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 April 5, 1998 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
(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 May 15, 1998
----- ---------------------------
Common Stock, Par Value $.01 Per Share 36,325,695 shares
(Excludes Treasury)
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RUSSELL CORPORATION
Index
Page No.
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Part I. Financial Information:
Consolidated Condensed Balance Sheets--
April 5, 1998 and January 3, 1998 2
Consolidated Condensed Statements of Income--
Thirteen Weeks Ended April 5, 1998 and
April 6, 1997 3
Consolidated Condensed Statements of Cash Flows--
Thirteen Weeks Ended April 5, 1998 and
April 6, 1997 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 6
Exhibit 11 - Computation of Earnings Per
Share 8
Part II. Other Information 9
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PART I - FINANCIAL INFORMATION
RUSSELL CORPORATION
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
April 5 January 3
1998 1998
----------- -----------
ASSETS (Unaudited) (Audited)
Current Assets:
Cash $ 6,196 $ 8,609
Accounts receivable, net 209,239 242,988
Inventories:
Finished goods 341,413 286,254
In process 54,528 52,498
Raw materials and supplies 67,565 65,476
----------- -----------
463,506 404,228
LIFO reserve (32,890) (34,305)
----------- -----------
430,616 369,923
Prepaid expenses and other current assets 29,027 25,523
----------- -----------
Total current assets 675,078 647,043
Property, plant and equipment, net 531,189 526,113
Other Assets 69,306 74,806
----------- -----------
Total assets $ 1,275,573 $ 1,247,962
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 53,058 $ 39,256
Accounts payable and accrued expenses 101,134 84,878
Current maturities of long-term debt 21,458 21,478
----------- -----------
Total current liabilities 175,650 145,612
Long-term debt, less current maturities 360,607 360,607
Deferred liabilities 79,079 76,141
Shareholders' Equity:
Common stock, at par value 414 414
Paid-in capital 48,642 48,654
Retained earnings 758,171 761,428
Accumulated other comprehensive income (4,031) (4,724)
----------- -----------
803,196 805,772
Treasury stock, at cost (142,959) (140,170)
----------- -----------
Total shareholders' equity 660,237 665,602
----------- -----------
Total liabilities & shareholders' equity $ 1,275,573 $ 1,247,962
=========== ===========
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
13 Weeks Ended
----------------------------
April 5 April 6
1998 1997
----------- -----------
Net sales $ 256,229 $ 258,159
Costs and expenses:
Cost of goods sold 183,799 176,148
Selling, general and
administrative expenses 62,389 57,327
Interest expense 6,649 5,872
Other - net 95 481
----------- -----------
252,932 239,828
----------- -----------
Income before income taxes 3,297 18,331
Provision for income taxes 1,448 7,028
----------- -----------
Net income $ 1,849 $ 11,303
=========== ===========
Average shares outstanding:
Basic 36,407,919 37,806,137
Diluted 36,437,989 38,107,146
Net income per common share:
Basic $ 0.05 $ 0.30
Diluted $ 0.05 $ 0.30
Cash dividends per common share $ 0.14 $ 0.13
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
13 Weeks Ended
-----------------------
April 5 April 6
1998 1997
-------- --------
Cash Flows from Operating Activities
Net income $ 1,849 $ 11,303
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 19,198 19,969
Deferred income taxes (2,598) 783
(Gain) loss on sale of property, plant & equip (67) 372
Changes in assets and liabilities:
Accounts receivable 33,652 2,551
Inventories (60,619) (57,898)
Prepaid expenses and other current assets (5,156) (6,373)
Other assets 4,622 1,337
Accounts payable & accrued expenses 16,242 11,184
Income taxes payable 3,578 (6,489)
Pension and other deferred liabilities 3,735 1,918
-------- --------
Net cash provided by (used in) operations 14,436 (21,343)
Cash Flows from Investing Activities
Purchases of property, plant & equipment (23,144) (10,827)
Proceeds from sale of property, plant & equipment 83 360
-------- --------
Net cash used in investing activities (23,061) (10,467)
Cash Flows from Financing Activities
Short-term borrowings 13,622 48,252
Payments on long-term debt (21) (19)
Dividends on Common Stock (5,106) (4,923)
Cost of Common Stock for treasury (2,792) (16,029)
Distribution of treasury shares (8) 3,418
-------- --------
Net cash provided by financing activities 5,695 30,699
Effect of exchange rate changes on cash 517 (100)
-------- --------
Net decrease in cash (2,413) (1,211)
Cash balance at beginning of period 8,609 7,355
-------- --------
Cash balance at end of period $ 6,196 $ 6,144
======== ========
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
consoli dated condensed financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of April 5, 1998, and January 3, 1998, and the
results of operations and cash flows for the thirteen weeks ended April 5,
1998 and April 6, 1997.
The accounting policies followed by the Company are set forth in Note A to
the Company's consolidated financial statements in Form 10-K for the year
ended January 3, 1998.
2. The results of operations for the thirteen weeks ended April 5, 1998, are
not necessarily indicative of the results to be expected for the full year.
The financial statements for the quarter ended April 5, 1998 are inclusive
of a non-recurring charge of approximately $8 million related to the
retirement, and subsequent replacement of the Chairman, President and Chief
Executive Officer of the Company.
3. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", effective
for periods ending after December 15, 1997. The statement is intended to
simplify the earnings per share calculation by excluding common stock
equivalents from the calculation. The Company adopted SFAS 128 in 1997,
consequently, prior periods presented have been restated.
4. Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes new rules for reporting comprehensive
income and its components. SFAS 130 is effective for periods beginning
after December 15, 1997 and was adopted by the Company for the fiscal year
beginning January 4, 1998. There was no impact on net income or
shareholders' equity from the adoption of the statement.
For the periods ending April 5, 1998 and April 6, 1997, accumulated other
comprehensive income as shown in the consolidated balance sheets was
comprised of foreign currency translation adjustments which prior to
adoption was reported separately in shareholders' equity. The components of
comprehensive income, net of tax, for these periods were as follows:
13 Weeks Ended
----------------------
4/5/98 4/6/97
-------- --------
(In thousands)
Net income $ 1,849 $ 11,303
Translation adjustment 693 (2,399)
-------- --------
Comprehensive income $ 2,542 $ 8,904
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RUSSELL CORPORATION
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 earnings during the
periods included in the accompanying consolidated condensed statements of
income.
A summary of the period to period changes in the principal items
included in the consolidated statements of income is shown below:
Comparison of
--------------------------------------------------
Quarter Ended Quarter Ended
April 5, 1998 and April 5, 1998 and
April 6, 1997 January 3, 1998
----------------------- -----------------------
Increase (Decrease)
(Dollars in Thousands)
Net sales $ (1,930) (0.7)% $(75,263) (22.7)%
Cost of goods sold 7,651 4.3 (52,222) (22.1)
Selling, general and
administrative expenses 5,062 8.8 (4,028) (6.1)
Interest expense 777 13.2 (847) (11.3)
Other - net (386) (80.2) (2,307) (96.0)
Income before income taxes (15,034) (82.0) (15,859) (82.8)
Provision for income taxes (5,580) (79.4) (5,910) (80.3)
Net income (9,454) (83.6) (9,949) (84.3)
Sales for the first quarter of 1998 were down slightly from the
first quarter of 1997. Although prices in the distributor market stabilized,
those prices were lower than in the first quarter of 1997. This was reflected in
decreased margins; to 28.3% of sales versus 31.8% in the prior year's first
quarter. The Company recently has begun a comprehensive review of all areas of
its operations. It has not been determined at this time what impact, if any,
that these actions will have on future financial results.
Selling, general and administrative expenses were up 8.8% to
24.3% of sales in first quarter comparisons, reflective of approximately $8
million in non-recurring charges associated with the retirement, and ensuing
replacement of the Company's Chairman, President and Chief Executive Officer.
For the quarter, the tax rate increased to 43.9%. The ratio of
certain non-deductible expenses to pre-tax income increased as a result of the
decrease in pre-tax income during the period.
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Financial Condition
The Company's financial condition remains strong. Due to
somewhat lower than anticipated fleece sales in the fourth quarter of 1997,
inventories increased 16.4%, as receivables declined 13.9% from year end. The
current ratio was 3.8:1 at the end of the quarter. The Company's debt to total
capitalization at April 5, 1998, was 35.3%.
Required cash for inventories, prepaid expenses, treasury stock,
purchases of property, plant and equipment, and dividends was provided from net
income plus non-cash charges, accounts receivable, accounts payable, and
short-term borrowings. The Company maintained $286 million of informal lines of
credit at the end of the quarter.
The Company utilizes two interest rate swap agreements in the
management of its interest rate exposure. These agreements effectively convert a
portion of the Company's interest rate exposure from a fixed to a floating rate
basis, and from a floating rate to a fixed rate basis. The effect of these
agreements was to effectively lower interest expense on the Company's long-term
debt in the first quarter.
The Company periodically enters into futures contracts as hedges
for its purchases of cotton inventories. Gains and losses on these hedges are
deferred and reflected in cost of sales as such inventory is sold. Purchasing
futures contracts not only limits the risk of price increases, but also limits
the Company's ability to benefit from future price decreases. At April 5, 1998,
the Company had outstanding futures contracts, that when combined with other
contracts and inventory, exceeded the Company's anticipated remaining 1998
cotton requirements.
Forward Looking Information
This quarterly report on Form 10-Q contains certain statements
which describe the Company's beliefs concerning future business conditions 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," and similar phrases. 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 by, these statements. Some
forward looking statements in this report 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 quarter to quarter. 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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EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
RUSSELL CORPORATION AND SUBSIDIARIES
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
13 Weeks Ended
----------------------------
4/5/98 4/6/97
----------- -----------
Net Income $ 1,849 $ 11,303
Basic Calculation:
Average shares outstanding 36,407,919 37,806,137
----------- -----------
Net income per share-basic $ 0.05 $ 0.30
=========== ===========
Diluted Calculation:
Average shares outstanding 36,407,919 37,806,137
Net common shares issuable
on exercise of certain stock options 30,070 301,009
----------- -----------
36,437,989 38,107,146
----------- -----------
Net income per share-diluted $ 0.05 $ 0.30
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders was held on April 22, 1998.
At the Annual Meeting, shareholders voted upon the following nominees to
serve as Directors for a three-year term. The results of the vote are as
follows:
Name For Withheld
---- --- --------
C. V. Nalley III 30,238,556 784,908
John R. Thomas 30,239,633 783,831
John A. White 30,239,195 784,269
Timothy A. Lewis 30,234,542 788,922
All nominees were elected.
Herschel M. Bloom and Ronald G. Bruno will continue in office until their
terms expire in 1999. Benjamin Russell and Margaret M. Porter will continue
in office until their terms expire in 2000.
The only proposal voted upon by the shareholders involved amendments to the
Russell Corporation 1993 Executive Long Term Incentive Plan (the "1993
Plan"). The reason for amending the 1993 Plan was to provide individual
annual limits on grants of stock options, SARs, restricted stock and
performance shares or performance units. These limits will bring the 1993
Plan into compliance with Internal Revenue Code Section 162(m) so these
awards will continue to be tax deductible. The vote upon this proposal was
as follows and accordingly, the proposal was adopted.
For: 33,113,368
Against: 479,005
Abstain: 77,526
Item 5. Other Information
As previously disclosed by the Company in supplemental materials to its
Proxy Statement (the "Proxy Supplement") with respect to the Annual Meeting of
shareholders held April 22, 1998 (the "Annual Meeting"), John C. Adams,
Chairman, President and Chief Executive officer of the Company retired from
these positions effective April 1, 1998. Mr. Adams resigned as a director of the
Company effective April 23, 1998.
In connection with the retirement of Mr. Adams, the Company and Mr. Adams
have agreed to an arrangement providing for the payment to Mr. Adams in 1998 of
the salary and other compensation benefits he would have received had he not
retired. The Company also agreed to pay to Mr. Adams $400,000 per year until he
reaches age 65, and if he should die prior to that time, pay such amounts to his
wife. Upon attaining 65, Mr. Adams will receive payments of $300,000 per year
during his lifetime, less the annual benefits payable to him under the Company's
various retirement plans or other deferral arrangements that become payable at
age 65. For purposes of computing the benefits payable to Mr. Adams under the
Company's various retirement plans or other deferral arrangements, Mr. Adams
will be credited with service through the earlier of his death or 65th birthday
at an annual compensation of $600,000. The Company has also agreed to continue
to provide Mr. Adams with certain life insurance and medical benefits until he
reaches age 65. The payment of the amounts and benefits above are subject to
certain agreements by Mr. Adams concerning non-competition and related matters.
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Also as previously disclosed by the Company in the Proxy Supplement, John
F. Ward was employed as the President and Chief Executive Officer of the
Company, effective April 1, 1998, upon the retirement of Mr. Adams. Following
the Annual Meeting, Mr. Ward was elected Chairman of the Board and a Director
of the Company. Mr. Ward was the President of J. F. Ward Group, Inc., a
consulting firm specializing in domestic and international apparel and textile
industries, and prior to that time, he was the Chief Executive Officer of the
Hanes Group and Senior vice President of Sara Lee Corporation.
The Company has agreed to an arrangement with Mr. Ward providing for the
employment of Mr. Ward for three years until March 31, 2001, at an annual base
salary of $650,000, subject to increase in the discretion of the Board. Mr.
Ward shall also receive a bonus of $350,000 for the year 1998, which may be
increased based upon achievement of goals established by the Board. After 1998,
Mr. Ward shall be entitled to receive annual bonuses under the Company's regular
compensation plans, with a target of 100% of base salary, subject to any
increase determined appropriate by the board. the employment agreement provides
that the company will offer health care and certain other supplemental benefits
to Mr. Ward. Mr. Ward shall also be entitled to receive certain payments for
reimbursement of expenses in connection with his relocation and employment with
the Company, as well as any excise tax costs that might be incurred for payments
under the employment agreements. Any termination of employment of Mr. Ward after
April 1, 2001 shall be treated as retirement for purpose of the Company's
various plans and benefits.
Mr. Ward will also be granted options in 1998 to purchase 125,000 shares
of common stock of the Company at the market price ($27.1563) on March 31, 1998
and options to purchase a minimum of 75,000 shares each year thereafter at
market price at the time of grant.
At the time of employment, Mr. Ward was a party to certain agreements with
his former employer, Sara Lee Corporation, and by accepting employment with the
Company, he will lose certain benefits and opportunities under those
agreements. To compensate Mr. Ward for these losses and potential benefits, the
Company agreed to make a cash payment to Mr. Ward of approximately $1,880,000,
to put into a trust for his benefit approximately $2,467,000, to issue him
12,127 shares of common stock of the Company, and to grant him options to
purchase 282,066 shares of common stock of the Company at the market price
($27.1563) on March 31, 1998. The amounts placed in trust will be paid to Mr.
Ward after April 1, 2001 unless his employment is terminated by the Company for
cause or is terminated by Mr. Ward for any reason other than death, total
disability or certain other reasons set forth in the agreements. In the event
of such termination prior to April 1, 2001, Mr. Ward will be entitled to
receive a prorated amount from the trust based on the ratio that the time he
has been employed by the Company bears to the employment term of three years.
Similarly, the options granted to him will be forfeited on the same basis as the
amounts in trust based upon time employed with the Company. The benefits
outlined above have been determined based upon an understanding that Mr. Ward
will forfeit equivalent benefits and opportunities under his agreements with
Sara Lee Corporation by accepting employment with the Company. To the extent
any such benefits are not lost, appropriate adjustments will be made to the
amounts to be paid and stock and options to be issued by the Company.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits -
11 Computation of Earnings Per Share (see page 8)
27 Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K - there were no reports on Form 8-K filed for the
period ended April 5, 1998.
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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 18, 1998 /s/ Eric Hoyle
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Eric Hoyle
Chief Financial Officer
(For the Registrant and as
Principal Financial Officer)
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