)
Interest expense (8,476) (6,489) (15,353) (13,382)
-------- -------- -------- --------
Income (loss) before
income taxes $ 4,668 $ 2,752 $ 5,488 $(20,884)
======== ======== ======== ========
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
The following is Management's Discussion and Analysis of certain
significant factors which have affected the Company's financial condition and
earnings during the periods included in the accompanying consolidated condensed
statements of operations.
Thirteen weeks ended July 2, 2000 compared to July 4, 1999
NET SALES. Net sales increased 8.5%, or $22,013,000, to $282,462,000 for second
quarter 2000 from $260,449,000 during the comparable prior year period. The
overall net increase consisted of a 10.2% increase, or $19,973,000 within the
Company's Activewear segment; a 13.8% decline, or $4,325,000 within the
Company's International segment; and a 19.0% increase, or $6,365,000, for all
other segments. The majority of the sales increase within the Activewear segment
was due to strong sales of the Company's JERZEES and JERZEES Outdoors brands of
activewear. Overall dozens shipped were up approximately 18% over the comparable
prior year period. The negative impact of lower selling prices within certain
categories was offset by favorable product mix changes. The Russell Athletic
brand experienced a sales increase primarily related to favorable product mix
changes. The Cross Creek brand experienced a slight sales increase over the
comparable prior year period. The sales increase within the Cross Creek brand
was primarily attributable to sales increases within the corporate ad specialty
and private label markets. Approximately $2,500,000 of the sales decline within
the International segment was attributable to the weaker Euro against the US
dollar and British pound sterling and the stronger US dollar against the British
pound sterling. The remaining decline was attributable to an unfavorable sales
mix shift. The increase in net sales for all other segments was primarily
attributable to an increase in sock sales. The overall dozens shipped were up
substantially over the comparable prior year period but were partially offset by
lower selling prices.
GROSS MARGIN %. The Company's overall gross margin percentage increased to 25.9%
for second quarter 2000 versus 23.3% in the comparable prior year period.
Excluding the impact of restructuring, asset impairment, and other unusual
charges ("special charges"), as described in Note 3 to the consolidated
condensed financial statements, of $3,600,000 and $5,032,000 for 2000 and 1999,
respectively, the overall gross margin percentage increased to 27.2% for 2000
from 25.2% for 1999. Gross margins were impacted by the increase in sales
mentioned above and continue to be positively impacted by the reduction in
manufacturing cost as a result of the Company's continued efforts to move the
assembly of garments to low cost geographic locations.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A as a percent of net sales
increased to 19.8% for second quarter 2000 versus 19.0% in the comparable prior
year period. Excluding the impact of special charges of $1,109,000 and
$1,016,000 for 2000 and 1999, respectively, SG&A as a percent of net sales
increased to 19.4% for 2000 from 18.6% for 1999. The Company continues to
increase its advertising and marketing spending over that of prior years in an
effort to raise brand awareness within the market of the JERZEES, Russell
Athletic, and Cross Creek brands. The increased spending to raise brand
awareness has been partially offset by lower distribution costs as a result of
major reconfiguration of certain distribution facilities during 1999.
EARNINGS BEFORE INTEREST AND TAXES (EBIT). The Company's overall EBIT as a
percent of net sales increased to 7.6% for second quarter 2000 from 6.5% in the
comparable prior year period when calculated exclusive of special charges of
$8,197,000 and $7,616,000 for 2000 and 1999, respectively. The Activewear
segment EBIT, exclusive of special charges, as a percent of net sales is 12.6%
for second quarter 2000 up from 9.6% for second quarter 1999. Again, this
improvement is attributed primarily to the increased sales mentioned above and
to reduced manufacturing costs primarily associated with the continued move of
much of the Company's apparel assembly operations offshore. The International
segment EBIT, exclusive of special charges, as a percent of net sales decreased
to a negative 10.9% for
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second quarter 2000 from 2.8% for second quarter 1999. The majority of the
decline within the International segment was due to the foreign currency issues
mentioned above, which adversely impacted both sales and margins in Europe. The
all other segment EBIT, exclusive of special charges, as a percent of net sales
increased to 16.8% for second quarter 2000 up from 13.9% for second quarter 1999
and is attributable to increased sales mentioned above.
Twenty-six weeks ended July 2, 2000 compared to July 4, 1999
NET SALES. Net sales increased 8.3%, or $40,818,000, to $534,444,000 for the
twenty-six weeks ended July 2, 2000 from $493,626,000 during the comparable
prior year period. The overall net increase consisted of a 11.1% increase, or
$41,240,000 within the Company's Activewear segment; a 10.1% decline, or
$6,250,000 within the Company's International segment; and a 9.6% increase, or
$5,828,000, for all other segments. The majority of the sales increase within
the Activewear segment was due to strong sales within the Company's JERZEES and
JERZEES Outdoors brand of activewear. Overall dozens shipped were up
approximately 18.6% over the comparable prior year period. The negative impact
of lower selling prices within certain categories was offset by favorable
product mix changes. The Russell Athletic brand experienced a sales increase
primarily related to favorable product mix changes. The Cross Creek brand
experienced flat sales growth over the comparable prior year period primarily
due to sales increases within the corporate ad specialty and private label
markets being offset by the discontinued line of business with the PGA Tour.
Approximately $4,900,000 of the sales decline within the International segment
was attributable to the weaker Euro against the US dollar and British pound
sterling and the stronger US dollar against the British pound sterling. The
remaining decline was attributable to an unfavorable sales mix shift. The
increase in net sales for all other segments was primarily attributable to an
increase in sock sales. The overall dozens shipped were up approximately 22%
over the comparable prior year period but were partially offset by lower selling
prices.
GROSS MARGIN %. The Company's overall gross margin percentage increased to 25.8%
for the twenty-six weeks ended July 2, 2000 versus 23.7% in the comparable prior
year period. Excluding the impact of special charges of $9,260,000 and
$12,368,000 for 2000 and 1999, respectively, the overall gross margin percentage
increased to 27.5% for 2000 from 26.2% for 1999. Gross margins were impacted by
the increase in sales mentioned above and continue to be positively impacted by
the reduction in manufacturing cost as a result of the Company's continued
efforts to move the assembly of garments to low cost geographic locations.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A as a percent of net sales
increased to 20.6% for the twenty-six weeks ended July 2, 2000 versus 20.4% in
the comparable prior year period. Excluding the impact of special charges of
$1,631,000 and $1,791,000 for 2000 and 1999, respectively, SG&A as a percent of
net sales increased to 20.3% for 2000 from 20.1% for 1999. The Company continues
to increase its advertising and marketing spending over that of prior years in
an effort to raise brand awareness within the market of the JERZEES, Russell
Athletic, and Cross Creek brands. The increased spending to raise brand
awareness has been partially offset by lower distribution costs as a result of
major reconfiguration changes of certain distribution facilities during 1999.
EARNINGS BEFORE INTEREST AND TAXES (EBIT). The Company's overall EBIT as a
percent of net sales increased to 7.2% for the twenty-six weeks ended July 2,
2000 from 6.1% in the comparable prior year period when calculated exclusive of
special charges of $17,545,000 and $37,517,000 for 2000 and 1999, respectively.
The Activewear segment EBIT, exclusive of special charges, as a percent of net
sales is 11.4% for the twenty-six weeks ended July 2, 2000 up from 8.9% in the
comparable prior year period. Again, this improvement is attributed primarily to
the increased sales mentioned above and to reduced manufacturing costs
associated with the continued move of much of the Company's apparel assembly
operations offshore. The International segment EBIT, exclusive of special
charges, as a percent of net sales decreased to a negative 9.6% for the
twenty-six weeks ended July 2, 2000 from 2.2% in the comparable prior year
period. The majority of the decline within the International segment was due to
foreign currency issues mentioned above, which adversely impacted both sales and
margins in Europe.
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Additionally, the International segment incurred higher freight and distribution
costs than in the prior year as a result of product shipping delays at the
Company's Europe facility during the first quarter of 2000. The all other
segments EBIT, exclusive of special charges, as a percent of net sales increased
to 17.7% for the twenty-six weeks ended July 2, 2000 up from 14.7% in the
comparable prior year period.
Liquidity and Capital Resources
At the end of the quarter, the current ratio was 4.3, up from last year's
2.6 primarily because prior year current liabilities contained short-term debt
of $110,219,000. All short-term debt was converted to long-term debt when the
Company entered into a new credit facility during 4th quarter 1999. (See Note 2
to the Consolidated Financial Statements in the Annual Report on Form 10-K for
further details concerning the Company's credit facility). Exclusive of
short-term debt, the prior year current ratio was 4.6. Total debt to
capitalization was 47.8% and 45.5% at July 2, 2000 and July 4, 1999,
respectively.
Required cash for purchases of property, plant and equipment, dividends and
treasury stock purchases was provided by borrowings under the Company's credit
facility (long-term debt) during the period ended July 2, 2000.
Approximately 40,000 shares of the Company's common stock were repurchased
during the quarter ended July 2, 2000 for a total of approximately $566,000,
bringing the total repurchased to approximately 300,000 shares year to date.
Contingencies
For information concerning ongoing litigation of the Company, see Note 4 to
the Consolidated Condensed Financial Statements.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities and in June 2000, the FASB issued Statement
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment to FASB Statement No. 133. The Company plans to adopt
the new Statements effective beginning fiscal 2001. The Statements will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet completed its
analysis of the impact, if any, that Statements 133 and 138 may have on its
financial statements.
FORWARD LOOKING INFORMATION
This quarterly report on Form 10-Q, including management's discussion and
analysis, contains certain statements that describe the Company's beliefs
concerning future business conditions and prospects, growth opportunities, new
product lines and the outlook for the Company based upon currently available
information. Wherever possible, the Company has identified these
"forward-looking" statements (as defined in Section 21E of the Securities and
Exchange Act of 1934) by words such as "anticipates," "believes," "estimates,"
"expects," "projects" and similar phrases. These forward-looking statements are
based upon assumptions the Company believes are reasonable. Such forward-looking
statements are subject to risks and uncertainties which could cause the
Company's actual results, performance and achievements to differ materially from
those expressed in, or implied by, these statements, including among other
matters, significant competitive activity, including promotional and price
competition, changes in customer demand for the Company's products, inherent
risks in the market place associated with new products and new product lines,
including uncertainties
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about trade and consumer acceptance and other risk factors listed from time to
time in the Company's SEC reports and announcements. The Company assumes no
obligation to update publicly any forward-looking statements whether as a result
of new information, future events or otherwise.
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Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company is exposed to market risks relating to fluctuations in interest
rates, currency exchange rates and commodity prices. There has been no material
change in the Company's market risks that would significantly affect the
disclosures made in the Annual Report on Form 10-K for the year ended January 1,
2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Contingencies
For information concerning ongoing litigation of the Company, see Note 4 to
the Consolidated Condensed Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
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 August 14, 2000 /s/ Floyd D. Hoffman
--------------- -------------------------------
Floyd D. Hoffman
Senior Vice President,
Corporate Development,
General Counsel and Secretary
Date August 14, 2000 /s/ Larry E. Workman
--------------- --------------------------------
Larry E. Workman, Controller
(Principal Accounting Officer)
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