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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended JANUARY 3, 2004 [  ]
    
    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
(State or other jurisdiction of
incorporation or organization)
3330 Cumberland Blvd, Suite 800
    
    63-0180720
(I.R.S. Employer
Identification No.)Atlanta, Georgia
    
    30339Registrants telephone number, including area code:
    (678) 742-8000
 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of Each Class
    
    Name of Each Exchange
on Which RegisteredCommon Stock, $.01 par value
    
    New York Stock Exchange
Pacific 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 [X]  No
[  ] 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. [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X]  No
[  ] The aggregate market value of Common Stock, par value $.01, held by
non-affiliates of the registrant, as of July 3, 2003, was approximately
$628,718,517. As of March 5, 2004, there were 32,553,384 shares of Common Stock, $.01 par
value outstanding (excluding treasury shares).




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DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on April 21, 2004 (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 OperationsConsolidated 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 PROCEDURESPART 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, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSIGNATURESEX-2 AGREEMENT AND PLAN OF MERGER, DATED 1/30/04EX-10.(J) SECOND AMEND. TO NON-EMPLOYEE COMP. PLANEX-10.(V) AGREEMENTEX-14 CODE OF ETHICSEX-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 & CFOEX-99.(A) PROXY STATEMENT FOR APRIL 21, 2004    Table of Contents  
 PART I 
 ITEM 1. BUSINESS General Russell Corporation (Russell, we, our or the Company) is a leading
branded athletic, activewear and outdoor company marketing athletic uniforms,
apparel, sporting goods, athletic equipment, and accessories for a wide variety
of sports, outdoor and fitness activities under widely-recognized brand names
including Russell Athletic®, Jerzees®, Mossy Oak®, Cross Creek®, Moving
Comfort®, Discus®, Bike®, Spalding®, Dudley®, and Sherrin®. Russell was
incorporated in 1902 and has its headquarters in Atlanta, Georgia. The Russell
name has been associated with high quality apparel since 1902 and with team
uniforms since 1932. 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 are a leading supplier of
team uniforms and related apparel to college, high school and other organized
sports teams. In addition, we completed two acquisitions in 2003 that launched
our participation in the sporting goods and athletic equipment markets. In
February 2003, we acquired the brand and related assets of Bike Athletic
Company, which 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, footballs, soccer balls, and volleyballs. Spalding is the
official basketball supplier for the National Basketball Association (NBA)
and the Womens National Basketball Association; the official football for the
Arena Football League; the official soccer ball of the Major Indoor Soccer
League; and the official volleyball for the National Collegiate Athletic
Association and American Volleyball Association. We offer a diversified portfolio of brands across multiple distribution
channels and market our products in the United States and Canada and
approximately 70 other countries. We market and distribute our products through
mass merchandisers, sporting goods dealers, department and sports specialty
stores, college stores, on-line retailers, mail order houses, artwear
distributors, screenprinters, and embroiderers. 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 International. Domestic segment sales represented
approximately 92% of our total 2003 net sales. The Domestic segment is further
aligned by distribution channel: Athletic, Mass Retail and Artwear/Careerwear.
For fiscal 2003, these channels represented approximately 32%, 29% and 31%,
respectively of our total net sales. International segment sales represented
approximately 8% of our total 2003 net sales. We produce finished apparel and fabrics utilizing owned facilities, as well as
contractors and other suppliers for knitting and weaving, dyeing and finishing,
and cutting and sewing operations. The products offered by the Spalding and
Bike businesses are primarily sourced from third-party contractors. We
outsource our yarn requirements, purchasing the majority from the yarn spinning
joint venture we entered into in 2001 pursuant to a long-term supply agreement,
and the remainder from other manufacturers. For further discussion of our yarn
joint venture, see Managements Discussion and Analysis of Financial Condition
and Results of Operations in Part II, Item 7 and Notes 8 and 9 of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report on Form
10-K. Knitting, weaving, dyeing, finishing, and cutting processes are primarily
performed in Company-owned facilities in the United States. Approximately 99%
of our apparel sewing and assembly operations are conducted offshore for
products sold by the Domestic segment (excluding socks). Our dependence on
third parties for manufacturing and raw materials production could subject us
to difficulties in obtaining timely delivery of products that meet our quality
standards. Although we monitor the performance of our contractors, we cannot
assure that they will deliver our products in a timely manner or that they will
meet our quality standards. In this event, failure to satisfy our customers
requirements 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 1998, we initiated a
Multi-Year 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 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 anticipated in fiscal 2004. The OIP includes
improving our operating efficiencies and asset utilization, while streamlining
processes in both our manufacturing and administrative areas such as: (1)
expanded production with lower cost contractors; (2) lower sourcing costs; (3)
increased efficiencies in domestic textile operations; I-1




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and (4) improved distribution costs. As part of the OIP, we eliminated
approximately 100 positions, primarily salaried and administrative office
staff, and incurred asset impairment charges associated with the planned
closings of two international sales offices and the abandonment of a previously
idled domestic finished goods warehouse. For further discussion of activities
under the restructuring and reorganization program and the OIP, see
Managements Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7 and Note 9 of Notes to Consolidated Financial
Statements in Part II, Item 8 of this Report on Form 10-K. 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
suppliers, or experience delays in obtaining alternative sources of supply, we
may not be able to fulfill our customers requirements, which could have a
material adverse effect on our business, results of operations and financial
condition. 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, due to the sale of our yarn spinning assets to our yarn
joint venture, we no longer directly hold any significant hedging positions and
have no present intention to engage in further commodity hedging. The yarn
supply agreement 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. 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 products.
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
slower production, lower plant and equipment utilization and lower fixed
operating cost absorption, all of 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 or 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 2003, 2002 and 2001 respectively, Wal-Mart and its subsidiaries, our
largest customer, represented approximately 21.2%, 19.6% and 17.8% 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 46% of our 2003
gross sales. We believe that consolidation in the 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. If consolidation continues, our
sales and results of operations may be increasingly sensitive to a
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. The Domestic
segment is further aligned by distribution channel: Athletic, Mass Retail and
Artwear/Careerwear. Athletic, Mass Retail and Artwear/Careerwear 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
segment distributes most of our athletic, outdoor and activewear products. For
further discussion of the financial information on our segments, see Note 10 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 three distribution channels:
(1) Athletic, (2) Mass Retail and (3) Artwear/Careerwear. The Athletic channel
is comprised of Russell Athletic®, Bike®, Moving Comfort®, Spalding®, Dudley®,
and Discus® products. The Mass Retail channel is made up primarily of Jerzees®
and Jerzees Outdoors® products and Mossy Oak® camouflage products. The
Artwear/Careerwear channel consists primarily of Jerzees®, Cross Creek®, and
Three Rivers® unprinted or blank products that are sold to artwear
distributors, wholesalers and embellishers who then decorate the products or
sell them to a I-2




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third party, such as a screen printer. This channel also includes fabrics that
we sell to other apparel manufacturers, primarily for the manufacture of school
and industrial uniforms. International.The International segment is made up primarily of sales of our
core Russell Athletic® and Jerzees® apparel products outside the United
States. For fiscal 2003, this segment represented approximately 8%, or $101.4
million, of total net sales. The majority of our International segment business
is sales of Jerzees® products to the artwear channel in Europe. In Europe, we
also market Russell Athletic® products primarily through nine licensing
arrangements. Russell Athletic® products are also sold in Japan, where Discus®
products are sold as well. Our International sales force and the independent
agents dedicated to the international business are primarily based in the
United Kingdom, continental Europe, 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 10 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 70 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®, and
Discus® 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. We hold licenses to manufacture and sell Major League Baseball apparel
products, NBA basketballs, college apparel and Mossy Oak® branded camouflage
apparel. Our licenses with Major League Baseball expire on December 31, 2004,
and will not be renewed. Our licenses with the NBA allow us to manufacture,
market and sell NBA and team-identified basketballs (including the official
game ball of the NBA) and certain other NBA and team-identified products
worldwide through September 30, 2005. These licenses require us to pay
licensing fees, including fixed minimum fees plus a percentage of net sales on
those products, and require us to provide a specified amount of product to the
NBA and NBA teams free of charge. We intend to negotiate the renewal of the NBA
licenses on commercially reasonable terms; however, we cannot guarantee that we
will be able to renew our licenses with the NBA or that the NBA will not grant
additional licenses to other parties. 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 I-3




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annual royalty payments through 2005. If we fail to comply with the terms of
the Mossy Oak® license, including the obligation to make royalty payments, Haas
Outdoors may terminate the license. We have two non-exclusive licenses with licensing agents that cover
approximately 180 colleges and universities. One of these licenses expires on
March 31, 2004, and we expect to renew that license. The other 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 60
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 The apparel and sporting goods industries are extremely competitive. 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. Employees As of January 3, 2004, we employed 13,644 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. 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. 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, new product lines
and the outlook for the Company based upon currently available information.
Wherever possible, we have identified these forward-looking statements (as
defined in Section 21E of the Securities Exchange Act of 1934) by words such as
anticipates, believes, could, may, intends, estimates, expects,
projects, and similar phrases. 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) economic conditions; (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; (e) inherent risks in the marketplace
associated with new products and new product lines; (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, I-4




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cash management and cash requirements; (i) risks relating to fluctuations in
interest rates, currency exchange rates and commodity prices; (j) estimates and
assumptions utilized in our accounting practices; (k) plant utilization; (l)
our Multi-Year Restructuring and Reorganization Program; (m) implementation of
new systems; (n) effects of lawsuits and government regulations; (o) dependence
on licenses from third parties; (p) price volatility of raw
materials and the availability of alternative sources of supply; (q)
reliance on a few customers for a portion of our sales; (r) dependence on third
parties for the production of yarn and the manufacture of certain of our
products; (s) our international operations; (t) protection of our intellectual
property; (u) risks related to our acquisition strategy; and (v) 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 may
include additional factors that could adversely affect our business and
financial performance. We assume no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise. 
 ITEM 2. PROPERTIES Russells principal executive office is located in Atlanta, Georgia, with other
executive offices located in Alexander City, Alabama, Ft. Payne, Alabama, and
Springfield, Massachusetts. We own manufacturing plants and distribution
facilities for the Domestic segment in Alabama, Georgia, North Carolina,
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
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 (See Note 9 of Notes to Consolidated Financial
Statements in Part II, Item 8 of this Report on Form 10-K). We utilize an aggregate of approximately 8,256,000 square feet of
manufacturing, warehousing and office facilities, and have approximately
1,398,000 square feet that is either idle or held for sale. The following table
summarizes the approximate areas of such facilities: TotalPrimary Use
    
    Domestic
    
    International
    
    Square FeetKnitting and Weaving
    
    
    770,000
    
    
    
    
    
    
    
    770,000Dyeing and Finishing
    
    
    889,000
    
    
    
    
    
    
    
    889,000Cutting and Sewing
    
    
    1,636,000
    
    
    
    41,000
    
    
    
    1,677,000Warehousing and Shipping
    
    
    3,729,000
    
    
    
    301,000
    
    
    
    4,030,000Administrative and
Sales Offices
    
    
    275,000
    
    
    
    31,000
    
    
    
    306,000Idle or held for sale
    
    
    1,398,000
    
    
    
    
    
    
    
    1,398,000Other
    
    
    584,000
    
    
    
    
    
    
    
    584,000
 All presently utilized facilities in the U.S. are owned, except certain
regional sales offices, certain warehousing and shipping facilities and the
Companys executive offices in Atlanta, Georgia and Springfield, Massachusetts
(see Note 8 of Notes to Consolidated Financial Statements in Part II, Item 8
of this Report on Form 10-K). 
 ITEM 3. LEGAL PROCEEDINGS We are a co-defendant in Locke, et al. v. Russell Corporation, et al., in
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, which involves a private right of action for public nuisance, was
scheduled for trial in October 2003; however, the trial court has continued the
case until 2004 and allowed us to move for summary judgment on the remaining
claim. We filed our summary judgment motion on October 31, 2003, which is
pending before the court. A substantially identical lawsuit to 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.). On May 22,
2002, the trial court entered summary judgment in our favor on all claims, and,
on June 17, 2002, the plaintiffs filed a motion to alter that determination,
which is 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 by 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 None. I-5




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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 and various
other regional exchanges under the ticker symbol RML. As of March 9, 2004 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: 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
 2002
    
    Dividend
    
    High
    
    Low
    
    CloseFirst
    
    $
    0.04
    
    
    $
    16.10
    
    
    $
    14.50Second
    
    
    0.04
    
    
    
    19.55
    
    
    
    14.30Third
    
    
    0.04
    
    
    
    19.25
    
    
    
    14.37Fourth
    
    
    0.04
    
    
    
    17.40
    
    
    
    13.14$
    0.16
    
    
    
    
    
    
    
    
    
    
    $
    16.74
 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. Securities Authorized for Issuance Under Equity Compensation Plans NUMBER 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
    
    
    2,828,767
    
    
    $
    21.46
    
    
    
    3,208,982
    (1)EQUITY COMPENSATION PLANS
NOT
APPROVED BY SECURITY HOLDERS
    
    
    1,036,812
    
    
    $
    15.83
    
    
    
    139,323
    (2)TOTAL
    
    
    3,865,579
    
    
    $
    19.97
    
    
    
    3,348,305
  (1)
    
    Of this number of shares, 543,050, 2,342,738 and 323,194 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. II-1




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA Ten-Year Selected Financial Highlights (Dollars in thousands, except 
Common Stock Data and Financial
 Statistics)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998
    
    1997
    
    1996
    
    1995
    
    1994OperationsNet sales(a) (b)
    
    $
    1,186,263
    
    
    $
    1,164,328
    
    
    $
    1,160,925
    
    
    $
    1,226,328
    
    
    $
    1,148,864
    
    
    $
    1,180,118
    
    
    $
    1,228,198
    
    
    $
    1,244,204
    
    
    $
    1,152,633
    
    
    $
    1,098,259Cost of goods sold(a) (b)
    
    
    842,127
    
    
    
    825,763
    
    
    
    894,018
    
    
    
    885,476
    
    
    
    851,591
    
    
    
    878,106
    
    
    
    857,531
    
    
    
    846,166
    
    
    
    816,834
    
    
    
    739,700Operating income(b)
    
    
    93,641
    
    
    
    104,971
    
    
    
    (54,269
    )
    
    
    65,478
    
    
    
    48,390
    
    
    
    17,559
    
    
    
    116,517
    
    
    
    155,283
    
    
    
    109,431
    
    
    
    147,019Interest expense(b)
    
    
    29,663
    
    
    
    30,246
    
    
    
    32,324
    
    
    
    32,401
    
    
    
    28,060
    
    
    
    27,824
    
    
    
    28,165
    
    
    
    25,738
    
    
    
    21,698
    
    
    
    19,434Income (loss) before income
taxes(b) (c) (d)
    
    
    63,978
    
    
    
    54,628
    
    
    
    (86,593
    )
    
    
    33,077
    
    
    
    20,330
    
    
    
    (10,265
    )
    
    
    88,352
    
    
    
    129,545
    
    
    
    87,733
    
    
    
    127,585Income tax (benefit) provision(e)
    
    
    20,939
    
    
    
    20,322
    
    
    
    (31,107
    )
    
    
    18,562
    
    
    
    11,942
    
    
    
    114
    
    
    
    33,904
    
    
    
    47,969
    
    
    
    33,616
    
    
    
    48,759Net income (loss) applicable to
common shares(b) (c) (d) (e)
    
    
    43,039
    
    
    
    34,306
    
    
    
    (55,486
    )
    
    
    14,515
    
    
    
    8,388
    
    
    
    (10,379
    )
    
    
    54,448
    
    
    
    81,576
    
    
    
    54,117
    
    
    
    78,826Financial DataDepreciation and amortization
    
    $
    44,936
    
    
    $
    45,061
    
    
    $
    49,408
    
    
    $
    54,645
    
    
    $
    63,891
    
    
    $
    74,368
    
    
    $
    74,421
    
    
    $
    72,226
    
    
    $
    68,010
    
    
    $
    67,042Capital expenditures
    
    
    38,641
    
    
    
    28,343
    
    
    
    48,975
    
    
    
    59,457
    
    
    
    53,376
    
    
    
    72,864
    
    
    
    72,926
    
    
    
    114,031
    
    
    
    86,556
    
    
    
    38,562Working capital(b)
    
    
    404,068
    
    
    
    385,118
    
    
    
    401,816
    
    
    
    471,414
    
    
    
    460,041
    
    
    
    435,819
    
    
    
    501,431
    
    
    
    412,591
    
    
    
    438,070
    
    
    
    310,330Long-term debt(b)
    
    
    272,355
    
    
    
    265,000
    
    
    
    310,936
    
    
    
    384,211
    
    
    
    377,865
    
    
    
    323,043
    
    
    
    360,607
    
    
    
    255,935
    
    
    
    287,878
    
    
    
    144,163Stockholders equity
    
    
    514,864
    
    
    
    467,253
    
    
    
    454,231
    
    
    
    525,940
    
    
    
    549,342
    
    
    
    614,771
    
    
    
    665,602
    
    
    
    679,823
    
    
    
    632,558
    
    
    
    628,662Capital employed
    
    
    787,219
    
    
    
    732,253
    
    
    
    765,167
    
    
    
    910,151
    
    
    
    927,207
    
    
    
    937,814
    
    
    
    1,026,209
    
    
    
    935,758
    
    
    
    920,436
    
    
    
    772,825Total assets(b)
    
    
    1,023,307
    
    
    
    963,115
    
    
    
    995,170
    
    
    
    1,153,160
    
    
    
    1,153,131
    
    
    
    1,153,564
    
    
    
    1,247,962
    
    
    
    1,195,180
    
    
    
    1,118,164
    
    
    
    1,046,577Common Stock DataNet income (loss) assuming
dilution(b) (c) (d) (e)
    
    $
    1.32
    
    
    $
    1.06
    
    
    $
    (1.74
    )
    
    $
    0.44
    
    
    $
    0.25
    
    
    $
    (0.29
    )
    
    $
    1.47
    
    
    $
    2.11
    
    
    $
    1.38
    
    
    $
    1.96Dividends
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.46
    
    
    
    0.56
    
    
    
    0.56
    
    
    
    0.56
    
    
    
    0.53
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.42Book value
    
    
    15.83
    
    
    
    14.52
    
    
    
    14.19
    
    
    
    16.49
    
    
    
    16.74
    
    
    
    17.31
    
    
    
    18.25
    
    
    
    17.87
    
    
    
    16.34
    
    
    
    15.84Price Range:High
    
    
    21.15
    
    
    
    19.55
    
    
    
    20.84
    
    
    
    22.94
    
    
    
    25.12
    
    
    
    33.88
    
    
    
    38.38
    
    
    
    33.75
    
    
    
    31.25
    
    
    
    32.63Low
    
    
    14.94
    
    
    
    13.14
    
    
    
    11.02
    
    
    
    12.13
    
    
    
    12.13
    
    
    
    18.00
    
    
    
    25.00
    
    
    
    23.13
    
    
    
    22.00
    
    
    
    24.00Financial StatisticsNet sales divided by:Receivables(b) (f)
    
    
    7.3
    
    
    
    7.4
    
    
    
    6.4
    
    
    
    6.3
    
    
    
    6.2
    
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.5
    
    
    
    5.3
    
    
    
    5.6Inventories(b) (f)
    
    
    3.6
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.1
    
    
    
    3.0
    
    
    
    3.2
    
    
    
    3.4
    
    
    
    3.7
    
    
    
    3.8
    
    
    
    3.9Capital employed(f)
    
    
    1.6
    
    
    
    1.6
    
    
    
    1.4
    
    
    
    1.3
    
    
    
    1.2
    
    
    
    1.2
    
    
    
    1.3
    
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.4Interest coverage(b) (c)
    
    
    3.2
    
    
    
    3.5
    
    
    
    (1.7
    )
    
    
    2.0
    
    
    
    1.7
    
    
    
    0.6
    
    
    
    4.1
    
    
    
    6.0
    
    
    
    5.0
    
    
    
    7.6Income (loss) before income
taxes as a percent of sales(b) (c) (d)
    
    
    5.4
    %
    
    
    4.7
    %
    
    
    (7.5
    )%
    
    
    2.7
    %
    
    
    1.8
    %
    
    
    (0.9
    )%
    
    
    7.2
    %
    
    
    10.4
    %
    
    
    7.6
    %
    
    
    11.6
    %
 II-2




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##### Table of Contents



(Dollars in thousands, except CommonStock Data and Financial Statistics)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998
    
    1997
    
    1996
    
    1995
    
    1994Net income (loss) as a percent of
sales(b) (c) (d) (e)
    
    
    3.6
    %
    
    
    2.9
    %
    
    
    (4.8
    )%
    
    
    1.2
    %
    
    
    0.7
    %
    
    
    (0.9
    )%
    
    
    4.4
    %
    
    
    6.6
    %
    
    
    4.7
    %
    
    
    7.2
    %Net income (loss) as a percent of
Stockholders equity(b) (c) (d) (e) (f)
    
    
    8.8
    %
    
    
    7.4
    %
    
    
    (11.3
    )%
    
    
    2.7
    %
    
    
    1.4
    %
    
    
    (1.6
    )%
    
    
    8.2
    %
    
    
    12.4
    %
    
    
    8.6
    %
    
    
    13.0
    %Other DataNet common shares outstanding
(000s omitted)
    
    
    32,523
    
    
    
    32,186
    
    
    
    32,008
    
    
    
    31,896
    
    
    
    32,814
    
    
    
    35,519
    
    
    
    36,463
    
    
    
    38,049
    
    
    
    38,715
    
    
    
    39,689Approximate number of common
shareholders
    
    
    9,000
    
    
    
    9,000
    
    
    
    8,800
    
    
    
    8,000
    
    
    
    8,000
    
    
    
    8,000
    
    
    
    10,100
    
    
    
    12,300
    
    
    
    12,300
    
    
    
    13,000
  (a)
    
    Fiscal 1999, 2000, 2001, 2002, and 2003 include costs associated with
outbound freight as cost of goods sold in accordance with EITF 00-10, as
described in Note 1 to the consolidated financial statements. These freight
costs for fiscal 1999, 2000, 2001, 2002, and 2003 were $6,630,000, $8,750,000,
$9,622,000, $9,451,000, and $10,123,000, respectively. Fiscal 1994 through
1998 include such costs as a reduction of net sales.(b)
    
    On February 6, 2003, we acquired the majority of the assets of Bike
Athletic Company. On May 16, 2003, we completed the acquisition of the brands,
contracts and related net assets of Spalding Sports Worldwide, Inc. The
results of operations for Bike and Spalding have been included in our
consolidated financial statements since their respective acquisition dates.
See note 14 to the consolidated financial statements for more information on
these acquisitions.(c)
    
    Fiscal 1998, 1999, 2000, 2001, and 2003 include special charges of
$83,007,000, $70,721,000, $65,011,000, $144,092,000, and $7,303,000
respectively, as discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations. The after-tax impact of these charges on
1998, 1999, 2000, 2001, and 2003 earnings was ($1.46), ($1.38), ($1.46),
($2.88), and ($0.15) respectively, per diluted share. There were no special
charges incurred in fiscal 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 2003 includes non-recurring favorable tax effects of $2,635,000
($0.08 per diluted share) as described in Note 6 to the consolidated financial
statements.(f)
    
    Average of amounts at beginning and end of each fiscal year. II-3




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are a leading branded athletic, outdoor and activewear company with over a
century of success in marketing athletic uniforms, apparel and accessories for
a wide variety of sports, outdoor and fitness activities. Our brands include:
Russell Athletic®, JERZEES®, Mossy Oak®, Cross Creek®, Discus®,and Moving
Comfort®along with Bike®, Spalding®, Dudley®,and Sherrin®which we acquired
in 2003. 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 are a leading supplier of
team uniforms and related apparel to college, high school and organized sports
teams. We are, and will be through 2004, the official uniform supplier of 15
Major League Baseball teams, including the Atlanta Braves, New York Yankees,
San Francisco Giants, and Seattle Mariners. In addition, 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 recent 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., we are now a leading marketer of basketballs,
footballs, soccer balls, and volleyballs. Spalding is the official basketball
supplier for the National Basketball Association (NBA) and the Womens
National Basketball Association (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 National Collegiate Athletic Association
(NCAA) and American Volleyball Association. We operate our business in two segments: Domestic and International. The
Domestic segment is further aligned by distribution channel: Athletic, Mass
Retail and Artwear/Careerwear. The International segment distributes most of
our athletic, outdoor and activewear products. Critical Accounting Policies The following discussion and analysis of our financial condition, results of
operations, liquidity, and capital resources are 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,
pensions and other post-retirement 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 significant accounting policies involve a higher
degree of judgment or complexity than our other accounting policies. We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and associated risks
related to these policies on our business operations 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. 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 (free-on-board) shipping point terms. II-4




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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 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. For example, we increased our reserve in
the third quarter of fiscal 2002 to reflect estimated losses related to Kmart
Corporation (Kmart), which filed for protection under federal bankruptcy laws
in January 2002. In 2003, we sold our Kmart pre-petition receivables, and
thus, we are no longer exposed to further credit losses on Kmart pre-petition
receivables. Inventories.Inventories are carried at the lower of cost or market, with cost
for a substantial portion of inventories determined under the Last-In,
First-Out (LIFO) method. We write down obsolete and unmarketable inventories to
their estimated net realizable value based upon, among other things,
assumptions about future demand and market conditions. 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. If actual market conditions are
less favorable than we project, additional inventory write-downs may be
required. In 2003, our pre-tax income was favorably impacted by $2.5 million from the
liquidation in one of our LIFO pools that had inventory quantities carried at
lower costs prevailing in prior years as compared with current costs. In 2002,
we recorded a LIFO charge of $10.3 million due to lower inventory levels, of
which $6.0 million related to the liquidation of LIFO inventory quantities
carried at higher costs prevailing in prior years as compared with our current
manufacturing costs. Deferred Tax Assets.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 would make an adjustment to increase our valuation allowance
for deferred tax assets and that adjustment would 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
would adjust our deferred tax assets, which would have the effect of increasing
income in the period that we make the determination. We recorded $5.9 million,
$2.6 million and $2.8 million of valuation allowances related to net deferred
tax assets (primarily foreign and state net operating loss carryforwards) in
fiscal 2003, 2002 and 2001, respectively. At the end of fiscal 2003, our total
valuation allowances amounted to $19.5 million. Impairment and Depreciation of 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. In 2003, we completed the
implementation of our new fixed asset system, which resulted in the retirement
of approximately $174.8 million of assets (primarily machinery and equipment)
that were primarily fully depreciated and no longer in use. 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. II-5




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In 2003, we recorded $2.0 million, net of $1.1 million of realized gains on the
disposal of five properties, of asset impairment charges on assets previously
held for sale and an asset that we abandoned. At January 3, 2004, we had six
idled properties remaining to be sold, which are reflected in our consolidated
balance sheet at approximately $5.6 million, representing our best estimates 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 non-operating 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 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 after adjusting for
current market trends. 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 6.75% in 2003 to 6.25% in 2004. In addition, we plan to
change the salary increase assumption from 3.5% in 2003 to 3.0% in 2004. These
assumption changes along with changes in the plan participants demographics
and other factors are expected to increase pension expense by $2.3 million from
fiscal 2003 to fiscal 2004. Although our actual return on pension plan assets improved in 2003, an
after-tax minimum pension liability of approximately $18.6 million remained in
stockholders equity at January 3, 2004. Restructuring and Other Unusual Charges.With respect to our Operational
Improvement Program announced in October 2003 and our Multi-Year Restructuring
and Reorganization Program announced in July 1998 (discussed in more detail
below), our consolidated balance sheets reflect our best estimate of the
ultimate settlement of severance, exit cost and other accruals. In 2003, we
recorded approximately $5.3 million in severance and other costs. In addition,
we settled some of our estimated liabilities for more or less than the amounts
accrued in prior periods. At the end of fiscal 2003, we have approximately $3.6
million in remaining severance, exit cost and other liabilities. Our estimates
for these costs could change if the actual costs of termination benefits or
other costs are different from our expectations. 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, II-6




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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 were not affected by stock compensation awards granted prior to
January 5, 2003. We recognized approximately $0.6 million ($0.4 million
after-tax) in stock compensation in 2003. 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. Operational Improvement Program In October 2003, we announced an Operational Improvement Program targeting $50
million in cost reductions to offset anticipated selling price decreases,
higher fiber costs and other cost increases for fiscal 2004. The Operational
Improvement Program includes improving operating efficiencies and asset
utilization, while streamlining processes in both our manufacturing and
administrative areas such as: (1) expanded production with lower cost
contractors in Central America; (2) lower sourcing costs; (3) increased
efficiencies in domestic textile operations; and (4) improved distribution
costs. As part of the Operational Improvement Program, we eliminated
approximately 100 positions in 2003, primarily salaried and administrative
office staff, and incurred asset impairment charges associated with the planned
closings of two International sales offices and the abandonment of a previously
idled domestic finished goods warehouse. See Note 9 to the consolidated
financial statements for details of the charges associated with the Operational
Improvement Program. At the end of fiscal 2003, we had $3.3 million in
remaining liabilities, which we expect will be substantially paid in fiscal
2004. In addition, we have started construction on a new textile plant in Honduras
for both t-shirt and fleece production. Once fully operational in 2006, the
annual savings from Phase I of the Merendon Plant are expected to be
approximately $15 million to $20 million. Multi-Year Restructuring and Reorganization Program In July 1998, we adopted a restructuring and reorganization program with the
objective of (1) transitioning our company from a manufacturing-driven business
to a consumer-focused organization that markets branded apparel products; and
(2) creating an efficient, low-cost operating structure with the flexibility to
take advantage of future opportunities to reduce our costs. The plan originally
called for closing a number of our worldwide facilities (which included
selected manufacturing plants, distribution centers and offices); expanding
production outside the United States; consolidating and downsizing the licensed
products businesses; disposing of owned shopping-center real estate;
reorganizing the corporate structure; and other cost savings initiatives. In
addition, we established a dual headquarters in Atlanta, Georgia. In July 2001,
we announced an extension of this program to align the organization by
distribution channel to provide stronger customer service, supply chain
management, and more cost-effective operations. As a result of our restructuring and reorganization program: (1) 100% of our
yarn requirements are now purchased, rather than manufactured internally, from
Frontier Yarns, LLC (Frontier Yarns), our 45.3% owned yarn joint venture,
Frontier Spinning Mills, Inc. (Frontier Spinning), our joint venture partner,
and other third-party suppliers; (2) we reduced our U.S. employee base by
approximately 66% from 16,200 in 1998 to 5,502 at the end of 2003; (3) we have
outsourced production of approximately 20% of our finished fabrics for our
Domestic business; and (4) over 99% of our apparel products (excluding socks)
sold are now sewn and assembled offshore, compared to approximately 8.0% in
1997. We also closed 35 facilities and exited unprofitable businesses and
product lines representing approximately $150 million of sales as measured by
the last full year of operations for each business. The cost savings associated
with these initiatives were the primary drivers in maintaining gross margin
levels in fiscal years 2001 through 2003 despite pricing pressures in certain
of our channels (primarily Artwear/Careerwear) and other factors discussed in
the Results of Operations section of Managements Discussion and Analysis of
Financial Condition and Results of Operations. See Note 9 to the consolidated financial statements for details of the 2001
restructuring, reorganization and other unusual charges associated with the
Multi-Year Restructuring and Reorganization Program. See Note 10 to the
consolidated financial statements in our 2002 Annual Report for details of the
2000, 1999 and 1998 charges associated with the Multi-Year Restructuring and
Reorganization Program. At the end of fiscal 2003, we had $0.3 million in
remaining restructuring liabilities under this program, which we expect will be
substantially paid in fiscal 2004. Although the majority of the facilities idled by our restructuring initiatives
have been sold, we have six idle properties remaining to sell, which are
reflected in our balance sheet at $5.6 million. This value represents our best
estimate of future selling prices less disposal costs. We expect most, if not
all, of these properties will be sold in 2004; however, given current market
conditions, it may II-7




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##### Table of Contents



take longer to liquidate some of these properties. In 2003, we decreased the
carrying value of some of these properties by $2.6 million to reflect difficult
market conditions for industrial and warehouse properties in the geographic
areas where these properties are located. However, these write downs were
partially offset by $1.1 million of gains realized on sales of properties and
equipment that we had written down in prior years. We do not anticipate
incurring any further charges related to our Multi-Year Restructuring and
Reorganization Program, other than to the extent our estimated restructuring
liabilities and the carrying value of idled assets differ from the amounts
ultimately realized upon settlement of the liabilities or sale of the assets. Results of Operations Our results of operations are affected by numerous factors, including
competition, general economic conditions, seasonal variation, raw material
costs, mix of products sold, and plant utilization. In addition, our results
can be affected by the usual risks of doing business abroad, such as possible
revaluation of currencies, export duties, quotas, restrictions on the transfer
of funds and, in certain parts of the world, political instability. We have
not, to date, been materially affected by any such risk, but cannot predict the
likelihood of such developments occurring. Typically, demand for our products is higher during the third and fourth
quarters of each fiscal year. Weather conditions also affect the demand for our
products, particularly for our fleece products. In addition, athletic and
activewear products are generally available from multiple sources and our
customers often purchase products from more than one source. To remain
competitive, we review and adjust our pricing structure from time to time. Our product mix affects our overall gross profit margin. Additionally, plant
utilization levels are important to our profitability because a substantial
portion of our total production cost is fixed. The cost of yarn is a
significant component of our cost of goods sold. As a result of our
restructuring and reorganization program, in 2002, we discontinued internal
production of yarn and began purchasing all of our yarn from Frontier Yarns,
Frontier Spinning and other third party suppliers. Yarn prices typically
fluctuate principally as a result of supply and demand in the raw cotton and
synthetic fibers markets. While cotton prices are primarily affected by
agricultural factors and commodity exchange behavior, fluctuations in petroleum
prices can influence the prices of chemicals, dyestuffs and polyester yarn.
Accordingly, we adjust the timing and size of our raw material purchases when
necessary to minimize the impact of these market forces and pricing
fluctuations. The following information is derived from our audited consolidated statements
of operations for our fiscal years ended January 3, 2004 (fiscal 2003  a
52-week period), January 4, 2003 (fiscal 2002  a 53-week period), and December
29, 2001 (fiscal 2001  a 52-week period). 52 Weeks
    
    53 Weeks
    
    52 WeeksEnded
    
    Ended
    
    EndedFiscal Year
    
    2003
    
    2002
    
    2001(Dollars in millions)Net sales
    
    $
    1,186.2
    
    
    
    100.0
    %
    
    $
    1,164.3
    
    
    
    100.0
    %
    
    $
    1,160.9
    
    
    
    100.0
    %Cost of goods sold
    
    
    842.1
    
    
    
    71.0
    %
    
    
    825.8
    
    
    
    70.9
    %
    
    
    894.0
    
    
    
    77.0
    %Gross profit
    
    
    344.1
    
    
    
    29.0
    %
    
    
    338.5
    
    
    
    29.1
    %
    
    
    266.9
    
    
    
    23.0
    %Selling, general and administrative
expenses
    
    
    246.5
    
    
    
    20.8
    %
    
    
    235.8
    
    
    
    20.3
    %
    
    
    226.5
    
    
    
    19.5
    %Other - net
    
    
    4.0
    
    
    
    0.3
    %
    
    
    (2.2
    )
    
    
    (0.2
    )%
    
    
    94.7
    
    
    
    8.2
    %Operating income (loss)
    
    
    93.6
    
    
    
    7.9
    %
    
    
    104.9
    
    
    
    9.0
    %
    
    
    (54.3
    )
    
    
    (4.7
    )%Interest expense
    
    
    29.7
    
    
    
    2.5
    %
    
    
    30.2
    
    
    
    2.6
    %
    
    
    32.3
    
    
    
    2.8
    %Debt retirement charge
    
    
    
    
    
    
    
    %
    
    
    20.1
    
    
    
    1.7
    %
    
    
    
    
    
    
    
    %Income (loss) before income taxes
    
    
    63.9
    
    
    
    5.4
    %
    
    
    54.6
    
    
    
    4.7
    %
    
    
    (86.6
    )
    
    
    (7.5
    )%Provision (benefit) for income taxes
    
    
    20.9
    
    
    
    1.8
    %
    
    
    20.3
    
    
    
    1.7
    %
    
    
    (31.1
    )
    
    
    (2.7
    )%Net income (loss)
    
    $
    43.0
    
    
    
    3.6
    %
    
    $
    34.3
    
    
    
    3.0
    %
    
    $
    (55.5
    )
    
    
    (4.8
    )%
 II-8




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##### Table of Contents



Special Charges.The following represents special charges associated with both
the Operational Improvement Program and our Multi-Year Restructuring and
Reorganization Program. See Note 9 to the consolidated financial statements for
further details and discussion related to these charges and adjustments. Fiscal Year
    
    2003
    
    2002
    
    2001(In millions)Cost of goods sold
    
    $
    
    
    
    $
    
    
    
    $
    43.8Selling, general and administrative expenses
    
    
    4.6
    
    
    
    
    
    
    
    1.6Other  net
    
    
    2.7
    
    
    
    
    
    
    
    98.7Pre-tax effect
    
    
    7.3
    
    
    
    
    
    
    
    144.1Income tax effect
    
    
    (2.4
    )
    
    
    
    
    
    
    (52.2
    )Net impact of special charges
    
    $
    4.9
    
    
    $
    
    
    
    $
    91.9
 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
    
    1/4/03Net Sales by Distribution ChannelDomestic Segment:Athletic
    
    $
    375,822
    
    
    $
    302,738Mass Retail
    
    
    344,513
    
    
    
    350,224Artwear/Careerwear
    
    
    364,509
    
    
    
    423,3641,084,844
    
    
    
    1,076,326International Segment
    
    
    101,419
    
    
    
    88,002Consolidated total
    
    $
    1,186,263
    
    
    $
    1,164,328
 Net sales from our acquisitions of Spalding, Bike and Moving Comfort in fiscal
2003 were $76.7 million. In fiscal 2002, net sales from businesses that were
acquired or discontinued were $6.5 million. After excluding sales from
businesses that were acquired or discontinued during both fiscal years, 2003
net sales on an ongoing basis decreased 4.2% from ongoing net sales in fiscal
2002. On a comparable (proforma) 52-week basis, 2003 net sales on an ongoing
basis decreased 3.2%, after excluding sales of $11.6 million from the
fifty-third week in fiscal 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. After excluding sales from businesses that were acquired or
discontinued during both fiscal years, 2003 net sales on an ongoing basis in
our Domestic segment decreased 5.8% over ongoing net sales in our Domestic
segment for fiscal 2002. For the 2003 fiscal year in our Domestic segment:  
    
    Net sales in our Athletic channel increased $73.1 million, or 24.1%,
to $375.8 million. The increase in net sales was primarily driven by
our acquisitions of Spalding, Bike and Moving Comfort. We also had a
3.1% increase in sales of our Russell Athletic®branded products to
college bookstores and to retailers. The increase in sales of Russell
Athletic®branded products in college bookstores and to
retailers was
offset by a 6% decrease in our Russell Athletic®team sports business.
Without acquisitions, sales in our base Athletic business were down
$1.7 million, or 0.6%, in fiscal 2003 versus the prior year, while
dozens shipped were up 3.0% versus fiscal 2002. II-9




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##### Table of Contents




    
    Net sales from our acquisitions include athletic equipment, team
uniforms and apparel products. Our 2003 operating results reflect the
operations of our Spalding business from May 16, 2003, the date we
acquired the Spalding®brand and related net assets. Spalding is a
leading producer and marketer of basketballs, footballs, soccer balls,
and volleyballs under the Spalding®brand name and softballs under the
Dudley®brand name. We acquired certain assets of Bike in the first
quarter of fiscal 2003. The Bike acquisition added athletic
supporters, knee and elbow pads, braces, protective equipment, team
uniforms, and performance apparel to our product offering. We
purchased Moving Comfort in the third quarter of fiscal 2002, which
expanded our womens product offering to include performance sports
underwear, shorts, pants, tops, and outerwear.
    
    Net sales in our Mass Retail channel were $344.5 million, a decrease
of $5.7 million, or 1.6%, from fiscal 2002. The decrease was
principally driven by lower sales of our Jerzees®activewear and Mossy
Oak®products to Kmart. Our 2003 sales to Kmart were $4.0 million, a
decrease of $26.1 million from the $30.1 million in fiscal 2002.
Despite this reduction, sales of our Jerzees®activewear products in
this channel increased 4.9%. This increase was partially offset by
lower sock sales in the channel. For fiscal 2003, dozens shipped in
our mass retail channel decreased 3.8%, reflecting an overall
reduction of sock inventories at retail. Excluding socks, overall
dozens shipped in our Mass Retail channel were up 6.3% from fiscal
2002.
    
    Net sales in our Artwear/Careerwear channel were $364.5 million, a
decrease of $58.9 million, or 13.9%, from fiscal 2002. The decrease in
sales reflects industry-wide lower prices coupled with a shift in
sales mix toward lower-priced promotional products. Overall dozens
shipped in this channel decreased 7.3%; however, excluding dozens sold
in our private label and careerwear businesses, dozens shipped in the
Artwear market decreased 4.4% from the prior year. In fiscal 2003, we continued to be a leading supplier in the distributor
channel of the Artwear market. Our Jerzees®brand remained the number-one
fleece product in that channel with a share of 42.3% in fiscal 2003.
Furthermore, in the blended fleece category, the largest segment of the
fleece market, our Jerzees®brand finished 2003 with a share of 52.3%. In the
overall t-shirt category, our market share was unchanged at 12.6% for the
year. However, our Jerzees®brand became number one in the blended t-shirt
category in 2003 with a 33.1% share, an increase of 2.2 share points from the
prior year. Jerzees®also became the number-one brand in the knit
(sportshirt) category with a share of 21.0% in 2003, versus 20.4% share in
2002. All U.S. market and market share data for the Artwear channel is based on a
static sample from the S.T.A.R.S. Report produced by ACNielsen Market
Decisions for the full 2003 calendar year. In fiscal 2003, net sales for our International 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 and Gross Margin.Our gross profit was $344.1 million, or a 29.0%
gross margin, for fiscal 2003 versus a gross profit of $338.5 million, or a
29.1% gross margin, 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; (3) lower 2003 inventory
reserves for our Russell Athletic distribution center; and (4) favorable LIFO
adjustments related to the liquidation of LIFO inventory quantities. 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 Operational Improvement Program.
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 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 as a result of the 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/Careerwear business. II-10




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##### Table of Contents



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/Careerwear
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/Careerwear 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 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. 2002 vs. 2001 Net Sales.In fiscal 2002 (a 53-week period), our net sales increased $3.4
million, or 0.3%, to $1.164 billion versus $1.161 billion in fiscal 2001 (a
52-week period). The following table is a breakdown of net sales (in thousands). 53 Weeks
    
    52 WeeksEnded
    
    Ended1/4/03
    
    12/29/01Net Sales by Distribution ChannelDomestic Segment:Athletic
    
    $
    302,738
    
    
    $
    280,359Mass Retail
    
    
    350,224
    
    
    
    336,634Artwear/Careerwear
    
    
    423,364
    
    
    
    463,2991,076,326
    
    
    
    1,080,292International Segment
    
    
    88,002
    
    
    
    80,633Consolidated total
    
    $
    1,164,328
    
    
    $
    1,160,925
 However, after excluding $19.4 million in sales from businesses that were
acquired or discontinued, 2002 net sales on an ongoing basis increased 2.0%
over ongoing net sales for fiscal 2001. This increase in sales from ongoing
businesses was driven by new and expanded programs in both our Domestic and
International segments. The businesses that were discontinued principally
consisted of the direct marketing of our Cross Creek®brand to golf pro shops
and department stores and yarn sales in our Domestic segment. II-11




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##### Table of Contents



For the 2002 fiscal year, net sales in our Domestic segment totaled $1.076
billion, a decline of $4.0 million, or 0.4%, from net sales of $1.080 billion
in fiscal 2001. However, after excluding $19.4 million in sales from businesses
that were acquired or discontinued, 2002 net sales on an ongoing basis in our
Domestic segment increased 1.5% over ongoing net sales for fiscal 2001. Overall
dozens shipped within the Domestic segment during fiscal 2002 were up 5.0% from
the prior year. The increases in sales and dozens shipped were primarily
driven by new and expanded fall programs, such as a national expansion of mens
and boys fleece at JCPenney and a national mens fleece program at Sams Club.
Other new and expanded programs which increased net sales include Vintage
Varsityby Russell Athletic®, the rollout of no-show socks, a broadened product
offering for Mossy Oak®and the introduction of Discus®branded products at
Sears. The increases in sales and dozens shipped were offset by price
reductions on some of our products, primarily in the Artwear/Careerwear and
Mass Retail distribution channels. For the 2002 fiscal year in our Domestic segment:  
    
    Net sales in our Athletic channel increased
$22.4 million, or 8.0%, to $302.7 million, while
dozens shipped were up 10.6% from fiscal 2001.
The increase in sales and dozens shipped were
primarily driven by new and expanded fall
programs such as a national expansion of mens
and boys fleece at JCPenney and the
introduction of our Discus®brand at Sears. To a
lesser extent, sales and dozens shipped were
also positively impacted by new and expanded
programs in our college bookstore business.
These increases were partially offset by lower
sales in our team sports business during the
first half of fiscal 2002, primarily due to
order processing and shipping delays we
experienced during the reconfiguration of our
Alexander City, Alabama distribution center and
during the implementation phase of our new order
processing and fulfillment system. These systems
have been fully operational since June 2002.
    
    Net sales in our Mass Retail channel increased
$13.6 million, or 4.0%, to $350.2 million, while
overall dozens shipped were up 5.0% from fiscal
2001. The increases in sales and dozens shipped
were due to increased sales of our Mossy Oak®and
Jerzees®brands as well as increased sock sales.
The increases in sales and dozens shipped were
somewhat offset by lower pricing. To a lesser
extent, the increases in sales and dozens
shipped were partially offset by lower sales to
Kmart. Our 2002 sales to Kmart were $30.1
million, a decrease of $6.6 million from the
$36.7 million in fiscal 2001.
    
    Net sales in our Artwear/Careerwear channel
decreased $39.9 million, or 8.6%, to $423.4
million, while overall dozens shipped were down
1.4% from fiscal 2001. However, after excluding
sales from our private label and discontinued
businesses, our 2002 ongoing net sales to the
distributor market were $399.2 million, a
decrease of $20.3 million, or 4.8% from fiscal
2001. These decreases reflect industry-wide
lower prices, primarily in the promotional
t-shirt market, and reduced corporate purchasing
of our higher priced products, such as sports
shirts, denims and wovens. International segment net sales for fiscal 2002 were $88.0 million, an increase
of 9.1%, or $7.4 million, reflecting an increase of 19.3% in dozens shipped
over fiscal 2001. New product introductions in Europe mainly drove the increase
in sales and dozens shipped. Net sales were also positively impacted by the
strengthening of the euro and British pound against the U.S. dollar. These
increases were partially offset by a change in the mix of products sold and
lower pricing in Europe. Gross Profit and Gross Margin.Our gross profit was $338.5 million, or a 29.1%
gross margin, for fiscal 2002 versus a gross profit of $266.9 million, or a
23.0% gross margin, in the comparable prior year period. Excluding the $43.8
million impact of special charges, gross profit in fiscal 2001 was $310.7
million, or a 26.8% gross margin. During fiscal 2002, our gross profit was positively impacted by: (1) lower
fiber costs and conversion cost savings from our yarn joint venture; (2)
improved plant utilization; (3) a better mix of products sold and higher sales
volumes; (4) the completion of our Multi-Year Restructuring and Reorganization
Program; and (5) other ongoing efforts to improve and streamline our
manufacturing processes as well as our continued focus on reducing expenses. The benefits we realized from the factors above were partially offset by: (1)
pricing pressures primarily in the Artwear/Careerwear and Mass Retail channels;
(2) LIFO charges reflecting our lower inventory levels and a lower per unit
manufacturing cost on our products resulting from the success of our
restructuring and reorganization program; and (3) an inventory charge
associated with the reconfiguration of our Russell Athletic distribution center
in Alexander City, Alabama. Selling, General and Administrative (SG&A).For fiscal 2002, our SG&A
expenses were $235.8 million, or 20.3% of net sales, versus $226.5 million, or
19.5% of net sales, in the comparable prior year period. Excluding special
charges of $1.6 million, SG&A expenses were $224.9 million, or 19.4% of net
sales, during fiscal 2001. During the 2002 third quarter, we increased our bad debt reserve by $5.0
million to provide for potential additional losses on our pre-petition
receivables from Kmart, which brought our reserve level to 90% of the $12.4
million pre-petition accounts receivable balance due from Kmart. Excluding
this charge, our SG&A expenses for fiscal 2002 would have been $230.8 million,
or 19.8% of net sales. II-12




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On a comparable basis, excluding special charges and the charge of $6.2 million
in the 2001-fourth quarter related to establishing a bad debt reserve for
Kmart, our SG&A expenses would have been $218.7 million, or 18.8% of net sales. During fiscal 2002, we benefited from lower selling expenses associated with
the reorganization of our Cross Creek®apparel business and lower marketing
expenses. Other general and administrative costs across our operations
(primarily higher bonuses, insurance and commission costs) and increased costs
in connection with the reconfiguration of our Alexander City, Alabama
distribution center more than offset the benefits from these lower expenses
during the 2002 fiscal year. Other-Net.Other-net was income of $2.2 million in fiscal 2002 versus expense
of $94.7 million in fiscal 2001. Excluding the $98.7 million impact of the
2001 special charges, other-net was income of $4.0 million in fiscal 2001. The
decrease of $1.8 million in other-net was primarily due to fewer gains on the
sales of non-operating assets and fewer gains on foreign currency forwards
during fiscal 2002. Operating Income.Our consolidated operating income in fiscal 2002 was $104.9
million, or 9.0% of net sales, versus a loss of $54.3 million in the comparable
prior year period. Excluding the impact of the 2001 special charges of $144.1
million, consolidated operating income in fiscal 2001 was $89.8 million, or
7.7% of net sales. Exclusive of the charge in the 2002-third quarter related
to our bad debt reserve for Kmart, our operating income would have been $109.9
million, or 9.4% of net sales, which included a $2.5 million gain on the sale
of non-core assets. On a comparable basis, excluding special charges and the
$6.2 million charge related to Kmart, our 2001 operating income would have been
$96.0 million, or 8.3% of net sales. In fiscal 2002, our Domestic segment operating income was $124.0 million, or
11.5% of the segments net sales, versus a loss of $40.1 million in fiscal
2001. Exclusive of special charges of $144.0 million, our fiscal 2001 Domestic
segment operating income was $103.9 million, or 9.6% of the segments net
sales. The increase in our Domestic segment operating income for fiscal 2002
was primarily attributable to the benefits from the factors described above in
the Gross Profit and the SG&A sections of this year-over-year comparison. In fiscal 2002, our International segment operating income was a loss of $0.8
million versus income of $2.3 million in fiscal 2001. Exclusive of special
charges of $0.1 million, our fiscal 2001 International segment operating income
was $2.4 million, or 3.0% of the segments net sales. The decrease in our
International segment operating income for fiscal 2002 was primarily
attributable to: (1) higher costs associated with product features and SG&A
increases in Mexico; (2) fewer gains on foreign currency forwards and SG&A
increases in Europe; and (3) lower sales and increased marketing expenses in
Japan. Income Taxes.For information concerning our income tax provisions, as well as
information regarding 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 improved 190 basis points, or 1.9
percentage points, declining to 35.3% at the end of fiscal 2003, versus 37.2%
at the end of fiscal 2002. Our total debt less cash at the end of fiscal 2003
was $261.3 million which is $52.7 million higher than total debt less cash at
the end of fiscal 2002, despite acquisitions of $86.7 million in 2003. Cash From Operating Activities.Our operations provided $58.0 million of cash
during fiscal 2003, versus providing $203.4 million of our cash requirements
during fiscal 2002. Inventory increased during fiscal 2003 partly as a result
of acquisitions; however, inventory decreased from December 29, 2001 to January
4, 2003 as a result of higher than normal inventory levels in December 2001.
Excluding inventories from acquisitions, during fiscal 2003, inventories
increased 6.0%, or $18.4 million, to $325.1 million at the end of fiscal 2003
versus an inventory level of $306.7 million at the end of fiscal 2002. This
increase was primarily driven by softer sales in the 2003-fourth quarter than
anticipated, principally as a result of key customers continuing to reduce
their inventories and poor weather conditions impacting fleece sales. Accounts receivable in fiscal 2003 increased versus a decrease in fiscal 2002,
as a result of incremental sales from our acquisitions and our higher accounts
receivable levels in December 2001. Excluding accounts receivable from
acquisitions during fiscal 2003, accounts receivable increased by 2.6%, or $3.8
million, to $152.7 million at the end of fiscal 2003 versus accounts receivable
of $148.9 million at the end of fiscal 2002. The increase in accounts payable and accrued expenses was less in fiscal 2003
than fiscal 2002 primarily as a result of year-end employee performance bonus,
customer incentive and advertising accruals that were substantially higher at
the end of fiscal 2002 versus fiscal 2001. Our business is seasonal and our cash flows from operations are ordinarily
higher in the second half of the year. II-13




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Cash From Investing Activities.Net cash used in investing activities was
$109.9 million in fiscal 2003 versus $22.8 million in fiscal 2002. Our
investing activities in fiscal 2003 consisted primarily of capital expenditures
of $38.6 million and the acquisitions of Spalding and Bike for $86.7 million,
less $14.8 million of proceeds from the sale of non-core assets. In fiscal
2002, our investing activities primarily consisted of capital expenditures of
$28.3 million and acquisitions of $4.7 million, less $9.5 million of proceeds
from the sale of non-core assets. For fiscal 2004, we are forecasting capital expenditures to be in the range of
$45 million to $50 million. The majority of planned fiscal 2004 capital
expenditures are to further enhance our manufacturing and distribution
capabilities, including construction of a 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 and $5.1 million in dividends
($0.16 per share) during fiscal 2003 and fiscal 2002, respectively. In 2001,
we paid $14.7 million in dividends ($0.46 per share). On April 18, 2002, we completed a refinancing of our debt structure. Refer to
Note 2 of the consolidated financial statements for more information. On January 3, 2004, our debt facilities and outstanding debt obligations
included:  
    
    $315 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 $12.4 million was outstanding, and $15 million
outstanding under our Senior Secured Term Loan (the Term Loan), due ratably through April 2007; and  
    
    $250 million in 9.25% Senior Unsecured Notes (the Senior Notes) due 2010. 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. The Facilities require us to achieve a fixed
charge coverage ratio 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: 4.0
to 1.0 through the next to last day of fiscal year 2002; 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 2003, 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 2003, variable interest
on the Revolver was either 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
either LIBOR plus 2.25% (3.3425% 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%. These terms will continue to be in effect through
the first quarter of 2004; however, our rate on the Revolver will change to
LIBOR plus 2.00%, or Base Rate plus 0.50%, and on the Term Loan to LIBOR plus
2.50% or Base Rate plus 1.00%, beginning in the second quarter of 2004. II-14




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If we violate these 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. 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. Pension Funding Considerations.Our actual return on plan assets significantly
improved from a 7.1% loss in 2002 to a positive return of 21.0% in 2003;
however, we still have an after-tax minimum pension liability of approximately
$18.6 million at January 3, 2004. Currently, there is no funding requirement
to comply with our principal debt agreement; however, it is possible that we
could be required to make a contribution as much as $1.6 million to the
qualified plan in fiscal 2004. 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 3, 2004, we had $12.4 million in
outstanding borrowings under the Revolver and approximately $206.6 million of
availability remaining. We also had $20.1 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 requirements (including the new Honduras
textile facility), and needs under our Operational Improvement Program; 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 as of January 3, 2004 (in millions): UnconditionalLong-term
    
    Short-term
    
    Operating
    
    purchaseFiscal Years
    
    debt
    
    debt
    
    leases
    
    obligations(1)
    
    Total(1)2004
    
    $
    5.0
    
    
    $
    4.1
    
    
    $
    7.1
    
    
    $
    22.0
    
    
    $
    38.22005
    
    
    5.0
    
    
    
    
    
    
    
    6.7
    
    
    
    16.7
    
    
    
    28.42006
    
    
    5.0
    
    
    
    
    
    
    
    5.6
    
    
    
    0.9
    
    
    
    11.52007
    
    
    12.4
    
    
    
    
    
    
    
    4.6
    
    
    
    0.9
    
    
    
    17.92008
    
    
    
    
    
    
    
    
    
    
    4.1
    
    
    
    0.7
    
    
    
    4.8Thereafter
    
    
    250.0
    
    
    
    
    
    
    
    7.0
    
    
    
    6.4
    
    
    
    263.4$
    277.4
    
    
    $
    4.1
    
    
    $
    35.1
    
    
    $
    47.6
    
    
    $
    364.2
  (1)
    
    Includes guaranteed minimums for utilities and for royalties
associated with various sports and league licenses. Obligations under
advertising contractual arrangements are also included. Our yarn
purchase commitment to Frontier Yarns is excluded but described below. We are required to purchase certain minimum quantities of yarn on an annual
basis from Frontier Yarns pursuant to a supply agreement. The agreement also
provides for pricing to be calculated on a conversion cost basis plus actual
cost of raw materials. We estimate our total purchases will be in the range of
$105 million to $135 million per year. We can terminate the agreement under
certain circumstances related to a fundamental decrease in our demand for yarn
or the cost of yarn becoming uncompetitive. In addition, beginning in 2006, the
agreement may be terminated for any reason upon two years notice, but not
prior to 2008. Other than our purchase requirements under the supply agreement,
we have no other required purchases or financial commitments to Frontier Yarns.
Frontier Yarns now supplies most of our yarn needs. II-15




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##### Table of Contents



The following table summarizes information about other commercial commitments
as of January 3, 2004. Other Commercial
Commitments (in millions)Expiring in
    
    Standby lettersFiscal Year:
    
    of credit2004
    
    $
    20.22005
    
    
    2.2$
    22.4
 We had $14.2 million outstanding under letters of credit for the purchase of
inventories at January 3, 2004. We had $4.5 million outstanding under letters
of credit at January 3, 2004 for the guarantee of debt of a non-affiliated
foreign contractor that expires ratably over the period of 2004  2005. In
addition, we had $3.7 million outstanding under letters of credit at January 3,
2004 related to self-insurance of workers compensation programs. 
 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 3, 2004. 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 3, 2004, our
outstanding debt totaled $281.4 million, which consisted of fixed-rate debt of
$250.0 million and variable-rate debt of $31.4 million. Based on our 2003
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 3, 2004, by approximately $5.4 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, British pound sterling and Mexican
peso. 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 ten-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 3, 2004, by $6.2
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. II-16




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##### Table of Contents



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 primarily 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 3, 2004. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 Consolidated Balance Sheets
January 3, 2004 and January 4, 2003
(In thousands, except share data) 2003
    
    2002ASSETSCurrent assets:Cash
    
    $
    20,116
    
    
    $
    68,619Trade accounts receivable, less allowances
of $10,284 in 2003 and $22,954 in 2002
    
    
    175,514
    
    
    
    148,915Inventories
    
    
    346,946
    
    
    
    306,658Prepaid expenses and other current assets
    
    
    16,521
    
    
    
    15,373Income tax receivable
    
    
    14,585
    
    
    
    11,280Total current assets
    
    
    573,682
    
    
    
    550,845Property, plant and equipment, net
    
    
    303,234
    
    
    
    332,009Other assets
    
    
    146,391
    
    
    
    80,261$
    1,023,307
    
    
    $
    963,115LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    78,368
    
    
    $
    71,291Employee compensation
    
    
    30,489
    
    
    
    37,978Accrued expenses
    
    
    46,504
    
    
    
    37,700Deferred income taxes
    
    
    5,165
    
    
    
    6,505Short-term debt
    
    
    4,088
    
    
    
    7,253Current maturities of long-term debt
    
    
    5,000
    
    
    
    5,000Total current liabilities
    
    
    169,614
    
    
    
    165,727Long-term debt, less current maturities
    
    
    272,355
    
    
    
    265,000Deferred liabilities:Income taxes
    
    
    6,609
    
    
    
    9,384Pension and other
    
    
    59,865
    
    
    
    55,75166,474
    
    
    
    65,135Commitments 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
    
    
    38,625
    
    
    
    42,877Retained earnings
    
    
    713,310
    
    
    
    675,448Treasury stock (2003  8,897,075 shares
and 2002  9,233,545 shares)
    
    
    (208,038
    )
    
    
    (218,113
    )Accumulated other comprehensive loss
    
    
    (29,447
    )
    
    
    (33,373
    )514,864
    
    
    
    467,253$
    1,023,307
    
    
    $
    963,115
 See notes to consolidated financial statements. II-17




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Consolidated Statements of Operations
Years ended January 3, 2004, January 4, 2003 and
December 29, 2001
(In thousands, except share and per share data) 2003
    
    2002
    
    2001Net sales
    
    $
    1,186,263
    
    
    $
    1,164,328
    
    
    $
    1,160,925Cost of goods sold
    
    
    842,127
    
    
    
    825,763
    
    
    
    894,018Gross profit
    
    
    344,136
    
    
    
    338,565
    
    
    
    266,907Selling, general and administrative expenses
    
    
    246,477
    
    
    
    235,810
    
    
    
    226,458Other  net
    
    
    4,018
    
    
    
    (2,216
    )
    
    
    94,718Operating income
    
    
    93,641
    
    
    
    104,971
    
    
    
    (54,269
    )Interest expense
    
    
    29,663
    
    
    
    30,246
    
    
    
    32,324Debt retirement charge  Note 2
    
    
    
    
    
    
    20,097
    
    
    
    Income (loss) before income taxes
    
    
    63,978
    
    
    
    54,628
    
    
    
    (86,593
    )Provision (benefit) for income taxes
    
    
    20,939
    
    
    
    20,322
    
    
    
    (31,107
    )Net income (loss)
    
    $
    43,039
    
    
    $
    34,306
    
    
    $
    (55,486
    )Net income (loss) per common share:Basic
    
    $
    1.33
    
    
    $
    1.07
    
    
    $
    (1.74
    )Diluted
    
    $
    1.32
    
    
    $
    1.06
    
    
    $
    (1.74
    )Weighted-average common shares outstanding:Basic
    
    
    32,376,617
    
    
    
    32,127,579
    
    
    
    31,950,658Diluted
    
    
    32,726,472
    
    
    
    32,269,813
    
    
    
    31,950,658
 See notes to consolidated financial statements. II-18




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Consolidated Statements of Cash Flows
Years ended January 3, 2004, January 4, 2003 and
December 29, 2001
(In thousands) 2003
    
    2002
    
    2001OPERATING ACTIVITIESNet income (loss)
    
    $
    43,039
    
    
    $
    34,306
    
    
    $
    (55,486
    )Adjustments to reconcile net income (loss) to net cashDepreciation
    
    
    44,177
    
    
    
    44,775
    
    
    
    47,713Amortization
    
    
    759
    
    
    
    286
    
    
    
    1,695Debt retirement charge
    
    
    
    
    
    
    20,097
    
    
    
    Deferred income taxes
    
    
    4,432
    
    
    
    6,360
    
    
    
    (28,244
    )Non-cash restructuring, asset impairment and other unusual charges
    
    
    2,018
    
    
    
    60
    
    
    
    95,698Other
    
    
    513
    
    
    
    2,264
    
    
    
    1,898Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (17,600
    )
    
    
    12,230
    
    
    
    25,750Inventories
    
    
    (19,989
    )
    
    
    56,407
    
    
    
    32,059Prepaid expenses and other current assets
    
    
    (8,243
    )
    
    
    2,110
    
    
    
    3,580Other assets
    
    
    (6,478
    )
    
    
    2,254
    
    
    
    3,997Accounts payable and accrued expenses
    
    
    1,406
    
    
    
    18,871
    
    
    
    1,245Income taxes
    
    
    3,305
    
    
    
    7,414
    
    
    
    (6,353
    )Pension and other deferred liabilities
    
    
    10,617
    
    
    
    (4,043
    )
    
    
    3,791Net cash provided by operating activities
    
    
    57,956
    
    
    
    203,391
    
    
    
    127,343INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    
    (38,641
    )
    
    
    (28,343
    )
    
    
    (48,975
    )Cash paid for acquisitions, joint ventures and other
    
    
    (86,691
    )
    
    
    (4,670
    )
    
    
    (10,494
    )Proceeds from sale of property, plant and equipment
    
    
    14,765
    
    
    
    9,450
    
    
    
    14,602Other
    
    
    678
    
    
    
    750
    
    
    
    603Net cash used in investing activities
    
    
    (109,889
    )
    
    
    (22,813
    )
    
    
    (44,264
    )FINANCING ACTIVITIESBorrowings (payments) on credit facility  net
    
    
    7,355
    
    
    
    (74,800
    )
    
    
    (31,400
    )(Payments) borrowings on short-term debt
    
    
    (3,582
    )
    
    
    458
    
    
    
    6,128Payments on notes payable, including prepayments
    
    
    
    
    
    
    (270,371
    )
    
    
    (41,072
    )Proceeds from issuance of Senior Notes
    
    
    
    
    
    
    250,000
    
    
    
    Debt issuance and amendment costs paid
    
    
    (468
    )
    
    
    (18,910
    )
    
    
    (3,434
    )Dividends on common stock
    
    
    (5,177
    )
    
    
    (5,137
    )
    
    
    (14,695
    )Treasury stock re-issued
    
    
    5,644
    
    
    
    2,574
    
    
    
    1,706Cost of common stock for treasury
    
    
    (1,457
    )
    
    
    (30
    )
    
    
    (120
    )Net cash provided by (used in) financing activities
    
    
    2,315
    
    
    
    (116,216
    )
    
    
    (82,887
    )Effect of exchange rate changes on cash
    
    
    1,115
    
    
    
    (1,625
    )
    
    
    1,497Net (decrease) increase in cash
    
    
    (48,503
    )
    
    
    62,737
    
    
    
    1,689Cash balance at beginning of year
    
    
    68,619
    
    
    
    5,882
    
    
    
    4,193Cash balance at end of year
    
    $
    20,116
    
    
    $
    68,619
    
    
    $
    5,882Supplemental disclosure of cash flow information:Interest paid
    
    $
    27,124
    
    
    $
    28,054
    
    
    $
    32,533Income taxes paid, net of refunds
    
    
    16,983
    
    
    
    6,547
    
    
    
    2,952
 See notes to consolidated financial statements. II-19




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##### Table of Contents



Consolidated Statements of Stockholders Equity
Years ended January 3, 2004, January 4, 2003 and
December 29, 2001
(In thousands, except share data) AccumulatedOtherCommon
    
    Paid-in
    
    Retained
    
    Treasury
    
    ComprehensiveStock
    
    Capital
    
    Earnings
    
    Stock
    
    Loss
    
    TotalBalance at December 30, 2000
    
    $
    414
    
    
    $
    47,104
    
    
    $
    716,460
    
    
    $
    (226,470
    )
    
    $
    (11,568
    )
    
    $
    525,940Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (55,486
    )
    
    
    
    
    
    
    
    
    
    
    (55,486
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,057
    )
    
    
    (1,057
    )Cumulative effect adjustment (SFAS 133), net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )
    
    
    (578
    )Losses on derivatives reclassified to earnings, net of tax of $2,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,529
    
    
    
    4,529Change in unrealized value of derivatives, net of tax of $3,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,288
    )
    
    
    (5,288
    )Minimum pension liability, net of tax of $442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (720
    )
    
    
    (720
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,600
    )Treasury stock acquired (8,580 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    
    
    
    
    (120
    )Treasury stock re-issued (121,542 shares)
    
    
    
    
    
    
    (1,712
    )
    
    
    
    
    
    
    3,418
    
    
    
    
    
    
    
    1,706Cash dividends ($0.46 per share)
    
    
    
    
    
    
    
    
    
    
    (14,695
    )
    
    
    
    
    
    
    
    
    
    
    (14,695
    )Balance 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
    
    
    
    
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    533Balance at January 3, 2004
    
    $
    414
    
    
    $
    38,625
    
    
    $
    713,310
    
    
    $
    (208,038
    )
    
    $
    (29,447
    )
    
    $
    514,864
 See notes to consolidated financial statements. II-20




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##### Table of Contents



Notes to Consolidated Financial Statements Note 1: Description of Business and Significant Accounting Policies We are a leading branded athletic, outdoor and activewear company with over a
century of success in marketing athletic uniforms, apparel and accessories for
a wide variety of sports, outdoor and fitness activities. Our brands include:
Russell Athletic®, Jerzees®, Mossy Oak®, Cross Creek®, Discus®,and Moving
Comfort®along with Bike®, Spalding®, Dudley®,and Sherrin®which we acquired
in 2003. 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 are a leading supplier of
team uniforms and related apparel to college, high school and organized sports
teams. We are, and will be through 2004, the official uniform supplier of 15
Major League Baseball teams, including the Atlanta Braves, New York Yankees,
San Francisco Giants, and Seattle Mariners. In addition, 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 recent 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., 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. II-21




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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 (free-on-board) 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. 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 and all of our majority-owned subsidiaries,
after the elimination of intercompany accounts and transactions. 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 a substantial portion
of 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 $64.1 million in 2003 and
$57.9 million in 2002. Inventories are summarized as follows: (In thousands)
    
    2003
    
    2002Finished goods
    
    $
    291,000
    
    
    $
    244,931Work-in-process
    
    
    45,318
    
    
    
    48,272Raw materials and supplies
    
    
    15,068
    
    
    
    19,143351,386
    
    
    
    312,346LIFO and lower-of-cost or market adjustments, net
    
    
    (4,440
    )
    
    
    (5,688
    )$
    346,946
    
    
    $
    306,658
 In 2003, we lowered inventory levels in one of our LIFO pools resulting in a
liquidation of LIFO inventory carried at lower costs prevailing in prior years
as compared with current costs. The effect of this liquidation was to increase
pre-tax income by $2.5 million. II-22




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##### Table of Contents



In 2002, we lowered inventory levels and our per unit manufacturing costs.
These reductions resulted in a liquidation of LIFO inventory quantities carried
at higher costs prevailing in prior years as compared with our current
manufacturing costs. The effect of this liquidation was to decrease pre-tax
income by $6.0 million. 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 25 to 37 years for buildings and from 3 to 12
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)
    
    2003
    
    2002Land and improvements
    
    $
    14,407
    
    
    $
    20,389Buildings and improvements
    
    
    253,982
    
    
    
    251,875Machinery and equipment
    
    
    583,852
    
    
    
    758,827Construction-in-progress
    
    
    6,443
    
    
    
    3,619858,684
    
    
    
    1,034,710Less accumulated amortization
    
    
    (555,450
    )
    
    
    (702,701
    )$
    303,234
    
    
    $
    332,009
 In 2003, we completed the implementation of our new fixed asset system which
resulted in the retirement of approximately $174.8 million of assets (primarily
machinery and equipment) that were primarily fully depreciated and no longer in
use. 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. The following table presents the impact of SFAS No. 142 on net (loss) and net
(loss) per common share had the standard been in effect in 2001 (in thousands,
except per share amounts): 2001Reported net (loss)
    
    $
    (55,486
    )SG&A adjustments:Amortization of goodwill
    
    
    1,136Amortization of licenses
    
    
    317Total SG&A adjustments
    
    
    1,453Income tax effect
    
    
    (391
    )Net adjustments
    
    
    1,062Adjusted net (loss)
    
    $
    (54,424
    )Reported net (loss) per share-basic
    
    $
    (1.74
    )Adjusted net (loss) per share-basic
    
    $
    (1.70
    )Reported net (loss) per share-diluted
    
    $
    (1.74
    )Adjusted net (loss) per share-diluted
    
    $
    (1.70
    )
 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. II-23




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##### Table of Contents



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.
Asset impairment charges are described more fully in Note 9. 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 $48.0 million,
$36.0 million, and $45.7 million in such costs during 2003, 2002 and 2001,
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. SFAS No. 148 uses a fair value based
method of accounting for employee stock awards. By electing the prospective
transition method of SFAS No. 148, our results of operations and our financial
position were not affected by stock compensation awards granted prior to
January 5, 2003. 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. 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 and diversity of
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 16.5% and 9.7% of our net accounts receivable at January
3, 2004 and January 4, 2003, 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 II-24




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##### Table of Contents



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 11). 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 2003 and 2001
ended on January 3, 2004 and December 29, 2001, respectively, and each
contained 52 weeks. Fiscal year 2002 ended on January 4, 2003 and contained 53
weeks. New Accounting Pronouncements.In January 2003, the FASB issued Financial
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46).
FIN 46 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 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. FIN 46 does
not require consolidation by transferors to qualifying special purpose
entities. Originally, FIN 46 applied to the first interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. However in
December 2003, the FASB issued FASB Staff Position No. FIN 46-e, Effective Date
of FASB Interpretation No. 46, Consolidation of Variable Interest Held by a
Public Entity(FSP 46-e), that delayed the implementation date to the first
interim or annual period ending after March 14, 2004. The only non-consolidated entity that we have identified as a potential
variable interest entity is our yarn joint venture, Frontier Yarns, LLC (see
Note 8). We currently account for our investment in this entity under the
equity method. We are in the process of performing tests to determine if the
joint venture is a variable interest entity and will finalize our analysis in
the first quarter of 2004. Reclassifications.Certain prior year amounts have been reclassified to
conform to the fiscal 2003 presentation. These changes had no impact on
previously reported results of operations or stockholders equity. 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
$7.9 million and $13.6 million at January 3, 2004 and January 4, 2003,
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. II-25




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Note 2: Long-Term Debt Long-term debt includes the following: (In thousands)
    
    2003
    
    2002Senior secured credit facilities (due April 2007):$300 million revolving credit facility
    
    $
    12,355
    
    
    $
    Term Loan
    
    
    15,000
    
    
    
    20,000Senior Notes 9.25% (due 2010)
    
    
    250,000
    
    
    
    250,000277,355
    
    
    
    270,000Less current maturities
    
    
    (5,000
    )
    
    
    (5,000
    )$
    272,355
    
    
    $
    265,000
 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. 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 new Facilities mature on April 18, 2007. 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 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). For 2002, the
variable interest on the Revolver was at LIBOR plus 2.50% (3.92% at January 4,
2003) and on the Term Loan was LIBOR plus 3.00% (4.42% at January 4, 2003). The
commitment fee on the unused portion of the Revolver ranges from 0.375% to
0.500% and was 0.375% and 0.500% for fiscal years ending 2003 and 2002,
respectively. 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 II-26




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fiscal year 2004;
and 1.25 to 1.0 thereafter. We also must maintain a maximum leverage ratio of:
4.0 to 1.0 through the next to last day of fiscal year 2002; and 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 2003. 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 3, 2004, we had $27.4 million in outstanding borrowings ($12.4
million under the Revolver and $15.0 million under the Term Loan) and $14.0
million in outstanding letters of credit under the Facilities. As of January
3, 2004, we could have borrowed approximately $206.6 million of additional
funds under our Revolver. Aggregate maturities of long-term debt at January 3, 2004, are as follows: (In thousands)2004
    
    $
    5,0002005
    
    
    5,0002006
    
    
    5,0002007
    
    
    12,355Thereafter (2010)
    
    
    250,000$
    277,355
 Note 3: Short-Term Debt As of January 3, 2004 and January 4, 2003, we had a line of credit agreement
with the Bank of Scotland with outstanding borrowings of $4.1 million and $7.3
million, respectively. At January 3, 2004, we had availability under this line
of credit of approximately $7.7 million. The weighted-average interest rate on
the line of credit during 2003 was 5.7% and 5.9% in both 2002 and 2001. Note 4: Derivative and Other Financial Instruments As of December 31, 2000, we adopted SFAS No. 133. In accordance with the
provisions of SFAS No. 133, we recorded a transition adjustment in the first
quarter of 2001. The transition adjustment increased accumulated other
comprehensive loss and decreased net assets by $0.6 million (net of taxes). Interest Rate Swap Agreements.To manage interest rate risk, we had an
interest rate swap (through April 18, 2002) that effectively fixed the interest
rate on the outstanding balance of a floating rate debt instrument. The
interest rate swap agreement was accounted for as a cash flow hedge and
qualified for use of the short cut method under SFAS No. 133, because the
cash flows from the interest rate swap perfectly offset the changes in the cash
flows associated with the floating rate of interest on the debt. The 2001
transition adjustment to record the fair value of the interest rate swap was a
loss of $0.6 million ($0.3 million, net of taxes) with an offsetting entry to
accumulated other comprehensive loss. There were no amounts reclassified from
accumulated other comprehensive loss to interest expense during 2001. The fair
value of the swap decreased $1.6 million ($1.0 million net of tax) in 2001 as
interest rates declined resulting in a charge to accumulated other
comprehensive loss, decreasing that component of equity to $1.4 million (net of
taxes). Through April 18, 2002, the fair value of the swap increased $0.7
million ($0.4 million net of tax) resulting in a decrease in accumulated other
comprehensive loss. On April 18, 2002, the interest rate swap was terminated
and the related hedged debt was repaid (Note 2) resulting in a $1.5 million
($1.0 million net of tax) loss reclassified from accumulated other
comprehensive loss to the debt retirement charge in the consolidated statements
of operations. On October 10, 2000, we terminated a fixed to floating rate swap agreement and
recorded a deferred loss of approximately $0.6 million ($0.2 million at
December 29, 2001), which was amortized through April 18, 2002 (the date on
which the related hedged debt was repaid). On April 18, 2002, we recognized the
remaining $0.1 million ($0.07 million net of tax) deferred loss in the
consolidated statements of operations as part of the debt retirement charge
(Note 2). These interest rate swap agreements, when combined, changed the
weighted-average interest rate on long-term debt from 6.96% to 7.07% in 2001. II-27




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##### Table of Contents



Foreign Currency Forward Contracts.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 3, 2004, we have foreign
exchange forward contracts expiring through the end of fiscal 2004 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, Mexican peso, and
British pound sterling. There was no transition adjustment recorded upon
adoption of SFAS No. 133 in 2001, as there were no significant foreign currency
forward contracts impacted by the statement upon adoption. The change in fair
value of the forward contracts increased net assets and decreased accumulated
other comprehensive loss by $0.2 million ($0.1 million net of taxes) during
2001, while realized gains reclassified to other-net in the consolidated
statements of operations in 2001 amounted to $0.2 million ($0.1 million net of
taxes). During 2002, the change in fair value of the forward contracts
decreased net assets and increased accumulated other comprehensive loss by $2.5
million ($1.6 million net of taxes), while realized losses reclassified to
other-net in the consolidated statements of operations amounted to $0.6 million
($0.4 million net of taxes). During 2003, the change in fair value of the
forward contracts decreased net assets and increased accumulated other
comprehensive loss by $7.4 million ($4.6 million net of taxes), while realized
losses reclassified to other-net in the consolidated statements of operations
amounted to $4.5 million ($2.8 million net of taxes). We were also a party to foreign exchange forward contracts during 2001 that did
not qualify for hedge accounting under SFAS No. 133. We recorded those
contracts at fair value with the related changes in fair value, which amounted
to a gain of $0.9 million ($0.6 million net of taxes) reported in other-net in
the 2001 consolidated statements of operations. Futures Contracts.A substantial portion of the raw materials we use in our
integrated manufacturing process are subject to price volatility caused by
weather, supply conditions and other unpredictable factors. Prior to the
formation of Frontier Yarns, we purchased futures contracts to hedge commodity
price risk on anticipated purchases of cotton. Upon adoption of SFAS No. 133,
we accounted for these futures contracts as cash flow hedges. The transition
adjustment to record the fair value of cotton futures contracts at the
beginning of 2001 was a loss of $0.4 million ($0.2 million net of taxes), which
was charged to accumulated other comprehensive loss. Gains and losses on
futures contracts designated as cash flow hedges are reclassified from
accumulated other comprehensive loss to cost of goods sold in the period the
hedged item (i.e., the purchase of raw cotton) affects earnings. The change in
fair value of the commodity futures contracts decreased net assets and
increased accumulated other comprehensive loss by $4.4 million (net of taxes)
in 2001. Losses reclassified to earnings during 2001 amounted to $7.5 million
($4.6 million net of taxes), including $6.4 million ($4.0 million net of
taxes), that were recognized in earnings due to hedge ineffectiveness. These
contracts were determined to be ineffective as hedges at the end of 2001 as we
planned to no longer purchase raw cotton but instead purchase yarn from
Frontier Yarns and other third parties beginning in 2002 (See Note 8). At
December 29, 2001, we maintained cotton futures contracts covering
approximately 6.2 million pounds. These cotton futures contracts did not
qualify for hedge accounting treatment under SFAS No. 133. At January 3, 2004
and January 4, 2003, we were not a party to any cotton futures contracts. Other Financial Instruments.At January 3, 2004 and January 4, 2003, 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: 2003
    
    2002ASSETS (LIABILITY)
    
    
    
    
    
    Fair
    
    
    
    
    
    Fair(In thousands)
    
    Carrying Value
    
    Value
    
    Carrying Value
    
    ValueShort-term debt
    
    $
    (4,088
    )
    
    $
    (4,088
    )
    
    $
    (7,253
    )
    
    $
    (7,253
    )Long-term debt (including current portion)
    
    
    (277,355
    )
    
    
    (292,481
    )
    
    
    (270,000
    )
    
    
    (289,000
    )Forward currency exchange contracts
    
    
    (4,743
    )
    
    
    (4,743
    )
    
    
    (1,841
    )
    
    
    (1,841
    )Investments (trading portfolio)
    
    
    9,092
    
    
    
    9,092
    
    
    
    7,261
    
    
    
    7,261
 II-28




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Note 5: Employee Retirement Benefits We have a qualified, noncontributory, defined benefit pension plan that covers
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 based upon years of service and the employees highest
consecutive five years of compensation during the last ten years of employment. We fund the qualified plan by contributing annually the maximum amount that can
be deducted for federal income tax purposes. Additional contributions are
sometimes needed to comply with funding requirements in our principal debt
agreement. Although there is no current funding requirement, it is possible
that we could be required to make a contribution of as much as $1.6 million to
the qualified plan in fiscal 2004. 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, which
is rebalanced on a monthly basis. Target allocations are 65% equity
investments and 35% fixed income investments. 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: 2003
    
    2002ASSET CATEGORYEquity funds
    
    
    65.7
    %
    
    
    62.7
    %Fixed income funds
    
    
    34.3
    %
    
    
    36.5
    %Cash and cash equivalents
    
    
    
    %
    
    
    0.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Plan assets at January 3, 2004 and January 4, 2003, include 600,960 shares of
the Companys common stock having a market value of $10.6 million and $10.1
million, respectively. Dividends paid to the plan by the Company were $0.1
million in 2003 and 2002 and $0.3 million in 2001. The following table sets forth changes in the benefit obligation, plan assets
and funded status: (In thousands)
    
    2003
    
    2002CHANGE IN BENEFIT OBLIGATIONBenefit obligation at beginning of year
    
    $
    157,643
    
    
    $
    145,877Service cost
    
    
    5,045
    
    
    
    3,999Interest cost
    
    
    10,493
    
    
    
    10,408Actuarial loss
    
    
    7,297
    
    
    
    6,868Benefits paid
    
    
    (9,763
    )
    
    
    (9,587
    )Plan amendments
    
    
    22
    
    
    
    78Benefit obligation at end of year
    
    $
    170,737
    
    
    $
    157,643
 The accumulated benefit obligation for the Retirement Plans was $157.6 million
and $142.7 million at January 3, 2004 and January 4, 2003, respectively. (In thousands)
    
    2003
    
    2002CHANGE IN PLAN ASSETSFair value of plan assets at beginning of year
    
    $
    94,748
    
    
    $
    106,782Actual return on plan assets
    
    
    20,673
    
    
    
    (7,380
    )Company contributions
    
    
    7,285
    
    
    
    4,933Benefits paid
    
    
    (9,763
    )
    
    
    (9,587
    )Fair value of plan assets at end of year
    
    $
    112,943
    
    
    $
    94,748
 (In thousands)
    
    2003
    
    2002RECONCILIATION OF FUNDED STATUS TO ACCRUED
BENEFIT COSTUnfunded status of the plan
    
    $
    (57,794
    )
    
    $
    (62,895
    )Unrecognized prior service cost
    
    
    1,105
    
    
    
    1,315Unrecognized net actuarial loss
    
    
    42,492
    
    
    
    44,858Unrecognized transition asset
    
    
    (308
    )
    
    
    (986
    )Accrued benefit cost
    
    $
    (14,505
    )
    
    $
    (17,708
    )
 II-29




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##### Table of Contents



(In thousands)
    
    2003
    
    2002AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETSAccrued benefit cost
    
    $
    (14,505
    )
    
    $
    (17,708
    )Additional minimum liability
    
    
    (30,544
    )
    
    
    (30,421
    )Intangible asset
    
    
    548
    
    
    
    811Accumulated other comprehensive loss
    
    
    29,996
    
    
    
    29,610Net amount recognized
    
    $
    (14,505
    )
    
    $
    (17,708
    )
 A summary of the components of net periodic pension cost is as follows: (In thousands)
    
    2003
    
    2002
    
    2001COMPONENTS OF NET
PERIODIC BENEFIT COSTService cost
    
    $
    5,045
    
    
    $
    3,999
    
    
    $
    4,646Interest cost
    
    
    10,493
    
    
    
    10,408
    
    
    
    10,514Expected return on plan assets
    
    
    (11,005
    )
    
    
    (12,351
    )
    
    
    (12,501
    )Net amortization and deferral
    
    
    (452
    )
    
    
    (449
    )
    
    
    (532
    )Effect of curtailment
    
    
    
    
    
    
    
    
    
    
    351Net periodic pension cost
    
    $
    4,081
    
    
    $
    1,607
    
    
    $
    2,478
 The weighted average assumptions used to compute pension amounts were as
follows: 2003
    
    2002Discount rate
    
    
    6.25
    %
    
    
    6.75
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    9.50
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.50
    %
 The expected return on plan assets assumption reflects the weighted average of
the historical rates of return for the investments held in the plan, adjusted
for any fundamental changes in expected returns on the plan investments. The following table shows the expected benefit payments to be made from the
Retirement Plans as of January 3, 2004 (in thousands): BenefitFiscal Years
    
    Payments2004
    
    $
    8,4852005
    
    
    8,3722006
    
    
    8,4692007
    
    
    8,6992008
    
    
    9,190Five years thereafter
    
    
    52,486
 In addition to our Retirement Plans, we have a savings plan that is qualified
under Section 401(k) of the Internal Revenue Code (Savings Plan). Our Savings
Plan allows 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 $0.9 million in 2003, $0.8 million in 2002 and $1.0 million in 2001. II-30




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##### Table of Contents



Note 6: Income Taxes Foreign operations contributed $1.3 million, $.9 million and $3.2 million to
the Companys income (loss) before income taxes in 2003, 2002 and 2001,
respectively. Significant components of the provision for (benefit from) income taxes are as
follows: 2003
    
    2002
    
    2001Currently
    
    
    
    
    
    Currently
    
    
    
    
    
    Currently(In thousands)
    
    Payable
    
    Deferred
    
    Payable
    
    Deferred
    
    Payable
    
    DeferredFederal
    
    $
    15,826
    
    
    $
    6,224
    
    
    $
    8,991
    
    
    $
    9,330
    
    
    $
    (4,832
    )
    
    $
    (22,276
    )State
    
    
    42
    
    
    
    (2,127
    )
    
    
    1,691
    
    
    
    (191
    )
    
    
    683
    
    
    
    (6,208
    )Foreign
    
    
    639
    
    
    
    335
    
    
    
    3,280
    
    
    
    (2,779
    )
    
    
    1,286
    
    
    
    240Totals
    
    $
    16,507
    
    
    $
    4,432
    
    
    $
    13,962
    
    
    $
    6,360
    
    
    $
    (2,863
    )
    
    $
    (28,244
    )
 Our effective tax rates were 32.7%, 37.2% and 35.9% for fiscal 2003, 2002 and
2001, respectively. The 4.5 percentage point decrease in the effective tax
rate from 2002 to 2003 related primarily 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)
    
    2003
    
    2002
    
    2001Taxes (benefit) at statutory rate on income before
income taxes
    
    $
    22,392
    
    
    $
    19,120
    
    
    $
    (30,308
    )State income taxes, net of federal income tax benefit
    
    
    (836
    )
    
    
    702
    
    
    
    (5,281
    )Tax effects of foreign operations  net
    
    
    (4,612
    )
    
    
    (2,006
    )
    
    
    141Change in valuation allowance on foreign/state NOLs
    
    
    5,931
    
    
    
    2,606
    
    
    
    2,756Other  net
    
    
    (1,936
    )
    
    
    (100
    )
    
    
    1,585$
    20,939
    
    
    $
    20,322
    
    
    $
    (31,107
    )
 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 3, 2004 and January 4, 2003,
are as follows: (In thousands)
    
    2003
    
    2002Deferred tax liabilities:Property, plant and equipment
    
    $
    25,036
    
    
    $
    29,639Inventories
    
    
    5,539
    
    
    
    10,232Other
    
    
    18,125
    
    
    
    18,536Total deferred tax liabilities
    
    
    48,700
    
    
    
    58,407Deferred tax assets:Pension and post-employment obligations
    
    
    17,267
    
    
    
    16,587Accounts receivable
    
    
    3,777
    
    
    
    9,032Foreign and state net operating loss carryforwards
    
    
    23,368
    
    
    
    20,191Employee benefits
    
    
    10,186
    
    
    
    9,567Other
    
    
    1,802
    
    
    
    684Total deferred tax assets
    
    
    56,400
    
    
    
    56,061Valuation allowance for deferred tax assets
    
    
    (19,474
    )
    
    
    (13,543
    )Net deferred tax assets
    
    
    36,926
    
    
    
    42,518Net deferred tax liabilities
    
    $
    11,774
    
    
    $
    15,889
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Through 2002, as we continued to execute our restructuring plan (see Note 9)
and implemented certain tax strategies, we generated NOL carryforwards in
states where utilization of the carryforward benefits was not assured.
Accordingly, we increased our valuation allowance related to state NOL
carryforwards by $2.8 million in 2001. 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. We do not provide for federal income taxes on the undistributed earnings of
international subsidiaries because earnings are reinvested and it is our
intention to reinvest them indefinitely. At January 3, 2004, we had not
provided for federal income taxes on earnings of international subsidiaries of
approximately $18.9 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 $0.9 million would be payable
if all previously unremitted earnings as of January 3, 2004, were remitted to
the U.S. parent company. Note 7: Stock Rights Plan And Stock Option 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. 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 2,482,061 shares of common stock were reserved for
issuance at January 3, 2004. 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 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: 2003
    
    2002
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning
of year
    
    
    4,367,793
    
    
    $
    19.92
    
    
    
    4,630,808
    
    
    $
    20.11
    
    
    
    5,102,766
    
    
    $
    20.50Granted at fair value
    
    
    70,650
    
    
    $
    19.48
    
    
    
    63,658
    
    
    $
    16.41
    
    
    
    334,830
    
    
    $
    17.59Exercised
    
    
    340,539
    
    
    $
    15.28
    
    
    
    119,047
    
    
    $
    15.06
    
    
    
    49,268
    
    
    $
    15.09Expired
    
    
    85,800
    
    
    $
    27.50
    
    
    
    
    
    
    
    
    
    
    
    272,050
    
    
    $
    26.38Forfeited
    
    
    316,415
    
    
    $
    21.36
    
    
    
    207,626
    
    
    $
    18.03
    
    
    
    485,470
    
    
    $
    19.56Outstanding at end of year
    
    
    3,695,689
    
    
    $
    20.05
    
    
    
    4,367,793
    
    
    $
    19.92
    
    
    
    4,630,808
    
    
    $
    20.11Exercisable at end of year
    
    
    3,209,053
    
    
    $
    20.62
    
    
    
    2,982,005
    
    
    $
    21.58
    
    
    
    2,550,845
    
    
    $
    23.21
  WeightedAverage RemainingWeighted Average
    
    Number of
    
    Number of
    
    LifeExercise Price
    
    Exercisable Shares
    
    Outstanding Shares
    
    in Years$11.75 - $15.00
    
    
    14,816
    
    
    
    32,526
    
    
    
    7.6$15.01 - $18.25
    
    
    1,321,623
    
    
    
    1,642,079
    
    
    
    6.2$18.26 - $21.50
    
    
    588,970
    
    
    
    733,547
    
    
    
    5.6$21.51 - $24.75
    
    
    314,177
    
    
    
    318,070
    
    
    
    4.5$24.76 - $28.00
    
    
    742,867
    
    
    
    742,867
    
    
    
    3.6$28.01 - $31.35
    
    
    226,600
    
    
    
    226,600
    
    
    
    2.13,209,053
    
    
    
    3,695,689
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On January 5, 2003, we adopted the prospective transition provisions of SFAS
No. 148, which uses a fair value based method of accounting for employee stock
options and similar equity instruments. 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 $0.6 million ($0.4 million after-tax) of
stock-based employee compensation in fiscal 2003. 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 2003, 2002 and 2001 and key
assumptions used to determine these values were as follows: 2003
    
    2002
    
    2001Risk-free interest rate
    
    
    1.25
    %
    
    
    4.50
    %
    
    
    4.90
    %Dividend yield
    
    
    1.00
    %
    
    
    1.00
    %
    
    
    1.00
    %Volatility factor
    
    
    .361
    
    
    
    .361
    
    
    
    .397Weighted-average expected life of options
    
    2.0 years
    
    7.4 years
    
    7.8 yearsEstimated fair value per option
    
    $
    3.88
    
    
    $
    6.98
    
    
    $
    7.10
 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)
    
    2003
    
    2002
    
    2001Reported net income (loss)
    
    $
    43,039
    
    
    $
    34,306
    
    
    $
    (55,486
    )Stock-based employee compensation, net of tax,
assuming SFAS No. 148 was applied
    
    
    (1,171
    )
    
    
    (2,542
    )
    
    
    (4,698
    )Pro forma net income (loss)
    
    $
    41,868
    
    
    $
    31,764
    
    
    $
    (60,184
    )Reported net income (loss) per share  basic
    
    $
    1.33
    
    
    $
    1.07
    
    
    $
    (1.74
    )Pro forma net income (loss) per share  basic
    
    $
    1.29
    
    
    $
    0.99
    
    
    $
    (1.88
    )Reported net income (loss) per share  diluted
    
    $
    1.32
    
    
    $
    1.06
    
    
    $
    (1.74
    )Pro forma net income (loss) per share  diluted
    
    $
    1.28
    
    
    $
    0.99
    
    
    $
    (1.88
    )
 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. II-33




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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 ceased to be a director following such director reaching
age 70. Eligible Directors also may elect to receive all or a portion of their
annual fee in shares or deferred shares. 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. In 2003, 10,600
deferred shares were granted at a price of $18.88. Options to purchase an
aggregate of 55,287 shares of common stock at a price of $18.81 were granted in
2002. 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 3, 2004. Note 8: Commitments and Contingencies Purchase and Lease Commitments.At January 3, 2004, we have commitments to
spend approximately $5.6 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
    
    Total2004
    
    $
    4,572
    
    
    $
    2,494
    
    
    $
    7,0662005
    
    
    4,161
    
    
    
    2,528
    
    
    
    6,6892006
    
    
    3,074
    
    
    
    2,561
    
    
    
    5,6352007
    
    
    1,995
    
    
    
    2,596
    
    
    
    4,5912008
    
    
    1,487
    
    
    
    2,631
    
    
    
    4,118Thereafter
    
    
    2,516
    
    
    
    4,461
    
    
    
    6,977$
    17,805
    
    
    $
    17,271
    
    
    $
    35,076
 Lease and rental expense for fiscal years 2003, 2002 and 2001 was $7.6 million,
$7.3 million and $9.4 million, respectively. We had $14.2 million outstanding under letters of credit for the purchase of
inventories at January 3, 2004. We had $4.5 million outstanding under letters
of credit at January 3, 2004 for the guarantee of debt of a non-affiliated
foreign contractor that expires ratably over the period of 2003  2005. In
addition, we had $3.7 million outstanding under letters of credit at January 3,
2004 related to self-insurance of workers compensation programs. On December 28, 2001, we entered into a joint venture agreement with Frontier
Spinning Mills, Inc., to establish Frontier Yarns, LLC (Frontier Yarns), a
joint venture limited liability company in which we hold 45.3% of the
outstanding membership units. Our voting interest is equal to our proportion of
total outstanding membership units. Profits of Frontier Yarns are distributed
to its members in proportion to the number of membership units held by each
member. As part of this transaction, 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 is due in
February 2009 and accrues interest at market rates. Simultaneously we entered
into a supply agreement with Frontier Yarns to purchase certain minimum
quantities of yarn based upon the production capacity of Frontier Yarns. The
agreement also 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 both January 3, 2004 and January 4, 2003. We can
terminate the supply agreement under certain circumstances related to a
fundamental decrease in our demand for yarn or the cost of yarn becoming
uncompetitive. In addition, beginning in 2006, the agreement may be terminated
for any reason upon two years notice but not prior to 2008. Since Frontier
Spinning Mills, Inc. is not an affiliate of ours, the agreement, in our
opinion, was negotiated on an arms length basis. Litigation We are a co-defendant in Locke, et al. v. Russell Corporation, et al., in
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 II-34




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##### Table of Contents



remaining claim, which involves a private right of action for public nuisance,
was scheduled for trial in October 2003; however, the trial court has continued
the case until 2004 and allowed us to move for summary judgment on the
remaining claim. We filed our summary judgment motion on October 31, 2003,
which is pending before the court. A substantially identical lawsuit to 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.). On May 22,
2002, the trial court entered summary judgment in our favor on all claims, and,
on June 17, 2002, the plaintiffs filed a motion to alter that determination,
which is 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 by the Alabama Supreme Court
in 2001. We plan to vigorously defend the Lockeand Gouldsuits. We also are a party to various other lawsuits arising out of the normal conduct
of our business. We do not believe that any of these lawsuits, if adversely
determined, would have a material adverse effect upon us. Note 9: Restructuring, Asset Impairment and Other Unusual Charges (Special
Charges) Operational Improvement Program.In October 2003, we announced an Operational
Improvement Program (the OIP) designed to reduce costs to offset anticipated
selling price decreases, higher fiber costs and other cost increases for fiscal
2004. The OIP includes improving operating efficiencies and asset utilization,
while streamlining processes in both our manufacturing and administrative areas
such as: (1) expanded production with lower cost contractors in Central
America; (2) lower sourcing costs; (3) increased efficiencies in domestic
textile operations; and (4) improved distribution costs. As part of the OIP,
we eliminated in 2003 approximately 100 positions, primarily salaried and
administrative office staff, resulting in approximately $4.0 million in
severance expense. In addition, we incurred asset impairment charges of
approximately $0.5 million associated with the planned closings of two
International sales offices and the abandonment of a previously idled domestic
finished goods warehouse. Multi-Year Restructuring and Reorganization Program.In July 1998, we adopted
a restructuring and reorganization program (the 1998 Program) with the
objective of (1) transitioning our company from a manufacturing-driven business
to a consumer-focused organization that markets branded apparel products and
(2) creating an efficient, low-cost operating structure with the flexibility to
take advantage of future opportunities to reduce our costs. The 1998 Program
originally called for the closing of a number of our worldwide facilities,
which included selected manufacturing plants, distribution centers and offices;
expanding production outside the United States; consolidating and downsizing
the licensed products businesses; disposing of owned shopping-center real
estate; reorganizing the corporate structure; and other cost savings
activities. In addition, we established a dual headquarters in Atlanta,
Georgia. In July 2001, we announced an extension of this program to align the
organization by distribution channel to provide stronger customer service,
supply chain management, and more cost-effective operations. Fiscal 2003 Activities In 2003, we recorded $2.2 million in special charges to adjust the accruals for
employee terminations, termination of certain licenses and contracts and exit
costs related to facilities to reflect our best estimate of the ultimate
settlement of these liabilities and to adjust the carrying values of assets
idled in prior periods to properly reflect the assets at their net realizable
value. The $2.2 million in special charges is net of $1.1 million of gains
realized on the disposal of five properties that were being held for sale at
the beginning of 2003. Property and equipment held for disposal at January 3, 2004 are carried at $5.6
million. These assets have been written down to their fair values (less cost
to sell) as determined by reference to third-party appraisals or internal
analyses based on recent sales prices of comparable facilities. Depreciation
has been suspended since the date these assets were first classified as assets
held for disposal. Fiscal 2002 Activities There were no special charges in 2002 other than to the extent our estimated
restructuring liabilities and the carrying value of idled assets at 2001
differed from actual results or from changed circumstances. In 2002, we adjusted our estimate of the accrual for employee terminations and
termination of certain licenses and contracts by $0.4 million each to reflect
our best estimate of the ultimate settlement of these liabilities. In
addition, we disposed of six properties and equipment that were being held for
sale at the beginning of 2002 realizing a net gain of $5.8 million. The $6.6
million of gains from the adjustment of restructuring accruals and disposal of
properties were completely offset by an additional $0.4 million of inventory
write-downs needed to reduce the carrying value of discontinued inventories to
their estimated net realizable values; $0.8 million for exit costs on
facilities that are being held for sale; and $5.4 million to adjust the
carrying values of assets idled in prior periods to properly reflect the assets
at their net realizable value. II-35




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Fiscal 2001 Activities The special charges in 2001 relate primarily to the consolidation of
the Cross
Creek®branded business and the restructuring of our spinning facilities.
Revenue and operating losses related to the Cross Creek® branded business, which
we do not expect to retain in future periods, were approximately $16.1 million
and $6.4 million, respectively, in 2001. In 2001, we announced the closing of two domestic sewing operations, one
textile operation and four yarn manufacturing facilities; the downsizing of
domestic manufacturing capacity in the Domestic segment; the consolidation of
the Cross Creek® artwear business within the other Artwear/Careerwear
businesses; and the discontinuance of our direct marketing of the Cross Creek®
brand through golf pro shops and department stores. Due to these activities,
we issued approximately 1,535 termination notices to employees and recorded
approximately $23.8 million in employee severance and related benefits. In
addition, we recorded inventory write downs of $13.1 million related to the
discontinuance of certain product lines, principally the Cross Creek® branded
business. We also recorded $82.2 million in asset impairment charges which includes $11.8
million to write down facilities and equipment that were previously used in the
Cross Creek® businesses that have either been discontinued or consolidated;
$30.0 million on spinning assets sold to Frontier Yarns; $23.2 million to write
down to fair value yarn facilities and equipment leased to Frontier Yarns that
will continue to be classified as held for use, and $17.2 million (net of $1.7
million of realized gains) to adjust the carrying values of assets idled in
prior periods to properly reflect the assets at their net realizable value. During 2001, we expensed $9.9 million associated with exit costs on facilities
that are being held for sale as well as $1.7 million related to the completion
of the restructuring in Europe. In addition, we recorded $6.9 million of
miscellaneous cost including $4.3 million related to the consolidation of the
Cross Creek® branded business and $1.2 million of costs associated with
establishing our dual headquarters in Atlanta, Georgia. As noted in Note 4, we recognized a $6.4 million charge related to losses on
cotton futures contracts that were deemed to be ineffective as hedges in the
fourth quarter when we sold or leased our remaining yarn manufacturing
facilities to Frontier Yarns. Prior to the fourth quarter, we accounted for
cotton futures contracts as cash flow hedges of anticipated purchases of cotton
with unrealized gains or losses recorded in accumulated other comprehensive
loss until the related hedged cotton purchases occurred. Beginning in 2002, we
began to purchase yarn from Frontier Yarns. The cotton futures contracts that
were hedging anticipated purchases of cotton in 2002 were deemed to be
ineffective upon formation of Frontier Yarns, because we no longer planned to
purchase raw cotton. Accordingly, the $6.4 million of unrealized losses in
accumulated other comprehensive loss was reclassified to earnings as required
by SFAS No. 133 and are presented in the tables below as being directly related
to restructuring our yarn operations. The special charges reflected in the consolidated statements of operations, by
program, are as follows: 2003
    
    2002
    
    20011998
    
    1998
    
    1998(In thousands)
    
    OIP
    
    Program
    
    Program
    
    ProgramAsset impairment:Impairment of facilities used in operations
    
    $
    471
    
    
    $
    
    
    
    $
    
    
    
    $
    23,242Impairment of facilities and equipment
held for disposal
    
    
    
    
    
    
    1,547
    
    
    
    (463
    )
    
    
    59,013Total asset impairment
    
    
    471
    
    
    
    1,547
    
    
    
    (463
    )
    
    
    82,255Employee terminations
    
    
    4,042
    
    
    
    440
    
    
    
    (371
    )
    
    
    23,808Inventory losses including shipping and
warehousing costs
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    13,084Termination of certain licenses and contracts:
    
    
    
    
    
    
    528
    
    
    
    (403
    )
    
    
    6,387Exit costs related to facilities
    
    
    
    
    
    
    (298
    )
    
    
    834
    
    
    
    11,577Other
    
    
    573
    
    
    
    
    
    
    
    
    
    
    
    6,981Total before tax
    
    $
    5,086
    
    
    $
    2,217
    
    
    $
    
    
    
    $
    144,092Total after tax
    
    $
    3,422
    
    
    $
    1,491
    
    
    $
    
    
    
    $
    91,936
 II-36




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The special charges, by program, have been classified in the consolidated
statements of operations as follows: 2003
    
    2002
    
    20011998
    
    1998
    
    1998(In thousands)
    
    OIP
    
    Program
    
    Program
    
    ProgramCost of goods sold
    
    $
    3
    
    
    $
    
    
    
    $
    32
    
    
    $
    43,790Selling, general and administrative expenses
    
    
    4,612
    
    
    
    
    
    
    
    
    
    
    
    1,567Other-net
    
    
    471
    
    
    
    2,217
    
    
    
    (32
    )
    
    
    98,735$
    5,086
    
    
    $
    2,217
    
    
    $
    
    
    
    $
    144,092
 A summary of activity in the restructuring liability accounts, by program,
follows: 2003
    
    2002
    
    20011998
    
    1998
    
    1998(In thousands)
    
    OIP
    
    Program
    
    Program
    
    ProgramRestructuring liabilities at beginning of year
    
    $
    
    
    
    $
    2,333
    
    
    $
    16,139
    
    
    $
    5,726Exit costs incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,577Employee termination costs accrued
    
    
    4,042
    
    
    
    
    
    
    
    
    
    
    
    21,561Other charges
    
    
    573
    
    
    
    
    
    
    
    
    
    
    
    13,009Reserve revisions and adjustments, net
    
    
    
    
    
    
    670
    
    
    
    60
    
    
    
    2,247Payments charged to the liability accounts
    
    
    (1,276
    )
    
    
    (2,748
    )
    
    
    (13,866
    )
    
    
    (37,981
    )Restructuring liabilities at end of year
    
    $
    3,339
    
    
    $
    255
    
    
    $
    2,333
    
    
    $
    16,139
 The restructuring liabilities at end of year, by program, are made up of the
following: 2003
    
    2002
    
    20011998
    
    1998
    
    1998(In thousands)
    
    OIP
    
    Program
    
    Program
    
    ProgramEmployee terminations
    
    $
    2,783
    
    
    $
    10
    
    
    $
    640
    
    
    $
    11,673Termination of certain licenses and contracts
    
    
    
    
    
    
    245
    
    
    
    395
    
    
    
    1,417Exit costs related to facilities
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    3,049Other
    
    
    556
    
    
    
    
    
    
    
    
    
    
    
    $
    3,339
    
    
    $
    255
    
    
    $
    2,333
    
    
    $
    16,139
 A substantial portion of the special charges recognized in 2001 through 2003
involved the write-down of assets and did not require cash payments. A summary
of non-cash related components of the special charges, by program, follows: 2003
    
    2002
    
    20011998
    
    1998
    
    1998(In thousands)
    
    OIP
    
    Program
    
    Program
    
    ProgramImpairment of facilities
    
    $
    471
    
    
    $
    1,547
    
    
    $
    (463
    )
    
    $
    82,255Other
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    13,443$
    471
    
    
    $
    1,547
    
    
    $
    (60
    )
    
    $
    95,698
 Note 10: 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. The Domestic segment is further aligned by distribution channel:
Athletic, Mass Retail and Artwear/Careerwear. Athletic, Mass Retail and
Artwear/Careerwear 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 segment distributes most of our athletic,
outdoor and activewear products. II-37




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##### Table of Contents



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 other 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. Segment Financial Information for the Year ended January 3, 2004 (In thousands)
    
    Domestic
    
    International
    
    TotalNet sales
    
    $
    1,084,844
    
    
    $
    101,419
    
    
    $
    1,186,263Depreciation and amortization expense
    
    
    44,054
    
    
    
    883
    
    
    
    44,937Segment operating income
    
    
    112,782
    
    
    
    535
    
    
    
    113,317Special charges not included in
Segment operating income
    
    
    6,382
    
    
    
    921
    
    
    
    7,303Total assets
    
    
    969,305
    
    
    
    54,002
    
    
    
    1,023,3072003 purchases of long-lived assets
    
    
    38,067
    
    
    
    574
    
    
    
    38,641
 Segment Financial Information for the Year ended January 4, 2003 (In thousands)
    
    Domestic
    
    International
    
    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
 Segment Financial Information for the Year ended December 29, 2001 (In thousands)
    
    Domestic
    
    International
    
    TotalNet sales
    
    $
    1,080,292
    
    
    $
    80,633
    
    
    $
    1,160,925Depreciation and amortization expense
    
    
    48,862
    
    
    
    546
    
    
    
    49,408Segment operating income
    
    
    103,926
    
    
    
    2,385
    
    
    
    106,311Special charges not included in
Segment operating income
    
    
    144,018
    
    
    
    74
    
    
    
    144,092Total assets
    
    
    930,339
    
    
    
    64,831
    
    
    
    995,1702001 purchases of long-lived assets
    
    
    47,387
    
    
    
    1,588
    
    
    
    48,975
 Reconciliation Of Segment
Operating Income To Consolidated Pre-Tax Income (Loss) (In thousands)
    
    2003
    
    2002
    
    2001Total segment operating income
    
    $
    113,317
    
    
    $
    123,237
    
    
    $
    106,311Unallocated amounts:Corporate expenses
    
    
    (12,373
    )
    
    
    (18,266
    )
    
    
    (16,488
    )Special charges
    
    
    (7,303
    )
    
    
    
    
    
    
    (144,092
    )Debt retirement charge
    
    
    
    
    
    
    (20,097
    )
    
    
    Interest expense
    
    
    (29,663
    )
    
    
    (30,246
    )
    
    
    (32,324
    )Income (loss) before income taxes
    
    $
    63,978
    
    
    $
    54,628
    
    
    $
    (86,593
    )
 Enterprise-wide Disclosures: Net Sales by Country (In thousands)
    
    2003
    
    2002
    
    2001United States
    
    $
    1,084,184
    
    
    $
    1,072,042
    
    
    $
    1,075,277Europe
    
    
    70,202
    
    
    
    61,522
    
    
    
    56,307Other foreign countries
    
    
    31,877
    
    
    
    30,764
    
    
    
    29,341Consolidated total
    
    $
    1,186,263
    
    
    $
    1,164,328
    
    
    $
    1,160,925
 II-38




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##### Table of Contents



Net Sales by Distribution Channel (In thousands)
    
    2003
    
    2002
    
    2001Domestic Athletic
    
    $
    375,822
    
    
    $
    302,738
    
    
    $
    280,359Domestic Mass Retail
    
    
    344,513
    
    
    
    350,224
    
    
    
    336,634Domestic Artwear/Careerwear
    
    
    364,509
    
    
    
    423,364
    
    
    
    463,299International
    
    
    101,419
    
    
    
    88,002
    
    
    
    80,633Consolidated total
    
    $
    1,186,263
    
    
    $
    1,164,328
    
    
    $
    1,160,925
 Revenues are attributed to countries based on the location of customers. Gross sales to Wal-Mart represent approximately 21.2%, 19.6% and 17.8% of our
consolidated gross sales for fiscal 2003, 2002 and 2001, respectively. Long-Lived Assets by Country (In thousands)
    
    2003
    
    2002United States
    
    $
    272,895
    
    
    $
    305,733Central America
    
    
    28,727
    
    
    
    24,422Europe
    
    
    1,216
    
    
    
    1,396Other foreign countries
    
    
    396
    
    
    
    458Consolidated total
    
    $
    303,234
    
    
    $
    332,009
 Note 11: Diluted Weighted-Average Common Shares Outstanding Our diluted weighted-average common shares outstanding are calculated as
follows: 2003
    
    2002
    
    2001Basic weighted-average common shares outstanding
    
    
    32,376,617
    
    
    
    32,127,579
    
    
    
    31,950,658Net common shares issuable on exercise of
dilutive stock options and other unissued
awards
    
    
    349,855
    
    
    
    142,234
    
    
    
    Diluted weighted-average common shares
outstanding
    
    
    32,726,472
    
    
    
    32,269,813
    
    
    
    31,950,658
 Net incremental shares issuable on the exercise of employee stock options
calculated using the treasury stock method amounted to 242,007 for the year
ended December 29, 2001. Such incremental shares were not included in the
diluted weighted-average common shares outstanding calculation because the
effect of these shares was anti-dilutive. Options to purchase 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
3, 2004 and January 4, 2003, respectively, because they were out of the money. II-39




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##### Table of Contents



Note 12: Summary of Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations (in
thousands, except per share data): Quarter endedYear 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
 Quarter endedYear endedJanuary 4, 2003
    
    March 31
    
    June 30
    
    Sept. 29
    
    Jan. 4Net sales
    
    $
    215,825
    
    
    $
    253,070
    
    
    $
    386,987
    
    
    $
    308,446Gross profit
    
    
    59,836
    
    
    
    66,096
    
    
    
    120,529
    
    
    
    92,104Net income (loss)
    
    
    2,628
    
    
    
    (6,142
    )
    
    
    23,363
    
    
    
    14,457Net income
(loss) per common share:Basic
    
    $
    0.08
    
    
    $
    (0.19
    )
    
    $
    0.73
    
    
    $
    0.45Diluted
    
    $
    0.08
    
    
    $
    (0.19
    )
    
    $
    0.72
    
    
    $
    0.45
 Note 13: Other Assets Other assets are summarized as follows: (In thousands)
    
    2003
    
    2002Goodwill
    
    $
    41,924
    
    
    $
    19,673Other intangibles
    
    
    62,166
    
    
    
    19,743Debt issuance costs
    
    
    16,656
    
    
    
    16,188120,746
    
    
    
    55,604Less accumulated amortization
    
    
    (10,626
    )
    
    
    (7,262
    )110,120
    
    
    
    48,342Investments (trading portfolio)
    
    
    9,092
    
    
    
    7,261Investments in and advances to unconsolidated entities
    
    
    24,202
    
    
    
    21,509Other
    
    
    2,977
    
    
    
    3,149$
    146,391
    
    
    $
    80,261
 Goodwill and other intangibles increased $64.7 million in 2003 versus 2002.
This increase was primarily related to acquisitions made in 2003 (see Note 14). Other intangible assets included $47.0 million ($46.6 million, net of
accumulated amortization) of indefinite-lived intangible assets and $15.2
million ($13.4 million, net of accumulated amortization) of finite-lived
intangible assets at January 3, 2004. At January 4, 2003, other intangible
assets included $12.5 million ($12.1 million, net of accumulated amortization)
of indefinite-lived intangible assets and $7.2 million ($6.2 million, net of
accumulated amortization) of finite-lived intangible assets. Investments in and advances to unconsolidated entities accounted for under the
equity method were $19.1 million and $16.4 million at January 3, 2004 and
January 4, 2003, respectively; while our equity in earnings were $3.4 million
in 2003, $3.1 million in 2002 and $(0.1) million in 2001. Note 14: Acquisitions On February 6, 2003, we acquired the majority of the assets of Bike Athletic
Company. Bikes products include athletic supporters, knee and elbow pads,
braces, protective equipment, team uniforms, and performance apparel. On May
16, 2003, we completed the acquisition of the brands, inventory, contracts, and
related assets of the sporting goods business of Spalding Sports Worldwide,
Inc. Spalding is a marketer of basketballs, footballs, volleyballs, and soccer
balls under the Spalding® brand and of softballs under
the Dudley® brand. The
acquisitions of Spalding and Bike are important to our expansion strategy that
includes a stronger focus on the athletic and outdoor markets. The results of operations for Bike and Spalding have been included in our
consolidated financial statements since their respective acquisition dates. II-40




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##### Table of Contents



Through January 3, 2004, we have paid $86.7 million for these acquisitions, of
which $24.6 million was allocated to net tangible assets and $62.1 million was
allocated to intangible assets (including goodwill). The goodwill related to
these acquisitions was assigned to the Domestic segment, and all of the
goodwill is deductible for income tax purposes. We are in the process of resolving disputes related to the Spalding purchase
agreement that could result in an adjustment to the ultimate purchase price and
the amount of recorded goodwill. 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, Inc.; Russell Financial
Services, Inc.; Russell Asset Management, Inc.; Russell Apparel, LLC; RINTEL
Properties, Inc.; Russell Yarn, LLC; Russell Athletic, Inc.; Russell Athletic
West, Inc.; and Russell Co-Op, LLC (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.;
Cross Creek de Jimenez, S.A. de C.V. (now known as 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, Ltd.; Russell Corp. Far East, Limited; Russell Japan KK;
Spalding Canada Corp.; Jerzees de Honduras, S.A. de 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.; and
Merendon Textiles, S.de R.L. 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. While Russell Athletic, Inc. and Russell
Athletic West, Inc. were Subsidiary Guarantors at the time the indenture was
executed, these entities were dissolved prior to June 30, 2002, and the assets
of these entities were distributed to the Parent or other Subsidiary
Guarantors. The parent is comprised of Alabama manufacturing operations and certain
corporate management, information services and finance functions. Russell CorporationCondensed Consolidated Statements of Operations For the year endedDecember 29, 2001
    
    
    
    
    
    Subsidiary
    
    Non-Guarantor(In thousands)
    
    Parent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    762,452
    
    
    $
    318,131
    
    
    $
    124,773
    
    
    $
    (44,431
    )
    
    $
    1,160,925Cost of goods sold
    
    
    535,274
    
    
    
    299,875
    
    
    
    98,169
    
    
    
    (39,300
    )
    
    
    894,018Gross Profit
    
    
    227,178
    
    
    
    18,256
    
    
    
    26,604
    
    
    
    (5,131
    )
    
    
    266,907Selling, general and
administrative expenses
    
    
    144,269
    
    
    
    56,474
    
    
    
    23,515
    
    
    
    2,200
    
    
    
    226,458Othernet
    
    
    151,121
    
    
    
    (46,530
    )
    
    
    (2,542
    )
    
    
    (7,331
    )
    
    
    94,718Operating Income
    
    
    (68,212
    )
    
    
    8,312
    
    
    
    5,631
    
    
    
    
    
    
    
    (54,269
    )Interest
expense (income)  net
    
    
    57,537
    
    
    
    (26,005
    )
    
    
    792
    
    
    
    
    
    
    
    32,324Income (loss) before income
taxes and equity in earnings
of consolidated subsidiaries
    
    
    (125,749
    )
    
    
    34,317
    
    
    
    4,839
    
    
    
    
    
    
    
    (86,593
    )Provision (benefit) for income
taxes
    
    
    (46,235
    )
    
    
    13,001
    
    
    
    2,127
    
    
    
    
    
    
    
    (31,107
    )Equity in earnings of
consolidated subsidiaries, net
of income taxes
    
    
    24,028
    
    
    
    
    
    
    
    
    
    
    
    (24,028
    )
    
    
    Net (loss) income
    
    $
    (55,486
    )
    
    $
    21,316
    
    
    $
    2,712
    
    
    $
    (24,028
    )
    
    $
    (55,486
    )
 II-41




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##### Table of Contents



Russell CorporationCondensed Consolidated Statements of Cash Flows For the year endedDecember 29, 2001
    
    
    
    
    
    Subsidiary
    
    Non-Guarantor(In thousands)
    
    Parent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating ActivitiesNet cash provided by (used in) operating
activities
    
    $
    275,054
    
    
    $
    (164,284
    )
    
    $
    16,573
    
    
    $
    
    
    
    $
    127,343Investing ActivitiesPurchase of property, plant and equipment
    
    
    (36,596
    )
    
    
    (3,891
    )
    
    
    (8,488
    )
    
    
    
    
    
    
    (48,975
    )Cash paid for acquisitions, joint
ventures and other
    
    
    (10,494
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,494
    )Investment in and advances to subsidiaries
    
    
    (168,354
    )
    
    
    166,144
    
    
    
    2,210
    
    
    
    
    
    
    
    Proceeds from sale of property, plant and
equipment
    
    
    10,891
    
    
    
    153
    
    
    
    3,558
    
    
    
    
    
    
    
    14,602Other
    
    
    603
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    603Net cash (used in ) provided by investing
activities
    
    
    (203,950
    )
    
    
    162,406
    
    
    
    (2,720
    )
    
    
    
    
    
    
    (44,264
    )Financing ActivitiesPayments on credit facility  net
    
    
    (11,000
    )
    
    
    
    
    
    
    (20,400
    )
    
    
    
    
    
    
    (31,400
    )Borrowings on short-term debt
    
    
    
    
    
    
    
    
    
    
    6,128
    
    
    
    
    
    
    
    6,128Payments on notes payable
    
    
    (41,072
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,072
    )Dividends on common stock
    
    
    (14,695
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,695
    )Debt issuance and amendment costs paid
    
    
    (3,434
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,434
    )Treasury stock re-issued
    
    
    1,706
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,706Cost of common stock for treasury
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Net cash used in financing activities
    
    
    (68,615
    )
    
    
    
    
    
    
    (14,272
    )
    
    
    
    
    
    
    (82,887
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    1,497
    
    
    
    
    
    
    
    1,497Net increase (decrease) in cash
    
    
    2,489
    
    
    
    (1,878
    )
    
    
    1,078
    
    
    
    
    
    
    
    1,689Cash balance at beginning of year
    
    
    788
    
    
    
    295
    
    
    
    3,110
    
    
    
    
    
    
    
    4,193Cash balance at end of year
    
    $
    3,277
    
    
    $
    (1,583
    )
    
    $
    4,188
    
    
    $
    
    
    
    $
    5,882
 II-42




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##### Table of Contents



Russell CorporationCondensed Consolidated Balance Sheets

Non-January 4, 2003
    
    
    
    
    
    Subsidiary
    
    Guarantor(In thousands)
    
    Parent
    
    Guarantors
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash
    
    $
    50,955
    
    
    $
    8,102
    
    
    $
    9,562
    
    
    $
    
    
    
    $
    68,619Trade accounts receivables, net
    
    
    634
    
    
    
    130,143
    
    
    
    18,138
    
    
    
    
    
    
    
    148,915Inventories
    
    
    231,018
    
    
    
    38,231
    
    
    
    37,409
    
    
    
    
    
    
    
    306,658Prepaid expenses and other
current assets
    
    
    22,232
    
    
    
    1,076
    
    
    
    3,345
    
    
    
    
    
    
    
    26,653Total current assets
    
    
    304,839
    
    
    
    177,552
    
    
    
    68,454
    
    
    
    
    
    
    
    550,845Property, plant, and equipment,
net
    
    
    260,580
    
    
    
    45,142
    
    
    
    26,287
    
    
    
    
    
    
    
    332,009Investment in subsidiaries
    
    
    845,332
    
    
    
    195
    
    
    
    
    
    
    
    (845,527
    )
    
    
    Intercompany balances
    
    
    (561,406
    )
    
    
    584,360
    
    
    
    (22,954
    )
    
    
    
    
    
    
    Other assets
    
    
    56,172
    
    
    
    23,591
    
    
    
    498
    
    
    
    
    
    
    
    80,261$
    905,517
    
    
    $
    830,840
    
    
    $
    72,285
    
    
    $
    (845,527
    )
    
    $
    963,115LIABILITIES AND STOCKHOLDERS
EQUITYCurrent liabilities:Accounts payable and accrued
expenses
    
    $
    111,586
    
    
    $
    24,444
    
    
    $
    17,444
    
    
    $
    
    
    
    $
    153,474Short-term debt
    
    
    
    
    
    
    
    
    
    
    7,253
    
    
    
    
    
    
    
    7,253Current maturities of
long-term debt
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Total current liabilities
    
    
    116,586
    
    
    
    24,444
    
    
    
    24,697
    
    
    
    
    
    
    
    165,727Long-term debt, less current
maturities
    
    
    265,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    265,000Deferred liabilities
    
    
    56,678
    
    
    
    5,829
    
    
    
    2,628
    
    
    
    
    
    
    
    65,135Stockholders equity
    
    
    467,253
    
    
    
    800,567
    
    
    
    44,960
    
    
    
    (845,527
    )
    
    
    467,253$
    905,517
    
    
    $
    830,840
    
    
    $
    72,285
    
    
    $
    (845,527
    )
    
    $
    963,115


Russell CorporationCondensed Consolidated Statements of Operations

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


II-43



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##### Table of Contents



Russell CorporationCondensed Consolidated Statements of Cash Flows For the year ended January 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 CorporationCondensed Consolidated Balance Sheets Non-January 3, 2004
    
    
    
    
    
    Subsidiary
    
    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
    
    
    
    2,403
    
    
    
    
    
    
    
    31,106Total current assets
    
    
    306,577
    
    
    
    204,778
    
    
    
    62,327
    
    
    
    
    
    
    
    573,682Property, 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
    
    
    
    2,089
    
    
    
    
    
    
    
    146,391$
    957,293
    
    
    $
    895,495
    
    
    $
    74,432
    
    
    $
    (903,913
    )
    
    $
    1,023,307LIABILITIES 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
    
    
    
    7,308
    
    
    
    
    
    
    
    66,474Stockholders equity
    
    
    514,864
    
    
    
    857,295
    
    
    
    46,618
    
    
    
    (903,913
    )
    
    
    514,864$
    957,293
    
    
    $
    895,495
    
    
    $
    74,432
    
    
    $
    (903,913
    )
    
    $
    1,023,307
 II-44




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##### Table of Contents



Russell CorporationCondensed Consolidated Statements of Operations 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 CorporationCondensed Consolidated Statements of Cash Flows For the year ended January 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
    
    
    (5,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,174
    )Treasury stock re-issued
    
    
    5,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
 II-45




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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and ShareholdersRussell Corporation We have audited the accompanying consolidated balance sheets of Russell
Corporation and subsidiaries as of January 3, 2004 and January 4, 2003, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three fiscal years in the period ended January 3, 2004.
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 auditing standards generally
accepted in the 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 and subsidiaries at January 3, 2004 and January 4, 2003, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 3, 2004 in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein. As described in Note 1, effective December 30, 2001 the Company changed its
method of accounting for goodwill and indefinite-lived intangible assets. /s/ Ernst & Young LLP February 10, 2004

Birmingham, Alabama II-46




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. 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. 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 Chief Executive Officer and our
Interim Chief Financial Officer, the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that
evaluation, our Chief Executive Officer and our Interim Chief Financial Officer
concluded that our disclosure controls and procedures are effective. During the most recent fiscal quarter, there have been no changes in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. II-47




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##### Table of Contents



PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of Directors and Executive Officers (a) Election of Directors on pages 4 through 6 of the Proxy Statement is
incorporated herein by reference. Additional executive officers who are not directors are as follows: OfficerName
    
    Age
    
    Since
    
    PositionJonathan R. Letzler
    
    
    47
    
    
    
    1998
    
    
    President and ChiefOperating OfficerJulio A. Barea
    
    
    56
    
    
    
    2003
    
    
    Senior Vice President/President and ChiefExecutive Officer,ActivewearFloyd G. Hoffman
    
    
    61
    
    
    
    1999
    
    
    Senior Vice President,Corporate Development,General Counsel andSecretaryEdsel W. Flowers
    
    
    48
    
    
    
    2003
    
    
    Senior Vice President,Human ResourcesJT Taunton, Jr.
    
    
    61
    
    
    
    1983
    
    
    Senior Vice President/President and ChiefExecutive Officer,Fabrics and ServicesM. Cheryl Barre
    
    
    47
    
    
    
    2001
    
    
    Vice President/President,Womens/OutdoorKevin L. Clayton
    
    
    44
    
    
    
    2003
    
    
    Vice President, DiversityScott H. Creelman
    
    
    61
    
    
    
    2004
    
    
    Vice President/President and ChiefExecutive Officer, SpaldingMatthew C. Mirchin
    
    
    44
    
    
    
    2002
    
    
    Vice President/President,Russell AthleticNancy N. Young
    
    
    55
    
    
    
    1998
    
    
    Vice President,Communications andCommunity RelationsMarietta Edmunds Zakas
    
    
    45
    
    
    
    2002
    
    
    Vice President, TreasurerLarry E. Workman
    
    
    60
    
    
    
    1987
    
    
    Corporate ControllerChristopher M. Champion
    
    
    33
    
    
    
    2001
    
    
    Deputy General Counsel,Director of GovernmentRelations and AssistantSecretary
 III-1




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##### Table of Contents



Mr. Letzler was employed by Russell in 1998, as Senior Vice President and Chief
Executive Officer of Jerzees. 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. 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. 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. Taunton, employed by Russell since 1973, was named President and Chief
Executive Officer of Fabrics and Services and Senior Vice President of Russell
in 1998. Prior to that, he most recently served as Executive Vice President,
Sales and Marketing. He had also previously served as President of the Fabrics
Division from 1988 to 1993. Ms. Barre, employed by Russell since 1999, was named President, Womens/Outdoor
and Vice President of Russell in 2003 after serving as President of Mass Retail
since 2001. Prior to that, she was President of JERZEES Retail from 1999 to
2001. Prior to joining Russell, she had been with PepsiCo, Inc., for 15 years,
most recently as Vice President for Fountain Beverage of Pepsi-Cola Company. Mr. Clayton was employed by Russell as Vice President, Diversity in January
2003. Prior to joining Russell, he was the President and Chief Executive
Officer of K.L. Clayton & Associates, where he worked with several companies,
including Russell, providing both diversity and business consulting services
from 1991 to 2002. Mr. Creelman was employed by Russell in 2003 as President and Chief Executive
Officer of Spalding, and was elected Vice President of Russell in 2004. Prior
to joining Russell, he was the President of Creelman Consulting Company from
2000 through 2003, which provided sporting goods consulting services for
several other companies, including NIKE, Inc. From 1974 through 2000, Mr.
Creelman was with the Spalding business in various positions, most recently as
President of International and Worldwide Licensing. Mr. Mirchin was employed by Russell in 2001 as President of Russell Athletic
Team Sports. He was named President of Russell Athletic in 2002. Prior to
joining Russell, he held various positions with Champion Products, a division
of Sara Lee Corporation, from 1994 to 2001, most recently as Senior Vice
President of Sales. Ms. Young was employed by Russell in 1998 in her current role. Prior to joining
Russell, she was with Sara Lee Corporation from 1984 to 1998, most recently as
Director, Corporate Affairs and Community Relations. Ms. Zakas was employed by Russell as Vice President, Treasurer in June 2002.
Prior to joining Russell, she was an independent consultant to Russell and
other companies. From 1993 to 2000, Ms. Zakas held various positions with
Equifax, Inc., a consumer and commercial credit information company, serving
most recently as Corporate Vice President, Corporate Secretary and Director of
Investor Relations. 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. Mr. Champion joined Russell in 1995 as a staff attorney. He was named Director
of Government Relations in 1999 and Assistant Secretary in 2001. He was
promoted to Deputy General Counsel in 2003. 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 11,
2004. III-2




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##### Table of Contents



(b) Committees of the Board of Directors; Meetings on pages 26 and 27 of the
Proxy Statement is incorporated herein by reference. (c) Section 16(a) Beneficial Ownership Reporting Compliance on page 29 of the
Proxy Statement is incorporated herein by reference. (d) Conduct Guidelines and Code of Conduct on page 30 of the Proxy Statement
is incorporated herein by reference. (e) Since the date of the Proxy Statement, 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 on pages 36 through 41 of 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 on pages 30 through 35 of 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 on pages 24 and 25 of the Proxy Statement is
incorporated herein by reference. (b) Information concerning security ownership of management set forth on page
23 of 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. (d) Information regarding securities authorized for issuance under equity
compensation plans is provided under Part II, Item 5 of this Report on Form
10-K. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions
with Management and Others and Certain Business Relationships on pages 29 and 30 of the Proxy
Statement is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information under the heading Auditors on page 42 of the Proxy Statement
is incorporated herein by reference. 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of Documents filed as part of this Report:  (1)
    
    Financial StatementsAll 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
    
    III-8 and III-9
 III-3




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##### Table of Contents



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(2)
    
    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
    
    Filed Herewith(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(10a)
    
    Fuel supply contract with Russell Lands, Incorporated dated May 21, 1975
    
    Exhibit 13(c) to Registration
Statement No. 2-56574(10b)
    
    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(10c)
    
    Executive Incentive Plan
    
    Appendix B to Proxy Statement
dated March 16, 2000
   1
 III-4




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##### Table of Contents



Exhibit
    
    
    
    Incorporation by ReferenceNumbers
    
    Description
    
    or Filed Herewith(10d)
    
    Russell Corporation Amended and
Restated Flexible Deferral Plan
    
    Exhibit (10d) to Annual Report on Form 10-K for year
ended January 4, 2003(10e)
    
    Russell Corporation 2000 Stock
Option Plan
    
    Exhibit 4(k) to Registration Statement
No. 333-30238(10f)
    
    Russell Corporation Employee Stock Purchase Plan
    
    Exhibit 4(k) to Registration Statement No. 333-30236(10g)
    
    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(10h)
    
    Russell Corporation 2000
Non-Employee Directors Compensation
Plan
    
    Exhibit 4(m) to Registration Statement No. 333-55340(10i)
    
    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(10j)
    
    Second Amendment to the Russell
Corporation 2000 Non-Employee
Directors Compensation Plan
dated February 10, 2004
    
    Filed Herewith(10k)
    
    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(10l)
    
    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(10m)
    
    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(10n)
    
    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(10o)
    
    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(10p)
    
    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(10q)
    
    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
   2
 III-5




---



##### Table of Contents



Exhibit
    
    
    
    Incorporation by ReferenceNumbers
    
    Description
    
    Or Filed Herewith(10r)
    
    Employment Agreement dated August
16, 2000 by and between the Company
and Robert D. Martin
    
    Exhibit (10s) to Annual Report on Form 10-K for year
ended December 29, 2001(10s)
    
    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(10t)
    
    Form of Change of Control Agreement
with Robert D. Martin and Floyd G.
Hoffman
    
    Exhibit (10r) to Annual Report on Form 10-K for year
ended January 4, 2003(10u)
    
    Form of Change of Control Agreement
with JT Taunton, Jr., Matthew C.
Mirchin and Certain Other Management
of the Company
    
    Exhibit (10s) to Annual Report on Form 10-K for year
ended January 4, 2003(10v)
    
    Agreement dated as of
February 4, 2004 by and
between the Company and E.N. Hoyle Incorporated
    
    Filed Herewith(14)
    
    Code of Ethics
    
    Filed Herewith(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(99)
    
    Proxy Statement for April 21, 2004
Annual Shareholders Meeting
    
    Filed Herewith
 (b) Reports on Form 8-K On October 30, 2003, the Company filed a Form 8-K relating to the issuance of a
press release announcing its results of operations for the fiscal 2003 Third
Quarter. III-6




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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, 2004
    
    
    /s/ John F.
WardJohn F. WardChairman 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

John F. Ward
    
    Chairman and CEO
    
    March 17, 2004

Date/s/ Eric N. Hoyle

Eric N. Hoyle
    
    Interim
Chief Financial Officer
    
    March 17, 2004

Date/s/ Herschel M. Bloom

Herschel M. Bloom*
    
    Director
    
    March 17, 2004

Date/s/ Ronald G. Bruno

Ronald G. Bruno*
    
    Director
    
    March 17, 2004

Date/s/ Timothy A. Lewis

Timothy A. Lewis*
    
    Director
    
    March 17, 2004

Date/s/ C.V. Nalley III

C.V. Nalley III*
    
    Director
    
    March 17, 2004

Date/s/ Margaret M. Porter

Margaret M. Porter*
    
    Director
    
    March 17, 2004

Date/s/ Mary Jane Robertson
Mary Jane Robertson*
    
    Director
    
    March 17, 2004

Date/s/ John R. Thomas

John R. Thomas*
    
    Director
    
    March 17, 2004

Date/s/ John A. White

John A. White*
    
    Director
    
    March 17, 2004

Date/s/ Larry E. Workman

Larry E. Workman
    
    Controller
(Principal Accounting Officer)
    
    March 17, 2004

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
 III-7




---



##### Table of Contents



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 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
    
    
    $
    22,954,434YEAR ENDED DECEMBER 29, 2001Allowance for doubtful accounts
    
    $
    7,816,440
    
    
    $
    5,776,937
    
    
    $
    
    
    
    $
    1,625,306
    (1)
    
    $
    11,968,071Reserve for discounts and returns
    
    
    1,979,833
    
    
    
    16,278,217
    
    
    
    
    
    
    
    14,442,289
    (2)
    
    
    3,815,761TOTALS
    
    $
    9,796,273
    
    
    $
    22,055,154
    
    
    $
    
    
    
    $
    16,067,595
    
    
    $
    15,783,832




---

|    |  |                                                        
|--- |  | -------------------------------------------------------
|   
|(1) |  | Uncollectible accounts written off, net of recoveries  
|(2) |  | Discounts and returns allowed customers during the year

III-8



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##### Table of Contents



RESERVE AT
    
    ADDITIONS
    
    
    
    
    
    
    
    
    
    BALANCEBEGINNING
    
    CHARGED TO COSTS
    
    
    
    
    
    
    
    
    
    AT ENDDESCRIPTION
    
    OF PERIOD
    
    AND EXPENSES
    
    ACQUISITIONS
    
    DEDUCTIONS
    
    OF PERIODYEAR 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
    
    
    $
    43,929,000YEAR ENDED DECEMBER 29, 2001Asset impairment
    
    $
    29,340,000
    
    
    $
    82,255,000
    
    
    $
    
    
    
    $
    68,048,000
    (4)(5)
    
    $
    43,547,000Employee terminations
    
    
    3,320,000
    
    
    
    23,808,000
    
    
    
    
    
    
    
    15,455,000
    (3)
    
    
    11,673,000Inventory losses including shipping and warehousing costs
    
    
    2,930,000
    
    
    
    13,084,000
    
    
    
    
    
    
    
    6,839,000
    (5)
    
    
    9,175,000Termination of certain licenses and contracts
    
    
    2,406,000
    
    
    
    6,387,000
    
    
    
    
    
    
    
    7,376,000
    (3)
    
    
    1,417,000Exit cost related to facilities
    
    
    
    
    
    
    11,577,000
    
    
    
    
    
    
    
    8,528,000
    (3)
    
    
    3,049,000Other
    
    
    1,451,000
    
    
    
    6,981,000
    
    
    
    
    
    
    
    7,707,000
    (9)
    
    
    725,000TOTALS
    
    $
    39,447,000
    
    
    $
    144,092,000
    
    
    $
    
    
    
    $
    113,953,000
    
    
    $
    69,586,000




---

|     |  |                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 cash paid of $6,622,000 and asset write-offs of $1,085,000.                                                                                 
|(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).

III-9