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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended JANUARY 1, 2005 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________ to ___________ Commission file number 0-1790 RUSSELL CORPORATION  Alabama
    
    63-0180720(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3330 Cumberland Blvd, Suite 800Atlanta, Georgia
    
    30339(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (678) 742-8000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredCommon Stock, $.01 par value
    
    New York Stock ExchangePacific Exchange
 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None 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 (or such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
þ No
o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o The aggregate market value of Common Stock, par value $.01, held by non-affiliates of the
registrant, as of July 4, 2004, was approximately $574,000,000. As
of March 11, 2005, there were 32,819,331 shares of Common Stock, $.01 par value outstanding (excluding
treasury shares). DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 27, 2005
(the Proxy Statement) are incorporated by reference into Part III.




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TABLE OF CONTENTS PART
IITEM
1.    BUSINESSITEM 2.    PROPERTIESITEM 3.    LEGAL PROCEEDINGSITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM
5.    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIESITEM 6.    SELECTED FINANCIAL DATAITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAConsolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Cash FlowsConsolidated Statements of Stockholders EquityNotes to Consolidated Financial StatementsITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-4.E REGISTRATION RIGHTS AGREEMENTEX-10.D 1ST AMENDMENT TO FLEXIBLE DEFERRAL PLANEX-10.E 2ND AMENDMENT TO FLEXIBLE DEFERRAL PLANEX-10.R 2ND AMENDEMENT TO SUPPLEMENTAL EXEC. RETIREMENT PLANEX-10.V EMPLOYMENT AGREEMENT DATED JUNE 16, 2003EX-10.W EMPLOYMENT AGREEMENT DATED OCTOBER 24, 2003EX-21 LIST OF SUBSIDIARIESEX-23 CONSENT OF ERNST & YOUNG LLPEX-24 POWERS OF ATTORNEYEX-31.A SECTION 302 CERTIFICATION OF THE CEOEX-31.B SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO




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PART I 
 ITEM 1. BUSINESS General Russell Corporation (Russell, we, our or the Company) is a leading authentic athletic and
sporting goods company with over a century of success. Headquartered in Atlanta, Georgia, we sell
athletic uniforms, apparel, athletic footwear, sporting goods, athletic equipment, and accessories
for a wide variety of sports, outdoor and fitness activities under well-known brands such as
Russell Athletic®, JERZEES®, Spalding®, and Brooks®.
Other brands include American Athletic®, Huffy Sports®, Mossy
Oak®, Cross Creek®, Moving Comfort®, Bike®,
Dudley®, Discus®,and Sherrin®. Since incorporating in 1902, the Russell name has been associated with high quality apparel. In
1998, we initiated a restructuring and reorganization program with the objectives of (i)
transitioning the Company from a manufacturing-driven business to a consumer-focused organization
that markets branded apparel products; and (ii) creating an efficient, low-cost operating structure
with the flexibility to take advantage of future opportunities to further reduce costs, such as
strategic outsourcing arrangements, transferring our sewing and assembly operations to offshore
facilities, and utilizing increasingly efficient domestic facilities. We substantially completed
our restructuring and reorganization program in 2001. In addition to the initiatives of the restructuring and reorganization program in our apparel
business, we began evaluating selective acquisition opportunities to further diversify our
portfolio of brands and products. In 2000, we acquired the Mossy Oak® camouflage
apparel business of Haas Outdoors, one of the premier camouflage brands in the world. In 2003, we
completed two acquisitions that launched our participation in the sporting goods and athletic
equipment markets. The acquisition of the Bike Athletic Company business introduced athletic
supporters, knee and elbow pads, braces, and protective equipment into our product offering. Then,
with the May 2003 acquisition of the brands, contracts and related assets of the sporting goods
business of Spalding Sports Worldwide, Inc., we became a leading marketer of basketballs and other
inflatable sporting goods products. During 2004, we further expanded our sports equipment product mix with three strategic
acquisitions. In June, we acquired the assets of American Athletic, Inc., a leading supplier of
gymnastics equipment and basketball backboard and backboard systems, which provided a platform for
the extension of our Spalding business. In July, we acquired the Huffy Sports business, further
expanding our line of basketball backboards, backboard systems and accessories. American Athletic
and Huffy Sports now operate as part of our Spalding business. Then, in December, we entered the
athletic footwear business with the acquisition of Brooks Sports. The Brooks® brand is
a leader in high performance athletic footwear and apparel (primarily for running) and is
considered a pioneer in the technical athletic footwear and apparel industry. Today, Russell is a major branded athletic and sporting goods company with a rich history of
marketing athletic uniforms, apparel, athletic footwear, and equipment for a wide variety of sports
and fitness activities. Its global position is built on well-known brands and quality products.
Through Russell Athletic, the Company is a leading supplier of team uniforms in the U.S. Through
Spalding, which now includes American Athletic and Huffy Sports, Russell is also the largest
provider of basketball equipment in the world. This position was solidified by our recently signed
eight-year agreement with the National Basketball Association (NBA) that allows us to continue
our involvement with one of the fastest growing sports in the world. We offer a diversified portfolio of brands and products across multiple distribution channels and
our products are marketed and sold throughout North America and approximately 100 other countries.
We market and distribute our products through mass merchandisers, sporting goods dealers, specialty
running stores, department and sports specialty stores, college stores, on-line retailers, mail
order houses, artwear distributors, screenprinters, embroiderers, and on a limited basis through
owned retail stores. We sell our products primarily through a combination of salaried,
Company-employed sales persons and commission agents. We operate in two segments: Domestic, which
includes the United States and the international sales and licensing revenue from our Spalding
business, and International Apparel. Domestic segment sales represented approximately 90% of our
total 2004 net sales. The Domestic segment is further aligned by Athletic and Activewear. For
fiscal 2004, these channels represented approximately 43% and 47%, respectively of our total net
sales. For fiscal 2003, these channels represented approximately 41% and 51%, respectively of our
total net sales, and for fiscal 2002, these channels represented approximately 34% and 58%,
respectively of our total net sales. International Apparel segment sales represented approximately
10% of our total 2004 net sales. For our apparel business, we produce or source products utilizing a combination of owned facilities
primarily in the United States, Honduras and Mexico, as well as contractors and other suppliers
around the world. Approximately 99% of our apparel sewing and assembly operations are conducted
offshore for products sold by the Domestic segment (excluding socks). Our yarn spinning joint
venture supplies the majority of our yarn requirements. 3




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For our sporting goods and athletic equipment businesses, the products offered by Spalding, Brooks
and Bike are generally sourced from third-party contractors outside the United States, primarily in
Asia. American Athletic and Huffy Sports produce the majority of our basketball backboard and
gymnastics equipment in Company-operated facilities. Steel and other raw materials used in this
production are sourced from a variety of suppliers and countries. Our dependence on third parties for manufacturing and raw materials production could subject us to
difficulties in obtaining timely delivery of products and materials that meet our quality
standards. We do not have long-term supply contracts for any of our raw materials other than yarn,
but we believe there are readily available alternative sources of supply. However, if we are
unable to secure or maintain our relationships with contractors or suppliers, or experience delays
in obtaining alternative sources of supply, we could encounter difficulties in satisfying our
customers requirements, which could result in our customers canceling orders, demanding reduced
prices, refusing to accept orders, or reducing future orders, any of which could have a material
adverse effect on our business, results of operations and financial condition. In addition, the raw materials used to manufacture our products are subject to price volatility
caused by weather, supply conditions, government regulations, economic climate, and other
unpredictable factors. To reduce the risk caused by market fluctuations, we have in the past
entered into futures contracts to hedge commodity prices, principally cotton, on portions of
anticipated purchases. However, we do not currently hold any significant hedging positions and
have no present intention to engage in further commodity hedging. The supply agreement with our
yarn joint venture provides for pricing to be calculated on a conversion cost basis plus the actual
cost of raw materials. We direct the timing and pricing of cotton purchases by the joint venture. In October 2003, we announced an Operational Improvement Program (OIP) targeting $50 million in
cost reductions to offset anticipated selling price decreases, higher fiber costs and other cost
increases for fiscal 2004. During 2004, we increased the targeted savings of that program to $60
million. That plan included improving operating efficiencies and asset utilization, while
streamlining processes in both our manufacturing and administrative areas such as: (1) lower
full-packaged sourcing costs; (2) increased efficiencies in existing manufacturing operations; (3)
improved distribution costs; and (4) expanded production with lower cost contractors in Haiti. Our results of operations are affected by numerous factors, including seasonal variations.
Typically, demand for our apparel products is higher during the third and fourth quarters of each
fiscal year. Weather conditions also affect the demand for our apparel products, particularly for
our fleece (sweatshirts and sweatpants) products. Demand in our basketball and basketball equipment
business is typically higher in the second and fourth quarters, but is not as pronounced as the
seasonality of our fleece business. We expect demand for our newest acquisition, Brooks, to be
slightly higher in the first half of the year. Generally, we produce and store finished goods
inventory, particularly fleece, to meet the expected demand for delivery in the upcoming season.
If, after producing and storing inventory in anticipation of seasonal deliveries, demand is
significantly less than expected, we may hold inventory for extended periods of time or sell excess
inventory at reduced prices. Either scenario could adversely affect our results of operations.
Reduced demand could also result in lower plant and equipment utilization, which would have a
negative impact on our business. In addition, due to the time that may lapse between production and
shipment of goods, prices may not immediately reflect changes in our cost of raw materials and
other costs. Some of our customers are material to our business and results of operations. For fiscal 2004, 2003
and 2002 respectively, Wal-Mart and its subsidiaries, our largest customer, represented
approximately 19.3%, 21.2%, and 19.6% of our consolidated gross sales. Our percentage of gross
sales to Wal-Mart and its subsidiaries may increase as we pursue opportunities for new business
with Wal-Mart. Our top ten customers accounted for approximately 44% of our 2004 gross sales. We
believe that consolidation in the retail industry, particularly in the sporting goods retail
industry and the strength of our customers have given certain customers the ability to make greater
demands and we expect this trend to continue. However, we also believe that this consolidation may
afford us greater cost savings potential as a result of more advantageous economies of scale, as we
have such a broad array of products and brands focused on the sporting goods market. If
consolidation continues, our sales and results of operations may be increasingly sensitive to
deterioration in the financial condition of, or other adverse developments with, one or more of our
customers. Although we believe that our relationships with our major customers are good, we
generally do not have long-term contracts with any of them, which is typical of our industry. As a
result, although our customers provide indications of their product needs and purchases on a season
by season basis, they generally purchase our products on an order-by-order basis and the
relationship, as well as particular orders, can be terminated at any time. The loss of, or
significant decrease in, business from any of our major customers could have a material adverse
effect on our business, results of operations and financial condition. Financial Information About Segments Russell has two reportable segments: Domestic and International Apparel. The Domestic segment is
further aligned by Athletic and Activewear. Athletic and Activewear have been aggregated into the
Domestic reportable segment because these business lines are similar in economic characteristics,
products, production processes, type of customer, distribution method and regulatory environment.
The International Apparel segment primarily consists of sales of our core Russell
Athletic® and JERZEES® apparel products outside 4




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the United States. For further discussion of the financial information on our segments, see Note 9
of Notes to Consolidated Financial Statements in Part II, Item 8 of this Report on Form 10-K. Domestic.Our Domestic segment is organized into two business groups: Athletic and Activewear. The
Athletic group markets and sells apparel, footwear, sporting goods, and sports equipment products
under the brand names Russell Athletic®, Brooks®, Bike®, Mossy
Oak®, Moving Comfort®, Spalding®, American Athletic®,
Huffy Sports®,and Dudley®. The Activewear Group is made up of
JERZEES® products sold to a variety of retailers, predominately mass merchandisers, and
certain JERZEES®, Cross Creek®, and Three Rivers® unprinted or
blank products that are sold to artwear distributors and wholesalers. Typically, these customers
then decorate the products or sell them to a third party, such as a screen printer or embroiderer,
many of which we may also sell direct. The Activewear channel also includes fabrics that we sell to
other apparel manufacturers, primarily for the manufacture of school and industrial uniforms. International Apparel.The International Apparel segment is made up primarily of sales of our core
Russell Athletic® and JERZEES® apparel products outside the United States.
For fiscal 2004, this segment represented approximately 10%, or $122.8 million, of total net sales.
The majority of our International Apparel segment business is sales of JERZEES® products
to the artwear/careerwear channel in Europe. In Europe, we also market Russell Athletic®
products, primarily through licensing arrangements. Russell Athletic® products are also
sold in Japan, where JERZEES® and Discus® products are sold as well. Our International
Apparel segment sales force and the independent agents dedicated to the international business are
primarily based in the United Kingdom, continental Europe, Canada, Mexico, Japan, and Australia and
are generally assigned by business line and by geographic territory. Financial Information About Geographic Areas See Enterprise-wide Disclosures from Note 9 of Notes to Consolidated Financial Statements in
Part II, Item 8 of this Report on Form 10-K. Our foreign operations subject us to risks customarily associated with foreign operations. Our
products are sold in more than 100 countries and we have facilities in numerous foreign countries,
including Australia, Honduras, Mexico, and the United Kingdom, with the majority of our foreign
sales being in Europe, Australia and Mexico. Net sales are collected in the local currency,
exposing the Company to risks of change in social, political and economic conditions inherent in
operating in foreign countries, including, but not limited to, the following: (i) currency
fluctuations; (ii) import and export license requirements; (iii) trade restrictions; (iv) changes
in tariffs and taxes; (v) restrictions on repatriating foreign profits back to the United States;
(vi) foreign laws and regulations; (vii) difficulties in staffing and managing international
operations; (viii) political unrest; and (ix) disruptions or delays in shipments. We have foreign currency exposures relating to buying, selling and financing in currencies other
than our functional currencies. We also have foreign currency exposure related to foreign
denominated revenues and costs translated into U.S. dollars. These exposures are primarily
concentrated in the euro, British pound sterling and Mexican peso. Fluctuations in foreign currency
exchange rates may affect the results of our operations and the value of our foreign assets, which
in turn may adversely affect reported earnings and the comparability of period-to-period results of
operations. Fluctuations in currency exchange rates may also affect the relative prices at which we
and our foreign competitors sell products in the same markets. In addition, changes in the value of
the relevant currencies may affect the cost of certain items required in our operations.
Fluctuations in foreign currency exchange rates could have a material adverse effect on our
business, results of operations and financial condition. For further discussion of foreign currency
exposures, see Quantitative and Qualitative Disclosures About Market Risks in Part II, Item 7A of
this Report on Form 10-K. Intellectual Property We market our products under a number of trademarks and tradenames. We have registered trademarks
in the United States for Russell Athletic®, Jerzees®, Bike®, Cross
Creek®, Moving Comfort®, Spalding®, Infusion®,
Dudley®, American Athletic®, Huffy Sports®, and Brooks®
and variations of these brands as well as other trademarks. We have similar trademark registrations
internationally. We also have a worldwide license to use certain registered Mossy Oak®
trademarks. The protection of our trademarks is important to our business. We believe that our
registered and common law trademarks have significant value and these trademarks are instrumental
to our ability to create and sustain demand for our products. In December 2004, we entered into a new eight-year global partnership with the NBA, under which
Spalding maintains its exclusive rights to produce and sell a complete line of NBA and
team-identified basketballs (including the official game ball of the NBA). The
Spalding® NBA Game Ball will continue to be the only basketball used during all NBA
practices, exhibitions, games and international competitions, and Spalding will also continue to
serve as the official ball of the WNBA and NBDL, the NBAs developmental league. The agreements
also provide for Spalding and Huffy Sports to have exclusive rights to produce and sell NBA
branded backboards and certain accessories to the retail channel. The agreements require us to (i)
pay certain licensing fees, including fixed minimum fees plus a percentage of net sales of
products, (ii) expend certain minimum amounts on advertising and promotion of NBA products, and 5




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(iii) provide a specified amount of product to the NBA and NBA teams free of charge. If we fail to
comply with the material terms of the NBA agreements, including the obligation to pay licensing
fees, the NBA may terminate the agreements. Our Mossy Oak® license from Haas Outdoors is perpetual and permits us to use certain of
the licensors trademarks, service marks, trade names, logos, and copyrights on apparel and
accessories. This license is non-exclusive for certain products including accessories, gloves,
headwear, footwear, bags, and products incorporating performance features such as special fabrics.
The Mossy Oak® license also requires that we pay a licensing fee calculated as a
percentage of net sales from our Mossy Oak® products, with certain minimum
annual royalty payments through 2005. If we fail to comply with the material terms of the Mossy
Oak® license, including the obligation to make royalty payments, Haas Outdoors may terminate the
license. We have three non-exclusive licenses with licensing agents that cover approximately 338 colleges
and universities. One of those licenses expires on March 31, 2006 and another expires on March 31,
2007. The third license automatically renews for rolling one-year terms, but is subject to
termination without cause at any time on 90 days notice. We also have approximately 43 licenses
directly with colleges and universities that are generally for one to two year terms and require us
to pay a licensing fee of a percentage of net sales. Product innovation is a highly important factor in our sporting goods and athletic equipment
businesses and many of the innovations in the products marketed by those businesses have been
patented. The loss of any of our patents could result in increased competition and reduced sales
and margins of these products. However, we do not believe that the loss of any one patent would
have a material effect on our business, results of operations and financial condition. Competition Competition in the apparel, sports equipment and athletic footwear industries varies by product
line and we expect competition to intensify in all of our businesses. While no single competitor
dominates any channel in which we operate, some of our competitors are larger, more diversified and
have greater financial and other resources than we do. We, and others in our industry, face
competition on many fronts, including, without limitation: (i) quality of product; (ii) brand
recognition; (iii) price; (iv) product differentiation; (v) advertising; and (vi) customer service.
We also compete with companies outside the United States, many of which may have lower costs. Our
ability to remain competitive in the areas of quality, price, marketing, product development,
manufacturing, distribution, and order processing will, in large part, determine our future
success. Our primary competitors in the Athletic group are Nike, Reebok, Adidas, Wilson, New
Balance, ASICS, Champion, and Under Armour. Our primary competitors in the Activewear group are
Hanes, Gildan, Fruit of the Loom, and various private label and house brands. Employees As of January 1, 2005, we employed approximately 14,400 persons. We have never had a strike or work
stoppage and consider our relationship with our employees to be good. Regulation We are subject to federal, state and local laws and regulations affecting our business, including,
but not limited to, those promulgated under the Occupational Safety and Health Act, the Consumer
Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, and
the rules and regulations of the Consumer Products Safety Commission and various environmental laws
and regulations. We believe that we are in compliance with all applicable governmental regulations
under these statutes. We also believe that we are in compliance with all current environmental
requirements and we expect no material environmental expenditures in the foreseeable future to
maintain such compliance. Available Information Our Internet address is www.russellcorp.comand our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available, free
of charge, through the Investor Relations section of our website as soon as reasonably practicable
after filing with the Securities and Exchange Commission. Reincorporation in Delaware Our shareholders approved a proposal to change the Companys state of incorporation from Alabama to
Delaware (the reincorporation) at the annual meeting of shareholders held on April 21, 2004.
However, as previously disclosed, an entity holding approximately 10% of our outstanding shares
delivered a written notice of dissent to the proposal in accordance with Alabama law. As a result,
we have not yet proceeded with the reincorporation. On March 15, 2005, we entered into a
Registration Rights Agreement with holders of an aggregate of 3,021,852 shares of the Companys
Common Stock, including members of the Russell family and affiliated entities. Pursuant to the
Registration Rights Agreement, we granted the holders certain demand and piggyback registration
rights, and the holders waived their dissenters rights to the reincorporation. The holders also
agreed to refrain from certain actions affecting the Company for a period of 42 months and to vote
or cause their shares to be voted in accordance with the recommendations of the Companys
management. As a result of the waiver of dissenters rights, the Company intends to effect the
reincorporation shortly. FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains certain statements that describe our beliefs
concerning future business conditions, prospects, growth opportunities, and the outlook for the
Company based upon currently available information. Wherever possible, we have identified these
forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995
(the Act)) by words such as anticipates, believes, could, may, intends, estimates,
expects, projects, and similar phrases. We include such statements because we believe it is
important to communicate our future expectations to our shareholders, and we therefore make such
forward-looking statements in reliance upon the safe harbor provisions of the Act. All statements
other than statements of historical fact are statements that could be deemed forward-looking
statements, including, but not limited to, any projections of net sales, gross margin, expenses, or
earnings or losses from operations. These forward-looking statements are based upon assumptions we
believe are reasonable. Such forward-looking statements are subject to risks and uncertainties that could cause our actual
results, performance and achievements to differ materially from those expressed in, or implied by,
these statements, including, but not limited to: (a) changes in economic conditions such as changes
in interest rates, currency exchange rates, commodity prices, and other external and political
factors over which we have no control; (b) changes in weather and the seasonal nature of our
business; (c) significant competitive activity, including, but not limited to, promotional and
price competition; (d) changes in customer demand for our products and our ability to maintain
customer relationships and grow our business; (e) risks associated with consolidation in the retail
industry; (f) the ability to implement and achieve the goals of our Operational Improvement Program
and other cost savings initiatives; (g) the collectibility of receivables from our customers; (h)
our debt structure, cash management and cash requirements; (i) estimates and assumptions utilized
in our accounting practices; (j) risks associated with our new Honduras textile operation; (k) our
ability to efficiently utilize plants and equipment; (l) our mix of products sold; (m) effects of
lawsuits and government regulations; (n) dependence on licenses from third parties, including, but
not limited to, our agreements with the NBA; (o) price volatility of raw materials and the
availability of alternative sources of supply; (p) reliance on a few customers for a portion of our
sales; (q) dependence on third parties for the production of yarn and the manufacture of certain of
our products; (r) our international operations; (s) protection of our intellectual property; (t)
risks related to the Brooks, Huffy Sports and American Athletic acquisitions and our acquisition strategy;
(u) our management of inventory levels and working capital; (v) our investments in capital
expenditures; and (w) other risk factors listed from time to time in our SEC filings. The risks
listed above are not exhaustive and other sections of this Annual Report on Form 10-K may include
additional factors that could adversely affect our business, financial condition, results of
operations, and cash flows. We assume no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise. 6




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ITEM 2. PROPERTIES Russells principal executive office is located in Atlanta, Georgia, with other offices located in
Alexander City, Alabama, Ft. Payne, Alabama, Springfield, Massachusetts, Jefferson, Iowa, Sussex,
Wisconsin, Bothell, Washington, and Chantilly, Virginia. We have manufacturing plants and
distribution facilities for the Domestic segment in Alabama, Georgia, North Carolina, Iowa,
Wisconsin, Washington, Mexico, and Honduras. We have secured most of our outstanding debt by a
pledge of substantially all of our domestic assets, which included first mortgages on most of our
real property in the United States, other than property held for sale, and encumbrances on
manufacturing machinery held in the United States. We have no other material encumbrances on real
property or manufacturing machinery. We believe that all of our properties are well maintained and suitable for operation and are
currently fully utilized for such purposes, excluding plants and equipment that are held for sale
as a result of our OIP and our restructuring and reorganization program. We utilize an aggregate of approximately 9,489,000 square feet of manufacturing, warehousing and
office facilities, and have approximately 1,074,000 square feet that is either idle or held for
sale. The following table summarizes the approximate areas of such facilities: International
    
    
    TotalPrimary Use
    
    Domestic
    
    
    Apparel
    
    
    Square FeetApparel Manufacturing
    
    
    4,117,000
    
    
    
    
    
    
    
    4,117,000Athletic Equipment Fabrication and Assembly
    
    
    268,000
    
    
    
    
    
    
    
    268,000Warehousing and Shipping
    
    
    4,209,000
    
    
    
    307,000
    
    
    
    4,516,000Administrative and Sales Offices
    
    
    346,000
    
    
    
    29,000
    
    
    
    375,000Idle or held for sale
    
    
    1,074,000
    
    
    
    
    
    
    
    1,074,000Other
    
    
    213,000
    
    
    
    
    
    
    
    213,000
 All presently utilized facilities in the U.S. are owned, except certain regional sales offices,
certain warehousing and shipping facilities, and the
Companys locations in Atlanta, Georgia, Springfield, Massachusetts, Sussex, Wisconsin, Bothell,
Washington, and Chantilly, Virginia (see Note 8 of Notes to Consolidated Financial Statements in
Part II, Item 8 of this Report on Form 10-K). 7




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ITEM 3. LEGAL PROCEEDINGS We are a co-defendant in Locke, et al. v. Russell Corporation, et al.filed on January 13, 2000 in
the Circuit Court of Jefferson County, Alabama. Fifteen families who own property on Lake Martin in
the Raintree Subdivision in Alexander City, Alabama, were the original plaintiffs in the case,
which sought unspecified money damages for trespass and nuisance.
However, ten families dropped out
of the case and there are five remaining plaintiff families. In May 2002, the trial court entered
summary judgment in our favor on all but one of the plaintiffs claims. The remaining claim
involves a private right of action for public nuisance. We filed a summary judgment motion in
October 2003, which was denied in March 2004. Trial of the Lockecase has been set for September
2005. A complaint substantially identical to the one filed in the Lockecase was filed on November
20, 2001, in the Circuit Court of Jefferson County, Alabama, by two residents of the Raintree
Subdivision (Gould v. Russell Corporation, et al.). The trial court has entered summary judgment in
our favor on all claims in that case, and the plaintiffs in the case have filed a motion to alter
that determination, which remains pending. The allegations in the Lockeand Gouldcases are similar
to those contained in a case styled Sullivan, et al. v. Russell Corporation, et al., which was
resolved in our favor by a ruling of the Alabama Supreme Court in 2001. We plan to vigorously
defend the Lockeand Gouldsuits. We are a party to various other lawsuits arising out of the normal conduct of our business. We do
not believe that any of these matters, if adversely determined, would have a material adverse
effect upon us. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year
covered by this report. 8




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES Russells securities are traded on the New York Stock Exchange (NYSE) and various other regional
exchanges under the ticker symbol RML. As of March 11, 2005, we had
approximately 9,000 holders
of record of our common stock. The range of high and low prices of our common stock, year-end
closing prices and the dividends per share declared during each calendar quarter of the last two
years are presented below: 2004
    
    Dividend
    
    
    High
    
    
    Low
    
    
    CloseFirst
    
    $
    0.04
    
    
    $
    18.83
    
    
    $
    17.13Second
    
    
    0.04
    
    
    
    19.23
    
    
    
    15.60Third
    
    
    0.04
    
    
    
    19.20
    
    
    
    16.42Fourth
    
    
    0.04
    
    
    
    19.78
    
    
    
    16.22$
    0.16
    
    
    
    
    
    
    
    
    
    
    $
    19.48
 2003
    
    Dividend
    
    
    High
    
    
    Low
    
    
    CloseFirst
    
    $
    0.04
    
    
    $
    17.89
    
    
    $
    14.94Second
    
    
    0.04
    
    
    
    21.15
    
    
    
    17.25Third
    
    
    0.04
    
    
    
    20.39
    
    
    
    15.43Fourth
    
    
    0.04
    
    
    
    18.72
    
    
    
    15.60$
    0.16
    
    
    
    
    
    
    
    
    
    
    $
    17.56
 We are subject to certain restrictions on our ability to pay dividends under the terms of our $325
million Senior Secured Credit Facilities and our $250 million aggregate principal amount of 9.25%
Senior Unsecured Notes due 2010. For a description of such restrictions, see Note 2 of the Notes
to Consolidated Financial Statements in Part II, Item 8 of this Report on Form 10-K. The following table summarizes our purchases of our common stock for the quarter ending January 1,
2005: ISSUER PURCHASES OF EQUITY SECURITIES (d)Maximum Number(or Approximate(c)    

    
    Dollar Value) of(a)
    
    
    
    
    
    
    Total Number of Shares
    
    
    Shares (or Units)Total Number
    
    
    (b)
    
    
    (or Units)
    
    
    that May Yet Beof Shares (or
    
    
    Average Price
    
    
    Purchased as Part of
    
    
    Purchased UnderUnits)
    
    
    Paid
    
    
    Publicly Announced
    
    
    the Plans orPeriod
    
    Purchased(1)
    
    
    Per Share
    
    
    Plans or Programs(2)
    
    
    ProgramsOctober 3, 2004  November 6, 2004
    
    
    659
    
    
    $
    17.60
    
    
    
    N/A
    
    
    
    N/ANovember 7, 2004  December 4,
2004
    
    
    167
    
    
    $
    17.43
    
    
    
    N/A
    
    
    
    N/ADecember 5, 2004  January 1, 2005
    
    
    1,902
    
    
    $
    18.66
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    2,728
    
    
    $
    18.33
    
    
    
    N/A
    
    
    
    N/A
   (1)
    
    The issuer purchases during the period reflected in the table represent shares delivered to
us by employees to pay withholding taxes due upon the exercise of employee stock options and
the vesting of a restricted stock award.(2)
    
    In connection with the exercise and vesting of stock option and restricted stock awards, we
from time to time accept delivery of shares to pay the exercise price of employee stock
options or to pay withholding taxes due upon the exercise of employee stock options or the
vesting of restricted stock awards. We do not otherwise have any plan or program to purchase
our common stock. Our Chief Executive Officer certified to the NYSE on May 20, 2004, that he was not aware of any
violation by the Company of the NYSEs corporate governance listing standards. 9




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ITEM 6. SELECTED FINANCIAL DATA Five-Year Selected Financial Highlights (Dollars in thousands, except Common
Stock Data Financial Statistics And Other Data)2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000OperationsNet sales(a)(b)
    
    $
    1,298,252
    
    
    $
    1,186,263
    
    
    $
    1,164,328
    
    
    $
    1,160,925
    
    
    $
    1,226,328Cost of goods sold(a)(b)(c)
    
    
    934,372
    
    
    
    842,127
    
    
    
    825,763
    
    
    
    894,018
    
    
    
    885,476SG&A(a)(b)
    
    
    269,558
    
    
    
    246,477
    
    
    
    235,810
    
    
    
    226,458
    
    
    
    229,991Other - net(a)(b)
    
    
    (6,469
    )
    
    
    4,018
    
    
    
    (2,216
    )
    
    
    94,718
    
    
    
    45,383Operating income(a)(b)(c)
    
    
    100,791
    
    
    
    93,641
    
    
    
    104,971
    
    
    
    (54,269
    )
    
    
    65,478Interest expense(a)(b)
    
    
    30,843
    
    
    
    29,663
    
    
    
    30,246
    
    
    
    32,324
    
    
    
    32,401Earnings of non-controlling
interests(b)
    
    
    2,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income
(loss) before income taxes(a)(c)(d)
    
    
    67,927
    
    
    
    63,978
    
    
    
    54,628
    
    
    
    (86,593
    )
    
    
    33,077Income tax (benefit) provision(e)
    
    
    19,991
    
    
    
    20,939
    
    
    
    20,322
    
    
    
    (31,107
    )
    
    
    18,562Net income (loss) applicable to common
shares(a)(c)(d)(e)
    
    
    47,936
    
    
    
    43,039
    
    
    
    34,306
    
    
    
    (55,486
    )
    
    
    14,515Financial DataDepreciation
and amortization(c)(b)
    
    $
    48,022
    
    
    $
    44,936
    
    
    $
    45,061
    
    
    $
    49,408
    
    
    $
    54,645Capital expenditures(c)(b)
    
    
    35,494
    
    
    
    38,641
    
    
    
    28,343
    
    
    
    48,975
    
    
    
    59,457Working capital(a)(b)(g)
    
    
    457,814
    
    
    
    403,485
    
    
    
    383,402
    
    
    
    400,441
    
    
    
    471,414Long-term debt(a)(b)
    
    
    372,921
    
    
    
    272,355
    
    
    
    265,000
    
    
    
    310,936
    
    
    
    384,211Stockholders equity
    
    
    562,851
    
    
    
    514,864
    
    
    
    467,253
    
    
    
    454,231
    
    
    
    525,940Capital employed
    
    
    935,772
    
    
    
    787,219
    
    
    
    732,253
    
    
    
    765,167
    
    
    
    910,151Total
assets(a)(b)(g)
    
    
    1,254,109
    
    
    
    1,021,110
    
    
    
    961,399
    
    
    
    993,795
    
    
    
    1,153,160Common Stock DataNet income (loss) assuming dilution(a)(c)(d)(e)
    
    $
    1.46
    
    
    $
    1.32
    
    
    $
    1.06
    
    
    $
    (1.74
    )
    
    $
    0.44Dividends
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.46
    
    
    
    0.56Book value
    
    
    17.18
    
    
    
    15.83
    
    
    
    14.52
    
    
    
    14.19
    
    
    
    16.49Price Range:High
    
    
    19.78
    
    
    
    21.15
    
    
    
    19.55
    
    
    
    20.84
    
    
    
    22.94Low
    
    
    15.60
    
    
    
    14.94
    
    
    
    13.14
    
    
    
    11.02
    
    
    
    12.13Financial StatisticsNet sales divided by:Receivables(a)(b)(f)(h)
    
    
    7.0
    
    
    
    7.3
    
    
    
    7.4
    
    
    
    6.4
    
    
    
    6.3Inventories(a)(b)(f)(h)
    
    
    3.5
    
    
    
    3.6
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.1Capital
employed(a)(b)(f)(h)
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.4
    
    
    
    1.3Interest coverage(a)(b)(c)
    
    
    3.3
    
    
    
    3.2
    
    
    
    3.5
    
    
    
    (1.7
    )
    
    
    2.0Income (loss) before income taxes as a percent
of sales(a)(c)(d)(f)
    
    
    5.2
    %
    
    
    5.4
    %
    
    
    4.7
    %
    
    
    (7.5
    )%
    
    
    2.7
    %Net income (loss) as a percent of
sales(a)(c)(d)(e)(f)
    
    
    3.7
    %
    
    
    3.6
    %
    
    
    2.9
    %
    
    
    (4.8
    )%
    
    
    1.2
    %Net income (loss) as a percent of
stockholdersequity(a)(c)(d)(e)(f)
    
    
    8.9
    %
    
    
    8.8
    %
    
    
    7.4
    %
    
    
    (11.3
    )%
    
    
    2.7
    %Other DataNet common
shares outstanding (000s omitted)
    
    
    32,765
    
    
    
    32,523
    
    
    
    32,186
    
    
    
    32,008
    
    
    
    31,896Approximate number of common shareholders
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    8,800
    
    
    
    8,000
 10




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a)
    
    In 2004, we acquired the assets of American Athletic, Inc. (AAI) and Huffy Sports, along
with the Brooks Sports business. In 2003, we acquired certain assets of Bike Athletic Company
and Spalding Sports Worldwide, Inc. The results of operations for AAI, Huffy Sports, Brooks
Sports, Bike and Spalding have been included in our consolidated financial statements since
their respective acquisition dates. See Note 13 to the consolidated financial statements for
more information on these acquisitions.b)
    
    On April 3, 2004, we began consolidating Frontier Yarns, LLC in accordance with Financial
Interpretation No. 46, Consolidation of Variable Interest Entities. The consolidation of
Frontier Yarns, LLC impacted our 2004 balance sheet and results of
operations as follows (in thousands): Increase(decrease)Net sales
    
    $
    2,039Cost of goods sold
    
    
    (2,160)SG&A
    
    
    2,061Other - net
    
    
    (527)Operating income
    
    
    2,665Interest expense
    
    
    644Earnings of non-controlling interest
    
    
    2,021Depreciation and amortization
    
    
    2,159Capital expenditures
    
    
    41Working capital
    
    
    8,080Long-term debt
    
    
    7,838Total assets
    
    
    24,878
  c)
    
    Fiscal 2000, 2001 and 2003 include special charges related to certain restructuring plans of
$65,011,000, $144,092,000 and $7,303,000 respectively. The after-tax impact of these charges
on 2000, 2001 and 2003 earnings was ($1.46), ($2.88) and ($0.15) respectively, per diluted
share. There were no significant special charges incurred in fiscal 2004 or 2002.d)
    
    Fiscal 2002 includes a charge of $20,097,000 ($12,621,000, net of tax) associated with the
early retirement of long-term indebtedness as described in Note 2 to the consolidated
financial statements. The after-tax impact of this charge on 2002 earnings was ($0.39) per
diluted share.e)
    
    Fiscal 2004 and 2003 were favorably impacted by non-recurring tax effects. See Note 6 to the
consolidated financial statements for more information on income taxes.f)
    
    Average of amounts at beginning and end of each fiscal year.g)
    
    Certain prior year amounts have been reclassified to conform to the fiscal 2004 presentation.h)
    
    Excludes impact from our acquisition of Brooks Sports since it was purchased at 2004 year
end. 11




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Today, Russell Corporation is a major branded athletic and sporting goods company with a rich
history of marketing athletic uniforms, apparel and equipment for a wide variety of sports and
fitness activities. Its global position is built on well-known brands and quality products. With established brands such as Russell Athletic®, JERZEES®, Spalding®, and Brooks®, we have
products to meet the needs of everyone, from the serious athlete to the weekend warrior. Other
brands include American Athletic®, Huffy Sports®, Mossy Oak®, Cross Creek®, Moving Comfort®, Bike®,
Dudley®, Discus®, and Sherrin®. Founded in 1902, Russell started on a small scale with a few pieces of equipment and a small
building. As the company grew, it became a pioneer in the athletic team uniform business and one of
the first companies to produce the most popular athletic product of all  the sweatshirt. In 1998, major restructuring efforts began the transitioning of the company from a vertical
manufacturing-driven company with the majority of its production in the U.S., to a customer and
consumer-driven apparel company. Over the next three years, we moved away from ownership of
certain textile operations (yarn spinning) while successfully shifting the majority of our apparel
operations (sewing) to lower cost offshore facilities, primarily Mexico and Central America. In
October 2003, we announced an Operational Improvement Program (OIP) targeting $50 million in cost
reductions to offset anticipated selling price decreases, higher fiber costs and other cost
increases for fiscal 2004. During 2004, we increased the targeted savings of that program to $60
million. That plan included improving operating efficiencies and asset utilization, while
streamlining processes in both our manufacturing and administrative areas such as: (1) lower
full-packaged sourcing costs; (2) increased efficiencies in textile (dyeing and finishing)
operations; (3) improved distribution costs; and (4) expanded production with lower cost
contractors in Haiti. As part of the OIP, we eliminated approximately 100 positions in 2003,
primarily salaried and administrative office staff, and incurred asset impairment charges
associated with the closings of two International sales offices and a previously idled domestic
finished goods warehouse. In addition to the OIP, we have a new textile plant for both t-shirt and fleece production under
construction in Honduras. Once fully operational in 2006, the Merendon Plant is expected to
generate approximately $15 million to $20 million in cost savings versus the costs at the time the
project was initiated. Also, we eliminated approximately another 20 salaried and administrative
office staff positions in 2004. During 2003 and 2004, we made five strategic acquisitions to further advance our position in the
sports equipment business. On February 6, 2003, we acquired the majority of the assets of Bike
Athletic Company (Bike) which introduced athletic supporters, knee and elbow pads, braces, and
protective equipment into our product offering. On May 16,2003, we acquired assets of
Spalding Sports Worldwide, Inc. (Spalding) making us a leading marketer of basketballs and
softballs, also selling footballs, soccer balls, and volleyballs. On June 15, 2004, we acquired the
net assets of American Athletic, Inc. (AAI), a leader in the gymnastics equipment business, but
as important to us, provided Spalding a platform for extension into the basketball backboard and
backboard systems business. On July 19, 2004, we acquired
certain assets, and assumed certain liabilities, of Huffy Sports from
Huffy Corporation, further expanding our basketball backboard, backboard systems and accessories
business. AAI and Huffy Sports are now part of our Spalding operations. On December 30, 2004, we entered the athletic footwear business with the acquisition of the Brooks
Sports business (Brooks). Brooks is a pioneer in the technical footwear industry, and its
technical apparel is highly valued in the world of serious runners.
Our Moving Comfort® brand also
holds a strong position in running and fitness with its performance apparel designed especially for
women. Typically, demand for our apparel products is higher during the third and fourth quarters of each
fiscal year. Weather conditions also affect the demand for our apparel products, particularly for
our fleece (sweatshirts and sweatpants) products. Generally, we produce, source and store finished
goods inventory, particularly fleece, to meet the expected demand for delivery in the upcoming
season. Demand for our basketball and basketball equipment business is typically higher in the second and
fourth quarters, but its seasonal pattern is not as pronounced as the fleece business. Components
and complete basketball systems may be sourced, with some assembly performed at our operations in
the U.S. All of our inflatables (basketballs, footballs, volleyballs, soccer balls, etc.) are
manufactured overseas. Likewise, we expect demand for our newest acquisition, Brooks, our athletic
footwear and running equipment brand, to be slightly higher in the first half of each year. Brooks
sources 100% of its production, primarily from various suppliers in China. 12




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While product mix affects our overall gross profit, operating profit is similar among products and
across our various brands and distribution channels. In cases where we manufacture products, plant
utilization levels are important to our profitability because a substantial portion of our total
production cost is fixed. We operate our business in two segments: Domestic and International Apparel. The Domestic segment
is further aligned by brands. The two brand groupings in the Domestic segment are Athletic and
Activewear. The operating results of Bike, Spalding, AAI, Huffy Sports and Brooks have been
included in our consolidated financial statements, as part of the Domestic segment, since their
respective acquisition dates. The International Apparel segment generally distributes similar
athletic, outdoor and activewear apparel products. 13




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Critical Accounting Policies The following discussion and analysis of our financial condition, results of operations, liquidity,
and capital resources is based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. Generally
accepted accounting principles require that we make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to customer programs and incentives, product returns, bad debts, inventories, investments,
intangible assets, long-lived assets, deferred income taxes, restructuring reserves, pension
benefits, contingencies, and litigation. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe that some of our accounting policies involve a higher degree of judgment or complexity
than our other accounting policies. We have identified the policies below that are critical to our
business operations and the understanding of our results of operations. The impact of these
policies on our business operations and their associated risks are discussed throughout
Managements Discussion and Analysis of Financial Condition and Results of Operations where such
policies affect our reported and expected financial results. For a detailed discussion on the
application of these and other accounting policies, see Note 1 to the consolidated financial
statements. Consolidation.The consolidated financial statements include the accounts of
Russell Corporation, all of our majority-owned subsidiaries,
and any variable interest entities in which we are deemed to be the
primary beneficiary,  after the elimination of intercompany accounts and
transactions. In January 2003, the FASB issued Financial Interpretation No. 46, Consolidation of Variable
Interest Entities, (FIN 46). In December 2003, the FASB issued a revised interpretation of FIN 46
(FIN 46-R), which supersedes FIN 46 and clarifies certain aspects of FIN 46. FIN 46-R addresses
whether business enterprises must consolidate the financial statements of entities known as
variable interest entities. A variable interest entity is defined by FIN 46-R to be a business
entity which has one or both of the following characteristics: (1) the equity investment at risk is
not sufficient to permit the entity to finance its activities without additional support from other
parties, which is provided through other interests that will absorb some or all of the expected
losses of the entity; and (2) the equity investors lack one or more of the following essential
characteristics of a controlling financial interest: (a) direct or indirect ability to make
decisions about the entitys activities through voting rights or similar rights, (b) the obligation
to absorb the expected losses of the entity if they occur, which makes it possible for the entity
to finance its activities, or (c) the right to receive the expected residual returns of the entity
if they occur, which is the compensation for risk of absorbing expected losses. Under FIN 46-R, the
party with an ownership, contractual or other financial interest that absorbs the majority of the
variable interest entitys expected losses, or is entitled to receive a majority of the residual
returns, or both, is deemed to be the primary beneficiary, and is required to consolidate the
variable interest entitys assets, liabilities and non-controlling interests. We performed a
review of all of our ownership and contractual interests in entities including Frontier Yarns. We
have determined that Frontier Yarns meets the criteria for being a variable interest entity and
that we are the primary beneficiary of the entity. In accordance with FIN 46-R, we began
consolidating Frontier Yarns on April 4, 2004. At January 1, 2005, the consolidation of Frontier
Yarns increased our total assets by $24.9 million, total liabilities by $10.8 million and
non-controlling interests by $14.0 million. The consolidation of Frontier Yarns did not have a
significant impact on our results of operations for 2004. Revenue recognition.We recognize revenues, net of estimated sales returns, discounts and
allowances, when goods are shipped, title has passed, the sales price is fixed, and collectibility
is reasonably assured. Substantially all of our sales reflect FOB shipping point terms. We record provisions for estimated sales returns and allowances on sales in the same period as the
related sales are recorded. These estimates are based on historical sales returns, analyses of
credit memo data, specific notification of pending returns, and other known factors. If the historical data we use to calculate these
estimates do not properly reflect future returns, net sales could either be understated or
overstated. Trade accounts receivable.Trade accounts receivable consist of amounts due from our normal
business activities. We maintain an allowance for doubtful accounts to reflect expected credit
losses. We provide for bad debts based on collection history and specific risks identified on a
customer-by-customer basis. A considerable amount of judgment is required to assess the ultimate
realization of accounts receivable and the creditworthiness of each customer. Furthermore, these
judgments must be continually evaluated and updated. If the financial condition of our customers
were to deteriorate causing an impairment of their ability to make payments, additional provisions
for bad debts may be required in future periods. On the other hand, if our ultimate recovery on the
accounts we have reserved or written off exceeds our estimates, we may need to decrease our
reserves in the future. Inventories.Inventories are carried at the lower of cost or market, with cost for the majority of
our inventories determined under the Last-In, First-Out (LIFO) method. We apply the lower of cost
or market principle to LIFO inventories in the aggregate, rather than to individual stock keeping
units (SKUs), because it is not practical to establish the LIFO cost of an individual SKU. For the
remainder of our inventory that is accounted for under the First-In, First-Out (FIFO) method, we
write down individual SKUs that become 14




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obsolete and unmarketable to their estimated net realizable value based upon, among other things,
assumptions about future demand and market conditions. If actual market conditions are less
favorable than we project, additional inventory write-downs may be required. In 2002, our pre-tax income was unfavorably impacted by $6.0 million
due to the liquidation of LIFO inventory quantities carried at higher costs
prevailing in prior years as compared with current manufacturing costs.
There was no significant impact on pre-tax income from the liquidation of LIFO
inventory quantities in 2003 and 2004. Income Taxes.We account for income taxes under the provisions of SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based upon
differences between the financial reporting and tax bases of assets and liabilities and are
measured at the enacted tax rates that will be in effect when the taxes are expected to be paid. We
record a valuation allowance to reduce deferred tax assets to the amount we believe is likely to be
realized. While we have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, if we determine that we will
not be able to realize all or part of our net deferred tax assets in the future, we will make an
adjustment to increase our valuation allowance for deferred tax assets and that adjustment will be
charged to income in the period that we make the determination. Likewise, if we determine that we
will be able to realize more of our deferred tax assets than we currently expect, we will adjust
our deferred tax assets, which will have the effect of increasing net income in the period that we make
the determination. Property, Plant and Equipment.Property, plant and equipment are stated at historical cost and
depreciation is computed using the straight-line method over the lives of the assets. We estimate
the depreciable lives of property, plant and equipment based on the period over which the assets
will be of economic benefit to us. We review property, plant and equipment for impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. Most of our property, plant and
equipment are employed in integrated manufacturing and distribution processes. Accordingly, we
ordinarily cannot assess impairment of assets held for use at the individual asset level, but
rather we aggregate them into logical groups for purposes of testing whether they are impaired.
When we identify assets that will be taken out of service through the ordinary course of
replacement and modernization or through restructuring activities, we shorten the remaining useful
lives and adjust the salvage values, as appropriate, to recognize depreciation over the shortened
remaining estimated useful lives. Otherwise, we classify assets as held for sale, write down the
carrying value to fair value (less cost to sell) and suspend depreciation on the assets when we
formulate a plan of disposal and there is no operational requirement to continue their use. We
determine fair value, in most cases, by reference to third-party appraisals, and, in other cases,
we perform internal analyses based upon recent sales prices of comparable assets (when available).
We periodically evaluate the carrying values of assets held for sale to determine whether revisions
are needed to reflect changed circumstances, including market conditions. In
2004, we realized approximately $0.4 million  of net gains on the disposal of three properties. In 2003, we
recorded $2.0 million
 of impairment charges on certain assets, which is net of
$1.1 million of realized gains on the disposal of five properties. At January 1, 2005, we have three idled properties along with equipment remaining to be
sold, which are reflected in our consolidated balance sheet at approximately $2.0 million,
representing our best estimate of ultimate selling prices less disposal costs. Although we do not
anticipate further significant charges, the actual proceeds from the sales of these facilities and
the actual costs to dispose of these assets may differ from our current estimates, which would
require us to recognize a charge or credit to future earnings. Impairment and Amortization of Intangible Assets.Under FASB Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,amortization of goodwill is
eliminated; however, an annual two-step impairment test is required. The first step determines if
goodwill is impaired by comparing the fair value of the reporting unit as a whole to the book
value. If a deficiency exists, the second step measures the amount of the impairment loss as the
difference between the implied fair value of goodwill and its carrying value. In performing these
annual impairment tests, we make assumptions regarding estimated future cash flows and other
factors to determine whether the carrying values are impaired, and then, if impaired, to determine
the amount of any impairment loss required to reduce the carrying value to fair value. If these
estimates or assumptions change, we may be required to record impairment charges for these assets. Purchased intangibles with indefinite economic lives are tested for impairment annually using a
lower of cost or fair value approach. In determining whether an intangible has an indefinite life,
we consider the expected use of the asset; the expected useful lives of other assets to which the
asset may relate; any legal, regulatory or contractual provisions; the level of maintenance
expenditures required to obtain the expected future cash flows from the asset; and the effects of
obsolescence, demand and other economic factors. In performing these annual impairment tests, we
make assumptions regarding estimated future cash flows and other factors to determine whether the
carrying values are impaired, and then, if impaired, to determine the amount of any impairment loss
required to reduce the 15




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##### Table of Contents



carrying value to fair value. If these estimates or assumptions change, we may be required to
record impairment charges for these assets. Other intangibles continue to be amortized over their estimated useful lives, ranging from 2.4 to
40 years, and reviewed for impairment using a process similar to that used to evaluate property,
plant and equipment. Pension Benefits.We account for defined benefit pension plans in accordance with SFAS No. 87,
Employers Accounting for Pensions, which requires us to recognize pension costs and liabilities
based on actuarial evaluations. Inherent in these valuations are key assumptions including the
discount rate at which the pension obligations could be effectively settled, the anticipated rate
of future salary increases, and the assumed long-term rate of return on plan assets. In determining
the discount rate, we consider current yields on high-quality fixed-income investments. The salary
increase assumption is based upon historical experience and anticipated future management actions.
The assumed long-term rate of return on plan assets is based upon the historical rate of return on
the invested funds of the pension plan and projected future market returns. Periodic changes in
these key assumptions could have a significant impact on the amount of recorded pension liabilities
and on future pension benefit costs, although SFAS No. 87 permits the effects of the performance of
the pension plans assets and changes in pension assumptions on our computation of pension expense
to be amortized over future periods. For instance, given the continued decrease in interest rates,
we plan to reduce the discount rate from 6.25% in 2004 to 5.90% in 2005. This assumption change,
along with changes in the plan participants demographics and other factors, is expected to
increase pension expense by approximately $2.0 million from fiscal 2004 to fiscal 2005. Although our actual return on pension plan assets was positive in 2004, our after-tax minimum
pension liability in stockholders equity increased $5.7 million to $24.3 million at January 1,
2005. Stock Compensation.Awards under our incentive compensation plans (as more fully described in Note
7 to the consolidated financial statements) may include incentive stock awards, nonqualified stock
options, reload stock options and restricted shares. On January 5, 2003, we adopted the prospective
transition provisions of SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation,as
amended by SFAS No. 148. SFAS No. 148 uses a fair value based method of accounting for employee
stock awards using assumptions such as a risk-free interest rate, expected dividend yield, expected
life of the stock award and the expected volatility of our stock price. By electing the prospective
transition method of SFAS No. 148, our results of operations and our financial position are not
affected by stock compensation awards granted prior to January 5, 2003. We recognized approximately
$5.2 million ($3.6 million after-tax) and $0.6 million ($0.4 million after-tax) in stock
compensation in 2004 and 2003, respectively. For stock compensation awards granted prior to January
5, 2003, we used the intrinsic value approach under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. See Note 7 to the consolidated financial statements for a
comparison of reported results versus proforma results that assumes the fair value based method of
SFAS No. 148 had been applied to all stock compensation awards granted. 16




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##### Table of Contents



Results of Operations The following information is derived from our audited consolidated statements of income for our
fiscal years ended January 1, 2005 (fiscal 2004  a 52-week period), January 3, 2004 (fiscal 2003 
a 52-week period) and January 4, 2003 (fiscal 2002  a 53-week period). 52 Weeks
    
    
    52 Weeks
    
    
    53 WeeksEnded
    
    
    Ended
    
    
    EndedFiscal Year
    
    2004
    
    
    2003
    
    
    2002(Dollars in millions)Net sales
    
    $
    1,298.3
    
    
    
    100.0
    %
    
    $
    1,186.2
    
    
    
    100.0
    %
    
    $
    1,164.3
    
    
    
    100.0
    %Cost of goods sold
    
    
    934.4
    
    
    
    72.0
    %
    
    
    842.1
    
    
    
    71.0
    %
    
    
    825.8
    
    
    
    70.9
    %Gross profit
    
    
    363.9
    
    
    
    28.0
    %
    
    
    344.1
    
    
    
    29.0
    %
    
    
    338.5
    
    
    
    29.1
    %Selling, general and administrative expenses
    
    
    269.6
    
    
    
    20.8
    %
    
    
    246.5
    
    
    
    20.8
    %
    
    
    235.8
    
    
    
    20.3
    %Other-net
    
    
    (6.5
    )
    
    
    (0.6
    )%
    
    
    4.0
    
    
    
    0.3
    %
    
    
    (2.2
    )
    
    
    (0.2
    )%Operating income
    
    
    100.8
    
    
    
    7.8
    %
    
    
    93.6
    
    
    
    7.9
    %
    
    
    104.9
    
    
    
    9.0
    %Interest expense, net
    
    
    30.9
    
    
    
    2.4
    %
    
    
    29.7
    
    
    
    2.5
    %
    
    
    30.2
    
    
    
    2.6
    %Earnings of non-controlling interests
    
    
    2.0
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Debt retirement charge
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    20.1
    
    
    
    1.7
    %Income before income taxes
    
    
    67.9
    
    
    
    5.2
    %
    
    
    63.9
    
    
    
    5.4
    %
    
    
    54.6
    
    
    
    4.7
    %Provision for income taxes
    
    
    20.0
    
    
    
    1.5
    %
    
    
    20.9
    
    
    
    1.8
    %
    
    
    20.3
    
    
    
    1.7
    %Net income
    
    $
    47.9
    
    
    
    3.7
    %
    
    $
    43.0
    
    
    
    3.6
    %
    
    $
    34.3
    
    
    
    3.0
    %
 2004 vs. 2003 Net Sales.In fiscal 2004 (a 52-week period), our net sales increased $112.1 million, or 9.4%, to
$1.298 billion versus $1.186 billion in fiscal 2003 (a 52-week period). The following table is a breakdown of net sales (in thousands): 52 Weeks
    
    
    52 WeeksEnded
    
    
    Ended1/1/05
    
    
    1/3/04Domestic Segment
brand groupings:Athletic
    
    $
    563,163
    
    
    $
    481,565Activewear
    
    
    612,264
    
    
    
    603,2791,175,427
    
    
    
    1,084,844International Apparel Segment
    
    
    122,825
    
    
    
    101,419Consolidated total
    
    $
    1,298,252
    
    
    $
    1,186,263
 Net sales
from our 2004 acquisitions (AAI and Huffy) along with incremental 2004 net sales from our
2003 acquisitions (Spalding and Bike) were $77.4 million. As Brooks Sports was acquired effective
December 30, 2004, there are no sales included in our 2004 results of operations. Excluding the
increase in 2004 due to acquisitions, net sales increased 2.9% to $1.221 billion in 2004 versus
$1.186 billion in 2003. For the 2004 fiscal year, net sales in our Domestic segment totaled $1.175 billion, an increase of
$90.6 million, or 8.4%, from net sales of $1.085 billion in fiscal 2003. Net sales from our 2004
acquisitions (AAI and Huffy) along with incremental 2004 net sales from our 2003 acquisitions
(Spalding and Bike) contributed $71.6 million to the Domestic segment. Excluding the increase in
2004 due to acquisitions, net sales in our Domestic segment increased 1.7% to $1.104 billion in
2004 versus $1.085 billion in 2003. For the 2004 fiscal year in our Domestic segment:  
    Net sales in our Athletic business increased $81.6 million, or 16.9%,
to $563.2 million. The increase in net sales was primarily driven by
our 2004 acquisitions of AAI and Huffy Sports along with incremental
2004 net sales from our 2003 acquisitions of Spalding and Bike.
Excluding the increase in 2004 due to acquisitions, Athletic sales
increased 2.1% to $491.5 million in 2004. This increase is primarily
related to a shift in product mix as increased sales in higher priced
apparel more than offset a 2.4% overall decline in apparel units
shipped versus the prior year. 17




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##### Table of Contents




    Net sales in our Activewear business were $612.3 million, an increase
of $9.0 million, from fiscal 2003. This increase was principally
driven by volume increases despite lower sales of our JERZEES®
activewear in the mass channel of certain spring items during the
first half, and lower sales to distributors in the second half versus
2003. Overall, dozens of Activewear products shipped were up 8.3%
versus 2003. The favorable impact from the increase in volume year
over year was substantially offset by continued price reductions in
the distributor market. In fiscal 2004, net sales for our International Apparel segment were $122.8 million, an increase of
21.1%, or $21.4 million over fiscal 2003. Net sales in 2004 include incremental net sales from our
2003 acquisitions of approximately $5.7 million. Excluding the increase in 2004 due to
acquisitions, net sales in the International Apparel segment increased 15.5% to $117.1 million in
2004. This 15.5% sales increase is due to a 3.2% increase in apparel products shipped (primarily
in Europe), increased licensing revenue in Japan and favorable changes in foreign currency exchange
rates. These favorable items were partially offset by lower pricing. Gross Profit.Our gross profit was $363.9 million, or 28.0% of net sales, for fiscal 2004 versus a
gross profit of $344.1 million, or 29.0% of net sales, in the prior year. During fiscal 2004, our
gross profit percent was positively impacted by our acquisitions of Spalding and AAI and our
ongoing cost savings initiatives. The benefits we realized in 2004 from the factors above were more
than offset by: (1) pricing reductions, primarily in the distributor market; (2) additional costs
for new product features; (3) higher pension and medical insurance costs; (4) higher raw material
costs for cotton and polyester; and (5) the dilutive effect of Huffy Sports, which was acquired in
2004. Selling, General and Administrative (SG&A).For fiscal 2004, our SG&A expenses were $269.6
million, or 20.8% of net sales, versus $246.5 million, also 20.8% of net sales, in the prior year.
SG&A expenses increased primarily due to our acquisitions of Spalding, AAI and Huffy. In addition,
we incurred approximately $5.2 million in stock compensation expense in 2004 versus $0.6 million in
2003 primarily related to the 2004 grants of performance and restricted share awards under our
Executive Incentive Plan. During fiscal 2004, we incurred $0.8 million of charges primarily related
to the reduction in our salaried and administrative office staff as part of a reorganization of our
Domestic segment sales and marketing organization. Other reasons for the increase in SG&A expense
include incremental expenses to comply with the Sarbanes-Oxley Act of 2002 of approximately $1.4
million, higher marketing expenses of $2.1 million, and $2.1 million of additional SG&A expense
from the consolidation of Frontier Yarns. These increases were partially offset by lower general
and administrative costs primarily in our Activewear business as cost reductions associated with
the OIP took effect. Other-Net.Other-net was income of $6.5 million in fiscal 2004 versus expense of $4.0 million in
fiscal 2003. Other income during fiscal 2004 was primarily attributable to a $4.4 million gain on
the sale of our minority interest in Marmot Mountain, Ltd. and the favorable impact from foreign
currency transactions in 2004 versus 2003. The 2003 fiscal year was negatively impacted by asset
impairment and other charges of approximately $2.7 million on assets held for sale, otherwise,
other-net was an expense of $1.3 million in fiscal 2003. Operating Income.Our consolidated operating income for fiscal 2004 was $100.8 million, or 7.8% of
net sales, versus $93.6 million, or 7.9% of net sales, in fiscal 2003. This year-over-year increase
in operating income was primarily attributable to higher sales volumes, cost savings associated
with our announced OIP, and the sale of our minority interest in Marmot Mountain, Ltd. These
factors were partially offset by higher raw material costs for cotton and polyester, and the other
factors described above in both the Gross Profit and the SG&A sections of this report. In fiscal 2004, our Domestic segment operating income was $112.9 million, or 9.6% of the segments
net sales, versus $112.6 million, or 10.4% of the segments net sales, in fiscal 2003. The
increase of $0.3 million in operating income for the segment was primarily attributable to higher
sales volumes and ongoing cost savings initiatives, partially offset by higher raw material costs
for cotton and polyester, and the other factors described above, including the impact of the lower
operating margins associated with the Huffy Sports business. In fiscal 2004, our International Apparel segment operating income was a profit of $5.5 million
versus $0.5 million in fiscal 2003. The increase of $5.0 million in operating income for the
segment primarily reflects sales growth in Europe of higher margin products. Income
Taxes.Our effective tax rate for 2004 of 29.4% decreased 3.3 percentage points from 32.7%
in fiscal 2003. This decrease was mainly due to a benefit resulting from the closure
of federal tax audits for 2002 and prior years along with the effects of our foreign operations.
For information concerning income tax
provisions, as well as information regarding other differences between our effective tax rates and
applicable statutory tax rates, see Note 6 to the consolidated financial statements. 18




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##### Table of Contents



2003 vs. 2002 Net Sales.In fiscal 2003 (a 52-week period), our net sales increased $21.9 million, or 1.9%, to
$1.186 billion versus $1.164 billion in fiscal 2002 (a 53-week period). The following table is a breakdown of net sales (in thousands): 52 Weeks
    
    
    53 WeeksEnded
    
    
    Ended1/3/04
    
    
    1/4/03Domestic Segment
brand groupings:Athletic
    
    $
    481,565
    
    
    $
    400,360Activewear
    
    
    603,279
    
    
    
    675,9661,084,844
    
    
    
    1,076,326International Apparel Segment
    
    
    101,419
    
    
    
    88,002Consolidated total
    
    $
    1,186,263
    
    
    $
    1,164,328
 Net sales from our 2003 acquisitions (Spalding and Bike) along with incremental 2003 net sales from
our 2002 acquisition of Moving Comfort were $75.0 million. Excluding the increase in 2003 due to
acquisitions, net sales decreased 4.6% to $1.111 billion in 2003 versus $1.164 billion in 2002. For the 2003 fiscal year, net sales in our Domestic segment totaled $1.085 billion, an increase of
$8.5 million, or 0.8%, from net sales of $1.076 billion in fiscal 2002. Net sales from our 2003
acquisitions (Spalding and Bike) along with incremental 2003 net sales from our 2002 acquisition of
Moving Comfort were $75.0 million. Excluding the increase in 2003 due to acquisitions, net sales
in our Domestic segment decreased 6.2% to $1.010 billion in 2003 versus $1.076 billion in 2002. For the 2003 fiscal year in our Domestic segment:  
    Net sales in our Athletic Group increased $81.2 million, or 20.3%, to
$481.6 million. The increase in net sales was primarily driven by our
2003 acquisitions of Spalding and Bike along with incremental sales
from our 2002 acquisition of Moving Comfort. Excluding the increase in
2003 due to acquisitions, net sales in our Athletic business were up
$6.2 million, or 1.6%, in fiscal 2003 versus the prior year. This
increase is primarily related to the 3.5% increase in apparel units
shipped versus the prior year.  
    Net sales in our Activewear Group were down 10.8% to $603.3 million
versus fiscal 2002. The greatest reduction in sales was experienced
in the Artwear market, the result of industry-wide lower prices
coupled with a shift in sales mix toward lower-priced promotional
products. Sales of our JERZEES®activewear products in the mass
retail channel increased slightly despite a $26 million reduction in
sales of our JERZEES®activewear products to Kmart and lower sock
sales into the mass channel, the result of an overall reduction of
sock inventories at retail. In fiscal 2003, net sales for our International Apparel segment were $101.4 million, an increase of
15.2%, or $13.4 million, and total dozens shipped increased 1.8% over fiscal 2002. The increase in
net sales and dozens shipped for the segment primarily reflects the favorable changes in foreign
currency exchange rates and sales growth in markets such as Europe and Canada. Gross Profit.Our gross profit was $344.1 million, or 29.0% of net sales, for fiscal 2003 versus a
gross profit of $338.5 million, or 29.1% of net sales, in the prior year. During fiscal 2003, our
gross profit was positively impacted by: (1) the acquisitions of Spalding, Bike and Moving Comfort;
(2) our ongoing cost savings initiatives; and (3) lower 2003 inventory reserves for our Russell
Athletic distribution center. The benefits we realized in 2003 from the factors above were offset by: (1) pricing pressures and
lower volumes, primarily in the distributor market of the Artwear channel; (2) additional costs for
new product features; (3) higher pension and medical insurance costs; and (4) higher raw material
costs for cotton and polyester. Selling, General and Administrative (SG&A).For fiscal 2003, our SG&A expenses were $246.5
million, or 20.8% of net sales, versus $235.8 million, or 20.3% of net sales, in the prior year.
During fiscal 2003, we incurred $4.6 million of special charges primarily related to the reduction
in our salaried and administrative office staff as part of our OIP. Excluding these charges, our
SG&A expenses for fiscal 2003 would have been $241.9 million, or 20.4% of net sales. On a
comparative basis, excluding the charge of $5.0 19




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##### Table of Contents



million related to our pre-petition receivables from Kmart, our SG&A expenses for fiscal 2002 would
have been $230.8 million, or 19.8% of net sales. Excluding the charges in both years, the increase in SG&A expenses in fiscal 2003 compared to
fiscal 2002 was mainly the result of incremental expenses from our acquisitions (Spalding, Bike and
Moving Comfort) and higher marketing expenses of $15.4 million. In addition, we incurred
approximately $0.6 million in stock compensation expense related to our adoption of SFAS No. 123
during fiscal 2003. These increases were partially offset by lower general and administrative costs
mainly in our Artwear business. Other-Net.Other-net was expense of $4.0 million in fiscal 2003 versus income of $2.2 million in
fiscal 2002. Excluding the $2.7 million impact of the 2003 special charges, other-net was an
expense of $1.3 million in fiscal 2003. Other income during fiscal 2002 was primarily attributable
to gains of $2.5 million on the sale of non-core assets. Operating Income.Our consolidated operating income for fiscal 2003 was $93.6 million, or 7.9% of
net sales, versus $104.9 million, or 9.0% of net sales, in fiscal 2002. Excluding $7.3 million of
special charges in the 2003-third and fourth quarters, our operating income for fiscal 2003 would
have been $100.9 million, or 8.5% of net sales. On a comparative basis, excluding the charge of
$5.0 million in the 2002-third quarter related to our pre-petition receivables from Kmart and the
$2.5 million gain associated with the sale of non-core assets, our operating income would have been
$107.4 million, or 9.2% of net sales, in fiscal 2002. This year-over-year decrease in operating
income was primarily attributable to lower sales and volumes in the Artwear channel, higher raw
material costs for cotton and polyester, and the other factors described above in both the Gross
Profit and the SG&A sections of this report. In fiscal 2003, our Domestic segment operating income was $112.8 million, or 10.4% of the segments
net sales, versus $124.0 million, or 11.5% of the segments net sales, in fiscal 2002. Excluding
the $5.0 million charge related to our pre-petition receivables from Kmart and the $2.5 million
gain associated with the sale of non-core assets, the Domestic segment operating income for 2002
would have been $126.5 million, or 11.8% of the segments net sales. The decrease of $13.7 million
in operating income for the segment was primarily attributable to lower sales in our Artwear
channel, higher raw material costs for cotton and polyester, and the other factors described above
in the Gross Profit and SG&A sections of this report. In fiscal 2003, our International Apparel segment operating income was a profit of $0.5 million
versus a loss of $0.8 million in fiscal 2002. The increase of $1.3 million in operating income for
the segment primarily reflects favorable changes in foreign currency exchange rates and sales
growth in markets such as Europe and Canada. Income Taxes.Our effective tax rate for 2003 of 32.7% decreased 4.5 percentage points from 37.2%
in fiscal 2002. This decrease was primarily due to $2.6 million of non-recurring tax benefits and
other deferred tax adjustments realized in 2003. For information concerning income tax provisions,
as well as information regarding other differences between our effective tax rates and applicable
statutory tax rates, see Note 6 to the consolidated financial statements. Liquidity and Capital Resources Our total debt to capitalization ratio of 41.4% at January 1, 2005, increased 6.1 percentage points
versus 35.3% at January 3, 2004. Our debt outstanding at January 1, 2005 was $116.6 million higher
than our debt outstanding on January 3, 2004. The increase in our debt was primarily due to $158.4
million of investments in acquisitions and $13.9 million in debt from the consolidation of Frontier
Yarns partially offset by cash generated from operating activities and proceeds from the sale of
non-core assets. Cash From Operating Activities.Our operations generated approximately $81.3 million of
cash during 2004, versus $58.0 million during the same period in 2003. The increase in
inventory from January 3, 2004 to January 1, 2005 was more than the increase in inventory from
January 4, 2003 to January 3, 2004 due to the consolidation of Frontier Yarns and our acquisitions.
Excluding the impact from acquisitions and Frontier Yarns, inventory levels at January 1, 2005 are
6.8% higher than the prior year. The increase in accounts receivable from January 3, 2004 to January 1, 2005 was less than the
increase in accounts receivable from January 4, 2003 to January 3, 2004 primarily due to lower than
normal accounts receivable levels at December 2002 and our working capital management. The increase in accounts payable and accrued expenses was primarily due to lower 2003 employee
performance awards paid out in 2004 versus the 2004 employees performance awards to be paid out in
2005. We made $10.4 million in contributions to our qualified pension plans in 2004 versus $7.3 million
in contributions in 2003. 20




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##### Table of Contents



Cash From Investing Activities.Net cash used in investing activities was $178.4
million in 2004 versus $109.9 million in the prior year. Our investing activities in 2004 have
consisted primarily of capital expenditures of $35.5 million and acquisitions of $158.4 million
(Brooks Sports, AAI and Huffy Sports) less $13.7 million of proceeds from the sale of non-core
assets. In 2003, our investing activities primarily consisted of capital expenditures of $38.6
million and acquisitions of $86.7 million (Bike and Spalding) less $14.8 million of proceeds from
the sale of non-core assets. For fiscal 2005, we are forecasting capital expenditures to be in the range of $55 million to $60
million. The majority of planned fiscal 2005 capital expenditures are to further enhance our
manufacturing and distribution capabilities, including construction of the new textile facility in
Honduras, and to improve our information systems capabilities to support our business initiatives. Cash From Financing Activities.We paid $5.2 million, $5.2 million and $5.1 million in dividends
($0.16 per share) in 2004, 2003 and 2002, respectively. We review our dividend policy from time to
time and based upon current projected earnings and cash flow requirements, we anticipate continuing
to pay a quarterly dividend for the foreseeable future. On January 1, 2005, our debt facilities and outstanding debt obligations included:  
    $310 million in Senior Secured Credit Facilities (the Facilities). The Facilities include a $300 million Senior Secured
Revolving Credit Facility (the Revolver) due April 2007, of which $110.1 million was outstanding, and $10 million
outstanding under our Senior Secured Term Loan (the Term Loan), due ratably through December 2006; and  
    $250 million in 9.25% Senior Unsecured Notes (the Senior Notes) due 2010.  
    $27.9 million of other outstanding borrowings, of which $14.0 million related to our line of credit used in the
International Apparel segment and $13.9 million primarily related to a line of credit and capital leases held by Frontier
Yarns for machinery and equipment used in operations. On April 18, 2002, we completed a refinancing of our debt structure. We used the net proceeds of
the Senior Notes offering (together with $132.4 million of initial borrowings under the Facilities)
to repay the outstanding balances, accrued interest, prepayment penalties and expenses under our
previous revolving credit facility and long-term notes, and to pay issuance costs. During the
second quarter 2002, we incurred a $20.1 million ($12.6 million after-tax) charge associated with
the early retirement of debt. The charge consisted of $15.0 million related to prepayment
penalties, fees and expenses associated with the early termination of our previous notes payable
and the write-off of $5.1 million of unamortized loan costs associated with the extinguished debt. Borrowings under our Facilities are subject to mandatory prepayment equal to: (1) 100% of the net
proceeds received by us from the issuance of any new or replacement debt securities (excluding the
issuance of the Senior Notes); and (2) 50% of the net proceeds received from the sale of certain of
our assets. The Facilities and the Senior Notes impose certain restrictions on us, including restrictions on
our ability to: incur debt; grant liens; provide guarantees in respect of obligations of any other
person; pay dividends; make loans and investments; sell our assets; issue redeemable preferred
stock and non-guarantor subsidiary preferred stock; make redemptions and repurchases of capital
stock; make capital expenditures; prepay, redeem or repurchase debt; engage in mergers or
consolidation; engage in sale/leaseback transactions and affiliate transactions; change our
business; amend certain debt and other material agreements, including the indenture governing the
Senior Notes and other documents governing any subordinated debt that we may issue in the future;
issue and sell capital stock of subsidiaries; and restrict distributions from subsidiaries. On
March 11, 2003, we amended the Facilities to, among other things: (1) lessen some of the
restrictions on our ability to make acquisitions, (2) permit us to make additional investments and
guarantees, and (3) allow us to repurchase a portion of our Senior Notes and capital stock, subject
to annual limitations. The Facilities require us to achieve a fixed charge coverage ratio of 1.25 to 1.0. We also must
maintain a maximum leverage ratio of 3.5 to 1.0. We were in compliance with these covenants at the
end of fiscal year 2004, and we expect to remain in compliance with them in the foreseeable future. Under the Facilities, pricing is adjusted quarterly based on our consolidated fixed charge coverage
ratio. For the majority of fiscal 2004, variable interest on the Revolver was either LIBOR plus
2.00% (4.52% at January 1, 2005), or Base Rate plus 0.50% (5.75% at January 1, 2005), and on the
Term Loan was either LIBOR plus 2.50% (5.02% at January 1, 2005), or Base Rate plus 1.00% (6.25% at
January 1, 2005), with an annual commitment fee on the unused portion of the Facilities of 0.375%.
For the first quarter of 2005, variable interest on the Revolver will be either LIBOR plus 1.75% or
Base Rate plus 0.25% and on the Term Loan will be either LIBOR plus 2.25% or Base Rate plus .75%
with an annual commitment fee on the unused portion of the Facilities of 0.375%. 21




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##### Table of Contents



For the majority of fiscal 2003, variable interest on the Revolver was either LIBOR plus 1.75%
(2.84% at January 3, 2004), or Base Rate plus 0.25% (4.25% at January 3, 2004), and on the Term
Loan was either LIBOR plus 2.25% (3.34% at January 3, 2004), or Base Rate plus 0.75% (4.75% at
January 3, 2004), with an annual commitment fee on the unused portion of the Facilities of 0.375%. If
we violate the loan covenants and are unable to obtain waivers from our lenders, our debt under
these agreements would be in default and could be accelerated by our lenders. If our indebtedness
is accelerated, we may not be able to repay or refinance it. Even if we are able to obtain new
financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.
Cross default provisions exist in the indenture governing our Senior Notes whereby a default on our
Senior Notes would occur if we default on any covenant of any other debt agreement (which has an
outstanding balance in excess of $25 million) and such default causes an acceleration of the
maturity date of the other indebtedness. Also, under cross default provisions in our Facilities, a
default would occur if we default on any covenant of any other debt agreement (which has an
outstanding balance in excess of $5 million) and such default causes an acceleration of the
maturity date of the other indebtedness. Pension Funding Considerations.Our actual return on plan assets has significantly improved from a
7.1% loss in 2002 to a positive return of 21.0% in 2003 and 11.3% in 2004; however, we still have
an after-tax minimum pension liability of approximately $24.3 million at January 1, 2005. In
fiscal 2003 and 2004, we contributed $7.3 million and $10.4 million, respectively, to our qualified
pension plans. Although we are required to make a contribution of only $0.3 million to our
qualified pension plans in 2005, we are currently projecting aggregate contributions of $45 million
to $50 million over the next five years, out of which we expect to contribute approximately $4
million in 2005. Adequacy of Borrowing Capacity.Availability under our Revolver is subject to a borrowing base
limitation that is determined based on eligible accounts receivable and inventory. As of January 1,
2005, we had $110.1 million in outstanding borrowings under the
Revolver and approximately $143.4
million of availability remaining. Excluding Frontier Yarns, we also had $22.6 million in cash
available to fund ongoing operations. Although there can be no assurances, we believe that cash
flow available from operations, along with the availability under our Revolver and cash on hand,
will be sufficient to operate our business; satisfy our working capital, capital expenditure and
pension funding requirements; and meet our foreseeable liquidity requirements, including debt
service on our Senior Notes and the Facilities until the maturity of our Facilities in 2007. Contingencies.For information concerning our ongoing litigation, see Note 8 to the consolidated
financial statements. Commitments.The following table summarizes information about our contractual cash obligations,
including those of Frontier Yarns, as of January 1, 2005 (in millions): UnconditionalShort-term
    
    
    Long-term
    
    
    Capital Lease
    
    
    Operating
    
    
    purchaseFiscal Years
    
    Debt
    
    
    Debt
    
    
    Obligations
    
    
    Leases
    
    
    obligations(1)
    
    
    Total(1)2005
    
    $
    18.2
    
    
    $
    5.8
    
    
    $
    1.5
    
    
    $
    11.9
    
    
    $
    83.0
    
    
    $
    120.42006
    
    
    
    
    
    
    5.9
    
    
    
    1.5
    
    
    
    9.4
    
    
    
    17.0
    
    
    
    33.82007
    
    
    
    
    
    
    111.0
    
    
    
    1.5
    
    
    
    7.2
    
    
    
    15.6
    
    
    
    135.32008
    
    
    
    
    
    
    1.0
    
    
    
    1.5
    
    
    
    5.5
    
    
    
    16.5
    
    
    
    24.52009
    
    
    
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    4.1
    
    
    
    17.6
    
    
    
    22.9Thereafter
    
    
    
    
    
    
    250.0
    
    
    
    
    
    
    
    3.0
    
    
    
    60.8
    
    
    
    313.8$
    18.2
    
    
    $
    374.3
    
    
    $
    6.6
    
    
    $
    41.1
    
    
    $
    210.5
    
    
    $
    650.7
   (1)
    
    Includes guaranteed minimums for utilities and for royalties associated with various
sports and league licenses. Obligations under advertising contractual
arrangements, cotton purchase obligations and capital expenditure
commitments are also
included. Other commercial commitments at January 1, 2005 include outstanding letters of credit of
approximately $12.8 million for the purchase of inventories, $2.3 million for the guarantee of
debt of a non-affiliated foreign contractor, $6.8 million
related to workers compensation
self-insured programs and customs bonds, and $2.3 million related to utility bonds and other
matters. All outstanding letters of credit are set to expire in 2005. Outlook Russell expects sales for fiscal 2005 to increase approximately 15% to 17%, to approximately $1.50
billion to $1.52 billion. We expect earnings per share, on a fully diluted basis, to be in the
$1.55 to $1.65 range for 2005. The expected increase in sales in 2005 assumes the full year of sales of our three strategic
acquisitions (AAI, Huffy Sports and Brooks) made in 2004 along with growth in Activewear and
continued solid performance from our base Athletic business despite the loss of the Major League
Baseball licensed apparel business, which represented approximately
1.4% of the Companys 2004 net  sales. 22




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##### Table of Contents



The expected increase in diluted earnings per share in 2005 assumes Brooks will be accretive by at
least $.05 to $.07 per diluted share and Huffy Sports will break-even or be slightly accretive. In
addition, we expect Activewear to have strong earnings growth primarily due to sales growth and
lower costs in 2005. Our new Honduras textile operation is expected to be slightly dilutive in the
first half of the year but start generating a return in the second half of 2005. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks relating to fluctuations in interest rates, currency exchange rates
and commodity prices. Our financial risk management objectives are to minimize the potential impact
of interest rate, foreign exchange rate and commodity price fluctuations on our earnings, cash
flows and equity. To manage these risks, we may use various financial instruments, including
interest rate swap agreements, commodity futures contracts and forward currency exchange contracts.
We only use traded instruments with major financial institutions as the counterparties to minimize
the risk of credit loss. Refer to Notes 1 and 4 of the consolidated financial statements for a more
complete description of our accounting policies and the extent of our use of such instruments. The following analyses present the sensitivity of the market value, earnings and cash flows of our
significant financial instruments to hypothetical changes in interest rates, exchange rates and
commodity prices as if these changes had occurred at January 1, 2005. The range of changes chosen
for these analyses reflects our view of changes that are reasonably possible over a one-year
period. Market values are the present values of projected future cash flows based on the interest
rate assumptions or quoted market prices where available. These forward-looking disclosures are
selective in nature and only address the potential impacts from financial instruments. They do not
include other potential effects which could impact our business as a result of changes in interest
rates, exchange rates or commodity prices. Interest Rate and Debt Sensitivity Analysis.At January 1, 2005, our outstanding debt totaled
$398.0 million, which consisted of fixed-rate debt of $259.8 million and variable-rate debt of
$138.2 million. Based on our 2004 average outstanding borrowings under our variable-rate debt, a
one-percentage point increase in interest rates would negatively impact our annual pre-tax earnings
and cash flows by approximately $0.9 million. A one-percentage point increase in market interest
rates would decrease the fair market value of our fixed-rate debt at January 1, 2005, by
approximately $3.3 million. Changes in the fair value of our fixed rate debt will not have any
impact on us unless we repurchase the debt in the open market. Currency Exchange Rate Sensitivity.We have foreign currency exposures related to buying, selling
and financing in currencies other than our functional currencies. We also have foreign currency
exposure related to foreign denominated revenues and costs translated into U.S. dollars. These
exposures are primarily concentrated in the euro and British pound sterling and to a lesser extent,
the Australian dollar and Japanese yen. We enter into foreign currency forward contracts to manage
the risk associated with doing business in foreign currencies. Our policy is to hedge currency
exposures of firm commitments and anticipated transactions denominated in non-functional currencies
to protect against the possibility of diminished cash flow and adverse impacts on earnings. A
five-percentage point adverse change in the foreign currency spot rates would decrease the fair
market value of our foreign currency forward contracts held at January 1, 2005, by $4.4 million.
Changes in the fair value of our foreign currency forward contracts will not have any impact on our
results of operations unless these contracts are deemed to be ineffective at hedging currency
exposures of anticipated transactions. We generally view our net investments in foreign
subsidiaries that have a functional currency other than the U.S. dollar as long-term. As a result,
we generally do not hedge these net investments. Commodity Price Sensitivity.The availability and price of cotton is subject to wide fluctuations
due to unpredictable factors such as weather conditions, governmental regulations, economic climate
or other unforeseen circumstances. We are purchasing yarn from Frontier Yarns, Frontier Spinning
and other third parties, and our yarn pricing will continue to be directly impacted by the price of
cotton. We did not have any outstanding cotton futures contracts at January 1, 2005. 23




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 Consolidated Balance Sheets
January 1, 2005 and January 3, 2004
(In thousands, except share data) 2004
    
    
    2003ASSETSCurrent assets:Cash
    
    $
    29,816
    
    
    $
    20,116Trade accounts receivable, less allowances of $17,984 in 2004 and $10,284 in 2003
    
    
    212,063
    
    
    
    175,514Inventories
    
    
    411,701
    
    
    
    346,946Prepaid expenses and other current assets
    
    
    17,737
    
    
    
    15,938Income tax receivable
    
    
    6,101
    
    
    
    14,585Total current assets
    
    
    677,418
    
    
    
    573,099Property, plant and equipment, net
    
    
    322,890
    
    
    
    303,234Other assets:Goodwill, net
    
    
    94,710
    
    
    
    37,939Trademarks, net
    
    
    93,130
    
    
    
    41,764Other
    
    
    65,961
    
    
    
    65,074253,801
    
    
    
    144,777$
    1,254,109
    
    
    $
    1,021,110LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    94,642
    
    
    $
    78,368Accrued salaries and fringes
    
    
    33,306
    
    
    
    30,489Accrued expenses
    
    
    62,474
    
    
    
    46,504Deferred income taxes
    
    
    4,054
    
    
    
    5,165Short-term debt
    
    
    18,190
    
    
    
    4,088Current maturities of long-term debt
    
    
    6,938
    
    
    
    5,000Total current liabilities
    
    
    219,604
    
    
    
    169,614Long-term debt, less current maturities
    
    
    372,921
    
    
    
    272,355Deferred liabilities:Income taxes
    
    
    20,286
    
    
    
    6,609Pension and other
    
    
    64,351
    
    
    
    57,66884,637
    
    
    
    64,277Non-controlling interests
    
    
    14,096
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Common stock, par value $.01 per share; authorized 150,000,000 shares; issued 41,419,958 shares
    
    
    414
    
    
    
    414Paid-in capital
    
    
    40,716
    
    
    
    38,625Retained earnings
    
    
    755,799
    
    
    
    713,310Treasury stock (2004  8,654,614 shares and 2003  8,897,075 shares)
    
    
    (201,171
    )
    
    
    (208,038
    )Accumulated other comprehensive loss
    
    
    (32,907
    )
    
    
    (29,447
    )562,851
    
    
    
    514,864$
    1,254,109
    
    
    $
    1,021,110
 See notes to consolidated financial statements. 24




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##### Table of Contents



Consolidated Statements of Income
Years ended January 1, 2005, January 3, 2004 and January 4, 2003
(In thousands, except share and per share data) 2004
    
    
    2003
    
    
    2002Net sales
    
    $
    1,298,252
    
    
    $
    1,186,263
    
    
    $
    1,164,328Cost of goods sold
    
    
    934,372
    
    
    
    842,127
    
    
    
    825,763Gross profit
    
    
    363,880
    
    
    
    344,136
    
    
    
    338,565Selling, general and administrative expenses
    
    
    269,558
    
    
    
    246,477
    
    
    
    235,810Other - net
    
    
    (6,469
    )
    
    
    4,018
    
    
    
    (2,216
    )Operating income
    
    
    100,791
    
    
    
    93,641
    
    
    
    104,971Interest expense, net
    
    
    30,843
    
    
    
    29,663
    
    
    
    30,246Earnings of non-controlling interests
    
    
    2,021
    
    
    
    
    
    
    
    Debt retirement charge  Note 2
    
    
    
    
    
    
    
    
    
    
    20,097Income before income taxes
    
    
    67,927
    
    
    
    63,978
    
    
    
    54,628Provision for income taxes
    
    
    19,991
    
    
    
    20,939
    
    
    
    20,322Net income
    
    $
    47,936
    
    
    $
    43,039
    
    
    $
    34,306Net income per common share:Basic
    
    $
    1.47
    
    
    $
    1.33
    
    
    $
    1.07Diluted
    
    $
    1.46
    
    
    $
    1.32
    
    
    $
    1.06Weighted-average common shares outstanding:Basic
    
    
    32,668,376
    
    
    
    32,376,617
    
    
    
    32,127,579Diluted
    
    
    32,897,559
    
    
    
    32,726,472
    
    
    
    32,269,813
 See notes to consolidated financial statements. 25




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##### Table of Contents



Consolidated Statements of Cash Flows
Years ended January 1, 2005, January 3, 2004 and January 4, 2003
(In thousands) 2004
    
    
    2003
    
    
    2002OPERATING ACTIVITIESNet income
    
    $
    47,936
    
    
    $
    43,039
    
    
    $
    34,306Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    46,627
    
    
    
    44,177
    
    
    
    44,775Amortization
    
    
    1,395
    
    
    
    759
    
    
    
    286Earnings of
non-controlling interests
    
    
    2,021
    
    
    
    
    
    
    
    Debt retirement charge
    
    
    
    
    
    
    
    
    
    
    20,097Other
    
    
    1,453
    
    
    
    6,963
    
    
    
    8,684Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (8,664
    )
    
    
    (17,600
    )
    
    
    12,230Inventories
    
    
    (26,194
    )
    
    
    (19,989
    )
    
    
    56,407Prepaid expenses and other current assets
    
    
    1,164
    
    
    
    (8,243
    )
    
    
    2,110Other assets
    
    
    7,037
    
    
    
    (6,478
    )
    
    
    2,254Accounts payable and accrued expenses
    
    
    6,378
    
    
    
    1,406
    
    
    
    18,871Income taxes
    
    
    8,137
    
    
    
    3,305
    
    
    
    7,414Pension and other deferred liabilities
    
    
    (6,001
    )
    
    
    10,617
    
    
    
    (4,043
    )Net cash provided by operating activities
    
    
    81,289
    
    
    
    57,956
    
    
    
    203,391INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (35,494
    )
    
    
    (38,641
    )
    
    
    (28,343
    )Cash paid for acquisitions, joint ventures and other
    
    
    (158,370
    )
    
    
    (86,691
    )
    
    
    (4,670
    )Proceeds from the sale of property, plant and equipment and other assets
    
    
    13,697
    
    
    
    14,765
    
    
    
    9,450Other
    
    
    1,769
    
    
    
    678
    
    
    
    750Net cash used in investing activities
    
    
    (178,398
    )
    
    
    (109,889
    )
    
    
    (22,813
    )FINANCING ACTIVITIESBorrowings (payments) on credit facility  net
    
    
    91,307
    
    
    
    7,355
    
    
    
    (74,800
    )Borrowings (payments) on short-term debt
    
    
    9,692
    
    
    
    (3,582
    )
    
    
    458Payments on notes payable, including prepayments
    
    
    
    
    
    
    
    
    
    
    (270,371
    )Proceeds from issuance of Senior Notes
    
    
    
    
    
    
    
    
    
    
    250,000Debt issuance and amendment costs paid
    
    
    
    
    
    
    (468
    )
    
    
    (18,910
    )Dividends on common stock
    
    
    (5,216
    )
    
    
    (5,177
    )
    
    
    (5,137
    )Treasury stock re-issued
    
    
    3,839
    
    
    
    5,644
    
    
    
    2,574Cost of common stock for treasury
    
    
    (80
    )
    
    
    (1,457
    )
    
    
    (30
    )Net cash provided by (used in) financing activities
    
    
    99,542
    
    
    
    2,315
    
    
    
    (116,216
    )Effect of exchange rate changes on cash
    
    
    (592
    )
    
    
    1,115
    
    
    
    (1,625
    )Net (decrease) increase in cash
    
    
    1,841
    
    
    
    (48,503
    )
    
    
    62,737Increase in cash from consolidating Frontier Yarns, LLC
    
    
    7,859
    
    
    
    
    
    
    
    Cash balance at beginning of year
    
    
    20,116
    
    
    
    68,619
    
    
    
    5,882Cash balance at end of year
    
    $
    29,816
    
    
    $
    20,116
    
    
    $
    68,619Supplemental disclosure of cash flow information:Interest paid
    
    $
    28,168
    
    
    $
    27,124
    
    
    $
    28,054Income taxes paid, net of refunds
    
    
    13,814
    
    
    
    16,983
    
    
    
    6,547
 See notes to consolidated financial statements. 26




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##### Table of Contents



Consolidated Statements of Stockholders Equity
Years ended January 1, 2005, January 3, 2004 and January 4, 2003
(In thousands, except share data) AccumulatedOtherCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    TotalBalance at December 29, 2001
    
    $
    414
    
    
    $
    45,392
    
    
    $
    646,279
    
    
    $
    (223,172
    )
    
    $
    (14,682
    )
    
    $
    454,231Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    34,306
    
    
    
    
    
    
    
    
    
    
    
    34,306Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (997
    )
    
    
    (997
    )Losses on derivatives reclassified to earnings, net of tax of $797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,346
    
    
    
    1,346Change in unrealized value of derivatives, net of tax of $696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,175
    )
    
    
    (1,175
    )Minimum pension liability, net of tax of $10,583
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,865
    )
    
    
    (17,865
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,615Treasury stock acquired (2,763 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )Treasury stock re-issued (180,680 shares)
    
    
    
    
    
    
    (2,515
    )
    
    
    
    
    
    
    5,089
    
    
    
    
    
    
    
    2,574Cash dividends ($0.16 per share)
    
    
    
    
    
    
    
    
    
    
    (5,137
    )
    
    
    
    
    
    
    
    
    
    
    (5,137
    )Balance at January 4, 2003
    
    
    414
    
    
    
    42,877
    
    
    
    675,448
    
    
    
    (218,113
    )
    
    
    (33,373
    )
    
    
    467,253Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    43,039
    
    
    
    
    
    
    
    
    
    
    
    43,039Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,712
    
    
    
    5,712Losses on derivatives reclassified to earnings, net of tax of $1,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,796
    
    
    
    2,796Change in unrealized value of derivatives, net of tax of $2,808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,580
    )
    
    
    (4,580
    )Minimum pension liability, net of tax of $383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,965Treasury stock acquired (73,618 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,457
    )
    
    
    
    
    
    
    (1,457
    )Treasury stock re-issued (410,088 shares)
    
    
    
    
    
    
    (4,785
    )
    
    
    
    
    
    
    11,532
    
    
    
    
    
    
    
    6,747Cash dividends ($0.16 per share)
    
    
    
    
    
    
    
    
    
    
    (5,177
    )
    
    
    
    
    
    
    
    
    
    
    (5,177
    )Compensation
expense related to stock awards
    
    
    
    
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    533Balance at January 3, 2004
    
    
    414
    
    
    
    38,625
    
    
    
    713,310
    
    
    
    (208,038
    )
    
    
    (29,447
    )
    
    
    514,864Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    47,936
    
    
    
    
    
    
    
    
    
    
    
    47,936Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,119
    
    
    
    2,119Losses on derivatives reclassified to earnings, net of tax of $1,690
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,759
    
    
    
    2,759Change in unrealized value of derivatives, net of tax of $1,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,609
    )
    
    
    (2,609
    )Minimum pension liability, net of tax of $3,510
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,729
    )
    
    
    (5,729
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,476Treasury stock acquired (4,433 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    
    
    
    
    (80
    )Treasury stock re-issued (246,894 shares)
    
    
    
    
    
    
    (3,357
    )
    
    
    
    
    
    
    6,947
    
    
    
    
    
    
    
    3,590Cash dividends ($0.16 per share)
    
    
    
    
    
    
    
    
    
    
    (5,216
    )
    
    
    
    
    
    
    
    
    
    
    (5,216
    )Compensation
expense related to stock awards
    
    
    
    
    
    
    5,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,195Other
    
    
    
    
    
    
    253
    
    
    
    (231
    )
    
    
    
    
    
    
    
    
    
    
    22Balance at January 1, 2005
    
    $
    414
    
    
    $
    40,716
    
    
    $
    755,799
    
    
    $
    (201,171
    )
    
    $
    (32,907
    )
    
    $
    562,851
 See notes to consolidated financial statements. 27




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##### Table of Contents



Notes to Consolidated Financial Statements Note 1: Description of Business and Significant Accounting Policies We are an authentic athletic and sporting goods company with over a century of success. Our brands
include: Russell Athletic®, Jerzees®, Spalding®, Brooks®, American Athletic®, Huffy Sports®, Mossy
Oak®, Cross Creek®, Moving Comfort®, Bike®, Dudley®, Discus®,and Sherrin®. We design, market and manufacture or source a variety of apparel products including fleece,
t-shirts, casual shirts, jackets, athletic shorts, socks and camouflage attire for men, women,
boys, and girls. We supply team uniforms and related apparel to college, high school and organized
sports teams. We are the official uniform supplier to the U.S. Olympic baseball team and Little
League Baseball and an official uniform supplier to Minor League Baseball. The Russell name has
been associated with high quality apparel for over 100 years and with team uniforms since 1932. With our 2003 acquisition of the brand and related assets of Bike Athletic Company, we now also
market and source athletic supporters, knee and elbow pads, braces and protective equipment.
Furthermore, with the acquisition of the brands, contracts and related assets of the sporting goods
business of Spalding Sports Worldwide, Inc. in 2003, we now sell basketballs, footballs, soccer
balls, and volleyballs. Spalding is the official basketball supplier for the NBA and the WNBA; the
official football for the Arena Football League; the official soccer ball of the Major Indoor
Soccer League; and the official volleyball for the NCAA and American Volleyball Association. In 2004, we made three strategic acquisitions to further advance our position in the sports
equipment business. In June, we acquired American Athletic, Inc. (AAI). Founded in 1954, AAI
manufactures a variety of products including basketball and volleyball equipment, athletic mats and
gymnastics apparatus under a variety of brands, including American
Athletic and BPI. AAI markets
these products to high schools, universities, professional teams, and athletic clubs globally. In July, we acquired Huffy Sports from Huffy Corporation further expanding our basketball
backboard, backboard systems and accessories business. Huffy Sports sells basketball equipment,
including backboards and inflatable balls under the Huffy Sports®, Sure Shot®,and Hydra Rib®
brands. In December, we entered the athletic footwear business with the acquisition of Brooks Sports.
Brooks is a provider of performance footwear, apparel and accessories to running enthusiasts
worldwide. Brooks products are sold predominately through specialty running stores and other
retail outlets specializing in high quality, performance running products. Revenue Recognition.We recognize revenues, net of estimated sales returns, discounts and
allowances, when goods are shipped, title has passed, the sales price is fixed and collectibility
is reasonably assured. Substantially all of our sales reflect FOB shipping point terms. Trade Accounts Receivable.Trade accounts receivable consists of amounts due from our normal
business activities. We maintain an allowance for doubtful accounts to reflect expected credit
losses. We provide for bad debts based on collection history and specific risks identified on a
customer-by-customer basis. A considerable amount of judgment is required to assess the ultimate
realization of accounts receivable and the credit-worthiness of each customer. Furthermore, these
judgments must be continuously evaluated and updated. Uncollected accounts are written off through
the allowance for doubtful accounts. Finance charges on past due receivables are recognized on a
cash basis. Promotional Programs.We offer various types of promotional programs to our customers, including
the following: Cooperative Advertising.Under cooperative advertising arrangements, we agree to reimburse our
customer for all, or a portion, of the costs incurred by the customer to advertise and promote our
products. Cooperative advertising costs are charged to selling, general and administrative expense
in the year incurred. Growth Incentive Rebates.We offer rebates to customers in certain distribution channels. Under
incentive programs of this nature, we estimate the anticipated rebate to be paid and allocate a
portion of the estimated costs of the rebate to each underlying sales transaction. These rebates
are recorded as a reduction of net sales. Seasonal Markdowns, Discounts and Allowances.The cost of these incentives is recognized when the
related sale is recorded or, for retroactive credits, on the date the incentive is offered. The
cost of these incentives is recorded as a reduction of net sales. Shipping and Handling Costs.Shipping and handling revenues and costs are included as a component
of net sales and cost of goods sold, respectively. 28




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##### Table of Contents



Cost of Goods Sold and Selling, General and Administrative Expenses.The significant components of
the line item Cost of goods sold are raw materials (including inbound freight and handling
costs), energy expenses, production and supervisory labor, internal transfer costs, depreciation,
and other indirect costs associated with the manufacturing and procurement processes. The
significant components of the line item Selling, general and administrative expenses are costs
for warehousing and distribution of finished goods, marketing, advertising, selling expenses
(including payroll and related payroll benefits for sales persons), royalties and other corporate
general and administrative expenses. Principles of Consolidation.The consolidated financial statements include the accounts of Russell
Corporation,  all of our majority-owned subsidiaries, and any
variable interest entities in which we are deemed to be the primary
beneficiary, after the elimination of intercompany
accounts and transactions. In 2004, we adopted Financial Interpretation No. 46, Consolidation of Variable Interest Entities,
(FIN 46) which addresses whether business enterprises must consolidate the financial statements
of entities known as variable interest entities. In accordance with FIN 46, we began
consolidating Frontier Yarns on April 4, 2004. At January 1, 2005, the consolidation of Frontier
Yarns increased our total assets by $24.8 million, total liabilities by $10.8 million and
non-controlling interests by $14.0 million. The consolidation of Frontier Yarns did not have a
significant impact on our results of operations for 2004. Use of Estimates.The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could materially differ from those estimates. Inventories.Inventories of finished goods, work-in-process and raw materials are carried at the
lower of cost or market, with cost for the majority of our inventories determined under the
Last-In, First-Out (LIFO) method. Certain inventories are carried under the First-In, First-Out
(FIFO) method, or the average cost method, and were valued at approximately $158.6 million in 2004
and $64.1 million in 2003. Inventories are summarized as follows: (In thousands)
    
    2004
    
    
    2003Finished goods
    
    $
    340,487
    
    
    $
    292,335Work-in-process
    
    
    53,598
    
    
    
    45,318Raw materials and supplies
    
    
    25,711
    
    
    
    15,068419,796
    
    
    
    352,721LIFO and lower-of-cost or market adjustments, net
    
    
    (8,095
    )
    
    
    (5,775
    )$
    411,701
    
    
    $
    346,946
 In 2002, our pre-tax income was unfavorably impacted by  $6.0 million,
 due to the liquidation of LIFO inventory quantities carried at higher costs
prevailing in prior years as compared with the current manufacturing
costs. There was no significant impact on pre-tax income from the liquidation of LIFO inventory quantities
in 2003 and 2004. Property, Plant and Equipment.Property, plant and equipment are stated at cost, net of accumulated
depreciation and impairment write-downs. The provision for depreciation of property, plant and
equipment has been computed generally on the straight-line method based upon their estimated useful
lives. Initial estimated useful lives range from 15 to 40 years for buildings and land improvements
and from 3 to 15 years for machinery and equipment. When events and circumstances indicate that the
useful lives or salvage values may have changed, we adjust the related useful life and record
depreciation over the shortened useful life after giving consideration to the revised salvage
values. Property, plant and equipment, net are summarized as follows: (In thousands)
    
    2004
    
    
    2003Land and improvements
    
    $
    17,551
    
    
    $
    17,403Buildings and improvements
    
    
    253,170
    
    
    
    253,982Machinery and equipment
    
    
    577,155
    
    
    
    580,734Construction-in-progress
    
    
    25,256
    
    
    
    6,565873,132
    
    
    
    858,684Less accumulated depreciation
    
    
    (550,242
    )
    
    
    (555,450
    )$
    322,890
    
    
    $
    303,234
 At January 1, 2005, we held for sale three idled properties and certain equipment with an adjusted
carrying value of approximately $2.0 million, which have been included in property, plant and
equipment as part of the Domestic segment. 29




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##### Table of Contents



Goodwill and Other Intangibles.On December 30, 2001, we adopted FASB Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which eliminates
amortization of goodwill and requires an annual impairment test. SFAS No. 142 requires that
impairment be tested at the reporting unit level, using a two-step approach. The first step
determines if goodwill is impaired by comparing the fair value of the reporting unit as a whole to
the book value. If a deficiency exists, the second step measures the amount of the impairment loss
as the difference between the implied fair value of goodwill and its carrying value. Purchased
intangibles with indefinite economic lives are tested for impairment annually using a lower of cost
or fair value approach. Other intangibles continue to be amortized over their estimated useful
lives, ranging from 2.4 to 40 years, and reviewed for impairment when indicators exist. We have completed the annual impairment tests of goodwill and other intangible assets as required
by SFAS No. 142 and concluded that our goodwill and indefinite-lived intangible assets were not
impaired. Debt Issuance Costs.Debt issuance costs are deferred and amortized over the terms of the debt to
which they relate using the straight-line method. Investments (Trading Portfolio).We hold a portfolio of marketable debt and equity securities in
various trusts and segregated accounts in connection with employee benefit and deferred
compensation plans. We mark these securities to market, using quoted market prices, through income.
Realized and unrealized gains and losses on our trading portfolio have not been significant in any
of the last three years. Investments In and Advances to Unconsolidated Entities.Investments in companies in which we have
the ability to influence the operations are accounted for by the equity method. Investments in
companies in which we cannot exert such influence are accounted for at cost. Long-Lived Assets.On December 30, 2001, we adopted the provisions of SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets,which superseded SFAS No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed of.Similar to the
provisions of SFAS No. 121, SFAS No. 144 requires that when events and circumstances indicate that
assets may be impaired, and the undiscounted cash flows estimated to be generated from those assets
are less than their carrying values, we record an impairment loss equal to the excess of the
carrying value over fair value. Income Taxes.We account for income taxes under the provisions of SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based upon
differences between the financial reporting and tax bases of assets and liabilities and are
measured at the enacted tax rates that will be in effect when the taxes are expected to be paid. Advertising, Marketing and Promotions Expense.The cost of advertising, marketing and promotions is
expensed as incurred. We incurred approximately $48.6 million, $48.0 million, and $36.0 million in
such costs during 2004, 2003 and 2002, respectively. Stock-Based Compensation.We issue awards under incentive compensation plans as described in Note
7. On January 5, 2003, we adopted the prospective transition provisions of SFAS No. 123, Accounting
and Disclosure of Stock-Based Compensation,as amended by SFAS No. 148. By electing the prospective
transition method of SFAS No. 148, our results of operations and our financial position are not
affected by stock compensation awards granted prior to January 5, 2003. We recognized approximately
$5.2 million ($3.6 million after-tax) and $0.6 million ($0.4 million after-tax) of stock-based
employee compensation in 2004 and 2003, respectively. For stock compensation awards granted prior
to January 5, 2003, we used the intrinsic value approach under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. The table below presents a comparison of reported
results versus proforma results that assumes the fair value based method of accounting had been
applied to all stock compensation awards granted. For the purposes of this disclosure, we estimated
the fair value of employee stock options at the date of grant using the Black-Scholes option
valuation model. The fair values derived for options granted during fiscal years 2004, 2003 and 2002 and key
assumptions used to determine these values were as follows: 2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    1.25
    %
    
    
    1.25
    %
    
    
    4.50
    %Dividend yield
    
    
    1.00
    %
    
    
    1.00
    %
    
    
    1.00
    %Volatility factor
    
    
    .361
    
    
    
    .361
    
    
    
    .361Weighted-average expected life of options
    

    2.0 years
    
    
    2.0 years
    
    
    7.4 yearsEstimated fair value per option
    
    $
    3.88
    
    
    $
    3.88
    
    
    $
    6.98
 30




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##### Table of Contents



For purposes of calculating the pro forma disclosures below, the estimated fair value of the
options is amortized to expense over the options vesting period. (In thousands, except per share data)
    
    2004
    
    
    2003
    
    
    2002Reported net income
    
    $
    47,936
    
    
    $
    43,039
    
    
    $
    34,306Stock-based employee compensation, net of tax, assuming SFAS No. 148 was applied
    
    
    (268
    )
    
    
    (1,171
    )
    
    
    (2,542
    )Pro forma net income
    
    $
    47,668
    
    
    $
    41,868
    
    
    $
    31,764Reported net income per share  basic
    
    $
    1.47
    
    
    $
    1.33
    
    
    $
    1.07Pro forma net income per share  basic
    
    $
    1.46
    
    
    $
    1.29
    
    
    $
    0.99Reported net income per share  diluted
    
    $
    1.46
    
    
    $
    1.32
    
    
    $
    1.06Pro forma net income per share  diluted
    
    $
    1.45
    
    
    $
    1.28
    
    
    $
    0.99
 Concentrations of Credit Risk and Financial Instruments.Except for Wal-Mart, we do not have
significant concentrations of credit risk. Our trade accounts receivable are comprised of balances
due from a large number of diverse customers. We believe that risk of loss associated with our
trade accounts receivable is adequately provided for in the allowance for doubtful accounts. Wal-Mart represented 13.7% and 16.5% of our net accounts receivable at January 1, 2005 and January
3, 2004, respectively. Accounting for Derivatives.We are exposed to market risks relating to fluctuations in interest
rates, currency exchange rates and commodity prices. Our financial risk management objectives are
to minimize the potential impact of interest rate, foreign exchange rate and commodity price
fluctuations on our earnings, cash flows and equity. To manage these risks, we may use, from time
to time, various derivative instruments, including interest rate swap agreements, commodity futures
contracts and forward currency exchange contracts. We account for derivatives under the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. On the date we enter into a derivative contract, we designate
derivatives as either a hedge of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), or a hedge of a forecasted transaction, or of the variability of cash flows to
be received or paid related to a recognized asset or liability (cash flow hedge). For fair value hedges, both the effective and ineffective portion of the changes in the fair value
of the derivative, along with the gain or loss on the hedged item that is attributable to the
hedged risk, are recorded in earnings. The effective portion of changes in fair value of a
derivative that is designated as a cash flow hedge is recorded in accumulated other comprehensive
income or loss. When the hedged item is realized, the gain or loss included in accumulated other
comprehensive income or loss is relieved. Any ineffective portion of the changes in the fair values
of derivatives used as cash flow hedges are reported in the consolidated statements of operations. We document hedge relationships, including identification of the hedging instruments and the hedged
items, as well as our risk management objectives and strategies for undertaking the hedge
transaction, at the inception of each hedge transaction. Derivatives are recorded in the
consolidated balance sheet at fair value. We formally assess, both at inception and at least
quarterly thereafter, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in either the fair values or cash flows of the hedged item. Earnings Per Common Share.We report earnings per common share in accordance with SFAS No. 128,
Earnings Per Share. Basic earnings per common share is computed using the weighted-average number
of common shares outstanding during the period without consideration of common stock equivalents.
Diluted earnings per common share is computed using the weighted-average number of common shares
outstanding plus common stock equivalents (employee stock options, restricted stock grants and
other performance awards) unless such common stock equivalents are anti-dilutive. (See Note 10). Fiscal Year.Our fiscal year ends on the Saturday nearest to January 1, which periodically results
in a fiscal year of 53 weeks. Fiscal years 2004 and 2003 ended on January 1, 2005 and January 3,
2004, respectively, and each contained 52 weeks. Fiscal year 2002 ended on January 4, 2003 and
contained 53 weeks. New Accounting Pronouncements.On December 16, 2004, the FASB issued Statement No. 123 (revised
2004), Share-Based Payment, (Statement 123 (R)), which is a revision of SFAS No. 123. Statement
123(R) supersedes APB No. 25 and amends FASB Statement No. 95, Statement of Cash Flows. Statement
123 (R) also supersedes SFAS No. 148, which we adopted on January 5, 2003. The approach in
Statement 123(R) is similar to the approach described in SFAS No. 123. However, Statement 123(R)
requiresall share-based payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Pro forma disclosure is no longer an
alternative. In addition, Statement 123(R) will require us to record stock compensation expense as
stock compensation awards granted prior to January 5, 2003 vest, which is a change from our current
accounting treatment under SFAS No. 148. Currently, we use the Black-Scholes formula to estimate
the value of stock options granted 31




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##### Table of Contents



to employees and expect to continue to use this acceptable option valuation model under Statement
123(R). Statement 123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after the effective date. We expect to adopt Statement
123(R) on July 4, 2005, and we do not believe this new standard will have a material impact on our
results of operations or financial position. Foreign Currencies.Assets and liabilities recorded in foreign currencies on the books of foreign
subsidiaries are translated at the exchange rate in effect on the balance sheet date. Revenues,
costs and expenses are translated at average rates of exchange prevailing during the year.
Translation adjustments resulting from this process are charged or credited to accumulated other
comprehensive income or loss. The cumulative translation adjustments included in accumulated other
comprehensive loss in the consolidated balance sheets were $5.8 million and $7.9 million at January
1, 2005 and January 3, 2004, respectively. Transaction gains or losses result from a change in
exchange rates between the functional currency of our foreign subsidiaries and other currencies in
which they conduct their business. Transaction gains and losses are included in other-net for the
period in which the exchange rate changes. Pension Benefits.We account for defined benefit pension plans in accordance with SFAS No. 87,
Employers Accounting for Pensions, which requires us to recognize pension costs and liabilities
based on actuarial evaluations. Inherent in these valuations are key assumptions including the
discount rate at which the pension obligations could be effectively settled, the anticipated rate
of future salary increases, and the assumed long-term rate of return on plan assets. In determining
the discount rate, we consider current yields on high-quality fixed-income investments. The salary
increase assumption is based upon historical experience and anticipated future management actions.
The assumed long-term rate of return on plan assets is based upon the historical rate of return on
the invested funds of the pension plan and projected future market returns. Reclassifications.Certain prior year amounts have been reclassified to conform to the fiscal 2004
presentation. These changes had no impact on previously reported results of operations or
stockholders equity. Note 2: Long-Term Debt Long-term debt includes the following: (In thousands)
    
    2004
    
    
    2003Senior secured credit facilities (due April 2007):$300 million revolving credit facility
    
    $
    110,056
    
    
    $
    12,355Term Loan
    
    
    10,000
    
    
    
    15,000Senior Notes 9.25% (due 2010)
    
    
    250,000
    
    
    
    250,000Frontier Yarns notes payable with annual payments of
$1.1 million due in monthly installments through July
2009; payments include interest at 7.00%;
collateralized by equipment
    
    
    4,243
    
    
    
    Frontier Yarns capital lease obligation with annual
payments of $1.5 million due in various monthly and
quarterly installments through June 2009; payments
include interest at 7.04%; collateralized by equipment
    
    
    5,534
    
    
    
    Other capital lease obligations
    
    
    26
    
    
    
    379,859
    
    
    
    277,355Less current maturities
    
    
    (6,938
    )
    
    
    (5,000
    )$
    372,921
    
    
    $
    272,355
 On April 18, 2002, we issued $250 million in principal amount of 9.25% Senior Notes (the Senior
Notes) that will mature in 2010. We sold these notes for 100% of their face amount. The Senior
Notes were issued pursuant to an Indenture, dated as of April 18, 2002, between Wachovia Bank, N.A.
and us and are fully and unconditionally guaranteed, jointly and severally, by most of our domestic
subsidiaries. The Senior Notes (1) have interest payment dates of May 1 and November 1 of each
year; (2) are redeemable after the dates and at the prices (expressed in percentages of principal
amount on the redemption date) as set forth below: Year
    
    PercentageMay 1, 2006
    
    
    104.6250
    %May 1, 2007
    
    
    102.3125
    %May 1, 2008 and thereafter
    
    
    100.0000
    %
 and (3) are senior unsecured obligations and are senior in right of payment to any of our future
subordinated obligations. 32




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##### Table of Contents



On April 18, 2002, we also entered into new senior secured credit facilities (the Facilities)
concurrently with the closing of the Senior Notes offering. The new Facilities provide for a $300
million senior secured revolving credit facility (the Revolver) which is dependent on the levels
of our eligible accounts receivable and inventory and a $25 million senior secured term loan (the
Term Loan). The Revolver matures on April 18, 2007, while the Term Loan will be paid in full by
December 31, 2006. The Facilities provide for variable interest that, beginning in fiscal 2003, is
adjusted quarterly based on our consolidated fixed coverage ratio and ranges from LIBOR plus 1.50%
to LIBOR plus 2.75% or Fleet National Banks Base Rate to the Base Rate plus 1.25% for the
Revolver, and LIBOR plus 2.00% to LIBOR plus 3.25% or Fleet National Banks Base Rate plus 0.50% to
Base Rate plus 1.75% for the Term Loan. For the majority of 2004, variable interest on the Revolver
was either LIBOR plus 2.00% (4.52% at January 1, 2005), or Base Rate plus 0.50% (5.75% at January
1, 2005), and on the Term Loan was either LIBOR plus 2.50% (5.02% at January 1, 2005), or Base Rate
plus 1.00% (6.25% at January 1, 2005), with an annual commitment fee on the unused portion of the
Facilities of 0.375%. For the majority of 2003, our rate on the Revolver was LIBOR plus 1.75%
(2.8425% at January 3, 2004) or Base Rate plus 0.25% (4.25% at January 3, 2004) and on the Term
Loan was LIBOR plus 2.25% (3.3425% at January 3, 2004) or Base Rate plus 0.75% (4.75% at January 3,
2004). We may choose LIBOR or base rate pricing and may elect interest periods of one, two, three or six
months for LIBOR borrowings (except that all swing line loans managed by the Administrative Agent
under the Revolver will have base rate pricing or LIBOR pricing plus a 0.375% premium over the
current revolver spread). The Term Loan has a scheduled 5-year amortization period with payments of
$2.5 million each September 30 and December 31 until maturity, beginning on September 30, 2002. We used the proceeds from the offering of the Senior Notes, together with $132.4 million of the
initial borrowings under our new Facilities, to pay fees and expenses associated with the new
Facilities and the Senior Notes and to repay the outstanding debt balances, prepayment penalties,
fees, and expenses related to our old debt. During the second quarter of fiscal 2002, we recognized a charge of approximately $20.1 million
($12.6 million after-tax) associated with the termination of our then existing revolving credit
facility and the early retirement of other long-term indebtedness. The charge consisted of $15.0
million related to prepayment penalties, fees and expenses associated with the early termination of
our existing notes payable and the write-off of $5.1 million of previously capitalized loan costs
associated with the extinguished debt. This charge was properly classified net of tax as an
extraordinary item in the 2002 Annual Report; however, in accordance with SFAS No. 145, Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,
we reclassified the charge to income from continuing operations. The Facilities and the indenture governing the Senior Notes impose certain restrictions on us,
including restrictions on our ability to: incur debts; grant liens; provide guarantees in respect
of obligations of any other person; pay dividends; make loans and investments; sell our assets;
issue redeemable preferred stock and non-guarantor subsidiary preferred stock; make redemptions and
repurchases of capital stock; make capital expenditures; prepay, redeem or repurchase debt; engage
in mergers or consolidation; engage in sale/leaseback transactions and affiliate transactions;
change our business; amend certain debt and other material agreements, including the indenture
governing the Senior Notes and other documents governing any subordinated debt that we may issue in
the future; issue and sell capital stock of subsidiaries; and restrict distributions from
subsidiaries. The new Facilities require us to achieve fixed charge coverage ratios of: 1.15 to 1.0
through the next to last day of fiscal year 2003; 1.2 to 1.0 through the next to last day of fiscal
year 2004; and 1.25 to 1.0 thereafter. We also must maintain a maximum leverage ratio of: 3.75 to
1.0 through the next to last day of fiscal year 2003; and 3.5 to 1.0 thereafter. We were in
compliance with these covenants at the end of fiscal year 2004. On March 11, 2003, we amended the Facilities to, among other things, (1) lessen some of the
restrictions on our ability to make acquisitions, (2) permit us to make additional investments and
guarantees, and (3) allow us to repurchase a portion of our Senior Notes and capital stock, subject
to annual limitations. As of January 1, 2005, we had $120.1 million in outstanding borrowings ($110.1 million under the
Revolver and $10.0 million under the Term Loan) and $11.5 million in outstanding letters of credit
under the Facilities. As of January 1, 2005, we could have
borrowed approximately $143.4 million of
additional funds under our Revolver. Aggregate maturities of
long-term debt, other than obligations under capital lease
obligations, at January 1, 2005 are as follows: (In thousands)2005
    
    $
    5,8312006
    
    
    5,8912007
    
    
    111,0122008
    
    
    1,0252009
    
    
    540Thereafter (2010)
    
    
    250,000$
    374,299
 33




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Future minimum lease payments under capital leases are as follows: (In thousands)2005
    
    $
    1,4612006
    
    
    1,4832007
    
    
    1,4672008
    
    
    1,4632009
    
    
    609Total future minimum lease payments
    
    
    6,483Less amount representing interest
    
    
    (923
    )Present value of future minimum lease payments
    
    
    5,560Less current portion
    
    
    (1,107
    )$
    4,453
 Amortization expense of equipment acquired under capital leases is included in depreciation
expense. Note 3: Short-Term Debt As of January 1, 2005 and January 3, 2004, we had a line of credit agreement with the Bank of
Scotland with outstanding borrowings of $14.0 million and $4.1 million, respectively. At January 1,
2005, we had availability under this line of credit of approximately $2.5 million. The
weighted-average interest rate on the line of credit was 4.5%, 5.7% and 5.9% for 2004, 2003 and
2002, respectively. In addition, we had $4.2 million outstanding under Frontier Yarns line of credit that is
collateralized by a portion of its accounts receivable. The interest rate associated with the line
of credit is prime minus 50 basis points, which resulted in a 3.9%
weighted-average interest rate for 2004. Note 4: Derivative and Other Financial Instruments We earn revenues and incur expenses in various parts of the world and, as a result, we are exposed
to movement in foreign currency exchange rates. As of January 1, 2005, we have foreign exchange
forward contracts expiring through the end of fiscal 2005 that are intended to reduce the effect of
fluctuating foreign currencies on anticipated purchases of inventory and sales of goods denominated
in currencies other than the functional currencies of our international subsidiaries. Gains and
losses on the derivatives are intended to offset gains and losses on the hedged transactions in an
effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange
rates. The foreign exchange forward contracts are primarily accounted for as cash flow hedges. The
principal currencies hedged include the U.S. dollar, European euro, and British pound sterling.
During 2004, 2003 and 2002, the change in fair value of the forward contracts increased accrued
expenses and accumulated other comprehensive loss by $4.2 million ($2.6 million net of taxes), $7.4
million ($4.6 million net of taxes) and $2.5 million ($1.6 million net of taxes), respectively. In
addition, realized losses reclassified to other-net in the consolidated statements of income
amounted to $4.4 million ($2.8 million net of taxes), $4.5 million ($2.8 million net of taxes) and
$0.6 million ($0.4 million net of taxes), respectively. At January 1, 2005 and January 3, 2004,
accumulated other comprehensive loss included $4.5 million ($2.8 million net of taxes) and $4.7
million ($3.0 million net of taxes), respectively, related to foreign currency cash flow hedges. Other Financial Instruments.At January 1, 2005 and January 3, 2004, the carrying value of
financial instruments such as cash, trade accounts receivable and payables approximated their fair
values, based on the short-term maturities of these instruments. The fair value of long-term debt
is estimated using discounted cash flow analyses, based upon our incremental borrowing rates for
similar types of borrowing arrangements. The following table summarizes fair value information for derivative and other financial
instruments: 2004
    
    
    2003ASSET (LIABILITY)
    
    
    
    
    
    Fair
    
    
    
    
    
    
    Fair(In thousands)
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value
    
    
    ValueShort-term debt
    
    $
    (18,190
    )
    
    $
    (18,190
    )
    
    $
    (4,088
    )
    
    $
    (4,088
    )Long-term debt (including current portion)
    
    
    (379,859
    )
    
    
    (395,085
    )
    
    
    (277,355
    )
    
    
    (292,481
    )Forward currency exchange contracts
    
    
    (4,513
    )
    
    
    (4,513
    )
    
    
    (4,743
    )
    
    
    (4,743
    )Investments (trading portfolio)
    
    
    10,531
    
    
    
    10,531
    
    
    
    9,092
    
    
    
    9,092
 34




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Note 5: Employee Retirement Benefits We have two qualified, noncontributory, defined benefit pension plans that cover substantially all
of our United States employees and unfunded plans that provide retirement benefits in excess of
qualified plan formulas or regulatory limitations for certain employees (Retirement Plans).
Benefits for the Retirement Plans are generally based upon years of service and the employees
highest consecutive five years of compensation during the last ten years of employment. One of our
qualified plans provides benefit payments of stated amounts for each year of credited service. We fund the qualified plans by contributing annually the minimum amount required by the Employee
Retirement Income Security Act. Additional contributions are sometimes needed to comply with
funding requirements in our principal debt agreement. We expect to contribute approximately $4.0
million to the Retirement Plans in fiscal 2005. Our investment strategy for the Retirement Plans is to maximize the long-term rate of return on
plan assets within an acceptable level of risk. The investment policy establishes a target
allocation for each asset class, and the asset classes are periodically rebalanced. Target
allocations are 65% equity investments and 35% fixed income investments, but there are allowable
ranges. The percentage of fair value of total plan assets by asset category as of the measurement date
(which is January 1 each year) is as follows: 2004
    
    
    2003ASSET CATEGORYEquity funds
    
    
    75.1
    %
    
    
    65.7
    %Fixed income funds
    
    
    24.5
    %
    
    
    34.3
    %Cash and cash equivalents
    
    
    0.4
    %
    
    
    
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Plan assets at January 1, 2005 and January 3, 2004, include 600,960 shares of the Companys common
stock having a market value of $11.7 million and $10.6 million, respectively. Dividends paid to the
plan by the Company were $0.1 million in 2004, 2003 and 2002. 35




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The following table sets forth changes in the benefit obligation, plan assets and funded status: (In thousands)
    
    2004
    
    
    2003CHANGE IN BENEFIT OBLIGATIONBenefit obligation at beginning of year
    
    $
    170,737
    
    
    $
    157,643Service cost
    
    
    4,936
    
    
    
    5,045Interest cost
    
    
    10,933
    
    
    
    10,493Actuarial loss
    
    
    13,104
    
    
    
    7,297Benefits paid
    
    
    (9,499
    )
    
    
    (9,763
    )Acquisitions
    
    
    2,235
    
    
    
    Plan amendments
    
    
    
    
    
    
    22Benefit obligation at end of year
    
    $
    192,446
    
    
    $
    170,737
 The accumulated benefit obligation for the Retirement Plans was $179.0 million and $157.6 million
at January 1, 2005 and January 3, 2004, respectively. (In thousands)
    
    2004
    
    
    2003CHANGE IN PLAN ASSETSFair value of plan assets at beginning of year
    
    $
    112,943
    
    
    $
    94,748Actual return on plan assets
    
    
    12,749
    
    
    
    20,673Company contributions
    
    
    10,412
    
    
    
    7,285Acquisitions
    
    
    1,344
    
    
    
    Benefits paid
    
    
    (9,499
    )
    
    
    (9,763
    )Fair value of plan assets at end of year
    
    $
    127,949
    
    
    $
    112,943
 (In thousands)
    
    2004
    
    
    2003RECONCILIATION OF FUNDED STATUS TO ACCRUED BENEFIT COSTUnfunded status of the plan
    
    $
    (64,497
    )
    
    $
    (57,794
    )Unrecognized prior service cost
    
    
    874
    
    
    
    1,105Unrecognized net actuarial loss
    
    
    52,348
    
    
    
    42,492Unrecognized transition asset
    
    
    
    
    
    
    (308
    )Accrued benefit cost
    
    $
    (11,275
    )
    
    $
    (14,505
    )
 (In thousands)
    
    2004
    
    
    2003AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETSAccrued benefit cost
    
    $
    (11,275
    )
    
    $
    (14,505
    )Additional minimum liability
    
    
    (39,831
    )
    
    
    (30,544
    )Intangible asset
    
    
    596
    
    
    
    548Accumulated other comprehensive loss (pre-tax)
    
    
    39,235
    
    
    
    29,996Net amount recognized
    
    $
    (11,275
    )
    
    $
    (14,505
    )
 Amortization of unrecognized prior service cost is recorded using the straight-line method over the
average remaining service period of active employees. Amortization of actuarial losses are recorded
using the minimum amortization required by the corridor approach. The corridor approach requires
that the net actuarial loss in excess of 10 percent of the greater of the projected benefit
obligation or the market-related value of the assets be amortized using the straight-line method
over the average remaining service period of the active employees. The after-tax minimum pension liability included in accumulated other comprehensive loss was $24.3
million and $18.6 million at January 1, 2005 and January 3, 2004, respectively. A summary of the components of net periodic pension cost is as follows: (In thousands)
    
    2004
    
    
    2003
    
    
    2002COMPONENTS OF NET PERIODIC BENEFIT COSTService cost
    
    $
    4,936
    
    
    $
    5,045
    
    
    $
    3,999Interest cost
    
    
    10,933
    
    
    
    10,493
    
    
    
    10,408Expected return on plan assets
    
    
    (10,912
    )
    
    
    (11,005
    )
    
    
    (12,351
    )Net amortization and deferral
    
    
    1,334
    
    
    
    (452
    )
    
    
    (449
    )Net periodic pension cost
    
    $
    6,291
    
    
    $
    4,081
    
    
    $
    1,607
 36




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The weighted average assumptions used to compute pension amounts were as follows: 2004
    
    
    2003Discount rate
    
    
    5.90
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %
 The expected return on plan assets is based upon the historical rate of return on the invested
funds of the plans and projected future market returns. The following table shows the expected benefit payments to be made from the Retirement Plans as of
January 1, 2005 (in thousands): BenefitFiscal Years
    
    Payments2005
    
    $
    9,0642006
    
    
    8,9522007
    
    
    9,0802008
    
    
    9,6492009
    
    
    10,410Five years thereafter
    
    
    58,534
 In addition to our Retirement Plans, we have five savings plan that are qualified under Section
401(k) of the Internal Revenue Code and a non-qualified plan (Savings Plans). Our Savings Plans
allow substantially all United States employees to defer portions of their annual compensation and
to participate in Company matching and discretionary contributions. Compensation expense associated
with these plans was $1.0 million in 2004, $0.9 million in 2003 and $0.8 million in 2002. Note 6: Income Taxes Foreign operations contributed $18.1 million, $1.3 million and $0.9 million of our income before
income taxes in 2004, 2003 and 2002, respectively. In 2004, foreign operations in the United
Kingdom, Honduras and Ireland were the primary contributor to our foreign income. Significant components of the provision for income taxes are as follows: 2004
    
    
    2003
    
    
    2002Currently
    
    
    
    
    
    
    Currently
    
    
    
    
    
    
    Currently(In thousands)
    
    Payable
    
    
    Deferred
    
    
    Payable
    
    
    Deferred
    
    
    Payable
    
    
    DeferredFederal
    
    $
    19,036
    
    
    $
    4,025
    
    
    $
    15,826
    
    
    $
    6,224
    
    
    $
    8,991
    
    
    $
    9,330State
    
    
    558
    
    
    
    1,570
    
    
    
    42
    
    
    
    (2,127
    )
    
    
    1,691
    
    
    
    (191
    )Foreign
    
    
    2,313
    
    
    
    (7,511
    )
    
    
    639
    
    
    
    335
    
    
    
    3,280
    
    
    
    (2,779
    )Totals
    
    $
    21,907
    
    
    $
    (1,916
    )
    
    $
    16,507
    
    
    $
    4,432
    
    
    $
    13,962
    
    
    $
    6,360
 Our effective tax rate for 2004 of 29.4% decreased 3.3 and 7.8 percentage points from 32.7%
and 37.2% in fiscal 2003 and 2002, respectively. The 2004 decrease in the effective tax rate is
mainly due to a benefit resulting from the closure of federal tax audits for 2002 and prior years
along with the effects of our foreign operations. The 2003 versus 2002 decrease was primarily due to $2.6 million of non-recurring tax
benefits and other deferred tax adjustments realized in 2003. Following is a reconciliation of income tax expense or benefit to the expected amount computed by
applying the statutory federal income tax rate of 35% to income before income taxes: (In thousands)
    
    2004
    
    
    2003
    
    
    2002Taxes (benefit) at statutory rate on income before income taxes
    
    $
    23,774
    
    
    $
    22,392
    
    
    $
    19,120State income taxes, net of federal income tax benefit
    
    
    1,827
    
    
    
    (836
    )
    
    
    702Tax effects of foreign operations  net
    
    
    (2,716
    )
    
    
    (4,612
    )
    
    
    (2,006
    )United
Kingdom branch
tax liability
    
    
    10,209
    
    
    
    
    
    
    
    Change in valuation allowance on foreign/state NOLs
    
    
    (10,278
    )
    
    
    5,931
    
    
    
    2,606Change in reserves
    
    
    (1,577
    )
    
    
    (620
    )
    
    
    Othernet
    
    
    (1,248
    )
    
    
    (1,316
    )
    
    
    (100
    )$
    19,991
    
    
    $
    20,939
    
    
    $
    20,322
 37




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Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax liabilities and assets as of January 1, 2005 and
January 3, 2004, are as follows: (In thousands)
    
    2004
    
    
    2003Deferred tax liabilities:Property, plant and equipment
    
    $
    20,473
    
    
    $
    25,036Inventories
    
    
    4,979
    
    
    
    5,539Acquired intangibles
    
    
    22,004
    
    
    
    Deferred
income
    
    
    13,272
    
    
    
    11,139Other
    
    
    19,670
    
    
    
    6,986Total deferred tax liabilities
    
    
    80,398
    
    
    
    48,700Deferred tax assets:Pension and post-employment obligations
    
    
    17,581
    
    
    
    17,267Accounts receivable
    
    
    6,966
    
    
    
    3,777Federal, foreign and state net operating loss carry forwards
    
    
    25,513
    
    
    
    23,368Employee benefits
    
    
    12,049
    
    
    
    10,186Other
    
    
    3,145
    
    
    
    1,802Total deferred tax assets
    
    
    65,254
    
    
    
    56,400Valuation allowance for deferred tax assets
    
    
    (9,196
    )
    
    
    (19,474
    )Net deferred tax assets
    
    
    56,058
    
    
    
    36,926Net deferred tax liabilities
    
    $
    24,340
    
    
    $
    11,774
 Net operating loss
carryforwards (NOLs) are available to offset future earnings within
the time periods specified by law. At January 1, 2005, we had
U.S. state NOLs of approximately $319 million expiring in 2013
through 2019 and U.S. federal NOLs of approximately $13 million
specifically related to the Brooks acquisition, subject to change in
ownership limitation, which should be utilized before expiration in
2020 through 2024. International NOLs total approximately
$34.5 million. The International NOLs pertain primarily to our
United Kingdom and Australian operations. NOLs can be carried forward
indefinitely in the United Kingdom and Australia with same
business and ownership tests, respectively. Through 2002, as we continued
to execute our restructuring plans and implemented certain tax
strategies, we generated NOL carryforwards in states where
utilization of the carryforward benefits was not assured. In 2003 and
2002, we increased our valuation allowance by $5.9 million and
$2.6 million, respectively, for additional NOLs generated in our
International operations. In 2004, we decreased our valuation
allowance by $10.3 million primarily in anticipation of
utilizing NOLs previously generated in our United Kingdom operations.
Because our United Kingdom operations function as a branch of the U.S. for income
tax purposes, a corresponding deferred tax liability was set up to
offset the United Kingdom NOL deferred tax asset. On October 22, 2004, the
President signed the American Jobs Creation Act of 2004 (the
Act). The Act, among other things, provides a temporary
incentive for U.S. corporations to repatriate accumulated income
earned outside the U.S. by providing an 85% dividends received
deduction for certain dividends from controlled foreign operations.
We have evaluated the repatriation provisions of the Act and
determined that these provisions will not have a significant impact
on our results. It is our current intention to continue to
indefinitely reinvest earnings of our international subsidiaries;
therefore, we do not provide for federal income taxes on their
undistributed earnings. At January 1, 2005, we had not provided
for federal income taxes on earnings of international subsidiaries of
approximately $27.9 million. If these earnings are distributed
in the form of dividends or otherwise, we would be subject to both
U.S. income taxes and withholding taxes in the various
international jurisdictions. It is not practical for us to determine
the amount of unrecognized deferred U.S. income tax liability because
of the complexities associated with the hypothetical calculation.
Withholding taxes of approximately $1.4 million would be payable
if all previously unremitted earnings as of January 1, 2005,
were remitted to the U.S. parent company. Note 7: Stock Rights Plan And Stock Compensation Plans On September 15, 1999, the Board of Directors declared a dividend, which was issued on October 25,
1999, of one Right for each share of common stock outstanding. Each Right, when exercisable,
entitles the holder to purchase a unit of one one-hundredth share of Series A Junior Participating
Preferred Stock, par value $0.01, at a purchase price of $85. Upon certain events relating to the
acquisition of, or right to acquire, beneficial ownership of 15% or more of the Companys
outstanding common stock by a third party, or a change in control of the Company, the Rights
entitle the holder to acquire, after the Rights are no longer redeemable by the Company, shares of
common stock for each Right held at a significant discount to market. The Rights will expire on
October 25, 2009, unless redeemed earlier by the Company at $0.01 per Right under certain
circumstances. Our Executive Incentive Plan permits us to issue equity-based compensation awards in several forms
to all officers and key employees of the Company and its subsidiaries. Under the plan, we may issue
restricted stock, incentive stock options, nonqualified stock options, reload stock options, bonus
shares, deferred shares, stock appreciation rights, performance shares, and performance unit
awards. 38




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##### Table of Contents



Most of our salaried employees, including officers, are eligible to participate in the Russell
Corporation 2000 Stock Option Plan (2000 Option Plan). Awards under the 2000 Option Plan also may
be made to consultants. The 2000 Option Plan allows us to grant awards in a variety of forms,
including incentive stock options, nonqualified stock options, reload stock options, restricted
shares, bonus shares, deferred shares, freestanding stock appreciation rights, tandem stock
appreciation rights, performance units, and performance shares. Under the Executive Incentive Plan, the 2000 Option Plan and predecessor stock option plans, a
total of 2,493,436 shares of common stock were reserved for issuance at January 1, 2005. The
options are granted at a price equal to the stocks fair market value at the date of grant. All
options granted prior to 1999 are primarily exercisable two years after the date of grant and
expire 10 years after the date of grant. The stock options that were granted in 1999 and later are
exercisable equally over periods of either two or four years and expire 10 years after the date of
grant. The following table summarizes the status of options under the Executive Incentive Plan,
2000 Option Plan and predecessor plans: 2004
    
    
    2003
    
    
    2002Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    3,695,689
    
    
    $
    20.05
    
    
    
    4,367,793
    
    
    $
    19.92
    
    
    
    4,630,808
    
    
    $
    20.11Granted at fair value
    
    
    1,005
    
    
    $
    18.88
    
    
    
    70,650
    
    
    $
    19.48
    
    
    
    63,658
    
    
    $
    16.41Exercised
    
    
    196,788
    
    
    $
    15.16
    
    
    
    340,539
    
    
    $
    15.28
    
    
    
    119,047
    
    
    $
    15.06Expired
    
    
    12,380
    
    
    $
    16.76
    
    
    
    85,800
    
    
    $
    27.50
    
    
    
    
    
    
    
    Forfeited
    
    
    207,469
    
    
    $
    23.97
    
    
    
    316,415
    
    
    $
    21.36
    
    
    
    207,626
    
    
    $
    18.03Outstanding at end of year
    
    
    3,280,057
    
    
    $
    19.91
    
    
    
    3,695,689
    
    
    $
    20.05
    
    
    
    4,367,793
    
    
    $
    19.92Exercisable at end of year
    
    
    3,209,549
    
    
    $
    19.98
    
    
    
    3,209,053
    
    
    $
    20.62
    
    
    
    2,982,005
    
    
    $
    21.58
 The range of exercise prices of the outstanding and exercisable options are as follows at
January 1, 2005: WeightedAverage RemainingWeighted Average
    
    Number of
    
    Number of
    
    LifeExercise Price
    
    Exercisable Shares
    
    Outstanding Shares
    
    in Years$11.75 - $15.00
    
    
    18,605
    
    
    
    25,418
    
    
    
    6.7$15.01 - $18.25
    
    
    1,409,917
    
    
    
    1,457,656
    
    
    
    5.1$18.26 - $21.50
    
    
    704,191
    
    
    
    720,147
    
    
    
    3.6$21.51 - $24.75
    
    
    269,170
    
    
    
    269,170
    
    
    
    3.6$24.76 - $28.00
    
    
    625,866
    
    
    
    625,866
    
    
    
    3.1$28.01 - $31.35
    
    
    181,800
    
    
    
    181,800
    
    
    
    1.03,209,549
    
    
    
    3,280,057
    
    
    
    4.1
 Under the Russell Corporation 2000 Non-Employee Directors Compensation Plan (the Directors
Plan), which replaced the Russell Corporation 1997 Non-Employee Directors Stock Grant, Stock
Option and Deferred Compensation Plan (the Prior Plan), each non-employee director (Eligible
Director) receives annually (1) a fee of $35,000, to be paid in quarterly installments of $8,750,
and (2) an option to purchase shares of common stock with a value equal to $25,000, exercisable for
10 years at a price equal to the market value of the common stock on the date of the annual
meeting. Effective January 1, 2003, a stock retainer deferral account (a deferral account) was established
for each non-employee director in lieu of stock options. Immediately following each annual meeting
each non-employee directors deferral account will be credited with shares of common stock having a
market value of $25,000. In addition, on each dividend payment date, each deferral account will be
credited with additional shares of common stock equal to the number of shares of common stock,
which could be acquired with the dividends paid on the shares of common stock in the deferral
account based on the market value of such shares on such date. The shares in a deferral account
will be paid to a non-employee director on the earlier of the first anniversary of the date such
director ceased to be a director of the company or the day after such director ceases to be a
director following such director reaching age 70. Eligible Directors also may elect to receive all
or a portion of their annual fees in shares or deferred shares. In 2004, 10,464 deferred shares were granted at a price of $18.51 and in 2003, 10,600 deferred
shares were granted at a price of $18.88. Options granted under the Directors Plan vest over 1
year and expire 10 years after the date of grant; whereas, options granted under the Prior Plan
vest over three years and expire 10 years after the date of grant. Options to purchase an aggregate
of 169,890 shares at prices ranging from $16.28 to $27.50 are outstanding under the Directors Plan
and the Prior Plan at January 1, 2005. 39




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Note 8: Commitments and Contingencies Purchase and Lease Commitments.At January 1, 2005, we have commitments to spend approximately
$11.1 million for capital improvements. Our remaining commitments under noncancelable operating
leases with initial or remaining terms of one year or more are as follows: (In thousands)
    
    Third Parties
    
    
    Related Party(1)
    
    
    Total2005
    
    $
    9,382
    
    
    $
    2,527
    
    
    $
    11,9092006
    
    
    6,811
    
    
    
    2,561
    
    
    
    9,3722007
    
    
    4,652
    
    
    
    2,596
    
    
    
    7,2482008
    
    
    2,872
    
    
    
    2,631
    
    
    
    5,5032009
    
    
    1,437
    
    
    
    2,667
    
    
    
    4,104Thereafter
    
    
    1,214
    
    
    
    1,794
    
    
    
    3,008$
    26,368
    
    
    $
    14,776
    
    
    $
    41,144
    Lease and rental expense for fiscal years 2004, 2003 and 2002 was $10.2 million, $7.6 million and
$7.3 million, respectively. We had $24.2 million outstanding under letters of credit at January 1, 2005, of which $12.8 million
related to the purchase of inventories, $2.3 million was for the guarantee of debt of a
non-affiliated foreign contractor, $6.8 million related to workers compensation self-insured
programs and customs bonds, and $2.3 million related to utility bonds and other matters. All
outstanding letters of credit are set to expire in 2005. Litigation We are a co-defendant in Locke, et al. v. Russell Corporation, et al.filed on January 13, 2000 in
the Circuit Court of Jefferson County, Alabama. Fifteen families who own property on Lake Martin in
the Raintree Subdivision in Alexander City, Alabama, were the original plaintiffs in the case,
which sought unspecified money damages for trespass and nuisance. However, 10 families dropped out
of the case and there are five remaining plaintiff families. In May 2002, the trial court entered
summary judgment in our favor on all but one of the plaintiffs claims. The remaining claim
involves a private right of action for public nuisance. We filed a summary judgment motion in
October 2003, which was denied in March 2004. Trial of the Lockecase has been set for September
2005. A complaint substantially identical to the one filed in the Lockecase was filed on November
20, 2001, in the Circuit Court of Jefferson County, Alabama, by two residents of the Raintree
Subdivision (Gould v. Russell Corporation, et al.). The trial court has entered summary judgment in
our favor on all claims in that case, and the plaintiffs in the case have filed a motion to alter
that determination, which remains pending. The allegations in the Lockeand Gouldcases are similar
to those contained in a case styled Sullivan, et al. v. Russell Corporation, et al., which was
resolved in our favor by a ruling of the Alabama Supreme Court in 2001. We plan to vigorously
defend the Lockeand Gouldsuits. We are a party to various other lawsuits arising out of the normal conduct of our business. We do
not believe that any of these matters, if adversely determined, would have a material adverse
effect upon us. Note 9: Segment Information Description of the Types of Products from Which Each Reportable Segment Derives Its Revenues.We
operate our business in two segments: Domestic and International Apparel. Beginning in 2004, we
have realigned our business in the Domestic Segment to focus on brands versus distribution
channels. The two brand groupings in the Domestic segment are Athletic and Activewear. Athletic
and Activewear have been aggregated into the Domestic reportable segment because these brand
groupings are similar in economic characteristics, products, production processes, type of
customer, distribution method, and regulatory environment. The
Domestic segment designs, markets, manufactures, or  sources apparel,
footwear, sporting goods, and sports equipment products. The International Apparel segment, which
makes up the majority of our sales outside the United States, distributes athletic, outdoor and
activewear apparel products. Measurement of Segment Profit or Loss and Segment Assets.Our management evaluates performance and
allocates resources based on profit or loss from operations before interest, income taxes and
special charges (Segment operating income). Segment operating income as presented by us may not be
comparable to similarly titled measures used by other companies. The accounting policies of the
reportable segments are the same as those described in the summary of significant accounting
policies in the consolidated financial statements. Intersegment transfers are recorded at cost;
there is no intercompany profit or loss on intersegment transfers. 40




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##### Table of Contents



Segment Financial Information for the Year ended January 1, 2005 International(In thousands)
    
    Domestic
    
    
    Apparel
    
    
    TotalNet sales
    
    $
    1,175,427
    
    
    $
    122,825
    
    
    $
    1,298,252Depreciation and amortization expense
    
    
    47,057
    
    
    
    965
    
    
    
    48,022Segment operating income
    
    
    112,935
    
    
    
    5,507
    
    
    
    118,442Total assets
    
    
    1,159,367
    
    
    
    94,742
    
    
    
    1,254,1092004 purchases of long-lived assets
    
    
    34,138
    
    
    
    1,356
    
    
    
    35,494
 Segment Financial Information for the Year ended January 3, 2004 International(In thousands)
    
    Domestic
    
    
    Apparel
    
    
    TotalNet sales
    
    $
    1,084,844
    
    
    $
    101,419
    
    
    $
    1,186,263Depreciation and amortization expense
    
    
    44,054
    
    
    
    882
    
    
    
    44,936Segment operating income
    
    
    112,652
    
    
    
    535
    
    
    
    113,187Special charges not included in Segment operating income
    
    
    6,382
    
    
    
    921
    
    
    
    7,303Total assets
    
    
    967,108
    
    
    
    54,002
    
    
    
    1,021,1102003 purchases of long-lived assets
    
    
    38,067
    
    
    
    574
    
    
    
    38,641
 Segment Financial Information for the Year ended January 4, 2003 International(In thousands)
    
    Domestic
    
    
    Apparel
    
    
    TotalNet sales
    
    $
    1,076,326
    
    
    $
    88,002
    
    
    $
    1,164,328Depreciation and amortization expense
    
    
    44,364
    
    
    
    697
    
    
    
    45,061Segment operating income (loss)
    
    
    123,990
    
    
    
    (753
    )
    
    
    123,237Total assets
    
    
    896,632
    
    
    
    66,483
    
    
    
    963,1152002 purchases of long-lived assets
    
    
    27,971
    
    
    
    372
    
    
    
    28,343
 Reconciliation Of Segment Operating Income To Consolidated Pre-Tax Income (In thousands)
    
    2004
    
    
    2003
    
    
    2002Total segment operating income
    
    $
    118,442
    
    
    $
    113,187
    
    
    $
    123,237Unallocated amounts:Corporate expenses
    
    
    (17,651
    )
    
    
    (12,243
    )
    
    
    (18,266
    )Special charges
    
    
    
    
    
    
    (7,303
    )
    
    
    Debt retirement charge
    
    
    
    
    
    
    
    
    
    
    (20,097
    )Interest expense, net
    
    
    (30,843
    )
    
    
    (29,663
    )
    
    
    (30,246
    )Other
    
    
    (2,021
    )
    
    
    
    
    
    
    Income before income taxes
    
    $
    67,927
    
    
    $
    63,978
    
    
    $
    54,628
 Enterprise-wide Disclosures: Net Sales by Geographic Region (In thousands)
    
    2004
    
    
    2003
    
    
    2002United States
    
    $
    1,170,235
    
    
    $
    1,084,184
    
    
    $
    1,072,042Europe
    
    
    83,368
    
    
    
    70,202
    
    
    
    61,522Other
    
    
    44,649
    
    
    
    31,877
    
    
    
    30,764Consolidated total
    
    $
    1,298,252
    
    
    $
    1,186,263
    
    
    $
    1,164,328
 41




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Net Sales by Brand Groupings (In thousands)
    
    2004
    
    
    2003
    
    
    2002Domestic SegmentAthletic
    
    $
    563,163
    
    
    $
    481,565
    
    
    $
    400,360Activewear
    
    
    612,264
    
    
    
    603,279
    
    
    
    675,9661,175,427
    
    
    
    1,084,844
    
    
    
    1,076,326International Apparel Segment
    
    
    122,825
    
    
    
    101,419
    
    
    
    88,002Consolidated total
    
    $
    1,298,252
    
    
    $
    1,186,263
    
    
    $
    1,164,328
 Revenues are attributed to countries based on the location of customers. Gross sales to Wal-Mart represent approximately 19.3%, 21.2% and 19.6% of our consolidated gross
sales for fiscal 2004, 2003 and 2002, respectively. Long-Lived Assets by Geographic Region (In thousands)
    
    2004
    
    
    2003United States
    
    $
    264,320
    
    
    $
    272,895Central America and Mexico
    
    
    56,233
    
    
    
    28,727Europe
    
    
    1,653
    
    
    
    1,216Other
    
    
    684
    
    
    
    396Consolidated total
    
    $
    322,890
    
    
    $
    303,234
 Note 10: Diluted Weighted-Average Common Shares Outstanding Our diluted weighted-average common shares outstanding are calculated as follows: 2004
    
    
    2003
    
    
    2002Basic weighted-average common shares outstanding
    
    
    32,668,376
    
    
    
    32,376,617
    
    
    
    32,127,579Net common shares underlying unissued restricted
stock and issuable on exercise of dilutive stock
options
    
    
    229,183
    
    
    
    349,855
    
    
    
    142,234Diluted weighted-average common shares outstanding
    
    
    32,897,559
    
    
    
    32,726,472
    
    
    
    32,269,813
 Options to purchase 1.7 million, 2.0 million and 2.3 million shares of our common stock were
excluded from the computation of diluted weighted-average common shares outstanding for the years
ended January 1, 2005, January 3, 2004 and January 4, 2003, respectively, because the exercise
prices of the options exceeded the average market price. Note 11: Summary of Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations (in thousands, except per
share data): Year ended
    
    
    Quarter endedJanuary 1, 2005
    
    April 4
    
    
    July 4
    
    
    Oct. 3
    
    
    Jan. 1Net sales
    
    $
    251,793
    
    
    $
    289,771
    
    
    $
    422,656
    
    
    $
    334,032Gross profit
    
    
    64,633
    
    
    
    80,345
    
    
    
    121,803
    
    
    
    97,099Net income
    
    
    531
    
    
    
    10,162
    
    
    
    26,938
    
    
    
    10,305Net income per common share:Basic
    
    $
    0.02
    
    
    $
    0.31
    
    
    $
    0.82
    
    
    $
    0.32Diluted
    
    $
    0.02
    
    
    $
    0.31
    
    
    $
    0.82
    
    
    $
    0.31
 42




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##### Table of Contents



Year ended
    
    
    Quarter endedJanuary 3, 2004
    
    April 6
    
    
    July 6
    
    
    Oct. 5
    
    
    Jan. 3Net sales
    
    $
    227,983
    
    
    $
    267,925
    
    
    $
    388,001
    
    
    $
    302,354Gross profit
    
    
    62,821
    
    
    
    77,386
    
    
    
    112,607
    
    
    
    91,322Net income
    
    
    3,448
    
    
    
    6,659
    
    
    
    18,459
    
    
    
    14,473Net income per common share:Basic
    
    $
    0.11
    
    
    $
    0.21
    
    
    $
    0.57
    
    
    $
    0.45Diluted
    
    $
    0.11
    
    
    $
    0.20
    
    
    $
    0.56
    
    
    $
    0.44
 Note 12: Other Assets Other assets are summarized as follows: (In thousands)
    
    2004
    
    
    2003Goodwill
    
    $
    98,695
    
    
    $
    41,924Other intangibles
    
    
    137,870
    
    
    
    62,166Debt issuance costs
    
    
    16,967
    
    
    
    16,656253,532
    
    
    
    120,746Less accumulated amortization
    
    
    (14,758
    )
    
    
    (10,626
    )238,774
    
    
    
    110,120Investments (trading portfolio)
    
    
    10,531
    
    
    
    9,092Investments in and advances to unconsolidated entities
    
    
    2,838
    
    
    
    24,202Other
    
    
    1,658
    
    
    
    1,363$
    253,801
    
    
    $
    144,777
 The changes in the carrying amount of goodwill, which is included in the Domestic segment, are as
follows: (in thousands)Balance at January 4, 2003
    
    $
    19,673Goodwill acquired during the year
    
    
    21,943Other
    
    
    308Balance at January 3, 2004
    
    $
    41,924Goodwill acquired during the year
    
    
    59,546Other
    
    
    (2,775
    )Balance at January 1, 2005
    
    $
    98,695
 In 2005, we resolved disputes over the Spalding purchase agreement which resulted in the reduction
of goodwill. 43




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Other intangibles are made up of the following: January 1, 2005
    
    
    January 3, 2004Gross
    
    
    Accumulated
    
    
    Gross
    
    
    Accumulated(in thousands)
    
    Carrying Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    AmortizationAmortized intangible assets:Patents and technology
    
    $
    8,405
    
    
    $
    (673
    )
    
    $
    3,205
    
    
    $
    (216
    )Customer relationships
    
    
    17,003
    
    
    
    
    
    
    
    
    
    
    
    Trademarks
    
    
    6,755
    
    
    
    (1,679
    )
    
    
    6383
    
    
    
    (1,347
    )License agreements
    
    
    3,823
    
    
    
    (273
    )
    
    
    2,068
    
    
    
    (101
    )Other
    
    
    559
    
    
    
    (366
    )
    
    
    559
    
    
    
    (134
    )Total amortized intangible assets
    
    $
    36,545
    
    
    $
    (2,991
    )
    
    $
    12,215
    
    
    $
    (1,798
    )Unamortized intangible assets:Trademarks
    
    $
    88,054
    
    
    $
    
    
    
    $
    36,728
    
    
    $
    License agreements
    
    
    12,675
    
    
    
    (396
    )
    
    
    12,675
    
    
    
    (396
    )Other
    
    
    596
    
    
    
    
    
    
    
    548
    
    
    
    Total unamortized intangible assets
    
    $
    101,325
    
    
    $
    (396
    )
    
    $
    49,951
    
    
    $
    (396
    )Total intangible assets
    
    $
    137,870
    
    
    $
    (3,387
    )
    
    $
    62,166
    
    
    $
    (2,194
    )
 The amortization expense for the year ended January 1, 2005, January 3, 2004 and January 4, 2003
was $1.4 million, $0.8 million and $0.3 million, respectively. The estimated amortization expense
for the next five years is as follows: AmortizationFiscal Years (in millions)
    
    Expense2005
    
    $
    3.42006
    
    
    3.22007
    
    
    3.22008
    
    
    3.22009
    
    
    2.5
 Investments in and advances to unconsolidated entities accounted for under the equity method were
$2.8 million and $19.1 million at January 1, 2005 and January 3, 2004, respectively; while our
equity in earnings were $0.5 million in 2003, $3.4 million in 2003 and $3.1 million in 2002. The
change in investments in and advances to unconsolidated entities from
2003 to 2004 and the change in equity in earnings from 2002 and 2003
to 2004 is the result of
the consolidation of Frontier Yarns in 2004, which we accounted for under the equity method in
2003 and 2002. Note 13: Acquisitions On February 6, 2003, we acquired the majority of the assets of Bike Athletic Company for
approximately $16 million. On May 16, 2003, we acquired the brands, inventory, contracts, and
related assets of the sporting goods business of Spalding Sports Worldwide, Inc. for approximately
$65 million. The results of Bikes and Spaldings operations have been included in our consolidated
financial statements since their respective acquisition dates. On June 15, 2004, we acquired the net assets of American Athletic, Inc. (AAI) for approximately
$13 million. Founded in 1954, AAI manufactures a variety of products including basketball and
volleyball equipment, athletic mats and gymnastics apparatus under a variety of brands, including
American Athletic and BPI. AAI markets these products to high schools, universities, professional
teams, and athletic clubs globally. On July 19, 2004, we acquired the net assets of Huffy Sports
Company (Huffy Sports), a division of Huffy Corporation, for approximately $30 million. Huffy
Sports sells basketball equipment, including backboards and inflatable balls under the Huffy
Sports®, Sure Shot®and Hydra Rib®brands. Huffy Sports has held a license (which was assigned to
us as part of the acquisition) with the National Basketball Association (NBA) for use of the NBA
league and team logos for nearly a quarter century. Huffy Sports also licenses the NCAA®mark and
has been the official supplier to the NCAAs Final Four Championship for 14 of the last 27 years.
On December 30, 2004, we entered the athletic footwear business with the acquisition of Brooks
Sports, Inc. (Brooks) for approximately $115 million. Brooks is a provider of performance athletic footwear,
apparel and accessories to running enthusiasts worldwide. Brooks products are sold predominately
through specialty running stores and other retail outlets specializing in high quality, performance
running products. We acquired AAI, Huffy Sports and Brooks to enhance our position as a leading
branded 44




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athletic and sporting goods company. The results of AAIs, Huffy Sports and Brooks operations
have been included in our consolidated financial statements, as part of the Domestic segment, since
their respective acquisition dates. We are in the process of finalizing the third-party valuation performed on Brooks intangible
assets. Thus, the allocation of the purchase price is preliminary and subject to change. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition. (in thousands) 2004
    
    
    2003Tangible assets
    
    $
    70,564
    
    
    $
    23,501Intangible assets not subject to amortization  registered trademarks
    
    
    51,326
    
    
    
    36,783Intangible assets subject to amortization (weighted-average useful
life: 2004  11.5 years; 2003  9.4 years)Customer relationships (weighted-average useful life: 2004 - 13.0
years)
    
    
    17,003
    
    
    
    Patents and technology (weighted-average useful
life: 2004  7.1 years; 2003  9.0 years)
    
    
    5,135
    
    
    
    3,080License agreements (weighted-average useful life: 2004  10.0
years; 2003  12.0 years)
    
    
    1,755
    
    
    
    2,068Other (weighted average useful life: 2004  2.4 years)
    
    
    
    
    
    
    55923,893
    
    
    
    5,707Goodwill
    
    
    59,546
    
    
    
    21,943205,329
    
    
    
    87,934Liabilities assumed
    
    
    (48,928
    )
    
    
    (1,243
    )Net assets acquired
    
    $
    156,401
    
    
    $
    86,691
 Approximately $46.0 million of the goodwill added in 2004 is expected to be non-deductible for
income tax purposes. Note 14: Related Party Transactions With the consolidation of Frontier Yarns on April 3, 2004, we have deemed our joint venture partner
Frontier Spinning Mills, Inc. (Frontier Spinning) to be a related party. We obtain the majority
of our yarn needs from Frontier Yarns and Frontier Spinning. In 2004, we purchased approximately
$41.8 million of yarn from Frontier Spinning. At January 1, 2005, we had an outstanding payable to
them of approximately $15.3 million. In addition to providing yarn, Frontier Spinning provides
certain management and accounting services to Frontier Yarns pursuant to the joint venture
operating agreement. In 2004, we paid $1.5 million to Frontier Spinning for such services. In 2003 (prior to consolidation), Frontier Yarns was treated as a related party and Frontier
Spinning was not. As part of the formation of Frontier Yarns, we agreed to sell or lease to
Frontier Yarns, most of our remaining yarn spinning assets, including facilities in Lafayette and
Wetumpka, Alabama. We also contributed approximately $4.5 million in cash and loaned Frontier
Yarns $5.0 million, which was outstanding at January 3, 2004. This $5.0 million note was paid in
full in 2004. We purchase yarn from Frontier Yarns pursuant to a supply agreement that was executed
simultaneously with the formation of the joint venture. The supply agreement provides for pricing
to be calculated on a conversion cost basis plus actual cost of raw materials. Total purchases
from Frontier Yarns were $125.6 million in 2003. We had a net outstanding payable of $5.9 million
due to Frontier Yarns at January 3, 2004. In 1999, City View Associates, LLC was formed as a 50%/50% joint venture between us and an
unrelated party for the purpose of constructing, operating and leasing the office known as City
View in Atlanta, Georgia. We leased office space in City View and paid rent to the joint venture
of approximately $2.5 million in 2004, 2003 and 2002. Note 15: Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for (a) Russell
Corporation (the Parent) on a stand-alone basis; (b) on a combined basis, the guarantors of the
Senior Notes (Subsidiary Guarantors), which include Jerzees Apparel, LLC; Mossy Oak Apparel
Company; Cross Creek Apparel, LLC; Cross Creek Holdings, Inc.; DeSoto Mills, LLC; Russell Financial
Services, Inc.; Russell Asset Management, Inc.; Russell Apparel, LLC; RINTEL Properties, Inc.;
Russell Yarn, LLC; Russell Co-Op, 45




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LLC; and Brooks Sports, Inc. (all of which are wholly owned) and (c) on a combined basis, the
non-guarantor subsidiaries, which include Alexander City Flying Service, Inc.; Russell Corporation
 Delaware; Russell Servicing Co., Inc.; Russell Europe Limited; Russell Mexico, S.A. de C.V.;
Jerzees Campeche, S.A. de C.V.; Jerzees Yucatan, S.A. de C.V.; Athletic de Camargo, S.A. de C.V.;
Jerzees de Jimenez, S.A. de C.V.; Cross Creek de Honduras, S.A. de C.V.; Russell Corp. Australia
Pty Ltd.; Russell do Brasil, Ltda.; Russell Corp. Far East, Limited; Russell Japan KK; Spalding
Canada Corp.; Jerzees de Honduras, S.A. do C.V.; Jerzees Buena Vista, S.A.; Jerzees Choloma, S.A.;
Russell del Caribe, Inc.; Russell France SARL; Russell CZ s.r.o.; Russell Germany GmbH; Russell
Spain, S.L.; Russell Italy S.r.l.; Servicios Russell, S.A. de C.V.; Russell Foreign Sales Ltd.;
Russell Corp. Bangladesh Limited; Russell Holdings Europe B.V.; Ruservicios, S.A.; Eagle R Holdings
Limited; Citygate Textiles Limited; Russell Colombia Ltda.; Merendon Textiles, S. de R.L.; Russell
Athletic Holdings (Ireland) Limited; SGG Lisco LLC; SGG Patents LLC; RLA Manufacturing; and
Frontier Yarns, LLC (our 45.3% owned yarn joint venture). Separate financial statements of the
Subsidiary Guarantors are not presented because the guarantee by each 100% owned Subsidiary
Guarantor is full and unconditional, joint and several, and we believe separate financial
statements and other disclosures regarding the Subsidiary Guarantors are not material to investors.
Furthermore, there are no significant legal restrictions on the Parents ability to obtain funds
from its subsidiaries by dividend or loan. The parent is comprised of Alabama manufacturing operations and certain corporate management,
information services and finance functions. Russell Corporation
Condensed Consolidated Statements of Income For the year endedJanuary 4, 2003
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    823,122
    
    
    $
    254,114
    
    
    $
    134,967
    
    
    $
    (47,875
    )
    
    $
    1,164,328Cost of goods sold
    
    
    565,732
    
    
    
    195,901
    
    
    
    111,116
    
    
    
    (46,986
    )
    
    
    825,763Gross profit
    
    
    257,390
    
    
    
    58,213
    
    
    
    23,851
    
    
    
    (889
    )
    
    
    338,565Selling, general and administrative expenses
    
    
    154,637
    
    
    
    60,952
    
    
    
    20,221
    
    
    
    
    
    
    
    235,810Othernet
    
    
    117,472
    
    
    
    (118,883
    )
    
    
    84
    
    
    
    (889
    )
    
    
    (2,216
    )Operating income
    
    
    (14,719
    )
    
    
    116,144
    
    
    
    3,546
    
    
    
    
    
    
    
    104,971Interest
expense (income) - net
    
    
    66,941
    
    
    
    (36,697
    )
    
    
    2
    
    
    
    
    
    
    
    30,246Debt retirement charge
    
    
    20,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,097Income (loss) before income taxes and equity in earnings of
consolidated subsidiaries
    
    
    (101,757
    )
    
    
    152,841
    
    
    
    3,544
    
    
    
    
    
    
    
    54,628Provision (benefit) for income taxes
    
    
    (38,400
    )
    
    
    57,954
    
    
    
    768
    
    
    
    
    
    
    
    20,322Equity in earnings of consolidated subsidiaries, net of income taxes
    
    
    97,663
    
    
    
    
    
    
    
    
    
    
    
    (97,663
    )
    
    
    Net income (loss)
    
    $
    34,306
    
    
    $
    94,887
    
    
    $
    2,776
    
    
    $
    (97,663
    )
    
    $
    34,306
 46




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##### Table of Contents



Russell Corporation Condensed Consolidated Statements of Cash Flows For the year endedJanuary 4, 2003
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating ActivitiesNet cash provided by (used in) operating activities
    
    $
    273,106
    
    
    $
    18,340
    
    
    $
    (88,055
    )
    
    $
    
    
    
    $
    203,391Investing ActivitiesPurchase of property, plant and equipment
    
    
    (24,545
    )
    
    
    (2,679
    )
    
    
    (1,119
    )
    
    
    
    
    
    
    (28,343
    )Investment in and advances to subsidiaries
    
    
    (87,802
    )
    
    
    (7,891
    )
    
    
    95,693
    
    
    
    
    
    
    
    Cash paid for acquisitions, joint ventures and other
    
    
    (4,670
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,670
    )Proceeds from sale of property, plant and equipment
    
    
    7,513
    
    
    
    1,915
    
    
    
    22
    
    
    
    
    
    
    
    9,450Other
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Net cash (used in) provided by investing activities
    
    
    (108,754
    )
    
    
    (8,655
    )
    
    
    94,596
    
    
    
    
    
    
    
    (22,813
    )Financing ActivitiesPayments on credit facility  net
    
    
    (74,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,800
    )Borrowings on short-term debt
    
    
    
    
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    458Payments on notes payable, including prepayments
    
    
    (270,371
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270,371
    )Proceeds from issuance of Senior Notes
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000Debt issuance and amendment costs paid
    
    
    (18,910
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,910
    )Dividends on common stock
    
    
    (5,137
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,137
    )Treasury stock re-issued
    
    
    2,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,574Cost of common stock for treasury
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Net cash (used in) provided by financing activities
    
    
    (116,674
    )
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    (116,216
    )Effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    (1,625
    )
    
    
    
    
    
    
    (1,625
    )Net increase in cash
    
    
    47,678
    
    
    
    9,685
    
    
    
    5,374
    
    
    
    
    
    
    
    62,737Cash balance at beginning of year
    
    
    3,277
    
    
    
    (1,583
    )
    
    
    4,188
    
    
    
    
    
    
    
    5,882Cash balance at end of year
    
    $
    50,955
    
    
    $
    8,102
    
    
    $
    9,562
    
    
    $
    
    
    
    $
    68,619
 Russell Corporation
Condensed Consolidated Balance Sheets January 3, 2004
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash
    
    $
    414
    
    
    $
    15,840
    
    
    $
    3,862
    
    
    $
    
    
    
    $
    20,116Trade accounts receivables, net
    
    
    78
    
    
    
    154,833
    
    
    
    20,603
    
    
    
    
    
    
    
    175,514Inventories
    
    
    278,796
    
    
    
    32,691
    
    
    
    35,459
    
    
    
    
    
    
    
    346,946Prepaid expenses and other current assets
    
    
    27,289
    
    
    
    1,414
    
    
    
    1,820
    
    
    
    
    
    
    
    30,523Total current assets
    
    
    306,577
    
    
    
    204,778
    
    
    
    61,744
    
    
    
    
    
    
    
    573,099Property, plant, and equipment, net
    
    
    229,736
    
    
    
    43,151
    
    
    
    30,347
    
    
    
    
    
    
    
    303,234Investment in subsidiaries
    
    
    903,718
    
    
    
    195
    
    
    
    
    
    
    
    (903,913
    )
    
    
    Intercompany balances
    
    
    (601,161
    )
    
    
    621,492
    
    
    
    (20,331
    )
    
    
    
    
    
    
    Other assets
    
    
    118,423
    
    
    
    25,879
    
    
    
    475
    
    
    
    
    
    
    
    144,777$
    957,293
    
    
    $
    895,495
    
    
    $
    72,235
    
    
    $
    (903,913
    )
    
    $
    1,021,110LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    115,247
    
    
    $
    28,861
    
    
    $
    16,418
    
    
    $
    
    
    
    $
    160,526Short-term debt
    
    
    
    
    
    
    
    
    
    
    4,088
    
    
    
    
    
    
    
    4,088Current maturities of long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    120,247
    
    
    
    28,861
    
    
    
    20,506
    
    
    
    
    
    
    
    169,614Long-term debt, less current maturities
    
    
    272,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272,355Deferred liabilities
    
    
    49,827
    
    
    
    9,339
    
    
    
    5,111
    
    
    
    
    
    
    
    64,277Stockholders equity
    
    
    514,864
    
    
    
    857,295
    
    
    
    46,618
    
    
    
    (903,913
    )
    
    
    514,864$
    957,293
    
    
    $
    895,495
    
    
    $
    72,235
    
    
    $
    (903,913
    )
    
    $
    1,021,110
 47




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##### Table of Contents



Russell Corporation
Condensed Consolidated Statements of Income For the year endedJanuary 3, 2004
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    935,225
    
    
    $
    155,006
    
    
    $
    149,984
    
    
    $
    (53,952
    )
    
    $
    1,186,263Cost of goods sold
    
    
    658,107
    
    
    
    116,273
    
    
    
    120,511
    
    
    
    (52,764
    )
    
    
    842,127Gross profit
    
    
    277,118
    
    
    
    38,733
    
    
    
    29,473
    
    
    
    (1,188
    )
    
    
    344,136Selling, general and administrative expenses
    
    
    163,099
    
    
    
    58,884
    
    
    
    24,494
    
    
    
    
    
    
    
    246,477Othernet
    
    
    102,868
    
    
    
    (100,058
    )
    
    
    2,396
    
    
    
    (1,188
    )
    
    
    4,018Operating income
    
    
    11,151
    
    
    
    79,907
    
    
    
    2,583
    
    
    
    
    
    
    
    93,641Interest
expense (income) - net
    
    
    57,776
    
    
    
    (28,244
    )
    
    
    131
    
    
    
    
    
    
    
    29,663Income (loss) before income taxes and equity in earnings of
consolidated subsidiaries
    
    
    (46,625
    )
    
    
    108,151
    
    
    
    2,452
    
    
    
    
    
    
    
    63,978Provision (benefit) for income taxes
    
    
    (30,622
    )
    
    
    49,434
    
    
    
    2,127
    
    
    
    
    
    
    
    20,939Equity in earnings of consolidated subsidiaries, net of income taxes
    
    
    59,042
    
    
    
    
    
    
    
    
    
    
    
    (59,042
    )
    
    
    Net income (loss)
    
    $
    43,039
    
    
    $
    58,717
    
    
    $
    325
    
    
    $
    (59,042
    )
    
    $
    43,039
 Russell Corporation
Condensed Consolidated Statements of Cash Flows For the year endedJanuary 3, 2004
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating ActivitiesNet cash provided by operating activities
    
    $
    45,055
    
    
    $
    11,883
    
    
    $
    1,018
    
    
    $
    
    
    
    $
    57,956Investing ActivitiesPurchase of property, plant and equipment
    
    
    (24,385
    )
    
    
    (8,623
    )
    
    
    (5,633
    )
    
    
    
    
    
    
    (38,641
    )Investment in and advances to subsidiaries
    
    
    702
    
    
    
    (1,987
    )
    
    
    1,285
    
    
    
    
    
    
    
    Cash paid for acquisitions, joint ventures and other
    
    
    (86,691
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86,691
    )Proceeds from sale of property, plant and equipment
    
    
    8,203
    
    
    
    6,465
    
    
    
    97
    
    
    
    
    
    
    
    14,765Other
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    678Net cash used in investing activities
    
    
    (101,493
    )
    
    
    (4,145
    )
    
    
    (4,251
    )
    
    
    
    
    
    
    (109,889
    )Financing ActivitiesBorrowings on credit facility  net
    
    
    7,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,355Payments on short-term debt
    
    
    
    
    
    
    
    
    
    
    (3,582
    )
    
    
    
    
    
    
    (3,582
    )Debt issuance and amendment costs paid
    
    
    (468
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (468
    )Dividends on common stock
    
    
    (5,177
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,174
    )Treasury stock re-issued
    
    
    5,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,641Cost of common
stock for treasury
    
    
    (1,457
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,457
    )Net cash provided by (used in) financing activities
    
    
    5,897
    
    
    
    
    
    
    
    (3,582
    )
    
    
    
    
    
    
    2,315Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    1,115
    
    
    
    
    
    
    
    1,115Net (decrease) increase in cash
    
    
    (50,541
    )
    
    
    7,738
    
    
    
    (5,700
    )
    
    
    
    
    
    
    (48,503
    )Cash balance at beginning of year
    
    
    50,955
    
    
    
    8,102
    
    
    
    9,562
    
    
    
    
    
    
    
    68,619Cash balance at end of year
    
    $
    414
    
    
    $
    15,840
    
    
    $
    3,862
    
    
    $
    
    
    
    $
    20,116
 48




---



##### Table of Contents



Russell CorporationCondensed Consolidated Balance Sheets January 1, 2005
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash
    
    $
    2,554
    
    
    $
    5,594
    
    
    $
    21,668
    
    
    $
    
    
    
    $
    29,816Trade accounts receivables, net
    
    
    (2,177
    )
    
    
    186,294
    
    
    
    59,629
    
    
    
    (31,683
    )
    
    
    212,063Inventories
    
    
    272,396
    
    
    
    59,678
    
    
    
    79,627
    
    
    
    
    
    
    
    411,701Prepaid expenses and other current assets
    
    
    32,796
    
    
    
    7,334
    
    
    
    578
    
    
    
    (16,870
    )
    
    
    23,838Total current assets
    
    
    305,569
    
    
    
    258,900
    
    
    
    161,502
    
    
    
    (48,553
    )
    
    
    677,418Property, plant, and equipment, net
    
    
    209,928
    
    
    
    36,372
    
    
    
    76,590
    
    
    
    
    
    
    
    322,890Investment in subsidiaries
    
    
    1,243,104
    
    
    
    195
    
    
    
    
    
    
    
    (1,243,299
    )
    
    
    Intercompany balances
    
    
    (679,171
    )
    
    
    701,970
    
    
    
    (22,799
    )
    
    
    
    
    
    
    Other assets
    
    
    70,602
    
    
    
    171,476
    
    
    
    11,723
    
    
    
    
    
    
    
    253,801$
    1,150,032
    
    
    $
    1,168,913
    
    
    $
    227,016
    
    
    $
    (1,291,852
    )
    
    $
    1,254,109LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    153,446
    
    
    $
    40,405
    
    
    $
    49,178
    
    
    $
    (48,553
    )
    
    $
    194,476Short-term debt
    
    
    
    
    
    
    
    
    
    
    18,190
    
    
    
    
    
    
    
    18,190Current maturities of long-term debt
    
    
    5,016
    
    
    
    
    
    
    
    1,922
    
    
    
    
    
    
    
    6,938Total current liabilities
    
    
    158,462
    
    
    
    40,405
    
    
    
    69,290
    
    
    
    (48,553
    )
    
    
    219,604Long-term debt, less current maturities
    
    
    365,083
    
    
    
    
    
    
    
    7,838
    
    
    
    
    
    
    
    372,921Deferred liabilities
    
    
    49,540
    
    
    
    30,002
    
    
    
    5,095
    
    
    
    
    
    
    
    84,637Non-controlling interests
    
    
    14,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,096Stockholders equity
    
    
    562,851
    
    
    
    1,098,506
    
    
    
    144,793
    
    
    
    (1,243,299
    )
    
    
    562,851$
    1,150,032
    
    
    $
    1,168,913
    
    
    $
    227,016
    
    
    $
    (1,291,852
    )
    
    $
    1,254,109
 Russell CorporationCondensed Consolidated Statements of Income For the year endedJanuary 1, 2005
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    1.073,513
    
    
    $
    174,552
    
    
    $
    387,951
    
    
    $
    (337,764
    )
    
    $
    1,298,252Cost of goods sold
    
    
    801,524
    
    
    
    132,993
    
    
    
    333,924
    
    
    
    (334,069
    )
    
    
    934,372Gross profit
    
    
    271,989
    
    
    
    41,559
    
    
    
    54,027
    
    
    
    (3,695
    )
    
    
    363,880Selling, general and administrative expenses
    
    
    175,311
    
    
    
    61,536
    
    
    
    32,711
    
    
    
    
    
    
    
    269,558Othernet
    
    
    128,888
    
    
    
    (133,078
    )
    
    
    (2,279
    )
    
    
    
    
    
    
    (6,469
    )Operating income
    
    
    (32,210
    )
    
    
    113,101
    
    
    
    23,595
    
    
    
    (3,695
    )
    
    
    100,791Interest
expense (income) - net
    
    
    28,361
    
    
    
    1,364
    
    
    
    1,118
    
    
    
    
    
    
    
    30,843Non-controlling interests
    
    
    2,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,021Income (loss) before income taxes and equity in earnings of
consolidated subsidiaries
    
    
    (62,592
    )
    
    
    111,737
    
    
    
    22,477
    
    
    
    (3,695
    )
    
    
    67,927Provision (benefit) for income taxes
    
    
    (24,914
    )
    
    
    42,076
    
    
    
    2,829
    
    
    
    
    
    
    
    19,991Equity in earnings of consolidated subsidiaries, net of income taxes
    
    
    85,614
    
    
    
    
    
    
    
    
    
    
    
    (85,614
    )
    
    
    Net income (loss)
    
    $
    47,936
    
    
    $
    69,661
    
    
    $
    19,648
    
    
    $
    (89,309
    )
    
    $
    47,936
 49




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##### Table of Contents



Russell CorporationCondensed Consolidated Statements of Cash Flows For the year endedJanuary 1, 2005
    
    
    
    
    
    Subsidiary
    
    
    Non-Guarantor(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating ActivitiesNet cash provided by (used in) operating activities
    
    $
    259,243
    
    
    $
    (101,773
    )
    
    $
    (76,181
    )
    
    $
    
    
    
    $
    81,289Investing ActivitiesPurchase of property, plant and equipment
    
    
    (12,277
    )
    
    
    (1,898
    )
    
    
    (21,319
    )
    
    
    
    
    
    
    (35,494
    )Investment in and advances to subsidiaries
    
    
    (190,580
    )
    
    
    91,071
    
    
    
    99,509
    
    
    
    
    
    
    
    Cash paid for acquisitions, joint ventures and other
    
    
    (158,370
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (158,370
    )Proceeds from sale of property, plant and equipment
    
    
    11,115
    
    
    
    2,354
    
    
    
    228
    
    
    
    
    
    
    
    13,697Other
    
    
    1,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,769Net cash (used in) provided by investing activities
    
    
    (348,343
    )
    
    
    91,527
    
    
    
    78,418
    
    
    
    
    
    
    
    (178,398
    )Financing ActivitiesBorrowings (payments) on credit facility  net
    
    
    92,697
    
    
    
    
    
    
    
    (1,390
    )
    
    
    
    
    
    
    91,307Borrowings on short-term debt
    
    
    
    
    
    
    
    
    
    
    9,692
    
    
    
    
    
    
    
    9,692Debt issuance and amendment costs paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends on common stock
    
    
    (5,216
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,216
    )Treasury stock re-issued
    
    
    3,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,839Cost of common stock for treasury
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )Net cash provided by financing activities
    
    
    91,240
    
    
    
    
    
    
    
    8,302
    
    
    
    
    

    
    
    99,542Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (592
    )
    
    
    
    
    
    
    (592
    )Net increase (decrease) in cash
    
    
    2,140
    
    
    
    (10,246
    )
    
    
    9,947
    
    

    
    
    
    
    
    1,841Increase in cash from consolidating Frontier Yarns
    
    
    
    
    
    
    
    
    
    
    7,859
    
    
    
    
    
    
    
    7,859Cash balance at beginning of year
    
    
    414
    
    
    
    15,840
    
    
    
    3,862
    
    
    
    
    
    
    
    20,116Cash balance at end of year
    
    $
    2,554
    
    
    $
    5,594
    
    
    $
    21,668
    
    
    $
    
    
    
    $
    29,816
 50




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
StockholdersRussell Corporation We have audited the accompanying consolidated balance sheets of Russell Corporation as of
January 1, 2005 and January 3, 2004, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three fiscal years in the period ended January
1, 2005. Our audits also included the financial statement schedule listed in the Index at Item
15(a). These financial statements and schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and schedule based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Russell Corporation at January 1, 2005 and January
3, 2004, and the consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended January 1, 2005, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein. As described in Note 1, effective April 4, 2004 the Company began consolidating Frontier Yarns LLC
in accordance with the provisions of FASB Interpretation No. 46, Consolidation of Variable
Interest Entities. /s/ Ernst & Young LLP March 16, 2005
Atlanta, Georgia 51




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures
that are designed to ensure that information we are required to disclose in the reports we file
under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and to
ensure that such information is accumulated and communicated to our management, including our
Chairman and Chief Executive Officer and Senior Vice President, Chief Financial Officer as
appropriate, to allow timely decisions regarding disclosure. As of the end of the period covered by
this Annual Report on Form 10-K, we evaluated, under the supervision and with the participation of
our management, including our Chairman and Chief Executive Officer and Senior Vice President, Chief
Financial Officer, the effectiveness of our disclosure controls and procedures. Based on that
evaluation, our Chairman and Chief Executive Officer and Senior Vice President, Chief Financial
Officer, concluded that, as of the end of the period covered by this Annual Report on Form 10-K,
our disclosure controls and procedures are effective. Managements Report on Internal Control Over Financial Reporting and Report of Independent
Registered Public Accounting Firm.Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as that term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management, including our
Chairman and Chief Executive Officer and Senior Vice President, Chief Financial Officer, we are in
the process of conducting an evaluation of our internal control over financial reporting based on
the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Under SEC rules, our management is required to report on the effectiveness of our internal control
over financial reporting and our independent registered public accounting firm will attest to
managements report. On November 30, 2004, the SEC issued an exemptive order providing companies
of a certain size with a 45 day extension for the filing of managements report and the attestation
of our independent auditor. We are eligible for and have elected to
utilize this 45 day extension,
and therefore, this Annual Report on Form 10-K does not include these reports. These reports will be
included in an amended Form 10-K that we expect to file in April 2005. We intend to exclude from
our assessment the internal control over financial reporting at Brooks Sports, Inc., which we
acquired on December 30, 2004 and whose financial statements reflect total assets that
constitute approximately twelve percent of the consolidated total
assets for the Company as
of January 1, 2005.
Currently, we are not aware of any material weaknesses in our internal control over financial
reporting. Changes in Internal Control.During the most recent fiscal quarter, there have been no changes in
our internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. 
 ITEM 9B. OTHER INFORMATION Not applicable. 52




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of Directors and Executive Officers (a) Election of Directors from the Proxy Statement is incorporated herein by reference. Additional executive officers who are not directors are as follows: OfficerName
    
    Age
    
    Since
    
    PositionJonathan R. Letzler
    
    48
    
    1998
    
    President and Chief Operating OfficerJulio A. Barea
    
    57
    
    2003
    
    Senior Vice President/ President and
Chief Executive Officer, ActivewearEdsel W. Flowers
    
    49
    
    2003
    
    Senior Vice President, Human ResourcesFloyd G. Hoffman
    
    62
    
    1999
    
    Senior Vice President, Corporate
Development, General Counsel and SecretaryRobert D. Koney, Jr.
    
    48
    
    2004
    
    Senior Vice President, Chief
Financial OfficerLarry E. Workman
    
    61
    
    1987
    
    Corporate Controller
 Mr. Letzler was employed by
Russell in 1998 as Senior Vice President and Chief Executive Officer
of the Jerzees Division. He was named President and Chief Operating Officer in 2001. Prior to
joining Russell, he was with Sara Lee Corporation from 1980 to 1998, most recently as President of
Hanes Hosiery and prior to that he was President of the Hanes Printables Division. Mr. Barea was employed by Russell in 2003 as Senior Vice President/President and Chief Executive
Officer, Activewear. Prior to joining Russell, Mr. Barea was a consultant to Sara Lee Corporation
from 2001 through 2003. Prior to that, he had been with Sara Lee Corporations knit products
division for approximately 20 years in various positions, most recently as Vice President of Sara
Lee Corporation and Chief Executive Officer of their Latin American Branded Apparel Unit. Mr. Flowers was employed by Russell in 2003, as Senior Vice President, Human Resources. Prior to
joining Russell, he was a Global Vice President of Merisant Corporation for 3 years and spent 8
years in various senior level human resources positions at Monsanto Company, most recently as Vice
President, Strategic Staffing and Vice President Human Resources for the Agricultural Sector. Mr. Hoffman was employed by Russell as Senior Vice President, General Counsel and Secretary in 1999
and assumed additional responsibility as Senior Vice President, Corporate Development in 2000.
Prior to joining Russell, he was Vice President-General Counsel and Secretary for OSI Industries,
Inc., from 1996 to 1999. Prior to that, he was Vice President-Deputy General Counsel and Assistant
Secretary for Sara Lee Corporation. Mr. Koney was employed by Russell as Senior Vice President, Chief Financial Officer in 2004. Prior
to joining Russell, he was with Goodrich Corporation for 18 years, most recently as Vice President,
Controller and Chief Accounting Officer since 1998. Prior to Goodrich, he had been manager of
federal taxation with Picker International for 4 years and a senior tax accountant. Mr. Koney
began his career as a staff auditor with Arthur Andersen & Company in 1978. Mr. Workman was named Corporate Controller in 1987. He has been employed by Russell since 1969 as
an accountant and served as Manager, Cost Accounting, from 1970 to 1987. All executive officers and all other officers of the Company were elected or re-elected to their
positions at the Board of Directors meeting on February 9, 2005. (b) Committees of the Board of Directors; Meetings from the Proxy Statement is incorporated
herein by reference. (c) Section 16(a) Beneficial Ownership Reporting Compliance from the Proxy Statement is
incorporated herein by reference. 53




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(d) Conduct Guidelines and Code of Conduct from the Proxy Statement is incorporated herein by
reference. (e) There have been no material changes to the procedures by
which security holders may recommend nominees to the Companys Board of Directors. 
 ITEM 11. EXECUTIVE COMPENSATION Executive Compensation from the Proxy Statement is incorporated herein by reference. Management
Development and Compensation Committee Report on Executive Compensation and Comparison of
Five-Year Cumulative Total Return from the Proxy Statement are incorporated herein by reference,
but pursuant to Instruction (9) to Item 402(a)(3) of Regulation S-K shall not be deemed to be filed
with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS  (a)
    
    Principal Shareholders from the Proxy Statement is incorporated herein by reference.(b)
    
    Information concerning security ownership of management from the Proxy Statement under the
caption Security Ownership of Executive Officers and Directors is incorporated herein by
reference.(c)
    
    There are no arrangements known to the registrant the operation of which may at a subsequent
date result in a change in control of the registrant. Securities Authorized for Issuance Under Equity Compensation Plans NUMBER OF SECURITIESNUMBER OF SECURITIES
    
    
    
    
    
    
    REMAINING AVAILABLE FORTO BE ISSUED UPON
    
    
    WEIGHTED-AVERAGE
    
    
    FUTURE ISSUANCE UNDEREXERCISE OF
    
    
    EXERCISE PRICE OF
    
    
    EQUITY COMPENSATION PLANSOUTSTANDING OPTIONS,
    
    
    OUTSTANDING OPTIONS,
    
    
    (EXCLUDING SECURITIESWARRANTS AND RIGHTS
    
    
    WARRANTS AND RIGHTS
    
    
    REFLECTED IN COLUMN (a))PLAN CATEGORY
    
    (a)
    
    
    (b)
    
    
    (c)EQUITY COMPENSATION
PLANS APPROVED BY
SECURITY HOLDERS
    
    
    2,618,170
    
    
    $
    21.09
    
    
    
    3,151,472
    (1)EQUITY COMPENSATION PLANS
NOT APPROVED BY SECURITY
HOLDERS
    
    
    831,777
    
    
    $
    15.91
    
    
    
    148,198
    (2)TOTAL
    
    
    3,449,947
    
    
    $
    19.84
    
    
    
    3,299,670
   (1)
    
    Of this number of shares, 504,104, 2,345,238 and 302,130 are reserved for issuance under the
2000 Employee Stock Purchase Plan, Executive Incentive Plan and the 2000 Non-Employee
Directors Compensation Plan, respectively. Both the Executive Incentive Plan and the 2000
Non-Employee Directors Compensation Plan permit grants of several forms of equity securities
in addition to options, warrants or rights. See Note 7 of Notes to Consolidated Financial
Statements in Part II, Item 8 of this Report on Form 10-K.(2)
    
    These shares are reserved for issuance under the Russell Corporation 2000 Stock Option Plan
(the 2000 Option Plan). The 2000 Option Plan was adopted by the Board of Directors as an
incentive compensation plan that gives us broad discretion to grant awards, and develop the
terms of such awards, to any employee or consultant of the Company. Approval of the 2000
Option Plan by security holders was not required under applicable regulations. The 2000 Option
Plan permits the issuance of awards in a variety of forms, including: (a) incentive stock
options; (b) non-qualified stock options; (c) reload stock options; (d) restricted shares; (e)
bonus shares; (f) deferred shares; (g) freestanding stock appreciation rights; (h) tandem
stock appreciation rights; (i) performance units; and (j) performance shares. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others and Certain Business Relationships from the Proxy
Statement is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information under the heading Audit Fees and All Other Fees from the Proxy Statement is
incorporated herein by reference. 54




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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) List of Documents filed as part of this Report: (1) Financial Statements All financial statements of the registrant as set forth under Item 8 of this Report on Form 10-K (2) Financial Statement Schedule Schedule
    
    
    
    PageNumber
    
    Description
    
    NumberII
    
    Valuation and Qualifying Accounts
    
    59
 All other financial statements and schedules not listed have been omitted since the required
information is included in the consolidated financial statements or the notes thereto, or is not
applicable or required. (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K) Exhibit
    
    
    
    Incorporation by ReferenceNumbers
    
    Description
    
    or Filed Herewith(2a)
    
    Agreement and Plan of Merger dated as of January 30, 2004 by
and between Russell Corporation, an Alabama corporation, and
Russell Corporation, a Delaware corporation
    
    Exhibit (2) to Annual Report on Form
10-K for year ended January 3, 2004(2b)
    
    Agreement and Plan of Reorganization, dated as of December
14, 2004, by and among Brooks Sports, Inc., the Principal
Shareholders named therein, Russell Corporation and ADR
Acquisition Corporation, along with Amendment Nos. 1 and 2
thereto, dated as of December 16 and December 23, 2004,
respectively. Filed without exhibits and schedules.
Russell agrees to furnish a copy of any such exhibit or
schedule to the Securities and Exchange Commission upon
request.
    
    Exhibit 2.1 to Current Report on Form
8-K filed January 5, 2005(3a)
    
    Restated Articles of Incorporation
    
    Exhibit (3a) to Annual Report on Form
10-K for year ended January 4, 2003(3b)
    
    Form of Resolution Establishing and Designating Series A
Junior Participating Preferred Stock as Adopted on October
25, 1989
    
    Exhibit 4.2 to Current Report on Form
8-K filed September 17, 1999(3c)
    
    Bylaws
    
    Exhibit (3c) to Annual Report on Form
10-K for year ended January 4, 2003(4a)
    
    Rights Agreement dated as of September 15, 1999 between the
Company and SunTrust Bank, Atlanta, Georgia
    
    Exhibit 4.1 to Current Report on Form
8-K filed on September 17, 1999(4b)
    
    Loan and Security Agreement dated as of April 18, 2002
relating to the Companys $300,000,000 Revolving Credit
Facility and $25,000,000 Term Loan Facility1
    
    Exhibit 4.1 to Quarterly Report on Form
10-Q filed on May 15, 2002(4c)
    
    Amendment No. 1 to Loan and Security Agreement dated as of
March 11, 2003 relating to the Companys $300,000,000
Revolving Credit Facility and $25,000,000 Term Loan Facility
    
    Exhibit (4c) to Annual Report on Form
10-K for year ended January 4, 2003(4d)
    
    Indenture dated as of April 18, 2002 relating to the
Companys 9.25% Senior Notes due 2010
    
    Exhibit 4.2 to Quarterly Report on Form
10-Q filed May 15, 2002(4e)
    
    Registration Rights Agreement effective as of January 31,
2005
    
    Filed Herewith(10a)
    
    Russell Corporation 1997 Non-Employee Directors Stock
Grant, Stock Option and Deferred Compensation Plan
    
    Exhibit (10f) to Annual Report on Form
10-K for year ended January 2, 1999(10b)
    
    Executive Incentive Plan
    
    Appendix B to Proxy Statement dated
March 16, 2000(10c)
    
    Russell Corporation Amended and Restated Flexible Deferral
Plan
    
    Exhibit (10d) to Annual Report on Form
10-K for year ended January 4, 2003(10d)
    
    First Amendment to the Russell Corporation Flexible Deferral
Plan
    
    Filed Herewith(10e)
    
    Second Amendment to the Russell
Corporation Flexible Deferral Plan
    
    Filed Herewith
   1 Portions of the Loan and Security Agreement have been omitted pursuant to a request for confidential treatment approved by the
Securities and Exchange Commission (SEC). The omitted material has been filed separately with the SEC. 55




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Exhibit
    
    
    
    Incorporation by ReferenceNumbers
    
    Description
    
    or Filed Herewith(10f)
    
    Russell Corporation 2000 Stock Option Plan
    
    Exhibit 4(k) to Registration Statement
No. 333-30238(10g)
    
    Russell Corporation Employee Stock Purchase Plan
    
    Exhibit 4(k) to Registration Statement
No. 333-30236(10h)
    
    Amendment No. 1 to the Russell Corporation Employee Stock
Purchase Plan
    
    Exhibit (10i) to Annual Report on Form
10-K for year ended December 29, 2001(10i)
    
    Russell Corporation 2000 Non-Employee Directors Compensation
Plan
    
    Exhibit 4(m) to Registration Statement
No. 333-55340(10j)
    
    First Amendment to the Russell Corporation 2000 Non-Employee
Directors Compensation Plan dated December 11, 2002
    
    Exhibit (10i) to Annual Report on Form
10-K for year ended January 4, 2003(10k)
    
    Second Amendment to the Russell Corporation 2000 Non-Employee
Directors Compensation Plan dated February 10, 2004
    
    Exhibit (10j) to Annual Report on Form
10-K for year ended January 3, 2004(10l)
    
    Amended and Restated Employment Agreement dated April 1,
2001, by and between the Company and John F. Ward
    
    Exhibit (10m) to Annual Report on Form
10-K for year ended December 30, 2000(10m)
    
    Amended and Restated Executive Deferred Compensation and
Buyout Plan dated April 1, 2001, by and between the Company
and John F. Ward
    
    Exhibit (10n) to Annual Report on Form
10-K for year ended December 30, 2000(10n)
    
    Amendment, dated as of May 21, 2003, to the Amended and
Restated Employment Agreement dated April 1, 2001, by and
between the Company and John F. Ward
    
    Exhibit 10.1 to Quarterly Report on Form
10-Q filed August 19, 2003(10o)
    
    Amended and Restated Employment Agreement dated as of
November 20, 2002 by and between the Company and Jonathan R.
Letzler
    
    Exhibit (10l) to Annual Report on Form
10-K for year ended January 4, 2003(10p)
    
    Russell Corporation Amended and Restated Supplemental
Executive Retirement Plan dated January 1, 2002
    
    Exhibit (10m) to Annual Report on Form
10-K for year ended January 4, 2003(10q)
    
    First Amendment to the Russell Corporation Supplemental
Executive Retirement Plan
    
    Exhibit (10a) to Quarterly Report on
Form 10-Q filed August 12, 2004(10r)
    
    Second Amendment to the Russell Corporation Supplemental
Executive Retirement Plan
    
    Filed Herewith(10s)
    
    Supply Agreement dated as of December 28, 2001 by and between
the Company and Frontier Yarns, LLC and Frontier Spinning
Mills, Inc.2
    
    Exhibit (10p) to Annual Report on Form
10-K for year ended December 29, 2001(10t)
    
    Russell Corporation Amended and Restated Supplemental
Retirement Benefit Plan dated January 1, 2002
    
    Exhibit (10o) to Annual Report on Form
10-K for year ended January 4, 2003(10u)
    
    Employment Agreement dated as of January 17, 1999 by and
between the Company and Floyd G. Hoffman
    
    Exhibit (10q) to Annual Report on Form
10-K for year ended January 4, 2003
   2 Portions of the Supply Agreement have been omitted pursuant to a request for confidential treatment approved by the SEC. The
omitted material has been filed separately with the SEC. 56




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##### Table of Contents



Exhibit
    
    
    
    Incorporation by ReferenceNumbers
    
    Description
    
    or Filed Herewith(10v)
    
    Employment Agreement dated as of June 16, 2003 by and between
the Company and Edsel W. Flowers
    
    Filed Herewith(10w)
    
    Employment Agreement dated as of October 24, 2003 by and
between the Company and Julio A. Barea
    
    Filed Herewith(10x)
    
    Employment Agreement, dated as of August 25, 2004, between
the Company and Robert D. Koney, Jr.
    
    Exhibit (10b) to Quarterly Report on
Form 10-Q filed November 12, 2004(10y)
    
    Retirement Agreement, dated as of July 26, 2004, between
Russell Corporation and JT Taunton, Jr.3
    
    Exhibit (10a) to Quarterly Report on
Form 10-Q filed November 12, 2004(10z)
    
    Form of Change of Control Agreement with Julio A. Barea,
Floyd G. Hoffman and Edsel W. Flowers
    
    Exhibit (10r) to Annual Report on Form
10-K for year ended January 4, 2003(14)
    
    Code of Ethics
    
    Exhibit (14) to Annual Report on Form
10-K for year ended January 3, 2004(21)
    
    List of Subsidiaries
    
    Filed Herewith(23)
    
    Consent of Ernst & Young LLP, Independent Auditors
    
    Filed Herewith(24)
    
    Powers of Attorney
    
    Filed Herewith(31a)
    
    Rule 13a-14(a)/15d-14(a) CEO Certification
    
    Filed Herewith(31b)
    
    Rule 13-a-14(a)/15d-14(a) CFO Certification
    
    Filed Herewith(32)
    
    Section 1350 Certifications
    
    Filed Herewith
   3 Portions of Retirement Agreement have been omitted pursuant to a request for confidential treatment filed with the SEC. The omitted
material has been filed separately with the SEC. 57




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized. RUSSELL CORPORATION(Registrant)Date:
March 17, 2005
    
    /s/ John F. WardJohn F. Ward
Chairman and CEO
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. /s/ John F. Ward
    
    Chairman and CEO
    
    March 17, 2005John F. Ward
    
    
    
    Date/s/ Robert D. Koney, Jr.
    
    Senior Vice President,
    
    March 17, 2005Robert D. Koney, Jr.
    
    Chief Financial Officer
    
    Date/s/ Herschel M. Bloom
    
    Director
    
    March 17, 2005Herschel M. Bloom*
    
    
    
    Date/s/ Ronald G. Bruno
    
    Director
    
    March 17, 2005Ronald G. Bruno*
    
    
    
    Date/s/ Arnold W. Donald
    
    Director
    
    March 17, 2005Arnold W. Donald*
    
    
    
    Date/s/ Rebecca C. Matthias
    
    Director
    
    March 17, 2005Rebecca C. Matthias*
    
    
    
    Date/s/ C.V. Nalley III
    
    Director
    
    March 17, 2005C.V. Nalley III*
    
    
    
    Date/s/ Margaret M. Porter
    
    Director
    
    March 17, 2005Margaret M. Porter*
    
    
    
    Date/s/ Mary Jane Robertson
    
    Director
    
    March 17, 2005Mary Jane Robertson*
    
    
    
    Date/s/ John R. Thomas
    
    Director
    
    March 17, 2005John R. Thomas*
    
    
    
    Date/s/ John A. White
    
    Director
    
    March 17, 2005John A. White*
    
    
    
    Date/s/ Larry E. Workman
    
    Controller
    
    March 17, 2005Larry E. Workman
    
    (Principal Accounting
Officer)
    
    Date
   *
    
    By Christopher M. Champion as Attorney-in-Fact pursuant to Powers of Attorney executed by
the directors listed above, which Powers of Attorney have been filed with the Securities and
Exchange Commission. By:
    

/s/ Christopher M. ChampionChristopher M. ChampionAs Attorney-in-Fact
 58




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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
RUSSELL CORPORATION AND SUBSIDIARIES BALANCE AT
    
    
    ADDITIONS
    
    
    
    
    
    
    
    
    
    
    BALANCEBEGINNING
    
    
    CHARGED TO COSTS
    
    
    
    
    
    
    
    
    
    
    AT ENDDESCRIPTION
    
    OF PERIOD
    
    
    AND EXPENSES
    
    
    ACQUISITIONS
    
    
    DEDUCTIONS
    
    OF PERIODYEAR ENDED JANUARY 01, 2005Allowance for doubtful accounts
    
    $
    5,768,678
    
    
    $
    1,680,395
    
    
    $
    
    
    
    $
    860,361
    (1)
    
    $
    6,588,712Reserve for discounts and returns
    
    
    4,515,788
    
    
    
    19,539,195
    
    
    
    
    
    
    
    12,660,042
    (2)
    
    
    11,394,941TOTALS
    
    $
    10,284,466
    
    
    $
    21,219,590
    
    
    $
    
    
    
    $
    13,520,403
    
    
    $
    17,983,653YEAR ENDED JANUARY 3, 2004Allowance for doubtful accounts
    
    $
    18,050,384
    
    
    $
    1,160,460
    
    
    $
    438,658
    
    
    $
    13,880,824
    (1)
    
    $
    5,768,678Reserve for discounts and returns
    
    
    4,904,050
    
    
    
    11,820,210
    
    
    
    464,842
    
    
    
    12,673,314
    (2)
    
    $
    4,515,788TOTALS
    
    $
    22,954,434
    
    
    $
    12,980,670
    
    
    $
    903,500
    
    
    $
    26,554,138
    
    
    $
    10,284,466YEAR ENDED JANUARY 4, 2003Allowance for doubtful accounts
    
    $
    11,968,071
    
    
    $
    7,486,500
    
    
    $
    
    
    
    $
    1,404,187
    (1)
    
    $
    18,050,384Reserve for discounts and returns
    
    
    3,815,761
    
    
    
    12,985,537
    
    
    
    
    
    
    
    11,897,248
    (2)
    
    
    4,904,050TOTALS
    
    $
    15,783,832
    
    
    $
    20,472,037
    
    
    $
    
    
    
    $
    13,301,435
    
    
    $
    22,954,434
   (1)
    
    Uncollectible accounts written off, net
of recoveries(2)
    
    Discounts and returns allowed
customers during the year 59




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
RUSSELL CORPORATION AND SUBSIDIARIES RESERVE AT
    
    
    ADDITIONS
    
    
    
    
    
    
    
    
    
    
    BALANCEBEGINNING
    
    
    CHARGED TO COSTS
    
    
    
    
    
    
    
    
    
    
    AT ENDDESCRIPTION
    
    OF PERIOD
    
    
    AND EXPENSES
    
    
    ACQUISITIONS
    
    
    DEDUCTIONS
    
    
    OF PERIODYEAR ENDED JANUARY 01, 2005Asset impairment
    
    $
    20,249,000
    
    
    $
    
    
    
    $
    
    
    
    $
    10,346,000
    (9)
    
    $
    9,903,000Employee terminations
    
    
    2,793,000
    
    
    
    
    
    
    
    
    
    
    
    2,763,000
    (3)
    
    
    30,000Inventory losses including shipping and warehousing costs
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    25,000
    (5)
    
    
    Termination of certain licenses and contracts
    
    
    245,000
    
    
    
    
    
    
    
    
    
    
    
    93,000
    (3)
    
    
    152,000Exit cost related to facilities
    
    
    
    
    
    
    542,000
    
    
    
    
    
    
    
    542,000
    (3)
    
    
    Other
    
    
    556,000
    
    
    
    
    
    
    
    
    
    
    
    556,000
    (3)
    
    
    TOTALS
    
    $
    23,868,000
    
    
    $
    542,000
    
    
    $
    
    
    
    $
    14,325,000
    
    
    $
    10,085,000YEAR ENDED JANUARY 3, 2004Asset impairment
    
    $
    41,559,000
    
    
    $
    3,090,000
    
    
    $
    
    
    
    $
    24,400,000
    (7)
    
    $
    20,249,000Employee terminations
    
    
    640,000
    
    
    
    4,482,000
    
    
    
    
    
    
    
    2,329,000
    (3)
    
    
    2,793,000Inventory losses including shipping and warehousing costs
    
    
    37,000
    
    
    
    
    
    
    
    
    
    
    
    12,000
    (5)
    
    
    25,000Termination of certain licenses and contracts
    
    
    395,000
    
    
    
    528,000
    
    
    
    
    
    
    
    678,000
    (3)
    
    
    245,000Exit cost related to facilities
    
    
    1,298,000
    
    
    
    230,000
    
    
    
    
    
    
    
    1,528,000
    (6)
    
    
    Other
    
    
    
    
    
    
    573,000
    
    
    
    
    
    
    
    17,000
    (3)
    
    
    556,000TOTALS
    
    $
    43,929,000
    
    
    $
    8,903,000
    (8)
    
    $
    
    
    
    $
    28,964,000
    
    
    $
    23,868,000YEAR ENDED JANUARY 4, 2003Asset impairment
    
    $
    43,547,000
    
    
    $
    5,288,000
    
    
    $
    
    
    
    $
    7,276,000
    (12)
    
    $
    41,559,000Employee terminations
    
    
    11,673,000
    
    
    
    
    
    
    
    
    
    
    
    11,033,000
    (11)
    
    
    640,000Inventory losses including shipping and warehousing costs
    
    
    9,175,000
    
    
    
    403,000
    
    
    
    
    
    
    
    9,541,000
    (5)
    
    
    37,000Termination of certain licenses and contracts
    
    
    1,417,000
    
    
    
    
    
    
    
    
    
    
    
    1,022,000
    (10)
    
    
    395,000Exit cost related to facilities
    
    
    3,049,000
    
    
    
    834,000
    
    
    
    
    
    
    
    2,585,000
    (3)
    
    
    1,298,000Other
    
    
    725,000
    
    
    
    
    
    
    
    
    
    
    
    725,000
    (4)
    
    
    TOTALS
    
    $
    69,586,000
    
    
    $
    6,525,000
    (13)
    
    $
    
    
    
    $
    32,182,000
    
    
    $
    43,929,000
   (3)
    
    Represents cash paid(4)
    
    Represents asset write-offs(5)
    
    Represents assets sold after write-downs(6)
    
    Represents cash paid of $1,000,000 and an adjustment of $528,000 to reflect our best
estimate of the ultimate settlement of this liability(7)
    
    Represents asset sold after write-downs and includes $1,072,000 of gains realized on
the sale of assets held for sale at the beginning of 2003(8)
    
    This additional expense was partially offset by the adjustment noted at (6) along with the
realized gains on asset sales discussed in (7)(9)
    
    Represents assets sold after writedown resulting in a net gain of $431,000(10)
    
    Represents cash paid of $619,000 and an adjustment of $403,000 to reflect our best estimate of
the ultimate settlement of this liability(11)
    
    Represents cash paid of $10,662,000 and an adjustment of $371,000 to reflect our best
estimate of the ultimate settlement of this liability(12)
    
    Represents asset sold after write-downs and includes $5,751,000 of gains realized on the sale
of assets held for sale at the beginning of 2002(13)
    
    This additional expense was completely offset by the adjustments noted at (10) and (11)
along with the realized gains on asset sales discussed in (12) 60