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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 31, 1998
Commission File Number 333-26999
ANVIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3801705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 EAST 45TH STREET
NEW YORK, NEW YORK 10017
(address of principal (Zip Code)
executive office)
Registrant's telephone number (212) 476-0300
(including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 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 for 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. [ X ]
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 the 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 [ X ]
The Company is not required to make filings under Section 16 of the Exchange Act
because it has no registered securities under Section 12 of the Securities
Exchange Act of 1934.
At April 15, 1998 there were 390,000 shares of the registrant's Class B
Common Stock, $0.01 per share par value (the "Class B Common") held by
non-affiliates. At such date, there was no established trading market for
these shares. At April 15, 1998, there were 290,000 shares of the
registrant's Class A Common Stock, $0.01 per share par value (the "Class A
Common") and 3,590,000 shares of Class B Common Common Stock, $0.01 par
value (the "Class B Common") of the registrant outstanding.
DOCUMENTS INCORPORATED BY RREFERENCE:
Those portions of the Information Statement for the Company's 1998
Annual Meeting of Stockholders (the "Information Statement") are
incorporated herein by reference in Part III, Items 10, 11, 12 and 13.
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PART I
ITEM 1. BUSINESS.
CORPORATE STRUCTURE AND RECENT ACQUISITIONS
On January 28, 1995, Anvil Holdings, Inc., a Delaware corporation ("Holdings"),
and its wholly-owned subsidiary, Anvil Knitwear, Inc., a Delaware Ccorporation
("("Anvil"), a Delaware Corporation , acquired the assets and assumed certain
liabilities of the Anvil Knitwear division (the "Predecessor") from McGregor
Corporation ("McGregor") (the "Acquisition") for an aggregate purchase price of
approximately $105,000,000 plus acquisition costs. The Acquisition was funded
with the proceeds of $20,000,000 of preferred stock, $6,400,000 of common stock,
$52,500,000 of long-term bank debt, $7,500,000 in subordinated notes and the
balance with a revolving line of credit.
The Acquisition was a leveraged buyout transaction in which Culligan
International Company ("Culligan"), an affiliate of McGregor, retained an
ownership interest of approximately 30.6% in the common stock of Anvil
Holdings, Inc.
On January 31, 1997, Anvil completed the acquisition of the assets of a North
Carolina corporation, Cottontops, Inc., ("Cottontops"), a marketer and
distributor of activewear products which, prior to the acquisition, supplied
finished activewear products to Anvil for redistribution by Anvil as well as
supplying directly into the retail market. The aggregate amount of
consideration in connection with this acquisition (including Anvil's assumption
of certain liabilities) totaled approximately $3.5 million. This business
operates through a newly-formed Delaware corporation, Cottontops, Inc.
("Cottontops").
As used herein, the "Company" refers to Anvil Holdings, Inc., including, in
some instances, its subsidiaries, as appropriate to the context.
On March 14, 1997, the Company, Anvil VT, Inc., Vestar Equity Partners, L.P.
("Vestar"), 399 Venture Partners, Inc. and certain of its employees and
affiliates (collectively, "399 Venture"), certain management investors (the
"Management Investors") and other existing shareholders of the Company
(collectively, the "Existing Shareholders") and Bruckmann, Rosser, Sherrill &
Co., L.P. and certain of its employees and affiliates (collectively, "BRS")
completed a reorganization (the "Recapitalization") pursuant to which: (i) the
Company redeemed or repurchased a substantial portion of its outstanding shares
of capital stock ("Old Common Stock" and "Old Preferred Stock"); (ii) BRS
contributed $13,063,000 for the purchase of new common stock; (iii) 399 Venture
and the Mmanagement Iinvestors reinvested a portion of their existing shares of
Old cCommon sStock of the Company, which were converted into shares of newly
issued common stock, and (iv) 399 Venture exchanged a portion of its existing
Old pPreferred sStock for 3,333 shares of Senior Exchangeable Preferred Stock
and new common stock.
Concurrently with the Recapitalization, the Company sold 30,000 Units consisting
of (i) $30,000,000, 13% Senior Exchangeable Preferred Stock due 2009, and (ii)
390,000 shares of Class B common stock (the "Units Offering"). Additionally, on
March 14, 1997, Anvil sold $130,000,000 of 10- 7/8% Senior Notes due 2007
("Senior Notes") in connection with the Recapitalization and repaid its
borrowings under an existing credit agreement (the "Old Credit Agreement") and
entered into an Amended and Restated Credit Agreement (the "New Credit
Agreement"- See Note 8 to Financial Statements).
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The Company's fiscal years end on the Saturday closest to January 31.
Accordingly, when referring to the Company's fiscal years in this report,
"fiscal 1997" refers to the year ended January 31, 1998, "fiscal 1996" refers to
the year ended February 1, 1997, etc.
General
The Company is a leading designer, manufacturer and marketer of high quality
activewear for sale principally into the "imprinted" or "decorated" segment of
the U.S. apparel industry. The Company offers an extensive line of activewear
products designed for men, women and children, including short and long sleeve
T-shirts, classic button and collar knit sport shirts (known as "plackets"),
collarless short and long sleeve knit shirts (known as "henleys"), fleeced
sweatshirts, athletic shorts and caps. The Company markets and sells its
products primarily to distributors and screen printers under the ANVIL, COTTON
DELUXE and COTTON DELUXE CASUALS brand names as well as under private labels.
Prior to their ultimate resale to the consumer, the Company's products typically
are printed or embroidered with logos, designs or characters. The Company
believes that its operating performance is favorably affected by: (i) its broad
range of high quality products; (ii) its strong relationships with customers and
suppliers; (iii) its flexible, vertically integrated manufacturing operations;
(iv) its commitment to controlling costs and improving manufacturing processes;
and (v) the continuing growth of the activewear market.
The Company offers high quality activewear in a variety of styles, colors,
fabric weights and blends, enabling it to serve a number of market niches
effectively as well as to serve the traditional T-shirt market segment. The
Company works closely with its distributor and screen printer customers to meet
their needs for style and color innovation. The Company continues to compete
successfully by: (i) targeting niche products on which larger competitors have
not traditionally focused; (ii) responding quickly to market developments; and
(iii) regularly introducing new products. In addition, the Company continues to
make significant investments to modernize and expand its manufacturing and
distribution facilities in order to improve quality, reduce costs, manage
inventories and shorten textile production cycles. To further reduce costs, the
Company has been increasing its use of offshore sewing operations.
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and improve results
of operations by implementing the following key elements of its business
strategy:
OFFER A BROAD RANGE OF HIGH QUALITY PRODUCTS. The Company offers high quality
activewear in a wide variety of styles, colors, fabric weights and blends,
enabling it to serve a number of market niches effectively. The Company
continues to strengthen its position in the activewear market by successfully
introducing higher priced products to supplement its traditional T-shirt
business. In addition, the Company expects to continue to expand its product
offerings under its ANVIL, COTTON DELUXE and COTTON DELUXE CASUALS brands,
capitalizing on the growth in the higher priced branded products segment of the
activewear market.
ENHANCE AND EXPAND CUSTOMER RELATIONSHIPS. The Company continually seeks to
strengthen and expand its customer relationships by promoting the Company's: (i)
broad product
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offerings; (ii) ability to design customized products; (iii) quick, reliable
delivery; and (iv) ability to accommodate modifications to customer orders. The
Company's direct salesforce focuses on developing strong relationships with
distributors, who have accounted for an increasing percentage of the Company's
activewear sales in recent years. In fiscal 1997, sales to distributors
accounted for approximately 73% of the Company's net sales. In the Company's
experience, distributors typically place larger purchase orders, purchase a
broader product mix, maintain higher inventory levels and develop more
predictable order and re-order patterns than certain of its other customers. The
Company estimates that distributors resell products to more than 20,000
smaller screen printers, embroiderers and other userscustomers. The Company's
expanded product offerings have enabled it to more effectively service
distributors and satisfy the disparate preferences of consumers.
MAINTAIN FLEXIBLE, VERTICALLY INTEGRATED MANUFACTURING OPERATIONS. The Company
is a vertically integrated manufacturer (i.e., performing substantially all of
the manufacturing processes required to produce its products) which knits
(exclusively from purchased yarn), bleaches, dyes, finishes, cuts and sews its
activewear products at its manufacturing facilities. The Company believes that
being vertically integrated allows it to maintain a competitive cost structure,
minimize delivery time and provide consistent, high quality products. The
Company's manufacturing flexibility enables it to efficiently complete smaller
volume production runs, respond quickly to customer needs and accommodate last
minute modifications to customer orders. Management of the Company believes
that the foregoing factors have enabled it to turn its finished goods inventory
more frequently than is typical for its industry segment (for example,
approximately 8 eight times in fiscal 1997).
CONTINUE TO CONTROL COSTS AND IMPROVE MANUFACTURING. From fiscal 1993 through
fiscal 1997, the Company invested approximately $34 million to modernize and
expand its manufacturing and distribution facilities in order to improve
quality, reduce costs, manage inventories and shorten textile production cycles.
The Company believes it can continue to improve its operating results by: (i)
increasing the use of offshore sewing operations; (ii) utilizing its centralized
distribution facility to deliver its products in a more cost efficient manner;
and (iii) opportunistically redesigning textile manufacturing processes to
shorten production cycles and improve inventory management.
CAPITALIZE ON THE GROWTH OF THE ACTIVEWEAR MARKET. From 1992 through 1996,
industry retail dollar sales and unit sales of imprinted activewear (T-shirts,
knit shirts, fleecewear and athletic shorts) in the U.S. market grew at compound
annual growth rates of 6.3% and 5.6%, respectively. From fiscal 1993 through
fiscal 1997, the Company's net sales and unit sales increased at compound annual
growth rates of 9.3% and 5.3%, respectively. The Company believes that sales of
activewear products has have been driven primarily by: (i) the increased
consumer preference for comfortable apparel selections; (ii) more flexible dress
codes, including the greater acceptance of casual wear in the workplace; and
(iii) the heightened emphasis on physical fitness.
In addition, the Company continues to actively seek, identify and develop
growth opportunities in several international markets.
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PRODUCTS
The Company's activewear products, which are designed for men, women and
children, include short and long sleeve T-shirts, tank tops, classic button and
collar knit sport shirts (known as "plackets") and collarless short and long
sleeve knit shirts (known as "henleys") as well as a variety of other niche
activewear products, such as fleeced sweatshirts, athletic shorts and caps.
This broad array of casual knitwear and athletic wear is marketed and sold by
the Company under its ANVIL, COTTON DELUXE and COTTON DELUXE CASUALS brand names
as well as under private labels. The Company manufactures its products in a
variety of fabrics and fabric blends. Prior to their ultimate resale to the
consumer, the Company's products typically are imprinted or embroidered with
logos, designs or characters.
BASIC AND SPECIALTY T-SHIRTS. Basic and specialty T-shirts are the Company's
principal products. The basic T-shirt was the first product introduced by the
Company in the early 1970s. In addition to basic T-shirts, the Company also
manufactures a variety of specialty T-shirts. This category accounted for
approximately 55% of the Company's sales in fiscal 1997.
PLACKETS AND HENLEYS. The Company introduced its first line of plackets in the
early 1980s and its first line of henleys in the early 1990s. Plackets include
classic button and collar knit sport shirts which are produced in both short and
long sleeve versions. The Company's newest item in its placket line is its pique
knit golf shirt, which it introduced in the first quarter of fiscal 1996.
Henleys are collarless knit shirts, which are produced in both short and long
sleeve versions. This category accounted for approximately 38% of the Company's
sales in fiscal 1997.
OTHER PRODUCTS. The Company's other products include fleeced sweatshirts, knit
shorts and caps, most of which are produced in a variety of colors and designs.
In addition to products which it manufactures in-house, this category includes
those products which the Company sources as a finished product. This category
accounted for approximately 7% of the Company's sales in fiscal 1997.
SALES AND MARKETING
The Company markets its activewear products primarily to a wide range of
distributors, screen printers and private label customers through a direct
salesforce comprised of approximately 21 salespersons, three sales managers and
a director of sales. The Company has one sales representative in Europe. Each
member of the salesforce receives a base salary and is eligible to receive an
incentive bonus payment.
The Company seeks to differentiate itself from other larger activewear
manufacturers by marketing niche products to its customers and encouraging its
customers to purchase a broader product mix. The Company believes that by
encouraging its customers to expand their product mix towards higher priced
products with more style elements, it has been able to compete effectively
against other companies that concentrate primarily on basic, lower priced,
T-shirts. The Company believes that this strategy has enabled it to penetrate
the large and middle-tier wholesale T-shirt distributor market.
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CUSTOMERS
The Company sells its products primarily to distributors and screen printers.
The Company also sells a small percentage of its products directly to retailers.
The Company currently services over 300 customers, of which twenty account for
approximately 64% of the Company's net sales. One such customer (Alpha Shirt
Company) accounted for 12.5% of the Company's net sales in fiscal 1997. No
other individual customer accounts for more than 10% of the Company's net sales.
RAW MATERIALS
The Company's primary raw material is cotton yarn. Unlike certain of its
competitors, the Company does not spin its own yarn. Instead, the Company
purchases substantially all of its yarn pursuant to purchase orders from five
domestic spinners. One individual spinner accounted for approximately 48% of
the Company's purchased yarn in fiscal 1997. The vast majority of the yarn used
by the Company is readily available and could be and is purchased from a number
of sources. Accordingly, the Company does not have to rely on its orders with
or deliveries from any single supplier. With the ability to substitute its
supply of yarn, the Company believes that the inability to obtain yarn from any
one supplier would not have a long term material adverse effect on the Company's
ability to manufacture. Other raw materials purchased by the Company include
dyes and other chemicals used in the dyeing and bleaching of fabrics.
The Company believes that it is one of the largest purchasers of yarn in its
industry segment and has a sound relationship with each of its suppliers. The
Company believes these relationships allow the Company to order precise
quantities of yarn at highly competitive prices. The Company's relationships
with its suppliers help the Company's continued access to supplies of raw
materials during periods when yarn is in peak demand. As a result, the Company
has never not experienced any significant shortages of raw materials.
The Company determines the size of its purchase orders for yarn based on its
estimate of future yarn prices and levels of supply and periodically places
large purchase orders as a means of fixing its raw materials costs. The
Company's purchase orders typically are for quantities of yarn ranging from 30
days' to a year's supply.
Certain of the Company's primary competitors spin their own yarn. The Company
estimates that in-house yarn production could reduce overall yarn costs, but
believes that such reductions would not be realized consistently. Furthermore,.
tThe Company has concluded, however, that the benefits achieved by acquiring
in-house spinning capacity would not justify the investment required to achieve
that capacity. In addition, the Company believes that the quality of its
purchased yarn is at least equal to the quality of yarn produced by fully
integrated manufacturers in its industry market segment.
COMPETITION
The imprinted activewear segment of the apparel market includes a number of
significant competitors and the activewear segment of the industry overall is
extremely competitive. Competition in this activewear segment of the apparel
industry is generally based upon price, quality, service and breadth of product
offerings. In response to market conditions and industry-wide adjustments in
price, the Company reviews and adjusts its product offerings and pricing
structure from time to time. The Company believes that its overall turnaround
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time provides a competitive advantage and enables it to seek to continue to
capitalize on its timely responsiveness to its customers' requests. In
addition, the Company focuses on providing its customers with a broad array of
branded and private label niche products at competitive prices on a timely
basis.
The Company's principal competitors include several manufacturers of activewear,
all of which are larger and have greater financial and other resources than the
Company. The Company also faces competition from foreign manufacturers of
activewear who generally have substantially lower labor costs than domestic
manufacturers.
Historically, the Company has benefited from quotas and tariffs imposed by the
United States on the importation of apparel. The Uruguay Round of GATT, which
became effective on January 1, 1995, requires a complete phase-out of all
existing quotas over a ten-year period. To date, no products manufactured by
the Company have been subject to quota reductions under GATT. In addition to
the phasing-out of the use of quotas, GATT also requires that the United States
reduce tariffs on textile/apparel imports over the same ten-year period. To
date, there have been only relatively small reductions in such tariffs.
Increased competition has caused many domestic apparel manufacturers to move a
portion of their sewing operations offshore to lower costs. The Company
currently performs a portion of its sewing activities offshore to take advantage
of these lower offshore wage rates and the Company intends to increase its
offshore sewing operations to the extent necessary to meet competition.
The Company believes that its current strategy of emphasizing higher quality,
niche products, promoting a broader product mix, and increased use of lower-cost
offshore sewing operations, should enable it to continue to compete effectively
in its industry market segment.
EMPLOYEES
At January 31, 1998, the Company employed a total of 307 full-time salaried
employees and 3,016 full-time and part-time hourly employees. Of the Company's
employees, 3,107 are involved in manufacturing, 157 in finance, administration
and distribution and 59 in marketing and sales. Of the Company's 3,107
employees involved in manufacturing, approximately 832 are employed at the
Company's textile facilities and 2,275 are employed at the Company's sewing
facilities.
None of the Company's employees is covered by a collective bargaining agreement.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
INTELLECTUAL PROPERTY
The Company attempts to register its material trademarks and trade names. The
Company believes that it has developed strong brand awareness among its targeted
customer base and as a result regards its brand names as valuable assets. The
Company has registered or applied for trademark registrations for ANVIL and
COTTON DELUXE (and the COTTON DELUXE and COTTON DELUXE CASUALS designs) and
other labels in the United States and certain foreign countries.
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ENVIRONMENTAL MATTERS
The Company, like other apparel manufacturers, is subject to federal, state and
local environmental and occupational health and safety laws and regulations.
While there can be no assurance that the Company is at all times in complete
compliance with all such requirements, the Company believes that any
noncompliance is unlikely to have a material adverse effect on the financial
condition or results of operations of the Company. The Company has made, and
will continue to make, expenditures to comply with environmental and
occupational health and safety requirements. The Company currently does not
anticipate material capital expenditures for environmental control equipment in
fiscal 1998 or beyond. As is the case with manufacturers in general, if a
release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable. While the amount of such liability could be material, the Company
endeavors to conduct its operations in a manner that reduces such risks.
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a subsidiary
of McGregor, entered into an Administrative Order on Consent ("AOC") with the
North Carolina Department of Environment, Health and Natural Resources ("DEHNR")
concerning such contamination. Since that time, McGregor, through Culligan, has
been conducting investigative and corrective action under DEHNR oversight and
has remained responsible to DEHNR with respect to contamination that is subject
to the AOC. While the total cost of the cleanup at the facility will depend upon
the extent of contamination and the corrective action approved by the DEHNR,
preliminary cleanup cost estimates ranged from $1.0 to $4.0 million. McGregor
continues to be a party to the Asheville, North Carolina facility's hazardous
waste permit and Culligan has guaranteed McGregor's obligations under the AOC.
McGregor also contractually agreed to fully indemnify the Company with respect
to the contamination as part of the terms of the Acquisition. This indemnity is
guaranteed by Culligan and by Astrum International Corp. ("Astrum"), an
affiliate of McGregor (now known as Samsonite Corporation) in the event Culligan
is unable to perform its guarantor obligations. The Company could be held
responsible for the cleanup of this contamination if McGregor, Culligan and
Samsonite were all to become unable to fulfill their obligations to DEHNR.
McGregor agreed to fully indemnify the Company for any costs associated with
certain other environmental matters identified at the time of the Acquisition.
The Company believes that, even if McGregor were unable to fulfill its
indemnification obligations, these other matters would not have a material
adverse effect on the financial condition or results of operations of the
Company. McGregor also agreed to indemnify the Company, subject to certain
limitations, with respect to environmental liabilities that arise from events
that occurred or conditions in existence prior to the Acquisition. Culligan
and Samsonite have also guaranteed McGregor's obligations under these
indemnities.
ITEM 2. PROPERTIES
The Company conducts its operations principally through eight manufacturing
facilities and a centralized distribution center. The Company utilizes a
vertically integrated manufacturing process (i.e., performing substantially all
of the manufacturing processes required to produce its products) with fabric
being knit, bleached and dyed from purchased yarn at its two textile facilities
and with the cutting and sewing of such fabric occurring at its five sewing
facilities. The Company utilizes offshore and domestic contractors as it deems
necessary.
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TEXTILE FACILITY OPERATIONS. The Company conducts textile operations at two
facilities owned by the Company located in Kings Mountain and Asheville, North
Carolina. The Company operates over 150 knitting machines at its textile
facilities where circular knit machines knit yarn into tubes of basic fabric
constructions such as jersey, rib and fleece and flat knit machines knit
collars. The tubes of fabric correspond in weight and diameter to the various
styles and sizes required to make the Company's activewear products. The
knitted fabric is then batched for bleaching and dyeing. Substantially all of
the Company's products are either bleached to remove the color of natural cotton
or dyed for colored products. The Company's textile facilities contain
computerized controls, dye simulators and spectrometers and modern jet vessels
to assist the Company in maintaining an efficient and quality controlled
environment for the dyeing and bleaching process. The Company's textile
facilities each operated at approximately 90% of capacity for the fiscal year
ended January 31, 1998.1997. The Company believes it has the capability to
increase the operating capacity of its textile facilities with only relatively
modest capital expenditures. Cottontops also operates a dyehouse and a screen
printing facility, both in Farmville, North Carolina.
SEWING FACILITY OPERATIONS. The Company conducts its sewing operations at two
owned facilities in Whiteville and Red Springs, North Carolina, one leased
facility located in Mullins, South Carolina, and two offshore leased facilities
located in Honduras and El Salvador. Fabric produced at the Company's textile
operations is shipped to the Company's cutting facilities where it is marked by
hand from design patterns, cut and then sewn.
During fiscal 1997, the Company's sewing facilities operated at 100% capacity.
The Company began its offshore sewing operations in January 1996 at its leased
facility in Honduras in order to take advantage of lower wage rates. In October
1997, the Company opened a sewing facility in El Salvador through Livna,
Limitaedda, a wholly-owned subsidiary of Anvil. During fiscal 1997, 32% of the
Company's production (sewing hours) was sewn offshore (including in-house
production and outside sources), and the Company expects its percentage of
offshore sewing labor hours to continue to increase. Because of the increasing
shift to offshore production, the Company closed and sold one of its smaller
sewing facilities during fiscal 1997.
DISTRIBUTION OPERATIONS. The Company performs all of its distribution functions
at its centralized distribution facility located in Dillon, South Carolina. In
the first quarter of fiscal 1996, the Company's centralized distribution
facility became fully operational, enabling the Company to consolidate its
formerly fragmented distribution operations and improve distribution
efficiencies. The Company's centralized distribution system also has enhanced
the Company's ability to provide efficient and responsive customer service and
to more efficiently manage inventory.
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The following table sets forth certain information regarding the Company's
facilities:
APPROX. SQ.
LOCATION PRINCIPAL USE FT. OWNED/LEASED
- -------- ------------- ----------- ------------
New York, NY Executive Offices 22,100 Leased(1)
Kings Mountain, NC Textile Facility 225,000 Owned
Asheville, NC Textile Facility 175,000 Owned
Mullins, SC Cut and Sew 149,000 Leased(2)
Farmville, NC Office, Warehouse 75,000 Leased(3)
& Screen Printing
Farmville, NC Dye House 30,000 Leased(4)
Whiteville, NC Cut and Sew 104,000 Owned
Red Springs, NC Sew 54,000 Owned
Dillon, SC Distribution 660,000 Owned
Honduras Sew 48,000 Leased(5)
El Salvador Sew 28,000 Leased(6)
- ---------------------
(1) The lease for the Company's executive office space expires in 2002.
(2) The lease for this facility can be extended to 2012.
(3) The lease for this facility can be extended to 2001.
(4) The lease for this facility can be extended to 2000.
(5) The lease for this facility can be extended to 2003.
(6) The lease for this facility expires 2002.
The Company also owns a 142,000 square foot warehouse and manufacturing facility
located in Aynor, South Carolina, that is currently being held for sale. This
facility became excess space after the consolidation of certain operations in
connection with the Company's acquisition of its centralized distribution
center.
The Company anticipates the level of capital expenditures to continue at an
annual rate of approximately $6.0 to $7.0 million. The Company has no material
capital commitments for the next twelve months outside of the ordinary course of
business.
The Company considers its owned and leased facilities and equipment to be in
good condition and suitable and adequate for the Company's current operations.
The Company's ongoing maintenance and improvement of its manufacturing
facilities enable it to accommodate anticipated sales growth. Periodically, as
necessary, the Company contracts certain manufacturing operations to outsiders.
Management considers this ordinary industry practice and foresees no material
risks in continuing this policy as necessary.
MANAGEMENT INFORMATION SYSTEMS. The Company has a sophisticated, computer based
data collection and information processing system at each of its domestic
manufacturing facilities. This system is designed to improve piece-work
productivity, automate payroll, control work-in-process and improve supervisor
and management effectiveness by providing immediately accessible feedback
concerning sewing machine operator performance, current production and inventory
information and the location of lagging inventory bundles. In addition, among
other improvements made in connection with its new centralized distribution
facility, the Company installed an in-house radio frequency warehousing system.
The Company is currently implementing an advanced order processing, allocation
and customer service system. This system will provide the Company with
extensive inquiry and reporting capabilities as well as user-defined allocation
and shipping rules and immediate updates
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concerning the status of customer orders. The order processing upgrading is
concurrently addressing and resolving much of the potential costs and
uncertainties in dealing with the "Year 2000" issue. With respect to the "Year
2000" issue in general, the Company does not anticipate incurring any material
costs to fully address and resolve potential problems in all areas of its
management information systems. The Company anticipates that any transition
work necessary to its systems will be substantially completed by the end of
fiscal 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct
of its business. The Company does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company. See
"BUSINESS ENVIRONMENTAL MATTERS," above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for any of the Company's common
equity securities. At April 17, 1998 there were 25 record holders of the
Company's Class A Common Stock and 26 record holders of the Company's Class B
Common Stock. All of Anvil's issued and outstanding capital stock is owned by
Holdings.
RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation on November 23, 1994, Holdings has issued the following
securities without registration under the Securities Act:
On January 30, 1995, in connection with the Acquisition, Holdings sold: (i) to
Vestar Equity Partners, L.P., 3,564,809 shares of old common stockOld Common
Stock for an aggregate purchase price of $2,281,477.76 and 82,034 shares of its
old preferred stockOld Preferred Stock for an aggregate purchase price of
$8,203,400; (ii) to certain employees and affiliates of 399 Venture, Partners,
Inc., 1,870,000 shares of its old common stockOld Common Stock for an aggregate
purchase price of $1,196,800 and 43,032 shares of its old preferred stockOld
Preferred Stock for an aggregate purchase price of $4,303,200; (iii) to the
Existing Shareholders, 4,565,191 shares of its old common stockOld Common Stock
for an aggregate purchase price of $2,921,722.24 and 74,934 shares of its old
preferred stockOld Preferred Stock for an aggregate purchase price of $7,493,400
($250,000 of the total purchase price paid by the Existing Shareholders was in
the form of promissory notes issued by such Existing Shareholders to Holdings).
In addition, on January 30, 1995, and in connection with the Acquisition,
Holdings issued a subordinated promissory note to Culligan in the aggregate
principal amount of $7,500,000. These sales of securities were made in reliance
on the exemption contained in Section 4(2) of the Securities Act.
On April 9, 1996, 75,000 shares of Oold C common Sstock were exercisedissued to
by the Management Investors, pursuant to the exercise of options granted to
them in connection with the Acquisition for an aggregate of $48,000, in reliance
on the exemption contained in Rule 701
11
<PAGE>
of the Securities Act.
On December 18, 1996, Holdings sold 5,000 shares of its old common stockOld
Common Stock to Peter H. Rothschild, then a director of the Company, for an
aggregate purchase price of $3,200. This sale of securities was made in reliance
on the exemption contained in Section 4(2) of the Securities Act.
On March 14, 1997, the Company completed the Recapitalization. Pursuant to which
the Recapitalization: (i) 399 Venture reinvested/retained 1,294,685 shares of
old common stockOld Common Stock in exchange for 122,484 shares of Class A
Common and 1,351,552 shares of Class B Common; (ii) the Management Investors
exercised options granted pursuant to the Acquisition and were issued 525,000
shares of old common stockOld Common Stock for an aggregate of $336,000; (iii)
the Management Investors reinvested 475,987 shares of old common stockOld Common
Stock in exchange for 45,032 shares of Class A Common and 496,894 shares of
Class B Common; (iv) 399 Venture exchanged 33,300 shares of old preferred
stockOld Preferred Stock for 3,333 Units which consisted of, in the aggregate,
133,320 shares of Senior Exchangeable Preferred Stock and 43,329 shares of Class
B Common; and (v) BRS purchased from Holdings 105,643 shares of Class A Common
and 1,165,719 shares Class B Common for an aggregate purchase price of
$11,730,049.03. The reinvestment and exchange in paragraphs (i), (iii) and (iv)
were made in reliance on the exemption contained in Section 3(a)(9) of the
Securities Act. The sale described in paragraph (v) was made in reliance on the
exemption contained in Section 4(2) of the Securities Act. The transactions
described in paragraph (ii) were made in reliance on the exemption contained in
Rule 701 of the Securities Act.
On March 14, 1997, Anvil sold $130,000,000 aggregate principal amount of 10-7/8%
Series A Senior Notes due 2007 to Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Wasserstein Perella Securities, Inc. and NationsBanc
Capital Markets, Inc. pursuant to a Purchase Agreement, dated March 11, 1997 in
a transaction not registered under the Securities Act in a private placement
pursuant to the exemption contained in Section 4(2) of the Securities Act.
Anvil has completed an exchange offer which expired August 22, 1997, pursuant
to which $129,000 principal amount of the 10-7/8% Series A Senior Notes were
validly tendered and exchanged on a dollar-for-dollar basis for 10-7/8% Series B
Senior Notes, due 2007. The terms and conditions of the aforementioned Series B
securities are substantially identical to the Series A securities for which they
were exchanged, except that the Series B securities have been registered under
the Securities Act of 1933, as amended.
On March 14, 1997, Holdings sold 26,667 Units to DLJ and 3,333 Units, for which
DLJ acted as agent in connection with the sale by Holdings, pursuant to a
Purchase Agreement, dated March 11, 1997. The Units consisted of an aggregate of
(i) 390,000 shares of Class B Common and (ii) 1.2 million shares of Senior
Exchangeable Preferred Stock with an aggregate liquidation preference of
$30,000,000. These sales were made in transaction not registered under the
Securities Act in a private placement pursuant to the exemption contained in
Section 4(2) of the Securities Act.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EEXCEPT PER SHARE DATA)
Set forth below are the selected historical financial data of the Predecessor
and the Company as of the dates and for the periods shown. The selected
historical financial data of the Company for fiscal years 1995 through 1997 have
been derived from the consolidated financial statements of the Company which
have been audited by Deloitte & Touche LLP., whose report thereon appears under
" Item 8. "Financial Statements and Supplementary Data." The selected
consolidated financial data for fiscal years 1993 and 1994 have been derived
from audited consolidated financial statements which are not included herein.
Holdings has no independent operations apart from its wholly owned subsidiary,
Anvil, and its sole asset is the capital stock of Anvil. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the consolidated financial statements and related notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR (1) THE COMPANY (1)
----------------------------------- -----------------------------------
FIVE SEVEN
MONTHS MONTHS FISCAL YEAR ENDED
ENDED ENDED ------------------------------------------------
JUNE 30, JANUARY 29, JANUARY 28, JANUARY 27, FEBRUARY 1, JANUARY 31,
1993 1994(2) 1995(2) 1996 1997 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 75,743 $ 74,691 $ 169,923 $ 193,389 $ 204,154 $ 214,867
Cost of goods sold 61,197 62,408 131,906 149,723 156,813 167,491
--------- --------- --------- --------- --------- ---------
Gross profit 14,546 12,283 38,017 43,666 47,341 47,376
Selling, general and
administrative expenses 5,788 6,632 14,704 17,778 21,678 22,771
Special compensation (3) -- -- -- -- -- 10,915
Amortization of intangible
assets 55 6,717 13,435 736 958 958
--------- --------- --------- --------- --------- ---------
Operating income (loss) 8,703 (1,066) 9,878 25,152 24,705 12,732
Other income (expense):
Interest income and
other--net 6 88 2,451 616 415 247
Interest expense (74) (107) (227) (8,844) (7,912) (16,536)
--------- --------- --------- --------- --------- ---------
Income (loss) before
provision for income
taxes and extraordinary
item 8,635 (1,085) 12,102 16,924 17,208 (3,557)
Provision (benefit) for
income taxes 3,663 2,253 11,045 6,770 6,883 (1,423)
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item 4,972 (3,338) 1,057 10,154 10,325 (2,134)
Extraordinary item--loss on
extinguishment of debt, net
of $1,838 tax benefit(4) - - - - - (2,757)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 4,972 $ (3,338) $ 1,057 $ 10,154 $ 10,325 $ (4,891)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(5) $ 10,617 $ 7,830 $ 28,639 $ 31,615 $ 32,592 $ 30,864
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
<S> <C> <C>
Pro Forma Basic Income (Loss) Per Common Share: (7)
Class A Common Stock:
Income before extraordinary item $ 13.72 $ 11.96
Extraordinary item - (0.71)
------- -------
Net income $ 13.72 $ 11.25
------- -------
------- -------
Class B Common Stock:
Income before extraordinary item $ 0.63 $ (2.86)
Extraordinary item - (0.71)
------- -------
Net income $ 0.63 $ (3.57)
------- -------
------- -------
Weighted average shares used in computation of pro forma basic
income (loss) per share:
Class A Common 290 290
------- -------
------- -------
Class B Common 3,590 3,590
------- -------
------- -------
FISCAL YEAR ENDED
---------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
Basic Income (Loss) Per Common Share: (7) 1996 1997 1998
----------- ----------- -----------
Class A Common Stock:
Income before extraordinary item $ 7.92
Extraordinary item (0.60)
-------
Net income $ 7.32
-------
-------
Class B Common Stock:
Income before extraordinary item $ (1.75)
Extraordinary item (0.60)
-------
Net income $ (2.35)
-------
-------
Old Common Stock (all classes) - Net income $ 1.01 $ 1.02
------- -------
------- -------
Weighted average shares used in computation of basic
income (loss) per share:
Class A Common 928
-------
-------
Class B Common 3,633
-------
-------
Old Common Stock (all classes) 10,080 10,080
------- ------
------- ------
<CAPTION>
PREDECESSOR (1) THE COMPANY (1)
---------------------- ----------------------------------
JAN 29, JAN 28, JAN 27, FEB 1, JAN 31,
BALANCE SHEET DATA (AT END OF PERIOD): 1994(2) 1995(2) 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 546 $ 999 $ 1,568 $ 1,863 $ 959
Total assets 110,956 109,941 136,527 136,832 147,113
Total debt - - 84,457 68,594 148,145
Preferred stock (liquidation value) - - 22,620 25,582 33,605
Total stockholders' equity (deficit)(6) 91,759 87,503 33,008 43,386 (66,255)
</TABLE>
- --------------------------------------
(1) The periods prior to and including January 28, 1995 reflect the combined
financial data of the Predecessor, which was acquired by the Company as of
January 28, 1995 from McGregor. The periods beginning January 29, 1995
reflect the consolidated financial data of the Company after the
Acquisition. Because of the revaluation of the assets and liabilities
acquired and the related impact to the consolidated statements of
operations, the financial statements of the Predecessor (other than net
sales) for the periods prior to January 29, 1995 are not comparable to
those of the Company subsequent to that date.
14
<PAGE>
(2) In connection with Astrum's emergence from Chapter 11 bankruptcy
proceedings, the Predecessor adopted "fresh-start" accounting. The
Predecessor was not a party to Astrum's Chapter 11 bankruptcy proceeding.
Accordingly, effective June 30, 1993, the assets by the Predecessor were
recorded at their fair market values with the excess of the reorganization
value over the fair value of the assets recorded as an intangible asset. As
a result of the adjustments, the financial statements as of and for the
year ended January 28, 1995 and the seven months ended January 29, 1994 are
not comparable to prior periods.
(3) In connection with the Recapitalization, the Company recorded a special
charge in the three months ended May 3, 1997 for compensation related to
the exercise of options by members of management, payment of a special
transaction bonus to members of management and payments under a then
existing equity buy-out plan to members of management. These charges
aggregated $10,915, and are considered by management to be nonrecurring in
nature.
(4) In connection with the Recapitalization and refinancing, the Company
recorded an extraordinary charge of $2,757, net of an income tax benefit,
in the year ended January 31, 1998, as a result of losses incurred in
connection with the early extinguishment of debt.
(5) EBITDA is defined as operating income plus depreciation and amortization.
Fiscal 1995 includes a non-cash charge of $1.7 million resulting from the
increase in cost of goods sold due to the inventory revaluation in
connection with the Acquisition. Fiscal 1996 EBITDA excludes a non-cash
charge of $0.6 million for the estimated loss on disposal of certain fixed
assets and fiscal 1997 excludes non-recurring items of $10.9 million for
charges to special compensation. EBITDA is not a measure of performance
under Generally Accepted Accounting Principlesd ("GAAP"). EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Management believes, however, that EBITDA represents a useful
measure of assessing the performance of the Company's ongoing operating
activities as it reflects earnings trends of the Company without the impact
of purchase accounting applied in connection with the Acquisition. In
addition, management believes EBITDA is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness and
is used by the Company's creditors in assessing debt covenant compliance.
EBITDA should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA does not take into account
the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary uses. The EBITDA measure presented herein may not be
comparable to other similarly titled measures of other companies.
(6) Stockholder's equity for the Predecessor represents McGregors's investment
in the Predecessor.
(7) Pro forma basic net income (loss) per share assumes issuance of shares in
the Recapitalization had occurred at the beginning of fiscal 1996 and is
computed by dividing net income (loss) applicable to each class of Common
Stock by the average number of shares of such stock outstanding, as
follows:
FISCAL YEAR ENDED
------------------------
February 1, January 31,
1997 1998
Net income (loss) $ 10,325 $ (4,891)
Less: preferred dividends (4,094) (4,653)
Class A common preference (3,798) (4,296)
-------- --------
Net income (loss) applicable to common stockholders $ 2,433 $(13,840)
-------- --------
-------- --------
Preference per Class A common share $ 13.10 $ 14.82
Net income (loss) per common share .63 (3.57)
-------- --------
Net income per Class A common share $ 13.72 $ 11.25
-------- --------
-------- --------
Net income (loss) per Class B common share $ 0.63 $ (3.57)
-------- --------
-------- --------
[Footnote continues on following page]
15
<PAGE>
Basic net income (loss) per share is computed by dividing net income (loss)
applicable to each class of Common Stock by the actual average number of commons
shares during the periods without giving any retroactive effect to the
Recapitalization, as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ 10,154 $ 10,325 $(4,891)
Less: preferred dividends - - (2,805)
Class A common preference - - (3,021)
-------- -------- --------
Net income (loss) applicable to common stockholders $ 10,154 $ 10,325 $(10,717)
-------- -------- ---------
-------- -------- ---------
Preference per Class A common share $ 9.67
Net income (loss) per common share (all classes) $ 1.01 $ 1.02 (2.35)
-------- -------- ---------
Net income per Class A common share $ 7.32
--------
--------
Net income (loss) per Class B common share $ (2.35)
--------
--------
Weighted average shares used in computaton
of basic income (loss) per share:
Class A Common ......................... 928
Class B Common ......................... 3,633
-----
-----
Old Common Stock (all classes).......... 10,080 10,080
------ ------
------ ------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion provides information with respect to the results of
operations of the Company for each of the three fiscal years in the period ended
January 31, 1998. The following information should be read in conjunction with
ITEM 6. "SELECTED FINANCIAL DATA" and the consolidated financial statements and
the notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The Company's results of operations are affected by numerous factors, including
competition, general economic conditions, raw material costs, mix of products
sold and plant utilization. Certain activewear products of the type manufactured
by the Company are generally available from multiple sources and the Company's
customers often purchase products from more than one source. To remain
competitive, the Company reviews and adjusts its pricing structure from time to
time in response to industry-wide price changes. In the basic T-shirt market,
for example, the Company does not lead its competitors in setting the current
pricing structure and modifies its prices to the extent necessary to remain
competitive with prices set by its larger competitors in this segment.
The Company has been able to mitigate pricing pressures by: (i) increasing its
average product margin by continuing to introduce new higher priced products;
(ii) continuing to improve and modernize its manufacturing processes in order to
reduce production costs; and (iii) moving a portion of its sewing operations
offshore in January 1996 to Honduras to take advantage of lower wage rates. The
gross profit margins of the Company's products vary significantly. Accordingly,
the Company's overall gross profit margin is affected by its product mix. In
addition, plant utilization levels are important to profitability due to the
substantial fixed costs of the Company's textile operation.
The largest component of the Company's cost of goods sold is the cost of cotton
yarn. Unlike certain of its competitors, the Company does not spin its own yarn.
Instead, the
16
<PAGE>
Company obtains substantially all of its yarn from five yarn suppliers,
generally placing orders for quantities ranging from 30 days' to a one year's
supply depending upon management's expectations regarding future yarn prices
and levels of supply. Yarn prices fluctuate from time to time principally as a
result of competitive conditions in the yarn market and supply and demand for
raw cotton. The Company adjusts the timing and size of its purchase orders for
cotton yarn in an effort to minimize fluctuations in its raw material costs
resulting from changes in yarn prices. Historically, the Company has been
successful in mitigating the impact of fluctuating yarn prices. See ITEM 1.
"BUSINESS RAW MATERIALS."
The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales, for the
Company for each of the three years in the period ended January 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
January 27, February 1, January 31,
1996 1997 1998
[fiscal 1995] [fiscal 1996] [fiscal 1997]
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 77.4 76.8 78.0
Gross profit 22.6 23.2 22.0
Selling, general and
administrative expenses 9.2 10.6 10.6
Interest expense 4.6 3.9 7.7
OTHER DATA:
EBITDA (1) $31.6 million $32.6 million $30.9 million
Percentage of net sales 16.3% 16.0% 14.4%
</TABLE>
(1) EBITDA is defined as operating income plus depreciation and amortization.
Fiscal 1995 includes a non-cash charge of $1.7 million resulting from the
increase in cost of goods sold due to the inventory revaluation in
connection with the Acquisition. Fiscal 1996 EBITDA excludes a non-cash
charge of $0.6 million for the disposal of certain fixed assets and fiscal
1997 excludes non-recurring charges of $10.9 million for special
compensation. EBITDA is not a measure of performance under GAAP. EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Management believes, however, that EBITDA
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects earnings trends of the Company
without the impact of purchase accounting applied in connection with the
Acquisition. In addition, management believes EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness and is used by the Company's creditors in assessing debt
covenant compliance. EBITDA should not be construed as an indication of
the Company's operating performance or as a measure of liquidity. EBITDA
does not take into account the Company's debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. The EBITDA measure
presented herein may not be comparable to other similarly titled measures
of other companies.
YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED FEBRUARY 1, 1997
NET SALES for the year ended January 31, 1998 increased $10.7 million, or 5.2%,
to $214.9 million from $204.2 million for the year ended February 1, 1997. A
decline in sales experienced during the Company's first two fiscal quarters was
more than offset by an increase in sales during the last half of the current
fiscal year. The overall increase in net sales is comprised of a small increase
in units sold as well as a small increase in average
17
<PAGE>
selling price, and is also due to the inclusion of Cottontops' sales of
approximately $3.7 million.
GROSS PROFIT for the year ended January 31, 1998 remained approximately the same
as the prior year despite the $10.7 million increase in sales, as gross profit
margin on sales declined to 22.0% from 23.2% in the prior year. During the
first half of the current fiscal year, an improvement in gross profit margin was
primarily the result of obtaining lower yarn prices, improved manufacturing
efficiencies and increased sales of products with higher gross margins. The
Company continues to make improvements in these areas, particularly with respect
to placing greater emphasis on products with high profit margins such as
plackets and henleys. However, in the second half of the current fiscal year,
the favorable impact achieved has been substantially offset by industry-wide
pricing pressures affecting the Company's basic T-shirt business. Management of
the Company anticipates believes that this trend (i.e., relatively low average
selling prices for basic T-shirts) is being experienced throughout the industry
and that it is continuing into fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the year ended January 31, 1998 increased by $1.1 million, or 5.1%, to $22.8
million from $21.7 million for the prior year. As a percentage of net sales,
selling, general and administrative expenses were approximately 10.6% for both
fiscal years. The current fiscal year includes, $1.6 million of operating
expenses of Cottontops. In addition, sales salaries and expenditures for
advertising, travel and entertainment, and other selling expenses increased $0.8
million and, administrative expenses (primarilyand legal and professional)
expenses increased $0.52 million. The aforementioned increases were partially
offset by a decline of approximately $1.2 million in distribution expense due to
more efficient warehouse operations. Also, as noted aboveas further discussed
below, the fiscal year ended February 1, 19967 includes charges of
approximately $0.6 million for certain start-up costs and losses on disposal of
fixed assets.
INTEREST EXPENSE for the year ended January 31, 1998 increased by $8.6 million,
or 109.0%, to $16.5 million from $7.9 million for the prior year. This increase
in interest expense was the result of higher borrowings in connection with the
Recapitalization. Interest rates were also slightly higher during the current
year compared to the prior year.
NET (LOSS) INCOME
THE NET LOSS for year ended January 31, 1998 was $4.9 million compared to net
income of $10.3 million for the year ended February 1, 1997. While the amount
of gross profit was nearly equal in both years, the current fiscal year's
results were reduced by higher selling, general and administrative expenses
($1.1 million), higher interest expense ($8.6 million) , and, in the current
year, there was a charge of $10.9 million for "special compensation" (See Note 4
to the consolidated financial statements) and an extraordinary charge of $2.8
million (net of taxes) on extinguishment of debt (See Note 2 to the consolidated
financial statements).
YEAR ENDED FEBRUARY 1, 1997 COMPARED TO YEAR ENDED JANUARY 27, 1996
NET SALES for the year ended February 1, 1997 increased $10.8 million, or 5.6%,
to $204.2 million from $193.4 million for the year ended January 27, 1996. This
increase in net sales was primarily the result of a 7.0% increase in sales
volume, partially offset by a 1.3% decline in average selling price. The decline
in average selling price was primarily the result of lower T-shirt prices due to
competitive market conditions partially offset by a favorable change in product
mix to higher priced products such as plackets and henleys.
18
<PAGE>
GROSS PROFIT for the year ended February 1, 1997 increased by $3.7 million, or
8.4%, to $47.3 million from $43.7 million for the year ended January 27, 1996.
Gross profit margin increased to 23.2% for the year ended February 1, 1997 from
22.6% in the comparable period of the prior year. Gross profit for the year
ended January 27, 1996 was reduced by approximately $1.7 million (or 0.9% of net
sales) as a result of the increase in cost of goods sold due to the inventory
revaluation in connection with the Acquisition. The change in gross profit
margin (0.3% decrease after considering the inventory revaluation in fiscal
1995) was primarily the result of increased markdowns, increased sales promotion
expenses, and selling price reductions (principally on white T-shirts) offset by
the result of a favorable shift in product mix, lower yarn costs, manufacturing
costs reductions and volume improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended February 1, 1997
increased by $3.9 million, or 21.9%, to $21.7 million from $17.8 million for the
year ended January 27, 1996. As a percentage of net sales, selling, general and
administrative expenses increased to 10.6% in fiscal 1996 from 9.2% in fiscal
1995. This 1.4% increase, as a percentage of net sales, in selling, general and
administrative expenses was primarily the result of start-up costs relating to
the opening of the Company's 660,000 square foot distribution facility in
Dillon, South Carolina. This facility was acquired in November 1995 and became
fully operational by the end of the first quarter of 1996. The remainder of the
increase was principally attributable to increases in advertising and selling
expenses related to increased efforts in the retail and export markets, salaries
related to administrative personnel and a charge for the estimated loss on the
disposal of certain fixed assets.
AMORTIZATION OF INTANGIBLE ASSETS for the year ended February 1, 1997 increased
by $0.2 3 million to $1.0 million from $0.7 million for the year ended
January 27, 1996.
OPERATING INCOME for the year ended February 1, 1997 decreased by $0.5 million,
or 1.8% to $24.7 million from $25.2 million for the year ended January 27, 1996
as a result of the factors described above.
INTEREST AND OTHER INCOME for the year ended February 1, 1997 decreased by $0.2
million to $0.4 million from $0.6 million for the year ended January 27, 1996.
INTEREST EXPENSE for the year ended February 1, 1997 decreased by $0.9 million,
or 10.5%, to $7.9 million from $8.8 million for the year ended January 27, 1996.
This decrease in interest expense was the result of reduced borrowings under the
Old Credit Agreement and lower average interest rates.
PROVISION FOR INCOME TAXES for the year ended February 1, 1997 increased by
$0.1 million to $6.9 million from $6.8 million for the year ended January 27,
1996 due to an increase in pre-tax earnings. As a percentage of income before
provision for income taxes, income tax expense was approximately 40.0% in each
period.
NET INCOME for the year ended February 1, 1997 increased by $0.2 1 million, or
1.7%, to $10.3 million from $10.2 million for the year ended January 27, 1996,
as a result of the factors described above.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized funds generated from operations and
borrowings under its credit agreements to meet working capital and capital
expenditure requirements. Net cash generated by operating activities for fiscal
1996 and fiscal 1997 totaled approximately $23.8 million and $10.4 million,
respectively.
During its preceding two completed fiscal years, the Company made capital
expenditures of approximately $4.8 million and $6.1 million, respectively. The
Company's major capital expenditures related to: (i) improvements to the
660,000 square foot distribution center in Dillon, South Carolina; (ii) the
acquisition of machinery and equipment; and (iii) the acquisition of
management information systems hardware and software. The Company anticipates
the level of capital expenditures to continue at an annual rate of approximately
$6.0 to $7.0 million. The Company has no material capital commitments for the
next twelve months outside of the ordinary course of business.
The Company's principal working capital requirements are financing accounts
receivable and inventories. At January 31, 1998, the Company had net working
capital of approximately $48.251.1 million, including approximately $27.3
million of accounts receivable, $42.1 million of inventories and $27.3 million
in accounts payable and accrued expenses. Effective with the current fiscal
year, the Company has classified the amount due under its revolving credit
facility ($21.7 million at January 31, 1998) as a long term liability since the
Company anticipates continually refinancing amounts drawn down under this
facility through the expiration date of March 14, 2002.
In connection with the Recapitalization, the Company refinanced its existing
indebtedness under the Old Credit Agreement. The New Credit Agreement provides
for borrowings of up to $55.0 million for working capital and other general
corporate purposes, and bears interest, at the Company's option, at LIBOR or
prime rate plus a margin. The indebtedness under the New Credit Agreement is
guaranteed by Holdings and Anvil's domestic operating subsidiaryCottontops and
is secured by substantially all of Anvil's assets and a pledge by Holdings of
all of the capital stock of Anvil. At January 31, 1998, the Company had $21.7
million outstanding borrowings under the New Credit Agreement at an interest
rate of approximately 7.97%.
The New Credit Agreement requires the Company to meet certain financial tests,
including minimum levels of consolidated net worth, minimum levels of
consolidated EBITDA (as defined therein), minimum interest coverage and maximum
leverage ratio. The New Credit Agreement also contains covenants which, among
other things, limit: (i1) the incurrence of additional indebtedness; (ii)
the payment of dividends; (iii) transactions with affiliates; (iv) asset sales,
acquisitions and mergers; (v) prepayments of other indebtedness; (vi) creation
of liens and encumbrances; and (vii) other matters customarily restricted in
such agreements.
The Company's ability to satisfy its debt obligations, including, in the case of
Anvil, to pay principal and interest on the Senior Notes and, in the case of
Holdings, to pay principal and interest on the Exchange Debentures, if issued,
to perform its obligations under its guarantees and to pay cash dividends on the
Senior Preferred Stock, will depend upon the Company's future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the New Credit
Agreement. However, the Company may be required to refinance a portion of the
principal of the Senior Notes and, if
20
<PAGE>
issued, the Exchange Debentures prior to their maturity and, if the Company is
unable to service its indebtedness, it will be forced to take actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There can
be no assurance that if any of these remedies are necessary, they could be
effected on satisfactory terms, if at all.
Holdings has no independent operations with its sole asset being the capital
stock of Anvil, which stock is pledged to secure the obligations under the New
Credit Agreement. As a holding company, Holdings' ability to pay cash dividends
on the Senior Preferred Stock or, if issued, principal and interest on the
debentures into which the Senior Preferred Stock is convertible (the "Exchange
Debentures") is dependent upon the earnings of Anvil and its subsidiaries and
their ability to declare dividends or make other intercompany transfers to
Holdings. Under the terms of the Senior Indenture, Anvil may incur certain
indebtedness pursuant to agreements that may restrict its ability to pay such
dividends or other intercompany transfers necessary to service Holdings'
obligations, including its obligations under the terms of the Senior Preferred
Stock and, if issued, the Exchange Debentures. The Senior Note Indenture
restricts, among other things, Anvil's and certain of its subsidiaries' ability
to pay dividends or make certain other "restricted" payments (except to the
extent, among other things, the restricted payments are less than 50% of the
Consolidated Net Income of Anvil (as defined therein)), to incur additional
indebtedness, to encumber or sell assets, to enter into transactions with
affiliates, to enter into certain guarantees of indebtedness, to make certain
investments, to merge or consolidate with any other entity and to transfer or
lease all or substantially all of their assets. In addition, the New Credit
Agreement contains other and more restrictive covenants that prohibit Anvil from
declaring dividends or making other intercompany transfers to Holdings in
certain circumstances. Neither the Senior Note Indenture nor the New Credit
Agreement restricts Anvil's subsidiaries from declaring dividends or making
other intercompany transfers to Anvil.
The Company believes that based upon current levels of operations and
anticipated growth, funds generated from operations, together with other
available sources of liquidity, including borrowings under the New Credit
Agreement, will be sufficient over the next twelve months for the Company to
make anticipated capital expenditures, fund working capital requirements and
satisfy its debt service requirements.
SEASONALITY
The Company's business is not significantly seasonal as it manufactures and
sells a wide variety of activewear products that may be worn throughout the
year.
EFFECT OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on the Company's business during the periods discussed herein.
NEW ACCOUNTING STANDARDS
The Company is required to adopt Statement of Financial Account Standards
(""SFAS") No. 130, "Reporting Comprehensive Income" during the year ending
January 30, 1999.
21
<PAGE>
SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general-purpose financial statements. This
Statement requires than an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company has not yet determined the impact that the adoption of
this statement will have on its financial statements.
The Company is required to adopt SFAS 131 , "Disclosure about Segments of an
Enterprise and Related Information" during the year ending January 30, 1999.
SFAS 131 establishes standards for public business enterprises to report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company has not yet determined the impact that the adoption of
this statement will have on its financial statements.
The Company is required to adopt SFAS 132 , "Disclosure about Pensions and Other
Postretirement Benefits" for its fiscal year ending January 30, 1999. SFAS 132
revised employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional financial analysis, and
eliminates certain disclosures that are no longer considered useful.
Restatement of disclosures for earlier periods is required. The Company has not
yet determined the impact that the adoption of this statement will have on its
financial statements.
FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Form 10-K to
make applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking
statements and accordingly involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. The forward-looking statements contained herein are
based on various assumptions, many of which are based, in turn, upon further
assumptions. The Company's expectations, beliefs and projections are expressed
in good faith and are believed by the Company to have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in the Company's records and other data available from
third parties, but there can be no assurance that management's expectation,
beliefs or projections will result or be achieved or accomplished. In addition
to the other factors and matters discussed elsewhere herein, the factors listed
on the following pagebelow following factors are important factors that, in the
view of the
22
<PAGE>
Company, could cause actual results to differ materially from those discussed in
the forward-looking statements:
1. Changes in economic conditions, in particular those which affect the
activewear market.
2. Changes in the availability and/or price of cotton yarn, in particular if
increases in the price of cotton yarn are not passed along to the Company's
customers.
3. Changes in senior management or control of the Company.
4. Inability to obtain new customers or retain existing ones.
5. Significant changes in competitive factors, including product pricing
conditions, affecting the Company.
6. Governmental/regulatory actions and initiatives, including, those affecting
financings.
7. Significant changes from expectations in actual capital expenditures and
operating expenses.
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and other
investments.
9. Significant changes in rates of interest, inflation or taxes.
10. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievance were to occur.
11. Changes in accounting principles and/or the application of such principles
to the Company.
The foregoing factors could affect the Company's actual results and could cause
the Company's actual results during fiscal 1998 and beyond to be materially
different from any anticipated results expressed in any forward-looking
statement made by or on behalf of the Company.
The Company disclaims any obligation to update any forward-looking statements to
reflect events or other circumstances after the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1, Index to Financial Statements, included elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
With respect to the directors of the Company, the information required by Item
10 of Form 10-K appears on pages 4 through 6and 51 through 3 of the Information
Statement, and is incorporated herein by reference.
23
<PAGE>
Pursuant to General Instruction G to Form 10-K, the following information is
furnished concerning the executive officers and key employees of the Company.
EXECUTIVE OFFICERS AND
CERTAIN KEY EMPLOYEES OF ANVIL
The following sets forth certain information with respect to the executive
officers and certain key employees of Anvil.
NAME AGE(1) POSITION
- ---- ------ --------
Bernard Geller 64 President, Chief Executive Officer,
Chairman of the Board
Jacob Hollander 56 Executive Vice President, Chief
Administrative Officer,
Secretary, General Counsel
and Director
Anthony Corsano 38 Executive Vice President of Sales and
Marketing
William H. Turner 50 Executive Vice President of
Manufacturing
Pasquale Branchizio 59 Vice President of Finance
- ----------------------
(1) All ages are as of December 31, 1997.
BERNARD GELLER has served as the Chief Executive Officer of Anvil, President of
Holdings and has been a Director of Anvil and Holdings since the Acquisition.
Since the Recapitalization, Mr. Geller has served as Chairman of the Board of
Anvil and Holdings and since July 1997 as President of Anvil. From 1989 to
1995, Mr. Geller served as Chairman of the Predecessor. From 1986 to 1989, Mr.
Geller served as President of the Predecessor and from 1975 to 1986, as
Controller and then President of the Predecessor. Before joining the
Predecessor, Mr. Geller was with Union Underwear Co., Inc., a subsidiary of
Fruit of the Loom, Inc., where he worked for 14 years, principally as that
company's controller.
JACOB HOLLANDER has served as Executive Vice President, Chief Administrative
Officer, Secretary and General Counsel of Anvil and Vice President, Secretary
and General Counsel of Holdings since the Acquisition. Since the
Recapitalization, Mr. Hollander has served as a Director of Anvil and Holdings.
From 1991 to 1995, Mr. Hollander served as Vice President and General Counsel of
Astrum. From 1985 to 1990, Mr. Hollander served as Vice President and General
Counsel of McGregor and Faberge, Incorporated, and from 1987 to 1989, Mr.
Hollander also served as Vice President and General Counsel of Elizabeth Arden,
Inc. During 1990, Mr. Hollander provided legal consulting services to the
Unilever group of companies and to McGregor. Prior to its acquisition by
McGregor, Mr. Hollander was Vice President of Faberge, Incorporated.
ANTHONY CORSANO has served as Executive Vice President of Sales and Marketing
of Anvil since the Acquisition. From 1993 to 1995, Mr. Corsano served as Vice
President of Sales and Marketing of the Predecessor. From 1988 to 1993, Mr.
Corsano served as Vice President--Sales of the Predecessor and from 1985 to 1988
Mr. Corsano served as National Sales Manager of the Predecessor.
WILLIAM H. TURNER has served as Executive Vice President of Manufacturing of
Anvil since the Acquisition. From 1992 to 1995, Mr. Turner served as Executive
Vice President of Manufacturing of the Predecessor. From 1985 to 1992, Mr.
Turner held the position of Vice
24
<PAGE>
President of Manufacturing (Cut and Sew) of the Predecessor and from 1982 to
1985 he was the Predecessor's Plant Manager.
PASQUALE BRANCHIZIO has served as Vice President of Finance of Anvil and
Holdings since the Acquisition. From 1986 until 1995, Mr. Branchizio served as
Vice President of Finance of the Predecessor. From 1981 to 1986, Mr. Branchizio
served as the Controller of the Predecessor. Prior thereto, Mr. Branchizio
served as the Predecessor's Senior Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K appears on pages 647 through 10
8 of the Information Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K appears on pages 10 8 and
11through 1210 of the Information Statement, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K appears on pages 13 11 and
14through 1135 of the Information Statement and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
See Page F-1 for index to Financial Statements
2. Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
(b) Reports on Form 8-K.
None.
25
<PAGE>
(c) Exhibits
EXHIBIT
NO. DESCRIPTION
2.1 Recapitalization Agreement, dated as of February 12, 1997, by and among
Citicorp Venture Capital, Ltd., Bruckmann, Rosser, Sherrill & Co., Inc.
("BRS & Co."), Holdings, Anvil VT, Inc. and the stockholders and voting
trust certificate holders named on the signature pages thereto, as
amended by the certain Amendment and Consent to Assignment dated as of
February 21, 1997 and that Waiver and Second Amendment to the
Recapitalization Agreement dated as of March 13, 1997.*
3.1 Certificate of Incorporation of Anvil.*
3.2 Restated Certificate of Incorporation of Holdings.*
3.3 Certificate of Incorporation of Cottontops.*
3.4 By-Laws of Anvil.*
3.5 By-Laws of Holdings.*
3.6 By-Laws of Cottontops.*
3.7 Certificate of Designation of Holdings.*
3.8 Certificate of Designation of Holdings relating to Series B 13%
Senior Exchangeable Preferred Stock due 2009.**
4.1 Purchase Agreement, dated as of March 14, 1997, by and among Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Wasserstein Perella
Securities, Inc. ("Wasserstein"), NationsBanc Capital Markets, Inc.
("NationsBanc"), Anvil and Holdings.*
4.2 Senior Indenture, dated as of March 14, 1997, by and among the Anvil,
Holdings, Cottontops and the other Subsidiary Guarantors and United
States Trust Company of New York, as trustee.*
4.3 Form of 10- 7/8% Senior Notes and Guarantees.*
4.4 Series B 10- 7/8% Senior Notes and Guarantees.**
4.5 Registration Rights Agreement, dated as of March 14, 1997, by and among
Anvil, Holdings, Cottontops and DLJ, Wasserstein and NationsBanc, as
Initial Purchasers.*
26
<PAGE>
4.6 Amended and Restated Credit Agreement, dated as of March 14, 1997, among
Anvil, as Borrower, Holdings, Cottontops and certain subsidiaries, as
Guarantors, the Banks Identified therein as lending institutions,
NationsBank, N.A. ("NationsBank"), as Agent, and Bank of America
Illinois, Banque Nationale de Paris and Heller Financial Inc., as co-
agents.*
4.7 Amended and Restated Pledge and Security Agreement, dated as of March 14,
1997, by and among Anvil, Holdings and NationsBank.*
10.1 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Bernard Geller.*
10.2 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Jacob Hollander.*
10.3 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and William H. Turner.*
10.4 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Anthony Corsano.*
10.5 Asset Purchase Agreement, dated as of December 29, 1994, by and among
McGregor Corporation, Winston Mills, Inc., Anvil and Holdings.*
10.6 Guaranty Agreement, dated as of January 28, 1995, by and among Culligan
International Company, Astrum International Corp. and Anvil.*
10.7 Units Purchase Agreement, dated as of March 14, 1997, by and between DLJ
and Holdings.*
10.8 Unit Agreement, dated as of March 14, 1997, by and between Holdings and
United States Trust Company of New York, as trustee.*
10.9 Exchange Debenture Indenture, dated as of March 14, 1997, by and between
Holdings and United States Trust Company of New York, as trustee.*
10.10 Registration Rights Agreement, dated as of March 14, 1997, by and between
Holdings and DLJ, as the Initial Purchaser.*
10.11 Registration Rights and Securityholders Agreement, dated as of March 14,
1997, by and among Holdings, BRS & Co., 399 Venture Partners, Inc. ("399
Venture Partners"), CCT II Partners, L.P. ("CCT") and DLJ.*
27
<PAGE>
10.12 Registration Rights Agreement, dated as of March 14, 1997, by and among
Holdings, BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony
Corsano, William Turner, Jacob Hollander and each other executive of
Holdings or its subsidiaries who acquires common stock from Holdings
after the date thereof and executes a joinder thereto, the persons set
forth on the signature pages thereto and DLJ.*
10.13 Stockholders Agreement, dated as of March 14, 1997, by and among
Holdings, BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony
Corsano, William Turner, Jacob Hollander and each other person who
acquires common stock of Holdings after the date thereof and executes
a joinder thereto.*
10.14 Old Stock Option Plan.*
10.15 Employment Agreement, dated as of January 31, 1997, by and between
Cottontops and Tom Glennon.*
10.16 Amendment No. 1 dated as of December 27, 1997 to Stockholders Agreement
by and among Holdings, BRS & Co., 399 Venture Partners, CCT, Bernard
Geller, Anthony Corsano, William Turner, Jacob Hollander and each other
person who acquires common stock of Holdings after the date thereof
and executes a joinder thereto. *
21.1 Subsidiaries of Anvil, Holdings and Cottontops.
27.1 Financial Data Schedule.
* Previously filed with the Company's Registration Statement and Amendments
thereto on Form S-4 (SEC file No. 333-26999) and is incorporated herein by
reference.
** Previously filed with the Company's Form 10-Q for the Quarter ended
August 2, 1997, and is incorporated herein by reference.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, Anvil Holdings, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ANVIL HOLDINGS, INC.
By: /s/ JACOB HOLLANDER
-----------------------------------
Jacob Hollander
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated:
Signature Capacity Date
/s/ BERNARD GELLER Chairman of the Board , April 28, 1998
- ----------------------------- President and Director
Bernard Geller (Principal Executive
And Financial Officer)
/s/ JACOB HOLLANDER Vice President, Secretary April 28, 1998
- ----------------------------- and Director
Jacob Hollander
/s/ PASQUALE BRANCHIZIO Vice President of Finance April 28, 1998
- ----------------------------- (Principal Accounting Officer)
Pasquale Branchizio
/s/ BRUCE C. BRUCKMAN Director April 28, 1998
- -----------------------------
Bruce C. Bruckmann
/s/ STEPHEN F. EDWARDS Director April 28, 1998
- -----------------------------
Stephen F. Edwards
/s/ DAVID F. THOMAS Director April 28, 1998
- -----------------------------
David F. Thomas
/s/ JOHN D. WEBER Director April 28, 1998
- -----------------------------
John D. Weber
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT:
The Registrant has not sent an annual report or proxy material to its security
holders during the period covered by this report.
29
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Accountants............................................F-2
Consolidated Balance Sheets at February 1, 1997 and January 31, 1998.........F-3
Consolidated Statements of Operations for the years ended January 27, 1996,
February 1, 1997 and January 31, 1998...................................F-4
Consolidated Statements of Cash Flows for the years ended January 27, 1996,
February 1, 1997 and January 31, 1998...................................F-7
Consolidated Statements of Changes in Stockholders' Equity for the years
ended January 27, 1996, February 1, 1997 and January 31, 1998...........F-6
Notes to Consolidated Financial Statements...................................F-8
Schedule II --Valuation and Qualifying Accounts..............................S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Anvil Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Anvil Holdings,
Inc. and subsidiaries as of February 1, 1997 and January 31, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended January 27, 1996, February 1, 1997 and January 31,
1998. Our audits also included the financial statement schedule listed in the
index at Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Anvil Holdings, Inc.
and subsidiaries as of February 1, 1997 and January 31, 1998 and the results of
their operations and their cash flows for the years ended January 27, 1996,
February 1, 1997 and January 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
March 27, 1998
New York, New York
F-2
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents......................................................... $ 1,863 $ 959
Accounts receivable, less allowance for doubtful accounts of
$874 and $822................................................................... 28,517 27,271
Inventories....................................................................... 32,471 42,089
Prepaid and refundable income taxes............................................... 3,305 4,640
Deferred income taxes............................................................. 1,629 2,510
Prepaid expenses and other current assets......................................... 423 1,004
--- -----
Total current assets.................................................. 68,208 78,473
PROPERTY, PLANT AND EQUIPMENT--Net.................................................. 38,830 38,189
INTANGIBLE ASSETS--Net ............................................................. 26,568 25,487
OTHER ASSETS........................................................................ 3,226 4,964
--------- ----------
$ 136,832 $ 147,113
--------- ----------
--------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Revolving credit facility borrowings.............................................. $ 14,400 $ -
Accounts payable.................................................................. 9,360 11,986
Accrued expenses and other current liabilities.................................... 10,130 15,349
Current portion of long-term bank borrowings...................................... 4,850 -
--------- ----------
Total current liabilities......................................... 38,740 27,335
--------- ----------
LONG-TERM BANK BORROWINGS........................................................... 41,475 21,700
--------- ----------
SUBORDINATED PROMISSORY NOTE........................................................ 7,869 -
---------
10-7/8% SENIOR NOTES................................................................ - 126,445
----------
DEFERRED INCOME TAXES............................................................... 3,535 4,613
--------- ----------
OTHER LONG-TERM OBLIGATIONS......................................................... 1,827 1,883
--------- ----------
REDEEMABLE PREFERRED STOCK
(Liquidation value $33,605).................................................... - 31,392
--------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - old........................................................... 2 -
Common stock - old.............................................................. 101 -
Common stock - new:
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding: 290,000 (aggregate liquidation
value, $32,333)............................................................. - 3
Class B, $.01 par value, authorized 7,500,000 shares; issued and
outstanding: 3,590,000 shares............................................... - 36
Class C, $.01 par value; authorized 1,400,000 shares; none issued
Additional paid-in capital...................................................... 23,054 12,803
Retained earnings (deficit)..................................................... 20,479 (79,097)
Loans receivable-stockholders................................................... (250) -
--------- ----------
Total stockholders' equity (deficiency).............................. 43,386 (66,255)
--------- ----------
$ 136,832 $ 147,113
--------- ----------
--------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
FISCAL YEAR ENDED
----------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
NET SALES....................................................... $193,389 $204,154 $214,867
COST OF GOODS SOLD.............................................. 149,723 156,813 167,491
-------- -------- --------
Gross profit............................................. 43,666 47,341 47,376
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES..................................................... 17,778 21,678 22,771
SPECIAL COMPENSATION............................................ - - 10,915
AMORTIZATION OF INTANGIBLE ASSETS............................... 736 958 958
-------- -------- --------
Operating income........................................ 25,152 24,705 12,732
OTHER INCOME (EXPENSE):
Interest expense............................................ (8,844) (7,912) (16,536)
Interest income and other expense--net...................... 616 415 247
-------- -------- --------
Income (loss) before provision (benefit)
for income taxes and extraordinary item.............. 16,924 17,208 (3,557)
PROVISION (BENEFIT) FOR INCOME TAXES............................ 6,770 6,883 (1,423)
-------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM.......................................... 10,154 10,325 (2,134)
EXTRAORDINARY ITEM - Loss on extinguishment
of debt (net of tax benefit of $1,838).................... - - (2,757)
-------- -------- --------
NET INCOME (LOSS)............................................... $10,154 10,325 (4,891)
--------
--------
Less Preferred Stock dividends............................... (4,094) (4,653)
Less Common A preference...................................... (3,798) (4,296)
-------- --------
Net income (loss attributable to common....................
stockholders).................................. $ 2,433 $(13,840)
-------- --------
-------- --------
PRO FORMA BASIC INCOME (LOSS) PER COMMON SHARE:
Class A Common Stock:
Income (loss) before extraordinary item...................... $ 13.72 $ 11.96
Extraordinary item........................................... - (.71)
-------- --------
Net income................................................... $ 13.72 $ 11.25
-------- --------
-------- --------
Class B Common Stock:
Income (loss) before extraordinary item...................... $ .63 $ (2.86)
Extraordinary item........................................... - (.71)
-------- --------
Net income (loss)............................................ $ .63 $ (3.57)
-------- --------
-------- --------
Weighted average shares used in computation of \
pro forma basic income (loss) per share:
Class A Common................................................ 290 290
-------- --------
-------- --------
Class B Common................................................ 3,590 3,590
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ 10,154 $ 10,325 $ (4,891)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of fixed assets.......................... 5,726 6,329 6,259
Amortization of other assets........................................... 1,465 1,686 1,981
Write-off of inventory step-up......................................... 1,746 - -
Write down of property and equipment................................... - 600 -
Provision (recovery) of bad debts...................................... 451 440 (52)
Noncash interest expense............................................... 1,182 1,187 1,706
Write-off of deferred financing fees................................... - - 3,010
Noncash compensation................................................... - - 5,177
Deferred income taxes.................................................. 1,656 1,922 551
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable.................................................... 683 (5,878) 1,194
Inventories............................................................ (8,267) 2,917 (9,618)
Prepaid and refundable income taxes.................................... (4,782) 1,477 700
Accounts payable....................................................... 913 707 2,626
Accrued expenses & other liabilities................................... (893) 1,169 3,437
Other--net............................................................. (2,871) 930 (1,711)
--------- --------- ---------
Net cash provided by operating activities....................... 7,163 23,811 10,369
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired........................................ - (1,728) -
Purchases of property and equipment--net................................. (7,703) (4,791) (6,102)
--------- --------- ---------
Net cash used in investing activities........................... (7,703) (6,519) (6,102)
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of new credit agreement-net..................... - - 26,500
Borrowings under old revolving credit facility........... 9,400 15,100 -
Repayment of old revolving credit facility............... (6,300) (28,300) (19,200)
Repayments of long-term debt............................. (2,325) (3,850) (46,325)
Proceeds from exercise of stock options.................. - 53 336
Repayment of Subordinated Promissory Note................ - - (9,575)
Proceeds of Senior Notes................................. - - 130,000
Redemption of Old Preferred Stock........................ - - (22,736)
Repurchase of Old Common Stock........................... - - (92,262)
Proceeds from sale of Units.............................. - - 26,667
Issuance of New Common Stock............................. - - 13,063
Repayment of stockholder loans........................... - - 250
Expenses related to the Recapitalization................. - - (11,889)
--------- --------- ---------
Net cash (used in) provided by
financing activities........................... 775 (16,997) (5,171)
--------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................................... 235 295 (904)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR....................................... 1,333 1,568 1,863
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR............................................. $ 1,568 $ 1,863 $ 959
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................... $ 5,946 $ 6,036 $ 10,533
--------- --------- ---------
--------- --------- ---------
Cash paid (received) for income taxes.................... $ 9,834 $ 3,484 $ (2,123)
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, excluding cash............ $ 3,049
Liabilities assumed...................................... (1,194)
Expenses incurred........................................ (127)
---------
Cash paid................................................ $ 1,728
---------
---------
Promissory note issued................................... $ 250
---------
---------
Exchange of Old Preferred Stock into Units............... $ 3,333
---------
---------
Redeemable Preferred Stock Issued in Lieu of Dividends... $ 3,033
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Preferred Stock (Old) (New)
----------------- ------------------ ------------------
Class Class Class Class Class Class Class Class Class
A B C A B C A B C
----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 29, 1995............ $ 1 $ 1 $ - $ 58 $ 26 $ 17 $ - $ - $ -
Net income.............................
---------------------------------------------------------
Balance at January 27, 1996............ 1 1 - 58 26 17 - - -
Exercise of stock options.............. -
Net income.............................
---------------------------------------------------------
Balance at February 1, 1997............ 1 1 - 58 26 17 - - -
Exercise of stock options.............. 5
Repurchase and exchange of Old
Common Stock......................... (58) (31) (17) 2 19
Redemption and exchange of Old
Preferred Stock...................... (1) (1)
(26,025)
Common shares issued in
Units Offering....................... 4
Repayment of stockholder loans.........
Issuance of new common stock........... 1 13
Offering expenses attributable to the
sale of common stock ................
Preferred stock dividends..............
Accretion of preferred stock...........
Net loss...............................
---------------------------------------------------------
Balance at January 31, 1998............ - - - - - - $ 3 $36 -
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
Additional Loans
Paid-in Retained Receivable-
Capital Earnings Stockholders Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 29, 1995............ $23,001 $ - $ (250) $ 22,854
Net income............................. 10,154 10,154
---------------------------------------------------
Balance at January 27, 1996............ 23,001 10,154 (250) 33,008
Exercise of stock options.............. 53 53
Net income............................. 10,325 10,325
---------------------------------------------------
Balance at February 1, 1997............ 23,054 20,479 (250) 43,386
Exercise of stock options.............. 5,507 5,512
Repurchase and exchange of Old
Common Stock......................... (8,563) (85,440) (94,088)
Redemption and exchange of Old
Preferred Stock...................... (19,998) (6,025)
(26,025)
Common shares issued in
Units Offering....................... 386 390
Repayment of stockholder loans......... 250 250
Issuance of new common stock........... 13,049 13,063
Offering expenses attributable to the
sale of common stock ................ (632) (632)
Preferred stock dividends.............. (3,033) (3,033)
Accretion of preferred stock........... (187) (187)
Net loss............................... (4,891) (4,891)
---------------------------------------------------
Balance at January 31, 1998............ $12,803 $(79,097) - $(66,255)
---------------------------------------------------
---------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. ACQUISITIONS
On January 28, 1995, Anvil Holdings, Inc. (the "Company") and its
wholly-owned subsidiary, Anvil Knitwear, Inc. ("Anvil"), acquired the assets
and assumed certain liabilities of the Anvil Knitwear division from McGregor
Corporation ("McGregor") (the "Acquisition") for an aggregate purchase price
of approximately $105,000, plus acquisition costs. The Acquisition was funded
with the proceeds of $20,000 of preferred stock, $6,400 of common stock,
$52,500 of long-term bank debt, $7,500 in subordinated notes and the balance
with a revolving line of credit.
The Acquisition was a leveraged buyout transaction in which Culligan
International Company ("Culligan"), an affiliate of McGregor, retained an
ownership interest of approximately 30.6% in the common stock of the Company.
Accordingly, in allocating the purchase price to the net assets acquired, the
net assets were valued at the sum of (i) their carryover cost basis to the
extent of 30.6% plus (ii) their estimated fair market values, to the extent
of the new ownership interest of 69.4%. The excess of the purchase price over
the estimated fair value of the net assets acquired, related to the new
ownership interest, which amounted to approximately $23,000, was recognized
as goodwill and is being amortized over a period of 35 years. The fair market
value attributable to the interest in the net assets retained by the
predecessor owner has been recorded as a reduction to stockholders' equity.
In connection with the Acquisition, the Company also acquired the entire
ownership interest in Anvil s.r.o., an entity located in the Czech Republic.
Concurrent with the Acquisition, the Company determined to close down the
operations of Anvil s.r.o. and accordingly, provided for the estimated
closedown costs in recording the assets acquired and liabilities assumed from
the Acquisition.
On January 31, 1997, Anvil completed, through Cottontops Inc., a Delaware
corporation ("Cottontops"), the acquisition of certain assets and
assumption of certain liabilities of Cottontops, Inc., a North Carolina
corporation, a marketer and distributor of activewear products which, prior to
the acquisition, sold finished activewear products to the Company as well as
directly into the retail market. The aggregate amount of consideration paid
in this acquisition (including the Company's assumption of certain
liabilities) totaled $3.5 million, and is subject to adjustments in certain
circumstances. The acquisition has been accounted for using the purchase
method of accounting. The Company began consolidating the results of
operations of Cottontops effective February 2, 1997.
2. RECAPITALIZATION AND REFINANCING
Effective March 14, 1997, the Company completed a significant
recapitalization and refinancing plan, the major components of which are as
follows:
On March 14, 1997, the Company, Anvil VT, Inc., Vestar Equity Partners, L.P.
("Vestar"), 399 Venture Partners, Inc. and certain of its employees and
affiliates (collectively, "399 Venture"), certain management investors and
other existing shareholders of the Company (collectively, the "Existing
Shareholders") and Bruckmann, Rosser, Sherrill & Co., L.P. and certain of its
employees
F-8
<PAGE>
and affiliates (collectively, "BRS") completed a reorganization (the
"Recapitalization") pursuant to which: (i) the Company redeemed or
repurchased a substantial portion of its outstanding shares of capital stock;
(ii) BRS contributed $13,063 for the purchase of new common stock; (iii) 399
Venture and the management investors reinvested a portion of their existing
shares of common stock of the Company, which were converted into shares of
newly issued common stock, and (iv) 399 Venture exchanged a portion of its
existing preferred stock for 3,333 shares of Senior Exchangeable Preferred
Stock and new common stock.
Concurrently with the Recapitalization, the Company sold 30,000 Units
consisting of (i) $30,000, 13% Senior Exchangeable Preferred Stock due 2009
and (ii) 390,000 shares of Class B common stock (the "Units Offering"). The
Senior Exchangeable Preferred Stock was recorded at $27,656 representing the
proceeds of $30,000, less $390 allocated to the Class B common stock and
$1,954 of expenses attributable to the Units offering. Additionally, on March
14, 1997, Anvil sold $130,000 of 10-7/8% Senior Notes due 2007 ("Senior
Notes") in connection with the Recapitalization and repaid its borrowings
under an existing credit agreement and entered into an Amended and Restated
Credit Agreement ("New Credit Agreement"- See Note 8).
The net proceeds from the Units and Notes offerings and borrowings under the
New Credit Agreement were used by the Company to: (i) redeem the outstanding
common stock and preferred stock; (ii) repay the balance outstanding under
the Old Credit Agreement; (iii) repay the subordinated debt; (iv) pay fees
and expenses; (v) pay a management bonus; and (vi) pay amounts due in
accordance with the Phantom Equity Plan (see Note 18).
During the year ended January 31, 1998, the Company recorded a special
compensation charge of $10,915, which consists of the compensation recorded
upon exercise of options by members of management, payment of a special
transaction bonus to management and payments under a then existing equity
buy-out plan to members of management.
F-9
<PAGE>
The following summarizes the sources and uses of funds relating to the
Recapitalization
SOURCES: (in millions)
Borrowings under the New Credit Agreement.... $ 33.3
Senior Notes due 2007........................ 130.0
Units........................................ 26.7
Equity Contribution.......................... 13.1
Other........................................ .6
-----------
Total sources.................... $ 203.7
-----------
-----------
USES:
Repay borrowings under the Old Credit Agreement $ 61.1
Repay the Subordinated Note................... 9.5
Redeem or exchange the Old Preferred Stock.... 22.7
Repurchase shares of Old Common Stock......... 92.3
Payment under the Phantom Equity Plan......... 5.3
Payment of Management Bonus................... 0.5
Fees and expenses............................. 12.3
-----------
Total uses........................ $ 203.7
-----------
-----------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--The Company is engaged in the business of designing, manufacturing
and marketing high quality activewear for men, women and children. The
Company markets and distributes its products, under private label and brand
names, primarily to wholesalers and screen printers, principally in the
United States. The Company's operations are on a "52/53-week" fiscal year
ending on the Saturday closest to January 31. The year ended February 1, 1997
includes 53 weeks.
BASIS OF PRESENTATION--The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, after
elimination of significant intercompany accounts and transactions.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all highly
liquid investments with an original maturity of 90 days or less.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is being
depreciated for financial reporting purposes principally using the straight-line
method over the estimated useful lives of the assets, ranging from 4 to 25
years. Leasehold improvements are amortized over the lesser of the estimated
useful life or the term of the lease.
INVENTORIES--Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out (FIFO) method. Cost of goods sold
for the year ended January 27, 1996 includes approximately $1,746 of charges
related to the initial allocation of purchase price to inventory in connection
with the Acquisition.
F-10
<PAGE>
INTANGIBLE ASSETS--Intangible assets of the Company consist of trademarks and
goodwill. Trademarks are being amortized over their estimated useful life of
17 years. Goodwill is being amortized over the period of expected benefit of
35 years.
EVALUATION OF LONG-LIVED ASSETS--Long-lived assets are continually assessed
for recoverability and particularly whenever events or changes in
circumstances indicate that an asset may have been impaired. In evaluating an
asset for recoverability, the Company estimates the future cash flows
expected to result from the use of the asset and eventual disposition. If the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss,
equal to the excess of the carrying amount over the fair value of the asset,
is recognized. There were no adjustments to the carrying amount of long-lived
assets resulting from the Company's evaluation for any periods presented in
the accompanying financial statements.
DEFERRED FINANCING FEES--Included in other assets are deferred financing fees
(approximately $3,100 and $4,800 at February 1, 1997 and January 31, 1998,
respectively), which are being amortized over approximately six years to
coincide with the term of the underlying credit agreement.
INTEREST RATE SWAPS--Gains and losses related to interest rate swaps that
qualify as hedges of existing liabilities are included in the carrying amount
of those liabilities and are ultimately recognized in income as adjustments
to the recorded interest expense. The Company does not hold or issue
financial instruments for trading or speculative purposes.
REVENUE RECOGNITION--Revenue is recognized at the time merchandise is
shipped. Allowances for sales returns and discounts are provided when sales
are recorded.
INCOME TAXES--Income taxes have been accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR
INCOME TAXES, which requires the use of an asset and liability approach for
financial accounting and reporting of income taxes.
EARNINGS PER SHARE--Pro forma basic income (loss) per share is computed based
upon the average outstanding shares attributable to the Class A Common and
Class B Common shares after the Recapitalization, and assuming the
Recapitalization took place at the beginning of the earliest period
presented.
RECLASSIFICATIONS--To facilitate comparison with the current fiscal year,
certain reclassifications have been made to prior year's financial statements.
F-11
<PAGE>
4. INVENTORIES
Inventories, valued at lower of cost or market, consist of the following:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Finished goods...................... $ 21,545 $ 22,505
Work-in-process..................... 4,326 9,830
Raw materials and supplies.......... 6,600 9,754
--------- ---------
$ 32,471 $ 42,089
--------- ---------
--------- ---------
5. PROPERTY, PLANT AND EQUIPMENT
During the year ended February 1, 1997, the Company recorded a charge of $600
(equal to the amount by which the carrying value exceeded the fair value) for
the disposal of certain fixed assets. Property plant and equipment consists of
the following:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Land................................... $ 882 $ 849
Buildings and improvements............. 15,034 14,763
Machinery, equipment, furniture and
fixtures............................. 34,895 40,567
--------- ---------
50,811 56,179
Less accumulated depreciation and
amortization......................... (11,981) (17,990)
--------- ---------
$ 38,830 $ 38,189
--------- ---------
--------- ---------
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Trademarks--net of accumulated
amortization of $572 and $858... $ 4,286 $ 4,000
Goodwill--net of accumulated
amortization of $1,122 and $1,794 22,282 21,487
--------- ---------
$ 26,568 $ 25,487
--------- ---------
--------- ---------
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Accrued wages and bonuses....... $ 3,044 $ 3,273
Accrued interest payable........ 856 5,715
Other........................... 6,230 6,361
--------- ---------
$ 10,130 $ 15,349
--------- ---------
--------- ---------
F-12
<PAGE>
8. CREDIT AGREEMENTS
OLD CREDIT AGREEMENT--On January 30, 1995, Anvil entered into a Credit
Agreement, amended on various dates through March 30, 1996 (the "Old Credit
Agreement"), providing a $47,500 credit facility for revolving loans (with a
sublimit for letters of credit of $5,000) and $52,500 of term loans, expiring
January 30, 2001, subject to certain maximum levels of borrowing based upon
asset levels.
Interest on direct borrowings had been payable at least quarterly, at either
the Base Rate (8.25% at February 1, 1997) or at the Eurodollar Rate (5.6% at
February 1, 1997), each plus an applicable margin, as defined, at the
election of Anvil. Revolving loans under the credit facility at February 1,
1997 were $14,400, and the weighted average interest rate thereon was 8.0%.
The term loans (which aggregated $46,325 at February 1, 1997) were comprised
of two tranches. Tranche A was a six-year term loan in the principal amount
of $37,500 due quarterly in varying amounts from April 29, 1995 through
February 3, 2001. Tranche B was a seven-year term loan in the principal
amount of $15,000 due quarterly in variable amounts commencing April 29, 1995
through February 2, 2002.
All amounts under the Old Credit Agreement were repaid on March 14, 1997 in
connection with the Recapitalization. See Note 12.
NEW CREDIT AGREEMENT--In March 1997, Anvil entered into an Amended and
Restated Credit Agreement (the "New Credit Agreement") providing a $55,000
revolving credit facility, with a sublimit of $5,000 for letters of credit
expiring March 14, 2002, subject to certain maximum levels of borrowings
based upon asset levels. Anvil used $33,250 of the borrowings under the New
Credit Agreement to finance a portion of the Recapitalization.
Anvil's borrowing availability under the revolving credit facility is based
on a formula incorporating: (i) 85% of eligible receivables; (ii) 60% of
eligible raw materials inventory; (iii) 50% of eligible finished goods
inventory; and (iv) 50% of appraised equipment and real property (each as
defined in the New Credit Agreement). Interest on borrowings under the
revolving credit facility is payable at a rate equal to LIBOR or the
Alternate Base Rate (defined as the higher of (i) the lender's prime rate and
(ii) the Federal Funds rate plus 0.5%), each plus an applicable margin
ranging from 1.25% to 2.50% for LIBOR loans and 0.25% to 1.50% for Alternate
Base Rate loans, determined based upon attainment of certain financial
ratios. An annual commitment fee ranging from 0.31% to 0.50% is payable on
the unused portion of the revolving credit facility.
The New Credit Agreement requires Anvil to comply with various covenants,
including maintaining certain financial ratios, additional indebtedness, the
payment of dividends, asset sales, acquisitions and mergers. Additionally,
the net proceeds from certain asset sales must, in certain instances, be used
to prepay borrowings under the credit facility. All borrowings under the
credit facility are secured by substantially all the assets of Anvil
including accounts receivable, inventories and property and equipment.
At January 31, 1998, the amount outstanding under the New Credit Agreement
was $21,700 bearing interest at 7.97%. The weighted average interest rate on
such debt during the year ended January 31, 1998 was approximately 7.88%.
Since the Company anticipates continually refinancing amounts drawn down
under the revolving credit facility through the expiration date of the credit
facility (March 14, 2002), the amount outstanding under such facility has
been classified as a long-term liability in the accompanying balance sheet at
January 31, 1998.
F-13
<PAGE>
The Company's long-term bank debt at February 1, 1997 and January 31, 1998
consisted of the following:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Old Credit Agreement..................... $46,325
New Credit Agreement..................... $21,700
Less current portion..................... (4,850) -
------- -------
Long-term portion........................ $41,475 $21,700
------- -------
------- -------
Old Credit Agreement (revolving loans)... $14,400
-------
-------
9. SENIOR NOTES
On March 14, 1997, Anvil issued $130,000 of 10-7/8% Senior Notes (the "Senior
Notes") due March 15, 2007 and received proceeds of $126,100 net of debt
discount of $3,900. Interest on the notes is payable semiannually on March 15
and September 15. Prior to March 15, 2000, the Company may redeem up to 40%
of the aggregate principal amount of the Senior Notes outstanding at a
redemption price of 110%. The Company may redeem the Senior Notes at a
redemption price of 105.438%, 103.625%, and 101.813% at any time during the
12-month period beginning on March 15, 2002, 2003 and 2004, respectively and
at 100% thereafter.
The Senior Notes are senior unsecured obligations of the Company and rank
senior in right of payment to all subordinated indebtedness of the Company
and PARI PASSU in right of payment with all existing and future senior
indebtedness, including borrowings under the New Credit Agreement. The
indenture relating to the Senior Notes contains certain covenants,
including restrictions on additional indebtedness, certain asset sales,
and the payment of dividends.
The Senior Notes are guaranteed by the Company and Cottontops, Inc.
Anvil has completed an exchange offer which expired August 22, 1997, pursuant
to which its 10-7/8% Series A Senior Notes were exchanged on a
dollar-for-dollar basis for its 10-7/8% Series B Senior Notes, due 2007.
Pursuant to the exchange offer, $129,000 principal amount were validly
tendered and exchanged. The terms and conditions of the aforementioned Series
B securities are substantially identical to the Series A securities for which
they were exchanged, except that the Series B securities have been registered
under the Securities Act of 1933, as amended.
10. SUBORDINATED PROMISSORY NOTE
In connection with the Acquisition (see Note 1), the Company issued a
subordinated promissory note (the "Note") to Culligan in the principal amount
of $7,500, due January 30, 2005, or earlier upon a change in ownership, as
defined. The Note was recorded at the fair value of the property received and
the discount ($1,600 at February 1, 1997) was being amortized on a
straight-line basis over the term of the Note. Principal and interest on the
Note was prepaid on March 14, 1997. See Note 12.
F-14
<PAGE>
11. RELATED PARTY TRANSACTIONS
Concurrent with the Acquisition, the Company entered into a management
agreement with Vestar, Citicorp Venture Capital, Ltd. ("CVC") and Culligan
through January 2005, whereby Vestar provided advisory and consulting services
to the Company and its subsidiaries, and CVC and Culligan, in turn, provided
consulting services to Vestar, when requested in connection with the fulfillment
by Vestar, of Vestar's obligation to the Company. In exchange for these
services, the Company paid management fees aggregating $472 during the year
ended February 1, 1997. Pursuant to the terms and conditions of the
Recapitalization and the Units and Notes Offerings, the management agreement
was terminated. In connection with the Acquisition, the Company paid transaction
costs of approximately $1,563 to Vestar and $938 to CVC.
12. EXTRAORDINARY ITEM
In connection with the repayment of the Subordinated Promissory Note (See
Note 10), the Company recorded an extraordinary loss of $1,585, before a tax
benefit of $634 representing the balance of the unamortized debt discount. In
connection with the repayment of the Old Credit Agreement (See Note 8), the
Company recorded an extraordinary loss of $3,010 before a tax benefit of
$1,204, to write off the balance of related deferred financing fees.
13. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.............................................. $ 4,475 $ 4,337 $ (3,335)
State and local...................................... 639 624 (477)
Deferred............................................. 1,656 1,922 551
-------- -------- --------
$ 6,770 $ 6,883 $ (3,261)
-------- -------- --------
-------- -------- --------
Deferred income taxes (benefit), resulting from differences between
accounting for financial statement purposes and accounting for tax purposes
were as follows:
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Depreciation........................................ $ 331 $ 2,268 $ 1,215
Expenses capitalized to inventory................... (326) 57 (397)
Amortization of goodwill............................ 2,087 300 303
Accretion of Subordinated Promissory Note........... (80) (80) -
Insurance reserves.................................. - (240) -
Accrued expenses not deductible until paid.......... (356) (383) 70
Basis difference in Seller Note..................... - - (640)
-------- -------- --------
$ 1,656 $ 1,922 $ 551
-------- -------- --------
-------- -------- --------
</TABLE>
F-15
<PAGE>
A reconciliation of the statutory Federal tax rate and the effective rate is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate.............................. 35% 35% 35%
State and local taxes --net of
Federal income tax benefit.......................... 5 5 5
---- --- ---
40% 40% 40%
---- --- ---
---- --- ---
</TABLE>
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax ssets and liabilities are presented below:
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Deferred tax assets:
Inventories............................... $ 583 $ 1,583
Trademarks................................ 712 640
Reserves not currently deductible......... 240 687
Accounts receivable reserves and other.... 806 240
-------- --------
Total deferred tax assets............ 2,341 3,150
-------- --------
Deferred tax liabilities:
Property, plant and equipment............. (1,268) (2,683)
Goodwill.................................. (2,339) (2,570)
Subordinated Promissory Note.............. (640) -
-------- --------
Total deferred tax liabilities...... (4,247) (5,253)
-------- --------
Net deferred tax liability................ $ (1,906) $ (2,103)
-------- --------
-------- --------
14. INCOME (LOSS) PER SHARE
Pro forma basic net income (loss) per share assumes issuance of shares in the
Recapitalization had occurred at the beginning of Fiscal 1996 and is computed
by dividing net income (loss) applicable to each class of Common Stock by the
average number of shares of such stock outstanding, as follows :
FISCAL YEAR ENDED
----------------------------
FEBRUARY 1, JANUARY 31,
1997 1998
---- ----
Net income (loss) attributable to
common stockholders......................... $ 2,433 $(13,840)
-------- --------
-------- --------
Preference per Class A common share............ $ 13.10 $ 14.82
Net income (loss) per common share............. .63 (3.57)
-------- --------
Net income per Class A common share............ $ 13.72 $ 11.25
-------- --------
-------- --------
Net income (loss) per Class B common share..... $ 0.63 $ (3.57)
-------- --------
-------- --------
F-16
<PAGE>
The following table presents basic net income (loss) per share using the
historical shares outstanding, and is computed by dividing net income (loss)
applicable to each class of Common Stock by the actual average number of
commons shares outstanding during the periods. Such computations do not give
retroactive effect to the Recapitalization.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 27, FEBRUARY 1, JANUARY 31,
1996 1997 1998
---- ---- ----
<S> <C> <C>
Net income (loss).................................... $10,154 $ 10,325 $ (4,891)
Less: preferred dividends............................ - - (2,805)
Class A common preference................... - - (3,021)
-------- -------- ---------
Net income (loss) applicable to common stockholders.. $10,154 $ 10,325 $(10,717)
-------- -------- ---------
-------- -------- ---------
Preference per Class A common share.................. - - $ 9.67
Net income (loss) per common share (all classes) $ 1.01 $ 1.02 (2.35)
-------- -------- --------
-------- -------- --------
Net income per Class A common share.................. $ 7.32
--------
--------
Net income (loss) per Class B common share.......... $ (2.35)
--------
--------
Weighted average shares used in computation
of basic income (loss) per share:
Class A Common 928
--------
--------
Class B Common 3,633
--------
--------
Old Common Stock (all classes) 10,080 10,080
-------- ------
-------- ------
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
In March 1995, Anvil entered into interest rate swap agreements for an
aggregate notional amount of $25,000 to manage its interest rate risk. Under
these interest rate swaps, Anvil receives interest at LIBOR, reset quarterly,
and pays interest at the weighted average fixed rate of 7.3%. Interest
payments and receipts commenced September 1995 and occur quarterly. The swap
agreements have terms of three and five years. The Company does not hold or
issue financial instruments for trading purposes.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to swap agreements, but it does not expect
any counterparties to fail to meet their obligations given their high credit
ratings. The fair value of interest rate swaps at February 1, 1997 and
January 31, 1998 is approximately $705 and $534, respectively and reflects
the estimated amount that the Company would pay to terminate the contracts at
such dates. The fair value information has been obtained from dealer
quotations.
The carrying amounts of all other financial instruments reported in the
accompanying consolidated balance sheets approximate their fair value.
Considerable judgment is required in interpreting certain market data to
develop estimated fair values for certain financial instruments. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
16. EMPLOYEE SAVINGS PLAN
The Company has a savings plan (the "Plan") under which eligible employees may
contribute up to 16%, subject to certain limitations, of their compensation. The
Company matches 100% of the contributions up to the first 3% and 50% of the next
3%. During the years ended February 1, 1997
F-17
<PAGE>
and January 31, 1998, the Company made contributions to the Plan aggregating
$1,059 and $1,011, respectively.
17. OLD CAPITAL STRUCTURE
All shares of the following preferred and common stocks under the old capital
structure were redeemed or exchanged in connection with the Recapitalization.
The components of preferred and common stock at February 1, 1997 were as
follows:
FEBRUARY 1,
1997
----
PREFERRED STOCK:
12.5% Class A, $.01 par value, authorized 205,010 shares;
cumulative, 129,854 shares issued and outstanding;
aggregate liquidation value of $16,575................ $ 1
12.5% Class B, $.01 par value, authorized 70,420 shares;
cumulative, convertible; 70,416 shares issued and
outstanding; aggregate liquidation value $9,007........ 1
12.5% Class C, $.01 par value, authorized 5,000 shares;
cumulative, convertible; none issued................... -
-----
$ 2
-----
-----
OLD COMMON STOCK:
Class A, par value $.01 per share, authorized 10,600,000
shares, 5,755,000 shares issued and outstanding....... $ 58
Class B, par value $.01 per share, authorized 3,200,000
shares; convertible; 2,675,000 shares issued
and outstanding....................................... 26
Class C, par value $.01 per share, authorized 1,650,000
shares; convertible; 1,650,000 shares issued
and outstanding....................................... 17
-----
$ 101
-----
-----
OLD PREFERRED STOCK--The Company's three classes of preferred stock: Class A,
Class B and Class C (collectively the "Old Preferred Stock") accrued
dividends at 12.5% on the sum of the liquidation value ($100 per share) plus
accumulated and unpaid dividends thereon, compounded quarterly. The Old
Preferred Stock was redeemable, in whole or in part, at the option of the
Company at the liquidation value, plus the accumulated unpaid dividends
thereon. At February 1, 1997 dividends in arrears on the Old Preferred Stock
amounted to $5,582.
OLD COMMON STOCK --The Company had three classes of old common stock: Class
A, Class B and Class C. Holders of Class A common stock were entitled to one
vote per share, while holders of Classes B and C had no voting rights except
in special circumstances.
Certain members of management obtained loans from the Company to partially
finance the purchase of common and preferred stock. Such loans bore interest
at 7.19%, were due January 30, 2002 and are classified as a reduction to
stockholders' equity. Management repaid the above loans including accrued
interest, as part of the Recapitalization.
18. NEW CAPITAL STRUCTURE
REDEEMABLE PREFERRED STOCK--In connection with the Units Offering, in March
1997, the Company issued 1,200,000 shares of 13% Senior Exchangeable Preferred
Stock ("Redeemable Preferred Stock") due 2009. Total shares authorized are
2,300,000. Dividends accrue quarterly at 13% on the
F-18
<PAGE>
sum of the liquidation value ($25 per share) plus accumulated and unpaid
dividends thereon. Through March 15, 2002 the Company may, at its option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Redeemable Preferred Stock having an aggregate liquidation preference equal
to the amount of such dividends. On any scheduled dividend payment date, the
Company may, at its option, but subject to certain conditions, exchange all
but not less than all of the shares of Redeemable Preferred Stock then
outstanding for the Company's 13% Subordinated Exchange Debentures due 2009
("Exchange Debentures"). The Redeemable Preferred Stock or the Exchange
Debentures, if issued, will be redeemable at the option of the Company, in
whole or in part, at any time on or after March 15, 2002, at the redemption
price of 101% of the liquidation preference or aggregate principal amount
thereof (as the case may be), plus, in the case of the Redeemable Preferred
Stock, an amount equal to all accumulated and unpaid dividends per share to
the date of purchase, or in the case of the Exchange Debentures, an amount
equal to all accumulated and unpaid interest thereon to the date of purchase.
On March 15, 2009, the Company is required to redeem all outstanding shares
of the Redeemable Preferred Stock at an amount equal to the liquidation
preference and all accumulated and unpaid dividends. The Redeemable Preferred
Stock was recorded at an amount equal to the proceeds (net of discounts) less
an amount attributable to the Class B Common Stock issued in Connection with
the Units Offering.
The Class A Common Stock accretes liquidation value at the rate of 12.5%
per annum, compounded quarterly, payable in shares of Class A Common Stock.
Holders of Class B Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders, while holders of Class A Common Stock
and Class C Common Stock have no right to vote on any matters except in
special circumstances, such as a merger, consolidation, recapitalization or
reorganization of the Company.
As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends
aggregating 121,304 shares ($3,033 liquidation value) through the year ended
January 31, 1998.
Holdings has completed an exchange offer which expired August 26, 1997 (as
extended), pursuant to which its 13% Series A Senior Exchangeable Preferred
Stock was exchanged on a share-for-share basis for its 13% Series B Senior
Exchangeable Preferred Stock, due 2009. Pursuant to the exchange offer,
1,198,566 shares ($29,964 liquidation value) were validly tendered and
exchanged. The terms and conditions of the aforementioned Series B securities
are substantially identical to the Series A securities for which they were
exchanged, except that the Series B securities have been registered under the
Securities Act of 1933, as amended.
19. STOCK OPTION PLAN AND AGREEMENTS
OLD STOCK OPTION PLAN--The Company had a stock option plan (the "Old Stock
Option Plan") pursuant to which options to purchase 600,000 shares of common
stock were granted to certain senior executives ("Management Investors") as
of February 1, 1995 at an exercise price of $.64 per share, the fair market
value at date of grant. Such options became exercisable upon the attainment
of certain milestones or other events, as defined. At January 27, 1996,
options to purchase 75,000 shares at $.64 per share were exercisable, all of
which were exercised during the year ended February 1, 1997. At February 1,
1997, an additional 75,000 options were exercisable at $.64 per share. In
March 1997, in connection with the Recapitalization, the remaining 450,000
management options vested and were immediately exercised along with the other
75,000 exercisable options, at which time all Class A and Class B
stockholders including optionees, received $10.50 per share of
F-19
<PAGE>
common stock. The 525,000 options had a value of $5,200 at the date of
exercise, were charged to compensation expense with a corresponding credit to
stockholders' equity in the year ending January 31, 1998.
NEW STOCK OPTION PLAN--During fiscal 1997, the Company adopted a stock option
plan which authorizes the granting of options for approximately 5.0% of the
outstanding Class B Common Stock on a fully diluted basis (the "New Stock
Option Plan"). The options under the New Stock Option Plan may be granted to
certain members of management and key employees and are subject to time and
performance vesting provisions. The exercise price of such options is the
fair market value of the Common Stock as of the date of grant. Options to
purchase 90,000 shares were granted to certain officers and key employees on
May 29, 1997 at an exercise price of $1 per share, the fair value at date of
grant. These options (none of which are exercisable) are outstanding at
January 31, 1998. The weighted average fair value of options granted in
fiscal 1997 was $1.00. The fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in fiscal 1997:
risk-free interest rate of 5.75%; expected dividend yield of 0%; expected
life of 10 years; and expected volatility of 0%.
The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost is
recognized for stock option awards. Had compensation cost been determined
consistent with Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), the effect on the
Company's results of operations would have been less than $10, with is
immaterial to the financial statements. The SFAS 123 method of accounting has
not been applied to options granted under the Old Stock Option Plan since all
options under that Plan have been exercised in connection with the
Recapitalization.
PHANTOM EQUITY PLAN--As provided for in the "Phantom Equity Plan" upon sale
of the Company or under certain other circumstances, certain Management
Investors were to be paid 5% of the excess of the aggregate sale price over
$100,000. In connection with the Recapitalization, these Management Investors
were paid $5,300 in accordance with the Phantom Equity Plan at which time the
Phantom Equity Plan was terminated. The $5,300 was charged to expense as
"special compensation" in the year ended January 31, 1998. See Note 2.
20. COMMITMENTS AND CONTINGENCIES
LEASES--The Company is obligated under various leases for equipment, office
space and distribution facilities which expire at various dates through 2002.
Future minimum rental commitments under noncancelable operating leases, with
terms in excess of one year, are as follows:
Fiscal Year Ending:
1999.......................................... $ 1,165
2000.......................................... 935
2001.......................................... 719
2002.......................................... 556
2003.......................................... 267
----------
Total.................................... $ 3,642
----------
----------
F-20
<PAGE>
Rental expense for the years ended January 27, 1996, February 1, 1997 and
January 31, 1998, was $755, $620 and $956, respectively.
LITIGATION--The Company is a party to various litigation matters incidental
to the conduct of its business. The Company does not believe that the outcome
of any of the matters in which it is currently involved will have a material
adverse effect on the financial condition or results of operations of the
Company.
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a
subsidiary of McGregor, entered into an Administrative Order on Consent
("AOC") with the North Carolina Department of Environment, Health and Natural
Resources ("DEHNR") concerning such contamination. Since that time, McGregor
has been conducting investigative and corrective action under DEHNR oversight
and has remained responsible to the DEHNR with respect to the contamination
that is subject to the AOC. While the total cost of the cleanup at the
facility will depend upon the extent of contamination and the corrective
action approved by the DEHNR, preliminary cleanup cost estimates range from
$1.0 to $4.0 million. McGregor continues to be a party to the Asheville,
North Carolina facility's hazardous waste permit and Culligan, an affiliate
of McGregor, has guaranteed McGregor's obligations under the AOC. McGregor
also contractually agreed to fully indemnify the Company with respect to the
contamination as part of the terms of the Acquisition. This indemnity is
guaranteed by Culligan and by Astrum (now known as Samsonite Corporation) in
the event Culligan is unable to perform its guarantor obligations. The
Company could be held responsible for the cleanup of this contamination if
McGregor, Culligan and Samsonite were all to become unable to fulfill their
obligations to DEHNR and the Company was not successful in obtaining
indemnification for the clean-up from either McGregor, Culligan or Astrum.
McGregor also agreed to fully indemnify the Company for any costs associated
with certain other environmental matters identified at the time of the
Acquisition. The Company believes that, even if McGregor were unable to
fulfill its indemnification obligations, these other matters would not have a
material adverse effect on the Company. McGregor also agreed to indemnify the
Company, subject to certain limitations, with respect to environmental
liabilities that arise from events that occurred or conditions in existence
prior to the Acquisition. Culligan and Astrum have also guaranteed McGregor's
obligations under these indemnities.
EMPLOYMENT AGREEMENTS--The Company has entered into employment agreements
which currently expire January 31, 2000, with annual renewals thereafter,
with certain senior executives providing for minimal annual compensation,
plus bonuses equal to 4% of the Company's annual profits, as defined. At
January 31, 1998, the aggregate minimum obligation under the remaining terms
of these employment agreements is approximately $1,930. If an executive is
terminated without cause, or if the executive terminates his employment under
certain circumstances, as provided, the Company is liable for termination
payments through the end of the agreement. Additionally, under certain
circumstances, the Company may be liable for additional termination benefits
up to a period not exceeding two years.
F-21
<PAGE>
21. SUMMARIZED FINANCIAL DATA OF CERTAIN WHOLLY-OWNED SUBSIDIARIES
Following is the summarized balance sheet data of Anvil and Cottontops.
Cottontops is a wholly-owned subsidiary of Anvil, which is a wholly-owned
subsidiary of Holdings.
<TABLE>
<CAPTION>
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
----------------------------- -----------------------------
FEBRUARY 1, JANUARY 31, FEBRUARY 1, JANUARY 31,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Current assets.................................... $ 68,208 $ 78,473 $ 2,671 $ 3,825
--------- --------- -------- -------
--------- --------- -------- -------
Total assets...................................... $ 136,832 $ 147,113 $ 3,100 $ 4,166
--------- --------- -------- -------
--------- --------- -------- -------
Current liabilities............................... $ 38,740 $ 27,335 $ 1,403 $ 550
--------- --------- -------- -------
--------- --------- -------- -------
Long-term liabilities............................. $ 46,837 $ 154,641 $ 1,202 $ 1,854
--------- --------- -------- -------
--------- --------- -------- -------
Total liabilities................................. $ 85,577 $ 181,976 $ 2,605 $ 2,404
--------- --------- -------- -------
--------- --------- -------- -------
Stockholder's equity (deficiency)................. $ 51,255 $ (34,863) $ 495 $ 1,762
--------- --------- -------- -------
--------- --------- -------- -------
</TABLE>
Following is the summarized statement of operations data of Anvil and Cottontops
for the periods indicated:
<TABLE>
<CAPTION>
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
--------------------------------------- ----------------
YEAR ENDED YEAR ENDED
--------------------------------------- ----------------
JANUARY 27, FEBRUARY 1, JANUARY 31, JANUARY 31,
1996 1997 1998 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.............. $ 193,389 $ 204,154 $ 214,867 $ 3,731
--------- --------- --------- ---------
--------- --------- --------- ---------
Operating income (loss) $ 25,152 $ 24,705 $ 12,732 $ (222)
--------- --------- --------- ---------
--------- --------- --------- ---------
Interest expense....... $ 7,662 $ 6,725 $ 16,415 -
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss)...... $ 10,864 $ 11,037 $ (4,818) $ (131)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Holdings and Cottontops have fully and unconditionally, jointly and severally
guaranteed the Series A Senior Notes and the Series B Senior Notes. Complete
financial statements and other disclosures concerning Anvil and Cottontops
are not presented because management has determined they are not material to
investors. Holdings has no independent operations apart from its wholly-owned
subsidiary, Anvil, and its sole asset is the capital stock of Anvil. Anvil is
Holding's only direct subsidiary. In addition to Cottontops, Anvil has three
other non-guarantor direct subsidiaries: Anvil (Czech), Inc., a Delaware
corporation, A.K.H., S.A., organized in Honduras and Livna, Limitada
organized in El Salvador, one non-guarantor indirect subsidiary, Anvil
s.r.o., organized in the Czech Republic (a direct subsidiary of Anvil
(Czech), Inc.) (collectively, the "Non-Guarantor Subsidiaries"). Other than
as stated herein, there are no other direct or indirect subsidiaries of the
Company. Management believes the Non-Guarantor Subsidiaries are
inconsequential both individually and in the aggregate.
F-22
<PAGE>
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
-------------------------------------------- -----------------------------------------
QUARTER QUARTER
-------------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $60,288 $51,745 $53,708 $49,126 $58,552 $56,678 $44,144 $44,780
Gross profit....................... 14,429 12,031 10,982 9,934 11,716 13,268 10,243 12,114
Operating profit (loss)............ (2,864) 6,318 4,845 4,433 6,237 8,228 4,854 5,386
Income (loss) before extra-
ordinary item.................... (3,710) 1,222 341 13 2,448 3,762 1,876 2,239
Net income (loss).................. (6,467) 1,222 341 13 2,448 3,762 1,876 2,239
Basic Income (loss) per share:
Class A Common Stock:
Income (loss) before extra-
ordinary item............... $(0.82) $2.98 $2.87 $2.89 $0.24 $0.37 $0.19 $0.22
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net income................... $(1.42) $2.98 $2.87 $2.89 $0.24 $0.37 $0.19 $0.22
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Class B Common Stock:
Income (loss) before extra-
ordinary item............... $(0.82) $(0.14) $(0.35) $(0.44) $0.24 $0.37 $0.19 $0.22
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net Income.................... $(1.42) $(0.14) $(0.35) $(0.44) $0.24 $0.37 $0.19 $0.22
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Pro forma basic Income (loss) per share:
Class A Common Stock:
Income (loss) before extra-
ordinary item............... $2.03 $3.39 $3.26 $3.28 $3.27 $3.69 $3.29 $3.48
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net income................... $1.32 $3.39 $3.26 $3.28 $3.27 $3.69 $3.29 $3.48
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Class B Common Stock:
Income (loss) before extra-
ordinary item............... $(1.51) $(0.25) $(0.50) $(0.60) $0.15 $0.47 $(0.03) $0.04
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net Income.................... $(2.22) $(0.25) $(0.50) $(0.60) $0.15 $0.47 $(0.03) $0.04
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
F-23
<PAGE>
SCHEDULE II
ANVIL HOLDINGS, INC. AND SUSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning costs and other end of
Description of year expenses accounts Deductions year
----------- ------- -------- -------- ---------- ----
<S> <C> <C> <C> <C>
Year ended January 27, 1996
Allowance for doubtful accounts............... $ 733 $ 435 $ 717(a) $ 451
------ ------ ------ ------
------ ------ ------ ------
Year ended February 1, 1997
Allowance for doubtful accounts............... $ 451 $ 440 $ 17(a) $ 874
------ ------ ------ ------
------ ------ ------ ------
Year ended January 31, 1998
Allowance for doubtful accounts............... $ 874 $ 400 $ 452(a) $ 822
------ ------ ------ ------
------ ------ ------ ------
-----------------------
(a) Accounts written off as uncollectible.
</TABLE>
S-1
<PAGE>
Exhibit 10.16
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
----------------------
This AMENDMENT NO. 1 is dated as of December 27, 1997 by and among
Anvil Holdings, Inc., a Delaware corporation (the "Company") and certain
Stockholders of the Company set forth on the signature pages attached hereto.
Capitalized terms used but not otherwise defined herein shall have the meaning
set forth in the Stockholders Agreement, dated as of March 14, 1997, among the
Company and the Stockholders (the "Agreement").
1. AMENDMENT. Pursuant to Section 13 of the Agreement, the
Agreement is hereby amended to replace the definition of "Family Group" with the
following definition:
"Family Group" means, with respect to an individual Stockholder
(i) such Stockholder's spouse, former spouse and descendants
(whether natural or adopted), parents and their descendants
(whether natural or adopted), and any descendant or spouse of the
foregoing individuals, (ii) any trust solely for the benefit of
any of the individuals listed in clause (i) above, and (iii) any
partnership, limited liability company or other legal entity
whose securityholders are comprised solely of the Stockholder
and/or any of the individuals listed in clause (i) above.
2. MISCELLANEOUS.
(a) COUNTERPARTS. This Amendment No. 1 may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
(B) GOVERNING LAW. THE CORPORATE LAW OF DELAWARE SHALL GOVERN ALL
ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL
OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of the date first above written.
ANVIL HOLDINGS, INC.
By:________________________________
Name:
Title:
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership
Its: General Partner
By:________________________________
Name:
Title:
399 VENTURE PARTNERS, INC.
By:________________________________
Name:
Title: Member
CCT PARTNERS II, L.P.
By: CCT Corporation I
Its: General Partner
By:________________________________
Name:
Title:
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT, ANVIL HOLDINGS, INC.
----------------------------------------------------
<TABLE>
<CAPTION>
NAME OF CORPORATION JURISDICTION OF INCORPORATION
------------------- -----------------------------
<S> <C>
Anvil Knitwear, Inc. Delaware
Anvil (Czech), Inc. Delaware
Anvil s.r.o. Czech Republic
Cottontops, Inc. North Carolina
A.K.H., S.A. Honduras
Livna, Limitada El Salvador
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANVIL
HOLDINGS' FINANCIAL STATEMENTS INCLUDED IN ITS 10-K FOR THE YEAR ENDED JANUARY
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 959
<SECURITIES> 0
<RECEIVABLES> 28,093
<ALLOWANCES> 822
<INVENTORY> 42,089
<CURRENT-ASSETS> 78,473
<PP&E> 56,179
<DEPRECIATION> 17,990
<TOTAL-ASSETS> 147,113
<CURRENT-LIABILITIES> 27,335
<BONDS> 126,445
31,392
0
<COMMON> 39
<OTHER-SE> (66,294)
<TOTAL-LIABILITY-AND-EQUITY> 147,113
<SALES> 214,867
<TOTAL-REVENUES> 214,867
<CGS> 167,491
<TOTAL-COSTS> 49,975
<OTHER-EXPENSES> 958
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 16,536
<INCOME-PRETAX> (3,557)
<INCOME-TAX> (1,423)
<INCOME-CONTINUING> (2,134)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,757)
<CHANGES> 0
<NET-INCOME> (4,891)
<EPS-PRIMARY> 11.25
<EPS-DILUTED> 11.25
</TABLE>
