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 4, 1999 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 14, 1999
Common Stock, Par Value $.01 Per Share 34,146,449 shares
(Excludes Treasury)
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RUSSELL CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
April 4, 1999 and January 2, 1999 2
Consolidated Condensed Statements of Operations --
Thirteen Weeks Ended April 4, 1999 and April 5, 1998 3
Consolidated Condensed Statements of Cash Flows --
Thirteen Weeks Ended April 4, 1999 and April 5, 1998 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Exhibit 27 - Financial Data Schedule 16
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PART I - FINANCIAL INFORMATION
RUSSELL CORPORATION
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
April 4 January 2
1999 1999
----------- -----------
ASSETS (Unaudited) (Audited)
Current assets:
Cash $ 11,001 $ 13,852
Accounts receivable, net 170,012 179,307
Inventories - Note 2 400,601 371,579
Prepaid expenses and other current assets 36,383 19,976
----------- -----------
Total current assets 617,997 584,714
Property, plant & equipment 1,206,312 1,224,242
Less accumulated depreciation (714,490) (704,255)
----------- -----------
491,822 519,987
Other assets 47,094 48,863
----------- -----------
Total assets $ 1,156,913 $ 1,153,564
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 60,123 $ 12,908
Accounts payable and accrued expenses 102,873 101,784
Federal and state income taxes -- 1,989
Current maturities of long-term debt 32,214 32,214
----------- -----------
Total current liabilities 195,210 148,895
Long-term debt, less current maturities 323,043 323,043
Deferred liabilities 66,319 66,855
Commitments and contingencies -- --
Shareholders' equity:
Common Stock, par value $.01 per share; authorized
150,000,000 shares, issued 41,419,958 shares 414 414
Paid-in capital 48,294 48,294
Retained earnings 711,443 730,723
Treasury stock, at cost (6,950,809 shares at 4/4/99
and 5,900,564 shares at 1/2/99) (180,935) (160,093)
Accumulated other comprehensive loss (6,875) (4,567)
----------- -----------
Total shareholders' equity 572,341 614,771
----------- -----------
Total liabilities & shareholders' equity $ 1,156,913 $ 1,153,564
=========== ===========
See accompanying notes to consolidated condensed financial statements.
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RUSSELL CORPORATION
Consolidated Condensed Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
13 Weeks Ended
-------------------------------
April 4 April 5
1999 1998
------------ -----------
Net sales $ 233,177 $ 256,229
Costs and expenses:
Cost of goods sold 176,795 183,799
Selling, general and administrative expenses 51,526 62,389
Other - net 21,599 95
Interest expense 6,892 6,649
------------ -----------
256,812 252,932
------------ -----------
(Loss) income before income taxes (23,635) 3,297
(Benefit) provision for income taxes (9,284) 1,448
------------ -----------
Net (loss) income applicable to common shares $ (14,351) $ 1,849
============ ===========
Average shares outstanding:
Basic 34,951,939 36,407,919
Diluted 34,951,939 36,437,989
Net (loss) income per common share:
Basic $ (0.41) $ 0.05
Diluted $ (0.41) $ 0.05
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 Cash Flows
(Dollars in Thousands)
(Unaudited)
13 Weeks Ended
-----------------------
April 4 April 5
1999 1998
-------- --------
Cash Flows from Operating Activities:
Net (loss) income $(14,351) $ 1,849
Adjustments to reconcile net (loss) income to
cash (used in) provided by operating activities:
Depreciation and amortization 18,452 19,198
Deferred income taxes (2,718) (2,598)
Loss (gain) on sale of property, plant & equipment 295 (67)
Restructuring charges 19,089 --
Changes in assets and liabilities:
Accounts receivable 8,931 33,652
Inventories (30,728) (60,619)
Prepaid expenses and other current assets (1,918) (5,156)
Other assets 1,495 4,622
Accounts payable and accrued expenses 1,058 16,242
Income taxes payable (14,978) 3,578
Pension and other deferred liabilities 632 3,735
-------- --------
Net cash (used in) provided by operating activities (14,741) 14,436
Cash Flows from Investing Activities:
Purchases of property, plant & equipment (10,341) (23,144)
Proceeds from the sale of property, plant & equipment 327 83
Net cash used in investing activities (10,014) (23,061)
Cash Flows from Financing Activities:
Short-term borrowings 47,525 13,622
Payments on long-term debt -- (21)
Dividends on common stock (4,929) (5,106)
Cost of common stock for treasury (20,842) (2,792)
Distribution of treasury shares -- (8)
-------- --------
Net cash provided by financing activities 21,754 5,695
Effect of exchange rate changes on cash 150 517
-------- --------
Net decrease in cash (2,851) (2,413)
Cash balance at beginning of period 13,852 8,609
-------- --------
Cash balance at end of period $ 11,001 $ 6,196
======== ========
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 April 4, 1999, and January 2, 1999, and the
results of operations and cash flows for the thirteen week periods ended
April 4, 1999, and April 5, 1998.
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 2, 1999.
2. The components of inventory consist of the following: (In thousands)
4/4/99 1/2/99
--------- ---------
Finished goods $ 324,165 $ 288,465
Work in process 63,971 58,182
Raw material 44,595 54,943
--------- ---------
432,731 401,590
LIFO reserve (32,130) (30,011)
--------- ---------
$ 400,601 $ 371,579
========= =========
3. The results of operations for the thirteen weeks ended April 4, 1999, are not
necessarily indicative of the results to be expected for the full year. The
financial statements for the three months ended April 4, 1999, include
non-recurring charges of approximately $29,901,000 on a pre-tax basis related
primarily to severance accruals, asset impairments, the relocation to Atlanta
of the dual headquarters, and adjustments to depreciation expense related to
assets involved in the Company's restructuring plans.
On July 22, 1998, the Company announced its intent to undertake a major
restructuring to improve the Company's global competitiveness. It was further
announced that management expected the Company to incur charges associated
with the restructuring and reorganization in the range of $100 to $125
million after tax. It is anticipated that the restructuring will occur over a
three year period. The current accounting period includes charges amounting
to $26,901,000 pre-tax, equivalent to $.46 on an after-tax per share basis.
For the quarter, $5,107,000 of the pre-tax charge was reflected in cost of
goods sold associated with severance accruals and the closing of certain
operations. The balance of the charges, $21,794,000, is reflected as a loss
in other income and expense and consists of write-down of assets (machinery,
equipment and facilities) to fair value. In addition, cost of sales reflects
additional depreciation cost of $2,226,000 arising from a change in the
estimated useful life of certain assets.
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The following tables reflect restructuring, asset impairment and other charges
recorded in the first quarter:
CLASSIFICATION IN STATEMENT OF OPERATIONS
Cost of Selling, Gen Other
Goods Sold & Admin Expense
----------- ----------- -----------
Restructuring charges
Employee termination $3,773,034
Exit cost related to facilities 1,327,920 $ 146,419
---------- ----------- -----------
$5,100,954 $ 0 $ 146,419
---------- ----------- -----------
Asset impairment
Facilities in operation $ 6,144 $14,941,369
Facilities held for disposal 5,701,296
---------- ----------- -----------
$ 6,144 $ 0 $20,642,665
---------- ----------- -----------
Other unusual charges
Other $ 1,004,642
---------- ----------- -----------
$ 0 $ 0 $ 1,004,642
---------- ----------- -----------
Total $5,107,098 $ 0 $21,793,726
========== =========== ===========
Grand Total $26,900,824
===========
- -------------------------------------------------------------------------------
SEGMENTING RESTRUCTURING AND OTHER CHARGES
Restructuring Asset
Charges Impairments Other
------------- ----------- -----------
Activewear $ 5,247,373 $20,648,809 $ 1,004,642
International
All Other
$ 5,247,373 $20,648,809 $ 1,004,642
=========== =========== ===========
Grand Total $26,900,824
===========
- -------------------------------------------------------------------------------
ACTIVITY RELATED TO RESTRUCTURING (In thousands)
Liability at Expense Amount Liability at
Cash Related: January 2, 1999 Incurred Paid April 4, 1999
--------------- -------- ------- -------------
Exit cost related to facilities $ 534 $ 1,474 $1,474 $ 534
Employee termination charges 4,567 3,773 2,905 5,435
Royalties on licenses 1,223 0 0 1,223
-------------- ------- ------ -------------
$ 6,324 $ 5,247 $4,379 $ 7,192
============== ======= ====== =============
Non-cash related
Exit cost related to facilities $ 0
Asset impairment charges related to facilities 19,089
-------
$19,089
=======
- -------------------------------------------------------------------------------
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4. On November 17, 1998, a Jefferson County, Alabama jury returned a verdict in
Sullivan, et al. v. Russell Corporation, et al. Five plaintiff families were
awarded a total of $155,200 in compensatory property damages and $52,398,000
in punitive damages from the three defendants, Russell Corporation, Avondale
Mills, Inc. and Alabama Power Company. Allegations in the case were that two
of the defendants', including Russell Corporation, textile discharges into
the Alexander City, Alabama wastewater treatment plant, the subsequent
treatment by the City of Alexander City and discharge into Lake Martin
constituted a nuisance and indirect trespass. 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 plaintiffs alleged
mental anguish but no damages were granted for this claim. No allegation of
personal injury was made in the case.
The evidence was uncontroverted that Russell Corporation is in compliance
with its permit issued by the Alabama Department of Environmental Management
(ADEM) for the indirect discharge of its wastewater to the Alexander City
wastewater treatment plant. Therefore, the Company believes that the verdict
is contrary to the evidence presented in the case and under applicable law,
no damages should have been awarded. The Company has initiated appellate
proceedings and is vigorously pursuing such appeals. If such appeals prove to
be unsuccessful, damages associated with this matter could have a significant
adverse effect on the Company's future results from operations and its
ability to comply with certain debt covenant requirements.
As management believes that the amount of the final verdict should be
significantly reduced, no immediate assessment can be made of the impact on
the Company's financial statements, liquidity or the Company's ability to
comply with its loan agreements. Accordingly, no accrual for this contingency
has been recorded as of April 4, 1999.
On February 23, 1999, a similar law suit was filed in Jefferson County,
Alabama by two former residents of the same residential subdivision. The suit
seeks unspecified damages for alleged nuisance and trespass.
The Company plans to vigorously defend this suit.
5. In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement 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.
Earnings per share calculated in accordance with SFAS 128 are as follows:
13 Weeks Ended
------------------------------
4/4/99 4/5/98
------------ -----------
Net (loss) income $ (14,351) $ 1,849
Basic Calculation:
Average shares outstanding 34,951,939 36,407,919
------------ -----------
Net (loss) income per share-basic $ (0.41) $ 0.05
------------ -----------
Diluted Calculation:
Average shares outstanding 34,951,939 36,407,919
Net common shares issuable
on exercise of certain stock options 0 30,070
------------ -----------
34,951,939 36,437,989
------------ -----------
Net (loss) income per share-diluted $ (0.41) $ 0.05
============ ===========
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6. For the periods ended April 4, 1999 and April 5, 1998, 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
----------------------
04/4/99 04/5/98
-------- ------
Net (loss) income ($14,351) $1,849
Translation (loss) gain (2,308) 693
-------- ------
Comprehensive (loss) income ($16,659) $2,542
-------- ------
7. Russell Corporation has three reportable segments: Activewear, International
and All Other. The following tables reflect segment financial information for
the 13 week periods ended April 4, 1999 and April 5, 1998.
(In thousands)
13 weeks ended April 4, 1999
----------------------------
Activewear International All Other Total
---------- ------------- --------- -----
Revenues from
external customers $174,948 $ 29,737 $ 28,492 $ 233,177
EBIT 5,147 1,108 4,676 10,931
Segment assets 658,786 131,298 366,829 1,156,913
13 weeks ended April 5, 1998
----------------------------
Activewear International All Other Total
---------- ------------- --------- -----
Revenues from
external customers $193,732 $ 31,273 $31,224 $256,229
EBIT (loss) 15,509 (2,054) 4,750 18,205
The Activewear EBIT for the 13 weeks ended April 4, 1999 reflects a charge of
$2,226,000 in additional depreciation expense for changes in the expected
useful lives of certain facilities.
In 1998, the Company did not allocate specific assets (ie. facilities) to
segments, therefore segment asset data is not available for the periods ended
on or before January 2, 1999. A reconciliation of combined operating profit
(loss) for the three segments to consolidated (loss) income before taxes is
as follows:
(In thousands)
13 Weeks Ended
----------------------
04/4/99 01/2/99
------- -------
Total profit for reportable segments $ 10,931 $ 18,205
Restructuring, impairment and
other unusual charges (27,674) (8,259)
Interest expense (6,892) (6,649)
-------- --------
Income (loss) before taxes $(23,635) $ 3,297
======== ========
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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 earnings during the periods included
in the accompanying consolidated condensed statements of operations.
A summary of the period to period changes in the principal items included in
the consolidated condensed statements of operations is shown below:
Comparison of
----------------------------------------------------
13 Weeks 13 Weeks
Ended 4/4/99 Ended 4/4/99
and 4/5/98 and 1/2/99
------------------------- ----------------------
Increase (Decrease)
(Dollars in Thousands)
Net sales $ (23,052) (9.0)% $(41,680) (15.2)%
Cost of goods sold (7,004) (3.8) (38,067) (17.7)
Selling, general and
administrative expenses (10,863) (17.4) (445) (0.9)
Interest expense 243 3.7 658 10.6
Other income (21,504) n/a (17,060) n/a
Income before taxes (26,932) n/a (20,886) n/a
Provision for income taxes (10,732) n/a (11,167) n/a
Net income (16,200) n/a (9,719) n/a
Net sales for the first quarter of 1999 were $233,177,000, down 9% from the
previous year's first quarter of $256,229,000. Of the $23 million decline in
sales, 81.7% occurred in the Activewear segment. In Activewear, approximately
half of the sales decline was related to discontinued businesses. The balance of
the decline represents reduced pricing and lower volumes of certain products,
primarily fleece products, associated with the unseasonably warm winter and
lower Jerzees(R) brand inventories held by retailers and distributors.
The All Other segment sales and income were generally in line with
expectations and the previous year. The International segment had a 4.9% sales
decline, primarily due to the elimination of certain operations and product
lines. As these operations and product lines were generally not profitable, the
segment produced EBIT in the current quarter of $1.1 million versus a loss of
$2.1 million the prior year.
Results for the current quarter include restructuring and reorganization
charges and other unusual expenses as part of the Company's previously announced
multi-year strategic plan. This plan was announced on July 22, 1998, and details
of the plan are more fully discussed in the 1998 Annual Report to Shareholders.
Charges in the current quarter amounted to $26.9 million of restructuring and
reorganization expenses and $3 million of other unusual charges.
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For the 13-week period ended April 4, 1999, gross margins declined to 24.2%
versus 28.3% in the previous year. Gross margins were impacted by the previously
mentioned activities. For the quarter, $3,773,000 was reflected in cost of goods
sold for employee severance amounts associated with the closing of two yarn
manufacturing plants and two apparel operations facilities. Excluding this
impact, gross margins would have been 27.3%, below last year because of
reductions in prices and product mix changes.
For the quarter, selling, general and administrative expense includes
approximately $774,000 related to unusual expenses associated with the
establishment of a dual headquarters in Atlanta. Results for the prior year
include approximately $8 million related to the retirement, and subsequent
replacement of the chairman, president and chief executive officer of the
Company.
During the first quarter of 1999, $21,794,000 is reflected as a loss in
other income and expense and consists of the write-down of certain assets
(machinery, equipment and facilities) to fair-value, again, as part of the
strategic plan.
Liquidity and Capital Resources
The balance sheet continues to reflect the conservative financial nature of
the Company and its strong financial condition. At the end of the quarter, the
current ratio was 3.2, down slightly from last year's 3.8. Debt to total
capitalization was 36.1% at the end of the quarter versus 35.3% at April 5,
1998.
Required cash for inventories, purchases of property, plant and equipment,
dividends, prepaid expenses and treasury stock purchases was provided by
operating cash flow and short-term borrowings during the period ended April 4,
1999. The Company maintained $287 million of informal lines of credit at the end
of the quarter.
Approximately 1,050,000 shares were repurchased in the quarter ended April
4, 1999. At the Annual Shareholder Meeting held April 21, 1999, the Board of
Directors announced the adjustment of the stock repurchase authorization upward
to three million shares, representing an increase of 1.9 million shares from
previous authorized levels.
Contingencies
On November 17, 1998, a Jefferson County, Alabama jury returned a verdict
in Sullivan, et al. v. Russell Corporation, et al. Five plaintiff families were
awarded a total of $155,200 in compensatory property damages and $52,398,000 in
punitive damages from the three defendants, Russell Corporation, Avondale Mills,
Inc. and Alabama Power Company. Allegations in the case were that two of the
defendants', including Russell Corporation, textile discharges into the
Alexander City, Alabama wastewater treatment plant, the subsequent treatment by
the City of Alexander City and discharge into Lake Martin constituted a nuisance
and indirect trespass. 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 plaintiffs alleged mental anguish but no damages were
granted for this claim. No allegation of personal injury was made in the case.
The evidence was uncontroverted that Russell Corporation is in compliance
with its permit issued by the Alabama Department of Environmental Management
(ADEM) for the indirect discharge of its wastewater to the Alexander City
wastewater treatment plant. Therefore, the Company believes that the verdict is
contrary to the evidence presented in the case and under applicable law, no
damages should have been awarded. The Company has initiated appellate
proceedings and is vigorously pursuing such appeals. If such appeals prove to be
unsuccessful, damages associated with this matter could have a significant
adverse effect on the Company's future results from operations and its ability
to comply with certain debt covenant requirements.
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As management believes that the amount of the final verdict should be
significantly reduced, no immediate assessment can be made of the impact on the
Company's financial statements, liquidity or the Company's ability to comply
with its loan agreements. Accordingly, no accrual for this contingency has been
recorded as of April 4, 1999.
On February 23, 1999, a similar law suit was filed in Jefferson County,
Alabama by two former residents of the same residential subdivision. The suit
seeks unspecified damages for alleged nuisance and trespass. The Company plans
to vigorously defend this suit.
Year 2000 Disclosure Statement
The Company has been involved in an organized program to assure that the
Company's information technology systems and related infrastructure will be Year
2000 compliant. These efforts began in July of 1996 with the assignment of a
full-time coordinator of Year 2000 Compliance. The project initially involved
the computer applications which support the parent company.
The initial phase of the corporate project involved the inventory and
analysis of existing information systems. From this analysis a plan for
remediation was formulated and put into action in January, 1997. This plan is
now 98% complete in bringing these systems into Year 2000 compliance with 21,958
actual hours expended against a planned 22,319 hours. The planned completion
date for testing and implementation of this phase is June 30, 1999.
The second phase of the corporate project was to inventory, analyze and
test the infrastructure that involves imbedded microchips. This phase began in
January, 1998, and has identified 3,693 unique products (hardware and models,
software and releases) that are being certified through vendor certification and
testing where possible. To date 2,574 or 70% of these products have been
certified. The planned completion date for this phase is June 30, 1999.
The Year 2000 corporate project was expanded into a third phase to include
the Cross Creek and DeSoto Mills subsidiaries under the same project format and
phases as the parent company. DeSoto Mills is 100% complete in remediation of
business and manufacturing systems and has certified 66% of infrastructure
products. The Cross Creek subsidiary is 100% complete on remediation of
information systems and has certified 81% of infrastructure products.
The fourth phase of the Year 2000 project involves the identification,
analysis and certification of suppliers of materials and services to the
Company. There have been 2,044 suppliers identified and individually contacted
by questionnaires, letters and telephone contacts to determine their compliance
status and ability to service the Company in the Year 2000. If it is determined
that a supplier will be in non-compliance or of questionable compliance,
contingency plans will be developed to address the need, including the selection
and introduction of new suppliers.
The fifth phase of the Year 2000 project involves an assessment of the
major customers of the Company and their Year 2000 readiness. A questionnaire
was mailed in November 1998 to 200 customers to begin the assessment of their
Year 2000 status and their potential as a viable customer in the Year 2000.
Response has been positive in this area with most customers having compliance in
place or planned by June, 1999.
The Year 2000 efforts in the Russell UK subsidiary involve the replacement
of purchased application software. The first phase of this project was to
identify and select an information systems software solution that would meet the
business needs of the subsidiary and resolve the Year 2000 issue. The software
has been selected with implementation underway and scheduled to be completed by
the end of July 1999. The second phase of the Russell UK project was the
identification of infrastructure products. To date, 456 products were identified
with 84% being certified as compliant.
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Management has determined that the costs for correction of the Year 2000
issues are expected to total approximately $1,895,000 with $1,590,000 being
expended through the end of the first quarter of 1999. The Year 2000 project is
being funded out of normal operating funds.
Senior management receives monthly updates on the progress of this project
by each individual phase. The Year 2000 compliance project is a priority project
for the Company and especially the IT department. Other IT projects, including
upgrade of certain existing systems and implementation of new systems, continue
while the Year 2000 project is being accomplished.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As previously noted, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, the Company may
be unable to take customer orders, manufacture and ship products, invoice
customers or collect payments. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also materially adversely affect the
Company. The Company could be subject to litigation for computer systems product
failure, for example, equipment shutdown or failure to properly date business
records. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
Business units are in the process of developing contingency plans for
processes, equipment and suppliers. The planned completion date is August 31,
1999.
This document contains Year 2000 Readiness Disclosures as defined in the
Year 2000 Information and Readiness Disclosure Act, P.L.105-271 (Oct 19, 1998).
Accordingly, this disclosure, in whole or in part, is not, to the extent
provided in the act, admissible in any state or federal civil action to prove
the accuracy or truth of any Year 2000 statements contained herein.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company will adopt the new Statement
effective January 1, 2000. The Statement 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 Statement 133 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 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 concern anticipated sales levels, cost estimates and resulting
earnings that are not necessarily indicative of subsequent periods due to among
other matters, the mix of future orders, at once orders and product mix changes,
which may vary significantly from quarter to quarter and due to 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 Form 10-K for the year ended January 2, 1999.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Contingencies
On November 17, 1998, a Jefferson County, Alabama jury returned a verdict in
Sullivan, et al. v. Russell Corporation, et al. Five plaintiff families were
awarded a total of $155,200 in compensatory property damages and $52,398,000 in
punitive damages from the three defendants, Russell Corporation, Avondale Mills,
Inc. and Alabama Power Company. Allegations in the case were that two of the
defendants', including Russell Corporation, textile discharges into the
Alexander City, Alabama wastewater treatment plant, the subsequent treatment by
the City of Alexander City and discharge into Lake Martin constituted a nuisance
and indirect trespass. 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 plaintiffs alleged mental anguish but no damages were
granted for this claim. No allegation of personal injury was made in the case.
The evidence was uncontroverted that Russell Corporation is in compliance
with its permit issued by the Alabama Department of Environmental Management
(ADEM) for the indirect discharge of its wastewater to the Alexander City
wastewater treatment plant. Therefore, the Company believes that the verdict is
contrary to the evidence presented in the case and under applicable law, no
damages should have been awarded. The Company has initiated appellate
proceedings and is vigorously pursuing such appeals. If such appeals prove to be
unsuccessful, damages associated with this matter could have a significant
adverse effect on the Company's future results from operations and its ability
to comply with certain debt covenant requirements.
As management believes that the amount of the final verdict should be
significantly reduced, no immediate assessment can be made of the impact on the
Company's financial statements, liquidity or the Company's ability to comply
with its loan agreements. Accordingly, no accrual for this contingency has been
recorded as of April 4, 1999.
On February 23, 1999, a similar law suit was filed in Jefferson County,
Alabama by two former residents of the same residential subdivision. The suit
seeks unspecified damages for alleged nuisance and trespass. The Company plans
to vigorously defend this suit.
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders was held on April 21, 1999.
At the Annual Meeting, shareholders voted upon the following nominees to
serve as Directors for a three-year term expiring in 2002. The results of the
vote are as follows:
Name For Withheld
---- --- --------
Herschel M. Bloom 28,977,923 300,393
Ronald G. Bruno 28,976,883 301,433
All nominees were elected.
At the same meeting, shareholders voted upon the following nominees to fill
unexpired terms ending with the Annual Meeting of Shareholders in 2000:
Name For Withheld
---- --- --------
John F. Ward 28,973,486 304,830
Eric N. Hoyle 28,978,350 299,966
All nominees were elected
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Benjamin Russell and Margaret M. Porter will continue in office until their
terms expire in 2000. C. V. Nalley, III, John R. Thomas, John A. White and
Tim Lewis will continue in office until their terms expire in 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(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 May 19, 1999 /s/Eric N. Hoyle
-------------------- ---------------------------------------
Eric N. Hoyle, Executive Vice President
and Chief Financial Officer
(For the Registrant and as
Principal Financial Officer)
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